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 December 31, 1996 Commission File
number 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)
Check 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 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- -------
As of December 31, 1996, the issuer had 7,626,890 shares of Common
Stock, $.01 par value per share outstanding.
HEMAGEN DIAGNOSTICS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Financial Statements
Consolidated Balance Sheets; 2
December 31, 1996 and
September 30, 1996
Consolidated Statements 4
of Operations; Three months
ended December 31, 1996 and 1995
Consolidated Statements 5
of Cash Flows; Three months
ended December 31, 1996 and 1995
Notes to Consolidated 6
Financial Statements
Item 2. Management's Discussion and 8
Analysis of Financial
Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 5. Other Information. 12
Item 6. Exhibits and Reports on Form 8-K. 14
PART I- Financial Information
Item 1. Financial Statements
--------------------
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 547,988 $ 756,919
Short-term investments (Note B) 885,984 1,360,249
Accounts and other receivables, less allowance for
doubtful accounts of $31,900 at December and $26,900
at September 1,688,493 1,673,791
Inventory 3,844,578 3,178,180
Prepaid expenses and other current assets 247,730 271,800
---------------------------
Total current assets 7,214,773 7,240,939
Property and Equipment:
Fixed assets 4,641,774 4,473,413
Less accumulated depreciation 1,730,194 1,541,534
---------------------------
2,911,580 2,931,879
Other Assets 1,615,912 1,636,412
---------------------------
$11,742,265 $11,809,230
===========================
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 1,383,225 $ 1,428,790
Current portion of long-term debt 380,570 395,034
---------------------------
Total current liabilities 1,763,795 1,823,824
---------------------------
Long-term debt, less current portion 490,054 562,672
---------------------------
Stockholders' Equity:
Preferred stock, no par value - 1,000,000
shares authorized; none issued 0 0
Common stock, $.01 par value - 30,000,000
shares authorized; issued and outstanding:
7,626,890 at December and 7,620,890 at September 76,269 76,209
Additional paid-in capital 13,143,196 13,132,757
Accumulated deficit (3,725,049) (3,780,232)
---------------------------
9,494,416 9,428,734
Receivable from stockholder (6,000) (6,000)
---------------------------
9,488,416 9,422,734
---------------------------
$11,742,265 $11,809,230
===========================
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Product sales $3,154,560 $1,542,045
License and contract revenue 0 10,000
-----------------------
3,154,560 1,552,045
Costs and expenses:
Cost of product sales 1,939,680 860,811
Research and development 214,019 143,434
Selling, general and administrative 921,351 612,678
-----------------------
3,075,050 1,616,923
-----------------------
Operating Income (Loss) 79,510 (64,878)
Other income (expense), net (24,329) (139,687)
Income (loss) before income taxes 55,181 (204,565)
Provision for income taxes 0 0
-----------------------
Net Income (loss) $ 55,181 $ (204,565)
=======================
Net income (loss) per share $ 0.00 $ (0.06)
=======================
Weighted average shares outstanding 7,623,933 3,162,000
=======================
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 55,181 $ (204,565)
Adjustments to reconcile net income (loss)to net
cash used by operating activities:
Depreciation and amortization 188,660 169,679
Changes in assets and liabilities:
Accounts and other receivables 212,122 63,409
Prepaid expenses and other current assets 28,850 23,139
Inventory (324,518) (633,732)
Accounts payable and accrued expenses (345,842) 424,235
------------------------
Net cash used by operating activities (185,547) (157,835)
------------------------
Cash flows from investing activities:
Purchase of property and equipment (63,513) (26,738)
Other Assets 37,926 (5,976)
CPI purchase, net of cash (395,480) 0
Proceeds from (deposits to) short-term investments 474,265 (467,566)
Notes Payable 0 (382,584)
------------------------
Net cash provided (used) by investing activities 53,198 (882,864)
------------------------
Cash flows from financing activities:
Proceeds from (repayments of) issuances of
long-term debt, net (87,082) 7,140
Additional-paid-in-capital 10,500 0
------------------------
Net cash provided (used) by financing activities (76,582) 7,140
------------------------
Net decrease in cash and cash equivalents (208,931) (1,033,559)
Cash and equivalents at beginning of year 756,919 1,333,067
------------------------
Cash and cash equivalents at end of period $ 547,988 $ 299,508
========================
</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 30, 1996.
