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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 JUNE 30, 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 August 11, 2003 was 9,165,512.
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BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 2003
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
June 30, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 2003
and 2002 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 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 26
ITEM 4. CONTROLS AND PROCEDURES 26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 28
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 28
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 28
ITEM 5. OTHER INFORMATION 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 28
SIGNATURES 29
2
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
JUNE 30, DECEMBER 31,
2003 2002
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 1,682 5,941
Accounts receivable, less allowance for doubtful
accounts of $285 at June 30, 2003 and $261 at
December 31, 2002 ............................. 7,472 6,157
Inventories, net ................................ 10,091 8,880
Prepaid expenses and other current assets ....... 1,252 538
Deferred income taxes ........................... 1,873 1,873
-------- --------
Total current assets ................... 22,370 23,389
Property and equipment, net ........................ 7,010 7,398
Intangible assets net of accumulated amortization
of $2,945 at June 30, 2003 and $2,655 at December
31, 2002 .......................................... 5,785 6,076
Goodwill ........................................... 307 307
Other assets ....................................... 556 526
Deferred tax assets ................................ 8,810 8,810
-------- --------
$ 44,838 46,506
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $ 3,257 3,115
Accrued expenses ................................ 2,955 2,910
Deferred revenue ................................ 310 427
Income tax payable .............................. 781 341
-------- --------
Total current liabilities .............. 7,303 6,793
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value. Authorized
20,000,000 shares: issued and
outstanding 9,122,913 shares at
June 30, 2003 and 9,676,931 at
December 31, 2002 ..................... 9 10
Additional paid-in capital ....................... 41,297 44,500
Accumulated deficit .............................. (2,955) (3,382)
Accumulated other comprehensive loss ............. (816) (1,415)
-------- --------
Net stockholders' equity ............... 37,535 39,713
-------- --------
$ 44,838 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 and Six Months Ended June 30, 2003 and 2002
(Amounts in thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net sales ....................... $ 11,734 10,292 22,633 20,073
Cost of sales ................... 5,391 4,548 10,081 8,744
-------- -------- -------- --------
Gross profit ................ 6,343 5,744 12,552 11,329
-------- -------- -------- --------
Operating expenses:
Research and development .... 1,863 1,512 3,842 2,805
Sales and marketing ......... 2,488 2,013 4,876 4,278
General and administrative .. 1,359 1,471 2,935 2,932
Amortization of intangibles . 145 160 290 321
-------- -------- -------- --------
Total operating expenses 5,855 5,156 11,943 10,336
-------- -------- -------- --------
Operating income ................ 488 588 609 993
Interest income, net ............ 16 20 27 61
Other expense, net .............. (63) (31) (81) (1)
-------- -------- -------- --------
Income before income taxes ...... 441 577 555 1,053
Income tax expense .............. 116 128 128 232
-------- -------- -------- --------
Income before cumulative
effect of accounting
change ................ 325 449 427 821
Cumulative effect of accounting
change (net of applicable
income taxes $1,759) .......... -- -- -- (2,870)
-------- -------- -------- --------
Net income (loss) ............... $ 325 449 427 (2,049)
======== ======== ======== ========
Net income per share before
accounting change:
Basic ....................... $ 0.03 0.05 0.05 0.08
======== ======== ======== ========
Diluted ..................... $ 0.03 0.04 0.04 0.08
======== ======== ======== ========
Net income (loss) per share:
Basic ....................... $ 0.03 0.05 0.05 (0.21)
======== ======== ======== ========
Diluted ..................... $ 0.03 0.04 0.05 (0.20)
======== ======== ======== ========
Shares used to compute per share
amounts:
Basic ....................... 9,538 9,654 9,441 9,922
======== ======== ======== ========
Diluted ..................... 9,885 10,101 9,773 10,401
======== ======== ======== ========
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
Six Months Ended June 30, 2003 and 2002
(Amounts in thousands)
(Unaudited)
2003 2002
------- -------
Cash flows from operating activities:
Net income (loss) ............................ $ 427 (2,049)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ........... 1,308 1,064
Cumulative effect of accounting
