Immucor Inc · 10-K405 · For 5/31/00
Filed On 8/29/00 5:39pm ET · SEC File 0-14820 · Accession Number 736822-0-27
This Filing's "Filed As Of" Date was Corrected by the SEC on 8/31/00.
As Of Filer Filing As/For/On Docs:Pgs
8/29/00 Immucor Inc 10-K405® 5/31/00 7:88
Annual Report -- [X] Reg. S-K Item 405 · Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Form 10k 5/31/00 68± 229K
2: EX-10.25 Ex 10.25 Second Modification of Loan Agreement 3 20K
3: EX-10.26 EX-10.26 Third Modification of Loan 8± 34K
4: EX-10.27 EX-10.27 Fourth Modification of Loan 6± 27K
5: EX-21 Subsidiaries of Registrant 1 5K
6: EX-23 Consent 1 6K
7: EX-27 FDS--Fy 2000 1 6K
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934
---
For the fiscal year ended May 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14820
IMMUCOR, INC.
(Exact name of registrant as specified in its charter)
Georgia 22-2408354
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3130 GATEWAY DRIVE, 30091
P.O. BOX 5625 (Zip Code)
Norcross, Georgia
(Address of principal executive offices)
Registrant's telephone number, including area code, is (770) 441-2051
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE
(Title of Class)
COMMON STOCK PURCHASE RIGHTS
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--------
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ X ]
As of July 31, 2000, the aggregate market value of the voting stock
held by non-affiliates of the registrant was $29,125,437.
As of July 31, 2000, there were 7,277,617 shares of common stock
outstanding.
PART I
Item 1.--Business
Founded in 1982, Immucor, Inc., a Georgia corporation ("Immucor" or the
"Company"), develops, manufactures and sells a complete line of reagents and
automated systems used primarily by hospitals, clinical laboratories and blood
banks in a number of tests performed to detect and identify certain properties
of the cell and serum components of human blood prior to blood transfusion.
During fiscal 1999 the Company implemented its strategic plans to
consolidate the U.S. blood bank market, leaving Immucor and Ortho Clinical
Diagnostics as the only two companies offering a complete line of blood banking
reagents in the U.S., and to strengthen Immucor's direct presence in Europe and
Canada. The Company executed its plans through a series of acquisitions, which
are listed below:
Acquisition of Canadian Distribution Rights. On September 1, 1998 the
Company acquired the Canadian distribution rights for the Company's complete
line of reagents from its Canadian distributor for a total transaction value of
approximately $2.1 million. Immucor's wholly owned Canadian subsidiary, Dominion
Biologicals, Ltd. ("Dominion"), took over distribution of the entire range of
products. Dominion is currently the leader in the market for conventional
reagents in Canada. See - Liquidity and Capital Resources.
Acquisition of Gamma Biologicals, Inc. On October 27, 1998, the Company
completed the acquisition of Gamma Biologicals, Inc. ("Gamma") for a total
transaction value of approximately $27.8 million (see - Note 3 to the
Consolidated Financial Statements). Located in Houston, Texas, Gamma
manufactures and distributes a wide variety of in-vitro diagnostic reagents to
blood donation centers, transfusion departments of hospitals, medical
laboratories and research institutions in the U.S. and internationally. Gamma
was the third largest domestic blood bank serology company before the
acquisition. This acquisition significantly strengthened the Company's
competitive position in the U.S. market and added to its customer base and
product offerings, thereby extending the Company's global marketing reach.
Combining Immucor's Automated Product Family and Capture(R) with Gamma's line of
monoclonal reagents, red cell products and ReACT-(TM) ("ReACT") products
represents a natural fit and creates an enhanced selection of products for our
customers worldwide (see - Products).
Acquisition of French and Belgian Distributor's Rights. On March 15,
1999, the Company acquired its former distributors in France (Immunochim
s.a.r.l.) and Belgium (Medichim S.A.), for a combination of cash, Immucor stock
options and an incentive earn out, representing a total transaction value of
approximately $1.8 million (see - Note 3 to the Consolidated Financial
Statements). The Company's direct presence will allow it to take advantage of
the large potential for blood bank automation installations in the French
market, which the Company believes is the second largest market in Europe.
Acquisition of the BCA blood bank division assets of Biopool
International, Inc. On April 30, 1999 the Company purchased certain assets of
the BCA blood bank division of Biopool International, Inc. for approximately
$4.5 million (see - Note 3 to the Consolidated Financial Statements). This
acquisition added three well-accepted products to the Company's reagent
portfolio.
As a result of the above acquisitions, Immucor became the North
American market leader in terms of sales and strengthened its market position
worldwide. See - Competition and Marketing and Distribution. The Company
financed the acquisitions with cash reserves and the proceeds of a loan from its
primary U.S. bank. See- Liquidity and Capital Resources and Note 3 to the
Consolidated Financial Statements.
Since 1992 the Company has worked with the medical instrument
manufacturer Bio-Tek Instruments, Inc., a wholly owned subsidiary of Lionheart
Technologies, Inc., to develop an automated, "walk-away", blood bank analyzer
called the ABS2000, using Immucor's proprietary Capture(R) technology. In March
1996, the Company filed a 510(k) application with the U.S. Food and Drug
Administration (the "FDA") for market clearance. On July 6, 1998, the Company
announced that the FDA cleared the ABS2000 for marketing in the U.S. The
instrument is designed for patient testing in hospital transfusion laboratories
and is the first blood bank system that fully automates blood compatibility
tests currently performed manually by blood bank technologists. The Company
introduced the ABS2000 in the U.S. market during the second quarter of fiscal
1999.
In March 1998, Immucor signed an exclusive distribution agreement with
IBG Systems Limited ("IBG") headquartered in England whereby Immucor assumed the
sale, marketing and service of all current and future IBG products in North
America. IBG presently has the only semi-automated microtitration plate reader
available for sale in the U.S., which interprets Immucor's proprietary solid
phase Capture(R) assays. With this agreement Immucor also obtained the North
American distribution rights for blood bank applications of the ROSYS Plato
system manufactured by ROSYS Anthos Ag of Switzerland. The system provides
medium sized donor centers and large hospital transfusion laboratories with
automated liquid and sample handling for processing microtitration plates and
also uses Immucor's proprietary solid phase Capture(R) assays. The Company
introduced the system in the U.S. and European markets during fiscal 1999. In
July 1999 the Company purchased the exclusive distribution rights of the ROSYS
Plato from IBG for approximately $250,000 in cash. The Company has entered into
a distribution agreement directly with ROSYS Anthos Ag for the distribution of
the ROSYS Plato (marketed as ABS Precis in Europe) in North America and Europe.
In 1998, the Company began marketing an automated medical instrument,
previously referred to as the ABSHV, utilizing DYNEX Technologies, Inc.'s 510(k)
clearance for its product called the DIAS PLUS. The instrument, marketed as
ABSHV in Europe, provides large blood donor centers and clinical reference
laboratories automated batch processing and positive sample identification of
routine blood donor tests, and uses the Company's solid phase Capture(R) assays.
