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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO .
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Commission File No. 0-14902
MERIDIAN DIAGNOSTICS, INC.
Incorporated under 3471 River Hills Drive IRS Employer ID
the Laws of Ohio Cincinnati, Ohio 45244 No. 31-0888197
Phone: (513) 271-3700
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES NO
--- --
X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this Chapter) is not contained herein,
and will not 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-K or any amendment to this Form 10-K.
/ /
The aggregate market value of Common Stock held by non-affiliates is
$72,395,280 based on a closing sale price of $11.25 per share on December 14,
1995. As of December 14, 1995, 14,244,624 shares of no par value Common Stock
were issued and outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Shareholders for 1995 furnished
to the Commission pursuant to Rule 14a-3(b) and portions of the Registrant's
Proxy Statement filed with the Commission for its 1996 Annual Meeting are
incorporated by reference in Parts I, II and III as specified.
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MERIDIAN DIAGNOSTICS, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
Page
----
Part I
Item 1 - Business 3
Item 2 - Properties 7
Item 3 - Legal Proceedings 8
Item 4 - Submission of Matters to a Vote of Security
Holders 8
Part II
Item 5 - Market for Registrant's Common Equity and
Related Stockholder Matters 9
Item 6 - Selected Financial Data 10
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8 - Financial Statements and Supplementary Data 10
Item 9 - Disagreements on Accounting and Financial
Disclosure 11
Part III
Item 10 - Directors and Executive Officers of the
Registrant 11
Item 11 - Executive Compensation 11
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 11
Item 13 - Certain Relationships and Related Transactions 11
Part IV
Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 11
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PART I.
ITEM 1.
BUSINESS
"What We Do" and "Who We Are" on the inside front cover, "Letter to
Shareholders" beginning on Page 2, "The Value of Medical Diagnostics" beginning
on Page 4, "How We Create Value" beginning on Page 6, and the Consolidated
Financial Statements beginning on Page 15 of the Registrant's Annual Report to
Shareholders for 1995 are incorporated herein by reference. Information
regarding research and development, sales and marketing, competition and
patents, government regulations and employees is described below.
Meridian Diagnostics, Inc. (the "Company" or "Meridian") develops,
manufactures and markets a diverse line of disposable immunodiagnostic test
kits used for the rapid diagnosis of infectious diseases. The Company's
product development strategy is to combine existing technologies with new
product designs both through internal product development and product
acquisitions and licensing. To meet market demands, Meridian's products
provide accuracy, simplicity, and speed, leading to opportunities for
improvements in diagnosis and reductions in health care costs. All of the
Company's products are used in procedures performed outside the body and
require little or no special instrumentation or equipment.
Through domestic and Italian direct sales forces, supplemented by a
network of national and international distributors, the Company markets
approximately 100 products, comprising 10 product lines, to the various market
segments in which it competes. International sales in over 46 countries
comprised approximately 23% of total fiscal 1995 sales.
Research and Development
Meridian focuses its research and development activities on
enhancements to, and new applications for, its technologies where such
developments can simplify, accelerate or increase the accuracy of the diagnosis
of certain infectious diseases for each of the Company's market segments. Over
the past eight years, Meridian has developed internally 32 new products.
The Company seeks to design products that match a particular disease
state to a diagnostic solution that provides a high level of sensitivity and
specificity. The Company utilizes a variety of proprietary and public domain
technologies for the production of highly specific, purified antigen
preparations. These antigens are derived from suspensions of bacteria,
viruses, fungi, rickettsia or certain biochemicals from which specific proteins
or complex carbohydrates are separated.
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The research and development department is comprised of the Vice
President of Research and Development and 15 research scientists. The
disciplines represented in the group include biochemistry, immunology,
mycology, bacteriology, virology and parasitology. In fiscal 1993, 1994, and
1995, the Company spent $1,165,000, $1,433,000, and $1,432,000, respectively,
on its research and development activities.
Sales and Marketing
The principal customers for the Company's products are hospitals,
commercial reference laboratories and alternate sites such as physicians'
offices, outpatient clinics, HMOs and nursing homes. No end-use customer
comprised more than 5% of the Company's sales in fiscal 1995. Two
distributors together accounted for approximately 34% of the Company's fiscal
1995 sales. However, the Company does not believe that the loss of either of
these distributors would have a material adverse effect on the Company because
of its ability to sell to the end-use customers served by these distributors
through alternative means.
