FORM 8-K/A
Securities and Exchange Commission
Washington, D. C. 20549
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 27, 1998
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
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As previously reported under Item 2 in Immucor, Inc.'s ("Immucor") Current
Report on Form 8-K dated as of October 27, 1998, pursuant to a definitive merger
agreement dated September 21, 1998, Immucor, through a newly formed subsidiary
("Gamma Acquisition Corporation"), acquired 94.3% of the issued and outstanding
shares of Gamma Biologicals, Inc. ("Gamma Biologicals"). Immucor purchased the
shares from Gamma shareholders ("Shareholders") for a cash tender offer of $5.40
per share for a total transaction value of $24,322,753 ("Purchase Price"),
subject to certain adjustments. According to the depository for the offer,
4,361,110 shares were tendered pursuant to the offer (including approximately
20,956 shares subject to guarantees of delivery) and Immucor purchased all
shares tendered. The Purchase Price was determined through arm's length
negotiations and $5,000,000 of the Purchase Price was paid in cash and the
remaining $19,322,753 of the Purchase Price was funded by a $20,000,000 loan
from Wachovia Bank of Georgia, N.A., a U.S.
commercial bank, to Gamma Acquisition Corporation.
Immucor effected the merger of Gamma Acquisition Corporation into Gamma
Biologicals on October 30, 1998. In the merger, each remaining outstanding share
of Gamma Biologicals was converted into the right to receive $5.40 net in cash
and Gamma Biologicals became a majority-owned subsidiary of Immucor.
Located in Houston, Texas, Gamma Biologicals manufactures and sells a wide
variety of in-vitro diagnostic reagents to blood donation centers, transfusion
departments of hospitals, medical laboratories and research institutions through
a direct sales force and distributor network. Immucor will operate Gamma
Biologicals as a wholly-owned subsidiary and intends to continue to use the
equipment and other physical property obtained in the Acquisition in the
blood-banking business. Gamma Biologicals' annual sales volume is approximately
$18,000,000. Prior to the Closing Date, none of the Shareholders had a material
relationship with Immucor or its affiliates or any director or officer of
Immucor or any associate of any Immucor director or officer.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS.
On October 27, 1998, Immucor acquired Gamma Biologicals and reported
the acquisition on a Form 8-K dated October 27, 1998 and filed November 10,
1998. At the time of filing , Immucor determined that the inclusion of the
required interim financial statements, including pro forma information, was
impracticable. Under the requirements of Form 8-K, Item 7(a)(4) and Item
7(b)(2), Immucor has 60 days from the filing date of the Form 8-K to file
amended interim financial information, including pro forma information. This
amendment provides the financial information and the pro forma financial
information required by Regulation S-X.
The following financial statements are filed as part of this amendment
to the Form 8-K:
(a) Financial Statements of the Acquired Business
Attached as Exhibit 99.2 to this Current Report on Form 8-K/A are the audited
balance sheets of Gamma Biologicals as of March 31, 1998 and 1997, respectively,
and the related audited statements of income, shareholders' equity, and cash
flows for the years ended March 31, 1998 and 1997, respectively, and
accompanying notes. Attached as Exhibit 99.3 to this Current Report on Form
8-K/A are the unaudited and audited balance sheets of Gamma Biologicals as of
June 30, 1998 and March 31, 1998, respectively, and the related unaudited
statements of income, shareholders' equity, and cash flows for the three month
periods ended June 30, 1998 and 1997, respectively, and accompanying notes.
<PAGE>
(b) Pro Forma Financial Information
Attached as Exhibit 99.4 to this Current Report on Form 8-K/A are the unaudited
pro forma consolidated statements of income for the year ended May 31, 1998 and
the three month period ended August 31, 1998 and the unaudited pro forma
combined balance sheet as of August 31, 1998 and accompanying notes.
(c) Exhibits
Exhibit Number Description
99.1 Agreement and Plan of Merger dated as of September 21, 1998,
among Immucor, Gamma Acquisition Corporation, and Gamma
Biologicals (incorporated herein by reference to Exhibit (c)(1)
to Immucor's Schedule 14D-1 Tender Offer Statement filed
September 25, 1998 pursuant to Section 14 (D)(1) of the
Securities Exchange Act of 1934).
99.2 Audited balance sheets of Gamma Biologicals as of March 31, 1998
and 1997, respectively, and the related audited statements of
income, shareholders' equity, and cash flows for the years ended
March 31, 1998 and 1997, respectively, and accompanying notes.
99.3 Unaudited and audited balance sheets of Gamma Biologicals as of
June 30, 1998 and March 31, 1998, respectively, and the related
unaudited statements of income, shareholders' equity, and cash
flows for the three months ended June 30, 1998 and 1997,
respectively, and accompanying notes.
99.4 Unaudited pro forma financial statements and accompanying notes
for Immucor and Gamma Biologicals combined.
<PAGE>
EXHIBIT 99.2
Statements of Consolidated Income
<TABLE>
Year ended March 31, 1998 1997 1996
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 18,253,763 $ 17,554,502 $ 16,940,588
Cost of sales 8,396,753 7,857,815 7,825,828
- - -----------------------------------------------------------------------------------------------
Gross margin 9,857,010 9,696,687 9,114,760
- - -----------------------------------------------------------------------------------------------
Operating expenses:
Selling 4,447,107 3,792,115 3,530,721
General and administrative 2,654,985 2,122,075 2,468,584
Shipping and warehouse 854,190 756,848 867,209
Research and development 1,246,754 1,449,394 1,349,272
- - -----------------------------------------------------------------------------------------------
Total operating expenses 9,203,036 8,120,432 8,215,786
- - -----------------------------------------------------------------------------------------------
Operating income 653,974 1,576,255 898,974
- - -----------------------------------------------------------------------------------------------
Unusual item: Adjustment
to carrying value of facility
related to insurance recoveries 1,154,359
Other income (expense):
Interest income 195,544 204,554 262,228
Interest expense (37,430) (48,449) (48,350)
Other income (expense) (50,431) (9,623) 19,578
- - -----------------------------------------------------------------------------------------------
Other income (expense) - net 107,683 146,482 233,456
- - -----------------------------------------------------------------------------------------------
Income before income taxes 1,916,016 1,722,737 1,132,430
Income taxes 606,400 606,917 308,900
- - -----------------------------------------------------------------------------------------------
Net income $ 1,309,616 $ 1,115,820 $ 823,530
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding assuming dilution 4,697,694 4,607,518 4,608,771
- - -----------------------------------------------------------------------------------------------
Net income per common share - basic $ .28 $ .24 $ .18
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
Net income per common share - diluted $ .28 $ .24 $ .18
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-1-
<PAGE>
Consolidated Balance Sheets
<TABLE>
March 31, 1998 1997
- - --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,416,768 $ 3,618,970
Short-term investments 100,000 100,000
Receivables - net of allowance for doubtful
accounts: 1998 - $118,000; 1997 - $105,505 4,489,387 3,524,585
Inventories 3,969,444 3,658,642
Prepaid expenses 918,333 515,660
Deferred taxes 85,100 73,400
- - --------------------------------------------------------------------------------
Total current assets 10,979,032 11,491,257
- - --------------------------------------------------------------------------------
Property:
Land 284,147 284,147
Building and improvements 7,291,220 6,091,377
Machinery and equipment 6,449,950 5,261,132
Furniture and fixtures 596,586 599,056
- - --------------------------------------------------------------------------------
Total 14,621,903 12,235,712
Less accumulated depreciation and amortization 6,297,958 6,241,338
- - --------------------------------------------------------------------------------
Property - net 8,323,945 5,994,374
- - --------------------------------------------------------------------------------
Cash value of life insurance 2,026,250 1,858,672
Excess of cost over net assets acquired - net 108,645 139,686
Other 695,368 385,538
- - --------------------------------------------------------------------------------
Total assets $22,133,240 $19,869,527
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term obligations $ 226,835 $ 127,761
Accounts payable - trade 1,226,771 786,214
Dividends payable 115,270 115,077