On September 1, 1999, the Company entered into a manufacturing and
development agreement with Stratec Biomedical AG ("Stratec") with headquarters
in Germany. Under the terms of the agreement, Stratec will manufacture and
develop a fully automated analyzer known as the Galileo and will be initially
targeted to the European community utilizing the Company's Capture(R) and ReACT
technologies. The instrument will be marketed exclusively by Immucor to hospital
transfusion laboratories and blood donor centers for patient and donor blood
typing and antibody screening and identification. In order to maintain exclusive
European distribution rights the Company must purchase 250 instruments over the
five year initial term of the agreement. If the Company purchases less than 250
instruments over the period it will be allowed to negotiate a good faith
extension.
Industry
Immucor is part of the immunohematology industry, which generally seeks
to prevent or cure certain diseases or conditions through the transfusion of
blood and blood components. In the U.S., the FDA regulates human blood as a drug
and as a biological product, and it regulates the transfusion of blood as the
administration of a drug and of a biological product. The FDA regulates all
phases of the immunohematology industry, including donor selection and the
collection, classification, storage, handling and transfusion of blood and blood
components. The FDA requires all facilities that manufacture products used for
any of those purposes, and the products themselves, to be registered or licensed
by the FDA. See Regulation of Business.
The principal components of blood are plasma (the fluid portion) and
cells. Blood also contains antibodies and antigens. Antibodies are proteins that
are naturally produced by the human body in response to the introduction of
foreign substances (antigens). Antigens are substances that stimulate the
production of antibodies. Red blood cells, which transport oxygen from the lungs
to other parts of the body, and return carbon dioxide to the lungs, are
categorized by four blood groups (A, B, AB and O) and two blood types (Rh
positive and Rh negative), based on the presence or absence of certain antigens
on the surface of the cells. It is crucial that the health care provider
correctly identify the antibodies and antigens present in patient and donor
blood. For example, if a donor's red blood cells contain antigens that could
react with the corresponding antibody in the patient's plasma, the transfusion
of the red blood cells may result in the potentially life threatening
destruction of the patient's red blood cells.
Because of the critical importance of matching patient and donor blood,
compatibility testing procedures are generally performed by highly educated
technologists in hospitals, blood banks and laboratories. At present, with few
exceptions, these tests are performed manually using procedures which the
Company believes can be significantly improved using its instrumentation and
solid phase and ReACT testing systems to automate the testing procedures. See
Products -- Blood Bank Automation and Solid Phase and Microcolumn Technology.
The Company believes that the worldwide market for traditional blood
bank reagents is approximately $320 million, and that this market is relatively
mature given current technology. The industry is labor-intensive and the Company
estimates worldwide industry labor costs approach $1 billion. Therefore, the
introduction of labor-saving products will provide additional growth in the
market. The Company believes that its blood bank automation, solid phase and
ReACT blood testing systems improve test results and reduce the time necessary
to perform certain test procedures, thereby offering a cost-effective
alternative for its customers. See Products -- Blood Bank Automation and Solid
Phase and Microcolumn Technology. The Company anticipates that automation will
increase the available market for traditional and automated reagents to $425
million while decreasing the overall cost of blood testing by reducing the labor
component by approximately $400 million.
Immucor Strategy
The Company's strategy is to further strengthen its competitive
position in the blood bank testing market by restructuring the market through
automation of the transfusion laboratory and to firmly establish Immucor as the
world leader in blood bank automation. In order to implement this strategy, the
Company intends to:
Maximize Instrument Placements. The Company's market research has been
unable to find another company that has filed an application for FDA clearance
of an automated blood bank device. Management estimates that Immucor should have
a two-to-three year window of opportunity to establish itself as the leading
blood bank device company in the United States. The Company's strategy is to
strengthen its leadership position in the automation of blood bank testing by
establishing a large base of installed instruments that future market entrants
must overcome. To facilitate instrument placements, the Company offers customers
a selection of automated analyzers, which address the various needs of low-,
medium-, and high-volume testing facilities. In order to satisfy the broad
spectrum of customers' operational and financial criteria, the Company intends
to continue to offer several instrument procurement options, including
third-party financing leases, direct sales and reagent rentals and to expand the
range and price points of its instrument offerings.
Maximize Revenue Stream Per Placement. Each instrument placed typically
provides the Company with a recurring revenue stream through the sale of
reagents and supplies. Immucor's family of blood bank testing systems operates
exclusively with the Company's proprietary reagent lines, Capture(R) and ReACT.
Because these reagents have been developed for automated technology, they
command a premium price over traditional products. The average annual revenue
per placement is $18,000 to $100,000, depending on facility testing volume. The
Company also continues to develop new reagent applications and upgrade system
software and hardware in order to expand instrument test menus, thereby
increasing consumable usage per placement.
Develop New and Enhanced Products. Immucor continually seeks to improve
existing products and develop new ones to enhance its market share. The Company
has successfully introduced and commercialized the ABS2000, the ROSYS Plato and
the DIAS PLUS automated analyzers, all of which operate with Immucor's
proprietary solid phase Capture(R) assays. The Company also developed the I-TRAC
Plus System, a comprehensive transfusion management system that interfaces with
the Company's automated analyzers. In fiscal 2000, Immucor began offering its
customers located in Europe online assistance with antibody identification
through the website www.ready-id.com, which the Company developed jointly with
Sanguin International Limited. The website also provides customers access to
continuing education and online consultation services. The Company has launched
the service in Europe during fiscal 2000 and is currently awaiting a marketing
clearance from the United States Food and Drug Administration to begin marketing
the service in the United States.
Expand Intellectual Property Position. The Company seeks to expand its
intellectual property position by entering into strategic alliances, acquiring
rights of first refusal on future commercial developments and licensing existing
technologies.
Products
Most of Immucor's current reagent products are used in tests performed
prior to blood transfusions to determine the blood group and type of patients'
and donors' blood, in the detection and identification of blood group
antibodies, in platelet antibody detection, in paternity testing and in prenatal
care. The FDA requires the accurate testing of blood and blood components prior
to transfusions using only FDA licensed reagents such as those manufactured and
sold by the Company.
The following table sets forth the products sold by or exclusively for
the Company, most of which are manufactured by or exclusively for the Company.
Product Group Principal Use
ABO Blood Grouping Detect and identify ABO
antigens on red blood cells in order to
classify a specimen's blood group as
either A, B, AB or O.
Rh Blood Typing Detect Rh antigens in order
to classify a specimen as either Rh
positive or Rh negative, and to detect
other Rh-hr antigens.
Anti-human Globulin Used with other products for routine
Serums (Coombs Serums) crossmatching, and antibody detection and
identification; allows a reaction to occur
by bridging between antibodies that by
themselves could not cause a reaction.
Reagent Red Blood Cells Detect and identify antibodies in patient
or donor blood, confirm ABO blood
grouping results and validate the
performance of anti-human serum in the
test system.
Rare Serums Detect the presence or absence of rare
antigens.
Antibody Potentiators Increase the sensitivity of
antigen-antibody tests.
Quality Control Systems Daily evaluation of the reactivity of
routine blood testing reagents.
Monoclonal (Hybridoma) Detect and identify ABO and other antigens
Antibody-based Reagents on red blood cells.
Technical Proficiency Systems Reagent tests used to determine technical
proficiency and provide continuing
education for technical staff.
