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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KForm 10-K/A
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1997,1999, or
[ ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______________________________ to __________________________________
Commission file number 000-21615
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BOSTON BIOMEDICA, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Massachusetts
- ---------------------------------------- 04-2652826
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(State or other Jurisdiction of (I.R.S. Employer-------------------------------
Incorporation or Organization) (I.R.S. Employer
375 West Street, Identification No.)
375 WEST STREET,
WEST BRIDGEWATER, MASSACHUSETTSWest Bridgewater, Massachusetts 02379-1040
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(Address of Principal Executive Offices) (zip code)
Registrant's telephone number, including area code (508) 580-1900
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OFTHE ACT:---------------
Securities registered pursuant to Section 12(b) of the Act:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated beby reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ]
The aggregate market value of the voting common stock held by
non-affiliates of the Registrantregistrant at March 17, 1998February 29, 2000 was $27,754,339. The aggregate market
value was computed by reference to$49,248,992, based on
the closing price as of that date on
NASDAQ.
The number of shares outstanding of the Registrant's only class of common stock as quoted on the Nasdaq National Market on
that date.
As of March 17, 1998 was 4,643,172.
DOCUMENTS INCORPORATED BY REFERENCE24, 2000 there were 5,441,960 shares of the registrant's
common stock outstanding.
Documents Incorporated by Reference
-----------------------------------
Portions of the Registrant'sregistrant's definitive Proxy Statement forproxy statement involving the
election of directors at its 19972000 annual meeting, which is expected to be filed
within 120 days after the end of the registrant's fiscal year, are incorporated
by reference into Part III of this Report, and
portions of the Registrant's Registration Statement on Form S-1 (Registration
No. 333-10759) are incorporated by reference into Part IV of this Report.report.
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PART I
ITEM 1. BUSINESS
Boston Biomedica, Inc. and its wholly-owned subsidiaries (together,
"the Company"), provide products and services for the detection and treatment of
infectious diseases such as AIDS, Lyme Disease, and Viral Hepatitis. The Company
is a worldwide providerhas four business units, which are comparable to operating segments (the terms
"business units" and "operating segments" are used herein interchangeably):
(1) BBI Diagnostics, an ISO 9001 certified manufacturer of proprietary quality
control and other diagnostic products for use withused to increase the
accuracy of in vitro diagnostic test kits ("test kits")tests;
(2) BBI Clinical Laboratories, a leading infectious disease testing
laboratory, specializing in nucleic acid based testing, tick borne
diseases, and blood bank confirmatory testing;
(3) BBI Biotech Research Laboratories, the research and development
arm of the Company which supplements its support for the detection, analysisother BBI
business units with research contracts and monitoringrepository services
primarily for agencies of the United States government; and
(4) BBI Source Scientific, an ISO 9001 and EN 46001 certified
manufacturer of laboratory and medical instruments.
In addition, the Company is pursuing research and development programs in the
areas of Pressure Cycling Technology ("PCT") and drug discovery, with the goals
of introducing new solutions for improving blood plasma safety, specimen
preparation in nucleic acid testing, and treatment of infectious diseases, including AIDS,
Hepatitis and Lyme Disease. These products are used to develop test kits, to
permit the monitoring of laboratory equipment and personnel, and to help ensure
the accuracy of test results. The Company's products are derived from human
plasma and serum using proprietary manufacturing processes.diseases.
The Company believes its Quality Control Panel products are viewed aswas organized in Massachusetts in 1978, and commenced
significant operations in 1986.
In July 1999, the current industry
standardCompany announced a major reorganization and the
formation of a corporate function. Pursuant to this reorganization a Senior
Vice President and General Manager was appointed for each business unit,
reporting to the independent assessmentPresident & Chief Operating Officer. The responsibility of
the performanceGeneral Manager is to achieve the agreed upon goals and plan of HIVthe
business unit. The primary focus of corporate is to oversee the business
units and Hepatitis
test kits. Theguide them according to the strategic direction of the Company.
In September 1999, the Company also manufactures diagnostic test kit components,moved its research and development
activities in PCT from leased laboratory instruments,space in Woburn, Massachusetts to its
BBI Biotech facility in Gaithersburg, Maryland. This was done to allow the
scientific team working on PCT to have easy and provides specialty laboratory services,open access to the molecular and
cellular biology capabilities at BBI Biotech, as well as to reduce operating
costs and promote efficiencies.
In October 1999, the Company formed a new, wholly-owned subsidiary,
Panacos Pharmaceuticals, Inc., ("Panacos"), a Delaware corporation. All of the
Company's technology related to its drug discovery and vaccine programs,
consisting primarily of patents and related sponsored research agreements, were
transferred to Panacos effective January 2000. Management intends to sell a
substantial portion of Panacos to third party investors in order to obtain the
substantial amount of capital required to progress to more advanced stages of
drug development including human clinical trials. It also provides contract instrument developmentIf successful in raising
capital, the Company plans to become a less than 50% shareholder in Panacos,
give up operational control, and related
repairs atswitch to the equity method of accounting for
its service center in Garden Grove, CA. The Company's customers
include test kit manufacturers, regulatory agencies and end-users of test kits
suchinvestment, as blood banks, hospital laboratories and clinical reference laboratories.
Currently the Company's products are used in connection with the detection of
more than 15 infectious diseases, and its specialty laboratory services are
used in connection with the detection of over 100 such diseases.opposed to consolidation accounting.
The Company's strategy is to leverage its scientific capabilities in
microbiology, immunology, virology, and molecular biology to (i)(1) capitalize on
both the emerging end-user market (ii)for quality control products, and the
molecular testing market, (2) develop new products and services, (iii)(3) enhance
technical leadership, (iv)(4) capitalize on complementary business operations, and
(v)(5) pursue strategic acquisitions and alliances.
-2-
Industry Overview
Infectious Disease Test Kits and Testing Methods. Test kits contain in
one compact package all of the materials necessary to run a test for an
infectious disease. These materials include the disposable diagnostic components,
instructions, and reaction mixing vessels (generally 96-well plates or test
tubes) whichthat are coated with the relevant infectious disease antigens, antibodies
or other materials. To perform the test typically, either a technician or a
specially designed instrument typically mixes the solutions from the test kit with human
blood specimens in a specific sequence according to the test kit instructions.
The mixture must then "incubate" for up to 18 hours, during which time a series
of biochemical reactions trigger signals (including color, light andor radioactive
count) which, that indicate the presence or absence and amount of specific markers of
the particular disease in the specimen.
Test kits generally employ one of three methods for infectious disease
testing: microbiology, immunology or molecular biology. Traditional microbiology
tests use a growth medium that enables an organism, if present, to replicate and
be detected visually. Immunology tests detect the antigen or antibody, which is
an indicator (marker) of the pathogen (e.g., virus, bacterium, fungus or
parasite). Molecular diagnostic methods, such as the polymerase chain reaction
("PCR"), test for the presence of nucleic acids (DNA or RNA) whichthat are specific
to a particular pathogen.
Most infectious disease tests currently use microbiological or
immunological methods. However, molecular diagnostic methods are increasingly
being used in research and clinical laboratories worldwide. The Company believes
that the advent of molecular diagnostic methods will complement rather than
diminish the need to test by microbiological and immunological procedures,
because different test methods reveal different information about a disease
state. The Company anticipates that as new test methods become more widespread,
they will account for a larger portion of the Company's business.
Quality Control for In Vitro Diagnostic Test Kits. Customers employ
quality control products in order to develop and use test kits (both infectious
and non-infectious). Quality control products help ensure that test kits detect
the correct analyte (specificity)("specificity"), detect it the same way every time
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(reproducibility("reproducibility" or precision)"precision"), and detect it at the appropriate levels
(sensitivity)("sensitivity"). The major element of this quality control process is the
continuous evaluation of test kits by the testing of carefully characterized
samples that resemble the donor or patient samples routinely used with the test.
Quality control is used in both the infectious and non-infectious disease
markets, although currently it is not as prevalent among end-users of infectious
disease test kits.
The market for quality control products consists of three main customer
segments:groups : (i) manufacturers of test kits, (ii) regulatory agencies that oversee
the manufacture and use of test kits, and (iii) end-users of test kits, such as
hospitals, clinical reference laboratories and blood banks.
Company Products and Services
Overview
TheThrough its business unit BBI Diagnostics, the Company offers twoa broad
product classes used inarray of "Diagnostic Products," for in vitro diagnostics ("IVD"): "Diagnostic Products"diagnostic use, consisting of
Quality Control Panels, Accurun(Accurun(R) Run Controls and Diagnostic Components, all
used in connection with infectious disease testing, and new for 1997, "Laboratory Instruments".testing. Diagnostic Products are used
throughout the entire test kit life cycle, from initial research and
development, through the regulatory approval process and test kit production, to
training, troubleshooting and routine use by end-users. The Company's Quality
Control Panels, which combine human blood specimens with comprehensive
quantitative data useful for comparative analysis, help ensure that test kits
detect the correct analyte (specificity), detect it the same way
every time (reproducibility),are as specific, reproducible, and detect it at the appropriate levels
(sensitivity).sensitive as possible. The Company's
Accurun(Accurun(R) Run Controls enable end-users of test kits to confirm the validity of
results by monitoring test performance, thereby minimizing false negative test
results and improving error detection. In addition, the Company provides
Diagnostic Components, which are custom processed human plasma and serum
products, to test kit manufacturers.
-3-
Through its wholly ownedwholly-owned subsidiary, BBI Source Scientific, Inc., ("BBI
Source"), the Company designs, manufactures and markets Laboratory Instruments"Laboratory
Instruments", consisting of readers and washers and other small medical devices.
These instruments are used in hospitals and clinics, and in research,
environmental and food testing laboratories. Utilizing a common hardware
technology platform, these instruments are used in connection with the
performance of an IVDIN VITRO diagnostics test, including reading the test result.
The Company'sThrough another wholly-owned subsidiary, BBI Clinical Laboratories,
Inc. ("BBICL") the Company provides specialty clinical laboratory services that
include both routine and sophisticated infectious disease testing in
microbiology, immunology and molecular biology. The CompanyBBICL seeks to focus its
specialty
laboratory services in those advanced areas of infectious disease testing
requiring special expertise.
BBI Biotech Research Laboratories, Inc., ("BBI Biotech"), another
wholly-owned subsidiary, is the R&D "arm" of the Company, helping to develop new
products and services for the other business units. BBI Biotech seeks to obtain
government grants and other research support wherever possible to help fund the
cost of this R&D. In addition, BBI Biotech provides contract research and clinical trialsrepository services for the
United States government, and other commercial services for domesticlaboratories and foreign
test kit manufacturers.
During each of the last three fiscal years, each of the Company's
operating segments contributed at least 15% of the Company's consolidated
revenue, with the exception of BBI Source in fiscal 1997 and 1999 and the
"Other" segment in fiscal 1999. The Company's Consolidated Financial Statements
set forth in Item 8 of this report provide financial information relating to
each of the Company's operating segments.
Diagnostic Products
The Company manufactures its Diagnostic Products from human plasma and
serum whichthat are obtained from nonprofit and commercial blood centers, primarily
in the United States. The Company has acquired and developed an inventory of
approximately 50,00030,000 individual blood units and specimens (with volumes ranging
from 1 ml to 800 ml) which provides most of the raw material for its products.
Within the Diagnostic Products class are two groups: Quality Control Products,
(Panelsconsisting of QC Panels and Accurun(Accurun(R) Run Controls)Controls, and Diagnostic Components.
Quality Control Panels
Quality Control Panels consist of blood products characterized by the
presence or absence of specific disease markers and a Data Sheetdata sheet containing
comprehensive quantitative data useful for comparative analysis. These Quality
Control Panels are designed for measuring overall test kit -3-
performance and
laboratory proficiency, as well as for training laboratory professionals. The
Company's Data Sheets, containingdata sheets, which contain comprehensive quantitative data useful for
comparative analysis, are an integral part of its Quality Control Panels. These
Data Sheetsdata sheets are created as the result of extensive testing of proposed panel
components in both the Company's laboratories and at major testing laboratories
on behalf of the Company in the United States and Europe, including national
public health laboratories, research and clinical laboratories and regulatory
agencies. These laboratories are selected based on their expertise in performing
the appropriate tests on a large scale in an actual clinical laboratory setting;
this testing process provides the Company's customers with the benefit that the
Quality Control Panels they purchase from the Company have undergone rigorous
testing in actual clinical laboratory settings. In addition, the Company
provides information on its Data Sheetsdata sheets on the reactivity of panel components in
all FDA licensed test kits and all leading European test kits for the target
pathogen, as well as for all other appropriate markers of this pathogen. For
example, the Company's HIV panel Data
Sheetsdata sheets include anti-HIV by IFA, ELISA and
western blot; HIV antigen by ELISA; and HIV RNA by several molecular diagnostic
procedures. The Company's Data
Sheetsdata sheets require significant time and scientific
expertise to prepare. The following table describes the types of Quality Control
Panel products currently offered by the Company.Company:
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QUALITY CONTROL PANEL PRODUCTSQuality Control Panels
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Product Line Description Use Customers
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PRODUCT LINE DESCRIPTION USE CUSTOMERS
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Seroconversion Panels Plasma samples collected from a Compare the clinical Test kit manufacturers and
single individual overraover a specific sensitivity of competing manufacturers andregulators.
time period showing conversion from manufacturers' test kits, regulators.
from
negative to positive for markers of enabling the user to assess
the
markers of an infectious disease. the sensitivity of a test in
disease.- detecting a developing
antigen/antibody.
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Performance Panels A set of 10 to 50 serum and plasma Determine test kit performance Test kit plasmamanufacturers and
samples collected from many different against all expected levels of manufacturersregulators.
individuals and many different individuals andcharacterized for the reactivities in the evaluation
regulators.
characterized for the presence or absence of a particular of new, modified and improved
absence of a particular disease marker. test methods.
marker.
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Sensitivity Panels Precise dilutions of human plasma or Evaluate the low-end analytical Test kit ormanufacturers.
serum human plasma or serum analytical sensitivity of a test kit. manufacturers
containing a known amount of an test kit.
infectious disease marker as
calibrated against international
standards.
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Qualification Panels Dilutions of human plasma or serum Demonstrate the consistent Clinical reference
serum
manifesting a full range of lot-to-lot performance of test laboratories, blood banks,
reactivities in test kits for a kits, troubleshoot problems, banks, and hospital laboratories.
specific marker. evaluate proficiency, and
train laboratories
laboratory technicians.
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OEM Panels Custom-designed Qualification Panels Train laboratory personnel on Custom designed Panelswith test kit
for regulators and test kit new test kits or equipment. with test kit
kitmanufacturers and regulators
manufacturers for manufacturers and
distribution to customers or for regulators as an
internal use. end-user product or for
customers or for internal use. internal use.
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Verification Panels Verification Panels contain naturally Verify accuracy and ensure Clinical reference
occurring undiluted samples at that reagents perform to laboratories, blood banks,
varying titers. expectation: also used to hospital laboratories.
troubleshoot system problems
and to document problem
resolution.
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The Company first introduced Quality Control Panels in 1987. The
Company currently offers a broad range of Quality Control Panels that address a
variety of needs of manufacturers and regulators of test kits as well as blood
banks, hospitals, clinical laboratories and other end-users. Prices for the
Company's quality control seroconversion, performance and sensitivity panels
range from $450 to $2,000 each, and its qualification, OEM, and OEMverification
panels generally range from $100 to $200 per panel.
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Seroconversion and Performance Panelsperformance panels are comprised of unique and rare
plasma specimens obtained from individuals during the short period of time when
the markers for a particular disease are converting from negative to positive.
As a result, the quantity of any such panel is limited, so that the Company must
replace these panels as they sell out with another panel comprised of different
specimens from a different individual, equally unique and rare. The Company
believes that its inventory and relationships with blood centers affords it a
competitive advantage in acquiring such plasma for replacement panels and
developing new products to meet market demand. There canHowever, the Company cannot be
no assurancecertain that the Companyit will be able to continue to obtain such specimens.
Quality Control Panels currently span the immunologic markers for AIDS
(i.e., HIV), Hepatitis (A, B and C), Lyme Disease and ToRCH (Toxoplasma,
rubella, cytomegalovirus and herpes simplex virus).
New introductions this year
include Performance Panels for HIV, EBV and HCV, Qualification Panels for HIV,
HTLV, CMV and HCV, and additional Seroconversion Panels for HIV and HCV.
Included in the Performance Panel category are the first "Worldwide" panels for
HCV and HIV that include specimens from throughout the world reactive for
variants and subtypes of these deadly viruses.
Accurun(r)Accurun(R) Run Controls
End-users of test kits utilize Run Controlsrun controls to confirm the validity of
results by monitoring test performance, thereby minimizing false negative test
results and improving error detection. Run controls consist of one or more
specimens of known reactivity that are tested together with donor or patient samples in
an assay to determine whether the assay is performing within the manufacturer's
specifications. Clinical laboratories generally process their patient specimens
in a batch processing mode, and typically include 25 to 100 specimens to be
tested in each batch (a "run"). Large laboratories may perform several runs per
day, while smaller laboratories may perform only a single run each day, or
sometimes only several runs per week. A clinical laboratory using a Run Controlrun control
will place the Run Controlrun control product in a testing well or test-tube,testtube, normally used
for a specimen, and will test it in the same manner that it tests the donor or
patient specimens. It will then compare the results generated to an acceptable
range for the run control, determined by the user, to measure whether the other,
unknown specimens are being accurately tested. The Run Controlrun control result must be
within the acceptable range to be considered valid. This is often tracked
visually using what is known as a Levey-Jennings chart. Depending upon a
particular laboratory's quality control practices, it may use several Run
Controls on each run or it may simply use a Run Controlrun control in a single run at the
beginning and end of the day.
In 1997, the Company introduced its AccuChartTMThe Company's AccuChart(TM) tracking and charting software. Usedsoftware, used as
part of a laboratory's quality assurance program, AccuChartTM
runs on a PCpersonal computer
and is designed to provide the data tracking capability needed to document
laboratory performance.
The Company's Accurun(r)Accurun(R) family of products is targeted at the emerging
market of end-users of infectious disease test kits. The Company believes that
it offers the most comprehensive line of Run Controlsrun controls in the industry, and that
its Accurun(r)Accurun(R) products, in combination with its Quality Control Panel products,
provide an extensive line of products for quality assurance in infectious
disease testing. The Company intends to continue to expand its line of
Accurun(r)Accurun(R) products, thereby providing its customers with the convenience and
cost effectiveness of a single supplier for independent run controls.
The Company introduced its first four Accurun(r)Accurun(R) Run Control products
in the fourth quarter of 1993 and has since developed and released for sale an
additional 31 Accurun(r)46 Accurun(R) products. Two products have been discontinued, for a
total of 35
-5-48 Run Controls.Controls available as of December 31, 1999. The majority of
these products are available for diagnostic purposes; the others currently are
limited to research use. Current Accurun(r)Accurun(R) Run Control products generally range
in price from $5 to $45$60 per milliliter and are described in the following table.
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ACCURUN(r)ACCURUN(R) RUN CONTROLS
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Product Description Number of Products Primary Customers
- ------------------------------- -------------------------------- ---------------------- ------------------------------
PRODUCT LINE DESCRIPTION CURRENT NUMBER OF PRIMARY CUSTOMERS
PRODUCTS
- - ------------------------------- -------------------------------- ---------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------------
Accurun(r)1-99Accurun 1(R) Multi Marker Multi-marker Run Control 6run controls for 12 Blood Banksbanks, plasma centers,
Positive Controls diagnostic immunological tests hospitals and clinical labs
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Accurun Immunological Positive Single marker run controls for 23 Hospitals and clinical labs
Controls diagnostic immunological tests
- - ------------------------------- -------------------------------- ---------------------- ------------------------------
Accurun(r)100-199 Single-marker Run Control 22 Hospitals and clinical----------------------------------------------------------------------------------------------------------------------------------
Accurun Nucleic Acid Positive Single Marker run controls for immunological tests reference laboratories
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Accurun(r)200-299 Multi-marker Run Control 15 Research and specialty labs
Controls amplified nucleic acid tests
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Accurun Reference Nucleic Acid Run controls calibrated to the 2 International plasma manufacturers
Controls World Health Organization and blood centers
standard.
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Accurun Negative Controls Negative run controls for molecular tests laboratories
- - ------------------------------- -------------------------------- ---------------------- ------------------------------
Accurun(r)300-399 Single-marker Run Control 3 Research and specialty
for immunological tests laboratories
- - ------------------------------- -------------------------------- ---------------------- ------------------------------
Accurun(r)800-899 Negative Run Control for 36 All laboratorieslabs
immunological and molecular
testsnucleic acid
testing
- - ------------------------------- -------------------------------- ---------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------------
All of the Company's Accurun(r)Accurun(R) Run Controls for diagnostic use require
either FDA premarket clearance (a 510(k)) or validation studies (if the products
are exempt from FDA submission requirements under the FDA Modernization Act of
1997), prior to being marketed for diagnostic use, under current
FDA rules. The FDA Modernization Act of 1997 will likely produce new
regulations exempting some of these products from FDA submission requirements,
but the new rules are not yet in place.use. As of March 1, 1998,2000, a total
of nine12 products in the Accurun 1(r)1(R) line and 1418 single analyte Accurun(Accurun(R)
controls have either received 510(k) clearance from the FDA. An additional three Accurun(r) single
analyte productsor have been submitted but have not yet received FDA approval.validated.
Diagnostic Components
Diagnostic Components are the individual materials supplied to
infectious disease test kit manufacturers and combined (often after further
processing by the manufacturer) with other materials to become the various fluid
components of the manufacturer's test kit. The Company supplies Diagnostic
Components in four product lines: Normal Human Plasma, Normal Human Serum,
Basematrix, and Characterized Disease State Serum and Plasma. Normal Human
Plasma and Serum are both the clear liquid portion of blood which contains
proteins, antibodies, hormones and other substances, except that the Serum
product has had the clotting factors removed. Basematrix, the Company's
proprietary processed serum product that has been chemically converted from
plasma, is designed to be a highly-stable, lower cost substitute for most Normal Human Serumnormal
human serum and Plasmaplasma applications. Characterized Disease State Serum and
Plasma are collected from specific blood donors pre-selected because of the
presence or absence of a particular disease marker. The Company often customizes
its Diagnostic Components by further processing the raw material to meet the
specifications of the test kit manufacturer. The Company's Diagnostic Components
range in price from $0.25 to $60 per milliliter, with the majority selling
between $0.50 and $5 per milliliter.
-6--7-
Laboratory Instruments
In 1997, the Company acquired the business and net assets of Source
Scientific, Inc., a laboratory instrument manufacturer in Garden Grove,
California. As a result of this acquisition, the Company through its wholly
owned subsidiary, BBI Source, Scientific, Inc. ("BBI Source"), now has expertise
in IVD instruments, adding to its existing capability in IVD quality control
products. This is significant since, in addition to the test kit and a well
trained technician, the third element to an accurate test result is a properly
calibrated instrument to read the test result. See also Note 2 to the Company's
Notes to Consolidated Financial Statements in Item 8 hereunder regarding the
Company's purchase of the business and net assets of Source Scientific, Inc.
BBI SourceLaboratory Instrumentation operating segment,
designs, manufactures and markets Laboratory Instrumentslaboratory instruments and other small
medical devices used in hospitals and clinics and in research, environmental
and food testing laboratories. TheyThese instruments are generally sold on a
private-label or OEM basis for other companies utilizing a common hardware
technology platform. The instruments manufactured by the Company use advanced
optical detection methods (luminescence, fluorescence, reflectance,
photometry), robotics, fluidics, and unique software, all of which isare
desired by customer companiescustomers reselling theor supplying state-of-the-art instrumentation
systems to clinical distributors and
laboratories worldwide.
Theworldwide in various applications.
Most of the Laboratory Instrumentation products currently being offered
by BBI Source have been commercialized since 1985.1985 and were primarily developed in conjunction
with IN VITRO diagnostics test kit manufacturers. BBI Source expects that its newest products will be
availablehopes to attract
development partners for production in late 1998.new prototype products. Management believes that these
products address important market segments in biomedical and clinical diagnostic
testing and in environmental monitoring and food testing research. The BBI
Source product line currently includes the following:
MicroChem(r)MicroChem(R) Photometer. A compact, low-cost, photometer designed for
immunoassay and general chemistry applications.
ChemStat(r)ChemStat(R) Automated Photometer. A high-speed, automated photometer
with a sample capacity of 95 tubes and a read rate of one sample per second.
This product is suited for high-volume processing.
ChemStat(r) Plus Automated Photometer. The ChemStat Plus is a second
generation photometer compatible with the EXEC-WASH Washing System that
features menu-driven software and optional on-board dispensers.
E/LUMINA(r)LUMINA(R) II Luminescence Analyzer. A flexible luminometer for both
"flash" and "glow" luminescence methods, this automated system reads up to 114
samples and reports final results.
E/LUMINA(r) 2E Automated Luminescence Analyzer. This detection system
is designed with the same features as the E/LUMINA Luminescence Analyzer that
can be used to detect faster "flash" luminescence techniques and adapts to
various formats, as well as to liquid phase assays.
EXEC-WASH(r)EXECWASH(R) Washing System. An automated immunoassay washing system
that can be quickly configured by the user to wash different solid-phase assay
formats by a propriety manifold design. The EXEC-WASH is fully compatible with a
variety of other Company products, such as the ChemStat the ChemStat Plus
and the E/LUMINA II
Luminescence Analyzer.
PlateMate(r) Reader. The Company expects to have available in 1998 the
PlateMate Reader, a microfluidics well-reading system combining robotics and
fluidics. The current design of the PlateMate Reader performs photometric
assays in the 400 to 700 nm range for 96 samples at a time and prints out
results directly on a built-in printer.
-7-
Protocol Design Software System. A development tool for researchers and
assay manufacturers, the program operates under Microsoft(r)Microsoft(R) Windows and serves
as the master programingprogramming center for EXEC-WASH systems to create fluid handling
protocols.
FOCUS(r). Florescence Polarization System. Fluorescence polarization
("FP") is a technology that has dominated the clinical marketVerif-Eye(R) A reflectance reader for therapeuticrapid, reliable results for use
in research and abuse drug level testing for many years.
FluoroStat(r) Reader. The FluoroStat is a compact fluorometer that is
highly sensitivedevelopment or process inspection and provides a broad dynamic range for tube-based fluorometric
assays. The instrument was introduced in September 1995 and is currently
available for OEM manufacture.verification.
Services
The Company seeks to focus its specialty laboratory services in both
the clinical reference laboratory testing and advanced biomedical research
areas. The Company concentrates its services in those areas of infectious
disease testing which are complementary to its quality control and diagnostic
products businesses.
