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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission File Number 000-21930
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BIOSOURCE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0340829
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
542 Flynn Road, Camarillo, California 93012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 987-0086
----------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
Preferred Stock purchase rights
----------------
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 periods 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 no disclosure of delinquent filers in response to
Item 405 of regulation S-K is 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 the Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of the voting stock (based on the last sale price
of such stock as reported by the National Association of Securities Dealers
Automated Quotation National Market System) held by non-affiliates of the
registrant as of March 20, 2000 was $71,484,600.
The number of shares of the Registrant's common stock outstanding as of March
20, 2001 was 10,397,753.
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PART I
Item 1. Description of Business
Overview
We develop, manufacture, market and distribute products used worldwide in
biomedical research that are instrumental in the development of new drug
therapies and medical diagnostic methods. Our products enable scientists and
biomedical researchers to better understand the biochemistry, immunology and
cell biology of the human body, as well as disease processes. We offer over
3,200 products that we group into the following product lines: Assays;
Antibodies; Bioactive Proteins and Peptides; Oligonucleotides; and Serum,
Buffers and Media. Through acquisitions and internal growth, we believe we offer
a unique combination of technological, production, and research and development
skills resulting in a full spectrum of products and services for the worldwide
pharmaceutical and biotechnology industries.
We believe we have a strong scientific research staff, a broad product
line and an established trade name, giving us a strong presence in the
biomedical research market. We intend to continue our focus on new product
development, and to aggressively seek to acquire businesses, products and
technologies complementary to our current business through acquisitions,
licensing or joint ventures.
Industry Overview
The biomedical research industry has seen significant advances in the
understanding of physiological processes at the cellular and molecular level. In
particular, the biotechnology industry has seen a substantial amount of growth
over the last year as the sequencing of the human genetic structure, or genome,
has been completed. Researchers have identified thousands of previously unknown
genes that potentially play key roles in physiological systems in the human
body. These genes are of significant interest to the pharmaceutical industry,
since they can be used as the basis of new therapeutic discovery and
development. The increase in biomedical research resulting from the sequencing
of the human genome has resulted in the need for methods and products to
accelerate and assist this research. The core competencies we have developed in
molecular and cellular biology, immunology and custom services address this
need. Biomedical researchers around the world are constantly in search of
specialty research products and services, which are necessary to conduct both
basic and clinical research. This research is conducted in settings that range
from university and medical school laboratories to pharmaceutical and
biotechnology research and development groups. The success of this type of
research depends upon the availability of high quality biological reagents and
custom services, including the types of assay kits, antibodies, biologically
active proteins, molecular probes and serums that we develop, manufacture and
sell.
Strategy
Our strategy is to transition the Company from a reagent supplier to an
integrated solutions provider accelerating the drug discovery process. In order
to facilitate this transition, the Company is:
. Selectively investing in our current assay business to grow it at a rate
significantly higher than the overall market. This growth will be achieved
by exploiting novel markers and key technology advantages in our assay
kits.
. Continuing to exploit our cell biology expertise by introducing new
products for signal transduction. Our unique technologies produce highly
specific antibodies that can detect phosphorylation at specific sites on
key markers. This capability is in increased demand as scientists discover
more about the manner in which diseases progress in the human body.
. Utilizing strategic partnerships to transition from providing reagents to
providing reagent systems that integrate our core reagent capability with
novel platform and instrument technologies. We see unique opportunities
for the Company in the high-content and high throughput screening markers.
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. Expanding our presence in functional genomics and proteomics by building
critical mass in our custom oligonucleotide, protein and peptide
businesses. This growth will be achieved through organic growth and by
acquisition.
. Proactively acquiring other solutions-based technologies such as unique
instrumentation, automation and sample preparation equipment through
partnership, joint venture, or acquisition.
Products
We offer over 3,200 different products, which we group into the following
product lines:
. assays
. antibodies
. bioactive proteins and peptides
. oligonucleotides
. serum, buffers and media
Assays
Enzyme-Linked ImmunoSorbent Assay test kits. We have developed
methodologies for the measurement of cytokines and chemokines in blood or other
biological samples. ELISA test kits are a combination of cytokines, their
antibodies and other chemical reagents, and are used to measure the presence or
quantity of a particular bioactive protein in serum, plasma or other biological
sample. The quantitation of these cytokines and chemokines has been shown to be
an excellent way for scientists to determine the status of the immune system.
Since many of the current targets of pharmaceutical intervention are designed to
modulate the immune system, using these quantitation markers as a means for
gauging the effectiveness of treatment is becoming a key monitor.
In a typical ELISA test kit, an antibody is immobilized or "bound" on a
microtiter well of the kit's test plate. A sample containing the antigen that is
to be measured is added by the researcher and allowed to react with the bound
antibody. After the well is washed, a second antibody with a specific enzymatic
tag is added and allowed to react with the bound antigen. After washing away any
remaining free antibody, the researcher adds a substrate that produces a colored
reaction. The amount of color is proportional and thereby indicates the amount
of antigen present, which can be measured even in minute concentrations, using
common laboratory instruments. This method of quantitation of these antigens has
become an integral tool both in research and diagnostic applications as it
provides a relatively inexpensive, accurate and rapid method for the evaluation
of immune status.
Our ELISA tests produce results in a few hours, compared to days or even
weeks with bioassays. We offer kits for human, mouse, rat, monkey and swine
proteins. The diversity of species is important to allow investigators to
establish numerous measurements in pre-clinical animal model systems. We offer
over 290 types of ELISA kits and we believe we are the leader in sales of rat,
monkey and swine cytokine ELISA kits. Detection of fluctuations in cytokine
levels by ELISA tests, whether in an in vitro cell culture experiment of a new
drug or in a patient's serum, provide researchers and scientists with valuable
information in understanding disease progression, therapy and diagnosis.
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Of the more than 290 kits we offer, the following table illustrates a few
of the more common applications of our ELISA test kits:
Test Kit Characteristics/Application
-------- ---------------------------
Tau This kit detects and quantitates the presence and phosphorylation
state of an important brain protein thought to be involved in the
development of Alzheimer's disease. When this protein is modified in
the cell by the addition of phosphate groups at specific amino acid
sites, the biological activity of the protein changes. In certain
disease states, abnormally high levels of phosphorylation occur,
which cause the protein structures to destabilize, ultimately
leading to neuronal degeneration. Deposition of filamentous tau is
implicated in other neurodegenerative diseases including cortical
basal degeneration (CBD), progressive supranuclear palsy (PSP),
Pick's disease, and certain forms of Parkinson's disease.
Pharmaceutical companies are keenly interested in developing drugs
that can halt specific patterns of phosphorylation without hampering
normal cell activity. The ability to quantitate the phosphorylation
state at specific sites will assist this effort.
Rb This kit detects and quantitates the presence and phosphorylation
state of an important cellular regulation protein associated with
cell division. This protein, known as Retinoblastoma protein or Rb,
is one focus of efforts to develop anti-cancer drugs. The activity
of Rb is controlled by phosphorylation of the protein at specific
amino acids by a select group of protein kinases called cdks. If too
much phosphorylation of Rb occurs, its ability to halt cell division
is hampered, as is the case in malignant cells. The ability to
specifically quantitate the level of phosphorylation of this protein
by kinases and the impact of kinase inhibitors on normal and
abnormal phosphorylation is a key development in the drug
development process.
IL-6 This kit detects and quantitates a cytokine that is extremely
important in the study of inflammation. IL-6 is produced by a number
of cells in the body and its actions regulate the growth and
differentiation of various cells of the immune system. IL-6 induces
a variety of important proteins in the body in response to
inflammation or tissue injury. Although most healthy individuals
have undetectable levels of IL-6 in their serum, huge quantities of
IL-6 are detected in severe inflammatory situations such as
septicemia. The elevation of serum IL-6 precedes that of acute phase
proteins, e.g., in a postoperative phenomenon, and may thus be a
sensitive early parameter to investigate inflammatory conditions.
Serum levels of IL-6 are used in studies of surgical or traumatic
tissue injuries, infectious diseases, auto-immune diseases including
arthritis, graft rejection, alcoholic liver cirrhosis, malignancies,
etc.
Radioimmuno-assays. We produce and market RIAs, which are used
internationally in clinical laboratories for the measurement of hormones and
proteins important in growth, reproductive and thyroid disease. These assays
utilize radioisotopically labeled molecules to compete with non-isotopically
labeled molecules for sites on known antibody concentrations. RIA is a mature
technology used primarily in European and other foreign countries and is not
widely used in the United States.
Other assays. We have combined our oligonucleotide and ELISA technologies
to develop a portfolio of other assay kits that measure the quantity of
messenger RNA,
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the type of RNA that serves as a template for protein synthesis, of various
cytokines in blood, cultured cells or tissues. Our molecular analysis kit
product line permits detection of the individual genes, and quantitates the
amount of the gene that encodes for a specific protein. We also have developed
kits that allow researchers to measure multiple genes at the same time from a
single sample.
Antibodies
Antibodies are used as detector systems in the research of normal and
abnormal proteins. Antibodies are proteins generated by immune cells in response
to foreign substances, which are called antigens. Antibodies have specific amino
acid sequences, which cause them to interact only with the antigen that induced
their creation. Antibodies circulate in the blood and assist the body's immune
system by searching out and neutralizing or eliminating antigens. Antibodies are
used by researchers in a variety of applications, including neutralization
studies in bioassay systems, as capture and detection molecules for protein
quantitation and for cellular differentiation. Antibodies used in research are
generally produced by injecting an antigen into animals, which cause the
animals' immune system to produce an antibody specific to that antigen.
Our secondary antibody product line provides researchers and biotechnology
companies with a broad array of high quality reagents used to develop analytical
signals in various assays. In addition, other companies use our secondary
antibodies as a component of their test kits.
We also have developed a significant catalog of innovative signal
transduction tools that enable customers to more readily understand the complex
signals, which control cellular processes. Many of these tools are antibodies
that recognize specific, activated or inactivated forms of proteins containing
one or more molecules of phosphate at specific sites. Such an addition of
phosphate molecules, which is referred to as phosphorylation, or removal of
phosphate molecules, which is referred to as dephosphorylation, control most of
the signaling within and between cells. Diseases such as cancer, heart disease
and Alzheimer's have been shown to be at least in part due to the malfunctioning
of key molecules within cells, in many cases due to alterations in their
activity through altered phosphorylation.
We offer over 1,800 antibody products. The following table illustrates
some of the uses for the antibodies we offer:
Uses Description
- ---- -----------
Flow Cytometry In order to identify specific cell types by the
nature of the antigens expressed on their surface,
antibodies are bound to cells and visualized by
labeling the antibody molecules with a fluorescent
dye or "fluorochrome." The result is examined with
an instrument known as a flow cytometer.
ELISA Test Kits Antibodies are used in our ELISA test kits to detect
and measure proteins in biological fluids. An
antibody is coupled with an enzyme which reacts with a
colorless substrate in the presence of a sample
containing the antigen of interest to generate a
colored reaction product. The color produced is
proportional to, and thereby indicates the amount
of, antigen present in the sample.
High Throughput High throughput screening permits the researcher to
Screening test thousands of drug candidates in a short period
of time for their effect on target molecules. In
order to be used in this manner, we conjugate our
antibodies to different dyes or enzymes.
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Immunoblotting Immunoblotting uses antibodies to identify a
specific protein in a complex mixture. In this
process, a protein of interest is separated by
molecular weight using gel electrophoresis. A
specific antibody is then passed over the mixture,
and any protein that binds to the antibody is
visibly detected.
The research conducted by our customers often requires that we manufacture
unique, specific peptides or antibodies for custom research projects. Previously
unidentified genes and proteins are being identified at a rapid rate, which
often precedes the introduction of catalog offerings by many months to years.
Through our QCB subsidiary we engage in the manufacture of these custom peptides
and antibodies thus allowing customers to perform timely research on these new
or proprietary targets. The capabilities to provide custom peptides and
antibodies as well as innovative catalog products further strengthens our
strategic relationships with our customers and has led to the development of new
catalog products and expanded sales opportunities.
Bioactive Proteins and Peptides
Proteins, which are chains of amino acids in particular sequences, and
their interactions are responsible for all of the biochemical and physical
properties of a cell, as well as variations among different types of cells.
Proteins take various forms, including enzymes, hormones, antibodies, receptors,
cytokines and chemokines. Proteins are ideal for use in basic research, drug
discovery, enzymology, high throughput screening, in vivo studies, x-ray
crystallography or as antigens for antibody production. Our primary protein
products are cytokines and chemokines, which are regulatory molecules that
control growth and differentiation of cells.
Cytokines. The development of an effective immune response involves
complex cell-to-cell communications, which are mediated by a group of small
hormone-like soluble secreted proteins collectively called cytokines. Cytokines,
like growth factors, interact with specialized target receptors on the surface
of the cells and stimulate a chain of secondary messengers leading to a
biological response. These responses result from changes in both the molecular
capabilities and behaviors of cells. For example, cytokines can activate cells
to recognize and eliminate harmful bacteria and viruses. They carry vital
signals to the cell's genetic machinery that can trigger it to grow or stop
growing. Cytokines can also signal a cell to differentiate, that is, to acquire
the features necessary for it to take on more specialized tasks. Specific
cytokines play a key role in stimulating cells surrounding a wound to grow and
divide and also in attracting migratory cells to the site. Some cytokines have a
regulatory function, and other cytokines exert direct effects of their own.
Cytokines are extracted from natural sources, such as human and animal
platelets, white blood cells and lymphatic cells, or are produced through
genetic engineering, also known as recombinant DNA technology. Cytokines
coordinate and orchestrate the proper functioning of the immune system. In
addition to producing the human cytokines, we also produce the equivalent
proteins from mice, rats, swine and monkeys. Many cytokines are being
investigated for their ability to activate or suppress host immunity. Cytokines
and other similar growth factors and adhesion molecules are instrumental in the
body's defense against cancer, AIDS and other life-threatening disorders.
Chemokines. Chemokines are specific proteins that regulate the recruitment
and activation of white blood cells and other sites of inflammation. Chemokines
function by binding to receptors on the surface of affected cells. Tremendous
interest in chemokines exists due to recent studies linking chemokines and their
receptors to the development of HIV.
Other Proteins. To date we have focused on cytokines, chemokines and
growth factors; however, with the progress of the human genome project, protein
discoveries will expand beyond these proteins. Signal transduction proteins, of
which it is hypothesized that only a fraction have been discovered, will be
important in high
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throughput screens of drug candidates since the irregular functioning of these
proteins is involved in substantially all diseases. Additionally, researchers
will want reagents to the nuclear proteins, cytoskeletal proteins and others
that will be discovered to study their role in various diseases. Reagents to
these markers can be created using our core competencies.
We offer over 260 protein products. The following table shows examples of
different cytokines we produce and use:
Cytokine Research Uses
- -------- -------------
IL-4 Interleukin 4 is a protein that has been observed to have direct
growth-suppressive activity on a variety of malignancies. IL-4 is used
in cancer research.
VEGF Vascular Endothelial Growth Factor regulates angiogenesis, the process
of new blood vessel growth. VEGF is used in drug development, cancer
research and as a growth factor for endothelial cells.
TNF Tumor Necrosis Factor is a protein that plays a vital role in the
regulation of the immune system. TNF is used to study immunological
processes, cancer, inflammation and septic shock.
Peptides. Bioactive peptides are subsections of proteins or small proteins
that are synthetically created. These peptides represent the active or
inhibitory site of a particular protein, and are used to study the activity of
various proteins. Some bioactive peptides, such as beta amyloid peptides, have
been shown to play a major role in the development of Alzheimer's Disease. We
sell a significant amount of beta amyloid peptides as well as many other
bioactive peptides through our QCB subsidiary.
Oligonucleotides
The production of oligonucleotides is a custom service we provide for
researchers engaged in molecular biology. An oligonucleotide is a synthesized
polymer made up of the same building blocks that form DNA. Synthetic
oligonucleotides have been used in molecular biology for over twenty years,
essentially as templates for nucleic acid and protein synthesis, and more
recently, as the therapeutic agents for the inhibition of gene expression or as
a diagnostic agent to identify disease. DNA is used by almost every discipline
in biomedical research in both academic and commercial areas, including
molecular biology and cell biology departments of major universities and
biomedical companies developing gene therapy products. These researchers use
synthetic oligonucleotides to determine the exact sequence of a gene, or to
perform experiments leading to the potential development of pharmaceutical
drugs. The primary use of the oligonucleotides we develop and sell is for DNA
sequencing and polymerase chain reaction, or PCR, priming.
In DNA sequencing, we synthesize oligonucleotides pursuant to customer
specifications, which they use to initiate a process of sequencing a DNA strand.
DNA sequencing is used in a wide range of biomedical research applications to
identify the makeup of particular strands of DNA.
In PCR priming, our synthesized oligonucleotides are used by our customers
in combination with other reagents to amplify a specific genetic sequence
isolated from a cell sample. After PCR amplification, gel electrophoresis is
used to identify and even to quantitate a specific DNA or RNA sequence from that
sample. PCR is an extremely powerful tool in molecular biology research because
it can amplify genetic information from a single copy of DNA or RNA. Using PCR
technology, the presence of the genetic message used to code for the production
of protein can be identified, thereby offering numerous possibilities in the
detection of genetic disorders, monitoring disease progression, and in
understanding cellular functions.
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Genomics research requires large quantities of oligonucleotides. DNA
arrays for expression profiling and single nucleotide polymorphism, or SNP,
analysis all require the use of synthetic DNA oligonucleotides. In addition,
high throughput screening techniques, used in drug discovery are incorporating
the use of fluorescent modified DNA oligonucleoticle probes to detect and
quantify target gene expression. We have developed technologies to rapidly
produce and manufacture large number of high quality DNA oligonucleotides for
DNA array construction and developed proprietary processes to produce
fluorescent probes.
The following table illustrates some of the uses for the DNA
oligonucleotide services we offer:
Uses Applications
- ---- ------------
Primers Oligonucleotides are used in the initiation of the PCR process.
Probes DNA oligonucleotides are used in hybridization reactions to search and
Energy Transfer, probes are fluorescent probes used in real time
PCR quantitation and diagnostic molecular analysis. We offer both
custom and standard FRET probes for our customers.
Arrays Oligonucleotides are used on a solid matrix to profile gene expression
or single nucleotide polymorphisms, or SNPS.
Serum, Buffers and Media
We manufacture over 240 sera, buffer and media products in our catalog. We
also offer custom formulation services for unique applications. These products
are vital in growing specialized cell cultures. In most cases, cell cultures are
a primary testing method for the effectiveness of vaccines and drugs for a
variety of diseases.
Customers
We have over 3,400 customers worldwide, including the customers of our
distributors. No single customer accounted for 10% or more of our total revenue
during any of the last three years. Our customers include:
Pharmaceutical Biotechnology Universities Government
-------------- ------------- ------------ ----------
American Home Products Amgen Brigham and Women's Hospital Centers for Disease Control
Aventis Pharmaceuticals Berlex Laboratories Georgetown University Food and Drug Administration
Baxter Healthcare Biogen Johns Hopkins University National Cancer Institute
Boehringer Ingelheim Chiron UCLA National Institutes of Health
Glaxo Wellcome Human Genome Sciences UC San Francisco VA Medical Centers
Johnson & Johnson Hyseq University of Michigan U.S. Army Research
Merck & Company Icos University of Pennsylvania
Pfizer IDEC Pharmaceuticals University of Texas MD Anderson
Upjohn Pharmacia Rigel Pharmaceuticals Cancer Research Center
Schering-Plough
Research and Development
As a reagent company with significant internal R&D and manufacturing
capability, BioSource strives to produce uniquely capable reagents to markers of
interest for the pharmaceutical and research community. Reflecting our strategy,
we are pursuing development in high-growth markets. Traditionally, we have
focused our research and
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development in the area of extracellular signaling molecules. BioSource has been
predominantly known, in this respect, for our work in cytokines. Cytokines are
soluble proteins that act as chemical communicators between cells and continue
to play an important role in disease processes. We will continue to leverage
this immunological expertise to appropriately expand our product offerings in
this area. We have also achieved success in extending our product lines into
intracellular signaling, more commonly known, signal transduction. Signal
transduction is a market that is growing in importance as researchers begin to
understand its central role in disease. We also plan to exploit the increasing
demand for new high-content and high-throughput platforms that enable
pharmaceutical and biotechnology companies to fully realize the opportunities
represented by the sequencing of the human genome.
Therefore, our current research and development activities are focused in the
following areas:
. Development of reagents for new detection technologies and assay platforms
for the growing high-content and high-throughput screening markets.
. Selective addition of new cytokine, chemokine and growth factors to our
existing product offerings
. Development of new signal transduction reagents, particularly focused on
cell adhesion, growth factor signaling and stress
Currently we employ 39 research scientists, sixteen of whom hold Ph.D.'s.
Among these professionals are experts in peptide chemistry, molecular biology,
immunology and signal transduction. In particular, their knowledge is
fundamental to the development of peptides, oligonucleotides, proteins,
antibodies and assay kits. Our research laboratories are located in Camarillo,
California; Hopkinton, Massachusetts; and Nivelles, Belgium. In the year ended
December 31, 2000, we introduced over 400 new products, of which approximately
85% were developed by our scientists. In addition, as of March 18, 2001, we had
approximately 98 products under development. We spent approximately $3,575,400,
$3,315,400, and $2,648,300 on research and development in 2000, 1999 and 1998
respectively.
