-----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, OAcN6c0xXacrHadGEGYi9H8rKukWmY/W4sFaG8wSAVKGuLKUTL3gdMjjWrAM5SHG G5NFAs+qnQsCfRDRAAf3Bw== 0000830736-01-500004.txt : 20010409 0000830736-01-500004.hdr.sgml : 20010409 ACCESSION NUMBER: 0000830736-01-500004 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOPOOL INTERNATIONAL INC CENTRAL INDEX KEY: 0000830736 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 581729436 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 001-14257 FILM NUMBER: 1590168 BUSINESS ADDRESS: STREET 1: 370 INTERLOCKEN BLVD CITY: BROOMFIELD STATE: CO ZIP: 80021 BUSINESS PHONE: 8056540643 MAIL ADDRESS: STREET 1: 370 INTERLOCKEN BLVD CITY: BROOMFIELD STATE: CO ZIP: 80021 FORMER COMPANY: FORMER CONFORMED NAME: CYTRX BIOPOOL LTD DATE OF NAME CHANGE: 19890716 10KSB 1 a10ksb2000.txt FORM 10-KSB FOR PERIOD ENDED DECEMBER 31, 2000 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 ------------------------------ Commission file number 0-17714 ------------------------------ BIOPOOL INTERNATIONAL, INC. (Exact name of Registrant as specified in its charter) Delaware 58-1729436 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 370 Interlocken Boulevard, Broomfield, Colorado 80021 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (805) 654-0643 Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Name of each exchange on Title of each class which registered Common Stock, par value $.01 per share Not Applicable Common Stock Purchase Rights - -------------------------------------------------------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding 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 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-KSB or any amendment to this Form 10-KSB. / / The aggregate market value of Biopool International, Inc. Common Stock, $.01 par value, held by non affiliates, computed by reference to the average of the closing bid and asked prices as reported by OTCBB on March 27, 2001, was $14,760,190. Number of shares of Common Stock of Biopool International, Inc., $.01 par value, issued and outstanding as of December 31, 2000: 17,163,012. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Definitive Proxy Statement for the 2001 Annual Meeting are incorporated by reference into Part III of this Form 10-KSB. ================================================================================ INDEX TO ANNUAL REPORT ON FORM 10-KSB PART I Page ---- Item 1. Business 3 Item 2. Properties 10 Item 3. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security-Holders 11 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 11 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 7. Financial Statements and Supplementary Data 19 Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 19 PART III Item 9. Directors and Executive Officers 19 Item 10. Executive Compensation 19 Item 11. Security Ownership of Certain Beneficial Owners and Management 19 Item 12. Certain Relationships and Related Transactions 19 Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19 SIGNATURES 21 2 PART I ITEM 1. BUSINESS Biopool International, Inc. is engaged in the research, development, manufacture, and marketing of in vitro (outside the body) diagnostic and nucleic acid testing products. We sell over 100 in vitro diagnostic products on a worldwide basis to hospitals, clinical laboratories, commercial reference laboratories, and research institutions for use in disease detection and prevention. In addition, as a result of the merger we completed last August with Xtrana, Inc., we own newly developed proprietary technology for the development of nucleic acid-based tests for use in drug discovery, detection of environmental and food contaminants, forensics and identity testing, human and animal diseases, genetic predisposition to disease, and other applications. Specific pathogens for which we are currently developing tests include E. coli, Listeria and Salmonella in food, Cryptosporidium and coliforms in water, and chlamydia. Broader applications are contemplated for genetic predisposition to disease and the human diagnostic markets. We were initially incorporated in Delaware in 1987. Our corporate headquarters are located in Broomfield, Colorado, where we also conduct significant research and development activities. We also maintain facilities in Ventura, California, housing product development, manufacturing, sales and marketing, and other operations. We have one wholly-owned operating subsidiary, Biopool AB, located in Umea, Sweden, where we also carry on product development, manufacturing, and sales and marketing activities. On August 10, 2000, we completed a merger with Xtrana, Inc., a company based in Denver, Colorado and primarily engaged in the development of new proprietary nucleic acid (DNA/RNA) testing technology. Since the merger, we have continued to operate under both the Biopool International and Xtrana brand names. During the first half of 1999, we consummated the sale of certain business assets of our former BCA Division. As a result of this transaction, we no longer conduct business in the immunohematology (blood bank) market. IN VITRO DIAGNOSTICS INDUSTRY The worldwide in vitro diagnostics market is estimated to be worth approximately $20 billion annually. Our products are sold to specific markets within the worldwide in vitro diagnostics market. Those segments are estimated to be worth approximately $1 billion annually, in the aggregate. Our products are used, in general, to diagnose disease, identify individuals at risk for developing certain diseases, and monitor patients undergoing therapy for certain disease states. These products are typically referred to as reagents or test kits and are used by highly trained laboratory technologists utilizing a wide range of testing devices, which perform the ultimate analysis. In a typical example, patient samples (blood, plasma, urine, or other body fluids) are mixed with manufactured reagent(s), such as those we produce, and a reaction is then measured by specific instrumentation. The test result obtained thus provides certain diagnostic information to the clinician. In vitro diagnostic products are utilized by health care professionals worldwide. Diagnostic testing is most often performed in: - hospital-based laboratories - commercial reference laboratories - physician office laboratories. Our products address two key disciplines of the total in vitro diagnostics market: 3 1. Hemostasis/Fibrinolysis These reagents and test kits are used to: - diagnose patients who have suffered thrombotic (clot-forming) circulatory diseases such as myocardial infarction, stroke, embolism, or deep vein thrombosis; - diagnose patients who are suffering from certain bleeding disorders; and - monitor patients undergoing therapy for such diseases and disorders. 2. Vascular Occlusion These tests are, to some degree, the same as those used in hemostasis/fibrinolysis but have growing importance in identifying individuals at risk for developing vascular occlusion, such as myocardial infarction, stroke, deep vein thrombosis, and embolisms. NUCLEIC ACID (DNA/RNA) TESTING INDUSTRY The growing understanding of genetics and the genetic basis of biological activity is driving renewed growth in the research and commercial testing markets. Genomics research is being applied to identify specific genes and to use the identity of the gene to identify its source, as in forensics, paternity and pathogen testing, or to reveal possible linkages between the gene and biologic activity and disease, as in diagnostic testing. Highly specific detection tests and, where applicable, precisely targeted therapeutic approaches are being designed to address not only human disorders but also veterinary, environmental, food safety, forensics and other applications. These new tests and approaches require specialized research reagents, supplies, tools and instruments. Currently, demand for these reagents, supplies, tools and instruments arise from both academic and industrial researchers and from commercial testing applications, such as forensics, paternity and diagnostic testing. The nucleic acid-based research market is currently approximately $750 million annually, and is expected to grow to $1.8 billion annually by the year 2004. The commercial market currently amounts to approximately $560 million in sales annually and is expected to grow to $5.6 billion annually by 2004. In order to capitalize on increasing demand generated by both the research and commercial markets, Biopool and other industry participants are developing a wide range of products and services including genomic information, diagnostic tests and assays, testing services, drugs and gene therapies and environmental services. We are already participating in both the commercial and research segments of the genetics market. Further, one segment of the commercial market--human diagnostic testing--offers particular opportunities due to the size of the market and the limited development of nucleic acid-based testing products to date. Our technologies permit the development of rapid, easy-to-use and low-cost hand-held nucleic acid testing devices that can be employed in place of complex and time consuming laboratory-based procedures. Our goal is to become the leader in the development of rapid, easy to use, low cost nucleic acid-based technology products with a focus on applications for physician's offices and field use. Our technology is applicable to nearly any nucleic acid testing situation, and thus offers an extremely broad range of potential commercial and research applications. PRODUCTS Test Kits Used for Measuring Various Components of the Fibrinolytic System The fibrinolytic (clot dissolving) system consists of a number of enzymes and other proteins that participate in limiting the size of blood clots and in the dissolution of blood clots that form when the blood vessel wall is damaged. The clot forms around clumped or aggregated blood platelets forming a temporary "plug" to prevent blood loss. When the fibrinolytic system is hypoactive, the blood clot can become oversized and disrupt blood flow, resulting in tissue damage. The principal enzyme involved in fibrinolysis is plasmin. Plasmin is formed from its inactive precursor, plasminogen, by the action of the naturally occurring enzymes, tissue plasminogen activator ("tPA"), and urokinase plasminogen activator ("uPA"). A high plasma level of the principal inhibitor of plasminogen activators, PAI-1 (plasminogen activator inhibitor, type 1), has been described in the scientific literature as an important risk factor in developing venous and arterial thrombosis. Hyperactive fibrinolysis, including decreased levels of inhibitors, may result in bleeding problems. Some of the fibrinolytic products we manufacture include: Minutex(R) D-dimer measures the D-dimer breakdown product of a fibrin clot, indicating that clot formation has occurred and that the fibrinolytic system has been activated. The Minutex(R) D-dimer test is useful in the diagnosis of deep vein thrombosis (DVT), pulmonary embolism, and disseminated intravascular coagulation (DIC). Recent studies have confirmed the ability of the Minutex(R) D-dimer test to provide information that can avoid expensive and invasive procedures for confirmation of DVT. Biopool is recognized as a world leader by virtue of its highly sensitive and accurate D-dimer test. Chromolize(TM) tPA measures the level of tissue plasminogen activator (tPA), the body's most potent activator of the fibrinolytic system. Decreased release of active tPA has been shown to be a risk indicator for myocardial infarction. Chromolize(TM) PAI-1 measures plasminogen activator inhibitor-1 (PAI-1) levels in plasma. PAI-1 is a major modulator of tPA activity, and