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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2000, or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to __________________
Commission file number 000-21615
------------
BOSTON BIOMEDICA, INC.
(Exact name of Registrant as Specified in its Charter)
Massachusetts 04-2652826
------------------------ ----------------------
(State or other (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
375 West Street,
West Bridgewater,
Massachusetts 02379-1040
------------------------ ----------------------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code (508) 580-1900
--------------
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's only class of common
stock as of October 31, 2000 was 5,647,097.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUE:
<S> <C> <C> <C> <C>
Products ......................................... $ 2,643,965 $ 3,649,818 $ 8,780,907 $ 10,597,343
Services ......................................... 3,857,180 3,830,124 12,304,959 10,866,421
------------ ------------ ------------ ------------
Total revenue .............................. 6,501,145 7,479,942 21,085,866 21,463,764
COSTS AND EXPENSES:
Cost of product sales ............................ 1,552,374 1,780,760 4,570,407 5,411,944
Cost of services ................................. 2,868,835 2,794,385 9,390,866 7,906,037
Research and development ......................... 717,934 891,145 2,210,788 2,382,206
Selling and marketing ............................ 936,329 1,021,324 2,889,042 3,129,141
General and administrative ....................... 1,621,182 1,291,832 4,368,673 3,503,497
Impairment of intangible asset ................... 1,464,220 -- 1,464,220 --
------------ ------------ ------------ ------------
Total operating costs and expenses ......... 9,160,874 7,779,446 24,893,996 22,332,825
Loss from operations ....................... (2,659,729) (299,504) (3,808,130) (869,061)
Interest income ..................................... 8,675 2,941 9,097 3,796
Interest expense .................................... (389,582) (118,143) (794,442) (294,891)
------------ ------------ ------------ ------------
Loss before income taxes ................... (3,040,636) (414,706) (4,593,475) (1,160,156)
Income taxes (expense) benefit ...................... (1,725,347) 157,588 (1,135,267) 440,860
------------ ------------ ------------ ------------
Net loss ................................... $ (4,765,983) $ (257,118) $ (5,728,742) $ (719,296)
============ ============ ============ ============
Net loss per share, basic and diluted ..... $ (0.85) $ (0.05) $ (1.02) $ (0.15)
Number of shares used to calculate net loss per share
Basic and diluted ......................... 5,623,803 4,769,003 5,617,661 4,669,217
</TABLE>
The accompanying notes are an integral part of the Consolidated
Financial Statements
Page - 2
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
September 30, December 31,
2000 1999
------------ ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents .................................... $ 2,525,402 $ 314,923
Accounts receivable, less allowances of $848,655 in 2000 and
$746,797 in 1999 .......................................... 5,377,337 6,446,318
Inventories .................................................. 7,273,526 6,917,916
Prepaid expenses and other current assets .................... 372,883 344,353
Deferred income taxes ........................................ -- 934,790
------------ ------------
Total current assets ............................. 15,549,148 14,958,300
------------ ------------
Property and equipment, net ...................................... 8,203,128 8,295,024
OTHER ASSETS:
Goodwill and other intangibles, net .......................... 966,058 2,589,310
Deferred income taxes ........................................ -- 220,535
Notes receivable and other ................................... 364,048 99,171
------------ ------------
1,330,106 2,909,016
------------ ------------
TOTAL ASSETS ....................................... $ 25,082,382 $ 26,162,340
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 2,051,983 $ 2,552,268
Accrued compensation ......................................... 1,340,134 1,189,140
Other accrued expenses ....................................... 1,089,507 1,141,154
Current maturities of long-term debt ......................... 5,826,321 22,414
Deferred revenue and other current liabilities ............... 79,985 --
------------ ------------
Total current liabilities ........................ 10,387,930 4,904,976
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities ...................... 2,523,511 7,145,651
Convertible debentures, net .................................. 2,562,950 --
Deferred rent and other liabilities .......................... 337,779 465,590
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000 shares authorized in
2000 and 1999; 5,646,659 issued and outstanding in 2000 and
4,773,365 in 1999 ......................................... 56,467 47,734
Additional paid-in capital ................................... 20,389,973 16,809,242
Receivable for exercised warrants ............................ (2,236,633) --
Accumulated deficit .......................................... (8,939,595) (3,210,853)
------------ ------------
Total stockholders' equity ....................... 9,270,212 13,646,123
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ............ $ 25,082,382 $ 26,162,340
============ ============
</TABLE>
The accompanying notes are an integral part of the Consolidated
Financial Statements
Page - 3
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the Nine Months Ended
September 30,
--------------------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES: ----------- -------------
<S> <C> <C>
Net loss ................................................. $(5,728,742) $ (719,296)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ............................ 1,402,509 1,126,511
Non-cash interest expense on convertible debentures ...... 153,359 --
Impairment of intangible assets .......................... 1,464,220 --
Provision for doubtful accounts .......................... 105,074 171,103
Other liabilities ........................................ 63,408 (279,504)
Deferred income tax valuation allowance .................. 1,155,325 (100,711)
Loss on disposal of property and equipment ............... 4,722 --
Changes in operating assets and liabilities:
Accounts receivable .................................... 963,907 321,225
Inventories ............................................ (355,610) (231,708)
Prepaid expenses and other current assets .............. (28,530) (324,644)
Accounts payable ....................................... (500,285) (108,924)
Accrued compensation and other expenses ................ 99,347 121,664
Deferred revenue ....................................... 4,808 (660,877)
----------- -----------
Net cash used in operating activities .............. (1,196,488) (685,161)
----------- -----------
CASH FLOWS FOR INVESTING ACTIVITIES:
Payments for additions to property and equipment ......... (1,147,110) (1,643,779)
Change in deposits and other assets ...................... (18,424) 11,992
----------- -----------
Net cash used in investing activities .............. (1,165,534) (1,631,787)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage, net .............................. 2,446,573 --
Proceeds from issuance of convertible debentures, net .... 2,544,350 --
Proceeds from issuance of warrants ....................... 326,643
Proceeds from issuance of common stock ................... 674,922 224,488
(Repayments) Borrowings on line of credit ................ (1,383,016) 2,191,836
Repayments of long-term debt ............................. (36,971) (11,533)
----------- -----------
Net cash provided by financing activities .......... 4,572,501 2,404,791
----------- -----------
INCREASE IN CASH: .......................................... 2,210,479 87,843
Cash and cash equivalents, beginning of period ........... 314,923 146,978
----------- -----------
Cash and cash equivalents, end of period ................. $ 2,525,402 $ 234,821
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Consolidated
Financial Statements
Page - 4
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
-----------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three and nine months
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. For further information,
refer to the consolidated financial statements and footnotes thereto included in
both the Form 10-K filing for the fiscal year ended December 31, 1999 and the
Form 10-Q filings for both the three months and six months ended March 31, 2000
and June 30, 2000, respectively, for Boston Biomedica, Inc. and Subsidiaries
("the Company" or "Boston Biomedica"). Certain prior year amounts in the
consolidated financial statements have been reclassified to conform to the
current year's presentation.
