<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period 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 0-22879
BIORELIANCE CORPORATION
(Exact name of the registrant as specified in its charter)
DELAWARE 52-1541583
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14920 BROSCHART ROAD
ROCKVILLE, MARYLAND 20850
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(301) 738-1000
- --------------------------------------------------------------------------------
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 November 1, 1999, 7,928,523 shares of registrant's Common Stock, par value
$.01 per share, were outstanding.
================================================================================
<PAGE> 2
BIORELIANCE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999................................................... 3
Consolidated Statements of Income for the Three Months and
Nine Months Ended September 30, 1998 and 1999........................ 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1999.................................... 5
Notes to Consolidated Financial Statements........................... 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 10
Item 3 - Quantitative and Qualitative Disclosures About Market Risks...... 21
SIGNATURES.................................................................................. 22
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIORELIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1999
1998 (RESTATED)
(RESTATED) (UNAUDITED)
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 8,847 $ 14,419
Marketable securities................................................................. 18,250 7,928
Accounts receivable, net.............................................................. 21,741 19,416
Other current assets.................................................................. 2,506 1,706
---------- -----------
Total current assets................................................. 51,344 43,469
Property and equipment, net................................................................ 25,371 33,714
Deposits and other assets.................................................................. 572 979
---------- -----------
Total assets......................................................... $ 77,287 $ 78,162
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..................................................... $ 4,628 $ 4,065
Accounts payable...................................................................... 2,685 2,796
Accrued employee compensation and benefits............................................ 1,955 2,085
Other accrued liabilities............................................................. 1,862 2,428
Customer advances..................................................................... 2,632 1,987
Deferred income taxes................................................................. 1,551 1,790
---------- -----------
Total current liabilities............................................ 15,313 15,151
Deferred taxes............................................................................. 25 ---
Long-term debt............................................................................. 7,914 10,390
---------- -----------
Total liabilities.................................................... 23,252 25,541
---------- -----------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par value: 6,900,000 shares
authorized; no shares issued and outstanding....................................... --- ---
Common stock, $.01 par value: 15,000,000 shares authorized;
7,821,344 and 7,928,503 shares issued and outstanding............................... 78 79
Additional paid-in capital............................................................ 52,586 52,763
Retained earnings..................................................................... 1,661 450
Accumulated other comprehensive income................................................ (290) (671)
---------- -----------
Total stockholders' equity........................................... 54,035 52,621
---------- -----------
Total liabilities and stockholders' equity........................... $ 77,287 $ 78,162
========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
BIORELIANCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
1998 1999 1998 1999
(RESTATED) ---- (RESTATED) ----
---------- -----------
<S> <C> <C> <C> <C>
Revenue................................................ $ 12,978 $ 12,424 $ 37,798 $ 34,556
---------- ---------- ----------- -----------
Expenses:
Cost of sales.................................. 8,085 7,705 21,842 22,880
Selling, general and administrative............ 2,927 3,919 9,631 12,340
Research and development....................... 312 330 1,045 995
---------- ---------- ----------- -----------
11,324 11,954 32,518 36,215
---------- ---------- ----------- -----------
Income (loss) from operations.......................... 1,654 470 5,280 (1,659)
---------- ---------- ----------- -----------
Other (income) expense:
Interest income................................ (436) (193) (1,356) (979)
Interest expense............................... 149 227 381 611
Other expense.................................. 138 22 409 265
---------- ---------- ----------- -----------
(149) 56 (566) (103)
---------- ---------- ----------- -----------
Income (loss) before income taxes...................... 1,803 414 5,846 (1,556)
Income tax provision (benefit)......................... 675 188 2,288 (308)
---------- ---------- ----------- -----------
Net income (loss)...................................... $ 1,128 $ 226 $ 3,558 $ (1,248)
---------- ---------- ----------- -----------
Net income (loss) per share:
Basic.......................................... $ 0.14 $ 0.03 $ 0.46 $ (0.16)
========== ========== =========== ===========
Diluted........................................ $ 0.14 $ 0.03 $ 0.43 $ (0.16)
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
BIORELIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1998
(RESTATED) 1999
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................................... $ 3,558 $ (1,248)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation..................................................................... 2,436 3,314
Amortization expense............................................................. 162 196
Amortization of bond premiums and discounts...................................... (115) (390)
Loss on disposal................................................................. 24 6
Deferred income taxes, net....................................................... 1,024 214
Changes in current assets and liabilities:
Accounts receivable, net..................................................... (6,031) 2,539
Other current assets......................................................... 118 743
Accounts payable............................................................. (290) 63
Accrued employee compensation and benefits................................... (158) 131
Other accrued liabilities.................................................... (716) 613
Customer advances............................................................ (462) (631)
Increase in deposits and other assets............................................ (63) (643)
------------ -------------
Net cash provided by (used in) operating activities..................... (513) 4,907
------------ -------------
Cash flows from investing activities:
Purchases of marketable securities................................................. (28,358) (10,288)
Proceeds from the maturities of marketable securities.............................. 38,150 21,000
Purchases of property and equipment................................................ (3,880) (11,586)
------------ -------------
Net cash provided by (used in) investing activities..................... 5,912 (874)
------------ -------------
Cash flows from financing activities:
Proceeds from exercise of stock options........................................... 260 178
Proceeds from loan................................................................ --- 3,000
Payments on debt.................................................................. (675) (556)
Payments on capital lease obligations............................................. (493) (654)
Repurchase and cancellation of treasury stock..................................... (139) ---
------------ -------------
Net cash provided by (used in) financing activities..................... (1,047) 1,968
------------ -------------
Effect of exchange rate changes on cash and cash equivalents........................... 470 (429)
------------ -------------
Net increase in cash and cash equivalents.............................................. 4,822 5,572
Cash and cash equivalents, beginning of period......................................... 6,227 8,847
------------ -------------
Cash and cash equivalents, end of period............................................... $ 11,049 $ 14,419
============ =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
BIORELIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) DESCRIPTION OF THE BUSINESS
BioReliance Corporation (the "Corporation" or "BioReliance") is a
contract service organization providing nonclinical testing and contract
manufacturing services for biologics to biotechnology and pharmaceutical
companies worldwide.
