UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
September 30, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 1-34105
SeraCare Life Sciences,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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33-0056054
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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37 Birch Street
Milford, Massachusetts
(Address of principal
executive offices)
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01757
(Zip
Code)
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Registrants telephone number, including area code:
(508) 244-6400
Securities registered pursuant to Section 12(b) of the
Exchange Act:
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Common stock, $.001 Par Value Per Share
(Title of Class)
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The NASDAQ Capital Market
(Name of exchange on which registered)
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Securities registered pursuant to Section 12(g) of the
Exchange Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o 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 registrants 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes þ No o
As of March 31, 2009, the aggregate market value of our
outstanding common stock held by non-affiliates was
approximately $6,514,000 based on the closing market price of
our common stock. The amount shown is based on the closing price
of our common stock as reported on The NASDAQ Capital Market.
There were 18,577,596 shares of our common stock
outstanding on March 31, 2009.
As of November 1, 2009, there were 18,679,608 shares
of our common stock outstanding.
Specified portions of the registrants definitive Proxy
Statement relating to the registrants Annual Meeting of
Stockholders to be held on February 8, 2010, which is to be
filed pursuant to Regulation 14A within 120 days after
the end of the registrants fiscal year ended
September 30, 2009 are incorporated by reference in
Part III of this Annual Report on
Form 10-K.
PART I
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
We caution you that this document contains disclosures that
are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 about SeraCare Life
Sciences, Inc. (SeraCare or the
Company). All statements regarding our expected
future financial position, results of operations, cash flows,
dividends, financing plans, business strategy, budget, projected
costs or cost savings, capital expenditures, competitive
positions, growth opportunities for existing products or
products under development, plans and objectives of management
for future operations and markets for stock are forward-looking
statements. In addition, forward-looking statements include
statements in which we use words such as expect,
believe, anticipate, intend,
or similar expressions. Although we believe the expectations
reflected in such forward-looking statements are based on
reasonable assumptions, we cannot assure you that these
expectations will prove to have been correct, and actual results
may differ materially from those reflected in the
forward-looking statements. Factors that could cause our actual
results to differ from the expectations reflected in the
forward-looking statements in this document include those set
forth in Risk Factors in Item 1A. Many of these
factors are beyond our ability to control or predict.
Overview
of the Company
SeraCare serves the global life sciences industry by providing
vital products and services to facilitate the discovery,
development and production of human and animal diagnostics and
therapeutics. The Companys innovative portfolio includes
diagnostic controls, plasma-derived reagents and molecular
biomarkers, biobanking and contract research services.
SeraCares quality systems, scientific expertise and
state-of-the-art
facilities support its customers in meeting the stringent
requirements of the highly regulated life sciences industry.
The Companys business is divided into two segments:
Diagnostic & Biopharmaceutical Products and
BioServices. SeraCares Diagnostic &
Biopharmaceutical Products segment includes two types of
products: controls and panels, which include the manufacture of
products used for the evaluation and quality control of
infectious disease testing in hospital and clinical testing labs
and blood banks, and by in vitro diagnostic
(IVD) manufacturers; and reagents and bioprocessing
products, which include the manufacture and supply of biological
materials used in the research, development and manufacturing of
human and animal diagnostics, therapeutics and vaccines. The
BioServices segment includes biobanking, sample processing and
testing services for research and clinical trials, and contract
research services in molecular biology, virology, immunology and
biochemistry.
Our customer base is diverse and operates in a highly regulated
environment. SeraCare has built its reputation on providing a
comprehensive portfolio of products and services and operating
state-of-the-art
facilities that incorporate the industrys highest quality
standards. SeraCares customers include IVD manufacturers;
hospital-based, independent and public health labs; blood banks;
government and regulatory agencies; and organizations involved
in the discovery, development and commercial production of human
and animal therapeutics and vaccines, including pharmaceutical
and biotechnology companies, veterinary companies and academic
and government research organizations.
Company
History
SeraCare Life Sciences, Inc. (formerly a division of SeraCare,
Inc.) was spun out as a separate company in September 2001 upon
the acquisition of SeraCare, Inc. by Instituto Grifols, S.A. The
Company has expanded its business through several asset
acquisitions:
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Reagents and bioprocessing products of BioMedical Resources,
Inc. and Simply Diagnostics, Inc. in 2003;
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Human clinical specimens and their accompanying medical
information from Genomics Collaborative, Inc. (GCI)
in 2004, some assets of which were then sold in March 2007;
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Control and panel products as well as biobanking and contract
research services of the BBI Diagnostics and BBI Biotech
Research Laboratories divisions of Boston Biomedica, Inc. in
2004; and
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Diagnostic manufacturing facilities and some of the product
lines in the areas of molecular diagnostic reagents, diagnostic
intermediates and plasma substitutes of the Celliance division
of Serologicals Corporation in 2006.
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SeraCare filed for bankruptcy under Chapter 11 of the
Bankruptcy Code in March 2006. In May 2007, the Company emerged
from bankruptcy proceedings pursuant to a merger of SeraCare
Life Sciences, Inc., a California corporation into SeraCare
Reorganization Company, Inc. (Reorganized SeraCare),
a Delaware corporation. Subsequently, Reorganized SeraCare
changed its name to SeraCare Life Sciences, Inc.
Emergence
from Bankruptcy
Since the March 2006 bankruptcy filing SeraCare has:
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Hired a new management team;
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Reorganized operations, closed the California and Pennsylvania
facilities and relocated those operations and the Company
headquarters to Massachusetts and consolidated all of our
Massachusetts operations into a 60,000 square-foot
state-of-the
art manufacturing and research facility in Milford,
Massachusetts which houses all current manufacturing operations
and our corporate headquarters (See Item 2
Properties);
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Sold an unprofitable business line (See Item 1
Business-Discontinued Operations);
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Completed a rebranding strategy which reflects the new strategic
and business direction of the Company and re-launched our
corporate website which includes our on-line catalog (See
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Comparison of years ended
September 30, 2008 and 2007 Impairment of
Assets);
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Commenced trading on NASDAQ on June 23, 2008 under the
symbol SRLS (See Item 5 Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities);
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Generated $4.0 million in operating cash flow during fiscal
2009; and
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Became profitable during the third and fourth quarters of fiscal
2009.
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Our
Strategy
Our strategy is to leverage our competitive advantages and
market position to continue to increase our revenue and
profitability. Key elements of our strategy include:
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Repositioning SeraCare from being a distributor with low margins
to a value added partner focusing on customers and products with
higher margins;
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Accelerating growth through expansion opportunities in high
growth/high value market segments organically and through
acquisitions and product licensing agreements;
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Achieving operating income leverage through growth, cost
reduction and operating efficiencies; and
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Re-shaping our portfolio to focus on differentiated products and
services that enhance our competitive position.
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Industry
Overview
The global life sciences industry develops, manufactures,
markets and sells products that are used to support biological
research, diagnose and treat diseases, and promote health in
humans and animals. Scientists operating within the life
sciences industry focus on: research to develop therapeutic
agents to treat diseases
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and vaccines to prevent disease; testing to diagnose specific
disease states, such as infectious or genetically-based
diseases; and the manufacture of validated diagnostic and
therapeutic products.
Life sciences research, development and manufacturing segments
have experienced tremendous growth over the last four decades as
part of the biotechnology revolution, new product introductions
and increased spending on healthcare as a percentage of the
gross national product. The emergence and global spread of new
infectious diseases, including human immunodeficiency virus
(HIV), hepatitis C virus (HCV) and
newly drug-resistant strains of older pathogens, has spurred
development of new technologies to detect, diagnose and treat
these infections. Trends that are expected to fuel continued
growth in our markets include the continued expansion of aging
populations, a move towards disease prevention and wellness
promotion in healthcare, the emergence of personalized
medicine, the need to streamline the drug development
process and closer integration of diagnostics with
pharmaceuticals.
Competitive
Advantages
Historically SeraCare, through its component companies, has been
involved in life sciences research, development and
manufacturing. Currently, SeraCare is a manufacturer and
supplier of products and services in the competitive life
sciences industry. We compete with both private and public
companies on multiple levels including breadth of product lines,
technical expertise,
state-of-the-art
facilities, quality systems and reputation.
Our competitive advantages include:
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Broad product portfolio. SeraCare offers a
comprehensive portfolio of biological materials and services for
diagnostic and biopharmaceutical applications. The breadth of
our product portfolio enhances our ability to establish and
maintain relationships with both large and small companies.
These relationships lead to additional opportunities to develop
new products and provide scientific, manufacturing and
biobanking services, and thus to position ourselves as the
one stop shop for many of these companies
biological products and service needs.
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Expertise and experience. We continue to
explore innovative solutions to meet the needs of evolving
technology. SeraCare scientists developed and manufactured the
first and for many years the only Food and Drug Administration
(FDA) licensed confirmatory test for HIV and
produced the first commercially available seroconversion panels
for HIV, hepatitis B virus (HBV), HCV and West Nile
Virus (WNV). These panels are important tools for
studying early infection and the human immune response.
SeraCares biobanking and repository services have set the
standard in this expanding field. The Company continues to
innovate, developing a new product line of genetic controls that
include controls for diagnostic testing of warfarin sensitivity
and controls for thrombophilia testing which were recently
launched.
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Extensive quality assurance programs. Our
customers often require vendor pre-approval and certification to
purchase biological materials and often perform audits of vendor
facilities with extensive review of quality documentation.
SeraCare is a vendor-approved supplier to many large
pharmaceutical and IVD companies, and these relationships
provide access to sell additional products and services. To
build on these relationships, SeraCare continues to develop and
maintain its quality assurance programs. All of our facilities
have International Organization for Standardization
(ISO) 13485 and 9001 certifications. SeraCares
manufacturing facilities operate under the FDAs current
Good Manufacturing Practices (cGMP) and its research
facilities operate under Good Laboratory Practices
(GLP).
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Comprehensive manufacturing
capabilities. SeraCare has fully integrated its
manufacturing capabilities, which allows us to control our
processes from acquisition of raw materials to shipment of
finished products. Our fluid processing capabilities range from
a few milliliters to hundreds of liters, all managed with the
same attention to quality. In addition to our own branded
products, the Company can rapidly manufacture customized
products that meet a wide range of specifications. Customers
purchase products and services from us instead of sourcing them
internally largely because these products involve processing
plasma or other biological fluids, or require complex
manufacturing processes,
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unique or isolated facilities, specialized test requirements to
meet specifications and enhanced quality control procedures.
SeraCare can safely and efficiently manufacture high quality
products that incorporate cultured cells or viruses, reduce
infectivity, involve high volume processing of DNA samples or
isolation of specific cells from human blood.
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Extensive raw material sourcing capabilities and
relationships. Many products we develop and
manufacture require raw materials such as human plasma or human
tissue samples. We have established relationships with plasma
center operators, blood banks, hospitals, clinical laboratories
and physicians that facilitate continued access to these
necessary biological materials. Through an innovative outreach
program (idonateplasma.com), we recruit plasma donors who have
rare antibodies or DNA variations to provide these plasma
components for specialized products. SeraCare protects the
privacy of its donors and adheres to all federal and local
regulations.
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Principal
Business Segments
The Companys business is divided into two segments:
Diagnostic & Biopharmaceutical Products and
BioServices. SeraCares Diagnostic &
Biopharmaceutical Products segment includes two types of
products: controls and panels, which include the manufacture of
products used for the evaluation and quality control of
infectious disease testing in hospital and clinical testing labs
and blood banks, and by in vitro diagnostic
(IVD) manufacturers; and reagents and bioprocessing
products, which include the manufacture and supply of biological
materials used in the research, development and manufacturing of
human and animal diagnostics, therapeutics and vaccines. The
BioServices segment includes biobanking, sample processing and
testing services for research and clinical trials, and contract
research services in molecular biology, virology, immunology and
biochemistry.
A summary of our revenue, earnings from operations and assets
for our principal business segments is found in
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations.
A discussion of factors potentially affecting our operations is
set forth in Risk Factors in Item 1A.
Diagnostic &
Biopharmaceutical Products
We develop, manufacture and sell biological products essential
for the development, manufacture and use of diagnostic tests and
the discovery, development and production of pharmaceuticals and
other commercial products. Customers depend on us for a reliable
supply of products with exacting specifications that meet
stringent FDA and other regulatory standards. Our products
business has two primary product groups: controls and panels for
clinical laboratories, blood banks and IVD manufacturers; and
reagents and bioprocessing products for use in the discovery,
development and manufacturing processes for drugs, vaccines and
diagnostic tests.
Controls
and Panels
Our diagnostic control and panel products are sold to hospital
laboratories, independent clinical laboratories, public health
laboratories, blood banks, IVD manufacturers and government
regulatory and research agencies. Hospital, clinical and public
health labs use our quality control products to ensure the
accuracy of tests used to detect markers of disease or monitor
infection rates. Our control and panel products make it possible
for clinical labs testing for infectious diseases to evaluate
tests and to independently monitor the quality and precision of
test results. For blood banks and transplant centers, use of
quality control products helps to ensure blood and organ safety.
SeraCare controls and panels have led the market for quality
control and evaluation of infectious disease test methods for
over a decade and we are expanding this product line into the
market for controls and panels for genetic and cancer marker
tests.
Our control and panel products are also used for employee
training and competency assessment programs. Laboratory testing
for viruses that cause disease requires highly complex
techniques that are frequently revised and improved. Laboratory
regulations and good practice require that newly hired
technicians must undergo training on test methods and existing
personnel must undergo annual competency assessments on each
laboratory test they perform. The Clinical Laboratories
Improvement Act of 1988 (CLIA), for example,
requires that laboratories maintain records of their employee
training and competency assessment activities.
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Controls (also called quality controls) are samples designed to
be similar to patient samples and are provided to laboratories
so that a known sample can be tested when a diagnostic test is
run. Control results are monitored over time to track test
results and ensure their consistent performance. The use of
controls with clinical lab tests is mandated by regulatory
agencies in much of the developed world.
Panels are also designed to be similar to patient samples.
Panels include a data sheet and a set of samples that are
related in some way. For example, they may all be positive for
the same marker of HCV or may all be from the same donor at
different points in time in the progression of their infection.
These panels have high and lasting value because the samples
they contain are highly characterized and can be used to
establish a consistent reference point. The same panel can be
purchased repeatedly and used to build a record of improving
test sensitivity and specificity over time as new methods are
developed. IVD manufacturers, regulatory agencies and
researchers use our panels to develop and evaluate new tests and
look for new markers of disease.
We currently offer over 100 control and panel products for
infectious diseases including HIV, hepatitis A, HBV, HCV, West
Nile Virus, Chagas and HPV, that are widely used around the
world. Most of our control products are sold under the ACCURUN
brand name and our panel products are called seroconversion and
performance panels.
Reagents
and Bioprocessing Products
Our reagents and bioprocessing products are used by diagnostic,
pharmaceutical and biotechnology companies and research
organizations in industry and academia. These products make it
possible for our customers to optimize consistency in the
discovery, development and manufacturing of diagnostic tests,
therapeutics and vaccines. SeraCares products are integral
components of product development from research through
validated production processes filed with regulatory agencies in
the U.S. and around the world. Products in this segment
include: diagnostic intermediates; cell culture additives and
media; therapeutic grade albumin; and purified viable human
cells.
SeraCares diagnostic intermediates are plasma-derived
products used by manufacturers of diagnostic test kits in every
stage of product life cycle, including research and development,
pilot production, clinical trials, regulatory submission, full
production and commercialization. These products include bovine
serum albumin, human disease state plasma, normal human serum or
plasma and BaseMatrix, SeraCon or MatriBase, which are clear,
stable and economical substitutes for normal human plasma or
serum. We also provide bovine serum albumin which can function
as a carrier or stabilizer for other proteins in diagnostic test
components. Other SeraCare human and animal sera products are
used in clinical or veterinary laboratory tests as positive and
negative controls. Critical raw materials such as diluents,
plasma and blood or blood components from individuals with any
of a number of specific diseases are a specialty of our
diagnostic intermediates group. Our expertise in processing
blood products yields consistent results and allows our
manufacturing customers to concentrate on test method
development and production and distribution of test kits.
Cell culture products are the media and media supplements that
maintain viability of specific cells. Our cell culture products
include sera, cell and tissue culture media and other reagents
that are used for both research activities and pharmaceutical
manufacturing processes. Our biological test components and
purified human cells include materials used in the development
and evaluation of biologics products, the characterization of
chemical structures, the development of formulations for
long-term solution stability and the validation of purification
processes. Our cell culture products support the growth of cells
used in the manufacture of large molecule therapeutics,
including monoclonal antibodies and other proteins grown in
bacteria, yeast or mammalian cells.
BioServices
Biobanking
SeraCare manages and stores approximately 20 million
biological samples at our
state-of-the-art
facilities in Maryland pursuant to multi-year contracts with
government agencies and private sector customers, who pay for
these services on either a cost-plus, fixed price, or time and
materials basis. Under the cost-plus contracts, a majority of
the equipment cost is passed through directly to the customer.
We also provide research and clinical trial support services
including assisting with collecting, cataloging, processing,
transporting,
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cryopreservation, storing and tracking of samples collected
during research studies and clinical trials. In addition, we
provide technical support and training to collaborators and
investigators on issues related to specimen processing and
handling.
Contract
Research
SeraCare provides a broad range of research support services to
government and private sector clients, including method
validation and optimization, preparation of information for FDA
submissions and test kit production. Our virology services group
performs viral cultivations, infectivity testing,
in vitro characterization of anti-HIV drugs. Our
immunology group provides services for the assessment of
cell-mediated immunity, including enzyme-linked immunospot
(ELISpot), apoptosis and complement fixation assays,
and administers proficiency programs for network laboratories
that perform similar types of assays. Our molecular biology
group provides services in DNA and RNA isolations from blood and
other clinical specimens, polymerase chain reaction
amplifications, DNA cloning, gene mapping, sequencing,
genotyping and linkage analysis. Our biochemistry group provides
protein purification services and coagulation testing services.
These services are usually conducted under contracts which range
from a few months to multi-year commitments and are structured
on a cost-plus, time and materials or fixed price basis.
Product
Development
Our research scientists work closely with sales, marketing,
manufacturing, quality, regulatory and finance personnel to
identify and prioritize the development of new products and
services specifically geared to customer needs and consistent
with our business priorities. Product launch involves careful
coordination among product development, manufacturing, quality
assurance, and sales and marketing departments to ensure the
final product is produced in accordance with specifications and
meets customer requirements.
We are developing IVD and immunology reagents and enabling
technologies for our life science customers to use in the
discovery, development and manufacture of their diagnostic and
therapeutic products. Within IVD we are developing enabling
technologies for use in our contract services and manufacturing
business, molecular diagnostic controls for emerging infectious
disease and for genetic and oncology markers; expression systems
for control template packaging and recombinant protein
production; and signal detection technologies. Immunology
projects include the development of purified and preserved
T-cell, B-cell, NK and monocyte products; extensions to our
existing product lines and service capabilities; and developing
new antibody, cytokine and research target reagents.
Our human and animal derived reagent sourcing acumen
supplemented by our cellular, viral and bacterial culture
expertise allows SeraCare to develop value-added reagents and
enabling technologies that serve to accelerate and enhance the
quality, consistency and scalability of our life science
customers research, development and manufacturing
activities.
Suppliers
While there are some materials that we obtain from a single
supplier, we are not dependent on any one supplier or group of
suppliers for our business as a whole. Raw materials are
generally available from a number of suppliers. Our normal
contract terms are FOB SeraCares dock with payment terms
of 30 45 days.
Sales and
Distribution
We sell most of our products and services through our direct
sales force, although we use distributors in approximately 50
countries to market and sell our products in international
markets. These independent distributors may also market products
of other companies, including some products that are competitive
with our products. As of September 30, 2009, we employed
34 people worldwide in our sales, customer service and
marketing organizations.
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Our sales strategy is to employ technical sales representatives
who have an extensive background in the life sciences industry.
A thorough knowledge of biological techniques and an
understanding of the research process allow our sales
representatives to become advisors, acting in a consultative
role with customers. Our use of skilled technical sales
representatives also enables us to identify evolving market
needs and new technologies that we can license and develop into
new products.
Customers
Customers of our diagnostic control and panel products include
hospital laboratories, independent clinical laboratories, public
health laboratories, blood banks, IVD manufacturers and
regulatory agencies that oversee the manufacture and use of such
test kits. Customers of our reagents and bioprocessing products
include diagnostic, pharmaceutical and biotechnology product
developers and manufacturers as well as research laboratories
affiliated with government, academia and private foundations.
Customers of our services include government and academic
institutions, IVD manufacturers and pharmaceutical and
biotechnology companies.
For the year ended September 30, 2009, our top five
customers accounted for 41% of our revenue and our largest two
customers, National Institutes of Health (NIH) and
Roche Molecular Systems accounted for 15% and 13% of revenue,
respectively. No other customer individually accounted for more
than 10% of revenue in that period.
Discontinued
Operations
On March 29, 2007, we sold some assets as well as the
assumption of some limited liabilities of our Genomics
Collaborative division to BioServe Biotechnologies Limited
(BioServe). The Genomics Collaborative division was
located in Cambridge, Massachusetts and involved the sale of
human clinical specimens and their accompanying medical
information for use in drug discovery. The consideration for
this sale consisted of $2.0 million cash and a 7.5% royalty
on BioServes net sales related to the business of the
Genomics Collaborative division for five years through
March 29, 2012. During the year ended September 30,
2009, the Company received $0.2 million related to the
royalties. The Company is actively pursuing collections of
additional royalty amounts due but has not recorded a receivable
due to collectability concerns.
Domestic
and Foreign Sales
One of the Companys principal marketing strategies has
been to target international markets, including Europe, Asia,
Canada and other parts of the world. Most of the Companys
international order processing, invoicing, collection and
customer service functions are handled directly from the
Companys headquarters in Massachusetts. SeraCare believes
demand for the Companys products in international markets
is primarily driven by increased use of quality control products
and the development, validation and use of new diagnostic tests.
In fiscal 2009, 20% of SeraCares revenue, or
$8.9 million, was attributable to international sales, of
which 73% was from sales to Europe, 16% was from sales to Asia,
and 4% was from sales to Canada. In fiscal 2008 and 2007, 16%
and 22%, respectively, of SeraCares revenue were
attributable to international sales. The 4% increase in
international sales from fiscal 2008 to fiscal 2009 is a result
of an increased focus on foreign markets. The 6% decrease in
international sales from fiscal 2007 to fiscal 2008 is due to
lower sales of therapeutic grade human serum albumin products as
the Company switched suppliers in late 2007 as its previous
supply agreement was not renewed.
During the last three years, less than 5% of our assets have
been located outside of the United States.
Licensing
Arrangements
SeraCare has three non-exclusive licensing agreements with the
NIH, one of which expired during the year ended
September 30, 2009 and was not renewed. These agreements
provide SeraCare with access to certain NIH cell lines that are
used in the manufacture of certain bulk, control or panel
products. SeraCare has royalty obligations under each of these
agreements. The Company owed approximately $0.1 million in
total to the NIH under the three agreements on net sales
generated during the fiscal year ended September 30, 2009.
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SeraCare also has a non-exclusive licensing agreement with
Millipore Corporation (Millipore) under which
Millipore pays for use of hybridoma cell lines that are
proprietary to SeraCare. The cell lines generate monoclonal
antibodies used in Millipores products. Under the
agreement, Millipore is obligated to pay SeraCare 30% of net
sales generated by related products. The Company received
approximately $0.1 million from Millipore under this
agreement during the fiscal year ended September 30, 2009.
Intellectual
Property
We rely on trade secrets, unpatented proprietary know-how and
continuing technological innovation to preserve our competitive
position. We rely primarily on know-how in many of our
manufacturing processes and techniques not generally known to
other life sciences companies for developing and maintaining our
market position. We rely on trade secrets, employee and
third-party nondisclosure agreements and other protective
measures to protect our intellectual property rights pertaining
to our products, technology and clinical research data.
We have trademarks registered in the United States and a number
of other countries for use in connection with our products and
business. We believe that many of our trademarks are generally
recognized in our industry. Such trademarks include ACCURUN and
SeraCare.
Regulatory
Environment
Regulation
of Health Care Industry
The health care industry is highly regulated, and state and
federal health care laws and regulations are applicable to
certain aspects of our business and that of our customers. For
example, there are federal and state health care laws and
regulations that apply to the operation of clinical
laboratories, the provision of health care services by providers
using our products and services, business relationships between
health care providers and suppliers, the privacy and security of
health information and the conduct of clinical research.
Regulation
of Products
The design and manufacturing of many of our products is
regulated by numerous third parties, including the FDA, foreign
governments, independent standards auditors and our customers.
In the United States, IVD and biological products have long been
subject to regulation by various federal and state agencies,
primarily as to product safety, efficacy, manufacturing,
advertising, labeling, import, export and safety reporting. The
exercise of broad regulatory powers by the FDA through its
Center for Devices and Radiological Health and its Center for
Biological Evaluation and Research continues to result in
increases in the amounts of testing and documentation for FDA
clearance of current and new IVD and biologic products.
The FDA can ban certain IVD and biological products; detain or
seize adulterated or misbranded IVD and biological products;
order repair, replacement or refund of these products; and
require notification of health professionals and others with
regard to IVD and biological products that present unreasonable
risks of substantial harm to the public health. The FDA may also
enjoin and restrain certain violations of the Food, Drug and
Cosmetic Act, the Safe Medical Device Act or the Public Health
Service Act pertaining to IVD and biological products or
initiate action for criminal prosecution of such violations.
SeraCare products sold in Europe for blood and diagnostic
testing are CE Marked. CE Marking is a manufacturers
declaration that the product is in compliance with the essential
health and safety requirements set out in European Directives.
CE Marking allows the product to be legally placed on the market
in the participating country and ensures a products free
movement within the European Union.
Regulation
of Laboratory Operations
The Company operates a clinical laboratory at its Gaithersburg,
Maryland facility. Clinical laboratories that perform laboratory
testing (except for research purposes only) on human subjects
are subject to regulation under CLIA. CLIA regulates clinical
laboratories by requiring that the laboratory be certified by
the federal
8
government, licensed by the state and comply with various
operational, personnel and quality requirements intended to
ensure that clinical laboratory test results are accurate,
reliable and timely. State law and regulations also apply to the
operation of clinical laboratories. Although the Company does
not engage in significant laboratory testing for purposes other
than research, it maintains a CLIA certification at the
Gaithersburg, Maryland facility and its laboratories are subject
to regulation under state law.
