SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
Commission File No. 1-11182
BIO-IMAGING TECHNOLOGIES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-287204
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
830 Bear Tavern Road, West Trenton, New Jersey 08628-1020
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(Address of Principal Executive Offices) (Zip Code)
(609) 883-2000
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(Registrant's Telephone Number,
Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.00025 par Boston Stock Exchange
value per share
Securities registered under Section 12(g) of the Exchange Act:
None
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Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes: X No:
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Check if there is no disclosure of delinquent filers in response to Item
405 of 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 in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State Registrant's revenues for fiscal year ended September 30, 1998:
$3,599,313
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: $2,214,564 at October 31, 1998 based on the average bid and
asked prices on that date.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of November 30, 1998:
Class Number of Shares
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Common Stock, $.00025 par value 7,773,878
Transitional Small Business Disclosure Format
Yes: No: X
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The following documents are incorporated by reference into the Annual
Report on Form 10-KSB: Portions of the Registrant's definitive Proxy Statement
for its 1999 Annual Meeting of Stockholders are incorporated by reference into
Part III of this Report.
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TABLE OF CONTENTS
Item Page
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PART I 1. Business...............................................1
2. Properties.............................................9
3. Legal Proceedings......................................9
4. Submission of Matters to a Vote of Security Holders....9
PART II 5. Market for the Company's Common Equity and Related
Stockholder Matters....................................9
6. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................11
7. Financial Statements..................................17
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................17
PART III 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16 (a) of the
Exchange Act..........................................18
10. Executive Compensation................................18
11. Security Ownership of Certain Beneficial Owners
and Management........................................18
12. Certain Relationships and Related Transactions........18
13. Exhibits, List and Reports on Form 8-K................18
SIGNATURES ......................................................19
EXHIBIT INDEX......................................................21
FINANCIAL STATEMENTS..............................................F-1
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PART I
ITEM 1. BUSINESS.
GENERAL
Bio-Imaging Technologies, Inc. ("Bio-Imaging Technologies" or the
"Company") is a pharmaceutical contract service organization providing services
that support the product development process of the pharmaceutical,
biotechnology and medical device industries. The Company specializes in
assisting its clients in the design and management of the medical-imaging
component of clinical trials. The Company provides services which include the
processing and analysis of medical images and the data-basing and regulatory
submission of medical images, quantitative data and text.
The Company utilizes proprietary processes and software applications in
providing its services to pharmaceutical companies conducting clinical studies
in which medical imaging modalities are used to evaluate the efficacy and safety
of pharmaceuticals, biologics or medical devices. The Company's digital image
processing and computer analysis techniques enable it to make highly precise
measurements and biostatistical inferences about drug or device effects. The
resulting data enable the Company's clients, and their regulatory reviewers
(primarily the U.S. Food and Drug Administration, the "FDA") to evaluate product
efficacy. In addition, the Company has developed specialized computer services
and software applications that enable independent radiologists and other medical
specialists involved in clinical trials to review medical image data in an
entirely digital format.
The Company continues to believe that it is at an early stage of market
penetration and is directing its marketing and sales efforts towards those
clinical development areas that heavily depend upon medical imaging. These areas
include oncology, central nervous system, anti-inflammatory and cardiovascular
therapeutics and diagnostics.
In February 1997, the Company opened a European facility in Leiden, the
Netherlands to provide centralized image processing services for European
clients. The Company manages its services for European based clinical trials
from this facility. The Company's European facility has the same capabilities as
the Company's U.S. headquarters.
The Company was incorporated in Delaware in 1987 under the name Wise
Ventures, Inc. The Company's name was changed to Bio-Imaging Technologies, Inc.
in 1991. The address of the Company's principal executive offices is 830 Bear
Tavern Road, West Trenton, New Jersey, 08628, and its telephone number is
609-883-2000.
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BUSINESS SERVICES
Core Laboratory Services
Bio-Imaging Technologies is a leading provider of medical imaging
management services for clinical development purposes. The Company's imaging
core laboratory facilities in the U.S. and Europe provide centralized image data
collection, processing, analysis and archival services for clinical trials
conducted worldwide. The facilities are designed for high-volume processing of
analog (film) and digital image data in a secure environment that complies with
regulatory guidelines for clinical data management.
Imaging data are received by these facilities from clinical trial sites,
typically academic or community hospitals. The Company has developed procedures
for data tracking and quality control that it believes to be of significant
value to its clients. The Company's facilities contain specialized hardware and
software for the translation of digital data or the digitization of films, so
that all data can be standardized, regardless of its source. The Company
believes its ability to handle most commercially available image file formats is
a valuable technical asset and important competitive advantage in gaining new
business for large global multi-center clinical trials.
The Company performs image analyses on its clients' data using internally
developed or specially configured software. The Company measures key indicators
of drug efficacy in different organs and disease states. The image analysis
results derived in its facilities are transferred to databases that can be
transmitted electronically to the Company's clients, or integrated directly into
the Company's Bio/ImageBase(R) package for regulatory submission on the client's
behalf.
Information Management Services
Bio-Imaging Technologies' information management services focus on
providing specialized solutions for improving the quality, speed and flexibility
of image data management for clinical trials. The Company's Computer Assisted
Masked Reading ("CAMR(TM)") systems offer numerous advantages over conventional
film-based medical image reading scenarios, including increased reading speed,
greater standardization of image reading, and reduced error in the capture of
reader interpretations.
Using the Company's CAMR(TM) systems, independent medical specialists can
review medical image data from clinical trials in a digital format. The CAMR(TM)
systems can display all modalities of imaging data, regardless of source
equipment. In addition, the systems can display either translated digital data
or digitized films. Such image reviews are often required during clinical trials
to evaluate patients' response to therapy, or to determine if patients qualify
for studies. By using the CAMR(TM) systems to read and evaluate image data,
medical specialists can achieve greater reading speed than is possible with
film, and can perform evaluations in a more objective, reproducible manner. The
Company has also developed CAMR(TM) systems which are
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located on the premises of the individual medical specialists who are chosen by
the sponsor to perform the analysis of the medical image data.
The Company has developed a proprietary image database software
application, Bio/ImageBase(R), that enables the Company's clients to submit
their medical images and related clinical data to the FDA in a digital format.
Using data stored on CD-ROM disks, Bio/ImageBase(R) allows clients and their FDA
medical reviewers to review medical images and related clinical data. The
Company believes that Bio/ImageBase(R) offers the potential to decrease review
time and results in faster regulatory approvals and reduced time-to-market for
new drugs, biologics and medical devices.
The Company's Bio/ImageBase(R) software has been installed at client sites
and on certain computer systems at the FDA. The Company has been using its
Bio/ImageBase(R) software to submit medical images and related data to the FDA
since mid-1993. In March 1996, Bio/ImageBase(R) was cited in the FDA's 1996
Computer-Assisted Product License Application Guidance Manual as an acceptable
database for submission of imaging data.
Other Services
The Company provides technical consulting in the evaluation of the sites
that may participate in clinical trials. The Company also consults with clients
regarding regulatory issues involved in the design, execution, analysis and
submission of imaging data of the trials.
TARGET MARKETS
The Company's primary target market includes pharmaceutical, biotechnology
and medical device companies whose clinical development pipelines include drugs,
biologics or devices that are typically evaluated by medical imaging methods.
This target market includes leading international pharmaceutical companies and
biotechnology companies with products currently in the clinical development
pipeline.
Bio-Imaging Technologies focuses its marketing on the following stages of
clinical development:
Phase II Clinical Trials
Phase II clinical trials are generally conducted over one to two years and
involve basic efficacy (effectiveness) and dose-range testing in approximately
50 to 400 patients suffering from the disease or condition under study. Such
trials help determine the best effective dose, confirm that the drug works as
expected and provide additional safety data.
Phase III Clinical Trials
Phase III clinical trials are generally conducted over two to three years
and involve efficacy and safety studies in broader populations of hundreds or
thousands of patients and many investigational sites (hospitals and clinics).
Generally, Phase III studies are intended to provide
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additional information on drug safety and efficacy, an evaluation of the
risk-benefit of the drug and information for the adequate labeling of the
product.
Bio-Imaging Technologies focuses its marketing efforts on clinical trials
for the following classes of drugs:
Cancer Therapeutics
Many pharmaceutical companies are currently developing new therapies for
the treatment of cancer. For solid tumor studies, medical imaging modalities are
used to determine the response of treated and untreated tumors. These medical
images are evaluated by medical specialists during the course of oncology
clinical trials to determine the extent of disease and changes in tumor size
over time.
The FDA's guidelines aimed at accelerating access to new drugs for the
review and approval of new cancer therapies place greater emphasis on shrinkage
of tumors as an early indicator of anti-tumor efficacy. Bio-Imaging Technologies
believes that these FDA guidelines may have a favorable impact on its business
as pharmaceutical and biotechnology companies may have an increased need for
regulatory compliant medical imaging services to conduct their oncology clinical
trials.
