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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997,March 31, 1998, 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.
(Exact name of Registrant as Specified in its Charter)
Massachusetts 04-2652826
- ------------------------ ----------------------
(State or other (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
375 West Street,
West Bridgewater,
Massachusetts 0237902379-1040
- ------------------------ ----------------------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code (508) 580-1900
--------------
Indicate by check 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 [ ]
The number of shares outstanding of the Registrant's only class of common
stock as of July 31, 1997April 30, 1998 was 4,426,900.4,645,426.
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Part I. Financial Information
Item 1. Financial Statements
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
OPERATIONS
(Unaudited)
For the Three Months
Ended March 31,
----------------------
1998 1997
---------- ----------
REVENUE:
Products $3,063,359 $2,126,956
Services 3,209,436 2,082,093
---------- ----------
Total revenue 6,272,795 4,209,049
COSTS AND EXPENSES:
Cost of product sales 1,771,751 1,055,422
Cost of services 2,323,211 1,475,532
Research and development 432,389 236,750
Acquired research and development 850,000 -
Selling and marketing 928,612 613,360
General and administrative 1,029,936 679,207
---------- ----------
Total operating costs and expenses 7,335,899 4,060,271
(Loss) income from operations (1,063,104) 148,778
Interest income, net 23,559 97,486
---------- ----------
(Loss) income before income taxes (1,039,545) 246,264
Benefit from (provision for) income taxes 395,027 (98,506)
---------- ----------
Net (loss) income $ (644,518) $ 147,758
========== ==========
Net (loss) income per share, basic $ (0.14) $ 0.03
Net (loss) income per share, diluted $ (0.14) $ 0.03
Number of shares used to calculate net income per share
Basic 4,632,061 4,380,024
Diluted 4,632,061 4,825,582
The accompanying notes are an integral part of the Three Months For the Six Months
Ended June 30 Ended June 30
------------------------ -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
REVENUE:
Product sales $2,416,956 $2,130,278 $4,543,912 $3,945,759
Services 2,231,998 1,714,096 4,314,091 2,982,624
----------- ----------- ----------- -----------
Total revenue 4,648,954 3,844,374 8,858,003 6,928,383
COSTS AND EXPENSES:
Cost of product sales 1,271,662 1,107,007 2,327,084 2,006,833
Cost of services 1,456,194 1,116,171 2,931,726 2,249,610
Research and development 256,995 195,054 493,745 361,619
Selling and marketing 775,594 500,277 1,388,954 915,289
General and administrative 694,875 551,945 1,374,082 1,088,448
---------- ---------- ---------- ----------
Total operating costs and expenses 4,455,320 3,470,454 8,515,591 6,621,799
Income from operations 193,634 373,920 342,412 306,584
Interest income (expense), net 99,184 (74,909) 196,670 (168,469)
----------- ----------- ----------- -----------
Income before income taxes 292,818 299,011 539,082 138,115
Provision for income taxes (117,128) (119,604) (215,634) (55,246)
----------- ----------- ----------- -----------
Net income $ 175,690 $ 179,407 $ 323,448 $ 82,869
=========== =========== =========== ===========
Net income per share $ 0.04 $ 0.06 $ 0.07 $ 0.03
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding 4,851,623 3,263,711 4,831,747 3,252,643
See Notes to Consolidated Financial
Statements
2
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
------------ -------------
1997 1996
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,777,048 $ 8,082,642
Accounts receivable, less allowances of $361,540 in 1997 and
$352,058 in 1996 3,389,579 3,415,994
Inventories 4,560,927 4,180,334
Prepaid expense and other 316,342 239,950
Deferred income taxes 302,948 283,200
----------- -----------
Total current assets 14,346,844 16,202,120
Property and equipment, net 3,193,896 2,699,158
OTHER ASSETS:
Long term investment 1,482,500 732,500
Goodwill and other intangibles, net 86,085 95,302
Notes receivable and other 989,322 69,234
2,557,907 897,036
----------- -----------
TOTAL ASSETS $20,098,647 $19,798,314
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long term debt $ 13,458 $ 12,820
Accounts payable 1,074,882 991,839
Accrued compensation 740,102 840,666
Accrued income taxes 27,607 427,140
Other accrued expenses 307,738 264,262
Deferred revenue 1,104,415 829,477
----------- -----------
Total current liabilities 3,268,202 3,366,204
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 34,055 40,948
