EXHIBIT 13.1 - ANNUAL REPORT
[GRAPHIC OMITTED]
GREETING THE FUTURE WITH PURPOSE AND OPTIMISM
BAS
2001 ANNUAL REPORT
SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
2001 2000 1999 1998 1997
-----------------------------------------------------
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Service revenue $ 15,202 $ 10,999 $ 9,993 $ 7,609 $ 4,991
Product revenue 10,073 8,224 9,858 10,616 9,932
Total revenue 25,275 19,223 19,851 18,225 14,923
Cost of service revenue 9,660 9,245 6,499 4,598 2,986
Cost of product revenue 3,495 2,974 3,943 3,911 3,334
Total cost of revenue 13,155 12,219 10,442 8,509 6,320
Gross profit 12,120 7,004 9,409 9,716 8,603
Operating expenses:
Selling 3,204 3,400 3,943 4,524 4,225
Research and development 1,611 1,806 1,955 2,165 1,568
General and administrative 3,815 2,990 2,550 2,336 1,638
Total operating expenses 8,630 8,196 8,448 9,025 7,431
Operating income (loss) 3,490 (1,192) 961 691 1,172
Other income (expense), net (383) (621) (114) (25) (75)
Income (loss) before income taxes 3,107 (1,813) 847 666 1,097
Income taxes (benefit) 1,340 (431) 277 254 413
Net income (loss) $ 1,767 $ (1,382) $ 570 $ 412 $ 684
Net income (loss) available to
common shareholders $ 1,767 $ (1,382) $ 570 $ 412 $ 657
Net income (loss) per Common Share
Basic $ .39 $ (.30) $ .13 $ .10 $ .30
Diluted $ .38 $ (.30) $ .12 $ .09 $ .21
Weighted average Common Shares
outstanding
Basic 4,565 4,550 4,506 4,117 2,221
Diluted 4,600 4,550 4,676 4,403 3,101
SEPTEMBER 30,
-----------------------------------------------------
2001 2000 1999 1998 1997
-----------------------------------------------------
(in thousands)
BALANCE SHEET DATA:
Working capital $ 2,535 $ 931 $ 4,275 $ 3,286 $ 2,493
Property and equipment, net 18,922 18,913 17,355 14,551 10,035
Total assets 27,977 26,897 26,321 22,280 15,931
Long-term debt, less
current portion 3,144 3,638 4,112 1,124 5,045
Convertible Preferred Shares --- --- --- --- 1,231
Shareholders' equity 17,830 16,062 17,421 16,844 5,651
<FN>
The above is selected audited consolidated financial data of the Company for the five years ended
September 30, 2001. The data should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations" found on page ten and the consolidated
financial statements of Bioanalytical Systems, Inc. and notes containedin this report.
</FN>
[GRAPHIC OMITTED]
CELEBRATING OUR
DIVERSITY REJOICING IN OUR UNITY
GREETING THE FUTURE WITH
PURPOSE AND OPTIMISM
FROM THE PRESIDENTS DESK
Fiscal 2001 was a benchmark year for BAS. Many of the things we put into motion
following our IPO in November 1997 came together as planned. Sales increased 31%
to $25,275,000, and net income to $1,767,000. We had a healthy boost from new
products that were well received by the pharmaceutical industry.
We met, and often exceeded, all of our major goals for 2001. We diversified our
client portfolio to include small and mid-sized pharmaceutical and drug
development companies. Sales of our Culex(R) Automated Blood Sampler grew to
include new customers, and we saw follow-on sales to early users of the device.
We have stimulated strong interest in Culex in the European pharmaceutical
community, and we expect our strategic alliance with Biotec Centre in Orleans,
France, and a greater BAS visibility in Europe, to expand those sales further.
With contract analytical services operating near capacity, we installed
additional robotic sample-handling systems and mass spectrometers at the West
Lafayette Technical Center and broke ground in Evansville to double capacity
there. We will begin construction of additional preclinical research
laboratories in West Lafayette in the spring of 2002. Preparing for the future,
we added a scientific director and a number of talented, experienced people at
West Lafayette, Evansville and at Warwickshire, England.
Joining an alliance of other companies focused on pharmaceutical development has
resulted in real benefits. The member companies of the Pharmaceutical Industry
Contract Research Alliance (PICRA) are working together in a variety of ways
from joint research, to participating in larger projects with pharmaceutical
companies, to co-marketing, to exploring international opportunities and sharing
information for the common good in areas such as quality assurance training.
- 2 -
I continue to see macroscopic influences that are extremely favorable to BAS.
These include an aging population, the globalization of pharmaceutical research
and a growing list of patent expirations that are spurring the large
pharmaceutical companies to accelerate development of new front-line products.
Equally important is the change in drug discovery methodology over the last five
years. This is defined by buzz words like genomics, proteomics, combinatorial
chemistry, gene chips and high throughput screening. While the changes
themselves lag far behind the perceptions in the popular press (it will take
longer), there are a larger number of new molecular entities coming into
preclinical development, a strong point for BAS. Preclinical development is
where a potential drug and its pharmacology and safety aspects are assessed
prior to dosing "first time in man."
Our team is keenly aware of the need to generate shareholder value because it is
only from this that we ultimately have the resources to fight disease with our
products and services. We work hard to balance the interests of shareholders,
employees, customers and the communities in which we work. Thank you for your
support and encouragement as we take on the challenges of 2002.
/s/ Peter T. Kissinger
----------------------------------------
Peter T. Kissinger
Chairman, President and CEO
[GRAPHIC OMITTED]
- 3 -
BETTER PRODUCTS
A PRODUCT FOR NOW AND FOR THE FUTURE
Developed through input from our customers and through the experiences of our
own research teams, the Culex(R) Automated Blood Sampler has continued to
capture the interest of the pharmaceutical industry, first in the U.S. and now
in Europe. Those companies who purchased the product early are now buying
additional units, often several at once. Recent experiences in Europe show we
have a lively market there. Each Culex unit requires consumable products to
support its use, and sales of those products are growing rapidly. Manufacturing
staff are adding resources in response.
EPSILONS BRIGHT FUTURE
The epsilon instrument family was developed and is being sold around the world
to solve bioanalytical problems. It is the implementation of an original design
based on a state-of-the art analytical system and an electronic instrument that
would take advantage of the latest global networking capabilities. It has broad
market appeal and is used for such things as the study of natural antioxidants
as cancer preventatives, the development of batteries for implanted nerve
stimulators and the evaluation of new drugs for Alzheimer's disease, to mention
just a few of many applications. Our epsilon products can be used for teaching
as well as research. All of its capabilities can be linked via the Web, thus
providing an avenue to share data and information, to upgrade to newer versions,
to demonstrate its capabilities and to provide service for the product.
The chemical measurement needs of the world are being pushed to new extremes.
Many samples are of smaller size, and more information about them is needed. At
the same time, the market dictates that our products must be more accurate, more
efficient and more economical. The epsilon family was designed to meet these
challenges, changing as market demands change. Ongoing research at BAS
anticipates, and sometimes creates, the future.
[GRAPHIC OMITTED. CAPTION: Rod Yoder, long-time BAS graphic designer, is part of
the team that maintains the BAS web sites and keeps the information current and
the look fresh and appealing. A keen fisherman and competitor, Rod has brought
home more than one prize-winning catch.]
