-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mv65DgBV/7pY++wsd2A746tqeJ+so9d7rXx2A5Yf2z0I5rgSIjLpjC1WtccwJ0bJ ZmXrmXNtU9ndlg8OyunTBQ== 0000927946-99-000155.txt : 19991230 0000927946-99-000155.hdr.sgml : 19991230 ACCESSION NUMBER: 0000927946-99-000155 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOANALYTICAL SYSTEMS INC CENTRAL INDEX KEY: 0000720154 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 351345024 STATE OF INCORPORATION: IN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23357 FILM NUMBER: 99782630 BUSINESS ADDRESS: STREET 1: 2701 KENT AVE CITY: WEST LAFAYETT STATE: IN ZIP: 47906-1382 BUSINESS PHONE: 3174634527 MAIL ADDRESS: STREET 1: 2701 KENT AVENUE CITY: WEST LAFAYETTE STATE: IN ZIP: 47906-1382 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended September 30, 1999. 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 333-36429 BIOANALYTICAL SYSTEMS, INC. (Exact name of the registrant as specified in its charter) INDIANA 35-1345024 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) 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) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Shares 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.045 of this chapter) 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. [ ] The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant is $5,916,747. As of November 30, 1999, 4,514,349 shares of registrant's Common Stock were outstanding. No shares of registrant's Preferred Stock were outstanding as of November 30, 1999. Documents Incorporated by Reference: Certain portions of the Registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with its 2000 Annual Meeting of Shareholders is incorporated by reference to those items listed in Part III of this Form 10-K. 1
TABLE OF CONTENTS Part I Page Item 1. Business 3 Item 2. Properties 14 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15 Item 6. Selected Consolidated Financial Data 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of 17 Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21 Item 8. Financial Statements and Supplementary Data 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 40 Disclosure Part III Item 10. Directors and Executive Officers of the Registrant 41 Item 11. Executive Compensation 41 Item 12. Security Ownership of Certain Beneficial Owners and Management 41 Item 13. Certain Relationships and Related Transactions 41 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 42
2 Part I This Report contains certain statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Readers of this Report are cautioned that reliance on any forward-looking statement involves risks and uncertainties. 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 given the inherent uncertainties as to the occurrence or nonoccurrence of future events. There can be no assurance that the forward-looking statements contained in this Report will prove to be accurate. The inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's objectives will be achieved. Item 1. Business General The Company is a contract research organization (CRO) providing research and development resources to many of the leading pharmaceutical, medical device and biotechnology companies in the world. The Company offers an efficient, variable-cost alternative to its clients' internal product development, compliance and quality control programs. Founded in 1974, the Company initially focused primarily on providing new products and procedures which facilitated research progress at client sites. As a consequence of increasing pressures to bring products to market on a cost-effective and accelerated basis, many clients have requested the Company to carry out proprietary projects at the Company's facilities. As a result, the Company now derives its revenues from both the sale of its analytical instruments and other products as well as research services provided to customers. The Company provides a broad array of value-added services and products focused on chemical analysis, allowing its clients to perform their research and development functions either "in-house" or at the Company. The Company believes that among CROs that provide statistical, clinical, and medical services, the Company is the only one that designs and sells analytical instrumentation. Within the analytical instruments business, the Company believes that it is one of very few firms to maintain a separate business unit devoted to contract analytical services under the regulatory framework of good laboratory practices (GLPs) and good manufacturing practices (GMPs). The Company's services and products combine basic research with diagnostic and therapeutic experience. One consequence of the restructuring of the healthcare industry is the greater reliance on outsourcing research services for both clinical trials and formulation development. The Company is capable of supporting the analytical needs of researchers and clinicians, from small molecule drugs and hormones through large biomolecules such as proteins. The Company's scientists have the skills necessary in instrumentation, chemical reagents and computer software to make the products and services it provides increasingly valuable to the worldwide pharmaceutical, medical device and biotechnology industries. Over the past five years, the Company regularly has provided its services and/or products to all of the top 25 pharmaceutical companies in the world, as ranked by 1998 research and development spending. In fiscal 1999, the Company estimates that more than one-third of its total revenue was derived from these companies. As a result of its (i) client focus, (ii) reputation for high-quality services and products, (iii) capital investment in cutting-edge instrumentation and facilities, (iv) skilled and experienced professional staff, and (v) expertise in performing critical development and support services, the Company believes that it is a value-added partner in solving its clients' complex product development problems. The Company provides a wide variety of services to pharmaceutical companies, medical device manufacturers, medical research centers, academic institutions and others. These analytical services support screening and pharmacological testing, toxicology/safety testing, formulation development, laboratory testing, regulatory and compliance consulting and quality control testing. The Company began offering its services primarily in response to requests from customers who had used or were using the Company's products. To reduce overhead and speed drug approval requests through the Food and Drug Administration ("FDA"), pharmaceutical companies are contracting increasing amounts of their analytical work to outside firms such as the Company. The Pharmaceutical Research and Manufacturing Association estimates that in 1999, pharmaceutical and biotechnology companies spent approximately 3 $24 billion worldwide on research and development, of which approximately 25%, or $6.0 billion, was outsourced to independent contract service providers. The Company believes that this outsourcing trend will continue as a result of drug development pressures, the emphasis on cost containment, patent expirations, consolidation in the pharmaceutical industry, virtual drug company and biotechnology industry growth, the need for technical and data management expertise and the globalization of the pharmaceutical marketplace. The Company designs, manufactures and markets a broad range of products and related scientific procedures that detect and quantify the presence of chemicals in certain substances. With respect to its products, the Company competes in the $11 billion per year analytical instrument industry. The Company's focus, however, is not on marketing hardware and software, but rather on developing solutions to challenging analytical problems which permit the Company to utilize its talented personnel in providing a total solution not generally offered by hardware-focused competitors. The Company's products utilize state-of-the-art scientific technology, including liquid chromatography, electrochemistry and in vivo sampling instrumentation. The Company's analytical instruments are sold primarily to pharmaceutical firms and research organizations. Principal clients of the Company include scientists engaged in drug metabolism studies and basic neuroscience research. Changing Nature of Pharmaceutical Industry The Company provides services and products on a world wide basis to pharmaceutical, medical device and biotechnology companies, academic institutions and the United States government to facilitate the research and development of drugs and medical devices. The Company's services are generally marketed to pharmaceutical and other biotechnical companies engaged in later stages of drug testing, while the Company's products are generally marketed to both public and private research organizations engaged in the early stages of drug development. The research services industry is a highly fragmented one consisting of several hundred service providers operating in various segments of the market and a small number of larger companies focusing primarily on managing clinical trials, whereas the Company competes against several large equipment manufacturers with respect to its products. While the markets for the Company's services and products have distinct customers (often separate divisions in a large pharmaceutical company) and requirements, the Company believes that both markets are facing increased pressure to outsource certain facets of their research and development activities. The Company believes that the factors identified below will contribute to a continuing increase in outsourcing activities by its customers. Drug Development Pressure The pharmaceutical industry is under pressure to rapidly develop new drugs to treat chronic illnesses and life threatening conditions such as AIDS and Alzheimer's disease as consumers, doctors, health care providers and pharmaceutical company shareholders continue to demand quicker and more efficient drug development. Responding to this pressure, pharmaceutical companies are attempting to accelerate the drug development process, including relying to an increasing extent on external providers of research and development services to perform testing and analysis in all phases of the process. 4 Emphasis on Cost Containment Pharmaceutical companies are facing increasing pressure to develop more efficient operating strategies as a result of margin pressure from market forces, including (i) a shift toward managed care, (ii) patent expirations, (iii) generic substitution, (iv) increased purchasing power of large buyer groups and (v) governmental initiatives designed to reduce drug prices. The Company believes that the pharmaceutical and medical device industries are responding to these pressures by downsizing internal research and development programs, thereby favoring outsourcing as a variable-cost alternative. Further, the need for additional capacity to increase the speed of new product development, to maximize the period of marketing exclusivity and to increase economic returns, has driven the need for outsourced services. Patent Expirations Patents on all major pharmaceuticals continue to age and expire. According to the Pharmaceutical Research and Marketing Association, since 1984 prescriptions for generic drugs have risen from 20% to 47% of all prescriptions written. Moving generic drugs onto the market more rapidly can result in an estimated 2 to 5 year reduction in effective patent protection for brand name drugs. Patent expirations are forcing drug companies to develop new products or modify existing products to maintain market share against generic product competition. The Company believes that the pressure to develop new products and modify or reformulate existing products, combined with internal capacity constraints, is leading companies to outsource these activities. Consolidation in the Pharmaceutical Industry The pharmaceutical industry is increasingly consolidating as drug development companies continue to pursue new avenues of growth and more efficient ways of conducting business. As companies seek to combine varied personnel, resources and activities, the Company believes that they will increasingly focus on ways to reduce costs and streamline operations, thus leading to the greater use of companies providing contract research services. Biotechnology Industry and "Virtual" Drug Company Growth The biotechnology industry has grown rapidly over the last 10 years and has introduced a significant number of new compounds for development. As a result, many biotechnology companies do not have the necessary in-house resources to conduct required development and testing. Furthermore, there has been an increase in the number of pharmaceutical and medical device companies whose business strategy is to develop a product sufficiently to attract a strategic partner that will manufacture and market the drug. Many of these "virtual" drug development companies, having little or no internal development or support resources, must outsource a substantial portion of drug development and testing. Need for Technical Expertise The increasing complexity of new drugs requires high quality, innovative, solution-driven contract work through all phases of the development process, ranging from preclinical toxicology and pharmacokinetics through reformulation pharmacokinetic studies and post-market clinical drug monitoring. The Company believes that this need for specialized technical expertise will increasingly lead to outsourcing of research activities. Need for Data Management Expertise Regulatory agencies are increasing the volume of data required for regulatory filings, as well as requesting increased access to such data. Furthermore, the FDA is encouraging the use of computer-assisted filings in an effort to expedite the approval process. Consequently, drug companies are increasingly outsourcing to firms with automated data management capabilities. Moreover, in response to clients' demands for access to data as it is acquired in the laboratory, the Company is able to provide clients with remote access to Company computer systems while at the same time protecting client data from unauthorized access. 