SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _____________ Commission File Number 0-23357 BIOANALYTICAL SYSTEMS, INC. --------------------------- (Exact name of the registrant as specified in its charter) INDIANA 35-1345024 ------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 2701 KENT AVENUE WEST LAFAYETTE, IN 47906 ------------------ ----- (Address of principal executive offices) (Zip code) (765) 463-4527 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO As of December 31, 2001, 4,575,509 Common Shares of the registrant were outstanding.
PAGE PART I FINANCIAL INFORMATION NUMBER Item 1 Financial Statements (Unaudited): Consolidated Balance Sheets as of December 31, 2001 and September 30, 2001 3 Consolidated Statements of Income for the Three Months 4 ended December 31, 2001 and 2000 Consolidated Statements of Cash Flows for the Three 5 Months Ended December 31, 2001 and 2000 Notes to Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial 8 Condition and Results of Operations Item 3 Quantitative and Qualitative Disclosures About Market Risk 10 PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 10 SIGNATURES 11 - 2 -
<TABLE> <CAPTION> ITEM 1. FINANCIAL STATEMENTS BIOANALYTICAL SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) December 31, September 30, 2001 2001 (Unaudited) (Note) ----------- ------ <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 636 $ 374 Accounts receivable, net 3,380 4,266 Inventories 2,960 2,391 Other current assets 193 71 Refundable income taxes 326 325 Deferred income taxes 443 443 -------- -------- Total Current Assets 7,938 7,870 Property and equipment: Land and improvements 496 496 Buildings and improvements 13,507 13,508 Machinery and equipment 11,148 10,795 Office furniture and fixtures 1,091 1,092 Construction in process 306 113 -------- -------- Total Property and Equipment 26,548 26,004 Less accumulated depreciation (7,443) (7,082) -------- -------- 19,105 18,922 Goodwill, less accumulated amortization of $296 and $281 947 963 Other assets 209 222 -------- -------- Total Assets $ 28,199 $ 27,977 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,992 $ 2,619 Income taxes payable 210 176 Accrued expenses 570 747 Customer advances 1,135 1,063 Revolving line of credit 883 236 Current portion of capital lease obligation 261 261 Current portion of long-term debt 233 233 -------- -------- Total current liabilities 5,284 5,335 Capital lease obligation, less current portion 338 403 Long-term debt, less current portion 2,684 2,742 Deferred income taxes 1,798 1,667 Shareholders equity: Preferred Shares: 1,000,000 shares authorized; no shares issued and outstanding --- --- Common Shares: 19,000,000 shares authorized; 4,575,509 and 4,569,416 shares issued and outstanding 1,014 1,012 Additional paid-in capital 10,515 10,506 Retained earnings 6,592 6,345 Accumulated other comprehensive loss (26) (33) -------- -------- Total shareholders' equity 18,095 17,830 -------- -------- Total liabilities and shareholders' equity $ 28,199 $ 27,977 ======== ======== <FN> Note: The balance sheet at September 30, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. See accompanying notes. </FN> </TABLE> - 3 -
<TABLE> <CAPTION> BIOANALYTICAL SYSTEMS, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share amounts) (Unaudited) Three Months Three Months Ended Dec 31, Ended Dec 31, 2001 2000 ------------- ------------- <S> <C> <C> Service revenue $ 3,569 $ 3,096 Product revenue 2,454 2,330 ---------- ---------- Total revenue 6,023 5,426 Cost of service revenue 2,620 2,241 Cost of product revenue 847 763 ---------- ---------- Total cost of revenue 3,467 3,004 Gross profit 2,556 2,422 Operating expenses: Selling 778 776 Research and development 323 394 General and administrative 1,018 761 ---------- ---------- Total operating expenses 2,119 1,931 ---------- ---------- Operating income 437 491 Interest income 6 --- Interest expense (59) (136) Other income 36 1 Loss on sale of property and equipment (8) --- ---------- ---------- Income before income taxes 412 356 Income taxes 165 161 ---------- ---------- Net income $ 247 $ 195 ========== ========== Basic net income per common share $ .05 $ .04 Diluted net income per common and common $ .05 $ .04 equivalent share Basic weighted average common shares 4,569,772 4,563,242 outstanding Diluted weighted average common and common 4,623,357 4,577,365 equivalent shares outstanding <FN> See accompanying notes. </FN> </TABLE> - 4 -
