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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Amendment No. 2)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-21930
BIOSOURCE INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 77-0340829
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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820 FLYNN ROAD, CAMARILLO, CALIFORNIA, 93012
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'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
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange during the preceding
12 months (or for such shorter period 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 there is no disclosure of delinquent filers in
response to Item 405 of regulation S-K is not 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 this Form 10-K
or any amendment to this Form 10-K. [ ]
At March 31, 1997 the aggregate market value of the outstanding shares of
voting stock held by non-affiliates of the registrant was $58,404,346.
At March 31, 1997 the registrant had 8,353,277 shares of Common Stock, par
value $0.001 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Proxy Statement relating to its 1996 Annual Meeting of
Stockholders is incorporated by reference into Part III, Items 11, 12 and 13 of
this Annual Report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
BioSource International, Inc. ("BioSource"or the "Company") develops,
manufactures, markets and distributes products which are widely used in
biomedical research and are instrumental in the development of new medical
diagnostic methods and pharmaceutical products. The Company's products 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, AID's and certain other infectious diseases. The
Company's products include immunological reagents, including bioactive proteins
(cytokines, growth factors and adhesion molecules) and monoclonal and polyclonal
antibodies. The Company also develops, manufactures, markets and distributes
oligonucleotides and ELISA test kits, and uses recombinant DNA technology to
produce cytokines and other proteins.
The Company was originally incorporated as a California corporation in
October, 1989, and was reincorporated as a Delaware corporation on May 19, 1993
in connection with the acquisition of TAGO Immunoligicals, Inc. ("TAGO"). TAGO
developed and manufactured immunological reagents derived from antibodies
produced in goats and other animals.
Since its acquisition of TAGO in May of 1993, BioSource has concentrated on
internal development of new products, and currently offers over 1,300 products
to more than 1,700 medical laboratories and research centers in universities,
government institutions and pharmaceutical and biotechnology firms. In November
1995, BioSource further expanded its product lines by acquiring Keystone
Laboratories, Inc. ("Keystone"), enabling it to manufacture oligonucleotides
both as a new product line and for use in the production of cytokines and its
ELISA test kits.
On June 5, 1996 BioSource acquired certain assets and assumed selected
liabilities of Medgenix Diagnostics, S.A. ("Medgenix"), located in Fleurus,
Belgium, related to its in vitro diagnostic business (the "Medgenix Business").
The Medgenix assets consist of certain product lines which are similar to those
of the Company, focusing on the manufacture, sales and distribution of assay
test kits, customer accounts, laboratory and animal facilities, real property
leasehold interests and an existing employee base, all of which were used in the
Medgenix Business. The purchase price for the Medgenix Business was $6.9
million. The purchase price, paid in cash, was funded from a portion of the net
proceeds of the Company's second primary offering of its common stock which
closed concurrently with the closing of the Medgenix acquisition. The
acquisition was accounted for as a purchase of assets (and assumption of certain
liabilities) which were acquired by a wholly-owned subsidiary of BioSource,
BioSource Europe, S.A. ("BioSource Europe"). BioSource Europe is incorporated
under Belgian law with subsidiaries in France, Germany, Italy and the
Netherlands. Since the acquisition, BioSource Europe continues to manufacture
and sell its existing product line, in addition to distributing the BioSource
product line to the European customer base and other worldwide locations.
INDUSTRY OVERVIEW
The biomedical research industry has recently seen major advances in the
understanding of physiological processes at the cellular and molecular level.
New research technologies require the use of qualitative and quantitative
analysis to monitor the way in which tissues and cells communicate with each
other and how cells respond when stimulated. Biomedical researchers around the
world are constantly in search of specialty research products 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 such research in creating new health care products depends upon the
availability of biological reagents, including various biological proteins,
antibodies, serums and immunoassay kits, such as those manufactured and sold by
the Company.
The biomedical research industry is a large and growing segment of the
biotechnology industry. Large, highly capitalized biotechnology and
pharmaceutical companies have concentrated their efforts on the
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development of human therapeutics and high volume diagnostic tests. BioSource
supplies these larger companies with the tools to assist them in achieving their
scientific goals.
Most industrialized nations, led by the United States, Japan and the
countries of Western Europe, support some level of biomedical research.
BioSource's products are used by thousands of physicians and scientists who are
employed by or affiliated with universities, medical schools, research
institutes and private industry. The biomedical research industry is highly
fragmented with no dominant competitors.
STRATEGY
The Company's primary business strategy has been to capitalize on the
growth of the biotechnology industry by creating "building block" reagents and
test kits which are not subject to regulatory overview or the risk and
volatility inherent in developing pharmaceuticals, and to grow through the
selective acquisition of complementary businesses. The Company's strategy
includes the following elements:
Develop Broad Product Lines. The Company offers over 1,300 products in four
major product lines in an effort to serve effectively a diverse and fragmented
industry. The Company believes that its many and diverse products more fully
address the needs of researchers, thereby offering them the ability and
convenience of obtaining their research products from a single source, which
will cause researchers to look first to the Company to satisfy their needs.
Focus on Product Research. Over the last two years, the Company has
developed over 40 new products to serve the biomedical research industry. The
Company's sales force, who have education and training in the biological
sciences, continuously evaluates the direction of its customers' biomedical
research, enabling the Company's management to develop more effectively
innovative ELISA test kits, cytokines, antibodies and other immunological
reagents to address those needs. For example, the Company capitalized on the use
of mice and rats as the species of choice of most researchers as a preclinical
model for potential therapeutics by developing ELISA test kits to measure
various cytokines for both mice and rats.
Commitment to Product Development. During 1996, 1995 and 1994, the Company
has invested approximately $1.4 million, $1.1 million and $700,000,
respectively, in research and development and plans to increase its research and
development expenses in the future. The Company employs nine professionals with
Ph.D. degrees in the life sciences. The Company believes it was the first to
introduce certain ELISA test kits to measure several different human
interleukins (a type of cytokine) that researchers have associated with the
immune system function.
Offer Products of Exacting Capability. The Company continually strives to
offer products with the greatest sensitivity, precision, accuracy and
reproducibility available on the market. For example, the Company's products are
generally capable of measuring picogram (one trillionth of a gram) levels of a
protein more quickly than products available from certain of its competitors.
Create Superior Value. The Company seeks to create superior value for its
customers. For instance, BioSource includes two ELISA test plates in most of its
ELISA test kit packages which allows for double the number of tests, at a
comparable price, compared to the test kits of most of its competitors, thereby
offering greater affordability and convenience to customers, and fostering more
economical and prolific research.
Acquire Complementary Businesses, New Products and Technologies. The
Company evaluates potential acquisitions of complementary products and
businesses from time to time and has a proven track record of profiting from its
business acquisitions. In 1993, the Company acquired TAGO, which added
polyclonal and monoclonal antibodies to its product lines, in 1995 the Company
acquired Keystone, which added oligonucleotides to its product lines; and in
1996 the Company acquired the Medgenix Business which resulted in further
expansion of its product offerings and geographic distribution.
Esprit de Corps. The Company seeks to create a team spirit among all of its
employees, foster awareness of the Company's objectives and strategies at all
levels within the Company, and reward meritorious performance with compensation
and other incentives. The Company believes this creates loyalty to the Company
and pride in its products, which translates into greater quality and enhanced
customer service.
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PRODUCTS
BioSource has over 1,300 different products in its inventory. The Company
groups its products into four principal product lines; oligonucleotides (DNA
segments), bioactive proteins (cytokines, growth factors and adhesion
molecules), monoclonal and polyclonal antibodies and ELISA test kits.
Oligonucleotides (DNA Segments). An oligonucleotide is a synthesized
polymer made up of the same building blocks which form DNA. Synthetic
oligonucleotides have been used in molecular biology for over twenty years,
basically to act as primers and templates for nucleic acid and protein
synthesis, and more recently, as the therapeutic agents for the inhibition of
either DNA transcription of RNA translation or as a diagnostic agent to identify
disease. DNA is used by almost every discipline in biomedical research in both
academic and industry areas, including molecular biology departments and cell
biology departments of major universities, and biomedical companies developing
gene therapy drugs.
In DNA sequencing, oligonucleotides are custom synthesized by the Company
pursuant to customer specifications and are used to initiate a process of
sequencing a growing DNA strand. DNA sequencing is used in a wide range of other
biomedical research applications to identify specific diseases. In PCR
(Polymerase Chain Reaction) priming, oligonucleotides synthesized by the Company
are used in combination with other reagents to amplify a specific genetic
sequence isolated from a cell sample.
Bioactive Proteins (Cytokines, Growth Factors and Adhesion Molecules). The
development of effective immune response involves complex cell-to-cell
communications which are mediated by a group of secreted proteins collectively
called cytokines. Cytokines and other similar growth factors and adhesion
molecules are instrumental in the body's defense against cancer, AIDS and other
life-threatening disorders. Cytokines are small, hormone-like, soluble proteins
secreted by activated cells of the immune system. Through their activities,
cytokines coordinate and orchestrate the proper functioning of the immune
system. Growth factors are proteins that stimulate the multiplication and
differentiation of various types of immature precursor cells. Adhesion molecules
enable cells to interact for the purpose of cell communication and are involved
in such processes as wound healing and tumor metastasis.
Antibodies. Antibodies are used as detector systems in the research of
normal and abnormal proteins. Antibodies are molecules generated by a particular
group of immune cells in response to foreign antigens. They have specific amino
acid sequences by virtue of which they interact only with the antigen that
induced their synthesis. They are classified according to their mode of action.
In vivo, secreted antibodies circulate in the blood and serve as the effects of
humoral immunity by searching out and neutralizing or eliminating foreign
antigens. Antibodies are also used in vitro for neutralization studies in
bioassay systems. Antibodies are generally produced by injecting a particular
antigen into animals (usually goats, chickens, rabbits or mice) which cause the
animals immune system to produce an antibody specific to that antigen.
BioSource develops its own antibodies when it is able to do so. Where the
Company perceives a need for a specific antibody that it is unable to produce
internally, it licenses from a third party a cell line specific to that antibody
(hybridoma cells) which permits the Company to obtain and purify the antibody
from the secretions of the hybridoma cell line. In some cases, the Company will
purchase bulk antibodies directly.
ELISA Test Kits. ELISA test kits are a combination of certain cytokines and
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. Included in this product line are the radioimmunoassays
("RIA") and Dynamix assays manufactured by BioSource Europe. In a typical ELISA
test kit, an antibody is immobilized or "bound" on a microtiter well of the
kit's test plate. ELISA technology is a valuable tool both in research and
diagnostic applications as it provides a relatively inexpensive, accurate and
rapid method of protein quantitation. Detection of fluctuations in cytokine
levels by ELISA tests whether in an in vitro cell culture experiment of a new
drug or in a patient's serum, provide researchers and scientists with valuable
information in understanding disease progression, therapy or diagnosis.
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SALES AND MARKETING
The Company's sales force hold biological sciences undergraduate degrees
and undergo training in the nature and application of BioSource's products and
proven selling techniques. BioSource believes that by investing in the
scientific training of its sales force, it is able to determine the needs of
researchers and scientists in the biomedical community. Its sales force is used
not only as a traditional marketing branch of the Company, but also to provide
valuable feedback for the Company's product development.