- 4 -
HOW WE DO IT
[GRAPHIC OMITTED. CAPTION: Dr. Lisa Clare, Study Director at BAS Evansville, is
a veterinarian and a true animal lover. Although her horse Andy is still a bit
young to be ridden, they enjoy an autumn afternoon in the southern Indiana
countryside.]
BAS AND THE INTERNET
We've all heard about the failure of many so-called dot com companies, but the
fact is that BAS relishes this technology and benefits from it daily. Let's take
a look at some of the efficiencies we gain.
Our web sites save the Company several hundred thousand dollars each year by
reducing printing, postage and advertising costs. For example, all of our
catalog information, our global pricing, and our technical journal Current
Separations are online, and we regularly communicate with customers via several
online newsletters.
BAS AND ANIMAL RESEARCH
Our core strengths are animal science and analytical science, backed by the
latest in mechanical, electronic and software engineering. We are dedicated to
the three Rs of animal research: Reduce, Refine and Replace. Reduce the number
of animals used. Refine the work by careful planning to get the maximum amount
of information. Replace animals with alternative methodology whenever possible.
It will be a very long time before new drugs will be introduced to humans,
before we fully understand their safety and effectiveness in animal disease
models. In the meantime, it is our policy at BAS to follow the three Rs and to
continue to develop instruments, software and protocols which reduce the number
of animals needed and improve the quality of data obtained.
BAS does research for both human and animal health, veterinary medicine. BAS
Vetronics Division develops and sells instrumentation used in veterinary clinics
and pharmaceutical research facilities to assure the health of companion animals
and to monitor the safety and effectiveness of new animal and human drugs.
Clinics use our systems to determine the cardiac health of dogs and cats and to
track vital signs in surgery for them and for more exotic pets like parrots and
boas. Pet ownership improves human health, another aspect of Better Science for
Better Health.
- 5 -
WHY WE DO SOME OF THE THINGS WE DO
Why do medications have expiration dates? Who decides what those should be? Why
does it take 12 years for a new drug to be approved by the FDA? Why are we told
not to store our medications in the bathroom? The answers to these questions are
found in stability testing ... a service BAS provides to many major
pharmaceutical manufacturers.
Packaged manufactured products are exposed to a variety of conditions. The drugs
are placed in an environment that is strictly controlled for temperature and
humidity. Those packages are then removed for testing at predetermined
intervals. A typical schedule might require testing the product at 6 weeks, then
at 3, 6, 9, 12, 18 and 24 months. Some programs last up to 5 years, accounting
in part for the long development time necessary to bring a new drug to market.
The series of stability tests evaluates the potency of the product, along with
its appearance, the presence of impurities and how well the product dissolves.
The manufacturers analyze the data, looking for changes in the product over time
and they use this information to develop expiration dates. The high heat and
high humidity used to accelerate the degradation process are similar to those
conditions found in the average bathroom, so we learn that storing medication
there can hasten the decrease of its potency and efficacy.
[GRAPHIC OMITTED. CAPTION: Dr. Maggie Voelz, Director of Pharmaceutical Analysis
at BAS, oversees the stability testing operation and enjoys the serenity of her
home and yard... along with the companionship of her dog who is also named
Maggie. (No, she didn't name the dog after herself. Maggie, the dog, was adopted
and already had her name when she joined the Voelz family.)]
- 6 -
[GRAPHIC OMITTED. CAPTION: Tim Grever has been instrumental in developing BAS
automation capabilities, quadrupling productivity and increasing profits
markedly in analytical testing contract work. Perhaps the creativity, discipline
and precision he developed playing the piano and organ have carried over to
enrich his work as a scientist.]
HOW WE IMPROVE LIVES
WHAT WE DO AFFECTS COUNTLESS LIVES ... ONE AT A TIME
Pete Kissinger, BAS Chairman and CEO, often reminds us of how many lives are
saved and how many people are living better lives because of the work we do.
Somehow, though, we do not tend to feel the true impact of that work until it
affects someone we know.
Recently, someone very close to us was diagnosed with Obsessive/Compulsive
Disorder, a physiological problem wherein brain wiring goes awry. (One possible
cause is a childhood fever.) Most of us cannot grasp the victim's deep anguish
... the panic, the anger and the frustration. Life becomes totally chaotic and
unmanageable.
Ten years ago, some patients suffering from OCD were sedated and hospitalized,
perhaps for the rest of their lives. Now, within two weeks this young man
returned to work and is again leading a full, productive life. That recovery was
possible, in significant measure, because of products invented and analytical
techniques developed at BAS. The drugs in his treatment regimen, one newly
approved by the FDA, were worked on here.
BAS was one of the first to measure catecholamines, like dopamine, in
cerebrospinal fluid. Our instruments and in vivo sampling systems helped the
developers of new depression medications monitor neurotransmitters in rats while
they searched for an effective cure. Both our instruments and our services
groups work with clients looking for cures to depression, Alzheimer's disease,
ADHD, Parkinsonism and other central nervous system disorders. Data developed at
BAS was a significant part of the information used by the FDA to approve the
drug that has helped our friend rebuild his life.
We see other frequent examples of BAS science returning as treatments for
employees and their families. A number of our people are diabetic. They use
glucose meters that were developed with the aid of BAS scientists and BAS
products. A leading antibiotic from Pfizer that BAS has worked on for more than
a decade was recently prescribed for Pete Kissinger's son. The list goes on. BAS
science affects all our lives in endless ways.
- 7 -
BAS AND EVERYDAY BOTANICALS
One cannot visit a grocery or pharmacy in the USA without seeing numerous plant
products which are purported to alleviate or prevent nearly every human malady.
Some of them may have powerful drug-like effects, but because they are natural
products they are not regulated by the Food and Drug Administration (FDA) like
ethical drugs. In most cases, there have been no preclinical or clinical studies
to substantiate popular claims made about these products.
Botanicals are a benefit and a risk. They can interact with and change the
behavior of prescribed drugs. A recent example is the very adverse results when
St. John's Wort is combined with cocktails of drugs to treat HIV At BAS we are
contributing products and services to help gain a greater understanding of which
of these products work and which do not. We are also looking for opportunities
among natural products to identify molecules that might be optimized as
pharmaceuticals through synthetic modifications.
In 2001 we actively studied the effects of green tea catechins on type 2
diabetes and the metabolic pathways of herbals. We play a role with the National
Institutes of Health Botanical Centers around the country, most notably our
close collaboration with the Center headquartered at Purdue University.
- 8 -
QUARTERLY FINANCIAL DATA
UNAUDITED (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
FOR THE QUARTER ENDED IN FISCAL 2001
- ------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
Total revenue $5,426 $6,842 $6,400 $6,607
Gross profit 2,422 3,472 3,100 3,126
Net income (loss) 195 582 515 475
Basic net income (loss) per common share(1) .04 .13 .11 .10
Diluted net income (loss) per common and
common equivalent share(1) .04 .13 .11 .10
FOR THE QUARTER ENDED IN FISCAL 2000
- ------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
Total revenue $4,446 $4,090 $5,452 $5,235
Gross profit 1,409 1,398 2,161 2,036
Net income (loss) (372) (427) (139) (444)
Basic net income (loss) per common share(1) (.08) (.09) (.03) (.10)
Diluted net income (loss) per common and
common equivalent share(1) (.08) (.09) (.03) (.10)
<FN>
(1) The sum of the net income per common share may not equal the annual net income per share due to
interim quarter rounding.
