FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K SB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1996.
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 Number 0-9860
BIOSEARCH MEDICAL PRODUCTS, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2090421
- -------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
35 Industrial Parkway, Somerville, New Jersey 08876-1276
- --------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code + 4)
Registrant's telephone number, including area code: (908) 722-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
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.
[X] Yes [ ] No
Indicate by check mark if the disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this form 10-K. [ ]
The aggregate market value on March 28, 1997 of voting stock held by
non-affiliate of the Registrant is estimated to be $500,000.
The number of shares outstanding of the registrants common stock, no par
value, at March 28, 1997 was 2,202,878.
List hereunder the documents, all or portions of which are incorporated by
reference herein, and the Part of the Form 10-K into which the document is
incorporated: Proxy Statement to be filed with respect to the 1997 Annual
Meeting of the Shareholders, Form 8-K and Form 8 filed prior to this 10-K --
Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Biosearch Medical Products Inc. (the "Company") was incorporated in the
State of New Jersey on September 17, 1975. The Company's early business emphasis
was on contract research and development of medical devices and systems for
larger medical product companies. During 1982, the Company successfully made its
initial public offering. The Company had designed and successfully marketed
under its own Dobbhoff(R) trademark, a small bore feeding catheter which quickly
became the enteral industry's feeding device standard.
Later, in 1983, other developments led the Company into the Enteral Food
Business with its introduction of Entri-Pak(R), the first ready-to-use
disposable feeding bag, which was pre-filled with Entrition(R), a specially
developed nutritional formula available in many caloric and fiber content
formulations. Entri-Pak was manufactured by the Company's former subsidiary,
Pouch Laboratories, Inc.
The dominance of the enteral food market by larger medical product
companies and reimbursement changes in the Federal Government Medicare System
prompted the Company's decision to reassess its business objectives. The Enteral
Food Business was then sold in June, 1991 to Clintec Nutrition Company
("Clintec") of Deerfield, Illinois (an affiliate of Baxter Healthcare
Corporation and Nestle, SA). This transaction provided the Company with needed
funds to continue pursuing its strength, which is the development of new
products for the medical device market. The Company has since expanded its
innovative medical device focus and continues to develop, manufacture and market
products designed for medical and surgical applications.
Throughout the Company's history innovative products have been developed
and marketed directly to hospitals, alternative healthcare centers and through
distributors, both domestic and international. Although, in the opinion of the
Company, its products remained superior, offering many advantages over
competitor products, the Company could not foster the strength nor demand the
recognition which the Company felt its products deserved. To this end, the
Company found themselves competing against organizations which had immense sales
and distribution networks and greater financial strength as well. Other factors
involving the FDA regulatory climate for medical devices continues to lengthen
the time necessary to have medical device approvals granted. The products are
classified by the U.S. Food and Drug Administration ("FDA") as Class II
regulated devices. FDA Class II regulated devices are required to meet
established performance standards and a pre-market notification via submission
of a 510(k) pre-market notification. See "Government Regulation".
2
<PAGE>
General (cont)
In order to remain a viable business, sustaining cash flow through cost
reduction and avoidance has remained a top corporate-wide priority. Incremental
spending reductions were put into effect as lower production volumes for the
older line products continued. In 1994, the Company completed negotiations with
a large medical products company and formed a strategic alliance for the purpose
of increasing sales volumes. The arrangement provided the Company with cash
which was desperately needed to maintain longer term operations.
The strategic alliance was with Sherwood Medical Company ("Sherwood") a
leading manufacturer and marketer of medical products and a subsidiary of
American Home Products Corporation (NYSE: AHP), a New Jersey based diversified
healthcare company. See "Marketing and Customers"
The Company holds an exclusive, world-wide, license to apply Hydromer(R),
a patented coating technology, to certain medical devices pursuant to licenses
and royalty agreements entered into between the Company and Hydromer, Inc., an
affiliated company. See "Patents, Trademarks and Material Contracts" below. The
Hydromer coating ("Hydromer"), a polymer product, is applied onto several of the
Company's medical devices. When the Hydromer coated device is subsequently
moistened with water, the device's surface will become significantly lubricous.
The alternative to Hydromer is to dip or smear other more conventional
lubricating substances on the surface of the medical device. The Company does
not believe that there is any other product available which performs in a manner
comparable to Hydromer in terms of bonding and lubricity.
In the opinion of the Company there are many opportunities for the
application of Hydromer in the medical device industry and would expand its
licensing of the Hydromer coating technology for newly developed products.
Presently, the Company uses Hydromer on its contract manufacturing of enteral
feeding tubes, gastrointestinal devices and its surgical products (stents and
coagulation probes).
The Hydromer coating facilitates the insertion of enteral feeding tubes
into the patient and reduces their discomfort during the medical procedure. The
Hydromer also facilitates the removal of the placement stylet which has been
inserted through the tube to position it properly in the patient's body. The
Company has applied the Hydromer to its line of biliary stents and coagulation
probes. When applied to the interior wall of the stent, Hydromer has been shown
to significantly increase the life of the implanted device. The need to
regularly replace the device has been reduced and thus, may lessen the patient's
frequency of enduring the trauma of replacement procedures. When applied to the
tip of a coagulation probe the moistened Hydromer allows the instrument's clean
removal after an ulcerated area has been coagulated with the device. Therefore
the ulceration is not re-injured after the surgical procedure.
The Company received ISO 9000 certification on October 9, 1996, which is
needed to sell products in Europe. The Company feels this certification will
open the European market to its products and will also allow it to build
additional relationships with other large medical products companies, who for
whatever reason, have not received their certification and wish to sell their
products in Europe.
3
<PAGE>
PRODUCTS & CONTRACT SERVICES
Products
Historically, the Company designed, manufactured and marketed Enteral
Feeding Devices and Specialty G.I. Products. However, during 1994, the company
entered into agreements with Sherwood Medical Company which formed with them a
strategic business alliance. The alliance drastically changed the structure of
the Company's business. The majority of the Company's current manufacturing is
now largely focused on its endoscopic products. Previous to the Sherwood
agreements the Enteral Feeding and Specialty G.I. products had represented a
majority of the Company's own products. The Company continues to explore other
business opportunities, develops new medical products and markets their
remaining products, e.g., Biofeedback for anorectal dysfunction applications,
indwelling biliary stents and hemostatic coagulation probes through direct
customer and contract manufacture.
Sales of contract manufactured products during 1996 were approximately 86%
of total revenue compared to approximately 92% for the same period of 1995. The
Company considers that its products and services compete in the business segment
of the "Medical Device" industry involving research, development, manufacturing
and sales.
Contract Research & Development
The Company derives a small portion of its revenue from contract research
& development arrangements which was less than 1% of total Company revenue in
1996 and 1995. From time-to-time, the Company may be contracted by larger
medical product companies to develop or assist in the development of prototype
medical devices. The Company continues to explore opportunities in this area of
business as it aligns itself with larger medical product companies for contract
manufacturing and original equipment manufactured ("OEM") products.
Marketing and Customers
Through 1989, the Company marketed many of its products including a line
of dietary products to the alternate care market. However, the dominance in this
market by larger medical product companies for enteral food products and
reimbursement changes in the Federal Government Medicare System prompted the
Company's decision to reassess its business objectives. The Company subsequently
curtailed its selling activities in the alternate care market and in August
1989, laid off its dietary sales force. In late 1991, management attempted to
expand its sales distribution network by using independent manufacturer
representatives ("IMR") and focus on the G.I. Lab market with devices carrying a
higher return on investment than nutritional products. However, by mid-1992,
after experiencing disappointing marketing results using this distribution
channel, the Company began to restructure its marketing of these products by
using other sales distribution outlets including the expansion of its private
label and OEM network.
The Company had distribution arrangements, renewable on an annual basis,
in many of the countries in which its products were sold. In connection with the
Sherwood agreement many of the remaining international distribution arrangements
have been terminated. The remaining distributors operate on an order by order
basis pursuant to the Company's terms and conditions of sale and/or past
practices. Sales are made directly by the Company to its distributors who, in
turn, determine prices to customers and service customer accounts.
4
<PAGE>
Marketing and Customers (cont)
By mid-1993, the Company announced it had entered into an exclusive
technology and patent license agreement with Nutricia, B.V. In connection with
the agreement the Company has sublicensed one of two Hydromer technology and
patent licenses. The agreement provides Nutricia with the right to manufacture
and sell, under their name, the Company's former line of enteral and surgical
products in Europe, Africa, Australia and Asia, with the exception of Japan,
while reserving the Company's rights to sell its products, now restricted by the
Sherwood agreement, and in connection with the Company's trademarks/tradenames.
The Company received $300,000 cash which was recorded in other income in 1993,
and will receive a 5% royalty for the life of patented products. There were no
royalties in 1996 or 1995.
The agreement with Nutricia, B.V. provides for the development of products
by both companies per a five year non-cancellable cooperative arrangement. This
European partner had been expected to retain the Company's innovative research
and development abilities for additional fees but this had not materialized. The
rights to any new products subsequently developed will be individually
negotiated. Any other similar new product developed independently by either
party will be subject to the right of first refusal by the other. Notice of
termination on February 3, 1998, was sent by registered mail on February 3,
1997.
In early 1994, the Company appointed a large U.S. medical products company
as a distributor of certain specialty G.I. products, specifically, the Company's
"J-Tubes" and the related accessories. The distributor was also licensed to
manufacture the "J-Tubes". This agreement, together with the above agreements
accomplished part of the Company's business strategy of expanding its private
label and OEM product manufacturing and distribution network.
Through mid-1994, the majority of the Company's medical devices were sold
directly to customers and distributors, who in turn sell them directly to
hospitals and other medical institutions and facilities and to smaller
distributors concentrating on the home health care market. The Company also
manufactured and sold its products to larger medical product companies on a
private label and OEM basis as discussed above.
In May 1994, the Company successfully negotiated several agreements with
Sherwood Medical Company which provided the Company with much needed cash to
operate the business. In addition, the Company licensed and sub-licensed certain
patented technology. The Company agreed to a two year supply agreement, expiring
in 1996, of the Enteral and Specialty G.I. products at cost plus ten percent
with minimum purchase obligations of $2,500,000 worth of products. In February
1996, Sherwood signed an amendment to the supply agreement, raising the second
year's minimum to $2,700,000. The Company agreed to a five year covenant not to
manufacture or sell medical devices promoted for gastrointestinal feeding or
gastric decompression. A two and one half year supply agreement was also signed
on the Company's "J-Tube" products subject to existing agreements with other
companies which expired in 1996.
