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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

Commission file number 000-21615

BOSTON BIOMEDICA, INC.
(Exact Name of Registrant as Specified in its Charter)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        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-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes o    No ý

        The aggregate market value of the voting common stock held by non-affiliates of the registrant at February 26, 2003 was $9,242,956, based on the closing price of the common stock as quoted on the Nasdaq National Market on that date. The aggregate market value of the voting common stock held by non-affiliates of the registrant at June 28, 2002 was $19,458,478 based on the closing price of the common stock as quoted on the Nasdaq National Market on that date.

        As of February 25, 2003 there were 6,793,382 shares of the registrant's common stock outstanding.

PART I

ITEM 1. BUSINESS

General

        Boston Biomedica, Inc. ("BBI") and its wholly-owned subsidiaries (together, "the Company"), provide products and services for the detection and treatment of infectious diseases such as AIDS and Viral Hepatitis. The Company was organized as a "C" corporation in Massachusetts on August 15, 1978. and commenced significant operations in 1986. The Company has the following four business units, which are comparable to operating segments (the terms "business units" and "operating segments" are used herein interchangeably):

(1)

BBI Diagnostics, an ISO 13485 (as of December 12, 2002) certified manufacturer of quality control and other diagnostic products used to ensure the accuracy of in vitro diagnostic tests;



(2)

BBI Biotech Research Laboratories ("BBI Biotech"), the research and development arm of the Company which supplements its support for the other BBI business units with research contracts and repository services primarily for agencies of the United States government;



(3)

BBI Source Scientific ("BBI Source"), an ISO 9001 and EN 46001 certified developer and manufacturer of laboratory and medical instruments; and



(4)

Pressure Cycling Technology ("PCT"), the research, development and commercialization of products utilizing the Company's patented pressure cycling technology, to provide new solutions for a number of healthcare issues, including extraction of nucleic acids, inactivation of pathogens in human plasma, food safety, and genomics.

Recent Business Developments

        In 2002, the Company continued to pursue its strategy to leverage its scientific capabilities in microbiology, immunology, virology, and molecular biology to (1) capitalize on the end-user market for quality control products especially the molecular testing market, (2) develop new products and services, (3) enhance technical leadership, and (4) capitalize on complementary business operations. In October 2002, the Company engaged William Blair & Company, L.L.C., an investment banking firm, to advise the Company in the evaluation of strategic opportunities aimed at increasing shareholder value and increasing the capital needed for growth.

        The Company continued to expend significant resources on the research and development of its PCT products. As a result of these efforts, in September 2002, the Company released for sale the Barocycler™ instrument and disposable PULSE™ tubes, the Company's first products manufactured by the Company which utilize the Company's patented PCT. The Company's pressure cycling technology uses high pressure equipment to rapidly, reversibly, and repeatedly modulate solid and liquid phases of solutions and the binding interactions of biomolecules. The PCT utilized in the Barocycler™ and PULSE™ tubes releases biologically active nucleic acids and proteins from plant and animal tissues, as well as other organisms, which are not easily disrupted by standard chemical methods.

        In 2002, the Company also substantially completed its exit from the clinical laboratory segment of its business. The Company decided to exit from this business segment in late 2000. To that end, in February 2001, the Company completed the sale of the business and certain assets and liabilities of BBI Clinical Laboratories, Inc. ("BBICL"), a wholly-owned subsidiary, to a third party.

        The Company's non-voting ownership interest in its former wholly-owned subsidiary, Panacos Pharmaceuticals, Inc. ("Panacos"), the entity in which the Company transferred in January 2000 all of

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its technology related to its drug discovery and vaccine programs, consisting primarily of patents and related sponsored research agreements, was reduced to 16% of the outstanding equity of Panacos. In accordance with its strategic plans, Panacos obtained additional equity financing from third party investors in November 2000 and in February 2002, in order to obtain the substantial amount of capital required to progress to more advanced stages of drug development including human clinical trials.

        In 2001, the Company's Board of Directors authorized loans from the Company to Richard T. Schumacher, the Company's former Chairman and Chief Executive Officer and a current Director of the Company, totaling $450,000. Mr. Schumacher borrowed an additional $75,000 from the Company late in 2001.    In January 2002, the principal of these loans was repaid in full with a portion of the proceeds of the loans described in the following sentence. The Company's loans were replaced by the Company's pledge of a $1,000,000 interest bearing deposit at a financial institution to secure the Company's limited guaranty of loans in the aggregate amount of $2,418,000 from the financial institution to an entity controlled by Mr. Schumacher. In January 2003, the $1,000,000 was used to satisfy the Company's limited guaranty obligation to the financial institution. The Company has no further obligations to the financial institution. The Company maintains a junior security interest in the collateral pledged by Mr. Schumacher to the financial institution. This collateral includes certain of Mr. Schumacher's real property and all of his common stockholdings in the Company. The Company reflected the $1,000,000 pledge as restricted cash on its balance sheet until the cash was used to satisfy the Company's limited guaranty in January 2003 and since then has reflected a $1,000,000 loan receivable on its balance sheet.

        On February 14, 2003, the Company announced that the Company's Board of Directors had terminated Richard T. Schumacher as Chairman and Chief Executive Officer, effective immediately. Mr. Schumacher remains a Director of the Company. William A. Wilson, a Director, was named Chairman of the Board. Kevin W. Quinlan, President and Chief Operating Officer, continues to lead day-to-day operations. A special committee of the Board of Directors has been appointed to oversee the management of the affairs of the Company until such time as a new Chief Executive Officer is employed.

Industry Overview

        Infectious Disease Test Kits and Testing Methods.    Test kits contain in one compact package all of the materials necessary to run a test for an infectious disease. These materials include disposable diagnostic components, instructions, and reaction mixing vessels (generally 96-well plates or test tubes) that are coated with the relevant infectious disease antigens, antibodies or other materials. To perform the test, typically either a technician or a specially designed instrument mixes the solutions from the test kit with human blood specimens in a specific sequence according to the test kit instructions. The mixture must then "incubate" for up to 18 hours, during which time a series of biochemical reactions trigger signals (including color, light or radioactive count), that indicate the presence or absence and amount of specific indicators (or markers) of the particular disease in the specimen.

        Test kits generally employ one of three methods for infectious disease testing: microbiology, immunology or molecular biology. Traditional microbiology tests use a growth medium that enables an organism, if present, to replicate and be detected visually. Immunology tests detect the antigen or antibody, which is an indicator (marker) of the pathogen (e.g., virus, bacterium, fungus or parasite). Molecular diagnostic methods, such as the polymerase chain reaction ("PCR"), test for the presence of nucleic acids (DNA or RNA) that are specific to a particular pathogen.

        Most infectious disease tests currently use microbiological or immunological methods. However, molecular diagnostic methods are increasingly being used in research and clinical laboratories worldwide. The Company believes that the advent of molecular diagnostic methods complements rather than diminishes the need to test by microbiological and immunological procedures, because different

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test methods reveal different information about a disease state. The Company anticipates that as new test methods become more widespread, they will account for a larger portion of the Company's business.

