FORM 10-Q
Securities and Exchange Commission
Washington, D. C. 20549
(Mark One)
X Quarterly Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended: August 31, 1999
OR
_ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-14820
IMMUCOR, INC.
(Exact name of registrant as specified in its charter)
Georgia 22-2408354
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3130 Gateway Drive P.O. Box 5625 Norcross,
Georgia 30091-5625 (Address of
principal executive offices) (Zip
Code)
Registrant's telephone number: (770) 441-2051
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.
As of October 1, 1999: Common Stock, $. 10 Par Value - 7,718,606
<PAGE>
IMMUCOR, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
August 31, 1999 May 31, 1999
ASSETS (Unaudited) (Audited)
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,983,314 $ 2,793,592
Accounts receivable, net 20,846,263 21,573,846
Accounts receivable from former officer and director - 140,946
Inventories 17,166,090 16,065,190
Income taxes receivable 355,642 553,451
Deferred income taxes 915,234 907,530
Prepaid expenses and other 1,248,491 1,587,817
--------------- ---------------
Total current assets 44,515,034 43,622,372
Long-term investment, at cost 1,000,000 1,000,000
Property and equipment, at cost 20,776,718 20,195,158
less accumulated depreciation (5,810,522) (5,068,996)
--------------- ---------------
14,966,196 15,126,162
Deferred income taxes 1,271,370 1,108,279
Other assets, net 2,788,156 2,934,409
Deferred licensing costs, net 2,483,489 2,307,837
Excess of cost over net tangible assets acquired, net 33,341,137 33,634,458
--------------- ---------------
$ 100,365,382 $ 99,733,517
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of borrowings under bank line of credit agreements $ 1,125,518 $ 1,619,312
Current portion of long-term debt 4,111,313 5,000,062
Note payable to related party 1,617,739 1,637,495
Current portion of capital lease obligations 194,476 194,476
Accounts payable 8,005,810 10,039,489
Income taxes payable 191,498 27,739
Accrued salaries and wages 1,065,043 1,125,216
Deferred income taxes 118,280 118,280
Other accrued liabilities 2,724,413 2,719,496
--------------- ---------------
Total current liabilities 19,154,090 22,481,565
Long-term debt, including borrowings under bank line of credit agreements 31,183,647 30,747,855
Capital lease obligations 884,843 800,117
Deferred income taxes 3,079,093 3,024,550
Other liabilities 2,619,000 2,626,763
Shareholders' equity:
Common stock, $.10 par value 770,441 748,841
Additional paid-in capital 18,706,767 16,945,885
Retained earnings 26,717,867 25,498,721
Accumulated other comprehensive loss (2,750,366) (3,140,780)
--------------- ---------------
Total shareholders' equity 43,444,709 40,052,667
--------------- ---------------
$ 100,365,382 $ 99,733,517
=============== ===============
</TABLE>
See accompanying notes.
<PAGE>
IMMUCOR, INC.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
August 31, August 31,
1999 1998
--------------- ---------------
Net sales $18,929,967 $ 10,358,465
Cost of sales 8,954,427 4,652,683
--------------- ---------------
Gross profit 9,975,540 5,705,782
Research and development 358,688 290,027
Selling and marketing 3,007,097 1,947,747
Distribution 1,535,270 562,951
General and administrative 2,352,764 1,700,490
Merger-related expenses 28,214 -
Amortization expense 460,900 142,136
--------------- ---------------
Total operating expenses 7,742,933 4,643,351
--------------- ---------------
Income from operations 2,232,607 1,062,431
Interest income 4,517 175,032
Interest expense (649,334) (134,087)
Other income 90,054 7,415
--------------- ---------------
Total other (554,763) 48,360
--------------- ---------------
Income before income taxes 1,677,844 1,110,791
Income taxes 458,698 482,780
--------------- ---------------
Net income $ 1,219,146 $ 628,011
=============== ===============
Earnings per share:
Basic $ 0.16 $ 0.08
=============== ===============
Diluted $ 0.14 $ 0.08
=============== ===============
Weighted average shares outstanding:
Basic 7,604,991 8,002,063
=============== ===============
Diluted 8,756,946 8,283,567
=============== ===============
See accompanying notes.
