-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RVgp1fXDSgjZpVQrist2WR9tSFr9CwLhm9Nfe75IxKiJGyWdkitULfYnaXkeN/dt D3gT5o3lWeeGxgf5kSPNUg== 0000927946-01-500120.txt : 20020413 0000927946-01-500120.hdr.sgml : 20020413 ACCESSION NUMBER: 0000927946-01-500120 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOANALYTICAL SYSTEMS INC CENTRAL INDEX KEY: 0000720154 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 351345024 STATE OF INCORPORATION: IN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23357 FILM NUMBER: 1824234 BUSINESS ADDRESS: STREET 1: 2701 KENT AVE CITY: WEST LAFAYETT STATE: IN ZIP: 47906-1382 BUSINESS PHONE: 3174634527 MAIL ADDRESS: STREET 1: 2701 KENT AVENUE CITY: WEST LAFAYETTE STATE: IN ZIP: 47906-1382 10-K 1 bas10k.txt BIOANALYTICAL SYSTEMS 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended September 30, 2001. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to _____________. Commission File Number 0-23357 BIOANALYTICAL SYSTEMS, INC. (Exact name of the registrant as specified in its charter) INDIANA 35-1345024 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2701 KENT AVENUE WEST LAFAYETTE, IN 47906 ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) (765) 463-4527 ---------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Shares Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.045 of this chapter) 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. [ X ] Based on the closing price on the NASDAQ exchange, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant is $18,686,833. As of November 30, 2001, 4,569,416 shares of registrant's common shares were outstanding. No shares of registrant's Preferred Stock were outstanding as of November 30, 2001. Portions of the following documents have been incorporated by reference into this report: Registrant's Document Parts Into Which Incorporated - --------------------------- ----------------------------- Bioanalytical Systems, Inc. 2001 Annual Report Parts II and IV Proxy Statement Part III TABLE OF CONTENTS Page ---- Part I Item 1. Business 3 Item 2. Properties 10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Part II Item 5. Market for Registrant's Common Equity and ` Related Stockholder Matters 11 Item 6. Selected Consolidated Financial Data 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 12 Item 8. Financial Statements and Supplementary Data 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 Part III Item 10. Directors and Executive Officers of the Registrant 13 Item 11. Executive Compensation 14 Item 12. Security Ownership of Certain Beneficial Owners and Management 14 Item 13. Certain Relationships and Related Transactions 15 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16 Part I THIS REPORT CONTAINS CERTAIN STATEMENTS THAT ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. READERS OF THIS REPORT ARE CAUTIONED THAT RELIANCE ON ANY FORWARD-LOOKING STATEMENT INVOLVES RISKS AND UNCERTAINTIES. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS ON WHICH THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE BASED ARE REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE TO BE INACCURATE GIVEN THE INHERENT UNCERTAINTIES AS TO THE OCCURRENCE OR NONOCCURRENCE OF FUTURE EVENTS. THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT WILL PROVE TO BE ACCURATE. THE INCLUSION OF A FORWARD-LOOKING STATEMENT HEREIN SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY THAT THE COMPANY'S OBJECTIVES WILL BE ACHIEVED. Item 1. Business General The Company provides contract development services and research equipment to many of the leading, global pharmaceutical, medical device and biotechnology companies. The Company concentrates on services and tools to improve the speed and efficiency of preclinical development. It has played a significant role in understanding the underlying causes of central nervous system disorders, diabetes, osteoporosis and other diseases. Our clients have realized more than $15 billion in revenue from technologies and services provided by the Company. The Company offers an efficient, variable-cost alternative to its clients' internal product development, compliance and quality control programs. To reduce overhead and speed drug approvals through the Food and Drug Administration (FDA), pharmaceutical companies are contracting increasing amounts of their development work to outside firms such as the Company. As a result, the Company now derives its revenues from both the sale of its research services and drug development tools. The Company provides a range of value-added services and products focused on chemical analysis and preclinical metabolism, allowing its clients to perform their research and development either in house or at the Company The Company's services and products combine basic research with diagnostic and therapeutic experience. The Company is capable of supporting the clinical development (formulations and clinical trials) and preclinical needs of researchers and clinicians, for small molecule drugs and hormones through large biomolecules. The Company believes their scientists have the skills necessary in instrumentation, chemistry, computer software, physiology, pathology and the global presence to make the services and products it provides increasingly valuable to the worldwide pharmaceutical, medical device and biotechnological industries. Over the past five years, the Company has regularly provided its services and/or products to most of the top 25 pharmaceutical companies in the world, as ranked by 2000 research and development spending. In fiscal 2001, the Company estimates that more than 40% of its total revenue was derived from these companies. A growing pool of clients among smaller drug developers is viewed as favorable. The Company has stated that it intends to become a strategic partner to that tier of clients rather than simply a tactical services provider to the largest companies. The Company's services groups provide screening and pharmacological testing, preclinical/safety testing, formulation development, regulatory compliance and quality control testing. The Pharmaceutical Research and Manufacturing Association (PhRMA) estimates that pharmaceutical and biotechnology companies spent approximately $30.5 billion worldwide on research and development in 2001. Analysts estimate that outsourced services will grow from 20% of research and development expenditures in 2000 to more than 40% by 2004. The Company believes that this outsourcing trend will continue. Several factors are driving pharmaceutical companies toward improving shareholder value. The Company agrees that the trend toward outsourcing will grow. The Company designs, manufactures and markets a range of products that collect, separate, detect and quantify chemicals in biological samples. These tools and the Vetronics line of veterinary physiological monitors are used to track complex chemical, physiological and behavioral effects in laboratory animal models. The Company is focusing its products business on expediting preclinical screening of developmental drugs. - 3 - The Company competes in niches of the $20 billion (2001) analytical instrument industry. The Company leverages its talented personnel in these instruments businesses to provide solutions to highly challenging problems, adding significant value. The Company develops and manufactures state-of-the-art robotic blood sampling, in vivo microdialysis collection systems and physiology monitoring tools. Complementing these, the Company's liquid chromatography and electrochemistry instrument platform, epsilon, is used to separate and quantify drugs, xenobiotics, metabolites and other chemicals in blood, cerebrospinal fluid and other biological media. Scientists engaged in drug metabolism studies, pharmacokinetics and basic neuroscience research at pharmaceutical research organizations are the Company's principal clients. Changing Nature of the Pharmaceutical Industry The Company provides services and products globally to pharmaceutical, medical device and biotechnology companies, academic institutions and governments to facilitate research and development. The Company's services are generally marketed to pharmaceutical and biotech companies engaged in early stages of drug development. The Company's products are generally marketed to both public and private research organizations. The research services industry is highly fragmented among hundreds of niche vendors and a small number of larger companies focused on an ever-growing portfolio of cradle-to-grave pharmaceutical development services. While the markets for the Company's services and products have distinct customers (often separate divisions in a single large pharmaceutical company) and requirements, the Company believes that both are facing increased pressure to outsource facets of their research and development activities. The Company believes that the following factors will increase outsourcing by its customers. Accelerated Drug Development End users continue to demand faster, more efficient drug development. Pharmaceutical developers are relying on external service providers for testing and analysis in all phases of development. Clients demand fast, quality service in order to make immediate informed decisions to quickly exclude poor candidates and speed development of successful ones. Cost Containment Pharmaceutical companies are developing more efficient operating strategies due to the increased purchasing power of large buyer groups and government initiatives designed to reduce drug prices. The need for additional development capacity to speed new product development, maximize market exclusivity and increase profitability drives the need for outsourced services. Patent Expiration Patents on all pharmaceuticals age and expire. Drug companies are developing new products or modifying existing products to maintain market share against generic competition. The Company believes that the pressure to develop new products and to modify or reformulate existing products, combined with internal capacity constraints, will lead clients to outsource development. Strategic Alliances Strategic alliances allow pharmaceutical companies to share research know-how and to develop and market new drugs faster in more diverse, global markets. The Company believes that alliances will lead to a greater number of potential drugs in testing, many under study by new companies lacking broad technical resources. Mergers and Acquisitions Consolidation in the pharmaceutical industry is becoming commonplace. As firms blend personnel, resources and business activities, the Company believes they will continue to streamline operations, optimizing staffing which will lead to more outsourcing. This may result in short-term disruption in placement of, or progress on, drug development programs as merging companies rationalize their respective pipelines. - 4 - Biotechnology Industry and Virtual Drug Company Growth The biotechnology industry has grown rapidly over the last 10 years and has introduced many new developmental drugs. Biotechnology companies do not have the in-house resources to conduct development and testing. Also, several new companies have pronounced a business strategy to develop a product sufficiently to attract a strategic partner who will manufacture and market the drug. Many of these virtual drug development companies with little or no internal resources must outsource drug development and testing. Need for Unique Technical Expertise The increasing complexity of new drugs requires highly specialized quality and innovative, solution-driven research not available in the clients' labs. The Company believes that this need for unique technical expertise will increasingly lead to outsourcing of research activity. Need for Data Management Expertise The FDA is requiring more regulatory data and greater access to that data and is encouraging the use of computer-assisted filings in an effort to expedite approval. The Company is able to provide clients with remote access to Company computer systems while at the same time protecting client data from unauthorized access. The Company has also developed proprietary validated online data entry software enabling direct publication of data in unique client formats. Globalization of the Marketplace Foreign firms are relying on independent development companies with experience in the United States to provide integrated services through all phases of product development and to assist in preparing complex regulatory submissions. Domestic drug firms are broadening product availability globally, demanding local regulatory approval. The Company believes that domestic service providers with global reach, established regulatory expertise and a broad range of integrated development services will benefit from this trend. The Company has a significant European presence and domestic skills in foreign operations. The Company's Role in the Drug Development Process Process Overview The Company has 27 years of experience in developing analytical methods to support drug discovery. Under the United States regulatory system, the development process for new pharmaceutical products can be divided into three distinct phases. 1) The preclinical phase includes discovery, characterization, formulation and safety testing to prepare an Investigational New Drug (IND) exemption for submission to the FDA. The IND must be accepted by the FDA before the drug can be tested in humans. 2) The second, clinical phase follows a successful IND submission and further explores the safety, tolerability, efficacy and dosage of the substance in humans. Early manufacturing demonstrates production of the substance in accordance with the FDA's cGMP guidelines. Data from these activities are compiled in a New Drug Application (NDA), or for biotechnology products a Product License Application (PLA), for submission to the FDA requesting approval to market the drug. 3) The third phase follows FDA approval of the NDA or PLA. This includes production and continued analytical and clinical monitoring of the drug. The post-approval phase also involves the development and regulatory approval of product modifications and line extensions, including improved dosage forms. - 5 - The Company's Role The Preclinical Phase. New molecules are screened for pharmacological activity using various models. Once the pharmacologically active molecule is fully characterized, it is analyzed to confirm its integrity. Development of the initial dosage form for clinical trials is completed, with analytical chemistry protocols to determine its stability. Upon successful completion of preclinical safety and efficacy studies in in vitro and in vivo, an IND submission is prepared and provided to the FDA for review prior to human clinical trials. Clients work with the Company's Preclinical Services division to establish pharmacokinetic and safety testing protocols. These studies range from acute safety monitoring on drugs and medical devices to chronic, multi-year oncogenicity studies. Bioanalyses of blood sampled under these protocols by the Company's bioanalytical services group provide kinetic, metabolism and dose ranging data. Many of the Company's products are designed for use in preclinical development. For example: 1) The Culex(R) ABS, a robotic automated blood sampler, enables researchers to develop pharmacokinetic profiles of drugs in early screening in rodents quickly and cost effectively. Several variations on this technology are in development. 2) Company scientists have been recognized by their peers for their contributions to technology of drugs for central nervous system (CNS) disorders such as depression, Parkinson's disease, schizophrenia and Alzheimer's disease. 3) Company technology is the basis for most of the glucose sensors currently sold to diabetics and the majority of firms in this market are Company clients. 