Manufacturing
Our reagent products and ELISA test kits are manufactured in Camarillo,
California. We manufacture oligonucleotides at our laboratories located at our
Keystone facility in Foster City, California. Our custom antibodies are
manufactured at the laboratory facilities of our QCB facility in Hopkinton,
Massachusetts. Our serum, buffers and media are manufactured at our Biofluids
facility in Rockville, Maryland. We also manufacture antibodies and assay kits
at the facilities of our European facility in Nivelles, Belgium.
Labeling, packaging, and shipping are carried out independently at each
facility. We purchase our packaging components from outside suppliers who follow
our own custom packaging designs. We have an internal graphic arts department
located at our Camarillo, California facility that designs and produces our
packaging and marketing materials. We believe there are numerous available
suppliers for our packaging components.
We believe that we have adequate supplies of raw materials on hand to
continue to manufacture almost all of our products and meet customer demand, and
that those materials that we do not produce internally are readily available
from multiple sources.
Sales and Marketing
We have 25 sales representatives worldwide. The principal markets for our
products are in the United States, Japan and Western Europe. We have a direct
sales force strategically located in major metropolitan areas in the United
States. The use of a direct sales force provides us with an opportunity to
discuss directly with researchers and scientists' new developments and trends in
the industry. We advertise in various scientific trade journals and distribute
our own product catalog to all current and selected potential customers. We sell
to our international markets directly through our European subsidiary, and we
use
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international distributors that specifically target selected foreign life
science markets.
Our sales people hold a minimum of a biological sciences undergraduate
degree and undergo training in the nature and application of our products and
proven selling techniques. We believe that by investing in the scientific
training of our sales force, we are able to determine the needs of researchers
and scientists in the biomedical community. Our sales force is used to provide
valuable feedback for product development. Each representative is responsible
for the maintenance of existing accounts as well as the generation of new
business. Representatives are paid a base salary and commissions. The
commissions are based upon sales growth over previous years' sales levels.
Besides the United States, we sell directly to Germany, Belgium, Holland
and the United Kingdom, and use a network of approximately 40 international
distributors covering 41 other countries. We utilize a network of both exclusive
and non-exclusive international distributors, but we generally grant exclusive
distribution rights only where the distributor maintains direct field
representatives proportionate to the potential for sales of our products in a
defined geographical area. In order to serve as our distributor, the distributor
must agree to and meet acceptable annual sales goals. We offer all of our
distributors annual training to enhance their knowledge of our products as well
as their respective applications, solicit requests for new products and
ultimately to increase sales.
Competition
We are engaged in a segment of the health care products industry that is
highly competitive. Our primary competitors include biotechnology companies such
as Techne Corporation, BD BioSciences, New England Biolabs, and Invitrogen. Many
of our competitors have been involved in the health care industry significantly
longer than we have and benefit from greater name recognition. In addition, many
of our competitors have greater resources to devote to research and development,
sales and marketing and occasionally engage in price cutting measures to achieve
leadership in their field. However, we believe that by offering a very broad and
complete product line that enables the end user to obtain many products from one
source we gain a competitive advantage. In addition, competition in our markets
generally focus on the following factors:
. quality
. speed of delivery
. application/customer support
. breadth of product offerings and
. price.
Patents and Trademarks
We do not own any patents and do not believe that patent protection is
available for any of our products or processes. We seek to protect our interests
by treating technologies and know-how as trade secrets and by requiring all
employees and contractors to execute invention and assignment agreements with
us, which include confidentiality provisions.
"TAGOImmunologicals," "Cytoscreen," "Primescreen," "ICScreen" and
"Cytosets" are unregistered product trademarks used for some of our products,
but are only of limited importance to our business. "Biofluids" is also a
registered trademark we acquired as part of our acquisition of Biofluids in
December 1998.
Government and Environmental Regulation
Except as we indicate in the following paragraph, approval by the Food and
Drug Administration is not required for the sale of any of our products in the
United States because our products are marketed and sold for research use only.
Research
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products are not currently required to comply with the lengthy FDA approval
process associated with diagnostic or therapeutic products. In the event we
develop products directly for the diagnostic market in the United States, we
will be required to obtain FDA approval prior to selling them. This approval, if
required, could be time consuming and costly.
Some of our products, however, are used by our customers as raw materials
or intermediates in the production of diagnostic products. As such, we received
clearance by the State of California and the FDA to manufacture our
TAGOImmunologics product line as Analyte Specific Reagents. These reagents are
classified as Class I biologics that are manufactured in compliance with the
FDA's Quality System Regulation, also known as cGMP. This registration allows us
to market these products to clinical laboratories and manufacturers of in vitro
diagnostic products.
We believe that we are materially in compliance with the Occupational
Safety and Health Act, the Environmental Protection Act, the Toxic Substances
Control Act, and other similar laws of general application.
Our European subsidiary's clinical products are produced in facilities
that have achieved ISO 9001 certification, and are eligible to be used in Europe
for clinical diagnostics. In all of our markets in which we sell through
distributors, our distributors are responsible for compliance with the
applicable governmental regulations.
Except as we indicated above, we are not subject to direct governmental
regulation other than the laws and regulations generally applicable to
businesses in the jurisdictions in which we operate, including those governing
the handling and disposal of hazardous wastes and other environmental matters.
Our research and development activities involve the controlled use of small
amounts of hazardous materials, chemical and radioactive compounds. Although we
believe that our safety procedures for handling and disposing of such materials
comply with applicable regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, we could be held liable for resulting damages. This liability
could have a material adverse effect on us.
Employees
As of March 21, 2001, we employed 237 individuals, 227 of who were full
time employees. Sixteen of our employees at that date had doctoral degrees.
None of our employees in the United States is represented by a labor
union. As of March 21, 2001, 50 of our 237 employees worked for our BioSource
Europe subsidiary, which is located in Nivelles, Belgium. As is customary under
Belgian labor law, employees of our Belgian subsidiary, BioSource Europe S.A.,
are represented by three national unions who represent employee interests to the
national chemistry industry employer organization. Pursuant to Belgian law, we
have historically been subject to heightened restrictions regarding severance
obligations applicable to companies with more than 50 employees. Because we now
employ less than 51 employees at our Belgian facility, union representation for
works councils and safety councils terminated in April 2000 for this facility.
Accordingly, although we remain subject to other severance obligations
applicable generally to companies in Belgium, the additional severance benefits
that historically applied to our Belgian facility are no longer applicable to
us. We believe we are in compliance with these Belgian legal restrictions. We
consider our current employee relations to be good.
Recent Developments
None.
Item 2. Properties
In June 1996, the Company secured financing from Heller Financial Corp. in
order to partially finance the purchase of its previous corporate headquarters.
The original loan principal was $745,000 and was secured by a first trust deed
on the property. The loan bore interest at a rate of 9.4% and had a 20-year
term. In addition, in
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June 1996, the Company obtained a loan from the Small Business Administration in
order to partially finance the purchase of the previous corporate headquarters
building. The original loan principal was $616,000 and was secured by a second
trust deed on the property. The loan bore interest at a rate of 7.6% and had a
20-year term. Payments to both Heller Financial Corp. and the Small Business
Administration were guaranteed by the previous chairman of the board of our
Company.
In November 2000 the Company completed the sale of its previous corporate
headquarters. In conjunction with this sale, the Company paid the remaining
$672,100 balance due on the Heller Financial Corp. loan and the remaining
$543,600 due on the Small Business Administration loan. As a result of the sale
of the building, the Company recognized a loss of $99,300, which is shown in
other income (expense) in the accompanying consolidated statement of operations.
In March, 2000 the Company entered into a lease for a new facility at 542
Flynn Road in Camarillo, California, and relocated their previous offices and
laboratories to this new location in July, 2000. The new building contains
approximately 51,821 square feet and is situated in an industrial park
approximately two blocks from the previous corporate headquarters. The lease
commenced on May 1, 2000 and runs through June 30, 2005, with the option to
continue the lease for two additional five-year terms. The new facility has
three laboratory areas, including molecular biology facilities, a protein
purification facility and an assay development and manufacturing facility, as
well as ELISA development and manufacturing space and cold storage rooms
sufficient to accommodate our current and anticipated future needs.
Our Keystone subsidiary leases a facility in Foster City, California,
approximately 20 miles south of San Francisco, which consists of approximately
3,500 square feet, of which approximately 3,000 square feet is our
oligonucleotide laboratory, under a lease that expires in May 2003.
Our QCB subsidiary leases facilities in Hopkinton, Massachusetts,
approximately 25 miles west of Boston, which consist of approximately 11,500
square feet, of which approximately 7,000 square feet is laboratory space, under
a lease originally expired in April 2001. In February 2001 the Company amended
its current lease in Hopkington, Massachusetts. The amended lease extends the
term of the lease for five additional years.
Our Biofluids division leases facilities in Rockville, Maryland, which
consist of approximately 11,500 square feet of warehouse, manufacturing, and
office space, under a lease that expires in May 2004.
Our European subsidiary leases facilities in Nivelles, Belgium, which
consist of approximately 30,000 square feet of manufacturing, laboratory and
office space, under a lease that expires in March 2007.
Additional small sales offices are located in Germany and Holland.
We believe that all of our facilities are in good condition, are
adequately covered by insurance and will be adequate for our occupancy needs for
the foreseeable future.
Item 3. Legal Proceedings
On June 14, 2000, one of our former employees, Jordan Fishman, Ph.D.,
filed a legal action against us in the United States Central District Court of
California. Mr. Fishman's complaint asserts a number of claims for relief
against BioSource and alleges that BioSource breached Mr. Fishman's employment
agreement by failing to register his stock options on a Form S-8 Registration
Statement by December 8, 1999. Second, Fishman claims that this breach, coupled
with BioSource's representations regarding a planned public offering (which
prevented Company insiders from trading in the Company's common stock) and
BioSource's subsequent termination of Fishman's employment, were each part of a
larger scheme to interfere with, and ultimately prevent, the sale of his common
stock. On August 11, 2000, we filed a motion to dismiss five of Mr. Fishman's
six causes of action, and on September 29, 2000, the court dismissed three of
the causes. On October 4, 2000, Mr. Fishman filed a first amended complaint.
BioSource moved to dismiss two of the remaining causes of
12
action, one based on new California Supreme Court precedent, and the other based
on deficiencies in Mr. Fishman's allegations. The Court granted BioSource's
motion as to both of these causes of action. As a consequence, the only two
remaining causes of action in this litigation are (1) breach of contract and (2)
fraud. On October 23, 2000, counsel for Fishman and BioSource conducted their
Early Meeting of Counsel where they exchanged documents and agreed upon
discovery and motion cut-off dates, trial estimates, and exchanged initial
witness lists. In December 2000, BioSource answered the First Amended Complaint,
and filed a counter-claim against Jordan Fishman. No substantive adjudication of
Mr. Fishman's claims has yet occurred, however, the Company believes that it has
substantial defenses to Fishman's remaining causes of action.
The Company has also commenced an arbitration proceeding against the
former shareholders of its QCB subsidiary, including Mr. Fishman, to recover
damages management believes it has suffered in connection with
misrepresentations and omissions made by those shareholders in the
representations and warranties contained in the original Stock Purchase
Agreement for QCB executed on December 9, 1998. The Company's claim to recover
the $1,347,000 of Escrowed Funds is based on QCB's breach of the representations
and warranties made in the Stock Purchase Agreement. The parties are now in the
midst of selecting a panel of three arbitrators who will hear the dispute. The
Company has also asserted a claim for punitive damages against Jordan Fishman in
the arbitration.
The Company is involved in various other claims and lawsuits incidental to
its business. In the opinion of management, these claims and suits in the
aggregate will not materially affect the financial position, results of
operations or liquidity of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of our security holders during the
fourth quarter of our last year.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is traded on the Nasdaq National Market under the symbol
"BIOI." The following table sets forth, for the periods indicated, the high and
low closing sales price per share of our common stock as reported on the Nasdaq
National Market.
High Low
------ -----
1999 Fiscal Year
First Quarter................................................. $ 4.75 $ 2.50
Second Quarter................................................ 5.38 3.63
Third Quarter................................................. 6.13 3.75
Fourth Quarter................................................ 9.69 3.25
2000 Fiscal Year
First Quarter................................................. $28.50 $ 6.50
Second Quarter................................................ 22.63 4.56
Third Quarter................................................. 31.00 15.13
Fourth Quarter................................................ 29.88 13.63
2001 Fiscal Year
First Quarter, through March 20, 2001......................... $13.69 $ 6.88
13
On March 20, 2001, the last reported sale price of our common stock on the
Nasdaq National Market was $6.875. As of March 20, 2001, there were 10,397,753
shares of our common stock outstanding held by approximately 529 holders of
record.
On January 10, 2000, the company entered into a securities purchase
agreement with Genstar Capital Partners II, L.P. and Stargen II LLC, both of
which are accredited investors as such term is defined in Rule 501 of Regulation
D of the Securities Act of 1933. Pursuant to this agreement, the Company sold
Genstar and Stargen a total of 371,300 shares, including 364,244 to Genstar and
7,056 to Stargen, of our $.001 Series B Redeemable Preferred Stock for
$9,000,312 in the aggregate. These shares were convertible into 1,485,200
shares, including 1,456,976 for Genstar and 28,244 to Stargen, of the Company's
common stock. In addition, we issued Genstar and Stargen warrants to purchase a
total of 1,287,000 shares of common stock, including 1,262,542 to Genstar and
24,458 to Stargen, exercisable at $7.77 per share. Under the investor rights
agreement among Genstar, Stargen and the Company, executed in connection with
the securities purchase agreement, Genstar and Stargen also have the right to
appoint two out of our seven directors to our board of directors as long as they
beneficially own, in the aggregate, at least 750,000 shares of common stock, or
one director if they beneficially own at least 495,000 shares. Pursuant to the
investor rights agreement, Jean-Pierre L. Conte, a Managing Director of Genstar
Capital LLC, and Robert J. Weltman, a Vice President of Genstar Capital LLC were
appointed to our board of directors. Genstar and Stargen also have the right of
first refusal to purchase additional shares and the right to require us to
register the shares of our common stock underlying the preferred stock and the
warrants. The consummation of the securities purchase agreement, including the
issuance of the shares of Series B Preferred Stock and the warrants, occurred on
February 15, 2000.
The Series B Redeemable Preferred Stock had an initial aggregate
liquidation value of $9,000,300. The Series B Redeemable Preferred Stock shares
were entitled to receive dividends at an annual rate of 8% of the original issue
price. Unless all dividends on the outstanding Series B Redeemable Preferred
Stock shares were paid, no dividends or other distributions were to be paid to
Common Stock shareholders. The Series B Redeemable Preferred Stock shareholders
had liquidation preference to the Common Stock shareholders. On September 20,
2000, pursuant to the terms of the Certificate of Designation of Preferences
Rights and Limitations of our Series B Redeemable Preferred Stock and $432,400
of redeemable preferred dividends were converted into 1,556,574 common shares at
$6.06 per common share or $9,432,700. Total non-cash preferred stock dividends
and effects of beneficial conversion related to the preferred stock totaled
$3,853,300.
In connection with the issuance of Series B Redeemable Preferred Stock the
holders received detachable stock purchase warrants. In addition, the holders
received a beneficial conversion with an estimated fair value of $995,100. The
warrants are exchangeable for 1,287,000 shares of Common Stock at an exercise
price of $7.77 per share. The Company allocated the net proceeds of $8,415,200
based on the relative fair value of the warrants ($1,840,700), the Series B
Redeemable Preferred Stock ($5,579,400) and the beneficial conversion
($995,100). The book value of the Series B Redeemable Preferred Stock of
$5,579,400 accreted to its liquidation value by $995,100 related to the
beneficial conversion feature and $1,840,700 upon conversion.
In connection with the respective engagement of Russell D. Hays as the
Company's Chief Executive Officer and Chairman of the Board of Directors, and
George Uveges as the Company's Chief Operating Officer, we entered into
Securities Purchase Agreements, effective as of August 9, 2000 with Genstar
Capital partners II L.P. Genstar agreed to purchase from the Company 300,000
shares of the common stock at $15.00 per share. Genstar subsequently assigned
its rights to purchase 30,000 of these shares to Jean-Pierre L. Conte and 3,333
of the shares to Robert Weltman. Both Mr. Conte and Mr. Weltman currently serve
on the Company's Board of directors. Genstar assigned its right to assign
another 33,334 of these shares to certain other individuals affiliated with
Genstar. The Company also entered into a Securities Purchase Agreement,
effective as of August 9, 2000, with Russell D. Hays, pursuant to which Mr. Hays
agreed to purchase 40,000 shares of the Company's common stock at $15.00 per
share. The Company further entered a Securities Purchase agreement pursuant to
which Mr. Uveges agreed to purchase 11,428 shares of the company's common stock
at $21.875 per share. The closing of each of these transactions
14
occurred on September 28, 2000. These transactions were exempt from registration
under Rule 506 of Regulation D of the Securities Act of 1933, and all of the
purchasers in these transactions are accredited investors as that term is
defined in Rule 501 of Regulation D.
In April 2000, The Company's Board of Directors approved the 2000
BioSource International, Inc. non-qualified stock option plan (the "2000 Plan").
Under the 2000 Plan, non-qualified stock options may be granted to full-time
employees, part-time employees, directors and consultants of the Company to
purchase a maximum of 2,000,000 shares of the company's common stock. Options
granted under the 2000 Plan are generally exercisable at the rate of 25% each
year beginning one year from the date of grant. The stock options generally
expire ten years from the date of grant. See note 8 of the accompanying audited
consolidated financial statements.
DIVIDEND POLICY
BioSource has never paid cash dividends on its common stock and does not
currently anticipate that it will do so in the foreseeable future. We plan to
retain earnings to finance our operations.
On February 16, 1999, our Board of Directors declared a dividend of one
preferred share purchase right for each share of common stock outstanding on
March 2, 1999. The purchase rights are subject to the terms and conditions of
the Rights Agreement dated February 25, 1999, filed with the Securities and
Exchange Commission on March 1, 1999, on Form 8-A. The purchase rights are not
represented by separate certificates, but, instead, initially will be evidenced
by the certificates representing our outstanding common stock.
15
Item 6. Selected Financial Data
The selected data presented below under the captions "Consolidated
Statement of Operations Data" and "Consolidated Balance Sheet Data" for, and as
of the end of each of the years in the five-year period ended December 31, 2000,
are derived from the audited consolidated financial statements of the Company.
The following selected data should be read in conjunction with the Company's
consolidated financial statements and notes thereto, as well as the section
included herein entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Years ended December 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in thousands, except per share data)
Consolidated Statement of Operations
Data:
Net sales .............................. $ 32,210 $ 29,257 $ 21,859 $ 20,572 $ 15,913
Cost of sales .......................... 13,600 11,071 13,189 6,930 5,568
-------- -------- -------- -------- --------
Gross profit ........................... 18,610 18,186 8,670 13,642 10,345
Operating expenses:
Research and development ............. 3,575 3,315 2,648 2,078 1,421
Sales and marketing .................. 5,683 4,737 4,338 4,043 2,762
General and administrative ........... 9,071 4,460 4,469 3,552 2,703
Purchased in-process technology ...... -- -- 4,222 -- --
Amortization of intangibles .......... 1,093 1,061 95 31 --
-------- -------- -------- -------- --------
Operating income (loss) ................ (811) 4,613 (7,102) 3,938 3,460
Interest and other income
(expense), net ...................... 73 (1,016) 432 708 3
-------- -------- -------- -------- --------
Income (loss) before income taxes
(benefit) ........................... (739) 3,597 (6,670) 4,646 3,463
Income tax expense (benefit) ........... (573) 20 (1,535) 1,460 696
-------- -------- -------- -------- --------
Net income (loss) ...................... (166) 3,577 (5,136) 3,186 2,767
Redeemable preferred stock dividend
and accretion of beneficial
conversion feature ................... (3,853) -- -- -- --
-------- -------- -------- -------- --------
Net Income (loss) available to common
stockholders ......................... $ (4,019) $ 3,577 $ (5,136) $ 3,186 $ 2,767
======== ======== ======== ======== ========
Net income (loss) per share available
to common stockholders:
Basic ................................ $ (0.47) $ 0.49 $ (0.68) $ 0.38 $ 0.38
Diluted .............................. $ (0.47) $ 0.46 $ (0.68) $ 0.36 $ 0.35
Shares used to compute net income (loss)
per share available to common
stockholders:
Basic ................................ 8,584 7,235 7,509 8,318 7,272
Diluted .............................. 8,584 7,833 7,509 8,965 8,009
16
As of December 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(in thousands)
Consolidated Balance Sheet Data:
Current assets ................. $26,420 $18,325 $18,278 $27,636 $22,407
Total assets ................... 50,364 40,222 41,400 33,157 33,795
Current liabilities ............ 6,318 7,340 10,039 3,206 4,320
Long term debt, less current
portion ....................... -- 11,459 13,666 1,292 1,314
Total stockholders' equity ..... 44,046 21,422 17,696 28,658 28,161
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Our company develops, manufactures, markets and distributes products and
services that are widely used in biomedical research. Our products and services
enable scientists to better understand the biochemistry, immunology and cell
biology of the human body, aging and certain diseases such as cancer, arthritis
and other inflammatory diseases, AIDS and certain other infectious diseases. We
have a wide variety of products, including immunoassay and ELISA test kits,
immunological reagents, including bioactive proteins (cytokines, growth factors
and adhesion molecules), oligonucleotides, and monoclonal and polyclonal
antibodies. We also manufacture and market custom oligonucleotides, peptides and
antibodies to the specifications of our customers. We use recombinant DNA
technology to produce cytokines and other proteins. We have registered our
analyte specific reagents with the FDA and have received a license to sell these
products as Class I Medical Devices. We market these products to in vitro
diagnostic manufacturers and clinical reference laboratories as "active
ingredients" in the tests they produce to identify various specific diseases or
conditions. In order to market these products as medical devices, we are
required to be in compliance with the FDA's Current Good Manufacturing Practices
and Regulations. Through acquisitions and internal growth, we believe we have
grown to include a unique combination of technological, production, and research
and development skills resulting in a full spectrum of products and services for
the worldwide pharmaceutical and biotechnology industries.
