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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, 1997,1998, or
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[ ] 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, 19971998 was 4,426,900.4,665,426.
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Part I. Financial Information
Item 1. Financial Statements
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, Ended June 30,
-------------------------------------------------- -------------------------
1998 1997 19961998 1997
1996
----------- ----------- ----------------------- ------------ ------------ -----------
REVENUE:
Product salesProducts $3,316,804 $2,416,956 $2,130,278$ 6,380,163 $4,543,912
$3,945,759
Services 3,066,328 2,231,998 1,714,0966,275,764 4,314,091
2,982,624
----------- ----------- ----------------------- ------------ ------------ -----------
Total revenue 6,383,132 4,648,954 3,844,37412,655,927 8,858,003 6,928,383
COSTS AND EXPENSES:
Cost of product sales 1,674,837 1,271,662 1,107,0073,446,588 2,327,084 2,006,833
Cost of services 1,999,019 1,456,194 1,116,1714,322,230 2,931,726 2,249,610
Research and development 583,592 256,995 195,0541,015,981 493,745
361,619Acquired research and development - - 850,000 -
Selling and marketing 926,015 775,594 500,2771,854,627 1,388,954 915,289
General and administrative 983,075 694,875 551,9452,013,011 1,374,082
1,088,448
---------- ---------- ---------- ---------------------- ------------ ------------ -----------
Total operating costs and expenses 6,166,538 4,455,320 3,470,45413,502,437 8,515,591
6,621,799
Income (loss) from operations 216,594 193,634 373,920(846,510) 342,412
306,584
Interest (expense) income, (expense), net (660) 99,184 (74,909)22,899 196,670
(168,469)
----------- ----------- ----------------------- ------------ ------------ -----------
Income (loss) before income taxes 215,934 292,818 299,011(823,611) 539,082
138,115
Provision for(Provision for) benefit from income taxes (82,055) (117,128) (119,604)312,972 (215,634)
(55,246)
----------- ----------- ----------------------- ------------ ------------ -----------
Net income (loss) $ 133,879 $ 175,690 $ 179,407(510,639) $ 323,448
$ 82,869
=========== =========== ======================= ============ ============ ===========
Net income (loss) per share, basic $ 0.03 $ 0.04 $ 0.06(0.11) $ 0.07
Net income (loss) per share, diluted $ 0.03 =========== =========== =========== ===========
Weighted average common and common
equivalent$ 0.04 $ (0.11) $ 0.07
Number of shares outstanding 4,851,623 3,263,711 4,831,747 3,252,643used to calculate net income per share
Basic 4,652,519 4,403,277 4,642,343 4,391,715
Diluted 4,865,593 4,839,407 4,642,343 4,824,731
See Notes to Consolidated Financial StatementsStatement
2
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
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1997 1996
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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
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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
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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
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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
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Total stockholders' equity 16,706,717 16,289,582
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $20,098,647 $19,798,314
=========== ===========
(Unaudited)
June 30, December 31,
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1998 1997
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 123,527 $ 2,772,360
Accounts receivable, less allowances of
$579,142 in 1998 and $446,517 in 1997 5,563,699 5,558,710
Inventories 6,603,413 5,902,821
Prepaid expense and other 640,555 288,481
Deferred income taxes 378,458 328,562
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Total current assets 13,309,652 14,850,934
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Property and equipment, net 5,783,730 4,980,164
OTHER ASSETS:
Long term investment 1,482,500 1,482,500
Goodwill and other intangibles, net 2,126,745 2,212,220
Notes receivable and other 108,365 124,178
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3,717,610 3,818,898
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TOTAL ASSETS $22,810,992 $23,649,996
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long term debt $ 14,831 $ 14,878
Accounts payable 1,650,345 2,218,685
Accrued compensation 1,046,658 1,103,837
Accrued income taxes - 132,802
Other accrued expenses 585,486 498,247
Deferred revenue 884,317 1,249,024
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Total current liabilities 4,181,637 5,217,473
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LONG-TERM LIABILITIES:
Long term debt, less current liabilities 535,726 26,820
Deferred rent and other liabilities 321,503 189,117
Deferred income taxes 142,887 149,333
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
20,000,000 shares in 1998 and 1997;
issued and outstanding 4,660,426 in
1998 and 4,622,566 in 1997 46,604 46,226
Additional paid-in capital 16,101,296 16,029,049
Retained earnings 1,481,339 1,991,978