Sales of the Company's products to specific customers may, at times, be
significant to the overall revenues of the Company. During 1996, Sherwood
Medical Company accounted for approximately $1,951,000, or 74% of the Company's
revenues and approximately $2,600,000 or 85% of the Company's revenues during
1995. No other single customer accounted for more than 10% of the Company's
revenue in 1996, 1995, or 1994. In May 1996 the agreement was completed and the
Company will continue to do OEM work for Sherwood Medical on a purchase by
purchase order basis. The company has refocused its efforts on the manufacture
and selling of the Endoscopic Product line through its developing dealer network
and with its ISO 9000 certification, the development of the line in Europe along
with the continuation of its contract manufacturing, using the Company's
extensive technology, for medical product companies without this certification.
5
<PAGE>
Competition
The market for private label, OEM and contract manufacturing of medical
devices is highly competitive and subject to rapid technological change.
Management considers the most significant competitive factors in its market to
be product innovation, quality of customer service and satisfaction, reliability
of product performance plus, competitive pricing, terms of purchase, and
dependability of product on-time delivery.
The Company believes that its products have significant characteristics
which differentiate them from available competing products in the medical device
market. As indicated under "General" above, these characteristics are in part
attributable to the application of Hydromer to certain of the Company's
products. One distinguishing feature of the Company's line of "Biliary Stents",
compared to many competitors' devices, is the application of Hydromer to the
interior wall of the stent. Hydromer has been shown to significantly increase
the life of the implanted device. The need to regularly replace the device has
been reduced and thus, may lessen the patient's frequency of enduring the trauma
of replacement procedures. Additionally, when applied to the tip of the
Company's line of "Coagulation Probes" the moistened Hydromer allows the
instrument's clean removal after an ulcerated area has been coagulated with the
device. Therefore the ulceration is not re-injured after the surgical procedure.
There can be no assurance that, as market acceptance of Hydromer's
patented technology as applied to medical devices increases, alternatives to the
Company's products, with similar products, properties and applications, could
not be developed by other companies. The industry in which the Company competes
is characterized by rapid technological advances and includes competitors which
possess significantly greater financial resources and research and manufacturing
capabilities, larger marketing and sales staffs, and longer established
relationships with customers than does the Company. Moreover, the Company's
products and services encounter and will encounter significantly more
competition in both domestic and European markets as a consequence of the
relatively greater market presence of competing corporations. Competitors range
from small specialized firms to large diversified companies, many of which have
resources substantially greater than those of the Company. Furthermore, United
States Government health care cost containment efforts may have an adverse
affect on prices that the Company can charge for its products.
Backlog
The Company maintains a high degree of service for its customers by
shipping its product within the predetermined time allotments usually
established by the customer. Delivery of product may be required anywhere from a
few days to several weeks from receipt of an order. Backlog, which are orders
placed and not yet shipped, was $267,000 and $1,093,000 as of December 31, 1996
and 1995, respectively. Sherwood accounted for approximately $156,000, or 58% of
all open orders in 1996 and $986,000, or 90% in 1995.
Production and Quality Control
The principal raw materials utilized in the production of the Company's
products is United States Pharmacopeia ("USP") class VI grade polyurethane. This
polyurethane is manufactured to the Company's specifications and is purchased in
pellet form to be subsequently processed at the Company's facilities via
extrusion or injection molding. Considerably all materials employed in the
manufacturing process are purchased domestically and can generally be obtained
from a number of sources at competitive prices. The Company maintains what it
considers to be adequate inventories of the raw materials used in its production
processes. The Company has experienced no substantial shortages of any raw
material employed in its production processes. In its manufacturing and other
processes, the Company follows procedures designed to maintain a high level of
quality in its medical devices. Such procedures include adherence to precise
specifications which are continually reviewed and upgraded by the Company for
both product integrity and packaging materials. A staff of quality assurance
employees with technological expertise is maintained by the Company at its
manufacturing facilities.
6
<PAGE>
Production and Quality Control (cont)
The Company, beginning in 1995, initiated a program to ensure that its
products conform to the European Community legislation for medical devices.
Conformance is demonstrated by affixing the CE mark to the products made by the
Company. The Company has met the requirements of the ISO (international
organization for standardization) standard by certification to ISO 9001on
October 9, 1996. The standard requires the Company to design and manufacture
products according to a rigorous quality system. In addition, the Company has
employed British Standards Institution Inc. to serve as its notified body and is
directing its efforts to BS EN ISO 9000 registration. Four of the products made
by the Company are being reviewed for registration to carry the CE mark, which
is expected in 1997.
Research and Development
The Company's research and development activities have been primarily
devoted to the development and enhancement of the products described above and
to the design and development of new products. In connection with this
innovative development ability the Company, from time-to-time, may be contracted
by larger medical product companies to develop or assist in the development of
prototype medical devices. A portion of the Company's overall business objective
is to continue promoting this area of the business as it aligns itself with
larger medical product companies. Further, the Company has and continues to
utilize certain physicians and surgeons, who are recognized in their field of
expertise, for product development and evaluations. Remuneration to these
medical professionals for their efforts may be in the form of royalties
contingent on the products being subsequently marketed and revenue streams
generated.
Patents, Trademarks and Material Contracts
The Company holds an exclusive, world-wide license to use Hydromer, in
connection with certain medical products, under the United States and foreign
patents relating to the Hydromer process. In 1991, and amended later that year,
the Company entered into a license agreement with Hydromer for the application
of its coating to pancreatic and biliary stents and a hemostatic coagulation
probe used in conjunction with endoscopic surgical procedures. Terms and
conditions of this license are comparable to the license Hydromer grants to
other third parties. In the opinion of the Company, the terms are commercially
reasonable.
In addition to United States process patent and applications patents,
which will be in effect until 2007, there are currently 11 issued foreign
counterpart patents for Hydromer. In 1995, as a result of a change to the U.S.
Patent Law, patents in effect on June 8, 1995 have an expiration date of the
longer of 17 years from issuance or 20 years from filing. This extended the life
of two of the Hydromer patents which would have expired in 1995.
The table below sets forth information on the status of the patents in
each country and the expiration of such patents:
Country Expiration
----------------------------- ----------
Belgium 1998
United States (Three Patents) 1997, 1998 & 2007
Canada 1998
France 1998
Germany 1998
Italy 1998
Japan 1998
Netherlands 1998
Sweden 1998
Switzerland (Two Patents) 1998
United Kingdom 1998
7
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Patents, Trademarks and Material Contracts (cont)
The Company believes that the protection afforded by the Hydromer patents
in the United States will be a significant factor in the Company's ability to
successfully market its products which utilize the Hydromer technology.
Until May 1994, the Company held the rights to several trademarks (among
others "Dobbhoff", "Entriflex", "Hydroflex", "Pedi-Tube" "Entrimit", and
"Entri"), in the United States and abroad. These trademarks were conveyed to
Sherwood as part of the asset purchase agreement dated May 19, 1994 between
Sherwood Medical Company and Biosearch Medical Products, Inc. See note 4,
"Disposition of Assets - Sherwood Medical Company Agreement".
The Company uses the trademark "Hydromer" pursuant to the terms of a
license. The Company regards such trademarks to be of material importance to its
business. The Company's now existing registrations in the United States have a
term of twenty (20) years, renewable for a second term of ten (10) years.
(Registrations and renewals granted after November 16, 1989 have a term of nine
years.) The initial terms of the foregoing trademark registrations will not
expire before 1998.
The Company has a material contract with Sherwood Medical Company which
was announced on May 20, 1994. The agreement provided for the sale of all
assets, except inventories, used exclusively in the manufacture, sale and
distribution of substantially all of its enteral access device business,
including trademarks to Sherwood Medical Company. In addition, the Company
licensed and sub-licensed certain patented technology. The Company agreed to a
two year supply agreement of the same products with annual minimum purchases of
$2,500,000 at cost plus ten percent. The Company agreed to a five year covenant
not to manufacture or sell medical devices promoted for gastrointestinal feeding
or gastric decompression. A two and one half year supply agreement was also
signed on the Company's "J-Tube" products subject to existing agreements with
other companies.
In addition to the Sherwood agreement, the Company has OEM relationships
with Nutricia B.V., The Netherlands, C.R. Bard, United States and Smith
Industries Medical Systems, England. The Company manufactures products for these
clients under the clients' label.
The Company and the Company's President have agreed not to compete with
Sherwood Medical Company, with respect to enteral feeding and gastric
decompression devices for a period of five (5) years beginning May 19, 1994.
This agreement was negotiated in connection with the sale of assets and
resulting license and supply agreements. (See note 4, "Disposition of Assets -
Sherwood Medical Company Agreement").
Government Regulation
The Company's medical products come under the jurisdiction of the United
States Federal Food and Drug Administration ("FDA"), an agency of the Federal
Department of Health and Human Services, as well as other federal, state and
local agencies, and similar agencies in other countries.
Substantially, all of the Company's medical device products have been
classified by the FDA as Class II regulated devices. In accordance with section
510(k) of the Federal Food, Drug, and Cosmetic Act and the Safe Medical Devices
Act of 1990 ("SMDA") a pre-market notification must be submitted informing the
FDA of the Company's intent to place the device into commercial distribution. A
device cannot be commercially distributed in the United States until the FDA
finds the device substantially equivalent to existing devices marketed in
interstate commerce prior to May 28, 1976, the enactment date of the medical
device amendments.
8
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Government Regulation (cont)
Since the Company's devices come under the jurisdiction of the FDA, the
Company and such products are subject to FDA regulations which, among other
things, allow for the conduct of detailed inspections of device manufacturing
establishments and require adherence to current good manufacturing practices
("CGMP") for the manufacture and design of medical devices. Noncompliance with
applicable regulations promulgated by such agencies can result in criminal
and/or civil penalties, voluntary recall, seizure of products, total or partial
suspension of production and refusal to process applications for product review.
The Company makes every effort to continually monitor its compliance to CGMPs
and does not believe that these regulations will have a material adverse effect
on its business.
Environmental Matters
The Company is subject to the regulatory jurisdiction of Federal, State
and local agencies regarding the protection of the environment. It is classified
as a "small hazardous waste generator" as a result of using plastic adhesives in
its process. The Company has been able to comply with the various laws and
regulations without any material adverse affect on its business.
There are no legal proceedings or claims involving environmental issues
and the Company is of the opinion that its operational methods are adequate to
prevent any such claim or proceeding from arising.
Executive Officers and Significant Employees
The executive officers and other significant employees of the Company are
as follows:
Age
December 31,
Name 1996 Position with the Company
-------- ---- -------------------------
Manfred F. Dyck 61 Chairman of the Board of
Directors, President and
Director
Robert J. Moravsik 54 Vice President - General
Counsel and Secretary
Robert C. Keller 58 Treasurer & Chief Accounting
Officer
Martin C. Dyck 35 Vice President - Operations,
New Product Development Coordinator
Algird J. Patrick 58 Vice President - Research &
Engineering
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Executive Officers and Significant Employees (cont)
Manfred F. Dyck has been the President of the Company and Chairman of the
Board since its inception. Previously, Mr. Dyck was engaged in biomedical
product development at Ethicon, Inc., a manufacturer of medical devices and a
subsidiary of Johnson & Johnson, and served as a member of the president's staff
at Cordis Corporation, a manufacturer of medical devices from 1965 to 1971. Mr.