BioSource was originally incorporated as a California corporation in
October 1989, and was reincorporated as a Delaware corporation in May 1993 in
connection with the acquisition of TAGO Immunologicals, Inc., a manufacturer of
immunological reagents derived from antibodies produced in goats and other
animals. In November 1995, we acquired Keystone Laboratories, Inc., a
manufacturer of oligonucleotides. In June 1996, we acquired assets and assumed
selected liabilities of Medgenix Diagnostics, S.A. located in Fleurus, Belgium.
The Medgenix assets consisted of diagnostic and research assay kits, and
included manufacturing and distribution facilities, research and development
laboratories, customer accounts and an existing employee base. In December 1998,
BioSource acquired Quality Controlled BioChemicals, Inc., a manufacturer of
peptides and antibodies. In December 1998, we also acquired substantially all
the assets and selected liabilities of Biofluids, Inc., a manufacturer of serum,
buffers and media.
In 1998, we incurred a net loss of $5,135,800. The loss was primarily the
result of charges of approximately (1) $4,966,000 related to the establishment
of valuation reserves for our antibody inventories, and the reduction of our
inventory value for Enzyme-Linked ImmunoSorbent Assay, or ELISA, test kits and
products manufactured in Europe and (2) $4,222,000 related to purchased
in-process technology in connection with our acquisition of QCB in December
1998. As a result of the 1998 net loss, we had net operating losses that
benefited our income tax provision in 1999. All of our net operating losses have
been recognized as of December 31, 1999.
In 2000, the Company incurred a net loss available to common stockholders
of $4,019,300. The loss was primarily the result of redeemable preferred stock
dividends and the accretion of redeemable preferred stock to its redemption
value
17
totaling $3,853,300 and charges of approximately $4,919,000, $663,000 related to
specific gross profit activities and $4,256,000 related to specific general and
administrative activities each of which are explained in the consolidated
results of operations below.
We currently manufacture products for inventory and ship products shortly
after receipt of orders and anticipate that we will continue to do so in the
future. Accordingly, we have not developed a significant backlog of products and
do not anticipate we will develop a material backlog of products in the future.
Consolidated Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 1999
Net Sales. Net sales were $32,209,600 in 2000 compared to $29,257,000 in
1999, an increase of $2,952,600 or 10.1%. North American sales, which
represented 60.1% of consolidated net sales in 2000, grew $3,307,900 or 20.6%
for the year, while European sales, which represent 25.4% of consolidated net
sales in 2000, declined $930,100 or 10.2%. Sales from the rest of the world,
representing 14.5% of total consolidated net sales in 2000 grew $574,800 or
14.1% over the prior year. North American sales grew due to increased sales of
oligonucleotides, proteins and products related to signal transduction. In local
currency, European sales grew $55,400 or .6% compared to the prior year.
European research product sales, excluding the impact of foreign exchange,
decreased 5.9% while sales of European clinical products, excluding the impact
of foreign exchange, increased 2.6%. Sales in the rest of the world increased
due to the increase in sales of clinical products.
Gross Profit. Gross profit for the year ended December 31, 2000 was
$18,610,100, resulting in a gross margin of 57.8%, compared to a gross profit of
$18,186,500, and a gross margin of 62.2% for the year ended December 31, 1999.
The gross margin of 57.8% for the year ended December 31, 2000 was negatively
impacted by $663,000 or approximately 2.1% as a result of $570,500 of inventory
valuation adjustments and $92,500 related to a sales allowance for a potential
credit to a terminated distributor. In addition, gross margin was impacted
$70,000 or .2% for the year ended December 31, 2000 due to the impact of foreign
exchange. The Company also relocated it's primary manufacturing and corporate
headquarters in 2000, moving from a previously owned 29,000 square foot building
to a leased 52,000 square foot building causing the 2000 gross margin to be
effected by higher on-going costs of the new facility. Our serum and media
business, which represents approximately 7% of our 2000 net sales was impacted
by increased raw material costs.
Research and development. Research and development expense for the year
ended December 31, 2000 was $3,575,400 compared to $3,315,400 for the year ended
December 31, 1999, an increase of $260,000 or 7.8%. As a percentage of net
sales, research and development expense was 11.3% for each of the years ended
December 31, 2000 and 1999.
Sales and marketing. Sales and marketing expense was $5,682,800 for the
year ended December 31, 2000 and $4,736,900 for the year ended December 31,
1999, an increase of $945,900 or 20.0%. As a percentage of net sales, this
represents 17.6% and 16.2% of net sales for each of the years ended December 31,
2000 and 1999 respectively. This increase was attributable primarily to $120,000
of increased advertising and promotional expenses, $450,000 of increased sales
expenses in the United States, $322,000 increased expenses related to the
addition of a direct sales force in the United Kingdom which began operations in
January 2000, and $80,000 due to the hiring of two new senior sales and
marketing executives to the Company in November 2000.
General and Administrative. General and administrative expense was
$9,070,700 and $4,460,300 for the years ended December 31, 2000 and 1999
respectively. This represents an increase of $4,610,400, or 103.4%. $4,256,000
of this increase was related to various charges including: (i) a non-cash stock
compensation charge of $946,000 related to the hiring of a new Chief Executive
Officer and Chief Operating
18
Officer in September 2000; (ii) $1.3 million of costs related to the retirement
of the Company's previous Chief Executive and Chief Operating Officers; (iii)
$745,000 of professional fees related to merger and acquisition work and legal
cost related to an employee termination suit; (iv) $534,000 related to the
transition to a new senior management team; (v) $523,000 related to the
withdrawal of the Company's follow on stock offering; (vi) $120,000 increase in
the reserve for bad debt and allowances and (vii) a reserve of $88,000 for a
customer dispute. SG&A expenses before the $4,256,000 charges described above
were $354,400 higher for the twelve months ended December 31, 2000 as compared
to 1999, reflecting the Company's continued investment in its infrastructure.
Amortization of intangibles. Amortization of intangible assets was
$1,092,600 in 2000 and $1,060,700 in 1999. These amounts represent amortization
of intangible assets acquired primarily in connection with the acquisitions of
QCB and Biofluids in December 1998.
Interest income. Interest income was $266,800 in 2000 compared to $397,200
in 1999. This interest income was derived from the interest income on cash
invested in short-term securities.
Interest expense. Interest expense was $302,000 in 2000 and $1,367,300 in
1999. Interest expense was related to the interest expense on the notes used to
finance the acquisition of QCB and Biofluids in December 1998. The decrease in
interest expense from 1999 to 2000 is the result of the pay off of notes payable
in March 2000.
Other income and (expense) net. Other income and (expense), net was
$107,700 of net other income in 2000 compared to ($46,100) in 1999. The $107,700
of net income in 2000 consisted primarily of a gain of $82,000 from the
liquidation of two European subsidiaries and $104,300 of gains realized on
foreign currency transactions offset by a $99,300 loss on the sale of the
Company's previous headquarters in November 2000. The $46,100 net other expense
in 1999 was primarily losses realized on foreign currency transactions.
Income tax expense (benefit). Income tax benefit was $573,000 in 2000 and
income tax expense was $19,600 in 1999. The income tax benefit in 2000 was the
result of tax benefits from research and experimentation and other permanent tax
credits while the minimal income tax expense in 1999 was the result of the
utilization of prior year operating losses in the European subsidiaries in 1999
and R & E and other permanent tax credits.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales. Net sales were $29,257,000 in 1999 compared to $21,858,600 in
1998, an increase of $7,398,400 or 33.8%. $5,501,200 of the increase is
attributable to the revenues generated from the QCB and Biofluids acquisitions
in December 1998. The remaining increase is related to the increase in the
volume of sales of assay kits and oligonucleotides. Foreign sales represented
47.0% of total sales in 1999 and 59.5% of total sales in 1998. Net sales in the
United States were $15,518,000 in 1999 compared to $8,844,100 in 1998, an
increase of $6,673,900 or 75.5%. $5,501,200 of the increase is attributable to
the revenues generated from the QCB and Biofluids acquisitions in December 1998.
The additional increase was generated primarily from the increase in the sales
of assay kits and oligonucleotides. Net sales to Japan were $2,790,000 in 1999,
an increase of $155,300, or 5.9%, over the prior year. European sales were
$10,139,400 in 1999, an increase of $447,000 or 4.6%. The increase in European
sales was primarily due to an increase in sales of assay kits.
Gross profit. Gross profit in 1999 was $18,186,500, or 62.2% of net sales,
compared to $8,670,000 or 39.7% of sales for 1998. The increased gross margin is
primarily the result of a 1998 charge of approximately $4,966,000 related to the
establishment in 1998 of valuation reserves for antibody inventories and the
reduction of inventory value for ELISA test kits and products manufactured in
Europe.
Research and development. Research and development expense in 1999 was
$3,315,400 and in 1998 was $2,648,300. Increased costs in domestic expenditures
of
19
approximately $1,002,000 were due to the additional expenditures of our QCB
subsidiary acquired in December 1998. These costs were offset by a reduction of
$297,000 in our European expenses related to staff and other cost reductions.
Sales and marketing. Sales and marketing expense was $4,736,900 in 1999
compared to $4,337,500 in 1998. The increased sales and marketing expense of
$399,400, or 9.2%, is primarily due to additional costs associated with sales
and marketing activities of our QCB subsidiary and Biofluids division acquired
in December 1998 as well as overall increased advertising and other marketing
programs.
General and administrative. General and administrative expenses were
$4,460,300 in 1999 and $4,468,900 in 1998. General and administrative expenses
decreased as a result of a 1998 settlement of a legal claim by the former
landlord of our Belgium facility and costs associated with the transition and
relocation of our Belgium subsidiary, offset by an increase of additional costs
related to the acquisitions of QCB and Biofluids in December 1998.
Purchased in-process technology. The purchased in-process technology
charge in 1998 of $4,222,000 relates to the portion of the QCB purchase price
that was allocated to products in development which had not yet reached
technological feasibility as of the acquisition date and did not have
alternative future uses. In accordance with applicable accounting rules,
purchased in-process technology is required to be expensed. See Note 2 of the
Notes to Consolidated Financial Statements for further discussion on this item.
Amortization of intangibles. Amortization of intangible assets was
$1,060,700 in 1999 and $95,100 in 1998. The increase was due to the full year
amortization of intangible assets acquired in connection with the acquisitions
of QCB and Biofluids in December 1998.
Interest income and expense. Interest expense of $1,367,300 in 1999 and
$215,900 in 1998 was related to the interest expense on the notes used to
finance the acquisition of QCB and Biofluids in December 1998. Interest income
of $397,200 in 1999 and $513,400 in 1998 was derived from interest income on
invested cash.
Income tax expense (benefit). The income tax expense in 1999 was $19,600
while the income tax benefit in 1998 was $1,534,600. The effective income tax
rate of 0.5% for 1999 reflects the benefit of the utilization of all prior net
operating losses in our Belgium and other European subsidiaries. The effective
rate of 23.0% for 1998 reflects non-deductible foreign losses of approximately
$923,400.
20
Quarterly Results
The following table sets forth various unaudited statement of income data for
the last eight quarters, which has been prepared on the same basis as the annual
information and, in management's opinion, includes all adjustments necessary to
present fairly the information for each of the quarters below.
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2000 2000 2000 2000 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
Net sales ................ $ 7,719 $ 8,150 $ 8,449 $ 7,891 $ 6,880 $ 7,470 $ 7,588 $ 7,319
Cost of goods sold ....... 3,889 3,395 3,257 3,058 2,380 2,914 2,928 2,849
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit ........... 3,830 4,755 5,191 4,833 4,500 4,556 4,660 4,470
Research and
development ............. 982 872 899 822 954 802 765 794
Sales and marketing ...... 1,617 1,325 1,393 1,346 1,378 1,124 1,164 1,071
General and
administrative .......... 2,888 3,420 1,670 1,092 1,238 1,053 1,133 1,036
Amortization of
intangibles ............. 275 275 274 270 303 267 242 249
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations ............ (1,932) (1,137) 954 1,303 627 1,310 1,356 1,320
Interest income
(expense), net .......... 146 13 (11) (182) (231) (253) (247) (239)
Other income (expense),
net ..................... 60 (47) 79 16 (179) 67 80 (14)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes (benefit) (1,726) (1,171) 1,022 1,136 217 1,124 1,189 1,067
Income tax expense
(benefit) ............... (633) (609) 317 352 (633) 223 184 246
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ...... (1,093) (561.6) 705 784 850 901 1,005 821
Redeemable preferred stock
dividend and accretion of
beneficial conversion
feature -- (2,384) (323) (1,147) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)available
to common stockholders $ (1,093) $ (2,946) $ 383 $ (363) $ 850 $ 901 $ 1,005 $ 821
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per
share available to
common stockholders $ (.11) $ (.35) $ .05 $ (.05) $ .12 $ .12 $ .14 $ .11
======== ======== ======== ======== ======== ======== ======== ========
Shares used to compute
net income (loss)
available to common
stockholders 10,324 8,362 7,930 7,717 7,234 7,248 7,190 7,179
======== ======== ======== ======== ======== ======== ======== ========
Liquidity and Capital Resources
Cash and cash equivalents as of December 31, 2000 of $10,632,600 increased
by $5,988,100, or 128.9%, from $4,644,500 at December 31, 1999. The increase in
cash was due in part to equity investments made by a major shareholder group
($12,883,900) in February and September of 2000 and two new executives
($850,000) in September 2000. Also, proceeds of $3,702,400 were received from
the exercise of employee stock options and warrants. The Company also generated
cash from operations of $3,423,200 for the year ended December 31, 2000. This
was offset by $14,371,500 of principal payments relating to the extinguishment
of debt incurred to acquire QCB and Biofluids in December 1998 and by capital
expenditures of $2,152,300 which were primarily for the purchases of laboratory,
manufacturing and computer equipment. Working capital, which is the excess of
current assets over current liabilities was $20,102,100 at December 31, 2000 as
compared to $10,984,900 at
21
December 31, 1999 representing an increase of $9,117,200 or 83.0%, principally
due to the increase in cash and the repayment of short term notes payable.
On February 15, 2000, the Company issued 371,300 shares of $0.001 par
value Series B Redeemable Preferred Stock and received net proceeds of
$8,415,200. These funds were used to reduce the Company's notes payable related
to the acquisitions of QCB and Biofluids in December 1998.
On September 18, 2000, two new executives of the Company invested a total
of $850,000 in the Company, acquiring 51,400 shares of common stock.
Additionally, on September 18, 2000, a major shareholder invested an additional
$4,468,700, net of expenses, into the Company acquiring 300,000 shares of common
stock.
In the year ended December 31, 2000, the Company received $2,952,400 from
the issuance of common stock related to the exercise of stock options and
$750,000 from the exercise of warrants.
The Company has never paid dividends on common stock and has no plans to
do so in fiscal 2000. Our earnings will be retained for reinvestment in the
business.
The Company expects to be able to meet its future cash and working capital
requirements for operations and capital additions through currently available
funds and cash generated from operations. However, we may raise additional
capital or secure debt financing from time to time to take advantage of
favorable conditions in the market or in connection with our corporate
development activities.
Recently Issued Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for fiscal years beginning after June 15, 2000. SFAS
No. 133 addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. The
Statement standardizes the accounting for derivative instruments by requiring
that an entity recognize those items as assets or liabilities in the statement
of financial position and measure them at fair value. The application of SFAS
No. 133 will not have an affect on the Company's financial reporting.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB 101 provides guidance on recognition, presentation, and
disclosure of revenues in financial statements of all public registrants. Any
change in the Company's revenue recognition policy resulting from implementation
of SAB 101 would be reported as a change in accounting principle. In June 2000,
the SEC issued SAB 101B, which delays the implementation date of SAB 101 until
the fourth quarter of fiscal years beginning after December 15, 1999.
Application of SAB No. 101 did not have an affect on the Company's financial
reporting.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" (FIN 44). FIN 44 provides guidance for issues arising in applying
APB Opinion No. 25, "Accounting for Stock Issued to Employees". FIN 44 applies
specifically to new awards, exchanges of awards in a business combination,
modification to outstanding awards, and changes in grantee status that occur on
or after July 1, 2000, except for the provisions related to repricings and the
definition of an employee which apply to awards issued after December 15, 1998.
Application of FIN 44 did not have an affect on the Company's financial
reporting.
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this report before purchasing shares of our common
stock. Investing in our common stock involves a high degree of risk. If any of
the following events or outcomes actually occur, our business, operating results
and financial condition would likely suffer. As a result, the trading price of
our common stock could decline, and you may lose all or part of the money you
paid to purchase our common stock.
22
Risks Related to Our Business
Failure to manage our growth and expansion could impair our business.
We historically have sought, and will continue to seek, to increase our
sales and profitability primarily through the acquisition or internal
development of new product lines, additional customers and new businesses. Our
historical revenue growth is primarily attributable to our acquisitions and new
product development and, to a lesser extent, to increased revenues from our
existing products. We expect that future acquisitions, if successfully
consummated, will create increased working capital requirements, which will
likely precede by several months any material contribution of an acquisition to
our net income. Our ability to achieve our expansion objectives and to manage
our growth effectively and profitably depends upon a variety of factors,
including:
. our ability to internally develop new products;
. our ability to make profitable acquisitions;
. integration of new facilities into existing operations;
. hiring, training and retention of qualified personnel;
. establishment of new relationships or expansion of existing relationships
with customers and suppliers; and
. availability of capital.
In addition, the implementation of our growth strategy will place
significant strain on our administrative, operational and financial resources
and increased demands on our financial systems and controls. Our ability to
manage our growth successfully will require us to continue to improve and expand
these resources, systems and controls. If our management is unable to manage
growth effectively, our operating results could be adversely affected. Moreover,
there can be no assurance that our historic rate of growth will continue, that
we will continue to successfully expand or that growth or expansion will result
in profitability.
We cannot guarantee that our future acquisitions will be successful.
We compete for acquisition and expansion opportunities with companies
which have significantly greater financial and management resources than us.
There can be no assurance that suitable acquisition or investment opportunities
will be identified, that any of these transactions can be consummated, or that,
if acquired, these new businesses can be integrated successfully and profitably
into our operations. These acquisitions and investments may also require a
significant allocation of resources, which will reduce our ability to focus on
the other portions of our business, including many of the factors listed in the
prior risk factor.
Reduction or delays in research and development budgets and in government
funding may negatively impact our sales.
Our customers include researchers at pharmaceutical and biotechnology
companies, academic institutions and government and private laboratories.
Fluctuations in the research and development budgets of these researchers and
their organizations could have a significant effect on the demand for our
products. Research and development budgets fluctuate due to numerous factors
that are outside our control and are difficult to predict, including changes in
available resources, spending priorities and institutional budgetary policies.
Our business could be seriously damaged by any significant decrease in life
sciences research and development expenditures by pharmaceutical and
biotechnology companies, academic institutions or government and private
laboratories.
A significant portion of our sales has been to researchers, universities,
government laboratories and private foundations whose funding is dependent upon
grants from government agencies such as the U.S. National Institutes of Health
and similar domestic and international agencies. Although the level of research
funding
23
has increased during the past several years, we cannot assure that this trend
will continue. Government funding of research and development is subject to the
political process, which is inherently fluid and unpredictable. Our revenues may
be adversely affected if our customers delay purchases as a result of
uncertainties surrounding the approval of government budget proposals. Also,
government proposals to reduce or eliminate budgetary deficits have sometimes
included reduced allocations to the NIH and other government agencies that fund
research and development activities. A reduction in government funding for the
NIH or other government research agencies could seriously damage our business.
Many of our customers receive funds from approved grants at particular
times of the year, as determined by the federal government. Grants have, in the
past, been frozen for extended periods or have otherwise become unavailable to
various institutions without advance notice. The timing of the receipt of grant
funds affects the timing of purchase decisions by our customers and, as a
result, can cause fluctuations in our sales and operating results.
We rely on raw materials and specialized equipment for our manufacturing, which
we may not always be able to obtain on favorable terms.
Our manufacturing process relies on the continued availability of
high-quality raw materials and specialized equipment. It is possible that a
change in vendors, or in the quality of the raw materials supplied to us, could
have an adverse impact on our manufacturing process and, ultimately, on the sale
of our finished products. We have from time to time experienced a disruption in
the quality or availability of key raw materials, which has created minor delays
in our ability to fill orders for specific test kits. This could occur again in
the future, resulting in significant delays, and could have a detrimental impact
on the sale of our products and our results of operations. In addition, we rely
on highly specialized manufacturing equipment that if damaged or disabled could
adversely affect our ability to manufacture our products and therefore
negatively impact our business.
Our ability to raise the capital necessary to expand our business is uncertain.
In the future, in order to expand our business through internal
development or acquisitions, we may need to raise substantial additional funds
through equity or debt financings, research and development financings or
collaborative relationships. However, this additional funding may not be
available or, if available, it may not be available on economically reasonable
terms. In addition, any additional funding may result in significant dilution to
existing stockholders. If adequate funds are not available, we may be required
to curtail our operations or obtain funds through collaborative partners that
may require us to release material rights to our products.
