SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
Commission file number: 1-9370
Biopharmaceutics, Inc.
-------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 13-3186327
State of Corporation (I.R.S. Employer I.D. Number)
990 Station Road, Bellport, NY 11713
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (516) 286-5800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $0.001 Par Value NASDAQ OTC Bulletin Board
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
The aggregate market value of the voting stock owned by non-affiliates of
the Registrant on November 30, 1996 was $15,576,080. On such date, the mean
price at which the stock was sold was $0.50 per share.
The number of shares of Common Stock, $.001 Par Value, outstanding as of
November 30, 1996, was 40,457,350, exclusive of outstanding, unexercised
options.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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BIOPHARMACEUTICS, INC.
FORM 10-K
(Filed for Fiscal Year Ended September 30, 1996)
TABLE OF CONTENTS
Page No.
Part I.
Item 1. Business . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . 15
Item 3. Legal Proceedings. . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to
a Vote of Security Holders . . . . . . . . . 17
Part II.
Item 5. Market for Registrant's Common
Stock and Related Shareholder
Matters . . . . . . . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . 18
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. . . . . . . . . . 19
Item 8. Financial Statements and Supplementary Data. . 21
Item 9. Disagreements on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . 21
Part III.
Item 10. Directors and Executive Officers . . . . . . 21
Item 11. Executive Compensation . . . . . . . . . . . 22
Item 12 Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . 24
Item 13. Certain Relationships and Transactions . . . . 26
Part IV.
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
Exhibit Index . . . . . . . . . . . . . . . 27
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PART I
ITEM 1. BUSINESS
The Company
Biopharmaceutics, Inc. (the "Company") was incorporated in Nevada on August
15, 1983, under the name of Health Care Facilities Corporation. On November 10,
l983, Health Care Facilities Corporation changed its name to Patient Medical
Systems Corporation. The Shareholders, on January 21, 1987, changed the
Company's name to Integrated Generics, Inc. and on March 28, 1988, to
Biopharmaceutics, Inc. and the state of incorporation from Nevada to Delaware.
The Company's executive office is located at 990 Station Road., Bellport, New
York 11713. Its telephone number is (516) 286-5800.
Business Operations
The Company's business operations, in fiscal year 1996, were principally
conducted through two wholly owned subsidiaries: Biopharmaceutics, Inc.
("Biopharm"), a New York corporation, engaged in the manufacturing of generic
pharmaceutical products and Quality Health Products, Inc. ("QHP"), a company
organized to market the line of Feminine Hygiene Products acquired in March 1996
from London International U.S. Holdings, Inc. ("LIUSH"). Anti-Sense
Technologies, Ltd., ("Anti-Sense"), a company engaged in the biotechnology field
currently holding licenses for anti-sense oligonucleotides and peptides in the
developmental stage which have displayed anti-tumor, anti-metastatic and
anti-HIV characteristics, has been inactive.
In addtion, the Company holds the license rights to Mitalactol ("DBD"), a
pharmaceutical, solid dosage which holds "Orphan Drug Status" for both the
treatment of cervical cancer and brain cancer and "ADT" the Company's licensed,
patented process for the diagnosis of Alzheimer's Disease.
The Company had ceased further expenditures for the final development of
DBD in order to concentrate its available assets on rebuilding its
pharmaceutical operations and to commence sales and marketing of its new
Feminine Hygiene Products, whose acquisition was completed in March 1996 (See
"Feminine Hygiene Products").
On September 25, 1996, the Company entered into a Joint Venture with
Advanced Biological Systems, Inc. (now ABS Group, Inc.) ("ABS") to finance the
final development and completion of the regulatory process for Mitalactol. Under
terms of the agreement, ABS will provide $1,000,000 to the Joint Venture to
cover all such costs.
In December 1995, a Federal District Court issued a Final Judgment
terminating Biopharm Lab, Inc.'s ("Lab") and the Company's rights to the Treo
license. As a result of the Court's actions, the Treo business has been
discontinued. Pursuant to a September 30, 1996 resolution of the Board of
Directors, on December 13, 1996, Lab filed a petition under Chapter 7 of the
Bankruptcy Act.
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Pharmaceutical Operations
Background
Sales of prescription generic drugs and private label over the counter
("OTC") drugs ("Non-Branded") have increased significantly in the past fifteen
years, due in part to greater awareness and acceptance of non-branded drugs by
physicians, pharmacists and consumers. Among the factors that have contributed
to this increased awareness and acceptance are favorable federal and state laws
permitting physicians or pharmacists to substitute generic drugs for brand name
drugs, and the publication by the Food and Drug Administration ("FDA") of a list
of therapeutic equivalent drugs that provides physicians and pharmacists with
the names of generic drug alternatives. In addition, various government agencies
and many private health programs encourage and, in many cases, require the
prescribing and use of non-branded drugs as a cost-saving measure.
Most, but not all, prescription drugs and several OTC drugs
require FDA approval of Abbreviated New Drug Applications ("ANDA"s) before those
drugs can be marketed. In order to obtain approval of an ANDA, an applicant
must, among other things, develop a formulation for a product, manufacture the
product, conduct stability tests on the product and, when required, provide an
independent clinical test proving that the product that is the subject of the
ANDA is the bio-equivalent of the brand name product that the subject is
designed to duplicate. Substantial funds are required to develop a line of
prescription generic drugs because of the requisite FDA approval process.
Until April 1990, Biopharm's strategy involved developing, and
filing for approval, for prescription pharmaceuticals requiring FDA approval of
ANDAs. This approach required significant expenditures for research and
development, including personnel and materials. Through April 1990, this
approach had not produced any significant tangible results. Therefore, in May
1990, Biopharm eliminated its research and development personnel and
significantly reduced its expenditures for materials related to research and
development. In addition, since May 1990, following a series of developments
involving the FDA and certain competitors of Biopharm, Biopharm had implemented
a modified marketing and development strategy.
Biopharm's product development and marketing strategy had four major areas
of concentration. Through Biopharm, the Company intended to (1) develop some of
the approximately twenty prescription products not requiring ANDA filings, (2)
broaden its OTC product line, (3) secure private formulation work for larger
branded or generic companies and (4) file ANDAs for products not requiring
clinical studies, with Biopharm's current staff performing the development and
filing work. Due to the reduction of industry competition as a result of FDA
actions, the Company believed it would be more practical to implement that
marketing strategy then, than previously.
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As a result of the temporary closure in November 1991 by the FDA (as
discussed below), Biopharm had to suspend the continued implementation of this
strategy until it became reapproved as a manufacturer. As of November 22, 1993
with the FDA approval to recommence manufacturing operations, Biopharm has taken
steps to reimplement parts 2, 3 and 4 of this strategy. The Company still
intends to implement part 1, but not in the near term.
Current Operations
Biopharm maintains manufacturing facilities and offices at the Company's
headquarters in Bellport, New York. Through November 1, 1991, Biopharm had been
engaged in the business of manufacturing and marketing private label OTC and
generic prescription pharmaceuticals to major generic drug distributors, chain
drug stores, supermarkets, drug wholesalers and other generic drug
manufacturers. Biopharm products were sold with the Customer's private label and
with the Biopharm brand label.
During that period, Biopharm manufactured various dosages of approximately
forty OTC drugs using brand names designated by Biopharm, or by its private
label customers or using their generic (chemical) names. Products were sold in
various forms, including compressed tablets, two-piece, hard-shell capsules and
caplets.
Biopharm markets its products primarily to major generic drug distributors,
chain drug stores, supermarkets, drug wholesalers and other drug manufacturers.
Non-brand drug products must meet the same government standards as brand name
drugs, but are sold at prices substantially below those of brand name drugs.
During fiscal 1991, approximately 5% of Biopharm products sold were sold with
their generic name, approximately 7% were sold with the "Biopharm" brand, and
the balance of sales were made to customers for sale with the customers' private
labels.
Following the close of the Company's 1991 fiscal year, the Federal
government, on November 1, 1991, obtained a temporary restraining order against
Biopharm and its president, Edward Fine, temporarily restraining and enjoining
Biopharm and Mr. Fine from manufacturing, processing, packing or labeling any
pharmaceutical products manufactured, processed, packed or labeled at those
facilities pending a court ruling on a government motion for a preliminary
injunction against Biopharm. The FDA's complaint centered around allegations
that Biopharm had not complied with current Good Manufacturing Practice ("cGMP")
regulations concerning such matters as packaging and labeling procedures and
controls, validation of mixing and blending procedures and the documentation of
process failures. The complaint also alleged that Biopharm had inadequately
responded to various cGMP observations following FDA plant inspections over a
period of time. On November 19, 1991, Biopharm signed a Consent Agreement with
the FDA, thereby ending the legal proceedings that gave rise to the temporary
restraining order. Biopharm had laid off a majority of its employees following
the issuance of the temporary restraining order and had ceased all operations.
Although Biopharm believes that the government's action resulted from the
independent, unauthorized activities of three former employees, each of whom
were promptly discharged by Biopharm, it determined that the signing of the
Consent Decree would be less damaging to it's business than a protracted legal
proceeding. On January 10, 1992, the FDA approved Biopharm's performance of its
obligations under the Consent Decree, as amended on December 23, 1991. As a
result, Biopharm began the process of returning to full operations.
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Since January 13, 1992, Biopharm had been operating as a repacker,
purchasing finished dosages (tablets, caplets or capsules) in bulk from other
manufacturers, and packaging them in consumer selling sizes for distribution to
its customers. Biopharm has lost a significant portion of its customer base as a
result of the temporary closure. The Company began actively pursuing new
customers as described in Items 2 and 3 under Pharmaceutical Operations -
Background. Through December 31, 1995, the Company had been successful in
acquiring business from three major customers: Columbia Labs, Zenith/Goldline
Pharmaceuticals and Arnet Pharmaceuticals.
The Company is producing a branded consumer product for Columbia under a
trademark, owned by Columbia, Legatrin PM(TM). Sales to Arnet are of bulk
pharmaceutical products for distribution in South America. Arnet's customer in
South America is one of the largest distributors of pharmaceutical products on
the South American continent. Zenith/Goldline has given the Company orders to
produce one of their high volume supplements to be shipped in both bulk and in
bottles. The Company continues to seek business where the products can generate
significant volume at reasonable profit margins.
As of November 22, 1993 the FDA had completed its inspection of Biopharm's
facility, and, had deemed Biopharm to be in compliance with cGMP's. Biopharm was
approved to manufacture and sell its five validated products and also to
manufacture and sell additional products not previously manufactured by it,
provided those products are manufactured in conformance with cGMP's. Biopharm
began shipments of its manufactured products immediately. On December 5, 1994,
Biopharm requested that the FDA begin their review of eight additional validated
products. The review was completed by May 1995 and seven products were approved.
The eighth product was withdrawn. As of June 1995, Biopharm was approved to
manufacture a total of twelve of its former products.
The former combined total sales of the aforementioned twelve products
constituted approximately 62% of Biopharm's former sales volume for manufactured
products. The Company has petitioned the FDA to waive the requirements for a
third multiple product review, which if acceptable to the FDA would enable the
Company to bring individual products back on line more quickly. Although the
FDA, denied the Company's initial request, the Company is having on-going
discussions with the FDA on this issue.
Marketing and Customers -- Order Backlog
A key element of Biopharm's marketing strategy is the maintenance of
sufficient inventory to fill customer orders within a three to four week period.
The success of this strategy is heavily dependent on Biopharm's ability to
predict market demand.
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Biopharm currently sells its products to approximately twenty-three
customers, using both private (customer) labels, customer branded product
labels, bulk containers or its own Biopharm brand label. Marketing and sales by
Biopharm include efforts directed at increasing the overall acceptance of
generic pharmaceutical products in all classes of trade within the health care
distribution network.
Biopharm believes that, prior to its temporary cessation of operations as a
result of the FDA action described above, its fast delivery of customer orders
had significantly contributed to the growth of its customer base and the growth
in the number of products each customer was purchasing from it. Biopharm intends
to continue this aggressive approach to quick, on-time deliveries. Sales efforts
stress this point as the predominant benefit of doing business with Biopharm.
Biopharm's products are sold on terms ranging from Net 30 to 2% 15- Net 61.
These products are not returnable except if damaged in shipment. During fiscal
1994, 1995 and 1996, credits were issued for less than $25,000 for damaged
goods.
Raw Materials
The raw materials essential to Biopharm's business are purchased primarily
from domestic distributors for foreign manufacturers and domestic manufacturers
and distributors, directly. To date, Biopharm has experienced little difficulty
in obtaining the raw chemicals it needs and it expects that raw materials will
continue to be available in the future from a variety of sources.