4) The Company's bioanalytical services group used the Company's chromatography products to develop a single, quick, proprietary method to screen up to ten therapeutic HIV drugs in the same blood sample with the cooperation of several major therapeutic drug developers. The method enables researchers to quantify each component in a drug cocktail or to monitor HIV treatments. The Company's ability to solve client problems combining its knowledge base, services and products has been a factor in the Company's selection by major pharmaceutical companies to assist in several preclinical and Phase I, II and III clinical trials. The Clinical Phase. After successful submission of an IND application, the sponsor conducts Phase I human clinical trials in a limited number of healthy individuals to determine safety and tolerability. This work requires bioanalytical assays to determine the availability and metabolism of the active ingredient following administration. Expertise in method development and validation is essential for this phase, particularly for new chemical entities. When further safety, tolerability and dosing regimens have been established in Phase II, Phase III clinical trials are conducted to verify efficacy and safety. After the successful completion of Phase III clinical trials, the sponsor of the new drug submits an NDA or PLA to the FDA requesting that the product be approved for marketing. The Company's bioanalytical work per patient grows rapidly from Phase I through III. As the number of patients grows the number of samples per patient declines. Phase II and III studies take several years, practicing well proven analytical protocols. It is unusual for a sponsor to change laboratories unless there are problems in the quality or timely delivery of results. Many patients are receiving multiple drug therapy. The influence of each drug on the effectiveness of the other drugs must be monitored. These drug interaction studies often extend clinical trials. A CRO such as the Company can provide services to several different manufacturers of complementary drugs simultaneously in cases of potential synergy (e.g. the "cocktail" approach to HIV therapy). Multi-client studies frequently lead to cost sharing and contacts with new clients. The Post-approval Phase. Following approval, the drug manufacturer must comply with quality assurance and quality control requirements throughout production and must continue analytical and stability studies of the drug during commercial production in order to continue to validate production processes and confirm product shelf life. Samples from each manufactured batch must be tested prior to release of the batch for distribution to the public. The Company also provides services in all areas during the post-approval phase, concentrating on bio-equivalence studies of new formulations, line extensions, new disease indications and drug interaction studies. - 6 - Company Services and Products Overview The Company provides bioanalytical services, preclinical services and methods development. The Company has, for 27 years, developed expertise in a number of core technologies, which evolved into state-of-the-art equipment and procedures designed to quantify trace chemicals in complex materials. The Company also uses its expertise in analytical chemistry to provide a wide range of bioanalytical services to drug developers. Preclinical services provide basic safety and dosage information to researchers and are a source of samples for bioanalytical analyses. Services The Company's customers draw on the Company's knowledge in bioanalytical chemistry and preclinical services to solve complex problems: o Method Development and Validation. Analytical methods are developed to demonstrate potency, purity, stability or physical attributes. These methods are validated to ensure that the data generated are accurate, precise, reproducible and reliable and are used throughout the drug development process and in product support testing o Product Characterization. Characterization analysis identifies the chemical composition, structure and physical properties of a compound. Characterization data is a significant portion of a regulatory application. The Company uses several techniques to characterize the compound. o Stability Testing. The Company provides required stability testing and secure storage facilities necessary to establish and confirm product purity, potency and shelflife. The Company has multiple ICH (International Conference on Harmonization) validated controlled climate GMP systems. o Bioanalytical Testing. The Company's bioanalytical testing group analyzes biological samples to measure drug concentration and monitor the rate of absorption and elimination. o Preclinical and Pathology Services. BAS Evansville is the core for the Company's preclinical services group which provides pharmacokinetic and safety testing protocols in studies ranging from acute safety monitoring on drugs and medical devices to chronic, multi-year oncogenicity studies. o In Vivo Sampling. The Company pioneered and has commercialized miniaturized in vivo sampling products and services for the continuous monitoring of chemical changes in life. Products The Company designs, manufactures and markets a range of products and related scientific procedures that detect and quantify the presence of chemicals in certain substances. The Company's products utilize state-of-the-art scientific technology including liquid chromatography, electrochemistry and in vivo sampling instrumentation. Presently, the Company's products and procedures include: o The Culex(R) ABS robotic automatic rodent blood sampling system is used by pharmaceutical researchers to monitor drug concentrations as a function of time (pharmacokinetics). The Culex provides exceptional cost savings, significant reduction in stress and shorter screening times to drug researchers. Culex is one of the fastest-growing, most significant products for the Company in a decade. o Bioanalytical separation instrumentation (liquid chromatography) and Windows(R) software detect and quantify low concentrations of substances in biological fluids and tissues. o A wide-range of chemical analyzers that use electrochemistry, liquid chromatography and enzymology analyze trace levels of organic chemicals such as neurotransmitters in biological samples. o Diagnostic kits and procedures are designed to add value to the Company's instrumentation and enable clinical laboratories and pharmaceutical researchers to determine the presence of multiple drugs in blood plasma and to measure neurotransmitters and their metabolites in plasma and urine. - 7 - o A line of miniaturized in vivo sampling devices, marketed to veterinary research centers, pharmaceutical companies and medical research centers, assist in the study of a number of medical conditions including stroke, depression, Parkinson's disease, diabetes and osteoporosis. Clients Over the past five years, the Company regularly has provided services and products to most of the top 25 pharmaceutical companies in the world, as ranked by 2000 research and development spending. In fiscal 2001, the Company estimates that more than 40% of its total revenue was derived from these companies. Approximately 20% of the Company's revenues are generated from customers outside the United States. The Company redirected its sales team in the middle of fiscal 2000, to target pharmaceutical companies with annual revenues less than $1 billion, with the belief that risk of client concentration could be reduced if distributed over a broader account base. The company also believes that companies of this size are less likely to have resources comparable to the Company's and will consequently be more inclined to establish a consistent, long-term relationship. Sales and Marketing Although early client relationships grew primarily through direct, internal recommendations among major pharmaceutical manufacturers, the current sales and marketing plan focuses on key account development among the top 200 global pharmaceutical companies. The Company recognizes that its growth and continued customer satisfaction depend upon its ability to continually improve its sales and marketing functions. The key account development program is succeeding. In North America, the Company's products are sold directly to the end user. The Company has 20 sales personnel and an equal number providing technical and development support. The Company also has created a collection of catalogs, training and technical support literature, video tapes, CD-Rom presentations, web sites, workshops and academic publications. Sales, marketing and technical support are based in the Company's main office located in West Lafayette, Indiana. The Company also maintains offices in Evansville, Indiana, New Jersey, and Warwickshire and Congleton, UK, each with a sales and technical staff, enabling the Company to present the Company in close proximity to its largest concentration of key customers. The Company also maintains sales and technical support capabilities in North Carolina, Massachusetts, New York, Ohio, Texas, Pennsylvania, New Jersey and Kansas. The Company's primary marketing and sales strategy is to be more client focused and to further strengthen communications with its markets. The Company will build on its long history of innovation and technical excellence. BAS Analytics, Ltd., a wholly-owned subsidiary of the Company, provides direct liaison with research service clients in the United Kingdom and maintains a laboratory to provide those services. BAS Instruments, Ltd., also a wholly-owned subsidiary of the Company, manages most product sales in Europe. In addition, the Company has a network of more than 20 established distributors covering Japan, the Pacific Basin, South America, the Middle East, India, South Africa and Eastern Europe. All of the Company's distributor relationships are managed from the Company's headquarters in West Lafayette, Indiana. International growth is planned through acquisitions, stronger local promotion and significant expansion of the Company's distributor network. Contractual Arrangements The Company's service contracts typically establish an estimated fee for identified services. In most cases, some percentage of the contract costs are paid in advance. While the Company is performing a contract, clients often adjust the scope of services to be provided by the Company in light of interim project results, at which time the fee is adjusted accordingly. Generally, the Company's fee-for-service contracts are terminable by the client upon written notice of 30 days or less. Contracts may be terminated for a variety of reasons, including the client's decision to forego a particular study, the failure of product prototypes to satisfy safety requirements and unexpected or undesired results of product testing. The loss of a large contract or the loss of multiple contracts could adversely affect the Company's future revenue and profitability. - 8 - Backlog Considering that the arrangements, pursuant to which the Company provides its services, are terminable upon written notice of 30 days or less, the Company does not calculate backlog for the services it provides and does not believe that determining such amount would provide a meaningful indicator of the future performance of its services unit. Backlog for the Company's products consists of booked purchase orders for products which have not been shipped. The Company rarely has a backlog for its products of more than one month of sales. Many products are shipped within 24 hours of receipt of order. Competition With respect to its services, the Company competes primarily with in-house research, development, quality control and other support service departments of pharmaceutical and biotechnology companies. There are also full-service CRO's that compete in this industry. The largest CRO competitors offering similar research services include Covance, Inc., Pharmaceutical Product Development, Inc., AAIpharma, Inc. and MDS Health Group Ltd. CROs generally compete on the basis of previous experience and medical and scientific expertise in specific therapeutic areas, quality of contract research, ability to organize and manage large-scale trials on a global basis, medical database management capabilities, ability to provide statistical and regulatory services, ability to recruit investigators, ability to integrate information technology with systems to improve the efficiency of contract research, existence of an international presence with strategically located facilities, financial viability and price. With respect to its products, the Company competes with several large equipment manufacturers, including Agilent, Waters Corporation and Perkin Elmer Corporation. Competitive factors include product quality, reliability and price. The Company believes it competes favorably in its niche target markets because of its ability to combine quality products with technical assistance and service to meet customer needs. Many of the Company's competitors are much larger and have greater resources than the Company, which makes it difficult for the Company to capture share from clients other than those who need the Company's unique capabilities. Government Regulation The services performed by the Company are subject to various regulatory requirements designed to ensure the quality and integrity of pharmaceutical and diagnostic products. These regulations are governed primarily under the Federal Food, Drug and Cosmetic Act, as well as associated GLP and GMP regulations which are administered by the FDA in accordance with current industry standards. Noncompliance by the Company with GLP and GMP regulations could result in disqualification of data collected by the Company in a particular project. Material violation of GLP or GMP requirements could result in additional regulatory sanctions and, in severe cases, could also result in a discontinuance of selected Company operations. Such discontinuance could have a material adverse effect on the Company's business, financial condition and results of operations. To help assure compliance with applicable regulations, the Company has established quality assurance controls at its facilities that monitor ongoing compliance by auditing test data and regularly inspecting facilities, procedures and other GMP compliance parameters. In addition, FDA regulations and guidelines serve as a basis for the Company's standard operating procedures where applicable. Some of the Company's development and testing activities are subject to the Controlled Substances Act administered by the Drug Enforcement Agency (DEA), which strictly regulates all narcotic and habit-forming substances. The Company maintains restricted-access facilities and heightened control procedures for projects involving such substances due to the level of security and other controls required by the DEA. In addition to FDA regulations, the Company is subject to other federal and state regulations concerning such matters as occupational safety and health and protection of the environment. The Company's activities involve the controlled use of hazardous materials and chemicals. The Company is subject to foreign, federal, state and local laws and regulations governing the use, storage, handling and disposal of such materials and certain waste products. The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result. Such damages could have a material adverse effect on the Company's business and results of operations. - 9 - Product Liability and Insurance The Company maintains product liability and professional errors and omissions liability insurance, providing approximately $6.0 million in coverage on a claims-made basis. Additionally, in certain circumstances the Company seeks to manage its liability risk through contractual provisions with clients requiring the Company to be indemnified by the client or covered by clients' product liability insurance policies. Also, in certain types of engagements the Company seeks to limit its contractual liability to clients to the amount of fees received by the Company. The contractual arrangements are subject to negotiation with clients and the terms and scope of such indemnification, liability limitation and insurance coverage vary based upon client and project. Although most of the Company's clients are large, well-capitalized companies, the financial performance of these indemnities is not secured. Therefore, the Company bears the risk that the indemnifying party may not have the financial ability to fulfill its indemnification obligations or that liability would exceed the amount of applicable insurance. Furthermore, the Company could be held liable for errors and omissions in connection with the services it performs. There can be no assurance that the Company's insurance coverage will be adequate, or that insurance coverage will continue to be available on terms acceptable to the Company, or that the Company can obtain indemnification arrangements or otherwise be able to limit its liability risk. Employees At September 30, 2001, the Company had 260 full-time employees, 152 of which hold college degrees, including 35 at the doctoral level. All employees enter into confidentiality agreements intended to protect the Company's proprietary information. The Company believes that its relations with its employees are good. None of the Company's employees are represented by a union. The Company's performance depends on its ability to attract and retain qualified professional, scientific and technical staff. The level of competition among employers for skilled personnel is high. The Company believes that its employee benefit plans enhance employee morale, professional commitment and work productivity and provide an incentive for employees to remain with the Company. While the Company has not experienced any unusual problems in attracting or retaining qualified personnel, there can be no assurance that the Company will be able to avoid these problems in the future. Item 2. Properties The Company's principal executive offices are located at 2701 Kent Avenue, West Lafayette, Indiana, 47906, and constitute approximately 100,000 square feet of operational and administrative space. The BAS Evansville facility consists of seven buildings with 50,000 square feet of operational and administrative space on 52 acres. The Company also maintains offices which provide sales and technical support services in New Jersey and the United Kingdom, and employs sales and technical support service representatives in North Carolina, Texas, Massachusetts, Pennsylvania and New Jersey. The Company believes that its facilities are adequate for the Company's operations and that suitable additional space will be available when needed. Item 3. Legal Proceedings In April, 1997, CMA Microdialysis Holding A.B. (CMA) filed an action against the Company in the United States District Court for the District of New Jersey in which CMA alleged that the Company's microdialysis probes infringe U.S. Patent No. 4,694,832. During the quarter ended December 31, 2000, the Company settled this case for an immaterial amount. