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, 1999 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 02451
---------------------------------------------------
(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, 1999, the issuer had 7,751,890 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, 1999 and
September 30, 1998
Consolidated Statements 4
of Operations; three months and
six months ended March 31,
1999 and 1998
Consolidated Statements 5
of Cash Flows; six months
ended March 31, 1999 and 1998
Notes to Consolidated 6
Financial Statements
Item 2. Management's Discussion and 9
Analysis of Financial
Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 5. Other Information. 17
Item 6. Exhibits and Reports on Form 8-K. 17
PART I - Financial Information
Item 1. Financial Statements
--------------------
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 93,486 $ 412,193
Accounts and other receivables, less allowance for
doubtful accounts of $298,000 at March and $477,000
at September 2,544,922 3,294,598
Inventories 6,845,147 6,212,254
Prepaid expenses and other current assets 583,081 273,909
----------------------------
Total current assets 10,066,636 10,192,954
Property and Equipment:
Fixed assets 7,702,994 7,293,427
Less accumulated depreciation 3,505,663 2,926,231
----------------------------
4,197,331 4,367,196
Other assets 1,357,809 1,403,486
----------------------------
$15,621,776 $15,963,636
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 1,364,578 $ 1,093,532
Customer deposits 752,121 -
Deferred revenue 104,652 152,929
Notes payable 2,220,085 3,500,000
----------------------------
Total current liabilities 4,441,436 4,746,461
----------------------------
Subordinated note payable, net of unamortized discount
of $136,228 at March and $181,637 at September 1,113,772 1,068,363
----------------------------
Stockholders' Equity:
Preferred stock, $.01 par value - 1,000,000
shares authorized; none issued -- --
Common stock, $.01 par value - 30,000,000
shares authorized; 7,851,890 issued and 7,751,890
outstanding at March; 7,851,890 issued and
outstanding at September 78,519 78,519
Additional paid-in capital 13,440,947 13,440,947
Accumulated deficit (3,357,261) (3,364,654)
----------------------------
10,162,205 10,154,812
Less:
Receivable from stockholders (6,000) (6,000)
Treasury stock, 100,000 shares at March (89,637)
----------------------------
10,066,568 10,148,812
----------------------------
$15,621,776 $15,963,636
============================
</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,
------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $3,658,065 $2,740,397 $8,257,502 $5,584,164
Costs and expenses:
Cost of product sales 2,405,768 1,531,790 5,100,718 3,109,441
Research and development 363,960 272,459 646,765 551,749
Selling, general and administrative 1,092,793 907,269 2,251,678 1,790,768
-------------------------------------------------------
3,862,521 2,711,518 7,999,161 5,451,958
-------------------------------------------------------
Operating Income (loss) (204,456) 28,879 258,341 132,206
Other income (expenses), net (149,363) 2,095 (250,948) (32,199)
-------------------------------------------------------
Income (loss) before income taxes (353,819) 30,974 7,393 100,007
Provision for income taxes -- -- -- --
-------------------------------------------------------
Net income (loss) $ (353,819) $ 30,974 $ 7,393 $ 100,007
=======================================================
Net income (loss) per share - basic (Note B) $ (0.05) $ 0.004 $ 0.00 $ 0.01
=======================================================
Net income (loss) per share - assuming dilution (Note B) $ (0.05) $ 0.004 $ 0.00 $ 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,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,393 $ 100,007
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 633,947 404,810
Changes in assets and liabilities net of effect of
business acquisition:
Restricted cash - (465,200)
Accounts and other receivables 549,818 467,251
Prepaid expenses and other current assets (320,249) (25,704)
Inventories (632,893) (851,493)
Customer deposits 752,121 478,381
Deferred revenue (48,277) -
Accounts payable and accrued expenses 271,046 100,240
-------------------------
Net cash provided by operating activities 1,212,906 208,292
-------------------------
Cash flows from investing activities:
Purchase of property and equipment (198,632) (59,469)
Other assets (8,838) (24,781)
Proceeds from short-term investments, net - 730,827
-------------------------
Net cash provided (used) by investing activities (207,470) 646,577
-------------------------
Cash flows from financing activities:
Proceeds from (payments of) long-term debt, net 45,409 (161,387)
Repayment of notes payable (1,279,915) (198,983)
Proceeds from issuances (payments for buybacks)
of common stock (89,637) 112,500
-------------------------
Net cash used by financing activities (1,324,143) (247,870)
-------------------------
Net increase (decrease) in cash and cash equivalents (318,707) 606,999
Cash and cash equivalents at beginning of period 412,193 294,086
-------------------------
Cash and cash equivalents at end of period $ 93,486 $ 901,085
=========================
</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 24, 1998.