The Company markets products through domestic and Italian direct sales
forces and a national and international network of independent distributors.
The Company currently has 46 independent distributors outside the United
States. The Company's direct sales force consists of a Director of Sales, two
regional managers and 16 technical sales representatives in the United States.
Marketing to physicians requires different approaches than selling to
hospitals and clinical and reference laboratories. The Company has formed
relationships with a significant number of independent physicians' office
laboratory distributors. To aid the Company in its efforts to penetrate the
physician market, the Company has entered into a distribution agreement with
Biostar, Inc. for the direct marketing of Filtracheck-UTI, its one minute
urinary tract infection test, to physicians' office laboratories.
The Company's sales and marketing efforts for Europe, North Africa,
the Middle East and select Pacific Rim countries are managed through Meridian
Diagnostics Europe's ("MDE's") headquarters in Milan, Italy. MDE's strategy
has been to appoint one or two distributors in each of the countries in its
targeted markets. MDE currently has distributors in the key markets in Africa,
the Middle East, the Pacific Rim and Europe, including Germany, France, Great
Britain and Spain. During 1993, as part of its strategy to expand sales in
Europe, Africa and the Middle East, the Company replaced its distribution
arrangement in Italy with its own direct marketing force, opened a new
marketing and distribution facility in Milan, Italy, and added new distributors
in several European countries.
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During 1993, Meridian laid the groundwork for developing sales and
marketing efforts in the Pacific Rim, Central and South America, and Southeast
Europe with the addition of new distributors in China, Thailand, Australia,
Singapore, Hong Kong, Chile, Argentina, Venezuela, Mexico and Turkey.
Competition and Patents
The market for diagnostic tests is a multi-billion dollar
international industry which is highly competitive. Many of the Company's
competitors are larger and have greater financial, research, manufacturing, and
marketing resources. Important competitive factors for the Company's products
include product quality, price, ease of use, customer service and reputation.
In a broader sense, industry competition is based upon scientific and
technological capability, proprietary know-how, access to adequate capital, the
ability to develop and market products and processes, the ability to attract
and retain qualified personnel and the availability of patent protection. To
the extent that the Company's product lines do not reflect technological
advances, the Company's ability to compete in those product lines could be
adversely affected.
Companies competing in the diagnostic test industry generally focus on
a limited number of tests or limited segments of the market. As a result, the
diagnostic test industry is highly fragmented and segmented. A few large
corporations produce a wide variety of diagnostic test and other medical
devices and equipment, a larger number of mid-size companies generally compete
only in the diagnostic industry and finally, a vast number of small companies
produce only a few diagnostic products. Among the companies with which
Meridian competes in the marketing of one or more of its products are Abbott
Laboratories Inc., Becton Dickinson & Company, Diagnostic Products Corporation,
Hybritech Incorporated, a subsidiary of Beckman Instruments, BioWhittaker,
Inc., and Microscan, a division of Bain Capital.
The Company markets approximately 100 products, comprising 10 product
lines, to the various market segments in which it competes. At various times,
particular test formats, tests for specific diseases or conditions, or certain
diagnostic processes and products represent an important component of sales and
profits for the Company. Currently, the most important product lines from the
perspective of sales are C. difficile, fungal serology, mononucleosis and
Para-Pak.
In general, the Company does not seek patent protection for its
products and instead strives to maintain the confidentiality of its proprietary
know-how. In the absence of patent protection, the Company may be vulnerable
to competitors who successfully imitate the Company's production and
manufacturing techniques and processes. All of Meridian's personnel are
required to execute
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confidentiality agreements designed to protect the Company's proprietary
products.
Government Regulation
Because the Company's products are deemed to be "medical devices", the
products are subject to regulation by the FDA as well as state agencies and
foreign regulatory authorities.