</FN>
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
SELECTED CONSOLIDATED FINANCIAL DATA AND THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. IN ADDITION TO
THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSIONS IN THIS REPORT MAY
CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES WHICH
ARE DISCUSSED IN EXHIBIT 99 TO THE COMPANY'S FORM 10-KFILED WITH THE SECURITIES
EXCHANGE COMMISSION. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED HEREIN.
OVERVIEW
The Company provides a broad range of value-added services focused on product
development for the worldwide pharmaceutical, medical device and biotechnology
industries. The Company's customer-focused approach and its high-quality
services and products enable it to serve as a value-added partner in solving
complex scientific problems by providing cost-effective results to its customers
on an accelerated basis. Founded in 1974 in Lansing, Michigan and relocated to
West Lafayette, Indiana in 1975, the Company has experienced growth primarily
through internal expansion, supplemented by strategic acquisitions. As part of
its internal growth strategy, the Company has developed technical specialties in
such areas as chromatography, electrochemistry, in vivo sampling and mass
spectrometry. The Company's growth has strategically positioned it to take
advantage of globalization in the marketplace and to provide new services and
areas of technical expertise to its customers.
Throughout its history, the Company has taken steps to position itself as a
leader in biomedical research. Development of the Company's infrastructure began
in 1975 when it established relationships with several customers and multiple
international distributors. In 1990, the Company began offering contract
services to customers that lacked the time or expertise to perform certain
analyses using the Company's analytical products. In 1995, the Company acquired
a distributor, BAS Instruments Ltd., to further solidify its presence in the
United Kingdom. In 1998, the Company acquired a manufacturer of veterinary
monitoring and diagnostic equipment, BAS Vetronics, to provide additional
preclinical support. In 1998, the Company acquired a contract services firm, BAS
Analytics Ltd., to offer local service in the United Kingdom. In 2000, the
Company also acquired a contract services firm, BAS Evansville, to offer
preclinical services.
Revenues are derived principally from (i) research services provided to
customers, and (ii) the sale of the Company's instruments and other products.
Both methods of generating revenue utilize the Company's ability to identify,
isolate and resolve client problems relating to the separation and
quantification of individual substances in complex mixtures. The Company
supports the pharmaceutical industry by focusing on development services for
biomedical research. The Company's products are sold primarily to pharmaceutical
firms and research organizations. Principal customers include scientists engaged
in drug metabolism studies, as well as those engaged in basic neuroscience
research. The Company was the first to commercialize the liquid chromatograph
and electrochemistry technology which is now the worldwide standard for the
determination of neurotransmitter substances. Research products include in vivo
sampling devices, reagent chemicals, electrochemical apparatus and sensors.
- 10 -
The Company's pharmaceutical service contracts generally have terms ranging from
several weeks to several years. A portion of the contract fee is generally
payable upon acceptance of the agreement with the balance payable in
installments over the life of the contract. The contracts are broken down into
discrete units of deliverable services for which a fixed fee for each unit is
established, and revenue and related direct costs are recognized as specific
contract terms are fulfilled under the percentage of completion method utilizing
units of delivery. The termination of a contract results in no material
adjustments to revenue or direct costs previously recognized, and the Company is
entitled to payment for all work performed through the date of notice of
termination and all costs associated with termination of a contract. The Company
recognizes revenues from the sale of its products and the related costs upon
completion of the installation process. Revenue and the related costs of
products not requiring installation are recognized upon shipment of the products
to customers.
The Company's management believes that fluctuations in the Company's quarterly
results are caused by a number of factors, including the Company's success in
attracting new business, the size and duration of service contracts, the timing
of its clients' decisions to enter into new contracts, the cancellation or
delays of ongoing contracts, the timing of acquisitions and other factors, many
of which are beyond the Company's control. In fiscal 2001, 19% of the Company's
total revenue was derived from customers located outside the United States.
These markets tend to be much more volatile than the United States market.
Significant governmental, regulatory, political, economic and cultural issues or
changes could adversely affect the growth or profitability of the Company's
business activities in any such market.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement of
operations data as a percentage of total revenue.
PERCENTAGE OF REVENUE YEAR
ENDED SEPTEMBER 30,
2001 2000 1999
---- ---- ----
Service revenue 60.1% 57.2% 50.3%
Product revenue 39.9 42.8 49.7
----- ----- -----
Total revenue 100.0 100.0 100.0
Cost of service revenue 38.2 48.1 32.7
Cost of product revenue 13.8 15.5 19.9
----- ----- -----
Total cost of revenue 52.0 63.6 52.6
----- ----- -----
Gross profit 48.0 36.4 47.4
Operating expenses:
Selling 12.7 17.7 19.9
Research and development 6.4 9.4 9.8
General and administrative 15.1 15.6 12.8
----- ----- -----
Total operating expenses 34.2 42.7 42.5
Operating income (loss) 13.8 (6.3) 4.9
Other income (expense), net (1.5) (3.2) (0.6)
----- ----- -----
Income (loss) before
income taxes 12.3 (9.5) 4.3
Income taxes (benefit) 5.3 (2.2) 1.4
----- ----- -----
Net income (loss) 7.0% (7.3)% 2.9%
===== ===== =====
- 11 -
YEAR ENDED SEPTEMBER 30, 2001 COMPARED WITH YEAR ENDED SEPTEMBER 30, 2000
Total revenue for the year ended September 30, 2001 increased 31.5% to $25.3
million from $19.2 million for the year ended September 30, 2000. Service
revenue increased to $15.2 million for the year ended September 30, 2001 from
$11.0 million for the year ended September 30, 2000, primarily due to an
increased number of bioanalytical, preclinical and pharmaceutical analysis
contract services. Product revenue increased to $10.1 million for the year ended
September 30, 2001 from $8.2 million for the year ended September 30, 2000,
primarily due to the Culex(R) Automated Blood Sampling System, epsilon(TM) and
related products.
Costs of revenue increased 7.7% to $13.2 million for the year ended September
30, 2001 from $12.2 million for the year ended September 30, 2000. This increase
of $1.0 million was due to the increase in corresponding revenue. Costs of
revenue for the Company's services decreased to 63.5% as a percentage of
services revenue for the year ended September 30, 2001 from 84.1% of services
revenue for the year ended September 30, 2000, due to additional bioanalytical,
preclinical and pharmaceutical analysis service revenue without a comparable
increase in corresponding labor costs. Costs of revenue for the Company's
products decreased to 34.7% as a percentage of product revenue for the year
ended September 30, 2001 from 36.2% of product revenue for the year ended
September 30, 2000, primarily due to a change in product mix.
Selling expenses for the year ended September 30, 2001 decreased 5.8% to $3.2
million from $3.4 million during the year ended September 30, 2000, due to
decreased foreign commission expense. Research and development expenses for the
year ended September 30, 2001 decreased 10.8% to $1.6 million from $1.8 million
for the year ended September 30, 2000, due to the increase in research grant
reimbursements. General and administrative expenses for the year ended September
30, 2001 increased 27.6% to $3.8 million from $3.0 million for the year ended
September 30, 2000, primarily due to organizational restructuring of our
preclinical operation, increased health care costs and the increase in
utilities.
Other income (expense), net, was $(384,000) in the year ended September 30, 2001
compared to $(621,000) in the year ended September 30, 2000, as a result of the
decrease in interest expense due to decreased use of the line of credit.
