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, 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
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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 June 30, 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
June 30, 1999 and
September 30, 1998
Consolidated Statements 4
of Operations; three months and nine
months ended June 30,
1999 and 1998
Consolidated Statements 5
of Cash Flows; nine months
ended June 30, 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 4. Submission of Matters to a Vote 20
by Security Holders
Item 6. Exhibits and Reports on Form 8-K. 20
PART I - Financial Information
Item 1. Financial Statements
--------------------
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
---------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 40,375 $ 412,193
Accounts and other receivables,
less allowance for doubtful
accounts of $276,000 at June
and $477,000 at September 2,366,991 3,294,598
Inventories 6,848,387 6,212,254
Net assets of CPI, held for
sale (Note D) 778,571 -
Prepaid expenses and other current
assets 402,727 273,909
-------------------------------
Total current assets 10,437,051 10,192,954
Property and Equipment:
Fixed assets 7,800,750 7,293,427
Less accumulated depreciation 3,775,680 2,926,231
-------------------------------
4,025,070 4,367,196
Other assets 1,319,644 1,403,486
-------------------------------
$15,781,765 $15,963,636
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $1,412,862 $1,093,532
Customer deposits 453,526 -
Deferred revenue 91,094 152,929
Note payable 2,576,615 3,500,000
--------------------------------
Total current liabilities 4,534,097 4,746,461
--------------------------------
Subordinated note payable, net of
unamortized discount
of $113,523 at June and
$181,637 at September 1,136,477 1,068,363
--------------------------------
Stockholders' Equity:
Preferred stock, no 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 June;
7,851,890 issued and outstanding
at September. 78,519 78,519
Additional paid-in capital 13,440,947 13,440,947
Accumulated deficit (3,312,638) (3,364,654)
---------------------------------
10,206,828 10,154,812
Receivable from stockholder (6,000) (6,000)
Treasury Stock, 100,000 shares at June 30 (89,637) -
--------------------------------
10,091,191 10,148,812
--------------------------------
$15,781,765 $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 Nine Months Ended
June 30, June 30,
------------------------ -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $3,698,853 $3,453,112 $11,956,355 $9,037,276
Costs and expenses:
Cost of product sales 2,156,769 2,002,234 7,257,487 5,111,675
Research and development 310,777 251,142 957,542 802,891
Selling, general and administrative 1,116,681 935,619 3,368,359 2,726,387
-----------------------------------------------------
3,584,227 3,188,995 11,583,388 8,640,953
-----------------------------------------------------
Operating Income 94,626 264,117 352,967 396,323
Other income (expenses), net (70,002) 12,230 (320,950) (19,969)
-----------------------------------------------------
Income before income taxes 44,624 276,347 52,017 376,354
Provision for income taxes (Note E) -- -- -- --
-----------------------------------------------------
Net income $ 44,624 $ 276,347 $ 52,017 $ 376,354
=====================================================
Net income per share - basic (Note B) $ 0.01 $ 0.04 $ 0.01 $ 0.05
=====================================================
Net income per share - assuming dilution (Note B) $ 0.01 $ 0.04 $ 0.01 $ 0.05
=====================================================
</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,
----------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 52,017 $376,354
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,064,520 604,146
Changes in assets and liabilities:
Restricted cash - (96,050)
Accounts and other receivables 593,237 357,117
Prepaid expenses and other current assets (135,837) (27,968)
Inventories (1,139,938) (797,394)
Customer deposits 453,526 109,410
Deferred revenue (61,835) -
Accounts payable and accrued expenses 474,147 2,574
----------------------
Net cash provided by operating activities 1,299,837 528,189
----------------------
Cash flows from investing activities:
Purchase of property and equipment (655,661) (236,235)
Other assets (2,971) (40,592)
Proceeds from short-term investments, net - 730,827
----------------------
Net cash provided (used) by investing activities (658,632) 454,000
----------------------
Cash flows from financing activities:
Proceeds from (payments of) long-term debt, net - (269,153)
Repayment of notes payable (923,386) (198,983)
Proceeds from issuances (payments for buybacks)
of common stock (89,637) 112,500
----------------------
Net cash used by financing activities (1,013,023) (355,636)
----------------------
Net increase (decrease) in cash and cash equivalents (371,818) 626,553
Cash and cash equivalents at beginning of year 412,193 294,086
----------------------
Cash and cash equivalents at end of period $ 40,375 $ 920,639
=======================
</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 nine month period
ended June 30, 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 PER SHARE
Earnings 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 Nine months ended
June 30, June 30,
------------------------ ------------------------
1999 1998 1999 1998
------------------------------------------------------
<S> <C> <C> <C> <C>
Basic shares 7,751,890 7,851,890 7,790,004 7,831,341
Effect of dilutive securities
- options and warrants - 17,181 - 22,049
Dilutive shares 7,751,890 7,869,071 7,790,004 7,853,390
</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 Nine months ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares excluded: 3,867,073 3,640,173 3,867,073 3,640,173
Price ranges: $1.20-$2.75 $1.75-$5.00 $1.20-$2.75 $1.75- 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 - SALE OF CELLULAR PRODUCTS, INC.
On July 23, 1999, the Company sold all of the outstanding stock of its
wholly owned subsidiary, Cellular Products, Inc. ("CPI") located in Buffalo,
New York, to ZeptoMetrix Corporation, a company created by two of CPI's
senior managers for the purpose of purchasing CPI. The purchase price was
$800,000 cash. The price was negotiated as an arms length transaction.
NOTE E - INCOME TAXES
No provision for income taxes has been accrued during fiscal 1998 or
fiscal 1999 due to the availability of net operating loss carry forward.
NOTE F - 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, as amended, is effective for all fiscal years
beginning after June 15, 2000.
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 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. Analyst
instruments are now manufactured and serviced at the Company's Massachusetts
facility. Hemagen's facility in Maryland will assemble the unit's rotors
and ship completed products. The Company has been redesigning all of its
facilities to accommodate these new activities. Much of this redesign is
complete. 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.
When Hemagen completed its initial public offering of its Common Stock
in 1993, the goal was to build a profitable multi-product diagnostic
enterprise that could serve as the cornerstone of a sizable medical device
company. It has been management's experience in this industry that success
is achieved by steadily growing sales of core product lines, developing new
products that complement existing products and acquiring enterprises with
complementary technologies. Following that strategy has poised Hemagen to
emerge as a prominent competitor in the medical and veterinary diagnostic
communities.
During the past few years, Hemagen has developed many new diagnostic
products while simultaneously pursuing strategic acquisitions that
management believes has added value to the Corporation by increasing the
menu of available diagnostic products offered for sale by Hemagen.
Management believes that the increased product offerings may attract new
distribution outlets and end users. The Board of Directors has overseen a
string of successful acquisitions and structural changes from 1993, when
they took the Corporation public, to the present, including:
the expansion of Hemagen's distribution center for Latin America in
Brazil in 1993;
the addition of the immunofluoresence product line in 1995;
the acquisition and integration of the RAICHEM clinical chemistry
business in 1996;
the acquisition of Cellular Products, Inc. research products in 1996;
the addition of several VIRGO and RAICHEM products for which the
Corporation has succeeded in receiving FDA clearance;
the execution of contracts with several multi-national corporations
including Carter-Wallace, Inc., AVL Scientific Corporation and
Boehringer Mannheim GmbH; and
the acquisition of the Analyst benchtop clinical chemistry system from
Dade Behring in 1998.
Management and the Board of Directors are optimistic about the ability
of Hemagen to leverage these recent developments to position the Corporation
for expansion into new markets. The Company is also seeking to increase
profit margins by concentrating efforts in three core areas within the field
of diagnostics that complement each other and provide an opportunity for
cross-marketing of Hemagen's products. Hemagen's three key platforms are:
its immunodiagnostic division;
its clinical chemistry division; and
its point-of-care instrumentation business, which includes the Analyst
and companion products.
