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

FORM 10 - Q

Commission file number 0-33045

SERACARE LIFE SCIENCES, INC.
(Exact name of Registrant as specified in its charter)

Registrant’s Telephone Number: (760) 806-8922

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  x     No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  o     No x

As of April 24, 2003, 7,526,278 shares of the Registrant’s common stock, no par value, were outstanding.

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SeraCare Life Sciences, Inc.
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SeraCare Life Sciences, Inc.
Statements of Income
(Unaudited)

See accompanying notes to financial statements.

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SeraCare Life Sciences, Inc.
Balance Sheets
(Unaudited)

See accompanying notes to financial statements.

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SeraCare Life Sciences, Inc.
Statements of Cash Flows
(Unaudited)

See accompanying notes to financial statements.

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SeraCare Life Sciences, Inc.
Notes to Financial Statements
(Unaudited)

1.     Basis of Presentation

The information contained herein has been prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. The information as of March 31, 2003 and for the three month and six month periods ended March 31, 2003 and 2002 are unaudited. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal and recurring accruals) necessary to present fairly the financial position of SeraCare Life Sciences, Inc. (the “Company” or “we”) as of March 31, 2003, the results of its operations for the three month and six month periods ended March 31, 2003 and 2002, and cash flows for the six month periods ended March 31, 2003 and 2002. These results have been determined on the basis of accounting principles generally accepted in the United States of America and practices applied consistently with those used in the preparation of the audited financial statements for the fiscal year ended September 30, 2002 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The results of operations for the three month and six month periods ended March 31, 2003 are not necessarily indicative of the results to be expected for any other period or for the entire current fiscal year.

Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with the applicable rules to Form 10-Q. The accompanying financial statements should be read in conjunction with our audited financial statements and notes thereto for the fiscal year ended September 30, 2002.

Certain amounts in the prior period financial statements have been reclassified to conform with current period classifications.

2.     Earnings Per Share

Basic net income per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed based on the weighted average number of common shares outstanding during the period increased by the effect of dilutive stock options and warrants, using the treasury stock method. The computations for basic and diluted earnings per share are as follows:

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3.     Stock-Based Compensation

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” by providing alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 and the interim disclosure provisions are effective for interim periods beginning after December 15, 2002.

At March 31, 2003, the Company’s stock-based incentive compensation plan is accounted for under the recognition and measurement principles of APB No. 25, “Accounting for Stock Issued to Employees” and related interpretations. No stock-based employee and director compensation is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the “fair value” recognition provisions of SFAS No. 123 to stock-based employee and director compensation.

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4.     Income Taxes

The realization of deferred tax assets is dependent upon our ability to generate taxable income in future years. As realization cannot be assured management believes it is more likely than not that the deferred tax asset will not be realized and therefore, has recorded a valuation allowance for the total balance as of March 31, 2003 and September 30, 2002. For the three month and six month periods ended March 31, 2003, we accrued income tax at a rate of approximately 10%. This represents a year-to-date expense of $164,225 for Federal alternative minimum tax and California state income tax due to a two year state imposed moratorium on the use of a California net operating loss carryforward. An income tax benefit is reflected in the three month period ended March 31, 2002 to recognize the impact of the change in the federal tax laws which were effective March 31, 2002 and reversed the federal alternative minimum tax accrual for the three month period ended December 31, 2001. The income tax expense of $13,000 for the six month period ended March 31, 2002, represents California state income tax due. At March 31, 2003, we have Federal and California state net operating loss carryforwards of approximately $2,100,000 and $3,600,000, respectively.

5.     Commitments and Contingencies

There are no material pending legal proceedings to which we are a party, other than routine litigation occurring in the normal course of our operations.

6.     Segment Information and Significant Customers

The Statement of Financial Accounting Standards No. 131, “Disclosure about Segments of an Enterprise and related Information” (“SFAS No. 131”), requires the reporting of information about operating segments in annual financial statements and requires selected information in interim financial reports. Selected financial information is reported below for the three month and six month periods ended March 31, 2003 and 2002.

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Income from operations is defined as income before income taxes, interest, and other non-operating income and expenses. “Corporate and other” includes general and administrative corporate expenses other than those directly attributable to an operating segment. The Company had no inter-segment sales during the three month and six month periods ended March 31, 2003 and 2002.