5 Globalization of the Marketplace Foreign pharmaceutical companies, particularly those of Japan and Europe, are increasingly seeking to obtain approval to market their products in the United States. Due to a lack of familiarity with the complex United States regulatory system and the difficulty in bringing their operating facilities into FDA-required GMP compliance, foreign firms are relying on independent development companies with experience in the United States to provide integrated services through all phases of product development and to assist in preparing regulatory submissions. The Company believes that domestic firms with established regulatory expertise and a broad range of integrated development services will benefit from this trend. The Company's Role in the Drug Development Process Overview of Process The Company has 25 years of experience in developing methodology to support the analytical chemistry requirements of the drug discovery process. Under the United States regulatory system, the development process for new pharmaceutical products can be divided into three distinct phases. The preclinical phase involves the discovery, characterization, product formulation and animal testing necessary to prepare an Investigational New Drug ("IND") exemption for submission to the FDA. The IND must be accepted by the FDA before the drug can be tested in humans. The second, or clinical phase of development follows a successful IND submission and involves the activities necessary to demonstrate the safety, tolerability, efficacy and dosage of the substance in humans, as well as the ability to produce the substance in accordance with the FDA's GMP regulations. Data from these activities are compiled in a New Drug Application ("NDA"), or for biotechnology products, a Product License Application ("PLA"), for submission to the FDA requesting approval to market the drug. The third phase follows FDA approval of the NDA or PLA and involves the production and continued analytical and clinical monitoring of the drug. The post-approval phase also involves the development and regulatory approval of product modifications and line extensions, including improved dosage forms. Process Specifics and the Company's Role The Preclinical Phase. The development of a new pharmaceutical agent begins with the discovery or synthesis of an array of new molecules which may influence a specific target such as a membrane bound receptor or an enzyme involved in the disease under study. These libraries of molecules are screened for pharmacological activity using various in vivo models, with the goal of selecting relatively few "leads" for further development. Once the pharmacologically active molecule is fully characterized, the agent is analyzed to confirm the integrity and quality of material produced. Development of the initial dosage forms to be used in clinical trials is completed, together with analytical chemistry protocols to determine their stability. Upon successful completion of preclinical safety and efficacy studies in animals, an IND submission is prepared and provided to the FDA for review prior to the implementation of human clinical trials. Most of the Company's products are designed for use in the preclinical phase of drug development. The Company also provides its bioanalytical services in this phase. A good example of the role of the Company's products in the preclinical phase is the utilization of Company technology in the development of drug substances impacting the central nervous system neurotransmitters, including serotonin, dopamine, norepinephrine, and acetylcholine. These drugs are used in the treatment of such conditions as depression, Parkinson's disease, schizophrenia and Alzheimer's disease. The Company's chromatography products were used extensively to study the influence of reuptake inhibitors on serotonin uptake and release in the central nervous system (CNS) programs at universities and a major pharmaceutical company. The Company believes that the synergy between the Company's services and instrumentation products has been a factor in the Company being selected by major pharmaceutical companies to determine new drug candidates in thousands of Phase I-III clinical specimens. The Clinical Phase. Following successful submission of an IND application, the sponsor is permitted to conduct Phase I human clinical trials in a limited number of healthy individuals to determine the drug's safety and tolerability. This work requires bioanalytical assays to determine the availability and metabolism of the active ingredient following administration. Expertise in method development and validation is essential for this phase, particularly with respect to new chemical entities. Phase II clinical trials involve administering the drug to individuals who suffer from the target disease or condition to determine the drug's potential effectiveness and ideal dose. When 6 further safety (toxicology), tolerability and dosing regimens have been established, Phase III clinical trials involving large numbers of patients are conducted to verify efficacy and safety. After the successful completion of Phase III clinical trials, the sponsor of the new drug submits an NDA or PLA to the FDA requesting that the product be approved for marketing. The Company's bioanalytical work is most individually intensive in Phase I studies where relatively few individuals are dosed. In Phase II and III the number of individuals treated accelerates rapidly, but the number of blood samples drawn per patient declines. Phase II and III studies are carried out over several years with what has become a well established analytical protocol. To maintain consistency in the analytical data, it is unusual for a sponsor to change laboratories unless there are problems in the quality or timely delivery of results. An area of particular interest to the Company is drug interaction studies. With increasing numbers of patients receiving multiple drug therapy, it is critical that the impact of each drug be assessed with respect to its influence on the effectiveness and toxicology of other drugs dosed simultaneously. This process complicates and often extends clinical trials. Because drugs from different manufacturers frequently will be used together, a CRO such as the Company can provide services to several firms simultaneously in cases where a potential synergy exists in another area (e.g. the "cocktail" approach to HIV therapy). In such instances, a given assay technology might well be of interest to a number of clients, thus spreading the assay development cost. More importantly, drug interaction studies often develop new clients for the Company in a much more cost effective manner than advertising or an outside sales force. The Post-approval Phase. Following approval, the drug manufacturer must comply with quality assurance and quality control requirements throughout production and must continue chemical analytical and stability studies of the drug during commercial production in order to continue to validate production processes and confirm product shelf life. The drug manufacturer's raw materials must be analyzed prior to use in production, and samples from each manufactured batch must be tested prior to release of the batch for distribution to the public. The Company also provides its bioanalytical services in all areas during the post-approval phase, concentrating on bioequivalence studies of new formulations, line extensions, new disease indications and drug interaction studies. Company Services and Products Overview The Company provides a broad array of bioanalytical services in all phases of the drug development process, and also provides products and procedures for the $11 billion per year analytical instrument industry. Over its 25 year history, the Company has developed expertise in a number of core scientific technologies which it has utilized in developing state-of-the-art procedures designed to determine amounts of chemical substances in complex materials. These technologies include: liquid chromatography, electrochemistry, solid phase extraction, mass spectrometry, enzymology and fluorescence. The Company also uses its expertise in analytical chemistry to provide a wide range of bioanalytical services to pharmaceutical companies, academic institutions and others involved in pharmaceutical research and development. Services The Company provides a wide variety of services to pharmaceutical companies, medical device manufacturers, medical and research centers, academic institutions and others. The Company's services unit has grown rapidly over the last several years. The Company began providing services primarily in response to requests from customers who had used or were using the Company's products. As the Company's reputation has grown, the Company's customers increasingly have drawn on the Company's expertise in analytical chemistry to solve complex problems which arise in the course of drug research and development. The Company's range of services now include: method development and validation, product characterization, stability testing, bioanalytical testing, diagnostic testing and in vivo sampling. The Company is poised to utilize its expertise to provide a greater volume and broader array of services. These services involve the application of the Company's analytical chemistry expertise to a broad range of challenging and complex issues, such as the services described below. o Method Development and Validation. The Company develops and validates methods used in a broad range of laboratory testing necessary to determine physical or chemical characteristics of compounds and finished dosage forms. Analytical methods are developed to demonstrate potency, purity, stability or physical attributes. These methods are validated to ensure that the data generated are accurate, precise, reproducible and reliable and are used throughout the drug development process and 7 in product support testing. Of the Company's 202 employees as of September 30, 1999, more than 30 are Company scientists (including nine who hold Ph.D. degrees) who are experienced with method development and validation. o Product Characterization. The Company has the expertise and instruments required to identify and characterize a broad range of chemical entities. Characterization analysis identifies the chemical composition, structure and physical properties of a compound, and characterization data forms a significant portion of a regulatory application. The Company uses numerous techniques to characterize the compound, including chromatography, spectroscopy, electrochemistry and other physical chemistry techniques. Once appropriate test methods are developed and validated, and appropriate reference standards (highly pure samples) are characterized and certified, the Company can assist clients by routinely testing compounds for clinical and commercial use. o Stability Testing. The Company provides stability testing and secure storage facilities necessary to establish and confirm product purity, potency and other shelf-life characteristics. Stability testing is required at all phases of product development in order to confirm shelf life of each manufactured batch. The Company maintains a four-chamber, ICH (International Conference on Harmonization) validated controlled climate GMP facility. FDA regulations require that samples of clinical and commercial products placed in stability chambers be analyzed in a timely fashion after scheduled "pull points" occur, based on the date of manufacture. o Bioanalytical Testing. The Company offers bioanalytical testing services to support clinical trials by analyzing plasma samples to characterize the drug's concentration and determine the rate of absorption and elimination. Bioanalytical studies of new drugs often present challenging and complex issues, with products being metabolized into multiple active and inactive forms. The Company works with its clients to develop and validate analytical methods to permit detection and measurement of the various components to trace levels. In some cases clients expect the Company to develop methodology, while in other cases methodology is transferred from the client and refined and validated by the Company personnel. The most common technology used in such studies is liquid chromatography coupled with various detectors, including mass spectrometry as well as optical and electrochemical devices. o Diagnostic Testing. The Company has manufactured bioanalytical chemistry products since its start in 1974. The Company produces fully automated, networkable state-of-the-art liquid chromatographs and electrochemical analyzers based on Windows(R) software. The Company has recently developed and now produces a line of diagnostic kits designed to fit its instrumentation. These kits help measure neurotransmitters and their metabolites and homocysteine, an experimental cardiovascular disease indicator in plasma and urine. These measurement processes are often performed by Company personnel utilizing Company products. o In Vivo Sampling. The Company pioneered and has commercialized miniaturized in vivo sampling methodology, which involves the continuous monitoring of chemical changes in live animals. This technology is sold as both a service and a line of products. The Company is aggressively adding new components to this line, with the goal of selling complete, automated sampling systems. Target markets include veterinary and animal research centers, pharmaceutical companies and medical research centers. The Company has received two significant Phase II SBIR (Small Business Innovation Research) grants that involve subcontracts with Purdue University and the University of Kansas for the purpose of exploiting this emerging technology. o Formulation Development Services. In the future, the Company plans to provide integrated formulation development services, enabling the Company to take a client's compound and develop a safe and stable product with desired characteristics. The Company believes its strong academic connections to Purdue University and other academic institutions, formulation expertise and extensive analytical capabilities position the Company to provide a significant contribution to this area. Products The Company designs, manufactures and markets a broad range of products and related scientific procedures that detect and quantify the presence of chemicals in certain substances. The Company's products utilize state-of-the-art scientific technology including liquid chromatography, electrochemistry and in vivo sampling instrumentation. Presently, the Company's products and procedures include: 8 o Bioanalytical separation instrumentation that utilizes liquid chromatography and Windows(R) software to detect low concentrations of substances in biological fluids and tissues. o A wide-range of chemical analyzers that utilize scientific technologies including electrochemistry, liquid chromatography and enzymology to analyze levels of chemicals such as acetylcholine, choline, serotonin and dopamine in biological materials. These instruments assist scientists in the study of, among other things, Alzheimer's disease, cocaine addiction and the effects of chemical warfare agents and strokes. o Diagnostic kits and procedures, designed to utilize the Company's instrumentation, that enable clinical laboratories and pharmaceutical researchers to determine the presence of multiple drugs in blood plasma and to measure neurotransmitters and their metabolites in plasma and urine. These kits and procedures assist researchers in developing new drugs for diseases such as AIDS and cardiovascular disease. o A line of miniaturized in vivo sampling devices, marketed to veterinary and animal research centers, pharmaceutical companies and medical research centers, which assist in the study of a number of medical conditions, including stroke, depression, Parkinson's disease, diabetes and osteoporosis. [Remainder of page intentionally left blank.] 9 The chart below sets forth the Company's product categories, the technology supporting each category and the applications of each category.