The principal markets for BioSource products are in the United States,
Japan and Western Europe. Domestic sales are achieved through the use of a
direct sales force strategically located in major metropolitan areas in the
United States, advertising in various scientific trade journals and catalog
distribution to all current and potential customers. The use of a direct sales
force also provides the Company with an opportunity to discuss directly with
researchers and scientists new developments and trends in the industry. The
international markets are serviced directly through BioSource Europe and the use
of highly respected international distributors which specifically target the
foreign medical market, advertising and catalog distribution.
Marketing
BioSource has a comprehensive and integrated marketing program which
utilizes advertisements in key journals, direct mail, trade show exhibits, press
releases, and other forms of advertisement to provide exposure to potential end
users of BioSource products.
The Company's journal advertisements emphasize BioSource's innovative
products and attempt to depict pictorially its competitive strengths. The
Company generally uses direct mail to support a new product launch. The direct
mail campaign is coordinated with advertisement programs in an effort to achieve
maximum product exposure. The Company's direct mail literature is targeted to
specific end user groups believed to have the highest potential for immediate
purchase of the specified product.
Sales
BioSource effects sales to end users through a direct sales force based in
the U.S. and Western Europe in addition to a network of international
distributors. Domestic sales are made through several field territories with a
direct sales representative located in the east, midwest and western parts of
the United States. The European sales force is located in Belgium, France,
Germany, Italy and Holland. 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' sale levels.
The Company requires that all field representatives have a degree in a
biological science, and either molecular or immunological laboratory research
experience. This laboratory experience allows them to understand end user
applications and match BioSource product benefits to specific needs. All
representatives are required to attend professional selling skills courses and,
in most cases, are given supplemental selling skills training each year at the
Company's expense. The Company monitors sales performance on a weekly basis in
an effort to ensure the quality and quantity of customer contacts.
BioSource's network of international distributors can be exclusive or
non-exclusive, but BioSource generally grants exclusive distribution rights only
where the distributor maintains direct field representatives proportionate to
the potential for BioSource product sales in a defined geographical area, and is
subject to mutually acceptable annual sales goals. All BioSource distributors
are required to limit their primary sales focus to the biomedical research
market. The Company offers all of its distributors annual training to enhance
their knowledge of product applications, solicit requests for new products and
ultimately to increase sales.
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RESEARCH AND DEVELOPMENT
General
The Company funds its own research and development costs. BioSource
continues to focus its research and development on the creation of new and
unique ELISA test kits and other biotechnology products which include antibodies
and proteins. BioSource Europe also continues its efforts in the development of
new ELISA assays which are in various stages of development to expand its
current product line.
Commencing in 1994, BioSource began to dramatically expand its research and
development efforts, and to focus its efforts in the area of molecular biology.
The Company's molecular biology group is now focusing its efforts on cloning and
expressing of cytokine genes for a variety of species. This effort involves the
use of recombinant DNA technology to produce certain proteins which will be
unique internally produced cytokines. In addition, the Company has begun to
develop a group of new products which will build upon its current antibody
product line. This includes, but is not limited to, labeled anti-cytokine
antibodies for intracellular staining (flow cytometry) and antibody coupled
magnetic beads for cell separation.
Recent advances in genetic sequencing and molecular biology are enabling
novel new methods for rapid diagnosis and monitoring of treatment for human
infectious and genetic diseases. Leveraging on the Company's core technology,
and the work of researchers on its Scientific Advisory Board, the Company, in
collaboration with other researchers, is investigating the development of unique
test kits that may allow it to enter the human diagnostics market. Each of these
research programs is structured to minimize the initial expense to the Company,
while offering the opportunity for development of valuable new products.
The Company's first collaborative human diagnostic study is being conducted
at the Bone Marrow Transplantation Program at Mary Babb Randolph Cancer Center,
West Virginia, where a research team is investigating the feasibility of a
quantitative assay capable of detecting minimal residual disease from breast
cancer. The study, which began in July, 1996, utilizes custom oligonucleotides
provided by the Company. These DNA segments are critical components of the new
assay.
The Company's second collaborative human diagnostic study is being
conducted at the University of Texas Southwestern Medical Center at Dallas. The
Company is funding this two-year study to support efforts to identify DNA
primers and construct quantitative controls for tests utilizing PCR technology
to detect minimal residual disease in patients undergoing therapy for certain
leukemias and non-Hodgkins lymphomas. The Company has committed to fund this
study up to a maximum of $100,000, and has exclusively licensed the resulting
technology for the development of commercial diagnostic products.
ELISA-like assays developed as a result of these programs will be marketed
for research uses, then expanded into clinical settings.
Expenditures for research and development were approximately $1.4 million,
$1.1 million and $700,000 for the years 1996, 1995 and 1994, respectively.
AVAILABILITY OF RAW MATERIALS
The principal raw materials for the oligonucleotides manufactured by the
Company are the nucleotides that comprise DNA which are available from numerous
sources. The Company's oligonucleotides are used to make genes. Genes are then
used to make some cytokines, which are in turn used to make antibodies. The
Company also purchases some cytokines and antibodies.
ELISA test kits are manufactured from antibodies, proteins, enzymes and
various buffers, and utilize plastic test well plates. The Company develops most
of its cell lines internally, and obtains licenses to various cell lines that
are necessary to the manufacture of key components of its product lines, on an
as needed basis. The Company believes that it maintains adequate supplies of
materials on hand to allow it to continue to manufacture products and meet
customer demand, and that those materials that it does not produce internally
are readily available from multiple sources.
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SEASONALITY OF BUSINESS
The Company typically does not experience material seasonality of sales.
However, the Company does experience a slowing of sales in Europe during the
summer months and worldwide for the Christmas holidays.
SIGNIFICANT CUSTOMERS
No single customer accounted for more than 10% of total revenues during the
years 1996, 1995 or 1994. COMPETITION
The Company is engaged in a segment of the health care products industry
that is highly competitive. The Company's primary competitors include
biotechnology companies, such as Techne Corporation, Genzyme Corporation,
Southern Biotechnology, Endogen, Inc., Jackson Labs, Dako Corporation and
Genosys Biotechnologies. Many of its competitors have been involved in the
health care industry significantly longer than BioSource and benefit from
greater name recognition. In addition, many of these companies 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.
BioSource believes that by offering a very broad and complete product line
which enables the end user to obtain many of its product needs from one source
it gains a competitive advantage. In addition, BioSource competes by producing
high quality products with exacting capabilities at reasonable prices, and by
maintaining an aggressive marketing and sales effort. BioSource believes that
the biomedical research market is highly fragmented, and that neither BioSource
nor any of its competitors has a dominant share of any of the market segments.
PATENTS AND TRADEMARKS
The Company does not own any patents and does not believe that patent
protection is available for any of its processes. The Company licenses a number
of products from companies that are incorporated in certain BioSource products
resulting in BioSource receiving quasi or derivative patent protection therefor.
The Company claims "TAGOImmunologicals," "CYTOscreen," and "PRIMESCREEN"
and "DYNAMIX" as trademarks, although the Company believes such trademarks are
of limited importance to its business. The Company has generally sought to
protect its interests by treating its technologies and know how as trade secrets
and by requiring all employees to execute invention and assignment agreements
with the Company, including confidentiality provisions. The Company believes
that its processes can only be understood from direct observation and are not
ascertainable by examination of the end product. However, there can be no
assurance that others will not independently develop the same or similar
information, obtain unauthorized access to the Company's proprietary information
or misuse information to which the Company has granted access.
GOVERNMENT REGULATION
Approval by the FDA is not required for the sale of any of the Company's
research products in the United States because the products have been marketed
and sold for research use only. Therefore, the Company's research products are
not currently required to comply with the lengthy FDA approval process
associated with diagnostics or therapeutics. The Company is subject to
governmental regulations under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, and other
similar laws of general application, to all of which the Company believes itself
to be in material compliance.
BioSource Europe clinical products are produced in ISO 9001 facilities and
are eligible to be used as clinical diagnostics and are subject to much less
stringent regulatory requirement than that of the United States.
In the event the Company develops products for the diagnostic market, it
may be required to obtain FDA approval prior to selling them. Such approval, if
required, could be time consuming and costly. In such event,
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the Company would also be subject to the FDA Good Manufacturing Practices which
include testing, control and documentation requirements enforced by periodic
site inspections.
EMPLOYEES
As of December 31, 1996, the Company employed 154 individuals including 4
on a part time basis.
FOREIGN AND DOMESTIC OPERATIONS
The information required by this item is incorporated herein by reference
to the financial statements listed in Note 11 in "Notes to Consolidated
Financial Statements."
ITEM 2. PROPERTIES
DESCRIPTION OF PROPERTIES
The Company's executive offices and manufacturing facilities, consisting of
approximately 29,000 square feet located on 63,162 square feet of land, are
located in Camarillo, California. The Company purchased this property on March
28, 1996 and owns it subject to a first trust deed mortgage (the "First
Mortgage") which was made by the lender pursuant to the Small Business
Administration's Loan Guarantee Program. At the date of purchase, the First
Mortgage had an original principal of $745,000 and is due on April 1, 2006. The
principal amount of the loan is being amortized over twenty years. Pursuant to
the First Mortgage, the Company is obligated to make monthly payment of $6,896,
which includes interest at 9.4% per annum. Yield maintenance charges will be
assessed on any prepayment of the principal amount of the loan which results in
a loss to the lender due to a decrease in the interest rate. The balance due at
maturity, assuming no prepayments by the Company, will be $535,178.
The property is subject to a second trust deed loan (the "Second Mortgage")
with the California Statewide Development Corp. with an original principal
balance of $616,000. The Second Mortgage is subject to a fixed interest rate of
approximately 7.6% per annum, payable and amortized over a period of 20 years,
due approximately June 1, 2016, with monthly payments of principal and interest
of $5,369.
Payments by the Company under the First Mortgage and the Second Mortgage
are unconditionally guaranteed by James H. Chamberlain, Chairman of the Board of
the Company.
During 1996, the Company renovated the Camarillo facilities to provide for
additional ELISA development and manufacturing, additional marketing and sales
offices, and additional refrigerated storage space for inventory.
The Company leases facilities in Menlo Park, California which consist of
approximately 1,500 square feet of laboratory space.
BioSource Europe leases approximately 30,000 square feet of manufacturing,
laboratory and office space in Fleurus, Belgium. In addition, subsidiary sales
offices are leased in Ratingen, Germany, Rumgis, France, Milan, Italy and
Amersfoort, Holland.
The Company believes that its facilities are adequately covered by
insurance and will be adequate for its occupancy needs in the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to nor is any of its property subject to any
material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the Company's 1996 fiscal year.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock commenced trading on the NASDAQ National Market
on April 29, 1996 under the symbol "BIOI." Prior to that time, the Company's
Common Stock traded on the NASDAQ Small Cap Market under the same symbol. The
following table sets forth, for the periods indicated, certain high and low bid
information of the Common Stock as reported by IDD/Tradeline until December 31,
1996 and certain high and low sale prices of the Common Stock as reported by the
NASDAQ National Market beginning April 29, 1996. Prices before April 29, 1996
reflect inter-dealer prices, without retail mark-up, mark-down or commissions
and may not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter................................................ $ 1 19/32 $1 /32
Second Quarter............................................... 2 1/8 1 3/8
Third Quarter................................................ 4 3/32 1 7/8
Fourth Quarter............................................... 6 1/4 2 3/8
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
First Quarter................................................ $ 7 $4 3/4
Second Quarter............................................... 13 1/4 5 7/8
Third Quarter................................................ 9 1/2 5 3/4
Fourth Quarter............................................... 9 1/8 6
</TABLE>
On April 14, 1997, the last reported sales price of the Common Stock as reported
on the NASDAQ National Market was $7.38 per share. As of April 14, 1997, there
were 664 holders of record of the Common Stock.