Specialty Clinical Laboratory Testing. Through its wholly owned
subsidiary, BBITesting
BBICL, the Clinical Laboratories, Inc. the CompanyLaboratory Services operating segment, operates an
independent specialty clinical reference laboratory whichthat performs both routine
and sophisticated infectious disease testing in microbiology, immunology and
molecular biology, with special emphasis in AIDS, Viral Hepatitis, Lyme and
Lyme
Disease.other tick borne diseases, and comfirmatory testing for the blood bank industry.
The Company's specialty clinical laboratory combines traditional microbiology,
advanced immunology, and current molecular diagnostic techniques, such as PCR
and bDNA, to detect and identify microorganisms, their antigens and related
antibodies, and their nucleic acids (i.e., DNA and RNA).
-8-
Specimens are picked up daily from customers, primarily by BBICL's
courier staff, and are brought to the laboratory in New Britain, Connecticut for
testing. There, they are received, accessioned, scheduled, and then tested.
Results are returned to customers by fax, remote printers, data transmission and
hard copy. BBICL emphasizes accuracy and turnaround time along with competitive
pricing as keys to customer satisfaction. Customers include blood banks,
physicians, clinics, hospitals and other clinical/research laboratories.
Contract Research.Research and Services
The Company, through its wholly owned subsidiary, BBI Biotech Research Laboratories, Inc. ("BBI Biotech"),operating segment offers a variety of
contract research services
in molecular biology, cell biology and immunology to governmental agencies,
diagnostic test kit manufacturers and biomedical researchers. Molecular biology
services include DNA extractions and sequencing, recombinant DNA support, probe
labeling and custom PCRnucleic acid amplification assays. Cell biology and
immunology services include sterility testing, virus infectivity assays,
cultivations of virus or bacteria from clinical specimens, preparation of viral
or bacterial antigens or nucleic acids, and production of antibodies.custom western blot assays.
The Company is
currently providingprovides contract research services under several
contracts and grants. These services are primarily related to infectious diseases,disease
diagnostics, in support of the products and services that the Company wishes to
develop. Current contracts include the following: assessment of the efficiency ofclinical trials support for
candidate HIV vaccines in a
monkey model system; development of a multiplex RT PCR based test for HIV-1,
HTLV I/II, HCV,vaccines; identification and HBV; DNA sequencing of human genes
involved in neurological disorders;disorders, development of PCR based assays for
Babesiosis and Transfusion Transmitted Virus, and microtiter plate assays for
HIV-1 genotyping;genotyping.
Blood Processing and eliciting neutralizing
antibodies targeting HIV. In addition, sinceRepository Services
Since 1983, BBI Biotech has provided blood processing and repository
services for the National Cancer Institute ("NCI"), also a part of the National
Institutes of Health ("NIH"). The repository stores over 2,000,0006,000,000 specimens and
processes or ships up to several thousand specimens per week in support of
various NIH cancer and virus research programs. A new one yearIn 1997, BBI Biotech was awarded
a five-year (including renewal options) NCI repository contract was signedwith aggregate
payments of up to $4.8 million. In 1998, BBI Biotech received a six-year $2.9
million repository contract (including five one-year extension options) with the
National Heart, Lung and Blood Institute of the NIH, and in February 1997
which includes four one year1999, it received a
seven-year, $9.6 million repository contract with the National Institute of
Allergy and Infectious Disease. To date all renewal options exercisable by NCI. The total
value of the contract in the first year is $916,000, and including all options,
is $4.8 million. The initial renewal option hasunder these
contracts have been approved, byalthough the NCI
although there canCompany cannot be no assurancecertain that any
subsequent options will be exercised.
Other Services
Clinical Trials. The Company conductsAll four business units conduct clinical trials for
domestic and foreign test kit and device manufacturers. Test kit manufacturersManufacturers must conduct such trials
to
collect data for submission to the United States FDA and other countries'
regulatory agencies.agencies, and these manufacturers contract with organizations such as
the Company to perform this work. By providing this service, the Company is able
to maintain close contact with test kit and device manufacturers and regulators,
and is able to evaluate new technologies in various stages of development. The
Company believes that the reputation of its laboratory and scientific staff, its
large number of Quality Control Panels, and its inventory of -8-
characterized serum
and plasma specimens assist the Company in marketing its clinical trial services
to its customers. The Company has performed clinical trials for a number of
United States and foreign test kit and device manufacturers seeking to obtain
FDA approval for their infectious disease test kits.
Laboratory Instrumentation Services. BBI Source offers services to
design, developmentdevelop, manufacture and manufacturing servicesdistribute laboratory instruments to companies
seeking to market biomedical products manufactured under government-approved
manufacturing practices. The OEMThese services range in complexity from contract manufacturingconsulting to
full system development and distribution.
After-sales Service. BBI Source also provides after-sales-service.after-sales service.
Management believes that after-sales service is a major marketing advantage in
many of the Company's markets, since many of the Company's customers do not
maintain their own full service departments. Servi-Trak(r)Servi-Trak(R), a proprietary
software program, is a key element of this after-sales service. The Company's
service department is located at BBI Source's facility in Garden Grove,
California. A fully
functional service centerThe
-9-
Company utilizes an independent third party contractor located in Giessen,
Germany, is contracted by the
Company to provide a fully functional European service and support.
On March 9, 1998, the Company announced plans to modify a previously
announced 3-year contract with ABX Hematology, Inc. ("ABX") and its parent
company, ABX Hematologie, SA (France). Under the contract, the Company provided
technical, customer and field services for instruments sold by ABX in the
United States. Under the modified agreement, individual customer service
contracts will be assigned to ABX and ABX will assume responsibility for its
United States instruments. The Company will provide certain consulting services
through March 1999 to assist ABX in establishing a sales, customer service,
technical support and field service operation in the United States for its
hematology instrument and reagent business. In addition, the Company has agreed
to allow ABX to occupy space at its California facility during the period of
the agreement. The Company's personnel associated with this contract, included
the nationwide field service organization and hotline technical support, will
be offered employment by ABX.center.
Drug Screening Program. As a subcontractor for an NIH AIDS grant held
by the University of North Carolina at Chapel Hill, the Company has established
an anti-HIV drug screening program to test a large number of natural products
(largely plant derivatives) to determine whether they inhibit HIV replication in
an in vitro assay system. These in vitro assays are also offered as a service to
researchers and pharmaceutical companies who wish to test various candidate
anti-viral agents for anti-HIV activity. The drug screening program and in vitro
assays are now offered through the Company's newly formed subsidiary, Panacos
Pharmaceuticals, Inc.
Research and Development
The Company's research and development effort is focused on (i) the
development of (i) new and improved Quality Control Products (Panels and Accurun(r)Accurun(R))
for the emerging end-user market and the in vitro diagnostics market, (ii) new products for existing
customers, (iii) Diagnostic Components for use with test kits for both new test
methodologies and new diseases, (iv) new laboratory instruments and mechanical
and optical detection techniques, and (v)the
expansion of its infectious disease testing services using PCR and other
amplification assays, (iii) the design and development of new laboratory
instruments and mechanical and optical detection techniques, emphasizing its
Verif-Eye reflectance reader, (iv) the development of pressure cycling
technology ("PCT") for AIDS, Viral Hepatitis, Lyme
Diseasenucleic acid purification and Chlamydia, among others.pathogen inactivation, and
(v) the determination of the mechanism of action and performance of initial
toxicity studies on its lead compounds in the Company's drug discovery program
("Panacos"). The Company has approximately 36 full or part-time employees involved in its
research and development effort. For 1997As announced in 1998, at the time of its
acquisition of BioSeq, Inc., the Company has significantly increased spending on
research and development both in whole dollars and as a percentage of revenuesrevenue in
1999 as compared to 1996 and expects to continue to increase such expenditures
as a percentage of revenues for the next several years.1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations." The Company's
research scientists work closely with sales, marketing, manufacturing,
regulatory and finance personnel to identify and prioritize the development of
new products and services. TheWhenever it can, the Company seeks to fund its
research and development activities from grants provided by various agencies and
departments of the United States government. See also "Contract Research and
Services."
Quality Control Products. In the area of Quality Control Products, the
Company's product development activities center on the identification and
characterization of materials for the manufacture of new Quality Control Productsproducts and the
replacement of sold-out products. During 1997,1999, the Company introduced 3214 new
Seroconversion, Performance, Sensitivity and Qualification Panel products, 43 OEM Panels, as
well as 613 new Accurun(r)Accurun(R) Run Controls, and 34
OEM Panels.Controls. The
-9- Company is developing new Quality
Control Products for use with both immunological and molecular diagnostic tests
for subtypes and variants of HIV, HCV and HBV, and a variety of controls
targeted for leading instrument platforms. The Company has increased the number
of off-the-shelf Quality Control Products it offers from approximately 20 products in 1990 to
approximately 167more than 200 in 1997.1999.
Infectious Disease Tests. The Company also develops new and improved
infectious disease tests, which the Company believes offer potential for above
average profit, for sale by the Clinical Laboratory Services operating segment.
Current emphasis is on additional PCR and other amplification technology based
tests for infectious disease diagnostics, beyond the Company's current offerings
of assays for the pathogens of AIDS, Lyme Disease, Viral Hepatitis, and Herpes,
and for the direct detection of other infectious agents in blood, tissues and
other bodily fluids.
Laboratory Instruments. The Company's product development activities
related to Laboratory
Instrumentslaboratory instruments are centered on additional configurations for its PlateMate(r)
microtiter plate reader and the development of a
"reflectance" reader to produce qualitativeobjective results from rapid IVD tests using dry chemistry (strip)
technology.in vitro diagnostic
tests. In addition, the Company continues to work on applications for existing
products to broaden their utilization.
The Company is also developing new and improved infectious disease
tests which offer potential for above average profit for use in its specialty
laboratory business. This includes emphasis on additional applicationsPressure Cycling Technology. BBI BioSeq, a wholly-owned subsidiary of PCR
and other amplification technologies to infectious disease diagnostics, beyond
its current assays for the pathogens of AIDS, Viral Hepatitis, Lyme Disease and
Herpes, and for the direct detection of other infectious agents in blood,
tissues and other body fluids.
From time to time in the past,
the Company, has fundedowns patent pending technology based on PCT. PCT research is
primarily focused in two areas: (1) nucleic acid extraction and purification
from target pathogens in connection with sample preparation for PCR or other
molecular testing; and (2) pathogen inactivation of blood plasma intended for
transfusion or for further fractionation into transfusion products. See Note 2
to the Company's Notes to Consolidated Financial Statements in Item 8 hereunder
for further details related to the 1998 acquisition of BioSeq, Inc.
-10-
Drug Discovery. In August 1998, the Company hired a portion ofVice President,
Biotheraputics to direct its researchdrug discovery and development activities from grants provided by various agencies
and departmentsefforts. In
collaboration with Dr. K.H. Lee of the United States government. See also "-Services-Contract
Research."
Strategic AlliancesSchool of Pharmacy, University of
North Carolina at Chapel Hill ("UNC")., the Company conducts research relating
to compounds, pharmaceutical compositions, therapeutic methods, and vaccine
preparations, primarily in the HIV field. The Company isowns, jointly with UNC,
five United States patents related to this drug discovery program. Two
additional United States patent applications and foreign applications for all
five of the joint patents are pending.
In April 1999, the Company increased its commitment to directly supporting asupport
the drug discovery program at UNC, in which a full-time, post-doctoral research
scientist isand two of Dr. Lee's doctoral students are working to develop
synthetic derivatives of anti-HIV compounds that have been discovered pursuant
to the Company's joint collaboration with UNC. ThisThese research scientist isscientists are
also working to introduce modifications to these derivatives that wouldin an effort to
make them more soluble, less toxic, or otherwise enhance their anti-viral
properties. UNC has licensed to the Company exclusive worldwide rights to three series of patent applications
filed bythe
five patents awarded to the Company and UNC with respect to three classes of anti-HIV
compounds.UNC. Two such compounds covered under these
patents have exhibited therapeutic indices in in vitro test model systems in
excess of those recorded for AZT under comparable test conditions. The Company is expending approximately $150,000 per year for
research and development relating to these compounds. In addition, underUnder this
license, the Company will also have the rights to any new anti-HIV compounds or
derivatives developed in the course of this sponsored research, provided the
Company obtains certain regulatory approvals from the FDA.
See also
"-Services-Drug Screening program."
Ajinomoto Co., Inc. The Company entered into an agreement with
Ajinomoto Co., Inc. inIn October 1995 pursuant to which1999, the Company is performingformed a new, wholly-owned subsidiary,
Panacos Pharmaceuticals, Inc., ("Panacos") a Delaware corporation. All of the
technology, intellectual property, sponsored research regarding among other things, whether tests for certain amino acids in
plasma can be used to determine a person's immune status, particularly in
chronic fatigue syndrome. This project is funded by Ajinomotoagreements, and has a three
year budget of approximately $1,000,000. Discoveries and inventions arisingrelated
rights from the research will be owned by Ajinomoto, butdrug discovery business unit were transferred to Panacos
effective January 2000. Management intends to sell a substantial portion of
Panacos to third party investors in 2000 in order to obtain the substantial
amount of capital required to progress to more advanced stages of drug
development including human clinical trials. If successful in raising capital,
the Company has the right of
first refusalplans to obtain certain exclusive licenses from Ajinomoto of any
patented technology arising from the research. The Company is entitled to
certain royalties based uponbecome a percentage of sales of products arising out of
the research. This agreement expiresless than 50% shareholder in September 1998. The Company does not
know if the contract will be renewed.
BioSeq, Inc. In October 1996, the Company entered into a strategic
alliance with BioSeq, Inc. an early stage biotechnology company that is
developing a technology that may, through the use of pressure, be able to more
preciselyPanacos, relinquish
operational control, chemical reactions. The Company believes that this technology
may be useful for sample preparation in connection with both molecular and immunological testing, process purification, sequencing, synthesizing and
characterizing nucleic acids and proteins, which may then allow for the more
precise identification of infectious disease agents. See also Note 5switch to the Company's
-10-
Notesequity method of accounting for its
investment, as opposed to Consolidated Financial Statements in Item 8 hereunder regarding the
Company's investment in BioSeq, Inc. The Company, in a seperate transaction,
purchased a licensed technology from BioSeq, Inc. on March 20, 1998. See also
Note 14 to the Company's Note to Consolidated Financial Statements and Item 8
hereunder regarding subsequent event.consolidation accounting.
Sales and Marketing
The Company's sales and marketing efforts are managed on a business
unit basis. Such activities are directed by a Senior Vice
PresidentDirector of Sales and Marketing
and includes 25for each unit. Overall, the Company employees 35 people in the sales, people and 9 other
full-time marketing,
and customer services employees.service functions.
The Company's marketing strategy is focused upon addressingto focus on the needs of its
customers in the infectious disease testing market throughout the entire test
kit life-cycle, from initial research and development, through the regulatory
approval process and test kit production, to training, troubleshooting and
routine use by end-users such as clinical laboratories, hospitals and blood
banks.
The Company recently has begunalso continues to focus its sales and marketing efforts on
the emerging end-user market for quality control productsQuality Control Products for infectious disease
test kits. To promote this objective, the Company has implemented a
majoruses its marketing platform,
known as "Total Quality System" ("TQS"). TQS is a package of Quality Control
Products, including the Company's Accurun(r)Accurun(R) Run Controls whichand AccuChart Quality
Control Software, that is designed to provide test kit end-users with the
products needed in an overall quality assurance program. These products enable
laboratories to evaluate each of the key elements involved in the testing
process: the test kit, laboratory instrumentequipment, and laboratory personnel. The
Company believes that TQS effectively addresses the need for end-users to ensure
the accuracy of their test results. The Company intends to continue to expand
its sales and marketing activities with respect to its Accurun(r)Accurun(R) line of run
control products. In addition, the Company continues to expand the Accurun
product line to support the high growth nucleic acid testing market, and to
capitalize on the worldwide implementation of new technology to improve the
safety of blood products.
The Company's productsDiagnostic Products are currently sold through a
combination of telephone, mail, third party distributors and direct sales
efforts. Domestically, Diagnostic Products are sold through a direct sales force
consistingled by a Sales and Marketing director. The sales force consists of atwo sales
director, three regionalgroup managers and nine12 sales representatives. Internationally, the Company
distributes its Diagnostic Products both directly and through 2122 independent
distributors located in Japan, Australia, South America, Southeast Asia, Israel
and Europe. The Company's international sales
-11-
manager oversees the Company's foreign distributors. The Company's Laboratory
Instruments are sold through a direct domestic and international sales force
consisting of twoone director and one sales managers. Export
sales, including sales to distributors, for the years ended December 31, 1995,
1996, and 1997 were $3.4 million, $4.3 million, and $5.2 million, respectively.
See also Note 6 to the Consolidated Financial Statements.representative.
The Company's Specialty Clinical Laboratory Testing services are
marketed primarily through a direct domestic sales force, consistingwhich consists of sevennine
sales representatives managed by one regional manager, and a sales and marketing
director. The sales representatives are located throughout the eastern,
mid-western and mid-westernwestern United States. TheyStates and are supported internally by a client
services representative.
The Company emphasizes high quality products and services, technical
knowledge, and responsiveness to customer needs in its marketing activities for
both products and services. The Company educates its distributors, customers and
prospective customers about its products through a series of detailed marketing
brochures, technical bulletins and pamphlets, press releases and direct mail
pieces. These materials are supplemented by occasional advertising campaigns
in major industry
publications, technical presentations, and exhibitions at local, national and
international trade shows and expositions. -11-During 1999, the Company introduced a
new product information library on the Company web site (www.bbii.com) allowing
customers, field sales personnel and international distributors immediate access
to detailed product information and marketing literature.
Seasonality
Historically, the Company's results of operations have been subject to
quarterly fluctuations due to a variety of factors, primarily customer
purchasing patterns, driven by end-of-year expenditures, and seasonal demand
during the summer months for certain laboratory testing services. In particular,
the Company's sales of its off-the-shelf Diagnostic Products typically have been
highest in the fourth quarter and lowest in the first quarter of each fiscal
year, whereas OEM product sales may peak in any quarter of the year, depending
on the customer's underlying production cycle for their product. Specialty
Clinical Laboratory Services have generally reached a seasonal peak during the
third quarter, coinciding with the peak incidence of Lyme Disease. Research
Contracts are generally for large dollar amounts spread over one to five-year
periods, and upon completion, frequently do not have renewal phases. As a
result, these contracts can cause large fluctuations in revenue and net income.
In addition to staff dedicated to internal research and development, certain of
the Company's technical staff work on both Contract Research for customers and
Company sponsored research and development. The allocation of certain technical
staff to such projects depends on the volume of Contract Research. As a result,
research and development expenditures fluctuate due to increases or decreases in
contract research performed.
Customers
The Company's customers for Diagnostic Products comprise threeconsist of four major
groups: (i)(1) international diagnostics and pharmaceutical manufacturing
companies, such as Abbott Diagnostics, Behring, Boehringer Mannheim,Biorad, Chiron, Dade-Behring,
DiaSorin, Fujirebio, Hoffman LaRoche, Ortho Diagnostics (Johnson and& Johnson), and
Sanofi Diagnostics and Sorin Biomedica; (ii)Diagnostics. (2) regulatory agencies such as the United States FDA, the
British Public Health Laboratory Service, the French Institut National de la
Transfusion Sanguine, and the German Paul Ehrlich Institute;Institute, (3) national and
(iii)international proficiency providers such as the College of American Pathologists
and the European Union Concerted Action for Quality Control and (4) end-users of
diagnostic test kits, such as hospital and independent clinical laboratories,
including LabCorp, Quest and Smith Klein Beecham,Diagnostics , public health laboratories and blood
banks, including the American Red Cross, Swiss Red Cross, and United Blood
Services and Kaiser Permanente.Services.
The Company's customers for Laboratory Instruments consist of
international diagnostic and pharmaceutical manufacturing companies and are
generally sold on an OEM basis, for use by hospitals, and clinical and research
laboratories. In addition, Laboratory Instruments are sold directly to
environmental and food testing laboratories, and wineries. Customers include
Mast Immuno Systems, ABX
Hematology, Beckman/Hybritech Inc., Vicam, and Toray Fuji Bionics Inc.
The Company's Specialty Clinical Laboratory Testingcustomers for specialty clinical testing services are sold toinclude hospital
and clinical laboratories, physicians, blood banks, researchers and other health
care providers.
-12-
The Company performs specialty testing services for a major state
prison system in connection with a third party laboratory. The Company's
Contract Research services are typically offered
under contracts to governmentalcustomers for contract research include various agencies diagnostic test kit manufacturersof the National
Institutes of Health (NIH) such as the National Institute of Allergies and
biomedical researchers.Infectious Disease ("NIAIDS"), the National Cancer Institute ("NCI"), and the
National Heart Lung and Blood Institute ("NHLBI").
The Company does not have long-term contracts with its customers for
Quality ControlDiagnostic Products and Diagnostic Components. The Company's productsor its Specialty Clinical Testing Services, which are
generally sold to its customers pursuant to purchase orders for discrete purchases. Laboratory
Instruments are generally sold on an OEM basis are usually done so under a one
year contractshort-term contracts with
monthly delivery dates. Although theThe Company believes that its relationships with
customers are satisfactory, terminationsatisfactory.
The Company's Consolidated Financial Statements, including the Notes
thereto, set forth in Item 8 of this report provide information relating to the
Company's relationship with any one of its customers could have a material adverse effect
on the Company.foreign and domestic sales.
During the fiscal years 1995, 19961999, 1998 and 1997, sales to the Company's
three largest customers accounted for an aggregate of approximately 16%, 18% and
20%, respectively, of the Company's net sales, although the customers were not
identical in each period. During the fiscal years 1995, 19961999, 1998 and 1997, the
combined revenues to all branches of the National Institutes of Health, a United
States Government agency, accounted for approximately 15%, 13% and 13%,
respectively, of total consolidated revenues of the Company. While the Company
believes that the loss of any one customerof these customers would have an adverse
effect on itsthe Company's results, this risk is partially mitigated by the
diversity of its customer base within the IVDin vitro diagnostics industry and the
different diseases and instrument platforms on which they focus.
Manufacturing and Operations
The Company manufactures and assembles Diagnostic Products at its
facility in West Bridgewater, Massachusetts. Raw materials (primarily plasma and
serum) are acquired from a variety of vendors and through a program of donor
recruitment, screening, management, and plasma/serum collection and
characterization. All important materials have multiple sources of supply.
Laboratory Instrumentsinstruments are manufactured and assembled at the
Company's facility in Garden Grove, California. RawAll important raw materials and
subassembliessub-assemblies are acquired from a variety of vendors with multiple sources of
supply.
The Company also operates aits specialty clinical laboratory in New Britain,
Connecticut, and aits research and development laboratory (including PCT and Panacos
activities) in Gaithersburg, Maryland and a repository facility in Frederick,
Maryland. See "Item 2 -- PROPERTIES."
Competition
The market for the Company's products and services is highly
competitive. Many of the Company's competitors are larger than the Company
and have greater financial, research, manufacturing, and marketing resources.
Important competitive factors for the Company's products include product
-12-
quality, price, ease of use, customer service and reputation. In a broader
sense, industry competition is based upon scientific and technical
capability, proprietary know-how, access to adequate capital, the ability to
develop and market products and processes, the ability to attract and retain
qualified personnel, and the availability of patent protection. To the extent
that the Company's products and services do not reflect technological
advances, the Company's ability to compete in those productsits current and servicesfuture markets
could be adversely affected.
In the area of Quality Control Products, the Company competes in the
United States with NABI (formerly North American Biologicals, Inc.) in run
controls and quality control panel products.products, with Dade International, Bio-Rad
Laboratories, Inc., and Blackhawk Biosystems Inc. in run controls, and with a
number of smaller, privately heldprivately-held companies in quality control panels. In
Europe, in addition to the above, the NetherlandsDutch Red Cross has recently begun
offeringoffers several run control
and panel products. The Company believes that all of these competitors currently
offer a more limitedless diverse line of panel and run control products than the Company,
although there canthe Company cannot be no assurancecertain that these companies will not expand
their product lines.
-13-
In the Diagnostic Components area, the Company competes againstwith integrated
plasma collection and processing companies such as Serologicals, Inc. and NABI,
as well as smaller, independent plasma collection centers and brokers of plasma
products. In the Diagnostic Components area, the Company competes on the basis
of quality, breadth of product line, technical expertise and reputation.
The laboratory instrument manufacturing industry is diverse and highly
competitive. The Company believes its technology base, reputation for
reliability, systems integration and service capabilities provide it with a
competitive advantage over its competitors which include: Dynatech Corp,
Kollsman Manufacturing Company, Inc., Bio-Tek Instruments Inc., Rela Inc. (part
of Colorado Medtech, Inc.), and SeaMed, as well as numerous, smaller companies,
such as Awareness Technology Inc.
In the SpecialtyThe Clinical Laboratory Testing services portion of the
Company's business, itServices segment competes with large national
reference laboratories, such as LabCorp of America Quest Laboratories and SmithKline Beecham ClinicalQuest Laboratories, as
well as several independent regional laboratories, hospital laboratories,
government contract laboratories and large research institutions. The Company
believes that by focusing on the specialty clinical laboratory testing market,
it is able to offer its customers a higher value-added service onfor the more
complex diagnostic tests than the larger national reference laboratories.
BBI Biotech competes primarily with BioReliance Corporation and several
universities for research and development contracts and with McKesson
Bioservices, Inc., for repository services.
Intellectual Property
The Company holds as trade secrets current technology used to prepare
Basematrix and other blood-based products. None of the Company's Quality
Control Products or Diagnostic
Components has been patented. The Company relies primarily on a combination of
trade secrets and non-disclosure and confidentiality agreements to establish and
protect its proprietary rights in its technologythese products and products. There canrelated technology. The
Company cannot be no assurancecertain that others will not independently develop or
otherwise acquire the same, similar or more advanced trade secrets and know-how.
BBI Source has also relied on trade secrets and proprietary know-how
for its Laboratory Instruments which it protects in part by entering into
confidentiality agreements with persons or parties deemed appropriate by
management. In addition, the Company currently has fivesix issued United States
patents, and one United States patent application on file, covering significant aspects of the Company's core instrument
technology and techniques, as well as several electronic and mechanical designs
employed in the Company's existing
products.
The Company ownshas two United States patents related to its contracts and
services work, and, jointlywork. Jointly with UNC,the Uiversity of North Carolina, at Chapel Hill, the
Company has fourfive additional United States patents relating to compounds,
pharmaceutical compositions, and therapeutic methods, and vaccine preparation in
connection with the Company's drug discovery program at
-13-
UNC. Oneprogram. Two additional United
States applicationpatents and foreign applications for all five of the joint patents are
pending. The Company intends to continue to seek patent protection for
innovations and discoveries arising out of the drug discovery programs.
The Company has fifteen pending patent applications for its Pressure
Cycling Technology. Several of these have been followed up with foreign
applications, and the Company expects to file additional foreign applications in
2000 relating to Pressure Cycling Technology. On March 14, 2000 the Company
received notice from the United States Patent Office that one of its
applications had been approved and the patent related to pressure cycling
control of chemical reactions was issued to the Company.
