Inotiv, Inc. - Quarter Report: 2005 June (Form 10-Q)

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, BASi’s principal sources of cash have been cash flow generated from operations and funds received from bank borrowings and other financings. At June 30, 2005 we had cash and cash equivalents of $1.1 million, compared to cash and cash equivalents of $773,000 at September 30, 2004. Approximately 20% of our cash balances were in the U.K. We monitor our U.K. cash needs to avoid currency conversion costs, which in the current interest rate environment can exceed interest.

Our net cash used by operating activities was $706,000 for the nine months ended June 30, 2005. Our increased business resulted in increased investments in accounts receivable and inventories of $6.2 million, which was partially offset by advance billings to our clients of $3.5 million. Our accounts payable at June 30, 2005 were back to normal terms in the third quarter after having been paid down significantly in the second quarter to avoid the cost and difficulty of converting these to our new ERP system installed in April.

Net cash provided by investing activities was $4.3 million in the nine months ended June 30, 2005 as a result of the sale/leaseback transaction of our Baltimore building, net of a routine level of new equipment purchases. We paid down a net amount of $3.5 million of outstanding debt with these proceeds.

Capital Resources

A condition of our leaseback of the Baltimore building was the securing of a substantial portion of our lease obligation with a three year irrevocable letter of credit issued to the purchaser. The letter of credit is for $2.8 million the first year, $2.0 million the second year, and $1.0 million the final year. In order to arrange this letter of credit, we extended our $6,000,000 revolving credit agreement with our bank for three additional years to December 31, 2007.

The letter of credit reduces the amount of funds available under the borrowing base formula. Our recent monthly average qualifying assets for our borrowing base have been approximately $5,000,000. The presence of this outstanding letter of credit could therefore substantially reduce the amount of cash available under our revolving credit facility.

We expect our total capital additions in the current fiscal year to be in the range of $2.0 to $2.5 million. We have arranged leases with our bank’s leasing affiliate to finance $1.5 million of this with capital leases with three and five year terms.

Liquidity

We do not foresee the need to borrow extensively under our revolving credit agreement to finance current operations, except for periods when rapid growth of new business may necessitate amounts to finance the buildup of receivables and inventory.

At June 30, 2005, we had $1.0 million in cash, and approximately $3.2 million of available borrowings under our revolving credit facility.

Our revolving line of credit expires December 31, 2007. The maximum amount available under the terms of the agreement is $6.0 million with outstanding borrowings limited to the borrowing base as defined in the agreement. Interest accrues monthly on the outstanding balance at the bank's prime rate to prime rate plus 25 basis points, or at the Eurodollar rate plus 250 to 300 basis points, at our election, depending upon the ratio of our interest bearing indebtedness (less subordinated debt) to EBITDA. We pay a fee equal to 25 basis points on the unused portion of the line of credit.

The covenants in the Company's credit agreement requiring the maintenance of certain ratios of interest bearing indebtedness (not including subordinated debt) to EBITDA and net cash flow to debt servicing requirements may restrict the amount the Company can borrow to fund future operations, acquisitions and capital expenditures. Based on our current business activities, we believe cash generated from our operations and amounts available under our existing credit facilities and cash on hand, will be sufficient to fund the Company's working capital and capital expenditure requirements for the foreseeable future. We have been in compliance with all of our debt covenants throughout the current fiscal year.

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We are required to make cash payments in the future on debt and lease obligations. The following table summarizes BASi's contractual term debt, lease obligations and other commitments at June 30, 2005 and the effect such obligations are expected to have on our liquidity and cash flows in future periods (amounts presented for 2005 are those items required in the final quarter):

			2005			2006			2007			2008			2009			After 2009			Total
Capital expenditures			$	250		$	—		$	—		$	—		$	—		$	—		$	250
Mortgage notes payable				81			342			362			1,993			277			5,918			8,973
Subordinated debt				—			360			360			4,468			—			—			5,188
Capital lease				70			239			171			183			197			292			1,152
obligations
Operating leases				527			2,109			1,598			631			10			—			4,875
			$	928		$	3,050		$	2,491		$	7,275		$	484		$	6,210		$	20,438

For further details on our indebtedness, see Note 7 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2004.

