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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 -Q
(X) QUARTERLY REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 2000
-----------------
( ) 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 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
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(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 January 5, 2001, the issuer had 9,619,943 shares of its common stock,
$.001 par value issued and outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED FINANCIAL STATEMENTS ARE PROVIDED AS FOLLOWS:
<TABLE>
<CAPTION>
PAGE
NUMBER
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<S> <C>
Consolidated Statements of Operations - (Unaudited)
For the three and nine months ended November 30, 2000 and
For the three and nine months ended November 30, 1999 3
Consolidated Balance Sheets -
as of November 30, 2000 (Unaudited) and
as of February 29, 2000 (Audited) 4
Consolidated Statements of Cash Flows - (Unaudited)
For the nine months ended November 30, 2000 and
For the nine months ended November 30, 1999 5
Notes to Consolidated Financial Statements 6
</TABLE>
2
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SeraCare, Inc.
CONSOLIDATED STATEMENT 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
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 49,062,586 $ 45,718,424 $ 17,304,470 $ 16,776,893
Income from joint venture 0 633,350 0 128,010
------------ ------------ ------------ ------------
TOTAL 49,062,586 46,351,774 17,304,470 16,904,903
COST OF SALES 39,594,286 37,749,529 14,018,447 15,242,368
------------ ------------ ------------ ------------
GROSS PROFIT 9,468,300 8,602,245 3,286,023 1,662,535
General and administrative expenses 4,966,212 5,223,126 1,623,122 1,856,036
------------ ------------ ------------ ------------
NET INCOME (LOSS) FROM OPERATIONS 4,502,088 3,379,119 1,662,901 (193,501)
Interest expense (including $808,692, $936,144, $262,664
and $312,048 of noncash interest expense) 3,072,758 3,648,650 1,028,540 1,226,472
Other income, net (36,225) (59,313) (8,536) (17,227)
------------ ------------ ------------ ------------
INCOME(LOSS) BEFORE INCOME TAX EXPENSE AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD 1,465,555 (210,218) 642,897 (1,402,746)
Income tax expense 162,066 58,353 79,427 39,273
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING METHOD 1,303,489 (268,571) 563,470 (1,442,019)
Cumulative effect of change in accounting method, net 0 (719,903) 0 0
------------ ------------ ------------ ------------
NET INCOME(LOSS) $ 1,303,489 $ (988,474) $ 563,470 $ (1,442,019)
============ ============ ============ ============
Preferred shareholder dividends 168,750 168,750 56,250 56,250
------------ ------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS 1,134,739 (1,157,224) 507,220 (1,498,269)
============ ============ ============ ============
EARNINGS PER COMMON SHARE
BASIC
Income before cumulative effect of change in
accounting method $ 0.13 $ (0.05) $ 0.06 $ (0.17)
Cumulative effect of change in accounting method 0.00 (0.09) 0.00 0.00
------------ ------------ ------------ ------------
Net income $ 0.13 $ (0.14) $ 0.06 $ (0.17)
============ ============ ============ ============
DILUTED
Income before cumulative effect of change in
accounting method $ 0.10 $ (0.05) $ 0.04 $ (0.17)
Cumulative effect of change in accounting method 0.00 (0.09) 0.00 0.00
------------ ------------ ------------ ------------
Net income $ 0.10 $ (0.14) $ 0.04 $ (0.17)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES ISSUED AND OUTSTANDING
Basic 8,625,194 8,012,474 8,899,865 8,344,419
============ ============ ============ ============
Diluted 11,776,797 8,012,474 12,099,114 8,344,419
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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<TABLE>
<CAPTION>
SeraCare, Inc.
