Exhibit 99.3
BIOANALYTICAL SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Bioanalytical Systems, Inc., together with its direct and indirect subsidiaries, is referred to herein collectively as “BASi”, “we,” “our”, or the “Company.”
Acquisition
On November 8, 2019, the Company and Bronco Research Services LLC, a wholly owned subsidiary of the Company (the “PCRS Purchaser”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Pre-Clinical Research Services, Inc., a Colorado corporation (the “PCRS Seller”), and its shareholder. Pursuant to the Purchase Agreement, on December 1, 2019, the Company indirectly acquired (the “PCRS Acquisition”) substantially all of the assets of PCRS Seller used or useful by PCRS Seller in connection with PCRS Seller's provision of GLP and non-GLP preclinical testing for the pharmaceutical and medical device industries. The total consideration for the PCRS Acquisition was $3,433,000, which consisted of $1,500,000 in cash, subject to certain adjustments, 240,000 of the Company’s common shares valued at $1,133,000 using the closing price of the Company’s common shares on November 29, 2019 and an unsecured promissory note in the initial principal amount of $800,000 made by PCRS Purchaser. The promissory note bears interest at 4.5%. The Company also purchased certain real property located in Fort Collins, Colorado, comprising the main facility for the PCRS Seller’s business and additional property located next to the facility available for future expansion, for $2,500,000. The Company funded the cash portion of the purchase price for the PCRS Acquisition with cash on hand and the net proceeds from the refinancing of its credit arrangements with First Internet Bank (“FIB”). As contemplated by the Purchase Agreement, the Company also entered into a lease arrangement for an ancillary property used by PCRS Seller’s business, located in Livermore, Colorado.
Amendment to Credit Arrangements
In order to finance the Acquisition and the real property purchase, as well as provide additional capital to fund growth efforts, the Company amended and restated its credit arrangements with FIB (the “Credit Agreement Amendment”) to, among other things, (i) increase the principal amount of the Company’s amended and restated revolving note from $3,500,000 to $5,000,000 with a maturity of January 31, 2021 and interest payments only until maturity at a floating per annum rate equal to the greater of (a) four percent (4%), or (b) the sum of the Prime Rate plus Zero Basis Points (0.0%), which rate shall change concurrently with the Prime Rate, (ii) add a capital expenditure line of credit in the principal amount of $3,000,000 with a maturity of December 31, 2020 and interest payments only until maturity at a floating per annum rate equal to the greater of (a) four percent (4%), or (b) the sum of the Prime Rate plus Fifty Basis Points (0.5%), which rate shall change concurrently with the Prime Rate, (iii) add a new term loan in the principal amount of $1,500,000 with a maturity of June 1, 2025, interest at a fixed per annum rate equal to four percent (4%) and with interest payments only commencing January 1, 2020 through June 1, 2020, with monthly payments of principal and interest thereafter through maturity and (iv) add an additional new term loan in the principal amount of $1,939,000 with a maturity of December 1, 2024 and interest at a fixed per annum rate equal to four percent (4%), with payments of principal and interest due monthly through maturity.
Following the Credit Agreement Amendment, the Company’s obligations under the Amended and
Restated Credit Agreement are guaranteed by BAS Evansville, Inc. (“BASEV”), Seventh Wave Laboratories, LLC, BASi Gaithersburg LLC, as well as the PCRS Purchaser (collectively, the "Guarantors"), each a wholly owned subsidiary of the Company. The Company’s obligations under the Credit Agreement and the Guarantor's obligations under their respective guaranties are secured by first priority security interests in substantially all of the assets of the Company and the Guarantors, respectively, as well as mortgages on the Company’s, BASEV’s and the Purchaser’s facilities in West Lafayette, Indiana, Evansville, Indiana, and Fort Collins, Colorado, respectively, and pledges of the Company’s ownership interests in its subsidiaries.