elevated levels are also indicative of the risk of recurrent heart attacks, recurrent deep vein thrombosis, and post-operative thrombosis. Stabilyte(TM) is a unique patented blood collection device that stabilizes tPA activity and other serine proteases in blood after collection, greatly simplifying their measurement and leading to a more accurate assessment of these key fibrinolytic enzymes. Test Kits for Measuring Risk of Vascular Occlusion Cardiovascular disease, which includes coronary artery disease and stroke, is currently the nation's leading cause of death. Inappropriate formation of thrombi (clots) by biochemical processes is behind these disease states. Several of our products are used in the diagnosis and evaluation of patients who may be suffering from cardiovascular disease, including the following products: Auto-Dimer(R) is a second generation, quantitative D-dimer kit that can be used on automated clinical chemistry analyzers to measure the D-dimer breakdown product of a fibrin clot. D-dimer is a key indicator of thrombotic disorders such as deep vein thrombosis (DVT) in which potentially life-threatening blood clots form in the legs. MiniQuant(TM) D-dimer is a D-dimer assay specifically formulated for use on the MiniQuant(TM) reader, our new point-of-care analyzer for quantitative D-dimer identification. The MiniQuant(TM) D-dimer test system received clearance from the U.S. Food and Drug Administration (FDA) via the 510(k) pre-market notification process in February 2001. Bioclot(R) aPC Sensitivity Kit is Biopool's new test kit for determining sensitivity to activated protein C (APC). The most common reason for resistance to APC is a genetic mutation in the (clotting) factor V gene (factor V Leiden), which is the leading cause of thrombotic (clot-forming) diseases. Other physiological states that can lead to resistance to APC include pregnancy, malignancy, and oral contraceptive use. Bioclot(R) Protein C and Bioclot(R) Protein S measure key enzymes and regulatory proteins controlling the clotting process. Both tests are approaching routine use in test panels screening for thrombotic risk. The Bioclot(R) tests are easy to perform and are compatible with all routine hemostasis analyzers. Bioclot(R) LA is another of the easy to perform Bioclot(R) assays, in this case used to detect the presence of lupus-like anticoagulants (LA). Elevated levels of LA present a considerable risk factor for thrombosis and recurrent spontaneous abortion. 4 Spectrolyse(R) AT III measures antithrombin III (AT III) levels in plasma, the most important inhibitor of clotting activity within the hemostasis system. Decreased levels of this key protein are prognostic of thrombotic risk. Test Kits for Measuring Various Components of the Blood Coagulation (Clotting) System The coagulation system consists of a number of clotting factor proteins that interact in a complex way to cause the polymerization of fibrinogen to fibrin, resulting in clot formation. The clotting factors, identified by Roman numerals (e.g., factor II, factor VIII, etc.), also have inhibitors present in the circulation which limit their activity. Congenital or acquired deficiencies of any of the clotting factors may result in bleeding, while deficiencies in the inhibitors are associated with thrombotic (clot-forming) complications. Factor Deficient Plasmas are human plasmas synthetically depleted of individual clotting factors using specific monoclonal and polyclonal antibodies. These plasmas are used as substrate plasmas in the clinical laboratory for the determination of clotting factor deficiency in patients. Hemostasis Reference Plasma is a freeze-dried reference plasma that has been assayed against international plasma standards (obtained from the World Health Organization) for 24 hemostasis analytes and marketed as a universal control in the performance of many hemostasis tests. Products Used in the Routine Screening of the Coagulation System, Monitoring Patients on Oral Anticoagulant or Heparin Therapy, and Assessing Platelet Function Test systems, such as those manufactured by Biopool, are routinely used to provide global information on the status of the blood "clotting system" prior to surgery in order to identify individuals who might be at risk for excess bleeding during invasive procedures. These global tests are also commonly used to monitor the status of anticoagulant treatment because anticoagulants have a direct impact on clotting activity. Typical tests include: Thromboplastin is used for monitoring patients on oral anticoagulant therapy (i.e., coumadin), for routine coagulation system assessment, and in specific clotting factor assays. APTT Reagent is used in the monitoring of patients on therapeutic heparin, presurgical screening, routine coagulation system screening, and in coagulation factor assays. Fibrinogen Kit is used in the routine determination of fibrinogen when assessing bleeding disorders. There is an increasing interest in the performance of fibrinogen assays as an abnormally high level of plasma fibrinogen is considered a risk factor for thrombotic disease. Coagulation Control Plasmas are freeze-dried, stabilized human plasmas used in the day-to-day control of routine coagulation tests. FDP Collection Tube is a specialized system of blood collection designed for use in fibrin degradation product ("FDP") assays and compatible with a variety of commercially available FDP kits. Platelet Aggregation Reagents are used in the determination of blood platelet abnormalities and may prove quite useful in monitoring the efficacy of new FDA-approved anti-platelet drugs offered by certain pharmaceutical suppliers. Ristocetin Cofactor Assay is used in the diagnosis of von Willebrand disease, one of the most common hereditary bleeding disorders in the human population. Products Used in Nucleic Acid Testing The Xtra Amp(TM) Extraction System allows for combining nucleic acid extraction and amplification in the same microcentrigue tube. Nucleic acid testing involves three steps: extraction of the genetic material, amplification of the material, and detection of the desired gene sequence. Our initial commercial product in this area, the Xtra Amp(TM) Extraction System performs the extraction step in the nucleic acid testing process, 6 and a follow-on product line will encompass all three steps. The Xtra Amp(TM) System is sold for use with amplification and detection products and processes currently available in the marketplace. This system enables the extraction of nucleic acid with only three minutes of hands-on time, and the elimination of centrifugation, vacuum filtration, product transfer, or elution steps, all of which are currently necessary with competing technologies. This saves valuable laboratory time as well as minimizing the risks of cross-contamination, as the entire extraction and amplification process takes place in the same tube. Additionally, the Xtra-Amp(TM) kits provide for long-term dry storage of the nucleic acid sample that can be used later for tracking or follow-up testing. Products Under Development and R&D We carry out product development activities at each of our three facilities. Most product development is aimed at broadening our product offerings in the market niches we already serve, introducing updated versions (quicker, more user-friendly, more accurate, etc.) of current products, and conducting research aimed at evaluating technology applicable to new methods of diagnostic testing. We received 510(k) clearance from the FDA in February 2001 to market the MiniQuant(TM) D-dimer assay system, a rapid, quantitative method for determining the fibrin degradation product D-dimer in plasma. The assay is performed using our MiniQuant(TM) latex agglutination reagent and the MiniQuant(TM)-1, a compact, two-channel LED photo-optical detection system for use in laboratory and emergency care environments. On November 8, 2000, the Company was issued US patent 6,153,425, entitled "Self-Contained Device Integrating Nucleic Acid Extraction, Amplification, and Detection." This patent is a continuation, in part, of an earlier patent, expanding upon our development strategy for a self-contained nucleic acid detection system to include a modular design that will interface with multiple amplification technologies. We received 510(k) clearance to market one new product in 1999, the Bioclot(R) aPC Sensitivity Kit, a new test for determining sensitivity to activated protein C (APC). The most common reason for resistance to APC is a genetic mutation in the (clotting) factor V gene, which is the leading cause of thrombotic (clot-forming) diseases. Other physiological states that can lead to resistance to APC include pregnancy, malignancy, and oral contraceptive use. During 2000 and 1999, we spent $699,000 and $322,000, respectively, for research and development. We expect research and development spending to increase substantially in 2001 due to the addition of the Xtrana business. In our Hemostasis business, we maintain an active liaison with university and other research-based technology transfer groups and frequently evaluate various product concepts and core technologies that could be applicable to our product lines and logical extensions thereof. In connection with these efforts, we utilize the expertise of clinical advisors, such as Dr. Bjorn Wiman. Dr. Wiman is currently a Professor in Blood Coagulation Research at Karolinska Institute and Senior Physician at the Department of Clinical Chemistry, Karolinska Hospital, Stockholm, Sweden. Dr. Wiman was formerly Head of the Department of Clinical Chemistry at Karolinska Hospital. In nucleic acid detection, we also utilize the expertise of advisors. Two of these are Michael P. Doyle, Ph.D., and Jim Mahony, Ph.D. Dr. Doyle is well known in the food microbiology industry and provides consultation regarding our food pathogen detection assays, including E. coli 0157:H7, Listeria monocytogenes, Salmonella, Coliforms, and Campylobacter. He received his B.S. degree in Bacteriology in 1973, an M.S. in Food Microbiology in 1975, and a Ph.D. in Food Microbiology in 1977, all from the University of Wisconsin-Madison. After working for the Ralston Purina Co. from 1977-80, he accepted an Assistant Professor position at the Food Research Institute at the University of Wisconsin-Madison in 1980. He remained here, advancing to full Professor in the Department of Food Science, until 1991. In 1991, Dr. Doyle moved to Griffin, Georgia, where he remains as Professor and Director of the Center for Food Safety and Quality Enhancement, and Head, Department of Food Science and Technology, University of Georgia. 