CONSOLIDATED BALANCE SHEET
As of November 30, 2000 11-30-00 2-29-00
(In whole dollars) (Unaudited) (Audited)
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 652,603 $ 1,285,668
Cash held in escrow 1,675,000 5,406,515
Accounts receivable 12,142,831 11,963,823
Inventory 21,859,128 17,283,525
Prepaid expenses and other current assets 737,935 634,668
----------- -----------
Total Current Assets 37,067,497 36,574,199
----------- -----------
PROPERTY AND EQUIPMENT - NET 7,244,475 6,856,167
FDA LICENSES, less accumulated amortization
of $531,836 and $372,015 8,958,909 8,110,229
DONOR BASE AND RECORDS, less accumulated
amortization of $610,124 and $414,496 5,152,884 4,684,367
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED
TO IDENTIFIABLE ASSETS, less accumulated amortization
of $184,697 and $155,771 586,756 615,682
GOODWILL, less accumulated amortization of $1,009,369
and $716,662 6,333,782 6,626,489
DEFERRED BOND DISCOUNT, less accumulated
amortization of $2,545,125 and $1,807,235 4,181,377 4,919,268
OTHER ASSETS 1,365,649 1,192,514
----------- -----------
TOTAL ASSETS $70,891,329 $69,578,915
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $15,775,720 $13,184,000
Accounts payable 6,132,678 10,494,088
Accrued payroll and related expenses 536,937 484,281
Accrued expenses 2,295,459 3,487,405
Deferred income 233,059 278,429
Notes payable 1,117,814 288,447
Bridge loans from related parties 340,000 0
Current portion of long-term debt 197,687 231,151
----------- -----------
Total current liabilities 26,629,354 28,447,801
----------- -----------
LONG-TERM DEBT 12,951,483 13,087,563
----------- -----------
STOCKHOLDERS' EQUITY
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
9,378,643 and 8,519,418 issued and outstanding 9,378 8,519
Additional paid-in capital 28,355,656 26,224,316
Retained earnings 2,945,436 1,810,694
----------- -----------
Total stockholders' equity 31,310,492 28,043,551
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $70,891,329 $69,578,915
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
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<TABLE>
<CAPTION>
SeraCare, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In whole dollars)
(Unaudited) For the Nine Months Ended
----------------------------
November 30 November 30
INCREASE (DECREASE) IN CASH 2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,303,489 $ (988,474)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization 1,442,051 1,432,238
Income from joint venture 0 (633,350)
Non-cash interest expense 808,692 936,144
Non-cash general and administrative expense 16,065 16,065
(Increase) decrease from changes in:
Accounts receivable (179,008) (1,055,164)
Inventory (4,575,603) (10,237,294)
Prepaid expenses and other current assets (103,267) (151,460)
Other assets (260,001) 1,037,965
Accounts payable (4,361,411) 8,054,293
Accrued payroll and related expenses 52,656 487,577
Accrued expenses (1,191,946) (867,629)
Deferred income (45,370) (397,353)
------------ ------------
Net cash used in operating activities (7,093,653) (2,366,442)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Funds released from escrow 3,731,515 0
Purchases of property and equipment (865,277) (978,185)
Cash paid for six plasma collection centers (200,000) 0
Distributions from unconsolidated subsidiary 0 425,000
Additions to FDA licenses (70,065) (709,016)
Additions to other intangible assets 0 (3,284)
Additions to donor base and records (158,831) (378,615)
------------ ------------
Net cash provided by (used in) investing activities 2,437,342 (1,644,100)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances under line of credit 2,591,720 5,322,000
Proceeds from issuance of common stock under private placement 1,600,002 0
Repayments of long-term debt (169,544) (924,414)
Repayments of notes payable (458,633) (153,000)
Payments on redemption of preferred stock 0 (60,107)
Borrowings under notes payable 340,000 480,000
Cash received from exercise of warrants 288,447 0
Preferred dividend (168,746) 0
------------ ------------
Net cash provided by financing activities 4,023,246 4,664,479
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (633,065) 653,937
CASH AND CASH EQUIVALENTS, beginning of period 1,285,668 843,226
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 652,603 $ 1,497,163
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(a) Cash paid for:
Interest $ 2,149,266 $ 2,742,878
State income taxes $ 89,233 $ 58,353
</TABLE>
(b)In October 2000 the company acquired 6 plasma collection centers in exchange
for $200,000 in cash, $1,000,000 of notes payable and 75,000 shares of commom
stock valued at $243,750. The acquisition resulted in a $938,436 increase in FDA
licenses and a $505,314 increase in Donor base and records.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
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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, 2000, and the results of their operations and
cash flows for the three months and nine months ended November 30, 2000 and
1999. 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 29, 2000.
