BIOSEARCH MEDICAL PRODUCTS, INC.
Item 2. Management Discussion and Analysis of the Financial Condition
and Results of Operations
Results of Operations
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Revenues were $186,169 for the three months ended September 30, 1998, down
$364,339 or 66.2% compared to revenues of $550,508 for the prior year three
month period. This drop in sales was due primarily to the loss of the
SIMS/Portex and Sherwood Davis & Geck business. Revenues for the nine months
ended September 30, 1998 were $1,171,351,down $56,306 or 4.6% compared to last
year's $1,227,657.
Gross profit for the third quarter 1998 was a loss of $37,514, down
$189,372 or 124.7% from a profit of $151,858 for the same period in 1997,
showing a major decline in gross margins versus prior periods. The major cause
of this decline is due to the loss of the SIMS/Portex business. The loss of this
business caused the Company to not generated enough sales to overcome the fixed
manufacturing overhead and cause a loss at the gross profit level.Nine month
figures reflect the same trend, gross profit of $196,596 is 29.2% better than
last years gross profit of $152,167. As a percent of sales however, gross profit
has dropped from 23.8% of year to date second quarter sales to 16.8% of sales
for year to date third quarter sales. This was due primarily to the loss of the
SIMS/ Portex business as discussed earlier, offset by the cost reduction
procedures implimented in 1996 and which still continue today.
The operating loss for the third quarter 1998 was $248,788 or 133.6% of
sales. This represents a increase in the loss of $190,693 or 428.2% compared to
the 1997 loss of $58,095 or 10.6% of sales during the same period last year.
Year to date 1998, the operating loss is $440,737 or 37.6% of sales against a
loss of $498,196 or 40.6% of sales for 1997. These losses are largely due to the
loss of the SIMS/Portex business as discussed earlier, offset by significant
cost reductions attained in the sales and general administration area during
this period.
The net loss for the third quarter 1998 was $243,788 or 130.9%, which was
$172,354 or 341.37% greater than 1997 third quarter net loss of $71,434 or 13%of
sales. As of September 30, 1998 the year to date net loss is $456,278 or 39% of
sales, which is less by $79,813 or 14.9% from last years loss of $536,091 or
43.7% of sales. Cost reductions continue to be attained, however sales volumes
have to be increased for the company to continue as a going concern.
Liquidity and Capital Resources
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The Company's operating activities generated $108,290 for the third quarter
1998, and year to date 1998 generated $111,112. There were no Investing
activities during the third quarter 1998 and year to date $3,488 was used. There
were no financing activities during 1998.
For the three month period ended September 30, 1998 the Company's cash
generation was due primarily from a deposit of $245,000 from a large
conglomerate and receivable collections of over $100,000 offset by a third
quarter loss of $243,788.
Management believes that the Company's financial condition at September
30,1998 represents an uncertain base to conduct operations. There is no
assurance that the Company will attain the needed volumes to sustain the
Companys' operations and generate sufficient cash flow to meet all its
obligations.
The Company continues to focus all its efforts on its OEM business and its
intermittent urinary catheter product line. The Company is ISO 9001 certified
and received its CE mark certification for all its products including devices
such as the coagulation probe, indwelling biliary stent, urinary and fecal
incontinence/constipation device, intermittent urinary catheter and
enteral/gastrostomy related devices. The Company feels this will open up the
European market to its products and allow additional relationships with other
large medical product comapnies who have not received their CE certification and
wish to sell their products in Europe.
<PAGE>
Item 2. Management Discussion and Analysis of the Financial Condition
and Results of Operations
Year 2000 Issue
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The Company has conducted a review of its computer systems and products to
identify what could be affected by the "Year 2000" issue. No products are
affected; all PC based hardware and software are not affected; the Company's
System 36 software may not perform the Year 2000 calculation correctly, hence
the Company is developing an implementation plan to resolve the issue. The Year
2000 problem is a result of computer programs written using only two digits
rather than four digits to define the applicable year. The Company presently
believes with modification to existing software or converting to new software
and hardware, the Year 2000 will not pose significant operational problems for
the Company's computer system.
In 1998 the Company formed a Y2K committee of its CEO, President and two
Vice Presidents. The committee has determined:
1. The contents of previous disclosures in its filings with the S.E.C.,
remain accurate.
2. It has been reaffirmed that the design of all the Company's products do
not contain any characteristics that will be affected by the Y2K issue. The
only produt that contained software code is an enteral feeding pump
(discontinued) which did not use any date functions.
As to operations, the Company is still evaluating its suppliers and vendors
for any potential business interruption against a worst case scenario of:
1. Loss of power for fourteen days, brown outs for another fourteen days.
2. Loss of natural gas after five days for twenty-three days more.
3. Disruptions in transportation for thirty days.
4. Banking closure for four weeks.
The Company's expenditure to deal with this scenario will be material. It
intends to advise its clients that shipments will be held after 12/1/99 and does
not expect to begin shipments until 2/1/2000. Loss of two months shipments is
expected to have a material effect on its financial statements.
<PAGE>
Part II - Other Information
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOSEARCH MEDICAL PRODUCTS, INC.
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Dated: January 14, 1999 /s/ Manfred F. Dyck
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Manfred F. Dyck
Chief Executive Officer and Director
Dated: January 14, 1999 /s/ Robert C. Keller
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Robert C. Keller
Treasurer
Chief Financial and Accounting Officer
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