7 Dr. Mahony is well known in clinical virology and chlamydiology. He is consulting and collaborating on the development of a SCIP-based assay for urine detection of chlamydia and gonorrhea. He is Professor and Director at McMaster University Virology and Chlamydiology Laboratory, Hamilton, Ontario, Canada. Dr. Mahony has authored 104 publications, most of which deal with either chlamydia or gonorrhea. He has also published 25 articles in books, all discussing STD's and chlamydia. His lab frequently conducts and publishes validation studies of new methods for detection of sexually transmitted disease infectious agents. MANUFACTURING AND QUALITY CONTROL We currently manufacture our hemostasis reagents and assemble our test kits at our facilities in Ventura, California and Umea, Sweden. We also manufacture many of the raw materials used in the manufacture of our test kits, including polyclonal antibodies, monoclonal antibodies, and purified proteins. In cases where raw materials are obtained from outside sources, we try to avoid dependence on any one source where possible. Human plasma, an important starting material for many of our products, is sourced from licensed blood banks and plasmapheresis centers. We believe that the available sources of materials are adequate for its present and anticipated needs. All of our products are manufactured in accordance with Good Manufacturing Practices for Medical Devices as promulgated by the FDA. We are registered as a Device Manufacturing Establishment with the FDA. We are also registered with the U.S. Drug Enforcement Administration to handle Schedules I-V controlled substances. We perform our own vial-filling, freeze-drying, microtiter plate-filling, and processing. Both of our facilities are currently undergoing preparations to become ISO certified. Our Xtra Amp(TM) Extraction System is currently manufactured for us by Ansys Diagnostics, Inc. Many of our technical employees hold advanced degrees or certifications in medical technology. Eight individuals hold Ph.D. degrees in the biological sciences. MARKETING AND DISTRIBUTION Our products are sold worldwide. The U.S. typically accounts for some 35% of the total worldwide diagnostics market, Europe approximately 35%, Japan 10%, and 20% for the rest of the world. Within the U.S., we market and sell our products directly and through regional and national distributors. Our sales force consists of two outside sales representatives, a strategic support specialist, and two telemarketing/technical support specialists. Our sales personnel are highly experienced in the technical aspects of the product lines and include some individuals with advanced degrees in medical technology. We sell our products outside of the U.S. through more than 50 independent dealers in 40 countries. We augment our direct sales activities through active participation in a number of key regional, national, and international industry trade shows, such as the American Association of Clinical Chemistry, the American Society of Hematology, Clinical Laboratory Management Association, and Medica (Dusseldorf, Germany). In addition to direct sales activities, our Hemostasis products are distributed in the U.S. through Columbia Diagnostics (acquired by Fisher HealthCare), LABSCO, Perigon, Tech-Neal Scientific, Scientific Supplies & Equipment, and other regional distributors that collectively cover all 50 states with over 180 sales representatives. For our XtraAmp(TM) Extraction System, we have entered into distribution agreements with Beckman Coulter, Inc., MBI Fermentas Inc., and Ansys Diagnostics, Inc. We manufacture products for private label and Original Equipment Manufacturer businesses in the hemostasis market. OEM customers accounted for approximately 51% of our sales in 2000, and include sales to Biosite Diagnostics, Dade Behring, Instrumentation Laboratory, Organon Teknika (a division of Akzo Nobel), Ortho Diagnostic Systems (a division of Johnson & Johnson; this hemostasis business unit was recently acquired by Instrumentation Laboratory), Pacific Hemostasis (a division of Fisher Scientific), and Sigma Diagnostics (Sigma/Aldrich). 8 Sales to three customers, Instrumentation Laboratory (including the former Ortho Diagnostic Systems, a division of Johnson & Johnson), Pacific Hemostasis, and Sigma Chemical Company, slightly exceeded 34% of total 2000 sales. COMPETITION We compete on a worldwide basis against a number of companies, some of which are subsidiaries of large pharmaceutical, chemical, and biotechnology firms whose financial resources and research and development facilities are substantially greater than ours. In the hemostasis area, these companies include BioMerieux, Dade Behring, Instrumentation Laboratory, Organon Teknika (a division of Akzo Nobel), and Sigma Diagnostics (Sigma/Aldrich). Consolidation within the industry continues to make these competitors even larger; for example, the acquisition of the Hemoliance business of Ortho by Instrumentation Laboratory. A number of smaller companies also compete with us in the research and development of diagnostic test kits relating to the niche hemostasis/fibrinolysis market, including Diagnostica Stago S.A. (France) and Agen, Inc. (Australia). We currently have approximately a 2% worldwide market share in total hemostasis products and up to a 20-30% share in certain specialty hemostasis/fibrinolysis products. In the area of nucleic acid testing, we compete with a number of additional companies including, among others, Applied Biosystems, Qiagen, Caliper Technologies, and Aclara Biosciences. Competition is based upon a number of factors, including product quality, customer service, price, continuous availability of product, breadth of product range, and the strength and effectiveness of the sales and marketing organization. We believe our test kits and reagents compete on the basis of price, relative ease of use, quality, accuracy, and precision. SUPPLIERS We obtain raw materials from numerous outside vendors. Key raw materials include plasma, antisera, platelets, enzymes, and monoclonal antibodies. We generally have more than one source for our key raw materials. We continually evaluate additional suppliers with a view towards reducing our dependence on any single vendor. PATENTS, TRADEMARKS, AND PROPRIETARY INFORMATION We consider the protection of discoveries in connection with our research and development on test kits important to our business. We seek patent protection for technology when deemed appropriate and, to date, have been issued four patents in the United States and foreign jurisdictions specific to nucleic acid diagnostics. We also have several patents pending for additional nucleic acid-related technologies. We are also reliant on trade secrets, unpatented proprietary know-how, and continuing technological innovation to develop our competitive position. Many of our key employees and consultants have entered into confidentiality agreements and have agreed to assign to us any inventions relating to our business made by them while in our employ, or in the course of services performed on our behalf. We perform an ongoing assessment of the value of our intangible assets. We have established rights in the trademarks "XTRANA," "Xtra Amp," "Xtra Bind," "SCIP," and "MiniQuant." The marks Biopool(R), Bioclot(R), TintElize(R), Minutex(R), and AutooDimer(R) have been registered with the United States Patent and Trademark Office and in many foreign territories. GOVERNMENT REGULATIONS The manufacture and sale of diagnostic products are subject to regulation by the FDA in the United States and by comparable regulatory agencies in certain foreign countries in which our diagnostic products are sold. The FDA has established guidelines and safety standards that are applicable to the preclinical evaluation and clinical investigation of diagnostic products and regulations that govern the manufacture and sale of such products. The FDA and similar agencies in foreign countries have substantial regulations that apply to the testing, marketing (including export), and manufacturing of products to be used for the diagnosis 9 of disease. In the United States, many diagnostic products may be accepted by the FDA pursuant to a 510(k) notification, which must contain information that establishes that the product in question is "substantially equivalent" to similar diagnostic products already in general use. Sixty of our products have received marketing approval utilizing this 510(k) process. Thirty-one of our products have also received market approval from the regulatory agency in France, AFSSAPS (formerly l'Agence du Medicament). Our manufacturing facilities in the U.S. and Sweden, as well as any additional manufacturing operations that may be established within or outside the United States, are subject to compliance with Good Manufacturing Practices regulations. We are registered as a medical device manufacturer with the FDA and as a manufacturer with the U.S. Drug Enforcement Administration. We may also be subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substance Control Act, Export Control Act, and other present and future laws of general application. We believe that the manufacture and use of our products have no material adverse environmental impact. Except as we indicated above, we are not subject to direct governmental regulation other than the laws and regulations generally applicable to businesses in the jurisdictions in which we operate, including those governing the handling and disposal of hazardous wastes and other environmental matters. Our research and development activities involve the controlled use of small amounts of hazardous materials and chemical compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with applicable regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for resulting damages. This liability could have a material adverse effect on us. EMPLOYEES At the end of 2000, we had 86 regular (full- and part-time) employees, 67 of whom were located in the U.S. and 19 who were located in Sweden. Certain of our Swedish employees are members of national unions. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The information is disclosed in Note 9 to the consolidated financial statements included herein under Item 13. ITEM 2. PROPERTIES We lease a 20,000 square-foot facility in Ventura, California, providing administrative, laboratory, manufacturing, and warehouse space. Key manufacturing facilities include clean rooms, high-speed vial filling and capping capabilities, and a freeze-drying capacity. Under the terms of the three-year lease agreement expiring in 2002, the base rent for this facility is approximately $110,000 per year with annual increases tied to the Consumer Price Index. Our Swedish subsidiary, Biopool AB, leases a 12,500 square-foot facility in Umea, Sweden, providing administrative, laboratory, warehouse, and manufacturing space. The laboratories are particularly suited for the preparation of high-quality biochemicals for use in our test kits. Annual rent is approximately $119,000 pursuant to the terms of a five-year lease expiring in 2004. We additionally lease 1,200 square-feet of laboratory space from Bonfils Blood Center in Denver, Colorado. The term of the lease is month to month, with annual rent of $34,188. Temporary offices are leased on a month to month basis in Broomfield, Colorado for a total annual base rent of $73,500. 10 On December 19, 2000, the Company entered into a lease agreement in Broomfield, Colorado, for an 11,040 square-foot corporate office and research and development facility. The lease commences in April 2001 and has a term of five years. Base rent for this facility is $160,080 per year, increasing 3% per year. This facility will allow the Company to consolidate the current Bonfils lab space and the temporary office rentals. ITEM 3. LEGAL PROCEEDINGS On March 26, 2001, we entered into a settlement agreement with Agen Biomedical Ltd. with regard to a patent infringement filed on March 10, 2000, by Agen. As a part of the settlement, the Company and Agen have entered into a non-exclusive license agreement for the underlying patent and all claims by Agen and counter claims made by us have been dropped. We do not believe that the settlement will have a material impact on our results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS There were no matters submitted during the fourth quarter of the fiscal year covered by this Report to a vote of stockholders, through the solicitation of proxies, or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock currently trades on the OTC Bulletin Board(R) (OTCBB) under the symbol BIPL. The following sets forth the high and low trade prices for our common stock for the periods indicated as reported by Nasdaq and the OTCBB. We have not paid any dividends since our inception and do not contemplate payment of dividends in the foreseeable future.