During the three month period ended March 31, 2003, approximately 38% of net sales were to two customers. One of these customers represented 29% and the other represented 21% of net accounts receivable at March 31, 2003. During the three months ended March 31, 2003 our largest customer notified us that it would no longer require the use of our therapeutic product after August 2003. During the three month period ended March 31, 2002 approximately 64% of net sales were to two customers. During the six month period ended March 31, 2003, approximately 39% of net sales were to two customers. During the six month period ended March 31, 2002 approximately 60% of net sales were to two customers. At September 30, 2002, one customer represented 28% of net accounts receivable.

7.     Related Party Relationships and Transactions

We are a party to an agreement with Biomat USA, Inc. (our former parent and a subsidiary of Probitas Pharma S.A.) which sets forth the terms and conditions pursuant to which Biomat USA, Inc. will supply us with certain plasma products until January 2006 at prices which will be agreed upon on an annual basis. Under this agreement, Biomat USA, Inc. will also provide plasmapheresis services on donors referred by us, including collecting, testing and delivering the plasma to us. The plasma products provided by Biomat USA, Inc. to us under this agreement are subject to minimum quality specifications set forth in the agreement and are subject to specifications for delivery, storage and handling of the plasma in accordance with applicable laws, industry standards and good manufacturing practices.

We are also party to an agreement with Instituto Grifols, S.A. (a subsidiary of Probitas Pharma S.A.), under which Instituto Grifols supplies us with Human Serum Albumin, which we then distribute to various biotech companies. Under this agreement, Instituto Grifols, S.A. also supplies us with Human Albumin for use in diagnostic products. We obtain a substantial portion of our revenue and operating margin from sales of products incorporating the Human Albumin supplied to us by Instituto Grifols under this agreement. The agreement was amended in 2001 to extend its term until March 31, 2006. In connection with an agreement for the supply of Human Serum Albumin that we entered into with one of our significant customers, we also amended the terms of our agreement with Instituto Grifols to conform certain aspects of the agreement with the significant customer’s contract.

Probitas Pharma S.A. currently holds a five year warrant to purchase 563,347 shares of our common stock. On September 25, 2001, Probitas Pharma S.A. acquired Biomat USA, Inc. We purchased from Biomat USA, Inc. during the three month periods ended March 31, 2003 and 2002, human blood plasma and services totaling $84,419 and $14,400, respectively. We purchased plasma products from other subsidiaries of Probitas Pharma S.A. totaling $2,466,384 and $2,252,866 during the three month periods ended March 31, 2003 and 2002, respectively. During the six month periods ended March 31, 2003 and 2002, we purchased from Biomat USA, Inc. human blood plasma and services totaling $1,022,102 and $33,923, respectively. We purchased plasma products from other subsidiaries of Probitas Pharma S.A. totaling $4,143,868 and $4,041,466 during the six month periods ended March 31, 2003 and 2002, respectively. On March 31, 2003 we had $104,500 in accounts payable to Biomat USA, Inc. and $2,437,321 in accounts payable to other subsidiaries of Probitas Pharma S.A. On September 30, 2002 we had $21,104 in accounts payable to Biomat USA, Inc. and $722,954 in accounts payable to other subsidiaries of Probitas Pharma S.A. These amounts are classified with accounts payable to related parties in the accompanying balance sheets.

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Mr. Barry D. Plost is currently Chairman of our Board of Directors. Mr. Plost is also President of Biomat USA, Inc. and serves as a director of Probitas Pharma S.A.

Mr. Jerry L. Burdick is currently our Secretary as well as a member of our Board of Directors. Mr. Burdick is also the Executive Vice President, Secretary and Chief Financial Officer of Biomat USA, Inc.

Mr. Samuel Anderson, a current Board Member, became a consultant to the Company effective April 15, 2002. We will pay Mr. Anderson a minimum annual consulting fee of $70,000.

During the quarter ended December 31, 2002, we took delivery of a computer hardware and software system from a wholly owned subsidiary of a company for which one of the Company’s directors, Dr. Bernard L. Kasten, serves as an officer. The system was purchased in an arms length transaction and is to be used as the data depository for our new BioBank product offering. On March 31, 2003, we had $175,061 in accounts payable to this subsidiary. This amount is classified within accounts payable to related parties in the accompanying balance sheet.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We caution you that this document contains disclosures that are forward-looking statements. All statements regarding SeraCare Life Sciences, Inc.’s expected future financial position, results of operations, cash flows, dividends, financing plans, business strategy, budgets, 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.”

