<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 15, 2000
MERIDIAN DIAGNOSTICS, INC.
---------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Ohio
---------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-14902 31-0888197
------------------------------- ---------------------------------
(Commission File Number) (IRS Employer
Identification Number)
3471 River Hills Drive
Cincinnati, Ohio 45244
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (513) 271-3700
<PAGE> 2
ITEM 2 ACQUISITION OR DISPOSITION OF ASSETS
On September 15, 2000, Meridian Diagnostics, Inc. (the Company) acquired all of
the outstanding common stock of Viral Antigens, Inc. (VAI) for $9 million in
cash. The purchase agreement provides for additional consideration in the amount
of $8.25 million, contingent upon VAI's future earnings through September 30,
2006. The acquisition will be accounted for as a purchase. The $9 million
purchase price has been funded with bank debt from the Company's existing line
of credit facility with Fifth Third Bank.
VAI manufactures infectious disease antigens that are used in ELISA Assay, Latex
Agglutination Assay and Immunofluorescence Assay diagnostic testing systems. VAI
also manufactures and distributes a Pseudorabies Virus anti-body test kit for
the veterinary market.
ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Pro Forma Financial Information of Meridian Diagnostics, Inc. (Unaudited)
Pro Forma Combined Condensed Balance Sheet at June 30, 2000 3
Pro Forma Combined Condensed Statement of Operations for the
Nine-Month Period Ended June 30, 2000 5
Pro Forma Combined Condensed Statement of Operations for the Year
Ended September 30, 1999 7
(b) Financial Statements of Viral Antigens, Inc.
Independent Auditor's Report F-1
Balance Sheet as of October 31, 1999 F-2
Statement of Income for the Year Ended October 31, 1999 F-3
Statement of Stockholders' Equity for the Year Ended
October 31, 1999 F-4
Statement of Cash Flows for the Year Ended October 31, 1999 F-5
Notes to Financial Statements F-7
Unaudited Condensed Balance Sheets at July 31, 2000
and October 31, 1999 F-13
Unaudited Condensed Statements of Income for the Three-Month
and Nine-Month Periods Ended July 31, 2000 and 1999 F-14
Unaudited Condensed Statement of Stockholders' Equity
for the Nine-Month Period Ended July 31, 2000 F-15
Unaudited Condensed Statements of Cash Flows for the
Nine-Month Periods Ended July 31, 2000 and 1999 F-16
Notes to Unaudited Condensed Financial Statements F-18
(c) Exhibits
Merger Agreement among Viral Antigens, Inc., Exhibit 10.21
Preston H. Dorsett, Karen C. Dorsett, Robert F. Naegele,
Ronald W. Kim, Meridian Acquisition Company and Meridian
Diagnostics, Inc. dated September 13, 2000
Earnout Agreement among Preston H. Dorsett, Exhibit 10.22
Karen C. Dorsett, Robert F. Naegele, Ronald W. Kim
and Meridian Diagnostics, Inc. dated September 13, 2000
Consent of Independent Public Accountants Exhibit 23
Forward Looking Statements Exhibit 99
-1-
<PAGE> 3
PRO FORMA FINANCIAL INFORMATION OF MERIDIAN DIAGNOSTICS, INC. (UNAUDITED)
The Pro Forma Condensed Combined Balance Sheet of Meridian Diagnostics, Inc.
(the Company) as of June 30, 2000 reflects the financial position of the Company
after giving effect to the acquisition discussed in Item 2, as if such
acquisition was effective June 30, 2000. The Pro Forma Condensed Combined
Statements of Earnings for the Nine-Month Period Ended June 30, 2000 and the
Year Ended September 30, 1999, assumes that the acquisition was effective
October 1, 1998, and are based on the operations of the Company for those
respective periods.
The pro forma financial statements have been derived from the historical
financial statements of the Company and Viral Antigens, Inc. The acquisition is
being accounted for as a purchase, pursuant to which the purchase price is
allocated to the assets acquired and liabilities assumed based on fair value.
The pro forma financial statements included herein are not necessarily
indicative of the future consolidated financial position or results of
operations of the Company. Furthermore, the pro forma financial statements are
not indicative of the consolidated financial position or results of operations
of the Company that would have actually occurred had the transaction been in
effect for the periods included herein because the acquisition and related
purchase price were based on financial terms and conditions that existed on the
acquisition date and not as of October 1, 1998.
The allocation of the purchase price included herein is preliminary and based on
estimates, pending the completion of a closing balance sheet audit and certain
appraisals of assets acquired. These estimates may be revised at a later date
based on completion of the closing balance sheet audit and certain appraisals of
assets acquired. These estimates may differ substantially from the pro forma
adjustments included herein. Furthermore, the final allocation of the purchase
price may include an allocation to in-process research and development. No such
allocation has been made in the pro forma adjustments included herein. The
allocation of the purchase price included herein is based solely on the $9
million paid at closing, and excludes the effects of additional contingent
consideration, if any, described in Item 2 herein.