Environmental
SeraCare is subject to a variety of federal, state and local
environmental protection measures. SeraCare believes that its
operations comply in all material respects with applicable
environmental laws and regulations. SeraCares compliance
with these regulations did not have during the past year and is
not expected to have a material effect upon its capital
expenditures, cash flows, earnings or competitive position.
Occupational
Safety and Health Administration (OSHA)
As with most operating companies, our manufacturing facilities
must comply with both federal and state OSHA regulations. We
maintain all required records. OSHA does inspect operating
locations as it deems appropriate and generally does so without
advance notice.
State
Governments
Most states in which we operate have regulations that parallel
federal regulations. Most states conduct periodic unannounced
inspections and require licensing under such states
procedures.
Competitors
The segments of the life sciences industry in which we compete
are highly fragmented. Within our product and service areas, we
face varying levels of competition. In certain instances, we
compete with large, well-capitalized life science companies,
which have significant financial, operational, sales and
marketing, and research and development resources. In other
instances, our competition comes from small, independent
companies that focus on particular niches within our segments.
We compete primarily on quality, breadth of product line and
service.
Diagnostic & Biopharmaceutical
Products: Our primary competitors in the controls
and panels business include AcroMetrix, Zeptometrix Corporation
and Bio-Rad Laboratories, Inc. Within the reagents and
bioprocessing products business, we compete with other
companies, such as Millipore, Invitrogen Corporation, Thermo
Fisher Scientific, Inc., Baxter Healthcare Corporation and
Grifols S.A., that supply biologics to support the development
and manufacture of diagnostic assays, biopharmaceutical products
and vaccines, as well as with small private companies, which
source human disease-state plasma.
BioServices: In our biobanking division, we
compete with Thermo Fisher Scientific, Inc. and other companies
that maintain biorepositories for commercial organizations,
government and academic institutions as well as companies,
government agencies and academic institutions that internally
maintain their own repository for biological materials.
Employees
As of September 30, 2009, we employed 189 full-time
and four part-time employees. None of our employees are
represented by labor unions and we have not entered into any
collective bargaining agreements.
Chapter 11
Reorganization
On December 14, 2005, the Company reported that it was
unable, without unreasonable effort and expense, to file its
annual report on
Form 10-K
for the fiscal year ended September 30, 2005 within the
prescribed time period which triggered the notice of default and
acceleration of debt from its senior secured lenders and the
cross-default of another secured debt facility. The default was
due to the violation of certain financial covenants and the
failure to deliver annual audited financial statements on a
timely basis. The
9
Company was unable to reach an agreement with its senior
lenders, Union Bank of California and Brown Brothers
Harriman & Co., and was forced to seek bankruptcy
protection to allow time to work out agreements with its secured
and unsecured creditors under the supervision of the Bankruptcy
Court.
On March 22, 2006, the Company filed voluntary petitions
for relief under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Southern
District of California (the Bankruptcy Court).
Subsequently, the Bankruptcy Court allowed the Company to
operate its business as a
debtor-in-possession
under the jurisdiction of the Bankruptcy Court and in accordance
with the applicable provisions of the Bankruptcy Code, the
Federal Rules of Bankruptcy Procedure and the orders of the
Bankruptcy Court.
The Company emerged from bankruptcy protection under the Joint
Plan of Reorganization (the Plan of Reorganization)
which was confirmed by the Bankruptcy Court on February 21,
2007 and after each of the conditions precedent to the
consummation was satisfied or waived, became effective
May 17, 2007. The Plan of Reorganization allowed SeraCare
to pay off all its creditors in full and exit bankruptcy under
the ownership of its existing shareholders and provided for the
settlement of SeraCares alleged liabilities in a
previously filed shareholders class action lawsuit.
Accordingly, each of the Revolving/Term Credit and Security
Agreement between the Company, Union Bank of California and
Brown Brothers Harriman & Co. and the Subordinated
Note Agreement between the Company, Barry Plost, Bernard Kasten
and Jacob Safier were terminated and the principal amount and
interest outstanding under each agreement was paid off with the
proceeds of $20.2 million from a rights offering in May
2007. All items under the Plan of Reorganization were completed
by September 30, 2008.
Available
Information
Our principal executive offices are located at 37 Birch Street,
Milford, Massachusetts 01757 and our telephone number is
(508) 244-6400.
Our website address is www.seracare.com. The information
contained on our website is not incorporated by reference into,
and does not form any part of this Annual Report on
Form 10-K.
We have included our website address as a factual reference and
do not intend it to be an active link to our website. Our
trademarks include ACCURUN and SeraCare. Other service marks,
trademarks and tradenames appearing in this Annual Report on
Form 10-K
are the property of their respective owners. Our Annual Reports
on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and all amendments to those reports, are available free of
charge through the Investor Relations section of our website as
soon as reasonably practicable after such materials have been
electronically filed with, or furnished to, the Securities and
Exchange Commission.
You should carefully consider the risks described below and
other information in this annual report. Our business, financial
condition, and operating results could be seriously harmed if
any of these risks materialize. The trading price of our common
stock may also decline due to any of these risks.
RISKS
RELATED TO OUR BUSINESS
Quarterly
revenue and operating results may fluctuate in future periods,
and the Company may fail to meet investor
expectations.
Our quarterly revenue and operating results have fluctuated
significantly in the past and are likely to continue to do so in
the future due to a number of factors, many of which are not
within our control. If quarterly revenue or operating results
fall below the expectations of investors, the price of our
common stock
10
could decline significantly. Factors that might cause quarterly
fluctuations in revenue and operating results include the
following:
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changes in demand for the Companys products and services,
and the ability to obtain the required resources to satisfy
customer demand on a cost-effective basis or even to attain the
required resources at all;
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ability to develop, introduce, market and gain market acceptance
of new products or services in a timely manner;
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ability to manage inventories, accounts receivable and cash
flows;
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ability to control costs; and
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overall market conditions.
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The amount of expenses incurred depends, in part, on expectation
regarding future revenue. In addition, since many expenses are
fixed in the short term, we cannot significantly reduce expenses
if there is a decline in revenue to avoid losses.
Our
operating results could deteriorate if we fail to maintain
proper inventory levels.
Our ability to manage our inventories properly is an important
factor in our operations. Inventory shortages can adversely
affect the timing of shipments to customers and diminish sales.
Conversely, excess inventories can result in lower gross margins
due to excessive reserves for obsolete products. Our products
require incorporation of a wide range of materials which we
typically buy in bulk prior to receiving customer orders for the
full amount. We do this to minimize purchasing costs, the time
necessary to fill customer orders and the risk of non-delivery.
However, we may be unable to sell the products we have ordered
in advance from manufacturers or that we have in inventory. This
approach tends to increase the risk of obsolescence for products
we hold in inventory and may compound the difficulties posed by
other factors that affect our inventory levels which we have
experienced, including the following:
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the need to maintain significant inventory of materials that are
in limited supply;
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the unpredictable demand for products; and
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customer requests for quick delivery schedules.
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The accumulation of excess or obsolete inventory may result in
increased inventory reserves, which could adversely affect our
business and financial condition.
We may
need additional capital.
In order to conduct operations and remain competitive, we must
make investments in research and development to fund new product
initiatives, continue to upgrade our process technology and
manufacturing capabilities, and actively seek out potential
acquisition candidates. Although we believe that internal cash
flows from operations will be sufficient to satisfy our working
capital and normal operating requirements during the next fiscal
year, we may not be able to fund our planned research and
development, capital investment programs, and potential
acquisitions without seeking additional capital.
Our ability to raise additional capital depends on a variety of
factors, some of which may not be within our control, including
investor perceptions of our management, our business, and the
industries in which we operate. In June 2007, we entered into a
$10.0 million senior secured credit facility with Merrill
Lynch Capital, now GE Capital, which had no balance outstanding
as of September 30, 2009 and was terminated during October
2009. We cannot assure you that cash generated from operations
will be sufficient to conduct operations. In such event, we may
need to raise additional capital. The turmoil affecting the
banking system and financial markets and the possibility that
financial institutions may consolidate or cease operations has
resulted in a tightening in the credit markets, a low level of
liquidity in many financial markets, and extreme volatility in
fixed income, credit, currency and equity markets. If we raise
additional capital through
11
borrowings, we may become subject to restrictive covenants and
high interest rates, which would increase the total cost of
conducting operations. However, there can be no assurance that
financial resources will be available promptly, on favorable
terms or at all. If we raise money through the issuance of
equity securities, your stock ownership will be diluted. Given
the instability in the overall financial markets, our stock
price has fluctuated and has been subject to volatility. As a
result, a decline in the price of our common stock may adversely
impact our ability to fund our operations through the issuance
of equity securities. The issuance of additional equity
securities by us following a decline in our stock price may
result in a significant dilution of your stock ownership. Any
inability to successfully raise needed capital on a timely or
cost-effective basis could adversely affect our short-term
liquidity and ability to make investment in research and
development to fund new product initiatives, continue to upgrade
our process technology and manufacturing capabilities, and
actively seek out potential acquisition candidates and could
have a material adverse effect on our business, financial
condition, and operating results.
We
depend on contracts with government agencies, which if
terminated or reduced, would have a material adverse effect on
our business.
A large percentage of our revenue is derived from sales to
government agencies. Such government agencies may be subject to
budget cuts, budgetary constraints or a reduction or
discontinuation of funding. A significant reduction in funds
available for government agencies to purchase professional
services and related products would have a material adverse
effect on our business, financial condition and results of
operations.
We
derive a substantial amount of our revenue from a limited number
of customers.
Although we provide products and services to many customers, a
significant portion of our revenue is generated from a few of
our larger customers. For the fiscal year ended
September 30, 2009, our top five customers accounted for
41% of our revenue from operations. It is not possible for us to
predict the future level of demand for our products and services
that will be generated by these customers or the future demand
for the products in the end-user marketplace. Our customer
concentration exposes us to the risk of changes in the business
condition of any of our major customers and to the risk that the
loss of a major customer would materially adversely affect our
results of operations. Our relationship with these customers is
subject to change.
An
interruption in the supply of diagnostic and therapeutic
products at competitive prices that we purchase from third
parties could cause a decline in our revenue.
We purchase certain raw materials, components, services and
equipment used in the manufacturing of our products, and the
loss of, or disruption to, any plant or supplier could adversely
affect our ability to manufacture or sell many of our products
from third parties. We may experience an interruption of supply
if a supplier is unable or unwilling to meet our time, quantity
and quality requirements. There are relatively few alternative
suppliers for some of these raw materials and components. Any or
all of these suppliers could discontinue manufacturing or
supplying these products and components, experience
interruptions in their operations or raise their prices. We may
not be able to identify and integrate alternative sources of
supply in a timely fashion or at all. Any transition to
alternate suppliers may result in production delays and
increased costs and limit our ability to deliver products to our
customers. Furthermore, if we are unable to identify alternative
sources of supply, we would have to modify our products to use
substitute components, which may cause delays in shipments,
increased design and manufacturing costs, increased prices for
our products and lost product revenue. In addition, we compete
with large companies as well as smaller, independent plasma
collection centers and brokers of plasma products for plasma
source material and processing.
We may
be unable to realize our growth strategy if we cannot identify
suitable acquisition opportunities in the future or if we cannot
integrate acquired businesses or technologies into our
business.
As part of our business strategy, we expect to grow our business
through acquisitions of technologies or companies. We may not
identify or complete complementary acquisitions in a timely
manner, on a cost-effective basis, or at all. In addition, we
compete with other companies, including large, well-funded
12
competitors, to acquire suitable targets, and may not be able to
acquire certain targets that we seek. There can be no assurance
that we will be able to execute this component of our growth
strategy, which may harm our business and hinder our future
growth. To achieve desired growth rates as we become larger, we
may seek larger
and/or
public companies as potential acquisition candidates. The
acquisition of a public company may involve additional risks,
including the potential for lack of recourse against public
shareholders for undisclosed material liabilities of the
acquired business. In addition, if we were to proceed with one
or more significant future acquisitions in which the
consideration consisted of cash, a substantial portion of our
available cash resources could be used. Furthermore, for any
such acquisition, we will incur significant legal, accounting
and other expenses, including expenses associated with a change
of control. If an acquisition was not completed for any reason,
we will have incurred substantial expenses without realizing the
anticipated benefits of the pending acquisition, including
anticipated net reductions in costs and expenses and our stock
price may decline to the extent that the current market price
reflects a market assumption that the acquisition will be
completed.
Although we expect to realize strategic, operational and
financial benefits as a result of these acquisitions, we cannot
predict whether and to what extent such benefits will be
achieved. Working through integration issues is complex,
time-consuming and expensive and could significantly disrupt our
business. There are significant challenges to integrating the
acquired operations into our business, including:
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successfully managing and assimilating the operations,
facilities and technology of the acquired businesses;
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maintaining and increasing the customer base for the acquired
products;
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demonstrating to customers and suppliers that the acquisitions
will not result in adverse changes in service standards or
business focus;
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minimizing the diversion of management attention from ongoing
business concerns;
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maintaining employee morale and retaining key employees,
integrating cultures and management structures and accurately
forecasting employee benefit costs;
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consolidating our management information, inventory, accounting
and other systems;
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our ability to assess accurately the value, strengths,
weaknesses, contingent and other liabilities and potential
profitability of acquisition candidates;
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the potential loss of key personnel of an acquired business;
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our ability to integrate acquired businesses and to achieve
identified financial and operating synergies anticipated to
result from an acquisition;
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increased pressure on our staff and on our operating
systems; and
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unanticipated changes in business and economic conditions
affecting an acquired business.
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Our failure to successfully integrate and operate the acquired
businesses, and to realize the anticipated benefits of these
acquisitions, could adversely impact our operating performance
and financial results.
Our
success depends in large part upon the continued services of our
senior executives and other key employees, including certain
sales, consulting and technical personnel.
Our success depends on our ability to attract, retain and
motivate the qualified personnel that will be essential to our
current plans and future development. The competition for such
personnel is substantial and we cannot assure you that we will
successfully retain our key employees or attract and retain any
required additional personnel. The loss of the services of any
significant employee could have a material adverse effect on our
business. In the past, employees have resigned from the Company
and joined competitors or formed competing companies. The loss
of such personnel and the resulting loss of existing or
potential clients to any such competitor has had, and could
continue to have, a material adverse effect on our business,
financial condition and results of operations.
13
We may
face additional expenses and cash funding needs pending the sale
of our manufacturing facility in West Bridgewater,
Massachusetts.
Although we have entered into an agreement to sell the West
Bridgewater facility, the sale is subject to customary closing
conditions and we can not assure that the sale will close.
Should the sale not close, it may take months and possibly a
year or longer to sell the West Bridgewater facility at a
suitable price. The real estate market is affected by many
factors, such as general economic conditions, availability of
financing, interest rates and other factors, including supply
and demand that are beyond our control. We cannot predict
whether we will be able to sell the property for the price or on
the terms set by us or whether any price or other terms offered
by a prospective purchaser would be acceptable to us. We cannot
predict the length of time needed to find a willing purchaser
and to close the sale of the property. In February 2011, the
mortgage note on the building matures and the remaining
principal of $1.1 million will become due. If we are unable
to sell the property before February 2011 or refinance the
mortgage note, it could have a significant adverse effect on our
cash flow and results of operations.
Lack
of early success with our pharmaceutical and biotechnology
customers can shut us out of future business with those
customers.
Many of the products we sell to the pharmaceutical and
biotechnology customers are incorporated into the
customers drug manufacturing processes. In some cases,
once a customer chooses a particular product for use in a
diagnostic and therapeutic testing process or drug manufacturing
process, it is less likely that the customer will later switch
to a competing alternative. In many cases, the regulatory
license for the product will specify the separation and cell
culture supplement products qualified for use in the process.
Obtaining the regulatory approvals needed for a change in the
manufacturing process is time consuming, expensive and
uncertain. Accordingly, if we fail to convince a diagnostic or
therapeutic customer to choose our products early in its
manufacturing design phase, we may permanently lose the
opportunity to participate in the customers production of
such product. Because we face vigorous competition in this
market from companies with substantial financial and technical
resources, we run the risk that our competitors will win
significant early business with a customer making it difficult
for us to recover that opportunity.
Our
profits will likely decline if we are unable to pass price
increases on to customers or obtain necessary raw materials at
their current prices.
Some of our customer contracts are firm, fixed price contracts,
providing for a predetermined fixed price for the products that
we make, regardless of the costs we incur. If we experience
significant increases in the expense of producing products due
to increased cost of materials, components, labor, capital
equipment or other factors and are unable to pass through such
increases to our customers, our profitability will likely
decline. The cost of producing the Companys products and
services is also sensitive to the price of energy. The selling
prices of the Companys products and services have not
always increased in response to raw material, energy or other
cost increases and the Company is unable to determine to what
extent, if any, it will be able to pass future cost increases
through to its customers. The Companys inability to pass
increased costs through to its customers could materially and
adversely affect its financial condition or results of
operations.
Our
failure to improve our product offerings and develop and
introduce new products may negatively impact our
business.
Our future success depends on our ability to continue to improve
our product offerings and develop and introduce new product
lines and extensions that integrate new technological advances.
If we are unable to integrate technological advances into our
product offerings or to design, develop, manufacture and market
new product lines and extensions successfully and in a timely
manner, our operating results will be adversely affected. While
we expect to continue to invest in research and development for
all of our market segments, we cannot assure you that our
product and process development efforts will be successful or
that new products we introduce will achieve market acceptance.
14
We are
subject to the risks associated with international
sales.
International sales accounted for 20% of our revenue from
operations during the year ended September 30, 2009. We
anticipate that international sales will continue to account for
a significant percentage of our revenue. Risks associated with
these sales include:
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political and economic instability;
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export controls;
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changes in legal and regulatory requirements;
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United States and foreign government policy changes affecting
the markets for our products; and
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changes in tax laws and tariffs.
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Any of these factors could have a material adverse effect on our
business, results of operations and financial condition.
We sell our products in certain international markets mainly
through independent distributors. If a distributor fails to meet
annual sales goals, it may be difficult and costly to locate an
acceptable substitute distributor. If a change in our
distributors becomes necessary, we may experience increased
costs, as well as a substantial disruption in operations and a
resulting loss of revenue.
If we
fail to maintain adequate quality standards for our products and
services, our business may be adversely affected and our
reputation harmed.
Our customers are subject to rigorous quality standards in order
to maintain their products and the manufacturing processes and
testing methods that generate them. A failure to sustain the
specified quality requirements, including the processing and
testing functions performed by our products, could result in the
loss of the applicable regulatory license. Delays or quality
lapses in our customers production lines could result in
substantial economic losses to them and to us. For example,
large production lots of plasma are expensive and a failure to
properly categorize the disease state of plasma could result in
the contamination of the entire lot, requiring its destruction.
We also perform services that may be considered an extension of
our customers manufacturing and quality assurance
processes, which also require the maintenance of prescribed
levels of quality. Although we believe that our continued focus
on quality throughout the Company adequately addresses these
risks, there can be no assurance that we will not experience
occasional or systemic quality lapses in our manufacturing and
service operations. If we experience significant or prolonged
quality problems, our business and reputation may be harmed,
which may result in the loss of customers, our inability to
participate in future customer product opportunities and reduced
revenue and earnings.
Our
principal shareholders may exert significant influence on
us.
As of September 30, 2009, the combined group of Jacob
Safier and Ltova Holdings LLC (collectively Ltova),
Ashford Capital Management Inc. (Ashford Capital)
and Black Horse Capital were beneficial owners of approximately
21%, 14% and 6%, respectively, of the Companys common
stock. Therefore, Ltova, Ashford Capital and Black Horse Capital
have power to exert significant influence on our management and
policies and on the outcome of issues requiring approval by our
shareholders, including the election of our Board of Directors
and the approval of significant corporate transactions.
We
heavily rely on air cargo carriers and other third party package
delivery services, and a significant disruption in these
services or significant increases in prices may disrupt our
ability to import or export materials, increase our costs and
lower our profitability.
We ship a significant portion of our products to our customers
through independent package delivery companies. In addition, we
transport materials among our facilities and import raw
materials from worldwide sources. Consequently, we heavily rely
on air cargo carriers and third party package delivery
providers. If any of our key third party package delivery
providers experiences a significant disruption such that any of
our
15
products, components or raw materials cannot be delivered in a
timely fashion or such that we incur additional shipping costs
that we could not pass on to our customers, our costs may
increase and our relationships with certain of our customers may
be adversely affected. In particular, our products are
particularly sensitive to temperature and delays in shipping
could damage the products. In addition, if our third party
package delivery providers increase prices and we are not able
to find comparable alternatives or make adjustments to our
delivery network, our profitability could be adversely affected.
We
have limited manufacturing capabilities, and if our
manufacturing capabilities are insufficient to produce an
adequate supply of products at appropriate quality levels, our
growth could be limited and our business could be
harmed.
We currently have limited resources and facilities for the
commercial manufacturing of sufficient quantities of product to
meet expected demand. We have focused significant effort on
continual improvement programs in our manufacturing operations
intended to improve quality, yields and throughput. Although we
believe we currently have sufficient capacity in manufacturing
to enable us to supply adequate amounts of product to support
our commercialization efforts, there can be no assurances that
supply will not be constrained going forward. If we are unable
to manufacture a sufficient supply of our products, maintain
control over expenses or otherwise adapt to anticipated growth,
or if we underestimate growth, we may not have the capability to
satisfy market demand and our business will suffer.
The
cost of compliance or failure to comply with the Sarbanes-Oxley
Act of 2002 may adversely affect our
business.
As a public reporting company, we are subject to the provisions
of the Sarbanes-Oxley Act of 2002, which may result in higher
compliance costs and may adversely affect our financial results
and our ability to attract and retain qualified members of our
Board of Directors or qualified executive officers. The
Sarbanes-Oxley Act affects corporate governance, securities
disclosure, compliance practices, internal audits, disclosure
controls and procedures, and financial reporting and accounting
systems. Section 404 of the Sarbanes-Oxley Act, for
example, requires a company subject to the reporting
requirements of the U.S. securities laws to conduct a
comprehensive evaluation of its and its consolidated
subsidiaries internal controls over financial reporting.
The failure to comply with Section 404 may result in
investors losing confidence in the reliability of our financial
statements (which may result in a decrease in the trading price
of our common stock), prevent us from providing the required
financial information in a timely manner (which could materially
and adversely impact our business, our financial condition and
the trading price of our common stock), prevent us from
otherwise complying with the standards applicable to us as a
public company and subject us to adverse regulatory consequences.
Our
inability to protect our intellectual property rights could
prevent us from selling our products and hinder our financial
performance.
The technology and designs underlying our products may not be
fully protected by patent rights. Our future success is
dependent primarily on non-patented trade secrets and on the
innovative skills, technological expertise and management
abilities of our employees. Our technology may not preclude or
inhibit competitors from producing products that have identical
performance as our products. In addition, we cannot guarantee
that any protected trade secret could ultimately be proven valid
if challenged. Any such challenge, with or without merit, could
be time consuming to defend, result in costly litigation, divert
the attention and resources of our management and, if
successful, require us to pay monetary damages.
Product
liability claims could have a material adverse effect on our
reputation, business, results of operations and financial
condition.
As a manufacturer and marketer of various diagnostic and
therapeutic products, our results of operations are susceptible
to adverse publicity regarding the performance, quality or
safety of our products. Even though we believe that our current
product liability insurance is sufficient at this time, product
liability claims challenging performance, quality or safety of
our products may result in a decline in sales for a particular
16
product, which could adversely affect our results of operations.
This could be true even if the claims themselves are proven not
to be true or settled for immaterial amounts.
Foreign
restrictions on importation and exportation of blood
derivatives.
Concern over blood safety has led to movements in a number of
European and other countries to restrict the importation and
exportation of blood and blood derivatives, including antibodies
collected outside the countries borders or, in the case of
certain European countries, outside Europe. To date, these
efforts have not led to any meaningful restriction on the
importation or exportation of blood or blood derivates and have
not adversely affected our business. Such restrictions, however,
continue to be debated, and there can be no assurance that such
restrictions will not be imposed in the future. If imposed, such
restrictions could have a material adverse effect on the demand
for our products.
A
disaster at our facilities could substantially impact our
business.
Our business and operations depend on the extent to which our
facilities and products are protected against damage from fire,
earthquakes, power loss and similar events. Despite precautions
we have taken, a natural disaster or other unanticipated problem
could, among other things, hinder our research and development
efforts, delay the shipment of our products and affect our
ability to receive and fulfill orders. For example, our two
facilities in Maryland store approximately 20 million
biological samples for our government and commercial customers,
and such samples are irreplaceable. Additionally, our Milford
facility is our primary manufacturing plant. Although we believe
that our
back-up
power sources are sufficient in an emergency situation, an
earthquake, fire, other disaster or continuous power outage at
any of these locations would have a material adverse effect on
our business, financial condition and results of operations.
While we believe that our insurance coverage is comparable to
those of similar companies in our industry, it does not cover
terrorism or all natural disasters, in particular, floods.
Our
financial condition could suffer if we experience unanticipated
costs or enforcement action as a result of the Department of
Justice investigation and other lawsuits.
The Company is still subject to an investigation by the
Department of Justice that was initiated in the first half of
2006 while the Company was under prior management. The period of
time necessary to resolve such investigation is uncertain and
these matters could require significant management time and
financial resources which could otherwise be devoted to the
operation of our business. If we are subject to an adverse
finding resulting from the investigation, we could be required
to pay damages or penalties or have other remedies imposed upon
us. In addition, considerable legal and accounting expenses
related to this matter have been incurred to date and
significant expenditures may continue to be incurred in the
future.
RISKS
RELATED TO OUR INDUSTRY
Reduced
demand due to economic downturn in overall market.
