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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 incorporation (I.R.S. Employer
or organization) Identification No.)
542 FLYNN ROAD, CAMARILLO, CALIFORNIA 93012
(Address of principal executive offices)
Registrant's telephone number, including area code: (805) 987-0086
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
Preferred Stock purchase rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if no disclosure of delinquent filers in response
to Item 405 of Regulation S-K is contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K . [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [_] No [X].
The aggregate market value of the voting stock (based on the last sale
price of such stock as reported by the National Association of Securities
Dealers Automated Quotation National Market System) held by non-affiliates of
the registrant as of June 30, 2003 was $63,130,558
The number of shares of the Registrant's common stock outstanding as of
March 15, 2004 was 9,402,618.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
The following discussion should be read in conjunction with our consolidated
financial statements provided under Part II, Item 8 of this annual report on
Form 10-K. Certain statements contained herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, as discussed more
fully herein.
The forward-looking information set forth in this annual report on Form 10-K is
as of March 15, 2004, and we undertake no duty to update this information.
Should events occur subsequent to March 15, 2004 that make it necessary to
update the forward-looking information contained in this Form 10-K, the updated
forward-looking information will be filed with the Securities and Exchange
Commission in a quarterly report on Form 10-Q or as an earnings release included
as an exhibit to a Form 8-K, each of which will be available at the Securities
and Exchange Commission's website at www.sec.gov. More information about
potential factors that could affect our business and financial results is
included in the section entitled "Risk Factors" beginning on page 26 of this
Form 10-K.
OVERVIEW
The Company manufactures markets and distributes products used worldwide in
biomedical research that are instrumental in the development of new drug
therapies and medical diagnostic methods. Our products enable scientists and
biomedical researchers to better understand the biochemistry, immunology and
cell biology of the human body, as well as disease processes. The Company offers
over 3,600 products that are grouped into the following product lines: Assays;
Biologicals (Antibodies, Bioactive Proteins and Peptides and Oligonucleotides)
and Serum & Media. We believe we offer a unique combination of skills resulting
in a focused range of products and services for the worldwide academic and
government research, pharmaceutical and biotechnology industries.
The Company believes it has a strong scientific research staff, a broad product
line and an established trade name, giving it a solid presence in the biomedical
research market. We intend to continue our focus on new product development,
particularly assay kits, as the driver of growth for the Company. We may also
seek to acquire businesses, products and technologies complementary to our
current business through acquisitions, licensing or joint ventures.
The Company was originally incorporated as a California corporation in October
1989, and was reincorporated as a Delaware corporation in May 1993. The
Company's executive offices are located at 542 Flynn Road, Camarillo, California
93012, and its telephone number is (805) 987-0086. The Company's common stock is
traded on the NASDAQ National Market under the ticker symbol "BIOI." Information
on the Company's website, www.biosource.com, does not constitute part of this
annual report.
INDUSTRY OVERVIEW
The biomedical research industry has seen significant advances in the
understanding of physiological processes at the cellular and molecular level.
The sequencing of the human genome has accelerated the need for methods and
products to research and identify thousands of previously unknown proteins that
potentially play key roles in cell function, normal and diseased. These proteins
are of significant interest to the pharmaceutical industry, since they can be
used as the basis of new therapeutic discovery and development. The core
competencies the company has developed in molecular and cellular biology,
immunology and custom biological services address this need. Biomedical
researchers around the world are constantly in search of specialty research
products and services, which are necessary to conduct both basic and clinical
research. This research is conducted in settings that range from university and
medical school laboratories to pharmaceutical and biotechnology research and
development groups. The success of this type of research depends upon the
availability of high quality biological reagents and custom services, including
the serum & media, assay kits and the related biologicals that the Company
develops, manufactures and sells.
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STRATEGY
The Company's basic strategy is to increase its organic growth rate through
focused research and development and sales and marketing investments in cellular
communication pathway markets with high growth potential. Cellular communication
pathway markets include both extracellular signaling products (such as
cytokines) and intracellular signaling products (such as signal transduction).
BioSource will exploit unique corporate and product capabilities to drive
product growth in these select markets with particular emphasis on developing
and selling assay kits. In addition, strong emphasis is placed on developing the
network and systems to provide uncompromising customer support. As a complement
to the core organic growth strategy, we may also seek to acquire businesses,
products and technologies complementary to our current business through
acquisitions, licensing or joint ventures. In order to facilitate the core
strategy, the Company is:
o Applying a focused investment strategy in research and development. In 2003
the Company spent 16% of net sales on research and development. In previous
years, internal research and development spending was directed towards
creating a high volume of new products with emphasis on building a broad
range or menu of key biologicals for the study of cellular pathways. Now
that the broad menu has been developed, research and development spending
in 2004 is being focused upon the development of new, high volume and
greater profit assay kits and their directly related biologicals. As a
result, the Company is not necessarily focused on a high number of new
products as a goal, but on the specific type of new product, and their
complementary biologicals that provide greater sales potential in the
marketplace. Research and Development spending for the next few years is
projected to stay in the range of 14-16% of sales. We expect this more
focused investment to result in a higher rate of return on our research and
development spending.
o Continuing to invest in a customer support infrastructure. The Company has
made significant investments in its sales and marketing activities over the
past few years and believes it must continue to do so in the future. This
investment is necessary to access and to support the large, $1.5B cellular
communication pathway research market. The company has its own sales force
and sells direct in the United States and certain major markets in Europe.
The remainder of the world is serviced through a network of local
distributors comprising approximately 25% of the Company's 2003 revenues. A
key strategy of the Company is to differentiate itself by providing
personalized, uncompromising logistical and scientific support.
Consequently, continued strong investments in sales and marketing are
anticipated.
o Accelerating critical external business development efforts to support the
Company's more focused assay kit strategy. We anticipate this focus will
result in additional relationships in the areas of licensing, strategic
partnerships, OEM relationships and, possibly, acquisitions as a
complementary strategy to enable our assay development and manufacturing
expertise to be more readily exploited in novel platforms and technologies.
The Company feels that this business development strategy will complement
its existing core competencies and further strengthen its position in the
proteomics markets of cellular communication pathways.
PRODUCTS
BioSource currently offers over 3,600 products. Our strategy is to place a more
focused effort on selling assays and their directly related biological and cell
growth product lines. Assay kits are typically sold in higher volume and at a
higher gross margin than our other product lines. In 2003, assay kits made up
approximately 50% of our total sales. Our goal is to continue to increase this
percentage in 2004 and beyond. We group our products into three categories:
Assays or Assay Kits, Biologicals and Serum & Media.
ASSAYS
"Assays" or "Assay Kits" are a collection of reagents, buffers, calibrators and
active biologicals that are standardized, validated and assembled into a ready
to use package of products. Researchers use these assay kits to measure specific
responses in animal disease models or humans. There are numerous hardware and
software systems (not marketed by BioSource) used by a researcher to perform
these tests. The majority of these test systems are "open platforms" in that
they allow the use of third party providers of assay kits. BioSource has
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targeted the open platform market. Below is described some of the more common
BioSource assay technologies.
ENZYME-LINKED IMMUNOSORBENT ASSAY ("ELISA") TEST KITS. In a typical ELISA test
kit, an antibody is immobilized or "bound" on a microtiter well of the kit's
test plate. A sample containing the antigen that is to be measured is added by
the researcher and allowed to react with the bound antibody. After the well is
washed, a second antibody with a specific enzymatic tag is added and allowed to
react with the bound antigen. After washing away any remaining free antibody,
the researcher adds a substrate that produces a colored reaction. The amount of
color is proportional and thereby indicates the amount of antigen present, which
can be measured even in minute concentrations, using common laboratory
instruments. This method of quantitation of these antigens has become an
integral tool both in research and diagnostic applications as it provides a
relatively inexpensive, accurate and rapid method for the evaluation of immune
status.
BioSource ELISA test kits are a combination of cytokines, their antibodies and
other chemical reagents, and are used to measure the presence or quantity of a
particular bioactive protein in serum, plasma or other biological sample. The
quantitation of these cytokines and chemokines has been shown to be an excellent
way for scientists to determine the functional status of the immune system.
Since many of the current targets of pharmaceutical intervention are designed to
modulate the immune system, quantitation of these markers as a means for gauging
the effectiveness of treatment is becoming increasingly necessary.
Our ELISA tests produce results in a few hours, compared to days or even weeks
with bioassays. We offer kits for human, mouse, rat, monkey and swine proteins.
The diversity of species is important to allow investigators to establish
numerous measurements in pre-clinical animal model systems. We offer over 350
types of ELISA kits and we believe we are the leader in sales of rat, monkey and
swine cytokine ELISA kits. Detection of fluctuations in cytokine levels by ELISA
tests; whether in an invitro cell culture experiment of a new drug or in a
patient's serum, provide researchers and scientists with valuable information in
understanding disease progression, therapy and diagnosis.
An alternative method to our ELISA test kits are our Muliplex Antibody kits for
use in instrument systems manufactured by Luminex Corporation, a third party,
which allow measurement of several proteins simultaneously in a single sample,
saving time and effort as well as the precious sample. Our menu for Luminex
assays has rapidly expanded to include kits for the measurement of human, mouse
and rat cytokines, chemokines, growth factors and cell biology markers. The
multiplex kits allow for investigators to establish screens for drug targets and
inhibitors in cell culture samples or to determine the diagnostic value of a
panel of proteins in human patient serum or plasma samples.
Of the more than 350 assay kits we offer, the following table illustrates a few
of the more common applications of our ELISA test kits:
TEST KIT CHARACTERISTICS/APPLICATION
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Tau This kit detects and quantitates the presence and
phosphorylation state of an important brain protein thought to
be involved in the development of Alzheimer's disease. When
this protein is modified in the cell by the addition of
phosphate groups at specific amino acid sites, the biological
activity of the protein changes. In certain disease states,
abnormally high levels of phosphorylation occur, which cause
the protein structures to destabilize, ultimately leading to
neuronal degeneration. Deposition of filamentous tau is
implicated in other neurodegenerative diseases including
cortical basal degeneration (CBD), progressive supranuclear
palsy (PSP), Pick's disease, and certain forms of Parkinson's
disease. Pharmaceutical companies are keenly interested in
developing drugs that can halt specific patterns of
phosphorylation without hampering normal cell activity. The
ability to quantitate the phosphorylation state at specific
sites will assist this effort.
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Rb This kit detects and quantitates the presence and
phosphorylation state of an important cellular regulation
protein associated with cell division. This protein, known as
Retinoblastoma protein or Rb, is one focus of efforts to
develop anti-cancer drugs. The activity of Rb is controlled by
phosphorylation of the protein at specific amino acids by a
select group of protein kinases called cdks. If too much
phosphorylation of Rb occurs, its ability to halt cell
division is hampered, as is the case in malignant cells. The
ability to specifically quantitate the level of
phosphorylation of this protein by kinases and the impact of
kinase inhibitors on normal and abnormal phosphorylation is a
key development in the drug development process.
IL-6 This kit detects and quantitates a cytokine that is extremely
important in the study of inflammation. IL-6 is produced by a
number of cells in the body and its actions regulate the
growth and differentiation of various cells of the immune
system. IL-6 induces a variety of important proteins in the
body in response to inflammation or tissue injury. Although
most healthy individuals have undetectable levels of IL-6 in
their serum, huge quantities of IL-6 are detected in severe
inflammatory situations such as septicemia. The elevation of
serum IL-6 precedes that of acute phase proteins, e.g., in a
postoperative phenomenon, and may thus be a sensitive early
parameter to investigate inflammatory conditions. Serum levels
of IL-6 are used in studies of surgical or traumatic tissue
injuries, infectious diseases, auto-immune diseases including
arthritis, graft rejection, alcoholic liver cirrhosis,
malignancies, etc.
RADIOIMMUNO-ASSAYS ("RIA"). We produce and market RIAs, which are used
internationally in large volume clinical laboratories for the measurement of
hormones and proteins important in growth, reproductive and thyroid disease.
These assays utilize radioisotopically labeled molecules to compete with
non-isotopically labeled molecules for sites on known antibody concentrations.
RIA is a mature technology used primarily in European and other foreign
countries and is no longer widely used in the United States.
OTHER ASSAYS. We have combined our oligonucleotide and ELISA technologies to
develop a portfolio of other assay kits that measure the quantity of messenger
RNA, the type of RNA that serves as a template for protein synthesis of various
cytokines in blood, cultured cells or tissues. Our molecular analysis kit
product line permits detection of the individual genes and quantitates the
amount of the gene that encodes for a specific protein. We also have developed
kits that allow researchers to measure multiple genes at the same time from a
single sample.
BIOLOGICALS: We define a "biological" as a naturally occurring or synthetically
produced animal or human based nucleic acid or protein. Nucleic acids are the
basic building blocks of the genetic structure of all living things. The genetic
structure directs the synthesis of proteins. Proteins control the structure and
function of all living organisms.
Biologicals are the essential active components to our assay kits. These may
include monoclonal or polyclonal antibodies, bioactive recombinant proteins,
synthetic peptides or synthetic oligonecliotides. In addition to use in assay
test kits, these biologicals are sold individually as either a catalog or as a
custom produced product. The Company's expertise in selecting, creating and
purifying these biologicals is a differentiating core competency that provides
the high level of sensitivity and specificity to its cellular pathway research
products.
ANTIBODIES
Antibodies are used in the Company's assay kits as detector systems in the
research of normal and abnormal proteins. Antibodies are proteins generated by
immune cells in response to foreign substances, which are called antigens.
Antibodies have specific amino acid sequences, which cause them to interact only
with the antigen that induced their creation. Antibodies circulate in the blood
and assist the body's immune system by searching out and neutralizing or
eliminating antigens. Antibodies are used by researchers in a variety of
applications, including neutralization studies in bioassay systems, as capture
and detection molecules for protein quantitation and for cellular
differentiation. Antibodies used in research are generally produced by injecting
an antigen into animals, which cause the animals' immune system to produce an
antibody specific to that antigen.
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In addition to use in the Company's assay kits, this broad biological product
line provides researchers and biotechnology companies with an array of high
quality reagents used to develop analytical signals in various assays. In
addition, other companies use our secondary antibodies as a component of their
test kits.
We also have developed a significant catalog of innovative signal transduction
tools that enable customers to more readily understand the complex signals,
which control cellular processes. Many of these tools are antibodies that
recognize specific, activated or inactivated forms of proteins containing one or
more molecules of phosphate at specific sites. Such an addition of phosphate
molecules, which is referred to as phosphorylation, or removal of phosphate
molecules, which is referred to as dephosphorylation, control most of the
signaling within and between cells. Diseases such as cancer, heart disease and
Alzheimer's have been shown to be at least in part due to the malfunctioning of
key molecules within cells, in many cases due to alterations in their activity
through altered phosphorylation.
We offer over 1,640 antibody products. The following table illustrates some of
the uses for the antibodies we offer:
USES DESCRIPTION
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ELISA Test Kits Antibodies are used in our ELISA test kits
to detect and measure proteins in biological fluids.
An antibody is coupled with an enzyme which reacts
with a colorless substrate in the presence of a
sample containing the antigen of interest to generate
a colored reaction product. The color produced is
proportional to, and thereby indicates the amount of,
antigen present in the sample.
Flow Cytometry In order to identify specific cell types by
the nature of the antigens expressed on their
surface, antibodies are bound to cells and visualized
by labeling the antibody molecules with a fluorescent
dye or "fluorochrome." The result is examined with an
instrument known as a flow cytometer.
High Throughput High throughput screening permits the
researcher to screen test thousands of drug
candidates in a short period of time for their effect
on target molecules. In order to be used in this
manner, we conjugate our antibodies to different dyes
or enzymes.
Immunoblotting Immunoblotting uses antibodies to identify a specific
protein in a complex mixture. In this process, a
protein of interest is separated by molecular weight
using gel electrophoresis. A specific antibody is
then passed over the mixture, and any protein that
binds to the antibody is visibly detected.
The research conducted by our customers often requires that we manufacture
unique, specific peptides or antibodies for custom research projects. Previously
unidentified genes and proteins are being identified at a rapid rate, which
often precedes the introduction of catalog offerings by many months to years.
Through our Massachusetts facility we engage in the manufacture of these custom
peptides and antibodies thus allowing customers to perform timely research on
these new or proprietary targets. The capabilities to provide custom peptides
and antibodies as well as innovative catalog products further strengthens our
strategic relationships with our customers and has led to the development of new
catalog products and expanded sales opportunities.
BIOACTIVE PROTEINS AND PEPTIDES
Proteins, which are chains of amino acids in particular sequences, and their
interactions are responsible for all of the biochemical and physical properties
of a cell, as well as variations among different types of cells. Proteins take
various forms, including enzymes, hormones, antibodies, receptors, cytokines and
chemokines. Proteins are ideal for use in basic research, drug discovery,
enzymology, high throughput screening, in vivo studies, x-ray crystallography or
as antigens for antibody production. Our primary protein products are cytokines
and chemokines, which are regulatory molecules that control growth and
differentiation of cells.
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CYTOKINES. The development of an effective immune response involves complex
cell-to-cell communications, which are mediated by a group of small hormone-like
soluble secreted proteins collectively called cytokines. Cytokines, like growth
factors, interact with specialized target receptors on the surface of the cells
and stimulate a chain of secondary messengers leading to a biological response.
These responses result from changes in both the molecular capabilities and
behaviors of cells. For example, cytokines can activate cells to recognize and
eliminate harmful bacteria and viruses. They carry vital signals to the cell's
genetic machinery that can trigger it to grow or stop growing. Cytokines can
also signal a cell to differentiate, that is, to acquire the features necessary
for it to take on more specialized tasks. Specific cytokines play a key role in
stimulating cells surrounding a wound to grow and divide and also in attracting
migratory cells to the site. Some cytokines have a regulatory function, and
other cytokines exert direct effects of their own.
Cytokines are extracted from natural sources, such as human and animal
platelets, white blood cells and lymphatic cells, or are produced through
genetic engineering, also known as recombinant DNA technology. Cytokines
coordinate and orchestrate the proper functioning of the immune system. In
addition to producing the human cytokines, we also produce the equivalent
proteins from mice, rats, swine and monkeys. Many cytokines are being
investigated for their ability to activate or suppress host immunity. Cytokines
and other similar growth factors and adhesion molecules are instrumental in the
body's defense against cancer, AIDS and other life- threatening disorders.
CHEMOKINES. Chemokines are specific proteins that regulate the recruitment and
activation of white blood cells and other sites of inflammation. Chemokines
function by binding to receptors on the surface of affected cells. Tremendous
interest in chemokines exists due to recent studies linking chemokines and their
receptors to the development of HIV.
OTHER PROTEINS. To date we have focused on cytokines, chemokines and growth
factors; however, with the progress of the human genome project, protein
discoveries will expand beyond these proteins. Signal transduction proteins, of
which it is hypothesized that only a fraction have been discovered, will be
important in high throughput screens of drug candidates since the irregular
functioning of these proteins is involved in substantially all diseases.
Additionally, researchers will want reagents to the nuclear proteins,
cytoskeletal proteins and others that will be discovered to study their role in
various diseases. Reagents to these markers can be created using our core
competencies.
We offer over 390 protein products. The following table shows examples of
different cytokines, growth factors and kinases we produce and use:
PROTEIN RESEARCH USES
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IL-4 Interleukin 4 is a protein that has been observed to have
direct growth-suppressive activity on a variety of
malignancies. IL-4 is used in cancer research.
VEGF Vascular Endothelial Growth Factor regulates angiogenesis, the
process of new blood vessel growth. VEGF is used in drug
development, cancer research and as a growth factor for
endothelial cells.
TNF Tumor Necrosis Factor is a protein that plays a vital role in
the regulation of the immune system. TNF is used to study
immunological processes, cancer, inflammation and septic
shock.
c-Src Rous Sarcoma Virus kinase is one of the most extensively
studied kinase oncogenes in academia and industry for its role
in human cancer and leukemia.
PEPTIDES. Bioactive peptides are subsections of proteins or small proteins that
are synthetically created. These peptides represent the active or inhibitory
site of a particular protein, and are used to study the activity of various
proteins. Some bioactive peptides, such as beta amyloid peptides, have been
shown to play a major role in the development of Alzheimer's Disease.
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OLIGONUCLEOTIDES
The production of oligonucleotides is a custom service we provide for
researchers engaged in molecular biology. An oligonucleotide is a synthesized
polymer made up of the same building blocks that form DNA. Synthetic
oligonucleotides have been used in molecular biology for over twenty years,
essentially as templates for nucleic acid and protein synthesis, and more
recently, as the therapeutic agents for the inhibition of gene expression or as
a diagnostic agent to identify disease. DNA is used by almost every discipline
in biomedical research in both academic and commercial areas, including
molecular biology and cell biology departments of major universities and
biomedical companies developing gene therapy products. These researchers use
synthetic oligonucleotides to determine the exact sequence of a gene, or to
perform experiments leading to the potential development of pharmaceutical
drugs. The primary use of the oligonucleotides we develop and sell is for DNA
sequencing and polymerase chain reaction, or PCR, priming.
In DNA sequencing, we synthesize oligonucleotides pursuant to customer
specifications, which they use to initiate a process of sequencing a DNA strand.
DNA sequencing is used in a wide range of biomedical research applications to
identify the makeup of particular strands of DNA.
In PCR priming, our synthesized oligonucleotides are used by our customers in
combination with other reagents to amplify a specific genetic sequence isolated
from a cell sample. After PCR amplification, gel electrophoresis is used to
identify and even to quantitate a specific DNA or RNA sequence from that sample.
PCR is an extremely powerful tool in molecular biology research because it can
amplify genetic information from a single copy of DNA or RNA. Using PCR
technology, the presence of the genetic message used to code for the production
of protein can be identified, thereby offering numerous possibilities in the
detection of genetic disorders, monitoring disease progression, and in
understanding cellular functions.
Genomics research requires large quantities of oligonucleotides. DNA arrays for
expression profiling and single nucleotide polymorphism, or SNP, analysis all
require the use of synthetic DNA oligonucleotides. In addition, high throughput
screening techniques, used in drug discovery are incorporating the use of
fluorescent modified DNA oligonucleotide probes to detect and quantify target
gene expression. We have developed technologies to rapidly produce and
manufacture large number of high quality DNA oligonucleotides for DNA array
construction and developed proprietary processes to produce fluorescent probes.