Accrued salaries and other expenses 288,455 294,748
- - --------------------------------------------------------------------------------
Total current liabilities 1,857,331 1,323,800
- - --------------------------------------------------------------------------------
Long-term obligations 851,240 345,120
- - --------------------------------------------------------------------------------
Deferred taxes 918,200 535,700
- - --------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock - $10.00 par value; 1,000,000 shares
authorized; none outstanding
Common stock - $.10 par value; 25,000,000 shares
authorized; outstanding: 1998 - 4,776,115 shares;
1997 - 4,762,615 shares 477,611 476,261
Capital in excess of par value 13,711,791 13,674,209
Retained earnings 5,493,805 4,644,801
Accumulated translation adjustment (25,268) (10,456)
Treasury stock at cost: 1998 - 165,353 shares;
1997 - 159,563 shares (1,151,470) (1,119,908)
- --------------------------------------------------------------------------------
Total shareholders' equity 18,506,469 17,664,907
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $22,133,240 $19,869,527
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
Statements of Changes in Shareholders' Equity
<TABLE>
Year ended March 31, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Common Stock
Balance, beginning of year 4,762,615 $476,261 4,711,365 $471,136 4,700,303 $470,030
Acquisition of wholly
owned subsidiary 50,000 5,000
Exercise of stock options 13,500 1,350 1,250 125 11,062 1,106
- - -----------------------------------------------------------------------------------------------------------------------
Balance, end of year 4,776,115 477,611 4,762,615 476,261 4,711,365 471,136
- - -----------------------------------------------------------------------------------------------------------------------
Capital in Excess
of Par Value
Balance, beginning of year 13,674,209 13,512,836 13,482,615
Acquisition of wholly
owned subsidiary 157,500
Exercise of stock options 37,582 3,873 30,221
- - -----------------------------------------------------------------------------------------------------------------------
Balance, end of year 13,711,791 13,674,209 13,512,836
- - -----------------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year 4,644,801 3,988,022 3,619,289
Net income 1,309,616 1,115,820 823,530
Dividends declared (460,612) (459,041) (454,797)
- - -----------------------------------------------------------------------------------------------------------------------
Balance, end of year 5,493,805 4,644,801 3,988,022
- - -----------------------------------------------------------------------------------------------------------------------
Translation Adjustments
Balance, beginning of year (10,456)
Current year translation
adjustments (14,812) (10,456)
- - -----------------------------------------------------------------------------------------------------------------------
Balance, end of year (25,268) (10,456)
- - -----------------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance, beginning of year (159,563) (1,119,908) (159,563) (1,119,908) (159,169) (1,118,258)
Purchase of treasury stock (5,790) (31,562) (394) (1,650)
- - -----------------------------------------------------------------------------------------------------------------------
Balance, end of year (165,353) (1,151,470) (159,563) (1,119,908) (159,563) (1,119,908)
- - -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,610,762 $18,506,469 4,603,052 $17,664,907 4,551,802 $16,852,086
- - -----------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
Statements of Consolidated Cash Flows
<TABLE>
Year ended March 31, 1998 1997 1996
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Cash received from customers $ 18,246,883 $ 17,916,399 $ 17,454,501
Interest received 190,916 204,315 149,118
Cash paid to suppliers and employees (17,902,748) (15,722,474) (15,060,164)
Interest paid (37,430) (48,444) (48,350)
Income taxes paid (470,228) (302,680) (343,000)
- - -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 27,393 2,047,116 2,152,105
- - -----------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Property additions (2,853,738) (1,609,727) (1,668,145)
Purchase of investments (892,709)
Investment in subsidiary 142,659
Increase in cash value of life insurance (167,578) (128,898) (197,776)
Proceeds from:
Investments 4,909 4,786 3,093,608
Assets disposed of 1,379,359 50 38,618
- - -----------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (1,637,048) (1,591,130) 373,596
- - -----------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Payments on long-term obligations (128,758) (96,199) (172,324)
Exercise of stock options 38,932 3,998 31,327
Dividends paid (460,421) (457,760) (454,529)
Purchase of treasury stock (31,562) (1,650)
- - -----------------------------------------------------------------------------------------------
Net cash used in financing activities (581,809) (549,961) (597,176)
- - -----------------------------------------------------------------------------------------------
Effect of exchange rate fluctuation on cash (10,738) (11,434)
Net (decrease) increase in cash (2,202,202) (105,409) 1,928,525
Cash and cash equivalents at beginning of period 3,618,970 3,724,379 1,795,854
- - -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,416,768 $ 3,618,970 $ 3,724,379
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
Reconciliation of Net Income to Net Cash
provided by Operating Activities
Net income $ 1,309,616 $ 1,115,820 $ 823,530
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 1,026,506 822,368 650,471
Amortization of intangibles 38,817 15,521
(Gain) loss on disposal of fixed assets (1,141,181) 3,312 148
Gain on sale of investments (4,628) (239) (206,718)
Deferred taxes 361,900 295,600 28,500
Net effect of changes in operating accounts (1,563,637) (205,266) 856,174
- - -----------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 27,393 $ 2,047,116 $ 2,152,105
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Business
The company manufactures and sells a wide variety of highly refined and
specialized testing products known as in-vitro diagnostic reagents. The company
operates in one industry segment and two geographic areas, the United States and
Europe. Customers include numerous hospitals, blood collection centers, medical
laboratories and research institutions in more than 50 countries. The company
does not have a concentration of credit risk due to its large customer base.
Consolidation
The consolidated financial statements include the accounts of Gamma Biologicals,
Inc. and all subsidiaries (the company). All significant intercompany items have
been eliminated in consolidation.
Translation of Foreign Currencies
All assets and liabilities in the balance sheet of the company's foreign
subsidiary are translated at year-end exchange rates. Translation gains and
losses are not included in determining net income but are accumulated in a
separate component of shareholders' equity.
Inventories
Inventories are valued at the lower of cost or market value.
Property and Depreciation
Property, including improvements, is stated at cost, including interest charges
incurred during construction. Expenditures for maintenance and repairs are
charged to operations as incurred. Costs of assets sold or retired and the
related amounts of accumulated depreciation are eliminated from the accounts,
and the resulting gains or losses are recognized in current operations.
Depreciation on machinery and equipment and furniture and fixtures is
computed using the straight-line method over estimated useful lives of five to
10 years. Depreciation and amortization on building and improvements are
computed using the straight-line and 150% declining balance methods over
estimated service lives of five to 30 years.
Excess of Cost Over Net Assets Acquired
The excess cost over net assets acquired in the purchase of Gamma Biologicals,
B.V. was $155,207 and is being amortized over five years on a straight-line
basis. The accumulated amortization was $46,562 at March 31, 1998 and $15,521 at
March 31, 1997.
Research and Development Expenditures
The company capitalizes certain costs relating to the development of new
technologies. Capitalization does not begin until technological feasibility is
established. All other research and development expenditures are charged to
expense in the period incurred.
Revenue Recognition
Revenue is recognized when products are shipped or services are performed.
Income Taxes
The company utilizes an asset and liability approach in the calculation of
deferred income taxes. This approach gives consideration to the future tax
consequences of differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements. The net taxable or
deductible amounts in future years are adjusted for the effect of any available
tax credits.
Net Income Per Common Share
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share". SFAS No. 128 establishes standards for
computing and presenting earnings per share (EPS) and requires restatement of
all prior-period EPS data presented.
