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 Commission File number
March 31, 1996 1-11700
HEMAGEN DIAGNOSTICS, INC.
(Exact name of Small Business Issuer as Specified in its Charter)
Delaware 04-2869857
(State of Organization) (I.R.S. Employer
Identification Number)
34-40 Bear Hill Road, Waltham, Massachusetts 02154
(Address of principal executive offices, Zip Code)
(617) 890-3766
(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 March 31, 1996, there were 6,766,005 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> <S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets; March 31, 1996 and
September 30, 1995 2
Consolidated Statements of Operations; three months
ended March 31, 1996 and 1995 and six months ended
March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows; six months
ended March 31, 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. 14
Item 6. Exhibits and Reports on Form 8-K. 14
</TABLE>
PART I - Financial Information
Item 1. Financial Statements
--------------------
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
---------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 483,381 $1,333,067
Short-term investments (Note B) 1,957,264 803,000
Accounts and other receivables, less allowance for
doubtful accounts of $65,400 at March and $26,900
at September 1,791,941 949,254
Inventories 3,253,640 1,084,926
Prepaid expenses and other current assets 224,950 195,140
-------------------------
Total current assets 7,711,176 4,365,387
Property and Equipment:
Fixed assets 4,530,898 3,374,797
Less accumulated depreciation 1,180,760 836,515
-------------------------
3,350,138 2,538,282
Intangible assets (net) 1,626,767 --
Other assets 112,078 401,414
-------------------------
$12,800,159 $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>
March 31, September 30,
1996 1995
----------- -------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 1,365,485 $ 792,574
Notes Payable -- 382,584
Current portion of long-term debt 758,183 672,073
-------------------------
Total current liabilities 2,123,668 1,847,231
-------------------------
Long-term debt, less current portion 2,015,987 3,593,566
-------------------------
Stockholders' Equity:
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: 6,766,005 at
March and 3,162,000 at September 67,660 31,620
Additional paid-in capital 12,609,242 5,154,912
Accumulated deficit (4,010,398) (3,316,246)
-------------------------
8,666,504 1,870,286
Receivable from stockholder (6,000) (6,000)
-------------------------
8,660,504 1,864,286
-------------------------
$12,800,159 $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 Six Months Ended
March 31, March 31,
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $2,124,660 $ 764,293 $3,666,704 $1,277,708
License and contract revenue 10,000 -- 20,000 --
----------------------------------------------------
2,134,660 764,293 3,686,704 1,277,708
Costs and expenses:
Cost of product sales 1,392,424 426,767 2,253,235 697,217
Research and development 179,991 137,589 323,425 320,507
Selling, general and administrative 891,973 491,987 1,504,652 988,205
----------------------------------------------------
2,464,388 1,056,343 4,081,312 2,005,929
----------------------------------------------------
Operating Loss (329,728) (292,050) (394,608) (728,221)
Other income (expense), net (159,859) 8,545 (299,544) 4,841
Loss before income taxes (489,587) (283,505) (694,152) (723,380)
----------------------------------------------------
Provision for income taxes -- -- -- --
----------------------------------------------------
Net Loss $ (489,587) $ (283,505) $ (694,152) $ (723,380)
====================================================
Net loss per share $ (0.11) $ (0.09) $ (0.18) $ (0.23)
====================================================
Weighted average shares outstanding 4,533,404 3,154,133 3,840,167 3,152,044
====================================================
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) OF CASH AND CASH EQUIVALENTS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
------------------------
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (694,152) $(723,380)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 302,965 148,701
Changes in assets and liabilities net of effect of
acquisition of business:
Accounts and other receivables 17,202 69,230
Prepaid expenses and other current assets 46,462 (103,738)
Refundable income taxes -- 17,661
Inventory (539,645) (141,919)
Accounts payable and accrued expenses 246,565 117,011
------------------------
Net cash used by operating activities (620,603) (616,434)
------------------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (4,920,648) --
Purchase of property and equipment (109,824) (224,135)
Other assets 289,336 (120,508)
Payment of note payable (382,584) --
Proceeds from (issuance of) short-term investments (1,154,264) 400,000
------------------------
Net cash provided (used) by investing activities (6,277,984) 55,357
------------------------
Cash flows from financing activities:
Proceeds from issuances (payments) of long-term debt, net (610,219) 939,626
Proceeds from the issuance of Common Stock 27,228 24,000
Additional-paid-in-capital 6,631,892 35,000
------------------------
Net cash provided by financing activities 6,048,901 998,626
------------------------
Net increase (decrease) in cash and cash equivalents (849,686) 437,549
Cash and equivalents at beginning of year 1,333,067 321,677
------------------------
Cash and cash equivalents at end of period $ 483,381 $ 759,226
========================
</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-2. 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
six month periods ended March 31, 1996. Operating results for the three
and six month periods ended March 31, 1996 are not necessarily indicative
of the results that may be expected for the year ending September 30,
1996.