 

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

BASi’s primary market risk exposure with regard to financial instruments is changes in interest rates. Borrowings under the credit agreement between BASi and National City Bank dated January 4, 2005 bear interest at a rate of either the bank’s prime rate to prime plus 25 basis points, or at the Eurodollar rate plus 250 to 300 basis points, depending in each case upon the ratio of BASi’s interest-bearing indebtedness (less subordinated debt) to EBITDA, at BASi’s option. As discussed previously, we have taken steps to fix the interest rate on a significant amount of our debt through May, 2007. Historically, BASi has not used derivative financial instruments to manage exposure to interest rate changes. BASi estimates that a hypothetical 10% adverse change in interest rates would not affect the consolidated operating results of BASi by a material amount.

 

BASi operates internationally and is, therefore, subject to potentially adverse movements in foreign currency exchange rates. The effect of movements in the exchange rates was not material to the consolidated operating results of BASi during the first nine months of fiscal 2005 or in fiscal years 2004 and 2003. BASi estimates that a hypothetical 10% adverse change in foreign currency exchange rates would not affect the consolidated operating results of BASi by a material amount.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Based on their most recent evaluation, the Company's Chief Executive Officer and Chief Financial Officer believe that, because of the situation described below, the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were not effective as of June 30, 2005 to ensure that information required to be disclosed by the Company in this Form 10-Q was recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms. As disclosed in its annual report on Form 10-K for the fiscal year ended September 30, 2004, the Company previously operated on accounting systems that were different at its various locations, and which were decentralized and obsolete. During the quarter ended June 30, 2005, the Company converted all its operating locations to a new, centralized Enterprise Resources Planning (“ERP”) system, which was utilized to produce financial information contained in this quarterly report. The Chief Executive Officer and Chief Financial Officer believe that implementation of these new accounting systems have greatly improved the Company’s ability to record, process, summarize and report accounting information to timely file its Exchange Act reports. Nevertheless, there is a considerable ongoing effort to refine and debug the recently installed system before the Company’s officers can conclude that our previously noted deficiencies have been corrected.

We believe the implementation of the above noted ERP system is a material change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter. It is our intent to build our system documentation and testing required by section 404 of Sarbanes-Oxley around this newly installed system to timely comply with those requirements. Additionally, we believe that additional enhancements available in our new system will improve the availability and timeliness of information required to manage our business.

 

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PART II - OTHER INFORMATION

 

ITEM 6.

EXHIBITS

 

Exhibits

 

Number assigned

in Regulation S-K
Item 601		Description of Exhibits

 

(3)	3.1		Second Amended and Restated Articles of Incorporation of Bioanalytical Systems, Inc. (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 1997).
	3.2		Second Restated Bylaws of Bioanalytical Systems, Inc. (incorporated by reference to Exhibit 3.2 Form 10-Q for the quarter ended December 31, 1997).
(4)	4.1		Specimen Certificate for Common Shares (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1, Registration No. 333-36429).
(10)	10.1		Employment Agreement between Bioanalytical Systems, Inc. and Edward M. Chait, Ph.D., dated August 1, 2005 (incorporated by reference to Exhibit 10.01 to the 8-K filed August 5, 2005).
(31)	31.1		Certification of Peter T. Kissinger †
	31.2		Certification of Michael R. Cox †
(32)	32.1		Section 1350 Certifications †
(99)	99.1		Risk factors (incorporated by reference to Exhibit 99.1 to Form 10-K for the year ended September 30, 2004).

† Filed with this Quarterly Report on Form 10-Q.

 

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SIGNATURES

 

Pursuant to the requirements 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:

 

BIOANALYTICAL SYSTEMS, INC.

By:  /s/  PETER T. KISSINGER Peter T. Kissinger President and Chief Executive Officer (Principal Executive Officer) Date:  August 15, 2005

By:  /s/  MICHAEL R. COX Michael R. Cox Vice President-Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Date: August 15, 2005

 

 

 

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