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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
COMMISSION FILE NUMBER 000-21930
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
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [_] No [X].
The number of shares of the Registrant's common stock, $.001 par value,
outstanding as of May 9, 2003 was 9,553,705.
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BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 2003
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
March 31, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 25
ITEM 4. CONTROLS AND PROCEDURES 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 27
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 27
ITEM 5. OTHER INFORMATION 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27
SIGNATURES 28
2
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
MARCH 31, DECEMBER 31,
2003 2002
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 3,840 5,941
Accounts receivable, less allowance
for doubtful accounts of $264 at
March 31, 2003 and $261 at
December 31, 2002 ........................... 7,129 6,157
Inventories, net (note 3) ..................... 9,483 8,880
Prepaid expenses and other current
assets ...................................... 862 538
Deferred income taxes ......................... 1,873 1,873
-------- --------
Total current assets ................. 23,187 23,389
Property and equipment, net (note 4) ............. 7,186 7,398
Intangible assets net of accumulated
amortization of $2,646 at March 31,
2003 and $2,502 at December 31, 2002
(note 5) ...................................... 5,931 6,076
Goodwill ......................................... 307 307
Other assets ..................................... 537 526
Deferred tax assets .............................. 8,810 8,810
-------- --------
$ 45,958 46,506
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $ 2,639 3,115
Accrued expenses .............................. 2,792 2,910
Deferred revenue .............................. 378 427
Income tax payable ............................ 664 341
-------- --------
Total current liabilities ............ 6,473 6,793
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value
Authorized 20,000,000 shares:
issued and outstanding 9,610,305
shares at March 31, 2003 and
9,676,931 at December 31, 2002 .............. 10 10
Additional paid-in capital ..................... 43,929 44,500
Accumulated deficit ............................ (3,279) (3,382)
Accumulated other comprehensive loss ........... (1,175) (1,415)
-------- --------
Net stockholders' equity ............. 39,485 39,713
-------- --------
$ 45,958 46,506
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Amounts in thousands, except per share data)
(Unaudited)
2003 2002
-------- --------
Net sales ...................................... $ 10,899 9,781
Cost of sales .................................. 4,690 4,196
-------- --------
Gross profit ............................... 6,209 5,585
-------- --------
Operating expenses:
Research and development ................... 1,979 1,293
Sales and marketing ........................ 2,388 2,266
General and administrative ................. 1,576 1,460
Amortization of intangibles ................ 145 160
-------- --------
Total operating expenses .............. 6,088 5,179
-------- --------
Operating income ............................... 121 406
Interest income ................................ 11 40
Other income (expense), net .................... (18) 30
-------- --------
Income before income taxes ..................... 114 476
Income tax expense ............................. 11 105
-------- --------
Income before cumulative effect
of accounting change ................ 103 371
Cumulative effect of accounting change
(net of applicable income taxes $1,759) .... -- (2,870)
-------- --------
Net income (loss) .............................. $ 103 (2,499)
======== ========
Net income per share before accounting
change:
Basic ...................................... $ 0.01 0.04
======== ========
Diluted .................................... $ 0.01 0.03
======== ========
Net income (loss) per share:
Basic ...................................... $ 0.01 (0.25)
======== ========
Diluted .................................... $ 0.01 (0.23)
======== ========
Shares used to compute per share amounts:
Basic ...................................... 9,635 10,190
======== ========
Diluted .................................... 10,026 10,757
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Amounts in thousands)
(Unaudited)
2003 2002
------- -------
Cash flows from operating activities:
Net income (loss) .......................... $ 103 (2,499)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ......... 653 496
Cumulative effect of accounting
change .............................. -- 4,629
Income tax benefit from the
exercise of stock options ........... -- 95
Changes in assets and liabilities:
Accounts receivable ................... (864) (379)
Inventories ........................... (350) (162)
Prepaid expenses and other
current assets ...................... (324) 16
Deferred income taxes ................. -- (1,759)
Other assets .......................... (11) (69)
Accounts payable ...................... (525) 436
Accrued expenses ...................... (173) (306)
Deferred revenue ...................... (49) (33)
Income taxes payable .................. 313 9
------- -------
Net cash provided from (used in)
operating activities ..................... (1,227) 569
------- -------
Cash flows from investing activities:
Purchase of property and equipment ......... (238) (623)
------- -------
Net cash used in investing
activities .......................... (238) (623)
------- -------
Cash flows from financing activities:
Proceeds from the exercise of options ...... 95 40
Payments to acquire treasury stock ......... (666) (3,080)
------- -------
Net cash used in financing activities ...... (571) (3,040)
------- -------
Net decrease in cash and cash
equivalents ......................... (2,036) (3,189)
Effect of exchange rates on cash and cash
equivalents .................................. (65) 58
Cash and cash equivalents at beginning
of period .................................... 5,941 9,471
------- -------
Cash and cash equivalents at end of period ..... $ 3,840 6,340
======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest .............................. $ -- 1
======= =======
Income taxes .......................... $ -- --
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of BioSource
International, Inc. (the "Company") are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K, for the fiscal year ended December 31, 2002. In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments that are necessary for a fair
presentation. The results of operations for the three months ended March 31,
2003, are not necessarily indicative of results to be expected for the full
fiscal year.
