QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the quarterly period ended December 31, 2004
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 2004
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
NO
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES
NO
As of February 10, 2005, 4,869,502 Common Shares of the registrant were outstanding.
1
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PAGE NUMBER |
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| PART I | FINANCIAL INFORMATION | |
| Item 1 |
Condensed Consolidated Financial Statements (Unaudited): |
|
|
Condensed Consolidated Balance Sheets as of December 31, 2004 and September 30, 2004 |
3 | |
|
Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2004 and 2003 |
4 | |
|
Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2004 and 2003 |
5 | |
| Notes to Condensed Consolidated Financial Statements | 6 | |
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 |
| 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 |
2
Part I. Financial Statements
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| (Unaudited) December 31, 2004 |
September 30, 2004 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,394 | $ | 773 | ||||
| Accounts receivable | ||||||||
| Trade | 6,721 | 5,352 | ||||||
| Unbilled revenues and other | 1,628 | 1,086 | ||||||
| Inventories | 1,720 | 1,570 | ||||||
| Deferred income taxes | 469 | 469 | ||||||
| Refundable income taxes | 368 | 603 | ||||||
| Prepaid expenses | 923 | 503 | ||||||
| Total current assets | 13,223 | 10,356 | ||||||
| Property and equipment, net | 31,777 | 31,901 | ||||||
| Goodwill | 1,445 | 1,445 | ||||||
| Intangible assets, net | 2,407 | 2,491 | ||||||
| Debt issue costs | 322 | 340 | ||||||
| Other assets | 280 | 262 | ||||||
| Total assets | $ | 49,454 | $ | 46,795 | ||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,106 | $ | 2,021 | ||||
| Accrued expenses | 2,569 | 2,332 | ||||||
| Customer advances | 4,003 | 2,817 | ||||||
| Revolving line of credit | 4,782 | 2,826 | ||||||
| Current portion of capital lease obligation | 76 | 73 | ||||||
| Current portion of long-term debt | 786 | 783 | ||||||
| Total current liabilities | 13,322 | 10,852 | ||||||
| Capital lease obligation, less current portion | 60 | 80 | ||||||
| Long-term debt, less current portion | 8,810 | 8,893 | ||||||
| Subordinated debt, long-term | 4,829 | 5,188 | ||||||
| Deferred income taxes | 2,362 | 2,362 | ||||||
| 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, 2004 and at September 30, 2004 | 1,177 | 1,177 | ||||||
| Additional paid-in capital | 11,263 | 11,263 | ||||||
| Retained earnings | 7,699 | 7,295 | ||||||
| Accumulated other comprehensive loss | (68 | ) | (315 | ) | ||||
| Total shareholders' equity | 20,071 | 19,420 | ||||||
| Total liabilities and shareholders' equity | $ | 49,454 | $ | 46,795 | ||||
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
| Three Months Ended December 31, |
||||||||
| 2004 |
2003 | |||||||
| Service revenue | $ | 7,290 | $ | 5,978 | ||||
| Product revenue | 2,404 | 2,799 | ||||||
| Total revenue | 9,694 | 8,777 | ||||||
| Cost of service revenue | 5,215 | 5,059 | ||||||
| Cost of product revenue | 852 | 1,083 | ||||||
| Total cost of revenue | 6,067 | 6,142 | ||||||
| Gross profit | 3,627 | 2,635 | ||||||
| Operating expenses: | ||||||||
| Selling | 576 | 626 | ||||||
| Research and development | 219 | 246 | ||||||
| General and administrative | 1,927 | 1,847 | ||||||
| Total operating expenses | 2,722 | 2,719 | ||||||
| Operating income (loss) | 905 | (84 | ) | |||||
| Interest income | 3 | 1 | ||||||
| Interest expense | (275 | ) | (207 | ) | ||||
| Other income | 6 | 16 | ||||||
| Income (loss) before income taxes | 639 | (274 | ) | |||||
| Income tax expense (benefit) | 235 | (144 | ) | |||||
| Net income (loss) | $ | 404 | $ | (130 | ) | |||
| Net income (loss) per share | ||||||||
| Basic | $ | 0.08 | $ | (0.03 | ) | |||
| Diluted | $ | 0.08 | $ | (0.03 | ) | |||
| Weighted average common shares outstanding | ||||||||
| Basic | 4,869,502 | 4,831,874 | ||||||
| Diluted | 4,931,724 | 4,831,874 | ||||||
See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
Three Months Ended December 31, | ||||||||
| 2004 |
2003 | |||||||
| Operating activities | ||||||||
| Net income (loss) | $ | 404 | $ | (130 | ) | |||
| Adjustments to reconcile net income (loss) to net | ||||||||
| cash used by operating activities: | ||||||||
| Depreciation and amortization | 758 | 829 | ||||||