Our research and development efforts for new products may be unsuccessful.
We incur significant research and development expenses to develop new
products and technologies. There can be no assurance that any of these products
or technologies will be successfully developed or that if developed, will be
commercially successful. In the event that we are unable to develop
commercialized products from our research and development efforts or we are
unable or unwilling to allocate amounts beyond our currently anticipated
research and development investment, we could lose our entire investment in
these new products and technologies. Any failure to translate research and
development expenditures into successful new product introductions could have an
adverse effect on our business.
Failure to license new technologies could impair our new product development.
Our business model of providing products to researchers working on a
variety of genetic projects requires us to develop a wide spectrum of products.
To generate broad product lines it is advantageous to sometimes license
technologies from others rather than depending exclusively on our own employees.
As a result, we believe our ability to license new technologies from third
parties is and will continue to be important to our ability to offer new
products.
24
In addition, from time to time we are notified or become aware of patents
held by third parties that are related to technologies we are selling or may
sell in the future. After a review of these patents, we may decide to obtain a
license for these technologies from these third parties or discontinue the
products. There can be no assurance that we will be able to continue to
successfully identify new technologies developed by others. Even is we are able
to identify new technologies of interest, we may not be able to negotiate a
license on favorable terms, or at all. If we lose the rights to patented
technology, we may need to discontinue selling certain products or redesign our
products, and we may lose a competitive advantage. Potential competitors could
in-license technologies that we fail to license and potentially erode our market
share for certain products. Our licenses typically subject us to various
commercialization, sublicensing, minimum payment, and other obligations. If we
fail to comply with these requirements, we could lose important rights under a
license. In addition, certain rights granted under the license could be lost for
reasons out of our control. For example, the licensor could lose patent
protection for a number of reasons, including invalidity of the licensed patent.
We do not always receive significant indemnification from a licensor against
third party claims of intellectual property infringement.
We are currently in the process of negotiating several of these licenses
and expect that we will also negotiate these types of licenses in the future.
There can be no assurances that we will be able to negotiate these licenses on
favorable terms, or at all.
Our future success depends on the timely introduction of new products and the
acceptance of these new products in the marketplace.
Our ability to gain access to technologies needed for new products and
services also depends in part on our ability to convince licensors that we can
successfully commercialize their inventions. We cannot assure that we will be
able to continue to identify new technologies developed by others. Even if we
are able to identify new technologies of interest, we may not be able to
negotiate a license on favorable terms, or at all.
If we fail to introduce new products, or our new products are not accepted by
potential customers, we may lose market share.
Rapid technological change and frequent new product introductions are
typical for the markets we serve. Our future success will depend in part on
continuous, timely development and introduction of new products that address
evolving market requirements. We believe successful new product introductions
provide a significant competitive advantage because customers make an investment
of time in selecting and learning to use a new product, and then are reluctant
to switch. To the extent we fail to introduce new and innovative products, we
may lose market share to our competitors, which will be difficult or impossible
to regain. Any inability, for technological or other reasons, to successfully
develop and introduce new products could reduce our growth rate or damage our
business.
In the past we have experienced, and are likely to experience in the
future, delays in the development and introduction of products. We cannot assure
that we will keep pace with the rapid rate of change in life sciences research,
or that our new products will adequately meet the requirements of the
marketplace or achieve market acceptance. Some of the factors affecting market
acceptance of new products include:
. availability, quality and price relative to competitive products;
. the timing of introduction of the product relative to competitive
products;
. customers' opinion of the products utility;
. ease of use;
. consistency with prior practices;
25
. scientists' opinion of the product's usefulness;
. citation of the product in published research; and
. general trends in life sciences research.
The expenses or losses associated with unsuccessful product development
activities or lack of market acceptance of our new products could materially
adversely affect our business, operating results and financial condition.
The development, introduction and marketing of innovative products in our
rapidly evolving markets will require significant sustained investment. We
cannot assure their cash from operations or other sources will be sufficient to
meet these ongoing requirements.
Failure to attract and retain qualified scientific or production personnel or
loss of key management or key personnel could hurt our business.
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing is critical to
our success. Because the industry in which we compete is very competitive, we
face significant challenges attracting and retaining this qualified personnel
base. Although we believe we have been and will be able to attract and retain
these personnel, there can be no assurance that we will be able to continue to
successfully attract qualified personnel. In addition, our anticipated growth
and expansion into areas and activities requiring additional expertise, such as
clinical testing, government approvals, production and marketing, will require
the addition of new management personnel and the development of additional
expertise by existing management personnel. The failure to attract and retain
these personnel or, alternatively, to develop this expertise internally would
adversely affect our business. We generally do not enter into employment
agreements requiring these employees to continue in our employment for any
period of time.
Our success also will continue to depend to a significant extent on the
members of our management team and, in particular, on our Chief Executive
Officer and President, Russell D. Hays. We do not maintain any "key man"
insurance policies regarding any of these individuals. We may not be able to
retain the services of our executive officers and key personnel or attract
additional qualified members to management in the future. The loss of services
of Mr. Hays or of any of our other key management or employees, could have a
material adverse effect upon our business.
Many of our customers are obtaining our products through new distribution
channels and methods that may adversely impact our results of operations and
financial condition.
A number of our customers have developed purchasing initiatives to reduce
the number of vendors they purchase from in order to lower their supply costs.
In some cases, these customers have established agreements with large
distributors which include discounts and the distributors' direct involvement
with the purchasing process. For similar reasons, many larger customers,
including the federal government, have special pricing arrangements, including
blanket purchase agreements. These agreements may limit our pricing flexibility
with respect to our products, which could adversely impact our business,
financial condition and results of operations. In addition, although we accept
and process some orders through our Internet website, we also implement sales
through a third party Internet vendor. Internet sales through third parties will
negatively impact our gross margins because we pay commission on these Internet
sales. On the other hand, if we do not enter into arrangements with third-party
e-commerce providers, we may lose customers who prefer to purchase products
using these Web sites. Our business may be harmed as a result of these Web sites
or other sales methods which may be developed in the future.
26
We rely on international sales, which are subject to additional risks.
International sales accounted for approximately 42.0% of our revenues in
2000 and 47.0% of our revenues in 1999. International sales can be subject to
many inherent risks that are difficult or impossible for us to predict or
control, including:
. unexpected changes in regulatory requirements and tariffs;
. difficulties and costs associated with in staffing and managing foreign
operations, including foreign distributor relationships;
. longer accounts receivable collection cycles in certain foreign countries;
. adverse economic or political changes;
. unexpected changes in regulatory requirements;
. more limited protection for intellectual property in some countries;
. changes in our international distribution network and direct sales force;
. potential trade restrictions, exchange controls and import and export
licensing requirements;
. problems in collecting accounts receivable; and
. potentially adverse tax consequences of overlapping tax structure.
We intend to continue to generate revenues from sales outside North
America in the future. Future distribution of our products outside North
America also may be subject to greater governmental regulation. These
regulations, which include requirements for approvals or clearance to market,
additional time required for regulatory review and sanctions imposed for
violations, as well as the other risks indicated in the bullets listed above,
vary by country. We may not be able to obtain regulatory approvals in the
countries in which we currently sell our products or in countries where we may
sell our products in the future. In addition, we may be required to incur
significant costs in obtaining necessary regulatory approvals. Failure to obtain
necessary regulatory approvals or any other failure to comply with regulatory
requirements could result in a material reduction in our revenues and earnings.
We also depend on third-party distributors for a material portion of our
international sales. If we lose or suffer any significant reduction in sales to
any material distributor, our business could be materially adversely affected.
In addition, approximately 20% of our sales are made in foreign
currencies, primarily Belgian francs, British pounds, and German marks. Although
a significant portion of the foreign currencies in which we conduct our business
is currently, or may in the future be, denominated in Euros as a result of the
European Monetary Union, we are not certain about the effect of the Euro on our
business, financial condition or results of operations. In the past, gains and
losses on the collection of our accounts receivable arising from international
operations have contributed to negative fluctuations in our results of
operations. In general, increases in the exchange rate of the United States
dollar to foreign currencies cause our products to become relatively more
expensive to customers in those countries, leading to a reduction in sales or
profitability in some cases. We historically have not, and currently are not,
using hedging transactions or other means to reduce our exposure to fluctuations
in the value of the United States dollar as compared to the foreign currencies
in which many of our sales are made.
27
Our operating results may fluctuate.
Our operating results may vary significantly quarter to quarter and from
year to year as a result of a variety of factors. These factors include:
. level of demand for our products;
. changes in our customer and product mix;
. timing of acquisitions and investments in infrastructure;
. competitive conditions;
. timing and extent of intellectual property litigation;
. exchange rate fluctuations; and
. general economic conditions.
We believe that quarterly comparisons of our financial results may not
necessarily be meaningful and should not be relied upon as an indication of
future performance. Additionally, if our operating results in one or more
quarters do not meet the expectations of security analysts or others, the price
of our common stock could be materially adversely affected.
Our continued investment in product development and sales and marketing
are significantly ongoing expenses. If revenue in a particular period falls
short of expectations, we may not be able to reduce significantly our
expenditures for that period, which would materially adversely affect the
operating results for that period.
We may be unable to protect our trademarks, trade secrets and other intellectual
property rights that are important to our business.
We regard our trademarks, trade secrets and other intellectual property as
a component of our success. We rely on trademark law and trade secret protection
and confidentiality and/or license agreements with employees, customers,
partners and others to protect our intellectual property. Effective trademark
and trade secret protection may not be available in every country in which our
products are available. We cannot be certain that we have taken adequate steps
to protect our intellectual property, especially in countries where the laws may
not protect our rights as fully as in the United States. In addition, our
third-party confidentiality agreements can be breached and, if they are, there
may not be an adequate remedy available to us. If our trade secrets become
known, we may lose our competitive position.
Intellectual property or other litigation could harm our business.
Litigation regarding patents and other intellectual property rights is
extensive in the biotechnology industry. We are aware that patents have been
applied for, and in some cases issued to others, claiming technologies that are
closely related to ours. As a result, and in part due to the ambiguities and
evolving nature of intellectual property law, we periodically receive notices of
potential infringement of patents held by others. Although to date we have
successfully resolved these types of claims, we may not be able to do so in the
future.
In the event of an intellectual property dispute, we may be forced to
litigate. This litigation could involve proceedings declared by the U.S. Patent
and Trademark Office or the International Trade Commission, as well as
proceedings brought directly by affected third parties. Intellectual property
litigation can be extremely expensive, and these expenses, as well as the
consequences should we not prevail, could seriously harm our business.
28
If a third party claimed an intellectual property right to technology we
use, we might need to discontinue an important product or product line, alter
our products and processes, pay license fees or cease our affected business
activities. Although we might under these circumstances attempt to obtain a
license to this intellectual property, we may not be able to do so on favorable
terms, or at all.
In addition to intellectual property litigation, other substantial,
complex or extended litigation could result in large expenditures by us and
distraction of our management. For example, lawsuits by employees, stockholders,
collaborators or distributors could be very costly and substantially disrupt our
business. Disputes from time to time with companies or individuals are not
uncommon in our industry, and we cannot assure you that we will always be able
to resolve them out of court.
Accidents related to hazardous materials could adversely affect our business.
Portions of our operations require the controlled use of hazardous and
radioactive materials. Although we believe our safety procedures comply with the
standards prescribed by federal, state, local and foreign regulations, the risk
of accidental contamination of property or injury to individuals from these
materials cannot be completely eliminated. In the event of an accident, we could
be liable for any damages that result, which could seriously damage our business
and results of operations.
Our sales are subject to seasonality, which means that we have less revenue in
some months.
We experience a slowing of sales in Europe during the summer months and
worldwide during the Christmas holidays. Generally, our fourth quarter revenues
are lower than our revenues in each of the first three quarters of the year. We
believe that period to period comparisons of our operating results may not
necessarily be reliable indicators of our future performance. It is likely that
in some future period our operating results will not meet expectations or those
of public market analysts, which could result in reductions in the market price
of our common stock.
Potential product liability claims could affect our earnings and financial
condition.
We face a potential risk of liability claims based on our products and
services, and we have faced such claims in the past. We carry product liability
insurance coverage which is limited in scope and amount but which we believe to
be adequate. We cannot assure you, however, that we will be able to maintain
this insurance at reasonable cost and on reasonable terms. We also cannot assure
that this insurance will be adequate to protect us against a product liability
claim, should one arise.
The labor laws applicable to our employees in Europe may restrict the
flexibility of our management.
As of March 21, 2001, 50 of our 237 employees worked for our BioSource
Europe subsidiary, which is located in Nivelles, Belgium. As a result of Belgian
labor laws, we are required to make specified severance payments in the event we
terminate a European employee. Accordingly, our management may be limited by the
application of the Belgian labor laws in the determination of staffing levels,
and may have less flexibility in making such determinations than our competitors
whose employees are not subject to similar labor laws.
Risks Associated With Our Industry
The biomedical research products industry is very competitive, and we may be
unable to continue to compete effectively in this industry in the future.
We are engaged in a segment of the biomedical research products industry
that is highly competitive. We compete with many other suppliers and new
competitors continue to enter the markets. Many of our competitors, both in the
United States and elsewhere, are major pharmaceutical, chemical and
biotechnology companies, and many of them have substantially greater capital
resources, marketing experience, research and development staffs, and facilities
than we do. Any of these companies could succeed in developing products that are
more effective than the products that
29
we have or may develop and may also be more successful than us in producing and
marketing their products. We expect this competition to continue and intensify
in the future. Competition in our markets is primarily driven by:
. product performance, features and liability;
. price;
. timing of product introductions;
. ability to develop, maintain and protect proprietary products and
technologies;
. sales and distribution capabilities;
. technical support and service;
. brand royalty;
. applications support; and
breadth of product line.
If a competitor develops superior technology or cost-effective
alternatives to our products, our business, financial condition and results of
operations could be materially adversely affected.
Our competitors have in the past and may in the future compete by lowering
prices. We may respond by lowering our prices, which could reduce revenues and
profits. Conversely, failure to anticipate and respond to price competition may
damage our market share.
Our industry has also seen substantial consolidation in recent years,
which has led to the creation of competitors with greater financial and
intellectual property resources than us. In addition, we believe that the
success that others have had in our industry will attract new competitors. Some
of our current and future competitors also may cooperate to better compete
against us. We may not be able to compete effectively against these current or
future competitors. Increased competition could result in price reductions for
our products, reduced margins and loss of market share, any of which could
adversely impact our business, financial condition and results of operations.
As a result of consolidation in the pharmaceutical industry, we may lose
existing customers or have greater difficulty obtaining new customers.
In recent years, the United States pharmaceutical industry has undergone
substantial consolidation. As part of many business combinations, companies
frequently reduce the number of suppliers used and we may not be selected as a
supplier after any business combination. Further, mergers or corporate
consolidations in the pharmaceutical industry could cause us to lose existing
customers and potential future customers, which could have a material adverse
effect on our business, financial condition and results of operations.
We are currently subject to government regulation.
Our business is currently subject to regulation, supervision and licensing
by federal, state and local governmental authorities. Also, from time to time we
must expend resources to comply with newly adopted regulations, as well as
changes in existing regulations. If we fail to comply with these regulations, we
could be subject to disciplinary actions or administrative enforcement actions.
These actions could result in penalties, including fines.
30
Risks Associated With Our Common Stock
Our stock price has been volatile.
Our common stock is quoted on the Nasdaq National Market, and there has
been substantial volatility in the market price of our common stock. The trading
price of our common stock has been, and is likely to continue to be, subject to
significant fluctuations due to a variety of factors, including:
. fluctuations in our quarterly operating and earnings per share results;
. the gain or loss of significant contracts;
. loss of key personnel;
. announcements of technological innovations or new products by us or our
competitors;
. delays in the development and introduction of new products;
. legislative or regulatory changes;
. general trends in the industry;
. recommendations and/or changes in estimates by equity and market research
analysts;
. biological or medical discoveries;
. disputes and/or developments concerning intellectual property, including
patents and litigation matters;
. public concern as to the safety of new technologies;
. sales of common stock of existing holders;
. securities class action or other litigation; and
. developments in our relationships with current or future customers and
suppliers; and
. general economic conditions, both in the United States and abroad.
As a result of these factors, and potentially others, the sales price of
our common stock has ranged from $2.41 to $32.00 per share from January 1, 1998
through March 20, 2001 and from $6.88 to $13.69 per share from January 1, 2001
through March 20, 2001. For additional information regarding the price range of
our common stock, see "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters."
In addition, the stock market in general has experienced extreme price and
volume fluctuations that have affected the market price of our common stock, as
well as the stock of many biotechnology companies. Often, price fluctuations are
unrelated to operating performance of the specific companies whose stock is
affected.
In the past, following periods of volatility in the market price of a
company's stock, securities class action litigation has occurred against the
issuing company. If we were subject to this type of litigation in the future, we
could incur substantial costs and a diversion of our management's attention and
resources, each of which could have a material adverse effect on our revenue and
earnings. Any adverse determination in this type of litigation could also
subject us to significant liabilities.
Anti-takeover provisions in our governing documents and under applicable law
could impair the ability of a third party to take over our company.
31
We are subject to various legal and contractual provisions that may impede
a change in our control, including the following:
. our adoption of a stockholders' rights plan, which could result in the
significant dilution of the proportionate ownership of any person that
engages in an unsolicited attempt to take over our company; and
. the ability of our board of directors to issue additional shares of our
preferred stock, which shares may be given superior voting, liquidation,
distribution and other rights as compared to our common stock.
These provisions, as well as other provisions in our certificate of
incorporation and bylaws and under the Delaware General Corporations Law, may
make it more difficult for a third party to acquire our company, even if the
acquisition attempt was at a premium over the market value of our common stock
at that time.
Our principal stockholders and management own a significant percentage of
our capital stock and will be able to exercise significant influence over our
affairs. Our executive officers, directors and principal stockholders will
continue to beneficially own 30.6% of our outstanding common stock, based upon
the beneficial ownership of our common stock as of March 20, 2001. In addition,
these same persons also hold options to acquire additional shares of our common
stock, which may increase their percentage ownership of the common stock further
in the future. Accordingly, these stockholders:
. will be able to significantly influence the composition of our board of
directors;
. will significantly influence all matters requiring stockholder approval,
including change of control transactions; and
. will continue to have significant influence over our business.
This concentration of ownership of our common stock could have the effect
of delaying or preventing a change of control of us or otherwise discouraging a
potential acquirer from attempting to obtain control of us. This in turn could
have a negative effect on the market price of our common stock. It could also
prevent our stockholders from realizing a premium over the market prices for
their shares of common stock.
Our principal stockholders and management own a significant percentage of our
capital stock and will be able to exercise significant influence over our
affairs.
Our executive officers, directors and principal stockholders beneficially
own approximately 30.6% of our outstanding common stock, based upon the
beneficial ownership of our common stock as of March 20, 2001. As a result,
these stockholders, if they act together, could exert substantial influence over
matters requiring stockholder approval, including the election of directors and
approval of mergers and other significant corporate transactions. The voting
power of such persons may have the effect of delaying, preventing or deterring a
change in control, and could affect the market price of our common stock.
Absence of dividends could reduce our attractiveness to you.
Some investors favor companies that pay dividends, particularly in general
downturns in the stock market. We have never declared or paid any cash dividends
on our common stock. We currently intend to retain any future earnings for
funding growth and we do not currently anticipate paying cash dividends on our
common stock in the foreseeable future. Because we may not pay dividends, the
return on this investment likely depends on selling this stock at a profit.
32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We conduct business in various foreign currencies, including Belgian
francs, British pounds and German marks, and are therefore subject to the
transaction exposures that arise from foreign exchange rate movements between
the dates that foreign currency transactions are initiated and the dates that
they are converted. We are also subject to exchange rate exposures arising from
the translation and consolidation of the financial results of our foreign
subsidiaries. Although a significant portion of the foreign currencies in which
we conduct our business is currently, or is anticipated in the future to be,
denominated in Euros as a result of the European Monetary Union, we are not
certain about the effect of the Euro on our business, financial condition or
results of operations. There can be no assurance that actions taken to manage
our exchange rate exposures will continue to be successful or that future
changes in currency exchange rates will not have a material impact on our future
cash collections and operating results. We do not currently hedge either our
translation risk or our economic risk associated with the exchange of foreign
currencies into U.S. dollars.
Our exposure to market risks for changes in interest rates relates
primarily to outstanding commercial debt. Due to the recent paydown of our
commercial debt, we anticipate no material market risk exposure for changes in
interest rates. Accordingly, we have not included quantitative tabular
disclosures.
Item 8. Financial Statements and Supplementary Data
Page
----
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets at December 31, 2000 and December 31, 1999... F-3
Consolidated Statements of Operations for years ended December 31, 2000,
1999 and 1998........................................................... F-4
Consolidated Statements of Stockholders' Equity for years ended December
31, 2000, 1999 and 1998................................................. F-5
Consolidated Statements of Cash Flows for years ended December 31, 2000,
1999 and 1998........................................................... F-6
Notes to Consolidated Financial Statements as of December 31, 2000
and 1999 and for years ended December 31, 2000, 1999 and 1998 ........... F-7
Financial Statement Schedule--Valuation and Qualifying Account ......... F-23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
33
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with Respect to Directors and Executive Officers
The following table sets forth information with respect to our directors,
executive officers and key employees as of March 20, 2001:
Name Age Position
- ---- --- --------
Russell D. Hays.................. 56 Chairman of the Board, President and
Chief Executive Officer
Charles C. Best................. 41 Chief Financial Officer, Executive
Vice President, Finance
George Uveges................... 53 Chief Operating Officer, Executive
Vice President
David S. Thrower................ 37 Vice President, Global Marketing
Brent W. Keller................. 49 Vice President, Global Sales and
Business Development
Cirilo D. Cabradilla, Jr., Ph.D. 53 Vice President, Molecular Biology
Kevin J. Reagan, Ph.D........... 49 Vice President, Immunology
Jozef Vangenechten, Ph.D. ...... 46 General Manager, BioSource Europe, S.A
Jean-Pierre L. Conte*............ 37 Director
Leonard M. Hendrickson*......... 53 Director
David J. Moffa, Ph.D.*.......... 58 Director
John R. Overturf, Jr.**......... 40 Director
Robert D. Weist**............... 61 Director
Robert J. Weltman**............. 35 Director
- ----------
* Member of the Compensation Committee.
