<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-14416
BIGMAR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1445779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9711 SPORTSMAN CLUB ROAD 43031
JOHNSTOWN, OHIO (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (740) 966-5800
Indicate by checkmark 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 / /
As of May 15, 1998, 4,185,000 shares of common stock of the registrant were
outstanding.
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<C> <S> <C>
Part I FINANCIAL INFORMATION:
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31,
1998 and December 31, 1997 (Unaudited) 3
Consolidated Condensed Statements of Operations
for the quarters ended March 31, 1998 and 1997
(Unaudited) 4
Consolidated Condensed Statements of Cash Flows
for the quarters ended March 31, 1998 and 1997
(Unaudited) 5
Consolidated Statements of Comprehensive Income
(Loss) for the quarters ended March 31, 1998 and
1997 (Unaudited) 6
Notes to the Consolidated Condensed Financial
Statements (Unaudited) 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II OTHER INFORMATION:
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 232,035 $ 643,232
Accounts receivable, net of allowance of $0 at
March 31, 1998 and December 31, 1997 666,787 847,899
Inventories 1,067,080 890,249
Prepaid expenses and other current assets 333,896 432,234
------------ -----------
Total current assets 2,299,798 2,813,614
Property, plant and equipment, net 17,110,397 17,164,158
Intangible and other assets, net 506,269 539,318
------------ -----------
Total $ 19,916,464 $20,517,090
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,928,073 1,766,992
Notes payable 3,942,767 2,318,644
Current portion of long-term debt 557,926 581,674
Accrued expenses and other current liabilities 559,630 630,713
------------ -----------
Total current liabilities 6,988,396 5,298,023
Long-term debt 10,021,503 10,090,467
------------ -----------
Total liabilities 17,009,899 15,388,490
------------ -----------
Stockholders' equity:
Preferred stock ($.001 par value; 5,000,000 shares authorized;
none issued)
Common stock ($.001 par value; 15,000,000 shares authorized;
4,185,000 shares issued and outstanding at March 31, 1998
and December 31, 1997) 4,185 4,185
Additional paid-in capital 15,063,166 15,063,166
Retained earnings (deficit) (11,127,933) (9,012,630)
Accumulated other comprehensive income:
Foreign currency translation adjustments (1,032,853) (926,121)
------------ -----------
Total stockholders' equity 2,906,565 5,128,600
------------ -----------
Total $ 19,916,464 $20,517,090
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 1,436,167 $ 1,730,099
Cost of goods sold 1,078,442 1,373,292
----------- -----------
Gross margin 357,725 356,807
----------- -----------
Operating expenses:
Research and development 743,525 263,174
Selling, general and administrative 1,199,458 887,272
----------- -----------
Total operating expenses 1,942,983 1,150,446
----------- -----------
Operating income (loss) (1,585,258) (793,639)
Other income (expense) (12,616) 140,171
Interest income (expense) (236,396) (91,352)
Gain (loss) on foreign currency transaction (281,033) -
----------- -----------
Income (loss) before income taxes (2,115,303) (744,820)
Income taxes (benefit): - -
----------- -----------
Net income (loss) $(2,115,303) $ (744,820)
----------- -----------
----------- -----------
Basic earnings (loss) per share $ (0.51) $ (0.19)
----------- -----------
----------- -----------
Weighted average shares outstanding 4,185,000 3,985,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------
Cash flows from operating activities: 1998 1997
----------- -----------
<S> <C> <C>
Net loss $(2,115,303) $ (744,820)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 365,729 142,162
Unrealized foreign exchange losses 280,438 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 149,425 (322,602)
(Increase) decrease in inventories (216,748) (213,552)
(Increase) decrease in prepaid expenses and other
current assets 81,534 100,100
Increase (decrease) in accounts payable 232,132 (552,212)
Increase (decrease) in accrued expenses and other
current liabilities (51,575) 3,623
----------- -----------
Net cash provide by (used in) operating activities (1,274,368) (1,587,301)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,005,975) (1,264,882)
----------- -----------
Net cash (used in) investing activities (1,005,975) (1,264,882)
----------- -----------
Cash flows from financing activities:
Short-term borrowings 1,680,000 (311,116)
Long-term borrowings 182,702 530,936
----------- -----------
Net cash provided by financing activities 1,862,702 219,820
----------- -----------
Effect of exchange rates on cash 6,444 75,163
----------- -----------
Net increase (decrease) in cash and cash equivalents (411,197) (2,557,200)
Cash and cash equivalents, beginning of period 643,232 4,362,938
----------- -----------
Cash and cash equivalents, end of period $ 232,035 $ 1,805,738
