SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998 Commission File Number 1-9370
BIOPHARMACEUTICS, INC.
DELAWARE 13-3186327
(State of Incorporation) (I.R.S. Employer Identification No.)
990 Station Road, Bellport, New York 11713
(Address of Principal Executive Office) (Zip Code)
Registrant telephone number, including area code: (516) 286-5800
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of March 31, 1998.
Class Outstanding
Common Stock - $.001 Par Value 17,109,543
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities and Exchange Act of 1934 during the
preceding twelve 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 ninety days. Yes __X__ No _____
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BIOPHARMACEUTICS, INC.
INDEX
PAGE
PART I Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet
March 31, 1998 (Unaudited) and September 30, 1997 (Audited) 3
Statements of Operations
Three Months and Six Months Ended March 31, 1998 and 1997(Unaudited) 4
Consolidated Statement of Shareholders' Equity
for the Six Months Ended March 31, 1998 5
Consolidated Condensed Statement of Cash Flows
for the Six Months Ended March 31, 1998 and 1997 6
Notes to Condensed Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Default upon Senior Securities 9
Item 4. Submission of materials to a
vote of security holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
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ITEM 1. FINANCIAL STATEMENTS
BIOPHARMACEUTICS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
March 31, September 30,
1998 1997
(Unaudited) (Audited)
------------ -------------
ASSETS
Current assets:
Cash $ 72,098 $ 502,304
Trade receivables, less allowance for
doubtful accounts 2,419,902 1,430,110
Inventories 596,581 603,134
Prepaid expenses and other assets 482,917 312,983
----------- ------------
Total current assets 3,571,498 2,848,531
Property, plant and equipment, at cost,
net of accumulated depreciation 1,190,252 1,164,462
Investment in restricted securities 250,750 250,750
Intangible assets, at cost, net of
accumulated amortization 11,576,294 11,951,677
Licensing costs, net of accumulated
amortization 46,301 46,301
Sundry 27,984 68,865
------------ ------------
$16,663,079 $16,330,586
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 1,922,801 $ 1,309,344
Accrued expenses 625,878 934,564
Obligation related to settlement litigation -0- 250,000
State income taxes payable 90,000 90,000
Current maturities of long-term debt 1,924,100 4,812,824
------------ ------------
Total current liabilities 4,562,779 7,396,732
------------ ------------
Long-term debt 5,846,640 4,005,689
------------ ------------
Convertible debentures payable 575,000 575,000
------------ ------------
Shareholders' equity:
Common Stock - par value $.00l per share
Authorized - 75,000,000 shares
16,886,732 issued and outstanding 17,110 16,817
Additional paid-in capital 34,098,869 33,710,648
Deficit (26,933,432) (27,870,414)
------------ ------------
7,182,547 5,857,051
Less Treasury Stock, at cost
(413,728 shares) (944,612) (944,612)
Notes receivable from officers
and employees (559,274) (559,274)
------------ ------------
5,678,660 4,353,165
------------ ------------
$16,663,079 $16,330,586
============ ============
The accompanying notes are an integral part of these financial statements.
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BIOPHARMACEUTICS, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 3,095,402 $ 1,500,963 $ 5,924,215 $ 2,759,481
------------ ------------ ------------ -------------
Costs and expenses:
Cost of sales 1,431,373 961,940 2,896,840 1,802,449
Selling, genEral and
administrative 724,423 382,867 1,330,340 678,216
Amortization of intangibles 198,747 48,000 397,494 96,000
------------ ------------ ------------ ------------
2,354,543 1,392,807 4,624,674 2,576,665
------------ ------------ ------------ ------------
740,859 108,156 1,299,541 182,816
Other income (deductions):
Other income 7,745 -0- 8,645 -0-
Interest expense (213,334) (91,602) (371,202) (151,303)
------------ ------------ ----------- ------------
Net income (loss) $ 535,270 $ 16,554 $ 936,984 $ 31,513
============ ============ ============ ============
Income per share $0.03 $0.00 $0.06 $0.00
===== ===== ===== =====
Primary income per share $0.03 $0.00 $0.06 $0.00
Average shares outstanding 16,830,541 10,158,838 16,823,732 10,264,378
(1997 adjusted for 1 for 4
stock split)
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional
Number of Par Paid-In Treasury Notes Receivable
Shares Value Capital Deficit Stock Officers & Employees Total
---------- ------- ----------- ------------- ---------- -------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1997 16,816,732 $16,817 $33,710,649 $(27,870,417) $(944,612) $(559,274 $4,353,163
Shares issued in lieu of
Payment 20,000 20 34,980 --- --- --- 35,000
Shares issued in lieu of
Payment 50,000 50 74,950 --- --- --- 75,000
Shares issued in lieu of
Payment 222,811 223 278,290 278,513
Net income for the six months
ended March 31, 1998 --- --- 936,984 --- --- --- 936,984
---------- ------- ----------- ------------- ---------- ---------- ----------
Balance, March 31, 1998 17,109,543 $17,110 $34,098,869 $(26,933,432) $(944,612) $(559,274) $5,678,660
