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, 1997.
[ ] 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, 1997 was
6,616,784.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 1997 December 31, 1996
---------------- --------------------
ASSETS
Current assets:
Cash and cash equivalents $ 219,052 $ 301,033
Receivables-net 3,240,564 2,406,222
Net investment in sales-type leases 164,354 262,831
Income tax refund receivable 134,743
Inventories 4,339,457 3,324,408
Prepaid expenses 671,288 399,774
Deferred income taxes 124,000 108,000
---------------- --------------------
Total current asset 8,758,715 6,937,011
Property, plant and equipment - net 3,554,754 3,616,171
Net investment in sales-type leases 705,894 810,419
Other assets - net 1,053,431 989,101
---------------- --------------------
Total assets $ 14,072,794 $ 12,352,702
================ ====================
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,115,910 $ 1,675,322
Accounts payable 2,119,762 1,648,036
Accrued expenses 353,305 471,825
Income tax payable 132,842
Current portion of long-
term obligations 480,708 401,937
---------------- --------------------
Total current liabilities 5,202,527 4,197,120
Long-term obligations 3,339,334 2,785,893
Deferred income taxes 314,000 298,000
Other long-term liabilities 96,503 96,503
---------------- --------------------
Total liabilities 8,952,364 7,377,516
---------------- --------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock 6,617 6,564
Additional paid-in capital 7,121,279 6,910,908
Foreign currency translation
adjustment (270,305) (192,833)
Accumulated deficit (1,737,161) (1,749,453)
---------------- --------------------
Total stockholders' 5,120,430 4,975,186
---------------- --------------------
Total liabilities and stockholders $ 14,072,794 $ 12,352,702
================ ====================
1
<PAGE>
GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three months ended
----------------------------
June 30, 1997 June 30, 1996
------------- -------------
Sales 3,692,533 4,224,050
Cost of goods sold 1,408,288 1,692,484
------------- -------------
Gross Profit 2,284,245 2,531,566
------------- -------------
Expenses:
Selling, general and administrative 1,736,041 1,484,783
Research and development 361,417 326,002
------------- -------------
Total expenses 2,097,458 1,810,785
------------- -------------
Operating income 186,787 720,781
------------- -------------
Other income (expense):
Interest expense (158,733) (141,574)
Other 50,595 42,773
------------- -------------
Total other income (expense) (108,138) (98,801)
------------- -------------
Income before provision for income taxes 78,649 621,980
Income tax provision 76,279 197,689
------------- -------------
Net income $ 2,370 $ 424,291
============= =============
Earnings per common and common
equivalent share $ NIL $ 0.06
============= =============
2
<PAGE>
GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Six months ended
-----------------------------
June 30, 1997 June 30, 1996
-------------- --------------
Sales $ 8,198,307 $ 9,115,831
Cost of goods sold 3,280,281 3,830,273
-------------- --------------
Gross Profit 4,918,026 5,285,558
-------------- --------------
Expenses:
Selling, general and administrative 3,631,406 3,328,701
Research and development 754,726 713,497
-------------- --------------
Total expenses 4,386,132 4,042,198
-------------- --------------
Operating income 531,894 1,243,360
Other income (expense):
Interest expense (303,870) (260,302)
Other 47,175 61,513
-------------- --------------
Total other income (expense) (256,695) (198,789)
-------------- --------------
Income before provision for income taxes 275,199 1,044,571
Income tax provision 262,909 394,340
-------------- --------------
Net income $ 12,290 $ 650,231
============== ==============
Earnings per common and common
equivalent share $ NIL $ 0.10
============== ==============
3
<PAGE>
GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS
Six Months Ended
June 30, 1997 June 30, 1996
(Unaudited) (Unaudited)
-------------- --------------
Cash flows from operating activities:
Income from continuing operations $ 12,290 $ 650,231
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 397,876 361,852
Loss on sale of fixed assets 41,707 23,680
Changes in assets and liabilities:
Net receivables (849,734) (530,971)
Inventories (1,052,889) (361,028)
Prepaid expenses (298,643) (5,493)
Other assets (52,795) (83,245)
Accounts payable 632,597 99,100
Line of credit 496,601 53,958
Income taxes payable 267,586 404,535
Accrued expenses (99,073) (405,246)
-------------- --------------
Net cash provided by (used in) operating
activities (504,477) 207,373
-------------- --------------
Cash flows from investing activities:
Disposition of property, plant
and equipment 15,957 6,091
Purchase of property, plant and equipment (332,413) (272,906)
-------------- --------------
Net cash used in investing activities (316,456) (266,815)
-------------- --------------
Cash flows from financing activities:
Proceeds from long-term obligations 1,326,302 1,228
Principal payments on long-term obligation (519,234) 45,373
Proceeds from issuance of common stock 210,424
-------------- --------------
Net cash provided from financing activities 1,017,492 46,601
-------------- --------------
Foreign currency translation adjustment (278,540) (8,446)
-------------- --------------
Net decrease in cash (81,981) (21,287)
Cash at beginning of period 301,033 219,415
-------------- --------------
Cash at end of period $ 219,052 $ 198,128
============== ==============
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, 1997 and for the three months
and six months ended June 30,1997 and 1996 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, 1996 contained in its Annual Report on Form 10-K/A.
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,
1997 1996
------------ ------------
Raw materials $ 930,013 $ 945,795
Work-in-process 1,290,396 822,576
Finished goods 759,110 858,540
Equipment held for
lease or sale 1,359,938 697,497
------------ ------------
Total $ 4,339,457 $ 3,324,408
============ ============
3. Earnings per share
------------------
Earnings per share amounts are computed by dividing net income by the
weighted average number of common and dilutive 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, 1997 and 1996
were 6,611,088 and 6,563,934 respectively. For the six months ended
June 30, 1997 and 1996, the weighted average number of shares outstanding were
6,596,763 and 6,563,934, respectively.