        Quality Control for In Vitro Diagnostic Test Kits.    Customers use quality control products in order to develop and evaluate test kits (both infectious and non-infectious). Quality control products help ensure that test kits detect the correct analyte ("specificity"), detect it the same way every time ("reproducibility" or "precision"), and detect it at the appropriate levels ("sensitivity"). The major element of this quality control process is the continuous evaluation of test kits by the testing of carefully characterized samples that resemble the donor or patient samples routinely used with the test. Quality control is used in both the infectious and non-infectious disease markets, although currently it is not as prevalent among end-users of infectious disease test kits.

        The market for quality control products consists of three main customer groups: (i) manufacturers of test kits, (ii) regulatory agencies that oversee the manufacture and use of test kits, and (iii) end-users of test kits, such as hospitals, clinical reference laboratories, plasma centers, and blood banks.

Company Products and Services

Overview

        Through its business unit BBI Diagnostics, the Company offers a broad array of "Diagnostic Products," for in vitro diagnostic use, consisting of Quality Control Panels, Accurun® External Run Controls and ACCUCHART™ quality control software, and Diagnostic Components, all used in connection with infectious disease testing. Diagnostic Products are used throughout the entire test kit life cycle, from initial research and development, through the regulatory approval process and test kit production, to training, troubleshooting and routine use by end-users. The Company's Quality Control Panels, which combine human blood specimens with comprehensive quantitative data useful for comparative analysis, help ensure that test kits are as specific, reproducible, and sensitive as possible. The Company's Accurun® External Run Controls enable end-users of test kits to confirm the validity of results by monitoring test performance, thereby minimizing false negative test results and improving error detection. The Company's ACCUCHART quality control software is a web based software data management program for quality control products customers. In addition, the Company provides Diagnostic Components, which are custom processed human plasma and serum products, to test kit manufacturers.

        Through its wholly-owned subsidiary, BBI Source Scientific, Inc. ("BBI Source"), the Company designs, develops, manufactures and markets "Laboratory Instruments", primarily consisting of readers and washers and other small medical devices. These instruments are used in hospitals and clinics, and in research, environmental and food testing laboratories. Utilizing a common hardware technology platform, these instruments are used in connection with the performance of an in-vitro diagnostics test, including reading the test result. The Company's PCT products are produced at the BBI Source production facility. BBI Source also serves as a contract manufacturer of analytical instruments and biomedical devices.

        BBI Biotech Research Laboratories, Inc., another wholly-owned subsidiary, is the research and development "arm" of the Company, assisting in the development of new products and services for the other business units, such as the development of the PCT Barocycler™ and PULSE™tubes and related protocols used to prepare specimens. BBI Biotech seeks to obtain government grants and other research support wherever possible to help fund the cost of this research and development. In addition, BBI Biotech provides repository services for the United States government, and specialty reagents and molecular and cellular biology services for laboratories and test kit manufacturers.

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        The PCT segment involves research, development and commercialization of products utilizing the Company's patented PCT. In September 2002, the Company released for sale the Barocycler™ instrument and disposable PULSE™ tubes, the Company's first products manufactured by the Company which utilize the Company's patented PCT. PCT uses high pressure equipment to rapidly, reversibly, and repeatedly modulate solid and liquid phases of solutions and the binding interactions of biomolecules. PCT utilized in the Barocycler™ and PULSE™ tubes releases biologically active nucleic acids and proteins from plant and animal tissues, as well as other organisms, which are not easily disrupted by standard chemical methods.

        During each of the last three years, BBI Diagnostics and BBI Biotech contributed at least 15% of the Company's consolidated revenues. The National Institutes of Health, a United States Government agency and the largest customer of BBI Biotech, accounted for approximately 31%, 31% and 30%, respectively, of total consolidated revenues from continuing operations of the Company for the years ended December 31, 2002, 2001, and 2000, respectively. The Company's consolidated financial statements set forth in Item 8 of this report provide financial information relating to each of the Company's operating segments.

Diagnostic Products

        The Company manufactures its Diagnostic Products from human plasma and serum that are obtained from nonprofit and commercial blood centers, primarily in the United States. The Company has acquired and developed an inventory of approximately 20,000 individual blood units and specimens (with volumes ranging from 1 ml to 800 ml) which provides most of the raw material for its products. Within the Diagnostic Products class are two groups: Quality Control Products, consisting of Quality Control Panels, Accurun® External Run Controls and ACCUCHART™ quality control software, and Diagnostic Components.

Quality Control Panels

        Quality Control Panels consist of blood products characterized by the presence or absence of specific disease markers and a data sheet containing comprehensive quantitative data useful for comparative analysis. These Quality Control Panels are designed for measuring overall test kit performance and laboratory proficiency, as well as for training laboratory professionals. The Company's data sheets, which contain comprehensive quantitative data useful for comparative analysis, are an integral part of its Quality Control Panels. These data sheets are created as the result of extensive testing of proposed panel components in both the Company's laboratories and at major testing laboratories on behalf of the Company in the United States, Asia and Europe, including national public health laboratories, research and clinical laboratories and regulatory agencies. These laboratories are selected based on their expertise in performing the appropriate tests on a large scale in an actual laboratory setting; this testing process provides the Company's customers with the benefit that the Quality Control Panels they purchase from the Company have undergone rigorous testing in actual clinical laboratory settings. In addition, the Company provides information on its data sheets on the reactivity of panel components in all FDA licensed test kits and all leading European test kits for the target pathogen, as well as for all other appropriate markers of this pathogen. For example, the Company's HIV panel data sheets include anti-HIV by IFA, ELISA and western blot; HIV antigen by ELISA; and HIV RNA by several molecular diagnostic procedures. The Company's data sheets require significant time and scientific expertise to prepare.

        The Company first introduced Quality Control Panels in 1987. The Company currently offers a broad range of Quality Control Panels that address a variety of needs of manufacturers and regulators of test kits as well as blood banks, hospitals, clinical laboratories and other end-users. Prices for the Company's quality control seroconversion, performance and sensitivity panels range from $450 to $2,000 each, and its qualification, OEM, and verification panels generally range from $100 to $200 per panel.

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        Quality Control Panels currently span the immunologic markers for AIDS (i.e., HIV), Hepatitis (A, B and C), Lyme Disease and ToRCH (Toxoplasma, rubella, cytomegalovirus and herpes simplex virus).

        The following table describes the types, usage and customers of Quality Control Panel products currently offered by the Company:

QUALITY CONTROL PANELS

        As mentioned above, the Company's seroconversion and performance panels are comprised of rare plasma specimens which are obtained from individuals during the short period of time when the markers for a particular disease are converting from negative to positive. As a result, the quantity of

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any such panel is limited, so that the Company must replace these panels as inventory is sold with another panel comprised of different specimens from a different individual, equally rare. The Company believes that its inventory and relationships with blood centers affords it a competitive advantage in acquiring such plasma for replacement panels and developing new products to meet market demand. However, the Company cannot be certain these relationships will continue or that it will be able to continue to obtain such specimens.