Central Nervous System Therapeutics
Various pharmaceutical companies are currently developing drugs for
treatment of diseases and conditions of the central nervous system, most of
which are evaluated with the aid of medical imaging. Most later-stage clinical
trials for these serious and costly conditions involve the evaluation of medical
image data. The Company believes that its central nervous system clinical trials
business may increase as more therapies progress through the research pipeline.
Diagnostic Imaging Agents
Bio-Imaging Technologies provides its services to clients developing
diagnostic imaging agents which are designed to diagnose disease conditions more
quickly and accurately in their development in order to facilitate earlier and
more accurate treatment.
Anti-Inflammatory Therapeutics
Anti-inflammatory clinical trials, such as those focused on arthritis and
osteoporosis, include radiologic evaluation of the bones and joints to determine
drug efficacy. The Company believes that demand among drug developers for its
services will increase as new classes of biotechnology-derived drugs enter and
progress through the clinical development pipeline.
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Cardiovascular Therapeutics
Various pharmaceutical companies are currently developing drugs for the
diagnosis and treatment of cardiovascular diseases and conditions which are
evaluated with the aid of medical imaging. The Company provides its services to
clients developing diagnostic agents for the detection and treatment of these
conditions.
MARKET TRENDS
The Company believes that demand for its services should grow because of a
variety of favorable regulatory, technological and market trends:
o The FDA initiatives to streamline the regulatory submission and review
process which are being implemented should have a beneficial impact on
the Company. The FDA is investing in new information technology and has
begun the process of formulating and disseminating guidelines for
standardizing the submission of electronic data, including medical
images. The Company expects submission of image data to be a
requirement in key therapeutic and diagnostic areas for evaluating the
effectiveness of a drug or imaging agent.
o Consolidation, restructuring and downsizing in the pharmaceutical
industry in response to downward pressure on certain pharmaceutical and
biotechnology companies' drug prices has resulted in increased
outsourcing of certain research and development activities. Currently,
over $4 billion in research services are outsourced to contract
clinical research organizations. Industry estimates place growth of
outsourcing between 20% to 30% per year for at least the next three
years.
o Growth in pharmaceutical and biotechnology research and development
spending is fairly non-cyclical. As a result, the Company believes that
outsourcing of development activities should continue to remain steady.
o New classes of drugs to treat conditions traditionally evaluated by
imaging are entering or progressing through the clinical development
pipeline, leading to increased demand for medical imaging-related
services. In addition, digital technologies for data acquisition and
management are rapidly penetrating the radiology community.
o As pharmaceutical and biotechnology companies increasingly attempt to
expand the market for new drugs by conducting clinical trials and
pursuing regulatory approval in multiple countries simultaneously,
contract service organizations with an international presence and
expertise will continue to benefit. The Company believes it is
well-positioned to take advantage of these trends due to its U.S.
and European operations.
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o The Company also believes that, because its development services are
specialized, it is often able to perform these services with a higher
level of expertise or specialization more quickly and efficiently than
a pharmaceutical or biotechnology company could perform internally.
INTELLECTUAL PROPERTY
Proprietary protection for the Company's computer-imaging programs,
processes and know-how is important to its business. Bio-Imaging Technologies
has developed certain technically derived procedures and computer software
applications that are intended to increase the effectiveness and quality of its
services. The Company relies upon trade secrets, know-how and continuing
technological innovation to develop and maintain its competitive position. The
Company has obtained registered trademark protection for the Bio/ImageBase(R)
and has claimed trademark protection for the CAMR(TM). Furthermore, Bio-Imaging
Technologies requires all employees, consultants and contractors to execute
confidential disclosure agreements as a condition of employment or engagement by
the Company. There can be no assurance, however, that the Company can limit
unauthorized or wrongful disclosures of trade secret information. In addition,
to the extent the Company relies on trade secrets and know-how to maintain its
competitive technological position, there can be no assurance that others may
not develop independently the same or similar techniques. Although the Company's
intellectual property rights are important to the results of its operations, the
Company believes that other factors such as independence, process knowledge,
technical expertise and experience are more important, and that, overall, these
technological capabilities offer significant benefits to its clients.
GOVERNMENT REGULATION
The research and development, manufacture and marketing of drugs and
medical devices are subject to stringent regulation by the FDA in the United
States and by comparable authorities in other countries. In addition,
regulations imposed by other federal agencies, as well as state and local
authorities, may impact such research and development, manufacturing and
marketing.
The FDA has established mandatory procedures and safety standards which
apply to the clinical testing, manufacturing and marketing of drugs and medical
devices. These procedures and safety standards include, among other things, the
completion of adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug or device for its recommended conditions or
use. The Company advises its clients in the execution of clinical trials and
other drug and device developmental tasks. The Company does not administer drugs
to or utilize medical devices on patients.
The success of the Company's business is dependent upon the continued
acceptance by the FDA and other regulatory authorities which review the data and
analyses generated by the Company's services in the evaluation of the safety and
efficacy of new drugs and devices. The FDA has formal guidelines which encourage
the use of "surrogate measures," through submission of digital image data, for
evaluation of drugs to treat life-threatening or debilitating
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conditions. There can be no assurance, however, that the FDA or other regulatory
authorities will accept the data or analyses generated by the Company in the
future and, even assuming acceptance, there can be no assurance that the FDA or
other regulatory authorities will require the application of imaging techniques
to numbers of patients and over time periods substantially similar to those
required of traditional safety and efficacy techniques.
Recent changes in the FDA's policy for the evaluation of therapeutic
oncology agents can have a positive impact on the time to market of such
therapeutics. According to the guidelines announced in March 1996, approval
times for new cancer therapies can be shortened if evidence of tumor shrinkage
is verifiable and demonstrable through the use of objective measurement
techniques. These guidelines place much greater reliance on the use of medical
image data to demonstrate objective tumor shrinkage. In addition, in March 1997,
the FDA announced new guidelines aimed at accelerating all therapeutic
categories through the use of surrogate markers such as imaging endpoints. The
Company believes the FDA's initiatives to streamline and accelerate the
submission and review process of therapeutic agents may have a favorable impact
on the Company's business.
In October 1998, the FDA released a draft guidance for industry relating to
how medical imaging should be defined, handled and evaluated in clinical trials.
The Company believes that the guidance document comports with the methodologies
and processes utilized by the Company in providing medical information
management services for its clients.
The Company believes that its ability to achieve continued and sustainable
growth will be materially dependent upon, among other factors, the continued
stringent enforcement of the comprehensive regulatory framework by various
government agencies. Any significant change in these regulatory requirements or
the enforcement thereof, especially relaxation of standards, could adversely
affect the Company's prospects.
COMPETITION
As a sign of growth in the clinical trials-related medical imaging services
business, the Company continues to experience an increase in competition from
commercial competitors and academic research centers. Over the past two years,
several conventional contract research organizations have either started or
acquired divisions to address the need for medical imaging services as it
relates to clinical trials. As competition increases, Bio-Imaging Technologies
will look to provide value-added services and undertake marketing and sales
programs to differentiate its services based on its expertise and experience in
specific therapeutic and diagnostic areas, its technological expertise and
regulatory and clinical development experience, its quality performance and its
international capabilities. Competition in the Company's industry has resulted
in additional pressure being placed on price, service and quality. Although the
Company believes that it is well positioned against its competitors due to its
experience in clinical trials and regulatory compliance along with its
international presence, there can be no assurance that the Company's competitors
or clients will not provide or develop services similar or superior to those
provided by the Company. Any such competition could have a material adverse
impact on the Company. The Company's competitive position also depends upon its
ability to attract and
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retain qualified personnel and develop and preserve proprietary technology,
processes and know-how.
MARKETING AND SALES
Bio-Imaging Technologies provides and markets its services on an
international basis primarily to pharmaceutical and biotechnology companies. The
Company's sales and marketing activities are performed by a Director of Client
Technical Services, three Regional Managers of Client Technical Services, a
Director of Clinical Services, Europe and a Manager, Business Development.
The Company's selling efforts are focused on North America and Western
Europe. Sales efforts are directed from both of the Company's headquarters in
New Jersey and Leiden, The Netherlands. The Company's marketing activities
include exhibiting at major trade shows, advertising in trade journals and the
sponsoring of industry associations. The Company continues to evaluate
appropriate co-marketing activities and strategic alliances, in particular with
contract research organizations, to augment its own business development
efforts.
