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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 0-17714
Biopool International, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 58-1729436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6025 Nicolle Street, Ventura, California 93003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (805) 654-0643
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.01 per share NASDAQ
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 proceeding 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / /
The aggregate market value of Biopool International, Inc. Common Stock,
$.01 par value, held by non affiliates, computed by reference to the
average of the closing bid and asked prices as reported by NASDAQ on March
19, 1999, was $5,040,595.
Number of shares of Common Stock of Biopool International, Inc., $.01 par
value, issued and outstanding as of December 31, 1998: 8,540,886. Portions
of Registrant's Proxy Statement relating to its 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Annual
Report.
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INDEX TO ANNUAL REPORT
ON FORM 10-KSB
PART I Page
____
Item 1. Business. 3
Item 2. Properties. 19
Item 3. Legal Proceedings. 20
Item 4. Submission of Matters to a Vote
of Security-Holders. 20
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters. 20
Item 6. Management's Discussion and Analysis of
Results of Operations. 22
Item 7. Financial Statements and Supplementary Data. 26
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 26
PART III
Item 9. Directors and Executive Officers of the
Registrant. 26
Item 10. Executive Compensation. 26
Item 11. Security Ownership of Certain Beneficial
Owners and Management. 26
Item 12. Certain Relationships and Related Trans-
actions. 26
Item 13. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. 27
Signatures 29
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PART I
ITEM 1. BUSINESS
We are engaged in the research, development, manufacture, and marketing
of in vitro (outside the body) diagnostic products. We sell over 150
products on a worldwide basis to hospitals, clinical laboratories,
commercial reference laboratories, blood centers, and research
institutions.
We incorporated in Delaware in 1987. Our corporate office is located
in Ventura, California. We have one wholly-owned operating subsidiary,
Biopool AB, located in Umea, Sweden, and an operating division, BCA,
located in West Chester, Pennsylvania. Through these, we also carry on
product development, manufacturing, and sales and marketing activities.
During the first half of 1998, we closed down the operations of our
former Canadian subsidiary, Biopool Canada, and consolidated the activities
of this facility with those of the Ventura facility. This consolidation
was driven by anticipated cost savings through the elimination of
duplicative administrative and facilities' overhead and manufacturing
efficiencies. The consolidation was completed effective June 30, 1998.
Industry
The worldwide in vitro diagnostics market is estimated to be worth $18-
20 billion annually. Our products are sold to three specific markets
within the worldwide in vitro diagnostics market, estimated to be worth
approximately $1 billion annually in the aggregate. Our products are used,
in general, to diagnose disease, identify individuals at risk for
developing certain diseases, monitor patients undergoing therapy, and
evaluate blood components prior to transfusion. Our products are typically
referred to as reagents or test kits and are used by highly trained
laboratory technologists utilizing a wide range of testing devices, which
perform the ultimate analysis. In a typical example, patient samples
(blood, plasma, urine, or other body fluids) are mixed with manufactured
reagent(s), such as those we produce, and a reaction is then measured by
specific instrumentation. The test result obtained thus provides certain
diagnostic information to the clinician.
In vitro diagnostic products are utilized by health care professionals
worldwide. Diagnostic testing is most often performed in:
- hospital-based laboratories
- commercial reference laboratories
- blood centers
- physician office laboratories.
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Our products address three key disciplines of the total in vitro
diagnostics market:
1. Hemostasis/Fibrinolysis
The market for these reagents and test kits is approximately $650
million worldwide. Such products are used to:
- diagnose patients who have suffered thrombotic (clot-
forming) circulatory diseases such as myocardial infarction,
stroke, embolism, or deep vein thrombosis;
- diagnose patients who are suffering from certain bleeding
disorders;
- monitor patients undergoing therapy for such diseases and
disorders; and
- identify patients at high risk for developing such diseases
and disorders.
2. Blood Group Serology
Worldwide, the market for blood group serology products is estimated
at approximately $300 million. Generally, such products are used for:
- ABO blood grouping and compatibility tests prior to
transfusion;
- typing for Rh and other blood group factors; and
- detection and identification of blood group antibodies.
3. Toxicology
Toxicology products include drugs-of-abuse controls to effectively
monitor the analyzer and technician variables associated with identifying
abused substances, such as cocaine, marijuana, amphetamines, etc., in
patient samples. The market for these controls is estimated at $30-50
million worldwide.
Our products are sold to over 4,000 customers worldwide. The U.S.
typically accounts for some 35% of the total worldwide diagnostics market,
Europe approximately 35%, Japan 10%, and 20% for the rest of the world
("ROW").
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Products
Test Kits Used for Measuring Various Components of the Fibrinolytic System
The fibrinolytic (clot dissolving) system consists of a number of
enzymes and other proteins that participate in limiting the size of blood
clots and in the dissolution of blood clots that form when the blood vessel
wall is damaged. The clot forms around clumped or aggregated blood
platelets forming a temporary "plug" to prevent blood loss. When the
fibrinolytic system is hypoactive, the blood clot can become oversized and
disrupt blood flow, resulting in tissue damage. The principal enzyme
involved in fibrinolysis is plasmin. Plasmin is formed from its inactive
precursor, plasminogen, by the action of the naturally occurring enzymes,
tissue plasminogen activator ("tPA"), and urokinase plasminogen activator
("uPA"). A high plasma level of the principal inhibitor of plasminogen
activators, PAI-1 (plasminogen activator inhibitor, type 1), has been
described in the scientific literature as an important risk factor in
developing venous and arterial thrombosis. Hyperactive fibrinolysis,
including decreased levels of inhibitors, may result in bleeding problems.
Some of the fibrinolytic products we manufacture include:
Minutex-R- D-dimer measures the D-dimer breakdown product of a fibrin
clot, indicating that clot formation has occurred and that the fibrinolytic
system has been activated. The Minutex-R- D-dimer test is useful in the
diagnosis of deep vein thrombosis (DVT), pulmonary embolism, and
disseminated intravascular coagulation (DIC). Recent studies have
confirmed the ability of the Minutex-R- D-dimer test to provide results
that avoid expensive and invasive procedures for confirmation of DVT.
Chromolize-TM- tPA measures the level of tissue plasminogen activator
(tPA), the body's most potent activator of the fibrinolytic system.
Decreased release of active tPA has been shown to be a risk indicator for
myocardial infarction.
Chromolize-TM- PAI-1 measures plasminogen activator inhibitor-1 (PAI-
1) levels in plasma. PAI-1 is a major modulator of tPA activity, and
elevated levels are also indicative of the risk of recurrent heart attacks,
recurrent deep vein thrombosis, and post-operative thrombosis.
Chromolize-TM- uPA measures urokinase-type plasminogen activator in
plasma and tissues. Its most important use may be in conjunction with
numerous recent clinical reports indicating high levels of uPA in breast
cancer patients may be prognostic for increased risk of relapse and death.
There are also reports that uPA is an independent variable for the
identification of high-risk gastric carcinoma patients.
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Stabilyte-TM- is a unique patented blood collection device that
stabilizes tPA activity and other serine proteases in blood after
collection, greatly simplifying their measurement and leading to a more
accurate assessment of these key fibrinolytic enzymes.
Test Kits for Measuring Various Components of the Blood Coagulation
(Clotting) System
The coagulation system consists of a number of clotting factor
proteins that interact in a complex way to cause the polymerization of
fibrinogen to fibrin, resulting in clot formation. The clotting factors,
identified by Roman numerals (e.g., factor II, factor VIII, etc.), also
have inhibitors present in the circulation which limit their activity.
Congenital or acquired deficiencies of any of the clotting factors may
result in bleeding, while deficiencies in the inhibitors are associated
with thrombotic (clot-forming) complications. Cardiovascular disease,
which includes coronary artery disease and stroke, is currently the
nation's leading cause of death. Inappropriate formation of thrombi
(clots) by biochemical processes is behind these disease states. Several
of our products are used in the diagnosis and evaluation of patients who
may be suffering from cardiovascular disease, including the following
products:
Auto-Dimer-TM- is a second generation, quantitative D-dimer kit that
can be used on automated clinical chemistry analyzers to measure the D-
dimer breakdown product of a fibrin clot. D-dimer is a key indicator of
thrombotic disorders such as deep vein thrombosis (DVT) in which
potentially life-threatening blood clots form in the legs.
MiniQuant-TM- D-dimer is a D-dimer assay specifically formulated for
use on the MiniQuant-TM- reader, a new point-of-care analyzer for
quantitative D-dimer identification developed by TECO GmbH.
Bioclot-R- aPC Sensitivity Kit is Biopool's new test kit for
determining sensitivity to activated protein C (APC). The most common
reason for resistance to APC is a genetic mutation in the (clotting) factor
V gene, which is the leading cause of thrombotic (clot-forming) diseases.
Other physiological states that can lead to resistance to APC include
pregnancy, malignancy, and oral contraceptive use.
Bioclot-R- Protein C and Bioclot-R- Protein S measure key enzymes and
regulatory proteins controlling the clotting process. Both tests are
approaching routine use in test panels screening for thrombotic risk. The
Bioclot-R- tests are easy to perform and are compatible with all routine
hemostasis analyzers.
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Bioclot-R- LA is another of the easy to perform Bioclot-R- assays, in
this case used to detect the presence of lupus-like anticoagulants (LA).
Elevated levels of LA present a considerable risk factor for thrombosis and
recurrent spontaneous abortion.
Spectrolyse-R- AT III measures antithrombin III (AT III) levels in
plasma, the most important inhibitor of clotting activity within the
hemostasis system. Decreased levels of this key protein are prognostic of
thrombotic risk.