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. [Remainder of page intentionally left blank.] - 10 - Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Market for Registrant's Common Equity and Related Stockholder Matters on the last page of our 2001 Annual Report is incorporated by reference. [Remainder of page intentionally left blank.] - 11 - Item 6. Selected Financial Data You can find Selected Financial Data for each of our five most recent fiscal years on the first page of our 2001 Annual Report under "Selected Consolidated Financial Data". That information is incorporated in this Report by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You can find Management's Discussion and Analysis of Results of Financial Condition and Operations on pages 10-13 of our 2001 Annual Report. This information is incorporated in this Report by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. Item 8. Financial Statements and Supplementary Data You can find the consolidated financial statements of the Company and its subsidiaries in our 2001 Annual Report at pages 14-17 (Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Shareholders' Equity and Consolidated Statements of Cash Flows) and pages 18-27 (Notes to Consolidated Financial Statements). You can find the Report of Independent Auditors at page 28 of our 2001 Annual Report. All of the above information is incorporated in this Report by reference. Also incorporated by reference is information on quarterly results of operations, which can be found in our 2001 Annual Report under "Quarterly Financial Data (unaudited)" at page 9. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. [Remainder of page intentionally left blank.] - 12 - Part III Item 10. Directors and Executive Officers of the Registrant. Name Age Position - ---- --- -------- Peter T. Kissinger, Ph.D.......57..........Chairman of the Board; President; Chief Executive Officer Ronald E. Shoup, Ph.D..........50..........President, BAS Analytics; Director Douglas P. Wieten..............40..........Vice President, Finance; Chief Financial Officer; Treasurer Candice B. Kissinger...........50..........Senior Vice President, Marketing; Secretary and Director Craig S. Bruntlett, Ph.D.......52..........Senior Vice President, International Sales Donnie A. Evans................55..........Vice President, Engineering Stephen Geary, Ph.D............60..........Vice President, United States Sales Lina L. Reeves-Kerner..........51..........Vice President, Human Resources Michael P. Silvon..............54..........Vice President, Business Development Michelle L. Troyer.............30..........Corporate Controller William E. Baitinger...........68..........Director Michael K. Campbell............50..........Director John A. Kraeutler..............56..........Director W. Leigh Thompson..............63..........Director PETER T. KISSINGER, PH.D. founded the Company in 1974 and has served as its Chairman, President and Chief Executive Officer since 1974. He is also a part-time Professor of Chemistry at Purdue University, where he has been teaching since 1975. Dr. Kissinger has a Bachelor of Science degree in Analytical Chemistry from Union College and a Doctorate in Analytical Chemistry from the University of North Carolina. RONALD E. SHOUP, PH.D. serves as President of the Company's BAS Analytics contract services and is Managing Director of BAS Analytics, Ltd. in the UK. He joined BAS in 1980 as an applications chemist, became Research Director in 1983 and initiated the laboratory services group within BAS in 1988. Dr. Shoup has a Bachelor of Science degree in Mathematics and Chemistry from Purdue University and then attended Michigan State and Purdue University for his Ph.D in Analytical Chemistry. He serves on the Company's board of directors and is a member of the external advisory board to the Purdue University Department of Chemistry. DOUGLAS P. WIETEN has been Vice President, Finance since February 1999, Chief Financial Officer since September 1997 and Treasurer since March 1997. He served as Corporate Controller from 1992 to February 1999. Prior to that time, Mr. Wieten worked at Ernst & Young LLP, where he had been employed since 1984. Mr. Wieten is a certified public accountant and has a Bachelor of Science degree in Accounting from Butler University. CANDICE B. KISSINGER has been Senior Vice President, Marketing since January 2000. She served as Vice President, International Sales and Marketing since July 1981. From 1978 to 1981, Mrs. Kissinger served as an accounts receivable clerk. Mrs. Kissinger has a Bachelor of Science degree in Microbiology from Ohio Wesleyan University and a Master of Science degree in Food Science from the University of Massachusetts. Mrs. Kissinger is the wife of Dr. Peter Kissinger. CRAIG S. BRUNTLETT, PH.D. has been Senior Vice President of International Sales since January 2000. From 1992 to 1999 he was Vice President, Electrochemical Products. From 1980 to 1990, Dr. Bruntlett was Director of New Products Development for the Company. Dr. Bruntlett has a Bachelor of Arts degree in Chemistry and Mathematics from St. Cloud State University in Minnesota and a Ph.D. in Chemistry from Purdue University. DONNIE A. EVANS he has been Vice President, Engineering Services since January of 1988. Mr. Evans was the Company's first full-time employee, beginning as an electronics engineer in 1978. - 13 - STEPHEN GEARY, PH.D has been Vice President, United States Sales since January 1992. Dr. Geary is also responsible for the sales efforts of the Company's clinical products. Dr. Geary has a Bachelor of Science degree in Biology and Chemistry from Tufts University, a Master of Science degree in Biology from the University of New Hampshire and a Ph.D. in Biochemistry from Syracuse University. LINA L. REEVES-KERNER has been Vice President, Human Resources since 1995 and is responsible for the administrative support functions of the Company, including shareholder relations, human resources and community relations. From 1980 to 1990, Ms. Reeves-Kerner served as an Administrative Assistant with the Company. Ms. Reeves-Kerner has a Bachelor of Science degree in Business Administration from Indiana Wesleyan University. MICHAEL P. SILVON, PH.D. has been Vice President, Business Development since March 1997. Dr. Silvon has been general manager, BAS Evansville and Vetronics since January 2000. Prior to January 1997, Dr. Silvon was principal in his own consulting firm and Vice President Sales & Marketing at Hi-Port, Inc. in Houston, Texas. Before October 1993, Dr. Silvon was Regional Business Manager-Americas for Zeneca Fine Chemical. He has a Bachelor of Science in Chemistry from Loyola University of Chicago, a Master of Business Administration from Sacred Heart University and a Doctorate in Chemistry from the University of Vermont. MICHELLE L. TROYER has been the Corporate Controller since February 1999. Ms. Troyer joined the Company in 1994 as a Staff Accountant and became Assistant Controller in October 1996. Ms. Troyer has a Bachelor of Science degree in Accounting from Purdue University and is a certified public accountant. WILLIAM E. BAITINGER has served as a director of the Company since 1979. Mr. Baitinger was Director of Technology Transfer for the Purdue Research Foundation from 1988 until 2000. In this capacity he was responsible for all licensing and commercialization activities from Purdue University. He currently serves as Special Assistant to the Vice President for Research at Purdue University. Mr. Baitinger has a Bachelor of Science degree in Chemistry and Physics from Marietta College and a Master of Science degree in Chemistry from Purdue University. MICHAEL K. CAMPBELL has served as a director of the Company since 1991. Mr. Campbell has been the Chairman and Chief Executive Officer of Powerway, Inc., a software company, since May 1993. From November 1989 until January 1993, he was Chief Financial Officer of Hurco Companies, Inc. and president of Hurco Manufacturing, its largest division. He has a Bachelor of Science degree in Accounting from the University of Southern Indiana. JOHN A. KRAEUTLER has served as a director of the Company since January 1997. Mr. Kraeutler has been President and Chief Operating Officer of Meridian Bioscience, Inc. since August 1992 and is also a director. Prior to joining Meridian Bioscience, Inc., Mr. Kraeutler held a progression of technical, marketing and general management positions with a number of healthcare companies, including Carter-Wallace, Becton Dickinson and Organon (Akzo Nobel). Mr. Kraeutler has Bachelor and Master of Science degrees in biology from Fairleigh Dickinson University and a Master of Business Administration in marketing from Seton Hall University. W. LEIGH THOMPSON, PH.D., M.D. has served as a director of the Company since January 1997. Since 1995, Dr. Thompson has been Chief Executive Officer of Profound Quality Resources, Inc., a scientific consulting firm. Prior to 1995, Dr. Thompson held various positions at Lilly Research Laboratories, retiring as Chief Scientific Director. Dr. Thompson has a Bachelor of Science degree in Biology from the College of Charleston, a Master of Science, a Doctorate in Pharmacology and a Doctorate in Science from the Medical University of South Carolina and a Medical Doctor degree from The Johns Hopkins University. Dr. Thompson is also a director of Chrysalis International Corporation, Corvas International, Inc. GeneMedicine, Inc., La Jolla Pharmaceutical company, Medarex, Inc., Ophidian Pharmaceuticals, Inc. and Orphan Medical, Inc. Item 11. Executive Compensation. The information included under the captions "Election of Directors - Compensation of Directors" and "Executive Compensation" in the Proxy Statement is incorporated herein by reference in response to this item. - 14 - Item 12. Security Ownership of Certain Beneficial Owners and Management. The information contained under the captions "Share Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is incorporated herein by reference in response to this item. Item 13. Certain Relationships and Related Transactions. The information contained under the caption "Certain Transactions" in the Proxy Statement is incorporated herein by reference in response to this item. [Remainder of page intentionally left blank.] - 15 - Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this Report. 1. Financial Statements: Included as outlined in Item 8 of Part II of this report. Report of Independent Auditors. Consolidated Balance Sheets as of September 30, 2001 and September 30, 2000. Consolidated Statements of Operations for the Years Ended September 30, 2001, 2000 and 1999. Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 2001, 2000 and 1999. Consolidated Statements of Cash Flows for the Years Ended September 30, 2001, 2000 and 1999. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules: Schedules are not required, are not applicable, or the information is shown in the Notes to the Consolidated Financial Statements. (b) Reports on Form 8-K. None. (c) Exhibits. See Index to Exhibits. - 16 - 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. BIOANALYTICAL SYSTEMS, INC. --------------------------- (Registrant) By: /s/ Peter T. Kissinger ----------------------------------------------- Peter T. Kissinger President, Chairman and Chief Executive Officer By: /s/ Douglas P. Wieten ----------------------------------------------- Douglas P. Wieten Chief Financial Officer, Treasurer, VP Finance (Principal Financial and Accounting Officer) Date: December 27, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Capacity Date - --------- -------- ---- /s/ Peter T. Kissinger President, Chairman Chief December 27, 2001 - ---------------------------- Executive Officer and Peter T. Kissinger Director /s/ Douglas P. Wieten Chief Financial Officer, December 27, 2001 - ---------------------------- and Treasurer Douglas P. Wieten /s/ William E. Baitinger Director December 27, 2001 - ---------------------------- William E. Baitinger /s/ Michael K. Campbell Director December 27, 2001 - ---------------------------- Michael K. Campbell /s/ Candice B. Kissinger Director December 27, 2001 - ---------------------------- Candice B. Kissinger /s/ John A. Kraeutler Director December 27, 2001 - ---------------------------- John A. Kraeutler /s/ Ronald E. Shoup Director December 27, 2001 - ---------------------------- Ronald E. Shoup /s/ W. Leigh Thompson Director December 27, 2001 - ---------------------------- W. Leigh Thompson - 17 - INDEX TO EXHIBITS Sequential Number Numbering Assigned In System Page Regulation S-K Number of Item 601 Description of Exhibits Exhibit - -------------- ----------------------- ----------- (2) No Exhibit (3) 3.1 Second Amended and Restated Articles of Incorporation of Bioanalytical Systems, Inc. (Incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 1997). 3.2 Second Restated Bylaws of Bioanalytical Systems, Inc. (Incorporated by reference to Exhibit 3.2 to Form 10-Q for the quarter ended December 31, 1997). (4) 4.1 Specimen Certificate for Common Shares (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1, Registration No. 333-36429). 4.2 See Exhibits 3.1 and 3.2 (9) No Exhibit (10) 10.2 Bioanalytical Systems, Inc. Outside Director Stock Option Plan (Incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-1, Registration No. 333-36429). 10.3 Form of Bioanalytical Systems, Inc. Outside Director Stock Option Agreement (Incorporated by reference to Exhibit 10.3 to Registration Statement on Form S-1, Registration No. 333-36429). 10.4 Bioanalytical Systems, Inc. 1990 Employee Incentive Stock Option Plan (Incorporated by reference to Exhibit 10.4 to Registration Statement on Form S-1, Registration No. 333-36429). 10.5 Form of Bioanalytical Systems, Inc. 1990 Employee Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.5 to Registration Statement on Form S-1, Registration No. 333-36429). - 18 - 10.6 Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Plan (Incorporated by reference to Exhibit 10.26 to Registration Statement on Form S-1, Registration No. 333-36429). 10.7 Form of Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.27 to Registration Statement on Form S-1, Registration No. 333-36429). 10.8 1997 Bioanalytical Systems, Inc. Outside Director Stock Option Plan (Incorporated by reference to Exhibit 10.28 to Registration Statement on Form S-1, Registration No. 333-36429). 10.9 Form of Bioanalytical Systems, Inc. 1997 Outside Director Stock Option Agreement (Incorporated by reference to Exhibit 10.29 to Registration Statement on Form S-1, Registration No. 333-36429). 10.10 Business Loan Agreement by and between Bioanalytical Systems, Inc., and Bank One, Indiana, N.A. dated April 1, 2001. 10.11 Commercial Security Agreement by and between Bioanalytical Systems, Inc. and Bank One, Indiana, N.A., dated March 1, 1998 (Incorporated by reference to Exhibit 10.15 to Form 10-Q for the quarter ended March 31, 1998). 10.12 Negative Pledge Agreement by and between Bioanalytical Systems, Inc. and Bank One, Indiana, N.A., dated March 1, 1998 (Incorporated by reference to Exhibit 10.16 to Form 10-Q for the quarter ended March 31, 1998). 10.13 Promissory Note by and between Bioanalytical Systems, Inc. and Bank One, Indiana N.A., dated June 24, 1999 related to loan in the amount of $3,500,000 (Incorporated by reference to Exhitibit 10.18 to Form 10-Q for the quarter ended June 30, 1999). 10.14 Promissory Note for $3,500,000 executed by Bioanalytical Systems, Inc. in favor of Bank One, Indiana N.A., dated April 1, 2001 (Incorporated by reference to Exhibit 10.14 to Form 10-Q for the quarter ended June 30, 2000). (12) No Exhibit (13) 13.1 2001 Annual Report (16) No Exhibit (18) No Exhibit (21) 21.1 Subsidiaries of the Registrant (23) 23.1 Consent of Independent Auditors (24) No Exhibit (27) No Exhibit (99) 99.1 Risk Factors - 19 - EX-13.1 2 annualreport.txt EXHIBIT 13.1 - 2000 ANNUAL REPORT EXHIBIT 13.1 - ANNUAL REPORT [GRAPHIC OMITTED] GREETING THE FUTURE WITH PURPOSE AND OPTIMISM BAS 2001 ANNUAL REPORT
