<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended June 30, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
____________.
0-16864
------------------------------
(Commission File number)
GULL LABORATORIES, INC.
------------------------
(Exact Name of Registrant as Specified in its Charter)
UTAH 87-0404754
- - ------------------------ --------------------------------
(State of Incorporation) (IRS Employer Identification Number)
1011 EAST MURRAY HOLLADAY ROAD
SALT LAKE CITY, UTAH 84117
- - -------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(801) 263-3524
-------------------------------------
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of common stock outstanding as of August 1, 1996 was
6,563,934.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
-------------------- --------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 198,128 $ 219,415
Receivables-net 2,866,069 2,778,952
Net investment in sales-type leases 197,000 145,200
Income tax refund receivable 264,506
Inventories 3,701,254 3,393,924
Prepaid expenses 240,331 242,088
Deferred income taxes 124,000
-------------------- --------------------
Total current assets 7,202,782 7,168,085
-------------------- --------------------
Property, plant and equipment - net 3,522,985 3,572,899
Net investment in sales-type leases 835,422 507,018
Other assets - net 1,069,986 1,069,628
-------------------- --------------------
Total assets $ 12,631,175 $ 12,317,630
-------------------- --------------------
-------------------- --------------------
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,318,883 $ 2,286,123
Accounts payable 1,734,397 1,693,480
Accrued expenses 771,923 1,221,990
Income tax payable 140,269
Current portion of long-
term obligations 116,509 1,841,629
-------------------- --------------------
Total current liabilities 5,081,981 7,043,222
-------------------- --------------------
Long-term obligations 1,815,852 131,826
Deferred income taxes 180,600 304,600
Other long-term liabilities 96,503 96,503
-------------------- --------------------
Total liabilities 7,174,936 7,576,151
-------------------- --------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock 6,564 6,564
Additional paid-in capital 6,910,908 6,910,908
Foreign currency translation adjustment (121,298) (185,828)
Accumulated deficit (1,339,935) (1,990,165)
-------------------- --------------------
Total stockholders' equity 5,456,239 4,741,479
-------------------- --------------------
Total liabilities and stockholders' equity $ 12,631,175 $ 12,317,630
-------------------- --------------------
-------------------- --------------------
</TABLE>
1
<PAGE>
GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------
June 30, 1996 June 30, 1995
------------------ ------------------
<S> <C> <C>
Sales $ 4,224,050 $ 4,871,435
Cost of goods sold 1,692,484 2,407,579
------------------ ------------------
Gross Profit 2,531,566 2,463,856
------------------ ------------------
Expenses:
Selling, general and administrative 1,484,783 1,999,587
Research and development 326,002 187,656
------------------ ------------------
Total expenses 1,810,785 2,187,243
------------------ ------------------
Operating income 720,781 276,613
------------------ ------------------
Other income (expense):
Interest expense (141,574) (175,188)
Other 42,773 594,809
------------------ ------------------
Total other income (expense) (98,801) 419,621
------------------ ------------------
Income before provision for income taxes 621,980 696,234
Income tax provision 197,689 223,835
------------------ ------------------
Net income $ 424,291 $ 472,399
------------------ ------------------
------------------ ------------------
Earnings per common and common
equivalent share $ 0.06 $ 0.07
------------------ ------------------
------------------ ------------------
</TABLE>
2
<PAGE>
GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
-------------------------------------------
June 30, 1996 June 30, 1995
------------------ ------------------
<S> <C> <C>
Sales $ 9,115,831 $ 9,782,329
Cost of goods sold 3,830,273 4,910,724
------------------ ------------------
Gross Profit 5,285,558 4,871,605
------------------ ------------------
Expenses:
Selling, general and administrative 3,328,701 3,784,741
Research and development 713,497 377,180
------------------ ------------------
Total expenses 4,042,198 4,161,921
------------------ ------------------
Operating income 1,243,360 709,684
------------------ ------------------
Other income (expense):
Interest expense (260,302) (315,968)
Other 61,513 871,440
------------------ ------------------
Total other income (expense) (198,789) 555,472
------------------ ------------------
Income before provision for income taxes 1,044,571 1,265,156
Income tax provision 394,340 419,155
------------------ ------------------
Net income $ 650,231 $ 846,001
------------------ ------------------
------------------ ------------------
Earnings per common and common
equivalent share $ 0.10 $ 0.13
------------------ ------------------
------------------ ------------------
</TABLE>
3
<PAGE>
GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
-----------------------------------------
June 30, 1996 June 30, 1995
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 649,988 $ 846,002
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 361,852 359,017
Loss (gain) on sale of fixed assets 23,680 (455,196)
Changes in assets and liabilities:
Net receivables (530,971) (1,118,838)
Inventories (361,028) (254,609)
Prepaid expenses (5,493) (41,077)
Other assets (83,245) (224,187)
Accounts payable 99,100 431,944
Line of credit 53,958 59,346
Income taxes payable 404,778 166,286