Factor Deficient Plasmas are human plasmas synthetically depleted of
individual clotting factors using specific monoclonal and polyclonal
antibodies. These plasmas are used as substrate plasmas in the clinical
laboratory for the determination of clotting factor deficiency in patients.
Hemostasis Reference Plasma is a freeze-dried reference plasma that
has been assayed against international plasma standards (obtained from the
World Health Organization) for 24 hemostasis analytes and marketed as a
universal control in the performance of many hemostasis tests.
Products Used in the Routine Screening of the Coagulation System,
Monitoring Patients on Oral Anticoagulant or Heparin Therapy, and Assessing
Platelet Function
Test systems, such as those manufactured by Biopool, are routinely
used to provide global information on the status of the blood "clotting
system" prior to surgery in order to identify individuals who might be at
risk for excess bleeding during invasive procedures. These global tests
are also commonly used to monitor the status of anticoagulant treatment
because anticoagulants have a direct impact on clotting activity. Typical
tests include:
Thromboplastin is used for monitoring patients on oral anticoagulant
therapy (i.e., coumadin), for routine coagulation system assessment, and in
specific clotting factor assays.
APTT Reagent is used in the monitoring of patients on therapeutic
heparin, presurgical screening, routine coagulation system screening, and
in coagulation factor assays.
Fibrinogen Kit is used in the routine determination of fibrinogen when
assessing bleeding disorders. There is an increasing interest in the
performance of fibrinogen assays as an abnormally high level of plasma
fibrinogen is considered a risk factor for thrombotic disease.
Coagulation Control Plasmas are freeze-dried, stabilized human plasmas
used in the day-to-day control of routine coagulation tests.
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FDP Collection Tube is a specialized system of blood collection
designed for use in fibrin degradation product ("FDP") assays and
compatible with a variety of commercially available FDP kits.
Platelet Aggregation Reagents are used in the determination of blood
platelet abnormalities and may prove quite useful in monitoring the
efficacy of new FDA-approved anti-platelet drugs offered by certain
pharmaceutical suppliers.
Ristocetin Cofactor Assay is used in the diagnosis of von Willebrand
disease, one of the most common hereditary bleeding disorders in the human
population.
Blood Group Serology Products
Our BCA Division manufactures products primarily used to detect the
absence or presence of antigens and antibodies in blood components.
Antigens are present on the surface of red cells, one of the primary
cellular blood components. Antibodies are present in the serum or plasma
and are produced as a result of contact with foreign substances (antigens).
The four major blood groups are A, B, AB, and O and are measured by the
presence or absence of antigens on red blood cells. Many other blood group
systems have been identified, and some twenty different antigens within
these systems are routinely included in blood bank testing. It is
imperative that the blood bank technologist correctly match the donor blood
to the patient's blood type, thus requiring the use of products such as
those manufactured by BCA.
Our BCA product line includes over 40 products licensed by the U.S.
Food and Drug Administration (FDA) and 11 additional products approved
pursuant to the FDA's 510(k) submission process. These products are used
to determine the presence or absence of antigens and antibodies in blood.
Our BCA products are categorized into several major areas. The following
list encompasses the products and applications for use.
Monoclonal ABO Antisera are used to detect and identify ABO antigens
on the surface of red blood cells. Test results determine the A, B, AB, or
O blood type of the specimen. These products are also able to identify
certain weak antigens previously detectable only by time-consuming,
laborious techniques.
Rh Typing Antisera is used to detect Rh antigens on the surface of red
blood cells. Primary use is to classify the specimen as Rh positive or Rh
negative.
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Anti-Human Globulin Reagents allow for the antigen and antibody to
link together so the reaction is detected. Primarily used in cross-
matching and in antibody screening and identification procedures.
Potentiators increase the sensitivity of antibody detection tests
while decreasing the time needed to perform such tests. Used in cross-
matching and in antibody screening and identification procedures. A
variety of potentiators are available to suit all blood banking needs.
Reagent Red Blood Cells are used to detect and identify antibodies in
patient or donor blood, confirm ABO blood grouping results, and verify the
addition and performance of the anti-human globulin reagent. Cells are
carefully selected to provide the maximum reactivity.
Rare Antisera are used to detect the presence or absence of other
clinically significant rare blood group antigens.
Quality Control Kits are used to check and confirm the consistent
performance of routine blood bank reagents.
Specialty Reagents adsorb unwanted antibodies from the test system so
that clinically significant antibodies can be detected. The reagents
provide the special tools needed to resolve complex serological cases in an
easy-to-use format.
Proficiency Testing Kits are used to check the proficiency of the
medical technologist to insure the accuracy of blood banking techniques.
Separate kits are available and are designed to provide the appropriate
level of difficulty.
Miscellaneous Products
Drugs-of-Abuse Controls are a system of multi-level, multi-analyte,
liquid-stable controls used as quality control checks when testing for
drugs of abuse (e.g., barbiturates, opiates, amphetamines, etc.) in
clinical laboratory and forensic lab settings. SURE-Urine-TM- is our
unique synthetic-based (non-human) drugs-of-abuse control, which eliminates
the biohazard concerns of commonly used human-based materials.
Products Under Development and R&D
We carry out product development activities at each of our three
facilities. Most product development is aimed at broadening our product
offerings in the market niches we already serve, introducing updated
versions (quicker, more user-friendly, more accurate, etc.) of current
products, and conducting research aimed at evaluating technology applicable
to new methods of diagnostic testing.
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We received 510(k) clearance to market two new products in 1998, the
Fetal D-Tection-TM- Kit and the i-STAT Coagulation Control Set. The Fetal
D-Tection-TM- Kit, developed by our BCA Division, is used for the detection
of D positive red cells in D negative maternal samples. When D negative
women deliver D positive infants, sensitization to the D antigen, which may
cause serious consequences in future pregnancies, can be avoided by the
timely administration of Rh immune globulin (RhIG). The i-STAT Coagulation
Control Set is a set of specialized control products designed for use on
the hemostasis cartridges and instruments currently under development at
i-STAT Corporation. We expect full commercialization of the test system to
begin late in 1999. We submitted a Product Licence Application to the FDA
for Anti-D Monoclonal/Polyclonal Blend, a new blood grouping reagent, in
May 1997 and received FDA clearance in January 1999. The "D" antigen is
the most important of the Rh blood group system, such that Anti-D testing
is mandatory for all pre-transfusion blood donors and recipients. We
submitted a 510(k) filing to the FDA in October 1998 for Bioclot-R- aPC
Sensitivity Kit, a new test for determining sensitivity to activated
protein C, and clearance to market this product was received in January
1999. The most common reason for resistance to APC is a genetic mutation
in the (clotting) factor V gene, which is the leading cause of thrombotic
(clot-forming) diseases. Other physiological states that can lead to
resistance to APC include pregnancy, malignancy, and oral contraceptive
use.
During 1997 and 1998, we spent $402,000 and $432,000, respectively,
for research and development. We expect to spend slightly more in 1999.
We maintain an active liaison with university and other research-based
technology transfer groups and frequently evaluate various product concepts
and core technologies that could be applicable to our hemostasis and blood
group serology product lines. In connection with these efforts, we
recently hired Dr. Denis O. Rodgerson as a clinical advisor. Currently,
Dr. Rodgerson is a Professor Emeritus at the University of California, Los
Angeles, and was most recently Professor and Vice Chairman of the
Department of Pathology & Laboratory Medicine and Head of Clinical
Chemistry at the School of Medicine.
Manufacturing and Quality Control
We currently manufacture our reagents and assemble our test kits at
our facilities in Ventura, California; West Chester, Pennsylvania; and
Umea, Sweden. We also manufacture many of the raw materials used in the
manufacture of our test kits, including polyclonal antibodies, monoclonal
antibodies, and purified proteins. In cases where raw materials are
obtained from outside sources, we try to avoid dependence on any one source
where possible. Human plasma, an important starting material for many of
our products, is sourced from licensed blood banks and plasmapheresis
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centers. Red cell products are prepared from whole blood collected and
sold by licensed blood banks. We believe that the available sources of
materials are adequate for its present and anticipated needs.
All of our products are manufactured in accordance with Good
Manufacturing Practices for Medical Devices as promulgated by the FDA. All
of our facilities are registered as Device Manufacturing Establishments
with the FDA. The BCA facility is further licensed by the FDA for the
manufacture of biological products. Three U.S. FDA product licenses are in
effect allowing for the manufacture and distribution of blood group serum,
reagent red blood cells, and anti-human globulin products. We are
registered with the U.S. Drug Enforcement Administration to handle
Schedules I-V controlled substances. We perform our own vial-filling,
freeze-drying, microtiter plate-filling, and processing. Our BCA facility
in West Chester, Pennsylvania, achieved ISO 9001 certification in 1995, and
was re-certified in 1998 to meet the requirements of ISO 9001 standards of
quality. Our BCA facility also achieved EN46001 certification in 1998,
which is the European quality standard specific to medical devices. Our
Ventura facility is currently undergoing preparations to become ISO
certified.
Many of our technical employees hold advanced degrees or
certifications in medical technology. Three individuals hold Ph.D. degrees
in the biological sciences.
Marketing and Distribution
Within the U.S., we market and sell our products directly to clinical
laboratories and through regional and national distributors. Our sales
force consists of eight outside and two inside sales representatives, an
applications specialist, and a national director of sales. Our sales
personnel are highly experienced in the technical aspects of the product
line and include some with advanced degrees in medical technology. Special
strategic emphasis is being placed on sales force productivity.