(2) Use of Estimates
------------------------
In conformity with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, and expenses for the periods presented. Such
estimates include reserves for uncollectable accounts receivable as well as the
net realizable value of inventories. Actual results could differ from the
estimates and assumptions used by management.
(3) Inventories
-------------------
Inventories consist of the following:
<TABLE>
September 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Raw materials ................ $3,562,920 $2,675,735
Work-in-process .............. 1,382,328 1,845,778
Finished goods ............... 2,328,278 2,396,403
---------- ----------
$7,273,526 $6,917,916
========== ==========
</TABLE>
(4) Segment Reporting and Related Information
---------------------------------------------
The Company has five operating segments. The Diagnostics segment serves the
worldwide in vitro diagnostics industry, including users and regulators of their
test kits, with quality control products and test kit components. The Biotech
segment pursues third party contracts, primarily with agencies of the United
States Government, to help fund the development of products and services for the
other segments. The Clinical Laboratory Services segment performs specialty
infectious disease testing for hospitals, blood banks, doctors and other
clinical laboratories, primarily in North America. The Laboratory
Instrumentation segment sells laboratory instruments primarily to the worldwide
in vitro diagnostics industry on an OEM basis, and also performs in-house
instrument servicing. Finally, the "Other" segment's two R&D operations do not
currently have any product or service revenue, and none is expected in the near
future. Their revenue to date consists of both private and public (NIH) funding
of segment research. Most of the expenditures by this segment are for R&D
expenses, and general management expenses including patent costs. The Company
continues to seek funding from both private and public sources to minimize the
impact of their development costs on the Company's overall operating results.
Page - 5
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(4) Segment Reporting and Related Information - continued
---------------------------------------------------------
Operating segment information is as follows (in thousands):
<TABLE>
Segment revenue: Three Months Nine Months
---------------- Ended Sept. 30, Ended Sept. 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Diagnostics ....................... $ 2,593 $ 3,166 $ 8,102 $ 8,696
Biotech ........................... 1,719 1,504 5,779 4,320
Clinical Laboratory Services ...... 2,001 2,677 6,613 7,346
Laboratory Instrumentation ........ 460 611 1,717 2,537
Other ............................. 153 80 421 163
Eliminations ...................... (425) (558) (1,546) (1,598)
-------- -------- -------- --------
Total revenue .................. $ 6,501 $ 7,480 $ 21,086 $ 21,464
======== ======== ======== ========
Segment operating income (loss): Three Months Nine Months
-------------------------------- Ended Sept. 30, Ended Sept. 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Diagnostics ....................... $ 246 $ 793 $ 1,079 $ 1,831
Biotech ........................... (151) (192) (167) (357)
Clinical Laboratory Services ...... (150) 102 (344) 237
Laboratory Instrumentation ........ (1,991) (420) (2,581) (921)
Other ............................. (614) (583) (1,795) (1,659)
-------- -------- -------- --------
Total loss from operations ..... $ (2,660) $ (300) $ (3,808) $ (869)
======== ======== ======== ========
Identifiable segment assets: September 30, December 31,
---------------------------- 2000 1999
------------- -------------
<S> <C> <C>
Diagnostics ....................... $ 11,489 $ 12,170
Biotech ........................... 4,772 4,643
Clinical Laboratory Services ...... 2,795 3,188
Laboratory Instrumentation ........ 1,976 3,789
Corporate ......................... 3,034 1,205
Other ............................. 1,016 1,167
------------- -------------
Total assets ................... $ 25,082 $ 26,162
============= =============
</TABLE>
Page - 6
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5) Recent Accounting Standards
--------------------------------
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 to certain issues including: the
definition of an employee for purposes of applying APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence of various modifications to the terms of previously
fixed stock options or awards; and the accounting for the exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions in FIN 44 are applicable retroactively to specific
events occurring after either December 15, 1998 or January 12, 2000. The
adoption of FIN 44 did not have a material impact on the Company's financial
position or results of operations for the quarter ended September 30, 2000.
In December 1999, the Staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). This SAB summarizes certain of the Staff's views in
applying generally accepted accounting principles, in the United States, to
revenue recognition in financial statements. SAB 101B amends SAB 101;
accordingly, this bulletin is now scheduled to become effective for the
Company's fourth quarter ended December 31, 2000. The Company is currently
assessing the impact that SAB 101B may have on its financial statements.
(6) Computation of Net Loss per Share
--------------------------------------
Basic loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding. Diluted loss per share is computed
by dividing net loss by the weighted average number of common shares outstanding
plus additional common shares that would have been outstanding if dilutive
potential common shares had been issued. For the purposes of this calculation,
stock options are considered common stock equivalents in periods in which they
have a dilutive effect. Stock options that are antidilutive are excluded from
the calculation. Potentially dilutive securities of 155,153 and 145,037, and
376,965 and 79,165 were not included in the computation of diluted loss per
share because to do so would have reduced the loss per share for the three and
nine months ended September 30, 2000 and 1999, respectively.
(7) Stock Purchase Warrants / Contingencies
--------------------------------------------
On February 17, 2000, the Company received notice that Paradigm Group, LLC
exercised 500,000 warrants. This exercise will result in proceeds to the Company
of approximately $2,100,000, net of transaction costs. The holders of the
warrants are required to pay the exercise price when the registration of the
underlying shares is effective. The Company recorded a receivable as a contra
equity account to reflect the shares as outstanding, as of the exercise date.
The Company considers these shares to be issued and outstanding, although the
shares have not been delivered to the warrant holders as of early November 2000,
and will not be delivered until the registration statement is declared effective
and the shares have been paid for. Additionally, the Company accrued a broker
fee related to the warrant exercise which is payable upon receipt of the
exercise proceeds. This broker fee of $133,500 was recorded as an offset to
additional paid-in capital.
On August 18, 2000, the Company received a summons and complaint from
Paradigm Group, LLC naming the Company as a defendant. Paradigm Group, LLC is a
selling shareholder in the Company's registration statement of the on Form S-3
which has been filed with the Securities and Exchange Commission but which has
not yet been declaired effective. The suit, filed in the Circuit Court of Cook
County, Illinois, alleges breach of contract claims and fraud against the
Company in connection with the sale by the Company to the Paradigm Group, LLC of
warrants to purchase up to 500,000 shares of the Company's common stock, the
exercise of those warrants by Paradigm Group, LLC and a delay in the
registration of those shares with the U. S. Securities and Exchange Commission.
