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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, 1999, or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to __________________
Commission file number 000-21615
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BOSTON BIOMEDICA, INC.
(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 02379-1040
- ------------------------ ----------------------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code (508) 580-1900
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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, 1999 was 4,770,153.
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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, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------- -------------- ------------- --------------
REVENUE:
Products $ 3,491,323 $ 3,316,804 $ 6,947,525 $ 6,380,163
Services 3,647,334 3,066,328 7,036,297 6,275,764
------------- -------------- ------------- --------------
Total revenue 7,138,657 6,383,132 13,983,822 12,655,927
COSTS AND EXPENSES:
Cost of product sales 1,822,537 1,674,837 3,631,184 3,446,588
Cost of services 2,641,555 1,999,019 5,111,652 4,322,230
Research and development 728,452 583,592 1,491,061 1,015,981
Acquired research and development - - - 850,000
Selling and marketing 1,102,546 926,015 2,107,817 1,854,627
General and administrative 1,116,975 983,075 2,211,665 2,013,011
------------- -------------- ------------- --------------
Total operating costs and expenses 7,412,065 6,166,538 14,553,379 13,502,437
(Loss) income from operations (273,408) 216,594 (569,557) (846,510)
Interest income 159 3,666 855 28,195
Interest expense (89,549) (4,326) (176,748) (5,296)
------------- -------------- ------------- --------------
(Loss) income before income taxes (362,798) 215,934 (745,450) (823,611)
Benefit from (provision for) income taxes 137,863 (82,055) 283,270 312,972
------------- -------------- ------------- --------------
Net (loss) income $ (224,935) $ 133,879 $ (462,180) $ (510,639)
============= ============== ============= ==============
Net (loss) income per share, basic $ (0.05) $ 0.03 $ (0.10) $ (0.11)
Net (loss) income per share, diluted $ (0.05) $ 0.03 $ (0.10) $ (0.11)
Number of shares used to calculate net income per share
Basic 4,743,870 4,652,519 4,680,915 4,642,343
Diluted 4,743,870 4,865,593 4,680,915 4,642,343
See Notes to Consolidated Financial Statements
2
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1999 1998
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 253,610 $ 146,978
Accounts receivable, less allowances of $725,693 in 1999 and
$623,710 in 1998 5,328,779 6,086,693
Inventories 6,780,350 6,689,768
Prepaid expense and other 693,177 479,983
Deferred income taxes 900,581 847,268
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Total current assets 13,956,497 14,250,690
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Property and equipment, net 7,503,731 6,925,423
OTHER ASSETS:
Goodwill and other intangibles, net 2,698,943 2,809,825
Notes receivable and other 88,552 96,447
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2,787,495 2,906,272
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TOTAL ASSETS $ 24,247,723 $ 24,082,385
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,007,073 $ 2,369,495
Accrued compensation 1,350,135 1,284,162
Other accrued expenses 814,527 795,642
Current maturities of long term debt 16,343 15,569
Deferred revenue - 690,760
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Total current liabilities 4,188,078 5,155,628
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LONG-TERM LIABILITIES:
Long term debt, less current maturities 5,620,094 3,988,602
Other liabilities 493,802 730,138
Deferred income taxes 167,021 139,363
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized 20,000,000 shares in
1999 and 1998; issued and outstanding 4,768,241 in 1999 and
4,667,816 in 1998 47,682 46,678
Additional paid-in capital 16,589,967 16,418,717
Accumulated deficit (2,858,921) (2,396,741)
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Total stockholders' equity 13,778,728 14,068,654
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 24,247,723 $ 24,082,385
============= ==============
See Notes to Consolidated Financial Statements
3
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
----------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (462,180) $ (510,639)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 722,090 607,252
Provision for doubtful accounts 54,268 103,036
Deferred rent and other liabilities (236,336) 132,386
Deferred income taxes (25,655) (56,342)
Acquired research and development - 850,000
Changes in operating assets and liabilities:
Accounts receivable 703,646 (108,025)
Inventories (90,582) (700,592)
Prepaid expenses (213,194) (352,074)
Accounts payable (362,422) (568,340)
Accrued compensation and other expenses 84,858 (102,742)
Deferred revenue (690,760) (364,707)
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Net cash used in operating activities (516,267) (1,070,787)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired research and development - (850,000)
Additions to property and equipment (1,189,516) (1,325,343)
Advances under notes receivable and other assets 7,895 15,813
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Net cash used in investing activities (1,181,621) (2,159,530)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 1,639,862 515,751
Repayments of long-term debt (7,596) (6,892)
Proceeds of common stock issued 172,254 72,625
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Net cash provided by financing activities 1,804,520 581,484
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: 106,632 (2,648,833)
Cash and cash equivalents, beginning of period 146,978 2,772,360
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Cash and cash equivalents, end of period $ 253,610 $ 123,527
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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, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 for
Boston Biomedica, Inc. and Subsidiaries ("the Company" or "Boston Biomedica").