We sell our products outside of the U.S. through an extensive network
of independent distributors. Our BCA Division was acquired from Organon
Teknika Corporation in January 1997, and we concurrently entered into a
distribution agreement with Organon Teknika B.V. allowing for the
continuance of blood group serology product distribution through Organon's
foreign affiliates on a non-exclusive worldwide (non-U.S.) basis. Since
that time, many of Organon's affiliates have continued to place routine
orders for our products and to act as regional distributors. In certain
territories, we have elected to appoint other distributors for the sale of
these blood group serology products (notably Canada, the U.K., and France)
due to diminished focus and declining sales by the regional Organon
affiliate.
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Our sales and marketing activities are supported by two directors of
marketing, one for hemostasis products and one for blood group serology
products.
We sell our products to over 4,000 end-users, and distribute outside
of the U.S. through more than 50 independent dealers in 50 countries. We
augment our direct sales activities through active participation in a
number of key regional, national, and international industry trade shows,
including the American Association of Clinical Chemistry, the American
Association of Blood Banking, the American Society of Hematology, Clinical
Laboratory Management Association, and Medica (Dusseldorf, Germany). We
also maintain a visible domestic market presence by exhibiting at over 20
regional blood bank meetings annually.
In addition to direct sales activities, our products are distributed
in the U.S. through Columbia Diagnostics (recently acquired by Fisher
HealthCare), InfoLab, LABSCO, and Perigon, which collectively cover all 50
states with over 180 sales representatives. We also have agreements with
Allegiance Healthcare and Fisher HealthCare to supply blood group serology
products to those customers with which they maintain compliant contract
business.
We manufacture products for private label and Original Equipment
Manufacturer businesses in the hemostasis and drugs-of-abuse testing
markets. Our private label and OEM customers accounted for approximately
17% of our sales in 1998, and include sales to Biosite Diagnostics, Dade
Behring, Instrumentation Laboratory, Organon Teknika (a division of Akzo
Nobel), Ortho Diagnostic Systems (a division of Johnson & Johnson), Pacific
Hemostasis (a division of Fisher Scientific), and Sigma Diagnostics
(Sigma/Aldrich).
No customer accounted for over 10% of our sales during 1998.
Competition
We compete on a worldwide basis against a number of companies, some of
which are subsidiaries of large pharmaceutical, chemical, and biotechnology
firms whose financial resources and research and development facilities are
substantially greater than ours. In the hemostasis area, these companies
include BioMerieux, Boehringer Mannheim, Dade Behring, Instrumentation
Laboratory, Organon Teknika (a division of Akzo Nobel), Ortho Diagnostic
Systems (a division of Johnson and Johnson), and Sigma Diagnostics
(Sigma/Aldrich). Consolidation within the industry continues to make these
competitors even larger; for example, the acquisition of Boehringer
Mannheim by Roche and the "Hemoliance" business of Ortho by Instrumentation
Laboratory.
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A number of smaller companies also compete with us in the research and
development of diagnostic test kits relating to the niche hemostasis/
fibrinolysis market, including Diagnostica Stago S.A. (France) and Agen,
Inc. (Australia). We currently have approximately a 2% worldwide market
share in total hemostasis products and up to a 20-30% share in certain
specialty hemostasis/fibrinolysis products (for example, D-dimer).
In the blood group serology business, major competitors at the
beginning of 1998 included Ortho, Immucor, and Gamma Biologicals, with
approximately 45%, 27%, and 15% U.S. market share, respectively. Effective
in November 1998, Gamma Biologicals was acquired by Immucor, resulting in
Ortho and Immucor each having approximately 45% market share. Our BCA
products have an approximate 5% U.S. market share. In addition to these
same competitors worldwide, other competitors include Diamed (Switzerland),
Biotest (Germany), and Diagast (France). Our BCA products have a non-U.S.
market share of approximately 1%.
Competition is based upon a number of factors, including product
quality, customer service, price, continuous availability of product,
breadth of product range, and the strength and effectiveness of the sales
and marketing organization. We believe our test kits and reagents compete
on the basis of price, relative ease of use, quality, accuracy, and
precision.
Suppliers
We obtain raw materials from numerous outside vendors. Key raw
materials include whole blood, plasma, anti-sera, platelets, and monoclonal
antibodies. We generally have more than one source for our raw materials,
except for certain monoclonal antibodies utilized in our blood group
serology products. We continually evaluate additional suppliers with a
view towards reducing our dependence on any single vendor.
Certain of our hemostasis products are derived from plasma obtained
from individuals with rare genetic deficiencies of certain clotting factors
(such as factor VIII, Hemophilia A). In order to reduce reliance on this
diminishing resource, we have, in recent years, developed methodologies
in-house to prepare "immuno-depleted" plasmas that mimic these congenital
disorders.
Within the blood group serology product line, certain products are
derived from the blood of individuals with rare combinations of antigens
and/or antibodies. Such donor individuals are rare, and we have from time
to time experienced delays or disruptions in these supplies. However,
sales of products derived from these rare blood types are not material to
our business.
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Throughout 1998, we experienced back orders and disruptions in supply
of "BayRho-R-," a therapeutic Rh immunoglobulin manufactured by Bayer,
resulting in lost sales of more than $800,000, equal to approximately 5% of
our total 1998 sales. We recently consummated a contract with an alternate
source for an equivalent product. We expect this source to provide a more
stable supply which will lessen the chance of further loss of customers for
this product. We do not anticipate the return of former customers lost
during 1998.
Patents, Trademarks, And Proprietary Information
We consider the protection of discoveries in connection with our
research and development on test kits important to our business. We seek
patent protection for technology when deemed appropriate and, to date, have
filed (or have been assigned) applications for United States and foreign
patents covering several general product areas.
We are also reliant on trade secrets, unpatented proprietary know-how,
and continuing technological innovation to develop our competitive
position. Many of our key employees and consultants have entered into
confidentiality agreements and have agreed to assign to us any inventions
relating to our business made by them while in our employ, or in the course
of services performed on our behalf. We perform an ongoing assessment of
the value of our intangible assets.
We have established rights in the trademarks "Auto-Dimer," "Imulyse,"
"Spectrolyse," "MiniQuant," "Desafib," "Desafib X," "Chromolize,"
"TintElize," "Stabilyte," "Accucell-16," "Re CAP," "Quik Chek," "W.A.R.M.,"
"RESt," "HPC," "Acculiss," EM-V," "EM-X," "Fetal D-Tection," and
"Self-Check." The marks Biopool-R-, BCA-R-, Bioclot-R-, TintElize-R-,
Minutex-R-, Tencell-R-, Spectrogen-Duo-R-, Spectrogen-Trio-R-,
Confirmcells-R-, and Coatagen-R- have been registered with the United
States Patent and Trademark Office and in many foreign territories.
Government Regulations
The manufacture and sale of diagnostic products are subject to
regulation by the FDA in the United States and by comparable regulatory
agencies in certain foreign countries in which our diagnostic products are
sold. The FDA has established guidelines and safety standards that are
applicable to the preclinical evaluation and clinical investigation of
diagnostic products and regulations that govern the manufacture and sale of
such products. The FDA and similar agencies in foreign countries have
substantial regulations that apply to the testing, marketing (including
export), and manufacturing of products to be used for the diagnosis of
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disease. In the United States, many diagnostic products may be accepted by
the FDA pursuant to a 510(k) notification, which must contain information
that establishes that the product in question is "substantially equivalent"
to similar diagnostic products already in general use. Over 70 of our
products have received marketing approval utilizing this 510(k) process.
The manufacture and distribution of products intended for use in blood
banks is a highly regulated business. We are subject to ongoing compliance
with various federal, local and international laws, regulations and rules
regarding establishment and product licensing, as well as product labeling
and other manufacturing and testing activities. Our BCA Division
manufactures and distributes blood bank reagents under Establishment
License #1227. During the latter part of 1997 and in 1998, we submitted
over 40 product applications to the l'Agence du Medicament, the French
regulatory agency, for approval to begin marketing the full product range
in France. As of December 31, 1998, we had received approval to market 19
immunohematology products and 25 hemostasis products from l'Agence du
Medicament.
Our manufacturing facilities in the U.S. and Sweden, as well as any
additional manufacturing operations that may be established within or
outside the United States, are subject to compliance with Good
Manufacturing Practices regulations. We are registered as a medical device
manufacturer with the FDA and as a manufacturer with the U.S. Drug
Enforcement Administration. We may also be subject to regulation under the
Occupational Safety and Health Act, the Environmental Protection Act, the
Toxic Substance Control Act, Export Control Act, and other present and
future laws of general application.
We believe that the manufacture and use of our products have no
material adverse environmental impact.
Risk Factors
We are Currently Subject to Delisting from the Nasdaq SmallCap Market.
We are at risk of our common stock being delisted from Nasdaq. On October
8, 1998, we received a letter from Nasdaq stating that we do not meet the
minimum bid price requirement of $1.00 per share for continued listing on
the Nasdaq SmallCap Market. On March 12, 1999, we had a hearing before the
Nasdaq SmallCap Market in order to obtain an exemption from the minimum bid
price requirement. We are still awaiting the results of that hearing.
Since we do not currently meet the requirements for continued listing, our
common stock may be delisted. If our stock were delisted, our common stock
would trade on the OTC Bulletin Board-R- (OTCBB). Any reduction in the
quality of our trading market will make it more difficult for our
stockholders to sell our stock and obtain accurate quotes of the market
value of our stock.
15
<PAGE>
We Recently Lost Revenue from Distribution of a Significant Product.
