UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(X) QUARTERLY REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 31, 1998
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________________ to ____________________.
Commission file number 0-21781
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SERACARE, INC.
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(Exact name of Small Business Registrant as specified in its charter)
DELAWARE 95-4343492
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1925 CENTURY PARK EAST, SUITE 1970
LOS ANGELES, CALIFORNIA 90067
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 772-7777
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. (X) Yes ( ) No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 13 or 15 (d) of the Securities Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes (X) No ( )
As of June 30, 1998, the issuer had 7,210,539 shares of its common stock,
$.001 par value issued and outstanding.
Transitional Small Business Disclosure Format Yes No X
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED FINANCIAL STATEMENTS ARE PROVIDED AS FOLLOWS:
PAGE
NUMBER
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Consolidated Balance Sheets -
as of May 31, 1998 (Unaudited) and
as of February 28, 1998 (Audited) 3
Consolidated Statements of Operations - (Unaudited)
For the three months ended May 31, 1998 and
For the three months ended May 31, 1997 4
Consolidated Statements of Cash Flows - (Unaudited)
For the three month period ended May 31, 1998 and
For the three month period ended May 31, 1997 5
Notes to Consolidated Financial Statements 7
2
SERACARE, INC.
CONSOLIDATED BALANCE SHEET
AS OF MAY 31, 1998
(IN WHOLE DOLLARS)
5-31-98 2-28-98
(UNAUDITED) (AUDITED)
----------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,381,668 $ 5,497,524
Accounts receivable (net) 8,547,470 4,612,968
Inventory 9,408,845 7,644,601
Prepaid expenses and other current assets 382,826 243,785
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Total Current Assets 19,720,809 17,998,878
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PROPERTY AND EQUIPMENT - NET 2,853,436 2,780,850
FDA LICENSES, less accumulated amortization
of $70,271 and $57,351 2,747,079 2,759,999
DONOR BASE AND RECORDS, less accumulated
amortization of $78,023 and $61,149 1,792,305 1,688,762
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED
TO IDENTIFIABLE ASSETS, less accumulated amortization
of $88,277 and $78,635 683,176 692,818
GOODWILL, less accumulated amortization of $183,654
and $84,292 9,780,071 9,748,357
DEFERRED BOND DISCOUNT, less accumulated
amortization of $335,213 and $49,349 7,955,361 8,241,225
OTHER ASSETS, including start-up costs
of $1,147,803 and $739,171 2,078,627 1,318,483
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TOTAL ASSETS $ 47,610,864 $ 45,229,372
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,660,984 $ 2,495,588
Accrued payroll and related expenses 323,130 230,474
Accrued expenses 1,410,079 1,266,854
Deferred income (Note 4) 1,096,522 1,131,178
Line of credit (Note 3) 3,207,000
Bridge loans from related parties 995,500 2,121,500
Notes payable 1,088,447 1,296,947
Current portion of long-term debt 12,547 12,211
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Total current liabilities 10,794,209 8,554,752
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LONG-TERM DEBT 16,193,400 16,196,670
SERIES A REDEEMABLE PREFERRED STOCK, $.001 par
value, 25,000,000 shares authorized; 1,300 shares
issued and outstanding (1,600 at 2/28/98) 189,644 231,130
STOCKHOLDERS' EQUITY
Series B convertible preferred stock, $.001 par value,
15,000 shares authorized and outstanding.