The Company's diagnostic tests and other clinical products intended
for use as human diagnostics are generally subject to certain clearance
procedures administered by the FDA. In the diagnostic product field, most
approvals are processed through FDA procedures for "substantially equivalent"
applications. This process allows sales to be made after the filing of an
application and upon acknowledgment by the FDA, typically within six months
after submission. If the FDA requests additional information, the product
cannot be sold until the application has been supplemented and upon
acknowledgment by the FDA within 90 to 120 days of the supplemental
application. All of the Company's currently marketed diagnostic tests have been
approved under the "substantially equivalent" application process and the
Company anticipates that future products will be similarly submitted. If there
are no existing FDA-approved products or processes comparable to a diagnostic
product or process, approval by the FDA involves more lengthy procedures.
The 1992 Medical Device Amendments to the Food, Drug and Cosmetics Act
and the regulations promulgated thereunder require the Company to register with
the FDA and to adhere to certain "Good Manufacturing Practices" which mandate
detailed record-keeping procedures and also provide for periodic inspection of
laboratory facilities by the FDA.
The Clinical Laboratory Improvement Act of 1988 ("CLIA 88") prohibits
laboratories from performing tests on human specimens for the purpose of
providing information for the diagnosis, prevention or treatment of any disease
or impairment of, or the assessment of, the health of human beings, unless
there is in effect for such laboratories a certificate issued by the U.S.
Department of Health and Human Services ("HHS") applicable to the category of
examination or procedure performed. Regulations under CLIA 88 require that
these laboratories meet performance requirements based on test complexity and
other risk factors. Laboratories which perform tests that HHS determines to be
simple would be eligible for a waiver from the certification requirements.
Section 6141 of the Omnibus Budget Reconciliation Act of 1989 further provides
that only laboratories in compliance with CLIA 88 will be eligible for
reimbursement in the Medicare and Medicaid programs. The Company believes that
CLIA 88 has not and will not have a significant impact on its business.
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Sales of the Company's products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
To a large extent, the Company relies on its foreign independent distributors
to obtain any foreign approvals necessary to sell the Company's products in the
countries which comprise the distributors' territories.
The Company is an exempt small-quantity generator of hazardous waste
and has a U.S. Environmental Protection Agency identification number. All
hazardous waste is manifested and disposed of properly. The Company is in
compliance with the applicable portions of the Federal and state hazardous
waste regulations and has never been a party to any environmental proceeding.
Employees
As of November 3, 1995, Meridian had 159 full-time employees, 66 of
whom hold scientific degrees. The Company maintains a Savings and Investment
Plan (profit sharing and 401(k)) for its U.S. employees and has established
Stock Option Plans for its officers, directors and employees. None of
Meridian's employees are covered by collective bargaining agreements. The
Company has never experienced any work stoppages and considers its relationship
with its employees to be excellent.
ITEM 2.
PROPERTIES
The Company's corporate offices, manufacturing facility, research and
development facility, and warehouse are located in two buildings totalling
75,000 square feet located on 4.1 acres of land in a suburb of Cincinnati.
This 75,000 square feet includes 19,000 square feet of office and manufacturing
space completed in September 1995 at a cost of $1,400,000. These properties are
owned by the Company, and the Company believes that all of its facilities are
in good condition, well-maintained and suitable for its long-term needs.
The Company believes its manufacturing and laboratory facilities are
in compliance with all applicable rules and regulations and are maintained in a
manner consistent with "Good Manufacturing Practices."
MDE conducts its operations in the Milan, Italy area in a two-story
building consisting of approximately 18,000 square feet. This facility is
owned by MDE and was constructed at a cost of approximately $1,300,000. The
Company believes these facilities are in good condition, well-maintained, and
suitable for MDE's long-term operations.
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ITEM 3.
LEGAL PROCEEDINGS
Meridian is a defendant in a civil action filed by Delta Biologicals,
srl ("Delta") against Inova Diagnostics, Inc. ("Inova") and Meridian in the
Circuit Court of the Eleventh Judicial Circuit, Dade County, Florida, Case No.
95-12955, in June 1995. In July 1995, the case was removed to the United
States District Court for the Southern District of Florida, Miami Division and
assigned Case No. 95-1604-CIV.
The action by Delta, an Italian corporation, alleges that Meridian
deliberately and knowingly interfered with Delta's contractual relations with
Inova with respect to Delta's exclusive right to import, market and sell in
Italy, Spain, France and Portugal products manufactured by Inova.
Specifically, Delta alleges that Inova has breached that contract by entering
into a contract with, and selling products to, Meridian which Meridian, through
MDE, is selling in Italy.
