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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 NOVEMBER 30, 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
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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 November 30, 1999, the issuer had 8,369,418 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
UNAUDITED FINANCIAL STATEMENTS ARE PROVIDED AS FOLLOWS:
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PAGE
NUMBER
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<S> <C>
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Consolidated Statements of Operations - (Unaudited)
For the three and nine months ended November 30, 1999 and
For the three and nine months ended November 30, 1998 3
Consolidated Balance Sheets -
as of November 30, 1999 (Unaudited) and
as of February 28, 1999 (Audited) 4
Consolidated Statements of Cash Flows - (Unaudited)
For the nine months ended November 30, 1999 and
For the nine months ended November 30, 1998 5 - 6
Notes to Consolidated Financial Statements 7
</TABLE>
2
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SERACARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In whole dollars, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
--------------------------------- --------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1999 1998 1999 1998
------------ ------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 45,718,424 $ 31,316,613 $ 16,776,893 $ 13,607,539
Income from joint venture 633,350 650,168 128,010 261,545
------------ ------------- -------------- ------------
46,351,774 31,966,781 16,904,903 13,869,084
Cost of sales 37,749,529 24,775,955 15,242,368 11,170,360
------------ ------------- -------------- ------------
Gross profit 8,602,245 7,190,826 1,662,535 2,698,724
General and administrative expenses 5,207,061 3,022,427 1,850,681 1,029,844
Non-cash general and administrative expenses 16,065 16,065 5,355 5,355
------------ ------------- -------------- ------------
Net income (loss) from operations 3,379,119 4,152,334 (193,501) 1,663,525
Interest expense 2,712,506 2,301,523 914,424 868,257
Non-cash interest expense 936,144 936,144 312,048 322,647
Other expense (income), net (59,313) (601,308) (17,227) (149,872)
------------ ------------- -------------- ------------
Income (loss) before income tax expense and
cumulative effect of change in accounting method (210,218) 1,515,975 (1,402,746) 622,493
Income tax expense 58,353 0 39,273 0
------------ ------------- -------------- ------------
Income (loss) before cumulative effect of change
in accounting method (268,571) 1,515,975 (1,442,019) 622,493
Cumulative effect of change in accounting method, net (719,903) 0 0 0
------------ ------------- -------------- ------------
Net income (loss) $ (988,474) $ 1,515,975 $ (1,442,019) $ 622,493
------------ ------------- -------------- ------------
------------ ------------- -------------- ------------
Earnings per common share
Basic
Income (loss) before cumulative effect of change in
accounting method $ (0.08) $ 0.21 $ (0.17) $ 0.08
Cumulative effect of change in accounting method (0.09) 0.00 0.00 0.00
------------ ------------- -------------- ------------
Net income (loss) $ (0.17) $ 0.21 $ (0.17) $ 0.08
------------ ------------- -------------- ------------
------------ ------------- -------------- ------------
Diluted
Income (loss) before cumulative effect of change in
accounting method $ (0.08) $ 0.14 (0.17) $ 0.06
Cumulative effect of change in accounting method (0.09) 0.00 0.00 0.00
------------ ------------- -------------- ------------
Net income (loss) $ (0.17) $ 0.14 $ (0.17) $ 0.06
------------ ------------- -------------- ------------
------------ ------------- -------------- ------------
Weighted average shares issued and outstanding
Basic 8,012,474 7,308,748 8,344,419 7,462,759
------------ ------------- -------------- ------------
------------ ------------- -------------- ------------
Diluted 8,012,474 11,066,733 8,344,419 11,308,766
------------ ------------- -------------- ------------
------------ ------------- -------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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SERACARE, INC.