** Member of the Audit Committee.
Mr. Hays joined BioSource in September 2000. Prior to his position with
the Company, Mr. Hays was President, Chief Executive Officer and a director of
NEN Life Sciences, Inc. from January 2000 to September 2000. From February 1998
to December 1999, Mr. Hays was President and Chief Executive Officer of Resound
Corporation. From May 1995 to February 1998, he was Executive Vice President and
President, Hospital Business, a division of Nellcor, Puriton Bennett. Mr. Hays
served as president and CEO of Sequenom, Inc. and Enzyrech, Inc. In addition,
Mr. Hays has held senior executive positions at Baxter International, Stryker
Corporation and American Hospital Supply Corp. Mr. Hays holds a Bachelor of
Science degree in Physics from Elmhurst College and a Masters degree in Business
from Northwestern University.
Charles C. Best joined BioSource in December 1999 as Chief Financial
Officer. Prior to his employment at BioSource, Mr. Best served four and a half
years as Vice
34
President and Chief Financial Officer of Cogent Light Technologies, Inc., a
company engaged in the manufacture of surgical lighting instruments. From 1989
to 1995, Mr. Best worked in various positions including Corporate Controller for
3D Systems, Inc., a company engaged in the manufacture and sale of high tech
rapid prototyping equipment. Mr. Best is a CPA and holds a Bachelor of Science
degree in Business Administration and Accounting from San Diego State
University.
Mr. Uveges became Chief Operating Officer in September 2000. Prior to
joining BioSource, Mr. Uveges was Chief Financial Officer of NEN Life Sciences,
Inc. from July 1997 to September 2000. From June 1996 to February 1997, Mr.
Uveges was Chief Financial Officer and Vice President of Administration of
Gelman Sciences, Inc. From April 1991 to March 1996, Mr. Uveges was CFO,
Treasurer and Vice President of Administration with G.I. Plastek. Mr. Uveges is
a CPA and holds a Bachelors degree in Business Administration from Cleveland
State University and a Masters of Business from Baldwin Wallace College.
Cirilo D. Cabradilla, Jr., Ph.D. became Vice President of Molecular
Biology and President of our Keystone division in November 1995. From 1991 to
1995, Dr. Cabradilla served as President of Keystone Laboratories, Inc. From
1988 to 1991, Dr. Cabradilla was Vice President, Product Development, of Vascor,
a pharmaceutical company. Dr. Cabradilla was an Assistant Professor of Viral
Oncology from 1996-1997 at the University of Pennsylvania, School of Veterinary
Medicine. He did his postdoctoral training at the National Cancer Institute from
1974-1977. Dr. Cabradilla received a Bachelor of Science and a Ph.D. degree in
Biochemistry from the University of California at Davis.
Kevin J. Reagan, Ph.D. became Vice President, Immunology in December 1996.
From 1991 to December 1996, Dr. Reagan served as the first Director of
Development Laboratories and then Vice President, Laboratory Operations at
Specialty Laboratories, Inc., a clinical reference lab. From 1990 to 1991, Dr.
Reagan was the Associate Director of AIDS/Hepatitis R&D at Ortho Diagnostics,
Inc., a Johnson & Johnson Company. Dr. Reagan received his Bachelor of Arts in
Biological Sciences from the University of Delaware. Dr. Reagan received both
his Masters and Ph.D. degrees in Microbiology and Immunology from Hahnemann
Medical College.
David Thrower became Senior Vice President of Global Marketing in November
2000. Mr. Thrower served as Senior Vice President of Global Marketing for GN
Resound, Inc. from 1998 to 1999. From 1993 to 1998 Mr. Thrower worked for
Quattro Consulting, Inc. and served as their Vice President from 1996 to 1998.
Mr. Thrower holds a Master degree in Business Administration from Harvard
Graduate School of Business Administration, and a Bachelor's degree in
Mathematics and Computational Sciences from Stanford University.
Brent Keller became Senior Vive President Global Sales and Business
Development in November 2000. Prior to joining BioSource, Mr. Keller served as
Director of Marketing, Sales and Business Development with Chemicon
International from 1999 to 2000. From 1994 to 1999 Mr. Keller held the position
of General Manager of Instrument Systems with Stratagene. From 1987 to 1994, Mr.
Keller was Founder and President of Conceptual Marketing International. He has
also held various executive management positions with Beckman Instruments,
Infinitek, Inc., Becton Dickinson and Bio-Rad Labs. Mr. Keller received a B.S.
in Biology from Rensselaer Polytechnic Institute and a Masters of Business
Administration from Pepperdine University.
Jozef Vangenechten, Ph.D. became Managing Director of BioSource Europe,
S.A. in February 1998. From 1988 to February 1998, Dr. Vangenechten worked for
Societe Generale de Surveillance, n.v., an international provider of
environmental compliance services, most recently as Managing Director of SGS's
EcoCare Environmental Services division.
Jean-Pierre L. Conte has served as a director of BioSource since February
2000. Mr. Conte is a Managing Director of Genstar Capital LLC, which is the sole
general partner of Genstar Capital Partners II, L.P., a private equity limited
partnership and a Managing Director of Genstar Capital, L.P. which is the sole
general partner of Genstar Capital Partners III L.P. Prior to joining Genstar in
1995, he was a principal for six years at the NTC Group, Inc., a private equity
investment firm. He is a director of several private companies. Mr. Conte earned
a Masters of Business
35
Administration from Harvard University Graduate School of Business and a
Bachelor of Arts from Colgate University. Mr. Conte has been appointed to the
Board of Directors pursuant to an investor rights agreement among Genstar,
Stargen and us, which is described under "Item 13. Certain Relationships and
Related Transactions."
Leonard M. Hendrickson has been a director of BioSource since October
1993. Mr. Hendrickson is the President of Isotope Products Laboratories, a
position he has held since February 1992. From February 1990 to January 1992,
Mr. Hendrickson served as the principal consultant for Microchemics, a marketing
and business development consulting firm that he founded. Mr. Hendrickson also
serves on the board of directors of Isotope Products Laboratories, a subsidiary
of Eckert & Ziegler AG. Mr. Hendrickson holds a Bachelor of Science degree from
the University of Pennsylvania and a Masters in Business Administration from
American University in Washington, D.C.
David J. Moffa, Ph.D. has been a director of BioSource since April 1995.
Dr. Moffa serves: as the Regional Director and as special projects director for
Lab Corporation of America, Inc. located in Fairmont, West Virginia, positions
he has held since 1982 and 1984, respectively; as director of LabCorp in
Pittsburgh Pennsylvania, a position held since 1985. Dr. Moffa also serves as an
advisor and consultant to various diagnostic, scientific and health care
facilities, and is an owner and developer of GM Realty and Moffa Properties. Dr.
Moffa also serves on a number of committees and boards of directors of various
privately held companies and governmental offices, including One Valley Bank,
Inc. Dr. Moffa has completed a post doctoral fellowship in Clinical Biochemistry
at the West Virginia University National Institutes of Health, holds a Ph.D. in
Medical Biochemistry from the West Virginia School of Medicine, a Masters of
Science degree in Biochemistry from West Virginia University and a Bachelor of
Arts degree in Pre-Medicine from West Virginia University.
John R. Overturf, Jr. has been a director of BioSource since September
1993. Mr. Overturf serves as the President of R.O.I., Inc., a private investment
company, a position he has held since July 1993. He also serves as President of
the Combined Penny Stock Fund, Inc., a closed-end stock market fund, a position
he has held since August 1996. From September 1993 until September 1996, Mr.
Overturf served as Vice President of the Rockies Fund, Inc., a closed-end stock
market fund. Mr. Overturf holds a Bachelor of Science degree in Finance from the
University of Northern Colorado.
Robert D. Weist has been a director of BioSource since April 1996. Mr.
Weist has been President of Weist Associates, a management consulting firm,
since April 1992. From January 1986 through April 1992, Mr. Weist was a
consultant to and Senior Vice President, Administration, General Counsel and
Secretary of Amgen, Inc., having served as Vice President, General Counsel and
Secretary from March 1982 through January 1986. Mr. Weist holds a Juris Doctor
degree from New York University and a Masters in Business Administration from
the University of Chicago.
Robert J. Weltman has served as a director of BioSource since February
2000. He is currently a Principal of Genstar Capital LP, the sole general
partner of Genstar Capital Partners II, L.P., a private equity limited
partnership. Mr. Weltman joined Genstar in August 1995. Prior to joining
Genstar, from July 1993 to July 1995, Mr. Weltman was an Associate with
Robertson, Stephens & Company, an investment banking firm. Mr. Weltman holds an
AB degree in chemistry from Princeton University. Mr. Weltman has been appointed
to the Board of Directors pursuant to an investor rights agreement among
Genstar, Stargen and us, which is described under "Item 13. Certain
Relationships and Related Transactions."
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, requires our executive
officers, directors, and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Executive
officers, directors and greater-than-ten percent stockholders are required by
SEC regulations to furnish us with all Section 16(a) forms they file. Based
solely on our review of the copies
36
of the forms received by us and written representations from certain reporting
persons that they have complied with the relevant filing requirements, we
believe that, during the year ended December 31, 2000, all our executive
officers, directors and greater-than-ten percent stockholders complied with all
Section 16(a) filing requirements, except for the following; Leonard
Hendrickson, David Moffa, Ph.D., John Overturf, Jr. and Robert Weist each failed
to timely file a Form 5 for certain options granted in December 2000.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth, as to the Chief Executive Officer and as
to each of the other four most highly compensated officers whose compensation
exceeded $100,000 during the last fiscal year (the "Named Executive Officers"),
information concerning all compensation paid for services to us in all
capacities for each of the three years ended December 31 indicated below.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------------------------- -------------------------
Number of
Year Ended Other Securities
Name and December Annual Underlying All Other
Principal Position (1) 31, Salary Bonus Compensation Options Compensation
- -------------------------------- ---------- ----------- --------- ------------ ----------- ------------
Russell D. Hays................. 2000 $107,000(2) $56,164 105(13) 350,000 57,428(3)
Chairman of the Board,
Chief Executive Officer and
President
James H. Chamberlain............ 2000 $177,000(4) $75,000 24,849(5) 73,000(6)
Chairman of the Board 1999 250,000 90,000 17,634(7)
Chief Executive Officer and 1998 250,000 25,000 18,084(8) 100,000
President
Gus E. Davis.................... 2000 $164,500(9) $52,000 5,890(10)
Chief Operating Officer 1999 154,000 55,000 6,499(11)
and Executive Vice President 1998 150,000 8,000 6,395(12) 25,000
Charles C. Best................. 2000 $142,200 $22,500 489(13) 20,000
Chief Financial Officer 1999 11,250(14) 0 0 30,000
and Executive Vice President
Richard O. Buford............... 2000 $99,700 $18,750 404(13) 10,000 (15)
Vice President, Human 1999 102,718 13,700 614(13)
Resources and Secretary 1998 97,000 10,000 760(13) 14,500
- ----------
(1) For a description of employment agreements between certain executive
officers and the Company, see "Employment Agreements with Executive
Officers" below.
(2) Mr. Hays joined the Company on September 18, 2000.
(3) Relocation expenses.
(4) Mr. Chamberlain resigned as of September 18, 2000.
(5) Consists of $19,409 for an auto lease paid by the Company, $4,740 for
country club membership dues paid by the Company, and $700 for a group
life insurance premium paid by the Company.
(6) Represents severance payments.
(7) Consists of $11,616 for an auto lease paid by the Company, $4,740 for
country club membership dues paid by the Company, and $1,278 for a group
life insurance premium paid by the Company.
37
(8) Consists of $11,616 for an auto lease paid by the Company, $4,740 for
country club membership dues paid by the Company, and $1,728 for a group
life insurance premium paid by the Company.
(9) Mr. Davis resigned as of December 31, 2000.
(10) Consists of $5,400 for a car allowance paid by the Company and $490 for a
group life insurance premium paid by the Company.
(11) Consists of $5,400 for a car allowance paid by the Company and $1,099 for
a group life insurance premium paid by the Company.
(12) Consists of $4,955 for a car allowance paid by the Company and $1,440 for
a group life insurance premium paid by the Company.
(13) Consists of group life insurance premiums paid by the Company.
(14) Mr. Best joined the Company on December 1, 1999.
(15) Mr. Buford resigned as of February 15, 2001.
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding the grant of
stock options made during the fiscal year ended December 31, 2000 to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Number of Realizable Value of
Securities Percent of Total Assumed Annual
Underlying Options Granted Exercise of Rates of Stock
Options to Employees in Base Price Price Appreciation
Name Granted(1) Fiscal Year(2) ($/sh.)(3) Expiration Date for Option Term (1)
- ------------------------------- -------------- ---------------- -------------- --------------- -----------------------
5%($) 10%($)
---------- ----------
Russell D. Hays................ 350,000 27% 15.00 09/18/10 $3,301,697 $7,129,225
Charles C. Best................ 20,000 2% 16.56 12/15/10 $208,321 $449,820
Richard O. Buford.............. 10,000 1% 16.56 12/15/10 $104,161 $224,910
- ----------
(1) Options granted in 2000 vest over various periods. The options were
granted for a term of 10 years.
(2) Options covering an aggregate of 1,314,198 shares were granted to
employees of the Company and its subsidiary during the year ended December
31, 2000.
(3) The exercise price and the tax withholding obligations related to exercise
may be paid by delivery of already owned shares, subject to certain
conditions.
38
Option Exercises and Stock Options Held at Fiscal Year End
The following table sets forth, for those Named Executive Officers who
held stock options at fiscal year end, certain information regarding options
exercised in fiscal year 2000, the number of shares of common stock underlying
stock options held and the value of options held at fiscal year end based upon
the last reported sales price of the common stock on the NASDAQ market on
December 31, 2000 ($15.31 per share).
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired on Options at in-the-Money Options at
Name Exercise Value Realized December 31, 2000 December 31, 2000
- ---- -------- -------------- ----------------- -----------------
(#) ($) Exercisable Unexercisable Exercisable Unexercisable
--- --- ----------- ------------- ----------- -------------
Russell D. Hays.............. -- -- -- 350,000 $ -- $ 109,550
James H. Chamberlain (1)..... 70,000 1,741,250 367,500 -- $4,632,653 --
Gus E. Davis (2)............. 90,000 2,040,782 -- -- -- --
Charles C. Best.............. 3,500 80,718 4,625 41,875 $ 51,914 $ 497,182
Richard O. Buford (3)........ 31,500 734,062 22,000 10,000 $ 292,911 $ 0
- ----------
(1) Resigned as of September 18, 2000.
(2) Resigned as of December 31, 2000.
(3) Resigned as of February 15, 2001
Compensation of Directors
Our non-employee corporate directors currently are paid $2,000 for each board
meeting attended, and $1,000 per year for service on a board committee. We pay
out of pocket fees of attendance. In addition, non-employee directors have
received an annual grant of 4,000 non-statutory stock options, exercisable at
the fair market value of our common stock on the date of grant, and which fully
vest on the date of grant. In 2000, our European non-employee director received
10,000 options at the fair market value of our common stock on the date of
grant, which vest over a 4-year period.
Employment Agreements with Executive Officers
We have entered into a letter agreement with Russell D. Hays to serve as
our President and Chief Executive Officer and Chairman of the Board of
Directors, effective as of September 18, 2000. Pursuant to this agreement Mr.
Hays receives an annual base salary of $395,000, which we may increase, at our
sole discretion, at the end of each year of his employment. In addition, Mr.
Hays is eligible to receive an annual bonus under our management incentive plan.
In the event of a "change of control" all stock options granted to Mr. Hays will
immediately vest. According our agreement with Mr. Hays, a "change of control"
includes, (i) the acquisition by any person or entity unaffiliated with Genstar
Capital LLC of capital stock representing at least 40% of the total voting power
of all our outstanding capital stock; (ii) our entering into an agreement for
the transfer of all or substantially all of our assets or an agreement to merge
or otherwise consolidate or reorganize with any other entity, which transaction
results in the holders our common stock immediately prior to such transaction
holding less than 60% of the total voting power of the entity to which our
assets are transferred or which survives a merger, consolidation or
reorganization; (iii) an issuance by us to any party or parties unaffiliated
with Genstar Capital LLC otherwise than on a pro rata basis additional shares of
capital stock representing more than 40% of the total voting power or our
capital stock; or (iv) the persons who were directors as of September 18, 2000
cease to comprise a majority of our Board of Directors. If Mr. Hays is
terminated for any reason other than cause (as defined in the agreement), we
have agreed to pay him one year's salary over the regular pay period and provide
health care benefits for a year.
39
We have also entered into a letter agreement with George Uveges to serve
as our Chief Operating Officer, effective as of September 18, 2000. Pursuant to
this agreement Mr. Uveges receives an annual base salary of $220,000, which we
may increase, at our sole discretion, at the end of each year of his employment.
In addition, Mr. Uveges is eligible to receive an annual bonus under our
management incentive plan. In the event of a "change of control" all stock
options granted to Mr. Uveges will immediately vest. According our agreement
with Mr. Uveges, a "change of control" includes, (i) the acquisition by any
person or entity unaffiliated with Genstar Capital LLC of capital stock
representing at least 40% of the total voting power of all our outstanding
capital stock; (ii) our entering into an agreement for the transfer of all or
substantially all of our assets or an agreement to merge or otherwise
consolidate or reorganize with any other entity, which transaction results in
the holders our common stock immediately prior to such transaction holding less
than 60% of the total voting power of the entity to which our assets are
transferred or which survives a merger, consolidation or reorganization; (iii)
an issuance by us to any party or parties unaffiliated with Genstar Capital LLC
otherwise than on a pro rata basis additional shares of capital stock
representing more than 40% of the total voting power or our capital stock; or
(iv) the persons who were directors as of September 18, 2000 cease to comprise a
majority of our Board of Directors. If Mr. Uveges is terminated for any reason
other than cause (as defined in the agreement), we have agreed to pay him one
year's salary over the regular pay period and provide health care benefits for a
year.
Effective as of December 17, 1999, Charles C. Best entered into a
separation agreement with us. In the event we experience a "change of control,"
and the employment of Mr. Best with us is terminated within one year of the
"change of control," we are obligated to continue to pay Mr. Best his
then-current base salary for a period of 12 months following the effective date
of such termination. For purposes of Mr. Best's separation agreement, a "change
of control" includes (i) the acquisition by any person or entity of shares of
our capital stock entitled to exercise 35% or more of the total voting power of
our stockholders, (ii) the execution by us of an agreement to sell or otherwise
transfer all or substantially all of our assets or the execution by us of an
agreement to merge, consolidate or reorganize with any other corporation or
entity, which results in less than 75% of the total voting power represented by
the capital stock or other equity interests of the corporation or entity to
which our assets are sold or transferred or surviving such merger, consolidation
or reorganization being held by the persons and entities who were holders of our
common stock immediately prior to such agreement, (iii) the issuance by us,
otherwise than on a pro rata basis, of additional shares of capital stock
representing (after giving effect to such issuance) more than 35% of the total
voting power of our stockholders, or (iv) if the persons who were our directors
as of the date of the separation agreement cease to comprise a majority of our
Board of Directors.
Stock Option Plans
We adopted a Stock Option Plan (the "1993 Plan") in 1993. The purpose of
the 1993 Plan is to attract, retain and motivate certain of our key employees by
giving them incentives which are linked directly to increases in the value of
our common stock. Each of our officers, directors and employees and under
certain circumstances, our consultants are eligible to be considered for the
grant of awards under the 1993 Plan. The maximum number of shares of common
stock that may be issued pursuant to awards granted under the 1993 Plan is
2,000,000, subject to certain adjustments to prevent dilution. Any shares of
common stock subject to an award, which for any reason expires or terminates
unexercised are again available for issuance under the 1993 Plan.
The 1993 Plan authorizes the Compensation Committee to enter into any type
of arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of (1) shares of our common stock, (2) an option, warrant,
convertible security, stock appreciation right or similar right with an exercise
or conversion privilege at a price related to our common stock, or (3) any other
security or benefit with a value derived from the value of our common stock. Any
stock option granted may be an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or a
nonqualified stock option.
40
As of March 20, 2001, the Board had granted options under the 1993 Plan
covering an aggregate of 2,000,000 shares of common stock to certain of our
directors, officers and employees, of which options to purchase 852,106 shares
were outstanding.
In January 2000, our Board of Directors approved the 2000 BioSource
International, Inc. non-qualified stock option plan (the "2000 Plan"). Under the
2000 Plan, non-qualified stock options may be granted to full-time employees,
part-time employees, directors and consultants of the Company to purchase a
maximum of 2,000,000 shares of the company's common stock. Options granted under
the 2000 Plan are generally exercisable at the rate of 25% each year beginning
one year from the date of grant. The stock options generally expire ten years
from the date of grant. As of March 21, 2001, the Board had granted options
under the 2000 Plan covering an aggregate of 1,169,000 shares of common stock to
certain of our directors, officers and employees, of which, as of March 20,
2001, options to purchase 1,156,000 shares were outstanding.