Paradigm Group, LLC seeks several remedies, including $3,000,000 in damages or
unspecified monetary damages, return of the $42,500 purchase price for the
warrants and rescission of its exercise of the warrants, and unspecified
punitive damages. The Company believes this complaint to be without merit and
intends to vigorously defend this matter and collect the proceeds due to the
Company.
Page - 7
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(8) Debt
---------
The September 30, 2000 balance sheet reflects the classification of the
Company's outstanding line-of-credit balance as short-term debt. The Company
reclassified the debt because in the first, second and third quarters of 2000,
it violated a financial covenant limiting the amount of allowable losses. There
have been no payment defaults. In the meantime, there have been no changes in
the financial terms or availability formula under the existing line-of-credit
agreement.
On August 25, 2000, the Company entered into Securities Purchase Agreements
providing for the issuance of $3,250,000 (face value) 3% Senior Subordinated
Convertible Debentures due August 25, 2003, (the "Debentures"). Proceeds to the
Company, net of a 5% original issue discount and debt issuance costs, amounted
to $2,870,993, of which $327,000 has been allocated to the relative fair value
of the associated common stock purchase warrants. The Debentures are convertible
into the Company's common stock commencing November 24, 2000, at a conversion
price equal to the lesser of (i) $3.36 per share or (ii) 90% of the average of
the five lowest volume weighted average sales prices of Common Stock as reported
by Bloomberg L.P. during the twenty-five business days immediately preceding the
date on which the Debenture holders notify the Company of their intention to
convert all or part of the Debenture into Common Stock. In connection with this
transaction, the Company also issued warrants to purchase up to 135,556 shares
of the Company's common stock at an exercise price of $3.60 per share.
Interest on the Debentures is payable quarterly in arrears commencing
September 30, 2000. The Debentures are subordinate to both the Company's line of
credit and mortgage on its West Bridgewater, MA facility. The Company will use
the proceeds from the aforementioned transactions for completion of its West
Bridgewater, MA manufacturing facility and for general corporate and working
capital purposes.
The Company may elect at any time to redeem all or any portion of the
remaining unpaid principal amount of the Debentures for cash. In addition, upon
receipt of a notice of conversion from a holder of the Debentures, the Company
may elect to redeem that portion being converted for cash in lieu of common
stock of the Company. In both cases, the redemption price equals the number of
shares of common stock into which the Debenture being redeemed is convertible,
times the average closing bid price of the Company's common stock for the five
preceding trading days.
The Securities Purchase Agreements and related documents place certain
restrictions on the Company's ability to incur additional indebtedness, to make
certain payments, investments, loans, guarantees and/or transactions with
affiliates, to sell or otherwise dispose of a substantial portion of assets,
and/or to merge or consolidate with an unaffiliated entity.
Original issue discount and associated debt issuance costs of $162,500 and
$216,500, respectively, are being amortized ratably over the three year life of
the underlying debt as additional interest expense. Also, in accordance with
Emerging Issues Task Force Issue 98-5, proceeds of $351,000 have been allocated
to the beneficial conversion feature of the Debentures by decreasing the value
of the debt and increasing additional paid in capital. The amount allocated to
the beneficial conversion feature will be expensed over the initial 90 day
non-convertible period. The remaining difference between the relative fair value
of the Debentures and the face value of the Debentures (as a result of the
$327,000 of proceeds allocated to the warrants) will be expensed as interest
expense over the three- year term of the Debentures. In the third quarter of
2000, the Company recorded interest expense of $153,000 related to amortization
of the debt discount, the warrants and the beneficial conversion feature of the
Debentures.
Page - 8
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(8) Debt - continued
---------------------
On April 5, 2000, the Company borrowed $2,446,573 (net) under a mortgage
agreement on its West Bridgewater, MA facility. The Company used the funds to
reduce the outstanding balance of its existing line of credit. The principal
amount of the note issued in connection with the mortgage is due on March 31,
2010. During the first five years the note carries an interest rate of 9.75%;
after five years the rate charged will be .75% greater than the Corporate Base
Rate then in effect. Under this mortgage agreement the Company is subject to
certain financial covenants by which a default in its line of credit financial
covenants will cause a default on this note. The Company has received a waiver
from this lending institution regarding the covenant violation. The payments on
this mortgage are based on a 20 year amortization schedule.
(9) Revenue Recognition
------------------------
For further information regarding the Company's revenue recognition
policies, refer to the consolidated financial statements and footnotes thereto
included in both the Form 10-K filing for the fiscal year ended December 31,
1999 and the Form 10-Q filings for both the three months ended March 31, 2000
and the three and six months ended June 30, 2000 for Boston Biomedica, Inc. and
Subsidiaries.
Revenue for service and research and development contracts, in addition to
revenues associated with long-term contracts, is recognized when the customer is
contractually obligated to pay and the fees are not refundable.
(10) Income Taxes
------------------
For further information regarding the Company's income tax accounting
policies, refer to the consolidated financial statements and footnotes thereto
included in both the Form 10-K filing for the fiscal year ended December 31,
1999 and the Form 10-Q filings for both the three months ended March 31, 2000
and the six months ended June 30, 2000 for Boston Biomedica, Inc. and
Subsidiaries.
In the third quarter of 2000 the Company established a full valuation
allowance for its deferred tax assets based on the applicable accounting
standards and in consideration of incurring three consecutive years of losses.
The $1,725,000 includes the write-off of $1,135,000 of deferred tax assets on
the balance sheet at December 31, 1999 and tax benefits of $590,000 recognized
during the first two quarters of 2000. On December 31, 1999 the Company had a
loss carryforward of approximately $2,000,000 for federal and state tax purposes
that was obtained through the acquisition of BioSeq, Inc. This carryforward
expires from 2011 through 2018 for federal purposes and 2001 through 2003 for
state purposes. In addition, the Company has a federal net operating loss
carryforward at December 31, 1999 of approximately $300,000 which expires in
2019. The Company has state net operating loss carryforwards at December 31,
1999 of approximately $2,000,000 which expire at various dates from 2002 through
2019.
Page - 9
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(11) Impairment of Intangible Asset
-------------------------------------
As part of an ongoing strategic review process, the Company's Board of
Directors met in late September to review the progress of its Laboratory
Instrumentation segment, and that segment's prospects for the future. Based on
information presented at this meeting and subsequent analyses showing lower
revenue expectations, management has approved a cost reduction plan including a
headcount reduction, salary freeze, and sublease of excess manufacturing space.
Using the assumptions associated with this revised business plan, the Laboratory
Instrumentation segment's undiscounted future cash flows are now projected to be
less than the carrying value of that segment's goodwill. In accordance with the
provisions of "Statement of Financial Accounting Standards No. 121 - Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," this segment's goodwill was written down by approximately $1,464,000 as of
the end of the third quarter of 2000 to a balance of $254,000.
Page - 10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Three Months Ended September 30, 2000 and 1999
Revenue
-------
Total revenue decreased 13.1%, or $979,000, to $6,501,000 for the three
months ended September 30, 2000 from $7,480,000 in the third quarter of 1999.
