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 June 30, 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 June 30, 1998.
Class Outstanding
----- -----------
Common Stock - $.001 Par Value 17,264,143
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
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PART I Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet
June 30, 1998 (Unaudited) and September 30, 1997 (Audited) 3
Statements of Operations
Three Months and Nine Months Ended June 30, 1998
and 1997(Unaudited) 4
Consolidated Statement of Shareholders' Equity
for the Nine Months Ended June 30, 1998 (Unaudited) 5
Consolidated Condensed Statement of Cash Flows
the Nine Months Ended June 30, 1998 and 1997 (Unaudited) 6
Notes to Condensed Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Default upon Senior Securities 10
Item 4. Submission of materials to a
vote of security holders 10
Item 5. Other Information 10
Item 6. Reports on Form 8-K 10
2
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ITEM 1. FINANCIAL STATEMENTS
BIOPHARMACEUTICS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
June 30, September 30,
1998 1997
------------- -------------
(Unaudited) (Audited)
------------- -------------
ASSETS
Current assets:
Cash $ 10,444 $ 502,304
Trade receivable, less allowance for
doubtful accounts 1,567,677 1,430,110
Note receivable 0 0
Inventories 674,670 603,134
Prepaid expenses and other assets 384,499 312,983
------------- -------------
Total current assets 2,637,240 2,848,531
Property, plant and equipment, at cost,
net of accumulated depreciation 1,184,829 1,164,462
Investment in restricted securities 0 250,750
Intangible assets, at cost, net of
accumulated amortization 11,403,975 11,951,677
Licensing costs, net of accumulated
amortization 46,301 46,301
Sundry 28,046 68,865
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$ 15,300,391 $ 16,330,586
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 2,141,694 $ 1,309,344
Obligation Related to Settlement of Litigation 0 250,000
Accrued expenses 719,414 934,564
State Income Taxes Payable 90,000 90,000
Current maturities of long-term debt 2,823,605 4,812,824
------------- -------------
Total current liabilities 5,774,713 7,396,732
Long-term debt 4,467,902 4,005,698
Convertible debentures payable 575,000 575,000
Shareholders' equity:
Common Stock - par value $.00l per share
Authorized - 75,000,000 shares
Issued - 17,264,143 shares, 10,217,770, 1996 17,264 16,817
Additional paid-in capital 34,199,853 33,710,648
Deficit (28,230,455) (27,870,414)
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5,986,662 5,857,051
Less Treasury Stock, at cost
(413,728 shares 1994) (944,612) (944,612)
Notes receivable from officers and employees (559,274) (559,274)
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4,482,776 4,353,165
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$ 15,300,391 $ 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 Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 1,805,778 $ 1,884,033 $ 7,729,993 $ 4,643,514
------------ ----------- ------------ ------------
Costs and expenses:
Cost of sales 1,376,980 1,028,776 4,273,821 2,644,751
Selling, general and
administrative 1,052,573 461,692 2,382,865 1,025,654
Amortization of intangibles 195,227 48,000 592,721 144,000
------------ ------------ ------------ ------------
2,624,780 1,538,468 7,249,407 4,114,738
------------ ------------ ------------ ------------
(819,002) 345,564 480,586 528,776
------------ ------------ ------------ ------------
Other income (deductions):
Other income 0 0 0 0
Interest expense (including
interest to officer) (207,744) (90,651) (570,301) (241,954)
------------ ------------ ------------ ------------
Net income (loss) from
continuing operations (1,026,746) 254,913 (89,715) 286,822
Settlement of Litigation (19,478) 0 (19,478) 0
Write off of Investment (250,750) 0 (250,750) 0
------------ ------------ ------------ ------------
Net income (loss) $(1,296,974) $ 254,913 $ (360,039) $ 286,822
============ ============ ============ ============
Income (loss) per share
Continuing operations $(0.08) $0.02 $(0.02) $0.03
======= ===== ======= =====
Primary income (loss) per share
Continuing operation $(0.08) $0.02 $(0.02) $0.03
Discontinued operations 0.00 0.00 0.00 0.00
Net income (loss) $(0.08) $0.02 $(0.02) $0.03
Average shares outstanding 17,111,223 10,540,284 16,919,454 10,540,284
<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)
NINE MONTHS ENDED JUNE 30, 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 $16,816 $33,710,649 $(27,870,416) $(944,612) $(559,274) $4,353,163
Shares issued in 2/28/98
in lieu of payment 20,000 20 34,980 --- --- --- 35,000
Shares issued 3/26/98
Stratmore capital 50,000 50 74,950 --- --- --- 75,000
Shares Issued 4/98
Berkshire Financial in lieu of fees 160,000 160 199,840 --- --- --- 200,000
Weinberg, Kaley in lieu of fees 62,811 63 78,450 --- --- --- 78,813
Shares Issued 6/30 154,600 155 100,984 --- --- --- 101,139
Net income for the nine months
ended June 30, 1997 --- --- --- (360,039) --- --- (260,039)
---------- ------- ----------- ------------- ---------- ---------- -----------
Balance, June 30, 1997 17,264,143 $17,264 $34,199,853 $(28,230,455) $(944,612) $(559,274) $4,482,776
========== ======= =========== ============= ========== ========== ===========
<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)
NINE MONTHS ENDED JUNE 30,
1998 1997
------------ ------------
Cash flows from operating activities:
Income (loss) from continuing operations $ (360,039) $ 286,822
Profit (loss) from discontinued operations
Adjustments to reconcile net income (loss) to
net cash provided by (used in)
operating activities:
Write-off of Investment 250,750 0
Issuance of Common Stock in Lieu
of Fees 388,813 0
Depreciation and amortization 721,622 114,227
Changes in certain assets and liabilities:
Accounts receivable (178,808) (804,975)
Notes receivable 0 150,000
Inventories (45,145) (150,951)
Other current assets (71,516) (250,569)
Other assets 260,392 12,435
Accounts payable and accrued expenses 367,200 1,046,946
Payment against settlement of litigation (250,000) 0
Payment against Medicare settlement 0 0
------------ ------------
Net cash provided by (used in)
operating activities 1,083,269 403,935
Cash flows from investing activities:
Purchase of property plant and equipment (149,268) (744,122)
Trademarks, tradenames, and intangibles 0 (7,251,118)
------------ ------------
Net cash provided by (used in)
investing activities (149,268) (7,995,240)
Cash flows from financing activities:
Proceeds for Issuance of Common
Stock 101,139 575,000
Short term debt incurred 0 7,550,000
Repayments of long-term debt (1,527,000) (450,000)
------------ ------------
Net cash provided by (used in)
financing activities 0 7,675,000
Net change in cash (491,860) 83,695
Cash at beginning of period 502,304 44,775
------------ ------------
Cash at end of period $ 10,444 $ 128,470
============ ============
The accompanying notes are an integral part of these financial statements.
