================================================================================ 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 March 31, 1997, 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 0-21615 BOSTON BIOMEDICA, INC. ---------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2652826 ------------- ---------- (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 375 WEST STREET, WEST BRIDGEWATER, MASSACHUSETTS 02379 ------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) 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. [X] Yes [ ] No The number of shares outstanding of the Registrant's only class of common stock as of April 30, 1997 was 4,391,403. ================================================================================ PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BOSTON BIOMEDICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, -------------------------------------- 1997 1996 ------------------ ------------------- REVENUE: Product sales $ 2,126,956 $ 1,815,481 Services 2,082,093 1,268,528 ------------------ ------------------- Total revenue 4,209,049 3,084,009 COSTS AND EXPENSES: Cost of product sales 1,055,422 899,826 Cost of services 1,475,532 1,133,439 Research and development 236,750 166,565 Selling and marketing 613,360 415,012 General and administrative 679,207 536,503 ------------------ ------------------- Total operating costs and expenses 4,060,271 3,151,345 Income (loss) from operations 148,778 (67,336) Interest income (expense), net 97,486 (93,560) ------------------ ------------------- Income (loss) before income taxes 246,264 (160,896) (Provision for) benefit from income taxes (98,506) 64,358 ------------------ ------------------- Net income (loss) $ 147,758 $ (96,538) ================== =================== Net income (loss) per share $ .03 $ (0.04) ================== =================== Weighted average common and common equivalent shares outstanding 4,825,582 2,564,774
See Notes to Consolidated Financial Statements. 2 BOSTON BIOMEDICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, --------- ------------ 1997 1996 --------------- ------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 7,019,559 $ 8,082,642 Accounts receivable, less allowances of $362,612 in 1997 and $352,058 in 1996 3,144,197 3,415,994 Inventories 4,461,582 4,180,334 Prepaid expense and other 316,634 239,950 Deferred income taxes 283,200 283,200 --------------- ------------------ Total current assets 15,225,172 16,202,120 --------------- ------------------ Property and equipment, net 2,937,354 2,699,158 OTHER ASSETS: Long term investment 732,500 732,500 Goodwill and other intangibles, net 90,694 95,302 Notes receivable and other 795,409 69,234 --------------- ------------------ 1,618,603 897,036 --------------- ------------------ TOTAL ASSETS $ 19,781,129 $ 19,798,314 =============== ================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long term debt $ 13,136 $ 12,820 Accounts payable 1,146,988 991,839 Accrued compensation 521,023 840,666 Accrued income taxes 122,260 427,140 Other accrued expenses 331,228 264,262 Deferred revenue 1,056,531 829,477 --------------- ------------------ Total current liabilities 3,191,166 3,366,204 --------------- ------------------ LONG-TERM LIABILITIES: Long-term debt, less current maturities 37,543 40,948 Deferred income taxes 101,580 101,580 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $.01 par value; authorized 20,000,000 shares in 1997 and 1996; issued and outstanding 4,381,157 in 1997 and 4,378,157 in 1996 43,812 43,782 Additional paid-in capital 15,272,126 15,258,656 Retained earnings 1,134,902 987,144 --------------- ------------------ Total stockholders' equity 16,450,840 16,289,582 --------------- ------------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 19,781,129 $ 19,798,314 =============== ==================
See Notes to Consolidated Financial Statements. 3 BOSTON BIOMEDICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, -------------------------------------- 1997 1996 --------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 147,758 $ (96,538) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 166,774 120,632 Provision for doubtful accounts 10,554 7,338 Deferred rent (26,958) (16,618) Changes in operating assets and liabilities: Accounts receivable 261,243 661,915 Other assets - 1,421 Inventories (281,248) (154,374) Prepaid expenses (76,684) (35,300) Accounts payable 155,149 222,167 Accrued compensation and other expenses (530,599) (150,575) Deferred revenue 227,054 229,185 --------------- ----------------- Net cash provided by operating activities 53,043 789,253 --------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for additions to property and equipment (400,362) (116,257) Advances under notes receivable and other assets (726,175) - --------------- ----------------- Net cash used in investing activities (1,126,537) (116,257) --------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (3,089) (675,285) Proceeds of common stock issued 13,500 - --------------- ----------------- Net cash provided by (used in) financing activities 10,411 (675,285) --------------- ----------------- DECREASE IN CASH: (1,063,083) (2,289) Cash, beginning of period 8,082,642 11,463 --------------- ----------------- Cash, end of period $ 7,019,559 $ 9,174 =============== ================= SUPPLEMENTAL INFORMATION: Income taxes paid $ 403,842 $ 130,962 Interest paid $ 110 96,917