<PAGE>
IMMUCOR, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
August 31, August 31,
1999 1998
--------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $1,219,146 $628,011
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 535,372 368,121
Amortization 460,900 142,136
Changes in assets and liabilities:
Accounts receivable 727,583 (241,635)
Accounts receivable from former officer and director 140,946 558,678
Income tax receivable 190,350 54,087
Inventories (1,100,900) 85,838
Other current assets 373,813 (479,273)
Accounts payable (2,033,679) 769,584
Income taxes payable 153,061 (36,297)
Other current liabilities (55,627) (114,918)
--------------- ----------------
Cash provided by operating activities 610,965 1,734,332
INVESTING ACTIVITIES:
Purchase of / deposits on property and equipment (339,225) (1,238,335)
Cash paid for acquisitions (112,913) -
Acquisition-related severance (88,961) -
Decrease in other assets (261,131) -
--------------- ----------------
Cash used in investing activities (802,230) (1,238,335)
FINANCING ACTIVITIES:
Repayment of notes payable (883,735) (564,041)
Exercise of stock options and warrants 1,782,482 1,231,444
Purchase and retirement of stock (478,700 shares) - (4,238,366)
--------------- ----------------
Cash provided by (used in) financing activities 898,747 (3,570,963)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 482,240 (41,096)
--------------- ----------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1,189,722 (3,116,062)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,793,592 15,816,217
--------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,983,314 $12,700,155
=============== ================
</TABLE>
See accompanying notes.
<PAGE>
IMMUCOR, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, there has been no material change in the
information disclosed in the Company's annual financial statements dated May 31,
1999, except as disclosed herein. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended August 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending May 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended May 31, 1999.
2. INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or market:
As of As of
August 31, 1999 May 31, 1999
------------------- ------------------
Raw materials and supplies $ 4,147,425 $3,856,309
Work in process 851,445 967,889
Finished goods 12,167,220 11,240,992
=================== ==================
$17,166,090 $16,065,190
=================== ==================
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share in accordance with Statement of Financial Accounting Standards No. 128,
Earnings per Share.
Three Months Ended
August 31, August 31,
1999 1998
-------------- -------------
Numerator for basic and diluted earnings per share:
Income available to common shareholders $1,219,146 $ 628,011
============== =============
Denominator:
For basic earnings per share - weighted
average basis 7,604,991 8,002,063
Effect of dilutive stock options and warrants 1,151,955 281,504
------------- -------------
Denominator for diluted earnings per share -
adjusted weighted-average shares 8,756,946 8,283,567
============= ===============
Basic earnings per share $0.16 $0.08
============= ===============
Diluted earnings per share $0.14 $0.08
============= ===============
<PAGE>
4. DOMESTIC AND FOREIGN OPERATIONS
Information concerning the Company's domestic and foreign operations is
summarized below (in 000s):
<TABLE>
<CAPTION>
Three Months Ended August 31, 1999
----------------------------------------------------------------------------------------------------
U.S. Germany Italy Canada Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Unaffiliated $12,235 $2,118 $1,668 $1,082 $1,827 $18,930
customers $ -
Affiliates 1,521 101 - 72 380 (2,074) -
---------- ---------- ---------- ---------- --------- ------------ --------------
Total 13,756 2,219 1,668 1,154 2,207 (2,074) 18,930
Income from operations 1,633 226 162 267 (47) (8) 2,233
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended August 31, 1998
----------------------------------------------------------------------------------------------------
U.S. Germany Italy Canada Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Net sales:
Unaffiliated $4,949 $2,422 $1,514 $1,186 $287 $10,358
customers $ -
Affiliates 976 89 - 68 - (1,133) -
---------- ---------- ---------- ---------- --------- ------------ --------------
Total 5,925 2,511 1,514 1,254 287 (1,133) 10,358
Income from operations 262 360 122 339 13 (34) 1,062
</TABLE>
During the three months ended August 31, 1999 and 1998, the Company's U.S.
operation made net export sales to unaffiliated customers of approximately
$1,748,000 and $831,000, respectively. The Company's German operation made net
export sales to unaffiliated customers of $250,000 and $288,000 for the three
months ended August 31, 1999 and 1998, respectively. The Company's Canadian
operation made export net sales to unaffiliated customers of $531,000 and
$811,000 for the three months ended August 31, 1999 and 1998, respectively.