2. GENERAL
The 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.
In the quarter ended March 31, 2003, the Company capitalized its annual catalog
production costs. In the past, the Company has expensed catalog production costs
as incurred, which was primarily in the first quarter of its fiscal year. During
2002, and after production of the catalog, the Company put substantial effort
into increasing the number of customers in its customer database and in
conjunction with that, its dependence on its catalog to attract more customers.
As a result, the Company believes that their 2003 catalog is a direct response
advertisement whose primary purpose is to elicit sales to customers who respond
specifically to the catalog resulting in probable future economic benefit.
Accordingly, beginning in 2003, the Company is capitalizing its catalog
production costs and expensing them evenly throughout the fiscal year in
accordance with the AICPA's Statement of Position 93-07. In the first quarter of
2002, the Company expensed approximately $359,000 of catalog costs compared to
$113,000 for the first quarter of 2003. The Company does not anticipate its
annual catalog costs to be materially different from 2002 to 2003.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The adoption of SFAS No. 143 on January 1,
2003 did not have a material impact on the Company's financial position or
results of operations.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("FAS") No.141, "Accounting For Business
Combinations," and FAS No. 142, "Accounting For Goodwill and Other Intangible
Assets." FAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2002. FAS No. 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized to earnings, but instead be reviewed for impairment in accordance with
FAS No. 142. Effective January 1, 2002, the Company's goodwill and other
intangible assets are accounted for under FAS No. 141 "Business Combinations"
and FAS No. 142 "Goodwill and Other Intangible Assets." In the first quarter of
2002, the Company recognized a non-cash charge, net of applicable income taxes,
of $2,870,000 representing the cumulative effect of a change in accounting
principle resulting from the implementation of FAS 142. The charge included the
write off of goodwill related to the acquisitions of Quality Controlled
Biochemicals ("QCB") and Biofluids in December 1998. The Company continues to
carry certain identifiable
6
intangible assets with definite useful lives on its balance sheet. The
amortization associated with these identifiable intangible assets was
approximately $145,000 and $160,000 for the quarters ended March 31, 2003 and
2002, respectively.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
disclosure requirements apply to all companies for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002. The adoption of SFAS No. 148 did not have a material impact
on the Company's consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others." FIN No. 45 requires a company
to recognize a liability for the obligations it has undertaken to issue a
guarantee. This liability would be recorded at the inception of the guarantee
and would be measured at fair value. The measurement provisions of this
statement apply prospectively to guarantees issued or modified after December
31, 2002. The disclosure provisions of the statement apply to financial
statements for periods ending after December 15, 2002. The adoption of FIN No.
45 did not have a material impact on the Company's financial position or results
of operations.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN 46 requires a company to consolidate variable interest entity if
it is designated as the primary beneficiary of that entity even if the company
does not have a majority voting interest. A variable interest entity is
generally defined as an entity where its equity is unable to finance its
activities or when the owners of the entity lack the risk and rewards of
ownership. The provisions of this statement apply at inception for any entity
created after January 31, 2003. For an entity created before February 1, 2003,
the provisions of this interpretation must be applied at the beginning of the
first interim or annual period beginning after June 15, 2003. The Company
believes that the adoption of FIN No. 46 will not have a material impact on its
financial position or results of operations.