Governmental Regulations Affecting the Company and its Industry
All pharmaceutical manufacturers are subject to extensive regulation by the
Federal and state governments, including compliance with the current good
manufacturing practices promulgated by the FDA. The Federal Food, Drug and
Cosmetic Act, the Controlled Substances Act and other federal statutes and
regulations govern or influence the testing, manufacture, safety, labeling,
storage, record keeping, approval, pricing, advertising and promotion of the
Company's products. Furthermore, the Company is governed by Federal and state
laws of general applicability, including laws regulating matters of
environmental quality and working conditions. Non-compliance with applicable
requirements can result in fines, recall and seizure of products, total or
partial suspension of production, and refusal of the government to enter into
supply contracts or to approve new drug applications.
All fifty states and the District of Columbia now have legislation
permitting or encouraging the substitution of equivalent generic prescription
drug products for brand name pharmaceutical products where such substitutions
have been either authorized or not prohibited by the prescribing physician.
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In September l984, the Drug Price Competition and Patent Term Restoration
Act of 1984, popularly known as the "Waxman-Hatch Act" (the "Act"), was enacted.
Under the Act, generic drug companies, instead of being required to submit
additional detailed scientific data to the FDA, need only demonstrate to the FDA
that generic drugs marketed after 1962 are the chemical equivalents of brand
name drugs and deliver the same amount of medication with the same speed into
the bloodstream. The Act also imposes time limits on the FDA for ANDA approvals
of generic drugs. In addition, the Act also gives drug companies that develop
new drugs extra years of patent protection to compensate for the cost of the
time needed to comply with the FDA's approval process.
Consumer Sun Care Product
In August 1992, the Company and Biopharm Lab, Inc. signed a license
agreement with Primavera Laboratories ("the Licensor") for the exclusive, U.S.
mass market rights to Treo(R), a combination outdoor protection product. A
patent for Treo was issued on July 13, 1993, by the U.S. patent office. A second
patent for Treo was issued in 1994, by the U.S. patent office. The primary terms
of the Agreement required the Company to pay the Licensor a license fee of
$200,000 in varying monthly installments with the final payment due on February
10, l993. The Company made all payments required by the Agreement.
During 1993, Treo was placed in approximately 3,100 independent pharmacies
and in 30 major pharmaceutical wholesalers including eight of the top ten
(McKesson, Bergen Brunswig, Fox Meyer, Alco, etc.). Lab was able to start the
Spring selling season of 1994 with approximately 500 stores carrying Treo. By
the Fall of 1994, this number had reached approximately 3,500. In addition,
Treo's catalog reps succeeded in placing Treo in 13 catalogs during 1994.
In the 1995 selling season, Lab received orders from chain stores having in
excess of 15,000 units. Orders were received from such chains as Wal-Mart,
Walgreens, Rite-Aid, Eckerd, Osco, Sav-On, CVS, Longs, Grand Union, A&P,
Shoprite, Genovese, Shopko and Caldor.
As more fully described under "Legal Proceedings", Lab and the Company
commenced a lawsuit against the Licensor and Avon Products, Inc. ("Avon"), the
Licensor's door-to-door licensee, in order to prevent Avon from invading the
Company's exclusive territory. The Licensor filed a counterclaim against the
Company and Lab seeking termination of the License Agreement. In December 1995,
a Federal District Court issued a Final Judgment for the Licensor and Avon and
against the Company and Lab, terminating the License Agreement and dismissing
all of the Company's claims against the Licensor and Avon. As a result of the
Court's decision, all Treo business has been terminated.
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Feminine Hygiene Products
In March 1996, the Company acquired the Feminine Hygiene brands of London
International U.S. Holdings, Inc. ("LIUSH"). The brands acquired have been on
the market for more than ten years each and are sold under the names Vaginex(R),
Koromex(R), Koroflex(R) and Feminique(R). LIUSH is one the largest condom
manufacturers in the U.S. and had decided to sell its Feminine Hygiene brands in
order to concentrate its efforts on its core business.
In the latest year, sales of these three brands have been running at a rate
which exceeds the Company's sales for fiscal 1995. Sales of these brands are
being made to food and drug chains, drug wholesalers, distributors and the U.S.
military. The Company's sales are conducted by nine independent sales rep
organizations. Each of these rep organizations already calls on the key accounts
who have carried the lines. The Company expects its reps to expand sales of the
lines by making a more concerted effort than that which was made by LIUSH,
expanding the customer base and by receiving greater support from the Company in
promoting the products.
At one time, sales of these brands ran at a substantially higher level than
they are currently. The brands are sold as value priced brands, but not all
customers are carrying all items. In addition, no sales are currently being made
to mass merchandisers such as Wal-Mart, K-Mart, Target, Venture or Ames. The
Company's reps have a strong presence with these mass merchandisers and they
will be the reps early area of concentration.
Biotechnology
The Company and Amswiss Scientific, Inc. ("Amswiss"), a Canadian
Corporation, publicly traded on the Alberta Stock Exchange, entered into an
agreement dated December 30, 1992, under which the Company would acquire the
rights to certain drugs presently under license to Amswiss in consideration of
four million shares of the Company's common stock, plus warrants to purchase an
additional two million shares at $2 per share. This transaction was approved by
the shareholders at the Company's Annual Meeting on September 29, 1993. On
November 18, 1993, the transaction with Amswiss closed and title to the assets
passed to the Company. On that date, the closing price of the Company's common
stock was $1.9375.
The Company acquired three principal assets from Amswiss; (1) the license
rights to DBD, (2) certain patent rights, including the U.S.A. patent, to a
peptide, Nitroso-N-beta Chloroethyl Carbamoyl ("NNB") and (3) agreements with
the Central Research Institute for Chemistry of the Hungarian Academy of
Sciences ("CRIC"), and, a group of scientists associated with, and, Semmelweiss
Medical University, Budapest, Hungary (the "Group") for the development of two
anti-sense oligonucleotides which have displayed anti-tumor and anti-metastatic
activity. The anti-sense oligonucleotide agreement and NNB have been assigned by
the Company to Anti-Sense Technologies, Ltd. In addition, on November 1, 1993,
Anti-Sense signed a second agreement with CRIC for the exclusive rights to
acquire a 50% interest in CRIC's anti-HIV, anti-sense oligonucleotide, KKKI-538.
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DBD is a cytotoxic, chemotherapy agent used in the treatment of cancer. DBD
was developed and patented by Chinoin Pharmaceutical and Chemical Works,
Budapest, Hungary and eventually licensed to Amswiss from whom the Company
acquired its rights. The Company had also obtained from Amswiss, DBD's Orphan
Drug status for the treatment of cervical cancer granted by the U.S. Food and
Drug Administration.
DBD has gone through various Phase II and Phase III clinical trials with
approximately 2400 patients in the U.S. and approximately an additional 3100
patients worldwide. One of DBD's major advantages is that it can be taken
orally, thus reducing expensive hospital stays. The majority of the development
and testing expenses for DBD have been borne by the National Cancer Institute
("NCI") in the U.S. and the European Organization for Research and Treatment of
Cancer ("EORTC") in Europe.
In July 1995, the FDA granted the Company's application for Orphan Drug
Status for DBD's use as adjuvent therapy in the treatment of primary brain
tumors. DBD now holds Orphan Drug Status for the two principal indications which
have been supported by successful completion of Phase III clinical trials.
Orphan Drug Status provides patent-like protection for off-patent drugs. Since
DBD is no longer covered by a patent, the Orphan Drug Status will provide
important protection if and when the Company obtains a New Drug Application
("NDA").
The Company will be required to file an NDA with the FDA and receive
approval from the FDA before any U.S. commercial sales or marketing of DBD can
commence.
As of September 30, 1995, the Company had re-evaluated its investment in
the assets acquired from Amswiss. Due to the Company's lack of working capital,
the cost of the NDA filing, and recent developments in cancer research, along
with new diagnostic techniques for cervical cancer that significantly reduce
potential future sales of the Amswiss Drugs, the Company decided to write-off
the intangibles with a charge to its consolidated statement of operations
aggregating $5,526,587. At September 30, 1995, the Company decided not to
proceed with the filing of the NDA's and in addition, as a result of this
decision, the Company recorded the forfeiture of the aforementioned 800,000
common shares and warrants which resulted in a charge to common stock and
additional paid-in capital aggregating $1,381,647. Company management had
decided it would be more beneficial for the Company to invest any funds raised
or any funds available into the acquisition and development of the Feminine
Hygiene Products. In September 1996, the Company entered into a Joint Venture
Agreement with ABS Group, Inc. for DBD (See "Joint Venture").
NNB is a peptide in the early stages of development. No determination can
be presently made if a commercially feasible product can be developed from this
peptide and the Company is not currently pursuing any further development.
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Anti-Sense had entered into an agreement with CRIC and the Group to develop
two anti-sense oligonucleotide compounds for use as anti-tumor and
anti-metastatic agents. Under the terms of the agreement, Anti-Sense was to pay
$800,000 in cash, or, in kind by furnishing equipment, over a three year period
which commenced with a payment of $167,000 on November 3, 1993.
The Company believes that most research, including that acquired by
Anti-Sense, is in the very early stages of development and it will take at least
five to ten years and large sums of capital to develop commercially feasible
products, if they can be developed at all.
The Company has failed to meet its financial obligations under the terms of
the Agreement with CRIC and the Group. Although the Agreement has not been
formally canceled, the Company is not in a position to provide any of the
funding required by the Agreement. Although no contact has occurred between the
parties, the Company believes the likely result of its failure to fulfill its
obligations under the Agreement will be the cancellation of the contract and the
reversion to the Group of all rights to the compounds being developed.
On November 1, 1993, Anti-Sense entered into an agreement with CRIC giving
it the exclusive right to acquire a 50% ownership interest in KKKI-538, an
antisense compound which has shown significant activity in controlling HIV in
human tissue cells. During a 30 day test period, KKKI-538 has induced complete
irreversible inhibition of HIV production in human cell cultures. Furthermore,
in the same period, the compound has shown no cytotoxicity in non-inoculated
cell cultures. The compound's effectiveness was tested and compared to the
effectiveness of AZT and three other oligonucleotides. The AZT and three other
oligonucleotides only demonstrated reversible action on HIV production.
In accordance with the agreement, which was superseded by a new agreement
on May 27, 1994, Antisense paid CRIC $100,000 as a non-refundable down payment
and $300,000 on May 31, 1994. Antisense was required to pay CRIC an additional
$50,000 in August 1994, $250,000 by December 15, 1994, $2,800,000 in 1995 and
$1,500,000 in 1996 until a total of $5,000,000 had been paid.
The Company has not made any of the payments required under the Agreement
since May 31, 1994. The Company is not currently in a position to make any
payments required by the contract and the likely result is that the contract
will be terminated and the Company will lose all rights to KKKI-538.
On December 13, 1993, the Company entered into an agreement with the
Cornell Research Foundation ("CRF") and acquired ADT, CRF's patented process for
a non-invasive method of diagnosing Alzheimer's Disease. The test, developed by
Dr. John Blass, requires only a simple skin biopsy to be cultured for diagnosing
a neural abnormality present in Alzheimer's patients. The Company believes that
this test method provides substantial benefits, both financially and medically,
when compared to the current methods and costs involved in diagnosing
Alzheimer's. Currently, Alzheimer's disease can only be diagnosed by a process
of elimination, spinal taps or post mortem exams. The tests involved in the
process of elimination method are both costly to administer and subject the
patient to substantial discomfort. Spinal taps are extremely discomforting and
involve the insertion of a needle into the spine to withdraw spinal fluid, which
must then be analyzed in a laboratory. It is not unusual for the spinal fluid to
become contaminated during the initial tap procedure and for additional spinal
taps to be required, subjecting the patient to extreme discomfort.
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The Company believes that by using its Alzheimer's diagnostic test, doctors
can save patients substantial expense by not having to perform a variety of
elimination tests and can save the patient substantial discomfort by using its
non-invasive procedure.
The Company paid CRF $20,000 when the agreement was signed and has agreed
to pay an additional $25,000 within six months, or 25,000 shares of
unregistered, restricted common stock of the Company, at CRF's option. CRF
decided to accept the common stock in lieu of cash. In addition, it will also
pay CRF $40,000 once the licensed product has reached $250,000 in sales. The
Company will also pay a royalty of 5% of net sales and, beginning in the fourth
year of the agreement a minimum royalty of $25,000.
During the last year and a half, substantial progress has been made in the
development of pharmaceutical products for the treatment of Alzheimer's Disease.
As a result of these developments, the Company believes that the full
development of its diagnostic test and the commercialization of the test is more
desirable now, than when first acquired. As of now, the Company does not have
the funds available to complete the development of the test, or on the
completion of the development into a marketable product, enough funds to
properly market the product. The Company intends to seek and conclude an
agreement with a sub-licensee or joint venture partner for ADT.
