<PAGE> 1
CONFORMED COPY
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 March 31, 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
- ------- ----------------
W238 N1650 Rockwood Drive (414) 542-3100
Waukesha, WI 53188-1199
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 March 31, 1998 was 13,100,284.
Page 1 of 9
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOCHEM INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 June 30
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and equivalents $13,236,776 $10,892,915
Accounts receivable, less $171,105 and $125,000 allowance
for doubtful accounts, respectively 3,611,311 4,158,002
Inventories 3,860,145 3,747,955
Deferred income taxes 320,000 320,000
Prepaid expenses 4,684 43,376
----------- -----------
Total Current Assets 21,032,916 19,162,248
Investment 1,845,000 1,847,739
Property, plant and equipment, net 3,738,537 1,599,679
Related party receivable 152,925 144,770
Other 30,489 5,987
----------- -----------
Total Assets $26,799,867 $22,760,423
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade $1,972,489 $1,813,985
Accrued liabilities:
Salaries, wages and commissions 698,377 754,165
Other 209,085 212,018
Income taxes 310,378 35,000
----------- -----------
Total Current Liabilities 3,190,329 2,815,168
Stockholders' Equity:
Common Stock, $.02 par value 262,006 261,826
Additional Paid-in Capital 11,733,679 11,707,975
Retained Earnings 11,801,353 8,162,954
Less: Treasury Stock (187,500) (187,500)
----------- -----------
Total Stockholders' Equity 23,609,538 19,945,255
----------- -----------
Total Liabilities and Stockholders' Equity $26,799,867 $22,760,423
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
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<PAGE> 3
BIOCHEM INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1998 1997 1998 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $7,042,114 $7,174,004 $21,351,914 $19,626,770
Other income 207,223 199,575 580,433 513,937
---------- ---------- ----------- -----------
Total Revenues 7,249,337 7,373,579 21,932,347 20,140,707
Costs and Expenses:
Cost of goods sold 2,983,333 3,243,795 9,202,365 8,743,153
Selling, general and administrative 1,826,064 1,597,638 5,166,531 4,763,964
Engineering, research and development 592,433 542,288 1,703,961 1,427,902
---------- ---------- ----------- -----------
Total Costs and Expenses 5,401,830 5,383,721 16,072,857 14,935,019
---------- ---------- ----------- -----------
Income Before Income Tax Expense 1,847,507 1,989,858 5,859,490 5,205,688
Income tax expense 668,700 693,979 2,221,091 1,892,399
Net Income $1,178,807 $1,295,879 $3,638,399 $3,313,289
========== ========== =========== ===========
Earnings per Share Data:
Basic and Diluted earnings per share $.09 $.10 $.28 $.25
==== ==== ==== ====
Shares Outstanding Data:
Average shares outstanding 13,099,284 13,091,284 13,098,716 13,092,180
Dilutive stock options 85,980 99,894 84,977 116,734
---------- ---------- ----------- -----------
Diluted Average Shares Outstanding 13,185,264 13,191,178 13,183,693 13,208,914
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 9
<PAGE> 4
BIOCHEM INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,638,399 $3,313,289
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation 285,743 273,490
Change in assets and liabilities:
Accounts receivable 538,536 754,054
Inventories (112,190) (637,208)
Prepaid expenses and other 16,929 56,648
Accounts payable and accrued liabilities 375,161 128,690
----------- ----------
Net cash provided by operating activities 4,742,578 3,888,963
----------- ----------
Cash flows from investing activities:
Property, plant and equipment additions (2,448,824) (228,590)
Proceeds from disposal of property and equipment 24,223 --
----------- ----------
Net cash used for investing activities (2,424,601) (228,590)
----------- ----------
Cash flows from financing activities:
Issuance of common stock 25,884 7,789
Cash paid for purchase of stock options -- (163,211)
----------- ----------
Net cash provided (used) by financing activities 25,884 (155,422)
----------- ----------
Net increase in cash and equivalents 2,343,861 3,504,951
Cash and equivalents:
Beginning of period 10,892,915 6,034,286
----------- ----------
End of period $13,236,776 $9,539,237
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $1,945,713 $1,892,399
=========== ==========
Schedule of Non-cash Financing Activities:
Purchase of common stock at fair market
value in payment of account receivable $ -- $ 187,500
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 9
<PAGE> 5
BIOCHEM INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements should be