The Company's effective tax rate for 2001 was 43.1%, compared to 23.8% for
fiscal 2000. This increase was primarily due to the increase in earnings and the
impact of nondeductible foreign losses incurred in fiscal 2001.
YEAR ENDED SEPTEMBER 30, 2000, COMPARED WITH YEAR ENDED SEPTEMBER 30, 1999
Total revenue for the year ended September 30, 2000 decreased 3.2% to $19.2
million from $19.9 million for the year ended September 30, 1999. Service
revenue increased to $11.0 million for the year ended September 30, 2000 from
$10.0 million for the year ended September 30, 1999, primarily as a result of
the addition of preclinical services through the acquisition of T.P.S., Inc.
This increase was more than offset by the decrease in product sales. Product
revenue decreased to $8.2 million for the year ended September 30, 2000 from
$9.9 million for the year ended September 30, 1999, primarily due to the
decrease in sales to the Pacific Rim and Europe.
Costs of revenue increased 17.0% to $12.2 million for the year ended September
30, 2000 from $10.4 million for the year ended September 30, 1999. This increase
of $1.8 million was largely due to the addition of costs of services from the
acquisition of T.P.S., Inc. Costs of revenue for the Company's services
increased to 84.1 % as a percentage of services revenue for the year ended
September 30, 2000 from 65.0% of services revenue for the year ended September
30, 1999, due to the addition of costs of services from the acquisition of
T.P.S., Inc. Costs of revenue for the Company's products decreased to 36.2% as a
percentage of product revenue for the year ended September 30, 2000 from 40.0%
of product revenue for the year ended September 30, 1999, due primarily to a
change in product mix.
Selling expenses for the year ended September 30, 2000 decreased 13.8% to $3.4
million from $3.9 million during the year ended September 30, 1999, due to
decreased foreign commission expense. Research and development expenses for the
year ended September 30, 2000 decreased 7.6% to $1.8 million from $2.0 million
for the year ended September 30, 1999, due to the decrease in research grant
activity. General and administrative expenses for the year ended September 30,
2000 increased 17.3% to $3.0 million from $2.6 million for the year ended
September 30, 1999, primarily as a result of the addition of expenses from the
acquisition of T.P.S., Inc.
Other income (expense), net, was $(621,000) in the year ended September 30, 2000
as compared to $(114,000) in the year ended September 30, 1999, as a result of
the increase in interest expense due to increased use of the line of credit.
The Company's effective tax rate for 2000 was 23.8%, compared to 32.8% for
fiscal 1999. This decrease was primarily due to nondeductible foreign losses
incurred in fiscal 2000.
- 12 -
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's principal sources of cash have been cash flow
generated from operations and funds received from bank borrowings and other
financings. At September 30, 2001, the Company had cash and cash equivalents of
$374,000, compared to cash and cash equivalents of $478,000 at September 30,
2000. The decrease in cash resulted primarily from capital expenditures made to
expand the Company's facilities and operations.
The Company's net cash provided by operating activities was $4,028,000 for the
year ended September 30, 2001. Cash provided by operations during the year ended
September 30, 2001 consisted of net income of $1,767,000, non-cash charges of
$2,143,000 and a net decrease of $118,000 in operating assets and liabilities.
The most significant increase in operating liabilities related to accounts
payable, which increased $1,220,000 at September 30, 2001.
Cash used by investing activities decreased to $1.6 million for the year ended
September 30, 2001 from $2.0 million for the year ended September 30, 2000,
primarily due to payments relating to the acquisition of T.P.S., Inc. in the
year ended September 30, 2000. Cash used by financing activities for the year
ended September 30, 2001 was $2.5 million, due to the payments on the line of
credit and long-term debt.
The Company's net cash used by operating activities was $539,000 for the year
ended September 30, 2000. Cash used by operations during the year ended
September 30, 2000 consisted of net loss of $1,382,000, less non-cash charges of
$1,448,000, plus a net increase of $605,000 in operating assets and liabilities.
The most significant decrease in operating liabilities related to accounts
payable, which decreased $787,000 at September 30, 2000.
Cash used by investing activities decreased to $2.0 million for the year ended
September 30, 2000 from $4.0 million for the year ended September 30, 1999,
primarily as a result of the reduction of Company purchases of laboratory
equipment. Cash provided by financing activities for the year ended September
30, 2000 was $1.1 million, due to the increased use of the line of credit offset
by payments on long-term debt.
Total expenditures by the Company for property and equipment were $1.7 million,
$1.6 million and $4.1 million in fiscal 2001, 2000 and 1999, respectively.
Expenditures made in connection with the expansion of the Company's operating
facilities and purchases of laboratory equipment account for the largest
portions of these expenditures. The capital investments relate to the purchase
of additional laboratory equipment corresponding to anticipated increases in
research services to be provided by the Company. The Company expects to make
other investments to expand its operations through internal growth and strategic
acquisitions, alliances and joint ventures. In addition, the Company entered
into a $2.5 million commitment in 2001 to expand facilities at its preclinical
site in Evansville, Indiana.
Based on its current business activities, the Company believes cash generated
from its operations and amounts available under its existing bank line of credit
and credit facility will be sufficient to fund the Company's working capital and
capital expenditure requirements for the foreseeable future.
The Company has a revolving line of credit, which expires April 1, 2002 and
allows borrowings of up to $3,500,000. Interest accrues monthly on the
outstanding balance at the banks prime rate minus 25 to plus 75 basis points
(5.25% at September 30, 2001) or at the London Interbank Offered Rate (LIBOR)
plus 200 to 300 basis points, as elected by the Company, depending upon certain
financial ratios. The line is collateralized by inventories and accounts
receivable and requires the Company to maintain certain financial ratios. The
Company pays a fee equal to 0.125 to 0.5 basis points, depending on certain
financial ratios, on the unused portion of the line of credit. As of September
30, 2001 and 2000, interest on the entire outstanding balance was based on the
prime rate minus 25 basis points and the prime rate minus 50 basis points,
respectively. The balance outstanding on this line of credit at September 30,
2001 was $236,000.
On June 24, 1999 the Company obtained a $3,500,000 commercial mortgage with a
bank on the property in West Lafayette, Indiana. The mortgage note requires 59
monthly principal payments of $19,444 plus interest followed by a final payment
for the unpaid principal amount of $2,352,804 due June 24, 2004. Interest is
charged at the one-month LIBOR rate plus 200 basis points (5.58% at September
30, 2001).
INFLATION
The Company believes that inflation has not had a material adverse effect on its
business, operations or financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
Please refer to the notes to consolidated financial statements for a discussion
of recently issued accounting standards.