Deferred income taxes 89,673 101,580
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 20,000,000 shares in
1997 and 1996; issued and outstanding 4,426,900 in 1997 and
4,378,157 in 1996 44,269 43,782
Additional paid-in capital 15,351,856 15,258,656
Retained earnings 1,310,592 987,144
----------- -----------
Total stockholders' equity 16,706,717 16,289,582
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $20,098,647 $19,798,314
===========(Unaudited)
March 31, December 31,
----------- ------------
1998 1997
----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 642,684 $ 2,772,360
Accounts receivable, less allowances of $515,978
in 1998 and $446,517 in 1997 4,900,109 5,558,710
Inventories 6,378,583 5,902,821
Prepaid expense and other 784,964 288,481
Deferred income taxes 336,490 328,562
----------- ------------
Total current assets 13,042,830 14,850,934
----------- ------------
Property and equipment, net 5,518,732 4,980,164
OTHER ASSETS:
Long term investment 1,482,500 1,482,500
Goodwill and other intangibles, net 2,150,662 2,212,220
Notes receivable and other 111,983 124,178
----------- ------------
3,745,145 3,818,898
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TOTAL ASSETS $22,306,707 $23,649,996
===========
See Notes to============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long term debt $ 14,475 $ 14,878
Accounts payable 1,952,569 2,218,685
Accrued compensation 850,574 1,103,837
Accrued income taxes -- 132,802
Other accrued expenses 565,213 498,247
Deferred revenue 973,189 1,249,024
----------- ------------
Total current liabilities 4,356,020 5,217,473
----------- ------------
LONG-TERM LIABILITIES:
Deferred rent and other liabilities 353,378 215,937
Deferred income taxes 135,324 149,333
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
20,000,000 shares in 1998 and 1997; issued
and outstanding 4,644,676 in 1998 and
4,622,566 in 1997 46,447 46,226
Additional paid-in capital 16,068,078 16,029,049
Retained earnings 1,347,460 1,991,978
----------- ------------
Total stockholders' equity 17,461,985 18,067,253
----------- ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $22,306,707 $23,649,996
=========== ============
The accompanying notes are an integral part of the Consolidated Financial
Statements
3
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
--------------------------
1998 1997
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (644,518) $ 147,758
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization 326,890 166,774
Provision for doubtful accounts 50,756 10,554
Deferred rent and other liabilities 137,441 (26,958)
Deferred income taxes (21,937) -
Acquired research and development 850,000 -
Changes in operating assets and liabilities:
Accounts receivable 607,845 261,243
Inventories (475,762) (281,248)
Prepaid expenses (496,483) (76,684)
Accounts payable (266,116) 155,149
Accrued compensation and other expenses (319,099) (530,599)
Deferred revenue (275,835) 227,054
------------ ------------
Net cash (used in) provided by
operating activities (526,818) 53,043
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired research and development (850,000) -
Additions to property and equipment (803,655) (400,362)
Advances under notes receivable
and other assets 11,950 (726,175)
------------ ------------
Net cash used in investing activities (1,641,705) (1,126,537)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (403) (3,089)
Proceeds of common stock issued 39,250 13,500
------------ ------------
Net cash provided by financing activities 38,847 10,411
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS: (2,129,676) (1,063,083)
Cash and cash equivalents, beginning of period 2,772,360 8,082,642
------------ ------------
Cash and cash equivalents, end of period $ 642,684 $ 7,019,559
============ ============
The accompanying notes are an integral part of the Six Months Ended
----------------------------
1997 1996
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 323,448 $ 82,869
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 353,843 280,426
Provision for doubtful accounts 77,781 77,145
Deferred rent (53,916) (33,236)
Deferred income taxes (31,655) (29,514)
Changes in operating assets and liabilities:
Accounts receivable (51,366) 132,324
Other assets (27,083) 4,385
Inventories (380,593) (188,368)
Prepaid expenses (76,392) (40,447)
Accounts payable 83,043 70,730
Accrued compensation and other expenses (402,705) 20,846
Deferred revenue 274,938 307,843
------------ -------------
Net cash provided by operating activities 89,343 685,003
------------ -------------