RESULTS OF OPERATIONS

Three Months Ended March 31, 2003 compared to Three Months Ended March 31, 2002

Sales

Sales decreased by 16%, or $1,195,000, to $6,089,000 for the three month period ended March 31, 2003 compared to the same period in 2002. This decrease is comprised of a volume decrease in Therapeutic product sales of $1,587,000 partially offset by a volume increase in Diagnostic product sales of $392,000. The decrease in Therapeutic product sales was the result of an abnormally large shipment to our largest customer during the same period last year as a result of its factory having just received FDA approval and its motivation to reduce its product backlog. During the three months ended March 31, 2003, this customer notified us that it would no longer require our Therapeutic product after August 2003. The increase in Diagnostic product sales was the result of increased cell culture product line sales as a result of our increased focus on this area.

Gross Profit

Gross profit decreased by $339,000 or 16% for the three month period ended March 31, 2003 to $1,822,000 compared to the same period in 2002 mainly due to the decrease in sales as referenced above. Total gross profit percentage remained consistent in the three month period ended March 31, 2003 when compared to the same period in 2002; however, Diagnostic product gross profit percentage increased over the corresponding prior year three month period as a result of eliminating the high concentration of low margin plasma sales to a large customer in the prior year, while Therapeutic product gross profit percentage decreased as a result of an increase in our cost of human albumin.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three month period ended March 31, 2003 decreased by $211,000 to $956,000, a decrease of 18% compared to the same period in 2002. This decrease was primarily the result of decreased costs including legal, professional, public relations, and audit, partially offset by increases in salaries and insurance fees.

Other Income

Other income for the three month periods ended March 31, 2003 and 2002 totaled $8,000 and consisted of interest income.

Income Tax Expense (Benefit)

Income tax expense increased by $95,000 for the three month period ended March 31, 2003, compared to the same period in 2002. For the three month period ended March 31, 2003, we accrued tax at a 9.7% rate. This represents an accrual of $85,000 for Federal alternative minimum tax and California state tax due to a two year state imposed moratorium on the use of a California net operating loss carryforward. The income tax benefit of $10,000 for the three month period ended March 31, 2002, is the result of a change in Federal tax laws which eliminated the limitation on the use of net operating loss carryforwards to offset the Federal alternative minimum taxable income in 2002. At March 31, 2003, we had Federal net operating loss carryforwards of approximately $2,100,000 and California state net operating loss carryforwards of approximately $3,600,000.

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Net Income

As a result of the above, net income for the three month period ended March 31, 2003 was $789,000 compared to $1,012,000 for the same prior year period.

Six Months Ended March 31, 2003 compared to Six Months Ended March 31, 2002

Sales

Sales decreased by 13%, or $1,828,000, to $11,883,000 for the six month period ended March 31, 2003 compared to the same period in 2002. This decrease is comprised of a volume decrease in Therapeutics product sales of $951,000 and a decrease in Diagnostic product sales of $878,000. The decrease in Therapeutic sales was the result of an abnormally large shipment to our largest customer last year as a result of its factory having just received FDA approval and its motivation to reduce its product backlog. During the six month period ended March 31, 2003, this customer notified us that it would no longer require our Therapeutic product after August 2003. Therapeutic product sales to new and existing customers in the current period partially offset the impact of the aforementioned sale in the prior period. The decrease in Diagnostic product sales was the result of a decrease in plasma sales to our Korean customer between periods, partially offset by an increase in cell culture product sales to existing customers.

Gross Profit

Gross profit decreased by $552,000 or 13% for the six month period ended March 31, 2003 to $3,541,000 compared to the same period in 2002 mainly due to the decrease in sales as referenced above. Total gross profit percentage remained consistent in the period when compared to the same period in 2002; however, Diagnostic product gross profit percentage increased over the corresponding prior year period as a result of eliminating the high concentration of low margin plasma sales to a large customer in the prior year, while Therapeutic product gross profit percentage decreased slightly as a result of an increase in our cost of human albumin.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six month period ended March 31, 2003 decreased by $362,000 to $1,888,000, a decrease of 16% compared to the same period in 2002. This decrease was primarily the result of decreased costs including legal, professional, public relations, and audit partially offset by increases in salaries and insurance fees.