Fetal Bleed Screen Kit Used to detect excessive fetal-maternal
hemorrhage in Rh-negative women.
Capture-P(R) Used for the detection of platelet
antibodies.
Capture-R(R) Used to detect and identify unexpected
blood group antibodies.
Capture-CMV(R) Used for the detection of antibodies to
cytomegalovirus.
Capture(R)-S Used for the detection of antilipid
antibodies for syphilis screening.
ReACT-(TM)-Test System Microcolumn technology used to
detect and identify unexpected blood group
antibodies.
SegmentSampler-(TM) Disposable blood handling safety device.
ABS2000 Fully automated blood bank system used for
patient ABO/Rh grouping, antibody
screening, donor ABO/Rh confirmation
testing and crossmatching.
The following table includes additional products not manufactured by the Company
but sold by the Company:
Product Group Principal Use
Rh(D) Immune Globulin Administered by injection once during and
(Human) once after pregnancy to an Rh negative
woman who delivers an Rh positive infant
to prevent hemolytic disease of the
newborn.
HLA Serums Transplant typing and paternity testing.
DNA Probes Transplant typing, paternity testing,
forensic medicine and genetic research.
Infectious Diseases Diagnosis of certain infectious
diseases by the methods of ELISA,
Immunofluorescence and Latex Slide Tests.
Clinical Chemistry Blood analysis and pathological testing.
Immunofluorescent Monoclonal Used in clinical research to identify
Antibodies rare cell surface antigens.
Automated Microtitration Plate Instruments providing laboratories
Processors and Liquid Handlers automated batch processing and positive
sample identification of routine blood
donor tests.
Microtitration Plate Reader Instrument that reads and
interprets test results of Immucor's
proprietary Capture(R) products.
I-TRAC Plus Transfusion management system used
to verify the correct patient has been
selected to receive a blood component
before administration.
Microvolume Fluorimetry Automated cell enumeration
and characterization for patients
undergoing transfusion therapy.
Systems
The Company believes that the blood banking industry today is
labor-intensive, and that a market exists for further automation of blood
compatibility tests currently being performed manually by hospital and donor
center blood bank technologists. Based on the results of independent workflow
studies, the Company believes that its Blood Bank Automation products
significantly reduce the amount of blood bank technologist time required to
perform routine blood compatibility tests.
ABS2000: Fully Automated Blood Bank System. On July 6, 1998, the
Company announced it received FDA clearance to market the ABS2000 in the U.S.
This automated, "walk-away", blood bank analyzer uses Immucor's proprietary
Capture(R) reagent product technology to perform blood bank patient testing and
is manufactured exclusively for Immucor by Bio-Tek Instruments, Inc., a wholly
owned subsidiary of Lionheart Technologies, Inc. During fiscal 1999, the Company
began to implement its marketing plan for domestic sale of the product.
ROSYS Plato: Microplate Liquid Handler and Sample Processor. The system
provides medium sized donor centers, clinical reference laboratories and large
hospital transfusion laboratories with automated liquid and sample handling for
processing of microtitration plates and also uses Immucor's proprietary solid
phase Capture(R) assays.
DIAS PLUS: High Volume Microplate Processor. The instrument provides
large blood donor centers and clinical reference laboratories with automated
batch processing and positive sample identification of routine blood donor
tests, and uses the Company's Capture-R(R), Capture-CMV(R) and Capture(R)-S
products.
Multireader Plus: Microplate Reader. Semi-automated spectraphotometric
microtitration plate reader that reads and interprets test results of Immucor's
proprietary Capture(R) products. Together with the ROSYS Plato or the DIAS PLUS,
the Multireader Plus completes a semi-automated blood bank system ideally suited
for blood donor centers, large hospital transfusion laboratories and large
reference laboratories.
I-TRAC Plus: I-TRAC Plus is a comprehensive transfusion management
system that documents and verifies information electronically, giving health
care professionals the tools to ensure that the right blood is administered to
the right patient. In an environment that demands accuracy, Immucor recognized
the need for a system that could verify information and catch potential mistakes
before they are made. In response to this need the Company developed the I-TRAC
Plus system, which provides a closed-loop process of information management.
This electronic tracking system incorporates portable data terminals, automated
blood banking systems, and lab information management. The system identifies
each patient using barcoded wristbands, and uniquely identifies each specimen
drawn from a patient using barcoded labels produced at the bedside. I-TRAC Plus
verifies the correct patient has been selected to receive a blood component
before administration, and prints a transfusion report at the bedside.
Laboratory Equipment. Immucor also distributes laboratory equipment
designed to automate certain blood testing procedures and used in conjunction
with the Company's Capture(R) and ReACT products.
Microvolume Fluorimetry. Microvolume fluorimetry is a laser-based
imaging system, which detects fluorescently-tagged cells held in stasis in a
defined volume, enabling an automated cellular assay delivery system.
Proprietary Technology
Under current agglutination blood testing techniques, the technologist
mixes serum with red blood cells in a test tube, performs several additional
procedures, and then examines the mixture to determine whether there has been an
agglutination reaction. A positive reaction will occur if the cells are drawn
together in clumps by the presence of corresponding antibodies and antigens.
However, when the mixture remains in a fluid state, it is sometimes difficult
for the technologist to determine whether a positive reaction has occurred.
Because of the critical importance of matching patient and donor blood,
testing procedures using agglutination techniques are usually performed manually
by highly educated technologists. Depending on the technical proficiency of the
person performing the test, the process can take from 30 minutes to one hour,
and if the test results are ambiguous the entire process may need to be
repeated. Thus, a significant amount of expensive labor is involved in manual
agglutination testing. Based on industry sources, the Company believes that
labor costs are the largest component of the total cost of operating a hospital
blood bank. The Company believes that its solid phase and ReACT blood testing
systems improve test results and reduce the time necessary to perform certain
blood testing procedures related to the transfusion of blood and blood
components.
Solid Phase Technology. In the Company's proprietary solid phase blood
test system, one of the reactants (either an antigen or an antibody) is applied
or bound to a solid support, such as a well in a microtitration plate. During
testing, the bound reactant captures other reactants in a fluid state and binds
those fluid reactants to the solid phase (the bound reactant). The binding of
the fluid reactants into the solid phase occurs rapidly and results in clearly
defined test reactions that are often easier to interpret than the subjective
results sometimes obtained from existing agglutination technology. Based on
results obtained with Capture-P(R), Capture-R(R), Capture-CMV(R), Capture(R)-S
and the Company's ongoing research, the Company believes that solid phase test
results, in batch test mode, can generally be obtained in substantially less
time than by existing techniques.
Immucor has obtained FDA clearance for sale of four test systems using
its solid phase technology: a Platelet Antibody Detection System, Capture-P(R);
a Red Cell Antibody Detection System, Capture-R(R); and two Infectious Disease
Tests, Capture-CMV(R) and Capture(R)-S. In these four test systems, antigens are
applied and bound to the surface of a small well in a plastic microtitration
plate, and patient or donor serum or plasma is placed in the well. After the
addition of special proprietary indicator cells manufactured by Immucor,
positive reactions indicating the presence of blood group antibodies adhere to
the well as a thin layer and negative reactions do not adhere but settle to the
bottom as a small cell button.