DIVIDEND POLICY
The Company 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 the Company's operations.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED STATEMENT OF
OPERATIONS DATA FOR THE
YEARS ENDED DECEMBER 31,(1) 1996(3)(4) 1995 1994(2) 1993 1992
- ---------------------------------------------------- ---------- ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue............................................. $ 15,913 $8,608 $7,367 $6,113 $4,317
Gross margin........................................ 10,345 5,612 4,234 3,555 2,370
Net income (loss)................................... 2,767 1,160 (210) 513 (390)
Net income (loss) per share......................... 0.35 0.20 (0.04) 0.11 (0.12)
</TABLE>
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET
DATA AT DECEMBER 31,(1) 1996 1995 1994 1993 1992
- ---------------------------------------------------- ---------- ------ ------ ------ ------
(IN THOUSANDS)
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Working capital..................................... $ 18,088 $4,996 $3,485 $3,518 $1,285
Total assets........................................ 33,870 7,388 5,968 5,446 3,255
Long-term debt...................................... 1,314 64 150 72 83
Total stockholders' equity.......................... 28,161 5,897 4,673 4,252 1,949
</TABLE>
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(1) The data reflects the acquisitions of TAGO, effected on May 19, 1993, and
Keystone, effected on November 21, 1995, each of which was accounted for as
a pooling of interests.
(2) The Company recognized compensation expense of $577,452 in 1994 related to
the release from escrow of 469,180 shares of Common Stock held by directors,
officers and others deemed to be able to affect the financial results of the
Company. No expense was recognized with respect to 635,763 shares of Common
Stock held by other stockholders which were also released from escrow. In
addition, the Company incurred a one-time charge in 1994 of $312,000 in
connection with the closure of its Northern California facility. These
charges affect the comparability of operating results during 1993, 1994 and
1995.
(3) The Company acquired certain assets and selected liabilities of Medgenix
which occurred concurrently with the completion of a second primary offering
of Common Stock (See Item 1. Description of Business for purchase of
"Medgenix Business.")
(4) As adjusted to reflect the sale of 2,362,000 shares of Common Stock in
connection with the Company's second primary offering and the application of
the net proceeds therefrom.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenue
Revenue increased $7.3 million during 1996 or 84.9% to $15.9 million from
$8.6 million when compared to 1995. Revenue for BioSource Europe from the date
of acquisition of June 5, 1996, which was accounted for as a purchase, amounted
to $5.9 million for the year ended December 31, 1996, which accounted for 80.9%
of the increase in consolidated revenue for the year. See "Part 1, Overview."
BioSource domestic revenue increased $1.4 million during 1996 or 16.2% when
compared to domestic revenue of $8.6 million for the year ended December 31,
1995. Approximately 38% of the increase in domestic revenue for 1996 was
attributed to the growth in ELISA immunoassay test kit (Cytoscreen) sales. Sales
of assay test kits which includes Radioimmunoassays (RIA) and ELISA (Easia)
immunoassays by BioSource Europe for the year 1996 amounted to 100% of its
revenue. Revenue for Keystone of $1.0 million for 1996, increased slightly when
compared to $976,744 for 1995. While the quantity of oligonucleotides
manufactured has nearly doubled, pricing in this market has decreased by 50% or
more causing the revenue to remain relatively flat during 1996.
Revenue increased $1.2 million during 1995 or 16.8% to $8.6 million from
$7.4 million when compared to 1994. The increase in revenue is attributable to
broad sales growth across all product lines, including existing and newly
introduced ELISA test kits, cytokines, growth factors, and other reagent
products supplied by the Company. The Company has been able to increase its
revenue domestically through increased and more efficient marketing efforts,
such as increased trade show attendance, increased sales personnel and increased
print advertising. Keystone's revenue for 1995 was $976,744, a decrease of
$150,366 when compared to 1994 revenue of $1.1 million. This decrease was
primarily attributable to competitive pricing and discounting of
oligonucleotides by Keystone to meet market demands.
Gross margins
Gross margins as a percentage of revenue, of 65.0% for 1996 decreased
slightly when compared to 65.2% for fiscal 1995. The primary factor for this was
the inclusion of BioSource Europe. BioSource Europe margins for fiscal 1996 were
56.5%. The lower margins in Europe are a result of higher costs associated with
the RIA assays components and higher labor and fixed costs when compared to that
of the United States. Domestic gross margins for BioSource for fiscal 1996 of
69.0% increased by 3.8%, when compared to 65.2% for fiscal 1995. This increase
was primarily a result of increased margins in the ELlSA kits and antibody
manufacturing due to efficiencies in production from increasing production
volumes and the expansion of in-house production of products versus
out-sourcing, thereby lowering costs.
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<PAGE> 11
Gross margins, as a percentage of revenue, of 65.2% for fiscal 1995,
increased 7.7%, when compared to 57.5% for fiscal 1994. This increase was the
result of the Company recognizing benefits in the form of decreased
manufacturing expenses and economies of scale resulting from the relocation of
the manufacturing operations that had been conducted in Northern California
(TAGO), to its headquarters in Camarillo, California in October, 1994. During
1995, the Company also concentrated on lowering manufacturing expenses,
including labor, materials and overhead, without compromising product quality to
the customer.
Research and development
The Company's research and development expenses were $1.4 million for 1996,
an increase of $347,182, or 32.3% when compared to $1.1 million for 1995. The
increase in expenses was primarily due to the continued increased expenses
relating to the development of new products, including new and improved assay
test kits, antibodies, proteins and other related products. In fiscal 1996, 14
new cytokine kits and 14 bioactive proteins (including 4 novel cytokines) were
introduced. Included in the increased expenditures for fiscal 1996 was BioSource
Europe research and development expenses of $614,667. The Company will continue
to focus on the development of new and unique assay test kits, in addition to
other related biomedical research and diagnostic products.
The Company's research and development expenses were $1.1 million for 1995,
an increase of $351,831, or 49%, when compared to $721,902 for 1994. As a
percentage of revenue, research and development expenses increased 2%, from 10%
in 1994 to 12% in 1995. This increase contributed to the growth in the Company's
product lines as a result of the Company's directed effort at producing new
ELISA test kits. In 1995, the Company produced 14 new ELISA test kits. Also in
1995, the Company initiated new projects which resulted in additional monoclonal
and polyclonal antibodies.
Sales and marketing
Sales and marketing expenses were $2.8 million for 1996, an increase of
$1.5 million, or 114.1%, as compared to $1.3 million for 1995. For fiscal 1996,
the majority of the increase was due to the incremental expenses related to
BioSource Europe. BioSource Europe and its subsidiaries, located in strategic
locations in Western Europe, includes 11 full-time sales representatives and a
network of distributors throughout the world. With this increased customer base
the Company is in a position to more effectively penetrate the biomedical
research market and gain direct access to customers in Western Europe.
Domestically, increased expenses related to added personnel and expenses
relating to increased advertising and trade show attendance.
Sales and marketing expenses were $1.3 million for 1995, an increase of
$149,277, or 13%, as compared to $1.1 million for 1994. The increase is
attributable to increased direct marketing expenses, including advertising,
distributor training and other marketing programs, as well as increased expenses
for the printing and mailing of the Company's research product catalog. The
Company also expanded its marketing department in 1995 by adding 4 additional
positions in the marketing area.
General and administrative
General and administrative expenses were $2.7 million for 1996, an increase
of $1.1 million, or 65.4%, as compared to $1.6 million for 1995. The primary
increase in general and administrative expenses related to the additional costs
relating to BioSource Europe. The Company has made an effort to keep costs
associated with BioSource under control and on budget post acquisition.
Domestically, the Company's general and administrative expenses for fiscal 1996
of $1.7 million, remained relatively unchanged, when compared to $1.6 million
for fiscal 1995.
General and administrative expenses for fiscal 1995 were $1.6 million, a
decrease of $295,538, or 15.3%, when compared to $1.9 million for fiscal 1994.
The decrease is attributable primarily to the elimination of duplicate
expenditures as a result of the closure of the Northern California facility in
October, 1994.
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<PAGE> 12
Provision for income taxes
The provision for income taxes for fiscal 1996 was provided at the
effective tax rate of approximately 20% of consolidated pretax earnings. Income
taxes were reduced to reflect the reduction of $607,000 in the valuation
allowance. Management reviewed the recoverability of deferred income tax assets
and determined that it is more likely than not that the deferred tax assets will
be fully realized through future taxable earnings in the United States. Federal
income taxes have also been reduced as a result of tax exempt interest income
and the benefit of a foreign sales corporation, established in September, 1996.
Federal and state income taxes have been reduced to reflect credits for
increasing research and development expenditures.
The provision for income taxes for fiscal 1995 were provided at the
effective tax rate of 28% of consolidated pretax earnings. Federal income taxes
were reduced as a result of recognition of net operating loss carryforwards.
Both federal and state income taxes were reduced to reflect credits for
increasing research and development expenditures.
The provision for income taxes for fiscal 1994 reflects the federal and
state income tax rate of zero for BioSource on pretax loss of $347,304 and 23%
for Keystone on pretax earnings of $185,863. The provision reflected lower
taxable earnings for 1994, in addition to the benefits received from federal net
operating loss recognition and federal and state credits for increasing research
and development expenditures.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's current ratio was 5.2 to 1 compared to
4.8 to 1 at December 31, 1995. Cash generated from operating activities
increased to $2.0 million as compared to $853,200 for 1995. At December 31, 1996
cash, cash equivalents, short and long term investments in marketable securities
amounted to $14.9 million as compared to $1.4 million at December 31, 1995. The
Company invests its cash on hand in low risk short term commercial paper and
U.S. treasury strips. The Company's policy is to maintain liquidity in its
investments to provide working capital and have the ability to react to future
potential long term investment opportunities in complementary business, products
or technologies. Inventories at December 31, 1996 amounted to $7.2 million as
compared to $3.3 million at December 31, 1995. The primary factor for the
increase is the inclusion of inventory at BioSource Europe which amounted to
$3.2 million.
The substantial increase in cash on hand was due to the Company completing
a second primary offering of 2.5 million shares of its common stock, which
included 138,000 shares offered by then current shareholders, which resulted in
raising approximately $19.3 million. The offering was completed on June 5, 1996.
Simultaneously with the offering, the Company completed the acquisition of the
in vitro business of Medgenix for an approximate total purchase price of $6.9
million. Capital expenditures for the year ended December 31, 1996 were $2.3
million, of which $1.5 million was for the purchase of the Company's corporate
headquarters and manufacturing facilities located in Camarillo, California.