In 1997, we derived a significant portion of our revenue, $1.8 million,
from the distribution and sale of a product manufactured by a third party.
Throughout 1998, we experienced back orders and disruptions in supply of
"BayRho-R-," a therapeutic Rh immunoglobulin manufactured by Bayer,
resulting in lost sales of more than $800,000, equal to approximately 5% of
our total sales in 1998. We recently consummated a contract with an
alternate source for an equivalent product, and believe that we now have a
more stable supply of this product. However, we do not anticipate the
return of former customers lost during 1998. In addition, we could
experience similar problems with other products.
We Rely on Raw Materials for our Manufacturing. Our manufacturing
process relies on the continued availability of high-quality raw materials,
many of which we currently receive from specific vendors. It is possible
that a change in vendors, or in the quality of the raw materials supplied
to us, could have an adverse impact on our manufacturing process and,
ultimately, on the sale of our finished products. We have from time to
time experienced a disruption in the quality or availability of certain key
raw materials, which has created minor delays in our ability to fill orders
for certain test kits. This could occur again in the future, resulting in
significant delays, and could have a detrimental impact on the sale of our
products.
We are Engaged in a Competitive Industry. We are engaged in a segment
of the human health care products industry that is highly competitive.
Many of our competitors, both in the United States and elsewhere, are major
pharmaceutical, chemical, and biotechnology companies, and many of them
have substantially greater capital resources, marketing experience,
research and development staffs, and facilities than we do. Any of these
companies could succeed in developing products that are more effective than
any that we have or may develop, and may also be more successful than us in
producing and marketing their products. Not only do we face intense
competition in the marketplace against our competitors, but we also must
compete with these same companies for the services of personnel.
We expect competition to continue and intensify in the future.
Increased competition could result in price reductions for our products,
reduced margins and loss of market share, any of which could adversely
impact our business.
Our industry has also seen substantial consolidation in recent years.
We believe that the success that others have had in our industry will
attract new competitors. Some of our current and future competitors may
join forces to better compete against us. We may be not be able to compete
effectively against current or future competitors, and competitive
16
<PAGE>
pressures may have an adverse effect on our business, financial condition
and results of operations.
We Rely on International Sales. International sales accounted for
approximately 35% and 37% of our revenues in 1998 and 1997, respectively.
International sales can be subject to certain inherent risks, including
unexpected changes in regulatory requirements and tariffs, difficulties in
staffing and managing foreign operations, longer payment cycles, problems
in collecting accounts receivable, and potentially adverse tax
consequences. We also depend on third-party distributors for a material
portion of our international sales. If we lose or suffer any significant
reduction in sales to any material distributor, our business could be
materially adversely affected.
In addition, approximately 15% of our sales are made in Swedish Krona.
In the past, gains and losses on the conversion of our accounts receivable
arising from international operations have contributed to fluctuations in
our results of operations, although the impact of foreign exchange
conversions were not significant during 1998. In general, increases in the
exchange rate of the United States dollar to foreign currencies cause our
products to become relatively more expensive to customers in those
countries, leading to a reduction in sales or profitability in some cases.
We Depend on Key Management. Our success will continue to depend to a
significant extent on the members of our management team and, in
particular, on our Chief Executive Officer, Michael D. Bick. We do not
maintain insurance on the lives of Dr. Bick or anyone else at the Company.
As is the case with any company, we may not be able to retain the services
of our executive officers and key personnel or attract additional qualified
members to management in the future. The loss of services of Dr. Bick, or
of any key employee, could have a material adverse effect upon our
business.
Our Stock Price has been Volatile. Our common stock is quoted on The
Nasdaq SmallCap Market, and there has been substantial volatility in the
market price of our common stock. The trading price of the common stock
has been, and is likely to continue to be, subject to significant
fluctuations in response to variations in quarterly operating results, the
gain or loss of significant contracts, changes in management, announcements
of technological innovations or new products by us or our competitors,
legislative or regulatory changes, general trends in the industry,
recommendations by securities industry analysts, and other events or
factors. In addition, the stock market has experienced extreme price and
volume fluctuations which have affected the market price of our common
stock, as well as the stock of many technology companies. Often, price
17
<PAGE>
fluctuations are unrelated to operating performance of the specific
companies whose stock is affected.
We Are Subject to Extensive Government Regulation. We operate in a
highly regulated industry. Our business is subject to extensive
regulation, supervision and licensing by federal, state and local
governmental authorities. Also, from time to time we must expend
significant resources to comply with newly adopted regulations as well as
changes in existing regulations. If we fail to comply with these
regulations, we could be subject to certain disciplinary actions or
administrative enforcement actions. Such actions could result in
penalties, including fines.
We have Risks Related to Product Defects. Despite product testing
prior to sale, our products have in the past contained errors that
customers discovered after we sold the products. Errors, performance
problems and shipping errors may also be discovered in the future. If a
customer detects an error after shipment, it could result in:
- injuries to persons;
- loss of sales;
- delays in or elimination of market acceptance;
- damage to our brand or reputation;
product returns
Although our distributors and manufacturers have return policies, if
we accept a product returned by a customer but it is not accepted for
return by the distributor, we will incur the cost. Because we depend on
third parties for certain of the components of our products, if those
components are defective, the performance of our products would be reduced
or undermined. Any increase in the rate of returns would affect our
financial condition, operating results and cash flows.
Protection of our Trademarks and Propriety Rights is Uncertain. We
regard our trademarks, trade secrets and similar intellectual property as
important to our success. We rely on trademark law and trade secret
protection and confidentiality and/or license agreements with employees,
customers, partners and others to protect our proprietary rights. We have
pursued the registration of our trademarks in the U.S. and internationally.
Effective trademark and trade secret protection may not be available in
every country in which our products are available. We cannot be certain
that we have taken adequate steps to protect our proprietary rights,
especially in countries where the laws may not protect our rights as fully
as in the United States. In addition, third parties may infringe or
misappropriate our proprietary rights, and we could be required to incur
significant expenses in preserving them.
18
<PAGE>
Year 2000 Issues. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. In other words, date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in system failures or miscalculations causing disruptions of
operations, including, among others, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities.
Our own information systems correctly define the year 2000. We are
currently analyzing the extent to which the Year 2000 issue affects our
major suppliers' systems, insofar as they relate to our business. We
cannot currently predict the extent to which the year 2000 issue will
affect our suppliers, or the extent to which we would be vulnerable to the
suppliers' failure to remedy any Year 2000 issues on a timely basis.
Employees
At the end of 1998, we had 117 full-time employees, 99 of whom were
located in the U.S. and 18 who were located in Sweden. Certain of our
Swedish employees are members of national unions.
Financial Information about Foreign and Domestic Operations and Export
Sales
The information is disclosed in Note 7 to the consolidated financial
statements included herein under Item 13.
ITEM 2. PROPERTIES
We lease a 20,000 square-foot facility in Ventura, California,
providing administrative, laboratory, manufacturing, and warehouse space.
Our corporate offices are also located in our Ventura facility. Key
manufacturing facilities include clean rooms, high-speed vial filling and
capping capabilities, and a freeze-drying capacity of up to 40,000 vials
per lot. Under the terms of the five-year lease agreement expiring in
1999, the base rent for this facility is approximately $110,000 per year
with annual increments tied to the Consumer Price Index. Operations from
our Biopool Canada subsidiary were transferred to this location during the
first half of 1998.
We also maintain a facility in West Chester, Pennsylvania, which
consists of 36,000 square feet on a seven and one-half acre lot in a
suburban office park. Special features within the facility include three
class 1000 clean rooms, each containing a class 100 horizontal laminar flow
hood. Associated with the clean rooms are a changing room, entry corridor,
19
<PAGE>
exit room, and pass-through dry heat and steam sterilizers. Two additional
clean rooms are designated as class 10,000. Each contains one or more
class 100 horizontal laminar flow hoods. Two manufacturing rooms contain
high-efficiency exhaust systems and class 1 respirator connections. There
is batch size capacity for bulk manufacture and sterile filtration for up
to 600 liters. Laboratory capabilities include serological assay,
defibrination, delipidation, adsorption, centrifugation, and determinations
for pH, protein, and chloride. Additional testing capabilities include
sterility testing and verification of cell concentration, fill volume, and
applied torque.
Our Swedish subsidiary, Biopool AB, leases a 10,725 square-foot
facility in Umea, Sweden, providing administrative, laboratory, warehouse,
and manufacturing space. The laboratories are particularly suited for the
preparation of high-quality biochemicals for use in our test kits. Annual
rent is approximately $98,000 pursuant to the terms of a ten-year lease
expiring in 2002. The lease provides for termination after four years
without penalty at the tenant's option.
ITEM 3. LEGAL PROCEEDINGS
We are not currently a party to, nor are we aware of, any legal
proceeding or claim against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted during the fourth quarter of the
fiscal year covered by this Report to a vote of stockholders, through the
solicitation of proxies, or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On June 3, 1998, our Board of Directors declared a dividend of one
common stock purchase right for each of our issued and outstanding shares
of common stock. The purchase rights are subject to the terms and
conditions of, the Right Agreement dated June 12, 1998, filed with the
Securities and Exchange Commission on June 26, 1998, on Form 8-A. The
purchase rights are not represented by separate certificates, but, instead,
initially will be evidenced by the certificates representing our
outstanding common stock.
20
<PAGE>
Pursuant to our stock repurchase program announced June 5, 1998, we had
repurchased at December 31, 1998, a total of 146,100 shares of our common
stock on the open market at an average purchase price of $0.81 per share.