The pro forma financial statements included herein should be read in conjunction
with the historical consolidated financial statements of the Company included in
its Annual Report on Form 10-K/A for the Year Ended September 30, 1999.
A summary of the purchase price allocation included in the pro forma financial
statements follows (000's):
<TABLE>
<S> <C>
Purchase price, including estimated transaction costs of $750 $9,750
-------------
Less fair value of assets acquired -
Accounts receivable 917
Inventory 3,517
Property, plant and equipment 4,368
Other assets 532
-------------
9,334
-------------
Plus fair value of liabilities assumed -
Debt and capital lease obligations 1,439
Deferred tax liabilities 2,923
Other liabilities 122
-------------
4,484
-------------
Intangible assets acquired, including goodwill $4,900
=============
</TABLE>
-2-
<PAGE> 4
<TABLE>
<CAPTION>
MERIDIAN DIAGNOSTICS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 2000 (000'S)
Viral Pro Forma
Meridian (k) Antigens Adjustments Combined
---------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Current Assets -
Cash and investments $ 5,986 $ 433 $ (783) (a) $ 5,636
Accounts receivable - trade and other 14,293 925 (8) (b) 15,210
Inventories 11,638 2,317 1,200 (c) 15,155
Prepaid expenses and other 614 61 (75) (b) 600
Deferred income taxes 562 44 606
---------------------------------------------------------------
Total current assets 33,093 3,780 334 37,207
---------------------------------------------------------------
Property, Plant and Equipment, net 13,352 3,365 1,003 (d) 17,720
Other Assets -
Long-term receivables and other 1,466 937 (917) (e) 1,486
Deferred debenture costs 821 - 821
Intangible assets, including goodwill 22,418 7 4,893 (f) 27,318
---------------------------------------------------------------
Total other assets 24,705 944 3,976 29,625
---------------------------------------------------------------
Total assets $ 71,150 $ 8,089 $ 5,313 $ 84,552
===============================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities -
Current portion of long-term obligations $ 632 $ 148 $ 780
Accounts payable and accrued expenses 7,131 464 (83) (b) 7,512
Income taxes payable 1,404 39 (380) (g) 1,063
---------------------------------------------------------------
Total current liabilities 9,167 651 (463) 9,355
---------------------------------------------------------------
Long-term Debt and Capital Lease Obligations 24,304 1,291 9,000 (h) 34,595
Deferred Income Tax Liabilities 3,602 56 2,867 (i) 6,525
Shareholders' Equity -
Common stock 2,529 1 (1) (j) 2,529
Additional paid-in capital 20,922 - 20,922
Cumulative currency translation (3,229) - (3,229)
Retained earnings 13,855 6,210 (6,210) (j) 13,855
Treasury stock - (120) 120 (j) -
---------------------------------------------------------------
Total shareholders' equity 34,077 6,091 (6,091) 34,077
---------------------------------------------------------------
$ 71,150 $ 8,089 $ 5,313 $ 84,552
===============================================================
</TABLE>
-3-
<PAGE> 5
MERIDIAN DIAGNOSTICS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
June 30, 2000 (000's)
(a) This adjustment is made to reduce cash and investments for the
following:
<TABLE>
<S> <C>
Payment of estimated transaction costs of Meridian $ (750)
Payment of estimated transaction costs by VAI prior to closing (200)
Payment of bonuses by VAI to its shareholders prior to closing (750)
Collection of receivables due from VAI shareholders prior to closing 660
Collection of cash surrender value of VAI officer life insurance policies
upon cancellation of such policies 257
--------------
$ (783)
==============
</TABLE>
(b) This adjustment is made to eliminate intercompany receivables and
payables.
(c) This adjustment is made to state inventory acquired at estimated fair
value.
(d) This adjustment is made to state fixed assets acquired at estimated
fair value.
(e) This adjustment is made to eliminate receivables due from VAI
shareholders ($660) and cash surrender value of VAI life insurance
policies ($257), both settled prior to closing.
(f) This adjustment is made to record estimated intangible assets acquired,
including goodwill.
(g) This adjustment is made to reduce income taxes payable for the tax
effects of transaction costs paid by VAI and bonuses paid by VAI to its
shareholders, both prior to closing.
(h) This adjustment is made to record the debt obligation incurred to fund
the purchase of VAI.
(i) This adjustment is made to record deferred income tax liabilities
related to temporary basis differences resulting from the application
of purchase accounting.
(j) These adjustments are made to eliminate VAI's shareholders' equity
accounts. The adjustment to eliminate VAI's retained earnings excludes
the effects of the expenses related to the payment of transaction costs
by VAI prior to closing and the payment of bonuses by VAI to its
shareholders prior to closing, because such expenses are unusual and
non-recurring in nature. Such expenses have also been excluded from the
accompanying Pro Forma Condensed Combined Statements of Earnings for
the same reason.