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, 1999. Operating results for these periods are not
necessarily indicative of the results that may be expected for the year
ending September 30, 1999.
NOTE B - NET INCOME (LOSS) PER SHARE
Earnings (loss) per share information is presented in accordance with
the Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share".
The following is a reconciliation of the denominator (number of
shares) used in the computation of earnings (loss) per share. The numerator
(net income or loss) is the same for basic and diluted computations.
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic shares 7,765,279 7,851,890 7,809,060 7,821,066
Effect of dilutive securities
- options and warrants - 5,638 - 20,554
Dilutive shares 7,765,279 7,857,528 7,809,060 7,841,620
</TABLE>
Options and warrants that have an exercise price greater than the
average market price of common stock were not included in the computation of
diluted EPS. Below is a summary of options and warrants excluded from the
calculation:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
--------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares excluded: 3,894,873 3,694,448 3,894,873 3,591,948
Price ranges: $1.20-$5.00 $1.75-$5.00 $1.20-$5.00 $2.00- 5.00
</TABLE>
NOTE C - STOCK PURCHASE RIGHTS PLAN
In January, 1999 the Company's Board of Directors declared a special
dividend distribution of one common share purchase right for each
outstanding share of common stock of Hemagen. The dividend was distributed
on February 10, 1999 to stockholders of record on that date. These rights
will become exercisable only if a person or group acquires 15 percent or
more of Hemagen's common stock or announces a tender offer that would result
in ownership of 15 percent or more of the Company's common stock. If one of
these conditions occur, each right may entitle its holder (other than the 15
percent person or group) to $4.00 worth of newly issued shares of common
stock of Hemagen (or of any company that acquires Hemagen) at a price equal
to 50 percent of the current market price.
The rights are redeemable at the option of the Board of Directors up
until ten days after public announcement that any person or group has
acquired 15 percent or more of Hemagen's common stock. The redemption price
is $.001 per right.
These rights will expire on January 27, 2009, unless redeemed prior to
that date. Distribution of the rights is not taxable to stockholders.
NOTE D - INCOME TAXES
No provision for income taxes has been accrued during fiscal 1998 or
fiscal 1999 due to the availability of net operating loss carryforwards.
NOTE E - NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosure about Segments of an Enterprise and Related Information", which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," establishes standards for the way that public enterprises
report information about operating segments in annual financial statements
and requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic areas,
and major customers. SFAS No. 131 defines operating segments as components
of an enterprise about which separate financial information is available
that is evaluated by the chief operating decision maker in deciding how to
allocate resources and assessing performance.
This new standard is effective for financial statements for the
periods beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. Management does not expect
implementation of this standard to materially affect future financial
statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain
or loss recognition on the hedging derivative with the recognition of (i)
the changes in the fair value of the hedged asset or liability that are
attributed to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of
change. SFAS No.133 is effective for all fiscal years beginning after June
15, 1999.
Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new standard on October 1, 1999
to affect its financial statements.
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. During the past several years the Company
has focused its expansion efforts on synergistic acquisitions of companies,
product lines and assets. The Company and its subsidiaries offer
approximately 135 different test kits that have been cleared by the United
States Food and Drug Administration ("FDA"). Several additional test kits
and components are sold in foreign markets.
On September 1, 1998, Hemagen completed the acquisition of the Analyst
automated system from Dade Behring, Inc. ("Dade"). The Analyst is a patent-
protected, low cost, bench top clinical chemistry and reagent system.
RAICHEM, Hemagen's clinical chemistry division has begun production of some
reagents and is in the process of developing many of the rest. Hemagen's
facility in Maryland will assemble the unit's rotors and ship completed
products. The Analyst instrument will be manufactured and serviced at the
Company's Massachusetts facility. The Company has begun to redesign all of
its facilities to accommodate these new activities. This acquisition
positions the Company for growth in the multi-billion dollar point-of-care
market as well as the physician office laboratory and veterinary diagnostic
markets.