SIGNIFICANT CLIENTS
During fiscal 1998, two clients, including one European-based client,
accounted for approximately 50% of the Company's project revenues. The one
European-based client represented approximately 26% of such revenues while the
other client represented approximately 24% of such revenues. These contracts are
terminable by the Company's clients at any time and for any reason. Loss of any
of these clients or a reduction in services provided to these clients would have
a material adverse effect on the Company's business, financial condition and
results of operations.
EMPLOYEES
As of September 30, 1998, the Company had 35 employees, three of whom are
officers of the Company.
Of the Company's employees as of September 30, 1998, six were engaged in
sales and marketing, 24 were engaged in client related projects and five were
engaged in administration and management. A significant number of the Company's
management and professional employees have prior industry experience.
Bio-Imaging Technologies believes that it has been successful in attracting
skilled and experienced personnel, however, competition for such personnel is
intensifying. All of the Company's employees are covered by confidentiality and
non-competition agreements. The Company cannot provide assurances as to the
enforceability of such agreements. Bio-Imaging Technologies has entered into an
employment contract with one of its officers. See "Item 10. Executive
Compensation." Bio-Imaging Technologies considers relations with its employees
to be good.
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ITEM 2. PROPERTIES.
The Company leases approximately 9,100 square feet of office space in West
Trenton, New Jersey. The lease expires November 30, 1999 and provides for a base
rent of approximately $9,800 per month through that date. The Company also
leases approximately 4,000 square feet of office space in Leiden, the
Netherlands. The lease expires February 14, 2000 and provides for a base rent of
approximately $7,200 per month with an annual inflation increase. The Company
believes that these facilities will be adequate for its needs for the
foreseeable future, but continuously evaluates its property needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Since June 18, 1992, the Common Stock has been traded on the Nasdaq
SmallCap Market under the symbol BITI.
The following table sets forth the high and low sales bid quotations for
the Common Stock for each of the quarters since the quarter ended December 31,
1996 as reported on the Nasdaq SmallCap Market. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
Quarter Common
Ended Stock
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High Low
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December 31, 1996 1.625 1.0625
March 31, 1997 2.125 1.25
June 30, 1997 1.5625 1.0625
September 30, 1997 1.875 1.0625
December 31, 1997 1.844 0.50
March 31, 1998 0.781 0.531
June 30, 1998 1.938 0.50
September 30, 1998 1.00 0.438
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On August 25, 1998, the Company received notification from Nasdaq that the
Company's Common Stock was trading below the minimum bid price requirement of
$1.00 required for continued listing on the Nasdaq SmallCap Market. As a result,
the Company had until November 25, 1998 for its Common Stock to trade at or
above the minimum requirement for at least 10-consecutive trade days. This
notification was based on review of the Company's Common Stock trading history
with respect to the closing bid for the previous thirty consecutive trade days
from the date of notification. The Company's Common Stock did not regain
compliance before November 25, 1998. Therefore, on November 23, 1998, the
Company requested a hearing, by written submission, from Nasdaq and further
requested a stay of any termination proceeding pending the outcome of such
hearing. On December 8, 1998, Nasdaq notified the Company that such hearing will
be held on January 14, 1999 and that the delisting action referenced in the
August 25, 1998 letter from Nasdaq has been stayed until such time the Nasdaq
Hearing Panel renders its decision. There can be no assurance, however, that
Nasdaq will grant the Company's request for continued listing on the Nasdaq
SmallCap Market or that the Company will be able to maintain compliance with the
Nasdaq requirements for continued listing in the future.
In the event that Company's Common Stock ceases to be listed on the Nasdaq
SmallCap Market, the Company believes that its Common Stock would continue to be
quoted and traded in either the OTC Bulletin Board or on the over-the-counter
market. However, the Company believes that the marketability of its Common Stock
would be negatively impacted if moved to either the OTC Bulletin Board or the
over-the-counter market. A decrease in the marketability of the Company's Common
Stock may cause a decline in the Company's stock price. The Company is currently
exploring possible courses of actions and evaluating alternatives to comply with
Nasdaq's new continued listing requirements. There can be no assurance, however,
that pursuing available alternatives will result in the Company's continued
listing with the Nasdaq SmallCap Market.
Since June 18, 1992, the Common Stock also has been listed on the Boston
Stock Exchange ("BSE") under the symbol BIT.
The following table sets forth the high ask and low bid quotations for the
Common Stock for each of the quarters since the quarter ended December 31, 1996
as reported on the BSE.
Quarter Common
Ended Stock
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High Low
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December 31, 1996 1.875 0.9375
March 31, 1997 2.375 1.25
June 30, 1997 1.75 1.0625
September 30, 1997 1.875 1.00
December 31, 1997 1.719 0.3125
March 31, 1998 0.75 0.375
June 30, 1998 1.625 0.375
September 30, 1998 1.00 0.375
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As of October 31, 1998, the approximate number of holders of record of the
Common Stock was 113 and the approximate number of beneficial holders of the
Common Stock was 1,375.
The Company has 416,667 shares of Series A Preferred Stock (the "Preferred
Stock") outstanding. The Preferred Stock provides for (i) voting rights on an
as-converted to Common Stock basis, with standard protective provisions; (ii) a
liquidation preference of $1.20 per share; (iii) anti-dilution protection and
price protection provisions; (iv) cumulative dividends of $0.096 per share per
annum, payable out of funds legally available for the payment of dividends and
only upon declaration of dividends by the Board of Directors of the Company; and
(v) registration rights with respect to the shares of Common Stock issuable upon
conversion of the Preferred Stock. Dividends are payable in cash or in the
Company's Common Stock at the Company's discretion.
The Company has neither paid nor declared dividends on its Common Stock
since its inception and does not plan to pay dividends on its Common Stock in
the foreseeable future. The Company expects that any earnings which the Company
may realize and which are not paid as dividends to holders of Preferred Stock
will be retained to finance the growth of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Bio-Imaging Technologies is a pharmaceutical contract service organization
providing services that support the product development process of the
pharmaceutical, biotechnology and medical device industries. The Company
specializes in assisting its clients in the design and management of the
medical-imaging component of clinical trials. The Company provides services
which include the processing and analysis of medical images and the data-basing
and regulatory submission of medical images, quantitative data and text.
The Company's sales cycle (the period from the presentation by the Company
to a potential client to the engagement of the Company by such client) is
approximately nine months. In addition, the contracts under which the Company is
engaged to perform services typically cover a period of 12-24 months and the
volume and type of services performed by the Company generally vary during the
course of a project. In an effort to obtain additional contracts and generate
additional revenue, the Company has increased its sales and marketing efforts
during the past fiscal year. As of September 30, 1998, the Company believes that
the results of these efforts have not yet been fully realized given the lengthy
sales cycle and the nature and timing of the services to be provided by the
Company on current and prospective contracts. Although the Company's client base
increased from 22 clients in fiscal 1997 to 25 clients in fiscal 1998, the
revenue generated from such client base remains highly concentrated. Two clients
comprised
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approximately 50% of the Company's project revenue during fiscal 1998. Of the 25
clients in fiscal 1998, 13 are new clients.
Despite lower project revenue for fiscal 1998 as compared to the prior
year, the Company believes that demand for its services and technologies will
grow during the longer term as the use of digital technologies for data
acquisition and management increases in the radiology and drug development
communities. The Company also believes that there is a growing recognition
within the bio-pharmaceutical industry regarding the use of an independent
centralized core laboratory for analysis of medical imaging data that is derived
from clinical trials and the rigorous regulatory requirements relating to the
submission of this data. In addition, the United States Food and Drug
Administration is gaining experience with electronic submissions and is
continuing to develop guidelines for computerized submission of data, including
medical images. Furthermore, the increased use of digital medical images in
clinical trials, especially for important drug classes such as neurologic and
oncologic therapeutics and diagnostic image agents, generate large amounts of
image data that will require processing, analysis, data management and
submission services. Due to several factors, including, without limitation, an
increase in competition, there can be no assurance that demand for the Company's
services and technologies will grow, or sustain growth, or that additional
revenue generating opportunities will be realized by the Company.
RESULTS OF OPERATIONS
The Company experienced a loss for fiscal 1998 as a result of insufficient
project revenue to support the infrastructure of the Company and non-recurring
charges of $597,000 consisting of (i) costs of $320,000 associated with a proxy
contest and related litigation and (ii) restructuring and severance expenses of
$277,000 related to the elimination of two former business divisions and the
resignation in December 1997 of a former executive officer.
In February 1998, the Company and a shareholder group engaged in a proxy
contest in an effort to, among other things, elect members of the Company's
Board of Directors at the Annual Meeting of Stockholders held on February 27,
1998. In connection with such proxy contest and the related litigation, the
Company expended $320,000 in fiscal 1998.
During fiscal 1998, the Company recorded restructuring and severance
expenses of $277,000. This amount consists of restructuring expenses of $105,000
and severance expenses of $172,000.