change ................................ -- 4,629
Changes in assets and liabilities:
Accounts receivable ..................... (1,029) (668)
Inventories ............................. (742) (243)
Prepaid expenses and other
current assets ........................ (707) (377)
Deferred income taxes ................... -- (1,759)
Other assets ............................ (30) (28)
Accounts payable ........................ 82 508
Accrued expenses ........................ (38) (169)
Deferred revenue ........................ (116) 100
Income taxes payable .................... 413 211
------- -------
Net cash provided from (used in)
operating activities ....................... (432) 1,219
------- -------
Cash flows from investing activities:
Purchase of property and equipment ........... (603) (1,927)
------- -------
Net cash used in investing
activities ............................ (603) (1,927)
------- -------
Cash flows from financing activities:
Proceeds from the exercise of options ........ 277 152
Payments to acquire treasury stock ........... (3,455) (4,313)
------- -------
Net cash used in financing activities ........ (3,178) (4,161)
------- -------
Net decrease in cash and cash
equivalents ........................... (4,213) (4,869)
Effect of exchange rates on cash and cash
equivalents ...................................... (46) 121
Cash and cash equivalents at beginning of
period ........................................... 5,941 9,471
------- -------
Cash and cash equivalents at end of period ......... $ 1,682 4,723
======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest ................................ $ -- 1
======= =======
Income taxes ............................ $ 14 24
======= =======
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 and six months ended June
30, 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.
Through the first six months ended June 30, 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 2002 catalog, the Company
put substantial effort into increasing the number of customers in its customer
database and in conjunction with that, increased its dependence on its catalog
to attract more customers. As a result, the Company believes that its 2003
catalog is a direct response advertisement whose primary purpose is to elicit
sales to customers that 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 six months of 2002, the Company expensed approximately $434,000 of
catalog costs compared to $322,000 for the first six months of 2003.
RECENTLY ISSUED ACCOUNTING STANDARDS
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.
6
3. INVENTORIES (AMOUNTS IN THOUSANDS):
JUNE 30, DEC. 31,
2003 2002
------- -------
Raw materials .............. $ 3,042 2,703
Work in process ............ 663 493
Finished goods ............. 6,386 5,684
------- -------
$10,091 8,880
======= =======
4. PROPERTY AND EQUIPMENT (AMOUNTS IN THOUSANDS):
JUNE 30, DEC. 31,
2003 2002
------- -------
Machinery and equipment ........ $ 9,219 9,241
Office furniture and equipment . 3,988 3,708
Leasehold improvements ......... 1,756 1,530
-------- --------
14,963 14,479
Less accumulated depreciation
and amortization ............. (7,953) (7,081)
-------- --------
$ 7,010 7,398
======== ========
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 June 30, 2003 and
2002, respectively and $290,000 and $321,000 for the six months ended June 30,
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 is also a party to several stock option
agreements with several of its executive officers.
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:
7
SIX MONTHS ENDED JUNE 30,
2003 2002
---------- --------
(in thousands, except per
share data)
NET INCOME (LOSS):
As reported ............................ $ 427 (2,049)
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of tax effects ................ (609) (1,224)
---------- --------
Pro forma net loss available to
common shareholders .................. $ (182) (3,273)
========== ========
NET INCOME (LOSS) PER SHARE:
Basic - as reported .................... $ 0.05 (0.21)
========== ========
Basic - pro forma ...................... $ (0.02) (0.34)
========== ========
Diluted - as reported .................. $ 0.04 (0.20)
========== ========
Diluted - pro forma .................... $ (0.02) (0.34)
========== ========
7. EARNINGS PER SHARE
The reconciliation of basic to diluted weighted average shares is as follows
(amounts in thousands):
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------- ---------------
2003 2002 2003 2002
------ ------ ------ ------
Weighted average shares used in
basic computation ..................... 9,538 9,654 9,441 9,922
Dilutive stock options and warrants ........ 347 447 332 479
------ ------ ------ ------
Weighted average shares used for
diluted computation ................... 9,885 10,101 9,773 10,401
====== ====== ====== ======
Options to purchase 1,081,311 and 1,347,068 shares were not included in the
computation of diluted net income per share for the three month periods ended
June 30, 2003 and 2002, respectively because their effect would be
anti-dilutive.