3. INVENTORIES (AMOUNTS IN THOUSANDS):
MARCH 31, DEC. 31,
2003 2002
------ ------
Raw materials .................... $2,812 2,703
Work in process .................. 622 493
Finished goods ................... 6,049 5,684
------ ------
$9,483 8,880
====== ======
4. PROPERTY AND EQUIPMENT (AMOUNTS IN THOUSANDS):
MARCH 31, DEC. 31,
2003 2002
-------- --------
Machinery and equipment .............. $ 9,207 9,241
Office furniture and equipment ....... 3,857 3,708
Leasehold improvements ............... 1,657 1,530
-------- --------
14,721 14,479
Less accumulated depreciation and
amortization ...................... (7,535) (7,081)
-------- --------
$ 7,186 7,398
======== ========
7
5. GOODWILL AND INTANGIBLE ASSETS - ADOPTION OF FINANCIAL ACCOUNTING STATEMENT
142
The Company implemented Financial Accounting standard ("FAS") 141 and 142 in
January 2002. In the first quarter of 2002, the Company recognized a non-cash
charge, net of applicable income taxes, of $2,870,000 representing the
cumulative effect of a change in accounting principle resulting from the
implementation of FAS 142. The charge included the write off of all of the
goodwill related to the acquisition of Quality Controlled Biochemicals ("QCB")
and Biofluids in December 1998. The Company continues to carry certain
identifiable intangible assets with definite useful lives on its balance sheet.
The amortization associated with these identifiable intangible assets was
approximately $145,000 and $160,000 for the quarters ended March 31, 2003 and
2002, respectively.
6. 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.
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 vest and 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 vest and 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.
The Company applies APB Opinion No. 25 in accounting for its stock option grants
to employees and directors, and accordingly, no compensation cost has been
recognized for its stock options in the consolidated financial statements as the
market value of the Company's common stock at the date of grant was equal to its
exercise price 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:
Three Months Ended March 31,
2003 2002
----------- ----------
(in thousands, except per share data)
NET INCOME (LOSS):
As reported .............................. $ 103 (2,499)
Add/deduct: Total stock-based employee
compensation expense determined under
intrinsic value based method for all
awards, net of tax effects ............ -- --
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of tax effects .................... (278) (542)
----------- ----------
Pro forma net loss available to common
shareholders .......................... $ (175) (3,041)
=========== ==========
Net income (loss) per share:
Basic - as reported ...................... $ 0.01 (0.25)
=========== ==========
Basic - pro forma ........................ $ (0.02) (0.30)
=========== ==========
Diluted - as reported .................... $ 0.01 (0.23)
=========== ==========
Diluted - pro forma ...................... $ (0.02) (0.30)
=========== ==========
8
7. EARNINGS PER SHARE
The reconciliation of basic to diluted weighted average shares is as follows
(amounts in thousands):
THREE MONTHS ENDED
MARCH 31,
2003 2002
------ ------
Weighted average shares used in basic
computation ................................... 9,635 10,190
Dilutive stock options and warrants .............. 391 567
------ ------
Weighted average shares used for diluted
computation ................................... 10,026 10,757
====== ======
Options to purchase 1,036,962 and 1,241,848 shares were not included in the
computation of diluted net income per share for the three month periods ended
March 31, 2003 and 2002, respectively because their effect would be
anti-dilutive.
Warrants to purchase 1,287,000 shares at a weighted average exercise price of
$7.77 per share were outstanding as of March 31, 2003 and 2002 but were not
included in the computation of diluted net income per share for the three months
ended March 31, 2003 and 2002 because their effect would be anti-dilutive.
8. STOCKHOLDERS' EQUITY
Comprehensive income (loss) is determined as follows (amounts in thousands):
THREE MONTHS ENDED
MARCH 31,
2003 2002
--------- --------
Net income (loss) ............................. $ 103 (2,449)
Foreign currency translation adjustments ...... 240 (3)
--------- --------
Total comprehensive income (loss) ............. $ 343 (2,502)
========= ========
9. BUSINESS SEGMENTS
The Company 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. Our
customers are not concentrated in any specific geographic region and no single
customer accounts for a significant amount of our sales.
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. We evaluate performance
for the "Sales-from" segments on net revenue and profit and loss from
operations. Our reportable segments are strategic business units that offer
geographical product availability. They are managed separately because each
business requires different marketing and distribution strategies. Business
information is summarized as follows:
9
THREE MONTHS ENDED
MARCH 31,
2003 2002
----------- ----------
SALES - FROM SEGMENTS (IN THOUSANDS):
Net sales to external customers from:
United States:
Domestic $ 6,027 $ 5,895
Export 1,116 1,106
----------- ----------
Total United States 7,143 7,001
Europe 3,756 2,780
----------- ----------
Consolidated $ 10,899 $ 9,781
=========== ==========
Operating income (loss):
United States $ (737) $ (233)
Europe 858 639
----------- ----------
Consolidated $ 121 $ 406
=========== ==========
SALES - TO SEGMENTS (IN THOUSANDS):
Net sales to external customers in:
United States $ 6,027 $ 5,895
Europe 3,286 2,451
Japan 906 932
Other 680 503
----------- ----------
Consolidated $ 10,899 $ 9,781
=========== ==========
SALES - BY PRODUCT GROUP
Net sales by product group:
Cytokine $ 4,877 $ 4,566
Signaling 2,430 1,495
Custom 3,592 3,720
----------- ----------
Consolidated $ 10,899 $ 9,781
=========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis of financial condition and results of operations
should be read in conjunction with the consolidated financial statements, the
notes thereto and other information, including information set forth in our 10-K
for the fiscal year ended December 31, 2002, and all other recent filings we
have made with the Securities and Exchange Commission.
