<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
XX Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- -- Exchange Act of 1934.
For the period ended March 31, 1996 or
__ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to .
------- -------
COMMISSION FILE NUMBER: 0-16128
BIODYNAMICS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-3100165
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10500 UNIVERSITY CENTER DRIVE, SUITE 130, TAMPA, FLORIDA 33612
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 979-0016
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 NASDAQ
(Title of Class) (Name of Each Exchange on Which Registered)
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 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
As of May 13, 1996 there were outstanding 8,319,721 shares of Biodynamics
International, Inc. Common Stock, par value $.01.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1996 1995
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 580 $ 184
Accounts receivable 1,533 1,397
Inventories 4,353 4,878
Other current assets 209 92
------- -------
6,675 6,551
PROPERTY, PLANT AND EQUIPMENT, NET 4,113 4,474
INTANGIBLE AND OTHER ASSETS, NET 4,914 5,861
------- -------
TOTAL ASSETS $15,702 $16,886
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 787 $ 790
Accrued interest 336 341
Other accrued expenses 675 1,010
Current portion of debt 2,390 2,700
------- -------
4,188 4,841
OTHER LIABILITIES
Long-term debt 10,673 9,788
Deferred interest 838 787
------- -------
11,511 10,575
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 3 1,470
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,702 $16,886
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 3
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
---------------- ------------------
MARCH, 31 MARCH 31,
--------- ---------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES
Revenue $ 5,538 $ 5,706 $ 3,509 $ 2,974
Cost of Revenue 3,658 3,046 2,277 1,565
--------- --------- --------- ---------
Gross Margin 1,880 2,660 1,232 1,409
OPERATING EXPENSES
General and administrative 1,026 1,399 515 780
Sales and marketing 1,050 1,510 500 798
Research and development 107 277 59 152
Depreciation and amortization 822 1,160 433 576
--------- --------- --------- ---------
3,005 4,346 1,507 2,306
OPERATING LOSS (1,125) (1,686) (275) (897)
Loss in equity of joint venture
and minority interest -- (95) -- (53)
Other income 138 45 84 71
Interest expense (357) (379) (180) (202)
Deferred interest expense (79) (152) (21) (75)
--------- --------- --------- ---------
(298) (581) (117) (259)
NET LOSS BEFORE INCOME TAXES (1,423) (2,267) (392) (1,156)
--------- --------- --------- ---------
Income taxes -- -- -- --
--------- --------- --------- ---------
NET LOSS $ (1,423) $ (2,267) $ (392) $ (1,156)
========= ========= ========= =========
Average common shares outstanding 7,987,109 7,931,540 7,987,109 7,936,393
========= ========= ========= =========
Net loss per share $ (0.18) $ (0.29) $ (0.05) $ (0.15)
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,423) $ (2,267)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 994 1,287
Loss in equity of joint venture -- 69
Stock issued for services -- 27
Minority interest -- 26
Deferred interest expense 79 152
Foreign currency transaction loss -- 73
Increase (decrease) in cash resulting from changes in:
Accounts receivable (182) (296)
Inventories 377 (777)
Prepaid expenses and other current assets (120) 65
Accounts payable and accrued expenses (336) 280
------- --------
Net cash used in operating activities (611) (1,361)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (14) (458)
Proceeds from sale of property, plant and equipment -- 14
(Additions to) decreases in intangible and other assets 30 (74)
Contributions to joint venture -- (88)
-------- --------
Net cash provided by (used in) investing activities 16 (606)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Preferred Stock -- 6,185
Proceeds from short-term borrowings 91 608
Repayment of short-term borrowings (313) (275)
Proceeds from long-term borrowings 1,263 ---
Repayment of long-term debt (38) (4,127)
Preferred dividends paid -- (131)
-------- --------
Net cash provided by financing activities 1,003 2,260
EFFECT OF EXCHANGE RATE CHANGES ON CASH (12) 49
NET INCREASE IN CASH AND CASH EQUIVALENTS 396 342
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 184 348
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 580 $ 690
======== ========
===============================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 361 $ 526
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(1) ORGANIZATION
Biodynamics International, Inc. with its consolidated subsidiaries ("the
Company") processes, manufactures and distributes worldwide specialty
surgical products and tissue processing services for neuro, orthopedic,
cardiovascular, reconstructive and general surgical applications. The
Company's core business is processing human donor tissue ("allografts")
utilizing its patented Tutoplast(TM) process for distribution to hospitals
and surgeons. The Company also manufactures and distributes surgical
sutures internationally.