The following table illustrates some of the uses for the DNA oligonucleotide
services we offer:
USES APPLICATIONS
- ------- ------------------------------------------------------------------
Primers Oligonucleotides are used in the initiation of the PCR process.
Probes DNA oligonucleotides are used in hybridization reactions for the
Real Time PCR quantitation. Probes are duel labeled fluorescent
probes used in real time PCR quantitation and molecular diagnostic
analysis. We offer three different styles of FRET probes for our
customers.
Arrays Oligonucleotides are used on a solid matrix to profile gene
expression or to identify single nucleotide polymorphisms, or
SNP's.
SERUM, BUFFERS AND MEDIA
Much of the disease research our customers pursue is performed in a laboratory
on human or animal cells. These cells function as the disease model. Serum and
media support the growth, maintenance and experimental manipulation of these
cell-based disease models. The Company's broad serum and media product line of
over 200 products is manufactured in Maryland under rigorous quality standards
to provide the researcher with a highly consistent, viable and reproducible
disease model. We manufacture and offer in our catalog over 245 serum, media and
buffer products. We also offer custom formulation services for unique
applications.
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CUSTOMERS
BioSource has over 6,000 customers worldwide. No single customer accounted for
more than 10% of our total revenue during any of the last three years and our
top 20 customers made up approximately 30% of our consolidated sales in 2003.
Our customers include:
PHARMACEUTICAL BIOTECHNOLOGY UNIVERSITIES
-------------- ------------- ------------
Astra Zeneca Amgen Brigham and Women's Hospital
Aventis Pharmaceuticals Biogen Baylor College of Medicine
Bristol Myers Squibb Exelixis Columbia University
Eli Lilly Genentech John Hopkins University
Glaxo SmithKline Human Genome Sciences UCLA
Merck & Company Nuvelo UC San Francisco
Pfizer Millennium University of Pennsylvania
Schering-Plough Pharmaceuticals University of Texas
Wyeth-Ayerst Rigel Pharmaceuticals MD Anderson Cancer
Tularik Research Center
Zymogenetics University of Washington
at St. Louis
GOVERNMENT
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Centers for Disease Control
Food and Drug Administration
National Cancer Institute
National Institutes of Health
VA Medical Centers
U.S. Army Research Institute
RESEARCH AND DEVELOPMENT
As a life sciences company with significant internal R&D and manufacturing
capability, BioSource strives to produce uniquely capable test kits and related
biologicals for cellular communication pathway research in the government,
academic and bio/pharma communities. BioSource has been predominantly known for
its products for extra cellular signaling research, in this respect, for its
work in cytokines, chemokines and growth factors. These proteins act as chemical
communicators especially in the immune system and are critical to the maturation
and function of normal cells. These proteins continue to play an important role
as indicators of the health of the immune system and are thus indicators of some
critical disease processes. We will continue to leverage this immunological
expertise to appropriately expand our product offerings in this area. We have
also achieved success in extending our product lines into intracellular
signaling, more commonly known as signal transduction. Signal transduction is a
market that is growing in importance as researchers begin to understand its
central role in disease and its significance as targets for drug therapy. In
2001, BioSource introduced the first in its line of phosphoELISA(TM) kits that
has allowed the quantitative measurement of sequence specific phosphorylation
events on proteins. We have expanded this line to now include over 50 kits and
will continue to expand and dominate this field of study. To expand the
application of this technology, we have invested in developing assays for use in
high content instrument platforms that exploit the increasing demand for
quantitatively profiling various proteins. These platforms, such as microarrays
and Luminex bead assays enable pharmaceutical and biotechnology companies to
fully realize the opportunities represented by the sequencing of the human
genome.
Our current research and development activities are focused in the following
areas:
o Selective addition of new cytokine, chemokine and growth factors to our
existing product offerings.
o Development of new signal transduction reagents, assays and platforms for
measuring signal transduction proteins.
o Development of reagents for new detection technologies and assay platforms
for the growing high-content screening markets.
As of March 1, 2003, we employed 49 research scientists, 14 of whom hold
Ph.D.'s. Among these professionals are experts in peptide chemistry, molecular
biology, immunology and signal transduction. In particular, their knowledge is
fundamental to the development of peptides, oligonucleotides, proteins,
antibodies and assay kits. Our research laboratories are located in Camarillo,
California; Hopkinton, Massachusetts; and Nivelles, Belgium. In the year ended
December 31, 2003, we introduced over 200 new products. In addition, as of
February 4, 2004, we had approximately 150 products under development. We spent
approximately $7,007,000
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$6,187,000, and $3,986,000 on research and development in 2003, 2002, and 2001,
respectively. Research and development spending represented approximately 16%,
15% and 11% of net sales in 2003, 2002, and 2001 respectively. In 2004, our
research and development spending is projected to be similar dollar levels to
those incurred in 2003, or approximately 14% of sales. The spending will be
focused on programs that accentuate our investment in high value assays and
supporting reagents.
MANUFACTURING
Our largest production facility is located in our corporate headquarters in
Camarillo, California. Here we manufacture the majority of our assay kits. We
manufacture our custom and catalog oligonucleotides at our facilities in Foster
City, California. Our custom peptides and antibodies and other antibodies are
manufactured at our facilities in Hopkinton, Massachusetts. Our serum and media
are manufactured at our facilities in Rockville, Maryland. We also manufacture
antibodies and assay kits at our European facility in Nivelles, Belgium. We
currently manufacture products for inventory and ship products shortly after
receipt of orders and anticipate that we will continue to do so in the future.
Accordingly, we have not developed a significant backlog of products and do not
anticipate we will develop a material backlog of products in the future.
Labeling, packaging, and shipping are carried out independently at each
facility. We purchase our packaging components from outside suppliers who follow
our own custom packaging designs. We have an internal graphic arts department
located at our Camarillo, California facility that designs our packaging and
marketing materials. We believe there are numerous available suppliers for our
packaging components.
We believe that we have adequate supplies of raw materials on hand to continue
to manufacture almost all of our products and meet customer demand, and that
those materials that we do not produce internally are readily available from
multiple sources.
SALES AND MARKETING
BioSource employs 65 sales and marketing professionals worldwide. The principal
markets for our products are in the United States, Western Europe and Japan. We
have a direct sales force strategically located in major metropolitan areas in
the United States. We advertise in various scientific trade journals and
distribute our own product catalog to all current and selected potential
customers. We sell to our international markets directly through our European
subsidiary that employs 19 of our 65 sales and marketing personnel. We also use
international distributors that specifically target selected foreign life
science markets.
Our sales people hold a minimum of a biological sciences undergraduate degree
and undergo training in the nature and application of our products and proven
selling techniques. We believe that by investing in the scientific training of
our sales force we are better able to satisfy the needs of researchers and
scientists in the biomedical community. Our sales force is also used to provide
valuable feedback for product development. Each representative is responsible
for the maintenance of existing accounts as well as the generation of new
business. Representatives are paid a base salary and commissions. The
commissions are based upon sales growth over previous years' sales levels.
In addition to the United States, we sell directly into Germany, Belgium,
Holland, Denmark, Sweden, Norway, Finland and the United Kingdom. We also use a
network of international distributors covering over 40 other countries. We
utilize a network of both exclusive and non-exclusive international
distributors, but we generally grant exclusive distribution rights only where
the distributor maintains direct field representatives proportionate to the
potential for sales of our products in a defined geographical area. In order to
serve as our distributor, the distributor must agree to and meet acceptable
annual sales goals. We offer all of our distributors' annual training to enhance
their knowledge of our products. In 2003, 25% of the Company's revenues were
through distributors.
SEGMENT INFORMATION
The Company operates primarily in one industry segment, the licensing,
development, manufacture, marketing and distribution of biological reagents and
assays used in life sciences. For information regarding the revenues
10
and assets associated with the Company's geographic segments, see Note 10 of the
Notes to the Company's Consolidated Financial Statements included elsewhere in
this filing.
COMPETITION
We are engaged in a segment of the life sciences products industry that is
highly competitive. Our primary competitors include companies such as Techne
Corporation, BD BioSciences, Cell Signaling Technologies, BioRad Laboratories
and Invitrogen. Many of our competitors have been involved in the life sciences
industry significantly longer than we have and benefit from greater name
recognition. In addition, many of our competitors have greater resources to
devote to research and development, sales and marketing and occasionally engage
in price cutting measures to achieve leadership in their field. However, we
believe that by offering a focused cellular pathway assay menu complemented with
associated key custom biologicals and serum & media, we gain a competitive
advantage.
PATENTS AND TRADEMARKS
We are currently seeking and intend to seek patent protection on certain
proprietary technologies. Although our intent is to protect our interests in
select technologies, there is no guarantee that these patents will be granted,
or if granted, be effective in fully protecting the use of these technologies.
We also seek to protect our interests by treating certain technologies and
know-how as trade secrets and by requiring all employees and contractors to
execute invention and assignment agreements with us, which include
confidentiality provisions.
"PhosphoELISA," "BGB," "Messagescreen," "TAGOImmunologicals," "Cytoscreen,"
"Primescreen," "Cytosets" and "Cartesian" are unregistered product trademarks
used for some of our products, but are only of limited importance to our
business. "Biofluids" is also a registered trademark we acquired as part of our
acquisition of Biofluids in December 1998.
GOVERNMENT AND ENVIRONMENTAL REGULATION
Except as we indicate in the following paragraph, approval by the Food and Drug
Administration is not required for the sale of any of our products in the United
States because our products are marketed and sold for research use only.
Research products are not currently required to comply with the lengthy FDA
approval process associated with diagnostic or therapeutic products. In the
event we develop products directly for the diagnostic market in the United
States, we will be required to obtain FDA approval prior to selling them. This
approval, if required, could be time consuming and costly.
Some of our products, however, are used by our customers as raw materials or
intermediates in the production of diagnostic products. As such, we received
clearance by the State of California and the FDA to manufacture our
TAGOImmunologics product line as Analyte Specific Reagents. These reagents are
classified as Class I biologics that are manufactured in compliance with the
FDA's Quality System Regulation, also known as cGMP. This registration allows us
to market these products to clinical laboratories and manufacturers of in vitro
diagnostic products.
We believe that we are materially in compliance with the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
and other similar laws of general application.
Our European subsidiary's clinical products are produced in facilities that have
achieved ISO 9001 certification, and are eligible to be used in Europe for
clinical diagnostics. In all of the markets in which we sell through
distributors, our distributors are contractually responsible for compliance with
the applicable governmental regulations.
Except as we indicated above, we are not subject to direct governmental
regulation other than the laws and regulations generally applicable to
businesses in the jurisdictions in which we operate, including those governing
the handling and disposal of hazardous wastes and other environmental matters.
Our research and development activities involve the controlled use of small
amounts of hazardous materials, chemical and radioactive compounds. Although we
believe that our safety procedures for handling and disposing of such materials
comply with applicable regulations, the risk of accidental contamination or
injury from these materials cannot be
11
completely eliminated. In the event of such an accident, we could be held liable
for resulting damages. This liability could have a material adverse effect on
us.
EMPLOYEES
As of March 1, 2004, we employed 271 individuals, 267 of whom were full-time
employees. Twenty-one of our employees at that date had doctoral degrees.
None of our employees in the United States are represented by a labor union. As
of March 1, 2004, 61 of our 271 employees worked for our Europeon subsidiary in
Belgium. As is customary under Belgian labor law, employees of our Belgian
subsidiary, BioSource Europe S.A., are represented by two national unions who
represent employee interests to the national chemistry industry employer
organization. We believe we are in compliance with these Belgium legal
restrictions. We consider our current Belgium subsidiary employee and labor
relations to be good.
Pursuant to Belgian law, we have in the past been subject to heightened
restrictions related to union representation for work and safety councils
applicable to companies with more than 50 employees. Because we employed less
than 50 employees at our Nivelles, Belgian facility in 2000, these heightened
restrictions terminated in April 2000. Since we currently employ over 50
employees at our Belgian facility, and since the next election for work and
safety councils is in 2004, the heightened restrictions for certain employees
are again applicable to us.
ITEM 2. PROPERTIES
In March 2000, the Company entered into a lease for a new facility at 542 Flynn
Road in Camarillo, California, and relocated its previous offices and
laboratories to this new location in July 2000. The new building contains
approximately 51,821 square feet and is situated in an industrial park
approximately two blocks from the previous corporate headquarters. The lease
commenced on May 1, 2000 and runs through June 30, 2005, with the option to
continue the lease for two additional five-year terms. Monthly lease payments in
2004 are approximately $31,000. The new facility has several laboratory areas,
including molecular biology facilities, a protein purification facility, an
oligonucleotide facility, and an assay development and manufacturing facility,
as well as ELISA development and manufacturing space and cold storage rooms
sufficient to accommodate our current and anticipated future needs.
For our oligonucleotide laboratory, we lease a 6600 square feet facility in
Foster City, California, approximately 20 miles south of San Francisco. This
lease expires in May 2006. Monthly lease payments in 2004 are approximately
$15,000.
We lease two facilities in Hopkinton, Massachusetts, approximately 25 miles west
of Boston. Our first facility consists of 11,500 square feet, of which
approximately 7,000 square feet is laboratory space. In February 2001, the
Company amended its lease to this facility, extending the term of the lease for
five additional years, through May 2006. Monthly lease payments in 2004 are
approximately $11,000. In January 2002, the Company leased an additional
facility in Hopkinton, Massachusetts, which consists of 10,500 square feet, of
which approximately 7,000 is laboratory space, under a lease that expires in
January, 2007. Monthly lease payments in 2004 are approximately $16,000.
We lease a facility in Rockville, Maryland, which consists of approximately
11,500 square feet of warehouse, manufacturing, and office space, under a lease
that expires in May 2004. Monthly lease payments through May 2004 are
approximately $14,000.
Our European subsidiary leases facilities in Nivelles, Belgium, which consist of
approximately 45,500 square feet of manufacturing, laboratory and office space,
under a lease that expires in March 2007. Monthly lease payments in 2004 are
approximately $22,000.
Additional satellite sales offices are located in Germany and Holland.
12
We believe that all of our facilities are in good condition, are adequately
covered by insurance and will be adequate for our occupancy needs for the
foreseeable future.
The Company's lease commitments for the above referenced properties make up
substantially all of the Company's total lease commitments. At December 31,
2003, total future minimum payments under all of the Company's leases are as
follows (in thousands):
2004........................................ $ 1,474
2005........................................ 1,192
2006........................................ 644
2007........................................ 593
Thereafter.................................. --
--------
$ 3,369
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and suits in the aggregate
will not materially affect the financial position, results of operations or
liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our security holders during the fourth
quarter of our last fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"BIOI." The following table sets forth, for the periods indicated, the high and
low closing sales price per share of our common stock as reported on the Nasdaq
National Market.
HIGH LOW
---- ---
2002 Fiscal Year
First Quarter $ 8.20 $ 5.19
Second Quarter 6.16 5.86
Third Quarter 6.08 4.89
Fourth Quarter 6.31 5.50
2003 Fiscal Year
First Quarter $ 6.95 $ 5.83
Second Quarter 6.92 5.00
Third Quarter 7.97 6.15
Fourth Quarter 7.87 6.33
2004 Fiscal Year
First Quarter, through March 15, 2004 $ 6.84 $ 8.09
On March 15, 2004, the closing sale price of our common stock on the Nasdaq
National Market was $7.83. As of March 15, 2004, there were 9,402,618 shares of
our common stock outstanding held by approximately 323 holders of record.
13
EQUITY COMPENSATION PLAN INFORMATION - The following table sets forth certain
information regarding the Company's equity compensation plans as of December 31,
2003.
NUMBER OF SECURITIES WEIGHTED-AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE OR
EXERCISE OF OUTSTANDING FUTURE ISSUANCE UNDER
OUTSTANDING OPTIONS, OPTIONS, WARRANTS EQUITY COMPENSATION
WARRANTS AND RIGHTS AND RIGHTS PLANS
---------------------- ----------------- ----------------------
Equity compensation plans
approved by security
holders..................... 495,496 $4.95 0
Equity compensation plans
not approved by security
holders..................... 2,988,852 (1) $7.81 562,979
Total....................... 3,484,348 $7.40 562,979
========= ===== =======
<FN>
(1) Includes 1,287,000 warrants pursuant to a securities purchase agreement
dated January 10, 2000 with Genstar Capital Partners II L.P. and Stargen II
LLC. These warrants have a five year life and expire in January 2005.
</FN>
In January 2000, the compensation committee of the Company's Board of Directors
approved the 2000 BioSource International, Inc. Non-Qualified Stock Option Plan
(the "2000 Plan"). The 2000 Plan was not approved by shareholders of the
Company. 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. Stock options
outstanding under the 2000 Plan as of December 31, 2003 were 1,421,852. See note
6 of the accompanying audited consolidated financial statements.
In 1993, the compensation committee of the Company's Board of Directors approved
the 1993 BioSource International, Inc. Stock Incentive Plan (the "1993 Stock
Option Plan"). On December 31, 2003, the 1993 Stock Option Plan expired.
Therefore, the Company will no longer grant stock options under that plan.
The Company also has stock option agreements that are outside the 2000 Plan.
Those agreements are only for the purchase of non-qualified stock options.
The Compensation Committee of our Board of Directors currently administers our
stock option plans.
DIVIDEND POLICY
BioSource has never paid cash dividends on its common stock and does not
currently anticipate that it will do so in the foreseeable future. The Company
plans to retain earnings to finance our operations.
ITEM 6. SELECTED FINANCIAL DATA
The selected data presented below under the captions "Consolidated Statement of
Operations Data" and "Consolidated Balance Sheet Data" for, and as of the end of
each of the years in the five-year period ended December 31, 2003, are derived
from the audited consolidated financial statements of the Company. The following
selected data should be read in conjunction with the Company's consolidated
financial statements and notes thereto, as well as the section included herein
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
14
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(in thousands, except per share data)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales ....................... $ 44,094 $ 40,055 $ 35,175 $ 32,210 $ 29,257
Cost of sales ................... 21,900 17,689 15,540 13,600 11,071
-------- -------- -------- -------- --------
Gross profit .................... 22,194 22,366 19,635 18,610 18,186
Operating expenses:
Research and development ...... 7,007 6,187 3,986 3,575 3,315
Sales and marketing ........... 9,298 8,339 7,395 5,682 4,737
General and administrative .... 6,851 5,916 6,945 9,071 4,460
Long-lived asset impairment ... 341 -- -- -- --
Amortization of intangibles ... 575 641 1,098 1,093 1,061
-------- -------- -------- -------- --------
Operating income (loss) ......... (1,878) 1,283 211 (811) 4,613
Interest and other income
(expense), net ............... (76) 123 460 72 (1,106)
-------- -------- -------- -------- --------
Income (loss) before income
tax expense (benefit) ........ (1,954) 1,406 671 (739) 3,597
Income tax expense (benefit) .... (884) 11 (70) (573) 20
-------- -------- -------- -------- --------
Income (loss) before redeemable
preferred stock dividend and
beneficial conversion ........ (1,070) 1,395 741 (166) 3,577
Redeemable preferred stock
dividend and accretion of
beneficial conversion feature -- -- -- (3,853) --
-------- -------- -------- -------- --------
Income (loss) before cumulative
effect of accounting change .. (1,070) 1,395 741 (4,019) 3,577
Cumulative effect of accounting
change (net of applicable
income taxes of $1,500) ...... -- (2,447) -- -- --
-------- -------- -------- -------- --------
Net income (loss) available to
common shareholders .......... $ (1,070) $ (1,052) $ 741 $ (4,019) $ 3,577
======== ======== ======== ======== ========
Net income (loss) per share
before accounting change:
Basic ........................ $ (0.11) $ 0.14 $ 0.07 $ (0.47) $ 0.49
======== ======== ======== ======== ========
Diluted ...................... $ (0.11) $ 0.14 $ 0.07 $ (0.47) $ 0.46
======== ======== ======== ======== ========
Net income (loss) per share:
Basic ........................ $ (0.11) $ (0.11) $ 0.07 $ (0.47) $ 0.49
======== ======== ======== ======== ========
Diluted ...................... $ (0.11) $ (0.11) $ 0.07 $ (0.47) $ 0.46
======== ======== ======== ======== ========
Shares used to compute per share
amounts:
Basic ........................ 9,403 9,787 10,398 8,584 7,235
======== ======== ======== ======== ========
Diluted ...................... 9,403 10,189 10,965 8,584 7,833
======== ======== ======== ======== ========
AS OF DECEMBER 31,
-----------------------------------------------
2003 2002 2001 2000 1999
------- ------- ------- ------- -------
(in thousands)
CONSOLIDATED BALANCE SHEET
DATA:
Current assets ............... $21,694 $23,389 $24,963 $26,420 $18,325
Total assets ................. 44,333 46,506 49,841 50,364 40,222
Current liabilities .......... 6,031 6,793 5,963 6,318 7,340
Long-term debt, less current
portion ................... -- -- -- -- 11,459
Total stockholders' equity ... 38,302 39,713 43,878 44,046 21,422
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OVERVIEW -
BioSource develops, manufactures, markets and distributes products and services
that are widely used in biomedical research. Its 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. The Company
has 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. The Company also manufactures and markets custom oligonucleotides,
peptides and antibodies to the specifications of its customers. It uses
recombinant DNA technology to produce cytokines and other proteins and has
registered its analyte specific reagents with the FDA for which it has received
a license to sell such products as Class I Medical Devices. The Company markets
these products to in vitro diagnostic manufacturers and clinical reference
laboratories as "active ingredients" in the tests those parties produce to
identify specific diseases or conditions. In order to market these products as
medical devices, BioSource is required to be in compliance with the FDA's
Current Good Manufacturing Practices and Regulations. The Company believes it
offers a unique combination of technological, production, and research and
development skills resulting in a spectrum of products and services for the
worldwide pharmaceutical and biotechnology industries.
The Company manufactures products for inventory and typically ships products
shortly after receipt of orders and anticipates that it will continue to do so
in the future. Accordingly, the Company has not developed a significant backlog
of products and does not anticipate it will develop a material backlog of
products in the future.