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Total stockholders' equity 17,629,239 18,067,253
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $22,810,992 $23,649,996
============ ============
See Notes to ConsolidatedColsolidated Financial Statements
3
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
----------------------------
1997 1996
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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
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Net cash provided by operating activities 89,343 685,003
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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)
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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
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Net cash provided by (used in) financing activities 87,432 (403,400)
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DECREASE IN CASH: (2,305,594) (915)
Cash and cash equivalents, beginning of period 8,082,642 11,463
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Cash and cash equivalents, end of period $ 5,777,048 $ 10,548(Unaudited)
For the Six Months Ended
June 30,
-------------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (510,639) $ 323,448
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 607,252 353,843
Provision for doubtful accounts 103,036 77,781
Deferred rent and other liabilities 132,386 (53,916)
Deferred income taxes (56,342) (31,655)
Acquired research and development 850,000 -
Changes in operating assets and liabilities:
Accounts receivable (108,025) (51,366)
Other assets - (27,083)
Inventories (700,592) (380,593)
Prepaid expenses (352,074) (76,392)
Accounts payable (568,340) 83,043
Accrued compensation and other expenses (102,742) (402,705)
Deferred revenue (364,707) 274,938
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Net cash (used in) provided by operating
activities (1,070,787) 89,343
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired research and development (850,000) -
Payments for additions to property and equipment (1,325,097) (839,364)
Purchase of intangible assets (246) -
Advances under notes receivable and other assets 15,813 (893,005)
Purchase of long term investment - (750,000)
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Net cash used in investing activities (2,159,530) (2,482,369)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 508,906 -
Repayments of long-term debt (47) (6,255)
Proceeds of common stock issued 72,625 93,687
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Net cash provided by financing activities 581,484 87,432
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DECREASE IN CASH AND CASH EQUIVALENTS: (2,648,833) (2,305,594)
Cash and cash equivalents, beginning of period 2,772,360 8,082,642
----------- ------------
Cash and cash equivalents, end of period $ 123,527 $ 5,777,048
=========== ============ =============
See Notes to Consolidated Financial Statements
4
BOSTON BIOMEDICA, INC.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, 19971998 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 annual report of 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.
(3) Inventories
- ----------------
Inventories consisted of the following:
June 30, December 31,
1998 1997
1996
----------- ----------------------- ------------
Raw materials......................... materials..........$ 1,456,895 $ 1,359,569
Work-in-process....................... 667,078 697,7492,170,155 $2,033,040
Work-in-process.........1,629,171 1,190,567
Finished goods........................ 2,436,954 2,123,016
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$ 4,560,927 $ 4,180,334
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(3) Computationgoods..........2,804,087 2,679,214
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$6,603,413 $5,902,821
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(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 pricefirst quarter.
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 netThree Months Six Months
Ended June 30, Ended June 30,
---------------------- -----------------------
1998 1997 1998 1997
---------- ----------- ---------- ------------
Average common
stock outstanding 4,652,519 4,403,277 4,642,343 4,391,715
Net effect of dilutive
common stock equivalents-
based on treasury stock
method using average
market price * 213,074 436,130 - 433,016
---------- ----------- ---------- ------------
4,865,593 4,839,407 4,642,343 4,824,731
========== =========== ========== ============
Net income (loss) 133,879 175,690 (510,639 323,448
Net income (loss) per share 0.03 0.04 (0.11) 0.07
* Potentially dilutive securities of 228,875 were not included in the
computation of diluted earnings per share because to do so would have
been antidilutive for the three and six months ended June 30, 1997 and 1996 would have been1998.
(7) Extension of Line of Credit
- --------------------------------
Effective June 30, 1998, the samematurity date of the revolving line of
credit agreement was extended from June 30, 1999 to June 30, 2000. Accordingly,
the balance borrowed against the line 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
investmentJune 30, 1998 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.debt.