(2) INTERIM FINANCIAL STATEMENTS PRESENTATION
The accompanying interim financial statements are unaudited and have
been prepared by the Corporation 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 audited consolidated financial statements, and the notes
thereto, included in the Corporation's Annual Report on Form 10-K. In the
opinion of management, the unaudited consolidated financial statements for the
three-month and nine-month periods ended September 30, 1998 and 1999 include all
normal and recurring adjustments which are necessary for a fair presentation of
the results of the interim period. The results of operations for the three-month
and nine-month periods ended September 30, 1998 and 1999 may not necessarily be
indicative of the results for the entire year ending December 31, 1999.
(3) PRIOR PERIOD ADJUSTMENTS
During the fourth quarter of 1999, the Corporation identified
approximately $342,000 in various credits in the accounts receivable subsidiary
ledgers that should have been recorded as revenue over the three-year period
1996-1998. The financial statements and related notes reflect all such
restatements. A summary of the impact of the restatements for the three months
and nine months ended September 30, 1998 and 1999 follows (in thousands except
per share amounts):
6
<PAGE> 7
<TABLE>
<CAPTION>
Results of Operations
---------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues.......................... $12,977 $12,978 $37,625 $37,798
Income from operations............ 1,653 1,654 5,107 5,280
Income before income taxes........ 1,802 1,803 5,673 5,846
Income tax provision.............. 675 675 2,222 2,288
Net income........................ 1,127 1,128 3,451 3,558
Net income per share:
Basic.......................... $0.14 $0.14 $0.44 $0.46
Diluted........................ 0.14 0.14 0.42 0.43
</TABLE>
The restatements did not impact the results of operations for the three and nine
months ended September 30, 1999.
<TABLE>
<CAPTION>
Financial Position
------------------
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Accounts receivable, net............. $21,399 $21,741 $19,037 $19,416
Total current assets................. 51,002 51,344 43,090 43,469
Total assets......................... 76,945 77,287 77,783 78,162
Other accrued liabilities............ 1,732 1,862 2,298 2,428
Total current liabilities............ 15,183 15,313 15,021 15,151
Total liabilities.................... 23,122 23,252 25,411 25,541
Retained earnings.................... 1,449 1,661 201 450
Total stockholders' equity........... 53,823 54,035 52,372 52,621
</TABLE>
(4) NET INCOME (LOSS) PER SHARE
The Corporation calculates earnings per share ("EPS") on both a basic
and diluted basis. Dilutive securities are excluded from the computation in
periods which they have an anti-dilutive effect. Net income (loss) available to
common stockholders and common equivalent stockholders is equal to net income
(loss) for all periods presented.
The following table represents reconciliations between the weighted
average common stock outstanding used in basic EPS and the weighted average
common and common equivalent shares outstanding used in diluted EPS for each of
the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Weighted average common stock outstanding............... 7,815 7,926 7,782 7,873
Stock options, as if converted......................... 409 228 468 ---
------ ------ ------ ------
Weighted average common and common
equivalent shares outstanding........................... 8,224 8,154 8,250 7,873
====== ====== ====== ======
</TABLE>
7
<PAGE> 8
(5) SEGMENT INFORMATION
Summarized financial information concerning the Corporation's reportable
segments, for the three months and nine months ended September 30, is shown in
the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
(RESTATED) ---- (RESTATED) ----
---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Testing and Development $ 11,445 $ 11,227 $ 33,503 $ 31,378
Manufacturing 1,533 1,197 4,295 3,178
-------- -------- -------- --------
Total $ 12,978 $ 12,424 $ 37,798 $ 34,556
======== ======== ======== ========
Gross Profit:
Testing and Development $ 4,869 $ 4,728 $ 16,036 $ 12,412
Manufacturing 24 (9) (80) (736)
-------- -------- -------- --------
Total $ 4,893 $ 4,719 $ 15,956 $ 11,676
======== ======== ======== ========
</TABLE>
The following table outlines the Corporation's revenue and gross profit
by geographic region for the three months and nine months ended September 30:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
(RESTATED) ---- (RESTATED) ----
---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
United States $10,951 $10,973 $32,310 $29,517
Europe 2,027 1,451 5,488 5,039
------- ------- ------- -------
Total $12,978 $12,424 $37,798 $34,556
======= ======= ======= =======
Gross Profit:
United States $ 4,357 $ 4,340 $14,281 $10,284
Europe 536 379 1,674 1,392
------- ------- ------- -------
Total $ 4,893 $ 4,719 $15,955 $11,676
======= ======= ======= =======
</TABLE>
(6) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivatives Instruments and for Hedging
Activities." SFAS No. 133 requires all derivatives to be recorded on the balance
sheet at fair value and establishes "special accounting" for the following three
different types of hedges: hedges of changes in the fair value of assets,
liabilities or firm commitments; hedges of the variable cash flows of forecasted
transactions; and hedges of foreign currency exposures of net investments in
foreign operations. SFAS No. 133 is effective for years beginning after June 15,
1999, with earlier adoption permitted. On July 8, 1999, the FASB issued SFAS No.
