<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 JUNE 30, 1999
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 Identification No.)
incorporation or organization)
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 August 12, 1999, 8,983,973 shares of common stock of the registrant were
outstanding.
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
Part I FINANCIAL INFORMATION:
Item 1 Financial Statements
Consolidated Condensed Balance Sheets as of June 30, 1999 and
December 31, 1998 (Unaudited) 3
Consolidated Condensed Statements of Operations for the quarters and six
month periods ended June 30, 1999 and 1998 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows for the six months ended June
30, 1999 and 1998 (Unaudited) 5
Consolidated Statements of Comprehensive Income (Loss) for the
quarters and six month periods ended June 30, 1999 and 1998
(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 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk 16
Part II OTHER INFORMATION:
Item 2 Changes in Securities - Recent Sales of Unregistered Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION:
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 268,083 $ 140,445
Accounts receivable 687,899 927,200
Inventories 2,316,886 1,611,588
Prepaid expenses and other current assets 189,288 244,320
------------ ------------
Total current assets 3,462,156 2,923,553
Property, plant and equipment, net 15,121,864 17,350,004
Intangible and other assets, net 355,741 435,625
------------ ------------
Total $ 18,939,761 $ 20,709,182
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,686,099 1,761,903
Notes payable 2,492,954 1,769,285
Current portion of long-term debt 425,752 1,288,040
Due to related parties - 321,149
Accrued expenses and other current liabilities 972,132 848,394
------------ ------------
Total current liabilities 5,576,937 5,988,771
Long-term debt 9,683,138 9,487,445
------------ ------------
Total liabilities 15,260,075 15,476,216
------------ ------------
Stockholders' equity:
Preferred stock ($.001 par value; 5,000,000 shares authorized;
none issued)
Commonstock ($.001 par value; 20,000,000 shares authorized; 8,650,640
shares and 8,027,308 issued and outstanding at
June 30, 1999 and December 31, 1998, respectively) 8,651 8,027
Additional paid-in capital 24,176,661 22,317,324
Accumulated deficit (19,522,724) (16,234,332)
Foreign currency translation adjustments (982,902) (858,053)
------------ ------------
Total stockholders' equity 3,679,686 5,232,966
------------ ------------
Total $ 18,939,761 $ 20,709,182
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Second Quarter Six months
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,551,036 $ 1,450,661 $ 3,286,347 $ 2,886,828
Cost of goods sold 1,202,909 1,025,837 2,445,037 2,104,279
----------- ----------- ----------- -----------
Gross margin 348,127 424,824 841,310 782,549
----------- ----------- ----------- -----------
Operating expenses:
Research and development 566,094 747,995 1,200,169 1,491,521
Selling, general and administrative 824,362 1,002,894 1,863,095 2,202,352
----------- ----------- ----------- -----------
Total operating expenses 1,390,456 1,750,889 3,063,264 3,693,873
----------- ----------- ----------- -----------
Operating loss (1,042,329) (1,326,065) (2,221,954) (2,911,324)
Other income (expense), net (5,875) 80,698 (12,119) 68,082
Interest expense (180,654) (263,994) (368,120) (500,391)
Issuance of preferred stock warrants for loan
guarantee - (958,000) - (958,000)
Loss on foreign currency transactions (284,478) (14,696) (686,199) (295,728)
----------- ----------- ----------- -----------
Loss before income taxes (1,513,336) (2,482,057) (3,288,392) (4,597,361)
Income taxes (benefit): - - - -
----------- ----------- ----------- -----------
Net loss $(1,513,336) $(2,482,057) $(3,288,392) $(4,597,361)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic and diluted loss per share $ (0.18) $ (0.59) $ (0.39) $ (1.10)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares outstanding 8,598,662 4,185,000 8,390,567 4,185,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
--------------- ----------------
<S> <C> <C>
Net cash used in operating activites: $(2,375,349) $(2,565,319)
Cash flows from investing activities:
Purchase of property, plant and equipment (146,056) (1,220,117)
----------- -----------
Net cash used in investing activities (146,056) (1,220,117)
----------- -----------
Cash flows from financing activities:
Proceeds from short-term borrowings 891,850 3,154,646
Repayment of short and long-term debt (82,837)
Proceeds from long-term borrowings 175,875
Proceeds from issuance of common stock 1,859,961
----------- -----------
Net cash provided by financing activities 2,668,974 3,330,521
----------- -----------
Effect of exchange rates on cash (19,931) (51,905)
----------- -----------
Net increase (decrease) in cash and cash equivalents 127,638 (506,820)
Cash and cash equivalents, beginning of period 140,445 643,232
----------- -----------
Cash and cash equivalents, end of period $ 268,083 $ 136,412
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 475,475 $ 445,000
Income taxes $ -- $ --
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Second Quarter Six months
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $(1,513,336) $(2,482,057) $(3,288,392) $(4,597,361)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of
income taxes of $ 0 in both
1999 and 1998 (41,620) 10,043 (124,849) (96,688)
----------- ----------- ----------- -----------
Comprehensive loss $(1,554,956) $(2,472,014) $(3,413,241) $(4,694,049)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
6
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
Bigmar, Inc. is a Delaware Corporation that 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 June 30, 1999 and December 31, 1998, 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 June 30, 1999 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, 1998) and additional financial information, see Bigmar, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1998. 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 construction of the Company's
pharmaceutical manufacturing plant in Barbengo, Switzerland and the process
of obtaining regulatory approvals have consumed a substantial amount of the
Company's resources. The manufacturing plant recently received regulatory
approval from the United States Food and Drug Administration ("FDA") and the
Intercantonal Office for the Control of Medications ("IKS") in Switzerland to
manufacture and sell certain injectible pharmaceutical products in the U.S.
and Switzerland. As a result, the Company anticipates that these operations
will begin to generate cash to help fund its expansion and further planned
research and development activities. During 1999, the Company has received
approximately $2,860,000 in proceeds from the private placements of common
stock. In addition, the Company anticipates raising additional funds during
1999 through other private stock offerings and through additional bank
borrowings. However, there can be no assurance that the Company will be
successful in these efforts. 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 June 30, 1999 and December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Raw Materials $ 662,029 $ 710,517
7
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
Finished Goods 1,654,857 901,071
---------- ----------
Total $2,316,886 $1,611,588
---------- ----------
</TABLE>
(3) LONG-TERM DEBT
As of June 30, 1999, the Company had various notes, bonds, mortgages and
other borrowings totaling approximately $10.1 million, including $426,000
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. During April 1999, the Company renegotiated two of
its debt agreements, whereby, maturities of approximately $800,000 were
extended to year 2000, and beyond.
(4) COMMON STOCK ISSUED
In February 1999, the Company issued 236,666 shares of common stock to
accredited investors for prices ranging from $2.00 to $3.00 per share via
private placement offerings. Proceeds from the sale of shares totaled $700,000
and were applied to working capital and general corporate purposes.
In March 1999, the Company issued 250,000 shares of common stock to accredited
investors for $3.00 per share via private placement offerings. Proceeds from the
sale of shares totaled $750,000 and were applied to working capital and general
corporate purposes.
In April and May 1999, the Company issued 136,666 shares of common stock to
accredited investors for $3.00 per share via private placements, with the
proceeds of $410,000 applied to working capital and general corporate purposes.
In August 1999, the Company issued 333,333 shares of common stock to an
accredited related party investor for $3.00 per share via a private placement
offering. Proceeds from the sale of shares totaled $1,000,000 and were applied
to working capital and general corporate purposes.