Capital expenditures also included building improvements in the Camarillo
headquarters of additional laboratory, sales and marketing offices in the amount
of $411,834 for the year ended December 31, 1996. The remaining funds were used
to purchase needed laboratory, production, office and computer equipment.
Capital expenditures for the year ended December 31, 1995 were $211,809, a
reduction of $480,330 when compared to $692,139 for the year ended December 31,
1994. The majority of the reduction was due to the 1994 build-out of the
laboratory facilities and the equipment needed to supply the new production and
laboratory areas in the Camarillo headquarters and manufacturing facility.
Management of 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.
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<PAGE> 13
RISK FACTORS
An investment in shares of Common Stock of the Company involves a high
degree of risk. Many of the matters discussed in this Report are forward-looking
statements that inherently involve risks and uncertainties. Factors associated
with such forward looking statements which could cause actual results to differ
materially from those projected in the statements appear below. In addition to
the other information contained in this Report, prospective investors should
carefully consider the following risk factors and cautionary statements before
purchasing any shares of Common Stock of the Company.
GROWTH STRATEGY AND EXPANSION. The Company has and will continue to seek
to increase sales and profitability primarily through the acquisition or
internal development of new product lines, additional customers and new
businesses. The Company's historical revenue growth is primarily attributable to
the Company's acquisitions and new product development and, to a lesser extent,
to increased revenues from the Company's existing products. The ability of the
Company to achieve its expansion objectives and to manage its growth effectively
depends upon a variety of factors, including (i) the ability to internally
develop new products, (ii) the ability to make profitable acquisitions, (iii)
the integration of new facilities into existing operations, (iv) the hiring,
training and retention of qualified personnel, (v) the establishment of new
relationships or expansion of existing relationships with suppliers, (vi) the
identification and lease of suitable premises on competitive terms and (vii) the
availability of capital. In addition, the implementation of the Company's growth
strategy will place significant strain on the Company's administrative,
operational and financial resources and increased demands on its systems and
controls. The Company's ability to manage its growth successfully will require
it to continue to improve and expand such systems and controls. If the Company's
management is unable to manage growth effectively, the Company's operating
results could be adversely affected. In addition, the Company competes for
acquisition and expansion opportunities with companies which have significantly
greater financial and management resources than those of the Company. There can
be no assurance that suitable acquisition or investment opportunities will be
identified, that any such transactions can be consummated, or that, if acquired,
such new businesses can be integrated successfully and profitably into the
Company's operations. Moreover, there can be no assurance that the Company's
historic rate of growth will continue, that the Company will continue to
successfully expand, or that growth or expansion will result in profitability.
NEW PRODUCT DEVELOPMENT; GOVERNMENT REGULATION. The Company anticipates
that in addition to its currently planned research and development expenses, it
will spend significant additional amounts during fiscal 1997 and 1998 to fund
research and development of certain technologies related to the area of
molecular diagnostics. This effort will be directed towards the development of
medical products which will be used to detect or diagnose disease at a molecular
level. See "Item 1 -- Research and Development." There can be no assurance that
any such diagnostic products will be successfully developed or that if
developed, will be commercially successful. Unlike the Company's current
products, which are offered exclusively for research uses, the new products
would be offered for the detection of diseases in humans and animals. Prior to
any such use, the Company will be required to have such products approved by the
FDA following extensive clinical trials. Management believes that its $1 million
investment in these products will be sufficient to cover the development of
these products and all necessary clinical trials; however, there can be no
assurance that this level of investment will be sufficient. Furthermore, the
Company's investment will be made with no assurance that development efforts or
clinical trials will be successful, or that the FDA will approve such products.
In the event that the Company is unable to develop a commercialized product from
its research and development efforts, or the FDA does not permit the Company to
manufacture and sell such products, or the Company is unable or unwilling to
allocate amounts beyond the $1 million investment, the Company could lose its
entire investment in such products.
COMPETITION. The Company is engaged in a segment of the health care
products industry that is highly competitive. Competitors in the United States
and elsewhere are numerous and include major pharmaceutical, chemical and
biotechnology companies, many of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than the Company. These companies may succeed in developing products competitive
with those of the Company that are more effective than any
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<PAGE> 14
that have been or may be developed by the Company and may also be more
successful than the Company in producing and marketing their products. See "Item
1 -- Competition."
INTERNATIONAL SALES. International sales accounted for approximately 27%
and 57% of the Company's revenues in 1995 and 1996, respectively. The Company
believes that there is large demand for its products internationally and is
aggressively pursuing such sales. While the Company expects that international
sales will increase as a percentage of revenue in future periods, particularly
as a result of the acquisition of the Medgenix Business, the Company may not be
successful in expanding its international sales. The products of the Company may
not continue to meet with the same market acceptance as they currently receive,
other competitive products may be more attractive to international customers and
the cost of selling the Company's products overseas may result in a competitive
disadvantage. In addition, international sales are subject to certain inherent
risks, including unexpected changes in regulatory requirements and tariffs,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable and potentially adverse tax
consequences. The Company continues to depend on third party distributors for a
material portion of its international sales. Certain of the Company's third
party distributors may also act as resellers for competitors of the Company and
could devote greater effort and resources to marketing competitive products. The
loss of, or other significant reduction in sales to, certain of these third
party distributors could have a material adverse effect on the Company's
business and results of operations.
A substantial portion of the Company's international sales are invoiced in
non-Belgian currencies, primarily German, French and Italian, while the costs
associated with these sales are based primarily on the Belgian franc. The
Company's gross margins from international sales may, therefore, be materially
adversely affected by significant exchange rate fluctuations between the Belgian
franc and these other currencies. In addition, because international sales are
not made in U.S. dollars, currency exchange rate fluctuations could materially
impact the Company's results of operations. Although the Company may be able to
hedge against all or a portion of these currency exchange rate exposures, the
Company does not currently have plans to do so and, if the Company chooses to do
so, there can be no assurance that the Company will be able to do so
successfully.
DEPENDENCE ON KEY MANAGEMENT. The Company's success will continue to
depend to a significant extent on the members of its management and scientific
staff, particularly its Chief Executive Officer, James H. Chamberlain. The
Company has an employment contract with Mr. Chamberlain which expires at the end
of 1998. The Company maintains "key man" life insurance on Mr. Chamberlain in
the amount of $1 million, of which the Company is the sole beneficiary but there
can be no assurance that the proceeds will be sufficient to offset the loss to
the Company in the event of his death. The Company does not maintain any
insurance on the lives of its other senior management or scientific staff. As
the Company continues to grow, it will continue to hire, appoint or otherwise
change senior management and members of its scientific staff. There can be no
assurance that the Company will be able to retain its executive officers and key
personnel or attract additional qualified members to management in the future.
The loss of services of Mr. Chamberlain or of any key employee could have a
material adverse effect upon the Company's business. See "Part III."
VOLATILITY OF STOCK PRICE. Until April 29, 1996, the Company's Common
Stock was quoted on the Nasdaq Small Cap Market, and there was substantial
volatility in the market price of such Common Stock. The trading price of the
Common Stock has been and is likely to continue to be subject to significant
fluctuations in response to variations in quarterly operating results, the gain
or loss of significant contracts, changes in management, announcements of
technological innovations or new products by the Company or its competitors,
legislative or regulatory changes, general trends in the industry,
recommendations by securities industry analysts and other events or factors. In
addition, the stock market has experienced extreme price and volume fluctuations
which have affected the market price of the common stock of many technology
companies in particular and which have at times been unrelated to operating
performance of the specific companies whose stock is affected. In addition, in
the past the Company has not experienced significant trading volume in its
Common Stock, has not been actively followed by stock market analysts and has
had limited market-making support from broker-dealers. If market-making support
does not continue at present or greater levels and/or the Company does not
continue to receive analyst coverage, the average trading volume in the
Company's Common Stock may not increase or even sustain its current levels, in
which case, there can be no
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<PAGE> 15
assurance that an adequate trading market will exist to sell large positions in
the Company's Common Stock. See "Part II -- Price Range of Common Stock."
POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS. The
Company's Certificate of Incorporation authorizes the issuance of 1,000,000
shares of Preferred Stock with such designations, rights and preferences as may
be determined from time to time by the Board of Directors, without any further
vote or action by the stockholders. The rights of the holders of the Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such Preferred Stock
may have other rights, including economic rights senior to the Common Stock, and
as a result, the issuance of such Preferred Stock could have a material adverse
effect on the market value of the Common Stock. Although the Company has no
present intention to issue any shares of its Preferred Stock, there can be no
assurance that the Company will not do so in the future. These provisions, as
well as other provisions contained in the Company's Certificate of
Incorporation, also may have the effect of discouraging, delaying or preventing
a change in control of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors......................... F-1
Consolidated Balance Sheets at December 31, 1996 and 1995..................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994............................................................... F-3
Consolidated Statements of Stockholders' Equity for the Years Ended December
31, 1996, 1995 and 1994..................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994............................................................... F-5
Notes to Consolidated Financial Statements for the Years Ended December 31,
1996, 1995 and 1994......................................................... F-6-16
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is incorporated by
reference to the section entitled "Election Of Directors" in the Company's
definitive Proxy Statement with respect to the Company's 1996 Annual Meeting to
be filed with the Securities and Exchange Commission within 120 days of December
31, 1996.
The current directors, executive officers and key employees of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -------------------------------------------------------
<S> <C> <C>
James H. Chamberlain 49 Chairman of the Board, President and Chief Executive
Officer
Anna M. Anderson 41 Chief Financial Officer, Executive Vice
President -- Finance
Gus E. Davis 49 Chief Operating Officer, Executive Vice
President -- Sales and Marketing
Leonard M. Hendrickson* 49 Director
David J. Moffa, Ph.D.* 54 Director
John R. Overturf, Jr. 36 Director
Robert D. Weist 57 Director
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Key Employees
Richard O. Buford 49 Vice President -- Human Resources
Cirilo D. Cabradilla, Jr., Ph.D. 49 Vice President -- Molecular Biology
Kevin J. Reagan, Ph.D. 45 Vice President -- Immunology Products
Edward Sapp, Jr. 53 General Manager -- BioSource Europe, S.A.
</TABLE>
- ---------------
* Member of the Compensation and Audit Committees.
JAMES H. CHAMBERLAIN has served as Director, President and Chief Executive
Officer of the Company and its predecessor, BioSource Industries, Inc., since it
was founded in October 1989, and was elected as its Chairman of the Board in
November 1993. Previously, Mr. Chamberlain was Manager for Business Development
for Amgen, Inc., where he started and managed the Amgen Biologicals Division.
Mr. Chamberlain has held various executive positions with Browning Ferris
Industries and Amersham Corporation, a biomedical company, and was a research
biochemist for Wm. H. Rorer Pharmaceutical, a major pharmaceutical company. He
received his Bachelor of Arts degree from West Virginia University and studied
biochemistry at the University of Pittsburgh.
ANNA M. ANDERSON became Executive Vice President -- Finance and Chief
Financial Officer of the Company in 1994 and has served as corporate controller
and Chief Accounting Officer of the Company and its predecessor, BioSource
Industries, Inc., since June 1991. From January 1984, to May 1991, Ms. Anderson
was the Tax and Accounting Manager for El Camino Management Company, a private
investment management company. From 1978 to 1984, Ms. Anderson was employed as
tax and audit staff with Mulford and Tignino Accountancy Corporation, Brickman &
Brickman, Certified Public Accountants and Temkin, Zisken, Kahn and Matzner,
Certified Public Accountants. Ms. Anderson is a Certified Public Accountant and
holds a Bachelor of Science degree in Business Administration from California
State University, Northridge.