- 13 -
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
-------------
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 373,738 $ 477,635
Accounts receivable
Trade 3,634,143 3,012,003
Grants 116,719 37,224
Unbilled revenues and other 514,997 313,220
Inventories 2,391,081 2,234,644
Deferred income taxes 442,903 410,796
Refundable income taxes 325,001 313,043
Prepaid expenses 71,062 55,998
------------ ------------
Total current assets 7,869,644 6,854,563
Property and equipment
Land and improvements 495,624 495,390
Buildings and improvements 13,507,731 13,339,603
Machinery and equipment 10,795,295 9,536,275
Office furniture and fixtures 1,092,452 1,072,362
Construction in process 112,790 7,039
------------ ------------
26,003,892 24,450,669
Accumulated depreciation and amortization (7,082,300) (5,537,957)
------------ ------------
18,921,592 18,912,712
------------ ------------
Goodwill, less accumulated amortization of
$280,871 in 2001 and $213,169 in 2000 962,924 990,123
Other assets 222,494 139,208
------------ ------------
Total assets $ 27,976,654 $ 26,896,606
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,618,788 $ 1,398,326
Income taxes payable 176,000 1,956
Accrued expenses 746,741 618,998
Customer advances 1,063,467 1,163,152
Revolving line of credit 235,687 2,267,281
Current portion of capital lease obligations 261,123 239,916
Current portion of long-term debt 233,328 234,097
------------ ------------
Total current liabilities 5,335,134 5,923,726
Capital lease obligations, less current portion 402,276 663,399
Long-term debt, less current portion 2,741,684 2,975,012
Deferred income taxes 1,667,231 1,272,811
Shareholders' equity
Preferred Shares
Authorized shares - 1,000,000
Issued and outstanding shares - none --- ---
Common shares, no par value
Authorized shares - 19,000,000
Issued and outstanding shares -
4,569,416 in 2001 and 4,562,645 in 2000 1,012,190 1,010,690
Additional paid-in capital 10,506,200 10,496,505
Retained earnings 6,344,666 4,577,909
Accumulated other comprehensive loss (32,727) (23,446)
------------ ------------
Total shareholders' equity 17,830,329 16,061,658
------------ ------------
Total liabilities and shareholders' equity $ 27,976,654 $ 26,896,606
============ ============
See accompanying notes.
- 14 -
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000 1999
---- ---- ----
Service revenue $ 15,202,066 $ 10,999,609 $ 9,992,670
Product revenue 10,072,582 8,223,692 9,858,271
------------ ------------ -----------
Total revenue 25,274,648 19,223,301 19,850,941
Cost of service revenue 9,660,288 9,245,380 6,498,817
Cost of product revenue 3,494,258 2,973,787 3,943,437
------------ ------------ -----------
Total cost of revenue 13,154,546 12,219,167 10,442,254
------------ ------------ -----------
Gross profit 12,120,102 7,004,134 9,408,687
Operating expenses:
Selling 3,204,056 3,400,273 3,942,681
Research and development 1,611,045 1,805,933 1,955,673
General and administrative 3,814,601 2,990,234 2,549,806
------------ ------------ -----------
Total operating expenses 8,629,702 8,196,440 8,448,160
------------ ------------ -----------
Operating income (loss) 3,490,400 (1,192,306) 960,527
Interest income 5,910 15,483 30,842
Interest expense (417,211) (553,715) (226,518)
Other income (expense) 46,479 (34,067) 93,520
Loss on sale of property and equipment (18,671) (48,708) (11,293)
------------ ------------ -----------
Income (loss) before income taxes 3,106,907 (1,813,313) 847,078
Income taxes (benefit) 1,340,150 (431,303) 277,501
------------ ------------ -----------
Net income (loss) $ 1,766,757 $ (1,382,010) $ 569,577
============ ============ ===========
Net income (loss) per share:
Basic $ 0.39 $ (0.30) $ 0.13
Diluted $ 0.38 $ (0.30) $ 0.12
Weighted average common shares outstanding:
Basic 4,564,620 4,550,336 4,505,819
Diluted 4,600,498 4,550,336 4,675,850
See accompanying notes.
- 15 -
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE TOTAL
PREFERRRED COMMON PAID-IN RETAINED INCOME SHAREHOLDERS'
SHARES SHARES CAPITAL EARNINGS (LOSS) EQUITY
----------- --------- ----------- ----------- ------------- -------------
BALANCE AT SEPTEMBER 30, 1998 $ --- $ 995,778 $10,467,957 $ 5,390,342 $ (10,568) $16,843,509
Comprehensive income (loss)
Net income --- --- --- 569,577 --- 569,577
Other comprehensive loss:
Foreign currency translation
adjustments --- --- --- --- (10,027) (10,027)
-----------
Total comprehensive income 559,550
Exercise of stock options --- 4,214 14,021 --- --- 18,235
BALANCE AT SEPTEMBER 30, 1999 $ --- $ 999,992 $10,481,978 $ 5,959,919 $ (20,595) $17,421,294
Comprehensive income (loss)
Net income --- --- --- (1,382,010) --- (1,382,010)
Other comprehensive loss:
Foreign currency translation
adjustments --- --- --- --- (2,851) (2,851)
-----------
Total comprehensive income (1,384,861)
Exercise of stock options --- 10,698 14,527 --- --- 25,225
BALANCE AT SEPTEMBER 30, 2000 $ --- $1,010,690 $10,496,505 $ 4,577,909 $ (23,446) $16,061,658
Comprehensive income (loss)
Net income --- --- --- 1,766,757 --- 1,766,757
Other comprehensive loss:
Foreign currency translation
adjustments --- --- --- --- (9,281) (9,281)
-----------
Total comprehensive income 1,757,476)
Exercise of stock options --- 1,500 9,695 --- --- 11,195
BALANCE AT SEPTEMBER 30, 2001 $ --- $1,012,190 $10,506,200 $ 6,344,666 $ (32,727) $17,830,329
See accompanying notes.
- 16 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000 1999
---- ---- ----
OPERATING ACTIVITIES
Net income (loss) $ 1,766,757 $ (1,382,010) $ 569,577
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation 1,600,435 1,516,728 1,196,353
Amortization 161,274 119,685 81,208
Loss on sale of property and equipment 18,671 48,708 11,293
Deferred income taxes 362,313 (237,330) 31,901
Changes in operating assets and liabilities:
Accounts receivable (903,212) 534,160 (637,781)
Inventories (156,437) (440, 878) 89,947
Prepaid expenses and other assets (232,425) 108,828 19,530
Accounts payable 1,220,462 (787,123) 79,374
Income taxes payable 162,086 (313,347) (153,220)
Accrued expenses 127,743 (337, 834) 463,367
Customer advances (99,885) 631,253 (164,899)
------------ ------------ -----------
Net cash provided (used) by operating activities 4,027,782 (539,160) 1,586,650
INVESTING ACTIVITIES
Capital expenditures (1,673,411) (1,572,627) (4,054,319)
Proceeds from sale of property and equipment 45,425 13,972 42,492
Payments for purchase of net assets from
T.P.S., Inc. net of cash acquired --- (446,469) ---
------------ ------------ -----------
Net cash used by investing activities (1,627,986) (2,005,124) (4,011,827)
FINANCING ACTIVITIES
Borrowings on line of credit 1,003,428 2,784,572 2,850,000
Payments on line of credit (3,035,022) (781,199) (2,850,000)
Payments on capital lease obligations (239,916) (220,432) (308,447)
Borrowings of long-term debt --- --- 3,500,000
Payments of long-term debt (234,097) (707, 841) (58,332)
Net proceeds from the exercise of stock options 11,195 25,225 18,235
------------ ------------ -----------
Net cash provided (used) by financing activities (2,494,412) 1,100,325 3,151,456
Effect of exchange rate changes (9,281) (2,815) (10,027)
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents (103,897) (1,446,774) 716,252
Cash and cash equivalents at beginning of year 477,635 1,924,409 1,208,157
------------ ------------ -----------
Cash and cash equivalents at end of year $ 373,738 $ 477,635 $ 1,924,409
------------ ------------ -----------
See accompanying notes.