Results of Operations
The Three Month Period Ended March 31, 1999 Compared to the Three Month
Period Ended March 31, 1998
Revenues for the three month period ending March 31, 1999 increased to
approximately $3,658,000 from approximately $2,740,000 (34%) for the same
period ending March 31,1998. This increase was primarily due to the addition
of sales from the Analyst(R) Acquisition (See "Liquidity and Capital
Resources") and was partially offset by decreases in sales at RAICHEM,
Cellular Products, Inc.("CPI"), and the Company's Brazilian subsidiary,
Hemagen Diagnosticos e Commercio, ("HDC").
Cost of product sales increased to approximately $2,406,000 from
approximately $1,532,000 (57%), due to the increase in sales, overhead costs
associated with production of Analyst(R) products and a sharp decrease in the
margins at HDC due to a devaluation in the Brazilian Real. Cost of product
sales as a percentage of sales increased to 66% from 56% during the same
period in 1998. The Company believes the costs of the Analyst products will
decrease as a percentage of sales as more of the Analyst business production
is shifted to the Company's own facilities later this fiscal year.
Research and development expenses increased to approximately $364,000
from approximately $272,000 (34%), due to higher personnel and supply costs
in association with development of Analyst(R) reagents and products, new
ELISA tests and new viral lysates for use in the Company's infectious
disease program. During the period the Company completed development of a
new Vet Rotor and new normal and abnormal controls for the veterinary
market. These products were introduced to market in April, 1999.
The Company is currently working to complete several research and
development programs including:
Autoimmune Diseases
The Company is continuing its development of products to aid in the
diagnosis of autoimmune diseases. ELISA kits for the detection of
antibodies associated with Beta 2 glycoprotein is nearing completion. These
will be marketed with our recently approved anti-cardiolipin kits. In
addition, an ELISA Screen assay to detect total antinuclear antibodies (ANA)
is being developed. The Company believes that, barring any unforeseen
regulatory hurdles, these assays will become commercially available during
fiscal 1999.
Infectious Diseases
The Company has recently completed the development of products known
as a "ToRCH panel" which include assays for toxoplasmosis, rubella, CMV, and
herpes. Several of these products are being evaluated for submission to the
FDA for clearance.
The Company through it's Cellular Products, Inc. ("CPI") subsidiary
has begun production of the viral lysates used in the Company's infectious
disease products, including HIV, herpes and CMV. It is expected more of
these lysates will be developed during the current year.
Clinical Chemistry Reagents
The Company continues to develop additional assays and reagents to
fill in its clinical chemistry reagent product line sold under the RAICHEM
label. Almost all of the powdered clinical chemistry assays are now
available in liquid format, making RAICHEM one of the most complete clinical
chemistry lines offered worldwide. Continuing efforts are directed at
increasing the line of Serum Protein immunoassays ("SPIAs"), and the Company
is attempting to modify them for use in the Analyst system (see below).
Development of a kit to measure blood levels of ferritin is almost complete
and plans to produce several other assays are in place.
Analyst Instrument System
Studies have begun to modify the contents (test panel) of the human
Chem 14 rotor to ease reimbursement procedures and to make the product more
informative for the doctor and the patient. These modifications should be
completed during the current calendar year. As mentioned above, the Company
is exploring the possibility of expanding the rotor technology to
immunoassays of serum protein, therapeutic drug monitoring and a thyroid
panel.
New Analyst Instrument
The Analyst instrument will be updated to include increased memory
capacity, user friendly calibration technology and a smaller instrument
footprint. The Company has contracted with an instrument developer to
design this new machine. The new Analyst instrument will be manufactured at
the Company's Waltham, MA facility.
Selling, general and administrative ("SG&A") expenses increased to
approximately $1,093,000 from approximately $907,000 (21%), due to an
increase in payroll, personnel and travel costs associated with the Company
hiring a sales force and due to an increase in royalties expense associated
with the purchase of the Analyst(R) business line.
Other expenses, net changed to approximately $149,000 expense, net
from income, net of approximately $2,000 during the same period last year.
