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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended September 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ___________ to
_________________.
Commission File Number 333-36429
BIOANALYTICAL SYSTEMS, INC.
(Exact name of the registrant as specified in its charter)
INDIANA 35-1345024
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2701 KENT AVENUE
WEST LAFAYETTE, IN 47906
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(Address of principal executive offices) (Zip code)
(765) 463-4527
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Shares
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 (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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.045 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.
Based on the closing price on the NASDAQ exchange, the aggregate market value of
the voting and non-voting common equity held by non-affiliates of the registrant
is $4,924,744. As of November 30, 2000, 4,563,397 shares of registrant's common
shares were outstanding. No shares of registrant's Preferred Stock were
outstanding as of November 30, 2000.
Documents Incorporated by Reference: Certain portions of the Registrant's
definitive Proxy Statement to be filed pursuant to Regulation 14A in connection
with its 2001 Annual Meeting of Shareholders is incorporated by reference to
those items listed in Part III of this Form 10-K.
TABLE OF CONTENTS
Page
----
Part I
Item 1. Business ........................................................ 3
Item 2. Properties ...................................................... 11
Item 3. Legal Proceedings ............................................... 11
Item 4. Submission of Matters to a Vote of Security Holders ............. 11
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters ................................. 12
Item 6. Selected Consolidated Financial Data ............................ 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 14
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk ............................................... 17
Item 8. Financial Statements and Supplementary Data ..................... 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .......................... 36
Part III
Item 10. Directors and Executive Officers of the Registrant .............. 37
Item 11. Executive Compensation .......................................... 38
Item 12. Security Ownership of Certain Beneficial Owners
and Management .................................................. 39
Item 13. Certain Relationships and Related Transactions .................. 39
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ............................................. 40
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Part I
This Report contains certain statements that are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Readers of this
Report are cautioned that reliance on any forward-looking statement involves
risks and uncertainties. Although the Company believes that the assumptions on
which the forward-looking statements contained herein are based are reasonable,
any of those assumptions could prove to be inaccurate given the inherent
uncertainties as to the occurrence or nonoccurrence of future events. There can
be no assurance that the forward-looking statements contained in this Report
will prove to be accurate. The inclusion of a forward-looking statement herein
should not be regarded as a representation by the Company that the Company's
objectives will be achieved.
Item 1. Business
General
The Company is a contract research organization (CRO) providing research
and development resources to many of the leading pharmaceutical, medical device
and biotechnology companies in the world. The Company prides itself on its
contributions to basic understanding of the underlying causes of central nervous
system disorders, diabetes, osteoporosis and other diseases since 1974. The
Company has played a significant role in the development of technologies and
drugs with current revenues in excess of $15 billion for its clients.
The Company offers an efficient, variable-cost alternative to its clients'
internal product development, compliance and quality control programs. The
Company first focused on providing new products and procedures that facilitated
research at client sites. Increasing pressures to bring products to market
faster and more cost effectively prompted many clients to ask the Company to
carry out proprietary projects in the Company's research facilities. Many of
these clients had a prior relationship with the Company. To reduce overhead and
speed drug approvals through the Food and Drug Administration (FDA),
pharmaceutical companies are contracting increasing amounts of their development
work to outside firms such as the Company. As a result, the Company now derives
its revenues from both the sale of its research services and drug development
tools. The Company provides a range of value-added services and products focused
on chemical analysis and preclinical metabolism, allowing its clients to perform
their research and development either in house or at the Company.
The Company's services and products combine basic research with diagnostic
and therapeutic experience. One consequence of the restructuring of the
healthcare industry is the greater reliance on outsourced research services. The
Company is capable of supporting the clinical development (formulations and
clinical trials) and preclinical needs of researchers and clinicians, for small
molecule drugs and hormones through large biomolecules such as proteins. The
Company believes their scientists have the skills necessary in instrumentation,
chemical reagents, computer software, physiology, and pathology, as well as the
global presence to make the services and products it provides increasingly
valuable to the worldwide pharmaceutical, medical device and biotechnological
industries.
Over the past five years, the Company has regularly provided its services
and/or products to the top 25 pharmaceutical companies in the world, as ranked
by 1999 research and development spending. In fiscal 2000, the Company estimates
that more than one-half of its total revenue was derived from these companies.
As a result of its (i) client focus, (ii) reputation for high-quality services
and products, (iii) capital investment in cutting-edge instrumentation,
facilities and new service offerings, (iv) skilled and experienced professional
staff and (v) expertise in performing critical development and support services,
the Company believes that it is a value-added partner in solving its clients'
complex product development problems.
The Company's development and preclinical services support screening and
pharmacological testing, preclinical/safety testing, formulation development,
regulatory and compliance consulting and quality control testing. The
Pharmaceutical Research and Manufacturing Association (PhRMA) estimates that in
1999, pharmaceutical and biotechnology companies spent approximately $26 billion
worldwide on research and development, of which approximately 25%, or $6.6
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billion, was outsourced to independent contract service providers. The Company
believes that this outsourcing trend will continue as a result of pressure
toward accelerated drug development, managed care cost containment, better
disease management, shorter product exclusivity, generic competition, strategic
alliances, mergers and acquisitions, virtual drug company and biotechnology
industry growth, the need for technical and data management expertise and the
globalization of pharmaceutical development.
The Company designs, manufactures and markets a broad range of products and
related scientific methods that detect and quantify chemicals and monitor their
effect on biological systems. The Company also competes in subsets of the $17
billion per year analytical instrument industry. The Company's focus, however,
is not on marketing hardware and software. Rather, it develops solutions to
challenging problems, which permit the Company to use its talented personnel in
providing a total solution not generally offered by hardware-focused
competitors. The Company develops and manufactures state-of-the-art liquid
chromatography, electrochemistry, physiology and in vivo sampling systems. These
instruments are sold primarily to pharmaceutical research organizations.
Principal clients of the Company include scientists engaged in drug metabolism
studies, pharmacokinetics and basic neuroscience research.
Changing Nature of the Pharmaceutical Industry
The Company provides services and products globally to pharmaceutical,
medical device and biotechnology companies, academic institutions and
governments to facilitate research and development. The Company's services are
generally marketed to pharmaceutical and other biotech companies engaged in
later stages of developmental pharmaceutical testing, while the Company's
products are generally marketed to both public and private research
organizations engaged in the early stages of drug development. The research
services industry is highly fragmented, consisting of several hundred vendors
operating in niches and a small number of larger companies focused on an ever-
growing portfolio of cradle-to-grave pharmaceutical development services.
The Company's products business competes against several large equipment
manufacturers. While the markets for the Company's services and products have
distinct customers (often separate divisions in a single large pharmaceutical
company) and requirements, the Company believes that both markets are facing
increased pressure to outsource certain facets of their research and development
activities. The Company believes that the factors identified below will
contribute to a continuing increase in outsourcing activities by its customers.
Accelerated Drug Development
Consumers, physicians, health care providers and pharmaceutical company
shareholders continue to demand faster, more efficient drug development.
Pharmaceutical companies are accelerating the drug development process. New
combinatorial synthetic techniques, high throughput screening, novel genomic
targeting and other technologies are generating an unprecedented number of new
drug candidates. Pharmaceutical developers are relying on external service
providers for testing and analysis in all phases of development. Clients demand
fast, quality service and immediate informed decisions to quickly exclude poor
candidates and speed development of successful ones.
Cost Containment
Pharmaceutical companies are facing increasing pressure to develop more
efficient operating strategies due to factors listed here, plus increased
purchasing power of large buyer groups and governmental initiatives designed to
reduce drug prices. The Company believes that the pharmaceutical and medical
device industries are limiting the growth of internal research programs and
favoring outsourcing. The need for additional development capacity to speed new
product development, maximize market exclusivity and increase profitability
drives the need for outsourced services.
Patent Expiration
Patents on all pharmaceuticals age and expire. Since 1984, prescriptions
for generic drugs have risen from 18.6% to 47% of all prescriptions written.
Generic market penetration can cut an estimated 2 to 5 years from effective
patent protection for brand name drugs. Drug companies are developing new
products or modifying existing products to maintain market share against generic
product competition. The Company believes that the pressure to develop new
products and to modify or reformulate existing products, combined with internal
capacity constraints, will lead clients to outsource development.
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Shorter Exclusivity
The Competition and Patent Term Restoration Act of 1984 shortened the
approval time of generic copies of approved drugs. PhRMA notes that newer drugs
experience generic competition much sooner after patent expiration than older
drugs. In 1992, 72% of drugs coming off patent saw generic competition in 18
months.
New breakthrough drugs, those first in their therapeutic class, are
experiencing abbreviated exclusivity as new chemical entities penetrate this
new, proven, profitable end use. Where Tagamet(R) saw no competitive pressure
for ten years, Celebrex(R) began to lose share to Vioxx(R) in three months.
Strategic Alliances
Strategic alliances allow pharmaceutical companies to share research
know-how and to develop and market new drugs faster in more diverse, global
markets. There were 121 reported alliances in 1986, which increased to 712 in
1998. The Company believes that alliances will lead to a greater number of
potential drugs in testing, many under study by new companies lacking broad
technical resources.
Mergers and Acquisitions
Consolidation in the pharmaceutical industry is becoming commonplace. As
firms blend personnel, resources and business activities, the Company believes
they will continue to streamline operations, optimizing staffing and leading to
more outsourcing. This may result in short-term disruption in placement of, or
progress on, drug development programs as merging companies rationalize their
respective pipelines.
Biotechnology Industry and Virtual Drug Company Growth
The biotechnology industry has grown rapidly over the last 10 years and has
introduced many new developmental drugs. Biotechnology companies do not have the
in-house resources to conduct development and testing. Also, there are several
new pharmaceutical and medical device companies whose business strategy is to
develop a product sufficiently to attract a strategic partner who will
manufacture and market the drug. Many of these virtual drug development
companies with little or no internal resources must outsource drug development
and testing.
Need for Unique Technical Expertise
The increasing complexity of new drugs requires highly specialized quality
and innovative, solution-driven contract research not available in the clients'
labs. The Company believes that this need for unique technical expertise will
increasingly lead to outsourcing of research activity.
Need for Data Management Expertise
Regulatory agencies are requiring more regulatory data and greater access
to that data prior to filing. The FDA is encouraging the use of
computer-assisted filings in an effort to expedite the approval process. Drug
companies are outsourcing to firms with automated data management capabilities.
In response to clients' demands for access to data as it is acquired in the
laboratory, the Company is able to provide clients with remote access to Company
computer systems while at the same time protecting client data from unauthorized
access. The Company has also developed proprietary validated online data entry
software enabling direct publication of data in unique client formats.
Globalization of the Marketplace
A growing number of foreign pharmaceutical companies are seeking US
approval for their products. Foreign firms are relying on independent
development companies with experience in the United States to provide integrated
services through all phases of product development and to assist in preparing
complex and daunting regulatory submissions. Domestic drug firms are broadening
product availability globally, demanding local regulatory approval. The Company
believes that domestic service providers with global reach, established
regulatory expertise and a broad range of integrated development services will
benefit from this trend. The Company has a significant European presence and
domestic skills in foreign operations.