Historically, Hemagen has placed the greatest emphasis on its
immunodiagnostic business. Management believes that the expansion into
additional product lines has allowed the Company to increase its presence in
international markets. Consistent with our recent emphasis on Hemagen's
three core technologies, management and the Board of Directors have been
examining which segments of the Corporation are incompatible with the
strategic focus. The Board of Directors determined that Cellular Products,
Inc. no longer fit into the strategic focus and therefore sold that
subsidiary in July 1999 (see "Liquidity and Capital Resourses" below). As
part of the master business plan, management has been analyzing other
aspects of the Company to reduce expenses and increase profitability. Based
upon estimates done by management, the Company expects that the measures
taken to date as well as the measures which are being implemented within the
next six months will save over $1,000,000 in expenses and future potential
losses. These measures include but are not limited to bringing various
manufacturing operations in-house and outsourcing certain sales and
marketing efforts. Add to that the Company's projected increase in sales
based solely upon the new Vet Rotor introduced in April, 1999 and the
reagent agreement with an international instrument company, AVL Scientific,
which management believes will show an increase in profits, management and
the Board of Directors is of the opinion that Hemagen's future is exciting
and optimistic.
The Board of Directors and management have also led Hemagen to develop
several new products, for which the Company is pursuing regulatory approval
by the FDA, in the fields of infectious diseases and autoimmune diseases.
The strategy of supporting continuous research and development is beginning
to reap rewards for the Corporation, and the Board of Directors believes
that continued emphasis on research and development will maximize long-term
value for Hemagen's shareholders.
Results of Operations
The Three Month Period Ended June 30, 1999 Compared to the Three Month
Period Ended June 30, 1998
Revenues for the three month period ending June 30, 1999 increased to
approximately $3,699,000 from approximately $3,453,000 (7%) for the period
ending June 30,1998. 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 a large decrease in sales of blood
banking products as a result of the loss of an OEM agreement with Olympus,
America. Sales also decreased at RAICHEM and the Company's Brazilian
subsidiary, Hemagen Diagnosticos e Commercio, ("HDC"). However, both HDC
and RAICHEM have begun to show an increasing trend in sales.
Cost of product sales increased to approximately $2,157,000 from
approximately $2,002,000 (8%), due to the increase in sales. Cost of
product sales as a percentage of sales was 58% during both the three
month period ended June 30, 1998 and June 30, 1999. 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 year. Currently, Analyst equipment manufacture and service, and the
manufacture of some controls and calibrators is being done at the Company's
facilities.
Research and development expenses increased to approximately $311,000
from approximately $251,000 (24%), due to higher personnel and supply costs
in association with development of Analyst(R) reagents and products and new
ELISA immunodiagnostic tests. During the period the Company completed
development of ELISA kits for the detection of Beta 2 Glycoprotein 1. The
Company expects to have FDA clearance to market these kits before the end of
the current fiscal year. These will be marketed with our recently approved
anti-cardiolipin kits.
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 1 has been submitted to the
FDA for clearance to market. In addition, an ELISA Screen assay to detect
total antinuclear antibodies (ANA) is nearing completion. 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.
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, a thyroid panel
and a cardiac 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 $1,117,000 from approximately $936,000 (19%), due primarily to
an increase in payroll and personnel costs associated with the Company
hiring additional technical and customer support personnel and due to an
increase in royalties expense. Both of these increases are associated with
the purchase of the Analyst(R) business line.
Other expenses, net was approximately $70,000 expense, net as compared
to income, net of approximately $12,000 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. (See
"Liquidity and Capital Resources").
Net, the Company income decreased to approximately $45,000 from
approximately $276,000 (84%) 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 Nine Month Period Ended June 30, 1999 Compared to the Nine Month
Period Ended June 30, 1998
Revenues for the nine month period ending June 30, 1999 increased to
approximately $11,956,000 from approximately $9,037,000 (32%) for the same
period ending June 30,1998. This increase was entirely due to the addition
of sales from the Analyst(R) Acquisition (See "Liquidity and Capital
Resources") and was partially offset by a decrease in sales of blood banking
products as a result of the loss of an OEM agreement with Olympus, America,
a decrease in sales at RAICHEM, CPI, the Company's Brazilian subsidiary,
Hemagen Diagnosticos e Commercio, "HDC"), and in the Company's Virgo product
line manufactured in Maryland and Massachusetts.
Cost of product sales increased to approximately $7,257,000 from
approximately $5,112,000 (42%), due to the increase in sales, overhead costs
associated with production of Analyst(R) products and a 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 61% from 57% 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 year. Currently,
Analyst equipment manufacture and service and the manufacture of some
controls and calibrators has been transferred to the Company's facilities.
Research and development expenses increased to approximately $958,000
from approximately $803,000 (19%), due to higher personnel and supply costs
in association with development of Analyst(R) reagents and products and new
ELISA tests. 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 and has completed work on ELISA
kits for the detection of antibodies associated with Beta 2 Glycoprotein 1.
These have been submitted to the FDA for clearance to market.
For a detail of current research and development projects see the
comparison of three month periods ended June 30, 1999 and 1998 above.
Selling, general and administrative ("SG&A") expenses increased to
approximately $3,368,000 from approximately $2,726,000 (23%), due primarily
to an increase in payroll and personnel costs associated with the Company
hiring additional sales and marketing, technical and customer support
personnel and due to an increase in royalties expense. Both of these
increases are associated with the purchase of the Analyst(R) business line.
Other expenses, net increased to approximately $321,000 from
approximately $20,000 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 $52,000 from approximately
$376,000 (86%) 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 associated with the Analyst business.
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 July 23, 1999, the Company sold all of the outstanding stock of its
wholly owned subsidiary, Cellular Products, Inc. ("CPI") located in Buffalo,
New York, to ZeptoMetrix Corporation, a company created by two of CPI's
senior managers for the purpose of purchasing CPI. The purchase price was
$800,000 cash. The purchase price was negotiated as an arms length
transaction. Company management believes CPI no longer fits into the long
term strategic plan of Hemagen. The sale of CPI will allow Hemagen to focus
on the growth of its core markets: point of care systems; particularly the
Analyst Clinical Chemistry System, (described below) immunodiagnostics, and
clinical chemistry.
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. Under this loan
agreement the Company is required to meet certain covenants regarding
profitability, tangible net worth, leverage ratio and debt service coverage.
The Company did not meet the debt service coverage covenant of its loan
agreement primarily due to capital expenditures incurred in connection with
the transfer of the Analyst business and the Bank has agreed to a temporary
forbearance regarding this covenant, the exact terms of which are being
negotiated.
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 June 30, 1999, the Company's working capital was approximately
$5,903,000 compared to working capital of approximately $5,446,000 at
September 30, 1998.
During the nine months ended June 30, 1999, the Company generated
approximately $1,300,000 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. This cash, along
with existing cash balances, was used primarily to pay $923,000 of the note
to BankBoston (see above), to purchase property and equipment and to
repurchase 100,000 shares of its common stock.
Inventory balances increased from approximately $6,212,000 at
September 30, 1998 to approximately $7,352,000 at June 30, 1999 including
$504,000 of CPI inventory held for sale. This increase was 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 does not manufacture embedded system devices or any
products that are directly affected by the so-called "Year 2000 Problem".
We do recognize however, that some of our internal support systems could
disrupt our ability to distribute products in a timely manner to our
customers. To address this concern, the Company has established a company
wide network of Year 2000 team leaders to evaluate internal systems and
those of our suppliers. The Company uses a variety of off the shelf
consumer software for the implementation of business activities. All
current versions are either identified as Year 2000 compliant by the
manufacturer of said software or the software is in the process of being
converted to versions that are Year 2000 compliant.
The Company does not believe the total cost to address any changes
required by the Year 2000 problem will be material. Further, the Company
believes that any disruption of business operations as a result of the Year
2000 problem will be minimal and will not 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,as amended, is effective for all fiscal years beginning
after June 15, 2000.
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 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 the nine month period ended June 30, 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.
Change of Company By Laws
On July 2, 1999 the Company's Board of Directors amended the Company's
by-laws to provide that, in order for the Corporation's shareholders to
amend, alter or repeal any by-law, holders of at least two-thirds of the
outstanding shares of Common Stock must approve such action.