Dyck has been the Chairman of the Board of Hydromer, Inc. ("Hydromer") a company
formed for the purpose of developing polymeric complexes for commercial use
since 1980. Prior to that time Mr. Dyck was President of Hydromer, which was,
until 1983, a subsidiary of the Company. From 1979 to 1986 Mr. Dyck was a
director of CardioSearch, Inc., a manufacturer of cardiovascular devices. He
devotes most of his business time to his responsibilities with the Company.
Robert J. Moravsik has been Vice President - General Counsel and Secretary
since January 1987. Mr. Moravsik served as Vice President - General Counsel and
Secretary of Fisher Stevens, Inc. from 1978 to 1986. He is a member of the Bar
of the State of New Jersey, the State of New York, the Federal District Courts
of New Jersey and New York and the United States Supreme Court.
Robert C. Keller has been Treasurer and Chief Accounting Officer since
July 1995. Prior to this appointment, Mr. Keller was the accounting manager and
controller for Mailing Services Inc. He joined Mailing Services as an Accounting
Manager in 1985. Prior to that he held positions of increased responsibility
with Midland Ross Corp. from 1980 to 1985, Johnson & Johnson from 1976 to 1980,
Quaker Oats Co. from 1972 to 1976 , and Beecham Pharmaceutical from 1966 to
1972.
Martin C. Dyck has been Vice President of Operations, New Product
Development Coordinator since January 1993. For the previous three years, Mr.
Dyck was the Director of Manufacturing and New Product Development Coordinator.
He joined the company in 1986 as a Junior Financial Assistant and R&D Supervisor
of the Company's second shift Pilot Plant Operations.
Algird J. Patrick has been Vice President, Research and Engineering for
the Company since January 1993. Previously, Mr. Patrick was Director of
Engineering, having joined the Company in 1987. He was President of Automatic
Products, Inc., a firm he founded from 1971 until joining the Company. Mr.
Patrick has also held various Manufacturing and Engineering management positions
for Technical Accessories, Inc. and Alphacom, Inc.
The executive officers of the Company serve at the discretion of the Board
of Directors (except for Manfred F. Dyck who has an employment agreement
providing for 6 months notice prior to termination) and are active in its
business on a day-to-day basis. No family relationship exists between any of the
foregoing persons except Manfred and Ursula Dyck who are husband and wife and
Martin C. Dyck their son.
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Employees
As of December 31, 1996 the Company had 28 employees compared to 33
employees as of December 31, 1995. Currently, the Company has no foreign
facilities or employees located abroad and it is not a party to any collective
bargaining agreements. There were no wage increases given during 1996 and 1995.
ITEM 2. PROPERTIES
The Company's headquarters is located in Somerville, New Jersey where all
of the manufacturing, engineering and administration functions are conducted.
The facility is owned by the Company, subject to a primary mortgage held by a
bank, and consists of an approximately 24,600 square foot building situated on
approximately 6.27 acres of land. The Company is currently operating one
production shift at this location.
The foregoing facility is regarded by management as adequate for the
current requirements of the Company's business.
ITEM 3. LEGAL PROCEEDINGS
There were no legal proceedings in 1996 to which the Company was a
defendant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company estimates that its shares of common stock had traded between
$.30 and $.50 per share during 1996. Since it was denied an exception to the new
NASDAQ listing and maintenance standards, the Company's stock experiences
limited trading activity. The new NASDAQ standards were approved by the S.E.C.
on August 29, 1991, effective on March 2, 1992. The Company's stock was deleted
from the NASDAQ system on August 4, 1992, and is now traded on the OTC Bulletin
Board.
As of March 28, 1997, the Company had approximately 600 shareholders of
record and 2,202,878 shares of no par, common stock outstanding. At the annual
shareholders' meeting on June 21, 1995, the shareholders authorized a 5 for 1
reverse stock split which reduced the number of outstanding shares from
11,014,290 to 2,202,858.
The Company has never paid a cash dividend on its Common Stock and does
not expect to pay dividends in the foreseeable future. The payment of dividends
in the future will depend upon the Company's available earnings, the general
financial condition of the Company, its capital needs and other factors deemed
pertinent by the Board of Directors.
12
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
(In thousands, except for per share data)
Operations Data
- --------------- 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues 2,649 3,268 3,574 3,794 3,993
Gross profit 410 490 664 877 738
Loss from operations (813) (842) (788) (723) (1,597)
(Loss)/earnings
before extraordinary item (884) (844) 2,897 (244) (1,628)
Extraordinary item - - 114 - (65)
Federal Income Tax - - (60) - -
------- ------- ------- ------- -------
Net(loss)/income $ (884) $ (844) $ 2,951 $ (244) $(1,693)
======= ======= ======= ======= =======
Income (loss) per common share from:
Continuing operations
before extraordinary item $ ( .40) $ (.38) $ .26 $ (.02) $ (.15)
Extraordinary item - - .01 - (.01)
------- ------- ------- ------- -------
Net income/(loss) $ (.40) $ (.38) $ .27 $ (.02) $ (.16)
======= ======= ======= ======= =======
Weighted average number
of common shares 2,203 2,203 2,203 2,202 2,161
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
As Of December 31,
----------------------------------------
(In thousands)
Balance Sheet Data
- ------------------ 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total assets $ 2,513 $ 3,464 $ 4,452 $ 2,721 $ 3,192
Current maturities of
long-term debt $ 37 $ 33 $ 29 $ 900 $ 682
Long-term debt $ 663 $ 699 $ 732 $ 778 $ 1,114
</TABLE>
NOTE: The Company has not paid a dividend during the
five (5) year period ended December 31, 1996.
13
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1996 Compared to 1995
Revenues
Revenues of $2,649,000 for 1996 were approximately $619,000, or 19% lower
than revenues of $3,268,000 for 1995. The sales of the old line disposable
products have steadied, however the overall sales were negatively impacted by
the expiration of the Sherwood agreement in May 1996 and the reduction in sales
to Nutricia offset by the Company's sales to Smith Industries Medical Systems,
now part of Portex Ltd, which began in 1996.
Since the expiration of the Sherwood agreement, the Company continues to
produce products for Sherwood Medical on a purchase order basis at greater gross
margins than the agreement margin of 10%. Sales to Sherwood in 1996 were
approximately $1,951,000, or 74% compared to $2,600,000 or 85% of total sales
for 1995. The Company also sells other medical devices under both private label
and Original Equipment Manufacture ("OEM") agreements. OEM sales for 1996
amounted to approximately $322,000, or 12% versus 1995 sales of $200,000 or 6%.
International sales for 1996 and 1995 totaled approximately 11% and 7%
respectively. The increase is due to the ("OEM") agreement with Smith Industries
Medical Systems (Portex Ltd.). The Company received its ISO 9001 certification
in 1996, and feels it will have a large impact on the development of its
international sales in the future.
The Company continues to develop, manufacture and sell products for
endoscopic surgery and biofeedback devices for the treatment of anorectal
dysfunctional conditions. During 1996, these products accounted for
approximately $253,000, or 10% of the Company's revenue versus $146,000, or 5%
of revenues during 1995.
Gross Profit
Gross profit of $410,000 for 1996 was lower by $80,000, or 8% less than
the gross profit of $490,000 for 1995. The gross profit was 15% of revenues in
1996 and 1995. The Sherwood agreement, which carried a profit margin of 10%,
expired during 1996. The underlying products relating to the Sherwood agreement
consist of the Company's former line of Enteral Feeding Devices and Specialty
G.I. Products. These products, when marketed and sold by the Company, have
generated significantly higher profit margins. Incremental sales of any
additional or newer products could potentially improve the Company's gross
profit performance provided that the pricing of such products absorb and exceed
direct and incremental costs while fixed overhead spending is not materially
increased.
Operating Loss
Operating loss of $813,000 in 1996 was $29,000 unfavorable to the
operating loss of $842,000 generated during 1995. The unfavorable change in
operating loss is due mainly to the decrease in sales volume of $619,000 offset
by cost savings attained during the year in manufacturing of $136,000 or 11% and
in selling and general administration of $110,000, or 8% versus 1995.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1996 Compared to 1995 (cont)
Interest Expense
Net interest expense in 1996 of $72,000 was $42,000, or 30% higher than
$30,000 in 1995. The increase in net interest expense in 1996 is directly
related to the decreasing interest income on cash reserves offset by the
continuing mortgage debt.
Other Income, Net
Other income of $1,000 was $28,000 unfavorable to the other income of
$29,000 in 1995. The other income in 1995 was due to monies received against bad
debts already written off.
Federal Income Taxes
No federal income taxes were incurred in 1996 and 1995.
15
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1995 Compared to 1994
CONTINUING OPERATIONS
Revenues
Revenues of $3,268,000 for 1995 were approximately $306,000, or 9% lower
than revenues of $3,574,000 during 1994. The sales of the old line disposable
products continue to decline and overall sales were negatively impacted by the
Company's divestiture of certain product lines during prior periods. Further,
the Company's shift to manufacturing its former products now for Sherwood
Medical Products was temporarily hindered by excess inventories at Sherwood,
which caused the Company's production to slow down and sales to drop.
Sherwood Medical has agreed to purchase annual minimums of $2.5MM worth of
product at the Company's cost plus ten percent. The favorable pricing to
Sherwood causes the Company to manufacture and ship significantly more product
quantities yet realize net revenues similar to what the Company obtained under
its own marketing programs. Sales to Sherwood in 1995 were approximately
$2,600,000, or 85% of total sales. The Company also sells other medical devices
under both private label and Original Equipment Manufacturer ("OEM") agreements.
OEM sales for 1995 amounted to approximately $200,000 or 6% versus 1994 sales of
$666,000 or 19%.
International sales for 1995 and 1994 totaled approximately 7% and 25%,
respectively. Most of the underlying products are now sold domestically to
Sherwood who in-turn sells directly or through international dealers. The
Company is in the process of receiving ISO 9000 certification, which it feels
will have a large impact on the development of its international sales in the
future.
The Company continues to develop, manufacture and sell products for
endoscopic surgery and biofeedback devices for the treatment of anorectal
dysfunctional conditions. During 1995, these products accounted for
approximately $128,000, or 4% of the Company's revenue versus $137,000 or 4% of
revenues during 1994.