137, "Accounting for Derivative
8
<PAGE> 9
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 defers the effective date of SFAS No. 133 until
fiscal years beginning after June 15, 2000. The Corporation believes that the
effect of adoption of SFAS No. 133 will not be material.
(7) BORROWINGS
On July 1, 1999, the Corporation received the proceeds of a $3,000,000
loan from the Department of Business and Economic Development, a department of
the State of Maryland. The Corporation is required to use the proceeds in
connection with the Corporation's expansion and relocation activities in
Rockville, Maryland. The loan requires quarterly principal payments of $107,143
plus accrued interest and matures on June 30, 2006. The loan bears interest at
rates from 0% to 7.5% based on the Corporation achieving specific employment
levels over the next six years. The terms of the loan contain annual reporting
requirements, including the periodic reporting of employment data. At September
30, 1999, approximately $2.9 million was outstanding on the loan.
(8) CONTINGENCIES
The Corporation is involved in various claims and legal proceedings
arising in the ordinary course of business. The Corporation does not believe
that such claims or proceedings, individually or in the aggregate, will have a
material adverse effect on the Corporation's consolidated financial position or
results of operations.
The Corporation has been identified by the U.S. Environmental Protection
Agency ("EPA") as one of several hundred potentially responsible parties
("PRPs") under CERCLA with respect to the Ramp Industries, Inc., site in Denver,
Colorado. Although the Corporation believes that it sent only a small quantity
of waste to this site, liability under CERCLA can exceed a PRP's pro rata share
of cleanup costs. The EPA has incurred approximately $5 million to date to
remove wastes from this site and expects to incur approximately an additional
$1.3 million to remove the remaining wastes. However, the estimated total
cleanup costs have not been determined. A joint settlement proposal was
developed in October 1997 and submitted to EPA Region VIII representatives, who
have agreed to support the proposal to Senior EPA management and the Department
of Justice. There can be no assurance at this time that the joint settlement
proposal will be accepted by the Department of Justice. The Corporation believes
that the outcome of this matter will not have a material adverse effect on the
Corporation's financial position or results of operations.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements made in this Report are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any statement that may
predict, forecast, indicate, or imply future results, performance, or
achievements, and may contain the words "believe," "anticipate," "expect,"
"estimate," "project," "will be," "will continue," "will likely result," or
similar words or phrases. Forward-looking statements involve risks and
uncertainties that may cause actual results to differ materially from the
forward-looking statements. The risks and uncertainties are detailed from time
to time in reports filed by BioReliance with the Securities and Exchange
Commission, including in its Prospectus, dated July 28, 1997, and its Forms 10-K
and 10-Q, and include, among others, the following: general economic and market
conditions; the size and growth of the overall markets for biopharmaceuticals,
including the amounts spent on research and development by biotechnology and
pharmaceutical companies; changes in government regulations; the size, timing
and mix of contracts for the Corporation's products and services; the ability of
BioReliance to attract and retain qualified technical and management personnel;
seasonal demand for the Corporation's products and services; fluctuations and
difficulty in forecasting operating results; the ability of BioReliance to
sustain, manage or forecast its growth and utilize its facilities; the loss of
significant contracts or customers; business disruptions and other factors
referenced in the above reports. New risk factors emerge from time to time and
it is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on the Corporation's business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Given these risks and uncertainties, investors should not place undue reliance
on forward-looking statements as a prediction of actual results.
While BioReliance does, from time to time, communicate with securities
analysts, it is against BioReliance's policy to disclose to them any material
non-public information or other confidential information. Accordingly,
shareholders should not assume that BioReliance agrees with any statement or
report issued by any analyst irrespective of the content of the statement or
report. Furthermore, BioReliance has a policy against issuing or confirming
financial forecasts or projections issued by others. Thus, to the extent that
reports issued by securities analysts contain any projections, forecasts or
opinions, such reports are not the responsibility of BioReliance.
The following discussion and analysis of the Corporation's financial
condition and results of operations should be read in conjunction with the
Corporation's consolidated financial statements and related notes thereto
included elsewhere in this Form 10-Q.
10
<PAGE> 11
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenue was $12.4 million in the three months ended September 30, 1999,
a decrease of 4.6% from revenue of $13.0 million in the three months ended
September 30, 1998. The decrease was attributable to decreases in U.S. testing
and development revenue and European manufacturing revenue partially offset by
an increase in U.S. manufacturing revenue. Testing and development services
generated revenue of $11.2 million for the three months ended September 30,
1999, a decrease of 2.6% from revenue of $11.5 million for the three months
ended September 30, 1998. Manufacturing services generated revenue of $1.2
million for the three months ended September 30, 1999, a decrease of 20.0% from
revenue of $1.5 million for the three months ended September 30, 1998. The
decrease in testing and development revenue can be attributed to decreases in
testing services. The decrease is partially offset by increased revenue
associated with development services resulting primarily from a new contract in
the third quarter of 1999. Manufacturing revenue decreased as a result of
decreases in European manufacturing revenue resulting from client delays in
planned projects and continuing delays in obtaining new manufacturing clients in
Germany. U.S. manufacturing revenue in the third quarter 1999 reflected an
increase in Phase I/II production revenue. Testing and development services and
manufacturing services accounted for 90.3% and 9.7%, respectively, of the
Corporation's revenue for the three months ended September 30, 1999 and 88.5%
and 11.5%, respectively, of the Corporation's revenue for the three months ended
September 30, 1998. Revenue generated in Europe decreased to $1.5 million for
the three months ended September 30, 1999, a 25.0% decrease from $2.0 million
for the three months ended September 30, 1998.