2000 1999 High Low High Low ------------------------------------------------- First quarter $ 2.000 $ 0.656 $ 1.375 $ 0.594 Second quarter 1.688 0.750 1.000 0.563 Third quarter 1.844 0.844 0.906 0.750 Fourth quarter 2.030 0.844 1.000 0.719
(a) On March 9, 2001, the closing trade price of our common stock, as reported by the OTCBB, was $0.94. (b) As of March 9, 2001, we had 243 holders of record of our common stock. A large number of shares are held in nominee name. Based upon information provided by our transfer agent, American Stock Transfer and Trust Company, we had approximately 2,496 beneficial shareholders on the same date. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On April 30, 1999, we consummated the sale of certain business assets of BCA for $4.45 million in cash. BCA ceased operations to our benefit effective May 1, 1999, but we continued to convert certain inventory items on behalf of the buyer through June 30, 1999. The 1999 Consolidated Statements of Operations have been restated to reflect ongoing hemostasis operations only. The sale of BCA reduced the Company's sales by approximately 50%; however, the impact on pre-tax income was negligible. 11 On August 10, 2000, we merged with Xtrana, Inc., pursuant to an Agreement and Plan of Reorganization dated May 3, 2000, as further described in our 8-K filed with the SEC on August 11, 2000. The merger was accounted for as an acquisition of Xtrana, and the consolidated financial results for 2000 include the results of Xtrana since the date of the merger. 2000 VERSUS 1999 SALES Sales were $9.8 million for the year ended December 31, 2000, compared with $8.8 million for the year ended 1999. This represents an increase of sales equal to $1.0 million or 11%. Approximately half of the increase was the result of further penetration of international markets through our OEM and distributor relationships. In addition, direct sales of Biopool labeled product accounted for one third of the increase, resulting from a renewed focus in this area. The remaining increase was the result of product and grant revenue from the Xtrana business for the stub period since the merger. Our customers are dispersed over wide geographic areas. Sales in the United States and Western Europe accounted for 58% and 27%, respectively, of total sales during 2000. Sales to three customers, Instrumentation Laboratory (including the former Ortho Diagnostic Systems, a division of Johnson & Johnson), Pacific Hemostasis and Sigma Chemical Company, slightly exceeded 33% of total 2000 sales. We expect that future sales will continue to be influenced by many additional factors, including the introduction of new diagnostic test kits, success in marketing our test kits to the clinical market, increased awareness and demand for testing by physicians, expansion of our products into new geographic areas through distributors and OEM relationships, direct sales through Company-employed sales representatives, and the commercialization of the Xtrana technologies. Rapid changes in technologies, demand level for certain diagnostic tests, price competition, continued efforts worldwide to reduce health care costs (including diagnostic testing), and the availability of high-quality raw materials may also have a material impact on our short- and long-term sales. COSTS AND EXPENSES Cost of sales increased by $0.6 million, or 13.5%, to $5.3 million in 2000, primarily as the result of increased sales. As a percentage of sales, cost of goods sold increased 1.1% to 54.0% in 2000 compared with 52.9% in 1999. This increase in cost as a percentage of sales was the result of the addition of the Xtrana business, which during 2000 was primarily engaged in research and development, a portion of which was funded on a cost reimbursement basis by various government grants. Costs as a percentage of sales are expected to decrease as Xtrana products are commercialized in 2001. Selling, general and administrative expenses increased by $1.4 million, or 46%, to $4.5 million in 2000. The bulk of the increase related to the addition of the Xtrana business, which accounted for $1.2 million of the increase. Just under $0.4 million of the Xtrana increase was due to amortization expense on the goodwill generated by the merger. The remaining increase was the result of severance costs relating to the management reorganization as a part of the merger and incremental expenses relating to the increase in sales. Research and development expenses increased $0.4 million or 117% over 1999 levels. Almost all of this increase came as a result of the merger with Xtrana, and the continued emphasis on the investment in the development of the Xtrana technologies. INCOME TAXES The difference between our effective tax rate for 2000 and the 34% federal statutory tax rate was primarily due to the effects of state and foreign income taxes, non-deductible goodwill amortization as well as the provision for a full valuation allowance on all net operating loss carryforwards available to the Company. 12 FINANCIAL CONDITION During the second quarter of 2000, the Company sold the property and plant of its former BCA business unit for $2.0 million, which was approximately equal to its carried value. This inflow of cash added to the Company's existing liquidity position. As of December 31, 2000, the Company's working capital position was $6.4 million, with a current ratio of 5.9 to 1.0. Our current availability of cash, unused line of credit, working capital, and cash flow from operations are adequate to meet our ongoing needs for at least the next twelve months. However, we may investigate and pursue additional financing options in the near term to accelerate the development and commercialization of the Xtrana technologies. The Company issued 8,829,461 shares of Common Stock to the Xtrana stockholders on August 10, 2000 and 998,366 warrants to warrant holders of Xtrana and certain financial advisors. This issuance will have a dilutive effect on earnings per share in the near term. On October 8, 1998, we received a letter from Nasdaq stating that we do not meet the minimum bid price requirement of $1.00 per share for continued listing on the Nasdaq SmallCap Market. On March 12, 1999, we had a hearing before the Nasdaq SmallCap Market in order to obtain an exemption from the minimum bid price requirement. The subsequent decision of the Nasdaq Panel was to delist our common stock, which became effective April 19, 1999. FORWARD LOOKING STATEMENTS Except for the historical information contained herein, this report contains forward-looking statements (identified by the words "estimate," "anticipate," "expect," "believe," and similar expressions) which are based upon our expectations as of the date made. These forward-looking statements are subject to risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements and include, but are not limited to, competitors' pricing strategies and technological innovations, changes in health care and government regulations, litigation claims, foreign currency fluctuation, product acceptance, as well as other factors discussed in our previous Report on Form 10-KSB. RISK FACTORS You should carefully consider the following risk factors and all other information contained in this report before purchasing shares of our common stock. Investing in our common stock involves a high degree of risk. If any of the following events or outcomes actually occur, our business, operating results and financial condition would likely suffer. As a result, the trading price of our common stock could decline, and you may lose all or part of the money you paid to purchase our common stock. Risks Related to Our Business - ----------------------------- Failure to Successfully Integrate Xtrana and Biopool Operations Could Reduce Our Profitability. We closed our merger with Xtrana on August 10, 2000. The integration of Xtrana operations with Biopool operations is ongoing and will require significant effort, including the coordination of research and development and sales and marketing efforts. Xtrana operations are located in Denver, Colorado, while Biopool operations are located in Ventura, California. This physical separation may make it difficult to effectively communicate with, manage and integrate staff and operations. Such difficulties could significantly hurt our operations and consequently our financial results. Personnel may leave or be terminated because of the merger. Management may have its attention diverted while trying to integrate the companies. Such diversion of the management's attention or difficulties in the transition process could have a material adverse impact on us. Reduction or Delays in Research and Development Budgets and in Government Funding May Negatively Impact our Sales. Our customers include researchers at pharmaceutical and biotechnology companies, academic institutions and government and private laboratories. Fluctuations in the research and development budgets of these researchers and their organizations could have a significant effect on the demand for our products. Research and development budgets fluctuate due to numerous factors that are 13 outside our control and are difficult to predict, including changes in available resources, spending priorities and institutional budgetary policies. Our business could be seriously damaged by any significant decrease in life sciences research and development expenditures by pharmaceutical and biotechnology companies, academic institutions or government and private laboratories. A significant portion of our sales has been to researchers, universities, government laboratories and private foundations whose funding is dependent upon grants from government agencies such as the U.S. Department of Defense and similar domestic and international agencies. In addition, a significant portion of our own revenue and our anticipated future revenue is from such grants. Although the level of research funding has increased during the past several years, we cannot assure you that this trend will continue. Government funding of research and development is subject to the political process, which is inherently fluid and unpredictable. Our revenues may be adversely affected if we fail to receive a material portion of the grants for which we have applied, or if our customers delay purchases as a result of uncertainties surrounding the approval of government budget proposals. Also, government proposals to reduce or eliminate budgetary deficits have sometimes included reduced allocations to the Department of Defense and other government agencies that fund research and development activities. A reduction in government funding for the Department of Defense or other government research agencies could seriously damage our business. Many of our customers receive funds from approved grants at particular times of the year, as determined by the federal government. Grants have, in the past, been frozen for extended periods or have otherwise become unavailable to various institutions without advance notice. The timing of the receipt of grant funds affects the timing of purchase decisions by our customers and, as a result, can cause fluctuations in our sales and operating results. We Rely on Raw Materials for our Manufacturing. Our manufacturing process relies on the continued availability of high-quality raw materials, many of which we currently receive from specific vendors. It is possible that a change in vendors, or in the quality of the raw materials supplied to us, could have an adverse impact on our manufacturing process and, ultimately, on the sale of our finished products. We have from time to time experienced a disruption in the quality or availability of certain key raw materials, which has created minor delays in our ability to fill orders for certain test kits. This could occur again in the future, resulting in significant delays, and could have a detrimental impact on the sale of our products. Our Operating Results May Fluctuate Significantly. Our operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to decline. Some of the factors that could cause our operating results to fluctuate include: (1) expiration or termination of research contracts with collaborators or government research grants, which may not be renewed or replaced; (2) the timing and willingness of collaborators to commercialize our products; (3) the timing, release and competitiveness of our products; and (4) general and industry-specific economic conditions, which may affect our customers' research and development expenditures and use of our products. If revenue declines in a quarter, whether due to a delay in recognizing expected revenue or otherwise, our earnings will decline because many of our expenses are relatively fixed in the short-term. In particular, research and development and general and administrative expenses are not affected directly by variations in revenue. Due to fluctuations in our revenue and operating expenses, we believe that period-to-period comparisons of our results of operations are not a good indication of our future performance. It is possible that in some future quarter or quarters, our operating results will be below the expectations of securities analysts or investors. In that case, our stock price could fluctuate significantly or decline. Failure to Manage our Growth and Expansion Could Impair our Business. We historically have sought, and will continue to seek, to increase our sales and profitability primarily through the acquisition or internal development of new product lines, additional customers and new businesses. We expect that future acquisitions, if successfully consummated, will create increased working capital requirements, which will likely precede by several months any material contribution of an acquisition to our net income. Our ability to achieve our expansion objectives and to manage our growth effectively and profitably depends upon a variety of factors, including: (1) our ability to internally develop new products; (2) our ability to make profitable acquisitions; (3) integration of new facilities into existing operations; (4) hiring, training and retention of qualified personnel; (5) establishment of new relationships or expansion of existing relationships with customers