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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Check One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the year ended September 30, 1996 or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
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Commission file number: 0-16128
BIODYNAMICS INTERNATIONAL, INC.
(Exact name of small business issuer)
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 Small Business Issuer (l) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. Yes X No
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Issuer's revenues for the fiscal year ended September 30, 1996 were $12,344,000.
The aggregate market value of the voting stock held by non-affiliates of the
Small Business Issuer was $9,886,967 as of December 23, 1996.
As of December 23, 1996, there were outstanding 8,550,890 shares of Biodynamics
International, Inc. Common Stock, par value $.01.
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TABLE OF CONTENTS
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PAGE NO.
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PART I
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ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 7
ITEM 3. LEGAL PROCEEDINGS 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 8
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 10
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT 10
ITEM 10. EXECUTIVE COMPENSATION 11
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 12
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 12
ITEM 13. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K 12
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL AND BACKGROUND
Biodynamics International, Inc. was formed in 1985 and with its consolidated
subsidiaries and joint ventures (collectively "Biodynamics" or "the Company"),
is engaged in the business of tissue processing and manufacturing and
distributing worldwide, specialty surgical products for neuro, orthopedic,
cardiovascular, reconstructive and general surgical applications. The Company's
core business is processing human donor tissue ("allografts") utilizing its
patented Tutoplast(R) process for distribution to hospitals and surgeons. The
Company also manufactures and distributes surgical sutures internationally.
The Company's wholly-owned subsidiary, Biodynamics International (Deutschland)
GmbH, designs, develops, processes, manufactures, markets, distributes and sells
products and services to over 40 countries through a worldwide distribution
network. Biodynamics International (United States), Inc. was formed in 1994 and
processes allografts for the U.S. market. Biodynamics' has a 50% joint venture
interest in Advanced Haemotechnologies, ("AHT"), a manufacturer of blood
transfusion and filtration equipment and, until August 15, 1995, had a 51%
interest in Corin Orthopedic Products, a domestic distributor of orthopedic
equipment.
The Company's corporate headquarters are in Tampa, Florida, with international
executive offices in Erlangen, Germany and processing and manufacturing
facilities in Alachua, Florida and Neunkirchen, Germany.
PRODUCTS AND PROCESSING TECHNOLOGY
The Company contracts with independent Tissue Banks and procurement
organizations to provide donated human tissue for processing under the Company's
patented Tutoplast(R) process.
ALLOGRAFTS
The Tutoplast(R) process utilizes solvent dehydration and chemical inactivation
which is applied to two types of preserved allografts: soft tissue; consisting
of dura mater, fascia lata, fascia temporalis, pericardium, ligaments, tendons
and cartilage, and hard tissue; consisting of various configurations of
cancellous and cortical bone material. Processed dura, pericardium and fascia
are collagenous tissue used to repair, replace or line native connective tissue
primarily in neurosurgery, ophthalmology, otorhinolaryngology, plastic and
reconstructive surgeries while ligaments, tendons and cartilage are used
primarily in orthopedic surgeries. In the U.S. market, dura is used in
neurosurgeries only. Processed bone material is used in a wide variety of
applications in neuro and orthopedic surgeries. All processed tissues have a
shelf life of several years and require minimal time for rehydration.
Management is not aware of any documented cases of disease transmission, tissue
rejection or infection attributable to the Tutoplast(R) processed allografts in
over 750,000 implants performed in the past 25 years.
The Tutoplast(R) process utilizes a technique which dehydrates the tissue and
treats it with agents shown to inactivate viruses such as hepatitis and HIV, the
virus which causes AIDS, to render it safe for the recipient. Dehydrating the
tissue gently is important to keep the tissue's structure intact. Methods used
by other processors of human tissue include freeze-drying, deep freezing or
cryopreservation.
Soft tissue is also treated with chemicals shown to be effective against the
organism responsible for Creutzfeldt-Jakob Disease (CJD) and other slow viruses.
Over a period of several weeks the tissues are soaked and washed in a series of
aqueous solutions and solvents, removing water and substances that could cause
rejection or allergic reaction. Once packaged, tissues are terminally sterilized
by low dosage radiation.
SURGICAL SUTURES
Surgical sutures consist of absorbable catgut and non-resorbable synthetic
sutures. Absorbable and non-resorbable sutures are available in cassettes, in
standard pre-cut lengths. Non-resorbable sutures consist of nearly one dozen
types, fulfilling a broad range of suture needs. Suture needles and other
accessories are supplied to customers in a large number of sizes.
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FILTRATION TECHNOLOGY
The Company's filtration technology, which is being developed and marketed by
AHT, currently has three significant applications: cellular separation, blood
deglycerolization and autotransfusion.
AHT supplies Pall Corporation (NYSE:PLL) with rotating disc filter equipment and
supplies manufactured at AHT's Texas facility to be used in Pall's biotech field
for cell separation. Pall markets the filters and supplies worldwide in their
micro filtration business, which includes the pharmaceutical, biologic and
bioprocessing industries.
In 1994 and 1995, AHT was awarded approximately $700,000 from the U.S.
Department of Defense Small Business Innovative Research (SBIR) Phase I and II
programs for determining the feasibility of utilizing the filter technology to
deglycerolize thawed blood. By successfully deglycerolizing thawed blood with
this technology, storage time of the blood could be increased from 24 hours to
up to 21 days, thus reducing waste and cost. AHT management believes the SBIR
grant will fully fund the completion of the development of this application.
This application continued to be developed in 1996.
Autotransfusion is the collection, treatment and reinfusion of an individual's
own blood lost during surgery or trauma. The system collects and processes an
individual patient's blood, returning clean, treated blood to the same patient.
AHT has completed the development of this application and is currently assessing
strategies for marketing this application.
GOVERNMENT REGULATION
Biodynamics has contracts to receive, process and provide tissues worldwide.
Each country has it own regulatory requirements that are constantly under review
and subject to change. The Company believes they currently comply with all
appropriate governmental requirements and standards where they do business.
There can be no assurance that changing governmental administration or laws will
not negatively impact the Company.
In Germany, allografts are classified as drugs and the government regulates
Biodynamics' tissue processing and distribution under a pharmaceutical license
within Germany. The European Commission has proposed regulating allografts as
medical devices in conflict to the current German Drug Law. At present,
Biodynamics' facility is licensed and in compliance with German law.
In the United States, the Food and Drug Administration ("FDA") has determined
that dura mater is subject to all provisions of the Food, Drug and Cosmetic Act
and is regulated as a medical device. All other tissues processed currently by
the Company are regulated by the FDA as "Banked Human Tissue" under provisions
of the 1993 Interim Rule. Similarly, tissue banks and procurement organizations
which provide the tissues to the Company for processing, also must comply with
the same regulations.
The Company believes that worldwide regulation of allografts is likely to
intensify as governments increase their focus on the growing demand for this
type of tissue and the need to ensure the health and welfare of its citizenry.
Management believes that the Company and its industry will always be subject to
changing regulations that could have a material adverse effect on its financial
condition and results of operations. Management further believes that they can
reduce this exposure by continuing to work closely with government regulators in
understanding the industry and drafting reasonable and proper legislation. While
the Company believes that it is in compliance with all existing regulations,
there can be no assurance that changing laws or interpretations of existing laws
will not have a material adverse effect on the results of operations and cash
flow.
HUMAN RESOURCES
As of September 30, 1996, Biodynamics had approximately 85 full-time employees
in the U.S. and Germany.
MANUFACTURING AND PROCESSING
For distribution in the United States, dura mater is required to be processed in
accordance with FDA Good Manufacturing Practices (GMP) while all other
allografts are required to be processed under FDA's Interim Rule (see Government
Regulations). For distribution in countries outside the U.S., the Company must
comply with the laws in the respective countries. Inspections of processing
facilities are conducted by both the FDA and German regulatory agencies. In
Germany, the Company processes both hard and soft tissues, as well as surgical
sutures. In the U.S., the Company currently processes only soft tissues.