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The Company's Role in the Drug Development Process
Process Overview
The Company has 26 years of experience in developing analytical methods to
support drug discovery. Under the United States regulatory system, the
development process for new pharmaceutical products can be divided into three
distinct phases.
1) The preclinical phase includes discovery, characterization, formulation and
safety testing to prepare an Investigational New Drug (IND) exemption for
submission to the FDA. The IND must be accepted by the FDA before the drug
can be tested in humans.
2) The second, clinical phase follows a successful IND submission and further
explores the safety, tolerability, efficacy and dosage of the substance in
humans. Early manufacturing demonstrates production of the substance in
accordance with the FDA's cGMP guidelines. Data from these activities are
compiled in a New Drug Application (NDA), or for biotechnology products a
Product License Application (PLA), for submission to the FDA requesting
approval to market the drug.
3) The third phase follows FDA approval of the NDA or PLA. This includes
production and continued analytical and clinical monitoring of the drug.
The post-approval phase also involves the development and regulatory
approval of product modifications and line extensions, including improved
dosage forms.
The Company's Role
The Preclinical Phase. A new pharmaceutical begins with the synthesis of
new molecules, which may influence a specific target in the disease under study.
These molecules are screened for pharmacological activity using various models.
Once the pharmacologically active molecule is fully characterized, it is
analyzed to confirm its integrity. Development of the initial dosage form for
clinical trials is completed, with analytical chemistry protocols to determine
its stability. Upon successful completion of preclinical safety and efficacy
studies in in vitro and in vivo, an IND submission is prepared and provided to
the FDA for review prior to human clinical trials.
The Company provides its preclinical and bioanalytical services in this
phase. Clients work with the Company's Preclinical Services division to
establish pharmacokinetic and safety testing protocols. These studies range from
acute safety monitoring on drugs and medical devices to chronic, two-year
oncogenicity studies. Bioanalyses of blood sampled under these protocols by the
Company's bioanalytical services group provide kinetic, metabolism and dose
ranging data.
Many of the Company's products are designed for use in preclinical
development. For example:
1) The Company's newest product, the Culex(TM) ABS, a robotic automated blood
sampler, enables researchers to develop pharmacokinetic profiles of drugs
in early screening in rodents quickly and cost effectively. Several
variations on this technology are in development.
2) Company scientists have been recognized by their peers for their
contributions to technology of drugs for central nervous system (CNS)
disorders such as depression, Parkinson's disease, schizophrenia and
Alzheimer's disease. The Company's chromatography products were used to
study serotonin re-uptake inhibitors in the CNS programs at universities
and several major pharmaceutical companies.
3) Company technology is the basis for most of the glucose sensors currently
sold to diabetics, and the majority of firms in this market are Company
clients.
4) The Company's bioanalytical services group used the Company's
chromatography products to develop a single, quick, proprietary method to
screen up to ten therapeutic HIV drugs in the same blood sample with the
cooperation of several major therapeutic drug developers. The method
enables researchers to quantify each component in a drug cocktail or to
monitor HIV treatments.
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The Company's ability to solve client problems combining its knowledge
base, services, and products has been a factor in the Company's selection by
major pharmaceutical companies to assist in several preclinical and Phase I, II
and III clinical trials.
The Clinical Phase. After successful submission of an IND application, the
sponsor conducts Phase I human clinical trials in a limited number of healthy
individuals to determine safety and tolerability. This work requires
bioanalytical assays to determine the availability and metabolism of the active
ingredient following administration. Expertise in method development and
validation is essential for this phase, particularly for new chemical entities.
In Phase II clinical trials the drug is administered to individuals who suffer
from the target disease to determine the drug's effectiveness and ideal dose.
When further safety, tolerability and dosing regimens have been established,
Phase III clinical trials with large numbers of patients are conducted to verify
efficacy and safety. After the successful completion of Phase III clinical
trials, the sponsor of the new drug submits an NDA or PLA to the FDA requesting
that the product be approved for marketing.
The Company's bioanalytical work per patient grows rapidly from Phase I
through III. As the number of patients grows the number of samples per patient
declines. Phase II and III studies take several years, practicing well proven
analytical protocols. It is unusual for a sponsor to change laboratories unless
there are problems in the quality or timely delivery of results.
Many patients are receiving multiple drug therapy. The influence of each
drug on the effectiveness of the other drugs must be monitored. These drug
interaction studies often extend clinical trials. A CRO such as the Company can
provide services to several different manufacturers of complementary drugs
simultaneously in cases of potential synergy (e.g. the "cocktail" approach to
HIV therapy). Multi-client studies frequently lead to cost sharing and contacts
with new clients.
The Post-approval Phase. Following approval, the drug manufacturer must
comply with quality assurance and quality control requirements throughout
production and must continue analytical and stability studies of the drug during
commercial production in order to continue to validate production processes and
confirm product shelf life. The drug manufacturer's raw materials must be
analyzed prior to use in production, and samples from each manufactured batch
must be tested prior to release of the batch for distribution to the public. The
Company also provides its bioanalytical services in all areas during the
post-approval phase, concentrating on bio-equivalence studies of new
formulations, line extensions, new disease indications and drug interaction
studies.
Company Services and Products
Overview
The Company provides bioanalytical services, preclinical services and
methods development for the $17 billion per year analytical instrument industry.
The Company has, for 26 years, developed expertise in a number of core
technologies which evolved into state-of-the-art procedures designed to quantify
trace chemicals in complex materials. These technologies include: liquid
chromatography, electrochemistry, solid phase extraction, mass spectrometry,
enzymology and fluorescence detection. The Company also uses its expertise in
analytical chemistry to provide a wide range of bioanalytical services to
pharmaceutical companies, academic institutions and others involved in
pharmaceutical research and development. Preclinical services provide basic
safety and dosage information to researchers and are a source of samples for
bioanalytical analyses.
Services
The Company's customers continue to draw on the Company's knowledge in
bioanalytical chemistry and preclinical services to solve complex problems. The
Company is poised to use its expertise to provide a greater volume and broader
array of services:
o Method Development and Validation. Analytical methods are developed to
demonstrate potency, purity, stability or physical attributes. These
methods are validated to ensure that the data generated are accurate,
precise, reproducible and reliable and are used throughout the drug
development process and in product support testing.
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o Product Characterization. Characterization analysis identifies the
chemical composition, structure and physical properties of a compound.
Characterization data is a significant portion of a regulatory
application. The Company uses several techniques to characterize the
compound, including chromatography, spectroscopy, electrochemistry and
other physical chemistry techniques.
o Stability Testing. The Company provides required stability testing and
secure storage facilities necessary to establish and confirm product
purity, potency and other shelf-life characteristics. The Company has
multiple ICH (International Conference on Harmonization) validated
controlled climate GMP facilities.
o Bioanalytical Testing. The Company's bioanalytical testing group
analyzes plasma samples to measure drug concentration and monitor the
rate of absorption and elimination. This is sometimes difficult due to
product metabolism into multiple active and inactive forms.
o Preclinical and Pathology Services. The Company acquired T.P.S., Inc.
in Evansville, Indiana effective October 1, 1999. Renamed BAS
Evansville, this site is the core for the Company's preclinical
services group which provides pharmacokinetic and safety testing
protocols in studies ranging from acute safety monitoring on drugs and
medical devices to chronic, two-year oncogenicity studies.
o Diagnostic Testing. The Company produces fully automated, networkable,
state-of-the-art liquid chromatographs and electrochemical analyzers
based on Windows(R) software. The Company has recently developed and
now produces a line of diagnostic kits designed to fit its
instrumentation. These kits help measure neurotransmitters and their
metabolites and homocysteine, an experimental cardiovascular disease
indicator in plasma and urine.
o In Vivo Sampling. The Company pioneered and has commercialized
miniaturized in vivo sampling products and services for the continuous
monitoring of chemical changes in life. The Company is aggressively
adding new components to this. Target markets include veterinary
research centers, pharmaceutical companies and medical research
centers. The Company has received two significant Phase II SBIR (Small
Business Innovation Research) grants that involve subcontracts with
Purdue University and the University of Kansas for the purpose of
exploring this emerging technology.
Products
The Company designs, manufactures and markets a range of products and
related scientific procedures that detect and quantify the presence of chemicals
in certain substances. The Company's products utilize state-of-the-art
scientific technology including liquid chromatography, electrochemistry and in
vivo sampling instrumentation. Presently, the Company's products and procedures
include:
o The Culex(TM)ABS robotic automatic rodent blood sampling system was
launched in 2000. Pharmaceutical company researchers use the Culex to
monitor drug concentrations as a function of time (pharmacokinetics).
The Culex provides exceptional cost savings, significant reduction in
stress and shorter screening times to drug researchers. Preliminary
sales are exceptional. Culex is promising to be one of the
fastest-growing, most significant products for the Company in a
decade.
o Bioanalytical separation instrumentation (liquid chromatography) and
Windows(R) software detect and quantify low concentrations of
substances in biological fluids and tissues.
o A wide-range of chemical analyzers that use electrochemistry, liquid
chromatography and enzymology analyze trace levels of organic
chemicals such as neurotransmitters in biological samples.
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o Diagnostic kits and procedures, designed to add value to the Company's
instrumentation, that enable clinical laboratories and pharmaceutical
researchers to determine the presence of multiple drugs in blood
plasma and to measure neurotransmitters and their metabolites in
plasma and urine. These kits and procedures assist researchers in
developing new drugs for diseases such as AIDS and cardiovascular
disease.
o A line of miniaturized in vivo sampling devices, marketed to
veterinary research centers, pharmaceutical companies and medical
research centers, assist in the study of a number of medical
conditions including stroke, depression, Parkinson's disease, diabetes
and osteoporosis.
Clients
Over the past five years, the Company regularly has provided services and
products to the top 25 pharmaceutical companies in the world, as ranked by 1999
research and development spending. In fiscal 2000, the Company estimates that
more than one-half of its total revenue was derived from these companies. In
fiscal 1999, the Company provided services and products to approximately 300
institutions, including some of the largest United States, European and Japanese
drug companies. Approximately 28% of the Company's revenues are generated from
customers outside the United States.
The Company believes that a concentration of business among certain large
clients is not uncommon in the CRO industry. The Company recognizes, much as
other CROs have recently reported, that concentration of sales among a few large
companies coupled with failure rates of developmental drugs can be a risk for
service providers. The Company redirected its sales team in the middle of FY
2000, to also target pharmaceutical companies with annual revenues less than $1
billion, with the belief that risk could be reduced if distributed over a
broader account base. The company also believes that companies of this size are
less likely to have resources comparable to the Company's and will consequently
be more inclined to establish a consistent, long-term relationship.
Sales and Marketing
Although early client relationships grew primarily through direct, internal
recommendations among major pharmaceutical manufacturers, the current sales and
marketing plan focuses on key account development among the top 200 global
pharmaceutical companies. The Company recognizes that its growth and continued
customer satisfaction depend upon its ability to continually improve its sales
and marketing functions. Team training, merging services and product sales
efforts, and changes to the sales team compensation plan implemented in 2000 are
designed to deliver growth among these target accounts.
In North America, the Company's products are sold directly to the end user.
The Company has 20 personnel selling a range of services and products and an
equal number providing technical and development support. These members are
technically trained and function in both capacities. The Company also has
established a highly professional collection of catalogs, training and technical
support literature, video tapes, CD-Rom presentations, web sites, workshops and
academic publications.