(2) SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited consolidated
financial statements of Biodynamics International, Inc. and the unaudited
results of operations and cash flows for the six months ended March 31,
1996 and 1995, have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis, and include all
adjustments necessary in order to make the financial statements not
misleading. The interim financial statements should be read in conjunction
with the consolidated financial statements of the Company for the year
ended September 30, 1995. Significant accounting policies of the Company
are presented below.
FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's
German subsidiary is Deutsche Mark. This subsidiary also represents the
Company's largest operating segment and, accordingly, the translation of
financial statements is affected by significant changes in the exchange
rate. The translation of the subsidiary's operations reflect a decline in
the U.S. Dollar against the Deutsche Mark to an average exchange rate of
DM 1.45 from DM 1.51 for the six months ended March 31, 1996 and 1995,
respectively.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company, its wholly- owned subsidiaries, and its 51%
ownership of Corin Orthopedic Products ("Corin"). Corin was sold on August
15, 1995. All intercompany transactions and balances are eliminated in
consolidation.
RECLASSIFICATIONS. Certain prior period financial statement balances have
been reclassified to conform with the current period presentation.
(3) LONG-TERM DEBT
On November 23, 1995, the Company received a commitment letter from the
holders of its Mezzanine debt, convertible investor loans and Series A and
B Preferred Stock ("institutional investors"), which provided for
additional financing to the Company and a restructuring of certain debt
and equity. As a result of that commitment letter, the Company executed a
Senior B loan on February 8, 1996.
Under the terms of the Senior B loan, the institutional investors have
made available up to approximately $1,500,000 in funds, including
approximately $500,000 for payment of scheduled interest in 1996. The
Senior B loan ranks above the Mezzanine debt but below the existing senior
debt. The funds advanced will accrue interest at 10% per annum, can be
prepaid at any time with the unpaid balance repayable on December 31,
1999, and is convertible into common shares at $.85 per common share. Any
amounts not repaid within one year would accrue an additional 10%
interest.
5
<PAGE> 6
(4) SHAREHOLDERS' EQUITY
Shareholders' equity at March 31, 1996 and September 30, 1995 consisted of
the following:
<TABLE>
<CAPTION>
(unaudited) (audited)
March 31 September 30
1996 1995
----------- ------------
<S> <C> <C>
Capital Stock
Preferred Stock, par value $.01 per share,
Series A, 304,000 shares issued and outstanding $ 3,000 $ 3,000
Series B, 562,221 shares issued and outstanding 6,000 6,000
Common Stock, par value $.01 per share, with 7,987,109
issued and outstanding at March 31, 1996 and
September 30, 1995, respectively 80,000 80,000
Additional contributed capital 17,091,000 17,091,000
Foreign currency translation adjustment 238,000 282,000
Accumulated deficit (17,415,000) (15,992,000)
------------ ------------
$ 3,000 $ 1,470,000
============ ============
</TABLE>
Subsequent to March 31, 1996, shareholders' equity was adjusted as noted in
below (Footnote 5).
(5) SUBSEQUENT EVENT (UNAUDITED)
On April 12, 1996, the Company executed an exchange agreement amongst the
holders of its Convertible Investor Loans and Series A and B Preferred
Stock, in which all the outstanding loans and Series A and B Preferred
Stock, including accrued interest and dividends thereon, were exchanged
for Series C Preferred Stock. As a result of the exchange, the
institutional investors relinquished their rights to acquire an ownership
interest in the Company's German subsidiary. The Company currently has
insufficient authorized common shares available for issuance in the event
of conversion of all of the Series C Preferred Stock. The Company intends
to seek approval from its common shareholders to increase the authorized
shares sufficient to meet this conversion.
Each share of the Series C Preferred Stock entitles its holder to
receive, effective December 1, 1995, 8% cumulative dividends, payable in
cash or Series C Preferred Stock; to receive $127.50 per share of
liquidation preference, to convert into 150 common shares, as adjusted in
the event of future dilution; and, subject to certain conditions related
to earnings, share price and notice to shareholders, may be redeemed
after April, 1999 at the option of the Company at a price of $127.50 per
preferred share. The Series C Convertible Preferred Stockholders are not
entitled to any voting rights except on any matters related to amending
the terms of the Series C Preferred Stock or the authorization of any
stock ranking senior thereto. The Series C Stockholders can also elect up
to two additional directors to the Board. A total of $14,102,000 of
Series C Preferred Stock will be issued.