Product/Procedure Enabling Technology Application(s) ----------------- ------------------- -------------- Bioanalytical Separation o Liquid chromatography Determining low concentrations of Instrumentation o High pressure digitally substances in biological fluids and controlled metering pumps tissues o Electrochemistry and optics detectors o Customized Windows(R) software o Customized Internet applications Electrochemical Analyzers and o Electrochemistry Development of biosensors for Accessories o Real time control and data substances, such as glucose, acquisition software lactate, glutamate; development of o Customized Windows(R) software batteries for electronics such as o Customized Internet pacemakers; study of corrosion of applications implants Acetylcholine/Choline Analyzer o Liquid chromatography Studies of Alzheimer's disease; o Enzymology chemical warfare agents; and infant o Electrochemistry formula Serotonin and Dopamine Analyzer o Liquid chromatography Developing serotonin reuptake o Electrochemistry inhibitors; studies of the mechanism of cocaine addiction Amino Acid Analyzer o Derivatization chemistry Studies of aspartate, glutamate, o Liquid chromatography and GABA in the brain; research to o Electrochemistry and/or minimize the impact of stroke and o Fluorescence other ischemic events in the brain In vivo sampling devices ("artificial o Hydrophilic membrane fibers Following pharmacokinetics in vivo; blood vessels") and auxiliary o Digitally controlled pumping monitoring glucose; instrumentation systems, miniature fraction neurotransmitters, peptides, and collectors, and valves amino acids; studies of stroke, depression, Parkinson's Disease, diabetes and calcium loss related to osteoporosis and weightlessness; reducing the use of animals in research Kits for clinical measurement of o Robotics Evaluating cardiovascular disease, neurotransmitters and homocysteine in o Liquid chromatography inborn errors of metabolism, and human blood and urine o Electrochemistry cancers of neurological origin o Customized Windows(R) software Simultaneous determination of multiple o Robotics "Cocktail" therapy for AIDS; drug drugs in blood plasma o Solid phase extraction interaction studies during clinical o Liquid chromatography trials o Mass spectrometry Vital signs monitoring o Electrocardiology (ECG) ECG, respiration, blood pressure, o Temperature transducers and temperature monitoring in o Real time software veterinary clinics and toxicology departments in pharmaceutical companies
10 Clients Over the past five years, the Company regularly has provided services and products to all of the top 25 pharmaceutical companies in the world, as ranked by 1998 research and development spending. In fiscal 1999, the Company estimates that more than one-third of its total revenue was derived from these companies. In addition, the Company's products are purchased by the vast majority of medical schools in North America, Europe and Asia. In fiscal 1999, the Company provided products and services to approximately 300 institutions, including some of the largest United States, European and Japanese drug companies. Approximately 34% of the Company's revenues are generated from customers located outside the United States. The Company believes that a concentration of business among certain large clients is not uncommon in the CRO industry. The Company has experienced such concentration in the past and may do so again in the future. During 1997, four operating groups (Quality Control, Analytical Research and Development, Clinical Pharmacokinetics, and Drug Metabolism) of Pfizer, Inc. ("Pfizer"), a major United States pharmaceutical company, in the aggregate accounted for approximately 21% of the Company's total revenues. These sales were derived from both the products and the services units of the Company. During 1999 and 1998, Pfizer accounted for approximately 22% and 20%, respectively, of the Company's total revenues. Most of these sales fell under approximately 120 contracts the Company has or had with Pfizer, the largest of which totaled approximately $750,000. Although the Company strives to reduce its reliance on a limited number of major clients, there can be no assurance that the Company's business will not be dependent upon certain major clients, the loss of which could have a material adverse effect on the Company. In addition, due to the project-oriented nature of the Company's business, there can be no assurance that significant clients in any one period will continue to be significant clients in other periods. Sales and Marketing Marketing and sales initiatives have been created to address market needs and economic reality. These services have grown primarily through direct, internal recommendations among major pharmaceutical manufacturers. Frequently, these customers have had prior relationships with the Company's staff and positive experiences with the Company's products and services. The Company recognizes that its growth and continued customer satisfaction are dependent upon its ability to continually improve its sales and marketing functions. In North America, the Company's products are sold directly to the end user. The Company has approximately 20 personnel selling a range of products and an equal number providing technical and development support. All staff members are technically trained and function in both capacities. The Company also has established a highly professional collection of catalogs, training and technical support literature, video tapes, CD-Rom presentations, web sites, workshops, and academic publications. The Company's peer-reviewed journal, Current Separations, describes independent research in technologies of interest to the Company's customers, and is distributed to 18,500 readers worldwide, many of whom are current or potential customers. Product sales, marketing and technical support is based in the Company's main office located in West Lafayette, Indiana. The Company also maintains an office in New Jersey with a small sales and technical staff, thus enabling the Company to demonstrate its products and present technical workshops in close proximity of its largest concentration of key customers. The Company also maintains sales and technical support capabilities in Massachusetts, New York, Ohio, Texas, Pennsylvania and Kansas. The Company's marketing plan provides for new sales representation in California and the Midwest, stronger promotion of all product lines, enhanced workshops, improved training and implementation of demonstration capabilities in the Company's new facilities. The Company's primary marketing and sales strategy is to be more aggressive, focus on customer needs and further strengthen communications with its markets. In so doing, the Company will build on its long history of innovation and technical excellence. 11 BAS Analytics, Ltd., a wholly-owned subsidiary of the Company, provides direct liaison with research service clients in the United Kingdom and maintains a laboratory to provide such services. Bioanalytical Systems, Ltd., also a wholly-owned subsidiary of the Company, manages most product sales in Europe. In addition, the Company has a network of more than 20 established distributors covering Japan, the Pacific Basin, South America, the Middle East, India, South Africa and Eastern Europe. Revenue generated from one of the Company's Japanese distributors, BAS Japan, accounted for approximately 3%, 6% and 12% of the Company's total revenue for fiscal 1999, 1998 and 1997, respectively. Although the Company believes it has identified a suitable replacement in the event that BAS Japan discontinues as the Company's distributor, such an event could have an adverse effect on the Company's business, operations and financial condition. (See Note 10 of Notes to Consolidated Financial Statements.) All of the Company's distributor relationships are managed from the Company's headquarters in West Lafayette, Indiana. International growth is planned through stronger local promotion and significant expansion of the Company's distributor network, and potentially through acquisitions. Contractual Arrangements The Company's service contracts typically establish an estimated fee for identified services. While the Company is performing a contract, clients often adjust the scope of services to be provided by the Company in light of interim project results, at which time the amount of fees is adjusted accordingly. Generally, the Company's fee-for-service contracts are terminable by the client upon written notice of 30 days or less. Contracts may be terminated for a variety of reasons, including the client's decision to forego a particular study, the failure of product prototypes to satisfy safety requirements and unexpected or undesired results of product testing. The loss of a large contract or the loss of multiple contracts could adversely affect the Company's future revenue and profitability. Backlog Because the arrangements pursuant to which the Company provides its services are terminable upon written notice of 30 days or less, the Company does not calculate backlog for the services it provides and does not believe that determining such amount would provide a meaningful indicator of the future performance of its services unit. Backlog for the Company's products consists of booked purchase orders for products which have not been shipped. The Company rarely has a backlog for its products of more than one month of sales. Many products are shipped within 24 hours of receipt of order. Competition With respect to its services, the Company competes primarily with in-house research, development, quality control and other support service departments of pharmaceutical and biotechnology companies, as well as university research laboratories and teaching hospitals. In addition, there are numerous full-service CRO's that compete in this industry. The largest CRO competitors offering similar research services include Covance, Inc., Pharmaceutical Product Development, Inc., Applied Analytical Industries, Inc., Phoenix International Life Sciences Inc. and MDS Health Group Ltd. CROs generally compete on the basis of previous experience, medical and scientific expertise in specific therapeutic areas, quality of contract research, ability to organize and manage large-scale trials on a global basis, medical database management capabilities, ability to provide statistical and regulatory services, ability to recruit investigators, ability to integrate information technology with systems to improve the efficiency of contract research, existence of an international presence with strategically located facilities, financial viability and price. With respect to its products, the Company competes with several large equipment manufacturers, including Hewlett Packard, Waters Corporation and Perkin Elmer Corporation. Competitive factors include product quality, reliability and price. The Company believes it competes favorably in its targeted markets because of its ability to combine quality products with technical assistance and services to meet customer needs. Many of the Company's competitors are much larger and have significantly greater financial resources than the Company. Government Regulation The services performed by the Company are subject to various regulatory requirements designed to ensure the quality and integrity of pharmaceutical and diagnostic products. These regulations are governed primarily under the 12 Federal Food, Drug and Cosmetic Act, as well as Associated GLP and GMP regulations which are administered by the FDA in accordance with current industry standards. The regulatory requirements apply to all phases of manufacturing, testing and record keeping, including personnel, facilities, equipment, control of materials, processes and laboratories, packaging, labeling and distribution. Noncompliance by the Company with GLPs and GMPs by the Company could result in disqualification of data collected by the Company in a particular project. Material violation of GLP or GMP requirements could result in additional regulatory sanctions and, in severe cases, could also result in a discontinuance of selected Company operations. Such discontinuance would have a material adverse effect on the Company's business, financial condition and results of operations. To help assure compliance with applicable regulations, the Company has established quality assurance controls at its facilities that monitor ongoing compliance by auditing test data and regularly inspecting facilities, procedures and other GMP compliance parameters. In addition, FDA regulations and guidelines serve as a basis for the Company's standard operating procedures, where applicable. Certain of the Company's development and testing activities are subject to the Controlled Substances Act, administered by the Drug Enforcement Agency ("DEA"), which strictly regulates all narcotic and habit-forming substances. The Company maintains restricted-access facilities and heightened control procedures for projects involving such substances due to the level of security and other controls required by the DEA. In addition to FDA regulations, the Company is subject to other federal and state regulations concerning such matters as occupational safety and health and protection of the environment. The Company's activities involve the controlled use of hazardous materials and chemicals. The Company is subject to foreign, federal, state and local laws and regulations governing the use, storage, handling and disposal of such materials and certain waste products. The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result. Such damages could have a material adverse effect on the Company's business and results of operations. Product Liability and Insurance The Company maintains product liability and professional errors and omissions liability insurance, providing approximately $6.0 million in coverage on a claims-made basis. Additionally, in certain circumstances the Company seeks to manage its liability risk through contractual provisions with clients requiring the Company to be indemnified by the client or covered by clients' product liability insurance policies. Also, in certain types of engagements the Company seeks to limit its contractual liability to clients to the amount of fees received by the Company. The contractual arrangements are subject to negotiation with clients and the terms and scope of such indemnification, liability limitation and insurance coverage vary based upon client and project. Although most of the Company's clients are large, well-capitalized companies, the financial performance of these indemnities is not secured. Therefore, the Company bears the risk that the indemnifying party may not have the financial ability to fulfill its indemnification obligations or that liability would exceed the amount of applicable insurance. Furthermore, the Company could be held liable for errors and omissions in connection with the services it performs. There can be no assurance that the Company's insurance coverage will be adequate or that insurance coverage will continue to be available on terms acceptable to the Company, or that the Company can obtain indemnification arrangements or otherwise be able to limit its liability risk. Employees At September 30, 1999, the Company had 202 full-time employees, 125 of which hold college degrees, including 30 Ph.D.s. All employees enter into confidentiality agreements intended to protect the Company's proprietary information. The Company believes that its relations with its employees are good. None of the Company's employees are represented by a union. The Company's performance depends on its ability to attract and retain qualified professional, scientific and technical staff. The level of competition among employers for skilled personnel is high. The Company believes that its employee benefit plans enhance employee morale, professional commitment and work productivity and provide an incentive for employees to remain with the Company. While the Company has not experienced any significant problems in attracting or retaining qualified personnel, there can be no assurance that the Company will be able to avoid these problems in the future. 13 Item 2. Properties The Company's principal executive offices are located at 2701 Kent Avenue, West Lafayette, Indiana, 47906, and constitute approximately 100,000 square feet of operational and administrative space. The Company also maintains offices which provide sales and technical support services in New Jersey, Pennsylvania and the United Kingdom, and employs sales and technical support service representatives in North Carolina and Texas. The Company believes that its facilities are adequate for the Company's operations and that suitable additional space will be available when needed. Item 3. Legal Proceedings The Company from time to time may be involved in various claims and legal proceedings arising in the ordinary course of business. The Company does not believe that any pending claims or proceedings, individually or in the aggregate, would have a material adverse effect on the Company's financial condition or results of operations. In April, 1997, CMA Microdialysis Holding A.B. ("CMA") filed an action against the Company in the United States District Court for the District of New Jersey in which CMA alleged that the Company's microdialysis probes infringe U.S. Patent No. 4,694,832. The Company has filed an answer in which it denied infringement and in which it asserted that the patent on which CMA relies is invalid. Sales of the product in question accounted for less than $150,000 of the Company's revenues in fiscal 1999. The matter is now awaiting a trial date. Management intends to continue a vigorous defense of CMA's claims, and believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition or result of operations. However, legal expenses associated with the defense of this suit have had and will continue to have an adverse effect on earnings. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. [Remainder of page intentionally left blank.] 14 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The following table shows the quarterly range of high and low sales prices for the Company's Common Shares as reported by the Nasdaq Stock Market for the fiscal years ended September 30, 1999 and 1998. The approximate number of recordholders of outstanding Common Shares as of September 30, 1999 was 1700. The Common Shares were not publicly traded prior to November 24, 1997. Fiscal 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1999 ---- High 5.750 4.250 4.250 4.000 Low 3.625 3.000 3.500 2.875 1998 ---- High 8.875 10.250 9.000 7.375 Low 7.625 6.750 6.750 4.625 On November 24, 1997, the SEC declared effective the Company's Registration Statement on Form S-1, File Number 333-36429. Item 2 of Part II of the Company's Form 10-Q for the period ended December 31, 1997 set forth information regarding the net proceeds received by the Company from the offering pursuant to such registration statement and the Company's use of such proceeds. The information below reflects changes since such disclosure. [Remainder of page intentionally left blank.] 15 Item 6. Selected Consolidated Financial Data SELECTED CONSOLIDATED FINANCIAL DATA (In thousands) The following is selected consolidated financial data of the Company for the five years ended September 30, 1999. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of Bionalytical Systems, Inc. and notes thereto contained elsewhere in this Form 10-K.