and suppliers; and (6) availability of capital. In addition, the implementation of a growth strategy could place significant strain on our administrative, operational and financial resources and increased 14 demands on our financial systems and controls. Our ability to manage our growth successfully will require us to continue to improve and expand these resources, systems and controls. If our management is unable to manage growth effectively, our operating results could be adversely affected. Moreover, there can be no assurance that we will continue to successfully expand or that growth or expansion will result in profitability. We Rely on International Sales, Which Are Subject to Additional Risks. International sales accounted for approximately 42% of our revenues in both 2000 and 1999. International sales can be subject to many inherent risks that are difficult or impossible for us to predict or control, including: (1) unexpected changes in regulatory requirements and tariffs; (2) difficulties in staffing and managing foreign operations, including foreign distributor relationships; (3) longer payment cycles; (4) adverse economic or political changes; (5) potential trade restrictions, exchange controls and import and export licensing requirements; (6) problems in collecting accounts receivable; and (7) potentially adverse tax consequences. We intend to continue to generate revenues from sales outside the United States in the future. Future distribution of our products outside the United States also may be subject to greater governmental regulation. These regulations, which include requirements for approvals or clearance to market, additional time required for regulatory review and sanctions imposed for violations, as well as the other risks indicated above, vary by country. We may not be able to obtain regulatory approvals in the countries in which we currently sell our products or in countries where we may sell our products in the future. In addition, we may be required to incur significant costs in obtaining necessary regulatory approvals. Failure to obtain necessary regulatory approvals or any other failure to comply with regulatory requirements could result in a material reduction in our revenues and earnings. We also depend on third-party distributors for a material portion of our international sales. If we lose or suffer any significant reduction in sales to any material distributor, our business could be materially adversely affected. In addition, approximately 26% of our sales are made in Swedish Krona. In the past, gains and losses on the conversion of our accounts receivable arising from international operations have contributed to fluctuations in our results of operations. In general, increases in the exchange rate of the United States dollar to foreign currencies cause our products to become relatively more expensive to customers in those countries, leading to a reduction in sales or profitability in some cases. Failure to Attract and Retain Qualified Scientific or Production Personnel or Loss of Key Management or Key Personnel Could Hurt our Business. Our continued success depends to a significant extent on the members of our management team. Recruiting and retaining qualified scientific and production personnel in order to perform research and development work and product manufacturing are critical to our success as well. Because the industry in which we compete is very competitive, we face significant challenges attracting and retaining members of our management team and personnel base. Although we believe we have been and will be able to attract and retain these members of management and personnel, there can be no assurance that we will be able to continue to successfully attract such qualified individuals. In addition, we do not maintain insurance on the lives of anyone at the Company. The loss of services of any key employee could have a material adverse effect upon our business. If We Fail to Introduce New Products, or our New Products Are Not Accepted by Potential Customers, We May Lose Market Share. Rapid technological change and frequent new product introductions are typical for our market. Our future success will depend in part on continuous, timely development and introduction of new products that address evolving market requirements. We believe successful new product introductions provide a significant competitive advantage because customers make an investment of time in selecting and learning to use a new product, and then are reluctant to switch. To the extent we fail to introduce new and innovative products, we may lose market share to our competitors, which will be difficult or impossible to regain. An inability, for technological or other reasons, to successfully develop and introduce new products could reduce our growth rate or damage our business. In the past we have experienced, and are likely to experience in the future, delays in the development and introduction of products. We cannot assure you that we will keep pace with the rapid rate of change in life sciences research, or that our new products will adequately meet the requirements of the marketplace or achieve market acceptance. Some of the factors affecting market acceptance of new products include: (1) availability, quality and price relative to competitive products; (2) the timing of introduction of the product relative to competitive products; (3) scientists' opinion of the product's usefulness; (4) citation of the product 15 in published research; and (5) general trends in life sciences research. The expenses or losses associated with unsuccessful product development activities or lack of market acceptance of our new products could materially adversely affect our business, operating results and financial condition. Our Ability to Raise the Capital Necessary to Maintain or Expand our Business is Uncertain. In the future, in order to expand our business through internal development or acquisitions, we may need to raise substantial additional funds through equity or debt financings, research and development financings or collaborative relationships. However, this additional funding may not be available or, if available, it may not be available on economically reasonable terms. In addition, any additional funding may result in significant dilution to existing stockholders. If adequate funds are not available, we may be required to curtail our operations or obtain funds through collaborative partners that may require us to release material rights to our products. Intellectual Property or Other Litigation Could Harm our Business. Litigation regarding patents and other intellectual property rights is extensive in the biotechnology industry. We are aware that patents have been applied for, and in some cases issued to others, claiming technologies that are closely related to ours. In the event of an intellectual property dispute, we may be forced to litigate. This litigation could involve proceedings declared by the U.S. Patent and Trademark Office or the International Trade Commission, as well as proceedings brought directly by affected third parties. Intellectual property litigation can be extremely expensive, and these expenses, as well as the consequences should we not prevail, could seriously harm our business. If a third party claimed an intellectual property right to technology we use, we might need to discontinue an important product or product line, alter our products and processes, pay license fees or cease our affected business activities. Although we might under these circumstances attempt to obtain a license to this intellectual property, we may not be able to do so on favorable terms, or at all. In addition to intellectual property litigation, other substantial, complex or extended litigation could result in large expenditures by us and distraction of our management. For example, lawsuits by employees, stockholders, collaborators or distributors could be very costly and substantially disrupt our business. Disputes from time to time with companies or individuals are not uncommon in our industry, and we cannot assure you that we will always be able to resolve them out of court. We regard our trademarks, trade secrets and similar intellectual property as important to our success. We rely on trademark law and trade secret protection and confidentiality and/or license agreements with employees, customers, partners and others to protect our proprietary rights. We have pursued the registration of our trademarks in the U.S. and internationally. Effective trademark and trade secret protection may not be available in every country in which our products are available. We cannot be certain that we have taken adequate steps to protect our proprietary rights, especially in countries where the laws may not protect our rights as fully as in the United States. In addition, third parties may infringe or misappropriate our proprietary rights, and we could be required to incur significant expenses in preserving them. Our success will depend in part on our ability to obtain and maintain meaningful patent protection for our products, both in the United States and in other countries. We rely on patents to protect some of our intellectual property and our competitive position. We own issued patents and pending patent applications, including both domestic and foreign patents and patent applications. We cannot assure you that any of the presently pending or future patent applications will issue as patents, or that any patents issued to us will not be challenged, invalidated, held unenforceable or circumvented. Further, we cannot assure you that claims in patents that have been issued or that may be issued to us in the future will be sufficiently broad to prevent third parties from producing competing products similar in design to our products. In addition, laws of foreign countries may not protect our intellectual property to the same extent as would laws in the United States. Failure to obtain adequate patent protection for our proprietary technology could have a material adverse effect on our business, operating results, financial condition and future growth prospects. 16 Potential Product Liability Claims Could Affect our Earnings and Financial Condition. Despite product testing prior to sale, our products have from time to time experienced performance problems discovered after we sold the products. If a customer experiences performance problems, errors in shipment or product defects, it could result in: - injuries to persons; - loss of sales; - delays in or elimination of market acceptance; - damage to our brand or reputation; - product returns Although our distributors and manufacturers have return policies, if we accept a product returned by a customer but it is not accepted for return by the distributor, we will incur the cost. Because we depend on third parties for certain of the components of our products, if those components are defective, the performance of our products would be reduced or undermined. Any increase in the rate of returns would affect our financial condition, operating results and cash flows. Accidents Related to Hazardous Materials Could Adversely Affect our Business. Portions of our operations require the controlled use of hazardous and radioactive materials. Although we believe our safety procedures comply with the standards prescribed by federal, state, local and foreign regulations, the risk of accidental contamination of property or injury to individuals from these materials cannot be completely eliminated. In the event of an accident, we could be liable for any damages that result, which could seriously damage our business and results of operations. Risks Associated With Our Industry - ---------------------------------- We Are Engaged In a Competitive Industry, and We May Be Unable to Continue to Compete Effectively in this Industry in the Future. We are engaged in a segment of the human health care products industry that is highly competitive. Many of our competitors, both in the United States and elsewhere, are major pharmaceutical, chemical and biotechnology companies, and many of them have substantially greater capital resources, marketing experience, research and development staffs, and facilities than we do. Any of these companies could succeed in developing products that are more effective than the products that we have or may develop and may also be more successful than us in producing and marketing their products. Not only do we face intense competition in the marketplace against our competitors, but we also must compete with these same companies for the services of personnel. We expect this competition to continue and intensify in the future. Our industry has also seen substantial consolidation in recent years, which has led to the creation of competitors with greater financial and intellectual property resources than us. In addition, we believe that the success that others have had in our industry will attract new competitors. Some of our current and future competitors also may cooperate to better compete against us. We may not be able to compete effectively against these current or future competitors. Increased competition could result in price reductions for our products, reduced margins and loss of market share, any of which could adversely impact our business, financial condition and results of operations. We Are Subject to Extensive Government Regulation. We operate in a highly regulated industry. Our business is currently subject to extensive regulation, supervision and licensing by federal, state and local governmental authorities. Also, from time to time we must expend resources to comply with newly adopted regulations, as well as changes in existing regulations. If we fail to comply with these regulations, we could be subject to disciplinary actions or administrative enforcement actions. These actions could result in penalties, including fines. 