<PAGE> 1
CONFORMED
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the
--
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
_ 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 IRS EMPLOYER IDENTIFICATION
NO. 39-1272816
Address Telephone Number
- ------- ----------------
N7 W22025 Johnson Road (414) 542-3100
Waukesha, WI 53186-1856
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
-
The number of shares outstanding of the Company's Common Stock, par value $.02,
on September 30, 1998 was 13,050,282.
Page 1 of 10
<PAGE> 2
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
BIOCHEM INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30 June 30
1998 1998
-------------------- ----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $11,148,825 $ 13,323,922
Accounts receivable, less $137,359 and $100,000 allowance
for doubtful accounts, respectively 3,954,616 3,656,363
Inventories 4,845,707 3,856,206
Deferred income taxes 295,000 295,000
Income taxes recoverable - 327,382
Prepaid expenses 85,311 71,632
------------ ------------
Total Current Assets 20,329,459 21,530,505
Investment, held for trust 1,845,000 1,845,000
Property, plant and equipment, net 3,786,630 4,552,103
Intangible Asset 3,258,830 22,916
Other 9,168 8,104
------------ ------------
Total Assets $ 29,229,087 $ 27,958,628
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade $ 2,483,329 $2,147,765
Accrued liabilities:
Salaries, wages and commissions 629,349 775,060
Other 208,253 203,279
Income taxes 146,618 -
------------- ------------
Total Current Liabilities 3,467,549 3,126,104
Stockholders' Equity:
Common Stock, $.02 par value 262,006 262,006
Additional Paid-in Capital 11,744,179 11,744,179
Retained Earnings 14,095,778 13,166,764
Less: Treasury Stock (187,500) (187,500)
Less: Receivable from shareholders (152,925) (152,925)
-------------- -------------
Total Stockholders' Equity 25,761,538 24,832,524
------------- ------------
Total Liabilities and Stockholders' Equity $ 29,229,087 $ 27,958,628
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2 of 10
<PAGE> 3
BIOCHEM INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30
1998 1997
------------------------------------
<S> <C> <C>
Revenues:
Net sales $ 6,925,174 $ 7,420,457
Other income 220,301 178,390
---------- ------------
Total Revenues 7,145,475 7,598,847
Costs and Expenses:
Cost of goods sold 3,012,949 3,221,349
Selling, general and administrative 2,123,954 1,701,624
Engineering, regulatory and development 577,558 481,484
---------- ------------
Total Costs and Expenses 5,714,461 5,404,457
---------- ------------
Income before income tax expense 1,431,014 2,194,390
Income tax expense:
Current 502,000 868,898
Deferred - -
---------- ------------
Net Income $ 929,014 $ 1,325,492
========== ============
Basic earnings per share $ .07 $ .10
Diluted earnings per share $ .07 $ .10
Weighted average shares
outstanding - basic 13,100,282 13,091,284
Effect of dilutive securities 67,402 73,865
---------- ------------
Weighted average shares
outstanding - dilutive 13,167,684 13,165,149
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 10
<PAGE> 4
BIOCHEM INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 929,014 $ 1,325,492
Adjustments to reconcile net cash provided
by operating activities:
Depreciation 121,564 85,250
Amortization 40,724 -
Change in assets and liabilities:
Accounts and notes receivable (107,176) (387,351)
Inventories (570,938) 38,595
Prepaid expenses (12,009) (1,896)
Accounts payable and accrued liabilities 668,826 705,629
------------- -------------
Net cash provided by operating activities 1,070,005 1,765,719
------------- -------------
Cash flows from investing activities:
Business acquisition (3,907,712) -
Property, plant and equipment additions (321,723) (188,236)
Disposal of property and equipment at net book value 984,333 24,223
------------- -------------
Net cash used for investing activities (3,245,102) (164,013)
------------- --------------
Cash flows from financing activities:
Issuance of common stock -- --
------------- -------------
Net increase (decrease) in cash and equivalents (2,175,097) 1,601,706
Cash and equivalents:
Beginning of period 13,323,922 10,892,915
------------- -------------
End of period $ 11,148,825 $ 12,494,621
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ -- $ --
============= =============
Cash paid during the period for income taxes $28,000 $ 126,778
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 10
<PAGE> 5
BIOCHEM INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements should be
read in conjunction with the Company's 1998 Annual Report on Form 10-K.