Year Ended September 30, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- ------- (in thousands, except per share data) Statement of Income Data: Services revenue.................... $ 9,993 $ 7,609 $ 4,991 $ 3,681 $ 2,725 Product revenue..................... 9,858 10,616 9,932 9,113 9,627 -------- -------- -------- -------- ------- Total revenue................ 19,851 18,225 14,923 12,794 12,352 Cost of services revenue............ 6,499 4,598 2,986 2,141 1,834 Cost of product revenue............. 3,943 3,911 3,334 3,227 3,448 -------- -------- -------- -------- ------- Total cost of revenue........ 10,442 8,509 6,320 5,368 5,282 -------- -------- -------- -------- ------- Gross profit........................ 9,409 9,716 8,603 7,426 7,070 Operating expenses: Selling............................. 3,943 4,524 4,225 3,937 3,940 Research and development............ 1,955 2,165 1,568 1,424 1,124 General and administrative.......... 2,550 2,336 1,638 1,364 1,222 -------- -------- -------- -------- ------- Total operating expenses..... 8,448 9,025 7,431 6,725 6,286 -------- -------- -------- -------- ------- Operating income.................... 961 691 1,172 701 784 Other income (expense), net......... (114) (25) (75) (18) 111 -------- -------- -------- -------- ------- Income before income taxes.......... 847 666 1,097 683 895 Income taxes........................ 277 254 413 283 344 -------- -------- -------- -------- ------- Net income.......................... $ 570 $ 412 $ 684 $ 400 $ 551 ======== ======== ======== ======== ======= Net income available to common shareholders..................... $ 570 $ 412 $ 657 $ 347 $ 497 Net income per Common Share......... Basic........................ $ .13 $ .10 $ .30 $ .16 $ .23 Diluted...................... $ .12 $ .09 $ .21 $ .11 $ .16 Weighted average Common Shares outstanding.................. Basic........................ 4,506 4,117 2,221 2,185 2,185 Diluted...................... 4,676 4,403 3,101 3,089 3,066 September 30, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- ------- (in thousands) Balance Sheet Data: Working capital..................... $ 4,275 $ 3,286 $ 2,493 $ 3,059 $ 4,080 Property and equipment, net......... 17,355 14,551 10,035 6,526 3,707 Total assets........................ 26,321 22,280 15,931 11,374 9,428 Long-term debt, less current portion 4,112 1,124 5,045 2,512 416 Convertible preferred shares........ - - 1,231 1,530 2,100 Shareholders' equity................ 17,421 16,844 5,651 4,956 4,609
16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with Selected Consolidated Financial Data and the Company's Consolidated Financial Statements and notes thereto included elsewhere in this Report. In addition to the historical information contained herein, the discussions in this Report may contain forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Overview The Company provides a broad range of services and value-added products focused on chemical analysis to the worldwide pharmaceutical, medical device and biotechnology industries. The Company's customer-focused approach and high quality products and services enable it to serve as a value-added partner in solving complex scientific problems by providing cost-effective results to its customers on an accelerated basis. Founded in 1974 in Lansing, Michigan and relocated to West Lafayette, Indiana in 1975, the Company has experienced growth primarily through internal expansion, supplemented by strategic acquisitions. As part of its internal growth strategy, the Company has developed technical specialties in such areas as chromatography, electrochemistry, in vivo sampling and mass spectrometry. The Company's growth has strategically positioned it to take advantage of globalization in the marketplace and to provide new services and areas of technical expertise to its customers. During this phase, the Company has been continuously profitable since 1987. Throughout its history, the Company has taken steps to position itself as a global leader in the analytical chemistry field. Development of the Company's infrastructure began in 1975 when it established relationships with several customers and multiple international distributors. In 1981, the Company increased its sphere of influence to include Japan with the creation of BAS Japan, an independent distributor. In 1988, the Company enhanced its computer software expertise by acquiring Interactive Microware, Inc. in State College, Pennsylvania. In 1990, the Company began offering contract services to customers that lacked the time or expertise to perform certain analyses using the Company's analytical products. In 1995, the Company acquired a distributor, BAS Instruments Ltd., to further solidify its presence in the United Kingdom. In 1998, the Company acquired a manufacturer of veterinary monitoring and diagnostic equipment, BAS Vetronics, to provide additional preclinical support. In 1998, the Company also acquired a contract services firm, BAS Analytics Ltd., to offer local service in the United Kingdom. Revenues are derived principally from (i) analytical services provided to customers and (ii) the sale of the Company's analytical instruments and other products. Both methods of generating revenue utilize the Company's ability to identify, isolate and resolve client problems relating to the separation and quantification of individual substances in complex mixtures. The Company supports the pharmaceutical industry by focusing on analytical chemistry for biomedical research, diagnostics, electrochemistry and separations science. The Company's analytical products are sold primarily to pharmaceutical firms and research organizations. Principal customers include scientists engaged in drug metabolism studies, as well as those engaged in basic neuroscience research. The Company was the first to commercialize the liquid chromatograph and electrochemistry technology which is now the worldwide standard for the determination of neurotransmitter substances. Research products include in vivo sampling devices, reagent chemicals, electrochemical apparatus and sensors. The Company's pharmaceutical service contracts generally have terms ranging from several months to several years. A portion of the contract fee is generally payable upon receipt of the initial samples with the balance payable in installments over the life of the contract, and the contracts are broken down into discrete units of deliverable services for which a fixed fee per unit is established. Revenue and related direct costs are recognized as specific contract terms are fulfilled under the percentage of completion method utilizing units of delivery. The termination of a contract results in no material adjustments to revenue or direct costs previously recognized, and the Company is entitled to payment for all work performed through the date of notice of termination and all costs associated with termination of a contract. Revenue from the sale of the Company's products and the related costs are recognized upon shipment of the products to customers. The Company's management believes that fluctuations in the Company's quarterly results are caused by a number of factors, including the Company's success in attracting new business, the size and duration of service contracts, the timing of its clients' decisions to enter into new contracts, the cancellation or delays of on-going contracts, the timing of acquisitions and other factors, many of which are beyond the Company's control. In fiscal 1999, approximately 34% of the Company's total revenue was derived from customers located outside the United States. These markets tend to be much more volatile than the United States market. Significant governmental, regulatory, 17 political, economic and cultural issues or changes could adversely affect the growth or profitability of the Company's business activities in any such market. Results of Operations The following table sets forth, for the periods indicated, certain statement of income data as a percentage of total revenue. Percentage of Revenue ------------------------------------- Year Ended September 30, ------------------------------------- 1999 1998 1997 ---- ---- ---- Services revenue.................... 50.3% 41.8% 33.4% Product revenue..................... 49.7 58.2 66.6 ------ ------ ------ Total revenue.................. 100.0 100.0 100.0 Cost of services revenue............ 32.7 25.2 20.0 Cost of product revenue............. 19.9 21.5 22.3 ------ ------ ------ Total cost of revenue.......... 52.6 46.7 42.3 ------ ------ ------ Gross profit........................ 47.4 53.3 57.7 Operating expenses:................. Selling............................. 19.9 24.8 28.3 Research and development............ 9.8 11.9 10.5 General and administrative.......... 12.8 12.8 11.0 ------ ------ ------ Total operating expenses....... 42.5 49.5 49.8 ------ ------ ------ Operating income.................... 4.9 3.8 7.9 Other income (expense), net......... (0.6) (0.1) (0.5) ------ ------ ------ Income before income taxes.......... 4.3 3.7 7.4 Income taxes........................ 1.4 1.4 2.8 ------ ------ ------ Net income.......................... 2.9% 2.3% 4.6% ====== ====== ====== Year ended September 30, 1999 compared with Year ended September 30, 1998 Total revenue for the year ended September 30, 1999 increased 8.9% to $19.9 million from $18.2 million in the year ended September 30, 1998. The net increase of $1.7 million related primarily to increased revenue from services, which increased to $10.0 million in the year ended September 30, 1999 from $7.6 million in the year ended September 30, 1998 as a result of the expansion of the types and volume of services provided by the Company. During this same period, product revenue decreased to $9.9 million for the year ended September 30, 1999 from $10.6 million for the year ended September 30, 1998 primarily as a result of decreased sales in the Asian electrochemistry markets. Costs of revenue increased 22.7% to $10.4 million for the year ended September 30, 1999 from $8.5 million for the year ended September 30, 1998. This increase of $1.9 million was largely due to the addition of a UK services facility. Costs of revenue for the Company's services increased to 65.0% as a percentage of services revenue for the year ended September 30, 1999 from 60.4% of services revenue for the year ended September 30, 1998 due to an increase in services support staff. Costs of revenue for the Company's products increased to 40.0% as a percentage of product revenue for the year ended September 30, 1999 from 36.8% of product revenue for the year ended September 30, 1998, due primarily to a change in product mix. Selling expenses for the year ended September 30, 1999 decreased 12.8% to $3.9 million from $4.5 million during the year ended September 30, 1998 due to decreased foreign commission expense. Research and development expenses for the year ended September 30, 1999 decreased 9.7% to $2.0 million from $2.2 million for the year ended September 30, 1998 due to the decrease in research grant activity. General and administrative expenses for the year ended September 30, 1999 increased 9.2% to $2.6 million from $2.3 million for the year ended September 30, 1998, primarily as a result of an increase in administrative staff expense and an increase in health care costs. 