Delta seeks judgment against Meridian for both compensatory and
punitive damages of unspecified amounts in excess of $15,000. Both Meridian
and Inova have filed answers denying liability.
In addition to denying liability, Meridian has demanded that Inova,
pursuant to a written agreement between Meridian and Inova, defend and
indemnify Meridian against Delta's claims. Though the litigation is in its
early stages and management is not able to opine on its merits or possible
outcome, management believes, based upon its knowledge of the facts and upon
the opinion of outside counsel, that Meridian has meritorious defenses and that
Inova is obligated to defend and indemnify Meridian. Accordingly, management
believes that the ultimate resolution of the pending litigation will not have
a material adverse effect on Meridian's financial condition, results of
operations or cash flows.
Management is not aware of any other pending or threatened litigation,
claims or assessments, asserted or unasserted, against Meridian.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1995.
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PART II.
ITEM 5.
MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
"Common Stock Information" on the inside rear cover and "Quarterly
Financial Data" on page 24 of the Registrant's Annual Report to Shareholders
for 1995 are incorporated herein by reference. There are currently no
restrictions on cash dividend payments.
The Board declared and paid a dividend of $0.0200 per share for each
quarter of fiscal 1994. On November 16, 1994, the Board declared a 3% stock
dividend for fiscal 1994, payable December 8, 1994 to shareholders of record on
November 28, 1994. The Company paid cash in lieu of fractional shares based on
the average of the closing sale prices during the ten trading days prior to
November 28, 1994.
The fiscal 1994 quarterly dividend per share amount was adjusted for
the 3% stock dividend paid December 8, 1994 to holders of record on November
28, 1994.
The Board declared and paid a dividend of $0.0267 per share for each
quarter of fiscal 1995. On September 12, 1995, the Board declared a
three-for-two stock split payable October 2, 1995 to holders of record at the
close of business on September 22, 1995. The Company paid cash in lieu of
fractional shares based on the average of the closing sale prices during the
ten trading days prior to September 22, 1995. On November 14, 1995, the Board
also declared a special fiscal 1995 year-end dividend of $0.025 per share,
payable December 1, 1995 to shareholders of record on November 24, 1995.
The fiscal 1995 quarterly dividend per share amount and the special
fiscal 1995 year-end dividend per share amount were adjusted for the
three-for-two stock split payable October 2, 1995 to shareholders of record on
September 22, 1995.
Also, on November 14, 1995, the Board approved an increase in the
regular quarterly dividend rate from $0.0267 to $0.035 per share.
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ITEM 6.
SELECTED FINANCIAL DATA
"Selected Financial Data" on page 1 of the Registrant's Annual Report
to Shareholders for 1995 is incorporated herein by reference.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" commencing on page 12 of the Registrant's Annual Report
to Shareholders for 1995 is incorporated herein by reference.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Quarterly Financial Data" on page 24 of the Registrant's Annual
Report along with the Consolidated Financial Statements of the Registrant shown
on pages 14 through 24 of its Annual Report to Shareholders for 1995, are
incorporated herein by reference:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of September 30, 1995 and 1994.
Consolidated Statements of Earnings for the years ended September 30,
1995, 1994 and 1993.
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended September 30,
1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
The following schedules are filed herewith:
Schedule
No. Description Page
- -------- ----------- ----
Report of Independent Public Accountants. 15
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Schedule
No. Description Page
- -------- ----------- ----
II. Valuation and Qualifying Accounts for the
years ended September 30,1995, 1994 and
1993. 16
All other supplemental schedules are omitted due to the absence of
conditions under which they are required or because the information is shown in
the Consolidated Financial Statements or Notes thereto.
ITEM 9.
DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Items 10., 11., 12., and 13. of Part III are incorporated by reference
to the Registrant's Proxy Statement for its 1996 Annual Shareholders' Meeting
to be filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) FINANCIAL STATEMENTS AND SCHEDULES.
All financial statements and schedules required to be filed by Item 8
of this Form and included in this report have been listed previously under Item
8. No additional financial statements or schedules are being filed since the
requirements of paragraph (d) under Item 14 are not applicable to the Company.
(a) (3) EXHIBITS.
