<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from TO
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Commission file number 0-13281
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DIAGNON CORPORATION
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(Exact name of small business issuer as specified in its charter)
State of Delaware 13-3078199
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 Medical Center Drive, Rockville, Maryland 20850
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(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code (301) 251-2801
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months, and (2)
has been subject to such filing requirement for the past 90 days.
Yes X No
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Common Stock, $.01 par value per share; authorized 25,000,000 shares; 5,398,244
shares outstanding as of October 4, 1995.
Convertible Preferred Stock, $1.00 par value per share; authorized 325,000
shares; no shares outstanding as of October 4, 1995.
Transitional Small Business Disclosure Format (Check one): Yes No X
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DIAGNON CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
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<S> <C>
Item 1. Financial Statements.
Consolidated Balance Sheets, May 31, 1995 and
August 31, 1995 (Unaudited) . . . . . . . . . . . . . 2
Unaudited Statements of Consolidated Operations for
the Three Months Ended August 31, 1995 and
August 31, 1994 . . . . . . . . . . . . . . . . . . . 3
Unaudited Statements of Consolidated Cash Flows
for the Three Months Ended August 31, 1995 and
August 31, 1994 . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis . . . . . . . . . . . . . . . . 5
Part II. Other Information
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Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
<PAGE> 3
DIAGNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, MAY 31, 1995 AND AUGUST 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
ASSETS 1995 1995
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 56,970 $ 210,887
Accounts receivable:
Trade 939,444 873,358
Unbilled 1,137,275 728,046
Other 29,902 24,060
Prepaid expenses 144,577 70,513
Inventories 9,524
Deferred income taxes-current 43,800 43,800
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Total current assets 2,361,492 1,950,664
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LOANS TO OFFICERS 90,000 90,000
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FIXED ASSETS:
Leasehold improvements 532,379 532,379
Furniture, fixtures and equipment 2,238,859 2,084,466
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Total 2,771,238 2,616,845
Less accumulated depreciation
and amortization 1,722,127 1,650,812
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Fixed assets, net 1,049,111 966,033
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DEFERRED INCOME TAXES-NONCURRENT 780,800 799,400
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OTHER NONCURRENT ASSETS 103,217 130,770
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GOODWILL, NET OF ACCUMULATED
AMORTIZATION 1,135 1,702
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TOTAL $ 4,385,755 $ 3,938,569
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LIABILITIES
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CURRENT LIABILITIES:
Borrowings under line of credit $ 424,165
Current maturities of long-term debt 67,075 $ 83,075
Accounts payable 166,532 215,344
Accrued compensation and related costs 261,382 276,247
Accrued income taxes 1,702 302
Other accrued liabilities 80,671 9,393
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Total current liabilities 1,001,527 584,361
LONG-TERM DEBT 133,828 142,812
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Total liabilities 1,135,355 727,173
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STOCKHOLDERS' EQUITY
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Convertible preferred stock - par value of
$1.00 per share, 325,000 shares authorized;
no shares issued and outstanding
Common stock - par value of $.01 per share;
25,000,000 shares authorized; 9,602,452
shares issued; 5,398,244 shares outstanding 96,024 96,024
Additional paid-in capital 7,395,015 7,395,015
Accumulated deficit (3,613,282) (3,652,286)
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Total 3,877,757 3,838,753
Less - treasury stock 4,204,208 shares, at cost (627,357) (627,357)
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Total stockholders' equity 3,250,400 3,211,396
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TOTAL $ 4,385,755 $ 3,938,569
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</TABLE>
See notes to financial statements.
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<PAGE> 4
DIAGNON CORPORATION AND SUBSIDIARIES
UNAUDITED STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE
THREE MONTHS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1995 1994
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<S> <C> <C>
CONTRACT REVENUES $ 2,229,348 $ 2,482,977
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OPERATING EXPENSES:
Contract 1,720,861 1,963,450
General and administrative 440,238 422,447
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Total 2,161,099 2,385,897
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OPERATING INCOME 68,249 97,080
INTEREST INCOME 4,800 1,043
INTEREST EXPENSE (7,645) (4,313)
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INCOME BEFORE INCOME TAX 65,404 93,810
PROVISION FOR INCOME TAX 26,400 25,300
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NET INCOME $ 39,004 $ 68,510
============== ==============
INCOME PER SHARE $ 0.01 $ 0.01
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WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,398,244 5,398,244
============== ==============
</TABLE>
See notes to financial statements.
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<PAGE> 5
DIAGNON CORPORATION AND SUBSIDIARIES
UNAUDITED STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE
THREE MONTHS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
August 31, 1995 August 31, 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 39,004 $ 68,510
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Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 71,882 106,184
Deferred income taxes 18,600 18,200
Increase in accounts receivable (481,157) (121,603)
Increase in prepaid expenses (74,064) (149,353)
Increase in inventories (9,524)
Decrease in other assets 27,553
Increase in accounts payable and accrued expenses 7,601 39,939
Increase (decrease) in income taxes payable 1,400 (5,400)
Decrease in deferred income (37,105)
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Total Adjustments (437,709) (149,138)
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NET CASH USED FOR OPERATING ACTIVITIES (398,705) (80,628)
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CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (154,393) (97,608)
Decrease in loans to officers 3,000
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NET CASH USED FOR INVESTING ACTIVITIES (154,393) (94,608)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds under line-of-credit agreement 424,165 189,716
Principal payments under capital lease obligations (24,984) (14,057)
Other (350)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 399,181 175,309
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (153,917) 73
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 210,887 57,306
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 56,970 $ 57,379
==================== ====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 6,836 $ 4,478
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Income taxes $ 6,400 $ 15,000
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</TABLE>
See notes to financial statements.
