<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the period ended June 30, 1997 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.)
1719 ROUTE 10, SUITE 314, PARSIPPANY, NEW JERSEY 07054
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 359-8444
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 August 14, 1997 there were outstanding 8,390,890 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)
JUNE 30, SEPTEMBER 30,
1997 1996
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 495 $ 531
Accounts receivable 1,450 2,373
Inventories 3,698 3,341
Other current assets 428 126
---------- ----------
6,071 6,371
PROPERTY, PLANT AND EQUIPMENT, NET 3,135 3,824
INTANGIBLE AND OTHER ASSETS, NET 2,880 4,107
---------- ----------
TOTAL ASSETS $ 12,086 $ 14,302
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 592 $ 666
Accrued interest 707 442
Other accrued expenses 1,872 1,681
Credit facility 771 --
Current portion of debt 2,378 1,578
---------- ----------
6,320 4,367
LONG-TERM DEBT 6,482 7,423
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (716) 2,512
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,086 $ 14,302
========== ==========
</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>
NINE MONTHS ENDED THREE MONTHS ENDED
----------------- ------------------
JUNE 30 JUNE 30
------- -------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES
Revenue $ 6,706 $ 8,722 $ 2,082 $ 3,184
Cost of Revenue 4,287 5,508 1,558 1,850
------- ------- ------- -------
Gross Margin 2,419 3,214 524 1,334
OPERATING EXPENSES
General and administrative 1,687 1,772 631 746
Distribution and marketing 1,748 1,578 636 528
Research and development 207 191 70 84
Depreciation and amortization 1,020 1,172 325 350
------- ------- ------- -------
Total 4,662 4,713 1,662 1,708
OPERATING LOSS (2,243) (1,499) (1,138) (374)
Reserve for prior year revenues 551 - (14) -
Other (income) expense, net (312) (142) 3 (4)
Interest expense 693 590 341 202
Deferred interest expense - 48 - -
------- ------- ------- -------
Total 932 496 330 198
Loss before income taxes (3,175) (1,995) (1,468) (572)
Income taxes ----- ----- ----- -----
------- ------- ------- -------
NET LOSS $(3,175) $(1,995) $(1,468) $(572)
======= ======= ======= =====
Average common shares outstanding 8,390,890 8,070,237 8,390,890 8,237,407
========= ========= ========= =========
Net loss per share $(0.38) $(0.25) $(0.17) $(0.07)
====== ====== ====== ======
</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>
NINE MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,175) $ (1,995)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 1,298 1,434
Stock issued for services/expenses 20 21
Deferred interest expenses 235 48
Increase (decrease) in cash resulting from changes in:
Accounts receivable 696 (714)
Inventories (812) 925
Prepaid expenses and other current assets (291) (73)
Accounts payable and accrued expenses 733 (358)
-------- --------
Net cash used in operating activities (1,296) (712)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment
Decreases in intangible and other assets (68) (21)
Net cash provided by (used in) investing activities 26 29
-------- --------
(42) 8
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of stock 22 4,885
Proceeds from short-term borrowings 1,771 90
Repayment of short-term borrowings (205) (728)
Proceeds from long-term borrowings -- 1,445
Repayment of long-term debt (261) (4,160)
Preferred dividends paid -- (791)
-------- --------
Net cash provided by financing activities 1,327 741
EFFECT OF EXCHANGE RATE CHANGES ON CASH (25) (5)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (36) 32
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 531 184
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 495 $ 216
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 428 $ 618
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(IN 000S, EXCEPT SHARE DATA)
(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(R) 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 period ended June 30, 1997 and
1996, 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 audited
consolidated financial statements of the Company for the year ended
September 30, 1996. 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
strengthening of the U.S. dollar against the Deutsche Mark to an average
exchange rate of DM 1.63 from DM 1.59 for the nine months ended June 30,
1997 and 1996, respectively.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries.
RECLASSIFICATIONS. Certain prior period financial statement balances have
been reclassified to conform with the current period presentation.
(3) SHAREHOLDERS' EQUITY
Shareholders' equity at June 30, 1997 and September 30, 1996 consisted of
the following:
<TABLE>
<CAPTION>
(unaudited) (audited)
June 30 September 30
1997 1996
------------- --------------
<S> <C> <C>
Capital Stock
Preferred Stock, par value $.01 per share,
Series C, 110,603 shares issued and outstanding 1 1
Common Stock, par value $.01 per share, with 8,390,890
issued and outstanding at June 30, 1997 and 8,338,240
September 30, 1996, respectively 84 83
Additional contributed capital 21,300 21,259
Foreign currency translation adjustment (148) (53)
Accumulated deficit (21,953) (18,778)
---------- ----------
Total Stockholder's Equity $ (716) $ 2,512
============= ============
</TABLE>
5
<PAGE> 6
(4) SUBSEQUENT EVENTS
On July 1, 1997, the Company settled the litigation with the former owner of its
German subsidiary. The settlement agreement cancels approximately $1.6 million
of debt, based upon current exchange rates, including accrued interest, due from
Biodynamics to the former owner. Cancellation of this debt will result in a
direct increase in equity.