The results of operations for the three and nine months ended November 30, 2000
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-Q. 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 29,
2000.
2. EARNINGS PER SHARE
Basic earnings per common share amounts for the three and nine months ended
November 30, 2000 and 1999 have been calculated based upon the weighted average
number of shares actually outstanding during the period. Diluted earnings per
share for the same current year periods have been calculated by considering
common stock options, purchase warrants and convertible debt instruments which
are deemed common stock equivalents in such calculations. Diluted earnings for
the prior year periods have been calculated excluding the effect of potentially
dilutive securities as their inclusion would be antidilutive.
3. INCOME TAXES
The difference between the reported tax provision and the statutory rate applied
to the pre-tax income for the three months and nine months ended November 30,
2000 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
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SeraCare, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. 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.
As of May 31, 1999, the Company wrote off $719,903 (net of $44,600 of tax
benefit) of startup costs that had been previously capitalized and included in
other assets. In accordance with SOP 98-5, the write-off of such costs was
reported as a cumulative effect of a change in accounting method.
5. CASH IN ESCROW
In conjunction with the sale of CTI's operating assets in February 2000,
$1,675,000 remains in escrow and is being held pursuant to an adjustment
provision in the Asset Purchase Agreement.
6. EARNINGS PER SHARE CALCULATION
Earnings per share have been calculated for the current periods by deducting
preferred dividends of $168,750 and $56,250 for the nine month and three month
periods from net income of $1,303,489 and $563,470, respectively, to determine
net income available to common shareholders of $1,134,739 and $507,220.
7. NOTES PAYABLE
In November 2000, the company obtained bridge loans totaling $340,000 from
related parties. These bridge loans bear interest at 10% and are payable on
demand.
In June 2000, the Company repaid $288,447 of notes payable and the note holder
exercised warrants to purchase 144,224 shares of stock at an exercise price of
$2.00 per share.
As of November 30, 2000, the Company was in compliance with all covenants
pertaining to the senior credit facility.
8. ACQUISITION OF CENTERS
During October, 2000, the Company acquired six centers in exchange for $200,000
of cash, $1.0 million of notes payable which are due on October 15, 2001, and
75,000 shares of the Company's common stock valued at the then market value of
$3.25 per share, resulting in a total purchase price of $1,443,750.
9. SHAREHOLDERS' EQUITY
During the quarter ended November 30, 2000, the Company received $1,600,002 from
the issuance of 640,001 shares of common stock, at $2.50 per share, under a
private placement. An additional 240,000 shares were issued in December 2000 as
part of this private placement.
7
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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, 2000 AS COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 1999
REVENUE
Total revenue of the Company increased by 2.4% or $399,567 to $17,304,470 during
the three-month period. This was primarily the result of a higher volume of
plasma shipments to customers by the Therapeutic operations, which improved
revenue by $2,123,892 during the current year period. Partially offsetting these
improvements was the sale of Consolidated Technologies in February 2000, which
generated revenue of $1,357,115 during the prior year period. Plasma collections
were up by 32% to about 160,000 liters during the current year three-month
period. Diagnostic revenue was relatively constant for both three month periods
presented.
