<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
XX Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the period ended December 31, 1997.
___ 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: (973) 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
(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 February 14, 1998 there were outstanding 5,313,832 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 SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
(unaudited) (audited)
December 31 September 30
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 241 $ 777
Accounts receivable 1,555 1,738
Inventories 2,769 2,391
Other current assets 67 94
------------ ------------
4,632 5,000
PROPERTY, PLANT AND EQUIPMENT, NET 2,889 2,996
INTANGIBLE AND OTHER ASSETS, NET 935 1,106
------------ ------------
TOTAL ASSETS $ 8,456 $ 9,102
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 709 $ 980
Accrued interest 26 267
Other accrued expenses 949 1,115
Note payable and debt, current portion 887 6,820
------------ ------------
2,571 9,182
OTHER LIABILITIES
Long-term debt 3,201 1,175
Other long-term obligations 10 10
SHAREHOLDERS' EQUITY (DEFICIENCY) 2,674 (1,265)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,456 $ 9,102
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 3
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1997 1996
---------- -------------
<S> <C> <C>
OPERATING REVENUES
Revenue $ 1,942 $ 2,486
Cost of revenue 1,162 1,438
--------- ---------
Gross margin 780 1,048
OPERATING EXPENSES
General and administrative 387 544
Distribution and marketing 292 572
Research and development 66 27
Depreciation and amortization 183 363
--------- ---------
928 1,506
OPERATING LOSS (148) (458)
Other income (19) (8)
Interest expense 94 190
--------- ---------
75 182
NET LOSS BEFORE INCOME TAXES (223) (640)
Income taxes 9 -
--------- ---------
NET LOSS $ (232) $ (640)
========= =========
Average common shares outstanding 4,430,906 835,426
========= =========
Net loss per share $ (0.05) $ (0.77)
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 4
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1997 1996
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (232) $ (640)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 210 455
Increase (decrease) in cash resulting from changes in:
Accounts receivable 183 571
Inventories (378) 27
Prepaid expenses and other current assets 27 (138)
Accounts payable and accrued expenses (678) (716)
--------- ----------
Net cash used in operating activities (868) (441)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (19) (23)
Decreases in intangible and other assets 28
--------- ----------
Net cash provided by (used in) investing activities (19) 5
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of stock 4,185 22
Proceeds from short-term borrowings 78 302
Repayment of short-term borrowings (3,937) (14)
Repayment of long-term debt (48) (237)
--------- ----------
Net cash provided by financing activities 278 73
EFFECT OF EXCHANGE RATE CHANGES ON CASH 73 (4)
NET DECREASE IN CASH AND CASH EQUIVALENTS (536) (367)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 777 531
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 241 $ 164
========= ==========
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 30 $ 267
========= ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 5
BIODYNAMICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN 000S, EXCEPT SHARE DATA)
(1) OPERATIONS AND ORGANIZATION
During the year ended September 30, 1997, the ban on the use of human dura
mater in two of the Company's important markets had a material adverse
affect on the Company's results of operations and financial position. As a
result, the Company initiated a significant restructuring of their
capitalization for both short-term and long-term capital requirements. The
recapitalization consisted of five major segments, which were ratified by
the Company's lenders and shareholders in 1997. The recapitalization
enabled the Company to obtain additional working capital financing while
reducing the Company's debt/ interest burden and preferred stock
capitalization. As a result, holders of selected debt and Series C
preferred stock converted their holdings to the Company's common stock.
While additional working capital financing in the way of bridge loans and
the Series C preferred stock conversion were completed in fiscal 1997, the
remainder of the recapitalization program was completed in the quarter
ended December 31, 1997. This included the replacement of the bridge loans
with a convertible debenture loan on November 11, 1997 (see Note 4) and the
conversion in December 1997 of certain loans by the mezzanine lenders to
the Company's German subsidiary to common stock (see Note 4).
Additionally, a one-for-ten reverse stock split on November 11, 1997 was
implemented to accommodate the various recapitalization transactions (see
Note 3).