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 month period
ended December 31, 1996. Operating results for the three months ended
December 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1997.
NOTE B - ACQUISITION OF 872 MAIN STREET CORP (Formerly known as Cellular
Products, Inc.) ("872 Main Street Acquisition")
On November 1, 1996, Hemagen Diagnostics, Inc., through a wholly owned
subsidiary, completed the purchase of substantially all the assets of
Cellular Products, Inc., now known as 872 Main Street Corporation ("872 Main
Street"). 872 Main Street was operating under the provisions of Chapter 11
of the United States Bankruptcy Code. The sale of the assets by 872 Main
Street was approved by the Bankruptcy Court on October 3, 1996. 872 Main
Street manufactured biotechnology materials and assays for research and for
the manufacture of clinical diagnostic test kits. The Company plans to
continue the manufacture of the product line at the facility formerly
occupied by 872 Main Street in Buffalo, New York. On November 1, 1996, the
Company paid $400,000 in cash and issued an unsecured promissory note to 872
Main Street (the "Note") agreeing to pay 872 Main Street $200,000 on or
before November 1, 1997. In addition to the cash and the Note, the Company
assumed approximately $112,000 of post-bankruptcy liabilities.
The Company's business acquisition, based on estimated fair values of
assets acquired and liabilities assumed, involved the following:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired, other than cash
and cash equivalents: $695,757
Liabilities assumed: 300,277
Cash payments made: $395,480
</TABLE>
NOTE C - 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
This section contains certain forward-looking statements that are
subject to risks and uncertainties including without limitation in the
section entitled "Risk Factors" in the Prospectus contained in the
registrant's Registration Statement on Form S-3, Commission File No. 333-
6147 (which section is hereby incorporated by reference herein). These
risks and uncertainties could cause the registrant's actual results in
future periods to differ materially from its historical results and from any
opinions or statements expressed in such forward-looking statements. Such
forward-looking statements speak only as of the date of this report, and the
registrant cautions readers not to place undue reliance on such statements.
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 eighteen months the
Company has concentrated its expansion efforts on synergistic acquisitions
of companies, product lines and assets. (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 December 31, 1996 Compared to the Three Month
Period Ended December 31, 1995
Revenues increased to approximately $3,155,000 from approximately
$1,552,000 (103%), primarily as a result of (i) sales from the Company's
acquisition of Reagents Applications, Inc. ("RAI"), (ii) sales from the
Company's November 1, 1996 acquisition of 872 Main Street Corp. and, (iii)
an increase in contract manufacturing sales to Carter-Wallace. (See
Liquidity and Capital Resources, below).
Cost of product sales increased to approximately $1,940,000 from
approximately $861,000 (125%), and increased as a percentage of product
sales to 61% from 56% primarily due to lower gross margin Carter-Wallace and
RAI sales.
Research and development expenses increased to approximately $214,000
from approximately $143,000 (50%), primarily due to the addition of RAI,
VIRGO and Cellular Products, Inc. ("CPI") 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 ("SG&A") expenses increased to
approximately $921,000 from approximately $612,000 (51%), primarily due to
the addition of RAI and CPI expenses. These were partially offset by a
decrease in expenses at Hemagen Diagnosticos Comercio Importacao e
Exportacao Ltd., a Brazilian limited liability company, ("HDC") relating to
staffing and operating its manufacturing facility in Sao Paulo, Brazil. SG&A
expenses decreased as a percentage of revenues from 39% to 29% due to the
Company's utilization of its present infrastructure to manage additional
operations.
Net other expense decreased to approximately $24,000 from
approximately $140,000 due to a decrease in interest expense. During the
fiscal year ending September, 1996 the Company converted notes of $1,550,000
into 1,550,000 shares of common stock. The Company also completed an equity
private placement offering which netted $6,410,000 in March, 1996. The cash
provided from this offering was used to reduce the Company's long term debt,
purchase RAI and CPI, and increase working capital for the Company (see
Liquidity and Capital Resources).
Net income was approximately $55,000 compared to a loss of $204,000,
primarily due to higher CPI, Carter-Wallace and HDC sales and a reduction in
interest expense. This was partially offset by an increase in selling,
general and administrative expenses, increased research and development
expense 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, cash flow from operations and
private placements completed in September 1995, and March 1996.
