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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, 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
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(State or other (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
375 West Street,
West Bridgewater,
Massachusetts 02379-1040
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(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, 1998 was 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, June 30,
-------------------------- -------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
REVENUE:
Products $3,316,804 $2,416,956 $ 6,380,163 $4,543,912
Services 3,066,328 2,231,998 6,275,764 4,314,091
------------ ------------ ------------ -----------
Total revenue 6,383,132 4,648,954 12,655,927 8,858,003
COSTS AND EXPENSES:
Cost of product sales 1,674,837 1,271,662 3,446,588 2,327,084
Cost of services 1,999,019 1,456,194 4,322,230 2,931,726
Research and development 583,592 256,995 1,015,981 493,745
Acquired research and development - - 850,000 -
Selling and marketing 926,015 775,594 1,854,627 1,388,954
General and administrative 983,075 694,875 2,013,011 1,374,082
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Total operating costs and expenses 6,166,538 4,455,320 13,502,437 8,515,591
Income (loss) from operations 216,594 193,634 (846,510) 342,412
Interest (expense) income, net (660) 99,184 22,899 196,670
------------ ------------ ------------ -----------
Income (loss) before income taxes 215,934 292,818 (823,611) 539,082
(Provision for) benefit from income taxes (82,055) (117,128) 312,972 (215,634)
------------ ------------ ------------ -----------
Net income (loss) $ 133,879 $ 175,690 $ (510,639) $ 323,448
============ ============ ============ ===========
Net income (loss) per share, basic $ 0.03 $ 0.04 $ (0.11) $ 0.07
Net income (loss) per share, diluted $ 0.03 $ 0.04 $ (0.11) $ 0.07
Number of shares used 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 Statement
2
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(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
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See Notes to Colsolidated Financial Statements
3
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
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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
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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
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Cash and cash equivalents, end of period $ 123,527 $ 5,777,048
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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
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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
six months ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 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, 1997 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
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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
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Inventories consisted of the following:
June 30, December 31,
1998 1997
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Raw materials..........$2,170,155 $2,033,040
Work-in-process.........1,629,171 1,190,567
Finished goods..........2,804,087 2,679,214
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$6,603,413 $5,902,821
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(4) Comprehensive Income
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Statement of Financial 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 be
shown in a financial statement that is displayed 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
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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 on net sales to customers and
sublicensees. The agreement is effective March 20, 1998 and ends on the date
the last patent expires, which is approximately 16 years. In accordance with
accounting standards for development stage technology, the purchase price,
minimum royalty payments and acquisition costs totaling $850,000, were expensed
in the first quarter.
5
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Computation of Net Income per Share
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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 was required under the provisions of the previous
standard-Accounting Principles Board opinion No. 15. The following illustrates
the computation of basic and diluted net income per share.
Three Months Six Months
Ended June 30, Ended June 30,
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1998 1997 1998 1997
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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
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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 six months ended June 30, 1998.
(7) Extension of Line of Credit
- --------------------------------
Effective June 30, 1998, the maturity 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 of June 30, 1998 is classified as long
term debt.
6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Three Months Ended June 30, 1998 and 1997
Total revenue increased 37.3%, or $1,734,000, to $6,383,000 for the
three months ended June 30, 1998 from $4,649,000 in the prior year period. This
increase was the result of an increase in product sales of 37.2%, or $900,000,
to $3,317,000 from $2,417,000 and an increase in specialty laboratory services
of 37.4%, or $834,000, to $3,066,000 from $2,232,000. The inclusion of BBI
Source Scientific ("Source") in the second quarter results added to product and
service revenue in the amounts of $614,000 and $392,000, respectively. The
remaining increase in product revenue was the result of significant increases
in Accurun(r) controls and OEM panel sales. The remaining increase in service
revenue was the result of a significant increase in billed labor on government
contracts for R&D services at the Company's new facility in Gaithersburg, MD.
The Company also realized increased revenue from immunology testing including
Hepatitis C and tickborne diseases.
Gross profit increased 41.0%, or $788,000, to $2,709,000 for the
current three months from $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 increase is primarily the result of the inclusion of Source and its
development efforts in the 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.
Selling and marketing expenses increased 19.4%, or $150,000, to
$926,000 for the current three months from $776,000 in the prior year period.
This increase was primarily the result of the first time inclusion of Source.
General and administrative expenses increased 41.5%, or $288,000, to
$983,000 for the current three months from $695,000 in the prior year period.