Liquidation value $100 per share 15 15
Common stock, $.001 par value, 25,000,000 shares
authorized and 7,210,539 issued and outstanding 7,210 7,210
Additional paid-in capital 20,293,232 20,293,232
Retained earnings (deficit) 133,154 (53,637)
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Total stockholders' equity 20,433,611 20,246,820
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 47,610,864 $ 45,229,372
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
SERACARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN WHOLE DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
For the Three Months Ended
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May 31, May 31,
1998 1997
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Revenues
Net sales $ 7,661,785 $ 1,585,853
Income from joint venture 199,638 -
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Total Revenue 7,861,423 1,585,853
Cost of sales 6,214,856 1,427,486
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Gross profit 1,646,567 158,367
General and administrative expenses 957,270 274,976
Non-cash general and administrative expenses 5,355 -
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Net income (loss) from operations 683,942 (116,609)
Interest expense 317,977 48,614
Non-cash interest expense 301,449 -
Other expense (income), net (122,275) (942)
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Income (loss) before income taxes 186,791 (164,281)
Income Taxes (Note 6) - -
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Net income $ 186,791 $ (164,281)
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Earnings (loss) per common share (Note 2)
Basic $ 0.03 $ (0.04)
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Diluted $ 0.02 $ (0.04)
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Weighted average shares issued and outstanding (Note 2)
Basic 7,210,585 4,149,387
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Diluted 11,777,067 4,149,387
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
SERACARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN WHOLE DOLLARS)
(UNAUDITED)
For the Three Months Ended
--------------------------------
May 31, May 31,
1998 1997
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INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $186,791 $(164,281)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization 250,997 64,826
Income from joint venture (199,638)
Non-cash interest expense 301,449
Non-cash general and administrative expense 5,355
(Increase) decrease from changes in:
Accounts receivable (3,934,502) (115,651)
Inventory (1,764,244) (396,830)
Prepaid expenses and other current assets (563,651) (120)
Other assets (272,814) (8,483)
Accounts payable 565,006 (35,167)
Accrued payroll and related expenses 92,656 (11,067)
Accrued expenses 168,225 62,215
Deferred income (34,656) 492,507
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Net cash used in operating activities (5,199,026) (112,051)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (142,059) (170,034)
Additions to other intangible assets (582,434)
Distributions from joint venture 100,000
Additions to FDA licenses 0 (232,420)
Additions to donor base and records (120,417) (154,946)
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Net cash used in investing activities (744,910) (557,400)
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances under line of credit 3,207,000
Repayments of long-term debt (2,934) (83,959)
Repayments of notes payable (208,500)
Repayments of bridge loans from related parties (1,126,000)
Payments on redemption of preferred stock (41,486) (38,307)
Proceeds from bridge loans from officers 0 325,000
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Net cash provided by financing activities 1,828,080 202,734
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NET DECREASE IN CASH AND CASH EQUIVALENTS (4,115,856) (466,717)
CASH AND CASH EQUIVALENTS, beginning of period 5,497,524 544,077
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CASH AND CASH EQUIVALENTS, end of period $1,381,668 $77,360
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
SERACARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN WHOLE DOLLARS)
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for the three months ended: May 31, 1998 May 31, 1997
------------ ------------
Interest $51,818 $48,614
State income taxes $0 $16,000
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
SeraCare, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. STATEMENT OF INFORMATION FURNISHED
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal and recurring accruals)
necessary to present fairly the financial position of SeraCare, Inc. and
Subsidiaries as of May 31, 1998, and the results of their operations and cash
flows for the three months ended May 31, 1998 and 1997. These results have
been determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
audited financial statements included in the Company's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1998.
The results of operations for the three month period ended May 31, 1998 are
not necessarily indicative of the results to be expected for any other period
or for the entire current fiscal year.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with the rules to
Form 10-QSB. The accompanying financial statements should be read in
conjunction with the Company's audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the fiscal year
ended February 28, 1998.
2. EARNINGS PER SHARE
Basic earnings (loss) per common share amounts are calculated based upon the
weighted average number of shares actually outstanding during the period.
Diluted earnings per share for the three months ended May 31, 1998 have been
calculated by considering dilutive common stock options, purchase warrants
and convertible debt instruments in such calculation. Common stock options,
purchase warrants and convertible debt instruments have not been considered
in calculating the diluted amount for the three months ended May 31, 1997 as
their inclusion would be anti-dilutive.
3. CREDIT FACILITY
Effective April 24, 1998, the Company consummated a $10 million, two-year
committed credit facility with Brown Brothers Harriman & Co. Under the
terms of the agreement, interest will accrue at Bank of Boston prime rate
plus .75 base points and will be payable quarterly. The agreement contains
various covenants relating to: minimum effective capital; maximum total
liabilities/effective capital; minimum current ratio; minimum EBITDA/interest
expense + capital: and other non-financial covenants relating to restrictions
on additional indebtedness, guarantees of indebtedness, limitations on
investments, asset sales, mergers or other changes of control, divestitures,
acquisitions, dividends and distributions.
4. DEFERRED INCOME
As of May 31, 1998, the Company had received cash advances from a customer
totaling $1,096,522. These advances were used primarily for working capital
related principally to the newly established plasma centers.