Accurun® External Run Controls

        End-users of test kits use run controls to monitor test performance, in order to minimize false negative test results and improve error detection. Run controls consist of one or more specimens of known reactivity that are tested with donor or patient samples in an assay to determine whether the assay is performing within the manufacturer's specifications. Clinical laboratories generally process their patient specimens in a batch processing mode, and typically include 25 to 100 specimens to be tested in each batch (a "run"). Large laboratories may perform several runs per day, while smaller laboratories may perform only a single run each day, or sometimes only several runs per week. A clinical laboratory using a run control will place the run control product in a testing well or test tube, normally used for a specimen, and will test it in the same manner that it tests the donor or patient specimens. It will then compare the results generated to an acceptable range for the run control, determined by the user, to assess whether the results of the other, unknown specimens may be relied upon. The run control result must be within the acceptable range to be considered valid. This is often tracked visually using what is known as a Levey-Jennings chart. Depending upon a particular laboratory's quality control practices, it may use several run controls on each run or it may simply use a run control in a single run at the beginning and end of the day.

        The Company's AccuChart™ web based data management tracking and charting software, used as part of a laboratory's quality assurance program, runs on a personal computer and is designed to provide the data tracking capability needed to document laboratory performance.

        The Company's Accurun® family of products is targeted at the end-users of infectious disease test kits. The Company believes that it offers the most comprehensive line of serological and nucleic acid based run controls in the industry, and that its Accurun® products, in combination with its Quality Control Panel and Accuchart products, provide an extensive line of products for quality assurance in infectious disease testing. The Company intends to continue to expand its line of Accurun® products, thereby providing its customers with the convenience and cost effectiveness of a single supplier for independent run controls.

        The Company introduced its first four Accurun® Run Control products in 1993 and has since developed and released for sale an additional 63 Accurun® products. Eight products have been discontinued, for a total of 59 run controls available as of December 31, 2002. Forty-four of these products are available for clinical diagnostic purposes; the others currently are limited to research use. Current Accurun® External Run Control products generally range in price from $5 to $60 per milliliter.

Diagnostic Components

        Diagnostic Components are custom processed human plasma and serum materials supplied to infectious disease test kit manufacturers and combined (often after further processing by the manufacturer) with other materials to become various reagents (fluid components) of manufacturer's test kits. The Company supplies Diagnostic Components in three product lines: Normal Human Plasma and Serum, Basematrix, and Characterized Disease State Serum and Plasma. Normal Human Plasma is the clear liquid portion of blood which contains proteins, antibodies, hormones and other substances, with the Normal Human Serum product also having the clotting factors removed. Basematrix, the

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Company's proprietary processed serum product that has been chemically converted from plasma, is designed to be a highly-stable, lower cost substitute for most normal human serum and plasma applications. Characterized Disease State Serum and Plasma are collected from specific blood donors pre-selected because of the presence or absence of a particular disease marker. The Company often customizes its Diagnostic Components by further processing the raw material to meet the specifications of the test kit manufacturer. The Company's Diagnostic Components range in price from $0.25 to $60 per milliliter. The Company has also registered a trademark for its product, AccuChart Plus®, a quality control data management software program for analyzing, tracking and archiving daily run control data for monitoring test kit performance.

Laboratory Instruments

        BBI Source, the Laboratory and Diagnostics Instrumentation operating segment, designs, develops, manufactures and markets laboratory instruments and other small medical devices used in hospitals and clinics and in research, environmental and food testing laboratories. These instruments are generally sold on a private-label or OEM basis for other companies utilizing a common hardware technology platform. The instruments manufactured by the Company use advanced optical detection methods (luminescence, fluorescence, reflectance, photometry), robotics, fluidics, and unique software, all of which are desired by customers reselling or supplying state-of-the-art instrumentation systems to laboratories worldwide in various applications. This segment also manufactures the PCT Barocycler™ and PULSE™ tubes.

        Most of the Laboratory Instrumentation products currently being offered have been commercialized for a number of years and were primarily developed in conjunction with in vitro diagnostics test kit manufacturers prior to the acquisition of this segment in 1997. The Barocycler™ represents the Company's first major instrument-based product launch for the PCT segment. BBI Source also seeks to attract development partners for new prototype products. Management believes that these products address important market segments in biomedical and clinical diagnostic testing and in environmental monitoring and food testing research. The BBI Source product line currently includes the following:

        MicroChem® and MicroChemII® Photometers.    A compact, low-cost, single tube photometer designed for immunoassay and general chemistry applications, including infectious disease immuno assays, food and water safety testing.

        ChemStat® Automated Photometer.    A high-speed, automated photometer with a sample capacity of 95 tubes and a read rate of one sample per second. This product is suited for high-volume processing of immunoassay and general chemistry.

        E/LUMINA® II Luminescence Analyzer.    A flexible luminometer for both "flash" and "glow" luminescence methods, this automated system reads up to 114 samples and reports final results.

        EXECWASH® Washing System.    An automated immunoassay washing system that can be quickly configured by the user to wash different solid-phase assay formats by proprietary manifold designs. The EXEC-WASH washing system is fully compatible with a variety of other Company products, such as the ChemStat Automated Photometer and the E/LUMINA II Luminescence Analyzer.

        Protocol Design Software System.    A development tool for researchers and assay manufacturers, the program operates under Microsoft® Windows and serves as the master programming center for EXECWASH Washing systems to create fluid handling protocols.

        Verif-EYE®.    A reflectance reader for fast, reliable results for use in research and development or process inspection and verification by rapid test kit manufacturers.

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PCT Products

        The BBI Source facility manufactures the Company's products for the PCT segment. In September 2002, the Company released for sale the Barocycler™ instrument and disposable PULSE™ tubes, the Company's first products manufactured by the Company which utilize the Company's patented PCT. The Company's pressure cycling technology uses high pressure equipment to rapidly, reversibly, and repeatedly modulate solid and liquid phases of solutions and the binding interactions of biomolecules. The PCT utilized in the Barocycler™ and PULSE™ tubes releases biologically active nucleic acids and proteins from plant and animal tissues, as well as other organisms, which are not easily disrupted by standard chemical methods.

Services

        The Company seeks to focus its specialty laboratory services in the advanced biomedical research area. The Company concentrates its services in those areas of infectious disease testing which are complementary to its quality control and diagnostic products businesses.

Contract Research and Services

        The BBI Biotech operating segment offers a variety of research services in molecular biology, cell biology and immunology to governmental agencies, diagnostic test kit manufacturers and biomedical researchers. Molecular biology services include DNA extractions and sequencing, genotyping, DNA library construction and screening and development of custom nucleic acid amplification assays. Cell biology and immunology services include sterility testing, virus infectivity assays, cultivations of virus or bacteria from clinical specimens, preparation of viral or bacterial antigens and custom western blot assays.