(5) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1999, the Statement of Financial Accounting Standards No. 137 ("SFAS
No. 137"), "Accounting for Derivative Instruments and Hedging Activities -
Deferral of Effective Date of FASB Statement No. 133", was issued. This
Statement amended the effective date of the application of Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities" to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 revises the
accounting for derivative financial instruments. The Company has analyzed the
impact of this SFAS No. 133 and does not expect it to have a material impact
on the Company's financial position or results of operations.
8
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
(6) SEGMENT DATA
The Company manages its business segments primarily on a geographic basis
with each location representing a distinct segment. The Company's reportable
segments are comprised of Bioren, located in Couvet, Switzerland,
Pharmaceuticals, located in Barbengo, Switzerland, and the Company's
Corporate Headquarters, located in Johnstown, Ohio, U.S.A.
The Company evaluates the performance of its Bioren and Pharmaceuticals segments
based on segment profit / (loss). Segment profit / (loss) for these segments
includes sales and marketing, certain research and development, and overhead
charges directly attributable to the segment and excludes certain expenses which
are managed outside the reportable segments. Costs excluded from these segments'
profit primarily consist of corporate expenses, as well as other research and
development charges for testing of products targeted for U.S. markets, and other
general and administrative expenses which are separately managed. The Company
does not include intercompany transfers between segments for management
reporting purposes.
Summary information by segment for the six months ended June 30, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
BIOREN PHARMACEUTICALS CORPORATE TOTAL
------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales - International $ 3,074,738 211,609 - 3,286,347
Gross Margin 748,217 93,093 - 841,310
Operating expenses and other
expense (835,820) (1,000,295) (2,293,587) (4,129,702)
----------- ---------- ---------- ----------
Segment Loss (87,603) (907,202) (2,293,587) (3,288,392)
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
BIOREN PHARMACEUTICALS CORPORATE TOTAL
------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales - International $ 2,687,020 199,808 - 2,886,828
Gross Margin 623,897 158,652 - 782,549
Operating expenses and other
expense (972,882) (1,472,632) (2,934,396) (5,379,910)
----------- ---------- ---------- ----------
Segment Loss (348,985) (1,313,980) (2,934,396) (4,597,361)
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
BIOREN PHARMACEUTICALS CORPORATE TOTAL
------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales - International $ 1,501,018 50,018 - 1,551,036
Gross Margin 371,691 (23,563) - 348,128
Operating expenses and other
expense (432,970) (481,768) (946,726) (1,861,464)
----------- ---------- ---------- ----------
Segment Loss (61,279) (505,331) (946,726) 1,513,336
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
BIOREN PHARMACEUTICALS CORPORATE TOTAL
------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales - International $ 1,355,547 95,114 - 1,450,661
Gross Margin 290,213 134,611 - 424,824
Operating expenses and other
expense (440,575) (534,579) (1,931,728) (2,906,882)
----------- ---------- ---------- ----------
Segment Loss (150,362) (399,968) (1,931,728) (2,482,058)
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Bigmar, Inc. and subsidiaries, (the "Company"), is engaged in manufacturing
various pharmaceutical products in Europe and marketing them in Europe and the
United States. Its strategy is to supply world markets with a full line of high
quality, affordably priced, generic pharmaceutical products, focusing on
oncology products. The Company manufactures, in its state of the art facilities
in Switzerland, off-patent generic oncology drugs and additional oncology drugs
as their patents expire. It then markets these products through pharmaceutical
company partners in Europe and the United States. Bigmar currently has
distribution rights to more than 20 generic oncology products.
BIGMAR, INC. AND SUBSIDIARIES
Bigmar, Inc. was incorporated in Delaware in September 1995 and has three wholly
owned subsidiaries: Bigmar Pharmaceuticals SA - "Pharmaceuticals", Bioren SA -
"Bioren" and Bigmar Therapeutics, Inc.- "Therapeutics". Pharmaceuticals and
Bioren are both Swiss corporations and Therapeutics is a Delaware corporation.
The Company manages its business segments primarily on a geographic basis with
each location representing a distinct segment.