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SeraCare, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. ACQUISITIONS
Effective January 1, 1998, the Company acquired substantially all of the
operating assets of Consolidated Technologies, Inc. a biomedical
manufacturing company specializing in the supply of products and services to
the in-vitro diagnostic industry. At the same time, the Company acquired
Western States Group, Inc., a worldwide marketing organization for
therapeutic blood plasma products, diagnostic test kits, specialty plasma and
bulk plasma.
On November 29, 1997, the Company acquired five plasma centers from American
Plasma Management, Inc.
The unaudited proforma results of operations, assuming these acquisitions had
occurred as of the beginning of the 1997 quarter for revenue, net loss per
share, are as follows:
Quarter Ended
May 31, 1997
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Revenue $ 6,294,915
Net loss $ (827,425)
Loss per share
Basic $ (.14)
Diluted $ (.14)
6. INCOME TAXES
No provision for current income taxes has been made for the period ending May
31, 1998, because the Company has a loss carryforward which exceeds the net
income reflected. Regarding deferred taxes, the Company uses the asset and
liability method for financial accounting and reporting of deferred income
taxes. This method provides for recognition of deferred tax assets in the
current period for the future benefit of net operating loss carryforwards and
items of expense which have been recognized in the financial statements, but
will be deductible for income tax purposes in future periods. The Company has
determined that it was not more likely than not that the deferred tax asset
will be realized, therefore a 100% valuation allowance was established and
the deferred tax benefit has not been reflected in the current statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS IN THIS
REPORT (INCLUDING WITHOUT LIMITATION, STATEMENTS INDICATING THAT THE COMPANY
"EXPECTS," "ESTIMATES," "ANTICIPATES," OR "BELIEVES" AND ALL OTHER STATEMENTS
CONCERNING FUTURE FINANCIAL RESULTS, PRODUCT OFFERINGS OR OTHER EVENTS THAT
HAVE NOT YET OCCURRED) ARE FORWARD-LOOKING STATEMENTS THAT ARE MADE PURSUANT
TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED. FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN FACTORS, RISKS AND UNCERTAINTIES WHICH
MAY CAUSE THE COMPANY'S ACTUAL RESULTS IN FUTURE PERIODS TO DIFFER MATERIALLY
FROM FORECASTED RESULTS. THOSE FACTORS, RISKS AND UNCERTAINTIES INCLUDE, BUT
ARE NOT LIMITED TO: THE POSITIONING OF THE COMPANY'S PRODUCTS IN THE
COMPANY'S MARKET SEGMENT; THE COMPANY'S ABILITY TO EFFECTIVELY MANAGE ITS
VARIOUS BUSINESSES IN A RAPIDLY CHANGING ENVIRONMENT; NEW COMPETITION FOR
DONORS AND CUSTOMERS; THE INABILITY OF THE COMPANY TO OBTAIN FDA APPROVAL OF
NEWLY ESTABLISHED CENTERS; AND THE INTRODUCTION OF SYNTHETIC PRODUCTS WHICH
COULD ELIMINATE THE NEED FOR PLASMA PRODUCTS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1998 AS COMPARED TO THREE MONTHS ENDED MAY 31, 1997
REVENUE
Net revenue of the Company increased by 396%, or $6,275,570 to
$7,861,423 during the 1998 period. The increase was attributable primarily to
the acquisitions of Western States Group, Inc. and the operating assets of
Consolidated Technologies, Inc effective January 1, 1998, which contributed
$3,152,094 and $1,251,243 respectively to the increase. Also contributing
was a 79% increase in the volume of plasma collected during the period by the
Biologics Division, due in part to the November 1997 acquisition of centers
located in: Salt Lake City, Utah; Reno, Nevada; Kalamazoo, Michigan; South
Bend, Indiana; and Boise, Idaho; and in part to the ramping up of the newly
established centers located in: Pasco, Washington; Toledo, Ohio; Raleigh,
North Carolina; Macon, Georgia; Clearfield, Utah; Pocatello, Idaho; Savannah,
Georgia; and Wilmington, Delaware. The Company collected about 71,490 liters
of plasma during the three month period ended May 31, 1998 compared to about
39,876 for the comparable prior year period or an increase of about 31,614.
The centers located in Raleigh, Macon, Toledo and Pasco were operating under
Reference Number's from the FDA during the period and were thus not allowed
to sell or ship plasma, although they were collecting plasma during the
period. Clearfield received final FDA approval in May 1997. In addition,
revenue from the Biologics Division was higher compared to the same period
last year as a result of a structural change in pricing under the Grupo
Grifols agreement whereby the Company pays for testing and softgoods.