- 17 -
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Bioanalytical Systems, Inc. and its subsidiaries (the Company) engage in
laboratory services, consulting and research related to human and animal health
care. The Company also manufactures scientific instruments and software for use
in the same activities. The Company's customers include principally
pharmaceutical companies and are located in the United States and throughout the
world.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
FINANCIAL INSTRUMENTS
Financial instruments that subject the Company to credit risk consist
principally of trade accounts receivable. The Company performs periodic credit
evaluations of its customers' financial conditions and generally does not
require collateral on trade accounts receivable.
The Company's cash and cash equivalents, accounts receivable, accounts payable
and certain other accrued liabilities are all short term in nature and their
carrying amounts approximate fair value. The Company's bank debt has primarily
variable interest rates, thus their carrying amounts approximate fair value.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method. GOODWILL Goodwill represents the excess of
cost of acquisitions over the fair value of net assets acquired and is amortized
by the straight-line method over periods ranging from 15 to 20 years.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, including interest capitalized in
connection with the construction of major facilities. Depreciation, including
amortization on capital leases, is computed using the straight-line method over
the estimated useful lives of 3 through 40 years. Expenditures for maintenance
and repairs are charged to expense as incurred.
LONG-LIVED ASSETS
The carrying value of the long-lived assets, including goodwill, is periodically
reviewed by management. If management's review indicates that the carrying value
may be impaired, then the impairment amount will be written off.
- 18 -
REVENUE RECOGNITION
The Company's pharmaceutical service contracts generally have terms ranging from
several weeks to several years. The typical contract is six months to one year
in duration. A portion of the contract fee is generally payable upon acceptance
of the agreement with the balance payable in installments over the life of the
contract. A majority of the Company's contracts are broken down into discrete
units of deliverable services for which a fixed fee for each unit is established
and revenue and related direct costs are recognized as units of deliverable
services are fulfilled. For all other service contracts, the Company allocates a
ratable portion of the total contract fee to the units of deliverable services
and recognizes revenue and the related direct costs as the units of deliverable
services are fulfilled. The Company recognizes revenues from the sale of its
products and the related costs upon completion of the installation process.
Revenue and the related costs of products not requiring installation are
recognized upon shipment of the products to customers.
Unbilled revenues represent revenues earned under contracts in advance of
billings.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising expense was
$195,833, $306,737 and $308,831 for 2001, 2000 and 1999, respectively.
NEW ACCOUNTING PRONOUCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 was effective October 1, 2000.
SFAS No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. Currently, the Company does not use derivatives.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets." Under the new rules, goodwill and
indefinite lived intangible assets are no longer amortized, but are reviewed
annually for impairment. Separable intangible assets that are not deemed to have
an indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company will apply the new accounting rules
beginning October 1, 2002. Application of the nonamortization provisions of the
Statement is expected to result in an increase in net income of $77,000 ($.02
per share) per year. The Company will perform the first of the required
impairment tests of goodwill and indefinite lived intangible assets as of
October 1, 2002 and has not yet determined what the effect of these tests will
be on the earnings and financial position of the Company.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of LongLived Assets." SFAS No. 144 supercedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and also supercedes the accounting and reporting provisions of
APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," for segments of a business to
be disposed of. Among its many provisions, SFAS No. 144 retains the fundamental
requirements of both previous standards, however, it resolves significant
implementation issues related to FASB Statement No. 121 and broadens the
separate presentation of discontinued operations in the income statement
required by APB Opinion No. 30 to include a component of an entity (rather than
a segment of a business). The provisions of SFAS No. 144 are effective for
financial statements issued for fiscal years beginning after December 15, 2001
with early application encouraged. The Company does not believe, based on
current circumstances, the effect of adoption of SFAS No. 144 will be material.
- 19 -
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STOCK OPTIONS
In accordance with Statement of Financial Accounting Standards No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation," the Company uses the intrinsic
value method to account for stock options, consistent with the existing rules
established by Accounting Principles Board No. 25, "Accounting for Stock Issued
to Employees."
RECLASSIFICATIONS
Certain amounts in the 2000 financial statements have been reclassified to
conform to the 2001 presentation.
2. EARNINGS PER SHARE
Basic earnings per share is computed on the basis of the weighted average number
of common shares outstanding. Diluted earnings per share is computed on the
basis of the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares include the dilutive effect of employee
and director options to purchase common shares and convertible preferred shares,
which are assumed to be converted. The dilutive effect of employee and director
options to purchase common shares was to increase the weighted average number of
common shares outstanding by 35,878 and 170,031 shares in 2001 and 1999,
respectively. There was no dilutive effect of employee and director options to
purchase common shares for 2000.
3. ACQUISITIONS
Effective October 1, 1999, the Company acquired all of the capital stock of
T.P.S., Inc. for cash approximating $400,000 and $740,000 in assumption of debt.
The acquired business provides toxicology services to the pharmaceutical
industry.
The acquisition was accounted for using the purchase method of accounting, and
the results of operations have been included in the consolidated financial
statements since the effective date of acquisition. The purchase price was
allocated to the net assets acquired based upon the fair market value at the
date of acquisition.
On an unaudited pro forma basis, revenue, net income and net income per common
share (diluted) for the years ended September 30, 1999 was $21,790,000, $194,000
and $0.04. This pro forma data presents the consolidated results of operations
as if the acquisition had occurred on October 1, 1998, after giving effect to
certain adjustments, increased interest expense and related income tax effects.
The pro forma results have been prepared for comparative purposes only and do
not purport to indicate the results of operations which would actually have
occurred had the acquisition been in effect on the date indicated, or which may
occur in the future.
- 20 -
Pro forma amounts for the year ended September 30, 1999 were computed using
financial data for T.P.S., Inc. for the year ended December 31 as it was not
practicable to determine the September 30 year-end results.
4. INVENTORIES
Inventories at September 30 consisted of the following:
2001 2000
---- ----
Raw materials$ $ 1,322,182 $ 1,288,121
Work in progress 302,706 374,950
Finished goods 876,646 671,361
----------- -----------
2,501,534 2,334,432
LIFO reserve (110,453) (99,788)
----------- -----------
$ 2,391,081 $ 2,234,644
=========== ===========
5. DEBT ARRANGEMENTS
The Company has a revolving line of credit, which expires April 1, 2002 and
allows borrowings of up to $3,500,000. Interest accrues monthly on the
outstanding balance at the banks prime rate minus 25 to plus 75 basis points
(5.25% at September 30, 2001) or at the London Interbank Offered Rate (LIBOR)
plus 200 to 300 basis points, as elected by the Company, depending upon certain
financial ratios. The line is collateralized by inventories and accounts
receivable and requires the Company to maintain certain financial ratios. The
Company pays a fee equal to 0.125 to 0.5 basis points, depending on certain
financial ratios, on the unused portion of the line of credit. As of September
30, 2001 and 2000, interest on the entire outstanding balance was based on the
prime rate minus 25 basis points and the prime rate minus 50 basis points,
respectively. The balance outstanding on this line of credit at September 30,
2001 was $236,000.
On June 24, 1999 the Company obtained a $3,500,000 commercial mortgage with a
bank. The mortgage note requires 59 monthly principal payments of $19,444 plus
interest, followed by a final payment for the unpaid principal amount of
$2,352,804 due June 24, 2004. Interest is charged at the one-month LIBOR rate
plus 200 basis points (5.58% at September 30, 2001).