Gross Profit
Gross profit of $490,000 for 1995 was down $174,000, or 26% lower than the
gross profit of $664,000 for 1994. The gross profit was 15% of revenues in 1995
as compared to 19% in 1994. The Sherwood agreement has had a profound impact on
the Company's limitation to improve its short term gross profit performance.
Sales to Sherwood, approximately $2,600,000, or 85% of total sales, are at the
Company's cost plus ten percent which would net an approximate standard margin
contribution of 9%. The underlying products to the Sherwood agreement consist of
the Company's former line of Enteral Feeding Devices and Specialty G.I.
Products. These products when marketed and sold by the Company had previously
generated significantly higher profit margins. Incremental sales of any
additional or newer products could potentially improve the Company's gross
profit performance provided however, that the pricing of such products absorb
and exceed direct and incremental costs while fixed overhead spending is not
materially increased.
16
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1995 Compared to 1994 (cont)
CONTINUING OPERATIONS (cont)
Operating Loss
Operating loss of $844,000 in 1995 was $56,000 unfavorable to the
operating loss of $788,000 generated during 1994. The unfavorable change in
operating loss is a result of $174,000 decrease in gross profit partially offset
by a $120,000, or 8% decrease in selling, general and administration expense
versus 1994. In the third quarter of 1995, the Company reduced their labor force
in the general administration area which reduced payroll costs and along with
the cost containment procedures implemented resulted in cost savings attained in
1995.
Interest Expense
Net interest expense in 1995 of $30,000 was $69,000, or 30% lower than
$99,000 in 1994. The decrease in interest expense is directly related to the
retirements during the second quarter of 1994 of both the U.S. denominated
subordinated notes and the second mortgage on the Company's corporate facility.
Sale of Assets of Certain Business Groups
During May 1994, the Company reached an agreement with Sherwood Medical
Company which sold certain assets of the Company and conveyed certain rights in
connection with the Company's enteral device business. The transaction is more
fully described in note 4. The total consideration for the agreement was
$3,500,000 which generated a net gain of $3,329,000 after the retirement of
assets and the reserve of inventory.
Other Income, Net
Other income of $29,000 was $425,000 unfavorable to the other income of
$454,000 in 1994. The primary transactions accounting for the 1994 other income
were, 1.) the Company received $400,000 from an OEM agreement, (see note 4)
reached with a large U.S. medical products company for the Company's "J-Tube".
This agreement was one transaction geared toward the Company's efforts of
expanding its need to develop strategic alliances with larger medical product
companies. 2.) the Company recognized a gain on the sale of fixed assets of
$30,000 from the sale of assets related to the Company's Pee Wee Tube product
line. (see note 4)
Federal Income Taxes
No federal income taxes were incurred in 1995, compared to approximately
$60,000 incurred during the second quarter 1994. The $60,000 was due to the
alternative minimum tax which was primarily attributable to the profits derived
from the Sherwood agreement as described in note 4 below. Profits from such a
transaction are subject to alternative minimum tax rules which allow only ninety
percent of the profits to be shielded by the aggregate of net operating loss
carry-forwards.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $757,000 of cash and cash
equivalents during 1996. Investing activities provided $141,000 for the year as
$172,000 was used for capital expenditures and the Sherwood Agreement's related
escrow arrangement at December 31, 1996 provided cash of $313,000.
Financing activities provided $370,000 for the year. This was due mainly
to the surrendering of the Keyman whole life policy in favor of term insurance
which generated $403,000, offset by $33,000 used to make payments against the
note payable to Summit Bank for the mortgage on the Company's Somerville, New
Jersey facility.
Cash used by net operating activities increased by $272,000 during 1996
from the prior year. The larger contributing factors include changes in assets
and liabilities and the recurring losses incurred.
Capital expenditures were $172,000 and $98,000 in 1996 and 1995,
respectively. Additionally, any material subsequent expenditures are contingent
on the needs of any newly developed or contract manufactured products.
The Company has no available line of credit established and has not been
able to obtain an asset based loan on unencumbered assets. Commercial banks and
lending institutions were not willing to provide funds to the Company due to the
history of recurring losses from operations before non-recurring items and
extraordinary gains and there is no assurance that operations will generate
sufficient cash flow to meet long-term obligations.
The Company has suffered recurring losses from continuing operations of
approximately $884,000 in 1996 and $844,000 in 1995. The Company has continued
to reduce payroll and maintain cost containment activities started in 1995 in an
effort to reduce expenses.
Management believes that the Company's financial condition at December 31,
1996 represents an adequate base to conduct current operations. However, the
Company's ability to continue as a going concern is dependent upon its success
at generating sufficient cash flow or to obtain additional financing as required
to meet its long-term obligations, support its working capital needs and sustain
the potential for ongoing losses while trying to embark on a campaign to
generate profitable revenue levels. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For additional information concerning this item, see "Item 13. Exhibits and
Financial Statement Schedules and Reports on Form 8-K SB".
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company filed a report on Form 8-K SB with the Commission dated
January 27, 1995, amended February 9, 1995 regarding "Changes In Registrant's
Certifying Accountant".
19
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1. Business-Executive
Officers and Significant Employees" and the Proxy Statement to be filed with
respect to the 1997 Annual Meeting of Shareholders (the "Proxy Statement"),
which information is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
For information concerning this item, see the Proxy Statement, of which
its information is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning this item, see the Proxy Statement, of which
its information is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item, see the Proxy Statement, of which
its information is incorporated herein by reference.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K SB
(a) 1. Financial Statements:
The financial statements of the Company filed in this Annual Report on
Form 10-K SB are listed in the attached Index to Financial Statements and
Schedules.
2. Financial Statement Schedules:
The financial statement schedule of the Company filed in this Annual
Report on Form 10-K SB is listed in the attached Index to Financial Statements
and Schedules.
3. Exhibits:
The exhibits required to be filed as part of this Annual Report on Form
10-K SB are listed in the attached Index to Exhibits.
(b) 1. Reports on Form 8-K SB:
The Company filed reports on Form 8-K SB with the Commission: 1.) dated
May, 23, 1994, amended July 26, 1994 regarding "Disposition Of Assets", and 2.)
dated January 27, 1995, amended February 9, 1995 regarding "Changes In
Registrant's Certifying Accountant".
20
<PAGE>
POWER OF ATTORNEY
The Company and each person whose signature appears below hereby appoint
Manfred F. Dyck and Robert C. Keller as attorneys-in-fact with full power of
substitution, severally, to execute in the name and on behalf of the registrant
and each such person, individually and in each capacity stated below, one or
more amendments to the annual report; which amendments may make such changes in
the report as the attorney-in-fact acting deems appropriate and to file any such
amendment to the report with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: April 2, 1997
BIOSEARCH MEDICAL PRODUCTS INC.
By: /s/ Manfred F. Dyck
-------------------------------
Manfred F. Dyck
President and Principal
Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: April 2, 1997
By: /s/ Manfred F. Dyck
-------------------------------
Manfred F. Dyck
President, Principal Executive
Officer and Director
Dated: April 2, 1997
By: /s/ Robert C. Keller
-------------------------------
Robert C. Keller
Chief Accounting Officer and
Treasurer
21
<PAGE>
SIGNATURES (cont)
Dated: April 2, 1997
By: /s/ Ursula M. Dyck
-------------------------------
Ursula M. Dyck
Director
Dated: April 2, 1997
By: /s/ David M. Schreck, M.D.
-------------------------------
David M. Schreck, M.D.
Director
Dated: April 2, 1997
By: /s/ Klaus J.H. Meckeler, M.D.
-------------------------------
Klaus J.H. Meckeler, M.D.
Director
Dated: April 2, 1997
By: /s/ Herbert W. Marache, Jr.
-------------------------------
Herbert W. Marache, Jr.
Director
Dated: April 2, 1997
By: /s/ Frederick L. Perl, M.D.
-------------------------------
Frederick L. Perl, M.D.
Director
22
<PAGE>
BIOSEARCH MEDICAL PRODUCTS INC.
FINANCIAL STATEMENTS AND SCHEDULES
INDEX
Page
Number
------
Financial Statements:
- ---------------------
Independent Auditors' Reports 24
Balance Sheets at
December 31, 1996 and 1995 25 - 26
Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 27
Statements of Shareholders' Equity
for the Years Ended
December 31, 1996, 1995 and 1994 28
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 29
Notes to Financial Statements 30 - 39
Financial Statement Schedule:
Schedule VIII - Valuation and Qualifying Accounts 40
All other schedules have been omitted
because they are not applicable or the required information
is included in the financial statements or the notes thereto.
23
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Biosearch Medical Products, Inc.:
We have audited the accompanying balance sheets of Biosearch Medical
Products, Inc. as of December 31, 1996 and 1995 and the related statements of
operations, shareholders' equity and cash flows for each of the three years
ended December 31, 1996 and the financial schedule for each of the three years
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly
the financial position of Biosearch Medical Products, Inc. as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years ended December 31, 1996, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule referred to above presents fairly, in all material respects, the
information required to be set forth therein.
The accompanying financial statements have been prepared assuming that
Biosearch Medical Products, Inc. will continue as a going concern. As discussed
in note 2 to the financial statements, the Company has suffered recurring losses
from operations. There is no assurance that the Company's operations will
generate sufficient cash flow to meet its obligations or that the Company has
the ability to obtain additional financing as required, which raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Amper, Politziner & Mattia
Edison, New Jersey
March 20, 1997
24
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
-------- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 321,376 $ 568,092
Trade receivables - less allowance
for doubtful accounts of $32,838 and
$67,562 at December 31, 1996 and
1995 182,247 162,500
Inventories 513,551 616,091
Other assets 30,665 17,551
----------- -----------
Total current assets 1,047,839 1,364,234
---------- ----------
Property, plant and equipment 4,251,055 4,078,875
Less accumulated depreciation
and amortization 2,799,250 2,708,388
----------- -----------
Net property, plant and equipment 1,451,805 1,370,487
----------- -----------
Other assets
Escrow - 312,811
Cash surrender value of keyman life insurance - 402,785
Other assets, net 13,580 13,557
------------ -----------
Total other assets 13,580 729,153
------------ -----------
Total assets $ 2,513,224 $ 3,463,874
=========== ===========
</TABLE>
(continued)
25
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
BALANCE SHEETS
(continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
-------- ------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 36,788 $ 32,648
Accounts payable 185,653 163,534
Accrued liabilities 131,693 188,328
------------- ------------
Total current liabilities 354,134 384,510
Long-term debt, less current maturities 662,734 699,522
------------- ------------
Total liabilities 1,016,868 1,084,032
------------- ------------
Shareholders' equity:
Common stock, no par value; 5,000,000
shares authorized; 2,210,798 issued
and 2,202,878 and 2,202,858 shares
outstanding at December 31, 1996
and 1995 11,129,954 11,129,948
Accumulated deficit (9,602,359) (8,718,791)
Treasury stock, at cost;
7,920 and 7,940 shares at December 31, 1996
and 1995 ( 31,239) ( 31,315)
------------- ------------
Total shareholders' equity 1,496,356 2,379,842
Commitments and contingencies - -
------------- ------------
$ 2,513,224 $ 3,463,874
============= ============
</TABLE>
See accompanying notes to
financial statements
26
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 2,648,719 $ 3,268,220 $ 3,573,877
Cost of goods sold 2,238,606 2,777,747 2,909,482
----------- ----------- -----------
Gross profit 410,113 490,473 664,395
Selling, general and administrative expenses 1,222,901 1,332,497 1,451,966
----------- ----------- -----------
Loss from operations (812,788) (842,024) (787,571)
----------- ----------- -----------
Other income (expense):
Interest expense, net (72,055) (30,426) (98,902)
Sale of assets-certain business groups - - 3,328,765
Other, net 1,275 28,818 454,291
----------- ----------- -----------
(70,780) (1,608) 3,684,154
----------- ----------- -----------
(Loss)/earnings before extraordinary item (883,568) (843,632) 2,896,583
Extraordinary item - gain on
retirement of debt - - 114,000
Federal income taxes - - (60,000)
----------- ----------- -----------
Net (loss)/income $ (883,568) $ (843,632) $ 2,950,583
=========== =========== ===========
(Loss)/income per common share from: *
Operations before
extraordinary item $ (.40) $ (.38) $ 1.32
----------- ----------- -----------
Extraordinary item - - .02
----------- ----------- -----------
Net (loss)/income $ (.40) $ (.38) $ 1.34
=========== =========== ===========
Weighted average number of
common shares outstanding 2,202,878 2,202,808 2,202,515
=========== =========== ===========
</TABLE>
See accompanying notes to
financial statements
* Retroactively restated for the reverse stock split in June 1995.