Options to purchase 1,071,666 and 1,276,658 shares were not included in the
computation of diluted net income per share for the six month periods ended June
30, 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 June 30, 2003 and 2002 but were not
included in the computation of diluted net income per share for the three and
six months ended June 30, 2003 and 2002 because their effect would be
anti-dilutive.
8
8. STOCKHOLDERS' EQUITY
Comprehensive income (loss) is determined as follows (amounts in thousands):
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------- ----------------
2003 2002 2003 2002
------ ------ ------ ------
Net income (loss) ..................... $ 325 449 427 (2,049)
Foreign currency translation
adjustments, net of tax ............. 359 704 600 700
------ ------ ------ ------
Total comprehensive income (loss) ..... $ 684 1,153 1,027 (1,349)
====== ====== ====== ======
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. These Strategic Business Units ("SBU's") are Signal Transduction
Products, Cytokine Products, and Custom Products. 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 SBU's are managed separately
because each business requires different marketing and distribution strategies.
Business information is summarized as follows:
9
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2003 2002 2003 2002
-------- -------- -------- --------
SALES - FROM SEGMENTS (IN THOUSANDS):
Net sales to external customers from:
United States:
Domestic ...................... $ 6,334 6,085 12,361 12,000
Export ........................ 1,225 1,023 2,341 2,110
-------- -------- -------- --------
Total United States .... 7,559 7,108 14,702 14,110
Europe ............................ 4,175 3,184 7,931 5,963
-------- -------- -------- --------
Consolidated ........... $ 11,734 10,292 22,633 20,073
======== ======== ======== ========
Operating income (loss):
United States ..................... $ (170) (87) (907) (321)
Europe ............................ 658 675 1,516 1,314
-------- -------- -------- --------
Consolidated ........... $ 488 588 609 993
======== ======== ======== ========
SALES - TO SEGMENTS (IN THOUSANDS):
Net sales to external customers in:
United States ..................... $ 6,334 6,085 12,361 12,000
Europe ............................ 3,502 2,827 6,776 5,256
Japan ............................. 920 828 1,815 1,759
Other ............................. 978 552 1,681 1,058
-------- -------- -------- --------
Consolidated ........... $ 11,734 10,292 22,633 20,073
======== ======== ======== ========
SALES - BY PRODUCT GROUP (IN THOUSANDS):
Net sales by product group:
Cytokine .......................... $ 5,413 4,653 10,325 9,241
Signaling ......................... 2,383 1,795 4,780 3,264
Custom ............................ 3,938 3,844 7,528 7,568
-------- -------- -------- --------
Consolidated ........... $ 11,734 10,292 22,633 20,073
======== ======== ======== ========
10. LINE OF CREDIT
In June 2003, the Company established a one-year revolving loan with a
commercial bank that allows the Company to withdraw from time to time amounts
that in the aggregate are not to exceed $2,500,000. The loan was established for
working capital and stock repurchase needs, when and as necessary. The principal
terms of the revolving loan include an interest rate of 2.75% on borrowed funds
and a quarterly unused balance fee of .375%. The principal covenants include
maintaining quarterly profitability, a maximum liability to tangible net worth
ratio of 1.0 to 1.0, and a minimum cash balance of $750,000 as of the end of
each fiscal quarter. As of June 30, 2003 and from July 1, 2003 through August
11, 2003, the Company had no borrowings under the revolving loan. The Company
currently anticipates maintaining the revolving loan until such time that
management or the Board believes that working capital and stock repurchase needs
no longer require its availability.
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
Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and all
other filings we made with the Securities and Exchange Commission from time to
time.
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.