Our business is exposed to the risk that adverse economic
conditions will reduce or defer the demand for research and
development that utilize our products. The demand for our
products may fluctuate based upon a variety of factors,
including the business and financial condition of our customers
and on economic and financial conditions, particularly as they
affect the key sectors in which our customers operate. Economic
downturns or unfavorable changes in the financial and credit
markets could have an adverse effect on the operations, budgets
and overall financial condition of our customers. As a result,
our customers may reduce their overall spending on research and
development, purchase fewer of our products by reducing the
amount they use or using their existing inventory, lengthen
sales cycles, or delay, defer or cancel purchases of our
products. Furthermore, our customers may be less able to timely
finance or pay for the products which they have purchased. We
cannot predict the impact, timing, strength or duration of any
economic slowdown or subsequent economic recovery, generally or
in any specific industry, or of any disruptions in the financial
and credit markets. If the challenges in the financial and
credit markets or the downturn in the economy or the
17
markets in which we operate persist or worsen from present
levels, our business, financial condition and results of
operations could be materially adversely affected.
The
industries and market segments in which we operate are highly
competitive, and we may not be able to compete effectively with
larger companies with greater financial resources than we
have.
The markets for our products and services are highly competitive
and often lack significant barriers to entry, enabling new
businesses to enter these markets relatively easily. Some of our
competitors have greater financial resources than we do, making
them better equipped to license technologies and intellectual
property from third parties or to fund research and development,
manufacturing and marketing efforts. Moreover, competitive
conditions in many markets in which we operate restrict our
ability to implement price increases to fully recover any higher
costs of acquired goods and services resulting from inflation
and other drivers of cost increases. Our competitors can be
expected to continue to improve the design and performance of
their products and to introduce new products with competitive
price and performance characteristics. Although we believe that
we have certain technological and other advantages over our
competitors, maintaining these advantages will require us to
continue to invest in research and development, sales and
marketing and customer service and support.
Competition for customers depends primarily on the ability to
provide products or services of the quality and in the quantity
required by customers. If we succeed in bringing one or more
products to market, we will compete with many other companies
that may have extensive and well-funded marketing and sales
operations. Our failure to provide products of the quality and
quantity demanded by our customers and successfully market new
products could have a material adverse effect on our future
business, financial condition and results of operation.
Certain of our disease state products are derived from donors
with rare characteristics, resulting in increased competition
for such donors. If we are unable to maintain and expand our
donor base, this could have a material adverse effect on our
future business, financial condition and results of operation.
We are
subject to significant regulation by the government and other
regulatory authorities.
Our business is heavily regulated in the United States and
internationally. In addition to the FDA which regulates, among
other matters, the testing, manufacturing, storage, labeling,
export, and marketing of blood products and IVD products,
various other federal, state and local regulations also apply
and can be, in some cases, more restrictive. If we fail to
comply with FDA or other regulatory requirements, we could be
subjected to civil and criminal penalties, or even required to
suspend or cease operations. Any such actions could severely
curtail our sales to biologics companies. Failure of our plasma
suppliers or customers to comply with FDA requirements could
also adversely affect us. In addition, more restrictive laws,
regulations or interpretations could be adopted, which could
make compliance more difficult or expensive or otherwise
adversely affect our business. We also invest significant
resources in developing quality assurance programs, such as ISO
certification.
We devote substantial resources to complying with laws and
regulations; however, the possibility cannot be eliminated that
interpretations of existing laws and regulations will result in
findings that we have not complied with significant existing
regulations. Such a finding could materially harm the business.
Moreover, healthcare reform is continually under consideration
by regulators, and the Company does not know how laws and
regulations will change in the future.
Failure
to comply with environmental, health and safety laws and
regulations, including the federal Occupational Safety and
Health Administration Act, may result in fines and penalties and
loss of licensure, and have a material adverse effect upon the
Companys business.
The Company is subject to licensing and regulation under
federal, state and local laws and regulations relating to the
protection of the environment and human health and safety,
including laws and regulations relating to the handling,
transportation and disposal of medical specimens, infectious and
hazardous waste as well as regulations relating to the safety
and health of laboratory employees. All of the Companys
laboratories are subject to applicable federal and state laws
and regulations relating to biohazard disposal of all laboratory
18
specimens, and we utilize outside vendors for disposal of such
specimens. In addition, the federal Occupational Safety and
Health Administration has established extensive requirements
relating to workplace safety for health care employers,
including clinical laboratories, whose workers may be exposed to
blood-borne pathogens, such as HIV and HBV. These requirements,
among other things, require work practice controls, protective
clothing and equipment, training, medical
follow-up,
vaccinations and other measures designed to minimize exposure
to, and transmission of, blood-borne pathogens.
Although we believe that our safety procedures for handling and
disposing of such materials comply with the standards prescribed
by state and federal agencies, we cannot assure you that we will
be able to continue to comply with all applicable standards or
that violations will not occur. Failure to comply with federal,
state and local laws and regulations could subject the Company
to denial of the right to conduct business, fines, criminal
penalties
and/or other
enforcement actions which would have a material adverse effect
on its business. In addition, compliance with future legislation
could impose additional requirements on the Company which may be
costly. In addition, we cannot provide assurance that more
restrictive laws, rules and regulations or enforcement policies
will not be adopted in the future which could make compliance
more difficult or expensive or otherwise adversely affect our
business or prospects.
Changes
in demand for plasma-derived products and the availability of
donated plasma could affect profitability.
A majority of our business depends on the availability of
donated plasma. Only a small percentage of the population
donates plasma and regulations intended to reduce the risk of
introducing infectious diseases in the blood supply have
decreased the pool of potential donors. If the level of donor
participation declines, the Company may not be able to obtain
adequate supply at a reasonable cost to maintain profitability
in plasma-derived products.
We are
subject to governmental reforms and the adequacy of
reimbursement.
Our products and services are primarily intended to function
within the structure of the healthcare financing and
reimbursement system currently being used in the United States.
In recent years, the healthcare industry has changed
significantly in an effort to reduce costs. These changes
include increased use of managed care, cuts in Medicare and
Medicaid reimbursement levels, consolidation of pharmaceutical
and medical-surgical supply distributors, and the development of
large, sophisticated purchasing groups. We expect the healthcare
industry to continue to change significantly in the future. Some
of these changes, such as adverse changes in government funding
of healthcare services, legislation or regulations governing the
privacy of patient information, or the delivery or pricing of
pharmaceuticals and healthcare services or mandated benefits,
may cause healthcare industry participants to greatly reduce the
amount of our products and services they purchase or the price
they are willing to pay for our products and services. The Obama
administration has identified healthcare as a policy priority
and has released an outline of its healthcare policy initiatives
as they relate to the 2010 federal budget. The outline
identifies guiding principles for healthcare reform and
spending, which include increasing access to and affordability
of healthcare, primarily by ensuring access to health insurance,
increasing effectiveness of care, through effective use of
technology and an emphasis on evidence-based medicine,
maintaining patient choice, emphasizing preventive care and
enhancing the fiscal sustainability of the U.S. healthcare
system. Specific initiatives described in the outline include
reducing drug costs for federal programs by increasing
availability of generics and increasing the Medicaid rebates
payable by manufacturers to states, increasing incentives to
reduce unnecessary variability in treatment and to practice
evidence-based medicine, incentivizing the use of electronic
medical records and other technology, and reducing unnecessary
or wasteful spending. Currently, the matter of healthcare reform
continues to be debated by lawmakers and we are unable to
provide guidance on what the final legislation will be and how
it will impact us. Additional regulation and continued fiscal
pressure may adversely affect our business.
19
RISKS
RELATED TO OUR STOCK
Our
stock could be delisted if our stock price falls below
$1.00.
Our Common Stock is traded on The NASDAQ Capital Market.
Although we are currently in compliance with all applicable
NASDAQ Capital Market requirements, if we fail to continue to
meet all applicable NASDAQ Capital Market requirements, our
stock could be delisted by The NASDAQ Capital Market.
Under NASDAQ rules, our stock price must remain at or above
$1.00 per share price for continued listing under NASDAQ
Marketplace Rule 4450(a). Delisting would adversely affect
the market liquidity of our common stock and harm our business.
Such delisting could also adversely affect our ability to obtain
financing for the continuation of our operations and could
result in the loss of confidence by investors, suppliers and
employees.
Our
stock price could be volatile.
The price of our common stock has fluctuated in the past and may
be more volatile in the future. Factors such as the
announcements of government regulation, new products or services
introduced by the Company or by the competition, healthcare
legislation, trends in health insurance, litigation,
fluctuations in operating results and market conditions for
healthcare stocks in general could have a significant impact on
the future price of our common stock. In addition, the stock
market has from time to time experienced extreme price and
volume fluctuations that may be unrelated to the operating
performance of particular companies. The generally low volume of
trading in our common stock makes it more vulnerable to rapid
changes in price in response to market conditions.
We may
issue preferred stock in the future.
We have authorized in our Certificate of Incorporation the
issuance of up to 5,000,000 shares of preferred stock. Our
Board of Directors may, without further action by our
shareholders, issue preferred stock in one or more series. These
terms may include voting rights, preferences as to dividends and
liquidation and conversion and redemption rights. Although we
have no present plans to issue shares of preferred stock or to
create new series of preferred stock, if we do issue preferred
stock, it could affect the rights, or even reduce the value, of
our common stock.
Anti-takeover
effects of certain charter and bylaw provisions.
Certain provisions of our Certificate of Incorporation and
bylaws may be deemed to have anti-takeover effects and may
discourage, delay or prevent a takeover attempt that might be
considered in the best interests of our shareholders. These
provisions, among other things:
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eliminate cumulative voting rights;
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authorize the issuance of blank check preferred
stock having such designations, rights and preferences as may be
determined from time to time by the Board of Directors, without
any vote or further action by our shareholders; and
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eliminate the right of shareholders to act by written consent.
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Lack
of dividend payments.
The Company intends to retain any future earnings for use in its
business and therefore does not anticipate declaring or paying
any cash dividends in the foreseeable future. The declaration
and payment of any cash dividends in the future will depend on
the Companys earnings, financial condition, capital needs
and other factors deemed relevant by the Board of Directors. In
addition, the Companys credit agreement prohibited the
payment of dividends during the term of the agreement. The
Company terminated the agreement during October 2009.
20
Our
shareholders ability to sell shares of the Companys
stock may be limited.
Four of our shareholders, Ltova, Ashford Capital, Black Horse
Capital and T. Rowe Price Associates (T. Rowe
Price), collectively, are owners of approximately 46% of
our outstanding shares of common stock. Accordingly, we have a
very limited number of shares in our public float, and as a
result, there could be extreme fluctuations in the price of our
common stock and the ability to buy and sell our shares could be
impaired. If any or all of Ltova, Ashford Capital, Black Horse
Capital or T. Rowe Price were to liquidate their shares, the
market price could decline significantly.
Additional
risk factors
In addition to the foregoing risk factors, our business,
financial condition, and operating results could be seriously
harmed by additional factors, including but not limited to the
following:
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our ability to maintain favorable supplier agreements and
relationships with major customers and suppliers;
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the loss of any significant customers or reduced orders from
significant customers;
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our ability to maintain and expand our customer base;
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increased competition for donors, which may affect our ability
to attract and retain qualified donors;
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our ability to meet future customer demand for plasma
products; and
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changes in industry trends, customer specifications and demand,
market demand in general and potential foreign restrictions of
the importation of our products.
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Item 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
The Companys headquarters and principal manufacturing
facility are leased in Milford, Massachusetts. The initial term
of the lease agreement is approximately ten years and expires in
January 2018. The lease may be extended by the Company for three
successive extension terms of five years each, subject to
certain conditions set forth in the lease agreement. During
2008, the Company moved from its West Bridgewater facility to
its Milford facility. As a result, the Company began marketing
the West Bridgewater facility and land for sale. In October
2009, the Company entered into an agreement to sell the West
Bridgewater facility for $1.4 million. The sale is expected
to close in December 2009, subject to customary closing
conditions. Our principal facilities as of September 30,
2009 are listed below:
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Approximate Floor
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Location
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Facility Use
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Industry Segment
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Owned or Leased
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Space in Sq. Ft.
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Milford, MA
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Manufacturing, warehouse and office
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Diagnostic & Biopharmaceutical Products
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Leased
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60,000
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Gaithersburg, MD
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Manufacturing, repository, laboratory and office
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BioServices
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Leased
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36,000
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Frederick, MD
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Repository
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BioServices
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Leased
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65,000
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West Bridgewater, MA
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Held for Sale
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Owned
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32,000
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21
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Item 3.
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LEGAL
PROCEEDINGS
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Department
of Justice
In the first half of 2006 while the Company was under prior
management, the Company and certain former officers and
directors were served with grand jury subpoenas by the
U.S. Attorneys Office for the Southern District of
California requesting the production of certain documents. The
Company has cooperated fully with the requests of the
U.S. Attorneys Office and has not received any
requests during the year ended September 30, 2009.
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Item 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during
the fourth quarter of the year ended September 30, 2009.
PART II
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Item 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Since June 23, 2008, SeraCares common stock has
traded on The NASDAQ Capital Market under the symbol
SRLS. Our stock previously traded on the Pink Sheets
until June 20, 2008, the last trading day prior to our
relisting on NASDAQ. The price range per share of common stock
presented below for the years ended September 30, 2009 and
September 30, 2008 by quarter represents the highest and
lowest closing prices for our common stock on the Pink Sheets
from October 1, 2007 to June 20, 2008 and on the
NASDAQ Capital Market thereafter. Pink Sheet quotes represent
inter-dealer prices without retail markup, markdown or
commission and may not necessarily represent actual transactions.
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2009 Quarter Ended
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High
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Low
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September 30, 2009
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$
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2.53
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$
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1.05
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June 30, 2009
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$
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1.26
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$
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0.38
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March 31, 2009
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$
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1.50
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$
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0.36
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December 31, 2008
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$
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2.75
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$
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1.06
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2008 Quarter Ended
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High
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Low
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September 30, 2008
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$
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5.19
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$
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2.30
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June 30, 2008
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$
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4.90
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$
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3.85
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March 31, 2008
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$
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6.00
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$
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4.05
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December 31, 2007
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$
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6.35
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$
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5.30
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Holders
As of September 30, 2009 there were 18,652,982 shares
of our common stock outstanding and 198 holders of record of our
common stock. The closing price of our stock on
September 30, 2009 was $2.45 per share.
Dividends
Our Board of Directors has no current plans to pay cash
dividends. Our credit agreement with GE Capital limited our
ability to declare or pay any dividends or other distributions
on any shares of our capital stock other than dividends payable
solely in shares of our capital stock. The Company terminated
the credit agreement with GE Capital during October 2009. Future
dividend policy will depend on our earnings, capital
requirements, financial condition, contractual restrictions
contained in our loan agreements and other agreements and other
factors considered relevant by our Board of Directors.
22
Securities
Authorized for Issuance under Equity Compensation
Plans
The following table provides certain aggregate information with
respect to the Companys Amended and Restated 2001 Stock
Incentive Plan and 2009 Equity Incentive Plan (the
Plans) and commitments pursuant to Susan L.N.
Vogts and Gregory A. Goulds employment agreements
each as of September 30, 2009:
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Number of Securities
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Remaining Available for
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Number of Securities
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Future Issuance Under
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to be Issued Upon
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Weighted Average
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Equity Compensation Plans
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Exercise of
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Exercise Price of
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(Excluding Securities
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Plan Category
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Outstanding Options
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Outstanding Options ($)
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Reflected in First Column)
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Equity compensation plans approved by security holders:
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Amended and Restated 2001 Stock Incentive Plan
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1,527,792
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$
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5.41
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6,804
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2009 Equity Incentive Plan
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0
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N/A
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1,458,878
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Equity compensation not pursuant to the Plan
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700,000
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(1)
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$
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5.93
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N/A
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Total
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2,227,792
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$
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5.57
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1,465,682
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(1) |
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450,000 options were issued to Ms. Vogt on August 25,
2006 at an exercise price of $6.00 per share and 250,000 options
were issued to Mr. Gould on October 3, 2006 at an
exercise price of $5.80 per share. |
23
Stock
Performance Graph
The following graph shows the cumulative total stockholder
return on our common stock over the period from September 30,
2004 to September 30, 2009, as compared with that of The NASDAQ
Composite Index and The NASDAQ Biotechnology Index, based on an
initial investment of $100 in each on September 30, 2004. Total
stockholder return is measured by dividing share price change
plus dividends, if any, for each period by the share price at
the beginning of the respective period, and assumes reinvestment
of dividends.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
SeraCare Life Sciences, Inc., The NASDAQ Composite Index and The
NASDAQ Biotechnology Index
* $100 Invested on
9/30/04 in
stock or index, including reinvestment of dividends.
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September 30,
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2004
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2005
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2006
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2007
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2008
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2009
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SeraCare Life Sciences, Inc.
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100.00
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142.08
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46.40
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46.00
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23.92
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19.60
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NASDAQ Composite
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100.00
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113.65
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120.81
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144.35
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109.35
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112.92
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NASDAQ Biotechnology
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100.00
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123.54
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125.89
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139.50
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136.10
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135.27
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Recent
Sales of Unregistered Securities
None.
24
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Item 6.
|
SELECTED
FINANCIAL DATA
|
The following table sets forth our selected financial data and
has been derived from our audited financial statements for the
five years ended September 30, 2009. The information below
should be read in conjunction with our audited financial
statements (and notes thereon) and Managements
Discussion and Analysis of Financial Condition and Results of
Operations, included below in Item 7.
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|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands, except for per share data
|
|
|
STATEMENT OF OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
44,434
|
|
|
$
|
48,967
|
|
|
$
|
47,304
|
|
|
$
|
49,176
|
|
|
$
|
50,300
|
|
Cost of revenue
|
|
|
28,990
|
|
|
|
33,945
|
|
|
|
33,930
|
|
|
|
32,552
|
|
|
|
50,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
15,444
|
|
|
|
15,022
|
|
|
|
13,374
|
|
|
|
16,624
|
|
|
|
(484
|
)
|
Research and development expense
|
|
|
1,122
|
|
|
|
1,776
|
|
|
|
566
|
|
|
|
496
|
|
|
|
410
|
|
Selling, general and administrative expenses
|
|
|
13,714
|
|
|
|
16,119
|
|
|
|
14,527
|
|
|
|
13,308
|
|
|
|
11,958
|
|
Impairment of assets and loss related to assets held for sale
|
|
|
15,741
|
|
|
|
7,987
|
|
|
|
5,220
|
|
|
|
|
|
|
|
|
|
Reorganization items
|
|
|
|
|
|
|
1,314
|
|
|
|
5,224
|
|
|
|
9,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(15,133
|
)
|
|
|
(12,174
|
)
|
|
|
(12,163
|
)
|
|
|
(6,588
|
)
|
|
|
(12,852
|
)
|
Interest expense
|
|
|
(380
|
)
|
|
|
(386
|
)
|
|
|
(697
|
)
|
|
|
(2,114
|
)
|
|
|
(1,762
|
)
|
Interest expense to related parties
|
|
|
|
|
|
|
|
|
|
|
(313
|
)
|
|
|
(493
|
)
|
|
|
(490
|
)
|
Other income (expense), net
|
|
|
183
|
|
|
|
221
|
|
|
|
194
|
|
|
|
286
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(15,330
|
)
|
|
|
(12,339
|
)
|
|
|
(12,979
|
)
|
|
|
(8,909
|
)
|
|
|
(15,200
|
)
|
Income tax (benefit) expense
|
|
|
49
|
|
|
|
(376
|
)
|
|
|
76
|
|
|
|
(31
|
)
|
|
|
(513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(15,379
|
)
|
|
|
(11,963
|
)
|
|
|
(13,055
|
)
|
|
|
(8,878
|
)
|
|
|
(14,687
|
)
|
Loss from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
|
|
(15,400
|
)
|
|
|
(6,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(15,379
|
)
|
|
$
|
(11,963
|
)
|
|
$
|
(13,165
|
)
|
|
$
|
(24,278
|
)
|
|
$
|
(21,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.83
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(1.32
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(1.10
|
)
|
|
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(0.83
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.83
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(1.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.83
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(1.32
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(1.10
|
)
|
|
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(0.83
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.83
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(1.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands
|
|
|
SELECTED BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
17,644
|
|
|
$
|
14,330
|
|
|
$
|
20,084
|
|
|
$
|
7,777
|
|
|
$
|
30,978
|
|
Total assets
|
|
$
|
34,464
|
|
|
$
|
51,097
|
|
|
$
|
58,440
|
|
|
$
|
71,108
|
|
|
$
|
96,112
|
|
Long-term obligations(1)
|
|
$
|
1,195
|
|
|
$
|
61
|
|
|
$
|
2,111
|
|
|
$
|
5,718
|
|
|
$
|
17,865
|
|
Stockholders equity
|
|
$
|
26,194
|
|
|
$
|
40,410
|
|
|
$
|
50,524
|
|
|
$
|
41,566
|
|
|
$
|
64,586
|
|
|
|
|
(1) |
|
Includes debt, notes payable to related parties and capital
leases. |
25
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This Managements Discussion and Analysis of Financial
Condition and Results of Operations should be read together with
the financial statements, related notes and other financial
information included elsewhere in this Annual Report on
Form 10-K.
Business
Overview
SeraCare serves the global life sciences industry by providing
vital products and services to facilitate the discovery,
development and production of human and animal diagnostics and
therapeutics. The Companys innovative portfolio includes
diagnostic controls, plasma-derived reagents and molecular
biomarkers, biobanking and contract research services.
SeraCares quality systems, scientific expertise and
state-of-the-art
facilities support its customers in meeting the stringent
requirements of the highly regulated life sciences industry.
The Companys business is divided into two segments:
Diagnostic & Biopharmaceutical Products and
BioServices. SeraCares Diagnostic &
Biopharmaceutical Products segment includes two types of
products: controls and panels, which include the manufacture of
products used for the evaluation and quality control of
infectious disease testing in hospital and clinical testing labs
and blood banks, and by in vitro diagnostic
(IVD) manufacturers; and reagents and bioprocessing
products, which include the manufacture and supply of biological
materials used in the research, development and manufacturing of
human and animal diagnostics, therapeutics and vaccines. The
BioServices segment includes biobanking, sample processing and
testing services for research and clinical trials, and contract
research services in molecular biology, virology, immunology and
biochemistry.
Our customer base is diverse and operates in a highly regulated
environment. SeraCare has built its reputation on providing a
comprehensive portfolio of products and services and operating
state-of-the-art
facilities that incorporate the industrys highest quality
standards. SeraCares customers include IVD manufacturers;
hospital-based, independent and public health labs; blood banks;
government and regulatory agencies; and organizations involved
in the discovery, development and commercial production of human
and animal therapeutics and vaccines, including pharmaceutical
and biotechnology companies, veterinary companies and academic
and government research organizations.
The accompanying discussion and analysis of SeraCares
financial condition and results of operations are based upon the
financial statements, which have been prepared in conformity
with generally accepted accounting principles in the United
States (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets, liabilities and contingencies as of the date of the
financial statements and reported amounts of revenue and
expenses during the reporting periods. We evaluate our estimates
on an ongoing basis. SeraCare bases its estimates on historical
experience and other assumptions that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. However, future events may cause us to change our
assumptions and estimates requiring routine adjustment. Actual
results could differ from these estimates.
26
Results
of Operations
The following table shows gross profit and expense items as a
percentage of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
STATEMENT OF OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of revenue
|
|
|
65.2
|
|
|
|
69.3
|
|
|
|
71.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
34.8
|
|
|
|
30.7
|
|
|
|
28.3
|
|
Research and development expense
|
|
|
2.5
|
|
|
|
3.6
|
|
|
|
1.2
|
|
Selling, general and administrative expenses
|
|
|
30.9
|
|
|
|
32.9
|
|
|
|
30.7
|
|
Impairment of assets and loss related to assets held for sale
|
|
|
35.4
|
|
|
|
16.3
|
|
|
|
11.0
|
|
Reorganization items
|
|
|
|
|
|
|
2.8
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(34.0
|
)
|
|
|
(24.9
|
)
|
|
|
(25.7
|
)
|
Interest expense
|
|
|
(0.9
|
)
|
|
|
(0.8
|
)
|
|
|
(1.5
|
)
|
Interest expense to related parties
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
Other income, net
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(34.5
|
)
|
|
|
(25.2
|
)
|
|
|
(27.4
|
)
|
Income tax (benefit) expense
|
|
|
0.1
|
|
|
|
(0.8
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(34.6
|
)
|
|
|
(24.4
|
)
|
|
|
(27.6
|
)
|
Loss from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(34.6
|
)
|
|
|
(24.4
|
)
|
|
|
(27.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of years ended September 30, 2009 and September 30,
2008
Revenue
The following table sets forth segment revenue in millions of
dollars for the years ended September 30, 2009 and 2008,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
change
|
|
|
Diagnostic & Biopharmaceutical Products
|
|
$
|
32.8
|
|
|
$
|
35.0
|
|
|
|
(6
|
)%
|
BioServices
|
|
|
11.6
|
|
|
|
14.0
|
|
|
|
(17
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
44.4
|
|
|
$
|
49.0
|
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended September 30, 2009 decreased by
9%, or $4.6 million, to $44.4 million from
$49.0 million for the year ended September 30, 2008.
Diagnostic & Biopharmaceutical Products revenue during
the same period decreased by $2.2 million, a 6% decrease
from the prior period. Diagnostic & Biopharmaceutical
Products revenue had $0.1 million in sales from therapeutic
grade human serum albumin products during the year ended
September 30, 2009 as compared to $2.6 million during
the year ended September 30, 2008. This revenue has
historically been variable and was not significant during fiscal
2009 due to the validation requirements to switch suppliers of
raw materials used in biopharmaceutical manufacturing. The
Company switched suppliers in December 2007 as its previous
supply agreement was not renewed. Excluding therapeutic grade
human serum albumin products, revenue from our core manufactured
products increased $0.3 million, or 1%.
During the year ended September 30, 2009, revenue for our
BioServices segment decreased by $2.4 million or 17% to
$11.6 million from $14.0 million in the year ended
September 30, 2008. We billed $1.0 million during the
year ended September 30, 2008 pursuant to a government
contract which related to the
27
settlement of indirect billing rates used in previous periods.
We had no such billings during the year ended September 30,
2009. The remaining decrease is due to fewer requests for
services from our customers as a result of reduced research
spending stemming from the economic downturn during fiscal 2009.
