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 March 31, 1998 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)
(781) 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 March 31, 1998, the issuer had 7,851,890 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
March 31, 1998 and
September 30, 1997
Consolidated Statements 4
of Operations; three months and six months
ended March 31, 1998 and 1997
Consolidated Statements 5
of Cash Flows; six months
ended March 31, 1998 and 1997
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. 13
PART I - Financial Information
Item 1. Financial Statements
--------------------
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
----------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 901,085 $ 294,086
Restricted cash (Note C) 465,200 -
Short-term investments - 730,827
Accounts and other receivables, less allowance for
doubtful accounts of $49,660 at March and $55,500 at
September 1,821,542 2,288,793
Inventories 4,805,094 3,953,601
Prepaid expenses and other current assets 247,349 221,646
---------------------------
Total current assets 8,240,270 7,488,953
Property and Equipment:
Fixed assets 4,787,813 4,728,344
Less accumulated depreciation 2,533,169 2,182,874
---------------------------
2,254,644 2,545,470
Other assets 1,482,493 1,512,227
---------------------------
$11,977,407 $11,546,650
===========================
</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,
1998 1997
----------- -------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 885,375 $ 785,135
Customer deposits 478,381
Notes payables - 198,983
Current portion of long-term debt 375,282 347,388
---------------------------
Total current liabilities 1,739,038 1,331,506
---------------------------
Long-term debt, less current portion - 189,281
---------------------------
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:
7,851,890 at March and 7,776,890 at September 78,519 77,769
Additional paid-in capital 13,440,946 13,329,197
Accumulated deficit (3,275,096) (3,375,103)
---------------------------
10,244,369 10,031,863
Receivable from stockholder (6,000) (6,000)
---------------------------
10,238,369 10,025,863
---------------------------
$11,977,407 $11,546,650
===========================
</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,
------------------------ ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $2,740,397 $3,027,431 $5,584,164 $6,181,991
Costs and expenses:
Cost of product sales 1,531,790 1,861,085 3,109,441 3,800,721
Research and development 272,459 248,145 551,749 462,261
Selling, general and administrative 907,269 858,794 1,790,768 1,780,092
----------------------------------------------------
2,711,518 2,968,024 5,451,958 6,043,074
----------------------------------------------------
Operating Income 28,879 59,407 132,206 138,917
Other income (expenses), net 2,095 (13,136) (32,199) (37,465)
----------------------------------------------------
Income before income taxes 30,974 46,271 100,007 101,452
Provision for income taxes -- -- -- --
----------------------------------------------------
Net income $ 30,974 $ 46,271 $ 100,007 $ 101,452
====================================================
Net income per share - basic (Note B) $ 0.004 $ 0.01 $ 0.01 $ 0.01
====================================================
Net income per share - assuming dilution (Note B) $ 0.004 $ 0.01 $ 0.01 $ 0.01
====================================================
</TABLE>
See Notes to Consolidated Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 100,007 $ 101,452
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 404,810 338,001
Changes in assets and liabilities net of effect of
business acquisition:
Restricted cash (465,200) -
Accounts and other receivables 467,251 143,194
Prepaid expenses and other current assets (25,704) (47,010)
Inventories (851,493) (377,860)
Customer deposits 478,381 -
Accounts payable and accrued expenses 100,240 (566,496)
----------------------
Net cash provided (used) by operating activities 208,292 (408,719)
----------------------
Cash flows from investing activities:
Purchase of property and equipment (59,469) (100,734)
Other assets (24,781) 67,473
CPI purchase, net of cash - (395,480)
Proceeds from short-term investments, net 730,827 649,556
----------------------
Net cash provided by investing activities 646,577 220,815
----------------------
Cash flows from financing activities:
Proceeds from payments of long-term
debt, net (161,387) (198,657)
Repayment of note payable (198,983) -
Proceeds from issuances of common stock 112,500 98,000
----------------------
Net cash used by financing activities (247,870) (100,657)
----------------------
Net increase (decrease) in cash and cash equivalents 606,999 (288,561)
Cash and cash equivalents at beginning of year 294,086 756,919
----------------------
Cash and cash equivalents at end of period $ 901,085 $ 468,358
======================
</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 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 29, 1997.
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 six
month period ended March 31, 1998. Operating results for these periods are
not necessarily indicative of the results that may be expected for the year
ending September 30, 1998.
NOTE B - NET INCOME PER SHARE
In the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share".
SFAS 128 requires the presentation of both basic and diluted earnings per
share and replaces previously required standards for computing and
presenting earnings per share. Earnings per share amounts for all periods
have been presented and where appropriate restated to conform to the
requirements of SFAS 128.