SELECTED CONSOLIDATED FINANCIAL DATA YEAR ENDED SEPTEMBER 30, ----------------------------------------------------- 2001 2000 1999 1998 1997 ----------------------------------------------------- (in thousands, except per share data) STATEMENT OF OPERATIONS DATA: Service revenue $ 15,202 $ 10,999 $ 9,993 $ 7,609 $ 4,991 Product revenue 10,073 8,224 9,858 10,616 9,932 Total revenue 25,275 19,223 19,851 18,225 14,923 Cost of service revenue 9,660 9,245 6,499 4,598 2,986 Cost of product revenue 3,495 2,974 3,943 3,911 3,334 Total cost of revenue 13,155 12,219 10,442 8,509 6,320 Gross profit 12,120 7,004 9,409 9,716 8,603 Operating expenses: Selling 3,204 3,400 3,943 4,524 4,225 Research and development 1,611 1,806 1,955 2,165 1,568 General and administrative 3,815 2,990 2,550 2,336 1,638 Total operating expenses 8,630 8,196 8,448 9,025 7,431 Operating income (loss) 3,490 (1,192) 961 691 1,172 Other income (expense), net (383) (621) (114) (25) (75) Income (loss) before income taxes 3,107 (1,813) 847 666 1,097 Income taxes (benefit) 1,340 (431) 277 254 413 Net income (loss) $ 1,767 $ (1,382) $ 570 $ 412 $ 684 Net income (loss) available to common shareholders $ 1,767 $ (1,382) $ 570 $ 412 $ 657 Net income (loss) per Common Share Basic $ .39 $ (.30) $ .13 $ .10 $ .30 Diluted $ .38 $ (.30) $ .12 $ .09 $ .21 Weighted average Common Shares outstanding Basic 4,565 4,550 4,506 4,117 2,221 Diluted 4,600 4,550 4,676 4,403 3,101 SEPTEMBER 30, ----------------------------------------------------- 2001 2000 1999 1998 1997 ----------------------------------------------------- (in thousands) BALANCE SHEET DATA: Working capital $ 2,535 $ 931 $ 4,275 $ 3,286 $ 2,493 Property and equipment, net 18,922 18,913 17,355 14,551 10,035 Total assets 27,977 26,897 26,321 22,280 15,931 Long-term debt, less current portion 3,144 3,638 4,112 1,124 5,045 Convertible Preferred Shares --- --- --- --- 1,231 Shareholders' equity 17,830 16,062 17,421 16,844 5,651 The above is selected audited consolidated financial data of the Company for the five years ended September 30, 2001. The data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations" found on page ten and the consolidated financial statements of Bioanalytical Systems, Inc. and notes containedin this report.
[GRAPHIC OMITTED] CELEBRATING OUR DIVERSITY REJOICING IN OUR UNITY GREETING THE FUTURE WITH PURPOSE AND OPTIMISM FROM THE PRESIDENTS DESK Fiscal 2001 was a benchmark year for BAS. Many of the things we put into motion following our IPO in November 1997 came together as planned. Sales increased 31% to $25,275,000, and net income to $1,767,000. We had a healthy boost from new products that were well received by the pharmaceutical industry. We met, and often exceeded, all of our major goals for 2001. We diversified our client portfolio to include small and mid-sized pharmaceutical and drug development companies. Sales of our Culex(R) Automated Blood Sampler grew to include new customers, and we saw follow-on sales to early users of the device. We have stimulated strong interest in Culex in the European pharmaceutical community, and we expect our strategic alliance with Biotec Centre in Orleans, France, and a greater BAS visibility in Europe, to expand those sales further. With contract analytical services operating near capacity, we installed additional robotic sample-handling systems and mass spectrometers at the West Lafayette Technical Center and broke ground in Evansville to double capacity there. We will begin construction of additional preclinical research laboratories in West Lafayette in the spring of 2002. Preparing for the future, we added a scientific director and a number of talented, experienced people at West Lafayette, Evansville and at Warwickshire, England. Joining an alliance of other companies focused on pharmaceutical development has resulted in real benefits. The member companies of the Pharmaceutical Industry Contract Research Alliance (PICRA) are working together in a variety of ways from joint research, to participating in larger projects with pharmaceutical companies, to co-marketing, to exploring international opportunities and sharing information for the common good in areas such as quality assurance training. - 2 - I continue to see macroscopic influences that are extremely favorable to BAS. These include an aging population, the globalization of pharmaceutical research and a growing list of patent expirations that are spurring the large pharmaceutical companies to accelerate development of new front-line products. Equally important is the change in drug discovery methodology over the last five years. This is defined by buzz words like genomics, proteomics, combinatorial chemistry, gene chips and high throughput screening. While the changes themselves lag far behind the perceptions in the popular press (it will take longer), there are a larger number of new molecular entities coming into preclinical development, a strong point for BAS. Preclinical development is where a potential drug and its pharmacology and safety aspects are assessed prior to dosing "first time in man." Our team is keenly aware of the need to generate shareholder value because it is only from this that we ultimately have the resources to fight disease with our products and services. We work hard to balance the interests of shareholders, employees, customers and the communities in which we work. Thank you for your support and encouragement as we take on the challenges of 2002. /s/ Peter T. Kissinger ---------------------------------------- Peter T. Kissinger Chairman, President and CEO [GRAPHIC OMITTED] - 3 - BETTER PRODUCTS A PRODUCT FOR NOW AND FOR THE FUTURE Developed through input from our customers and through the experiences of our own research teams, the Culex(R) Automated Blood Sampler has continued to capture the interest of the pharmaceutical industry, first in the U.S. and now in Europe. Those companies who purchased the product early are now buying additional units, often several at once. Recent experiences in Europe show we have a lively market there. Each Culex unit requires consumable products to support its use, and sales of those products are growing rapidly. Manufacturing staff are adding resources in response. EPSILONS BRIGHT FUTURE The epsilon instrument family was developed and is being sold around the world to solve bioanalytical problems. It is the implementation of an original design based on a state-of-the art analytical system and an electronic instrument that would take advantage of the latest global networking capabilities. It has broad market appeal and is used for such things as the study of natural antioxidants as cancer preventatives, the development of batteries for implanted nerve stimulators and the evaluation of new drugs for Alzheimer's disease, to mention just a few of many applications. Our epsilon products can be used for teaching as well as research. All of its capabilities can be linked via the Web, thus providing an avenue to share data and information, to upgrade to newer versions, to demonstrate its capabilities and to provide service for the product. The chemical measurement needs of the world are being pushed to new extremes. Many samples are of smaller size, and more information about them is needed. At the same time, the market dictates that our products must be more accurate, more efficient and more economical. The epsilon family was designed to meet these challenges, changing as market demands change. Ongoing research at BAS anticipates, and sometimes creates, the future. [GRAPHIC OMITTED. CAPTION: Rod Yoder, long-time BAS graphic designer, is part of the team that maintains the BAS web sites and keeps the information current and the look fresh and appealing. A keen fisherman and competitor, Rod has brought home more than one prize-winning catch.] - 4 - HOW WE DO IT [GRAPHIC OMITTED. CAPTION: Dr. Lisa Clare, Study Director at BAS Evansville, is a veterinarian and a true animal lover. Although her horse Andy is still a bit young to be ridden, they enjoy an autumn afternoon in the southern Indiana countryside.] BAS AND THE INTERNET We've all heard about the failure of many so-called dot com companies, but the fact is that BAS relishes this technology and benefits from it daily. Let's take a look at some of the efficiencies we gain. Our web sites save the Company several hundred thousand dollars each year by reducing printing, postage and advertising costs. For example, all of our catalog information, our global pricing, and our technical journal Current Separations are online, and we regularly communicate with customers via several online newsletters. BAS AND ANIMAL RESEARCH Our core strengths are animal science and analytical science, backed by the latest in mechanical, electronic and software engineering. We are dedicated to the three Rs of animal research: Reduce, Refine and Replace. Reduce the number of animals used. Refine the work by careful planning to get the maximum amount of information. Replace animals with alternative methodology whenever possible. It will be a very long time before new drugs will be introduced to humans, before we fully understand their safety and effectiveness in animal disease models. In the meantime, it is our policy at BAS to follow the three Rs and to continue to develop instruments, software and protocols which reduce the number of animals needed and improve the quality of data obtained. BAS does research for both human and animal health, veterinary medicine. BAS Vetronics Division develops and sells instrumentation used in veterinary clinics and pharmaceutical research facilities to assure the health of companion animals and to monitor the safety and effectiveness of new animal and human drugs. Clinics use our systems to determine the cardiac health of dogs and cats and to track vital signs in surgery for them and for more exotic pets like parrots and boas. Pet ownership improves human health, another aspect of Better Science for Better Health. - 5 - WHY WE DO SOME OF THE THINGS WE DO Why do medications have expiration dates? Who decides what those should be? Why does it take 12 years for a new drug to be approved by the FDA? Why are we told not to store our medications in the bathroom? The answers to these questions are found in stability testing ... a service BAS provides to many major pharmaceutical manufacturers. Packaged manufactured products are exposed to a variety of conditions. The drugs are placed in an environment that is strictly controlled for temperature and humidity. Those packages are then removed for testing at predetermined intervals. A typical schedule might require testing the product at 6 weeks, then at 3, 6, 9, 12, 18 and 24 months. Some programs last up to 5 years, accounting in part for the long development time necessary to bring a new drug to market. The series of stability tests evaluates the potency of the product, along with its appearance, the presence of impurities and how well the product dissolves. The manufacturers analyze the data, looking for changes in the product over time and they use this information to develop expiration dates. The high heat and high humidity used to accelerate the degradation process are similar to those conditions found in the average bathroom, so we learn that storing medication there can hasten the decrease of its potency and efficacy. [GRAPHIC OMITTED. CAPTION: Dr. Maggie Voelz, Director of Pharmaceutical Analysis at BAS, oversees the stability testing operation and enjoys the serenity of her home and yard... along with the companionship of her dog who is also named Maggie. (No, she didn't name the dog after herself. Maggie, the dog, was adopted and already had her name when she joined the Voelz family.)] - 6 - [GRAPHIC OMITTED. CAPTION: Tim Grever has been instrumental in developing BAS automation capabilities, quadrupling productivity and increasing profits markedly in analytical testing contract work. Perhaps the creativity, discipline and precision he developed playing the piano and organ have carried over to enrich his work as a scientist.] HOW WE IMPROVE LIVES WHAT WE DO AFFECTS COUNTLESS LIVES ... ONE AT A TIME Pete Kissinger, BAS Chairman and CEO, often reminds us of how many lives are saved and how many people are living better lives because of the work we do. Somehow, though, we do not tend to feel the true impact of that work until it affects someone we know. Recently, someone very close to us was diagnosed with Obsessive/Compulsive Disorder, a physiological problem wherein brain wiring goes awry. (One possible cause is a childhood fever.) Most of us cannot grasp the victim's deep anguish ... the panic, the anger and the frustration. Life becomes totally chaotic and unmanageable. Ten years ago, some patients suffering from OCD were sedated and hospitalized, perhaps for the rest of their lives. Now, within two weeks this young man returned to work and is again leading a full, productive life. That recovery was possible, in significant measure, because of products invented and analytical techniques developed at BAS. The drugs in his treatment regimen, one newly approved by the FDA, were worked on here. BAS was one of the first to measure catecholamines, like dopamine, in cerebrospinal fluid. Our instruments and in vivo sampling systems helped the developers of new depression medications monitor neurotransmitters in rats while they searched for an effective cure. Both our instruments and our services groups work with clients looking for cures to depression, Alzheimer's disease, ADHD, Parkinsonism and other central nervous system disorders. Data developed at BAS was a significant part of the information used by the FDA to approve the drug that has helped our friend rebuild his life. We see other frequent examples of BAS science returning as treatments for employees and their families. A number of our people are diabetic. They use glucose meters that were developed with the aid of BAS scientists and BAS products. A leading antibiotic from Pfizer that BAS has worked on for more than a decade was recently prescribed for Pete Kissinger's son. The list goes on. BAS science affects all our lives in endless ways. - 7 - BAS AND EVERYDAY BOTANICALS One cannot visit a grocery or pharmacy in the USA without seeing numerous plant products which are purported to alleviate or prevent nearly every human malady. Some of them may have powerful drug-like effects, but because they are natural products they are not regulated by the Food and Drug Administration (FDA) like ethical drugs. In most cases, there have been no preclinical or clinical studies to substantiate popular claims made about these products. Botanicals are a benefit and a risk. They can interact with and change the behavior of prescribed drugs. A recent example is the very adverse results when St. John's Wort is combined with cocktails of drugs to treat HIV At BAS we are contributing products and services to help gain a greater understanding of which of these products work and which do not. We are also looking for opportunities among natural products to identify molecules that might be optimized as pharmaceuticals through synthetic modifications. In 2001 we actively studied the effects of green tea catechins on type 2 diabetes and the metabolic pathways of herbals. We play a role with the National Institutes of Health Botanical Centers around the country, most notably our close collaboration with the Center headquartered at Purdue University. - 8 -
QUARTERLY FINANCIAL DATA UNAUDITED (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) FOR THE QUARTER ENDED IN FISCAL 2001 - ------------------------------------ DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 Total revenue $5,426 $6,842 $6,400 $6,607 Gross profit 2,422 3,472 3,100 3,126 Net income (loss) 195 582 515 475 Basic net income (loss) per common share(1) .04 .13 .11 .10 Diluted net income (loss) per common and common equivalent share(1) .04 .13 .11 .10 FOR THE QUARTER ENDED IN FISCAL 2000 - ------------------------------------ DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 Total revenue $4,446 $4,090 $5,452 $5,235 Gross profit 1,409 1,398 2,161 2,036 Net income (loss) (372) (427) (139) (444) Basic net income (loss) per common share(1) (.08) (.09) (.03) (.10) Diluted net income (loss) per common and common equivalent share(1) (.08) (.09) (.03) (.10) (1) The sum of the net income per common share may not equal the annual net income per share due to interim quarter rounding.