| Deferred and refundable income taxes | 235 | (93 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,911 | ) | (845 | ) | ||||
| Inventories | (150 | ) | (148 | ) | ||||
| Prepaid expenses and other assets | (438 | ) | (288 | ) | ||||
| Accounts payable | (915 | ) | (27 | ) | ||||
| Accrued expenses | 237 | 126 | ||||||
| Customer advances | 1,186 | 268 | ||||||
| Net cash used by operating activities | (594 | ) | (308 | ) | ||||
| Investing activities | ||||||||
| Capital expenditures | (532 | ) | (1,351 | ) | ||||
| Net cash used by investing activities | (532 | ) | (1,351 | ) | ||||
| Financing activities | ||||||||
| Borrowings on line of credit | 3,052 | 3,611 | ||||||
| Payments on line of credit | (1,096 | ) | (2,713 | ) | ||||
| Borrowings on construction line of credit | --- | 574 | ||||||
| Payments on capital lease obligations | (17 | ) | (69 | ) | ||||
| Payments of long-term debt | (439 | ) | (196 | ) | ||||
| Net proceeds from the exercise of stock options | --- | --- | ||||||
| Net cash provided by financing activities | 1,500 | 1,207 | ||||||
| Effects of exchange rate changes | 247 | (102 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | 621 | (554 | ) | |||||
| Cash and cash equivalents at beginning of period | 773 | 1,378 | ||||||
| Cash and cash equivalents at end of period | $ | 1,394 | $ | 824 | ||||
See accompanying notes to condensed consolidated financial statements.
5
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 (“We,” the “Company” or “BASi”) engage in laboratory services and other services related to pharmaceutical development. We also manufacture scientific instruments for medical research, which we sell with related software for use in industrial, governmental and academic laboratories. Our customers are located throughout the world.
We have prepared the accompanying unaudited interim condensed consolidated financial statements 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 accounting principles generally accepted in the United States (“GAAP”), and therefore should be read in conjunction with our audited consolidated financial statements, and the notes thereto, included in our Form 10-K for the year ended September 30, 2004. In the opinion of management, the condensed consolidated financial statements for the three months ended December 31, 2004 and 2003 include all adjustments which are necessary for a fair presentation of the results of the interim periods and of our financial position at December 31, 2004. The results of operations for the three months ended December 31, 2004 are not necessarily indicative of the results to be expected for the year ending September 30, 2005.
All amounts in the condensed consolidated financial statements and the notes thereto are presented in thousands, except for share and per share data or where otherwise noted. Certain amounts in the September 30, 2004 Balance Sheet have been reclassified to conform to the presentation at December 31, 2004.
2. Stock Based Compensation
At December 31, 2004, we had stock-based employee and outside director compensation plans, which are described more fully in Note 9 in the Notes to the Consolidated Financial Statements in our Form 10-K for the year ended September 30, 2004. Because all options granted under these plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant, we do not recognize any stock-based employee compensation cost in our financial statements. The following table illustrates the effect on net income (loss) and earnings (loss) per share had we applied the alternative fair value treatment of recognizing stock-based employee compensation.
| 2004 |
2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| Net income (loss) as reported | $ | 404 | $ | (130 | ) | |||
| Deduct: Total stock-based employee | ||||||||
| compensation expense determined under the | ||||||||
| fair value based method for all awards, | ||||||||
| net of related tax effects | (43 | ) | (6 | ) | ||||
| Pro forma net income (loss) | $ | 361 | $ | (136 | ) | |||
| Earnings (loss) per share: | ||||||||
| Basic and diluted - as reported | $ | 0.08 | $ | (0.03 | ) | |||
| Basic and diluted - pro forma | $ | 0.07 | $ | (0.03 | ) | |||
3. Earnings per Share
We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common and potential common shares outstanding. Potential common shares include the dilutive effect of shares issuable upon exercise of options to purchase common shares. Shares issuable upon conversion of convertible subordinated debt have not been included as they were not dilutive.