(k) Restated to reflect the correction of a book-keeping error which
occurred in June 1999, related to sales to Meridian's German
subsidiary.
-4-
<PAGE> 6
<TABLE>
<CAPTION>
MERIDIAN DIAGNOSTICS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS (UNAUDITED)
NINE-MONTH PERIOD ENDED JUNE 30, 2000 (000'S EXCEPT PER SHARE DATA)
Viral Pro Forma
Meridian Antigens Adjustments Combined
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 43,246 $ 4,643 $ (20) (a) $ 47,869
Cost of Goods Sold 16,016 2,043 (13) (a) 18,046
--------------------------------------------------------------------
Gross profit 27,230 2,600 (7) 29,823
--------------------------------------------------------------------
Operating Expenses -
Research and development 1,457 834 2,291
Selling and marketing 8,944 262 9,206
General and administrative 7,351 1,014 245 (b) 8,610
--------------------------------------------------------------------
Total operating expenses 17,752 2,110 245 20,107
--------------------------------------------------------------------
Operating income 9,478 490 (252) 9,716
Other Income (Expense) -
Interest income 294 34 (30) (c) 298
Interest expense (1,543) (93) (540) (d) (2,176)
Other, net 335 25 360
-
--------------------------------------------------------------------
Total other income (expense) (914) (34) (570) (1,518)
--------------------------------------------------------------------
Earnings (Loss) Before Income Taxes 8,564 456 (822) 8,198
Provision (Benefit) for Income Taxes 3,361 165 (311) (e) 3,215
--------------------------------------------------------------------
Net Earnings (Loss) $ 5,203 $ 291 $ (511) $ 4,983
====================================================================
Basic Weighted Average Number of Common
Shares Outstanding 14,525 14,525
Basic Earnings Per Share $ 0.36 $ 0.34
Diluted Weighted Average Number of Common
Shares Outstanding 14,618 14,618
Diluted Earnings Per Share $ 0.36 $ 0.34
</TABLE>
-5-
<PAGE> 7
MERIDIAN DIAGNOSTICS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS (UNAUDITED)
NINE-MONTH PERIOD ENDED JUNE 30, 2000 (000'S)
(a) These adjustments are made to eliminate sales of inventory from VAI to
Meridian.
(b) This adjustment is made to reflect the amortization of intangible
assets acquired using a weighted average life of 15 years.
(c) This adjustment is made to reduce interest income for the net reduction
in cash and investments related to the items in Note (a) on page 4
herein.
(d) This adjustment is made to increase interest expense for the cost
related to the $9 million of acquisition funding debt, at an interest
rate of 8%. A 0.125% adjustment to the interest rate would change
interest expense by approximately $8.
(e) This adjustment is made to reflect the following:
<TABLE>
<CAPTION>
<S> <C>
Incremental taxes that occur as a result of filing a consolidated federal tax return $ 17
Tax effect of pro forma adjustments (a) - (d) (328)
----------------
$ (311)
================
</TABLE>
-6-
<PAGE> 8
<TABLE>
<CAPTION>
MERIDIAN DIAGNOSTICS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS (UNAUDITED)
YEAR ENDED SEPTEMBER 30, 1999 (000'S EXCEPT PER SHARE DATA)
Viral Pro Forma
Meridian (f) Antigens Adjustments Combined
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 53,927 $ 5,318 $ (49) (a) $ 59,196
Cost of Goods Sold 19,558 2,116 (16) (a) 21,658
--------------------------------------------------------------------
Gross profit 34,369 3,202 (33) 37,538
--------------------------------------------------------------------
Operating Expenses -
Research and development 1,986 1,116 3,102
Selling and marketing 11,172 308 11,480
General and administrative 9,769 1,341 326 (b) 11,436
Merger integration 3,415 - 3,415
Purchased in-process research and development 1,500 - 1,500
--------------------------------------------------------------------
Total operating expenses 27,842 2,765 326 30,933
--------------------------------------------------------------------
Operating income 6,527 437 (359) 6,605
Other Income (Expense) -
Interest income 505 46 (40) (c) 511
Interest expense (2,143) (106) (720) (d) (2,969)
Other, net (77) 66 (11)
--------------------------------------------------------------------
Total other income (expense) (1,715) 6 (760) (2,469)
--------------------------------------------------------------------
Earnings (Loss) Before Income Taxes 4,812 443 (1,119) 4,136
Provision (Benefit) for Income Taxes 2,739 156 (426) (e) 2,469
--------------------------------------------------------------------
Net Earnings (Loss) $ 2,073 $ 287 $ (693) $ 1,667
====================================================================
Basic Weighted Average Number of Common
Shares Outstanding 14,385 14,385
Basic Earnings Per Share $ 0.14 $ 0.12
Diluted Weighted Average Number of Common
Shares Outstanding 14,580 14,580
Diluted Earnings Per Share $ 0.14 $ 0.11
</TABLE>
-7-
<PAGE> 9
MERIDIAN DIAGNOSTICS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS (UNAUDITED)
YEAR ENDED SEPTEMBER 30, 1999 (000'S)
(a) These adjustments are made to eliminate sales of inventory from VAI to
Meridian.