CONSOLIDATED BALANCE SHEETS
(In whole dollars)
<TABLE>
<CAPTION>
11-30-99 2-28-99
(UNAUDITED) (AUDITED)
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,497,163 $ 843,226
Accounts receivable 14,674,903 13,619,739
Inventory 20,896,520 10,659,226
Prepaid expenses and other current assets 732,343 580,883
------------ -----------
Total Current Assets 37,800,929 25,703,074
------------ -----------
PROPERTY AND EQUIPMENT - NET 6,681,105 4,632,159
FDA LICENSES, less accumulated amortization
of $318,008 and $145,716 8,342,182 7,836,942
DONOR BASE AND RECORDS, less accumulated
amortization of $359,160 and $173,834 4,547,399 4,376,488
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED
TO IDENTIFIABLE ASSETS, less accumulated amortization
of $146,129 and $117,203 625,324 654,250
GOODWILL, less accumulated amortization of $1,203,479
and $770,946 11,304,804 11,798,511
DEFERRED BOND DISCOUNT, less accumulated
amortization of $2,124,343 and $1,234,954 6,202,563 7,091,952
OTHER ASSETS 1,590,452 2,482,886
------------ -----------
TOTAL ASSETS $77,094,758 $64,576,262
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $10,589,346 $ 2,535,050
Accrued payroll and related expenses 854,052 366,475
Accrued expenses 1,271,128 2,219,957
Deferred income 0 397,353
Line of credit 14,162,000 8,840,000
Bridge loans from related parties 123,000 123,000
Notes payable 144,746 297,746
Current portion of long-term debt 1,949,870 1,199,909
------------ -----------
Total current liabilities 29,094,142 15,979,490
------------ -----------
LONG-TERM DEBT 21,700,639 22,895,014
SERIES A REDEEMABLE PREFERRED STOCK, $.001 par value, 25,000,000 shares
authorized; 400 shares issued and outstanding at 2/28/99 0 60,107
STOCKHOLDERS' EQUITY
Series B convertible preferred stock, $.001 par value, 15,000 shares
authorized and outstanding at 2/28/99
Liquidation value $100 per share 0 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,
issued and outstanding - 8,369,418 and 7,644,418 respectively 8,009 7,644
Additional paid-in capital 24,629,055 22,982,605
Retained earnings 1,662,891 2,651,365
------------ -----------
Total stockholders' equity 26,299,977 25,641,651
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $77,094,758 $64,576,262
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
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SERACARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In whole dollars)
(Unaudited)
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<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------------
NOVEMBER 30, NOVEMBER 30,
1999 1998
INCREASE (DECREASE) IN CASH ------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (988,474) $ 1,515,975
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization 1,432,238 1,141,687
Income from joint venture (633,350) (650,168)
Gain on sale of land and buildings 0 (533,547)
Non-cash interest expense 936,144 936,144
Non-cash general and administrative expense 16,065 16,065
(Increase) decrease from changes in:
Accounts receivable (1,055,164) (5,179,945)
Inventory (10,237,294) (3,580,318)
Prepaid expenses and other current assets (151,460) (185,527)
Other assets 1,037,965 (546,962)
Accounts payable 8,054,293 316,064
Accrued payroll and related expenses 487,577 0
Accrued expenses (867,629) 154,463
Deferred income (397,353) (733,825)
------------- ------------
Net cash used in operating activities (2,366,442) (7,329,894)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (978,185) (822,653)
Assets acquired for cash 0 (8,028,744)
Additions to other intangible assets (3,284) (1,827,870)
Distributions from joint venture 425,000 415,000
Additions to FDA licenses (709,016) (22,629)
Additions to donor base and records (378,615) (319,946)
------------- ------------
Net cash used in investing activities (1,644,100) (10,606,842)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances under line of credit 5,322,000 11,837,000
Repayments of long-term debt (924,414) (275,994)
Repayments of notes payable (153,000) (808,500)
Repayments of bridge loans from related parties 0 (1,526,000)
Proceeds from issuance of stock 0 487,500
Proceeds from bridge loans from related parties 0 1,250,000
Payments on redemption of preferred stock (60,107) (112,494)
Borrowings under notes payable 480,000 2,000,000
------------- ------------
Net cash provided by financing activities 4,664,479 12,851,512
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 653,937 (5,085,224)
CASH AND CASH EQUIVALENTS, beginning of period 843,226 5,497,524
------------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,497,163 $ 412,300
------------- ------------
------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
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SERACARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In whole dollars)
(Unaudited)
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<CAPTION>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<S> <C> <C>
(a) Cash paid for:
Interest $2,742,878 $2,301,523
State income taxes $ 58,353 $ 0
</TABLE>
(b) Non-cash transactions
In August, 1999, the Company issued 200,000 shares of common stock in
exchange for two centers, located in Lancaster & Reading, Pennsylvania,
with a fair market value of $1,000,000.
In September, 1999, the Company issued 150,000 shares of common stock in
exchange for two centers, located in Laredo, Texas and Providence, Rhode
Island with a fair market value of $646,800.
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.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
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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, 1999, and the results of their operations for
the three months and nine months ended November 30, 1999 and 1998 and the cash
flows for the nine months ended November 30, 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 and nine months ended November 30,
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 per common share amounts for the three and nine months ended
November 30, 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 three and nine months ended November 30, 1998 have been calculated
by considering common stock options, purchase warrants and convertible debt
instruments which are deemed common stock equivalents in such calculations.