The Company has no reason to believe that its products and proprietary
methods infringe the proprietary rights of any other party. There canHowever, the Company
cannot be no
assurance, however,certain that other parties will not assert infringement claims in the
future.
BBI(R), Accurun(R), Microchem(R), Chemstat(R), E/LUMINA(R), EXECWASH(R)
and Verif-Eye(R) are registered trademarks of the Company.
Government Regulation
-14-
The manufacture and distribution of medical devices, including products
manufactured by the Company that are intended for in vitro diagnostic use, are
subject to extensive government regulation in the United States and in other
countries.
In the United States, the Food, Drug, and Cosmetic Act ("FDCA")
prohibits the marketing of most in vitro diagnostic products until they have
been cleared or approved by the FDA, a process that is time-consuming,
expensive, and uncertain. In vitro diagnostic products must be the subject of
either a premarket notification clearance (a "510(k)") or an approved premarket
approval application ("PMA"). With respect to devices reviewed through the
510(k) process, a company may not market a device for diagnostic use until an
order is issued by the FDA finding the product to be substantially equivalent to
a legallyan existing FDA cleared, and marketed device. A 510(k) submission may involve
the presentation of a substantial volume of data, including clinical data, and
may require a substantial period of review. With respect to devices reviewed
through the PMA process, a company may not market a device until the FDA has
approved a PMA application, which must be supported by extensive data, including
preclinical and clinical trial data, literature, and manufacturing information
to prove the safety and effectiveness of the device.
The Company's Accurun(r)Accurun(R) Run Controls, when marketed for blood donor
screening or diagnostic use, have been classified by the FDA as medical devices.devices
that until 1998 required clearance under the 510(k) process. In 1998, new rules
took effect that exempted unassayed controls intended for use in diagnostic
testing from the requirement for a 510(k) submission. BBI may now label these
products "For In Vitro Diagnostic Use" if they are validated according to the
Company's protocols and manufactured according to cGMP (current Good
Manufacturing Practices, which is FDA guidance for manufacturing processes for
medical devices). The FDA still requires 510(k) clearance for assayed controls,
and controls intended for use in blood screening. The FDA could, however,in addition,
require that some products be reviewed through the PMA process, which generally
involves a longer review period and the submission of more information to FDA.
There canThe Company cannot be no assurancecertain that the Companyit will obtain regulatory approvals on a
timely basis, if at all. Failure to obtain regulatory approvals in a timely
fashion or at all could have a material adverse effect on the Company.
As of March 1, 1998,2000, a total of nine13 products in the Accurun 1(r)1(R) line
and fourteen Accurun(r)18 single analyte Accurun(R) controls have either received 510(k)
clearance from the FDA. An additional three Accurun(r) single analyte controlsor have been submitted but have not yet received FDA clearance.
Somevalidated according to the Company's protocols and are
manufactured according to cGMP. Certain of the Company's Accurun(r) run controlsAccurun(R) Run
Controls are currently marketed "for research use only." Such products do not currently require FDA premarket
clearance or approval. The labeling of
these products limits their use to research. It is possible, however, that
some purchasers of these products may use them for diagnostic purposes
despite the Company's intended use. In these circumstances, the FDA could
allege that these products should have been cleared or approved by the FDA,
or validated prior to marketing, and initiate enforcement action against the
Company, which could have a material adverse effect on the Company. The FDA
has recently issued a Draft Policy Compliance Guideline, which, if it takes effect as
written,currently issued, will strictly limit the sale of products labeled "for
research use only." The Company is monitoring this situation, and will adapt
its policies as required.
BBI Source generally obtains 510(k) and CE approval for all laboratory
instrumentation designed and manufactured in its Garden Grove facility.
The Company'sCompany is registered as a medical device manufacturer with the FDA
for its Diagnostic Products and Laboratory Instruments product
groups are both registered as medical device manufacturers with the FDA, and filefiles listings of theirits
products semi-annually. The Company's facilities in West Bridgewater,
Massachusetts for Diagnostic Products and Garden Grove, California for
Laboratory Instruments are FDA Good Manufacturing Practices -14-
(FDA/GMP)
facilities, and, as such,facilities. The Company must maintain high standards of quality in
manufacturing, testing and documentation, and implement strict GMPcGMP guidelines
governing reagent and instrument manufacturing.
Once cleared or approved, medical devices are subject to pervasive and
continuing regulation by the FDA, including, but not limited to good
manufacturing practices ("GMP")cGMP regulations
governing testing, control, and documentation; and reporting of adverse
experiences with the use of the device. OngoingThe FDA monitors ongoing compliance with
GMPcGMP and other applicable regulatory requirements is
monitored throughby conducting periodic
inspections. FDA regulations require agencyFDA clearance or approval for certain
changes if they do or could affect the safety and effectiveness of the device,
including, for example, new indications for use, labeling changes or changes in
design or manufacturing methods. In addition, both before and after clearance or
approval, medical devices are subject to certain export and import requirements
under the FDCA. Product
-15-
labeling and promotional activities are subject to scrutiny by the FDA and, in
certain instances, by the Federal Trade Commission. Products may be promoted by
the Company only for their approved use. Failure to comply with these and other
regulatory requirements can result, among other consequences, in failure to
obtain premarket approvals, withdrawal of approvals, total or partial suspension
of product distribution, injunctions, civil penalties, recall or seizures of
products and criminal prosecution.
The Company believes that its Quality Control Panels are not regulated
by the FDA because they are not intended for diagnostic purposes. The Company
believes that its Diagnostic Components, which are components of in vitro
diagnostic products, may be subject to certain regulatory requirements under the
FDCA and other laws administered by the FDA, but do not require that the Company
obtain a premarket approval or clearance. There canThe Company cannot be no assurance,certain,
however, that the FDA would agree or that the FDA will not adopt a different
interpretation of the FDCA or other laws it administers, which could have a
material adverse effect on the Company.
The Company's Diagnostic Products and Laboratory Instruments groupsbusiness
units are both ISO9001 certified, with registration by TUV Rheinland.Rheinland for the
Diagnostic Products unit and British Standard Institute for the Laboratory
Instruments unit. The Laboratory Instrument group is also certified to EN46001,
a set of supplementary requirements applicable to their products.
Laws and regulations affecting some of the Company's products are in
effect in many of the countries in which the Company markets or intends to
market its products. These requirements vary from country to country. Member
states of the European Economic Area (which is composed of members of the
European Union
members and the European Free Trade Association members)Association) are in the process of
adopting various product and service "Directives" to address essential health,
safety, and environmental requirements associated with the subject products and
services. TheThese "Directives" cover both quality system requirements (ISO Series
9000 Standards and the EN46001 Requirements) and product and marketing related
requirements. In addition, some jurisdictions have requirements related to
marketing of the Company's products. There canThe Company cannot be no assurancecertain that the Companyit will
be able to obtain any regulatory approvals required to market its products on a
timely basis, or at all. Delays in receipt of, or failure to receive such
approvals, or the failure to comply with regulatory requirements in these
countries or states could lead to compliance action, which could have a material
adverse effect on the Company's business, financial condition, or results of
operations.
The Company's service-related business (clinical trials, infectious
disease testing, and contract research) is subject to other national and local
requirements. The Company's facilities are subject to review, inspection,
licensure or accreditation by some states, national professional organizations
(College(such as the College of American Pathologists), and other national regulatory
agencies (Health(such as the Health Care Financing Administration). Studies to evaluate
the safety or effectiveness of FDA regulated products (primarily human and
animal drugs or biologics) must also be conducted in conformance with relevant
FDA requirements, including Good Laboratory Practice ("GLP") regulations,
investigational new drug or device regulations, Institutional Review Board
("IRB") regulations and informed consent regulations.
-15-
The Clinical Laboratory Improvement Amendments of 1988 ("CLIA")
prohibits laboratories from performing in vitro tests for the purpose of
providing information for the diagnosis, prevention or treatment of any disease,
or impairment of, or the assessment of, the health of human beings unless there
is in effect for such laboratories a certificate issued by the US Department of
Health and Human Services ("HHS") applicable to the category of examination or
procedure performed.
The Company currently holds permits issued by HHS (CLIA license),
Centers for Disease Control and Prevention (Importation of Etiological Agents or
Vectors of Human Diseases), the US Department of Agriculture (Importation and
Transportation of Controlled Materials and Organisms and Vectors) and the US
Nuclear Regulatory Commission (in vitro testing with byproductby-product material under
general license, covering the use of certain radioimmunoassay test methods).
The Company is also subject to government regulation under the Clean
Water Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act, the Atomic Energy Act, and other national, state and local
restrictions relating to the use and disposal of biohazardous, radioactive and
other hazardous substances and wastes. The Company is
-16-
an exempt small quantity generator of hazardous waste and has a US Environmental
Protection Agency identification number. The Company is also registered with the
US Nuclear Regulatory Commission for use of certain radioactive materials. The
Company is also subject to various state regulatory requirements governing the
handling of and disposal of biohazardous, radioactive and hazardous wastes. The
Company has never been a party to any environmental proceeding.
Internationally, some of the Company's products are subject to
additional regulatory requirements, which vary significantly from country to
country. Each country in which the Company's products and services are offered
must be evaluated independently to determine the country's particular
requirements. In foreign countries, the Company's distributors are generally
responsible for obtaining any required government consents.
Employees
As of December 31, 19971999 the Company employed 282288 persons, all of whom
were located in the United States. Of these, 102107 persons were employed by the
West Bridgewater, Massachusetts company, 6578 by the New Britain, Connecticut
company, 4870 by the three Gaithersburg, Maryland company,companies, and 6733 by the Garden
Grove, California company. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that it has a satisfactory
relationship with its employees.
-16--17-
Executive Officers of the Registrant
The following table sets forth the names, ages and positions of the
current executive officers of the Registrant as of December 31, 1997:
Name Age Position
- ---- --- --------
Richard T. Schumacher 47 President; Chief Executive Officer and
Chairman of the Board
Kevin W. Quinlan 47 Senior Vice President, Finance; Chief
Financial Officer; Treasurer and
Director
Patricia E. Garrett, Ph.D. 54 Senior Vice President, Regulatory
Affairs & Strategic Programs
Mark M. Manak, Ph.D. 46 Senior Vice President, Research and
Development
Richard A Sullivan 57 Senior Vice President, Laboratory
Instrumentation
Richard C. Tilton, Ph.D. 61 Senior Vice President, Specialty
Laboratory Services
Barry M. Warren 50 Senior Vice President, Sales &
Marketing
Ronald V. DiPaolo,1999:
Name Age Position
- ---- --- --------
Richard T. Schumacher 49 Chief Executive Officer and Chairman of the Board
Kevin W. Quinlan 49 President and Chief Operating Officer; and Director
William R. Prather, R.Ph, M.D. 52 Senior Vice President, Finance and Business Development, Treasurer and
Director
Graham P. Allaway, Ph.D. 44 Senior Vice President, Drug Discovery
Patricia E. Garrett, Ph.D. 56 Senior Vice President and General Manager of BBI Clinical Laboratories
Mark M. Manak, Ph.D. 48 Senior Vice President and General Manager of BBI Biotech
David F. Petersen 53 Senior Vice President and General Manager of BBI Source
Richard C. Tilton, Ph.D. 63 Senior Vice President, Science and Technology
Barry M. Warren 52 Senior Vice President and General Manager of BBI Diagnostics
Kathleen W. Benjamin 43 Vice President, Human Resources
Richard D'Allessandro 53 Vice President, Information Technology
Ronald V. DiPaolo, Ph.D. 55 Vice President, Manufacturing
Richard H. Newhouse, Ph.D. 54 Vice President, Materials Management
Mr. Schumacher, the founderFounder of the Company, has been the President and
a Director since 1986, and Chief
Executive Officer and Chairman since 1992.1992 and served as President from 1986 to
August 1999. Mr. Schumacher served as the Director of Infectious Disease
Services for Clinical Science Laboratory, a New England-based medical reference
laboratory, from 1986 to 1988. From 1972 to 1985, Mr. Schumacher was employed by
the Center for Blood Research, a nonprofit medical research institute associated
with Harvard Medical School. Mr. Schumacher received a B.S. in zoology from the
University of New Hampshire.
Mr. Quinlan, a Director of the Company since 1986, has beenserved as
President and Chief Operating Officer since August 1999. From January 1993 to
August 1999, he served as Senior Vice President, Finance, Chief Financial
Officer and Treasurer since January 1993.Treasurer. From 1990 to December 1992, he was the Chief Financial
Officer of ParcTec, Inc. a New York-based leasing company. Mr. Quinlan served as
Vice President and Assistant Treasurer of American Finance Group, Inc. from 1981
to 1989 and was employed by Coopers & Lybrand from 1975 to 1980. Mr. Quinlan is
a certified public accountant and received a M.S. in accounting from
Northeastern University and a B.S. in economics from the University of New
Hampshire.
Dr. Prather, a Director of the Company since 1999, has been Senior Vice
President, Finance and Business Development since July 1999. From January 1999
to August 1999, Dr. Prather served as Senior Vice President, Business
Development. Prior to joining the Company, Dr. Prather was the Senior Health
Care Analyst for the investment banking firm, Cruttenden Roth, Inc., from 1995
to 1998. From 1992 to 1995 he was the Senior Analyst in Health Care for Manning
and Napier Advisors. Dr. Prather earned a B.S. in Pharmacy and an MD at the
University of Missouri - Kansas City and completed a Clinical Research Geriatric
Fellowship at Harvard Medical School. Dr. Prather is a Director of Primed
International, a medical device company and a member of the Advisory Board of
the Canadian Medical Discovery Fund, Inc., a fund of MDS Capital Corp.
Dr Allaway, has served as Vice President and Senior Vice President,
Drug Discovery since joining the Company in 1998. Prior to that, from 1997 to
1998, he was CEO of Manchester Biotech (UK). From 1990 to 1997, Dr. Allaway
served in various senior management positions including Associate Scientific
Director and Head, Therapeutic Development Group at Progenics Pharmaceuticals,
Inc., in Tarrytown, New York. From 1984 to 1990 Dr. Allaway was a Visiting
Fellow and Visiting Associate at the NIH. Dr. Allaway received an M.A. in
zoology from Oxford University and a Ph.D in virology from the University of
London.
-18-
Dr. Garrett has beenserved as Senior Vice President and General Manager of
BBI Clinical Laboratories since August 1999. From 1988 to August 1999, she
served as Senior Vice President, Regulatory Affairs & Strategic Programs since 1988.Programs. From
1980 to 1987, Dr. Garrett served as the Technical Director of the Chemistry
Laboratory, Department of Laboratory Medicine at the Lahey Clinic Medical
Center. Dr. Garrett earned her Ph.D. from the University of Colorado and was a
postdoctoral research associate at Harvard University, Oregon State University,
Massachusetts Institute of Technology and the University of British Columbia.
Dr. Manak has served as Senior Vice President and General Manager of
BBI Biotech since August 1999. From 1992 to 1999 he served as Senior Vice
President, Research and Development
since 1992.Development. From 1980 to 1992, he served as Senior Research Scientist,Director of
Molecular Biology and Director of Contracts and Services of Biotech Research
Laboratories. Dr. Manak received his Ph.D. in biochemistry from the University
of Connecticut and completed postdoctoral research work in biochemistry/virology
at Johns Hopkins University.
Mr. SullivanPetersen has served as Senior Vice President Laboratory
Instrumentation since the Company's acquisition of the business of Source
Scientific, Inc. ("Source") in July 1997. Prior to that from 1994 to 1997, Mr.
Sullivan was Chairman, President and Chief Executive Officer of Source. He held
the position of Executive Vice President and General Manager of
BBI Source from
1993since August 1999. From May 1998 to 1994, andAugust 1999, he was Vice
President, Sales & Marketing for MicroProbe
Corporation from 1989 to 1993. Previously,BBI Source Scientific. Mr. Peterson has 25 years of experience in
operations management and materials planning. Before joining the Company in
1988, he was Presidentthe Manager of LAB2000Manufacturing for Matrix Instruments from 1985 to
1988 and previously was Manager of Production and Inventory Control for Farr
Company, Inc. from 1977 to 1985. He is certified in Florida, a company specializedproduction and inventory
management (CPIM) by the American Production and Inventory Control Society
(APICS). He is also an Assistant Professor at California State University
Dominguez Hills, where he instructs upper division courses in importmanufacturing
techniques and export of clinical and industrial
products worldwide. Mr. Sullivanmaterial resource planning. He holds a BSB.S. in Medical Technologybusiness
management from the University of Buffalo, New York and a MBA from Pace University, New York.LaVerne in LaVerne, California.
Dr. Tilton has served as Senior Vice President, Science and Technology
since August 1999. Prior to this time he served as Senior Vice President,
Specialty Laboratory Services since the Company's acquisition of BBI Clinical
Laboratories, Inc. ("BBICL") in 1993 and was one of the -17-
founders of BBICL,
where he servedserving as its President from 1989 to 1993. Dr. Tilton has 25 years of
experience in university hospital clinical microbiology laboratories and is
board certified in medical and public health microbiology. Dr. Tilton received
his Ph.D. in microbiology from the University of Massachusetts.
Mr. Warren has served as Senior Vice President and General Manager of
BBI Diagnostics since August 1999. From 1993 to 1999, he served as Senior Vice
President, Sales & Marketing since
1993.Marketing. From 1985 to 1993, Mr. Warren served as Group
Director of Marketing of Organon Teknika, a manufacturer of infectious disease
reagents. Mr. Warren received an M.A. in political science from Loyola
University of Chicago and a B.A. from Loyola University.
Ms. Benjamin has served as Vice President, Human Resources since
January 1999. Prior to her promotion to Vice President, Ms. Benjamin served as
Director of Human Resources and Investor Relations from 1997 to 1999. Prior to
joining the Company in 1997 she was employed by Shields Health Care Group, a
provider of Magnetic Resonance Imaging and radiation oncology, serving as their
Director of Operations from 1992 to 1997. Prior to this time she was an
educator. Ms. Benjamin received her B.S., from the College of Life Sciences and
Agriculture at the University of New Hampshire.
Mr. D'Allessandro has served as Vice President, Information Technology
since January 1999. Mr. D'Allessandro joined the Company in 1993 as Director,
Management Information Systems and served in that capacity until his promotion
to Vice President. Mr. D'Allessandro has 30 years of experience in data
processing/information systems technology, with a focus on manufacturing and
biotechnology organizations. Mr. D'Allessandro is APICS certified and received
his B.S. in Management Information Systems from Northeastern University.
Dr. DiPaolo has recently been appointedserved as Vice President, Manufacturing.
PriorManufacturing since 1997.
From 1993 to that1997, he served as Vice President of Operations since 1993.Operations. Prior to joining
the Company, from 1986 to 1989, Dr. DiPaolo served as Vice President and General
Manager of the Biomedical Products Division of Collaborative Research, a medical
research products company from 1986 to 1989.company. From 1975 to 1986, he was employed by DuPont New
England Nuclear, an in vitro test kit manufacturer. Dr. DiPaolo received his
Ph.D. in biochemistry from Massachusetts Institute of Technology and later
completed postdoctoral research at the Eunice Shriver Center in Waltham,
Massachusetts.
Dr. Newhouse has been Vice President of Materials Management since
1997. Prior to joining the Company, Dr. Newhouse served as Vice President of
Laboratory Services for Serologicals Corporation, an Atlanta, Georgia based
biopharmaceutical company from 1989 to 1997. Prior to that he was employed for
20 years in several medical diagnostics companies holding titles such as Vice
President Operations, Laboratory Director, and Director of Manufacturing. Dr.
Newhouse received his Ph.D. in clinical pathology from the University of
Maryland.-19-
Officers are nominated by the Chief Executive Officer and elected by and serve at the pleasure of,
the Board of Directors.
ITEM 2. PROPERTIES.
The Company owns its corporate offices and Diagnostic Productsdiagnostic products
manufacturing facility for its BBI Diagnostics operating segment, which is
located in a two story,two-story, 32,000 square foot building in West Bridgewater,
Massachusetts. The Company has been renovating and expanding this facility
during the past year,three years, and believes that upon completion of renovations, in mid 1998,
its facility in West Bridgewater will be sufficient to meet its foreseeable needs.needs for
several years.
The Company leases 41,000 square feet of space in Garden Grove,
California where itits BBI Source business unit manufactures Laboratorylaboratory
Instruments. The lease continues until February 1, 2002 and the Company has an
option to renew at market rates.
The Company leases its laboratory facilities in Gaithersburg and
Frederick, Maryland and New Britain, Connecticut. The BBI Biotech segment's
Gaithersburg facility contains 36,500 square feet of custom built laboratory
and office space, and is occupied under a ten-year lease that is due to
expire on October 31, 2007. The Frederick facility contains 36,000 square
feet of primarily repository space and is also occupied by the BBI Biotech
segment, under a seven-year lease that is due to expire on November 30, 2006.
The BBICL business unit occupies the New Britain facility which has 15,000
square feet of usable area, most of which is dedicated to laboratory space.
TheThis lease is for
five years and is due to expire on July 30, 2000; the Company has anexercised its
option to renew the lease for an additional five years.
The Company leased approximately 2,500 square feet of laboratory space
in Woburn, Massachusetts through August 1999.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending against the Company or
its subsidiaries.
-18-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of fiscal 19971999 to a
vote of security holders of the Company.
-20-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCKEQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company completed an initial public offering of its Common Stock,
$.01 par value, (the "Common Stock") on October 31, 1996. The Common Stock is
listed on the NASDAQNasdaq National Market under the symbol "BBII".
The following table sets forth the high and low closing price, by
quarter, sinceduring the Company's initial public offering.
Q1 Q2 Q3 Q4
------------- ------------- ------------- -------------
High Low High Low High Lowtwo most recent fiscal years:
Common Stock Price
------------------
Fiscal Year Ended December 31, 1999 High Low
----------------------------------- ---- ---
First Quarter $3.375 $2.625
------------- ------ ------
Second Quarter $5.313 $2.750
-------------- ------ ------
Third Quarter $4.562 $3.375
------------- ------ ------
Fourth Quarter $4.438 $2.750
-------------- ------ ------
Fiscal Year Ended December 31, 1998
-----------------------------------
First Quarter $8.063 $5.125
------------- ------ ------
Second Quarter $7.313 $4.500
-------------- ------ ------
Third Quarter $5.125 $2.500
------------- ------ ------
Fourth Quarter $4.375 $2.000
-------------- ------ ------
----- ------ ----- ------ ----- ------ -----
1997 10.250 6.063 11.375 7.750 8.875 6.000 8.000 4.875
1996 --- --- --- --- --- --- 8.500 6.750
As of December 31, 1997,March 24, 2000, there were 20,000,000 shares of Common Stock
authorized of which 4,622,566approximately 5,441,960 shares were outstanding, held of
record by approximately 1,500 stockholders.
The Company has not declared or paid any dividends on its Common Stock.
In accordance with the terms of the Company's loan agreement with its bank,
payment of dividends on Common Stock requires bank approval. The Company does
not expect to recommend the payment of a dividend as it plans to continue to
reinvest profits to expand its business.
-19-In October 1999, MdBio, Inc., an accredited investor, received 29,153
stock units in connection with its award of $175,000 to the Company under a
manufacturing incentive program that MdBio instituted. Each stock unit consists
of one share of our common stock and a warrant to purchase on additional share
of our common stock at an exercise price of $10.00 per share. MdBio's warrants
expire on September 29, 2003.
MdBio's warrants were not registered under the Securities Act of 1933,
as amended, in reliance upon the exemptions from registration set forth in
Sections 3(b) and 4(2) of that act, relating to sales by an issuer not involving
any public offering. The MdBio transaction did not involve a public offering.
-21-
ITEM 6. SELECTED FINANCIAL DATA
The statement of income data for each of the fiscal years in the five
year period ended December 31, 1997,1999, and the balance sheet data as of December
31, 1993, 1994, 1995,1999, 1998, 1997, 1996, and 1997,1995, have been derived from the consolidated
financial statements of the Company which have been audited by Coopers &
Lybrand L.L.P., independent accountants. ThisCompany. These data should be read in conjunction
with Item 8--"Consolidated8--Consolidated Financial Statements and Supplementary Data",Data, and Item
7--"Management's7--Management's Discussion and Analysis of Financial Condition and Results of
Operations"Operations appearing elsewhere herein.
Year Ended December 31,
-----------------------------------------------------------------
1999 1998(1) 1997(2) 1996 1995
-------- -------- -------- -------- --------
Consolidated Statement of Income Data: (In thousands, except per share data)
REVENUE:
Products $11,711$ 14,057 $ 13,075 $ 11,711 $ 8,470 $ 6,622
$ 5,982 $3,942
Services 15,214 13,006 10,588 7,039 5,649
4,741 5,215
--------- --------- --------- ----------------- -------- -------- -------- --------
Total revenue 29,271 26,081 22,299 15,509 12,271
10,723 9,157
--------- --------- --------- ----------------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product salesproducts 7,267 7,180 5,773 4,252 3,564
3,194 2,088
Cost of services 11,168 8,897 7,239 4,856 4,168
3,416 3,965
Research and development 3,259 2,461 1,311 797 375
469 279Acquired research and development (3) -- 4,231 -- -- --
Selling and marketing 4,024 3,939 3,241 2,188 1,340
1,192 894
General and administrative 4,442 4,275 3,343 2,401 2,316
2,047 1,619
--------- --------- --------- ----------------- -------- -------- -------- --------
Total operating costs and expenses 30,160 30,983 20,907 14,494 11,763
10,318 8,845
--------- --------- --------- --------- -------- Income-------- -------- -------- --------
(Loss) income from operations (889) (4,902) 1,392 1,015 508
405 312
Interest expense,(expense) income, net (424) (51) 283 (213) (336)
(244) (179)
--------- --------- --------- --------- -------- Income-------- -------- -------- --------
(Loss) income before income taxes and extraordinary item (1,313) (4,953) 1,675 802 172
161 133
Provision forBenefit from (provision for) income taxes 499 564 (670) (321) (69)
(64) (41)
--------- --------- --------- --------- -------- Income before extraordinary item 1,005 481 103 97 92
Extraordinary item-gain on elimination of debt, net of income taxes -- -- -- -- 50
--------- --------- --------- ----------------- -------- -------- --------
Net (loss) income $ (814) $ (4,389) $ 1,005 $ 481 $ 103
$ 97 $ 142
--------- --------- --------- ----------------- -------- -------- -------- --------
Net (loss) income per share, basic $ (0.17) $ (0.94) $ 0.23 $ 0.17 $ 0.04
$ 0.04 $ 0.06
Net (loss) income per share, diluted $ (0.17) $ (0.94) $ 0.21 $ 0.14 $ 0.03 $ 0.03 $ 0.05
Number of shares used to calculate net income per share
Basic 4,670 4,655 4,438 2,916 2,570
2,552 2,403
Diluted 4,670 4,655 4,780 3,340 3,040
3,019 2,794
December 31,
--------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
1994 1993
--------- --------- ----------------- -------- -------- -------- --------
Consolidated Balance Sheet Data: (In thousands, except per share data)
Working capital(3)capital $ 9,576 $12,836 $4,688 $4,686 $3,61210,053 $ 9,095 $ 9,633 $ 12,836 $ 4,688
Total assets 23,63026,162 24,082 23,650 19,798 9,928 8,076 6,870
Long term debt, less current maturities(3) 216maturities 7,146 3,989 26 41 4,216 3,180 2,381
Total stockholders' equity 13,646 14,069 18,067 16,290 3,187 3,041 2,762
Dividends -- -- -- -- --
- ---------------
(1) Effective September 30, 1998, the Company acquired all classes of stock of
BioSeq, Inc., a development stage company with no revenue, for a total
purchase price of $4,226,000.