17 Risks Associated With Our Common Stock - -------------------------------------- Our principal stockholders and management own a significant percentage of our capital stock and will be able to exercise significant influence over our affairs. Our executive officers, directors and principal stockholders will continue to beneficially own 35.6% of our outstanding common stock, based upon the beneficial ownership of our common stock as of March 8, 2001. In addition, these same persons also hold options to acquire additional shares of our common stock, which may increase their percentage ownership of the common stock further in the future. Accordingly, these stockholders: (1) will be able to significantly influence the composition of our board of directors; (2) will significantly influence all matters requiring stockholder approval, including change of control transactions; and (3) will continue to have significant influence over our affairs. This concentration of ownership of our common stock could have the effect of delaying or preventing a change of control of us or otherwise discouraging a potential acquirer from attempting to obtain control of us. This, in turn, could have a negative effect on the market price of our common stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of common stock. Our Stock Price Has Been Volatile. Our common stock is quoted on the OTC Bulletin Board(R), and there can be substantial volatility in the market price of our common stock. The trading price of our common stock has been, and is likely to continue to be, subject to significant fluctuations due to a variety of factors, including: (1) variations in our quarterly operating results; (2) the gain or loss of significant contracts; (3) changes in management; (4) announcements of technological innovations or new products by us or our competitors; (5) legislative or regulatory changes; (6) general trends in the industry; (7) recommendations by securities industry analysts; (8) biological or medical discoveries; (9) developments concerning intellectual property, including patents and litigation matters; (10) public concern as to the safety of new technologies; (11) developments in our relationships with current or future customers and suppliers; and (12) general economic conditions, both in the United States and abroad. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price of our common stock, as well as the stock of many biotechnology companies. Often, price fluctuations are unrelated to operating performance of the specific companies whose stock is affected. In the past, following periods of volatility in the market price of a company's stock, securities class action litigation has occurred against the issuing company. If we were subject to this type of litigation in the future, we could incur substantial costs and a diversion of our management's attention and resources, each of which could have a material adverse effect on our revenue and earnings. Any adverse determination in this type of litigation could also subject us to significant liabilities. Anti-takeover Provisions in our Governing Documents and Under Applicable Law Could Impair the Ability of a Third Party to Take Over our Company. We are subject to various legal and contractual provisions that may impede a change in our control, including our adoption of a stockholders' rights plan, which could result in the significant dilution of the proportionate ownership of any person that engages in an unsolicited attempt to take over our company. These provisions, as well as other provisions in our certificate of incorporation and bylaws and under the Delaware General Corporations Law, may make it more difficult for a third party to acquire our company, even if the acquisition attempt was at a premium over the market value of our common stock at that time. Absence of dividends could reduce our attractiveness to you. Some investors favor companies that pay dividends, particularly in general downturns in the stock market. We have not declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings for funding growth and we do not currently anticipate paying cash dividends on our common stock in the foreseeable future. Because we may not pay dividends, your return on this investment likely depends on your selling our stock at a profit. 18 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data have been included under Item 13. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS Incorporated by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or before April 30, 2001. ITEM 10. EXECUTIVE COMPENSATION Incorporated by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or before April 30, 2001. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or before April 30, 2001. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or before April 30, 2001. ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) The following consolidated financial statements of Biopool International, Inc., and subsidiaries are hereby included by reference to Item 7: Page No. -------- Report of Independent Auditors 23 Consolidated balance sheets as of December 31, 2000 and 1999 24 Consolidated statements of operations for the years ended December 31, 2000 and 1999 26 Consolidated statements of stockholders' equity for the years ended December 31, 2000 and 1999 27 Consolidated statements of cash flows for the years ended December 31, 2000 and 1999 28 Notes to consolidated financial statements 30 19 (3) Listing of Exhibits Exhibit No. Page No. ----------- -------- 3.1 Certificate of Incorporation (1) 3.2 By Laws (1) 4.1 Shareholder Rights Plan (3) 10.1 Executive Employment Agreement of Michael D. Bick, Ph.D. (4) 10.2 1987 Stock Option Plan (1) 10.2 1993 Stock Incentive Plan (2) 10.3 2000 Stock Incentive Plan (5) 10.4 Lease Agreement - Broomfield, Colorado (6) 21 Subsidiaries of the Registrant 40 23.1 Consent of Independent Auditors 41 ---------------------------------------------------------------------- (1) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 33-20584). (2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (3) Incorporated by reference to Registrant's Form 8-A filed June 26, 1998. (4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999. (5) Incorporated by reference to Registrant's Definitive Proxy Statement filed on June 23, 2000. (6) Incorporated by reference to Registrant's Form 8-K filed January 25, 2001. (b) Reports on Form 8-K filed during the fourth quarter of 2000: 8K/A filed October 24, 2000, amending Item 7 of 8-K filed on August 11, 2000. 20 SIGNATURES Pursuant to the requirements 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. Biopool International, Inc. Date: March 30, 2001 BY: /s/ Timothy J. Dahltorp ---------------------------- Timothy J. Dahltorp Chief Operating Officer & Chief Financial Officer Each person whose signature appears below constitutes and appoints Timothy J. Dahltorp as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and his name, place and stead, in any and all capacities to sign this Form 10-KSB and to file any amendments hereto under the Securities and Exchange Act of 1934 and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or their substitutes, may lawfully do or cause to be done by virtue hereof. 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. /s/ Michael D. Bick - ------------------------- Chairman of the Board March 30, 2001 Michael D. Bick, Ph.D. /s/ John C. Gerdes - ------------------------- Chief Scientific Officer March 30, 2001 John C. Gerdes, Ph.D. and Director /s/ Douglas L. Ayer - ------------------------- Director March 30, 2001 Douglas L. Ayer /s/ N. Price Paschall - ------------------------- Director March 30, 2001 N. Price Paschall /s/ James H. Chamberlain - ------------------------- Director March 30, 2001 James H. Chamberlain /s/ Stephen K. Schultheis - ------------------------- Director March 30, 2001 Stephen K. Schultheis 21 ANNUAL REPORT ON FORM 10-KSB ITEM 13(a)(1) and (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 2000 BIOPOOL INTERNATIONAL, INC. BROOMFIELD, COLORADO 22 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Biopool International, Inc. We have audited the accompanying consolidated balance sheets of Biopool International, Inc., and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2000. 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 Biopool International, Inc., and subsidiary at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Denver, Colorado March 1, 2001 except for Note 6, as to which the date is March 29, 2001 23 BIOPOOL INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
December 31, 2000 1999 - -------------------------------------------------------------------------------- (in thousands) ASSETS Current assets Cash and cash equivalents ............................ $ 4,011 $ 2,749 Accounts receivable, net of allowance for doubtful accounts of $37,000 and $11,000 in 2000 and 1999, respectively ...................................... 1,356 1,770 Inventories .......................................... 2,056 1,941 Prepaid expenses and other current assets ............ 266 198 Deferred tax benefits ................................ -- 109 Net assets of discontinued operations ................ -- 2,256 -------- -------- Total current assets ................................... 7,689 9,023 Property and equipment Leasehold improvements ............................... 646 646 Processing and lab equipment ......................... 2,657 2,493 Furniture and fixtures ............................... 415 414 -------- -------- Total property and equipment ........................... 3,718 3,553 Less accumulated depreciation ........................ (2,745) (2,427) -------- -------- Property and equipment, net ............................ 973 1,126 Other assets Deferred tax benefits ................................ -- 254 Goodwill, net of amortization of $761,000 and $310,000 in 2000 and 1999 respectively ............ 9,922 481 Other assets ......................................... 146 149 -------- -------- TOTAL ASSETS ........................................... $ 18,730 $ 11,033 ======== ======== See accompanying notes to consolidated financial statements.
24 BIOPOOL INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (continued)
December 31, 2000 1999 - -------------------------------------------------------------------------------- (in thousands except share data) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable ................................... $ 428 $ 478 Accrued expenses ................................... 878 570 Income taxes payable ............................... -- 29 -------- -------- Total current liabilities ............................ 1,306 1,077 Deferred tax liability ............................... 164 122 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value, 50,000,000 shares authorized; 17,163,012 and 8,286,986 shares issued and outstanding at December 31, 2000 and 1999, respectively .......................... 171 83 Additional paid-in capital ......................... 19,280 10,593 Accumulated deficit ................................ (1,656) (547) Accumulated other comprehensive loss ............... (535) (295) -------- -------- Total stockholders' equity ........................... 17,260 9,834 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........... $ 18,730 $ 11,033 ======== ======== See accompanying notes to consolidated financial statements.
25 BIOPOOL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2000 1999 - -------------------------------------------------------------------------------- (in thousands except per share data) Sales ............................................ $ 9,838 $ 8,842 Cost of sales .................................... 5,313 4,681 -------- -------- Gross profit ..................................... 4,525 4,161 Operating expenses: Selling, general and administrative ............ 4,541 3,113 Research and development ....................... 699 322 -------- -------- Total operating expenses ......................... 5,240 3,435 -------- -------- Other income, net ................................ (247) (14) -------- -------- Income (loss) from continuing operations before taxes ................................... (468) 740 Income tax expense ............................... 563 340 -------- -------- Income (loss) from continuing operations ......... (1,031) 400 Discontinued operations: Income from discontinued operations - net of income tax effect ................... -- 118 Gain (loss) on disposal - net of income tax effect ..................................... (78) 196 -------- -------- Net income (loss) ................................ $ (1,109) $ 714 ======== ======== Weighted average shares outstanding Basic .......................................... 11,842 8,375 Effect of dilutive shares ...................... -- 24 -------- -------- Diluted ........................................ 11,842 8,399 ======== ======== Basic and diluted earnings per share Continuing operations .......................... $ (0.09) $ 0.05 Discontinued operations ........................ 0.00 0.04 -------- -------- Net income ..................................... $ (0.09) $ 0.09 ======== ======== See accompanying notes to consolidated financial statements.
26 BIOPOOL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands except share data)
Additional Accumulated Common Stock paid-in Accumulated other compre- Shares Amount capital deficit hensive loss Total - ------------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1999 ..... 8,540,886 $ 85 $ 10,803 $ (1,261) $ (270) $ 9,357 Net income ................. -- -- -- 714 -- 714 Foreign currency translation -- -- -- -- (25) (25) ----------- Comprehensive income .... 689 Repurchase of common stock . (253,900) (2) (210) -- -- (212) - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 ... 8,286,986 83 10,593 (547) (295) 9,834 Net loss ................... -- -- -- (1,109) -- (1,109) Foreign currency translation -- -- -- -- (240) (240) ----------- Comprehensive loss ...... (1,349) Issuance of warrants related to acquisition .......... -- -- 587 -- -- 587 Shares issued for exercise of options .............. 46,565 -- 59 -- -- 59 Shares issued related to acquisition ............. 8,829,461 88 8,041 -- -- 8,129 - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 ... 17,163,012 $ 171 $ 19,280 $ (1,656) $ (535) $ 17,260 ========================================================================================================================= See accompanying notes to consolidated financial statements.