The Board took this action for several reasons, including the change
aligns the vote necessary to change the by-laws with that required to change
the Corporation's certificate of incorporation, which had been two-thirds;
that it adds an additional level of protection to the Corporation's
classified board governance structure, which the Board believes contributes
to consistency and stability in corporate policy, while at the same time not
precluding a successful solicitation by the Redwood Group (see below); and
that it also tends to neutralize any timing advantage which would otherwise
inhere in the Redwood Group by virtue of its having filed its solicitation
materials with the Security and Exchange Commission ("SEC") several days
earlier than the Corporation's filing of its materials, thus increasing the
chances that all stockholders of the Corporation will have the opportunity
to read and consider both sides' positions before any action by written
consent can become final.
Redwood Consent Filing
A consent solicitation was filed by Jerry Ruyan, William Hales, Thomas
Donelan and Christopher Hendy (collectively the Redwood Group) with the SEC
proposing the following:
(1) Oust the duly elected Board of Directors of the Company, replacing
them with Messrs. Ruyan, Hales, Donelan and Hendy, and leave two
vacancies on the Board.
(2) Approve a grant to the Redwood Group members, or an entity that they
control, of options to purchase a total of 15% of Hemagen common stock,
on a fully diluted basis.
(3) Amend Hemagen's by-laws to eliminate the staggered board and make
certain other changes which would enable the Redwood group to remove
all of the directors without cause.
The Board of Directors of the Corporation unanimously and vigorously
oppose the Redwood Group's solicitation of consents and has filed a
Revocation of Consent in opposition to solicitation of the Redwood Group.
The full explanation of the Board of Directors position is contained within
this document which was filed with the SEC on July 27, 1999 and which is
included by reference herein.
PART II - Other Information
Items 1 through 3: Not applicable
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
a) The Company's annual meeting was held on March 16, 1999.
b) The following individuals were elected as directors to serve a three
year term expiring in 2002. The following table indicates the number of
votes in favor and votes withheld:
<TABLE>
<CAPTION>
Director Votes in favor Votes withheld
- -------- -------------- --------------
<S> <C> <C>
Paul N. Fruitt 5,547,892 214,985
Charles W. Smith 5,527,664 235,213
</TABLE>
c) The shareholders voted in favor of the selection of BDO Seidman, LLP as
the independent accountants of the corporation for the fiscal year ending
September 30, 1999. The following table indicated the number of votes:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<C> <C> <C>
5,688,527 51,875 22,475
Item 5: Not applicable
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits attached hereto
10kk. Employment agreement between Hemagen Diagnostics, Inc.
and Carl Franzblau dated May 18, 1999.
10ll. Employment agreement between Hemagen Diagnostics, Inc.
and Ricardo de Oliveira dated May 18, 1999.
10mm. Employment agreement between Hemagen Diagnostics, Inc.
and William Franzblau dated May 18, 1999.
b) Reports on Form 8-K. On July 2, 1999 the Company filed a Form 8K
describing a change in corporate By Laws
On August 6, 1999 the Company filed a Form 8K describing the
sale of Cellular Products, Inc. to ZeptoMetrix Corporation.
c) The Company hereby incorporates by reference its definitive proxy
solicitation filed with the SEC on July 27, 1999.
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 16, 1999 /s/ Carl Franzblau
- --------------- -----------------------
Carl Franzblau
Chief Executive Officer
August 16, 1999 /s/ William Franzblau
- --------------- -----------------------
William Franzblau
Chief Financial Officer
EXHIBIT INDEX
Exhibit
No. Title
- ------- -----
11 Statement of Computation of per share net income.
</TABLE>
KEY EMPLOYEE AGREEMENT
----------------------
To: Carl Franzblau, Ph.D.
147 Plymouth Road
Newton, Massachusetts 02161
May 18, 1999
The undersigned, Hemagen Diagnostics, Inc., a Delaware corporation (the
"Company"), hereby agrees with you as follows:
1. Position and Responsibilities.
------------------------------
1. 1.1 You shall serve as Chief Executive Officer and President for the
Company, (or in such other executive capacity as shall be designated by the
Board of Directors and reasonably acceptable to you in your sole discretion)
and shall perform the duties customarily associated with such capacity from
time to time as the Company shall designate are appropriate and necessary in
connection with such employment.
1.2 You will, to the best of your ability, devote no less than thirty
(30) hours per week to the performance of your duties hereunder and to the
business and affairs of the Company. You agree to perform such executive
duties as may be assigned to you by or on authority of the Company's Board of
Directors from time to time.
1.3 You will perform and observe any and all reasonable rules and
regulations which the Company may now or shall hereafter establish governing
the conduct of its business.
1.4 If, for any reason, the Company materially or substantially changes
or modifies your duties and/or the responsibilities of your position with the
Company or if the Company relocates your primary place of employment to a
place that is greater than 50 miles from its present location in Waltham,
Massachusetts, then, at your option, your employment with the Company may be
terminated and, for purposes of this Agreement, such termination will be
considered a termination without cause by the Company and the provisions of
Section 2.2(b) shall apply.
2. Term of Employment.
-------------------
2.1 The initial term of this Agreement shall be for the period of years
set forth on Exhibit A annexed hereto commencing May 18, 1999. Thereafter,
this Agreement shall be automatically renewed for successive periods of one
year, unless you or the Company shall give the other party not less than nine
(9) months written notice of non-renewal. Your employment with the Company may
be terminated at any time as provided in section 2.2.
2.2 The Company shall have the right, on written notice to you, to
terminate your employment:
(a) immediately at any time for cause; or
(b) at any time without cause, provided the Company shall be
obligated to pay to you as severance pay an amount equal to thirty-six
(36) months Base Salary (as set forth on Exhibit A hereto regardless of
the remaining term hereunder) , less applicable taxes and other required
withholdings and any amounts you may owe to the Company; or
(c) at any time without cause or notice in the event of any
involuntary liquidation of the Company.
2.3 For purposes of Section 2.2, the term "cause" shall mean the
willful breach or habitual neglect of your obligations under this Agreement or
your duties as an employee of the Company provided that, if time allows, the
Company provides you with thirty (30) days prior notice with the right to cure
such breach or neglect.
2.4 For purposes of Section 2.2(b), you shall have no duty to mitigate
such payments by seeking other employment nor shall any payments be reduced by
any other employment which you may obtain after termination of your employment
with the Company. However, if you accept any payments under Section 2.2(b),
you shall hereby agree (and you hereby agree to sign any reasonable general
release form) to release and hold the Company harmless from and against any
claim or action you may have against the Company related solely to your
employment by the Company.
3. Compensation. You shall receive the compensation and benefits set forth
on Exhibit A hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit B between you and the Company (the "Proprietary
Information and Inventions Agreement").
4. Other Activities During Employment. You hereby agree that during your
employment hereunder, you will not, directly or indirectly, engage (a)
individually, (b) as an officer, (c) as a director, (d) as an employee, (e) as
a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise) , (h) as a broker, or (I) as a partner, co-venturer, stockholder or
other proprietor owning directly or indirectly more than five percent (5%)
interest in any firm, corporation, partnership, trust, association, or other
organization which is engaged in the manufacture and sale of medical
diagnostics or any other line of business engaged in or under demonstrable
development by the Company (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
"Prohibited Enterprise").
5. Former Employers.
-----------------
5.1 You represent and warrant that your employment by the Company will
not conflict with and will not be constrained by any prior or current
employment, consulting agreement or relationship whether oral or written. You
represent and warrant that you do not possess confidential information arising
out of any such employment, consulting agreement or relationship which, in
your best judgment, would be utilized in connection with your employment by
the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute, deliver
and be bound by the provisions of the Proprietary Information and Inventions
Agreement.