We are at risk of our common stock being delisted from Nasdaq. On
October 8, 1998, we received a letter from Nasdaq stating that we do not
meet the minimum bid price requirement of $1.00 per share for continued
listing on the Nasdaq Small Cap Market. On March 12, 1999, we had a
hearing before the Nasdaq SmallCap Market in order to obtain an exemption
from the minimum bid price requirement. We are still awaiting the results
of that hearing. Since we do not currently meet the requirements for
continued listing, our common stock may be delisted. If our stock were
delisted, our common stock would trade on the OTC Bulletin Board-R-
(OTCBB). Any reduction in the quality of our trading market will make it
more difficult for our stockholders to sell our stock and obtain accurate
quotes of the market value of our stock.
Our common stock currently trades on The Nasdaq Stock Market-R- under
the symbol BIPL. The following sets forth the high and low trade prices for
our common stock for the periods indicated as reported by Nasdaq. We have
not paid any dividends since our inception and do not contemplate payment
of dividends in the foreseeable future.
<TABLE>
<CAPTION>
1998 1997
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
Fourth quarter $1.125 $0.500 $3.281 $2.125
Third quarter 1.375 0.688 2.563 2.000
Second quarter 2.938 1.125 2.750 1.938
First quarter 2.375 1.625 3.813 2.375
</TABLE>
(a) On March 19, 1999, the closing trade price of our common stock, as
reported by Nasdaq, was $0.625.
(b) As of March 19, 1999, we had 200 holders of record of our common
stock. A large number of shares are held in nominee name. Based
upon information provided by our transfer agent, American Stock
Transfer and Trust Company, we had approximately 3,000 shareholders
on the same date.
21
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1998 versus 1997
Sales
Sales were $15.0 million for the year ended December 31, 1998,
compared with $16.5 million for the year ended 1997. This represents a
decline of sales equal to $1.5 million or 9%.
We experienced back orders and disruptions in the supply of a certain
finished product throughout 1998 resulting in lost sales of more than
$800,000. Early this year, after considerable negotiations, we consummated
a long-term contract with an alternate source for a competing product which
should stabilize product availability. However, we do not anticipate the
return of former customers lost during the 1998 disruptions.
Our international sales of immunohematology products from our BCA
Division were down approximately $300,000 in 1998 compared with the prior
year, in part, as a result of the loss of business through certain key
distributors in Europe. We continue to seek new distributors or other
strategic business arrangements in these markets, although no assurances
can be made that satisfactory arrangements will become available.
Furthermore, our domestic sales, in general, suffered in 1998 as a
result of a recent shift in customer buying patterns. Increasingly,
purchasing decisions are being consolidated into the hands of fewer
national group purchasing organizations. As a result, we lost access to
certain customers.
We recently announced the expansion of our distribution agreement
with a major vendor and we continue to seek new supply agreements in an
effort to increase our exposure to national group purchasing organizations.
Furthermore, we hired a new vice President of Marketing and Business
Development with the express objective of developing and implementing new
strategies to significantly improve sales. Many of these new strategies
have been and continue to be implemented, and we see improving trends with
measurable results expected during the second quarter of 1999, although no
assurances can be made that such efforts will be successful in materially
increasing sales.
Our customers are dispersed over wide geographic areas, and no
customer exceeded 10% of sales in 1998. Sales in the United States and
Western Europe accounted for 65% and 21%, respectively, of total sales
during 1998.
22
<PAGE>
We feel that future sales will continue to be influenced by many
additional factors, including the introduction of new diagnostic test kits,
success in marketing our test kits to the clinical market, increased
awareness and demand for testing by physicians, expansion of our products
into new geographic areas through distributors and OEM relationships, and
direct sales through Company-employed sales representatives. Rapid changes
in technologies, demand level for certain diagnostic tests, price
competition, continued efforts worldwide to reduce health care costs
(including diagnostic testing), and the availability of high-quality raw
materials may also have a material impact on our short- and long-term
sales.
Costs and Expenses
Cost of sales were reduced by $398,000, or 4%, to $9.6 million in
1998, primarily as the result of lower sales as well as cost savings
associated with the consolidation of our Canadian operations effective July
1, 1998. As a percentage of sales, cost of goods sold rose to 64% in 1998
compared with 61% in 1997. This percentage increase is due, in part, to
price discounts given to certain new contracts and the fixed nature of
certain overhead costs relative to declining sales. We anticipate that
competitive pricing pressures will continue into the foreseeable future.
Selling, general and administrative expenses were reduced by
$403,000, or 9%, to $4.2 million in 1998. This reduction was due, in part,
to the exclusion of incremental charges, approximating $90,000 in 1997, for
costs associated with the transition of the then newly acquired BCA
business. Further cost savings were created by the consolidation of our
Canadian operations and the elimination of all management bonuses for 1998.
Research and development expenses were reduced by $30,000, or 7%, to
$402,000 in 1998, primarily as a result of the Canadian consolidation. We
expect to increase research and development activities in 1999 to improve
our product lines, develop new diagnostic reagents in hemostasis and blood
group serology, and evaluate newer technologies that may be applicable to
current and future diagnostic test kits.
On December 23, 1997, we announced the restructuring of our
operations by closing our facilities in Canada and consolidating the
operations of our Biopool Canada subsidiary with operations conducted at
our facilities in Ventura, California. Restructuring charges of $342,000
were recorded in the fourth quarter of 1997 and $144,000 in 1998. The
transfer of technology, manufacturing, and administrative functions was
completed June 30, 1998, and no additional restructuring charges are
anticipated. As expected, cost savings of approximately $150,000 from the
consolidation were realized in the second half of 1998.
23
<PAGE>
Interest expense decreased $99,000, or 33%, to $205,000 in 1998 as a
result of lower outstanding loan balances. Total debt outstanding was
$1,988,000 and $2,837,000 as of December 31, 1998 and 1997, respectively.
Future interest expense will be further reduced as a result of continued
principal payments and a 1% interest rate decrease effective August 15,
1998.
Income Taxes
The Company's 1998 income tax benefit primarily represents state
franchise and foreign government income tax expense, which was offset by
the estimated future benefit of deferred taxes generated during 1998, and a
decrease in deferred taxes payable, which resulted from changes in the
Company's estimates as to certain tax liabilities. The income tax provision
for 1997 included benefits related to the utilization of domestic NOL
carryforwards.
Financial Condition
Our liquidity and capital resources remained strong throughout 1998.
Working capital as of December 31, 1998, was $5.7 million, with a current
ratio of 3.4 to 1.0. Approximately $849,000 of cash was used to pay down
debt during 1998. The total debt to equity ratio at December 31, 1998, was
21%. During the third quarter of 1998, we restructured our bank term loan
to reduce the interest rate by 1% and extend the term by 18 months. Our
current availability of cash, lines of credit, working capital, and cash
flow from operations are adequate to meet our needs for at least the next
twelve months. We continue to seek potential acquisitions and sources of
capital to finance such acquisitions, although we have no commitments for
either at this time.
On June 3, 1998, our Board of Directors declared a dividend of one
common stock purchase right for each of our issued and outstanding shares
of common stock. The purchase rights are subject to the terms and
conditions of the Right Agreement dated June 12, 1998, filed with the
Securities and Exchange Commission on June 26, 1998, on Form 8-A. The
purchase rights are not represented by separate certificates, but, instead,
initially will be evidenced by the certificates representing our
outstanding common stock.
Pursuant to our stock repurchase program announced June 5, 1998, we
had repurchased at December 31, 1998, a total of 146,100 shares of our
common stock on the open market at an average purchase price of $0.81 per
share.
We are at risk of our common stock being delisted from Nasdaq. On
October 8, 1998, we received a letter from Nasdaq stating that we do not
meet the minimum bid price requirement of $1.00 per share for continued
listing on the Nasdaq SmallCap Market. On March 12, 1999, we had a hearing
24
<PAGE>
before the Nasdaq SmallCap Market in order to obtain an exemption from the
minimum bid price requirement. We are still awaiting the results of that
hearing. Since we do not currently meet the requirements for continued
listing, our common stock may be delisted. If our stock were delisted, our
common stock would trade on the OTC Bulletin Board-R- (OTCBB). Any
reduction in the quality of our trading market will make it more difficult
for our stockholders to sell our stock and obtain accurate quotes of the
market value of our stock.
Year 2000 Readiness
We have formulated and are implementing a Year 2000 Readiness Plan.
Phase I of this Plan, assessment and identification of potential issues, is
currently underway. As part of Phase I, we have determined that we should
not experience any material Year 2000 problems with our products and other
non-information technology systems, and are assessing both our internal
information technologies and those of our third party suppliers and
customers. To date, we are not aware of any material problems with either
our own or any third party systems, and expect to complete Phase I by April
30, 1999. Phase II of the Plan will consist of remediation efforts, which we
have targeted for completion by June 30, 1999; however, since we have not yet
determined all potential risks, we can give no assurance that Phase II will
be fully completed by that date.
To date, we have spent an immaterial amount on our compliance program,
and do not expect to spend in excess of $20,000 to complete both Phases of
our Plan. The foregoing costs do not include our internal costs (principally
payroll costs for those persons working on the compliance program), which
costs we do not track.
We are unable at this time to fully assess our reasonably likely "worst
case" scenario. However, failures to correct Year 2000 systems, our own,
certain key distributors or certain key vendors, could result in failures or
interruptions of critical business systems which could possibly have a
material impact on our liquidity and financial condition. We do not
anticipate material problems with our power supply or telecommunications
systems.