As of July 31, 1997, the holders of the Senior B debt agreed to convert their
debt holdings, including accrued interest and the redemption fee, totaling
approximately $1,588,000 into 12,455 shares of Series C Preferred Stock, which
is convertible into approximately 1,868,000 shares of the Common Stock of the
Company.
The pro forma impact on the June 30, 1997 financial statements are represented
in the following table:
<TABLE>
<CAPTION>
(In thousands) June 30, 1997 Pro Forma Adjustments Pro Forma
-------------- ------------- --------------------- ---------
<S> <C> <C> <C>
Current Assets 6,071 6,071
Total Assets 12,086 12,086
(1) (1,663)
Current Liabilities 6,320 (2) (283) 4,374
Long-Term Debt 6,482 (2) (1,022) 5,460
(1) 1,663
Shareholders Equity (716) (2) 1,305 2,252
(1) 1,663
Net Income (3,175) (3) (283) (1,795)
</TABLE>
(1) Settlement of litigation with the former owners of the German subsidiary.
(2) Conversion of Senior "B" debt, including accrued interest, into common
stock.
(3) Represents loss resulting from conversion of Senior "B" debt.
These statements have been prepared on the basis that the Company will continue
as a going concern and do not reflect any adjustments that might be necessary if
prepared on a liquidation basis.
During July, 1997, the holders of the Company's Mezzanine debt agreed to waive
certain financial covenants to the loan agreement. The Company is in
compliance with the modified covenants at June 30, 1997. The amounts
outstanding under the Mezzanine debt including accrued interest are
approximately $4,200,000.
At June 30, 1997, the Company's cash on hand totaled $495,000 and it had
negative capital of $249,000. Based upon current operations, the working
capital of the Company would be completely exhausted prior to the end of
August, 1997. The Company is currently in discussions with its investors to
secure additional working capital but no assurance or guarantees can be given
that funds will be advanced.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparisons between the 1997 and 1996 periods should recognize the approximate
14% increase in the U.S. dollar against the German Deutsche Mark. The effect
of such a decline results in lower revenues, expenses and net loss.
NET LOSS
Net loss for the third quarter ended June 30, 1997 totaled $1,468,000 or $0.17
per share compared to $572,000 or $0.07 per share for the same period a year
ago. The net loss for the nine months ended June 30, 1997 was $3,175,000 or
$0.38 per share compared to $1,995,000 or $0.25 per share for the same period
a year ago.
6
<PAGE> 7
These results were impacted by the Japanese Ministry of Health banning the use
of human dura mater tissue and ordering a product recall in response to a
recommendation from the United Nation's World Health Organization. As a result
of this action, the Company charged year-to-date results with gross margin
reserves of approximately $450,000 for current year revenues and $565,000 for
prior year revenues.
REVENUE AND COST OF REVENUE
Revenue for the nine months ended June 30, 1997 decreased 23% to $6,706,000
from $8,722,000 for the comparable period. Revenue for the three months ended
June 30, 1997 decreased 35% to $2,082,000 from $3,184,000 for the comparable
period. The decrease is largely the result of reserves of approximately
$750,000 for current year revenues established during the fiscal second quarter
in connection with the ban of human dura mater tissue and the continued
Japanese Ban/Italian Moratorium.
Gross margins decreased to 36% from 37% for the comparable nine month periods,
and to 25% from 42% for the comparable three month periods. These decreases
are primarily attributable to an unfavorable product mix in international
operations and unabsorbed overhead in U.S. operations.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased 5% to $1,687,000 and 15% to
$631,000 for the nine and three months ended June 30, 1997 respectively. The
decrease is primarily the result of staff reductions.
DISTRIBUTION AND MARKETING
Distribution and marketing expenses increased 11% to $1,748,000 and 20% to
$636,000 for the nine and three month periods ending June 30, 1997. The
increases resulted from additional travel and marketing promotions as well as
expenses associated with the hiring of a Marketing Director.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 8% to $207,000 for the nine periods
ending June 30, 1997. This increase is the result of expanded efforts to
develop new products. The three month period ending June 30,1997, declined 17%
to $70,000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased 13% to $1,020,000 and 7% to $325,000
for the nine and three month periods ending June 30, 1997, respectively.