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 304,508 $ 13,284
Income taxes $ - $ 8,673
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
Net income (loss) $ (2,115,303) $ (744,820)
Other comprehensive income, net of tax:
Foreign currency translation adjustments, net of
income taxes of $ 0 in both
1998 and 1997, respectively (106,732) (299,536)
------------ -----------
Comprehensive income (loss) $ (2,222,035) $(1,044,356)
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Bigmar, Inc. is a Delaware Corporation which owns 100% of the capital stock
of two Swiss Corporations, Bioren, SA and Bigmar Pharmaceuticals, SA, and 100%
of the capital stock of a Delaware corporation, Bigmar Therapeutics, Inc.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments necessary to present fairly the Company's financial
position at March 31, 1998 and 1997, and the results of operations and the
cash flows and the comprehensive income for all periods presented. Certain
amounts in the accompanying financial statements have been restated to
conform to the March 31, 1998 presentation. The results of the interim
periods are not necessarily indicative of the results to be obtained for the
entire year.
For a summary of significant accounting policies (which have not changed from
December 31, 1997) and additional financial information, see Bigmar Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1997. The 10-K
should be read in conjunction with these financial statements.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company recently
constructed a pharmaceutical manufacturing plant in Barbengo,
Switzerland. The Company has obtained a general approval to manufacture
pharmaceutical products from the Intercantonal Office for the Control of
Medications ("IKS") in Switzerland and is now in the process of
validating the plant's equipment and processes for approval by the
United States Food and Drug Administration ("FDA"). This process is
expected to continue into at least the third quarter of 1998. These
activities have consumed a substantial amount of the Company's
resources, including the proceeds of its initial public offering as well
as the proceeds from convertible notes issued in August 1997.
Management anticipates that its current cash resources will be depleted
by June 1998 and that its operations will not begin to generate
sufficient cash to fund its expansion and planned research and
development activities by such time. As a result, the Company
anticipates that it will require additional financing in order to
complete the validation process and to fund its operations prior to the
plant becoming fully operational. The Company recently signed a letter
of intent with Jericho II, LLC ("Jericho") regarding the terms on which
Jericho will guarantee a line of credit from a commercial institution to
Bigmar in an amount up to $6 million. The Company anticipates that the
line of credit, when obtained, together with cash flow from operations,
will be sufficient to fund its operations through the second quarter of
1999. Finalization of the transactions is subject to negotiation and
approval of definitive documentation. In addition, there are no
assurances that the Company will be able to manufacture its proposed
products or that the Company's
7
<PAGE>
targeted customers will accept such products. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
No adjustments have been made to reflect the recoverability or classification
of recorded asset amounts or the classification of liabilities should the
Company be unable to continue as a going concern.
(2) INVENTORIES
The components of inventory at March 31, 1998 and December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Raw Materials $577,934 $572,276
Finished Goods 489,146 317,973
---------- --------
Total $1,067,080 $890,249
---------- --------
</TABLE>
(3) RECENTLY ISSUED ACCOUNTING PROUNCEMENTS
The Company has adopted Financial Accounting Standards Board Statement No.
130, "Reporting Comprehensive Income". FASB Concepts Statement No. 6 defines
comprehensive income as "the change in equity of a business enterprise during
a period from transactions and other events and circumstances from non-owner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners."
Comprehensive income is comprised of net income plus other comprehensive
income. Other comprehensive income includes items previously recorded
directly in equity under FASB Statement No. 52, "Foreign Currency
Translation", FASB Statement No. 80, "Accounting for Future Contracts", FASB
Statement No. 87, "Employers' Accounting for Pensions", and FASB Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
The Consolidated Balance Sheet has been restated to conform to the
requirements of this Statement by replacing "Cumulative translation
adjustment" with "Accumulated other comprehensive income" in the equity
section. In addition, "Consolidated Statements of Comprehensive Income
(Loss)" have been added to this quarterly report for the quarters ended March
31, 1998 and 1997.
