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, 1997 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 June 30, 1997, the issuer had 7,776,890 shares of Common Stock,
$.01 par value per share outstanding.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Financial Statements
Consolidated Balance Sheets; 2
June 30, 1997 and
September 30, 1996
Consolidated Statements 4
of Operations; three months and nine months
ended June 30, 1997 and 1996
Consolidated Statements 5
of Cash Flows; nine months
ended June 30, 1997 and 1996
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. 13
Item 6. Exhibits and Reports on Form 8-K. 15
PART I -Financial Information
Item 1. Financial Statements
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
June 30, September 30,
---------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 138,158 $ 756,919
Short-term investments (Note B) 720,258 1,360,249
Accounts and other receivables, less allowance for
doubtful accounts of $56,100 at June and $53,800 at
September 1,967,065 1,673,791
Inventories 4,044,914 3,178,180
Prepaid expenses and other current assets 263,008 271,800
--------------------------
Total current assets 7,133,403 7,240,939
Property and Equipment:
Fixed assets 4,687,819 4,473,413
Less accumulated depreciation 1,995,209 1,541,534
--------------------------
2,692,610 2,931,879
Other assets 1,574,706 1,636,412
--------------------------
$11,400,719 $11,809,230
==========================
</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,
---------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 904,756 $ 1,428,790
Current portion of long-term debt 348,369 395,034
--------------------------
Total current liabilities 1,253,125 1,823,824
--------------------------
Long-term debt, less current portion 306,479 562,672
--------------------------
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:
7,776,890 at June and 7,620,890 at September 77,769 76,209
Additional paid-in capital 13,329,196 13,132,757
Accumulated deficit (3,559,850) (3,780,232)
--------------------------
9,847,115 9,428,734
Receivable from stockholder (6,000) (6,000)
--------------------------
9,841,115 9,422,734
--------------------------
$11,400,719 $11,809,230
==========================
</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,
------------------ -----------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $3,240,751 $3,392,506 $9,422,742 $7,059,210
License and contract revenue 13,000 38,000 13,000 58,000
--------------------------------------------------
3,253,751 3,430,506 9,435,742 7,117,210
Costs and expenses:
Cost of product sales 1,880,163 2,229,383 5,680,884 4,482,618
Research and development 267,163 208,517 729,424 531,942
Selling, general and administrative 965,650 861,378 2,745,742 2,366,031
--------------------------------------------------
3,112,976 3,299,278 9,156,050 7,380,591
--------------------------------------------------
Operating Income (loss) 140,775 131,228 279,692 (263,381)
Other expenses, net (21,845) (28,307) (59,310) (327,851)
--------------------------------------------------
Income (loss) before income taxes 118,930 102,921 220,382 (591,232)
Provision for income taxes (Note E) -- -- -- --
--------------------------------------------------
Net income (loss) $ 118,930 $ 102,921 $ 220,382 $ (591,232)
--------------------------------------------------
Net income (loss) per share $ 0.02 $ 0.01 $ 0.03 $ (0.12)
--------------------------------------------------
Weighted average shares outstanding 7,677,989 7,370,245 7,648,993 5,010,090
==================================================
</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,
-----------------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 220,382 $ (591,232)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization 541,410 515,782
Warrant compensation - 50,000
Non cash common stock transactions - 24,000
Changes in assets and liabilities net of effect of
acquisition of business:
Accounts and other receivables (66,450) 65,288
Prepaid expenses and other current assets (13,687) (54,481)
Inventories (567,836) (141,771)
Accounts payable and accrued expenses (824,311) 78,403
----------------------
Net cash used by operating activities (710,492) (54,011)
----------------------
Cash flows from investing activities:
Purchase of property and equipment (127,054) (161,630)
Other assets 79,132 459,382
CPI purchase, net of cash (Note C) (395,480) -
RAI purchase, net of cash (Note D) - (4,920,648)
Proceeds from (issuance of) short-term investments 639,991 (690,048)
----------------------
Net cash provided (used) by investing activities 196,589 (5,312,944)
----------------------
Cash flows from financing activities:
Payments of long-term debt, net (302,858) (1,658,056)
Repayment of note payable - (382,584)
Proceeds from issuances of common stock 198,000 6,450,654
----------------------
Net cash provided (used) by financing activities (104,858) 4,410,014
----------------------
Net decrease in cash and cash equivalents (618,761) (956,941)
Cash and equivalents at beginning of year 756,919 1,333,067
----------------------
Cash and cash equivalents at end of period $ 138,158 $ 376,126
======================
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
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 S-B. 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 and nine
month period ended June 30, 1997. Operating results for these periods are
not necessarily indicative of the results that may be expected for the year
ending September 30, 1997.
NOTE B - 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.
All of the Company's investments are classified as available-for-sale
in accordance with Financial Accounting Standard No. 115. No realized or
unrealized gain or loss was incurred during the period.