Certain prior year 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,
1999 1998
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Raw materials $ 2,658,391 $ 2,407,154
Work-in-process 1,612,164 1,788,399
Finished goods 2,509,795 2,494,215
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$ 6,780,350 $ 6,689,768
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(4) Segment Reporting and Related Information (all dollar amounts in thousands)
Selected summarized results for the Company's four operating segments
are as follows:
Three Months Ended June 30, Six Months Ended June 30,
Segment revenue: 1999 1998 1999 1998
- ---------------- ------------- ------------- ------------- -------------
Diagnostics $ 4,019 $ 3,886 $ 7,942 $ 7,505
Clinical Laboratory Services 2,464 1,725 4,669 3,311
Laboratory Instrumentation 892 1,006 1,925 2,205
Other 84 - 84 -
Eliminations (320) (234) (636) (365)
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Total revenue $ 7,139 $ 6,383 $ 13,984 $ 12,656
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Three Months Ended June 30, Six Months Ended June 30,
Segment operating (loss) income: 1999 1998 1999 1998
- -------------------------------- ------------- ------------- ------------- -------------
Diagnostics $ 195 $ 345 $ 274 $ 293
Clinical Laboratory Services 134 36 280 105
Laboratory Instrumentation (215) (99) (349) (297)
Other (387) (65) (775) (98)
Acquired R&D - - - (850)
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Total (loss) income from operations $ (273) $ 217 $ (570) $ (847)
============= ============= ============= =============
5
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Segment Reporting and Related Information (Continued)
June 30, Dec. 31,
Identifiable segment assets: 1999 1998
- ---------------------------- ------------- -------------
Diagnostics $ 16,190 $ 16,548
Clinical Laboratory Services 3,019 2,348
Laboratory Instrumentation 4,060 4,428
Other 979 758
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Total assets $ 24,248 $ 24,082
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(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. In accordance with accounting
standards for purchased research and development, costs totaling $850,000 were
expensed in that period. In September 1998, the Company acquired 100% of the
remaining stock of BioSeq in a purchase transaction. See the Company's most
recent filing on Form 10-K for the year ended December 31, 1998 for further
information.
(6) Computation of Net Income per Share
The following illustrates the computation of basic and diluted net
income per share.
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
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Weighted average common stock outstanding 4,743,870 4,652,519 4,680,915 4,642,343
Net effect of dilutive common stock
equivalents-based on treasury stock
method using average market price * - 213,074 - -
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4,743,870 4,865,593 4,680,915 4,642,343
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Net (loss) income, basic and diluted $ (224,935) $ 133,879 $ (462,180) $ (510,639)
=========== =========== =========== ===========
Net (loss) income per share (0.05) 0.03 (0.10) (0.11)
=========== =========== =========== ===========
* Potentially dilutive securities of 157,678 and 228,875 and 231,602
were not included in the computation of diluted earnings per share for
the six months ended June 30, 1999 and 1998 and for the three months
ended June 30, 1999, respectively because to do so would have been
antidilutive.
6
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) The Amended Line of Credit Agreement
Effective June 30, 1999, the Company entered into an amended revolving
line of credit agreement (the "Amended Line") with its bank, increasing the
facility to $10 million from $7.5 million. The Amended Line matures June 30,
2001; bears interest at the Company's option based on either the base rate plus
1/4% or LIBOR plus 2.75%; carries a facility fee of 1/4% per annum, payable
quarterly; and is collateralized by substantially all of the assets (excluding
real property) of the Company. Borrowings under the Amended Line are limited to
commercially standard percentages of accounts receivable, inventory and
equipment. The Company had approximately $460,000 available under the Amended
Line as of June 30, 1999.
The Amended Line contains covenants regarding the Company's total
liabilities to tangible net worth ratio, minimum debt service coverage ratio,
and maximum net loss. The Amended Line further provides for restrictions on the
payment of dividends, incurring additional debt, and the amount of capital
expenditures.
7
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Three Months Ended June 30, 1999 and 1998
Total revenue increased 11.8% or $756,000 to $7,139,000 for the three
months ended June 30, 1999 from $6,383,000 in the prior year period. This
increase was the result of an increase in product sales of 5.3%, or $174,000, to
$3,491,000 and an increase in specialty laboratory services of 18.9%, or
$581,000, to $3,647,000. The increase in product revenue was the result of
continued strong sales of quality control products other than OEM panels. The
increase in service revenue was the result of significant increases in clinical
laboratory testing including nucleic acid (molecular) testing for HIV, Hepatitis
C and Lyme Disease.