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ALLOGRAFTS
All allografts are prepared, preserved and processed utilizing Biodynamics'
proprietary manufacturing process (Tutoplast(R)) applied to donor tissue
obtained from approved tissue procurement organizations and institutions.
Although several operations are automated, most of the process is manual and
relies on trained, highly skilled personnel. The entire process, including
packaging and sterilization, takes place under controlled conditions. All
incoming, untreated tissue is cross-checked with the appropriate donor protocol
and stored in special cold-storage rooms or refrigerators until released for
processing. To prevent possible cross-contamination and ensure constant tissue
identification, all tissue is marked and is strictly maintained in individual
containers. Reference samples are taken from each tissue for test purposes and
are retained for seven years. Documentation allows reverse traceability of
tissue transplants to the donor and the retrieving institution. All transplants
processed have a batch number and a donor number printed on each single package.
Processed tissue may be safely stored for up to five years.
SURGICAL SUTURES
The manufacture of sutures entails precision assembly operations and packaging
performed by trained employees using manual and automated equipment. Steel
needles and various suture materials are manufactured to Biodynamics'
specifications by a number of subcontractors. Biodynamics manufactures suture
cassettes and single packed, standard and atraumatic sutures. The manufacturing
operations involve assembly, test packaging and sterilization.
QUALITY ASSURANCE
All tissues are accompanied by specific medical and donor documentation,
including blood serum testing results from independent laboratories. Tissues
which do not meet regulatory standards are rejected and destroyed. Biodynamics'
products and processed tissue are subject to a series of biological, physical
and chemical tests from incoming raw materials to sterile, finished goods. As a
result of the combination of initial donor testing/screening and the
Tutoplast(R) process, management is not aware of any cross-infection with any of
its allografts or surgical sutures worldwide.
RESEARCH AND DEVELOPMENT
Biodynamics continues to engage in research and development ("R&D" ). The
Company's scientific personnel and consultants collaborate on research
activities related to allograft and non-allograft development. An internal
Product Development Committee plans and organizes all R&D activities.
In allograft related areas, R&D activities focus primarily on implant safety via
viral inactivation and tissue sterilization. Continuing progress on application
of the proprietary Tutoplast(R) process to various other tissues has met with
success. The Company continues to independently review its processing technology
to improve tissue safety and efficacy.
Non-allograft activities relate to explorations into the use of xenografts
(animal tissues), bone substitutes and tissue engineered grafts. Clinical
studies, evaluation and follow-up as necessary are conducted on these
activities.
MARKETING AND DISTRIBUTION
Biodynamics' products and processing services are provided through direct
representatives in Germany, with the Company billing the hospital or end user
direct. Elsewhere, the Company distributes and bills direct to a network of over
40 stocking distributors representing over 40 countries. Biodynamics' personnel
work with distributors and their representatives conducting product training
sessions, making joint customer calls, setting objectives and evaluating their
representatives' performance. Personnel also call on selected physicians and key
hospital accounts in order to provide needed clinical and technical information
services.
In the United States, Biodynamics maintains further corporate personnel.
Processed tissue is provided to hospitals through approximately 20 independent
distribution companies. These distributors employ a total of over 100 field
representatives calling on hospital and office-based medical practitioners,
primarily surgeons. Biodynamics supports their activities with various types of
technical allograft literature, informational programs, reference materials and
training sessions.
PATENTS, LICENSES AND TRADEMARKS
Wherever possible, Biodynamics seeks to protect its proprietary information,
products, methods and technology by obtaining patents and license protection.
The Company holds patents and has registered trademarks in most of the countries
where it
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distributes.
Biodynamics holds 9 worldwide patents and has registered trademarks covering 14
countries worldwide. In the United States, the Company has 4 FDA accepted 510(k)
applications for its various products or processes.
COMPETITION
ALLOGRAFTS
Processors of allograft tissue for transplantation include commercial processors
such as Osteotech and Cryolife in the United States and B. Braun Melsungen
internationally. In 1996, B. Braun Melsungen withdrew their Lyodura(R) allograft
from the market. Not-for-profit tissue banks that procure and process tissue for
distribution in some cases are considered competitors for certain applications
and in certain markets.
The majority of procedures suitable for allografts are performed with
autografts. Autografts are tissues derived from the patient requiring the
surgical procedure. The advantages of autografts include the absence of the
possibility of tissue rejection and disease transmission. Disadvantages include
the necessity of a second surgical site resulting in increased recovery time,
infection rates and expenses. Allograft advantages include the elimination of a
second surgical site resulting in lower infection rates, shorter recovery times,
and lower costs while its disadvantages include availability, possible rejection
and disease transmission.
In the United States, most allograft processing is lyophilized/freeze-dried. In
contrast, the Company utilizes its Tutoplast(R) process which inactivates viral
activity while maintaining the structural integrity of the implant. The Company
competes by offering the surgical community safe and economical transplant
material. The Tutoplast(R) process has a history of more than twenty five years
without a reported case of disease transmission.
Government regulations, disrupted sources of availability and increased
competition from other processors are all factors that can have a material
adverse effect on the Company. In addition, there can be no assurance that in
the future the Company's allografts will be able to compete successfully with
newly developed tissue substitutes which are being developed by other companies.
SURGICAL SUTURES
The Company's surgical sutures are distributed internationally. The Company's
competitors are substantially larger in size and resources. There can be no
assurance that these larger competitors or new products/technologies will not
have a material adverse effect on the Company's surgical suture product line. As
a result, the Company expects to continue to reduce its suture revenue and
replace it with bioimplant revenue.
AUTOTRANSFUSION
AHT has several competitors in the blood transfusion and glycerolization field.
These competitors have greater resources and manufacturing capabilities and the
Company must successfully complete its development work before any
commercialization of either of these applications can occur. While the Company
believes that its patent on the autotransfusion technology provides protection
for this application and that funding from the Phase II SBIR grant will fund the
completion of the development of the deglycerolization application, it is
without the funding necessary to launch its commercial development of either of
these applications. The current contract to supply Pall Corporation with
equipment and supplies will enable AHT to generate revenue for its biomedical
processing application over the five year term of that contract. Beyond that
term, however, there can be no assurances that a contract will be renewed with
Pall or any similar biomedical processing company . AHT is exploring various
financing alternatives which would enable its products to be commercially
developed.
SOURCES OF TISSUE AND PRODUCTS
ALLOGRAFTS
The Company receives donor tissue from multiple sites and countries in Europe
and the United States. This tissue is procured by independent procurement
organizations and the Company reimburses these organizations for the costs of
their procurement (recovery fees). The Company believes it currently complies
with existing laws and regulations in these countries, including regulations
related to procurement, donor screening, testing, storage and transportation. It
is anticipated that government laws and regulations involving human donor
tissues will continue to change in the countries presently serviced by the
Company (see
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Government Regulations). Accordingly, the Company continues to seek additional
contacts with authorized health care agencies, accredited tissue banks, organ
procurement organizations, and governments. The Company expects that in most
markets demand for its Tutoplast(R) processed allografts will continue to exceed
the current donor tissues available to the Company for processing. While the
Company continues to emphasize expanding its base, there can be no assurance
that changing laws or donation trends in the countries presently serviced will
not have a material adverse affect on the Company's operations.
BACK ORDER
While Biodynamics, worldwide, has back orders on certain allograft tissue types
and tissue sizes, the allograft demand is the most significant in the U.S.
market. The U.S. is the largest market in the world for allografts and has
historically represented the Company's largest market. The Company currently is
unable to meet the demand for the majority of its allograft sizes. The Company
has defined its back order as those orders which are expected to be filled
within the next six months. Currently, because the Company cannot predict with
absolute certainty its ability to fill specific orders in this time frame, the
value of the back order has not been determined.