CASH FLOWS FOR INVESTING ACTIVITIES:
Payments for additions to property and equipment (839,364) (282,518)
Advances under notes receivable and other assets (893,005) -
Purchase of long term investment (750,000) -
------------ -------------
Net cash used in investing activities (2,482,369) (282,518)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt - 226,300
Repayments of long-term debt (6,255) (1,590,603)
Proceeds of common stock issued 93,687 960,903
------------ -------------
Net cash provided by (used in) financing activities 87,432 (403,400)
------------ -------------
DECREASE IN CASH: (2,305,594) (915)
Cash and cash equivalents, beginning of period 8,082,642 11,463
------------ -------------
Cash and cash equivalents, end of period $ 5,777,048 $ 10,548
============ =============
See Notes to Consolidated Financial
Statements
4
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three and six months ended June
30, 1997March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Form 10-K filing for the fiscal year ended
December 31, 19961997 for Boston Biomedica, Inc. and Subsidiaries ("the Company"
or "Boston Biomedica"). Certain prior years' amounts in the consolidated
financial statements may have been reclassified to conform to the current
year's presentation.
(2) Use of Estimates
In conformity with generally accepted accounting principles,
management is required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, and expenses for the
periods presented. Such estimates include reserves for uncollectable accounts
receivable as well as the net realizable value of its inventory. Actual
results could differ from the estimates and assumptions used by management. As
a result of the completion of the expansion and renovation of the Company's
manufacturing and corporate headquarters building in Massachusetts, the useful
life of the building to the Company has been increased. Accordingly, the
Company extended the asset life of its building from 15 to 30 years.
(3) Inventories
Inventories consisted of the following:
June 30,March 31, December 31,
1997 1996
----------- -----------1997
---------- ----------
Raw materials......................... $ 1,456,895 $ 1,359,569
Work-in-process....................... 667,078 697,749materials.............................. $2,033,040 $2,033,040
Work-in-process............................ 1,190,567 1,190,567
Finished goods........................ 2,436,954 2,123,016
----------- -----------
$ 4,560,927 $ 4,180,334
=========== ===========
(3) Computationgoods............................. 2,679,214 2,679,214
---------- ----------
$5,902,821 $5,902,821
========== ==========
(4) Comprehensive Income
Statement of Income Per Share
NetFinancial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) is effective for fiscal years beginning after
December 15, 1997. SFAS 130 requires that changes in comprehensive income per common sharebe
shown in a financial statement that is computeddisplayed with the same prominence as
other financial statements. The Company adopted SFAS 130 in the first quarter
of fiscal year ended December 31, 1998. Adoption of this statement has had no
impact on the Company's consolidated financial position and results of
operations as comprehensive income (loss) is the same as net income (loss).
(5) Acquired Research and Development
In March 1998, the Company acquired from BioSeq, Inc.("BioSeq"), the
sole and exclusive worldwide right to development stage technology, including
the use of 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. Under this agreement, the
Company will pay BioSeq an annual royalty based uponon net sales to customers and
sublicensees. The agreement is effective March 20, 1998 and ends on the weighted
average number of common shares and as appropriate, common equivalent
shares (usingdate
the treasury stock method) outstanding after certain
adjustments described below. Common equivalent shares consist of common
stock options and warrants outstanding.last patent expires, which is approximately 16 years. In accordance with
Securitiesaccounting standards for development stage technology, the purchase price,
minimum royalty payments and Exchange Commission Staff Accounting Bulletin No. 83, all common,
redeemable common, and common equivalent shares issued during the twelve
month period prior to the proposed date of the initial filing of the
Registration Statement have been includedacquisition costs totaling $850,000, were
expensed in the calculation as if they
were outstanding for all periods prior to the Initial Public Offering
(IPO) using the treasury stock method and an offering pricecurrent period.