Sales, marketing and technical support are based in the Company's main
office located in West Lafayette, Indiana. The Company also maintains offices in
New Jersey, and Warwickshire and Congleton, UK, each with a sales and technical
staff, enabling the Company to demonstrate its products and present technical
workshops in close proximity to its largest concentration of key customers. The
Company also maintains sales and technical support capabilities in Connecticut,
Massachusetts, New York, Ohio, Texas, Pennsylvania and Kansas.
The Company's primary marketing and sales strategy is to be more
aggressive, to focus on customer needs and to further strengthen communications
with its markets. In doing so, the Company will build on its long history of
innovation and technical excellence.
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BAS Evansville, a wholly-owned subsidiary of the Company, provides
preclinical contract research in Mount Vernon, Indiana.
BAS Analytics, Ltd., a wholly-owned subsidiary of the Company, provides
direct liaison with research service clients in the United Kingdom and maintains
a laboratory to provide such services. BAS Instruments, Ltd., also a
wholly-owned subsidiary of the Company, manages most product sales in Europe. In
addition, the Company has a network of more than 20 established distributors
covering Japan, the Pacific Basin, South America, the Middle East, India, South
Africa and Eastern Europe. All of the Company's distributor relationships are
managed from the Company's headquarters in West Lafayette, Indiana.
International growth is planned through acquisitions, stronger local promotion
and significant expansion of the Company's distributor network.
Contractual Arrangements
The Company's service contracts typically establish an estimated fee for
identified services. In most cases, some percentage of the contract costs are
paid in advance. While the Company is performing a contract, clients often
adjust the scope of services to be provided by the Company in light of interim
project results, at which time the fee is adjusted accordingly. Generally, the
Company's fee-for-service contracts are terminable by the client upon written
notice of 30 days or less. Contracts may be terminated for a variety of reasons,
including the client's decision to forego a particular study, the failure of
product prototypes to satisfy safety requirements and unexpected or undesired
results of product testing. The loss of a large contract or the loss of multiple
contracts could adversely affect the Company's future revenue and profitability.
Backlog
Considering that the arrangements, pursuant to which the Company provides
its services, are terminable upon written notice of 30 days or less, the Company
does not calculate backlog for the services it provides and does not believe
that determining such amount would provide a meaningful indicator of the future
performance of its services unit. Backlog for the Company's products consists of
booked purchase orders for products which have not been shipped. The Company
rarely has a backlog for its products of more than one month of sales. Many
products are shipped within 24 hours of receipt of order.
Competition
With respect to its services, the Company competes primarily with in-house
research, development, quality control and other support service departments of
pharmaceutical and biotechnology companies, as well as with university research
laboratories and teaching hospitals. In addition, there are numerous
full-service CRO's that compete in this industry. The largest CRO competitors
offering similar research services include Covance, Inc., Pharmaceutical Product
Development, Inc., Applied Analytical Industries, Inc. and MDS Health Group Ltd.
CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, quality of contract
research, ability to organize and manage large-scale trials on a global basis,
medical database management capabilities, ability to provide statistical and
regulatory services, ability to recruit investigators, ability to integrate
information technology with systems to improve the efficiency of contract
research, existence of an international presence with strategically located
facilities, financial viability and price.
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With respect to its products, the Company competes with several large
equipment manufacturers, including Agilant, Waters Corporation and Perkin Elmer
Corporation. Competitive factors include product quality, reliability and price.
The Company believes it competes favorably in its target markets because of its
ability to combine quality products with technical assistance and service to
meet customer needs.
Many of the Company's competitors are much larger and have greater
financial resources than the Company. Those resources, much broader product
lines and large, well compensated sales teams make it difficult for the Company
to capture market share from clients other than those who need the Company's
unique capabilities.
Government Regulation
The services performed by the Company are subject to various regulatory
requirements designed to ensure the quality and integrity of pharmaceutical and
diagnostic products. These regulations are governed primarily under the Federal
Food, Drug and Cosmetic Act, as well as associated GLP and GMP regulations which
are administered by the FDA in accordance with current industry standards. The
regulatory requirements apply to all phases of manufacturing, testing and record
keeping, including personnel, facilities, equipment, control of materials,
processes and laboratories, packaging, labeling and distribution. Noncompliance
by the Company with GLP and GMP regulations could result in disqualification of
data collected by the Company in a particular project. Material violation of GLP
or GMP requirements could result in additional regulatory sanctions and, in
severe cases, could also result in a discontinuance of selected Company
operations. Such discontinuance would have a material adverse effect on the
Company's business, financial condition and results of operations.
To help assure compliance with applicable regulations, the Company has
established quality assurance controls at its facilities that monitor ongoing
compliance by auditing test data and regularly inspecting facilities, procedures
and other GMP compliance parameters. In addition, FDA regulations and guidelines
serve as a basis for the Company's standard operating procedures where
applicable. Some of the Company's development and testing activities are subject
to the Controlled Substances Act administered by the Drug Enforcement Agency
(DEA), which strictly regulates all narcotic and habit-forming substances. The
Company maintains restricted-access facilities and heightened control procedures
for projects involving such substances due to the level of security and other
controls required by the DEA. In addition to FDA regulations, the Company is
subject to other federal and state regulations concerning such matters as
occupational safety and health and protection of the environment.
The Company's activities involve the controlled use of hazardous materials
and chemicals. The Company is subject to foreign, federal, state and local laws
and regulations governing the use, storage, handling and disposal of such
materials and certain waste products. The risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result.
Such damages could have a material adverse effect on the Company's business and
results of operations.
- 11 -
Product Liability and Insurance
The Company maintains product liability and professional errors and
omissions liability insurance, providing approximately $6.0 million in coverage
on a claims-made basis. Additionally, in certain circumstances the Company seeks
to manage its liability risk through contractual provisions with clients
requiring the Company to be indemnified by the client or covered by clients'
product liability insurance policies. Also, in certain types of engagements the
Company seeks to limit its contractual liability to clients to the amount of
fees received by the Company. The contractual arrangements are subject to
negotiation with clients and the terms and scope of such indemnification,
liability limitation and insurance coverage vary based upon client and project.
Although most of the Company's clients are large, well-capitalized companies,
the financial performance of these indemnities is not secured. Therefore, the
Company bears the risk that the indemnifying party may not have the financial
ability to fulfill its indemnification obligations or that liability would
exceed the amount of applicable insurance. Furthermore, the Company could be
held liable for errors and omissions in connection with the services it
performs. There can be no assurance that the Company's insurance coverage will
be adequate, or that insurance coverage will continue to be available on terms
acceptable to the Company, or that the Company can obtain indemnification
arrangements or otherwise be able to limit its liability risk. Employees
At September 30, 2000, the Company had 230 full-time employees, 144 of
which hold college degrees, including 32 at the doctoral level. All employees
enter into confidentiality agreements intended to protect the Company's
proprietary information. The Company believes that its relations with its
employees are good. None of the Company's employees are represented by a union.
The Company's performance depends on its ability to attract and retain qualified
professional, scientific and technical staff. The level of competition among
employers for skilled personnel is high. The Company believes that its employee
benefit plans enhance employee morale, professional commitment and work
productivity and provide an incentive for employees to remain with the Company.
While the Company has not experienced any unusual problems in attracting or
retaining qualified personnel, there can be no assurance that the Company will
be able to avoid these problems in the future.
Item 2. Properties
The Company's principal executive offices are located at 2701 Kent Avenue,
West Lafayette, Indiana, 47906, and constitute approximately 100,000 square feet
of operational and administrative space. The Company acquired T.P.S., Inc. in
Evansville, Indiana on October 1, 1999. This facility consists of seven
buildings with 50,000 square feet under roof on 50 acres. The Company also
maintains offices which provide sales and technical support services in New
Jersey, Pennsylvania and the United Kingdom, and employs sales and technical
support service representatives in North Carolina, Texas, Connecticut, Maryland
and New Jersey. The Company believes that its facilities are adequate for the
Company's operations and that suitable additional space will be available when
needed.
Item 3. Legal Proceedings
In April, 1997, CMA Microdialysis Holding A.B. (CMA) filed an action
against the Company in the United States District Court for the District of New
Jersey in which CMA alleged that the Company's microdialysis probes infringe
U.S. Patent No. 4,694,832. Subsequent to September 30, 2000, the Company is
working on a settlement for this infringement case. The Company does not believe
the financial terms of settlement will have a material adverse effect on the
Company's financial condition or its results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
[Remainder of page intentionally left blank.]
- 12 -
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The following table sets forth by calendar quarter the high and low sales
prices of the common shares as on the Nasdaq National Market Systems. The
approximate number of recordholders of common shares is 1700.
Fiscal 1st Qtr. 2nd Qtr 3rd Qtr. 4th Qtr.
------ -------- ------- -------- --------
2000
High 3.875 5.250 3.844 3.500
Low 2.250 2.563 2.500 2.375
1999
High 5.750 4.250 4.250 4.000
Low 3.625 3.000 3.500 2.875
[Remainder of page intentionally left blank.]
- 13 -
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands)
The following is selected audited consolidated financial data of the Company for the five
years ended September 30, 2000. The data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of Bionalytical Systems, Inc. and notes thereto contained
elsewhere in this Form 10-K.
Year Ended September 30,
-----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Operations Data:
Service revenue ............... $10,999 $9,993 $ 7,609 $ 4,991 $ 3,681
Product revenue ............... 8,224 9,858 10,616 9,932 9,113
----- ----- ------ ----- -----
Total revenue ............. 19,223 19,851 18,225 14,923 12,794
Cost of service revenue ....... 9,245 6,499 4,598 2,986 2,141
Cost of product revenue ....... 2,974 3,943 3,911 3,334 3,227
----- ----- ----- ----- -----
Total cost of revenue ..... 12,219 10,442 8,509 6,320 5,368
------ ------ ----- ----- -----
Gross profit .................. 7,004 9,409 9,716 8,603 7,426
----- ----- ----- ----- -----
Operating expenses:
Selling ....................... 3,400 3,943 4,524 4,225 3,937
Research and development ...... 1,806 1,955 2,165 1,568 1,424
General and administrative .... 2,990 2,550 2,336 1,638 1,364
----- ----- ----- ----- -----
Total operating expenses .. 8,196 8,448 9,025 7,431 6,725
----- ----- ----- ----- -----
Operating income (loss) ....... (1,192) 961 691 1,172 701
Other income (expense), net ... (621) (114) (25) (75) (18)
---- ---- --- --- ---
Income (loss) before
income taxes ................ (1,813) 847 666 1,097 683
Income taxes (benefit) ........ (431) 277 254 413 283
---- --- --- --- ---
Net income (loss) ............. $(1,382) $ 570 $ 412 $ 684 $ 400
======= ======= ======= ======= =======
Net income (loss) available
to common shareholders ...... $(1,382) $ 570 $ 412 $ 657 $ 347
Net income (loss) per Common Share
Basic ..................... $ (.30) $ .13 $ .10 $ .30 $ .16
Diluted ................... $ (.30) $ .12 $ .09 $ .21 $ .11
Weighted average Common Shares
outstanding
Basic ..................... 4,550 4,506 4,117 2,221 2,185
Diluted ................... 4,550 4,676 4,403 3,101 3,089
September 30,
-----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
Working capital................ $ 931 $ 4,275 $ 3,286 $ 2,493 $ 3,059
Property and equipment, net.... 18,913 17,355 14,551 10,035 6,526
Total assets................... 26,662 26,321 22,280 15,931 11,374
Long-term debt, less current
portion 3,638 4,112 1,124 5,045 2,512
Convertible Preferred Shares... --- --- --- 1,231 1,530
Shareholders' Equity........... 16,062 17,421 16,844 5,651 4,956
- 14 -
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
Selected Consolidated Financial Data and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Report. In addition to
the historical information contained herein, the discussions in this Report may
contain forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Overview
The Company provides a broad range of value-added services and products
focused on chemical analysis to the worldwide pharmaceutical, medical device and
biotechnology industries. The Company's customer-focused approach and its high
quality services and products enable it to serve as a value-added partner in
solving complex scientific problems by providing cost-effective results to its
customers on an accelerated basis. Founded in 1974 in Lansing, Michigan and
relocated to West Lafayette, Indiana in 1975, the Company has experienced growth
primarily through internal expansion, supplemented by strategic acquisitions. As
part of its internal growth strategy, the Company has developed technical
specialties in such areas as chromatography, electrochemistry, in vivo sampling
and mass spectrometry. The Company's growth has strategically positioned it to
take advantage of globalization in the marketplace and to provide new services
and areas of technical expertise to its customers.