Product sales to affiliates are valued at market prices.
5. COMPREHENSIVE INCOME
The components of comprehensive income for the three month periods ended August
31, 1999 and 1998 are as follows:
Three Months Ended
August 31, August 31,
1999 1998
---------------- ----------------
Net income $ 1,219,146 $ 628,011
Net foreign currency translation 390,414 (53,687)
---------------- ----------------
Comprehensive income $ 1,609,560 $ 574,324
================ ================
Accumulated comprehensive loss as of August 31, 1999 and May 31, 1999 was
($2,750,366) and ($3,140,780), respectively. The balance consists of net losses
on foreign currency translation adjustments and has been disclosed in the
shareholders' equity section of the condensed consolidated balance sheet.
<PAGE>
6. ACCOUNTS RECEIVABLE FROM FORMER OFFICER AND DIRECTOR
In fiscal 1997, Mr. Josef Wilms, the former president of the Company's German
subsidiary, Immucor GmbH, borrowed, prior to his resignation, $300,000 from the
Company at 6% interest, secured by his warrants to purchase 143,750 shares of
the Company's Common Stock. At May 31, 1998 the amount outstanding under the
loan was $167,000, and as of July 14, 1998 the loan including accrued interest
was fully paid.
In July 1997, management of the Company discovered that Mr. Wilms had caused
Immucor GmbH to make unauthorized loans to him since 1994. The amounts advanced
were documented in the records of Immucor GmbH, including interest rates ranging
from 7.75% to 9.5%, and were generally paid down by the end of each accounting
period, but were not disclosed to the Company's management. The largest
aggregate amounts outstanding under the Immucor GmbH loans were $29,600 in
fiscal 1994, $290,000 in fiscal 1995, $669,000 in fiscal 1996, $1,311,000 in
fiscal 1997 and $528,000 in fiscal 1998. At May 31, 1999 the amount receivable
was approximately $141,000 and at August 31, 1999 the loan including accrued
interest was fully paid.
As of August 9, 1999 the entire unauthorized loan balance owed to the Company by
Mr. Wilms, plus accrued interest and amounts of incidental collection expenses
allowable under German law, had been paid to the Company. In addition, Mr. Wilms
agreed to pay and has paid an amount equal to Immucor's outstanding trade
receivable totaling approximately $320,000 from Diag Human, a company Mr. Wilms
owed monies to, on behalf of Diag Human. The remaining collateral has been
released to Mr. Wilms.
Mr. Wilms has had no continuing employment or consulting relationships with
Immucor, Inc. or Immucor GmbH since December 31, 1997.
7. CONTINGENCIES
When the Company acquired Gamma Biologicals, Inc. ("Gamma Biologicals") in
October 1998, Gamma Biologicals was a party to an existing legal proceeding. On
May 12, 1998, Gamma Biologicals received notification that a claim of patent
infringement had been filed on that date in U.S. District Court, Southern
District of Florida, Miami Division, by Micro Typing Systems, Inc. and Stiftung
fur Diagnostiche Forschung (the Foundation). Subsequently, in February 1999 the
Company received notification that a second claim was filed in the U.S. District
Court for the Northern District of Georgia, against Immucor, Inc. and Gamma
Biologicals for patent infringement on the first patent described above and a
second patent recently granted to the Foundation. The claim alleges that the
recently introduced Gamma ReACT Test System infringes U.S. patent No. 5,512,432
granted to the Foundation April 30, 1996 and U.S. patent No. 5,863,802 granted
to the Foundation on January 26, 1999. The plaintiffs seek a preliminary and
permanent injunction against the continued alleged infringement by Gamma
Biologicals and Immucor, and an award of treble damages, with interest and costs
and reasonable attorney's fees. Management is confident that ReACT technology
does not infringe the Foundation's patents; however, an unfavorable outcome in
this action could have a material adverse effect upon the business and the
results of operations in a given reporting period. Since this matter is in the
earliest stage of proceedings and due to uncertainties involved in litigation,
management cannot predict the likelihood of a particular outcome. Management
believes it has a meritorious defense against the alleged infringement.