read in conjunction with the Company's 1997 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 financial statements. 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
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
2. Inventories are comprised of:
<TABLE>
<CAPTION>
March 31 June 30
1998 1997
---------- ----------
<S> <C> <C>
Finished goods $399,185 $230,390
Loaner and demonstration 887,597 920,734
Work in process 976,790 1,070,564
Purchased material 1,596,573 1,526,267
---------- ----------
$3,860,145 $3,747,955
========== ==========
</TABLE>
3. Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
March 31 June 30
1998 1997
---------- ----------
<S> <C> <C>
Land $583,943 $342,262
Building 2,499,053 724,699
Leasehold improvements 126,841 126,841
Machinery and equipment 1,987,495 1,605,481
Office furniture and equipment 186,624 184,295
---------- ----------
5,383,956 2,983,578
Less accumulated depreciation 1,645,419 1,383,899
---------- ----------
$3,738,537 $1,599,679
========== ==========
</TABLE>
4. Income Per Share:
During the second quarter, the Company adopted Statement of Financial
Accounting Standards (FAS) 128 "Earnings Per Share," which established
new standards for reporting earnings per share. The standard was applied
retroactively to prior periods and had no effect on the earnings per
share previously reported.
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<PAGE> 6
BIOCHEM INTERNATIONAL INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Working capital at March 31, 1998 was $17,843,000 as compared to $16,347,000 at
June 30, 1997. The increase in working capital is primarily a function of the
positive cash flow the Company experienced from operating activities during the
first nine months of fiscal 1998.
In November 1997, the Company purchased a new facility consisting of land and
building, near its current location for $1,979,000. The Company intends to
move all of its operations into the new building, which is approximately 55,600
square feet. The building is newly erected, and BCI estimates it will cost
approximately $1,200,000 to build out the interior to suit the Company's needs.
Cash and investment balances were used to fund the purchase of the facility
and will also be used to fund the build-out. The build-out will not be
complete until after the end of the current fiscal year, at which time
operations will move. In February 1998, BCI entered into a contract to sell
its current building for $785,000, with the closing scheduled for August 1998.
The Company will not sustain a loss on this sale. The property adjacent to our
current building is not part of this transaction. BCI will continue to
entertain offers for its purchase and intends to dispose of it after the move.
The Company does not anticipate a loss on the sale of this property. It is not
anticipated that there will be any disruption in the operations of BCI, and the
new building will allow BCI the space needed for growth and efficient
operations.
The Company has addressed the Year 2000 (Y2K) issue and does not expect that it
will have a material impact on its business, operations nor its financial
condition. BCI's products are already Y2K compliant. Many of the computer
software programs used by employees are also already compliant and it has been
determined that the costs of upgrading or replacing the ones that are not will
not be material. These upgrades or replacements are expected to be completed
by January 1, 1999. The Company is in the process of considering the impact of
this issue on customer and vendor relationships, but does not anticipate any
material consequences.
During the second quarter, the Company established a subsidiary, SurgiVet, Inc.
SurgiVet was established to design and distribute monitoring equipment to the
veterinary market. The Subsidiary is currently operating out of a leased
facility, but will move into BCI's new building when the facility is complete.
BCI will fund this new Subsidiary out of current cash and investment balances.
Company management believes that sales revenues to be generated by current
products and anticipated new product introductions, and financing arrangements
currently in place will be sufficient to meet future cash needs.
Page 6 of 9
<PAGE> 7
Results of Operations
Net sales for the three-month period ended March 31, 1998 decreased 1.8% from
the corresponding prior year period. This decrease results from a 16.9%
decrease in sales to our international OEM customers. This decrease is
primarily due to decreases in sales into Europe of our higher end OEM
componentry. Sales to our direct domestic customers and to our international
dealers were up 5.1% and 9.0%, respectively, for the quarter, but these
increases were not enough to offset the decrease in sales to our international
OEM customers.