The Amended and Restated Credit Agreement includes financial covenants consisting of (i) a Fixed Charge Coverage Ratio (as defined in the Amended and Restated Credit Agreement) of not less than 1.25 to 1.0, tested quarterly and measured on a trailing twelve (12) month basis and (ii) beginning March 31, 2020 a Cash Flow Leverage Ratio (as defined in the Amended and Restated Credit Agreement), tested quarterly, as follows: not to exceed (a) as of March 31, 2020, 5.00 to 1.00, (b) as of June 30, 2020, 4.50 to 1.00, (c) as of September 30, 2020, 4.25 to 1.00 and (d) as of December 31, 2020 and each quarter thereafter, 4.00 to 1.00. The Company has also agreed to obtain a life insurance policy in an amount not less than $5,000 for its President and Chief Executive Officer and to provide FIB an assignment of such life insurance policy as collateral.
The foregoing descriptions of the Purchase Agreement and the Credit Agreement Amendment do not purport to be complete and are qualified in their entirety by the terms and conditions of those agreements, copies of which will be filed as exhibits to the Company’s Quarterly Report on Form 10-Q for the period ending December 31, 2019.
Pursuant to the Purchase Agreement, the Company issued 240,000 of the Company’s common shares to the Seller. The shares were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(a)(2) of the Securities Act as sales by an issuer not involving any public offering.
The accompanying unaudited pro forma condensed combined financial information is based on the historical consolidated financial statements of the Company and the historical financial statements of Pre-Clinical Research Services, Inc. and is intended to provide information about how the Acquisition of Pre-Clinical Research Services, Inc.’s business and related financing may have affected the Company’s historical consolidated financial statements. The unaudited pro forma condensed combined statements of operations and comprehensive income information for the year ended September 30, 2019 are presented as if the Acquisition and related financing occurred on October 1, 2018. The unaudited pro forma condensed combined balance sheet as of September 30, 2019 is presented as if the Acquisition and related financing had occurred on September 30, 2019. The pro forma adjustments are described in the accompanying notes and are based upon available information and assumptions that we believe are reasonable at the time of the filing of this report on Form 8-K/A.
The unaudited pro forma condensed combined financial statements were prepared for informational and illustrative purposes in accordance with Rule 8-05 of Regulation S-X. Such information is preliminary and based on currently available information and assumptions that the Company believes are reasonable. The acquisition accounting related to this unaudited pro forma information is dependent upon certain independent valuations and other studies that are still in process and under review by management and not yet finalized. The pro forma adjustments included herein have been made solely for the purposes of providing unaudited condensed combined financial information. Differences between the estimates reflected in this unaudited pro forma information and the final acquisition accounting will likely occur, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and the combined company’s future consolidated financial condition or results of operations.
The unaudited pro forma condensed combined statement of operations and comprehensive income for the year ended September 30, 2019 was derived from the Company’s audited consolidated statement of operations and comprehensive income for the year ended September 30, 2019 and Pre-Clinical Research Services. Inc.’s audited statement of income for the year ended December 31, 2018.
We present the unaudited pro forma condensed combined financial statements for informational purposes only. The unaudited pro forma condensed combined financial statements are not necessarily indicative of what our financial position or results of operations would have been had we completed the Acquisition as of the dates indicated. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or operating results of the combined company.
PCRS Sellers’ assets and liabilities are recorded at their estimated fair values. Pro forma purchase price allocation adjustments have been made for the purpose of providing unaudited pro forma condensed combined financial information based on current estimates and currently available information, and are subject to revision based on final, independent determinations of fair value and final allocation of purchase price to the assets and liabilities of the business acquired. The excess of the purchase price over the fair value of net assets acquired is allocated to goodwill. The final determination of the purchase price, fair values and resulting goodwill may differ significantly from what is reflected in these unaudited pro forma condensed combined financial statements.