NOTE C - ACQUISITION OF 872 MAIN STREET CORP (Formerly known as Cellular
Products, Inc.)
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 has continued
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 (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>
<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 D - 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
and cash equivalents: $5,246,993
Liabilities assumed: 326,345
Cash payments made: $4,920,648
</TABLE>
NOTE E - INCOME TAXES
No provision for income taxes has been accrued during fiscal 1997
periods due to the availability of net operating loss carryforwards.
NOTE F - NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 128 ("FAS 128")
"Earnings Per Share", issued by the Financial Accounting Standards Board is
effective for financial statements for fiscal years ending after December
15, 1997.
The effect of adopting FAS 128 has not yet been estimated. The
Company is required to adopt the disclosure requirements of FAS 128 during
the year ending September 30, 1998.
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, but not limited to, those
risks set forth in the section entitled "Risk Factors" in the Prospectuses
contained in the Company's Registration Statements on Form S-3, Commission
File Nos. 33-80009 and 333-6147 (which sections are hereby incorporated by
reference herein). These risks and uncertainties could cause the Company's
actual results in future periods to differ materially from its historical
results, and from any opinions or statements expressed in any forward-
looking statements. Such forward-looking statements speak only as of the
date of this report, and the Company cautions readers not to place undue
reliance on such statements.
Overview
The Company has historically concentrated its efforts on developing,
manufacturing and marketing medical diagnostic test kits used to aid in the
diagnosis of certain diseases. In the past two years the Company has
focused its expansion efforts on synergistic acquisitions of companies,
product lines and assets. 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, 1997 Compared to the Three Month
Period Ended June 30, 1996
Revenues decreased to approximately $3,254,000 from approximately
$3,431,000 (5%), primarily as a result of decreased sales of automated blood
typing instruments, and decreased sales to an OEM customer as a result of
the failure to ship approximately $240,000 worth of goods that was scheduled
for the quarter. This was partially offset by sales from the Company's
November 1, 1996 acquisition of the assets of 872 Main Street Corp.
(formerly known as Cellular Products, Inc.) ("CPI"), and a settlement of a
contract with a customer for failing to meet a minimum order.
Cost of product sales decreased to approximately $1,880,000 from
approximately $2,229,000 (16%), due to the decrease in sales, and a decrease
in cost of product sales as a percentage of sales. Cost of products sales as
a percentage of sales decreased to 58% from 66% due to a settlement of a
contract with a customer for failing to meet a minimum order, and a
reduction in purchase accounting costs relating to the acquisition of
Reagents Applications, Inc. ("RAI").
Research and development expenses increased to approximately $267,000
from approximately $209,000 (28%), primarily due to increased personnel
costs in support of the Company's program to develop and complete studies
related to FDA 510(k) submissions, and the addition of CPI related research
and development expenses. During the three month period ended June 30,
1997, the Company received FDA clearance to market a test to detect
Rheumatoid Factor in a serum protein immunoassay format, and tests to screen
patients for Primary Biliary Cirrhosis and Anti-Cardiolipin in ELISA
formats.
Selling, general and administrative ("SG&A") expenses increased to
approximately $966,000 from approximately $861,000 (12%), primarily due to
an increase in expenses for advertising, marketing materials, and addition
of CPI related selling, general and administrative expenses.
Net other expense decreased to approximately $22,000 from
approximately $28,000 due to a decrease in interest expense.
Net income was approximately $119,000 compared to $103,000, primarily
due to a decrease in the cost of product sales.
The Nine Month Period Ended June 30, 1997 Compared to the Nine Month Period
Ended June 30, 1996
Revenues increased to approximately $9,436,000 from approximately
$7,117,000 (33%), primarily as a result of (i) sales from the Company's
March 1, 1996 acquisition of RAI., (ii) sales from the Company's November 1,
1996 acquisition of CPI, (iii) an increase in contract manufacturing sales
to Carter-Wallace, and (iv) an increase in sales generated by the Company's
subsidiary, Hemagen Diagnosticos Comercio Importacacao e Exportacao Ltd., a
Brazilian limited liability company ("HDC").
Cost of product sales increased to approximately $5,681,000 from
approximately $4,483,000 (27%) due primarily to the increase in sales. Cost
of products sales as a percentage of sales decreased to 60% from 64% due to
a reduction in purchase accounting costs relating to the acquisition of RAI,
and a settlement of a contract with a customer for failing to meet a minimum
order.
Research and development expenses increased to approximately $729,000
from approximately $532,000 (37%), primarily due to increased personnel
costs in support of the Company's program to develop and complete studies
related to FDA 510(k) submissions, and the addition of RAI and CPI related
research and development expenses. During the nine month period ended June
30, 1997, the Company received FDA clearance to market tests to detect CMV,
Lupus, Rheumatoid Arthritis, Primary Biliary Cirrhosis and Anti-Cardiolipin
in ELISA formats, and Rheumatoid Factor in a serum protein immunoassay
format.