Cash interest payments of $329,544, $498,513 and $287,058 were made in 2001,
2000 and 1999, respectively. Cash interest payments for 1999 included interest
of $64,833 which was capitalized. These amounts included interest required to be
paid on a portion of the undistributed earnings of a subsidiary, which qualifies
as a domestic international sales corporation.
6. LEASE ARRANGEMENTS
The Company has capital lease arrangements to finance the acquisition of
equipment. Future minimum lease payments, based upon scheduled payments under
the lease arrangements, as of September 30, 2001, are as follows:
2002 $ 307,494
2003 302,215
2004 126,932
---------
Total minimum lease payments 736,641
Amounts representing interest (73,242)
---------
Present value of minimum lease
payments 663,399
Less current portion (261,123)
---------
$ 402,276
=========
- 21 -
The total amount of property and equipment capitalized under capital lease
obligations as of both September 30, 2001 and 2000 was $1,917,625. Accumulated
amortization on capital leases at September 30, 2001 and 2000 was $855,100 and
$668,852, respectively.
The Company leases office space under a noncancelable operating lease that
terminates in 2004. This lease contains renewal options ranging from one to five
years. Total rental expense was $22,903, $32,499 and $33,849 in 2001, 2000 and
1999, respectively.
Future minimum lease payments at September 30, 2001 are as follows:
2002 $ 19,890
2003 19,890
2004 3,315
--------
$ 43,095
7. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets as
of September 30 are as follows:
2001 2000
---- ----
Deferred tax liabilities:
Tax over book depreciation $ 1,383,003 $ 1,226,170
Deferred DISC income 170,321 170,321
----------- -----------
Total deferred liabilities 1,553,324 1,396,491
Deferred tax assets:
Inventory pricing 123,008 117,636
Accrued vacation 155,935 154,982
Tax credit carry forward 32,587 205,000
Other-net 17,466 56,858
Foreign net operating loss 484,314 396,697
----------- -----------
Total deferred tax assets 813,310 931,173
Valuation allowance for
deferred tax assets (484,314) (396,697)
----------- -----------
Net deferred tax assets 328,996 534,476
----------- -----------
Net deferred tax liabilities $ 1,224,328 $ 862,015
=========== ===========
Significant components of the provision (benefit) for income taxes are as
follows:
2001 2000 1999
---- ---- ----
Current:
Federal $ 680,469 $ (245,378) $ 146,471
State 297,368 51,405 99,129
----------- ----------- ----------
Total current 977,837 (193,973) 245,600
Deferred:
Federal 337,601 (230,925) 25,581
State 24,712 (6,405) 6,320
----------- ----------- ----------
Total deferred 362,313 (237,330) 31,901
----------- ----------- ----------
$ 1,340,150 $ (431,303) $ 277,501
=========== =========== ==========
- 22 -
The effective income tax rate varied from the statutory federal income tax rate
as follows:
2001 2000 1999
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increases (decreases):
Amortization of goodwill and
other nondeductible expenses 0.9 (0.6) 2.9
Benefit of foreign sales corporation, net (0.9) 1.5 (5.7)
State income taxes, net of federal tax benefit 5.8 (1.6) 8.2
Research and development credit (1.0) --- (7.2)
Nondeductible foreign losses 3.4 (11.5) 1.1
Other 0.9 2.0 (0.5)
43.1% 23.8% 32.8%
In fiscal 2001, 2000 and 1999, the Company's foreign operations generated a loss
before income taxes of $359,297, $612,496 and $26,771, respectively.
Payments made in 2001, 2000 and 1999 for income taxes amounted to $1,095,000,
$67,000 and $212,400, respectively.
The Company has foreign net operating loss carryforwards that begin to expire in
fiscal 2021.
8. STOCK OPTION PLANS
During fiscal 1989, the Company established an Outside Director Stock Option
Plan whereby options to purchase shares of the Company's common shares at fair
market value can be granted to outside directors. Options granted become
exercisable in four equal installments beginning two years after the date of the
grant. The plan terminated on January 1, 1999.
During fiscal 1990, the Company established an Employee Incentive Stock Option
Plan whereby options to purchase shares of the Company's common shares at fair
market value can be granted to employees of the Company. Options granted become
exercisable in four equal installments beginning two years after the date of the
grant. The plan terminated in 2000.
The Company adopted new stock option plans, discussed below, in connection with
its initial public offering and accordingly does not plan to grant any more
options pursuant to the plans discussed above.
During fiscal 1998, the Company established an Employee Stock Option Plan
whereby options to purchase shares of the Company's common shares at fair market
value can be granted to employees of the Company. Options granted become
exercisable in four equal installments beginning two years after the date of
grant. The plan terminates in fiscal 2008.
During fiscal 1998, the Company established an Outside Director Stock Option
Plan whereby options to purchase shares of the Company's common shares at fair
market value can be granted to outside directors. Options granted become
exercisable in four equal installments beginning two years after the date of
grant. The plan terminates in fiscal 2008.
- 23 -
A summary of the Company's stock option activity and related information for the
years ended September 30 is as follows:
2001 2000 1999
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
Outstanding -
beginning of year 134,235 $4.27 206,299 $3.35 164,343 $2.70
Exercised (6,771) 1.65 (48,296) 0.52 (19,030) 0.96
Granted --- --- 5,000 2.88 73,000 4.25
Terminated (2,500) 5.00 (28,768) 3.75 (12,014) 3.73
Outstanding -
end of year 124,964 $4.39 134,235 $4.27 206,299 $3.35
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE SEPTEMBER 30, CONTRACTUAL EXERCISE SEPTEMBER 30, EXERCISE
PRICES 2001 LIFE PRICE 2001 PRICE
- ------------ ------------- ----------- -------- ------------- --------
$1.01 - 1.50 2,271 0.28 $1.33 2,271 $1.33
$1.51 - 2.10 36,943 1.47 $1.70 36,943 $1.70
$2.11 - 8.00 85,750 6.85 $5.64 33,000 $5.95
------- ------
124,964 72,214
======= ======
Disclosure of pro forma information regarding net income and earnings per share
is required by SFAS No. 123 as if the Company has accounted for its employee
stock options granted subsequent to December 31, 1994, under the fair value
method as defined by that Statement. The fair value for options granted by the
Company was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions:
Risk-free interest rate 5.50%
Dividend yield 0.00%
Volatility factor of the expected market
price of the Company's common stock 0.53 (0.53 in 2000, 0.43 in 1999)
Expected life of the options (years) 7.0
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
are amortized to expense over the related vesting period.
- 24 -
The Company's pro forma information giving effect to the estimated compensation
expense related to stock options is as follows:
2001 2000 1999
---- ---- ----
Pro forma net income (loss) $1,746,501 $(1,415,284) $504,268
Pro forma net income (loss) per share $ 0.38 $ (0.31) $ 0.11
The weighted average fair value of options granted was $1.64 and $2.29 in 2000
and 1999, respectively. No options were granted in 2001.
9. RETIREMENT PLAN
Effective July 1, 1984, the Company established an Internal Revenue Code Section
401 (k) Retirement Plan (the Plan) covering all employees over twenty-one years
of age with at least one year of service. Under the terms of the Plan, the
Company contributes 2% of each participant's total wages to the Plan. The Plan
also includes provisions for various contributions which may be instituted at
the discretion of the Board of Directors. The contribution made by the
participant may not exceed 18% of the participant's annual wages. The Company
made no discretionary contributions under the plan in 2001, 2000 and 1999.