Accrued expenses (405,246) 170,252
Deferred taxes (64,600)
------------------ ------------------
Net cash provided by operating activities 207,373 (125,660)
------------------ ------------------
Cash flows from investing activities:
Disposition of property, plant
and equipment 6,091 979,967
Purchase of property, plant and equipment (272,906) (209,887)
------------------ ------------------
Net cash used in investing activities (266,815) 770,080
------------------ ------------------
Cash flows from financing activities:
Proceeds from long-term obligations 83,580
Principal payments on long-term obligations (36,979) (1,274,696)
Proceeds from issuance of common stock 389,015
------------------ ------------------
Net cash provided from (used in) financing activities 46,601 (885,681)
------------------ ------------------
Foreign currency translation adjustment (8,446) (30,935)
------------------ ------------------
Net increase (decrease) in cash (21,287) (272,196)
Cash at beginning of period 219,415 368,153
------------------ ------------------
Cash at end of period $ 198,128 $ 95,957
------------------ ------------------
------------------ ------------------
</TABLE>
4
<PAGE>
GULL LABORATORIES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited consolidated condensed financial statements of Gull
Laboratories, Inc. (the "Company") as of June 30, 1996 and for the three months
and six months ended June 30, 1996 and 1995 were prepared by the Company without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. These financial statements and related notes should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1995 contained in its Annual Report on Form 10-K.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all necessary adjustments to the
financial statements have been made to present fairly the financial position and
results of operations and cash flows. The results of operations for the periods
presented are not necessarily indicative of the results for the respective
complete years.
2. INVENTORIES
Inventories consisted of the following:
June 30, December 31,
1996 1995
------------ ------------
Raw materials $1,007,100 $1,141,163
Work-in-process 1,179,100 176,624
Finished goods 1,515,054 2,076,137
---------- ----------
Total $3,701,254 $3,393,924
---------- ----------
---------- ----------
3. EARNINGS PER SHARE
Earnings per share amounts are computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during each period. The weighted average number of shares used in computing
earnings per share for the three months ended June 30, 1996 and 1995 was
6,563,934. For the six months ended June 30, 1996 and 1995, the weighted
average number of shares outstanding were 6,563,934 and 6,560,801, respectively.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CHANGES IN FINANCIAL CONDITION
The mortgage on the Company's headquarters was due July 1, 1996. As such,
the mortgage has been classified as part of the current maturities of long-term
debt and included in current liabilities. In June, the Company borrowed
$1,800,000 from a bank with interest at 10.04% payable in equal monthly
installments of approximately $19,000 to refinance the mortgage. Principally as
a result of refinancing the mortgage, the Company's ratio of current assets to
current liabilities increased from 1.02 at December 31, 1995 to 1.42 at June 30,
1996. Working capital also increased from $124,863 to $2,120,801.
The Company sells and leases laboratory equipment to its customers in
order to help customers gain operating efficiencies through automating their
operations and to compete with industry practices. This equipment is normally
placed with a customer for a 90 day evaluation period. Following the
evaluation, the equipment may be sold, leased or rented to the customer or
returned to the Company. This program has required and will continue to require
significant capital investment by the Company. At June 30, 1996, the Company
had approximately $150,000 available under a line of credit with a bank. At
December 31, 1995, the Company had approximately $330,000 available under the
line of credit. During the first half of 1996, the Company increased its usage
of the line of credit to increase the level of instrumentation inventory as well
as accounts receivable.
As the Company continues to grow, there will be a need to obtain
additional financing to fund the Company's operations and instrumentation
program and to increase building and equipment capacity. Although the Company
does not have any funding commitments, to the extent that working capital needs
cannot be financed through internally generated funds, the Company believes that
additional debt, equity and lease financing can be obtained.
RESULTS OF OPERATIONS
Sales for the second quarter of $4,224,050 were $647,385 or 13% less than
sales in the second quarter of 1995 of $4,871,435. For the six months ended
June 30, 1996, sales were $9,115,831 compared to $9,782,329 in the first six
months of 1995. This represents a 7% decrease. Sales of the Company's United
States' operations were comparable to the prior year and sales of the Company's
European operations decreased due to the loss of a significant distributed
product line and increased competition. Also, in the second quarter of 1995,
the Company's European operations sold approximately $362,000 of instrumentation
to Fresenius AG, Gull's major shareholder. Instrumentation sales to Fresenius
in the second quarter of 1996 were approximately $82,000. Increased sales of
the Company's ELISA bioreagent product lines and to the College of American
Pathologists were offset by lower sales of the Company's IFA product line.