The Compensation Committee of our Board of Directors currently administers
our stock option plans.
Compensation Committee Interlocks and Insider Trading Participation
The Compensation Committee currently consists of Messrs. Hendrickson,
Moffa and Conte. The compensation Committee is responsible for considering and
making recommendations to the Board of Directors regarding executive
compensation and is responsible for administrating our stock option and
executive incentive compensation plans. None of the members of the compensation
committee is a current or former officer or employee of the Company. None of our
executive officers served as a member of the compensation committee or other
similar committee or the board of directors of any other entity of which an
executive officer served on our Board of Directors.
41
Item 12. Security Ownership of Certain Beneficial Owners and Management
Principal Stockholders
The following table sets forth as of March 21, 2001 certain information
relating to the ownership of our common stock by (i) each person known by us to
be the beneficial owner of more than five percent of the outstanding shares of
our common stock, (ii) each of our directors, (iii) each of our executive
officers, and (iv) all of our executive officers and directors as a group.
Except as may be indicated in the footnotes to the table and subject to
applicable community property laws, each such person has the sole voting and
investment power with respect to the shares owned. Unless otherwise indicated,
the address of each person listed is in care of BioSource International, Inc.,
542 Flynn Road, Camarillo, California 93012, and the address of Messrs. Conte,
Weltman and Genstar Capital LLC is 555 California Street, Suite 4850, San
Francisco, California 94104.
Number of Shares of
Common Stock
Name and Address Beneficially Owned (1) Percent (2)
---------------- ---------------------- -----------
Genstar Capital LLC (3)............................ 3,278,567 28.1%
Jean-Pierre L. Conte (3)........................... 3,367,405 28.8%
Franklin Advisors (4) 974,000 9.4%
Russell D. Hays (5)................................ 40,000 *
Leonard M. Hendrickson (6)......................... 84,200 *
David J. Moffa, Ph.D. (7).......................... 35,900 *
John R. Overturf, Jr. (8).......................... 18,000 *
Robert D. Weist (9)................................ 61,000 *
Robert J. Weltman (10)............................. 3,333 *
Charles C. Best (11)............................... 7,125 *
George Uveges (12)................................. 12,428 *
All of the directors and executive officers as a
group (nine persons) (13)....................... 3,629,391 30.6%
- ----------
* Less than one percent.
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or
the power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the
date as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person's actual ownership or voting power with
respect to the number of shares of common stock actually outstanding at
March 21, 2000.
(2) Percentage ownership is based on 10,397,753 shares of common stock
outstanding as of March 20, 2000.
(3) Genstar Capital Partners II, L.P. holds 2,008,025 shares of common stock
and 1,262,542 shares of common stock issuable upon exercise of warrants
and Stargen II LLC holds 34,380 shares of common stock and 24,458 shares
of common stock issuable upon exercise of warrants, all of which are
currently convertible or exercisable. Includes 8,000 stock options held by
Genstar Capital Partners II L. P.. In addition, Mr. Conte holds 30,000
shares of common stock, Richard F. Hoskins holds 16,667 shares of common
stock and Richard D. Paterson holds 16,667 shares of common stock. Genstar
Capital LLC is the general partner of Genstar Capital Partners II, L.P.
Mr. Conte, Mr. Hoskins and Mr. Paterson are the managers and managing
directors of Genstar Capital LLC and are members of Stargen, and Mr.
Paterson is the Administrative Member of Stargen. In such capacities
Messrs. Conte, Hoskins and Paterson may be deemed to beneficially own
shares of common stock beneficially held by Genstar Capital Partners and
42
Stargen, but disclaim such beneficial ownership, except to the extent of
their economic interest in these shares. Messrs. Conte, Hoskins, Paterson,
Genstar Capital LLC, Genstar Capital Partners II, L.P. and Stargen II LLC
may be deemed to be acting as a group in relation to their respective
holdings in BioSource but do not affirm the existence of any such group.
(4) As disclosed in the Schedule 13G filed with the Securities and Exchange
Commission on February 1, 2001 by Franklin Advisors, Inc. Franklin
Resources, Inc., Charles B. Johnson and Rupert H. Johnson, Jr.
(5) Includes 40,000 shares of common stock owned.
(6) Includes (i) 71,000 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable or are
exercisable within 60 days of March 20, 2001; (ii) 1,300 shares of common
stock owned; (iii) 4,000 shares of common stock held of record by two of
Mr. Hendrickson's minor children; and (iii) 7,900 shares of common stock
held in the Microchemics Simplified Employee Pension Plan.
(7) Includes (i) 28,500 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable or are
exercisable within 60 days of March 20, 2001; (ii) 550 shares of common
stock held solely by Dr. Moffa's spouse; (iii) 4,000 shares of common
stock held jointly with Dr. Moffa's spouse; and (iv) 2,850 shares of
common stock held directly.
(8) Includes (i) 16,000 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable or are
exercisable within 60 days of March 20, 2001; and (ii) 2,000 shares of
common stock owned.
(9) Includes 61,000 shares of common stock reserved for issuance upon exercise
of stock options that are currently exercisable or are exercisable within
60 days of March 20, 2001.
(10) Includes (i) 3,333 shares of common stock held directly. Mr. Weltman is
also a Principal of Genstar Capital LP and a member, but not a managing
member, of Stargen II LLC. Mr. Weltman does not have power to vote or
dispose of, or to direct the voting or disposition of, any securities
beneficially owned by Genstar Capital LLC or Stargen II LLC. Mr. Weltman
disclaims that he beneficially owns any shares of common stock
beneficially owned by Genstar Capital LLC or Stargen II LLC, except to the
extent of his economic interest in shares owned by Genstar Capital LLC or
Stargen II LLC.
(11) Includes 7,125 shares of common stock reserved for issuance upon exercise
of stock options that are currently exercisable or are exercisable within
60 days of March 20, 2001.
(12) Includes 12,428 shares of common stock owned.
(13) Includes (i) 191,625 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable or are
exercisable within 60 days of March 20, 2001; (ii) 1,287,000 shares of
common stock reserved for issuance upon exercise of warrants and (iii)
includes 2,150,766 shares of common stock owned.
Item 13. Certain Relationships and Related Transactions
On January 10, 2000, we entered into a securities purchase agreement with
Genstar Capital Partners II, L.P. and Stargen II LLC. Pursuant to this
agreement, we sold Genstar and Stargen a total of 371,300 shares, including
364,244 to Genstar and 7,056 to Stargen, of our Series B Preferred Stock for
$9,000,312 in the aggregate. These shares were initially convertible into
1,485,200 shares, including 1,456,976 for Genstar and 28,224 for Stargen, of our
common stock. In addition, we issued to Genstar and Stargen warrants to purchase
a total of 1,287,000 shares of our common stock, including 1,262,542 to Genstar
and 24,458 to Stargen, exercisable at $7.77 per share. Under the investor rights
agreement among Genstar, Stargen and us, executed in connection with the
securities purchase agreement, Genstar and Stargen also have the right to
appoint two out of our seven directors to our Board of Directors as long as they
beneficially own, in the aggregate, at least 750,000 shares of common stock, or
one director if they beneficially own at least 495,000 shares. Pursuant to the
investor rights agreement, we appointed Jean-Pierre L. Conte, a Managing
Director of Genstar Capital LLC, and Robert J. Weltman, a Vice President of
Genstar Capital LLC, to our Board of Directors. Genstar and Stargen also have
the right of first refusal to purchase additional shares and the right to
require us to register their shares of our common stock underlying the preferred
stock and the warrants. The consummation of the securities purchase agreement,
43
including the issuance of the shares of Series B Preferred Stock and the
warrants, occurred on February 15, 2000. Pursuant to the securities purchase
agreement, we paid a $270,009 transaction fee to Genstar Capital LLC and
reimbursed all of the fees and expenses of approximately $195,426, incurred by
Genstar Capital Partners and its affiliates in connection with the securities
purchase agreement.
On September 20, 2000, pursuant to the terms of the Certificate of
Designation of Preferences, Rights and Limitations of our Series B Preferred,
all issued and outstanding shares of Series B Preferred Stock were automatically
converted into an aggregate of 1,556,574 shares of common stock, including
1,526,922 shares of common stock issued to Genstar and 29,652 shares of common
stock issued to Stargen.
In connection with the respective employment of Russell D. Hays as our
President, Chief Executive Officer and Chairman of the Board of Directors, and
George Uveges as our Chief Operating Officer, we entered into a Securities
Purchase Agreement, effective as of August 9, 2000, with Genstar Capital
Partners II, L.P. Genstar agreed to purchase from us 300,000 shares of the our
common stock at $15.00 per share. Genstar subsequently assigned its right to
purchase 30,000 of these shares to Jean-Pierre L. Conte and 3,333 of the shares
to Robert Weltman. Both Mr. Conte and Mr. Weltman currently serve on our Board
of Directors. Genstar assigned its right to purchase an additional 33,334 of
these shares to certain other individuals affiliated with Genstar. We also
entered into a Securities Purchase Agreement, effective as of August 9, 2000,
with Russell D. Hays, pursuant to which Mr. Hays agreed to purchase 40,000
shares of the our common stock at $15.00 per share. We further entered into a
Securities Purchase Agreement, effective as of September 5, 2000, with George
Uveges, pursuant to which Mr. Uveges agreed to purchase 11,428 shares of the our
common stock at $21.875 per share. The closing of each of these transactions
occurred on September 28, 2000.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) The financial statements listed below are included as part of this
report:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Operations for the Years ended December 31,
2000, 1999, and 1998
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 2000, 199 and 1998
Consolidated Statements of Cash Flows for the Years ended December 31,
2000, 1999, and 1998
Notes to Consolidated Financial Statements
(a)(2) The following schedule supporting the financial statements of the
Company is included herein:
Financial Statement Schedule--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not
required or because the required information is included in the consolidated
financial statements or notes thereto.
(a)(3) Exhibits
See Exhibit Index immediately following signature page.
(b) Reports on Form 8-K:
Form 8-K filed with the Securities and Exchange Commission On October 26,
2000 and amended on October 31, 2000, reporting Items 5 and 7.
44
Form 8-K filed with the Securities and Exchange Commission on November 20,
2000 and reporting Items 5 and 7.
45
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.
Date: March 27, 2001 /s/ Charles C. Best
By: ---------------------------------
Charles C. Best
Chief Financial Officer
Date: March 27, 2001 /s/ Russell D. Hays
By: ---------------------------------
Russell D. Hays
Chairman of the Board,
President and Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed below by
the following person on behalf of the registrant and in the capacities and on
the date indicated:
Signature Title Date
--------- ----- ----
/s/ Leonard M. Hendrickson Director March 27, 2001
- ------------------------------------
Leonard M. Hendrickson
/s/ David J. Moffa, Ph.D. Director March 27, 2001
- ------------------------------------
David J. Moffa, Ph.D.
/s/ John R. Overturf, Jr. Director March 27, 2001
- ------------------------------------
John R. Overturf, Jr.
/s/ Robert D. Weist Director March 27, 2001
- ------------------------------------
Robert D. Weist
/s/ Jean-Pierre L. Conte Director March 27, 2001
- ------------------------------------
Jean-Pierre L. Conte
/s/ Robert J. Weltman Director March 27, 2001
- ------------------------------------
Robert J. Weltman
46
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
----
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets at December 31, 2000 and December 31, 1999... F-3
Consolidated Statements of Operations for years ended December 31, 2000,
1999 and 1998........................................................... F-4
Consolidated Statements of Stockholders' Equity for years ended December
31, 2000, 1999 and 1998................................................. F-5
Consolidated Statements of Cash Flows for years ended December 31, 2000,
1999 and 1998........................................................... F-6
Notes to Consolidated Financial Statements as of December 31, 2000 and
1999 and for the years ended December 31, 2000, 1999 and 1998 ........... F-7
Financial Statement Schedule--Valuation and Qualifying Accounts.......... F-23
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BioSource International, Inc.:
We have audited the consolidated financial statements of BioSource
International, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BioSource
International, Inc. and subsidiaries as of December 31, 2000 and 1999 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Los Angeles, California
February 21, 2001
F-2
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(Amounts in thousands, except for share amounts)
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $10,632.6 4,644.5
Accounts receivable, less allowance for doubtful accounts
of $142.8 at December 31, 2000 and $328.1 at December 31, 1999 5,611.2 5,088.9
Inventories, net (note 3) 6,693.0 6,015.3
Prepaid expenses and other current assets 1,261.4 578.7
Deferred income taxes (note 10) 2,222.0 1,997.8
--------- ---------
Total current assets 26,420.2 18,325.2
Property and equipment, net (note 4) 4,353.0 5,392.6
Intangible assets net of accumulated amortization of $2,278.9 12,751.5 13,816.3
at December 31, 2000 and $1,186.4 at December 31, 1999 (note 2)
Other assets 382.4 819.3
Deferred income taxes (note 10) 6,457.1 1,868.4
--------- ---------
$50,364.2 40,221.8
========= =========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Notes payable to banks, current portion (note 5) $ -- 2,754.4
Accounts payable 3,275.1 2,067.6
Accrued expenses 2,687.7 1,923.8
Deferred income 314.2 369.0
Income taxes payable 41.1 225.5
--------- ---------
Total current liabilities 6,318.1 7,340.3
Notes payable to banks, less current portion (note 5) -- 11,459.3
--------- ---------
Total liabilities 6,318.1 18,799.6
--------- ---------
Commitments and contingencies (note 13)
Series B redeemable preferred stock, $.001 par value. Authorized
1,000,000 shares on February 15, 2000; none issued and outstanding as of
December 31, 2000 (note 6) -- --
Stockholders' equity:
Common stock, $.001 par value. Authorized 20,000,000 shares:
issued 10,616,320 shares and outstanding 10,326,458
shares at December 31, 2000; issued 7,711,716 shares and
outstanding 7,425,716 shares at December 31, 1999 10.3 7.4
Additional paid-in capital 49,303.9 22,025.9
Retained earnings (accumulated deficit) (3,071.1) 948.1
Accumulated other comprehensive loss (2,197.0) (1,559.2)
--------- ---------
Total stockholders' equity 44,046.1 21,422.2
--------- ---------
$50,364.2 40,221.8
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2000, 1999 and 1998
(Amounts in thousands, except per share data)
2000 1999 1998
---------- ---------- ----------
Net sales $ 32,209.6 29,257.0 21,858.6
Cost of sales 13,599.5 11,070.5 13,188.6
---------- ---------- ----------
Gross profit 18,610.1 18,186.5 8,670.0
Operating expenses:
Research and development 3,575.4 3,315.4 2,648.3
Sales and marketing 5,682.8 4,736.9 4,337.5
General and administrative 9,070.7 4,460.3 4,468.9
Purchased in-process technology -- -- 4,222.0
Amortization of intangibles 1,092.6 1,060.7 95.1
---------- ---------- ----------
Total operating expenses 19,421.5 13,573.3 15,771.8
---------- ---------- ----------
Operating income (loss) (811.4) 4,613.2 (7,101.8)
Interest income 266.8 397.2 513.4
Interest expense (302.0) (1,367.3) (215.9)
Other income (expense), net 107.7 (46.1) 133.9
---------- ---------- ----------
Income (loss) before income taxes (benefit) (738.9) 3,597.0 (6,670.4)
Income tax expense (benefit) (573.0) 19.6 (1,534.6)
---------- ---------- ----------
Net income (loss) (165.9) 3,577.4 (5,135.8)
Redeemable preferred stock dividend and accretion
of beneficial conversion feature (3,853.3) -- --
---------- ---------- ----------
Net income (loss) available to common stockholders $ (4,019.2) 3,577.4 (5,135.8)
========== ========== ==========
Net income (loss) per share available to common stockholders:
Basic $ (0.47) 0.49 (0.68)
========== ========== ==========
Diluted $ (0.47) 0.46 (0.68)
========== ========== ==========
Shares used to compute net income (loss) per share available
to common stockholders:
Basic 8,583.8 7,234.7 7,508.8
========== ========== ==========
Diluted 8,583.8 7,832.9 7,508.8
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998
(Amounts in thousands)
Retained Accumulated
Common stock Additional earnings other
------------------ paid-in (accumulated comprehensive
Shares Amount capital deficit) loss
---------------------------------------------------------------
Balance at December 31, 1997 8,147.7 $ 8.1 $ 27,304.8 $ 2,506.5 $ (1,161.1)
Issuance of stock options to non employees -- -- 110.4 -- --
Exercise of stock options 27.4 0.1 59.9 -- --
Income tax benefit from exercise of stock options -- -- 20.5 -- --
Purchases of treasury stock (996.2) (1.0) (6,308.8) -- --
Net loss -- -- -- (5,135.8) --
Foreign currency translation adjustments -- -- -- -- 292.2
---------------------------------------------------------------
Total comprehensive loss
Balance at December 31, 1998 7,178.9 7.2 21,186.8 (2,629.3) (868.9)
Issuance of stock options to non employees -- -- 13.5 -- --
Exercise of stock options 246.8 0.2 609.0 --
Income tax benefit from exercise of stock options -- -- 216.6 -- --
Net Income -- -- -- 3,577.4 --
Foreign currency translation adjustments -- -- -- (690.3)
---------------------------------------------------------------
Total comprehensive income
Balance at December 31, 1999 7,425.7 7.4 22,025.9 948.1 (1,559.2)
Issuance of common stock 351.4 0.4 5,318.3
Exercise of stock options 826.6 0.8 2,951.6 --
Stock compensation 946.0
Exercise of warrants 165.4 0.2 749.8
Sale of treasury stock 0.8 -- 8.4
Conversion of preferred stock 1,556.6 1.5 9,431.2
Issuance of warrants and beneficial conversion
feature of redeemable preferred stock 2,835.8
Accretion of the redeemable preferred stock to
its redemption value (3,853.3)
Income tax benefit from exercise of stock options -- -- 5,036.9 -- --
Net loss -- -- -- (165.9)
Foreign currency translation adjustments -- -- -- (637.8)
---------------------------------------------------------------
Total comprehensive loss
Balance at December 31, 2000 10,326.5 $ 10.3 $ 49,303.9 $ (3,071.1) $ (2,197.0)
===============================================================
Total
stockholders' Comprehensive
equity income (loss)
-----------------------------
Balance at December 31, 1997 $ 28,658.3
Issuance of stock options to non employees 110.4
Exercise of stock options 60.0
Income tax benefit from exercise of stock options 20.5
Purchases of treasury stock (6,309.8)
Net loss (5,135.8) $ (5,135.8)
Foreign currency translation adjustments 292.2 292.2
-----------------------------
Total comprehensive loss $ (4,843.6)
===========
Balance at December 31, 1998 17,695.8
Issuance of stock options to non employees 13.5
Exercise of stock options 609.2
Income tax benefit from exercise of stock options 216.6
Net Income 3,577.4 $ 3,577.4
Foreign currency translation adjustments (690.3) (690.3)
-----------------------------
Total comprehensive income $ 2,887.1
===========
Balance at December 31, 1999 21,422.2
Issuance of common stock 5,318.7
Exercise of stock options 2,952.4
Stock compensation 946.0
Exercise of warrants 750.0
Sale of treasury stock 8.4
Conversion of preferred stock 9,432.7
Issuance of warrants and beneficial conversion
feature of redeemable preferred stock 2,835.8
Accretion of the redeemable preferred stock to
its redemption value (3,853.3)
Income tax benefit from exercise of stock options 5,036.9
Net loss (165.9) $ (165.9)
Foreign currency translation adjustments (637.8) (637.8)
-----------------------------
Total comprehensive loss -- $ (803.7)
===========
Balance at December 31, 2000 $ 44,046.1
===========
The accompanying notes are an integral part of these
consolidated financial Statements.
F-5
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999 and 1998
(Amounts in thousands)
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ (165.9) 3,577.4 (5,135.8)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 2,156.1 1,990.9 959.8
Net loss on sale of property and equipment 99.3 -- 31.5
Purchased in-process technology -- -- 4,222.0
Stock compensation 946.0 13.5 110.4
Write-down of inventory 424.4 1,455.3 4,966.0
Other -- -- 28.0
Changes in assets and liabilities, net of effects of acquisitions
Accounts receivable (609.9) (1,175.2) (386.1)
Inventories (1,144.7) (2,811.8) (1,048.3)
Prepaid expenses and other current assets (684.2) (90.6) 888.0
Deferred income taxes (4,813.1) (903.6) (2,491.6)
Other assets 340.1 314.2 (1,001.1)
Accounts payable 1,228.4 327.8 (62.0)
Accrued expenses 871.4 (2,255.7) 2,592.3
Deferred income (55.0) (256.9) 3.9
Income taxes payable 4,830.3 215.5 348.9
--------- --------- ---------
Net cash provided by operating activities 3,423.2 400.8 4,025.9
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (2,152.3) (1,077.0) (1,390.0)
Purchase of Quality Controlled Biochemicals, Inc. -- -- (15,193.9)
Purchase of net assets of Biofluids, Inc. -- -- (2,822.5)
Proceeds from sales of property and equipment 1,925.9 25.6 3.1
Purchase of investments -- -- (7,614.8)
Proceeds from sale of investments -- -- 12,583.5
--------- --------- ---------
Net cash used in investing activities (226.4) (1,051.4) (14,434.6)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from the exercise of options 2,952.4 609.2 60.0
Proceeds from the exercise of warrants 750.0 -- --
Proceeds from the exercise of common stock 5,318.7 -- --
Proceeds from the issuance of redeemable preferred stock and warrants 8,415.2 -- --
Sale of treasury stock 8.4 -- --
Borrowings from bank -- -- 14,000.0
Repayments to bank (14,371.5) (2,476.2) (34.1)
Payments to acquire treasury stock -- -- (6,309.8)
--------- --------- ---------
Net cash provided by (used in) financing activities 3,073.2 (1,867.0) 7,716.1
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 6,270.0 (2,517.6) (2,692.6)
Effect of exchange rates on cash and cash equivalents (281.9) 85.2 292.0
Cash and cash equivalents at beginning of year 4,644.5 7,076.9 9,477.5
--------- --------- ---------
Cash and cash equivalents at end of year $10,632.6 4,644.5 7,076.9
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 344.7 1,171.4 117.2
========= ========= =========
Income taxes $ 439.4 286.2 1,117.6
========= ========= =========
Additional paid-in capital increased by $5,036.9, $216.6 and $20.5 in 2000, 1999
and 1998 respectively in connection with the tax benefit associated with the
exercise of employee stock options.