27
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Accumulated Treasury Stock
-------------------------------------------- ---------------------------
Shares Shares Amount Deficit Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
Issued* Outstanding*
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 2,210,798 2,202,498 $ 11,129,913 $(10,825,741) (8,300)
Issuance of treasury shares in connection with
employee stock awards * - 260 - - 260
Net loss - - - 2,950,583 -
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 2,210,798 2,202,758 $ 11,129,913 $ (7,875,158) (8,040)
Issuance of treasury shares in connection with
employee stock awards * - 100 35 - 100
Net loss - - - (843,632) -
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 2,210,798 2,202,858 $ 11,129,948 $ (8,718,791) (7,940)
------------ ------------ ------------ ------------ ------------
Issuance of treasury stock in connection with 20 6 20
employee stock awards
Net Loss - - - (883,568) -
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 2,210,798 2,202,878 $ 11,129,954 $ (9,602,359) (7,920)
============ ============ ============ ============ ============
</TABLE>
Total
------------
Balance, January 1, 1994 $ (32,735) $ 271,437
Issuance of treasury shares in connection with
employee stock awards * 1,026 1,026
Net loss - 2,950,583
------------ ------------
Balance, December 31, 1994 $ (31,709) $ 3,223,046
Issuance of treasury shares in connection with
employee stock awards * 394 428
Net loss - (843,632)
------------ ------------
Balance, December 31, 1995 $ (31,315) $ 2,379,842
------------ ------------
Issuance of treasury stock in connection with
employee stock awards 76 82
Net Loss - (883,568)
------------ ------------
Balance, December 31, 1996 $ (31,239) $ 1,496,356
============ ============
See accompanying notes to
financial statements.
* Retroactively restated for the reverse stock split in June 1995.
28
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss)/income $ (883,568) $ (843,632) $ 2,950,583
Adjustments to reconcile (loss)/income
to net cash (used in) operating
activities:
Depreciation and amortization 90,862 115,215 124,132
Gain on retirement of debt - - (114,000)
Gain on sale and disposal of fixed assets - - (30,389)
Sale of assets-certain business groups - - (3,328,765)
Changes in assets and liabilities :
Decrease/(increase) in trade receivables (19,747) 385,486 (227,864)
(Increase)/decrease in inventories 102,540 (41,325) 1,347
Decrease (increase) in other current assets (13,114) 18,165 16,740
Increase in other assets (23) (2,534) (59,270)
Increase (decrease) in accounts payable 22,119 (65,474) (176,177)
Decrease in accrued liabilities
and customer deposits (56,553) (50,647) (127,215)
----------- ----------- -----------
Net cash used in operating activities (757,484) (484,746) (970,878)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (172,180) (98,500) (28,109)
Proceeds from sale of fixed assets - - 100,175
Decrease/(increase) in escrow 312,811 712,895 (1,025,706)
Proceeds from sale of assets-certain business groups - - 3,500,000
----------- ----------- -----------
Net cash provided by investing activities 140,631 614,395 2,546,360
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from surrendering whole life policy 402,785 - -
Repayment of borrowings against
cash surrender value policy - - (266,000)
Principal payments on long-term borrowings (32,648) (28,389) (917,367)
----------- ----------- -----------
Net cash provided by (used in)
financing activities 370,137 (28,389) (1,183,367)
----------- ----------- -----------
Net increase in cash and cash equivalents (246,716) 101,260 392,115
----------- ----------- -----------
Cash and cash equivalents at beginning of period 568,092 466,832 74,717
----------- ----------- -----------
Cash and cash equivalents at end of period $ 321,376 $ 568,092 $ 466,832
=========== =========== ===========
</TABLE>
See accompanying notes to
financial statements.
29
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of operations- Biosearch Medical Products, Inc. (the"Company") is a
U.S. based corporation whose principal lines of business are in contract
manufacturing and manufacturing and distributing, under its own label of medical
devices. The Company is an OEM manufacturer for various medical product
companies and manufactures and distributes its own line of endoscopic products
to hospitals, through a network of dealers, both domestically and
internationally. Credit is granted to substantially all customers.
Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make 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. Actual results could differ from those estimates.
Cash and cash equivalents - The Company considers all short-term
investments with maturities of three months or less at the date of purchase to
be cash equivalents. Cash and cash equivalents include money market funds and
short term treasury bills. The Company, at December 31, 1996 and 1995 and
periodically throughout the years, has maintained balances in various operating
and money market accounts in excess of federally insured limits.
Property, plant and equipment - Property, plant and equipment are carried
at cost less accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets.
Inventories - Inventories are valued at the lower of cost, determined by
the first-in, first-out method, or market. Cost includes materials, direct labor
and manufacturing overhead.
Research and development contracts - The Company recognizes revenue on
research and development contracts on the completed contract method. The related
costs are deferred until the completion of the contract. Anticipated losses on
contracts are recorded in the period they become known.
Stock options and warrants- The Company records transactions involving its
stock options and awards under APB Opinion 25.
Loss per common share - Loss per common share was computed by dividing net
loss by the weighted average number of shares of common stock outstanding during
each period. No effect has been given to outstanding stock options, since the
effect would be anti-dilutive.
30
<PAGE>
BIOSEARCH MEDICAL PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. Liquidity
The Company's financial statements have been presented on the basis that
it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company had
suffered recurring losses from continuing operations before extraordinary items
of $883,568 in 1996 and $843,632 in 1995. However, during 1994, the Company
realized a net profit of $2,896,583 before extraordinary items. The 1994 profit
is primarily the net result of non-recurring gains from the sale of certain
assets and the licensing and sub-licensing of certain patented technology.
Further, the non-recurring gain reflects the recognition of certain covenant
agreements and the significance of an arrangement to continue to manufacture and
supply products to Sherwood Medical Company, details of which are more fully
described in note 4 below.
There is no assurance that the Company's revenue from its OEM strategic
alliances or niche surgical and biofeedback products will reach volumes to which
long-term operations can be conducted.
Management believes that the Company's financial condition at December 31,
1996 represents an adequate base to conduct current operations. However, the
Company's ability to continue as a going concern is dependent upon its success
at generating sufficient cash flow or to obtain additional financing as required
to meet its long-term obligations, support its working capital needs and sustain
the potential for ongoing losses while trying to embark on a campaign to
generate profitable revenue levels. The Company had no available line of credit
established at December 31, 1996.
3. Sale of Product Enteral Pump Business and Product Licensing/Distribution
In 1993, the Company entered into an exclusive technology and patent
license agreement with Nutricia, B.V. In connection with the new agreement the
Company has sublicensed its Hydromer technology and patent license. The
agreement provides Nutricia with the right to manufacture and sell under their
name the Company's line of enteral and surgical products in Europe, Africa,
Australia and Asia, with the exception of Japan, while reserving the Company's
rights to sell its products in those markets under the Company's
trademarks/tradenames. The Company receives a 5% royalty for the life of
patented products.
The agreement also provides for the development of products by both
companies per a five year non-cancellable cooperative arrangement expiring
February 1998. This European partner is expected to retain the Company's
innovative research and develop abilities for additional fees. The rights to any
new products subsequently developed will be individually negotiated. Any other
similar new product developed independently by either party will be subject to
the right of first refusal by the other.
31
<PAGE>
BIOSEARCH MEDICAL PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. Sale of Product Line, Disposition of Assets & "J" Tube Agreement
Sale of Pee WeeTM Tube Product Line
On April 4, 1994 the Company completed the sale of its Pee Wee low
profile, enteral tube product line for $100,000 cash. This sale provides the
purchaser with all rights to the product including marketing and the
technological know-how to manufacture the product. In connection with the
agreement the related manufacturing assets were sold.
Sherwood Medical Company Agreement
On May 20, 1994, the Company announced that it sold all assets, except
inventories, used exclusively in the manufacture, sale and distribution of its
enteral access device business, including trademarks to Sherwood Medical Company
(except the Pee WeeTM low profile enteral product line which was sold to another
large medical products company during April 1994). In addition, the Company
licensed and sub-licensed certain patented technology. The Company agreed to a
two year supply agreement of the same products at cost plus ten percent. The
Company agreed to a five year covenant not to manufacture or sell medical
devices promoted for gastrointestinal feeding or gastric decompression. A two
and one half year supply agreement was also signed on the Company's "J-Tube"
products subject to existing agreements with other companies. The total
consideration for the asset sale and license of technology was a $3,500,000 cash
payment, $1,000,000 of which is subject to a two year escrow arrangement.
Sherwood Medical Company is a leading manufacturer and marketer of medical
products and a subsidiary of American Home Products Corporation (NYSE: AHP), a
New Jersey based diversified healthcare company.
"J" Tube Agreement
During January 1994, the Company appointed a large U.S. medical products
company as a non-exclusive private label distributor of certain Specialty G.I.
Products, specifically, the Company's "J-Tubes" and their related accessories.