Forward Looking Statements
Except for the historical information contained herein, this report
contains forward-looking statements (identified by the words "estimate,"
"anticipate," "expect," "believe," and similar expressions) which are based
upon our expectations as of the date made. These forward-looking
statements are subject to risks, uncertainties and factors that could cause
actual results to differ materially from the results anticipated in the
25
<PAGE>
forward-looking statements and include, but are not limited to,
competitors' pricing strategies and technological innovations, changes in
health care and government regulations, litigation claims, foreign currency
fluctuation, product acceptance, Year 2000 issues, as well as other factors
discussed in our previous Report on Form 10-KSB.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data have been included
under Item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated by reference to the Company's definitive Proxy Statement
to be filed with the Securities and Exchange Commission on or before April
30, 1999.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's definitive Proxy Statement
to be filed with the Securities and Exchange Commission on or before April
30, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's definitive Proxy Statement
to be filed with the Securities and Exchange Commission on or before April
30, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's definitive Proxy Statement
to be filed with the Securities and Exchange Commission on or before April
30, 1999.
26
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) The following consolidated financial statements of
Biopool International, Inc., and subsidiaries are hereby included by
reference to Item 7:
PAGE NO.
Report of Independent Auditors 31
Consolidated balance sheets as of December 31,
1998 and 1997 32
Consolidated statements of income for the years
ended December 31, 1998 and 1997 34
Consolidated statements of stockholders' equity
for the years ended December 31, 1998 and 1997 35
Consolidated statements of cash flows for the years
ended December 31, 1998 and 1997 36
Notes to consolidated financial statements 37
(3) Listing of Exhibits
EXHIBIT NO.
3.1 Certificate of Incorporation (1)
3.2 By Laws (1)
4.1 Shareholder Rights Plan (3)
4.2 Holders of Common Stock Purchase Warrants
10.2 1987 Stock Option Plan (1)
10.2 1993 Stock Incentive Plan (2)
21 Subsidiaries of the Registrant
------------------------------------------------------------------
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (File No. 33-20584).
(2) Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
(3) Incorporated by reference to Registrant's Form 8-A filed June
26, 1998.
27
<PAGE>
(b) Reports on Form 8-K filed during the fourth quarter of 1998:
Form 8-K dated October 6, 1998.
Item 5. Other:
(1) Announcement of Chief Operating Officer's resignation
effective November 30, 1998;
(2) Announcement of notification received from The Nasdaq
SmallCap Market October 6, 1998, that the Company will be
subject to delisting effective with the close of business on
January 6, 1999, if the Company is unable to demonstrate
compliance with Nasdaq's minimum $1.00 bid price
requirement.
28
<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.
Biopool International, Inc.
Date: March 30, 1999 BY: /s/ Michael D. Bick
______________ ________________________
Michael D. Bick, Ph.D.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Michael D. Bick
_________________________ Chairman and March 30, 1999
Michael D. Bick, Ph.D. Chief Executive Officer
/s/ Robert K. Foote
_________________________ Chief Financial Officer March 30, 1999
Robert K. Foote
/s/ Douglas L. Ayer
_________________________ Director March 30, 1999
Douglas L. Ayer
/s/ N. Price Paschall
_________________________ Director March 30, 1999
N. Price Paschall
/s/ James H. Chamberlain
_________________________ Director March 30, 1999
James H. Chamberlain
29
<PAGE>
ANNUAL REPORT ON FORM 10-KSB
ITEM 13(a)(1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
YEAR ENDED DECEMBER 31, 1998
BIOPOOL INTERNATIONAL, INC.
VENTURA, CALIFORNIA
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Biopool International, Inc.
We have audited the accompanying consolidated balance sheets of Biopool
International, Inc., as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Biopool International, Inc., at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Woodland Hills, California
March 26, 1999
31
<PAGE>
<TABLE>
BIOPOOL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
1998 1997
_______________________________________________________________________
(in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 941 $ 1,376
Accounts receivable, net of allowance
for doubtful accounts of $226,000 and
$81,000 in 1998 and 1997, respectively 2,654 2,677
Inventories 4,126 3,784
Prepaid expenses and other current
assets 395 286
_______________________________________________________________________
Total current assets 8,116 8,123
Property and equipment
Land 650 650
Building 1,750 1,750
Leasehold improvements 852 844
Processing and lab equipment 2,501 2,495
Furniture and fixtures 734 844
_______________________________________________________________________
Total property and equipment 6,487 6,583
Less accumulated depreciation (2,758) (2,398)
_______________________________________________________________________
Property and equipment, net 3,729 4,185
Other assets
Deferred tax benefits 759 686
Intangible assets, net 681 684
_______________________________________________________________________
Total other assets 1,440 1,370
_______________________________________________________________________
TOTAL ASSETS $13,285 $13,678
_______________________________________________________________________
_______________________________________________________________________
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
<TABLE>
BIOPOOL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(continued)
<CAPTION>
December 31,
1998 1997
_______________________________________________________________________
(in thousands except share data)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 601 $ 513
Accrued expenses 1,231 1,175
Current portion of long-term debt 572 964
_______________________________________________________________________
Total current liabilities 2,404 2,652
Long-term debt, net 1,416 1,873
Deferred tax liability 108 108
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.01 par value, 50,000,000
shares authorized; 8,540,886 and
8,648,828 shares issued and outstanding
at December 31, 1998 and 1997,
respectively 85 86
Additional paid-in capital 10,803 10,855
Accumulated deficit (1,261) (1,675)
Accumulated other comprehensive loss (270) (221)
_______________________________________________________________________
Total stockholders' equity 9,357 9,045
_______________________________________________________________________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,285 $13,678
_______________________________________________________________________
_______________________________________________________________________
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
<TABLE>
BIOPOOL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31,
1998 1997
_______________________________________________________________________
(in thousands except share data)
<S> <C> <C>
Sales $15,048 $16,505
Cost of sales 9,625 10,023
_______________________________________________________________________
Gross profit 5,423 6,482
Operating expenses:
Selling, general and administrative 4,222 4,625
Research and development 402 432
Restructuring costs 144 342
_______________________________________________________________________
Total operating expenses 4,768 5,399
Interest expense 205 304
Other (income) expense, net 42 (52)
_______________________________________________________________________
Income before income taxes 408 831
Income tax benefit 6 12
_______________________________________________________________________
Net income $ 414 $ 843
_______________________________________________________________________
_______________________________________________________________________
Earnings per share
Basic $ 0.05 $ 0.10
Diluted $ 0.05 $ 0.09
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
<TABLE>
BIOPOOL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share data)
<CAPTION>
Additional
Common Stock paid-in
Shares Amount capital
______________________________________________________________________
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 8,570,380 $ 86 $10,737
Net income -- -- --
Foreign currency translation -- -- --
Comprehensive income
Issuance of common stock 78,448 -- 118
_____________________________________________________________________
BALANCE AT DECEMBER 31, 1997 8,648,828 86 10,855
Net income -- -- --
Foreign currency translation -- -- --
Comprehensive income
Issuance of common stock 38,158 -- 64
Repurchase of common stock (146,100) (1) (116)
______________________________________________________________________
BALANCE AT DECEMBER 31, 1998 8,540,886 $ 85 $10,803
<CAPTION>
Accumulated
other com-
Accumulated prehensive
Deficit income(loss) Total
______________________________________________________________________
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 $(2,518) $ 47 $ 8,352
Net income 843 -- 843
Foreign currency translation -- (268) (268)
Comprehensive income 575
Issuance of common stock -- -- 118
______________________________________________________________________
BALANCE AT DECEMBER 31, 1997 (1,675) (221) 9,045
Net income 414 -- 414
Foreign currency translation -- (49) (49)
Comprehensive income 365
Issuance of common stock -- -- 64
Repurchase of common stock -- -- (117)
______________________________________________________________________
BALANCE AT DECEMBER 31, 1998 $(1,261) $(270) $ 9,357
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
<TABLE>
BIOPOOL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
1998 1997
__________________________________________________________________________
(in thousands)
<S> <C> <C>
Operating activities
Net Income $ 414 $ 843
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 635 627
Amortization 49 104
Loss on disposal 28 39
Other non-current balance sheet changes (119) (281)
Changes in operating assets and liabilities:
Accounts receivable 23 (1,117)
Inventories (342) 286
Prepaid expenses and other current assets (109) 3
Accounts payable and accrued expenses 144 700
__________________________________________________________________________
Net cash provided by operating activities 723 1,204
Investing activities
Deposit on acquisition -- 4,500
Acquisition of BCA Division -- (4,701)
Additions to property and equipment (213) (569)
Proceeds from sale of equipment 6 --
__________________________________________________________________________
Net cash used in investing activities (207) (770)
Financing activities
Bank borrowings -- 260
Repayment of long-term debt (849) (1,206)
Repurchase of common stock (117) --
Issuance of common stock 64 90
__________________________________________________________________________
Net cash provided by (used in) financing activities (902) (856)
Effect of exchange rates (49) (221)
__________________________________________________________________________
Net increase (decrease) in cash (435) (643)
Cash and cash equivalents, beginning of year 1,376 2,019
__________________________________________________________________________
Cash and cash equivalents, end of year $ 941 $ 1,376
__________________________________________________________________________
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 204 $ 282
Income taxes $ 128 $ 356
</TABLE>
36
<PAGE>
BIOPOOL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Biopool International, Inc. ("Biopool") was incorporated in 1987 in the
state of Delaware. Biopool and its wholly-owned subsidiary, Biopool AB
("Biopool Sweden"), a Swedish corporation, and its BCA Division are
currently engaged in the research, development, production, and sale of
test kits used to assess and diagnose disorders of the vascular system.