This Form 10-Q contains forward-looking statements, which are made pursuant to
the safe-harbor provisions of the Private Securities Litigation Reform Act of
1995. Within this Form 10-Q, words such as "believes," "designed,"
"anticipates," and similar expressions are intended to identify forward-looking
statements, but are not the exclusive means of identifying such statements.
These forward-looking statements involve a number of risks and uncertainties,
including the timely development and market acceptance of our products and
technologies and other factors described throughout this Form 10-Q and in our
other filings with the Securities and Exchange Commission. The actual results
that we achieve may differ from any forward-looking statements due to such risks
and uncertainties. We do not undertake any obligation to revise or update any
forward-looking statements in order to reflect events or circumstances that may
arise after the date of this report.
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
10
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.
CRITICAL ACCOUNTING POLICIES
General
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. Specifically, management must make estimates in the following areas:
ALLOWANCE FOR DOUBTFUL ACCOUNTS.
The Company has $7,393,000 in gross trade accounts receivable and $264,000
in allowance for doubtful accounts on the consolidated balance sheet at
March 31, 2003. The Company has procedures in place to adequately review
the credit worthiness of new customers and also to properly review orders
from existing customers to determine if a change in credit terms is
warranted. A review of our allowance for doubtful accounts is done timely
and consistently throughout the year. As of March 31, 2003 the Company
believes its allowance for doubtful accounts is fairly stated. The Company
does have accounts receivable amounts from certain customers as of March
31, 2003 that if their financial condition changed and a significant
allowance needed to be created, could have a material adverse effect on the
Company's financial results for 2003.
INVENTORY ADJUSTMENTS.
The Company reviews the components of our inventory on a regular basis for
excess, obsolete and impaired inventory based on estimated future usage and
sales. The manufacturing process for antibodies has and may continue to
produce quantities substantially in excess of forecasted usage, if any, and
anticipated antibody sales volumes are highly uncertain and realization of
individual product cost may not occur. As a result, the Company reserves
its entire manufactured antibody inventory at 100% of its value. As of
March 31, 2003, the Company had $4,663,000 of manufactured antibodies in
its inventory and a reserve for these antibodies totaling $4,663,000. The
Company will continue to monitor its antibody inventory and the continued
need for a 100% reserve. Additionally, material inventory write-downs in
our inventory can occur if competitive conditions or new product
introductions by our customers or us vary from our current expectations.
DEFERRED TAX ASSETS AND DEFERRED INCOME TAXES.
The Company has $10,683,000 in deferred income tax assets on its
consolidated balance sheet as of March 31, 2003. As of March 31, 2003, no
valuation allowance has been set up to offset any of the deferred tax
assets. The ability to realize these deferred tax assets depends entirely
on the Company generating taxable income in the future. The Company has
used historical information as well as a projected financial outlook to
project taxable income amounts. The Company believes it is more likely than
not that they will be able to realize these benefits in the future. A
material change in our expected realization of these assets would occur if
the ability to deduct tax loss carryforwards against future taxable income
is altered. If our projections involving tax planning and operating
strategies do not materialize or if significant changes in tax laws occur
within the various tax jurisdictions in which we operate, we would have to
set up a valuation allowance against our deferred tax assets that could
materially effect our tax expense and our financial results.
11
The Company believes the following critical accounting policies affect our
more significant judgements and estimates used in preparation of our
consolidated financial statements.
REVENUE RECOGNITION. The Company's revenue is generated from the sale of
products primarily manufactured internally. The Company does have a small
amount of products that are sold on an outside equipment ("OEM") basis. The
Company sells standard and custom products directly to end users and
distributors and recognizes revenue upon transfer of title to the customer,
which occurs upon shipment. General sales and payment terms to distributors
are similar to those granted to end user customers. Certain end user
customers prepay for product and request shipment of the product at future
dates, primarily sera or media products. The Company records deferred
revenue until such time as a product is shipped to a customer.