During 2003, to better drive sales and profitability growth, and to focus on key
market opportunities, the Company began analyzing its business as three separate
product categories, or Strategic Business Units, "SBUs." These SBUs consist 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.
In November 2003, the Company hired Terrance J. Bieker as its new President and
Chief Executive Officer. With Mr. Bieker's leadership, during the fourth quarter
of 2003, the Company developed and implemented a business plan that clarifies
the Company's strategic focus for the future. This fundamental shift in strategy
is to focus the Company's time, effort and financial resources on its core
strengths as an assay company. These assay products are higher margin products
and generally fall into two categories, Cytokine and Signal Processing Assays.
The Company will be placing a more direct focus in the sales of cytokine assays
and their directly related products and the sales of signal transduction assays
and their directly related products. This strategic plan is designed to allow
BioSource to penetrate and increase its market share in the cytokine assay
market and continue to maintain a strong leadership position in the signaling
market, which includes the trademarked Phospho ELISA assays. This strategy will
focus the Company's direction on these high margin products and allow it to more
effectively market their complimentary product lines, including our Phospho Site
Specific Antibodies, or PSSA's, including its sera and media and its custom
products: peptides, antibodies and oligonucleotides.
As a result of this new strategic direction, certain assumptions related to
fixed, working and human assets were evaluated and revised. With a more focused
approach on assay kits and the directly related product lines, other
non-strategic products were discontinued. These non-strategic products included
outsourced cell surface marker and secondary antibodies and certain peptides,
and were analyzed for profitability and overall marketability. After its review,
the Company realized these products did not possess the characteristics for
significant growth or adequate profit margins in order for the Company to
continue to provide such products. This strategic shift has caused the Company
to review its existing product line and certain inventory levels and values. In
the fourth
16
quarter of 2003, $1.3 million of the Company's currently inventoried products
were discontinued, scrapped or fully reserved. For a detailed discussion, see
the discussion on the consolidated results of operations below.
The implementation of the new strategy is intended to bring continued positive
organic growth to the Company's sales for 2004 and beyond. The increased
investment in sales and marketing, in conjunction with our new strategy is
designed to bring a more focused approach to promoting and selling assays and
their directly related products. In addition, we have incorporated a corporate
account strategy into our selling approach which we believe will help support
our organic sales growth. As a result of its new strategy, the Company believes
overall gross profit and gross product margins should improve in 2004, when
compared to 2003 due to its more focused approach on selling assays, a higher
margin product than many of its other products. As a result, the Company
believes operating results should also improve in 2004 compared to 2003.
Management's longer term financial objective is to generate increasing annual
operating profits to the Company.
The following discussion should be read in conjunction with our consolidated
financial statements provided under Part II, Item 8 of this annual report on
Form 10-K. Certain statements contained herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, as discussed more
fully herein.
The forward-looking information set forth in this annual report on Form 10-K is
as of March 15, 2004, and the Company undertakes no duty to update this
information. Should events occur subsequent to March 15, 2004 that make it
necessary to update the forward-looking information contained in this Form 10-K,
the updated forward-looking information will be filed with the Securities and
Exchange Commission in a quarterly report on Form 10-Q or as an earnings release
included as an exhibit to a Form 8-K, each of which will be available at the
Securities and Exchange Commission's website at www.sec.gov. More information
about potential factors that could affect our business and financial results is
included in the section entitled "Risk Factors" beginning on page 26 of this
Form 10-K.
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 $6,566,000 in gross
trade accounts receivable and $258,000 in allowance for doubtful
accounts on the consolidated balance sheet at December 31, 2003. The
Company has procedures in place to adequately review the credit
worthiness of new customers and also to properly review orders from
existing customers to determine if a change in credit terms is
warranted. A review of our allowance for doubtful accounts is done
timely and consistently throughout the year. The Company does have
accounts receivable amounts from certain customers as of December 31,
2003 such that if their financial condition deteriorated and a
significant allowance was needed, the amount of allowance could have a
material adverse effect on the Company's financial results for 2004.
INVENTORY ADJUSTMENTS. The Company reviews the components of its
inventory on a regular basis for excess, obsolete and impaired
inventory based on estimated future usage and sales. In conjunction
with the new strategic direction the Company has taken, it may see
material write downs of inventory due to obsolescence or
discontinuation of certain product lines in the future. The Company
will be evaluating product lines on an ongoing basis.
17
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 December 31, 2003, the Company had $5,347,000 of
manufactured antibodies in its inventory and a reserve for these
antibodies totaling $5,347,000. The Company will continue to monitor
its antibody inventory and the continued need for a 100% reserve.
Additionally, material inventory write-downs in our inventory can occur
if competitive conditions or new product introductions by our customers
or us vary from our current expectations.
DEFERRED TAX ASSETS AND DEFERRED INCOME TAXES. The Company has
$12,441,000 in deferred income tax assets on its consolidated balance
sheet as of December 31, 2003. See note 8 to the consolidated financial
statements included in this Form 10-K for a listing of the specific
components. A large component of the Company's deferred tax assets is
its net operating losses. As of December 31, 2003, the Company has a
net operating loss (NOL) carryforward of approximately $11,540,000,
$14,152,000 and $1,443,000 for Federal, State and foreign income tax
purposes, respectively. The federal NOL's are available to offset
future taxable income, if any, through 2020 to 2023. The state NOL's
are available to offset future taxable income, if any, through 2006 to
2023.
As of December 31, 2003, the Company determined it is necessary to set
up a valuation allowance of $393,000 for deferred tax assets related to
net operating losses it has accumulated for the State of Massachusetts.
This allowance is included in the net deferred tax assets on its
balance sheet as of December 31, 2003. The ability to realize these net
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, except for the valuation allowance
previously discussed, it is more likely than not that they will be able
to realize the current value of net 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.
ADVERTISING COSTS. For the year ended December 31, 2003, the Company
capitalized its annual catalog production costs and expensed them
evenly throughout the year. 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 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. For the year ended December 31, 2003, the Company
expensed approximately $560,000 of catalog costs compared to $529,000
and $419,000 for the years ended December 31, 2002 and 2001
respectively.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in preparation of our consolidated
financial statements.
REVENUE RECOGNITION. The Company's revenue is generated from the sale
of products primarily manufactured internally. The Company does have a
small amount of products that are sold on an outside equipment ("OEM")
basis. The Company sells standard and custom products directly to end
users and distributors and recognizes revenue upon transfer of title to
the customer, which occurs upon shipment. General sales and payment
terms to distributors are similar to those granted to end user
customers. Certain end user customers prepay for product and request
shipment of the product at future dates, primarily sera or media
products. The Company records deferred revenue until such time as a
product is shipped to a customer. Approximately 25% of the Company's
2003 net sales were to
18
distributors. 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.
LONG-LIVED ASSETS. In October, 2001 the Financial Accounting Standards
Board ("FASB") issued Statement on Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. While SFAS No. 144
supersedes SFAS No.121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," it retains many of
the fundamental provisions of that statement. The standard is effective
for fiscal years beginning after December 15, 2001. 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. In
the quarter ended December 31, 2003, the Company incurred a long-lived
asset impairment charge of $341,000 related to the sale or disposition
of certain fixed assets primarily related to the Company's
oligonucleotide division. The Company has determined that all its
remaining long-lived assets are not impaired as of December 31, 2003.
The Company's long-lived assets were not impaired as of December 31,
2002.
CONSOLIDATED RESULTS OF OPERATIONS
The selected data presented below under the caption "Consolidated Statement of
Operations Data Presented as a Percentage of Sales" for each of the years ended
December 31, 2003, 2002 and 2001 are derived from the audited consolidated
financial statements of the Company. The following selected data should be read
in conjunction with the Company's consolidated financial statements and notes
thereto, as well as the data and information included herein entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONSOLIDATED STATEMENT OF OPERATIONS DATA YEARS ENDED DECEMBER 31,
PRESENTED AS A PERCENTAGE OF SALES 2003 2002 2001
---- ---- ----
Net sales ........................................ 100% 100% 100%
Cost of sales .................................... 50% 44% 44%
---- ---- ----
Gross profit ................................. 50% 56% 56%
Operating expenses:
Research and development ..................... 16% 15% 11%
Sales and marketing .......................... 21% 21% 21%
General and administrative ................... 16% 15% 20%
Long-lived asset impairment .................. 1% 0% 0%
Amortization of intangibles .................. 1% 2% 3%
---- ---- ----
Total operating expenses ................ 54% 53% 55%
---- ---- ----
Operating income (loss) .......................... -4% 3% 1%
Interest income .................................. 0% 0% 1%
Interest expense ................................. 0% 0% 0%
Other income, net ................................ 0% 0% 0%
---- ---- ----
Income (loss) before income tax (benefit) ........ -4% 3% 2%
Income tax expense (benefit) ..................... 2% 0% 0%
---- ---- ----
Income (loss) before cumulative
effect of accounting change .......... -2% 3% 2%
Cumulative effect of accounting change ........... 0% -6% 0%
---- ---- ----
Net income (loss) available to common
stockholders ................................. -2% -3% 2%
==== ==== ====
19
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
NET SALES. Net sales for the year ended December 31, 2003 were a record $44.1
million, an increase of $4 million or 10% compared to net sales for the year
ended December 31, 2002. In 2003, the Company's revenues benefited by a
$2,082,000 positive impact of foreign exchange when compared to 2002.
For the year ended December 31, 2003, sales of the Company's signaling product
lines grew 31% compared to the comparable prior year period, from $6,900,000 to
$9,100,000. 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 product lines
for the year ending December 31, 2003 was 10%, growing from $18,200,000 to
$20,100,000. The cytokine market is a mature market which the Company believes
continues to have opportunities for sales growth through focused sales and
marketing efforts and through targeted research and development activities. The
Company's sales in its custom product lines remained flat compared to the
comparable prior year period at $14,900,000.
North American sales represented 56% of consolidated net sales in 2003 and grew
2% as compared to the twelve months ended December 31, 2002. North American
sales grew primarily due to increases in cytokine and signaling products offset
by lower sales in our custom products, particularly our oligonucleotide product
line. European sales represented 31% of consolidated net sales in 2003 and grew
23% (9% in local currency), as compared to the comparable prior year period.
European sales growth was primarily due to our signaling products, including our
Phospho ELISA's and our diagnostic product line. Sales in Japan and the rest of
the world, representing 13% of consolidated net sales, increased 18% compared to
2002. Sales growth in Japan and the rest of the world was primarily due to
increases in our signaling product lines and continued penetration of products
into countries outside of Europe and North America. When compared to 2002, our
2003 sales in Europe and Japan have increased as a percentage of total
consolidated sales while North American sales have decreased as a percentage of
total consolidated sales. The Company does not believe this is indicative of a
long term trend and that it will see fluctuations of its sales in various
geographical regions in the future.
The Company experienced a slowdown in sales in the third and fourth quarters of
2003 when compared to its internal operating expectations. The Company believes
this was attributable in part to a slowdown in spending by the major US
pharmaceutical and biotech companies during this time and to a delay in funding
to the National Institutes of Health, which funds many academic life science
research projects throughout the United States.
GROSS PROFIT. Gross profit margin was 50% for the year ended December 31, 2003
and 56% for the year ended December 31, 2002. The Company's margin decreased 6%
due in part to the change in strategic direction discussed above. With this
change in strategic direction, various assumptions related to specific
inventoried items were evaluated and revised. With a more focused approach on
assay kits and the directly related product lines, other non-strategic products
were discontinued. The Company reviewed its catalog of products and eliminated
over 400 non-strategic products. Accordingly, in the fourth quarter of 2003,
approximately $250,000 of catalog products were discontinued and $1 million of
inventoried products were evaluated and scrapped or fully reserved. The Company
continues to evaluate catalog products on an ongoing basis. While the impact to
our financial results from our continuing evaluation of catalog products is
unknown at this time, any such evaluation could be material to the operating
results of the Company.
General increases in the Company's scrap and obsolescence contributed to this
margin decrease. Also contributing to this full year margin decrease were lower
margins in the Company's custom product lines, specifically our oligonucleotide
and custom peptide product lines. Steps have been taken to reduce our cost of
manufacturing in the custom product lines and we are projecting to see an
improvement in consolidated gross profit margin in 2004.
RESEARCH AND DEVELOPMENT. Research and development expense for the year ended
December 31, 2003 and 2002 was $7.0 million and $6.2 million and represented 16%
and 15% of sales, respectively. The increase in research and development
expenses for the year ended December 31, 2003 when compared to the prior year
period reflects the Company's increased expenses for additional personnel and
materials in the cytokine and signal transduction research areas. For the year,
the Company increased R & D spending by 13% and expects, with the focus on
cellular pathway assays and related biologicals, to keep 2004 spending in line
with 2003 spending
20
levels. This total investment in the Company's research capabilities has
resulted in the commercialization of high quality, novel products which have
produced increased sales in both the Cytokine and Signaling product lines.
SALES AND MARKETING. Sales and marketing expenses were $9,298,000 for the year
ended December 31, 2003 and $8,339,000 for the year ended December 31, 2002,
representing 21% of sales for each of the years 2003 and 2002. In the twelve
months ended December 31, 2003, the Company's sales and marketing payroll and
related expenses increased $900,000 from 2002 due to increased commissions and
the hiring of certain sales and marketing positions in late 2002 and a new Vice
President of Sales in December 2002. Marketing expenses including catalogs,
advertising, and trade shows decreased $95,000 in 2003 compared to 2002. Travel
expenses increased $170,000 due to increased costs related primarily to selling
activities. The Company anticipates a continued increased investment in its
sales and marketing, but will manage this investment in line with anticipated
2004 revenue growth.
For the year ended December 31, 2003, the Company expensed approximately
$560,000 of catalog costs compared to $529,000 for the year ended December 31,
2002.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $6,851,000
and $5,916,000 for the years ended December 31, 2003 and 2002, representing 16%
and 15% of sales for each of the years 2003 and 2002, respectively. This
represents an increase of G & A expenses in 2003 of $935,000 compared to 2002.
Included in the 2003 G & A number is $560,000 of severance and sign on expenses
related to the resignation of our previous CEO in September 2003 and the hiring
of our new CEO in November 2003. Additional severance costs related to other
employee terminations in 2003 totaled $130,000. Excluding this $690,000 of
costs, 2003 general and administrative expenses increased by $375,000 compared
to 2002 and represented 14% of sales. This increase was due primarily to
increases in our reserve for doubtful accounts, travel expenses, consulting and
accounting fees. These increases in expenses were offset by a decrease in
certain benefit and incentive costs due to the lower than planned operating
performance in 2003, and thus lower incentives being accrued for the Company in
2003 compared to 2002.
AMORTIZATION OF INTANGIBLES. In July 2001, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No.
142, "Accounting For Goodwill and Other Intangible Assets." The amortization of
goodwill and intangible assets was approximately $575,000 and $641,000 for the
years ended December 31, 2003 and 2002, respectively. Effective January 1, 2002,
the Company's goodwill and other intangible assets are accounted for under FAS
No. 142 "Goodwill and Other Intangible Assets." See discussion in the cumulative
effect of accounting change section below.
NET INTEREST INCOME. Interest income was $31,000 in 2003 compared to $113,000 in
2002. This interest income was derived from the interest income on cash invested
in short-term securities. Interest income in 2003 was offset by $4,000 of
interest expense related to miscellaneous interest charges and fees. The
decrease in interest income was the result of lower cash amounts invested in
short-term interest bearing accounts in 2003 compared to 2002.
OTHER INCOME (EXPENSE), NET. Other expense, net was $103,000 in 2003 compared to
net other income $10,000 in 2002. These net amounts consisted primarily from net
gains and losses realized on foreign currency transactions.
INCOME TAX EXPENSE (BENEFIT). The Company is recognizing an income tax benefit
of $884,000 for the year ended December 31, 2003. The Company's income taxes
have and may continue to fluctuate in the future depending on a number of
factors, including the ability to use its net deferred tax assets as of December
31, 2003. The Company believes it is more likely than not that it will be able
to use those assets. In addition, 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.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. In July 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("FAS") No.141, "Accounting For Business
21
Combinations," and FAS No. 142, "Accounting For Goodwill and Other Intangible
Assets." FAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. FAS No. 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized to earnings, but instead be reviewed for impairment in accordance with
FAS No. 142. The amortization of goodwill and intangible assets was
approximately $575,000, $641,000, and $1,098,000, for fiscal years ended
December 31, 2003, 2002, and 2001, respectively. Effective January 1, 2002, the
Company's goodwill and other intangible assets are accounted for under FAS No.
141 "Business Combinations" and FAS No. 142 "Goodwill and Other Intangible
Assets." In 2002, the Company recognized a non-cash charge, net of applicable
income taxes, of $2,447,000 representing the cumulative effect of a change in
accounting principle resulting from the implementation of FAS 142. This amount
is shown in the accompanying condensed consolidated statement of operations as a
cumulative effect of an accounting change.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
NET SALES. Net sales for the twelve months ended December 31, 2002 were
$40,055,000, an increase of $4,880,000, or 14%, (13% after eliminating the
$476,000 positive impact of foreign exchange) compared to net sales for the
twelve months ended December 31, 2001. North America sales, which represented
61% of consolidated net sales in 2002, grew $2,243,000 or 10% as compared to the
twelve months ended December 31, 2001. European sales, which represent 27% of
consolidated net sales in 2002, grew $2,090,000 or 24% (18% in local currency),
as compared to the comparable prior year period. Sales in Japan and the rest of
the world, representing 12% of consolidated net sales, increased 13% compared to
2001. North American sales grew 10% primarily due to an increase in sales of
assays, proteins, serum and media and signal transduction antibodies. European
sales grew 18% in local currency primarily due to assays, proteins, antibodies
and diagnostic products. Sales in Japan and the rest of the world grew 13%
primarily due to a full year distributor agreement in place with our Japanese
distributor and continued penetration of products into countries outside of
Europe and North America.
GROSS PROFIT. Gross profit for the year ended December 31, 2002 was $22,366,000,
resulting in a gross margin of 56%, compared to a gross profit of $19,635,000,
and a gross margin of 56% for the year ended December 31, 2001. The Company's
margins remained constant in part due to the continued investment in production
and planning related areas within the Company. The Company's 2002 consolidated
margin of 56% was impacted by lower oligonucleotides sales in 2002 compared to
2001. These lower sales resulted in excess fixed costs being charged directly to
cost of sales.
RESEARCH AND DEVELOPMENT. Research and development expense for the twelve months
ended December 31, 2002 and 2001 was $6,187,000 and $3,986,000 and represented
15% and 11% of sales respectively. The increase in research and development
expenses for the twelve months ended December 31, 2002 when compared to the
comparable prior year period reflected the Company's investment in additional
personnel and materials in the cytokine and signal transduction research areas
with the goal of producing additional novel and proprietary products. The
Company incrementally hired 18 additional research and development personnel
during 2002 and more than doubled its core product introduction rate from 2001
to 2002.
SALES AND MARKETING. Sales and marketing expenses were $8,339,000 for the twelve
months ended December 31, 2002 and $7,395,000 for the twelve months ended
December 31, 2001, representing 21% of sales for each of the years 2002 and
2001. In the twelve months ended December 31, 2002, the Company's sales and
marketing expenses in personnel and marketing programs increased $806,000 from
the comparable prior year period. During 2002, the Company incrementally hired 8
additional employees in sales and marketing, including people in our technical
service and sales departments.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $5,916,000
and $6,945,000 for the years ended December 31, 2002 and 2001, representing 15%
and 20% of sales for each of the years 2002 and 2001, respectively. This
represented a decrease of $1,029,000, or 15% in 2002 compared to 2001. Excluding
$1,406,000 of net general and administrative charges in 2001 that were related
to non-recurring employee and legal matters, the Company decreased its general
and administrative expenses, as a percentage of sales, from 16% for the year
ended December 31, 2001 to 15% for the year ended December 31, 2002.
22
AMORTIZATION OF INTANGIBLES. In July 2001, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No.
142, "Accounting For Goodwill and Other Intangible Assets." The amortization of
goodwill and intangible assets was approximately $641,000 and $1,098,000 for the
years ended December 31, 2002 and 2001, respectively. Effective January 1, 2002,
the Company's goodwill and other intangible assets are accounted for under FAS
No. 142 "Goodwill and Other Intangible Assets." See discussion in the cumulative
effect of accounting change section below.
INTEREST INCOME. Interest income was $113,000 in 2002 compared to $376,000 in
2001. This interest income was derived from the interest income on cash invested
in short-term securities. The decrease in interest income was the result of
lower cash amounts invested in short-term interest bearing accounts in 2002
compared to 2001 and lower average short-term interest rates in 2002 compared to
2001.
OTHER INCOME, NET. Other income, net was $10,000 in 2002 compared to $86,000 in
2001. The net other income in 2002 and 2001 consisted primarily from gains
realized on foreign currency transactions.
INCOME TAX EXPENSE (BENEFIT). The effective tax rate for the twelve months
ending December 31, 2002 and 2001 was 1% and (10%) respectively. The Company
benefited from R & D and other tax credits which when applied to income levels
for the periods presented resulted in effective tax rates lower than the current
applicable federal and state statutory rates. In the fourth quarter of 2002, the
Company elected to utilize the Extraterritorial Income Exclusion ("EIE") federal
tax credit, which, along with other tax credits, reduced its effective tax rate
for 2002 to 1%.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. In July 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("FAS") No.141, "Accounting For Business Combinations," and FAS No. 142,
"Accounting For Goodwill and Other Intangible Assets." FAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. FAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized to earnings, but
instead be reviewed for impairment in accordance with FAS No. 142. The
amortization of goodwill and intangible assets was approximately $641,000,
$1,098,000, and $1,093,000, for fiscal years ended December 31, 2002, 2001, and
2000, respectively. Effective January 1, 2002, the Company's goodwill and other
intangible assets have been accounted for under FAS No. 141 "Business
Combinations" and FAS No. 142 "Goodwill and Other Intangible Assets."
23
QUARTERLY RESULTS
The following table sets forth various unaudited statement of operations data
for the last eight quarters, which has been prepared on the same basis as the
annual information and, in management's opinion, includes all adjustments
necessary to present fairly the information for each of the quarters below.
