<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the fiscal year ended June 30, 1996
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
Commission File No. 0-10005
BIOCHEM INTERNATIONAL INC.
A Delaware Corporation I.R.S. Employer Identification
No. 39-1272816
Address Telephone Number
W238 N1650 Rockwood Drive (414) 542-3100
Waukesha, Wisconsin 53188-1199
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 par value.
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
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
---
Revenues for the fiscal year ending June 30, 1996 are $29,000,238
The aggregate market value of the Common Stock of the Company held by
non-affiliates on August 31, 1996 was approximately $21,596,900, computed by
reference to the average ($7.25) of the bid and ask prices of the Common Stock
as reported by the National Quotation Bureau. For purposes of this calculation,
officers and directors of the registrant were considered affiliates of the
registrant.
The number of shares outstanding of the Company's Common Stock, par value $.02
per share, on August 31, 1996 was 13,087,784.
Exhibit Index on Page 39
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
The Registrant, Biochem International Inc. (the "Company" or "BCI" or "BCI
International"), was incorporated in April, 1976 to acquire from the Medical
Systems Business Division of General Electric Company certain assets, patents
and technology associated with its blood gas chemistry business. This
acquisition was completed in January, 1978.
D.S. Medical Products Company
In July, 1984, D.S. Medical Products Company ("DS Medical"), was formed for the
exclusive purpose of acquiring up to an 80% interest in BCI for investment
purposes. At this time, its assets consist of its investment in BCI's
securities. Ken M. Davee and David H. Sanders, the sole shareholders of DS
Medical, are also directors and executive officers of the Company (see ITEM 9.
Directors and Executive Officers of the Registrant).
Sale and Leaseback of Land and Building
On August 7, 1987, BCI International sold to Ken M. Davee real estate and
improvements occupied by the Company and utilized as its executive offices and
production facilities. Prior to the sale of said property, the Company owned
the real estate and improvements subject to a mortgage given in connection with
their acquisition, which was financed by means of Industrial Development
Revenue Bonds (the "IDRB").
The selling price of $670,000 was determined based upon an appraisal obtained
by the Company. Consideration received on the sale was utilized to satisfy the
IDRB indebtedness, and other short-term debt obligations outstanding.
Upon consummation of the sales transaction, the Company and Mr. Davee entered
into Lease (the "Lease") and Option to Purchase (the "Option") agreements
relating to the property sold. Under the terms of the Option, BCI had the
right to purchase the leased property at any time after the initial term of the
Lease for $670,000 plus increases in the consumer price index as defined in the
agreement. BCI International purchased the building from Mr. Davee on June 30,
1995 based on the terms of the aforementioned Option to Purchase.
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<PAGE> 3
The purchase price plus filing fee costs was $812,899, as calculated per the
terms of the agreement.
NARRATIVE DESCRIPTION OF BUSINESS
The Company's Products
BCI International is a designer, manufacturer and worldwide distributor of
comprehensive monitoring systems for reliable and cost-effective patient care.
BCI is committed to innovation, growth, ongoing development, excellence in
customer service and quality manufacturing. BCI manufactures primarily
non-invasive real time patient monitoring equipment. BCI's products are used
to monitor respiration, blood gases, exhaled gases, anesthetic agent gases,
blood pressure and related cardiovascular/pulmonary functions. Non-invasive
monitoring is used in patient care in operating and emergency rooms, intensive
care units, critical care units and neonatal facilities. Additionally, these
monitoring techniques have applications in recovery, radiology, respiratory
therapy, out-patient care and ambulatory, as well as home and sleep study
situations.
BCI's product line includes monitoring devices for oxygen saturation,
anesthetic agents, ECG, both invasive and non-invasive blood pressure,
temperature, respiration, carbon dioxide and nitrous oxide. BCI engineers and
technicians continue to expand the Company's technology base by developing new
products and combining existing ones in new ways to meet the medical
community's fast-growing and changing needs.
New product releases in fiscal 1996 include the Model 3303 Pulse Oximeter and
the Model 3304 Pulse Oximeter. The Model 3303 oximeter is a handheld unit with
alarms, featuring an internal rechargeable battery. This unit can be used both
as a handheld, spot-check device and also as a bedside, long-term monitoring
device. The Model 3304 Oximeter was released to the international market late
in fiscal 1996. It features advanced digital signal processing, designed for
demanding clinical environments. BCI received 510(k) approval to ship the 3304
in the U.S. in August, 1996. In fiscal 1995, BCI introduced a combination
temperature/oximeter monitor, the Model 3301T, using its popular handheld
oximeter released in 1993 as the base oximeter unit, and adding a tympanic
temperature feature to it. Additionally, a new Vital Signs Monitor, Model 6200,
was released in 1995 that offers a wide variety of monitoring options,
including pulse oximetry, ECG, non-invasive and invasive blood pressures and
temperature. In fiscal 1995 the company also developed a disposable
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sensor cover, called OxiLink, to be used with reusable patient sensors. This
will allow for a low cost alternative to disposable sensors while providing the
same benefits. In fiscal 1994, several new products were introduced, including
a handheld pulse oximeter, Model 3302, based on the one released in 1993, but
having the additional capabilities of alarms and a charging base.
Additionally, in 1994 BCI introduced a handheld version of its capnometer, the
Model 8200, which allows for the measurement of exhaled carbon dioxide. This
unit, due to its reduced size, allows for portability and spot check use, which
are not as practical in the larger capnometers available. Lastly, desflurane, a
new anesthetic agent gas was added to the capabilities of BCI's Anesthetic
Agent Monitor, giving the unit the capacity to measure this gas.
BCI's mission is to provide cost-effective, quality patient monitoring
equipment to meet the rapidly-growing and ever-changing needs of the world-wide
health care community. Consequently, management contemplates that new products
will continue to be added to its product lines.
Marketing and Distribution
BCI International monitoring systems are marketed in the United States directly
through Company sales representatives and selectively through medical
distributors. Health care facilities, principally hospitals, are typically the
purchasers of the Company's systems. BCI also sells into alternate care
markets, such as emergency medical services, surgery centers and home health
care. The targeting of the alternate care market will allow BCI to benefit from
the trend away from hospitals toward the more cost effective alternate care
setting. International sales, promoted through medical distributors worldwide,
account for approximately 51% of revenues. Additionally, BCI technologies are
marketed to original equipment manufacturers (OEM) as individual components or
as finished, private label products, and are in turn then sold to end users.
Competition
The Company is in a highly fragmented industry characterized by rapid
technological change. Price and product features such as ease-of-use and
flexibility are the primary bases for competition. The Company has a number of
competitors in each of its product areas, many of which are larger and
financially stronger than BCI.
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Competition continues to cause price reductions in the industry. The Company
is continually seeking manufacturing cost reductions, but there can be no
assurance that these cost reductions will offset the impact of potential price
declines.
Product quality is also a competitive factor, although the quality issue is
somewhat mitigated by the standards imposed by the Food and Drug Administration
("FDA").
Competition among international suppliers is generally based on the same set of
factors as in the U.S., with price as the primary factor. One of the
distinguishing characteristics of the international market is that many foreign
health care systems are state run. Thus, the government rather than a private
enterprise is often the customer. Additionally, each country has a different
set of standards and specifications which creates additional demands on
suppliers participating in the international market.
Manufacturing
The Company's products are manufactured and assembled in its Waukesha,
Wisconsin facility. The manufacture of the Company's products involves certain
techniques which, in the opinion of management, are proprietary.
Raw Materials
Raw materials utilized by the Company in its manufacturing process are
generally available from a number of domestic commercial sources. Since the
Company has experienced delivery delays and lead times as long as 22 to 24
weeks in acquiring certain electronic components, which is common in the
industry, it closely monitors and maintains higher inventory levels for such
components than for other raw materials.
Inventory
The Company maintains inventories of previously described materials and
finished goods at levels believed to be consistent with anticipated sales and
at levels required to respond quickly to customer needs. Inventories of
demonstration equipment are also maintained for use by BCI's salespeople. BCI
also maintains an inventory of finished goods to loan to customers at their
request
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when the Company is servicing their units. See "Service and Warranty" below in
this ITEM 1.
The Company will, in general, not accept returns except consistent with the
terms of its warranties.
To the best of the Company's knowledge, the foregoing practices are consistent
with the practices of the industry.
Service and Warranty
A two year warranty is extended on all BCI International monitoring equipment.
During this time, the Company warrants to the purchaser that the equipment is
free from defects in material and workmanship. Any repairs needed during this
time period will be made free of charge to the customer unless the repairs
required are due to intentional damage. Service in foreign countries is
provided primarily by the Company's foreign distributors.