(b) This adjustment is made to reflect the amortization of intangible
assets acquired using a weighted average life of 15 years.
(c) This adjustment is made to reduce interest income for the net reduction
in cash and investments related to the items in Note (a) on page 4
herein.
(d) This adjustment is made to increase interest expense for the cost
related to the $9 million of acquisition funding debt, at an interest
rate of 8%. A 0.125% adjustment to the interest rate would change
interest expense by a approximately $11.
(e) This adjustment is made to reflect the following:
<TABLE>
<S> <C>
Incremental taxes that occur as a result of filing a consolidated federal tax return $ 21
Tax effect of pro forma adjustments (a) - (d) (447)
----------------
$ (426)
================
</TABLE>
(f) Restated to reflect the correction of a book-keeping error which
occurred in June 1999, related to sales to Meridian's German
subsidiary.
-8-
<PAGE> 10
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Viral Antigens, Inc.
Memphis, Tennessee
We have audited the accompanying balance sheet of Viral Antigens, Inc. as of
October 31, 1999, and the related statements of income, stockholders' equity,
and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Viral Antigens, Inc. as of
October 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
REYNOLDS, BONE & GRIESBECK PLC
Memphis, Tennessee
December 2, 1999
F-1
<PAGE> 11
BALANCE SHEET
Viral Antigens, Inc.
October 31, 1999
--------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 26,303
Receivables
Trade accounts 1,239,111
Officers, employees, and related interests 50,085
Inventories 2,198,402
Prepaid expenses 58,395
Investments - available-for-sale 149,044
Deferred income taxes 43,778
-----------------
Total current assets 3,765,118
Property, plant, and equipment, net of accumulated
depreciation 2,872,035
Receivables from officers, employees, and related
interests 618,429
Investments - available-for-sale 25,000
Cash value of life insurance 236,500
Other assets 5,000
-----------------
$ 7,522,082
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt $ 91,064
Accounts payable 153,075
Income taxes 26,928
Accrued expenses 136,350
-----------------
Total current liabilities 407,417
Long-term debt, less current installments 1,194,012
Deferred income taxes 55,758
-----------------
1,657,187
Stockholders' equity
Common stock, Class A, no par value; 90,000 shares
authorized and issued 1,000
Common stock, Class B, no par value; 10,000 shares
authorized; no shares issued -
Retained earnings 5,945,634
Accumulated other comprehensive income (1,740)
-----------------
5,944,894
Less 720 shares of treasury stock 79,999
-----------------
Total stockholders' equity 5,864,895
-----------------
$ 7,522,082
=================
See notes to financial statements.
F-2
<PAGE> 12
STATEMENT OF INCOME
Viral Antigens, Inc.
Year Ended October 31, 1999
--------------------------------------------------------------------------------
Sales $ 5,496,659
Cost of sales 2,261,043
-----------------
Gross profit 3,235,616
Operating expenses
General and administrative 1,189,264
Shipping 38,890
Marketing 281,682
Research and development 1,043,815
-----------------
2,553,651
-----------------
Operating income 681,965
Other income (expenses)
Fees and commissions 9,000
Interest and dividend income 48,983
Interest expense (105,596)
Gain on disposal of equipment 32,977
Loss on sale of investments - available-for-sale (409)
Other 28,103
-----------------
13,058
-----------------
Income before income taxes 695,023
Income taxes 252,522
-----------------
Net income $ 442,501
=================
See notes to financial statements.
F-3
<PAGE> 13
STATEMENT OF STOCKHOLDERS' EQUITY
Viral Antigens, Inc.
Year Ended October 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
------------------------- Retained Comprehensive Treasury
Class A Class B Earnings Income Stock Total
------------------------- --------------- ---------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
October 31, 1998 $1,000 $ - $ 5,503,133 $ (1,934) $ - $ 5,502,199
Comprehensive income
Net income - - 442,501 - - 442,501
Net change in
unrealized loss on
investments -
available-for-sale - - - 194 - 194
--------------
Total comprehensive
income 442,695
Purchase of 720 shares
of treasury stock - - - - (79,999) (79,999)
Common stock, Class
A stock dividend (see
note 11 to the financial
statements) - - - - - -
------------------------- --------------- ---------------- ------------- --------------
Balance at
October 31, 1999 $1,000 $ - $ 5,945,634 $ (1,740) $(79,999) $ 5,864,895
========================= =============== ================ ============= ==============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 14
STATEMENT OF CASH FLOWS
Viral Antigens, Inc.
