Overview

             We are a provider of innovative, enabling tools for drug discovery research at pharmaceutical and biotechnology companies, universities and government research laboratories. We focus on protein and DNA analysis with our lines of spectrophotometers, plate readers and protein/DNA sample preparation products, and ADMET screening with products that provide testing for absorption, distribution, metabolism, elimination and toxicity of drug candidates.  We have an established brand and a business that sells to major research entities; multiple channels of distribution including a long-standing agreement with one of the largest life science companies; and collaborative agreements with major pharmaceutical companies.  With the acquisition in May 2001 of Union Biometrica, Inc., we offer products that enable high throughput analysis and sorting of model organisms in both target validation and ADMET.

             In the second quarter of 2001 we made three acquisitions.  Please refer to Note 2 of the  “Notes to Unaudited Consolidated Financial Statements”. Upon consummation of the Warner Instruments and Union Biometrica acquisitions in May 2001, we charged to income $159,000 and approximately $5.3 million , respectively, representing the estimated value of purchased in-process technology that had not yet reached technological feasibility and had no alternative future use.  The value was determined by estimating the costs to develop the purchased in-process technology into commercially viable products, estimating the resulting net cash flows from each project, and discounting the net cash flows to their present values.  The discount rate for each project took into account the uncertainty surrounding the successful development and commercialization of the purchased in-process technology.  The net cash flows from each project were based on our management’s best estimates of revenue, cost of sales, research and development costs, selling, general and administrative costs and income taxes and reflect assumptions that we believe would be used by market participants.   We believe that the assumptions we used in the valuation of purchased in-process technology represent reasonably reliable estimates of the future benefits attributable to the purchased in-process research and development projects.  If these projects are not successfully developed, our revenue and profitability may be adversely affected in future periods.  Additionally, the value of other intangible assets acquired may become impaired.  We intend to use our existing cash to develop the purchased in-process technology into commercially viable products.  This primarily consists of the completion of all planning, designing, prototyping, high-volume manufacturing verification and testing activities that are necessary to establish that a product can be produced to its design specifications.  As of the acquisition dates for Union Biometrica and Warner Instruments, the estimated costs to be incurred to develop the purchased in-process technology into commercially viable products totaled approximately $3.9 million ($3.8 million for Union Biometrica and $74,000 for Warner Instruments).  Investments of this nature may result in near term earnings fluctuations or affect the magnitude of profitability or loss.

Results of Operations

Three months ended June 30, 2001 compared to three months ended June 30, 2000:

Revenues.  Total revenues increased $2.3 million, or 31%, to $9.7 million in the second quarter of 2001 from $7.4 million for the same period in 2000.  Product revenues increased $2.2 million, or 30%, to $9.6 million from $7.4 million.  The product revenue increase resulted from organic growth lead by North America, newly introduced products and the effect of acquisitions. Research revenues resulted from collaborations on our COPAS technology, acquired in the Union Biometrica transaction. Total revenues for the second quarter of 2001 would have been approximately $10.1 million on a constant currency basis, an increase of 36% over the same period in 2000.

Cost of product revenue.  Cost of product revenue increased $1.0 million, or 26%, to $4.9 million in the second quarter of 2001 from $3.9 million in the second quarter of 2000. Approximately 46% of the increase resulted from acquisitions and the balance from organic growth.  As a percentage of product revenues, cost of product revenue was 50.6% in the second quarter of 2001 compared to 52.2% in the second quarter of 2000.  The decrease was due primarily to a larger proportion of domestic revenues in total revenues, which have a lower cost as a percentage of revenues.

General and administrative expense.  General and administrative expense increased approximately $782,000, or 72%, to $1.9 million in the second quarter of 2001 from $1.1 million for the same period in 2000.  As a percentage of revenues, general and administrative expense increased to 19.2% in the second quarter 2001 from 14.7% for the same period in 2000.  The increase was due to incremental costs related to operating as a public company and general and administrative expense from businesses acquired since the second quarter of 2000.

Sales and marketing expense. For the second quarter of 2001, sales and marketing expense increased $342,000 or 42%, to $1.1 million from $806,000 for the same period in 2000. The increase was primarily due to acquisitions. As a percentage of revenues, sales and marketing expense was 11.8% for the second quarter of 2001 compared to 10.9% in the second quarter of 2000 reflecting targeted incremental investments made to increase sales in the new markets represented by the acquisitions.   

Research and development expense.  Research and development spending increased $170,000, or 38%, to $618,000 in the second quarter of 2001 from $448,000 in the second quarter of 2000. The increase was due to the acquisitions we have made since the second quarter of 2000.  As a percentage of revenues, research and development expense was 6.4% in 2001 and 6.1% in the same period of 2000 reflecting the effect of the higher level of research and development spending in our newly acquired technologies.