On August 19, 1994, the Company entered into an agreement with the Research
Foundation of State University of New York and acquired the rights to a patented
"Antiviral Composition and Method", consisting of ingredients which are
"generally recognized as safe and effective" in humans (GRAS status), which
kills the HIV and Hepatitis B viruses on contact. In addition to a down payment
of $15,000, the Company will pay the Foundation a royalty of 5% of net sales
with a minimum royalty of $25,000 commencing in 1998.
The Company intends to combine this antiviral compound into a spermicidal
formula, utilizing currently approved ingredients, and intends to offer such
product for sale to third world governments or through humanitarian health
organizations. In addition the Company intends to seek an agreement with a
sub-licensee or joint venture partner for this item.
The acquisition of the Feminine Hygiene brands, discussed earlier, will
provide the Company with a marketing base for the anti-viral compound. The
Feminine Hygiene Brands being acquired already have a spermicidal formula. In
addition, these brands have U.S. market presence.
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Joint Venture
On September 25, 1996, the Company entered into a Joint Venture Agreement
with Advanced Biological Systems, Inc. (a Utah Corporation) to finance the final
development of DBD (also know as Mitalactol). Under terms of the agreement,
Advanced (now known as ABS Group, Inc.) and Biopharmaceutics formed a limited
liability company (LLC) which shall have as its primary business, the further
development, regulatory processing and commercial exploitation of DBD. ABS will
provide $1,000,000 as a contribution to capital of the LLC to be utilized for
the purposes stated. As additional consideration, ABS shall pay to the Company:
425,000 shares of common stock of ABS and $150,000 by October 31, 1996; $350,000
in common stock of ABS on the day preceding the filing of the treatment IND with
the Food and Drug Administration (FDA) and $150,000 in cash; $500,000 in common
stock of ABS upon approval of the IND or $250,000 in cash; if ABS elects to pay
cash on the approval of the IND, payment of $500,000 in common stock of ABS upon
filing the New Drug Application (NDA), if ABS elects to pay $500,000 in common
stock on approval of the IND then ABS shall pay $250,000 in cash on filing the
NDA; finally payment of $500,000 in common stock of ABS upon approval of the
NDA. Profits shall be shared 60% to the Company and 40% to ABS until the Company
recovers $2,000,000 in proceeds, thereafter 55% to the Company and 45% to ABS.
The Company will manage the day to day operations of the LLC.
Discontinued Operations
In August, 1992, the Company obtained an exclusive license for the mass
market manufacture and distribution of Treo. The license agreement provided,
among other things, for the payment of an 8.5% royalty fee with a minimum
royalty of $300,000 for the calendar year 1993, increasing to $900,000 in 1999.
The Company had been engaged in litigation with its Treo licensor since
1994. On December 20, 1995, the United States District Court, Eastern District
of New York granted the Licensor's counterclaim and dismissed all claims by
Biopharm against both the Licensor and Avon. The Company's license was thereby
terminated. As a result of the court' decision, the Company recorded a loss from
discontinued operations for the year ended September 30, 1995, aggregating
$1,621,543 and discontinued its Treo business. On December 13, 1996, Biopharm
Lab, Inc. filed a petition for bankruptcy under Chapter 7 of the Bankruptcy Act.
Employees
As of September 30, 1996, the Company had 35 employees.
13
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Competition
Biopharm has approximately twenty-five principal competitors and competes
in varying degrees with numerous other companies in the health care industry.
The competition includes many prescription drug pharmaceutical companies, which,
as a part of their business, market both brand name prescription drugs and
generic versions of brand name drugs, after their patents expire. Most, if not
all, of these competitors have greater financial and other resources, and are
therefore able to expend more effort than Biopharm in such areas as marketing
and product development.
In the biotechnology field, the Company competes with numerous large
biotechnology firms and biotechnology subsidiaries of major pharmaceutical
companies, most of whom also have substantially greater financial capability
than the Company and are therefore able to expend far greater amounts on
research and development than the Company. The Company is not a significant
factor in this market at the present time.
Recent Developments-Financing
In July, 1992, the Board of Directors approved the offering pursuant to
Regulation S of 2,550,000 shares and warrants to purchase an additional 550,000
shares of common stock to certain non-United States persons. In connection with
this offering, the Company received approximately $2,194,000 from October, 1992
to January, 1993.
In June, 1993, the Board of Directors approved a second offering pursuant
to Regulation S of 3,750,000 shares, as amended. In connection with this
offering, the Company received approximately $224,000 in July 1993 and
additional $3,705,000 from October, 1993 to September, 1994.
In April, 1994, the Board of Directors approved an additional offering
pursuant to Regulation S of 4,000,000 shares. In connection with this offering,
the Company received approximately $1,025,000 from May, 1994 to September, 1994,
resulting from the sale of 1,448,570 shares of common stock. In 1995, an
additional 2,436,042 shares of common stock were sold for approximately
$1,026,000.
During the year ended September 30, 1994, options for the issuance of
686,100 common shares were exercised (Note 18). Additionally, 122,339 shares
were issued from Treasury in exchange for trade obligations and for the purchase
of an exclusive license for a patented process to diagnose Alzheimer's disease
(Note 6).
In March 1995, the Board of Directors approved another offering pursuant to
Regulation S of 4,500,000 shares. In connection with this offering, the Company
received approximately $1,220,000 from March, 1995 to September 1995, resulting
from the sale of 3,109,937 shares of common stock. Subsequent to September 30,
1995, an additional 1,273,071 shares of common stock were sold for approximately
$217,000.
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In January 1996, the Board of Directors authorized the issuance of 669,300
shares to pursue the acquisition of the Feminine Hygiene product line from
London International U.S. Holdings, Inc. In February 1996, the Board authorized
the president to enter into two Regulation S agreements for the placement of
shares to generate capital of $2,200,000 to effect the acquisition of the
Feminine Hygiene product line. The Company issued 10,572,257 shares to complete
the transaction and received $2,330,658.
ITEM 2. PROPERTIES
The Company presently leases a 30,000 square foot facility in Bellport, New
York, which contains the Company's headquarters, warehousing and manufacturing
facilities. The lease is on a month to month basis. The current space is
adequate to meet the Company's requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
MEDICARE/MEDICAID -- On August 31, 1989, the Company was convicted, in the
United States District Court for the Eastern District of New York, of one count
of mail fraud conspiracy, three counts of mail fraud and nine counts of false
representation of material facts on Medicare/Medicaid claims, in the conduct of
its Medicare operations, which were conducted under prior management and
discontinued in May 1986. The Company was sentenced to a total of approximately
$174,000 in fines on the various counts. The fine was accrued and charged to
discontinued operations in the year ended September 30, 1989.
On November 17, 1995, the Company announced that the United States District
Court had reduced the fine to $50,000, payable $25,000 by December 13, 1995 and
$25,000 by May 13, 1996. The fine accrued no interest if the Company complied
with the payment schedule. Both payments were made on time and the Company
received a Satisfaction of Judgment from the Government.
U.S. DEPARTMENT OF JUSTICE -- In December 1991, Biopharm was served with a
Grand Jury Subpoena Duces Tecum seeking production of certain documents to be
presented to a Federal grand jury in the United States District Court of the
District of Maryland. The Company learned that a number of other companies in
the generic drug industry had also received similar subpoenas. As a result of
the investigation the Justice Department advised Biopharm that it would be
charged with violations of 18 U.S.C. Section 1001. Biopharm thereupon entered
into a Plea Bargain Agreement with the U.S. Justice Department, on July 8, 1993,
and agreed to plead guilty to three counts of filing false statements in
connection with three separate ANDAs filed with the FDA between 1988 and 1989.
Biopharm agreed to pay a fine of $350,000 over a three year period, commencing
with a $50,000 payment 45 days after July 8, 1993, an additional $50,000 12
months thereafter and the balance of $250,000 with accrued interest over the
next two years.
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Biopharm made its first payment subsequent to the initial payment due date,
and otherwise was not in default of the settlement agreement. Management does
not anticipate that the late payment default will materially affect the daily
operations of the Company. The balance of $200,000 due the U.S. Justice
Department was payable $75,000 in July 1995 and $125,000 in July 1996. The
Company was unable to meet the July 1995 requirement and made monthly payments
until the 1995 amount was paid in full. The Company was unable to meet the July
1996 requirement and is making monthly payments. As of September 30, 1996, the
balance was reduced to $95,000 and as of December 31, 1996 the balance was
reduced to $55,000.
The Company is involved in an administrative proceeding commenced by, and
pending before a Regents Review Committee of the New York State Education
Department. The proceeding was commenced to determine whether or not the
Company's license to operate as a manufacturer in New York should be revoked or
suspended, based upon the Company's 1993 guilty plea in Federal Court on a
variety of charges related to ANDA filings with the Food and Drug Administration
("FDA") in 1988 and 1989 (Note 9(a)). A hearing before the Regents Review
Committee is scheduled to take placed in March, 1997. Company's legal counsel is
of the opinion that there is ample basis for reaching a reasonable disposition
of this matter without affecting the Company's manufacturing operations.
PRIMAVERA AND AVON -- On July 26, 1994, the Company and its subsidiary
commenced an action against Primavera Laboratories, Inc. ("Primavera") and Avon
Products, Inc. ("Avon") in the State Court, later removed to the United States
District Court, Eastern District of New York. Primavera is the licensor of Treo
and holder of the patent covering Treo. In August 1992 the exclusive retail Mass
Market rights were granted to the Company. Primavera subsequently granted a
license to Avon to manufacture and sell the same patented product in a different
market than that exclusively granted to the Company. The complaint alleged
various breaches and other violations by defendants of the Company's exclusive
license and right to manufacture, market and sell Treo in the retail Mass
Market, seeking damages and a permanent injunction against Primavera and Avon
enjoining Avon's activities in the retail Mass Market.
The Company's motion for a preliminary injunction was denied. Primavera
interposed a counterclaim alleging breaches by the Company for promotion and
marketing of the product under the License Agreement, seeking a cancellation of
the Treo license.
In November 1995, a Federal District Court issued a Preliminary Injunction
enjoining the Company and Lab from marketing Treo for the 1996 season. In
December 1995, the Federal District Court issued a Final Judgment terminating
the Company's and Lab's rights to the Treo license and dismissing all of the
Company's claims against Primavera and Avon. In May 1996 the Company announced
it had decided not to pursue an appeal from the adverse decision.
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AMSWISS SCIENTIFIC, INC. -- Amswiss Scientific, Inc. ("Amswiss") (Note 16)
commenced an action against the Company in the U.S. District Court for the
southern district of New York on December 16, 1996. Amswiss asserted a claim for
an amount to be ascertained at trial, but believed by Amswiss to be at least two
millions dollars, plus cost and attorney's fees arising from the alleged failure
of the Company to file a Registration Statement with the Securities and Exchange
Commission for certain shares and warrants of the Company owned by Amswiss.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
The following items were approved by the Shareholders at the Annual Meeting
held on June 28, 1996:
1. Election of Directors; Edward Fine and Russell Cleveland.
2. The ratification of the re-appointment of Farber, Blicht
& Eyerman, LLP as auditors.
3. The amendment of the Certificate of Incorporation to increase
the authorized capital stock of the Company to 75,000,000 shares,
par value $.001 per share.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock is traded principally on the NASDAQ OTC Bulletin
Board under the symbol "BOPH."
Prior to December 1, 1986, the Company's Common Stock was listed on the
National Association of Securities Dealers, Inc. automated quotation system
under the symbol "PATS." On December 19, 1986, the Company's Common Stock was
listed on The American Stock Exchange (AMEX) under the symbol ("IGN.") On May
24, 1988, trading commenced on the AMEX under the symbol BPH, reflecting the
most recent name change from Integrated Generics, Inc. to Biopharmaceutics, Inc.
On July 13, 1995 the AMEX delisted the trading of the Company's Common Stock. On
July 14, 1995, the Company was listed on the NASDAQ OTC Bulletin Board under the
symbol "BIOP." On May 2, 1996, the Company's symbol was changed by NASDAQ to
BOPH.
As of November 30, 1996, there were approximately 950 holders of record of
Common Stock and approximately 7,000 holders in street name. On that date, the
Company's Common Stock closed at $0.385 per share on NASDAQ OTC Bulletin Board.
The Company has not paid any cash dividends since its inception. For the
foreseeable future, it is anticipated that any earnings that may be generated
from operations of the Company will be retained for use in the Company's
business and that dividends will not be paid to shareholders.