In December 1997, the Company terminated two business divisions, the
Marketing Information Services Division (the "MISD") and the Data Management and
Information Systems Division (the "DMISD"), which were established in October
1996. These divisions did not meet the Company's expectations and the Company
believed that its resources were better focused on its core clinical trials
service business. The Company incurred restructuring charges of approximately
$105,000 which consisted of (i) $38,000 of severance costs paid to the former
Senior Vice President and General Manager of the MISD and (ii) $67,000 related
to the write-off of assets and costs associated with the termination of the MISD
and DMISD. Each of these
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charges has been reflected in non-recurring charges for fiscal 1998. The Company
believes that the restructuring will not have an impact on the Company's future
results of operations, liquidity and sources and uses of capital resources.
In a separate matter, two executive officers of the Company resigned in
December 1997. The Company entered into a separation agreement with one such
former executive officer. The Company agreed to pay such former executive
officer $127,000 in connection with the separation agreement. The Company has
not entered, and does not expect to enter, into an agreement with the other
executive officer who resigned in December 1997. As a result of these
resignations, the Company recorded severance expenses of approximately $172,000.
Such expenses have been reflected in non-recurring charges for fiscal 1998.
Certain matters discussed in the Form 10-KSB are "forward-looking
statements" intended to qualify for the safe harbors from liability established
by the Private Securities Litigation Reform Act of 1995. In particular, the
Company's statements regarding the demand for the Company's services and
technologies, growing recognition for the use of independent centralized core
laboratories, trends toward the outsourcing of imaging services in clinical
trials and increased use of digital medical images in clinical trials are
examples of such forward-looking statements. The forward-looking statements
include risks and uncertainties, including, but not limited to, the timing of
projects due to the variability in size, scope and duration of projects,
regulatory delays, clinical study results which lead to reductions or
cancellations of projects, and other factors, including general economic
conditions and regulatory developments, not within the Company's control. The
factors discussed herein and expressed from time to time in the Company's
filings with the Securities and Exchange Commission could cause actual results
and developments to be materially different from those expressed in or implied
by such statements. The forward-looking statements are made only as of the date
of this filing and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
Fiscal Years Ended September 30, 1998 and 1997
----------------------------------------------
Project revenues for 1998 and 1997 were approximately $3,599,000 and
$5,545,000, respectively, a decrease of approximately $1,946,000 or 35.1%.
Project revenues in 1998 were derived from 25 clients and revenues in 1997 were
derived from 22 clients. The decrease in project revenues is primarily a result
of a decrease in work performed by the Company on existing contracts, including
work for one European client, during 1998 as compared to 1997. The Company's
scope of work in both fiscal years included primarily core laboratory services
and information management services.
Cost of revenues for 1998 and 1997 were comprised of professional salaries
and benefits and allocated overhead. Cost of revenues were approximately
$2,026,000 for 1998 and approximately $1,938,000 for 1997, an increase of
approximately $88,000, or 4.5%. Cost of revenues increased slightly, despite a
decrease in project revenues, as the cost of professional salaries and benefits
and allocated overhead expenses increased in 1998. The Company maintained
comparable staffing levels throughout both years.
-13-
<PAGE>
The difference between project revenues and cost of revenues may fluctuate
as a percentage to project revenues based on the utilization of staff and the
mix of services provided by the Company to its clients during the comparable
periods.
General and administrative expenses for 1998 and 1997 consisted primarily
of professional salaries and benefits, depreciation and amortization,
professional and consulting services, office rent and corporate insurance.
General and administrative expenses were approximately $1,531,000 for 1998 and
approximately $1,789,000 for 1997. The decrease for 1998, of approximately
$258,000 or 14.4% from 1997, resulted primarily from the elimination of
expenditures in support of the former MISD and DMISD divisions and personnel
costs associated with former executive officers who resigned in December 1997.
Such personnel costs are independent of the expenditures that supported the
former MISD and DMISD divisions. The decrease in general and administrative
expenses is partially offset by a full twelve months of expenses incurred during
1998 by the Company's European facility which commenced operations during the
second quarter of 1997.
Sales and marketing expenses for 1998 and 1997 were comprised of direct
sales and marketing costs, professional salaries and benefits and allocated
overhead. Sales and marketing expenses were approximately $1,004,000 for 1998
and approximately $834,000 for 1997. The increase during 1998, of approximately
$170,000 or 20.4% from 1997, resulted primarily from the increase in personnel
and resources dedicated to sales and marketing activities in the United States
and in Europe.
Research and development expenses for 1998 and 1997 consisted of
professional salaries and benefits and overhead charged to research and
development projects. Research and development expenses were approximately
$255,000 during 1998 and approximately $246,000 for 1997. The increase during
1998, of approximately $9,000 or 3.7% from 1997, resulted primarily from an
increase in resources dedicated to research and development projects. Research
and development expenses for 1998 and 1997 primarily focused on the formulation,
design and testing of product and process alternatives. Research and development
projects during 1997 also included developmental work on the product line for
the MISD business unit. The Company terminated such business unit in December
1997.
Total costs and expenses during 1998 and 1997 consisted primarily of cost
of revenues, general and administrative expenses, sales and marketing expenses
and research and development expenses. The Company's cost and expenses were
approximately $4,816,000 (excluding non-recurring charges of $597,000) in 1998
and approximately $4,807,000 in 1997. Such slight increase of approximately
$9,000 or 0.2% is due primarily to an increase in the Company's sales and
marketing efforts offset, for the most part, by the elimination of expenditures
in support of the former MISD and DMISD divisions and personnel costs associated
with former executive officers who resigned in December 1997. Such personnel
costs are independent of the expenditures that supported the former MISD and
DMISD divisions.
Net interest income, of approximately $88,000 during 1998, resulted from
interest earned on cash balances offset in part by interest expense incurred in
conjunction with equipment lease
-14-
<PAGE>
obligations. The Company earned greater interest income in 1998 than in 1997 due
to higher cash balances being maintained during 1998. Net interest income was
approximately $53,000 in 1997.
The Company's net loss for 1998 was approximately $1,726,000 while the
Company had net income of approximately $791,000 for 1997. The Company's net
loss for 1998 was attributable primarily to insufficient project revenue to
support the infrastructure of the Company along with $597,000 of non-recurring
expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash and cash equivalents of
approximately $1,527,000. Working capital at September 30, 1998 was
approximately $1,263,000.
Net cash used in operating activities for 1998 was approximately $340,000.
Such use of cash reflects the net loss for 1998 and changes in certain of the
Company's operating assets and liabilities. Accounts receivable decreased by
approximately $543,000 for 1998 as a result of the reduction in project revenues
during the year. Deferred revenue increased by approximately $108,000 as a
result of an increase in advance payments that the Company received related to
signed contracts at September 30, 1998. In addition, other assets decreased by
approximately $12,000 due primarily to the write-off of assets associated with
organizational costs for the Company's foreign subsidiary and the termination of
the MISD division. There can be no assurance that the Company's operating
results will return to profitability in the future or that the continuation of
such trends will not adversely affect the Company's future liquidity requiring
the need for the Company to raise additional capital.
As of September 30, 1998 all of the Company's project contracts, including
contracts with international clients, have been denominated in United States
Dollar.
For the year ended September 30, 1998, the Company invested approximately
$377,000 in capital and leasehold improvements. The Company currently
anticipates that capital expenditures for the next fiscal year will approximate
$200,000. These expenditures represent additional upgrades in the Company's
networking, data storage and core laboratory capabilities along with similar
capital requirements for its European operations.
In March 1998, the Company paid to the holders of its Preferred Stock an
aggregate amount of $20,285 which amount represented accrued cumulative
dividends for the period from July 1, 1997 through and including December 31,
1997 and interest of $285 from January 1, 1998 through the date of payment. In
July 1998, the Company paid to the holders of its Preferred Stock an aggregate
amount of $20,000 which amount represented accrued cumulative dividends for the
period from January 1, 1998 through and including June 30, 1998.
The Company anticipates that its cash as at September 30, 1998 will be
sufficient to fund working capital needs and capital requirements through fiscal
1999.
-15-
<PAGE>
NEW ACCOUNTING REQUIREMENTS
In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 131
"Disclosures about Segments of an Enterprise and Related Information" was issued
by the Financial Accounting Standards Board ("FASB") and is effective for
periods beginning after December 15, 1997. In June 1997 SFAS No. 130 -
"Reporting Comprehensive Income" was issued by the FASB and is effective for
periods beginning after December 15, 1997. These standards increase financial
reporting disclosures and will have no impact on the Company's financial
position or results of operations. In March 1998, Statement of Position No. 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" was issued by the American Institute of Certified Public
Accountants and is effective for periods beginning after December 15, 1998. The
Company has not determined the impact, if any, the adoption of Statement of
Position No. 98-1 will have on the financial position or results of operations.