Purchased in-process research and development.  For the second quarter of 2001 we charged approximately $5.3 million for acquired in-process research and development related to the acquisition of Union Biometrica and  $159,000 for acquired in-process research and development related to the acquisition of Warner Instruments.

Stock compensation expense. We recorded approximately $779,000 of stock compensation expense in the second quarter of 2001, including $4,000 related to the acquisition of Union Biometrica, compared to approximately $100,000 in the second quarter of 2000.  Including $68,000 in relation to the acquisition of Union Biometrica, we will recognize approximately $3.7 million of additional expense over the remaining vesting life of the options.

Amortization of goodwill and other intangibles . Amortization of goodwill and other intangibles amounted to $303,000 in the second quarter of 2001 and $128,000 for the same period in 2000. This increase was the result of amortizing goodwill and other intangibles incurred in connection with our acquisitions since the second quarter of 2000 including $89,000 from the acquisition of Union Biometrica and $30,000 from the acquisition of Warner Instruments.

Other income(expense), net. For the second quarter of 2001, other income, net, was $377,000 compared to other expense, net, of $63.0 million for the same period in 2000. Other expense, net, for the second quarter of 2000 included a non-cash charge for common stock warrant interest expense of $62.6 million, which represented the accrual of a liability to warrant holders requiring us to pay cash equal to the fair market value of the warrants in exchange for the warrants, or any common stock from the exercise of the warrants, beginning March 15, 2002.  Effective with our initial public offering of common stock in December 2000, the warrants were exercised for common stock and, as a result, the right to be paid cash terminated.  Net interest income for the second quarter of 2001 was $406,000 compared to net interest expense of  $203,000 in the second quarter of 2000 reflecting our conversion in December 2000 from a private company with debt to a debt-free, public company with interest income from the proceeds of our initial public offering.  Currency loss in the second quarter of 2001 was $31,000 due primarily to dollar denominated debt in a foreign subsidiary compared to a loss of $193,000 for the same period last year.

Income Taxes. The Company's effective income tax rate was 35.2 % for the second quarter of 2001 and 33.2% for the second quarter of 2000 notwithstanding the effect of stock compensation expense, some of which is not deductible for income tax purposes and amortization of nondeductible goodwill and other intangibles and, for 2000, common stock warrant interest expense, which is not deductible for income tax purposes and for 2001, in process research and development which is not deductible for income tax purposes.  The increase in the rate was due to higher projected earnings in higher tax jurisdictions substantially offset by holding the majority of the proceeds from our initial public offering in a Massachusetts security corporation, which imposes a lower tax rate on interest income than the statutory Massachusetts corporate income tax rate for operating corporations.

Six months ended June 30, 2001 compared to six months ended June 30, 2000:

Revenues.  Total revenues increased $3.9 million, or 27%, to $18.3 million in the first half of 2001 from $14.5 million for the same period in 2000.  The increase resulted primarily from organic growth supplemented by revenues from acquired product lines and, to a lesser extent, from acquisitions made near the end of the second quarter of 2001. Total revenues for the first half of 2001 would have been approximately $19.2 million on a constant currency basis, an increase of 32% over the same period in 2000.

Cost of product revenue.  Cost of product revenue increased $1.7 million, or 23%, to $9.2 million in the first half of 2001 from $7.5 million in the first half of 2000. As a percentage of product revenues, cost of product revenue was 50.6% in the first six months of 2001 compared to 51.8% in the first six months of 2000.  The decrease was due primarily to higher throughput in one of our UK subsidiaries and a larger proportion of domestic revenues in total revenues, which have lower cost as a percentage of revenues.

General and administrative expense.  General and administrative expense increased approximately $1.2 million, or 56%, to $3.3 million for the first six months in 2001 from $2.1 million for the first six months in 2000. As a percentage of revenues, general and administrative expense increased to 18.2% in the first half 2001 from 14.8% for the same period in 2000.  The increase was primarily due to incremental costs related to operating as a public company and from administrative expenses from businesses acquired since the first half of 2000 and to a lesser extent, legal expenses incurred in connection with the Harvard University lawsuit.

Sales and marketing expense. For the first half of 2001, sales and marketing expense increased $597,000 or 41%, to $2.0 million from $1.4 million for the same period in 2000. The increase was primarily due to the addition of marketing personnel and acquisitions. As a percentage of revenues, sales and marketing expense was 11.1% for the first six months in 2001 compared to 10.0% in the first six months of 2000 reflecting additional investment for the promotion of newly acquired technology.

Research and development expense.  Research and development spending increased $249,000, or 31%, to $1.0 in the first half of 2001 from $799,000 in the first half of 2000. The increase in research and development expense resulted primarily from additional research and development expenses incurred in acquired businesses. As a percentage of revenues, research and development expense was 5.7% in the first six months of 2001 and 5.5% in the same period of 2000 reflecting the effect of the higher rate of research and development spending in our newly acquired technologies.

