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, 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 Number)
34-40 Bear Hill Road, Waltham, Massachusetts 02154
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(Address of principal executive offices, Zip Code)
(781) 890-3766
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(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, 1997, the issuer had 7,851,890 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, 1997 and
September 30, 1997
Consolidated Statements 4
of Operations; Three months
ended December 31, 1997 and 1996
Consolidated Statements 5
of Cash Flows; Three months
ended December 31, 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. 11
PART I - Financial Information
Item 1. Financial Statements
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
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<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
----------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 184,865 $ 294,086
Short-term investments 741,228 730,827
Accounts and other receivables, less allowance
for doubtful accounts of $55,500 at December
and September 2,112,462 2,288,793
Inventory 4,196,068 3,953,601
Prepaid expenses and other current assets 211,619 221,646
---------------------------
Total current assets 7,446,242 7,488,953
Property and Equipment:
Fixed assets 4,758,283 4,728,344
Less accumulated depreciation 2,369,822 2,182,874
---------------------------
2,388,461 2,545,470
Other Assets 1,479,634 1,512,227
---------------------------
$11,314,337 $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>
December 31, September 30,
1997 1997
----------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 641,975 $ 785,135
Notes payable - 198,983
Current portion of long-term debt 384,211 347,388
---------------------------
Total current liabilities 1,026,186 1,331,506
---------------------------
Long-term debt, less current portion 80,756 189,281
---------------------------
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:
7,851,890 at December and 7,776,890
at September 78,519 77,769
Additional paid-in capital 13,440,946 13,329,197
Accumulated deficit (3,306,070) (3,375,103)
---------------------------
10,213,395 10,031,863
Receivable from stockholder (6,000) (6,000)
---------------------------
10,207,395 10,025,863
---------------------------
$11,314,337 $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
December 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Product sales $2,843,767 $3,154,560
Costs and expenses:
Cost of product sales 1,577,651 1,939,680
Research and development 279,290 214,019
Selling, general and administrative 883,499 921,351
-----------------------
2,740,440 3,075,050
-----------------------
Operating Income 103,327 79,510
Other (expense), net (34,294) (24,329)
Income before income taxes 69,033 55,181
Provision for income taxes 0 0
-----------------------
Net Income $ 69,033 $ 55,181
=======================
Net income per share - basic (Note B) $ 0.01 $ 0.01
=======================
Net income per share - assuming dilution (Note B) $ 0.01 $ 0.01
=======================
</TABLE>
See notes to consolidated financial statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income provided $ 69,033 $ 55,181
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 214,195 188,660
Changes in assets and liabilities:
Accounts and other receivables 176,331 212,122
Prepaid expenses and other current assets 10,027 28,850
Inventory (242,467) (324,518)
Accounts payable and accrued expenses (143,160) (345,842)
--------------------
Net cash used by operating activities 83,959 (185,547)
--------------------
Cash flows from investing activities:
Purchase of property and equipment (29,939) (63,513)
Other Assets 5,345 37,926
CPI purchase, net of cash - (395,480)
Proceeds from (deposits to) short-term investments (10,401) 474,265
--------------------
Net cash provided (used) by investing activities (34,995) 53,198
--------------------
Cash flows from financing activities:
Repayments of notes payable (198,983)
Repayments of long-term debt, net (71,702) (87,082)
Proceeds from additional paid in capital 112,500 10,500
--------------------
Net cash provided (used) by financing activities (158,185) (76,582)
--------------------
Net decrease in cash and cash equivalents (109,221) (208,931)
Cash and equivalents at beginning of year 294,086 756,919
--------------------
Cash and cash equivalents at end of period $184,865 $547,988
====================
</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 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 26, 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 period
ended December 31, 1997. Operating results for the three months ended
December 31, 1997 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 the basic and diluted computations.