EXISTING CONTRACTS
During fiscal 1998, the Company signed approximately $4,829,000 in new
project contracts. As of September 30, 1998, the Company had entered into
agreements with 16 companies to provide services in the aggregate amount of
approximately $7,012,000 through August 2000, of which services valued at
approximately $5,039,000 remain to be completed. Such contracts are subject to
termination by the Company or its clients at any time or for any reason. In
addition, client's clinical trials or other projects are subject to timing and
scope changes. Therefore, future revenue generated by the Company may not equal
initial contract values.
YEAR 2000 COMPLIANCE
Historically, certain computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
computer recognizing a date using "00" as the year 1900 rather than the year
2000. This, in turn, could result in major system failures or miscalculations,
and is generally referred to as the "Year 2000 Problem". The Company has
assessed its state of readiness with respect to the Year 2000 Problem. The
Company's management information systems department has reviewed and tested the
Company's internal business systems for Year 2000 compliance. The Company
believes that, based on the results of such review and testing, the Company's
internal business systems, including its computer systems, are Year 2000
compliant. The Company does not anticipate any material future expenditures
relating to the Year 2000 compliance of its internal systems. There can be no
assurance, however, that the Year 2000 Problem will not adversely affect the
Company's business, financial condition, results of operations or cash flows.
In addition, the Company receives imaging data derived from the computer
systems of its clients, which data or software may or may not be Year 2000
compliant. Although the Company is currently taking steps to address the impact,
if any, of the Year 2000 Problem relating to the data received from its clients,
failure of such computer systems to properly address the Year
-16-
<PAGE>
2000 Problem may adversely affect the Company's business, financial condition,
results of operations or cash flows.
The Year 2000 disclosures discussed above are based on numerous
expectations which are subject to uncertainties. Certain risk factors which
could have a material adverse effect on the Company's results of operations and
financial condition include but are not limited to: failure to identify critical
systems which will experience failures, errors in the remediation efforts,
inability to obtain new replacements for non-compliant systems or equipment,
general economic downturn relating to Year 2000 failures in the U.S. and in
other countries, failures in global banking systems and capital markets, or
extended failures by public and private utility companies or common carriers
supplying services to the Company.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required to be filed pursuant to this Item 7 are
included in this Annual Report on Form 10-KSB. A list of the financial
statements filed herewith is found at "Item 13. Exhibits, List, and Reports on
Form 8-K."
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On January 12, 1998, the Company selected Arthur Andersen LLP to act as
independent accountants for the Company and informed the prior auditors,
Goldstein, Golub, Kessler & Company, P.C., of its decision. In connection with
its audits for each of the two years in the period ended September 30, 1997 and
thereafter, there were no disagreements with the prior auditors on any matters
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures. The prior auditors' report on the Company's
financial statements for each of the two years in the period ended September 30,
1997 contained no adverse opinion or disclaimer of opinion and was not modified
or qualified as to uncertainty, audit scope, or accounting principles. The
decision to change accountants was approved by the Board of Directors of the
Company. The prior auditors have furnished the Company with a letter addressed
to the Securities and Exchange Commission stating their agreement with the above
statements.
-17-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information relating to the Company's directors, nominees for election
as directors and executive officers under the headings "Election of Directors"
and "Executive Officers" in the Company's definitive proxy statement for the
1999 Annual Meeting of Stockholders is incorporated herein by reference to such
proxy statement.
ITEM 10. EXECUTIVE COMPENSATION.
The discussion under the heading "Executive Compensation" in the Company's
definitive proxy statement for the 1999 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The discussion under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement for the 1999
Annual Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 1999 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
ITEM 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements.
Reference is made to the Index to Financial Statements on Page F-1.
(a) (2) Financial Statement Schedules.
None.
(a) (3) Exhibits.
Reference is made to the Index to Exhibits on Page 21.
(b) Reports on Form 8-K.
None.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 18th day of
December, 1998.
BIO-IMAGING TECHNOLOGIES, INC.
By: /s/Mark L. Weinstein
----------------------------------
Mark L. Weinstein, President and Chief
Executive Officer
-19-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Mark L. Weinstein President and Chief December 18, 1998
- ------------------------
Mark L. Weinstein Executive Officer and Director
(principal executive
officer)
/s/Robert J. Phillips Vice President and Chief December 18, 1998
- ------------------------
Robert J. Phillips Financial Officer
(principal financial and
accounting officer)
/s/Jeffrey H. Berg, Ph.D Director December 18, 1998
- ------------------------
Jeffrey H. Berg, Ph.D.
/s/Marc Berger Director December 18, 1998
- ------------------------
Marc Berger
/s/David E. Nowicki, DMD Director December 18, 1998
- ------------------------
David E. Nowicki, DMD
/s/James A. Taylor, Ph.D. Director December 18, 1998
- ------------------------
James A. Taylor, Ph.D.
-20-
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ------- ----------------------
3.1 Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File Number 33-47471) which
became effective on June 18, 1992.) (Amendments incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form
10-K for the year ended September 30, 1993 and to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1995.)
3.2 By-Laws of the Company. (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 (File
Number 33-47471) which became effective on June 18, 1992.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-1
(File Number 33-47471) which became effective on June 18, 1992.)
4.2 Registration Agreement dated October 13, 1994 between the
Company and Corning Pharmaceuticals Services Inc., now Covance,
Inc. ("Covance"). (Incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K dated October 13,
1994.)
4.3 Purchase Agreement for Units of Convertible Preferred Stock and
Warrants dated December 8, 1995 between Investment Partners of
America, L.P., as Purchaser, and the Company, including material
exhibits (including the Certificate of Designation for the
Convertible Preferred Stock). (Incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
December 22, 1995.)
10.1 Lease between Mountain View Office Park and the Company.
(Incorporated by reference to (i) Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File Number 33-47471) which
became effective on June 18, 1992, (ii) Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992, (iii) Exhibit 10.1 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended September 30,
1994, (iv) Exhibit 10.1 to the Company's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1995), as amended
effective September 5, 1996 (Incorporated by Reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1996) (v) as amended
effective June 22, 1998 (Incorporated by Reference to Exhibit
10.1 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1998).
-21-
<PAGE>
Exhibit
No. Description of Exhibit
- ------- ----------------------
10.2* 1991 Stock Option Plan. (Incorporated by reference to Exhibit
10.6 to the Company's Registration Statement on Form S-1 (File
Number 33-47471) which became effective on June 18, 1992.)
10.3* 401(k) Plan. (Incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (File Number
33-47471) which became effective on June 18, 1992.)
10.4 Form of Employee's Invention Assignment, Confidential
Information and Non-Competition Agreement. (Incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1992.)
10.5 Stock Purchase Agreement dated October 13, 1994 between the
Company and Covance. (Incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K dated October 13,
1994.)
10.6 Master Lease Agreement dated April 25, 1994 by and between the
Company and Wasco Funding Corp. and schedules thereto dated May
9, 1995 and August 31, 1995. (Incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1995.)
10.7* Employment Agreement including Invention Assignment and
Confidential Information Agreement dated April 15, 1998, by and
between the Company and Mark L. Weinstein. (Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1998.)
10.8 Purchase Agreement for Units of Convertible Preferred Stock and
Warrants dated December 8, 1995 between Investment Partners of
America, L.P., as Purchaser and the Company, including material
exhibits. (Incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated December 22, 1995.)
16 Letter re: Change in Certifying Accountants. (Incorporated by
reference to Exhibit 16 to the Company's Current Report on Form
8-K dated January 12, 1998.)
21 List of Subsidiaries of Registrant. (Incorporated by reference
to Exhibit 21.1 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1997.)
23.1 Consent of Arthur Andersen LLP.
-22-
<PAGE>
Exhibit
No. Description of Exhibit
- ------- ----------------------
23.2 Consent of Goldstein Golub Kessler LLP.
27 Financial Data Schedule for the year ended September 30, 1998.
- -----------------------
* A management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 13(a) of Form 10-KSB.
(b) Financial Statement Schedules
None.