-5-
<PAGE>
The company adopted SFAS No. 128 on October 1, 1997. The adoption of SFAS No.
128 did not have a material effect on the company's EPS.
Net income per common share - basic is computed using the weighted average
number of shares outstanding during each year. Net income per common share -
- -diluted is computed using the weighted average number of shares and dilutive
equivalent shares outstanding during each year. [See Note 9.]
Statements of Consolidated Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and in banks, amounts deposited in money market funds, and certificates of
deposit with original maturities of three months or less.
Fair Value of Financial Instruments
The company's financial instruments consist of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable and long-term
obligations. As of March 31, 1998 and 1997, the fair value of these items
approximated the carrying value.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2. Inventories
Inventory is valued at the lower of cost (principally FIFO) or market, as
follows:
<TABLE>
March 31, 1998 1997
- - -----------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 932,210 $1,144,949
Products in process 464,719 432,357
Finished products 1,087,878 1,319,605
ReACT equipment 611,618
Supplies 873,019 761,731
- - -----------------------------------------------------------------------------------
Total $3,969,444 $3,658,642
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
</TABLE>
Note 3. Cash Value of Life Insurance
Cash value of life insurance consists primarily of contractual rights under
split-dollar life insurance agreements on the lives of certain officers and
directors. The company owns the policies and pays the premiums. Each insured
party is required to reimburse the company for the annual economic benefit that
the insured party receives. The premiums paid by the company less amounts
reimbursed by the insured party (net premiums) accrue interest at 3% per year.
The company can borrow against the policies. With the company's permission, the
insured parties can also secure loans against the policies. The company can
elect to pay the interest accruing on loans secured by insured parties.
Upon death of an insured party, the insured party's estate must repay all
loans against the policy and accrued interest (plus 3%) previously paid by the
company. Additionally, policy proceeds in excess of the amount (net premiums
paid plus interest) due to the company under terms of the split-dollar insurance
agreements will be distributed to the designated beneficiaries of the insured
party.
-6-
<PAGE>
Note 4. Long-term Obligations and Credit Agreement
Long-term Obligations
Long-term obligations consist of:
<TABLE>
March 31, 1998 1997
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage note, due monthly through 2000 $ 265,523 $353,485
Note payable - foreign, due semiannually through 2000 67,192 119,396
Capital lease, due quarterly through 2004 745,360
- - ------------------------------------------------------------------------------------
1,078,075 472,881
Less current portion 226,835 127,761
- - ------------------------------------------------------------------------------------
Total long-term obligations $ 851,240 $345,120
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
</TABLE>
The mortgage note bears interest at the bank's base rate, but not less than
7% nor more than 13%. At March 31, 1998, the note bore interest at 9.5%. The
mortgage note is collateralized by a first lien on the company's land and
building. The foreign note payable bears interest at 7%. The capital lease for a
filling and sealing machine for ReACT strips bears interest at 8.82%.
Long-term obligations mature as follows: $226,835 in 1999; $262,181 in
2000; $238,379 in 2001; $160,336 in 2002; $175,059 in 2003; and $15,285 in 2004.
Credit Agreement
The company has a revolving line of credit agreement under which the company can
borrow $1,500,000 at the bank's floating base rate plus 0.5%. The agreement was
renewed in August 1997. At March 31, 1998 or during the year then ended, no
borrowings were outstanding under this agreement. The company pays no fees nor
is required to maintain any compensating balances under this agreement.
The line of credit agreement provides for maximum amounts that can be
outstanding, based on the company's receivables and inventories. Prepayments on
this loan may be required when the bases of receivables and inventories, as
determined under the agreement provisions, are less than certain defined levels.
The agreement also contains various provisions that restrict borrowings,
capital expenditures, advances and other distributions, and certain direct or
contingent liabilities. Dividend payments are restricted to 25% of the company's
prior year net income. This restriction was waived for the years ended March 31,
1998, 1997 and 1996. The agreement also provides for the maintenance of certain
ratios or amounts relative to working capital, net worth and debt-to-equity. At
March 31, 1998, the company was in compliance with the provisions of the
agreement.
Security for the company's obligations under the line of credit agreement
includes substantially all of the company's assets, except for the cash value of
all life insurance policies and the company's land and building which are
pledged as collateral for the mortgage note.
Note 5. Cash Flows Information
Following is a summary of the changes in operating assets and liabilities.
<TABLE>
Year ended March 31, 1998 1997 1996
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Decrease (increase) in:
Receivables $ 38,535 $ 373,941 $ 290,400
Inventories (306,435) (483,338) 567,135
Prepaid expenses (1,408,095) (142,903) 136,359
Other assets (317,607) (121,873) 61,842
Increase (decrease) in:
Accounts payable 422,043 225,179 (77,968)
Accrued salaries and other expenses 7,922 (56,272) (121,594)
- - -------------------------------------------------------------------------------------------------
Net effect of change in operating accounts $(1,563,637) $(205,266) $ 856,174
- - -------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
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 was reduced as assembled parts were
delivered, with the cost of components deducted from the vendors' selling price.
Additional inventory of $105,000 was transferred to the outside vendors, and the
remaining balance was recovered in full by March 31, 1998.
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.
In June 1997, the company entered into a capital lease agreement for
$745,360 for the design, manufacture and installation of a special filling and
heat-sealing machine for the ReACT strips. The machine was accepted in March
1998.
Note 6. Stock Option Plans
Under the company's incentive stock option plan, 250,000 shares of its common
stock are reserved for grant to various employees. The options become
exercisable at 25% per year. The number of shares reserved under the plan will
be adjusted for stock splits and stock dividends.
Options have been granted to certain nonemployee members of the board of
directors to purchase shares of common stock. The 1997 Outside Director Stock
Option Plan (nonqualified) reserves 100,000 shares of the company's common stock
for grant to nonemployee directors.
The following is a summary of the company's stock option plans:
<TABLE>
Year ended March 31, 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number Average Number Average Number Average
of Shares Price of Shares Price of Shares Price
Options outstanding
at beginning of year 465,775 $4.14 469,025 $4.14 411,337 $4.07
Options granted 101,680 4.03 0 73,500 4.25
Options exercised (13,500) 2.88 (1,250) 3.20 (11,062) 2.83
Options canceled (48,500) 4.41 (2,000) 4.50 (4,750) 3.12
- - -----------------------------------------------------------------------------------------------------
Options outstanding
at end of year 505,455 $4.12 465,775 $4.14 469,025 $4.14
- - -----------------------------------------------------------------------------------------------------
Options exercisable
at end of year 421,455 $4.06 383,399 $4.08 320,900 $3.96
- - -----------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------
Options available
at end of year 303,570 256,750 334,750
- - -----------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------
</TABLE>
The company accounts for its stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, under which no compensation cost has
been recognized for stock option awards. In fiscal 1998, had compensation cost
of the plans been determined consistent with SFAS No. 123, "Accounting for
Stock-Based Compensation," the company's pro forma net income would have been
$1,158,758 and pro forma basic and diluted earnings per common share would have
been $.25 and $.25, respectively. The fair value of options under the company's
plans during 1998 was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used:
dividend yield of 2.33%, expected volatility of 31.97%, risk-free interest rate
of 6.50% and expected lives of 10 years.
-8-
<PAGE>
Note 7. Shareholder Rights Plan
The company has a shareholder rights plan which expires in September 1999. Under
terms of the plan: a) the rights are not exercisable until 10 days after a
public announcement that a person or group has acquired or intends to acquire
20% or more of the company's common stock without the consent of the board of
directors; and b) each share of common stock has the right to purchase common
stock with a value of two times the right's purchase price. The right's purchase
price, which is subject to adjustment by the board of directors, is currently
$15.00 per right. If exercisable, based upon a closing market price of $4.75 per
share at March 31, 1998, a shareholder could purchase, by exercising such right,
approximately 6.3 shares of common stock for each share held. The board of
directors may elect to redeem the outstanding rights at $.01 per right at any
time before the expiration date.