In the event a monitor requires service, the Company's policy during the
warranty period is to provide a free replacement on loan at the customer's
request, which requires that the Company maintain an inventory of monitors for
this purpose. BCI services monitors principally in its Waukesha, Wisconsin
facility. The Company also employs a field service representative in the state
of Maryland. The Company believes that this approach generally permits the
customer to have a replacement system whenever needed and provides quality
repair service.
Backlog
The Company had approximately $5,018,000 in backlog orders believed to be firm
at August 31, 1996, as compared to approximately $6,340,000 at August 31, 1995.
The backlog of no one particular product is the cause for the decline. The
Company's order activity is not seasonal in nature. The Company usually
manufactures and ships equipment ordered within 2 to 15 days following receipt
of an order, unless the customer requests later release dates.
Research and Development
The Company's research and development activities are dedicated to both product
enhancement and new product development. At the date of
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this report, the Company employs fifteen trained technicians and engineers, and
utilizes outside consultants in its research and development activities. For
the two years ended June 30, 1996, the Company incurred research and
development expenses of $2,787,443, all of which were Company sponsored. Of
this amount, $1,647,651 was attributable to fiscal 1996 and $1,139,792 to
fiscal 1995.
Patents
The Company owns numerous domestic patents related to its products.
The electronic medical instruments industry is permeated with patented products
and processes and new patents are being issued regularly. Therefore, the
Company cannot be certain that its existing products, or those it expects to
produce, do not infringe on valid patents owned by others, or will not be
subject to technological obsolescence.
Government Regulation
The medical devices manufactured and marketed by BCI are subject to regulation
by the FDA, and, in many cases, by foreign governments. Under the Federal
Food, Drug and Cosmetics Act ("FDC Act"), as amended, manufacturers of medical
devices must comply with certain provisions and regulations promulgated by the
FDA governing the testing, manufacturing, packaging and marketing of medical
devices. Under the FDC Act, medical devices are subject to varying levels of
review, the most comprehensive of which requires that a device receive
pre-market approval by the FDA for commercial distribution in the United
States.
As a manufacturer of medical devices, the Company is also subject to certain
other FDA regulations, such as general controls provisions which include
manufacturing process requirements. The Company's manufacturing processes and
facility are subject to a biannual inspection by the FDA. The FDA has the
power to order a limited detention of products and to exercise other remedies
where it finds the devices to be in violation of the FDC Act. BCI believes it
is generally in compliance with the FDA regulations. Federal and foreign
regulations regarding the manufacture and sale of medical devices are subject
to change. The Company cannot predict what impact, if any, such changes might
have on its business. The Company also seeks, where appropriate, to comply
with safety standards of Underwriters Laboratories, the Canadian Standards
Association, the
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European Community standards and the standards of other countries in which it
markets its products.
Environmental Matters
The Company is engaged in only light manufacturing and its capital
expenditures, earnings or competitive position have not been, and are not
expected to be, materially affected by compliance with federal, state, or local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment.
Employees
As of August 31, 1996, the Company employed 106 persons, consisting of 28 in
production and 78 in sales, administration, engineering and research.
Financial Information About Export Sales
Export sales, which were principally in the Far East, Central and South America
and Western Europe were approximately $14,872,000 and $11,736,000 in fiscal
1996 and 1995 respectively. The increase in sales is a result of many factors.
BCI continues to expand its international sales network and regions covered,
and is also expanding its OEM export business. The Company's international OEM
business increased by approximately $3.2 million in fiscal 1996 when compared
to fiscal 1995. Growth in these sales is attributed to a mix of products, with
the biggest increase experienced in the handheld oximeter products. The
international sales of the BCI-labeled products remained fairly flat from 1995
to 1996. All foreign sales are denominated in U.S. Dollars, so the Company is
not exposed to foreign currency risk.
ITEM 2. PROPERTIES
The Company's executive offices and production facilities are located at W238
N1650 Rockwood Drive, Waukesha, Wisconsin. The building contains approximately
14,200 square feet, of which approximately 7,000 square feet constitutes
administrative office space, with the balance used for production and storage.
As described in ITEM 1.,
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BCI purchased this facility on June 30, 1995. It was previously leased from a
related party. Additionally, the Company leases approximately 5,500 square
feet of office space which is used for engineering, research and development in
a building adjacent to the production facility. The Company also leases space
at an outside location for file storage purposes only.
In April, 1996, BCI purchased approximately 3.3 acres of vacant land adjacent
to its production facility. BCI intends to build an addition to the current
facility in fiscal 1997. Currently the Company is in the preliminary planning
stage, but anticipates it will add 20,000 to 30,000 square feet to its current
building. The amount budgeted for the addition approximates $1 million.
Current cash balances and cash flows could adequately pay for an addition of
this size. It has not yet been determined, however, if the addition will be
funded out of current assets.
The Company owns all of its machinery and manufacturing equipment, and leases
certain office equipment. The Company does not anticipate the need to purchase
any material amounts of capital equipment in the coming fiscal year other than
the building addition discussed above.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended June 30, 1996, no matters
were submitted to a vote of security holders.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock ($.02 par value) is traded in the over-the-counter
market. Price quotations are recorded on The OTC Bulletin Board.
The following table sets forth the bid and asked quotations for the Company's
common stock for the quarterly periods indicated, as provided by the National
Quotation Bureau. These quotations reflect interdealer prices, without retail
markup, markdown or commissions, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Bid Asked
--- -----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal year ended
June 30, 1995
1st Quarter 3 1/2 2 1/2 5 3 1/2
2nd Quarter 3 1/2 2 1/2 5 3 1/2
3rd Quarter 3 1/8 2 1/2 4 1/8 3 1/2
4th Quarter 5 1 3/4 7 3 1/2
Fiscal year ended
June 30, 1996
1st Quarter 4 1/2 3 1/2 5 1/2 3 3/4
2nd Quarter 4 3 1/2 5 4
3rd Quarter 5 1/2 3 3/4 6 1/2 4 1/2
4th Quarter 4 3/4 4 1/4 6 4 3/4
</TABLE>
The approximate number of record holders of the Company's common stock on
August 31, 1996 was 750. BCI International has not paid dividends on its
common stock. The Company does not anticipate paying any such dividends, and
further, is restricted from declaring or paying dividends without the prior
written consent of the banking institution with which it currently has a
lending facility.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company realized net income before income tax expense and cumulative effect
of accounting change of $8,471,494 in 1996, as compared to net income of
$6,734,618 in 1995. Based upon the weighted average number of common and
common equivalent shares outstanding, these translate into net income per share
of $.64 and $.51, respectively, in 1996 and 1995. Net income realized in
fiscal 1996 and 1995 after income tax expense is $5,369,669 and $4,259,843. It
is the opinion of management that these amounts may be compared, and are
attributable to the factors discussed below.
Net sales in fiscal 1996 increased by $3,944,601, or by 15.7% when compared to
fiscal 1995. The growth in sales was primarily due to increased sales to our
international OEM customers, which amounted to $3.2 million, and sales of
BCI-labeled products to our domestic customers, amounting to $1.2 million.
Domestic OEM sales decreased $.5 million. Sales of BCI's low cost, high
quality hand-held pulse oximeter and its componentry continue to expand,
accounting for much of the domestic and international OEM sales increase in
fiscal 1996. The increased sales are due to growth in sales to alternate care
markets, such as physicians' offices, clinics, emergency medical and home
health care companies. Sales of the hand-held oximeter during this fiscal year
were approximately $9.7 million versus $7.4 million world-wide in fiscal 1995.
Sales of our other handheld oximetry products increased due to increased brand
recognition and expansion into alternate care (non-hospital) markets. Selling
prices have not fluctuated significantly during these time periods.
Cost of goods sold as a percentage of net sales decreased slightly in fiscal
1996, going from 45.1% in fiscal 1995 to 44.5% in fiscal 1996. The decrease is
primarily due to decreased raw material costs.
Selling, general and administrative expenses increased by approximately
$400,000 when comparing 1996 to 1995. The increase is primarily attributable
to continued investment in the domestic sales departments to support and
improve on the sales increase discussed above. During fiscal 1996, BCI began
focusing more on the alternate care markets, and increased the amount spent on
marketing to those areas. BCI feels these increases were needed to strengthen
the domestic sales efforts and position the Company for the future. Additional
investments were also made in BCI's OEM sales efforts, which included
restructuring the OEM sales efforts into two
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distinctive departments, one being domestic OEM and the other, international
OEM. BCI expects to increase its domestic OEM sales by focusing more intently
on that market. It should be noted, however, that selling, general and
administrative expenses decreased as a percent of sales in fiscal 1996 when
compared to fiscal 1995, going from 23.6% in fiscal 1995 to 21.9% in fiscal
1996.