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The trading range for the stock for each quarterly period from October l,
1993 to September 30, 1996 was as follows:
High Low
Oct. l - Dec. 31, 1993 $3.0625 $1.1250
Jan. 1 - Mar. 31, 1994 $2.25 $1.50
Apr. 1 - June 30, 1994 $1.75 $1.0625
July 1 - Sept. 30, 1994 $1.9375 $1.00
Oct. 1 - Dec. 31, 1994 $1.25 $0.5625
Jan. 1 - Mar. 31, 1995 $1.25 $0.375
Apr. 1 - June 30, 1995 $0.875 $0.4375
July 1 - Sept. 30, 1995 $0.6563 $0.3l25
Oct. 1 - Dec. 31, 1995 $0.60 $0.25
Jan. 1 - Mar. 31, 1996 $0.53 $0.21
Apr. 1 - June 30, 1996 $0.43 $0.28
July 1 - Sept. 30, 1996 $0.32 $0.25
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in Thousands Except Per Share Data)
Years Ended September 30,
1996 1995 1994 1993 1992
Selected Operating Data
Continuing Operations:
Revenues $3,725 $1,533 $2,057 $1,989 $2,375
Net Loss (799) (7,986) (3,425) (2,292) (1,636)
Net Loss Per Share (.02) (.35) (.18) (.22) (.20)
Discontinued Operations:
Net Income (Loss) $ 774 $(1,622) $(1,246) $(788) $ 924
Net Income (Loss) Per Share .02 (.07) (.07) (.08) .11
Selected Balance Sheet Data
Total Assets $5,817 $1,421 $10,552 $2,222 $2,422
Total Liabilities 5,424 3,639 3,985 3,369 2,875
Long-Term Debt 3,026 1,131 1,525 1,150 1,204
Shareholders' Equity (Deficiency
in Assets) 393 (2,218) 6,567 (1,147) (453)
Dividends Declared None None None None None
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operating requirements, for the last three
years, primarily by the issuance of common shares, $2,384,806 in 1993,
$4,433,790 in 1994, $2,054,722 in 1995, and $2,547,658 in 1996; convertible
debentures of $800,000 in 1992 and the settlement of claims against past
management of $924,076 in 1992. As of September 30, 1996, the Company had cash
of approximately $45,000.
As a result of the United States District Court's decision on December 20,
1995, the Company's license for Treo had been terminated and therefore the
Company wrote-off the assets associated with Treo as a
discontinued operation as of September 30, 1995.
The Company completed its acquisition of a product line from LIUSH which
has previously generated sales in excess of the Company's 1995 total sales and
should generate substantial working capital to the Company. The cost of
approximately $3,600,000 and was financed by a combination of Regulation S
common stock sales, and notes for $2,000,000 to be paid over a number of years.
The brands being acquired have been on the market for more than ten years each
and are sold under the names Vaginex(R), Koromex(R), Koroflex(R) and
Feminique(R). LIUSH is one of the largest condom manufacturers in the U.S. and
had decided to sell its Feminine Hygiene brands in order to concentrate its
efforts on its core business.
Sales of these brands are being made to food and drug chains, drug
wholesalers, distributors and the U.S. military. The Company is using nine
independent manufacturers rep organizations to sell the Feminine Hygiene
products. Each of these rep organizations already calls on the key accounts
carrying the lines. The Company expects its reps to expand sales of the lines by
making a more concerted effort than that made by LIUSH, expanding the customer
base and by receiving greater support from the Company in promoting the
products.
The Company also anticipates that the approval of the additional products
by the FDA in 1996, which increased the number of products offered by Biopharm
to its customers and with the addition of three significant new customers,
should enable Biopharm to increase sales and provide a basis for profitability
in fiscal 1997.
The Company believes that the foregoing, along with the additional capital
raised through September 1996 will be adequate to meet its current objectives.
Sinking fund requirements in the convertible debentures in 1996 were waived by
the holder and eliminated in the conversion of the debentures to a new series on
December 15, 1996.
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RESULTS OF OPERATIONS
1996 compared to 1995
Sales for the fiscal year ended September 30, 1996 totaled $3,725,22l, an
increase of 143% from sales of $1,532,649 in 1995. The increase occurred
primarily from the sales of feminine hygiene products of $1,705,337, the product
line that was acquired in March 1996. Sales of existing products increased 31%
over the comparable period in 1995. The Company operated at a gross profit of
16% in 1996 due to the contribution of the new product line versus a negative
gross profit of 50% in 1995. Negative margins in 1995 were attributable to sales
levels not being sufficiently high to absorb fixed overheads in the
manufacturing operation. Selling, general and administrative expenses increased
$402,682 to $1,434,036 in fiscal 1996 compared to $1,031,354 in 1995 due
primarily to marketing and other expenses of the feminine hygiene products
division. Expenses increased by $110,300 in advertising; $78,802 in commissions;
$65,890 in freight out; $6,525 in promotion as well as $95,819 in legal
expenses.
The Company incurred $14,426 in research and development expenses in 1996
compared to $62,311 in 1995. Amortization of intangibles of $99,600 represents
tradename and trademark amortization from assets acquired in the feminine
hygiene acquisition in March 1996 and amortization of licenses. It compares to
the amortization of the Amswiss assets of $545,377 which was written off in
September 1995 and other license amortization of $30,887. Other income for 1996
includes income related to the contribution of licenses and rights to the joint
venture of $400,750 and a gain on the disposition of equipment of $62,500.
Interest expense of $298,821 for the year ended September 30, 1996 includes
$100,688 to finance the $2,000,000 in notes payable financing the feminine
hygiene acquisition. The gain on disposal of discontinued operations represents
the recovery of liabilities remaining on filing Chapter 7 bankruptcy proceedings
for Biopharm Lab, Inc. (Treo) which was written off to discontinued operations
in 1995.
1995 compared to 1994
Sales for 1995 totaled $1,532,649, a decrease of 26% from sales of
$2,057,383 in 1994. The decrease occurred primarily from one customer, who had
accounted for 54% of sales in 1994 and who decided to phase down its purchases
over fiscal 1995 to represent only 23% of current year shipments. The Company
has replaced this customer with three significant new customers who should more
than offset the level lost. The Company operated at a negative gross profit of
50% for 1995 compared to a negative gross profit of 23% in 1994 due to lower
sales volume. The negative margins were attributable to sales levels not being
sufficiently high to absorb fixed overheads in manufacturing. General and
administrative and selling expenses decreased to $1,031,354 from $1,575,870 in
1994 due primarily to legal expenses of approximately $440,000 incurred for the
Primavera/Avon suit which were charged to discontinued operations. Legal
expenses in 1994 of $461,000 included approximately $80,000 of Primavera/Avon
expense. The majority of other expenses were generally in line with 1994.
The Company incurred research and development expenses in 1995 of $62,311
compared to $633,154 in 1994 expended in connection with an agreement with the
Central Research Institute of Chemistry of the Hungarian Academy of Sciences for
the development of an anti HIV compound. Lack of working capital curtailed
further funding in 1995. The Company began amortization of its rights acquired
from Amswiss Scientific, Inc. in 1994. The rights were being amortized over a
period of fifteen years. The Amswiss rights were written off at September 30,
1995 due to delays in funding the NDA. Interest expense, attributable to the
convertible debentures, was essentially in line with prior years.
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1994 compared to 1993
Shipments for 1994 amounted to $2,057,383, an increase of 3% from sales of
$1,989,260 in 1993. The Company operated at a negative gross profit in 1994 of
24% compared to a negative gross profit of 27% in 1993. The negative margins are
attributable to sales levels not being high enough to absorb the fixed overheads
in manufacturing. Selling, general and administrative expenses increased to
1,575,870 from 1,121,645 in 1993 due primarily to advertising and promotional
expenses.
The Company incurred research and development expenses in 1994 in
connection with an agreement with the Central Research Institute of Chemistry of
the Hungarian Academy of Sciences for the development of an anti-HIV compound.
The Company also began the amortization of its rights acquired from Amswiss
Scientific, Inc. on November 15, 1993. The rights were amortized over a period
of fifteen years. Interest expense was essentially in line with 1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Schedules, at page F-1, which immediately
follows page 31.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following list sets forth information as of November 30, 1996, as to
all directors and executive officers of the Company during its fiscal year ended
September 30, 1996.
EDWARD FINE, age 54, has been President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since 1987. From 1979 until
1985, Mr. Fine was President and a director of Newtron Pharmaceuticals, Inc., a
company engaged in the manufacturing and sale of generic prescription and
over-the-counter pharmaceutical products. Mr. Fine has been President and a
director of Biopharm since 1986. From October 1986 through September 1987, Mr.
Fine was an officer and a director of the Company. Effective October 1, 1987,
Mr. Fine became President and Chief Executive Officer of the Company. From 1982
until 1988, Mr. Fine was a member of the Board of Directors of the National
Association of Pharmaceutical Manufacturers.
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INGRID FINE, age 55, was President of Biopharm from September 1985 until
September 1986. Since October 1986, Ms. Fine has been Vice President of
Purchasing for Biopharm. Ingrid Fine is the spouse of Edward Fine, the Company's
President.
WILLIAM C. KUGLER, age 58, has been Vice-President-Finance of the Company
since January 18, 1993. From 1983 to 1992 Mr. Kugler was Vice President-Finance
of Telebyte Technology Inc.
RUSSELL CLEVELAND, age 58, is a director of the Company. Mr. Cleveland is a
principal in Renaissance Capital Partners, Ltd., Renaissance Capital Partners
II, Ltd., Renaissance Capital Growth and Income Fund III, and certain affiliates
engaged in the finance and investment industry, for more than the past five
years. Mr. Cleveland serves as a director of Greiner Engineering, Inc., Global
Environment, Inc., International Movie Group, Inc., and Unico, Inc.
JONATHAN ROSEN, age 34, is a director of the Company. Mr. Rosen is
President of APC Capital, an investment banking firm with offices in Los Angeles
and Great Britain and has been an adviser to Biopharmaceutics since 1992. Mr.
Rosen is also Chief Executive of Capital Industries LLC, a pharmaceutical supply
company and a director and officer of Capitol Pharmacies, Inc., a Capitol
Industries subsidiary.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all plan and non-plan compensation awarded
to, earned by or paid to the Company's Chief Executive Officer and its other
Executive Officers who were serving as executive officers during and at the end
of the last completed fiscal year ended September 30, 1996 for services rendered
in all capacities to the company and its subsidiaries for each of the Company's
last three fiscal years.
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Summary Compensation Table
Long Term All Other
Annual Compensation Compensation Compensation**
Awards*
Securities
Underlying
Name and Principal Position Year Salary Bonus Options
Edward Fine 1996 $130,000 None None $12,000
Chairman of the Board 1995 130,000 None None 12,000
and CEO, President 1994 130,000 None None 12,000
William C. Kugler (2) 1996 $ 70,000 None None
Vice President 1995 70,000 None None
1994 70,019 None None
Ingrid Fine (2) 1996 $ 65,000 None None $ 3,600
Vice President 1995 65,000 None 10,000 sh 7,900
1994 64,124 None None 8,700
Executive Officers of 1996 $302,700 None
Company as a Group 1995 302,700 None
1994 264,144 None
* The Company has never granted stock appreciation rights ** Represents
aggregate annual cost of automobiles provided and maintained for Edward Fine and
Ingrid Fine during fiscal years
(1) The Company has entered into an Employment Agreement with Edward Fine, its
President and Chief Executive Officer, for a period of five years, commencing
October 1, 1993. Pursuant to the terms of the Employment Agreement, Mr. Fine
will receive an annual salary of $130,000, plus a bonus based upon the
profitability of the Company of 5% of the Company's annual pre-tax profit, to a
maximum bonus of $1.5 million per year. In addition, the contract provides for a
payment of $1,000 per month for automobile expenses and costs and participation
in any additional fringe benefit plans in effect with respect to executives of
the Company. The Company does not have employment agreements with any other
executive officers.
(2) The Company provided and maintained an automobile for use by Ingrid Fine in
connection with Company business during fiscal 1996. The aggregate annual cost
to the Company for this automobile was approximately $3,600. To the extent that
this automobile was used for other than Company business, the costs may be
considered compensation to the above-named individual. No value for personal use
of automobile by such individual has been included in the compensation table set
forth above. In addition, the Company provided Messrs. Fine and Kugler, and
Ingrid Fine, with medical and hospitalization coverage during fiscal 1996 and
Mr. Fine with disability coverage, under plans that were not available to all
employees of the Company. The aggregate annual cost to the Company for such
coverage was approximately $19,000, and such cost may be considered compensation
to the above-named individuals. No value for such coverage has been included in
the compensation table set forth above.
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Aggregate Options Exercises in Last Fiscal Year
and Fiscal Year End Option Values
The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended September 30, 1996 by the Named
Executive Officers, the option values on the dates of exercise, the number of
shares covered by both exercisable and unexercisable options as of fiscal year
end, and the year end values of such option.