The inclusion of Source accounted for $173,000 of this increase. The remaining
increase relates to the addition of human resource, collection, and
administrative support personnel.
Net interest expense was $660 for the current quarter compared to net
interest income of $99,000 in the prior year period. The Company has
productively employed the proceeds from its initial public offering and, at the
end of the quarter, began to borrow funds under its line of credit to continue
its 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, 1998 and 1997
Total revenue increased 42.9%, or $3,798,000, to $12,656,000 for the
six months ended June 30, 1998 from $8,858,000 in the prior year period. This
increase was the result of an increase in product sales of 40.4%, or
$1,836,000, to $6,380,000 from $4,544,000 and an increase in specialty
laboratory services of 45.5%, or $1,962,000, to $6,276,000 from $4,314,000. The
inclusion of Source added to product and service revenue in the amounts of
$1,081,000 and $1,124,000, respectively. The remaining increase in product
revenue is due to a doubling of Accurun(r) sales and a significant increase in
OEM panel sales. The remaining increase in specialty laboratory services is
attributable to an increase in clinical testing and contract research revenue.
Gross profit increased 35.8%, or $1,288,000, to $4,887,000 for the
current six months from $3,599,000 in the prior year period. The gross profit
margin decreased to 38.6% for the current six months versus 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 increase is primarily the result of the inclusion of Source's development
efforts for new laboratory instruments as well as additional spending on
molecular tests and Quality Control Products.
There was an accounting charge of $850,000, in the 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 33.5%, or $466,000, to
$1,855,000 for the current six months from $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 a result of the first time inclusion of Source as well as
additional human resource, MIS, collection, and administrative support
personnel.
Net interest income decreased 88.3%, or $174,000 to $23,000 for the
current six months from $197,000 in the prior year period. The Company has
productively employed its proceeds from its initial public offering and, at the
end of the six month period, began to borrow funds from its revolving line of
credit to continue its 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 issuance of common stock. The Company
expects its cash flow, current cash position and its $7.5 million
uncollateralized revolving line of credit to meet its working capital needs.
Net cash used for operations for the six months ended June 30, 1998 was
($1,071,000) as compared to cash 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 purchases of strategic inventory for its Quality
Control Products, a reduction in current liabilities, and the delay, until
July, in settlement of a large receivable..
Cash used in investing activities for the six months ended June 30,
1998 was $2,160,000 as compared to $2,482,000 in the prior year period. The
cash used relates to the acquired BioSeq research and development as described
above, as well as continued improvements at its Massachusetts and Maryland
facilities.
Cash provided by financing activities for the six months ended June 30,
1998 was $581,000 as compared to $87,000 in the prior year period. The cash
received was from borrowing against the revolving line of credit and the
exercise of stock 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 be completed by the end of 1998.
The Company also expects to replace its business information software over the
next twelve months at a 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 the foreseeable 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, 1998.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosure about Pensions and Other Postretirement Benefits" (SFAS 132) is
effective for fiscal years beginning after December 15, 1997. SFAS 132 revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those 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 expected.
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 its control, including its
products and sources of 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 available to upgrade
or replace its operations management, administrative and financial systems. The
Company plans to begin a program to survey major suppliers to determine the
status and schedule for their Year 2000 compliance. Where it believes that a
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 no assurances that failure to comply with Year 2000 by parties outside its
control will not have a material adverse affect on the 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 Source
Scientific, Inc. into the Company's business; inability of the Company to grow
the sales of Source 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, 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 Security Holders.
The Company held its Annual Meeting of Stockholders of May 21, 1998
(the"Meeting"). A total of 3,749,521 shares, or 81%, of the Common Stock issued
and outstanding as of the record date, were represented at the meeting in
person or by proxy. At the Meeting, the only matter to be acted upon was the
election of directors. The results of the election were as follows:
Henry Malkasian was elected as a Class II Director of the Company, to
serve as such until the Year 2001 Annual Meeting of Stockholders and
until his 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, continued after the Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 Organization of the
Company filed as Exhibit 3.1) A**
10.1 Contract, dated July 1, 1998, between the
National Institutes of Health and the Company
(NO1-AI-85341) Filed herewith
10.2 Contract, dated June 15, 1998, between the
National Heart Lung and Blood Institute and the
Company (NO1-HB-87144) Filed herewith
21.1 Subsidiaries of the Company B**
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 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 8-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, 1998 By /s/ KEVIN W. QUINLAN
--------------- ---------------------------
Kevin W. Quinlan, Chief Financial Officer
(Principal Financial Officer)
11