This change was the result of an increase in interest expense associated
with the increased borrowings that were used to finance the Analyst purchase
and translation losses associated with the devaluation of the Brazilian
Real. (See "Liquidity and Capital Resources").
Net, the Company lost approximately $354,000 compared to income of
approximately $31,000 for the same period last year. This change was due
to higher cost of sales, higher SG&A expenses, higher research and
development expenses and higher other expenses. This was partially offset
by increases in sales.
The Six Month Period Ended March 31, 1999 Compared to the Six Month Period
Ended March 31, 1998
Revenues for the six month period ending March 31, 1999 increased to
approximately $8,258,000 from approximately $5,584,000 (48%) for the same
period ending March 31,1998. This increase was primarily due to the addition
of sales from the Analyst(R) Acquisition (See "Liquidity and Capital
Resources") and an increase in sales of blood banking products. This was
partially offset by decreases in sales at CPI and HDC.
Cost of product sales increased to approximately $5,101,000 from
approximately $3,109,000 (64%), due to the increase in sales, overhead costs
associated with production of Analyst(R) products and a sharp decrease in the
margins at HDC due to the devaluation of the Brazilian Real. Cost of
product sales as a percentage of sales increased to 62% from 56% during the
period. The Company believes the costs of the Analyst products will
decrease as a percentage of sales as more of the Analyst business production
is shifted to the Company's own facilities later this fiscal year.
Research and development expenses increased to approximately $647,000
from approximately $552,000 (17%), due to higher personnel and supply costs
in association with development of Analyst(R) reagents and products, new
ELISA tests and new viral lysates for use in the Company's infectious
disease program. During the period the Company completed development of a
new Vet Rotor and new normal and abnormal controls for the veterinary
market. These products were introduced to market in April, 1999. The
Company has also received clearance from the FDA to market an automated test
for HDL-Cholesterol through it's RAICHEM subsidiary.
For a detail of current research and development projects see the
comparison of three month periods ended March 31, 1999 and 1998 above.
Selling, general and administrative ("SG&A") expenses increased to
approximately $2,252,000 from approximately $1,791,000 (26%), due to an
increase in payroll, personnel and travel costs associated with the Company
hiring a sales force and due to an increase in royalties expense associated
with the purchase of the Analyst(R) business line.
Other expenses, net increased to approximately $251,000 from
approximately $32,000 during the same period last year. This increase was
the result of an increase in interest expense associated with the increased
borrowings that were used to finance the Analyst purchase and translation
losses associated with the devaluation of the Brazilian Real. (See
"Liquidity and Capital Resources").
Net income decreased to approximately $7,000 from approximately
$100,000 (93%) for the same period last year. This decrease was due to
higher cost of sales, higher SG&A expenses, higher research and development
expenses and higher other expenses. This was partially offset by an
increase in 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,
private placements completed in September 1995, and March 1996 and a
$5,000,000 line of credit provided by BankBoston N.A. which was put in place
on September 1, 1998.
On September 1, 1998 the Company purchased certain assets from Dade
related to a product line sold under the tradename Analyst. The Analyst
product line consists of both the Analyst bench top clinical chemistry
system and all the related consumables which are used in that system. The
assets included were accounts receivable, inventory, equipment, and certain
intellectual property. The Company agreed to assume certain of Dade's
liabilities including accounts payable, service contracts and warranty
obligations. Pursuant to the purchase and the related agreements, Dade will
continue to manufacture the products under a separate manufacturing
agreement for a period of up to thirty-six months while the Company
transitions the manufacturing operations to its facilities located in
Columbia, Maryland, San Diego, California and Waltham, Massachusetts.
Under the purchase agreement, at the closing, the Company paid
$3,500,000 in cash and issued a non-interest bearing promissory note (the
"Note") to Dade in the amount of $1,250,000. The Company agreed to pay Dade
in full on or before September 1, 2000. The Company and Dade have agreed,
in principle, to a $200,000 decrease to the purchase price related to
decreases in working capital transferred at the close of the purchase
agreement. The Company has also agreed to pay Dade a royalty on the sale of
certain consumables for use with the Analyst instrument.
The Company financed the acquisition using $3,500,000 in proceeds from
a $5,000,000 revolving credit line from BankBoston, N.A., which is secured
by all the assets of the Company and its subsidiaries.