Number of Securities Value of
Underlying Unexercised Unexercised in-
Options at Fiscal Year the-Money Options
End (#) at Fiscal Year End
(1)(S)
Shares
Acquired on Value Exer Unexer Exer Unexer
Name Exercise Realized(1) cisable cisable cisable cisable
(#) ($)
Edward Fine 0 0 350,000 0 None None
Ingrid Fine 0 0 35,000 0 None None
William C. Kugl 0 0 35,000 0 None None
Jennie Porcaro 0 0 25,000 0 None None
(1) Value is based on market value of the common stock at exercise date (for
value realized) on fiscal year end (for value of unexercised options) minus the
option exercise price.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) and (b) Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information at November 30,
1996 concerning ownership of the Company's Common Shares by each director and
executive officer and each person who owns of record, or is known to the Company
to own beneficially, more than five percent of the Company's Common Shares:
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Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
Edward Fine (1) 1,399,000 3.5%
Amswiss Scientific, Inc. (2) 2,103,017 5.2%
Jonathan Rosen (4) 270,000 .01%
Ingrid Fine (3) 56,000 0%
William Kugler (3) 35,000 0%
Russell Cleveland 32,413 0%
All Directors and Officers as
a Group (6 persons)(3) 1,792,413 4.4%
(1) Includes 350,000 shares underlying an incentive stock option pursuant to the
Company's 1993 plan exercisable at $0.50 per share. Mr. Fine disclaims
beneficial ownership of shares underlying present holdings and options held by
his wife, Ingrid Fine, and shares underlying an incentive stock option held by
his son, Stuart Fine, a key employee of the Company.
(2) Includes the balance of 4,000,000 shares acquired November 18, 1993, less
800,000 shares canceled as of September 30, 1995. Does not include warrants to
purchase 1,600,000 shares at $2.00 per share which expire November 18, 1998.
(3) Represents stock options to acquire shares of the Company's common stock as
follows: Pursuant to the Company's 1993 Stock Option Plan, (i) Ingrid Fine holds
options to purchase an aggregate of 35,000 shares at exercise price of $0.50 per
share, (ii) Mr. Kugler has an option to acquire 35,000 shares at an exercise
price of $0.50 per share.
(4) Represents shares held in the name of Anglo Pacific Company, Limited.
(c) Changes in Control
See the section of this Report under the heading Biotechnology
for a description of a transaction with Amswiss Scientific, Inc., which, when
consummated, resulted in the issuance of approximately 4,000,000 shares of
Company common stock to Amswiss shareholders, subsequently reduced by 800,000
forfeitable shares on September 30, 1995, representing, in the aggregate,
approximately 11.9% of the Company's common stock, after issued basis, at that
time.
In addition, see the section of this Report under the heading
Certain Relationships and Related Transactions for a discussion of the
Renaissance transaction pursuant to which Renaissance Capital Partners, Ltd.
holds debentures convertible into 4,000,000 shares of the Company's common
stock.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 12, 1991 the Company entered into a Convertible Debenture Loan
Agreement (the "Loan Agreement") with Renaissance Capital Partners, Ltd.
("Renaissance"), pursuant to which Renaissance agreed to purchase from the
Company up to $1 million in principal amount of 12 1/2% convertible debentures
(the "Debentures"). The Debentures are convertible into shares of common stock
of the Company at a conversion price of $.25 per share, subject to adjustment
under certain circumstances. The Agreement was the result of a letter of intent
dated August 2, 1991. The closing price of the Company's Common Stock on August
2, 1991 was $0.25 per share. The closing price on September 12, 1991 was $1.0833
At the initial closing of the transaction, Renaissance purchased $300,000 in
principal amount of Debentures. Renaissance purchased an additional $350,000 in
principal amount of Debentures on February 14, 1992. The final purchase of
$350,000 in principal amount of Debentures occurred in July 1992.
As a condition to Renaissance's investment, Mr. Edward Fine, President of
the Company, agreed to purchase up to $150,000 in principal amount of Debentures
on the same terms as Renaissance. At the initial closing of the Renaissance
transaction, Mr. Fine purchased $50,000 in principal amount of Debentures. As of
September 16, 1992, Mr. Fine had completed the purchase of the additional
$100,000 of debentures. In 1993 Mr. Edward Fine transferred $50,000 in
debentures to Milton Fine, his father.
All of the Debentures bear interest at the rate of 12 1/2% per annum,
payable quarterly, and are subject to quarterly sinking fund payments of $30 per
$1,000 of principal remaining outstanding, commencing October 1, 1994. The
Company has obtained an extension until October 1, 1996 for the aforementioned
redemption installments. If not sooner redeemed or converted, the Debentures
shall mature on October 10, 1998, at which time all then remaining unpaid
principal and interest will be due and payable in full. In June 1995 Mr. Edward
Fine exercised his option to convert $100,000 of convertible debentures into
400,000 shares of common stock. In addition, Milton Fine, the father of Edward
Fine, converted $50,000 in debentures into 200,000 shares of common stock.
The Company has the right to redeem the Debentures commencing in the fourth
year following issuance of the first Debenture at a premium of 15% over par if
redeemed during the fourth year, 10% over par if redeemed during the fifth year
and 5% over par if redeemed during the sixth year or thereafter.
As an additional condition to the investment by Renaissance, Outback Oil
and Mineral Exploration Corp. ("Outback"), which owned, immediately prior to the
Renaissance investment, approximately 27.58% of the outstanding common stock of
the Company, forgave all interest then owing on the Company's subordinated note
payable to Outback, reduced the outstanding principal amount thereof to
$175,000, and agreed to surrender to the Company for cancellation up to 500,000
shares of the Company's common stock then held by Outback. All of the 500,000
shares have been surrendered as of September 30, 1992.
26
<PAGE>
In addition, in June 1992, in exchange for a waiver of any claims the
Company might assert against Outback, Outback fully released the Company of its
obligation under the subordinated note payable.
Russell Cleveland, a director of the Company, is also a major shareholder
and principal of Renaissance. As such, Mr. Cleveland may have conflicting
interests with those of the Company with respect to Renaissance ownership of
$1,000,000 of the Debentures and conversion, redemption or continued holding
thereof.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Documents filed as part of this report:
(1) and (2) - See Index to Consolidated Financial Statements
and Schedules included herein.
(3) Exhibits - None
(B) Reports Filed on Form 8-K during the Fourth Quarter
8-K dated October 9, 1996, announcing the Joint Venture Agreement with
Advanced Biological Systems, Inc.
8-K dated December 12, 1996 announcing the appointment of Jonathan
Rosen to its Board of Directors.
27
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BIOPHARMACEUTICS, INC.
By: /s/ Edward Fine
Edward Fine
President and
Chief Executive Officer
By: /s/ William C. Kugler
William C. Kugler
Vice President-Finance
Chief Financial 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 date indicated.
/s/ Edward Fine
- --------------------------------
EDWARD FINE President, Chief Executive
Officer and Director January 30, 1997
/s/ Russell Cleveland
- --------------------------------
RUSSELL CLEVELAND Director January 30, 1997
/s/ Jonathan Rosen
- --------------------------------
JONATHAN ROSEN Director January 28, 1997
28
<PAGE>
BIOPHARMACEUTICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30,
1996, 1995 AND 1994
<PAGE>
BIOPHARMACEUTICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
INDEX
Page
Number
Auditor's Report ............................................ 1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
September 30, 1996 and 1995 ................................ 2 - 3
Consolidated Statements of Operations for the
Years Ended September 30, 1996, 1995 and 1994 .............. 4
Consolidated Statements of Shareholders' Equity (Deficiency
in Assets) for the Years Ended September 30, 1996, 1995
and 1994 ................................................... 5 - 7
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1996, 1995 and 1994 .............. 8 - 9
Notes to Consolidated Financial Statements .................. 10 - 28
FINANCIAL STATEMENT SCHEDULES:
Schedule VIII - Valuation Accounts .......................... 29
<PAGE>
FARBER, BLICHT & EYERMAN, LLP
Certified Public Accountants
255 Executive Drive
Plainview, NY 11803-1715
Telephone: (516) 576-7040
Facsimile: (516) 576-1232
Board of Directors and Shareholders
Biopharmaceutics, Inc.
Bellport, New York
We have audited the accompanying consolidated balance sheets of
Biopharmaceutics, Inc. and Subsidiaries as of September 30, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity
(deficiency in assets) and cash flows for each of the three years in the period
ended September 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements 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,
in all material respects, the consolidated financial position of
Biopharmaceutics, Inc. and Subsidiaries at September 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects,
the information set forth therein.
Plainview, New York
November 14, 1996 (except for notes
10, 16 and 17, the latest of which
is dated December 17, 1996).
1
<PAGE>
.
BIOPHARMACEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
ASSETS
1996 1995
---- ----
Current assets:
Cash $ 44,775 $ 86,664
Trade receivables, less allowance
for doubtful accounts of $25,000;
$22,000 in 1995 (Schedule VIII) 587,457 268,957
Note receivable (Note 16) 150,000 -
Inventories (Note 3) 538,359 493,671
Prepaid expenses and other
current assets 136,839 27,953
--------- ---------
Total current assets 1,457,430 877,245
Property, plant and equipment, at
cost, net of accumulated depreciation
and amortization (Note 4) 333,653 443,267
Investment in restricted securities
(Note 16) 250,750 -
Intangible assets, at cost, net of
accumulated amortization (Note 5) 3,677,225 -
Licensing costs, net of accumulated
amortization (Note 6) 64,901 70,301
Sundry 32,729 30,119
---------- ----------
$5,816,688 $1,420,932
========== ==========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
BIOPHARMACEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
1996 1995
---- ----
Current liabilities:
Accounts payable - trade $ 938,577 $ 1,027,865
Accrued expenses (Note 7) 727,238 1,043,676
Customer credit balances payable - 196,320
Medicare judgment payable (Note 8) - 50,000
Current maturities of long-term
debt (Note 9) 732,100 190,000
----------- ----------
Total current liabilities 2,397,915 2,507,861
----------- ----------
Long-term debt (Note 9) 1,622,792 130,982
----------- ----------
Convertible debentures payable
(Note 10) 1,402,941 1,000,000
---------- ----------
Commitments and contingencies
(Notes 14 and 15)
Shareholders' equity (deficiency
in assets) (Notes 10, 11, 16,
and 18):
Common stock - par value $.001
per share:
Authorized - 75,000,000 shares
Issued - 40,871,078 shares;
26,535,750 shares in 1995 40,871 26,536
Additional paid-in capital 29,771,461 27,149,038
Deficit (27,915,406) (27,889,599)
----------- ----------
1,896,926 (714,025)
Less treasury stock, at cost
(413,728 shares in 1996 and 1995) (944,612) (944,612)
Notes receivable from officers
and employees (559,274) (559,274)
---------- ----------
393,040 (2,217,911)
----------- -----------
$ 5,816,688 $ 1,420,932
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
Sales $3,725,221 $ 1,532,649 $ 2,057,383
---------- ----------- -----------
Costs and expenses:
Cost of sales 3,141,054 2,303,224 2,542,912
Selling, general and
administrative 1,434,036 1,031,354 1,575,870
Research and development
expenses 14,426 62,311 633,154
Amortization of intangibles 99,600 576,264 483,659
---------- ----------- -----------
4,689,116 3,973,153 5,235,595
---------- ----------- -----------
(963,895) (2,440,504) (3,178,212)
---------- ----------- -----------
Other income (deductions):
Loss on write-off of
intangible assets (Note 16) - (5,526,587) -
Settlement of medicare
judgement (Note 8) - 229,524 -
Income related to contribution
of licenses and rights to
joint venture (Note 16) 400,750 - -
Gain on disposition of equipment 62,500 2,758 -
Interest expense (including
interest to officer of
$6,165 in 1995; $12,500 in
1994) (298,821) (251,438) (246,629)
---------- ------------ ------------
164,429 (5,545,743) (246,629)
---------- ------------ -----------
Loss from continuing operations (799,466) (7,986,247) (3,424,841)
---------- ------------ -----------
Discontinued operations (Note 17):
Operating loss - (429,936) (1,245,924)
Gain (loss) of disposal 773,659 (1,191,607) -
---------- ------------ ------------
773,659 (1,621,543) (1,245,924)
---------- ------------ ------------
Net loss $ (25,807) $(9,607,790) $(4,670,765)
========== =========== ===========
Primary gain (loss)
per share (Note 12):
Continuing operations $ (.02) $ (.35) $ (.18)
Discontinued operations .02 (.07) (.07)
---------- ----------- ------------
Net loss $ - $ (.42) $ (.25)
========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Notes
Common Shares Additional Receivable
Number of Paid-in Treasury Officers
Shares Amount Capital Deficit Stock Employees Total
--------- ------- ----------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1993 11,705,250 $11,705 $13,638,265 $(13,611,044) $(1,186,196) $ - $(1,147,270)
Shares issued in
connection with the
exercise of stock options 686,100 686 559,274 - - (559,274) 686
Shares issued in connection
with the Company's
Regulation S offerings,
net of related
expenses $296,040 4,798,421 4,798 4,428,992 - - - 4,433,790
Shares issued in connection
with the purchase of
certain intangible assets
of Amswiss Scientific, Inc. 4,000,000 4,000 7,746,000 - - - 7,750,000
Shares issued (97,339)
in exchange for accounts