Cost of sales was $7.7 million for the three months ended September 30,
1999, a decrease of 4.9% from cost of sales of $8.1 million in the three months
ended September 30, 1998. The decrease is related to decreases in both testing
and development costs and manufacturing costs. As a percentage of total revenue,
cost of sales decreased to 62.1% for the three months ended September 30, 1999
from 62.3% for the three months ended September 30, 1998. These decreases are
attributable to decreases in indirect expenses such as subcontractor costs,
partially offset by an increase in direct expenses such as direct labor and
fringe. Gross profit for testing and development services was $4.7 million for
the three months ended September 30, 1999, a decrease from gross profit of $4.9
million for the three months ended September 30, 1998. Gross profit (loss) for
manufacturing services reflected a loss of $9,000 for the three months ended
September 30, 1999, while manufacturing services generated a profit of $24,000
for the three months ended September 30, 1998. Gross profit for Europe decreased
to $0.4 million for the three months ended September 30, 1999, from $0.5 million
for the three months ended September 30, 1998, a decline of 20.0%.
Selling, general and administrative expense was $3.9 million for the
three months ended September 30, 1999, an increase of 34.5% over selling,
general and administrative expense of $2.9 million in the three months ended
September 30, 1998. As a percentage of revenue, selling, general and
administrative expenses increased to 31.5% for the three months ended September
11
<PAGE> 12
30, 1999 from 22.3% for the three months ended September 30, 1998. The increase
is a result of an increase in facilities costs as the Corporation moved to a new
combined headquarters and laboratory facility in the second half of 1998, as
well as increased depreciation and other expenses related to both the
Corporation's investment in an enterprise information system and expansion of
the U.K. facility capacity. Costs of approximately $0.46 million, previously
included in selling, general and administrative expenses for the six months
ended June 30, 1998 were reclassified to cost of sales for the three months
ended September 30, 1998.
Research and development expense remained constant at $0.3 million for
the three months ended September 30, 1999 and September 30, 1998. These expenses
represent the investment of internal resources to develop new methods and tests
to support the Corporation's services.
The Corporation generated income from operations of $0.5 million for the
three months ended September 30, 1999, as compared to income from operations of
$1.7 million for the three months ended September 30, 1998. The decrease can be
attributed to a decrease in revenue and an increase in operating expenses.
The Corporation incurred a net expense of $56,000 for interest and other
(income) expense for the three months ended September 30, 1999, a decrease of
62.4% compared to net interest and other income of $149,000 in the three months
ended September 30, 1998. The net expense is a result of the Corporation's
investment in facilities and information systems which resulted in a decrease in
cash and cash equivalents and marketable securities. Interest income was $0.2
million for the three months ended September 30, 1999 and $0.4 million for the
three months ended September 30, 1998. Interest expense was $0.1 million for the
three months ended September 30, 1999 and $0.1 million for the three months
ended September 30, 1998.
The provision for income taxes was $0.2 million for the three months
ended September 30, 1999, compared to a provision for income taxes of $0.7
million for the three months ended September 30, 1998. The decrease is a result
of the decrease in the income before income taxes for the three months ended
September 30, 1999. The Corporation's effective tax rate was 45.4% for the three
months ended September 30, 1999 and 37.5% for the three months ended September
30, 1998. The increase in the effective tax rate is primarily attributable to an
increased incidence of higher rate European taxes.
The Corporation reported net income of $0.2 million for the three months
ended September 30, 1999, as compared to net income of $1.1 million for the
three months ended September 30, 1998. The decrease can be attributed to a
decrease in revenue and an increase in operating expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenue was $34.6 million in the nine months ended September 30, 1999, a
decrease of 8.5% from revenue of $37.8 million in the nine months ended
September 30, 1998, reflecting
12
<PAGE> 13
decreases in testing and development services and manufacturing services in both
the U.S. and Europe. Testing and development services generated revenue of $31.4
million for the nine months ended September 30, 1999, a decrease of 6.3% from
revenue of $33.5 million for the nine months ended September 30, 1998.
Manufacturing services generated revenue of $3.2 million for the nine months
ended September 30, 1999 and $4.3 million for the nine months ended September
30, 1998. U.S. testing and development services were adversely affected by
decreases in the testing services which were only partially offset by an
increase in development services. The decrease in European testing and
development revenue is primarily the result of a decrease in the U.K. testing
services. European testing and development services were adversely affected by
client delays and some softness in new orders. In manufacturing services, the
Corporation's results reflect a decrease in both U.S. and European manufacturing
revenue. U.S. manufacturing revenue decreases occur principally in the first six
months of the year as the Corporation focused on the development of new client
relationships and operational improvements. The decrease in revenue generated by
European manufacturing operations is attributable to decreases in Germany from
client project delays and delays in obtaining new manufacturing clients. Testing
and development services and manufacturing services accounted for 90.8% and
9.2%, respectively, of the Corporation's revenue for the nine months ended
September 30, 1999 and 88.6% and 11.4%, respectively, of the Corporation's
revenue for the nine months ended September 30, 1998. Revenue generated in
Europe decreased from $5.5 million for the nine months ended September 30, 1998
to $5.0 million for the nine months ended September 30, 1999, a 9.1% decline.