18 Other income (expense), net, was $(114,000) in the year ended September 30, 1999 as compared to $(25,000) in the year ended September 30, 1998 as a result of the increase in interest expense due to an increase in long term debt. The Company's effective tax rate for 1999 was 32.8% as compared to 38.2% for fiscal 1998. This decrease was primarily due to a decrease in nondeductible foreign losses incurred in fiscal 1999. Year ended September 30, 1998 compared with Year ended September 30, 1997 Total revenue for the year ended September 30, 1998 increased 22.1% to $18.2 million from $14.9 million in the year ended September 30, 1997. The net increase of $3.3 million related primarily to increased revenue from services, which increased to $7.6 million in the year ended September 30, 1998 from $5.0 million in the year ended September 30, 1997 as a result of the expansion of the types and volume of services provided by the Company. During this same period, product revenue increased to $10.6 million for the year ended September 30, 1998 from $9.9 million for the year ended September 30, 1997 primarily as a result of increased penetration in the physiology and the liquid chromatography markets. Costs of revenue increased 34.6% to $8.5 million for the year ended September 30, 1998 from $6.3 million for the year ended September 30, 1997. This increase of $2.2 million was largely due to the hiring of support staff in the services unit. Costs of revenue for the Company's services increased to 60.4% as a percentage of services revenue for the year ended September 30, 1998 from 59.8% of services revenue for the year ended September 30, 1997 due to an increase in services support staff. Costs of revenue for the Company's products increased to 36.8% as a percentage of product revenue for the year ended September 30, 1998 from 33.6% of product revenue for the year ended September 30, 1997, due primarily to a change in product mix. Selling expenses for the year ended September 30, 1998 increased 7.1% to $4.5 million from $4.2 million during the year ended September 30, 1997 due to increased salary expense. Research and development expenses for the year ended September 30, 1998 increased 38.1% to $2.2 million from $1.6 million for the year ended September 30, 1997 due to the increase in research grant activity. General and administrative expenses for the year ended September 30, 1998 increased 42.6% to $2.3 million from $1.6 million for the year ended September 30, 1997, primarily as a result of increased legal expenses associated with the patent infringement suit. (See Item 3 - Legal Proceedings) Other income (expense), net, was $(25,000) in the year ended September 30, 1998 as compared to $(75,000) in the year ended September 30, 1997 as a result of the increase in interest income due to an increase in cash and cash equivalents resulting from the initial public offering. The Company's effective tax rate for 1998 was 38.2% as compared to 37.7% for fiscal 1997. This increase was primarily due to nondeductible foreign losses incurred in fiscal 1998. Liquidity and Capital Resources Since its inception, the Company's principal sources of cash have been cash flow generated from operations and funds received from bank borrowings and other financings including the Company's initial public offering completed in November 1997. At September 30, 1999, the Company had cash and cash equivalents of $1.9 million, compared to cash and cash equivalents of $1.2 million at September 30, 1998. The increase in cash resulted primarily from the increase in debt which partially funded the increase in capital expenditures made to expand the Company's facilities and operations. The Company's net cash provided by operating activities was $1.6 million for the year ended September 30, 1999. Cash provided by operations during the year ended September 30, 1999 consisted of net income of $570,000, plus non-cash charges of $1,321,000, less a net increase of $304,000 in operating assets and liabilities. The most significant increase in operating assets related to trade accounts receivable, which increased $638,000 at September 30, 1999. Cash used by investing activities decreased to $4.0 million for the year ended September 30, 1999 from $5.0 million for the year ended September 30, 1998, primarily as a result of the Company's completed construction of additional facilities. Cash provided by financing activities for fiscal 1999 was $3.2 million due to the increase in debt. The Company's net cash provided by operating activities was $2.4 million for the year ended September 30, 1998. Cash provided by operations during the year ended September 30, 1998 consisted of net income of $412,000, 19 plus non-cash charges of $989,000, plus a net decrease of $969,000 in operating assets and liabilities. The most significant decrease in operating assets related to trade accounts receivable, which decreased $431,000 at September 30, 1998. Cash used by investing activities increased to $5.0 million for the year ended September 30, 1998 from $4.0 million for the year ended September 30, 1997, primarily as a result of the Company's purchase and construction of additional facilities, as well as the acquisition of Clinical Innovations (BAS Analytics, Ltd). Cash provided by financing activities for fiscal 1998 was $3.7 million due to the initial public offering partially offset by the reduction of debt. Total expenditures by the Company for property and equipment were $4.1 million, $4.9 million and $4.1 million in fiscal 1999, 1998 and 1997, respectively. Expenditures made in connection with the expansion of the Company's operating facilities and purchases of laboratory equipment account for the largest portions of these expenditures. The increased capital investments relate to the completion of the renovation and construction of additional facilities and the purchase of additional laboratory equipment corresponding to anticipated increases in research services to be provided by the Company. The Company expects to make other investments to expand its operations through internal growth, strategic acquisitions, alliances and joint ventures. However, the Company currently has no firm commitments for capital expenditures. Based on its current business activities, the Company believes that cash generated from its operations, amounts available under its existing bank lines of credit and credit facility and the remaining net proceeds from its initial public offering will be sufficient to fund the Company's working capital and capital expenditure requirements for the foreseeable future. The Company has a working capital line of credit, which expires April 1, 2000 and allows borrowings of up to $3,500,000. Interest accrues monthly on the outstanding balance at the bank's prime rate minus 25 basis points (8.0 % at September 30, 1999) or at the London Interbank Offered Rate (LIBOR) plus 2% as elected by the Company. The line is collateralized by inventories and accounts receivable and requires the Company to maintain certain financial ratios. There was no balance outstanding on this line of credit at September 30, 1999. The Company has an acquisition line of credit agreement, which expires April 1, 2000 and allows borrowings of up to $4,000,000. Interest accrues monthly on the outstanding balance at the bank's prime rate (8.25 % at September 30, 1999). There was no balance outstanding on this line of credit at September 30, 1999. On June 24, 1999 the Company obtained a $3,500,000 commercial mortgage with a bank. The mortgage note requires 59 monthly principal payments of $19,444 plus interest followed by a final payment for the unpaid principal amount of $2,352,804 due June 24, 2004. Interest is charged at the one-month LIBOR rate plus 200 basis points (7.40% at September 30, 1999). Inflation The Company believes that inflation has not had a material adverse effect on its business, operations or financial condition. Year 2000 The Company undertook in fiscal 1998 to identify information technology and other systems which may not be Year 2000 compliant. The Company has modified its computer hardware and software systems to recognize the Year 2000. Management has contacted significant suppliers, customers and financial institutions to ensure that those parties have appropriate plans to remediate Year 2000 issues where their systems interface with the Company's systems or impact its operations. The Company is also assessing the effect on its operations should those organizations fail to properly remediate their computer systems. The cost of the Year 2000 initiatives is not expected to be material to the Company's results of operations or financial position. 20 New Accounting Pronouncements Effective October 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires that those enterprises report selective information about operating segments in interim financial reports. SFAS No. 131 also establishes standards about products and services, geographic areas and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position, but did affect the disclosure of segment information. Effective October 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting Comprehensive Income," which requires entities to report comprehensive income in their financial statements. Comprehensive income refers to the change in an entity's equity during a period resulting from all transactions and events other than capital contributed by and distributions to the entity's owners. For the Company, comprehensive income is equal to net income adjusted for the change in currency translation. The Company has elected to report comprehensive income in the consolidated statements of shareholders' equity. The Company's prior years' financial statements have been reclassified for comparative reporting purposes, however, there was no change in the net income or total shareholders' equity previously reported for the years ended September 30, 1998 and 1997. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. 21 Item 8. Financial Statements and Supplementary Data Report of Independent Auditors Board of Directors and Shareholders Bioanalytical Systems, Inc. We have audited the accompanying consolidated balance sheets of Bioanalytical Systems, Inc. as of September 30, 1999 and 1998, and the related consolidated statements of income, preferred shares and shareholders' equity and cash flows for each of the three years in the period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bioanalytical Systems, Inc. at September 30, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1999 in conformity with generally accepted accounting principles. Ernst & Young LLP Indianapolis, Indiana November 5, 1999 22
Bioanalytical Systems, Inc. Consolidated Balance Sheets September 30, 1999 1998 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 1,924,409 $ 1,208,157 Accounts receivable: Trade 3,564,795 2,774,714 Grants 46,752 209,164 Other 71,715 61,603 Inventories 1,790,733 1,880,680 Deferred income taxes 242,260 168,649 Prepaid expenses 80,600 59,694 ------------ ------------ Total current assets 7,721,264 6,362,661 Property and equipment: Land and improvements 171,014 171,014 Buildings and improvements 11,638,468 8,355,058 Machinery and equipment 9,144,104 7,463,099 Office furniture and fixtures 1,318,662 1,073,572 Construction in process 106,798 1,464,092 ------------ ------------ 22,379,046 18,526,835 Less accumulated depreciation and amortization (5,023,942) (3,975,912) ------------ ------------ 17,355,104 14,550,923 Goodwill, less accumulated amortization of $143,328 in 1999 and, $62,120 in 1998 1,053,057 1,134,265 Other assets 191,429 231,865 ------------ ------------ Total assets $26,320,854 $22,279,714 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 2,019,989 $ 1,940,615 Income taxes payable 2,260 155,480 Accrued expenses 815,770 352,403 Customer advances 154,521 319,420 Current portion of capital lease obligation 220,432 308,447 Current portion of long-term debt 233,328 - ------------ ------------ Total current liabilities 3,446,300 3,076,365 Capital lease obligation, less current portion 903,315 1,123,747 Long-term debt, less current portion 3,208,340 - Deferred income taxes 1,341,605 1,236,093 Shareholders' equity: Preferred shares: Authorized shares - 1,000,000 Issued and outstanding shares - none Common shares, no par value: Authorized shares - 19,000,000 Issued and outstanding shares - 4,514,349 in 1999, and 4,495,319 in 1998 999,992 995,778 Additional paid-in capital 10,481,978 10,467,957 Retained earnings 5,959,919 5,390,342 Accumulated other comprehensive income (loss) (20,595) (10,568) ------------ ------------ 17,421,294 16,843,509 ------------ ------------ Total liabilities and shareholders' equity $ 26,320,854 $ 22,279,714 ============ ============ See accompanying notes.
23
Bioanalytical Systems, Inc. Consolidated Statements of Income Year ended September 30, 1999 1998 1997 ------------ ------------ ------------ Services revenue $ 9,992,670 $ 7,608,792 $ 4,991,348 Product revenue 9,858,271 10,616,363 9,932,022 ------------ ------------ ------------ Total revenue 19,850,941 18,225,155 14,923,370 Cost of services revenue 6,498,817 4,598,266 2,985,858 Cost of product revenue 3,943,437 3,910,740 3,334,413 ------------ ------------ ------------ Total cost of revenue 10,442,254 8,509,006 6,320,271 ------------ ------------ ------------ Gross profit 9,408,687 9,716,149 8,603,099 Operating expenses: Selling 3,942,681 4,524,664 4,224,523 Research and development 1,955,673 2,164,951 1,568,417 General and administrative 2,549,806 2,335,564 1,638,465 ------------ ------------ ------------ Total operating expenses 8,448,160 9,025,179 7,431,405 ------------ ------------ ------------ Operating income 960,527 690,970 1,171,694 Interest income 30,842 86,521 4,835 Interest expense (226,518) (92,855) (100,177) Other income (expense) 93,520 (26,587) 12,306 Gain (loss) on sale of property and equipment (11,293) 8,486 8,831 ------------ ------------ ------------ Income before income taxes 847,078 666,535 1,097,489 Income taxes 277,501 254,342 413,395 ------------ ------------ ------------ Net income $ 569,577 $ 412,193 $ 684,094 ============ ============ ============ Net income available to common shareholders $ 569,577 $ 412,193 $ 657,046 Net income per share: Basic $ 0.13 $ 0.10 $ 0.30 Diluted $ 0.12 $ 0.09 $ 0.21 Weighted average common shares outstanding: Basic 4,505,819 4,117,088 2,221,146 Diluted 4,675,850 4,402,755 3,101,429 See accompanying notes.