ENVIRONMENTAL MATTERS
The Company's processing facilities are subject to local, republic and federal
environmental and safety standards. These standards relate primarily to
hazardous waste involved in the chemicals and sterilization process used. Since
1995, the Company elected to use outside third parties to perform all
sterilization.
Although the Company believes it is in compliance with all applicable
environmental regulations, the failure to fully comply with any such regulations
could result in the imposition of penalties, fines and/or sanctions which could
have a material adverse effect on the Company's business.
ITEM 2. PROPERTIES
Biodynamics leases approximately 7,000 square feet of office/warehouse space in
Tampa, Florida where its administrative, shipping and receiving functions are
performed. Similarly, the Company leases another 8,000 square feet in Erlangen,
Germany where its German administrative and sales functions are performed. The
Florida lease expires in 1997 and the German lease in 1998.
Biodynamics' processing plant in Neunkirchen, Germany consists of six buildings
totaling 26,000 square feet on approximately two acres. This property is owned
by the Company and should be sufficient in size and condition to handle
anticipated production levels for international markets into the foreseeable
future. The Company's processing plant in the U.S. represents approximately
2,500 square feet of leased space. The lease expires in less than one year, but
the Company has rights of renewal thereafter. The Company believes it has
adequate space for its current needs and has made provisions for expansion if
necessary.
ITEM 3. LEGAL PROCEEDINGS
The Company currently has pending litigation in Germany against the previous
owner of the Company's German subsidiary. On January 17, 1996, the Company filed
a Request for Arbitration alleging that the previous owner had breached the
Asset Purchase Agreement for the subsidiary and the Company seeks to recover
damages. Simultaneously, the previous owner filed a counter claim demanding an
immediate acceleration of the amounts due them under the Contract, which is
approximately $1.4 million as of September 30, 1996.
The basis of the claim put forth by the Company is that the previous owner of
the German facility failed to disclose that the U.S. Food and Drug
Administration (FDA) 510(k) Premarket Notification acceptance covering
Tutoplast(R) processed dura mater was conditioned on dura mater being recovered
from pathology labs in Germany. Biodynamics has taken the position that the
commitment to recover dura mater exclusively in Germany was not disclosed and
constitutes a material and incurable component of FDA's Warning Letter and
Import Alert received in May 1994. The Company seeks to recover damages
sustained as a result of FDA's action, as well as rescission of the Contract or
compensation for continuing damages. The previous owner has raised various legal
defenses as well as alleging that no such dura mater recovery commitment was
ever made to FDA.
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The Contract calls for all disputes to be submitted in binding arbitration
before a three member panel governed by German law. The first hearing before the
Arbitration Tribunal took place in Frankfurt, Germany on October 26 and 27, 1996
and the Company expects that further filings and hearings will occur before a
resolution is achieved.
The Company continues to accrue interest under the indebtedness and has recorded
the entire balance as a current liability. Management believes that the ultimate
outcome will not have a material adverse effect on its operation or financial
position.
The Company has settled outstanding litigation initiated in 1994 with a former
director of the Company concerning obligations under a Non-Compete and
Standstill Agreement. The results of that settlement are included in the 1996
Results of Operations. (See Note 8 to Consolidated Financial Statements)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is traded on NASDAQ under the symbol "BDYN".
Market prices on NASDAQ were:
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1996 1995
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HIGH LOW HIGH LOW
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Quarter ended: Quarter Ended:
September 30, 1996 $1.56 $.72 September 30, 1995 $1.71 $ .56
June 30, 1996 1.72 .75 June 30, 1995 1.08 .56
March 31, 1996 1.13 .56 March 31, 1995 1.06 .70
December 31, 1995 1.16 .59 December 31, 1994 1.31 .72
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No dividends have been declared on the Common Stock. The Company has no plans
for payment of cash dividends on Common Stock until earnings would generate
funds in excess of those required to provide for the growth needs of the
Company.
There were 459 shareholders of record and approximately 3,500 beneficial owners
of the Company's Common Stock at December 23, 1996.
ITEM 6. 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.
RESULTS OF OPERATIONS
REVENUE AND COST OF REVENUE
Revenue in 1996 increased 10% to $12,344,000 from $11,189,000 in 1995. Revenues
of the International Operations increased 7% due to a 45% increase in
distribution of bioimplants resulting from the withdrawal of B. Braun from the
allograft business which offset a 25% decrease in sutures. U.S. Operations
increased 51% as a result of new contracts with U.S. Tissue Banks which
increased the availability of Tutoplast(R) processed allografts.
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Gross margins increased 25% to $4,703,000 from $3,755,000. Gross margin
percentage increased to 38% from 34% in 1995 due to improved operational
efficiencies from the higher revenue volume and a favorable mix internationally
with bioimplant revenue replacing reduced suture volume.
GENERAL AND ADMINISTRATIVE
General and administrative expenses in 1996 remained virtually unchanged at
$2,515,000 from $2,517,000 in 1995. Higher legal costs associated with the claim
against the previous owner of the German operation offset savings in other
areas.
DISTRIBUTION AND MARKETING
Distribution and marketing expenses in 1996 decreased 14% to $2,269,000 from
$2,638,000 in 1995. Despite the revenue increase, the Company was able to reduce
some of the expenditures by consolidating its sales force and planning its sales
efforts.
RESEARCH AND DEVELOPMENT
Research and Development expenses in 1996 decreased 11% to $254,000 from
$287,000 in 1995. Minimal R&D activities were pursued in 1996 as efforts were
concentrated on rebuilding the distribution base.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased 17% to $1,526,000 from $1,847,000 in
1995. The decrease occurred due to the reduced carrying value of the related
capital assets caused by the recognition of the Loss on Impairment of Assets in
1995.
LOSS ON IMPAIRMENT OF ASSETS
The impairment loss of $2,183,000 in 1995 was a result of a revaluation of the
Company's patents and trademarks in countries where regulatory changes had
impacted the ability to generate revenue at the same level as previously
projected.
LOSS IN EQUITY OF JOINT VENTURE AND MINORITY INTEREST
The loss in equity of joint venture and minority interest in 1996 increased 86%
to $208,000 from $112,000 in 1995. The Company has committed to increase its
equity in AHT by $208,000, which will be funded in equal installments through
the second quarter of 1997.
INTEREST EXPENSE
Total interest expense in 1996 decreased 15% to $1,061,000 from $1,255,000 in
1995. The decrease is primarily attributable to the issuance of Series C
Preferred Stock in exchange for convertible investor loans.
LIQUIDITY AND CAPITAL RESOURCES
While the Company has incurred net losses over the 1996 and 1995 periods, a
significant amount of these losses are non-cash. These non-cash expenditures
relate primarily to depreciation and amortization on patents and trademarks,
deferred non-cash interest which is payable in cash only when specific financial
conditions are met and loss on impairment of assets. These non-cash expenditures
totaled $1,881,000 and $4,756,000 for 1996 and 1995, respectively.
The Company's working capital has increased to $2,004,000 from $1,710,000 in
1995. As a result of the issuance of Series C Preferred Stock and a new Senior B
Loan, the Company was able to repay its existing operating line of credit and
reduce its overall long-term portion of indebtedness to $7,423,000 from
$9,788,000.
The Company's ability to generate operational cash flow is dependent upon
increasing processing revenue through increased recoveries by tissue banks in
the U.S. and development of additional markets and surgical applications
worldwide. While the Company believes it continues to make progress in both
these areas, there can be no assurances that changing governmental regulations
will not have a material adverse effect on results of operations and cash flow.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Reports of Independent Certified Public Accountants, Consolidated Financial
Statements and Notes to Consolidated Financial Statements are attached hereto in
Item 13.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Price Waterhouse LLP were previously the independent accountants of the Company.