The following represents the value of the debt and equity exchanged for
the Series C Preferred Stock:
<TABLE>
<S> <C>
Accrued Interest $ 838,000
Convertible Investor Loans 3,256,000
Accumulated dividends 479,000
Series A Preferred Stock 3,344,000
Series B Preferred Stock 6,185,000
-----------
$14,102,000
===========
</TABLE>
6
<PAGE> 7
The following table presents on a pro forma basis, a condensed balance sheet at
March 31, 1996, giving effect to this transaction as if it had occurred on that
date.
<TABLE>
<CAPTION>
Pro Forma
March 31, 1996
--------------
<S> <C>
Current Assets $ 6,675,000
Property, plant and equipment, net 4,113,000
Intangible and other assets, net 4,914,000
-----------
$15,702,000
===========
Current liabilities $ 4,188,000
Other liabilities 7,417,000
Shareholders' Equity 4,097,000
-----------
$15,702,000
===========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Effective August 15, 1995, the Company sold its 51% joint venture interest in
Corin Orthopedic Products ("Corin"), whose results are included in the
consolidated results of operations through the sale date. The Company received
net cash proceeds of approximately $289,000 from the sale, and realized a gain
of $174,000 all in the last quarter of fiscal year 1995.
RESULTS OF OPERATIONS
Comparisons between the 1996 and 1995 six-month periods should recognize that
the 1995 periods included $406,000 of revenue and $353,000 of expenses
generated by Corin prior to the sale date. Comparisons are also affected by a
4% decline in the U.S. dollar against the German Deutsche Mark. The effect of
such a decline results in higher revenues/expenses and net loss.
REVENUE AND COST OF REVENUE
Revenue for the six months ended March 31, 1996 decreased 3% to $5,538,000 from
$5,706,000 for the comparable period. The $406,000 reduction in Corin revenues
were partially offset by a $224,000 increase in processing and distribution
fees in the U.S. operations.
Conversely, revenue for the three months ended March 31, 1996 increased 18% to
$3,509,000 from $2,974,000 for the comparable period. This increase resulted
primarily from distribution fees to Japan for November and December of
approximately $400,000 which did not occur until January 1996. Also, an
increase of $400,000 in processing and distribution fees in both the U.S. and
International operations nearly offset the $265,000 reduction in Corin revenues
for the comparable period.
Gross margins declined to 34% from 47% for the comparable six month periods,
and to 35% from 47% for the comparable three month periods. Factors resulting
in the lower gross margin include under-utilization of available plant capacity
in Germany, start-up costs of the Florida processing facility, and lower than
planned margins on sales of surgical sutures.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased 27% to $1,026,000 and 34% to
$515,000 for the six and three month periods ending March 31, 1996,
respectively, despite the currency fluctuation. These reductions are due
primarily to personnel savings resulting from the departure of the Company's
former CEO, reduction in legal/consulting costs, and various other reductions
in response to the lower revenue levels.
7
<PAGE> 8
SALES AND MARKETING
Sales and marketing expenses decreased 30% to $1,050,000 and 37% to $500,000
for the six and three month periods ending March 31, 1996, respectively,
despite the currency fluctuation. The reduction is a result of some
consolidation of sales personnel between the U.S. and International operations.
Additionally, certain personnel and promotional costs increases were postponed
until the second half of the year.
RESEARCH AND DEVELOPMENT
Research and Development expenses decreased 61% to $107,000 and 61% to $59,000
for the six and three month periods ending March 31, 1996, respectively,
despite the currency fluctuation. In 1996, the majority of the scheduled R&D
projects are expected in the second half of the year.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased 29% to $822,000 and 25% to $433,000 for
the six and three month periods ending March 31, 1996, respectively, despite
the currency fluctuation. The Company recognized $2,183,000 in 1995 for the
revaluation of certain worldwide patents. As a result of the 1995 write down,
current and future years' charges have been reduced.