24
Bioanalytical Systems, Inc. Consolidated Statements of Preferred Shares and Shareholders' Equity Accumulated Redeemable Convertible Other Total Preferred Preferred Common Additional Retained Comprehensive Shareholders' Shares Shares Shares Paid-in Capital Earnings Income Equity ---------- ------------ -------- --------------- ----------- ------------- ------------- Balance at September 30, 1996 $ 298,302 $ 1,231,242 $484,375 $ 151,233 $4,321,103 $ (1,043) $ 6,485,212 Comprehensive income Net income - - - - 684,094 - 684,094 Other comprehensive income: Foreign currency translation adjustments - - - - - (1,901) (1,901) ------- Total comprehensive income 682,193 Accrual of cumulative dividends on preferred shares 27,048 - - - (27,048) - - Exercise of stock options - - 13,500 27,000 - - 40,500 Redemption of preferred shares (325,350) - - - - - (325,350) ---------- ------------ -------- ----------- ----------- --------- ------------ Balance at September 30, 1997 - 1,231,242 497,875 178,233 4,978,149 (2,944) 6,882,555 Comprehensive income Net income - - - - 412,193 - 412,193 Other comprehensive income: Foreign currency translation adjustments - - - - - (7,624) (7,624) ------- Total comprehensive income 404,569 Conversion of preferred shares at IPO - (1,231,242) 166,667 1,064,575 - - - Exercise of stock options - - 32,192 165,454 - - 197,646 Issuance of common stock at IPO - - 299,044 9,059,695 - - 9,358,739 ---------- ------------ -------- ----------- ----------- --------- ------------ Balance at September 30, 1998 - - 995,778 10,467,957 5,390,342 (10,568) 16,843,509 Comprehensive income Net income - - - - 569,577 - 569,577 Other comprehensive income: Foreign currency translation adjustments - - - - - (10,027) (10,027) -------- Total comprehensive income 559,550 Exercise of stock options - - 4,214 14,021 - - 18,235 ---------- ------------ -------- ----------- ----------- --------- ------------ Balance at September 30, 1999 $ - $ - $999,992 $10,481,978 $5,959,919 $(20,595) $17,421,294 ========== ============ ======== =========== =========== ========= ============ See accompanying notes.
25
Bioanalytical Systems, Inc. Consolidated Statements of Cash Flows Year ended September 30, 1999 1998 1997 ------------ ------------ ------------ Operating activities Net income $ 569,577 $ 412,193 $ 684,094 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,196,353 841,854 524,389 Amortization 81,208 32,118 12,000 Loss (gain) on sale of property and equipment 11,293 (8,486) (8,831) Deferred income taxes 31,901 122,973 56,080 Changes in operating assets and liabilities: Accounts receivable (637,781) 431,159 (1,361,559) Inventories 89,947 113,507 20,619 Prepaid expenses and other assets 19,530 159,274 (107,656) Accounts payable 79,374 369,983 611,071 Income taxes payable (153,220) (212,652) 216,591 Accrued expenses 463,367 (16,990) 112,767 Customer advances (164,899) 124,551 82,115 ------------ ------------ ------------ Net cash provided by operating activities 1,586,650 2,369,484 841,680 Investing activities Capital expenditures (4,054,319) (3,508,342) (4,095,651) Proceeds from sale of property and equipment 42,492 77,359 70,778 Payments for purchase of net assets from Vetronics, net of cash acquired - (327,740) - Payments for purchase of net assets from Clinical Innovations, net of cash acquired - (1,265,230) - ------------ ------------ ------------ Net cash used by investing activities (4,011,827) (5,023,953) (4,024,873) Financing activities Borrowings on lines of credit 2,850,000 860,093 615,377 Payments on lines of credit (2,850,000) (1,375,470) (100,000) Payments on capital lease obligations (308,447) (187,894) (83,321) Borrowings of long-term debt 3,500,000 43,365 2,722,995 Payments of long-term debt (58,332) (5,187,567) (119,108) Net proceeds from Initial Public Offering - 9,358,739 - Net proceeds from the exercise of stock options 18,235 197,646 40,500 Redemption of preferred shares - - (325,350) ------------ ------------ ------------ Net cash provided by financing activities 3,151,456 3,708,912 2,751,093 Effect of exchange rate changes (10,027) (7,624) (1,901) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 716,252 1,046,819 (434,001) Cash and cash equivalents at beginning of year 1,208,157 161,338 595,339 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 1,924,409 $ 1,208,157 $ 161,338 ============ ============ ============ See accompanying notes.
26 Bioanalytical Systems, Inc. Notes to Consolidated Financial Statements September 30, 1999 1. Significant Accounting Policies Nature of Business Bioanalytical Systems, Inc. and its subsidiaries (the "Company") engages in laboratory services, consulting and research related to analytical chemistry and chemical instrumentation. The Company also manufactures scientific instruments for use in the determination of trace amounts of organic compounds in biological, environmental and industrial materials. The Company sells its equipment and software for use in industrial, governmental and academic laboratories. The Company's customers are located in the United States and throughout the world. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Financial Instruments Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral on trade accounts receivable. The Company's cash and cash equivalents, accounts receivable, accounts payable and certain other accrued liabilities are all short-term in nature and their carrying amounts approximate fair value. The Company's bank debt has primarily variable interest rates, thus their carrying amounts approximate fair value. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method. Goodwill Goodwill represents the excess of cost of acquisitions over the fair value of net assets acquired and is amortized by the straight-line method over periods ranging from 15-20 years. 27 1. Significant Accounting Policies (continued) Property and Equipment Property and equipment is recorded at cost, including interest capitalized in connection with the construction of major facilities. Depreciation, including amortization on capital leases, is computed using the straight-line method over the estimated useful lives of 4 through 40 years. Expenditures for maintenance and repairs are charged to expense as incurred. Revenue Recognition The Company's pharmaceutical service contracts generally have terms ranging from several months to several years. The typical contract is one year in duration and includes a one-year renewal option. A portion of the contract fee is generally payable upon receipt of the initial samples with the balance payable in installments over the life of the contract. A majority of the Company's contracts are broken down into discrete units of deliverable services for which a fixed fee for each unit is established and revenue and related direct costs are recognized as units of deliverable services are fulfilled. For all other service contracts, the Company allocates a ratable portion of the total contract fee to the units of deliverable services and recognizes revenue and the related direct costs as the units of deliverable services are fulfilled. Revenue from the sale of the Company's products and the related costs are recognized upon shipment of the products to customers. Advertising Expense The Company expenses advertising costs as incurred. Advertising expense was $308,831, $551,848 and $275,850 for 1999, 1998 and 1997, respectively. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Stock Options In accordance with Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," the Company uses the intrinsic value method to account for stock options, consistent with the existing rules established by Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees." Segment Reporting Effective October 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires that those enterprises report selective information about operating segments in interim financial reports. SFAS No. 131 also establishes standards about products and services, geographic areas and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position, but did affect the disclosure of segment information. 28 1. Significant Accounting Policies (continued) Comprehensive Income Effective October 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting Comprehensive Income," which requires entities to report comprehensive income in their financial statements. Comprehensive income refers to the change in an entity's equity during a period resulting from all transactions and events other than capital contributed by and distributions to the entity's owners. For the Company, comprehensive income is equal to net income adjusted for the change in currency translation. The Company has elected to report comprehensive income in the consolidated statements of shareholders' equity. The Company's prior years' financial statements have been reclassified for comparative reporting purposes, however, there was no change in the net income or total shareholders' equity previously reported for the years ended September 30, 1998 and 1997. 2. Earnings Per Share 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 and convertible preferred shares, which are assumed to be converted. The dilutive effect of employee and director options to purchase common shares was to increase the weighted average number of common shares outstanding by 170,031, 172,382, and 127,884 shares in 1999, 1998 and 1997, respectively. The dilutive effect of convertible preferred shares was to increase the weighted average number of common shares outstanding by 113,285 and 752,399 shares in 1998 and 1997, respectively. 3. Acquisitions Effective October 31, 1997, the Company acquired all of the capital stock of Vetronics Inc. for cash approximating $200,000 and a $150,000 note payable. The acquired business was involved in the distribution of veterinary equipment and supplies in the United States. Effective July 1, 1998, the Company acquired all of the capital stock of Clinical Innovations Ltd. for cash approximating $1,500,000. The acquired business was involved in the processing of bioanalytical samples for pharmaceutical firms in the United Kingdom. Both acquisitions were accounted for using the purchase method of accounting and the results of operations have been included in the consolidated financial statements since the dates of their acquisition. The purchase price was allocated to the net assets acquired, including $956,000 to goodwill, based upon the fair market value at the date of acquisition. On an unaudited pro forma basis, revenue, net income and net income per common share (diluted) for the years ended September 30, 1998 and 1997 was $19,413,000, $718,000, $0.16 and $16,840,000, $1,154,000, $0.37, respectively. This pro forma data presents the consolidated results of operations as if the acquisitions had occurred on October 1, 1996, after giving effect to certain adjustments, including amortization of goodwill, increased interest expense and related income tax effects. The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the acquisition been in effect on the date indicated, or which may occur in the future. 29 3. Acquisitions (continued) Pro forma amounts for the years ended September 30, 1998 and 1997 include the acquired entities' financial data for the years ended December 31 and February 28, respectively, as it was not practicable to determine the September 30 year end results. 4. Inventories Inventories at September 30 consisted of the following: 1999 1998 ---- ---- Raw materials $ 1,049,682 $ 966,314 Work in progress 253,329 316,648 Finished goods 594,549 677,522 ----------- ----------- 1,897,560 1,960,484 LIFO reserve (106,827) (79,804) ------------- ------------ $1,790,733 $1,880,680 ========== ========== 5. Debt Arrangements The Company has a working capital line of credit, which expires April 1, 2000 and allows borrowings of up to $3,500,000. Interest accrues monthly on the outstanding balance at the bank's prime rate minus 25 basis points (8.0 % at September 30, 1999) or at the London Interbank Offered Rate (LIBOR) plus 2% as elected by the Company. The line is collateralized by inventories and accounts receivable and requires the Company to maintain certain financial ratios. There was no balance outstanding on this line of credit at September 30, 1999. The Company has an acquisition line of credit agreement, which expires April 1, 2000 and allows borrowings of up to $4,000,000. Interest accrues monthly on the outstanding balance at the bank's prime rate (8.25 % at September 30, 1999). There was no balance outstanding on this line of credit at September 30, 1999. On June 24, 1999 the Company obtained a $3,500,000 commercial mortgage with a bank. The mortgage note requires 59 monthly principal payments of $19,444 plus interest followed by a final payment for the unpaid principal amount of $2,352,804 due June 24, 2004. Interest is charged at the one-month LIBOR rate plus 200 basis points (7.40% at September 30, 1999). Cash interest payments of $287,058, $260,249 and $345,018 were made in 1999, 1998 and 1997, respectively. Cash interest payments for 1999, 1998 and 1997 included interest of $64,833, $127,077 and $266,200, respectively, which was capitalized. These amounts included interest required to be paid on a portion of the undistributed earnings of a subsidiary which qualifies as a domestic international sales corporation. 