5
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Computation of $8.50Net Income per share. Fully diluted net income per common share is not presented as it
does not materially differ from primary earnings per share.Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share."Share". SFAS 128 establishes a different method of computing net income per
share than is currentlywas required under the provisions of Accountingthe previous
standard-Accounting Principles Board Opinionopinion No. 15. Under SFAS No.
128,The following illustrates
the Company will be required to present bothcomputation of basic net income per
share and diluted net income per share.
Basic netQuarter Ended March 31,
------------------------
1998 1997
----------- ----------
Shares, basic 4,632,061 4,380,024
Net effect of dilutive common stock
equivalents-based on treasury stock
method using average market price * - 445,558
----------- ----------
Shares, diluted 4,632,061 4,825,582
=========== ==========
Net (loss) income, basic and diluted $ (644,518) $ 147,758
=========== ==========
Net (loss) income per share-basic (0.14) 0.03
Net (loss) income per share-diluted (0.14) 0.03
=========== ==========
* Potentially dilutive securities of 246,148 were not included
in the computation of diluted earnings per share because to do
so would have reduced the loss per share for the three and six months
ended June 30, 1997 and 1996 would have been
the same as the reported primary net income per share. The impact of
SFAS 128 on the calculation of diluted net income per share for these
quarters does not materially differ from basic net income per share. The
Company plans to adopt SFAS 128 for periods after December 15, 1997 and
at that time all historical net income per share data presented will be
restated to conform to the provisions of SFAS No. 128.
(4) Investment in BioSeq, Inc. (BioSeq).
In April 1997, the Company exercised its option to purchase an
additional 165,000 shares of BioSeq stock at an aggregate cost of
$750,000, thereby increasing its ownership of BioSeq to 19%. The
investment is carried at cost of $1,482,000 and classified as a long
term investment.
5
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsequent Event
In July 1997, the Company, through its wholly owned subsidiary
BBI-Source Scientific, Inc., completed the acquisition of all of the
assets, business, and selected liabilities of Source Scientific, Inc.
upon the cash payment of $1,894,000. The acquisition will be accounted
for as a purchase. In addition to the cash payment, the total purchase
price will include consulting, legal, accounting and other acquisition
costs. The purchase price will be allocated to the fair market value of
the assets and liabilities acquired. Any remaining portion will be
allocated to goodwill and amortized over a ten year period.March 31, 1998.
6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Three Months Ended June 30,March 31, 1998 and 1997 and 1996
Total revenue increased 20.9%49.0%, or $805,000,$2,064,000, to $4,649,000$6,273,000 for the
three monthsquarter ended June 30, 1997March 31, 1998 from $3,844,000$4,209,000 in the prior year period. This
increase was the result of an increase in product sales of 13.5%44.0%, or $287,000,$936,000,
to $2,417,000$3,063,000 from $2,130,000$2,127,000 and an increase in specialty laboratory services
of 30.2%54.1%, or $518,000,$1,127,000, to $2,232,000$3,209,000 from $1,714,000. Product$2,082,000. The inclusion of BBI
Source Scientific in first quarter results for the first time added to product
and service revenues in the amounts of $467,000 and $731,000, respectively.