========== ======= =========== ============= ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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BIOPHARMACEUTICS, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
(UNAUDITED)
SIX MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Income from operations $ 936,984 $ 31,513
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 479,836 174,000
Issuance of Common Stock for
legal and other professional services 353,513 ---
Changes in certain assets and liabilities:
Accounts receivable (989,792) (100,269)
Notes receivable ---- 150,000
Inventories 6,553 4,445
Other current assets (157,047) (22,874)
Other assets 40,881 2,610
Accounts payable and accrued expenses 304,771 (39,197)
Payment against settlement of litigation (250,000) (60,000)
------------- -------------
Net cash provided by (used in)
operating activities 725,699 140,228
Cash flows from investing activities: ------------- -------------
Purchase of property plant and equipment (108,132) (14,293)
Net cash provided by (used in)
investing activities (108,132) (14,293)
Cash flows from financing activities: ------------- -------------
Issuance of Capital Stock
Repayments of long-term debt (1,047,773) (62,000)
Net cash provided by (used in) ------------- -------------
financing activities (1,047,773) (62,000)
Net change in cash (430,206) 63,935
Cash at beginning of period 502,304 44,775
------------- -------------
Cash at end of period $ 72,098 $ 108,710
============= ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
A. Consolidated Condensed Financial Statements
The Consolidated Condensed Balance Sheet as of March 31, 1998, the
Consolidated Condensed Statement of Operations for the three and six month
periods ended March 31, 1998 and 1997, the Consolidated Condensed Statement of
Shareholders' Equity for the six month period ended March 31, 1998, and the
Consolidated Statements of Cash Flows for the periods ended March 31, 1998 and
1997 have been prepared by the Company without audit. In the opinion of
Management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at March 31, 1998 and for all periods presented have been made.
For information concerning the Company's significant accounting policies
and Basis of Presentation, reference is made to the Company's Annual Report on
Form 10-K for the year ended September 30, 1997. Results of operations for the
period ended March 31, 1998 are not necessarily indicative of the operating
results to be expected for the full year and such results are subject to
year-end adjustment and independent audit.
The Consolidated Financial Statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation. The Consolidated Statements
of Operations for all periods reflect the ongoing operations of the Company.
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ITEM 2. 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 short and long term debt, convertible
debentures or notes, and the sale of common shares, $2,185,704 in 1995,
$6,816,833 in 1996, and $6,842,715 in 1997. As of March 31, 1998, the Company
has cash of approximately $72,000.
On September 15, 1997 the Company completed the acquisition of Caribbean
Medical Testing Center, Inc. (CMT), which was effective as of June 2, 1997 with
the payment of $6,000,000 in cash and a note for $1,500,000 bearing interest at
10 1/2% per annum due July 17, 1998. The funding for the acquisition was
obtained by the issuance of 3,100,000 shares of common stock and $4,900,000 of
notes, payable $175,000 a month for 28 months bearing interest at 9% per annum.
On March 31, 1998 the Company completed extensions of the notes incurred in
the acquisition of CMT. The $1,500,000 note originally due on July 17, 1998 has
been extended to become due on October 1, 1999. Terms of the $4,900,000 have
also been modified to be payable at $100,000 per month until February 2002.
As of March 31, 1998 the Company agreed to issue 272,811 shares of common
in lieu of cash payment for certain legal and professional services.
Company completed its acquisition of a product line from London
International US Holdings, Inc. (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 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 acquired have been on the market for
more than ten years each and are sold under the names Vaginex*, Koromex*,
Koroflex*, and Feminique*. 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.
In fiscal 1998 the Company anticipates to expand its product line with the
addition of new items to the feminine hygiene subsidiary (QHP). A portion of
these new products will be manufactured internally by Biopharmaceutics. The
Company also anticipates revenues from CMT to increase as negotiations with
additional health care insurers are completed.
The Company believes that the foregoing, along with the additional capital
raised through September 30, 1997 will be adequate to meets its current
objectives. All sinking fund requirements for the Renaissance convertible
debentures were waived by the holder and eliminated in the conversion of the
debentures to a new series of convertible debentures on December 15, 1996. On
September 30, 1997, these convertible debentures and all accrued interest were
converted to common stock.