7. Post-Employment Activities.
---------------------------
7.1 For a period of one (1) year after the termination or expiration,
for any reason, of your employment with the Company hereunder, absent the
Company's prior written approval, you will not directly or indirectly engage
in activities similar or reasonably related to those in which you shall have
engaged hereunder during the one year immediately preceding termination or
expiration for, nor render services similar or reasonably related to those
which you shall have rendered hereunder during such year to, any person or
entity whether now existing or hereafter established which directly competes
with (or proposes or plans to directly compete with) the Company ("Direct
Competitor") in any line of business engaged in or under development by the
Company. Nor shall you entice, induce or encourage any of the Company's other
employees to engage in any activity which, were it done by you, would violate
any provision of the Proprietary Information and Inventions Agreement or this
Section 7. As used in this Section 7.1, the term "any line of business engaged
in or under development by the Company" shall be applied as at the date of
termination of your employment, or, if later, as at the date of termination of
any post-employment consultation.
7.2 No provision of this Agreement shall be construed to preclude you
from performing the same services which the Company hereby retains you to
perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment (or any post-
employment consultation) so long as you do not thereby violate any term of the
Proprietary Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 6,7,8 and 9 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Section 7 would be inadequate and you
therefore agree that the Company shall be entitled to such injunctive relief
in case of any such breach or threatened breach.
9. Assignment. This Agreement and the rights and obligations of the parties
hereto shall bind and inure to the benefit of any successor or successors of
the Company by reorganization, merger or consolidation and any assignee of all
or substantially all of its business and properties, but, except as to any
such successor or assignee of the Company, neither this Agreement nor any
rights or benefits hereunder may be assigned by the Company or by you, except
by operation of law.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal
or unenforceable provision had never been contained herein. MOREOVER, IT IS
THE INTENT OF THE PARTIES THAT in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, such provision
shall be construed by limiting and reducing it as determined by a court of
competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
11. Notices. Any notice which the Company is required to or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the
Company hereunder shall be given by personal delivery or by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing. The date of personal delivery or the date of mailing any
notice under this Section 11 shall be deemed to be the date of delivery
thereof.
12. Waivers. If either party should waive any breach of any provision of
this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A, B
and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written
communications, representations, understandings, or agreements with the
Company or any officer or representative thereof. Any amendment to this
Agreement or waiver by the Company of any right hereunder shall be effective
only if evidenced by a written instrument executed by the parties hereto, upon
authorization of the Company's Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which shall together constitute
one agreement.
16. Governing Law. This Agreement shall be governed by and construed under
Massachusetts law.
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions
Agreement, whereupon this Agreement shall become binding in accordance with
its terms. Please then return this Agreement to the Company. (You may retain
for your records the accompanying counterpart of this Agreement enclosed
herewith).
Very truly yours,
HEMAGEN DIAGNOSTICS INC.
By: /s/ Lawrence Gilbert, Member of the
Compensation Committee of the Board of
Directors
Accepted and Agreed: /s/ Carl Franzblau
------------------
CARL FRANZBLAU
Exhibit A
---------
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF CARL FRANZBLAU
2. Term. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be until May 17, 2004.
2. Compensation.
-------------
(a) Base Salary. Your Base Salary shall be:
$145,000 per annum from the date of this Agreement through the
remainder of 1999 and thereafter as may be determined by the Company's
Board of Directors, but in no event less than $145,000 per annum,
payable in accordance with the Company's payroll policies.
(b) Bonus. Any future bonuses shall be determined by the Board of
Directors of the Company, taking into account the current economic
condition of the Company.
3. Vacation. You shall be entitled to all legal and religious holidays,
and five (5) weeks paid vacation per annum.
4. Insurance and Benefits. You shall be eligible for participation in any
health or other group insurance plan or general benefit plans which may
be established by the Company or which the Company is required to
maintain by law. The Company shall provide health insurance for you and
your family. You shall also be entitled to use an automobile provided by
the Company.
Exhibit B
---------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
To: Hemagen Diagnostics, Inc.
34-40 Bear Hill Road
Waltham, Massachusetts 02451
As of May 18, 1998
The undersigned, in consideration of and as a condition of my employment
or continued employment by you and/or by companies which you own, control, or
are affiliated with or their successors in business (collectively, the
"Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not
to disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets,
confidential information, knowledge, data or other information of the Company
relating to products, processes, know-how, designs, formulas, test data,
customer lists, business plans, marketing plans and strategies, pricing
strategies, or other subject matter pertaining to any business of the Company
or any of its affiliates, which I may produce, obtain, or otherwise acquire
during the course of my employment, except as herein provided. I further agree
not to deliver, reproduce or in any way allow any such trade secrets,
confidential information, knowledge, data or other information, or any
documentation relating thereto, to be delivered to or used by any third
parties without specific direction or consent of a duly authorized
representative of the Company.
2. Conflicting Employment: Return of Confidential Material.
--------------------------------------------------------
2.1 I agree that during my employment with the Company I will not
engage in any other employment, occupation, consulting or other activity
relating to the business in which the Company is now or may hereafter become
engaged, or which would otherwise conflict with my obligations to the Company.
In the event my employment with the Company terminates for any reason
whatsoever, I agree to promptly surrender and deliver to the Company all
records, materials, equipment, drawings, documents and data of which I may
obtain or produce during the course of my employment, and I will not take with
me any description containing or pertaining to any confidential information,
knowledge or data of the Company which I may produce or obtain during the
course of my employment.
2.2 I represent that I am not a party to any existing Agreement which
would prevent my entering into this Agreement, but advise the Company that I
am a member of the Academic Staff of Boston University ("University"). As a
member of the Academic Staff, I am responsible for ensuring that any agreement
I enter into is not in conflict with the patent policy of the University or in
conflict with other University commitments. Under my University Patent Policy
and Agreement, I am required to disclose to the University certain inventions
made by me in the course of my outside employment or consulting work that
directly relate to my professional work at the University. Should University
facilities be used by me in the reduction to practice of such inventions,
paragraph 2.6 below shall apply, otherwise paragraph 2.5 below shall apply. I
agree to use my best efforts to (a) segregate work done under this Agreement
from my work for the University, so as to minimize any questions of disclosure
of, or rights under, any inventions, and (b) assist the Company and the
University in fairly resolving any such questions which may arise.
2.3 I also acknowledge that the University has accepted certain grants
under research funding agreements with the following Government agencies
pursuant to which I perform basic research: NIH (HL) and NIH (AG)
("Government"). Work on said Government funded research project(s) will
continue during the term of this Agreement, but do not relate to the business
of the Company. As a result of the Government funding agreements, I am
required to disclose to the University certain inventions made by me in the
course of my work that may relate also to my research work under the
Government funding agreements. I agree to use my best efforts to (a) segregate
work done under this Agreement from my work under the Government funding
agreement, so as to minimize any questions of disclosure of, or rights under,
any inventions, and (b) assist the Company, the Government and, if necessary,
the University in fairly resolving any such questions which may arise.
2.4 I warrant that I am not obligated under any other consultant,
employment, or other agreement which would affect the Company's rights or my
duties under this Agreement. I agree that for the term of this Agreement, and
for a period of two (2) years thereafter, I will not, without the prior
written consent of the Company, enter into any agreement with anyone other
than the Company to consult or otherwise render services with regard to the
subject matter of this Agreement or any subject directly relevant thereto,
provided that this Agreement shall not negate my obligations to the
University.
2.5 Except as hereinafter provided, any and all improvements,
developments, or discoveries or inventions that are made by me or as a direct
result of my employment by the Company, whether or not patentable, shall be
the sole and exclusive property of the Company. I agree to disclose promptly
to the Company any such improvements, developments, or discoveries made by me,
and, where applicable, to assign to the Company any inventions disclosed and
to give the Company reasonable assistance in preparing or prosecuting, in the
Company's name and at the Company's expense, any patent applications covering
such inventions.
2.6 Any invention made by me that is reduced to practice using
University facilities may be subject to certain rights of the University. The
University's policy states that for three years after disclosure by me of
inventions that are subject to such rights, the University may not to grant
any rights under patents or patent applications covering such inventions
without first offering the Company or myself the opportunity for sixty (60)
days from the date of the offer to meet the terms of such proposed grant of
rights.
2.7 I hereby represent and warrant that the work to be performed by me
for the Company, which is subject to this Agreement, does not relate to my
work at the University and is not subject to any claims of the University.
3. Assignment of Inventions.
-------------------------
3.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in
any manner to the actual or demonstrably anticipated business, work, or
research and development of the Company, or result from or are suggested by
any task assigned to me or any work performed by me for or on behalf of the
Company.
