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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB-A
(X) QUARTERLY REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 1998
( ) 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.
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(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
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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 November 30, 1998, the issuer had 7,569,418 shares of its common stock,
$.001 par value issued and outstanding.
Transitional Small Business Disclosure Format Yes No X
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED FINANCIAL STATEMENTS ARE PROVIDED AS FOLLOWS:
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PAGE
NUMBER
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SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Consolidated Statements of Operations -
For the three and nine months ended November 30, 1998 and
For the three and nine months ended November 30, 1997 3
Consolidated Balance Sheets -
as of November 30, 1998 and
as of February 28, 1998 4
Consolidated Statements of Cash Flows -
For the nine months ended November 30, 1998 and
For the nine months ended November 30, 1997 5
Notes to Consolidated Financial Statements 7
</TABLE>
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SERACARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN WHOLE DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine Months Ended For the Three Months Ended
---------------------------- ---------------------------
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Total revenue $ 31,966,781 $ 7,243,018 $ 13,869,084 $ 3,736,653
Cost of sales 24,775,955 6,010,897 11,170,360 2,928,274
------------ ------------ ------------ ------------
Gross profit 7,190,826 1,232,121 2,698,724 808,379
General and administrative expenses 3,038,492 1,024,119 1,035,199 502,512
------------ ------------ ------------ ------------
Net income from operations 4,152,334 208,002 1,663,525 305,867
Interest expense 2,301,523 185,628 868,257 74,800
Non-cash interest expense 936,144 - 322,647 -
Other income - net (601,308) (1,280) (149,872) (300)
------------ ------------ ------------ ------------
Net income (Note 6) $ 1,515,975 $ 23,654 $ 622,493 $ 231,367
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per common share (Note 2):
Basic $ 0.21 $ 0.01 $ 0.08 $ 0.05
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted $ 0.14 $ 0.00 $ 0.06 $ 0.04
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares issued
and outstanding
Basic 7,308,748 4,405,000 7,462,759 4,804,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted 11,066,733 5,288,498 11,308,766 6,275,526
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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SERACARE, INC.
CONSOLIDATED BALANCE SHEET
AS OF NOVEMBER 30, 1998 11-30-98 2-28-98
(IN WHOLE DOLLARS) (UNAUDITED) (AUDITED)
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 412,325 $ 5,497,524
Accounts receivable 9,991,492 4,612,968
Inventory 11,703,594 7,644,601
Prepaid expenses and other current assets 541,592 243,785
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Total Current Assets 22,649,003 17,998,878
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PROPERTY AND EQUIPMENT - NET 4,502,471 2,780,850
FDA LICENSES, less accumulated amortization
of $118,551 and $57,351 4,671,428 2,759,999
DONOR BASE AND RECORDS, less accumulated
amortization of $138,018 and $61,149 3,031,839 1,688,762
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED
TO IDENTIFIABLE ASSETS, less accumulated amortization
of $107,561 and $78,635 663,892 692,818
GOODWILL, less accumulated amortization of $531,777
and $84,292 13,520,371 9,748,357
DEFERRED BOND DISCOUNT, less accumulated
amortization of $631,676 and $49,349 7,362,435 8,241,225
OTHER ASSETS, including start-up costs
of $1,845,952 and $739,171 3,934,131 1,318,483
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TOTAL ASSETS $ 60,335,570 $ 45,229,372
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------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,980,978 $ 2,495,588
Accrued payroll and related expenses 347,095 230,474
Accrued expenses 1,367,788 1,266,854
Deferred income 397,353 1,131,178
Line of credit 11,837,000
Bridge loans from related parties 1,845,500 2,121,500
Notes payable 2,488,447 1,296,947
Current portion of long-term debt 192,063 12,211
------------- -------------
Total Current Liabilities 21,456,224 8,554,752
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LONG-TERM DEBT 16,510,415 16,196,670
SERIES A REDEEMABLE PREFERRED STOCK, $.001 par
value, 25,000,000 shares authorized; 1,000 shares
issued and outstanding 118,636 231,130
STOCKHOLDERS' EQUITY
Series B convertible preferred stock, $.001 par
value, 15,000 shares authorized and outstanding.