Gross profit decreased 1.3%, or $34,000, to $2,675,000 for the current
three months from $2,709,000 in the prior year period. Overall gross margin
decreased to 37.5% from 42.4%. The decrease was primarily attributable to
services. The gross margin on services decreased to 27.6% from 34.8%, as the
Company used an aggressive pricing strategy to capture a portion of its
increased clinical laboratory testing revenue.
Research and development expenses increased 24.8%, or $145,000, to
$728,000 for the current three months from $584,000 in the prior year period.
The increase is primarily the result of increased spending on development
efforts in pressure cycling technology ("PCT"). Also contributing to the
increase was continued spending on new molecular tests and Quality Control
Products.
Selling and marketing expenses increased 19.1%, or $177,000, to
$1,103,000 for the current three months from $926,000 in the prior year period.
This increase was primarily the result of increased promotion expenses at BBI
Diagnostics.
General and administrative expenses increased 13.5%, or $133,000, to
$1,117,000 for the current three months from $984,000 in the prior year period.
The increase primarily relates to increased business development and investor
relations activities.
Net interest expense was $89,390 for the current quarter compared to
$660 in the prior year period. The Company completed significant investment in
technology and infrastructure during the first half of 1998, thereby utilizing
its cash available to invest. Since mid-1998, capital expenditures have been
funded primarily through the Company's line of credit.
The Company recorded a tax benefit in both quarters based on the
combined federal and state statutory rate of 38%.
Six Months Ended June 30, 1999 and 1998
Total revenue increased 10.5%, or $1,328,000, to $13,984,000 for the
six months ended June 30, 1999 from $12,656,000 in the prior year period. This
increase was the result of an increase in product sales of 8.9%, or $567,000, to
$6,948,000 and an increase in specialty laboratory services of 12.1%, or
$761,000, to $7,036,000. The increase in product revenue is due to continued
strong Accurun(R) sales and a significant increase in laboratory instrument
sales. The increase in specialty laboratory services is primarily attributable
to increases in clinical laboratory testing.
Gross profit increased 7.2%, or $354,000, to $5,241,000 for the current
six months from $4,887,000 in the prior year period. The gross profit margin
decreased to 37.5% for the current six months versus 38.6% in the prior year
period. This decrease is due primarily to lower margins on clinical laboratory
testing services.
Research and development expenses increased 46.8%, or $475,000, to
$1,491,000 for the current six months from $1,016,000 in the prior year period.
The increase is primarily the result of development efforts in PCT and the drug
development program as well as additional spending on new molecular tests and
Quality Control Products.
8
There was a one time accounting charge of $850,000, in 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 13.7%, or $253,000, to
$2,108,000 for the current six months from $1,855,000 in the prior year period.
The increase was attributable primarily to increased promotion expenditures.
General and administrative expenses increased 9.9%, or $199,000, to
$2,212,000 for the current six months from $2,013,000 in the prior year period.
This increase was a result of increased business development and investor
relations activities.
Net interest expense of ($176,000) was incurred in 1999 versus income
of $23,000 for the prior year period. The Company completed significant
investment in technology and infrastructure during the first half of 1998,
thereby utilizing its cash available to invest. Since mid-1998, capital
expenditures have been funded primarily through the Company's line of credit.
The Company recorded a tax benefit in both periods based on the
combined federal and state statutory rate of 38%.
Liquidity and Financial Condition
At June 30, 1999, the Company had cash and cash equivalents of
approximately $254,000 and working capital of $9,768,000. Trade accounts
receivable decreased $704,000 as a result of strong collections in the second
quarter. Inventory increased $91,000 primarily due to a higher level of
Basematrix and OEM panel orders at BBI Diagnostics.
The Company has financed its operations to date through cash flow from
operations, borrowings from its bank and the sale of its common stock. Effective
June 30, 1999, the Company reached agreement with its bank to expand its
revolving line of credit to $10 million (from $7.5 million). See Footnote 7
regarding the Amended Line. The Company expects its cash flow, working capital,
and available borrowings under its Amended Line to meet existing operational and
capital needs for the next twelve months.
Net cash used in operations for the six months ended June 30, 1999 was
$516,000 as compared to $1,071,000 in the prior year period. This increase in
cash flow was primarily attributable to stronger cash receipts compared to the
prior year as well as reduced raw material purchases.