The agreement provides for the up-front payment of $200,000 to the Company plus
a receivable of $200,000 to be paid upon the U.S. company's ability to secure a
510(k) from the FDA on the product, or no later than February 1995, which ever
occurs first. The receivable was paid in February 1995 as contemplated by the
Company.
32
<PAGE>
BIOSEARCH MEDICAL PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. Inventories
December 31,
------------------------
1996 1995
-------- ------
Finished goods $ 130,432 $ 64,102
Work-in-process 167,897 243,751
Raw materials 215,222 308,238
---------- ----------
$ 513,551 $ 616,091
=========== ===========
6. Property, Plant and Equipment
December 31,
----------------------------- Estimated
1996 1995 Useful Lives
-------- -------- ------------
Land $ 137,182 $ 137,182
Buildings and
improvements 1,699,172 1,672,634 40 years
Machinery and equipment 1,897,315 1,760,140 3 - 10 years
Furniture and fixtures 517,386 508,919 5 years
----------- -----------
$ 4,251,055 $ 4,078,875
=========== ===========
Depreciation and amortization charged to income was $90,862, $115,215 and
$124,132 in 1996, 1995 and 1994, respectively.
33
<PAGE>
BIOSEARCH MEDICAL PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. Long-Term Debt
December 31,
------------------------
1996 1995
-------- ------
Note payable due April 1, 2007 $ 699,522 $ 732,170
Less current maturities 36,788 32,648
---------- ---------
Long-term debt $ 662,734 $ 699,522
========== ==========
This note is collateralized by a first mortgage on the Company's
Somerville, New Jersey facility and miscellaneous equipment, and represents
Economic Development Authority ("EDA") funds. The note bears an interest rate of
75% of prime (8.25% at December 31, 1996) with a minimum interest rate of 11.25%
and a maximum interest rate of 22.5%. The principal is payable in varying
monthly installments of principal and interest, with the final payment due April
1, 2007.
The approximate aggregate amount of the principal payments due in each of
the next five years and thereafter is as follows:
Years Ended Principal
December 31, Payments Due
------------ ------------
1997 $ 37,000
1998 41,000
1999 47,000
2000 53,000
2001 59,000
Thereafter 462,000
8. Keyman Life Insurance Policy Loan and Cash Surrender Value
The keyman whole life policy was surrendered in July 1996 in favor of term
insurance and the Company received $420,000, which was used to fund operations.
9. Savings and Investment Plans
In May 1988, the Company established a contributory 401(k) plan for all
eligible employees. However, in April 1991, the Company's Board of Directors
indefinitely suspended the Company's contribution primarily due to the Company's
adverse profit performance. The Company pays the cost of administering the plan
which totaled approximately $7,000, $6,600 and $7,300, for 1996, 1995 and 1994,
respectively.
34
<PAGE>
BIOSEARCH MEDICAL PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. Income Taxes
Deferred tax attributes resulting from differences between financial
accounting amounts and tax bases of its assets and liabilities at December 31,
follow:
1996 1995
----------- -----------
Current assets and liabilities:
Allowance for doubtful accounts $ 13,000 $ 27,000
Inventory valuation reserve 127,000 152,000
Inventory overhead capitalization 21,000 21,000
----------- -----------
161,000 200,000
Valuation allowance 161,000 200,000
----------- -----------
Net current deferred tax assets $ - $ -
=========== ===========
Non current assets and liabilities:
Depreciation (316,000) (316,000)
Net operating loss carryforward 3,853,000 3,310,000
Alternative minimum tax credit carryforward 60,000 60,000
Investment tax credit carryforward 182,000 182,000
----------- -----------
3,779,000 3,236,000
Valuation allowance 3,779,000 3,236,000
----------- -----------
Net noncurrent deferred tax asset $ - $ -
=========== ===========
The provision for income taxes consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Current tax expense $ - $ - $ 60,000
Deferred tax benefit (504,000) (280,000) (82,000)
Net change in valuation allowance 504,000 280,000 82,000
----------- ----------- -----------
$ - $ - $ 60,000
============== =============== ==========
</TABLE>
35
<PAGE>
BIOSEARCH MEDICAL PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. Income Taxes (cont'd)
The statutory income tax rate differs from the effective tax rate used in
the financial statements for the years ended December 31, 1996 and 1995 as a
result of current year net operating loss, the benefit of which has not been
recognized in the current year. The provision for income taxes for the year
ended December 31, 1994 has been reduced by $1,607,000, the benefit of net
operating loss carryforwards.
The investment tax credit carryforward expires in various years through
2000.
As of December 31, 1996, the Company had available the following net
operating loss carryforwards for tax purposes:
Expiration Date:
Year ending December 31, Federal State
- ------------------------ ------- -----
1997 - $1,355,000
1998 - 143,000
1999 - 1,439,000
2000 - 1,707,000
2001 - 295,000
2003 $1,374,000 939,000
2004 2,183,000 1,102,000
2005 195,000 -
2006 1,637,000 -
2007 1,739,000 -
2008 316,000 -
2010 938,000 -
2011 1,102,000 -
----------- ----------
$9,484,000 $6,980,000
========== ==========
11. Supplemental Cash Flow Information
Cash payments during 1996, 1995 and 1994 for interest were approximately
$83,275, $85,063 and $204,970, respectively. Cash payments during 1996, 1995 and
1994 for income taxes were $0, $0 and $60,000, respectively.
36
<PAGE>
BIOSEARCH MEDICAL PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. Stock Options and Stock Awards
Stock Options
During 1992, 8,000 options at $3.35 per share were granted to a board
member and 5,000 options at $1.50 per share were granted to a product
development consultant, (options were at the per share market value on the date
of the grant). At December 31, 1996 these 13,000 options remained reserved under
these grants. In September 1992, the Company issued 30,180 five-year stock
options to employees in recognition of a wage freeze and service time,
reflecting a market price at the time of $.35 per share which vested in
one-third portions per year over three years of continued employment beginning
October 1, 1993. At December 31, 1996, 15,100 shares remain reserved under this
grant.
During 1994, 133,515 five-year stock options were granted to employees in
continued recognition of a wage freeze and service time. The options reflect a
market price on the date of the grant of $.50 per share which vested in
one-third portions per year over three years of continued employment beginning
April 6, 1994. Additionally, 32,000 five-year stock options were granted to
board members and 5,000 options were granted to a product development consultant
reflecting a price of $.50 per share, and 600 five year options granted to a
certain officer of the Company at $.60 per share. These shares were also priced
at the per share market value on the date of the grant. A total 171,115 were
granted in 1994. At December 31, 1996, 112,415 shares remain reserved which is
net of the expirations attributed to employment terminations.
During 1996, 8,000 five-year stock options were granted to a new board
member at $.20 per share. At December 31, 1996 all 8,000 shares remain reserved.
The effect of applying FASB 123's fair value method to the Company's
options issued in 1996 and 1995, for 8,000 and 0 shares, respectively, would
result in net income and earnings per share that are not materially different
from amounts reported.
Transactions relating to stock options for the years ended December 31,
1996, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
Number of Shares
---------------------------------------------------
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Outstanding, January 1, 150,155 219,755 125,080
Granted 8,000 - 171,115
Exercised -- -- --
Expired ( 9,640) ( 69,600) ( 76,440)
-------- --------- -----------
Outstanding December 31, 148,515 150,155 219,755
======== ========== ==========
Exercise price $.20 to $3.35 $.35 to $3.35 $.35 to $3.35
Exercisable, December 31, 121,376 68,212 69,640
========== ========= =========
</TABLE>
37
<PAGE>
BIOSEARCH MEDICAL PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. Stock Options and Stock Awards (cont)
Stock Awards
During 1996, 1995 and 1994 the Company awarded shares of common stock to
certain employees for five and ten years of continued employment. The common
stock awarded was issued without any restrictions from the Company's treasury
stock. The related compensation expense is recorded in selling, general and
administrative expense.
13. Stock Authorization
As of June, 1995 the Company's aggregate of authorized common stock stood
at 25,000,000 shares. On June 21, 1995, the shareholders authorized a 1 for 5
reverse stock split, making the total of the Company's aggregate of authorized
common stock stand at 5,000,000 shares. As of December 31, 1995, there were
2,210,798 shares issued. All common stock shares and related information have
been restated for the reverse stock split.
14. Related Party Transactions
In 1982 the Company entered into an exclusive, world-wide, royalty free
license with Hydromer, Inc. to use Hydromer coating on its enteral feeding
products. In 1991, the Company entered into a license agreement, as amended,
with Hydromer for the use of certain patents to coat products which were not
included in the royalty-free license, specifically the products are for
pancreatic and biliary stents, hemostatic coagulation probes and a introducer
catheter device. The terms and conditions of these licenses are no more
favorable than Hydromer grants to any other third party. Manfred F. Dyck,
President and Chief Executive Officer of the Company, is also a major
stockholder, President and Chief Executive Officer of Hydromer, Inc.
Purchases of coating products from Hydromer in 1996, 1995 and 1994
amounted to approximately $30,000, $18,000 and $22,400, respectively. License
agreement fees in connection with the amended license agreement amounted to
approximately $0, $0 and $10,000 in 1996, 1995 and 1994, respectively. There was
a $25,000 expense paid to maintain the license. . 15. Commitments and
Contingencies
There are no claims or actions against the Company which will materially
effect its financial statements.
38
<PAGE>
BIOSEARCH MEDICAL PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
16. Segment Information and Credit Concentration
The Company considers that its products and services compete in the
business segment of the "Medical Device" industry involving research,
development, manufacturing and sale.
Sales of the Company's products to specific customers may, at times, be
significant to the overall revenues of the Company. During 1996 and 1995,
Sherwood Medical Company accounted for approximately 74% and 85% of the
Company's revenues ,respectively, and is approximately 36% and 59% of the
Company's net accounts receivable at December 31, 1996 and 1995, respectively.
No other single customer accounted for more than 10% of the Company's revenue in
1996, 1995, or 1994.
17. Research and Development
Research and development costs are expensed as incurred. Such expenses
were approximately $38,000, $65,000 and $45,000 in 1996, 1995 and 1994
respectively. The Company may, from time to time, utilize certain physicians and
surgeons, who are recognized in their field of expertise, for product
development and evaluations. Remunerations to these medical professionals for
their efforts may be in the form of royalties contingent on the products being
subsequently marketed and revenue streams generated. The cost of such royalties
are expensed as incurred in selling, general and administration expense.
39
<PAGE>
BIOSEARCH MEDICAL PRODUCTS, INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions(1) Period
--------- -------- ------------- ------
<S> <C> <C> <C> <C>
Year ended:
December 31, 1996
Allowance for
doubtful accounts $ 67,562 $ 0 $ 34,724 $ 32,838
Year ended:
December 31, 1995
Allowance for
doubtful accounts $ 77,881 $(10,305) $ 14 $ 67,562
Year ended:
December 31, 1994
Allowance for
doubtful accounts $118,666 $(33,574) $ 7,211 $ 77,881
</TABLE>
(1) Accounts written off during year
40
<PAGE>
INDEX TO EXHIBITS
3 (a) - Certificate of Incorporation of the Company
3 (b) - By-Laws of the Company
10(a) - Agreement dated December 11, 1979 between the Company and Dr.