On September 20, 1996, the Company dismissed Price Waterhouse LLP as its
independent accountants. The decision to change accountants was approved by the
Board of Directors on September 18, 1996.
The reports of Price Waterhouse LLP on the consolidated financial statements for
1995 and 1994 contained no adverse opinion or disclaimer of opinion, and were
not qualified or modified as to uncertainty, audit scope or accounting
principles.
In connection with the audits for 1995 and 1994 and through September 20, 1996,
there were no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to the satisfaction of
Price Waterhouse LLP would have caused them to make reference thereto in their
report on the financial statements for such years.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS:
The directors of the Company are as follows:
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Year First
Name Age Director
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James M. Barry 43 1995
Charles C. Dragone 59 1992
Karl H. Meister 61 1996
Elroy G. Roelke 64 1995
Laurie Rostron 62 1996
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JAMES M. BARRY is a Vice President with Froley, Revy Investment Company , an
institutional money manager specializing in convertible securities. He has been
with the firm since December, 1994. Previously, Mr. Barry worked in the fixed
income division of the investment department of Farmers Group, Inc. in Los
Angeles. He also served on active duty in the U.S. Navy for eight years and
holds the rank of Lieutenant Commander in the Naval Reserve. Mr. Barry received
his CFA (Chartered Financial Analyst) in 1995 and has been a member of the State
Bar of California since 1980. He is also registered with the NASD with Series 7
and Series 63 licenses. Mr. Barry received a B.A. in Biological Sciences from
Northwestern University, a J.D. from Golden Gate University School of Law, and
an M.B.A. in Finance from the Wharton School of Business at the University of
Pennsylvania.
CHARLES C. DRAGONE is the current Chairman of the Board and was the Company 's
Chief Executive Officer from April, 1995 until March, 1996. He was also Chief
Financial Officer of the Company from October 1992 to September 1994. Formerly,
he was a Partner of Financial Associates, a Sarasota, Florida consulting firm
specializing in corporate finance (1986 to 1992) and a director and officer of
KiMed Corporation (1992 to present), a medical products and services company. He
was a private consultant in corporate finance matters (1982 to 1986) and was a
Vice President and Chief Financial Officer and director of K-Tron International,
a manufacturer of process control equipment used by the chemical,
pharmaceutical, plastics and food industries (1965-1981).
KARL H. MEISTER has more than 30 years international and U.S. management
experience in the pharmaceutical and medical device industries. In March, 1996
he was appointed President and Chief Executive Officer of the Company. Mr.
Meister was formerly President and Chief Executive Officer of Carrington
Laboratories, Inc. (1990-1995), a pharmaceutical company. He also held executive
management positions with Schering-Plough Corporation (1976-1988), and Pfizer,
Inc. (1965-1976). Mr. Meister
10
<PAGE> 11
received a B.A. from Georgetown University and an M.B.A. from the University of
Chicago.
ELROY G. ROELKE has specialized in the field of capital formation for over 40
years. In March 1989, Mr. Roelke joined Renaissance Capital Group, Inc.
("Renaissance") as Vice President and effective January 1, 1995 became Executive
Vice President and General Counsel. He is a practicing attorney, specializing in
the investment business. In addition to serving as an Officer and Director of
Renaissance, he is Chairman of Knollwood Mercantile Company, a family owned
holding company and serves as a Director in Tricom Corporation, ActionFax
International, Inc., Selectronics, Inc. and Appoint Technologies, Inc. Prior to
Renaissance, Mr. Roelke served as Principal Investment Officer for First Midwest
Capital Corporation, the first licensed SBIC in the nation and as Chief
Operating Officer of Dallas Business Capital Corporation, a Dallas-based SBIC.
Mr. Roelke received B.A. and J.D. degrees from Valparaiso University.
LAURIE ROSTRON joined Alta Berkeley Associates in 1985 following a 25 year
career in the health care industry. For 11 years at BOC Healthcare, he was
Managing Director of Viggo, an international intravenous therapy product
business. Previously, he was General Manager of the Hospital Division of G.D.
Searle & Co., and Marketing Manager of the Hospital Division of Johnson &
Johnson. He has extensive experience with international health care businesses,
acquisitions and business development.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS:
Name Age Title
---- --- -----
<S> <C> <C>
Karl H. Meister 61 President and Chief Executive Officer
David P. Nichols 38 Chief Financial Officer
</TABLE>
KARL H. MEISTER (see Directors for biography).
DAVID P. NICHOLS has been Chief Financial Officer since October 1, 1994 and was
appointed Managing Director, U.S. Operations in March, 1996. Prior to joining
the Company, Mr. Nichols had over 16 years experience in the health care field
including Chief Financial Officer of the long term care division of Trizec
Corporation, Ltd., and in public accounting with the audit divisions of Price
Waterhouse and Deloitte and Touche. He is a graduate of the University of
Florida (BA in Accounting and an MA in Financial Accounting and Auditing), and
is a Certified Public Accountant and Certified Management Accountant.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION
The following table sets forth the executive compensation data on the Company's
President and Chief Executive Officer. On April 1, 1995, Mr. Dragone, the
Company's former Chief Financial Officer, was appointed CEO to replace Mr.
Hargiss, who was the Company's CEO in 1994-1995. Mr. Dragone had retired as the
Company's CFO on September 30, 1994 and, accordingly, his compensation as CEO
represents the period from April 1, 1995 through March 31, 1996. Mr. Meister was
appointed as the Company's President and CEO on March 1, 1996. There are no
other officers whose compensation exceeds $100,000 for these periods.
<TABLE>
<CAPTION>
Compensation
------------
Salary Bonus
------ -----
<S> <C> <C> <C>
Karl H. Meister 1996 $ 93,300 $ --
Charles C. Dragone, CEO 1996 $ 51,000 $ --
Charles C. Dragone, CFO 1995 $ 60,000 $ --
Charles C. Dragone 1994 $102,000 $ 6,000
</TABLE>
11
<PAGE> 12
STOCK OPTIONS
The following table represents the stock options granted to Mr. Meister in 1996:
<TABLE>
<CAPTION>
Number of % of Total Exercise Expiration
Options Granted Granted Price Date
--------------- ------- ----- ----
<S> <C> <C> <C> <C>
Karl H. Meister 750,000 83% $ .85 2001
</TABLE>
The exercise price of all options is equal to or exceeds the market price of the
common stock on the grant date.
The following table summarizes information regarding outstanding options held by
Mr. Meister as of September 30, 1996. The market price of the Company's common
stock at September 30, 1996 was $1.17.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
September 30, 1996 at September 30, 1996
------------------ ---------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Karl H. Meister 300,000 450,000 $96,000 $144,000
</TABLE>
COMPENSATION OF DIRECTORS
The Company's outside directors currently do not receive compensation for
attendance at Board meetings, but are reimbursed for their expenses.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At September 30, 1996 the Company is unaware of any shareholder who owned 5% or
more of the outstanding shares of the Company's common stock. The officers and
directors own shares as follows:
<TABLE>
<CAPTION>
NAME SHARES OWNED PERCENT
---- ------------ -------
<S> <C> <C>
Karl H. Meister 350,000 4.2%
Charles C. Dragone 291,000 3.5%
Laurie Rostron 99,441 1.1%
All directors and officers as a group 940,441 11.3%
</TABLE>
Shares owned include options and warrants exercisable within 60 days as follows:
Mr. Meister (300,000), Mr. Dragone (270,000), Mr. Rostron (32,680) and All
directors and officers as a group (802,680).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has incurred professional fees for investor relations and other
services in 1996 and 1995, payable to a corporation of which Mr. Dragone
is a director and minority shareholder. The Company incurred fees
of $27,000 per year for the years ended September 30, 1996 and 1995,
respectively.
Three of the Company's five directors are officers in companies which manage
the funds which own 67,863 shares of the Company's Series C Preferred Stock.