In the opinion of management, all adjustments necessary to a fair
statement of operations and financial position of the Company have been
included in the accompanying statements of operations and balance
sheets. All adjustments made to the interim financial statements were
of a normal, recurring nature.
The year-end condensed balance sheet data was derived from audited
consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles.
2. Inventories are comprised of:
<TABLE>
<CAPTION>
September 30 June 30
1998 1998
---- ----
<S> <C> <C>
Finished goods $ 369,543 $ 561,440
Loaner and demonstration 1,006,646 935,367
Work in process 1,303,116 1,043,103
Purchased material 2,166,402 1,316,296
------------ -------------
$ 4,845,707 $ 3,856,206
============ =============
</TABLE>
<TABLE>
<CAPTION>
3. Property, plant and equipment consists of the following:
September 30 June 30
1998 1998
---- ----
<S> <C> <C>
Land $ 241,681 $ 583,943
Building 2,631,033 724,699
Leasehold improvements 3,933 126,841
Machinery and equipment 2,224,035 2,121,650
Office furniture and equipment 332,787 227,024
Construction in progress - 2,502,390
------------ ------------
5,433,469 6,286,547
Less accumulated depreciation (1,646,839) (1,734,444)
------------ ------------
$ 3,786,630 $ 4,552,103
============ ============
</TABLE>
Page 5 of 10
<PAGE> 6
4. Anesco acquisition
Effective July 1, 1998, SurgiVet, Inc., a wholly owned subsidiary of the
Company, purchased the assets of Anesco, Inc. for $4,000,000 cash. Upon
completion of the purchase, the Company recorded $3,277,887 of goodwill. Anesco,
Inc. was a manufacturer of veterinary ventilator and anesthesia equipment.
5. Sale of the Company
On October 9, 1998, the Company entered into an agreement for sale of the
Company to Smiths Industries plc, a United Kingdom-based avionics, medical
systems and specialized industrial products manufacturer. The purchase price is
approximately $6.28 per share to the Company's shareholders. The transaction is
expected to close in December, 1998, or January, 1999.
Page 6 of 10
<PAGE> 7
BIOCHEM INTERNATIONAL INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Working capital at September 30, 1998 was $16,861,912 as compared to $18,404,401
at June 30, 1998. The decrease in working capital is primarily due to the
purchase of the assets of Anesco, Inc. as discussed below. Current cash and cash
equivalents were used for this purchase.
The Company's executive offices and production facilities are located at N7
W22025 Johnson Road, Waukesha, Wisconsin. This facility was completed and ready
for occupancy in early July 1998. During the move, manufacturing was not
operational for 2 days early in July, and administration was down for less than
a day; accordingly, the impact on operations was minimal. The Company used
current cash and cash equivalent balances to fund the purchase and build-out.
This new facility will allow the Company the space needed for growth and
efficient operations.
The Company closed on the sale of its previous facility located at W238 N1650
Rockwood Drive, Waukesha, Wisconsin on July 24, 1998. The land and building were
sold for $785,000, which constitutes a small gain over net book value. BCI had
purchased this facility on June 30, 1995. The Company has also closed on the
sale of the land adjacent to its previous facility on September 24, 1998 for
$255,000, an amount approximately equal to net book value.
As disclosed on Form 8-K, dated October 14, 1998, the Company has entered into
an agreement for sale of the Company to Smiths Industries plc, a United
Kingdom-based avionics, medical systems and specialized industrial products
manufacturer. The purchase price is approximately $6.28 per share to the
Company's shareholders. The transaction is expected to close in December, 1998,
or January, 1999.
The Company has reviewed its computer and other systems to identify those areas
that could be adversely affected by Year 2000 software failures. It has been
determined that the Company's products are fully Year 2000 compliant. All
software except for the Company's integrated computer based business system is
Year 2000 compliant. As a result, we have begun the research and analysis needed
to replace the current business system expected to have an estimated cost of
$300,000. Many of the off-the-shelf variety of software programs the Company
uses are already compliant, the few that are not will be upgraded to compliant
versions or replaced at minimal cost. The Company is currently verifying the
Year 2000 compliance of our computer hardware and operating systems and is
approximately fifty percent completed with this project. This review is expected
to be completed by the end of the calendar year. Additionally, the Company has
assessed the compliance of its office equipment (fax machines, copiers,
telephone system, etc.) and determined that these systems are fully compliant.
In 1999, the Company will review the Year 2000 compliance of its customers and
vendors.