(2) Effective July 1, 1997, the Company acquired the business and net assets of
Source Scientific, Inc. for $1,994,000 which increased 1997 revenuesrevenue by
$2,608,000.
(2) On June 30, 1993,(3) Consists of $3,381,000 of in-process research and development related to the
Company exercised its optionBioSeq acquisition, and a charge of $850,000 related to pre-pay the
acquisition note in connection with the 1992 purchase of
BBI Biotech at a
substantial discount fromlicense technology in the balance due, resulting in an extraordinary
gainfirst quarter of $50,000 net taxes of $33,000. The 1993 net income per share before
such extraordinary gain was $0.04.
(3) Due to a modification of its maturity date, the Company's demand line of
credit with an outstanding amount of $1,895,000 as of December 31, 1993,
has been presented as part of long-term debt (and excluded from current
liabilities in calculating working capital) for 1993. This change was made
to be consistent with its reclassification to long-term debt in 1994 and
1995.
-20-1998.
-22-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OverviewOVERVIEW
The Company generates revenue from products and services provided
primarily to the in vitroIN VITRO diagnostic infectious disease industry. ThereAs discussed
in Note 6 to the Consolidated Financial Statements, the Company has five
operating segments: "Diagnostics," "BBI Biotech," "Clinical Laboratory
Services," "Laboratory Instrumentation" and "Other.". Two of these,
"Diagnostics" and "Laboratory Instrumentation" manufacture products, although
the Laboratory Instrumentation segment also generates service revenue. Within
Diagnostics there are two
broad product classes: Diagnostic Products and Laboratory Instruments.
Diagnostic Products consist of three groups: Quality Control Panels, Accurun(r)Accurun(R) Run
Controls, and Diagnostic Components. ServicesThe remaining three segments generate
service revenue and consist of Specialty"BBI Biotech", "Clinical Laboratory Services",
and "Other" (Two development stage operations focused on research and
development). Within BBI Biotech there are three groups: Contract Research,
Blood Processing and Repository Services, and research services. Revenue in the
"Other" segment consists of both private and NIH funded support for the research
activities associated with our pressure cycling technology and drug discovery
operations. See Note 6 for a further discussion of the activities of these
segments.
PRODUCTS
The economics and cost structures of the segments have certain
differences. The Diagnostics segment has historically been the largest and most
profitable segment, both in whole dollars and in operating profit margin, as it
operates primarily in a commercial environment with fewer competitors and
relatively short product development cycles. The Laboratory Instrumentation
segment has been in decline for several years prior to its acquisition in mid
1997, and management is working to turn around this business. It also operates
in a highly competitive, low margin business: contract manufacturing of
instruments and devices. At the current low sales level of less than $3 million
in revenue, it operates significantly under capacity with high overhead, and
should significantly benefit from relatively small revenue increases.
SERVICES
BBI Biotech has been project oriented with a high proportion of its
revenue generated from government contracts (for both research and service
activities) and assisting the other segments in their new product and service
development. It has the highest level of inter-segment activity, and is
structured around project tracking of direct costs plus overhead and a low
percentage fee. Its financial goal has been to breakeven while contributing to
the development of future products and services for the Company. The Clinical
Laboratory Testing, Contract Research, Clinical Trials, Laboratory
Instrumentation Services segment offers specialty infectious disease testing for
hospital, doctors, blood banks and Drug Screening. Inother reference laboratories on a fee per
test basis. It operates in a segment of the five full years sincehealthcare field that continues to
experience cost containment pressures, and has many competitors. The combination
has resulted in operating margin pressures. The "Other" segment's two R&D
operations do not currently have any product or service revenue, and none is
expected in the near future. Their revenue to date consists of both private and
public (NIH) funding of segment research. Most of the expenditures by this
segment are for R&D expenses, and general management expenses including patent
costs. The Company continues to seek funding from both
-23-
private and public sources to minimize the impact of their development costs
on the Company's acquisition of BBI Biotech Research Laboratories ("BBI Biotech") and
BBI Clinical Laboratories, Inc. ("BBICL"), the Company has experienced a shift
in revenue mix towards increased product sales, as product revenue as a
percentage of total revenue increased from 43.1% in 1993 to 52.5% in 1997, with
a corresponding decrease in the percentage of total revenue provided by
services.
The Company's gross profit margin increased from 33.9% in 1993 to 41.6%
in 1997 principally as a result of the increased percentage of higher margin
product revenues. Within products, the Company's Quality Control Products
(Accurun(r) Run Controls and Quality Control Panels) have higher margins than
the Company's Laboratory Instruments and Diagnostic Components. Within
services, Contract Research gross margins are lower than other services.
However, such contracts enable the Company to maintain certain scientific staff
and capability that it might otherwise not be able to afford. The Company
intends to continue to concentrate on the growth in sales of its Quality
Control Products.overall operating results.
QUARTERLY FLUCTUATIONS
Historically, the Company's results of operations have been subject to
quarterly fluctuations due to a variety of factors, includingprimarily customer
purchasing patterns, primarily driven by end-of-year expenditures, and seasonal demand
during the summer months for certain laboratory testing services. In particular,
in the Diagnostics segment, the Company's sales of its off-the-shelf Quality
Control Products and Diagnostic Components typically have been highest in the
fourth quarter and lowest in the first quarter of each fiscal year, whereas SpecialtyOEM
product sales may peak in any quarter of the year, depending on the production
cycle of a given project. Clinical Laboratory Testing hastesting services have generally
reached a seasonal peak during the third quarter, coinciding with the peak
incidence of Lyme Disease. Research ContractsIn the Company's BBI Biotech segment, research
contracts are generally for large dollar amounts spread over a one or twoto five year
period,periods, and upon completion, frequently do not have renewal phases. As a result
theythese contracts can cause large fluctuations in revenue and net income. In
addition to staff dedicated to internal research and development, certain of the
Company's technical staff work on both Contract Researchcontract research for customers and
Company sponsored research and development. The allocation of certain technical
staff to such projects depends on the volume of Contract Research. As a result,
research and development expenditures fluctuate due to increases or decreases in
Contract Research.
To developcontract research performed. Neither the Laboratory Instrumentation segment nor
the Other segment are subject to material seasonal variations.
RESEARCH AND DEVELOPMENT
With the acquisition of BioSeq, Inc and its pressure cycling technology
in September 1998 as well as the hiring of a Vice President for the Drug
Discovery and Development program and its subsequent formation of a new
subsidiary ("Panacos Pharmaceuticals, Inc."), the Company has significantly
increased its rate of research and development spending on new technologies in
the Other operating segment. In addition, it has continued to focus on the
development of new Quality Control Products and support increased sales,
the Company hired additional research and development staff in the second half
of 1995 andnew tests for its clinical
laboratory. Additional sales and marketing staff in 1996 and 1997. The Company intends to
continue to add staff to these departments but at a reduced rate. General and
administrative expenses are not expected to increase atsupport will be added as needed with the
same rate, as the
Company has already incurred significant infrastructure expenses.expectation of continued future revenue growth.
EXPORT SALES
The Company does not have any foreign operations. However, the Company
does have significant export sales in Europe, the Pacific Rim countries and
Canada to agents under distribution agreements, as well as directly to test kit
manufacturers. All sales are denominated in US dollars. Export sales for the
years ended December 31, 1995, 1996,1999, 1998, and 1997 were $3.4$4.0 million, $4.3$4.1 million,
and $5.2$4.6 million, respectively. The Company expects that export sales will
continue to be a significant source of revenue and operating income.
-21-
Results of Operationsgross profit.
-24-
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
of total revenue represented by certain items reflected in the Company's
consolidated statements of operations:
Year Ended December 31
----------------------
Year Ended December 31,
-------------------------
1999 1998 1997 1996 1995
------ ------ ------
Revenue:
Products 52.5% 54.6% 54.0%
Services 47.5 45.4 46.0
------ ------ ------
Revenue:
Products 48.0% 50.1% 52.5%
Services 52.0 49.9 47.5
------ ------ ------
Total revenue 100.0 100.0 100.0
Gross profit 37.0 38.4 41.6
Operating expenses:
Research and Development 11.1 9.4 5.9
Acquired research and development - 16.2 -
Selling and marketing 13.7 15.1 14.5
General and administrative 15.2 16.4 15.0
------ ------ ------
Total operating expenses 40.0 57.1 35.4
------ ------ ------
(Loss) income from operations (3.0) (18.8) 6.2
Interest income (expense) (1.5) (0.2) 1.3
------ ------ ------
(Loss) income before income taxes (4.5) (19.0) 7.5
Net (loss) income (2.8) (16.8) 4.5
====== ====== ======
Product gross profit 48.3% 45.1% 50.7%
Services gross profit 26.6% 31.6% 31.6%
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUE
Total revenue 100.0 100.0 100.0
Grossincreased 12.2%, or $3,190,000, to $29,271,000 in 1999 from
$26,081,000 in 1998. The increase in revenue was the result of an increase in
product revenue of 7.5% or $982,000 to $14,057,000 from $13,075,000, and an
increase in service revenue of 17.0% or $2,208,000 to $15,214,000 from
$13,006,000 in 1998.
PRODUCT REVENUE. The product revenue increase was primarily
attributable to a $700,000 increase by the Diagnostics segment and a $287,000
increase by the Laboratory Instrumentation segment. The Diagnostics increase was
a result of a 15.0% increase in Accurun(R) sales as the Company continued to
successfully penetrate the emerging end-user market, and a 57.8% increase in
Basematrix sales due to increased outsourcing occurring in the IN VITRO
diagnostics industry. These increases were partially offset by a 22.7% decrease
in Seroconversion Panel sales, as the consolidation within the IN VITRO
diagnostic industry has negatively affected demand for these products. The
Laboratory Instrumentation segment achieved a $287,000 or 12.6% increase in
instrument sales as it refocused its efforts in OEM contract manufacturing.
Management feels that the end-user market will continue to be an area of growth
for its Quality Control Products while the outsourcing within the IN VITRO
diagnostics market will continue to benefit sales of Diagnostic Components and
Laboratory Instrumentation.
-25-
SERVICE REVENUE. The increase in service revenue was primarily
attributable to a $942,000 increase in BBI Biotech, a $2,655,000 increase in
Clinical Laboratory Services, and a $434,000 increase in the Other segment
revenue. Looking at the individual segments, BBI Biotech's growth was driven by
a 43.9% increase in repository services and the start of new contracts in the
AIDS Vaccine Support arena. The Clinical Laboratory Services' growth was led by
a 55.1% increase in molecular testing. And the Other segment's growth was a
result of funding received from both the NIH and the Consortium for Plasma
Science, which partially defrayed the cost of pressure cycling technology
development. These increases were partially offset by a $1,293,000 decrease in
Laboratory Instrumentation services as the Company completed its work on the
ABX, Inc., contract in the first quarter of 1999. The Company anticipates that
new contracts at the BBI Biotech segment and molecular testing at the Clinical
Laboratory segment will also contribute to revenue growth.
GROSS PROFIT
Overall gross profit 41.6 41.3 37.0
Operating expenses:increased 8.3%, or $831,000, to $10,835,000 in
1999 from $10,004,000 in 1998. Product gross profit increased 15.2%, or
$894,000, to $6,789,000 in 1999 from $5,895,000 in 1998 and product gross margin
increased to 48.3% in 1999, from 45.1% in 1998. Services gross profit decreased
$63,000 to $4,046,000 in 1999 from $4,109,000 in 1998 and service gross margin
declined to 26.6% in 1999 from 31.6% in 1998.
PRODUCT GROSS MARGIN. The increase in product gross margin was due
entirely to the gross margins realized in the Laboratory Instrumentation
operating segment, which increased from 17.8% in 1998 to 28.1% in 1999 as the
business unit operated at a higher volume, thus realizing better economies of
scale compared with 1998 as overhead costs were spread over a greater number of
units. Product gross margins at the Diagnostics segment remained relatively
steady. Management anticipates that further utilization increases for the
Laboratory Instrumentation segment will continue to benefit gross margins.
SERVICE GROSS MARGIN. The decrease in service gross margins was
realized at all operating segments. The BBI Biotech segment's service gross
margin decreased from 26.8% to 19.8%. BBI Biotech margins were adversely
affected by startup costs associated with new repository contracts in 1999,
primarily the acquisition of freezers, which under the terms of the contract
become government property and thus are charged directly to cost of sales. Also,
the Clinical Laboratory Services segment realized service gross margins of 30.3%
in 1999 versus 32.4% in 1998. This decrease is due to increased competition in
the molecular testing arena, which created pricing pressure, negatively
affecting margins. Finally, in early 1999 the Laboratory Instruments segment
realized a decrease in service gross margins from 52.7% to 46.3%, as it
completed the high-margin ABX, Inc. contract in early 1999. The Company feels
that service margins will continue to feel pressure from increased competition
in the clinical testing market. Furthermore as BBI Biotech expands its
repository services, low-margin contracts will account for a greater portion of
its total revenue if the Company is not continually successful in obtaining
higher margin commercial services work. The other remaining Company segments do
not generate service revenues that would significantly impact segment results.
-26-
RESEARCH AND DEVELOPMENT
Research and development 5.9 5.1 3.1costs, exclusive of acquired in-process
research and development, increased 32.4% or $797,000 to $3,259,000 in 1999 from
$2,461,000 in 1998. A significant portion of the increase is attributable to the
operating segment referred to as "Other", which consists of the pressure cycling
technology ("PCT") and Drug Discovery activities. The Company increased its PCT
expenditures by approximately $893,000 as it completed the design, development,
and manufacture of 8 prototype PCT instruments known as "barocyclers". The
Company also made significant progress during 1999 with its patents in the
nucleic acid extraction and pathogen inactivation areas. The Company's increased
expenditures in Drug Discovery by approximately $361,000 resulted in expanded
rights under its agreement with the University of North Carolina, at Chapel
Hill, and significant progress in the prosecution of patents for the compounds.
In addition, the BBI Biotech segment increased its spending to continue its
support of the Diagnostics and Clinical Laboratory Services segments.
There were two accounting charges in 1998, which were classified on the
income statement as acquired in-process research and development. In the first
quarter there was an accounting charge of $850,000 related to the acquisition of
the worldwide exclusive rights to BioSeq, Inc.'s immunodiagnostic research and
development technology. In the third quarter, the Company recorded a charge of
$3,381,000 related to in-process technology as a result of the Company's
acquisition of BioSeq, Inc. This allocation of the purchase price was based on
an independent valuation and was expensed, as no alternative future uses exist.
There were no such charges during 1999.
SELLING AND MARKETING
Selling and marketing 14.5 14.1 10.9expenditures remained relatively flat during 1999
as compared to 1998, across all operating segments. Costs increased only 2.2% or
$85,000 to $4,024,000 in 1999 from $3,939,000 in 1998 as the Company effectively
managed costs in this area.
GENERAL AND ADMINISTRATIVE
General and administrative 15.0 15.5 18.9
------ ------ ------
Totalcosts increased 3.9% or $166,000 to
$4,442,000 in 1999 from $4,276,000 in 1998. This increase is attributable to the
corporate reorganization that was announced in July of 1999. The reorganization
created operating segments, which are directed by a senior vice president and
general manager. The reorganization resulted in the classification of the
salaries, and other related costs, of two executives in the general and
administrative line of the income statement from other income statement lines,
to more accurately reflect their new responsibilities. General and
administrative costs are expected to increase in 2000, as the reorganization
impact will be felt for the entire fiscal year 2000. In addition, 1999 benefited
as certain general and administrative personnel costs were capitalized as
property and equipment in connection with the implementation of enterprise
resource planning systems at the Diagnostics and Laboratory Instruments
segments.
General and administrative costs at the other segments were flat.
OPERATING LOSS
As a result of all of the above, the Company experienced an operating
loss of $889,000 versus $4,902,000 in 1998. Excluding the $4,231,000 of acquired
in-process research and development charges realized in 1998, the Company's
operating loss increased by 32.3% or $217,000 to $889,000 in 1999 from $672,000
in 1998. The Diagnostics operating segment realized an increase in operating
income of approximately $225,000 or 40.3%, as a result of ed a a 15% increase in
sales coupled with a relatively steady
-27-
product gross margin. Clinical Laboratory Services operating segment realized
a significant increase in operating income of approximately $522,000 or
389.6%. as a result of a 37% increase in segment revenues which more than
offset a slight decline in that segment's service gross margin. The
Laboratory Instrumentation segment only realized a slight reduction, 8.1%, in
its operating loss as the improved product gross margin was more than offset
by lower service profitability due to the completion of the previously
discussed ABX contract. These operational improvements were more than offset
by the planned increases in research and development expenditures, which
resulted in significant operating losses in the "Other" operating segment of
$1,345,000. In addition, the BBI Biotech segment also increased its research
and development expenses 35.4 34.7 32.9
------ ------ ------
Incomeresulting in a loss of $152,000 in 1999 versus
income of $67,000 in the prior year. Management anticipates continued
strength from operations 6.2 6.5 4.1
Interest income (expense) 1.3 (1.4) (2.7)
------ ------ ------
Income before income taxes 7.5 5.1 1.4
Net income 4.5 3.1 0.8
====== ====== ======
Product gross profit 50.7% 49.8% 46.2%its Diagnostics and Clinical Laboratory Services gross profit 31.6% 31.0% 26.2%
Years Ended December 31,segments.
Although the Laboratory Instrumentation segment has realized operating losses
since it was acquired in July 1997, and 1996
The most significant eventthe Company believes that the goodwill
created in 1997 effecting comparability of resultsconnection with 1996 was the acquisition is realizable as management
believes that the segment will begin to generate operating income by the end
of 2001. The Company will continue to increase its spending in the Other
segment, however, it expects that the impact from this increased spending on
the Company's bottom line will be mitigated by the planned sale of the common
stock of Panacos and the continued funding support in the area of PCT.
The Company had net interest expense of $424,000 in 1999 versus $51,000
in 1998. The Company had used its proceeds from its initial public offering and,
at the end of the second quarter of 1998, began to borrow funds from its
revolving line of credit to continue its infrastructure and research and
development investments. In addition to a higher average borrowing balance in
1999, the Company realized the effects of rising interest rates.
The Company recorded tax benefits at its combined federal and state
statutory rate of 38% for 1999. Although the Company realized consolidated
operating losses for 1999 and 1998 management believes that its valuation
allowance is adequate as the Company plans to return to profitability within six
to twelve months, at which point it will begin to realize benefit from its
federal and state tax assets. The tax benefit rate recognized in 1998 was
adversely affected by the in-process research and development charges discussed
above. The March 1998 technology license transaction resulted in a temporary
difference as the technology license is deductible for tax purposes over a
15-year period, while the September 1998 common stock acquisition resulted in a
permanent difference that is never deductible. See Note 10 to Consolidated
Financial Statements in Item 8 hereunder for further detail.
The Company had a net loss of $814,000 in 1999 versus $4,389,000 in
1998 as a result of the operating loss, the interest expense, and the effective
tax rate described above.
YEARS ENDED DECEMBER 31, 1998 AND 1997
In July 1997 the Company acquired the business of Source Scientific,
Inc. effective July 1, 1997. The acquisition was completed by a wholly ownedwholly-owned subsidiary of the Company,
BBI Source Scientific, Inc., ("BBI Source") and was accounted for as an asset
purchase. This effected every lineThe income statement for 1997 includes the results of BBI Source for
the last six months of the income
statement.year, effecting comparability of results with 1998.
Total revenue increased 43.8%17.0%, or $6,790,000,$3,782,000, to $26,081,000 in 1998
from $22,299,000 in 1997
from $15,509,000 in 1996.1997. The increase in revenue was the result of a 38.3%an 11.6%
increase in product revenue of $3,241,000$1,364,000 to $11,711,000$13,075,000 from $8,470,000,$11,711,000, and a
50.4%22.8% increase in service revenue of
$3,549,000-28-
$2,418,000 to $13,006,000 from $10,588,000 from $7,039,000
in 1996. Approximately $1,416,0001997. Most of the product
increase was attributable to increased sales of Quality Control Products
achieved by the Diagnostics segment. The increase in such products was led by
Accurun(R) which doubled in sales over the prior year. Also contributing to
the increase in product sales was the inclusion of BBI Source (the Laboratory
Instruments segment) for the first time, and the balance of the increase
was a result of a 34.0% increase in sales of Quality Control Products,
particularly Accurun(r) from a higher volume of both new and existing products,
offset in part by price decreases. Service revenue included $1,192,000 from
inclusion of BBI Source, a 49.1% increase in contract research revenue as a
result of new contracts, and a 32.6% increase in specialty clinical laboratory
testing revenue as the Company's HIV PCR test introduced in September 1996, was
offered for a full year in 1998 versus a half-year in 1997.
Overall for both products and services, prices
declined slightlyThe decrease in 1997 versus 1996. In summary, even after excludingQuality Control Panel sales at the Diagnostics segment
partially offset the product sales increases, as sales fell short of
expectations due to consolidation in the IN VITRO diagnostic test kit
industry. The BBI Source,Biotech segment led the Company's total revenue increased 27.0% in 1997 compared to 1996
with a 21.5% increase in product revenue, and a 33.5% increase in service revenue on strong volume performance by Quality Control Products,with a
49.8% increase in contract research, and specialty clinical laboratory testing.
Grossresearch. Also contributing to the increase in
service revenue was the Clinical Laboratory Testing segment, realizing a
19.5% increase in revenue.
Overall gross profit increased 45.1%7.7%, or $2,886,000,$717,000, to $10,004,000 in
1998 from $9,287,000 for 1997
from $6,401,000 in 1996.1997. Product gross profit increased 40.8%decreased 0.7%, or $1,720,000,$43,000,
to $5,895,000 in 1998 from $5,938,000 in 1997 from $4,218,000 in 1996 and product gross profit margin increaseddecreased
to 50.7%45.1% in 1998 from 50.7%. In 1997 from 49.8%. The productsthe Diagnostics segment's product gross
margin increasebenefited from significant one-time sale of two "World-Wide Panels,"
which have unusually high gross margins due to their unique characteristics.
These panels sold out in the first quarter of 1998, with minimal impact on 1998.
The remaining product gross margin decrease was athe result of a favorable shift in product mix towards Accurun sales and overall
volume increase, thereby spreading fixed costs over a larger base, and despite
a lower gross profit margin in BBI Source's instrument sales.capacity
utilization at the Laboratory Instrumentation segment. Services gross profit
increased 53.5%22.7%, or $1,167,000,$759,000, to $4,109,000 in 1998 from $3,350,000 in 1997 from $2,183,000 in
1996 as the testing volume increasedand
gross margin remained steady at a faster rate than laboratory
headcount, thereby
-22-
causing the services gross profit margin to increase to 31.6% in 1997 from
31.0%1998 and 1997. Higher margins generated
by the Contract Services and Laboratory Instrumentation segments offset the
decrease in 1996. BBI Source's service gross profit margin was slightly higher
thanmargins realized by the Company average, which is expected to continue.increased pricing pressure facing the
Clinical Laboratory Testing segment
Research and development expenditures increased 64.6%87.7%, or $514,000,$1,150,000,
to $2,461,000 in 1998 from $1,311,000 in 1997 from $797,000 in 1996.1997. The increase resulted primarily fromwas realized across
all of the segments. The Laboratory Instrumentation segment invested in new
Laboratory Instrument development activities at BBI Source, as well asreflectance technology for its Verif-Eye product line. The Diagnostics segments
also increased its development expenditures, specifically for Accurun(r),development of
Accurun(R) molecular and immunological Run Controls, andControls. The Company invested in
development of new specialized molecular assays.assays for use by the Clinical
Laboratory Testing segment. Finally, the Company began the development of PCT as
it acquired BioSeq, Inc (one component of the Other segment) in September 1998.
There were two accounting charges during the twelve months ended
December 31, 1998, which were classified on the income statement as acquired
in-process research and development. In the first quarter there was an
accounting charge of $850,000 related to the acquisition of the worldwide
exclusive rights to BioSeq Inc.'s immunodiagnostic research and development
technology. In the third quarter, the Company recorded a charge of $3,381,000
related to in-process technology as a result of the Company's $4,226,000
acquisition of BioSeq, Inc.
Selling and marketing expenses increased 48.1%21.5%, or $1,053,000,$698,000, to
$3,939,000 in 1998 from $3,241,000 in 1997 from $2,188,000 in 1996.1997. The increase was attributable
primarily to an eleven person expansioninclusion for a full year in 1998 of the expanded TQS sales,
marketing, and technical support staff and related increased trade show and travel expenses.
In addition,added to the inclusionDiagnostics segment in the
spring of BBI Source added $167,000 of expense to1997. The Company also expanded its presence at tradeshows, resulting
in higher expenditures in this category.
General and administrative costs increased 39.2%27.9%, or $942,000,$933,000, to
$4,276,000 in 1998 from $3,343,000 in 1997 from $2,401,000 in 1996. This increase was attributable
primarily to: the addition of a Director of Human Resources and wide area
network systems analyst; higher expenditures for accounting and legal
professionals and investor relations activities in our first full year as a
public company; increased travel associated with the BBI Source acquisition;
and non-recurring moving costs of $40,000 associated with moving BBI Biotech
Research Laboratories to a new facility in Gaithersburg Maryland. These
increases were partially offset by a lower provision for doubtful accounts as a
result of improved accounts receivable collections from patients at the
Company's clinical reference testing laboratory. In addition, the inclusion of
BBI Source added $442,000 of expense to this category.
Operating income increased 37.1%, or $377,000, to $1,392,000 in 1997
from $1,015,000 in 1996. This increase was primarily a result of continued
strong performance in the Company's Quality Control Products business and
clinic reference testing laboratory, partially offset by a loss at BBI Source
of $189,000.
The Company had net interest income of $283,000 in 1997 versus net
interest expense of ($213,000) in 1996 as substantially all of the Company's
debt was repaid in November 1996 with a portion of the proceeds from its IPO.
The Company had positive cash balances to invest for all of 1997.