This overall decrease was primarily the result of a decrease in product revenue
of 27.6% or $1,006,000, from $3,650,000 to $2,644,000
Product Revenue. The product revenue decrease was attributable to a
$816,000 decrease by the Diagnostics segment and a $194,000 decrease in the
Laboratory Instrumentation segment. The Diagnostics decrease was the result of a
reduced level of sales of its OEM panel products as the consolidation within the
in vitro diagnostic industry has negatively affected demand for these products.
These decreases were partially offset by a 21.7% increase in Accurun sales and a
136.8% increase in Characterized Disease State blood sales driven by continued
strong demand from end users. Laboratory Instrumentation revenue decreased as a
result of a lower level of contract manufacturing due to the timing of an order
from a large customer and another customer experiencing financial difficulty
causing them to place their order on hold.
Service Revenue. The increase of approximately $27,000 in service revenue
was primarily attributable to increases of $243,000 from the Diagnostics
segment, $147,000 from the Biotech segment and $99,000 in the Other segment.
These increases were mostly offset by a $676,000 decrease in revenue from the
Clinical Laboratory Services segment. The Diagnostics increase was due to a
higher level of inactivation and other manufacturing services provided to
customers. The Biotech growth was due to new government contracts for both its
repository and research services. The Other segment's growth was a result of
funding received from both the NIH and the Consortium for Plasma Science, which
partially defrayed the cost of pressure cycling technology development. The
Clinical Laboratory Services' revenue declined as a result of a lower volume of
molecular testing as several customers began performing these tests in-house in
2000.
Gross Profit
------------
Overall gross profit decreased 28.4%, or $825,000, to $2,080,000 for the
three months ended September 30, 2000 from $2,905,000 for the same period in
1999. Product gross profit decreased 41.6%, or $777,000, to $1,092,000 in the
three months ended September 30, 2000 from $1,869,000 for the same period in
1999 and product gross margin decreased to 41.3% in third quarter of 2000, from
51.2% in the same period of 1999. Services gross profit decreased $47,000 to
$988,000 for the three months ended September 30, 2000 from $1,035,000 for the
same period in 1999 and service gross margin declined to 25.6% in third quarter
of 2000, from 27.0% in the same period of 1999.
Product Gross Margin. The decrease in product gross margin was attributable
to a decrease in the gross margin at the Company's Laboratory Instrumentation
segment. This decrease was caused by a low level of sales activity, resulting in
underutilized capacity and excess overhead costs. In addition, the Company has
increased the inventory reserve for this segment by $100,000.
Service Gross Margin. The decrease in service gross margins was primarily
due to the Clinical Laboratory Service segment. The Clinical Laboratory
Services' segment realized service gross margins of 27.6% in third quarter of
2000, versus 34.0% in the same period of 1999. This decrease is due to lower
revenue combined with competitive pricing pressure in the molecular testing. The
Company anticipates that service margins will continue to feel pressure from
increased competition in the clinical testing market and is currently reviewing
operations for cost savings opportunities.
Page - 11
<PAGE>
Research and Development
------------------------
Research and development expenditures decreased 19.4%, or $173,000, to
$718,000 in the third quarter of this year as compared to $891,000 in the same
period last year. Laboratory Instrumentation segment expenditures declined
$119,000 as the PlateMate program was discontinued in September of 1999. In
addition, there was a decline in the Other segment R&D expenditures as a result
of lower occupancy costs for BBI BioSeq from its move from its pre-acquisition
location in Woburn, MA to Gaithersburg, MD, where it shares space with the
Biotech segment. This move has resulted in increased efficiencies for the PCT
effort, lower facility costs, and greater access to both scientific
professionals and laboratory equipment.
Selling and Marketing
---------------------
Selling and marketing expenses decreased by 8.3%, or $85,000, to $936,000
for the three months ended September 30, 2000 from $1,021,000 in the prior year.
This decrease was a result of a slight reduction in promotion costs and
continued vacancy in several key positions at the Diagnostics segment.
General and Administrative
--------------------------
General and administrative costs increased 25.5%, or $329,000, to
$1,621,000 for the three months ended September 30, 2000 from $1,292,000 in the
prior year. This increase was as a result of the corporate reorganization
(announced in July 1999) which added several executive level employees to the
general and administrative financial statement line item of the income statement
coupled with a significant increase in professional consulting services in
connection with the Company's various transactions and regulatory filings during
the quarter. Additionally, $125,000 of the general and administrative personnel
expenses incurred during third quarter of 1999 were capitalized into the ERP
system implementation in accordance with applicable accounting standards. The
Company completed the project in November 1999; therefore, these costs are
expensed as incurred during 2000.
Impairment of Intangible Asset
------------------------------
As part of an ongoing strategic review process, the Company's Board of
Directors met in late September to review the progress of its Laboratory
Instrumentation segment, and that segment's prospects for the future to
determine if any impairment of the segment's goodwill has occurred. Based on
information presented at this meeting and subsequent analyses showing lower
revenue expectations, management has approved a cost reduction plan including a
headcount reduction, salary freeze, and sublease of excess manufacturing space.
Using the lower revenue projections associated with this plan, the Laboratory
Instrumentation segment's undiscounted future cash flows are now projected to be
less than the carrying value of that segment's goodwill. In accordance with the
provisions of "Statement of Financial Accounting Standards No. 121 - Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," this segment's goodwill was written down by approximately $1,464,000 as of
the end of the third quarter of 2000.
Operating Loss
--------------
Consolidated loss from operations increased to $2,660,000 in the third
quarter of 2000 versus a loss of $300,000 in the third quarter of 1999. The
Diagnostics segment's operating income decreased to $246,000 from $793,000 as a
result of the 18.1% revenue decline. The Biotech segment's loss for the quarter
ended September 30, 2000 was $151,000, a $41,000 improvement over the prior year
period on the strength of higher contract revenue. The Clinical Laboratory
Services segment had an operating loss of $150,000 for the third quarter of 2000
versus income of $102,000 for the same period last year due to both lower volume
and competitive pricing pressure resulting in lower gross profit and margin. The
Laboratory Instrumentation segment had an operating loss of $527,000 for the
third quarter of 2000, excluding a partial impairment of the goodwill associated
with its acquisition, versus a loss for the same period last year of $420,000,
due to lower volume of contract manufacturing. At the end of the third quarter
of 2000, management approved a cost reduction plan in the Laboratory
Instrumentation segment including a headcount reduction, salary freeze, and
sublease of excess manufacturing space. The operating loss of the Other segment
increased to $614,000 from $583,000 in the prior year's period due to higher G&A
expenditures related to patents and sale of equity for Panacos. The Company
Page - 12
<PAGE>
continues to invest heavily in the areas of pressure cycling technology and the
drug discovery program, through its subsidiaries BBI BioSeq and Panacos
Pharmaceuticals, respectively. Management anticipates a reduction of the
operating losses of the Other segment in the area of PCT through research and
development alliances, which will supplement the expenditures of the Company.