Note 8. Employee Retirement Savings Plan
The company has a 401(k) Retirement Savings Plan. Under the plan's provisions,
the company may, at the discretion of the board of directors, match a portion of
the employee's annual contribution. All employees over 21 years of age with at
least one year of service are eligible for the plan. Company contributions,
which are 100% vested after five years of continuous service, were $39,588 in
1998; $37,043 in 1997; and $35,194 in 1996.
Note 9. Earnings Per Share
<TABLE>
Year ended March 31, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Shares Per Share Income Shares Per Share Income Shares Per Share
Amount Amount Amount
Net income $1,309,616 $1,115,820 $823,530
Basic EPS
Income available to
common shareholders 1,309,616 4,604,826 $0.28 1,115,820 4,577,729 $0.24 823,530 4,545,747 $0.18
Effect of Dilutive Securities:
Options and Warrants 92,868 29,789 63,024
- - ----------------------------------------------------------------------------------------------------------------------------------
Diluted EPS
Income available to
common shareholders
plus assumed
conversion $1,309,616 4,697,694 $0.28 $1,115,820 4,607,518 $0.24 $823,530 4,608,771 $0.18
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
Note 10. Income Taxes
Income taxes consist of the following:
<TABLE>
Year ended March 31, 1998 1997 1996
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $185,300 $273,000 $280,400
State 14,200 13,900
Foreign 45,000 24,417
- - -----------------------------------------------------------------------------------------------
Total current 244,500 311,317 280,400
- - -----------------------------------------------------------------------------------------------
Deferred:
Federal 361,900 295,600 28,500
- - -----------------------------------------------------------------------------------------------
Total deferred 361,900 295,600 28,500
- - -----------------------------------------------------------------------------------------------
Total $606,400 $606,917 $308,900
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
Income taxes as shown in the statements of consolidated income differ from
the amount that would be computed if income before income taxes was multiplied
by the United States federal income tax rate (statutory rate) applicable in each
year. The reasons for this difference are as follows:
<TABLE>
Year ended March 31, 1998 1997 1996
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Exempt export earnings (2.0) (2.3) (4.1)
Temporary differences related to property 22.5 8.7 (2.3)
Research and development credit (7.9)
Software development (2.7)
Gain on insurance recoveries (20.5)
Other - net .3 2.7 (.3)
- - -----------------------------------------------------------------------------------------------
Effective tax rate 31.6% 35.2% 27.3%
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
Significant components of the company's deferred tax assets (liabilities)
are as follows:
<TABLE>
Year ended March 31, 1998 1997
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 40,100 $ 35,900
Inventory costs capitalized 31,200 37,500
Other 13,800
- - -----------------------------------------------------------------------------------------------
Net current deferred tax asset 85,100 73,400
- - -----------------------------------------------------------------------------------------------
Difference between book and tax basis of property,
plant and equipment (891,900) (523,900)
Other (26,300) (11,800)
- - -----------------------------------------------------------------------------------------------
Net noncurrent deferred tax liability (918,200) (535,700)
- - -----------------------------------------------------------------------------------------------
Net deferred tax liability $(833,100) $(462,300)
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
Note 11. 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 year ended March 31, 1998, 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 from which it sold to numerous countries.
<TABLE>
Year ended March 31, 1998 1997 1996
- - -----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Net sales to unaffiliated customers:
United States $11,884 $12,317 $12,260
Europe 2,565 1,697 1,553
Mexico, Central and South America 1,518 1,297 1,020
Pacific Region 1,239 1,382 1,244
Middle East 754 651 620
Other 294 211 244
- - -----------------------------------------------------------------------------------------------
Total $18,254 $17,555 $16,941
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
Export sales from United States to unaffiliated customers:
Europe $ 1,433 $ 1,284 $ 1,553
Mexico, Central and South America 1,513 1,297 1,020
Pacific Region 1,209 1,382 1,244
Middle East 742 651 620
Other 290 211 244
- - -----------------------------------------------------------------------------------------------
Total $ 5,187 $ 4,825 $ 4,681
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
Export sales from United States to affiliated customers: $ 605 $ 151
- - -----------------------------------------------------------------------------------------------
Income from operations:
United States $ 1,190 $ 1,078 $ 824
Europe 120 38
- - -----------------------------------------------------------------------------------------------
Total $ 1,310 $ 1,116 $ 824
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
Identifiable assets:
United States $19,213 $17,468 $16,696
Europe 595 318
Corporate 2,325 2,084 1,730
- - -----------------------------------------------------------------------------------------------
Total $22,133 $19,870 $18,426
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
Note 12. 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 acquisition date. The
excess of the purchase price over the fair values of the net assets acquired was
$155,207 and has been recorded as goodwill, which is being amortized over five
years.
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 continues to sell directly in the
Netherlands, as well as serving as a European distribution center.
-11-
<PAGE>
Note 13. Sales of Exempt Securities
In June 1997, the company granted to Cyn Del & Co., Inc., a warrant to purchase
100,000 shares of the company's common stock at an exercise price of $5.00 per
share (the warrant) pursuant to Section 4(2) of the Securities Act of 1933. The
warrant is exercisable by Cyn Del & Co., Inc. at any time prior to June 19,
2002. The company granted the warrant as partial consideration for consulting
services to be provided to the company's board of directors by Cyn Del & Co.,
Inc.
Note 14. Damage to Facility
On September 11, 1997, the company's manufacturing facility in Houston, Texas
sustained damage from a fire that occurred while the building was unoccupied.
The company was open for business on September 12, and most manufacturing
activities resumed within seven days. Reconstruction of affected areas was
completed after fiscal year-end.
The company has insurance for both property damage and business
interruption. The full cost of repair or replacement was determined to be
$2,506,121. As of March 31, 1998, $1,500,000 had been advanced to the company,
and a receivable of $1,001,121 was recorded. Final reimbursement was received
from the insurance carrier on May 5, 1998.
Insurance recoveries for property damage exceeded the depreciated value of
the affected assets. As a result, the company recognized in income for the
period ended March 31, 1998, an adjustment to the carrying value of the facility
amounting to $1,154,359.
Note 15. Commitments and Contingencies
Operating Leases
The company leases certain facilities, equipment and automobiles under operating
leases which range from one month to five years. Rent expense charged to income
was approximately $333,000 in 1998; $262,000 in 1997; and $239,000 in 1996.
Future minimum rental commitments at March 31, 1998 are $834,000, due between
two and five years.
Contingencies
On May 12, 1998, a patent infringement claim was filed in U.S. District Court in
Florida by Micro Typing Systems, Inc. and Stiftung fur Diagnostiche Forschung
(the foundation) alleging that the Gamma ReACT Test System infringes U.S. Patent
#5,512,432 granted to the foundation April 30, 1996. The plaintiffs seek a
permanent injunction against the continued alleged infringement, an award of
treble damages with interest and costs, and reasonable attorney's fees. On
January 23, 1998, a former employee filed suit in Harris Country District Court,
Texas alleging that the company breached a verbal contract to provide certain
post-employment benefits. The plaintiff seeks specific performance of the
contract or not less than $1,500,000 in monetary damages. Management is
confident that the ReACT technology does not infringe any claims made in the
foundation's patent and that the company has not breached any obligations to the
former employee.
Since these matters are in the earliest stages of proceedings and due to
uncertainties involved in litigation, management cannot predict the likelihood
of a particular outcome or estimate the financial impact of an unfavorable
resolution of either matter. However, an unfavorable outcome could have a
material adverse effect upon the business and the results of operations in a
given reporting period.