THE COMPANY
The Company's corporate headquarters ("Corporate headquarters"), located in
Johnstown, Ohio, includes a research and development laboratory used for the
testing of generic oncology and related products ("Oncology Products") to be
marketed in the United States.
The Company signed a distribution and marketing agreement with American
Pharmaceutical Partners ("APP") naming APP as the exclusive distributor of
certain Bigmar generic oncology products in North America and other selected
territories. The agreement initially includes three of Bigmar's market-ready
generic oncology products along with several new products to be identified in
the future. On August 5, 1999, the Company received its initial order, valued at
$1.0 million, under this agreement.
10
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
So far this year, the Company has received a total of seven Abbreviated New Drug
Application ("ANDA") approvals from the Food and Drug Administration for the
following products:
- Methotrexate for Injection USP, 1g/vial (lyophilized)
- Methotrexate for Injection USP, 25mg/mL (Preserved)
- Methotrexate for Injection USP, 25mg/mL (Preservative-free)
- Leucovorin Calcium for Injection USP, 200 mg/vial (lyophilized)
- Leucovorin Calcium for Injection USP, 500 mg/vial (lyophilized)
- Fluorouracil Injection, USP 50 mg/mL
- Daunorubicin Hydrochloride for Injection USP, 20 mg/vial
The Company recently signed a licensing and supply agreement with Graminex to
develop a new prostatitis therapy, BGM-24 and plans to file an Investigational
New Drug Application with the FDA for this therapy. Cynthia R. May is currently
President of Graminex, LLC, a manufacturer and supplier of botanical raw
materials containing proprietary active pharmaceutical substances. Jericho LLC,
an investment entity controlled by Ms. May, is a principal shareholder of
Bigmar, Inc.
BIOREN
Bioren is engaged in manufacturing and marketing various pharmaceutical products
in Switzerland. Current products include 18 types of intravenous infusion
solutions and other related products ("IV solutions"). Bioren's strategy is to
expand its current IV solutions product line and its market penetration.
Bioren's manufacturing facility (the "Bioren Facility") is located in Couvet,
Switzerland.
PHARMACEUTICALS
Pharmaceuticals manufactures and markets Oncology Products, such as Leucovorin
Calcium, Methotrexate, Fluorouracil, and Cisplatin. The Oncology Products are
currently marketed in Germany, Spain, Brazil, and Argentina. Pharmaceuticals'
primary strategy is to supply world markets with a full range of high-quality,
affordably priced generic pharmaceutical products focusing on oncology. The
products are manufactured in its state-of-the-art facilities in Switzerland and
marketed through pharmaceutical company partners in Europe and shortly in the
United States. Pharmaceuticals has received regulatory approval to manufacture
and market certain Oncology Products from the United States Food and Drug
Administration ("FDA") and Switzerland's Intercantonal Office for the Control of
Medications ("IKS"). Pharmaceuticals' manufacturing facility (the "Bigmar
Facility") is located in Barbengo, Switzerland.
THERAPEUTICS
Therapeutics is essentially a shell company and has had no significant business
operations as of June 30, 1999.
Certain statements in this report 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,
11
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
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. Such factors and
risks include, but are not limited to, delays in product development,
problems with clinical testing, failure to receive regulatory approvals, lack
of proprietary rights, or changes in business strategy. Many of the factors
that will determine results and values are beyond the Company's ability to
control or predict. Shareholders are cautioned not to put undue reliance on
forward-looking statements. In addition, the Company does not have any
intention or obligation to update forward-looking statements after the date
hereof, even if new information, future events, or other circumstances have
made them incorrect or misleading. For those statements, the Company claims
the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995.
