UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended December 31, 2003.
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: 0-23357
BIOANALYTICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| INDIANA | 35-1345024 | |
|
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
|
2701 Kent Avenue West Lafayette, IN |
47906 | |
| (Address of principal executive offices) | (Zip Code) | |
| (765) 463-4527 | ||
|
(Registrant's telephone number, including area code) |
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 check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of January 31, 2004, 4,869,502 Common Shares of the registrant were outstanding.
– 1 –
PAGE
NUMBER
| PART I. | FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited): | ||
| Item 1. | Condensed Consolidated Balance Sheets as of | ||
| December 31, 2003 and September 30, 2003 | 3 | ||
| Condensed Consolidated Statements of Operations for the | |||
| Three Months Ended December 31, 2003 and 2002 | 4 | ||
| Condensed Consolidated Statements of Cash Flows for the | |||
| Three Months Ended December 31, 2003 and 2002 | 5 | ||
| Notes to Condensed Consolidated Financial Statements | 6 | ||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
10 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
14 | |
| Item 4. | Controls and Procedures | 14 | |
| PART II. | OTHER INFORMATION | ||
| Item 6. | Exhibits and Reports on Form 8-K | 15 | |
| SIGNATURES | 16 |
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CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| (Unaudited) December 31, 2003 |
September 30, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 824 | 1,378 | |||||
| Accounts receivable | ||||||||
| Trade | 5,060 | 3,978 | ||||||
| Grants | 13 | 13 | ||||||
| Unbilled revenues and other | 717 | 954 | ||||||
| Inventories | 2,203 | 2,055 | ||||||
| Deferred income taxes | 465 | 465 | ||||||
| Refundable income taxes | 137 | 84 | ||||||
| Prepaid expenses | 567 | 397 | ||||||
| Total current assets | 9,986 | 9,324 | ||||||
| Property and equipment, net | 32,096 | 31,171 | ||||||
| Goodwill | 1,502 | 984 | ||||||
| Intangible assets, net | 2,715 | 2,778 | ||||||
| Debt issue costs | 409 | 428 | ||||||
| Other assets | 353 | 300 | ||||||
| Total assets | $ | 47,061 | $ | 44,985 | ||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,046 | $ | 3,073 | ||||
| Accrued expenses | 1,371 | 1,245 | ||||||
| Customer advances | 1,926 | 1,658 | ||||||
| Revolving line of credit | 3,286 | 2,388 | ||||||
| Current portion of capital lease obligation | 159 | 123 | ||||||
| Current portion of long-term debt | 777 | 1,132 | ||||||
| Total current liabilities | 10,565 | 9,619 | ||||||
| Capital lease obligation, less current portion | 122 | — | ||||||
| Long-term debt, less current portion | 6,957 | 6,949 | ||||||
| Construction line of credit | 2,250 | 1,676 | ||||||
| Subordinated debt, long-term | 5,188 | 5,188 | ||||||
| Deferred income taxes | 2,252 | 1,827 | ||||||
| Shareholders equity: | ||||||||
| Preferred Shares: | ||||||||
| Authorized shares - 1,000,000 | ||||||||
| Issued and outstanding shares - none | — | — | ||||||
| Common Shares: | ||||||||
| Authorized shares - 19,000,000 | ||||||||
| Issued and outstanding shares - 4,869,502 at December 31, 2003 | ||||||||
| and 4,831,460 at September 30, 2003 | 1,177 | 1,168 | ||||||
| Additional paid-in capital | 11,263 | 11,122 | ||||||
| Retained earnings | 7,368 | 7,498 | ||||||
| Accumulated other comprehensive loss | (81 | ) | (62 | ) | ||||
| Total shareholders' equity | 19,727 | 19,726 | ||||||
| Total liabilities and shareholders' equity | $ | 47,061 | $ | 44,985 | ||||
See accompanying notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
| Three Months Ended December 31, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 | ||||||||||
| Service revenue | $ | 5,978 | $ | 4,532 | |||||||
| Product revenue | 2,799 | 2,442 | |||||||||
| Total revenue | 8,777 | 6,974 | |||||||||
| Cost of service revenue | 5,059 | 3,255 | |||||||||
| Cost of product revenue | 1,083 | 1,034 | |||||||||
| Total cost of revenue | 6,142 | 4,289 | |||||||||
| Gross profit | 2,635 | 2,685 | |||||||||
| Operating expenses: | |||||||||||
| Selling | 626 | 758 | |||||||||
| Research and development | 246 | 368 | |||||||||
| General and administrative | 1,847 | 1,090 | |||||||||
| Total operating expenses | 2,719 | 2,216 | |||||||||