-12-
<PAGE>
Independent Auditors' Report
Gamma Biologicals, Inc.
We have audited the accompanying consolidated balance sheets of Gamma
Biologicals, Inc. and subsidiaries (the company) as of March 31, 1998 and 1997,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended March 31,
1998. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the company at March 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Houston, Texas
May 22, 1998
-13-
<PAGE>
EXHIBIT 99.3
GAMMA BIOLOGICALS, INC.
Consolidated Balance Sheets
<TABLE>
ASSETS JUNE 30, 1998 MARCH 31, 1998
------------- --------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 1,312,797 $ 1,416,768
Short-term investments............................... 100,000 100,000
Receivables - net of allowance for doubtful
accounts of $103,000 and $118,000, respectively.... 3,473,081 4,489,387
Inventories.......................................... 4,460,361 3,969,444
Prepaid expenses..................................... 850,386 918,333
Deferred taxes....................................... 93,300 85,100
------------ ------------
Total current assets............................. 10,289,925 10,979,032
------------ ------------
PROPERTY - At cost, net of accumulated
depreciation and amortization of $6,591,401
and $6,297,958, respectively......................... 8,443,973 8,323,945
CASH VALUE OF LIFE INSURANCE........................... 2,092,608 2,026,250
EXCESS OF COST OVER NET ASSETS ACQUIRED-NET............ 100,884 108,645
OTHER ASSETS........................................... 771,234 695,368
------------ ------------
TOTAL............................................. $ 21,698,624 $ 22,133,240
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations............. $ 213,644 $ 226,835
Accounts payable - trade............................. 959,612 1,226,771
Dividends payable.................................... 115,645 115,270
Accrued salaries and other expenses.................. 475,054 288,455
------------ ------------
Total current liabilities......................... 1,763,955 1,857,331
------------ ------------
LONG-TERM OBLIGATIONS.................................. 782,520 851,240
------------ ------------
DEFERRED TAXES......................................... 854,200 918,200
------------ ------------
SHAREHOLDERS' EQUITY................................... 18,297,949 18,506,469
------------ ------------
TOTAL............................................. $ 21,698,624 $ 22,133,240
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
GAMMA BIOLOGICALS, INC.
Statements of Consolidated Income
(Unaudited)
<TABLE>
THREE MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET SALES...................................... $ 4,366,544 $ 4,827,992
COST OF SALES.................................. 2,154,886 2,165,405
----------- -----------
GROSS MARGIN................................... 2,211,658 2,662,587
----------- -----------
OPERATING EXPENSES:
Selling...................................... 1,176,210 1,085,929
General and administrative................... 838,728 588,125
Shipping and warehouse....................... 225,641 190,374
Research and development..................... 264,593 344,569
----------- -----------
Total operating expenses................. 2,505,172 2,208,997
----------- -----------
OPERATING INCOME (LOSS)........................ (293,514) 453,590
----------- -----------
OTHER INCOME (EXPENSE):
Interest income.............................. 43,552 60,663
Interest expense............................. (25,432) (11,283)
Other - net.................................. (13,108) (9,400)
----------- -----------
Other income - net....................... 5,012 39,980
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.............. (288,502) 493,570
INCOME TAXES (BENEFIT)......................... (131,600) 184,564
----------- -----------
NET INCOME (LOSS).............................. $ (156,902) $ 309,006
----------- -----------
----------- -----------
Weighted average number of common shares
outstanding assuming dilution................ 4,613,235 4,655,083
----------- -----------
Net income (loss) per common share - basic..... $ (.03) $ .07
----------- -----------
----------- -----------
Net income (loss) per common share - diluted... $ (.03) $ .07
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
GAMMA BIOLOGICALS, INC.
Statements of Consolidated Changes in Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1998 1997
---- ----
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
COMMON STOCK
Balance, beginning of period..................... 4,776,115 $ 477,611 4,762,615 $ 476,261
Exercise of stock options........................ 15,000 1,500
----------------------------------------------------------------
Balance, end of period........................... 4,791,115 479,111 4,762,615 476,261
----------------------------------------------------------------
CAPITAL IN EXCESS OF PAR
Balance, beginning of period..................... 13,711,791 13,674,209
Exercise of stock options........................ 40,650
----------------------------------------------------------------
Balance, end of period........................... 13,752,441 13,674,209
----------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of period..................... 5,493,805 4,644,801
Net income (loss)................................ (156,902) 309,006
Dividends declared............................... (115,645) (115,076)
----------------------------------------------------------------
Balance, end of period........................... 5,221,258 4,838,731
----------------------------------------------------------------
TRANSLATION ADJUSTMENTS
Balance, beginning of period..................... (25,268) (10,456)
Current period translation adjustments........... 21,877 713
----------------------------------------------------------------
Balance, end of period........................... (3,391) (9,743)
----------------------------------------------------------------
TREASURY STOCK........................................ (165,353) (1,151,470) (159,563) (1,119,908)
----------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY............................ 4,625,762 $18,297,949 4,603,052 $17,859,550
----------------------------------------------------------------
----------------------------------------------------------------
</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,
1998 1997
---- ----
[INCREASE (DECREASE) IN CASH]
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers...................................... $ 4,375,866 $ 4,458,990
Interest received................................................. 42,319 59,441
Cash paid to suppliers and employees.............................. (3,861,466) (4,480,114)
Interest paid..................................................... (25,432) (11,278)
Income taxes paid................................................. (1,065) (26,794)
----------- -----------
Net cash provided by operating activities......................... 530,222 245
----------- -----------
Cash flows from investing activities:
Property additions................................................ (412,470) (431,869)
Increase in cash value of life insurance.......................... (66,358) (60,668)
----------- -----------
Net cash used in investing activities............................. (478,828) (492,537)
----------- -----------
Cash flows from financing activities:
Payments on long-term obligations................................. (83,384) (32,891)
Exercise of stock options......................................... 42,150
Dividends paid.................................................... (115,270) (115,077)
----------- -----------
Net cash used in financing activities............................. (156,504) (147,968)
----------- -----------
Effect of exchange rate fluctuation on cash....................... 1,139 (3,814)
Net decrease in cash................................................... (103,971) (644,074)
Cash and cash equivalents at beginning of period....................... 1,416,768 3,618,970
----------- -----------
Cash and cash equivalents at end of period............................. $ 1,312,797 $ 2,974,896
----------- -----------
----------- -----------
</TABLE>
5
<PAGE>
GAMMA BIOLOGICALS, INC.
Statements of Consolidated Cash Flows
(Unaudited)
Reconciliation of Net Income (Loss) to
Net Cash Provided by Operating Activities
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1998 1997
---- ----
<S> <C> <C>
Net Income (Loss) $ (156,902) $ 309,006
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation.................................................... 295,900 243,117
Amortization of intangibles..................................... 10,290 7,760
Loss on disposal of fixed assets................................ 2,706 1,862
(Increase) decrease in accounts receivable...................... 23,814 (352,949)
Increase in investments......................................... (1,233) (1,222)
(Increase) decrease in inventory................................ (455,838) 47,171
(Increase) decrease in prepaid expenses......................... 1,071,010 (21,831)
Increase in other assets........................................ (78,395) (198,987)
Decrease in accounts payable.................................... (294,520) (183,536)
Increase (decrease) in deferred taxes........................... (72,200) 7,100
Increase in accrued salaries and other expenses................. 185,590 142,754
---------- ---------
Net Cash Provided by
Operating Activities.............................................. $ 530,222 $ 245
---------- ---------
---------- ---------
</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 was reduced as assembled parts were
delivered, with the cost of components deducted from the vendors' selling price.
Additional inventory of $105,000 was transferred to outside vendors, and the
remaining balance was recovered in full by March 31, 1998.