3.3 Any discovery, process, design, technology, device, or improvement
in any of the foregoing or other ideas, whether or not patentable and whether
or not reduced to practice, made or conceived by me (whether solely or jointly
with others) which I develop entirely on my own time not using any of the
Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business' research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
-----------------------------------------------
5.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree
to perform such lawful acts as the Company deems to be necessary to allow it
to exercise all right, title and interest in and to such patents and
copyrights.
5.2 In connection with this Agreement, I agree to execute, acknowledge
and deliver to the Company or its nominee upon request and at its expense all
documents, including assignments of title, patent or copyright applications,
assignments of such applications, assignments of patents or copyrights upon
issuance, as the Company may determine necessary or desirable to protect the
Company's or its nominee's interest in Inventions, and/or to use in obtaining
patents or copyrights in any and all countries and to vest title thereto in
the Company or its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company),
which records shall be available to and remain the sole property of the
Company at all times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by
the Company, are excluded from this Agreement except as set forth on Schedule
A attached hereto. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal
Invention. In the event of my failure to give such notice, I agree that I will
make no claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time may
have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will
not breach any agreement to keep confidential proprietary information,
knowledge or data acquired by me in confidence or in trust prior to my
employment with the Company, and I will not disclose to the Company, or induce
the Company to use, any confidential or proprietary information or material
belonging to any previous employer or others. I agree not to enter into any
agreement either written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope
of this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my heirs,
executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal
or unenforceable provision had never been contained herein. MOREOVER, IT IS
THE INTENT OF THE PARTIES THAT in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, such provision
shall be construed by limiting and reducing it in accordance with a judgment
of a court of competent jurisdiction, so as to be enforceable to the extent
compatible with applicable law.
13. Waivers. If either party should waive any breach of any provision of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the
Company or any officer or representative thereof. Any amendment to this
Agreement or waiver by either party of any right hereunder shall be effective
only if evidenced by a written instrument executed by the parties hereto, and,
in the case of the Company, upon written authorization of the Company's Board
of Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which shall together constitute
one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
By: /s/ Carl Franzblau
------------------
CARL FRANZBLAU
Accepted and Agreed:
HEMAGEN DIAGNOSTICS, INC.
By: /s/ Lawrence Gilbert
Title: Member of the Board of Directors
Date: 5/18/99
SCHEDULE A
----------
LIST OF PRIOR INVENTIONS
Identifying Number and/or Brief Description:
All discoveries, processes, designs, technologies and improvements relating to
hemagglutination technology.
EMPLOYEE AGREEMENT
------------------
To: RICARDO DE OLIVEIRA
40 Bear Hill Road
Waltham, MA 02451
Effective May 18, 1999, The undersigned, Hemagen Diagnostics, Inc., a Delaware
corporation (the "Company"), hereby agrees with you as follows:
1. Position and Responsibilities.
------------------------------
1.1 You shall serve as Vice President for Research and Development for
the Company, (or in such other executive capacity as shall be designated by
the Board of Directors and acceptable to you in your sole discretion) and
shall perform the duties customarily associated with such capacity from time
to time as the Company shall designate are appropriate and necessary in
connection with such employment.
1.2 You will, to the best of your ability, devote no less than forty
(40) hours per week to the performance of your duties hereunder and to the
business and affairs of the Company. You agree to perform such executive
duties as may be assigned to you by or on authority of the Company's Chief
Executive Officer from time to time.
1.3 You will perform and observe any and all reasonable rules and
regulations which the Company may now or shall hereafter establish governing
the conduct of its business.
1.4 If, for any reason, the Company materially or substantially changes
or modifies your duties and/or the responsibilities of your position with the
Company or if the Company relocates your primary place of employment to a
place that is greater than 50 miles from your present location in Waltham,
Massachusetts, then, at your option, your employment with the Company may be
terminated and, for purposes of this Agreement, such termination will be
considered a termination without cause by the Company and the provisions of
Section 2.2(b) shall apply.
2. Term of Employment.
- -------------------------
2.1 The initial term of this Agreement shall be for the period of years
set forth on Exhibit A annexed hereto commencing May 18, 1999. Thereafter,
this Agreement shall be automatically renewed for successive periods of two
years, unless you or the Company shall give the other party not less than six
(6) months written notice of non-renewal. Your employment with the Company may
be terminated at any time as provided in section 2.2.
2.2 The Company shall have the right, on written notice to you, to
terminate your employment:
(a) immediately at any time for cause; or
(b) at any time without cause, provided the Company shall be
obligated to pay to you as severance pay an amount equal to twelve (12)
months Base Salary (as set forth on Exhibit A hereto regardless of the
remaining term hereunder) , less applicable taxes and other required
withholdings and any amounts you may owe to the Company; or
(c) at any time without cause or notice in the event of any
involuntary liquidation of the Company.
2.3 For purposes of Section 2.2, the term "cause" shall mean the
willful breach or habitual neglect of your obligations under this Agreement or
your duties as an employee of the Company provided that, if time allows, the
Company provides you with thirty (30) days prior notice with the right to cure
such breach or neglect.
2.4 For purposes of Section 2.2(b), you shall have no duty to mitigate
such payments by seeking other employment nor shall any payments be reduced by
any other employment which you may obtain after termination of your employment
with the Company. However, if you accept any payments under Section 2.2(b),
you shall hereby agree (and you hereby agree to sign any reasonable general
release form) to release and hold the Company harmless from and against any
claim or action you may have against the Company related solely to your
employment by the Company.
3. Compensation. You shall receive the compensation and benefits set forth
on Exhibit A hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit B between you and the Company (the "Proprietary
Information and Inventions Agreement").
4. Other Activities During Employment. You hereby agree that during your
employment hereunder, you will not, directly or indirectly, engage (a)
individually, (b) as an officer, (c) as a director, (d) as an employee, (e) as
a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise) , (h) as a broker, or (i) as a partner, co-venturer, stockholder or
other proprietor owning directly or indirectly more than five percent (5%)
interest in any firm, corporation, partnership, trust, association, or other
organization which is engaged in the manufacture and sale of medical
diagnostics or any other line of business engaged in or under demonstrable
development by the Company (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
"Prohibited Enterprise").
5. Former Employers.
-----------------
5.1 You represent and warrant that your employment by the Company will
not conflict with and will not be constrained by any prior or current
employment, consulting agreement or relationship whether oral or written. You
represent and warrant that you do not possess confidential information arising
out of any such employment, consulting agreement or relationship which, in
your best judgment, would be utilized in connection with your employment by
the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute, deliver
and be bound by the provisions of the Proprietary Information and Inventions
Agreement.
7. Post-Employment Activities.
---------------------------
7.1 For a period of six (6) months after the termination or expiration,
for any reason, of your employment with the Company hereunder, absent the
Company's prior written approval, you will not directly or indirectly engage
in activities similar or reasonably related to those in which you shall have
engaged hereunder during the one year immediately preceding termination or
expiration for, nor render services similar or reasonably related to those
which you shall have rendered hereunder during such year to, any person or
entity whether now existing or hereafter established which directly competes
with (or proposes or plans to directly compete with) the Company ("Direct
Competitor") in any line of business engaged in or under development by the
Company. Nor shall you entice, induce or encourage any of the Company's other
employees to engage in any activity which, were it done by you, would violate
any provision of the Proprietary Information and Inventions Agreement or this
Section 7. As used in this Section 7.1, the term "any line of business engaged
in or under development by the Company" shall be applied as at the date of
termination of your employment, or, if later, as at the date of termination of
any post-employment consultation.
7.2 No provision of this Agreement shall be construed to preclude you
from performing the same services which the Company hereby retains you to
perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment (or any post-
employment consultation) so long as you do not thereby violate any term of the
Proprietary Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 6,7,8 and 9 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Section 7 would be inadequate and you
therefore agree that the Company shall be entitled to such injunctive relief
in case of any such breach or threatened breach.