        The Company currently provides contract research services under several contracts and grants. These services are primarily related to infectious disease diagnostics, in support of the products and services that the Company wishes to develop. Current contracts include the following: clinical trials support for candidate HIV vaccines and HBV therapies and a grant with NIH to develop an amplification-boosted analytical method, immuno-polymerase chain reaction (I-PCR) for the detection of prion proteins in the blood of humans and animals. Additional assays developed over the years include PCR based assays for HIV, Parvovirus B19, Hepatitis B virus, West Nile Virus, Lyme Disease, Babesiosis, Erhlichia, and HSV.

Blood Processing and Repository Services

        Since 1983, BBI Biotech has provided blood processing and repository services for the National Cancer Institute ("NCI"), also a part of the National Institutes of Health ("NIH"). The repository stores over 10,500,000 specimens and processes or ships up to several thousand specimens per week in support of various NIH cancer and virus research programs. In 1998, BBI Biotech received a six-year $4.7 million repository contract (including five one-year extension options) with the National Heart, Lung and Blood Institute of the NIH. In 1999, it received a seven-year, $9.6 million repository contract with the National Institute of Allergy and Infectious Disease. In 2000, BBI Biotech was awarded a one-year $854,000 subcontract by New England Research Institutes, Inc. to provide repository and related specimen processing and testing services for the Hepatitis C Antiviral Long-term Treatment against Cirrhosis (HALT-C) Trial, a clinical trial funded by the National Institutes of Diabetes and Digestive and Kidney Diseases (NIDDK), an institute of the NIH. Subsequent funding has continued. In 2001, BBI Biotech was awarded a $10.3 million NCI five year repository contract. In 2002 BBI Biotech was awarded a one year $1,109,357 subcontract by the University of Pittsburgh to provide repository, specimen processing and testing services on a NIDDK funded grant to study the viral resistance to antiviral therapy of chronic Hepatitis-C. BBI Biotech is currently focusing on developing a

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research and development program to extend the life and maintain the quality of specimens that are stored at ultra-low temperatures as well as expanding the Company's repository customer base to include more industry clients. In 2002 BBI Biotech also signed a contract with the American Red Cross to provide repository services for their National Testing Laboratory. To date all renewal options under these contracts have been approved, although the Company cannot be certain that any subsequent options will be exercised.

Other Services

        Clinical Trials.    The Company from time to time conducts clinical trials for domestic and foreign test kit and device manufacturers. Manufacturers must collect data for submission to the United States FDA and other countries' regulatory agencies, and these manufacturers contract with organizations such as the Company to perform this work. By providing this service, the Company is able to maintain close contact with test kit and device manufacturers and regulators, and is able to evaluate new technologies in various stages of development. The Company believes that the reputation of its laboratory and scientific staff, its large number of Quality Control Panels, and its inventory of characterized serum and plasma specimens assist the Company in marketing its clinical trial services to its customers. The Company has performed clinical trials for a number of United States and foreign test kit and device manufacturers seeking to obtain FDA approval for their infectious disease test kits and medical devices.

        Laboratory Instrumentation Services.    BBI Source offers services to design, develop, manufacture and distribute laboratory instruments to companies seeking to market biomedical products manufactured under government-approved manufacturing practices. These services range in complexity from consulting to full system development, technology transfer, and distribution.

        After-sales Service.    BBI Source also provides after-sales service, including third party maintenance. Management believes that after-sales service provides a marketing advantage in many of the Company's markets, since many of the Company's customers do not maintain their own full service departments. The Company's service department is located at BBI Source's facility in Garden Grove, California. The Company utilizes an independent third party contractor located in Giessen, Germany, to provide a fully functional European service and support center.

Research and Development

        The Company's research and development efforts are focused on (i) the ongoing development of pressure cycling technology ("PCT") for nucleic acid extraction and pathogen inactivation, which the Company made available for sale in 2002; (ii) the development of new and improved Quality Control Products (Panels and Accurun®) for the end-user market and the in vitro diagnostics market, (iii) the development of purified reagents and proteins and nucleic acid based assays; and (iv) the design and development of new laboratory instruments and mechanical and optical detection techniques, emphasizing its Verif-EYE® reflectance reader.

        The Company has approximately 22 full or part-time employees involved in its research and development effort associated with continuing operations as of December 31, 2002. Since the Company's acquisition of BioSeq Inc. in 1998, the Company has invested significantly in research and development, both in whole dollars and as a percentage of revenue, and expects to continue to do so for the foreseeable future, as it seeks to develop new applications for PCT. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." The Company's research scientists work closely with sales, marketing, manufacturing, regulatory and finance personnel to identify and prioritize the development of new products and services. Whenever it can, the Company seeks to supplement its research and development funding from grants provided by various agencies and departments of the United States government. See also "Contract Research and

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Services." The Company's research and development expenses were approximately $2.6M, $2.3M, and $2.4M in each of the three years ended December 31, 2002, 2001 and 2000, respectively.

        Quality Control Products.    In the area of Quality Control Products, the Company's product development activities center on the identification and characterization of materials for the manufacture of new products and the replacement of sold-out products. During 2002, the Company introduced 21 new Seroconversion, Performance, and Sensitivity Panel products, and 11 new Accurun® External Run Controls. The Company is developing new Quality Control Products for use with both immunological and molecular diagnostic tests for subtypes and variants of HIV, HCV and HBV,controls for HIV drug resistance assays, and a variety of controls targeted for leading instrument platforms. The Company has increased the number of Quality Control Products it offers from approximately 20 products in 1990 to more than 200 in 2002.

        Laboratory Instruments.    The Company's product development activities in year 2002 related to laboratory instruments were centered on development of prototype, demonstration and preproduction Barocycler™ and PULSE™ tubes, additional configurations of a "reflectance" reader to produce objective results from rapid in vitro diagnostic tests, as well as an updated version of the MicroChem® (the MicroChem® II). In addition, the Company continues to work on applications for existing products to broaden their utilization.

        Pressure Cycling Technology ("PCT").    The Company owns patented technology based on PCT. PCT research was primarily focused in two areas: (1) nucleic acid extraction and purification from target pathogens in connection with sample preparation for PCR or other molecular testing; and (2) pathogen inactivation of blood plasma intended for transfusion or for further fractionation into transfusion products. Both of these areas of research were previously funded by Phase II Small Business Innovative Research Grants, which provide $750,000 each, over a two year period ending February 2004. The Company has developed a pressure cycling system utilizing a computer controlled instrument, the Barocycler™ NEP2017, and specialized PULSE™ tubes which are capable of releasing biologically active nucleic acids and proteins from plant and animal tissues, as well as other organisms, such as mycobacteria, which are not easily disrupted by standard chemical methods. This pressure cycling system was made available for sale in 2002.

Sales and Marketing

        The Company's sales and marketing efforts are organized by business unit consistent with the unit's business objectives, and coordinated via frequent planning with senior management. Overall, the Company employs approximately 26 people in sales, marketing, and customer service functions associated with continuing operations as of December 31, 2002. The Company's overall marketing strategy is to focus on the needs of its customers in three broad areas: (i) quality control products to improve the quality and accuracy of test results and kit components for the in vitro diagnostic industry, (ii) life science products and services in support of infectious disease manufacturers, researchers, and (iii) a sample preparation system introduced in 2002 based on PCT.