- 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH SELECTED CONSOLIDATED FINANCIAL DATA AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSIONS IN THIS REPORT MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES WHICH ARE DISCUSSED IN EXHIBIT 99 TO THE COMPANY'S FORM 10-KFILED WITH THE SECURITIES EXCHANGE COMMISSION. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. OVERVIEW The Company provides a broad range of value-added services focused on product development for the worldwide pharmaceutical, medical device and biotechnology industries. The Company's customer-focused approach and its high-quality services and products enable it to serve as a value-added partner in solving complex scientific problems by providing cost-effective results to its customers on an accelerated basis. Founded in 1974 in Lansing, Michigan and relocated to West Lafayette, Indiana in 1975, the Company has experienced growth primarily through internal expansion, supplemented by strategic acquisitions. As part of its internal growth strategy, the Company has developed technical specialties in such areas as chromatography, electrochemistry, in vivo sampling and mass spectrometry. The Company's growth has strategically positioned it to take advantage of globalization in the marketplace and to provide new services and areas of technical expertise to its customers. Throughout its history, the Company has taken steps to position itself as a leader in biomedical research. Development of the Company's infrastructure began in 1975 when it established relationships with several customers and multiple international distributors. In 1990, the Company began offering contract services to customers that lacked the time or expertise to perform certain analyses using the Company's analytical products. In 1995, the Company acquired a distributor, BAS Instruments Ltd., to further solidify its presence in the United Kingdom. In 1998, the Company acquired a manufacturer of veterinary monitoring and diagnostic equipment, BAS Vetronics, to provide additional preclinical support. In 1998, the Company acquired a contract services firm, BAS Analytics Ltd., to offer local service in the United Kingdom. In 2000, the Company also acquired a contract services firm, BAS Evansville, to offer preclinical services. Revenues are derived principally from (i) research services provided to customers, and (ii) the sale of the Company's instruments and other products. Both methods of generating revenue utilize the Company's ability to identify, isolate and resolve client problems relating to the separation and quantification of individual substances in complex mixtures. The Company supports the pharmaceutical industry by focusing on development services for biomedical research. The Company's products are sold primarily to pharmaceutical firms and research organizations. Principal customers include scientists engaged in drug metabolism studies, as well as those engaged in basic neuroscience research. The Company was the first to commercialize the liquid chromatograph and electrochemistry technology which is now the worldwide standard for the determination of neurotransmitter substances. Research products include in vivo sampling devices, reagent chemicals, electrochemical apparatus and sensors. - 10 - The Company's pharmaceutical service contracts generally have terms ranging from several weeks to several years. A portion of the contract fee is generally payable upon acceptance of the agreement with the balance payable in installments over the life of the contract. The contracts are broken down into discrete units of deliverable services for which a fixed fee for each unit is established, and revenue and related direct costs are recognized as specific contract terms are fulfilled under the percentage of completion method utilizing units of delivery. The termination of a contract results in no material adjustments to revenue or direct costs previously recognized, and the Company is entitled to payment for all work performed through the date of notice of termination and all costs associated with termination of a contract. The Company recognizes revenues from the sale of its products and the related costs upon completion of the installation process. Revenue and the related costs of products not requiring installation are recognized upon shipment of the products to customers. The Company's management believes that fluctuations in the Company's quarterly results are caused by a number of factors, including the Company's success in attracting new business, the size and duration of service contracts, the timing of its clients' decisions to enter into new contracts, the cancellation or delays of ongoing contracts, the timing of acquisitions and other factors, many of which are beyond the Company's control. In fiscal 2001, 19% of the Company's total revenue was derived from customers located outside the United States. These markets tend to be much more volatile than the United States market. Significant governmental, regulatory, political, economic and cultural issues or changes could adversely affect the growth or profitability of the Company's business activities in any such market. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain statement of operations data as a percentage of total revenue.
PERCENTAGE OF REVENUE YEAR ENDED SEPTEMBER 30, 2001 2000 1999 ---- ---- ---- Service revenue 60.1% 57.2% 50.3% Product revenue 39.9 42.8 49.7 ----- ----- ----- Total revenue 100.0 100.0 100.0 Cost of service revenue 38.2 48.1 32.7 Cost of product revenue 13.8 15.5 19.9 ----- ----- ----- Total cost of revenue 52.0 63.6 52.6 ----- ----- ----- Gross profit 48.0 36.4 47.4 Operating expenses: Selling 12.7 17.7 19.9 Research and development 6.4 9.4 9.8 General and administrative 15.1 15.6 12.8 ----- ----- ----- Total operating expenses 34.2 42.7 42.5 Operating income (loss) 13.8 (6.3) 4.9 Other income (expense), net (1.5) (3.2) (0.6) ----- ----- ----- Income (loss) before income taxes 12.3 (9.5) 4.3 Income taxes (benefit) 5.3 (2.2) 1.4 ----- ----- ----- Net income (loss) 7.0% (7.3)% 2.9% ===== ===== =====
- 11 - YEAR ENDED SEPTEMBER 30, 20017 COMPARED WITH YEAR ENDED SEPTEMBER 30, 2000 Total revenue for the year ended September 30, 2001 increased 31.5% to $25.3 million from $19.2 million for the year ended September 30, 2000. Service revenue increased to $15.2 million for the year ended September 30, 2001 from $11.0 million for the year ended September 30, 2000, primarily due to an increased number of bioanalytical, preclinical and pharmaceutical analysis contract services. Product revenue increased to $10.1 million for the year ended September 30, 2001 from $8.2 million for the year ended September 30, 2000, primarily due to the Culex(R) Automated Blood Sampling System, epsilon(TM) and related products. Costs of revenue increased 7.7% to $13.2 million for the year ended September 30, 2001 from $12.2 million for the year ended September 30, 2000. This increase of $1.0 million was due to the increase in corresponding revenue. Costs of revenue for the Company's services decreased to 63.5% as a percentage of services revenue for the year ended September 30, 2001 from 84.1% of services revenue for the year ended September 30, 2000, due to additional bioanalytical, preclinical and pharmaceutical analysis service revenue without a comparable increase in corresponding labor costs. Costs of revenue for the Company's products decreased to 34.7% as a percentage of product revenue for the year ended September 30, 2001 from 36.2% of product revenue for the year ended September 30, 2000, primarily due to a change in product mix. Selling expenses for the year ended September 30, 2001 decreased 5.8% to $3.2 million from $3.4 million during the year ended September 30, 2000, due to decreased foreign commission expense. Research and development expenses for the year ended September 30, 2001 decreased 10.8% to $1.6 million from $1.8 million for the year ended September 30, 2000, due to the increase in research grant reimbursements. General and administrative expenses for the year ended September 30, 2001 increased 27.6% to $3.8 million from $3.0 million for the year ended September 30, 2000, primarily due to organizational restructuring of our preclinical operation, increased health care costs and the increase in utilities. Other income (expense), net, was $(384,000) in the year ended September 30, 2001 compared to $(621,000) in the year ended September 30, 2000, as a result of the decrease in interest expense due to decreased use of the line of credit. The Company's effective tax rate for 2001 was 43.1%, compared to 23.8% for fiscal 2000. This increase was primarily due to the increase in earnings and the impact of nondeductible foreign losses incurred in fiscal 2001. YEAR ENDED SEPTEMBER 30, 2000, COMPARED WITH YEAR ENDED SEPTEMBER 30, 1999 Total revenue for the year ended September 30, 2000 decreased 3.2% to $19.2 million from $19.9 million for the year ended September 30, 1999. Service revenue increased to $11.0 million for the year ended September 30, 2000 from $10.0 million for the year ended September 30, 1999, primarily as a result of the addition of preclinical services through the acquisition of T.P.S., Inc. This increase was more than offset by the decrease in product sales. Product revenue decreased to $8.2 million for the year ended September 30, 2000 from $9.9 million for the year ended September 30, 1999, primarily due to the decrease in sales to the Pacific Rim and Europe. Costs of revenue increased 17.0% to $12.2 million for the year ended September 30, 2000 from $10.4 million for the year ended September 30, 1999. This increase of $1.8 million was largely due to the addition of costs of services from the acquisition of T.P.S., Inc. Costs of revenue for the Company's services increased to 84.1 % as a percentage of services revenue for the year ended September 30, 2000 from 65.0% of services revenue for the year ended September 30, 1999, due to the addition of costs of services from the acquisition of T.P.S., Inc. Costs of revenue for the Company's products decreased to 36.2% as a percentage of product revenue for the year ended September 30, 2000 from 40.0% of product revenue for the year ended September 30, 1999, due primarily to a change in product mix. Selling expenses for the year ended September 30, 2000 decreased 13.8% to $3.4 million from $3.9 million during the year ended September 30, 1999, due to decreased foreign commission expense. Research and development expenses for the year ended September 30, 2000 decreased 7.6% to $1.8 million from $2.0 million for the year ended September 30, 1999, due to the decrease in research grant activity. General and administrative expenses for the year ended September 30, 2000 increased 17.3% to $3.0 million from $2.6 million for the year ended September 30, 1999, primarily as a result of the addition of expenses from the acquisition of T.P.S., Inc. Other income (expense), net, was $(621,000) in the year ended September 30, 2000 as compared to $(114,000) in the year ended September 30, 1999, as a result of the increase in interest expense due to increased use of the line of credit. The Company's effective tax rate for 2000 was 23.8%, compared to 32.8% for fiscal 1999. This decrease was primarily due to nondeductible foreign losses incurred in fiscal 2000. - 12 - LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company's principal sources of cash have been cash flow generated from operations and funds received from bank borrowings and other financings. At September 30, 2001, the Company had cash and cash equivalents of $374,000, compared to cash and cash equivalents of $478,000 at September 30, 2000. The decrease in cash resulted primarily from capital expenditures made to expand the Company's facilities and operations. The Company's net cash provided by operating activities was $4,028,000 for the year ended September 30, 2001. Cash