In addition, the Company has issued $34,000 and $6,000 in 1996 and 1995,
respectively, for investor services fees payable to one of the management
companies since the director's appointment.
ITEM 13. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants - 1996 14
Report of Independent Certified Public Accountants - 1995 15
Consolidated Balance Sheets at September 30, 1996 and 1995 16
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
Consolidated Statements of Operations for the years ended September 30, 1996 and 1995 17
Consolidated Statements of Cash Flows for the years ended September 30, 1996 and 1995 18-19
Consolidated Statements of Shareholders' Equity for years ended September 30, 1996 and 1995 20
Notes to Consolidated Financial Statements 21-30
</TABLE>
ITEM 13.(A)3 INDEX TO EXHIBITS
EXHIBITS
<TABLE>
<S> <C>
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.
3.5* Articles of Amendment to Articles of Incorporation establishing Series C 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.
10.24* Senior B Loan Agreement.
22 Subsidiaries of Registrant
25 Consent of Price Waterhouse LLP
27 Financial Data Schedule (for SEC use only).
* Document incorporated by reference from previous 10-KSB filings.
** 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.
</TABLE>
ITEM 13.(B) REPORTS ON 8-K
Change in Accountants. Filed September 25, 1996.
13
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Biodynamics International, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheet of Biodynamics
International, Inc. and subsidiaries (the "Company") as of September 30, 1996,
and the related consolidated statements of operations, cash flows, and
shareholders' equity for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at September 30, 1996,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Tampa, Florida
December 23, 1996
14
<PAGE> 15
Report of Independent Certified Public Accountants
To the Board of Directors and
Shareholders of Biodynamics International, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholders' equity
present fairly, in all material respects, the financial position of Biodynamics
International, Inc. and its subsidiaries at September 30, 1995 and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Biodynamics International, Inc.
and its subsidiaries for any period subsequent to September 30, 1995.
PRICE WATERHOUSE LLP
Tampa, Florida
January 11, 1996
15
<PAGE> 16
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 531 $ 184
Accounts receivable 2,373 1,397
Inventories 3,341 4,878
Other current assets 126 92
------- -------
6,371 6,551
PROPERTY, PLANT AND EQUIPMENT, NET 3,824 4,474
INTANGIBLE AND OTHER ASSETS, NET 4,107 5,861
------- -------
TOTAL ASSETS $14,302 $16,866
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 666 $ 790
Accrued interest 442 341
Accrued salaries 383 233
Accrued legal and professional fees 335 49
Other accrued expenses 963 728
Current portion of long-term debt 1,578 2,700
------- -------
4,367 4,841
OTHER LIABILITIES
Long-term debt 7,423 9,788
Deferred interest -- 787
------- -------
7,423 10,575
COMMITMENTS AND CONTINGENCIES (NOTE 13)
SHAREHOLDERS' EQUITY 2,512 1,470
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,302 $16,886
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
16
<PAGE> 17
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING REVENUES
Revenue $ 12,344 $ 11,189
Cost of revenue 7,641 7,434
---------- ----------
Gross margin 4,703 3,755
OPERATING EXPENSES
General and administrative 2,515 2,517
Distribution and marketing 2,269 2,638
Research and development 254 287
Depreciation and amortization 1,526 1,847
Loss on impairment of assets -- 2,183
---------- ----------
6,564 9,472
OPERATING LOSS (1,861) (5,717)
Loss in equity of joint venture 208 112
Gain on sale of joint venture interest -- (174)
Other income (344) (64)
Interest expense 1,061 952
Deferred interest expense -- 303
---------- ----------
925 1,129
LOSS BEFORE INCOME TAXES (2,786) (6,846)
Income taxes -- --
---------- ----------
NET LOSS $ (2,786) $ (6,846)
========== ==========
Average common shares outstanding 8,161,938 7,945,801
========== ==========
Net loss per share $ (0.34) $ (0.86)
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
17
<PAGE> 18
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,786) $ (6,846)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,881 2,270
Equity in loss of joint venture 208 88
Stock issued for services 68 64
Deferred convertible interest expense -- 303
Foreign currency transaction (gain)loss (83) 103
Loss on impairment of assets -- 2,183
Gain on sale of joint venture interest -- (174)
Changes in assets and liabilities net of effect of
contributions to jointventure:
Restricted cash -- 155
Accounts receivable (1,088) 99
Inventories 1,288 (665)
Other current assets (52) 105
Accounts payable and accrued expenses 529 408
-------- --------
Net cash used in operating activities (35) (1,907)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (74) (683)
Proceeds from sale of joint venture interest -- 289
Change in intangible and other assets 20 (57)
Contributions to joint venture (33) (88)
-------- --------
Net cash used in investing activities (87) (539)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock 4,885 6,184
Proceeds from short-term borrowings 90 449
Repayment of short-term borrowings (979) --
Repayment of long-term debt (4,186) (4,184)
Proceeds from long term debt 1,470 --
Preferred dividends paid (791) (131)
-------- --------
Net cash provided by financing activities 489 2,318
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (20) (36)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 347 (164)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 184 348
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 531 $ 184
======== ========
</TABLE>
18
<PAGE> 19
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
Supplemental information on cash flows and non-cash transactions is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
--------- ---------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 588 $ 851
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Issuance of Series C Preferred Stock in exchange for:
Deferred Interest $ 838 --
Convertible Investor Loans 3,257 --
Accumulated dividends 479 --
Series A Preferred Stock 3,344 --
Series B Preferred Stock 6,184 --
------- -------
$14,102 --
======= =======
Series A dividends paid in common stock $ 312 --
Series B dividends paid in preferred stock $ 479 $ 131
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
19
<PAGE> 20
BIODYNAMICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
(IN 000S EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
Preferred Stock Common Paid Cumulative
Series A Series B Series C Stock in Translation
($.01 par) ($.01 par) ($.01 par) ($.01 par) Capital Adjustment
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1994 $ 3 $ -- $ -- $ 79 $ 10,850 $ (188)
----------- ----------- ----------- ----------- ----------- -----------
Series B Issued 6 6,178
Stock issued for services 1 63
Stock dividends - Series B
Net Loss
Foreign currency translation
adjustment 470
----------- ----------- ----------- ----------- ----------- -----------
BALANCE SEPTEMBER 30, 1995 3 6 -- 80 17,091 282
=========== =========== =========== =========== =========== ===========
Dividends - Series A 3 (3)
Dividends - Series B (479)
Stock issued for services 68
Series C Issued 1 14,101
Series A and B Retired (3) (6) (9,519)
Net Loss
Foreign currency translation
adjustment (335)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE SEPTEMBER 30, 1996 $ -- $ -- $ 1 $ 83 $ 21,259 $ (53)
=========== =========== =========== =========== =========== ===========
<CAPTION>
Common Preferred
Accumulated Shares Shares
Deficit Dividends Total O/S O/S
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1994 $ (9,015) $ -- $ 1,729 7,926,793 304,000
----------- ----------- ----------- ----------- -----------
Series B Issued 6,184 562,221
Stock issued for services 64 60,316
Stock dividends - Series B (131) (131)
Net Loss (6,846) (6,846)
Foreign currency translation
adjustment 470
----------- ----------- ----------- ----------- -----------
BALANCE SEPTEMBER 30, 1995 (15,861) (131) 1,470 7,987,109 866,221
=========== =========== =========== =========== ===========
Dividends - Series A -- 249,685
Dividends - Series B (479)
Stock issued for services 68 101,446
Series C Issued 14,102 110,603
Series A and B Retired (9,528) (866,221)
Net Loss (2,786) (2,786)
Foreign currency translation
adjustment (335)
----------- ----------- ----------- ----------- -----------
BALANCE SEPTEMBER 30, 1996 $ (18,647) $ (131) $ 2,512 8,338,240 110,603
=========== =========== =========== =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
20
<PAGE> 21
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
(IN 000S, EXCEPT SHARE DATA)
(1) OPERATIONS AND 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 utilizing its
patented Tutoplast(R) process for distribution to hospitals and surgeons.