Liquidation value $100 per share 15 15
Common stock, $.001 par value, 25,000,000 shares
authorized, 7,569,418 and 5,549,800
issued and outstanding 7,536 7,210
Additional paid-in capital 20,780,406 20,293,232
Retained earnings (deficit) 1,462,338 (53,637)
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Total stockholders' equity 22,250,295 20,246,820
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 60,335,570 $ 45,229,372
------------- -------------
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<TABLE>
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SERACARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN WHOLE DOLLARS)
(UNAUDITED) FOR THE NINE MONTHS ENDED
--------------------------------
November 30, November 30,
INCREASE (DECREASE) IN CASH 1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,515,975 $ 23,654
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 1,141,687 191,038
Income from joint venture (650,168) -
Gain on sale of land and buildings (533,547) -
Non cash interest expense 936,144 -
Non cash general and administrative expense 16,065 -
(Increase) decrease from changes in:
Accounts receivable (5,179,945) (3,214,578)
Inventory (3,580,318) (1,904,213)
Prepaid expenses and other current assets (185,527) (97,145)
Other assets (546,962) (449,337)
Accounts payable 316,064 582,579
Accrued liabilities 154,463 720,323
Deferred income (733,825) 1,017,532
--------------- --------------
Net cash used in operating activities (7,329,894) (3,130,147)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Assets acquired for cash (8,028,744) (1,250,000)
Purchases of property and equipment (822,653) (861,369)
Additions to other intangible assets (1,827,870) -
Cash acquired in non-cash transaction - 250,000
Distributions from joint venture 415,000 -
Additions to FDA licenses (22,629) (526,576)
Additions to donor base and license (319,946) (141,634)
--------------- --------------
Net cash used in investing activities (10,606,842) (2,529,579)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances under line of credit 11,837,000 -
Proceeds from notes payable 2,000,000 1,638,447
Repayments of long-term debt (275,994) (574,157)
Repayments of notes payable (808,500) -
Payments on redemption of preferred stock (112,494) (103,873)
Repayments of bridge loans from related parties (1,526,000) -
Proceeds from bridge loans from relarted parties 1,250,000 1,325,000
Proceeds from issuance of stock 487,500 3,609,595
--------------- --------------
Net cash provided by financing activities 12,851,512 5,895,012
--------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,085,224) 235,286
CASH AND CASH EQUIVALENTS, beginning of period 5,497,524 544,077
--------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 412,300 $ 779,363
--------------- --------------
--------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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SERACARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN WHOLE DOLLARS)
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
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(a) Cash paid for:
Interest $2,301,523 $185,628
State income taxes 0 $16,000
</TABLE>
(b) Non-cash transactions:
On July 13, 1997, Silver State Plasma Products, Inc. exercised their
option to converted the $247,328 then owing into 112,813 shares of the
Company's common stock.
Effective on August 13, 1997, the Company and Serologicals Corporation
completed an asset exchange whereby the Company transferred three centers
in Pueblo and Colorado Springs to Serologicals in exchange for two centers
located in Reno, Nevada and Ft Smith, Arkansas and $250,000 (see Note 3).
On November 29, 1997, the Company acquired the operating assets of
American Plasma Management, Inc., American Plasma Reno, Inc., and American
Plasma Systems, Inc. which consisted primarily of five plasma collections
for $1,250,000.00 in cash and a note for $600,000.00. For further details,
see the Company's Current Report on Form 8K.
During the nine months ended November 30, 1998, the Company sold land and
buildings with a net book value of $441,453 for $975,000 consisting of
$150,000 in cash, a note receivable for $651,891 and assumption by the
buyer of a $173,109 mortgage payable.