GROSS PROFIT
Gross profit increased by $1,488,200 or 940% percent in the 1998 period to
$1,646,567. The increased revenues as discussed above were substantially
offset by: the operating expenses associated with Western States Group, Inc.
and Consolidated Technologies; and the higher salaries costs, donor fees, and
other operating costs resulting from the 79% increase in the volume of plasma
collected. Higher
9
softgoods and testing costs were caused by the increased volumes and by the
structural change in pricing under the Grupo Grifols agreement whereby the
Company pays for testing and softgoods.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in 1998 increased by $687,649 to $962,625
an increase of 250% due mainly to the inclusion of such expenses attributable
to Western States Group, Inc. and Consolidated Technologies. Legal and
professional fees, travel expenses, and salaries expense were also higher.
INTEREST EXPENSE
Interest paid increased by $269,363 to $317,977 due primarily to the
increased debt required to finance acquisitions. The non-cash interest of
$301,449 represents the amortization of the bond discount associated with the
February 1998 $16.0 million subordinated debenture issue.
NET INCOME
As a result of the above, there was a net income for the three months ended
May 31, 1998 of $186,791 compared to a net loss of $164,281 for the same
prior year period.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 1998 the Company's current assets exceeded current liabilities
by $8,926,600. The use of cash during the quarter was consistent with the
Company's strategic plan for strong growth and the Company feels that
progress has been made during the period. With a continuation of a strategic
focus on growth, the short-term impact on the Company's earnings and cash
flow has been to defer profitability and positive cash flows. The Company
believes, however, that the acquisitions of Western States Group, Inc., the
operating assets of Consolidated Technologies, Inc., the November 1998
acquisition of centers located in: Salt Lake City, Utah; Reno, Nevada;
Kalamazoo, Michigan; South Bend, Indiana; and Boise, Idaho; and the
continuing ramp-up of the newly established centers located in: Pasco,
Washington; Toledo, Ohio; Raleigh, North Carolina; Macon, Georgia;
Clearfield, Utah; Pocatello, Idaho; Savannah, Georgia; and Wilmington,
Delaware represent substantial progress toward becoming a significant company
within the plasma products industry. The Company expects that plasma pricing
and plasma products demand will continue to strengthen and that reductions in
the cost of softgoods, supplies and testing will continue to reflect in
improved gross margins.
Net cash used in operating activities during the three-month period ended May
31, 1998 was $5,199,026 compared to $112,051 during the same prior year
period. This was due primarily to the increase in accounts receivable and
inventory partially offset by the increases in accounts payable and other
accrued expenses attributable to the acquisitions of Western States Plasma
Group, Inc. and Consolidated Technologies and the 79% increase in the volume
of plasma collected. Also contributing was an increase in accounts receivable
resulting from the payment terms of the Grupo Grifols sales agreement and an
increase in inventory due to a thirty day hold period pursuant to the terms
of the Grupo Grifols agreement and to the new First Time Donor program
initiated by ABRA effective July 1, 1997.
Cash flows used in investing activities for the three months ended May 31,
1998 was $744,910 compared to $557,400 for the comparable prior year period.
This increase resulted primarily from the capital requirements of the newly
established plasma collection centers in Raleigh, Macon, Pasco, Toledo,
Pocatello, Wilmington and Savannah.
Cash flow provided by financing activities was $1,828,080 for the current
year period compared to $202,734 for the comparable prior period. This
increase was mostly due to advances under the new revolving line of credit,
partially offset by repayment of bridge loans from both related and unrelated
parties.
10
Management believes that internally generated cash flow combined with the
newly established $10.0 million, two-year revolving line of credit will be
sufficient to meet the ongoing working capital requirements of the Company's
current operations for the balance of fiscal 1998. Any significant expansion
or acquisition however, will need to be funded by a combination of internally
generated cash flows, short-term bridge financing, private placements, and/or
a possible public offering.
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
SERACARE, INC.
(Registrant)
Dated: July 13, 1998 By: /s/ Barry D. Plost
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Barry D. Plost, President & CEO
By: /s/ Jerry L. Burdick
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Jerry L. Burdick
Principal Accounting and
Finance Officer
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