Changes in sales were principally due to changes in volume. There were no
significant changes in the selling prices of the Company's products.
6
<PAGE>
Gross profits as a percentage of sales for the three months and the six
months ended June 30, 1996 increased to 60% and 58%, respectively, compared to
51% and 50% in the three months and the six months ended June 30, 1995. The
increase in the gross profit percentage is due to successful programs to reduce
manufacturing costs, including backward integration with the Company's
Bioresearch operations. Also, in the fourth quarter of 1995, the Company
entered into an exclusive licensing agreement to market its DUET-TM-
instrumention that has a higher gross profit margin.
Selling, general and administrative costs decreased from $1,999,587 or 41%
of sales to $1,484,783 or 35% of sales in the second quarter of 1996. For the
six months ended June 30, 1996, selling, general and administrative costs
decreased from $3,784,741 or 39% of sales to $3,328,701 or 37% of sales. During
the second quarter of 1996, the Company reversed approximately $115,000 of
excess termination costs that had been recorded in the third and fourth quarters
of 1995. The Company has also benefited from related personnel cost reductions
in Europe that were effected in the last half of 1995. Also, in 1995, the
Company incurred significant validation costs related to its instrumentation
that did not recur in 1996.
Reflecting the Company's increased focus on developing new technologies,
research and development costs increased from $187,656 in the second quarter of
1995 to $326,002 in the second quarter of 1996 and for the six months ended June
30, 1996 research and development costs were $713,497 compared to $377,180 in
1995.
Other income decreased from $871,440 in the first half of 1995 to $61,573
in the first half of 1996. In January 1995, the Company sold its German
operations to its majority shareholder, Fresenius AG, which resulted in the
recognition of a gain of approximately $134,500. In June 1995, the Company's
European operations sold its headquarters facility, recognizing a gain of
approximately $550,000.
There were no other material changes in the Company's operations during
the first half of 1996.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was sued in 1995 for claims totaling approximately $700,000 by
two former employees of its European operations alleging illegal termination and
breach of contract. The Company also filed certain counterclaims against the
employees. In June 1996, the Company reached a settlement with the former
employees in which both parties agreed to a mutual release of claims.
There are no other proceedings outside of the normal course of business
pending against the Company.
7
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On June 18, 1996, the Company held its annual shareholder's meeting to elect the
members of its Board of Directors, to ratify the Company's selection of KPMG
Peat Marwick as its auditor, to ratify certain amendments to the Gull
Laboratories, Inc. 1992 stock option plan and to ratify the award of stock
options to Dr. George R. Evanega. The results of the voting were as follows:
Vote Vote Vote
For Against Withheld
---- ------- --------
Election of Board Members:
Dr. Myron Wentz 4,784,262 -0- 70,231
Dr. Gerd Krick 4,692,761 91,501 70,231
Gerhard Krammer 4,783,754 508 70,231
Dr. Ulrich Wagner 4,783,779 483 70,231
Anne-Marie Ricart 4,758,862 25,400 70,231
Peter Gladkin 4,784,262 -0- 70,231
Dr. George R. Evanega 4,784,262 -0- 70,231
Ratification of KPMG Peat
Marwick as auditor 4,853,125 1,268 100
Ratification of amendments to Gull
Laboratories 1992 stock
option plan 4,757,289 94,239 2,425
Ratification of award of stock
options to Dr. George R. Evanega 4,758,239 93,229 3,025
No other material matter occurred during the three months ended June 30,
1996 that requires disclosure as Part II of this filing.
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.
GULL LABORATORIES, INC.
Date 8-8-96 /s/ Michael B. Malan
------ ---------------------
Michael B. Malan, CPA
Secretary/Treasurer and
V.P. of Finance (Duly authorized
officer and principal financial
officer)
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF GULL LABORATORIES,
INC. AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS AND SIX MONTHS THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 198,128
<SECURITIES> 0
<RECEIVABLES> 3,980,063
<ALLOWANCES> 81,572
<INVENTORY> 3,701,254
<CURRENT-ASSETS> 7,202,782
<PP&E> 6,773,761
<DEPRECIATION> 3,250,776
<TOTAL-ASSETS> 12,631,175
<CURRENT-LIABILITIES> 5,081,981
<BONDS> 0
0
0
<COMMON> 6,564
<OTHER-SE> 5,449,675
<TOTAL-LIABILITY-AND-EQUITY> 12,631,175
<SALES> 9,071,852
<TOTAL-REVENUES> 9,115,831
<CGS> 3,830,273
<TOTAL-COSTS> 7,872,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 113,450
<INTEREST-EXPENSE> 260,302
<INCOME-PRETAX> 1,044,571
<INCOME-TAX> 394,340
<INCOME-CONTINUING> 650,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 650,231
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