The remaining increase in product revenue increasedwas primarily as athe result of an
overall sales increase of 27% in Quality Control Products, due to continued
strong sales of new and existing Accurun( run controls and TQS products,
but was partially offset by lower than expected sales to diagnostic test
kit manufacturers.panel products. The
remaining increase in service revenue was primarily attributable to a 45.7% increasethe
continued growth in Specialty Clinical Laboratory
Testing revenue,molecular testing, immunological testing and strong
performance from several new research contracts. Revenue increases were driven
once againprimarily by HIV molecular (PCR) tests needed
for disease management programs.higher volume.
Gross profit increased 18.5%,29.8% or $300,000,$500,000, to $1,921,000$2,178,000 for the
current three monthsquarter from $1,621,000$1,678,000 in the prior year period. Product gross profit
increased 20.5% or $220,000 to $1,292,000 in 1998 from $1,072,000 in the prior
year quarter, and product gross profit margin declined to 42.2% in 1998 from
50.4%. This decrease was caused by relatively low laboratory instrument sales
in 1998, while fixed costs remained relatively high, resulting in lower
margins. Service gross profit increased 46.1% or $280,000 to $886,000 in 1998
from $606,000 in the prior year, but margins declined to 27.6% in 1998 from
29.1% in 1997 as a result of higher occupancy costs at the Company's new
contract research facility in Gaithersburg, Maryland.
Research and development expenses increased 82.6%, or $195,000, to
$432,000 for the current quarter from $237,000 in the prior year period. The
gross
profit margin decreasedincrease relates to 41.3% for the current three months versus
42.2% in the prior year period. This decrease was primarily driven by a
shift in the mix of revenue towards services (48% of total revenue in
the current quarter versus 45% in the prior year period) as a result of
the growth in Specialty Clinical Laboratory Testing noted above. The
Company's services generally carry lower margins than its Quality
Control Products.
Research and development expenses increased 31.8%, or $62,000,
to $257,000 for the current three months from $195,000 in the prior year
period. This increase was primarily the result of additional research
project expenditures for new Quality Control Products, including panels
and Accurun(, as well as continued work on additional molecular teststhe development of BBI Source's
PlateMate( plate reader and reflectance reader projects.
There was a one time accounting charge of $850,000 for our Specialty Clinical Laboratory.the quarter
ended March 31, 1998 related to the acquisition of the worldwide exclusive
rights to BioSeq Inc's immunodiagnostic research and development technology.
Selling and marketing expenses increased 55.0%51.4%, or $275,000,$315,000, to
$776,000$928,000 for the current three monthsquarter from $500,000$613,000 in the prior year period. This
increase was primarily attributable to increased personnel costs associated
with the additionexpansion of fieldthe TQS sales, marketing and technical support staff for Accurun( andas
well as additions to the Specialty Clinical Laboratory, increased spending for promotional
materials, and increased travel costs.clinical laboratory sales staff.
General and administrative expenses increased 25.9%51.6%, or $143,000,$351,000, to
$695,000$1,030,000 for the current three monthsquarter from $552,000$679,000 in the prior year period.
This increase was primarily a result of increased MIS
and other support personnel,the July 1, 1997 acquisition of BBI
Source Scientific as well as additional MIS and Human Resource personnel.
The Company generated an operating loss of ($1,063,000) in the increased costs incurredfirst
quarter of 1998 versus an operating profit of $149,000 during the same period
of 1997. The loss was a result of the above mentioned charge to earnings for
acquired research and development as a public company.well as losses from the Company's
laboratory instrumentation and biotech operations.
Net interest income of $99,000 was earneddecreased 75.8%, or $74,000 to $23,000 for the
three months
of 1997 versus a ($75,000) expensecurrent quarter from $97,000 in the prior year period asperiod. The Company completed
significant investment in technology and infrastructure during 1997 and the
Company repaid most of its debt in the fourthfirst quarter of 19961998 thereby lowering the cash and invested itscash equivalents available
cash in short term, investment grade securities.
For both periods, theto invest.
The Company provided taxes at the combined federal and state statutory
rate of 40%.