9. Assignment. This Agreement and the rights and obligations of the parties
hereto shall bind and inure to the benefit of any successor or successors of
the Company by reorganization, merger or consolidation and any assignee of all
or substantially all of its business and properties, but, except as to any
such successor or assignee of the Company, neither this Agreement nor any
rights or benefits hereunder may be assigned by the Company or by you, except
by operation of law. Any such assignment or attempt to assign any rights
hereunder in violation of this Section 9 shall be void.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal
or unenforceable provision had never been contained herein. MOREOVER, IT IS
THE INTENT OF THE PARTIES THAT in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, such provision
shall be construed by limiting and reducing it as determined by a court of
competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
11. Notices. Any notice which the Company is required to or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the
Company hereunder shall be given by personal delivery or by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing. The date of personal delivery or the date of mailing any
notice under this Section 11 shall be deemed to be the date of delivery
thereof.
12. Waivers. If either party should waive any breach of any provision of
this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. Except for any stock options issued to
you under the Company's stock option plan(s), the foregoing including Exhibits
A, B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written
communications, representations, understandings, or agreements with the
Company or any officer or representative thereof. Any amendment to this
Agreement or waiver by the Company of any right hereunder shall be effective
only if evidenced by a written instrument executed by the parties hereto, upon
authorization of the Company's Board of Directors. This Agreement shall in no
event modify, restrict or replace any employee stock options previously issued
to you.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in multiple counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed under
Massachusetts law.
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions
Agreement, whereupon this Agreement shall become binding in accordance with
its terms. Please then return this
Agreement to the Company. (You may retain for your records the accompanying
counterpart of this Agreement enclosed herewith).
Very truly yours,
HEMAGEN DIAGNOSTICS INC.
By: /s/ Carl Franzblau
Date: May 18, 1999
/s/ Lawrence Gilbert, Director
Accepted and Agreed: By: /s/ Ricardo de Oliveira
-----------------------
RICARDO DE OLIVEIRA
Exhibit A
---------
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF RICARDO DE OLIVEIRA
1. Term. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be until May 17, 2001.
2. Compensation.
-------------
(a) Base Salary. Your Base Salary shall be:
$130,000 per annum from the date of this Agreement through the remainder
of Fiscal 1999 and thereafter as may be determined by the Company's
Chief Executive Officer or the compensation committee of the Board of
Directors, but in no event less than $130,000 per annum, payable in
accordance with the Company's payroll policies.
(b) Bonus. Any future bonuses shall be determined by the Chief
Executive Officer of the Company, taking into account the current
economic condition of the Company.
3. Vacation. You shall be entitled to all legal and religious holidays,
and four (4) weeks paid vacation per annum.
4. Insurance and Benefits. You shall be eligible for participation in any
health or other group insurance plan or general benefit plans which may be
established by the Company or which the Company is required to maintain by
law. The Company shall provide health insurance for you and your family.
Exhibit B
---------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
To: Hemagen Diagnostics, Inc.
40 Bear Hill Road
Waltham, Massachusetts 02451
As of May 18, 1999
The undersigned, in consideration of and as a condition of my employment
or continued employment by you and/or by companies which you own, control, or
are affiliated with or their successors in business (collectively, the
"Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not
to disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets,
confidential information, knowledge, data or other information of the Company
relating to products, processes, know-how, designs, formulas, test data,
customer lists, business plans, marketing plans and strategies, pricing
strategies, or other subject matter pertaining to any business of the Company
or any of its affiliates, which I may produce, obtain, or otherwise acquire
during the course of my employment, except as herein provided. I further agree
not to deliver, reproduce or in any way allow any such trade secrets,
confidential information, knowledge, data or other information, or any
documentation relating thereto, to be delivered to or used by any third
parties without specific direction or consent of a duly authorized
representative of the Company.
2. Conflicting Employment: Return of Confidential Material.
--------------------------------------------------------
2.1 I agree that during my employment with the Company I will not
engage in any other employment, occupation, consulting or other activity
relating to the business in which the Company is now or may hereafter become
engaged, or which would otherwise conflict with my obligations to the Company.
In the event my employment with the Company terminates for any reason
whatsoever, I agree to promptly surrender and deliver to the Company all
records, materials, equipment, drawings, documents and data of which I may
obtain or produce during the course of my employment, and I will not take with
me any description containing or pertaining to any confidential information,
knowledge or data of the Company which I may produce or obtain during the
course of my employment.
2.2 I represent that I am not a party to any existing Agreement which
would prevent my entering into this Agreement.
2.3 I warrant that I am not obligated under any other consultant,
employment, or other agreement which would affect the Company's rights or my
duties under this Agreement. I agree that for the term of this Agreement, and
for a period of eighteen (18) months thereafter, I will not, without the prior
written consent of the Company, enter into any agreement with anyone other
than the Company to consult or otherwise render services with regard to the
subject matter of this Agreement or any subject directly relevant thereto.
2.4 Except as hereinafter provided, any and all improvements,
developments, or discoveries or inventions that are made by me on Company time
or using Company resources or as a direct result of my employment by the
Company, whether or not patentable, shall be the sole and exclusive property
of the Company. I agree to disclose promptly to the Company any such
improvements, developments, or discoveries made by me, and, where applicable,
to assign to the Company any inventions disclosed and to give the Company
reasonable assistance in preparing or prosecuting, in the Company's name and
at the Company's expense, any patent applications covering such inventions.
3. Assignment of Inventions.
-------------------------
3.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions made by me on Company time or using Company resources. In order to
protect the Company's rights to such Inventions, by executing this Agreement I
hereby irrevocably assign to the Company all my right, title and interest in
and to all such Inventions.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in
any manner to the actual or demonstrably anticipated business, work, or
research and development of the Company, or result from or are suggested by
any task assigned to me or any work performed by me for or on behalf of the
Company.
3.3 Any discovery, process, design, technology, device, or improvement
in any of the foregoing or other ideas, whether or not patentable and whether
or not reduced to practice, made or conceived by me (whether solely or jointly
with others) which I develop entirely on my own time not using any of the
Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business' research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
-----------------------------------------------
5.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree
to perform such lawful acts as the Company deems to be necessary to allow it
to exercise all right, title and interest in and to such patents and
copyrights.
5.2 In connection with this Agreement, I agree to execute, acknowledge
and deliver to the Company or its nominee upon request and at its expense all
documents, including assignments of title, patent or copyright applications,
assignments of such applications, assignments of patents or copyrights upon
issuance, as the Company may determine necessary or desirable to protect the
Company's or its nominee's interest in Inventions, and/or to use in obtaining
patents or copyrights in any and all countries and to vest title thereto in
the Company or its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company),
which records shall be available to and remain the sole property of the
Company at all times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by
the Company, are excluded from this Agreement except as set forth on Schedule
A attached hereto. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal
Invention. In the event of my failure to give such notice, I agree that I will
make no claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time may
have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will
not breach any agreement to keep confidential proprietary information,
knowledge or data acquired by me in confidence or in trust prior to my
employment with the Company, and I will not disclose to the Company, or induce
the Company to use, any confidential or proprietary information or material
belonging to any previous employer or others. I agree not to enter into any
agreement either written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope
of this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my heirs,
executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal
or unenforceable provision had never been contained herein. MOREOVER, IT IS
THE INTENT OF THE PARTIES THAT in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, such provision
shall be construed by limiting and reducing it in accordance with a judgment
of a court of competent jurisdiction, so as to be enforceable to the extent
compatible with applicable law.
13. Waivers. If either party should waive any breach of any provision of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the
Company or any officer or representative thereof. Any amendment to this
Agreement or waiver by either party of any right hereunder shall be effective
only if evidenced by a written instrument executed by the parties hereto, and,
in the case of the Company, upon written authorization of the Company's Board
of Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which shall together constitute
one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
By:/s/ Ricardo de Oliveira
-----------------------
RICARDO DE OLIVEIRA
Accepted and Agreed:
HEMAGEN DIAGNOSTICS, INC.
By:/s/ Carl Franzblau
Title: President
Date: May 18, 1999
/s/ Lawrence Gilbert, Director
SCHEDULE A
----------
LIST OF PRIOR INVENTIONS
Identifying Number and/or Brief Description:
All discoveries, processes, designs, technologies and improvements relating to
hemagglutination technology.