| Operating income (loss) | (84 | ) | 469 | ||||||||
| Interest income | 1 | 1 | |||||||||
| Interest expense | (207 | ) | (110 | ) | |||||||
| Other income | 16 | 29 | |||||||||
| Gain on sale of property and equipment | — | 37 | |||||||||
| Income (loss) before income taxes | (274 | ) | 426 | ||||||||
| Income tax expense (benefit) | (144 | ) | 151 | ||||||||
| Net income (loss) | $ | (130 | ) | $ | 275 | ||||||
| Net income (loss) per share | |||||||||||
| Basic | $ | (0.03 | ) | $ | 0.06 | ||||||
| Diluted | $ | (0.03 | ) | $ | 0.06 | ||||||
| Weighted average common shares outstanding | |||||||||||
| Basic | 4,831,874 | 4,579,034 | |||||||||
| Diluted | 4,831,874 | 4,636,591 | |||||||||
See accompanying notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended December 31, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 | ||||||||||
| Operating activities | |||||||||||
| Net income (loss) | $ | (130 | ) | $ | 275 | ||||||
| Adjustments to reconcile net income (loss) to net | |||||||||||
| cash used by operating activities: | |||||||||||
| Depreciation and amortization | 829 | 569 | |||||||||
| Gain on sale of property and equipment | — | (37 | ) | ||||||||
| Deferred income taxes | (93 | ) | 51 | ||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (845 | ) | (551 | ) | |||||||
| Inventories | (148 | ) | 43 | ||||||||
| Prepaid expenses and other assets | (288 | ) | (119 | ) | |||||||
| Accounts payable | (27 | ) | (418 | ) | |||||||
| Income taxes payable | — | (45 | ) | ||||||||
| Accrued expenses | 126 | (161 | ) | ||||||||
| Customer advances | 268 | (85 | ) | ||||||||
| Net cash used by operating activities | (308 | ) | (478 | ) | |||||||
| Investing activities | |||||||||||
| Capital expenditures | (1,351 | ) | (2,571 | ) | |||||||
| Proceeds from sale of property and equipment | — | 859 | |||||||||
| Payments for purchase of net assets from LC Resources, Inc. net of cash | — | (163 | ) | ||||||||
| Loans to PharmaKinetics Laboratories, Inc. | — | (375 | ) | ||||||||
| Deferred acquisition costs for PharmaKinetics Laboratories, Inc. | — | (85 | ) | ||||||||
| Net cash used by investing activities | (1,351 | ) | (2,335 | ) | |||||||
| Financing activities | |||||||||||
| Borrowings on line of credit | 3,611 | 3,826 | |||||||||
| Payments on line of credit | (2,713 | ) | (3,635 | ) | |||||||
| Borrowings on construction line of credit | 574 | 2,654 | |||||||||
| Payments on capital lease obligations | (69 | ) | (928 | ) | |||||||
| Borrowings of long-term debt, net of issuance costs | — | 5,110 | |||||||||
| Payments of long-term debt | (196 | ) | (3,448 | ) | |||||||
| Net proceeds from the exercise of stock options | — | 19 | |||||||||
| Net cash provided by financing activities | 1,207 | 3,598 | |||||||||
| Effects of exchange rate changes | (102 | ) | 1 | ||||||||
| Net increase (decrease) in cash and cash equivalents | (554 | ) | 786 | ||||||||
| Cash and cash equivalents at beginning of period | 1,378 | 826 | |||||||||
| Cash and cash equivalents at end of period | $ | 824 | $ | 1,612 | |||||||
See accompanying notes to condensed consolidated financial statements.
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BIOANALYTICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of the Business and Basis of Presentation
Bioanalytical Systems, Inc. and its subsidiaries (the “Company” or “BASi”) engage in laboratory services and consulting related to pharmaceutical development. The Company also manufactures scientific instruments for medical research. The Company also sells its equipment and software for use in industrial, governmental and academic laboratories. The Company’s customers are located throughout the world.
The accompanying interim condensed consolidated financial statements are unaudited, and have been prepared by BASi pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete consolidated financial statements, and therefore these consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, and the notes thereto, for the year ended September 30, 2003. In the opinion of management, the condensed consolidated financial statements for the three months ended December 31, 2003 and 2002 include all adjustments which are necessary for a fair presentation of the results of the interim periods. The results of operations for the three months ended December 31, 2003 are not necessarily indicative of the results for the year ending September 30, 2004.