The Company also manufactures and distributes surgical sutures
internationally.
The Company processes at its two manufacturing facilities in Germany and
the United States and distributes its products and services to over 40
countries worldwide.
Biodynamics has a 50% joint venture interest in Advanced Haemotechnologies,
a manufacturer of blood transfusion and filtration equipment and, until
August 15, 1995, had a 51% interest in Corin Orthopedic Products, a
domestic distributor of orthopedic equipment.
(2) SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of the Company are presented below.
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 through the sale date of August 15, 1995 (see Note 14). All
intercompany transactions and balances are eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's German subsidiary is Deutsche
Mark. Assets and liabilities of foreign subsidiaries are translated at the
period end exchange rate while revenues and expenses are translated at the
average exchange rate for the year. The resulting translation adjustments
are made directly to a separate component of shareholders' equity. Gains
and losses resulting from transactions of the Company and its subsidiaries
which are made in currencies different from their own are included in
income as they occur. The Company recognized currency gains of $86 and
losses of $136 for 1996 and 1995, respectively. The exchange rates for
fiscal years 1996 and 1995 were relatively constant at approximately DM
1.47/U.S. Dollar. The U.S. dollar has strengthened, however, for the first
quarter of 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of amounts reported in the consolidated financial
statements have been determined by using available market information and
appropriate valuation methodologies. The carrying value of all current
assets and current liabilities approximates fair value because of their
short-term nature.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash equivalents. For cash
and cash equivalents, the carrying amount approximates fair value due to
the short maturity of those instruments.
INVENTORIES
Inventories are valued at the lower of cost (weighted average basis) or
market. Work in process and finished goods include costs attributable to
direct labor and overhead.
21
<PAGE> 22
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Periodically, the Company
evaluates the recoverability of the net carrying value of its property,
plant and equipment by estimating its fair value. The fair value is
compared to the carrying amount. Depreciation is computed by using the
straight line method over the following estimated useful lives of the
assets:
<TABLE>
<S> <C>
Building and improvements 40 years
Machinery, equipment, furniture and fixtures 3-10 years
</TABLE>
INTANGIBLE AND OTHER ASSETS
Intangible assets consist of patents and trademarks which are stated at
acquired cost less accumulated amortization. Patents are amortized on a
straight line basis over a weighted average of the remaining patent
protection periods of all existing worldwide patents and do not exceed
thirteen years. Trademarks and organization costs are amortized straight
line over the expected benefit period of five years. The Company
periodically reviews the carrying values of goodwill and other intangible
assets to assess recoverability, and permanent impairments, if any, would
be recognized in current year operations.
INVESTMENT IN JOINT VENTURE
The Company uses the equity method of accounting for its investment in
Advanced Haemotechnologies. Earnings and losses are proportionately
allocated after giving effect to special allocations in the Joint Venture
Agreement.
REVENUE AND COST OF REVENUE
Revenue reflected is gross revenue, with net cash discounts and shipping
included in cost of revenue. Cost of revenue includes depreciation of $355
and $423 for the years ended September 30, 1996 and 1995, respectively.
Revenue is recognized upon the shipment of the processed tissues or
sutures.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
NET LOSS PER COMMON SHARE
Primary per share amounts are computed utilizing the weighted average
number of common shares actually outstanding plus the shares that would be
outstanding assuming exercise of dilutive stock options and warrants, using
the modified treasury stock method. Common stock equivalents and fully
diluted per share calculations have been excluded due to their antidilutive
effect in the periods presented.
RECLASSIFICATIONS
Certain prior year financial statement balances have been reclassified to
conform with the current year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
22
<PAGE> 23
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) CONCENTRATION OF CREDIT RISK
In the normal course of business, the Company has no financial instruments
with off-balance sheet risk. The exposure to risk related to foreign
currency exchange rate changes is limited primarily to intercompany
transactions. The Company currently does not utilize forward exchange
contracts or any other type of hedging instruments.
The Company's principal concentration of credit risk consists of trade
receivables. Distribution of products and revenues are provided through a
broad base of independent distributors. One customer accounted for 30% and
24% in 1996 and 1995, respectively, of consolidated revenue. The Company
does not believe that this concentration of sales and credit risks
represent a material risk of loss with respect to financial position as of
September 30, 1996.
(4) INVENTORIES
Major classes of inventory at September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Recovery fees/Raw materials $ 1,592 $ 1,891
Work in process 1,009 845
Processed tissue/Finished goods 1,341 2 ,748
-------- --------
3,942 5,484
Less reserves for obsolescence (601) (606)
-------- --------
$ 3,341 $ 4,878
======== ========
</TABLE>
5) INTANGIBLE AND OTHER ASSETS
Intangible and other assets at September 30, 1996 and 1995 consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Patents $ 8,062 $ 8,613
Trademarks 3,459 3,695
Other -- 90
-------- --------
11,521 12,398
Less accumulated amortization (7,414) (6,537)
-------- --------
$ 4,107 $ 5,861
======== ========
</TABLE>
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of" in the fourth quarter of fiscal 1995.
At September 30, 1996 and 1995, the Company has assessed the carrying
values of all intangible assets in accordance with SFAS No. 121. In 1995,
the Company revalued patents and trademarks in countries (primarily France
and the United States) where regulatory changes have impacted the ability
to generate revenue at the same level as previously projected. Management
estimated the expected future discounted cash flows from the distribution
fees related to patents and trademarks in order to determine the amount of
impairment. As a result, an impairment loss of $2,183 has been recognized
for the year ended September 30, 1995. No further adjustment was deemed
necessary as of September 30, 1996.
23
<PAGE> 24
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 1996 and 1995 consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land $ 528 $ 564
Buildings and improvements 2,505 2,601
Machinery and equipment 780 840
Office furniture and equipment 1,434 1,499
-------- --------
5,247 5,504
Less accumulated depreciation (1,423) (1,030)
-------- --------
$ 3,824 $ 4,474
======== ========
</TABLE>
The Company's property held under capital leases of approximately $58 is
included in machinery and office equipment.
(7) INVESTMENT IN JOINT VENTURE
Summarized financial information (in 000s) for Advanced Haemotechnologies
(the "Joint Venture") is as follows:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
September 30, December 31,
1996 1995
-------- -------
<S> <C> <C>
ASSETS
Current assets $ 487 $ 424
Equipment, net 58 49
Intangible assets, net 38 76
------- -------
Total assets $ 583 $ 549
======= =======
LIABILITIES AND PARTNERS' DEFICIENCY
Current liabilities $ 75 $ 160
Notes payable to partner 1,473 1,432
Partners' deficiency (965) (1,043)
------- -------
Total liabilities and partners' deficiency $ 583 $ 549
======= =======
</TABLE>
<TABLE>
<CAPTION>
For the Nine For the Twelve
Months Ended Months Ended
September 30, December 31,
1996 1995
-------- --------
<S> <C> <C>
STATEMENT OF OPERATIONS
Product sales $ 517 $ 413
Research and development grants 357 141
Cost of product sales (286) (332)
Research and development costs (365) (198)
Selling, general and administrative expenses (116) (117)
Interest expense (105) (108)
------- --------
Net Income (loss) $ 2 $ (201)
======= ========
</TABLE>
The Company has cumulative unrecognized losses from the joint venture of
$261 and $282 at September 30, 1996 and 1995, respectively. At September
30, 1996 and September 30, 1995, the Company's investment was reduced to
zero as its share of losses in the Joint Venture exceeded its investment.