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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 November 30, 1998, and the results of their operations and
cash flows for the three months and nine months ended November 30, 1998 and
1997. 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, 1998.
The results of operations for the three and nine months ended November, 1998 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,
1998.
2. EARNINGS PER SHARE
Basic earnings per common share amounts are calculated based upon the weighted
average number of shares actually outstanding during the period. Diluted
earnings per share for the three and nine months ended November 30, 1998 and
1997 have been calculated by considering dilutive common stock options, purchase
warrants and convertible debt instruments in such calculation.
3. CREDIT FACILITY
Effective April 24, 1998, the Company consummated a $10 million, two-year
committed credit facility with Brown Brothers Harriman & Co. Under the
terms of the agreement, interest accrued at Bank of Boston prime rate plus
.75 base points and was payable quarterly. During September 1998, this credit
facility was increased to $12 million and as of November 30, 1998 the balance
owing under this credit facility was $11,837,000. In December 1998, this
credit facility was restructured into a total facility of $17 million by
Brown Brothers Harriman & Co. and State Street Bank and Trust Company
(collectively the "Lenders"). As restructured, $7 million was established
as a "Term Loan Amount" and $10 million was established as the "Available
Revolving Loan Amount". The actual Revolving Loan Amount is limited to the
sum of (a) seventy-five percent of qualifying accounts receivable plus fifty
percent of inventory value, or (b) $10 million, whichever is smaller. Both
the Revolving Loan Amount and the Term Loan Amount bear interest at a per
annum rate equal to the Wall Street Journal Prime Rate plus three-quarters of
one percent (0.75%), payable quarterly. The restructured facility is secured
by all the assets of the Company. The new agreement also contains various
covenants relating to: a
7
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Minimum Tangible Capital Base; Senior Indebtedness to EBITDA; Minimum Current
Ratio; and, a minimum Coverage Ratio; and other non-financial covenants relating
to restrictions on additional indebtedness, guarantees of indebtedness,
limitations on investments, limitations on indebtedness, asset sales, mergers or
other changes of control, divestitures, acquisitions, dividends and
distributions.
4. DEFERRED INCOME
As of November 30, 1998, 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.
5. ACQUISITIONS
Effective July 6, 1998, SeraCare, Inc., a Delaware corporation (the
"Company") acquired all of the capital stock of American Plasma, Inc., a
Texas corporation (herein referred to as "American") located in Houston,
Texas. American operates eleven plasmapheresis centers located in: Houston,
Texas (4), South Houston, Texas; Beaumont, Texas; Longview, Texas; Casa
Grande, Arizona; Phoenix, Arizona; Mesa, Arizona; and, Amarillo, Texas.
Under terms of the Stock Purchase Agreement, the purchase price paid by
SeraCare (which is subject to adjustment) consisted of $8,705,428 in cash.
The purchase price was determined through arms length negotiations between
the Company and American. The Company financed the acquisition by drawing
$5.5 million from its' revolving credit facility with Brown Brothers Harriman
and by obtaining bridge loans from a related party of $1.250 million and from
an unrelated party of $2.0 million. In the acquisition of the stock of
American, the Company acquired all of the operating assets of American and
assumed certain liabilities of American, with the exception of certain
"Excluded Liabilities". The Company plans to continue to operate American
as a wholly owned subsidiary.
Effective January 1, 1998, the Company acquired substantially all of the
operating assets of Consolidated Technologies, Inc., a biomedical manufacturing
company specializing in the supply of products and services to the in-vitro
diagnostic industry. At the same time, the Company acquired Western States
Group, Inc., a worldwide marketing organization for therapeutic blood plasma
products, diagnostic test kits, specialty plasma and bulk plasma.
On November 29, 1997, the Company acquired five plasmapheresis centers from
American Plasma Management, Inc. The centers are located in South Bend,
Indiana; Boise, Idaho; Kalamazoo, Michigan; Salt Lake City, Utah; and, Reno,
Nevada.