Six Months Ended June 30, 199738% in the current quarter and 1996
Total revenue increased 27.9%, or $1,930,000, to $8,858,000 for
the six months ended June 30, 1997 from $6,928,00040% in the prior year period.
This increase was7
Liquidity and Financial Condition
At March 31, 1998, the resultCompany has cash and cash equivalents of
an increase in productapproximately $643,000 and working capital of $8,701,000. Trade accounts
receivable declined $608,000 or 10% as first quarter 1998 sales of
15.2%, or $598,000,showed their
normal decline from their peak fourth quarter level. Inventory grew 8% to
$4,544,000 from $3,946,000 and an increase in
specialty laboratory services of 44.6%, or $1,331,000, to $4,314,000
from $2,983,000. Product revenue increased primarily as a result of an
overall sales increase of 24.4% in Quality Control Products, due to
continued strong sales of new and existing Accurun( and panel products
and partially offset by a decrease of 13.8% in sales of Diagnostic
Components. The increase in service revenue was primarily attributable
to a 57.1% increase in Specialty Clinical Laboratory Testing revenue,
particularly from HIV molecular (PCR) tests.
Gross profit increased 34.7%, or $927,000, to $3,599,000 for the
current six months from $2,672,000 in the prior year period. The gross
profit margin increased to 40.6% for the current six months versus 38.6%
in the prior year period. The gross margin improvement was almost
entirely driven by improved margins in services (24.6% in 1996 to 32.0%
in 1997)$6,379,000 as the Company continuedmoved to benefit from both the addition of
several new testsstockpile certain strategic plasma and
higher volume in Specialty Clinical Laboratory
Testing.
7
Research and development expenses increased 36.5%, or $132,000,
to $494,000serum for the current six months from $362,000 in the prior year
period. This increase was primarily the result of additional research
project expenditures for newits Quality Control Products, including panels
and Accurun(, as well as continued work on additional molecular tests
for our Specialty Clinical Laboratory.
Selling and marketing expenses increased 51.8%, or $474,000, to
$1,389,000 for the current six months from $915,000 in the prior year
period. This increase was primarily attributable to increased personnel
costs as well as increased costs for travel and promotional materials.
The increased personnel costs are associated with the addition of
marketing, technical support, and field sales staff for both Accurun(
and the Specialty Clinical Laboratory.
General and administrative expenses increased 26.2%, or
$286,000, to $1,374,000 for the current six months from $1,088,000 in
the prior year period. This increase was primarily a result of increased
MIS and other support personnel, as well as the increased costs incurred
as a public company.
Net interest income of $197,000 was earned for the six months of
1997 versus a ($168,000) expense in the prior year period as the Company
repaid most of its debt in the fourth quarter of 1996 and invested its
available cash in short term, investment grade securities.
For both periods, the Company provided taxes at the combined
federal and state statutory rate of 40%.
Liquidity and Financial ConditionProducts.
The Company has financed its operations to date through cash flow from
operations, borrowings from banks and sales of equity. With the repayment of
debt from the IPO proceeds, the Company expects its cash flow and cash
position to meet existing operational needs. In addition, the Company has
available to it a $7.5 million uncollateralized revolving line of credit with
its bank should additional needs arise.
Net cash used for operations for the three months ended March 31, 1998
was ($527,000) as compared to cash provided by operations for the six months ended June
30, 1997 was $89,000 as compared to $685,000of $53,000 in the
prior year period. This decrease in cash flow was primarily attributable to
the net loss for the period, increased working capital requirements related to new product inventory of strategic materials, and
paymentspayment of income taxes andyear end commissions.
