<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(X) QUARTERLY REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended MAY 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to________________.
Commission file number 0-21781
SERACARE, INC.
- -------------------------------------------------------------------------------
(Exact name of Small Business Registrant as specified in its charter)
DELAWARE 95-4343492
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1925 CENTURY PARK EAST, SUITE 1970
LOS ANGELES, CALIFORNIA 90067
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 772-7777
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ( X ) Yes ( ) No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 13 or 15 (d) of the Securities Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes ( X ) No ( )
As of June 30, 1999, the issuer had 7,644,418 shares of its common stock, $.001
par value issued and outstanding.
Transitional Small Business Disclosure Format Yes No X
---- ----
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS ARE PROVIDED AS FOLLOWS:
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Consolidated Statements of Operations - (Unaudited)
For the three months ended May 31, 1999 and
For the three months ended May 31, 1998 3
Consolidated Balance Sheets -
as of May 31, 1999 (Unaudited) and
as of February 28, 1999 (Audited) 4
Consolidated Statements of Cash Flows - (Unaudited)
For the three month period ended May 31, 1999 and
For the three month period ended May 31, 1998 5
Notes to Consolidated Financial Statements 7
</TABLE>
2
<PAGE>
SeraCare, Inc.
Consolidated Statement of Operations
(In whole dollars, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------
May 31, May 31,
1999 1998
------------ -----------
<S> <C> <C>
Revenues
Net sales $15,899,546 $ 7,661,785
Income from joint venture 189,890 199,638
------------ ------------
16,089,436 7,861,423
Cost of sales 11,755,652 5,939,960
------------ ------------
Gross profit 4,333,784 1,921,463
General and administrative expenses 1,518,058 930,717
Non-cash general and administrative expenses 5,355 5,355
------------ ------------
Net income from operations 2,810,371 985,391
Interest expense 873,748 619,426
Non-cash interest expense 312,048 301,449
Other expense (income), net (18,441) (122,275)
------------ ------------
Income before income tax expense and
cumulative effect of a change in accounting method 1,643,016 186,791
Income tax expense 101,867 0
------------ ------------
Income before cumulative effect of a change
in accounting method 1,541,149 186,791
Cumulative effect of a change in accounting method, net 719,903 0
------------ ------------
Net income $ 821,246 $ 186,791
============ ============
Earnings per common share
Basic
Income before cumulative effect of a change in
accounting method $ 0.20 $ 0.03
Cumulative effect of a change in accounting method (0.09) 0.00
------------ ------------
Net income $ 0.11 $ 0.03
============ ============
Diluted
Income before cumulative effect of a change in
accounting method $ 0.13 $ 0.02
Cumulative effect of a change in accounting method (0.06) 0.00
------------ ------------
Net income $ 0.07 $ 0.02
============ ============
Weighted average shares issued and outstanding
Basic 7,644,418 7,210,585
============ ============
Diluted 12,013,022 11,777,067
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
SeraCare, Inc.
Consolidated Balance Sheets
(In whole dollars)
<TABLE>
<CAPTION>
5-31-99 2-28-99
(UNAUDITED) (AUDITED)
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,057,712 $ 843,226
Accounts receivable 14,697,797 13,619,739
Inventory 16,680,106 10,659,226
Prepaid expenses and other current assets 391,066 580,883
------------- -------------
Total Current Assets 32,826,681 25,703,074
------------- -------------
PROPERTY AND EQUIPMENT - NET 4,751,274 4,632,159
FDA LICENSES, less accumulated amortization
of $224,159 and $145,716 8,018,209 7,836,942
DONOR BASE AND RECORDS, less accumulated
amortization of $249,248 and $173,834 4,405,748 4,376,488
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED
TO IDENTIFIABLE ASSETS, less accumulated amortization
of $126,845 and $117,203 644,608 654,250
GOODWILL, less accumulated amortization of $957,818
and $770,946 11,694,889 11,798,511
DEFERRED BOND DISCOUNT, less accumulated
amortization of $1,531,416 and $1,234,954 6,795,489 7,091,952
OTHER ASSETS 1,763,157 2,482,886
------------- -------------
TOTAL ASSETS $ 70,900,055 $ 64,576,262
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 5,805,782 $ 2,535,050
Accrued payroll and related expenses 686,949 366,475
Accrued expenses 3,068,861 2,219,957
Deferred income 397,353 397,353
Line of credit 9,940,000 8,840,000
Bridge loans from related parties 123,000 123,000
Notes payable 395,511 297,746
Current portion of long-term debt 1,220,263 1,199,909
------------- -------------
Total current liabilities 21,637,719 15,979,490
------------- -------------
LONG-TERM DEBT 22,784,262 22,895,014
SERIES A REDEEMABLE PREFERRED STOCK, $.001 par value, 25,000,000 shares
authorized; 100 and 400 shares
issued and outstanding 15,177 60,107
STOCKHOLDERS' EQUITY
Series B convertible preferred stock, $.001 par value, 15,000 shares
authorized and outstanding.