<TABLE> <CAPTION> BIOANALYTICAL SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Three Months Ended Dec 31, Ended Dec 31, 2001 2000 ------------- ------------- <S> <C> <C> Operating activities: Net income $ 247 $ 195 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 479 440 Loss on sale of property and equipment 8 --- Deferred income taxes 131 135 Changes in operating assets and liabilities: Accounts receivable 886 (367) Inventories (569) (102) Other assets (133) (81) Accounts payable (963) (80) Income taxes payable 33 (2) Accrued expenses and customer advances (105) (202) ---------- ---------- Net cash provided (used) by operating activities 14 (64) Investing activities: Capital expenditures (294) (129) ---------- ---------- Net cash used by investing activities (294) (129) Financing activities: Payments of long-term debt (123) (117) Borrowings on line of credit 870 481 Payments on line of credit (223) (252) Net proceeds from the exercise of stock options 11 1 ---------- ---------- Net cash provided by financing activities 535 113 Effects of exchange rate changes 7 (6) ---------- ---------- Net increase (decrease) in cash and cash equivalents 262 (86) Cash and cash equivalents at beginning of period 374 477 ---------- ---------- Cash and cash equivalents at end of period $ 636 $ 391 ========== ========== <FN> See accompanying notes. </FN> </TABLE> - 5 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) DESCRIPTION OF THE BUSINESS Bioanalytical Systems, Inc. and its subsidiaries (the "Company") engage in supporting drug development with products and research services supplied globally to pharmaceutical and biotechnology firms and research institutes. The Company provides productivity tools, software and services required to obtain numerical data supporting new drug and medical device applications. Company personnel have special expertise for research on central nervous system diseases, diabetes, in vivo sampling devices, veterinary instrumentation and biosensors. Antidepressants, antipsychotics, chemotherapeutics, antihypertensives, antibiotics and antivirals are among the drug programs in which the Company has participated. (2) INTERIM FINANCIAL STATEMENT PRESENTATION The accompanying interim financial statements are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements, and therefore these consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements, and the notes thereto, for the year ended September 30, 2001. In the opinion of management, the consolidated financial statements for the three month periods ended December 31, 2001 and 2000 include all normal and recurring adjustments which are necessary for a fair presentation of the results of the interim periods. The results of operations for the three month period ended December 31, 2001 are not necessarily indicative of the results for the year ending September 30, 2002. (3) INVENTORIES Inventories consisted of (in thousands): December 31, 2001 September 30, 2001 ----------------- ------------------ Raw materials $ 1,539 $ 1,322 Work in progress 441 303 Finished goods 1,090 877 ------- ------- 3,070 2,502 LIFO reserve (110) (111) ------- ------- $ 2,960 $ 2,391 (4) DEBT The Company has a revolving line of credit, which expires April 1, 2002 and allows borrowings of up to $3,500,000. Interest accrues monthly on the outstanding balance at the bank's prime rate minus 25 to plus 75 basis points (4.50% at December 31, 2001) or at the London Interbank Offered Rate (LIBOR) plus 200 to 300 basis points, as elected by the Company, depending upon certain financial ratios. The line is collateralized by inventories and accounts receivable and requires the Company to maintain certain financial ratios. The Company pays a fee equal to 12.5 to 50 basis points, depending on certain financial ratios, on the unused portion of the line of credit. As of December 31, 2001 and September 30, 2001, interest on the entire outstanding balance was based on the prime rate minus 25 basis points. The balance outstanding on this line of credit at December 31, 2001 was $883,487. - 6 -
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 (4.08% at December 31, 2001). (5) LITIGATION The Company is currently not involved in any material litigation. (6) SEGMENT INFORMATION The Company operated in two principal segments - analytical services and analytical products. The Company's analytical services unit provides chemistry support on a contract basis directly to pharmaceutical companies. The Company's 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. Operating Income Three Months Ended Three Months Ended (In thousands) December 31, 2001 December 31, 2000 ------------------ ------------------ Services $ 157 $ 282 Products 280 209 ----- ----- Total operating income 437 491 Corporate income (expenses) (25) (135) ----- ----- Income before income taxes $ 412 $ 356 (7) NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will be required to apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal year 2003. Application of the non-amortization provisions of the Statement is expected to result in an increase in net income of $77,000 (approximately $.02 per share) per year. The Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of October 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and also supercedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for