OTHER INCOME/EXPENSES, NET
Other income, net, increased to $312,000 from $142,000 for the nine month
period ended June 30, 1997. The three month period ended June 30, 1997,
reported other expenses, net, of $3,000 in 1997 versus other income, net,
of $4,000 in 1996. The increase is primarily net other income resulting from
the sale of a portion of the suture business which occurred in the second
fiscal quarter of 1997.
INTEREST EXPENSE
Total interest expense increased 17% to $693,000 from $590,000 for the nine
month period ended June 30, 1997 and 1996, and grew 69% to $341,000 from
$202,000 for the three months ended June 30, 1997, primarily due to a
redemption fee payable on the Company's Senior B loans.
7
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
The Company had negative working capital of $249,000 as of June 30, 1997 as
compared to $2,004,000 at September 30, 1996. The Company maintains current
working capital lines of credit totaling DM 1,860,000 (approximately
$1,065,000) with three German banks. At June 30, 1997, the Company had borrowed
DM 1,346,000 against these lines. During the fiscal third quarter of 1997, the
Company secured a short-term loan of $1,000,000 from an institutional investor
to bridge its working capital. This note matures on September 30, 1997. The
Company and the institutional investors are actively discussing a modification
of the terms and maturity date.
Net cash used in operations was $1,296,000 and $712,000 for the nine months
ended June 30, 1997 and 1996, respectively. In the past, the Company has
relied upon its available working capital lines and institutional investors to
fund its operational cash flow, where needed. Based upon current operations,
the working capital of the Company would be exhausted prior to the end of
August, 1997. The Company has been actively seeking the cooperation of its
institutional investors in providing the required capital and in converting
existing debt to equity. Agreements have been secured to convert a portion of
the debt to equity, and discussions related to the conversion of the balance of
debt and infusion of capital are continuing.
While the Company will continue to pursue the additional funding, there can be
no assurances that such funding can be secured on a timely basis. Failure to
secure additional capital will have a materially adverse effect on the Company,
which could result in a curtailment of operations prior to the end of August
1997. An infusion of additional capital and conversion of existing debt to
equity is likely to result in significant dilution to existing shareholders.
During July 1997, the Holders of the Company's Mezzanine debt agreed to waive
certain financial covenants to the loan agreement. The Company is in
compliance with the modified covenants at June 30, 1997. The amounts
outstanding under the Mezzanine debt including accrued interest was
approximately $4,200,000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
During July 1997, the holders of the Company's Mezzanine debt agreed to waive
certain financial covenants to the loan agreement. The Company is in
compliance with the modified covenants at June 30, 1997. The amounts
outstanding under the Mezzanine debt including accrued interest was
approximately $4,200,000.
ITEM 4. NONE
ITEM 5. OTHER INFORMATION.
On June 27, 1997, effective July 31, 1997, Nicholas A. Frungillo, Jr., resigned
as Chief Financial Officer of the Company to pursue other business
opportunities. Mr. Peter J. Finnerty joined the Company on July 15, 1997 and
was elected Chief Financial Officer on July 31, 1997.
8
<PAGE> 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
EXHIBITS
- --------
<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. Frail, Revy Investment Co., Inc.
10.22*** Convertible Debenture, Renaissance Capital Partners II, Ltd.
10.23*** Convertible Debenture, Frail, Revy Investment Co., Inc.
10.24* Senior B Loan Agreement
22* Subsidiaries of Registrant
27 Financial Data Schedule (for SEC use only)
</TABLE>
* Document incorporated by reference from previous 10-KSB or 10-QSB 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
Report on litigation settlement filed on July 2, 1997.
Report on working capital negotiations filed on August 5, 1997.
9
<PAGE> 10
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.
BIODYNAMICS INTERNATIONAL, INC.
Date: August 14, 1997 /s/ Karl H. Meister
--------------------------------------
President and Chief Executive Officer
Date: August 14, 1997 /s/ Peter J. Finnerty
--------------------------------------
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
THE QUARTER END JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY SUCH FILINGS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 495
<SECURITIES> 0
<RECEIVABLES> 1,497
<ALLOWANCES> 47
<INVENTORY> 3,698
<CURRENT-ASSETS> 6,071
<PP&E> 4,730
<DEPRECIATION> 1,595
<TOTAL-ASSETS> 12,086
<CURRENT-LIABILITIES> 6,320
<BONDS> 6,482
0
1
<COMMON> 84
<OTHER-SE> (801)
<TOTAL-LIABILITY-AND-EQUITY> 12,086
<SALES> 6,706
<TOTAL-REVENUES> 7,018
<CGS> 4,287
<TOTAL-COSTS> 4,287
<OTHER-EXPENSES> 5,213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 693
<INCOME-PRETAX> (3,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,175)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
