SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
Commission File number 1-11700
HEMAGEN DIAGNOSTICS, INC.
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(Exact name of Small Business Issuer as Specified in its Charter)
Delaware 04-2869857
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(State of Organization) (I.R.S. Employer Identification Number)
34-40 Bear Hill Road, Waltham, Massachusetts 02154
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(Address of principal executive offices, Zip Code)
(617) 890-3766
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(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 month and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 1, 1996 there were 7,620,890 shares of Common Stock,
$.01 par value per share, of the issuer outstanding.
HEMAGEN DIAGNOSTICS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets; June 30, 1996 and
September 30, 1995 2
Consolidated Statements of Operations; three months
ended June 30, 1996 and 1995 and nine months ended
June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows; nine months
ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 5. Other Information. 13
Item 6. Exhibits and Reports on Form 8-K. 13
</TABLE>
PART I - Financial Information
Item 1. Financial Statements
--------------------
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
----------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (note D) $ 376,126 $1,333,067
Short-term investments (note D) 1,493,048 803,000
Accounts and other receivables, less allowance
for doubtful accounts of $54,000 at June and
$26,900 at September 1,743,856 949,254
Inventory 3,012,984 1,084,926
Prepaid expenses and other current assets 325,893 195,140
--------------------------
Total current assets 6,951,907 4,365,387
Property and Equipment:
Fixed assets 4,407,954 3,374,797
Less accumulated depreciation 1,384,865 836,515
--------------------------
3,023,089 2,538,282
Intangible assets (net) 1,604,335 --
Other assets 31,831 401,414
--------------------------
$11,611,162 $7,305,083
==========================
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
----------- -------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 1,174,775 $ 792,574
Notes payable -- 382,584
Current portion of long-term debt 433,195 672,073
--------------------------
Total current liabilities 1,607,970 1,847,231
--------------------------
Long-term debt, less current portion (note B) 646,936 3,593,566
--------------------------
Stockholders' Equity (note E):
Preferred stock, no par value - 1,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value - 30,000,000 shares
authorized; issued and outstanding: 7,620,890
at June and 3,162,000 at September 76,209 31,620
Additional paid-in capital 13,193,525 5,154,912
Accumulated deficit (3,907,478) (3,316,246)
--------------------------
9,362,256 1,870,286
Receivable from stockholder (6,000) (6,000)
--------------------------
9,356,256 1,864,286
--------------------------
$11,611,162 $7,305,083
==========================
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- --------------------------
1996 1995 1996 1995
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $3,392,506 $ 939,721 $7,059,210 $ 2,217,429
License and contract revenue 38,000 -- 58,000 --
--------------------------------------------------------
3,430,506 939,721 7,117,210 2,217,429
Costs and expenses:
Cost of product sales 2,229,383 596,186 4,482,618 1,293,403
Research and development 208,517 129,092 531,942 449,599
Selling, general and administrative 861,378 580,045 2,366,031 1,568,250
--------------------------------------------------------
3,299,278 1,305,323 7,380,591 3,311,252
--------------------------------------------------------
Operating income (loss) 131,228 (365,602) (263,381) (1,093,823)
Other income (expense), net (28,307) (79,377) (327,851) (74,536)
Income (loss) before income taxes 102,921 (444,979) (591,232) (1,168,359)
--------------------------------------------------------
Provision for income taxes -- -- -- --
--------------------------------------------------------
Net income (loss) $ 102,921 $ (444,979) $ (591,232) $(1,168,359)
========================================================
Net income (loss) per share $ 0.01 $ (0.14) $ (0.12) $ (0.37)
========================================================
Weighted average shares outstanding 7,370,245 3,162,000 5,010,090 3,155,363
========================================================
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (591,232) $(1,168,359)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 515,782 275,341
Warrant compensation 50,000 55,000
Non cash common stock transactions 24,000 24,000
Changes in operating assets and liabilities
net of effect of business acquisition:
Accounts and other receivables 65,288 (118,280)
Inventory (141,771) (96,674)
Prepaid expenses and other current assets (54,481) (26,596)
Accounts payable and accrued expenses 78,403 157,642
----------------------------
Net cash used by operating activities (54,011) (897,926)
----------------------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (4,979,195) --
Purchase of property and equipment (161,630) (321,020)
Other assets 459,382 (1,189,827)
(Purchases) proceeds from sales and maturities
of short-term investments, net (690,048) 400,000
----------------------------
Net cash used by investing activities (5,371,491) (1,110,847)
----------------------------
Cash flows from financing activities:
(Principal repayments) borrowings of notes
payable (382,584) 1,000,000
Proceeds from issuance (payments) of long-term
debt, net (1,658,056) 1,374,793
Proceeds from issuance of common stock 6,509,201 --
----------------------------
Net cash provided by financing activities 4,468,561 2,374,793
----------------------------
Net increase (decrease) in cash and cash
equivalents (956,941) 366,020
Cash and cash equivalents at beginning of year 1,333,067 321,677
----------------------------
Cash and cash equivalents at end of period $ 376,126 $ 687,697
============================
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB
and Item 310(b) of Regulation SB. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Reference should be made to
the financial statements and related notes included in the Company's Form
10-KSB which was filed with the Securities and Exchange Commission on or
about December 28, 1995.