GROSS PROFIT
Gross profit increased by $1,623,488 or 98% in the three-month period to
$3,286,023. The increase was primarily the result of a $1,695,943 improvement
due to the higher sales generated by the Company's Therapeutic operations. An
increase of $373,597 by the Company's ongoing Diagnostic operations was offset
by the sale of Consolidated Technologies, which contributed $367,530 in the
prior year period. The increased revenues relating to the Therapeutic operations
discussed above were partially offset by the continuing high cost associated
with compliance with FDA and other regulatory requirements and increased direct
costs of the increased volume, but the Company also benefited from the
allocation of fixed costs over the increased volume of plasma collected. The
profit margin for the current year period was 19% compared to 9.8% for the prior
year period.
8
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in the current quarter decreased by $232,914
to $1,623,122, a decrease of 12.5%, due mainly to the sale of Consolidated
Technologies in February 2000, which reported expenses of $271,785 during the
prior year period. Expenses were up in the Diagnostic operations as a result of
a restructuring of sales and marketing.
INTEREST EXPENSE
During the current year period, interest expense, including non-cash interest,
decreased by $197,932 to $1,028,540 due primarily to the pay-down of long-term
debt with the proceeds from the sale of Consolidated Technologies in February,
2000, and the write-off of the related deferred bond discount costs.
NET INCOME (LOSS) BEFORE TAX EXPENSE AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING METHOD
As a result of the above, income before income tax expense and the cumulative
effect of a change in accounting method for the three months ended November 30,
2000 was $642,897 as compared to a net loss of $1,402,746 for the same prior
year period.
INCOME TAXES
No federal taxes were paid or accrued during either three-month period due to
the availability of various loss carryforwards and deferred tax credits. The
taxes reflected are for the various state income taxes paid.
NET INCOME (LOSS)
As a result of the above, net income for the three months ended November 30,
2000 was $563,470 as compared to a net loss of $1,442,019 for the same prior
year period.
NINE MONTHS ENDED NOVEMBER 30, 2000 AS COMPARED TO NINE MONTHS ENDED
NOVEMBER 30, 1999
REVENUE
Total revenue of the Company increased by 5.8% or $2,710,812 to $49,062,586
during the nine-month period. This improvement was the result of a higher volume
of plasma shipments to customers by the Therapeutic operations, which improved
revenue by $3,713,092 and a $3,917,863 million increase in revenue generated by
the Company's Diagnostic operations, partially offset by the sale of
Consolidated Technologies in February 2000, which generated revenue of about
$4,920,144 million during the prior year period. Plasma collections by the
Therapeutic operations were up by 12% versus the prior year to about 438,000
liters during the nine-month period.
GROSS PROFIT
Gross profit increased by $866,055 or 10% in the nine-month period to
$9,468,300. Increased gross profit of $1,332,570 resulting from the higher
volume of plasma shipments by the Therapeutic operation and an increase of
$1,716,892 by the Company's ongoing Diagnostic operation were mostly offset by
the sale of Consolidated Technologies which contributed $2,054,661 in the prior
year period. The increased revenues relating to the Therapeutic operations
discussed above were partially offset by the continuing high cost associated
with compliance with FDA and other regulatory requirements and increased
payroll, donor fees, softgoods, testing and other operating costs related to the
increase in the volume of plasma collected. The profit margin for the current
year period was 19.3% compared to 18.6% for the prior year period.
9
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in the current nine-month period decreased
by $256,914 to $4,966,212, a decrease of 5%, due mainly to the sale of
Consolidated Technologies in February 2000, which reported expenses of $883,795
during the prior year period. Expenses were up $453,047 in the Therapeutic
operation due to the increased cost of FDA compliance.
INTEREST EXPENSE
During the current year period, interest expense, including non-cash interest,
decreased by $575,892 to $3,072,758 due primarily to the pay-down of long-term
debt with the proceeds from the sale of Consolidated Technologies in February,
2000, and the write-off of the related deferred bond discount costs.