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2003 2003 2003 2003 2002 2002 2002 2002
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
Net sales ..................... $ 10,717 $ 10,744 $ 11,734 $ 10,899 $ 9,881 $ 10,101 $ 10,292 $ 9,781
Cost of goods sold ............ 6,740 5,079 5,391 4,690 4,580 4,365 4,548 4,196
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit .................. 3,977 5,665 6,343 6,209 5,301 5,736 5,744 5,585
Research and development ...... 1,478 1,687 1,863 1,979 1,825 1,557 1,512 1,293
Sales and marketing ........... 2,234 2,188 2,488 2,388 2,100 1,961 2,013 2,266
General and administrative .... 2,187 1,729 1,359 1,576 1,590 1,394 1,471 1,460
Impairment of long-lived assets 341 -- -- -- -- -- -- --
Amortization of intangibles ... 140 145 145 145 160 160 160 160
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations . (2,403) (84) 488 121 (374) 664 588 406
Interest income, net .......... 2 (2) 16 11 31 21 20 40
Other income (expense), net ... (3) (19) (63) (18) 19 (8) (31) 30
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes (benefit) ............ (2,404) (105) 441 114 (324) 677 577 476
Income tax expense (benefit) .. (987) (24) 116 11 (370) 149 127 105
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before cumulative
effect of accounting change (1,417) (81) 325 103 46 528 450 371
Cumulative effect of change in
accounting change .......... -- -- -- -- -- 423 -- (2,870)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ............. $ (1,417) $ (81) $ 325 $ 103 $ 46 $ 951 $ 450 $ (2,499)
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per diluted
share ...................... $ (0.15) $ (0.01) $ 0.03 $ .01 $ (0.00) $ 0.09 $ 0.04 $ (0.23)
======== ======== ======== ======== ======== ======== ======== ========
Diluted shares used to compute
per share amounts .......... 9,359 9,181 9,885 10,026 10,052 10,029 10,101 10,727
======== ======== ======== ======== ======== ======== ======== ========
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of December 31, 2003 of $3,297,000 decreased by
$2,644,000, or 45%, from $5,941,000 at December 31, 2002. In 2003, $875,000 of
cash was provided by operating activities, $1,068,000 and $2,403,000 were used
in investing and financing activities, respectively.
The $583,000 of cash provided from operations was derived primarily from the
2003 net loss of $1,070,000 offset by $2,620,000 of depreciation and
amortization, a $341,000 long-lived asset impairment charge, which was offset by
the decrease in cash due to the net increase in other working capital components
of $1,846,000.
Net cash used in investing activities in 2003 was $1,068,000 and was related to
the cash outlay for capital expenditures, which were primarily for the purchase
of laboratory and manufacturing equipment, offset by the proceeds from the sales
of certain equipment. The Company anticipates capital spending in 2004 to be at
higher levels than incurred in 2003.
Net cash used in financing activities in 2003 was $2,403,000 of which $1,075,000
was provided from the exercise of employee stock options and $3,478,000 was used
in the repurchase of the Company's common stock pursuant to a stock repurchase
program effective October 30, 2001. The repurchase program allows for spending
up to $15,000,000 on the repurchase of the Company's common stock. The stock
repurchase program expires on June 30, 2004. Through March 15, 2004, the Company
had spent a total $8,734,000 and may
24
continue to repurchase its common stock until the $15,000,000 limit is used;
however no repurchases were conducted by the Company in the fourth quarter of
2003.
The Company has never paid dividends on common stock and has no plans to do so
in fiscal 2004. Our earnings will be retained for reinvestment in the business.
The Company has entered into various leases involving facility properties,
copiers and automobiles. Lease expense for 2004 will be approximately
$1,474,000.
At December 31, 2003, we had the following cash commitments:
PAYMENT DUE BY PERIOD
LESS
THAN 2-3 4-5 AFTER
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
- ----------------------- ------ ------ ------ ------ ------
Long-Term Debt Obligations ........ $ 0 $ 0 $ 0 $ 0 $ 0
Operating Lease Obligations ....... 3,369 1,474 1,836 59 0
Purchase obligations .............. 2,621 2,621 0 0 0
------ ------ ------ ------ ------
Total ............................. $5,990 $4,095 $1,836 $ 59 $ 0
====== ====== ====== ====== ======
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. The Company received a waiver from its commercial bank for
the three months ended September 30, 2003 and December 31, 2003 with respect to
the profitability covenant it maintains on this one-year revolving loan. As of
December 31, 2003 and from January 1, 2004 through March 15, 2004, 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.
Notwithstanding its new strategic objectives, 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board issued Statement No.
143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). This new
pronouncement establishes financial accounting and reporting standards for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The provisions of SFAS No. 143 apply to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or the normal operation of a
long-lived asset, except for obligations of lessees. The standard was effective
for financial statements issued for fiscal years beginning after June 15, 2002.
We adopted this standard effective January 1, 2003.
In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables." EITF 00-21 addresses the accounting
for contractual arrangements in which revenue-generating activities are
performed. In some situations, the different revenue-generating activities
(deliverables) are sufficiently separable and there exists sufficient evidence
for fair values to account separately for the different deliverables (that is,
there are separate units of accounting). In other situations, some or all of the
different deliverables are closely interrelated or there is not sufficient
evidence of fair value to account separately for the different
25
deliverables. EITF 00-21 addresses when and, if so, how an arrangement involving
multiple deliverables should be divided into separate units of accounting. EITF
00-21 is effective for interim periods beginning after June 30, 2003. The
adoption of EITF 00-21 did not have a material effect on the Company's financial
statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure," an amendment of FASB Statement No. 123,
which provides guidance for transition to the fair value based method of
accounting for stock-based employee compensation and the required financial
statement disclosure. The adoption of SFAS No. 148 expanded the disclosure in
our interim financial statements, and does not significantly impact our annual
disclosures of stock-based compensation in our consolidated financial
statements.
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others." FIN No. 45 requires a company
to recognize a liability for the obligations it has undertaken to issue a
guarantee. This liability would be recorded at the inception of the guarantee
and would be measured at fair value. The measurement provisions of this
statement apply prospectively to guarantees issued or modified after December
31, 2002. The disclosure provisions of the statement apply to financial
statements for periods ending after December 15, 2002. The adoption of FIN No.
45 does not have a material impact on the financial position or results of
operations.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46).
This interpretation clarifies the application of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements" (ARB 51), and requires companies to
evaluate variable interest entities for specific characteristics to determine
whether additional consolidation and disclosure requirements apply. This
interpretation is immediately applicable for variable interest entities created
after January 31, 2003, and applies to the first fiscal year or interim period
beginning after June 15, 2003 for variable interest entities acquired prior to
February 1, 2003. The adoption of this interpretation did not have any impact on
our financial position or results of operations. In December 2003, the FASB
revised FIN 46 to exempt certain entities from its requirements and to clarify
certain issues arising during the implementation of FIN 4. The adoption of this
revised interpretation in the first quarter of 2004 is not expected to have any
impact on our consolidated financial statements.
In May 2003, the Financial Accounting Standards Board issued Statement No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." The Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). It is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. We adopted this standard
effective July 1, 2003, and it did not have a material effect on our
consolidated financial statements.
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 occurs, 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 EXECUTE ON OUR NEWLY ADOPTED LONG-TERM STRATEGIC PLAN COULD IMPAIR
OUR BUSINESS.
The Company historically has sought to increase its sales and profitability
primarily through the acquisition or internal development of new product lines,
additional customers and new businesses. Our historical revenue
26
growth is primarily attributable to our acquisitions and new product development
and, to a lesser extent, to increased revenues from our existing products. In
the quarter ended December 31, 2003, we adopted a fundamental shift in strategy
to focus our time, effort and financial resources on our core strengths as an
assay company. We have built a strategic plan to continue to penetrate and
increase our market share in the cytokine assay market and continue to maintain
a strong leadership position in the Phospho ELISA assay market. This strategy
will focus our energies on these high margin products and allow us to pull
through our complimentary product lines, including our Phospho Site Specific
Antibodies, or PSSA's, sera and media and our custom products, peptides,
antibodies and oligonucleotides.
Our ability to achieve our new strategic objectives depends upon a variety of
factors, including:
o the market's continuing acceptance of our assay products;
o our ability to internally develop new products;
o our ability to acquire products or licenses to necessary technologies;
o our ability to facilitate transactions with strategic partners;
o establishment of new relationships or expansion of existing
relationships with customers and suppliers; and
o availability of capital.
Additionally, our shift in strategy has caused us to evaluate other
non-strategic products, such as outsourced cell surface marker antibodies and
discontinue them. The Company reviewed its catalog of products and eliminated
over 400 non-strategic products. Accordingly, in the fourth quarter of 2003,
approximately $250,000 of catalog products were discontinued and $1 million of
inventoried products were evaluated and scrapped or fully reserved. This
evaluation of catalog products is expected to continue in the future. While the
impact to our financial results from our continuing evaluation of catalog
products is unknown at this time, any such evaluation could be material to the
operating results of the Company.
If our management is unable to manage this strategic shift effectively, our
operating results could be adversely affected. Moreover, there can be no
assurance that our historic rate of growth will continue through this strategic
shift, 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.
The Company competes for acquisition and expansion opportunities with companies
which have significantly greater financial and management resources than us.
There can be no assurance that suitable acquisition or investment opportunities
will be identified, that any of these transactions can be consummated, or that,
if acquired, these new businesses can be integrated successfully and profitably
into our operations. These acquisitions and investments may also require a
significant allocation of resources, which will reduce our ability to focus on
the other portions of our business, including many of the factors listed in the
prior risk factor.
REDUCTION OR DELAYS IN RESEARCH AND DEVELOPMENT BUDGETS AND IN GOVERNMENT
FUNDING MAY NEGATIVELY IMPACT OUR SALES.
Our customers include researchers at pharmaceutical and biotechnology companies,
academic institutions and government and private laboratories. Fluctuations in
the research and development budgets of these researchers and their
organizations could have a significant effect on the demand for our products.
Research and development budgets fluctuate due to numerous factors that are
outside our control and are difficult to predict, including changes in available
resources, spending priorities and institutional budgetary policies. Our
business could be seriously damaged by any significant decrease in life sciences
research and development expenditures by pharmaceutical and biotechnology
companies, academic institutions or government and private laboratories.
A significant portion of our sales has been to researchers, universities,
government laboratories and private foundations whose funding is dependent upon
grants from government agencies such as the U.S. National Institutes of Health
and similar domestic and international agencies. Although the level of research
funding 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
27
approval of government budget proposals. Also, government proposals to reduce or
eliminate budgetary deficits have sometimes included reduced allocations to the
NIH and other government agencies that fund research and development activities.
A reduction in government funding for the NIH or other government research
agencies could seriously damage our business.
Many of our customers receive funds from approved grants at particular times of
the year, as determined by the federal government. Grants have, in the past,
been frozen for extended periods or have otherwise become unavailable to various
institutions without advance notice. The timing of the receipt of grant funds
affects the timing of purchase decisions by our customers and, as a result, can
cause fluctuations in our sales and operating results.
WE RELY ON RAW MATERIALS AND SPECIALIZED EQUIPMENT FOR OUR MANUFACTURING, WHICH
WE MAY NOT ALWAYS BE ABLE TO OBTAIN ON FAVORABLE TERMS.
Our manufacturing process relies on the continued availability of high-quality
raw materials and specialized equipment. It is possible that a change in
vendors, or in the quality of the raw materials supplied to us, could have an
adverse impact on our manufacturing process and, ultimately, on the sale of our
finished products. We have from time to time experienced a disruption in the
quality or availability of key raw materials, which has created minor delays in
our ability to fill orders for specific test kits. This could occur again in the
future, resulting in significant delays, and could have a detrimental impact on
the sale of our products and our results of operations. In addition, we rely on
highly specialized manufacturing equipment that if damaged or disabled could
adversely affect our ability to manufacture our products and therefore
negatively impact our business. We rely on the timely transport of raw
materials. Any disruption in transportation systems could have an adverse impact
on our ability to manufacture and supply products.
OUR ABILITY TO RAISE THE CAPITAL NECESSARY TO EXPAND OUR BUSINESS OR OTHERWISE
ACHIEVE OUR LONG-TERM OBJECTIVES IS UNCERTAIN.
In the future, in order to expand our business through internal development or
acquisitions or to otherwise achieve our long-term objectives, we may need to
raise substantial additional funds through equity or debt financings, research
and development financings or collaborative relationships. However, this
additional funding may not be available or, if available, it may not be
available on economically reasonable terms. In addition, any additional funding
may result in significant dilution to existing stockholders. If adequate funds
are not available, we may be required to curtail our operations or obtain funds
through collaborative partners that may require us to release material rights to
our products.
OUR RESEARCH AND DEVELOPMENT EFFORTS FOR NEW PRODUCTS MAY BE UNSUCCESSFUL.
We incur significant research and development expenses to develop new products
and technologies. There can be no assurance that any of these products or
technologies will be successfully developed or that if developed, will be
commercially successful. In the event that we are unable to develop
commercialized products from our research and development efforts or we are
unable or unwilling to allocate amounts beyond our currently anticipated
research and development investment, we could lose our entire investment in
these new products and technologies. Any failure to translate research and
development expenditures into successful new product introductions could have an
adverse effect on our business.
FAILURE TO LICENSE NEW TECHNOLOGIES COULD IMPAIR OUR NEW PRODUCT DEVELOPMENT.
Our business model of providing products to researchers working on a variety of
genetic projects requires us to develop a wide spectrum of products. To generate
broad product lines it is advantageous to sometimes license technologies from
others rather than depending exclusively on our own employees. As a result, we
believe our ability to license new technologies from third parties is and will
continue to be important to our ability to offer new products.
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
28
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;
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
29
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 their cash from operations or other sources will be sufficient to
meet these ongoing requirements.
FAILURE TO ATTRACT AND RETAIN QUALIFIED SCIENTIFIC OR PRODUCTION PERSONNEL OR
LOSS OF KEY MANAGEMENT OR KEY PERSONNEL COULD HURT OUR BUSINESS.
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing are 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. 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 our key management or
employees could have a material adverse effect upon our business.
MANY OF OUR CUSTOMERS ARE OBTAINING OUR PRODUCTS THROUGH NEW DISTRIBUTION
CHANNELS AND METHODS THAT MAY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
A number of our customers have developed purchasing initiatives to reduce the
number of vendors they purchase from in order to lower their supply costs. In
some cases, these customers have established agreements with large distributors
which include discounts and the distributors' direct involvement with the
purchasing process. For similar reasons, many larger customers, including the
federal government, have special pricing arrangements, including blanket
purchase agreements. These agreements may limit our pricing flexibility with
respect to our products, which could adversely impact our business, financial
condition and results of operations. In addition, although we accept and process
some orders through our Internet website, we also implement sales through a
third party Internet vendor. Internet sales through third parties will
negatively impact our gross margins because we pay commission on these Internet
sales. On the other hand, if we do not enter into arrangements with third-party
e-commerce providers, we may lose customers who prefer to purchase products
using these Web sites. Our business may be harmed as a result of these Web sites
or other sales methods which may be developed in the future.
WE RELY ON AIR TRANSPORT TO SHIP PRODUCTS TO OUR CUSTOMERS
Any disruption in standard air transport systems could have an adverse effect on
our business.
WE RELY ON INTERNATIONAL SALES, WHICH ARE SUBJECT TO ADDITIONAL RISKS.
International sales accounted for approximately 46% of our revenues in 2003, 41%
of our revenues in 2002, and 40% of our revenues in 2001. 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;
30
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; 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; and
o potentially adverse tax consequences of overlapping tax structure.
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 31% of our sales are made in foreign currencies,
primarily Euros and British pounds. A significant portion of the foreign
currencies in which we conduct our business is currently denominated in Euros.
The Company is not certain about the effect of the Euro on our business,
financial condition or results of operations. In the past, gains and losses on
the collection of our accounts receivable arising from international operations
have contributed to negative fluctuations in our results of operations. In
general, increases in the exchange rate of the United States dollar to foreign
currencies cause our products to become relatively more expensive to customers
in those countries, leading to a reduction in sales or profitability in some
cases. We historically have not, and currently are not, using hedging
transactions or other means to reduce our exposure to fluctuations in the value
of the United States dollar as compared to the foreign currencies in which many
of our sales are made.
OUR OPERATING RESULTS MAY FLUCTUATE.
Our operating results may vary significantly quarter to quarter and from year to
year as a result of a variety of factors. These factors include:
o level of demand for our products;
o changes in our customer and product mix;
o timing of acquisitions and investments in infrastructure;
31
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.
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.
32
ACCIDENTS RELATED TO HAZARDOUS MATERIALS COULD ADVERSELY AFFECT OUR BUSINESS.
Portions of our operations require the controlled use of hazardous and
radioactive materials. Although we believe our safety procedures comply with the
standards prescribed by federal, state, local and foreign regulations, the risk
of accidental contamination of property or injury to individuals from these
materials cannot be completely eliminated. In the event of an accident, we could
be liable for any damages that result, which could seriously damage our business
and results of operations.
OUR SALES ARE SUBJECT TO SEASONALITY, WHICH MEANS THAT WE HAVE LESS REVENUE IN
SOME MONTHS.
We experience a slowing of sales in Europe during the summer months and
worldwide during the Christmas holidays. Generally, our fourth quarter revenues
are lower than our revenues in each of the first three quarters of the year. We
believe that period to period comparisons of our operating results may not
necessarily be reliable indicators of our future performance. It is likely that
in some future period our operating results will not meet expectations or those
of public market analysts, which could result in reductions in the market price
of our common stock.
POTENTIAL PRODUCT LIABILITY CLAIMS COULD AFFECT OUR EARNINGS AND FINANCIAL
CONDITION.
We face a potential risk of liability claims based on our products and services,
and we have faced such claims in the past. We carry product liability insurance
coverage which is limited in scope and amount but which we believe to be
adequate. We cannot assure you, however, that we will be able to maintain this
insurance at reasonable cost and on reasonable terms. We also cannot assure that
this insurance will be adequate to protect us against a product liability claim,
should one arise.
THE LABOR LAWS APPLICABLE TO OUR EMPLOYEES IN EUROPE MAY RESTRICT THE
FLEXIBILITY OF OUR MANAGEMENT.
As of March 1, 2004, 61 of our 271 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;
o timing of product introductions;
o ability to develop, maintain and protect proprietary products and
technologies;
o sales and distribution capabilities;
33
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;
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;
34
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 $4.89 to $13.69 per share from January 1, 2001
through March 15, 2004 and from $6.40 to $8.09 per share from January 1, 2004
through March 15, 2004. For additional information regarding the price range of
our common stock, see "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters."
In addition, the stock market in general has experienced extreme price and
volume fluctuations that have affected the market price of our common stock, as
well as the stock of many biotechnology companies. Often, price fluctuations are
unrelated to operating performance of the specific companies whose stock is
affected.
In the past, following periods of volatility in the market price of a company's
stock, securities class action litigation has occurred against the issuing
company. If we were subject to this type of litigation in the future, we could
incur substantial costs and a diversion of our management's attention and
resources, each of which could have a material adverse effect on our revenue and
earnings. Any adverse determination in this type of litigation could also
subject us to significant liabilities.
ANTI-TAKEOVER PROVISIONS IN OUR GOVERNING DOCUMENTS AND UNDER APPLICABLE LAW
COULD IMPAIR THE ABILITY OF A THIRD PARTY TO TAKE OVER OUR COMPANY.
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.
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 33.5% of our outstanding common stock, based upon
the beneficial ownership of our common stock as of March 15, 2004. In addition,
these same persons also hold options to acquire additional
35
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 33.5% of our outstanding common stock, based upon the beneficial
ownership of our common stock as of March 15, 2004. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We conduct business in various foreign currencies, including Euros and British
pounds, and are therefore subject to the transaction exposures that arise from
foreign exchange rate movements between the dates that foreign currency
transactions are initiated and the dates that they are converted. We are also
subject to exchange rate exposures arising from the translation and
consolidation of the financial results of our foreign subsidiaries. Although a
significant portion of the foreign currencies in which we conduct our business
is currently, or is anticipated in the future to be, denominated in Euros as a
result of the European Monetary Union, we are not certain about the effect of
the Euro on our business, financial condition or results of operations. We do
not currently hedge either our translation risk or our economic risk associated
with the exchange of foreign currencies into U.S. dollars. There can be no
assurances that future changes in currency exchange rates will not have a
material impact on our future cash collections and operating results.
Our exposure to market risks for changes in interest rates relates primarily to
outstanding commercial debt. Due to the pay down of our commercial debt, we
anticipate no material market risk exposure for changes in interest rates.
Accordingly, we have not included quantitative tabular disclosures.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at December 31, 2003 and
December 31, 2002...................................................... F-3
Consolidated Statements of Operations for the years
ended December 31, 2003, 2002 and 2001................................. F-4
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss) for the years ended
December 31, 2003, 2002 and 2001....................................... F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 2003, 2002 and 2001................................. F-6
Notes to Consolidated Financial Statements as of
December 31, 2003 and 2002 and for the years ended
December 31, 2003, 2002 and 2001 ...................................... F-7
Financial Statement Schedule--Valuation and Qualifying Account ........... F-23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
As of December 31, 2003, the end of the period covered by this report, under the
supervision and with the participation of management, including our Chief
Executive Officer and our Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that
evaluation, our Chief Executive Officer and our Chief Financial Officer have
concluded that our disclosure controls and procedures are effective in causing
material information to be recorded, processed, summarized and reported by our
management on a timely basis and to ensure that the quality and timeliness of
our public disclosures complies with its Securities and Exchange Commission
disclosure obligations.
As of December 31, 2003, there have been no material changes in our internal
controls or in other factors that could materially affect internal controls.
37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION WITH RESPECT TO DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our directors,
executive officers and key employees as of March 15, 2004:
NAME AGE POSITION
- ---- --- --------
Terrance J. Bieker 58 President and Chief Executive Officer,
Director
Charles C. Best 44 Chief Financial Officer, Executive
Vice President, Finance
Kevin J. Reagan, Ph.D. 52 Executive Vice President, Technical
Operations
Jozef Vangenechten, Ph.D. 49 General Manager, BioSource Europe, S.A.