In the opinion of the management of the Company, the accompanying
financial statements reflect all adjustments which were of a normal
recurring nature necessary for a fair presentation of the Company's
results of operations and changes in financial position for the three and
nine month periods ended June 30, 1996. Operating results for the three
and nine month periods ended June 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending September 30,
1996.
NOTE B - DEBT CONVERSION
The Company converted $687,500 and $1,550,000 of convertible
promissory notes into common stock at a price of $1.00 per share during
the three month and nine month periods ending June 30, 1996, respectively.
NOTE C - ACQUISITION OF REAGENTS APPLICATIONS, INC.
The Company's business acquisition, based on estimated fair values
of assets acquired and liabilities assumed, involved the following:
<TABLE>
<S> <C>
Fair value of assets acquired, other than cash
and cash equivalents: $5,305,541
Liabilities assumed: (326,346)
----------
Cash payments made: $4,979,195
==========
</TABLE>
NOTE D - CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all investments with an original maturity of
three months or less to be cash equivalents. The Company invests its
excess cash in certificates of deposit. Accordingly, the investments are
subject to minimal credit and market risk.
Effective October 1, 1994, the Company adopted Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities . All of the Company's investments are classified as
available-for-sale. No realized or unrealized gain or loss was incurred
during the period.
NOTE E - PROCEEDS FROM PRIVATE PLACEMENT
On March 19, 1996 the Company completed a private placement equity
offering which provided net proceeds to the Company of $6,494,000. In
connection with this offering the Company issued 2,695,255 units at a
price of $2.75. Each unit consisted of one share of common stock and one
common stock purchase warrant. Each warrant became tradable upon the
completion of a July 9, 1996 registration statement, expires in 5 years,
and provides the option to purchase one share of common stock for $2.75.
The proceeds from the offering were used to purchase RAI, reduce corporate
debt and to provide additional working capital for the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Since its inception, the Company has concentrated its efforts on
developing, manufacturing and marketing medical diagnostic test kits used
to aid in the diagnosis of certain diseases. In the past twelve months
the Company has expanded significantly through the acquisition of the
Virgo(R) product line and Reagents Applications, Inc. ("RAI"), a wholly
owned subsidiary of Kone Holdings, Inc. (see Liquidity and Capital
Resources). The Company and its subsidiaries presently have more than 100
different test kits available for general sale, over 90 of which have
received United States Food and Drug Administration ("FDA") clearance for
sale in the United States.
Results of Operations
The Three Month Period Ended June 30, 1996 Compared to the Three Month
Period Ended June 30, 1995
Revenues increased to approximately $3,431,000 from approximately
$940,000 (265%), primarily as a result of (i) sales from the Company's
March 1, 1996 acquisition of RAI, (ii) sales from the Company's VIRGO(R)
product line, and (iii) contract manufacturing sales to Carter-Wallace.
(see Liquidity and Capital Resources).
Cost of product sales increased to approximately $2,230,000 from
approximately $596,000 (274%), and increased as a percentage of product
sales from 63% to 66% due to lower gross margin Carter-Wallace and VIRGO(R)
sales and the effect of purchase accounting adjustments for the
acquisition of the RAI subsidiary of approximately $240,000.
Research and development expenses increased to approximately
$209,000 from approximately $129,000 (62%), primarily due to the addition
of RAI and VIRGO(R) related research and development expenses and increased
facilities and payroll costs. The Company is currently developing and
completing studies related to FDA 510(k) submissions for several new
products.
Selling, general and administrative expenses increased to
approximately $861,000 from approximately $580,000 (48%), primarily due to
additional expenses of RAI and increased payroll and payroll benefits.
Net other expense decreased to approximately $28,000 from
approximately $79,000 due to a decrease in interest expense and an
increase in interest income. During the period the Company converted
notes of $1,550,000 into 1,550,000 shares of common stock. The Company
also completed a $6,494,000 equity private placement in March, 1996 which
was used to reduce the Company's long term debt, purchase RAI and increase
working capital for the Company (see Liquidity and Capital Resources).