Throughout its history, the Company has taken steps to position itself as a
global leader in the analytical chemistry field. Development of the Company's
infrastructure began in 1975 when it established relationships with several
customers and multiple international distributors. In 1981, the Company
increased its sphere of influence to include Japan with the creation of BAS
Japan, an independent distributor. In 1988, the Company enhanced its computer
software expertise by acquiring Interactive Microware, Inc. in State College,
Pennsylvania. In 1990, the Company began offering contract services to customers
that lacked the time or expertise to perform certain analyses using the
Company's analytical products. In 1995, the Company acquired a distributor, BAS
Instruments Ltd., to further solidify its presence in the United Kingdom. In
1998, the Company acquired a manufacturer of veterinary monitoring and
diagnostic equipment, BAS Vetronics, to provide additional preclinical support.
In 1998, the Company acquired a contract services firm, BAS Analytics Ltd., to
offer local service in the United Kingdom. In 2000, the Company also acquired a
contract services firm, BAS Evansville, to offer preclinical services.
Revenues are derived principally from (i) analytical services provided to
customers and (ii) the sale of the Company's analytical instruments and other
products. Both methods of generating revenue utilize the Company's ability to
identify, isolate and resolve client problems relating to the separation and
quantification of individual substances in complex mixtures. The Company
supports the pharmaceutical industry by focusing on analytical chemistry for
biomedical research, diagnostics, electrochemistry and separations science. The
Company's analytical products are sold primarily to pharmaceutical firms and
research organizations. Principal customers include scientists engaged in drug
metabolism studies, as well as those engaged in basic neuroscience research. The
Company was the first to commercialize the liquid chromatography and
electrochemistry technology which is now the worldwide standard for the
determination of neurotransmitter substances. Research products include in vivo
sampling devices, reagent chemicals, electrochemical apparatus and sensors.
The Company's pharmaceutical service contracts generally have terms ranging
from several weeks to several years. A portion of the contract fee is generally
payable upon acceptance of the agreement with the balance payable in
installments over the life of the contract. The contracts are broken down into
discrete units of deliverable services for which a fixed fee for each unit is
established. Revenue and related direct costs are recognized as specific
contract terms are fulfilled under the percentage of completion method utilizing
units of delivery. The termination of a contract results in no material
adjustments to revenue or direct costs previously recognized. The Company is
entitled to payment for all work performed through the date of notice of
termination and all costs associated with termination of a contract. Revenue
from the sale of the Company's products and the related costs are recognized
upon shipment of the products to customers.
- 15 -
The Company's management believes that fluctuations in the Company's
quarterly results are caused by a number of factors, including the Company's
success in attracting new business, the size and duration of service contracts,
the timing of its clients' decisions to enter into new contracts, the
cancellation or delays of on-going contracts, the timing of acquisitions and
other factors, many of which are beyond the Company's control. In fiscal 2000,
28% of the Company's total revenue was derived from customers located outside
the United States. These markets tend to be much more volatile than the United
States market. Significant governmental, regulatory, political, economic and
cultural issues or changes could adversely affect the growth or profitability of
the Company's business activities in any such market.
Results of Operations
The following table sets forth, for the periods indicated, certain
statement of operations data as a percentage of total revenue.
Percentage of Revenue
Year Ended September 30,
------------------------
2000 1999 1998
---- ---- ----
Service revenue............................. 57.2% 50.3% 41.8%
Product revenue............................. 42.8 49.7 58.2
---- ---- ----
Total revenue........................... 100.0 100.0 100.0
Cost of service revenue..................... 48.1 32.7 25.2
Cost of product revenue..................... 15.5 19.9 21.5
---- ---- ----
Total cost of revenue................... 63.6 52.6 46.7
---- ---- ----
Gross profit................................ 36.4 47.4 53.3
Operating expenses:.........................
Selling..................................... 17.7 19.9 24.8
Research and development.................... 9.4 9.8 11.9
General and administrative.................. 15.6 12.8 12.8
---- ---- ----
Total operating expenses................ 42.7 42.5 49.5
Operating income (loss)..................... (6.3) 4.9 3.8
Other income (expense), net................. (3.2) (0.6) (0.1)
---- ---- ----
Income (loss) before income taxes........... (9.5) 4.3 3.7
Income taxes (benefit)...................... (2.2) 1.4 1.4
---- --- ---
Net income (loss)........................... (7.3)% 2.9% 2.3%
==== === ===
Year ended September 30, 2000 compared with Year ended September 30, 1999
Total revenue for the year ended September 30, 2000 decreased 3.2% to $19.2
million from $19.9 million for the year ended September 30, 1999. Service
revenue increased to $11.0 million for the year ended September 30, 2000 from
$10.0 million for the year ended September 30, 1999, primarily as a result of
the addition of preclinical services through the acquisition of T.P.S., Inc.
This increase was more than offset with the decrease in products. Product
revenue decreased to $8.2 million for the year ended September 30, 2000 from
$9.9 million for the year ended September 30, 1999 primarily due to the decrease
in the sales to the Pacific Rim and Europe.
Costs of revenue increased 17.0% to $12.2 million for the year ended
September 30, 2000 from $10.4 million for the year ended September 30, 1999.
This increase of $1.8 million was largely due to costs of services from the
acquisition of Toxicology Pathology Systems. Costs of revenue for the Company's
services increased to 84.1% as a percentage of services revenue for the year
ended September 30, 2000 from 65.0% of services revenue for the year ended
September 30, 1999 due to the addition of costs of services from the acquisition
of T.P.S., Inc. Costs of revenue for the Company's products decreased to 36.2%
as a percentage of product revenue for the year ended September 30, 2000 from
40.0% of product revenue for the year ended September 30, 1999, due primarily to
a change in product mix.
- 16 -
Selling expenses for the year ended September 30, 2000 decreased 13.8% to
$3.4 million from $3.9 million during the year ended September 30, 1999 due to
decreased foreign commission expense. Research and development expenses for the
year ended September 30, 2000 decreased 7.6% to $1.8 million from $2.0 million
for the year ended September 30, 1999 due to the decrease in research grant
activity. General and administrative expenses for the year ended September 30,
2000 increased 17.3% to $3.0 million from $2.6 million for the year ended
September 30, 1999, primarily as a result of the addition of expenses from the
acquisition of T.P.S., Inc.
Other income (expense), net, was $(621,000) in the year ended September 30,
2000 as compared to $(114,000) in the year ended September 30, 1999 as a result
of the increase in interest expense due to increased use of the line of credit.
The Company's effective tax rate for 2000 was 23.8% compared to 32.8% for
fiscal 1999. This decrease was primarily due to nondeductible foreign losses
incurred in fiscal 2000.
Year ended September 30, 1999 compared with Year ended September 30, 1998
Total revenue for the year ended September 30, 1999 increased 8.9% to $19.9
million from $18.2 million for the year ended September 30, 1998. The net
increase of $1.7 million related primarily to increased revenue from services,
which increased to $10.0 million for the year ended September 30, 1999 from $7.6
million for the year ended September 30, 1998 as a result of the expansion of
types and volume of services provided by the Company. During this same period,
product revenue decreased to $9.9 million for the year ended September 30, 1999
from $10.6 million for the year ended September 30, 1998 primarily as a result
of decreased sales in the Asian electrochemistry markets.
Costs of revenue increased 22.7% to $10.4 million for the year ended
September 30, 1999 from $8.5 million for the year ended September 30, 1998. This
increase of $1.9 million was largely due to the addition of a UK services
facility. Costs of revenue for the Company's services increased to 65.0% as a
percentage of services revenue for the year ended September 30, 1999 from 60.4%
of services revenue for the year ended September 30, 1998 due to an increase in
services support staff. Costs of revenue for the Company's products increased to
40.0% as a percentage of product revenue for the year ended September 30, 1999
from 36.8% of product revenue for the year ended September 30, 1998, due
primarily to a change in product mix.
Selling expenses for the year ended September 30, 1999 decreased 12.8% to
$3.9 million from $4.5 million for the year ended September 30, 1998 due to
decreased foreign commission expense. Research and development expenses for the
year ended September 30, 1999 decreased 9.7% to $2.0 million from $2.2 million
for the year ended September 30, 1998 due to the decrease in research grant
activity. General and administrative expenses for the year ended September 30,
1999 increased 9.2% to $2.6 million from $2.3 million for the year ended
September 30, 1998, primarily as a result of an increase in administrative staff
expense and an increase in health care costs.
Other income (expense), net, was $(114,000) in the year ended September 30,
1999 compared to $(25,000) in the year ended September 30, 1998 as a result of
the increase in interest expense due to an increase in long term debt.
The Company's effective tax rate for 1999 was 32.8% compared to 38.2% for
fiscal 1998. This decrease was primarily due to a decrease in nondeductible
foreign losses incurred in fiscal 1999.
Liquidity and Capital Resources
Since its inception, the Company's principal sources of cash have been cash
flow generated from operations and funds received from bank borrowings and other
financings. At September 30, 2000, the Company had cash and cash equivalents of
$478,000, compared to cash and cash equivalents of $1.9 million at September 30,
1999. The decrease in cash resulted primarily from capital expenditures made to
expand the Company's facilities and operations, including the acquisition of
T.P.S., Inc.
The Company's net cash used by operating activities was $539,000 for the
year ended September 30, 2000. Cash used by operations during the year ended
September 30, 2000 consisted of net loss of $1,382,000, less non-cash charges of
$1,448,000, plus a net increase of $605,000 in operating assets and liabilities.
The most significant decrease in operating liabilities related to accounts
payable, which decreased $787,000 at September 30, 2000.