6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Three Months Ended June 30, 19971998 and 19961997
Total revenue increased 20.9%37.3%, or $805,000,$1,734,000, to $4,649,000$6,383,000 for the
three months ended June 30, 19971998 from $3,844,000$4,649,000 in the prior year period. This
increase was the result of an increase in product sales of 13.5%37.2%, or $287,000,$900,000,
to $2,417,000$3,317,000 from $2,130,000$2,417,000 and an increase in specialty laboratory services
of 30.2%37.4%, or $518,000,$834,000, to $2,232,000$3,066,000 from $1,714,000. Product$2,232,000. The inclusion of BBI
Source Scientific ("Source") in the second quarter results added to product and
service revenue increased primarily as ain the amounts of $614,000 and $392,000, respectively. The
remaining increase in product revenue was the result of continued
strong sales of new and existing Accurun( runsignificant increases
in Accurun(r) controls and TQS products,
but was partially offset by lower than expected sales to diagnostic test
kit manufacturers.OEM panel sales. The remaining increase in service
revenue was primarily
attributable tothe result of a 45.7%significant increase in Specialty Clinical Laboratory
Testingbilled labor on government
contracts for R&D services at the Company's new facility in Gaithersburg, MD.
The Company also realized increased revenue driven once again by HIV molecular (PCR) tests needed
for disease management programs.from immunology testing including
Hepatitis C and tickborne diseases.
Gross profit increased 18.5%41.0%, or $300,000,$788,000, to $1,921,000$2,709,000 for the
current three months from $1,621,000$1,921,000 in the prior year period. Overall gross
margin increased to 42.4% from 41.3%. All of the increase was attributable to
product sales. The gross margin on products increased to 49.5% from 47.4%, as
the sales growth was in Accurun(r) and OEM panel products, which carry higher
margins.
Research and development expenses increased 127.1%, or $327,000, to
$584,000 for the current three months from $257,000 in the prior year period.
The gross
profit margin decreased to 41.3% forincrease is primarily 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 growthinclusion of Source and its
development efforts in Specialty Clinical Laboratory Testing noted above. The
Company's services generally carry lower margins than itsthe laboratory instrumentation product line, including
the PlateMate( and reflectance reader projects. Also contributing to the
increase was additional spending on molecular tests and Quality Control
Products.
ResearchSelling and developmentmarketing expenses increased 31.8%19.4%, or $62,000,$150,000, to
$257,000$926,000 for the current three months from $195,000$776,000 in the prior year period.
This increase was primarily the result of additional research
project expenditures for new Quality Control Products, including panelsthe first time inclusion of Source.
General and Accurun(, as well as continued work on additional molecular tests
for our Specialty Clinical Laboratory.
Selling and marketingadministrative expenses increased 55.0%41.5%, or $275,000,$288,000, to
$776,000$983,000 for the current three months from $500,000$695,000 in the prior year period.
ThisThe inclusion of Source accounted for $173,000 of this increase. The remaining
increase was primarily attributablerelates to increased personnel
costs associated with the addition of field staff for Accurun( and the
Specialty Clinical Laboratory, increased spending for promotional
materials, and increased travel costs.
Generalhuman resource, collection, and
administrative expenses increased 25.9%, or
$143,000, to $695,000support personnel.
Net interest expense was $660 for the current three months from $552,000quarter compared to net
interest income of $99,000 in the prior year period. This increase was primarily a resultThe Company has
productively employed the proceeds from its initial public offering and, at the
end of increased MIS
and other support personnel, as well as the increased costs incurred as
a public company.
Net interest incomequarter, began to borrow funds under its line of $99,000 was earned for the three months
of 1997 versus a ($75,000) expense in the prior year period as the
Company repaid most ofcredit to continue
its debt in the fourth quarter of 1996 and
invested its available cash in short term, investment grade securities.
For both periods,infrastructure investments.
Based on current tax planning, the Company provided taxes at the
combined federal and state statutory rate of 38% in the current quarter versus
40%. in the prior year period.