Research and development expenses increased by $500,000 when comparing fiscal
1996 to 1995. In late fiscal 1995 BCI hired several new engineers who were
employees for all of fiscal 1996. As a result, payroll and related expenses
increased. Additionally, several new products slated for release in fiscal
1997 and fiscal 1998 caused project expenses to increase over those of fiscal
1995.
Interest expense was not incurred in fiscal 1996 due to the long-term debt and
related accrued interest being paid off in full during the third quarter of
fiscal 1995.
The Company adopted Statement of Financial Accounting Standards Board (SFAS)
No. 109, "Accounting for Income Taxes" in the first quarter of fiscal 1994.
Under this method, a deferred tax asset of $5,196,600 was recognized in fiscal
1994, based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. Due to the taxable income earned in
fiscal 1994, deferred income tax expense of $1,209,600 was recognized. In
fiscal 1995, BCI recognized $2,337,000 of deferred income tax expense.
During fiscal 1996, BCI utilized the balance of the net operating loss
carryforwards and various federal credit carryforwards available. BCI
International set up a foreign sales corporation (FSC) subsidiary in fiscal
1996 in order to help defray the cost of income taxes on its foreign sales.
Federal and state income tax paid in fiscal 1996 amounted to approximately $1.7
million.
It is management's opinion that the Company's future success is primarily a
function of its sales level. Management believes that it is not only necessary
to improve the sales of the Company's products which were available for sale
this year, but also to introduce other products to provide increased revenue.
Plans are in progress to achieve these results. The Company has hired The
Chicago Corporation to assist it in strategic planning.
The impact of inflation on Biochem's operations for the two years ended June
30, 1996 was nominal. All export sales are denominated in
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U.S. currency and therefore, the Company is not exposed to foreign currency
risk.
Liquidity and Capital Resources
The increase in net income recorded in the current year helped to improve the
Company's working capital position. The additional working capital provided by
the income helped to finance the growth discussed above. Additionally, the
Company increased its investment in cash and cash equivalents by $3.4 million
during the year, and funded the Katarow Employment Trust, discussed in Item 10
below. The Company intends to use the cash and cash equivalents and funds
generated in fiscal 1996 to continue its growth into fiscal 1997 and beyond.
As a result of sales increases experienced in fiscal 1996 versus 1995, the
accounts receivable balance grew by approximately $1,200,000, or 32%. Due to
extended terms offered to three of its largest customers, the balance grew more
quickly than sales. Notwithstanding selective credit extensions, the Company
continues to place emphasis on tight credit monitoring and collection
procedures.
Inventory levels increased in fiscal 1996 versus fiscal 1995 primarily due to
increased inventories of demonstration equipment used by the sales force and
increased inventories for new products being released in the first half of
fiscal 1997. It is expected that inventory balances will remain at this level
during fiscal 1997.
The increase in property, plant and equipment in fiscal 1996 over 1995 is
principally due to the purchase of the 3.3 acres of land discussed in Item 2
above. The balance of the increase is due to miscellaneous asset purchases.
Trade accounts payable and accrued liabilities increased by 33%, or $730,000
when comparing fiscal 1996 to 1995. This increase is primarily related to the
increased inventory levels discussed above. Additionally, BCI accrued $80,000
for the payment of income taxes relating to fiscal 1996. No accrual existed at
the end of fiscal 1995.
The Company has experienced improved liquidity over the past fiscal year.
Operating activities of the Company have been the main source of this
liquidity. It is the belief of management that if operations continue at the
same level, funds generated from operations will be
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adequate to fund working capital requirements, both in the short and long term.
The bank line of credit could provide additional funds if deemed necessary.
The Company currently has in place a bank loan and security agreement that
provides for demand borrowings under a line of credit not to exceed the lesser
of the borrowing base or $10,000,000. The borrowing base, as defined in the
agreement is the sum of 80% of eligible accounts receivable and 25% of eligible
inventory. Interest is calculated based on the LIBOR rate. The borrowing base
currently exceeds $10,000,000, and there is no loan balance outstanding at June
30, 1996, so the available credit is $10,000,000.
It is the belief of management that if continued success in the achievement of
the above-noted goals is experienced, funds generated from future operations
and borrowing potential under the bank line of credit will be adequate to fund
the Company's working capital requirements during 1997.
BCI does not anticipate paying dividends on its common stock.
Impact of Recently Issued Accounting Standards
In June 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" (the Statement), effective for
fiscal years beginning after December 31, 1995. The Statement allows companies
to measure compensation cost in connection with employee stock compensation
plans using a fair value based method or to continue to use an intrinsic value
based method, which generally does not result in compensation cost. The
Company currently plans to continue using the intrinsic value based method with
disclosure regarding the fair value based method once the Standard is
effective.
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<PAGE> 15
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Stockholders and Directors of
Biochem International Inc. and Subsidiary
We have audited the accompanying balance sheets of Biochem International Inc.
and Subsidiary as of June 30, 1996 and 1995, and the related statements of
income, changes in stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1996. 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 financial position of Biochem International Inc.
and Subsidiary as of June 30, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended June 30,
1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
August 9, 1996
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<PAGE> 16
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,034,286 $ 2,628,445
Accounts receivable, net of allowance for
doubtful accounts of $140,000 and $100,000,
respectively 4,960,818 3,751,377
Inventories 3,296,635 2,686,501
Deferred income taxes 362,400 1,470,000
Prepaid expenses 49,593 43,538
----------- -----------
Total current assets 14,703,732 10,579,861
Investment 1,863,882 -
Property and equipment, net 1,711,920 1,437,690
Related party receivable 143,748 101,828
Other 5,483 5,483
Deferred income taxes - 211,000
----------- -----------
Total assets $18,428,765 $12,335,862
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,959,992 $ 1,463,067
Accrued liabilities:
Salaries, wages and commissions 677,968 502,055
Other 203,861 226,413
Income taxes 80,000 -
----------- -----------
Total current liabilities 2,921,821 2,191,535
Deferred income taxes 22,400 31,000
Stockholders' equity:
Preferred stock, $1.00 par value,
authorized 1,000,000 shares; none issued - -
Common stock, $.02 par value,
authorized 14,000,000 shares; 13,086,784
and 13,083,284 shares issued and outstanding,
respectively 261,736 261,666
Additional paid-in capital 11,699,651 11,698,173
Retained earnings (accumulated deficit) 3,523,157 (1,846,512)
----------- -----------
15,484,544 10,113,327
----------- -----------
Total liabilities and stockholders' equity $18,428,765 $12,335,862
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $29,000,238 $25,055,637 $17,861,145
Cost of goods sold 12,903,308 11,310,236 8,214,569
----------- ----------- -----------
Gross profit 16,096,930 13,745,401 9,646,576
Selling, general and
administrative expenses 6,355,041 5,917,249 4,915,728
Research and development expenses 1,647,651 1,139,792 1,122,293
----------- ----------- -----------
Income from operations 8,094,238 6,688,360 3,608,555
Interest expense - (105,379) (215,794)
Other income, net 377,256 151,637 110,848
----------- ----------- -----------
Income before income tax expense
and cumulative effect of
accounting change 8,471,494 6,734,618 3,503,609
Income tax expense:
Current 1,791,825 137,775 99,205
Deferred 1,310,000 2,337,000 1,209,600
----------- ----------- -----------
3,101,825 2,474,775 1,308,805
Income before cumulative effect of
accounting change 5,369,669 4,259,843 2,194,804
Cumulative effect of
accounting change - - 5,196,600
----------- ----------- -----------
Net income $ 5,369,669 $ 4,259,843 $ 7,391,404
=========== =========== ===========
Income per common and common equivalent share:
Before cumulative effect of accounting change $ 0.41 $ 0.32 $ 0.17
Cumulative effect of accounting change - - 0.39
----------- ----------- -----------
Net income $ 0.41 $ 0.32 $ 0.56
=========== =========== ===========
Weighted average common stock
shares outstanding 13,168,430 13,158,861 13,129,166
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 17 of 48
<PAGE> 18
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balances, July 1, 1993 13,070,084 $ 261,402 $11,687,937 $(13,497,759) $(1,548,420)
Net income - - - 7,391,404 7,391,404
Exercise of common stock options
at $2.50 per share 3,200 64 7,936 - 8,000
---------- --------- ----------- ------------ -----------
Balances, July 1, 1994 13,073,284 261,466 11,695,873 (6,106,355) 5,850,984
Net income - - - 4,259,843 4,259,843
Exercise of common stock options
at $.25 per share 10,000 200 2,300 - 2,500
---------- --------- ----------- ------------ -----------
Balances, July 1, 1995 13,083,284 261,666 11,698,173 (1,846,512) 10,113,327
Net income - - - 5,369,669 5,369,669
Exercise of common stock options
at $.375 to
$.625 per share 3,500 70 1,478 - 1,548
---------- --------- ----------- ------------ -----------
Balances, July 1, 1996 13,086,784 $ 261,736 $11,699,651 $ 3,523,157 $15,484,544
========== ========= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
Page 18 of 48
<PAGE> 19
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,369,669 $ 4,259,843 $ 7,391,404
Adjustments to reconcile to net cash provided
by operating activities:
Deferred income taxes 1,310,000 2,337,000 1,209,600
Depreciation 316,776 198,380 129,600
Cumulative effect of change in
accounting for income taxes - - (5,196,600)
Deferred interest and amortization of
debt discount and issuance costs - - 203,483
Change in assets and liabilities:
Accounts receivable (1,209,441) (1,029,200) (378,016)
Inventories (610,134) 1,026,017 (1,395,271)
Prepaid expenses and other (721) 6,779 (8,750)
Accounts payable and accrued liabilities 730,286 (568,238) 898,257
----------- ----------- -----------
Net cash provided by operating activities 5,906,435 6,230,581 2,853,707
----------- ----------- -----------
Cash flows from investing activities:
Property and equipment additions (591,006) (1,204,905) (215,755)
Investment in U.S. Treasury Notes (1,869,216) - -
----------- ----------- -----------
Net Cash used in investing activities (2,460,222) (1,204,905) (215,755)
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt - (4,156,309) (117,835)
Net payments under bank line of credit - - (710,000)
Loan to shareholder (41,920) - (101,828)
Proceeds from exercise of stock options 1,548 2,500 8,000
----------- ----------- -----------
Net cash used for financing activities (40,372) (4,153,809) (921,663)
----------- ----------- -----------
Net increase in cash and cash equivalents 3,405,841 871,867 1,716,289
Cash and cash equivalents:
Beginning of year 2,628,445 1,756,578 40,289
----------- ----------- -----------
End of year $ 6,034,286 $ 2,628,445 $ 1,756,578
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ - $ 2,182,348 $ 12,312
Cash paid for income taxes $ 1,711,825 $ 146,025 $ 99,205
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 19 of 48
<PAGE> 20
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Biochem International Inc. (the Company) designs and manufactures medical
equipment used in the monitoring of respiration, blood gases, exhaled gases,
anesthetic agent gases and related cardiovascular functions. The following is
a summary of significant accounting policies of the Company:
A. REVENUE RECOGNITION: The Company recognizes revenue from product sales
upon shipment to the customer.