Selling, general and administrative expenses increased to
approximately $2,746,000 from approximately $2,366,000 (16%), primarily due
to the addition of RAI and CPI expenses. These were partially offset by a
reduction of expenses at HDC relating to staffing and operating its
manufacturing facility in Sao Paulo, Brazil. SG&A expenses decreased as a
percentage of revenues from 33% to 29% due to the Company's utilization of
its present infrastructure to manage additional operations.
Net other expense decreased to approximately $59,000 from
approximately $328,000 due to a decrease in interest expense and a one time
expense relating to the issuance of warrants during the prior fiscal year.
During the fiscal year ending September, 1996 the Company converted notes in
the aggregate amount 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.
Net income was approximately $220,000 compared to a loss of $591,000,
primarily due to higher RAI, CPI, Carter-Wallace and HDC sales, and a
reduction in non-operating expenses.
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 that this acquisition will allow for better
control of manufacturing raw material costs, and enhance the Company's
research programs.
At June 30, 1997, the Company's working capital was approximately
$5,880,000 compared to working capital of approximately $5,417,000 at
September 30, 1996. This increase was principally due to Company's
operating gain in the period, and the issuance of approximately $198,000
worth of common stock.
Inventory balances increased from approximately $3,178,000 on
September 30, 1996 to approximately $4,045,000 on June 30, 1997, due to the
purchase of CPI inventory, purchases of inventory in support of increased
Carter Wallace sales, and in support of increased outstanding sales orders
as of June 30, 1997. The Company often purchases large quantities of raw
materials due to issues of price, quality and availability.
At August 1, 1997 the Company had capital finance arrangements with
two companies totaling approximately $620,000. 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.
Contract Negotiations
The Company is in negotiations with several potential customers for
certain of its products. The contracts under negotiation involve the
possibility of substantial purchases over one or more years. If and when
the Company is able to finalize one or more of these contracts, and if the
terms are as presently being considered by management, then the Company is
optimistic that such contracts may have a materially favorable effect on its
net income.
Contemplated Stock Repurchase
The Company has cash resources which the Board of Directors believes
can be beneficially invested in the Company's own common stock at current
market prices. The Board of Directors has authorized management of the
Company to cause the Company to repurchase up to a maximum of 300,000 shares
of the Company's common stock, subject to management's discretion regarding
price, timing, and alternative opportunities for use of capital. In
management's discretion, stock repurchases may be made in any amount up to
the aggregate maximum, and may be made from time to time and in open market
or private purchases. The authorization to repurchase stock expires on
April 30, 1998. This program is subject to applicable securities laws.
As of the date of this report, the Company has not purchased any
shares on the open market due to the limitations of the securities and
exchange laws.
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
Statement of Financial Accounting Standards No. 128 ("FAS 128")
"Earnings Per Share", issued by the Financial Accounting Standards Board is
effective for financial statements for fiscal years ending after December
15, 1997. The new standard establishes standards for computing and
presenting earnings per share.
The effect of adopting FAS 128 has not yet been estimated. The
Company is required to adopt the disclosure requirements of FAS 128 during
the year ending September 30, 1998.
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. None
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 12, 1997 /s/ Carl Franzblau
- ------------------------- ------------------------------
(Signature)
Carl Franzblau
Chief Executive Officer
August 12, 1997 /s/ William Franzblau
- ------------------------- ------------------------------
(Signature)
William Franzblau
Chief Financial Officer
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Title
- ------- -----
<S> <C>
11 Statement of Computation of per share net income (loss).
</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
------------------ -----------------
1997 1996 1997 1996
-------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ 118,930 $ 102,921 $ 220,382 $(591,232)
-------------------------------------------
Net income (loss) per share $ 0.02 $ 0.01 $ 0.03 $ (0.12)
-------------------------------------------
Weighted average shares outstanding 7,677,989 7,370,245 7,648,993 5,010,090
-------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 138,158
<SECURITIES> 720,258
<RECEIVABLES> 1,967,065
<ALLOWANCES> 56,100
<INVENTORY> 4,044,914
<CURRENT-ASSETS> 7,133,403
<PP&E> 4,687,819
<DEPRECIATION> 1,995,209
<TOTAL-ASSETS> 11,400,719
<CURRENT-LIABILITIES> 1,253,125
<BONDS> 0
0
0
<COMMON> 77,769
<OTHER-SE> 9,763,346
<TOTAL-LIABILITY-AND-EQUITY> 11,400,719
<SALES> 3,240,751
<TOTAL-REVENUES> 3,253,751
<CGS> 1,880,163
<TOTAL-COSTS> 3,112,976
<OTHER-EXPENSES> 21,845
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,402
<INCOME-PRETAX> 118,930
<INCOME-TAX> 0
<INCOME-CONTINUING> 118,930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,930
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