In June 1997, the company entered into a capital lease agreement for $745,360
for the design, manufacture, and installation of a special filling and
heat-sealing machine for the ReACT(R) strips. The machine was accepted in March
1998.
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>
THREE MONTHS ENDED
JUNE 30,
------------------
1998 1997
---- ----
<S> <C> <C>
Statutory rate................................. (34.0)% 34.0%
Increase (decrease) resulting from:
Exempt export earnings....................... (3.3) (2.0)
Life insurance premiums...................... .3 1.2
Amortization of intangibles.................. 1.4 .4
Software development......................... (.9) (1.5)
Temporary differences related to property.... (11.8) 4.8
Other-net.................................... 3.4 .5
------ ----
Effective tax rate............................. (44.9)% 37.4%
------ ----
------ ----
</TABLE>
Significant components of the company's deferred tax assets (liabilities)
are as follows:
<TABLE>
JUNE 30, 1998 MARCH 31, 1998
------------- --------------
<S> <C> <C>
Allowance for bad debts............................... $ 35,000 $ 40,100
Inventory costs capitalized........................... 31,200 31,200
Other................................................. 27,100 13,800
----------- -----------
Net current deferred tax asset..................... 93,300 85,100
----------- -----------
Difference between book and tax basis of property,
plant and equipment................................ (826,100) (891,900)
Other................................................. (28,100) (26,300)
----------- -----------
Net noncurrent deferred tax liability.............. (854,200) (918,200)
----------- -----------
Net deferred tax liability............................ $ (760,900) $ (833,100)
----------- -----------
----------- -----------
</TABLE>
7
<PAGE>
2. Reconciliation of the numerators and denominators of the basic and diluted
EPS computations:
<TABLE>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------------
1998 1997
--------------------------------------- -------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss)................ $ (156,902) $ 309,006
BASIC EPS
Income (loss) available to common
shareholders................... $ (156,902) 4,613,235 $ (.03) $ 309,006 4,603,052 $ .07
-------- ------
-------- ------
Effect of Dilutive Securities
Options and warrants............. 52,031
------------ ---------- ---------- ---------
DILUTED EPS
Income (loss) available to common
shareholders plus assumed ------------ ---------- -------- ---------- --------- ------
conversion..................... $ (156,902) 4,613,235 $ (.03) $ 309,006 4,655,083 $ .07
------------ ---------- -------- ---------- --------- ------
------------ ---------- -------- ---------- --------- ------
</TABLE>
3. Inventories are valued at the lower of cost (principally FIFO) or market
value, as follows:
<TABLE>
JUNE 30, 1998 MARCH 31, 1998
------------- --------------
<S> <C> <C>
Raw materials.............................. $ 987,819 $ 932,210
Products in process........................ 314,996 464,719
Finished products.......................... 1,483,851 1,087,878
ReACT equipment............................ 745,219 611,618
Supplies................................... 928,476 873,019
----------- -----------
Total.................................. $ 4,460,361 $ 3,969,444
----------- -----------
----------- -----------
</TABLE>
4. 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, 1998, the
results of operations of the three month periods ended June 30, 1998 and 1997
and cash flows for the three month periods ended June 30, 1998 and 1997.
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,
1998 are not necessarily indicative of the results to be expected for the full
year.
8
<PAGE>
5. LONG-TERM OBLIGATIONS Long-term obligations consist of:
<TABLE>
JUNE 30, 1998 MARCH 31, 1998
------------- --------------
<S> <C> <C>
Mortgage note, due monthly through 2000............... $ 242,823 $ 265,523
Note payable-foreign, due semiannually through 2000... 68,665 67,192
Capital lease, due quarterly through 2004............. 684,676 745,360
----------- -----------
996,164 1,078,075
Less current portion............................... 213,644 226,835
----------- -----------
Total long-term obligations........................... $ 782,520 $ 851,240
----------- -----------
----------- -----------
</TABLE>
The mortgage note bears interest at the bank's base rate, but not less than
7% nor more than 13%. At June 30, 1998, the note bore interest at 9.5%. The
mortgage note is collateralized by a first lien on the company's land and
building. The foreign note payable bears interest at 7%. The capital lease
for a filling and sealing machine for ReACT strips bears interest at 8.82%.
6. DAMAGE TO FACILITY
On September 11, 1997, the company's manufacturing facility in Houston,
Texas sustained damage from a fire that occurred while the building was
unoccupied. The company was open for business on September 12, and most
manufacturing activities resumed within seven days. Reconstruction of
affected areas should be completed by the Fall 1998.
The company has insurance for both property damage and business
interruption. The full cost of repair or replacement was determined to be
$2,506,121. As of March 31, 1998, $1,500,000 had been advanced to the
company, and a receivable of $1,001,121 was recorded. Final reimbursement
was received from the insurance carrier on May 5, 1998.
Insurance recoveries for property damage exceeded the depreciated value of
the affected assets. As a result, the company recognized in income for the
period ended March 31, 1998, an adjustment to the carrying value of the
facility amounting to $1,154,359.
7. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 is effective for periods beginning after December
15, 1997. SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components. The purpose of reporting
comprehensive income is to report a measure of all changes in equity of an
enterprise that results from recognized transactions and other economic
events of the period other than transactions with owners in their capacity
as owners. In consolidating the Netherlands subsidiary, currency
translation adjustments can create comprehensive income. As of June 30,
1998, currency translation adjustments did not create any material
adjustments to net income to derive comprehensive income (refer to the
Statements of Consolidated Changes in Shareholders' Equity).
9
<PAGE>
8. CONTINGENCIES
On May 12, 1998, a patent infringement claim was filed in U.S. District
Court in Florida by Micro Typing Systems, Inc. and Stiftung fur
Diagnostiche Forschung (the foundation) alleging that the Gamma ReACT Test
System infringes U.S. Patent #5,512,432 granted to the foundation April 30,
1996. The plaintiffs seek a permanent injunction against the continued
alleged infringement, an award of treble damages with interest and costs,
and reasonable attorney's fees. On January 23, 1998, a former employee
filed suit in Harris County District Court, Texas alleging that the company
breached a verbal contract to provide certain post-employment benefits. The
plaintiff seeks specific performance of the contract or not less than
$1,500,000 in monetary damages. Management is confident that the ReACT
technology does not infringe any claims made in the foundation's patent and
that the company has not breached any obligations to the former employee.
Since these matters are in the earliest stages of proceedings and due to
uncertainties involved in litigation, management cannot predict the
likelihood of a particular outcome or estimate the financial impact of an
unfavorable resolution of either matter. However, an unfavorable outcome
could have a material adverse effect upon the business and the results of
operations in a given reporting period. As of June 30, 1998, an estimate of
$180,000 of litigation costs was recorded related to the patent
infringement suit. The company will continue to evaluate the situation and
anticipates incurring additional amounts in future periods.
9. SALES OF EXEMPT SECURITIES
In June 1997, the company granted Cyn Del & Co., Inc. a warrant to purchase
100,000 shares of the company's common stock at an exercise price of $5.00
per share (the "Warrant") pursuant to Section 4(2) of the Securities Act of
1933. The Warrant is exercisable by Cyn Del & Co., Inc. at any time prior
to June 19, 2002. The company granted the Warrant as partial consideration
for consulting services to be provided to the company's board of directors
by Cyn Del & Co., Inc.
10
<PAGE>
10. 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 periods ended
June 30, 1998 and 1997, the company operated in two geographic areas, the
United States and Europe.