EMPLOYEE AGREEMENT
- ------------------
To: WILLIAM FRANZBLAU, Esquire
4 Maplewood Avenue
Newton, Massachusetts 02459
Effective May 18, 1999, The undersigned, Hemagen Diagnostics, Inc., a
Delaware corporation (the "Company"), hereby agrees with you as follows:
1. Position and Responsibilities.
------------------------------
1.1 You shall serve as Chief Financial Officer and General Counsel
for the Company, (or in such other executive capacity as shall be designated
by the Board of Directors and acceptable to you in your sole discretion) and
shall perform the duties customarily associated with such capacity from time
to time as the Company shall designate are appropriate and necessary in
connection with such employment.
1.2 You will, to the best of your ability, devote no less than forty
(40) hours per week to the performance of your duties hereunder and to the
business and affairs of the Company. You agree to perform such executive
duties as may be assigned to you by or on authority of the Company's Chief
Executive Officer from time to time.
1.3 You will perform and observe any and all reasonable rules and
regulations which the Company may now or shall hereafter establish governing
the conduct of its business.
1.4 If, for any reason, the Company materially or substantially
changes or modifies your duties and/or the responsibilities of your position
with the Company or if the Company relocates your primary place of
employment to a place that is greater than 50 miles from your present
location in Waltham, Massachusetts, then, at your option, your employment
with the Company may be terminated and, for purposes of this Agreement,
such termination will be considered a termination without cause by the
Company and the provisions of Section 2.2(b) shall apply.
2. Term of Employment.
-------------------
2.1 The initial term of this Agreement shall be for the period of
years set forth on Exhibit A annexed hereto commencing May 18, 1999.
Thereafter, this Agreement shall be automatically renewed for successive
periods of two years, unless you or the Company shall give the other party
not less than six (6) months written notice of non-renewal. Your employment
with the Company may be terminated at any time as provided in section 2.2.
2.2 The Company shall have the right, on written notice to you, to
terminate your employment:
(a) immediately at any time for cause; or
(b) at any time without cause, provided the Company shall be
obligated to pay to you as severance pay an amount equal to twelve
(12) months Base Salary (as set forth on Exhibit A hereto regardless
of the remaining term hereunder) , less applicable taxes and other
required withholdings and any amounts you may owe to the Company; or
(c) at any time without cause or notice in the event of any
involuntary liquidation of the Company.
2.3 For purposes of Section 2.2, the term "cause" shall mean the
willful breach or habitual neglect of your obligations under this Agreement
or your duties as an employee of the Company provided that, if time allows,
the Company provides you with thirty (30) days prior notice with the right
to cure such breach or neglect.
2.4 For purposes of Section 2.2(b), you shall have no duty to
mitigate such payments by seeking other employment nor shall any payments be
reduced by any other employment which you may obtain after termination of
your employment with the Company. However, if you accept any payments under
Section 2.2(b), you shall hereby agree (and you hereby agree to sign any
reasonable general release form) to release and hold the Company harmless
from and against any claim or action you may have against the Company
related solely to your employment by the Company.
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A hereto ("Compensation") for all services to be rendered
by you hereunder and for your transfer of property rights pursuant to an
agreement relating to proprietary information and inventions of even date
herewith attached hereto as Exhibit B between you and the Company (the
"Proprietary Information and Inventions Agreement").
4. Other Activities During Employment. You hereby agree that during your
employment hereunder, you will not, directly or indirectly, engage (a)
individually, (b) as an officer, (c) as a director, (d) as an employee, (e)
as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson
or otherwise) , (h) as a broker, or (i) as a partner, co-venturer,
stockholder or other proprietor owning directly or indirectly more than five
percent (5%) interest in any firm, corporation, partnership, trust,
association, or other organization which is engaged in the manufacture and
sale of medical diagnostics or any other line of business engaged in or
under demonstrable development by the Company (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise").
5. Former Employers.
-----------------
5.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior or current
employment, consulting agreement or relationship whether oral or written.
You represent and warrant that you do not possess confidential information
arising out of any such employment, consulting agreement or relationship
which, in your best judgment, would be utilized in connection with your
employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should
find that confidential information belonging to any other person or entity
might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but
during your employment by the Company you will use in the performance of
your duties all information which is generally known and used by persons
with training and experience comparable to your own all information which is
common knowledge in the industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute, deliver
and be bound by the provisions of the Proprietary Information and Inventions
Agreement.
7. Post-Employment Activities.
---------------------------
7.1 For a period of six (6) months after the termination or
expiration, for any reason, of your employment with the Company hereunder,
absent the Company's prior written approval, you will not directly or
indirectly engage in activities similar or reasonably related to those in
which you shall have engaged hereunder during the one year immediately
preceding termination or expiration for, nor render services similar or
reasonably related to those which you shall have rendered hereunder during
such year to, any person or entity whether now existing or hereafter
established which directly competes with (or proposes or plans to directly
compete with) the Company ("Direct Competitor") in any line of business
engaged in or under development by the Company. Nor shall you entice, induce
or encourage any of the Company's other employees to engage in any activity
which, were it done by you, would violate any provision of the Proprietary
Information and Inventions Agreement or this Section 7. As used in this
Section 7.1, the term "any line of business engaged in or under development
by the Company" shall be applied as at the date of termination of your
employment, or, if later, as at the date of termination of any post-
employment consultation.
7.2 No provision of this Agreement shall be construed to preclude you
from performing the same services which the Company hereby retains you to
perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment (or any
post-employment consultation) so long as you do not thereby violate any term
of the Proprietary Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 6,7,8 and 9 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your
resignation or otherwise) with the Company. You acknowledge that a remedy at
law for any breach or threatened breach by you of the provisions of the
Proprietary Information and Inventions Agreement or Section 7 would be
inadequate and you therefore agree that the Company shall be entitled to
such injunctive relief in case of any such breach or threatened breach.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but,
except as to any such successor or assignee of the Company, neither this
Agreement nor any rights or benefits hereunder may be assigned by the
Company or by you, except by operation of law. Any such assignment or
attempt to assign any rights hereunder in violation of this Section 9 shall
be void.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any one
or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect the other
provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. MOREOVER, IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall for any reason be
held to be excessively broad as to duration, geographical scope, activity or
subject, such provision shall be construed by limiting and reducing it as
determined by a court of competent jurisdiction, so as to be enforceable to
the extent compatible with applicable law.
11. Notices. Any notice which the Company is required to or may desire to
give you shall be given by personal delivery or registered or certified
mail, return receipt requested, addressed to you at your address of record
with the Company, or at such other place as you may from time to time
designate in writing. Any notice which you are required or may desire to
give to the Company hereunder shall be given by personal delivery or by
registered or certified mail, return receipt requested, addressed to the
Company at its principal office, or at such other office as the Company may
from time to time designate in writing. The date of personal delivery or the
date of mailing any notice under this Section 11 shall be deemed to be the
date of delivery thereof.
12. Waivers. If either party should waive any breach of any provision of
this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. Except for any stock options issued
to you under the Company's stock option plan(s), the foregoing including
Exhibits A, B and C hereto, is the entire agreement of the parties with
respect to the subject matter hereof, superseding any previous oral or
written communications, representations, understandings, or agreements with
the Company or any officer or representative thereof. Any amendment to this
Agreement or waiver by the Company of any right hereunder shall be effective
only if evidenced by a written instrument executed by the parties hereto,
upon authorization of the Company's Board of Directors. This Agreement
shall in no event modify, restrict or replace any employee stock options
previously issued to you.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in multiple counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
If you are in agreement with the foregoing, please sign your name
below and also at the bottom of the Proprietary Information and Inventions
Agreement, whereupon this Agreement shall become binding in accordance with
its terms. Please then return this
Agreement to the Company. (You may retain for your records the accompanying
counterpart of this Agreement enclosed herewith).
Very truly yours,
HEMAGEN DIAGNOSTICS INC.