Net income was approximately $103,000 compared to a loss of
$445,000, due to higher RAI, VIRGO(R) and Carter-Wallace sales. This was
partially offset by higher cost of product sales, research and development
costs and selling, general and administrative expenses.
The Nine Month Period Ended June 30, 1996 Compared to the Nine Month
Period Ended June 30, 1995
Revenues increased to approximately $7,117,000 from approximately
$2,217,000 (221%), primarily as a result of (i) sales from the VIRGO(R)
product line, (ii) sales from the Company's March 1, 1996 acquisition of
RAI and (iii) contract manufacturing sales to Carter-Wallace (see
Liquidity and Capital Resources).
Cost of product sales increased to approximately $4,483,000 from
approximately $1,293,000 (247%), and increased as a percentage of product
sales from 58% to 64% due to lower gross margin Carter-Wallace and VIRGO(R)
sales and the effect of purchase accounting adjustments for the
acquisition of the RAI subsidiary of approximately $320,000.
Research and development expenses increased to approximately
$532,000 from approximately $450,000 (18%), primarily due to the addition
of RAI and VIRGO(R) related research and development expenses. The Company
is currently developing and completing studies related to FDA 510(k)
submissions for several new products.
Selling, general and administrative expenses increased to
approximately $2,366,000 from approximately $1,568,000 (51%), primarily
due to additional expenses of RAI, increased expenses at the Company's
foreign subsidiary, Hemagen Diagnosticos Comercio, Importacacao e
Exportacao, Ltda. ("HDC") relating to staffing and operating its
manufacturing facility in Sao Paulo, Brazil and increased payroll and
payroll benefits.
Net other expense increased to a net expense of approximately
$328,000 from approximately $75,000 due to an increase in interest expense
due to financing activities which included a private placement offering of
$2,000,000 completed in September, 1995 (see Liquidity and Capital
Resources), capital lease agreements used to acquire machinery and
equipment and expenses related to the issuance of warrants.
Net loss decreased to approximately $591,000 from $1,168,000,
primarily due to an increase in RAI, VIRGO(R) and Carter-Wallace sales. This
was partially offset by increased selling, general and administrative
expenses, increased other expenses and a decrease in gross margin
percentage.
Liquidity and Capital Resources
The Company has financed its capital expenditures, operating
requirements and growth primarily from the initial public offering of its
common stock, lease financing arrangements, borrowings from nonaffiliates
and related parties, cash flow from operations and private placements
completed September, 1995 and March, 1996.
On March 19, 1996 the Company completed a private placement equity
offering which provided net proceeds of $6,494,000. In connection with
the offering the Company issued 2,695,255 units at a price of $2.75 per
unit. Each unit consisted of one share of common stock and one common
stock purchase warrant. The warrant became tradable upon the completion
of a July 9, 1996 registration statement, expires in 5 years, and provides
the option to purchase one share of common stock for $2.75. The proceeds
from the offering were used to purchase RAI, reduce corporate debt and to
provide additional working capital for the Company.
On March 1, 1996 the Company acquired 100% of the outstanding stock
of RAI from Kone Holdings, Inc. for $4,979,195 in cash. RAI is a
manufacturer of diagnostic test kits which focus in the areas of clinical
chemistry and serum proteins. RAI has approximately 60 test kits which
have received FDA clearance for sale in the United States. Management
believes that the addition of this subsidiary complements the Company's
existing businesses.
In September 1995, the Company completed a private placement,
resulting in net proceeds of approximately $2,000,000 which was raised
through the issuance of unsecured convertible promissory notes ("Notes"),
which were scheduled to mature August 1997 and bore interest at the rate
of 13% per annum. In January, 1996 the Company retired $450,000 of the
Notes for $450,000 in cash and 100,000 warrants. These warrants allow the
holder to purchase common stock at $1.00 per share. The remaining Notes
have been converted into 1,550,000 shares of common stock. As of the
completion of a registration statement on June 19, 1996, these can be
traded pursuant to the terms of the prospectus.
On July 1, 1995 the Company acquired assets relating to a line of
diagnostic test kits from Schiapparelli Biosystems, Inc. for $1,380,000.
$1 million was paid on July 1, 1995 and a note to Schiapparelli of
$380,000 that was paid on December 15, 1995. The VIRGO(R) line of test
kits, based on immunofluorescence technology, is used in the detection of
infectious and autoimmune disease and complement the Company's existing
product line.
In December, 1994 the Company entered into a five-year agreement
with Carter-Wallace, Inc. to manufacture a broad range of diagnostic test
kits for its Wampole Division. The transfer of technology from Carter-
Wallace to the Company was completed during the quarter ended March 31,
1996.