Other Income

Other income for the six month periods ended March 31, 2003 and 2002 totaled $22,000 and $8,000, respectively and consisted of interest income.

Income Tax Expense

Income tax expense increased by $151,000 for the six month period ended March 31, 2003, compared to the same period in 2002. For the six month period ended March 31, 2003, we accrued tax at a 9.8% rate. This represents an accrual of $164,000 for Federal alternative minimum tax and California state tax due to a two year state imposed moratorium on the use of a California net operating loss carryforward. The income tax expense of $13,000 for the six month period ended March 31, 2002 represented an accrual for Federal and California state alternative minimum tax. At March 31, 2003, we had Federal net operating loss carryforwards of approximately $2,100,000 and California state net operating loss carryforwards of approximately $3,600,000.

Net Income

As a result of the above, net income for the six month period ended March 31, 2003 was $1,512,000 compared to $1,838,000 for the same prior year period.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2003, our current assets exceeded current liabilities by $14,284,000 compared to $12,906,000 as of September 30, 2002, which translates into a current ratio as of March 31, 2003 of 3.71 to 1 compared to 5.76 to 1 as of September 30, 2002. Total liabilities as of March 31, 2003 were $5,275,000 compared to $2,713,000 as of September 30, 2002. The total debt to equity ratio as of March 31, 2003 was 0.28 compared to 0.16 as of September 30, 2002.

Net cash used in operating activities during the six month period ended March 31, 2003 was $44,000 compared to net cash provided by operating activities of $540,000 during the same prior year period. The current year period results were due

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primarily to increases in accounts receivable and inventory combined with a decrease in accrued expenses, partially offset by an increase in total accounts payable resulting from the timing of payments for inventory. The $990,000 increase in inventory is primarily the result of increased purchases to support our new product and processes as we expand our cell culture product offerings, and purchases of plasma and serum to support our diagnostic product sales.

Cash flows used in investing activities for the six months ended March 31, 2003 was $80,000 compared to $159,000 for the comparable prior year period. The increased spending in property and equipment was primarily due to capital expenditures for a new computer and software system to serve as our data depository for our new BioBank product offering. The Company also has a noncash transaction relating to the above mentioned computer and software system which is recorded in accounts payable to related parties of $175,000. This transaction will be recorded in cash flows from investing activities, when the payment is made.

Cash flows provided from financing activities was $53,700 during the six months ended March 31, 2003 from the exercise of options and warrants.

In addition, we continue to be debt free and expect to generate positive cash flows from operations for the foreseeable future. Accordingly, management expects internally generated cash flow to be adequate for the foreseeable future to cover operations as well as our noncancelable leases and purchase commitments as described in notes to the financial statements number 3 and 5 included in the audited financial statements for the fiscal year ended September 30, 2002 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, unless we initiate a material expansion or significant acquisition.

CRITICAL ACCOUNTING POLICIES

To prepare the financial statements in conformity with accounting principles generally accepted 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, we provide for estimates regarding returns, the collectibility of accounts receivable, the net realizable value of our inventory, as well as our deferred tax asset valuation allowance. On an ongoing basis, we evaluate our estimates based on historical experience and various other assumptions that we believe 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. Future financial results could differ materially from current financial results based on management’s current estimates.

Revenue Recognition.     We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” (SAB 101). SAB 101 requires that four basic criteria must be met before revenue can be recognized: 1. pervasive evidence that an arrangement exists; 2. delivery has occurred; 3. the selling price is fixed and determinable; and 4. collectibility is reasonably assured. We record any material up-front payments as deferred revenue in accrued expenses on the balance sheet and recognize revenue upon shipment of the product to the customer and when the four criteria noted above are met.

Returns.      We will accept return of goods, if prior to returning goods, the purchaser contacts us and requests a Return Authorization Number, clearly stating the reason for the return. Request for replacements or credit must be received within 10 days after shipment. We are not liable for products that become unusable due to improper storage, improper treatment, or expiration. When applicable, returns are subject to a 15% handling and restocking charge. Therapeutic products will only be accepted with a Return Authorization Number and a letter stating adherence to Prescription Drug Marketing Act Storage Compliance. Items that are nonreturnable include frozen items, custom orders, products that have been altered in any manner from their original state or not in their original containers, and therapeutic items for use by diagnostic customers. Returns are estimated and accrued at the time information is available.