payable obligations - - (55,284) - 213,459 - 158,175
Shares issued (25,000)
in exchange for license - - 14,063 - 28,125 - 42,188
Net loss for year ended
September 30, 1994 - - - (4,670,765) - - (4,670,765)
---------- -------- ----------- ------------ ----------- ---------- -----------
Balance, September 30, 1994 21,189,771 $ 21,189 $26,331,310 $(18,281,809) $ (944,612) $ (559,274) $ 6,566,804
========== ======== =========== ============ =========== ========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
5
<PAGE>
BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(continued)
<TABLE>
<CAPTION>
Notes
Common Shares Additional Receivable
Number of Paid-in Treasury Officers
Shares Amount Capital Deficit Stock Employees Total
--------- ------- ----------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 21,189,771 $21,189 $26,331,310 $(18,281,809) $(944,612) $(559,274) $6,566,804
Shares issued in connection
with the Company's
Regulation S offerings,
net of related expenses
of $190,891 5,545,979 5,547 2,049,175 - - - 2,054,722
Shares issued in exchange
for convertible debentures 600,000 600 149,400 - - - 150,000
Forfeiture of shares in
connection with the
purchase of certain
intangible assets of
Amswiss Scientific, Inc. (800,000) (800) (1,380,847) - - - (1,381,647)
Net loss for year ended
September 30, 1995 - - - (9,607,790) - - (9,607,790)
---------- ------- ----------- ------------ --------- -------- -----------
Balance, September 30, 1995 26,535,750 $26,536 $27,149,038 $(27,889,599) $(944,612) $(559,274) $(2,217,911)
========== ======= =========== ============ ========= ========= ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
6
<PAGE>
BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(continued)
<TABLE>
<CAPTION>
Notes
Common Shares Additional Receivable
Number of Paid-in Treasury Officers
Shares Amount Capital Deficit Stock Employees Total
--------- ------- ----------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 26,535,750 $26,536 $27,149,038 $(27,889,599) $(944,612) $(559,274) $(2,217,911)
Shares issued in connection
with the Company's
Regulation S offerings,
net of related expenses
of $31,973 11,845,328 11,845 2,535,813 - - - 2,547,658
Shares issued as
commission to investment
banker in connection with
the aforementioned
Regulation S offerings 2,220,000 2,220 (2,220) - - - -
Shares issued in
connection with the
Company's acquisition
of the feminine hygiene
product line (Note 5) 270,000 270 88,830 - - - 89,100
Net loss for year ended
September 30, 1996 - - - (25,807) - - (25,807)
---------- ------- ----------- ------------ --------- --------- ------------
Balance, September 30, 1996 40,871,078 $40,871 $29,771,461 $(27,915,406) $(944,612) $(559,274) $ 393,040
========== ======= =========== ============ ========= ========= ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
7
<PAGE>
BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
OR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Cash flows from operating
activities: 1996 1995 1994
---- ---- ----
Loss from continuing operations $ (799,466) $(7,986,247 $(3,424,841)
Gain (loss) from discontinued
operations 773,659 (1,621,543) (1,245,924)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 303,805 835,304 761,374
Loss on write-off of
intangible assets - 5,526,587 -
Loss on write-off of licenses - 114,574 -
Gain on disposition of equipment (62,500) (2,758) -
Income related to contribution
of licenses and rights to
joint venture (400,750) - -
Canges in certain assets and
liabilities:
Accounts receivable (318,500) 155,853 (19,025)
Inventories (44,688) 808,167 (747,319)
Other current assets (108,886) 24,808 73,118
Accounts payable - trade (89,288) (274,017) 732,242
Accrued expenses (44,479) 370,301 72,524
Customer credit balances (196,320) 115,859 24,961
Medicare judgment payable (50,000) (229,524) 31,000
Deferred costs - - 128,757
Sundry (2,610) 21,365 (20,380)
---------- ---------- ----------
Net cash used in
operating activities (1,040,023) (2,141,271) (3,633,513)
---------- ---------- ----------
Cash flows from investing
activities:
Purchase of property, plant
and equipment (32,091) (36,773) (94,226)
Payments for licensing
agreements - - (35,000)
Proceeds from sale of property,
plant and equipment - 10,000 -
Intangible assets acquired (3,682,325) - (180,646)
---------- ---------- ----------
Net cash used in
investing activities (3,714,416) (26,773) (309,872)
---------- ---------- ----------
Balance carried forward (4,754,439) (2,168,044) (3,943,385)
---------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
Balance brought forward $(4,754,439) $(2,168,044) $(3,943,385)
----------- ------------ -----------
Cash flows from financing
activities:
Revolving credit loan activity:
Borrowings - - 1,855,000
Repayments - - (2,071,488)
Repayment of term debt - - (75,765)
Proceeds of Company's
Regulation S offerings, net
of related expenses of
$31,973; $190,891 in 1995;
$296,040 in 1994 2,547,658 2,054,722 4,433,790
Long-term debt incurred 4,269,175 130,982 -
Repayments of long-term debt (2,104,283) (60,000) (100,000)
Proceeds from the exercise
of stock options - - 686
----------- ----------- -----------
Net cash provided by
financing activities 4,712,550 2,125,704 4,042,223
----------- ----------- -----------
Net increase (decrease)
in Cash (41,889) (42,340) 98,838
Cash at beginning of year 86,664 129,004 30,166
----------- ----------- -----------
Cash at end of year $ 44,775 $ 86,664 $ 129,004
=========== =========== ===========
Supplemental disclosure of
cash flow information:
Cash paid during year:
Interest $ 4,000 $ 60,000 $ 147,000
=========== =========== ===========
Non-cash financing activities:
Reference is made to Notes 9,
16 and 18 for certain non-cash
financing activities.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 1. Summary of Significant Accounting Policies
a) The Company
Biopharmaceutics, Inc. (the "Company") is a manufacturer
of generic pharmaceutical products and a distributor of consumer
feminine hygiene products. These products are sold nationwide to major chain
stores, distributors, wholesalers and clinics.
b) Principles of consolidation
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
c) Revenue recognition
Sales are recognized as products are shipped.
d) Inventory valuation
Inventories are stated at the lower of cost (first-in, first-
out) or market.
e) Depreciation and amortization
The Company amortizes its intangible assets on the straight
line method over their estimated useful life of twenty years. Licensing
costs are being amortized on the straight-line method over the life of the
license agreements.
The Company depreciates its property and equipment on the
straight-line method for financial reporting purposes. For tax reporting
purposes, the Company uses the straight-line or accelerated methods of
depreciation.
Leasehold improvements are amortized over four to ten years.
Equipment, furniture and fixtures generally have been assigned ten and seven
year lives and tools and dies, four year lives.
10
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 1. Summary of Significant Accounting Policies (continued)
e) Depreciation and amortization (continued)
Expenditures for maintenance, repairs, renewals and
betterments are reviewed by management and only those expenditures
representing improvements to plant and equipment are capitalized. At the time
plant and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation accounts and the gain or loss on such disposition is
reflected in operations.
The Company adopted Financial Accounting Standards ("FAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" for the year ended September 30, 1996. The adoption of
FAS 121 had no material effect on the financial statements.
f) Deferred income taxes
Deferred income taxes are provided based on the provisions
of SFAS No. 109 "Accounting for Income Taxes" ("SFAS 109"), to reflect the
tax effect of differences in the recognition of revenues and expenses between
financial reporting and income tax purposes based on the enacted tax laws in
effect at September 30, 1996.
g) Loss per share
Loss per share is computed based on the weighted average
number of common shares outstanding. In computing loss per share, common
share equivalents are omitted because they are antidilutive.
h) Research and development expenses
The Company expenses research and development costs as
incurred. For the years ended September 30, 1996, 1995 and 1994, research and
development costs aggregated approximately $14,000, $62,000, and $633,000,
respectively.
11
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 1. Summary of Significant Accounting Policies (continued)
i) Fair value of financial instruments
Effective for fiscal years ending after December 15, 1995,
Statement of Financial Accounting Standards No. 107 requires entities with
total assets less than $150 million to disclose the fair value of financial
instruments recognized in the balance sheet. At September 30, 1996, the
carrying amounts of the Company's financial instruments included in it
current assets and current liabilities approximate fair value because of
the short maturity of those instruments. The carrying amounts of the Company's
long-term debt also approximates their fair value as of September 30, 1996
based upon the borrowing rates currently available to the Company for loans with
similar terms and maturities.
j) Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and ssumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. The most significant estimates made
are for recoverability of property and equipment, intangibles and accounts
receivable. Actual results could differ from those estimates.
k) Concentration of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of sales, trade accounts
receivable and cash. The Company grants credit to customers located throughout
the United States. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from it
customers. For the year ended September 30, 1996, the Company had sales to
three unrelated customers of approximately $492,000 (13.2% of sales), $461,000
(12.4% of sales) and $446,000 (12.0% of sales). In fiscal 1995, sales to two
customers aggregated approximately $416,00 (27.1% of sales) and $351,000 (22.9%
of sales).
The Company places its cash with financial institutions insure
by the FDIC. At times, such cash balances may be in excess of the FDIC insurance
limit.
12
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARSRS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 1. Summary of Significant Accounting Policies (continued)
k) Concentration of credit risk (continued)
As of September 30, 1996, the Company had receivables from two
unrelated customers of approximately $82,000 (14.0% of accounts receivable) and
$65,000 (11.1% of accounts receivable), respectively. As of September 30, 1995,
the Company had receivables from five unrelated customers averaging $46,000 per
customer (17.1% of accounts receivable).
l) Accounting for stock-based compensation
In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation", was issued. SFAS No. 123 establishes a fair value method for
accounting for stock-based compensation plans either through recognition or
disclosure. The Company intends to adopt the employee stock-based compensation
provisions of SFAS No.123 by disclosing the pro forma net income per share
amounts assuming the fair value method was adopted October 1, 1995. The adoption
of this standard did not impact the Company's consolidated results of
operations, financial position or cash flows.
Note 2. Basis of Preparation
For the fiscal year ended September 30, 1996, the Company's
operations included the manufacture and distribution of its generic
pharmaceutical products along with the marketing and selling of its newly
acquired feminine hygiene product lines; Vaginex, Koromex and Feminique (See
Note 5).
The Company recorded net losses of $25,807, $9,607,790 and
$4,670,765 for each of the years ended September 30, 1996, 1995 and 1994,
respectively. At September 30, 1996, the Company had a working capital deficit
of $940,485. As part of management's plan to refocus the Company's efforts on
its operations to attain profitable levels, the Company acquired the Feminine
Hygiene Product Brands of London International U.S. Holdings, Inc. for a
purchase price of $3,600,000 (See Note 5).
In addition, on September 25, 1996, the Company entered into a Joint
Venture Agreement to finance the commercialization of certain cancer related
drugs (See Note 16).
13
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 2. Basis of Preparation (continued)
The Company anticipates that its expanding pharmaceutical customer
base and the acquisition of its new feminine hygiene product line will enable
the Company to reach profitability. The Company is of the opinion that with the
funds raised from the joint venture, possible further issuances of common
stock pursuant to Regulation S offerings, and other financing it may consider
necessary to strengthen its working capital position, it can generate adequate
capital resources to achieve its objectives.
Note 3. Inventories
The components of inventories are as follows:
September 30,
1996 1995 1994
---- ---- ----
Chemical raw materials and
packaging materials $292,278 $320,485 $ 581,992
Work in process 68,943 115,251 211,033
Finished goods 177,138 57,935 508,813
-------- -------- ----------
$538,359 $493,671 $1,301,838
======== ======== ==========
Note 4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
September 30,
1996 1995
---- ----
Equipment, furniture and fixtures (*) $1,710,986 $1,844,345
Leasehold improvements 572,244 570,349
Tools and dies 227,996 215,454
2,511,226 2,630,148
Less accumulated depreciation and
amortization 2,177,573 2,186,881
---------- ----------
$ 333,653 $ 443,267
========== ==========
(*) Partially secured (Note 9(c)).
14
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 5. Acquisition of Feminine Hygiene Product Line
In March, 1996, the Company, through one of its subsidiaries,
acquired three branded consumer product lines (namely Koromex, Vaginex and
Feminique) from London International U.S. Holdings, Inc. ("London Int'l") for a
purchase price of $3,600,000. Pursuant to the acquisition agreement, $100,000
was paid upon the signing of the agreement and $1,500,000 paid at the closing.