10
OVERVIEW
Our Company develops, manufactures, markets and distributes products and
services that are widely used in biomedical research. Our products and services
enable scientists to better understand the biochemistry, immunology and cell
biology of the human body, aging and certain diseases such as cancer, arthritis
and other inflammatory diseases, AIDS and certain other infectious diseases. We
have a wide variety of products, including immunoassay and ELISA test kits;
immunological reagents, including bioactive proteins (cytokines, growth factors
and adhesion molecules), oligonucleotides, and monoclonal and polyclonal
antibodies. We also manufacture and market custom oligonucleotides, peptides and
antibodies to the specifications of our customers. We use recombinant DNA
technology to produce cytokines and other proteins. We have registered our
analyte specific reagents with the FDA and have received a license to sell these
products as Class I Medical Devices. We market these products to IN VITRO
diagnostic manufacturers and clinical reference laboratories as "active
ingredients" in the tests they produce to identify various specific diseases or
conditions. In order to market these products as medical devices, we are
required to be in compliance with the FDA's Current Good Manufacturing Practices
and Regulations.
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 $7,757,000 in gross trade accounts receivable
and $285,000 in allowance for doubtful accounts on the
consolidated balance sheet at June 30, 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. The Company determines its allowance for doubtful
accounts by looking at its entire outstanding invoices and,
based on certain criteria including past payment history and
current credit worthiness, determines specific customers and
invoices that need a specific allowance. This review of our
allowance for doubtful accounts is done timely and
consistently throughout the year. The Company does have
accounts receivable amounts from certain customers as of June
30, 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 TO LOWER OF COST OR MARKET.
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 June 30, 2003, the Company had
$4,845,000 of manufactured antibodies in its inventory and a reserve
for these antibodies totaling $4,845,000. 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.
11
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 June 30, 2003. As of June 30, 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 it 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 affect our tax expense and our financial results.
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 original 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 31% of the Company's
net sales for the six months ended June 30, 2003 were to distributors
compared to 28% for the six months ended June 30, 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 June 30,
2003.
GOODWILL. 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 $290,000 and
$321,000 for the six months ended June 30, 2003 and 2002, respectively.
12
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. For the six months ended June 30, 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 2002 catalog, the Company put substantial
effort into increasing the number of customers in its customer database
and in conjunction with that, increased 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 six months of 2002,
the Company expensed approximately $434,000 of catalog costs compared
to $322,000 for the first six months of 2003.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003
REVENUES: Net sales for the quarter ended June 30, 2003 were $11.7 million, an
increase of $1.4 million, or 14% (8% after eliminating the $631,000 positive
impact of foreign exchange), compared to net sales for the quarter ended June
30, 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 its sales growth.
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, antibodies, 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 June 30, 2003, sales of the Company's Signal
Transduction Products, grew 33% compared to the comparable prior year quarter,
from $1,795,000 to $2,383,000. Signal Transduction Products represent
approximately 20% of our total sales for the three months ended June 30, 2003
and 17% of sales for the three months ended June 30, 2002. The Company believes
its volume of transactions in the signal transduction market is growing and has
opportunities for continued significant growth in this market. The Company's
sales growth in its Cytokine Products for the quarter ending June 30, 2003 was
16%, increasing from $4,653,000 to $5,413,000, compared to the three months
ended June 30, 2002. The Cytokine Products represent approximately 46% of our
total sales for the three months ended June 30, 2003 and 45% of sales for the
three months ended June 30, 2002. The Cytokine market is a mature market which
the Company believes continues to have opportunities for solid sales growth
through focused sales and marketing efforts and through targeted research and
development activities. The Company's Custom Product lines, which represent
approximately 34% and 37% of our total sales for the three months ended June 30,
2003 and 2002 respectively, increased 3% compared to the comparable prior year
quarter, from $3,844,000 to $3,939,000. Increased diagnostic, sera and media and
custom antibody sales were offset by a decrease in oligonucleotide and custom
peptide sales.
For the three months ended June 30, 2003, the Company achieved net sales growth
in North America of 6% as compared to the three months ended June 30, 2002.
European sales for the three months ended June 30, 2003 increased 25% (11%
excluding the favorable effects of currency fluctuations), as compared to the
comparable prior year period. Sales in Japan and the rest of the world increased
28%, for the three months ended June 30, 2003 as compared to the three months
ended June 30, 2002. The increase in sales in Japan and the rest of the world is
13
partially attributable to increased sales of diagnostic products through our
non-European distribution networks and through increased assay sales in Japan.