        The strategy for Diagnostic Products is to focus on customer needs in the infectious disease testing market throughout the entire test kit life-cycle, from initial research and development, through the regulatory approval process and test kit production, to training, troubleshooting and routine use by end-users such as clinical laboratories, hospitals and blood banks. The end-user portion of this market is promoted under the marketing platform, known as "Total Quality System" ("TQS"). TQS is a package of Quality Control Products, including the Company's Accurun® External Run Controls and AccuChart Quality Control Software, that is designed to provide test kit end-users with the products needed in an overall quality assurance program. These products enable laboratories to evaluate each of the key elements involved in the testing process: the test kit, laboratory equipment, and laboratory personnel. The Company believes that TQS effectively addresses the need for end-users to ensure the

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accuracy of their test results. The Company intends to continue to expand its sales and marketing activities with respect to its Accurun® line of run control products. In addition, the Company continues to expand the Accurun® product line to support the high growth nucleic acid testing market, and to capitalize on the worldwide implementation of new technology to improve the safety of blood products.

        The Company's Diagnostic Products are led by a Director of Sales and Marketing and currently sold through a combination of telephone, mail, third party distributors and direct sales efforts. Domestically, Diagnostic Products are sold through a direct sales force led by a Group Sales Manager. The domestic sales force consists of a Field Sales Manager and 12 direct sales representatives. Internationally, the Company distributes its Diagnostic Products both directly and through independent distributors located in Japan, Australia, North and South America, Southeast Asia, Israel and Europe. The Company's international sales manager oversees the Company's foreign distributors.

        The Company's Laboratory Instruments marketing strategy is to focus on new contract manufacturing, increase share of business of current contracted customers, increase sales of Source brand instruments and service through a direct domestic and international sales force consisting of one director and one sales manager.

        The Company incurred significant marketing and promotion related costs in 2002 primarily associated with its introduction of the PCT Barocycler™ at the Pittsburgh Conference industry trade show and related ongoing sales, marketing and promotion efforts associated with the September 2002 commercial launch of the PCT Barocycler™. As of March 2003, the Company has two sales associates dedicated to the PCT segment of the business.

        The Company emphasizes high quality products and services, technical knowledge, and responsiveness to customer needs in its marketing activities for both products and services. The Company educates its distributors, customers and prospective customers about its products through a series of detailed marketing brochures, technical bulletins and pamphlets, poster presentations, news releases and direct mail pieces. These materials are supplemented by occasional advertising in industry publications, technical presentations, and exhibitions at local, national and international trade shows and expositions. The Company utilizes a product information library on its web site (www.bbii.com) allowing customers, sales personnel and international distributors immediate access to detailed product information and marketing literature.

Seasonality

        Historically, the Company's results of operations have been subject to quarterly fluctuations due to a variety of factors, primarily customer purchasing patterns (sometimes driven by end-of-year expenditures), and seasonal demand. In particular, the Company's sales of its off-the-shelf Diagnostic Products typically have been highest in the fourth quarter and lowest in the first quarter of each fiscal year, whereas OEM product sales may peak in any quarter of the year, depending on the customer's underlying production cycle for their own product. Research contracts are generally for large dollar amounts spread over one to five-year periods, and upon completion, frequently do not have renewal phases. As a result, these contracts can cause large fluctuations in revenue and net income. In addition to staff dedicated to internal research and development, certain of the Company's technical staff work on both Contract Research for customers and Company sponsored research and development. The allocation of certain technical staff to such projects depends on the volume of Contract Research. As a result, research and development expenditures fluctuate due to increases or decreases in contract research performed.

Customers

        The Company's customers for Diagnostic Products consist of four major groups: (1) international diagnostics and pharmaceutical manufacturing companies, such as Abbott Diagnostics, Bayer,

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bioMerieux, Biorad, Chiron, Dade-Behring, DiaSorin, Fujirebio, Hoffman LaRoche and Ortho Diagnostics (Johnson & Johnson); (2) regulatory agencies such as the United States FDA and CDC, the British Public Health Laboratory Service, the French Institut National de la Transfusion Sanguine, and the German Paul Ehrlich Institute, (3) national and international proficiency providers such as the College of American Pathologists and the European Union Concerted Action for Quality Control and (4) end-users of diagnostic test kits, such as hospital and independent clinical laboratories, including Quest Diagnostics, Specialty Laboratories, public health laboratories and blood banks, including the American Red Cross, Swiss Red Cross, and United Blood Services.

        The Company's customers for Laboratory Instruments consist of international diagnostic and pharmaceutical manufacturing companies and are generally sold on an OEM basis, for use by hospitals, and clinical and research laboratories. In addition, Laboratory Instruments are sold directly to environmental and food testing laboratories, and wineries. Customers include Hitachi Chemical Diagnostics, Beckman Coulter Inc., Vicam, Edwards Life Science, Nihon Kohden and Vysis (Abbott).

        The Company's customers for contract research include various agencies of the National Institutes of Health (NIH) such as the National Institute of Allergies and Infectious Disease ("NIAIDS"), the National Cancer Institute ("NCI"), and the National Heart Lung and Blood Institute ("NHLBI").

        The Company does not have long-term contracts with its customers for Diagnostic Products, which are generally sold pursuant to purchase orders for specific purchases. Laboratory Instruments are generally sold on an OEM basis under medium-term contracts with monthly delivery dates. The Company believes that its relationships with customers are satisfactory.

        During the fiscal years 2002, 2001 and 2000, the Company's international sales were $3,305,000, $3,437,000 and $4,175,000, respectively. During those years, most of the Company's international sales were made in European countries. The Company's Consolidated Financial Statements, including the Notes thereto, set forth in Item 8 of this report provide additional information relating to the Company's foreign and domestic sales. The Company expects foreign sales to represent a significant portion of revenue in the foreseeable future. The Company cannot guarantee that revenues by geographic region in the foreseeable future will be comparable to those achieved in recent years. The Company's international operations expose it to a number of difficulties in coordinating its activities abroad and in dealing with multiple regulatory environments.

        During the fiscal years 2002, 2001, and 2000, sales (from continuing operations) to the Company's three largest customers accounted for an aggregate of approximately 28%, 30% and 20%, respectively, of the Company's net sales, although the customers were not identical in each period. The government contract revenues are from United States government agencies, primarily various branches of the National Institutes of Health (NIH) and represent the only customer with revenue in excess of 10% of consolidated revenue in each of the years ended December 31, 2002, 2001 and 2000. During the fiscal years 2002, 2001, and 2000, the combined revenues from all branches of the National Institutes of Health, a United States Government agency, accounted for approximately 31%, 31% and 30%, respectively, of total consolidated revenues from continuing operations of the Company. While these contracts contain standard terms and conditions relative to audits, and/or termination, in whole or in part, without prior notice at the Government's convenience, the Company has never had any contracts terminated and has no knowledge of any actions pending. While the Company believes that the loss of any one of these customers would have an adverse effect on the Company's results, this risk is partially mitigated by the diversity of its customer base within the in vitro diagnostics industry and the different diseases and instrument platforms on which they focus.