Net sales for the nine-month period ended March 31, 1998 increased 8.8% over
the corresponding prior year period. This increase results from increases in
sales to our direct domestic customers and to our international dealers of
25.2% and 24.6%, respectively. These increases are primarily due to increased
sales of our handheld products in addition to sales of our new Clarity line of
products, which is being very well received in the marketplace. The Clarity
series are a new line of compact, tabletop oximeters, CO2 monitors and NIBP
monitors. Sales to our OEM customers were down 6.6% for the nine-month period
due to decreases in international OEM sales cited above.
Other income for the three- and nine-month periods ended March 31, 1998
consists primarily of interest income. The increase in the current periods
over prior years are a factor of higher investment balances in the current
year.
Cost of goods sold as a percentage of net sales was approximately 42.4% and
43.1% during the three- and nine month periods ended March 31, 1998 compared to
45.2% and 44.5% for the corresponding periods ended March 31, 1997. These
fluctuations are attributable to changes in the mix of products sold among the
periods.
Selling, general and administrative expenses were 25.9% and 24.2%,
respectively, of net sales in the three- and nine-month periods ended March 31,
1998 compared to 22.3% and 24.3% during the same periods of the prior year. The
increased percentage in the three months ended March 31, 1998, is due to
increased convention expense, international travel expenses and marketing
expenses for SurgiVet. The decreased percentage in the nine-month period
ended March 31, 1998 is solely due to the increase in sales, as actual expenses
increased over the period for the reasons cited above.
The 9.2% increase in engineering, research and development expenditures noted
during the three-month period ended March 31, 1998 compared to the similar
period in the prior year reflects increases related to payroll expenses and new
project expenses. The 19.3% increase in these expenditures over the nine-month
period ended March 31, 1998 when compared to the similar period in the prior
year also reflects increases in expenses related to payroll, and new project
expenses. These increases are the result of additional staffing when comparing
the first nine months of fiscal 1998 to the same period in fiscal 1997.
All other costs and expenses of the Company remained relatively constant when
comparing the first nine months of fiscal 1998 to that of fiscal 1997.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
Page 7 of 9
<PAGE> 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following Form 8-K was filed with the Commission during the quarter ended
March 31, 1998:
Form 8-K dated March 30, 1998:
Item 5. Other Events: The Company's stockholders approved the merger of DS
Medical Products Co. with and into the Company, as well as an amendment to the
Company's Certificate of Incorporation to increase the number of its authorized
shares from 14,000,000 to 24,000,000.
Page 8 of 9
<PAGE> 9
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: May 9, 1998 By /s/ David H. Sanders
----------------------------
David H. Sanders
Chairman of the Board and
Chief Executive Officer
Dated: May 9, 1998 By /s/ Frank A. Katarow
----------------------------
Frank A. Katarow
President and Chief
Operating Officer
Dated: May 9, 1998 By /s/ Mary K. Hamkins
----------------------------
Mary K. Hamkins
Director of Finance
(Chief Accounting Officer)
Page 9 of 9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 13,237
<SECURITIES> 0
<RECEIVABLES> 3,611
<ALLOWANCES> 0
<INVENTORY> 3,860
<CURRENT-ASSETS> 21,033
<PP&E> 5,384
<DEPRECIATION> 1,645
<TOTAL-ASSETS> 26,800
<CURRENT-LIABILITIES> 3,190
<BONDS> 0
262
0
<COMMON> 0
<OTHER-SE> 23,347
<TOTAL-LIABILITY-AND-EQUITY> 26,800
<SALES> 7,042
<TOTAL-REVENUES> 7,249
<CGS> 2,983
<TOTAL-COSTS> 2,983
<OTHER-EXPENSES> 2,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,847
<INCOME-TAX> 669
<INCOME-CONTINUING> 1,179
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,179
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