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3. Earnings per Share (continued)
The following table reconciles our computation of basic earnings per share to diluted earnings per share:
|
Three Months Ended December 31, |
||||||||
| 2004 |
2003 | |||||||
| Shares: | ||||||||
| Basic shares | 4,869,502 | 4,831,874 | ||||||
| Effect of dilutive securities | ||||||||
| Options | 62,222 | --- | ||||||
| Convertible subordinated debt | --- | --- | ||||||
| Diluted shares | 4,931,724 | 4,831,874 | ||||||
| Basic and diluted net income (loss) | $ | 404 | $ | (130 | ) | |||
| Basic earnings (loss) per share | $ | 0.08 | $ | (0.03 | ) | |||
| Diluted earnings (loss) per share | $ | 0.08 | $ | (0.03 | ) | |||
4. New Accounting Pronouncements
In November, 2004 the FASB issued Statement of Financial Accounting Standards (“SFAS”) Number 151 dealing with inventory costs. The statement clarifies what costs can be included in inventory, requiring that absorption factors be based on normal capacities of manufacturing facilities and excess capacity be expensed as incurred. Our current costing methodology substantially conforms with the new standard; therefore, we do not expect a material change in our costing methods from adoption of this statement.
In December, SFAS No. 123 (Revised) was issued dealing with Share-Based Payments. In general, this statement requires that companies compute the fair value of options and other stock-based employee incentives, and charge this value to operations over the period earned, generally the vesting period. The only instruments we use that are governed by this statement are stock options for Directors and employees. The impact on reported results of adoption of this statement, required for interim and annual periods after June 15, 2005, is presented in footnote 2 above. The impact on operations in future periods will be determined by amortizing the remaining value of our currently outstanding options, plus the value imputed to future option grants using the above described methods. There is no impact on cash flow.
5. Inventories
Inventories consisted of the following:
| December 31, 2004 |
September 30, 2004 | |||||||
| Raw materials | $ | 1,090 | $ | 1,392 | ||||
| Work in progress | 257 | 196 | ||||||
| Finished goods | 520 | 129 | ||||||
| 1,867 | 1,717 | |||||||
| Less LIFO reserve | (147 | ) | (147 | ) | ||||
| $ | 1,720 | $ | 1,570 | |||||
6. Subsequent Event
On January 5, 2005 we sold the building which houses our clinical research unit in Baltimore for a $6,500 cash selling price, with a three-year leaseback of approximately 85% of the space in the building for $800 annually, plus operating expenses, which approximates market rental. We will account for the transaction as a sale/leaseback transaction. The net cash received in the transaction, after expenses, approximated the carrying value of the building. The net proceeds of the sale were used to pay off our revolving credit facility and for working capital.
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7. Segment Information
We operate in two principal segments — research Services and research Products. Our Services segment provides research and development support on a contract basis directly to pharmaceutical companies. Our Products segment provides liquid chromatography, electrochemical and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions. Our accounting policies in these segments are the same as those described in the summary of significant accounting policies found in Note 1 to Consolidated Financial Statements in our annual report on Form 10-K for the year ended September 30, 2004.
The following table presents operating results by segment:
| Three Months Ended December 31, |
||||||||
| 2004 |
2003 | |||||||
| Operating income (loss): | ||||||||
| Services | $ | 611 | $ | (710 | ) | |||
| Products | 294 | 626 | ||||||
| Total operating income (loss) | 905 | (84 | ) | |||||
| Corporate expenses | (266 | ) | (190 | ) | ||||
| Income (loss) before income taxes | $ | 639 | $ | (274 | ) | |||
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q may contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and/or Section 21E of the Securities Exchange Act of 1934, as amended. Those statements may include, but are not limited to, discussions regarding BASi’s intent, belief or current expectations with respect to (i) BASi’s strategic plans; (ii) BASi’s future profitability; (iii) BASi’s capital requirements; (iv) industry trends affecting the Company’s financial condition or results of operations; (v) the Company’s sales or marketing plans; or (vi) BASi’s growth strategy. Investors in BASi’s Common Shares are cautioned that reliance on any forward-looking statement involves risks and uncertainties, including the risk factors contained in Exhibit 99.1 to BASi’s annual report on Form 10-K for the year ended September 30, 2004. Although the Company believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based upon those assumptions also could be incorrect. In light of the uncertainties inherent in any forward-looking statement, the inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that BASi’s plans and objectives will be achieved.
All dollar amounts presented in this discussion and analysis are presented in thousands, except per share and share data.
GENERAL
The business of Bioanalytical Systems, Inc. is very much dependent on the level of pharmaceutical and biotech companies’ efforts in new drug discovery and approval. Our Services segment is the direct beneficiary of these efforts, through their outsourcing of laboratory and analytical needs, and our Products segment is the indirect beneficiary, as increased drug development leads to capital expansion, providing opportunities to sell the equipment we produce and the consumable supplies we provide that support our products.
In our Annual Report on Form 10-K for the year ended September 30, 2004, we commented on the impacts and anticipated impacts developments in the pharmaceutical industry have on our businesses, as wel