By: /s/ Carl Franzblau
/s/ Lawrence Gilbert, Director
Accepted and Agreed: /s/ William Franzblau
---------------------
WILLIAM FRANZBLAU
Exhibit A
---------
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF WILLIAM FRANZBLAU
2. Term. The term of the Agreement to which this Exhibit A is
annexed and incorporated shall be until May 17, 2001.
2. Compensation.
-------------
(a) Base Salary. Your Base Salary shall be:
130,000 per annum from the date of this Agreement through the
remainder of Fiscal 1999 and thereafter as may be determined by the
Company's Chief Executive Officer or the compensation committee of the
Board of Directors, but in no event less than $130,000 per annum,
payable in accordance with the Company's payroll policies.
(b) Bonus. Any future bonuses shall be determined by the Chief
Executive Officer of the Company, taking into account the current
economic condition of the Company.
3. Vacation. You shall be entitled to all legal and religious holidays,
and four (4) weeks paid vacation per annum.
4. Insurance and Benefits. You shall be eligible for participation in any
health or other group insurance plan or general benefit plans which may be
established by the Company or which the Company is required to maintain by
law. The Company shall provide health insurance for you and your family.
Exhibit B
---------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
------------------------------------------------
To: Hemagen Diagnostics, Inc.
40 Bear Hill Road
Waltham, Massachusetts 02451
As of May 17, 1999
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business
(collectively, the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not
to disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets,
confidential information, knowledge, data or other information of the
Company relating to products, processes, know-how, designs, formulas, test
data, customer lists, business plans, marketing plans and strategies,
pricing strategies, or other subject matter pertaining to any business of
the Company or any of its affiliates, which I may produce, obtain, or
otherwise acquire during the course of my employment, except as herein
provided. I further agree not to deliver, reproduce or in any way allow any
such trade secrets, confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered to or
used by any third parties without specific direction or consent of a duly
authorized representative of the Company.
2. Conflicting Employment: Return of Confidential Material.
--------------------------------------------------------
2.1 I agree that during my employment with the Company I will not
engage in any other employment, occupation, consulting or other activity
relating to the business in which the Company is now or may hereafter become
engaged, or which would otherwise conflict with my obligations to the
Company. In the event my employment with the Company terminates for any
reason whatsoever, I agree to promptly surrender and deliver to the Company
all records, materials, equipment, drawings, documents and data of which I
may obtain or produce during the course of my employment, and I will not
take with me any description containing or pertaining to any confidential
information, knowledge or data of the Company which I may produce or obtain
during the course of my employment.
2.2 I represent that I am not a party to any existing Agreement which
would prevent my entering into this Agreement.
2.3 I warrant that I am not obligated under any other consultant,
employment, or other agreement which would affect the Company's rights or my
duties under this Agreement. I agree that for the term of this Agreement,
and for a period of eighteen (18) months thereafter, I will not, without the
prior written consent of the Company, enter into any agreement with anyone
other than the Company to consult or otherwise render services with regard
to the subject matter of this Agreement or any subject directly relevant
thereto.
2.4 Except as hereinafter provided, any and all improvements,
developments, or discoveries or inventions that are made by me on Company
time or using Company resources or as a direct result of my employment by
the Company, whether or not patentable, shall be the sole and exclusive
property of the Company. I agree to disclose promptly to the Company any
such improvements, developments, or discoveries made by me, and, where
applicable, to assign to the Company any inventions disclosed and to give
the Company reasonable assistance in preparing or prosecuting, in the
Company's name and at the Company's expense, any patent applications
covering such inventions.
3. Assignment of Inventions.
-------------------------
3.1 I hereby acknowledge and agree that the Company is the owner of
all Inventions made by me on Company time or using Company resources. In
order to protect the Company's rights to such Inventions, by executing this
Agreement I hereby irrevocably assign to the Company all my right, title and
interest in and to all such Inventions.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether
or not reduced to practice, made or conceived by me (whether solely or
jointly with others) during the period of my employment with the Company
which relate in any manner to the actual or demonstrably anticipated
business, work, or research and development of the Company, or result from
or are suggested by any task assigned to me or any work performed by me for
or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not
patentable and whether or not reduced to practice, made or conceived by me
(whether solely or jointly with others) which I develop entirely on my own
time not using any of the Company's equipment, supplies, facilities, or
trade secret information ("Personal Invention") is excluded from this
Agreement provided such Personal Invention (a) does not relate to the actual
or demonstrably anticipated business' research and development of the
Company, and (b) does not result, directly or indirectly, from any work
performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior
at the Company in order to permit the Company to enforce its property rights
to such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
-----------------------------------------------
5.1 Upon request, I agree to assist the Company or its nominee (at
its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be
and remain the sole and exclusive property of the Company or its nominee. I
agree to perform such lawful acts as the Company deems to be necessary to
allow it to exercise all right, title and interest in and to such patents
and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at
its expense all documents, including assignments of title, patent or
copyright applications, assignments of such applications, assignments of
patents or copyrights upon issuance, as the Company may determine necessary
or desirable to protect the Company's or its nominee's interest in
Inventions, and/or to use in obtaining patents or copyrights in any and all
countries and to vest title thereto in the Company or its nominee to any of
the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company),
which records shall be available to and remain the sole property of the
Company at all times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by
the Company, are excluded from this Agreement except as set forth on
Schedule A attached hereto. I agree to notify the Company in writing before
I make any disclosure or perform any work on behalf of the Company which
appears to threaten or conflict with proprietary rights I claim in any
Personal Invention. In the event of my failure to give such notice, I agree
that I will make no claim against the Company with respect to any such
Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or
agencies thereof, which impose obligations or restrictions on the Company
regarding Inventions made during the course of work thereunder or regarding
the confidential nature of such work. I agree to be bound by all such
obligations and restrictions and to take all action necessary to discharge
the Company's obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will
not breach any agreement to keep confidential proprietary information,
knowledge or data acquired by me in confidence or in trust prior to my
employment with the Company, and I will not disclose to the Company, or
induce the Company to use, any confidential or proprietary information or
material belonging to any previous employer or others. I agree not to enter
into any agreement either written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any
Employment Agreement between the Company and me, shall not affect the
validity or scope of this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my heirs,
executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any one
or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect the other
provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. MOREOVER, IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall for any reason be
held to be excessively broad as to duration, geographical scope, activity or
subject, such provision shall be construed by limiting and reducing it in
accordance with a judgment of a court of competent jurisdiction, so as to be
enforceable to the extent compatible with applicable law.
13. Waivers. If either party should waive any breach of any provision of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is
my entire agreement with the Company, superseding any previous oral or
written communications, representations, understandings, or agreements with
the Company or any officer or representative thereof. Any amendment to this
Agreement or waiver by either party of any right hereunder shall be
effective only if evidenced by a written instrument executed by the parties
hereto, and, in the case of the Company, upon written authorization of the
Company's Board of Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts, each
of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
/s/ William Franzblau
---------------------
WILLIAM FRANZBLAU
Accepted and Agreed:
HEMAGEN DIAGNOSTICS, INC.
By: /s/ Carl Franzblau
Title: President
Date: May 18, 1999
/s/ Lawrence Gilbert, Director
SCHEDULE A
----------
LIST OF PRIOR INVENTIONS
Identifying Number and/or Brief Description:
NONE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 40,375
<SECURITIES> 0
<RECEIVABLES> 2,366,991
<ALLOWANCES> 276,000
<INVENTORY> 6,848,387
<CURRENT-ASSETS> 10,437,051
<PP&E> 7,800,750
<DEPRECIATION> 3,775,680
<TOTAL-ASSETS> 15,781,765
<CURRENT-LIABILITIES> 4,534,097
<BONDS> 0
0
0
<COMMON> 78,519
<OTHER-SE> 10,032,672
<TOTAL-LIABILITY-AND-EQUITY> 15,781,765
<SALES> 3,698,853
<TOTAL-REVENUES> 3,698,853
<CGS> 2,156,769
<TOTAL-COSTS> 2,156,769
<OTHER-EXPENSES> 1,427,458
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,504
<INCOME-PRETAX> 44,624
<INCOME-TAX> 0
<INCOME-CONTINUING> 44,624
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,624
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