GROSS PROFIT: Gross profit margin was 54% for the three months ended June 30,
2003 and 56% for the three months ended June 30, 2002. Lower margins in our
diagnostic product line in Europe and our custom peptide and antibody product
lines in the United States accounted for a significant portion of the margin
decrease
RESEARCH AND DEVELOPMENT: Research and development expense for the three months
ended June 30, 2003 and 2002 were $1,863,000 and $1,512,000 and represented 16%
and 15% of sales, respectively. The increase of $351,000 in research and
development expenses for the three months ended June 30, 2003 when compared to
the comparable prior year period reflects the Company's incremental investment
in additional personnel and materials primarily in the Cytokine and Signal
Transduction research areas. This total investment in the Company's research
capabilities has resulted in the increased release of higher quality and novel
products, which has produced increased sales in both the Cytokine and Signaling
product lines. Quarterly expenditures in research and development for the
remainder of 2003 are expected to be slightly less than those occurring in the
second quarter of 2003 due to one time start up costs for products introduced in
the first half of 2003 and expected efficiencies in R & D processing.
SALES AND MARKETING: Selling and marketing expenses were $2.5 million for the
three months ended June 30, 2003 and $2.0 million for the three months ended
June 30, 2002, representing 21% and 20% of sales, respectively. The increase in
sales and marketing is due to additional investment in personnel and marketing
programs.
GENERAL AND ADMINISTRATIVE: General and administrative expenses were $1.4
million for the three months ended June 30, 2003, and $1.5 million for the three
months ended June 30, 2002, a decrease of approximately $100,000. This decrease
was attributable to decreases in payroll and related expenses and legal fees
offset by increases in office expenses. As a percentage of sales, general and
administrative expenses represented 12% and 14% for the three months ended June
30, 2003 and 2002, respectively.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization of intangible assets for each of
the three months ended June 30, 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 June 30, 2003 and
2002, was $16,000 and $20,000, respectively, which was related to interest
income on cash invested in short-term securities during each of the respective
quarters.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003
REVENUES: Net sales for the six months ended June 30, 2003 were $22.6 million,
an increase of $2.6 million, or 13% (7% after eliminating the $1,182,000
positive impact of foreign exchange), compared to net sales for the six months
ended June 30, 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.
For the six months ended June 30, 2003, sales of the Company's Signal
Transduction Products, grew 46% compared to the comparable prior year period,
from $3,264,000 to $4,780,000. Signal Transduction Products represent
approximately 21% of our total sales for the six months ended June 30, 2003 and
16% of sales for the six months ended June 30, 2002. The Company believes its
volume of transactions in the signal transduction market is growing and has
opportunities for continued significant growth in this market. The Company's
sales growth in its Cytokine Products for the six months ending June 30, 2003
was 12%, increasing from $9,241,000 to $10,325,000, compared to the six months
ended June 30, 2002. The Cytokine product line represents approximately 46% of
our total sales for each of the six month periods ended June 30, 2003 and 2002.
The Cytokine market is a mature market which the Company believes continues to
have opportunities for solid sales growth through focused sales and marketing
efforts and through targeted research and development activities. The Company's
Custom Product lines, which represent approximately 33% of our total sales,
decreased 1% compared to the comparable prior year period, from $7,568,000 to
$7,528,000. The Custom Product line represents approximately 38% of our total
sales for the six months ended March 31, 2002.
14
For the six months ended June 30, 2003, the Company achieved net sales growth in
North America of 4% as compared to the six months ended June 30, 2002. European
sales for the six months ended June 30, 2003 increased 29% (13% excluding the
favorable effects of currency fluctuations), as compared to the comparable prior
year period. Sales in Japan and the rest of the world increased 20% for the six
months ended June 30, 2003 as compared to the six months ended June 30, 2002.
Increases in diagnostic sales through our non-European distributors and assay
sales in Japan are major contributors to this growth.
GROSS PROFIT: Gross profit margin was 55% for the six months ended June 30, 2003
and 56% for the six months ended June 30, 2002. The Company's margin decreased
1% in part due to the continued investment in production and planning related
areas within the Company and incremental increases in its scrap and obsolescence
during the first six months of 2003. Lower margins from our European operations,
particularly our diagnostic product line, also contributed to this gross profit
margin reduction.