On November 1, 1996 the Company, through its wholly owned subsidiary,
CPI, completed the purchase of substantially all the assets of 872 Main
Street Corp. (formerly known as Cellular Products, Inc.) for $400,000 in
cash and a $200,000 promissory note payable on November 1, 1997. CPI is
based in Buffalo, New York and is a manufacturer of biotechnology materials
and assays for research and for the manufacture of clinical diagnostic test
kits. Its products are used in the growth and testing of retro viruses and
as a raw material by manufacturers of clinical diagnostic test kits. The
product mix includes enzyme oligonucleotide assays, ELISA assays, monoclonal
antibodies, recombinant growth factors, viral lysates and bulk raw
materials. The Company believes this acquisition will allow for better
control of manufacturing costs, and enhance the Company's research programs.
On March 19, 1996 the Company completed a private placement equity
offering which provided net proceeds of $6,410,000. 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 $0.01 par value common stock ("Common
Stock") and one Common Stock purchase warrant. The warrants, which became
tradable upon the completion of a November 14, 1996 amended registration
statement, expire in five years, and provide the option to purchase one
share of common stock for $2.75. The proceeds from the offering were used
to purchase RAI and CPI, reduce corporate debt, and 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 approximately $4,979,000 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 and October, 1995, the Company completed a private
placement, resulting in net proceeds of approximately $1,949,000 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 as amended on November 11, 1996 the
Common Stock underlying these warrants 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 a purchase
price of $1,380,000 consisting of $1 million which was paid on July 1, 1995
and a note to Schiapparelli of approximately $380,000 which 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 December 31, 1996, the Company's working capital was approximately
$5,451,000 compared to working capital of approximately $5,417,000 at
September 30, 1995. This increase was principally due to Company's
operating gain in the quarter.
Inventory balances increased from approximately $3,178,000 on
September 30, 1996 to approximately $3,845,000 on December 31, 1996, due to
the purchase of CPI inventory and in support of increased Carter Wallace
sales.
At February 1, 1997 the Company had capital finance arrangements with
two companies totaling approximately $829,000. The Company is required to
pay an average of $42,000 per month in the aggregate (including interest)
under these arrangements during fiscal 1997. The arrangements run through
fiscal 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.
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 January 10. 1997 the Company filed a
form 8-K/A amending the following items, financial statements, exhibits
or other portions of the 8-K filed on November 14, 1996.
1. Amended to include financial information relating to the assets
of 872 Main Street Corp. purchased by the Company and the
Company's pro-forma financial information.
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)
February 13, 1997 /s/ Carl Franzblau
- ----------------- ------------------
(Signature)
Carl Franzblau
Chief Executive Officer
February 13, 1997 /s/ William Franzblau
- ----------------- ---------------------
(Signature)
William Franzblau
Chief Financial Officer
EXHIBIT INDEX
Exhibit
No. Title
- ------- -----
11 Statement of Computation of per share net income.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARY
STATEMENT OF PER SHARE NET LOSS
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Net income (loss) $ 55,181 $ (204,565)
========================
Net income (loss) per share $ 0.00 $ (0.06)
========================
Weighted average shares outstanding 7,623,933 3,162,000
=======================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 547,988
<SECURITIES> 885,984
<RECEIVABLES> 1,688,493
<ALLOWANCES> 31,900
<INVENTORY> 3,844,578
<CURRENT-ASSETS> 7,214,773
<PP&E> 4,641,774
<DEPRECIATION> 1,730,194
<TOTAL-ASSETS> 11,742,265
<CURRENT-LIABILITIES> 1,763,795
<BONDS> 0
0
0
<COMMON> 76,269
<OTHER-SE> 9,412,147
<TOTAL-LIABILITY-AND-EQUITY> 11,742,265
<SALES> 3,154,560
<TOTAL-REVENUES> 3,154,560
<CGS> 1,939,680
<TOTAL-COSTS> 3,075,050
<OTHER-EXPENSES> 24,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,557
<INCOME-PRETAX> 55,181
<INCOME-TAX> 0
<INCOME-CONTINUING> 55,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,181
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