GUS E. DAVIS became Executive Vice President -- Sales and Marketing and
Chief Operating Officer of the Company in June 1995. From February 1994 until
June 1995, Mr. Davis served as Vice President of Sales and Marketing of the
Company. Prior to that time, since February 1993, Mr. Davis was employed as Vice
President of Sales and Marketing at Genosis BioTechnology, a company engaged in
the manufacturing of oligonucleotides. From January 1983 to January 1993, Mr.
Davis was employed as the Midwestern Area Manager for Pharmacia BioTechnology, a
company involved in the sale of reagents and capital equipment used to purify
samples. Mr. Davis received his Bachelor of Science and Masters degree in
Biology and Chemistry from Sam Houston State University.
LEONARD M. HENDRICKSON has been a Director of the Company since October
1993. Mr. Hendrickson is the President of Isotope Products Laboratories, a
privately held company, a position he has held since February 1992. From
February 1990 to January 1992, Mr. Hendrickson served as the principal
consultant for Microchemics, a marketing and business development consulting
firm which he founded. Prior to that time, Mr. Hendrickson served as Director of
Marketing for Scicor, a diagnostics laboratory in Indianapolis, Indiana, and
held various executive positions with Amersham Corporation. Mr. Hendrickson has
also held positions with Marion Laboratories, a pharmaceutical company, and
Standard Oil Company. Mr. Hendrickson holds a Bachelor of Science degree from
the University of Pennsylvania and a Masters in Business Administration from
American University in Washington D.C.
DAVID J. MOFFA, PH.D., has been a Director of the Company since April 1995.
Dr. Moffa serves: as the Regional Director and as special projects director for
Lab Corporation of America, Inc. (Fairmont, WV), positions he has held since
1982 and 1984, respectively; as Director of Medical Arts Lab/RBL, a position he
has held since 1985; and as Director of Lab Corporation of America, Inc.
(Altoona, PA), a position he has held since 1990. Dr. Moffa also serves as an
advisor and consultant to various diagnostic, scientific and health care
facilities, and is an owner and developer of GM Realty and Moffa Properties.
Prior to serving in his current positions, Dr. Moffa has served as a Director
and General Manager of BioMedical Reference and Roche Biomedical Labs, as
President, Chief Executive Officer and a Director of BioPreps Laboratories,
Inc., as Assistant Professor of Medical Biochemistry and Director of Dental
Biochemistry Programs at the West
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<PAGE> 17
Virginia University School of Medicine, as NIH Post Doctoral Fellow and
Instructor in Medical Biochemistry as well as a Graduate Research Assistant at
the West Virginia University School of Medicine. Dr. Moffa also serves on a
number of committees and boards of directors of various privately held companies
and governmental offices. 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 the Company 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; and as President of
the Combined Penny Stock Fund, Inc., a closed-end stock market fund, a position
he has held since September 1996. From September 1993 until September 1996, Mr.
Overturf served as Vice-President of the Rockies Fund, Inc., a closed-end stock
market fund. From June 1984 until February 1992, Mr. Overturf served as Vice
President of Colorado National Bank. Mr. Overturf holds a Bachelor of Science
degree in Finance from the University of Northern Colorado.
ROBERT D. WEIST has been a director of the Company since April 1996. Mr.
Weist has been President of Weist Associates ( a management consulting firm)
since April 1992. From January 1986 through April 1992, Mr. Weist was a
consultant to and Senior Vice President, Administration, General Counsel and
Secretary of Amgen, Inc., having served as Vice President, General Counsel and
Secretary from March 1982 through January 1986. Mr. Weist holds a Juris Doctor
degree from New York University and a Masters in Business Administration from
the University of Chicago.
KEY EMPLOYEES
The Company also considers the following individuals to be key to its
operations.
RICHARD O. BUFORD became Vice President of Human Resources of the Company
in February 1993. From 1989 to 1992, Mr. Buford served as Vice President of
Operations for The Office Mart, a California regional commercial furniture and
office supply distributor. From 1978 to 1989, Mr. Buford held various
operational and administrative management positions with Schwabacher/Frey, an
office supply distribution unit of Hanson Industries, most recently as Director
of Finance & Administration from 1984-1989. Mr. Buford received a Bachelors of
Arts and a Masters degree in English from the University of California at Santa
Barbara.
CIRILO D. CABRADILLA, JR., PH.D. became President of the Keystone
subsidiary in November 1995. From 1992 to 1995, Dr. Cabradilla served as
President of Keystone Laboratory, Inc. Prior to that time, from 1988 to 1992,
Dr. Cabradilla was Vice President, Product Development, of Vascor, a
pharmaceutical company. Dr. Cabradilla received a Bachelor of Science and a
Ph.D. degree in Biochemistry from the University of California Davis.
KEVIN J. REAGAN, PH.D. became Vice President, Immunobiology in December,
1996. From 1991 to December 1996, Dr. Reagan served as the first Director of
Development Laboratories and then Vice President, Laboratory Operations at
Specialty Laboratories, Inc., a clinical reference lab. From 1990 to 1991, Dr.
Reagan was the Associate Director of AIDS/Hepatitis R&D at Ortho Diagnostics,
Inc., a Johnson & Johnson Company. Prior to that time, from 1984 to 1990, he was
a Research Virologist, Senior Research Virologist, Research Associate and Group
Leader in the Biomedical Products Department of E.I. Dupont de Nemours & Co.,
Inc. From 1981 to 1984, he was employed at the Wistar Institute of Anatomy and
Biology. 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.
EDWARD SAPP, JR. became General Manager of BioSource Europe, S.A. in June,
1996. From 1994 to 1996 Mr. Sapp was the International Sales Manager for ASOMA,
a company engaged in producing x-ray fluorescence equipment. From 1984 to 1994
Mr. Sapp held positions in international sales with various companies aiding in
developing their market efficiently. From 1981 to 1984, Mr. Sapp was employed by
17
<PAGE> 18
Lancer Diagnostic, Inc., a company engaged in manufacturing diagnostic products
and laboratory supplies, where he was Director of Marketing and later promoted
to General Manager. From 1966 to 1981, Mr. Sapp was employed with Amersham
Corporation of Chicago where he held various positions such as: Sales
Representative, Sales Manager and Manager of the Radiochemical Division. Mr.
Sapp received his Bachelor of Science degree from Penn State University, College
of Chemistry and Physics and Masters of Business Administration from
Northwestern University.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is contained in the
Company's Proxy Statement for its 1996 Annual Stockholders meeting and is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of directors and executive
officers and certain beneficial owners is contained in the Company's Proxy
Statement for its 1996 Annual Stockholders meeting is hereby incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain transactions is contained in the Company's
Proxy Statement for its 1996 Annual Stockholders meeting is hereby incorporated
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The financial statements listed below are included as part of this
report:
Independent Auditor's Report
Consolidated Balance Sheets -- December 31, 1996 and 1995
Consolidated Statements of Operations -- Years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity -- Years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a)(2) The following schedule supporting the financial statements of the
Company is included herein:
Schedule II -- 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:
Registrant's report on Form 8-K filed December 31, 1996.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 15, 1997 By: /s/ ANNA M. ANDERSON
------------------------------------
Anna M. Anderson
Chief Financial Officer
Date: April 15, 1997 By: /s/ JAMES H. CHAMBERLAIN
------------------------------------
James H. Chamberlain
Chairman of the Board,
President and Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed below by
the following person on behalf of the registrant and in the capacities and on
the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- -----------------------------------------
<C> <S> <C>
/s/ LEONARD M. HENDRICKSON Director April 15, 1997
- -----------------------------------------------
Leonard M. Hendrickson
/s/ DAVID J. MOFFA, PH.D. Director April 15, 1997
- -----------------------------------------------
David J. Moffa, Ph.D.
/s/ JOHN R. OVERTURF, JR. Director April 15, 1997
- -----------------------------------------------
John R. Overturf, Jr.
/s/ ROBERT D. WEIST Director April 15, 1997
- -----------------------------------------------
Robert D. Weist
</TABLE>
19
<PAGE> 20
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
BALANCE PROVISION AMOUNT
AT CHARGED DEDUCTIONS- ACQUIRED IN BALANCE
BEGINNING TO ACCOUNTS BUSINESS AT END
OF YEAR INCOME WRITTEN OFF ACQUISITION OF YEAR
---------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
1996
Allowance for doubtful accounts...... $ 29,000 $ (6,000) $(3,000) $ 29,000 $ 49,000
======= ======= ======= =======
1995
Allowance for doubtful accounts...... $ 30,000 $ (1,000) $ -- $ -- $ 29,000
======= ======= ======= =======
1994
Allowance for doubtful accounts...... $ 30,000 $ -- $ -- $ -- $ 30,000
======= ======= ======= =======
</TABLE>
20
<PAGE> 21
EXHIBIT INDEX
FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ---------------------------------------------------------------- ------------
<S> <C> <C>
2.1 Asset Purchase Agreement dated April 30, 1996, by and among
Registrant, Nordion International, Inc. and Medgenix
Diagnostics, S.A.(7)............................................
3.1 Certificate of Incorporation of Registrant(1)...................
3.2 Bylaws of Registrant(1).........................................
10.1 Registrant's 1992 Stock Incentive Plan(1).......................
10.2 Registrant's 1993 Stock Incentive Plan(4).......................
10.3 Licensing Agreement dated May 1, 1990, by and between TAGO,
Inc., as licensee, and St. Jude's Children's Hospital, as
licenser(1).....................................................
10.4 License Agreement dated February 14, 1991, by and between
Registrant and Schering Corporation(1)..........................
10.5 Warrant Agreement dated May 19, 1993, by and between Registrant
and Immunoplex, Inc.(2).........................................
10.7 Warrant Agreement dated February 1, 1996, by and between
Registrant and Nordion International, Inc.(7)...................
10.8 Business Loan Agreement dated October 12, 1993, by and between
Registrant, as borrower, and Silicon Valley Bank as lender,
together with Commercial Security Agreement dated October 12,
1993 and promissory note dated October 12, 1993(3)..............
10.9 License Agreement dated October 1, 1993, by and between
Registrant, as licensee, and Schering Corporation, as
licensor(2).....................................................
10.10 Employment Agreement between Registrant and James H. Chamberlain
dated January 2, 1996(7)........................................
10.11 License Agreement dated February 7, 1994, by and between
Registrant, as licensee and Fundacio Clinic(4)..................
10.12 Form of Indemnification Agreement for Directors and Executive
Officers(7).....................................................
10.13 List of Indemnities relating to Form of Indemnification
Agreement previously filed as Exhibit 10.12(7)..................
10.14 Purchase Agreement dated December 20, 1995 between Registrant
and Pacific Ranch Company(5)....................................
10.15 Promissory Note dated March 25, 1996 in the principal amount of
$745,000 payable to Heller Financial, Inc., Small Business
Lending Division(5).............................................