Six Months Ended June 30, 19971998 and 19961997
Total revenue increased 27.9%42.9%, or $1,930,000,$3,798,000, to $8,858,000$12,656,000 for the
six months ended June 30, 19971998 from $6,928,000$8,858,000 in the prior year period. This
increase was the result of an increase in product sales of 15.2%40.4%, or
$598,000,$1,836,000, to $4,544,000$6,380,000 from $3,946,000$4,544,000 and an increase in specialty
laboratory services of 44.6%45.5%, or $1,331,000,$1,962,000, to $4,314,000$6,276,000 from $2,983,000. Product$4,314,000. The
inclusion of Source added to product and service revenue increased primarily as a resultin the amounts of
an
overall sales$1,081,000 and $1,124,000, respectively. The remaining increase of 24.4% in Quality Control Products,product
revenue is due to continued stronga doubling of Accurun(r) sales of new and existing Accurun( and panel products
and partially offset by a decrease of 13.8% in sales of Diagnostic
Components. Thesignificant increase in
service revenue was primarilyOEM panel sales. The remaining increase in specialty laboratory services is
attributable to a 57.1%an increase in Specialty Clinical Laboratory Testing revenue,
particularly from HIV molecular (PCR) tests.clinical testing and contract research revenue.
Gross profit increased 34.7%35.8%, or $927,000,$1,288,000, to $3,599,000$4,887,000 for the
current six months from $2,672,000$3,599,000 in the prior year period. The gross profit
margin increaseddecreased to 40.6%38.6% for the current six months versus 38.6%40.6% in the prior
year period. This is due primarily to lower margins on Source instruments and
the impact of higher fixed overhead at BBI Biotech as a result of its move to
its new facility in Gaithersburg, MD, both adversely affecting the first
quarter.
7
Research and development expenses increased 105.8%, or $522,000, to
$1,016,000 for the current six months from $494,000 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)increase is primarily the result of the inclusion of Source's development
efforts for new laboratory instruments as the Company continued to benefit from both the addition of
several newwell as additional spending on
molecular tests and higher volumeQuality Control Products.
There was an accounting charge of $850,000, in Specialty Clinical Laboratory
Testing.
7
Researchthe first quarter,
related to the acquisition of the worldwide exclusive rights to BioSeq Inc's
immunodiagnostic research and development technology as noted in footnote 5.
Selling and marketing expenses increased 36.5%33.5%, or $132,000,$466,000, to
$494,000$1,855,000 for the current six months from $362,000$1,389,000 in the prior year period.
The inclusion of Source added $130,000. The remaining increase was
attributable to increased personnel costs associated with the expansion of the
TQS sales, marketing and technical support staff as well as additions to the
clinical laboratory sales staff.
General and administrative expenses increased 46.5%, or $639,000, to
$2,013,000 for the current six months from $1,374,000 in the prior year period.
This increase was primarily thea result of additional research
project expenditures for new Quality Control Products, including panels
and Accurun(,the first time inclusion of Source as well as
continued work on additional molecular tests
for our Specialty Clinical Laboratory.
Sellinghuman resource, MIS, collection, and marketing expenses increased 51.8%administrative support
personnel.
Net interest income decreased 88.3%, or $474,000,$174,000 to $1,389,000$23,000 for the
current six months from $915,000$197,000 in the prior year period. This increase was primarily attributable to increased personnel
costs as well as increased costs for travelThe Company has
productively employed its proceeds from its initial public offering and, promotional materials.
The increased personnel costs are associated withat the
additionend 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 monthsmonth period, began to borrow funds from its revolving line of
1997 versus a ($168,000) expense in the prior year period as the Company
repaid most ofcredit to continue its debt in the fourth quarter of 1996 and invested its
available cash in short term, investment grade securities.
For both periods,infrastructure investments.
Based on current tax planning, the Company provided taxes at the
combined federal and state statutory rate of 38% in the current quarter versus
40%. in the prior year period.
Liquidity and Financial Condition
At June 30, 1998, the Company had cash and cash equivalents of
approximately $124,000 and working capital of $9,128,000. Both of these items
have decreased significantly from year end as the Company continued its planned
capital expenditures.
The Company has financed its operations to date through cash flow from
operations, borrowings from banks and salesissuance of equity. With
the repayment of debt from the IPO proceeds, thecommon stock. The Company
expects its cash flow, andcurrent cash position to meet existing operational needs. In
addition, the Company has available to it aand its $7.5 million
uncollateralized revolving line of credit withto meet its bank should
additional needs arise.working capital needs.