At June 30, 1996, the Company's working capital was approximately
$5,344,000 compared to working capital of approximately $2,518,000 at
September 30, 1995. This increase was principally due to Company's
private placement equity offering and the acquisition of net working
capital from RAI. This increase was partially offset by the cash payment
used to acquire RAI and by the year to date operating losses.
Inventory balances increased from approximately $1,085,000 on
September 30, 1995 to approximately $3,013,000 on June 30, 1996, due to
the purchase of RAI inventory and the purchase of approximately $496,000
worth of raw inventory from Carter Wallace. Accounts payable and accrued
expenses increased from approximately $793,000 to approximately $1,175,000
primarily due to the assumption of RAI payables and the Carter Wallace
inventory purchases. The Carter Wallace purchases will be paid for over a
two year period.
Long term debt decreased from approximately $4,266,000 on September
30, 1995 to approximately $1,080,000 on June 30, 1996, due to the
conversion of $1,550,000 in Notes (described above) into common stock, the
retiring an additional $450,000 of these Notes and the prepayment of
approximately $848,000 of capital lease obligations following the private
placement equity offering of March 19, 1996. Notes payable of
approximately $380,000 were repaid in December, 1995.
At June 30, 1996 the Company had capital finance arrangements with
three companies totaling approximately $1,080,000. The Company used this
financing to acquire blood-typing machines and other equipment. The
Company is required to pay an average of $45,000 per month in the
aggregate under these arrangements during fiscal 1996. The arrangements
run through 1998.
Management believes its cash and cash equivalents and short-term
investments, together with anticipated cash flow from operations, are
sufficient to meet the Company's cash needs for its ongoing business.
Impact of Inflation
Domestic inflation during the last three fiscal years has not had a
significant effect on the Company's business activities. Translation and
transaction gains and losses between the Company and its subsidiary in
Brazil are expensed each period.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." SFAS 123 allows the Company to
account for its stock-based employee compensation plans based upon either
a fair value method or the intrinsic value method currently followed by
the Company. If the current method is retained, SFAS 123 requires certain
additional disclosures regarding the impact which the fair value method
would have on the results of the Company's operations. The Company
expects to retain its current method of accounting for stock-based
compensation plans, and therefore, the adoption of SFAS 123 will have no
impact on the Company's financial position or results of operations.
Adoption of SFAS 123 is required for financial statements of fiscal years
beginning after December 15, 1995. The Company will implement the
disclosure requirements of SFAS 123 as required.
PART II - Other Information
Items 1 through 5: Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) See Exhibit 11 attached.
(b) Reports on Form 8-K. On May 19, 1996 the Company filed a
form 8-K to announce a change in the Company's Certifying
Accountants.
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 of
the undersigned thereunto duly authorized.
Hemagen Diagnostics, Inc.
-------------------------------
(Registrant)
August 5, 1996 /s/ Carl Franzblau
- ----------------- -------------------------------
(Signature)
Carl Franzblau
Chief Executive Officer
August 5, 1996 /s/ William Franzblau
- ----------------- -------------------------------
(Signature)
William Franzblau
Chief Financial Officer
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Title
- ------- -----
<C> <S>
11 Statement of Computation of per share net income.
</TABLE>
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARY
STATEMENT OF PER SHARE NET INCOME (LOSS)
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- ----------------------------
1996 1995 1996 1995
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net income (loss) $ 102,921 $ (444,979) $ (591,232) $(1,168,359)
==========================================================
Net income (loss) per share $ 0.01 $ (0.14) $ (0.12) $ (0.37)
==========================================================
Weighted average shares outstanding 7,370,245 3,162,000 5,010,090 3,155,363
==========================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 376,126
<SECURITIES> 0
<RECEIVABLES> 1,743,856
<ALLOWANCES> 54,000
<INVENTORY> 3,012,984
<CURRENT-ASSETS> 6,951,907
<PP&E> 4,407,954
<DEPRECIATION> 1,384,865
<TOTAL-ASSETS> 11,611,162
<CURRENT-LIABILITIES> 1,607,970
<BONDS> 0
0
0
<COMMON> 76,209
<OTHER-SE> 9,280,047
<TOTAL-LIABILITY-AND-EQUITY> 11,611,162
<SALES> 7,059,210
<TOTAL-REVENUES> 7,117,210
<CGS> 4,482,618
<TOTAL-COSTS> 4,482,618
<OTHER-EXPENSES> 2,897,973
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 361,437
<INCOME-PRETAX> (591,232)
<INCOME-TAX> 0
<INCOME-CONTINUING> (591,232)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (591,232)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