30 6. Lease Arrangements The Company has capital lease arrangements to finance the acquisition of equipment. Future minimum lease payments, based upon scheduled payments under the lease arrangements, as of September 30, 1999, are as follows: 2000 $ 307,494 2001 307,494 2002 307,494 2003 302,215 2004 126,932 ----------- Total minimum lease payments 1,351,629 Amounts representing interest (227,882) ----------- Present value of minimum lease payments 1,123,747 Less current portion (220,432) ----------- $ 903,315 =========== The total amount of property and equipment capitalized under capital lease obligations as of September 30, 1999 and 1998 was $1,917,625. Accumulated amortization at September 30, 1999 and 1998 was $482,604 and $290,841, respectively. The Company leases office space under noncancelable operating leases that terminate in 2004. These leases contain renewal options ranging from 1 to 5 years. Total rental expense was $33,849, $27,498 and $26,058 in 1999, 1998, and 1997, respectively. Future minimum lease payments at September 30, 1999 are as follows: 2000 $24,975 2001 19,890 2002 19,890 2003 19,890 2004 3,315 ======= $87,960 ======= 31 7. Income Taxes Significant components of the Company's deferred tax liabilities and assets as of September 30 are as follows: 1999 1998 ---- ---- Deferred tax liabilities: Tax over book depreciation $1,114,510 $ 952,224 Deferred DISC income 227,095 283,869 ----------- ----------- Total deferred liabilities 1,341,605 1,236,093 Deferred tax assets: Inventory pricing 64,380 69,559 Accrued vacation 125,199 73,743 Other-net 52,681 25,347 Foreign net operating loss 200,698 207,116 ----------- ----------- Total deferred tax assets 442,958 375,765 Valuation allowance for deferred tax assets (200,698) (207,116) ----------- ----------- Net deferred tax assets 242,260 168,649 ---------- ----------- Net deferred tax liabilities $1,099,345 $1,067,444 ---------- ----------- Significant components of the provision for income taxes are as follows: 1999 1998 1997 ---- ---- ---- Current: Federal $146,471 $ 80,911 $265,776 State 99,129 50,458 91,539 -------- -------- -------- Total current 245,600 131,369 357,315 Deferred: Federal 25,581 99,504 54,849 State 6,320 23,469 1,231 -------- -------- -------- Total deferred 31,901 122,973 56,080 -------- -------- -------- $277,501 $254,342 $413,395 ======== ======== ======== 32 7. Income Taxes (continued) The effective income tax rate varied from the statutory federal income tax rate as follows: 1999 1998 1997 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% Increases (decreases): Amortization of goodwill and other 2.9 3.3 1.2 Nondeductible expenses Benefit of foreign sales corporation, net (5.7) (6.2) (5.8) State income taxes, net of federal tax 8.2 7.4 5.6 benefit Research and development credit (7.2) (13.4) (5.0) Nondeductible foreign losses 1.1 10.3 7.6 Other (0.5) 2.8 0.1 32.8% 38.2% 37.7% In fiscal 1999, 1998 and 1997, the Company's foreign operations generated a loss before income taxes of $26,771, $201,294 and $245,800, respectively. Payments made in 1999, 1998, and 1997 for federal and state income taxes amounted to $212,400, $78,000 and $140,000, respectively. 8. Shareholders' Equity Initial Public Offering On September 24, 1997, the Company's Board of Directors approved a 4.514 for 1 share split of Common Shares effective November 21, 1997. All Common Share and per share amounts and information concerning stock option plans have been adjusted retroactively to give effect to this share split. On November 26, 1997, the Company completed an initial public offering of 1,250,000 Common Shares at an offering price of $8.00 per share. On December 19, 1997, the underwriters exercised an option to purchase an additional 100,000 Common Shares. The net proceeds to the Company from the public offering and the exercise of the over-allotment option by the underwriters, after deducting the underwriting discounts and commissions and offering expenses payable by the Company, were approximately $9.4 million. Upon the closing of the offering, all of the Company's outstanding Convertible Preferred Shares were converted into 752,399 Common Shares. Stock Option Plans During 1990, the Company established an Employee Incentive Stock Option Plan whereby options to purchase shares of the Company's Common Shares at fair market value can be granted to employees of the Company. Options granted become exercisable in four equal installments beginning two years after the date of the grant. The plan terminates in the year 2000. During fiscal 1989, the Company established an Outside Director Stock Option Plan whereby options to purchase shares of the Company's Common Shares at fair market value can be granted to outside directors. Options granted become exercisable in four equal installments beginning two years after the date of grant. The plan terminated on January 1, 1999. 33 8. Shareholders' Equity (continued) The Company has adopted new stock option plans in connection with its initial public offering and accordingly does not plan to grant any more options pursuant to the plans discussed above. During fiscal 1998, the Company established an Employee Stock Option Plan whereby options to purchase shares of the Company's Common Stock at fair market value can be granted to employees of the Company. Options granted become exercisable in four equal installments beginning two years after the date of grant. The plan terminates in fiscal 2008. During fiscal year 1998, the Company established an Outside Director Stock Option Plan whereby options to purchase shares of the Company's Common Stock at fair market value can be granted to outside directors. Options granted become exercisable in four equal installments beginning two years after the date of grant. The plan terminates in fiscal 2008. A summary of the Company's stock option activity and related information for the years ended September 30 is as follows:
1999 1998 1997 ----------------------- ---------------------- ----------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price -------- --------- --------- -------- -------- -------- Outstanding beginning of year 164,343 $2.70 272,671 $1.27 338,129 $1.16 Exercised (19,030) .96 (145,328) 1.36 (60,944) .66 Granted 73,000 4.25 39,000 8.00 - - Terminated (12,014) 3.73 (2,000) 8.00 (4,514) 1.32 -------- --------- -------- Outstanding end of year 206,299 $3.35 164,343 $2.70 272,671 $1.27 ======== ========= ========
34 8. Shareholders' Equity (continued)
Weighted Number Average Weighted Number Weighted Outstanding at Remaining Average Exercisable at Average Range of September 30, Contractual Exercise September 30, Exercise Exercise Prices 1999 Life Price 1999 Price - --------------- -------------- ---------------- ---------- ----------------- ---------- $0.66 - $1.00 50,050 .27 $0.66 50,050 $0.66 $1.01 - $1.50 8,292 2.28 $1.33 8,292 $1.33 $1.51 - $2.10 45,457 3.53 $1.73 45,457 $1.73 $2.11 - $8.00 102,500 8.84 $5.55 - - ------- ------- 206,299 103,799 ======= =======
Disclosure of pro forma information regarding net income and earnings per share is required by SFAS No. 123 as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994, under the fair value method as defined by that Statement. The fair value for options granted by the Company was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: Risk-free interest rate 5.50% Dividend yield 0.00% Volatility factor of the expected market price of the Company's common stock .43 (.52 in 1998) Expected life of the options (years) 7 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 35 8. Shareholders' Equity (continued) For purposes of pro forma disclosures, the estimated fair value of the options are amortized to expense over the related vesting period. Because compensation expense is recognized over the vesting period, the initial impact on pro forma net income may not be representative of compensation expense in future years, when the effect of amortization of multiple awards would be reflected in the consolidated statements of income. The Company's pro forma information giving effect to the estimated compensation expense related to stock options is as follows: 1999 1998 ---- ---- Pro forma net income $ 504,268 $ 367,190 Pro forma net income per share (diluted) $ 0.11 $.08 The weighted average fair value of options granted during the year was $2.29 in 1999 and $4.77 in 1998. 9. Retirement Plan Effective July 1, 1984, the Company established an Internal Revenue Code Section 401(k) Retirement Plan covering all employees over twenty-one years of age with at least one year of service. Under the terms of the Plan, the Company contributes 2% of each participant's total wages to the Plan. The Plan also includes provisions for various contributions which may be instituted at the discretion of the Board of Directors. The contribution made by the participant may not exceed 10% of the participant's annual wages. The Company made no discretionary contributions under the Plan in 1999, 1998, and 1997. Contribution expense was $227,022, $187,896 and $158,924 in 1999, 1998 and 1997, respectively. 10. Segment Information The Company operates in two principal segments - analytical services and analytical products. The Company's analytical services unit provides analytical chemistry support on a contract basis directly to pharmaceutical companies. The Company's analytical products unit provides liquid chromatography, electrochemical, and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions. The Company evaluates performance and allocates resources based on these segments. The accounting policies of these segments are the same as those described in the summary of significant accounting policies. 36 10. Segment Information (continued)
Operating Segments: Year Ended September 30, ------------------------------------------------ 1999 1998 1997 -------- -------- -------- (in thousands) Revenue Services $ 9,993 $ 7,609 $ 4,991 Products 9,858 10,616 9,932 -------- -------- -------- Total revenue $19,851 $18,225 $14,923 ======== ======== ======== Operating Income (Loss) Services $ 2,075 $ 1,753 $ 1,279 Products (1,114) (1,062) (107) -------- -------- -------- Total operating income 961 691 1,172 Corporate income (expenses) (114) (24) (75) -------- -------- -------- Income before income taxes $ 847 $ 667 $ 1,097 ======== ======== ======== Identifiable Assets Services $16,523 $12,819 $ 9,710 Product 9,798 9,461 6,221 -------- -------- -------- Total assets $26,321 $22,280 $15,931 ======== ======== ======== Depreciation and Amortization Services $ 912 $ 560 $ 292 Products 366 314 244 -------- -------- -------- Total depreciation and amortization $ 1,278 $ 874 $ 536 ======== ======== ======== Capital expenditures Services $ 3,285 $ 4,571 $ 3,943 Products 769 369 153 -------- -------- -------- Total capital expenditures $ 4,054 $ 4,940 $ 4,096 ======== ======== ========
37 10. Segment Information (continued) Geographic Information: Year Ended September 30 ---------------------------------- 1999 1998 1997 ------- ------- ------- (in thousands) Sales to external customers by geographic region North America $13,012 $12,715 $ 9,826 Pacific Rim: Japan 716 1,053 1,740 Other 695 771 1,215 Europe 2,776 1,126 1,105 Other 2,652 2,560 1,037 ------- ------- ------- $19,851 $18,225 $14,923 ======= ======= ======= Long-lived assets by geographic region North America $16,991 $14,632 $10,397 Europe 1,609 1,285 191 ------- ------- ------- $18,600 $15,917 $10,588 ======= ======= ======= Major Customers: During 1999, 1998 and 1997, a major United States-based pharmaceutical company accounted for approximately 22.2%, 19.6% and 20.9%, respectively, of the Company's total revenues and 23.9% and 27.3% of total trade accounts receivable at September 30, 1999 and 1998, respectively. The Company sells its products through international distributors, one of which represents 6%, 10% and 17% of 1999, 1998 and 1997 product sales, respectively. Accounts receivable from this foreign distributor were $39,522 and $107,034 at September 30, 1999 and 1998, respectively. 11. Litigation In April 1997, CMA Microdialysis Holding A.B. ("CMA") filed an action against the Company in the United States District Court for the District of New Jersey in which CMA alleged that the Company's microdialysis probes infringe U.S. Patent No. 4,693,832. The Company has filed an answer in which it denied infringement and in which it asserted that the patent on which CMA relies is invalid. The matter is now awaiting a trial date. Although an estimate of the possible loss has not been made, management intends to continue a vigorous defense of CMA's claims, and believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition or its results of operations. [Remainder of page intentionally left blank.] 38 Bioanalytical Systems, Inc. Quarterly Financial Data
Bioanalytical Systems, Inc. Unaudited (Amounts in thousands, except for per share data) For the Quarter Ended in Fiscal 1999 December 31 March 31 June 30 September 30 ----------- -------- ------- ------------ Total revenue $4,598 $5,057 $4,973 $5,223 Gross profit 2,096 2,537 2,277 2,499 Net income (loss) available to common (6) 200 67 309 shareholders Basic net income (loss) per common share(1) .00 .04 .01 .07 Diluted net income (loss) per common and common equivalent share(1) .00 .04 .01 .07 For the Quarter Ended in Fiscal 1998 December 31 March 31 June 30 September 30 ----------- -------- ------- ------------ Total revenue $4,330 $4,450 $4,521 $4,924 Gross profit 2,483 2,550 2,511 2,172 Net income available to common shareholders 196 231 130 (145) Basic net income per common share(1) .06 .05 .03 (.03) Diluted net income per common and common equivalent share(1) .05 .05 .03 (.03) (1) The sum of the net income per common share may not equal the annual net income per share due to interim quarter rounding.