10.16 Promissory Note dated March 25, 1996 in the principal amount of
$596,000 payable to Heller Financial, Inc., Small Business
Lending Division; Loan Agreement dated March 11, 1996 between
California Statewide Certified Development Corporation and
Registrant(5)...................................................
10.17 Loan Modification Agreement dated as of June 22, 1994, by and
between Registrant and Silicon Valley Bank(4)...................
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ---------------------------------------------------------------- ------------
<S> <C> <C>
10.18 Loan Modification Agreements dated as of May 31, 1995, September
30, 1995 and December 31, 1995, by and between Registrant and
Silicon Valley Bank(5)..........................................
10.19 Registrant's Employee Stock Purchase Plan(8)....................
11 Computation of Per Share Earnings, Ex. 11.......................
16.1 Changes in Registrant's Certifying Accountant(6)................
21 Subsidiaries of the Company:....................................
</TABLE>
<TABLE>
<CAPTION>
STATE/COUNTRY OF
NAME INCORPORATION
------------------------------- ----------------------
<S> <C> <C>
BioSource Europe S.A. Belgium
Keystone Laboratories, Inc. California
BioSource V.I. FSC., LTD U.S. Virgin Islands
BioSource France sarl France
BioSource B.V. Holland
BioSource Gmbh Germany
Medgenix Diagnostici Italia srl Italy
23.1 Consent of KPMG Peat Marwick LLP................................
</TABLE>
- ---------------
(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 Annual Report on Form 10KSB for
the year ended December 31, 1992.
(3) Incorporated by reference to the Company's Annual Report on Form 10KSB for
the year ended December 31, 1993.
(4) Incorporated by reference to the Company's Annual Report on Form 10KSB for
the year ended December 31, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10KSB for
the year ended December 31, 1995.
(6) Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 15, 1994.
(7) 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.
(8) Incorporated by reference to the Company's Registration Statement on Form
S-8 (SEC No. 33-91838) filed with the Securities and Exchange Commission on
May 4, 1995.
22
<PAGE> 23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this amendment to report to be signed on its behalf by
the undersigned, thereunto duly authorized, this 29th day of April, 1997.
BIOSOURCE INTERNATIONAL, INC.
By: /s/ James H. Chamberlain
------------------------------------
James H. Chamberlain
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 24
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BioSource International, Inc.:
We have audited the accompanying consolidated balance sheets of BioSource
International, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1996 and 1995 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
February 20, 1997
F-1
<PAGE> 26
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 3,606,904 1,393,092
Short-term investments, held to maturity........................ 5,766,905 --
Accounts receivable, less allowance for doubtful accounts of
$49,000 in 1996 and $29,000 in 1995.......................... 4,286,237 1,389,859
Inventories (note 3)............................................ 7,228,918 3,301,208
Prepaid expenses and other current assets....................... 1,316,416 142,321
Deferred income taxes (note 9).................................. 202,000 91,000
----------- -----------
Total current assets.................................... 22,407,380 6,317,480
Long-term investments, held to maturity........................... 5,561,669 --
Property and equipment, net (note 4).............................. 4,788,404 922,608
Other assets...................................................... 712,374 147,515
Deferred income taxes (note 9).................................... 400,000 --
----------- -----------
$33,869,827 7,387,603
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable (note 5).................... $ 28,510 65,857
Accounts payable................................................ 1,895,310 726,631
Accrued expenses................................................ 2,318,284 186,692
Income taxes payable............................................ 77,767 342,176
----------- -----------
Total current liabilities............................... 4,319,871 1,321,356
----------- -----------
Notes payable, less current maturities (note 5)................... 1,314,359 64,286
Deferred income taxes (note 9).................................... 75,000 65,000
Other liabilities................................................. -- 39,654
Commitments and contingencies (notes 5 and 12)
Stockholders' equity (notes 6, 7 and 8):
Preferred stock, $.001 par value. Authorized 1,000,000 shares;
none issued or outstanding................................... -- --
Common stock, $.001 par value. Authorized 20,000,000 shares;
issued and outstanding 8,318,971 shares in 1996 and 5,845,306
shares in 1995............................................... 8,319 5,845
Additional paid-in capital...................................... 28,837,102 9,338,484
Accumulated deficit............................................. (679,824) (3,447,022)
Cumulative translation adjustment............................... (5,000) --
----------- -----------
Total stockholders' equity.............................. 28,160,597 5,897,307
----------- -----------
$33,869,827 7,387,603
=========== ===========
</TABLE>
F-2
<PAGE> 27
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Revenue................................................. $15,913,274 8,608,447 7,367,257
Cost of goods sold...................................... 5,567,989 2,996,103 3,132,991
------------ ---------- ----------
Gross profit.................................. 10,345,285 5,612,344 4,234,266
------------ ---------- ----------
Operating expenses:
Research and development.............................. 1,420,915 1,073,733 721,902
Sales and marketing................................... 2,761,601 1,289,939 1,140,662
General and administrative............................ 2,702,477 1,633,649 1,929,187
Compensation recognized under performance
escrow share arrangement (note 6).................. -- -- 577,452
------------ ---------- ----------
Total operating expenses...................... 6,884,993 3,997,321 4,369,203
------------ ---------- ----------
Operating income (loss)....................... 3,460,292 1,615,023 (134,937)
------------ ---------- ----------
Other income (expense):
Interest expense...................................... (97,455) (26,301) (28,768)
Interest income....................................... 372,129 32,837 28,953
Other................................................. (271,768) (10,180) (26,689)
------------ ---------- ----------
Total other income (expense).................. 2,906 (3,644) (26,504)
------------ ---------- ----------
Income (loss) before income taxes............. 3,463,198 1,611,379 (161,441)
Provision for income taxes (note 9)..................... 696,000 451,000 48,195
------------ ---------- ----------
Net income (loss)............................. $ 2,767,198 1,160,379 (209,636)
============ ========== ==========
Net income (loss) per share............................. $ .35 .20 (.04)
============ ========== ==========
Weighted average number of common and common
equivalent shares outstanding......................... 8,008,500 5,945,900 5,724,100
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 28
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL CUMULATIVE NET
NUMBER OF PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
--------- ------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993, as
previously reported................... 5,037,580 $5,038 8,497,031 (4,397,209) -- 4,104,860
Pooling of interests with Keystone
Laboratories, Inc..................... 500,000 500 154,500 42,346 -- 197,346
---------- ------ ---------- ----------- ------- -----------
Balance, as restated.................... 5,537,580 5,538 8,651,531 (4,354,863) -- 4,302,206
Exercise of stock options............... 550 -- 484 -- -- 484
Conversion of allotted escrow shares
(note 6).............................. 266,898 267 28,768 -- -- 29,035
Compensation recognized under
performance escrow share arrangement
(note 6).............................. -- -- 577,452 -- -- 577,452
Distribution to stockholders............ -- -- -- (42,902) -- (42,902)
Issuance of common stock................ 8,000 8 16,242 -- -- 16,250
Net loss................................ -- -- -- (209,636) -- (209,636)
---------- ------ ---------- ----------- ------- -----------
Balance at December 31, 1994............ 5,813,028 5,813 9,274,477 (4,607,401) -- 4,672,889
Exercise of stock options............... 32,278 32 64,007 -- -- 64,039
Net income.............................. -- -- -- 1,160,379 -- 1,160,379
---------- ------ ---------- ----------- ------- -----------
Balance at December 31, 1995............ 5,845,306 5,845 9,338,484 (3,447,022) -- 5,897,307
Issuance of common stock................ 2,362,000 2,362 19,299,014 -- -- 19,301,376
Exercise of stock options............... 80,665 81 140,142 -- -- 140,223
Exercise of warrants.................... 31,000 31 59,462 -- -- 59,493
Foreign currency translation
adjustment............................ -- -- -- -- (5,000) (5,000)
Net income.............................. -- -- -- 2,767,198 -- 2,767,198
---------- ------ ---------- ----------- ------- -----------
Balance at December 31, 1996............ 8,318,971 $8,319 28,837,102 (679,824) (5,000) 28,160,597
========== ====== ========== =========== ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 29
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 2,767,198 1,160,379 (209,636)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 457,643 258,045 214,376
Loss on sale of property and equipment............ 57,464 -- 17,389
Gain on sale of investments....................... (9,019) -- --
Compensation recognized under performance escrow
share arrangement............................... -- -- 577,452
Other............................................. (5,000) -- 16,250
Changes in assets and liabilities, net of effects of
acquisition:
Accounts receivable............................... (229,988) (360,930) (40,022)
Inventories....................................... (1,155,861) (592,581) (436,752)
Prepaid expenses and other assets................. (809,867) (7,961) (75,778)
Deferred income taxes............................. (501,000) 36,781 4,385
Accounts payable.................................. 704,115 168,927 47,488
Accrued expenses and other liabilities............ 1,025,891 (151,636) (98,616)
Income taxes payable.............................. (264,409) 342,176 --
----------- --------- ---------
Net cash provided by operating activities.... 2,037,167 853,200 16,536
----------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment................... (2,349,618) (211,809) (692,139)
Purchase of Medgenix Business........................ (6,868,000) -- --
Purchase of investments.............................. (19,954,775) -- --
Proceeds from sale of investments.................... 8,635,220 -- --
----------- --------- ---------
Net cash used in investing activities........ (20,537,173) (211,809) (692,139)
----------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock............... $ 19,301,376 -- --
Proceeds from the exercise of options................ 140,223 64,039 484
Proceeds from the exercise of warrants............... 59,493 -- --
Borrowings from bank................................. 1,957,000 28,000 351,174
Repayments to bank................................... (721,274) (188,212) (83,819)
Payments on capital lease obligations................ (23,000) (35,886) (115,046)
Proceeds from conversion of allotted escrow shares... -- -- 29,035
Distributions to stockholders........................ -- -- (42,902)
----------- --------- ---------
Net cash provided by (used in) financing
activities................................. 20,713,818 (132,059) 138,926
----------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ 2,213,812 509,332 (536,677)
Cash and cash equivalents at beginning of year......... 1,393,092 883,760 1,420,437
----------- --------- ---------
Cash and cash equivalents at end of year............... $ 3,606,904 1,393,092 883,760
=========== ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.......................................... $ 97,455 26,301 28,768
Income taxes...................................... 1,109,323 87,063 34,096
=========== ========= =========
</TABLE>
The fair value of the assets acquired in connection with the purchase of
the Medgenix Business was approximately $8,399,000, including goodwill of
approximately $200,000. Liabilities assumed were approximately $1,531,000.
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 30
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
BioSource International, Inc. (the Company) is engaged in the licensing,
development, manufacture, marketing and distribution of immunological reagents,
test kits and oglionucleotides used in biomedical research. The types of
products supplied by the Company include a range of bioactive proteins, enzymes,
substrates, antibodies, human and murine cytokines, growth factors and a variety
of assay systems for the detection of biological molecules. These products focus
on areas of research such as immunology, AIDS and cancer. The Company focuses
its sales efforts on academic, industrial and governmental laboratories.
Principles of Consolidation
The consolidated financial statements include the accounts of BioSource
International, Inc. and its wholly owned subsidiaries (see note 2). All
significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents includes all cash balances and highly liquid
investments with original maturities of three months or less.