Approximately 25% of the Company's net sales for the three months ended
March 31, 2003 were to distributors compared to 23% for the three months
ended March 31, 2002. The Company's distribution agreements do not provide
a general right of return. The amount of the Company's inventory held by
distributors is not believed to be substantial.
The Securities and Exchange Commission's Staff Accounting Bulletin No. 101,
"Revenue Recognition," ("SAB 101") provides guidance on the application of
generally accepted accounting principles to selected revenue recognition
issues. The Company believes that its revenue recognition policy is
consistent with this guidance and in accordance with generally accepted
accounting principles. We do not anticipate any changes to our revenue
recognition and shipping policies in the future.
LONG-LIVED ASSETS. It is our policy, and in accordance with SFAS No. 144,
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, the
Company has determined that its long-lived assets are not impaired as of
March 31, 2003.
GOODWILL. FAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. FAS No.
142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized to earnings, but instead be reviewed for
impairment in accordance with FAS No. 142. Effective January 1, 2002, the
Company's goodwill and other intangible assets are accounted for under FAS
No. 141 "Business Combinations" and FAS No. 142 "Goodwill and Other
Intangible Assets." The Company used the present value method for
determining the fair value of its reporting units. In the first quarter of
2002, the Company recognized a non-cash charge, net of applicable income
taxes, of $2,870,000 representing the cumulative effect of a change in
accounting principle resulting from the implementation of FAS 142. The
charge included the write off of all of the goodwill related to the
acquisition of Quality Controlled Biochemicals ("QCB") and Biofluids in
December 1998. The Company continues to carry certain identifiable
intangible assets with definite useful lives on its balance sheet. The
amortization associated with these identifiable intangible assets was
approximately $145,000 and $160,000 for the quarters ended March 31, 2003
and 2002, respectively.
The Company reviewed its remaining goodwill for impairment in the third
quarter of 2002 and determined that the carrying value was not impaired.
Accordingly, the Company continues to carry the goodwill related to its
1996 acquisition of certain assets and assumed liabilities of Medgenix
Diagnostics, SA, now BioSource Europe, S.A., a wholly-owned subsidiary of
the Company, on its Consolidated Balance Sheets.
ADVERTISING COSTS. In the quarter ended March 31, 2003, the Company
capitalized its annual catalog production costs. In the past, the Company
has expensed catalog production costs as incurred, which was primarily in
the first quarter of its fiscal year. During 2002, and after production of
the catalog, the Company put substantial effort into increasing the number
of customers in its customer database and in conjunction with that, its
dependence on its catalog to attract more customers. As a result, the
Company believes that their 2003 catalog is a direct response advertisement
whose primary purpose is to elicit sales to customers who respond
specifically to the catalog resulting in probable future economic benefit.
12
Accordingly, beginning in 2003, the Company is capitalizing its catalog
production costs and expensing them evenly throughout the fiscal year in
accordance with the AICPA's Statement of Position 93-07. In the first
quarter of 2002, the Company expensed approximately $359,000 of catalog
costs compared to $113,000 for the first quarter of 2003. The Company does
not anticipate its annual catalog costs to be materially different from
2002 to 2003.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003
REVENUES: Net sales for the quarter ended March 31, 2003 were $10.9 million, an
increase of $1.1 million, or 11% (5% after eliminating the $551,000 positive
impact of foreign exchange), compared to net sales for the quarter ended March
31, 2002. The Company's increased sales and marketing expenditures, including
increased catalog distribution, and its continued investment in research and
development activities resulting in new products for sale, have been primary
drivers for sales growth in North America and Europe.
To better drive sales and profitability growth and focus on key market
opportunities the Company has divided its business into three core areas: The
Strategic Business Units ("SBU's") of Signal Transduction Products, Cytokine
Products, and Custom Products. Signal Transduction Products consist of the
proteins, antibodies, assays and other reagents used to study internal cellular
processes. Our phosphospecific antibodies and phosphoELISA(TM)s are included in
this SBU. Cytokine Products include the proteins, anitbodies, assays and other
reagents that are used to study the processes by which cells communicate.
Interleukin, growth factor and other biological response modifier products are
included in this group. Custom Products includes oligonucleotides, custom
peptides and antibodies, cell culture and diagnostics and other reagents not
specifically categorized.