5
<PAGE>
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
(SFAS 128). SFAS 128 establishes a different method of computing earnings per
share than is currently required under the provisions of Accounting Principles
Board Opinion No. 15. Under SFAS 128, the Company will be required to present
both basic earnings per share and diluted earnings per share. Basic earnings
per share is expected to be higher than the currently presented primary
earnings per share as the effect of dilutive stock options will not be
considered in computing basic earnings per share. Diluted earnings per
share is expected to be comparable or slightly lower than the currently
presented primary earnings per share.
The Company plans to adopt SFAS 128 in its fiscal fourth quarter and
at that time all historical earnings per share data presented will be restated
to conform to the provisions of SFAS 128.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
- ------------------------------
During the six months ended June 30, 1997, the ratio of current
assets to current liabilities increased from 1.65 at December 31, 1996
to 1.68. Working capital increased from $2,739,891 to $3,556,188. Net
receivables increased due to revenues recognized in June that were
collected in July. Inventories increased as the Company acquired more
inventories for its instrumentation program and prepared for large
shipments of proficiency testing products to the College of American
Pathologists in July. The increased receivables and inventories were
financed primarily through increased accounts payable, increased
borrowings on a line of credit and a decrease in income tax refund
receivable.
At June 30, 1997, the Company had approximately $200,000 available
under lines of credit with its banks and had commitments totalling
approximately $300,000 for the purchase of capital assets for which
borrowing commitments have been secured. The Company has obtained a 1.7
million DM (approximately $950,000) credit facility from Fresenius AG,
its majority owner. To the extent that working capital needs cannot be
financed through internally generated funds and exceed the credit
facility with Fresenius AG, the Company believes that additional debt,
equity and lease financing can be obtained.
Results of Operations
- ---------------------
Sales for the second quarter of 1997 of $3,692,533 were 13% lower
than sales in the second quarter of 1996 of $4,224,050. For the first
six months of 1997, sales of $8,198,307 were $917,524 or 10% lower than
1996 sales of $9,115,831. Sales of the Company's United States'
operations were approximately $200,000 or 3% lower than the prior year.
Increased sales of the Company's Bioresearch operations and the
Company's ELISA product line, were offset by lower sales of
instrumentation and proficiency testing products to the College of
American Pathologists. Sales of the Company's European operations
decreased $726,000 or 35%. Approximately $175,000 of the sales decrease
6
<PAGE>
was caused by the strength of the United States dollar which appreciated
13% against the Belgian Franc in the first six months of 1997. The
remaining decrease is due to the loss of a significant distributed
product line and the loss of customers due to production problems
encountered in 1996. Except for the impact of the changes in foreign
currency exchange rates discussed above, changes in sales are
principally due to changes in sales volume. There have been no
significant changes in sales prices.
Gross profit as a percentage of sales increased to 62% in the
second quarter of 1997 compared to 60% in the second quarter of 1996.
For the first six months of 1997, gross profit was 60% compared to 58%
during the first six months of 1996. The increase in the gross profit
percentage is due to product sales mix and manufacturing efficiencies.
Selling, general and administrative costs increased from
$1,484,783 in the second quarter of 1996 to $1,736,041 in the second
quarter of 1997. For the six months ended June 30, 1997, selling,
general and administrative costs were $3,631,406 compared to $3,328,701 in
1996. During the second quarter of 1996, the Company reversed approximately
$115,000 of excess restructuring costs that had occurred in 1995. This
reversal had the impact of reducing selling, general and administrative
expense in 1996 and did not recur in 1997. Also, the Company has increased
sales and marketing expenditures in 1997 for market studies and filled
vacancies in its sales staff that existed in the second quarter of 1996.
Other expense increased during the three months and the six months
ended June 30, 1997 due to increased interest expense. For the six
months ended June 30, 1997, the increase in other expense was also due
to currency losses resulting from the strength of the United States'
dollar against the Belgian Franc.
There were no other material changes in the Company's operations
during the second quarter or first six months of 1997.
The Company implemented programs in the second quarter of 1997 to
reduce expenses. The impact of those cost reductions are expected to
have a positive impact on results for the last half of 1997.
7
<PAGE>
PART II. OTHER INFORMATION
No other material matter occurred during the quarter ended June
30, 1997 that requires disclosure as Part II of the Quarterly Report on
Form 10Q.
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 8-12-97 /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>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY AS FILED IN ITS 10-Q (ITEM 1) FOR THE
QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 219,052
<SECURITIES> 0
<RECEIVABLES> 3,404,918
<ALLOWANCES> 164,354
<INVENTORY> 4,339,457
<CURRENT-ASSETS> 8,758,715
<PP&E> 7,138,360
<DEPRECIATION> 3,583,606
<TOTAL-ASSETS> 14,072,794
<CURRENT-LIABILITIES> 5,202,527
<BONDS> 3,435,837
0
0
<COMMON> 6,617
<OTHER-SE> 5,113,813
<TOTAL-LIABILITY-AND-EQUITY> 14,072,794
<SALES> 3,692,533
<TOTAL-REVENUES> 3,692,533
<CGS> 1,408,288
<TOTAL-COSTS> 3,505,746
<OTHER-EXPENSES> 108,138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 78,649
<INCOME-TAX> 76,279
<INCOME-CONTINUING> 2,370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,370
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