-23-
<PAGE>
Bio-Imaging Technologies, Inc. and Subsidiaries
CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Public Accountants - Fiscal 1998 F-2
Report of Independent Public Accountants - Fiscal 1997 F-3
Consolidated Financial Statements:
Balance Sheets F-4
Statements of Operations F-5
Statements of Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-18
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Bio-Imaging Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Bio-Imaging
Technologies, Inc. (a Delaware corporation) and subsidiaries as of September 30,
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows 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 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Bio-Imaging Technologies, Inc.
and subsidiaries as of September 30, 1998, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Princeton, New Jersey
October 23, 1998
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Bio-Imaging Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Bio-Imaging
Technologies, Inc. and Subsidiaries as of September 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows 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
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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bio-Imaging
Technologies, Inc. and Subsidiaries as of September 30, 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 9, 1997
F-3
<PAGE>
Bio-Imaging Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, 1998 1997
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $1,527,330 $2,367,658
Accounts receivable, net of allowance for
doubtful accounts of $65,000 and $20,000 in 1998
and 1997, respectively 626,376 1,214,052
Prepaid expenses and other current assets 84,747 88,518
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,238,453 3,670,228
Property and equipment, net 1,543,434 1,669,678
Other assets 32,235 67,076
- --------------------------------------------------------------------------------
TOTAL ASSETS $3,814,122 $5,406,982
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Deferred revenue $ 522,605 $ 414,360
Accounts payable 142,071 81,832
Accrued expenses and other current liabilities 261,063 239,351
Current maturities of long-term debt 49,956 87,084
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 975,695 822,627
Long-term debt 26,808 12,794
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 1,002,503 835,421
- --------------------------------------------------------------------------------
Stockholders' Equity:
Convertible cumulative preferred stock - $.00025
par value; authorized 3,000,000 shares, issued
416,667 shares ($500,000 liquidation preference) 104 104
Common stock - $.00025 par value; authorized
18,000,000 shares, issued and outstanding
7,773,878 and 7,753,878 shares in 1998
and 1997, respectively 1,944 1,939
Additional paid-in capital 9,231,497 9,215,603
Accumulated deficit (6,421,926) (4,646,085)
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 2,811,619 4,571,561
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,814,122 $5,406,982
================================================================================
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE>
Bio-Imaging Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998 1997
- --------------------------------------------------------------------------------
Project revenues $ 3,599,313 $5,544,693
- --------------------------------------------------------------------------------
Cost and expenses:
Cost of revenues 2,025,868 1,937,872
General and administrative expenses 1,531,380 1,788,548
Sales and marketing expenses 1,003,523 834,092
Research and development expenses 255,321 246,240
Non-recurring charges 597,000 -
- --------------------------------------------------------------------------------
Total cost and expenses 5,413,092 4,806,752
- --------------------------------------------------------------------------------
(Loss) income from operations (1,813,779) 737,941
Interest income, net 88,223 53,412
- --------------------------------------------------------------------------------
Net (loss) income (1,725,556) 791,353
Dividends on preferred stock 50,285 40,000
- --------------------------------------------------------------------------------
Net (loss) income applicable to common stock $(1,775,841) $ 751,353
================================================================================
Basic (loss) earnings per common share $ (0.23) $ 0.12
================================================================================
Weighted average number of common shares 7,772,230 6,327,605
================================================================================
Diluted (loss) earnings per common share $ (0.23) $ 0.10
================================================================================
Weighted average number of common and dilutive
common equivalent shares 7,772,230 8,328,243
================================================================================
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Bio-Imaging Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1996 416,667 $ 104 5,968,550 $1,493 $7,739,688 $(5,376,216) $2,365,069
Stock options exercised - - 245,275 61 283,099 - 283,160
Warrants exercised - - 1,463,334 366 1,124,634 - 1,125,000
Issuance of common stock
to employees'savings plan - - 76,719 19 68,182 - 68,201
Dividends on preferred
stock - - - - - (61,222) (61,222)
Net income - - - - - 791,353 791,353
- ------------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 1997 416,667 104 7,753,878 1,939 9,215,603 (4,646,085) 4,571,561
Stock options exercised - - 20,000 5 15,894 - 15,899
Dividends on preferred
stock - - - - - (50,285) (50,285)
Net loss - - - - - (1,725,556) (1,725,556)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 1998 416,667 $ 104 7,773,878 $1,944 $9,231,497 $(6,421,926) $2,811,619
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Bio-Imaging Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,725,556) $ 791,353
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 559,301 651,775
Provision for (reduction of) losses on accounts receivable 45,000 (40,000)
Stock contribution to employees' savings plan - 68,201
Write-off of assets 52,154 -
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 542,676 (294,869)
Increase in prepaid expenses and other current assets (5,977) (76,058)
Decrease (increase) in other assets 12,435 (61,224)
Increase (decrease) in deferred revenue 108,245 (221,202)
Increase in accounts payable 60,239 7,652
Increase (decrease) in accrued expenses and other current liabilities 11,711 (28,649)
- -----------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (339,772) 796,979
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (377,462) (1,122,510)
Decrease in restricted cash - 60,000
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (377,462) (1,062,510)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments under equipment lease obligations (98,708) (91,382)
Dividends paid to preferred stockholders (40,285) (61,222)
Proceeds from exercise of stock options 15,899 283,160
Proceeds from exercise of warrants - 1,125,000
- -----------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (123,094) 1,255,556
- -----------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (840,328) 990,025
Cash and cash equivalents at beginning of year 2,367,658 1,377,633
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,527,330 $ 2,367,658
===========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 3,775 $ 14,820
===========================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Equipment purchased under capital lease obligations $ 75,595 $ -
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
1. PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Bio-Imaging Technologies, Inc. and Subsidiaries (the "Company") is a
pharmaceutical contract service organization providing services that support the
product development process of the pharmaceutical, biotechnology and medical
device industries. The Company specializes in assisting its clients in the
design and management of the medical-imaging component of clinical trials. The
Company provides services which include the processing and analysis of medical
images and in the data-basing and regulatory submission of these images,
quantitative data and related text.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Oxford Bio-Imaging Research, Inc. and
Bio-Imaging Technologies Holding B.V. All significant intercompany transactions
and balances have been eliminated.
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.
CASH AND CASH EQUIVALENTS
The Company maintains substantially all of its cash in one financial
institution. The Company has defined cash equivalents as highly liquid
investments with an original maturity at the time of purchase of three months or
less.
REVENUE RECOGNITION
Project revenues are recognized primarily using the percentage-of-completion
method of accounting for services rendered in connection with contractual
arrangements, which generally range from a few months to two years. Provisions
for losses to be incurred on contracts are recognized in full in the period in
which it is determined that a loss will result from performance of the
contractual arrangement. Unbilled services are recorded for revenue recognized
to date that is currently unbillable to the customer pursuant to contractual
terms. In general, amounts become billable upon the achievement of contractual
milestones or in accordance with predetermined payment schedules. Unbilled
services are generally billable within one year from the respective balance
sheet date. Accounts receivable include approximately $493,000 and $644,000 of
unbilled receivables at September 30, 1998 and 1997, respectively. Deferred
revenue is recorded for cash received from customers for which revenue has not
been recognized at the respective balance sheet date. Revenue from other
activities is recognized as services are performed.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
PROPERTY AND EQUIPMENT
Depreciation of property and equipment is provided for using the straight-line
method over the estimated useful lives of the respective assets. Amortization of
leasehold improvements is provided for over the related lease term.
CAPITALIZED SOFTWARE DEVELOPMENT
The Company capitalizes software development costs after technological
feasibility has been determined and ceases capitalization at such time as the
end product is available for general release to the public. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs require considerable judgment by
management with respect to certain external factors including, but not limited
to, anticipated future revenue, estimated economic life and changes in software
and hardware technologies. At September 30, 1998, management has estimated an
economic useful life of 30 months and is amortizing these costs on a
straight-line basis over this period. The amortization period is reviewed
annually by management. During 1998 and 1997, the Company had no costs of
software development that were capitalized.
LONG LIVED ASSETS
The provisions of 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 " requires, among other things, that an entity review its long
lived assets and certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. Management does not believe that any such change in circumstances
has occurred.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
EARNINGS PER SHARE
Effective for the year ended September 30, 1998, the Company adopted SFAS No.