The Analyst system uses a rotor based technology that is capable of
producing results of up to 16 different clinical chemistry tests in under
ten minutes. The rotor contains dry prepackaged reagents in tablet form.
Included tests include cholesterol, triglycerides, glucose, and total
protein. The Analyst is sold in point of care settings such as physician
office laboratories and veterinary office laboratories.
At March 31, 1999, the Company's working capital was approximately
$5,625,000 compared to working capital of approximately $5,446,000 at
September 30, 1998. This increase was primarily the result of a decrease in
current liabilities during the period.
During the six months ended March 31, 1999, the Company generated
approximately $1,213,000 in cash from operating activities. This was the
result of depreciation and amortization expenses not requiring the outlay of
cash, a decrease in accounts receivable, an increase in customer deposits,
and an increase in accounts payable and accrued expenses. This was
partially offset by an increase in inventory balances and prepaid expenses.
This cash, along with existing cash balances, was used primarily to pay
$1,280,000 of the note to BankBoston (see above), to purchase property and
to repurchase 100,000 shares of its common stock.
Inventory balances increased from approximately $6,212,000 at
September 30, 1998 to approximately $6,845,000 at March 31, 1999 in support
of an anticipated increase in product sales due to the increased marketing
efforts. Most of this increase has been in support of the Analyst product
line.
Management believes its cash and cash equivalents, together with
anticipated cash flow from operations, are sufficient to meet the Company's
cash needs for its ongoing business.
Year 2000 Systems
The Company has undertaken a review concerning the ability of its
internal information systems, including its internal accounting systems, to
handle date information and to function appropriately from and after January
1, 2000, and does not believe that the total cost to address any changes
required as a result of the so-called "Year 2000 Problem" will be material.
In addition, the Company has evaluated the impact of possible Year 2000
problems encountered by its suppliers and customers upon the Company and
does not believe that any problems would have a material effect upon the
Company.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosure about Segments of an Enterprise and Related Information", which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," establishes standards for the way that public enterprises
report information about operating segments in annual financial statements
and requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic areas,
and major customers. SFAS No. 131 defines operating segments as components
of an enterprise about which separate financial information is available
that is evaluated by the chief operating decision maker in deciding how to
allocate resources and assessing performance.
This new standard is effective for financial statements for the
periods beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. Management does not expect
implementation of this standard to materially affect future financial
statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain
or loss recognition on the hedging derivative with the recognition of (i)
the changes in the fair value of the hedged asset or liability that are
attributed to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of
change. SFAS No.133 is effective for all fiscal years beginning after June
15, 1999.
Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new standard on October 1, 1999
to affect its financial statements.
Impact of Inflation
Domestic inflation during the last two 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. The Company experienced significant
translation losses during both the three and six month period ended March
31, 1999 due to a substantial devaluation of the Brazilian Real.
Stock Repurchase
The Company's Board of Directors approved a program to repurchase up
to 100,000 shares of its common stock. On January 15, 1999 the Company
completed these purchases in open market transactions.
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. On February 10, 1999 the Company filed a
Form 8K describing the Stock Purchase Rights Plan.
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 10, 1999 /s/ Carl Franzblau
- ------------ ------------------
Carl Franzblau
Chief Executive Officer
May 10, 1999 /s/ William Franzblau
- ------------ ---------------------
William Franzblau
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 93,486
<SECURITIES> 0
<RECEIVABLES> 2,842,922
<ALLOWANCES> 298,000
<INVENTORY> 6,845,147
<CURRENT-ASSETS> 10,066,636
<PP&E> 7,702,994
<DEPRECIATION> 3,505,663
<TOTAL-ASSETS> 15,621,776
<CURRENT-LIABILITIES> 4,441,436
<BONDS> 0
0
0
<COMMON> 78,519
<OTHER-SE> 10,066,568
<TOTAL-LIABILITY-AND-EQUITY> 15,621,776
<SALES> 3,658,065
<TOTAL-REVENUES> 3,658,065
<CGS> 2,405,768
<TOTAL-COSTS> 2,405,768
<OTHER-EXPENSES> 1,456,753
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,459
<INCOME-PRETAX> (353,819)
<INCOME-TAX> 0
<INCOME-CONTINUING> (353,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (353,819)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