The Company now expects to relinquish control of Panacos, by the end of the
year, by the sale of more than fifty percent of that company's equity to third
party investors. This will cause a change from consolidation to the cost method
of accounting for Panacos' results.
Interest Expense
----------------
Net interest expense increased from $115,000 in 1999 to $381,000 in 2000.
Throughout the third quarter of 2000, the Company carried a higher average debt
balance and interest rate than in the prior year period. In addition,
amortization of the beneficial conversion feature, warrant costs and debt
discount associated with the Company's August 2000 issuance of $3,250,000
3% senior subordinated convertible debentures contributed an additional $153,000
of interest expense.
Income Taxes
------------
In the third quarter of 2000 the Company established a full valuation
allowance for its deferred tax assets as a result of incurring three consecutive
years of losses. In the third quarter of 1999 the Company recorded a income tax
benefit at a combined rate of 38%.
Net Loss
--------
Net loss increased to $4,766,000 in the third quarter 2000 from $257,000 in
the comparable prior year period as a result of the items discussed above.
Nine Months Ended September 30, 2000 and 1999
Revenue
-------
Total revenue decreased 1.8%, or $378,000, to $21,086,000 for the nine
months ended September 30, 2000 from $21,464,000 in the same period of 1999.
This decrease was the result of a $1,816,000 decrease in product revenue from
$10,597,000 to $8,781,000, partially offset by a $1,439,000 increase in service
revenue from $10,866,000 to $12,305,000.
Product Revenue. The product revenue decrease was attributable to a
$1,069,000 decrease in the Diagnostics segment and a $733,000 decrease in the
Laboratory Instrumentation. The Diagnostics decrease was primarily the result of
a reduced level of sales of its OEM panel products as the consolidation within
the in vitro diagnostic industry has negatively affected demand for these
products coupled with lower than expected sales of Basematrix and Seroconversion
panels. These decreases were partially offset by an increase in Accurun and
Characterized Disease State blood product sales. The Laboratory Instrumentation
segment decreased due to a lower level of contract manufacturing due to the
timing of an order from a large customer and another customer experiencing
financial difficulty causing them to place their order on hold.
Service Revenue. The increase in service revenue was primarily attributable
to increases of $483,000 from the Diagnostics segment, $1,459,000 from the
Biotech segment and $258,000 in the Other segment, partially offset by a
$733,000 decrease in revenue from the Clinical Laboratory Services segment. The
growth in Diagnostics was related to increased service work for IVD
manufacturers including plasma inactivations. The Biotech segments growth was
due to new government contracts for both its repository and research services.
The Other segment's growth was a result of funding received from both the
NIH and the Consortium for Plasma Science, which partially defrayed the cost of
pressure cycling technology development. The Clinical Laboratory Services'
revenue declined as a result of a lower volume of molecular testing as several
customers began performing these tests in-house in 2000.
Page - 13
<PAGE>
Gross Profit
------------
Overall gross profit decreased 12.5%, or $1,021,000, to $7,125,000 in the
nine months ended September 30, 2000 from $8,146,000 for the same period in
1999. Product gross profit decreased 18.8%, or $974,000, to $4,211,000 in the
nine months ended September 30, 2000 from $5,185,000 for the same period in 1999
and product gross margin decreased to 48.0% in first nine months of 2000, from
48.9% in the same period of 1999. Services gross profit decreased $46,000 to
$2,914,000 in the nine months ended September 30, 2000 from $2,960,000 for the
same period in 1999 and service gross margin declined to 23.7% in first nine
months of 2000, from 27.2% in the same period of 1999.
Product Gross Margin. The 0.9% decrease in product gross margin was due
entirely to a 17.8% decrease in the gross margin of the Laboratory
Instrumentation operating segment. This decrease was due to a lower level of
sales activity, resulting in underutilized capacity and excess overhead costs.
In addition, the Company has increased the inventory reserve for this segment by
$100,000.
Service Gross Margin. The 3.5% decrease in service gross margins was due to
decreases in the Clinical Laboratory Service segment and in the Biotech segment.
The Clinical Laboratory Services' segment realized service gross margins of
27.7% in first nine months of 2000, versus 31.1% in the same period of 1999.
This decrease is due to lower revenue combined with competitive pricing pressure
in molecular testing. The Biotech segment realized service gross margins of
15.5% in first nine months of 2000, versus 23.6% in the same period of 1999 due
to an increase in low margin government contracts. The Company anticipates that
service margins will continue to feel pressure from increased competition in the
clinical testing market and is currently reviewing operations for cost savings
opportunities.
Research and Development
------------------------
Research and development expenditures decreased 7.2%, or $171,000, to
$2,211,000 in the first nine months of this year as compared to $2,382,000 in
the same period last year. As was the case last quarter, the Company continued
to emphasize development efforts within the Other segment which includes BBI
BioSeq ("BioSeq") and Panacos Pharmaceuticals ("Panacos"). Other segment R&D
expenditures increased $142,000 to $1,265,833 for the nine month period ended
September 30, 2000. This increase was more than offset by a decrease at the
Laboratory Instrumentation segment in R&D spending of $308,000, as the PlateMate
program was discontinued in September 1999. Additionally, in September 1999, BBI
BioSeq was moved from its pre-acquisition location in Woburn, MA to
Gaithersburg, MD, where it shares space with the Biotech segment. This move has
resulted in increased efficiencies for the PCT effort, lower facility costs, and
greater access to both scientific professionals and laboratory equipment.
Selling and Marketing
---------------------
Selling and marketing expenses decreased by 7.7%, or $240,000, to
$2,889,000 for the nine months ended September 30, 2000 from $3,129,000 in the
prior year. This decrease was a result of a slight reduction in promotion and
travel costs, and vacancies in several key positions at the Diagnostics and
Laboratory Instrumentation segments. Some of these positions were filled early
in the third quarter of 2000.
General and Administrative
--------------------------
General and administrative costs increased 24.7%, or $866,000, to
$4,369,000 for the nine months ended September 30, 2000 from $3,503,000 in the
prior year. This increase was as a result of the corporate reorganization
(announced in July 1999) which added several executive level employees to the
general and administrative financial statement line item of the income statement
coupled with an increase of professional consulting services. Additionally,
$290,000 of the general and administrative personnel expenses incurred during
first nine months of 1999 were capitalized into the ERP system implementation in
accordance with applicable accounting standards. The Company completed the
project in November 1999; therefore, these costs are expensed as incurred during
2000.