Rocco R. Raduazo 44 Vice President of Sales
Valerie Bressler-Hill 39 Vice President of Marketing
Jean-Pierre L. Conte* 40 Director
David J. Moffa, Ph.D.* ** 61 Director
John R. Overturf, Jr.** 43 Director
Robert J. Weltman 38 Director
John L. Zabriskie, Ph.D.* ** 64 Director
- ----------
* Member of the Compensation Committee.
** Member of the Audit Committee.
Terrance J. Bieker, President and Chief Executive Officer, joined BioSource on
November 1, 2003. From April 2003 to October 2003, Mr. Bieker served as Chief
Executive Officer of Axya Medical, Inc. a medical devise company engaged in the
sales of orthopedic surgical devices. From 2000 through 2002, Mr. Bieker served
as President and Chief Executive Officer of MedSafe, Inc. a medical regulatory
consulting company. Mr. Bieker was President and CEO of Transfusion Technologies
Corporation, a medical device company from 1999 to 2000. From 1997 to 1999, Mr.
Bieker served as Executive Vice President and Chief Operating Officer of
Safeskin Corporation, a manufacturer of disposable gloveware. From 1989 to 1997,
Mr. Bieker served as Chairman, CEO and President of Sanofi Diagnostics Pasteur,
Inc., a clinical diagnostic division of Sanofi, SA, a French pharmaceutical and
healthcare company. Prior to these appointments, Mr. Bieker served as General
Manager of Genetic Systems Corporation. His early career was with various
divisions of American Hospital Supply Corporation. Mr. Bieker holds a B.S.
degree in Economics from the University of Minnesota.
Charles C. Best joined BioSource in December 1999 as Chief Financial Officer.
Prior to his employment at BioSource, Mr. Best served four and a half years as
Vice President and Chief Financial Officer of Cogent Light Technologies, Inc., a
company engaged in the manufacture of surgical lighting instruments. From 1989
to 1995, Mr. Best worked in various positions including Corporate Controller for
3D Systems, Inc., a company engaged in the manufacture and sale of high tech
rapid prototyping equipment. Mr. Best is a CPA and holds a Bachelor of Science
degree in Business Administration and Accounting from San Diego State
University.
38
Kevin J. Reagan, Ph.D. became Executive Vice President of Technical Operations
in February of 2004 and was Vice President, Immunology from December 1996
through January 2004. From 1991 to December 1996, Dr. Reagan served as the first
Director of Development Laboratories and then Vice President, Laboratory
Operations at Specialty Laboratories, Inc., a clinical reference lab. From 1990
to 1991, Dr. Reagan was the Associate Director of AIDS/Hepatitis R&D at Ortho
Diagnostics, Inc., a Johnson & Johnson Company. Dr. Reagan received his Bachelor
of Arts in Biological Sciences from the University of Delaware. Dr. Reagan
received both his Masters and Ph.D. degrees in Microbiology and Immunology from
Hahnemann Medical College.
Jozef Vangenechten, Ph.D. became Managing Director of BioSource Europe, S.A.
from February 1998. From 1988 to February 1998, Dr. Vangenechten worked for
Societe Generale de Surveillance, n.v., an international provider of
environmental compliance services, most recently as Managing Director of SGS's
EcoCare Environmental Services division.
Rocco R. Raduazo joined BioSource in December 2002 as Vice President of Sales.
From 1996 up to his employment at BioSource, Mr. Raduazo served in a number of
positions at BD Biosciences Clontech including Vice President of Sales. BD
Biosciences Clontech is a company engaged in the manufacture of genomic based
products. From 1990 to 1995, Mr. Raduazo worked in various positions at Life
Technologies, Inc., a company engaged in the manufacture and sale of biological
reagents. Mr. Raduazo holds a Bachelor of Science degree in Biochemsitry from
the University of New Hampshire, performed various graduate work at Ohio State
University and holds an MBA in Finance from the American University.
Valerie Bressler-Hill, Ph.D. became Vice President, Marketing in January 2000,
having served as Director of Marketing since 1999. From 1994 to 1998, Dr.
Bressler-Hill served in the Research and Development group of the Company as a
scientist and Associate Director. Dr. Bressler-Hill received her Ph.D. degree in
Physical Chemistry from University of California at Santa Barbara.
Jean-Pierre L. Conte has served as a director of BioSource since February 2000.
Mr. Conte is a Managing Director of Genstar Capital LLC, which is the sole
general partner of Genstar Capital Partners II, L.P.; a private equity limited
partnership and Chairman and Managing Director of Genstar Capital, L.P. which is
the sole general partner of Genstar Capital Partners III L.P. Prior to joining
Genstar in 1995, he was a principal for six years at the NTC Group, Inc., a
private equity investment firm. Mr. Conte is currently a director of several
private companies and is also a Director of North American Energy Partners, Inc.
Mr. Conte earned a Masters of Business Administration from Harvard University
Graduate School of Business and a Bachelor of Arts from Colgate University.
David J. Moffa, Ph.D. has been a director of BioSource since April 1995. Dr.
Moffa serves as the Regional Director and as Special Projects Director for Lab
Corporation of America, Inc. located in Fairmont, West Virginia, positions he
has held since 1982 and 1984, respectively, and as director of LabCorp in
Pittsburgh Pennsylvania, a position held since 1985. Dr. Moffa serves as
Chairman of ClinServices, LLC and as an advisor and consultant to various
diagnostic, scientific and health care facilities. Dr. Moffa also serves on a
number of committees and boards of directors of various privately held companies
and governmental offices, including BB&T, Inc. He was past owner and CEO of
BioPreps Laboratories, Inc. Dr. Moffa has completed a post doctoral fellowship
in Clinical Biochemistry at the West Virginia University National Institutes of
Health, holds a Ph.D. in Medical Biochemistry from the West Virginia School of
Medicine, a Masters of Science degree in Biochemistry from West Virginia
University and a Bachelor of Arts degree in Pre-Medicine from West Virginia
University.
John R. Overturf, Jr. has been a director of BioSource since September 1993. Mr.
Overturf serves as the President of R.O.I., Inc., a private investment company,
a position he has held since July 1993. He also serves as President of the
Combined Penny Stock Fund, Inc., a closed-end stock market fund, a position he
has held since August 1996. From September 1993 until September 1996, Mr.
Overturf served as Vice President of the Rockies Fund, Inc., a closed-end stock
market fund. Mr. Overturf holds a Bachelor of Science degree in Finance from the
University of Northern Colorado.
Robert J. Weltman has served as a director of BioSource since February 2000. He
is currently a Managing Director of Genstar Capital, LP, the sole general
partner of Genstar Capital Partners II, L.P., a private equity
39
limited partnership. Mr. Weltman joined Genstar in August 1995. Prior to joining
Genstar, from July 1993 to July 1995, Mr. Weltman was an Associate with
Robertson, Stephens & Company, an investment banking firm. Mr. Weltman holds an
A.B. degree in chemistry from Princeton University. Mr. Weltman has been
appointed to the Board of Directors pursuant to an investor rights agreement
among Genstar, Stargen and the Company, which is described under "Item 13.
Certain Relationships and Related Transactions."
John L. Zabriskie, Ph.D., is Co-founder and has served as Director of Puretech
Ventures, a venture creation company since 2001. From 1997 to 2000 Dr. Zabriskie
was Chairman and Chief Executive Officer of NEN Life Science Products, Inc., a
leading supplier of kits for labeling and detection of DNA. From 1995 to 1997,
Dr. Zabriskie was President and Chief Executive Officer of Pharmacia and Upjohn,
Inc., a Fortune 500 pharmaceutical company formed by the merger of Pharmacia AB
of Sweden and the Upjohn Company of Kalamazoo, Michigan. From 1965 until joining
Upjohn in 1994, Dr. Zabriskie was employed by Merck and Co., Inc. He began his
career at Merck as a chemist in 1965 and held various positions including
President of Merck Sharp & Dohme and Executive Vice President of Merck and Co.,
Inc. He has served on a number of boards for health care and academic
institutions and currently serves on the Board of Directors of Kellogg Co.,
Array BioPharma, and MacroChem Corp. Dr. Zabriskie received his A.B. degree in
chemistry from Dartmouth College (N.H.) in 1961 and his Ph.D. in organic
chemistry from the University of Rochester (N.Y.) in 1965.
CODE OF ETHICAL CONDUCT
Our Board of Directors recently adopted a Code of Ethical Conduct (the "Code of
Conduct"). We require all employees, directors and officers, including our Chief
Executive Officer and Chief Financial Officer, to adhere to the Code of Conduct
in addressing legal and ethical issues encountered in conducting their work. The
Code of Conduct requires that these individuals avoid conflicts of interest,
comply with all laws and other legal requirements, conduct business in an honest
and ethical manner and otherwise act with integrity and in our best interest.
The Code of Conduct contains additional provisions that apply specifically to
our Chief Financial Officer and other financial officers with respect to full
and accurate reporting. The Code of Conduct is available on our website at
www.biosource.com.
IDENTIFICATION OF AUDIT COMMITTEE
Our Board of Directors has a separately standing Audit Committee. The Audit
Committee currently consists of Messrs. David J. Moffa, PhD., John R. Overturf,
Jr., and John L. Zabriskie, PhD. Mr. Overturf serves as Chairman of the
Committee. Messrs. Moffa, Overturf and Zabriskie are "independent directors"
within the meaning of Rule 10A-3 promulgated under the Securities Exchange Act
of 1934, as amended, and the NASDAQ Marketplace Rules. The Audit Committee's
primary duties and responsibilities include appointment of the independent
auditors, evaluation of the performance and independence of such auditors and
review of the annual audited financial statements and the quarterly financial
statements, as well as the adequacy of our internal controls.
AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that each of the members of its separately
standing Audit Committee, Messrs. Moffa, Overturf and Zabriskie, are an "audit
committee financial expert" as defined in Item 401(h) of Regulation S-K. Messrs.
Moffa, Overturf and Zabriskie are "independent" for purposes of Rule 4200(a)(15)
of the Nasdaq Marketplace Rules.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE -
Section 16(a) of the Securities Exchange Act of 1934, requires our executive
officers, directors, and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Executive
officers, directors and greater-than-ten percent stockholders are required by
SEC regulations to furnish us with all Section 16(a) forms they file. Based
solely on our review of the copies of the forms received by us and written
representations from certain reporting persons that they have complied with the
relevant filing requirements, we believe that, during the year ended December
31, 2003, all our executive officers, directors and greater-than-ten percent
stockholders
40
complied with all Section 16(a) filing requirements, except for the following;
Robert D. Weist filed two late Form 4s, each reporting late one transaction that
occurred in November 2002 and December 2002, respectively; and each of John R.
Overturf, Jr., David J. Moffa, Jean-Pierre L. Conte, and Robert J. Weltman filed
one late Form 4, each reporting late one transaction that occurred for each in
December 2002.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and as to each
of the other four most highly compensated executive officers who were serving as
executive officers at the end of the last fiscal year and whose compensation
exceeded $100,000 during the last fiscal year (the "Named Executive Officers"),
information concerning all compensation paid for services to us in all
capacities for each of the three years ended December 31 indicated below.
SUMMARY COMPENSATION TABLE
------------------------------------- -----------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------- -----------------------
OTHER NUMBER OF
YEAR ENDED ANNUAL SECURITIES ALL OTHER
NAME AND DECEMBER COMPEN- UNDERLYING COMPEN-
PRINCIPAL POSITION (1) 31, SALARY BONUS SATION OPTIONS SATION
- ------------------------------ ---- ---------- --------- --------- ------- ---------
Terrance J. Bieker............ 2003 $ 40,105(2) $325,000(3) $ 0 0 0
Chief Executive Officer and
President
Leonard M. Hendrickson........ 2003 $187,500 $ 0 $52,083(5) 0 0
Chief Executive Officer and 2002 250,000 99,650 1,548(7) 0 0
President (4) 2001 49,000(6) 90,000 173(7) 280,000 0
Robert Weltman................ 2003 $ 0 $ 0 $6,000(9) 0 0
Interim Chief Executive
Officer(8)
Charles C. Best............... 2003 $176,800 $ 0 337(7) 0 0
Chief Financial Officer 2002 166,400 59,023 324(7) 0 0
and Executive Vice President 2001 160,000 23,500 325(7) 87,500 0
- ----------
<FN>
(1) For a description of employment agreements between certain executive
officers and the Company, see "Employment Agreements with Executive
Officers" below.
(2) Mr. Bieker joined the Company on November 1, 2003. Represents salary
from November 1, 2003 through December 31, 2003.
(3) Amount consists of a $90,000 signing bonus and $235,000 bonus with its
intended use for relocation costs.
(4) Mr. Hendrickson resigned from the Company on September 29, 2003.
(5) Represents payments made under a severance and release agreement. See
"Employment Agreements with Executive Officers" below.
(6) Represents salary paid from date of hire through December 31, 2001.
(7) Consists of group life insurance premiums paid by the Company.
(8) Mr. Weltman served as our Interim Chief Executive Officer from
September 30, 2003 through October 31, 2003. Mr. Weltman did not
receive any additional compensation for his services as Interim Chief
Executive officer.
(9) The compensation identified above was received by Mr. Weltman in his
capacity as a Director of the Company.
</FN>
41
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding the grant of stock
options made during the fiscal year ended December 31, 2003 to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF AVG.
SECURITIES TOTAL OPTIONS EXERCISE POTENTIAL REALIZABLE VALUE
UNDERLYING GRANTED TO OF BASE OF ASSUMED ANNUAL RATES OF
OPTIONS EMPLOYEES IN PRICE EXPIRATION STOCK PRICE APPRECIATION
NAME GRANTED(1) FISCAL YEAR(2) ($/SH.)(3) DATE FOR OPTION TERM (1)
- ------------------------ ---------- -------------- ---------- ---------- -------------------------
5%($) 10%($)
----- ------
Terrance J. Bieker...... 285,000 94% 7.18 2013 $1,286,907 $2,778,768
Leonard M. Hendrickson.. 0 0% -- -- $ 0 $ 0
Robert Weltman.......... 0 0% -- -- $ 0 $ 0
Charles C. Best......... 0 0% -- -- $ 0 $ 0
- ----------
<FN>
(1) Options granted in 2003 vest over various periods. The options were
granted for a term of 10 years.
(2) Options covering an aggregate of 303,000 shares were granted to
employees of the Company and its subsidiary during the year ended
December 31, 2003.
(3) The exercise price and the tax withholding obligations related to
exercise may be paid by delivery of already owned shares held a minimum
of six months, subject to certain conditions.
</FN>
OPTION EXERCISES AND STOCK OPTIONS HELD AT FISCAL YEAR END
The following table sets forth, for those Named Executive Officers who held
stock options at fiscal year end, certain information regarding options
exercised in fiscal year 2003, the number of shares of common stock underlying
stock options held and the value of options held at fiscal year end based upon
the last reported sales price of the common stock on the NASDAQ market on
December 31, 2003 ($6.77 per share).
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME EXERCISE REALIZED DECEMBER 31, 2003 DECEMBER 31, 2003
- ------------------------ -------- -------- ----------------- -----------------
(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--- --- ----------- ------------- ----------- -------------
Terrance J. Bieker...... -- -- -- 285,000 $ 0 $ 0
Leonard M. Hendrickson. 12,000 54,720 228,165 0 $423,531 $ 0
Robert Weltman.......... -- -- 16,000 0 $ 4,840 $ 0
Charles C. Best......... -- -- 102,643 31,357 $ 88,245 $ 0
- ----------
COMPENSATION OF DIRECTORS
Our non-employee corporate directors currently are paid $2,000 for each board
meeting attended, and $1,000 per year for service on a board committee. We also
pay out of pocket expenses incurred by our directors in connection with their
attendance. In addition, non-employee directors, excluding Dr. Zabriskie, have
received an annual grant of 4,000 non-statutory stock options, exercisable at
the fair market value of our common stock on the date of grant, and which fully
vest on the date of grant. Dr. Zabriskie, who was appointed as a board member in
July 2002, received a grant of 55,000 stock options on July 17, 2002 of which
20,000 vested immediately and 50% of the remaining 35,000 shares vest annually
over the next two year period.
42
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
We have entered into an executive employment agreement with Terrance J. Bieker
to serve as our President and Chief Executive Officer, effective as of November
1, 2003. Pursuant to this agreement, Mr. Bieker receives an annual base salary
of $275,000, which the Board may increase at the end of each year of his
employment. In addition to the base salary to be paid to Mr. Bieker, the Company
paid Mr. Bieker a one time signing bonus in the amount of $90,000, upon
commencement of his employment. In addition, Mr. Bieker received a one time
payment of $235,000 the intent of which was to be applied to the costs and
expenses incurred by him in connection with his relocation to California. Mr.
Bieker is also eligible to receive an annual bonus under the Company's
management incentive plan to be agreed upon between Mr. Bieker and the Board on
an annual basis. The management incentive plan will provide for the payment of a
bonus equal to fifty percent (50%) of Mr. Bieker's then-current base salary upon
achieving specified target objectives set forth in the management incentive
plan, and payments of such lesser or greater amounts upon achieving results less
than or greater than the specified target objectives as shall be contained in
the management incentive plan. The agreement terminates on December 31, 2007. In
the event that Mr. Bieker's employment is terminated without cause during the
term of the agreement, the Company is obligated to continue to pay Mr. Bieker's
then-current base salary for a period of 12 months following the effective date
of such termination. In connection with his employment, Mr. Bieker was also
granted stock options to purchase 285,000 shares of Common Stock of the Company
at an exercise price equal to the fair market value of the Company's Common
Stock on the date of grant, or $7.18 per share. In certain instances involving a
"change of control," all stock options which have been granted to Mr. Bieker
that are unvested at the time of such change of control become immediately
vested and exercisable. A "change of control," as defined in our 2000
Non-Qualified Stock Option Plan, which governs Mr. Bieker's stock option grant,
means (i) the consummation of a merger or consolidation of the Company with or
into another entity or any other corporate reorganization, if more than 50% of
the combined voting power of the continuing or surviving entity's securities
outstanding immediately after such merger, consolidation or other reorganization
is owned, directly or indirectly, by persons who were not shareholders of the
Company immediately prior to such merger, consolidation or other reorganization;
or (ii) the sale, transfer or other disposition of all or substantially all of
the Company's assets.
We entered into an employment agreement with Leonard M. Hendrickson to serve as
our President and Chief Executive Officer, effective as of October 15, 2001.
Pursuant to that agreement Mr. Hendrickson received an annual base salary of
$250,000. In addition to the base salary paid to Mr. Hendrickson, the Company
paid Mr. Hendrickson a one time signing bonus in the amount of $90,000, upon
commencement of his employment. In addition, Mr. Hendrickson was eligible to
receive annual bonuses under the Company's management incentive plan. The
agreement was intended to terminate on December 31, 2004. In connection with Mr.
Hendrickson's indefinite medical disability leave of absence in September 2003,
we entered into a Separation and Release Agreement with him which is dated as of
September 29, 2003 (the "Separation Agreement"). In connection with entering
into the Separation Agreement, Mr. Hendrickson resigned his positions as
President and Chief Executive Officer of the Company, and as a member of the
Board of Directors, and commenced a disability leave of absence effective as of
the date of that agreement and continuing through December 31, 2004 (the "Leave
Period"). Additionally, pursuant to the terms of that Separation Agreement, in
consideration for a full release of any and all claims Mr. Hendrickson may have
had against the Company, from September 29, 2003 through December 31, 2003, the
Company continued to pay or otherwise provide to Mr. Hendrickson (i) the
difference between his then current base salary and any amount received by him
under our disability insurance plans and pursuant to any governmental disability
benefits, and (ii) our portion of the health insurance and life insurance
benefits previously provided to him, which we will continue to provide through
March 31, 2004. The Separation Agreement also provides that, from January 1,
2004 through December 31, 2004, we will pay or otherwise provide to Mr.
Hendrickson (i) the difference between sixty percent (60%) of his then current
base salary and any amount received by him under our disability insurance plans
and pursuant to any governmental disability benefits, and (ii) various other
health and life insurance benefits, including portions of any amounts he is
permitted to pay through the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"), provided, however, although he will be
entitled to receive these benefits beyond 2004, Mr. Hendrickson will be required
to assume the responsibility for portions, or all, of these payments over the
course of 2004 and in 2005, respectively. With respect to any stock options
previously granted to Mr. Hendrickson, to the extent they were not fully vested
on the date of the Separation Agreement, they continued to vest through December
31, 2003. On December 31, 2003, a "special terminating event," as that term is
defined in Mr.
43
Hendrickson's Stock Option Agreements, was deemed to have occurred with respect
to all stock options granted to him, and therefore any stock options previously
granted to Mr. Hendrickson, to the extent not fully vested on that date, ceased
to vest and became exercisable pursuant to their terms for a period of one year.
Effective as of December 17, 1999, Charles C. Best, our Chief Financial Officer,
entered into a separation agreement with us. In the event we experience a
"change of control," and the employment of Mr. Best is terminated within one
year of the "change of control," we are obligated to continue to pay Mr. Best
his then-current base salary for a period of 12 months following the effective
date of such termination. For purposes of Mr. Best's separation agreement, a
"change of control" includes (i) the acquisition by any person or entity of
shares of our capital stock entitled to exercise 35% or more of the total voting
power of our stockholders, (ii) the sale or transfer by us of all or
substantially all of our assets or a merger, consolidation or reorganization
with any other corporation or entity, which results in less than 75% of the
total voting power represented by the capital stock or other equity interests of
the corporation or entity to which our assets are sold or transferred or
surviving such merger, consolidation or reorganization being held by the persons
and entities who were holders of our common stock immediately prior to such
agreement, (iii) the issuance by us, otherwise than on a pro rata basis, of
additional shares of capital stock representing (after giving effect to such
issuance) more than 35% of the total voting power of our stockholders, or (iv)
the persons who were our directors as of the date of the separation agreement
ceasing to comprise a majority of our Board of Directors.