While the Company continues in its efforts to reverse the ban on human dura
mater and further believes it can recover from the resultant loss of
business, there can be no assurances that it will be able to do so and that
bans in other countries might not be invoked. Further, the Company has
forecasted positive cash flows from operations in fiscal 1998, however there
can be no assurances that these forecasts will materialize. Management of
the Company believes that the changes instituted during fiscal 1997 and
1998 via the securing of additional working capital, the conversion of the
Series C preferred stock, the conversion of the mezzanine debt, and the
implementation of a one-for-ten stock split will result in increased
profitability and cash flow necessary to fund operations.
Biodynamics International, Inc. with its consolidated subsidiaries
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.
(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 three months ended December
31, 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, 1997. Significant accounting policies of the
Company are presented below.
FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's
German subsidiary is the 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 1.76 from DM 1.54 for the three months ended
December 31, 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.
<PAGE> 6
(3) SHAREHOLDERS' EQUITY (DEFICIENCY)
Shareholders' equity (deficiency) at December 31, 1997 and September 30,
1997 consisted of the following:
<TABLE>
<CAPTION>
(unaudited) (audited)
December 31, September 30,
1997 1997
----- ----
<S> <C> <C>
Shareholders' Equity (deficiency):
Common Stock, par value $.01 per share, with
5,319,852 and 26,875,090 issued and outstanding
at December 31, 1997 and September 30, 1997,
respectively 53 269
Paid in capital 27,126 22,725
Cumulative Foreign Currency Translation Adjustment (274) (259)
Accumulated deficit (24,231) (24,000)
------- --------
$ 2,674 $ (1,265)
======= ========
</TABLE>
On November 10, 1997, the Board of Directors approved a 1-for-10 reverse
stock split (the "Reverse Split"). The Reverse Split reduced the number of
common shares outstanding at October 10, 1997 (herein "effective date") from
approximately 26,875,000 shares to 2,687,500 shares. As of the effective
date, there were outstanding options to purchase an aggregate 2,492,000
shares of common stock. The Reverse Split agreement provides for an
automatic adjustment of the number of shares and the price per share of
common stock shares that may be purchased under the 1996 Stock Option Plan
and 1992 stock Option Plan (herein the"Plans"). The Company subsequently
canceled all of the outstanding stock options previously issued under its
stock option plans (the "Old Options"), (to current employees and directors)
and replaced them with new options (the "New Options"), to remedy the
negative effect of the Reverse Split on the exercise prices of Old Options
which had ranged from $0.4375 per share to $1.10 per share before the
Reverse Split, and $4.375 per share to $11.00 per share after the Reverse
Split. Generally, New Options were issued for a new number of shares of
Common Stock which new number of shares is 40% of the former number of
shares into which the Old Options were exercisable before the Reverse Split.
The exercise price of the New Options is equivalent to the market price of
the Common Stock on the date of the grant of the New Options, $1.57.
On December 24, 1997, all of the mezzanine debt and related accrued interest
(approximately $4.1 million), which was carried by the Company's German
subsidiary, was exchanged for 2,626,301 shares of the Company's Common
Stock.
<PAGE> 7
(4) LONG-TERM DEBT
Long-term debt at December 31, 1997 and September 30, 1997 consisted of the
following:
<TABLE>
<CAPTION>
(unaudited) (audited)
December 31, September 30,
1997 1997
------- ----
<S> <C> <C>
Revolving credit facilities interest ranging
from 7.75% to 8.5% $ 797 $ 719
Bridge loans, 12% interest due December 31, 1997 - 2,036
Senior debt, 7.75% interest until March 30, 1998
when terms are renegotiable 1,183 1,215
Mezzanine debt, LIBOR plus 4%, interest
(7.3125% at September 30, 1997); due 1999 - 3,978
Capital lease obligations, 8.5% interest due 2000 34 47
Convertible debenture, 9% interest due 2002 2,074 -
------- -------
4,088 7,995
Less current portion 887 6,820
------- -------
$ 3,201 $ 1,175
======= =======
</TABLE>
On December 24, 1997, all of the Mezzanine debt and related accrued interest
(approximately $4.1 million) was exchanged for 2,626,301 of the Company's
common stock.
On November 11, 1997 one of the institutional investors agreed to exchange
the Bridge loans for a five-year convertible debenture convertible into
4,413,231 shares of common stock and warrants exercisable at $2,015,991 for
806,396 shares of common stock.