Page - 14
<PAGE>
Impairment of Intangible Asset
------------------------------
As part of an ongoing strategic review process, the Company's Board of
Directors met in late September to review the progress of its Laboratory
Instrumentation segment, and that segment's prospects for the future to
determine if any impairment of the segment's goodwill has occurred. Based on
information presented at this meeting and subsequent analyses showing lower
revenue expectations, management has approved a cost reduction plan including a
headcount reduction, salary freeze, and sublease of excess manufacturing space.
Using the lower revenue projections associated with this plan, the Laboratory
Instrumentation segment's undiscounted future cash flows are now projected to be
less than the carrying value of that segment's goodwill. In accordance with the
provisions of "Statement of Financial Accounting Standards No. 121 - Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," this segment's goodwill was written down by approximately $1,464,000 as of
the end of the third quarter of 2000.
Operating Loss
--------------
Consolidated loss from operations increased to $3,808,000 in the first nine
months of 2000 versus a $869,000 loss in the same period of 1999. The
Diagnostics segment's operating income decreased to $1,079,000 from $1,831,000
as a result of decreased revenue and the beneficial effect on 1999's operating
income of capitalized salaries for the ERP System implementation. The Biotech
segment's operating loss decreased to $167,000 from $357,000 for the nine months
ended September 30, 2000 and 1999, due to increased revenue from government
contracts. The Clinical Laboratory Services segment had an operating loss of
$344,000 for the first nine months of 2000 versus income of $237,000 for the
same period last year due to lower volume of testing and competitive pricing
pressure resulting in lower gross margin. The Laboratory Instrumentation segment
had an operating loss of $2,581,000 for the first nine months of 2000 versus a
loss for the same period last year of $921,000. The year 2000 loss includes a
write-down of approximately 80% of their goodwill as of the previous balance
sheet date.. Excluding this, the Laboratory Instrumentation segment had an
operating loss of $1,117,000 for the nine months ended September 30, 2000 as a
result of continued low levels of revenue. At the end of the third quarter of
2000, management approved a cost reduction plan in the Laboratory
Instrumentation segment including a headcount reduction, salary freeze, and
sublease of excess manufacturing space. The operating loss of the Other segment
increased to $1,795,000 from $1,659,000 in the prior year's period due to
planned, higher R&D expenditures and patent related costs. The Company continues
to invest heavily in the areas of pressure cycling technology and the drug
discovery program, through its subsidiaries BBI BioSeq and Panacos
Pharmaceuticals, respectively. Management anticipates a reduction of the
operating losses of the Other segment in the area of PCT through research and
development alliances, which will supplement the expenditures of the Company.
The Company now expects to relinquish control of Panacos, by the end of the
year, by the sale of more than fifty percent of that company's equity to third
party investors. This should result in a change from consolidation to cost
accounting for the Panacos results.
Interest Expense
----------------
Net interest expense increased from $291,000 in the first three quarters of
1999 to $785,000 in 2000. Throughout the first three quarters of 2000, the
Company carried a higher average debt balance and interest rate than in the
prior year period. In addition, amortization of the beneficial conversion
feature, warrant costs and debt discount associated with the Company's August
2000 issuance of $3,250,000 3% senior subordinated convertible debentures
contributed an additional $153,000 of interest expense.
Income Taxes
------------
In the third quarter of 2000 the Company established a full valuation
allowance for its deferred tax assets on the basis of the three consecutive
years of losses. In first nine months of 1999 the Company recorded a income tax
benefit at a combined rate of 38%.
Net Loss
--------
Net loss increased to $5,729,000 for the nine months ended September 30,
2000 from $719,000 in the comparable prior year period as a result of the items
discussed above.
Page - 15
<PAGE>
LIQUIDITY AND FINANCIAL CONDITION
At September 30, 2000, the Company had cash and cash equivalents of
approximately $2,525,000, and total working capital of $5,161,000. Gross trade
accounts receivable decreased $967,000 from year end 1999 as cash receipts have
outpaced new sales. Inventory increased $356,000 or 5.1% due to increased
purchases of critical raw materials, and production of HIV subtype viral stocks
under a Material Transfer Agreement signed with the NIH. Management intends to
continue to focus its efforts on utilizing existing inventory where possible,
while continuing to purchase those critical, hard to find raw materials in short
supply.
The Company's working capital position as of September 30, 2000 was
adversely affected by the classification of its $5,763,000 line-of-credit
balance as short-term debt. The Company reclassified the debt because in the
first three quarters of 2000, it violated a financial covenant limiting the
amount of allowable losses. There have been no payment defaults. The Company
expects to finalize negotiations and close on a new facility by the end of the
year. In the meantime, there have been no changes in the financial terms or
availability formula under the existing line-of-credit agreement.
In August 2000, the Company issued $3,250,000 of 3% Senior Subordinated
Convertible Debentures due August 25, 2003; net proceeds to the Company amounted
to approximately $2,871,000 after deduction of original issue discount of
$162,500 and associated closing costs of $216,500. The Company will use the
proceeds for completion of its West Bridgewater, MA manufacturing facility and
for general corporate and working capital purposes. For accounting purposes, a
portion of the cash proceeds, amounting to $327,000, has been allocated to the
relative fair value of warrants issued in conjunction with these debentures. See
Note 8 entitled "Debt" to these this Form 10Q for additional accounting
disclosures.
Any conversion of these outstanding 3% senior subordinated convertible
debentures and/or the exercise of outstanding warrants to purchase the Company's
common stock will have a dilutive impact on our security holders. The number of
shares of common stock that may ultimately be issued upon conversion of the
outstanding debentures is presently undeterminable because the conversion price
of the debentures is the lower of: (i) $3.36 a share or (ii) 90% of the average
of the five (5) lowest volume weighted average sales prices of common stock as
reported by Bloomberg, L.P. during the 25 business days immediately preceding
the date on which any debenture holder notifies us that it will convert all or a
part of their debenture into common stock. The terms of the debenture entitle
the Company to redeem any of the outstanding debenture(s) at a redemption price
equal to the number of shares of common stock into which said debenture(s) is
then convertible times the average closing bid price as reported by Bloomberg
L.P. for the five (5) trading days immediately prior to the date that the
debenture(s) is called for redemption, plus accrued and unpaid interest. The
Company may not have sufficient funds to redeem the debentures at such time if
determined to be appropriate to redeem the debenture(s).
In April 2000, the Company borrowed $2,447,000 (net) under a mortgage
agreement on its West Bridgewater, MA facility. The Company used these funds to
reduce the outstanding balance on its line-of-credit. The mortgage is due on
March 31, 2010. During the first five years the note carries an interest rate of
9.75%; after five years the rate charged will be 0.75% greater than the bank
base rate then in effect. Under this mortgage agreement the Company is subject
to certain financial covenants by which a default in its line-of-credit
covenants will cause a default on this note. The Company has received a waiver
from this lending institution regarding the covenant violation. Payments due on
this mortgage are based on a 20 year amortization schedule.