Investments
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," as of January 1, 1994. At December 31, 1996, the Company has
investments in U.S. Treasury securities that are classified in the consolidated
balance sheet as short-term (mature in more than 91 days but no more than one
year) or long-term (maturities beyond one year). These investments are
categorized as held to maturity and are carried at cost as the Company has both
the intent and the ability to hold these investments until they mature.
Financial Instruments
The carrying value of financial instruments such as cash and cash
equivalents, trade receivables, payables and short-term debt approximates their
fair value due to the short-term nature of these instruments. The recorded
values of the Company's long-term debt instruments approximate fair value as
their rates are similar to those currently available to the Company for debt
with similar terms and remaining maturities.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value) for raw materials and work in process and the
average-cost method for finished goods.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives which range from three
to seven years. Leasehold improvements are amortized using the straight-line
method over the estimated useful life or the lease term, whichever is shorter.
F-6
<PAGE> 31
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
License Agreements
License agreements 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 sheet.
Accumulated amortization at December 31, 1996 and 1995 was approximately
$103,000 and $47,000, respectively.
Revenue Recognition
Revenue and related cost of goods sold are recognized upon shipment of
products.
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.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on
January 1, 1996. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position or results of operations.
Accounting for Stock Options
Prior to January 1, 1996, the Company accounted for its stock option plans
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
income per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB No.
25 and provide the pro forma disclosure provisions of SFAS No. 123.
F-7
<PAGE> 32
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. This affects the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Net Income (Loss) per Share
Net income (loss) per share has been computed using the weighted average
number of common and common equivalent shares outstanding each year. Primary and
fully diluted net income (loss) per share are approximately the same.
Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiary, whose
functional currency is Belgian Francs, are translated at the rate of exchange at
the balance sheet date, and related revenues and expenses are translated at the
average exchange rate in effect during the period. Resulting translation
adjustments are recorded as a component of stockholders' equity. Gains and
losses from foreign currency transactions are included in net income.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
(2) BUSINESS COMBINATIONS
On November 21, 1995, the Company issued 500,000 shares of its common stock
in exchange for all of the outstanding common stock of Keystone Laboratories,
Inc. (Keystone). The business combination was accounted for as a
pooling-of-interest combination, and accordingly, the Company's consolidated
financial statements for periods prior to the combination were restated to
include the accounts and results of operations of Keystone.
Total expenses of approximately $116,000 related to the business
combination were included in 1995 operations.
On June 5, 1996, the Company acquired certain assets and assumed selected
liabilities of Medgenix Diagnostics, S.A. (Medgenix), located in Fleurus,
Belgium, related to its in vitro diagnostic business (the Medgenix Business).
The Medgenix Business is involved in the development, manufacture, marketing and
distribution of immunological reagents and test kits used in biomedical
research.
The acquisition was accounted for as a purchase, and accordingly, operating
results of this business subsequent to the date of acquisition are included in
the Company's consolidated financial statements. The purchase price for the
Medgenix Business was approximately $6.9 million. The purchase price, payable in
cash, was funded from a portion of the net proceeds of a second primary offering
of the Company's common stock which closed concurrently with the closing of the
Medgenix acquisition. The purchase price was allocated based on estimated fair
values at the date of acquisition.
F-8
<PAGE> 33
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
The following unaudited pro forma information has been prepared as if the
acquisition occurred as of the beginning of each period presented. The pro forma
information is presented for information purposes only and is not necessarily
indicative of results that would have occurred had the acquisition been in
effect for the periods presented, nor do they purport to be indicative of the
results that will be obtained in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue........................................... $20,450,000 $20,139,000
Net income (loss)................................. 2,333,000 (981,000)
Net income (loss) per share....................... .29 (.16)
=========== ===========
</TABLE>
(3) INVENTORIES
Inventories at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials....................................... $ 767,378 $ 18,285
Work in process..................................... 3,243,766 1,791,431
Finished goods...................................... 3,217,774 1,491,492
---------- ----------
$7,228,918 3,301,208
========== ==========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Land................................................. $ 360,000 --
Building and improvements............................ 1,832,602 --
Machinery and equipment.............................. 2,797,638 904,695
Office furniture and equipment....................... 975,258 471,680
Leasehold improvements............................... 19,473 291,629
---------- ---------
5,984,971 1,668,004
Less accumulated depreciation and amortization....... 1,196,567 745,396
---------- ---------
$4,788,404 922,608
========== =========
</TABLE>
(5) NOTES PAYABLE
The Company had a credit agreement with a bank providing for borrowings of
up to $1,000,000 under a revolving line of credit limited to 75% of eligible
accounts receivable, as defined, through December 31, 1996. Interest on the
revolving line of credit was payable monthly at prime plus .75%.
In March 1996, the Company obtained a bridge loan in the amount of $596,000
as partial funding for its acquisition of its executive offices and
manufacturing facilities. This bridge loan was repaid with the proceeds of the
second mortgage note.
The Company leased approximately $104,000 of certain equipment under a
capital lease. Accumulated depreciation related to this equipment was
approximately $78,000 at December 31, 1995. The capital lease obligation was
repaid in June 1996.
F-9
<PAGE> 34
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- -------
<S> <C> <C>
9.4% first mortgage note payable in monthly installments of $6,896,
including interest, with final payment of $535,178 due April 2006... $ 735,155 --
7.6% second mortgage note payable due June 2016, payable in monthly
installments of $5,369, including interest.......................... 607,714 --
Note payable to bank of up to $1,000,000, interest payable at prime
plus .75% through December 1996..................................... -- 107,143
Capital lease obligation secured by equipment with interest at 11.8%,
payable in monthly installments to June 1996........................ -- 23,000
---------- -------
1,342,869 130,143
Less current portion.................................................. 28,510 65,857
---------- -------
$1,314,359 64,286
========== =======
</TABLE>
Maturities of the notes payable as of December 31, 1996 are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
-----------------------------------------
<S> <C>
1997 $ 28,510
1998 31,027
1999 33,777
2000 36,771
2001 40,034
Thereafter 1,172,750
----------
$1,342,869
==========
</TABLE>
Payments under the first and second mortgage notes are guaranteed by the
Chairman of the Board of the Company.
(6) COMMON STOCK
On June 5, 1996, the Company completed a second primary offering of
2,362,000 shares of its common stock. A portion of the net proceeds of $19.3
million was used to fund the acquisition of the Medgenix Business, repay an
installment note outstanding under the Company's credit facility and repay a
capital lease obligation.
In 1993, BioSource International, Inc. was formed through the consolidation
of BioSource Industries, Inc. (BioSource) and TAGO, Inc. (TAGO) (the
Consolidation). At the effective date of the Consolidation, each two shares of
BioSource common stock then outstanding were converted into one share of Company
common stock and each two performance escrow shares were converted into one
Company performance escrow share. Performance escrow shares are released from
escrow on the basis of one share for every Canadian $.82 of cumulative cash
flow, as defined in the escrow agreement, generated by the Company. Also, each
two allotted escrow shares were converted into the right to receive one
Company-allotted escrow share, and each outstanding share of TAGO common stock
was converted into one share of Company common stock. Each allotted share
entitles the holder to acquire one performance escrow share upon payments of
Canadian $.14 per share and once converted is subject to the same terms and
conditions as the performance escrow shares. All references to the number of
shares and per share amounts in the financial statements have been restated to
reflect the conversions.
At December 31, 1994, the Company had 1,101,494 issued and outstanding
shares held in escrow and 3,449 allotted escrow shares outstanding, all of which
had been earned under the terms of the escrow
F-10
<PAGE> 35
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
agreement. Of the performance and allotted escrow shares, 469,180 were issued to
directors, officers and others who could have affected the financial results of
the Company (Performance Shares), and 635,763 were issued to other stockholders.
Cumulative cash flow through December 31, 1994, as defined under the escrow
agreement, was sufficient to release all the escrow and allotted shares.
Accordingly, the Company recognized $577,452 of compensation expense in 1994
related to the Performance Shares. The 1,101,494 shares held in escrow were
released in 1995 and the 3,449 allotted escrow shares were canceled.
(7) STOCK OPTION AND PURCHASE PLANS
During 1996, the Company had two separate stock option plans and several
stock option agreements with certain officers in effect.
Under the BioSource International, Inc. 1993 Stock Incentive Plan (the 1993
Plan,) options may be granted to full-time employees, part-time employees,
directors and consultants of the Company to purchase a maximum of 1,500,000
shares of common stock. Options granted under the 1993 Plan are exercisable at
the rate of 25% beginning one year from date of grant and an additional 1/48
vest at the beginning of each month thereafter.
The BioSource California 1992 Stock Incentive Plan (the 1992 Plan) covered
BioSource California employees prior to the Consolidation. All options
outstanding under this plan were fully exercisable as of December 31, 1995. Upon
the completion of the Consolidation, the 1992 Plan was replaced by the Company's
1993 Stock Incentive Plan. No further grants will be made under the 1992 Plan.
Stock options granted under the 1993 Plan, the 1992 Plan and stock option
agreements are granted with an exercise price equal to the fair market value of
the Company's shares on the date of grant. The stock options generally expire
ten years from the date of grant.
The per share weighted average fair value of stock options granted during
1996 and 1995 was $2.40 and $1.14, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: 1996 -- expected dividend yield 0%, risk-free interest rate of
6.4%, expected volatility of 30.0% and an expected life of 9 years;
1995 -- expected dividend yield 0%, risk-free interest rate of 6.4%, expected
volatility of 30.0% and an expected life of 9 years. Expected volatility
calculated on a historical basis approximated 65% for 1996 and 1995. The Company
did not believe this was representative of the expected future volatility as the
stock has generally become less volatile subsequent to the second primary
offering.
The Company applies APB Opinion No. 25 in accounting for its plans, and
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Net income:
As reported........................................ $2,767,198 1,160,379
Pro forma.......................................... 2,321,588 980,647
========= =========
Net income per share:
As reported........................................ $ .35 .20
Pro forma.......................................... .29 .16
========= =========
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net
F-11
<PAGE> 36
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
income amounts presented above because compensation cost is reflected over the
option's vesting period of four years and compensation cost for options granted
prior to January 1, 1995 is not considered.
The following summarizes the stock option transactions under the 1993 Plan
and the 1992 Plan during the periods presented:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
-------- --------------
<S> <C> <C>
Options outstanding at December 31, 1993............. 331,790 $ 2.01
Options granted.................................... 515,000 1.65
Options exercised.................................. (550) .88
Options canceled................................... (99,715) 1.91
------- ----
Options outstanding at December 31, 1994............. 746,525 1.73
Options granted.................................... 384,000 2.54
Options exercised.................................. (32,278) 1.98
Options canceled................................... (269,142) 1.84
------- ----
Options outstanding at December 31, 1995............. 829,105 2.15
Options granted.................................... 368,500 7.69
Options exercised.................................. (80,665) 1.74
Options canceled................................... (121,534) 2.91
------- ----
Options outstanding at December 31, 1996............. 995,406 4.15
======= ====
</TABLE>
At December 31, 1996, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.28 - $9.25 and 8.8
years, respectively.
At December 31, 1996, 1995 and 1994, the number of options exercisable was
412,632, 259,876 and 167,525, respectively, and the weighted average exercise
price of those options was $2.59, $1.97 and $1.74, respectively.