The balance of the purchase price of $2,000,000 is payable as follows:
i) $500,000 on or before April 1, 1997, ii) $660,000 on or before April
1, 1998 and iii) $840,000 on April 1, 1999, with interest at 8.5%, payable
semi-annually through October,` 1997, then quarterly to maturity (See Note
9). The obligation is guaranteed by the Company and is collateralized by a
security interest in all accounts receivable, inventory and the trademarks
and tradenames purchased.
The assets purchased from London Int'l consisted of trademarks,
trade names and its customer base. No obligations were assumed by the Company.
The intangible assets acquired are comprised of the following:
Purchase price $3,600,000
Broker's fees (including cash
and securities) 159,100
Related legal costs incurred 12,325
----------
$3,771,425
==========
Amortization expense for the year ended September 30, 1996 aggregated
$94,200.
Note 6. Licensing Costs
The Company acquired an exclusive license to a patented process for a
non-invasive test to diagnose Alzheimer's disease during 1994. The license
agreement provides, among other things, for the payment of a royalty fee equal
to 5% of the net sales price of licensed products, with a minimum annual royalty
of $25,000 beginning in the fourth year of the agreement. The term of the
license expires in 2009, at which time the Company can continue to sell the
products without any royalty fee.
15
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 6. Licensing Costs (continued)
Additionally, the Company entered into another exclusive license
agreement during 1994 to market a patented antiviral composition method, with
a royalty due equal to 5% of net sales and a minimum annual royalty of $25,000
beginning with the fourth year of the agreement. The Company will incur a one-
time payment of $40,000 upon reaching $250,000 in sales of products resulting
from this license. The license will terminate with the expiration of the
aforementioned patent.
The components of aforementioned licensing costs are as follows:
September 30,
1996 1995
---- ----
Exclusive license - Alzheimer's patent $62,188 $62,188
Exclusive license - Antiviral patent 15,000 15,000
------- -------
77,188 77,188
Less: accumulated amortization 12,287 6,887
------- -------
$64,901 $70,301
======= =======
Note 7. Accrued Expenses
Accrued expenses consist of the following:
September 30,
1996 1995
---- ----
Professional fees $ 255,000 $ 509,000
Commissions 88,000 139,000
Interest expense 274,000 255,000
Sundry 110,238 140,676
--------- ----------
$ 727,238 $1,043,676
========= ==========
Note 8. Medicare Judgment Payable
In November 1995, the Court reduced a fine which was originally
imposed on the Company in 1989 to $50,000, which was paid on May 10, 1996. The
1995 consolidated statement of operations reflect a credit of $229,524, re-
presenting the difference between the Court reduced settlement and the original
fine, with interest thereon totaling $279,524.
16
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 9. Long-term Debt
Long-term debt consists of the following:
September 30,
1996 1995
---- ----
Obligation from litigation settlement with
the United States Attorney's office (a) $ 95,000 $190,000
Note payable (b) - 130,982
Liability in connection with settlement
of legal fees (c) 224,792 -
Bridge Loan payable (d) 35,100 -
Note payable - in connection with
purchase of the feminine hygiene
product lines (Note 5) 2,000,000 -
---------- --------
2,354,892 320,982
Less: current maturities 732,100 190,000
---------- ---------
$1,622,792 $130,982
========== ========
(a) In July, 1993, the Company's pharmaceutical subsidiary settled its
litigation with the United States Attorney's Office for $350,000 in
connection with investigations directed at the generic drug industry,
involving alleged misconduct in the filing and obtaining approval of
Abbreviated New Drug Applications ("ANDA's"). In connection with the
settlement, the United States Attorney's office has a claim against the
Company for failure to pay, in its entirety, its last installment due July
8, 1996, plus accrued interest. As a precondition of the settlement, if the
subsidiary defaulted on any of the agreed upon payments, the unpaid balance
of the settlement could become immediately due and payable, with interest
charged at the statutory rate from the closing date for the unpaid balance.
It is unknown at this time whether the U.S. Attorney's office will seek
to enforce its right to demand the full payment of the outstanding
obligation and interest thereon. The Company is currently making monthly
payments to liquidate the debt and at October 31, 1996, the remaining
outstanding balance was $85,000.
17
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 9. Long-term Debt (continued)
(b) On December 31, 1994, the Company issued a note payable to one of its
convertible debenture holders for $130,982, representing all accrued
interest to said date. The note matures October 1, 1998 and bears interest
at 12.5% per annum, payable in quarterly installments. The Company on
September 30, 1996 issued convertible debentures in exchange for the
aforementioned note payable and issued additional debentures for accrued
interest of $271,959 through September 30, 1996 on all the outstanding
debentures (Note 10).
(c) In March, 1996, the Company entered into a stipulation of settlement
agreement with its former legal counsel for unpaid legal fees. The
settlement provides for monthly payments of $7,000, increasing to $12,000,
with the final payment due on or before August 1, 1998. In the event of
default, the entire unpaid balance will become immediately due and payable,
with interest due on the unpaid principal balance from the date of default
at the rate of 9% per annum. This obligation is collateralized by certain
manufacturing equipment of the Company.
(d) On May 13, 1996, the Company entered into a bridge loan agreement with a
financial institution under which it borrowed $382,383. The loan agreement
provides, among other things, for monthly principal repayments of amounts
varying from $15,000 to $22,000. The loan matures on October 7, 1996. All
accrued interest was to be paid in October, 1996 at a rate of 1% above the
commercial prime lending rate. The loan is collateralized by all re-
ceivables and tangible assets of the Company. The Company is not in
compliance with the payment terms of the agreement.
The following is a schedule of principal repayments of all long-term debt
at September 30, 1996:
1997 $ 732,100
1998 782,792
1999 840,000
----------
$2,354,892
==========
18
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 10. Convertible Debentures Payable
The Company had outstanding at September 30, 1996 and 1995 an
aggregate of $1,402,941 and $1,000,000 of convertible debentures, respectively.
In June, 1995, the Company converted $150,000 of the aforementioned debentures
into 600,000 shares of common stock. The Company at September 30, 1996 issued
four additional convertible debentures aggregating $402,941 (Note 9(b)).
The convertible debentures outstanding at September 30, 1995 mature
on October 1, 1998, with optional redemptions available on October 1, 1996 at
110% of par, and each subsequent year to maturity at 105% of par. The
debentures bear interest at the rate of 12.5% per annum which is payable in
quarterly installments. Under the original terms of the debentures, mandatory
principal redemption installments were to be made quarterly to maturity in the
amount of $30 per $1,000 of the remaining outstanding principal, commencing
October 1, 1996. The Company obtained an extension until December 15, 1996
for the aforementioned redemption installments. The debentures, as amended, do
not require mandatory principal redemption requirements and can be converted at
any time into the Company's common stock in its entirety or in multiples of
$1,000, at conversion prices equal to the lesser of $.25, $.27 or 80% of the bid
price per share, dependent upon when the debentures were issued.
The debentures further provide that the Company maintain a minimum
current ratio and interest coverage, as defined, and must maintain a certain
minimum stockholders' equity. On December 17, 1996, the Company received
waivers of the defaults that have occurred under the agreements prior hereto and
through January 31, 1997 from the debenture holders. If an event of default
exists or occurs, as defined, subsequent to January 31, 1997 the debentures and
interest thereon may become due and payable at the discretion of the debenture
holders.
The Company entered into a Debenture Conversion Agreement on December
15, 1996, whereby $300,000 of convertible debentures were converted into
1,200,000 shares of the Company's common stock.
19
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 11. Stock Options
In 1993, the Company adopted a stock option plan under which selected
eligible key employees of the Company are granted the opportunity to purchase
shares of the Company's common stock. The plan provides tha 750,000 shares of
the Company's authorized common stock be reserved for issuance under the plan as
either incentive stock options or non-qualified options. Options are granted
at prices not less than 100 percent of the fair market value at the date of
grant and are exercisable over a period of ten years (subject to an initial one
year restrictive period) or as long as that person continues to be employed or
serve on the Board of Directors, whichever is shorter. Under the 1993 plan, no
options may be granted subsequent to January 5, 2003.
Information regarding stock options as at and for the two years ended
September 30, 1996 is summarized below:
1996 1995
---- ----
Option Option
Shares Price Shares Price
------ ------ ------ ------
Shares under option:
Outstanding -
beginning of year 653,500 $0.50 534,500 $1.25-$2.25
Granted - - 653,500 $0.50
Terminated (56,000) $0.50 (534,500) $1.25-$2.25
Outstanding - end
of year 597,500 $0.50 653,500 $0.50
Exercisable - end
of year 597,500 $0.50 - -
Note 12. Loss Per Share
For the years ended September 30, 1996, 1995 and 1994, the average
number of shares outstanding were 34,265,107, 23,150,793 and 18,549,265,
respectively.
20
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 13. Income Taxes
The Company, as of September 30, 1996, has available approximately
$26,750,000 of net operating loss carry forwards (expiring through the year
2011) to reduce future Federal and state income taxes. Since there is no
guarantee that the related deferred tax asset will be realized by reduction of
taxes payable on taxable income during the carry forward period, a valuation
allowance has been computed to offset in its entirety the deferred tax asset
attributable to this net operating loss in the amount of $10,700,000.
Note 14. Commitments and Contingencies
(a) The operations and offices of the Company are conducted from
leased premises in Bellport, New York. The Company is negotiating for a new
lease and is currently on a month to month basis.
Total rent expense for the two years ended September 30, 1996
was approximately $158,000 and $156,000 for the year ended September 30, 1995.
(b) The Company is involved in an administrative proceeding
commenced by, and pending before a Regents Review Committee of the New York
State Education Department. The proceeding was commenced to determine whether
or not the Company's license to operate as a manufacturer in New York should be
revoked or suspended, based upon the Company's 1993 guilty plea in Federal Court
on a variety of charges related to ANDA filings with the Food and Drug
Administration ("FDA") in 1988 and 1989 (Note 9(a)). A hearing before the
Regents Review Committee is scheduled to take place in March, 1997. Company's
legal counsel is of the opinion that there is ample basis for reaching
a reasonable disposition of this matter without affecting the Company's
manufacturing operations.
Amswiss Scientific, Inc. ("Amswiss") (Note 16) commenced an action
against the Company in the U. S. District Court for the southern district of New
York on December 16, 1996. Amswiss asserted a claim for an amount to be
ascertained at trial, but believed by Amswiss to be at least two million
dollars, plus cost and attorne's fees arising from the alleged failure of the
Company to file a Registration Statement with the Securities and Exchange
Commission for certain shares and warrants of the Company owned by Amswiss.
As of September 30, 1996, the Company is involved in various other
legal actions, none of which Management believes will have a material adverse
affect on the operations of the Company.
21
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 15. Employment Contract
The Company has an employment agreement with its President and Chief
Executive Officer for a period of five years, commencing October 1, 1994, for
an annualsalary of $130,000 per year, plus certain fringe benefits. Pursuant
to the terms of the agreement, the Officer will receive a bonus based upon the
profitability of the Company, (5% of the annual pre-tax profit up to a maximum
bonus of $1,500,000 per year).
Note 16. Joint Venture Agreement
In November, 1993, the Company acquired from Amswiss all of Amswiss'
rights to certain pharmaceutical assets, including all agreements, licenses,
applications, approvals, trademarks and trade names, for which the Company
issued to Amswiss four million shares of its common stock and warrants to
purchas an additional two million shares valued at $2.00 per share. The
acquisition agreement provided, that of the shares and warrants issued to
Amswiss, 800,000 common shares and warrants to purchase 400,000 common shares
would be subject to forfeiture and cancellation in the event the Company is
unable to obtain final FDA approval of certain New Drug Application ("NDA's")
on or before December 31, 1995. The Company re-evaluated its investment in the
Amswiss assets as of September 30, 1995. Due to the Company's lack of working
capital at the time, the cost of the NDA filing and new diagnostic techniques
for cervical cancer that significantly reduce potential future sales of the
Amswiss Drugs, the Company decided to write-off the adjusted unamortized
acquired Amswiss assets aggregating $5,526,587.
In addition, as a result of the Company's non-filing of the NDA's,
the Company recorded the forfeiture of the aforementioned 800,000 common
shares and warrants which resulted in a charge to common stock and additional
paid-in-capital aggregating $1,381,647. With respect to the shares and warrants
issued to Amswiss that were not subject to forfeiture, the Company granted
registration rights for one half of the shares and warrants six months after
closing and the balance of the shares and warrants, one year after the closing.
As of September 30, 1995, Amswiss exercised their right to request a re-
gistration of one half of their available shares and warrants. At September 30,
1995, the Company also canceled a contingent non-negotiable, non-interest
bearing $250,000 note, issued to Amswiss, which was due upon the FDA approval
by December 31, 1995. See Note 14 for commencement of an action by Amswiss
with regard to the aforementioned registration.