See Notes to Consolidated Financial Statements. 4 (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 months ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Form 10-K filing for the fiscal year ended December 31, 1996 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) Inventories Inventories consisted of the following: March 31, December 31, 1997 1996 ---- -------- Raw materials ..................... $ 1,392,297 $ 1,359,569 Work-in-process ................... 883,249 697,749 Finished goods .................... 2,186,036 2,123,016 -------------- -------------- $ 4,461,582 $ 4,180,334 ============== ============== (3) Computation of Income (Loss) Per Share Net income per common share is computed based upon the weighted average number of common shares and as appropriate, common equivalent shares (using the treasury stock method) outstanding after certain adjustments described below. Common equivalent shares consist of common stock options and warrants outstanding. In accordance with Securities 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 included in the calculation as if they were outstanding for all periods prior to the initial public offering using the treasury stock method and an offering price of $8.50 per share. Fully diluted net income (loss) per common share is not presented as it does not materially differ from primary earnings per share. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS 128 establishes a different method of computing net income per share than is currently required under the provisions of Accounting Principles Board Opinion No. 15. Under SFAS No. 128, the Company will be required to present both basic net income per share and diluted net income per share. Basic net income (loss) per share for the quarters ended March 31, 1997 and 1996 would have been the same as the reported primary net income (loss) 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 (loss) 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. Subsequent Event In April 1997, the Company exercised its option to purchase an additional 165,000 shares of BioSeq, Inc. stock at an aggregate cost of $750,750, thereby increasing its ownership of BioSeq to 19%. 5 ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. THREE MONTHS ENDED MARCH 31, 1997 AND 1996 Total revenue increased 36.5%, or $1,125,000, to $4,209,000 for the quarter ended March 31, 1997 from $3,084,000 in the prior year period. This increase was the result of an increase in product sales of 17.2%, or $312,000, to $2,127,000 from $1,815,000 and an increase in specialty laboratory services of 64.1%, or $813,000, to $2,082,000 from $1,269,000. Product revenue increased primarily as a result of an overall sales increase of 40.2% in Quality Control Products, due to continued strong sales of new and existing of Accurun( and panel products. This was partially offset by a decline of 36% in sales of Diagnostic Components as certain custom orders were delayed. The increase in service revenue was primarily attributable to a 74.3% increase in Specialty Clinical Laboratory Testing revenue, particularly from Lyme Disease and the new HIV molecular tests. Gross profit increased 59.7%, or $627,000, to $1,678,000 for the current quarter from $1,051,000 in the prior year period. The gross profit margin increased to 39.9% for the current quarter versus 34.1% in the prior year period. The gross margin improvement was entirely driven by improved margins in services (10.6% in 1996 to 29.1% in 1997) as the Company continued to benefit from both the addition of several new tests and higher volume in Specialty Clinical Laboratory Testing. Research and development expenses increased 42.1%, or $70,000, to $237,000 for the current quarter from $167,000 in the prior year period. This increase was primarily the result of additional research project expenditures for new Quality Control Products, including panels and Accurun(, as well as continued work on additional molecular tests for our Specialty Clinical Laboratory. Selling and marketing expenses increased 47.8%, or $198,000, to $613,000 for the current quarter from $415,000 in the prior year period. This increase was primarily attributable to increased personnel costs associated with the addition of both tele-sales and field staff, as well as technical support staff for Quality Control Products, particularly Accurun(, increased advertising and trade show costs for all the Company's products and services, and increased travel costs. General and administrative expenses increased 26.6%, or $143,000, to $679,000 for the current quarter from $536,000 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 $97,000 was earned for the first quarter of 1997 versus a ($94,000) expense in the prior year period as the Company repaid most of its debt in the fourth quarter of 1996 and invested its available cash in short term, investment grade securities. For both first quarters, the Company provided taxes at the combined federal and state statutory rate of 40%. LIQUIDITY AND FINANCIAL CONDITION On October 31, 1996 the Company commenced trading as a result of its initial public offering of its common stock ("IPO"), selling 1,600,000 shares at $8.50 per share. Net proceeds raised after underwriting discounts and commissions (but before offering costs) was $12,648,000. On November 5, 1996, the Company repaid substantially all of its outstanding bank debt which totaled approximately $3.9 million. The Company has financed its operations to date through cash flow from operations, borrowings from banks and sales of equity. With the repayment of debt from the IPO proceeds, the Company expects its cash flow and cash position to meet existing operational needs. In addition, the Company has available to it a $7.5 million uncollateralized revolving line of credit with its bank should additional needs arise. Net cash provided by operations for the three months ended March 31, 1997 was $53,000 as compared to $789,000 in the prior year period. This decrease in cash flow was primarily attributable to increased working capital requirements and net payments of $531,000 during the first quarter of 1997 of expenses accrued as of December 31, 1996 related to income taxes and commissions. 6 Cash used in investing activities for the three months ended March 31, 1997 was $1,127,000 as compared to $116,000 in the prior year period. This increase in investing activities was the result of increased capital expenditures as the Company began construction of improvements at its manufacturing facility, and financed certain working capital needs in connection with its announced acquisition of the assets of Source Scientific, Inc., scheduled for closing in the second quarter of 1997 at an agreed upon cost of $2.1 million dollars, subject to shareholder approval. In April 1997, the Company exercised its option to purchase an additional 165,000 shares of BioSeq, Inc. stock at an aggregate cost of $750,750, thereby increasing its ownership of BioSeq to 19%. Cash provided by financing activities for the three months ended March 31, 1997 was $10,000 as compared to $675,000 used to repay debt in the prior comparable year period. The net cash provided in 1997 resulted from $14,000 received for stock options exercises. The Company anticipates capital expenditures to increase over the near term as it expects to use approximately $750,000 from the proceeds of its IPO to expand its manufacturing capacity in West Bridgewater over the next nine months. The Company believes that existing cash balances, the borrowing capacity available under its new revolving line of credit and cash generated from operations are sufficient to fund operations and anticipated capital expenditures for the foreseeable future. There were no material financial commitments for capital expenditures as of March 31, 1997, and currently there are no material commitments for capital or investment expenditures other than the April BioSeq investment, the Source Scientific, Inc. asset acquisition, and the manufacturing expansion, all as previously discussed above. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS 128 establishes a different method of computing net income per share than is currently required under the provisions of Accounting Principles Board Opinion No. 15. Under SFAS No. 128, the Company will be required to present both basic net income per share and diluted net income per share. Basic net income (loss) per share for the quarters ended March 31, 1997 and 1996 would have been the same as the reported primary net income (loss) 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 (loss) 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. 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 Source Scientific, Inc. into the Company's business; inability of the Company to grow the sales of Source Scientific, Inc. to the extent anticipated; inability of Source Scientific, Inc. to repay the $750,000 loan made by the Company; 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; 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). 7 BOSTON BIOMEDICA, INC. PART II. OTHER INFORMATION