Exhibit Number Description of Exhibit Filing Status
- -------------- ---------------------- -------------
3 Articles of Incorporation and a
Code of Regulations
4 Indenture between the Company c
and Star Bank, National
Association, as Trustee,
relating to the Company's
Convertible Subordinated
Debentures
10.1 First Refusal Agreement a
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Exhibit Number Description of Exhibit Filing Status
- -------------- ---------------------- -------------
10.2 Amendment to the First d
Refusal Agreement
10.3 License Agreement dated a
October 6, 1983 with Marion
Laboratories, Inc.
10.5 Sublicense Agreement dated f
June 17, 1993 among Johnson &
Johnson, the Scripps Research
Institute and the Company
Concerning Certain Patent
Rights
10.6 Assignment dated June 17, f
1993 from Ortho Diagnostic
Systems Inc. to the Company
concerning certain Patent
Rights
10.7 Agreement dated January 24, g
1994 between Meridian
Diagnostics, Inc. and
Immulok, Inc.
MANAGEMENT COMPENSATORY CONTRACTS:
10.8 1994 Directors' Stock Option h
Plan
10.9 Savings and Investment Plan b
10.10 Savings and Investment Plan b
Trust
10.11 1986 Stock Option Plan e
10.12 Salary Continuation Agreement Filed herewith
for John A. Kraeutler
11 Statement re Computation of Filed herewith
Per Share Earnings
13 1995 Annual Report to Filed herewith
Shareholders
21 Subsidiaries of the b
Registrant
23 Consent of Independent Public Filed herewith
Accountants
27 Financial Data Schedule Filed herewith
- --------------------
a. Incorporated by reference to Registration Statement No.
33-6052 filed under the Securities Act of 1933.
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b. Incorporated by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended September 30, 1994.
c. Incorporated by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended September 30, 1993.
d. Incorporated by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended September 30, 1992.
e. Incorporated by reference to Registration Statement No. 33-89214 on
Form S-8 filed with the Securities and Exchange Commission on April
5, 1995.
f. Incorporated by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission on June 17, 1993.
g. Incorporated by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission on February 8, 1994 and April 6,
1994.
h. Incorporated by reference to Registration Statement No. 33-78868 on
Form S-8 filed with the Securities and Exchange Commission on May
12, 1994.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the
fiscal year.
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SIGNATURES
Pursuant to the requirements of Section 13 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.
MERIDIAN DIAGNOSTICS, INC.
William J. Motto
-------------------------------
DATE: December 20, 1995 BY: William J. Motto
Chairman of the Board
of Directors and
Chief Executive Officer
(Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
William J. Motto Chairman of the Board of Directors December 20,1995
--------------------- and Chief Executive Officer
William J. Motto (Principal Executive Officer)
Gerard Blain Vice President, Chief Financial December 20,1995
--------------------- Officer and Treasurer (Principal
Gerard Blain Financial Officer and Principal
Accounting Officer)
Jerry L. Ruyan Secretary and Director December 20,1995
----------------------
Jerry L. Ruyan
James A. Buzard Director December 20,1995
---------------------
James A. Buzard
Gary P. Kreider Director December 20,1995
---------------------
Gary P. Kreider
Robert J. Ready Director December 20,1995
---------------------
Robert J. Ready
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Report of Independent Public Accountants
To Meridian Diagnostics, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Meridian Diagnostics, Inc. and
subsidiaries' annual report to shareholders incorporated by reference in this
Form 10-K and have issued our report thereon dated November 10, 1995. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in the accompanying index is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
November 10, 1995
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SCHEDULE II
Meridian Diagnostics, Inc.
and Subsidiaries
Valuation and Qualifying Accounts
Years Ended September 30, 1995, 1994 and 1993
Balance
Balance at Charged to Charged at End
Beginning Costs and to Other of
Description of Period Expenses Accounts Deductions Period
- ----------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1995:
------------------------------
Allowance for Doubtful Accounts $113,183 $122,526 $4,677 $(76,250) $164,136
Year Ended September 30, 1994:
------------------------------
Allowance for Doubtful Accounts $ 41,424 $ 74,824 $1,523 $ (4,588) $113,183
Year Ended September 30, 1993:
------------------------------
Allowance for Doubtful Accounts $ 68,119 $(23,784) $4,635 $ (7,546) $ 41,424
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