Cash used in investing activities for the six months ended June 30,
1999 was $1,182,000 as compared to $2,160,000 in the prior year period. The cash
used relates to expenditures for manufacturing, laboratory and information
technology equipment as well as continued improvements at the Company's
Massachusetts and Maryland facilities. The 1998 amount includes $850,000 for
acquired research and development. (See Footnote 5 above).
Cash provided by financing activities for the six months ended June 30,
1999 was $1,805,000 as compared to $581,000 in the prior year period. The
increase was primarily related to the increased debt from the company's
revolving line of credit incurred to finance additional working capital needs,
and property and equipment additions.
The Company anticipates significant capital expenditures to continue in
1999 and 2000 as it plans to complete renovations to its manufacturing facility
in Massachusetts, as well as implement a fully integrated business information
system ("ERP") at all locations. Except for purchase orders in connection with
the manufacturing expansion and ERP system, there were no material financial
commitments for capital expenditures as of June 30, 1999.
9
Year 2000 Computer Systems Compliance
The following disclosure is a Year 2000 ("Y2K") readiness disclosure
statement pursuant to the Year 2000 Readiness and Disclosure Act.
Boston Biomedica's Year 2000 program is designed to minimize the
possibility of serious Year 2000 interruption. Possible Year 2000 worst case
scenarios include the interruption of significant parts of the Company's
business as a result of internal business system failure or the failure of the
business systems of its suppliers, distributors or customers. Any such
interruption may have a material adverse impact on the future results of the
Company.
In 1997 the Company decided to significantly upgrade its "business
systems" (all computer hardware and software used to run its businesses
including its operations management, administration and financial systems).
Specifications were developed for desired capabilities, including Year 2000
compliance. In 1998 the Company began assessing its Year 2000 exposure and
commenced implementation of a plan to achieve Year 2000 readiness. Based on its
review to date, the Company believes that its products are Year 2000 compliant.
During the third quarter of 1998, after investigating several
alternatives, implementation of an enterprise resource planning system ("ERP
system") was started at two of the Company's four sites. The vendor has
certified that the system is Year 2000 compliant. In April 1999, business
systems at the other two sites were upgraded to Y2K compliant versions of their
existing software at a combined cost of approximately $5,000.
A task force with participants and a site leader at each Company
location have reviewed all other infrastructure areas including communications
systems, building security systems, and embedded technologies in areas such as
laboratory instruments and manufacturing equipment. The Company has also begun
to survey major suppliers, distributors, and customers to determine the status
and schedule for their Year 2000 compliance. To date, no significant issues have
been identified, and the survey is expected to be completed in the third quarter
of 1999. Where it believes that a particular supplier's situation poses
unacceptable risks, the Company plans to identify an alternative source.
The costs of the readiness program for business systems, other
infrastructure areas, and suppliers and distributors are a combination of
incremental external spending and use of existing internal resources. In total,
the Company expects to spend less than $150,000 to achieve readiness, of which
approximately 75% has been expended to date. This amount is based on the costs
to upgrade the existing business systems to Y2K compliant versions, and excludes
the costs of implementing the ERP system which is being implemented for reasons
beyond Y2K compliance.
Milestones and implementation dates and the costs of BBI's Year 2000
readiness program are subject to change based on new circumstances that may
arise or new information becoming available that may change the underlying
assumptions or requirements.
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 that could cause actual results to differ from those projected
include the possibility that due to unforeseen management, financial, technical,
and other difficulties, reorganization of the Company's corporate structure and
management, as discussed in its July 22, 1999 Press Release, may not lead to
increased profitability or R&D program acceleration. Also, the Company may not
be able to develop its research and development programs into commercially
successful products, or such development may take longer than currently
expected. 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 Annual Report on Form 10-K for the year
ended December 31, 1998 and its Quarterly Report on Form 10-Q for the period
ended March 31, 1999.
10
BOSTON BIOMEDICA, INC.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 6. Exhibits and Reports on Form 8K
(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)
**
27 Financial Data Schedule
- ------------------------
** 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
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: August 16, 1999 By /S/ Kevin W. Quinlan
------------------ --------------------------------------
Kevin W. Quinlan, President
12
BOSTON BIOMEDICA, INC.
EXHIBIT INDEX
EXHIBIT INDEX
- -------------
Exhibit No. Reference
----------- ---------
3.1 Amended and Restated Articles of Organization of the A**
Company
3.2 Amended and Restated Bylaws of the Company A**
4.1 Specimen Certificate for Shares of the Company's A**
Common Stock
4.2 Description of Capital Stock (contained in the A**
Restated Articles of Organization of the Company
filed as Exhibit 3.1)
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.
** 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.
13