RESULTS OF OPERATIONS
During the second quarter of 1999 net sales amounted to $1.6 million,
representing an increase of $100,000 or 7% when compared with sales of $1.5
million during the second quarter of 1998. For the six months, net sales
amounted to $3.3 million, a 14% increase from the same period of 1998. The
increase in net sales for the second quarter and six months in 1999 can be
primarily attributed to increased sales of approximately $230,000 to existing
customers and sales to new customers of approximately $160,000 at Bioren. Sales
at Bioren increased from $2.7 million for the first half of 1998 to $3.1 million
for the first half of 1999. Sales at Pharmaceuticals increased slightly for
first half of 1999 over the same period in 1998.
Sales are expected to increase during the second half of 1999 due to the
expected manufacture and distribution of FDA recently approved ANDAs. The
Company expects sales of its approved off-patent oncological products to
commence in the second half of 1999; however, there can be no assurance that
such sales will occur.
Cost of goods sold was $2,445,000 and $2,104,000, respectively, for the
periods ended June 30, 1999 and 1998, an increase of $341,000 or 16% and
$1,202,900 and $1,025,800, respectively, for the second quarter of 1999 and
1998, an increase of $177,100 or 17%. The increase was primarily attributed
to additional cost of raw material related to sales at Bioren.
Gross margin increased by 7.5% to $841,000 through the first half of 1999 as
compared to the same period in 1998. Gross Margin decreased by 18% from the
competitive pricing pressure in the Swiss market and increased raw material
costs, but increased overall due to higher sales volume.
Operating expenses decreased by $360,000 or 21% for the second quarter of
1999 and decreased by $630,000 or 17% for the first six months of 1999 as
12
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
compared to the same periods in 1998. The decrease in operating expenses can
be attributed to efforts to minimize costs in the current year and the higher
level of R & D costs incurred through the first half of 1998.
Research and development costs decreased due the FDA's inspection in 1999 and
the subsequent approval of the Pharmaceuticals oncology manufacturing
facility. In 1998 R & D cost were approximately $291,000 higher due to
efforts to get the facility and its manufacturing processes ready for
inspection.
Selling, general and administrative expenses decreased by $339,000 for the
first six months of 1999, due to a reduction in personnel as compared to the
same period in 1998.
For the six-month period of 1999 as compared to the same period of 1998,
interest expense decreased by $132,000, due to a reduction of average
outstanding debt and a decrease of interest rates.
Foreign exchange losses amounted to $686,000 for the first half of 1999 as
compared to $296,000 for the same period of 1998. Appreciation of the U.S.
Dollar against the Swiss Franc has had a negative impact on certain
intercompany accounts receivable denominated in Swiss Francs.
As a result of the foregoing, the Company's net loss for the second quarter
1999 amounted to approximately $1.5 million or $0.18 per share, compared to
$2.5 million or $0.59 per share for the second quarter 1998. For the six
months ended June 30, 1999, net loss amounted to $3.3 million or $0.39 per
share versus $4.6 million or $1.10 per share during the first six months of
1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999 and December 31, 1998, the Company had cash and cash
equivalents of $268,083 and $140,445, respectively. The Company's working
capital deficit amounted to $2.1 million and $3.1 million at June 30, 1999 and
December 31, 1998, respectively. The improvement in working capital is primarily
due to the renegotiation of two debt agreements to extend payment terms.
The Company has incurred and will continue to incur substantial expenditures
for research and development activities related to bringing its products to
the commercial market. The Company intends to devote significant additional
funds to product development, formulation, clinical testing, 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. Furthermore, the Company will need additional capital
to fund planned increases in production at Pharmaceuticals.
13
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
Inventory totaled approximately $2.3 million at June 30, 1999 and $1.6
million at December 31, 1998. The increase is primarily due to increased
production in anticipation of future orders.
Property, plant and equipment totaled approximately $15.1 million at June 30,
1999 and $17.3 million at December 31, 1998. The decrease is primarily due to
depreciation and foreign currency fluctuations.
As of June 30, 1999, the Company had various notes, bonds, mortgages and
other borrowings totaling approximately $10.1 million, including $426,000
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. During April 1999, the Company renegotiated two of
its debt agreements, whereby, maturities of approximately $800,000 were
extended to year 2000, and beyond.