For the three months ended March 31, 2003, the Company's Signal Transduction
Products, grew 62% compared to the comparable prior year quarter, from
$1,495,000 to $2,430,000. Signal Transduction Products represent approximately
22% of our total sales for the three months ended March 31, 2003 and 15% of
sales for the three months ended March 31, 2002. The Company believes the signal
transduction market is growing and has opportunities for continued significant
sales growth in this market. The Company's sales growth in its Cytokine Products
for the quarter ending March 31, 2003 was 7%, increasing from $4,566,000 to
$4,877,000, compared to the three months ended March 31, 2002. The cytokine
product line represents approximately 45% of our total sales for the quarter
ended March 31, 2003 compared to 47% for the quarter ended March 31, 2002. The
Cytokine market is a mature market which the Company believes continues to have
opportunities for solid sales growth. The Company's Custom Product lines, which
represents approximately 33% of our total sales, decreased 3% compared to the
comparable prior year quarter, from $3,720,000 to $3,592,000. The custom product
line represents approximately 38% of our total sales for the quarter ended March
31, 2002. The custom product line was impacted by declining sales in
oligonucleotides, which was offset by increasing sales in diagnostic products.
For the three months ended March 31, 2003, the Company achieved net sales growth
in North America of 2% as compared to the three months ended March 31, 2002.
European sales for the three months ended March 31, 2003 increased 34% (13% in
local currency), as compared to the comparable prior year period. Sales in Japan
and the rest of the world increased 11%, for the three months ended March 31,
2003 as compared to the three months ended March 31, 2002
GROSS PROFIT: Gross profit margin was 57% for both the three months ended March
31, 2003 and 2002. The Company's margins remained constant in part due to the
continued investment in production and planning related areas within the
Company. The Company's margins in its cytokine and signaling core product lines
continue to be strong. The margins in our custom product lines have limited our
overall gross margin improvement.
RESEARCH AND DEVELOPMENT: Research and development expense for the three months
ended March 31, 2003 and 2002 were $1,979,000 and $1,293,000 and represented 18%
and 13% of sales, respectively. The increase in research and development
expenses for the three months ended March 31, 2003 when compared to the
comparable prior year period reflects the Company's incremental investment in
additional personnel and materials in the cytokine and signal transduction
research areas. The Company has made a significant investments in its R & D
capabilities over the past 15 months. The result of this investment has been the
release of significantly more and higher quality and novel products, and
resulted in increased sales in both the cytokine and signaling product lines.
13
Quarterly expenditures in R&D for the remainder of 2003 are expected to be
slightly less than those in the first quarter of 2003.
SALES AND MARKETING: Selling and marketing expenses were $2.4 million for the
three months ended March 31, 2003 and $2.3 million for the three months ended
March 31, 2002, representing 22% and 23% of sales, respectively. The increase is
due to additional investment in personnel and marketing programs.
In the quarter ended March 31, 2003, the Company capitalized its annual catalog
production costs. In the past, the Company has expensed catalog production costs
as incurred, which was primarily in the first quarter of its fiscal year. During
2002, and after production of the catalog, the Company put substantial effort
into increasing the number of customers in its customer database and in
conjunction with that, its dependence on its catalog to attract more customers.
As a result, the Company believes that their 2003 catalog is a direct response
advertisement whose primary purpose is to elicit sales to customers who respond
specifically to the catalog resulting in probable future economic benefit.
Accordingly, beginning in 2003, the Company is capitalizing its catalog
production costs and expensing them evenly throughout the fiscal year in
accordance with the AICPA's Statement of Position 93-07. In the first quarter of
2002, the Company expensed approximately $359,000 of catalog costs compared to
$113,000 for the first quarter of 2003. The Company does not anticipate its
annual catalog costs to be materially different from 2002 to 2003.
GENERAL AND ADMINISTRATIVE: General and administrative expenses were $1.6
million for the three months ended March 31, 2003, and $1.5 million for the
three months ended March 31, 2002, a increase of approximately $100,000. As a
percentage of sales, general and administrative expenses represented 14% and 15%
for the three months ended March 31, 2003 and 2002, respectively.
AMORTIZATION OF INTANGIBLE ASSETS L: Amortization of intangible assets for each
of the three months ended March 31, 2003 and 2002 amounted to $145,000 and
$160,000, respectively and is related primarily to the amortization of the
identifiable intangible assets from the QCB and Biofluids acquisitions
transacted in 1998.
INTEREST INCOME: Interest income for the three months ended March 31, 2003 and
2002, was $11,000 and $40,000, respectively, which was related to interest
income on cash invested in short-term securities during each of the respective
quarters.