All acquisitions were accounted for using the purchase method of accounting.
Accordingly, the results of operations have been reported as of the effective
dates of the respective acquisitions. The purchase cost in each transaction has
been allocated to the net assets acquired based upon fair values at the date of
acquisition. The excess purchase price over the net assets acquired has been
recorded as goodwill and is being amortized over twenty years.
8
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The unaudited proforma operating results for Revenue, Net income and Net income
per share, assuming all of these acquisitions had occurred as of the beginning
of the indicated nine month periods, are as follows:
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Nine Months Ended Nine Months Ended
November 30, 1998 November 30, 1997
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<S> <C> <C>
Revenue $35,985,661 $35,099,174
Net income $ 1,822,246 $ 1,553,964
Net income per share
Basic $ .24 $ .30
Diluted $ .17 $ .19
Weighted average shares issued and outstanding:
Basic 7,308,748 5,166,524
Diluted 11,066,733 8,150,594
</TABLE>
6. INCOME TAXES
No provision for current income taxes has been made for the three and nine
months ending November 30, 1998, because the Company has a loss carry-forward
which exceeds the net income reflected. Regarding deferred taxes, the Company
uses the asset and liability method for financial accounting and reporting of
deferred income taxes. This method provides for recognition of deferred tax
assets in the current period for the future benefit of net operating loss
carry-forwards and items of expense which have been recognized in the financial
statements, but will be deductible for income tax purposes in future periods.
The Company previously provided a 100% valuation allowance relating to the
recognition of deferred tax benefits and is currently evaluating whether all or
a portion of the deferred tax asset will be recorded during the current fiscal
year.
7. OTHER INCOME
During the nine months ended November 30, 1998, the Company sold to unrelated
parties, certain properties located in: South Bend, Indiana; Kalamazoo,
Michigan; Salt Lake City, Utah; and, Fort Worth, Texas and recognized gains of
$533,547 on such sales. The Company also entered into lease agreements on
certain of these properties at fair market value, for initial terms of five
years and including two five-year renewal options.
8. YEAR 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in other normal business activities. The Company has
invested in the latest hardware and software and accordingly management believes
the Company is in full compliance with year 2000 standards and anticipates no
problems in maintaining this compliance into the future.
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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 NOVEMBER 30, 1998 AS COMPARED TO THREE MONTHS ENDED NOVEMBER
30, 1997
REVENUE
Total revenue of the Company increased by 271% or $10,132,431 to $13,869,084
during the 1998 period. The increase was attributable primarily to the
acquisitions Western States Group, Inc. and the operating assets of Consolidated
Technologies, Inc. (effective January 1, 1998), which contributed $3,560,767 and
$1,579,028 respectively to the increase. Also contributing was a 213% increase
in the volume of plasma collected during the period by the Biologics Division,
due in part to the acquisition of American Plasma, Inc., effective July 6, 1998;
the November 1997 acquisition of centers located in: Salt Lake City, Utah; Reno,
Nevada; Kalamazoo, Michigan; South Bend, Indiana; and, Boise, Idaho; and, to
the ramping 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; and, Port Arthur,
Texas. The Company collected approximately 118,010 liters of plasma during the
three-month period ended November 30, 1998 compared to about 37,654 liters for
the comparable prior year period or an increase of 80,356 liters. The centers
located in Toledo and Pasco were operating under Reference Number's from the FDA
during the period and were thus not allowed to sell or ship plasma, although
they were collecting plasma during the period. In addition, Biologics Division
revenue was higher compared to the same period last year as a result of a
structural change in pricing related to sales to certain customers whereby
testing and softgoods is included in the unit pricing.
GROSS PROFIT
Gross profit increased by $1,890,345 or 234% in the 1998 period to $2,698,724.
