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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 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.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2652826
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
375 WEST STREET,
WEST BRIDGEWATER, MASSACHUSETTS 02379
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(Address of Principal Executive Offices) (Zip Code)
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.
[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.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
March 31,
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1997 1996
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REVENUE:
Product sales $ 2,126,956 $ 1,815,481
Services 2,082,093 1,268,528
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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
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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)
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Income (loss) before income taxes 246,264 (160,896)
(Provision for) benefit from income taxes (98,506) 64,358
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Net income (loss) $ 147,758 $ (96,538)
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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,
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1997 1996
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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
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Total current assets 15,225,172 16,202,120
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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
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1,618,603 897,036
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TOTAL ASSETS $ 19,781,129 $ 19,798,314
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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
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Total current liabilities 3,191,166 3,366,204
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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
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Total stockholders' equity 16,450,840 16,289,582
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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,
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1997 1996
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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
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Net cash provided by operating activities 53,043 789,253
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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) -
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Net cash used in investing activities (1,126,537) (116,257)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (3,089) (675,285)
Proceeds of common stock issued 13,500 -
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Net cash provided by (used in) financing activities 10,411 (675,285)
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DECREASE IN CASH: (1,063,083) (2,289)
Cash, beginning of period 8,082,642 11,463
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Cash, end of period $ 7,019,559 $ 9,174
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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
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Raw materials ..................... $ 1,392,297 $ 1,359,569
Work-in-process ................... 883,249 697,749
Finished goods .................... 2,186,036 2,123,016
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$ 4,461,582 $ 4,180,334
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(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.
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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
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++ 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
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Kevin W. Quinlan, Chief Financial Officer
(Principal Financial Officer)
10
BOSTON BIOMEDICA, INC.
EXHIBIT INDEX
EXHIBIT INDEX
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Exhibit No. Reference
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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