B. CONSOLIDATION PRINCIPLES: Effective January 2, 1996, the Company
incorporated a Foreign Sales Corporation (FSC). The consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary,
BCI International Foreign Sales Corporation. All intercompany transactions
have been eliminated.
C. ESTIMATES: The Company prepares its consolidated financial statements in
conformity with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
and the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
D. CONCENTRATION OF CREDIT RISK: Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
temporary cash investments and trade receivables. The Company places its
temporary cash investments with a high credit quality financial institution.
The Company's trade receivables subject it to credit risk as its customers are
primarily health care providers, both domestically and internationally. The
Company's international receivables are generally supported by letters of
credit denominated in U.S. dollars. The domestic receivables are generally not
collateralized.
E. CASH EQUIVALENTS: All highly liquid investments purchased with a maturity
of three months or less are considered cash equivalents.
F. INVENTORIES: Inventories are valued at the lower of cost (determined on a
first-in, first-out basis) or market. Loaner and demonstration equipment is
recorded at cost and included in inventory until sold.
G. INVESTMENT: Investment at June 30, 1996 represents a U.S. government
security which matures in August, 1997. The investment is classified as
held-for-sale and is stated at its estimated fair value.
Page 20 of 48
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS, CONT.
H. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of these assets. The estimated useful lives are principally 3 to 10
years for machinery and equipment. Leasehold improvements are amortized over
the life of the lease. Upon sale or retirement of depreciable assets, the
related cost and accumulated depreciation are removed from the accounts and any
resultant gain or loss is reflected in operations.
I. INCOME TAXES: Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
J. NET INCOME PER SHARE: Net income per common and common equivalent share is
computed based on the weighted average common shares outstanding, including
common stock equivalents.
K. RECLASSIFICATIONS: Certain items in the prior years' financial statements
have been reclassified to conform with the 1996 presentation.
2. INVENTORIES:
Inventories are comprised of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished goods $ 286,067 $ 311,751
Loaner and demonstration 951,472 804,708
Work-in-process 775,098 644,977
Purchased material 1,283,998 925,065
---------- ----------
$3,296,635 $2,686,501
========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 342,262 $ 88,200
Building 724,699 724,699
Leasehold improvements 126,841 126,841
Machinery and equipment 1,366,871 1,110,868
Office furniture and equipment 181,704 207,993
---------- ----------
2,742,377 2,258,601
Less accumulated depreciation 1,030,457 820,911
---------- ----------
$1,711,920 $1,437,690
========== ==========
</TABLE>
Page 21 of 48
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS, CONT.
3. PROPERTY AND EQUIPMENT, CONTINUED:
In April 1995, the Company purchased land and building for $812,899 from a
shareholder of DS Medical Products Co. (DS) who is also an officer and a
director of the Company. DS owns approximately 76% of the Company's common
stock. The Company had leased the land and building from the same party prior
to its purchase. The Company continues to lease a portion of another building
from a third party in fiscal year 1996. The Company incurred lease expense of
$24,742, $84,500 and $74,000 in 1996, 1995 and 1994, respectively.
4. INVESTMENT:
A U.S. government security is held in a restricted trust as part of a
compensation agreement entered into between the Company and its president in
January 1996. Under the terms of the agreement, the president will receive
earnings of the trust assets currently and, should he remain employed by the
Company for a period of one year following a change in control, the assets in
trust will become the property of the president. The president has entered
into a similar compensation agreement with DS Medical Products Co., the
principal shareholder of the Company.
5. NOTE PAYABLE:
The Company has a bank loan and security agreement which, as amended January
16, 1996, provides for borrowings not to exceed $10,000,000 that are due on
demand under a revolving line of credit. Interest is at the London Interbank
Offered Rate (LIBOR) plus 1.85%. The bank has a security interest in all the
assets of the Company. Under the terms of the agreement, any borrowings under
the line of credit must be used for working capital or acquisition purposes.
The terms of the agreement also subject the Company to certain covenants
including restriction on paying dividends without prior written consent of the
bank, maintaining a minimum tangible net worth of $5,000,000 and restriction of
Company acquisitions to the medical products industry.
6. COMMON STOCK AND STOCK OPTIONS:
Effective October 1, 1992, the Company adopted the 1992 Stock Program which
includes a Stock Option Plan and a Restricted Stock Rights Plan. This program
provides for the issuance of common stock options to officers, employees and
independent consultants. An aggregate of 250,000 shares were originally
reserved for issuance under the program. All options available for grant at
June 30, 1996 relate to the 1992 stock program.
At June 30, 1996, the Company also has outstanding options to purchase 13,000
shares of common stock under a Stock Option Plan which was terminated in 1991.
Page 22 of 48
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS, CONT.
6. COMMON STOCK AND STOCK OPTIONS, CONTINUED:
Options granted under the Stock Option Plans are exercisable for a period of 10
years at a price equal to market value, as defined, on the date of grant (for
10% or more shareholders, certain of these options are exercisable for a period
of five years at a price equal to 110% of market value on the date of grant).
Stock purchase rights granted under the Restricted Stock Rights Plan are
exercisable for a period of 30 days at a price equal to 10% of the stock's fair
market value at the date of grant. No rights had been granted at June 30, 1996
under this plan.
A summary of activity involving the stock option plans is as follows:
<TABLE>
<CAPTION>
Option Shares .
------------------------
1996 1995 .
----------- -----------
<S> <C> <C>
Outstanding, beginning of year 133,500 96,000
Granted ($3.625 to $4.290 per share) 51,000 47,500
Exercised (3,500) (10,000)
------- -------
Outstanding, end of year
($.25 to $4.290 per share) 181,000 133,500
======= =======
Available for grant, end of year 78,500 129,500
======= =======
</TABLE>
In June 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" (the Statement), effective for
fiscal years beginning after December 31, 1995. The Statement allows companies
to measure compensation cost in connection with employee stock compensation
plans using a fair value based method or to continue to use an intrinsic value
based method, which generally does not result in compensation cost. The
Company currently plans to continue using the intrinsic value based method with
disclosure regarding the fair value based method once the Standard is
effective.