Cost of sales was $22.9 million for the nine months ended September 30,
1999, an increase of 5.0% over cost of sales of $21.8 million for the nine
months ended September 30, 1998. As a percentage of total revenue, cost of sales
increased to 66.2% for the nine months ended September 30, 1999 from 57.7% for
the nine months ended September 30, 1998. The increase in cost of sales related
to the testing and development segment is tied to increases in direct expenses
such as materials, labor and fringe. Gross profit (loss) for testing and
development services was $12.4 million for the nine months ended September 30,
1999, a decrease from a gross profit of $16.0 million for the nine months ended
September 30, 1998. Gross profit (loss) for manufacturing services reflected a
loss of $0.7 million for the nine months ended September 30, 1999, compared with
a loss of $0.1 million for the nine months ended September 30, 1998. Gross
profit for Europe decreased from $1.7 million for the nine months ended
September 30, 1998 to $1.4 million for the nine months ended September 30, 1999,
a decrease of 17.6%.
Selling, general and administrative expense was $12.3 million for the
nine months ended September 30, 1999, an increase of 28.1% over selling, general
and administrative expense of $9.6 million in the nine months ended September
30, 1998. As a percentage of revenue, selling, general and administrative
expenses increased to 35.5% for the nine months ended September 30, 1999 from
25.5% for the nine months ended September 30, 1998. The increase is a result of
greater facilities costs as the Corporation moved to a new combined headquarters
and laboratory facility in the latter half of 1998, as well as increased
depreciation and other expenses related to the Corporation's investment in an
enterprise information system, and an increase in the bad debt
13
<PAGE> 14
allowance. The increase in the bad debt allowance was primarily the result of
ongoing reviews of customer projects and trade receivables.
Research and development expense remained constant at approximately $1.0
million for the nine months ended September 30, 1999, and the nine months ended
September 30, 1998. These expenses represent the investment of internal
resources to develop new methods and tests to support the Corporation's
services.
The Corporation reported a loss from operations of $1.7 million for the
nine months ended September 30, 1999, as compared to income from operations of
$5.3 million for the nine months ended September 30, 1998. The change can be
attributed to a decrease in revenue and an increase in operating expenses.
The Corporation earned net interest and other income of $0.1 million for
the nine months ended September 30, 1999 and $0.6 million for the nine months
ended September 30, 1998. Interest income was $1.0 million for the nine months
ended September 30, 1999 and $1.4 million for the nine months ended September
30, 1998. Interest expense was $0.6 million for the nine months ended September
30, 1999 and $0.4 million for the nine months ended September 30, 1998.
The benefit from income taxes was $0.3 million for the nine months ended
September 30, 1999, compared to a provision for income taxes of $2.3 million for
the nine months ended September 30, 1998. The benefit is the result of the
Corporation's loss before income taxes for the nine months ended September 30,
1999.
The Corporation reported a net loss of $1.2 million for the nine months
ended September 30, 1999, as compared to net income of $3.6 million for the nine
months ended September 30, 1998. The change can be attributed to decreased
revenue and increased operating expenses, which were partially offset by an
income tax benefit for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation has funded its business through existing cash, cash
flows from operations, long-term bank loans and capital leases. At September 30,
1999, the Corporation had cash, cash equivalents and marketable securities of
$22.3 million, compared to cash, cash equivalents and marketable securities of
$27.1 million at December 31, 1998.
The Corporation generated cash flows from operations of $4.9 million for
the nine months ended September 30, 1999, compared to using net cash from
operations of $0.5 million in the nine months ended September 30, 1998. Net
income (loss), as adjusted for depreciation and amortization, and deferred
income taxes, provided $2.1 million and $7.0 million of cash for the nine months
ended September 30, 1999 and 1998, respectively. This decrease in adjusted net
income (loss) was due primarily to the Corporation's net loss for the nine
months ended September 30, 1999 and an increase in depreciation, offset by a
decrease in deferred income
14
<PAGE> 15
taxes. Changes in other assets and liabilities provided cash of $2.8 million for
the nine months ended September 30, 1999 primarily due to decreases in accounts
receivable and other current assets, an increase in other accrued liabilities,
partially offset by a decrease in customer advances and an increase in deposits
and other assets. Changes in other assets and liabilities used cash of $7.6
million for the nine months ended September 30, 1998 primarily due to an
increase in accounts receivable and decreases in accounts payable, accrued
liabilities and customer advances.
Working capital decreased to $28.3 million at September 30, 1999,
compared to $36.0 million at December 31, 1998. The net decrease in working
capital primarily was due to a decrease in current assets. This decrease in
current assets resulted from decreases in cash and cash equivalents, marketable
securities, accounts receivable and other assets. The decrease in current assets
was partially offset by a decrease in current liabilities, resulting primarily
from repayments on debt obligations and a decrease in customer advances.
The Corporation made capital expenditures of $11.6 million for the nine
months ended September 30, 1999 and $3.9 million for the nine months ended
September 30, 1998. The increase in capital expenditures for the nine months
ended September 30, 1999 was primarily related to continued investment in
facilities primarily in the new manufacturing facility and continued investment
in information systems.
The Corporation's corporate headquarters facility in Rockville,
Maryland, constructed under a build-to-lease agreement, was completed in August
1998. The headquarters facility consolidated existing research and development,
other laboratory and administrative activities and expanded the Corporation's
laboratory and other capacity for operations. The lease agreement requires the
Corporation to make noncancelable lease payments totaling approximately $11.4
million over the remaining 14 years.
In April 1998, the Corporation entered into third-party leasing and
subleasing arrangements with Montgomery County, Maryland and a developer
providing for the construction of the exterior shell of a new manufacturing
facility in Rockville, Maryland. These arrangements require the Corporation to
make certain net noncancelable lease payments totaling approximately $13.3
million over the next twenty years and to guarantee indebtedness of
approximately $4.5 million incurred by the developer to construct the exterior
shell of the facility.