Microcolumn Technology (ReACT-(TM)- Test System). Gamma Biologicals,
Inc., the Company's wholly owned subsidiary, developed a patented microcolumn
technology to be used for red cell affinity testing. Products based on this
technology should help Immucor compete with other microcolumn tests marketed
very successfully in Europe since 1988 and recently introduced in the United
States. The acronym ReACT (Red Cell Adherence Technology) was chosen as a
commercial trade name for the product line. The principle of ReACT is based on
the affinity adherence of red cells to an immunologically active matrix. The
matrix consists of specially treated agarose beads. In September 1997, Gamma
received FDA clearance to market the first ReACT products for antibody detection
and identification in the United States. Since the purchase of Gamma in October
1998, the Company has modified the marketing strategy for ReACT and has
re-launched the product both internationally and domestically. See "Item 3. -
Legal Proceedings" regarding a claim of patent infringement against the Company.
Products Under Development
Immucor continually seeks to improve its existing products and to
develop new ones in order to enhance its market share. Prior to their sale, any
new products will require licensing or premarket approval by the FDA. The
Company employs several persons whose specific duties are improving existing
products and developing new products for the Company's existing and potential
customers. The Company also has established relationships with other individuals
and institutions that provide similar services and the Company expects that it
will continue to form and maintain such relationships. The Company intends to
continue focusing its product development efforts primarily in the areas of
blood bank automation, microcolumn and solid phase technology and in several
other areas that may also be useful in connection with the development of these
products. For the fiscal years ended May 31, 2000, 1999 and 1998, the Company
spent $2,002,600, $1,293,600 and $970,900, respectively, for research and
development. The Company may in the future acquire related technologies and
product lines, or the companies that own them, to improve the Company's ability
to meet the needs of its customers. For the eight-year period ending May 31,
2000 the Company has invested $5.9 million in instrument research and
development principally under research contracts with Bio-Tek, Stratec and
DYNEX.
Blood Bank Automation. The Company believes that the blood banking
industry today is labor-intensive, and that a market exists for further
automation of blood compatibility tests currently being performed manually by
hospital and donor center blood bank technologists.
Since 1992 the Company has worked with Bio-Tek Instruments, Inc., a
wholly owned subsidiary of Lionheart Technologies, Inc., combining Immucor's
reagent manufacturing expertise with Bio-Tek's medical instrumentation expertise
to develop an automated, "walk-away", blood bank analyzer, the ABS2000. Bio-Tek
has been responsible for engineering, software development and manufacturing.
The Company announced clearance to market the ABS2000 in the U.S. from the FDA
on July 6, 1998 and continues to develop system software/hardware upgrades to
add additional tests to its menu, increase ease of use, improve throughput and
add stat testing capabilities. Second generation ABS2000 software is currently
under review by the FDA. Since the close of the fiscal year, isolated
performance issues have been experienced by certain ABS2000 installations. The
Company has issued a safety notification requesting customers to confirm ABS2000
results until the cause of the difficulty is identified and corrected. We
believe we have identified the factors which caused the performance issues and
are in the process of submitting this information to the FDA. If the FDA
concurs, we will suspend our safety notification and expect that our customers
may again use the ABS2000 without separate verification. We cannot predict how
long it will take to resolve these issues with the FDA. See also, Management's
Discussion and Analysis--Liquidity and Capital Resources.
The Company is working with ROSYS Anthos AG of Switzerland to automate
Immucor's microcolumn applications on the ROSYS Plato, known as the ABS Precis
in Europe. The Company expects this application to be ready for European market
introduction during fiscal 2000. See Note 12.
On September 1, 1999, the Company entered into a manufacturing and
development agreement with Stratec Biomedical AG ("Stratec") with headquarters
in Germany. Under the terms of the agreement, Stratec will manufacture and
develop an fully automated analyzer known as the Galileo which will be initially
targeted to the European community utilizing the Company's Capture(R) and ReACT
technologies. The instrument will be marketed exclusively by Immucor to hospital
transfusion laboratories and blood donor centers for patient and donor blood
typing and antibody screening and identification. In order to maintain exclusive
European distribution rights the Company must purchase 250 instruments over the
five year initial term of the agreement. If the Company purchases less than 250
instruments over the period it will be allowed to negotiate a good faith
extension.
Antibody Identification Website. During fiscal 1999 the Company,
together with Sanguin International Limited, headquartered in England, began to
develop the industry's first dedicated Internet website for online assistance
with the identification of unexpected red cell antibodies, called
www.ready-id.com. Additionally, www.ready-id.com will provide customers access
to continuing education, guidance on serological techniques, industry related
topic searches and online consultation services. The Company believes that the
demand for this service will increase in the future as more customers acquire
automated test systems and the number of laboratory workers with a high level of
technical knowledge in the blood bank industry begins to decline. The Company
has launched the service in Europe during fiscal 2000 and is currently awaiting
a marketing clearance from the United States Food and Drug Administration to
begin marketing the service in the United States.
Additional Solid Phase Applications. The Company plans to continue to
develop and refine its patented solid phase technology. Currently, the Company
is developing a screening test for the detection of weak D antigens on donor red
cells.
Additional Microcolumn Applications. Products to be used for red
cell antigen typing in the ReACT-(TM)-Test System are currently under
development.
Monoclonal Antibodies. Monoclonal antibodies are derived by fusing an
antibody-producing cell with a tumor cell, resulting in a hybridoma cell that
manufactures the original antibody. The Company is actively engaged in the
development of additional monoclonal antibodies for a variety of uses, including
the detection of blood group and infectious disease antigens, and for use in its
solid phase test systems. Monoclonal antibodies are highly specific, a trait
which allows them to detect and identify antigens with greater efficiency than
other reagents. Product quality and consistency is maintained from production
lot to production lot. The Company continues to pursue the development of such
antibodies principally through Gamma and Dominion, the Company's Canadian
subsidiary.
Marketing and Distribution
Immucor's potential U.S. customers are approximately 6,000 blood banks,
hospitals and clinical laboratories. The Company maintains an active client base
of over 5,500 customers worldwide, and no one customer purchases in excess of 5%
of the Company's current annual sales volume. The Company believes there is
little seasonality to its sales activity and there is no material backlog of
orders.
During fiscal 1999, the Company increased its market share through the
successful implementation of its acquisition strategy (see Item 1. Business).
The Company believes it is now the market leader in North America. In addition,
the Company seeks to continue to increase its worldwide market share through the
use of its experienced direct sales force and through the expansion of its
product line to offer customers a full range of products for their reagent
needs. The Company believes it can increase its market share by marketing
products based on its blood bank automation strategy, solid phase and ReACT
technologies.
The Company markets and sells its products to its customers directly
through 125 sales, marketing and support personnel employed by the Company in
the U.S., Canada, Germany, Portugal, Italy, Spain, France, Belgium and the
Netherlands. In addition, the Company utilizes 16 sales agents in Italy. The
Company has hired personnel whom the Company considers to be highly experienced
and respected for their knowledge of the blood bank diagnostic business and/or
individuals with previous success in laboratory instrument reagent sales. To
effect the smooth transition to a systems company, the Company conducted
extensive capital sales training of its existing sales force and added
specialized capital sales representatives to the organization. Continuing
technical support and service is also provided to customers through the
Company's Consultation Laboratory, which was significantly strengthened with the
acquisition of Gamma in October 1998. The Consultation Laboratory assists the
Company's customers in identifying certain blood group antibodies that are rare
or difficult to detect. Immucor also sponsors workshops in the U.S., Europe,
Latin America and Asia to which customers are invited to hear the latest
developments in the field.