(5) SUBSEQUENT EVENT
On January 14, 1998 the Company entered into an agreement with Mentor
Corporation "Mentor" for the purpose of granting a license to Mentor to
exclusively distribute selected products "Product" which the Company
processes utilizing the Tutoplast(R) process. This license grants Mentor
the right to distribute Product on an exclusive basis in their field of use
which is defined as all urological and gynecological applications and
procedures in the United States and all foreign markets. The term of the
agreement is for seven years with options to extend on the same terms and
conditions for an additional five (5) year period.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (Amounts in thousands)
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 increase will result in lower revenues, expenses and net loss.
Net loss
Net loss for the three months ended December 31, 1997 totaled $232 or $0.05 per
share as compared to $640 or $0.77 per share for the same period a year ago. The
reduction in the net loss is directly attributed to reductions made in
depreciation, selling, general and administrative expenses as a result of the
1997 downsizing in operations necessitated by the ban on the use of human dura
mater tissue in the Japanese market during the quarter ending June 30, 1997. In
addition, the Company completed the restructuring of its capitalization during
the quarter ending December 31, 1997. As such, interest expense for the period
was reduced by $96 or 51% from the comparable period a year ago.
Revenue and Cost of Revenue
Revenue for the three months ended December 31, 1997 decreased 22% to $1,942
from $2,486 for the comparable period. The decrease is largely attributed to
the absence of revenues in the quarter ended December 31, 1997 associated with
the ban on the use of human dura mater tissue in the Japanese market and the
discontinuation of the Company's unprofitable sutures business.
Gross margins decreased to 40% from 42% for the comparable three-month period
last year. The decrease is primarily attributable to unabsorbed overhead in
international operations and lower than expected yield rates on processed
tissue in the U.S. operations.
General and Administrative
General and administrative expenses decreased 29% to $387 from $544 for the
three month period ending December 31, 1997 and 1996, respectively. The
reduction is due primarily to a reduction in legal and consulting expenses.
Distribution and Marketing
Distribution and marketing expenses decreased 49% to $292 from $572 for the
three month periods ending December 31, 1997 and 1996 respectively. The
decrease is also associated with the cost saving measures instituted as a
result of the ban on the use of human dura mater in the Japanese market.
Research and Development
Research and development expenses increased 144% to $66 from $27 for the three
month period ending December 31, 1997 and 1996 respectively. The Company has
elected to increase investments in research and development to enable the
offering of new products and to improve existing products.
Depreciation and Amortization
Depreciation and amortization decreased 50% to $183 from $363 for the three
month period ending December 31, 1997 and 1996, respectively. The reduction in
depreciation and amortization is attributed to substantial write downs of
intangible and fixed assets taken with respect to the Company's international
operations during the quarter ending September 30, 1997.
Other Income
Other income increased by 138% to $19 from $8 for the three month period ending
December 31, 1997 and 1996, respectively.
Interest Expense
Interest expense declined 51% to $94 from $190 for the three month period ending
December 31, 1997 and 1996, respectively. The reduction is directly attributed
to the capital restructuring which was completed
<PAGE> 9
during the quarter ending December 31, 1997. The restructuring included the
conversion of long-term debt to common stock.
Liquidity and Capital Resources
At December 31, 1997 and September 30, 1997 the Company had working capital of
$2,061 and negative working capital of $4,182 respectively. The Company
maintains current working capital lines totaling DM 1,500 (approximately $825)
with several German banks. At December 31, 1997 the Company had borrowed $785
against these lines.
The significant improvement in the working capital position from September 30,
1997 to December 31, 1997 was due to the recapitalization of the capital
structure of the company that was completed during the three months ending
December 31, 1997. In the past the Company has relied upon its available
working capital lines and institutional investors to fund operational cash flow,
when needed. The Company is actively negotiating with its institutional
investors for loans/ investments to bridge its working capital needs. In
addition the Company is continuing to seek other investors to infuse additional
capital into the Company. While the Company believes that it will be successful
in securing new funding, there can be no assurances that it will be able to do
so. Lack of new funding along with the inability to increase processing
revenues could result in a curtailment of operations in the future.
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 Europe, and the development of additional markets and surgical
applications worldwide. While the Company believes that 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.