Page 23 of 48
<PAGE> 24
7. NET INCOME PER SHARE:
The computation of net income per common and common equivalent share assumes
that stock options are exercised and are reflected in weighted average common
shares outstanding net of treasury shares assumed to be purchased with the
exercise proceeds. There is no significant difference between primary and
fully diluted net income per share. The number of weighted average shares used
for computing primary net income per share was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning shares outstanding 13,083,284 13,073,284 13,070,084
Equivalent shares:
Dilutive stock options based on
Treasury stock method using
average market price 85,146 85,577 59,082
---------- ---------- ----------
13,168,430 13,158,861 13,129,166
========== ========== ==========
</TABLE>
8. INCOME TAXES:
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", effective July 1,
1993. The cumulative effect of this adoption on 1994 was an increase in net
income of $5,196,600 ($.39 per share). Financial statements for prior years
were not restated for the accounting change.
Income tax expense recorded in 1996 varies from income tax computed using the
federal statutory rate because of the effect of state income taxes ($270,000)
less the benefit derived from the FSC of $77,000. Income tax expense recorded
in 1995 and 1994 varies from income tax computed using the federal statutory
rate because of the effect of state income taxes of $203,000 and $82,000,
respectively. The Company also has state credit carryforwards of $90,000.
Page 24 of 48
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS, CONT.
8. INCOME TAXES, CONTINUED:
Deferred income taxes reflected in the balance sheet at June 30, 1996 and 1995
relate to the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Current:
Federal and state net operating loss
carryforwards $ - $ 695,900
Tax credit carryforwards 90,000 560,300
Inventories and receivables 124,700 100,600
Accrued employee benefits 85,300 50,800
Other 62,400 62,400
---------- ----------
Current deferred tax assets 362,400 1,470,000
---------- ----------
Noncurrent:
Federal and state net operating loss
carryforwards - 211,000
Deferred tax liabilities - property
and equipment, noncurrent (22,400) (31,000)
---------- ----------
Total net deferred tax assets $ 340,000 $1,650,000
========== ==========
</TABLE>
9. EXPORT SALES:
Export sales, principally to the Far East, Central and South America and
Western Europe, were $14,871,510, $11,736,000 and $9,744,000 in 1996, 1995 and
1994, respectively. The Company's export sales are denominated in U.S.
currency.
10. EMPLOYEE BENEFIT PLAN:
The Company sponsors a defined contribution plan for all eligible employees of
the Company. Employees may contribute up to 12% of their compensation and the
Company provides a matching contribution of 50% of the employees' contributions
up to 6% of the employees' compensation. The Company's contributions to the
Plan were $125,805, $117,270 and $87,074 in 1996, 1995 and 1994, respectively.
The Company is not obligated to provide any postretirement medical or life
insurance benefits to employees.
Page 25 of 48
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS, CONT.
11. RELATED PARTY TRANSACTIONS
The former president of the Company had an interest in the common stock of the
Company which is held by DS Medical Products Co. On August 1, 1993, the
Company paid $101,828 to the former president on behalf of DS Medical Products
Co. in exchange for those securities. As a result, the Company has a
receivable due from DS Medical Products Co. in the same amount at June 30, 1996
and 1995.
The Company paid approximately $40,000 in state taxes in March 1996 on behalf
of DS Medical Products Co., a related party. The Company has recorded this
payment as a related party receivable at June 30, 1996.
Page 26 of 48
<PAGE> 27
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and principal executive officers of the Company and their offices
are:
Name Age Office
- -------------------- --- ------------------------------------------------
Ken M. Davee (1) 88 Director - Class I, Vice Chairman of the
Board of Directors and Secretary
David H. Sanders (1) 65 Director - Class I, Chairman of the Board
of Directors, Chief Executive Officer,
Treasurer and Assistant Secretary
Lee J. Knirko 73 Director - Class II
Frank A. Katarow 37 President and Chief
Operating Officer
Keith R. Harper 47 Senior Vice President, Sales
Ann M. Johnson 34 Vice President, Finance and Operations
Robert H. Wesel 37 Vice President,
International Sales
Mark S. Geisler 44 Vice President, Engineering
Donald Alexander 41 Vice President,
Regulatory Affairs
Michael T. Joyce 45 Vice President,
Sales and Marketing
(1) Member of the Executive Committee
Page 27 of 48
<PAGE> 28
All directors are elected for two (2) year terms and serve until their
respective successors are duly elected and qualified. The terms for Classes I
and II expire as of the date set for the annual stockholders' meeting for
fiscal years ending June 30, 1996 and June 30, 1997, respectively. Officers
are appointed for a one (1) year term unless sooner replaced. Each of the
above individuals has served in the capacities indicated since September 14,
1984, except as stated below.
MR. DAVEE holds a degree from Northwestern University Business School. Prior
to 1936, he was employed in various market research capacities. In 1936, he
founded Davee, Kohnlein and Keating Company, a marketing research and
consulting firm, of which company he was a principal until its sale in 1969.
Thereafter, he has been self-employed as a private investor. In 1973, he,
along with Mr. Sanders, purchased an approximately 94% interest in Medical
Engineering Corporation ("MEC"), a manufacturer of silicone rubber implants and
other medical products located in Racine, Wisconsin, which they operated from
1973 until its sale at the end of 1982 to Bristol-Myers Company.
MR. SANDERS received an undergraduate degree and, in 1956, a Masters in
Business Administration from the University of Wisconsin. Prior to his
employment in 1973 by MEC, Mr. Sanders was with Pfizer International for four
(4) years, and Sandoz, Inc., for fifteen (15) years, at which companies he was
involved in marketing and general management. In 1973, he became President and
Chief Executive Officer of MEC, a position he held through December of 1984.
Mr. Sanders served as President of the Company from September 4, 1984 to
October 4, 1984 at which time he commenced serving as Chairman and Assistant
Secretary.
MR. KNIRKO, a certified public accountant, is presently treasurer of the Dr.
Scholl Foundation, a non-profit organization. He is a former audit manager of
Peat, Marwick, Main & Co. (now KPMG Peat Marwick), an accounting firm.
MR. KATAROW has been employed by the Company since October, 1980 serving in
various capacities including Mechanical Designer, Manager of Product Design,
Manufacturing Manager, Director of Operations and was then promoted to Vice
President of Operations in June, 1990. Responsibility for OEM Sales was added
in January, 1991. He was
Page 28 of 48
<PAGE> 29
promoted to Senior Vice President and General Manager on March 1, 1992 and
further promoted to Executive Vice President effective January 1, 1993. On
November 1, 1993 he became President and Chief Operating Officer of the
Company.
MR. HARPER has been employed by the Company since October, 1981, serving in
various capacities including National Service Manager, General Manager-Quality
Assurance and Service, Director of Regulatory Affairs, Director of Operations,
and Vice President of Operations since December, 1986. In 1990 he became Vice
President of International Sales. On November 1, 1993 he commenced serving as
Senior Vice President, Sales.
MS. JOHNSON, a certified public accountant, received a Bachelor of Business
Administration degree in Accounting and in Risk Management and Insurance from
the University of Wisconsin in Madison in 1984. She is currently attending
University of Wisconsin - Milwaukee in pursuit of her Masters of Business
Administration degree, which she should receive in May, 1997. Prior to her
employment at BCI, she worked on the audit staff at Deloitte, Haskins & Sells
(now Deloitte & Touche) from 1984 to 1987 and at Coopers & Lybrand from 1987 to
1990. She joined BCI in April, 1990 and has been Vice President of Finance and
Personnel since December, 1991. On November 1, 1993 she was promoted to Vice
President of Finance and Operations.
MR. WESEL worked in the health care field for over ten years before starting at
BCI in January, 1991. He received an associates degree from Milwaukee Area
Technical College in Business Management and is also a certified
cardiopulmonary technologist and a pulmonary functions technologist. His most
recent clinical position was as Technical Director/Business Manager of
Anesthesia at a 400 bed hospital. Since coming to BCI, he has held several
positions, including Manager of Clinical Applications, Territory Sales Manager
and Director of Marketing Services. After a brief hiatus from the company in
fiscal 1994, he became Vice President of International Sales effective
January 4, 1994.
MR. GEISLER came to BCI in November, 1994 as Vice President of Engineering from
Marquette Electronics. He worked at Marquette for 14 years at various
positions in the areas of Research and Development, most recently as Director
of Research and Development. He received his undergraduate degree in Electrical
Engineering from the University of Wisconsin in Madison and his masters degree
in Electrical Engineering from Marquette University. He is currently
Page 29 of 48
<PAGE> 30
attending Marquette University in pursuit of a Doctorate Degree in Electrical
Engineering.
MR. ALEXANDER started at BCI in August, 1992 as Engineering Manager. In August,
1994 he transferred to the regulatory affairs department, becoming Regulatory
Affairs Manager, and was promoted to Vice President, Regulatory Affairs in May,
1995. Before coming to BCI, Mr. Alexander was a project leader at Life Fitness
Corp., an equipment manufacturer in Illinois. He has a Bachelors Degree in
Electrical Engineering from the University of Maine.
