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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 March 31, 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.
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(Exact Name of Registrant as Specified in its Charter)
UTAH 87-0404754
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(State of Incorporation) (IRS Employer Identification Number)
1011 EAST MURRAY HOLLADAY ROAD
SALT LAKE CITY, UTAH 84117
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(Address of Principal Executive Offices) (Zip Code)
(801) 263-3524
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(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
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The number of shares of common stock outstanding as of November 1, 1996 was
6,604,446.
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1997 December 31, 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 408,309 $ 301,033
Receivables-net 3,454,593 2,406,222
Net investment in sales-type leases 247,858 262,831
Income tax refund receivable 134,743
Inventories 3,506,879 3,324,408
Prepaid expenses 523,439 399,774
Deferred income taxes 108,000 108,000
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Total current assets 8,249,078 6,937,011
Property, plant and equipment - net 3,571,622 3,616,171
Net investment in sales-type leases 751,650 810,419
Other assets - net 1,019,542 989,101
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Total assets $13,591,892 $12,352,702
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,041,895 $ 1,675,322
Accounts payable 1,996,347 1,648,036
Accrued expenses 272,986 471,825
Income tax payable 56,564
Current portion of long-
term obligations 583,902 401,937
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Total current liabilities 4,951,694 4,197,120
Long-term obligations 3,096,357 2,785,893
Deferred income taxes 298,000 298,000
Other long-term liabilities 96,503 96,503
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Total liabilities 8,442,554 7,377,516
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Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock 6,605 6,564
Additional paid-in capital 7,070,107 6,910,908
Foreign currency translation adjustment (187,841) (192,833)
Accumulated deficit (1,739,533) (1,749,453)
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Total stockholders' equity 5,149,338 4,975,186
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Total liabilities and stockholders' equity $13,591,892 $12,352,702
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1
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GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three months ended
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March 31, 1997 March 31, 1996
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Sales $ 4,505,774 $ 4,891,780
Cost of goods sold 1,871,993 2,137,788
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Gross Profit 2,633,781 2,753,992
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Expenses:
Selling, general and administrative 1,895,365 1,843,918
Research and development 393,309 387,495
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Total expenses 2,288,674 2,231,413
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Operating income 345,107 522,579
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Other income (expense):
Interest expense (145,137) (118,728)
Other (3,420) 18,740
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Total other income (expense) (148,557) (99,988)
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Income before provision for
income taxes 196,550 422,591
Income tax provision 186,630 196,651
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Net income $ 9,920 $ 225,940
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Earnings per common and common
equivalent share $ NIL $ .03
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2
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GULL LABORATORIES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS
Three Months Ended
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March 31, 1997 March 31, 1996
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Cash flows from operating activities:
Income from continuing operations $ 9,920 $ 225,941
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 198,511 180,192
Loss on sale of fixed assets 360 20,208
Changes in assets and liabilities:
Net receivables (1,134,803) (1,034,874)
Inventories (171,589) (70,646)
Prepaid expenses (142,281) 6,716
Other assets 25,520 27,270
Accounts payable 445,112 551,152
Line of credit 404,737 86,742
Income taxes payable 191,307 216,589
Accrued expenses (183,690) 35,981
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Net cash provided by (used in) operating
activities (356,896) 245,271
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Cash flows from investing activities:
Disposition of property, plant and
equipment 2,000
Purchase of property, plant and equipment (160,904) (203,695)
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Net cash used in investing activities (160,904) (201,695)
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Cash flows from financing activities:
Proceeds from long-term obligations 853,005 70,940
Principal payments on long-term obligations (256,607)
Proceeds from issuance of common stock 159,240
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Net cash provided from financing activities 755,638 70,940
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Foreign currency translation adjustment (130,561) (4,361)
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Net increase in cash 107,277 110,155
Cash at beginning of period 301,033 219,415
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Cash at end of period $ 408,310 $ 329,570
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3
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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 March 31, 1997 and for the three months
ended March 31, 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.
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:
March 31, December 31,
1997 1996
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Raw materials $1,004,035 $ 945,795
Work-in-process 798,580 822,576
Finished goods 1,255,162 858,540
Equipment held for
lease or sale 449,102 697,497
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Total $3,506,879 $3,324,408
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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 March 31, 1997 and 1996 were
6,774,126 and 6,563,934 respectively.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CHANGES IN FINANCIAL CONDITION
During the quarter ended March 31, 1997, the ratio of current assets to
current liabilities increased from 1.65 at December 31, 1996 to 1.67. Working
capital increased from $2,739,891 to $3,297,384. Net receivables increased due
to revenues recognized in March that were collected in April. The increased
receivables were financed primarily through increased accounts payable,
increased borrowings on a line of credit and a decrease in income tax refund
receivables.
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 March 31, 1997, the Company had approximately $375,000 available under a
lines of credit with its banks and had commitments totalling approximately
$500,000 for the purchase of capital assets for which borrowing commitments have
been secured. As the Company grows and if losses in the Company's European
operations continue, 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 first quarter of 1997 of $4,505,774 were 8% lower than sales
in the first quarter of 1996 of $4,891,780. Sales of the Company's United
States' operations were comparable to the prior year and sales of the Company's
European operations decreased 32% due to the loss of a significant distributed
product line and the loss of customers due to production problems encountered in
1996. Increased sales of the Company's IFA product line and of the Company's
Bioresearch operations were offset by lower sales of the Company's ELISA product
line, instrumentation and to the College of American Pathologists. Changes in
sales were principally due to changes in volume. There were no significant
changes in the sales prices.
5
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Gross profits as a percentage of sales increased to 58% in the first
quarter of 1997 compared to 56% in the first quarter of 1996. The increase in
the gross profit percentage is due to product sales mix and manufacturing
efficiencies.
Selling, general and administriative and research and development costs in
the first quarter of 1997 were consistent with the first quarter of 1996.
Other expense increased from $99,988 in the first quarter of 1996 to
$148,557 in the first quarter of 1997 resulting from increased debt incurred to
finance the Company's instrumentation program. Also, the Company European
operations realized foreign currency losses due to the weakness of the United
States dollar in the first quarter of 1997 compared to the first quarter of
1996.
There were no other material changes in the Company's operations during the
first quarter of 1997.
PART II. OTHER INFORMATION
No other material matter occurred during the quarter ended March 31, 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 5-12-97 /s/ Michael B. Malan
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Michael B. Malan, CPA
Secretary/Treasurer and
V.P. of Finance (Duly authorized
officer and principal financial
officer)
6
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