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
On November 10, 1997, the Company affected a 1-for-10 reverse stock
split (the "Reverse Split"). The Reverse Split reduced the number
of common shares outstanding at October 10, 1997 (herein "effective
date") from approximately 26,875,000 shares to 2,687,500 shares.
Reference is made to definitive Proxy dated October 20, 1997 on
file with the Commission. See Item 4.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) Special meeting of shareholders held on November 10, 1997
(b) Not applicable.
(c) i Proposal to reduce the number of outstanding shares of
the Company's Common Stock through a one-for-ten reverse
split of the shares. Shareholder vote result:
FOR: 15,874,200 AGAINST: NONE ABSTAIN: NONE
ii Proposal to amend the Company's 1996 Incentive and
Non-Statutory Stock Option Plan to increase the shares of
Common Stock covered by such plan from 200,000 to 2,000,000
shares. Shareholder vote result: FOR: 15,874,200
AGAINST: NONE ABSTAIN: NONE
iii Proposal to grant a Special Stock Option to purchase
300,000 shares of Common Stock to the President and Chief
Executive Officer. Shareholder vote result:
FOR: 15,874,200 AGAINST: NONE ABSTAIN: NONE
iv Proposal to amend the Company's 1996 Management
Compensation Plan to increase the shares of Common Stock
subject thereto from 50,000 to 500,000 shares. Shareholder
vote result: FOR: 15,874,200 AGAINST: NONE ABSTAIN: NONE
ITEM 5. OTHER INFORMATION.
On January 5, 1998 Peter J. Finnerty resigned as Chief
Financial Officer and Secretary of the Company to pursue other
business opportunities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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
3.6* Articles of Amendment to Articles of Incorporation Increasing the Number of Authorized Shares.
3.7* Articles of Amendment to Articles of Incorporation Amending the Terms of the Series C Preferred Stock.
</TABLE>
<PAGE> 11
<TABLE>
<S> <C>
3.8* Articles of Amendment to Articles of Incorporation Effecting Reverse Stock Split.
10.1* Convertible Debenture Loan Agreement, dated November 11, 1997, by and between Biodynamics
International, Inc., and its Wholly-Owned Subsidiaries, and Renaissance Capital Partners II, Ltd.
10.2* Nine Percent (9%) Convertible Debenture of Biodynamics International, Inc., Issued to Renaissance Capital
Partners II, Ltd., dated November 11, 1997.
10.3* Second Amendment to Security Agreement, dated December 31, 1997, by Biodynamics International, Inc., for the
benefit of Renaissance Capital Partners II, Ltd.
10.4* Second Amendment to Security Agreement (Stock Pledge Agreement), dated December 31, 1997, by Biodynamics
International, Inc., for the benefit of Renaissance Capital Partners II, Ltd.
10.5* Joint Venture Agreement between Biodynamics, Inc. And Texas Medical Products dated November 1, 1990.
10.6* Employment Agreement between Biodynamics International, Inc. and Karl H. Meister, dated June 12, 1996.
21* 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 Registration
Statement, on Form 20-F, of American Biodynamics, Inc., effective
October 2, 1987.
REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIODYNAMICS INTERNATIONAL, INC.
Date: March 16, 1998 /s/ Karl H. Meister
-----------------------------------
President, Chief Executive
and Financial Officer
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-01-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 241
<SECURITIES> 0
<RECEIVABLES> 1,555
<ALLOWANCES> 0
<INVENTORY> 2,769
<CURRENT-ASSETS> 4,632
<PP&E> 4,314
<DEPRECIATION> 1,425
<TOTAL-ASSETS> 8,456
<CURRENT-LIABILITIES> 2,571
<BONDS> 3,201
0
0
<COMMON> 53
<OTHER-SE> 2,621
<TOTAL-LIABILITY-AND-EQUITY> 8,456
<SALES> 1,942
<TOTAL-REVENUES> 1,942
<CGS> 1,162
<TOTAL-COSTS> 1,162
<OTHER-EXPENSES> 928
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<INTEREST-EXPENSE> 94
<INCOME-PRETAX> (232)
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<EPS-PRIMARY> (.05)
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</TABLE>