MR. JOYCE earned a degree in Business Administration from the University of
Wisconsin - Whitewater. His experience includes over 20 years in sales and
sales management positions in the medical products industry. Prior to joining
BCI, he served as Regional Sales Manager for Nellcor, Inc.. He joined BCI in
May, 1995 as National Field Sales Manager for the domestic sales group and was
appointed to the position of Vice President of Sales and Marketing in June,
1996.
Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's executive officers and directors and persons holding ten percent or
more of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Based solely
on its review of copies of such reports furnished to the Company, the Company
believes that all of its executive officers, directors and greater than ten
percent beneficial owners were in compliance with their Section 16 filing
requirements.
Page 30 of 48
<PAGE> 31
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash, cash-equivalent
and non-cash forms of remuneration for services to the Company for the past
three fiscal years for the Chief Executive Officer of the Company and each of
the Company's four other most highly compensated executive officers:
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
----------------------------- ------------
Stock All Other
Name and Capacity Year Salary Bonus Other(1) Options(#) Compensation(2)
- ----------------- ---- ------ ----- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
David H. Sanders 1996 $200,000 $-0- $-0- -0- $ 4,600
Chairman and CEO 1995 180,000 -0- -0- -0- 4,550
1994 64,615 -0- -0- -0- 1,939
Frank A. Katarow 1996 $153,134 $30,050 -0- 10,000 $10,218
President and COO 1995 129,000 30,100 -0- 10,000 4,550
1994 114,519 26,500 -0- 12,500 4,231
Keith R. Harper 1996 $117,367 $ 8,500 -0- 4,000 $ 3,776
Senior Vice President 1995 117,500 -0- -0- 6,000 3,525
1994 107,308 -0- -0- 8,000 3,219
Robert H. Wesel(3) 1996 $113,520 -0- -0- 4,000 $ 3,406
Vice President 1995 105,462 -0- -0- 6,000 3,164
1994 51,101 -0- -0- 2,000 1,533
Michael T. Joyce(4) 1996 $116,060 -0- -0- 6,000 $ 3,482
Vice President 1995 16,154 -0- -0- -0- 138
</TABLE>
(1) While the above named Executive Officers enjoy certain perquisites, for
the year ended June 30, 1996, these did not exceed $50,000 or ten percent of
any officer's salary and bonus.
(2) These figures represent the amount of the Company's contribution to its
401(k) Plan allocated to the officer. Additionally, the amount for the year
ended June 30, 1996 allocated to Mr. Katarow includes a $5,618 payment
representing interest earned on the funds held in trust relating to the
Compensation Agreement in effect for Mr. Katarow, as discussed below.
(3) Mr. Wesel was not employed by BCI for all of fiscal 1994.
(4) Mr. Joyce began employment with the Company on May 1, 1995, and was
promoted to Vice President on June 1, 1996.
Directors receive no fees or expense reimbursement allowances.
Page 31 of 48
<PAGE> 32
STOCK OPTIONS
The following table shows, for the year ended June 30, 1996, individual grants
of stock options made during the year, to each of the executive officers and
directors:
<TABLE>
<CAPTION>
% of Total
Options
Options Granted to Exercise Expiration
Granted Employees Price Date
------- ---------- -------- -----------
<S> <C> <C> <C> <C>
D.H. Sanders -0- N/A N/A N/A
K.M. Davee -0- N/A N/A N/A
L.J. Knirko -0- N/A N/A N/A
F.A. Katarow 5,000 9.80% $3.625 10/16/05
F.A. Katarow 5,000 9.80% $4.290 04/12/06
K.R. Harper 2,000 3.92% $3.625 10/16/05
K.R. Harper 2,000 3.92% $4.290 04/12/06
A.M. Johnson 3,000 5.88% $3.625 10/16/05
A.M. Johnson 3,000 5.88% $4.290 04/12/06
R.H. Wesel 2,000 3.92% $3.625 10/16/05
R.H. Wesel 2,000 3.92% $4.290 04/12/06
M.S. Geisler 2,000 3.92% $3.625 10/16/05
M.S. Geisler 2,000 3.92% $4.290 04/12/06
D.J. Alexander 2,000 3.92% $3.625 10/16/05
D.J. Alexander 2,000 3.92% $4.290 04/12/06
M.T. Joyce 5,000 9.80% $3.625 10/02/05
M.T. Joyce 1,000 1.96% $4.290 04/12/06
</TABLE>
The following table shows the number and value of options exercised during
fiscal 1996 and the value of unexercised options on an aggregated basis at June
30, 1996 for each of the executive officers and directors:
<TABLE>
<CAPTION>
Shares Number of Value of
Acquired on Value Unexercised Unexercised
Exercise Realized Options at Options at
Fiscal 1996 Fiscal 1996 6/30/96 6/30/96 (1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
D.H. Sanders -0- -0- -0- N/A
K.M. Davee -0- -0- -0- N/A
L.J. Knirko -0- -0- -0- N/A
F.A. Katarow -0- -0- 50,500 $158,761
K.R. Harper -0- -0- 23,000 68,924
A.M. Johnson -0- -0- 28,500 96,425
R.H. Wesel -0- -0- 12,000 20,827
M.S. Geisler -0- -0- 12,000 16,920
D.J. Alexander -0- -0- 4,500 4,732
M.T. Joyce -0- -0- 6,000 7,210
</TABLE>
Page 32 of 48
<PAGE> 33
(1) Value of unexercised options is calculated by determining the difference
between the fair market value of the securities underlying the options and the
exercise price of the options at fiscal year end.
On January 24, 1996, the Company entered into a Compensation Agreement with its
President, Frank A. Katarow ("Katarow"). Under the terms of that Compensation
Agreement, Katarow has undertaken to remain in the employ of the Company for a
period of at least one (1) year following a change of control of the Company
(defined as a change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A under the
Securities Exchange Act of 1934). The intention of the Agreement is to retain
Katarow's services in the event of a sale, transfer or other disposition of the
business or ownership of the Company, for the benefit of any acquiring party,
in order to provide for continuity of management of the Company, if so desired
by any such acquiror.
Under the terms of the Agreement, for the one (1) year period following a
change of control, Katarow would be entitled to receive base salary at a rate
at least equal to the rate in effect immediately prior to such a change of
control, together with an annual bonus equal to the average bonus paid in the
three (3) years preceding such change of control. In addition, at the end of
the one (1) year period (or sooner if Katarow's employment with the Company or
its successor is earlier terminated without cause, as defined), Katarow would
be entitled to receive an amount equal to the amount remaining in a trust fund
concurrently established to provide for payment under the Compensation
Agreement. That trust fund, established pursuant to a complementary Trust
Agreement and funded with a cash deposit of $1,870,200.00, is intended to
constitute a grantor trust as described in Section 671 et. seq. of the Internal
Revenue Code of 1986, as amended (the "Code"). As such, all income earned by
the trust is attributable to the Company. Nevertheless, the trust instrument
provides for payment of earnings of the trust to Katarow on an annual basis.
This amount, attributable to the Company as income and deductible by it as an
employee salary expense, is to be treated as earned income to Katarow, who is
responsible for payment of individual income tax on such amount. Payment of
these annual earnings to Katarow will constitute a material increase in
Katarow's salary payments from the Company on a current basis. While earnings
from the trust fund are payable to Katarow on an annual basis commencing
immediately, payment of the principal of the trust fund is payable only upon
his satisfaction of his continuing post-change of control employment
undertaking.
Page 33 of 48
<PAGE> 34
Until actually paid to Katarow, the assets of the trust are subject to
intervening claims of general creditors of the Company, including Katarow,
whose rights therein are no greater than those of other general creditors.
Katarow may not assign, anticipate, alienate or encumber his rights in the
trust. David H. Sanders, Chairman of the Board of the Company, has been
designated as trustee under the Trust Agreement.
Katarow concurrently entered into a similar Compensation Agreement with DS
Medical Products Co. ("DS Medical"), the principal shareholder of the Company.
Under the terms of the respective Compensation Agreements, to the extent that
payments otherwise due Katarow from the Company would be considered (I) "excess
parachute payments" under Section 280G or 4999 of the Code, or (ii) not
deductible by the Company by reason of Section 162(m) of the Code, such
payments become the obligation of DS Medical, and the Trustee is directed to
return to the Company the balance of the assets in the trust that would
otherwise be available to make those payments.