Gross
Profit
Gross profit margin increased to 35% in the year ended
September 30, 2009 from 31% in the year ended
September 30, 2008. The increase in margin was mainly
attributable to the increase in our Diagnostic and
Biopharmaceutical Products margin to 40% in the year ended
September 30, 2009 compared to 33% in the year ended
September 30, 2008. The product margin increased due to
efficiencies related to consolidating our manufacturing
operations and improved cost cutting measures and the increased
focus on inventory control taken during the year ended
September 30, 2009. This increase in products margin was
offset by the BioServices margin decreasing to 19% in the year
ended September 30, 2009 from 24% in the year ended
September 30, 2008. During the year ended
September 30, 2008, our BioServices margin rates benefited
from $1.0 million billed pursuant to a government contract
which related to the settlement of indirect billing rates used
in previous periods.
Research
and Development Expense
Research and development expense totaled $1.1 million, or
3% of revenue, in the year ended September 30, 2009 and
$1.8 million, or 4% of revenue, in the year ended
September 30, 2008. During the year ended
September 30, 2009, we have focused on cost control
resulting in reduced compensation and other project related
expenses. As a result, spending has decreased as compared to the
year ended September 30, 2008.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses decreased to
$13.7 million, or 31% of revenue, in the year ended
September 30, 2009, from $16.1 million, or 33% of
revenue, in the year ended September 30, 2008. As part of
our fiscal 2009 operating plan, we have streamlined the
organization to achieve operational efficiencies and reduce
compensation expense. We have also reduced other spending
compared to the prior year including marketing, travel and
office expenses. In addition, stock compensation expense has
decreased $0.6 million during the year ended
September 30, 2009 as compared to the year ended
September 30, 2008.
Impairment
of Assets
Due to the turmoil in the financial markets and the associated
decline in the Companys stock price and market
capitalization, the Company recorded an impairment charge to
goodwill of $8.0 million during the year ended
September 30, 2008 related to its Diagnostic &
Biopharmaceutical Products segment. During the first half of the
year ended September 30, 2009, the financial markets and
the Companys stock price continued to decline and the
Company revised its future cash flow projections as revenue was
lower than expected due to the economic downturn. As a result,
the Company recorded an impairment charge to goodwill in the
amount of $15.1 million which related to its
Diagnostic & Biopharmaceutical Products segment. This
represents the entire balance of goodwill related to the
Diagnostic & Biopharmaceutical Products segment. The
Company determined the fair value of this segment under various
methodologies including performing a discounted cash flow
analysis as well as allocating the Companys market
capitalization to each segment according to revenue. Using a
discounted cash flow model requires a number of assumptions
about future cash flows and related costs necessary to generate
such estimated cash flows. Using what management believes were
reasonable assumptions based on the best information available
as of the testing date, the value of the BioServices segment was
found to be in excess of its carrying value, and therefore the
related goodwill was not impaired. The remaining goodwill of
$4.3 million relates to the BioServices segment. There was
no impairment charge associated with the BioServices segment as
it is service driven and has fewer assigned assets which have a
lower carrying amount as compared to the Diagnostic &
Biopharmaceutical Products segment which requires more assets to
manufacture and sell products.
28
The Company will continue to test goodwill for impairment as
part of its annual impairment testing or as events occur that
would more likely than not reduce the fair value of the
reporting unit below its carrying value.
Loss
Related to Assets Held for Sale
On October 1, 2007, the Company signed a lease agreement
which enabled it to consolidate all of its Massachusetts
operations into its Milford facility during the year ended
September 30, 2008. As a result, the Company began
marketing the West Bridgewater facility and land for sale. Due
to a softening in the real estate market, the Company recorded a
loss of $0.7 million during fiscal 2009 related to an
impairment charge to write-down the assets to their fair value
less costs to sell. The carrying amount of these assets is
$1.3 million as of September 30, 2009. During October
2009, the Company entered into a purchase and sale agreement for
the West Bridgewater facility and land for $1.4 million.
The sale is expected to close in December 2009.
Reorganization
Items
Reorganization items include legal, accounting and other
professional fees related to the Companys bankruptcy
proceedings, reorganization, litigation, relisting on NASDAQ and
efforts to become a current and timely filer with the SEC. These
expenses totaled $1.3 million during the year ended
September 30, 2008. There were no reorganization items
during the year ended September 30, 2009.
Operating
Loss
Operating loss resulted from the factors above and included
impairment charges, stock-based compensation expense and
depreciation and amortization. Operating loss was
$15.1 million for the year ended September 30, 2009,
which included impairment charges to goodwill and our assets
held for sale, stock-based compensation expense and depreciation
and amortization totaling $15.1 million, $0.7 million,
$1.2 million and $1.3 million, respectively, as
compared to operating loss of $12.2 million for the year
ended September 30, 2008, which included an impairment
charge to goodwill, stock-based compensation expense and
depreciation and amortization totaling $8.0 million,
$1.8 million and $1.3 million, respectively.
Interest
Expense and Other Income
Interest expense totaled $0.4 million in each of the years
ended September 30, 2009 and 2008. During the year ended
September 30, 2009, other income was $0.2 million
which primarily related to royalties from the sale of the
Genomics Collaborative division in fiscal 2007. The Company is
actively pursuing collections of additional royalty amounts due
but has not recorded a receivable due to collectability
concerns. Other income was $0.2 million during the year
ended September 30, 2008 which primarily related to
interest received from the federal and state governments for tax
refunds.
Income
Tax (Benefit) Expense
Taxes were nominal during the year ended September 30,
2009. During the year ended September 30, 2008, the Company
recognized a tax benefit of $0.4 million as a result of
amending its previously filed tax returns. As of
September 30, 2009 and 2008, the Company had deferred tax
assets, net of liabilities, of $33.6 million and
$26.4 million, respectively, which are fully reserved on
the balance sheet.
Net
Loss and Net Loss Per Share
As a result of the above, net loss was $15.4 million in the
year ended September 30, 2009 compared to a net loss of
$12.0 million in the year ended September 30, 2008.
Net loss per share on a basic and fully diluted basis was $0.83
in the year ended September 30, 2009 compared to $0.64 in
the year ended September 30, 2008.
29
Comparison
of years ended September 30, 2008 and September 30,
2007
Revenue
The following table sets forth segment revenue in millions of
dollars for the years ended September 30, 2008 and 2007,
respectively:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
change
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|
|
Diagnostic & Biopharmaceutical Products
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|
$
|
35.0
|
|
|
$
|
35.0
|
|
|
|
0
|
%
|
BioServices
|
|
|
14.0
|
|
|
|
12.3
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
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|
$
|
49.0
|
|
|
$
|
47.3
|
|
|
|
4
|
%
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|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended September 30, 2008 increased by
4%, or $1.7 million, to $49.0 million from
$47.3 million in fiscal 2007. Diagnostic &
Biopharmaceutical Products revenue remained flat, while
BioServices revenue increased by $1.7 million, a 14%
increase. Diagnostic & Biopharmaceutical Products
revenue included $2.6 million from therapeutic grade human
serum albumin products for fiscal 2008 as compared to
$7.9 million for fiscal 2007. This revenue decreased due to
the validation requirements to switch suppliers of raw materials
used in biopharmaceutical manufacturing. The Company switched
suppliers in December 2007 as its previous supply agreement was
not renewed. Excluding therapeutic grade human serum albumin
products, our total revenue increased $7.0 million, or 18%
and the core Diagnostic & Biopharmaceutical Products
increased $5.3 million, or 20%, due to organic growth.
Revenue for our BioServices segment increased $1.7 million
in fiscal 2008 due to increased testing services to
non-government entities and $1.0 million billed pursuant to
government contracts which related to the settlement of indirect
billing rates used in previous periods.
Gross
Profit
During fiscal 2008, gross profit margin increased to
$15.0 million, or 31% of revenue, as compared to
$13.4 million, or 28% of revenue, for fiscal 2007. The
increase in gross profit margin was mainly due to the benefit of
achieving higher revenue in our core Diagnostic &
Biopharmaceutical Products, as compared to therapeutic grade
human serum albumin products, which have lower margins, and
improved margin rates due to increased pricing in fiscal 2008.
Our margin rates also benefited by $1.0 million from
billings pursuant to government contracts which related to the
settlement of indirect billing rates used in previous periods.
These factors were partially offset by increased inventory
write-offs during fiscal 2008.
Research
and Development Expense
Research and development expense totaled $1.8 million, or
4% of revenue, in the year ended September 30, 2008 and
$0.6 million, or 1% of revenue, in the year ended
September 30, 2007. Our research and development activities
are focused around development of new controls and panels, as
well as refinement of existing control and panel product lines.
As part of our strategic plan, we increased spending on research
and development activities in fiscal 2008 as we emphasized the
creation of new products and technologies.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased to
$16.1 million, or 33% of revenue in the year ended
September 30, 2008, from $14.5 million, or 31% of
revenue in the year ended September 30, 2007. The increase
primarily reflects the impact of increased headcount due to
building a new management team and strengthening our sales and
accounting teams, higher compensation expense, increased
accounting and legal fees, higher marketing expenses and
increased consulting associated with the rebranding strategy.
These were offset by lower stock-based compensation expense
which decreased to $1.5 million for fiscal 2008 as compared
to $2.3 million for fiscal 2007.
30
Impairment
of Assets
As a result of the turmoil in the financial markets and the
associated decline in the Companys stock price, the
Company recorded an impairment charge to goodwill during the
fourth quarter of fiscal 2008 in the amount of $8.0 million
related to its Diagnostic and Biopharmaceutical Products
segment. In the fourth quarter of fiscal 2007, as a result of
the completion of a new branding strategy, SeraCare decided to
phase out the BBI Diagnostics brand name, resulting in a
write-off of intangible assets of $5.2 million.
Reorganization
Items
Reorganization items include legal, accounting and other
professional fees related to our bankruptcy proceedings,
reorganization, litigation, relisting on NASDAQ and efforts to
become compliant with the SEC. These expenses totaled
$1.3 million and $5.2 million in the fiscal years
ended September 30, 2008 and 2007, respectively.
Operating
Loss
Operating loss resulted from the factors above and included
reorganization items as well as stock-based compensation
expense, impairment charges and depreciation and amortization.
Operating loss was $12.2 million for the year ended
September 30, 2008, which included stock-based compensation
expense, reorganization expense, an impairment charge to
goodwill and depreciation and amortization totaling
$1.8 million, $1.3 million, $8.0 million and
$1.3 million, respectively, as compared to operating loss
of $12.2 million for the year ended September 30,
2007, which included stock-based compensation expense,
reorganization expense, impairment of trade name and
depreciation and amortization totaling $2.4 million,
$5.2 million, $5.2 million and $1.4 million,
respectively.
Interest
Expense and Other Income
Interest expense totaled $0.4 million for fiscal 2008, as
compared to $0.7 million for fiscal 2007. The decrease in
interest expense is due to a lower level of borrowed funds in
fiscal 2008 compared to fiscal 2007 resulting from repayment of
a portion of long-term debt in the first quarter of fiscal 2007
and full repayment of the then-existing senior debt commitments
in May 2007. Interest expense to related parties totaled
$0.3 million during fiscal 2007. Notes payable to related
parties were repaid in full in May 2007. Other income totaled
$0.2 million in each of fiscal 2008 and 2007.
Income
Tax (Benefit) Expense
During fiscal 2008, the Company recognized a tax benefit of
$0.4 million as a result of amending its previously filed
tax returns. The company recorded an expense of
$0.1 million for state taxes during fiscal 2007. As of
September 30, 2008 and 2007, the Company had deferred tax
assets, net of liabilities, of $26.4 million and
$25.4 million, respectively, that are fully reserved on the
balance sheet.
Net
Loss from Continuing Operations
As a result of the above, net loss from continuing operations
for the year ended September 30, 2008 totaled
$12.0 million compared to a net loss of $13.1 million
for the year ended September 30, 2007.
Loss
from Discontinued Operations
Loss from discontinued operations was generated by the Genomics
Collaborative division of the business which was sold in March
2007. As such, there was no activity during fiscal 2008. The
loss related to that division totaled $0.1 million in
fiscal 2007, which included a gain on the sale of
$0.8 million.
31
Net
Loss and Net Loss Per Share
Net loss was $12.0 million in the year ended
September 30, 2008 compared to a net loss of
$13.2 million in the year ended September 30, 2007.
Net loss per share on a basic and fully diluted basis was $0.64
in fiscal 2008 compared to $0.83 in fiscal 2007.
Liquidity
and Capital Resources
Cash
Flows
The following table summarizes our sources and uses of cash over
the periods indicated (in millions):
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|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
4.0
|
|
|
$
|
(2.6
|
)
|
|
$
|
(10.6
|
)
|
Net cash (used in) provided by investing activities
|
|
|
(0.1
|
)
|
|
|
(3.8
|
)
|
|
|
1.5
|
|
Net cash (used in) provided by financing activities
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
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|
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5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
3.2
|
|
|
$
|
(6.6
|
)
|
|
$
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009, our cash balance was
$6.2 million, an increase of $3.2 million from our
cash balance as of September 30, 2008. During the fiscal
year ended September 30, 2009, we had a net loss of
$15.4 million, which included non-cash charges of
approximately $19.2 million, primarily related to goodwill
impairment, stock based compensation and depreciation and
amortization. Excluding non-cash charges, we would have had net
income of $3.8 million. Inventory decreased by
$2.7 million while receivables increased by
$0.5 million. We had decreases in accounts payable and
accrued expenses of $1.4 million and $0.4 million,
respectively. Inventory decreased as we reduced production and
sold the surplus inventory that we had intentionally built up at
the end of fiscal 2008 in preparation for the move of our
manufacturing operations from West Bridgewater, Massachusetts to
Milford, Massachusetts. Our trade receivables increased
$0.7 million due to stronger sales at the end of fiscal
2009 as compared to fiscal 2008. We received a tax refund from
the federal government which decreased our taxes receivable by
$0.2 million. Accounts payable declined as we decreased
spending during the year ended September 30, 2009. Accrued
expenses decreased due to the payment of construction accruals
for the renovations at our Maryland facilities which are now
complete. Other sources and uses of cash include
$0.7 million in capital expenditures and reimbursements of
$0.5 million from our landlord for renovations at our
Gaithersburg, Maryland facility. During fiscal 2009, we made
payments of $0.7 million for our mortgage note and capital
leases.
We had a current ratio, current assets to current liabilities,
of 4.7 to 1 as of September 30, 2009 compared to 2.7 to 1
as of September 30, 2008. Total liabilities as of
September 30, 2009 were $8.3 million compared to
$10.7 million as of September 30, 2008. The total debt
to equity ratio was 0.3 to 1.0 as of both September 30,
2009 and September 30, 2008.
We believe our current cash on hand combined with expected
future operating cash flows will be sufficient to meet our
future operating cash needs in fiscal 2010.
Operating
Cash Flows
Cash provided by operating activities was $4.0 million for
the year ended September 30, 2009, an improvement of
$6.6 million compared to cash used of $2.6 million
during fiscal 2008. During the year ended September 30,
2009, our non-cash charges were higher by $4.9 million as
compared to the year ended September 30, 2008. Inventory
decreased $2.7 million as we reduced production and sold
the surplus inventory that we had intentionally built up at the
end of fiscal 2008 in preparation for the move of our
manufacturing operations from West Bridgewater, Massachusetts to
Milford, Massachusetts. Other changes in operating items were
largely driven by cost control measures which resulted in less
spending across all areas of the Company during the year ended
September 30, 2009.
32
Investing
Cash Flows
Cash used in investing activities was $0.1 million for the
year ended September 30, 2009, an improvement of
$3.7 million compared to cash used of $3.8 million for
the year ended September 30, 2008. During the year ended
September 30, 2009, we received $0.5 million from our
landlord for renovations at our Gaithersburg, Maryland facility.
In addition, we spent $0.7 million for various equipment as
well as for renovations at our Frederick, Maryland facility. We
also received $0.2 million in royalty payments related to
the sale of certain assets of our Genomics Collaborative
division which occurred in 2007. Cash flows used in investing
activities for the year ended September 30, 2008 related
primarily to capital expenditures for construction of our new
corporate offices and expansion of our manufacturing facility in
Milford, Massachusetts, net of landlord reimbursements.
Financing
Cash Flows
Cash used in financing activities was $0.7 million for the
year ended September 30, 2009 as compared to
$0.2 million for the year ended September 30, 2008.
During the first half of the year ended September 30, 2009,
the Company utilized the GE Capital revolving credit facility
and received proceeds of $19.7 million, all of which was
repaid during the year ended September 30, 2009. The
Company made payments for the mortgage note and various capital
leases totaling $0.6 million and $0.2 million during
the years ended September 30, 2009 and 2008, respectively.
The Company amended its mortgage note and as a result was
required to pay an additional $0.4 million during the year
ended September 30, 2009 and an additional
$0.2 million on October 1, 2009 to reduce the
principal balance of the loan to $1.4 million and
$1.2 million as of September 1, 2009 and
October 1, 2009, respectively.
Off-Balance
Sheet Arrangements
During the year ended September 30, 2009, we were not party
to any off-balance sheet arrangements.
Debt
On June 7, 2007, the Company entered into a three-year
Credit and Security Agreement, dated as of June 4, 2007,
with Merrill Lynch Capital, now GE Capital, pursuant to which a
$10.0 million revolving loan facility was made available to
the Company. The Company terminated the line of credit in
October 2009. Obligations under the Credit and Security
Agreement were secured by substantially all the assets of the
Company excluding the Companys real property located at
its West Bridgewater facility, which is subject to a separate
mortgage note. The revolving credit facility, which may have
been used for working capital and other general corporate
purposes, was governed by a borrowing base. The interest rate
per annum was equal to 2.75% over LIBOR. The effective interest
rate as of September 30, 2009 was 3.00% and there was no
outstanding balance. The Company paid 0.50% per annum as an
unused line fee. Interest was payable monthly. Amounts under the
revolving credit facility may have been repaid and re-borrowed
until June 4, 2010. Mandatory prepayments of the revolving
credit facility were required any time the outstanding revolving
loan balance exceeded the borrowing base. The agreement
contained standard representations, covenants and events of
default for facilities of this type. In addition, the agreement
prohibited the payment of dividends during the term of the
agreement. Occurrence of an event of default would have allowed
the lenders to accelerate the payment of the loan
and/or
terminate the commitments to lend, in addition to the exercise
of other legal remedies, including foreclosing on collateral. As
of September 30, 2009, $6.4 million was available for
borrowing. A sale of the West Bridgewater facility and land for
less than $2.0 million would have triggered a default under
the agreement with GE Capital if the Company was unable to
obtain a waiver from GE Capital. In addition, the agreement
contained financial maintenance covenants. As of
September 30, 2009, the Company was in compliance with
these covenants.
The Company is also subject to an Assumption and Modification
Agreement, dated September 14, 2004, between the Company
and Commerce Bank & Trust Company which is
secured by a mortgage note on the Companys West
Bridgewater facility. As of September 30, 2009, the
principal amount outstanding under the promissory note related
to this assumption agreement is $1.4 million. On
July 31, 2009, the Company amended its Note with Commerce
Bank which was due to mature on August 31, 2009. Under the
Loan
33
Amendment, the Company paid monthly principal and interest
payments through October 2009 to reduce the principal balance of
the loan to $1.2 million and thereafter will make monthly
principal and interest payments based on a ten-year amortization
schedule. Under the Loan Amendment, if the Company reduces the
market listing price of the property, the Company must reduce
the principal balance of the mortgage by the amount of the
reduction in the listing price. The Loan Amendment also extends
the final maturity to February 28, 2011 and as such, the
Company has classified a portion of the Note as a noncurrent
liability on its Balance Sheet as of September 30, 2009.
Under the Loan Amendment, the Company must pay interest at the
Lenders base rate plus 3%, with a floor of 6.25%. The
effective interest rate is 6.25% as of September 30, 2009.
The Company must also maintain a minimum net worth of
$18.0 million. The Note may be repaid in whole or part, at
any time, without penalty. During October 2009, the Company
entered into a purchase and sale agreement for the West
Bridgewater facility for $1.4 million. The sale is expected
to close in December 2009 at which time the Company will be
expected to repay the Note in its entirety.
Critical
Accounting Policies and Estimates
We have determined that for the periods covered in our 2009
Annual Report the following accounting policies and estimates
are critical in understanding the financial condition and
results of our operations.
Revenue Recognition. Revenue from the sale of
products is recognized when we meet all of the criteria
specified in Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 104, Revenue
Recognition in Financial Statements
(SAB 104). These criteria include:
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|
|
evidence of an arrangement exists;
|
|
|
|
delivery or performance has occurred;
|
|
|
|
prices are fixed or determinable; and
|
|
|
|
collection of the resulting receivable is reasonably assured.
|
Signed customer purchase orders or sales agreements evidence our
sales arrangements. These purchase orders and sales agreements
specify both selling prices and quantities, which are the basis
for recording sales revenue. Trade terms for the majority of our
sales contracts indicate that title and risk of loss pass from
us to our customers when we ship products from our facilities,
which is when revenue is recognized. Revenue is deferred until
the appropriate time in situations where trade terms indicate
that title and risk of loss pass from us to the customers at a
later stage in the shipment process. We maintain allowances for
doubtful accounts for estimated losses resulting from our
customers inability to make required payments. Revenue
from service arrangements is recognized when the services are
provided as long as all other criteria of SAB 104 are met.
The Company will accept the return of goods, if prior to
returning the goods, the purchaser contacts the Company and
requests a return authorization and we approve this
authorization based upon the customer clearly stating the reason
for the return. The Company maintains an allowance for sales
returns and records a decrease to revenue when it has specific
knowledge of a customer complaint. The allowance for sales
returns was nominal as of September 30, 2009 and was
$0.1 million as of September 30, 2008.
Inventory valuation. Inventory consists
primarily of human blood plasma and products derived from human
blood plasma. Inventory is carried at specifically identified
cost and assessed periodically to ensure it is valued at the
lower of cost or market. Our ability to manage our inventories
properly is an important factor in our operations. Inventory
shortages can adversely affect the timing of shipments to
customers and diminish sales. Conversely, excess inventories can
result in lower gross margins due to excessive reserves for
obsolete products. Our products require incorporation of a wide
range of materials which we typically buy in bulk prior to
receiving customer orders for the full amount. We do this to
minimize purchasing costs, the time necessary to fill customer
orders and the risk of non-delivery. However, we may be unable
to sell the products we have ordered in advance from
manufacturers or that we have in inventory. This approach tends
to increase the risk of obsolescence for products we hold in
inventory.
A provision has been made to reduce excess and not readily
marketable inventories to their estimated net realizable value.
We provide a reserve based upon factors related to age,
historical scrap rates, usability and
34
fair market value. The Companys recorded inventory reserve
was $2.8 million and $3.5 million as of
September 30, 2009 and 2008, respectively. Should it be
determined that the reserve is insufficient, we would be
required to record additional inventory write-downs, which would
have a negative impact on gross profit margin.
Valuation of Long-Lived and Intangible Assets and
Goodwill. Valuation of certain long-lived assets,
including property, plant and equipment, intangible assets and
goodwill requires significant judgment. Assumptions and
estimates are used in determining the fair value of assets
acquired and liabilities assumed in a business combination. A
significant portion of the purchase price in our acquisitions is
assigned to intangible assets and goodwill. Assigning value to
intangible assets requires that we use significant judgment in
determining (i) the fair value and (ii) whether such
intangibles are amortizable or
non-amortizable
and, if the former, the period and the method by which the
intangible assets will be amortized. Changes in the initial
assumptions could lead to changes in amortization expense
recorded in our future financial statements.
For intangible assets and property, plant and equipment, we
assess the carrying value of these assets whenever events or
changes in circumstances indicate that the carrying value may
not be recoverable. Factors we consider important which could
trigger an impairment review include but are not limited to the
following:
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|
|
|
|
significant underperformance related to historical or expected
projected future operating results; or
|
|
|
|
significant changes or developments in strategy or operations
which affect our long-lived assets.
|
Should we determine that the carrying value of long-lived assets
and intangible assets may not be recoverable, we will measure
any impairment based on a projected undiscounted cash flow
method. Significant judgments and assumptions are required to
estimate future cash flows. Changes in these estimates and
assumptions could materially affect the determination of fair
value for these assets.
We perform reviews for the impairment of goodwill annually and
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Goodwill may be
considered to be impaired if we determine that the carrying
value of the reporting unit, including goodwill, exceeds the
reporting units fair value. Assessing the impairment of
goodwill requires us to make assumptions and judgments regarding
the fair value of the net assets of our reporting units.
Contingencies and Litigation Reserves. The
Company is involved from time to time in litigation incidental
to the conduct of the Companys business. These claims may
be brought by, among others, the government, clients, customers,
employees and other third parties. Management considers the
measurement of litigation reserves as a critical accounting
estimate because of the significant uncertainty in some cases
relating to the outcome of potential claims or litigation and
the difficulty of predicting the likelihood and range of
potential liability involved, coupled with the material impact
on our results of operations that could result from litigation
or other claims. In determining contingency and litigation
reserves, management considers, among other issues:
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|
interpretation of contractual rights and obligations;
|
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|
|
the status of government regulatory initiatives, interpretations
and investigations;
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|
the status of settlement negotiations;
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|
|
prior experience with similar types of claims;
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|
|
whether there is available insurance; and
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|
advice of counsel.
|
Stock-Based Compensation. The Company
recognizes share-based payments to employees and directors as
compensation expense in the results of operations using a fair
value-based method. Compensation expense of $1.2 million,
$1.8 million and $2.4 million was recognized in the
years ended September 30, 2009, 2008 and 2007,
respectively, for all awards granted on or after October 1,
2005 as well as for the unvested portion of awards granted
before October 1, 2005.
35
Stock-based compensation expense is estimated as of the grant
date based on the fair value of the award and is recognized as
expense over the requisite service period, which generally
represents the vesting period. We estimate the fair value of our
stock options using the Black-Scholes option-pricing model and
the fair value of our restricted stock awards and stock units
based on the quoted market price of our common stock. We
recognize the associated compensation expense on a graded
vesting method over the vesting periods of the awards, net of
estimated forfeitures. Forfeiture rates are estimated based on
historical pre-vesting forfeiture history and are updated to
reflect actual forfeitures of unvested awards and other known
events. Management believes this graded vesting methodology is a
truer reflection of the expenses incurred for the options
granted than the alternative straight-line method.