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) ** 10.1 Agreement, dated January 17, 1994, between Roche Molecular Systems, Inc. and the Company** 10.2 Exclusive License Agreement, dated December 6, 1994, between the University of North Carolina at Chapel Hill and the Company** 10.3 Contract, dated September 30, 1995, between the National Institutes of Health and the Company (No. 1-AI55273) ** 10.4 Contract, dated September 30, 1995, between the National Institutes of Health and the Company (No. 1-AI-55277) ** 10.6 Agreement, dated October 1, 1995, between Ajinomoto Co., Inc. and the Company** 10.7 Lease Agreement, dated June 30, 1992, for Rockville, Maryland Facility between Cambridge Biotech Corporation and the Company** 10.8 Lease Agreement, dated July 28, 1995, for New Britain, Connecticut Facility between MB Associates and the Company** 10.9 Worcester County Institution for Savings Warrant dated December 1, 1995 (No. 1) ** 10.10 Worcester County Institution for Savings Warrant dated July 26, 1993 (No. 2) ** 10.11 Stock Purchase Agreement, dated June 5, 1990, between G&G Diagnostics Limited Partnership I and the Company, as amended** 10.12 Purchase and Sale Agreement, dated December 11, 1995, for 375 West Street Property between James Leonard, Trustee, C.W.B. Trust and the Company** 10.13 Purchase and Sale Agreement, dated December 20, 1995, for 80 Manley Street Property between the Company and Donald M. Leonard, Trustee, Live Oak Realty Trust** 10.14 Stock Purchase Agreement, dated April 26, 1996, between Kyowa Medex Co., Ltd. and the Company** 10.15 1987 Non-Qualified Stock Option Plan**++ 10.16 Employee Stock Option Plan**++ 10.17 Underwriters Warrants, each dated November 4, 1996, between the Company and each of Oscar Grus & 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** 8 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 11 Statement re: Computation of Per Share Earnings 21.1 Subsidiaries of the Company ** 27 Financial Data Schedule
- ------------------------ ++ Management contract or compensatory plan or arrangement. ** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, which documents are hereby incorporated by reference. (b) REPORTS ON FORM 8K None 9 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: May 14, 1997 By /s/ KEVIN W. QUINLAN ------------------------- ----------------------------------------- Kevin W. Quinlan, Chief Financial Officer (Principal Financial Officer) 10 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 Articles of A** Organization of the Company filed as Exhibit 3.1) 10.1 Agreement, dated January 17, 1994, between Roche Molecular Systems, Inc. and A** the Company 10.2 Exclusive License Agreement, dated December 6, 1994, between the University of A** North Carolina at Chapel Hill and the Company 10.3 Contract, dated September 30, 1995, between the National Institutes of Health A** and the Company (No. 1-AI55273) 10.4 Contract, dated September 30, 1995, between the National Institutes of Health A** and the Company (No. 1-AI-55277) 10.6 Agreement, dated October 1, 1995, between Ajinomoto Co., Inc. and the Company A** 10.7 Lease Agreement, dated June 30, 1992, for Rockville, Maryland Facility between A** Cambridge Biotech Corporation and the Company 10.8 Lease Agreement, dated July 28, 1995, for New Britain, Connecticut Facility A** between MB Associates and the Company 10.9 Worcester County Institution for Savings Warrant dated December 1, 1995 (No. 1) A** 10.10 Worcester County Institution for Savings Warrant dated July 26, 1993 (No. 2) A** 10.11 Stock Purchase Agreement, dated June 5, 1990, between G&G Diagnostics Limited A** Partnership I and the Company, as amended 10.12 Purchase and Sale Agreement, dated December 11, 1995, for 375 West Street A** Property between James Leonard, Trustee, C.W.B. Trust and the Company 10.13 Purchase and Sale Agreement, dated December 20, 1995, for 80 Manley Street A** Property between the Company and Donald M. Leonard, Trustee, Live Oak Realty Trust 10.14 Stock Purchase Agreement, dated April 26, 1996, between Kyowa Medex Co., Ltd. A** and the Company 10.15 1987 Non-Qualified Stock Option Plan* A** 10.16 Employee Stock Option Plan* A** 11 10.17 Underwriters Warrants, each dated November 4, 1996, between the Company and each of Oscar Grus & Son Incorporated and Kaufman Bros., L.P. B** 10.20 Purchase Agreement, dated October 7, 1996, between BioSeq, Inc. and the Company A** 10.21 Warrant Agreement, dated October 7, 1996, between BioSeq, Inc. and the Company A** 10.22 Stockholders' Agreement, dated October 7, 1996, between BioSeq, Inc. and the A** Company 10.23 License Agreement, dated October 7, 1996, between BioSeq, Inc. and the Company A** 10.24.1 Commercial Loan Agreement, as of dated March 28, 1997, between The First C** National Bank of Boston and the Company 10.25 Asset Purchase Agreement, dated March 26, 1997 between Source Scientific, Inc. C** and the Company 10.26 Contract, dated March 1, 1997, between National Cancer Institute and the Company Filed herewith 11 Statement re: Computation of Per Share Earnings Filed herewith 21.1 Subsidiaries of the Company C** 27 Financial Data Schedule Filed herewith
- ------------------------ A Incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No. 333-10759)(the "Registration Statement"). The number set forth herein is the number of the Exhibit in said registration statement. B Incorporated by reference to the Registration Statement, where the Exhibit was filed as Exhibit No. 10.17 and contained in Exhibit 1.1. C Incorporated by reference to the Company's Form 10K filed March 31, 1997 * Management contract or compensatory plan or arrangement. ** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, which documents are hereby incorporated by reference. 12