provided by operations during the year ended September 30, 2001 consisted of net income of $1,767,000, non-cash charges of $2,143,000 and a net decrease of $118,000 in operating assets and liabilities. The most significant increase in operating liabilities related to accounts payable, which increased $1,220,000 at September 30, 2001. Cash used by investing activities decreased to $1.6 million for the year ended September 30, 2001 from $2.0 million for the year ended September 30, 2000, primarily due to payments relating to the acquisition of T.P.S., Inc. in the year ended September 30, 2000. Cash used by financing activities for the year ended September 30, 2001 was $2.5 million, due to the payments on the line of credit and long-term debt. The Company's net cash used by operating activities was $539,000 for the year ended September 30, 2000. Cash used by operations during the year ended September 30, 2000 consisted of net loss of $1,382,000, less non-cash charges of $1,448,000, plus a net increase of $605,000 in operating assets and liabilities. The most significant decrease in operating liabilities related to accounts payable, which decreased $787,000 at September 30, 2000. Cash used by investing activities decreased to $2.0 million for the year ended September 30, 2000 from $4.0 million for the year ended September 30, 1999, primarily as a result of the reduction of Company purchases of laboratory equipment. Cash provided by financing activities for the year ended September 30, 2000 was $1.1 million, due to the increased use of the line of credit offset by payments on long-term debt. Total expenditures by the Company for property and equipment were $1.7 million, $1.6 million and $4.1 million in fiscal 2001, 2000 and 1999, respectively. Expenditures made in connection with the expansion of the Company's operating facilities and purchases of laboratory equipment account for the largest portions of these expenditures. The capital investments relate to the purchase of additional laboratory equipment corresponding to anticipated increases in research services to be provided by the Company. The Company expects to make other investments to expand its operations through internal growth and strategic acquisitions, alliances and joint ventures. In addition, the Company entered into a $2.5 million commitment in 2001 to expand facilities at its preclinical site in Evansville, Indiana. Based on its current business activities, the Company believes cash generated from its operations and amounts available under its existing bank line of credit and credit facility will be sufficient to fund the Company's working capital and capital expenditure requirements for the foreseeable future. The Company has a revolving line of credit, which expires April 1, 2002 and allows borrowings of up to $3,500,000. Interest accrues monthly on the outstanding balance at the banks prime rate minus 25 to plus 75 basis points (5.25% at September 30, 2001) or at the London Interbank Offered Rate (LIBOR) plus 200 to 300 basis points, as elected by the Company, depending upon certain financial ratios. The line is collateralized by inventories and accounts receivable and requires the Company to maintain certain financial ratios. The Company pays a fee equal to 0.125 to 0.5 basis points, depending on certain financial ratios, on the unused portion of the line of credit. As of September 30, 2001 and 2000, interest on the entire outstanding balance was based on the prime rate minus 25 basis points and the prime rate minus 50 basis points, respectively. The balance outstanding on this line of credit at September 30, 2001 was $236,000. On June 24, 1999 the Company obtained a $3,500,000 commercial mortgage with a bank on the property in West Lafayette, Indiana. The mortgage note requires 59 monthly principal payments of $19,444 plus interest followed by a final payment for the unpaid principal amount of $2,352,804 due June 24, 2004. Interest is charged at the one-month LIBOR rate plus 200 basis points (5.58% at September 30, 2001). INFLATION The Company believes that inflation has not had a material adverse effect on its business, operations or financial condition. NEW ACCOUNTING PRONOUNCEMENTS Please refer to the notes to consolidated financial statements for a discussion of recently issued accounting standards. - 13 -
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, ------------- 2001 2000 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 373,738 $ 477,635 Accounts receivable Trade 3,634,143 3,012,003 Grants 116,719 37,224 Unbilled revenues and other 514,997 313,220 Inventories 2,391,081 2,234,644 Deferred income taxes 442,903 410,796 Refundable income taxes 325,001 313,043 Prepaid expenses 71,062 55,998 ------------ ------------ Total current assets 7,869,644 6,854,563 Property and equipment Land and improvements 495,624 495,390 Buildings and improvements 13,507,731 13,339,603 Machinery and equipment 10,795,295 9,536,275 Office furniture and fixtures 1,092,452 1,072,362 Construction in process 112,790 7,039 ------------ ------------ 26,003,892 24,450,669 Accumulated depreciation and amortization (7,082,300) (5,537,957) ------------ ------------ 18,921,592 18,912,712 ------------ ------------ Goodwill, less accumulated amortization of $280,871 in 2001 and $213,169 in 2000 962,924 990,123 Other assets 222,494 139,208 ------------ ------------ Total assets $ 27,976,654 $ 26,896,606 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,618,788 $ 1,398,326 Income taxes payable 176,000 1,956 Accrued expenses 746,741 618,998 Customer advances 1,063,467 1,163,152 Revolving line of credit 235,687 2,267,281 Current portion of capital lease obligations 261,123 239,916 Current portion of long-term debt 233,328 234,097 ------------ ------------ Total current liabilities 5,335,134 5,923,726 Capital lease obligations, less current portion 402,276 663,399 Long-term debt, less current portion 2,741,684 2,975,012 Deferred income taxes 1,667,231 1,272,811 Shareholders' equity Preferred Shares Authorized shares - 1,000,000 Issued and outstanding shares - none --- --- Common shares, no par value Authorized shares - 19,000,000 Issued and outstanding shares - 4,569,416 in 2001 and 4,562,645 in 2000 1,012,190 1,010,690 Additional paid-in capital 10,506,200 10,496,505 Retained earnings 6,344,666 4,577,909 Accumulated other comprehensive loss (32,727) (23,446) ------------ ------------ Total shareholders' equity 17,830,329 16,061,658 ------------ ------------ Total liabilities and shareholders' equity $ 27,976,654 $ 26,896,606 ============ ============ See accompanying notes.
- 15 -
CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED SEPTEMBER 30, ------------------------ 2001 2000 1999 ---- ---- ---- Service revenue $ 15,202,066 $ 10,999,609 $ 9,992,670 Product revenue 10,072,582 8,223,692 9,858,271 ------------ ------------ ----------- Total revenue 25,274,648 19,223,301 19,850,941 Cost of service revenue 9,660,288 9,245,380 6,498,817 Cost of product revenue 3,494,258 2,973,787 3,943,437 ------------ ------------ ----------- Total cost of revenue 13,154,546 12,219,167 10,442,254 ------------ ------------ ----------- Gross profit 12,120,102 7,004,134 9,408,687 Operating expenses: Selling 3,204,056 3,400,273 3,942,681 Research and development 1,611,045 1,805,933 1,955,673 General and administrative 3,814,601 2,990,234 2,549,806 ------------ ------------ ----------- Total operating expenses 8,629,702 8,196,440 8,448,160 ------------ ------------ ----------- Operating income (loss) 3,490,400 (1,192,306) 960,527 Interest income 5,910 15,483 30,842 Interest expense (417,211) (553,715) (226,518) Other income (expense) 46,479 (34,067) 93,520 Loss on sale of property and equipment (18,671) (48,708) (11,293) ------------ ------------ ----------- Income (loss) before income taxes 3,106,907 (1,813,313) 847,078 Income taxes (benefit) 1,340,150 (431,303) 277,501 ------------ ------------ ----------- Net income (loss) $ 1,766,757 $ (1,382,010) $ 569,577 ============ ============ =========== Net income (loss) per share: Basic $ 0.39 $ (0.30) $ 0.13 Diluted $ 0.38 $ (0.30) $ 0.12 Weighted average common shares outstanding: Basic 4,564,620 4,550,336 4,505,819 Diluted 4,600,498 4,550,336 4,675,850 See accompanying notes.
- 16 -
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ACCUMULATED OTHER ADDITIONAL COMPREHENSIVE TOTAL PREFERRRED COMMON PAID-IN RETAINED INCOME SHAREHOLDERS' SHARES SHARES CAPITAL EARNINGS (LOSS) EQUITY ----------- --------- ----------- ----------- ------------- ------------- BALANCE AT SEPTEMBER 30, 1998 $ --- $ 995,778 $10,467,957 $ 5,390,342 $ (10,568) $16,843,509 Comprehensive income (loss) Net income --- --- --- 569,577 --- 569,577 Other comprehensive loss: Foreign currency translation adjustments --- --- --- --- (10,027) (10,027) ----------- Total comprehensive income 559,550 Exercise of stock options --- 4,214 14,021 --- --- 18,235 BALANCE AT SEPTEMBER 30, 1999 $ --- $ 999,992 $10,481,978 $ 5,959,919 $ (20,595) $17,421,294 Comprehensive income (loss) Net income --- --- --- (1,382,010) --- (1,382,010) Other comprehensive loss: Foreign currency translation adjustments --- --- --- --- (2,851) (2,851) ----------- Total comprehensive income (1,384,861) Exercise of stock options --- 10,698 14,527 --- --- 25,225 BALANCE AT SEPTEMBER 30, 2000 $ --- $1,010,690 $10,496,505 $ 4,577,909 $ (23,446) $16,061,658 Comprehensive income (loss) Net income --- --- --- 1,766,757 --- 1,766,757 Other comprehensive loss: Foreign currency translation adjustments --- --- --- --- (9,281) (9,281) ----------- Total comprehensive income 1,757,476) Exercise of stock options --- 1,500 9,695 --- --- 11,195 BALANCE AT SEPTEMBER 30, 2001 $ --- $1,012,190 $10,506,200 $ 6,344,666 $ (32,727) $17,830,329 See accompanying notes.
- 17 -
CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED SEPTEMBER 30, ------------------------ 2001 2000 1999 ---- ---- ---- OPERATING ACTIVITIES Net income (loss) $ 1,766,757 $ (1,382,010) $ 569,577 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 1,600,435 1,516,728 1,196,353 Amortization 161,274 119,685 81,208 Loss on sale of property and equipment 18,671 48,708 11,293 Deferred income taxes 362,313 (237,330) 31,901 Changes in operating assets and liabilities: Accounts receivable (903,212) 534,160 (637,781) Inventories (156,437) (440, 878) 89,947 Prepaid expenses and other assets (232,425) 108,828 19,530 Accounts payable 1,220,462 (787,123) 79,374 Income taxes payable 162,086 (313,347) (153,220) Accrued expenses 127,743 (337, 834) 463,367 Customer advances (99,885) 631,253 (164,899) ------------ ------------ ----------- Net cash provided (used) by operating activities 4,027,782 (539,160) 1,586,650 INVESTING ACTIVITIES Capital expenditures (1,673,411) (1,572,627) (4,054,319) Proceeds from sale of property and equipment 45,425 13,972 42,492 Payments for purchase of net assets from T.P.S., Inc. net of cash acquired --- (446,469) --- ------------ ------------ ----------- Net cash used by investing activities (1,627,986) (2,005,124) (4,011,827) FINANCING ACTIVITIES Borrowings on line of credit 1,003,428 2,784,572 2,850,000 Payments on line of credit (3,035,022) (781,199) (2,850,000) Payments on capital lease obligations (239,916) (220,432) (308,447) Borrowings of long-term debt --- --- 3,500,000 Payments of long-term debt (234,097) (707, 841) (58,332) Net proceeds from the exercise of stock options 11,195 25,225 18,235 ------------ ------------ ----------- Net cash provided (used) by financing activities (2,494,412) 1,100,325 3,151,456 Effect of exchange rate changes (9,281) (2,815) (10,027) ------------ ------------ ----------- Net increase (decrease) in cash and cash equivalents (103,897) (1,446,774) 716,252 Cash and cash equivalents at beginning of year 477,635 1,924,409 1,208,157 ------------ ------------ ----------- Cash and cash equivalents at end of year $ 373,738 $ 477,635 $ 1,924,409 ------------ ------------ ----------- See accompanying notes.