Estimating the fair value for stock options requires judgment,
including estimating stock-price volatility, expected term,
expected dividends and risk-free interest rates. The expected
volatility rates are based on the historical fluctuation in the
stock price since inception. The average expected term was
calculated under the guidance of SAB No. 107 and 110,
Simplified Method for Estimating the Expected
Term as we have limited exercise data since we
reorganized in May 2007. Expected dividends are estimated based
on our dividend history as well as our current projections. The
risk-free interest rate for periods approximating the expected
terms of the options is based on the U.S. Treasury yield
curve in effect at the time of grant. These assumptions will be
updated at least on an annual basis or when there is a
significant change in circumstances that could affect these
assumptions.
Accounting for Income Taxes. As part of the
process of preparing financial statements, management is
required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves
estimating our actual current tax exposure together with
assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which
are included within the balance sheet. Management must then
assess the likelihood that the deferred tax assets will be
recovered from future taxable income and to the extent
management believes that recovery is not likely, a valuation
allowance must be established. To the extent management
establishes a valuation allowance or increases this allowance in
a period, an increase to expense within the provision for income
taxes in the statement of operations will result.
Significant management judgment is required in determining the
provision for income taxes, deferred tax assets and liabilities
and any valuation allowance recorded in connection with the
deferred tax assets. We have recorded a valuation allowance of
$33.6 million and $26.4 million as of
September 30, 2009 and September 30, 2008,
respectively, due to uncertainties related to our ability to
utilize the deferred tax assets, primarily consisting of certain
net operating losses carried forward, before they expire. The
valuation allowance is based on managements current
estimates of taxable income for the jurisdictions in which
SeraCare operates and the period over which the deferred tax
assets will be recoverable. In the event that actual results
differ from these estimates, or these estimates are adjusted in
future periods, an additional valuation allowance may need to be
established which would increase the tax provision, lowering
income and impacting SeraCares financial position. Should
realization of these deferred assets previously reserved occur,
the provision for income tax would decrease, raising income and
positively impacting SeraCares financial position. In
addition, any interest and penalties assessed by the taxing
authorities are recorded as selling, general and administrative
expense.
Recent
Accounting Pronouncements
The Company adopted the Financial Accounting Standards Board
(the FASB) Accounting Standards Codification (the
Codification) as the source of authoritative GAAP
for nongovernmental entities. The Codification does not change
GAAP but rather takes the numerous individual pronouncements
that previously constituted GAAP and reorganizes them into
approximately 90 accounting topics, and displays all topics
using a consistent structure. The adoption of the Codification
did not have an effect on the Companys financial position,
results of operations or cash flows.
During May 2009, the FASB issued guidance concerning subsequent
events which applies prospectively and is effective for interim
or annual financial periods ending after June 15, 2009.
This guidance establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to
be issued and requires the disclosure of the date through
36
which an entity has evaluated subsequent events and the basis
for that date. The Companys adoption of the guidance did
not have an effect on the Companys financial position,
results of operations or cash flows.
The FASB provided guidance for using fair value to measure
assets and liabilities which applies whenever other guidance
requires (or permits) assets or liabilities to be measured at
fair value but does not expand the use of fair value in any new
circumstances. The guidance clarifies that for items that are
not actively traded, such as certain kinds of derivatives, fair
value should reflect the price in a transaction with a market
participant, including an adjustment for risk, not just the
companys
mark-to-market
value. The guidance also requires expanded disclosure of the
effect on earnings for items measured using unobservable data.
Fair value refers to the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants in the market in which the reporting
entity transacts. The FASB clarifies the principle that fair
value should be based on the assumptions market participants
would use when pricing the asset or liability. In support of
this principle, the guidance establishes a fair value hierarchy
that prioritizes the information used to develop those
assumptions. The fair value hierarchy gives the highest priority
to quoted prices in active markets and the lowest priority to
unobservable data, such as the reporting entitys own data.
Under the guidance, fair value measurements are separately
disclosed by level within the fair value hierarchy. The FASB
agreed to defer the effective date of the guidance for all
nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company adopted this
guidance on October 1, 2008 for assets and liabilities not
subject to the deferral and will adopt this statement on
October 1, 2009 for all other assets and liabilities. The
guidance did not have and is not expected to have a material
effect on the financial position, results of operations or cash
flows of the Company.
On December 4, 2007, the FASB revised its guidance for
business combinations. Under the revised guidance, an acquiring
entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. The guidance will change the
accounting treatment for certain items as follows:
|
|
|
|
|
acquisition costs will be generally expensed as incurred;
|
|
|
|
noncontrolling interests will be valued at fair value at the
acquisition date;
|
|
|
|
acquired contingent liabilities will be recorded at fair value
at the acquisition date and subsequently measured at either the
higher of such amount or the amount determined under existing
guidance for non-acquired contingencies;
|
|
|
|
in-process research and development will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition
date until the completion or abandonment of the associated
research and development efforts;
|
|
|
|
restructuring costs associated with a business combination will
be generally expensed subsequent to the acquisition
date; and
|
|
|
|
changes in deferred tax asset valuation allowances and income
tax uncertainties after the acquisition date generally will
affect income tax expense.
|
The revised guidance also includes a substantial number of new
disclosure requirements. The revised guidance applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier
adoption is prohibited. Accordingly, the Company will adopt this
guidance on October 1, 2009. The guidance is not expected
to have a material effect on the financial position, results of
operations or cash flows of the Company.
On December 4, 2007, the FASB issued guidance which
establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this guidance
requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and
separate from the parents equity. The amount of net income
attributable to the noncontrolling interest will be included in
consolidated net income on the face of the
37
income statement. The guidance clarifies that changes in a
parents ownership interest in a subsidiary that do not
result in deconsolidation are equity transactions if the parent
retains its controlling financial interest. In addition, this
guidance requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss
will be measured using the fair value of the noncontrolling
equity investment on the deconsolidation date. The guidance also
includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest. The
guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008. Earlier adoption is prohibited.
Accordingly, the Company will adopt this guidance on
October 1, 2009. The guidance is not expected to have a
material effect on the financial position, results of operations
or cash flows of the Company.
Contractual
Obligations and Commitments
The following table summarizes our contractual obligations at
September 30, 2009 and the effects such obligations are
expected to have on our liquidity and cash flows in future
periods (in thousands).
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Contractual Obligations
|
|
Total
|
|
|
Less Than 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More Than 5 Years
|
|
|
Long-term debt obligations(1)
|
|
$
|
1,544
|
|
|
$
|
349
|
|
|
$
|
1,195
|
|
|
$
|
|
|
|
$
|
|
|
Interest payments(2)
|
|
|
151
|
|
|
|
118
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
19,869
|
|
|
|
2,418
|
|
|
|
5,177
|
|
|
|
5,468
|
|
|
|
6,806
|
|
Purchase obligations
|
|
|
697
|
|
|
|
640
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
22,261
|
|
|
$
|
3,525
|
|
|
$
|
6,462
|
|
|
$
|
5,468
|
|
|
$
|
6,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(1) |
|
Long-term debt obligations include capital leases.
$1.4 million relates to the Commerce Bank &
Trust Mortgage Note which is due on February 28, 2011
while the remaining $0.1 million relates to capital leases. |
|
(2) |
|
Interest payment amounts include unused line fees owed to GE
Capital under the Credit and Security Agreement. |
|
|
Item 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest Rate and Market Risk. As of
September 30, 2009, our only assets or liabilities subject
to risks from interest rate changes are (i) debt under the
West Bridgewater mortgage note in the aggregate amount of
$1.4 million and (ii) cash and cash equivalents of
$6.2 million, substantially all of which were held in
overnight repurchase agreements collateralized by federal
government agency or government sponsored enterprise securities.
Our mortgage note bears interest at a variable rate. A
one-percentage point change in interest rates affecting the
Companys floating rate long-term debt would change pre-tax
income by approximately $14,000 over the next twelve months.
Foreign Currency Exchange Risk. The Company
does not believe that it currently has material exposure to
foreign currency exchange risk because all international sales
are designated in U.S. dollars.
We were not a party to any derivative financial instruments at
September 30, 2009.
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The information required by this Item 8 is included at the
end of this Annual Report on
Form 10-K
beginning on
page F-1.
|
|
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
38
|
|
Item 9A(T).
|
CONTROLS
AND PROCEDURES
|
|
|
(a)
|
Disclosure
Controls and Procedures
|
Rule 13a-15(b)
under the Exchange Act and Item 307 of
Regulation S-K
require management to evaluate the effectiveness of the design
and operation of our disclosure controls and procedures as of
the end of each fiscal quarter. Disclosure controls and
procedures are controls and other procedures that are designed
to ensure that information required to be disclosed in our
reports filed under the Exchange Act of 1934 (the Exchange
Act) is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms. Disclosure controls are also designed with the objective
of ensuring that such information is accumulated and
communicated to our management, including our principal
executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required
disclosure.
The Companys management, including the principal executive
officer and the principal financial officer, conducted an
evaluation as of the end of the period covered by this Annual
Report on
Form 10-K
of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. Based on that
evaluation, the Companys principal executive officer and
principal financial officer concluded that the Companys
disclosure controls and procedures are effective as of the end
of the period covered by this report.
|
|
(b)
|
Managements
Report on Internal Control Over Financial Reporting
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rule 13a-15(f)
or 15d-15(f)
promulgated under the Exchange Act as a process designed by, or
under the supervision of, the Companys principal executive
and principal financial officers and effected by the
companys board of directors, management and other
personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles and includes those
policies and procedures that:
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Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the company;
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Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and
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|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of September 30, 2009.
In making this assessment, the companys management used
the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment, our
management concluded that, as of September 30, 2009, our
internal control over financial reporting is effective.
This annual report does not include an attestation report of the
companys registered public accounting firm regarding
internal control over financial reporting. Managements
report was not subject to attestation by the companys
registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the company
to provide only managements report in this annual report.
39
|
|
(c)
|
Changes
in Internal Control
|
As required by
Rule 13a-15(d)
of the Exchange Act, the Companys management, including
the principal executive officer and the principal financial
officer conducted an evaluation of the internal control over
financial reporting to determine whether any changes occurred
during the period covered by this Annual Report on
Form 10-K
that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over
financial reporting. Based on that evaluation, the principal
executive officer and the principal financial officer concluded
no such changes during the fourth quarter of our fiscal year
ended September 30, 2009 materially affected, or were
reasonably likely to materially affect, the Companys
internal control over financial reporting.
|
|
Item 9B.
|
OTHER
INFORMATION
|
Not applicable.
PART III
|
|
Item 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
Information concerning our directors and executive officers,
compliance with Section 16(a) of the Exchange Act, our Code
of Ethics and our Audit Committee, including the members of the
Committee, and our Audit Committee financial experts, will
appear in our Proxy Statement for the 2010 Annual Meeting of
Stockholders, to be filed pursuant to Regulation 14A on or
before January 28, 2010. Such information is incorporated
herein by reference.
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
Information in response to this item will appear in our Proxy
Statement for the 2010 Annual Meeting of Stockholders, to be
filed pursuant to Regulation 14A on or before
January 28, 2010. Such information is incorporated herein
by reference.
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information concerning security ownership of certain beneficial
owners and management will appear in our Proxy Statement for the
2010 Annual Meeting of Stockholders, to be filed pursuant to
Regulation 14A on or before January 28, 2010. Such
information is incorporated herein by reference.
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The Information concerning certain relationships and related
transactions will appear in the Companys Proxy Statement
for the 2010 Annual Meeting of Stockholders, to be filed
pursuant to Regulation 14A on or before January 28,
2010. Such information is incorporated herein by reference.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information concerning principal accounting fees and services
will appear in our Proxy Statement for the 2010 Annual Meeting
of Stockholders, to be filed pursuant to Regulation 14A on
or before January 28, 2010. Such information is
incorporated herein by reference.
40
PART IV
|
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Item 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
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|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
2.1
|
|
Asset Purchase Agreement, dated March 29, 2007, between
SeraCare Life Sciences, Inc. and BioServe Biotechnologies
Limited.
|
|
8-K
|
|
3/29/07
|
|
|
10
|
.1
|
|
|
2.2
|
|
First Amended Joint Plan of Reorganization of the Debtor and Ad
Hoc Equity Committee, as Modified.
|
|
8-K
|
|
2/23/07
|
|
|
2
|
.1
|
|
|
2.3
|
|
Order on Confirmation of First Amended Joint Plan of
Reorganization of the Debtor and The Ad Hoc Equity Committee, as
Modified.
|
|
8-K
|
|
2/23/07
|
|
|
2
|
.2
|
|
|
2.4
|
|
Merger Agreement between SeraCare Life Sciences, Inc. and
Reorganized SeraCare, dated May 17, 2007.
|
|
8-K
|
|
5/17/07
|
|
|
2
|
.3
|
|
|
3.1
|
|
Certificate of Incorporation.
|
|
8-A
|
|
5/17/07
|
|
|
3
|
.1
|
|
|
3.2
|
|
Amended and Restated Bylaws.
|
|
8-K
|
|
9/3/08
|
|
|
3
|
.1
|
|
|
4.1
|
|
Form of SeraCare Life Sciences, Inc. common stock certificate.
|
|
8-A
|
|
5/17/07
|
|
|
4
|
.1
|
|
|
10.1.1
|
|
Employment Agreement, as amended and restated November 18,
2009, between SeraCare Life Sciences, Inc. and Susan L.N. Vogt.*
|
|
|
|
|
|
|
|
|
|
X
|
10.1.2
|
|
Letter Agreement Re: Modification of Award, dated
October 30, 2009, between SeraCare Life Sciences, Inc. and
Susan L.N. Vogt.*
|
|
|
|
|
|
|
|
|
|
X
|
10.1.3
|
|
Employment Agreement, as amended and restated November 18,
2009, between SeraCare Life Sciences, Inc. and Gregory A. Gould.*
|
|
|
|
|
|
|
|
|
|
X
|
10.1.4
|
|
Letter Agreement Re: Modification of Award, dated
October 30, 2009, between SeraCare Life Sciences, Inc. and
Gregory A. Gould.*
|
|
|
|
|
|
|
|
|
|
X
|
10.1.5
|
|
Employment Agreement, dated February 1, 2008, between
SeraCare Life Sciences, Inc. and Ronald R. Dilling.*
|
|
8-K
|
|
2/1/08
|
|
|
10
|
.1
|
|
|
10.1.6
|
|
Amendment dated December 31, 2008 to the Employment
Agreement dated February 1, 2008, between SeraCare Life
Sciences, Inc. and Ronald R. Dilling.*
|
|
8-K
|
|
4/2/09
|
|
|
10
|
.3
|
|
|
10.1.7
|
|
Amendment dated March 30, 2009 to the Employment Agreement
dated February 1, 2008 and amended December 31, 2008,
between SeraCare Life Sciences, Inc. and Ronald R. Dilling.*
|
|
8-K
|
|
4/2/09
|
|
|
10
|
.4
|
|
|
10.1.8
|
|
Letter Agreement Re: Modification of Award, dated
October 30, 2009, between SeraCare Life Sciences, Inc. and
Ronald R. Dilling.*
|
|
|
|
|
|
|
|
|
|
X
|
10.1.9
|
|
Offer Letter, dated September 1, 2004, between SeraCare
Life Sciences, Inc. and Katheryn E. Shea.*
|
|
S-1
|
|
6/19/08
|
|
|
10
|
.1.4
|
|
|
10.1.10
|
|
Letter Agreement Re: Modification of Award, dated
October 30, 2009, between SeraCare Life Sciences, Inc. and
Katheryn E. Shea.*
|
|
|
|
|
|
|
|
|
|
X
|
10.1.11
|
|
Offer Letter, dated September 29, 2006, between SeraCare
Life Sciences, Inc. and William J. Smutny.*
|
|
S-1
|
|
6/19/08
|
|
|
10
|
.1.5
|
|
|
10.1.12
|
|
Letter Agreement Re: Modification of Award, dated
October 30, 2009, between SeraCare Life Sciences, Inc. and
William J. Smutny.*
|
|
|
|
|
|
|
|
|
|
X
|
10.2.1
|
|
Amended and Restated 2001 Stock Incentive Plan, as amended.*
|
|
|
|
|
|
|
|
|
|
X
|
10.2.2
|
|
2009 Equity Incentive Plan.*
|
|
S-8
|
|
3/13/09
|
|
|
4
|
.1
|
|
|
10.2.3
|
|
Form of Nonqualified Stock Option Agreement.*
|
|
8-K
|
|
5/21/07
|
|
|
99
|
.2
|
|
|
10.2.4
|
|
Form of Incentive Stock Option Agreement.*
|
|
8-K
|
|
5/21/07
|
|
|
99
|
.3
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
10.3.1
|
|
SeraCare Life Sciences, Inc. Fiscal 2009 Director
Compensation Program*
|
|
10-K
|
|
12/8/08
|
|
|
10
|
.3
|
|
|
10.3.2
|
|
Amendment No. 1 to the Fiscal 2009 Director
Compensation Program.*
|
|
10-Q
|
|
5/12/09
|
|
|
10
|
.5
|
|
|
10.3.3
|
|
Amendment No. 2 to the Fiscal 2009 Director
Compensation Program.*
|
|
10-Q
|
|
8/11/09
|
|
|
10
|
.1
|
|
|
10.3.4
|
|
SeraCare Life Sciences, Inc. Fiscal 2010 Director
Compensation Program.*
|
|
|
|
|
|
|
|
|
|
X
|
10.4
|
|
SeraCare Life Sciences, Inc. Management Incentive Program.*
|
|
10-K
|
|
1/31/08
|
|
|
10
|
.4
|
|
|
10.5
|
|
Award/Contract, dated September 30, 2005, by and between
SeraCare Life Sciences, Inc. d/b/a SeraCare BioServices and the
National Cancer Institute.
|
|
8-K
|
|
10/6/05
|
|
|
10
|
.1
|
|
|
10.6
|
|
Contract No. HHSN272200700060C among Office of
Acquisitions, DEA, National Institute of Allergy and Infections
Diseases, National Institute of Health, DHHS and SeraCare Life
Sciences, Inc. dated September 30, 2007.
|
|
8-K
|
|
10/3/07
|
|
|
10
|
.1
|
|
|
10.7
|
|
Lease Agreement dated as of October 1, 2007 by and between
Birchwood Fortune SPVEF, LLC and SeraCare Life
Sciences, Inc.
|
|
8-K
|
|
10/4/07
|
|
|
10
|
.1
|
|
|
10.8
|
|
Lease Agreement dated as of May 16, 1997 by and between
BBI-Biotech Research Laboratories, Inc. and B.F. Saul Real
Estate Investment Trust.
|
|
10-K
|
|
1/31/08
|
|
|
10
|
.8
|
|
|
10.8.1
|
|
First Amendment to the Lease Agreement dated October 14,
1997 by and between BBI-Biotech Research Laboratories, Inc. and
B.F. Saul Real Estate Investment Trust.
|
|
10-K
|
|
1/31/08
|
|
|
10
|
.8.1
|
|
|
10.8.2
|
|
Second Amendment to the Lease Agreement dated December 9,
1997 by and between BBI-Biotech Research Laboratories, Inc. and
B.F. Saul Real Estate Investment Trust.
|
|
10-K
|
|
1/31/08
|
|
|
10
|
.8.2
|
|
|
10.8.3
|
|
Third Amendment to the Lease Agreement dated June 14, 2007
by and between SeraCare Life Sciences, Inc. and B.F. Saul Real
Estate Investment Trust.
|
|
10-K
|
|
1/31/08
|
|
|
10
|
.8.3
|
|
|
10.8.4
|
|
Landlords Lien Subordination Agreement dated July 9,
2007 by and between Saul Holdings Limited Partnership and
Merrill Lynch Business Financial Services, Inc.
|
|
10-K
|
|
1/31/08
|
|
|
10
|
.8.4
|
|
|
10.9
|
|
Credit and Security Agreement, dated as of June 4, 2007,
between SeraCare Life Sciences, Inc. and Merrill Lynch Capital
(now GE Capital) as a lender and the Administrative Agent,
excluding the annexes, exhibits, riders and schedules thereto.
|
|
8-K
|
|
6/11/07
|
|
|
10
|
.1
|
|
|
10.10
|
|
Assumption and Modification Agreement, dated as of
September 14, 2004, between SeraCare Life Sciences, Inc.
and Commerce Bank & Trust Company.
|
|
8-K
|
|
9/16/04
|
|
|
10
|
.3
|
|
|
10.11
|
|
Guaranty, dated as of September 14, 2004, made by SeraCare
Life Sciences, Inc. in favor of Commerce Bank &
Trust Company.
|
|
8-K
|
|
9/16/04
|
|
|
10
|
.4
|
|
|
10.12
|
|
Loan Agreement, dated March 31, 2000, between Boston
Biomedica, Inc. and Commerce Bank &
Trust Company.
|
|
8-K
|
|
9/16/04
|
|
|
10
|
.5
|
|
|
10.13
|
|
Allonge to Loan Agreement, dated August 15, 2002, between
Boston Biomedica, Inc. and Commerce Bank &
Trust Company.
|
|
8-K
|
|
9/16/04
|
|
|
10
|
.6
|
|
|
10.14
|
|
Agreement, dated March 27, 2003, between Boston Biomedica,
Inc. and Commerce Bank & Trust Company.
|
|
8-K
|
|
9/16/04
|
|
|
10
|
.7
|
|
|
10.15
|
|
$2,900,000 Note, dated March 31, 2000, issued by Boston
Biomedica, Inc. and payable to the order of Commerce
Bank & Trust Company.
|
|
8-K
|
|
9/16/04
|
|
|
10
|
.8
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
10.16
|
|
Mortgage and Security Agreement, dated March 31, 2000,
granted by Boston Biomedica, Inc. to Commerce Bank &
Trust Company.
|
|
8-K
|
|
9/16/04
|
|
|
10
|
.9
|
|
|
10.17
|
|
Amendment to Promissory Note, Loan Agreement, Mortgage and Loan
Documents and Assumption and Loan Modification Agreement, dated
July 31, 2009, by and between Commerce Bank &
Trust Company and SeraCare Life Sciences, Inc.
|
|
8-K
|
|
8/3/09
|
|
|
10
|
.1
|
|
|
10.18
|
|
Amendment of Solicitation/Modification of Contract dated as of
September 18, 2009, by and between the National Institutes
of Health and SeraCare Life Sciences, Inc.
|
|
|
|
|
|
|
|
|
|
X
|
10.19
|
|
Amendment of Solicitation/Modification of Contract dated as of
September 23, 2009, by and between the National Institutes
of Health and SeraCare Life Sciences, Inc.
|
|
|
|
|
|
|
|
|
|
X
|
14.1
|
|
Code of Ethics for Chief Executive Officer and Senior Financial
Officers.
|
|
8-K
|
|
5/21/07
|
|
|
99
|
.4
|
|
|
23.1
|
|
Consent of Mayer Hoffman McCann P.C.
|
|
|
|
|
|
|
|
|
|
X
|
31.1
|
|
Sarbanes-Oxley Act Section 302 Certification of Susan L.N.
Vogt.
|
|
|
|
|
|
|
|
|
|
X
|
31.2
|
|
Sarbanes-Oxley Act Section 302 Certification of Gregory A.
Gould.
|
|
|
|
|
|
|
|
|
|
X
|
32.1
|
|
Sarbanes-Oxley Act Section 906 Certification of Susan L.N.
Vogt and Gregory A. Gould.
|
|
|
|
|
|
|
|
|
|
X
|
Notes:
|
|
|
* |
|
Indicates management contract or compensatory plan or
arrangement. |
|
|
|
In accordance with the terms of the Assumption and Modification
Agreement, dated as of September 14, 2004, between SeraCare
Life Sciences, Inc. and Commerce Bank &
Trust Company, SeraCare Life Sciences, Inc. agreed to
assume certain of the obligations of Boston Biomedica, Inc. |
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SeraCare Life Sciences, Inc.
By: Susan L.N. Vogt
Title: President and Chief Executive Officer
Date: November 19, 2009
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 indicated
below and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Susan
L.N. Vogt
Susan
L.N. Vogt
|
|
President and Chief Executive Officer Director (Principal
Executive Officer)
|
|
November 19, 2009
|
|
|
|
|
|
/s/ Gregory
A. Gould
Gregory
A. Gould
|
|
Chief Financial Officer, Treasurer and Secretary (Principal
Financial and Accounting Officer)
|
|
November 19, 2009
|
|
|
|
|
|
/s/ Eugene
I. Davis
Eugene
I. Davis
|
|
Chairman
|
|
November 19, 2009
|
|
|
|
|
|
/s/ Samuel
D. Anderson
Samuel
D. Anderson
|
|
Director
|
|
November 19, 2009
|
|
|
|
|
|
/s/ Harold
S. Blue
Harold
S. Blue
|
|
Director
|
|
November 19, 2009
|
|
|
|
|
|
/s/ Sarah
L. Murphy
Sarah
L. Murphy
|
|
Director
|
|
November 19, 2009
|
|
|
|
|
|
/s/ Jill
Tillman
Jill
Tillman
|
|
Director
|
|
November 19, 2009
|
44
SERACARE
LIFE SCIENCES, INC.
|
|
|
|
|
|
|
|
F-2
|
|
Financial Statements
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors of SeraCare Life Sciences, Inc.:
We have audited the accompanying balance sheets of SeraCare Life
Sciences, Inc. as of September 30, 2009 and 2008 and the
related statements of operations, stockholders equity, and
cash flows for each of the three years in the period ended
September 30, 2009. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, 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 financial position
of SeraCare Life Sciences, Inc. as of September 30, 2009
and 2008 and the results of its operations and its cash flows
for each of the three years in the period ended
September 30, 2009, in conformity with U.S. generally
accepted accounting principles.
/s/ Mayer
Hoffman McCann P.C.
Plymouth Meeting, Pennsylvania
November 19, 2009
F-2
SERACARE
LIFE SCIENCES, INC.