In August, 1996, the Company committed to capital contributions of $200 for
the period from August, 1996 to March, 1997. This entire commitment has
been recorded as a loss in equity investment and an accrued liability in
1996. Future generation of income by the Joint Venture will be recognized
by the Company only after its share of that income exceeds its share of net
losses not recognized.
24
<PAGE> 25
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) LONG-TERM DEBT
Long-term debt at September 30, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revolving credit facilities $ --- $ 916
Senior debt, 7.75% interest until March 30, 1998 when
terms are renegotiable, due 2008 1,482 1,664
Senior B debt, 10% due December 31, 1999 1,394 ---
Mezzanine debt, LIBOR plus 4% interest (9.5% and 9.625%
at September 30, 1996 and 1995, respectively); due 1999 4,590 4,904
Convertible Investor Loans, LIBOR plus 4% interest
(9.5% at September, 1996 and 1995, respectively); due 2003 --- 3,275
Notes payable, unsecured, 7% interest 1,438 1,536
Obligation under Non-Compete, 7% interest, due 1996 45 149
Capital lease obligations, 8.5% interest, due 2000 52 25
Note payable to bank, 5.9% interest, due 1997 --- 19
------- -------
9,001 12,488
Less current portion (1,578) (2,700)
------- -------
$ 7,423 $ 9,788
======= =======
</TABLE>
Aggregate maturities of long-term debt are: $1,578 - 1997; $2,398 - 1998;
$2,406 - 1999; $1,501 - 2000; $110 - 2001 and $1,008 thereafter.
Under terms of revolving credit facilities with three banks, the Company
may borrow up to $984 for working capital needs. The amounts outstanding at
September 30, 1996 and 1995 were $0 and $916, respectively. Except as noted
below, these borrowings are unsecured.
The Senior debt and one of the revolving credit facilities are with a
German bank and secured by a mortgage on the Company's German facility. The
Senior debt is repayable in monthly installments through 2008, and the
credit facility is repayable as working capital dictates. The debt has been
incurred by the Company's German subsidiary but is guaranteed by the parent
company.
The Senior B debt accrues interest which, at the Company's discretion, can
be paid either annually or at maturity. This debt is directly convertible
into Series C Preferred Stock, can be prepaid at any time, and any amounts
not repaid by March 22, 1997 will accrue an additional 10% interest.
The Mezzanine debt is repayable in equal installments in 1998 and 1999 and
is secured by inventory and a pledge of shares in the German subsidiary.
Convertible Investor Loans were repaid in 1996 as a result of the issuance
of the Series C Preferred Stock.
25
<PAGE> 26
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Notes payable represent balances due to the previous owner of the Company's
German subsidiary. In fiscal year 1995, the Company ceased making payments
under this obligation based upon alleged breaches by the previous owner
under the Asset Purchase Agreement. The Company continues to accrue
interest and has recorded the entire balance as a current liability (See
Note 13).
Obligations under Non-compete relates to the remaining payments due a
former director of the Company under a Non-Compete Agreement. Prior to the
expiration of the Non-Compete in 1996, both parties agreed in a settlement
concerning outstanding obligations. The remaining balance reflects the
Company's obligations under the settlement.
(9) SHAREHOLDERS' EQUITY
Shareholders' Equity at September 30, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Shareholders' Equity
Preferred Stock, par value $.01 per share,
Series A, 304,000 shares issued $ --- $ 3
Series B, 562,221 shares issued --- 6
Series C, 110,603 shares issued and outstanding 1 ---
Common Stock, par value $.01 per share, with
8,338,240 and 7,987,109 issued and outstanding
at September 30, 1996 and 1995, respectively 83 80
Paid in capital 21,259 17,091
Cumulative Foreign Currency Translation Adjustment (53) 282
Accumulated deficit (18,778) (15,992)
-------- --------
$ 2,512 $ 1,470
======== ========
</TABLE>
CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock and 1,000,000 shares of Preferred Stock.
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.
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 of Series C Preferred Stock was issued.
26
<PAGE> 27
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following represents the value of the debt and equity exchanged for the
Series C Preferred Stock:
<TABLE>
<S> <C>
Deferred Interest $ 838
Convertible Investor Loans 3,257
Accumulated dividends 479
Series A Preferred Stock 3,344
Series B Preferred Stock 6,184
--------
$ 14,102
========
</TABLE>
STOCK OPTIONS
The Company maintains two stock option plans, the 1996 Stock Option Plan
(2,000,000 shares authorized) and the 1992 Stock Option Plan (1,400,000
shares authorized), under which incentive and non-qualified options have
been granted to employees, directors and certain key affiliates. Under the
Plans, options may be granted at not less than the fair market value on the
date of grant. Options may be subject to a vesting schedule and expire
either five or ten years from grant.
Changes in outstanding options for both Plans were as follows:
<TABLE>
<CAPTION>
Number of Price
Common Shares Per Share
--------- -------------
<S> <C> <C>
SEPTEMBER 30, 1994 OUTSTANDING 806,000 $1.00 - $3.50
========= =============
Granted 1,310,000 $1.00 - $1.10
Exercised --- ---
Canceled (781,000) $1.00 - $3.50
--------- -------------
SEPTEMBER 30, 1995 OUTSTANDING 1,335,000 $1.00 - $1.10
Granted 150,000 $1.10 - $1.19
Exercised --- ---
Canceled (7,000) $1.10
--------- -------------
SEPTEMBER 30, 1996 OUTSTANDING 1,478,000 $1.00 - $1.19
========= =============
</TABLE>
Of the outstanding options, a total of 1,178,000 are vested as of
September 30, 1996. The remaining options will be fully vested by January,
1998.
On June 13, 1996, the Company's shareholders approved 750,000
non-qualified options to be granted to its Chief Executive Officer outside
of the above-mentioned Stock Option Plans. These options vest with 40% in
1996, 30% in 1997 and 30% in 1998. The option exercise price is $.85/share
and the options expire in 2001.
WARRANTS
As of September 30, 1996, there are outstanding warrants to purchase
165,000 shares of Common Stock at a price of $3.33 and expiring from
1997 - 1998.
MANAGEMENT INCENTIVE COMPENSATION PLAN
On June 13, 1996, the Company's shareholders approved a 1996 Management
Incentive Compensation Plan which authorized 500,000 shares to be issued
under this Plan. As of September 30, 1996, no shares have been issued
under this Plan.
27
<PAGE> 28
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) RELATED PARTY TRANSACTIONS
In 1995, approximately $153, including settlement of the note
receivable and related interest of $92, was paid to the Company's
former Chief Executive Officer related to his resignation and the
termination of his employment contract.
The Company has incurred professional fees for investor relations and
other services in 1996 and 1995, payable to a corporation of which a
Company director is a director and minority shareholder. The Company
incurred fees of $27 per year for the years ended September 30, 1996 and
1995, respectively.
Three of the Company's five directors are officers in companies which
manage the funds which own 67,863 shares of the Company's Series C
Preferred Stock. In addition, the Company has issued $34 and $6 in 1996
and 1995, respectively, for investor services fees payable to one of the
management companies since the director's appointment.
(11) SEGMENT DATA
The Company operates principally in one business segment. A summary of the
operations and assets by geographical area is as follows:
<TABLE>
<CAPTION>
Net Operating Identifiable
Revenue Loss Assets
------- ------- -------
<S> <C> <C> <C>
For Year Ended September 30, 1996:
International $11,026 $ (853) $13,269
United States 1,318 (1,008) 1,033
------- ------- -------
$12,344 $(1,861) $14,302
======= ======= =======
For Year Ended September 30, 1995:
International $10,319 $(4,025) $15,965
United States 870 (1,692) 921
------- ------- -------
$11,189 $(5,717) $16,886
======= ======= =======
</TABLE>
Included in International Operations is revenue related to distribution in
Germany and Japan. Distribution in Japan represents one customer and
accounted for 30% and 24% of consolidated revenue for 1996 and 1995,
respectively. Distribution in Germany is not concentrated to any
significant customer and accounted for 20% and 23% of consolidated revenue
for 1996 and 1995, respectively.