During the first six months of 1999, pursuant to private placement
transactions with accredited investors, the Company raised $1,860,000 that
was applied to working capital and general corporate purposes.
In August of 1999, the Company raised another $1,000,000 through a private
placement transaction with an accredited related party investor, which was
applied to working capital and general corporate purposes.
The Company anticipates that additional capital funding together with cash
from operations will be required to sustain operations through June 2000.
However, there can be no assurance that events affecting the Company's
operations will not result in the Company depleting its funds before that
time. Management is currently discussing additional financing with a number
of financial institutions and investors, but there are no assurances that the
Company will be able to obtain additional financing or that such financing,
if available, will be open on acceptable terms.
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.
14
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
YEAR 2000 ISSUE
Many computer systems currently record years in a two-digit format. Such
systems, if not modified, will be unable to recognize and properly process
information with dates beyond the year 1999. The potential problems arising out
of this inability are commonly referred to as the "Year 2000 Issue" or "Y2K" and
will affect virtually all companies, government agencies and other organizations
to some degree.
INTERNAL SYSTEMS
The efficient operation of the Company's business is dependent in part on its
computer software programs and operating systems (collectively, "Programs and
Systems"). These Programs and Systems are used in several areas of the Company's
business, including research and development, purchasing, inventory management,
sales, shipping, and financial reporting, as well as in various administrative
functions. The Company has performed an assessment of its computer systems to
determine whether or not they were in compliance with Year 2000 requirements. As
of June 30, 1999, Bioren and Pharmaceuticals Programs and Systems, including
manufacturing and operations, were found to be in compliance with such
requirements. The Company's Headquarters Programs and Systems include an
accounting package and a document management system. Although these Programs and
Systems do not yet comply with Year 2000 requirements, an assessment has been
made and it has been determined that, based on present information, the Company
believes that these Programs and Systems will be upgraded by December 31, 1999,
and the costs to bring them into compliance will be less than $10,000. However,
there can be no assurance that the required expenditures will not exceed that
amount.
READINESS OF THIRD PARTIES
The Company is also working with its processing banks, network providers and
vendors to ensure their systems are Year 2000 compliant. All of these costs will
be borne by the processors, network and software companies and vendors.
Currently, the Company's processing banks and vendors are in the process of
completing their Year 2000 compliance programs. However, there can be no
assurance that the systems of other companies on which the Company relies will
be timely converted or that any such failure to convert by another company would
not have an adverse effect on the Company's Programs and Systems.
RISKS ASSOCIATED WITH YEAR 2000
The Company is not aware, at this time, of any Year 2000 non-compliance that
will not be fixed by the Year 2000. However, some risks that the Company faces
include: the failure of internal information systems, defects in its work
environment, a slow down in its customers' ability to make payments, and the
availability of raw materials for manufacturing.
15
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONTINGENCY PLANS
The Company is in the process of developing contingency plans to address a worst
case Year 2000 scenario. This contingency plan is expected to be completed by
September 1999. Furthermore, no assurance can be given that any or all of the
Company's systems are or will be Year 2000 compliant, or that the ultimate costs
required to address the Year 2000 issue or the impact of any failure to achieve
substantial Year 2000 compliance will not have a material adverse effect on the
Company's financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, operations of the Company are exposed to
fluctuations in currency values. These fluctuations can vary the costs of
financing, investing, and operating activities. The Company does not have any
programs in place to control these risks.
The Company's foreign currency risk exposure results from fluctuating currency
exchange rates, primarily the fluctuation of the U.S. dollar against the Swiss
franc ("SFr"). The Company faces transactional currency exposures that arise
when its foreign subsidiaries (or the Company itself) enter into transactions,
generally on an intercompany basis, denominated in currencies other than their
local currency. The Company also faces currency exposure that arises from
translating the results of its Swiss operations to the U.S. dollar at exchange
rates that have fluctuated from the beginning of the period. The Company does
not have any programs in place to control these risks. However, historically the
exchange rate between the U.S. dollar and the Swiss franc has not fluctuated
significantly.