At September 30, 1999, the Corporation had commitments to make capital
expenditures of approximately $9.2 million including leasehold improvements and
laboratory equipment during the remainder of 1999 and the first quarter of 2000
related to this new manufacturing facility in Rockville, Maryland. The
Corporation accounts for the leases and subleases of the manufacturing facility
as capital leases. The assets underlying the capital leases are included with
the Corporation's owned property and equipment as of September 30, 1999.
Property and equipment at September 30, 1999 includes approximately $4.7 million
related to these capital leases, of which $0.1 million is capitalized interest.
The related obligation is included in the Corporation's liabilities at September
30, 1999.
15
<PAGE> 16
A portion of the Corporation's capital expenditures during the first
nine months of 1999 included an investment in an enterprise information system.
The Corporation expects to spend an additional $0.1 million on information
systems during the remainder of 1999. The Corporation believes that its
information systems will maximize compatibility and integration internally and
with the Corporation's clients.
In addition, at September 30, 1999, the Corporation had commitments to
spend approximately $357,000 for furniture and building fixtures and
approximately $68,000 for laboratory equipment.
The Corporation expects to continue expanding its operations through
internal growth, geographic expansion and possible strategic acquisitions. The
Corporation expects to fund its growth from existing cash, cash flows from
operations, bank borrowings and lease financing. Although the Corporation has no
agreements or arrangements in place with respect to any future acquisition,
there may be acquisition or other growth opportunities that require additional
external financing, and the Corporation may, from time to time, seek to obtain
funds from public or private issuances of equity or debt securities on a
strategic basis. There can be no assurances that such financing will be
available on terms acceptable to the Corporation.
Based on its current operating plan, the Corporation believes that
available liquid resources are sufficient to meet its foreseeable cash needs.
BORROWINGS AND CREDIT FACILITIES
In 1994, the Corporation obtained a loan of $4,300,000 from Bank of
America with a maturity date of November 30, 1999 (the "Mortgage Loan"). In
addition to a principal payment of $30,000 per month, the note bears interest at
the London Inter-Bank Offering Rate ("LIBOR") plus the applicable LIBOR Rate
Additional Percentage ("LIBOR Rate Option"). The LIBOR Rate Option ranges from
0.85% to 2.1% depending on the Corporation achieving certain funded debt to
EBITDA ratios. At September 30, 1999 the applicable interest rate was 7.6% and
the LIBOR Rate Option was 2.1%. At September 30, 1999, approximately $2.6
million was outstanding on the Mortgage Loan. Management intends to renew the
Mortgage Loan.
In May 1995, the Corporation entered into an interest rate swap
agreement whereby the variable interest rate of the Mortgage Loan was
effectively converted into debt with a fixed rate of 6.55% per annum. This
agreement expires on November 30, 1999. Amounts to be paid or received under the
interest rate swap agreement are recognized as interest income or expense in the
periods in which they accrue and are recorded in the same category as that
arising from the Mortgage Loan. The swap agreement is a standard contract that
has no imbedded options or other terms involving a higher level of complexity or
risk. The interest rate swap agreement and the LIBOR Rate Option resulted in an
8.7% effective interest rate at September 30, 1999. The effect of the interest
rate swap agreement on interest expense was not material in the quarters ended
September 30, 1998 and 1999.
16
<PAGE> 17
The Corporation has available borrowings up to $1,000,000 under the
terms of a revolving loan agreement with Bank of America. The revolving loan
agreement requires monthly interest payments on the unpaid principal. The unpaid
principal and all unpaid accrued interest is payable in full on May 31, 2001.
Amounts borrowed under the revolving loan agreement bear interest at the same
rate as the Mortgage Loan. At September 30, 1999, no amounts were outstanding
under the facility. This line of credit expires in May 2001.
The Corporation financed the acquisition of BIOMEVA in July 1996 and
obtained additional funds for working capital and expansion of its business
through a promissory note with Bank of America in the amount of $1.8 million
with an original maturity of June 30, 1999. The note requires monthly principal
payments of $30,000, and bears interest at the same rate as the Mortgage Loan.
At September 30, 1999, $.7 million was outstanding on the note. The interest
rate on the note was 7.6% at September 30, 1999. The note was amended on June
30, 1999 to extend the maturity date to June 30, 2001. The amendment requires
the Corporation to continue making monthly principal payments of $30,000 plus
interest through June 30, 2001.
All of the Corporation's agreements with Bank of America are cross
collateralized and are secured by a deed of trust on one of the Corporation's
laboratory facilities in Rockville, Maryland. The agreements require the
Corporation to meet certain financial and restrictive covenants, including
maintaining profitability, certain tangible net worth levels and funded debt to
EBITDA ratios. The Bank of America waived the Corporation's non-compliance of
the funded debt to EBITDA covenant which occurred in the third quarter 1999.
On July 1, 1999, the Corporation received the proceeds of a $3,000,000
loan from the Department of Business and Economic Development, a department of
the State of Maryland. The Corporation is required to use the proceeds in
connection with the Corporation's expansion and relocation activities in
Rockville, Maryland. The loan requires quarterly principal payments of $107,143
plus accrued interest and matures on June 30, 2006. The loan bears interest at
rates from 0% to 7.5% based on the Corporation's achieving specific employment
levels over the next six years. The terms of the loan contain annual reporting
requirements, including the reporting of employment data. At September 30, 1999,
approximately $2.9 million was outstanding on the loan.