NOTE B - DEBT CONVERSION AND ISSUANCE OF WARRANTS
$881,250 of convertible promissory notes were converted into common
stock at a conversion price of $1.00 per share during the period of this
report. 100,000 warrants allowing the holder to purchase common stock at
$1.00 per share were issued during the period. The value of these
warrants has been estimated at $.50 each.
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:
Fair value of assets acquired, other than
cash and cash equivalents: $5,246,994
Liabilities assumed: (326,346)
----------
Cash payments made: $4,920,648
==========
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.
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. 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 March 31, 1996 Compared to the Three Month
Period Ended March 31, 1995
Revenues increased to approximately $2,135,000 from approximately
$764,000 (179%), primarily as a result of (i) sales from the Company's
July 1, 1995 acquisition of the VIRGO(R) product line, (ii) sales from the
Company's March 1, 1996 acquisition of Reagents Applications, Inc.
("RAI"), a wholly owned subsidiary of Kone Holdings, Inc. (See Liquidity
and Capital Resources, below) and (iii) contract manufacturing sales to
Carter-Wallace. (See Liquidity and Capital Resources).
Cost of product sales increased to approximately $1,392,000 from
approximately $427,000 (225%), and increased as a percentage of product
sales from 56% to 65% due to lower gross margin Carter-Wallace and VIRGO(R)
sales, the effect of purchase accounting on the RAI subsidiary and an
increase in the amount of inventory scrapped during the period.
Research and development expenses increased to approximately
$180,000 from approximately $138,000 (31%), primarily due to increased
facilities and payroll costs and 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. On March 15, 1996 the Company received clearance to market an
improved clinical diagnostic test to measure levels of C-Reactive Protein
in human blood.
Selling, general and administrative expenses increased to
approximately $892,000 from approximately $492,000 (81%), primarily due to
expenses at 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, increased expenses related to financing and the RAI
acquisition and increased payroll and payroll benefits.
Net other expense (income) changed to a net expense of approximately
$160,000 from net income of approximately $9,000 due to an increase in
interest expense resulting from financing activities the Company has
entered into. These financing activities include a $2,000,000 private
placement offering completed in September, 1995, (See Liquidity and
Capital Resources) lease agreements entered to acquire machinery and
equipment and expenses related to the issuance of warrants during the
period.
Net loss increased to approximately $490,000 from $284,000,
primarily due to higher selling, general and administrative expenses,
increased other expenses and a decrease in gross margin percentage. There
were several unusual expenses during the period which contributed to the
increased net loss. These include adjustments to RAI's inventory to
conform with requirements of purchase accounting, negative variance to
standard cost at RAI resulted from an effort reduce excess inventory by
reducing production, public relations and financing expenses undertaken to
complete the acquisition of RAI, severance expense at RAI and expense
related to warrants issued to an investor. The total of these unusual
expenses were approximately $300,000. This was partially offset by an
increase in RAI, VIRGO(R) and Carter-Wallace sales.