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,169,396
|
|
|
$
|
2,945,866
|
|
Accounts receivable, less allowance for doubtful accounts of
$195,000 and $170,000 as of September 30, 2009 and 2008,
respectively
|
|
|
7,179,946
|
|
|
|
6,540,069
|
|
Taxes receivable
|
|
|
257,405
|
|
|
|
488,847
|
|
Inventory
|
|
|
8,706,937
|
|
|
|
12,153,891
|
|
Prepaid expenses and other current assets
|
|
|
155,533
|
|
|
|
664,406
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
22,469,217
|
|
|
|
22,793,079
|
|
Property and equipment, net
|
|
|
5,941,589
|
|
|
|
6,218,242
|
|
Assets held for sale
|
|
|
1,264,330
|
|
|
|
1,914,330
|
|
Goodwill
|
|
|
4,284,979
|
|
|
|
19,376,078
|
|
Other intangible assets
|
|
|
|
|
|
|
181,985
|
|
Other assets
|
|
|
504,006
|
|
|
|
612,841
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
34,464,121
|
|
|
$
|
51,096,555
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,320,259
|
|
|
$
|
2,766,790
|
|
Accrued expenses
|
|
|
3,155,666
|
|
|
|
3,658,983
|
|
Current portion of long-term debt
|
|
|
349,329
|
|
|
|
2,037,396
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,825,254
|
|
|
|
8,463,169
|
|
Long-term debt
|
|
|
1,194,979
|
|
|
|
61,038
|
|
Other liabilities
|
|
|
2,249,950
|
|
|
|
2,162,123
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
8,270,183
|
|
|
|
10,686,330
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock $.001 par value,
5,000,000 shares authorized, no shares issued or
outstanding as of September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock $.001 par value,
35,000,000 shares authorized, 18,652,982 and
18,565,580 shares issued and outstanding as of
September 30, 2009 and 2008, respectively
|
|
|
18,653
|
|
|
|
18,566
|
|
Additional paid-in capital
|
|
|
102,748,387
|
|
|
|
101,585,566
|
|
Retained earnings
|
|
|
(76,573,102
|
)
|
|
|
(61,193,907
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
26,193,938
|
|
|
|
40,410,225
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
34,464,121
|
|
|
$
|
51,096,555
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-3
SERACARE
LIFE SCIENCES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
44,434,171
|
|
|
$
|
48,966,648
|
|
|
$
|
47,303,595
|
|
Cost of revenue
|
|
|
28,989,764
|
|
|
|
33,944,392
|
|
|
|
33,929,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
15,444,407
|
|
|
|
15,022,256
|
|
|
|
13,374,363
|
|
Research and development expense
|
|
|
1,122,077
|
|
|
|
1,776,462
|
|
|
|
566,634
|
|
Selling, general and administrative expenses
|
|
|
13,714,119
|
|
|
|
16,118,864
|
|
|
|
14,526,718
|
|
Impairment of goodwill
|
|
|
15,091,099
|
|
|
|
7,986,481
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
5,220,000
|
|
Loss related to assets held for sale
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
Reorganization items
|
|
|
|
|
|
|
1,314,013
|
|
|
|
5,223,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(15,132,888
|
)
|
|
|
(12,173,564
|
)
|
|
|
(12,162,885
|
)
|
Interest expense
|
|
|
(380,128
|
)
|
|
|
(385,797
|
)
|
|
|
(697,787
|
)
|
Interest expense to related parties
|
|
|
|
|
|
|
|
|
|
|
(312,862
|
)
|
Other income, net
|
|
|
183,256
|
|
|
|
220,531
|
|
|
|
194,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(15,329,760
|
)
|
|
|
(12,338,830
|
)
|
|
|
(12,979,472
|
)
|
Income tax (benefit) expense
|
|
|
49,435
|
|
|
|
(375,781
|
)
|
|
|
75,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(15,379,195
|
)
|
|
|
(11,963,049
|
)
|
|
|
(13,055,443
|
)
|
Loss from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
(109,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,379,195
|
)
|
|
$
|
(11,963,049
|
)
|
|
$
|
(13,164,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.83
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.82
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.83
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
18,598,844
|
|
|
|
18,562,350
|
|
|
|
15,876,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-4
SERACARE
LIFE SCIENCES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(deficit)
|
|
|
Amount
|
|
|
Balance, September 30, 2006
|
|
|
14,282,948
|
|
|
$
|
66,884,081
|
|
|
$
|
10,747,911
|
|
|
$
|
(36,065,977
|
)
|
|
$
|
41,566,015
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,164,881
|
)
|
|
|
(13,164,881
|
)
|
Exercise of options
|
|
|
25,000
|
|
|
|
148,250
|
|
|
|
|
|
|
|
|
|
|
|
148,250
|
|
Change in par value due to Delaware corporation merger, par $.001
|
|
|
|
|
|
|
(67,018,023
|
)
|
|
|
67,018,023
|
|
|
|
|
|
|
|
|
|
Rights Offering of common stock
|
|
|
4,250,000
|
|
|
|
4,250
|
|
|
|
20,183,250
|
|
|
|
|
|
|
|
20,187,500
|
|
Rights Offering of common stock, cost
|
|
|
|
|
|
|
|
|
|
|
(610,729
|
)
|
|
|
|
|
|
|
(610,729
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
2,398,339
|
|
|
|
|
|
|
|
2,398,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007
|
|
|
18,557,948
|
|
|
|
18,558
|
|
|
|
99,736,794
|
|
|
|
(49,230,858
|
)
|
|
|
50,524,494
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,963,049
|
)
|
|
|
(11,963,049
|
)
|
Stock issued under stock plan
|
|
|
7,632
|
|
|
|
8
|
|
|
|
39,945
|
|
|
|
|
|
|
|
39,953
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,808,827
|
|
|
|
|
|
|
|
1,808,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008
|
|
|
18,565,580
|
|
|
|
18,566
|
|
|
|
101,585,566
|
|
|
|
(61,193,907
|
)
|
|
|
40,410,225
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,379,195
|
)
|
|
|
(15,379,195
|
)
|
Stock issued under stock plan
|
|
|
87,402
|
|
|
|
87
|
|
|
|
96,407
|
|
|
|
|
|
|
|
96,494
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,066,414
|
|
|
|
|
|
|
|
1,066,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
|
18,652,982
|
|
|
$
|
18,653
|
|
|
$
|
102,748,387
|
|
|
$
|
(76,573,102
|
)
|
|
$
|
26,193,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-5
SERACARE
LIFE SCIENCES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,379,195
|
)
|
|
$
|
(11,963,049
|
)
|
|
$
|
(13,164,881
|
)
|
Adjustments to reconcile net loss to cash (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,264,378
|
|
|
|
1,313,978
|
|
|
|
1,389,087
|
|
Amortization of deferred financing expenses
|
|
|
182,560
|
|
|
|
179,875
|
|
|
|
59,959
|
|
Bad debt expense
|
|
|
53,424
|
|
|
|
17,766
|
|
|
|
95,299
|
|
Write-down of inventory
|
|
|
790,490
|
|
|
|
2,935,510
|
|
|
|
699,139
|
|
Impairment of trade name
|
|
|
|
|
|
|
|
|
|
|
5,220,000
|
|
Impairment of goodwill
|
|
|
15,091,099
|
|
|
|
7,986,481
|
|
|
|
|
|
Loss related to assets held for sale
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
Loss on disposal of property and equipment
|
|
|
12,063
|
|
|
|
33,278
|
|
|
|
|
|
Gain on disposition of certain assets of Genomics Collaborative
division
|
|
|
(176,162
|
)
|
|
|
|
|
|
|
(791,661
|
)
|
Stock-based compensation
|
|
|
1,162,908
|
|
|
|
1,848,780
|
|
|
|
2,398,339
|
|
(Increase) decrease from changes, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(693,301
|
)
|
|
|
32,767
|
|
|
|
1,684,391
|
|
Taxes receivable
|
|
|
231,442
|
|
|
|
1,237,539
|
|
|
|
75,541
|
|
Inventory
|
|
|
2,656,464
|
|
|
|
(7,772,886
|
)
|
|
|
(2,277,818
|
)
|
Prepaid expenses and other current assets
|
|
|
25,607
|
|
|
|
213,459
|
|
|
|
1,463,608
|
|
Other assets
|
|
|
(48,225
|
)
|
|
|
101,507
|
|
|
|
105,747
|
|
Increase (decrease) from changes, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1,446,531
|
)
|
|
|
565,534
|
|
|
|
657,934
|
|
Prepetition liabilities
|
|
|
|
|
|
|
(198,612
|
)
|
|
|
(8,910,001
|
)
|
Accrued expenses and other liabilities
|
|
|
(415,490
|
)
|
|
|
853,564
|
|
|
|
640,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
3,961,531
|
|
|
|
(2,614,509
|
)
|
|
|
(10,654,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(721,159
|
)
|
|
|
(4,969,608
|
)
|
|
|
(492,001
|
)
|
Proceeds from landlord for leasehold improvements
|
|
|
483,266
|
|
|
|
1,206,738
|
|
|
|
|
|
Proceeds from the disposition of certain assets of Genomics
Collaborative division
|
|
|
176,162
|
|
|
|
|
|
|
|
2,000,000
|
|
Proceeds from the disposal of property and equipment
|
|
|
12,000
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(49,731
|
)
|
|
|
(3,762,870
|
)
|
|
|
1,522,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(662,770
|
)
|
|
|
(200,705
|
)
|
|
|
(10,590,578
|
)
|
Repayment of related party debt
|
|
|
|
|
|
|
|
|
|
|
(3,500,000
|
)
|
Proceeds from revolving credit facility
|
|
|
19,700,000
|
|
|
|
|
|
|
|
|
|
Repayments of revolving credit facility
|
|
|
(19,700,000
|
)
|
|
|
|
|
|
|
|
|
Deferred financing expenses
|
|
|
(25,500
|
)
|
|
|
|
|
|
|
(539,627
|
)
|
Funding received from Rights Offering, net of issue costs
|
|
|
|
|
|
|
|
|
|
|
19,576,771
|
|
Proceeds from exercise of options, warrants and ESPP transactions
|
|
|
|
|
|
|
|
|
|
|
148,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(688,270
|
)
|
|
|
(200,705
|
)
|
|
|
5,094,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,223,530
|
|
|
|
(6,578,084
|
)
|
|
|
(4,036,818
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
2,945,866
|
|
|
|
9,523,950
|
|
|
|
13,560,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
6,169,396
|
|
|
$
|
2,945,866
|
|
|
$
|
9,523,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
199,897
|
|
|
$
|
211,188
|
|
|
$
|
1,859,600
|
|
Federal income taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,763
|
|
State income taxes
|
|
$
|
67,884
|
|
|
$
|
31,357
|
|
|
$
|
2,636
|
|
(b) Cash received for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income taxes
|
|
$
|
230,552
|
|
|
$
|
1,550,658
|
|
|
$
|
|
|
State income taxes
|
|
$
|
6,690
|
|
|
$
|
90,562
|
|
|
$
|
20,169
|
|
(c) Non-cash items disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Rent
|
|
$
|
|
|
|
$
|
544,560
|
|
|
$
|
|
|
Stock issued for Director and Officer services
|
|
$
|
96,494
|
|
|
$
|
39,953
|
|
|
$
|
|
|
Capital lease agreements
|
|
$
|
108,644
|
|
|
$
|
|
|
|
$
|
80,000
|
|
See accompanying notes to financial statements.
F-6
SERACARE
LIFE SCIENCES, INC.
|
|
(a)
|
Background
and Organization
|
SeraCare Life Sciences, Inc. (SeraCare or the
Company), a Delaware corporation, serves the global
life sciences industry by providing vital products and services
to facilitate the discovery, development and production of human
and animal diagnostics and therapeutics. SeraCares
operations are based in Milford, Massachusetts, with satellite
operations in Frederick, Maryland and Gaithersburg, Maryland.
During fiscal 2008, the Company had manufacturing operations in
West Bridgewater, Massachusetts which were moved to the Milford,
Massachusetts facility during the fourth quarter of fiscal 2008.
The Companys business is divided into two segments:
Diagnostic & Biopharmaceutical Products and
BioServices. SeraCares Diagnostic &
Biopharmaceutical Products segment includes two types of
products: controls and panels, which include the manufacture of
products used for the evaluation and quality control of
infectious disease testing in hospital and clinical testing labs
and blood banks, and by in vitro diagnostic
(IVD) manufacturers; and reagents and bioprocessing
products, which include the manufacture and supply of biological
materials and intermediates used in the research, development
and manufacturing of human and animal diagnostics, therapeutics
and vaccines. The BioServices segment includes biobanking,
sample processing and testing services for research and clinical
trials, and contract research services in molecular biology,
virology and biochemistry.
SeraCares customer base is diverse and operates in a
highly regulated environment. SeraCare has built its reputation
on providing a comprehensive portfolio of products and services
and operating
state-of-the-art
facilities that incorporate the industrys highest quality
standards. SeraCares customers include IVD manufacturers;
hospital-based, independent and public health labs; blood banks;
government and regulatory agencies; and organizations involved
in the discovery, development and commercial production of human
and animal therapeutics and vaccines, including pharmaceutical
and biotechnology companies, veterinary companies and academic
and government research organizations.
SeraCare Life Sciences, Inc. filed for bankruptcy under
Chapter 11 of the Bankruptcy Code in March of 2006. In May
2007, the Company emerged from bankruptcy proceedings pursuant
to a merger of SeraCare Life Sciences, Inc., a California
corporation into SeraCare Reorganization Company, Inc.
(Reorganized SeraCare), a Delaware corporation.
Subsequently, Reorganized SeraCare changed its name to SeraCare
Life Sciences, Inc.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of Estimates in the Preparation of Financial
Statements. To prepare the financial statements
in conformity with generally accepted accounting principles in
the United States, management is required to make significant
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. In particular, SeraCare provides estimates regarding the
collectibility of accounts receivable, the net realizable value
of the Companys inventory, the recoverability of
long-lived assets, as well as the Companys deferred tax
asset and valuation allowance. On an ongoing basis, the Company
evaluates its estimates based on historical experience and
various other assumptions that SeraCare believes to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities. Future financial results could differ
materially from current financial results.
F-7
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Revenue Recognition. Revenue from the sale of
products is recognized when the Company meets all of the
criteria specified in Securities and Exchange Commission
(SEC) Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition in Financial
Statements (SAB 104). These criteria
include:
|
|
|
|
|
evidence of an arrangement exists;
|
|
|
|
delivery or performance has occurred;
|
|
|
|
prices are fixed or determinable; and
|
|
|
|
collection of the resulting receivable is reasonably assured.
|
Signed customer purchase orders or sales agreements evidence our
sales arrangements. These purchase orders and sales agreements
specify both selling prices and quantities, which are the basis
for recording sales revenue. Trade terms for the majority of our
sales contracts indicate that title and risk of loss pass from
us to our customers when we ship products from our facilities,
which is when revenue is recognized. Revenue is deferred until
the appropriate time in situations where trade terms indicate
that title and risk of loss pass from us to the customers at a
later stage in the shipment process. We maintain allowances for
doubtful accounts for estimated losses resulting from our
customers inability to make required payments. Revenue
from service arrangements is recognized when the services are
provided as long as all other criteria of SAB 104 are met.
Returns. The Company will accept the return of
goods, if prior to returning the goods, the purchaser contacts
the Company and requests a return authorization and we approve
this authorization based upon the customer clearly stating the
reason for the return. The Company maintains an allowance for
sales returns and records a decrease to revenue when it has
specific knowledge of a customer complaint. The allowance for
sales returns was nominal as of September 30, 2009 and was
$0.1 million as of September 30, 2008.
Shipping and Handling Costs. Shipping and
handling billed to customers is recorded as revenue and shipping
and handling costs are included in cost of revenue in the
accompanying statements of operations.
Advertising. Advertising costs are expensed as
incurred. Advertising expenses were $0.1 million,
$0.2 million, and $0.1 million for the years ended
September 30, 2009, 2008 and 2007, respectively.
Cash and Cash Equivalents. The Companys
policy is to place its cash with financial institutions or
federal government securities in order to limit the amount of
credit exposure. Cash equivalents consist of investments in
overnight repurchase agreements collateralized by federal
government agency or government sponsored enterprise securities.
All cash equivalents are highly liquid investments with original
maturities of three months or less.
Fair Value of Financial Instruments. Due to
their short maturities, the carrying amounts for cash and cash
equivalents, accounts receivable, accounts payable and accrued
expenses approximate their fair value. Long-term debt are
financial liabilities with carrying values that approximate fair
value due to the recent incurrence of these obligations.
Accounts Receivable. The Company performs
ongoing credit evaluations of its customers and adjusts credit
limits based on payment history and the customers current
buying habits. The Company monitors collections and payments
from its customers and maintains an allowance for doubtful
accounts based on
F-8
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
specific customer collection issues that have been identified.
The following table presents changes in our allowance for
doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of the year
|
|
$
|
170,000
|
|
|
$
|
175,000
|
|
|
$
|
216,941
|
|
Bad debt expense
|
|
|
53,424
|
|
|
|
17,766
|
|
|
|
95,299
|
|
Write-offs
|
|
|
(28,424
|
)
|
|
|
(22,766
|
)
|
|
|
(137,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
195,000
|
|
|
$
|
170,000
|
|
|
$
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Valuation. Inventory consists
primarily of human blood plasma and products derived from human
blood plasma. Inventory is carried at specifically identified
cost and assessed periodically to ensure it is valued at the
lower of cost or market. Our ability to manage our inventories
properly is an important factor in our operations. Inventory
shortages can adversely affect the timing of shipments to
customers and diminish sales. Conversely, excess inventories can
result in lower gross margins due to excessive reserves for
obsolete products. Our products require incorporation of a wide
range of materials which we typically buy in bulk prior to
receiving customer orders for the full amount. We do this to
minimize purchasing costs, the time necessary to fill customer
orders and the risk of non-delivery. However, we may be unable
to sell the products we have ordered in advance from
manufacturers or that we have in inventory. This approach tends
to increase the risk of obsolescence for products we hold in
inventory.
A provision has been made to reduce excess and not readily
marketable inventories to their estimated net realizable value.
We provide a reserve based upon factors related to age,
historical scrap rates, usability and fair market value. The
Companys recorded inventory reserve was $2.8 million
and $3.5 million as of September 30, 2009 and 2008,
respectively. Should it be determined that the reserve is
insufficient, we would be required to record additional
inventory write-downs, which would have a negative impact on
gross profit margin.
Long-Lived Assets. The Company assesses the
impairment of long-lived assets whenever events or changes in
circumstances indicate the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held for use is
based on expectations of future undiscounted cash flows from the
related operations, and when circumstances dictate, the Company
adjusts the asset to the extent the carrying value exceeds the
fair value of the asset. The Companys judgments related to
the expected useful lives of long-lived assets and its ability
to realize undiscounted cash flows in excess of the carrying
amounts of such assets are affected by factors such as the
ongoing maintenance and improvements of the assets, changes in
economic conditions and changes in operating performance. As the
Company assesses the ongoing expected cash flows and carrying
amounts of the Companys long-lived assets, these factors
could cause the Company to realize a material impairment charge,
which would result in decreased results of operations, and
decrease the carrying value of these assets.
Property and equipment are carried at historical cost.
Expenditures for maintenance and repairs are charged to expense
whereas the costs of significant improvements which extend the
life of the asset are capitalized. Depreciation is computed on a
straight-line basis over the estimated useful lives of the
assets. The estimated useful lives of the Companys
depreciable assets are as follows:
|
|
|
Building and improvements
|
|
10 to 30 years
|
Furniture and equipment
|
|
7 years
|
Computer equipment and software
|
|
3 years
|
Leasehold improvements
|
|
Shorter of the life of the improvement or the remaining term of
the lease
|
F-9
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Deferred Tax Asset. Deferred tax assets are
recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. A valuation allowance is provided when management
cannot determine whether it is more likely than not that the net
deferred tax asset will be realized. The effect on deferred tax
assets and liabilities of a change in the rates is recognized as
income in the period that includes the enactment date.
Contingencies and Litigation Reserves. The
Company is involved from time to time in litigation incidental
to the conduct of the Companys business. These claims may
be brought by, among others, the government, clients, customers,
employees and other third parties. Management considers the
measurement of litigation reserves as a critical accounting
estimate because of the significant uncertainty in some cases
relating to the outcome of potential claims or litigation and
the difficulty of predicting the likelihood and range of
potential liability involved, coupled with the material impact
on the Companys results of operations that could result
from litigation or other claims. In determining contingency and
litigation reserves, management considers, among other issues:
|
|
|
|
|
interpretation of contractual rights and obligations;
|
|
|
|
the status of government regulatory initiatives, interpretations
and investigations;
|
|
|
|
the status of settlement negotiations;
|
|
|
|
prior experience with similar types of claims;
|
|
|
|
whether there is available insurance; and
|
|
|
|
advice of counsel.
|
Purchase Price Allocations for
Acquisitions. The allocation of the purchase
price for acquisitions requires extensive use of accounting
estimates and judgments to allocate the purchase price to
identifiable tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values.
Additionally, the Company must determine whether an acquired
entity is considered to be a business or a set of net assets,
because a portion of the purchase price can only be allocated to
goodwill in a business combination.
Goodwill and Other Intangible Assets. Goodwill
represents the excess of purchase price over the fair value of
the net assets acquired. Goodwill and other separately
recognized intangible assets with indefinite lives are not
amortized, but are subject to at least an annual assessment for
impairment. Goodwill and other
non-amortizable
intangible assets are evaluated annually and whenever events or
circumstances indicate that these assets might be impaired. In
addition, the Company has identified certain other
non-amortizable
intangibles. The Company has assigned goodwill and other
non-amortizable
intangible assets to discrete reporting units and determines
impairment by comparing the carrying value of the reporting unit
to its estimated fair value.
Other intangible assets consist primarily of values assigned to
various identifiable intangible assets via the appraisal process
as part of the allocation of assets in business combinations. In
this process, values are assigned to contracts, customer
relationships, technology, trade names and trademarks using
various valuation techniques including the expected present
value of future cash flows. The intangible assets are amortized
over their expected useful lives.
Income taxes. As part of the process of
preparing financial statements, management is required to
estimate the Companys income taxes in each of the
jurisdictions in which the Company operates. This process
involves estimating the Companys actual current tax
exposure together with assessing temporary differences resulting
from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and
liabilities, which are included within the balance sheet.
Management must then assess
F-10
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
the likelihood that the deferred tax assets will be recovered
from future taxable income and to the extent management believes
that recovery is not likely, a valuation allowance must be
established. To the extent management establishes a valuation
allowance or increases this allowance in a period, an increase
to expense within the provision for income taxes in the
statement of operations will result.
Significant management judgment is required in determining the
provision for income taxes, deferred tax assets and liabilities
and any valuation allowance recorded in connection with the
deferred tax assets. The Company has recorded a valuation
allowance of $33.6 and $26.4 million as of
September 30, 2009 and 2008, respectively, due to
uncertainties related to the Companys ability to utilize
the deferred tax assets, primarily consisting of certain net
operating losses carried forward, before they expire. The
valuation allowance is based on managements current
estimates of taxable income for the jurisdictions in which
SeraCare operates and the period over which the deferred tax
assets will be recoverable. In the event that actual results
differ from these estimates, or these estimates are adjusted in
future periods, an additional valuation allowance may need to be
established which would increase the tax provision, lowering
income and impacting SeraCares financial position. Should
realization of these deferred assets previously reserved occur,
the provision for income tax would decrease, raising income and
positively impacting SeraCares financial position. In
addition, any interest and penalties assessed by the taxing
authorities are recorded as selling, general and administrative
expense.
Earnings Per Share. Basic earnings per share
includes no dilution and is computed by dividing net income
available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings
per share is calculated by considering the dilutive impact of
common stock equivalents (e.g., outstanding stock options and
stock units) under the treasury stock method as if they were
converted into common stock as of the beginning of the period or
as of the date of grant, if later.
Deferred Financing Costs. The Company
capitalizes costs directly related to debt financing and
amortizes such costs over the term of the financing. These costs
are being amortized using the straight-line method. Deferred
financing costs amortized to interest expense for the years
ended September 30, 2009, 2008 and 2007 was approximately
$0.2 million, $0.2 million and $0.1 million
respectively.
Stock-Based Compensation. The Company
recognizes share-based payments to employees, directors and
others as compensation expense using a fair value-based method
in the results of operations. Compensation expense of
$1.2 million, $1.8 million and $2.4 million was
recognized in the years ended September 30, 2009, 2008 and
2007, respectively.
Stock-based compensation expense is estimated as of the grant
date based on the fair value of the award and is recognized as
expense over the requisite service period, which generally
represents the vesting period. The Company estimates the fair
value of the Companys stock options using the
Black-Scholes option-pricing model and the fair value of the
Companys restricted stock awards and stock units based on
the quoted market price of the Companys common stock. The
Company recognizes the associated compensation expense on a
graded vesting method over the vesting periods of the awards,
net of estimated forfeitures. Forfeiture rates are estimated
based on historical pre-vesting forfeiture history and are
updated to reflect actual forfeitures of unvested awards and
other known events. Management believes this graded vesting
methodology is a truer reflection of the expenses incurred for
the options granted than the alternative straight-line method.
Estimating the fair value for stock options requires judgment,
including estimating stock-price volatility, expected term,
expected dividends and risk-free interest rates. The expected
volatility rates are based on the historical fluctuation in the
stock price since inception. The average expected term was
calculated under the guidance of SAB No. 107 and 110,
Simplified Method for Estimating the Expected
Term as the Company has limited exercise data since
the Company reorganized in May 2007. Expected dividends are
estimated based on the Companys dividend history as well
as the Companys current projections. The risk-free
interest rate for periods approximating the expected terms of
the options is based on the U.S. Treasury yield curve in
F-11
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
effect at the time of grant. These assumptions will be updated
at least on an annual basis or when there is a significant
change in circumstances that could affect these assumptions.
Recent
Accounting Pronouncements
The Company adopted the Financial Accounting Standards Board
(the FASB) Accounting Standards Codification (the
Codification) as the source of authoritative GAAP
for nongovernmental entities. The Codification does not change
GAAP but rather takes the numerous individual pronouncements
that previously constituted GAAP and reorganizes them into
approximately 90 accounting topics, and displays all topics
using a consistent structure. The adoption of the Codification
did not have any effect on the Companys financial
position, results of operations or cash flows.