Year Ended October 31, 1999
--------------------------------------------------------------------------------
Cash flows from operating activities
Cash receipts
Customers $ 5,654,716
Interest and dividend income 21,351
Fees and commissions 9,000
Other 21,958
-----------------
5,707,025
Cash disbursements
Material and supply costs (1,241,023)
Employee related costs (2,726,163)
Consultants and other professionals (80,158)
Commissions and royalties (5,367)
Income taxes, net (364,090)
Nonemployee insurance (74,405)
Repairs and maintenance (135,230)
Nonemployee marketing costs (97,915)
Interest expense (96,911)
Other payments (277,018)
-----------------
(5,098,280)
-----------------
Cash provided by operating activities 608,745
-----------------
Cash flows from investing activities
Purchases of property, plant, and equipment (707,708)
Proceeds from sale of equipment 49,456
Purchases of investments - available-for-sale (68,672)
Proceeds from sale of investments - available-for-sale 101,667
Collections on notes receivable 59,900
Advances to officers, employees, and related interests (133,571)
-----------------
Cash used for investing activities (698,928)
-----------------
Cash flows from financing activities
Reduction of principal on long-term debt (113,738)
Purchase of treasury stock (79,999)
-----------------
Cash used for financing activities (193,737)
-----------------
Net decrease in cash (283,920)
Cash at beginning of year 310,223
-----------------
Cash at end of year $ 26,303
=================
Continued
F-5
<PAGE> 15
STATEMENT OF CASH FLOWS
Viral Antigens, Inc.
Year Ended October 31, 1999
--------------------------------------------------------------------------------
Indirect cash flow information:
Operating activities
Net income $ 442,501
Noncash adjustments
Depreciation 247,686
Gain on disposal of equipment (32,977)
Loss on sale of investments - available-for-sale 409
Deferred income taxes 3,627
Decrease in cash value of life insurance 5,162
Changes in operating assets and liabilities
Receivables 31,048
Inventories (121,667)
Prepaid expenses (1,177)
Accounts payable 51,417
Income taxes (100,503)
Accrued expenses 83,219
-----------------
Cash provided by operating activities $ 608,745
=================
See notes to financial statements.
F-6
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
Viral Antigens, Inc.
October 31, 1999
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Other Matters
Viral Antigens, Inc. (the Company) develops and manufactures diagnostic
test kits and antigens utilized in the diagnosis of human and veterinary
diseases.
The customer base of the Company is worldwide. At October 31, 1999, the
Company's funds on deposit with local banks were insured by an agency of
the U. S. Government.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results may differ from those estimates.
Accounts Receivable
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts has been established. If
accounts become uncollectible, they will be charged to operations when
that determination is made.
Investments - Available-for-Sale
Investments classified as available-for-sale are stated at estimated fair
value. Fair values are determined by reference to current market
quotations. Unrealized gains and losses on available-for-sale investments
are reported as direct increases or decreases in other comprehensive
income. Gains and losses on sale of available-for-sale securities are
determined using the specific identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market (net realizable value).
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost less accumulated
depreciation. Depreciation of plant and equipment is provided over the
estimated useful lives of the respective assets using the straight-line
method. Maintenance and repairs are charged to expense as incurred; major
renewals and betterments are capitalized. When items of property, plant,
or equipment are sold or retired, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is
included in the determination of net income.
Continued
F-7
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
Viral Antigens, Inc.
October 31, 1999
--------------------------------------------------------------------------------
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of current and deferred taxes.
Deferred taxes are recognized for differences between the bases of assets
and liabilities for financial statement and income tax purposes. The
differences relate to inventories and property and equipment.
Profit Sharing Plan
The Company has a noncontributory profit sharing plan that covers all
eligible employees. Contributions to the plan are at the discretion of the
Board of Directors. Profit sharing plan expense for the year ended October
31, 1999 was $80,000.
Cash Flows
Cash on hand and cash on deposit are considered as cash for purposes of
the statement of cash flows.
2. INVENTORIES
A summary of inventories at October 31, 1999 follows:
Raw materials $ 370,669
Work-in-process 1,277,798
Finished goods 549,935
----------------
$ 2,198,402
================
3. INVESTMENTS - AVAILABLE-FOR-SALE
The cost and estimated fair values of investments - available-for-sale at
October 31, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Fair Value
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Mutual funds $ 150,784 $ 2,697 $ (4,437) $ 149,044
Common stock 25,000 - - 25,000
------------------ ----------------- ----------------- -----------------
$ 175,784 $ 2,697 $ (4,437) $ 174,044
================== ================= ================= =================
</TABLE>
Continued
F-8
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
Viral Antigens, Inc.