FOREIGN CURRENCY
The accounts of the Corporation's international subsidiaries are
measured using local currency as the functional currency. Assets and liabilities
of these subsidiaries are translated into United States dollars at period-end
exchange rates, and revenue and expense accounts are translated at average
monthly exchange rates. Net exchange gains and losses resulting from such
translations are excluded from net income and are accumulated in a separate
component of stockholders' equity.
Since the revenue and expenses of the Corporation's international
operations generally are denominated in local currencies, exchange rate
fluctuations between such local currencies and the United States dollar will
subject the Corporation to currency translation risk with respect to
17
<PAGE> 18
the reported results of its international operations as well as to risks
sometimes associated with international operations. The Corporation derived
12.1% of its revenue for the three months ended September 30, 1999 and 15.4% of
its revenue for the three months ended September 30, 1998 from services
performed outside of the United States. The Corporation derived 14.4% of its
revenue for the nine months ended September 30, 1999 and 14.5% of its revenue
for the nine months ended September 30, 1998 from services performed outside of
the United States. In addition, the Corporation may be subject to currency risk
when the Corporation's service contracts are denominated in a currency other
than the currency in which the Corporation incurs expenses related to such
contracts.
There can be no assurance that the Corporation will not experience
fluctuations in financial results from the Corporation's operations outside the
United States, and there can be no assurance the Corporation will be able,
contractually or otherwise, to reduce the currency risks associated with its
operations. Although at the present time the Corporation does not use derivative
financial instruments to manage or control foreign currency risk, there can be
no assurance that the Corporation will not use such financial instruments in the
future or that any such use will be successful in managing or controlling
foreign currency risk.
EUROPEAN MONETARY UNION
Within Europe, the European Economic and Monetary Union (the "EMU")
introduced a new currency, the Euro, on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services.
On January 1, 1999, the participating countries adopted the Euro as
their local currency, initially available for currency trading on currency
exchanges and non cash (banking) transactions. The existing local currencies, or
legacy currencies, are planned to remain legal tender through January 1, 2002.
Beginning on January 1, 2002, Euro-denominated bills and coins are planned to be
issued for cash transactions. For a period of six months from this date, both
legacy currencies and the Euro are planned to be legal tender. On or before July
1, 2002, the participating countries are planned to withdraw all legacy currency
and use the Euro exclusively.
The introduction of the Euro may have potential implications for the
Corporation's existing operations. Currently, Germany is the only participating
country in the EMU in which the Corporation has operations. While one cannot
predict such events, many authorities expect non-participating European Union
countries, such as Great Britain, to eventually join the EMU. The Corporation
does not currently expect to experience any operational disruptions or to incur
any costs as a result of the introduction of the Euro that would materially
affect the Corporation's liquidity or capital resources.
18
<PAGE> 19
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires all
derivatives to be recorded on the balance sheet at fair value and establishes
"special accounting" for the following three different types of hedges: hedges
of changes in the fair value of assets, liabilities or firm commitments; hedges
of the variable cash flows of forecasted transaction; and hedges of foreign
currency exposures of net investments in foreign operations. SFAS 133 is
effective for years beginning after June 15, 1999, with earlier adoption
permitted. On July 8, 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 defers the effective date of SFAS No.
133 until fiscal years beginning after June 15, 2000. The Corporation believes
that the effect of adoption of SFAS 133 will not be material.
YEAR 2000 READINESS
The Corporation uses a significant number of information technology
("IT") and non-IT computer systems in its operations. The IT systems include the
Corporation's accounting systems, office and administrative systems,
communications systems and other corporate systems. The non-IT systems include
embedded microprocessors that control laboratory equipment and facilities
equipment.
The year 2000 ("Y2K") issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Corporation's computer programs or hardware that have date-sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Corporation's task force has implemented a three-phase approach to
address the year 2000 issue. The first phase, which has been completed,
consisted of an inventory of all IT and non-IT systems. The second phase, which
has also been completed, consisted of setting priorities and developing a test
plan. The third phase, testing and remediation, began during the fourth quarter
of 1998 and is substantially complete. Still remaining to be completed are the
following items: an upgrade of the Oracle databases (the "Oracle Upgrade") and
the installation of five software applications to replace noncompliant systems
(the "Software Applications").
The Corporation depends on various suppliers to continue its operations.
The Corporation is working with its suppliers to determine whether they and
their products are or will be year 2000 compliant. The Corporation has received
compliance certifications from all of its mission critical suppliers and many of
its other suppliers. It is following up with its other suppliers to obtain such
certificates. However, the Corporation does not control its suppliers, and
cannot fully audit their year 2000 compliance, and for some suppliers the
Corporation may have
19
<PAGE> 20
no feasible alternative supplier available. The failure of such suppliers to
remediate year 2000 problems in a timely manner could have a material adverse
effect on the Corporation.
The Corporation believes its most reasonably likely worst case Y2K
scenarios are the following: the Corporation is unable to complete the Oracle
Upgrade before December 31, 1999 and it encounters an unexpected Y2K problem;
the Corporation is unable to complete the installations of the Applications
Software by December 31, 1999; channels of distribution, such as delivery or
courier services, are delayed, resulting in delays of shipments of materials or
client materials; or its customers or its mission critical vendors are not Y2K
ready, resulting delays of projects addressing Y2K issues or delays in shipment
or delivery of test articles or materials. The Corporation has investigated
these scenarios and is finalizing its contingency plans to reduce or avoid harm
to the Corporation's business and operations in any of these events. With
respect to the Oracle Upgrade, the Corporation has tested the current Oracle
databases and believes they are Y2K compliant; however, if the upgrade does not
occur prior to January 1, 2000, and a problem is encountered, Oracle has advised
that Oracle will not support the problem. Contingency plans for the Oracle
Upgrade include internal and external technical support and manual processing
and auditing of data. The Corporation has developed contingency plans in the
event the Corporation is unable to install the Software Applications prior to
January 1, 2000. The Corporation is also planning to purchase additional mission
critical supplies and materials where appropriate to address the potential issue
of noncompliant mission critical vendors or delays attributable to noncompliant
distribution channels.