<TABLE>
THREE MONTHS ENDED
JUNE 30,
------------------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Net sales to unaffiliated customers:
United States............................................ $ 2,828 $ 3,083
Europe................................................... 646 641
Pacific Region........................................... 293 360
Mexico, Central and South America........................ 345 390
Middle East.............................................. 158 296
Other.................................................... 97 58
---------- ----------
Total.................................................. $ 4,367 $ 4,828
---------- ----------
---------- ----------
Export sales from United States to unaffiliated customers:
Europe................................................... $ 77 $ 358
Pacific Region........................................... 293 355
Mexico, Central and South America........................ 344 389
Middle East.............................................. 158 296
Other.................................................... 96 57
---------- ----------
Total.................................................. $ 968 $ 1,455
---------- ----------
---------- ----------
Sales between geographic areas:
United States to Europe.................................. $ 353 $ 126
---------- ----------
Income (loss) before income taxes:
United States............................................ $ (345) $ 411
Europe................................................... 56 83
---------- ----------
Total.................................................. $ (289) $ 494
---------- ----------
---------- ----------
6/30/98 3/31/98
---------- ----------
Identifiable assets:
United States......................................... $ 18,590 $ 19,213
Europe................................................ 821 595
Corporate............................................. 2,288 2,325
---------- ----------
Total............................................... $ 21,699 $ 22,133
---------- ----------
---------- ----------
</TABLE>
11
<PAGE>
EXHIBIT 99.4
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma financial statements and accompanying notes set forth
below reflect the application of the purchase method of accounting. Under this
method of accounting, the purchase price will be allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
time of closing. As discussed in the accompanying notes, estimates of the fair
values have been combined with the values recorded. However, the estimated fair
values are preliminary and may require additional adjustments once all of the
valuations have been completed. Accordingly, the actual recording of the
transaction can be expected to differ from these pro forma combined financial
statements.
The unaudited pro forma balance sheet combines the balance sheets of Immucor,
Inc. (Immucor) as of August 31, 1998 and Gamma Biologicals, Inc. (Gamma
Biologicals) as of June 30, 1998. The unaudited pro forma statements of income
present 1) Immucor's statement of income for the year ended May 31, 1998
combined with Gamma Biologicals' statement of income for the year ended March
31, 1998 and 2) Immucor's statement of income for the three months ended August
31, 1998 combined with Gamma Biologicals' statement of income for the three
months ended June 30, 1998. The pro forma statements of income assume that this
transaction occurred as of June 1, 1997. The pro forma adjustments are based
upon historical financial information of Immucor and Gamma Biologicals and
certain assumptions that management of Immucor believes are reasonable.
This pro forma financial information has been prepared by the management of
Immucor and should be read in conjunction with the historical financial
statements of Immucor and Gamma Biologicals. The unaudited pro forma financial
statements are intended for informational purposes only and are not necessarily
indicative of the future financial position or future results of operations of
the combined company, or of the financial position or results of operations of
the combined company that would have actually occurred had the transaction been
in effect as of the date or for the period presented.
<PAGE>
Immucor, Inc.
Pro Forma Statement of Income (Unaudited)
<TABLE>
Fiscal Year 1998
-------------------------------------------------------------------------
Gamma Pro Pro
Immucor, Inc. Biologicals, Inc. Forma Forma
5/31/98 3/31/98 Adjustments Combined
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $39,790,434 $18,253,763 58,044,197
Costs and Expenses
Cost of sales 18,167,840 8,396,753 26,564,593
Research and development 970,924 1,246,754 2,217,678
Selling, general and administrative 16,872,996 7,956,282 (185,000)(A) 25,136,447
(38,800)(A)
530,969 (A)
Interest income (788,870) (195,544) 400,000 (B) (584,414)
Interest expense 615,705 37,430 1,324,000 (C) 1,977,135
Other expense (income) 72,650 50,431 123,081
-------------- ----------------- -------------- ----------------
35,911,245 17,492,106 2,031,169 55,434,520
-------------- ----------------- -------------- ----------------
Income before unusual item 3,879,189 761,657 (2,031,169) 2,609,677
Unusual item: Adjustment to carrying
value of facility 1,154,359 (E) 1,154,359
-------------- ----------------- -------------- ----------------
Income before income taxes (F) 3,879,189 1,916,016 (2,031,169) 3,764,036
Income taxes 1,810,416 606,400 (911,202)(D) 1,505,614
-------------- ----------------- -------------- ----------------
Net income $2,068,773 $1,309,616 ($1,119,967) $2,258,422
============== ================= ============== ================
Earnings per share:
Basic $0.26 $0.28 $0.28
============== ================= ================
Diluted $0.25 $0.28 $0.27
============== ================= ================
Weighted average shares outstanding:
Basic 8,095,254 4,604,826 8,095,254
============== ================= ================
Diluted 8,443,101 4,697,694 8,443,101
============== ================= ================
</TABLE>
<PAGE>
Immucor, Inc.
Pro Forma Statement of Income (Unaudited)
<TABLE>
Three Months Ended
--------------------------------------------------------------------------
Gamma Pro Pro
Immucor, Inc. Biologicals, Inc. Forma Forma
8/31/98 6/30/98 Adjustments Combined
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $10,358,465 $4,366,544 14,725,009
Costs and Expenses
Cost of sales 4,652,683 2,154,886 6,807,569
Research and development 290,027 264,593 554,620
Selling, general and administrative 4,382,663 2,240,579 (46,250)(A) 6,699,534
(10,200)(A)
132,742 (A)
Interest income (175,032) (43,552) 100,000 (B) (118,584)
Interest expense 134,087 25,432 331,000 (C) 490,519
Other expense (income) (36,754) 13,108 (23,646)
--------------- ---------------- --------------- ----------------
9,247,674 4,655,046 507,292 14,410,012
--------------- ---------------- --------------- ----------------
Income before income taxes (F) 1,110,791 (288,502) (507,292) 314,997
Income taxes 482,780 (131,600) (225,181)(D) 125,999
--------------- ---------------- --------------- ----------------
Net income $628,011 ($156,902) ($282,111) $188,998
=============== ================ =============== ================
Earnings per share:
Basic and diluted $0.08 ($0.03) $0.02
=============== ================ ================
Weighted average shares outstanding:
Basic 8,002,063 4,613,235 8,002,063
=============== ================ ================
Diluted 8,283,567 4,613,235 8,283,567
=============== ================ ================
</TABLE>
<PAGE>
Following is a summary of adjustments reflected in the unaudited pro forma
statements of income for fiscal year 1998 and the three months ended August 31,
1998:
(A) Selling, general and administrative expense was adjusted (i) to reduce
depreciation expense based on the adjusted fair value of assets on the date
of acquisition assuming the transaction occurred at the beginning of the
period by $185,000 and $46,250, respectively, (ii) to eliminate the
historical amortization expense of Gamma Biologicals of $38,800 and
$10,200, respectively, and (iii) to reflect amortization expense that would
have occurred had the transaction been in effect at the beginning of the
period, $530,969 and $132,742, respectively. The excess purchase price over
the fair value of net assets acquired will be amortized on a straight-line
basis over a 30-year period.
(B) If the transaction had occurred prior to the periods being presented,
interest income would have been reduced due to the cash payment made upon
acquisition by approximately $400,000 and $100,000, respectively.
(C) Additional interest expense of $1,324,000 and $331,000, respectively, was
recorded for the borrowing of funds to complete the transaction:
$20,000,000 at an interest rate of approximately 6.6% due in March, 2005.
(D) Income tax expense was adjusted to reflect an effective tax rate of 40%,
which is the estimated statutory effective tax rate of Immucor resulting in
a reduction of $911,202 and $225,181, respectively.
(E) Amount represents a one-time adjustment to the carrying value of the Gamma
Biologicals facility.
(F) Income before taxes does not include a one-time charge of $312,361 in
merger-related expenses recorded in the second quarter ended November 30,
1998 and estimated annualized operating cost savings of approximately
$4,000,000 due to the reorganization of the company since the acquisition.