128 "Earnings per Share." The adoption of SFAS No. 128 requires the presentation
of basic earnings per share and diluted earnings per share. Basic (loss)
earnings per common share was calculated based upon the net (loss) income
available to common stockholders divided by the weighted average number of
shares of common stock outstanding during the period. Diluted loss per common
share for the year ended September 30, 1998 excludes the impact of options and
warrants as they are antidilutive. Diluted earnings per common share for the
year ended September 30, 1997 was calculated based upon the net income available
to common stockholders, after giving effect to the assumed conversions of
preferred stock divided by the weighted average number of shares of common stock
adjusted for the incremental dilution of outstanding options, warrants and
preferred stock during the period. The computation of basic (loss) earnings per
share and diluted (loss) earnings per share is as follows:
1998 1997
-----------------------------------
Net (loss) income $ (1,725,556) $ 791,353
Less dividends on preferred stock 50,285 40,000
-----------------------------------
Net (loss) income applicable
to common stock - basic $ (1,775,841) $ 751,353
Add dividends on preferred stock - 40,000
-----------------------------------
Net (loss) income applicable
to common stock - diluted $ (1,775,841) $ 791,353
-----------------------------------
Denominator:
Weighted average number of
common shares 7,772,230 6,327,605
===================================
Basic (loss) earnings per common
share $ (0.23) $ 0.12
===================================
Denominator:
Weighted average number of
common shares 7,772,230 6,327,605
Common share equivalents of
outstanding stock options and
warrants - 1,583,971
Common share equivalents of
diluted outstanding preferred stock - 416,667
-----------------------------------
Total shares 7,772,230 8,328,243
===================================
Diluted (loss) earnings per common
share $ (0.23) $ 0.10
===================================
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, SFAS No. 131 - "Disclosures about Segments of an Enterprise and
Related Information" was issued by the Financial Accounting Standards Board
("FASB") and is effective for periods beginning after December 15, 1997. In June
1997 SFAS No. 130 "Reporting Comprehensive Income" was issued by the FASB and is
effective for periods beginning after December 15, 1997. These
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
standards increase financial reporting disclosures and will have no impact on
the Company's financial position or results of operations. In March 1998,
Statement of Position No. 98-1 - "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" was issued by the American Institute of
Certified Public Accountants and is effective for periods beginning after
December 15, 1998. The Company has not determined the impact, if any, the
adoption of Statement of Position No. 98-1 will have on the financial position
or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements to
conform with the 1998 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
Estimated
September 30, 1998 1997 Useful Life
- ----------------------------------------------------------------------------
Equipment $ 3,340,764 $ 2,975,461 5 years
Equipment under capital leases 640,914 565,319 5 years
Furniture and fixtures 246,371 227,877 7 years
Leasehold improvements 84,060 84,060 Term of lease
Computer software costs 123,436 143,436 30 months
- ----------------------------------------------------------------------------
4,435,545 3,996,153
Less accumulated depreciation
and amortization (2,892,111) (2,326,475)
- ----------------------------------------------------------------------------
$ 1,543,434 $ 1,669,678
============================================================================
Accumulated depreciation related to equipment acquired under capital leases
amounted to approximately $465,000 and $401,000 at September 30, 1998 and 1997,
respectively.
Accumulated amortization related to computer software costs amounted to
approximately $111,000 and $59,000 at September 30, 1998 and 1997, respectively.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
3. LONG-TERM DEBT
Long-term debt consists of equipment lease obligations. The equipment lease
obligations are payable in monthly installments ranging from $1,882 to $3,472,
including interest at rates ranging from 8.78% to 9.53%, through May 2000. The
debt is collateralized by the related equipment. During 1997, additional
collateral consisting of a certificate of deposit, bearing interest at 5.13%,
was released by the lessor.
Aggregate maturities of long-term debt at September 30, 1998 are as follows:
Year ending September 30,
- -------------------------------------------------------
1999 $49,956
2000 26,808
- -------------------------------------------------------
$76,764
=======================================================
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
4. STOCKHOLDERS' EQUITY
In June 1992, in connection with a public offering of 1,000,000 units at $5 per
unit, the Company issued purchase options to the underwriter. The purchase
options entitled the holders to purchase, in aggregate, 100,000 units of the
Company. Each unit consisted of one share of common stock of the Company and one
Class G redeemable common stock purchase warrant. The purchase options were
initially exercisable at $7.00 per unit and contained certain anti-dilution
provisions. After the effect of these provisions, the Company was obligated to
issue 699,999 shares of common stock upon the exercise of these units at an
adjusted price of $1.00 per share. On June 18, 1997, 630,000 of these units were
exercised with the balance of the units expiring on that date. Upon such
exercise, the Company received gross proceeds of $630,000.
In December 1991 and June 1992, the Company's Board of Directors and
stockholders, respectively, approved the adoption of the Bio-Imaging
Technologies, Inc. Stock Option Plan. In January 1995 and 1997, the Company
amended this plan to provide for the granting of options to key employees,
directors and consultants to purchase an aggregate of not more than 1,800,000
and 2,400,000 shares, respectively, of the Company's common stock. Each option
is exercisable into one share of common stock. Options granted pursuant to the
plan, to be granted at prices not less than fair value at the date of grant,
consist of qualified incentive stock options, as defined in the Internal Revenue
Code, and nonqualified options. Such stock options have terms not exceeding ten
years and vesting terms vary from immediate vesting on date of grant to five
years.
The following table summarizes the transactions pursuant to the Company's stock
option plan for the two-year period ended September 30, 1998:
Number of Weighted Average
Options Exercise Price
- --------------------------------------------------------------------------------
Unexercised options outstanding at
September 30, 1996 1,501,500 $1.63
Options granted 529,000 1.29
Options canceled (300,225) 2.56
Options exercised (245,275) 1.15
- --------------------------------------------------------------------------------
Unexercised options outstanding at
September 30, 1997 1,485,000 1.40
Options granted 317,250 0.67
Options canceled (513,500) 0.93
Options exercised (20,000) 0.80
- --------------------------------------------------------------------------------
Unexercised options outstanding at
September 30, 1998 1,268,750 $1.41
================================================================================
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
Approximately 882,000 and 943,000 options are exercisable at September 30, 1998
and 1997, respectively, at a weighted average exercise price of $1.62 and $1.58,
respectively.
The Company has elected, in accordance with the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), to apply the current
accounting rules under APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock options and,
accordingly, has presented the disclosure-only information as required by SFAS
123. If the Company had elected to recognize compensation cost based on the fair
value method of SFAS 123, the Company's net (loss) income applicable to common
stock and net (loss) earnings per common share for the years ended September 30,
1998 and 1997 would have been the pro forma amounts indicated in the following
table:
<TABLE>
<CAPTION>
Year ended September 30, 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net (loss) income applicable to common stock - as reported $(1,775,841) $751,353
Net (loss) income applicable to common stock - pro forma $(1,890,395) $601,637
Net (loss) income per common share - basic - as reported $ (0.23) $ 0.12
Net (loss) income per common share - basic - pro forma $ (0.24) $ 0.10
Net (loss) income per common share - diluted - as reported $ (0.23) $ 0.10
Net (loss) income per common share - diluted - pro forma $ (0.24) $ 0.07
</TABLE>
At September 30, 1998, by range of exercise prices, the number of shares
represented by outstanding options with their weighted average exercise price
and weighted average remaining contractual life, in years, and the number of
shares represented by exercisable options with their weighted average exercise
price are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------- ----------------------------
Range of Weighted Average Weighted Weighted
Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ----------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
$0.63 - $1.44 1,116,750 5.76 years $0.98 730,108 $1.00
$4.13 - $4.69 152,000 3.67 years $4.60 152,000 $4.60
- ----------------------------------------------------------------- ----------------------------
$0.63 - $4.69 1,268,750 5.51 years $1.41 882,108 $1.62
================================================================= ============================
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
The weighted average fair value of options granted in 1998 and 1997 were $0.53
and $1.09 respectively. The fair value of each option granted is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
Grants for the year ended September 30, 1998 1997
- --------------------------------------------------------------------
Risk-free interest rate 4.5% 5.5%
Expected dividend yield 0.0% 0.0%
Expected volatility 107% 109%
Expected life in years 6.00 6.00
On October 13, 1994, the Company and Covance Inc., formerly Corning
Pharmaceutical Services, Inc., consummated the purchase by Covance Inc. of (i)
2,355,000 shares of the Company's common stock, $.00025 par value (ii) a warrant
to purchase 250,000 shares of common stock with an initial exercise price of
$1.25 per share and (iii) a warrant to purchase 250,000 shares of common stock
with an initial price of $1.50 per share (the "Warrants") for an aggregate
purchase price of $1,819,500. The Warrants expired on October 13, 1998 without
being exercised.
On December 14, 1995, the Company reserved 3,850,000 shares of the Company's
common stock for issuance upon conversion of the preferred stock and exercise of
the warrants issued to Investment Partners of America, L.P. ("IPA") (see below).
On December 21, 1995, IPA purchased (i) 416,667 shares of the Company's
preferred stock, (ii) one five year warrant to purchase 416,667 shares of the
Company's common stock at an initial exercise price of $1.50 per share and (iii)
one five year warrant to purchase 416,667 shares of the Company's common stock
at an initial exercise price of $2.50 per share for an aggregate purchase price
of $500,000 pursuant to a purchase agreement dated December 8, 1995 ("Purchase
Agreement"). The preferred stock provides for (i) voting rights on an
as-converted to common stock basis, with standard protective provisions; (ii) a
liquidation preference of $1.20 per share; (iii) anti-dilution protection and
price protection provisions; (iv) cumulative dividends of $0.096 per share per
annum, payable out of funds legally available for the payment of dividends and
only upon declaration of dividends by the Board of Directors of the Company; and
(v) registration rights with respect to the shares of common stock issuable upon
conversion of the preferred stock. Costs associated with this transaction
amounted to approximately $67,000 and reduced paid-in capital at the transaction
date. The Purchase Agreement provided for a minimum investment of $750,000 and a
maximum investment of $1,500,000 from IPA. On September 25, 1997, IPA exercised
these warrants at an adjusted exercise price of $0.63, after giving effect to
the anti-dilution provisions. As a result, the Company received gross proceeds
of $525,000.
