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 December 31, 1997 Commission File Number 0-11750
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 December 31, 1997
Class Outstanding
===== ===========
Common Stock - $.00l Par Value 16,816,732
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
December 31, 1997 (Unaudited) and
September 30, 1997 (Audited) 3
Statements of Operations
Three Months Ended December 31, 1997
and 1996(Unaudited) 4
Consolidated Statement of Shareholders' Equity
for the Three Months Ended December 31, 1997 5
Consolidated Condensed Statement of Cash Flows
for the Three Months Ended
December 31, 1997 and 1996 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. Financial Statements 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
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 219,151 $ 502,304
Trade receivables, less allowance for
doubtful accounts 1,298,341 1,430,110
Inventories 617,808 603,134
Prepaid expenses and other assets 430,280 312,983
----------- ----------
Total current assets 2,568,580 2,848,531
Property, plant and equipment, at cost,
net of accumulated depreciation 1,190,100 1,164,462
Investment in restricted securities 250,750 250,750
Intangible assets, at cost, net of accumulated amortization 11,760,325 11,951,677
Licensing costs, net of accumulated amortization 46,301 46,301
Sundry 40,929 68,865
----------- -----------
$15,853,985 $16,330,586
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 1,343,071 $ 1,309,344
Accrued expenses 961,584 934,564
Obligation Related to Settlement of Litigation -0- 250,000
State Income Taxes Payable 90,000 90,000
Current maturities of long-term debt 4,812,824 4,812,824
----------- -----------
Total current liabilities 7,207,479 7,396,732
----------- -----------
Long-term debt 3,316,626 4,005,689
----------- -----------
Convertible debentures payable 575,000 575,000
----------- -----------
Shareholders' equity:
Common Stock - par value $.00l per share
Authorized - 75,000,000 shares
Issued - 16,816,732 shares 16,817 16,817
Additional paid-in capital 33,710,648 33,710,648
Deficit (27,468,699) (27,870,414)
----------- -----------
6,258,766 5,857,051
Less Treasury Stock, at cost
(103,432 shares) (944,612) (944,612)
Notes receivable from officers and employees (559,274) (559,274)
----------- -----------
4,754,880 4,353,165
----------- -----------
$15,853,985 $16,330,586
============ ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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BIOPHARMACEUTICS, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Net sales $ 2,828,812 $ 1,258,518
Costs and expenses:
Cost of sales 1,465,517 840,509
Selling, general and
administrative 605,865 295,349
Amortization of intangibles 198,747 48,000
------------ ------------
2,270,129 1,183,858
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558,681 74,660
Other income (deductions):
Interest expense (156,968) (59,701)
------------ ------------
Net income $ 401,715 $ 14,959
============ ============
Income per share
Continuing operation $0.02 $0.00
==== ====
Average shares outstanding 16,816,732 8,566,277
Adjusted for the 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)
THREE MONTHS ENDED DECEMBER 31, 1997
<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 $33,710,648 $(27,870,414) $(944,612) $(559,274) $4,353,165
Net income for the three months
ended December 31, 1997 --- --- --- 401,715 --- --- ---
---------- ------- ----------- ------------- ---------- ---------- ----------
Balance, December 31, 1997 16,816,732 $16,817 $33,710,648 $(27,566,559) $(944,612) $(559,274) $4,754,880
========== ======= =========== ============= ========== ========== ==========
<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)
THREE MONTHS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Income (Loss) from continuing operations $ 401,715 $ 4,959
Adjustments to reconcile net income (loss) to
net cash provided by (used in)
operating activities:
Depreciation and amortization 254,151 87,000
Changes in certain assets and liabilities:
Accounts receivable 131,769 92,845
Notes receivable --- 150,000
Inventories (14,674) (52,686)
Other current assets (68,840) 10,847
Other assets (27,930) 226
Accounts payable and accrued expenses 60,748 (216,788)
Payment against settlement of litigation (250,000) (40,000)
------------ ------------
Net cash provided by (used in)
Operating activities 486,939 46,403
Cash flows from investing activities:
Purchase of property plant and equipment (81,029) (10,604)
------------ ------------
Net cash provided by (used in)
investing activities (81,029) (10,604)
------------ ------------
Cash flows from financing activities:
Repayments of long-term debt (689,063) (41,000)
------------ ------------
Net cash provided by (used in)
financing activities (689,063) (41,000)
Net change in cash (283,153) (5,201)
Cash at beginning of period 502,304 44,775
------------ ------------
Cash at end of period $ 219,151 $ 39,574
============ ============
<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)
DECEMBER 31, 1997
A. Consolidated Condensed Financial Statements
The Consolidated Condensed Balance Sheet as of December 31, 1997, the
Consolidated Condensed Statement of Operations for the periods ended December
31, 1997 and 1996, the Consolidated Condensed Statement of Shareholders' Equity
for the three month period ended December 31, 1997, and the Consolidated
Statements of Cash Flows for the periods ended December 31, 1997 and 1996 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
December 31, 1997 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 December 31, 1997 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 December 31, 1997, the
Company has cash of approximately $220,000.
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 bearing interest at 9% per annum payable $175,000 a month for 28 months.
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 assets associated with Treo as a discontinued operation as of
September 30, 1995. On December 13, 1996 the Company's subsidiary, Biopharm Lab,
Inc.(the distributor of Treo), filed a Chapter 7 Bankruptcy Petition in the
United States District Court, Eastern District.
The 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, the convertible debentures and all accrued interest were
converted to common stock.
RESULTS OF OPERATIONS
Sales for the quarter ended December 31` 1997 of $2,828,812 represent an
increase of 125% from sales of $1,258,518 in the comparable quarter in 1996.
Sales for the prior quarter ended September 30, 1997 totaled $3,479,760.
Revenues from the CMT of $1,688,932 represents a 100% increase over the
comparable quarter since CMT was acquired in June 1997. Sales of generic
products increased 9.1% to $518,389 compared to $474,983 in 1996. Sales of
feminine hygiene products decreased to $621,491 as compared with $ 783,535 in
the comparable quarter in 1996. The decrease in sales was due to a shift in
product mix away from high volume low profit products to lower volume higher
profit products.
Gross margins for the first quarter were 48.19% compared to 33.21% in the
same quarter in 1996. Gross margin for the prior quarter was 48.79%. Net profits
for the first quarter of fiscal 1998 were $401,715 or 14.2% compared to $14,959
or 1.19% 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.
Selling, general and administrative expenses increased to $605,865 in 1998
from $295,349 in the first quarter of 1998 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
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Interest expense of $156,968 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-Not applicable.
Item 6. Exhibits and Reports on Form 8-K Not applicable
9
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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: February 13, 1998
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