Principles of consolidation
The consolidated financial statements of the Company include the
accounts of Biopool and its wholly-owned subsidiary and division. All
significant intercompany balances and transactions are eliminated in
consolidation.
Revenues
Revenues are recorded on the day products are shipped from the
Company's facilities.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassification
Certain data in the prior year consolidated financial statements have
been reclassified to conform to the 1998 presentation.
Cash and cash equivalents
Cash and cash equivalents represent highly liquid investments and which
mature within three months of date of purchase.
37
<PAGE>
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property and equipment
Property and equipment are stated at cost. Depreciation is generally
provided on a straight-line basis over their estimated useful lives. The
Company's building is depreciated over 30 years. Leasehold improvements
are generally depreciated over their estimated useful lives or over the
period of the lease, whichever is shorter. All other assets are
depreciated over five to ten years.
Intangibles
Management periodically reviews intangible assets to determine
recoverability of these assets. Legal fees and other direct costs incurred
in obtaining patents are capitalized as incurred. Such costs are amortized
over the shorter of the life of the patent (seventeen years) or the related
product on a straight-line basis. Accumulated amortization at December 31,
1998 and 1997 totaled $72,000 and $61,000, respectively. The excess of
cost over net assets of acquired companies is being amortized using the
straight-line method over a period ranging from ten to twenty years.
Accumulated amortization at December 31, 1998 and 1997 totaled $404,000 and
$366,000, respectively.
Research and development costs
Research and development costs are expensed when incurred and include
both internal research and development costs and payments to third parties
by the Company.
Income taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (see Footnote
8).
Comprehensive income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on the Company's net income or stockholders'
38
<PAGE>
equity. SFAS No. 130 requires unrealized gains and losses on the
Company's foreign currency translation adjustment to be included in other
comprehensive income.
Segment Reporting
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which establishes standards under which companies
report information about operating segments in financial statements (see
Footnote 7).
Foreign currency translation
Biopool Sweden assets and liabilities are translated into U.S. dollars
at the year-end exchange rate. The amounts in the consolidated statements
of income are translated at the weighted average exchange rate during the
year. Cumulative translation adjustments are shown separately in
stockholders' equity and, accordingly, do not impact the results of
operations.
Exchange adjustments resulting from the foreign currency transactions
are generally recognized in net earnings and are generally insignificant.
Concentration of credit risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of temporary cash
investments and trade receivables. At December 31, 1998, substantially all
cash and cash equivalents were on deposit with two financial institutions.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base
and their dispersion across many different geographic areas. No single
customer had accounts receivable greater than 10% of the net balance due at
December 31, 1998. Generally, the Company does not require collateral or
other security to support customer receivables.
Certain key raw materials are periodically subject to disruption. Such
disruptions were experienced in 1998 resulting in reduced sales. While the
Company continues to seek additional sources for these key raw materials,
this could occur again in the future and could have a detrimental impact on
the sale of our products.
The Company is dependent upon third party distributors for a material
portion of our international sales. If we lose any material distributor,
our business could be materially adversely affected.
39
<PAGE>
Earnings per share
Basic earnings per share is based upon the weighted-average number of
common shares outstanding. Diluted earnings per share is based upon the
weighted-average number of common shares and dilutive potential common
shares outstanding. Potential common shares are outstanding options under
the Company's stock option plans and outstanding warrants, which are
included under the treasury stock method.
<TABLE>
The following table sets forth the computation for basic and diluted
earnings per share (in thousands except share data):
<CAPTION>
Years ended December 31,
1998 1997
<S> <C> <C>
Numerator for basic and diluted earnings
per share - net income $ 414 $ 843
______ ______
Denominator:
Denominator for basic earnings per share -
weighted-average shares 8,650 8,617
Effect of dilutive securities - employee
stock options and warrants 113 495
______ ______
Denominator for diluted earnings per share -
adjusted weighted-average shares 8,763 9,112
______ ______
Basic earnings per share $ 0.05 $ 0.10
Diluted earnings per share $ 0.05 $ 0.09
</TABLE>
Options and warrants to purchase 984,365 and 115,000 shares with
exercise prices greater than the average market prices of common stock were
outstanding during the years ended December 31, 1998 and 1997,
respectively. These options and warrants were excluded from the respective
computations of diluted earnings per share because their effect would be
anti-dilutive.
Accounting for stock based compensation
Stock option grants are set at the closing price of the Company's
common stock on the day prior to the date of grant. Therefore, under the
principles of APB Opinion No. 25, the Company does not recognize
compensation expense associated with the grant of stock options. SFAS No.
40
<PAGE>
123, "Accounting for Stock-Based Compensation," requires the use of option
valuation models to provide supplemental information regarding options
granted after 1994. Pro forma results of operations which would have
resulted as a result of recognizing the fair value of such grants are
disclosed under Footnote 6.
2. INVENTORIES (in thousands)
<TABLE>
Inventories consist of the following:
<CAPTION>
1998 1997
______ ______
<S> <C> <C>
Raw materials $1,408 $ 821
Work-in-process 1,539 1,661
Finished goods 1,179 1,302
______ ______
$4,126 $3,784
</TABLE>
3. LONG-TERM DEBT (in thousands)
<TABLE>
<CAPTION>
Long-term debt consists of the following: 1998 1997
_______ _______
<S> <C> <C>
Biopool International
Term loan payable to a bank, due in monthly
installments of $44,100 plus interest at a
fixed rate of 7.89%, due August 2002,
collateralized by accounts receivable,
inventories, and property and equipment of
Biopool International. $1,938 $2,698
Other 50 139
______ ______
Total 1,988 2,837
Less portion due within one year (572) (964)
______ ______
Long-term debt, net $1,416 $1,873
</TABLE>
Based on borrowing rates currently available to the Company for bank
loans with similar terms and maturities, the fair value of the Company's
long-term debt approximates the carrying value.
41
<PAGE>
The term loans payable contain certain restrictions, including capital
expenditures and payment of dividends. The agreements also require the
Company to maintain certain financial ratios. During 1998, the Company
violated two loan covenants; minimum net income and repurchase of Company
stock. The bank waived these two covenants for the 1998 period.
During 1998, the Company renegotiated the terms of the existing loan.
The interest rate was reduced from 8.77% to 7.89%, and the maturity date
was extended by 18 months.
Maturities of long-term debt for the five years succeeding December 31,
1998, are $572,000 in 1999, $537,000 in 2000, $529,000 in 2001, $350,000 in
2002, and none thereafter.
As of December 31, 1998, the Company had lines of credit totalling
$500,000, all of which were unused and available.
4. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain equipment and facilities under non-
cancellable operating leases. Lease expense for 1998 and 1997 was
approximately $236,000 and $255,000, respectively. At December 31, 1998,
approximate minimum annual lease commitments were $247,000 in 1999,
$143,000 in 2000, $143,000 in 2001, $143,000 in 2002, and $143,000 in 2003,
and none thereafter.
Royalties
The Company has joint research and development contracts under which
royalties will be paid as products are introduced into the market. The
royalties range from 3% to 15% of sales of the related products. Certain
contracts require additional payouts of 25% of sales, as defined, if
licenses are sold. Royalty expense amounted to $93,000 and $86,000 in 1998
and 1997, respectively.
Litigation
The business of the Company from time to time gives rise to routine
litigation. In management's opinion, there are no known actions or claims
pending or threatened at this time.
42
<PAGE>
5. EQUITY
Shareholder rights plan
On June 3, 1998, the Company declared a dividend of one common stock
purchase right for each of the Company's issued and outstanding shares of
common stock. The purchase rights are subject to the terms and conditions
of the Right Agreement dated June 12, 1998, filed with the Securities and
Exchange Commission on June 26, 1998, on Form 8-A. The purchase rights are
not represented by separate certificates, but, instead, initially will be
evidenced by the certificates representing outstanding common stock.
Repurchase of common stock
Pursuant to the Company's stock repurchase program announced June 5,
1998, the Company had repurchased a total of 146,100 shares of common stock
on the open market during 1998 at an average purchase price of $0.81 per
share.
6. STOCK OPTION PLANS
The Company has two stock option plans (the "Plans") for the benefit of
employees, officers, directors, and consultants of the Company. Under the
Plans, a total of 2,282,549 shares of the Company's common stock were
reserved for issuance. Options granted under the Plans are generally
exercisable for a period of ten years from the date of grant at an exercise
price that is not less than the last trade value of the common stock on the
day preceding the date of grant. Options granted under the Plans generally
vest over a one- to four-year period from the date of the grant.
43
<PAGE>
<TABLE>
Stock option activity for 1997 and 1998 was as follows:
<CAPTION>
Weighted
Average
Shares Exercise
Outstanding Price Range Price
_________________________________________________________________________
<S> <C> <C> <C>
Balance at
January 1, 1997 1,285,111 $0.94 - 3.13 $1.62
__________
Granted 270,163 2.28 - 2.68 2.46
Exercised (78,435) 0.94 - 1.44 1.15
Cancelled (66,018) 1.44 - 2.50 2.11
__________
Balance at
December 31, 1997 1,410,821 0.94 - 3.13 1.78
Granted 621,693 0.63 - 2.25 1.22
Exercised (29,611) 0.94 - 1.44 1.27
Cancelled (294,652) 0.94 - 3.13 2.04
__________
Balance at
December 31, 1998 1,708,251 0.63 - 2.68 1.54
</TABLE>
At December 31, 1998, 229,239 shares were available for future grants
under the Plans.