The Company also markets its products internationally through
distributors located throughout the world. For the fiscal years ended May 31,
2000, 1999 and 1998, the Company had foreign net sales, including net domestic
export sales to unaffiliated customers, of approximately $35,147,000,
$30,241,000, $24,101,000, respectively. These sales accounted for approximately
46%, 51%, and 61% of the Company's total net sales for the respective fiscal
years. See Note 13 to the Consolidated Financial Statements. Most of the
Company's foreign sales occurred in Europe and Canada where the Company
maintains subsidiaries. Please refer to Note 14 to our audited financial
statements for revenue and profit information for each of our last three fiscal
years attributable to the different geographic areas in which we do business
Suppliers
The Company obtains raw materials from numerous outside suppliers. The
Company is not dependent on any single supplier except for certain manufacturers
of instrumentation, including Lionheart Technologies Inc. for the ABS2000, Dynex
Technologies Inc. for the DIAS Plus, and ROSYS Anthos AG for the ROSYS Plato
(see Note 12 to the Consolidated Financial Statements), and the joint
manufacturer of some of the Company's monoclonal antibody-based products. The
Company believes that its business relationship with suppliers is excellent.
Management believes that if the supply of instrumentation were interrupted,
alternate suppliers could be found, but the commencement of supply could take
one to two years.
Certain of the Company's products are derived from blood having
particular or rare combinations of antibodies or antigens, which are found in a
limited number of individuals. The Company to date has not experienced any major
difficulty in obtaining sufficient quantities of such blood for use in
manufacturing its products, but there can be no assurance that a sufficient
supply of such blood will always be available to the Company.
Regulation of Business
The manufacture and sale of blood banking products is a highly
regulated business and is subject to continuing compliance with various federal
and state statutes, rules and regulations that generally include licensing,
product testing, facilities compliance, product labeling, and consumer
disclosure (see Industry). An FDA license is issued for an indefinite period of
time, subject to the FDA's right to revoke the license. As part of its overview
responsibility, the FDA makes plant and facility inspections on an unannounced
basis. Further, a sample of each production lot of many of the Company's
products must be submitted to and approved by the FDA prior to its sale or
distribution. The Company operates under U.S. Government Establishment License
No. 886 granted by the FDA in December 1982 to the Company and U.S. Government
Establishment License No. 435, granted by the National Institutes of Health in
1971 to Gamma Biologicals, Inc.
On March 9, 2000 Dominion Biologicals Limited received a letter from
the FDA detailing deficiencies found in the most recent inspection and providing
notice that unless the company demonstrated or achieved compliance with
applicable regulations the FDA would begin action to revoke the Establishment
License. In reviewing the cost of bringing the facility to current standard and
in view that the licensed product generated less than $200,000 in annual
revenues the company, on March 20, 2000 voluntarily surrendered its U.S.
Government Establishment License No. 1151 granted by the FDA in May 1992. On
June 20, 2000 the FDA revoked said license.
On April 13, 2000 Gamma Biologicals, Inc received a letter from the FDA
detailing deficiencies found in the most recent inspection and providing notice
that unless the company demonstrated or achieved compliance with applicable
regulations the FDA would begin action to revoke the Establishment License. The
Company responded to the FDA on May 15, 2000 with a detailed plan to bring the
Houston facility to current standard. The FDA advised the Company, on July 14,
2000 that its proposed corrective action plan was satisfactory.
In addition to its facilities license, the Company holds several
product licenses to manufacture blood grouping reagents. To obtain a product
license, the Company must submit the product manufacturing methods to the FDA,
perform a clinical trial of the product, and demonstrate to the satisfaction of
the FDA that the product meets certain efficacy and safety standards. There can
be no assurance that any future product licenses will be obtained by the
Company.
To sell its products in Germany, Immucor GmbH must license its products
with the Paul-Ehrlich-Institute prior to product introduction. In addition, an
import license for products purchased outside the European Economic Community is
required. To date, Immucor GmbH has been able to obtain licenses needed to
effectively promote its products in Germany and throughout Europe.
In North America, the Company has hired and retained several employees
who are highly experienced in FDA and other regulatory authority compliance, and
the Company believes that its manufacturing and on-going quality control
procedures conform to the required federal and state rules and regulations.
Patents, Trademarks and Royalties
Since 1986, the U.S. Patent Office has issued to Immucor six patents
pertaining to its solid phase technology.
Immucor's solid phase technology, including patent rights, was acquired
from five researchers at the Community Blood Center of Greater Kansas City
("Blood Center") pursuant to an agreement entered into on March 11, 1983, and
amended in 1985 and 1987. In 1987, one of the researchers joined the Company as
Director of Research and Development to continue to develop new products using
the solid phase technology. The agreement terminates on August 26, 2006, the
date on which the first patent issued on the technology expires. The Company has
agreed to pay the Blood Center royalties equal to 4% of the net sales from
products utilizing the solid phase technology. For the fiscal years ended May
31, 2000, 1999 and 1998 the Company paid the Blood Center royalties of
approximately $409,300, $411,100, and $389,900 under this agreement. (See - Note
11)
In May 1994, Gamma applied for United States and international patents
covering a new antigen/antibody detection procedure using an affinity adherence
technology (see Products). The U.S. patent was issued in September 1997. Gamma
obtained non-exclusive rights to sell products utilizing the technology, called
ReACT, in certain European countries by entering into a license agreement with
Pasteur Sanofi Diagnostics ("Sanofi"), a company with headquarters in France.
Under the terms of the agreement the Company will pay Sanofi royalties equal to
12% of the net sales from the ReACT products in six countries in Europe. The
agreement expires on the expiration of the patent of the technology. To date the
Company has made no significant payments to Sanofi as the product is in the
initial stages of its market launch. However, the Company expects royalty
payments to increase significantly as sales of the product increase in fiscal
2001. In addition Gamma has five royalty agreements on various reagent products
with royalties being paid at rates between 2% and 5%. During fiscal 2000
approximately $90,900 was paid under these royalty agreements. See- Products-
ReACT-TM- Test System and Item 3. - Legal Proceedings, regarding a claim of
patent infringement by the Company. An additional patent application has been
submitted covering the ReACT technology.
Through its development activities involving its solid phase and ReACT
technology, the Company has acquired expertise in such technology that it
considers trade secrets. While the Company will continue to seek patent
protection for its solid phase and ReACT technology and new applications
thereof, the Company believes that its acquired expertise and know-how,
including the above mentioned trade secrets, will provide more important
protection from competition.
The Company has registered the trademark "Immucor" and several product
names, such as "ABS2000", "ImmuAdd", "Capture(R)", "Capture-P(R)", "MCP",
"Capture-R(R)", "Ready-Screen", "Ready-ID", "Capture-CMV(R)" and "I-TRAC Plus".