39 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. [Remainder of page intentionally left blank.] 40 Part III Item 10. Directors and Executive Officers of the Registrant. The information included under the caption "Directors and Executive Officers" in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with its 1999 Annual Meeting of Shareholders (the "Proxy Statement") is incorporated herein by reference in response to this item. Item 11. Executive Compensation. The information included under the captions "Election of Directors - Compensation of Directors" and "Executive Compensation" in the Proxy Statement is incorporated herein by reference in response to this item. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information contained under the captions "Share Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is incorporated herein by reference in response to this item. Item 13. Certain Relationships and Related Transactions. The information contained under the caption "Certain Transactions" in the Proxy Statement is incorporated herein by reference in response to this item. [Remainder of page intentionally left blank.] 41 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this Report. 1. Financial Statements: Included as outlined in Item 8 of Part II of this report. Report of Independent Auditors. Consolidated Balance Sheets as of September 30, 1999 and September 30, 1998. Consolidated Statements of Income for the Years Ended September 30, 1999, 1998 and 1997. Consolidated Statements of Preferred Shares and Shareholders' Equity for the Years Ended September 30, 1999, 1998 and 1997. Consolidated Statements of Cash Flows for the Years Ended September 30, 1999, 1998 and 1997. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules: No schedules are required to be filed as part of this report. Schedules other than those listed above are omitted as they are not required, are not applicable, or the information is shown in the Notes to the Consolidated Financial Statements. (b) Reports on Form 8-K. None. (c) Exhibits. See Index to Exhibits. 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BIOANALYTICAL SYSTEMS, INC. (Registrant) By:/s/ Peter T. Kissinger ------------------------------------------------- Peter T. Kissinger President and Chief Executive Officer By:/s/ Douglas P. Wieten ------------------------------------------------- Douglas P. Wieten Chief Financial Officer, Treasurer and Controller (Principal Financial and Accounting Officer) Date: December 28, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date - --------- -------- ---- /s/ Peter T. Kissinger President, Chief Executive December 28, 1999 - ------------------------------------ Officer and Director Peter T. Kissinger /s/ Douglas P. Wieten Chief Financial Officer, December 28, 1999 - ------------------------------------ and Treasurer Douglas P. Wieten /s/ William E. Baitinger Director December 28, 1999 - ------------------------------------ William E. Baitinger /s/ Michael K. Campbell Director December 28, 1999 - ------------------------------------ Michael K. Campbell /s/ Candice B. Kissinger Director December 28, 1999 - ------------------------------------ Candice B. Kissinger /s/ Jack A. Kraeutler Director December 28, 1999 - ------------------------------------ Jack A. Kraeutler /s/ Ronald E. Shoup Director December 28, 1999 - ------------------------------------ Ronald E. Shoup /s/ W. Leigh Thompson Director December 28, 1999 - ------------------------------------ W. Leigh Thompson
43
INDEX TO EXHIBITS Sequential Number Numbering Assigned In System Page Regulation S-K Number of Item 601 Description of Exhibits Exhibit -------------- ----------------------- ----------- (2) No Exhibit (3) 3.1 Second Amended and Restated Articles of Incorporation of Bioanalytical Systems, Inc. (Incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 1997.) 3.2 Second Restated Bylaws of Bioanalytical Systems, Inc. (Incorporated by reference to Exhibit 3.2 to Form 10-Q for the quarter ended December 31, 1997.) (4) 4.1 Specimen Certificate for Common Shares (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1, Registration No. 333-36429). 4.2 See Exhibits 3.1 and 3.2 (9) No Exhibit (10) 10.1 Form of Employee Confidentiality Agreement (Incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-1, Registration No. 333-36429). 10.2 Bioanalytical Systems, Inc. Outside Director Stock Option Plan (Incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-1, Registration No. 333-36429). 10.3 Form of Bioanalytical Systems, Inc. Outside Director Stock Option Agreement (Incorporated by reference to Exhibit 10.3 to Registration Statement on Form S-1, Registration No. 333-6429). 10.4 Bioanalytical Systems, Inc. 1990 Employee Incentive Stock Option Plan (Incorporated by reference to Exhibit 10.4 to Registration Statement on Form S-1, Registration No. 333-6429). 10.5 Form of Bioanalytical Systems, Inc. 1990 Employee Stock Option Agreement (Incorporated by reference to Exhibit 10.5 to Registration Statement on Form S-1, Registration No. 333-6429). 10.6 Security Agreement by and between Bioanalytical Systems, Inc. and Bank One, Lafayette, N.A., dated August 22, 1996 (Incorporated by reference to Exhibit 10.17 to Registration Statement on Form S-1, Registration No. 333-36429). 44 10.7 Master Lease Agreement by and between Bioanalytical Systems, Inc. and Bank One Leasing Corporation dated November 9, 1994 (Incorporated by reference to Exhibit 10.18 to Registration Statement on Form S-1, Registration No. 333-36429). 10.8 Financing Lease by and between Bioanalytical Systems, Inc. and Bank One Leasing Corporation, dated November 9, 1994 (Incorporated by reference to Exhibit 10.19 to Registration Statement on Form S-1, Registration No. 333-36429). 10.9 Credit Agreement by and between Bioanalytical Systems, Inc. and Bank One, Indiana, N.A., dated August 30, 1996 (Incorporated by reference to Exhibit 10.24 to Registration Statement on Form S-1, Registration No. 333-36429). 10.10 Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Plan (Incorporated by reference to Exhibit 10.26 to Registration Statement on Form S-1, Registration No. 333-6429). 10.11 Form of Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.27 to Registration Statement on Form S-1, Registration No. 333-36429). 10.12 1997 Bioanalytical Systems, Inc. Outside Director Stock Option Plan (Incorporated by reference to Exhibit 10.28 to Registration Statement on Form S-1, Registration No. 333-36429). 10.13 Form of Bioanalytical Systems, Inc. 1997 Outside Director Stock Option Agreement (Incorporated by reference to Exhibit 10.29 to Registration Statement on Form S-1, Registration No. 333-6429). 10.14 Business Loan Agreement by and between Bioanalytical Systems, Inc., and Bank One, Indiana, N.A. dated March 1, 1998 (Incorporated by reference to Exhibit 10.14 to Form 10-Q for the quarter ended March 31, 1998). 10.15 Commercial Security Agreement by and between Bioanalytical Systems, Inc. and Bank One, Indiana, N.A., dated March 1, 1998 (Incorporated by reference to Exhibit 10.15 to Form 10-Q for the quarter ended March 31, 1998). 45 10.16 Negative Pledge Agreement by and between Bioanalytical Systems, Inc. and Bank One, Indiana, N.A., dated March 1, 1998 (Incorporated by reference to Exhibit 10.16 to Form 10-Q for the quarter ended March 31, 1998). 10.17 Promissory Note for $7,500,000 executed by Bioanalytical Systems, Inc. in favor of Bank One, N.A., dated March 1, 1998 (Incorporated by reference to Exhibit 10.17 to Form 10-Q for the quarter ended March 31, 1998). 10.18 Business Loan Agreement by and between Bioanalytical Systems, Inc. and Bank One, Indianapolis, NA, dated June 24, 1999 related to loan in the amount of $3,500,000 (Incorporated by reference to Exhibit 10.18 to Form 10-Q for the quarter ended June 30, 1999). (11) 11.1 Statement Regarding Computation of Per Share Earnings. (12) No Exhibit (13) No Exhibit (16) No Exhibit (18) No Exhibit (21) 21.1 Subsidiaries of the Registrant (22) No Exhibit (23) 23.1 Consent of Independent Auditors (24) No Exhibit (27) 27.1 Financial Data Schedule (99) No Exhibit
46 EX-11.1 2
Exhibit 11.1 - Statement Regarding Computation of Per share Earnings (Unaudited) (in thousands except per share data) Three Months Ended Three Months Ended Year Ended Year Ended September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998 ------------------ ------------------ ------------------ ------------------ Basic Average Common Shares outstanding 4,513 4,495 4,506 4,107 Net income available to Common shareholders 309 (145) 570 412 Per share amount $ .07 $ (.03) $ .13 $ .10 Diluted Average Common Shares outstanding 4,513 4,495 4,506 4,117 Net effect of dilutive stock options based on the Treasury stock method using the average market price 172 140 170 172 Assumed conversion of - 752 - 114 Preferred Shares Total 4,685 4,635 4,676 4,403 Net income available to $ 309 $ (145) $ 570 $ 412 common shareholders Per share amount $ .07 $ (.03) $ .12 $ .09
EX-21.1 3 Exhibit 21.1 - Subsidiaries of the Registrant List of Subsidiaries Name Jurisdiction of Organization - ---- ---------------------------- Bioanalytical Systems, Ltd. United Kingdom BAS Technicol, Ltd. United Kingdom BAS Analytics, Ltd. United Kingdom EX-23.1 4 Exhibit 23.1 - Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-56123) pertaining to the Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Plan and in the Registration Statement (Form S-8 No. 333-56127) pertaining to the 1997 Bioanalytical Systems, Inc. Outside Director Stock Option Plan of our report dated November 5, 1999 with respect to the consolidated financial statements included in this Annual Report (Form 10-K) of Bioanalytical Systems, Inc. /s/ Ernst & Young LLP Indianapolis, Indiana December 27, 1999 EX-27 5
5 This schedule contains summary financial information extracted from the Bioanalytical Systems, Inc. consolidated financial statements contained in the company's annual report on Form 10-K and is qualified in its entirety by reference to such financial statements. 1000 3-MOS YEAR SEP-30-1999 SEP-30-1999 JUL-1-1999 OCT-1-1998 SEP-30-1999 SEP-30-1999 1,924 1,924 0 0 3,683 3,683 0 0 1,791 1,791 7,721 7,721 17,355 17,355 5,024 5,024 26,321 26,321 3,446 3,446 0 0 0 0 0 0 1,000 1,000 16,421 16,421 26,321 26,321 2,822 9,858 5,223 19,851 1,219 3,943 2,724 10,442 2,024 8,448 0 0 (115) (227) 412 847 103 277 309 570 0 0 0 0 0 0 309 570 .07 .13 .07 .12
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