- 17 -
Cash used by investing activities decreased to $2.0 million for the year
ended September 30, 2000 from $4.0 million for the year ended September 30,
1999, primarily as a result of the reduction of Company purchases of laboratory
equipment. Cash provided by financing activities for the year ended September
30, 2000 was $1.1 million due to the increased use of the line of credit offset
by payments on long-term debt.
The Company's net cash provided by operating activities was $1.6 million
for the year ended September 30, 1999. Cash provided by operations during the
year ended September 30, 1999 consisted of net income of $570,000, plus non-cash
charges of $1,321,000, less a net increase of $304,000 in operating assets and
liabilities. The most significant increase in operating assets related to trade
accounts receivable, which increased $638,000 at September 30, 1999.
Cash used by investing activities decreased to $4.0 million for the year
ended September 30, 1999 from $5.0 million for the year ended September 30,
1998, primarily as a result of the Company's completion of construction of
additional facilities. Cash provided by financing activities for the year ended
September 30, 1999 was $3.2 million due to the increase in debt.
Total expenditures by the Company for property and equipment were $1.6
million, $4.1 million and $4.9 million in fiscal 2000, 1999 and 1998,
respectively. Expenditures made in connection with the expansion of the
Company's operating facilities and purchases of laboratory equipment account for
the largest portions of these expenditures. The capital investments relate to
the purchase of additional laboratory equipment corresponding to anticipated
increases in research services to be provided by the Company. The Company
expects to make other investments to expand its operations through internal
growth and strategic acquisitions, alliances and joint ventures. However, the
Company currently has no firm commitments for capital expenditures.
Based on its current business activities, the Company believes that cash
generated from its operations, amounts available under its existing bank line of
credit and credit facility will be sufficient to fund the Company's working
capital and capital expenditure requirements for the foreseeable future.
The Company has a working capital line of credit, which expires April 1,
2001 and allows borrowings of up to $3,500,000. Interest accrues monthly on the
outstanding balance at the bank's prime rate minus 50 basis points (9.0 % at
September 30, 2000) or at the London Interbank Offered Rate (LIBOR) plus 2% as
elected by the Company. The line is collateralized by inventories and accounts
receivable and requires the Company to maintain certain financial ratios. The
balance outstanding on this line of credit at September 30, 2000 was $2.3
million.
On June 24, 1999 the Company obtained a $3,500,000 commercial mortgage with
a bank. The mortgage note requires 59 monthly principal payments of $19,444 plus
interest followed by a final payment for the unpaid principal amount of
$2,352,804 due June 24, 2004. Interest is charged at the one-month LIBOR rate
plus 200 basis points (8.62% at September 30, 2000).
Inflation
The Company believes that inflation has not had a material adverse effect
on its business operations or financial condition.
New Accounting Pronouncements
Please refer to the notes to consolidated financial statements for a
discussion of recently issued accounting standards.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
- 18 -
Item 8. Financial Statements and Supplementary Data
Report of Independent Auditors
Board of Directors and Shareholders
Bioanalytical Systems, Inc.
We have audited the accompanying consolidated balance sheets of Bioanalytical
Systems, Inc. as of September 30, 2000 and 1999, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended September 30, 2000. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bioanalytical
Systems, Inc. at September 30, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 2000 in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Indianapolis, Indiana
November 3, 2000
- 19 -
Bioanalytical Systems, Inc.
Consolidated balance sheets
September 30,
----------------------------
2000 1999
---- ----
Assets
Current assets:
Cash and cash equivalents $ 477,635 $ 1,924,409
Accounts receivable
Trade 3,012,003 3,564,795
Grants 37,224 46,752
Other 78,980 71,715
Inventories 2,234,644 1,790,733
Deferred income taxes 410,796 242,260
Refundable income taxes 313,043 ---
Prepaid expenses 55,998 80,600
------ ------
Total current assets 6,620,323 7,721,264
Property and equipment:
Land and improvements 495,390 171,014
Buildings and improvements 13,339,603 11,638,468
Machinery and equipment 9,536,275 9,144,104
Office furniture and fixtures 1,072,362 1,318,662
Construction in process 7,039 106,798
----- -------
24,450,669 22,379,046
Less accumulated depreciation and amortization (5,537,957) (5,023,942)
---------- ----------
18,912,712 17,355,104
---------- ----------
Goodwill, less accumulated
amortization of $213,169 in 2000
and, $143,328 in 1999 990,123 1,053,057
Other assets 139,208 191,429
------- -------
Total assets $26,662,366 $26,320,854
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,398,326 $ 2,019,989
Income taxes payable 1,956 2,260
Accrued expenses 618,998 815,770
Customer advances 928,912 154,521
Revolving line of credit 2,267,281 ---
Current portion of capital lease obligation 239,916 220,432
Current portion of long-term debt 234,097 233,328
------- -------
Total current liabilities 5,689,486 3,446,300
Capital lease obligation, less current portion 663,399 903,315
Long-term debt, less current portion 2,975,012 3,208,340
Deferred income taxes 1,272,811 1,341,605
Shareholders' equity:
Preferred shares:
Authorized shares - 1,000,000
Issued and outstanding shares: none --- ---
Common shares, no par value:
Authorized shares - 19,000,000 Issued
and outstanding shares - 4,562,645 in
2000, and 4,514,349 in 1999 1,010,690 999,992
Additional paid-in capital 10,496,505 10,481,978
Retained earnings 4,577,909 5,959,919
Accumulated other comprehensive income (loss) (23,446) (20,595)
------- -------
16,061,658 17,421,294
---------- ----------
Total liabilities and shareholders' equity $26,662,366 $26,320,854
=========== ===========
See accompanying notes.
- 20 -
Bioanalytical Systems, Inc.
Consolidated Statements of Operations
Year ended September 30,
----------------------------------------------------
2000 1999 1998
---- ---- ----
Service revenue $10,999,609 $ 9,992,670 $ 7,608,792
Product revenue 8,223,692 9,858,271 10,616,363
--------- --------- ----------
Total revenue 19,223,301 19,850,941 18,225,155
Cost of service revenue 9,245,380 6,498,817 4,598,266
Cost of product revenue 2,973,787 3,943,437 3,910,740
--------- --------- ---------
Total cost of revenue 12,219,167 10,442,254 8,509,006
---------- ---------- ---------
Gross profit 7,004,134 9,408,687 9,716,149
Operating expenses:
Selling 3,400,273 3,942,681 4,524,664
Research and development 1,805,933 1,955,673 2,164,951
General and administrative 2,990,234 2,549,806 2,335,564
--------- --------- ---------
Total operating expenses 8,196,440 8,448,160 9,025,179
--------- --------- ---------
Operating income (loss) (1,192,306) 960,527 690,970
Interest income 15,483 30,842 86,521
Interest expense (553,715) (226,518) (92,855)
Other income (expense) (34,067) 93,520 (26,587)
Gain (loss) on sale of property
and equipment (48,708) (11,293) 8,486
------- ------- -----
Income (loss) before income taxes 1,813,313) 847,078 666,535
--------- ------- -------
Income taxes (benefit) (431,303) 277,501 254,342
-------- ------- -------
Net income (loss) $(1,382,010) $ 569,577 $ 412,193
============ =========== ===========
Net income (loss) per share:
Basic $ (0.30) $ 0.13 $ 0.10
Diluted $ (0.30) $ 0.12 $ 0.09
Weighted average common shares outstanding:
Basic 4,550,336 4,505,819 4,117,088
Diluted 4,550,336 4,675,850 4,402,755
See accompanying notes.
- 21 -
Bioanalytical Systems, Inc.
Consolidated Statements of Shareholders' Equity
Accumulated
Convertible Other Total
Preferred Common Additional Retained Comprehensive Shareholders'
Shares Shares Paid-in Capital Earnings Income Equity
----------- -------- --------------- --------- ------------- -------------
Balance at September 30, 1997 $ 1,231,242 $ 497,875 $ 178,233 $ 4,978,149 $ (2,944) $ 6,882,555
Comprehensive income
Net income --- --- --- 412,193 --- 412,193
Other comprehensive income:
Foreign currency translation
adjustments --- --- --- --- (7,624) (7,624)
----------
Total comprehensive income 404,569
Conversion of preferred
Shares at IPO (1,231,242) 166,667 1,064,575 --- --- ---
Exercise of stock options --- 32,192 165,454 --- --- 197,646
Issuance of common stock at IPO --- 299,044 9,059,695 --- --- 9,358,739
------------ ---------- ----------- ---------- -------- -----------
Balance at September 30, 1998 --- 995,778 10,467,957 5,390,342 (10,568) 16,843,509
Comprehensive income
Net income --- --- --- 569,577 --- 569,577
Other comprehensive income:
Foreign currency translation
adjustments --- --- --- --- (10,027) (10,027)
-----------
Total comprehensive income 559,550
Exercise of stock options --- 4,214 14,021 --- --- 18,235
------------ ---------- ----------- ---------- -------- -----------
Balance at September 30, 1999 --- 999,992 10,481,978 5,959,919 (20,595) 17,421,294
Comprehensive income
Net income (loss) --- --- --- (1,382,010) --- (1,382,010)
Other comprehensive income (loss):
Foreign currency translation
adjustments --- --- --- --- (2,851) (2,851)
-----------
Total comprehensive income (loss) (1,384,861)
Exercise of stock options --- 10,698 14,527 --- --- 25,225
------------ ---------- ----------- ---------- -------- -----------
Balance at September 30, 2000 $ --- $1,010,690 $10,496,505 $ 4,577,909 $(23,446) $16,061,658
============ ========== =========== ========== ========= ============
See accompanying notes.
- 22 -
Bioanalytical Systems, Inc.
Consolidated Statements of Cash Flows
Year ended September 30,
----------------------------------------------------
2000 1999 1998
---- ---- ----
Operating activities
Net income (loss) $(1,382,010) $ 569,577 $ 412,193
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation 1,516,728 1,196,353 841,854
Amortization 119,685 81,208 32,118
Loss (gain) on sale of property
and equipment 48,708 11,293 (8,486)
Deferred income taxes (237,330) 31,901 122,973
Changes in operating assets and
liabilities:
Accounts receivable 768,400 (637,781) 431,159
Inventories (440,878) 89,947 113,507
Prepaid expenses and other assets 108,828 19,530 159,274
Accounts payable (787,123) 79,374 369,983
Income taxes payable (313,347) (153,220) (212,652)
Accrued expenses (337,834) 463,367 (16,990)
Customer advances 397,013 (164,899) 124,551
----------- ------------ -----------
Net cash provided (used) by operating
activities (539,160) 1,586,650 2,369,484
Investing activities
Capital expenditures (1,572,627) (4,054,319) (3,508,342)
Proceeds from sale of property and
equipment 13,972 42,492 77,359
Payments for purchase of net assets
from T.P.S., Inc., net of cash acquired (446,469) --- ---
Payments for purchase of net assets
from Vetronics, net of cash acquired --- --- (327,740)
Payments for purchase of net assets
from Clinical Innovations, net of cash
acquired --- --- (1,265,230)
----------- ------------ -----------
Net cash used by investing activities (2,005,124) (4,011,827) (5,023,953)
Financing activities
Borrowings on line of credit 2,784,572 2,850,000 860,093
Payments on line of credit (781,199) (2,850,000) (1,375,470)
Payments on capital lease obligations (220,432) (308,447) (187,894)
Borrowings of long-term debt - 3,500,000 43,365
Payments of long-term debt (707,841) (58,332) (5,187,567)
Net proceeds from initial public offering --- --- 9,358,739
Net proceeds from the exercise of
stock options 25,225 18,235 197,646
----------- ------------ -----------
Net cash provided by financing activities 1,100,325 3,151,456 3,708,912
Effect of exchange rate changes (2,815) (10,027) (7,624)
----------- ------------ -----------
Net increase (decrease) in cash and
cash equivalents (1,446,774) 716,252 1,046,819
Cash and cash equivalents at beginning
of year 1,924,409 1,208,157 161,338
----------- ------------ -----------
Cash and cash equivalents at end of year $ 477,635 $ 1,924,409 $ 1,208,157
=========== =========== ===========
See accompanying notes.