RESEARCH AND DEVELOPMENT: Research and development expenses for the six months
ended June 30, 2003 and 2002 were $3,842,000 and $2,805,000 and represented 17%
and 14% of sales, respectively. The increase in research and development
expenses for the six months ended June 30, 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 significant investments in its R & D capabilities over the
past 18 months. The result of this investment has been the release of
significantly more and higher quality novel products, and resulted in increased
sales in both the Cytokine and Signaling product lines. Expenditures in R&D for
the remainder of 2003 are expected to be less than those in the first six months
of 2003 due to one time start up costs for products introduced in the first half
of 2003 and expected efficiencies in R & D processing.
SALES AND MARKETING: Selling and marketing expenses were $4.9 million for the
six months ended June 30, 2003 and $4.3 million for the six months ended June
30, 2002, representing 22% and 21% of sales, respectively. The increase is due
to additional investment in personnel and marketing programs. The Company
expects its sales and marketing expenses to decline in the last six months of
2003 from spending levels incurred in the first six months of 2003 as a result
of specific branding efforts occurring during the first six months of 2003 that
are not anticipated to continue in the last six months of 2003.
For the six months ended June 30, 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 2002 catalog, the Company
put substantial effort into increasing the number of customers in its customer
database and in conjunction with that, increased its dependence on its catalog
to attract more customers. As a result, the Company believes that its 2003
catalog is a direct response advertisement whose primary purpose is to elicit
sales to customers that 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 six months of 2002, the Company expensed approximately $434,000 of
catalog costs compared to $322,000 for the first six months of 2003.
GENERAL AND ADMINISTRATIVE: General and administrative expenses were $2.9
million for each of the six-month periods ended June 30, 2003 and 2002. As a
percentage of sales, general and administrative expenses represented 13% and 15%
for the six months ended June 30, 2003 and 2002, respectively.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization of intangible assets for each of
the six months ended June 30, 2003 and 2002 amounted to $290,000 and $321,000,
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 six months ended June 30, 2003 and
2002, was $27,000 and $61,000, respectively, which was related to interest
income on cash invested in short-term securities during each of the respective
six month periods.
INCOME TAX EXPENSE: The effective tax rate for the six months ending June 30,
2003 is 23% compared to 22% for the six months ended June 30, 2002. The Company
used an effective tax rate of 10% for the three months ended March
15
31, 2003. The effective tax rate increased due primarily to an updated forecast
of the Company's financial performance for the year ended December 31, 2003,
which is an integral part of the effective tax rate calculation. The Company
continues to benefit 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 25%.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents as of June 30, 2003, of $1,682,000 decreased by
$4,259,000 from $5,941,000 at December 31, 2002. The decrease in cash for the
six months ended June 30, 2003 was partially due from a cash outlay of
$3,455,000 for the repurchase of 658,000 shares of the Company's common stock
through its stock repurchase program initiated in October 2001. For the six
months ended June 30, 2003, the Company received $277,000 from the issuance of
common stock related to the exercise of stock options and spent $603,000 on
capital expenditures, primarily used for the purchase of laboratory and
manufacturing equipment. Net cash used in operating activities for the six
months ended June 30, 2003 was $432,000 compared to net cash provided from
operations of $1,219,000 for the six months ended June 30, 2002. The net cash
provided for operating activities in 2002 was positively affected by a
$4,629,000 benefit related to the cumulative effect of accounting change related
to the implementation of FAS No. 142. Working capital, which is the excess of
current assets over current liabilities, was $15,067,000 at June 30, 2003, as
compared to $16,596,000 at December 31, 2002, representing a decrease of
$1,529,000.
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 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. During the first
six months of 2003, the Company spent $3,455,000 repurchasing 658,000 shares of
its common stock under its stock repurchase program, bringing the total number
of shares repurchased since October 2001 to 1,536,000 and total cash outlays to
$8,700,000. All repurchased shares have been retired. This has contributed to
the reduction in weighted average diluted shares outstanding for the six months
ended June 30, 2003 to 9,773,000 compared to the 10,401,000 diluted shares for
the six months ended June 30, 2002. Since inception, the company has repurchased
15% of its outstanding common stock.