Liquidation value $100 per share 15 15
Series C convertible preferred stock, $.001 par value,
22,500 shares authorized and outstanding.
Liquidation value $100 per share 22 22
Common stock, $.001 par value, 25,000,000 shares authorized
7,644,418 issued and outstanding 7,644 7,644
Additional paid-in capital 22,982,605 22,982,605
Retained earnings 3,472,611 2,651,365
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 26,462,897 25,641,651
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 70,900,055 $ 64,576,262
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
SeraCare, Inc.
Consolidated Statement of Cash Flows
(In whole dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
May 31, May 31,
1999 1998
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 821,246 $ 186,791
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization 487,927 279,840
Income from joint venture (189,890) (199,638)
Non-cash interest expense 312,048 301,449
Non-cash general and administrative expense 5,355 5,355
(Increase) decrease from changes in:
Accounts receivable (1,078,058) (3,934,502)
Inventory (6,020,880) (1,764,244)
Prepaid expenses and other current assets 189,817 (563,651)
Other assets 719,729 (272,814)
Accounts payable 3,270,732 565,006
Accrued payroll and related expenses 320,474 92,656
Accrued expenses 848,904 168,225
Deferred income 0 (34,656)
------------ ------------
Net cash used in operating activities (312,596) (5,170,183)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (260,971) (170,902)
Additions to other intangible assets 0 (582,434)
Distributions from unconsolidated subsidiary 90,000 100,000
Additions to FDA licenses (259,710) 0
Additions to donor base and records (104,674) (120,417)
------------ ------------
Net cash used in investing activities (535,355) (773,753)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances under line of credit 1,100,000 3,207,000
Repayments of long-term debt (90,398) (2,934)
Repayments of notes payable (2,235) (208,500)
Repayments of bridge loans from related parties 0 (1,126,000)
Payments on redemption of preferred stock (44,930) (41,486)
Borrowings under notes payable 100,000 0
------------ ------------
Net cash provided by financing activities 1,062,437 1,828,080
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 214,486 (4,115,856)
CASH AND CASH EQUIVALENTS, beginning of period 843,226 5,497,524
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,057,712 $ 1,381,668
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
SeraCare, Inc.
Consolidated Statement of Cash Flows
(In whole dollars)
(Unaudited)
<TABLE>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(a) Cash paid for:
Interest $768,466 $316,407
State income taxes $16,045 $ -
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
SeraCare, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. STATEMENT OF INFORMATION FURNISHED
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal and recurring accruals)
necessary to present fairly the financial position of SeraCare, Inc. and
Subsidiaries as of May 31, 1999, and the results of their operations and cash
flows for the three months ended May 31, 1999 and 1998. These results have
been determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
audited financial statements included in the Company's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1999.
The results of operations for the three month period ended May 31, 1999 are
not necessarily indicative of the results to be expected for any other period
or for the entire current fiscal year.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with the rules to
Form 10-QSB. The accompanying financial statements should be read in
conjunction with the Company's audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the fiscal year
ended February 28, 1999.
2. EARNINGS PER SHARE
Basic earnings (loss) per common share amounts for the three months ended May
31, 1999 and 1998 have been calculated based upon the weighted average number
of shares actually outstanding during the period. Diluted earnings per share
for the same three month periods were calculated by considering common stock
options, purchase warrants and convertible debt instruments which are deemed
common stock equivalents in such calculation.
3. DEFERRED INCOME
As of May 31, 1999, the Company had received cash advances from a customer
totaling $397,353. These advances were used primarily for working capital
related principally to the newly established centers. Under a settlement
agreement with the customer, such amount was repaid in June 1999.
4. ACQUISITIONS
Effective July 6, 1998, the Company acquired all of the capital stock of
American Plasma, Inc. ("American") located in Houston, Texas. American
operates eleven plasmapheresis centers.
In October, 1998, the Company acquired certain of the operating assets of a
plasma center in Baton Rouge, Louisiana for Amex Plasma Management, Inc.
7
<PAGE>
SeraCare, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. ACQUISITIONS (CONTINUED)
The unaudited proforma results of operations, assuming these acquisitions had
occurred as of the beginning of the 1998 quarter for revenue, net loss per
share, are as follows:
<TABLE>
<CAPTION>
Quarter Ended
May 31, 1999
-------------
<S> <C>
Revenue $10,905,288
Net income $ 55,976
Income per share
Basic $ .0078
Diluted $ .0048
</TABLE>
5. INCOME TAXES
The difference between the reported tax provision and the statutory rate
applied to the pre-tax income for the three months ended May 31, 1999 is
primarily the result of the expected realization of deferred tax assets
relating to the utilization of certain loss carryforwards and the application
of available loss carryforwards in the calculation of an effective tax rate
which was based upon annualizing the financial results for the quarter.
6. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING METHOD, NET
Effective March 1, 1999, the Company adopted Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities" (SOP 98-5) issued by the
American Institute of Certified Public Accountants. SOP 98-5 requires that
the costs of start-up activities, including organization costs, be expensed
as incurred. Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a
new class of customer, initiating a new process in an existing facility, or
commencing some new operation.
SOP 98-5 is effective for fiscal years beginning after December 15, 1998.
Accordingly, the Company wrote off the approximate $719,903 (net of $44,634
of tax benefit) of start-up costs that had been previously capitalized and
included in other assets. In accordance with SOP 98-5, the write-off of such
costs is being reported as a cumulative effect of a change in accounting
method. Also, in accordance with SOP 98-5, prior periods have not been
restated.
To the extent that the Company establishes new start-up centers, the
inability to defer start-up costs will result in a decrease in its results of
operations during the start-up period. The adoption of SOP 98-5 may also have
a negative impact on the Company's strategic plan for expansion because of
the inability to match the cost of establishing a new center with the revenue
derived from such center even when all production from the center has been
contractually committed. The Company is currently evaluating alternative
strategies for achieving its growth objective.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS IN THIS
REPORT (INCLUDING WITHOUT LIMITATION, STATEMENTS INDICATING THAT THE COMPANY
"EXPECTS," "ESTIMATES," "ANTICIPATES," OR "BELIEVES" AND ALL OTHER STATEMENTS
CONCERNING FUTURE FINANCIAL RESULTS, PRODUCT OFFERINGS OR OTHER EVENTS THAT
HAVE NOT YET OCCURRED) ARE FORWARD-LOOKING STATEMENTS THAT ARE MADE PURSUANT
TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED. FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN FACTORS, RISKS AND UNCERTAINTIES WHICH
MAY CAUSE THE COMPANY'S ACTUAL RESULTS IN FUTURE PERIODS TO DIFFER MATERIALLY
FROM FORECASTED RESULTS. THOSE FACTORS, RISKS AND UNCERTAINTIES INCLUDE, BUT
ARE NOT LIMITED TO: THE POSITIONING OF THE COMPANY'S PRODUCTS IN THE
COMPANY'S MARKET SEGMENT; THE COMPANY'S ABILITY TO EFFECTIVELY MANAGE ITS
VARIOUS BUSINESSES IN A RAPIDLY CHANGING ENVIRONMENT; NEW COMPETITION FOR
DONORS AND CUSTOMERS; THE INABILITY OF THE COMPANY TO OBTAIN FDA APPROVAL OF
NEWLY ESTABLISHED CENTERS; AND THE INTRODUCTION OF SYNTHETIC PRODUCTS WHICH
COULD ELIMINATE THE NEED FOR PLASMA PRODUCTS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1999 AS COMPARED TO THREE MONTHS ENDED MAY 31, 1998
REVENUE
Net revenue of the Company increased by 105%, or $8,228,013 to $16,089,436
during the current year period. This improvement was primarily the result of
higher revenue relating to the Biologics Division. Plasma collections by the
Company's Biologics Division were up by 75 percent to about 134,566 liters
during the current period due primarily to the acquisition of American
Plasma, Inc. in July 1998, the purchase certain of the operating assets of
Amex Plasma Management, Inc. in October 1998 and the continued ramp-up of the
eleven centers established by the Company during the past two years.
GROSS PROFIT
Gross profit increased by $2,412,321 or 126% percent in the current year
period to $4,333,784. The increased revenues as discussed above were
substantially offset by the higher salaries costs, donor fees, softgoods and
testing costs and other operating costs resulting from the increase in the
volume of plasma collected.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in the current quarter increased by
$587,341 to $1,523,413, an increase of 62% due mainly to the higher salaries,
legal and professional fees, travel and insurance costs associated with the
expanded operations of the Company.
INTEREST EXPENSE
Interest paid during the current period increased by $254,322 to $873,748 due
primarily to the higher debt required to finance acquisitions and the
increased working capital needs of the Company. The non-cash interest of
$312,048 primarily represents the amortization of the bond discount
associated with the February 1998 $16.0 million subordinated debenture issue.
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING METHOD
As a result of the above, income before the cumulative effect of a change in
accounting method for the three months ended May 31, 1999 was $1,541,149
compared to $186,791 for the same prior year period.