RESULTS OF OPERATIONS
Revenues for the quarter ended March 31, 1998 were $3,095,402 representing
an increase of 106% over revenues of $1,500,963 in the comparable quarter ended
March 31, 1997. Revenues for the prior quarter ended December 31, 1997 were
$2,828,812. For the six month period ended March 31, 1998 revenues were
$5,924,215 versus $2,759,481 in the comparable six months of fiscal 1997.
Revenues of CMT of $1,906,563 and $3,595,494 for the quarter and six months
ended March 31, 1998 respectively are not comparable to the same period last
year since CMT was acquired as of June 2, 1997. Sales for the Generic products
for the quarter were $568,959 which was a slight decline from sales of $588,947.
Year to date sales of Generic products increased by 2.5% to $1,087,348 as
compared to $1,063,930 for the same six month prior year period. Revenues for
the feminine hygiene line declined to $619,882 for the quarter ended March 31,
1998 as compared to $912,016 for the same quarter last year. Year to date
revenues for the feminine hygiene line declined to $1,241,373 for the six month
period as compared to $1,695,551 for the same period last year. The decline in
revenues is due in part to the consolidation of the industry and the shift from
high volume low profit product lines to lower volume more profitable product
lines .
Gross margins for the quarter ended March 31, 1998 were 53.76% compared to
35.91% in the same quarter in 1997. Gross margin for the prior quarter was
48.19%. Gross margins for the six months ended March 31, 1998 were 51.10%
compared to 34.68% in the same period in 1997. Net profits for the second
quarter of fiscal 1998 were $535,270 or 17.3% compared to $16,554 or 1.10% in
1997. The increase in both gross margin and net profits were due primarily to
the addition of CMT and higher gross profits on the product mix for the generic
and feminine hygiene product lines.
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Selling, general and administrative expenses increased to $724,423 from
$382,867 and $1,330,340 from $678,216 for the quarter and six months ended March
31, 1998 respectively due primarily to expenses in the medical testing
subsidiary which did not exist in the comparable quarter of fiscal year 1997.
Advertising and selling expenses for the feminine hygiene line increased over
the same quarter in 1997. Amortization of intangibles represents goodwill from
the medical testing center acquired in June 1997 as well as trademarks and trade
names for the feminine hygiene line which was acquired in March 1996.
*Registered Trademark
Interest expense of $213,334 and $371,202 for the quarter and six months
ended March 31, 1998 includes the financing of the medical testing center and
the feminine hygiene acquisitions. Interest for the comparable quarter
represented only the feminine hygiene acquisition and debenture obligations.
PART II--Other Information
Item 1. Legal Proceedings
Amswiss Scientific, Inc.--Amswiss Scientific, Inc. (Amswiss) 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 costs 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. On
September 9, 1997 the Company entered into a settlement with Amswiss in the form
of cash and stock totaling $436,300. Payment was made by the issuance of 115,000
shares of common stock and $250,000 cash on November 15, 1997. In addition the
Company issued two warrants to purchase 200,000 shares of common stock at $4.00
and $4.50 per share, these warrants expire in November 1998 and November 1999,
respectively, and replace existing warrants.
On November 14, 1997 the Company settled an administrative proceeding
pending before a Regents Review Committee of the New York State Education
Department. The State Education Department accepted the settlement by an order
dated November 14, 1997 and a payment of $10,000 was made in December 1997. The
proceeding had been commenced to determine whether or not the Company's license
to operate as a pharmaceutical manufacturer in New York should be revoked or
suspended, based on the Company's 1993 guilty plea in Federal Court on a variety
of charges related to ANDA filings with the Food and Drug Administration in 1988
and 1989. The Company's License remains in effect.
Item 2. Changes in Securities-Not applicable
Item 3. Default upon Senior Securities-Not applicable
Item 4. Submission of materials to a vote of security holders-Not applicable
Item 5. Other information
On May 5, 1998 Company's subsidiary Caribbean Medical Testing Center Inc.
and United HealthCare of Puerto Rico mutually entered into a termination
agreement for the contract between the two companies dated June of 1997.
Effective January 1, 1998 the Company entered into an employment contract
with Mr. Edward Fine extending his employment until September 30, 2002.
Item 6. Exhibits and Reports on Form 8-K Not applicable
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SIGNATURES
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, thereto duly authorized.
/s/ Edward Fine
BIOPHARMACEUTICS, INC.
REGISTRANT
By: EDWARD FINE, President and Chief Executive Officer
/s/ Vincent H. Pontillo
VINCENT H. PONTILLO
Controller
Dated: May 15, 1998
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