The intention of the foregoing arrangement with Katarow is to assure his
continuing service to the Company on a current basis, and his availability to
any potential acquiror of the Company or its business or assets into the
future. While the Company and its principals are not in discussions with
parties contemplating a current transfer of ownership of the business or assets
of the Company, the Company and its principals have in the past engaged in
negotiations for such a transaction (see Reports on Form 8-K, dated May 23,
1995 and July 25, 1995) and may encounter or entertain other similar
discussions or initiatives in the future. The Company, its management and
principal shareholder have determined that the existence of continuity of
present management would be an important aspect in the valuation of the Company
by any potential acquiror, and the Company, its Board of Directors, and its
principal shareholder, deem it, in their best business judgment, to be
important to provide for retention of management in order to enhance the value
of the Company for the benefit of its shareholders. While the Company is not
presently engaged in any negotiations or discussions with any parties proposing
an acquisition of the company or its business or assets, management and the
principal beneficial shareholders of the company have, from time to time, been
approached by parties proposing such an acquisition, and the Company and its
principal shareholder retain the right to solicit, initiate, entertain,
consider, discuss and negotiate offers for the sale or other transfer of the
stock or
Page 34 of 48
<PAGE> 35
assets of the Company from time to time. Additionally, the Company has hired
The Chicago Corporation to assist it in strategic planning.
The ownership of a significant majority of the outstanding capital stock of the
Company by DS Medical, the Company's principal shareholder, which in turn, is
owned by David H. Sanders and Ken M. Davee (directors and officers of the
Company) and related parties, means that any discussions, negotiations and
transfer could be accomplished when, as and on terms deemed advantageous by
that principal shareholder. Nevertheless, management and ownership believe
that enhancement of the value of the Company, through a facility such as the
foregoing Compensation Agreements, will redound to the benefit of minority
shareholders as well.
The Company entered into employment contracts with four of its officers,
including Mssrs. Wesel and Harper, in April, 1995. The contracts have a three
year term, and are renewable for one year periods thereafter with agreement by
both parties. In the event employment is terminated without cause, the
employee shall be entitled to: severance pay for the greater of 12 months or
one month for each year of service, and continuation of employee benefits for
the severance period. The severance period terminates when the employee has
found other work if that occurs sooner than the predefined end of the severance
period. No other long term incentive plans or change-in-control arrangements
are currently in force at the Company.
Page 35 of 48
<PAGE> 36
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table shows the beneficial ownership of common stock, $.02 par
value, of the Company by each person who is known by the Company to be the
beneficial owner of five (5) percent or more of such stock as of August 31,
1996:
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (2)
- ----------------------- -------------------- ----------
DS Medical Products Co. 10,040,000 shares, 75.67%
180 East Pearson owned of record
Chicago, Illinois 60611 and beneficially
Ken M. Davee (1) (1)
180 East Pearson
Chicago, Illinois 60611
David H. Sanders (1) (1)
BCI International
W238 N1650 Rockwood Drive
Waukesha, Wisconsin 53188
(1) Ken M. Davee and David H. Sanders own all of the stock of DS Medical and,
therefore, for the purposes of Rule 13d-3 of the Securities and Exchange
Commission, may be deemed to beneficially own the BCI stock and rights
owned by DS Medical. Such beneficial ownership is disclaimed. The
amounts of such stock ownership and rights are not repeated in this table
or in the following table to avoid duplication.
(2) The percent of class calculations above are based on a total class of
13,267,784 shares consisting of 13,087,784 shares issued and outstanding,
and 180,000 shares issuable upon exercise of options granted under the
Company's Incentive Stock Option Plans. See ITEM 7. Financial Statements
and Supplementary Data, Note 6, Common Stock and Stock Options.
Page 36 of 48
<PAGE> 37
The following table shows the ownership of common stock of the Company held
beneficially by each director and officer holding shares, and by all directors
and officers of the Company as a group, as of August 31, 1996:
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (3)
- ------------------- ---------------------------- ----------
David H. Sanders 278,200 shares-48,200 of 2.10%
record and beneficially and
230,000 beneficially (1)(2)
Frank A. Katarow 56,200 shares-5,700 of .42%
record and beneficially,
and 50,500 beneficially as
options
Keith R. Harper 34,000 shares-11,000 of .26%
record and beneficially,
and 23,000 beneficially
as options
Ann M. Johnson 30,500 shares-30,500 .23%
beneficially as options
Robert H. Wesel 16,000 shares-4,000 of .12%
record and beneficially,
and 12,000 beneficially
as options
Mark S. Geisler 12,000 shares-12,000 .09%
beneficially as options
Donald Alexander 4,500 shares-4,500 .03%
beneficially as options
Michael T. Joyce 6,000 shares-6,000 .05%
beneficially as options
All directors and 10,477,400 shares-10,108,900 78.97%
officers as a group of record and beneficially,
(8 persons) 230,000 beneficially, and
138,500 as options (1)(3)
(1) See footnote 1 to the preceding table.
(2) Held of record by the Sanders Family Benefit Trust.
(3) See footnote 2 to the preceding table.
Page 37 of 48
<PAGE> 38
The above beneficial ownership information is based on the information
furnished by the specified persons and has been determined in accordance with
Rule 13d-3. It is not intended to be an admission of beneficial ownership for
any other purpose and includes shares as to which beneficial ownership has been
disclaimed. BCI has not received any Schedule 13D or Schedule 13G statements
indicating that any person is a beneficial owner of more than 5% of its common
stock except as disclosed above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As previously discussed, DS Medical, owner of approximately 75.67% of the
Company's outstanding common stock, is equally owned by Ken M. Davee and David
H. Sanders. Mr. Davee is Vice Chairman of the Board of Directors and Secretary
of the Company. Mr. Sanders serves as Chairman of the Board of Directors,
Chief Executive Officer, Treasurer, and Assistant Secretary of the Company.
As discussed in ITEM 1., up until June 30, 1995, Mr. Davee owned the building
which the company occupies. BCI purchased the building from Mr. Davee on that
date.
Page 38 of 48
<PAGE> 39
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
(A) FINANCIAL STATEMENTS:
Page
----
1. Included in Part II of this report:
Report of Independent Accountants ................................... 15
Consolidated Balance Sheets at June 30, 1996 and 1995 ............... 16
Consolidated Statements of Income for the years
ended June 30, 1996, 1995 and 1994 .................................. 17
Consolidated Statements of Changes in Stockholders'
Equity for the years ended June 30, 1996, 1995 and 1994 ............. 18
Consolidated Statements of Cash Flows for the years
ended June 30, 1996, 1995 and 1994 .................................. 19
Notes to Consolidated Financial Statements .......................... 20
2. Included in Part IV of this report:
Independent Accountants' Report on Financial Statement
Schedule for the years ended June 30, 1996, 1995
and 1994 ............................................................ 46
Schedule II - Valuation and Qualifying Accounts ..................... 47
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in ITEM 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, or in ITEM 7. Financial Statements and Supplementary Data.
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K for the quarter ended June 30,
1996.