- 23 -
Bioanalytical Systems, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
1. Significant Accounting Policies
Nature of Business
Bioanalytical Systems, Inc. and its subsidiaries (the Company) engages in
laboratory services, consulting and research related to analytical chemistry and
chemical instrumentation. The Company also manufactures scientific instruments
for use in the determination of trace amounts of organic compounds in
biological, environmental and industrial materials. The Company also sells its
equipment and software for use in industrial, governmental and academic
laboratories. The Company's customers are located in the United States and
throughout the world.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
Financial Instruments
Financial instruments that subject the Company to credit risk consist
principally of trade accounts receivable. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral on trade accounts receivable.
The Company's cash and cash equivalents, accounts receivable, accounts payable
and certain other accrued liabilities are all short-term in nature and their
carrying amounts approximate fair value. The Company's bank debt has primarily
variable interest rates, thus their carrying amounts approximate fair value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method.
Goodwill
Goodwill represents the excess of cost of acquisitions over the fair value of
net assets acquired and is amortized by the straight-line method over periods
ranging from 15 to 20 years.
- 24 -
Property and Equipment
Property and equipment is recorded at cost, including interest capitalized in
connection with the construction of major facilities. Depreciation, including
amortization on capital leases, is computed using the straight-line method over
the estimated useful lives of 3 through 40 years. Expenditures for maintenance
and repairs are charged to expense as incurred.
Revenue Recognition
The Company's pharmaceutical service contracts generally have terms ranging from
several weeks to several years. The typical contract is six months to one year
in duration. A portion of the contract fee is generally payable upon acceptance
of the agreement with the balance payable in installments over the life of the
contract. A majority of the Company's contracts are broken down into discrete
units of deliverable services for which a fixed fee for each unit is established
and revenue and related direct costs are recognized as units of deliverable
services are fulfilled. For all other service contracts, the Company allocates a
ratable portion of the total contract fee to the units of deliverable services
and recognizes revenue and the related direct costs as the units of deliverable
services are fulfilled. Revenue from the sale of the Company's products and the
related costs are recognized upon shipment of the products to customers.
Advertising Expense
The Company expenses advertising costs as incurred. Advertising expense was
$306,737, $308,831 and $551,848 for 2000, 1999 and 1998, respectively.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Stock Options
In accordance with Statement of Financial Accounting Standards No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation," the Company uses the intrinsic
value method to account for stock options, consistent with the existing rules
established by Accounting Principles Board No. 25, "Accounting for Stock Issued
to Employees."
- 25 -
2. Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average number
of common shares outstanding. Diluted earnings per share is computed on the
basis of the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares include the dilutive effect of employee
and director options to purchase common shares and convertible preferred shares,
which are assumed to be converted. There was no dilutive effect of employee and
director options to purchase common shares for fiscal year 2000. The dilutive
effect of employee and director options to purchase common shares was to
increase the weighted average number of common shares outstanding by 170,031 and
172,382 shares in 1999 and 1998, respectively. The dilutive effect of
convertible preferred shares was to increase the weighted average number of
common shares outstanding by 113,285 shares in 1998.
3. Acquisitions
Effective October 31, 1997 the Company acquired all of the capital stock of
Vetronics Inc., for cash approximating $200,000 and a $150,000 note payable. The
acquired business was involved in the distribution of veterinary equipment and
supplies in the United States.
Effective July 1, 1998 the Company acquired all of the capital stock of Clinical
Innovations Ltd., for cash approximating $1,500,000. The acquired business was
involved in the processing of bioanalytical samples for pharmaceutical firms in
the United Kingdom.
Effective October 1, 1999, the Company acquired all of the capital stock of
T.P.S., Inc. for cash approximating $400,000 and $740,000 in assumption of debt.
The acquired business was involved in providing preclinical services to the
pharmaceutical industry.
All acquisitions were accounted for using the purchase method of accounting and
the results of operations have been included in the consolidated financial
statements since the effective dates of acquisition. The purchase prices were
allocated to the net assets acquired, including $956,000 to goodwill, based upon
the fair market value at the date of acquisitions.
On an unaudited pro forma basis, revenue, net income and net income per common
share (diluted) for the years ended September 30, 1999 and 1998 were
$21,790,000, $194,000, $0.04 and $22,284,000, $782,000, $0.18, respectively.
This pro forma data presents the consolidated results of operations as if the
acquisitions had occurred on October 1, 1997, after giving effect to certain
adjustments, including amortization of goodwill, increased interest expense and
related income tax effects.
The pro forma results have been prepared for comparative purposes only and do
not purport to indicate the results of operations which would actually have
occurred had the acquisition been in effect on the date indicated, or which may
occur in the future.
Pro forma amounts for the years ended September 30, 1998 include, for certain of
the acquired entities, financial data for the years ended February 28 and
December 31, respectively, as it was not practicable to determine the September
30 year end results.
- 26 -
4. Inventories
Inventories at September 30 consisted of:
2000 1999
---- ----
Raw materials $ 1,288,121 $ 1,049,682
Work in progress 374,950 253,329
Finished goods 671,361 594,549
----------- ----------
2,334,432 1,897,560
LIFO reserve (99,788) (106,827)
------- --------
$ 2,234,644 $ 1,790,733
=========== ===========
5. Debt Arrangements
The Company has a working capital line of credit, which expires April 1, 2001
and allows borrowings of up to $3,500,000. Interest accrues monthly on the
outstanding balance at the bank's prime rate minus 50 basis points (9.0 % at
September 30, 2000) or at the London Interbank Offered Rate (LIBOR) plus 2% as
elected by the Company. The line is collateralized by inventories and accounts
receivable and requires the Company to maintain certain financial ratios. The
balance outstanding on this line of credit at September 30, 2000 was $2,267,281.
On June 24, 1999 the Company obtained a $3,500,000 commercial mortgage with a
bank. The mortgage note requires 59 monthly principal payments of $19,444 plus
interest followed by a final payment for the unpaid principal amount of
$2,352,804 due June 24, 2004. Interest is charged at the one-month LIBOR rate
plus 200 basis points (8.62% at September 30, 2000).
Cash interest payments of $498,513, $287,058 and $260,249 were made in 2000,
1999 and 1998, respectively. Cash interest payments for 1999 and 1998 included
interest of $64,833 and $127,077, respectively, which was capitalized. These
amounts included interest required to be paid on a portion of the undistributed
earnings of a subsidiary which qualifies as a domestic international sales
corporation.
- 27 -
6. Lease Arrangements
The Company has capital lease arrangements to finance the acquisition of
equipment. Future minimum lease payments, based upon scheduled payments under
the lease arrangements, as of September 30, 2000, are as follows:
2001 $ 307,494
2002 307,494
2003 302,215
2004 126,932
---- ---------
Total minimum lease payments 1,044,135
Amount representing interest 140,820)
---------
Present value of minimum lease payments 903,315
Less current portion (239,916)
---------
$ 663,399
=========
The total amount of property and equipment capitalized under lease obligations
as of both September 30, 2000 and 1999 was $1,917,625. Accumulated amortization
on capital leases at September 30, 2000 and 1999 was $668,852 and $482,604,
respectively.
The Company leases office space under noncancelable operating leases that
terminate in 2004. These leases contain renewal options ranging from 1 to 5
years. Total rental expense was $32,499, $33,849 and $27,498 in 2000, 1999, and
1998, respectively.
Future minimum lease payments at September 30, 2000 are as follows:
2001 $ 19,890
2002 19,890
2003 19,890
2004 3,315
---- -----
$ 62,985
=========
- 28 -
7. Income Taxes
Significant components of the Company's deferred tax liabilities and assets as
of September 30 are as follows:
2000 1999
---- ----
Deferred tax liabilities:
Tax over book depreciation $ 1,226,170 $ 1,114,510
Deferred DISC income 170,321 227,095
------------ ------------
Total deferred liabilities 1,396,491 1,341,605
Deferred tax assets:
Inventory pricing 117,636 64,380
Accrued vacation 154,982 125,199
Tax credit carryforward 205,000 -
Other-net 56,858 52,681
Foreign net operating loss 396,697 200,698
------------ ------------
Total deferred tax assets 931,173 442,958
Valuation allowance for deferred tax assets (396,697) (200,698)
------------ ------------
Net deferred tax assets 534,476 242,260
------------ ------------
Net deferred tax liabilities $ 862,015 $ 1,099,345
============ ============
Significant components of the provision for income taxes are as follows:
2000 1999 1998
---- ---- ----
Current:
Federal $ (245,378) $ 146,471 $ 80,911
State 51,405 99,129 50,458
----------- ------------ ------------
Total current (193,973) 245,600 131,369
Deferred:
Federal (230,925) 25,581 99,504
State (6,405) 6,320 23,469
----------- ------------ ------------
Total deferred (237,330) 31,901 122,973
----------- ------------ ------------
$ (431,303) $ 277,501 $ 254,342
============= ============ ============
- 29 -
The effective income tax rate varied from the statutory federal income tax rate
as follows:
2000 1999 1998
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increases (decreases):
Amortization of goodwill and other
nondeductible expenses (0.6) 2.9 3.3
Benefit of foreign sales corporation, net 1.5 (5.7) (6.2)
State income taxes, net of federal tax
benefit (1.6) 8.2 7.4
Research and development credit - (7.2) (13.4)
Nondeductible foreign losses (11.5) 1.1 10.3
Other 2.0 (0.5) 2.8
---- ------ ----
23.8% 32.8% 38.2%
===== ===== =====
For fiscal year 2000, the Company is allowed to carryback the loss to receive
refunds from prior taxes paid of $313,043.
In fiscal 2000, 1999 and 1998, the Company's foreign operations generated a loss
before income taxes of $612,496, $26,771 and $201,294, respectively.
Payments made in 2000, 1999, and 1998 for income taxes amounted to $67,000,
$212,400 and $78,000, respectively.
8. Shareholders' Equity
Initial Public Offering
On November 26, 1997, the Company completed an initial public offering of
1,250,000 Common Shares at an offering price of $8.00 per share. On December 19,
1997, the underwriters exercised an option to purchase an additional 100,000
common shares. The net proceeds to the Company from the public offering and the
exercise of the over-allotment option by the underwriters, after deducting the
underwriting discounts and commissions and offering expenses payable by the
Company, were approximately $9.4 million. Upon the closing of the offering, all
of the Company's outstanding convertible preferred shares were converted into
752,399 common shares.