The Company has adopted Financial Accounting Standards Board Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information",
issued in June 1997. Since this is the initial year of application, the
Company has elected not to provide the interim period disclosures, as
permitted by the Statement.
In February, 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures About Pensions and Other Postretirement
Benefits". This Statement, which is effective for fiscal years beginning
after December 15, 1997, amends the disclosure requirements of Statements 87,
88, and 106. Adoption of this standard is not expected to have a material
impact on the Company's financial statements or results of operations.
8
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Bigmar, Inc. and subsidiaries, (the "Company") is engaged in manufacturing
and marketing various pharmaceutical products in Europe. Its strategy is to
supply world markets with a full line of high quality, affordably priced,
generic pharmaceutical products, focusing on oncological products. The
Company intends to manufacture, in its state of the art facilities in
Switzerland, off-patent generic oncological drugs and additional oncological
drugs as their patents expire. It will then market these products through
pharmaceutical company partners in Europe and the United States. Bigmar
currently has distribution rights to more than 20 generic oncological
products.
Bigmar was incorporated in Delaware in September 1995 and has three wholly
owned subsidiaries: Bigmar Pharmaceuticals, SA, Bioren, SA and Bigmar
Therapeutics, Inc. Bigmar Pharmaceuticals and Bioren are both Swiss
corporations and Bigmar Therapeutics is a Delaware corporation.
Certain statements under this caption constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
including, without limitation, statements regarding future cash requirements.
Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied in such forward-looking statements. Examples of these
risks include: delays in product development, problems with clinical testing,
failure to receive regulatory approvals, lack of proprietary rights, or
changes in business strategy.
RESULTS OF OPERATIONS
First quarter 1998 net sales amounted to approximately $1.4 million,
representing a decrease of $300,000 or 17% over first quarter 1997
sales. Sales of IV Solutions increased $157,000 over the prior year,
but were offset by unfavorable foreign currency impacts of approximately
$44,000. However, 1998 sales of raw materials decreased by
approximately $400,000 versus 1997, due to the discontinuation of this
product line.
Cost of goods sold decreased by $295,000 from the three months ended March 31,
1997 to the same period in 1998. Foreign currency impacts accounted for
approximately $36,000 of the decline, but the major portion is related to the
decline in sales of raw materials, mentioned above.
9
<PAGE>
Gross margin amounted to $358,000 for the first quarter of 1998, basically
flat with the prior year. Gross margin percent amounted to approximately 25%
for the first quarter of 1998, compared to approximately 21% for the prior
year. The improvement is related to the discontinuation of the raw materials
sales mentioned above, which had low margins.
Operating expenses increased from first quarter 1997 to first quarter 1998,
by $.8 million. Research and development expenses increased by $.5 million
due to increased personnel costs and increased activities surrounding the
Company's efforts to prepare for the March 1998 inspection of its Swiss
manufacturing facility by the FDA and to develop new drug product
formulations. Selling, general and administrative expenses increased by $.3
million, primarily due to an increase in the number of personnel from first
quarter 1997 to first quarter 1998.
Other income/(expense) for the three months ended March 31, 1998 amounted to
expense of $13,000, compared to income of $140,000 for the same three months
in the previous year. The decrease from 1997 to 1998 is due to sales of
machinery and equipment in the first quarter of 1997.
Interest expense increased $172,044 from 1997 to 1998, due to interest on
convertible notes and a line of credit and partly due to the fact that a
portion of interest expense was capitalized in 1997, but not in 1998.
Foreign exchange losses amounted to $281,033 in the first quarter of this
year compared to zero in the prior year. The expense represents losses due
to exchange rate fluctuations on certain intercompany accounts receivable
denominated in Swiss francs. The full year 1997 exchange rate fluctuations on
these accounts receivable were accounted for by the Company in the fourth
quarter, as the impact on the results of operations for the individual
quarters of 1997 was not material.