Page 39 of 48
<PAGE> 40
(C) EXHIBITS FILED WITH THIS FORM 10-KSB: Page
----
3(i)(a) Certificate of Incorporation of registrant
filed April 27, 1976 ............................................ (1)
3(i)(b) Amendment to Certificate of Incorporation
filed June 8, 1976 .............................................. (1)
3(i)(c) Amendment to Certificate of Incorporation
filed June 30, 1977 ............................................. (1)
3(i)(d) Amendment to Certificate of Incorporation
filed July 31, 1979 ............................................. (1)
3(i)(e) Amendment to Certificate of Incorporation
filed October 22, 1980 .......................................... (2)
3(i)(f) Amendment to Certificate of Incorporation
filed September 13, 1984 ........................................ (3)
3(ii) By-Laws of Registrant as amended through
December 19, 1988 ............................................... (12)
4.1 BCI Stock Purchase Warrant to purchase 8,000,000
shares of common stock exercisable after 5:00 p.m.,
Chicago Time, December 31, 1986, through
December 31, 1992 ............................................... (4)
10.1 Mortgage Loan and Security Agreement dated as of
December 1, 1980, between Registrant and Town of
Pewaukee, Wisconsin ............................................. (5)
10.2 1981 Stock Program as amended through June 30, 1989 ............. (13)
10.3 Loan Agreement dated July 18, 1984, by and between
Biochem International Inc. and DS Medical Products Co. ......... (6)
10.4 Amended 10% Debenture due April 1, 1990 ......................... (3)
10.5 Biochem 10% Debenture, face amount $1,500,000 dated
September 14, 1984, and due December 31, 1992 .................. (4)
Page 40 of 48
<PAGE> 41
Page
----
10.6 Security Agreement by and between DS Medical and
Biochem dated September 14, 1984, assigning DS Medical
a security interest in Biochem's accounts, chattel
paper, contracts, contract rights, documents, equipment,
fixtures, general intangibles, goods, instruments,
inventory, trademarks, trade names, trade secrets and
good-will products thereof and certain other assets
described therein ............................................... (4)
10.7 Second Mortgage to BCI's principal offices and
manufacturing facility commonly known as W238
N1650 Rockwood Drive, Waukesha, Wisconsin ....................... (4)
10.8 Assignment of Rents to BCI's principal offices and
manufacturing facility commonly known as W238 N1650
Rockwood Drive, Waukesha, Wisconsin, 53188-1199 ................. (4)
10.9 Patent Collateral Assignment dated September 18, 1984
between BCI and DS Medical with respect to all of BCI's
patent applications and patents ................................. (4)
10.10 Trademark Collateral Assignment dated September 14, 1984
between BCI and DS Medical with respect to all of BCI's
trademark applications and trademarks ........................... (4)
10.11 First Amendment to Mortgage, Loan and Security
Agreement, Biochem International Inc. and Town of
Pewaukee (or Pewaukee City), Wisconsin, dated as of
March 1, 1985 ................................................... (7)
10.12 First Supplemental Indenture of Trust, Town of Pewaukee
(or Pewaukee City), Wisconsin, and The Marine Trust
Company N.A., as Trustee, dated as of March 1, 1985 ............. (7)
10.13 Confirmation of Real Estate Mortgage Subordination
by DS Medical Products Company dated as of
March 1, 1985 ................................................... (7)
10.14 BCI 10% Debenture, Face Amount $500,000, dated
September 13, 1985, and due December 31, 1992 ................... (8)
Page 41 of 48
<PAGE> 42
Page
----
10.15 Waiver of Defaults by IDRB Bondholder .......................... (8)
10.16 January 1986 Waiver of Default by IDRB Bondholder ............... (9)
10.17 Promissory Notes, dated July 17, 1986, between
Ken M. Davee and David H. Sanders, and BCI ..................... (10)
10.18 Commercial Offer to Purchase, dated July 21, 1987 ............... (11)
10.19 Lease, dated August 7, 1987 ..................................... (11)
10.20 Option to Purchase, dated August 7, 1987 ........................ (11)
10.22 1992 Stock Option Program, dated October 1, 1992 ................ (14)
10.23 Compensation Agreement between Frank A. Katarow
and Biochem International Inc. ................................. (15)
10.24 Compensation Agreement between Frank A. Katarow
and DS Medical Products Co. ..................................... (15)
10.25 Trust Agreement for Katarow Employment Trust. .................. (15)
24.0 Consent of Independent Accountants with
respect to Company's Form S-8 .................................. 48
Page 42 of 48
<PAGE> 43
Footnotes to ITEM 14
(1) Previously filed as Exhibits 3(a) through 3(d) respectively to
Registrant's Registration Statement on Form S-1 No. 2-65273, and
incorporated herein by reference.
(2) Previously filed as Exhibit 20(a) to Registrant's Form 10-Q for the
quarter ended September 30, 1980, and incorporated herein by reference.
(3) Previously filed as Exhibits 3(f) and 10.34 respectively to Registrant's
Form 10-K for the period ended June 30, 1984, and incorporated herein by
reference.
(4) Previously filed as Exhibits 28.2, 28.1, 28.3, 28.4, 28.5, 28.7 and 28.8
respectively to Registrant's Form 8-K dated September 13, 1984, and
incorporated herein by reference.
(5) Previously filed as Exhibit 10(g) to Registrant's Registration Statement
on Form S-1 No. 2-70811, and incorporated herein by reference.
(6) Previously filed as Exhibit 28.1 to Registrant's Form 8-K dated
July 18, 1984, and incorporated herein by reference.
(7) Previously filed as Exhibits 10.51, 10.52 and 10.53 respectively to
Registrant's Form 10-Q for the quarter ended March 31, 1985, and
incorporated herein by reference.
(8) Previously filed as Exhibits 10.45 and 10.47 respectively to Registrant's
Form 10-K for the period ended June 30, 1985, and incorporated herein by
reference.
(9) Previously filed as Exhibit 10.48 to Registrant's Form 10-Q for the
quarter ended December 31, 1985, and incorporated herein by reference.
(10) Previously filed as Exhibit 10.50 to Registrant's Form 10-K for the period
ended June 30, 1986, and incorporated herein by reference.
(11) Previously filed as Exhibits 10.1, 10.2 and 10.3 respectively to
Registrant's Form 8-K dated August 7, 1987, and incorporated herein by
reference.
Page 43 of 48
<PAGE> 44
(12) Previously filed as Exhibit 3(g) to Registrant's Form 10-Q for the period
ended December 31, 1988, and incorporated herein by reference.
(13) Previously filed as Exhibit 10.2 to Registrant's Form 10-K for the period
ended June 30, 1989, and incorporated herein by reference.
(14) Previously filed as Exhibit 10.22 to Registrant's Form 10-KSB for the
period ended June 30, 1993, and incorporated herein by reference.
(15) Previously filed as Exhibit 10.23 through 10.25 to Registrant's Form
10-QSB for the period ended December 31, 1995, and incorporated by
reference.
Page 44 of 48
<PAGE> 45
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.
BIOCHEM INTERNATIONAL INC.
Dated: September 22, 1996 By: /s/ David H. Sanders
----------------------------------
David H. Sanders, Chairman
of the Board of Directors and
Chief Executive Officer
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 indicated on the 22nd day of September, 1996.
By: /s/ David H. Sanders By: /s/ Ken M. Davee
--------------------------- ------------------------
David H. Sanders, Chairman Ken M. Davee, Vice
of the Board of Directors Chairman, Director and
and Chief Executive Officer Secretary
By: /s/ Lee J. Knirko By: /s/ Frank A. Katarow
--------------------------- ------------------------
Lee J. Knirko, Director Frank A. Katarow,
President and Chief
Operating Officer
By: /s/ Ann M. Johnson
---------------------------
Ann M. Johnson, Vice
President of Finance
and Operations
Page 45 of 48
<PAGE> 46
Independent Accountant's Report on Financial Statement Schedules
To the Stockholders
and Directors of
Biochem International Inc.
and Subsidiary
Our report on the financial statements of Biochem International Inc. and
Subsidiary is included on page 15 of this Form 10-KSB. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules listed in the index on page 38 of this Form 10-KSB.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
August 9, 1996
Page 46 of 48
<PAGE> 47
Biochem International Inc. and Subsidiary
Schedule II - Valuation and Qualifying Accounts
for the years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------ --------- --------- ---------- ---------
Additions
Balance at Charged to Balance
Beginning Costs and (a) at End
Description of Period Expenses Deductions of Period
- ------------------------------------ --------- --------- ---------- ---------
1996
----
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 100,000 $ 48,491 $ 8,491 $ 140,000
Allowance for inventory obsolescence 150,000 74,568 49,568 175,000
--------- --------- ---------- ---------
Total $ 250,000 $ 123,059 $ 58,059 $ 315,000
========= ========= ========== =========
<CAPTION>
1995
- ----
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 75,000 $ 55,481 $ 30,481 $ 100,000
Allowance for inventory obsolescence 200,000 70,002 120,002 150,000
--------- --------- ---------- ---------
Total $ 275,000 $ 125,483 $ 114,488 $ 250,000
========= ========= ========== =========
<CAPTION>
1994
----
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 60,000 $ 37,664 $ 22,664 $ 75,000
Allowance for inventory obsolescence 150,000 99,720 49,720 200,000
--------- --------- ---------- ---------
Total $ 210,000 $ 137,384 $ 72,384 $ 275,000
========= ========= ========== =========
</TABLE>
(a) Deductions consist solely of doubtful accounts and inventory
written off.
Page 47 of 48
<PAGE> 48
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement of
Biochem International Inc. on Form S-8 (File No. O-10005) of our report dated
August 9, 1996 on our audits of the financial statements and financial
statement schedule of Biochem International Inc. and Subsidiary as of June 30,
1996 and 1995, and for each of the three years in the period ended June 30,
1996, which report is included in this Annual Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
September 23, 1996
Page 48 of 48
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 6,034
<SECURITIES> 0
<RECEIVABLES> 4,961
<ALLOWANCES> 0
<INVENTORY> 3,296
<CURRENT-ASSETS> 14,703
<PP&E> 2,742
<DEPRECIATION> 1,030
<TOTAL-ASSETS> 18,428
<CURRENT-LIABILITIES> 2,922
<BONDS> 0
0
0
<COMMON> 262
<OTHER-SE> 15,223
<TOTAL-LIABILITY-AND-EQUITY> 18,428
<SALES> 29,000
<TOTAL-REVENUES> 29,000
<CGS> 12,903
<TOTAL-COSTS> 12,903
<OTHER-EXPENSES> 8,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,471
<INCOME-TAX> 3,102
<INCOME-CONTINUING> 5,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,369
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