Manufacturing and Operations

        The Company manufactures and assembles Diagnostic Products at its facility in West Bridgewater, Massachusetts. Raw materials (primarily plasma and serum) are acquired from a variety of vendors and

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through a program of donor recruitment, screening, management, and plasma/serum collection and characterization. Laboratory instruments and PCT products are manufactured and assembled at the Company's facility in Garden Grove, California. All important raw materials and components acquired come from a variety of local and/or national suppliers and distributors who have multiple sources of supply. Both of these facilities are ISO 9001 certified and BBI Diagnostics is also an ISO 13485 (as of December 12, 2002) certified manufacturer of quality control and other diagnostic products.

        The Company operates its research and development laboratory (including PCT) in Gaithersburg, Maryland and a repository facility in Frederick, Maryland. See "Item 2—PROPERTIES."

Competition

        The market for the Company's products and services is highly competitive. Many of the Company's competitors are larger than the Company and have greater financial, research, manufacturing, and marketing resources. Important competitive factors for the Company's products include product quality, price, ease of use, customer service and reputation. In a broader sense, industry competition is based upon scientific and technical capability, proprietary know-how, access to adequate capital, the ability to develop and market products and processes, the ability to attract and retain qualified personnel, and the availability of patent protection. To the extent that the Company's products and services do not reflect technological advances, the Company's ability to compete in its current and future markets could be adversely affected.

        In the area of Quality Control Products, the Company competes in the United States with NABI (formerly North American Biologicals, Inc.) in run controls and quality control panel products, with Acrometrix, Ambion, Bio-Rad Laboratories, Inc., Blackhawk Biosystems Inc. and MAS. in run controls, and with a number of smaller, privately-held companies in quality control panels. In Europe, in addition to the above, the Dutch Red Cross offers several run control and panel products. The Company believes that all of these competitors currently offer a less diverse line of panel and run control products than the Company, although the Company cannot be certain that these companies will not expand their product lines.

        In the Diagnostic Components area, the Company competes with integrated plasma collection and processing companies such as Serologicals, Inc. and NABI, as well as smaller, independent plasma collection centers and brokers of plasma products. In the Diagnostic Components area, the Company competes on the basis of quality, breadth of product line, technical expertise and reputation.

        The laboratory instrument manufacturing industry is diverse and highly competitive. The Company believes its technology base, reputation for reliability, systems integration and service capabilities provide it with a competitive advantage over its competitors which include: Dynatech Corp, Kollsman Manufacturing Company, Inc., Bio-Tek Instruments Inc., Rela Inc. (part of Colorado Medtech, Inc.), APW, and Plexus (SeaMed), as well as numerous, smaller companies, such as Awareness Technology Inc.

        The Company believes that there are substantial benefits of its PCT system over current methods of sample preparation of "hard to lyse" cells. The Company believes the PCT system offers faster, safer and more reproducible results. The current products incorporating PCT for sample preparation are substantially more expensive than competing offerings from Coors, Qiagen, Fisher, Scientific Industries, Misonix, Biospec, Andwin, Glenn Mills, Branson, Ultrasonic Power Corp., Microfluidizer, American Instrument, French Press, IKA Sonicators, and ISC Inc.

        BBI Biotech competes primarily on the basis of price with BioReliance Corporation and several universities for research and development contracts and with ATTC, Cyronix, Corielle and McKesson Bioservices, Inc., for repository services.

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Intellectual Property

        The Company holds as trade secrets current technology used to prepare Basematrix and other blood-based products. None of the Company's Diagnostic Components has been patented. The Company relies primarily on a combination of trade secrets and non-disclosure and confidentiality agreements to establish and protect its proprietary rights in these products and related technology. The Company cannot be certain that others will not independently develop or otherwise acquire the same, similar or more advanced trade secrets and know-how.

        BBI Source has also relied on trade secrets and proprietary know-how for its Laboratory Instruments which it protects in part by entering into confidentiality agreements with persons or parties deemed appropriate by management. In addition, the Company currently has six issued United States patents, covering significant aspects of the Company's core instrument technology and techniques, as well as several electronic and mechanical designs employed in the Company's products. These patents expire between 2006 and 2013.

        The Company has nine patents issued and several pending patent applications for its Pressure Cycling Technology. Several of these have been followed up with foreign applications, for which two patents were issued in Europe in 2002. The Company expects to file additional foreign applications in the future relating to PCT. The patents which have been issued expire between 2015 and 2021.

        The Company has no reason to believe that its products and proprietary methods infringe the proprietary rights of any other party. However, the Company cannot be certain that other parties will not assert infringement claims in the future.

        BBI®, Accurun®, and Verif-EYE® are registered trademarks of the Company.

Government Regulation

        The manufacture and distribution of medical devices, including products manufactured by the Company that are intended for in vitro diagnostic use, are subject to extensive government regulation in the United States and in other countries.

        In the United States, the Food, Drug, and Cosmetic Act ("FDCA") prohibits the marketing of most in vitro diagnostic products until they have been cleared or approved by the FDA, a process that is time-consuming, expensive, and uncertain. In vitro diagnostic products must be the subject of either a premarket notification clearance (a "510(k)") or an approved premarket approval application ("PMA"). With respect to devices reviewed through the 510(k) process, a company may not market a device for diagnostic use until an order is issued by the FDA finding the product to be substantially equivalent to an existing FDA cleared, and marketed device. A 510(k) submission may involve the presentation of a substantial volume of data, including clinical data, and may require a substantial period of review. With respect to devices reviewed through the PMA process, a company may not market a device until the FDA has approved a PMA application, which must be supported by extensive data, including preclinical and clinical trial data, literature, and manufacturing information to prove the safety and effectiveness of the device.

        The Company's Accurun® External Run Controls, when marketed for blood donor screening or diagnostic use, have been classified by the FDA as medical devices that until 1998 required clearance under the 510(k) process. In 1998, new rules took effect that exempted unassayed controls intended for use in diagnostic testing from the requirement for a 510(k) submission. BBI may now label these products "For In Vitro Diagnostic Use" if they are validated according to the Company's protocols and manufactured according to cGMP (current Good Manufacturing Practices, which is FDA guidance for manufacturing processes for medical devices). The FDA still requires 510(k) clearance for assayed controls, and controls intended for use in blood screening. The FDA could, in addition, require that some products be reviewed through the PMA process, which generally involves a longer review period

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and the submission of more information to the FDA. The Company cannot be certain that it will obtain regulatory approvals on a timely basis, if at all. Failure to obtain regulatory approvals in a timely fashion or at all could have a material adverse effect on the Company.