Dominion Biologicals, Limited has registered the trademark "NOVACLONE". Gamma
Biologicals, Inc. has registered the trademark "Gamma" and several product names
including "ReACT", "RQC", "ELU-Kit", "Quin", "EGA-Kit", "RiSE", "Tech-Chek", and
"SegmentSampler".
Through the acquisition of the BCA blood bank division of Biopool
International, Inc., the Company acquired several registered trademarks but
plans to continue production of only one of the products with the registered
trademark "RESt".
Competition
With the Company's fiscal 1999 purchases of Gamma and the assets of the
BCA blood bank division of Biopool International, Inc., the Company believes
that Ortho-Clinical Diagnostics, a Johnson & Johnson company, is now its sole
competitor with licenses to manufacture a complete line of blood banking
reagents in the United States. The Company believes that it became the North
American market leader in terms of sales during fiscal 1999.
Additional European competitors for blood bank products include
Biotest, a German company; and Diamed, a Swiss company. Both of these companies
have been established longer and may have greater financial and other resources
than the Company; Diamed has a larger global market share than the Company.
However, the Company believes that it is well positioned to compete favorably in
the business principally because of the quality and price of its products, the
sale of innovative products such as blood bank automation, the Company's
Capture(R) and ReACT products (see Products), continuing research efforts in the
area of blood bank automation (see Products Under Development), the experience
and expertise of its sales personnel (see Marketing and Distribution) and the
expertise of its technical and customer support staff.
Employees
At July 31, 2000, the Company and its subsidiaries had a total of 424
employees.
At July 31, 2000, the Company had 283 full time employees in the U.S.,
of whom 59 were in sales and marketing, 195 were in manufacturing, research and
distribution, and 29 were in administration.
At July 31, 2000, in Germany, Portugal, Italy, Spain, Canada, France,
Belgium, and the Netherlands, the Company had 141 full-time employees, of whom
66 were in sales and marketing, 47 were in research, distribution and
administration and 28 were in manufacturing.
The Company has experienced a low turnover rate among its technical and
sales staff and none of the Company's employees are represented by a union. The
Company considers its employee relations to be good.
Item 2.--Properties.
The Company leases approximately 81,000 square feet in Norcross,
Georgia, a suburb of Atlanta, as its executive offices, laboratories and
manufacturing facilities. Rent charges for the fiscal year ended May 31, 2000
were $560,500. The term of the lease is for a six-year period ending August 2005
with a right to renew for an additional five years. The Company owns a 41,000
square foot building on a three-acre tract of land in northwest Houston, which
is used primarily for manufacturing and shipping. The land and building are
subject to a first lien mortgage.
In Germany, the Company leases 1,566 square meters near Frankfurt. Rent
expense for the fiscal year ended May 31, 2000 totaled $172,100. The term of the
lease in Germany is through April 2009. In Italy rent expense for the fiscal
year ended May 31, 2000 totaled $79,700 for 850 square meters. The Company has
four separate lease agreements for the facility in Italy with terms expiring in
April 2000, October 2000, September 2002 and October 2003, respectively. In
Portugal, the Company leases 120 square meters of office space and rent expense
for the fiscal year ended May 31, 2000 was $12,500. In Spain, the Company leases
165 square meters of office space and rent expense for the fiscal year ended May
31, 2000 was $23,400. In the Netherlands, the Company leases 232 square meters
of office and warehouse space near Amsterdam. Rent expense for the fiscal year
ended May 31, 2000 totaled $21,300. In France, the Company leases 60 square
meters and the term of the lease is through October 2007. Rent expense for the
fiscal year ended May 31, 2000 totaled $36,500. In Belgium, the Company owns
land and a 575 square meter building subject to a first lien mortgage. In
Canada, the Company owns the facility. The Company believes all of its
facilities and lease terms are adequate and suitable for the Company's current
and anticipated business for the foreseeable future.
Item 3.--Legal Proceedings.
When the Company acquired Gamma in October 1998, Gamma was a party to
existing legal proceedings. On May 12, 1998, Gamma received notice that a claim
of patent infringement had been filed on that date in U.S. District Court,
Southern District of Florida, Miami Division, by Micro Typing Systems, Inc. and
Stiftung fur Diagnostiche Forschung (the Foundation). Subsequently, in February
1999 the Company received notice that a second claim was filed in the U.S.
District Court for the Northern District of Georgia, against the Company and
Gamma for patent infringement on the first patent described above and a second
patent recently granted to the Foundation. The claim alleges that the recently
introduced Gamma ReACT Test System (See - Products - ReACT-TM- Test System")
infringes U.S. patent No. 5,512,432 granted to the Foundation April 30, 1996 and
U.S. patent No. 5,863,802 granted to the foundation on January 26, 1999. The
plaintiffs seek a preliminary and permanent injunction against the continued
alleged infringement by Gamma and Immucor, an award of treble damages, with
interest and costs and reasonable attorney's fees. The Company filed, on May 9,
2000, a motion for summary judgement based on the belief that said patent was
not timely filed. Management believes that the ReACT technology does not
infringe any claims made in either of the Foundation's patents; however, an
unfavorable outcome in this action could have a material adverse effect upon the
business and the results of operations in a given reporting period. Since this
matter is in the earliest stage of proceedings and due to uncertainties involved
in litigation, management cannot predict the likelihood of a particular outcome.
Item 4.--Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5.--Market for Registrant's Common Equity and Related Stockholder Matters.
Immucor's Common Stock trades on The NASDAQ National Market System of
The NASDAQ Stock Market under the Symbol: BLUD. The following table sets forth
the quarterly high and low sale prices of the Common Stock for the fiscal
periods indicated. These prices represent inter-dealer quotations without retail
markups, markdowns or commissions and may not represent actual transactions.
High Low
---------------- ----------------
Period June 1 through July 31, 2000 $ 8.313 $ 3.625
Fiscal Year Ended May 31, 2000
First Quarter $18.875 $11.500
Second Quarter 16.875 11.000
Third Quarter 15.313 11.250
Fourth Quarter 15.000 7.500
Fiscal Year Ended May 31, 1999
First Quarter $11.188 $ 8.000
Second Quarter 10.250 7.375
Third Quarter 10.000 7.750
Fourth Quarter 14.375 7.750
As of July 31, 2000, there were 387 holders of record of the Company's
Common Stock. The last reported sales price of the Common Stock on such date was
$4.250.
Immucor has not declared any cash dividends with respect to its Common
Stock. The Company presently intends to continue to retain all earnings in
connection with its business.
Item 6.--Consolidated Selected Financial Data.