NET INCOME (LOSS) BEFORE TAX EXPENSE AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING METHOD
As a result of the above, income before income tax expense and the cumulative
effect of a change in accounting method for the nine months ended November 30,
2000 was $1,465,555 as compared to a loss of $210,218.
INCOME TAXES
No federal taxes were paid or accrued during either nine-month period due to the
availability of various loss carryforwards and deferred tax credits. The taxes
reflected are for the various state income taxes paid.
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 income for the nine months ended
November 30, 2000 of $1,303,489 compared to a net loss of $988,474 for the same
prior year period.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 2000 the Company's current assets exceeded current
liabilities by $10,438,143 compared to $8,126,398 as of February 29, 2000, which
translates into a current ratio as of November 30, 2000 of 1.4 to 1 compared to
1.3 to 1 as of February 29, 2000. Total liabilities as of November 30, 2000 were
$39,580,837 compared to $41,535,364 as of February 29, 2000. The total debt to
equity ratio as of November 30, 2000 was 1.3 compared to 1.5 as of February 29,
2000. In the opinion of Management, the trends reflected in these ratios and
statistics are very positive and show progress in improving the Company's
financial position.
Net cash used in operating activities during the nine-month period ended
November 30, 2000 was $7,093,653 compared to $2,366,442 during the same prior
year period, due primarily to a significant
10
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reduction in accounts payable and an increase in inventory associated with
delays in the testing process and with the continued ramp-up of the diagnostic
manufacturing operations .
Cash flows provided by investing activities for the nine months ended November
30, 2000 was $2,437,342 compared to a deficit of $1,644,100 for the comparable
prior year period. The current period increase resulted primarily from the
release of funds from escrow related to the sale of CTI.
Cash flow provided by financing activities was $4,023,246 for the current year
period compared to $4,664,479 for the comparable prior period. The current
period decrease was mostly due to fewer advances under the line of credit,
mostly offset by the November $1.6 million private placement of common stock.
The Company continues to focus on growth and optimum positioning for the
expected industry wide shortage of plasma. Consistent with that strategic
objective, SeraCare acquired six plasma collection centers during the quarter
and completed a private placement to provide the necessary working capital for
operation of those centers. The Company's strategy of investing in the future by
developing programs to increase the volume of plasma collected resulted in a
thirty-two percent increase for the current year quarter when compared to the
same prior year quarter. While these programs have resulted in a deferral of
significant profitability and positive cash flows, the Company continues to
believe that the rollover prices for plasma during calendar 2001 will create a
unique opportunity for earnings growth and positive cash flows.
The Company continues to believe that a rapidly evolving shortage of plasma and
steadily increasing demand for most plasma products will result in significant
upward momentum on plasma pricing as the Company renews contracts with it's
customers during the next two to three years. This shortage is mainly the result
of increased fractionation capacity, increased regulation of donor
qualifications, which disqualified many potential donors, and the increased
demand and uses for products obtained from plasma. The Company is also
experiencing rapid growth in demand for its recently established bulk plasma
based products and serums for diagnostic customers and is evaluating
alternatives for expansion of the manufacturing facilities.
Management believes that internally generated cash flow will be sufficient to
meet the ongoing working capital requirements for the upcoming year, but is
currently in negotiations with various lenders for expansion of the Company's
line of credit. Management believes that such an expansion will be necessary to
support it's growing operations including: the expanded volumes of plasma being
collected, the expansion of manufacturing operations for bulk diagnostic
products and the restructured distribution operations. In addition, any
strategic acquisitions may need to be funded externally by some combination of
bridge financing, private placement(s), and/or other capital infusion.
As of November 30, 2000, the Company was in compliance with all covenants
pertaining to the senior credit facility.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
During the nine months ended November 30, 2000, the Company received one warning
letter (none were received in the quarter just ended) 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 letter 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.
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<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 11, 2001 By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, President & CEO
By: /s/ Jerry L. Burdick
------------------------------------
Jerry L. Burdick
Principal Accounting and
Finance Officer
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