In June 2003, the Company established a one-year revolving loan with a
commercial bank that allows the Company to withdraw from time to time amounts
that in the aggregate are not to exceed $2,500,000. The loan was established for
working capital and stock repurchase needs, when and as necessary. The principal
terms of the revolving loan include an interest rate of 2.75% on borrowed funds
and a quarterly unused balance fee of .375%. The principal covenants include
maintaining quarterly profitability, a maximum liability to tangible net worth
ratio of 1.0 to 1.0, and a minimum cash balance of $750,000 as of the end of
each fiscal quarter. As of June 30, 2003 and from July 1, 2003 through August
11, 2003, the Company had no borrowings under the revolving loan. The Company
currently anticipates maintaining the revolving loan until such time that
management or the Board believes that working capital and stock repurchase needs
no longer require its availability.
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 utilize our revolving loan from time to time to take
advantage of favorable conditions in the market or in connection with our
corporate development activities.
16
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
17
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.
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.
18
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;
19
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.
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.
20
WE RELY ON INTERNATIONAL SALES, WHICH ARE SUBJECT TO ADDITIONAL RISKS.
International sales accounted for approximately 40% and 37% of our revenues in
the first six 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 30% of our sales in the six months ended June 30,
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.
21
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.
22
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 July 31, 2003, 64 of our 283 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;
23
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;
24
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 June 30, 2003, and from $5.00 to $6.95 per share from January 1, 2003,
through June 30, 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.
25
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 36% of our outstanding common stock, based upon the
beneficial ownership of our common stock as of June 30, 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 36% of our outstanding common stock, based upon the beneficial
ownership of our common stock as of June 30, 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
As of June 30, 2003, the end of the period covered by 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
26
procedures. Based upon that 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 causing materials to be recorded, processed,
summarized and reported by our management on a timely basis and to ensure that
the quality and timeliness of the Company's public disclosures complies with its
Securities and Exchange Commission disclosure obligations.
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.
27
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
31.1 Certificate of Leonard M. Hendrickson, Chief
Executive Officer of BioSource International, Inc.
pursuant to Rule 13a-14(a) under the Securities and
Exchange Act of 1934, as amended.
31.2 Certificate of Charles C. Best, Chief Financial
Officer of BioSource International, Inc. pursuant to
Rule 13a-14(a) under the Securities and Exchange Act
of 1934, as amended.
32.1 Certificate of Leonard M. Hendrickson and Charles C.
Best, Chief Executive Officer and Chief Financial
Officer, respectively, of BioSource International,
Inc. pursuant to Rule 13a-14(b) under the Securities
and Exchange Act of 1934, as amended.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated April 29,
2003, reporting the issuance of a press release announcing the
Company's financial results for the fiscal quarter ended March
31, 2003.
The Company filed a current report on Form 8-K dated April 30,
2003, reporting the issuance of a press release announcing the
resignation of a member of the Company's board of directors
and the adjustment of the board's composition from seven
members to six.
The Company filed a current report on Form 8-K dated June 3,
2003, reporting the repurchase of 490,000 shares of the
Company's common stock for $2,450,000.
28
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: August 14, 2003 /s/ LEONARD M. HENDRICKSON
--------------------------
Leonard M. Hendrickson
President and
Chief Executive Officer
Date: August 14, 2003 /s/ CHARLES C. BEST
-------------------
Charles C. Best
Executive Vice President and
Chief Financial Officer
29
EXHIBIT INDEX
Exhibit Description
- ------- -----------
31.1 Certificate of Leonard M. Hendrickson, Chief Executive Officer
of BioSource International, Inc. pursuant to Rule 13a-14(a)
under the Securities and Exchange Act of 1934, as amended.
31.2 Certificate of Charles C. Best, Chief Financial Officer of
BioSource International, Inc. pursuant to Rule 13a-14(a) under
the Securities and Exchange Act of 1934, as amended.
32.1 Certificate of Leonard M. Hendrickson and Charles C. Best,
Chief Executive Officer and Chief Financial Officer,
respectively, of BioSource International, Inc. pursuant to
Rule 13a-14(b) under the Securities and Exchange Act of 1934,
as amended.
30