The weighted average remaining contractual life of outstanding options
at December 31, 1998, was 7.2 years. At December 31, 1998 and 1997,
respectively, there were 833,718 and 819,083 options exercisable with
weighted average exercise prices of $1.50 and $1.52.
Pro forma information regarding net income and earnings per share shown
below was determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value of
the options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions: risk-free
interest rates of 5.5% for 1998 and 6.1% to 6.6% in 1997; dividend yields of
0% for 1998 and 1997; volatility factors of the expected market price of the
Company's common stock of 6.1% for 1998 and 55% for 1997; and expected life
of the options of one to five years as grouped by specific employee
classifications. These assumptions resulted in weighted average fair values
of $0.27 and $0.87 per share for stock options granted in 1998 and 1997,
respectively.
44
<PAGE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's employee stock
options have characteristics significantly different from those of traded
options such as vesting restrictions and extremely limited transferability.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the option vesting periods. The pro forma effect
on net income for 1998 and 1997 is not representative of the pro forma
effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior
to 1995. Pro forma information in future years will reflect the
amortization of a larger number of stock options granted in several
succeeding years. The Company's pro forma information is as follows (in
thousands except share data):
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997
_______ _______
<S> <C> <C>
Pro forma net income $ 270 $ 655
Pro forma earnings per share
Basic 0.03 0.08
Diluted 0.03 0.07
</TABLE>
As of December 31, 1998, the Company had 221,634 warrants outstanding
and exercisable for prices ranging from $1.30 to $3.00 with a weighted
average exercise price of $2.01 per share.
7. SEGMENT INFORMATION
The Company currently operates in one industry, in vitro diagnostic
medical products. However, the Company has three reportable segments;
Biopool International, its BCA Division, and its wholly-owned operating
subsidiary, Biopool Sweden. The reportable segments are each managed
separately because they manufacture and sell distinct products with
different production processes. Biopool International manufactures
hemostasis and drugs-of-abuse products, while the Company's BCA Division
manufactures blood group serology products and Biopool Sweden primarily
manufactures fibrinolytic system testing kits.
The Company evaluates the segments and allocates resources based on
net income or loss. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting policies.
45
<PAGE>
<TABLE>
The consolidated financial statements include the following information
for Biopool Sweden, BCA Division, and Biopool International in thousands of
dollars.
<CAPTION>
Elimina-
Biopool BCA Biopool tions and Consoli-
Sweden Division International Corporate dated
___________________________________________________________________________
<S> <C> <C> <C> <C> <C>
1998
Sales $ 2,822 $ 7,177 $ 6,274 $(1,225) $15,048
Less intercompany (540) -- (685) 1,225 --
_______ _______ _______ _______ _______
Sales to unaffil-
iated customers 2,282 7,177 5,589 -- 15,048
Net income (loss) 277 (35) 172 414
Identifiable assets 2,066 6,018 5,201 13,285
___________________________________________________________________________
1997
Sales 2,794 8,300 6,611 (1,200) 16,505
Less intercompany (450) -- (750) 1,200 --
_______ _______ _______ _______ _______
Sales to unaffil-
iated customers 2,344 8,300 5,861 -- 16,505
Net income 335 107 454 (53) 843
Identifiable assets 1,945 6,138 5,527 68 13,678
</TABLE>
Product sales to affiliates are generally priced at cost plus 30%.
<TABLE>
Information regarding the Company's sales by geographic locations is as
follows:
<CAPTION>
1998 1997
_______ _______
<S> <C> <C>
United States $ 9,783 $10,372
Western Europe 3,194 3,821
Asia/Pacific Region 753 796
Other 1,318 1,516
_______ _______
Total $15,048 $16,505
</TABLE>
46
<PAGE>
8. INCOME TAXES
<TABLE>
The provision for income taxes is composed of the following (in
thousands):
<CAPTION>
1998 1997
_____ _____
<S> <C> <C>
Current:
Federal $ (61) $ 50
State 45 76
Foreign 83 148
_____ _____
67 274
Deferred:
Reduction of valuation allowance -- (250)
Other (73) (36)
_____ _____
Net benefit $ (6) $ (12)
</TABLE>
<TABLE>
The reconciliation of income tax computed at the U.S. Federal Statutory
rates to the income tax provision is as follows:
<CAPTION>
1998 1997
_____ _____
<S> <C> <C>
Tax at U.S. statutory rate (34%) $ 139 $ 283
State income tax 45 76
Creation (utilization) of foreign
and U.S. net operating loss
carryforwards (166) (281)
Reduction of valuation allowance -- (250)
Foreign taxes 83 148
Other (107) 12
_____ _____
Net benefit $ (6) $ (12)
</TABLE>
47
<PAGE>
<TABLE>
The components of the Company's deferred tax assets and liabilities at
December 31, are as follows:
<CAPTION>
1998 1997
_____ _____
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 474 $ 534
Other 285 152
_____ _____
759 686
Deferred tax liabilities:
Foreign (108) (108)
_____ _____
Deferred taxes, net benefit $ 651 $ 578
</TABLE>
The Company's 1998 income tax benefit primarily represents state franchise
and foreign government income tax expense, which was offset by the estimated
future benefit of deferred taxes generated during 1998, and a decrease in
deferred taxes payable, which resulted from changes in the Company's estimates
as to certain tax liabilities, the effect of which is included in "Other" above.
The income tax provision for 1997 included benefits related to the utilization
of domestic NOL carryforwards.
Biopool Sweden files separate income tax returns in Sweden. At
December 31, 1998, the Company had available net operating loss
carryforwards of approximately $1,400,000 in the United States. The United
States carryforwards expire in varying amounts through 2010. Under section
382 of the Internal Revenue Code, the utilization of the federal net
operating loss carryforwards may be limited based on changes in the
percentage of ownership in the Company.
The pretax income of the Company's foreign subsidiaries was
approximately $268,000 and $510,000 at December 31, 1998 and 1997,
respectively.
Undistributed earnings of the Company's foreign subsidiaries amounted
to approximately $1,276,000 at December 31, 1998. Those earnings are
considered to be indefinitely reinvested and, accordingly, no provision for
U.S. federal and state income taxes has been provided thereon.
9. RETIREMENT PLAN
The Company has a defined contribution plan for its domestic
operations under which employees who have satisfied minimum age and service
requirements may defer compensation pursuant to Section 401(k) of the
Internal Revenue Code. Participants in the plan may contribute between 1%
and 12% of their pay, subject to the limitations placed by the IRS. The
Company, at its discretion, may match a portion of the amount contributed
by the employee. The Company contributed $97,000 and $141,000 in 1998 and
1997, respectively.
48
<PAGE>
10. RESTRUCTURING CHARGES
In December 1997, the Company announced the restructuring of its
operations by closing its facilities in Canada and consolidating the
operations of its subsidiary, Biopool Canada, with its operations conducted
at the Company's facilities in Ventura, California. The transition of the
technology and operations were completed effective June 30, 1998. A
restructuring charge of $342,000 was recorded in the fourth quarter of 1997
to accrue primarily for termination benefits ($111,000) for all twelve
employees, lease termination costs ($60,000), asset abandonments
($136,000), and goodwill impairment ($35,000). In addition, $144,000
relating to normal transition costs was incurred during the first six
months of 1998. During 1998, the Company paid $340,000 ($106,000 for
termination benefits) and disposed of $113,000 in assets. At December 31,
1998, the remaining restructuring liability of $33,000 related to lease
termination costs.
49
<PAGE>
EXHIBIT 4.2
BIOPOOL INTERNATIONAL, INC.
Holders of Stock Purchase Warrants
A Warrant Agreement was entered into March 31, 1997, by and
between Biopool International, Inc., and N. Price Paschall. The
Company granted Mr. Paschall the warrant to purchase up to 50,000
shares of the Company's common stock, par value $0.1 per share,
exercisable for a term of ten years. The warrant was granted at
an exercise price of $1.875 per share, equal to the fair market
value of the Company's common stock the date prior to grant. (1)
A Warrant Agreement was entered into July 8, 1998, by and
between Biopool International, Inc., and Clayton H. Duke. The
Company granted Mr. Duke the warrant to purchase up to 10,000
shares of the Company's common stock, par value $.01 per share,
exercisable for a term of five years. The warrant was granted at
an exercise price of $1.30 per share, equal to the fair market
value of the Company's common stock the date prior to grant. (1)
_________________________________________________________________
(1) Warrant was granted by Warrant Agreement Form similar to
Warrant Agreement Forms incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
<PAGE>
EXHIBIT 21
BIOPOOL INTERNATIONAL, INC.
Subsidiary of the Registrant
Biopool AB ("Biopool Sweden")
P. O. Box 7133
S-907 04 Umea, Sweden
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 941,000
<SECURITIES> 0
<RECEIVABLES> 2,880,000
<ALLOWANCES> 226,000
<INVENTORY> 4,126,000
<CURRENT-ASSETS> 8,116,000
<PP&E> 6,487,000
<DEPRECIATION> 2,758,000
<TOTAL-ASSETS> 13,285,000
<CURRENT-LIABILITIES> 2,404,000
<BONDS> 0
0
0
<COMMON> 85,000
<OTHER-SE> 9,272,000
<TOTAL-LIABILITY-AND-EQUITY> 13,285,000
<SALES> 15,048,000
<TOTAL-REVENUES> 15,048,000
<CGS> 9,625,000
<TOTAL-COSTS> 14,393,000
<OTHER-EXPENSES> 42,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 205,000
<INCOME-PRETAX> 408,000
<INCOME-TAX> (6,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414,000
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