Accounts receivable.     We perform ongoing credit evaluations of our customers and adjust credit limits based on payment history and the customers’ current buying habits. We monitor collections and payments from our customers and maintain a provision for estimated credit losses based on historical experience and any specific customer collection issues that have been identified.

Inventory.     Inventory is carried at the lower of cost or market. We review inventory for estimated obsolescence or unmarketable inventory and provide an amount to reduce inventory to its net realizable value based on the assumptions about future demand and market conditions. If actual market conditions are less favorable than those conditions assumed by management, additional inventory provisions may be required.

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Deferred tax assets.     Deferred tax assets are recorded net of a valuation allowance. The valuation allowance reduces the carrying amounts of deferred tax assets to an amount management believes is more likely than not realizable. In making the determination projections of taxable income, past operating results and tax planning strategies are considered.

INFLATION

Management believes that inflation generally causes an increase in sales prices with an offsetting unfavorable effect on the cost of products sold and other operating expenses. Accordingly, with the possible exception of the impact on interest rates, management believes that inflation will have no significant effect on our results of operations or financial condition.

OTHER ITEMS

We are not a party to any off-balance sheet arrangements, do not engage in trading activities involving non-exchange traded contracts, and are not a party to any transaction with persons or activities that derive benefits, except as disclosed herein, from their non-independent relationships with us.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No.123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002 and the interim disclosure provisions are effective for interim periods beginning after December 15, 2002. We currently plan to continue to apply the intrinsic-value based method to account for stock options and complied with the interim disclosure requirements beginning with our quarter ended March 31, 2003.

In November 2002, the FASB issued Interpretation (FIN) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 requires companies to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Guarantees in existence at December 31, 2002 are grand-fathered for the purposes of recognition and would only need to be disclosed. The adoption of FIN No. 45 did not have a material effect on our financial position or results of operations.

During the six month period ended March 31, 2003 we adopted SFAS No. 145, “ Rescission of FASB Statements No. 4, 44 and 46, Amendment of FASB Statement No. 13, and Technical Corrections” and SFAS No. 146, “ Accounting for Costs Associated with Exit or Disposal Activities.” Implementation did not have a material effect on our financial position or results of operations.

RISK FACTORS

You should carefully consider all the information we have included in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the fiscal year ended September 30, 2002. In particular, you should carefully consider the Risk Factors described below and the additional Risk Factors discussed in the Form 10-K. Also, please read “Cautionary Note as to Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We May Need Additional Capital

In order to implement our growth strategy and remain competitive, we must make investments in research and development to develop new and enhanced products and continuously upgrade our process technology and manufacturing capabilities. In order to do this, we may need to obtain additional capital. Although we believe that internal cash flows from operations will be sufficient

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to satisfy our working capital and normal operating requirements, we may not be able to fund our planned research and development, capital investment programs and possible acquisitions without additional capital.

Our ability to raise additional capital will depend on a variety of factors, some of which may not be within our control, including investor perceptions of us, our business and the industries in which we operate, and general economic and market conditions. We cannot assure you that we will be able to enter into a credit facility or obtain additional capital on acceptable terms, or at all. If we borrow money we may become subject to restrictive covenants. We may be unable to successfully raise needed capital and the amount of net proceeds that will be available to us may not be sufficient to meet our needs. If we raise money through the issuance of equity securities, your stock ownership will be diluted. An inability to successfully raise needed capital on a timely or cost-effective basis could have a material adverse effect on our business, results of operations and financial condition.

We Make a Large Percentage of our Sales to a Limited Number of Customers

We typically sell 25% to 50% of our annual net sales to a limited number of customers. If we were to lose any one of these customers, or if any major customer were to materially reduce its purchases of our products, our business and results of operations would be materially adversely affected. During the three month period ended March 31, 2003, approximately 38% of net sales were to two customers. During the three month period ended March 31, 2003 our largest customer, representing approximately 25% of sales for the period, notified us that it would no longer require the use of our therapeutic product after August 2003. During the three month period ended March 31, 2002, approximately 64% of net sales were to two customers. During the six month period ended March 31, 2003, approximately 39% of net sales were to two customers. During the six month period ended March 31, 2002, approximately 60% of net sales were to two customers.