The following is a reconciliation of the denominator (number of
shares) used in the computation of earnings per share. The numerator (net
income) is the same for basic and diluted computations.
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic shares 7,851,890 7,642,446 7,821,066 7,633,088
Effect of dilutive securities
- options and warrants 5,638 91,663 20,554 93,872
Dilutive shares 7,857,528 7,734,109 7,841,620 7,726,960
</TABLE>
Options and warrants to purchase 3,694,448 and 3,591,948 shares of
common stock at prices ranging from $1.75 through $5.00 and $2.00 through
$5.00 were outstanding during the three and six month periods ended March
31, 1998 respectively. Options and warrants to purchase 3,699,307 shares of
common stock at prices ranging from $2.50 through $8.00 were outstanding
during both the three and six month periods ended March 31, 1997. These
shares were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the
common shares. These options and warrants expire at various dates from 1997
through 2001.
NOTE C - RESTRICTED CASH
A customer deposit of $560,900 was made during the three month period
ended March 31, 1998. This deposit was placed in an escrow account and is
released as a partial payment for shipments to the customer. The restricted
balance in the escrow account as of March 31, 1998 was $465,200.
NOTE D - INCOME TAXES
No provision for income taxes has been accrued during fiscal 1997 or
fiscal 1998 due to the availability of net operating loss carryforwards.
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
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. Forward-looking statements speak only as of the
date of this report, and the Company cautions readers not to place undue
reliance on these 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 three years the Company has
focused its expansion efforts on synergistic acquisitions of companies,
product lines and assets. The Company and its subsidiaries offer
approximately 110 different test kits that have been cleared by the United
States Food and Drug Administration ("FDA"). Several additional test kits
are sold in foreign markets.
Results of Operations
The Three Month Period Ended March 31, 1998 Compared to the Three Month
Period Ended March 31, 1997
Revenues decreased to approximately $2,740,000 from approximately
$3,027,000 (9%), primarily as a result of a significant decrease in contract
manufacturing sales to Carter Wallace and a slight decrease in sales at the
Company's San Diego, CA operation. These decreases were partially offset
by increases in sales at all of the Company's other operations.
Cost of product sales decreased to approximately $1,532,000 from
approximately $1,861,000 (18%), due to the decrease in sales. Cost of
products sales as a percentage of sales decreased to 56% from 61% due to a
decrease in lower gross margin Carter Wallace sales and improved
manufacturing efficiency at the Waltham plant.
Research and development expenses increased to approximately $272,000
from approximately $248,000 (10%), primarily due to increased personnel
costs in support of the Company's program to develop and complete several
research projects including developing tests for inducible nitric oxide
synthase ("iNOS"), an early marker for septic shock, and tests for both
bovine and human tuberculosis ("TB"). Both the iNOS and TB tests are being
developed in both Elisa and rapid point of care device formats. These tests
are in addition to the Company's continuing efforts to develop several new
products to complement its existing autoimmune and infectious disease
product lines.
Selling, general and administrative ("SG&A") expenses increased to
approximately $907,000 from approximately $859,000 (6%), primarily due to
increased sales and marketing payroll expense, and advertising expense. The
Company is presently adding an outside sales force to cover the United
States and European markets in order to increase its sales. Additionally,
the Company has begun a significant advertising campaign to launch the
products that were cleared for sale by the FDA during the prior fiscal year.
Other income, net was changed to a net income of approximately$2,000
representing an increase of approximately $15.000 from a net expense of
approximately $13,000. This change was due to a decrease in interest
expense resulting from a reduction in long term debt.
Net income was approximately $31,000 compared to $46,000, primarily
due to lower sales, and higher research and development and SG&A expenses.
This was partially offset by lower cost of sales.
The Six Month Period Ended March 31, 1998 Compared to the Six Month Period
Ended March 31, 1997
Revenues decreased to approximately $5,584,000 from approximately
$6,182,000 (10%), primarily as a result of a significant decrease in
contract manufacturing sales to Carter Wallace and a slight decrease in
sales at the Company's San Diego, CA operation. These decreases were
partially offset by increases in sales at all of the Company's other
operations.
Cost of product sales decreased to approximately $3,109,000 from
approximately $3,801,000 (18%) due to the decrease in sales, and decreased
as a percentage of sales to 56% from 61% primarily due to a decrease in
lower gross margin Carter-Wallace sales and improved efficiency at the
Waltham plant.