<PAGE>
Immucor, Inc.
Pro Forma Balance Sheet (Unaudited)
<TABLE>
Gamma Pro Pro
Immucor, Inc. Biologicals, Inc. Forma Forma
As of 8/31/98 As of 6/30/98 Adjustments Combined
----------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $12,700,154 $1,312,797 ($5,000,000)(A) 8,144,509
677,247 (A)
(1,545,689)(A)
Short-term investments 0 100,000 100,000
Accounts receivable, net 12,455,905 3,473,081 (16,962)(B) 15,912,024
Accounts receivable, other 136,752 0 136,752
Inventories 8,377,012 4,460,361 (324,560)(C) 12,512,813
Income taxes receivable 41,079 0 41,079
Deferred income taxes 377,875 93,300 (93,300)(D) 377,875
Prepaid expenses and other 981,048 850,386 (403,378)(E) 1,428,056
Investment in Gamma 0 0 0
----------------- --------------- -------------- -------------
Total current assets 35,069,825 10,289,925 (6,706,642) 38,653,108
Long-term investment 1,000,000 0 1,000,000
Property and equipment, at cost 11,119,813 15,035,374 (1,020,047)(F) 18,543,739
(6,591,401)(F)
less accumulated depreciation (4,282,398) (6,591,401) 6,591,401 (F) (4,282,398)
------------------------------------ -------------- -------------
6,837,415 8,443,973 (1,020,047) 14,261,341
Other assets, net 737,345 771,234 (24,390)(G) 1,484,189
Cash value of life insurance 0 2,092,608 (619,766)(H) 1,472,842
Excess of cost over net tangible
assets acquired, net 10,987,012 100,884 (100,884)(M) 26,916,081
15,929,069 (M)
----------------- --------------- ------------------------------
$54,631,597 $21,698,624 $7,457,340 $83,787,561
================= =============== ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $350,995 $213,644 $564,639
Accounts payable 3,839,557 959,612 4,799,169
Income taxes payable 323,301 0 323,301
Dividends payable 0 115,645 115,645
Accrued salaries and wages 783,994 475,054 1,259,048
Other accrued liabilities 417,768 0 5,816,013 (J) 7,027,257
793,476 (K)
----------------- --------------- -------------- -------------
Total current liabilities 5,715,615 1,763,955 6,609,489 14,089,059
Long-term debt 7,821,608 782,520 20,000,000 (I) 28,604,128
Deferred income taxes 1,094,422 854,200 (854,200)(D) 1,094,422
Shareholders' equity:
Common stock, $.10 par value 776,307 479,111 (479,111)(L) 776,307
Additional paid-in capital 19,104,120 13,752,441 (13,752,441)(L) 19,104,120
Treasury stock 0 (1,151,470) 1,151,470 (L) 0
Retained earnings (current) 628,011 (156,902) 156,902 (L) 628,011
Retained earnings (prior years) 21,937,697 5,378,160 (5,378,160)(L) 21,937,697
Accumulated other comprehensive loss (2,446,183) (3,391) 3,391 (L) (2,446,183)
----------------- --------------- -------------- -------------
Total shareholders' equity 39,999,952 18,297,949 (18,297,949) 39,999,952
----------------- --------------- -------------- -------------
$54,631,597 $21,698,624 $7,457,340 $83,787,561
================= =============== ============== =============
</TABLE>
<PAGE>
Following is a summary of adjustments reflected in the unaudited pro forma
balance sheet:
(A) Cash was reduced by (i) $5,000,0000 paid net of additional cash received of
$677,247 from the issuance of $20,000,000 in debt based on a purchase price
of $24,322,753 to complete the acquisition, and (ii) estimated transaction
costs of $1,545,689.
(B) Receivables were reduced for amounts determined uncollectible after Gamma
Biologicals filed its 6/30/98 10Q but prior to the acquisition.
(C) Inventory was reduced by amounts included in Gamma Biologicals' inventory
that will not longer be used in Immucor's product line, that were written
down to salvage value.
(D) The deferred tax asset of $93,300 and the deferred tax liability of
$854,200 were written off as part of the purchase as assets and liabilities
acquired have a new tax basis.
(E) Prepaid expenses and other were reduced by approximately (i) $105,000 for
costs capitalized for a joint venture and dealer contracts that will no
longer be pursued in the combined company, (ii) $110,000 in advertising
materials and $70,000 in convention costs that will not be used in
promoting Immucor's new product line, (iii) $55,000 in professional fees
for services that will no longer be rendered on a separate basis to Gamma
Biologicals, and (iv) other various assets that were of no value based on
the new direction of the combined company.
(F) Property and equipment was adjusted for the estimated fair value of assets
on the date of acquisition, including the netting of prior accumulated
depreciation and will be depreciated over lives ranging from 5 to 30 years.
(G) Represents an adjustment for a license fee of a product that will not be
used in Immucor's product line.
(H) Cash value of life insurance was reduced as a result of the purchase as
certain participants of the split-dollar life insurance plan waived their
rights to the plan thereby requiring a write-down of the asset.
(I) Long-term debt was adjusted to reflect the borrowing of $20,000,000 at an
interest rate of approximately 6.6% due in March, 2005.
(J) Represents an adjustment to reflect the liability for (i) certain Gamma
Biologicals employee severance and supplemental benefit obligations, (ii)
estimated legal expenses related to a patent infringement claim filed on
May 12, 1998 against Gamma Biologicals; in its 6/30/98 Form 10Q, Gamma
Biologicals disclosed this litigation and indicated that they were
preliminarily assessing its costs and expected to incur additional defense
costs in future periods, (iii) settlement costs for a former employee's
claim against Gamma Biologicals for breach of verbal contract, (iv) accrual
for the remaining shares outstanding of Gamma Biologicals based on the net
book value of the shares at the acquisition date, and (v) other liabilities
resulting from the acquisition.
(K) Represents an accrual for stock options of $793,476 to be paid out as a
result of the purchase.
(L) These entries represent the elimination of Gamma Biologicals' historical
equity as required by generally accepted accounting principles.
<PAGE>
(M) Goodwill was adjusted to reflect (i) the elimination of existing goodwill
of Gamma Biolologicals of $100,884 and (ii) the excess of purchase cost
over the estimated fair value of the net assets acquired and liabilities
assumed, which will be amortized on a straightline basis over an estimated
life of 30 years.
A preliminary allocation of the purchase price is summarized as follows:
Purchase price $24,322,753
Employee stock options 793,476 (K)
Estimated transaction expenses 1,545,689 (A)
================
Total purchase price $26,661,918
================
Purchase price allocated to:
Net assets of Gamma Biologicals $18,297,949
Minority interest of Gamma Biologicals not acquired (741,025)(J)
Increase (decrease) to net asset value at October 27, 1998 as a result of
estimated fair value adjustments:
Receivables (16,962) (B)
Inventory (324,560) (C)
Deferred income taxes (93,300) (D)
Prepaid expenses and other (403,378) (E)
Property and equipment (1,020,047) (F)
Other assets, net (24,390) (G)
Cash value of life insurance (619,766) (H)
Goodwill (100,884) (M)
Other accrued liabilities (5,074,988) (J)
Deferred income taxes 854,200 (D) (6,824,075)
--------------
Excess of the purchase price over the fair value of
the net assets acquired: 15,929,069
================
$26,661,918
================
Tangible assets acquired $19,095,337
Goodwill 15,929,069
Liabilities assumed (8,362,488)
================
Total purchase price allocated $26,661,918
================
<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: January 11, 1999
/s/ Edward L. Gallup Edward L. Gallup, President
- ----------------------------
/s/ Steven C. Ramsey Steven C. Ramsey, Senior Vice President - Finance
- ---------------------------- (Principal Accounting Officer)