On June 26, 1996, the Company and IPA terminated the Purchase Agreement. In
conjunction with this termination, the Company issued to IPA, one five-year
warrant to purchase 66,667 shares of the
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
Company's common stock at an initial exercise price of $1.05 per share, the fair
market value of the Company's common stock at date of issuance. Additionally,
the Company entered into a two-year consulting agreement with a related entity
of IPA, for a nonrefundable fee of $30,000 which has been expensed by the
Company as of September 30, 1996. The exercise price of this warrant issued to
IPA is subject to adjustment to protect against dilution in the event of certain
transactions and has certain piggyback registration rights. As of September 30,
1998, the adjusted exercise price of the warrant is $0.63.
The 8% convertible cumulative preferred stock is convertible into common stock
of the Company on a one-for-one share basis subject to adjustment to protect
against dilution in the event of certain transactions. Conversion may occur in
whole or in part during the first five-year period from the date of issuance,
December 21, 1995, at the option of the holder. The Company may require a full
conversion at any time after five years from date of issuance. The preferred
stock has certain piggyback registration rights.
The Company is required to pay semiannual dividends on preferred stock at the
rate of approximately $0.096 per share per annum, and as when declared by the
Board of Directors. Dividends are payable either in cash or in the Company's
common stock at the discretion of the Company. At September 30, 1998, preferred
dividends in arrears aggregated approximately $10,000 or $0.02 per share of the
preferred stock.
The preferred stockholders are entitled to vote on all matters submitted to the
vote of the common stockholders and are included in determining quorums and
voting results.
5. COMMITMENTS
The Company has entered into noncancelable operating leases for office
facilities which expire through February 2000.
Future minimum aggregate rental payments on the noncancelable portion of the
lease are as follows:
Year ending September 30,
1999 $ 205,000
2000 52,000
- ---------------------------------------------------------
$ 257,000
=========================================================
Rent expense charged to operations for the years ended September 30, 1998 and
1997 approximated $247,000 and $210,000, respectively.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
The Company has an employment contract with an officer which expires April 2000.
The amount due under this contract is approximately $278,000. Additionally, the
contract provided for the granting of options to purchase 150,000 shares of the
Company's common stock at $0.63 which was greater than the fair market value of
the Company's common stock at the date of grant. Options to purchase 50,000
shares of the Company's common stock vested immediately, and 25,000 on each of
the first, second, third and fourth anniversary of the date of grant.
6. EMPLOYEE BENEFIT PLAN
On December 17, 1991, the Company adopted the Bio-Imaging Technologies, Inc.
Employees' Savings Plan (the "401(k) Plan"), a defined contribution plan with a
cash or deferred arrangement. Under the terms of the 401(k) Plan, eligible
employees may elect to reduce their annual compensation up to 15%, subject to an
annual limit prescribed by the Internal Revenue Service. The Company may make
discretionary matching contributions either in common stock or in cash, subject
to plan limits. For the year ended September 30, 1997, the Company made matching
contributions to the account of the 401(k) Plan of 76,719 shares, at an
estimated fair value of $68,182, and a cash contribution of $12,500. These
shares were newly issued shares previously reserved in November 1994. The
Company did not make a matching contribution to this account for the year ended
September 30, 1998.
7. MAJOR CUSTOMERS
Three customers accounted for approximately 20%, 19% and 13% of accounts
receivable at September 30, 1998 and two customers accounted for approximately
45% and 16% of accounts receivable at September 30, 1997.
Revenue from two major customers accounted for approximately 26% and 24% of
project revenues for the year ended September 30, 1998 and revenue from two
major customers accounted for approximately 34% and 13% of project revenues for
the year ended September 30, 1997.
8. INCOME TAXES
The Company has net operating loss carryforwards of approximately $6,233,000
which expire in various years through 2013. The deferred income tax assets at
September 30, 1998 and 1997 of approximately $2,500,000 and $1,800,000,
respectively, represent the tax effect of the net operating loss carryforwards.
Due to the uncertainty regarding the ultimate amount of income tax benefits to
be derived from the net operating loss carryforwards, the Company has recorded
valuation allowances against the entire deferred tax asset.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Imaging Technologies, Inc. and Subsidiaries
9. FOREIGN OPERATIONS
Foreign customers account for approximately 32% and 38% of project revenues for
the years ended September 30, 1998 and 1997, respectively.
The Company's Netherlands subsidiary recognized project revenues from services
provided to unaffiliated customers of approximately $520,000 and $679,000 for
the years ended September 30, 1998 and 1997, respectively. For the year ended
September 30, 1998 net loss from operations was approximately $418,000 and for
the year ended September 30, 1997 net income from operations was approximately
$10,000.
Identifiable operating assets of the Company's foreign operations approximated
$619,000 and $545,000 at September 30, 1998 and 1997, respectively.
10. NON-RECURRING CHARGES
In February 1998, the Company engaged in a proxy contest in an effort to, among
other things, elect the members of the Company's Board of Directors at the
Annual Meeting of Stockholders held on February 27, 1998. Costs associated with
the proxy contest and related litigation were $320,000 for the year ended
September 30, 1998. In addition, the Company incurred expenses of $277,000
consisting of restructuring costs of $105,000 and severance costs of $172,000
during the year ended September 30, 1998.
The restructuring costs were associated with the termination of two business
divisions, the Marketing Information Services Division and the Data Management
and Information Systems Division, by the Company in December 1997. These costs
consisted of $38,000 of severance costs and $67,000 related to the write-off of
assets and costs associated with the termination of the divisions.
In a separate matter, two executive officers of the Company resigned in December
1997. The Company entered into a separation agreement with one such former
executive officer requiring the Company to pay him $127,000 of which $30,000
remains payable at September 30, 1998. As a result of these resignations, the
Company recorded severance expenses of approximately $172,000 during the year
ended September 30, 1998.
F-18
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated October 23, 1998 included in this Form 10-KSB,
into Bio-Imaging Technologies, Inc. and subsidiaries' previously filed
Registration Statements on Form S-8 (File Nos. 33-90412, 33-74152 and 33-22661)
and on Form S-3 (File Nos. 33-75370 and 33-25477).
Arthur Andersen LLP
Princeton, New Jersey
December 14, 1998
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statements of Bio-Imaging Technologies, Inc. (i) on Form S-8 (relating to the
Company's 1991 Stock Option Plan) filed on March 17, 1995 (Registration No.
33-90412), (ii) on Form S-8 (relating to the Company's 1991 Stock Option Plan)
filed on January 17, 1994 (Registration No. 33-74152), (iii) on Form S-8
(relating to the Company's 1991 Stock Option Plan) filed on March 3, 1997
(Registration No. 33-22661), (iv) on Form S-3 declared effective March 8, 1994
(Registration No. 33-75370), and (v) on Form S-3 declared effective April 18,
1997 (Registration No. 33-25477) of our report dated October 9, 1997 on the
consolidated financial statements of Bio-Imaging Technologies, Inc. and
Subsidiaries as of September 30, 1997 and for the year then ended, which report
is included in this Annual Report on Form 10-KSB.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
December 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information for the year ended
September 30, 1998 extracted from the registrant's annual report on Form
10-KSB and is qualified in its entirety by reference to such Form 10-KSB.
</LEGEND>
<CIK> 0000822418
<NAME> Bio-Imaging Technologies, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,527,330
<SECURITIES> 0
<RECEIVABLES> 691,376
<ALLOWANCES> 65,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,238,453
<PP&E> 4,435,545
<DEPRECIATION> 2,892,111
<TOTAL-ASSETS> 3,814,122
<CURRENT-LIABILITIES> 975,695
<BONDS> 26,808
0
104
<COMMON> 1,944
<OTHER-SE> 2,809,571
<TOTAL-LIABILITY-AND-EQUITY> 3,814,122
<SALES> 0
<TOTAL-REVENUES> 3,599,313
<CGS> 0
<TOTAL-COSTS> 2,025,868
<OTHER-EXPENSES> 3,387,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (88,223)
<INCOME-PRETAX> (1,725,556)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,725,556)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,725,556)
<EPS-PRIMARY> (0.23)<F1>
<EPS-DILUTED> (0.23)<F2>
<FN>
<F1> This amount represents Basic Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share."
<F2> This amount represents Diluted Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share."
</FN>
</TABLE>