We have also entered into an executive employment agreement with Kevin Reagan to
serve as our Executive Vice President - Technical Operations, effective as of
February 15, 2004. Dr. Reagan served as our Vice President, Immunology since
December 1996. Pursuant to his employment agreement, Dr. Reagan receives an
annual base salary of $190,000, which the President may increase at the end of
each year of Dr. Reagan's employment. Dr. Reagan is also eligible to receive an
annual bonus under the Company's management incentive plan. The management
incentive plan will provide for the payment of a bonus equal to thirty percent
(30%) of Dr. Reagan's then-current base salary upon achieving specified target
objectives set forth in the management incentive plan, and payments of such
lesser or greater amounts upon achieving results less than or greater than the
specified target objectives as shall be contained in the management incentive
plan. The agreement terminates on December 31, 2007. In the event that Dr.
Reagan's employment is terminated without cause during the term of the
agreement, the Company is obligated to continue to pay Dr. Reagan's then-current
base salary for a period of 9 months following the effective date of such
termination. In connection with his employment, Dr. Reagan was also granted
stock options to purchase 30,000 shares of Common Stock of the Company at an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant, or $6.99 per share.
STOCK OPTION PLANS
We adopted a Stock Option Plan (the "1993 Plan") in 1993. The purpose of the
1993 Plan is to attract, retain and motivate certain of our key employees by
giving them incentives which are linked directly to increases in the value of
our common stock. Each of our officers, directors and employees and under
certain circumstances, our consultants are eligible to be considered for the
grant of awards under the 1993 Plan. The maximum number of shares of common
stock that may be issued pursuant to awards granted under the 1993 Plan is
2,000,000, subject to certain adjustments to prevent dilution. Any shares of
common stock subject to an award, which for any reason expires or terminates
unexercised are again available for issuance under the 1993 Plan.
The 1993 Plan authorizes the Compensation Committee to enter into any type of
arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of (1) shares of our common stock, (2) an option, warrant,
convertible security, stock appreciation right or similar right with an exercise
or conversion privilege at a price related to our common stock, or (3) any other
security or benefit with a value derived from the value of our common stock. Any
stock option granted may be an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or a
nonqualified stock option.
As of December 31, 2003, the Board had granted options under the 1993 Plan
covering an aggregate of 2,000,000 shares of common stock to certain of our
directors, officers and employees, of which options to purchase 677,484 shares
were outstanding. On December 31, 2003, the 1993 Plan was terminated in
accordance
44
with its specified terms. Options granted under the 1993 Plan remain outstanding
pursuant to the terms of each individual grant. However, the Company will not
grant additional stock options under the 1993 Plan.
In January 2000, our Board of Directors approved the 2000 BioSource
International, Inc. non-qualified stock option plan (the "2000 Plan"). Under the
2000 Plan, non-qualified stock options may be granted to full-time employees,
part-time employees, directors and consultants of the Company to purchase a
maximum of 2,000,000 shares of the company's common stock. Options granted under
the 2000 Plan are generally exercisable at the rate of 25% each year beginning
one year from the date of grant. The stock options generally expire ten years
from the date of grant. Stock options outstanding under the 2000 Plan as of
December 31, 2003 were 1,421,852. See note 8 of the accompanying audited
consolidated financial statements.
The Compensation Committee of our Board of Directors currently administers our
stock option plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER TRADING PARTICIPATION
Compensation Committee currently consists of Messrs. Zabriskie, Moffa and Conte.
The Compensation Committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation and
is responsible for administrating our stock option and executive incentive
compensation plans. None of the members of the compensation committee is a
current officer or employee of the Company. None of our executive officers or
Directors served as a member of the board of directors of any other entity of
which an executive officer or Director served on our Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 15, 2004 certain information relating
to the ownership of our common stock by (i) each person known by us to be the
beneficial owner of more than five percent of the outstanding shares of our
common stock, (ii) each of our directors, (iii) each of our executive officers,
and (iv) all of our executive officers and directors as a group. Except as may
be indicated in the footnotes to the table and subject to applicable community
property laws, each such person has the sole voting and investment power with
respect to the shares owned. Unless otherwise indicated, the address of each
person listed is in care of BioSource International, Inc., 542 Flynn Road,
Camarillo, California 93012, and the address of Messrs. Conte, Weltman and
Genstar Capital LLC is Four Embarcadero Center, Suite 1900, San Francisco,
California 94111.
NUMBER OF SHARES
OF COMMON STOCK
BENEFICIALLY
NAME AND ADDRESS OWNED (1) PERCENT (1,2)
---------------- ---------------- -------------
Genstar Capital LLC (3) .................... 3,452,856 32.2%
Jean-Pierre L. Conte (3) ................... 3,400,189 31.8%
Kennedy Capital Management, Inc. (4) ....... 793,228 8.4%
Royce & Associates LLC (5) ................. 684,200 7.3%
Dimensional Funds Advisors Inc. (6) ........ 513,700 5.5%
Leonard M. Hendrickson (7) ................. 291,831 3.0%
Charles C. Best (8) ........................ 107,122 *
John L. Zabriskie, Ph.D. (9) ............... 52,500 *
David J. Moffa, Ph.D. (10) ................. 47,900 *
John R. Overturf, Jr. (11) ................. 34,600 *
Robert J. Weltman (12) ..................... 19,333 *
Terrance J. Bieker (13) .................... 0 *
All of the directors and executive
officers as a group (seven persons) (13) 3,661,644 33.5%
- ----------
* Less than one percent.
45
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned
by more than one person (if, for example, persons share the power to
vote or the power to dispose of the shares). In addition, shares are
deemed to be beneficially owned by a person if the person has the right
to acquire the shares (for example, upon exercise of an option) within
60 days of the date as of which the information is provided. In
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially
owned by such person (and only such person) by reason of these
acquisition rights. As a result, the percentage of outstanding shares
of any person as shown in this table does not necessarily reflect the
person's actual ownership or voting power with respect to the number of
shares of common stock actually outstanding at March 21, 2000.
(2) Percentage ownership is based on 9,402,618 shares of common stock
outstanding as of March 15, 2004.
(3) Genstar Capital Partners II, L.P. holds 2,032,809 shares of common
stock and 1,262,542 shares of common stock issuable upon exercise of
warrants and Stargen II LLC holds 34,380 shares of common stock and
24,458 shares of common stock issuable upon exercise of warrants, all
of which are currently convertible or exercisable. Includes 16,000
stock options held by Mr. Conte and 16,000 stock options held by Mr.
Weltman. In addition, Mr. Conte holds 30,000 shares of common stock,
Richard F. Hoskins holds 16,667 shares of common stock, Mr. Weltman
holds 3,333 shares of common stock, and Richard D. Paterson holds
16,667 shares of common stock. Genstar Capital LLC is the general
partner of Genstar Capital Partners II, L.P. Mr. Conte, Mr. Hoskins and
Mr. Paterson are the managers and managing directors of Genstar Capital
LLC and are members of Stargen, and Mr. Paterson is the Administrative
Member of Stargen. In such capacities Messrs. Conte, Hoskins and
Paterson may be deemed to beneficially own shares of common stock
beneficially held by Genstar Capital Partners and Stargen, but disclaim
such beneficial ownership, except to the extent of their economic
interest in these shares. Messrs. Conte, Hoskins, Paterson, Genstar
Capital LLC, Genstar Capital Partners II, L.P. and Stargen II LLC may
be deemed to be acting as a group in relation to their respective
holdings in BioSource but do not affirm the existence of any such
group.
(4) As disclosed in the Schedule 13G filed with the Securities and Exchange
Commission on February 13, 2004 by Kennedy Capital Management, Inc.
(5) As disclosed in the Schedule 13G filed with the Securities and Exchange
Commission on January 28, 2004 by Royce & Associates LLC.
(6) As disclosed in the Schedule 13G filed with the Securities and Exchange
Commission on February 6, 2004 by Dimensional Fund Advisors, Inc.
(7) Includes 239,831 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable or are
exercisable within 60 days of March 15, 2004. On December 31, 2003, a
"special terminating event," as that term is defined in Mr.
Hendrickson's Stock Option Agreements, was deemed to have occurred with
respect to all stock options granted to him, and therefore any stock
options previously granted to Mr. Hendrickson, to the extent not fully
vested on that date, ceased to vest and became exercisable pursuant to
their terms for a period of one year, until December 31, 2004. Also
includes (i) 48,000 shares of common stock owned; (ii) 4,000 shares of
common stock held of record by two of Mr. Hendrickson's minor children.
(8) Includes 107,122 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable or are
exercisable within 60 days of March 15, 2004.
(9) Includes (i) 37,500 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable or are
exercisable within 60 days of March 15, 2004; and (ii) 15,000 shares of
common stock owned.
(10) Includes (i) 40,500 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable or are
exercisable within 60 days of March 15, 2004; (ii) 550 shares of common
stock held solely by Dr. Moffa's spouse; (iii) 4,000 shares of common
stock held jointly with Dr. Moffa's spouse; and (iv) 2,850 shares of
common stock held directly.
(11) Includes (i) 28,000 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable or are
exercisable within 60 days of March 15, 2004; and (ii) 6,600 shares of
common stock owned.
(12) Includes (i) 3,333 shares of common stock held directly; (ii) 16,000
shares of common stock reserved for issuance upon exercise of stock
options that are currently exercisable or are exercisable within 60
days of March 15, 2004. Mr. Weltman is also a Principal of Genstar
Capital LP and a member, but not a managing member, of Stargen II LLC.
Mr. Weltman does not have power to vote or dispose of, or to direct the
voting or disposition of, any securities beneficially owned by Genstar
Capital LLC or Stargen II
46
LLC. Mr. Weltman disclaims that he beneficially owns any shares of
common stock beneficially owned by Genstar Capital LLC or Stargen II
LLC, except to the extent of his economic interest in shares owned by
Genstar Capital LLC or Stargen II LLC.
(13) Mr. Bieker joined the Company on November 1, 2003 and was granted
285,000 stock options whose initial vesting occurs one year from the
date of grant. Mr. Bieker owns no shares directly.
(14) Includes (i) 245,122 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable or are
exercisable within 60 days of March 15, 2004; (ii) 1,287,000 shares of
common stock reserved for issuance upon the exercise of warrants and
(iii) includes 2,129,522 shares of common stock owned.
EQUITY PLAN COMPENSATION INFORMATION
The Equity Plan Compensation Information identified in Part II, Item 5 above is
incorporated into this Part III, Item 12 by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
AUDIT FEES
KPMG LLP, our independent accountants ("KPMG") billed us an aggregate of
approximately $191,000 and $160,000 for professional services rendered for the
audit of our annual financial statements for the fiscal years ended December 31,
2003 and December 31, 2002, respectively, and the reviews of the financial
statements included in our Form 10-Q's for fiscal 2003 and 2002.
AUDIT-RELATED FEES
KPMG billed us an aggregate of approximately $0 in fees for assurance and
related services related to the audit of our annual financial statements for the
fiscal years ended December 31, 2003 and 2002, respectively.
TAX FEES
KPMG billed us an aggregate of approximately $97,000 and $109,000 in fees for
tax compliance, tax advice, and tax planning services for the fiscal years ended
December 31, 2003 and 2002.
ALL OTHER FEES
KPMG billed us an aggregate of approximately $0 for all other services performed
in fiscal 2003 and 2002, respectively.
Our Audit Committee is directly responsible for interviewing and retaining our
independent accountant, considering the accounting firm's independence and
effectiveness, and pre-approving the engagement fees and other compensation to
be paid to, and the services to be conducted by, the independent accountant. The
Audit Committee does not delegate these responsibilities. During each of the
fiscal years ended December 31, 2003 and 2002, respectively, our Audit Committee
pre-approved 100% of the services described above.
47
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The financial statements listed below are included as part of
this report:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 2002 and 2001
Consolidated Statements of Operations for the Years ended
December 31, 2002, 2001, and 2000
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss) for the Years ended December 31,
2003, 2002 and 2001
Consolidated Statements of Cash Flows for the Years ended
December 31, 2002, 2001, and 2000
Notes to Consolidated Financial Statements
(a)(2) The following schedule supporting the financial statements of
the Company is included herein:
Financial Statement Schedule--Valuation and Qualifying
Accounts All other schedules are omitted because they are not
applicable, not required or because the required information
is included in the consolidated financial statements or notes
thereto.
(a)(3) Exhibits
See Exhibit Index immediately following signature page.
(b) Reports on Form 8-K:
Current Report on Form 8-K dated October 20, 2003, reporting
Items 7 and 5 and filed with the Securities and Exchange
Commission on October 20, 2003.
Current Report on Form 8-K dated November 7, 2003, reporting
Items 7 and 12, filed with the Securities and Exchange
Commission on November 7, 2003.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BioSource International, Inc
Date: March 29, 2004 By: /S/ CHARLES C. BEST
-----------------------------------
Charles C. Best
Chief Financial Officer
Date: March 29, 2004 By: /S/ TERRANCE J. BIEKER
-----------------------------------
Terrance J. Bieker
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Terrance J.
Bieker and Charles Best, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and his name, place and stead, in any and all capacities, to sign any or
all amendments to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by the
following person on behalf of the registrant and in the capacities and on the
date indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/S/ TERRANCE J. BIEKER President, Chief Executive March 29, 2004
- ------------------------------
Terrance J. Bieker Officer and Director
/S/ DAVID J. MOFFA, PH.D. Director March 29, 2004
- ------------------------------
David J. Moffa, Ph.D.
/S/ JOHN R. OVERTURF, JR. Director March 29, 2004
- ------------------------------
John R. Overturf, Jr.
/S/ JEAN-PIERRE L. CONTE Director March 29, 2004
- ------------------------------
Jean-Pierre L. Conte
/S/ ROBERT J. WELTMAN Director March 29, 2004
- ------------------------------
Robert J. Weltman
/S/ JOHN L. ZABRISKIE PH. D. Director March 29, 2004
- ------------------------------
John L. Zabriskie Ph.D
49
EXHIBIT INDEX
FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
3.1 Certificate of Incorporation of Registrant (1)
3.2 Bylaws of Registrant (1)
4.1 Specimen Stock Certificate of Common Stock of Registrant (1)
4.2 Certificate of Designation of Series A Preferred Stock (9)
4.3 Certificate of Designation of Series B Preferred Stock (11)
4.4 Rights Agreement, dated as of February 25, 1999, between Registrant
and U.S. Stock Transfer and Trust Corporation, as Rights Agent (9)
4.5 Amendment to Rights Agreement, dated as of January 10, 2000, between
Registrant and U.S. Stock Transfer and Trust Corporation (13)
4.6 Second Amendment to Rights Agreement, dated September 28, 2000,
between Registrant and U.S. Stock Transfer and Trust Corporation
(13)
4.7 Form of Right Certificate (9)
4.8 Summary of Share Purchase Rights (9)
4.9 Investor Rights Agreement dated February 15, 2000, by and among
Registrant, Genstar Partners II, L.P. and Stargen II LLC (12)
4.10 Amendment to Investor Rights Agreement dated September 18, 2000,
among Registrant, Genstar Capital Partners II, L.P., Stargen II LLC,
Russell D. Hays and George Uveges (13)
4.11 Second Amendment to Investor Rights Agreement, dated September 28,
2000, among Registrant, Genstar Capital Partners II, L.P., Stargen
II LLC, Russell D. Hays, George Uveges, Jean-Pierre Conte, Richard
Hoskins, Richard Paterson and Robert Weltman (13)
4.12 Warrant to Purchase Common Stock of Registrant issued to Genstar
Capital Partners II, L.P. on February 15, 2000 (12)
4.13 Warrant to Purchase Common Stock of Registrant issued to Stargen II
LLC on February 15, 2000 (12)
10.1 Registrant's 1993 Stock Incentive Plan (4)
10.2 Licensing Agreement dated May 1, 1990, by and between TAGO, Inc., as
licensee, and St. Jude's Children's Hospital, as licenser (1)
10.3 License Agreement dated February 14, 1991, by and between Registrant
and Schering Corporation (1)
10.4 License Agreement dated October 1, 1993, by and between Registrant,
as licensee, and Schering Corporation, as licensor (2)
50
EXHIBIT INDEX
FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003, CONTINUED
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
10.5 Separation and Consulting Agreement between Registrant and James H.
Chamberlain dated September 19, 2000 (15)
10.6 License Agreement dated February 7, 1994, by and between Registrant,
as licensee and Fundacio Clinic (4)
10.7 Form of Indemnification Agreement for Directors and Executive
Officers (6)
10.8 List of Indemnities relating to Form of Indemnification Agreement
previously filed as Exhibit 10 (16)
10.9 Registrant's Employee Stock Purchase Plan (7)
10.10 Securities Purchase Agreement dated January 10, 2000, by and among
Registrant, Genstar Capital Partners II, L. P. and Stargen II LLC
(15)
10.11 Securities Purchase Agreement, effective as of August 9, 2000,
between the Registrant and Genstar Capital Partners II, L.P. (13)
10.12 Amendment to Securities Purchase Agreement, dated as of September
28, 2000, among the Registrant, Genstar Capital Partners II, L.P.,
Jean-Pierre Conte, Richard Hoskins, Richard Paterson and Robert
Weltman (13)
10.13 Securities Purchase Agreement, effective as of August 9, 2000,
between the Registrant and Russell D. Hays (13)
10.14 Securities Purchase Agreement, effective as of September 5, 2000,
between the Registrant and George Uveges (13)
10.15 Letter agreement regarding employment, dated August 2, 2000, between
Registrant and Russell D. Hays (15)
10.16 Amendment to letter agreement regarding employment, dated September
18, 2000, between Registrant and Russell D. Hays (15)
10.17 Letter agreement regarding employment, dated August 18, 2000 between
Registrant and George Uveges (15)
10.18 Amendment to letter agreement regarding employment, dated September
18, 2000, between Registrant and George Uveges (15)
10.19 Registrant's 2000 Non-Qualified Stock Option Plan (14)
10.20 Lease Agreement for 542 Flynn Road, dated March 7, 2000, between
Registrant and Lincoln Ventura Technology Center (15)
10.21 Executive Employment Agreement between Registrant and Leonard M.
Hendrickson, dated September 24, 2001(16)
51
EXHIBIT INDEX
FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003, CONTINUED
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
10.22 Separation and Release Agreement dated as of September 29, 2003,
between Registrant and Leonard Hendrickson.
10.23 Executive Employment Agreement between Registrant and Terrance J.
Bieker, dated as of October 8, 2003.
21 Subsidiaries of the Company
STATE/COUNTRY OF
NAME INCORPORATION
------------------------------------------------------------
Keystone Laboratories, Inc..................California
BioSource Europe S.A........................Belgium
BioSource B.V...............................Holland
BioSource GmbH..............................Germany
BioSource U.K., Ltd.........................U.K.
Quality Controlled Biochemicals, Inc........Massachusetts
Javelle, Inc................................Massachusetts
23.1 Consent of KPMG LLP, Independent Auditors
31.1 Certificate of Terrance J. Bieker, 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 Terrance J. Bieker, Chief Executive Officer of
BioSource International, Inc. pursuant to Rule 13a-14(a) under the
Securities and Exchange Act of 1934, as amended.
32.2 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.
- ----------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 as filed with the Securities and Exchange Commission on October 22,
1992, as amended.
(2) Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1992. (3) Incorporated by reference to the Company's Form
10KSB for the year ended December 31, 1993. (4) Incorporated by reference
to the Company's Form 10KSB for the year ended December 31, 1994. (5)
Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1995.
(6) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (SEC No. 333-3336) as filed with the Securities and Exchange
Commission on May 31, 1996, as amended.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-8 (SEC No. 33-91838) as filed with the Securities and Exchange Commission
on May 4, 1995.
(8) Incorporated by reference to the Company's Current Report on Form 8-K/A
filed with the Securities and Exchange Commission on February 19, 1999.
(9) Incorporated by reference to the Company's Current Report on Form 8-A filed
with the Securities and Exchange Commission on March 1, 1999.
52
(10) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.
(11) Incorporated by reference to the Company's Registration Statement on Form
S-3 as filed with the Securities and Exchange Commission on March 16, 2000.
(12) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-3 as filed with the Securities and Exchange Commission
on March 22, 2000.
(13) Incorporated by reference to the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on October 26, 2000, and
as amended on October 31, 2000.
(14) Incorporated by reference to the Company's definitive proxy statement as
filed with the Securities and Exchange Commission on May 16, 2000.
(15) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 2000.
(16) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 2001.
53
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
PAGE
----
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at December 31, 2003 and 2002................. F-3
Consolidated Statements of Operations for the years ended
December 31, 2003, 2002 and 2001.......................................... F-4
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss) for the years ended
December 31, 2003, 2002 and 2001.......................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001.......................................... F-6
Notes to Consolidated Financial Statements as of
December 31, 2003 and 2002 and for the years ended
December 31, 2003, 2002 and 2001 ......................................... F-7
Financial Statement Schedule--Valuation and Qualifying Accounts........... F-23
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BioSource International, Inc.:
We have audited the consolidated financial statements of BioSource
International, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BioSource
International, Inc. and subsidiaries as of December 31, 2003 and 2002 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As explained in Note 1 to the financial statements, effective January 1, 2002,
the Company changed its method of accounting for the impairment of goodwill and
other intangibles.