Beyond the above review procedures, the Company is continuing to develop a Year
2000 contingency plan, should a Year 2000 compliance issue arise. However, there
can be no assurance that customers, suppliers and service providers on which the
Company relies will resolve their Year 2000 issues. Failure to complete the Year
2000 project in a timely manner could have a material adverse effect on future
operating results or financial condition.
Page 7 of 10
<PAGE> 8
Effective July 1, 1998, SurgiVet, Inc., a wholly owned subsidiary of the
Company, purchased the assets of Anesco, Inc. for $4,000,000 cash. Upon
completion of the purchase, the Company recorded $3,277,887 of goodwill. Anesco,
Inc. was a manufacturer of veterinary ventilator and anesthesia equipment.
Results of Operations
Net sales for the three-month period ended September 30, 1998 decreased 6.7%
from the corresponding prior year period. This decrease results from a decrease
in sales to both our direct domestic customers and to our international dealers,
primarily of our handheld pulse oximeters and handheld capnometers, but also in
sales of higher end products. Also in the first quarter, the Company
discontinued several old product lines in anticipation of introducing new
products. These new products are being introduced in the second quarter. The
decrease in sales of the BCI products is partially offset by approximately
$800,000 in sales of SurgiVet products.
Other income for the three- month period ended September 30, 1998 consists
primarily of interest income.
Cost of goods sold as a percentage of net sales was approximately 43.5% during
the three-month period ended September 30, 1998 compared to 43.4% for the
corresponding period ended September 30, 1997. This fluctuation is attributable
to a change in the product mix sold among periods.
Selling, general and administrative expenses were 30.7% of net sales in the
three-month period ending September 30, 1998 compared to 22.9% during the same
period of the prior year. This percentage increase is due in part to the
decrease in sales mentioned above. Actual expenses increased by $422,000 or 25%
over the prior period. This is primarily due to additional expenses for domestic
sales territory expansion, and additional operating expenses for the Company's
veterinary division, SurgiVet, and also costs for the acquisition of Anesco.
The increase in engineering, research and development expenditures during the
three-month period ended September 30, 1998 of 20.5% compared to prior year
reflects development and regulatory cost related to new products. Overall, BCI
has committed to spending more in this area to continue its new product
introduction cycle.
All other costs and expenses of the Company remained relatively constant when
comparing the first three months of fiscal 1999 to that of fiscal 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following Form 8-K was filed with the Commission during the quarter ended
September 30, 1998:
Page 8 of 10
<PAGE> 9
(1) Form 8-K dated July 8, 1998:
Item 2 Acquisition of Assets: The Company's wholly-owned subsidiary, SurgiVet,
Inc., acquired substantially all of the assets of Anesco, Inc., pursuant to an
Asset Purchase Agreement effective July 1, 1998.
(2) Form 8-K dated September 9, 1998:
Item 5 Other Events: The Company announced it has entered into discussions with
Smiths Industries plc, for the acquisition of the Company.
(3) Form 8-K dates October 14, 1998:
Item 5 Other Events: The Company entered into an agreement with Smiths
Industries plc, for the acquisition of the Company.
Page 9 of 10
<PAGE> 10
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: November 13, 1998 By /s/ David H. Sanders
---------------------
David H. Sanders
Chairman of the Board and
Chief Executive Officer
Dated: November 13, 1998 By /s/ Frank A. Katarow
---------------------
Frank A. Katarow
President and Chief
Operating Officer
Dated: November 13, 1998 By /s/ Mary K. Hamkins
-------------------
Mary K. Hamkins
Director of Finance
(Chief Accounting Officer)
Page 10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,149
<SECURITIES> 0
<RECEIVABLES> 3,955
<ALLOWANCES> 0
<INVENTORY> 4,846
<CURRENT-ASSETS> 20,329
<PP&E> 5,433
<DEPRECIATION> 1,646
<TOTAL-ASSETS> 29,229
<CURRENT-LIABILITIES> 3,468
<BONDS> 0
0
0
<COMMON> 262
<OTHER-SE> 25,499
<TOTAL-LIABILITY-AND-EQUITY> 29,229
<SALES> 6,925
<TOTAL-REVENUES> 7,145
<CGS> 3,013
<TOTAL-COSTS> 3,013
<OTHER-EXPENSES> 2,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,431
<INCOME-TAX> 502
<INCOME-CONTINUING> 929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 929
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