Common stock equivalents have not been included in the calculation of diluted
earnings per share for the three and nine month periods ended November 30, 1999
as the inclusion would be anti-dilutive. For the nine months ended November
30, 1999, Earnings Per Share reflect a deemed preferred dividend relating to
the issuance of price protection shares (See Note 6).
3. CREDIT FACILITY
Effective July 15, 1999 the Company modified its existing senior credit facility
to increase the revolving line of credit from $10 million to $15 million and to
modify the terms of the Revolving Term Notes and the Term Promissory Notes.
Interest on the amended notes accrues at a per annum rate equal to the Wall
Street Journal Prime Rate plus .25% for the Revolving Term Notes (aggregate of
$15,000,000) and at a per annum rate equal to the Wall Street Journal Prime Rate
plus .50% for the Term Promissory Notes (aggregate of $7,000,000). The Company
may also elect to base the interest rate on a LIBOR rate. Additionally, a
covenant was changed relating to the maintenance of the tangible capital base.
As of November 30, 1999, the Company was in violation of various covenants. The
Company is currently in discussions with the lenders regarding a waiver or
restructuring of such covenants.
7
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SeraCare, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. INCOME TAXES
The income taxes provided during the period are for certain franchise taxes. No
Federal taxes on income have been provided due to the utilization of available
loss carryforwards. No deferred taxes have been provided due to the uncertainty
of the utilization of the loss carryforwards.
8
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SeraCare, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. 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 $720,000 (net of $44,600
of tax benefits) 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.
6. CONVERSION OF SERIES B PREFERRED STOCK
In August 1999, the holders of 15,000 shares of Series B convertible
preferred stock elected to convert such shares into 300,000 shares of the
Company's Common stock. In addition, pursuant to certain price protection
terms of the preferred stock agreement, an additional 75,000 shares of common
stock were issued.
9
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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, 1999 AS COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 1998
REVENUE
Total revenue of the Company increased by 22% or $3,035,819 to $16,904,903
during the three-month period. This improvement was primarily the result of
higher revenue relating to the Biologics Division, and to increased revenues
from its distribution operations. The increase in revenues from the Biologics
division is due primarily to the purchase of certain of the operating assets of
Amex Plasma Management, Inc. in October 1998, the timing of certain shipments
that were delayed from the previous quarter and the continued ramp-up of plasma
centers established by the Company during the past two years. Increases in
distribution revenues were primarily due to increased sales of plasma products
to the diagnostic industry.
GROSS PROFIT
Gross profit decreased, as a percentage of sales, to $1,662,535, or 10%, in the
three-month period from 19% of sales during the prior year period. The decreased
margin is primarily due to the increased costs of producing source plasma during
the current year as a result of: the Company's inability to capitalize certain
start-up costs of developing centers; the increased cost of regulatory and FDA
compliance, and; the impact of the conversion of one-third of the Company's
plasma centers in conjunction with the strategic alliance with a new customer.
Also contributing to the reduced margins was significant delays in the
manufacturing of diagnostic products associated with the installation of new
equipment.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in the current quarter increased by $820,837
to $1,856,036, an increase of 79%, due mainly to higher salaries, legal and
professional fees, travel and insurance costs associated with the expanded
operations of the Company. The Company established an administrative office for
its Biologics division and has increased its sales staff at its distribution
operation.
10
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INTEREST EXPENSE
Interest paid increased by $46,167 to $914,424 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 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, net loss for the three months ended November 30, 1999
was ($1,442,019) as compared to a net income of $622,493 for the same prior year
period.
NINE MONTHS ENDED NOVEMBER 30, 1999 AS COMPARED TO NINE MONTHS ENDED
NOVEMBER 30, 1998
REVENUE
Total revenue of the Company increased by 45% or $14,384,993 to $46,351,774
during the nine-month period. This improvement was primarily the result of
higher revenue relating to the Biologics Division and to increased revenues from
its distribution operations. The increase in revenues from the Biologics
division is due primarily to the acquisition of American Plasma, Inc. in July,
1998 (11 collection centers), the purchase of 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. Increases
in distribution revenues were primarily due to increased sales of plasma
products to the diagnostic industry.