Robert D. Dobbie (Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-1 (No. 2-70688)
10(b) - Employment Agreement dated December 29, 1980 between the Company and
Manfred F. Dyck, (Incorporated by reference to Exhibit 10.3 to the
Registration Statement on form S-1 (No. 2-70688)
10(c) - Credit Agreement dated as of April 1, 1982 among the New Jersey
Economic Development Authority, the Company and Franklin State Bank
(Incorporated by reference to Exhibit 10 (g) to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1982)
10(e) - Mortgage dated April 30, 1982 between the Company and the New Jersey
Economic Development Authority (Incorporated by reference to Exhibit
20 (h) to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1982)
10(f) - Series A Note dated April 30, 1982 executed by the Company to the
New Jersey Economic Development Authority (Incorporated by reference
to Exhibit 10 (i) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1982)
10(g) - Series B Note dated April 30, 1982 executed by the Company to the
New Jersey Economic Development Authority (Incorporated by reference
to Exhibit 10 (j) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1982)
10(h) - Lease dated July 1, 1982 between Pembroke Agricultural Corporation
and Pouch Laboratories, Inc. (Incorporated by reference to Exhibit
10(m) to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1982)
10(i) - License Agreement dated July 19, 1982 between the Company and
Hydromer, Inc. (Incorporated by reference to Exhibit 10(n) reference
to Exhibit 10(n) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1982)
10(j) - Manufacturing Agreement dated July 22, 1982 between the Company and
Ludlow Corporation (Incorporated by reference to Exhibit 10(o) to
the Annual Report on Form 10-K for the fiscal year ended December
31, 1982)
10(k) - Purchase Agreement dated May 6, 1983 between the Company and Organon
Inc. (Incorporated by reference to Exhibit 2(a) to the Current
Report on Form 8-K dated June 14, 1983)
10(l) - Amendment dated June 10, 1983 to Purchase Agreement dated May 6,
1983 between the Company and Organon Inc. (Incorporated by reference
to Exhibit 2(b) to the current Report on Form 8-K dated June 14,
1983)
41
<PAGE>
10(m) - Deed of Trust dated June 13, 1983 among the Company, Ticor Title
Insurance Company and Franklin State Bank (Incorporated by reference
on Exhibit 10(m) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1983)
10(n) - Revolving Credit Agreement dated June 14, 1983 between the Company
and Franklin State Bank (Incorporated by reference on Exhibit 10(n)
to the Annual Report on Form 10-K for the fiscal year ended December
31, 1983)
10(o) - Mortgage dated June 14, 1983 executed by the Company to Franklin
State Bank (Incorporated by reference on Exhibit 10(o) to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1983)
10(p) - Amendment No. 2 dated June 14, 1983 to Purchase Agreement dated May
6, 1983 between the Company and Organon, Inc. (Incorporated by
reference to the Current Report on Form 8-K dated June 14, 1983)
10(q) - Amendment to Revolving Credit Agreement dated September 13, 1983
between the Company and Franklin State Bank (Incorporated by
reference on Exhibit 10(q) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1983)
10(r) - Mortgage dated September 22, 1983 executed by the Company to
Franklin State Bank (Incorporated by reference on Exhibit 10(r) to
the Annual Report on Form 10-K for the fiscal year ended December
31, 1983)
10(s) - Long Form Deed of Trust and Assignment of Rents dated September 22,
1983 executed the Company to Franklin State Bank (Incorporated by
reference on Exhibit 10(s) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1983)
10(t) - Second Amendment to Revolving Credit Agreement dated January 11,
1984 between the Company and Franklin State Bank (Incorporated by
reference on Exhibit 10(t) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1983)
10(u) - Promissory Note dated January 11, 1984 executed by the Company to
Franklin State Bank. (Incorporated by reference on Exhibit 10(u) to
the Annual Report on Form 10-K for the fiscal year ended December
31, 1983)
10(v) - Promissory Note dated January 11, 1984 executed by the Company to
Franklin State Bank (Incorporated by reference on Exhibit 10(v) to
the Annual Report on Form 10-K for the fiscal year ended December
31, 1983)
10(w) - Warrant Certificate dated January 11, 1984 executed by the Company
to Franklin State Bank (Incorporated by reference on Exhibit 10(w)
to the Annual Report on Form 10-K for the fiscal year ended December
31, 1983)
10(x) - Warrant Certificate dated January 11, 1984 executed by the Company
to First Empire State Corporation. (Incorporated by reference on
Exhibit 10(x) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1983)
10(y) - Promissory Note dated as of January 11, 1984 executed by the Company
to Manfred F. Dyck. (Incorporated by reference on Exhibit 10(y) to
the annual Report on Form 10-K for the fiscal year ended December
31, 1983)
42
<PAGE>
10(z) - Letter Agreement dated as of January 11, 1984 between the Company
and Manfred F. Dyck. (Incorporated by reference on Exhibit 10(z) to
the Annual Report on Form 10-K for the fiscal year ended December
31, 1983)
10(aa) - Modification Agreement dated January 11, 1984 between the Company
and Franklin State Bank (Incorporated by reference on Exhibit 10(aa)
to the Annual Report on Form 10-K for the fiscal year ended December
31, 1983)
10(bb) - Modification Agreement dated January 11, 1984 between the Company
and Franklin State Bank. (Incorporated by reference on Exhibit
10(bb) to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1983)
10(cc) - Stock Option Plan of the Company (Incorporated by reference to
Exhibit 10(p) to the Annual Report on Form 10-K for the Fiscal year
ended December 31, 1982)
10(dd) - Assignment of Lease dated October 1, 1984 from CardioSearch Inc. to
the Company. (Incorporated by reference to Exhibit 10(dd) to the
Annual Report on Form 10-K for the fiscal year December 31, 1984)
10(ee) - Lease Agreement dated September 26, 1984 between the Company and
Morton Street Realty Company. (Incorporated by reference to Exhibit
10(ee) to the Annual Report on Form 10-K for the fiscal year
December 31, 1984)
10(ff) - Agreement dated June 6, 1984 between the Company and Midwest
Metabolic Support Group as amended on October 17, 1984.
(Incorporated by reference to Exhibit 10 (ff) to the Annual Report
on Form 10K for the fiscal year December 31, 1984)
10(gg) - Agreement dated October 18, 1984 between the Company and Midwest
Metabolic Support Group. (Incorporated by reference to Exhibit
10(gg) to the Annual Report on Form 10-K for the fiscal year
December 31, 1984)
10(hh) - Agreement and release between Organon Inc. and the Company dated
January 29, 1985. (Incorporated by reference to Exhibit 10(hh) to
the Annual Report on Form 10-K for the fiscal year December 31,
1984)
10(ii) - Documents evidencing $500,000 Loan from Franklin State Bank to the
Company including Promissory Note Mortgage Modification Agreements
Third Amendment to Revolving Credit Account. (Incorporated by
reference to Exhibit 10(ii) to the Annual Report on Form 10-K for
the fiscal year December 31, 1984)
10(jj) - Form of 6 1/2 per cent Convertible Subordinated Note due August 2,
1991(Incorporated by reference to Exhibit 4(a) to the Registration
Statement on Form S-3 Number 2-92798)
10(kk) - Conversion Agency Agreement dated July 26, 1984 among the Company,
Citicorp Bank (Switzerland), J. Henry Schroder Bank AG, Banque
Scandinave en Suisse, Dai-Ichi Kangyo Bank (Schweiz) AG and
Kredietbank (Suisse) SA (Incorporated by reference to Exhibit 4(b)
to the Registration Statement on Form S-3 Number 2-92798)
10(ll) - Letter Agreement dated August 9, 1984, between Franklin State Bank
and the Company, amending Warrant No. 2 (Incorporated by reference
to Exhibit 4(d) to the Registration Statement on Form S-3 Number
2-92798)
43
<PAGE>
10(mm) - Letter Agreement dated August 9, 1984 between First Empire State
Corporation and the Company, amending Warrant No. 3 (Incorporated by
reference to Exhibit 4(b) to the Registration Statement on Form S-3
Number 2-92798)
10(nn) - Warrant No. 2-1 dated as of January 11, 1984 ("Warrant No. 2-1")
executed by the Company to Manfred F. Dyck. (Incorporated by
reference to Exhibit 4(q) to the Registration Statement on Form S-3
Number 2-92798)
10(oo) - Letter Agreement dated August 9, 1984, between Manfred F. Dyck to
the Company amending Warrant No. 2-1. (Incorporated by reference to
Exhibit 4(h) to the Registration Statement on Form S-3 Number
2-92798)
10(pp) - Warrant No. 5 dated August 6, 1984 executed by the Company to
Franklin State Bank. (Incorporated by reference to Exhibit 4(i) to
the Registration Statement on Form S-3 Number 2-92798)
10(qq) - Warrant No. 6 dated August 6, 1984 executed by the Company to First
Empire State Corporation (Incorporated by reference to Exhibit 4(j)
to the Registration Statement on Form S-3 Number 2-92798)
10(rr) - Loan and Security Agreement between United Jersey Bank and the
Company, including exhibits thereto, and Revolving Note executed by
the Company pursuant to the terms thereof, all dated January
10,1985. (Incorporated by reference to Exhibit 10(rr) to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1984)
10(ss) - Documents evidencing the payment of debt to Franklin State Bank and
return of all outstanding promissory notes and cancellation of
mortgages. (Incorporated by reference to Exhibit 10(ss) to the
Annual Report on Form 10K for the fiscal year ended December 31,
1984)
10(tt) - Plant Purchase Agreement dated November 14, 1985 by and between
Biosearch Medical Products Inc. and Cheeseborough-Ponds Inc.
(Incorporated by reference to Exhibit 2(a) to Current Report on Form
8-K dated November 14, 1985)
10(uu) - Amendment to Loan and Security Agreement by and between United
Jersey Bank and Biosearch Medical Products Inc. and revised
Promissory Note, all dated November 25, 1985.
10(ww) - Extension to Lease by and between Pouch Laboratories Inc. and
Pembroke Agricultural Corporation dated June 24, 1985.
10(xx) - Commitment Letter dated July 1, 1986 from United Jersey Bank
describing amended facility.
10(yy) - Employment Agreement dated December 29, 1980 between the Company and
Ronald G. Callanan.
10(zz) - Biosearch Medical Products, Inc. Profit Sharing Retirement Plan
10(aaa)- Lease agreement by and between Biosearch Medical Products, Inc. and
Morton Street Realty Company, dated January 1, 1986.