Purchased in-process research and development.  For the first half of 2001 we charged approximately $5.3 million for acquired in-process research and development related to the acquisition of Union Biometrica and  $159,000 for acquired in-process research and development related to the acquisition of Warner Instruments.

Stock compensation expense.We recorded approximately $1.5 million of stock compensation expense in the six months ended June 30, 2001 compared to approximately $184,000 for the same period of 2000.

Amortization of goodwill and other intangibles. Amortization of goodwill and other intangibles amounted to $487,000 in the first half of 2001 and $260,000 for the same period in 2000. This increase was the result of amortizing goodwill and other intangibles incurred in connection with our acquisitions since the second quarter of 2000.

Other income(expense), net. For the first six months of 2001, other income, net, was $721,000 compared to other expense, net, of $68.2 million for the same period in 2000. Other expense, net, for the first half of 2000 included a non-cash charge for common stock warrant interest expense of $67.5 million, which represented the accrual of a liability to warrant holders to require us to pay cash equal to the fair market value of the warrants in exchange for the warrants, or any common stock from the exercise of the warrants, beginning March 15, 2002.  Effective with our initial public offering of common stock in December 2000, the warrants were exercised for common stock and, as a result, the right to be paid cash terminated.  Net interest income for the first half of 2001 was $951,000 compared to net interest expense of  $396,000 in the first half of 2000 reflecting our conversion in December 2000, through an initial public offering, from a private company with debt to a public company with interest income from the proceeds of the initial public offering and no debt.  Currency loss in the first half of 2001 was $237,000 due primarily to dollar denominated debt in a foreign subsidiary compared to $280,000 for the same period last year.

Income Taxes. The Company's effective income tax rate was 35.6 % for the first half of 2001 and 33.0% for the first half of 2000 notwithstanding the effect of stock compensation expense, some of which is not deductible for income tax purposes and amortization of nondeductible goodwill and other intangibles and, for 2000, common stock warrant interest expense, which is not deductible for income tax purposes and for 2001, in process research and development which is not deductible for income tax purposes. The increase in the rate was due to higher projected earnings in higher tax jurisdictions substantially offset by holding the majority of the proceeds from our initial public offering in a Massachusetts security corporation, which imposes a lower tax rate on interest income than the statutory Massachusetts corporate income tax rate for operating corporations.

Liquidity and Capital Resources

             Historically, we have financed our business through cash provided by operating activities, the issuance of common stock, preferred stock, and bank borrowings. Our liquidity requirements have arisen primarily from investing activities, including funding of acquisitions, payments on outstanding indebtedness, research and development expenditures, and capital expenditures. As of June 30, 2001, we had cash of $31.2 million, a decrease of $4.6 million from December 31, 2000 primarily due to the use of approximately $11.6 million to fund three acquisitions in the second quarter of 2001 partially offset by the approximately $7.0 million in net proceeds received in connection with the underwriter’s exercise of the over allotment option in the first quarter of 2001.

             During the first six months of 2001, our operating activities provided cash of $2.7 million compared to $1.2 million for the same period in 2000. For both periods operating cash flows were primarily due to profitable operating results, prior to non-cash charges, partially offset by working capital requirements.

             Our investing activities used cash of $12.3 million for the first half of 2001 and $1.3 million for the first half of 2000.   In the second quarter of 2001, we used cash in acquisitions in the amount of $2.6 million for Warner Instruments, $7.5 million for Union Biometrica, and $1.5 million for IMS.  The investing activity for the first half of 2001 also included a new business system for our Holliston, MA operations.  The investing activity for the first half of 2000 was due to the creation of a new product catalog and the acquisition of Biotronik.

             Our financing activities have historically consisted of borrowings under a revolving credit facility, the issuance of long-term debt and the issuance of preferred stock and common stock, including our initial public offering.  Upon receipt of the initial public offering proceeds on December 12, 2000, we repaid all debt and redeemed all outstanding preferred stock.  During the first six months of 2001, financing activities provided cash of $6.6 million, which netted to $5.1 million after payment of previously accrued initial public offering expenses.  For the same period in 2000 we had proceeds from stock option exercises and net borrowing and payments under our various agreements that amounted to $18,000.

             Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary as a result of a number of factors. Based on our operating plans, we expect that proceeds from the initial public offering, available cash and cash generated from operations will be sufficient to finance operations and capital expenditures for at least two years from June 30, 2001.  However, we may use substantial amounts of capital to accelerate product development, expand our sales and marketing activities or make acquisitions. We may need to raise additional capital to the extent that we exhaust our available capital through these activities.  Additional capital raising activities may dilute the ownership interests of existing stockholders to the extent we raise capital by issuing equity securities. Moreover, additional capital may not be available on acceptable terms or at all. Accordingly, there can be no assurance that we will be successful in raising additional capital.