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<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
Interim Financial Statements
In the opinion of management, all adjustments consisting only of normal
recurring accruals necessary for a fair presentation of such amounts have been
included. The results of operations for the quarter are not necessarily
indicative of results for the year.
Inventories
Inventories are stated at the lower of cost or market. Inventories at August
31, 1995 are comprised of the following:
<TABLE>
<S> <C>
Raw materials $ 1,395
Finished goods 8,129
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$ 9,524
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</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Summary Analysis
In this first quarter of fiscal year 1996, Diagnon realized net income of
$39,004.
On September 5, 1995, the Company's subsidiary, Enhanced Therapeutics, Inc.
(ET), repurchased 9,974 shares of its common stock at par value ($.001 per
share) from the sole minority shareholder making ET a wholly owned subsidiary
of Diagnon.
Results of Operations
For the three months of operations ended August 31, 1995 (the Company's first
quarter), Contract Revenues decreased by 10.2% compared to the prior year due
to decreased contract activity (two major contracts ended 5/31/95 and 6/30/95
respectively). Contract Operating Expenses decreased 12.4% primarily due to
decreased contract activity. Although contract activities decreased during
this quarter, General and Administrative Expenses (G&A) increased 4.2%. This
amount mainly reflects increased labor costs at the G&A level resulting from
annual salary increases and the addition of a full-time legal counsel. Total
Operating Expenses decreased 9.4%, primarily due to the expiration of the two
contracts mentioned above.
Operating Income decreased 29.7% compared to the prior year primarily due to
costs incurred associated with the production of Equine IgG which the Company
intends to market and sell during the first half of the next calendar year.
For this quarter, Diagnon had interest expense of $7,645 compared to interest
expense of $4,313 in the prior year. The increase is primarily attributable to
increased Borrowings Under Line-of-Credit (see Liquidity and Capital Resources
below) and capitalized leases at a higher interest rate.
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<PAGE> 7
Liquidity and Capital Resources
Assets
The changes in Cash and Cash Equivalents are detailed in the Statements of
Consolidated Cash Flows on page 4. Accounts Receivable has increased by
$481,157 consisting mainly of 1) an increase of $409,229 to Unbilled Accounts
Receivable representing increases in reimbursable indirect rate variances of
$185,719 and unbilled accrued direct costs of $223,510 to be billed in
September 1995, 2) a $66,086 increase to Trade Receivables reflecting a slower
than normal collections rate when compared to the prior fiscal year end and 3)
a $5,842 increase to a receivable from ZooQuest Technologies LTD. Prepaid
Expenses increased by $74,064 primarily due to the prepayment of $9,896 in life
insurance premiums, $29,277 in business insurance premiums, $40,719 in real
estate and personal property taxes offset by a $6,819 decrease in employee
salary advances. An increase in Fixed Assets, net of Accumulated Depreciation
and Amortization of $83,078 reflects an increase in fixed asset purchases of
$154,393 (mainly nonhuman primate housing units) offset by depreciation and
amortization of $71,315 during this quarter.
Deferred Income Taxes decreased by $18,600 primarily as a result of utilizing a
portion of the federal income tax loss carryforward during this quarter. Other
Noncurrent Assets decreased $27,553 as the net result of the completion of a
nonhuman primate housing unit order from the previous fiscal year ($52,553) and
a $25,000 deposit on a new order of eight units during this quarter.
Liabilities
In the first three months of operations, Total Liabilities has increased
$408,182. This increase is primarily attributable to an increase to Borrowings
Under Line-of-Credit of $424,165 reflecting the increases in Prepaid Expenses,
Unbilled Accounts Receivable and Fixed Asset purchases stated above and an
increase in Other Accrued Liabilities of $71,278 reflecting the accrual of
$16,000 of utilities expenses and $54,800 of real estate and personal property
taxes at August 31, 1995.
The increase above is partially offset by 1) a decrease in Accounts Payable of
$48,812 primarily due to the decreased contract activity, and 2) payments
totalling $24,984 on capital leases reducing Long-Term Debt.
The Company believes it has sufficient cash and financing sources to provide
for its ongoing operations and the Company continues to believe that the impact
of inflation, or the absence of it, will have no significant effect on its
operations.
PART II. Other Information
Item 1. LEGAL PROCEEDINGS
None.
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<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIAGNON CORPORATION
DATE October 6, 1995 /s/ John C. Landon, Ph.D.
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Chairman of the Board,
President and Chief Executive
Officer
DATE October 6, 1995 /s/ Michael P. O'Flaherty
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Chief Operating Officer and
Secretary
DATE October 6, 1995 /s/ David A. Newcomer
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Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> AUG-31-1995
<CASH> 56,970
<SECURITIES> 0
<RECEIVABLES> 2,106,621
<ALLOWANCES> 0
<INVENTORY> 9,524
<CURRENT-ASSETS> 2,361,492
<PP&E> 2,771,238
<DEPRECIATION> 1,722,127
<TOTAL-ASSETS> 4,385,755
<CURRENT-LIABILITIES> 1,001,527
<BONDS> 0
<COMMON> 96,024
0
0
<OTHER-SE> 3,154,376
<TOTAL-LIABILITY-AND-EQUITY> 4,385,755
<SALES> 0
<TOTAL-REVENUES> 2,229,348
<CGS> 0
<TOTAL-COSTS> 2,161,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,645
<INCOME-PRETAX> 65,404
<INCOME-TAX> 26,400
<INCOME-CONTINUING> 39,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,004
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