Cash used in investing activities for the sixthree months ended June
30, 1997March 31,
1998 was $2,482,000$1,642,000 as compared to $283,000$1,127,000 in the prior year period. This increase in investing activities wasThe
cash used relates to the result of: 1)
increased capital expenditures foracquired BioSeq research and development as described
above, as well as continued improvements at its Massachusetts manufacturing facility, 2) financing $800,000 of certain working capital
needs in connection with the acquisition of the assets and business of
Source Scientific, Inc.("Source"), and 3) the Company exercising its
option to purchase an additional 165,000 shares of BioSeq stock at an
aggregate cost of $750,000, thereby increasing its ownership of BioSeq
to 19%. On July 2, 1997, the Company completed the acquisition of
Source's assets and business at a contractually reduced purchase price
of $1.9 million as Source's net worth had fallen below an agreed upon
minimum amount. The Company is accounting for the acquisition as an
asset purchase, and expects to amortize goodwill approximating the
purchase price plus acquisition costs over a ten year period.Maryland
facilities.
Cash provided by financing activities for the sixthree months ended June 30, 1997March
31, 1998 was $87,000$39,000 as compared to $403,000 used$10,000 in the prior comparable year period. The prior year period useAll of
the cash received was primarily
a $960,000 receipt from stock options exercised during the sale of common stock offset by debt
repayments of approximately $1,364,000. The net cash provided in 1997
resulted from $94,000 received for the exercise of 48,750 stock options.period.
The Company anticipates capital expenditures from the expansion of the
West Bridgewater facility to increase overbe completed early in the near term as itthird quarter of 1998.
The Company also expects to spend approximately $400,000 more to
expandreplace its manufacturing capacity in West Bridgewaterbusiness information software over the
next six
months. In addition, the Company has entered into a ten year lease
agreement for space for its Maryland operation and expects to incur
costs for tenant improvements over the next sixnine months. The Company believes that existing cash balances, the
borrowing capacity available under its new revolving line of credit and cash
generated from operations are sufficient to fund operations and anticipated
capital expenditures for at least the next twelve months. Thereforeseeable future. Except for purchase orders in
connection with the manufacturing expansion, there were no material financial
commitments for capital expenditures as of June 30, 1997,March 31, 1998, and currently there
are no
8 material commitments for capital or investment expenditures other than
the Source Scientific, Inc. asset acquisition, the manufacturing
expansion, and tenant improvements all as previously discussed above.expenditures.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board
issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share."132, "Employers'
Disclosure about Pensions and Other Postretirement Benefits" (SFAS 132) is
effective for fiscal years beginning after December 15, 1997. SFAS 128 establishes a different method132
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of computing net income per share thanthose plans. The
Company will adopt SFAS 132 in the fiscal year ended December 31, 1998.
Year 2000 Computer Systems Compliance
Concerns have been widely expressed regarding the inability of certain
computer programs to process date information beyond year 1999. These concerns
focus on the impact of the Year 2000 problem on business operations and the
potential costs associated with identifying and addressing the problem. The
Company is currently requiredin the process of evaluating and taking steps to deal with the
potential impact of this problem in areas under the
provisionsits control, including its
products and sources of Accounting Principles Board Opinion No. 15. Under SFAS No.
128,supply, as well as its operations management,
administration and financial systems.
Based on its review to date, the Company believes that its products
are "Year 2000 compliant." The Company has confirmed with existing software
vendors that year 2000 compliant versions either exist or will be requiredavailable to
present both basic net income per
shareupgrade or replace its operations management, administrative and diluted net income per share. Basic net income per share for
the three and six months ended June 30, 1997 and 1996 would have been
the same as the reported primary net income per share. The impact of
SFAS 128 on the calculation of diluted net income per share for these
quarters does not materially differ from basic net income per share.financial
systems. The Company plans to adopt SFAS 128begin a program to survey major suppliers to
determine the status and schedule for periods after December 15, 1997 and
attheir Year 2000 compliance. Where it
believes that time all historical net income per share data presenteda particular supplier's situation poses unacceptable risks, the
Company plans to identify an alternative source.
8
Based upon its review, the Company does not believe that the Year 2000
problem will have a material adverse effect on the Company. However, there can
be restatedno assurances that failure to conform tocomply with Year 2000 by parties outside its
control will not have a material adverse affect on the provisions of SFAS No. 128.Company.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements
concerning the Company's financial performance and business operations. The
Company wishes to caution readers of this Quarterly Report on Form 10-Q that
actual results might differ materially from those projected in any
forward-looking statements.