At June 30, 2003, BASi had four stock-based employee compensation plans, which are described more fully in Note 9 in the Notes to the Consolidated Financial Statements of BASi included on BASi’s Form 10-K for the year ended September 30, 2003. BASi accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. No stock-based employee compensation cost is reflected in the net income of BASi, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and earnings (loss) per share if BASi, for the three months ended December 31, 2003, had applied the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation (in thousand except per share data).
| 2003 | 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| Net income (loss) as reported | $ | (130 | ) | $ | 275 | |||
| Deduct: Total stock-based employee | ||||||||
| compensation expense determined under the | ||||||||
| fair value based method for all awards, | ||||||||
| net of related tax effects | (6 | ) | (5 | ) | ||||
| Pro forma net income (loss) | $ | (136 | ) | $ | 270 | |||
| Earnings (loss) per share: | ||||||||
| Basic and diluted - as reported | $ | (0.0 | 3) | $ | 0.06 | |||
| Basic and diluted - pro forma | $ | (0.0 | 3) | $ | 0.06 | |||
Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common and common equivalent shares outstanding. Common equivalent shares include the dilutive effect of employee and director options to purchase common shares, convertible preferred shares, and convertible subordinated debt, which are assumed to be converted. The convertible subordinated debt was not dilutive.
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The following table reconciles both the numerator and the denominator of the basic earnings per share computation to the numerator and the denominator of the diluted earnings per share from continuing operations computation for the three months ended December 31:
| 2003 | 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| Shares: | ||||||||
| Basic shares | 4,831,874 | 4,579,034 | ||||||
| Effect of dilutive securities | ||||||||
| Options | — | 57,557 | ||||||
| Convertible subordinated debt | — | — | ||||||
| Diluted shares | 4,831,874 | 4,636,591 | ||||||
| Basic and diluted net income (loss) | $ | (130,000 | ) | $ | 275,000 | |||
| Basic earnings (loss) per share | $ | (0.03 | ) | $ | 0.06 | |||
| Diluted earnings( loss) per share | $ | (0.03 | ) | $ | 0.06 | |||
In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (“ARB”) No. 51.” FIN 46 requires a variable interest entity (“VIE”) to be consolidated by the primary beneficiary of the entity under certain circumstances. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after December 15, 2003. Based on its review of its interests in other entities, the adoption of FIN 46 did not have an impact on the Company’s financial position or results of operations.
On December 13, 2002 the Company acquired LC Resources, Inc. (“LCR”), now BASi Northwest Laboratories, Inc. The Company purchased all of the outstanding shares of LCR for $1,998,847. The purchase price consisted of cash payments of $198,847 and issuance of $1.8 million in 10% subordinated notes payable. The Company engaged an independent valuation firm to determine the fair value of identifiable intangible assets required to be accounted for apart from goodwill. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
| Current assets | $ | 639 | |||
| Property and equipment | 347 | ||||
| Intangible assets | 1,251 | ||||
| Goodwill | 561 | ||||
| Total assets acquired | 2,798 | ||||
| Liabilities assumed | (799 | ) | |||
| Net assets acquired | $ | 1,999 | |||
As of December 31, 2003 the Company recorded a deferred tax liability in the amount of $517,721with a corresponding adjustment to goodwill. The intangible assets arising from this transaction include $180,000 assigned to methodologies, $359,000 assigned to customer relationships and $712,000 assigned to the regulated facility/FDA compliant laboratory site, an indefinite lived asset. The Company estimated the economic useful lives of the acquired methodologies and customer relationships to be 5 years, amortized using the straight-line method, and determined that the acquired regulated facility/FDA compliant laboratory site is an indefinite-lived intangible asset not subject to amortization.
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On May 26, 2003, PharmaKinetics Laboratories, Inc. (“PKLB”) became a majority owned subsidiary through the conversion of $791,000 in convertible notes receivable to 4,992,300 shares of PKLB common stock, representing a 67% interest. On June 30, 2003, the Company completed its acquisition of PKLB through the exchange of approximately 228,857 shares of the Company’s common stock valued at $1,178,614 for all of the outstanding common stock and Class B preferred stock of PKLB, and the issuance of $4,000,000 of 6% convertible notes payable due 2008 for all of PKLB’s Class A redeemable preferred stock. These notes are convertible into approximately 250,000 shares of the Company’s common stock.
The Company paid cash aggregating $1,505,886 representing acquisition costs and cash advances made to PKLB from June 2002 through May 2003. PKLB was a publicly traded company based in Baltimore, Maryland, and provides clinical research and development services to the pharmaceutical and biotechnology industries in the development of prescription and non-prescription drug products. PKLB has been renamed BASi Maryland, Inc.
This acquisition was accounted for using the purchase method of accounting as required by Statement of Financial Accounting Standards No. 141, “Business Combinations.” The purchase price has been allocated based on the estimated fair values of the assets and liabilities acquired. The purchase price has been preliminarily allocated as follows and is subject to change (in thousands of dollars):
| Current assets | $ | 626 | |||
| Property and equipment | 6,321 | ||||
| Intangible assets | 1,643 | ||||
| Goodwill | 59 | ||||
| Total assets acquired | 8,647 | ||||
| Liabilities assumed | |||||