October 31, 1999
--------------------------------------------------------------------------------
4. PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment at October 31, 1999 follows:
Land $ 116,019
Land improvements 20,213
Buildings 2,597,431
Laboratory equipment 2,070,304
Computer equipment 342,729
Transportation equipment 89,060
Furniture and fixtures 416,915
Construction in progress 109,856
----------------
5,762,527
Less accumulated depreciation 2,890,492
----------------
$ 2,872,035
================
5. LONG-TERM DEBT
A summary of long-term debt at October 31, 1999 follows:
Note payable in monthly payments of $15,060,
including interest at 7.75%, through
December 2001 with the remaining principal
balance of $1,078,650 due in January 2002;
secured by property, plant, and equipment $ 1,285,076
Less current installments of long-term debt 91,064
----------------
Long-term debt, less current installments $ 1,194,012
================
Under the note payable agreements with the bank, the Company is required
to limit loans to stockholders, officers, employees, and their families to
a specified amount, and maintain a specified debt to net worth ratio;
minimum working capital; minimum net worth, as defined; and minimum funds
flow coverage, as defined.
The long-term debt installments for each of the years following October
31, 1999 are: 2000 - $91,064; 2001 - $91,390; and 2002 - $1,102,622.
Continued
F-9
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
Viral Antigens, Inc.
October 31, 1999
--------------------------------------------------------------------------------
6. LINE OF CREDIT
The Company has a $600,000 line of credit with a bank at October 31, 1999.
There are no borrowings against the line at October 31, 1999. Borrowings
under this line of credit are secured by certain accounts receivable and
inventories and bear interest at a variable rate.
7. ACCRUED EXPENSES
A summary of accrued expenses at October 31, 1999 follows:
Payroll and related taxes $ 125,376
Interest payable 8,592
Other 2,382
----------------
$ 136,350
================
8. INCOME TAXES
The components of income tax expense for the year ended October 31, 1999
follow:
Federal
Current $ 210,267
Deferred 3,054
State
Current 38,628
Deferred 573
----------------
$ 252,522
================
Continued
F-10
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
Viral Antigens, Inc.
October 31, 1999
--------------------------------------------------------------------------------
Total income tax expense was $252,522 for the year ended October 31, 1999
(an effective tax rate of 36.3%), which is more than income tax expense
computed by applying the United States federal corporate income tax rate
of 34% to income before income taxes. The reasons for this difference are
as follows:
<TABLE>
<CAPTION>
Percent of
Pretax
Amount Income
----------------- ----------------
<S> <C> <C>
Computed "expected" income tax expense $ 236,308 34.0%
State income tax, net of federal income tax benefit 25,873 3.7
Research and development income tax credit (12,791) (1.9)
Nondeductible meals and entertainment expenses 3,336 0.5
Other (204) -
----------------- ----------------
Actual income tax expense $ 252,522 36.3%
================= ================
Deferred income tax expense results from temporary differences between the
bases of assets and liabilities for financial statement and income tax
purposes. The sources of these differences for the year ended October 31,
1999 and the tax effect of each are as follows:
Excess of tax over book inventories $ (6,565)
Excess of tax over book depreciation 10,192
----------------
$ 3,627
================
Information on the deferred income tax balance sheet accounts at October
31, 1999 follows:
Noncurrent deferred tax asset $ 3,800
Less valuation allowance (3,800)
----------------
-
Current deferred tax asset 43,778
Noncurrent deferred tax liability (55,758)
----------------
Net deferred tax liability $ (11,980)
================
</TABLE>
At October 31, 1999, the Company has a capital loss carryforward of
$10,000 for federal income tax purposes. The capital loss carryforward
will expire, if not used, on October 31, 2001. The estimated income tax
benefits from the capital loss carryforward have been fully reserved at
October 31, 1999 and are not reflected in the accompanying financial
statements. The valuation allowance for the capital loss carryforward did
not change during the year ended October 31, 1999.
Continued
F-11
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
Viral Antigens, Inc.
October 31, 1999
--------------------------------------------------------------------------------
9. RELATED PARTIES
Receivables from officers, employees, and related interests relate
principally to interest bearing unsecured notes receivable and related
accrued interest receivable. Interest income during the year ended October
31, 1999 on receivables from officers, employees, and related interests
was $28,306.
The Company is affiliated with another corporation through common
ownership. Fee revenue of $9,000 was generated from charges to this
affiliate during the year ended October 31, 1999 for services performed.
At October 31, 1999, an account receivable of $60 was due from such
affiliate for allocated operating and other costs.
10. MAJOR CUSTOMERS
During the year ended October 31, 1999, the following customers provided
more than 10% of the Company's gross revenue:
Customer
1 48.37%
2 14.33%
11. COMMON STOCK
The Board of Directors increased the number of authorized common stock on
August 23, 1999 as follows:
Shares Authorized
-----------------------------------------
From To
----------------- ----------------
Common Stock, Class A 900 90,000
Common Stock, Class B 100 10,000
On August 23, 1999, the Company declared a stock dividend to holders of
the Company's Class A common stock. This dividend resulted in an
additional 89,100 shares of Class A common stock being issued. Because the
Company is a closely held corporation, the stock dividend is treated in a
manner consistent with a stock split.
F-12
<PAGE> 22
CONDENSED BALANCE SHEETS (UNAUDITED)
Viral Antigens, Inc.