Factors which might cause actual results to differ materially from
those projected in the forward-looking statements contained herein include the
following: inability of the Company to develop the end user market for quality
control products; inability of the Company to integrate the business of BBI-SourceSource
Scientific, Inc. into the Company's business; inability of the Company to grow
the sales of BBI-SourceSource Scientific, Inc. to the extent anticipated; failure to
execute a definitive agreement with ABX Hematologie for the transfer to them
of certain service activities in connection with modification of the existing
contract and there can be no assurances that ABX will not seek to further
modify the relationship in the future; a material adverse change in the
business, financial condition or prospects of BioSeq, Inc., an early stage
biotechnology company in which the Company has made a significant investment;investment,
including inability to develop its technology to the level of commercial
utilization; 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; 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).
9
BOSTON BIOMEDICA, INC.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Shareholders.
The Company held its Annual Meeting of Stockholders of June 12,
1997. Approximately 3,484,851 shares, or 79.4%, of the Common Stock
issued and outstanding as of the record date, were represented at the
meeting in person or by proxy. Set forth below is a brief description of
the matter voted upon at the meeting and the voting results of such
matter.
Voted: To elect each of the following persons as Class I
Directors of the Company, to serve as such until the Year 2000
Annual Meeting of Stockholders and until their successors have
been duly elected and qualified:
Francis E. Capitanio
Calvin A. Saravis
Item 6. Exhibits and Reports on Form 8K8-K
(a) 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**
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**
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
10.17 Underwriters Warrants, each dated November 4, 1996,
between the Company and each of Oscar Gruss & Son
Incorporated and Kaufman Bros., L.P. **
10.20 Purchase Agreement, dated October 7, 1996, between
BioSeq, Inc. and the Company**
10.21 Warrant Agreement, dated October 7, 1996, between
BioSeq, Inc. and 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
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 Rockville,Gaithersberg,
Maryland facility between B.F. Saul Real Estate
Investment Trust and the Company
11 Statement re: Computation of Per Share Earnings10.28 Lease Agreement, dated January 30, 1995, for Garden
Grove, California facility between TR Bell., Cal Corp.
and the Company.
21.1 Subsidiaries of the Company
27 Financial Data Schedule
________________________
++ 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 8K
The Company filed a form 8K dated July 17, 1997 regarding the
acquisition of the assets, business, and selected liabilities of
Source Scientific, Inc.8-K
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
BOSTON BIOMEDICA, INC.
Date: AugustMay 14, 19971998 By /s/ KEVINKevin W. QUINLAN
---------------- ---------------------Quinlan
-------------------- --------------------------------------------
Kevin W. Quinlan, Chief Financial Officer
(Principal Financial Officer)
12
BOSTON BIOMEDICA, INC.
EXHIBIT INDEX
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
13
10.21 Warrant Agreement, dated October 7, 1996, between BioSeq, Inc. A**
and the Company
13
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 dated March 28, 1997, between C**
The First National Bank of Boston and the Company
10.25 Asset Purchase Agreement, dated 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 Rockville,Gaithersberg, Maryland Filed herewithE**
facility between B.F. Saul Real Estate Investment Trust and the
Company
11 Statement re: Computation of Per Share Earnings Filed herewith10.28 Lease Agreement, dated January 30, 1995, for Garden Grove, F**
California facility between TR Bell., Cal Corp. and the
Company.
21.1 Subsidiaries of the Company Filed herewithF**
27 Financial Data Schedule Filed herewith
________________________
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 filed
Marchfor the financial year ended December 31, 19971996.
D Incorporated by reference to the Company's Quarterly Report on
Form 10Q filed
May 14, 1997for 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.
F Incorporated by reference to the Company's Annual Report on Form
10K for the financial year ended December 31, 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.
14