During May 2009, the FASB issued guidance concerning subsequent
events which applies prospectively and is effective for interim
or annual financial periods ending after June 15, 2009.
This guidance establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to
be issued and requires the disclosure of the date through which
an entity has evaluated subsequent events and the basis for that
date. The Companys adoption of the guidance did not have
an effect on the Companys financial position, results of
operations or cash flows.
The FASB provided guidance for using fair value to measure
assets and liabilities which applies whenever other guidance
requires (or permits) assets or liabilities to be measured at
fair value but does not expand the use of fair value in any new
circumstances. The guidance clarifies that for items that are
not actively traded, such as certain kinds of derivatives, fair
value should reflect the price in a transaction with a market
participant, including an adjustment for risk, not just the
companys
mark-to-market
value. The guidance also requires expanded disclosure of the
effect on earnings for items measured using unobservable data.
Fair value refers to the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants in the market in which the reporting
entity transacts. The FASB clarifies the principle that fair
value should be based on the assumptions market participants
would use when pricing the asset or liability. In support of
this principle, the guidance establishes a fair value hierarchy
that prioritizes the information used to develop those
assumptions. The fair value hierarchy gives the highest priority
to quoted prices in active markets and the lowest priority to
unobservable data, such as the reporting entitys own data.
Under the guidance, fair value measurements are separately
disclosed by level within the fair value hierarchy. The FASB
agreed to defer the effective date of the guidance for all
nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company adopted this
guidance on October 1, 2008 for assets and liabilities not
subject to the deferral and will adopt this guidance on
October 1, 2009 for all other assets and liabilities. The
guidance did not have and is not expected to have a material
effect on the financial position, results of operations or cash
flows of the Company.
On December 4, 2007, the FASB revised its guidance for
business combinations. Under the revised guidance, an acquiring
entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. The guidance will change the
accounting treatment for certain items as follows:
|
|
|
|
|
acquisition costs will be generally expensed as incurred;
|
|
|
|
noncontrolling interests will be valued at fair value at the
acquisition date;
|
|
|
|
acquired contingent liabilities will be recorded at fair value
at the acquisition date and subsequently measured at either the
higher of such amount or the amount determined under existing
guidance for non-acquired contingencies;
|
F-12
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
in-process research and development will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition
date until the completion or abandonment of the associated
research and development efforts;
|
|
|
|
restructuring costs associated with a business combination will
be generally expensed subsequent to the acquisition
date; and
|
|
|
|
changes in deferred tax asset valuation allowances and income
tax uncertainties after the acquisition date generally will
affect income tax expense.
|
The revised guidance also includes a substantial number of new
disclosure requirements. The revised guidance applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier
adoption is prohibited. Accordingly, the Company will adopt this
guidance on October 1, 2009. The guidance is not expected
to have a material effect on the financial position, results of
operations or cash flows of the Company.
On December 4, 2007, the FASB issued guidance which
establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this guidance
requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and
separate from the parents equity. The amount of net income
attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. The
guidance clarifies that changes in a parents ownership
interest in a subsidiary that do not result in deconsolidation
are equity transactions if the parent retains its controlling
financial interest. In addition, this guidance requires that a
parent recognize a gain or loss in net income when a subsidiary
is deconsolidated. Such gain or loss will be measured using the
fair value of the noncontrolling equity investment on the
deconsolidation date. The guidance also includes expanded
disclosure requirements regarding the interests of the parent
and its noncontrolling interest. The guidance is effective for
fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption
is prohibited. Accordingly, the Company will adopt this guidance
on October 1, 2009. The guidance is not expected to have a
material effect on the financial position, results of operations
or cash flows of the Company.
On March 22, 2006, the Company filed voluntary petitions
for relief under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Southern
District of California (the Bankruptcy Court). This
action was triggered by the notice of default and acceleration
of debt from its senior secured lenders and the cross-default of
another secured debt facility. The default was due to the
violation of certain financial covenants and the failure to
deliver annual audited financial statements on a timely basis.
Subsequently, the Bankruptcy Court allowed the Company to
operate its business as a
debtor-in-possession
under the jurisdiction of the Bankruptcy Court and in accordance
with the applicable provisions of the Bankruptcy Code, the
Federal Rules of Bankruptcy Procedure and the orders of the
Bankruptcy Court.
The Company emerged from bankruptcy protection under the Joint
Plan of Reorganization (the Plan of Reorganization)
which was confirmed by the Bankruptcy Court on February 21,
2007 and after each of the conditions precedent to the
consummation was satisfied or waived, became effective
May 17, 2007. The Plan of Reorganization allowed SeraCare
to pay off all its creditors in full and exit bankruptcy under
the ownership of its existing shareholders and provided for the
settlement of SeraCares alleged liabilities in a
previously filed shareholders class action lawsuit.
Accordingly, each of the Revolving/Term Credit and Security
Agreement between the Company, Union Bank of California and
Brown Brothers Harriman & Co. and the Subordinated
Note Agreement between the Company and Barry Plost, Bernard
Kasten and Jacob Safier was
F-13
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
terminated and the principal amount and interest outstanding
under each agreement was paid off with the proceeds from the
Rights Offering.
Reorganization items include legal, accounting and other
professional fees related to the Companys bankruptcy
proceedings, reorganization, litigation, relisting on NASDAQ and
efforts to become compliant with the SEC. These expenses totaled
$1.3 million and $5.2 million in the fiscal years
ended September 30, 2008 and 2007, respectively. There were
no reorganization items during the fiscal year ended
September 30, 2009.
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials and supplies
|
|
$
|
1,623,148
|
|
|
$
|
2,177,933
|
|
Work-in process
|
|
|
813,874
|
|
|
|
1,494,030
|
|
Finished goods
|
|
|
9,059,860
|
|
|
|
11,985,479
|
|
|
|
|
|
|
|
|
|
|
Gross inventory
|
|
|
11,496,882
|
|
|
|
15,657,442
|
|
Reserve for obsolete inventory
|
|
|
(2,789,945
|
)
|
|
|
(3,503,551
|
)
|
|
|
|
|
|
|
|
|
|
Net inventory
|
|
$
|
8,706,937
|
|
|
$
|
12,153,891
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Property
and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Furniture and equipment
|
|
$
|
3,475,427
|
|
|
$
|
3,103,237
|
|
Computer equipment and software
|
|
|
856,175
|
|
|
|
644,195
|
|
Construction in progress
|
|
|
100,695
|
|
|
|
727,692
|
|
Leasehold improvements
|
|
|
5,711,793
|
|
|
|
4,919,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,144,090
|
|
|
|
9,394,720
|
|
Less: accumulated depreciation and amortization
|
|
|
(4,202,501
|
)
|
|
|
(3,176,478
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
5,941,589
|
|
|
$
|
6,218,242
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense, including amortization of property under
capital leases, was $1.1 million, $1.0 million and
$1.1 million for the years ended September 30, 2009,
2008 and 2007, respectively.
On October 1, 2007, the Company signed a lease agreement
which enabled it to consolidate all of its Massachusetts
operations into its Milford facility during the year ended
September 30, 2008. As a result, the Company began
marketing the West Bridgewater facility and land for sale. Due
to a softening in the real estate market, the Company recorded a
loss of $0.7 million during fiscal 2009 related to an
impairment to write-down the assets to their fair value less
costs to sell. The carrying amount of these assets is
$1.3 million as of September 30, 2009. During October
2009, the Company entered into a purchase and sale agreement for
the West Bridgewater facility and land for $1.4 million.
The sale is expected to close in December 2009.
F-14
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Due to the turmoil in the financial markets and the associated
decline in the Companys stock price and market
capitalization, the Company recorded an impairment charge of
$8.0 million during the year ended September 30, 2008.
During the first half of the year ended September 30, 2009,
the financial markets and the Companys stock price
continued to decline and the Company revised its future cash
flow projections as revenue was lower than expected due to the
economic downturn. As a result, the Company recorded an
impairment charge to goodwill in the amount of
$15.1 million which related to its Diagnostic &
Biopharmaceutical Products segment. This represents the entire
balance of goodwill related to the Diagnostic &
Biopharmaceutical Products segment. The Company determined the
fair value of this segment under various methodologies including
performing a discounted cash flow analysis as well as allocating
the Companys market capitalization to each segment
according to revenue. Using a discounted cash flow model
requires a number of assumptions about future cash flows and
related costs necessary to generate such estimated cash flows.
Using what management believes were reasonable assumptions based
on the best information available as of the testing date, the
value of the BioServices segment was found to be in excess of
its carrying value, and therefore the related goodwill was not
impaired. The remaining goodwill of $4.3 million relates to
the BioServices segment. There was no impairment charge
associated with the BioServices segment as it is service driven
and has fewer assigned assets which have a lower carrying amount
as compared to the Diagnostic & Biopharmaceutical
Products segment which requires more assets to manufacture and
sell products.
The Company will continue to test goodwill for impairment as
part of its annual impairment testing and as events occur that
would more likely than not reduce the fair value of the
reporting unit below its carrying value.
The changes in the carrying value of goodwill during the years
ended September 30, 2009, 2008 and 2007 are summarized as
follows:
|
|
|
|
|
Balance as of September 30, 2006
|
|
$
|
27,362,559
|
|
Goodwill adjustments during year
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2007
|
|
|
27,362,559
|
|
Goodwill impairment Diagnostics & Biopharmaceutical
Products
|
|
|
(7,986,481
|
)
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
|
19,376,078
|
|
Goodwill impairment Diagnostics & Biopharmaceutical
Products
|
|
|
(15,091,099
|
)
|
|
|
|
|
|
Balance as of September 30, 2009
|
|
$
|
4,284,979
|
|
|
|
|
|
|
September 30,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
useful life
|
|
|
Gross cost
|
|
|
Accumulated
|
|
|
Net intangible
|
|
|
|
(years)
|
|
|
intangible asset
|
|
|
amortization
|
|
|
asset
|
|
|
Developed product technology
|
|
|
5
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
$
|
|
|
Customer relationships
|
|
|
4-5
|
|
|
|
1,090,000
|
|
|
|
1,090,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,240,000
|
|
|
$
|
1,240,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
September 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
useful life
|
|
|
Gross cost
|
|
|
Accumulated
|
|
|
Net intangible
|
|
|
|
(years)
|
|
|
intangible asset
|
|
|
amortization
|
|
|
asset
|
|
|
Developed product technology
|
|
|
5
|
|
|
$
|
150,000
|
|
|
$
|
120,000
|
|
|
$
|
30,000
|
|
Customer relationships
|
|
|
4-5
|
|
|
|
1,090,000
|
|
|
|
938,015
|
|
|
|
151,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,240,000
|
|
|
$
|
1,058,015
|
|
|
$
|
181,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the years ended September 30,
2009, 2008 and 2007 was $0.2 million, $0.3 million and
$0.3 million, respectively. During the year ended
September 30, 2007, management initiated a rebranding
strategy which reflects the new strategic and business direction
and focus of the Company. As a result, the Company wrote off the
BBI Diagnostics trade name which was carried at
$5.2 million.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Real property mortgage note
|
|
$
|
1,400,000
|
|
|
$
|
1,940,448
|
|
Capital leases
|
|
|
144,308
|
|
|
|
157,986
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,544,308
|
|
|
|
2,098,434
|
|
Less current portion
|
|
|
(349,329
|
)
|
|
|
(2,037,396
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,194,979
|
|
|
$
|
61,038
|
|
|
|
|
|
|
|
|
|
|
GE
Capital Credit and Security Agreement
On June 7, 2007, the Company entered into a three-year
Credit and Security Agreement, dated as of June 4, 2007,
with Merrill Lynch Capital (now GE Capital) pursuant to which a
$10.0 million revolving credit facility was made available
to the Company. During October 2009, the Company terminated the
Credit and Security Agreement.
Obligations under the Credit and Security Agreement were secured
by substantially all the assets of the Company excluding the
Companys real property located at its West Bridgewater
facility, which is subject to a separate mortgage note. The
revolving credit facility, which may have been used for working
capital and other general corporate purposes, was governed by a
borrowing base. The interest rate per annum was equal to 2.75%
over LIBOR. The effective interest rate as of September 30,
2009 was 3.00% and there was no outstanding balance. The Company
paid 0.50% per annum as an unused line fee. Interest was payable
monthly. Amounts under the revolving credit facility may have
been repaid and re-borrowed until June 4, 2010. Mandatory
prepayments of the revolving credit facility were required any
time the outstanding revolving loan balance exceeded the
borrowing base. The agreement contained standard
representations, covenants and events of default for facilities
of this type. In addition, the agreement prohibited the payment
of dividends during the term of the agreement. Occurrence of an
event of default would have allowed the lenders to accelerate
the payment of the loan
and/or
terminate the commitments to lend, in addition to the exercise
of other legal remedies, including foreclosing on collateral. As
of September 30, 2009, $6.4 million was available for
borrowing. A sale of the West Bridgewater facility and land for
less than $2.0 million would trigger a default under the
agreement with GE Capital if the Company was unable to obtain a
waiver from GE Capital. In addition, the agreement contained
financial maintenance covenants. As of September 30, 2009,
the Company was in compliance with these covenants.
F-16
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Real
Property Mortgage Note
Pursuant to the acquisition of substantially all of the assets
of the BBI Diagnostics and BBI Biotech Research Laboratories,
Inc. divisions of Boston Biomedica, Inc. (BBI) (the
BBI Acquisition), the Company entered into an
Assumption and Modification Agreement, dated as of
September 14, 2004 (the Assumption Agreement),
with Commerce Bank & Trust Company
(Commerce Bank), pursuant to which the Company
assumed certain of BBIs obligations under the loan
documents referenced therein (the Loan Documents).
The obligations assumed by the Company include a promissory note
(the Note) with an outstanding principal balance of
approximately $2.3 million. The Note is secured by a
mortgage on the real property located at 375 West Street,
West Bridgewater, Massachusetts (the Real Property),
which was acquired by the Company pursuant to the BBI
Acquisition. The Company also entered into a Guaranty (the
Guaranty) in favor of Commerce Bank, to secure its
obligations under the Loan Documents. The interest rate per
annum was equal to 0.75% in excess of Commerce Banks
published corporate base rate. The outstanding principal balance
under the Note, together with all unpaid interest, may be
accelerated and become immediately due and payable following a
default under the Note or the loan agreement (and the expiration
of applicable cure periods) or if the Real Property is
transferred by the Company to a third party without Commerce
Banks consent.
On July 31, 2009, the Company amended the Note (the
Loan Amendment). Under the Loan Amendment, the
Company will pay monthly principal and interest payments through
October 2009 to reduce the principal balance of the loan to
$1.2 million and thereafter make monthly principal and
interest payments based on a ten-year amortization schedule.
Under the Loan Amendment, if the Company reduces the market
listing price of the Real Property, the Company must reduce the
principal balance of the mortgage by the amount of the reduction
in the listing price. The Loan Amendment also extends the final
maturity to February 28, 2011 from August 31, 2009 and
as such, the Company has classified a portion of the Note as a
noncurrent liability on its Balance Sheet as of
September 30, 2009. Under the Loan Amendment, the Company
must pay interest at the Lenders base rate plus 3%, with a
floor of 6.25%. The effective interest rate as of
September 30, 2009 was 6.25%. The Company must also
maintain a minimum net worth of $18.0 million. The Note may
be repaid in whole or part, at any time, without penalty.
During October 2009, the Company entered into a purchase and
sale agreement for the Real Property for $1.4 million. The
sale is expected to close in December 2009 at which time the
Company will be expected to repay the Note in its entirety.
Brown
Brothers Harriman/Union Bank of California, N.A. Revolving/Term
Credit and Security Agreement
The Company entered into a four-year $25.0 million
Revolving/Term Credit and Security Agreement with Brown Brothers
Harriman & Co. as the collateral agent and Union Bank
of California, N.A. as the administrative agent (the
Credit Agreement), pursuant to which a
$15.0 million term loan facility (the Term Loan
Facility) and a $10.0 million revolving loan facility
(Revolving Loan Facility) were made available to the
Company and became effective September 14, 2004. On
September 14, 2004, the Company used the proceeds of
$15.0 million of the Term Loan Facility and
$6.0 million of the Revolving Loan Facility under the
Credit Agreement to fund a portion of the BBI Acquisition and to
repay amounts outstanding under an existing credit agreement,
which was terminated. The Credit Agreement was terminated and
the principal amount and interest outstanding were paid off with
the proceeds from the Rights Offering in May 2007.
Subordinated
Notes
On September 14, 2004, the Company entered into a
four-and-one-half-year
$4.0 million Subordinated Note Agreement
(Subordinated Note Agreement) with certain lenders.
Two of the three lenders (Barry Plost and Dr. Bernard
Kasten who collectively held $3.5 million) were members of
the Board of Directors of the
F-17
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Company, and the administrative agent was a corporation
controlled by Mr. Plost. The Company issued the
$4.0 million in notes under the Subordinated Note Agreement
to fund a portion of the purchase price for the BBI Acquisition.
During May 2007, the Subordinated Note Agreement was terminated
and the principal amount and interest outstanding under each
note was paid off with the proceeds from a rights offering.
Aggregate
Maturities
The aggregate maturities of long-term debt (including capital
leases) for each of the fiscal years subsequent to
September 30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Property
|
|
|
|
|
|
|
|
|
|
Mortgage Note
|
|
|
Capital Leases
|
|
|
Total
|
|
|
2010
|
|
$
|
281,562
|
|
|
$
|
67,767
|
|
|
$
|
349,329
|
|
2011
|
|
|
1,118,438
|
|
|
|
54,565
|
|
|
|
1,173,003
|
|
2012
|
|
|
|
|
|
|
21,976
|
|
|
|
21,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,400,000
|
|
|
$
|
144,308
|
|
|
$
|
1,544,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Commitments
and Contingencies
|
The Company is involved from time to time in litigation
incidental to the conduct of the Companys business but
except as noted below, the Company is not currently a party to
any material lawsuit or proceeding.
Department
of Justice
In the first half of 2006 while the Company was under prior
management, the Company and certain former officers and
directors were served with grand jury subpoenas by the
U.S. Attorneys Office for the Southern District of
California requesting the production of certain documents. The
Company has cooperated fully with the requests of the
U.S. Attorneys Office and has not received any
requests during fiscal 2009.
Purchase
Commitments and Suppliers
At September 30, 2009 the Company was obligated to purchase
$0.6 million and $0.1 million during fiscal 2010 and
2011, respectively. These purchase obligations are for inventory
purchases and miscellaneous operating contracts.
For the year ended September 30, 2009, approximately 8% of
materials purchases were from two suppliers. For the year ended
September 30, 2008, approximately 45% of materials
purchases were from three suppliers. While there are some
materials that the Company obtains from a single supplier, the
Company is not dependent on any one supplier or group of
suppliers for the Companys business as a whole. Raw
materials are generally available from a number of suppliers.
The Companys normal contract terms are FOB SeraCares
dock with payment terms of
30-45 days.
The Companys agreement with Instituto Grifols S.A. for the
supply of therapeutic grade human serum albumin lapsed during
fiscal 2006 and was not renewed although Grifols continued to
supply us for certain customers through December 2007. The
Company signed a contract in July 2007 with Octapharma USA, Inc.
for the supply of therapeutic grade human serum albumin.
Risks
and Uncertainties, Significant Customers and Sales
Commitments
Storage of plasma and plasma products, labeling, and
distribution activities are subject to strict regulation and
licensing by the FDA. All of the Companys facilities are
subject to periodic inspection by the FDA. Failure to comply or
correct deficiencies with applicable laws or regulations could
subject the Company to
F-18
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
enforcement action, including product seizures, recalls, and
civil and criminal penalties. Any one or more could have a
material adverse effect on the Companys business.
Laws and regulations with similar substantive and enforcement
provisions are also in effect in many of the states and
municipalities where the Company does business. Any change in
existing federal, state or municipal laws or regulations, or in
the interpretation or enforcement thereof, or the promulgation
of any additional laws or regulations could have an adverse
effect on the Companys business.
For the year ended September 30, 2009, approximately 28% of
revenue was from two customers. These customers represented 29%
of the accounts receivable as of September 30, 2009. For
the year ended September 30, 2008, approximately 30% of
revenue was from two customers. These customers represented 32%
of the accounts receivable as of September 30, 2008. For
the year ended September 30, 2007, approximately 28% of
revenue was from two customers.
Information regarding the Companys geographical
concentration of revenue is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
35,564,548
|
|
|
$
|
41,247,822
|
|
|
$
|
37,143,056
|
|
Europe
|
|
|
6,431,786
|
|
|
|
5,603,150
|
|
|
|
8,190,674
|
|
Asia
|
|
|
1,413,744
|
|
|
|
1,312,085
|
|
|
|
998,169
|
|
Other
|
|
|
1,024,093
|
|
|
|
803,591
|
|
|
|
971,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,434,171
|
|
|
$
|
48,966,648
|
|
|
$
|
47,303,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SeraCare has three non-exclusive licensing agreements with the
NIH, one of which expired during the year ended
September 30, 2009 and was not renewed. These agreements
provide SeraCare with access to certain NIH cell lines that are
used in the manufacture of certain bulk, control or panel
products. SeraCare has royalty obligations under each of these
agreements. The Company had royalty expenses of
$0.1 million to the NIH under the three agreements on net
sales generated during each of the fiscal years ended
September 30, 2009, 2008 and 2007.
SeraCare also has a non-exclusive licensing agreement with
Millipore Corporation (Millipore) under which
Millipore pays for use of hybridoma cell lines that are
proprietary to SeraCare. The cell lines generate monoclonal
antibodies used in Millipores products. Under the
agreement, Millipore is obligated to pay SeraCare 30% of net
sales generated by related products. The Company received
$0.1 million from Millipore under this agreement during
each of the fiscal years ended September 30, 2009, 2008 and
2007.
On October 1, 2007, the Company entered into a lease
agreement pursuant to which the Company is leasing approximately
60,000 rentable square feet in three buildings in a
business park in Milford, Massachusetts. The initial term of the
lease agreement is approximately ten years and expires in
January 2018. The lease may be extended by the Company for three
successive extension terms of five years each, subject to
certain conditions set forth in the lease agreement. Renovations
on the buildings in the Milford facility began in early October
2007. In January 2008, the Company moved its headquarters from
its West Bridgewater, Massachusetts facility to its Milford
facility and moved the manufacturing operations from West
Bridgewater to Milford during the fourth quarter of fiscal 2008.
The Milford facility houses SeraCares entire Massachusetts
operations, including the Companys corporate headquarters.
During fiscal 2008, the renovations to the Milford facility
generated an increase of $3.7 million in capital
expenditures related to leasehold improvements and equipping the
corporate headquarters. The Company was reimbursed
$1.2 million by the landlord and recorded a deferred lease
liability which will be recognized over the term of the lease
using the straight-line method. The Company is also accounting
for the lease expense using the straight-line method which
results in a
F-19
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
deferred lease liability. As of September 30, 2009, the
total deferred lease liability for this facility was
$1.4 million.
In addition, the Company is currently leasing properties in
Frederick, Maryland and Gaithersburg, Maryland and these leases
expire July 2015 and October 2017, respectively, and currently
consist of approximately 65,000 square feet and
36,000 square feet, respectively. These properties include
laboratories, refrigerated storage facilities and administrative
offices. These leases are accounted for as operating leases
using the straight-line method. As of September 30, 2009,
the total deferred lease liability for these facilities was
$1.1 million.
During the year ended September 30, 2009, the Company
entered into two 36 month capital leases for computer
hardware and a truck. On April 3, 2007, the Company entered
into a 60 month capital lease for testing equipment. On
November 18, 2004, the Company entered into a 60 month
capital lease for various equipment. As of September 30,
2009 and 2008, the Company had equipment related to capital
leases of $0.5 million and $0.4 million, respectively
and accumulated amortization was $0.3 million and
$0.2 million, respectively.
Future minimum rental obligations under the aforementioned lease
agreements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
|
Operating Leases
|
|
|
Total Leases
|
|
|
Fiscal years ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
77,593
|
|
|
$
|
2,418,531
|
|
|
$
|
2,496,124
|
|
2011
|
|
|
58,958
|
|
|
|
2,553,739
|
|
|
|
2,612,697
|
|
2012
|
|
|
22,689
|
|
|
|
2,622,987
|
|
|
|
2,645,676
|
|
2013
|
|
|
|
|
|
|
2,691,708
|
|
|
|
2,691,708
|
|
2014
|
|
|
|
|
|
|
2,775,787
|
|
|
|
2,775,787
|
|
Thereafter
|
|
|
|
|
|
|
6,806,347
|
|
|
|
6,806,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
159,240
|
|
|
$
|
19,869,099
|
|
|
$
|
20,028,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: amounts representing interest
|
|
|
(14,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of future minimum capital lease payments
|
|
$
|
144,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense amounted to $2.9 million, $3.0 million
and $2.2 million for the years ended September 30,
2009, 2008 and 2007, respectively. Rent expense is recognized on
a straight-line basis over the term of the lease agreement.
During the year ended September 30, 2007, the Company
terminated the lease for the Genomics Collaborative division
facility. The breakage fee of $0.3 million is included in
discontinued operations.