In February 2000, the Company received notice that Paradigm Group, LLC
exercised warrants to purchase 500,000 shares of the Company's common stock.
This exercise will result in proceeds to the Company of approximately
$2,100,000. The holders of the warrants are required to pay the exercise price
when the registration of the underlying shares is effective. The Company
currently expects the registration of the underlying shares to be declared
effective by the Securities and Exchange Commission in the next few months. On
August 18, 2000, the Company received a summons and complaint from Paradigm
Group, LLC naming the Company as a defendant. Paradigm Group, LLC is a selling
shareholder in an open, pending S-3 registration statement of the Company. The
suit, filed in the Circuit Court of Cook County, Illinois, alleges breach of
contract claims and fraud against the Company in connection with the sale by the
Company to the Paradigm Group, LLC of warrants to purchase up to 500,000 shares
of the Company's common stock, the exercise of those warrants by Paradigm Group,
LLC and a delay in the registration of those shares with the U. S. Securities
Page - 16
<PAGE>
and Exchange Commission. Paradigm Group, LLC seeks several remedies, including
$3,000,000 in damages or unspecified monetary damages, return of the $42,500
purchase price for the warrants and rescission of its exercise of the warrants,
and unspecified punitive damages. The Company believes this complaint to be
without merit and intends to vigorously defend this matter and collect the
proceeds due to the Company.
The Company has outstanding warrants, with various strike prices, which are
exercisable for a total of 494,744 shares of common stock. This represents
approximately 8.8% of the Company"s issued and outstanding common stock based on
the number of shares issued and outstanding as of September 30, 2000.
Net cash used in operations for the nine months ended September 30, 2000
was $1,196,000 as compared to cash use of $685,000 in the comparable period last
year. This increase in operational use of cash was primarily the result of
higher operating losses.
Cash used in investing activities was $1,166,000 in the first nine months
of 2000 versus $1,632,000 for the comparable prior year period. During the nine
months ended September 30, 2000, the Company's Biotech segment invested $580,000
to build-out its new repository facility in Frederick, Maryland. In addition,
significant investments were made for laboratory and manufacturing equipment.
The Company capitalized approximately $290,000 of general and administrative
costs relative to the implementation of its ERP system in the first nine months
of 1999.
Cash provided by financing activities was $4,573,000 in the first nine
months of 2000 versus $2,405,000 for the comparable prior year period. During
the nine months ended September 30, 2000, the net cash provided by debt
consisted of the mortgage loan of approximately $2,447,000 (net) and the
subordinated convertible debentures of approximately $2,871,000 (net), discussed
above, less net repayments on the line-of-credit of $1,383,000. In addition,
cash of approximately $675,000 was received from the exercise of stock options
and warrants, exclusive of the 500,000 warrants awaiting registration discussed
above.
The Company believes that existing cash balances and the borrowing capacity
available under the existing line of credit (or its replacement), are sufficient
to fund operations and anticipated capital expenditures for the next year. The
Company continually evaluates financing options, as well as other strategic
alternatives in order to maximize shareholder value.
Page - 17
<PAGE>
BOSTON BIOMEDICA, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 18, 2000, the Company received a summons and complaint from
Paradigm Group, LLC naming the Company as a defendant. Paradigm Group, LLC is a
selling shareholder in the Company's registration statement of the on Form S-3
which has been filed with the Securities and Exchange Commission but which has
not yet been declaired effective. The suit, filed in the Circuit Court of Cook
County, Illinois, alleges breach of contract claims and fraud against the
Company in connection with the sale by the Company to the Paradigm Group, LLC of
warrants to purchase up to 500,000 shares of the Company's common stock, the
exercise of those warrants by Paradigm Group, LLC and a delay in the
registration of those shares with the U. S. Securities and Exchange Commission.
Paradigm Group, LLC seeks several remedies, including $3,000,000 in damages or
unspecified monetary damages, return of the $42,500 purchase price for the
warrants and rescission of its exercise of the warrants, and unspecified
punitive damages. The Company believes this complaint to be without merit and
intends to vigorously defend this matter and collect the proceeds due to the
Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On August 25, 2000, the Company entered into Securities Purchase Agreements
providing for the issuance of $3,250,000 (face value) 3% Senior Subordinated
Convertible Debentures due August 25, 2003, (the "Debentures"). Proceeds to the
Company, net of a 5% original issue discount and debt issuance costs, amounted
to $2,870,993, of which $327,000 has been allocated to the relative fair value
of the associated common stock purchase warrants. The Debentures are convertible
into the Company's common stock commencing November 24, 2000, at a conversion
price equal to the lesser of (i) $3.36 per share or (ii) 90% of the average of
the five lowest volume weighted average sales prices of Common Stock as reported
by Bloomberg L.P. during the twenty-five business days immediately preceding the
date on which the Debenture holders notify the Company of their intention to
convert all or part of the Debenture into Common Stock. In connection with this
transaction, the Company also issued warrants to purchase up to 135,556 shares
of the Company's common stock at an exercise price of $3.60 per share.
The aforementioned securities were sold in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended,
and the Rules promulgated thereunder. The Company's Common Stock and the
underlying Debentures and Warrants are entitled to certain registration rights.>
Interest on the Debentures is payable quarterly in arrears commencing
September 30, 2000. The Company has elected to make interest payments in cash as
opposed to paying interest in shares of its common stock. The Debentures are
subordinate to both the Company's line of credit and mortgage on its West
Bridgewater, MA facility. The Company will use the proceeds from the
aforementioned transactions for completion of its West Bridgewater, MA
manufacturing facility and for general corporate and working capital purposes.
The Company may elect at any time to redeem all or any portion of the
remaining unpaid principal amount of the Debentures for cash. In addition, upon
receipt of a notice of conversion from a holder of the Debentures the Company
may elect to redeem that portion being converted for cash in lieu of common
stock of the Company. In both cases, the redemption price equals the number of
shares of common stock into which the Debenture being redeemed is convertible,
times the average closing bid price of the Company's common stock for the five
preceding trading days. An election by the Company to redeem rather than convert
any amount of the Debentures shall be applicable to any subsequent notice of
conversion received by the Company for a twenty day period following the
election.
The Securities Purchase Agreements and related documents place certain
restrictions on the Company's ability to incur additional indebtedness, to make
certain payments, investments, loans, guarantees and/or transactions with
affiliates, to sell or otherwise dispose of a substantial portion of assets,
and/or to merge or consolidate with an unaffiliated entity.