The Six Month Period Ended March 31, 1996 Compared to the Six Month Period
Ended March 31, 1995
Revenues increased to approximately $3,687,000 from approximately
$1,278,000 (188%), primarily as a result of (i) sales from the Company's
July 1, 1995 acquisition of the VIRGO(R) product line, (ii) sales from the
Company's March 1, 1996 acquisition of RAI. (See Liquidity and Capital
Resources, below) and (iii) contract manufacturing sales to Carter-
Wallace. (See Liquidity and Capital Resources, below).
Cost of product sales increased to approximately $2,253,000 from
approximately $697,000 (223%), and increased as a percentage of product
sales from 55% to 61% due to lower gross margin Carter-Wallace and VIRGO(R)
sales, the effect of purchase accounting on the RAI subsidiary and the
increase in the amount of inventory scrapped during the period.
Research and development expenses increased to approximately
$323,000 from approximately $321,000 (1%), primarily due the addition of
RAI and VIRGO(R) related research and development expenses. This was
partially offset by lower raw material costs. The Company is currently
developing and completing studies related to FDA 510(k) submissions for
several new products. On March 15, 1996 the Company received clearance to
market an improved clinical diagnostic test to measure levels of C-
Reactive Protein in human blood.
Selling, general and administrative expenses increased to
approximately $1,505,000 from approximately $988,000 (51%), primarily due
to expenses at RAI, increased expenses at HDC relating to staffing and
operating its manufacturing facility in Sao Paulo, Brazil, increased
expenses related to financing and the RAI acquisition and increased
payroll and payroll benefits.
Net other expense (income) changed to a net expense of approximately
$300,000 from net income of approximately $5,000 due to an increase in
interest expense due to financing activities the Company has entered into.
These financing activities include a $2,000,000 private placement offering
completed in September, 1995, (See Liquidity and Capital Resources) lease
agreements entered to acquire machinery and equipment and expenses related
to the issuance of warrants during the quarter.
Net loss decreased to approximately $694,000 from $723,000,
primarily due to an increase in RAI, VIRGO(R), Carter-Wallace and HDC 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, a bridge loan, lease financing arrangements, borrowings from
nonaffiliates and related parties, cash flow from operations and private
placements completed September, 1995 and March, 1996. In September 1995,
the Company completed a $2,000,000 private placement offering. In March
1996, the company completed a private placement offering of approximately
2,695,300 shares which provided net proceeds of approximately $6,579,000,
after deduction of offering costs amounting to $833,000.
On March 1, 1996 the Company acquired 100% of the outstanding stock
of RAI from Kone Holdings, Inc. for $5,200,000 in cash. Of this amount
approximately $465,000 had been prepaid as a deposit against the final
purchase price or given as a credit against the purchase price. RAI is a
manufacturer of diagnostic test kits which focus in the areas of clinical
chemistry and serum proteins. RAI presently has approximately 60 test
kits which have received FDA clearance for sale in the United States. In
1995, RAI had product sales of approximately $5,774,000. Management
believes that the addition of this subsidiary complements the Company's
existing businesses.
On March 19, 1996 the Company completed a private placement equity
offering which provided proceeds (net of expenses) of $6,579,000. The
offering consisted of approximately 2,695,000 units of one share of share
of common stock and one warrant for $2.75 per unit. The warrant will be
tradable upon registration, expires in 5 years, and provides the option to
purchase one share of common stock for $2.75. The proceeds were used to
purchase RAI, reduce corporate debt and to provide additional working
capital for the Company.
At March 31, 1996, the Company's working capital was approximately
$5,588,000 compared to working capital of approximately $2,518,000 at
September 30, 1995. This increase was principally due to Company's
private placement offering and the acquisition of net working capital from
RAI. This 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 $3,254,000 on March 31, 1996, due to
the purchase of RAI inventory and the purchase of approximately $491,000
worth of raw inventory from Carter Wallace during the six month period.