The Corporation's historical costs for remediation are not material and
the Corporation does not anticipate that its future remediation costs will be
material. Starting in 1997, the Corporation began implementation of an
enterprise information system that is year 2000 compliant. The Corporation does
expect to have to replace certain application software to be year 2000
compliant. Estimates of these costs are preliminary, but could be as much as $.5
million, of which approximately $.2 million has been expended to date. The
Corporation has not delayed any material projects as a result of the year 2000
issue.
The Corporation plans to be Y2K ready are based on management's best
estimates, which were derived utilizing assumptions of future events including
the continued availability of certain resources and other factors. Estimates on
the status of completion and the expected completion dates are based on costs
incurred to date compared to total expected costs. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans. Failure by the Corporation or its customers or
suppliers to complete year 2000 remediation in a timely manner could have a
material adverse effect on the Corporation. Specific factors that might cause
such material differences include, but are not limited to, the cooperation of
third party suppliers, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant computer codes, and similar
uncertainties.
20
<PAGE> 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Corporation is exposed to market risk from adverse changes in
interest rates and foreign currency exchange rates.
INTEREST RATE RISKS
The Corporation is exposed to interest rate risk primarily through its
investments in short-term marketable securities and cash equivalents and its
debt agreements. The Corporation's investment policy calls for investment in
short-term, low risk instruments. At September 30, 1999, the Corporation had
$7.9 million invested in government and governmental agency securities. A rise
in interest rates would have an adverse impact on the fair market value of fixed
rate securities. If interest rates fall, floating rate securities may generate
less interest income. The Corporation manages its exposure to interest rate
risks through investing in securities with maturities of one year or less.
Additionally, the Corporation is exposed to risk from changes in
interest rates as a result of its borrowing activities. At September 30, 1999,
the Corporation had total debt of $14.5 million. The Corporation's debt consists
of the Mortgage Loan with approximately $2.6 million outstanding; a promissory
note with approximately $.7 million outstanding; a State of Maryland loan with
approximately $2.9 million outstanding; and capital lease obligations of
approximately $8.3 million outstanding. In the past the Corporation has
partially managed its exposure to losses through an interest rate swap agreement
related to the Mortgage Loan. The Corporation is considering alternatives to
manage its interest rate exposure after the expiration of the current interest
rate swap agreement.
FOREIGN CURRENCY EXCHANGE RISK
The Corporation's international operations are subject to foreign
exchange rate fluctuations. The Corporation derived 11.3% and 15.4% of its
revenue for the three months ended September 30, 1999 and 1998, respectively,
from services performed in the United Kingdom and Germany. The Corporation
derived 14.4% and 14.5% of its revenue for the nine months ended September 30,
1999 and 1998, respectively, from services performed in the United Kingdom and
Germany. Since the revenue and expenses of the Corporation's international
operations generally are denominated in local currencies, exchange rate
fluctuations between such local currencies and the United States dollar will
subject the Corporation to currency translation risk with respect to the
reported results of its foreign operations as well as to risks sometimes
associated with international operations. In addition, the Corporation may be
subject to currency risk when the Corporation's service contracts are
denominated in a currency other than the currency in which the Corporation
incurs expenses related to such contracts. The United Kingdom and Germany have
traditionally had relatively stable currencies. The Corporation currently does
not hedge its foreign currency exposure. Management does not believe that the
Corporation's exposure to foreign currency rate fluctuations is material.
21
<PAGE> 22
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.
Dated: April 26, 2000
BioReliance Corporation
(Registrant)
By /s/ Capers W. McDonald
----------------------------------
Capers W. McDonald
President, Chief Executive Officer
and Acting Chief Financial Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3RD
QUARTER 1999 FORM 10-Q/A UNAUDITED CONSOLIDATED BALANCE SHEETS AND UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-Q/A.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,419
<SECURITIES> 7,928
<RECEIVABLES> 19,416
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,469
<PP&E> 33,714
<DEPRECIATION> 0
<TOTAL-ASSETS> 78,162
<CURRENT-LIABILITIES> 15,151
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 52,542
<TOTAL-LIABILITY-AND-EQUITY> 78,162
<SALES> 34,556
<TOTAL-REVENUES> 34,556
<CGS> 22,880
<TOTAL-COSTS> 22,880
<OTHER-EXPENSES> 13,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 611
<INCOME-PRETAX> (1,556)
<INCOME-TAX> (308)
<INCOME-CONTINUING> (1,248)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,248)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3RD
QUARTER 1999 FORM 10-Q/A UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q/A
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,049
<SECURITIES> 17,877
<RECEIVABLES> 22,098
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,838
<PP&E> 24,206
<DEPRECIATION> 0
<TOTAL-ASSETS> 78,535
<CURRENT-LIABILITIES> 13,103
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> 54,062
<TOTAL-LIABILITY-AND-EQUITY> 78,535
<SALES> 37,798
<TOTAL-REVENUES> 37,798
<CGS> 21,842
<TOTAL-COSTS> 21,842
<OTHER-EXPENSES> 10,676
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381
<INCOME-PRETAX> 5,846
<INCOME-TAX> 2,288
<INCOME-CONTINUING> 3,558
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,558
<EPS-BASIC> .46
<EPS-DILUTED> .43
</TABLE>