(All amounts are in thousands, except per share amounts)
[Enlarge/Download Table]
Year Ended May 31,
---------------------------------------------------------------------------------
2000 1999 (2) 1998 1997 (1) 1996
--------------- -------------- -------------- --------------- --------------
Statement of Income Data:
Net sales $76,541 $59,525 $39,790 $35,653 $30,964
Cost of sales 36,408 27,551 18,168 15,055 12,005
--------------- -------------- -------------- --------------- --------------
--------------- -------------- -------------- --------------- --------------
Gross profit 40,133 31,974 21,622 20,598 18,959
--------------- -------------- -------------- --------------- --------------
--------------- -------------- -------------- --------------- --------------
Operating expenses:
Research and development 2,003 1,294 971 907 998
Selling, general, and administrative 30,771 23,812 16,918 16,647 14,318
Merger-related expenses - 559 - - -
--------------- -------------- -------------- --------------- --------------
Total operating expenses 32,774 25,665 17,889 17,554 15,316
--------------- -------------- -------------- --------------- --------------
--------------- -------------- -------------- --------------- --------------
Income from operations 7,359 6,309 3,733 3,044 3,643
--------------- -------------- -------------- --------------- --------------
--------------- -------------- -------------- --------------- --------------
Other:
Interest income 31 313 789 848 868
Interest expense (2,911) (1,416) (616) (486) (388)
Other 231 202 (27) (264) 53
--------------- -------------- -------------- --------------- --------------
--------------- -------------- -------------- --------------- --------------
Total other (2,649) (901) 146 98 533
--------------- -------------- -------------- --------------- --------------
--------------- -------------- -------------- --------------- --------------
Income before income taxes 4,710 5,408 3,879 3,142 4,176
Income taxes 1,898 1,847 1,810 1,302 1,403
--------------- -------------- -------------- --------------- --------------
--------------- -------------- -------------- --------------- --------------
Net income $2,812 $ 3,561 $ 2,069 $ 1,840 $ 2,773
=============== ============== ============== =============== ==============
=============== ============== ============== =============== ==============
Earnings per share:
Basic $ .36 $ .47 $ .26 $ .23 $ .35
=============== ============== ============== =============== ==============
Diluted $ .33 $ .45 $ .25 $ .22 $ .32
=============== ============== ============== =============== ==============
=============== ============== ============== =============== ==============
Weighted average shares outstanding
Basic 7,713 7,646 8,095 8,066 7,867
=============== ============== ============== =============== ==============
Diluted 8,520 7,959 8,443 8,535 8,653
=============== ============== ============== =============== ==============
=============== ============== ============== =============== ==============
Balance Sheet Data:
Working capital $ 21,868 $ 21,141 $ 32,948 $ 31,868 $ 32,524
Total assets 102,775 99,734 57,544 57,726 47,207
Long-term debt, less current portion 34,815 31,548 8,912 10,666 3,909
Retained earnings 28,311 25,499 21,938 19,869 18,029
Shareholders' equity 40,919 40,053 42,433 41,221 39,345
<FN>
(1) Includes results of Dominion Biologicals Limited since December 11, 1996.
(2) Includes results of Gamma Biologicals, Inc. since October 27, 1998,
Medichim and Immunochim since March 15, 1999 and BCA, a division of
Biopool, since April 30, 1999.
</FN>
Item 7.--Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Any statements contained herein that are not historical fact are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve risks and uncertainties. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. Further risks are
detailed in the Company's filings with the Securities and Exchange Commission,
including those set forth in this Form 10-K and Quarterly Reports on Form 10-Q.
(a) Liquidity and Capital Resources
Net cash provided by operating activities totaled $6,024,100,
$5,985,100, and $3,783,000 for the fiscal years 2000, 1999 and 1998,
respectively. As of May 31, 2000, the Company's cash and cash equivalents
balance totaled $3.5 million.
During fiscal 2000, the Company experienced an increase in trade
accounts receivable of $152,000 over the previous year principally due to higher
sales levels in the U.S. and Europe. Accounts receivable from a former officer
and director decreased $141,000 primarily as a result of this former director
repaying loans payable to the Company. See Note 6 to the Consolidated Financial
Statements and Item 13 - Certain Relationships and Related Transactions.
Since the close of the fiscal year, isolated performance issues have
been experienced with certain ABS2000 installations. The Company has issued a
safety notification requesting customers to confirm ABS2000 results until the
cause of the difficulty is identified and corrected. The Company believes it has
identified the factors which caused the performance issues and is in the process
of submitting this information to the FDA. If the FDA concurs, the Company will
suspend the safety notification and expects that customers may again use the
ABS2000 without separate verification. The Company cannot predict how long it
will take to resolve these issues with the FDA. These performance issues may
result in delays in customers accepting instruments, and may affect sales of
reagents used in the instruments, and both of these factors may adversely impact
sales and earnings. In addition, the Company may receive requests for refunds on
machines already placed in service or requests for financial concessions
attributable to inconveniences associated with these performance issues,
although it has not yet received any such requests. A private label leasing
company that finances our customers' purchases of ABS2000 machines has advised
the Company that it is not willing to provide financing for additional sales of
this machine until the performance issues related to the ABS2000 are resolved to
the satisfaction of the FDA.
In fiscal 1998, the Company authorized a program to repurchase up to
10% of its common stock in the open market. During fiscal 2000 and 1999, the
Company repurchased 415,500 and 822,800 shares of its common stock for
approximately $3.5 and $7.4 million, respectively. The Company intends to
repurchase additional shares as working capital permits.
On September 1, 1998 the Company acquired the Canadian distribution
rights for the Company's complete line of reagents from its Canadian distributor
for a total transaction value of approximately $2 million.
On October 27, 1998, the Company acquired Gamma Biologicals, Inc. for a
cash tender offer of $5.40 per share and certain transaction costs for a total
value of $27,859,500. In addition, as of May 31, 2000, the Company has made
severance payments related to the acquisition in the amount of $2,473,000.
On March 15, 1999, the Company acquired the distribution rights to
market its products in France and Belgium through the purchase of its former
distributors, Immunochim s.a.r.l. (France) and Medichim S.A. (Belgium), for a
combination of cash and Immucor stock options for a total transaction value of
approximately $1.8 million. The purchase price also contains an incentive
earnout (see Note 3 to the Consolidated Financial Statements).
On April 30, 1999 the Company purchased certain assets of the BCA
blood bank division of Biopool International, Inc. for approximately $4.5
million.
In connection with the acquisition of Gamma in October 1998, and the
subsequent acquisitions of Medichim S.A., Immunochim s.a.r.l., and the BCA
division assets of Biopool International, Inc., the Company obtained an
acquisition term note of $20,000,000 maturing in December 2005, an additional
term loan of $4,500,000 maturing in March 2004, and a line of credit of
$2,000,000 maturing in October 2001. On November 4, 1998, the Company entered
into an interest rate swap agreement with an effective date of December 1, 1998,
for a notional amount of $15,000,000, also maturing December 2005. This
transaction effectively converts the acquisition term loan's floating rate to a
fixed rate of 5.33% on the principal balance of $15,000,000. On April 30, 1999
the line of credit for $2,000,000 was canceled and a new line of credit was
executed for $5,000,000. These borrowings, other than the interest rate swap
notional amount, bear interest rates at LIBOR plus additional percentage points
based on certain calculations. The interest rates have ranged from 6% to 8% on
the Company borrowings. At May 31, 2000, the outstanding balance of the
acquisition term note was $18,125,000, the additional term loan was $4,250,000
and the line of credit was $5,000,000. The fair value of the interest rate swap
agreement of $768,000 at May 31, 2000 is not recognized in the financial
statements.