The increased revenues as discussed above were substantially offset by: the
operating expenses associated with American Plasma, Inc., Western States Group,
Inc. and Consolidated Technologies; and the higher salaries costs, donor fees,
and other operating costs resulting from the 213% increase in the volume of
plasma collected. Higher softgoods and testing costs were the result of the
increased volumes and the structural change in pricing related to sales to
certain customers whereby the Company pays for testing and softgoods.
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in 1998 increased by $532,687 to $1,035,199
an increase of 106%, due mainly to the inclusion of such expenses attributable
to American Plasma, Inc, Western States Group, Inc. and Consolidated
Technologies. Legal and professional fees, travel expenses, and salaries expense
were also higher.
INTEREST EXPENSE
Interest paid increased by $793,457 to $868,257 due primarily to the increased
debt required to finance acquisitions. The non-cash interest of $322,647
represents the amortization of the bond discount associated with the February
1998 $16.0 million subordinated debenture issue.
OTHER INCOME
Other income in the 1998 quarter is principally the gain from the sale of
certain properties during the period.
NET INCOME
As a result of the above, there was a net income for the three months ended
November 30, 1998 of $622,493 compared to a net income of $231,367 for the same
prior year period.
NINE MONTHS ENDED NOVEMBER 30, 1998 AS COMPARED TO NINE MONTHS ENDED NOVEMBER
30, 1997
REVENUE
Total revenue of the Company increased by 341% or $24,723,763 to $31,966,781
during the 1998 period. The increase was attributable primarily to the
acquisitions of Western States Group, Inc. and the operating assets of
Consolidated Technologies, Inc. (effective January 1, 1998), which contributed
$8,960,933 and $4,116,375 respectively to the increase. Also contributing was a
179% increase in the volume of plasma collected during the period by the
Biologics Division, due mainly to the acquisition of American Plasma, Inc.,
effective July 6, 1998; the November 1997 acquisition of centers located in:
Salt Lake City, Utah; Reno, Nevada; Kalamazoo, Michigan; South Bend, Indiana;
and Boise, Idaho; and in part to the ramping 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; and Port Arthur, Texas. The Company collected about 290,336 liters of
plasma during the nine month period ended November 30, 1998 compared to about
104,249 liters for the comparable prior year period, an increase of about
186,087 liters. The centers located in Toledo and Pasco were operating under
Reference Number's from the FDA during the period and were thus not allowed to
sell or ship plasma, although they were collecting plasma during the period.
Raleigh and Macon received final FDA approval in August 1998 and as a result
shipped approximately $1.7 million in sales during the 1998 period. Clearfield
received final FDA approval in May 1997. In addition, Biologics Division revenue
was higher compared to the same period last year as a result of a structural
change in pricing related to sales to certain customers whereby testing and
softgoods is included in the unit pricing.
GROSS PROFIT
Gross profit increased by $5,958,705 or 484% in the 1998 period to $7,190,826.
The increased revenues as discussed above were substantially offset by: the
operating expenses associated with Western States Group, Inc. and Consolidated
Technologies; and the higher salaries costs, donor fees, and other operating
costs resulting from the 179% increase in the volume of plasma collected.
Higher softgoods and testing costs were the result of the increased volumes and
the structural change in pricing related to sales to certain customers whereby
the Company pays for testing and softgoods.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in 1998 increased by $2,014,373 to
$3,038,492 an increase of 197% due mainly to the inclusion of such expenses
attributable to American Plasma, Inc., Western States Group, Inc. and
Consolidated Technologies. Legal and professional fees, travel expenses, and
salaries expense were also higher.
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INTEREST EXPENSE
Interest paid increased by $2,115,895 to $2,301,523 due primarily to the
increased debt required to finance acquisitions. The non-cash interest of
$936,144 represents the amortization of the bond discount associated with the
February 1998 $16.0 million subordinated debenture issue.
OTHER INCOME
Other income in the 1998 period is principally the gain from the sale of certain
properties during the period.