The following information provides further details about the estimated fair value at the acquisition date for some key balance sheet items. These fair values are preliminary until the Company completes its work with the use of a third party valuation firm, and are subject to change. Any changes to the initial estimates of the fair value of assets and liabilities will impact residual goodwill and may affect future earnings.
| Estimated Fair
Value |
| Fixed Assets | 2,077 |
| Goodwill | 3,002 |
The unaudited pro forma condensed consolidated statements of operations and comprehensive income (loss) do not reflect the realization of any expected cost savings or other synergies resulting from the Acquisition as a result of any initiatives planned subsequent to the closing of the Acquisition and related financing, nor do they reflect any nonrecurring costs directly attributable to the Acquisition and related financing.
The accounting policies used in the presentation of the following unaudited pro forma condensed combined financial information is set out in the Company’s audited consolidated financial statements for the fiscal year ended September 30, 2019. Certain reclassifications of PCRS Sellers’ historical statements of income and balance sheet have been made to conform to the Company's accounting policies.
The unaudited pro forma condensed consolidated financial statements, along with the assumptions underlying the pro forma adjustments, are described in the accompanying notes and should be read in conjunction with the historical consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2019, the Company's quarterly report on Form 10-Q for the three months ended December 31, 2019, and PCRS Seller’s historical financial statements included in Exhibit 99.1 and Exhibit 99.2 contained in this Form 8-K/A.
Bioanalytical Systems, Inc. and Subsidiaries
Pro Forma Consolidated Statements of Operations and Comprehensive Income (Unaudited)
For the Fiscal Year Ended September 30, 2019
(In thousands, except per share data)
| | | Bioanalytical
Systems Inc.
Historical | | | Pre-
Clinical
Research
Services,
Inc.
Historical | | | | | | | | | | |
| | | Fiscal
Year
Ended
September 30,
2019 | | | Fiscal
Year
Ended
December 31,
2018 | | | Pro Forma
Adjustments
Increase
(Decrease) | | | Notes | | | Bioanalytical
Systems Inc.
Pro Forma
Combined | |
| Total Revenue | | $ | 43,616 | | | $ | 4,720 | | | $ | - | | | | | | | $ | 48,336 | |
| Cost of Revenue | | | 30,695 | | | | 2,278 | | | | - | | | | | | | | 32,973 | |
| Gross profit | | | 12,921 | | | | 2,442 | | | | - | | | | | | | | 15,363 | |
| Operating expenses: | | | | | | | | | | | | | | | | | | | | |
| Selling | | | 2,914 | | | | - | | | | - | | | | | | | | 2,914 | |
| Research and development | | | 627 | | | | - | | | | - | | | | | | | | 627 | |
| General and administrative | | | 9,533 | | | | 2,001 | | | | 50 | | | | (a) | | | | 11,584 | | |
| Total operating expenses | | | 13,074 | | | | 2,001 | | | | 50 | | | | | | | | 15,125 | |
| Operating income (loss) | | | (153 | ) | | | 441 | | | | (50 | ) | | | | | | | 238 | |
| Other income | | | 9 | | | | 9 | | | | | | | | | | | | 18 | |
| Interest expense | | | (642 | ) | | | (4 | ) | | | (193 | ) | | | (b) | | | | (839 | ) |
| Net income (loss) before income taxes | | | (786 | ) | | | 446 | | | | (243 | ) | | | | | | | (583 | ) |
| Income tax expense | | | 4 | | | | | | | | | | | | | | | | 4 | |
| Net (loss) income | | $ | (790 | ) | | $ | 446 | | | $ | (243 | ) | | | | | | $ | (587 | ) |
| Other comprehensive income | | | - | | | | - | | | | - | | | | | | | | - | |
| Comprehensive (loss) income | | $ | (790 | ) | | $ | 446 | | | $ | (243 | ) | | | | | | $ | (587 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Basic net income (loss) per share | | $ | (0.08 | ) | | $ | 0.04 | | | | | | | | | | | $ | (0.06 | ) |
| Diluted net income (loss) per share | | $ | (0.08 | ) | | $ | 0.04 | | | | | | | | | | | $ | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Weighted common shares outstanding: | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 10,383 | | | | 10,383 | | | | 240 | | | | | | | | 10,623 | |
| Diluted | | | 10,383 | | | | 10,383 | | | | 240 | | | | | | | | 10,623 | |
Footnotes
(a) To reflect the following pro forma adjustments for step up in value of personal property
| | Pre-Tax
Adjustment | |
| Record additional depreciation expense for step up in value for personal property General & Administrative expenses | | $ | 50 | |
(b) To reflect the following pro forma adjustments for recognition of additional financing to fund purchase of PCRS
| | Pre-Tax
Adjustment | |
| Record additional interest expense for new financing to fund purchase | | | |
| Interest Expense | | $ | 166 | |
| Debt Issue Costs | | | 27 | |
Bioanalytical Systems Inc.