Net cash provided byused for operations for the six months ended June 30, 19971998 was
$89,000($1,071,000) as compared to $685,000cash provided by operations of $89,000 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 productpurchases of strategic inventory for its Quality
Control Products, a reduction in current liabilities, and paymentsthe delay, until
July, in settlement of income taxes and commissions.a large receivable..
Cash used in investing activities for the six months ended June 30,
19971998 was $2,482,000$2,160,000 as compared to $283,000$2,482,000 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 six months ended June 30,
19971998 was $87,000$581,000 as compared to $403,000 used$87,000 in the prior comparable year period. The prior year period usecash
received was from borrowing against the revolving line of cash was primarily
a $960,000 receipt from 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 forcredit and the
exercise of 48,750 stock options.options during the period.
The Company anticipates capital expenditures for the expansion of the
West Bridgewater facility and additional improvements in its Maryland facility
as a result of recently awarded contracts to increase overbe completed by the near term as itend 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 intotwelve months at a ten year lease
agreement for space for its Maryland operation and expects to incur
costs for tenant improvements over the next six months.cost of approximately $750,000. The Company believes
that existing cash balances, the borrowing capacity available under its
revolving line of credit and cash generated from operations are sufficient to
fund operations and
8
anticipated capital expenditures for at least the next twelve months. Thereforeseeable future. Except for
purchase orders and contracts in connection with the expansion and the business
information software, there were no material financial commitments for capital
expenditures as of June 30, 1997, 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.1998.
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, although no impact
on operating results of financial position is currently requiredexpected.
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 in 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.
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; the renewal and
full funding of contracts with National Institutes of Health (NIH), National
Heart, Lung and Blood Institute (NHLBI) and other government agencies; 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.Security Holders.
The Company held its Annual Meeting of Stockholders of June 12,
1997. Approximately 3,484,851May 21, 1998
(the"Meeting"). A total of 3,749,521 shares, or 79.4%81%, 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 descriptionAt the Meeting, the only matter to be acted upon was the
election of directors. The results of the matter voted upon at the meeting and the voting results of such
matter.
Voted: To elect each of the following personselection were as follows:
Henry Malkasian was elected as a Class I
DirectorsII Director of the Company, to
serve as such until the Year 20002001 Annual Meeting of Stockholders and
until their successors havehis successor has been duly elected and qualified:, with
3,732,115 shares voting in favor, 17,406 votes withheld.
The terms of office of Richard T. Schumacher, Kevin W. Quinlan, Calvin
A. Saravis, and Francis E. Capitanio, Calvin A. Saraviscontinued after the Meeting.
Item 6. Exhibits and Reports on Form 8K8-K
(a) Exhibits
Exhibit No. Reference
----------- ---------
3.1 Amended and Restated Articles of Organization
of the Company*Company A**
3.2 Amended and Restated Bylaws of the Company*Company A**
4.1 Specimen Certificate for Shares of the Company's
Common Stock*Stock A**
4.2 Description of Capital Stock (contained in the
Restated Articles of Organization of the
Company filed as Exhibit 3.1) **A**
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,July 1, 1998, between the
National Institutes of Health and the Company
(No. 1-AI55273) **
10.4(NO1-AI-85341) Filed herewith
10.2 Contract, dated September 30, 1995,June 15, 1998, between the
National Institutes of HealthHeart Lung and Blood Institute 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**
10.25 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,
Maryland facility between B.F. Saul Real Estate
Investment Trust and the Company
11 Statement re: Computation of Per Share Earnings(NO1-HB-87144) Filed herewith
21.1 Subsidiaries of the Company B**
27 Financial Data Schedule ________________________
++ Management contract or compensatory plan or arrangement.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 Company's Annual Report on Form 10K
for the fiscal year ended December 31, 1997.
** 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.
118-K
None
10
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: August 14, 19971998 By /s/ KEVIN W. 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
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, Maryland Filed herewith
facility between B.F. Saul Real Estate Investment Trust and the
Company
11 Statement re: Computation of Per Share Earnings Filed herewith
21.1 Subsidiaries of the Company Filed herewith
27 Financial Data Schedule
________________________
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 Form 10K filed
March 31, 1997
D Incorporated by reference to the Company's Form 10Q filed
May 14, 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