- 18 - 1. SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Bioanalytical Systems, Inc. and its subsidiaries (the Company) engage in laboratory services, consulting and research related to human and animal health care. The Company also manufactures scientific instruments and software for use in the same activities. The Company's customers include principally pharmaceutical companies and are located in the United States and throughout the world. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. FINANCIAL INSTRUMENTS Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable. The Company performs periodic credit evaluations of its customers' financial conditions and generally does not require collateral on trade accounts receivable. The Company's cash and cash equivalents, accounts receivable, accounts payable and certain other accrued liabilities are all short term in nature and their carrying amounts approximate fair value. The Company's bank debt has primarily variable interest rates, thus their carrying amounts approximate fair value. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method. GOODWILL Goodwill represents the excess of cost of acquisitions over the fair value of net assets acquired and is amortized by the straight-line method over periods ranging from 15 to 20 years. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost, including interest capitalized in connection with the construction of major facilities. Depreciation, including amortization on capital leases, is computed using the straight-line method over the estimated useful lives of 3 through 40 years. Expenditures for maintenance and repairs are charged to expense as incurred. LONG-LIVED ASSETS The carrying value of the long-lived assets, including goodwill, is periodically reviewed by management. If management's review indicates that the carrying value may be impaired, then the impairment amount will be written off. - 19 - REVENUE RECOGNITION The Company's pharmaceutical service contracts generally have terms ranging from several weeks to several years. The typical contract is six months to one year in duration. A portion of the contract fee is generally payable upon acceptance of the agreement with the balance payable in installments over the life of the contract. A majority of the Company's contracts are broken down into discrete units of deliverable services for which a fixed fee for each unit is established and revenue and related direct costs are recognized as units of deliverable services are fulfilled. For all other service contracts, the Company allocates a ratable portion of the total contract fee to the units of deliverable services and recognizes revenue and the related direct costs as the units of deliverable services are fulfilled. The Company recognizes revenues from the sale of its products and the related costs upon completion of the installation process. Revenue and the related costs of products not requiring installation are recognized upon shipment of the products to customers. Unbilled revenues represent revenues earned under contracts in advance of billings. ADVERTISING EXPENSE The Company expenses advertising costs as incurred. Advertising expense was $195,833, $306,737 and $308,831 for 2001, 2000 and 1999, respectively. NEW ACCOUNTING PRONOUCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 was effective October 1, 2000. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Currently, the Company does not use derivatives. In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill and indefinite lived intangible assets are no longer amortized, but are reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company will apply the new accounting rules beginning October 1, 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of $77,000 ($.02 per share) per year. The Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of October 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of LongLived Assets." SFAS No. 144 supercedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and also supercedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for segments of a business to be disposed of. Among its many provisions, SFAS No. 144 retains the fundamental requirements of both previous standards, however, it resolves significant implementation issues related to FASB Statement No. 121 and broadens the separate presentation of discontinued operations in the income statement required by APB Opinion No. 30 to include a component of an entity (rather than a segment of a business). The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 with early application encouraged. The Company does not believe, based on current circumstances, the effect of adoption of SFAS No. 144 will be material. - 20 - USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. STOCK OPTIONS In accordance with Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," the Company uses the intrinsic value method to account for stock options, consistent with the existing rules established by Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees." RECLASSIFICATIONS Certain amounts in the 2000 financial statements have been reclassified to conform to the 2001 presentation. 2. EARNINGS PER SHARE Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common and common equivalent shares outstanding. Common equivalent shares include the dilutive effect of employee and director options to purchase common shares and convertible preferred shares, which are assumed to be converted. The dilutive effect of employee and director options to purchase common shares was to increase the weighted average number of common shares outstanding by 35,878 and 170,031 shares in 2001 and 1999, respectively. There was no dilutive effect of employee and director options to purchase common shares for 2000. 3. ACQUISITIONS Effective October 1, 1999, the Company acquired all of the capital stock of T.P.S., Inc. for cash approximating $400,000 and $740,000 in assumption of debt. The acquired business provides toxicology services to the pharmaceutical industry. The acquisition was accounted for using the purchase method of accounting, and the results of operations have been included in the consolidated financial statements since the effective date of acquisition. The purchase price was allocated to the net assets acquired based upon the fair market value at the date of acquisition. On an unaudited pro forma basis, revenue, net income and net income per common share (diluted) for the years ended September 30, 1999 was $21,790,000, $194,000 and $0.04. This pro forma data presents the consolidated results of operations as if the acquisition had occurred on October 1, 1998, after giving effect to certain adjustments, increased interest expense and related income tax effects. The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the acquisition been in effect on the date indicated, or which may occur in the future. - 21 - Pro forma amounts for the year ended September 30, 1999 were computed using financial data for T.P.S., Inc. for the year ended December 31 as it was not practicable to determine the September 30 year-end results. 4. INVENTORIES Inventories at September 30 consisted of the following: 2001 2000 ---- ---- Raw materials$ $ 1,322,182 $ 1,288,121 Work in progress 302,706 374,950 Finished goods 876,646 671,361 ----------- ----------- 2,501,534 2,334,432 LIFO reserve (110,453) (99,788) ----------- ----------- $ 2,391,081 $ 2,234,644 =========== =========== 5. DEBT ARRANGEMENTS The Company has a revolving line of credit, which expires April 1, 2002 and allows borrowings of up to $3,500,000. Interest accrues monthly on the outstanding balance at the banks prime rate minus 25 to plus 75 basis points (5.25% at September 30, 2001) or at the London Interbank Offered Rate (LIBOR) plus 200 to 300 basis points, as elected by the Company, depending upon certain financial ratios. The line is collateralized by inventories and accounts receivable and requires the Company to maintain certain financial ratios. The Company pays a fee equal to 0.125 to 0.5 basis points, depending on certain financial ratios, on the unused portion of the line of credit. As of September 30, 2001 and 2000, interest on the entire outstanding balance was based on the prime rate minus 25 basis points and the prime rate minus 50 basis points, respectively. The balance outstanding on this line of credit at September 30, 2001 was $236,000. On June 24, 1999 the Company obtained a $3,500,000 commercial mortgage with a bank. The mortgage note requires 59 monthly principal payments of $19,444 plus interest, followed by a final payment for the unpaid principal amount of $2,352,804 due June 24, 2004. Interest is charged at the one-month LIBOR rate plus 200 basis points (5.58% at September 30, 2001). Cash interest payments of $329,544, $498,513 and $287,058 were made in 2001, 2000 and 1999, respectively. Cash interest payments for 1999 included interest of $64,833 which was capitalized. These amounts included interest required to be paid on a portion of the undistributed earnings of a subsidiary, which qualifies as a domestic international sales corporation. 6. LEASE ARRANGEMENTS The Company has capital lease arrangements to finance the acquisition of equipment. Future minimum lease payments, based upon scheduled payments under the lease arrangements, as of September 30, 2001, are as follows: 2002 $ 307,494 2003 302,215 2004 126,932 --------- Total minimum lease payments 736,641 Amounts representing interest (73,242) --------- Present value of minimum lease payments 663,399 Less current portion (261,123) --------- $ 402,276 ========= - 22 - The total amount of property and equipment capitalized under capital lease obligations as of both September 30, 2001 and 2000 was $1,917,625. Accumulated amortization on capital leases at September 30, 2001 and 2000 was $855,100 and $668,852, respectively. The Company leases office space under a noncancelable operating lease that terminates in 2004. This lease contains renewal options ranging from one to five years. Total rental expense was $22,903, $32,499 and $33,849 in 2001, 2000 and 1999, respectively. Future minimum lease payments at September 30, 2001 are as follows: 2002 $ 19,890 2003 19,890 2004 3,315 -------- $ 43,095 7. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets as of September 30 are as follows: 2001 2000 ---- ---- Deferred tax liabilities: Tax over book depreciation $ 1,383,003 $ 1,226,170 Deferred DISC income 170,321 170,321 ----------- ----------- Total deferred liabilities 1,553,324 1,396,491 Deferred tax assets: Inventory pricing 123,008 117,636 Accrued vacation 155,935 154,982 Tax credit carry forward 32,587 205,000 Other-net 17,466 56,858 Foreign net operating loss 484,314 396,697 ----------- ----------- Total deferred tax assets 813,310 931,173 Valuation allowance for deferred tax assets (484,314) (396,697) ----------- ----------- Net deferred tax assets 328,996 534,476 ----------- ----------- Net deferred tax liabilities $ 1,224,328 $ 862,015 =========== ===========
Significant components of the provision (benefit) for income taxes are as follows: 2001 2000 1999 ---- ---- ---- Current: Federal $ 680,469 $ (245,378) $ 146,471 State 297,368 51,405 99,129 ----------- ----------- ---------- Total current 977,837 (193,973) 245,600 Deferred: Federal 337,601 (230,925) 25,581 State 24,712 (6,405) 6,320 ----------- ----------- ---------- Total deferred 362,313 (237,330) 31,901 ----------- ----------- ---------- $ 1,340,150 $ (431,303) $ 277,501 =========== =========== ==========
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The effective income tax rate varied from the statutory federal income tax rate as follows: 2001 2000 1999 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% Increases (decreases): Amortization of goodwill and other nondeductible expenses 0.9 (0.6) 2.9 Benefit of foreign sales corporation, net (0.9) 1.5 (5.7) State income taxes, net of federal tax benefit 5.8 (1.6) 8.2 Research and development credit (1.0) --- (7.2) Nondeductible foreign losses 3.4 (11.5) 1.1 Other 0.9 2.0 (0.5) 43.1% 23.8% 32.8%
In fiscal 2001, 2000 and 1999, the Company's foreign operations generated a loss before income taxes of $359,297, $612,496 and $26,771, respectively. Payments made in 2001, 2000 and 1999 for income taxes amounted to $1,095,000, $67,000 and $212,400, respectively. The Company has foreign net operating loss carryforwards that begin to expire in fiscal 2021. 8. STOCK OPTION PLANS During fiscal 1989, the Company established an Outside Director Stock Option Plan whereby options to purchase shares of the Company's common shares at fair market value can be granted to outside directors. Options granted become exercisable in four equal installments beginning two years after the date of the grant. The plan terminated on January 1, 1999. During fiscal 1990, the Company established an Employee Incentive Stock Option Plan whereby options to purchase shares of the Company's common shares at fair market value can be granted to employees of the Company. Options granted become exercisable in four equal installments beginning two years after the date of the grant. The plan terminated in 2000. The Company adopted new stock option plans, discussed below, in connection with its initial public offering and accordingly does not plan to grant any more options pursuant to the plans discussed above. During fiscal 1998, the Company established an Employee Stock Option Plan whereby options to purchase shares of the Company's common shares at fair market value can be granted to employees of the Company. Options granted become exercisable in four equal installments beginning two years after the date of grant. The plan terminates in fiscal 2008. During fiscal 1998, the Company established an Outside Director Stock Option Plan whereby options to purchase shares of the Company's common shares at fair market value can be granted to outside directors. Options granted become exercisable in four equal installments beginning two years after the date of grant. The plan terminates in fiscal 2008. - 24 -
A summary of the Company's stock option activity and related information for the years ended September 30 is as follows: 2001 2000 1999 ------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- Outstanding - beginning of year 134,235 $4.27 206,299 $3.35 164,343 $2.70 Exercised (6,771) 1.65 (48,296) 0.52 (19,030) 0.96 Granted --- --- 5,000 2.88 73,000 4.25 Terminated (2,500) 5.00 (28,768) 3.75 (12,014) 3.73 Outstanding - end of year 124,964 $4.39 134,235 $4.27 206,299 $3.35
WEIGHTED NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE SEPTEMBER 30, CONTRACTUAL EXERCISE SEPTEMBER 30, EXERCISE PRICES 2001 LIFE PRICE 2001 PRICE - ------------ ------------- ----------- -------- ------------- -------- $1.01 - 1.50 2,271 0.28 $1.33 2,271 $1.33 $1.51 - 2.10 36,943 1.47 $1.70 36,943 $1.70 $2.11 - 8.00 85,750 6.85 $5.64 33,000 $5.95 ------- ------ 124,964 72,214 ======= ======
Disclosure of pro forma information regarding net income and earnings per share is required by SFAS No. 123 as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994, under the fair value method as defined by that Statement. The fair value for options granted by the Company was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: Risk-free interest rate 5.50% Dividend yield 0.00% Volatility factor of the expected market price of the Company's common stock 0.53 (0.53 in 2000, 0.43 in 1999) Expected life of the options (years) 7.0 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options are amortized to expense over the related vesting period. - 25 - The Company's pro forma information giving effect to the estimated compensation expense related to stock options is as follows: 2001 2000 1999 ---- ---- ---- Pro forma net income (loss) $1,746,501 $(1,415,284) $504,268 Pro forma net income (loss) per share $ 0.38 $ (0.31) $ 0.11 The weighted average fair value of options granted was $1.64 and $2.29 in 2000 and 1999, respectively. No options were granted in 2001. 9. RETIREMENT PLAN Effective July 1, 1984, the Company established an Internal Revenue Code Section 401 (k) Retirement Plan (the Plan) covering all employees over twenty-one years of age with at least one year of service. Under the terms of the Plan, the Company contributes 2% of each participant's total wages to the Plan. The Plan also includes provisions for various contributions which may be instituted at the discretion of the Board of Directors. The contribution made by the participant may not exceed 18% of the participant's annual wages. The Company made no discretionary contributions under the plan in 2001, 2000 and 1999. Contribution expense was $324,674, $256,107 and $227,022 in 2001, 2000 and 1999, respectively. 10. SEGMENT INFORMATION The Company operates in two principal segments - analytical services and analytical products. The Company's analytical services unit provides analytical chemistry support on a contract basis directly to pharmaceutical companies. The Company's analytical products unit provides liquid chromatography, electrochemical and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions. The Company evaluates performance and allocates resources based on these segments. The accounting policies of theses segments are the same as those described in the summary of significant accounting policies.