Net income increased 108.9%, or $524,000, to $1,005,000 in 1997 from
$481,000 in 1996. Of this increase, 43% was attributable to higher operating
income, and the balance was due to the shift from net interest expense in 1996
to net interest income in 1997. Diluted earnings per share increased 50% to
$0.21 for 1997 versus $0.14 in 1996. This increase was achieved even though
weighted average diluted shares outstanding increased 43%. Basic earnings per
share increased 35% to $0.23 for 1997 versus $0.17 in 1996.
Years Ended December 31, 1996 and 1995
Total revenue increased 26.4%, or $3,239,000, to $15,509,000 in 1996
from $12,271,000 in 1995. The increase in revenue was the result of a 27.9%
increase in product revenue of $1,848,000 to $8,470,000 from $6,622,000, and a
24.6% increase in service revenue of $1,390,000 to $7,039,000 from $5,649,000
in 1995. The increase in product revenue was attributable to an increase in the
volume of sales of Quality Control Products, particularly Accurun. The
increase in service revenue was primarily the result of increased volume of
specialty clinical laboratory testing and a favorable mix shift towards higher
priced molecular testing, and the impact of two new research contracts. This
was partially offset by lower volume of clinical trial services.
Gross profit increased 41.0%, or $1,862,000, to $6,400,599 for 1996
from $4,539,000 in 1995. Products gross profit increased 38.0%, or $1,160,000,
to $4,217,000 in 1996 from $3,057,000 in 1995 and products gross profit margin
increased to 49.8% in 1996 from 46.2%. The products gross margin increase was a
result of a favorable mix shift towards Accurun sales. Services gross profit
increased 47.3%, or $701,000, to $2,183,000 in 1996 from $1,481,000 in 1995 as
the testing volume increased at a
-23-
faster rate than laboratory headcount increased, and thereby caused the
services gross profit margin to increase to 31.0% in 1996 from 26.2% in 1995.
Research and development expenditures increased 112.1%, or $421,000, to
$797,000 in 1996 from $376,000 in 1995. The increase resulted from increased
costs of personnel hired in the second half of 1995 to step-up the rate of new
product introductions, and increased research project expenditures. Development
projects included Accurun(r), molecular and immunological Run Controls,
specialized molecular assays, and expenditures related to the Company's drug
discovery program.
Selling and marketing expenses increased 63.3%, or $848,000, to
$2,188,000 in 1996 from $1,340,000 in 1995. The increase was attributable
primarily to additional sales and marketing staff and overhead; increased
advertising, promotion, trade show and travel expenses due to the commencement
of the Company's "Total Quality System" (TQS) marketing campaign; and costs
associated with participation by the Company's Specialty Clinical Laboratory in
the Roche Diagnostics' Amplicor( Access program in connection with Roche's
launch of their new FDA approved HIV PCR test kit. The Amplicor( kit is
primarily used to monitor the HIV viral load (level) in patients prior to and
during drug therapy.
General and administrative costs increased 3.7%, or $85,000, to
$2,401,000 in 1996 from $2,316,000 in 1995. This increase was attributable
primarily to additional staffing in support staff, and increased information systems
consulting and investor relations activities at the Diagnostics segment, which
includes the majority of Company growththe corporate functions and higher
reserve provisionsofficers for doubtful accounts associated withboth periods.
In addition, the increased volumeinclusion of revenue relatedthe Laboratory Instrumentation segment for a full
year added $412,000 of expense to testing in situations in which payment tothis category.
-29-
As a result of all of the above, the Company depends on collecting from the patient rather than a healthcare institution.
Operatingexperienced an operating
loss of $4,902,000 versus income increased 100.0%, or $507,000, to $1,015,000of $1,392,000 in 1996
from $508,000 in 1995.1997. This increasedecrease was
primarily a result of the acquired in-process research and development expense,
a very strong
performance inhigher operating loss at the Company's Quality Control Products businessLaboratory Instrumentation segment, increased
research and clinic
reference testing laboratory.
Netdevelopment expenditures at all segments, and lower profitability
at its Diagnostics and Clinical Laboratory Testing operating segments.
The Company had net interest expense decreased 36.6%, or $123,000, to $213,000of $51,000 in 1996
from $336,0001998 versus interest
income of $283,000 in 1995, as1997. The Company had used the proceeds from the Company'sits initial
public offering were usedand, at the end of the second quarter of 1998, began to pay down almost all debtborrow
funds from its revolving line of credit to continue its infrastructure and
research and development investments.
The Company provided taxes at the combined federal and state rate of
38% for 1998 versus 40% in early November, and the remaining amount invested in short term, investment grade securities.
Netprior year. The rate decrease was the result of
offsetting the Massachusetts taxable income increased 367.2%of the Diagnostics operating segment
with the Massachusetts losses of BBI BioSeq, Inc., or $378,000, to $481,000 in 1996This benefit was adversely
impacted by the tax treatment of the acquired in-process technology from $103,000 in 1995. Diluted earnings per share increased 325% to $0.14 for 1996
versus $0.03 in 1995. Weighted average diluted shares outstanding only
increased 10% in 1996 over 1995BioSeq,
Inc. as the Company's shares issuedacquisition was structured as a stock purchase. Therefore, the
effective benefit rate for 1998 was approximately 11%.
The Company had a net loss of $4,389,000 in connection
with its IPO were outstanding for only two months1998 versus net income of
$1,005,000 in 1996. Basic earnings per
share increased 312%1997 as a result of the operating loss described above and a shift
to $0.17 for 1996interest expense in 1998 versus $0.04interest income in 1995.
Liquidity and Capital Resources1997.
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997,1999, the Company had cash and cash equivalents of
approximately $2,772,000$315,000 and working capital of $9,633,000. Trade$10,053,000. Gross trade accounts
receivable increased $2,143,000$483,000 or 62.7%, primarily from the inclusion of BBI
Source in the year end balance sheet for the first time, and significant growth
in fourth quarter revenue in 1997. Inventory increased $1,723,000 or 41.2%,
again primarily due to the inclusion of BBI Source for the first time, and the
addition of 39 new products to inventory.
On October 31, 1996, the Company's Common Stock commenced trading on the
NASDAQ7.2% as a result of completinga 7.8% increase in revenues
in the initial public offeringfourth quarter of its common
stock ("IPO")1999 versus the same period in 1998. Inventory
increased $228,000 or 3.4%, selling 1,600,000 shares at $8.50 per share. Net proceeds
received after underwriting discounts, commissions and offering costs was
approximately $11,633,000. On November 5, 1996,related primarily to work-in-process for upcoming
projects within the Company repaid
substantially all of its outstanding bank debt which totaled approximately $3.9
million.Diagnostics segment.
The Company has financed its operations to date through cash flow from
operations, borrowings from banks and salesthe sale of equity.its common stock. The Company
expects its cash flow, working capital, and cash positionavailable borrowings under its
revolving line of credit to meet existing operational needs althoughin 2000. In mid 1999
the Company and its revolvingbank agreed to a modified borrowing agreement with revised
financial covenants, which the Company expects will meet existing operational
needs for the foreseeable future. At December 31, 1999 the Company was in
compliance with its financial covenants.
In addition, in March 2000 the Company received a signed term sheet
from a bank for a mortgage of the Company's West Bridgewater, MA facility. The
Company anticipates that it will complete the transaction in the beginning of
the second quarter of 2000. The Company intends to use the $2,500,000 of cash
generated to pay down its existing line of credit will be available as needed for working capital.
-24-credit.
Net cash provided byused in operations for 19971999 was $727,000$657,000 as compared to
$1,460,000$1,215,000 in 1996. As discussed above, this1998. This decrease in operational use of cash flow was
primarily attributableis due to carrying additionalimproved
management of working capital, including better utilization of inventory and
more effective management of payables and receivables. The $123,000 increase in
reserve for doubtful accounts receivable and inventory
as of year end. This was partially offset by anthis improvement of operational
cash flow. The Company increased its reserve because there has been a gradual
shift in the Company's customer mix from large, well known, IN VITRO diagnostics
manufacturers to a more diversified customer matrix, which includes smaller,
less established companies. While the Company has not yet experienced a
significant increase in deferred revenue
from a payment of $331,000 under a research contract for future clinical trial
services, and a net increase in accounts payable and accrued expenses of
$696,000. Also benefiting net cash from operations for 1997 was a $290,000
reduction in current federal tax liabilitywrite-off's as a result of non-qualified stock
option exercises. Cash flow used in operations in 1995 was $29,000 as working
capital needs due to sales growth exceeded cash generated from net income
adjusted by non cash expenses.this shift, management feels
that establishing the current level of reserve is prudent.
Cash used in investing activities for 1997, 19961999, 1998 and 19951997 amounted to
$2,731,000, $5,462,000, and $5,396,000, $1,412,000,respectively. Substantially all of the
investing activities in 1999 related to additions of property and $1,320,000, respectively.equipment.
These expenditures included approximately $1,138,000 of computer hardware and
software, including approximately $807,000 invested in new enterprise resource
planning systems for the Diagnostics and Laboratory Instrumentation segments.
The BBI Biotech segment spent approximately $522,000 on leasehold improvements
as it prepared a new facility in Frederick, Maryland for the repository contract
with the National Institute of Allergy and Infectious Disease, Division of AIDS.
In addition, to normal
capital expenditures,the Company continued construction at its BBI Diagnostics facility
in West Bridgewater, Massachusetts as it spent approximately $352,000 improving
this manufacturing facility. In 1998, three major items accounted for most of
the Company's investing activities. First, effective September 30, 1998, the
Company completed the acquisition of the remaining common stock of BioSeq, Inc.,
for a cash expenditure of $2,557,000. Second, $1,460,000 was expended for
additional improvements at the Company's Massachusetts and Maryland facilities.
Finally, $437,000 was spent on software, hardware and implementation costs for
the enterprise resource planning system. In 1997, four items accounted for most
of the 1997 investing activities. First, the Company exercised its option to purchase
an additional 165,000 shares of BioSeq, Inc. stock at an aggregate cost of
$750,000, thereby increasing its ownership of BioSeq to 19.9%. Second, in May
1997, the Company's BBI Biotech subsidiary signed a ten year lease for new
laboratory space in Gaithersburg, Maryland and spent $566,000 on leasehold
improvements for new laboratory space for its contract research and product
development activities. Third, the expansion and renovation of its Diagnostic ProductsBBI
Diagnostics manufacturing facility in West Bridgewater, Massachusetts, commenced
-31-
construction and approximately $920,000 was expended as the project is now over two-thirds
complete.expended. Finally, effective on July 1, 1997, the Company
completed the acquisition of the business and net assets of Source Scientific, Inc. at a purchase price of
$1,994,000 including acquisition costs.
TheDuring 1999, net cash provided by financing activities was
approximately $3,555,000 from a combination of net borrowings of $3,164,000
under the revolving line of credit, and proceeds of $206,000 from the sale of
stock and stock warrants to third party investors. In addition, the Company
has
accounted forrealized proceeds of $148,000 and $37,000 from the acquisition as an asset purchase,sale of stock and is amortizing goodwillthe
exercise of approximately $2.2 million over 15 years. See Note 2 tostock options, respectively. During 1998, net cash provided by
financing activities was $4,052,000 from a combination of net borrowings of
$3,963,000 under the Company's Notes
to Consolidated Financial Statements in Item 8 hereunder. The cash used in
investing activities in 1996 includedrevolving line of credit, and proceeds of $89,000 from the
initial investment in BioSeq, Inc.exercise of $732,500, while 1995 included the purchase of the Company's West Bridgewater
facility for $806,000.stock options. During 1997, net cash generated from financing
activities included $300,000 from the exercise of warrants, and $182,000 from
exercising stock options. Also in 1997, $1,124,000 was used to pay down debt
acquired in connection with the Source acquisition.
In 1996, net cash generated from
common stock issued, including the IPO, approximated $12,600,000. This was
used to pay down net debt of $4,577,000. Net cash provided by borrowings for
1995 amounted to $1,240,000, and net proceeds from the sale of Common Stock for
the same period was approximately $176,000. The proceeds of such debt were used
for working capital, to acquire the West Bridgewater property and to purchase
capital equipment.
In 1997, 1996 and 1995 capital expenditures amounted to $2,613,000,
$669,000, and $1,316,000, respectively. The 1997 expenditures included both
the Massachusetts and Maryland facility improvement, and the 1995 expenditures
related to the purchase of the West Bridgewater facility, all as discussed
above.
On April 26, 1996 the Company entered into a new five year distribution
agreement with Kyowa Medex, Co., Ltd., a foreign distributor, extending a six
year old relationship. Simultaneously, Kyowa purchased 117,647 shares of the
Company's Common Stock at a price of $8.50 per share. Under the distribution
agreement, Kyowa has been granted an exclusive right to sell and distribute
the Company's products in Japan and to continue to purchase product from the
Company at a discount. In return, Kyowa is obligated to achieve certain
minimum sales levels, provide market, sales and regulatory information, and has
agreed not to compete with the Company.
On March 9, 1998, the Company announced plans to modify a previously
announced 3-year contract with ABX Hematology, Inc. ("ABX") and its parent
company, ABX Hematologie, SA (France). Under the contract, the Company provided
technical, customer and field services for instruments sold by ABX in the
United States. Under the modified agreement, individual customer service
contracts will be assigned to ABX and ABX will assume responsibility for its
United States instruments. The Company will provide certain consulting services
through March 1999 to assist ABX in establishing a sales, customer service,
technical support, and field service operation in the United States for its
hematology
-25-
instrument and reagent business. In addition, the Company has agreed to allow
ABX to occupy space at its California facility during the period of the
agreement. The Company's personnel associated with this contract, included the
nationwide field service organization and hotline technical support, will be
offered employment by ABX.
The Company is accounting for its investment in BioSeq on the
cost-basis in accordance with the provisions of APB 18 since its cumulative
investment is less than 20% of the equity of BioSeq and the Company does not
exert significant influence or control. BioSeq needs to obtain additional
financing in 1998 to continue operations and there can be no assurances that
any such financing will be available upon acceptable terms. Due to the
uncertainty of technology based development stage enterprises, the Company
performs a periodic analysis of the investment to determine whether the
carrying value of its investment in BioSeq has been other than temporarily
impaired. In performing the analysis of its investment in BioSeq for the
current year, management considered BioSeq's positive factors including its
technology, patent positions, business prospects, and the possibility of
raising capital and achieving financial success; as well as its negative cash
flow and net worth, and limited cash and other resources, and failure to date
to raise significant capital independent of the Company. Management has
concluded that its investment has not been other than temporarily impaired, if
at all. If it is subsequently determined to be impaired, the Company will
adjust the carrying value of its investment by taking a charge to earnings
which could amount to the full value of its $1,482,500 investment as of
December 31, 1997. See also Note 14 relating to the Company's $600,000
purchase of certain technology rights from BioSeq.
The Company anticipates significant capital expenditures in 2000 to
begin slowing downcontinue as it plans to compete renovations to its manufacturing facility in
1998Massachusetts and its repository facility in Frederick, Maryland. In addition to
the renovations, the Company intends to continue its enterprise resource
planning system implementation, as most of the Marylandit installs new systems at BBICL and approximately two-thirds of the Massachusetts
projects have been completed.BBI
Biotech. The Company believes that existing cash balances, the borrowing
capacity available under the revolving line of credit, and cash generated from
operations and proceeds from the issuance of its common stock are sufficient to
fund operations and anticipated capital expenditures for the foreseeable future.in 2000. Except for
purchase orders in connection with the manufacturing expansion, there were no
material financial commitments for capital expenditures as of December 31, 1997.1999.
In February of 2000, the Company received notice that certain warrant
holders exercised 500,000 warrants. This exercise will result in proceeds to the
Company of approximately $2,100,000, net of transaction costs, when the
transaction closes, pursuant to completing the registration of the underlying
shares.
YEAR 2000 READINESS DISCLOSURE
Our Year 2000 Computer Systems Compliance
Concerns have been widely expressed regarding("Y2K") program was designed to minimize the inabilitypossibility
of certain
computer programs to process date information beyond year 1999. These concerns
focus on the impact of theserious Year 2000 problem oninterruption. In 1997 the Company decided to significantly
upgrade its "business system" (all computer hardware and software used to run
its business operations and the
potential costs associated with identifying and addressing the problem. The
Company is in the process of evaluating and taking steps to deal with the
potential impact of this problem in areas under its control, including its
products and sources of supply, as well as its operations management, administration and financial
systems.
Basedsystems).
Specifications were developed for desired capabilities, including Year
2000 compliance and the Company began to assess various enterprise resource
planning systems ("ERP System") in 1998. Additionally, the Company organized a
task force at each operating segment to review other infrastructure areas
including communications systems, building security systems and embedded
technologies in areas such as laboratory instruments and manufacturing
equipment. The Company also began to survey mayor suppliers, distributors, and
customers to determine the status and schedule for their Year 2000 compliance.
During the fourth quarter of 1999 the Company completed the ERP
implementation at the two of the Company's subsidiaries. The other subsidiaries
received upgraded, Year 2000 compliant versions of existing software. The
Company spent less than $200,000 to prepare for Y2K. This amount includes the
cost to upgrade existing software packages to compliant versions, use of
existing resources to execute surveys and measure results, and incremental costs
associated with other infrastructure areas. This amount excludes all costs
associated with the implementation of the ERP Systems which was completed for
reasons beyond Y2K compliance.
Possible Year 2000 worst case scenarios include the interruption of
significant parts of our business as a result of internal business system
failure or the failure of the business systems of the Company's suppliers,
distributors or customers. Any such interruption may have a material adverse
impact on its reviewour future results. Although no significant problems have been noted
to date, the Company believesacknowledges that its products are
"Year 2000 compliant." The Company plans to correct or replace its
administrative and business systems in time to avoid material problems. The
Company has confirmed with existing software vendorsthere is still risk that Year 2000 compliant
versions either exist or will be available to upgrade or replace its operations
management, administrative and financial systems. Where it believes that a
particular supplier's situation poses unacceptable risks, the Company plans to
identify an alternative source.
Based upon its review, the Company does not believe that the Year 2000
problem willsuch problems
may occur. Any such interruption could have a material adverse affectimpact on the
Company. However, there can
be no assurances that failure to comply with Year 2000 by parties outside its
control will not have a material adverse affect onfuture results of the Company.
-26-
Recent Accounting Pronouncements
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income"133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 130)133) is effective, as
amended for quarters of fiscal years beginning after DecemberJune 15, 1997. SFAS 1302000. The new
standard requires thatcompanies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in comprehensive incomethe values of those derivatives would be shownaccounted for depending on the use
of the derivatives and whether they qualify for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in a financial statement that is displayed withachieving offsetting changes in fair value or cash flows. The
Company does not currently engage in derivative trading or hedging activity.
-32-
In December 1999, the same prominence as
otherStaff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). This SAB summarizes certain of the Staff's views in
applying generally accepted accounting principles, in the United States, to
revenue recognition in financial statements. The Company will adopt SFAS 130 in fiscal year
ended December 31, 1998. Adoption of this statement is not expected to have an
impact on the Company's consolidated financial position and results of
operations.
Segment Reporting
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131)SAB 101 is effective for financial statements for periods beginning after December 15, 1997. This
statement will change the
way companies report annual financial statements and
requires them to report selected segment information in their quarterly reports
issued to shareholders. It also requires entity wide disclosures about the
products and services an entity provides, the material countries in which it
holds assets and reports revenues, and its major customers.Company's quarter ended June 30, 2000. The Company will
adopt SFAS 131 indoes not expect the
fiscal year ended December 31, 1998. Adoptionprovisions of this
statement is not expectedSAB 101 to have ana material impact on the Company's consolidatedits financial position and results of operations.statements.
Forward - Looking Information
The Annual Report on Form 10-K contains forward-looking statements
concerning the Company's financial performance and business operations. The
Company wishes to caution readers of this Annual Report on Form 10-K that actual
results might differ materially from those projected in the forward-looking
statements contained herein.
Factors which might cause actual results to differ materially from
those projected in the forward-looking statements contained herein include the
following: finalization of SEC guidelines for valuation of in-process research
and development as it relates to purchase accounting; inability of the Company
to develop the end userend-user market for quality control products; inability of the
Company to integrate the business of Source Scientific, Inc. into the Company's
business; inability of the Company to grow the sales of Source Scientific, Inc.
to the extent anticipated; failurethe renewal and full funding of contracts with
National Institutes of Health (NIH), National Heart, Lung and Blood Institute
(NHLBI) and other government agencies; the inability of the Company to execute a definitive agreement with ABX Hematologie fordevelop
the transfer to themtechnology recently acquired as part of certain service activities in connection with the letter of intent to modify
the existing contract; a material adverse change in the business, financial
condition or prospectsits purchase of BioSeq, Inc., an early stage biotechnology company in
which the Company has made a significant investment, including inability to
develop its technology to the
level of commercial utilization; the inability of Panacos to obtain sufficient
funding to progress to more advanced stages of development, the failure of
Panacos to identify and successfully commercialize any new drugs or vaccines,
the inability of the Company to obtain an adequate supply of the unique and rare
specimens of plasma and serum necessary for certain of its products; significant
reductions in purchases by any of the Company's major customers; the
interruption of significant parts of the Company's business as a result of
internal business system failure or the failure of the business systems of its
suppliers, distributors or customers due to the inability of such systems to
properly interpret dates subsequent to December 31, 1999; and the potential
insufficiency of Company resources, including human resources, plant and
equipment and management systems, to accommodate any future growth. Certain of
these and other factors which might cause actual results to differ materially
from those projected are more fully set forth under the caption "Risk Factors"
in the Company's Registration Statement on Form S-1 (SEC File No. 333-10759).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
-27-The Company is subject to interest rate risk in connection with its
long-term debt. The aggregate hypothetical loss in earnings for one year of
those financial instruments held by the Company at December 31, 1999 that are
subject to interest rate risk resulting from a hypothetical increase in interest
rates of 10 percent is less than $100,000, after-tax. The hypothetical loss was
determined by calculating the aggregate impact of a 10 percent increase in the
interest rate of each variable rate financial instrument held by the Company at
December 31, 1999, that is subject to interest rate risk. Fixed rate financial
instruments were not evaluated, as the Company believes the risk exposure is not
material.
The Company is exposed to concentrations of credit risk in cash and
cash equivalents and trade receivables. Cash and cash equivalents are placed
with major financial institutions with high quality credit ratings. Trade
receivables credit risk exposure is significant as the Company derives a
significant portion of its revenues from a small number of customers however
this risk is mitigated by the dispersion across different industries and
geographies in which the customers operate; in addition to this, the largest
customer (approximately 15% of 1999 consolidated revenue) was the NIH, a U.S.
Government agency. The Company is exposed to credit-related risks associated
with its trade accounts receivable denominated in U.S. Dollars but receivable
from foreign customers.