27 BIOPOOL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2000 1999 - ------------------------------------------------------------------------------- (in thousands) Operating activities Income (loss) from continuing operations ........... $(1,031) $ 400 Adjustments to reconcile income (loss) from continuing operations to net cash provided by continuing operating activities: Depreciation .................................... 433 467 Amortization .................................... 469 59 Loss on disposal ................................ 32 19 Deferred tax benefit ............................ 396 208 Changes in operating assets and liabilities: Accounts receivable ............................. 562 (438) Inventories ..................................... (110) 20 Prepaid expenses and other current assets ....... (57) 122 Accounts payable and accrued expenses ........... (498) 95 ------- ------- Net cash provided by continuing operating activities ...................................... 196 952 Net cash used in discontinued operating activities ...................................... (78) (1,224) ------- ------- Net cash (used in) provided by operating activities ......................................... 118 (272) Investing activities Additions to property and equipment ................ (301) (253) Business acquisition ............................... (642) -- Proceeds from sale of equipment .................... -- 36 ------- ------- Net cash (used in) provided by continuing investing activities ............................ (943) (217) Net cash provided by discontinued investing activities ..................................... 2,268 4,452 ------- ------- Net cash provided by investing activities ............ 1,325 4,235
Table continued next page. 28 BIOPOOL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31, 2000 1999 - -------------------------------------------------------------------------------- (in thousands) Financing activities Repurchase of common stock ............................. -- (212) Issuance of common stock ............................... 59 -- ------- ------- Net cash (used in) provided by continuing financing activities ............................... 59 (212) ------- ------- Net cash used in discontinued financing activities ......................................... -- (1,989) ------- ------- Net cash (used in) provided by financing activities ...... 59 (2,201) Effect of exchange rates ................................. (240) (25) ------- ------- Net increase in cash ..................................... 1,262 1,737 Cash and cash equivalents, beginning of year ............. 2,749 1,012 ------- ------- Cash and cash equivalents, end of year ................... $ 4,011 $ 2,749 ======= ======= Supplemental disclosure of cash flow information: Cash paid during the year for continuing operations Interest ........................................... $ -- $ 1 Income taxes ....................................... 51 86 Supplemental disclosure of non-cash information: Fair value of common stock and warrants issued in business acquisition ................................. $ 8,716 $ -- Net liabilities assumed in business acquisition ........ 805 --
29 BIOPOOL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Biopool International, Inc. ("Biopool") d/b/a Xtrana was incorporated in 1987 in the state of Delaware. Biopool and its wholly-owned subsidiary, Biopool AB ("Biopool Sweden"), a Swedish corporation, are currently engaged in the research, development, manufacture, and marketing of a full range of test kits to assess and diagnose disorders of blood coagulation, thrombotic risk factors, fibrinolysis, platelet function, and the vascular system. Effective with the Company's merger with Xtrana, the Company also develops and markets nucleic acid-based tests for use in drug discovery, detection of environmental and food contaminants, forensics and identity testing, human and animal diseases, genetic predisposition to disease, and other applications. Principles of consolidation The consolidated financial statements of the Company include the accounts of Biopool and its wholly-owned subsidiary. All significant intercompany balances and transactions are eliminated in consolidation. The 2000 results of operations include the results of Xtrana from the merger date of August 10, 2000 through December 31, 2000. Reclassification Certain data in the prior year consolidated financial statements have been reclassified to conform to the 2000 presentation. The financial information presented in the notes to the consolidated financial statements excludes discontinued operations, except where noted. Revenues Product revenues are recorded on the day products are shipped from the Company's facilities. Grant revenues are recorded when earned, pursuant to the respective grant agreements. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents Cash and cash equivalents represent highly liquid investments which mature within three months of date of purchase. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. 30 Property and equipment Property and equipment are stated at cost. Depreciation is generally provided on a straight-line basis over their estimated useful lives which range from 3 to 10 years. Leasehold improvements are generally depreciated over their estimated useful lives or over the period of the lease, whichever is shorter. Goodwill Goodwill consists of the excess of cost over net assets of acquired companies and is being amortized using the straight-line method primarily over a period of ten years. Long-lived assets The Company recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. In such circumstances, those assets are written down to estimated fair value. Long-lived assets consist primarily of computer equipment, office furniture, equipment and goodwill. Research and development costs Research and development costs are expensed when incurred and include both internal research and development costs and payments to third parties. Income taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (see Footnote 10). Foreign currency translation Biopool Sweden assets and liabilities are translated into U.S. dollars at the year-end exchange rate. The amounts in the consolidated statements of operations are translated at the weighted average exchange rate during the year. Cumulative translation adjustments are shown separately in stockholders' equity and, accordingly, do not impact the results of operations. Exchange adjustments resulting from transactions denominated in a foreign currency are recognized in net earnings and are generally insignificant. Concentration of credit risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade receivables. At December 31, 2000, substantially all cash and cash equivalents were on deposit with two financial institutions. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base and their dispersion across many different geographic areas. Two customers, Instrumentation Laboratory and Dasit, S.P.A., had accounts receivable balances greater than 10% of the net balance due at December 31, 2000. The aggregate balance due from these two customers represented 28% of total accounts receivable at December 31, 2000. Generally, the Company does not require collateral or other security to support customer receivables. The Company is dependent upon third party distributors for a material portion of our international sales. If we lose any material distributor, our business could be materially adversely affected. 31 Earnings per share Basic earnings per share is based upon the weighted-average number of common shares outstanding. Diluted earnings per share is based upon the weighted-average number of common shares and dilutive potential common shares outstanding. Potential common shares are outstanding options under the Company's stock option plans and outstanding warrants, which are included under the treasury stock method. Options and warrants to purchase 1,051,663 and 1,245,391 shares with exercise prices greater than the average market prices of common stock were outstanding during the years ended December 31, 2000 and 1999, respectively. These options and warrants were, therefore, excluded from the respective computations of diluted earnings per share because their effect would be anti-dilutive. Fair value of financial instruments The carrying value of the Company's cash and cash equivalents, receivables, payables and accrued expenses approximate fair value due to the short maturity of these instruments. Accounting for stock based compensation Stock option grants are set at the closing price of the Company's common stock on the the date of grant. Therefore, under the principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," the Company has not recognized compensation expense associated with the grant of stock options. SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use of option valuation models to provide supplemental information regarding options granted after 1994. Proforma results of operations, which would have resulted as a result of recognizing the fair value of such grants, are disclosed under Footnote 8. Recent accounting pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133"), which was originally required to be adopted in years beginning after June 15, 2000. In June 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133" ("SFAS 137"), which deferred for one year the effective date of SFAS 133. We anticipate that the adoption of SFAS 133 will not have a significant effect on the financial condition or results of operations of the Company. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," (SAB 101"), which was required to be adopted in the fourth calendar quarter of 2000. SAB 101 sets forth certain criteria, including the existence of persuasive evidence of an arrangement, which must be met in order that revenue be recognized. The adoption of SAB 101 has not had a material impact on the Company's results of operations. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000. The application of FIN 44 has not had a material impact on the Company's financial results. 2. MERGER WITH XTRANA, INC. Effective August 10, 2000, Xtrana, Inc. was merged with and into the Company pursuant to an Agreement and Plan of Reorganization dated May 3, 2000, between Xtrana and the Company, as reported on the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 32 11, 2000, and amended October 24, 2000. The Company issued 8,829,461 shares of the Company's common stock in exchange for all the outstanding capital stock of Xtrana. Of the total shares issued, 936,946 shares are held in excrow and are contingently cancelable if certain sales objectives for the Xtrana business are not met. The contingently cancelable consideration would be recorded as additional purchase price when the contingency is resolved. The contingent shares are reflected as outstanding common stock as the holders of these shares have full right to vote the shares while in escrow. Additionally, as a part of the merger, 998,366 warrants with an estimated fair value of $587,000 were issued to warrant holders of Xtrana and certain financial advisors. The former stockholders of Xtrana now hold approximately 50% of the outstanding stock of the Company, on a fully diluted basis. The total estimated fair value of stock and warrants issued in connection with the merger was approximately $8.7 million, and the Company incurred additional cash expenses related to the merger of $0.4 million. The purchase price was allocated to the assets acquired, based on their fair market value. The excess of the purchase price over the fair value of the $0.8 million in net liabilities assumed (goodwill) was approximately $9.9 million and is being amortized on a straight-line basis over 10 years. The results of operations of Xtrana have been included in the accompanying consolidated statements of operations from the date of merger. The pro forma unaudited results of operations for the twelve months ended December 31, 2000 and 1999, assuming the consummation of the merger as of January 1 of each period, are as follows: Twelve Months Ended December 31 2000 1999 ------------------------------- --------- --------- (in thousands except per share data) Sales $ 10,533 $ 9,767 Net loss from continuing operations $ (2,189) $ (1,560) Net loss $ (2,267) $ (1,246) Weighted average shares outstanding Basic 17,163 16,268 Diluted 17,163 16,268 Basic and diluted earnings per share Continuing operations $ (0.13) $ (0.10) Discontinued operations 0.02 --------- --------- Net income $ (0.13) $ (0.08) ========= ==========
The pro forma presentation for the period ended December 31, 1999 has been adjusted from the presentation previously reported in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 11, 2000, and amended October 24, 2000. The adjustment reflects a change in the amortization schedule for goodwill from twenty years to ten years. The total adjustment was an increase in amortization expense of $545,000. 3. DISCONTINUED OPERATIONS In April 1999, the Company decided to discontinue its blood serology business, BCA, a Division of Biopool. The Company decided to sell this business in order to concentrate on its core businesses that manufacture hemostasis and fibrinolysis products. On April 30, 1999, the Company consummated the sale of certain business assets of BCA for $4.45 million in cash. These assets consisted primarily of inventory and accounts receivable. A portion of the proceeds of the sale was used to pay off a note payable of $1.8 million. BCA ceased operations to the Company's benefit effective May 1, 1999, but continued to convert certain inventory items on behalf of the buyer through June 30, 1999. The Company recorded a gain on the disposal of BCA of $265,000, or $196,000 after applicable income taxes. In connection with the sale of certain assets of BCA, the Company paid brokers fees of $145,000 to a company owned by a member of the Board of 33 Directors and such expense is included in the net gain on disposal of discontinued operations. At December 31, 1999, net assets of discontinued operations consisted primarily of the BCA property and plant amounting to $2.1 million. The property and plant were sold for $2.1 million during the second quarter of 2000. During 2000, the final expenses related to the discontinued operations were recognized in the amount of $78,000. A summary of the results of discontinued operations and net gain on disposal is as follows: Year ended December 31, (in thousands) 1999 --------------------------------------------------------------------------- Revenues $ 2,489 ========== Income (loss) before taxes 15 Income tax benefit 103 ---------- Income (loss) from discontinued operations 118 Net gain on disposal, net of income tax effect 196 ---------- Net income (loss) from discontinued operations $ 314 ==========