22
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 16. Joint Venture Agreement (continued)
On September 25, 1996, the Company entered into a joint venture
agreement with Advanced Biological Systems, Inc., who subsequently changed their
name to ABS Group, Inc. ("ABS"), for the completion of the regulatory process to
commercialize for ultimate sale certain cancer drugs purchased by the Company
from Amswiss. All funding for the joint venture will be provided for by ABS and
the Company will be responsible for handling the management of the project.
The joint venture agreement provides, among other things, the payment
of a total of a minimum of $2,750,000 to the Company in cash and/or securities
for the sub-license, previously acquired from Amswiss. Payment terms include
425,000 shares of restricted common stock of ABS and $150,000 in cash re-
presented by a promissory note payable on or before October 31, 1996. Said note
was paid in full on November 1, 1996. The balance of the payments are to occur
in varying amounts of common shares and or cash coinciding with filings with the
FDA and the approval of various investigational new drug applications. Addition-
ally, a contribution to the joint venture of $1,000,000 is to be made by ABS as
follows: i) $400,000 by October 31, 1996, ii) $300,000 by February 28, 1997 and
iii) $300,000 by August 31 1997. Of the first $400,000 contribution, only
$150,000 has been made. The Company would share in the net profits from the sale
of the approved drug on a 60/40 basis until it had recovered at least $2,000,000
and then share on the basis of 55/45 on subsequent profits.
The Company in 1996 recorded as income $400,750, representing the
note received of $150,000 (which was collected in November, 1996) and $250,750,
the value of 425,000 shares of ABS restricted common shares issued, pursuant to
the joint venture agreement. The value of the restricted common shares was based
upon an independent appraisal made by an investment banking firm.
Note 17. Gain (Loss) on Discontinued Operations
In August, 1992, the Company obtained an exclusive license for the
mass market manufacture and distribution of Treo. The Company had been engaged
in litigation with its Treo licensor since 1994 over, among other things, the
promotion and marketing of the product. As a result of a November 16, 1995
preliminary court order issued by the United States District Court, Eastern
District of New York, the Company was enjoined from selling Treo during the 1996
selling season. As a result of the Court's decision, the Company discontinued
the manufacturing of Treo and reclassified its results of operations as dis-
continued operations in the accompanying consolidated statement of operations
for the year ended September 30, 1995.
23
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
17. Gain (Loss) on Discontinued Operations (continued)
In September 1996, pursuant to a Board of Directors resolution, the
Company filed a Chapter 7 Bankruptcy petition in the United States District
Court for the Eastern District of New York on December 13, 1996 for its
subsidiary, Biopharm Lab, Inc., the distributor of Treo. As a result thereof,
the Comparny wrote off the the excess of liabilities over the subsidiaries
assets, which is reflected as a gain on disposal of discontinued operations in
its consolidated statement of operations for the year ended September 30, 1996.
A summary of the operating results of discontinued operations are as
follows:
September 30,
1996 1995 1994
---- ---- ----
Net Sales $ - $ 1,030,500 $ 608,449
Gross profit - 598,421 297,301
Net operating loss from
discontinued operations - (429,936) $ (1,245,924)
The components of assets and liabilities of the discontinued operations in-
cluded in the Consolidated Balance Sheets are as follows:
September 30,
1996 1995
---- ----
Cash $ 107 $ 69,574
Accounts receivable (net) - 116,306
Property, plant & equipment (net) - 3,006
Intercompany payable (2,720,889) (2,622,191)
Accounts payable - (616,030)
Accrued expenses - (192,989)
Customer credit balances payable - (196,320)
----------- ------------
$(2,720,782) $(3,438,644)
=========== ===========
24
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 18. Common Stock
In June, 1993, the Board of Directors approved an offering pursuant
to Regulation S of 3,750,000 shares, as amended. In connection with this
offering, the Company received approximately $3,705,000 from October, 1993 to
September, 1994, resulting from the sale of 3,349,851 shares of common stock. In
April, 1994, the Board of Directors approved an additional offering pursuant to
Regulation S of 4,000,000 shares. In connection with this offering, the Company
received approximately $1,025,000 from May, 1994 to September, 1994, resulting
from the sale of 1,448,570 shares of common stock. In 1995, an additional
2,436,042 shares of common stock were sold for approximately $1,026,000.
During the year ended September 30, 1994, options under a former 1988
stock option for the issuance of 686,000 common shares were exercised and paid
for by the issuance of non-interest bearing notes, payable on demand,
aggregating $559,274 and cash of $686. The notes are collateralized by the
shares issued. Additionally, 122,339 shares were issued from Treasury in
exchange for trade obligations and for the purchase of an exclusive license
for a patented process to diagnose Alzheimer's disease (Note 6).
In March, 1995, the Board of Directors approved another offering
pursuant to Regulation S of 4,500,000 shares. In connection with this offering,
the Company received approximately $1,220,000 from March, 1995 to September,
1995, resulting from the sale of 3,109,937 shares of common stock. An additional
1,273,071 shares of common stock were sold for approximately $217,000 during the
year ended September 30, 1996.
During January, 1996, the Board of Directors authorized the issuance
of additional shares of common stock pursuant to offerings under Regulation S
to fund the working capital needs of the Company. In connection with this
resolution, the Company received approximately $2,363,000 from January, 1996 to
September, 1996, resulting from the sale of 10,572,257 shares of common stock.
Note 19. Business Segment Information
The Company's operations (Note 2) have been classified into generic
pharmaceutical products and feminine hygiene products. The generic
pharmaceuticals segment involves the manufacturing, repacking and distributing
of over-the-counter drugs. The feminine hygiene product lines, which began its
operations in April, 1996, after its acquisition from London Int'l in March,
1996 (Note 5), involves the marketing and distribution of its products. The
Company's operations for its branded consumer product line (Treo), for the years
ended September 30, 1995 and 1994 are included in the loss on discontinued
operations for those years (Note 17).
25
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 19. Business Segment Information (continued)
Summarized financial information by business segment is as follows:
1996
----
Net sales:
Pharmaceuticals $ 2,020,000
Feminine hygiene products 1,705,000
-----------
$ 3,725,000
===========
Operating gain (loss):
Pharmaceuticals $(1,452,000)
Feminine hygiene products 488,000
-----------
$ ( 964,000)
===========
Total assets:
Pharmaceuticals $ 1,200,000
Feminine hygiene products 4,216,000
-----------
$ 5,416,000 (1)
=============
Depreciation and amortization:
Pharmaceuticals $ 210,000
Feminine hygiene products 94,000
-----------
$ 304,000
===========
Capital expenditures:
Pharmaceuticals $ 32,000
Feminine hygiene products -
-----------
$ 32,000
===========
(1) Total assets do not include assets relating to the Company's joint venture
agreement (Note 16).
26
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 20. Fourth Quarter Adjustments
Year Ended September 30, 1996
The net loss in the fourth quarter for the year ended September
30, 1996 was decreased by the following more significant adjustments:
Gain on disposal of discontinued
operations $ (724,659)
Income related to contribution of
licenses to joint venture (400,750)
-----------
$(1,125,409)
===========
Year Ended September 30, 1995
The net loss in the fourth quarter for the year ended September
30, 1995 was increased (decreased) by the following more significant
adjustments:
Loss on write-off of intangible
assets $5,526,587
Settlement of medicare judgement (229,524)
Loss on disposal of
discontinued operations 1,191,607
----------
$6,488,670
==========
Year Ended September 30, 1994
There were no significant adjustments that either increased or de-
creased the net loss in the fourth quarter of the year ended September 30, 1994.
27
<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Note 21. Unaudited Quarterly Financial Data
The following is a summary of unaudited quarterly operating results
for the years ended September 30, 1996, 1995 and 1994 (in thousands of dollars
except per share amounts).
Year Ended September 30, 1996
First Second Third Fourth
Quarter Quarter Quarter Quarter(1)
------- ------- ------- ----------
Continuing operations:
Revenues $ 457 $ 625 $1,166 $1,477
Gross profit (178) 12 290 460
Net profit (loss) (465) (322) (48) 36
Loss per share (.01) (.01) - -
Discontinued operations:
Net income (loss) $ - $ (16) $ 50 $ 740
Income per share - - - .02
Year Ended September 30, 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter(1)
------- ------- ------- ----------
Continuing operations:
Revenues $ 486 $ 525 $ 191 $ 331
Gross profit (140) (126) (242) (262)
Net loss (676) (307) (980) (6,023)
Loss per share (.03) (.01) (.04) (.23)
Discontinued operations:
Net income (loss) $ 32 $ 363 $480 $(2,497)
Income (loss) per share - .02 .02 (.09)
Year Ended September 30, 1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- ----------
Continuing operations:
Revenues $ 551 $ 488 $ 519 $ 499
Gross profit (103) (139) (102) (142)
Net loss (564) (634) (1,271) (956)
Loss per share (.03) (.03) (.07) (.05)
Discontinued operations:
Net loss $(111) $(180) $(541) $(414)
Loss per share (.01) (.01) (.03) (.02)
(1) See Note 20.
28
<PAGE>
BIOPHARMACEUTICS, INC.
FORM 10-K
EXHIBIT
FOR THE YEAR ENDED SEPTEMBER 30, 1996
EXHIBIT 10.9A
<PAGE>
BIOPHARMACEUTICS, INC.
SCHEDULE VIII - VALUATION ACCOUNTS
Balance Charged Charged Other Balance
at to to Changes at end
beginning costs and other add of
Description of Period expenses accounts (deduct) Period
----------- --------- --------- -------- -------- ------
Allowance for doubtful accounts:
Year ended September 30, 1996 $22,000 $18,697 $ - $(15,697) $25,000
======= ======= == ======== =======
Year ended September 30, 1995 $27,000 $ - $ - $ (5,000 $22,000
======= ======= == ======== =======
Year ended September 30, 1994 $26,000 $ 1,418 $ - $ (418) $27,000
======= ======= == ======== =======
29
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion of our report on the 1996 consolidated
financial statements and schedules of Biopharmaceutics, Inc. and subsidiaries
included in the Annual Report on Form 10-K of Biopharmaceutics, Inc. for the
year ended September 30, 1996.
Plainview, New York
January 29, 1997
<PAGE>
FINANCIAL DATA SCHEDULE
to
Form 10-K for year ended September 30, 1996
of
Biopharmaceutics, Inc.
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF BIOPHARMACEUTICS, INC. FOR THE YEARS ENDED SEPTEMBER 30, 1996,
1995 AND 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
The following is the Financial Dat a Schedule submitted under Article 5 of
Regulation S-X and Appendix A to Item 601(c) of Regulation S-K for the fiscal
years ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
Year ended Year ended
Item No. Item Description 9/30/96 9/30/95
<S> <C> <C> <C>
5-01(1) cash and cash items $ 44,775 $ 86,664
5-02(2) marketable securities - -
5-02(3)(a)(1) notes and accounts
receivable 737,457 268,957
5-02(4) allowance for doubt-
ful accounts - -
5-02(6) inventory 538,359 493,671
5-02(9) current assets 1,457,430 877,245
5-02(13) property, plant and
equipment 2,511,226 2,630,148
5-02(14) accumulated depreciation 2,177,573 2,186,881
5-02(18) total assets 5,816,688 1,420,932
5-02(21) total current liabilities 2,397,915 2,507,861
5-02(22) long term debt 3,025,733 1,130,982
5-02(28) preferred stock-
mandatory redemption - -
5-02(29) preferred stock - no
mandatory redemption - -
5-02(30) common stock (equity)
(deficiency in assets) 393,040 (2,217,911)
5-02(31) other stockholder equity - -
5-02(32) total liability and
stockholders' equity 5,816,688 1,420,932
5-03(b)1(a) net sales 3,725,221 1,532,649
5-03(b)1 total revenues 3,725,221 1,532,649
5-03(b)2(a) cost of tangible goods
sold 3,141,054 2,303,224
5-03(b)2 total cost and expenses
applicable to sales
revenue 3,141,054 2,303,224
5-03(b)3 other costs and expenses - 5,526,587
5-03(b)5 provision for doubtful
accounts and notes 18,697 (5,000)
5-03(b)(8) interest and amortization
debt expenses 298,821 251,438
5-03(b)(10) income (loss) before taxes
and other items (799,466) (7,986,247)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ended Year ended
Item No. Item Description 9/30/96 9/30/95
5-03(b)(11) income tax expense - -
5-03(b)(14) income/(loss) continuing
operation (799,466) (7,986,247)
5-03(b)(15) discontinued operations 773,659 (1,621,543)
5-03(b)(17) extraordinary items - -
5-03(b)(18) cumulative effect changes
in accounting principles - -
5-03(b)(19) net income or (loss) (25,807) (9,607,790)
5-03(b)(20) earnings (loss) per share - (.42)
5-03(b)(20) earnings (loss) per share
fullly diluted (Not computed)
</TABLE>
<PAGE>