Page - 18
<PAGE>
The Company also filed a registration statement in September 2000 seeking
to register 2,070,080 of its Common Shares. This registration statement has not
yet been declared effective by the Securities and Exchange Commission. The
amount being registered includes (i) 135,556 shares of common stock issuable
upon exercise of outstanding warrants and (ii) an estimated 967,262 shares of
common stock issuable upon conversion of outstanding 3% Senior Subordinated
Convertible Debentures. The number of shares issuable upon conversion of the 3%
Senior Subordinated Convertible Debentures is estimated based upon an assumed
conversion price of $3.36 per share. Additional shares of the Company's common
stock are being registered so that a sufficient number of shares are registered
in the event that the conversion price of the 3% Senior Subordinated Convertible
Debentures is lower than expected.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The September 30, 2000 balance sheet reflects the classification of the
Company's outstanding line-of-credit balance, in the amount of $5,762,636 as of
September 30, 2000, as short-term debt. The Company reclassified the debt
because in the first, second and third quarters of 2000, it violated a financial
covenant limiting the amount of allowable losses. There have been no payment
defaults. The Company expects to finalize negotiations and close on a new
facility by the end of the year. In the meantime, there have been no changes in
the financial terms or availability formula under the existing line-of-credit
agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Special Meeting in Lieu of Annual Meeting of
Stockholders on July 20, 2000 (the "Meeting"). A total of 4,274,914 shares, or
84%, of the Common Stock issued, outstanding and entitled to vote as of the
record date, were represented at the meeting in person or by proxy. At the
meeting, one proposal was acted upon. The result of the election was as follows:
1. Francis E. Capitanio and Calvin A. Saravis, Ph. D were elected Class I
Directors of the Company, to serve as such until the Year 2003 Annual Meeting of
Stockholders and until their successors have been duly elected and qualified,
with 3,952,679 shares voting in favor, 322,235 votes withheld.
The terms of office of Directors Richard T. Schumacher, Kevin W. Quinlan,
and William R. Prather, M.D., continued after the Meeting.
ITEM 5. OTHER INFORMATION.
None
Page - 19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No.
3.1 Amended and Restated Articles of Organization of the Company*
3.2 Amended and Restated Bylaws of the Company*
4.1 Specimen Certificate for Shares of the Company's Common Stock*
4.2 Description of Capital Stock (contained in the Amended and
Restated Articles of Organization of the Company filed as
Exhibit 3.1)*
4.3 3% Senior Subordinated Convertible Debenture issued to
GCA Strategic Investment Fund Limited **
4.4 Warrant issued to GCA Strategic Investment Fund Limited **
4.5 Warrant issued to Wharton Capital Partners, Ltd. **
4.6 Warrant issued to DP Securities, Inc. **
4.7 Registration Rights Agreement, dated as of August 25, 2000, by
and among Boston Biomedica, Inc., Wharton Capital Partners, Ltd.,
DP Securities, Inc. and GCA Strategic Investment Fund Limited **
4.8 3% Senior Subordinated Convertible Debenture issued to
Richard P. Kiphart **
4.9 3% Senior Subordinated Convertible Debenture issued to
Shoreline Micro-Cap Fund, L.P. **
4.10 Warrant issued to Richard P. Kiphart **
4.11 Warrant issued to Shoreline Micro-Cap Fund, L.P. **
4.12 Registration Rights Agreement dated as of August 25, 2000, by and
among Boston Biomedica, Inc., Richard P. Kiphart and Shoreline
Micro-Cap Fund, L.P. **
10.1 Securities Purchase Agreement dated as of August 25, 2000, by and
among Boston Biomedica, Inc., and GCA Strategic Investment Fund
Limited **
10.2 Securities Purchase Agreement dated as of August 25, 2000, by and
among Boston Biomedica, Inc., Richard P. Kiphart and Shoreline
Micro-Cap Fund, L.P. **
10.22 Mortgage and Security Agreement dated March 31, 2000 ***
27 Financial Data Schedule (Filed herewith)
99.1 Press Release dated September 5, 2000 **
______
* In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, as exhibits to the Company's Registration
Statement on Form S-1 (Registration No. 333-10759), which documents are hereby
incorporated by reference. The number set forth herein is the number of the
Exhibit in said registration statement.
** Incorporated by reference to the registrant's Report on Form 8-K dated
August 25, 2000.
*** Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2000.
(b) Reports on Form 8-K
The Company filed a Form 8-K, dated August 25, 2000, relative to the
Company's issuance of $3,250,000 3% Senior Subordinated Convertible Debentures,
due August 25, 2003.
Page - 20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BOSTON BIOMEDICA, INC.
Date: November 14, 2000 By: /s/ Kevin W. Quinlan
----------------------- ---------------------------------------
Kevin W. Quinlan,
President, Chief Operating Officer &
Principal Accounting and Financial Officer
Page - 21
<PAGE>
BOSTON BIOMEDICA, INC.
EXHIBIT INDEX
Exhibit No.
3.1 Amended and Restated Articles of Organization of the Company*
3.2 Amended and Restated Bylaws of the Company*
4.1 Specimen Certificate for Shares of the Company's Common Stock*
4.2 Description of Capital Stock (contained in the Amended and
Restated Articles of Organization of the Company filed as
Exhibit 3.1)*
4.3 3% Senior Subordinated Convertible Debenture issued to
GCA Strategic Investment Fund Limited **
4.4 Warrant issued to GCA Strategic Investment Fund Limited **
4.5 Warrant issued to Wharton Capital Partners, Ltd. **
4.6 Warrant issued to DP Securities, Inc. **
4.7 Registration Rights Agreement, dated as of August 25, 2000, by
and among Boston Biomedica, Inc., Wharton Capital Partners, Ltd.,
DP Securities, Inc. and GCA Strategic Investment Fund Limited **
4.8 3% Senior Subordinated Convertible Debenture issued to
Richard P. Kiphart **
4.9 3% Senior Subordinated Convertible Debenture issued to
Shoreline Micro-Cap Fund, L.P. **
4.10 Warrant issued to Richard P. Kiphart **
4.11 Warrant issued to Shoreline Micro-Cap Fund, L.P. **
4.12 Registration Rights Agreement dated as of August 25, 2000, by and
among Boston Biomedica, Inc., Richard P. Kiphart and Shoreline
Micro-Cap Fund, L.P. **
10.1 Securities Purchase Agreement dated as of August 25, 2000, by and
among Boston Biomedica, Inc., and GCA Strategic Investment Fund
Limited **
10.2 Securities Purchase Agreement dated as of August 25, 2000, by and
among Boston Biomedica, Inc., Richard P. Kiphart and Shoreline
Micro-Cap Fund, L.P. **
10.22 Mortgage and Security Agreement dated March 31, 2000 ***
27 Financial Data Schedule (Filed herewith)
99.1 Press Release dated September 5, 2000 **
_______
* In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, as exhibits to the Company's Registration
Statement on Form S-1 (Registration No. 333-10759), which documents are hereby
incorporated by reference. The number set forth herein is the number of the
Exhibit in said registration statement.
** Incorporated by reference to the registrant's Report on Form 8-K dated
August 25, 2000.
*** Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2000.
Page - 22
<PAGE>