-33-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
1997 1996
------------- --------------
ASSETS
------
CURRENT ASSETS:--------------------------------
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,772,360 $8,082,642$ 314,923 $ 146,978
Accounts receivable, less allowances of $446,517$746,797 in 19971999 and
$352,058$623,710 in 1996 5,558,710 3,415,9941998 6,446,318 6,086,693
Inventories 5,902,821 4,180,3346,917,916 6,689,768
Prepaid expense and other 288,481 239,950expenses 344,353 479,983
Deferred income taxes 328,562 283,200
------------- ------------934,790 847,268
----------- -----------
Total current assets 14,850,934 16,202,120
------------- ------------14,958,300 14,250,690
----------- -----------
Property and equipment, net 4,980,164 2,699,1588,295,024 6,925,423
OTHER ASSETS:
Long term investment 1,482,500 732,500
Goodwill and other intangibles, net 2,212,220 95,3022,589,310 2,809,825
Deferred income taxes 220,535 --
Notes receivable and other 124,178 69,234
------------ ------------
3,818,898 897,036
------------ ------------99,171 96,447
----------- -----------
2,909,016 2,906,272
----------- -----------
TOTAL ASSETS $23,649,996 $19,798,314
============ ============$26,162,340 $24,082,385
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,552,268 $ 2,369,495
Accrued compensation 1,189,140 1,284,162
Accrued income taxes 112,487 --
Other accrued expenses 1,028,667 795,642
Current maturities of long term debt $ 14,878 $ 12,820
Accounts payable 2,218,685 991,839
Accrued compensation 1,103,837 840,666
Accrued income taxes 132,802 427,140
Other accrued expenses 498,247 264,26222,414 15,569
Deferred revenue 1,249,024 829,477
-------------- 690,760
----------- -----------
Total current liabilities 5,217,473 3,366,204
------------4,904,976 5,155,628
----------- -----------
LONG-TERM LIABILITIES:
Deferred rent and otherLong term debt, less current maturities 7,145,651 3,988,602
Other liabilities 215,937 40,948465,590 730,138
Deferred income taxes 149,333 101,580-- 139,363
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized 20,000,000 shares in
19971999 and 1996;1998; issued and outstanding 4,622,5664,773,365 in 19971999 and
4,378,1574,667,816 in 1996 46,226 43,7821998 47,734 46,679
Additional paid-in capital 16,029,049 15,258,656
Retained earnings 1,991,978 987,144
------------ ------------16,809,242 16,418,716
Accumulated deficit (3,210,853) (2,396,741)
----------- -----------
Total stockholders' equity 18,067,253 16,289,582
------------ ------------13,646,123 14,068,654
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $23,649,996 $19,798,314
============ ============$ 26,162,340 $ 24,082,385
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements
-28--34-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-------------------------------------------------------------------------------------------
1999 1998 1997
1996 1995
------------------------- ------------ ------------
REVENUE:
Products $11,711,026 $ 8,469,89014,056,657 $ 6,621,63113,075,085 $ 11,711,026
Services 15,214,431 13,005,991 10,588,311
7,039,406 5,649,099
------------------------- ------------ ------------
Total revenue 29,271,088 26,081,076 22,299,337 15,509,296 12,270,730
COSTS AND EXPENSES:
Cost of product salesproducts 7,267,273 7,179,920 5,773,417 4,252,068 3,564,241
Cost of services 11,168,595 8,897,046 7,238,527 4,856,630 4,167,625
Research and development 3,258,542 2,461,316 1,311,190
796,805 375,712Acquired research and development -- 4,230,812 --
Selling and marketing 4,023,791 3,938,753 3,241,422 2,188,152 1,339,792
General and administrative 4,441,524 4,275,627 3,342,829
2,400,681 2,315,814
------------------------- ------------ ------------
Total operating costs and expenses 30,159,725 30,983,474 20,907,385
14,494,336 11,763,184
Income(Loss) income from operations (888,637) (4,902,398) 1,391,952 1,014,960 507,546
Interest income (expense), net 282,771 (212,969) (335,899)
-------------6,146 27,901 295,998
Interest expense (430,593) (78,621) (13,227)
------------ ------------ Income------------
(Loss) income before income taxes (1,313,084) (4,953,118) 1,674,723
801,991 171,647
Provision forBenefit from (provision for) income taxes 498,972 564,399 (669,889)
(320,771) (68,657)
------------------------- ------------ ------------
Net (loss) income $ (814,112) $ (4,388,719) $ 1,004,834
$ 481,220 $ 102,990
========================= ============ ============
Net (loss) income per share, basic $ (0.17) $ (0.94) $ 0.23
$ 0.17 $ 0.04
Net (loss) income per share, diluted $ 0.21(0.17) $ 0.14(0.94) $ 0.030.21
Number of shares used to calculate net (loss) income per share
Basic 4,669,717 4,654,609 4,437,801
2,915,522 2,569,641
Diluted 4,669,717 4,654,609 4,780,070 3,340,236 3,040,188
The accompanying notes are an integral part of
these consolidated financial statements
-29--35-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 19961999, 1998 AND 19951997
Common Stock
--------------------------------------------- Additional Retained Total
$.01 Par Paid-In Retained TreasuryEarnings Stockholders'
Shares Value Capital Earnings Stock(Deficit) Equity
---------- ---------- ----------- --------- --------- ------------------------ ----------- -----------
BALANCE, December 31, 1994 2,578,865 25,789 2,612,500 402,934 - 3,041,223
Issuance of common stock 8,535 85 58,160 58,245
Stock options and warrants exercised 47,200 472 117,068 117,540
Conversion of note payable 5,817 58 9,542 9,600
Treasury stock purchased - 80,000 shares (144,000) (144,000
Tax benefit of stock options exercised 1,350 1,350
Net income 102,990 102,990
---------- ---------- ----------- --------- --------- -------------
BALANCE, December 31, 1995 2,640,417 26,404 2,798,620 505,924 (144,000) 3,186,948
Issuance of common stock, net of issuance costs 1,637,647 16,377 12,371,469 144,000 12,531,846
Stock options and warrants exercised 85,760 858 67,210 68,068
Conversion of note payable 14,333 143 21,357 21,500
Net income 481,220 481,220
---------- ---------- ----------- --------- --------- -------------
BALANCE, December 31, 1996 4,378,157 $ 43,782 15,258,656$15,258,656 $ 987,144 - 16,289,582$16,289,582
Stock options and warrants exercised 244,409 2,444 480,032 482,476
Tax benefit of stock options exercised 290,361 290,361
Net income 1,004,834 1,004,834
---------- ---------- ----------- ---------- -------- ------------------------ ----------- -----------
BALANCE, December 31, 1997 4,622,566 46,226 16,029,049 1,991,978 18,067,253
Stock options and warrants issued with acquisition 236,327 236,327
Stock options exercised 45,250 453 88,696 89,149
Tax benefit of stock options exercised 64,644 64,644
Net loss (4,388,719) (4,388,719)
---------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1998 4,667,816 46,679 16,418,716 (2,396,741) 14,068,654
Common stock issued 53,300 533 147,905 148,438
Stock warrants issued, net of issuance costs 206,011 206,011
Stock options and warrants exercised 52,249 522 36,610 37,132
Net loss (814,112) (814,112)
---------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1999 4,773,365 $ 46,226 $16,029,049 $1,991,978 - $18,067,253
==========47,734 $16,809,242 $(3,210,853) $13,646,123
========== =========== ========== ======== ======================== =========== ===========
The accompanying notes are an integral part of
these consolidated financial statements
-30--36-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $1,004,834 $ 481,220(814,112) $(4,388,719) $ 102,9901,004,834
Adjustments to reconcile net (loss) income to net
cash (used in) provided by (used in) operating activities:
Depreciation and amortization 1,578,731 1,280,049 858,434 600,495 441,356
Provision for doubtful accounts 96,661 154,335 174,925 247,080 181,084
Deferred rent and other (264,549) 117,911 (71,381) (87,152) (45,792)
Deferred income taxes (447,420) (528,676) 2,391 (155,495) (61,765)
Tax benefit of stock options exercised -- 64,644 290,361
- 1,350Acquired research and development -- 4,230,812 --
Changes in operating assets and liabilities:
Accounts receivable (456,286) (675,171) (1,907,413)
(587,204) (997,112)
Note receivableOther assets -- -- (13,930)
Inventories (228,148) (786,947) (640,301)
Prepaid expenses and other assets (13,930) 14,188 (61,343)
Inventories (640,301) (503,483) (67,335)
Prepaid expenses135,630 (144,199) 2,546 14,249 (98,082)
Accounts payable 182,773 105,122 797,690 246,623 (42,190)
Accrued compensation and other expenses 250,490 (86,054) (102,199) 883,063 94,126
Deferred revenue (690,760) (558,264) 330,855
306,076 523,401----------- ----------- -----------
Net cash (used in) provided by operating activities (656,990) (1,215,157) 726,812
----------- ----------- -----------
CASH FLOWS FOR INVESTING ACTIVITIES:
Acquired research and development -- (850,000) --
Payments for additions to property and equipment (2,727,816) (2,929,568) (2,612,697)
Purchase of intangible assets -- (3,470) (39,625)
Return of deposits and other (2,724) 27,731 --
Purchase of long term investment -- -- (750,000)
Acquisitions, net of cash aquired -- (1,706,540) (1,993,722)
----------- ----------- -----------
Net cash used in investing activities (2,730,540) (5,461,847) (5,396,044)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 3,175,427 3,977,351 --
Repayments of long-term debt (11,533) (14,878) (1,123,526)
Proceeds from issuance of common stock and stock warrants 391,581 89,149 482,476
----------- ----------- -----------
Net cash provided by (used in) operating activities 726,812 1,459,660 (29,312)
----------- ----------- -----------
CASH FLOWS FOR INVESTING ACTIVITIES:
Payments for additions to property and equipment (2,612,697) (669,154) (1,316,217)
Purchase of intangible assets (39,625) (9,999) (4,000)
Purchase of long term investment (750,000) (732,500) -
Net assets of acquisition, net of cash acquired (1,993,722) - -
----------- ----------- -----------
Net cash used in investing activities (5,396,044) (1,411,653) (1,320,217)
----------- ----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Proceeds from long term debt - 226,300 1,517,867
Repayments of long-term debt (1,123,526) (4,803,042) (277,789)
Proceeds of common stock issued 482,476 13,581,315 175,785
Offering costs associated with common stock issued - (981,401) -
Purchase of treasury stock - - (144,000)
----------- ----------- -----------
Net cash (used in) provided by financing activities 3,555,475 4,051,622 (641,050) 8,023,172 1,271,863
----------- ----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS: 167,945 (2,625,382) (5,310,282) 8,071,179 (77,666)
Cash and cash equivalents, beginning of year 146,978 2,772,360 8,082,642 11,463 89,129
----------- ----------- -----------
Cash and cash equivalents, end of year $2,772,360 $8,082,642 $ 11,463314,923 $ 146,978 $ 2,772,360
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Conversion of note payable to common stock - $ 21,500 $ 9,600
Noncash exercise of warrants to stockholder - $ 180,650 -
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 662,30433,391 $ 85,460113,287 $ 168,994662,304
Interest paid $ 414,297 $ 72,755 $ 5,731
Long-term investment included in acquisition $ 300,587 $ 331,4951,482,500
The accompanying notes are an integral part of
these consolidated financial statements
-31--37-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Significant Accounting Policies
Boston Biomedica, Inc. ("BBI") and Subsidiaries (together, the
"Company") provide infectious disease diagnostic products, clinicallaboratory
instrumentation, contract research and specialty infectious disease testing
services to the in-vitro diagnostic industry, government agencies, blood banks,
hospitals and other health care providers worldwide. The Company also invests in
new technologies related to infectious diseases. The Company is subject to risks
common to companies in the Biotechnology industry,biotechnology, medical device and diagnostic
industries, including but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, and compliance with FDA governmentgovernmental
regulations.
Significant accounting policies followed in the preparation of these
consolidated financial statements are as follows:
(i) Principles of Consolidation
The consolidated financial statements include the accounts of BBI and
its wholly-owned subsidiaries, BBI Biotech Research Laboratories, Inc. ("BBI
Biotech"), BBI Clinical Laboratories, Inc. ("BBICL"), and BBI Source Scientific,
Inc. ("BBI Source"), and BBI BioSeq, Inc. ("BBI BioSeq"). BBI consists primarily
of the Diagnostic Products segment as well as executive corporate officers.
During the year, the Company incorporated Panacos Pharmaceuticals, Inc.,
("Panacos"). Effective January 2000, Panacos will be accounted for as an
additional consolidated subsidiary of the Company. All significant intercompany
accounts and transactions have been eliminated in the consolidation. Certain
amounts included in the prior year's financial statements may have been
reclassified to conform to the current presentation.
(ii) Use of Estimates
To prepare the financial statements in conformity with generally
accepted accounting principles, management is required to make significant
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. In particular, the Company records reserves for
estimates regarding the collectability of accounts receivable, the value and
realizability of intangible assets, as well as the net realizable value of its
inventory.
The valuation methodology applied to the acquisition of BioSeq, Inc.
(see Note 2) was based on estimated discounted future cash flows. The purchase
price accounting is based on this valuation. Significant assumptions include
gross and operating profit margins, and future tax, discount, and royalty rates.
Actual results could differ from the estimates and assumptions used by
management.
(iii) Revenue Recognition
Product revenues arerevenue is recognized as sales upon shipment of the products or, for
specific orders at the request of the customer, on a bill and hold basis after
completion of manufacture. All bill and hold transactions meet specified revenue
recognition criteria which include normal billing, credit and payment terms,
firm commitment and transfer to the customers of all risks and rewards of
ownership. Accounts receivable as of December 31, 1997 and 1996 includeTotal revenue related to bill and hold receivables of $31,000transactions was approximately
$1,998,000, $1,388,000, and $23,000, respectively.
The Company periodically enters into barter transactions whereby the
Company exchanges inventory for testing services. Revenue on these transactions
are recognized when both the products have been shipped and the testing
services have been completed and are recorded at the estimated fair market
value of the inventory based upon standard Company prices. The revenue
recognized on these transactions$459,000 for the years ended December 31, 1997, 19961999,
1998, and 1995 was $261,000, $244,000, and $213,000,1997, respectively.
Services are recognized as revenue upon completion of tests for
specialty laboratory services. Revenue from service contracts and research and
development contracts for the Company's laboratory instrumentation business is
recognized as the service and research and development activities are performed
under the terms of the contracts.
Revenue under long-term contracts, generally lasting from one to five
years, including funded research and development contracts, is recorded when
costs to perform such research and development activities are incurred. Billing
under the percentage of completion method,
whereinlong-term contracts are generally at cost plus a predetermined profit.
Billing occurs as costs plus profit is recorded as service revenueassociated with time and materials are incurred.
Customers are obligated to pay for such services, when billed, monthly as
the work is performed. Certainand payments are
non-refundable. On occasion certain customers make advance payments that are
deferred until revenue recognition is appropriate. Unbilled amounts for fee
retainage are included in accounts receivable at December 31, 1997 and 1996,
and are immaterial. When the current contract estimates indicate a loss,
provision is made for the total anticipated loss. The Company does not believe
there are any material collectability issues associated with these receivables.
Total revenue related to funded research and development contracts was
approximately $1,737,000, $1,126,000, and $728,000 for the years ended December
31, 1997, 1996 and 1995, respectively. Total contract costs associated with
these agreements were approximately $1,438,000, $975,000 and $575,000 for the
years ended December 1997, 1996 and 1995, respectively.
-32--38-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Significant Accounting Policies -- (Continued)
Total revenue related to long-term contracts was approximately
$4,457,000, $4,175,000, and $3,125,000 for the years ended December 31, 1999,
1998 and 1997, respectively. Total contract costs associated with these
agreements were approximately $4,323,000, $3,950,000, and $2,782,000 for the
years ended December 1999, 1998 and 1997, respectively. Included in the revenue
recognized under long-term contracts are certain unbilled receivables
representing additional indirect costs, which are allowed under the terms of the
respective contracts. Unbilled receivables were less than $40,000 for all years
presented.
(iv) Cash and cash equivalents
The Company's policy is to invest available cash in short-term,
investment grade, interest bearing obligations, including money market funds,
municipal notes, and bank and corporate debt instruments. Securities purchased
with initial maturities of three months or less are valued at cost plus accrued
interest, which approximates fair market value, and classified as cash
equivalents.
At December 31, 1997 the Company's cash equivalents consisted of
$2,702,280 invested in a money market fund. At December 31, 1996 the Company's
cash equivalents consisted of $6,001,259 invested in a money market fund and a
banker's acceptance of $1,991,522.
(v) Research and Development Costs
Research and development costs are expensed as incurred.
(vi) Inventories
Inventories are stated at the lower of average cost or net realizable value and
include material, labor and manufacturing overhead.
(vii) Property and Equipment
Property and equipment are stated at cost. For financial reporting
purposes, depreciation is recognized using accelerated and straight-line
methods, allocating the cost of the assets over their estimated useful lives
ranging from five years to ten years for certain manufacturing and laboratory
equipment, from three to five years for management information systems and
office equipment, three years for automobiles and fifteenthirty years for the building.
Leasehold improvements are amortized over the shorter of the life of the
improvement or the remaining life of the leases, which range from four to ten
years. Upon retirement or sale, the cost and related accumulated depreciation of
the asset are removed from the books.accounting records. Any resulting gain or loss is
credited or charged to income.
In March of 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
computer software costs associated with internal use software to be charged to
operations as incurred until certain capitalization criteria are met. SOP 98-1
is effective beginning January 1, 1999. The Company adopted this policy during
1999 as it implemented enterprise resource planning systems at two of its
locations. See Footnote 4 for further information.
(viii) Goodwill and Intangibles
The Company has classified as goodwill, the cost in excess of fair
value of the assets of the business acquired. Goodwill is being amortized on a
straight
linestraight-line basis over ten to fifteen years. Other intangibles primarily
consist of patents, licenses, and intellectual property rights and are amortized
over periods ranging from four to tensixteen years.
(ix) Impairment of Long-Lived Assets
The Company evaluates the potential impairment of its long-lived assets
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. At the occurrence of a certain event or
change in circumstances, the Company evaluates the potential impairment of an
asset based on estimated future undiscounted cash flows. In the event
impairment exists, the Company will measure the amount of such impairment
based on the present value of estimated future cash flows using a discount
rate commensurate with the risks involved. Based on management's assessment as
of December 31, 1999, the Company has determined that no impairment of
long-lived assets exists. Upon the occurrence of a material circumstance, such
as the failure of certain technology to demonstrate promise that it may gain
commercial acceptance or the failure of a business segment to achieve certain
performance objectives, management will reassess the value of associated
assets and if appropriate at that time, will recognize an impairment charge.
The realizability of the goodwill related to the
-39-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Significant Accounting Policies (Continued)
acquisition of BBI Source Scientific has been a specific area of focus by the
Company. Management feels that although the business unit has realized
operating losses since the acquisition in July 1997, the goodwill is not
impaired as management believes the segment will be profitable by the end of
2001.
(x) Income Taxes
The Company utilizes the liability method of accounting for income
taxes. Under the liabilitythis method, deferred taxes arise from temporary differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. A valuation allowance is provided for net deferred tax assets if,
based on the weighted available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. Tax credits are
recognized when realized using the flow through method of accounting. (x)At
December 31, 1999, the Company's entire valuation allowance related to the net
operating losses acquired in connection with the BioSeq acquisition.
Management feels that no additional valuation allowance is required as its tax
strategies and normal profitability levels will allow it to realize all of its
tax assets, including federal and state net operating losses and tax credits.
(xi) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally cash and cash equivalents, and
accounts receivable. The Company places its cash in federally chartered banks,
each of which is insured up to $100,000 by the Federal Deposit Insurance
Corporation. The Company limits credit risk in cash equivalents by investing
only in short term,short-term, investment grade securities including money market funds
restricted to such securities. Concentration of credit risk with respect to
accounts receivable is limited to certain customers to whom the Company makes
substantial sales (see also Note 6). The Company does not require collateral from its
customers. To reduce risk, the Company routinely assesses the financial strength
of its customers and, as a consequence, believes that its trade accounts
receivable credit risk exposure is limited.
(xi)(xii) Deferred Revenue
Deferred revenue consists of payments received from customers in
advance of services performed.
-33-(xiii) Computation of Earnings per Share
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing income
available to common shareholders by the weighted average common shares
outstanding plus additional common shares that would have been outstanding if
dilutive potential common shares had been issued. For purposes of this
calculation, stock options are considered common stock equivalents in periods
in which they have a dilutive effect. Options and warrants that were
antidilutive were excluded from the calculation.
(xiv) Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," on December 31, 1998. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, but retains the
requirements to report information about major customers. Disclosures required
by this new standard are included in the notes to the consolidated financial
statements under the caption "Segment Reporting and Related Information."
(xv) Recent Accounting Standards
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133)is effective, as
amended for quarters of fiscal years beginning after June 15, 2000. The new
standard requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivatives and whether they qualify for hedge accounting. The key
criterion for hedge
-40-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Significant Accounting Policies -- (Continued)
(xii) Recentaccounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. The Company does not
currently engage in derivative trading or hedging activity.
In December 1999, the Staff of the Securities and Exchange
Commission issued Staff Accounting Standards
Comprehensive Income
StatementBulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). This SAB summarizes certain of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130)the Staff's
views in applying generally accepted accounting principles, in the United
States, to revenue recognition in financial statements. SAB 101 is effective
for fiscal years beginning after
December 15, 1997. SFAS 130 requires that changes in comprehensive income be
shown in a financial statement that is displayed with the same prominence as
other financial statements.Company's quarter ended June 30, 2000. The Company will adopt SFAS 130does not expect
the provisions of SAB 101 to have a material impact on its financial
statements
(2) Acquisition of BioSeq, Inc.
On September 30, 1998 the Company acquired the remaining common stock
outstanding of BioSeq (approximately 81%) for $879,000 in fiscal year
endedcash (net of cash
acquired of $121,000), warrants to purchase 100,000 shares of the Company's
stock at an exercise price of $2.50 per share, minimum long-term royalty
payments of $424,000, debt and accrued interest owed by BioSeq at the time of
acquisition of approximately $736,000, and other acquisition costs. The Company
also exchanged BioSeq's stock options for 46,623 BBI stock options with an
average exercise price of $2.74. Accordingly, the Company's aggregate cost of
acquiring all of BioSeq's equity, including the original 19% investment under
the 1996 Purchase Agreement of $1,482,000 (classified as long-term investment at
December 31, 1998. Adoption1997 was approximately $4,226,000. The cash portion of this statement is not expected to have an
impact on the
Company'sacquisition was financed from a combination of debt and cash. The acquisition
has been recorded using purchase accounting, and BioSeq's results are included
in the consolidated financial position and results of operations.
Segment Reporting
Statementthe Company commencing October 1, 1998.
BBI BioSeq is a development stage company with patent pending
technology based on pressure cycling technology. The assets were capitalized
by allocating the aggregate cost of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131) is effective for
financial statements for periods beginning after December 15, 1997. This
statement will change$4,226,000 ratably to the way companies report annual financial statements and
requires them to report selected segment information in their quarterly
reports issued to shareholders. It also requires entity wide disclosures about
the products and services an entity provides, the material countries in which
it holds assets and reports revenues, and its major customers. The Company
will adopt SFAS 131 in the fiscal year ended December 31, 1998. Adoption of
this statement is not expected to have an impact on the Company's consolidated
financial position and results of operations.
(2) Purchaseindividual
components of the Business and Net Assets of Source Scientific, Inc.
In July 1997, the Company, through its wholly owned subsidiary
BBI-Source Scientific, Inc., completed the acquisition of all$11,124,000 total estimated fair value of the assets
acquired, based upon independent valuation of the assets
acquired as performed by the Michel/Shaked Group, a division of Back Bay
Management Company. Management believes that because of the Company's initial
investment in BioSeq, and intimate knowledge of its technology and business,
its understanding of the industry to which pressure cycling technology would
be applied, and selected liabilitiesas a result of Source Scientific, Inc. ("Source").lengthy and intense negotiations, the Company
was successful in reaching an extremely favorable purchase price for BioSeq
compared to the fair value of the assets acquired.
The assets acquired and their allocation are as follows
ESTIMATED ALLOCATED
ITEM USEFUL LIFE FAIR VALUE PURCHASE PRICE
- ----------------------- ------------- ---------- --------------
Acquired In-process
Research & development - $ 8,764,000 $3,381,000
Patents 16 years 2,017,000 778,000
Other assets 3 to 10 years 343,000 67,000
Totals $11,124,000 $4,226,000
Allocated in-process research and development consists of two projects,
that were on-going at the time of the acquisition: nucleic acid extraction and
purification and pathogen inactivation. BioSeq had expended approximately $1.6
million prior to September 30, 1998 on these projects. Both of these projects
have encouraging preliminary data demonstrating potential feasibility, but
significant scientific, mechanical and design issues remain. The Company
estimates that it will spend in excess of $4.8 million through the year 2002 to
complete the development into commercially viable products and to begin
generating revenue. Remaining development efforts are focused on feasibility
studies to establish the key performance parameters and biological activities to
be retained; designing and building a prototype instrument; further development
of the prototype for the applications; scale-up of design; data generation and
clinical trials; applying and obtaining Food and Drug Administration approval,
where applicable, final design modifications; and transfer to manufacturing. In
addition to the risk of the technology ultimately not working, failure to
complete on a timely basis could allow new or existing competing technologies to
be developed and commercially accepted.
The valuation methodology was based on estimated discounted future cash
payment of $1,894,000 to Source, the total purchase price
was $1,994,000 including consulting, legal,flows. Significant assumptions include gross and operating profit margins, and
future tax, discount, and royalty rates. Recent accounting guidelines on
valuation methodologies for in-process research and other acquisition
costs, net of cash acquired. The acquisition is treated as an asset purchase as
of July 2, 1997development are still
evolving and the resultsamount written off maybe subject to adjustment.
-41-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Acquisition of operations have been included since that
date. The purchase price exceeded the fair market value of net assets acquired
by approximately $2,202,000, which is recognized as goodwill and is being
amortized on a straight line basis over fifteen years.BioSeq, Inc. (Continued)
The following unaudited pro forma information combines the consolidated
results of operations of the Company and SourceBioSeq as if the asset purchaseacquisition had
occurred at the beginning of 1996,1997, after giving effect to certain adjustments,
including amortization of the intangible assets, increased interest expense on
the acquisition debt, and related income tax effects. The unaudited pro forma
information is shown for comparative purposes only and does not reflect the
synergies expected to result from the integrationis based on management's
estimates of Source's business into the
Company's business.
Years Ended December 31,
----------------------------
Unauditedresearch and development expenditures.
Years Ended December 31,
----------------------------
1998 1997 1996
- --------- ------------- -------------
Revenue $24,051,796 $20,489,296
Operating income (loss) 688,808 539,960
Net income (loss) 371,285 239,976
Pro Forma Pro Forma
---------- ----------
Revenues 26,081,077 22,299,337
Operating income (loss) (1,474,694) 191,952
Net income (loss) (989,327) 242,834
EPS (0.21) 0.05
The pro forma earnings per share, basic 0.08 0.08
Pro forma earnings per share, diluted 0.08 0.07
-34-information excludes acquired research and development of
$4,231,000
(3) Inventories
The Company purchases human plasma and serum from various private and
commercial blood banks. Upon receipt, such purchases generally undergo
comprehensive testing, and associated costs are included in the value of raw
materials. Most plasma is manufactured into Basematrix and other diagnostic
components to customer specifications. Plasma and serum with the desired
antibodies or antigens are sold or manufactured into Quality ControlQC Panels, Accurun(r)Accurun(R) Run
Controls, and reagents ("Finished Goods"). Panels and reagents are unique to
specific donors and/or collection periods, and require substantial time to
characterize and manufacture due to stringent technical specifications. Panels
play an important role in diagnostic test kit development, licensure and quality
control. Panels are manufactured in quantities sufficient to meet expected user
demand, which may exceed one year. Inventory also includes component parts used
in the manufacture of laboratory instrumentation. Inventory balances at December
31, 19971999 and 1996 consist1998 consisted of the following:
1997 1996
---------- ----------
Raw materials.............................. $2,033,040 $1,359,569
Work-in-process............................ 1,190,567 697,749
Finished goods............................. 2,679,214 2,123,016
---------- ----------
$5,902,821 $4,180,334
1999 1998
---------- ----------
Raw materials ........ $2,675,735 $2,407,154
Work-in-process ...... 1,845,778 1,788,399
Finished goods ....... 2,396,403 2,494,215
---------- ----------
$6,917,916 $6,689,768
========== ==========
(4) Property and Equipment
Property and equipment at December 31, 19971999 and 1996 consist1998 consisted of the
following:
1997 1996
------------ ------------
Laboratory and manufacturing equipment........ $2,240,660 $1,751,737
Management information systems................ 1,693,939 1,247,190
Office equipment.............................. 686,608 394,957
Automobiles................................... 189,775 196,663
Leasehold improvements........................ 687,714 122,419
Land, building and improvements............... 2,160,932 956,386
------------ ------------
7,659,628 4,669,352
Less accumulated depreciation................. 2,679,464 1,970,194
------------ ------------
Net book value................................ $4,980,164 $2,699,158
============ ============
Depreciation expense for the years ended December 31, 1997, 1996 and
1995 was approximately $731,000, $585,500, and $425,700 respectively. Included
in 1997 land, building and improvements is approximately $920,000 of
construction in progress.
(5) Long Term Investment
In October 1996, the Company entered into a License Agreement, Purchase
Agreement, Stockholders' Agreement and Warrant Agreement with BioSeq, Inc.
("BioSeq") a privately held, technology based development stage company. The
Company agreed to purchase convertible preferred stock equivalent to
approximately 19% of the capital stock of BioSeq for an aggregate of $1,482,500
in three installments. Of the $1,482,500, $732,500 was invested in 1996.
In April 1997, the Company exercised its option to purchase an
additional 165,000 shares of BioSeq at an aggregate cost of $750,000, thereby
increasing its ownership to 19%. The investment is carried at cost of
$1,482,500 and classified as a long term investment. Under the operative
documents, the Company has price anti-dilution protection, pre-emptive rights
and the right to board representation. In addition, the Company was granted
warrants to acquire additional shares of common stock of BioSeq for additional
consideration under certain conditions, provided that this right is not
exercisable to the extent it would cause the Company's ownership
-35-
1999 1998
----------- -----------
Laboratory and manufacturing equipment .. $ 3,456,410 $ 3,082,834
Management information systems .......... 3,691,338 2,556,193
Office equipment ........................ 1,051,673 821,538
Automobiles ............................. 318,242 206,693
Leasehold improvements .................. 2,177,236 1,610,260
Land, building and improvements 2,611,733 2,307,039
----------- -----------
13,306,632 10,584,557
Less accumulated depreciation ........... 5,011,608 3,659,134
----------- -----------
Net book value .......................... $ 8,295,024 $ 6,925,423
=========== ===========
-42-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Property and Equipment (Continued)
Depreciation expense for the years ended December 31, 1999, 1998 and
1997 was approximately $1,359,000, $1,096,000, and $731,000 respectively.