        As of February 1, 2003, a total of 16 products in the Accurun 1® line and 31 single analyte Accurun® External Run controls have either received 510(k) clearance or have been validated according to the Company's protocols and are manufactured according to cGMP. Certain of the Company's Accurun® External Run Controls are currently marketed "for research use only." The labeling of these products limits their use to research. It is possible, however, that some purchasers of these products may use them for diagnostic purposes despite the Company's intended use. In these circumstances, the FDA could allege that these products should have been cleared or approved by the FDA, or validated prior to marketing, and initiate enforcement action against the Company, which could have a material adverse effect on the Company. The FDA has issued a Draft Policy Compliance Guideline, which, if it takes effect as currently issued, will strictly limit the sale of products labeled "for research use only." The Company is monitoring this situation, and will adapt its policies as required.

        In February 2003, seven of the Company's Accurun 1® Positive Control products designed for the European market have been "approved to CE Mark" by G-Med, a designated Notified Body under the European Union's In Vitro Diagnostics (IVD) Directive. The IVD Directive describes criteria that must be met and steps that must be taken for IVD products to be qualified for sale in European Union countries beginning at the end of 2003. In the IVD Directive, the European Union classifies products according to the risks associated with their failure or misuse, and establishes a process leading to a CE Mark (approval to sell a product in EU countries) for each category. The Company's Accurun 1® product line is in the highest risk category because these products are intended for use with tests for HIV, Hepatitis B and Hepatitis C; thus the criteria for approval to CE Mark are the most stringent, and require Notified Body review.

        BBI Source generally obtains 510(k) and European CE approval for all laboratory instrumentation designed and manufactured in its Garden Grove, CA facility.

        The Company is registered as a medical device manufacturer with the FDA for its Diagnostic Products and Laboratory Instruments and files changes/listings of its products semi-annually. The Company's facilities in West Bridgewater, Massachusetts for Diagnostic Products and Garden Grove, California for Laboratory Instruments are FDA Good Manufacturing Practices (FDA/GMP) facilities. The Company must maintain high standards of quality in manufacturing, testing and documentation, and implement strict cGMP/QSR requirement guidelines governing reagent and instrument manufacturing.

        Once cleared or approved, medical devices are subject to pervasive and continuing regulation by the FDA, including, but not limited to cGMP/QSR requirements, regulations governing testing, control, and documentation and reporting of adverse experiences with the use of the device. The FDA monitors ongoing compliance with cGMP/QSR requirements and other applicable regulatory requirements by conducting periodic inspections. FDA regulations require FDA clearance or approval for certain changes if they do or could affect the safety and effectiveness of the device, including, for example, new indications for use, labeling changes or changes in design or manufacturing methods. In addition, both before and after clearance or approval, medical devices are subject to certain export and import requirements under the FDCA. Product labeling and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. Products may be promoted by the Company only for their approved use. Failure to comply with these and other regulatory requirements can result, among other consequences, in failure to obtain pre-market approvals, withdrawal of approvals, total or partial suspension of product distribution, injunctions, civil penalties, recall or seizures of products and criminal prosecution.

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        The Company believes that its Quality Control Panels are not regulated by the FDA because they are not intended for diagnostic purposes. The Company believes that its Diagnostic Components, which are components of in vitro diagnostic products, may be subject to certain regulatory requirements under the FDCA and other laws administered by the FDA, but do not require that the Company obtain a pre-market approval or clearance. The Company cannot be certain, however, that the FDA would agree or that the FDA will not adopt a different interpretation of the FDCA or other laws it administers, which could have a material adverse effect on the Company. As of December 2002, the Company's Diagnostic Products business unit is ISO 13485 certified, with registration by G-MED.

        The Company's Laboratory Instruments business unit is ISO9001 certified, with registration by the British Standard Institute. The Laboratory Instrument group is also certified to EN46001, a set of supplementary requirements applicable to their products.

        Laws and regulations affecting some of the Company's products are in effect in many of the countries in which the Company markets or intends to market its products. These requirements vary from country to country. Member states of the European Economic Area (which is composed of members of the European Union and the European Free Trade Association) are in the process of adopting various product and service "Directives" to address essential health, safety, and environmental requirements associated with the products and services. These "Directives" cover both quality system requirements (ISO Series 9000 Standards, ISO 13485 Standards, and the EN46001 Requirements) and product and marketing related requirements. In addition, some jurisdictions have requirements related to marketing of the Company's products. The Company cannot be certain that it will be able to obtain any regulatory approvals required to market its products on a timely basis, or at all. Delays in receipt of, or failure to receive such approvals, or the failure to comply with regulatory requirements in these countries or states could lead to compliance action, which could have a material adverse effect on the Company's business, financial condition, or results of operations.

        The Company's service-related business (clinical trials, repository operations, contract research, and instrumentation services) is subject to other national and local requirements. The Company's facilities are subject to review, inspection, licensure or accreditation by some states, national professional organizations and other national regulatory agencies. Studies to evaluate the safety or effectiveness of FDA regulated products (primarily human and animal drugs or biologics) must also be conducted in conformance with relevant FDA requirements, including Good Laboratory Practice ("GLP") and Good Manufacturing Practice ("GMP") regulations, investigational new drug or device regulations, Institutional Review Board ("IRB") regulations and informed consent regulations.

        The Company currently holds permits issued by Centers for Disease Control and Prevention (Importation of Etiological Agents or Vectors of Human Diseases), the US Department of Agriculture (Importation and Transportation of Controlled Materials and Organisms and Vectors) and the Maryland State and US Nuclear Regulatory Commission (in vitro testing with by-product material under general license, covering the use of certain radioimmunoassay test methods and radioactive materials).

        The Company is also subject to government regulation under the Clean Water Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Atomic Energy Act, and other national, state and local restrictions relating to the use and disposal of biohazardous, radioactive and other hazardous substances and wastes. The Company is an exempt small quantity generator of hazardous waste and has a US Environmental Protection Agency identification number. The Company is also registered with the US Nuclear Regulatory Commission for use of certain radioactive materials. The Company is also subject to various state regulatory requirements governing the handling of and disposal of biohazardous, radioactive and hazardous wastes. The Company has never been a party to any environmental proceeding.

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        Internationally, some of the Company's products are subject to additional regulatory requirements, which vary significantly from country to country. Each country in which the Company's products and services are offered must be evaluated independently to determine the country's particular requirements. In foreign countries, the Company's distributors are generally responsible for obtaining any required government consents.

Employees

        As of December 31, 2002 the Company employed 197 persons, all of whom were located in the United States. Of these, 95 persons were employed at the West Bridgewater, Massachusetts facility, 80 at its two Maryland facilities, and 22 at the Garden Grove, California facility. None of the Company's employees is covered by a collective bargaining agreement. The Company believes it has a satisfactory relationship with its employees

Backlog

        BBI Source had an instrument manufacturing backlog of approximately $1,124,000 as of December 31, 2002, as compared to approximately $2,367,000 as of December 31, 2001. Shipments expected within the next twelve-month period, included in this backlog, amounted to approximately $755,000 as of December 31, 2002 as compared to $1,398,000 as of December 31, 2001. Backlog at the other BBI subsidiaries is not material.