<TABLE>
<CAPTION>
Three months ended
December 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Basic shares 7,791,066 7,623,933
Effect of dilutive securities
-options and warrants 41,477 92,638
----------------------
Dilutive shares 7,832,543 7,716,571
----------------------
</TABLE>
Options and warrants to purchase 3,844,107 and 3,699,307 shares of common
stock at prices ranging from $2.19 through $8.00 and $2.50 through $8.00 were
outstanding during the three month period ended December 31, 1997 and December
31, 1996 respectively. 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 - 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
discussed 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 these statements.
Overview
The Company historically 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 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 December 31, 1997 Compared to the Three
Month Period Ended December 31, 1996
Revenues decreased to approximately $2,844,000 from approximately
$3,155,000 (10%), primarily as a result of decreased sales from the
Company's Reagents Applications, Inc. ("RAI") subsidiary, and decreased
contract manufacturing sales to Carter-Wallace.
Cost of product sales decreased to approximately $1,578,000 from
approximately $1,940,000 (19%), and decreased as a percentage of product
sales to 55% from 61% primarily due to a decrease in lower gross margin
Carter-Wallace and RAI sales and improved manufacturing efficiency at the
Waltham plant.
Research and development expenses increased to approximately $279,000
from approximately $214,000 (30%), primarily due to increased personnel
costs in support of the Company's program to develop and complete studies
related to FDA 510(k) submissions. During the three month period ending
December 31, 1997, the Company received FDA clearance to market three new
products, Virgo(R) ANCA Screen, Virgo(R) cANCA, and Virgo(R) pANCA which are
used to aid in the diagnosis of patients with Wegener's disease. Wegener's
disease is a systemic vasculitis characterized by lesions in the upper and
lower respiratory tract and kidney which is often misdiagnosed.
Selling, general and administrative ("SG&A) expenses decreased to
approximately $883,000 from approximately $921,000 (4%), primarily due to
lower personnel costs.
Net other expense increased to approximately $34,000 from
approximately $24,000 due to a increased translation loss between the
Company and its subsidiary Hemagen Diagnosticos Comercio Importacacao e
Exportacao Ltd., a Brazilian limited liability company.
Net income increased to approximately $69,000 from $55,000 primarily
due to the reduction in cost of product sales, and selling, general and
administration costs. This was partially offset by an increase in research
and development costs and lower product 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 it 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.
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 which was paid 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 has allowed for
better control of manufacturing costs, and has enhanced the Company's
research programs.
At December 31, 1997, the Company's working capital was approximately
$6,420,000 compared to working capital of approximately $6,157,000 at
September 30, 1997. This increase was principally due to Company's
operating gain in the quarter and the issuance of approximately $112,000
worth of common stock upon the exercise of outstanding warrants.
Inventory balances increased from approximately $3,954,000 on
September 30, 1997 to approximately $4,196,000 on December 31, 1997 in
support of an anticipated increase in product sales.
At February 1, 1998 the Company had capital finance arrangements with
a company totaling approximately $420,000. The Company is required to pay
an average of $34,000 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
--------------------------------
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)
February 11, 1998 /s/ Carl Franzblau
- ----------------- ----------------------------
(Signature)
Carl Franzblau
Chief Executive Officer
February 11, 1998 /s/ William Franzblau
- ----------------- ----------------------------
(Signature)
William Franzblau
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 184,865
<SECURITIES> 741,228
<RECEIVABLES> 2,112,462
<ALLOWANCES> 55,500
<INVENTORY> 4,196,068
<CURRENT-ASSETS> 7,446,242
<PP&E> 4,758,283
<DEPRECIATION> 2,369,822
<TOTAL-ASSETS> 11,314,337
<CURRENT-LIABILITIES> 1,026,186
<BONDS> 0
0
0
<COMMON> 78,519
<OTHER-SE> 10,128,876
<TOTAL-LIABILITY-AND-EQUITY> 11,314,337
<SALES> 2,843,767
<TOTAL-REVENUES> 0
<CGS> 1,577,651
<TOTAL-COSTS> 2,740,440
<OTHER-EXPENSES> 34,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,647
<INCOME-PRETAX> 69,033
<INCOME-TAX> 0
<INCOME-CONTINUING> 69,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,033
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