INCOME TAX EXPENSE: The effective tax rate for the three months ending March 31,
2003 was 10%. The Company is benefiting from R & D and other tax credits which
when applied to income levels for the periods presented is resulting in
effective tax rates lower than the current applicable federal and state
statutory rates. The Company has elected to utilize the Extraterritorial Income
Exclusion ("EIE") federal tax credit, which, along with other tax credits, has
reduced its effective tax rate for 2003 to 10%. The Company's effective tax rate
is reviewed and evaluated quarterly and may change depending on certain factors,
including, among other things, the income level of the Company.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents as of March 31, 2003, of $3,840,000 decreased by
$2,101,000 from $5,941,000 at December 31, 2002. The decrease in cash was
partially due from a cash outlay of $662,000 for the repurchase of 110,000
shares of the Company's common stock through its stock repurchase program
initiated in October 2001. Net cash used in operating activities of $1,227,000
was augmented by capital expenditures of $238,000 and net cash used in financing
activities of $571,000. Working capital, which is the excess of current assets
over current liabilities, was $16,714,000 at March 31, 2003, as compared to
$16,596,000 at December 31, 2002, representing an increase of $118,000.
In the three months ended March 31, 2003, the Company received $95,000 from the
issuance of common stock related to the exercise of stock options. The Company
spent $238,000 on capital expenditures, primarily used for the purchase of
laboratory and manufacturing equipment.
In October of 2001, the Company announced that its Board of Directors had
approved a stock repurchase program. The Board originally authorized the Company
to repurchase up to $5 million of its common stock and have the
14
program expire on June 30, 2003. The repurchases are to be made at the
discretion of management and can be made at any time, as market conditions
warrant. On July 19, 2002, the Company amended the stock repurchase program and
increased its repurchase commitment by $5 million to a total of $10 million. On
April 22, 2003, the Company again amended the stock repurchase program extending
the expiration date of the Company's current program from June 2003 until June
2004. In addition, the Board approved adding $5 million to its current $10
million dollar allowable repurchase commitment, bringing the total limit to $15
million. In the first quarter of 2003, the Company spent $666,000 repurchasing
110,000 shares of its common stock under its stock repurchase program, bringing
the total number of shares repurchased since October 2001 to 989,000 and total
cash outlays to $5.9 million. All 989,000 shares have been retired. This has
contributed to the reduction in weighted average diluted shares outstanding for
the three months ended March 31, 2003 to 10,026,000 compared to the 10,757,000
diluted shares for the three months ended March 31, 2002. Since inception, the
company has repurchased 9% of its outstanding common stock. The Company
continues to believe its common stock is undervalued and feels it is important
to have the availability to repurchase outstanding shares of its common stock at
any time.
The Company has never paid dividends on common stock and has no plans to do so
in fiscal 2003. 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, if any. 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.
15
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.
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:
o our ability to internally develop new products;
o our ability to make profitable acquisitions;
o integration of new facilities into existing operations;
o hiring, training and retention of qualified personnel;
o establishment of new relationships or expansion of existing relationships
with customers and suppliers; and
o 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
16
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
(the "NIH") and similar domestic and international agencies. Although the level
of research funding 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. We rely on the timely transport of raw
materials. Any disruption in transportation systems could have an adverse impact
on our ability to manufacture and supply products.
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.
17
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.
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 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 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:
o availability, quality and price relative to competitive products;
o the timing of introduction of the product relative to competitive products;
o customers' opinion of the products utility;
18
o ease of use;
o consistency with prior practices;
o scientists' opinion of the product's usefulness;
o citation of the product in published research; and
o 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
that 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, Leonard M. Hendrickson. 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.
Hendrickson, 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.
WE RELY ON AIR TRANSPORT TO SHIP PRODUCTS TO OUR CUSTOMERS.
Any disruption in standard air transport systems could have an adverse effect on
our business.
19
WE RELY ON INTERNATIONAL SALES, WHICH ARE SUBJECT TO ADDITIONAL RISKS.
International sales accounted for approximately 45% and 40% of our revenues in
the first three months of 2003 and 2002, respectively. International sales can
be subject to many inherent risks that are difficult or impossible for us to
predict or control, including:
o unexpected changes in regulatory requirements and tariffs;
o difficulties and costs associated with in staffing and managing foreign
operations, including foreign distributor relationships;
o longer accounts receivable collection cycles in certain foreign countries;
o adverse economic or political changes;
o unexpected changes in regulatory requirements;
o more limited protection for intellectual property in some countries;
o changes in our international distribution network and direct sales force;
o potential trade restrictions, exchange controls and import and export
licensing requirements;
o problems in collecting accounts receivable;
o potentially adverse tax consequences of overlapping tax structure; and
o impairment of the ability to transport goods internationally.