Research and development expenses increased to approximately $552,000
from approximately $462,000 (19%), primarily due to increased personnel
costs in support of the Company's program to develop and complete several
research projects including developing tests for inducible nitric oxide
synthase ("iNOS"), an early marker for septic shock, and tests for both
bovine and human tuberculosis ("TB"). Both the iNOS and TB tests are being
developed in both Elisa and rapid point of care device formats. These tests
are in addition to the Company's continuing efforts to develop several new
products to complement its existing autoimmune and infectious disease
product lines. During the six month period ended March 31, 1998, the
Company received FDA clearance to market three new products, Virgo ANCA
Screen, Virgo cANCA, and Virgo pANCA which are used to aid in the diagnosis
of patients with Wegener's disease. Wegener's disease is an autoimmune
disease characterized by lesions in the upper and lower respiratory tract
and kidney which is often misdiagnosed.
Selling, general and administrative expenses increased to
approximately $1,791,000 from approximately $1,780,000 (1%), primarily due
to increased advertising expenses. This was partially offset by lower
public relations expenses. The Company is presently adding an outside sales
force to cover the United States and European markets in order to increase
its sales. Additionally, the Company has begun a significant advertising
campaign to launch the products that were cleared for sale by the FDA during
the prior fiscal year.
Other expense, net decreased to approximately $32,000 from
approximately $37,000 due to a decrease in interest expense resulting from a
reduction in long term debt.
Net income was approximately $100,000 compared to $101,000, primarily
due to lower sales, and higher research and development and SG&A expenses.
This was partially offset by lower cost of sales.
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 January 13, 1998 the Company announced that is has signed a letter
of intent to acquire the Analyst instrument business from Dade Behring Inc.
The Analyst is a versatile bench top clinical chemistry analyzer that the
Company believes is well positioned for the point of care market, which
includes both the physician office laboratory and the veterinary office
laboratory. The machine is easy to use, very reliable and can provide
results of a panel of clinical chemistries in ten minutes. The proprietary
technology used to produce the reagent rotor provides the Analyst with a
cost effective, highly accurate consumable.
The consummation of the acquisition is subject to Hemagen's completing
its due diligence investigation of the Analyst business, the financing of
the acquisition and the negotiation and execution of a definitive written
agreement with Dade Behring. The Company presently anticipates completing
the transaction on or about June 30, 1998.
At March 31, 1998, the Company's working capital was approximately
$6,501,000 compared to working capital of approximately $6,157,000 at
September 30, 1997. Cash and cash equivalents increased by approximately
$607,000 for the six months ended March 31, 1998. This increase was a
result of net cash provided by operating activities amounting to
approximately $208,000 and $647,000 respectively, offset by net cash used by
financing activities of approximately $248,000.
Inventory balances increased from approximately $3,954,000 on
September 30, 1997 to approximately $4,805,000 on March 31, 1998, in support
of an anticipated increase in product sales due to the increased marketing
efforts. As of March 31, 1998 the Company had approximately $2,110,000
sales on order, the vast majority of which are for delivery during the
quarter ending June 30, 1998. This is the highest level of open orders in
the Company's history. The Company is currently commencing a corporate wide
review of inventory levels to determine the proper levels of its
inventories.
At May 1, 1998 the Company had a capital finance arrangement with a
company totaling approximately $345,000. The Company is required to pay an
average of $34,000 per month in the aggregate (including interest) under
this arrangement during fiscal 1998. The arrangement ends during fiscal
1999.
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
--------------------------------
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)
May 13, 1998 /s/ Carl Franzblau
- -------------------- --------------------------
(Signature)
Carl Franzblau
Chief Executive Officer
May 13, 1998 /s/ William Franzblau
- -------------------- --------------------------
(Signature)
William Franzblau
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 901,085
<SECURITIES> 0
<RECEIVABLES> 1,821,542
<ALLOWANCES> 49,660
<INVENTORY> 4,805,094
<CURRENT-ASSETS> 8,240,270
<PP&E> 4,787,813
<DEPRECIATION> 2,533,169
<TOTAL-ASSETS> 11,977,407
<CURRENT-LIABILITIES> 1,739,038
<BONDS> 0
0
0
<COMMON> 78,519
<OTHER-SE> 10,165,850
<TOTAL-LIABILITY-AND-EQUITY> 11,977,407
<SALES> 2,740,997
<TOTAL-REVENUES> 2,740,997
<CGS> 1,531,790
<TOTAL-COSTS> 1,531,790
<OTHER-EXPENSES> 1,179,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,238
<INCOME-PRETAX> 30,974
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,974
<EPS-PRIMARY> 0.004
<EPS-DILUTED> 0.004
</TABLE>