LOSS IN EQUITY OF JOINT VENTURE AND MINORITY INTEREST
The loss in equity of joint venture and minority interest decreased to zero
from $95,000 and $53,000 for the comparable six and three month periods,
respectively, due to the sale of the Corin Joint Venture in 1995.
INTEREST EXPENSE
Total interest expense declined 18% to $436,000 and 27% to $201,000 for the six
and three month periods ending March 31, 1996, respectively, primarily from a
reduction in the working capital borrowings and a slight reduction in interest
rates.
LIQUIDITY AND CAPITAL RESOURCES
While the Company has generated net losses over the periods presented, a
significant amount of these losses are non- cash. These non-cash expenditures
relate primarily to depreciation and amortization on patents and trademarks and
deferred interest. These non-cash expenditures totaled $1,073,000 and
$1,439,000 for the six months ended March 31, 1996 and 1995, respectively.
In addition to its operating lines of credit, the Company has relied on its
institutional debt and equity holders to fund cash flow. On February 8, 1996,
the Company executed a Senior B loan which provided for an additional
$1,500,000 in available funding. The Company intends to use the balance of the
funds as needed for certain defined R & D and marketing projects, which are
expected to increase revenues sufficient to repay all or a portion of the funds
advanced by year end. The Company's working capital has increased $777,000 to
$2,487,000 as of March 31, 1996. Advances under the Senior B loan enabled the
Company to fund $611,000 of its operating cash deficit for the six months ended
March 31, 1996.
8
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In January, 1996, the Company filed a claim with an arbitrator in Germany
seeking recovery for breach of contract from the previous owner of its German
facility. Simultaneously, the owner has demanded an immediate acceleration of
the amounts due under the original Asset Purchase Agreement. These amounts of
approximately $1,500,000 are recorded as a current liability.
ITEM 2. CHANGES IN SECURITIES.
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
ITEM 5. OTHER INFORMATION.
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
3.2** Articles of Incorporation of Registrant
3.3* Articles of Amendment to Articles of Incorporation establishing
Series A Preferred Stock
3.4* Articles of Amendment to Articles of Incorporation establishing
Series B Preferred Stock
10.18* Joint Venture Agreement between Biodynamics, Inc. And Texas Medical
Products dated November 1, 1990.
10.19* Partnership Agreement between Biodynamics International, Inc. And
Corin Medical Products dated September 2, 1992
10.20*** Purchase Agreement between Biodynamics International (Deutschland)
GmbH and Pfrimmer-Viggo GmbH & Co., KG.
10.21*** Convertible Debenture Loan Agreement between Biodynamics
International, Inc. as Borrower and Renaissance Capital Partners,
II, Ltd. And Froley, Revy Investment Co., Inc.
10.22*** Convertible Debenture, Renaissance Capital Partners II, Ltd.
10.23*** Convertible Debenture, Froley, Revy Investment Co., Inc.
9
<PAGE> 10
10.24* Senior B Loan Agreement
22* Subsidiaries of Registrant
27 Financial Data Schedule (for SEC use only)
* Document incorporated by reference from previous 10-KSB filing.
** Document incorporated by reference from Exhibit 2 of American
Biodynamics, Inc. Registration Statement on Form 20- F effective October
2, 1987.
*** Document incorporated by reference from Form 8-K dated May 28, 1993.
REPORTS ON FORM 8-K
NONE.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 13, 1996 BIODYNAMICS INTERNATIONAL, INC.
/s/ Karl H. Meister
-------------------------------------
President and Chief Executive Officer
/s/ David P. Nichols
-------------------------------------
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 580
<SECURITIES> 0
<RECEIVABLES> 1,533
<ALLOWANCES> 0
<INVENTORY> 4,353
<CURRENT-ASSETS> 6,675
<PP&E> 4,113
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,702
<CURRENT-LIABILITIES> 4,188
<BONDS> 0
0
9
<COMMON> 80
<OTHER-SE> (86)
<TOTAL-LIABILITY-AND-EQUITY> 15,702
<SALES> 5,538
<TOTAL-REVENUES> 5,538
<CGS> 3,658
<TOTAL-COSTS> 3,658
<OTHER-EXPENSES> 2,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 436
<INCOME-PRETAX> (1,423)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,423)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,423)
<EPS-PRIMARY> (0.18)
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</TABLE>