Included in 1999, 1998 and 1997 land, building and improvements is approximately
$203,000, $1,345,000 and $920,000, respectively, of construction in progress.
In accordance with SOP 98-1, the Company capitalized approximately
$448,000 of internal labor and related costs, in 1999, in connection with its
ERP System Implementation. These costs are included in the Management
Information Systems line item and are being depreciated over the same life as
the system, 5 years. Depreciation expense, related to these capitalized costs
was approximately $7,000 for the year ended December 31, 1999.
(5) Long Term Investment (Continued)Intangible Assets
Intangible assets at December 31, 1999 and 1998 consisted of the
following:
1999 1998
---------- ----------
Goodwill ............................. $2,293,045 $2,293,045
Patents .............................. 795,880 796,380
Licenses ............................. 37,752 37,752
---------- ----------
3,126,677 3,127,177
Less accumulated amortization ........ 537,367 317,352
---------- ----------
Net book value ....................... $2,589,310 $2,809,825
========== ==========
Amortization expense for the years ended December 31, 1999, 1998 and
1997 was approximately $220,000, $184,000, and $125,000 respectively.
(6) Segment Reporting and Related Information (all dollar amounts in thousands)
Operating segments are components of an enterprise for which separate
financial information is available that is evaluated regularly by senior
management in deciding how to equal or exceed 20%.allocate resources and in assessing performance of
each segment. The Company is accountingorganized along legal entity lines and senior
management regularly reviews financial results for its investmentall entities, focusing
primarily on revenue and operating income.
The Company has five operating segments. The Diagnostics segment
serves the worldwide in BioSeqvitro diagnostics industry, including users and
regulators of their test kits, with quality control products, and test kit
components. The BBI Biotech segment pursues third party contracts to help
fund the development of products and services for the other segments,
primarily with agencies of the United States Government. The Clinical
Laboratory Services segment performs specialty infectious disease testing for
hospitals, blood banks, doctors and other clinical laboratories, primarily in
North America. The Laboratory Instrumentation segment sells diagnostic
instruments primarily to the worldwide in vitro diagnostic industry on an OEM
basis, and also performs in-house instrument servicing. "Other" consists of
research and development in two areas: pressure cycling technology ("PCT")
and drug discovery. The Company performs research in the development of PCT,
with particular focus in the areas of nucleic acid purification and pathogen
inactivation. The Company also conducts active research, together with Dr. K.
H. Lee and collaborators at the School of Pharmacy, University of North
Carolina at Chapel Hill ("UNC"), in the area of anti-HIV drug discovery, with
exclusive focus on natural products and their synthetic derivatives. Finally,
the "Other" segment's two R&D operations do not currently have any product or
service revenue, and none is expected in the near future. Their revenue to
date consists of both private and public (NIH) funding of segment research.
Most of the expenditures by this segment are for R&D expenses, and general
management expenses including patent costs. The Company continues to seek
funding from both private and public sources to minimize the impact of their
development costs on the cost-basisCompany's overall operating results.
The Company's underlying accounting records are maintained on a legal
entity basis for government and public reporting requirements, as well as for
segment performance and internal management reporting. Inter-segment sales are
recorded on a "third party best price" basis and are significant in measuring
segment operating results. Throughout 1999, the cost of most corporate functions
are included in the Diagnostic Products segment as the senior management group
has dual responsibility to this segment as well as the Company. Pursuant to the
August 1999 reorganization, many of the senior managers and a few other
employees were segregated from the Diagnostics segment to form a Corporate
operating unit, effective January 2000. The following segment
-43-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Segment Reporting and Related Information (Continued)
information has been prepared in accordance with the provisions of APB 18 since its
cumulative investment is less than 20%internal accounting
policies of the equity of BioSeq and the Company, does not exert significant influence or control. BioSeq needs to obtain
additional financing in 1998 to continue operations and there can be no
assurances that any such financing will be available upon acceptable terms. Due
to the uncertainty of technology based development stage enterprises, the
Company performs a periodic analysis of the investment to determine whether the
carrying value of its investment in BioSeq has been other than temporarily
impaired. In performing the analysis of its investment in BioSeqas described above.
Operating segment revenue for the current year, management considered BioSeq's positive factors including its
technology, patent positions, business prospects,years ended December 31, 1999, 1998
and 1997 were as follows:
1999 1998 1997
----------------------------------------
Diagnostics $ 11,837 $ 11,277 $ 10,655
BBI Biotech 6,297 5,355 4,188
Clinical Laboratory Services 9,842 7,187 6,024
Laboratory Instrumentation 2,923 3,929 2,608
Other 434 -- --
Eliminations (2,062) (1,667) (1,176)
----------------------------------------
Total Revenue $ 29,271 $ 26,081 $ 22,299
========================================
Operating segment (loss) income for the possibility of
raising capitalyears ended December 31, 1999,
1998 and achieving financial success;1997 were as wellfollows:
1999 1998 1997
----------------------------------------
Diagnostics $ 784 $ 559 $ 1,357
BBI Biotech (152) 67 (95)
Clinical Laboratory Services 656 134 403
Laboratory Instrumentation (832) (906) (189)
Other (1,345) (525) (84)
Acquired research & development -- (4,231) --
----------------------------------------
Total (Loss) Income from Operations $ (889) $ (4,902) $ 1,392
========================================
Operating segment depreciation and amortization expense for the years
ended December 31, 1999, 1998 and 1997 were as its negative cash
flowfollows:
1999 1998 1997
----------------------------------------
Diagnostics $ 537 $ 408 $ 338
BBI Biotech 419 346 182
Clinical Laboratory Services 240 217 175
Laboratory Instrumentation 299 292 163
Other 84 17 --
----------------------------------------
Total Depreciation and Amortization $ 1,579 $ 1,280 $ 858
========================================
Identifiable operating segment assets are all located in the United
States, and net worth, and limited cash and other resources, and failure to date
to raise significant capital independent of the Company. Management has
concluded that its investment has not been other than temporarily impaired, if
at all. If it is subsequently determined to be impaired, the Company will
adjust the carrying value of its investment by taking a charge to earnings
which could amount to the full value of its $1,482,500 investment as of December 31, 1997. See also Note 14 relating to the Company's $600,000
purchase of certain technology rights from BioSeq.
In accordance with the agreement, the Company was granted a worldwide
right ("the License") to use the BioSeq technology relating to sequencing1999, 1998 and analysis services. The License will be exclusive until BioSeq commences
selling on a commercial basis the equipment used in the DNA sequencing1997 were as follows:
1999 1998 1997
----------------------------------------
Diagnostics $ 13,375 $ 12,122 $ 14,152
BBI Biotech 4,643 4,242 2,806
Clinical Laboratory Services 3,188 2,348 1,948
Laboratory Instrumentation 3,789 4,427 4,744
Other 1,167 943 --
----------------------------------------
Total Assets $ 26,162 $ 24,082 $ 23,650
========================================
-44-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Segment Reporting and analysis process, at which time the License will become non-exclusive. The
License provides that the Company will pay BioSeq market royalties as a
percentage of net revenues arising out of the services performed by the Company
with the licensed technology. The Company will accountRelated Information (Continued)
Operating segment capital expenditures for the royaltyyears ended December 31,
1999, 1998 and 1997 were as a
costfollows:
1999 1998 1997
----------------------------------------
Diagnostics $ 1,315 $ 1,468 $ 1,271
BBI Biotech 944 1,234 877
Clinical Laboratory Services 307 202 196
Laboratory Instrumentation 128 22 269
Other 34 4 --
----------------------------------------
Total Capital Expenditures $ 2,728 $ 2,930 $ 2,613
========================================
Revenue by geographic area for the years ended December 31, 1999, 1998
and 1997 are as follows:
1999 1998 1997
----------------------------------------
United States $ 25,231 $ 21,978 $ 17,706
Europe 2,509 2,453 2,614
Pacific Rim 818 1,063 1,285
Total all others 713 587 694
----------------------------------------
Total $ 29,271 $ 26,081 $ 22,299
========================================
Revenue of Product and Service classes in excess of 10% of consolidated
revenue (excludes inter-segment sales) for the years ended December 31, 1999,
1998 and 1997 were as thefollows:
1999 1998 1997
----------------------------------------
Quality Control Products $ 9,445 $ 9,369 $ 8,220
Clinical Laboratory Testing 9,472 6,806 5,695
Government Contracts 4,530 3,535 2,638
The government contract revenues are earned. (See also Note 14.)
(6) Revenue from Significant Customers and Export Sales
The Company performs contract research and certain other services under
contracts, subcontracts and grants from United States Government Agencies,government
agencies, primarily the National Institutes of Health ("NIH"(NIH) and represent the
only customer with revenue in excess of 10% of consolidated revenue.
(7) Debt
Effective June 30, 1999, the Company entered into an amended revolving
line of credit agreement (the "Amended Line"). Revenue with its bank, increasing the
facility to $10 million from such
contracts, subcontracts$7.5 million. The Amended Line matures June 30,
2001; bears interest at the Company's option based on either the base rate plus
1/4% or LIBOR plus 2.75%; carries a facility fee of 1/4% per annum, payable
quarterly; and grants wasis collateralized by substantially all of the assets of the
Company, excluding real property. Borrowings under the Amended Line are limited
to commercially standard percentages of accounts receivable, inventory and
equipment. The Company had approximately $2,638,000 in 1997,
$1,920,000 in 1996,$456,000 available under the Amended
Line as of December 31, 1999.
The Amended Line contains covenants regarding the Company's total
liabilities to tangible net worth ratio, minimum debt service coverage ratio,
and $1,628,000 in 1995.
Export salesmaximum net loss. The Amended Line further provides for restrictions on the
payment of dividends, incurring additional debt, and the amount of capital
expenditures.
As of December 31, 1999 the Company's debt payment requirements under
its revolving line of credit were $0, $7,145,651, $0, $0 and $0 for the years
ended December 31, 2000, 2001, 2002, 2003, and 2004, respectively.
-45-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Debt (Continued)
The Company's outstanding debt includes an installment note payable
with an interest rate of 9.75%, due August 2001. The note is collateralized by
geographic areaoffice furniture and laboratory equipment. The Company also acquired two
additional notes for automobile loans, which are approximately as follows:
1997 1996 1995
---------- ---------- ----------
Europe $3,150,000 $2,844,000 $2,257,000
Pacific Rim 1,310,000 948,000 642,000
Others 694,000 534,000 531,000
---------- ---------- ----------
Total $5,154,000 $4,326,000 $3,430,000
(7) Deferred Rentboth being carried at 0%
financing and come due October 2002. The amounts outstanding, including the
current portion, at December 31, 1999 and 1998 were $22,414 and $26,820,
respectively.
(8) Other Liabilities
One of the facilityThe Company's California and Maryland facility's leases includesinclude
scheduled base rent increases over the term of the lease. The amount of base
rent payments is being charged to expense onusing the straight-line method over the term
of the lease. As of December 31, 19971999 and 1996,1998, the Company has recorded a
long-term liability of $189,867$326,184 and $53,900,$273,290, respectively ($361,413 and
$308,519 including the current portion) to reflect the excess of rent expense
over cash payments since inception of the lease. In addition to base rent, the
Company pays a monthly allocation of the operating expenses and real estate
taxes for the above facility.
The Company's outstanding debt consists of an installment note payable
with an interest rate of 9.75%, due August 2001. The note is collateralized by
office furnitureCalifornia and laboratory equipment. The amount outstanding on December
31, 1997 and 1996 was $40,948 and $53,768, respectively. The current amounts of
such debtMaryland facilities.
Included in long-term liabilities at December 31, 19971999 and 1996 was $14,8781998 are the
present value of future minimum royalty payments of approximately $139,000 and
$12,820, respectively.
During 1996, convertible debt in$424,000 payable to the amountformer owners of $21,500 was converted
into 14,333 sharesBioSeq, Inc. (See Note 2).
(9) Accrued Compensation
Accrued compensation consists of common stock at a pricethe following:
Year Ended December 31
1999 1998
---------- ----------
Accrued payroll $ 253,594 $ 598,937
Accrued vacation 447,534 360,509
Accrued commissions 305,423 177,691
Other accrued compensation 182,589 147,025
---------- ----------
1,189,140 1,284,162
---------- ----------
(10) Income Taxes
The components of $1.50 per share.
-36-the (benefit) provision for income taxes are as
follows:
1999 1998 1997
--------- --------- ---------
Current (benefit) provision: federal $(226,368) $ (63,868) $ 567,373
Current provision: state $ 85,575 $ 28,145 $ 100,125
--------- --------- ---------
Total current (benefit) provision (140,793) (35,723) 667,498
Deferred (benefit) provision: federal (236,040) (417,315) (5,078)
Deferred (benefit) provision: state (122,139) (111,361) 7,469
--------- --------- ---------
Total deferred (benefit) provision (358,179) (528,676) 2,391
--------- --------- ---------
Total (benefit) provision for income taxes $(498,972) $(564,399) $ 669,889
========= ========= =========
-46-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Deferred Rent and Other Liabilities (Continued)
Effective March 28, 1997, the Company entered into a $7.5 million
uncollateralized revolving line of credit (the "Line") with its bank. The Line
matures on June 30, 1999; bears interest at the Company's option based on
either base rate, LIBOR plus 1.75%, or overnight money market rate plus 1.75%;
and carries a facility fee of .25% per annum, payable quarterly. The Line
contains covenants regarding the Company's ratio of total
liabilities-to-equity, minimum tangible net worth, and minimum debt service
coverage ratio. The Line further provides for restrictions on the payment of
dividends, and limitations on additional borrowings. The Company did not draw
upon the Line during 1997.
(8)(10) Income Taxes The Company's effective tax rate does not significantly differ from the
federal and state income tax statutory rates. The components of the provision
for income taxes are as follows:
1997 1996 1995
---------- ---------- ----------
Current expense: federal and state $667,498 $476,206 $130,422
Deferred expense (benefit): federal and state 2,391 (155,495) (61,765)
---------- ---------- ----------
Total $669,889 $320,711 $68,657
========== ========== ==========(Continued)
Significant items making up deferred tax liabilities and deferred tax
assets arewere as follows:
1997 1996
---------- ----------
Current deferred taxes:
Inventory $ 72,249 $ 87,158
Accounts receivable allowance 153,469 115,548
Other accruals 102,844 80,494
---------- ----------
Total current deferred tax assets 328,562 283,200
Long term deferred taxes:
Accelerated tax depreciation (217,029) (176,015)
1999 1998
----------- -----------
Current deferred taxes:
Inventory $ 174,338 $ 169,796
Accounts receivable allowance 298,271 224,240
Technology licensed 299,883 322,516
Other accruals 162,298 130,716
----------- -----------
Total current deferred tax assets 934,790 847,268
Long term deferred taxes:
Accelerated tax depreciation (335,880) (279,358)
Goodwill and intangibles 19,961 17,729
Tax credits 252,589 60,000
Operating loss carryforwards 1,082,665 861,066
Less: valuation allowance (798,800) (798,800)
----------- -----------
Total long term deferred tax assets (liabilities), net 220,535 (139,363)
----------- -----------
Total net deferred tax assets $ 1,155,325 $ 707,905
=========== ===========
On December 31, 1999 and intangibles 15,176 13,551
State net1998, operating loss carryforwards 52,520 60,884
---------- ----------
Total long term deferred tax liabilities, net (149,333) (101,580)
---------- ----------
Total net deferred tax assets $179,229 $181,620
========== ==========
Aswere
partially offset by a valuation allowance of December 31, 1997,$798,800. This allowance is to
reserve for the entire loss carryforward obtained through the acquisition of
BioSeq, Inc. The Company establishes valuation allowances in accordance with the
provisions of SFAS 109 "Accounting for Income Taxes". The Company continually
reviews the adequacy of the valuation allowance. The state net operating loss
carryforwards expire at various dates beginning in 2002 through 2019. As of
December 31, 1999, the Company had approximately $47,000 of alternative minimum
tax credits, which do not expire and approximately $205,000 of federal research
credits, which expire from 2012 through 2007.
-37-2020. The Company has determined that no
additional valuation allowance is required. This conclusion is based on its
ability and intent to discontinue its operating loss position, not only for the
consolidated entity, but also for each of its operating segments. If
circumstances occur that change managements view about its ability to return to
profitability, and utilize the net operating losses and deferred tax assets, it
will re-evaluate its position with respect to valuation allowances.
The Company's effective income tax rate differs from the statutory
federal income tax rate as follows:
1999 1998 1997
---- ---- ----
Federal tax (benefit) provision rate (34%) (34%) 34%
State tax (benefit) provision, net of federal benefit (6%) (1%) 6%
Nondeductable writeoff of acquired research and development 23% --
Other items, net 2% 1% --
---- ---- ----
Effective income tax (benefit) provision rate (38%) (11%) 40%
==== ==== ====
-47-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9)(11) Commitments and Contingencies
The Company leases certain office space, laboratory, research and
manufacturing facilities under operating leases with various terms through
October 2007. All of the real estate leases include renewal options at either
market or increasing levels of rent.
Rent expense for the years ended December 31, 1999, 1998 and 1997 1996was
approximately $1,218,000, $914,000, and 1995 was
$506,300, $365,700, and $477,600,$506,000, respectively. At December 31,
1996,1999, the remaining fixed lease commitment was as follows:
Year Ended Amount
-------------------- ------------
1998 $ 938,970
Year Ended Amount
------------------- -------------
2000 1,168,617
2001 1,106,646
2002 846,256
2003 864,470
2004 889,687
2005 and thereafter 2,372,466
-------------
$7,248,142
-------------
In April 1999, 969,715
2000 971,993
2001 915,609
2002 578,326
2003 and thereafter 2,358,410
------------
$6,733,023
Commencing in February 1995, the Company committed underincreased it's commitment to directly
support a sponsored
research agreement withdrug discovery program at UNC, in which a university to fund afull-time post-doctoral
research scientist at a costand two doctoral students are working to develop synthetic
derivatives of $13,125anti-HIV compounds that have been discovered pursuant to the
Company's joint collaboration with UNC. The Company is committed to pay
approximately $44,000 per quarter for three years whichyears. These costs are being charged
to research and development expense. In return,Under this agreement , the Company has exclusivewill
also have the rights to any new anti-HIV compounds orand derivatives developed in
the course of this sponsored research, provided the Company obtains certain
regulatory approvals from the FDA. (10)Effective January 2000, all rights and
obligations under this agreement were transferred to Panacos Pharmaceuticals,
Inc.
(12) Retirement Plan
In January 1993, the Company adopted a retirement savings plan for its
employees, which has been qualified under Section 401(k) of the Internal Revenue
Code. Eligible employees are permitted to contribute to the plan through payroll
deductions within statutory limitations and subject to any limitations included
in the plan. Company contributions are made at the discretion of management. To
date, no such contributions have been made. During 1999, 1998 and 1997 the
Company recognized administrative expense of approximately $30,000, $32,000, and
$23,000, respectively in connection with the plan.
(11)(13) Stockholders' Equity
Common Stock
On October 31, 1996,In July 1999, the Company commenced trading on the NASDAQ
National Market as a result of the initial public offering of its common stock
("IPO"), raising net proceeds of $11,633,000 from the sale of 1,600,000 shares
at $8.50 per share.
On April 26, 1996, the Company entered into a Stock Purchase Agreement
and Exclusive Distributor Agreement for five years with a foreign distributor.
Pursuant to the Stock Purchase Agreement, the Company issued 117,647 shares of
redeemable common stock at a price per share of $8.50, for which it received
net proceeds of $898,503. Issuance costs were $101,497. Completion of the IPO
terminated the redemption feature. The distributor was restricted from selling
these securities for a one-year period after completion of the IPO. The Company
issued 80,000 shares of Treasury Stock in connection with this transaction.
On August 8, 1996 theCompany's Board of Directors approved a 1-for-2 reverse
stock split and an increase in authorized common sharesthe 1999
Employee Stock Purchase Plan. The Company adopted this plan, which allows
eligible employees to 20,000,000, and
authorized 1,000,000purchase shares of preferredthe Company's stock (parat 85% of market
value $.01), whichas determined at the beginning and the end of the offering period. A
total of 250,000 shares have been reserved for this plan. As of December 31,
1999 no shares were approved by the stockholders on September 10, 1996. The stock split has been
retroactively reflected in the accompanying financial statements and notes for
all periods presented.
-38-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Stockholders' Equity-(Continued)issued under this plan.
Options and Warrants
The Company has a nonqualified stock option plan and an incentive stock
option plan (1996 Employee Stock Option Plan) both of which are administered by
a committee of the Board of Directors. In general,July 1999 the Company's Board of
Directors approved the designation of an additional 1,250,000 shares to become
available for distribution under the 1996 Employee Stock Option Plan. The Board
of Directors also approved the 1999 Non-
-48-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Stockholders' Equity-(Continued)
Qualified Stock Option Plan, and designated 500,000 shares for distribution
under this plan. The exercise price of an option price shall not be less thangenerally equals the fair
market value of the stock at the time the option is granted.grant date. Generally, options become exercisable
at the rate of 25% at the end of each of the four years following the
anniversary of the grant. Options issued expire ten years from the date of grant, or 30
days from the date of termination of affiliation.the grantee's affiliation with the Company terminates.
At December 31, 1997, 775,8061999, 1,999,500 shares have beenwere reserved for non-qualifiedincentive
stock options, of which 92,2501,328,624 are available for future grants. At December
31, 1997, 778,9251998, 749,500 shares have been reserved for incentive stock options, of
which 348,587179,887 are available for future grants. At December 31, 1999, 1,098,680
shares were reserved under the nonqualified stock option plan of which 489,951
were available for future grants. As of December 31, 1998, 605,929 shares were
reserved for the non-qualified stock option plan of which no shares were
available for future grants.
In August 1999, the Company sold 500,000 warrants to purchase the
Company's stock to Paradigm Group, a private investment company. The private
placement consisted of 400,000 common stock purchase warrants with a exercise
price of $4.25 and 100,000 common stock purchase warrants with an exercise price
of $5.25. Paradigm Group paid the Company $50,000 for the warrants. In addition,
National Securities received 40,000 common stock purchase warrants with an
exercise price of $4.25, 10,000 common stock purchase warrants with an exercise
price of $5.25, and 25,000 common stock purchase warrants with an exercise price
of $8.00, as transaction fee.
In November 1999, the Company sold 29,153 equity units to MDBio, Inc.,
a Maryland not-for-profit corporation. Each equity unit consists of one share of
common stock and one common stock purchase warrant with an exercise price of
$10.00. MDBio paid the Company $175,000 for the equity units and has until
September 2003 to exercise the warrants.
On December 11, 1998, the Company's Board of Directors authorized the
Company to offer a reduction of the stock option exercise price to $3.25 per
share, which represented a premium over the market price of $2.56 on that day.
Any option holder with outstanding stock options with an exercise price higher
than $3.25 was eligible to participate in the repricing. A total of 411,417
options were repriced, which represents substantially all eligible options. The
original vesting schedule, generally four years from date of grant, remained
unchanged. However, all optionees accepting the offer agreed not to exercise
vested, repriced options for a period of one year from the date of amendment.
The previous weighted average exercise price of the options repriced was $6.72.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is recorded.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Pro forma information regarding net income and earnings per share is
required by SFAS 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement. The
fair value forof these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997. The minimum value option pricing model was
used for all grants during, 1996 and 1995prior to, 1996 as they were granted prior to the
Company's IPO.
1997 1996 1995
-------- -------- --------
Risk-free interest rate 5.72% 6.18% 5.33%
Volatility factor .55 .001 .001
Weighted average expected life 5 years 5 years 5
1999 1998 1997
------------- ------------- -------------
Risk-free interest rate 5.26% 4.69% 5.72%
Volatility factor 76.68% 75.57% 55.00%
Weighted average expected life 5.1 years 5.0 years 5.0 years
Expected dividend yield 0 0 0
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion,
-49-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Stockholders' Equity-(Continued)
the existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income and pro forma net income per share is as follows:
1997 1996 1995
---------- -------- --------
Net income-as reported $1,004,834 $481,220 $102,990
Net income-pro forma 851,408 424,921 80,196
Net income per share-as reported, basic .23 .17 .04
Net income per share-as reported, diluted .21 .14 .03
Net income per share-pro forma, basic .19 .14 .03
Net income per share-pro forma, diluted .17 .13 .03
-39-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Stockholders' Equity-(Continued)
1999 1998 1997
-------------- -------------- --------------
Net (loss) income-as reported $(814,112) $(4,388,719) $1,004,834
Net (loss) income-pro forma $(1,394,564) $(4,776,812) 851,408
Net (loss) income per share-as reported, basic (.17) (.94) .23
Net (loss) income per share-as reported, diluted (.17) (.94) .21
Net (loss) income per share-pro forma, basic (.30) (1.03) .19
Net (loss) income per share-pro forma, diluted (.30) (1.03) .18
Because SFAS 123 provides for pro forma expense for options granted
beginning in 1995, the pro forma expense will likely increase in future years as
new option grants become subject to the pricing model. The average fair value of
options granted during 1997, 19961999, 1998 and 19951997 is estimated as $2.63, $1.77 and
$4.44, $1.86 and $1.40, respectively.
In 1991 and 1993, the Company issued warrants in connection with
certain debt financings. During 1997 all of those warrants were exercised.-50-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Stockholders' Equity-(Continued)
The Company has reserved shares of its authorized but unissued common
stock for the following:
Stock Options Warrants
-------------------------- --------------------------------------------------
Weighted Weighted Total
Average price Average price Total --------------------------
Shares per share Shares per share Shares Exercisable
---------- --------- ------------- -------- --------------- --------- ----------- --------------------------
Balance outstanding, December 31, 1994 780,950 2.12 301,538 2.73 1,082,488 827,576
Granted 73,187 6.00 - - 73,187
Exercised (6,000) 1.88 (41,200) 2.58 (47,200)
Expired (47,850) 2.64 - - (47,850)
---------- -------- -----------
Balance outstanding, December 31, 1995 800,287 2.45 260,338 2.85 1,060,625 879,038
Granted 140,600 7.27 - - 140,600
Exercised (1,500) 4.50 (84,260) 2.88 (85,760)
Expired (21,500) 6.05 (56,078) 3.54 (77,578)
---------- -------- -----------
Balance outstanding, December 31, 1996 917,887 3.10 120,000 2.50 1,037,887280,000 7.63 1,197,887 839,272
Granted 263,050 7.42 - --- -- 263,050
Exercised (124,409) 1.44 (120,000) 2.50 (244,409)
Expired (30,435) 7.36 - --- -- (30,435)
------------------- -------- --------------------
Balance outstanding, December 31, 1997 1,026,093 4.27 - - 1,026,093 672,231
==========4.28 160,000 11.48 1,186,093 832,231
Granted 358,836 3.80 * 100,000 2.50 458,836
Exercised (45,250) 1.97 -- -- (45,250)
Expired (165,013) 6.05 -- -- (165,013)
--------- -------- ---------
Balance outstanding, December 31, 1998 1,174,666 2.75 ** 260,000 8.34 1,434,666 829,434
Granted 260,500 3.91 579,153 4.73 839,653
Exercised (47,249) 0.52 (5,000) 2.50 (52,249)
Expired (107,688) 3.56 -- -- (107,688)
--------- -------- ---------
Balance outstanding, December 31, 1999 1,280,229 3.00 834,153 5.80 2,114,382 1,591,795
========= ======== ====================
* Includes 46,623 shares at $2.74 granted in connection with the BioSeq, Inc.
acquisition.