Pro Forma Consolidated Balance Sheet (Unaudited)
As of September 30, 2019
(In thousands)
| | | Bioanalytical
Systems, Inc.
Historical | | | Pre-Clinical
Research
Services, Inc.
Historical | | | | | | | | Bioanalytical | |
| | | As of
September 30,
2019 | | | As of
September 30,
2019 | | | Pro Forma
Adjustments | | | Notes | | Systems, Inc.
Pro Forma
Combined | |
| Assets | | | | | | | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | | | | | | | |
| Cash | | $ | 606 | | | $ | 220 | | | $ | (826 | ) | | (a),(d),(e),(g) | | $ | - | |
| Account receivables | | | | | | | | | | | | | | | | | | |
| Trade, net of allowance | | | 7,178 | | | | 568 | | | | | | | | | | 7,746 | |
| Unbilled revenues | | | 2,342 | | | | - | | | | | | | | | | 2,342 | |
| Investment Securities | | | - | | | | 465 | | | | (465 | ) | | (a) | | | - | |
| Inventories, net | | | 1,095 | | | | - | | | | | | | | | | 1,095 | |
| Prepaid expenses | | | 1,200 | | | | 47 | | | | | | | | | | 1,247 | |
| Total current assets | | | 12,421 | | | | 1,300 | | | | (1,291 | ) | | | | | 12,430 | |
| Property and equipment, net | | | 22,828 | | | | 705 | | | | 2,001 | | | (c) | | | 25,534 | |
| Lease rent receivable | | | 130 | | | | - | | | | | | | | | | 130 | |
| Deferred tax asset | | | 31 | | | | - | | | | | | | | | | 31 | |
| Goodwill | | | 3,617 | | | | - | | | | 3,002 | | | (c) | | | 6,619 | |
| Other intangible assets | | | 2,874 | | | | - | | | | | | | | | | 2,874 | |
| Other assets | | | 79 | | | | - | | | | | | | | | | 79 | |
| Total assets | | $ | 41,980 | | | $ | 2,005 | | | $ | 3,712 | | | | | $ | 47,697 | |
| Liabilities | | | | | | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 4,941 | | | $ | 141 | | | $ | 52 | | | (g) | | $ | 5,134 | |
| Restructuring liability | | | 349 | | | | - | | | | - | | | | | | 349 | |
| Accrued expenses | | | 2,620 | | | | 180 | | | | - | | | | | | 2,800 | |
| Customer advances | | | 6,726 | | | | 69 | | | | | | | | | | 6,795 | |
| Revolving line of credit | | | 1,063 | | | | | | | | | | | | | | 1,063 | |
| Capex line of credit | | | 655 | | | | | | | | | | | | | | 655 | |
| Current portion of capital lease obligation | | | 18 | | | | - | | | | | | | | | | 18 | |
| Current portion of long-term debt | | | 1,109 | | | | - | | | | 267 | | | (d), (f) | | | 1,376 | |
| Total current liabilities | | | 17,481 | | | | 390 | | | | 319 | | | | | | 18,190 | |
| Capital lease obligation, less current portion | | | 18 | | | | - | | | | | | | | | | 18 | |
| Long-term debt, less current portion, net of debt issuance costs | | | 13,771 | | | | - | | | | 3,876 | | | (d),(e),(f) | | | 17,647 | |
| Total liabilities | | | 31,270 | | | | 390 | | | | 4,195 | | | | | | 35,855 | |
| Shareholders’ Equity | | | | | | | | | | | | | | | | | | |
| Preferred shares, authorized 1,000,000 shares, no par value; 35 shares issued and outstanding at September 30, 2019 | | | 35 | | | | - | | | | - | | | | | | 35 | |