Contribution expense was $324,674, $256,107 and $227,022 in 2001, 2000 and 1999,
respectively.
10. SEGMENT INFORMATION
The Company operates in two principal segments - analytical services and
analytical products. The Company's analytical services unit provides analytical
chemistry support on a contract basis directly to pharmaceutical companies. The
Company's analytical products unit provides liquid chromatography,
electrochemical and physiological monitoring products to pharmaceutical
companies, universities, government research centers and medical research
institutions. The Company evaluates performance and allocates resources based on
these segments. The accounting policies of theses segments are the same as those
described in the summary of significant accounting policies.
OPERATING SEGMENTS
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000 1999
---- ---- ----
(in thousands)
REVENUE
Service $ 15,202 $ 10,999 $ 9,993
Product 10,073 8,224 9,858
Total revenue $ 25,275 $ 19,223 $ 19,851
OPERATING INCOME (LOSS)
Service $ 2,629 $ (409) $ 2,075
Product 861 (783) (1,114)
Total operating income (loss) 3,490 (1,192) 961
Corporate expenses (383) (621) (114)
Income (loss) before income taxes $ 3,107 $ (1,813) $ 847
IDENTIFIABLE ASSETS
Service $ 18,396 $ 17,772 $ 16,523
Product 9,581 9,125 9,798
Total assets $ 27,977 $ 26,897 $ 26,321
- 25 -
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000 1999
---- ---- ----
(in thousands)
DEPRECIATION AND AMORTIZATION
Service $ 1,242 $ 1,218 $ 912
Product 520 418 366
Total depreciation and amortization $ 1,762 $ 1,636 $ 1,278
CAPITAL EXPENDITURES
Service $ 1,584 $ 1,269 $ 3,285
Product 89 304 769
Total capital expenditures $ 1,673 $ 1,573 $ 4,054
GEOGRAPHIC INFORMATION
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000 1999
---- ---- ----
(in thousands)
Sales to external customers:
North America $ 20,536 $ 13,891 $ 13,012
Pacific Rim:
Japan 242 580 716
Other 660 232 695
Europe 2,337 2,317 2,776
Other 1,500 2,203 2,652
$ 25,275 $ 19,223 $ 19,851
Long-lived assets:
North America $ 18,691 $ 18,467 $ 16,991
Europe 1,416 1,575 1,609
$ 20,107 $ 20,042 $ 18,600
- 26 -
MAJOR CUSTOMERS
During 2001, 2000 and 1999, a major United States-based pharmaceutical company
accounted for approximately 18.9%, 21.0% and 22.2%, respectively, of the
Company's total revenues and 23.6% and 16.4% of total trade accounts receivable
at September 30, 2001 and 2000, respectively.
During 2001 and 2000, another major United States-based pharmaceutical company
accounted for approximately 11.7% and 12.2%, respectively, of the Company's
total revenues and 10.7% and 13.8% of total trade accounts receivable at
September 30, 2001 and 2000, respectively.
11. LITIGATION
In April 1997, CMA Microdialysis Holding A.B. (CMA) filed an action against the
Company in the United States District Court for the District of New Jersey in
which CMA alleged that the Company's microdialysis probes infringe U.S. Patent
No. 4,693,832. During the quarter ended December 31, 2000, the Company settled
this case for an immaterial amount.
12. COMMITMENT
During 2001, the Company signed a letter of intent to expand facilities at its
preclinical site in Evansville, Indiana. The commitment is for approximately
$2.5 million. Construction of the facilities expansion is expected to be
completed in December 2002.
- 27 -
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Bioanalytical Systems, Inc.
We have audited the accompanying consolidated balance sheets of Bioanalytical
Systems, Inc. as of September 30, 2001 and 2000, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended September 30, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bioanalytical
Systems, Inc. at September 30, 2001 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 2001 in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Indianapolis, Indiana
November 1, 2001
- 28 -
CORPORATE INFORMATION
ANNUAL MEETING OF SHAREHOLDERS
February 21, 2002
West Lafayette, Indiana
AUDITORS
Ernst & Young LLP
Indianapolis, Indiana
TRANSFER AGENT
Corporate Trust Department
National City
Bank 1900 East 9th Street
Cleveland, Ohio 44114
COMMON SHARES
Bioanalytical Systems, Inc. common shares are traded on the Nasdaq National
Market under the symbol BASI.
The following table sets forth by calendar quarter the high and low sales prices
of the common shares on the Nasdaq National Market System. The approximate
number of holders of common shares is 1,700.
FISCAL 1 ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
------ --------- -------- -------- --------
2001
High 2.781 3.875 9.040 13.900
Low 2.125 2.313 3.000 5.000
2000
High 3.875 5.250 3.844 3.500
Low 2.250 2.563 2.500 2.375
The Company has not paid any cash dividends on its common shares for the two
most recent fiscal years. The Company has no intention to pay cash dividends in
the foreseeable future.
INQUIRIES
A copy of the Company's 2001 Form 10-K Annual Report filed with the Securities
and Exchange Commission is available without charge upon written request. Media
inquiries and requests for the 10-K and investor's kits should be directed to:
Corporate Communications Director
Bioanalytical Systems, Inc.
2701 Kent Avenue
West Lafayette, IN 47906
USA Inquiries from shareholders, security analysts, portfolio managers,
registered representatives and other interested parties should be directed to:
Investor Relations
Bioanalytical Systems, Inc.
(765) 463-4527
www.bioanalytical.com
BOARD OF DIRECTORS
Peter T. Kissinger, Ph.D.
Chairman, President and Chief Executive Officer
Ronald E. Shoup, Ph.D.
President, BAS Analytics
Candice B. Kissinger
Senior Vice President, Marketing
William E. Baitinger
Special Assistant to the Vice President For Research,
Purdue University
Michael K. Campbell President and
Chief Executive Officer,
Powerway, Inc.
John A. Kraeutler
President and Chief Operating Officer,
Meridian Bioscience, Inc.
W. Leigh Thompson, Ph.D., M.D.
Chief Executive Officer,
Profound Quality Resources, Inc.
EXECUTIVE MANAGEMENT
Peter T. Kissinger, Ph.D.
Chairman, President and Chief Executive Officer
Ronald E. Shoup, Ph.D.
President, BAS Analytics
Douglas P. Wieten
Chief Financial Officer and Treasurer
Vice President, Finance
Candice B. Kissinger
Senior Vice President, Marketing
Craig S. Bruntlett, Ph.D.
Senior Vice President,
International Sales
Donnie A. Evans
Vice President, Engineering
Stephen Geary, Ph.D.
Vice President, U.S. Sales and Marketing
Lina L. Reeves-Kerner
Vice President, Human Resources
Michael P. Silvon, Ph.D.
Vice President, Business Development
Michelle L. Troyer
Corporate Controller
SCIENTIFIC ADVISORY BOARD
Daniel Armstrong, Ph.D.
R. Graham Cooks, Ph.D.
William R. Heineman, Ph.D.
Jean-Michel Kauffman, Ph.D.
Susan Lunte, Ph.D.
Mark Meyerhoff, Ph.D.
W. Leigh Thompson, Ph.D., M.D.
Patrick Murphy, Ph.D.
Douglas Morton, Ph.D.
BIOANALYTICAL SYSTEMS, INC. 800.845.4246 765.463.4527
WWW.BIOANALYTICAL.COM BAS@BIOANALYTICAL.COM