segments of a business to be disposed of. Among its many provisions, SFAS No. 144 retains the fundamental requirements of both previous standards, however, it resolves significant implementation issues related to FASB Statement No. 121 and broadens the separate presentation of discontinued operations in the income statement required by APB Opinion No. 30 to include a component of an entity (rather than a segment of a business). The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001, with early application encouraged. The Company does not believe, based on current circumstances, the effect of adoption of SFAS No. 144 will be material. - 7 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-Q may contain "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and/or Section 21E of the Securities Exchange Act of 1934, as amended. Those statements may include, but are not limited to, discussions regarding the Company's intent, belief or current expectations with respect to (i) the Company's strategic plans; (ii) the Company's future profitability; (iii) the Company's capital requirements; (iv) industry trends affecting the Company's financial condition or results of operations; (v) the Company's sales or marketing plans; or (vi) the Company's growth strategy. Investors in the Company's Common Shares are cautioned that reliance on any forward-looking statement involves risks and uncertainties, including the risk factors contained in Exhibit 99.1 to the Company's annual report on Form 10-K for the year ended September 30, 2001. Although the Company believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based upon those assumptions also could be incorrect. In light of the uncertainties inherent in any forward-looking statement, the inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's plans and objectives will be achieved. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 2000 Total revenue for the three months ended December 31, 2001 increased 11.0% to $6.0 million from $5.4 million for the three months ended December 31, 2000. The net increase of $597,000 was primarily due to the addition of contracts in the service group, which increased service revenue to $3.6 million for the three months ended December 31, 2001 from $3.1 million for the three months ended December 31, 2000. Total cost of revenue for the three months ended December 31, 2001 increased 15.4% to $3.5 million from $3.0 million for the three months ended December 31, 2000. Cost of services revenue increased to 73.4% of services revenue for the three months ended December 31, 2001 from 72.4% for the three months ended December 31, 2000. Cost of product revenue increased to 34.5% of product revenue for the three months ended December 31, 2001 from 32.7% of product revenue for the three months ended December 31, 2000, primarily due to a change in product mix. Selling expenses for the three months ended December 31, 2001 increased to $778,000 from $776,000 for the three months ended December 31, 2000. Research and development expenses for the three months ended December 31, 2001 decreased 18.0% to $323,000 from $394,000 for the three months ended December 31, 2000, primarily as a result of an increase in grant reimbursements. General and administrative expenses for the three months ended December 31, 2001 increased 33.8% to $1.0 million from $761,000 for the three months ended December 31, 2000, primarily from the organizational restructuring of our preclinical operation. Other expense was $25,000 for the three months ended December 31, 2001, as compared to other expense of $135,000 for the three months ended December 31, 2000, primarily as a result of decreased interest expense due to the decrease in debt. The Company's effective tax rate for the three months ended December 31, 2001 was 40.0% as compared to 45.1% for the three months ended December 31, 2000, primarily due to the utilization of the tax benefit of foreign net operating losses. - 8 -
LIQUIDITY AND CAPITAL RESOURCES At December 31, 2001, the Company had cash and cash equivalents of $636,000 compared to cash and cash equivalents of $374,000 at September 30, 2001. The increase in cash resulted primarily from the Company's financing activities. The Company's net cash provided by operating activities was $14,000 for the three months ended December 31, 2001 as compared to net cash used of $64,000 for the first three months of fiscal 2000, primarily due to the decrease in accounts receivable in the quarter ended December 31, 2001. The positive cash flow from operations during the three months ended December 31, 2001, was the result of a net income of $247,000 plus non-cash charges of $618,000 offset by a net change of $(851,000) in operating assets and liabilities. Cash used by investing activities was $294,000 for the three months ended December 31, 2001 as compared to $129,000 for the three months ended December 31, 2000. This