KPMG LLP
Los Angeles, California
February 9, 2004
F-2
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except for per share data)
DECEMBER 31,
2003 2002
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 3,297 $ 5,941
Accounts receivable, less allowance for
doubtful accounts of $258 and $261 at
December 31, 2003 and 2002 .................... 6,308 6,157
Inventories, net (note 2) ....................... 9,074 8,880
Prepaid expenses and other current assets ....... 652 538
Deferred income taxes (note 8) .................. 2,363 1,873
-------- --------
Total current assets ...................... 21,694 23,389
Property and equipment, net (note 3) ............... 6,235 7,398
Intangible assets net of accumulated
amortization of $3,230 and $2,655 at
December 31, 2003 and 2002 (notes 1 and 4) ...... 5,500 6,076
Goodwill ........................................... 307 307
Other assets ....................................... 519 526
Deferred income taxes (note 8) ..................... 10,078 8,810
-------- --------
$ 44,333 $ 46,506
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $ 2,451 $ 3,115
Accrued expenses ................................ 3,227 2,910
Deferred revenue ................................ 249 427
Income tax payable .............................. 104 341
-------- --------
Total current liabilities ................. 6,031 6,793
-------- --------
Commitments and contingencies (note 11)
Stockholders' equity:
Common stock, $.001 par value. Authorized
20,000,000 shares: issued and outstanding
9,376,860and 9,676,931 shares at December
31, 2003 and 2002 ............................... 9 10
Additional paid-in capital ......................... 42,633 44,500
Accumulated deficit ................................ (4,452) (3,382)
Accumulated other comprehensive gain (loss) ........ 112 (1,415)
-------- --------
Net stockholders' equity .................. 38,302 39,713
-------- --------
$ 44,333 $ 46,506
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts in thousands, except per share data)
2003 2002 2001
-------- -------- --------
Net sales ............................ $ 44,094 $ 40,055 $ 35,175
Cost of sales ........................ 21,900 17,689 15,540
-------- -------- --------
Gross profit ...................... 22,194 22,366 19,635
Operating expenses:
Research and development .......... 7,007 6,187 3,986
Sales and marketing ............... 9,298 8,339 7,395
General and administrative ........ 6,851 5,916 6,945
Long-lived asset impairment ....... 341 -- --
Amortization of intangibles ....... 575 641 1,098
-------- -------- --------
Total operating expenses ........ 24,072 21,083 19,424
-------- -------- --------
Operating income (loss) .............. (1,878) 1,283 211
Interest income ...................... 31 113 376
Interest expense ..................... (4) 0 (2)
Other income (expense), net .......... (103) 10 86
-------- -------- --------
Income (loss) before income tax
expense (benefit) ................. (1,954) 1,406 671
Income tax expense (benefit) ......... (884) 11 (70)
-------- -------- --------
Income (loss) before
cumulative effect of
accounting change ............ (1,070) 1,395 741
Cumulative effect of accounting
change (net of applicable
income taxes of $1,500) ........... -- (2,447) --
-------- -------- --------
Net income (loss) available to
common stockholders ............... $ (1,070) (1,052) 741
======== ======== ========
Income (loss) per share before
accounting change:
Basic ............................. $ (0.11) 0.14 0.07
======== ======== ========
Diluted ........................... $ (0.11) 0.14 0.07
======== ======== ========
Net income (loss) per share:
Basic ............................. $ (0.11) (0.11) 0.07
======== ======== ========
Diluted ........................... $ (0.11) (0.11) 0.07
======== ======== ========
Shares used to compute per
share amounts:
Basic ............................. 9,403 9,787 10,398
======== ======== ========
Diluted ........................... 9,403 10,189 10,965
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts in thousands)
RETAINED COMPRE-
COMMON STOCK ADDITIONAL EARNINGS ACCUMULATED NET HENSIVE
NUMBER OF PAID-IN (ACCUMULATED COMPREHEN- STOCKHOLDERS' INCOME
SHARES AMOUNT CAPITAL DEFICIT) SIVE LOSS EQUITY (LOSS)
--------------------------------------------------------------------------------------
Balance at December 31, 2000 10,327 $ 10 $49,304 $(3,071) $ (2,197) $44,046
Exercise of stock options 123 0 308 -- -- 308
Purchase of Treasury Stock (96) (668) -- -- (668)
Stock option compensation expense -- (388) -- -- (388)
Income tax benefit from exercise of
stock options -- -- 205 -- -- 205
Net income -- -- -- 741 741 $ 741
Foreign currency translation adjustments -- -- -- -- (366) (366) (366)
--------
Total comprehensive loss -- $ 375
------------------------------------------------------------------------- ========
Balance at December 31, 2001 10,354 $ 10 $48,761 $(2,330) $ (2,563) $43,878
-------------------------------------------------------------------------
Exercise of stock options 105 -- 291 -- -- 291
Purchase of treasury stock (782) (4,608) -- -- (4,608)
Income tax benefit from exercise of stock
options -- 56 -- -- 56
Net income (1,052) (1,052) $(1,052)
Foreign currency translation adjustments -- -- -- 1,148 1,148 1,148
--------
Total comprehensive income -- $ 96
------------------------------------------------------------------------- ========
Balance at December 31, 2002 9,677 $ 10 $44,500 $(3,382) $ (1,415) $39,713
------------------------------------------------------------------------
Exercise of stock options 358 -- 1,075 -- -- 1,075
Purchase of treasury stock (658) (1) (3,480) -- -- (3,481)
Income tax benefit from exercise of stock
options -- 538 -- -- 538
Net loss (1,070) (1,070) $(1,070)
Foreign currency translation adjustments -- -- -- 1,527 1,527 1,527
---------
Total comprehensive income -- $ 457
------------------------------------------------------------------------- ========
Balance at December 31, 2003 9,377 $ 9 $42,633 $(4,452) $ 112 $38,302
========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts in thousands)
2003 2002 2001
------- ------- -------
Cash flows from operating activities:
Net income (loss) ....................... $(1,070) (1,052) 741
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ...... 2,620 2,324 2,431
Long-lived asset impairment ........ 341 -- --
Stock compensation ................. -- -- (388)
Income tax benefit from the
exercise of stock options ....... 538 56 205
Cumulative effect of accounting
change .......................... -- 4,629 --
Changes in assets and liabilities
Accounts receivable ................ 415 505 (753)
Inventories ........................ 622 (1,011) (654)
Prepaid expenses and other
current assets .................. (109) 9 716
Deferred income taxes .............. (1,758) (1,774) (31)
Other assets ....................... 7 (35) 245
Accounts payable ................... (890) 522 (748)
Accrued expenses ................... 37 (63) 12
Deferred income .................... (177) 23 90
Income taxes payable ............... 7 (384) 199
------- ------- -------
Net cash provided by
operating activities ......... 583 3,749 2,065
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment ...... (1,321) (3,481) (2,559)
Proceeds from sales of property and
equipment ............................ 253 -- --
------- ------- -------
Net cash used in investing
activities ...................... (1,068) (3,481) (2,559)
------- ------- -------
Cash flows from financing activities:
Proceeds from the exercise of
options ......................... 1,075 291 308
Payments to acquire treasury
stock ........................... (3,481) (4,608) (668)
------- ------- -------
Net cash used in financing
activities ...................... (2,406) (4,317) (360)
------- ------- -------
Net decrease in cash and cash
equivalents ..................... (2,891) (4,049) (854)
Effect of exchange rates on cash and cash
equivalents ................................ 247 519 (308)
Cash and cash equivalents at beginning of
year ....................................... 5,941 9,471 10,633
------- ------- -------
Cash and cash equivalents at end of year ...... $ 3,297 5,941 9,471
======= ======= =======
Supplemental disclosure of cash flow
information: Cash paid during the
year for:
Interest ........................... $ 4 44 2
======= ======= =======
Income taxes ....................... $ 738 -- --
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002, AND 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
BioSource International, Inc. and subsidiaries (BioSource or the Company),
develops, manufactures, markets and distributes products used worldwide in
disease related biomedical research and clinical diagnostics, principally in the
fields of immunology and molecular biology. Our products include ELISA assay
test kits, clinical diagnostic kits, bioactive proteins, antibodies, bioactive
peptides, oligonucleotides and related products. These products enable
scientists to better understand the biochemistry, immunology and cell biology of
the human body. Some examples would include certain diseases such as cancer,
aging, arthritis and other inflammatory diseases, AIDS and certain other
infectious diseases.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BioSource
International, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash balances and highly liquid
investments with original maturities of three months or less.
FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash and cash equivalents,
trade receivables, and payables approximates their fair value at December 31,
2003 and 2002 due to the short-term nature of these instruments.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market (net
realizable value).
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment and identifiable intangibles is provided using the
straight-line method over the estimated useful lives of the related assets which
generally range from three to fifteen years. Leasehold improvements are
amortized using the straight-line method over their estimated useful lives or
the lease term, whichever is shorter.
GOODWILL AND INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("FAS") No.141, "Accounting For Business
Combinations," and FAS No. 142, "Accounting For Goodwill and Other Intangible
Assets." FAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. FAS No. 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized to earnings, but instead be reviewed for impairment in accordance with
FAS No. 142. The amortization of goodwill and intangible assets was
approximately $575,000, $641,000, and $1,098,000, for fiscal years ended
December 31, 2003, 2002, and 2001, respectively. 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 considers certain of its subsidiaries including BioSource
Europe S.A., Keystone Laboratories, Inc., Quality Controlled Biochemicals, Inc.
and its Biofluids division reporting units as defined under FAS 142. The Company
used the
F-7
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002, AND 2001
present value method for determining the fair value of its reporting units. In
2002, the Company recognized a non-cash charge, net of applicable income taxes,
of $2,447,000 representing the cumulative effect of a change in accounting
principle resulting from the implementation of FAS 142. This amount is shown in
the accompanying condensed consolidated statement of operations as a cumulative
effect of an accounting change.
Prior to 2002, the Company accounted for its intangible assets under FAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." Under FAS 121, Long-Lived assets and intangible
assets are required to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company reviewed for impairment by comparing the carrying
amount of the asset to future cash flows expected to be generated by the asset.
The Company reviewed its remaining goodwill for impairment in the third quarter
of 2003 using FAS No. 142 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, MARKETING AND PROMOTION COSTS
For the year ended December 31, 2003, the Company capitalized its annual catalog
production costs and expensed them evenly throughout the year. 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 increasing its dependence on its catalog
to attract more customers. As a result, the Company believes that its 2003
catalog is a direct response advertisement, the primary purpose of which 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. For
the years ended December 31, 2003, 2002 and 2001, the Company expensed
approximately $560,000, $529,000 and $419,000 of catalog costs respectively.
LICENSE AGREEMENTS
License agreements primarily for the use of antibodies are recorded at cost and
are amortized using the straight-line method over the shorter of the estimated
useful lives of the license or the license term (generally five to ten years).
These costs are included with other assets in the accompanying consolidated
balance sheets. Accumulated amortization at December 31, 2003 and 2002 was
approximately $447,000 and $396,000, respectively.
REVENUE RECOGNITION
The Company's revenue is generated from the sale of products primarily
manufactured internally. The Company does have a small amount of products that
are sold on an outside equipment ("OEM") basis. The Company sells standard and
custom products directly to end users and distributors and recognizes revenue
upon transfer of title to the customer, which occurs upon shipment. General
sales and payment terms to distributors are similar to those granted to end user
customers. Certain end user customers prepay for product and request shipment of
the product at future dates, primarily sera or media products. The Company
records deferred revenue until such time as a product is shipped to a customer.
Approximately 25% of the Company's 2003 net sales were to distributors.
F-8
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
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.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company has not provided U.S. federal or foreign withholding taxes on
foreign subsidiary undistributed earnings as of December 31, 2003, because such
earnings are intended to be permanently invested. It is not practicable to
determine the U.S. Federal income tax liability, if any that would be payable if
such earnings were not reinvested indefinitely.
LONG-LIVED ASSETS
It is our policy to account for long-lived assets (property, plant, equipment
and intangible assets) 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 December 31, 2003 and 2002. Effective January 1, 2002, other
long-lived assets are accounted for under SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes SFAS No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," it retains many
of the fundamental provisions of that statement. The adoption of SFAS No. 144
did not have a material impact on the financial position or results from
operations.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is the total of net income (loss) and all other
non-owner changes in equity. Except for net income (loss) and foreign currency
translation adjustments, the Company does not have any transactions or other
economic events that qualify as comprehensive income (loss) as defined under
SFAS No. 130.
BUSINESS SEGMENT REPORTING
Management of the Company has determined its reportable segments are strategic
business units that offer both sales to external customers from geographic
company facilities and sales to external customers in certain geographic
regions. Significant reportable business segments are the United States and
European facilities, and sales to external customers are summarized as those
located in the United States, Europe, Japan and other. Information related to
these segments is summarized in Note 10.
F-9
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board issued Statement No.
143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). This new
pronouncement establishes financial accounting and reporting standards for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The provisions of SFAS No. 143 apply to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or the normal operation of a
long-lived asset, except for obligations of lessees. The standard was effective
for financial statements issued for fiscal years beginning after June 15, 2002.
The Company adopted this standard effective January 1, 2003 with no material
effect on the Company's financial position or results of operations.
In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables." EITF 00-21 addresses the accounting
for contractual arrangements in which revenue-generating activities are
performed. In some situations, the different revenue-generating activities
(deliverables) are sufficiently separable and there exists sufficient evidence
for fair values to account separately for the different deliverables (that is,
there are separate units of accounting). In other situations, some or all of the
different deliverables are closely interrelated or there is not sufficient
evidence of fair value to account separately for the different deliverables.
EITF 00-21 addresses when and, if so, how an arrangement involving multiple
deliverables should be divided into separate units of accounting. EITF 00-21 is
effective for interim periods beginning after June 30, 2003. The adoption of
EITF 00-21 did not have a material effect on the Company's financial statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure," an amendment of FASB Statement No. 123,
which provides guidance for transition to the fair value based method of
accounting for stock-based employee compensation and the required financial
statement disclosure. The adoption of SFAS No. 148 expanded the disclosure in
our interim financial statements, and does not significantly impact our annual
disclosures of stock-based compensation in our consolidated financial
statements.
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others." FIN No. 45 requires a company
to recognize a liability for the obligations it has undertaken to issue a
guarantee. This liability would be recorded at the inception of the guarantee
and would be measured at fair value. The measurement provisions of this
statement apply prospectively to guarantees issued or modified after December
31, 2002. The disclosure provisions of the statement apply to financial
statements for periods ending after December 15, 2002. The adoption of FIN No.
45 did not have a material impact on the Company's financial position or results
of operations.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46).
This interpretation clarifies the application of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements" (ARB 51), and requires companies to
evaluate variable interest entities for specific characteristics to determine
whether additional consolidation and disclosure requirements apply. This
interpretation is immediately applicable for variable interest entities created
after January 31, 2003, and applies to the first fiscal year or interim period
beginning after June 15, 2003 for variable interest entities acquired prior to
February 1, 2003. The adoption of this interpretation did not have any impact on
the Company's financial position or results of operations. In December 2003, the
FASB revised FIN 46 to exempt certain entities from its requirements and to
clarify certain issues arising during the implementation of FIN 4. The adoption
of this revised interpretation in the first quarter of 2004 is not expected to
have any impact on the Company's consolidated financial statements.
F-10
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
In May 2003, the Financial Accounting Standards Board issued Statement No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." The Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). It is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. We adopted this standard
effective July 1, 2003, and it did not have a material effect on our
consolidated financial statements.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
areas requiring the use of management estimates relate to the valuation of
inventories, accounts receivable allowances, the useful lives of assets for
depreciation and amortization, evaluation of impairment, restructuring expense
and accrual, litigation accruals and recoverability of deferred taxes.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist primarily of cash equivalents and trade accounts
receivable. The credit risk associated with trade accounts is mitigated by a
credit evaluation process, reasonably short collection terms and the
geographical dispersion of sales transactions.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiary, whose functional
currency is Euros, are translated at the rate of exchange at the balance sheet
date, and related revenues and expenses are translated at the average exchange
rate in effect during the period. Resulting translation adjustments are recorded
as a component of stockholders' equity. Gains and losses from foreign currency
transactions are included in net income. Foreign currency transaction gains and
losses were insignificant to the operating results for each of the years in the
three-year period ended December 31, 2003.
STOCK OPTION PLAN
The Company applies the intrinsic-value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations including FASB Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation, an
interpretation of APB Opinion No. 25, to account for its fixed-plan stock
options. Under this method, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. FASB Statement No. 123, Accounting for Stock-Based Compensation
and FASB Statement No. 148, Accounting for Stock-Based Compensation - Transition
and Disclosure, an amendment of FASB Statement No. 123, established accounting
and disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As permitted by existing accounting
standards, the Company has elected to continue to apply the
intrinsic-value-based method of accounting described above, and has adopted only
the disclosure requirements of Statement 123, as amended. The following table
illustrates the effect on net income if the fair-value-based method had been
applied to all outstanding and unvested awards in each period.
F-11
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001
---------- --------- --------
(in thousands, except per share data)
Net income (loss):
As reported .......................... $ (1,070) $ (1,052) $ 741
Add/deduct: Total stock-based
employee compensation expense
determined under intrinsic value
based method for all awards,
net of tax effects ............... -- -- (233)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of tax effects ... (1,292) (2,458) (2,764)
---------- --------- --------
Pro forma net loss ................... $ (2,362) $ (3,510) $ (2,256)
========== ========= ========
Net income (loss) per share:
Basic - as reported .................. $ (0.11) $ (0.11) $ 0.07
========== ========= ========
Basic - pro forma .................... $ (0.25) $ (0.36) $ (0.22)
========== ========= ========
Diluted - as reported ................ $ (0.11) $ (0.10) $ 0.07
========== ========= ========
Diluted - pro forma .................. $ (0.25) $ (0.36) $ (0.22)
========== ========= ========
2. INVENTORIES
Inventories at December 31, 2003 and 2002 are summarized as follows (000's):
2003 2002
------ ------
Raw materials .................. $3,193 $2,703
Work in process ................ 455 493
Finished goods ................. 5,426 5,684
------ ------
$9,074 $8,880
====== ======
In the fourth quarter of 2003, approximately $1,250,000 of inventory was
discontinued, scrapped or fully reserved and was charged in cost of sales in the
accompanying consolidated statement of operations.
F-12
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2003 and 2002 are summarized as follows
(000's):
2003 2002
-------- --------
Machinery and equipment ............ $ 9,225 $ 9,241
Office furniture and equipment ..... 4,270 3,708
Leasehold improvements ............. 1,874 1,530
-------- --------
15,369 14,479
Less accumulated depreciation
and amortization ................ (9,134) (7,081)
-------- --------
$ 6,235 $ 7,398
======== ========
4. GOODWILL AND INTANGIBLE ASSETS - ADOPTION OF FINANCIAL ACCOUNTING
STATEMENT 142
In July 2001, the FASB issued FAS No. 141, "Accounting For Business
Combinations," and FAS. 142, "Accounting for Goodwill and Other Intangible
Assets."
The pro forma effects of implementation of FAS 142 to prior periods would be as
follows: (amounts in thousands, except per share data):
FOR YEARS ENDED DECEMBER 31,
----------------------------------------
2003 2002 2001
--------- --------- ---------
Reported income (loss)................ $ (1,070) (1,052) 741
Add:
Impairment charge, net of tax......... -- 2,477 --
Goodwill Amortization, net of tax..... -- -- 283
--------- --------- ---------
Adjusted net income (loss)............ (1,070) 1,425 1,024
========= ========= =========
Basic net income (loss) per share:
Reported income (loss)............. $ (0.11) (0.11) 0.07
Impairment charge, net of tax...... -- 0.25 --
Goodwill Amortization, net of tax.. -- -- 0.03
--------- --------- ---------
Adjusted net income (loss)......... $ (0.11) 0.15 0.10
========= ========= =========
Diluted net income (loss) per share:
Reported income (loss)............. $ (0.11) (0.10) 0.07
Impairment charge, net of tax...... -- 0.24 --
Goodwill Amortization, net of tax.. -- -- 0.03
--------- --------- ---------
Adjusted net income (loss)......... $ (0.11) 0.14 0.10
========= ========= =========
F-13
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
Acquired Intangible assets are as follows (in thousands):
AS OF DECEMBER 31, 2003 AS OF DECEMBER 31, 2002
------------------------ ------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
--------- ---------- --------- ----------
Amortized intangible assets
Developed Technology..... $ 7,656 (2,597) $ 7,656 (2,115)
Core technology.......... 665 (225) 665 (181)
Tradename................ 257 (256) 257 (206)
--------- ---------- --------- ----------
Total................. $ 8,578 (3,078) $ 8,578 (2,502)
========= ========== ========= ==========
At December 31, 2004, estimated amortization expense was as follows (in
thousands):
2004...................... $ 515
2005...................... $ 515
2006...................... $ 515
2007...................... $ 515
2008...................... $ 515
The changes in the carrying amount of goodwill for the year ended December 31,
2003, is as follows (in thousands):
UNITED STATES EUROPEAN
SEGMENT SEGMENT
----------- -----------
Balance as of December 31, 2001.................. $ 4,629 307
Goodwill acquired during the year................ -- --
Impairment losses................................ (4,629) --
---------- ----------
Balance as of December 31, 2002.................. -- 307
Goodwill acquired during the year................ -- --
Impairment losses................................ -- --
---------- ----------
Balance as of December 31, 2003.................. $ -- 307
========== ==========
5. COMMON STOCK AND TREASURY STOCK
The Company has a stock repurchase program under which it is allowed to
repurchase up to $15 million of common stock, at managements discretion, through
June 30, 2004. As of December 31, 2003, the Company had repurchased 1,536,000
shares of common stock and incurred a cash outlay totaling $8,734,000.
6. STOCK OPTIONS, PURCHASE PLANS AND WARRANTS
The Company currently has two stock option plans in place during 2003 - the 1993
Stock Incentive Plan (the "1993 Plan") and the 2000 BSI non-qualified stock
option Plan (the "2000 Plan"). The Company also has several stock option
agreements with certain officers in effect.
Under the 2000 Plan, non-qualified stock options may be granted to full-time
employees, part-time employees, directors and consultants of the Company to
purchase a maximum of 2,000,000 shares of the company's common stock. Options
granted under the 2000 Plan vest and are generally exercisable at the rate of
25% each year beginning one year from the date of grant. The stock options
generally expire ten years from the date of grant.
F-14
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
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 per share weighted average market value of stock options granted during
2003, 2002 and 2001 was $7.14, $6.20, and $6.00, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
2003 2002 2001
- --------------------------------------------------------------------------------
Expected dividend yield................ 0.00% 0.00% 0.00%
Risk-free interest rate................ 3.03% 3.82% 4.50%
Expected volatility.................... 106.64% 106.42% 89.87%
Expected option life (years)........... 4.70 5.18 4.81
To the extent that BioSource derives a tax benefit from options exercised by
employees, such benefit is credited to additional paid-in capital. Tax benefits
recognized totaling $538,000, $56,000, and $205,000 were credited to additional
paid-in capital in fiscal 2003, 2002 and 2001, respectively.