| Common shares, no par value: Authorized 19,000,000 shares; 10,750,694 shares issued and outstanding on a pro forma basis at September 30, 2019 | | | 2,589 | | | | 1 | | | | 59 | | | (a),(b) | | | 2,649 | |
| Additional paid in capital | | | 25,183 | | | | 237 | | | | 836 | | | (a),(b) | | | 26,256 | |
| Accumulated deficit | | | (17,097 | ) | | | 1,377 | | | | (1,377 | ) | | (a) | | | (17,097 | ) |
| Total shareholders’ equity | | | 10,710 | | | | 1,615 | | | | (482 | ) | | | | | 11,843 | |
| Total liabilities and shareholders’ equity | | $ | 41,980 | | | $ | 2,005 | | | $ | 3,712 | | | | | $ | 47,697 | |
Footnotes
(a) To reflect the following pro forma adjustment per terms of Asset Purchase Agreement, as follows:
| | Pre-Tax
Adjustment | |
| Exclude certain assets and liabilities according to the terms of the Asset Purchase Agreement | | | |
| Cash | | $ | (220 | ) |
| Investment Securities | | | (465 | ) |
| Common stock | | | (1 | ) |
| Additional paid in capital | | | (237 | ) |
| Retained Earnings | | | (1,377 | ) |
(b) To reflect consideration paid for Pre-Clinical Research Services, Inc.
| | Pre-Tax
Adjustment | |
| Term Loan | | $ | 1,500 | |
| Term Loan for Building | | | 1,939 | |
| Cash down payment for building | | | 561 | |
| Seller note payable | | | 800 | |
| Common Stock (240,000 shares at par) | | | 60 | |
| Paid in Capital (value in excess of par) | | | 1,073 | |
| (c) To reflect purchase price in excess of book value | | | |
| | Pre-Tax
Adjustment | |
| Reflects the preliminary estimate of the fair value of the acquired intangible assets and estimated fair value of tangible assets for pro forma purposes | | | |
| Step up in personal property value | | $ | 2,001 | |
| Goodwill | | | 3,002 | |
(d) To reflect the following pro forma adjustments for bank financing needed to close
| | Pre-Tax
Adjustment | |
| Bank financing needed to fund consideration paid to Pre-Clinical Research Services, Inc. | | | |
| Current portion of long-term debt | | $ | 202 | |
| Long-term debt, less current portion, net of debt issuance costs | | | 3,237 | |
(e) To reflect the following pro forma adjustments from financing costs
| | Pre-Tax Adjustment | |
| Establish debt issue costs in the balance sheet | | | |
| Long-term debt, less current portion, net of debt issuance costs | | $ | (97 | ) |
| Cash | | | (97 | ) |
(f) To reflect the following pro forma adjustments for seller note payable
| | Pre-Tax Adjustment | |
| Record seller note payable as part of consideration paid to Pre-Clinical Research Services, Inc. | | | |
| Current portion of long-term debt | | $ | 65 | |
| Long-term debt, less current portion, net of debt issuance costs | | | 735 | |
(g) Reclass of negative cash
| | | Pre-Tax Adjustment | |
| Cash | | $ | (52 | ) |
| Accounts payable | | | 52 | |