July 31, 2000 and October 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
July 31, 2000 October 31, 1999
-------------------- ---------------------
ASSETS
<S> <C> <C>
Current assets
Cash $ 136,751 $ 26,303
Receivables
Trade accounts 1,330,394 1,239,111
Officers, employees, and related interests 488,568 50,085
Inventories 2,327,603 2,198,402
Prepaid expenses 82,828 58,395
Investments - available-for-sale 74,044 149,044
Deferred income taxes 43,778 43,778
-------------------- ---------------------
Total current assets 4,483,966 3,765,118
Property, plant, and equipment, net of accumulated
depreciation 3,366,400 2,872,035
Receivables from officers, employees, and related interests 190,687 618,429
Investments - available-for-sale 1 25,000
Cash value of life insurance 262,463 236,500
Other assets 6,250 5,000
-------------------- ---------------------
$ 8,309,767 $ 7,522,082
==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt $ 149,354 $ 91,064
Note payable to bank 100,000 -
Accounts payable 304,519 153,075
Income taxes 78,120 26,928
Accrued expenses 95,084 136,350
-------------------- ---------------------
Total current liabilities 727,077 407,417
Long-term debt, less current installments 1,278,431 1,194,012
Deferred income taxes 55,758 55,758
-------------------- ---------------------
2,061,266 1,657,187
Stockholders' equity
Common stock, Class A, no par value; 90,000 shares
authorized and issued 1,000 1,000
Common stock, Class B, no par value; 10,000 shares
authorized; no shares issued - -
Retained earnings 6,369,240 5,945,634
Accumulated other comprehensive income (1,740) (1,740)
-------------------- ---------------------
6,368,500 5,944,894
Less shares of treasury stock (1,080 in 2000 and
720 in 1999) 119,999 79,999
-------------------- ---------------------
Total stockholders' equity 6,248,501 5,864,895
-------------------- ---------------------
$ 8,309,767 $ 7,522,082
==================== =====================
</TABLE>
See notes to financial statements.
F-13
<PAGE> 23
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Viral Antigens, Inc.
Three Months and Nine Months Ended July 31, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------------------- ---------------------------------
2000 1999 2000 1999
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sales $ 1,997,711 $ 1,463,035 $ 4,491,570 $ 3,723,690
Cost of sales 806,458 526,407 1,865,159 1,481,222
---------------- ---------------- --------------- ---------------
Gross profit 1,191,253 936,628 2,626,411 2,242,468
Operating expenses
General and administrative 297,806 251,996 862,640 798,882
Shipping 13,125 12,651 27,693 26,852
Marketing 74,961 63,135 219,223 202,262
Research and development 263,609 302,386 786,484 756,382
---------------- ---------------- --------------- ---------------
649,501 630,168 1,896,040 1,784,378
---------------- ---------------- --------------- ---------------
Operating income 541,752 306,460 730,371 458,090
Other income (expenses)
Fees and commissions - 3,000 15,479 9,000
Interest and dividend income 9,351 9,932 25,716 31,489
Interest expense (31,168) (26,090) (95,513) (79,814)
Gain on disposal of equipment - - - 32,977
Loss on investments -
available-for-sale - - (24,999) -
Other 22,646 3,786 31,672 17,111
---------------- ---------------- --------------- ---------------
829 (9,372) (47,645) 10,763
---------------- ---------------- --------------- ---------------
Income before income taxes 542,581 297,088 682,726 468,853
Income taxes 207,500 112,810 259,120 177,669
---------------- ---------------- --------------- ---------------
Net income $ 335,081 $ 184,278 $ 423,606 $ 291,184
================ ================ =============== ===============
</TABLE>
See notes to financial statements.
F-14
<PAGE> 24
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Viral Antigens, Inc.
Nine Months Ended July 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
------------------------- Retained Comprehensive Treasury
Class A Class B Earnings Income Stock Total
------------ ------------ ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
October 31, 1999 $1,000 $ - $ 5,945,634 $ (1,740) $(79,999) $ 5,864,895
Comprehensive income
Net income - - 423,606 - - 423,606
Net change in
unrealized loss on
investments -
available-for-sale - - - - - -
--------------
Total comprehensive
income 423,606
Purchase of 360 shares
of treasury stock - - - - (40,000) (40,000)
------------ ------------ ---------------- ---------------- -------------- --------------
Balance at
July 31, 2000 $1,000 $ - $ 6,369,240 $ (1,740) $(119,999) $ 6,248,501
============ ============ ===============================================================
</TABLE>
See notes to financial statements.
F-15
<PAGE> 25
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Viral Antigens, Inc.