The following summarizes the stock option transactions under the 1993 Plan and
the 2000 Plan during the periods presented:
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
Options outstanding at December 31, 2000... 2,064,823 $ 12.67
Options granted............................ 904,647 7.84
Options exercised.......................... (36,952) 2.50
Options canceled........................... (885,166) 17.55
----------- --------
Options outstanding at December 31, 2001... 2,047,352 8.74
Options granted............................ 474,300 6.12
Options exercised.......................... (76,514) 3.10
Options canceled........................... (516,063) 13.14
----------- --------
Options outstanding at December 31, 2002... 1,929,075 7.14
Options granted............................ 303,000 7.14
Options exercised.......................... (170,830) 3.07
Options canceled........................... (138,071) 7.42
----------- --------
Options outstanding at December 31, 2003... 1,923,174 $ 7.48
=========== ========
F-15
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
At December 31, 2003, the range of exercise prices and weighted average
remaining contractual life of outstanding options were as follows:
Weighted Weighted Number of
Average Average Number of Options
Exercise Life of Options Currently
Price Option Outstanding Exercisable
---------------------------------------------------------------
$1.37 - $3.10 3.50 166,658 166,658
$3.11 - $6.20 7.10 560,164 368,367
$6.21 - $9.30 8.20 753,363 284,895
$9.31 - $15.50 7.10 275,000 193,987
$15.51 - $31.00 6.80 167,989 133,425
------- ----------- -----------
Total 7.20 1,923,174 1,147,332
======= =========== ===========
At December 31, 2003, 2002 and 2001, the number of options exercisable was
1,147,332, 1,007,601, and 777,836, respectively, and the weighted average
exercise price of those options was $7.41, $6.47, and $6.41, respectively.
The Company has a stock option agreement with Mr. Leonard Hendrickson, a former
officer of the Company that is outside the 1993 and the 2000 Plan. The
outstanding options expire on December 31, 2004 according to their terms at the
date of grant.
The following summarizes transactions outside the option plan during the periods
presented:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
-------- --------
Options outstanding at December 31, 2000............ 290,000 $ 2.89
Options granted..................................... 280,000 5.19
Options exercised................................... (64,000) 2.61
Options canceled.................................... --- --
-------- --------
Options outstanding at December 31, 2001............ 506,000 4.19
Options granted..................................... -- --
Options exercised................................... (28,600) 2.00
Options canceled.................................... -- --
-------- --------
Options outstanding at December 31, 2002............ 477,400 $ 4.33
Options granted..................................... -- --
Options exercised................................... (187,400) 2.94
Options canceled.................................... (61,835) 6.44
-------- -------
Options outstanding at December 31, 2003............ 228,165 $ 5.19
======== ========
F-16
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
At December 31, 2003, the exercise price and weighted average remaining
contractual life of outstanding options under certain agreements were as
follows:
Weighted Weighted Number of
Average Average Number of Options
Exercise Life of Options Currently
Price Option Outstanding Exercisable
-------- ------- ----------- -----------
$5.19 1.00 228,165 228,165
------- ----------- -----------
Total 1.00 228,165 228,165
======= =========== ===========
At December 31, 2003, 2002 and 2001, the number of exercisable options was
228,165, 279,000, and 226,000, respectively, and the weighted average exercise
price of those options was $5.19, $3.72, and $2.97, respectively.
During 2003, 2002 and 2001, 358,230 105,114, and 100,952 stock options,
respectively were exercised for proceeds totaling $1,075,000, $291,000 and
$308,000 of cash received by the company.
Effective April 7, 1995, the Company adopted an Employee Stock Purchase Plan to
provide substantially all full-time employees, excluding officers, an
opportunity to purchase shares of its common stock through payroll deductions.
In addition, the Company provides a matching contribution equal to 50% of the
participant's contribution. All contributions are invested in the Company's
common stock, which is purchased on the open market at prevailing market prices.
Participants have a fully vested interest in the shares purchased with payroll
deductions and become fully vested in the shares purchased with Company matching
contributions after two years. The Company's matching expense for the years
ended December 31, 2003, 2002 and 2001 was approximately $19,000, $24,000, and
$19,000, respectively.
The Company has 1,287,000 detachable stock purchase warrants outstanding. The
warrants have a term of up five years from date of issuance and are exchangeable
for 1,287,000 shares of Common Stock at an exercise price of $7.77 per share.
The warrants expire in January 2005.
7. STOCKHOLDER RIGHTS PLAN
The Company has adopted a stockholders' rights plan to protect the Company and
its stockholders from unsolicited attempts or inequitable offers to acquire the
Company's stock. The rights plan has no immediate dilutive effect and does not
diminish the Company's ability to accept an offer to purchase the Company that
is approved by the board of directors. The stockholder rights plan was
implemented through a dividend of one preferred share purchase right on each
outstanding share of the Company's common stock outstanding on March 2, 1999.
Each right will entitle stockholders to buy one one-thousandth of a share of
Series A preferred stock at an exercise price of $24.50. The rights will become
exercisable (with certain limited exceptions provided in the rights agreement)
following the 10th day after: (a) a person or group announces an acquisition of
15% or more of the Company's common stock, (b) a person or group announces the
commencement of a tender offer the consummation of which would result in
ownership by the person or group of 15% or more of the Company's common stock,
(c) the filing of a registration statement for any such exchange offer under the
Securities Act of 1933, or (d) the Company's board of directors determining that
a person is an "adverse person," as defined in the rights plan. The buyer or any
"adverse person" would not be entitled to exercise rights under the rights plan.
The effect of the rights plan is to discourage acquisitions of more than 15% of
the Company's common stock without negotiations with the Company's Board of
Directors. The Company can redeem the rights for $.001 per right at certain
times as provided in the rights agreement. The rights expire on January 31,
2009.
F-17
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
8. INCOME TAXES
Income (loss) before income taxes (benefit) for 2003, 2002 and 2001 were from
the following sources (000's):
2003 2002 2001
------- ------- -------
Domestic ................. $(1,306) $ 723 $(1,203)
Foreign .................. (648) 683 1,874
------- ------- -------
$(1,954) $ 1,406 $ 671
======= ======= =======
Income tax expense (benefit) is summarized as follows (000's):
2003 2002 2001
------- ------- -------
Current:
Federal ...................... $ 99 $ (440) $ 95
State and local .............. 109 401 42
Foreign ...................... 391 552 71
------- ------- -------
$ 599 513 208
------- ------- -------
Deferred:
Federal ...................... (936) 307 (70)
State and local .............. (18) (549) (350)
Foreign ...................... (529) (260) 142
------- ------- -------
(1,483) (502) (278)
------- ------- -------
$ (884) $ 11 $ (70)
======= ======= =======
The Company has credited to additional paid-in-capital tax benefits totaling
$538,000, $56,000, and $205,000 in fiscal years 2003, 2002, and 2001,
respectively.
The primary components of temporary differences which give rise to deferred
taxes at December 31, 2003 and 2002 are (000's):
2003 2002
-------- --------
Deferred tax assets:
Reserves for inventory .......................... $ 1,960 $ 1,517
Purchased in-process technology/goodwill ........ 2,385 3,046
Net operating loss carryforwards ................ 6,067 4,290
Allowance for doubtful accounts ................. 72 89
R & D and AMT credit carryforwards .............. 2,107 1,570
Other ........................................... 460 336
-------- --------
13,051 10,848
Less: Valuation Allowance ......................... (393) --
-------- --------
Deferred Tax Assets ............................... 12,658 10,848
Deferred tax liability
Depreciation .................................... 217 165
-------- --------
Net deferred tax assets ..................... $ 12,441 $ 10,683
======== ========
The Company believes, except for the valuation allowance of $393,000 for
Massachusetts net operating losses disclosed above, it is more likely than not
that they will be able to realize the remaining current value of net benefits in
the future.
F-18
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
Actual income tax expense (benefit) differs from that obtained by applying the
Federal income tax rate of 34% to income (loss) before income taxes (benefits)
as follows (000's):
2003 2002 2001
----- ----- -----
Computed "expected" tax expense (benefit) ..... $(665) $ 478 $ 228
Nondeductible items ........................... 52 24 --
State taxes (net of Federal benefit) .......... (254) (98) 21
Tax credits ................................... (285) (213) (338)
Extraterritorial Income Exclusion ............. (139) (244) --
Effect of foreign operations .................. 25 50 (18)
Change in valuation allowance ................. 393 -- --
Other ......................................... (11) 14 37
----- ----- -----
Total .................................. $(884) $ 11 $ (70)
===== ===== =====
The Company does not provide for U.S. federal income taxes on the undistributed
earnings of its foreign subsidiaries since the Company intends to reinvest
indefinitely its earnings in such subsidiaries. It is not practical to determine
the U.S. federal income tax liability, if any that would be payable if such
earnings were not reinvested indefinitely.
The Company has $12,441,000 in deferred income tax assets on its consolidated
balance sheet as of December 31, 2003. A large component of the Company's
deferred tax assets is its net operating losses. As of December 31, 2003, the
Company has a net operating loss (NOL) carryforward of approximately
$11,540,000, $14,152,000 and $1,443,000 for Federal, State and foreign income
tax purposes, respectively. The federal NOL's are available to offset future
taxable income, if any, through 2020 to 2023. The state NOL's are available to
offset future taxable income, if any, through 2006 to 2023.
9. 401(K) BENEFIT PLAN
The Company has a 401(k) profit sharing plan, which covers substantially all
domestic employees of the Company. Plan participants may make voluntary
contributions up to 20% of their earnings up to the statutory limitation. The
Company's contribution is $0.25 for each $1.00 contributed by employees up to
the first $2,000. Company contributions have no vesting period. The Company's
contributions were $66,000, $67,000, $57,000 in 2003, 2001 and 2001,
respectively.
10. 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. The Company characterizes its product lines as Strategic Business Units
("SBU's") and these include 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 (000's):
F-19
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001
-------- -------- --------
SALES - FROM SEGMENTS:
Net sales to external customers from:
United States:
Domestic ....................... $ 23,891 $ 23,574 $ 21,027
Export ......................... 4,546 4,082 4,623
-------- -------- --------
Total United States ..... 28,437 27,656 25,650
Europe ............................. 15,657 12,399 9,525
-------- -------- --------
Consolidated ............ $ 44,094 $ 40,055 $ 35,175
======== ======== ========
Operating income (loss):
United States ...................... $ (3,584) $ (1,250) $ (1,970)
Europe ............................. 1,706 2,533 2,181
-------- -------- --------
Consolidated ............ $ (1,878) $ 1,283 $ 211
======== ======== ========
2003 2002 2001
-------- -------- --------
SALES - TO SEGMENTS:
Net sales to external customers in:
United States ...................... $ 23,891 $ 23,574 $ 21,027
Europe ............................. 9,704 10,940 8,846
Japan .............................. 3,448 3,319 3,085
Other .............................. 7,051 2,222 2,217
-------- -------- --------
Consolidated ............ $ 44,094 $ 40,055 $ 35,175
======== ======== ========
SALES - BY PRODUCT GROUP:
Net sales by product group:
Cytokine ........................... $ 9,083 $ 6,910 $ 4,734
Signaling .......................... 20,107 18,207 16,647
Custom ............................. 14,904 14,938 13,794
-------- -------- --------
Consolidated ............ $ 44,094 $ 40,055 $ 35,175
======== ======== ========
IDENTIFIABLE ASSETS AT END OF YEAR:
United States ...................... $ 33,959 $ 36,263 $ 42,420
Europe ............................. 10,374 10,243 7,421
-------- -------- --------
Consolidated ............ $ 44,333 $ 46,506 $ 49,841
======== ======== ========
NET INTEREST EXPENSE (INCOME):
United States ...................... $ (151) $ (92) $ (363)
Europe ............................. 124 (21) (11)
-------- -------- --------
Consolidated ............ $ (27) $ (113) $ (374)
======== ======== ========
DEPRECIATION AND AMORTIZATION:
United States ...................... $ 2,246 $ 2,028 $ 2,145
Europe ............................. 374 296 286
-------- -------- --------
Consolidated ............ $ 2,620 $ 2,324 $ 2,431
======== ======== ========
CAPITAL EXPENDITURES:
United States ...................... $ 913 $ 3,132 $ 2,106
Europe ............................. 408 349 453
-------- -------- --------
Consolidated ............ $ 1,321 $ 3,481 $ 2,559
======== ======== ========
F-20
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
11. COMMITMENTS AND CONTINGENCIES
At December 31, 2003, future minimum payments under the Company's non-cancelable
operating leases are as follows (in thousands):
2004........................................ $ 1,474
2005........................................ 1,192
2006........................................ 644
2007........................................ 59
Thereafter.................................. --
---------
$ 3,369
Rent expense for 2003 totaled $1,441,000.
On January 14, 2002, we settled a lawsuit filed by a former employee in the
United States Central District Court of California for $275,000, all which was
expensed in 2001.
On July 2, 2002, we settled a AAA arbitration proceeding filed by the former
shareholders of QCB, which settlement included a final settlement of all related
claims we maintained against those former shareholders, in consideration of the
payment to us of $800,000 from escrowed funds held by us in connection with the
acquisition of QCB. The remaining funds held in escrow were released to the
former shareholders of QCB. This settlement was considered to be a reduction of
the goodwill originally recorded in the acquisition of QCB. That goodwill was
written off as a cumulative effect of accounting change in the adoption of FASB
Statement No. 142 during the first quarter of 2002. The settlement was accounted
for as an adjustment to the cumulative effect of accounting change during the
third quarter of 2002.
The Company is involved in various other claims and lawsuits incidental to its
business. In the opinion of management, these claims and suits in the aggregate
will not materially affect the financial position, results of operations or
liquidity of the Company.
12. EARNINGS PER SHARE
The Company presents basic and diluted earnings (loss) per share ("EPS"). Basic
EPS is computed by dividing net income (loss) available to common stockholders
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution from securities that could share in
the earnings of the Company.
F-21
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
The reconciliation of basic to diluted weighted average shares is as follows:
Year ended December 31,
2003 2002 2001
--------- --------- --------
Income (loss) before cumulative
effect of accounting change
used for basic and diluted
income (loss) per share ............. $ (1,070) $ (1,395) $ 741
========= ========= ========
Net income (loss) used for basic
and diluted income (loss) per
share ............................... $ (1,070) $ (1,052) $ 741
========= ========= ========
Weighted average shares used in
basic computation ................... 9,403 9,787 10,398
Dilutive stock options and warrants .... -- 402 567
--------- --------- --------
Weighted average shares used for
diluted computation ................. 9,403 10,189 10,965
========= ========= ========
Income (loss) per share before
accounting change:
Basic ............................... $ (0.11) $ 0.14 $ 0.07
========= ========= ========
Diluted ............................. $ (0.11) $ 0.14 $ 0.07
========= ========= ========
Net income (loss) per share:
Basic ............................... $ (0.11) $ (0.11) $ 0.07
========= ========= ========
Diluted ............................. $ (0.11) $ (0.11) $ 0.07
========= ========= ========
Options to purchase 913,946, 1,040,125, and 793,332 shares of common stock at
prices ranging from $6.58 to $31.00, $6.08 to $31.00, and $8.00 to $31.00 were
outstanding during 2003, 2002 and 2001, respectively, but were not included in
the computation of diluted earnings (loss) per share because the options'
exercise price was greater than the average market price of the common shares
during the respective periods.
Warrants to purchase 1,287,000 shares at an exercise price of $7.77 per share
were outstanding as of December 31, 2003 and 2002 but were not included in the
computation of diluted net income per share because their effect would be
anti-dilutive.
F-22
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
BALANCE AT PROVISION DEDUCTIONS BALANCE AT
BEGINNING CHARGED ACCOUNTS END OF
OF YEAR TO INCOME WRITTEN OFF YEAR
------- --------- ----------- ----
(000's)
2001-allowance for
doubtful accounts ....... $ 143 125 7 261
2002-allowance for
doubtful accounts ....... $ 261 140 140 261
2003-allowance for
doubtful accounts ....... $ 261 164 167 258
F-23
EXHIBIT INDEX
FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
3.1 Certificate of Incorporation of Registrant (1)
3.2 Bylaws of Registrant (1)
4.1 Specimen Stock Certificate of Common Stock of Registrant (1)
4.2 Certificate of Designation of Series A Preferred Stock (9)
4.3 Certificate of Designation of Series B Preferred Stock (11)
4.4 Rights Agreement, dated as of February 25, 1999, between Registrant
and U.S. Stock Transfer and Trust Corporation, as Rights Agent (9)
4.5 Amendment to Rights Agreement, dated as of January 10, 2000, between
Registrant and U.S. Stock Transfer and Trust Corporation (13)
4.6 Second Amendment to Rights Agreement, dated September 28, 2000,
between Registrant and U.S. Stock Transfer and Trust Corporation
(13)
4.7 Form of Right Certificate (9)
4.8 Summary of Share Purchase Rights (9)
4.9 Investor Rights Agreement dated February 15, 2000, by and among
Registrant, Genstar Partners II, L.P. and Stargen II LLC (12)
4.10 Amendment to Investor Rights Agreement dated September 18, 2000,
among Registrant, Genstar Capital Partners II, L.P., Stargen II LLC,
Russell D. Hays and George Uveges (13)
4.11 Second Amendment to Investor Rights Agreement, dated September 28,
2000, among Registrant, Genstar Capital Partners II, L.P., Stargen
II LLC, Russell D. Hays, George Uveges, Jean-Pierre Conte, Richard
Hoskins, Richard Paterson and Robert Weltman (13)
4.12 Warrant to Purchase Common Stock of Registrant issued to Genstar
Capital Partners II, L.P. on February 15, 2000 (12)
4.13 Warrant to Purchase Common Stock of Registrant issued to Stargen II
LLC on February 15, 2000 (12)
10.1 Registrant's 1993 Stock Incentive Plan (4)
10.2 Licensing Agreement dated May 1, 1990, by and between TAGO, Inc., as
licensee, and St. Jude's Children's Hospital, as licenser (1)
10.3 License Agreement dated February 14, 1991, by and between Registrant
and Schering Corporation (1)
10.4 License Agreement dated October 1, 1993, by and between Registrant,
as licensee, and Schering Corporation, as licensor (2)
EXHIBIT INDEX
FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003, CONTINUED
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
10.5 Separation and Consulting Agreement between Registrant and James H.
Chamberlain dated September 19, 2000 (15)
10.6 License Agreement dated February 7, 1994, by and between Registrant,
as licensee and Fundacio Clinic (4)
10.7 Form of Indemnification Agreement for Directors and Executive
Officers (6)
10.8 List of Indemnities relating to Form of Indemnification Agreement
previously filed as Exhibit 10 (16)
10.9 Registrant's Employee Stock Purchase Plan (7)
10.10 Securities Purchase Agreement dated January 10, 2000, by and among
Registrant, Genstar Capital Partners II, L. P. and Stargen II LLC
(15)
10.11 Securities Purchase Agreement, effective as of August 9, 2000,
between the Registrant and Genstar Capital Partners II, L.P. (13)
10.12 Amendment to Securities Purchase Agreement, dated as of September
28, 2000, among the Registrant, Genstar Capital Partners II, L.P.,
Jean-Pierre Conte, Richard Hoskins, Richard Paterson and Robert
Weltman (13)
10.13 Securities Purchase Agreement, effective as of August 9, 2000,
between the Registrant and Russell D. Hays (13)
10.14 Securities Purchase Agreement, effective as of September 5, 2000,
between the Registrant and George Uveges (13)
10.15 Letter agreement regarding employment, dated August 2, 2000, between
Registrant and Russell D. Hays (15)
10.16 Amendment to letter agreement regarding employment, dated September
18, 2000, between Registrant and Russell D. Hays (15)
10.17 Letter agreement regarding employment, dated August 18, 2000 between
Registrant and George Uveges (15)
10.18 Amendment to letter agreement regarding employment, dated September
18, 2000, between Registrant and George Uveges (15)
10.19 Registrant's 2000 Non-Qualified Stock Option Plan (14)
10.20 Lease Agreement for 542 Flynn Road, dated March 7, 2000, between
Registrant and Lincoln Ventura Technology Center (15)
10.21 Executive Employment Agreement between Registrant and Leonard M.
Hendrickson, dated September 24, 2001(16)
EXHIBIT INDEX
FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003, CONTINUED
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
10.22 Separation and Release Agreement dated as of September 29, 2003,
between Registrant and Leonard Hendrickson.
10.23 Executive Employment Agreement between Registrant and Terrance J.
Bieker, dated as of October 8, 2003.
21 Subsidiaries of the Company
STATE/COUNTRY OF
NAME INCORPORATION
------------------------------------------------------------
Keystone Laboratories, Inc..................California
BioSource Europe S.A........................Belgium
BioSource B.V...............................Holland
BioSource GmbH..............................Germany
BioSource U.K., Ltd.........................U.K.
Quality Controlled Biochemicals, Inc........Massachusetts
Javelle, Inc................................Massachusetts
23.1 Consent of KPMG LLP, Independent Auditors
31.1 Certificate of Terrance J. Bieker, 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 Terrance J. Bieker, Chief Executive Officer of
BioSource International, Inc. pursuant to Rule 13a-14(a) under the
Securities and Exchange Act of 1934, as amended.
32.2 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.
- ----------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 as filed with the Securities and Exchange Commission on October 22,
1992, as amended.
(2) Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1992. (3) Incorporated by reference to the Company's Form
10KSB for the year ended December 31, 1993. (4) Incorporated by reference
to the Company's Form 10KSB for the year ended December 31, 1994. (5)
Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1995.
(6) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (SEC No. 333-3336) as filed with the Securities and Exchange
Commission on May 31, 1996, as amended.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-8 (SEC No. 33-91838) as filed with the Securities and Exchange Commission
on May 4, 1995.
(8) Incorporated by reference to the Company's Current Report on Form 8-K/A
filed with the Securities and Exchange Commission on February 19, 1999.
(9) Incorporated by reference to the Company's Current Report on Form 8-A filed
with the Securities and Exchange Commission on March 1, 1999.
(10) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.
(11) Incorporated by reference to the Company's Registration Statement on Form
S-3 as filed with the Securities and Exchange Commission on March 16, 2000.
(12) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-3 as filed with the Securities and Exchange Commission
on March 22, 2000.
(13) Incorporated by reference to the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on October 26, 2000, and
as amended on October 31, 2000.
(14) Incorporated by reference to the Company's definitive proxy statement as
filed with the Securities and Exchange Commission on May 16, 2000.
(15) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 2000.
(16) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 2001.