In 2000, the conversion of redeemable preferred stock to common stock totaled
$9,432.7 and the accretion of redeemable preferred stock to redemption value
totaled $3,853.3
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
1. Summary of Significant Accounting Policies
Description of Business
BioSource International, Inc. and subsidiaries (BioSource or the Company),
develops, manufactures, markets and distributes products used worldwide in
disease related biomedical research and clinical diagnostics, principally in the
fields of immunology and molecular biology. Our products include ELISA assay
test kits, clinical diagnostic kits, bioactive proteins, antibodies, bioactive
peptides, oligonucleotides and related products. These products enable
scientists to better understand the biochemistry, immunology and cell biology of
the human body. Some examples would include certain diseases such as cancer,
aging, arthritis and other inflammatory diseases, AIDS and certain other
infectious diseases.
Principles of Consolidation
The consolidated financial statements include the accounts of BioSource
International, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with original maturities of three months or less.
Financial Instruments
The carrying value of financial instruments such as cash and cash
equivalents, trade receivables, and payables approximates their fair value at
December 31, 2000 and 1999 due to the short-term nature of these instruments.
The carrying value of the long-term debt also approximates fair value as of
December 31, 1999 based on the terms the Company could obtain for similar debt
instruments with similar maturities.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value) for raw materials and work in process and the
average-cost method for finished goods.
Depreciation and Amortization
Property and equipment are stated at cost. Depreciation and amortization
of property and equipment and goodwill is provided using the straight-line
method over the estimated useful lives of the related assets which generally
range from three to fifteen years. Real property is depreciated over thirty nine
years. Leasehold improvements are amortized using the straight-line method over
their estimated useful lives or the lease term, whichever is shorter.
Goodwill and other intangibles are amortized on the straight-line basis
over periods of 5 to 15 years.
F-7
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
Advertising, Marketing and Promotion Costs
Advertising, marketing and promotion costs are expensed as incurred. These
expenses charged to operations for the years ended 2000, 1999 and 1998 were
$1,717,867, $1,212,600, and $1,004,700, respectively.
License Agreements
License agreements primarily for the use of antibodies are recorded at
cost and are amortized using the straight-line method over the shorter of the
estimated useful lives of the license or the license term (generally five to ten
years). These costs are included with other assets in the accompanying
consolidated balance sheets. Accumulated amortization at December 31, 2000 and
1999 was approximately $251,657 and $205,500, respectively.
Revenue Recognition
Sales and related cost of goods sold are recognized upon shipment of
products. Certain customers prepay for sera or media and buffer product and
request shipment of the product at future dates. The Company records deferred
revenue until such time as a product is shipped to a customer.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Long-Lived Assets
It is our policy to account for long-lived assets, including intangibles,
at amortized cost. As part of an ongoing review of the valuation and
amortization of long-lived assets, management assesses the carrying value of
such assets if facts and circumstances suggest that they may be impaired. If
this review indicates that long-lived assets will not be recoverable, as
determined by a non-discounted cash flow analysis over the remaining
amortization period, the carrying value of the Company's long-lived assets would
be reduced to its estimated fair value based on discounted cash flows. As a
result, we have determined that our long-lived assets are not impaired as of
December 31, 2000 and 1999.
Stock Compensation
We account for stock-based compensation under the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Under the provisions of SFAS No. 123, the Company has
elected to continue to measure compensation cost under Accounting Practice Board
Opinion No. 25 and comply with the pro forma disclosure requirements.
F-8
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
Comprehensive Income (Loss)
Comprehensive income (loss) is the total of net income (loss) and all
other non-owner changes in equity. Except for net income (loss) and foreign
currency translation adjustments, the Company does not have any transactions and
other economic events that qualify as comprehensive income (loss) as defined
under SFAS No. 130.
Business Segment Reporting
Management of the Company has determined its reportable segments are
strategic business units that offer both sales to external customers from
geographic company facilities and sales to external customers in certain
geographic regions. Significant reportable business segments are the United
States and European facilities, and sales to external customers are summarized
as those located in the United States, Europe, Japan and other. Information
related to these segments is summarized in Note 11.
Recently Issued Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for fiscal years beginning after June 15, 2000. SFAS
No. 133 addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. The
Statement standardizes the accounting for derivative instruments by requiring
that an entity recognize those items as assets or liabilities in the statement
of financial position and measure them at fair value. The application of SFAS
No. 133 will not have an affect on the Company's financial reporting.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB 101 provides guidance on recognition, presentation, and
disclosure of revenues in financial statements of all public registrants. Any
change in the Company's revenue recognition policy resulting from implementation
of SAB 101 would be reported as a change in accounting principle. In June 2000,
the SEC issued SAB 101B, which delays the implementation date of SAB No. 101
until the fourth quarter of fiscal years beginning after December 15, 1999.
Application of SAB No. 101 did not have an affect on the Company's financial
reporting.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" (FIN 44). FIN 44 provides guidance for issues arising in applying
APB Opinion No. 25, "Accounting for Stock Issued to Employees". FIN 44 applies
specifically to new awards, exchanges of awards in a business combination,
modification to outstanding awards, and changes in grantee status that occur on
or after July 1, 2000, except for the provisions related to repricings and the
definition of an employee which apply to awards issued after December 15, 1998.
Application of FIN 44 did not have an affect on the Company's financial
reporting.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. This affects the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
Concentrations of Credit Risk
Financial instruments, which potentially subject us to concentrations of
credit risk, consist primarily of cash equivalents and trade accounts
receivable. The credit risk associated with trade accounts is mitigated by a
credit evaluation process; reasonably short collection terms and the
geographical dispersion of sales transactions mitigate credit risk.
Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiary, whose
functional currency is Belgian francs, are translated at the rate of exchange at
the balance sheet date, and related revenues and expenses are translated at the
average exchange rate in effect during the period. Resulting translation
adjustments are recorded as a component of stockholders' equity. Gains and
losses from foreign currency transactions are included in net income. Foreign
currency transaction gains and losses were insignificant to the operating
results for each of the years in the three-year period ended December 31, 2000.
Other Assets
Included in other assets at December 31, 1999 is a note receivable from a
former officer of $350,000. The note bears interest at 5.9% and is due on
demand. In September 2000, the $350,000 was paid in full.
2. Business Combinations
On December 10, 1998, BioSource acquired Quality Controlled Biochemicals,
Inc. (QCB). QCB is a leading manufacturer of phosphopeptides, phosphorylation
state-specific antibodies, custom peptides and custom antibodies. The
transaction was accounted for as a purchase. The results of operations of QCB
are included in the accompanying consolidated financial statements from the date
of acquisition. The purchase price was $15,193,900, including related
acquisition costs. The purchase price exceeded the fair value of net assets
acquired by approximately $16,034,500 of which $4,222,000 was allocated to
in-process technology. The remaining $11,812,500, which is being amortized on a
straight-line basis, was allocated to identifiable intangible assets and
goodwill with useful lives ranging from 5 to 15 years.
The purchased in-process technology charge in 1998 relates to the portion
of the QCB purchase price that was allocated to products in development which
had not yet reached technological feasibility as of the acquisition date and did
not have alternative future uses. In accordance with applicable accounting
rules, purchased in-process technology is required to be expensed.
At the date of acquisition QCB had approximately 100 unique phosphorylated
antibodies under development, with most of these antibodies in the final phase
of development. We estimate that on an overall basis these antibodies were
approximately 75% complete when acquired. The balance of the development work
was completed by the end of 1999.
On December 15, 1998, the Company purchased certain assets and liabilities
of Biofluids, Inc. (Biofluids)for $2,822,500 in cash, including related
acquisition costs. Biofluids is involved in the manufacture and sale of sera,
media and buffers utilized in biomedical research. The acquisition was accounted
for as a purchase. The results of Biofluids operations from the date of the
acquisition to December 31, 1998 were not significant. Intangible assets were
acquired in the amount of $2,348,700 and are being amortized over a 15-year
period and included in intangible assets in the consolidated balance sheet at
December 31, 2000 and 1999.
F-10
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
3. Inventories
Inventories at December 31, 2000 and 1999 are summarized as follows
(000's):
2000 1999
-------- --------
Raw materials ............................ $1,921.3 1,625.4
Work in process .......................... 553.3 574.1
Finished goods ........................... 4,218.4 3,815.8
-------- --------
$6,693.0 6,015.3
======== ========
4. Property and Equipment
Property and equipment at December 31, 2000 and 1999 are summarized as
follows (000's):
2000 1999
-------- --------
Land ......................................... $ -- 360.0
Building and improvements .................... -- 2,255.0
Machinery and equipment ...................... 5,356.4 4,157.4
Office furniture and equipment ............... 2,154.6 1,883.1
Leasehold improvements ....................... 778.7 107.9
-------- --------
8,289.7 8,763.4
Less accumulated depreciation
and amortization ............................. (3,936.7) (3,370.8)
-------- --------
$4,353.0 5,392.6
======== ========
5. Notes Payable to Banks
In December 1998, BioSource executed a loan agreement with Union Bank of
California, N.A. and borrowed $14,000,000 that was used to finance the
acquisitions of QCB and all of the assets and selected liabilities of Biofluids
(see note 2). The principal amount outstanding as of December 31, 1999 was
$12,000,000. Principal repayments were to be made at approximately $166,700 per
month for the seven-year term of the loan. Interest was provided at a rate which
is 2% per annum in excess of either the bank's adjusted treasury rate for a term
selected by BioSource or the bank's LIBOR rate for a term also selected by the
Company. The actual interest rate at December 31, 1999 was 8.12%. The original
maturity of the loan was on December 5, 2005. The terms of this loan required
the Company to maintain a minimum cash balance of $3,500,000 as of December 31,
1999.
QCB had four loans outstanding aggregating $964,100 at December 31, 1999 with
MetroWest Bank which loans were assumed by BioSource upon completion of the
acquisition of QCB in December 1998.
Under the terms of the MetroWest Bank loan agreement, BioSource was
required to meet certain financial covenants that included a minimum tangible
net worth covenant, debt to tangible net worth, current ratio covenant, and
other non-financial covenants. BioSource was in compliance with these covenants
as of December 31, 1999.
F-11
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
In May 2000, the Company repaid all of its outstanding notes payable to
Union Bank and MetroWest Bank.
In June 1996, the Company secured financing from Heller Financial Corp. in
order to partially finance the purchase of its previous corporate headquarters.
The original loan principal was $745,000 and was secured by a first trust deed
on the property. The loan bore interest at a rate of 9.4% and had a 20-year
term. The principal balance outstanding at December 31, 1999 was $688,000. In
addition, in June 1996, the Company obtained a loan from the Small Business
Administration in order to partially finance the purchase of the previous
corporate headquarters building. The original loan principal was $616,000 and
was secured by a second trust deed on the property. The loan bore interest at a
rate of 7.6% and had a 20-year term. The outstanding principal balance at
December 31, 1999 was $561,500. Payments to both Heller Financial Corp. and the
Small Business Administration were guaranteed by the previous chairman of the
board of our Company.
In November 2000 the Company completed the sale of its previous corporate
headquarters. In conjunction with this sale, the Company paid the remaining
$672,100 balance due on the Heller Financial Corp. loan and the remaining
$543,600 due on the Small Business Administration loan. As a result of the sale
of the building, the Company recognized a loss of $99,400, which is shown in
other income (expense) in the accompanying consolidated statement of operations.
In April 2000, the Company established a revolving line of credit that
provides for borrowings up to $3,400,000 and bears interest at a rate of 2% per
annum in excess of either the bank's adjusted treasury rate, for a variable
term, or the bank's LIBOR rate, also for a variable term. The line of credit
expires on February 26, 2001. The Company was required to comply with certain
financial and non-financial covenants. At December 31, 2000 the Company was in
compliance with these covenants and no balance was outstanding on the line of
credit.
6. Redeemable preferred stock
On February 15, 2000, the Company issued 371,300 shares of $0.001 par
value Series B Redeemable Preferred Stock with an initial aggregate liquidation
value of $9,000,300. The Series B Preferred Stock was initially convertible into
1,485,200 shares of the Company's Common Stock at an effective price of $6.06
per share of Common Stock. The Series B Preferred Stock shares were entitled to
receive dividends at an annual rate of 8% of the original issue price. Unless
all dividends on the outstanding Series B Preferred Stock shares were paid, no
dividends or other distributions were to be paid to Common Stock stockholders.
The Series B Preferred Stock stockholders had liquidation preference to the
Common Stock stockholders. On September 20, 2000, the Series B Preferred Stock
automatically converted to common stock as the last reported sales price of the
Company's common stock had been above $20 for 20 consecutive days. Upon
conversion, all of the originally issued redeemable preferred stock and $432,400
of redeemable preferred dividends were converted into 1,556,574 common shares at
$6.06 per common share or $9,432,700. Total non-cash preferred stock dividends
and effects of beneficial conversion related to the preferred stock totaled
$3,853,300.
In connection with the issuance of Series B Redeemable Preferred Stock the
holders received detachable stock purchase warrants. In addition, the holders
received a beneficial conversion of $995,100. The warrants are exchangeable for
1,287,000 shares of Common Stock at an exercise price of $7.77 per share. The
Company allocated the net proceeds of $8,415,200 based on the relative fair
value of the warrants ($1,840,700), the Series B Redeemable Preferred Stock
($5,579,400) and the beneficial conversion ($995,100). The book value of the
Series B Redeemable Preferred Stock of $5,579,400 accreted to its liquidation
value by $995,100 related to the beneficial conversion feature and $1,840,700
upon conversion.
F-12
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
7. Common Stock and Treasury Stock
Through 1998, the Company had repurchased 1,279,500 common shares (283,300
in 1997 and 996,200 in 1998) out of a previously approved 1,500,000 common
shares of the Company's outstanding common stock at then market prices
($1,744,500 in 1997 and $6,309,800 in 1998). As of December 31, 1999 and 2000,
the Company held 291,000 and 290,431 shares of treasury stock representing
$1,578,200 and $1,575,500 respectively. In October 2000, the Company's Board of
Directors approved a resolution terminating its stock repurchase program.
On September 18, 2000, a total of 351,400 shares of common stock were
issued, for cash proceeds of $5,318,700. Two new executives of the Company
invested a total of $850,000 in the Company, representing 51,400 shares of
common stock and a major stockholder invested an additional $4,468,700, net of
expenses, into the Company for 300,000 shares of common stock. The Company
recorded stock compensation expense of $557,900 as the 51,400 shares of common
stock were issued for less than fair value, which is included in general and
administrative expense on the accompanying statement of operations.
In 1999 and 1998, the Company recognized a non-cash charge of $13,500 and
$110,400 respectively for the issuance of stock options to non-employees.
8. Stock Options, Purchase Plans and Warrants
The Company currently has two stock option plans in place--the 1993 Stock
Incentive Plan (the "1993 Plan")and the 2000 BSI non-qualified stock option Plan
(the "2000 Plan"). The Company also has several stock option agreements with
certain officers in effect.
In April 2000, The Company's Board of Directors approved the 2000 Plan.
Under the 2000 Plan, non-qualified stock options may be granted to full-time
employees, part-time employees, directors and consultants of the Company to
purchase a maximum of 2,000,000 shares of the company's common stock. Options
granted under the 2000 Plan are generally exercisable at the rate of 25% each
year beginning one year from the date of grant. The stock options generally
expire ten years from the date of grant.
Under the 1993 Plan, incentive and non-qualified stock options may be
granted to full-time employees, part-time employees, directors and consultants
of the Company to purchase a maximum of 2,000,000 shares of common stock.
Options granted under the 1993 Plan are generally exercisable at the rate of 25%
each year beginning one year from the date of grant. The stock options generally
expire ten years from the date of grant.
In August 1998, the Board of Directors approved the repricing of options
granted under this plan to an exercise price of $4.625 per share for all
optionees except for Officers and Board of Directors. As part of the repricing,
395,500 shares were canceled and 355,950 new shares were granted at the new
exercise price.
F-13
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
The per share weighted average fair value of stock options granted during
2000, 1999 and 1998 was $20.51, $3.64 and $3.46, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
2000 1999 1998
---- ---- ----
Expected dividend yield ........... 0.00% 0.00% 0.00%
Risk-free interest rate ........... 4.76% 6.40% 4.75%
Expected volatility ............... 100.00% 60.00% 60.00%
Expected option life (years) ...... 8.10 7.10 8.80
The Company applies APB Opinion No. 25 in accounting for its stock option
grants to employees and directors, and accordingly, no compensation cost, except
for the expenses for two new officers of the Company (see detail below in this
note), has been recognized for its stock options in the consolidated financial
statements as the fair value of the Company's common stock at the date of grant
was equal to its fair value on such date. Had the Company determined
compensation cost based upon the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income (loss) would have changed
to the pro forma amounts indicated below:
2000 1999 1998
--------- --------- ---------
(in thousands,
except per share data)
Net income (loss) available to common stockholders:
As reported .......................................... $(4,019,3) $ 3,577.4 $(5,135.8)
Pro forma ............................................ $(7,453.2) $ 2,194.5 $(6,135.0)
========= ========= =========
Net income (loss) per share available to common stockholders:
As reported
Basic .............................................. $ (0.47) $ 0.49 $ (0.68)
Diluted ............................................ $ (0.47) $ 0.46 $ (0.68)
Pro forma
Basic .............................................. $ (0.87) $ 0.30 $ (0.82)
Diluted ............................................ $ (0.87) $ 0.28 $ (0.82)
========= ========= =========
Pro forma net income (loss) available to common stockholders reflects
compensation expense related to the vested portion of options granted during the
periods 1995 through 2000.
To the extent that BioSource derives a tax benefit from options exercised
by employees, such benefit is credited to additional paid-in capital. Tax
benefits recognized totaling $5,036,900, $216,600 and $20,500 were credited to
additional paid-in capital in fiscal 2000, 1999 and 1998, respectively.
F-14
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
The following summarizes the stock option transactions under the 1993 Plan
and the 2000 Plan during the periods presented:
Weighted
average
Shares exercise price
---------- --------------
Options outstanding at December 31, 1997............... 992,561 $ 4.57
Options granted ....................................... 1,256,950 3.78
Options exercised ..................................... (27,410) 2.19
Options canceled ...................................... (504,955) 7.05
---------- ------
Options outstanding at December 31, 1998............... 1,717,146 3.30
Options granted ....................................... 191,000 4.56
Options exercised ..................................... (221,791) 2.58
Options canceled ...................................... (169,930) 4.69
---------- ------
Options outstanding at December 31, 1999............... 1,516,425 3.48
Options granted ....................................... 1,338,198 16.19
Options exercised ..................................... (702,100) 3.55
Options canceled ...................................... (87,700) 5.89
---------- ------
Options outstanding at December 31, 2000............... 2,064,823 $11.96
========== ======
At December 31, 2000, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.38-$16.56 and 8.7
years, respectively.
At December 31, 2000, 1999 and 1998, the number of options exercisable was
617,120, 1,142,279 and 1,031,730, respectively, and the weighted average
exercise price of those options was $4.06, $3.47 and $3.30, respectively.
Under the 2000 Plan, two officers of the Company received stock options at
an exercise price less than fair value. The Company will incur total stock
compensation expense of $5,431,250. This amount is being amortized over the
4-year vesting period of the underlying options. Through December 31, 2000, the
Company recognized a related expense of $388,100.
The Company has several stock option agreements with certain officers. The
outstanding agreements expire from May 2003 through December 2010.
F-15
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
The following summarizes transactions outside the option plan during the
periods presented:
Weighted
average
Shares exercise price
-------- --------------
Options outstanding at December 31, 1997...... 402,500 3.13
Options granted .............................. -- --
Options exercised ............................ -- --
Options canceled ............................. -- --
-------- -----
Options outstanding at December 31, 1998...... 402,500 3.13
Options granted .............................. 125,000 2.81
Options exercised ............................ (25,000) 1.50
Options canceled ............................. -- --
-------- -----
Options outstanding at December 31, 1999...... 502,500 $3.24
Options granted .............................. -- --
Options exercised ............................ (124,500) 3.91
Options canceled ............................. (66,666) 2.81
-------- -----
Options outstanding at December 31, 2000...... 311,334 $2.89
======== =====
At December 31, 2000, the range of exercise prices and weighted average
remaining contractual life of outstanding options under certain agreements was
$1.50-$6.44 and 3.9 years, respectively.