* Includes the effect of 411,417 options repriced in December 1998 from a
weighted average price of $6.72 to $3.25 per share.
The following table summarizes information concerning options outstanding and
exercisable as of December 31, 1997:1999:
Options Outstanding Options Exercisable
------------------------- ----------------------Weighted -------------------------------- -------------------------------
Average Weighted Weighted Weighted
Average Average Average
Remaining Number of ExerciseAverage Number of ExerciseAverage
Range of Exercise Prices Life Options Exercise Price Options Exercise Price
- ------------------------ --------- ------------ ---------- --------- -------------- --------- --------------
$0.25 - $1.50 2.40 188,834 1.0975 188,834 1.0975
$1.65 - $3.00 4.60 342,767 2.3869 342,767 2.3869
$4.50 - $6.63 8.10 259,917 5.9231 104,798 5.0106
$7.00 - $8.50 8.60 234,575 7.7556 35,832 7.3645
------------0.00-1.70 1.20 184,334 $ 1.5062 184,334 $ 1.5062
1.71-2.55 2.80 189,767 $ 2.5000 189,767 $ 2.5000
2.56-3.25 6.80 746,378 $ 3.2054 380,541 $ 3.1925
3.26-4.25 9.60 131,750 $ 4.2500 -- $ 0.0000
4.26-5.10 9.00 28,000 $ 4.6563 3,000 $ 4.5000
----------- ---------
1,026,093 672,231
============1,280,229 757,642
=========== =========
-40--51-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12)(14) Computation of Net Income per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". SFAS 128 establishes a different method of computing net income per
share than is currently required under the provisions of Accounting Principles
Board opinion No. 15.
The following illustrates the computation of basic and diluted net
income per share.
Year Ended December 31,
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
Shares, basic 4,669,717 4,654,609 4,437,801
Net effect of dilutive common stock
equivalents-based on treasury stock
method using average market price * 342,269
----------- ----------- -----------
Shares, diluted 4,669,717 4,654,609 4,780,070
=========== =========== ===========
Net (loss) income, basic and diluted $ (814,112) $(4,388,719) $ 1,004,834
=========== =========== ===========
Net (loss) income per share-basic (0.17) (0.94) 0.23
Net (loss) income per share-diluted (0.17) (0.94) 0.21
* Potentially dilutive securities of 68,023 and 192,826 were not
included in the computation of diluted earnings per share because to do
so would have been antidilutive for twelve months ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
Shares, basic 4,437,801 2,915,522 2,569,641
Net effect of dilutive common stock
equivalents-based on treasury stock
method using average market price 342,269 424,714 470,547
----------- ----------- -----------
Shares, diluted 4,780,070 3,340,236 3,040,188
=========== =========== ===========
Net income, basic1999 and diluted $1,004,834 $ 481,220 $102,990
=========== =========== ===========
Net income per share-basic 0.23 0.17 0.04
Net income per share-diluted 0.21 0.14 0.03
=========== =========== ===========
(13)1998.
(15) Selected Quarterly Financial Data (Unaudited)
Unaudited (Amounts in thousands, except for per share data)
1997 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
Total revenue $4,209 $4,649 $6,140 $7,301
Gross profit 1,678 1,921 2,541 3,148
Net income 148 176 246 435
Net income per share, basic 0.03 0.04 0.06 0.10
Net income per share, diluted 0.03 0.04 0.05 0.09
1996 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
Total revenue $3,084 $3,844 $4,015 $4,566
Gross profit 1,051 1,621 1,752 1,976
Net (loss) income (97) 179 163 236
Net (loss) income per share, basic (0.04) 0.07 0.06 0.06
Net (loss) income per share, diluted (0.04) 0.06 0.05 0.06
(14) Subsequent Event
On March 20, 1998 the Company completed a license agreement with
BioSeq, Inc., a development stage biotech company
1999 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
Total revenue $ 6,845 $ 7,139 $ 7,480 $ 7,807
Gross profit 2,566 2,675 2,905 2,689
Net (loss) (237) (225) (257) (96)
Net (loss) per share, basic (0.05) (0.05) (0.05) (0.02)
Net (loss) per share, diluted (0.05) (0.05) (0.05) (0.02)
1998 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
Total revenue $ 6,273 $ 6,383 $ 6,181 $ 7,244
Gross profit 2,178 2,709 2,448 2,669
Net (loss) income (645) 134 (3,377) (502)
Net (loss) income per share, basic (0.14) 0.03 (0.72) (0.11)
Net (loss) income per share, diluted (0.14) 0.03 (0.72) (0.11)
-52-
Report of which BBI owns 19% (see
also Note 5). The license agreement provides the Company the sole and exclusive
worldwide right to use BioSeq technical information, licensed processes and
improvements to develop, manufacture, market and sell or sublicense products or
services in the field of human in vitro immunodiagnostics. The Company paid an
initial license fee in the amount of $600,000, to be capitalized with
intangible assets. In accordance with the agreement, the Company will pay
BioSeq an annual royalty based on net sales to customers and sublicensees. The
agreement is effective March 20, 1998 and ends on the date that the last patent
expires, which is approximately 16 years.
-41-
REPORT OF INDEPENDENT ACCOUNTANTSIndependent Accountants
To the Board of Directors and Stockholders
of BOSTON BIOMEDICA, INC.Boston Biomedica, Inc.:
We have auditedIn our opinion, the consolidated financial statements listed in the accompanying
consolidated balance sheetsindex present fairly, in all material respects, the financial position of Boston
Biomedica, Inc. and Subsidiaries as ofits subsidiaries (the "Company") at December 31, 19971999 and
19961998, and the related consolidated statementsresults of income, changes in stockholders' equitytheir operations and their cash flows for each of the
three years in the period ended December 31, 1997.
These1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Ourmanagement; our responsibility is to express an opinion on these
consolidated
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted auditing
standards. Those standardsin the United States, which 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 includesstatements,
assessing the accounting principles used and significant estimates made by
management, as well asand evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In ourthe opinion the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Boston
Biomedica, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.expressed
above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 24, 1998 except as to
the information in Note 14, for
which the date is March 20, 199829, 2000
-53-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10 is hereby incorporated by
reference to the information under Part I, Item 1 - Business under the heading
"Executive Officers of the Registrant" at page 14[18] of this Report,report, and to the
information in the Registrant'sregistrant's definitive Proxy Statementproxy statement, which is expected to
be filed by the Registrantregistrant within 120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information calledfollowing summary compensation table sets forth the compensation of
the Company's Chief Executive Officer and each of the Company's four most highly
compensated other executive officers who were serving as executive officers of
the Company at the end of fiscal year 1999 (collectively, the "Named Executive
Officers").
Summary Compensation Table
Long Term
Annual Compensation ---------
------------------- Compensation
------------
Fiscal Other Annual All Other
Name and Year Salary Bonus Compensation Stock Options Compensation
Principal Position Ended ($) ($) $ (#) ($)
------------------ ------ ------- ------- ------------ ------------- ------------
Richard T. Schumacher, 12/31/99 $229,010 -- $1,520(1) 25,000 $184,450(2)(4)
Chief Executive Officer 12/31/98 200,002 $5,000 370(1) 15,000 420(2)
and Chairman of the Board 12/31/97 194,616 -- 1,588(1) -- 420(2)
Kevin W. Quinlan, 12/31/99 $168,075 -- -- 17,500 --
President , Chief 12/31/98 143,347 $4,000 -- 10,000 --
Operating Officer and 12/31/97 139,927 -- -- -- --
Director
Barry M. Warren 12/31/99 $147,547 -- -- 10,000 --
Senior Vice President and 12/31/98 137,601 $3,000 -- 6,000 --
General Manager 12/31/97 129,367 -- -- -- --
Richard C. Tilton, Ph.D. 12/31/99 $135,203 -- $6,000(3) -- --
Senior Vice President, 12/31/98 127,019 $3,000 6,000(3) 6,000 --
Science and Technology 12/31/97 121,164 -- 6,000(3) -- --
Mark M. Manak, Ph.D. 12/31/99 $129,894 -- -- -- --
Senior Vice President and 12/31/98 118,510 $3,000 -- 6,000 --
General Manager 12/31/97 116,388 -- -- -- --
- --------------------
(1) Consists of personal usage of Company vehicle
(2) Includes the value of premiums paid for by Item 11 is incorporated by referencea term life insurance policy.
(3) Consists of automobile allowance
(4) Consists of exercise of options
-54-
The following table shows stock options granted to the informationNamed Executive
Officers in fiscal 1999:
Options Granted in Fiscal Year 1999
Individual Grants Potential Realizable Value at
------------------------------------------------------------- Assumed Annual Rates of Stock
Number of % of Total Price Appreciation
Securities Options Exercise for Option Term at Year End
Underlying Granted to ---------- ------------ --------------------------------
Options Employees in Price Expiration
Name Granted 1999 ($/Sh.) Date 5% 10%
---- ------------- -------------- ---------- -- ------------ ------------- ------------------
Richard T. Schumacher 25,000 9.60% 4.675 07/27/09 56,195 158,710
Kevin W. Quinlan 17,500 6.72% 4.25 07/27/09 46,774 118,535
Barry M. Warren 10,000 3.84% 4.25 07/27/09 26,728 67,734
Richard C. Tilton, Ph.D. -- -- -- -- -- --
Mark M. Manak, Ph.D. -- -- -- -- -- --
The following table shows stock options exercised by the Registrant's definitive Proxy StatementNamed
Executive Officers during fiscal 1999, including the aggregate value realized
upon exercise. This represents the excess of the fair market value over the
purchase price at the time of purchase. In addition, this table includes the
number of shares underlying both "exerciseable" (i.e. vested) and
"unexerciseable" (i.e. unvested) stock options as of December 31, 1999. Also
reported are the values of "in-the-money" options, which reflect the positive
spread between the exercise price of any such existing stock options and the
closing year end per share price of the Common Stock of $2.875.
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year End Option Values
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Options at Year End at Year End
on Value (1) ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Richard T. Schumacher 40,000 $180,000 98,690 38,690 $103,827 $164
Kevin W. Quinlan, -- -- 71,250 26,250 $44,375 --
Barry M. Warren -- -- 33,375 20,125 -- --
Richard C. Tilton, Ph.D. -- -- 38,375 5,125 -- --
Mark M. Manak, Ph.D. -- -- 38,375 10,125 -- --
- -------------------
(1) Based upon the closing price of the Common Stock on the Nasdaq National
Market on the date of exercise, minus the respective option exercise price.
Compensation of Directors
Directors of the Company do not receive cash compensation for their
services. Each Director has been eligible to receive options to purchase Common
Stock under the heading "ExecutiveCompany's 1987 Non-Qualified Stock Option Plan, which expired in
December 1997, and the Company's 1999 Nonqualified Stock Option Plan.
Compensation" which is expected to be filed Committee Interlocks and Insider Participation
Decisions regarding executive compensation are made by the Registrant within 120 days afterBoard of
Directors based on the closerecommendations of its fiscal year.
-42-the Compensation Committee. The
Compensation Committee of the Board of Directors is comprised of Richard T.
Schumacher and Calvin A. Saravis, each of whom has received
-55-
options to purchase Common Stock. Mr. Schumacher serves as the Chief Executive
Officer of the Company. Mr. Saravis is neither a former nor current officer or
employee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is hereby incorporated by
reference to the information in the Registrant'sregistrant's definitive Proxy Statementproxy statement
under the heading "Security Ownership of Directors, Officers and Certain
Beneficial Owners," which is expected to be filed by the Registrantregistrant within 120
days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Item 13 is hereby incorporated by
reference to the information in the Registrant'sregistrant's definitive Proxy Statementproxy statement
under the heading "Certain Relationships and Related Transactions," which is
expected to be filed by the Registrantregistrant within 120 days after the close of its
fiscal year.
-43--56-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Index to Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and 1996.........28
Consolidated Statements of Income for the three years
ended December 31, 1997..............................................29
Consolidated Statements of Changes in Stockholders' Equity for the
three years ended December 31, 1997..................................30
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997....................................................31
Notes to Consolidated Financial Statements...........................32
Report of Independent Accountants....................................42
(a) 2. Financial Statement Schedules:
Schedule II-Valuation and Qualifying Accounts........................49
Report of Independent Accountants....................................50
(a) 1. Index to Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998.......................................31
Consolidated Statements of Income for the three years ended December 31, 1999......................32
Consolidated Statements of Changes in Stockholders' Equity for the three years ended
December 31, 1999.....................................................................33
Consolidated Statements of Cash Flows for the three years ended December 31, 1999..................34
Notes to Consolidated Financial Statements.........................................................35
Report of Independent Accountants..................................................................50
(a) 2. Financial Statement Schedule:
Schedule II-Valuation and Qualifying Accounts......................................................60
All supplemental schedules other than as set forth above are omitted as
inapplicable or because the required information is included in the Consolidated
Financial Statements or the Notes to Consolidated Financial Statements.
(a)3. Exhibits:
Exhibit No.
-----------
3.1 Amended and Restated Articles of Organization of the
Company**
3.2 Amended and Restated Bylaws of the Company**
4.1 Specimen Certificate for Shares of the Company's Common
Stock**
4.2 Description of Capital Stock (contained in the Restated
Articles of Organization of the Company filed as Exhibit
3.1) **
10.1 Agreement, dated January 17, 1994, between Roche
Molecular Systems, Inc. and the Company**
10.2 Exclusive License Agreement, dated December 6, 1994,
between the University of North Carolina at Chapel Hill
and the Company**
10.3 Contract, dated September 30, 1995, between the National
Institutes of Health and the Company (No. 1-AI55273) **
10.4 Contract, dated September 30, 1995, between the National
Institutes of Health and the Company (No. 1-AI-55277) **
10.6 Agreement, dated October 1, 1995, between Ajinomoto Co.,
Inc. and the Company**
10.7 Lease Agreement, dated June 30, 1992, for Rockville,
Maryland Facility between Cambridge Biotech Corporation
and the Company**
10.8 Lease Agreement, dated July 28, 1995, for New Britain,
Connecticut Facility between MB Associates and the
Company*
Exhibit No. Reference
----------- ---------
3.1 Amended and Restated Articles of Organization of the Company A**
3.2 Amended and Restated Bylaws of the Company A**
4.1 Specimen Certificate for Shares of the Company's Common Stock A**
4.2 Description of Capital Stock (contained in the Restated Articles of A**
Organization of the Company filed as Exhibit 3.1)
4.3 Form of warrants issued in connection with Paradigm Group H**
10.1 Agreement, dated January 17, 1994, between Roche Molecular Systems, Inc. and A**
the Company
10.2 Exclusive License Agreement, dated April 28, 1999, between the University of Filed herewith
North Carolina at Chapel Hill and the Company
10.3 Agreement, dated October 1, 1995, between Ajinomoto Co., Inc. and the Company A**
10.4 Lease Agreement, dated July 28, 1995, for New Britain, Connecticut Facility A**
between MB Associates and the Company
10.5 1987 Non-Qualified Stock Option Plan* A**
10.6 Employee Stock Option Plan* A**
10.7 1999 Non-Qualified Stock Option Plan* I**
10.8 1999 Employee Stock Purchase Plan* I**
10.9 Worcester County Institution for Savings Warrant dated
December 1, 1995 (No. 1) **
10.10 Worcester County Institution for Savings Warrant dated
July 26, 1993 (No. 2) **
10.11 Stock Purchase Agreement, dated June 5, 1990, between
G&G Diagnostics Limited Partnership I and the Company,
as amended**
-44-
10.14 Stock Purchase Agreement, dated April 26, 1996, between
Kyowa Medex Co., Ltd. And the Company**
10.15 1987 Non-Qualified Stock Option Plan**++
10.16 Employee Stock Option Plan**++
10.17 Underwriters Warrants, each dated November 4, 1996, between the Company and B**
each of Oscar Gruss & Son Incorporated and Kaufman Bros., L.P.
**
10.20 Purchase Agreement, dated October 7, 1996, between
BioSeq,
-57-
Exhibit No. Reference
----------- ---------
10.10 Commercial Loan Agreement, as of dated March 28, 1997, between The First C**
National Bank of Boston and the Company
10.11 Contract, dated March 1, 1997, between National Cancer Institute and the Company D**
10.12 Lease Agreement, dated May 16, 1997, for Gaithersburg, Maryland facility E**
between B.F. Saul Real Estate Investment Trust and the Company
10.13 Lease Agreement dated January 30, 1995 for Garden Grove, California facility F**
between TR Brell, Cal Corp. and Source Scientific, Inc., and Assignment of
Lease, dated July 2, 1997, for Garden Grove, California facility between Source
Scientific, Inc. and BBI Source Scientific
10.14 Contract, dated July 1, 1998, between the National Institutes of Health and G**
the Company (NO1-A1-85341)
10.15 Contract, dated July 1, 1998, between the National Heart Lung and Blood G**
Institute and the Company (NO1-HB-87144)
10.16 Line of Credit Agreement with BankBoston dated June 30, 1999 H**
10.17 Agreement with Paradigm Group for the purchase of warrants dated August 18, 1999 H**
10.18 Agreement with MDBio for the purchase of common stock and common stock Filed herewith
warrants, dated September 30, 1999
10.19 Lease Agreement dated September 30, 1999, for Frederick, Maryland facility, Filed herewith
between MIE Properties, Inc., and the Company.
10.20 Sponsored Research Agreement with the University of North Filed herewith
Carolina, Chapel Hill and the Company, dated, April 28, 1999 and the Company.
10.21 Repository Contract with National Institute of Allergy and Filed herewith
Infectious Disease, Division of AIDS (NO1-A1-95381), dated August 16, 1999.
21.1 Subsidiaries of the registrant Filed herewith
23 Consent of PricewaterhouseCoopers LLP Filed herewith
27 Financial Data Schedule Filed herewith
99 Audited Financial Statements of BioSeq, Inc., for the years ended December 31, Filed herewith
1997, 1996 and for the period October 17, 1994 (Date of Inception) to
December 31, 1997.
A Incorporated by reference to the Company**
10.21 Warrant Agreement, dated October 7, 1996, between
BioSeq, Inc. andregistrant's Registration Statement on
Form S-1 (Registration No. 333-10759) (the "Registration Statement"). The
number set forth herein is the Company**
10.22 Stockholders' Agreement, dated October 7, 1996, between
BioSeq, Inc. and the Company**
10.23 License Agreement, dated October 7, 1996, between
BioSeq, Inc. and the Company**
10.24.1 Commercial Loan Agreement, dated as of March 28, 1997,
between The First National Bank of Boston and the
Company**
10.25 Asset Purchase Agreement, dated March 26, 1997 between
Source Scientific, Inc. and the Company**
10.26 Contract, dated March 1, 1997, between National Cancer
Institute and the Company**
10.27 Lease Agreement, dated May 16, 1997, for Gaithersberg,
Maryland facility between B.F. Saul Real Estate
Investment Trust and the Company
10.28 Lease Agreement, dated January 30, 1995 for Garden Grove,
California facility between TR Brell, Cal Corp. and Source
Scientific, Inc., and Assignment of Lease, dated July 2, 1997,
for Garden Grove, California facility between Source
Scientific, Inc. and BBI Source Scientific
11 Statement re: Computation of Per Share Earnings
21.1 Subsidiariesnumber of the Company
23.1 ConsentExhibit in said Registration
Statement.
B Incorporated by reference to Exhibit No. 10.17 of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
________________________
++the Registration
Statement.
C Incorporated by reference to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
D Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997.
E Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1997.
-58-
F Incorporated by reference to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
G Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1998.
H Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1999.
I Incorporated by reference to the registrant's proxy statement, filed with
the Securities and Exchange Commission on June 14, 1999.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby
incorporated by reference.
(b) Reports on Form 8-KREPORTS ON FORM 8-K.
The Registrant did not file any Current Reports on Form 8-K
during the quarter ended December 31, 1997.
-45-1999.
-59-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized..authorized.
Date: March 30, 1998December 7, 2000 Boston Biomedica, Inc.
By:/s/ /s/ Richard T. Schumacher
---------------------------------
Richard T. Schumacher
President and
Chief Executive Officer
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 Registrantregistrant and in the capacities and on the dates indicated.
SIGNATURES TITLES DATE
---------- ------ ----
/s/Director and Principal March 28, 2000
----------------------------------- Executive Officer
Richard T. Schumacher
President, Chief ExecutiveDirector and Principal March 28, 2000
----------------------------------- Accounting and Financial Officer
March 30, 1998
-------------------------- and Chairman of the Board
Richard T. Schumacher (Principal Executive Officer)
/s/Kevin W. Quinlan
Senior Vice President, Finance; March 30, 1998
-------------------------- Chief Financial Officer; Treasurer
Kevin W. Quinlan and Director
(Principal Accounting Officer)
/s/Calvin A. Saravis Director March 30, 1998
--------------------------
Calvin A. Saravis
/s/Henry A. Malkasian Sr. Director March 30, 1998
--------------------------
Henry A. Malkasian, Sr.
/s/28, 2000
-----------------------------------
Francis E. Capitanio
Director March 30, 1998
--------------------------
Francis E. Capitanio
-46-
EXHIBIT INDEX
- --------------
Exhibit No. Reference
----------- -----------
3.1 Amended and Restated Articles of Organization of the Company A**
3.2 Amended and Restated Bylaws of the Company A**
4.1 Specimen Certificate for Shares of the Company's Common Stock A**
4.2 Description of Capital Stock (contained in the Restated A**
Articles of Organization of the Company filed as Exhibit 3.1)
10.1 Agreement, dated January 17, 1994, between Roche Molecular A**
Systems, Inc. and the Company
10.2 Exclusive License Agreement, dated December 6, 1994, between A**
the University of North Carolina at Chapel Hill and the
Company
10.3 Contract, dated September 30, 1995, between the National A**
Institutes of Health and the Company (No. 1-AI55273)
10.4 Contract, dated September 30, 1995, between the National A**
Institutes of Health and the Company (No. 1-AI-55277)
10.6 Agreement, dated October 1, 1995, between Ajinomoto Co., Inc. A**
and the Company
10.7 Lease Agreement, dated June 30, 1992, for Rockville, Maryland A**
Facility between Cambridge Biotech Corporation and the Company
10.8 Lease Agreement, dated July 28, 1995, for New Britain, A**
Connecticut Facility between MB Associates and the Company
10.9 Worcester County Institution for Savings Warrant dated A**
December 1, 1995 (No. 1)
10.10 Worcester County Institution for Savings Warrant dated A**
July 26, 1993 (No. 2)
10.11 Stock Purchase Agreement, dated June 5, 1990, between G&G A**
Diagnostics Limited Partnership I and the Company, as amended
10.14 Stock Purchase Agreement, dated April 26, 1996, between Kyowa A**
Medex Co., Ltd. and the Company
10.15 1987 Non-Qualified Stock Option Plan* A**
10.16 Employee Stock Option Plan* A**
10.17 Underwriters Warrants, each dated November 4, 1996, between B**
the Company and each of Oscar Gruss & Son Incorporated and
Kaufman Bros., L.P.
10.20 Purchase Agreement, dated October 7, 1996, between BioSeq, A**
Inc. and the Company
10.21 Warrant Agreement, dated October 7, 1996, between BioSeq, Inc. A**
and the Company
-47-
10.22 Stockholders' Agreement, dated October 7, 1996, between A**
BioSeq, Inc. and the Company
10.23 License Agreement, dated October 7, 1996, between BioSeq, Inc. A**
and the Company
10.24.1 Commercial Loan Agreement, as of datedTreasurer March 28, 1997, between C**
The First National Bank of Boston and the Company
10.25 Asset Purchase Agreement, dated2000
-----------------------------------
Dr. William R. Prather, MD.
Director March 26, 1997 between Source C**
Scientific, Inc. and the Company
10.26 Contract, dated March 1, 1997, between National Cancer D**
Institute and the Company
10.27 Lease Agreement, dated May 16, 1997, for Gaithersberg, Maryland E**
facility between B.F. Saul Real Estate Investment Trust and the
Company
10.28 Lease Agreement, dated January 30, 1995 for Garden Grove, Filed herewith
California facility between TR Brell, Cal Corp. and Source
Scientific, Inc., and Assignment of Lease, dated July 2, 1997,
for Garden Grove, California facility between Source
Scientific, Inc. and BBI Source Scientific
11 Statement re: Computation of Per Share Earnings Filed herewith
21.1 Subsidiaries of the Company Filed herewith
23.1 Consent of Coopers & Lybrand L.L.P. Filed herewith
27 Financial Data Schedule Filed herewith28, 2000
-----------------------------------
Calvin A. Saravis, Ph.D.
________________________
A Incorporated by reference to the Company's Registration
Statement on Form S-1 (Registration No. 333-10759)(the "Registration
Statement"). The number set forth herein is the number of the
Exhibit in said registration statement.
B Incorporated by reference to the Registration Statement, where
the Exhibit was filed as Exhibit No. 10.17 and contained in
Exhibit 1.1.
C Incorporated by reference to the Company's Annual Report on Form
10K for the fiscal year ended December 31, 1996.
D Incorporated by reference to the Company's Quarterly Report on
Form 10Q for the fiscal quarter ended March 31, 1997.
E Incorporated by reference to the Company's Quarterly Report on
Form 10Q for the fiscal quarter ended June 30, 1997.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act
of 1934, as amended, reference is made to the documents
previously filed with the Securities and Exchange Commission, which
documents are hereby incorporated by reference.
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SCHEDULE II
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Recoveries
Allowance for Balance at For Accounts Uncollectible Balance at
Doubtful Beginning Additions to Previously Accounts End of
Accounts of Period Allowance Written Off Written Off Period
- -------------- ---------- ------------ ------------ ------------- ----------
1997 $352,058 $395,272 $194,154 $(494,967) $446,517
1996 142,372 429,677 62,753 (282,744) 352,058
1995 94,723 181,084 - (133,435) 142,372
1994 43,956 102,099 - (51,332) 94,723
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
BOSTON BIOMEDICA, INC.:
In connection with our audits of the consolidated financial statements
of Boston Biomedica, Inc. and Subsidiaries, as of December 31, 1996 and 1997,
and for each of the three years in the period ended December 31, 1997, which
financial statements are included in this Annual Report on Form 10-K, we have
also audited the consolidated financial statement schedule listed in Item 14
herein.
In our opinion, this consolidated financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 24, 1998
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