OPERATING SEGMENTS YEAR ENDED SEPTEMBER 30, ------------------------ 1999 2001 2000 ---- ---- ---- (in thousands) REVENUE Service $ 15,202 $ 10,999 $ 9,993 Product 10,073 8,224 9,858 Total revenue $ 25,275 $ 19,223 $ 19,851 OPERATING INCOME (LOSS) Service $ 2,629 $ (409) $ 2,075 Product 861 (783) (1,114) Total operating income (loss) 3,490 (1,192) 961 Corporate expenses (383) (621) (114) Income (loss) before income taxes $ 3,107 $ (1,813) $ 847 IDENTIFIABLE ASSETS Service $ 18,396 $ 17,772 $ 16,523 Product 9,581 9,125 9,798 Total assets $ 27,977 $ 26,897 $ 26,321
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YEAR ENDED SEPTEMBER 30, ------------------------ 2001 2000 1999 ---- ---- ---- (in thousands) DEPRECIATION AND AMORTIZATION Service $ 1,242 $ 1,218 $ 912 Product 520 418 366 Total depreciation and amortization $ 1,762 $ 1,636 $ 1,278 CAPITAL EXPENDITURES Service $ 1,584 $ 1,269 $ 3,285 Product 89 304 769 Total capital expenditures $ 1,673 $ 1,573 $ 4,054 GEOGRAPHIC INFORMATION YEAR ENDED SEPTEMBER 30, ------------------------ 2001 2000 1999 ---- ---- ---- (in thousands) Sales to external customers: North America $ 20,536 $ 13,891 $ 13,012 Pacific Rim: Japan 242 580 716 Other 660 232 695 Europe 2,337 2,317 2,776 Other 1,500 2,203 2,652 $ 25,275 $ 19,223 $ 19,851 Long-lived assets: North America $ 18,691 $ 18,467 $ 16,991 Europe 1,416 1,575 1,609 $ 20,107 $ 20,042 $ 18,600
- 27 - MAJOR CUSTOMERS During 2001, 2000 and 1999, a major United States-based pharmaceutical company accounted for approximately 18.9%, 21.0% and 22.2%, respectively, of the Company's total revenues and 23.6% and 16.4% of total trade accounts receivable at September 30, 2001 and 2000, respectively. During 2001 and 2000, another major United States-based pharmaceutical company accounted for approximately 11.7% and 12.2%, respectively, of the Company's total revenues and 10.7% and 13.8% of total trade accounts receivable at September 30, 2001 and 2000, respectively. 11. LITIGATION In April 1997, CMA Microdialysis Holding A.B. (CMA) filed an action against the Company in the United States District Court for the District of New Jersey in which CMA alleged that the Company's microdialysis probes infringe U.S. Patent No. 4,693,832. During the quarter ended December 31, 2000, the Company settled this case for an immaterial amount. 12. COMMITMENT During 2001, the Company signed a letter of intent to expand facilities at its preclinical site in Evansville, Indiana. The commitment is for approximately $2.5 million. Construction of the facilities expansion is expected to be completed in December 2002. - 28 - REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Bioanalytical Systems, Inc. We have audited the accompanying consolidated balance sheets of Bioanalytical Systems, Inc. as of September 30, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bioanalytical Systems, Inc. at September 30, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2001 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Indianapolis, Indiana November 1, 2001 - 29 - CORPORATE INFORMATION ANNUAL MEETING OF SHAREHOLDERS February 21, 2002 West Lafayette, Indiana AUDITORS Ernst & Young LLP Indianapolis, Indiana TRANSFER AGENT Corporate Trust Department National City Bank 1900 East 9th Street Cleveland, Ohio 44114 COMMON SHARES Bioanalytical Systems, Inc. common shares are traded on the Nasdaq National Market under the symbol BASI. The following table sets forth by calendar quarter the high and low sales prices of the common shares on the Nasdaq National Market System. The approximate number of holders of common shares is 1,700. FISCAL 1 ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. ------ --------- -------- -------- -------- 2001 High 2.781 3.875 9.040 13.900 Low 2.125 2.313 3.000 5.000 2000 High 3.875 5.250 3.844 3.500 Low 2.250 2.563 2.500 2.375 The Company has not paid any cash dividends on its common shares for the two most recent fiscal years. The Company has no intention to pay cash dividends in the foreseeable future. INQUIRIES A copy of the Company's 2001 Form 10-K Annual Report filed with the Securities and Exchange Commission is available without charge upon written request. Media inquiries and requests for the 10-K and investor's kits should be directed to: Corporate Communications Director Bioanalytical Systems, Inc. 2701 Kent Avenue West Lafayette, IN 47906 USA Inquiries from shareholders, security analysts, portfolio managers, registered representatives and other interested parties should be directed to: Investor Relations Bioanalytical Systems, Inc. (765) 463-4527 www.bioanalytical.com BOARD OF DIRECTORS Peter T. Kissinger, Ph.D. Chairman, President and Chief Executive Officer Ronald E. Shoup, Ph.D. President, BAS Analytics Candice B. Kissinger Senior Vice President, Marketing William E. Baitinger Special Assistant to the Vice President For Research, Purdue University Michael K. Campbell President and Chief Executive Officer, Powerway, Inc. John A. Kraeutler President and Chief Operating Officer, Meridian Bioscience, Inc. W. Leigh Thompson, Ph.D., M.D. Chief Executive Officer, Profound Quality Resources, Inc. EXECUTIVE MANAGEMENT Peter T. Kissinger, Ph.D. Chairman, President and Chief Executive Officer Ronald E. Shoup, Ph.D. President, BAS Analytics Douglas P. Wieten Chief Financial Officer and Treasurer Vice President, Finance Candice B. Kissinger Senior Vice President, Marketing Craig S. Bruntlett, Ph.D. Senior Vice President, International Sales Donnie A. Evans Vice President, Engineering Stephen Geary, Ph.D. Vice President, U.S. Sales and Marketing Lina L. Reeves-Kerner Vice President, Human Resources Michael P. Silvon, Ph.D. Vice President, Business Development Michelle L. Troyer Corporate Controller SCIENTIFIC ADVISORY BOARD Daniel Armstrong, Ph.D. R. Graham Cooks, Ph.D. William R. Heineman, Ph.D. Jean-Michel Kauffman, Ph.D. Susan Lunte, Ph.D. Mark Meyerhoff, Ph.D. W. Leigh Thompson, Ph.D., M.D. Patrick Murphy, Ph.D. Douglas Morton, Ph.D. BIOANALYTICAL SYSTEMS, INC. 800.845.4246 765.463.4527 WWW.BIOANALYTICAL.COM BAS@BIOANALYTICAL.COM EX-21.1 3 exhibit211.txt EXHIBIT 21.1 - SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 - SUBSIDIARIES OF THE REGISTRANT List of Subsidiaries Name Jurisdiction of Organization ---- ---------------------------- Bioanalytical Systems, Ltd. United Kingdom BAS Instruments, Ltd. United Kingdom BAS Analytics, Ltd. United Kingdom BAS Evansville, Inc. Evansville, IN USA EX-23.1 4 exhibit231.txt EXHIBIT 23.1 - CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 - CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-56123) pertaining to the Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Plan and in the Registration Statement (Form S-8 No. 333-56127) pertaining to the 1997 Bioanalytical Systems, Inc. Outside Director Stock Option Plan of our report dated November 1, 2001, with respect to the consolidated financial statements of Bioanalytical Systems, Inc. incorporated by reference in its 2001 Annual Report (Form 10-K) for the year ended September 30, 2001 filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Indianapolis, Indiana December 27, 2001 EX-99.1 5 exhibit991.txt EXHIBIT 99.1 - RISK FACTORS EXHIBIT 99.1 - RISK FACTORS Forward-Looking Statements From time to time, the Company may make or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, and similar matters. Such statements are necessarily estimates reflecting the Company's best judgment based on current information. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Such statements are usually identified by the use of words or phases such as "believes," "anticipates," "expects," "estimates," "planned," "outlook," and "goal." Because forward-looking statements involve risks and uncertainties, the Company's actual results could differ materially. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. While it is impossible to identify all such factors, the risks and uncertainties that may affect the operations, performance and results of the Company's business include the following: 1. The Company's revenues are highly dependent on research and development expenditures and compliance testing expenditures by the pharmaceutical and biotechnology industries. Decreases in such expenditures, including those resulting from a general economic decline in these industries, could have a material adverse effect on the Company. 2. The Company's new product, Culex(R) Automated Blood Sampling Device is a significant new product. Non- acceptance or major difficulties with the device could have a material adverse effect on the Company's business, operations and financial condition. 3. The Company has benefited from the growing tendency of companies to engage independent organizations to conduct development and testing projects. Any reduction in the outsourcing of research, development or testing activities, or any reduction in public funding of science and technology could have a material adverse effect on the Company's business, operations and financial condition. 4. During 2001, two major pharmaceutical companies accounted for approximately 30% of the Company's total revenues. There can be no assurance that the Company's business will not continue to be dependent on continued relationships with certain clients or distributors or that annual results will not be dependent upon performance of a few large projects. In addition, there can be no assurance that significant clients or distributors in any one period will continue to be significant clients or distributors in other periods. 5. The Company's business is labor intensive and involves the delivery of highly specialized professional services. The Company's future growth and success depends in large part upon its ability to attract, develop, manage and retain highly skilled professional, scientific and technical operating staff. There is significant competition from the Company's competitors as well as from the in-house research departments of pharmaceutical and biotechnology companies and other enterprises for employees with the skills required to perform the services offered by the Company. Although the Company has confidentiality agreements with its scientific and technical operating personnel, the Company does not have in place covenants not to compete that would directly preclude the employees from being employed by a competitor. There can be no assurance that the Company will be able to attract, develop, manage and retain a sufficient number of highly skilled employees in the future or that it will continue to be successful in training, retaining and managing its current employees. The loss of a significant number of employees or the Company's inability to hire sufficient numbers of qualified employees could have a material adverse effect on the Company's business, operations and financial condition. 6. The Company relies to a significant extent on a number of key executives, including Peter T. Kissinger, Ph.D., its President and Chairman of the Board. The Company maintains key man life insurance on Dr. Kissinger in the amount of $1.0 million. The loss of the services of any of the Company's key executives could have a material adverse effect on the Company's business, operations and financial condition. 7. The Company's business depends in part on government regulation of the drug development process by the United States and foreign governments. More stringent governmental regulation of the drug development process increases the need for services and products provided or produced by the Company. Recently, legislation has been proposed that would substantially modify the current requirements for FDA administration of the drug and device approval process. Under the proposed legislation, applications for approval of new drugs could be made to private accredited facilities in lieu of the FDA. As a result, the number of clinical trials of new drugs would be reduced and other rules administered by the FDA would be simplified. Any change in the scope of regulatory requirements or the introduction of simplified drug or device approval procedures could adversely affect the Company's business, operations and financial condition. 8. The Company's revenues are dependent, in part, upon continued compliance with governmental requirements applicable to facilities and techniques used in the manufacture of products for clinical use and the provision of services. The Company's facilities are subject to scheduled periodic regulatory inspections to ensure compliance with FDA requirements. Failure on the part of the Company to comply with applicable requirements could result in the termination of ongoing research, the discontinuance of selected Company operations, the disqualification of data for submission to regulatory authorities and fines and penalties being assessed against the Company, any of which could have a material adverse effect on the Company's business, operations and financial condition. 9. With respect to its products, the Company primarily competes with several large equipment manufacturers and, with respect to its services, the Company primarily competes against in-house research departments of pharmaceutical and biotechnology companies and other full-service CROs. Many of the Company's competitors possess substantially greater capital, technical and other resources than the Company. The Company's failure to compete effectively in any one or more of these areas could have a material adverse effect on the Company's business, operations and financial condition. 10. Generally, the Company's service contracts are terminable by the client upon notice at any time. Contracts may be terminated for a variety of reasons, including the client's decision to forego a particular study, failure of products to satisfy safety requirements and unexpected or undesired product testing results. The loss of business from a significant client or the cancellation of a major contract or series of commitments could have a material adverse effect on the Company's business, operations and financial condition. 11. The Company's business is dependent, in part, on its ability to obtain patents in various jurisdictions on its current and future technologies and products, to defend its patents and protect its trade secrets and to operate without infringing on the proprietary rights of others. There can be no assurance that the Company's patents will not be challenged by third parties or that, if challenged, those patents will be held valid. In addition, there can be no assurance that any technologies or products developed by the Company will not be challenged by third parties owning patent rights and, if challenged, will be held to not infringe those patent rights. The expense involved in any patent litigation can be significant. The Company also relies on unpatented, proprietary technology, and there can be no assurance that others will not independently develop or obtain similar products or technologies. 12. The Company's business may become subject to other risk factors which may be identified from time to time in the Company's periodic SEC filings and other public announcements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statement. The Company does not intend to update forward-looking statements. - 2 - -----END PRIVACY-ENHANCED MESSAGE-----