At December 31, 2000, 1999 and 1998, the number of exercisable options was
311,334, 374,633 and 365,259, respectively, and the weighted average exercise
price of those options was $2.89, $3.22 and $3.13. respectively.
During 2000, 1999 and 1998, 826,800, 246,800 and 27,400 stock options,
respectively were exercised for proceeds totaling $2,952,400, $609,200 and
$60,000 of cash received by the company.
During 2000, a total of 218,100 warrants were exercised for $750,000 and
converted into 165,400 common shares.
Effective April 7, 1995, the Company adopted an Employee Stock Purchase
Plan to provide substantially all full-time employees, excluding officers, an
opportunity to purchase shares of its common stock through payroll deductions.
In addition, the Company provides a matching contribution equal to 50% of the
participant's contribution. All contributions are invested in the Company's
common stock, which is purchased on the open market at prevailing market prices.
Participants have a fully vested interest in the shares purchased with payroll
deductions and become fully vested in the shares purchased with Company matching
contributions after two years. The Company's matching expense for the years
ended December 31, 2000, 1999 and 1998 was approximately $54,800, $17,700 and
$14,000 respectively.
F-16
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
In connection with the issuance of Series B Preferred Stock (see Note 6),
1,287,000 detachable stock purchase warrants were granted. The warrants have a
term of up to five years from date of issuance and are exchangeable for
1,287,000 shares of Common Stock at an exercise price of $7.77 per share.
9. Stockholder Rights Plan
On February 16, 1999, the Company adopted a stockholders' rights plan to
protect the Company and its stockholders from unsolicited attempts or
inequitable offers to acquire the Company's stock. The rights plan has no
immediate dilutive effect and does not diminish the Company's ability to accept
an offer to purchase the Company that is approved by the board of directors. The
stockholder rights plan was implemented through a dividend of one preferred
share purchase right on each outstanding share of the Company's common stock
outstanding on March 2, 1999. Each right will entitle stockholders to buy one
one-thousandth of a share of Series A preferred stock at an exercise price of
$24.50. The rights will become exercisable (with certain limited exceptions
provided in the rights agreement) following the 10th day after: (a) a person or
group announces an acquisition of 15% or more of the Company's common stock, (b)
a person or group announces the commencement of a tender offer the consummation
of which would result in ownership by the person or group of 15% or more of the
Company's common stock, (c) the filing of a registration statement for any such
exchange offer under the Securities Act of 1933, or (d) the Company's board of
directors determining that a person is an "adverse person," as defined in the
rights plan. The buyer or any "adverse person" would not be entitled to exercise
rights under the rights plan. The effect of the rights plan is to discourage
acquisitions of more than 15% of the Company's common stock without negotiations
with the Company's board of directors. The Company can redeem the rights for
$.001 per right at certain times as provided in the rights agreement. The rights
expire on January 31, 2009.
10. Income Taxes
Income (loss) before income taxes (benefit) for 2000, 1999 and 1998 were
from the following sources (000's):
2000 1999 1998
--------- -------- --------
Domestic ..................... $(1,993.6) 2,106.5 (4,581.0)
Foreign ...................... 1,254.7 1,490.5 (2,089.4)
--------- -------- --------
Total ........................ $ (738.9) 3,597.0 (6,670.4)
========= ======== ========
Income tax expense (benefit) is summarized as follows (000's):
2000 1999 1998
-------- -------- --------
Current:
Federal ............... $3,524.1 $ 720.0 $ 802.6
State and local ....... 779.7 203.2 155.0
Foreign ............... 55.4 -- (0.6)
-------- -------- ---------
4,359.2 923.2 957.0
-------- -------- ---------
Deferred:
Federal ............... (3,865.5) 76.0 (2,014,0)
State and local ....... (1,114.2) (7.2) (477.6)
Foreign ............... 47.5 (972.4) --
-------- -------- ---------
(4,932.2) (903.6) (2,491.6)
-------- -------- ---------
$ (573.0) $ 19.6 $(1,534.6)
======== ======== =========
F-17
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
The primary components of temporary differences which give rise to
deferred taxes at December 31, 2000 and 1999 are (000's):
2000 1999
-------- --------
$ -- $ 31.8
Deferred tax assets:............................. 1,089.5 1,033.4
Accruals for salary and bonus.................. 1,560.5 1,622.2
Reserves for inventory......................... 4,664.2 1,209.5
Purchased in-process technology/goodwill....... 17.9 38.3
Net operating loss carryforwards............... 154.5 --
Allowance for doubtful accounts................ 255.3 --
Stock option compensation...................... 1,050.5 --
Accrual for severance.......................... 92.6 --
R & D and AMT credit carryforwards............. -------- --------
Other.......................................... 8,885.0 3,935.2
Total deferred tax assets
Depreciation................................... 205.9 69.0
-------- --------
Net deferred tax assets............................ $8,679.1 $3,866.2
======== ========
Management has reviewed the recoverability of deferred income tax assets
and has determined that it is more likely than not that the deferred tax assets
will be fully realized through future taxable earnings.
Actual income tax expense (benefit) differs from that obtained by applying
the Federal income tax rate of 34% to income (loss) before income taxes
(benefits) as follows (000's):
2000 1999 1998
-------- --------- ---------
Computed "expected" tax expense
(benefit) ............................ $ (251.2) $ 1,223.0 $(2,267.9)
Nondeductible items ................... -- 16.2 10.9
State taxes (net of Federal benefit) .. (33.6) 138.9 (212.9)
Reduction of valuation allowance ...... -- (1,160.2) --
Tax credits ........................... (437.2) (100.0) (66.0)
Tax effect resulting from foreign sales
corporation activities ............... -- (75.6) (94.2)
Prior year adjustment to provision .... -- -- 116.5
Effect of foreign operations .......... 66.2 187.8 923.4
Other ................................. 82.8 (210.5) 55.6
-------- --------- ---------
Total ............................... $ (573.0) $ 19.6 $(1,534.6)
======== ========= =========
The Company does not provide for U.S. federal income taxes on the
undistributed earnings of its foreign subsidiaries since the Company intends to
reinvest indefinitely its earnings in such subsidiaries. It is not practical to
determine the U.S. federal income tax liability, if any that would be payable if
such earnings were not reinvested indefinitely.
F-18
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
As of December 31, 2000, the Company has a net operating loss (NOL)
carryforward of approximately $9,070,000 and $8,200,000 for Federal and State
income tax purposes respectively. The federal and state NOL's are available to
offset future taxable income, if any, through 2020 and 2005 respectively.
11. 401(k) Benefit Plan
The Company has a 401(k) profit sharing plan, which covers substantially
all domestic employees of the Company. Plan participants may make voluntary
contributions up to 20% of their earnings up to the statutory limitation. The
Company's contribution is $0.25 for each $1.00 contributed by employees up to
the first $2,000. Company contributions have no vesting period. The Company's
contributions were $54,796 and $38,300 in 2000 and 1999, respectively. There
were no Company contributions made in 1998.
12. Business Segments
BioSource is engaged in a single industry, the licensing, development,
manufacture, marketing and distribution of immunological reagents, test kits and
oligonucleotides used in biomedical research and human diagnostics. The
Company's customers are not concentrated in any specific geographic region and
no single customer accounts for a significant amount of our sales.
Our accounting policies of the segments below are the same as those
described in the summary of significant accounting policies, except that we are
only able to track net sales for the geographic "Sales-to" segments. We evaluate
performance for the "Sales-from" segments on net revenues and profit or loss
from operations. The Company's reportable segments are strategic business units
that offer geographic product availability. They are managed separately because
each business requires different marketing and distribution strategies. Business
segment information is summarized as follows (000's):
2000 1999 1998
--------- --------- ---------
Sales-from Segments:
Net sales to external customers from:
United States:
Domestic .............................. $18,842.2 $15,518.0 $ 8,844.1
Export ................................ 4,303.2 4,678.2 4,270.3
--------- --------- ---------
Total United States ................. 23,145.4 20,196.2 13,114.4
Europe .................................. 9,064.2 9,060.8 8,744.2
--------- --------- ---------
Consolidated ........................ $32,209.6 $29,257.0 $21,858.6
========= ========= =========
Operating income (loss):
United States ........................... $(2,203.9) $ 2,710.6 $(4,459.4)
Europe .................................. 1,392.5 1,902.6 (2,642.4)
--------- --------- ---------
Consolidated .............................. $ (811.4) $ 4,613.2 $(7,101.8)
========= ========= =========
F-19
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
2000 1999 1998
--------- --------- ---------
Identifiable assets at end of year:
United States ................... $42,543.8 $32,417.3
Europe .......................... 7,820.4 7,804.5
--------- ---------
Consolidated ................ $50,364.2 40,221.8
========= =========
Net interest expense (income):
United States ................... $ 57.4 $ 815.7 $ (315.6)
Europe .......................... (22.2) 154.4 18.1
--------- --------- ---------
Consolidated ................ $ 35.2 $ 970.1 $ (297.5)
========= ========= =========
Depreciation and amortization:
United States ................... $ 1,784.9 $ 1,559.5 $ 502.3
Europe .......................... 371.2 431.4 457.5
--------- --------- ---------
Consolidated ................ $ 2,156.1 $ 1,990.9 $ 959.8
========= ========= =========
Capital expenditures:
United States ................... $ 1,913.6 $ 899.0 $ 608.2
Europe .......................... 238.7 178.0 781.8
--------- --------- ---------
Consolidated ................ $ 2,152.3 $ 1,077.0 $ 1,390.0
========= ========= =========
Sales-to Segments:
Net Sales to external customers:
United States ................... $18,842.2 $15,518.0 $ 8,844.1
Europe .......................... 8,180.1 10,139.4 9,692.4
Japan ........................... 3,203.4 2,790.0 2,634.7
Other ........................... 1,983.8 809.6 687.4
--------- --------- ---------
Total ......................... $32,209.6 $29,257.0 $21,858.6
========= ========= =========
13. Commitments and Contingencies
At December 31, 2000 the Company had leases for certain of its facilities
and equipment under various noncancelable operating leases expiring through
March 2007. Total rental expense was approximately $871,985, $722,900 and
$453,400 for the years ended December 31, 2000, 1999 and 1998, respectively.
On March 8, 2000 the Company entered into a lease for a new facility in
Camarillo, California. The lease commenced on May 1, 2000 and expires on June
30, 2005, with the option to extend the lease for two additional five-year
terms. Annual lease payments in the initial five-year period ended December 31,
2005 range from $342,000 at inception to $411,000 at termination.
In February 2001 the Company amended its current lease in Hopkington,
Massachusetts. The original lease expires on May 31, 2001. The amended lease
extends the term of the lease for five additional years. Annual lease payments
in the five-year period ended May 31, 2006 are approximately $131,000.
F-20
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the years
Ended December 31, 2000, 1999 and 1998
At December 31, 2000, future minimum payments under the Company's leases
are as follows:
2001....................................................... $ 984.6
2002....................................................... 913.0
2003....................................................... 844.7
2004....................................................... 785.8
2005....................................................... 598.1
Thereafter................................................. 306.6
--------
$4,432.8
========
On June 14, 2000, one of our former employees, Jordan Fishman, Ph.D., filed a
legal action against us in the United States Central District Court of
California. Mr. Fishman's complaint asserts a number of claims for relief
against BioSource and alleges that BioSource breached Mr. Fishman's employment
agreement by failing to register his stock options on a Form S-8 Registration
Statement by December 8, 1999. Second, Fishman claims that this breach, coupled
with BioSource's representations regarding a planned public offering (which
prevented Company insiders from trading in the Company's common stock) and
BioSource's subsequent termination of Fishman's employment, were each part of a
larger scheme to interfere with, and ultimately prevent, the sale of his common
stock. On August 11, 2000, we filed a motion to dismiss five of Mr. Fishman's
six causes of action, and on September 29, 2000, the court dismissed three of
the causes. On October 4, 2000, Mr. Fishman filed a first amended complaint.
BioSource moved to dismiss two of the remaining causes of action, one based on
new California Supreme Court precedent, and the other based on deficiencies in
Mr. Fishman's allegations. The Court granted BioSource's motion as to both of
these causes of action. As a consequence, the only two remaining causes of
action in this litigation are (1) breach of contract and (2) fraud. On October
23, 2000, counsel for Fishman and BioSource conducted their Early Meeting of
Counsel where they exchanged documents and agreed upon discovery and motion
cut-off dates, trial estimates, and exchanged initial witness lists. In December
2000, BioSource answered the First Amended Complaint, and filed a counter-claim
against Jordan Fishman. No substantive adjudication of Mr. Fishman's claims has
yet occurred, however, the Company believes that it has substantial defenses to
Fishman's remaining causes of action.
The company has also commenced an arbitration proceeding against the
former shareholders of its QCB division, including Mr. Fishman, to recover
damages management believes it has suffered in connection with
misrepresentations and omissions made by those shareholders in the
representations and warranties contained in the original Stock Purchase
Agreement for QCB executed on December 9, 1998. The Company's claim to recover
the $1,347,000 of Escrowed Funds is based on QCB's breach of the representations
and warranties made in the Stock Purchase Agreement. The parties are now in the
midst of selecting a panel of three arbitrators who will hear the dispute. The
Company has also asserted a claim for punitive damages against Jordan Fishman in
the arbitration.
F-21
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998
The Company is involved in various other claims and lawsuits incidental to
its business. In the opinion of management, these claims and suits in the
aggregate will not materially affect the financial position, results of
operations or liquidity of the Company.
14. Earnings Per Share
The Company presents basic and diluted earnings (loss) per share ("EPS").
Basic EPS is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution from securities that could
share in the earnings of the Company.
The reconciliations of basic to diluted weighted average shares are as
follows:
Year ended December 31,
---------------------------------
2000 1999 1998
--------- -------- ---------
Net income (loss) available to common
Stockholders used for basic and diluted
Income (loss) per share ............... $(4,019.3) $3,577.4 $(5,135.8)
========= ======== =========
Weighted average shares used in basic
computation ........................... 8,583.8 7,234.7 7,508.8
Dilutive stock options and warrants .... -- 598.2 --
--------- -------- ---------
Weighted average shares used for diluted
computation ........................... 8,583.8 7,832.9 7,508.8
========= ======== =========
Options to purchase 90,003, 404,849 and 292,936 shares of common stock at
prices ranging from $17.13 to $27.38, $4.13 to $8.94 and $5.25 to $8.94 were
outstanding during 2000, 1999 and 1998, respectively, but were not included in
the computation of diluted earnings (loss) per share because the options'
exercise price was greater than the average market price of the common shares.
Options to purchase 1,190,469 and 1,824,710 shares of common stock at a prices
ranging from of $1.37 to $12.18 and $1.28 to $4.63 per share were outstanding
during 2000 and 1998, respectively, but were not included in the computation of
diluted loss per share because the options were antidilutive, as the Company
incurred a net loss for those years.
Warrants to purchase 118,100 shares at a weighted average exercise price of
$11.10 per share were outstanding as of December 31, 1999 but were not included
in the computation of diluted net income per share for the year ended December
31, 1999 because the effect would be anti-dilutive.
Warrants to purchase 1,287,000 shares at an exercise price of $7.77 per share
were outstanding as of December 31, 2000 but were not included in the
computation of diluted net income per share because their effect would be
anti-dilutive.
F-22
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2000, 1999 and 1998
Balance at Provision Deductions Balance at
Beginning Charged Accounts End of
of Year to Income Written Off Year
---------- --------- ----------- ----------
(000's)
1998-allowance for doubtful accounts ... $203.0 178.3 80.3 301.0
1999-allowance for doubtful accounts ... $301.0 86.5 59.4 328.1
2000-allowance for doubtful accounts ... $328.1 138.6 323.9 142.8
See accompanying independent auditors' report.
F-23
EXHIBIT INDEX
FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000
Exhibit
Number Description
------- -----------
3.1 Certificate of Incorporation of Registrant(1)
3.2 Bylaws of Registrant(1)
4.1 Specimen Stock Certificate of Common Stock of Registrant(1)
4.2 Certificate of Designation of Series A Preferred Stock(9)
4.3 Certificate of Designation of Series B Preferred Stock(11)
4.4 Rights Agreement, dated as of February 25, 1999, between
Registrant and U.S. Stock Transfer and Trust Corporation, as
Rights Agent(9)
4.5 Rights Agreement Agreement, dated as of January 10, 2000, between
Registrant and U.S. Stock Transfer and Trust Corporation (13)
4.6 Second Amendment to Rights Agreement, dated September 28, 2000,
between Registrant and U.S. Stock Transfer and Trust Corporation
(13)
4.7 Form of Right Certificate(9)
4.8 Summary of Share Purchase Rights(9)
4.9 Investor Rights Agreement dated February 15, 2000, by and among
Registrant, Genstar Partners II, L.P. and Stargen II LLC(12)
4.10 Amendment to Investor Rights Agreement dated September 18, 2000,
among Registrant, Genstar Capital Partners II, L.P., Stargen II
LLC, Russell D. Hays and George Uveges (13)
4.11 Second Amendment to Investor Rights Agreement, dated September
28, 2000, among Registrant, Genstar Capital Partners II, L.P.,
Stargen II LLC, Russell D. Hays, George Uveges, Jean-Pierre
Conte, Richard Hoskins, Richard Paterson and Robert Weltman (13)
4.12 Warrant to Purchase Common Stock of Registrant issued to Genstar
Capital Partners II, L.P. on February 15, 2000(12)
4.13 Warrant to Purchase Common Stock of Registrant issued to Stargen
II LLC on February 15, 2000(12)
10.1 Registrant's 1992 Stock Incentive Plan(1)
10.2 Registrant's 1993 Stock Incentive Plan(4)
10.3 Licensing Agreement dated May 1, 1990, by and between TAGO, Inc.,
as licensee, and St. Jude's Children's Hospital, as licenser(1)
10.4 License Agreement dated February 14, 1991, by and between
Registrant and Schering Corporation(1)
10.9 License Agreement dated October 1, 1993, by and between
Registrant, as licensee, and Schering Corporation, as licensor(2)
10.10 Separation and Consulting Agreement between Registrant and James
H. Chamberlain dated September 19, 2000
10.11 License Agreement dated February 7, 1994, by and between
Registrant, as licensee and Fundacio Clinic(4)
10.12 Form of Indemnification Agreement for Directors and Executive
Officers(6)
10.13 List of Indemnities relating to Form of Indemnification Agreement
previously filed as Exhibit 10.12(6)
10.14 Registrant's Employee Stock Purchase Plan(7)
10.15 Securities Purchase Agreement dated January 10, 2000, by and
among Registrant, Genstar Capital Partners II, L. P. and Stargen
II LLC
10.16 Securities Purchase Agreement, effective as of August 9, 2000,
between the Registrant and Genstar Capital Partners II, L.P. (13)
10.17 Amendment to Securities Purchase Agreement, dated as of September
28, 2000, among the Registrant, Genstar Capital Partners II,
L.P., Jean-Pierre Conte, Richard Hoskins, Richard Paterson and
Robert Weltman(13)
10.18 Securities Purchase Agreement, effective as of August 9, 2000,
between the Registrant and Russell D. Hays (13)
10.19 Securities Purchase Agreement, effective as of September 5, 2000,
between the Registrant and George Uveges (13)
10.20 Letter agreement regarding employment, dated August 2, 2000,
between Registrant and Russell D. Hays
10.21 Amendment to letter agreement regarding employment, dated
September 18, 2000, between Registrant and Russell D. Hays
10.22 Letter agreement regarding employment, dated August 18, 2000
between Registrant and George Uveges
10.23 Amendment to letter agreement regarding employment, dated
September 18, 2000, between Registrant and George Uveges
10.24 Registrant's 2000 Non-Qualified Stock Option Plan (14)
10.25 Lease Agreement for 540 Flynn Road, dated March 7, 2000, between
Registrant and Lincoln Ventura Technology Center.
21 Subsidiaries of the Company:
State/Country of
Name Incorporation
---- ----------------
Keystone Laboratories, Inc................... California
BioSource V.I. FSC., LTD..................... U.S. Virgin Islands
BioSource Europe S.A......................... Belgium
BioSource France sarl...................... France
BioSource B.V.............................. Holland
BioSource GmbH............................. Germany
Medgenix Diagnostici Italia, srl........... Italy
BioSource U.K., Ltd........................ U.K.
Quality Controlled Biochemicals, Inc......... Massachusetts
Javelle, Inc............................... Massachusetts
23.1 Consent of KPMG LLP, Independent Public Accountants
- ----------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 as filed with the Securities and Exchange Commission on October 22,
1992, as amended.
(2) Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1992.
(3) Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1993.
(4) Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1994.
(5) Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1995.
(6) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (SEC No. 333-3336) as filed with the Securities and Exchange
Commission on May 31, 1996, as amended.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-8 (SEC No. 33-91838) as filed with the Securities and Exchange
Commission on May 4, 1995.
(8) Incorporated by reference to the Company's Current Report on Form 8-K/A
filed with the Securities and Exchange Commission on February 19, 1999.
(9) Incorporated by reference to the Company's Current Report on Form 8-A
filed with the Securities and Exchange Commission on March 1, 1999.
(10) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.
(11) Incorporated by reference to the Company's Registration Statement on Form
S-3 as filed with the Securities and Exchange Commission on March 16,
2000.
(12) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-3 as filed with the Securities and Exchange Commission
on March 22, 2000.
(13) Incorporated by reference to the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on October 26, 2000, and
as amended on October 31, 2000.
(14) Incorporated by reference to the Company's definitive proxy statement as
filed with the Securities and Exchange Commission on May 16, 2000.