The Company's exposure to market risk did not materially change from March
31, 1999.
16
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION:
ITEM 2(c). CHANGES IN SECURITIES - RECENT SALES OF UNREGISTERED SECURITIES
In April and May 1999, in private placement transactions pursuant to Section
4(2) and Rule 506, the Company issued 136,666 shares of common stock to
accredited investors for $3.00 per share.
In August 1999, in a private placement transaction pursuant to Section 4(2) and
Rule 506, the Company issued 333,333 shares of common stock to an accredited
investor for $3.00 per share.
All of the share transactions summarized above were made directly by the Company
without use of an underwriter or placement agent and without payment of
commissions or other remuneration. Except as otherwise stated, in each case the
aggregate sales proceeds, after payment of offering expenses in immaterial
amounts, were applied to the working capital of the Company and other general
corporate purposes.
With respect to the exemption from registration claimed under Rule 506 and
Section 4(2) of the Securities Act of 11933, neither the Company nor any person
acting on its behalf offered or sold the securities by means of any form of
general solicitation or advertising. Prior to making any offer or sale, the
Company had reasonable grounds to believe and believed that each prospective
investor was capable of evaluating the merits and risks of the investment and
was able to bear the economic risk of the investment. Each purchaser represented
in writing that such purchaser was an accredited investor and that the
securities were being acquired for investment for such purchaser's own account,
and agreed that the securities would not be sold without registration under the
Securities Act or exemption therefrom. A legend was placed on each certificate
evidencing the securities stating that the securities have not been registered
under the Securities Act and setting forth restrictions on their
transferability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 1, 1999. In
connection with the meeting, proxies were solicited. The results of the voting
were as follows:
Proposal 1: Election of the Board of Directors of the Company for terms
expiring in 2000.
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
---------- --------- --------------
<S> <C> <C>
John G. Tramontana 7,464,501 5,735
Cynthia May 7,464,501 5,735
Massimo Pedrani 7,464,401 5,835
Bernard Kramer 7,464,501 5,735
Philippe Rohrer 7,464,501 5,735
</TABLE>
17
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
Proposal 2: Ratification of Appointment of KPMG as the Company's Independent
Accountants.
<TABLE>
<S> <C>
Votes For: 7,465,536
Votes Against: 3,800
Votes Abstaining: 900
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 27.1 Financial Data Schedule
(b) Form 8-K - There were no reports on Form 8-K for the three months ended June
30, 1999.
18
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
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.
August 12, 1999
BIGMAR, INC.
-----------------------
REGISTRANT
By: /s/ Philippe Rohrer
-----------------------
Philippe Rohrer
CHIEF FINANCIAL OFFICER; SECRETARY AND
TREASURER
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 268,083
<SECURITIES> 0
<RECEIVABLES> 687,899
<ALLOWANCES> 0
<INVENTORY> 2,316,886
<CURRENT-ASSETS> 3,462,156
<PP&E> 25,897,293
<DEPRECIATION> 10,775,429
<TOTAL-ASSETS> 18,939,761
<CURRENT-LIABILITIES> 15,260,075
<BONDS> 0
0
0
<COMMON> 8,651
<OTHER-SE> 3,671,035
<TOTAL-LIABILITY-AND-EQUITY> 18,939,761
<SALES> 3,286,347
<TOTAL-REVENUES> 3,286,347
<CGS> 2,445,037
<TOTAL-COSTS> 2,445,037
<OTHER-EXPENSES> 3,761,582
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 368,120
<INCOME-PRETAX> (3,288,392)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,288,392)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,288,392)
<EPS-BASIC> (.39)
<EPS-DILUTED> (.39)
</TABLE>