Stock Option Plans
During 1990, the Company established an Employee Incentive Stock Option Plan
whereby options to purchase shares of the Company's common shares at fair market
value can be granted to employees of the Company. Options granted become
exercisable in four equal installments beginning two years after the date of the
grant. The plan terminated in the year 2000.
During fiscal 1989, the Company established an Outside Director Stock Option
Plan whereby options to purchase shares of the Company's common shares at fair
market value can be granted to outside directors. Options granted become
exercisable in four equal installments beginning two years after the date of
grant. The plan terminated on January 1, 1999.
- 30 -
The Company adopted new stock option plans, discussed below, in connection with
its initial public offering and accordingly does not plan to grant any more
options pursuant to the plans discussed above.
During fiscal 1998, the Company established an Employee Stock Option Plan
whereby options to purchase shares of the Company's common shares at fair market
value can be granted to employees of the Company. Options granted become
exercisable in four equal installments beginning two years after the date of
grant. The plan terminates in fiscal 2008.
During fiscal 1998, the Company established an Outside Director Stock Option
Plan whereby options to purchase shares of the Company's common shares at fair
market value can be granted to outside directors of the Company. Options granted
become exercisable in four equal installments beginning two years after the date
of grant. The plan terminates in fiscal 2008.
A summary of the Company's stock option activity and related information for the
years ended September 30 follows:
2000 1999 1998
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
Outstanding beginning
of year 206,299 $ 3.35 164,343 $ 2.70 272,671 $1.27
Exercised (48,296) 0.52 (19,030) 0.96 (145,328) 1.36
Granted 5,000 2.88 73,000 4.25 39,000 8.00
Terminated (28,768) 3.75 (12,014) 3.73 (2,000) 8.00
-------- ---------- -----------
Outstanding end of year 134,235 $ 4.27 206,299 $ 3.35 164,343 $2.70
========= ========== ===========
- 31 -
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
Range of September 30, Contractual Exercise September 30, Exercise
Exercise Prices 2000 Life Price 2000 Price
--------------- -------------- ----------- ---------- --------------- ----------
$1.01 - $1.50 8,292 1.28 $1.33 8,292 $1.33
1.51 - 2.10 36,943 2.47 1.70 36,943 1.70
2.11 - 8.00 89,000 7.86 5.61 13,500 6.10
------ ------
134,235 58,735
======= ======
Disclosure of pro forma information regarding net income and earnings per share
is required by SFAS No. 123 as if the Company has accounted for its employee
stock options granted subsequent to December 31, 1994, under the fair value
method as defined by that Statement. The fair value for options granted by the
Company was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions:
Risk-free interest rate 5.50%
Dividend yield 0.00%
Volatility factor of the expected market
price of the Company's common stock .53 (.43 in 1999:
.52 in 1998)
Expected life of the options (years) 7.0
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
- 32 -
For purposes of pro forma disclosures, the estimated fair value of the options
are amortized to expense over the related vesting period. Because compensation
expense is recognized over the vesting period, the initial impact on pro forma
net income may not be representative of compensation expense in future years,
when the effect of amortization of multiple awards would be reflected in the
consolidated statements of operations. The Company's pro forma information
giving effect to the estimated compensation expense related to stock options is
as follows:
2000 1999 1998
---- ---- ----
Pro forma net income (loss) $(1,415,284) $504,268 $367,190
Pro forma net income (loss) per share $ (0.31) $ 0.11 $ 0.08
The weighted average fair value of options granted during the year was $1.64,
$2.29 and $4.77 in 2000, 1999 and 1998, respectively.
9. Retirement Plan
Effective July 1, 1984, the Company established an Internal Revenue Code Section
401(k) Retirement Plan (the Plan) covering all employees over twenty-one years
of age with at least one year of service. Under the terms of the Plan, the
Company contributes 2% of each participant's total wages to the Plan. The Plan
also includes provisions for various contributions which may be instituted at
the discretion of the Board of Directors. The contribution made by the
participant may not exceed 18% of the participant's annual wages. The Company
made no discretionary contributions under the Plan in 2000, 1999, and 1998.
Contribution expense was, $256,107, $227,022 and $187,896 in 2000, 1999 and
1998, respectively.
- 33 -
10. Segment Information
The Company operates in two principal segments: analytical services and
products. The Company's analytical services unit provides analytical chemistry
support on a contract basis directly to pharmaceutical companies. The Company's
products unit provides liquid chromatography, electrochemical, and physiological
monitoring products to pharmaceutical companies, universities, government
research centers and medical research institutions. The Company evaluates
performance and allocates resources based on these segments. The accounting
policies of these segments are the same as those described in the summary of
significant accounting policies.
Operating Segments:
Year Ended September 30,
-----------------------
2000 1999 1998
----------- ------------ -------
(in thousands)
Revenue
Services $ 10,999 $ 9,993 $ 7,609
Products 8,224 9,858 10,616
---------- --------- ----------
Total revenue $ 19,223 $ 19,851 $ 18,225
========== ========= ==========
Operating Income (Loss)
Services $ (409) $ 2,075 $ 1,753
Products (783) (1,114) (1,062)
---------- --------- ----------
Total operating income (loss) (1,192) 961 691
Corporate income (expenses) (621) (114) (24)
---------- --------- ----------
Income (loss) before income taxes $ (1,813) $ 847 $ 667
========== ========= ==========
Identifiable Assets
Services $ 17,537 $ 16,523 $ 12,819
Product 9,125 9,798 9,461
---------- --------- ----------
Total assets $ 26,662 $ 26,321 $ 22,280
========== ========= ==========
Depreciation and Amortization
Services $ 1,218 $ 912 $ 560
Products 418 366 314
---------- --------- ----------
Total depreciation and amortization $ 1,636 $ 1,278 $ 874
========== ========= ==========
Capital Expenditures
Services $ 1,269 $ 3,285 $ 4,571
Products 304 769 369
---------- --------- ----------
Total capital expenditures $ 1,573 $ 4,054 $ 4,940
========== ========= ==========
- 34 -
Geographic Information:
Year Ended September 30
------------------------------------------------
2000 1999 1998
------------------------------------------------
(in thousands)
Sales to external customers
North America $ 13,891 $ 13,012 $ 12,715
Pacific Rim:
Japan 580 716 1,053
Other 232 695 771
Europe 2,317 2,776 1,126
Other 2,203 2,652 2,560
---------- -------- ---------
$ 19,223 $ 19,851 $ 18,225
========== ======== =========
Long-lived assets
North America $ 18,467 $ 16,991 $ 14,632
Europe 1,575 1,609 1,285
---------- -------- ---------
$ 20,042 $ 18,600 $ 15,917
========= ========= =========
Major Customers:
During 2000, 1999 and 1998, a major United States-based pharmaceutical company
accounted for approximately 21.0%, 22.2% and 19.6%, respectively, of the
Company's total revenues and 16.4% and 23.9% of total trade accounts receivable
at September 30, 2000 and 1999, respectively.
During 2000, a major United States-based pharmaceutical company accounted for
approximately 12.2% of the Company's total revenues and 13.8% of total trade
accounts receivable at September 30, 2000.
The Company sells its products through international distributors, one of which
represented 1.4%, 6% and 10% of 2000, 1999 and 1998 product revenues,
respectively. Accounts receivable from this foreign distributor was $21,962 and
$39,522 at September 30, 2000 and 1999, respectively.
11. Litigation
In April 1997, CMA Microdialysis Holding A.B. (CMA) filed an action against the
Company in the United States District Court for the District of New Jersey in
which CMA alleged that the Company's microdialysis probes infringe U.S. Patent
No. 4,693,832. Subsequent to September 30, 2000, the Company is working on a
settlement for this infringement case. The Company does not believe that the
financial terms of settlement will have a material adverse effect on the
Company's financial condition or its results of operations.
- 35 -
Bioanalytical Systems, Inc.
Quarterly Financial Data
Bioanalytical Systems, Inc.
Unaudited (Amounts in thousands, except for per share data)
For the Quarter Ended in Fiscal 2000 December 31 March 31 June 30 September 30
- ------------------------------------ ----------- -------- ------- ------------
Total revenue $4,446 $4,090 $5,452 $5,235
Gross profit 1,409 1,398 2,161 2,036
Net income (loss) (372) (427) (139) (444)
Basic net income (loss) per common share(1) (.08) (.09) (.03) (.10)
Diluted net income (loss) per common and
common equivalent share(1) (.08) (.09) (.03) (.10)
- ------------------------------------------------ ------------- ------------ ----------- ------------
For the Quarter Ended in Fiscal 1999 December 31 March 31 June 30 September 30
- ------------------------------------------------ ------------- ------------ ----------- ------------
Total revenue $4,598 $5,057 $4,973 $5,223
Gross profit 2,096 2,537 2,277 2,499
Net income (loss) (6) 200 67 309
Basic net income per common share(1) .00 .04 .01 .07
Diluted net income per common and common
equivalent share(1) .00 .04 .01 .07
(1) The sum of the net income per common share may not equal the annual net
income per share due to interim quarter rounding.
- 36 -
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
[Remainder of page intentionally left blank.]
- 37 -
Part III
Item 10. Directors and Executive Officers of the Registrant.
Name Age Position
- ----------------------------------------------------------------
Peter T. Kissinger, Ph.D......... 56..........Chairman of the Board;
President; Chief Executive Officer
Ronald E. Shoup, Ph.D.............49..........President, BAS Analytics; Director
Douglas P. Wieten.................39..........Vice President, Finance; Chief Financial
Officer; Treasurer
Candice B. Kissinger..............49..........Senior Vice President, Marketing;
Secretary and Director
Craig S. Bruntlett, Ph.D..........51..........Senior Vice President, International Sales
Donnie A. Evans...................54..........Vice President, Engineering
Stephen Geary, Ph.D...............59..........Vice President, United States Sales & Marketing
Lina L. Reeves-Kerner.............50..........Vice President, Human Resources
Michael P. Silvon.................53..........Vice President, Business Development
Michelle L. Troyer................29..........Corporate Controller
James B. Spence...................57..........Managing Director, BAS Analytics Ltd. and
BAS Instruments Ltd.
William E. Baitinger..............67..........Director
Michael K. Campbell...............49..........Director
John A. Kraeutler.................52..........Director
W. Leigh Thompson.................62..........Director
Peter T. Kissinger, Ph.D. founded the Company in 1974 and has served as its
Chairman, President and Chief Executive Officer since 1974. He is also a
part-time Professor of Chemistry at Purdue University, where he has been
teaching since 1975. Dr. Kissinger has a Bachelor of Science degree in
Analytical Chemistry from Union College and a Doctorate in Analytical Chemistry
from the University of North Carolina.
Ronald E. Shoup, Ph.D. has been President of the Company's services unit,
BAS Analytics, since 1990. He has been instrumental in developing many of the
Company's chromatographic applications. Dr. Shoup has a Bachelor of Science
degree in Chemistry and Mathematics and a Ph.D in Analytical Chemistry from
Purdue University.
Douglas P. Wieten has been Vice President, Finance since February 1999,
Chief Financial Officer since September 1997 and Treasurer since march 1997. He
served as Corporate Controller from 1992 to February 1999. Prior to that time,
Mr. Wieten worked at Ernst & Whinney (now Ernst & Young LLP), where he had been
employed since 1984. Mr. Wieten is a certified public accountant and has a
Bachelor of Science degree in Accounting from Butler University.