Nine Months Ended July 31, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
July 31, 2000 July 31, 1999
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities
Cash receipts
Customers $ 4,400,333 $ 4,201,174
Interest and dividend income 6,557 9,861
Fees and commissions 15,479 9,000
Other 21,107 2,025
------------------ -----------------
4,443,476 4,222,060
Cash disbursements
Material and supply costs (960,007) (977,865)
Employee related costs (2,067,867) (1,908,325)
Consultants and other professionals (123,506) (63,445)
Commissions and royalties (1,391) (3,360)
Income taxes, net (207,928) (302,090)
Nonemployee insurance (88,376) (91,078)
Repairs and maintenance (111,676) (91,228)
Nonemployee marketing costs (46,367) (48,226)
Interest expense (95,512) (79,899)
Other payments (269,422) (230,554)
------------------ -----------------
(3,972,052) (3,796,070)
------------------ -----------------
Cash provided by operating activities 471,424 425,990
------------------ -----------------
Cash flows from investing activities
Purchases of property, plant, and equipment (653,376) (414,129)
Proceeds from sale of equipment - 49,457
Purchases of investments - available-for-sale (45,000) (45,000)
Proceeds from sale of investments - available-for-sale 120,000 100,000
Collections on notes receivable 9,223 32,553
Advances to officers, employees, and related interests (1,000) (133,571)
------------------ -----------------
Cash used for investing activities (570,153) (410,690)
------------------ -----------------
Cash flows from financing activities
Long-term debt borrowings 250,000 -
Reduction of principal on long-term debt (100,823) (100,628)
Net increase in note payable to bank 100,000 35,479
Purchase of treasury stock (40,000) -
------------------ -----------------
Cash provided by (used for) financing activities 209,177 (65,149)
------------------ -----------------
Net increase (decrease) in cash 110,448 (49,849)
Cash at beginning of period 26,303 310,223
------------------ -----------------
Cash at end of period $ 136,751 $ 260,374
================== =================
</TABLE>
Continued
F-16
<PAGE> 26
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Viral Antigens, Inc.
Nine Months Ended July 31, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
July 31, 2000 July 31, 1999
------------------ -----------------
<S> <C> <C>
Indirect cash flow information:
Operating activities
Net income $ 423,606 $ 291,184
Noncash adjustments
Depreciation 219,154 188,141
Gain on disposal of equipment - (32,977)
Loss on investments - available-for-sale 24,999 -
Increase in cash value of life insurance (25,963) (26,487)
Changes in operating assets and liabilities
Receivables (110,247) 294,942
Inventories (129,201) (207,499)
Prepaid expenses (25,683) (16,595)
Accounts payable 84,833 54,053
Income taxes 51,192 (124,421)
Accrued expenses (41,266) 5,649
------------------ -----------------
Cash provided by operating activities $ 471,424 $ 425,990
================== =================
</TABLE>
See notes to financial statements.
F-17
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Viral Antigens, Inc.
July 31, 2000
--------------------------------------------------------------------------------
1. BASIS FOR PRESENTATION
The financial statements included herein have not been audited by
independent public accountants, but include all adjustments (consisting of
normal recurring entries) which are, in the opinion of management,
necessary for a fair presentation of the results for such periods.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to the requirements of
the Securities and Exchange Commission, although Viral Antigens, Inc. (the
Company) believes that the disclosures included in these financial
statements are adequate to make the information not misleading.
It is suggested that these financial statements be read in conjunction
with the Company's October 31, 1999 financial statements.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
2. INVENTORIES
A summary of inventories at July 31, 2000 and October 31, 1999 follows:
July 31, October 31,
2000 1999
----------------- ----------------
Raw materials $ 445,805 $ 370,669
Work-in-process 1,641,730 1,277,798
Finished goods 240,068 549,935
----------------- ----------------
$ 2,327,603 $ 2,198,402
================= ================
Continued
F-18
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Viral Antigens, Inc.
July 31, 2000
--------------------------------------------------------------------------------
3. PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment at July 31, 2000 and October
31, 1999 follows:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
----------------- ----------------
<S> <C> <C>
Land $ 116,019 $ 116,019
Land improvements 20,213 20,213
Buildings 3,143,967 2,597,431
Laboratory equipment 2,308,547 2,070,304
Computer equipment 360,956 342,729
Transportation equipment 89,060 89,060
Furniture and fixtures 421,343 416,915
Construction in progress - 109,856
----------------- ----------------
6,460,105 5,762,527
Less accumulated depreciation 3,093,705 2,890,492
----------------- ----------------
$ 3,366,400 $ 2,872,035
================= ================
</TABLE>
4. INCOME TAXES
The provisions for income taxes were computed at the estimated annualized
effective tax rates utilizing current tax law in effect.
5. COMPREHENSIVE INCOME
Comprehensive income is the total of net income and all other non-owner
changes in equity. Information on total comprehensive income is presented
on the Company's statement of stockholders' equity included herein.
F-19
<PAGE> 29
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 hereto duly authorized.
MERIDIAN DIAGNOSTICS, INC.
Dated: September 29, 2000 By: /s/ Melissa Lueke
-------------------------
Melissa Lueke
Corporate Controller
(Acting Principal Accounting Officer)