<PAGE>
IMMUCOR, INC.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Any statements contained herein that are not historical fact are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve risks and uncertainties. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. Further risks are
detailed in the Company's filings with the Securities and Exchange Commission,
including those set forth in its Annual Report on Form 10-K for the fiscal year
ended May 31, 1999.
Financial Condition and Liquidity:
During the quarter the Company increased its profitability, generated
positive cash flow from operations, and maintained positive working capital. As
of August 31, 1999, the Company's cash position totaled $3,983,000. For the
three months ended August 31, 1999, the Company generated cash from operating
activities of $611,000, repaid $884,000 of bank debt in France, Belgium and the
U.S. and purchased property and equipment of $339,000. The exercise of
approximately 216,000 stock options and warrants provided $1,782,000 in cash.
Management believes that the Company's current cash and cash equivalents
balance, internally generated funds, and amounts available under the lines of
credit should be more than sufficient to support operations to support planned
product introduction and continued improvement and development of products
during the next 12 months. Management also believes additional credit lines
would be available should the need arise for capital improvements, acquisitions
or other corporate purposes.
Results of Operations:
Net sales
Net sales for the three months ended August 31, 1999 totaled $18,930,000, an
increase of $8,572,000 (83%) over last year's $10,358,000. Current year three
month results included $5,052,000 in net sales from Gamma Biologicals acquired
on October 27, 1998 and $676,000 in net sales from Medichim and Immunochim
acquired on March 15, 1999. The remaining increase in sales was generated in the
U.S. and was primarily due to instrumentation sales. The Company generated
instrument revenues of $1,900,000 for the quarter compared to $200,000 for the
same period last year. Sales by the Company's Italian, Spanish and Portugal
subsidiaries combined increased 24% over last year's total which offset the
decrease in sales at the Company's German and Canadian subsidiaries of 13% and
10%, respectively.
Gross profit
As a percent of sales, gross profit for the three months ended August 31,
1999 totaled 52.7% versus 55.1% for the same period in 1998. The decrease in
gross profit margin was primarily caused by increased instrument sales at lower
gross margins and the sales increase due to prior year acquisitions which are at
lower gross profit margins than Immucor's product lines.
Operating expenses
When compared to the prior year, three month period ended August 31, 1999
research and development costs increased $69,000 with $53,000 additional
research expense resulting from the acquisition of Gamma Biologicals.
Selling and marketing expenses for the three month period increased
$1,059,000 as compared to the same period last year. Approximately $536,000 of
the increase was due to the inclusion of prior year acquisitions of Gamma
Biologicals and Medichim and Immunochim. The remainder of the increase is
primarily due to the effect of higher payroll expense due to additional
personnel required for the Company's instrumentation strategy and expansion of
its Spanish operation.
Distribution expenses increased $972,000 for the three month period of which
prior year acquisitions account for $604,000 for the quarter. The remaining
increase relates to increased shipping activity.
General and administrative expenses for the three month period increased
$652,000 with additional expenses of $188,000 for three months resulting from
the purchase of Gamma Biologicals and Medichim and Immunochim and the remainder
due to higher expenses as we expand operations worldwide.
Merger-related expenses are one-time expenses related to the Gamma
Biologicals and BCA acquisitions.
Amortization expense for the three months ended August 31, 1999 increased
$319,000 due to goodwill recorded in the acquisitions of Gamma Biologicals on
October 27, 1998, Medichim and Immunochim on March 15, 1999 and BCA, a division
of Biopool, on April 30, 1999.
Interest income
Interest income decreased $171,000 for the quarter due to lower cash
balances as compared to last year caused by the purchase of treasury stock and
the purchase of Gamma Biologicals which was partially funded by the use of the
Company's cash.
Interest expense
When compared to the prior year three month period, interest expense
increased $515,000. This is a result of the purchase of Gamma Biologicals which
was primarily financed with the proceeds of a bank loan.