increase was primarily due to the increase of construction in progress at the preclinical site in Evansville, Indiana in the quarter ended December 31, 2001. Cash provided by financing activities for the three months ended December 31, 2001 was $535,000, primarily due to the increased utilization of the revolving line of credit. Total expenditures by the Company for property and equipment were $294,000 and $129,000 for the three months ended December 31, 2001 and 2000, respectively. Expenditures made in connection with the expansion of the Company's operating facilities and purchases of laboratory equipment accounted for the largest portions of these expenditures. The Company also expects to make other investments to expand its operations through internal growth and, as attractive opportunities arise, through strategic acquisitions, alliances and joint ventures. During 2001, the Company signed a letter of intent to expand facilities at its preclinical site in Evansville, Indiana. The commitment is for approximately $2.5 million. Construction on the facilities expansion is expected to be completed in December, 2002. The Company plans to obtain a mortgage with a commercial lender to finance this construction. Based on its current business activities, the Company believes that cash generated from its operations and amounts available under its existing bank line of credit will be sufficient to fund its anticipated working capital and capital expenditure requirements. The Company has a revolving line of credit, which expires April 1, 2002 and allows borrowings of up to $3,500,000. Interest accrues monthly on the outstanding balance at the bank's prime rate minus 25 to plus 75 basis points (4.50% at December 31, 2001) or at the London Interbank Offered Rate (LIBOR) plus 200 to 300 basis points, as elected by the Company, depending upon certain financial ratios. The line is collateralized by inventories and accounts receivable and requires the Company to maintain certain financial ratios. The Company pays a fee equal to 12.5 to 50 basis points, depending on certain financial ratios, on the unused portion of the line of credit. As of December 31, 2001 and September 30, 2001, interest on the entire outstanding balance was based on the prime rate minus 25 basis points. The borrowing base on this line of credit is limited to 80% of accounts receivable and 50% of inventory. The balance outstanding on this line of credit at December 31, 2001 was $883,487. 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 (4.08% at December 31, 2001). The Company has capital lease arrangements to finance the acquisition of equipment. Future minimum lease payments for the capital leases are $736,641 with $73,242 representing interest. The capital lease obligations will be paid in full by fiscal year 2004. - 9 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 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). 4.1 Specimen Certificate for Common Shares (Incorporated by reference to Exhibit 4.1 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. 333-36429). 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. 333-36429). 10.5 Form of Bioanalytical Systems, Inc. 1990 Employee Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.5 to Registration Statement on Form S-1, Registration No. 333-36429). 10.6 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. 333-36429). 10.7 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). 10.8 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). 10.9 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. 333-36429). 10.10 Business Loan Agreement by and between Bioanalytical Systems, Inc., and Bank One, Indiana, N.A. dated April 1, 2001. (Incorporated by reference to Exhibit 10.10 to Form 10-Q for the quarter ended June 30, 2001). 10.11 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). 10.12 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 -
10.13 Promissory Note by and between Bioanalytical Systems, Inc. and Bank One, Indiana, 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). 10.14 Promissory Note for $3,500,000 executed by Bioanalytical Systems, Inc. in favor of Bank One, Indiana, N.A. dated April 1, 2001. (Incorporated by reference to Exhibit 10.14 to Form 10-Q for the quarter ended June 30, 2001). 11.1 Statement Regarding Computation of Per Share Earnings. 99.1 Risk factors (Incorporated by reference Exhibit 99.1 to Form 10-K for the year ended September 30, 2001). (b) Reports on Form 8-K No report on Form 8-K was filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: BIOANALYTICAL SYSTEMS, INC. By /s/ PETER T. KISSINGER --------------------------- Peter T. Kissinger President and Chief Executive Officer Date: February 6, 2002 By /s/ DOUGLAS P. WIETEN --------------------------- Douglas P. Wieten Vice President-Finance, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer) Date: February 6, 2002 - 11 -