The income tax benefit for discontinued operations relates to local tax credits taken in the years indicated. 4. INVENTORIES (in thousands) Inventories consist of the following:
December 31, 2000 1999 ---------- ---------- Raw materials $ 584 $ 710 Work-in-process 685 646 Finished goods 966 725 Reserves (179) (140) ---------- ---------- 2,056 $ 1,941 ========== ==========
5. REVOLVING LINE OF CREDIT As of December 31, 2000, the Company had a line of credit totaling $2,125,000, of which $2,000,000 was unused and available. Approximately $125,000 of the credit line represents a standby letter of credit issued as a security deposit in conjunction with the lease of the Broomfield, Colorado facility. This letter of credit is secured by restricted cash balances equal to the amount outstanding under the letter of credit. 6. COMMITMENTS AND CONTINGENCIES Leases The Company leases certain equipment and facilities under non-cancellable operating leases. Lease expense for 2000 and 1999 was approximately $358,000 and $240,000, respectively. At December 31, 2000, approximate minimum annual lease commitments were $438,000 in 2001, $371,000 in 2002, $319,000 in 2003, $318,000 in 2004, and $323,000 in 2005. Royalties The Company has various agreements requiring royalty payments on certain products the Company currently commercializes. Royalties range from 3% to 25% of sales of the related products. Royalty expense amounted to $45,000 and $62,000 in 2000 and 1999, respectively. 34 Litigation On March 26, 2001, we entered into a settlement agreement with Agen Biomedical Ltd. with regard to a patent infringement filed on March 10, 2000, by Agen. As a part of the settlement, the Company and Agen have entered into a non-exclusive license agreement for the underlying patent and all claims by Agen and counter claims made by us have been dropped. We do not believe that the settlement will have a material impact on our results of operations. 7. EQUITY On August 10, 2000, stockholders approved the merger with Xtrana, Inc. In connection with the merger, we issued 9,369,461 shares of common stock, 936,946 shares of which are held in escrow subject to the achievement of certain sales objectives for the Xtrana business as described in the Company's current report on Form 8-K filed with the Securities and Exchange Commission on August 11, 2000, and amended on October 24, 2000. 8. STOCK OPTION PLANS The Company has three stock option plans (the "Plans") for the benefit of employees, officers, directors, and consultants of the Company. Under the Plans, a total of 5,226,639 shares of the Company's common stock were reserved for issuance. Options granted under the Plans are generally exercisable for a period of ten years from the date of grant at an exercise price that is not less than the closing price of the common stock on the date of grant. Options granted under the Plans generally vest over a one- to five-year period from the date of the grant. Stock option activity for 1999 and 2000 was as follows:
Weighted Average Shares Exercise Outstanding Price Range Price ----------- ----------- ----- Balance at January 1, 1999 1,710,210 0.6250 - 2.6800 1.54 Granted 156,634 0.9400 - 0.9400 0.94 Cancelled (599,494) 0.7190 - 2.5000 1.49 --------- Balance at December 31, 1999 1,267,350 0.6250 - 2.6800 1.49 ========= Granted 1,575,000 0.8750 - 1.7500 1.14 Exercised (46,565) 0.9375 - 1.4400 1.13 Cancelled (488,854) 0.6250 - 2.5000 1.69 --------- Balance at December 31, 2000 2,306,931 0.6600 - 2.6800 1.22 =========
At December 31, 2000, 2,919,708 shares were available for future grants under the Plans. The weighted average remaining contractual life of outstanding options at December 31, 2000, was 8.73 years. At December 31, 2000 and 1999, respectively, there were 633,983 and 773,717 options exercisable with weighted average exercise prices of $1.35 and $1.53. Pro forma information regarding net income (loss) and earnings per share shown below was determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value of the options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 6.38% for 2000 and 5% in 1999; dividend yields of 0.0% for 2000 and 1999; volatility factors of the expected market price of the 35 Company's common stock of 73% for 2000 and 66% for 1999; and expected life of the options of one to five years as grouped by specific employee classifications. These assumptions resulted in weighted average fair values of $0.55 and $0.37 per share for stock options granted in 2000 and 1999, respectively. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. The Company's employee stock options have characteristics significantly different from those of traded options such as vesting restrictions and extremely limited transferability. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the option vesting periods. The pro forma effect on net income through 1999 is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. In 2000, however, the pro forma results include a full four years worth of option grants. The Company's pro forma information is as follows (in thousands except share data):
Years ended December 31, 2000 1999 --------------------------------------------------------------------------- Pro forma net income (loss) from continuing operations $(1,256) $ 272 Pro forma earnings (loss) per share from continuing operations Basic (0.11) 0.03 Diluted (0.11) 0.03
As of December 31, 2000, the Company had 1,058,366 warrants to purchase common stock outstanding and exercisable for prices ranging from $0.24 to $1.875 with a weighted average exercise price of $0.71 per share. The weighted average remaining contractual life of these warrants at December 31, 2000 was 8.4 years. These warrants have expiration dates ranging from 2003 to 2010. 9. SEGMENT INFORMATION The Company currently operates in two industries, in vitro diagnostic medical products and nucleic acid (DNA/RNA) testing. Within the in vitro diagnostic medical products industry, the Company has two reportable segments; Biopool International and its wholly-owned operating subsidiary, Biopool Sweden. These two segments each manufacture and sell distinct products with different production processes. Biopool International manufactures hemostasis products, and Biopool Sweden primarily manufactures fibrinolytic system testing kits. The nucleic aicd (DNA/RNA) testing segment is operated under the Xtrana name and was acquired by the Company on August 10, 2000. The Company evaluates the segments and allocates resources based on revenue and estimated return on investment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. 36 The consolidated financial statements include the following information for the continuing operation of Biopool International, Biopool Sweden, and Xtrana in thousands of dollars.
Inter- Biopool Company Interna- Biopool Elimina- Consoli- tional Sweden Xtrana tions idated - ------------------------------------------------------------------------------- 2000 Sales ................. $ 7,670 $ 3,212 $ 116 $(1,160) $ 9,838 Less intercompany ..... (532) (628) -- (1,160) -- ------- ------- ------- ------- ------- Sales to unaffiliated customers ........... 7,138 2,584 116 -- 9,838 Depreciation and amortization ........ 417 97 388 -- 902 Income (loss) from continuing operations (328) 480 (1,188) 5 (1,031) Total assets .......... 9,173 2,445 9,632 (2,520) 18,730 Long-lived assets ..... 614 350 9 -- 973 Expenditures for long- lived assets ........ 168 129 4 -- 301 - -------------------------------------------------------------------------------- 1999 Sales ................. $ 6,979 $ 3,023 $(1,160) $ 8,842 Less intercompany ..... (461) (699) 1,160 -- ------- ------- ------- ------- Sales to unafilliated customers ........... 6,518 2,324 -- 8,842 Depreciation and amortization ........ 348 178 -- 526 Income from continuing operations .......... 177 241 (18) 400 Total assets .......... 8,772 2,369 (108) 11,033 Long-lived assets ..... 783 343 -- 1,126 Expenditures for long- lived assets ........ 65 188 -- 253 - --------------------------------------------------------------------------------
Product sales to affiliates are generally priced at cost plus 30%. Information regarding the Company's sales by geographic locations is as follows:
2000 1999 -------------------------------------------------------------------------- United States $ 5,685 $ 5,127 Western Europe 2,616 2,355 Latin America 544 513 Asia/Pacific Region 275 428 Other 718 419 --------- --------- Total $ 9,838 $ 8,842 ========= =========
37 10. INCOME TAXES The provision for income taxes is composed of the following (in thousands):
Years ended December 31, 2000 1999 -------------------------------------------------------------------------- Current: Federal $ (9) $ 11 State 29 11 Foreign 138 78 --------- --------- 158 100 Deferred: Federal 327 203 State 36 23 Foreign 42 14 --------- --------- 405 240 --------- --------- Net expense (benefit) $ 563 $ 340 ========= =========
The reconciliation of income tax computed at the U.S. Federal Statutory rates to the income tax provision is as follows:
Years ended December 31, 2000 1999 --------------------------------------------------------------------------- Tax at U.S. statutory rate (34%) $ (159) $ 252 State income tax 33 31 Permanent differences 153 43 Foreign tax effect (85) (19) Valuation Allowance 589 -- Other 32 33 --------- --------- Net expense (benefit) $ 563 $ 340 ========= =========
The components of the Company's deferred tax assets and liabilities at December 31 are as follows:
2000 1999 -------------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforwards $ 861 $ 224 Other 217 139 --------- --------- 1,078 363 Valuation reserve (1,078) -- --------- --------- -- 363 Deferred tax liabilities: Foreign (164) (122) --------- --------- Net deferred tax (liability) asset $ (164) $ 241 ========= =========
The difference between our effective tax rate for 2000 and the 34% federal statutory tax rate was primarily due to the effects of state and foreign income taxes, non-deductible goodwill amortization as well as the provision for a full valuation allowance on all net operating loss carryforwards available to the Company. At December 31, 2000, the Company had available net operating loss carryforwards of approximately $2,533,000 in the United States. The United States carryforwards expire in varying amounts through 2010. Under section 382 of the Internal Revenue Code, the utilization of the federal net operating loss carryforwards may be limited based on changes in the percentage of ownership in the Company. 38 Biopool Sweden files separate income tax returns in Sweden. The pretax income of Biopool Sweden was approximately $656,000 and $327,000 at December 31, 2000 and 1999, respectively. Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $1,547,000 at December 31, 2000. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. 11. RETIREMENT PLAN The Company has a defined contribution plan for its domestic operations under which employees who have satisfied minimum age and service requirements may defer compensation pursuant to Section 401(k) of the Internal Revenue Code. Participants in the plan may contribute between 1% and 12% of their pay, subject to the limitations placed by the IRS. The Company, at its discretion, may match a portion of the amount contributed by the employee. The Company contributions are offset by forfeitures of unvested balances for terminated employees. The net Company contributions were $34,000 and $33,000 in 2000 and 1999, respectively. 12. SUBSEQUENT EVENT On February 9, 2001, the Company announced the resignation of its Chief Executive officer, John H. Wheeler. Mr. Wheeler resigned because of philosophical differences with the Board of Directors. The Board has created an Executive Committee consisting of Board members, Michael D. Bick, Ph.D., and James H. Chamberlain, and appointed Timothy J. Dahltorp, the Chief Financial Officer of the Company, as interim Chief Operating Officer. A search for a new Chief Executive Officer is underway. 13. RELATED PARTY TRANSACTIONS As a part of the Xtrana merger, Price Paschall, a Director of the Company, was issued 225,000 warrants to purchase common stock of the Company at a strike price of $0.85936 per share on May 3, 2000, which expire in 2010. The warrants were issued as consideration for financial advisory services rendered in connection with the merger. The fair value of the warrants in excess of the exercise price is included as a component of the merger consideration. 39 EX-21 2 exhibit21.txt EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 BIOPOOL INTERNATIONAL, INC. Subsidiary of the Registrant Biopool AB ("Biopool Sweden") S-903 47 Umea, Sweden 40 EX-23 3 exhibit23-1.txt EXHIBIT 23.1 - CONSENT OF AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement Form S-8 No. 333-22819 pertaining to the Biopool International, Inc. 1993 Stock Incentive Plan of our report dated March 1, 2001, with respect to the consolidated financial statements of Biopool International, Inc. included in the Annual Report on Form 10-KSB for the year ended December 31, 2000, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP --------------------- Ernst & Young LLP Denver, Colorado March 29, 2001 41 -----END PRIVACY-ENHANCED MESSAGE-----