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 34% of our sales in the three months ended March 31,
2003, were made in foreign currencies, primarily the Euro. A significant portion
of the foreign currencies in which we conduct our business is currently, or may
in the future be, denominated in Euros. We are not certain about the future
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.
20
OUR OPERATING RESULTS MAY FLUCTUATE.
Our operating results may vary significantly from quarter to quarter and from
year to year as a result of a variety of factors. These factors include:
o level of demand for our products;
o changes in our customer and product mix;
o timing of acquisitions and investments in infrastructure;
o competitive conditions;
o timing and extent of intellectual property litigation;
o exchange rate fluctuations; and
o general economic and political 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.
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.
21
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 31, 2003, 61 of our 291 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 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:
o product performance, features and liability;
o price;
22
o timing of product introductions;
o ability to develop, maintain and protect proprietary products and
technologies;
o sales and distribution capabilities;
o technical support and service;
o brand royalty;
o applications support; and
o 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. Our failure to anticipate and respond to price competition could reduce
our revenues and profits, and 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.
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:
o fluctuations in our quarterly operating and earnings per share results;
o the gain or loss of significant contracts;
23
o loss of key personnel;
o announcements of technological innovations or new products by us or our
competitors;
o delays in the development and introduction of new products;
o legislative or regulatory changes;
o general trends in the industry;
o recommendations and/or changes in estimates by equity and market research
analysts;
o biological or medical discoveries;
o disputes and/or developments concerning intellectual property, including
patents and litigation matters;
o public concern as to the safety of new technologies;
o sales of common stock of existing holders;
o securities class action or other litigation;
o developments in our relationships with current or future customers and
suppliers; and
o 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 31, 2003, and from $5.83 to $6.95 per share from January 1, 2003,
through March 31, 2003.
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.
We are subject to various legal and contractual provisions that may impede a
change in our control, including the following:
o 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
o 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.
24
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 34.5% of our outstanding common stock, based upon
the beneficial ownership of our common stock as of May 15, 2003. 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:
o will be able to significantly influence the composition of our board of
directors;
o will significantly influence all matters requiring stockholder approval,
including change of control transactions; and
o 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 34.5% of our outstanding common stock, based upon the beneficial
ownership of our common stock as of May 15, 2003. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
We conduct business in various foreign currencies 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 date
that they are converted. We are also subject to certain exposures arising from
the translation and consolidation of the financial results of our foreign
subsidiaries. There can be no assurance that actions taken to manage such
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 transaction risk or
our economic risk.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this report, members of the Company's
management, including the Company's President and Chief Executive Officer, Len
Hendrickson, and Chief Financial Officer, Charles Best, evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based upon that
25
evaluation, Mr. Hendrickson and Mr. Best believe that, as of the date of the
evaluation, the Company's disclosure controls and procedures are effective in
making known to them material information relating to the Company (including its
consolidated subsidiaries) required to be included in this report.
Disclosure controls and procedures, no matter how well designed and implemented,
can provide only reasonable assurance of achieving an entity's disclosure
objectives. The likelihood of achieving such objectives is affected by
limitations inherent in disclosure controls and procedures. These include the
fact that human judgment in decision-making can be faulty and that breakdowns in
internal control can occur because of human failures such as simple errors or
mistakes or intentional circumvention of the established process.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these internal controls known to Mr.
Hendrickson or to Mr. Best after the date of the most recent evaluation.
26
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 99.1 Certificate of our Chief Executive Officer and
Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on February 21,
2003, reporting the issuance of a press release announcing the
Company's financial results for the fiscal quarter and year
ended December 31, 2002.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOSOURCE INTERNATIONAL, INC.
(Registrant)
Date: May 12, 2003 /s/ LEONARD M. HENDRICKSON
--------------------------
Leonard M. Hendrickson
President and
Chief Executive Officer
Date: May 12, 2003 /s/ CHARLES C. BEST
-------------------
Charles C. Best
Executive Vice President and
Chief Financial Officer
28
Certification of CEO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Leonard M. Hendrickson certify that:
1. I have reviewed this quarterly report on Form 10-Q for the three
months ended March 31, 2003;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/LEONARD M. HENDRICKSON
-------------------------------------
Leonard M. Hendrickson
President and Chief Executive Officer
29
Certification of CFO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Charles C. Best certify that:
1. I have reviewed this quarterly report on Form 10-Q for the three
months ended March 31, 2003;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ CHARLES C. BEST
-------------------------------------
Charles C. Best
Chief Financial Officer
30
EXHIBIT INDEX
Exhibit Description
- ------- -----------
99.1 Certificate of our Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
31