Accounts payable and accrued expenses increased from approximately
$793,000 to approximately $1,365,000 primarily due to the purchase of RAI
payables and the Carter Wallace inventory purchases. The Carter Wallace
purchases will be paid for over a two year period. Notes payable of
approximately $380,000 were paid in December, 1995.
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.
On July 1, 1995 the Company acquired assets relating to a line of
diagnostic test kits from Schiapparelli Biosystems, Inc. for a $1 million
dollar cash payment and a note for an additional $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 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 promissory notes ("Notes"), which mature
August 1997 and bear interest at the rate of 13% per annum. The Notes are
convertible at the election of the holders into Common Stock at the
conversion price of $1.00 per share. The Company may force the conversion
of the Notes following the registration of the shares underlying the Notes
if the market price of the Company's Common Stock, as quoted on NASDAQ,
equals or exceeds $3.00 per share for five consecutive days. This
requirement was met as of January 26, 1996 and the Company anticipates
forcing the conversion of the remaining Notes during the quarter ending
June 30, 1996. In January, 1996 the Company retired $450,000 of the Notes
for $450,000 in cash and 100,000 warrants allowing the holder to purchase
common stock at $1.00 per share. The registration statement for the
1,550,000 shares of Common Stock underlying the Notes was declared
effective on January 11, 1996. On March 1, 1996 the registration became
ineffective due to the RAI purchase pending the filing of an amendment to
the registration statement. As of April 25, 1996 approximately $887,500
worth of Notes have been converted into Common Stock.
At April 1, 1996 the Company had capital finance arrangements with
three companies totaling approximately $2,112,000. The Company used this
financing to acquire blood-typing machines and other equipment. The
Company is required to pay an average of $73,000 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 March 14, 1996 the Company filed a
form 8-K related to the purchase of RAI.
The following financial statements were filed with the form 8-K.
Audited Financial Statements for RAI as of December 31, 1994
and 1993.
On March 28, 1996 the Company filed a form 8-K/A amending the
following items, financial statements, exhibits or other portions
of the 8-K filed on March 14, 1996.
1. The Company's pro forma combined financial information.
2. Unaudited quarterly financial information for RAI as of
December 31, 1995.
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)
May 2, 1996 /s/ Carl Franzblau
- -------------------------- ------------------------------------
(Signature)
Carl Franzblau
Chief Executive Officer
May 2, 1996 /s/ William Franzblau
- -------------------------- ------------------------------------
(Signature)
William Franzblau
Chief Financial Officer
EXHIBIT INDEX
Exhibit
No. Title
- ------- -----
11 Statement of Computation of per share net loss.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARY
STATEMENT OF PER SHARE NET LOSS
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
------------------------- -------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Loss $ (489,587) $ (283,505) $ (694,152) $ (723,380)
Net loss per share $ (0.11) $ (0.09) $ (0.18) $ (0.23)
Weighted average shares outstanding 4,533,404 3,154,133 3,840,167 3,152,044
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 483,381
<SECURITIES> 0
<RECEIVABLES> 1,857,341
<ALLOWANCES> 65,400
<INVENTORY> 3,253,640
<CURRENT-ASSETS> 7,711,176
<PP&E> 4,530,898
<DEPRECIATION> 1,180,760
<TOTAL-ASSETS> 12,800,159
<CURRENT-LIABILITIES> 2,123,668
<BONDS> 0
0
0
<COMMON> 67,660
<OTHER-SE> 8,592,844
<TOTAL-LIABILITY-AND-EQUITY> 12,800,159
<SALES> 2,124,660
<TOTAL-REVENUES> 2,134,660
<CGS> 1,392,424
<TOTAL-COSTS> 2,464,388
<OTHER-EXPENSES> 53,459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,263
<INCOME-PRETAX> (489,587)
<INCOME-TAX> 0
<INCOME-CONTINUING> (489,587)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (489,587)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