In connection with the acquisition of Dominion Biologicals Limited in
December 1996, the Company entered into a $4,566,200 long-term revolving line of
credit facility with the Company's primary U.S. bank maturing December 2001 and
bearing interest at LIBOR plus .4375%. At the same time, the Company entered
into an interest rate swap agreement with a notional amount of $2,374,600 also
maturing December 2001. This transaction effectively converts the revolving line
of credit's floating rate to a fixed rate on the principal balance of
$2,374,600. The interest rate on the remaining principal of $678,400 is adjusted
every 90 days. The balance of the acquisition of Dominion was financed from the
issuance to Dominion's former shareholders of subordinated promissory notes
totaling $3,894,800 due December 1999 and from the issuance of warrants (see
Note 4 to the Consolidated Financial Statements). On December 17, 1999 the
Company entered into an additional term loan of $3,884,800 ($5,741,000 CDN$) to
retire the Canadian subordinated promissory notes. Principal and interest
payments are due quarterly commencing March 1, 2000 and continuing through
September 1, 2002. During fiscal 2000 the Company repaid $69,000 under the
long-term revolving line of credit facility leaving a remaining principal
balance at May 31, 2000 of $3,053,500.
In March 1995, the Company refinanced its remaining Deutsche Mark debt
with the proceeds of a note payable, and entered into an interest rate swap
agreement with a U.S. bank (see Note 4 to the Consolidated Financial
Statements). The note, which initially matured September 1998, has been extended
to September 2000 while the interest rate swap agreement expired September 1998.
At May 31, 2000, the outstanding balance of the note payable was $719,200.
During fiscal 2000 and 1999, the Company repaid $0 and $603,500, respectively.
The Company's Italian and Spanish subsidiaries had approximately
$1,683,000 in borrowings under lines of credit as of May 31, 2000 with an
additional $916,380 available.
On August 11, 1999, the Company signed an amendment to its lease for
the expansion of the facilities in the U.S. that provided an additional 13,500
square feet of office and warehouse space. In fiscal 2000, the Company spent
approximately $250,000 related to the expansion. During fiscal 1999, the Company
spent approximately $750,000 to complete the expansion into an additional 6,000
square feet of laboratory, training facilities and office space and renovate its
Norcross manufacturing facility. Also, during fiscal 1999 and 2000 the Company
entered into capital leases related to the purchase and implementation of an
enterprise-wide software system with a cost of $1,324,000 (see Note 5 to the
Consolidated Financial Statements).
On April 20, 2000 the Company entered into an additional term loan of
$5,000,000 to finance the repurchase of common stock. Principal and interest
payments are due quarterly commencing September 1, 2001 and continuing through
June 1, 2006. The principal balance as of May 31, 2000 was $3,200,000.
Management believes that the Company's current cash and cash
equivalents balance, internally generated funds, and amounts available under
lines of credit should be more than sufficient to support operations, planned
product introduction and continued improvement and development of products
during the next 12 months. Management also believes additional credit lines
would be available should the need arise for capital improvements, acquisitions
or other corporate purposes.
(b) Results of Operations
Comparison of Years Ended May 31, 2000 and May 31, 1999
Net Sales
Net sales realized a 29% increase from $59,525,000 in fiscal 1999 to
$76,541,000 in fiscal 2000. Net sales from the operations of companies acquired
during fiscal 1999 accounted for $10,091,000, or 59%, of the sales increase
($8,041,000 from Gamma, and $2,051,000 from Medichim, Immunochim, and BCA). (See
Liquidity and Capital Resources). Gamma product sales, on a proforma basis,
realized a 9% increase, or $1,300,000. Blood bank automation products and
reagent products used with automation had a 61% increase of approximately
$4,000,000 reinforcing the Company's strategy to differentiate itself in the
marketplace via instrumentation. The remaining increase in sales of
approximately $13,000,000 in traditional reagents represents a 25% increase over
fiscal 1999. The Company's European operations increased sales by $2,926,000, of
which $1,581,000 was a result of the Company's acquisitions. Revenues of the
Company's European affiliates were adversely affected by the strength of the US
Dollar versus the Euro which caused a decrease in reported sales of
approximately $2,400,000.
Gross profit
As a percent of sales revenue, the gross profit margin decreased from
54% to 52%. The decrease was related to the $6,400,000 increase in sales of
instruments and the $10,091,000 sales increase related to fiscal 1999
acquisitions. Such sales carry lower gross margins than sales of other
proprietary products marketed by the Company. Additionally, the strength of the
US Dollar versus the Euro reduced European Gross margins by approximately
$1,102,400.
Operating expenses
When compared to the prior year, research and development costs
increased $709,000. This increase is due to development work the company has
undertaken with Stratec Biomedical Systems AG to develop a fully automated
instrument designed to allow the Company to effectively compete in the European
market.
Selling and marketing expenses for the year increased $1,779,000 as
compared to last fiscal year. Part of the increase was due to fiscal 1999
acquisitions, with Medichim and Immunochim accounting for $534,000. The
remainder of the increase is primarily due to higher payroll expense for
additional personnel required for the Company's instrumentation strategy, the
reorganization of the marketing organization of the German affiliate and
increased expenses for the expansion of the Company's Spanish operations.
Distribution expenses increased $2,318,000 when compared to last fiscal
year of which Gamma accounts for $1,047,000, and Medichim and Immunochim account
for $213,000. The remaining increase relates to increased shipping activity.
General and administrative expenses increased $2,073,000 over the
previous year, with additional personnel expenses to support the growth of the
Company through acquisitions and implementation of the new enterprise wide
resource planning (ERP) system to give management more timely and extensive
information on sales and operations. The Company also experienced increases in
operating costs such as rent, utilities and depreciation in connection with the
Company's expansion at its U.S. headquarters.
Amortization Expense
Amortization expense increased $788,000 due to the Company's
acquisition of Gamma, BCA, Medichim, Immunochim, and the Canadian distribution
rights during fiscal 1999.
Interest Income
Interest income decreased $282,000 for the year due to lower cash
balances as compared to last year caused by the fiscal 1999 acquisitions of
Gamma, Medichim and Immunochim, and BCA which were partially funded with the
Company's cash. (See Liquidity and Capital Resources).
Interest Expense
Interest expense increased from $1,416,000 in fiscal 1999 to $2,911,000
in fiscal 2000 as a result of financing the acquisitions of Gamma, Medichim and
Immunochim, and BCA. (See Liquidity and Capital Resources).
Other income(expense)
The increase in other income of $29,000 as compared to last year was
caused by reduced foreign currency transaction losses recorded in Europe.
Income Taxes
As a percent of pretax income, the provision for income taxes increased
in fiscal 2000 from 34% to 40%. The increase is the result of minimum tax
charges in Europe. These minimums became relevant during the year as the
strength of the US Dollar compared to the Euro caused local operating profits to
decline.
Comparison of Years Ended May 31, 1999 and May 31, 1998
Net Sales
Net sales increased from $39,790,000 in fiscal 1998 to $59,525,000 in
fiscal 1999. Net sales from the operations of companies acquired during the year
accounted for $13,267,000 of the sales increase (Gamma acquired October 1998 of
$11,425,000, Medichim and Immunochim acquired March 15, 1999 of $1,359,000, and
BCA, a division of Biopool, acquired in April 1999 of $483,000). (See Liquidity
and Capital Resources). The remaining sales increase was caused by higher sales
in the U.S. of the Company's blood bank automation products and reagent products
used with automation. The Company's European operations increased sal