9
<PAGE>
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING METHOD
Effective March 1, 1999, the Company adopted Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities" (SOP 98-5) issued by the
American Institute of Certified Public Accountants. SOP 98-5 is effective for
fiscal years beginning after December 15, 1998, and requires that the costs
of start-up activities be expensed as incurred. Accordingly, the Company
wrote off $719,903 (net of $44,634 of tax benefit) of start-up costs that had
been previously capitalized and was included in other assets as of February
28, 1999. In accordance with SOP 98-5, the write-off of such costs is being
reported as a cumulative effect of a change in accounting method and prior
periods have not been restated.
NET INCOME
As a result of the above, net income for the three months ended May 31, 1999
was $821,246 compared to $186,791 for the same prior year period.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 1999 the Company's current assets exceeded current liabilities
by $11,188,962. The use of cash during the quarter was consistent with the
Company's strategic plan for strong growth and the Company feels that
progress has been made during the period. With a continuation of a strategic
focus on growth, the short-term impact on the Company's earnings and cash
flow has been to defer significant profitability and positive cash flows. The
Company believes, however, that the acquisition of American Plasma, Inc. in
July 1998 and the purchase certain of the operating assets of Amex Plasma
Management, Inc. in October 1998 plus the continuing ramp-up of the newly
established centers located in: Pasco, Washington; Toledo, Ohio; Raleigh,
North Carolina; Macon, Georgia; Clearfield, Utah; Pocatello, Idaho; Savannah,
Georgia; Wilmington, Delaware; Port Arthur, Texas; Lancaster, Pennsylvania;
and, Reading, Pennsylvania represent significant progress toward certain of
the Company's strategic objectives.
Net cash used in operating activities during the three-month period ended May
31, 1999 was $312,596 compared to $5,170,183 during the same prior year
period. The current year quarter results were due primarily to the increase
in accounts receivable and inventory partially offset by the increases in
accounts payable and other accrued expenses, a decrease of $719,729 in other
assets and net income of $821,246. Also contributing was an increase in
accounts receivable resulting from the payment terms of the Grupo Grifols
sales agreement and an increase in inventory due to a thirty day hold period
pursuant to the terms of the Grupo Grifols agreement.
Cash flows used in investing activities for the three months ended May 31,
1999 was $535,355 compared to $733,753 for the comparable prior year period.
The current period decrease resulted primarily from the capital requirements
of the newly established plasma collection centers in Pocatello, Wilmington,
Savannah, Lancaster and Reading.
Cash flow provided by financing activities was $1,062,437 for the current
year period compared to $1,828,080 for the comparable prior period. The
current quarter decrease was mostly due to advances under the revolving line
of credit.
Management is currently negotiating a $5.0 million expansion of its existing
senior facility and believes that the increase and internally generated cash
flow will be sufficient to meet the ongoing working capital requirements of
the Company's current operations for the balance of fiscal 1999. Any
significant expansion or acquisition however, will need be funded externally
by some combination of bridge financing, private placement(s), and/or a
possible public offering.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
During the period March 1, 1999 through July 9, 1999, the Company received
four warning letters from the Food and Drug Administration relating to
violations of certain FDA procedures. The Company believes it has taken
appropriate actions to correct the observations cited in the warning letters
and has notified the FDA of such corrective actions in writing. As of the
date hereof, the Company has received no further correspondence from the FDA
with respect to these matters. There can be no assurances, however, that the
corrective actions taken by the Company will be deemed sufficient by the FDA
or that the Company will not become subject to further warnings or penalties
with respect to these matters.
11
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
SERACARE, INC.
(Registrant)
Dated: July 14, 1999 By: /s/ BARRY D. PLOST
-------------------------------------
Barry D. Plost, President & CEO
By: /s/ JERRY L. BURDICK
-------------------------------------
Jerry L. Burdick
Principal Accounting and
Finance Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 1,057,712
<SECURITIES> 0
<RECEIVABLES> 14,697,797
<ALLOWANCES> 0
<INVENTORY> 16,680,106
<CURRENT-ASSETS> 32,826,681
<PP&E> 4,751,274
<DEPRECIATION> 0
<TOTAL-ASSETS> 70,900,055
<CURRENT-LIABILITIES> 21,637,719
<BONDS> 22,784,262
15,177
37
<COMMON> 7,644
<OTHER-SE> 26,455,216
<TOTAL-LIABILITY-AND-EQUITY> 70,900,055
<SALES> 0
<TOTAL-REVENUES> 16,089,436
<CGS> 11,755,652
<TOTAL-COSTS> 1,523,413
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,185,796
<INCOME-PRETAX> 1,643,016
<INCOME-TAX> 101,867
<INCOME-CONTINUING> 1,541,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 719,903
<NET-INCOME> 821,246
<EPS-BASIC> .11
<EPS-DILUTED> .07
</TABLE>