An Interruption in the Supply of Diagnostics and Therapeutic Products That We Purchase From Third Parties and Related Parties Could Cause a Decline in Our Sales

We purchase diagnostics products that are used in the manufacture and testing of our plasma products from third parties and related parties, such as Instituto Grifols, S.A. and other companies. Any significant interruption in the supply of these diagnostic products could cause a decline in our plasma product sales, unless and until we are able to replace them.

We obtain a substantial portion of our therapeutic revenue and operating margin from sales of products incorporating the Human Albumin supplied to us by Instituto Grifols under this agreement. Although we have entered into an amended agreement with Instituto Grifols extending the term until March 31, 2006, there can be no guarantees that Instituto Grifols will be able to supply us with our needs or that the demand for Human Serum Albumin will continue throughout the contract period or that the amended agreement will not be terminated prior to March 31, 2006. The loss of our agreement with Instituto Grifols or a significant increase in our purchase price would have a material adverse effect on our sales and profitability.

We also depend on third parties and related parties, such as Instituto Grifols, S.A. to provide their products on a timely and cost-effective basis and to deliver high quality products and respond to emerging industry standards and other technological changes. The failure of these parties to meet these criteria could harm our business.

Having Limited Operating History as an Independent Company Makes it Difficult to Predict Our Profitability as a Stand-Alone Company

We have limited operating history as an independent company. Our business had relied on our former parent, Biomat USA, Inc. for various financial, managerial and administrative services and has been able to benefit from the earnings, financial resources, assets and cash flows of Biomat USA, Inc.’s other operations. As a result of the spin-off, Biomat USA, Inc. is now only obligated to provide us with the assistance and services set forth in the Master Separation and Distribution Agreement and related documents that we entered into with Biomat USA, Inc. in connection with the spin-off.

Our Stock Price is Expected to be Volatile

The market price of our common stock has been, and is expected to continue to be volatile. We believe that future announcements concerning us, our competitors, governmental regulations, litigation or unexpected losses, or the failure to meet or exceed analysts’ projections of financial performance, may cause the market price of our common stock to fluctuate substantially in the future. Sales of substantial amounts of our outstanding common stock in the public market could also materially adversely affect the market price of our common stock. These fluctuations, as well as general economic, political and market conditions, may materially adversely affect the market price of our common stock.

We May Not be able to Successfully Implement Our Growth Strategy

Our growth strategy may include acquisitions and expansion into new markets. However, our ability to successfully implement this strategy depends on a number of factors, including our access to capital, our ability to obtain applicable governmental

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approvals and our ability to integrate acquired businesses into our existing operations. Any problems with manufacturing or licensing of our Oceanside facility could severely curtail our sales to biologics companies. We cannot assure you that we will be successful in expanding our operations or entering new markets, including BioBank and our future cell culture media products..

Acquisitions Involve Inherent Risks That May Adversely Affect Our Operating Results and Financial Condition

Our growth strategy includes possible acquisitions, which involve various inherent risks, such as:

Our Business is Highly Competitive

Our products compete with those of other companies. Most of these companies have greater financial resources, research and product development capabilities and marketing organizations than we do. Competition for customers depends primarily on the ability to provide products 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 special antibody products are derived from donors with rare antibody 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 conditions and results of operation.

We are Subject to Significant Government Regulation

Our business is heavily regulated in the United States. In addition to the Food and Drug Administration, or FDA, which regulates, among other matters, the testing, manufacturing, storage, labeling, export, and marketing of blood products and in vitro diagnostic 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 requirements, we could be subjected to civil and criminal penalties, or even required to suspend or cease operations. 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.

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We do not believe that we have material exposure to interest rate, foreign currency exchange rate or other relevant market risks.

Interest Rate and Market Risk

     Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. As of March 31, 2003 our investment portfolio consisted primarily of cash and cash equivalents, substantially all of which are invested in US Government Treasury Bills. We do not use derivative financial instruments in our investment portfolio.

Foreign Currency Exchange Risk

We do not believe we currently have material exposure to foreign currency exchange risk because contracts and sales are currently all denominated in US dollars. We intend to assess the need to use financial instruments to hedge currency exposure if appropriate in the future.

Within the 90 days prior to the filing date of this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out this evaluation.

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PART II       OTHER INFORMATION

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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CERTIFICATION

I, Michael F. Crowley, Jr., certify that:

Date: May 13, 2003

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CERTIFICATION

I, Dennis M. Mulroy, certify that:

Date: May 13, 2003

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INDEX OF EXHIBITS

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