Executive Officers of the Registrant

        The following table sets forth the names, ages and positions of the executive officers of the Company as of March 2003:

        Mr. Quinlan, a Director of the Company since 1986, has served as President and Chief Operating Officer since August 1999, and Treasurer since June 2001. From January 1993 to August 1999, he served as Senior Vice President, Finance, Chief Financial Officer and Treasurer. From 1990 to December 1992, he was the Chief Financial Officer of ParcTec, Inc., a New York-based leasing company. Mr. Quinlan served as Vice President and Assistant Treasurer of American Finance Group, Inc. from 1981 to 1989 and was employed by Coopers & Lybrand (now PricewaterhouseCoopers LLP) from 1975 to 1981. Mr. Quinlan is a Certified Public Accountant and received a M.S. in accounting from Northeastern University and a B.S. in resource economics from the University of New Hampshire.

        Dr. Garrett has served as Senior Vice President, Science and Technology of the Company since 2001, and served as Senior Vice President and General Manager of BBI Clinical Laboratories from 1999 through 2001. From 1988 to 1999, she served as Senior Vice President, Regulatory Affairs and Strategic Programs. From 1980 to 1988, Dr. Garrett served as the Technical Director of the Chemistry

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Laboratory, Department of Laboratory Medicine at the Lahey Clinic Medical Center. Dr. Garrett earned her Ph.D. from the University of Colorado and was a postdoctoral research associate at Harvard University, Oregon State University, Massachusetts Institute of Technology and the University of British Columbia.

        Dr. Manak has served as Senior Vice President and General Manager of BBI Biotech since August 1999. From 1992 to 1999 he served as Senior Vice President, Research and Development of BBI Biotech. From 1980 to 1992, he served as Director of Molecular Biology and Director of Contracts and Services of Biotech Research Laboratories. Dr. Manak received his Ph.D. in biochemistry from the University of Connecticut and completed postdoctoral research work in biochemistry/virology at Johns Hopkins University.

        Mr. Petersen has served as Senior Vice President and General Manager of BBI Source since August 1999. From May 1998 to August 1999, he was Vice President, BBI Source Scientific. Mr. Petersen has 25 years of experience in operations management and materials planning including 10 years as Senior Director of Operations for Source Scientific. Before joining Source Scientific in 1988, he was the Manager of Manufacturing for Matrix Instruments from 1985 to 1988 and previously was Manager of Production and Inventory Control for Farr Company, Inc. from 1977 to 1985. He is certified in production and inventory management (CPIM) by the American Production and Inventory Control Society (APICS). He was also an Assistant Professor at California State University Dominguez Hills, where for seventeen years he instructed upper division courses in manufacturing techniques and material resource planning. He holds a B.S. in business management from the University of LaVerne in LaVerne, California.

        Ms. Benjamin has served as Vice President, Human Resources of the Company since January 1999 and has been Assistant Clerk of the Company since 1997. Prior to her promotion to Vice President, Ms. Benjamin served as Director of Human Resources and Investor Relations from 1997 to 1999. Prior to joining the Company in 1997 she was employed by Shields Health Care Group, a provider of Magnetic Resonance Imaging and radiation oncology, serving as their Director of Operations from 1992 to 1997. Prior to this time she was an educator. Ms. Benjamin received her B.S., from the College of Life Sciences and Agriculture at the University of New Hampshire.

        Mr. D'Allessandro has served as Vice President, Information Technology of the Company since January 1999. Mr. D'Allessandro joined the Company in 1993 as Director, Management Information Systems and served in that capacity until his promotion to Vice President. Mr. D'Allessandro has 30 years of experience in data processing/information systems technology, with a focus on manufacturing and biotechnology organizations. Mr. D'Allessandro is APICS certified and received his B.S. in Management Information Systems from Northeastern University.

        Officers are nominated by the President and elected by the Board of Directors.

        For additional information relative to the Company's liquidity and debt covenants, and critical accounting policies and estimates, see item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" hereunder.

ITEM 2. PROPERTIES.

        The Company owns its corporate offices and diagnostic products manufacturing facility for its BBI Diagnostics operating segment, which is located in a two-story, 32,000 square foot building in West Bridgewater, Massachusetts. The Company has deferred renovation and expansion of this facility during recent years, but believes that any renovations to its facility in West Bridgewater MA would be sufficient to meet its needs for several years. This building is subject to a $2,500,000 ten year mortgage dated March 31, 2000. Monthly payments on this mortgage are based on a 20 year amortization schedule with a balloon payment representing the remaining balance due in full on March 10, 2010.

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The Company failed to meets its debt service coverage covenant for the year ended December 31, 2002, but the financial institution has waived this default and the Company's other defaults relating to reports and the termination of the Company's former Chairman and Chief Executive Officer.

        The Company leases 27,000 square feet of space in Garden Grove, California where its BBI Source business unit manufactures laboratory instruments; the original lease, which expired in January 2002, was renewed for a three year period expiring January 31, 2005. The Company also leases laboratory facilities in Gaithersburg and Frederick, Maryland. The BBI Biotech segment's Gaithersburg facility contains 36,500 square feet of custom built laboratory and office space, and is occupied under a ten-year lease that expires on October 31, 2007. The Frederick facility contains 36,000 square feet of repository space under a seven-year lease that expires on November 30, 2006.

        BBI Clinical Laboratories, a discontinued operation, operated from a 15,000 square foot facility in New Britain CT pursuant to a lease which expires in July 2005. The buyer of the business and certain assets and liabilities of BBICL reimbursed the Company for essentially all rental-related costs of this facility during the period February 21, 2001 through December 31, 2001. The Company is currently attempting to sublease this facility for the remainder of the lease term; however, in the current economic environment, it is not likely the Company will be able to sublease the facility for the duration of the lease.

ITEM 3. LEGAL PROCEEDINGS.

        The Company is not a party to any material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        No matter was submitted during the fourth quarter of fiscal 2002 to a vote of security holders of the Company.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

        The Company's common stock, par value $0.01 per share (the "Common Stock"), is listed on the Nasdaq National Market under the symbol "BBII".

        The following table sets forth the high and low price, by quarter, during the two most recent fiscal years:

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        As of February 25, 2003, there were 20,000,000 shares of Common Stock authorized of which 6,793,382 shares were issued and outstanding, held of record by approximately 3,300 stockholders. See also Note 12 of Notes to Consolidated Financial Statements included in Part 2, Item 8 hereunder.

        The Company has not declared or paid any dividends on its Common Stock. In accordance with the terms of the Company's mortgage with a bank, payment of dividends on Common Stock is not permitted. The Company plans to reinvest future profits to expand its business.

Recent Sales of Unregistered Securities

        During 2002, the Company did not sell any securities that were not registered under the Securities Act of 1933, as amended.

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ITEM 6. SELECTED FINANCIAL DATA

        The statement of operations data for each of the fiscal years in the five-year period ended December 31, 2002, and the balance sheet data as of December 31, 2002, 2001, 2000, 1999, and 1998, have been derived from the consolidated financial statements of the Company. This data should be read in conjunction with Item 8—Consolidated Financial Statements and Supplementary Data, and Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere herein.