As a result of all of the foregoing, the Company's net loss for the first
quarter 1998 amounted to $2.1 million, versus $.7 million during the first
quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998 and December 31, 1997, the Company had cash and cash
equivalents of $232,035 and $643,232, respectively. The Company's working
capital amounted to ($4.7) million and ($2.5) million at March 31, 1998 and
December 31, 1997, respectively. The Company has incurred and will continue
to incur substantial expenditures for research and development activities
related to bringing its products to commercial market. The Company intends
to devote significant additional funds to product development, formulation,
clinical testing, manufacturing validation, product registration, and other
activities required for regulatory review of generic oncological products.
The amount required to complete such activities depends upon the outcome of
regulatory reviews. The regulatory bodies may require more testing than is
currently planned by the Company. There can be no assurance that the FDA or
any foreign government agency will approve the Company's generic oncological
products for sale or that these products will achieve market success.
Property, plant and equipment totaled $17.1 million and $17.2 million at
March 31, 1998 and at December 31, 1997, respectively. Additions of
approximately $1 million were
10
<PAGE>
offset by depreciation expense ($.3 million) and foreign currency translation
effects ($.7 million).
As of March 31, 1998, the Company had various notes, bonds, mortgages and
other borrowings totaling approximately $14.5 million including $4.5 million
that is short term in nature. These monies were used to partially fund the
acquisition of Bioren, to acquire, construct, and equip the manufacturing
facility and to fund ongoing research and development and product
registration activities.
The Company does not anticipate the Bigmar manufacturing facility in
Barbengo, Switzerland to generate product sales in sufficient volume to
generate positive cash flow for the first half of 1998. As a result, the
Company will be required to supplement its cash position from time to time
through additional financing (debt or equity) or by entering into
development, marketing, or other collaborative arrangements.
On May 1, 1998, the Company announced that it has recently signed a letter of
intent with Jericho II LLC ("Jericho"), regarding the terms on which Jericho
will guarantee a line of credit from a commercial institution to Bigmar in an
amount of up to $6 million. This represents an increase of approximately
$2.5 million above the existing credit line of $3.5 million. Jericho is a
private investment company, partially owned by the Company's Principal
Shareholder and CEO, John Tramontana. The line of credit, when obtained,
will be used for ongoing research and development and general working capital
purposes. The Company anticipates that the line of credit, together with
cash flow from operations, will be sufficient to fund its operations through
the second quarter of 1999. Finalization of the transactions is subject to
negotiation and approval of definitive documentation.
The Swiss Federal Code of Obligation provides that at least 5% of a Swiss
company's net income each year must be appropriated to a legal reserve until
such time as this reserve is equal to 20% of the company's paid-in share
capital. In addition, 10% of any distribution made by a company in excess of
a 5% dividend must also be appropriated to the legal reserve. The reserve of
up to 5% of share capital is not available for distribution to stockholders.
Changes in exchange rates between currencies may negatively impact the
Company's results of operations, specifically, net sales and gross profit
margins from international operations. In addition, the dollar-value
equivalent of anticipated cash flows could also be adversely affected. When
the Company determines that this risk has become significant, the Company may
attempt to manage that risk by using hedging techniques.
11
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27.1 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the first
quarter, 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 15, 1998
BIGMAR, INC.
------------
REGISTRANT
By: /s/ William R. Ash, III
-------------------------------
William R. Ash, III
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 232,035
<SECURITIES> 0
<RECEIVABLES> 666,787
<ALLOWANCES> 0
<INVENTORY> 1,067,080
<CURRENT-ASSETS> 2,299,798
<PP&E> 18,713,953
<DEPRECIATION> 1,603,556
<TOTAL-ASSETS> 19,916,464
<CURRENT-LIABILITIES> 6,988,396
<BONDS> 10,021,503
0
0
<COMMON> 4,185
<OTHER-SE> 2,902,580
<TOTAL-LIABILITY-AND-EQUITY> 19,916,464
<SALES> 1,436,167
<TOTAL-REVENUES> 1,436,167
<CGS> 1,078,442
<TOTAL-COSTS> 1,078,442
<OTHER-EXPENSES> 743,525
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236,396
<INCOME-PRETAX> (2,115,303)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,115,303)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,115,303)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