Other income
Other income increased for the three month period as compared to the prior
year due to foreign currency transaction gains in the current period versus
losses in the same period last year.
Income taxes
Income tax expense as a percent of pretax income, decreased during the three
month period ended August 31, 1999 due to lower taxes provided in Germany and
the United States as compared to the prior period as a result of the Company's
ongoing implementation of tax planning strategies.
<PAGE>
Year 2000
The Company is aware of the issues that many companies will face as
the year 2000 approaches. In order to become year 2000 compliant, the Company
has set up a project team to address the issue and has taken the following
steps:
Impact Assessment - Instances where electronics are used in the Company
and the associated potential risks have been identified. The Company believes
that non-information technology systems and its products are not significantly
impacted. However, internal business information software is affected and will
require program changes in order to become year 2000 compliant.
Third Party Impact Assessment - The Company has substantially completed
the verification of the readiness of its significant suppliers and customers
through the distribution of a questionnaire. Although this process is not
complete, based on information available, the Company has no reason to believe
that any year 2000 problems encountered by customers and suppliers will have a
significant effect on the Company's operations. The Company estimates that this
assessment will be completed by November 1999.
Project Plan - Based on the impact assessment, the need to make
software program changes to the Company's internal business information software
has been identified. In Europe, minor software program changes to existing
systems are being made at a nominal cost making them year 2000 compliant before
December 1999. In North America, the Company had planned to complete
implementation of a year 2000 compliant enterprise wide internal business
information software system by December 31, 1999. The Company is continuing to
implement the system but has decided to reschedule the operational date of the
new enterprise wide internal business information software system for February
2000. Therefore, the Company's initial contingency plan is now in effect under
which changes to the existing internal business software are being made to make
it year 2000 compliant and should be completed by November 1999 at a cost of
approximately $20,000 which is being expensed as incurred. The Company is
monitoring progress closely.
Contingency Plan - The risk the Company faces is that program
modifications making the existing internal business software year 2000 compliant
would not be completed by December 31, 1999. The Company is uncertain what the
costs associated with a delay would be or the related impact on operations,
liquidity and financial condition. Because of this, the Company has in place a
contingency plan that would allow it to continue daily business until program
modifications were complete.
The Company believes that it is diligently addressing the year 2000
issue and expects that through its actions year 2000 problems are not reasonably
likely to have a material adverse effect on the Company's operations. There can
be no assurance that such problems will not arise.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes regarding the Company's market risk position
from the information provided in its Annual Report on Form 10-K for the fiscal
year ended May 31, 1999. The quantitative and qualitative disclosures about
market risk are discussed in Item 7A- Quantitative and Qualitative Disclosures
About Market Risk, contained in the Company's Form 10-K.
<PAGE>
PART 11 - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The Company has filed the following exhibits with this report:
27 Financial data schedule.
(b) The Company did not file any reports on Form 8-K during the three
months ended August 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMMUCOR, INC.
(Registrant)
Date: October 15, 1999
/s/ Edward L. Gallup Edward L. Gallup, President
- ----------------------
/s/ Steven C. Ramsey Steven C. Ramsey, Senior Vice President - Finance
- ---------------------- (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> AUG-31-1999
<CASH> 3983314
<SECURITIES> 0
<RECEIVABLES> 20846263
<ALLOWANCES> 0
<INVENTORY> 17166090
<CURRENT-ASSETS> 44515034
<PP&E> 20776718
<DEPRECIATION> 5810522
<TOTAL-ASSETS> 100365382
<CURRENT-LIABILITIES> 19154090
<BONDS> 32068490
0
0
<COMMON> 770441
<OTHER-SE> 45424634
<TOTAL-LIABILITY-AND-EQUITY> 100365382
<SALES> 18929967
<TOTAL-REVENUES> 18929967
<CGS> 8954427
<TOTAL-COSTS> 8954427
<OTHER-EXPENSES> 7742933
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 649334
<INCOME-PRETAX> 1677844
<INCOME-TAX> 458698
<INCOME-CONTINUING> 1219146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1219146
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.14
</TABLE>