44
<PAGE>
10(bbb)- Amendment to Loan and Security Agreement by and between United
Jersey Bank and Biosearch Medical Products, Inc. and revised
Promissory Note, all dated November 7, 1986.
10(ccc)- A long-term agreement by and between Biosearch Medical Products,
Inc. and Mead Johnson Nutritional Group of Bristol-Myers for the
exclusive marketing rights to private label Entri-Pak products and
other marketing rights to Biosearch Enteral feeding pumps and pump
sets.
10(ddd)- Amendment Number 1 to agreement by and between Biosearch Medical
Products, Inc. and Mead Johnson Nutritional Group of Bristol-Myers
for cost reduction project for development of the capability to
manufacture Entri-Pak packaging.
10(eee)- Amendment number 2 to agreement by and between Biosearch Medical
Products, Inc. and Mead Johnson Nutritional Group of Bristol-Myers
for settlement of shortfall of first twelve months purchase
requirements of Entri-Pak.
10(fff)- Amendment of lease agreement dated January 8, 1986 by and between
Biosearch Medical Products, Inc. and Morton Street Realty Company.
10(ggg)- Term Note dated April 28, 1989 between Biosearch Medical Products,
Inc. and the First Jersey National Bank.
The following exhibits are incorporated by the respective reference symbol to
the Annual Report on Form 10-K for the fiscal year ended December 31, 1988:
10(hhh)- Pembroke Agricultural Corporation and Pouch Laboratories, Inc.
Second rider to lease dated June 1, 1988.
10(iii)- Extension and Amendment to a lease agreement between Morton Street
Realty Company and Biosearch Medical Products, Inc. dated January 1,
1989.
10(jjj)- Subordinated promissory note and warrant purchase agreement by and
between Biosearch Medical Products, Inc. and The Redemptionist Order
of New York due February 1, 1990.
10(kkk)- Dieter Heinemann non-negotiable note - extension due February 27,
1990.
10(lll)- Subordinated promissory note and warrant purchase agreement by and
between Biosearch Medical Products, Inc. and Donald R. Gordon due
February 1, 1991.
10(mmm)- Subordinated promissory note and warrant purchase agreement by and
between Biosearch Medical Products, Inc. and National Aviation and
Technology Corporation due February 1, 1991.
10(nnn)- Subordinated promissory note and warrant purchase agreement by and
between Biosearch Medical Products, Inc. and Phyllis A. McVeigh due
February 1, 1991.
10(ooo)- Subordinated promissory note and warrant purchase agreement by and
between Biosearch Medical Products, Inc. and Ronald J. Clayton due
February 1, 1991.
10(ppp)- Subordinated promissory note and warrant purchase agreement by and
between Biosearch Medical Products, Inc. and Louis P. Pellegrino due
February 1, 1991.
10(qqq)- Travenol Laboratories vendor-produced finished goods purchase
agreement enteral feeding
45
<PAGE>
tubes purchase.
10(rrr)- Consulting and Finders agreement by and between Baladi and Company
and Biosearch Medical Products, Inc.
10(sss)- Term note of Biosearch Medical Products, Inc. payable to the order
of the First Jersey National Bank $1,000,000 - 90 days. Modification
of note consent of Borrower and Guarantor. Reaffirmation of the
obligations of Biosearch Medical Products, Inc. Reaffirmation of the
guaranty of Biosearch Pouch Laboratories, Inc. Extension from 90
days to one year.
The following exhibits are incorporated by the respective reference symbol to
the Annual Report on Form 10-K for the fiscal year ended December 31, 1989:
10(ttt)- 9% Subordinated Promissory Notes due February 1, 1991 agreement by
Biosearch and Ben A. Posdal, National Aviation and Technology, T'Ang
Management, Herbert W. Marache, Ronald Clayton and Richard K.
Greene.
10(uuu)- Revolving Credit Agreement dated August 15, 1990 between Biosearch
and Fidelcor Business Credit Corporation.
10(vvv)- 10% Subordinated Convertible Notes due August 2, 1992, aggregate
$3,080,000 by Biosearch and Kiener & Co., Attel et Cie, Algemene
Bank Nederland, Mirabaud et Cie and Thurgauer Kantonalbank.
10(www)- Agreement known as the "Hang and Spike Products Purchase Agreement"
between Biosearch and Clintec Nutrition Company dated December 1,
1989.
10(xxx)- Agreement of Sale between Biosearch Pouch Laboratories, Inc., and
SPD Enterprises, Inc., dated December 15, 1989 cancellation of lease
agreement and acquire assets.
10(yyy)- Warehouse lease agreement dated March 15, 1990 between Biosearch and
MSA Associates.
The following exhibits are incorporated by the respective reference symbol to
the Annual Report on Form 10-K for the fiscal year ended December 31, 1990:
10(zzz)- Clintec "Hang & Spike Products Purchase Agreement" amendment dated
September 14, 1990.
10(aaaa)- Agreement between Biosearch Medical Products, Inc. and Hydromer,
Inc. dated January 11, 1991 obtaining a license from Hydromer - use
and sell coatings on Biosearch Products.
10(bbbb)- March 7, 1990 conversion of aggregate $2,080,000 10% U.S.
Denominated Convertible Subordinated Notes, originally due August 2,
1992, into aggregate 1,040,000 shares of Common Stock and $1,040,000
of 10% U.S. Denominated Non-Convertible Subordinated Notes due April
1, 1992, between Biosearch and 1) Algemene Bank Nederland, 2) Attel
et Cie, 3) Kiener & Co., 4) Miraband & Cie.
10(cccc)- Agreement between NatWest Bank, N.J. and Biosearch Med. Prod. dated
February 20, 1991.
The following exhibits are incorporated by the respective reference symbol to
the Annual Report on Form 10-K for the fiscal year ended December 31, 1991:
46
<PAGE>
10(dddd)- License agreement amendment between Biosearch Medical Products, Inc.
and Hydromer, Inc. Dated December 12, 1991.
10(eeee)- Independent Manufactures Representative standard agreement example
between Biosearch Medical Products, Inc. and various manufacturer
representative organizations.
10(ffff)- Sale of assets between Biosearch Medical Products, Inc. and Clintec
Nutrition Company. Dated June 17, 1991.
10(gggg)- Royalty agreement example between Biosearch Medical Products, Inc.
and various physicians for product development.
10(hhhh)- September 5, 1991 conversion of $890,000 of 10% U.S. Denominated
Non-Convertible Subordinated Notes due April 1, 1992, into aggregate
754,239 shares of Common Stock between Biosearch and 1) Mirabaud &
Cie, 2) Attel et Cie, 3) Algemene Bank Nederlands. (Incorporated by
reference on exhibit 10(hhhh) to the Annual Report on Form 10K for
the fiscal year ended December 31, 1992).
10(iiii)- February 11, 1992 conversion of $620,000 10% U.S. Denominated
Convertible Subordinated Notes, originally due August 2, 1992, and
$150,000 of 10% U.S. Denominated NonConvertible Subordinated Notes
due April 1, 1992, into aggregate 1,243,848 shares of Common Stock
between Biosearch and 1) Kiener & Cie, 2) Royal Trust Bank - London.
10(jjjj)- Pump manufacturing agreement between Biosearch Medical Products,
Inc. and N. V. Verenigde Bedrijven Nutricia.
10(kkkk)- Warehouse lease amendment dated May 8, 1992 between Biosearch and
MSA Associates.
The following exhibits are incorporated by the respective reference symbol to
the Annual Report on Form 10-K for the fiscal year ended December 31, 1992:
10(llll)- Ross Laboratories, paid-up royalty for a non-exclusive licence to
the Company's patented Flow-ThroughTM stylet.
10(mmmm)- Retirement of $300,000 U.S. Denominated 10% Subordinated Convertible
Notes, due August 2, 1992, into $300,000 10% U.S. Denominated
Non-Convertible Subordinated Notes, due August 2, 1994,
10(nnnn)- Product line purchasing agreement between Biosearch Medical
Products, Inc. and N. V. Verenigde Bedrijven Nutricia.
10(oooo)- Extension of existing warehouse lease - dated March 8, 1993 between
Biosearch and MSA Associates.
10(pppp) Promissory note between Medical Specialties Co., Inc. and Biosearch
Medical Products, Inc.
47
<PAGE>
The following exhibits are incorporated by the respective reference symbol to
the Annual Report on Form 10-K SB for the fiscal year ended December 31, 1993:
10(qqqq) Product distribution and license agreements between Biosearch
Medical Products, Inc. and N. V. Verenigde Bedrijven Nutricia, dated
April 8, 1993.
10(rrrr) Product distribution and license agreements between Biosearch
Medical Products, Inc. and C. R. Bard, dated January 1, 1994.
The following exhibits are incorporated by the respective reference symbol to
the Annual Report on Form 10-K SB for the fiscal year ended December 31, 1994:
10(ssss) Asset Purchase Agreement Pee Wee Tube product line between Biosearch
Medical Products, Inc. and C. R. Bard, dated April 4, 1994.
10(tttt) Asset Purchase Agreement including product supply patent license
J-Tube Supply and Escrow Agreements between Biosearch Medical
Products, Inc. and Sherwood Medical Products (subsidiary American
Home Products), dated May 19, 1994.
22 - Subsidiary of the Company
Exhibit 22
Subsidiary of the Company
The following table sets forth certain information as of December
31, 1992 concerning the subsidiaries of the Company.
Percentage
Place of Owned by
Incorporation the Company
------------- -----------
Pouch Laboratories, Inc. New Jersey 100%
During August, 1993 a resolution was passed by the Company's Board Of
Directors to dissolve Pouch Laboratories, Inc. having no reason to
maintain the existence of this subsidiary. (See note 4, "Discontinued
Operations" - 1993 10-K SB)
25 - Power of Attorney (see "Power of Attorney" in the Annual Report on
Form 10-K SB)
27 - Financial Data Schedule
48
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 321,376
<SECURITIES> 0
<RECEIVABLES> 182,247
<ALLOWANCES> 0
<INVENTORY> 513,551
<CURRENT-ASSETS> 1,047,839
<PP&E> 4,251,055
<DEPRECIATION> 2,799,250
<TOTAL-ASSETS> 2,513,224
<CURRENT-LIABILITIES> 354,134
<BONDS> 0
0
0
<COMMON> 11,129,954
<OTHER-SE> (9,633,598)
<TOTAL-LIABILITY-AND-EQUITY> 2,513,224
<SALES> 2,648,719
<TOTAL-REVENUES> 2,648,719
<CGS> 2,238,606
<TOTAL-COSTS> 2,238,606
<OTHER-EXPENSES> 1,222,901
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,055
<INCOME-PRETAX> (883,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (883,568)
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