Candice B. Kissinger has been Senior Vice President, Marketing since
January 2000. She served as Vice President, International Sales and Marketing
since July 1981. From 1978 to 1981, Mrs. Kissinger served as an accounts
receivable clerk. Mrs. Kissinger has a Bachelor of Science degree in
Microbiology from Ohio Wesleyan University and a Master of Science degree in
Food Science from the University of Massachusetts. Mrs. Kissinger is the wife of
Dr. Peter Kissinger.
Craig S. Bruntlett, Ph.D. has been Senior Vice President of International
Sales since January 2000. From 1992 to 1999 he was Vice President,
Electrochemical Products. From 1980 to 1990, Dr. Bruntlett was Director of New
Products Development for the Company. Dr. Bruntlett has a Bachelor of Arts
degree in Chemistry and Mathematics from St. Cloud State University in Minnesota
and a Ph.D. in Chemistry from Purdue University.
Donnie A. Evans was the Company's first full-time employee, beginning as an
electronics engineer in 1978. Since January of 1988, he has been Vice President,
Engineering Services.
- 38 -
Stephen Geary, Ph.D has been Vice President, United States Sales since
January 1992. Dr. Geary is also responsible for the sales efforts of the
Company's clinical products. Dr. Geary has a Bachelor of Science degree in
Biology and Chemistry from Tufts University, a Master of Science degree in
Biology from the University of New Hampshire and a Ph.D in Biochemistry from
Syracuse University.
Lina L. Reeves-Kerner has been Vice President, Human Resources since 1995
and is responsible for the administrative support functions of the Company,
including shareholder relations, human resources and community relations. From
1980 to 1990, Ms. Reeves-Kerner served as an Administrative Assistant with the
Company. Ms. Reeves-Kerner has a Bachelor of Science degree in Business
Administration from Indiana Wesleyan University.
Michael P. Silvon, Ph.D. has been Vice President, Business Development
since March 1997. Dr. Silvon has been general manager, BAS Evansville and
Vetronics since January 2000. Prior to January 1997, Dr. Silvon was Manager,
Technical Services for Great Lakes Chemical and Vice President Sales & Marketing
at Hi-Port, Inc. in Houston, Texas. Before October 1993, Dr. Silvon was Regional
Business Manager-Americas for Zeneca Fine Chemicals following roles in
Commercial Development and Technology Planning. He has a Bachelor of Science in
Chemistry from Loyola University of Chicago, a Master of Business Administration
from Sacred Heart University and a Doctorate in Chemistry from the University of
Vermont.
Michelle L. Troyer has been the Corporate Controller since February 1999.
Ms. Troyer joined the Company in 1994 as a Staff Accountant and became Assistant
Controller in October 1996. Ms. Troyer has a Bachelor of Science degree in
Accounting from Purdue University and is a certified public accountant.
James B. Spence has been Managing Director, BAS Analytics Ltd. since July
1998. Since 1990 he had been Managing Director of Clinical Innovations, which
was acquired by the Company in July 1998. Mr. Spence was made a Fellow of the
Institute of Medical Laboratory Sciences in 1966.
William E. Baitinger has served as a director of the Company since 1979.
Mr. Baitinger has been Director of Technology Transfer at Purdue University
since 1988, responsible for all aspects of the program. Mr. Baitinger has a
Bachelor of Science degree in Chemistry and Physics from Marietta College and a
Master of Science degree in Chemistry from Purdue University.
Michael K. Campbell has served as a Company director since 1991. Mr.
Campbell has been the President and Chief Executive Officer of Powerway, Inc., a
software company, since 1993. From January 1992 until January 1993, he was Chief
Financial Officer of Hurco Companies, Inc. and president of Hurco manufacturing,
its largest division. He has a Bachelor of Science degree in Accounting from the
University of Southern Indiana.
John A. Kraeutler has served as a director of the Company since january
1997. Mr. Kraeutler has been President and Chief Operating Officer of Meridian
Diagnostics, Inc. since August 1992 and is also a director. Prior to that time,
Mr. Kraeutler was Executive Vice President and Chief Operating Officer of
Meridian Diagnostics, Inc. Mr. Kraeutler has a Bachelor of Science degree in
biology from Fairleigh Dickinson University as well as a master of Science
degree in Biology and a Master of Business Administration from Seton Hall
University.
W. Leigh Thompson, Ph.D., M.D. has served as a director of the Company
since January 1997. Since 1995, Dr. Thompson has been Chief Executive Officer of
Profound Quality Resources, Inc., a scientific consulting firm. Prior to 1995,
Dr. Thompson held various positions at Lilly Research Laboratories. Dr. Thompson
has a Bachelor of Science degree in Biology from the College of Charleston, a
Master of Science and a Doctorate in Pharmacology from the Medical University of
South Carolina and a Medical Doctor degree from The Johns Hopkins University.
Dr. Thompson is also a director of Chrysalis International Corporation, Corvas
International, Inc. GeneMedicine, Inc., La Jolla Pharmaceutical company,
Medarex, Inc., Ophidian Pharmaceuticals, Inc. and Orphan Medical, Inc.
- 39 -
Item 11. Executive Compensation.
The information included under the captions "Election of Directors -
Compensation of Directors" and "Executive Compensation" in the Proxy Statement
is incorporated herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained under the captions "Share Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated herein
by reference in response to this item.
Item 13. Certain Relationships and Related Transactions.
The information contained under the caption "Certain Transactions" in the
Proxy Statement is incorporated herein by reference in response to this item.
[Remainder of page intentionally left blank.]
- 40 -
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this Report.
1. Financial Statements:
Included as outlined in Item 8 of Part II of this report.
Report of Independent Auditors.
Consolidated Balance Sheets as of September 30, 2000 and
September 30, 1999.
Consolidated Statements of Operations for the Years Ended
September 30, 2000, 1999 and 1998.
Consolidated Statements of Shareholders' Equity for the Years
Ended September 30, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
No schedules are required to be filed as part of this report.
Schedules other than those listed above are omitted as they are
not required, are not applicable, or the information is shown in
the Notes to the Consolidated Financial Statements.
(b) Reports on Form 8-K. None.
(c) Exhibits. See Index to Exhibits.
- 41 -
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.
BIOANALYTICAL SYSTEMS, INC.
(Registrant)
By: /s/ Peter T. Kissinger
---------------------------------------------------------
Peter T. Kissinger
President and Chief Executive Officer
By: /s/ Douglas P. Wieten
---------------------------------------------------------
Douglas P. Wieten
Chief Financial Officer, Treasurer, VP Finance
(Principal Financial and Accounting Officer)
Date: December 28, 2000
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 Capacity Date
- --------- -------- ----
/s/ Peter T. Kissinger President, Chief Executive December 28, 2000
- ----------------------------- Officer and Director
Peter T. Kissinger
/s/ Douglas P. Wieten Chief Financial Officer, December 28, 2000
- ----------------------------- and Treasurer
Douglas P. Wieten
/s/ William E. Baitinger Director December 28, 2000
- -----------------------------
William E. Baitinger
/s/ Michael K. Campbell Director December 28, 2000
- -----------------------------
Michael K. Campbell
/s/ Candice B. Kissinger Director December 28, 2000
- -----------------------------
Candice B. Kissinger
/s/ John A. Kraeutler Director December 28, 2000
- -----------------------------
John A. Kraeutler
/s/ Ronald E. Shoup Director December 28, 2000
- -----------------------------
Ronald E. Shoup
/s/ W. Leigh Thompson Director December 28, 2000
- -----------------------------
W. Leigh Thompson
- 42 -
INDEX TO EXHIBITS
Sequential
Number Numbering
Assigned In System Page
Regulation S-K Number of
Item 601 Description of Exhibits Exhibit
-------- ----------------------- -----------
(2) No Exhibit
(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 to 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).
4.2 See Exhibits 3.1 and 3.2
(9) No Exhibit
(10) 10.2 Bioanalytical Systems, Inc. Outside Director Stock Option Plan
(Incorporated by reference to Exhibit 10.2 to Registration
Statement on Form S-1, Registration No. 333-36429).
10.3 Form of Bioanalytical Systems, Inc. Outside Director Stock Option
Agreement (Incorporated by reference to Exhibit 10.3 to
Registration Statement on Form S-1, Registration No. 333-6429).
10.4 Bioanalytical Systems, Inc. 1990 Employee Incentive Stock Option
Plan (Incorporated by reference to Exhibit 10.4 to Registration
Statement on Form S-1, Registration No. 333-6429).
10.5 Form of Bioanalytical Systems, Inc. 1990 Employee Stock Option
Agreement (Incorporated by reference to Exhibit 10.5 to
Registration Statement on Form S-1, Registration No. 333-6429).
- 43 -
10.6 Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option
Plan (Incorporated by reference to Exhibit 10.26 to Registration
Statement on Form S-1, Registration No. 333-6429).
10.7 Form of Bioanalytical Systems, Inc. 1997 Employee Incentive Stock
Option Agreement (Incorporated by reference to Exhibit 10.27 to
Registration Statement on Form S-1, Registration No. 333-36429).
10.8 1997 Bioanalytical Systems, Inc. Outside Director Stock Option
Plan (Incorporated by reference to Exhibit 10.28 to Registration
Statement on Form S-1, Registration No. 333-36429).
10.9 Form of Bioanalytical Systems, Inc. 1997 Outside Director Stock
Option Agreement (Incorporated by reference to Exhibit 10.29 to
Registration Statement on Form S-1, Registration No. 333-6429).
10.10 Business Loan Agreement by and between Bioanalytical Systems,
Inc., and Bank One, Indiana, N.A. dated April 1, 2000
(Incorporated by reference to Exhibit 10.10 to Form 10-Q for the
quarter ended June 30, 2000).
10.11 Commercial Security Agreement by and between Bioanalytical
Systems, Inc. and Bank One, Indiana, N.A., dated March 1, 1998
(Incorporated by reference to Exhibit 10.15 to Form 10-Q for the
quarter ended March 31, 1998).
10.12 Negative Pledge Agreement by and between Bioanalytical Systems,
Inc. and Bank One, Indiana, N.A., dated March 1, 1998
(Incorporated by reference to Exhibit 10.16 to Form 10-Q for the
quarter ended June 30, 1998).
10.13 Promissory Note by and between Bioanalytical Systems, Inc. and
Bank One, Indiana N.A., dated June 24, 1999 related to loan in
the amount of $3,500,000 (Incorporated by reference to Exhitibit
10.18 to Form 10-Q for the quarter ended June 30, 1999).
10.14 Promissory Note for $3,500,000 executed by Bioanalytical Systems,
Inc. in favor of Bank One, Indiana N.A., dated April 1, 2000
(Incorporated by reference to Exhibit 10.19 to Form 10-Q for the
quarter ended June 30, 1999).
- 44 -
(12) No Exhibit
(13) No Exhibit
(16) No Exhibit
(18) 21.1 No Exhibit
(21) 21.1 Subsidiaries of the Registrant
(23) 23.1 Consent of Independent Auditors
(24) No Exhibit
(27) 27.1 Financial Data Schedule
(99) No Exhibit
- 45 -