F-20
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Income tax expense from continuing operations consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current provision (credit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(29,207
|
)
|
|
$
|
(237,580
|
)
|
|
$
|
18,763
|
|
State
|
|
|
78,642
|
|
|
|
(138,201
|
)
|
|
|
57,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision (credit)
|
|
|
49,435
|
|
|
|
(375,781
|
)
|
|
|
75,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,143,135
|
)
|
|
|
(3,289,869
|
)
|
|
|
(4,662,418
|
)
|
State
|
|
|
(3,054,990
|
)
|
|
|
2,227,234
|
|
|
|
(1,325,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision (credit)
|
|
|
(7,198,125
|
)
|
|
|
(1,062,635
|
)
|
|
|
(5,988,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (credit)
|
|
|
(7,148,690
|
)
|
|
|
(1,438,416
|
)
|
|
|
(5,912,114
|
)
|
(Decrease) increase in valuation allowance
|
|
|
7,198,125
|
|
|
|
1,062,635
|
|
|
|
5,988,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit)expense
|
|
$
|
49,435
|
|
|
$
|
(375,781
|
)
|
|
$
|
75,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes based on income before taxes
differs from the amount obtained by applying the statutory
federal income tax rate to income before taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Computed provision for taxes
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State taxes
|
|
|
3.7
|
%
|
|
|
(1.5
|
)%
|
|
|
(0.3
|
)%
|
General business credits
|
|
|
|
%
|
|
|
|
%
|
|
|
3.7
|
%
|
Other, net
|
|
|
(0.1
|
)%
|
|
|
(9.9
|
)%
|
|
|
(3.5
|
)%
|
Change in valuation allowance
|
|
|
(38.0
|
)%
|
|
|
(19.5
|
)%
|
|
|
(34.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision, net of valuation allowance
|
|
|
(0.4
|
)%
|
|
|
3.1
|
%
|
|
|
(0.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net operating loss carryforwards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
44,843,000
|
|
|
$
|
39,243,000
|
|
|
$
|
45,300,000
|
|
State
|
|
$
|
40,805,000
|
|
|
$
|
48,836,000
|
|
|
$
|
49,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets
|
|
$
|
33,618,773
|
|
|
$
|
26,420,648
|
|
|
$
|
26,381,601
|
|
Less: valuation allowances
|
|
|
(33,618,773
|
)
|
|
|
(26,420,648
|
)
|
|
|
(25,358,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
1,023,588
|
|
Deferred tax liability
|
|
|
|
|
|
|
|
|
|
|
(1,023,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Deferred tax assets as of September 30, 2009, 2008 and 2007
relate primarily to federal and state net operating loss
carryforwards that begin to expire during 2024. The realization
of deferred tax assets is dependent upon the Companys
ability to generate taxable income in future years. Because
management does not believe that it is more likely than not that
the deferred tax assets will be realized, a full valuation
allowance has been established. The deferred tax liability
relates primarily to timing differences in depreciation and
amortization expense.
Current tax expense relates to non-income measure taxes at the
state level. The Company recorded a current tax benefit of
$0.4 million for the year ended September 30, 2008 as
a result of amending previously filed federal and state income
tax returns.
The Company files a U.S. federal income tax return as well
as various state income tax returns. The Company is no longer
subject to tax examinations for years ending before
September 30, 2006, except to the extent that it utilizes
net operating losses or tax credit carryforwards that originated
before such time. The Company does not believe there will be any
material changes in its unrecognized tax positions over the next
12 months. The Company has not incurred any interest or
penalties. In the event that the Company is assessed interest or
penalties at some point in the future, they will be classified
in the financial statements as selling, general and
administrative expense.
|
|
13.
|
Related
Party Transactions
|
The following is a description of the transactions the Company
has engaged in with the Companys directors and officers
and beneficial owners of more than five percent of the
Companys voting securities and their affiliates:
The Company did not enter into any related party transactions
during the years ended September 30, 2009 or 2008.
During the year ended September 30, 2007, the Company
entered into the following related party transactions:
|
|
|
|
|
Harbinger Capital Partners Master Fund I Ltd. and Harbinger
Capital Partners Special Situations Fund L.P.
(collectively, Harbinger), a greater than 5%
beneficial owner of the Company, appointed two directors to the
Companys Board of Directors pursuant to the Plan of
Reorganization. These directors were re-elected at our annual
stockholders meeting in February 2009. During the year
ended September 30, 2009, Harbinger sold all of its shares.
|
|
|
|
Black Horse Capital LP, Black Horse Capital (QP) LP, Black Horse
Capital Offshore Ltd. (collectively, Black Horse
Capital), a greater than 5% beneficial owner, appointed
one director to the Companys Board of Directors pursuant
to the Plan of Reorganization. This director was re-elected at
our annual stockholders meeting in February 2009.
|
|
|
|
Barry Plost and Bernard L. Kasten, two former directors, were
parties to the Subordinated Note Agreement between the Company
and one other note holder. There was no related party interest
expense during the years ended September 30, 2009 or 2008.
During the year ended September 30, 2007 the Company
incurred related party interest expense of $0.3 million.
The debt was paid in full with the proceeds of the Rights
Offering and the agreement was terminated in May 2007. The
Company therefore had no liability for these notes at
September 30, 2009 and 2008.
|
As of September 30, 2006, the total number of shares
outstanding was 14,282,948. In fiscal 2007, Board members
exercised 25,000 options. In addition, the Company raised
capital through a rights offering, which entitled each holder of
common stock to purchase its pro rata share (the Rights
Offering). Unexercised
F-22
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
subscription rights were purchased by the backstop purchasers.
Through the Rights Offering, the Company issued
4,250,000 shares of common stock at $4.75 per share. The
$20.2 million raised through the Rights Offering was used
to settle the claims and administrative cost of the bankruptcy.
The Company incurred $0.6 million of costs related to the
Rights Offering.
Prior to the merger of SeraCare Life Sciences, Inc., a
California corporation, into SeraCare Reorganization Company,
Inc., a Delaware corporation, SeraCare Life Sciences, Inc. was
authorized to issue up to 25,000,000 shares of common stock
and 25,000,000 shares of preferred stock at no par value.
Subsequent to the merger, SeraCare Reorganization Company, Inc.
is authorized to issue 35,000,000 shares of common stock
and 5,000,000 shares of preferred stock at $0.001 par
value. The Board of Directors may, without further action by the
Companys shareholders, issue preferred stock in one or
more series. These terms may include voting rights, preferences
as to dividends and liquidation, and conversion and redemption
rights.
During fiscal 2008, the non-employee directors were issued a
total of 7,632 shares of the Companys common stock.
During fiscal 2009, the non-employee directors were issued a
total of 49,620 shares of the Companys common stock
and the senior management team was issued 37,782 shares of
the Companys common stock.
As of September 30, 2009, the total number of shares
outstanding was 18,652,982.
The Company was prohibited from paying dividends under the
Credit and Security Agreement with GE Capital which was
terminated in October 2009.
|
|
15.
|
Stock-Based
Compensation Plans
|
SeraCare currently has two share-based compensation plans
(collectively, the Plans). The Companys
Amended and Restated 2001 Stock Incentive Plan (the 2001
Plan) provides for the issuance of up to
1,800,000 shares of common stock (subject to adjustment in
the event of stock splits and other similar events) pursuant to
awards granted under the Plan. These include non-qualified stock
options, incentive stock options, restricted stock, stock units,
stock bonuses, dividend equivalents, deferred payment rights and
other awards. Incentive stock options covering up to
1,000,000 shares may be granted under the Plan. Unless the
Compensation Committee otherwise provides, stock options vest
ratably over three years. The maximum term of stock options is
ten years. Options that are granted to Board members generally
vest over one year on a quarterly basis or immediately upon
grant. No restricted stock has been issued under the Plan.
On February 11, 2009, the Companys shareholders
approved the 2009 Equity Incentive Plan (the 2009
Plan) which provides for the issuance of up to
1,500,000 shares of common stock pursuant to awards granted
under the 2009 Plan which includes up to 1,500,000 incentive
stock options. These awards include stock options, stock
appreciation rights, restricted stock, unrestricted stock, stock
units, performance awards or any awards that are convertible
into or otherwise based on stock. Incentive stock options
covering up to 1,500,000 shares may be granted under the
2009 Plan.
As of September 30, 2008, options to purchase
962,000 shares of common stock remained outstanding under
the Plans. As of September 30, 2009, 1,465,682 shares
of common stock remain available for future grants under the
Plans. Options covering 211,492 shares of common stock have
been exercised under the Plans. During fiscal 2009, options to
purchase 610,392 shares of common stock were issued under
the Plans. Employees and non-employee members of the Board of
Directors received options to purchase 533,200 and
77,192 shares of common stock, respectively. In addition,
49,620 and 37,782 shares of common stock were issued to the
non-employee directors and senior management team, respectively.
In fiscal 2009, options to purchase 15,000 shares of common
stock expired and options to purchase 29,600 shares of
common stock were forfeited. No options to purchase shares of
common stock were exercised during fiscal 2009. As of
F-23
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
September 30, 2009, options to purchase
1,527,792 shares of common stock remained outstanding under
the Plans, of which 699,604 were exercisable.
Options
Granted Outside of the Plans
As of September 30, 2008, options to purchase
700,000 shares of common stock were issued outside the
Plans. During fiscal 2009, there was no activity outside of the
Plans. As of September 30, 2009, options to purchase
700,000 shares were outstanding, of which 616,666 were
exercisable. These options vest in equal annual installments
over a period of three years and have a maximum term of ten
years.
A summary of the Companys options as of September 30,
2009 and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-average
|
|
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
|
|
|
|
Number of
|
|
|
exercise
|
|
|
contractual term
|
|
|
Aggregate
|
|
Options
|
|
options
|
|
|
price
|
|
|
(In years)
|
|
|
intrinsic value
|
|
|
Outstanding September 30, 2008
|
|
|
1,662,000
|
|
|
$
|
7.11
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
610,392
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(15,000
|
)
|
|
$
|
9.05
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(29,600
|
)
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding September 30, 2009
|
|
|
2,227,792
|
|
|
$
|
5.57
|
|
|
|
4.21
|
|
|
$
|
696,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009
|
|
|
1,316,270
|
|
|
$
|
7.31
|
|
|
|
4.31
|
|
|
$
|
67,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys stock price closed at $2.45 on
September 30, 2009. Intrinsic value for stock options is
defined as the difference between the current market value of
the stock and the exercise price. The intrinsic value represents
the value that would have been received by the option holders
had the option holders exercised all of their options as of that
date.
Compensation expense recognized during each of the three years
in the period ended September 30, 2009 includes
compensation expense for all awards issued subsequent to
October 1, 2005. Also included in the compensation expense
for the year ended September 30, 2007, are awards which
were issued prior to October 1, 2005 which had any portion
of the original grant date fair value unvested as of
October 1, 2005. The Company recognizes compensation costs
net of estimated forfeitures on a graded vesting basis over the
vesting period for each award. The Company believes this
methodology is a truer reflection of the expenses incurred for
the options granted than the alternative straight-line method.
All grants contain accelerated vesting provisions in the event
of a change in control and certain agreements contain
acceleration provisions for dismissal that is not for cause.
The following table presents stock-based compensation expense
included in our statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of revenue
|
|
$
|
198,766
|
|
|
$
|
252,859
|
|
|
$
|
85,331
|
|
Research and development expense
|
|
|
55,614
|
|
|
|
67,435
|
|
|
|
8,863
|
|
Selling, general and administrative expenses
|
|
|
908,528
|
|
|
|
1,528,486
|
|
|
|
2,304,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
1,162,908
|
|
|
$
|
1,848,780
|
|
|
$
|
2,398,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental charge to earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
0.06
|
|
|
$
|
0.10
|
|
|
$
|
0.15
|
|
F-24
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
No stock-based compensation expense was capitalized during
fiscal 2009, 2008 or 2007. Included in the amount of
compensation expense recorded in fiscal 2009, 2008 and 2007 is
stock compensation expense which relates to the modification of
options as discussed below. The Company had no income tax
benefit recognized in the income statement for share-based
compensation arrangements during each of the three years in the
period ended September 30, 2009.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes option-pricing model. Because the
Black-Scholes option-pricing model incorporates ranges of
assumptions for inputs, those ranges are disclosed. The expected
volatility was calculated based on the historical fluctuation of
the stock price for a term equivalent to the expected term of
the options at the grant date. The average expected term was
calculated under the guidance of SAB No. 107 and 110,
Simplified Method for Estimating the Expected Term
as the Company has limited exercise data since the Company
reorganized in May 2007. The risk-free interest rate is based on
the U.S. Treasury constant maturities with a term
equivalent to the expected term of the options at the grant
date. The dividend yield assumption is based on history and
expectation of paying no dividends. The fair value is then
amortized on a graded basis over the vesting period. The
assumptions used in the Black-Scholes option-pricing model are
as follows:
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Expected stock volatility
|
|
100.81-115.34%
|
|
84.17-91.74%
|
|
79.70-95.44%
|
Weighted-average volatility
|
|
101.30%
|
|
89.05%
|
|
83.61%
|
Risk free interest rate
|
|
1.22-1.52%
|
|
1.85-3.61%
|
|
4.55-4.79%
|
Expected term of options (years)
|
|
2.81-3.50
|
|
2.81-3.50
|
|
2.50-6.00
|
Expected annual dividend per share
|
|
0%
|
|
0%
|
|
0%
|
The weighted-average grant date fair value of options granted
during the years ended September 30, 2009, 2008 and 2007
was $0.82, $3.18 and $4.09, respectively. The intrinsic value of
the options exercised during the year ended September 30,
2007 was less than $0.1 million. There were no options
exercised during fiscal 2008 or 2009.
The Codification requires the cash flows from the tax benefits
from deductions in excess of the compensation expense recognized
for those options (excess tax benefits) to be classified as
financing cash flows. There was no excess cash tax benefit
classified as a financing cash inflow for the three years in the
period ended September 30, 2009.
As of September 30, 2009, there was $0.4 million of
total unrecognized compensation cost related to nonvested
share-based compensation arrangements granted under the Plan.
That cost is expected to be recognized over a weighted-average
period of 1.32 years. The total fair value of shares vested
during the years ended September 30, 2009, 2008 and 2007
was $1.2 million, $1.8 million and $2.4 million,
respectively.
On May 8, 2006, the Compensation Committee of the Board of
Directors voted to reprice outstanding employee stock options
subject to the approval of the Bankruptcy Court. Such approval
occurred on May 26, 2006 and the options were repriced to
$5.45, at the lower of the exercise price of the subject stock
options or 110% of the closing price on May 26, 2006 which
equaled $5.45. Options to purchase 456,501 shares of common
stock were subject to the repricing with original option prices
ranging from $3.00 to $17.85. The expense that relates to the
modification of the exercise price on vested stock options as of
the modification date was $0.1 million. The expense was
charged to compensation expense during the year ended
September 30, 2006. The modification also resulted in
additional compensation expense on unvested options of
$0.1 million
F-25
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
to be amortized over the remaining term of the modified options.
From the years ended September 30, 2006 through 2009, the
additional stock-based compensation is expensed as follows:
|
|
|
|
|
2006
|
|
$
|
70,737
|
|
2007
|
|
$
|
47,656
|
|
2008
|
|
$
|
4,662
|
|
2009
|
|
$
|
1,064
|
|
The Company computed a compensation expense charge determined by
the difference between the fair value of the original option and
the modified option on the modification date. The fair value was
calculated using the Black-Scholes model with the following
assumptions:
|
|
|
Expected stock volatility
|
|
83.19-174.66%
|
Risk free interest rate
|
|
4.87-5.03%
|
Expected life of options (years)
|
|
0.41-3.21
|
Expected annual dividend per share
|
|
0%
|
Basic net income (loss) per common share is computed based on
the weighted average number of common shares outstanding during
the period. Diluted net income (loss) per common share is
calculated by considering the dilutive impact of common stock
equivalents (e.g., outstanding stock options and stock units)
under the treasury stock method as if they were converted into
common stock as of the beginning of the period or as of the date
of grant, if later.
The following table sets out the computations of basic and
diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(15,379,195
|
)
|
|
$
|
(11,963,049
|
)
|
|
$
|
(13,055,443
|
)
|
Loss from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
(109,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,379,195
|
)
|
|
$
|
(11,963,049
|
)
|
|
$
|
(13,164,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
18,598,844
|
|
|
|
18,562,350
|
|
|
|
15,876,236
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
18,598,844
|
|
|
|
18,562,350
|
|
|
|
15,876,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.83
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.82
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.83
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excluded from the calculation of diluted net income per common
share for the years ended September 30, 2009, 2008 and 2007
were 2,152,423, 1,748,414 and 1,656,789 shares,
respectively, related to stock options because their effect was
anti-dilutive. |
F-26
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The Companys business is divided into two segments:
Diagnostic & Biopharmaceutical Products and
BioServices. SeraCares Diagnostic &
Biopharmaceutical Products segment includes two types of
products: controls and panels, which include the manufacture of
products used for the evaluation and quality control of
infectious disease tests in hospital and clinical testing labs
and blood banks, and by in vitro diagnostic
manufacturers; and reagents and bioprocessing products, which
include the manufacture and supply of biological materials used
in the research, development and manufacturing of human and
animal diagnostics, therapeutics and vaccines. The BioServices
segment includes biobanking, sample processing and testing
services for research and clinical trials, and contract research
services in molecular biology, virology and biochemistry. These
reportable segments are strategic business lines that offer
different products and services and require different marketing
strategies.
The Company utilizes multiple forms of analysis and control to
evaluate the performance of the segments and to evaluate
investment decisions. Gross profit is deemed to be the most
significant measurement of performance, and administrative
expenses are not allocated or reviewed by management at the
segment level. Segments are expected to manage only assets
completely under their control. Accordingly, segment assets
include primarily accounts receivable, inventory, property plant
and equipment and goodwill and do not include assets identified
as general corporate assets or assets associated with
discontinued operations. Amortization of intangibles is not
allocated to the segment level, and accordingly has not been
included in this data. The impact of discontinued operations has
also been excluded from the data. The following segment
financial statements have been prepared on the same basis as the
Companys financial statements, utilizing the accounting
policies described in the Summary of Significant Accounting
Policies.
The Companys segment information as of or for the years
ended September 30, 2009, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostic & Biopharmaceutical Products
|
|
$
|
32,855,388
|
|
|
$
|
34,982,601
|
|
|
$
|
34,998,141
|
|
BioServices
|
|
|
11,578,783
|
|
|
|
13,984,047
|
|
|
|
12,305,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
44,434,171
|
|
|
$
|
48,966,648
|
|
|
$
|
47,303,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostic & Biopharmaceutical Products
|
|
$
|
13,289,538
|
|
|
$
|
11,643,308
|
|
|
$
|
11,554,296
|
|
BioServices
|
|
|
2,154,869
|
|
|
|
3,378,948
|
|
|
|
1,820,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
15,444,407
|
|
|
$
|
15,022,256
|
|
|
$
|
13,374,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostic & Biopharmaceutical Products
|
|
$
|
17,514,921
|
|
|
$
|
35,723,683
|
|
|
$
|
37,800,281
|
|
BioServices
|
|
|
8,598,530
|
|
|
|
8,564,597
|
|
|
|
7,715,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets
|
|
$
|
26,113,451
|
|
|
$
|
44,288,280
|
|
|
$
|
45,515,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostic & Biopharmaceutical Products
|
|
$
|
732,546
|
|
|
$
|
740,515
|
|
|
$
|
639,651
|
|
BioServices
|
|
|
349,847
|
|
|
|
308,959
|
|
|
|
484,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation
|
|
$
|
1,082,393
|
|
|
$
|
1,049,474
|
|
|
$
|
1,124,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostic & Biopharmaceutical Products
|
|
$
|
559,969
|
|
|
$
|
3,954,212
|
|
|
$
|
309,706
|
|
BioServices
|
|
|
269,834
|
|
|
|
1,015,396
|
|
|
|
182,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
829,803
|
|
|
$
|
4,969,608
|
|
|
$
|
492,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
18.
|
Fair
Value Measurements
|
The Codification defines fair value and establishes a hierarchy
for reporting the reliability of input measurements used to
assess fair value for all assets and liabilities. Fair value is
defined as the selling price that would be received for an
asset, or paid to transfer a liability, in the principal or most
advantageous market on the measurement date. The hierarchy
prioritizes fair value measurements based on the types of inputs
used in the valuation technique. The inputs are categorized into
the following levels:
Level 1 Observable inputs such as quoted prices
in active markets for identical assets or liabilities
Level 2 Directly or indirectly observable
inputs for quoted and other than quoted prices for identical or
similar assets and liabilities in active or non-active markets
Level 3 Unobservable inputs not corroborated by
market data, therefore requiring the entity to use the best
available information available in the circumstances, including
the entitys own data
Certain financial instruments are carried at cost on the balance
sheets, which approximates fair value due to their short-term,
highly liquid nature. The fair value of these financial
instruments is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Balance
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
6,169,396
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,169,396
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property mortgage note
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,400,000
|
|
|
$
|
1,400,000
|
|
The Company determined that the fair value of the real property
mortgage note approximates its outstanding balance based on the
recent amendment of the instrument and other Level 3
measurements. The Company determined the estimated fair value by
using available market information and commonly accepted
valuation methodologies. However, considerable judgment is
required in interpreting market data as well as the risk of
nonperformance related to the real property mortgage note to
develop estimates of fair value. The use of different
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value.
|
|
19.
|
Discontinued
Operations
|
GCI
Disposition
On March 29, 2007, the Company and BioServe entered into an
asset purchase agreement pursuant to which BioServe agreed to
purchase certain assets principally used in the business the
Company acquired from Genomics Collaborative, Inc.
(GCI) and assume certain limited liabilities of the
business. Under the terms of the asset purchase agreement, the
consideration consists of $2.0 million cash, subject to
reduction for inventory adjustments, and a 7.5% royalty on
BioServes net sales related to the business for five
years. The assets sold included $0.9 million of fixed
assets, certain intangible assets which were fully amortized and
its library of specimens which had a carrying value of zero. The
Company recorded a gain on the sale of $0.8 million. The
results of operations and the gain on disposal of the business
were excluded from continuing operations and reported as
discontinued operations. During the year ended
September 30, 2009, the Company received $0.2 million
related to the royalties. The Company is actively pursuing
collections of additional royalty amounts due but has not
recorded a receivable due to collectibility concerns.
F-28
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The significant components of the Companys results from
discontinued operations, net of income taxes, for the years
ended September 30, 2009, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
965,938
|
|
Goodwill impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Pretax losses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(901,099
|
)
|
Income tax benefit
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Gain on disposal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
791,661
|
|
Income tax on disposal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net loss from discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(109,438
|
)
|
|
|
20.
|
Employee
Benefit Plans
|
Employees of the Company participate in the Companys
401(k) defined contribution plan (the 401(k) Plan).
Effective January 1, 2007, the company amended the 401(k)
Plan to match employee contributions each pay period at a rate
of 25% of eligible contributions to employees who had more than
one year of service with the Company. Eligible contributions are
defined as employee contributions up to a maximum of 6% of
employee compensation. On April 1, 2009, the Company
amended the 401k Plan and stopped its matching contributions.
Total matching contributions made to the 401(k) Plan and charged
to expense by the Company were $0.1 million for each of the
years ended September 30, 2009, 2008 and 2007.
The Company has evaluated subsequent events through
November 19, 2009 which is the date the financial
statements were issued.
During October 2009, the Company entered into a purchase and
sale agreement pursuant to which the Company will sell its West
Bridgewater, Massachusetts facility. The Company had been
actively marketing this facility for sale since fiscal 2008 when
the Company completed the transition of its corporate
headquarters from the facility in West Bridgewater into a
state-of-the
art research and manufacturing facility in Milford,
Massachusetts. The West Bridgewater facility is being sold for
$1.4 million, and the sale is expected to close in December
2009, subject to customary closing conditions. The West
Bridgewater facility is subject to an outstanding mortgage note
with a balance of $1.4 million as of September 30,
2009.
The Company terminated the Credit and Security Agreement with GE
Capital during October 2009. The Company paid a
$0.1 million termination fee to GE Capital. As of
September 30, 2009, the Company had $0.1 million of
unamortized deferred financing expenses related to the Credit
and Security Agreement with GE Capital. Both the termination fee
and unamortized deferred financing expenses were expensed in
October 2009.
F-29
SERACARE
LIFE SCIENCES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
|
|
22.
|
Summarized
Quarterly Financial Data (Unaudited)
|
The following table has been prepared from the financial records
of the Company, without audit, and reflects all adjustments that
are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim
periods presented. The sum of the per share amounts may not
equal the annual amounts because of the changes in the weighted
average number of shares outstanding during the year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
December 31(1)
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30(2)
|
|
|
Total Year
|
|
|
Year ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
9,270,619
|
|
|
$
|
10,863,948
|
|
|
$
|
11,777,786
|
|
|
$
|
12,521,818
|
|
|
$
|
44,434,171
|
|
Gross profit
|
|
|
2,286,080
|
|
|
|
3,744,314
|
|
|
|
4,246,850
|
|
|
|
5,167,163
|
|
|
|
15,444,407
|
|
Operating (loss) income
|
|
|
(16,791,427
|
)
|
|
|
(592,557
|
)
|
|
|
771,562
|
|
|
|
1,479,534
|
|
|
|
(15,132,888
|
)
|
Net (loss) income
|
|
|
(16,910,523
|
)
|
|
|
(605,722
|
)
|
|
|
697,019
|
|
|
|
1,440,031
|
|
|
|
(15,379,195
|
)
|
(Loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.91
|
)
|
|
|
(0.03
|
)
|
|
|
0.04
|
|
|
|
0.08
|
|
|
|
(0.83
|
)
|
Diluted
|
|
|
(0.91
|
)
|
|
|
(0.03
|
)
|
|
|
0.04
|
|
|
|
0.08
|
|
|
|
(0.83
|
)
|
Year ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
12,626,319
|
|
|
$
|
12,530,143
|
|
|
$
|
12,374,095
|
|
|
$
|
11,436,091
|
|
|
$
|
48,966,648
|
|
Gross profit
|
|
|
4,098,483
|
|
|
|
4,712,954
|
|
|
|
3,631,750
|
|
|
|
2,579,069
|
|
|
|
15,022,256
|
|
Operating loss
|
|
|
(606,710
|
)
|
|
|
(212,953
|
)
|
|
|
(1,053,164
|
)
|
|
|
(10,300,737
|
)
|
|
|
(12,173,564
|
)
|
Net loss
|
|
|
(667,057
|
)
|
|
|
(330,651
|
)
|
|
|
(555,310
|
)
|
|
|
(10,410,031
|
)
|
|
|
(11,963,049
|
)
|
Loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
(0.04
|
)
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
(0.56
|
)
|
|
|
(0.64
|
)
|
|
|
|
(1) |
|
In the first quarter of fiscal 2009, SeraCare wrote-off
$15.1 million of goodwill related to the Diagnostics and
Biopharmaceutical Products segment. |
|
(2) |
|
In the fourth quarter of fiscal 2008, SeraCare wrote-off
$8.0 million of goodwill related to the Diagnostics and
Biopharmaceutical Products segment. |
F-30