GROSS PROFIT
Gross profit decreased, as a percentage of sales, to $8,602,245, or 18.6%, in
the nine-month period from 22% of sales during the prior year period. The
decreased margin is primarily due to the increased costs of producing source
plasma during the current year as a result of: the Company's inability to
capitalize certain start-up costs of developing centers; the increased cost of
regulatory and FDA compliance, and; the impact of the conversion of one-third of
the Company's plasma centers in conjunction with the strategic alliance with a
new customer. Also contributing to the reduced margins was significant delays in
the manufacturing of diagnostic products associated with the installation of new
equipment.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in current period increased by $2,184,634 to
$5,223,126, an increase of 72% due mainly to higher salaries, legal and
professional fees, travel and insurance costs associated with the expanded
operations of the Company.
INTEREST EXPENSE
Interest paid increased by $410,938 to $2,712,506 due primarily to the increased
debt required to finance acquisitions and the increased working capital needs of
the Company. 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.
11
<PAGE>
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING METHOD
As a result of the above, loss before the cumulative effect of a change in
accounting method for the nine months ended November 30, 1999 was ($268,571) as
compared to an income of $1,515,975 for the same prior year period.
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, there was a net loss for the nine months ended
November 30, 1999 of ($988,474) compared to a net income of $1,515,975 for the
same prior year period.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 1999 the Company's current assets exceeded current
liabilities by $8,706,787. 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. in
July 1998 and the purchase of certain of the operating assets of Amex Plasma
Management, Inc. in October 1998, the continuing ramp-up of the newly
established centers and the newly established strategic alliance with Centeon
Bio-Services, Inc. represent substantial progress toward becoming a
significant company within the plasma products industry. While the increased
costs related to FDA and regulatory compliance have had a significant impact
on profitability during the current year periods, demand for plasma and
plasma based products continues to be strong and the Company expects pricing
for plasma to improve. Additionally, the conversion of the plasma centers has
been completed and the manufacturing equipment has been installed
Net cash used in operating activities during the nine-month period ended
November 30, 1999 was $2,366,442 compared to $7,329,894 during the same prior
year period. The decrease in cash used, as compared to the prior year period,
was primarily due to an increase in accounts payable and a decrease in other
assets partially offset by an increase in inventory. The increase in
inventory is the result of various factors including: the start up of a
specialty plasma collection program during the current year; the timing of
shipments to customers from the distribution operation; the back log of
partially manufactured products resulting from delays in the installation of
equipment at Consolidated Technologies, and; the timing of shipments to the
company's primary customer, Groupo Grifols S.A.
Cash flows used in investing activities for the nine months ended November
30, 1999 was $1,644,100 compared to $10,606,842 for the comparable prior year
period. During the prior year, capital applications were made primarily for
the acquisition of American Plasma, Inc. and investments were also made in
establishing several new plasma collection centers.
Cash flows provided by financing activities was $4,664,479 for the current year
period compared to $12,851,512 for the comparable prior year period. This
decrease was mostly due to advances in the prior
12
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year under the new revolving line of credit, which was used in part to
finance the acquisition of American Plasma, Inc. and partially to provide
working capital for the newly acquired and start-up operations.
The Company has been impacted by a trend toward increased scrutiny and
regulatory enforcement activities by the Food and Drug Administration (FDA),
which has been directed towards the plasma collection industry. The Company
has responded by increasing its internal quality control enforcement
oversight personnel and believes that its standards are among the finest in
the industry, however, the increased staffing has resulted in permanent cost
increases in its operations. Such increases may be passed on to customers in
the form of higher prices in the future, however, there can be no assurance
that such price increases will be possible or that further cost increases may
become necessary in the future. The Company also has experienced fluctuations
in short-term earnings and cash flow that have resulted from the timing of
shipments. The increase in the revolving line of credit has been effected in
response to these fluctuations in cash flow from operations.
Management believes that internally generated cash flow combined with the $15
million revolving line of credit will be sufficient to meet the Company's
working capital requirements for the balance of fiscal 2000. 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 public offering. As of November 30, 1999, the
Company was in violation of various covenants relating to its senior credit
facility of $22 million. The Company is currently in discussions with the
lenders regarding a waiver or restructuring of such covenants. In addition,
the Company is currently evaluating various alternatives for restructuring
its current debt position.
13
<PAGE>
PART II OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of November 30, 1999, the Company was in violation of various
covenants relating to its senior credit facility of $22 million. The Company
is currently in discussions with the lenders regarding a waiver or
restructuring of such covenants.
14
<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 12, 2000 By: /s/ Barry D. Plost
-------------------------------------
Barry D. Plost, President & CEO
By: /s/ Jerry L. Burdick
-------------------------------------
Jerry L. Burdick
Acting Principal Accounting and
Finance Officer
15
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