(12) INCOME TAXES
The Company has recognized a deferred tax asset of $2,477 and $2,207, and
a corresponding valuation allowance of $2,477 and $2,207, respectively, at
September 30, 1996 and 1995. The principal components of the deferred tax
asset for 1996 and 1995, relate to net operating loss carry forwards Since
the Company has generated taxable losses, there is no recognition of the
benefit of the deferred tax asset on either a cumulative or current basis.
As a result of net losses, there was no provision for income taxes for the
years ended September 30, 1996 and 1995. Included in each period's net
loss is a foreign component of $1660 in 1996 and $5,102 in 1995,
respectively, attributable to the Company's German subsidiary.
The statutory federal tax rate was 34% for fiscal years 1996 and 1995. The
effective tax rate was zero in fiscal years 1996 and 1995 due to the
Company incurring a net operating loss in those years.
The Company has net operating loss carry forwards for U.S. income tax
purposes of approximately $7,300, which expire in the years 2003-2011. The
Company has net operating loss carry forwards for German income tax
purposes of approximately $5,700 which can be carried forward
indefinitely.
28
<PAGE> 29
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Under Section 382 of the Internal Revenue Code, as amended by the Tax
Reform Act of 1986, a corporation's ability to carry forward its net
operating loss and built-in losses following an "ownership change" is
limited on an annual basis to an amount equal to the product of the fair
market value of the corporation's outstanding stock (including preferred
stock) immediately before the ownership change and the long-term
tax-exempt interest rate, subject to certain adjustments for built-in
gains of the corporation. As a result of the issuance of the Series B
Preferred Stock in 1994 and Series C Preferred Stock in 1996, the Company
may have experienced an ownership change under Section 382 for fiscal
years 1996 and 1995. No determination has been made at this time as to
whether an ownership change occurred for income tax purposes since it
would have no effect on the financial statements in the current year.
(13) COMMITMENT AND CONTINGENCIES
GOVERNMENT REGULATION
Biodynamics has contracts to receive, process and provide tissues
worldwide. Each country has its own regulatory requirements that are
constantly under review and subject to change. The Company believes it
currently complies with all appropriate governmental requirements and
standards where it does business. There can be no assurance that changing
governmental administration or laws will not have a material adverse
effect on the Company's financial condition and results of operation.
In Germany, allografts are classified as drugs and the government
regulates the Company's tissue processing and distribution under a
pharmaceutical license within Germany. The European Commission has
proposed regulating allografts as medical devices in conflict to current
German Drug Law. At present, the Company's facility is licensed and in
compliance with German law.
Effective November, 1996, the French government has prohibited the
transplantation of processed dura mater by any company, following a
two-year moratorium. All other bioimplants will require governmental
approval. In 1996, the Company generated approximately $60 and $20 in fees
for distribution to France in 1996 and 1995, respectively.
The Company currently has pending litigation in Germany against the
previous owner of the Company's German subsidiary. On January 17, 1996,
the Company filed a Request for Arbitration alleging that the previous
owner had breached the Asset Purchase Agreement and the Company seeks to
recover damages. Simultaneously, the previous owner filed a counter claim
demanding an immediate acceleration of the amounts due them under the
Contract, which is approximately $1.4 million as of September 30, 1996.
The basis of the claim put forth by the Company is that the previous owner
of the German facility failed to disclose that the U.S. Food and Drug
Administration (FDA) 510(k) Premarket Notification acceptance covering
Tutoplast(R) processed dura mater was conditioned on dura mater being
recovered from pathology labs in Germany. Biodynamics has taken the
position that the commitment to recover dura mater exclusively in Germany
was not disclosed and constitutes a material and incurable component of
FDA's Warning Letter and Import Alert received in May 1994. The Company
seeks to recover damages sustained as a result of FDA's action, as well as
rescission of the Contract or compensation for continuing damages. The
previous owner has raised various legal defenses as well as alleging that
no such dura mater recovery commitment was ever made to FDA.
The Contract calls for all disputes to be submitted in binding arbitration
before a three member panel governed by German law. The first hearing
before the Arbitration Tribunal took place in Frankfurt, Germany on
October 26 and 27, 1996 and the Company expects that further filings and
hearings will occur before a resolution is achieved.
The Company continues to accrue interest under the indebtedness and has
recorded the entire balance as a current liability. Management believes
that the ultimate outcome will not have a material adverse effect on its
operation or financial position.
29
<PAGE> 30
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
OPERATING LEASES
The Company currently has operating leases for its corporate offices in
the U.S. and Germany, as well as several leases related to office
equipment and automobiles. Total rental expense was $343 per year for the
years ending September 1996 and 1995.
Future minimum rental payments required under these leases that have
initial or remaining non-cancelable lease terms in excess of one year as
of September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997 $315
1998 170
1999 60
2000 9
2001 4
Thereafter --
----
$558
====
</TABLE>
(14) SALE OF JOINT VENTURE INTEREST
Effective August, 15, 1995, the Company sold its 51% ownership joint
venture interest in Corin Orthopedic Products to Corin USA Ltd., a
wholly-owned subsidiary of Corin Medical Ltd. Prior to the sale, Corin USA
Ltd. owned 49% of the joint venture. The Company received net cash
proceeds of approximately $289,000 from the sale, and realized a gain of
$174,000.
30
<PAGE> 31
SIGNATURES
In accordance with the Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<S> <C>
Date: December 23, 1996 BIODYNAMICS INTERNATIONAL, INC.
/s/ Karl H. Meister President and Chief Executive Officer
- ---------------------
</TABLE>
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities indicated.
<TABLE>
<S> <C>
/s/ Charles C. Dragone Chairman of the Board
- --------------------------------
/s/ Karl H. Meister President, Chief Executive Officer and Director
- --------------------------------
/s/ David P. Nichols Vice President-Finance, Chief Financial Officer
- -------------------------------- (Principal Financial and Accounting Officer)
/s/ James Barry Director
- --------------------------------
/s/ Elroy Roelke Director
- --------------------------------
/s/ Laurie Rostron Director
- --------------------------------
</TABLE>
31
<PAGE> 1
EXHIBIT 22
BIODYNAMICS INTERNATIONAL, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY % OWNERSHIP INCORPORATION
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Biodynamics International (Deutschland) GmbH 100% Erlangen, Germany
Biodynamics International (United States), Inc. 100% State of Florida
Biodynamics for Partnerships, Inc. 100% State of Florida
</TABLE>
<PAGE> 1
EXHIBIT 25
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Form 10-KSB of our report dated January 11,
1996 appearing on page 15 of the Annual Report on Form 10-KSB of Biodynamics
International, Inc. for the year ended September 30, 1996. We also consent to
the incorporation by references in the Registration Statement on Form S-8 of our
report dated January 11, 1996 appearing in this Form 10-KSB.
PRICE WATERHOUSE LLP
Tampa, Florida
December 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 531
<SECURITIES> 0
<RECEIVABLES> 2,373
<ALLOWANCES> 0
<INVENTORY> 3,341
<CURRENT-ASSETS> 6,371
<PP&E> 5,247
<DEPRECIATION> 1,423
<TOTAL-ASSETS> 14,302
<CURRENT-LIABILITIES> 4,367
<BONDS> 0
0
1
<COMMON> 83
<OTHER-SE> 2,428
<TOTAL-LIABILITY-AND-EQUITY> 14,302
<SALES> 12,344
<TOTAL-REVENUES> 12,344
<CGS> 7,641
<TOTAL-COSTS> 7,641
<OTHER-EXPENSES> 6,428
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,061
<INCOME-PRETAX> (2,786)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,786)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,786)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