As discussed previously, the Company has several stock option agreements
with certain officers. The outstanding agreements expire from May 2003 through
June 2005.
F-12
<PAGE> 37
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
The following summarizes transactions outside the option plans during the
periods presented:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C>
Options outstanding at December 31, 1993.............. -- $ --
Options granted..................................... 100,000 2.34
Options exercised................................... -- --
Options canceled.................................... -- --
------- ----
Options outstanding at December 31, 1994.............. 100,000 2.34
Options granted..................................... 155,000 1.54
Options exercised................................... -- --
Options canceled.................................... -- --
------- ----
Options outstanding at December 31, 1995.............. 255,000 1.85
Options granted..................................... 147,500 5.33
Options exercised................................... -- --
Options canceled.................................... -- --
------- ----
Options outstanding at December 31, 1996.............. 402,500 3.13
======= ====
</TABLE>
At December 31, 1996, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.50 - $6.44 and 8 years,
respectively.
At December 31, 1996, 1995 and 1994, the number of options exercisable was
265,000, 255,000 and 100,000, respectively, and the weighted average exercise
price of those options was $2.03, $1.85 and $2.34, respectively.
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 are 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 shares purchased with Company
matching contributions after two years. The Company's matching expense for the
years ended December 31, 1996 and 1995 was approximately $3,000 and $1,000,
respectively.
(8) COMMON STOCK WARRANTS
On June 5, 1996, the Company granted warrants to purchase 59,050 shares of
the Company stock to each of Cruttenden Roth Inc. and Commonwealth Associates in
connection with the second primary stock offering, with an exercise price of
$11.10 per share and an expiration date of May 29, 2001. These warrants may not
be exercised prior to May 29, 1997.
On September 23, 1996, Commonwealth Associates assigned warrants to
purchase 11,810 shares of the Company stock to a Commonwealth Associates'
employee. The term and conditions of these warrants remained unchanged.
On February 1, 1996, the Company granted warrants to purchase 100,000
shares of the Company stock to Nordion International Inc. in connection with the
Medgenix acquisition negotiations, with an exercise price of $7.50 per share and
an expiration date of February 1, 2001.
F-13
<PAGE> 38
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
On January 17, 1994, the Company granted warrants to purchase 24,000 shares
of the Company stock to The Equity Group, Inc., with an exercise price of $2.25
per share and an expiration date of January 17, 1999. On July 12, 1994, 18,000
of the warrants were canceled. The remaining 6,000 warrants were exercised
concurrently with the Company's June 1996 second primary offering.
On May 19, 1993, the Company granted warrants to purchase 60,000 shares of
the Company stock to Immunoplex, Inc. with an exercise price of $1.85 per share
and an expiration date of May 19, 1998. 25,000 warrants were exercised
concurrently with the Company's June 1996 second primary offering.
Proceeds from the sale of common stock issued under outstanding warrant
arrangements are credited to common stock at the time the warrants are
exercised. The Company recorded no charge to operations with respect to these
warrants since the warrants were issued at amounts approximating or exceeding
fair market value.
(9) INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- -------
<S> <C> <C> <C>
Current:
Federal.................................. $ 885,000 $332,000 $26,476
State and local.......................... 222,000 82,000 17,334
Foreign.................................. 90,000 -- --
Deferred:
Federal.................................. (508,000) 27,000 4,700
State and local.......................... 7,000 10,000 (315)
--------- -------- -------
$ 696,000 451,000 48,195
========= ======== =======
</TABLE>
The primary components of temporary differences which give rise to deferred
taxes at December 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
Deferred tax asset:
Accruals............................................... $ 94,000 40,000
Reserves............................................... 27,000 51,000
Net operating loss carryforwards....................... 481,000 563,000
Research and development credit carryforward........... -- 44,000
-------
-
--------
Total............................................... 602,000 698,000
Valuation allowance.................................... -- 607,000
-------
-
--------
Net deferred tax assets............................. $602,000 91,000
======== ========
Deferred tax liability -- depreciation................... $ 75,000 65,000
======== ========
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1996, 1995 and 1994 was a decrease of approximately $607,000,
$115,000 and $120,000, respectively. Management has reviewed the recoverability
of deferred income tax assets and has determined that it is more likely than not
that the deferred tax assets will be fully realized through future taxable
earnings.
F-14
<PAGE> 39
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Actual income tax expense differs from that obtained by applying the
Federal income tax rate of 34% to income (loss) before income taxes as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense
(benefit)............................... $1,177,000 548,000 (54,890)
Nondeductible items....................... 21,000 74,000 208,725
State taxes (net of Federal benefit)...... 151,000 61,000 11,263
Reduction of valuation allowance.......... (607,000) (115,000) (120,000)
Tax credits............................... (40,000) (135,000) (4,000)
Tax-exempt interest....................... (36,000) -- --
Tax effect resulting from foreign
activities.............................. 63,000 -- --
Other..................................... (33,000) 18,000 7,097
-------- -------- --------
Total................................... $ 696,000 451,000 48,195
======== ======== ========
</TABLE>
As of December 31, 1996, the Company has a net operating loss (NOL)
carryforward of approximately $1,400,000 for Federal income tax purposes. The
Federal NOL has a carryover period of 15 years and is available to offset future
taxable income, if any, through 2005, subject to an annual statutory limitation.
(10) 401(K) BENEFIT PLAN
The Company has a 401(k) profit sharing plan (the Plan) which covers
substantially all 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 to the Plan is discretionary and no contributions were
made in fiscal years 1996, 1995 or 1994.
(11) DOMESTIC AND FOREIGN OPERATIONS
The Company is engaged in a single industry, the licensing, development,
manufacture, marketing and distribution of immunological reagents, test kits and
oglionucleotides used in biomedical research. The Company's customers are not
concentrated in any specific geographic region and no single customer accounts
for a significant amount of the Company's sales.
F-15
<PAGE> 40
BIOSOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Information related to domestic and foreign operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Sales:
United States:
Domestic......................... $ 6,791,443 $6,201,339 $5,718,226
Export........................... 3,213,827 2,407,108 1,649,031
----------- ---------- ----------
Total United States......... 10,005,270 8,608,447 7,367,257
Europe.............................. 5,908,004 -- --
----------- ---------- ----------
Consolidated................ $15,913,274 $8,608,447 $7,367,257
=========== ========== ==========
Operating income (loss):
United States....................... $ 3,137,886 $1,615,023 $ (134,937)
Europe.............................. 322,406 -- --
----------- ---------- ----------
Consolidated................ $ 3,460,292 $1,615,023 $ (134,937)
=========== ========== ==========
Identifiable assets at end of year:
United States....................... $23,643,827 $7,387,603 $5,439,225
Europe.............................. 10,151,000 -- --
----------- ---------- ----------
Consolidated................ $33,794,827 $7,387,603 $5,439,225
=========== ========== ==========
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment under various
noncancelable operating leases expiring through January 2001. During 1994, the
Company entered into a long-term operating lease and consolidated its domestic
operations into one facility. The Company incurred a lease settlement cost of
approximately $81,000, which was included in 1994 rental expense, for vacating
certain leased facilities prior to lease expiration. In March 1996, the Company
purchased the facility and related real estate.
Total rental expense was approximately $303,000, $200,000 and $373,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, the future minimum payments under these leases are as
follows:
<TABLE>
<S> <C>
1997...................................... $456,000
1998...................................... 235,000
1999...................................... 127,000
2000...................................... 12,000
2001...................................... 1,000
--------
$831,000
========
</TABLE>
F-16
<PAGE> 1
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
(1) STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(EXHIBIT 11)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning of period 5,845,306 5,813,028 5,537,580 3,806,328 3,326,985
Shares issued in 11 for 10 stock split - - - - 139,693
Shares issued in connection with second
primary offering 1,355,246 - - - -
Shares issued in private placement - - - - 419,500
Shares issued upon exercise of stock
options and warrants 71,297 13,934 20 872,262 161,963
Shares issued upon conversion of
allotted escrow shares - - 178,631 160,601 -
Shares issued upon conversion of
preferred stock - - - - 448,000
Shares issued for services rendered - - 7,869 - -
Shares exchanged upon acquisition
of subsidiary - - - - (1,157,241)
Dilutive effect of outstanding stock
options and warrants 736,651 118,938 - 40,809 -
--------- --------- --------- --------- ---------
Weighted average number of common and
common equivalent shares outstanding 8,008,500 5,945,900 5,724,100 4,880,000 3,338,900
========= ========= ========= ========= =========
Net income (loss) $2,767,198 $1,180,379 $ (209,636) $ 513,000 $ (390,000)
========= ========= ========= ========= =========
Net income (loss) per share $ 0.35 $ 0.20 $ (0.04) $ 0.11 $ (0.12)
========= ========= ========= ========= =========
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares used in
primary calculation 8,008,500 5,945,900 5,724,100 4,880,000 3,338,900
Additional dilutive effect of stock
options and warrants 12,100 19,800 - - -
Fully diluted weighted average
number of shares 8,020,600 5,965,700 5,724,100 4,880,000 3,338,900
========= ========= ========= ========= =========
Net income (loss) $2,767,198 $1,160,379 $ (206,636) $ 513,000 $ (390,000)
========= ========= ========= ========= =========
Net income (loss) per share $ 0.35 $ 0.20 $ (0.04) $ 0.11 $ (0.12)
========= ========= ========= ========= =========
</TABLE>
(1) All numbers of shares in these tables are weighted on the basis of the
number of days the shares were outstanding or assumed to be outstanding
during each period. On November 31, 1995, the Company issued 500,000
shares of its common stock in exchange for all the outstanding common
stock of Keystone Laboratories, Inc. The business combination was
accounted for as a pooling of interests and, accordingly, shares
outstanding prior to the business combination have been restated to
include the 500,000 shares.
<PAGE> 1
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors and Stockholders
BioSource International, Inc.
The audits referred to in our report dated February 20, 1997 included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1996, included in the registration statement of
BioSource International, Inc. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such 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.
We consent to incorporation by reference in the registration statement (No.
333-05391) on Form S-3 and the registration statements (Nos. 33-65562,
33-91838) on Form S-8 of BioSource International, Inc. of our report dated
February 20, 1997, relating to the consolidated balance sheets of BioSource
International, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows and related schedule for each of the years in the three-year period ended
December 31, 1996, which report appears in the December 31, 1996 annual report
on Form 10-K of BioSource International, Inc.
KPMG Peat Marwick LLP
Los Angeles, California
April 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,606,904
<SECURITIES> 5,766,905
<RECEIVABLES> 4,286,237
<ALLOWANCES> 49,000
<INVENTORY> 7,228,918
<CURRENT-ASSETS> 22,407,380
<PP&E> 4,788,404
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,869,827
<CURRENT-LIABILITIES> 4,319,871
<BONDS> 0
0
0
<COMMON> 8,319
<OTHER-SE> 28,152,278
<TOTAL-LIABILITY-AND-EQUITY> 33,869,827
<SALES> 15,913,274
<TOTAL-REVENUES> 15,913,274
<CGS> 5,567,989
<TOTAL-COSTS> 5,567,989
<OTHER-EXPENSES> 6,884,993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,455
<INCOME-PRETAX> 3,463,198
<INCOME-TAX> 696,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,767,198
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