NET INCOME
As a result of the above, there was a net income for the nine months ended
November 30, 1998 of $1,515,975 compared to a net income of $23,654 for the
same prior year period.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 1998 the Company's current assets exceeded current
liabilities by $1,192,779. 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 profitability and positive cash flows. The Company believes,
however, that the acquisitions of American Plasma, Inc., Western States Group,
Inc., the operating assets of Consolidated Technologies, Inc., the November 1998
acquisition of centers located in: Salt Lake City, Utah; Reno, Nevada;
Kalamazoo, Michigan; South Bend, Indiana; and Boise, Idaho; and 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; and, Port Arthur, Texas
represent substantial progress toward becoming a significant company within the
plasma products industry. The Company believes that plasma pricing and plasma
products demand will continue to strengthen and that continuing reductions in
operating costs including: labor; softgoods; testing; supplies; and other
operating expenses, will continue to improve margins in future periods.
Net cash used in operating activities during the nine-month period ended
November 30, 1998 was $7,329,894 compared to $3,130,147 during the same prior
year period. This was due primarily to the increase in accounts receivable and
inventory partially offset by the increases in accounts payable and other
accrued expenses attributable to the acquisitions of American Plasma, Inc.,
Western States Plasma Group, Inc., Consolidated Technologies and the five plasma
centers from American Plasma Management, Inc. et al. Also contributing was an
increase in inventory and accounts receivable resulting from the terms of
certain sales agreements and an increase in inventory due to the Applicant Donor
program initiated by ABRA and effective July 1, 1997.
Cash flows used in investing activities for the nine months ended November 30,
1998 was $10,606,842 compared to $2,529,579 for the comparable prior year
period. This increase resulted primarily from the acquisition of American
Plasma, Inc. and capital requirements of the newly established plasma collection
centers in Raleigh, Macon, Pasco, Toledo, Pocatello, Wilmington, Savannah and
Port Arthur.
Cash flow provided by financing activities was $12,851,512 for the current year
period compared to $5,895,012 for the comparable prior period. This increase was
mostly due to advances under the revolving line of credit and the proceeds from
a short term note, which was used in part to finance acquisitions and partially
to provide working capital for the newly acquired and start-up operations.
Management believes that internally generated cash flow combined with the $17
million restructured credit facility will be sufficient to meet the Company's
working capital requirements for the balance of fiscal 1999. However, any
significant expansion or acquisition will need to be funded by a combination of
internally generated cash flows, short-term bridge financing, private
placements, and/or a possible
12
<PAGE>
public offering. In addition, the Company is continuing to evaluate various
alternatives for restructuring its current debt position.
YEAR 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in other normal business activities. The Company has
invested in the latest hardware and software and accordingly management believes
the Company is in full compliance with year 2000 standards and anticipates no
problems in maintaining this compliance into the future.
13
<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: January 25, 1999 By: /s/ Barry D. Plost
-------------------------------
Barry D. Plost, President & CEO
By: /s/ Jerry L. Burdick
-------------------------------
Jerry L. Burdick
Principal Accounting and
Finance Officer
14
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 412,325
<SECURITIES> 0
<RECEIVABLES> 9,991,492
<ALLOWANCES> 0
<INVENTORY> 11,703,594
<CURRENT-ASSETS> 22,649,003
<PP&E> 4,502,471
<DEPRECIATION> 0
<TOTAL-ASSETS> 60,335,570
<CURRENT-LIABILITIES> 21,456,224
<BONDS> 0
118,636
15
<COMMON> 7,536
<OTHER-SE> 22,242,744
<TOTAL-LIABILITY-AND-EQUITY> 60,335,570
<SALES> 13,869,084
<TOTAL-REVENUES> 13,869,084
<CGS> 11,170,360
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,035,199
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<INTEREST-EXPENSE> 1,180,904
<INCOME-PRETAX> 622,493
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