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BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1998
A. Consolidated Condensed Financial Statements
The Consolidated Condensed Balance Sheet as of June 30, 1998, the
Consolidated Condensed Statement of Operations for the three and nine month
periods ended June 30, 1998, the Consolidated Condensed Statement of
Shareholders' Equity for the nine month period ended June 30, 1998, and the
Consolidated Statement of Cash Flows for the periods ended June 30, 1998 and
1997 have been prepared by the Company without audit. In the opinion of
Management, all adjustments necessary to present fairly the financial position,
results of operations and cash flows at June 30, 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 June 30, 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.
7
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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 four
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, $6,842,715 in 1997 and $101,139 in 1998. As of June 30, 1998
the Company has cash of approximately $10,444.
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 June 30, 1998 the Company agreed to issue 292,811 shares of common
stock 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 June 30, 1998 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.
*Registered Trademark
8
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RESULTS OF OPERATIONS
---------------------
Revenues for the third quarter ended June 30, 1998 were $1,805,778
representing a decrease of 4% over the $1,884,033 in the comparable 1997
quarter. Revenues for the prior quarter ended March 31, 1997 totaled $3,095,402.
For the nine months ended June 30, 1998, sales totaled $7,729,993 versus
$4,643,514 in the nine month period ended June 30, 1997. Sales of Feminine
Hygiene products decreased to $758,276 from $760,384 in the previous comparable
quarter. Sales of Feminine Hygiene products for the first nine months totaled
$1,612,972 versus $2,455,936 for the comparable nine months of 1997. Sales of
pharmaceutical products decreased 15 % for the quarter to $415,432 from the
$491,579 shipped in 1997. For the nine months ended June 30, 1998 pharmaceutical
sales totaled $1,576,102 compared to $1,555,509 shipped in 1997 an increase of
1.5%. CMT revenues for the quarter ended June 30, 1998 were $945,514 as compared
to $632,070 in the same quarter of 1997. For the nine months ended June 30, 1998
CMT revenues were $4,540,919. as compared to the $632,070 in the prior year as
CMT was acquired on June 2, 1997.
Gross margin for the quarter was 23% compared to 45% in the comparable 1997
quarter. Gross margin for the prior quarter totaled 48%. For the nine months
ended June 30, 1998, gross margin was 44% and 43% respectively. The decrease in
gross profit in the quarter ended June 30, 1998 was primarily due one time costs
associated with the validation of new testing equipment for CMT to expand its
range of procedures, and lower Feminine Hygiene sales.
Selling, general and administrative expenses increased to $1,052,573 from
$509,692 in the fiscal 1997 quarter due primarily to selling expenses for CMT
which was acquired in June of 1996 . Also included in the quarter are reserves
of $300,000 against disputed accounts receivable. For the nine months selling,
general and administrative expenses increased to $2,382,865 vs. $1,025,654 in
the comparable prior year nine months for similar reasons. The increase in
Amortization of intangibles primarily represents Goodwill incurred in the CMT
acquisition of June 1997.
Interest expense of $207,704 for the quarter includes the financing of the
Feminine Hygiene and CMT acquisitions, interest expense of the convertible
debentures. Interest expense for the comparable quarter represented only
financing of the Feminine. Hygiene line and debenture obligations. For the nine
months ended June 30, 1998, interest expense of $570,301 included the financing
of the acquisitions, and interest on the convertible debentures.
In the quarter ending June 30, 1998 the Company took a one time expense of
$250,750 to write down a questionable investment.
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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.
In June 1998 the Company reached a settlement with Harry Heller Research
Corp. in regards to a suit filed in respect to Privavera and Treo. The amount
settled for was $19,488.
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
Resignation of Edward Fine as President and Chief Executive Officer
and his replacement filed August 10, 1998.
10
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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/ Jonathan Rosen
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BIOPHARMACEUTICS, INC.
REGISTRANT
By: Jonathan Rosen, President and Chief Executive Officer
/s/ Vincent H. Pontillo
-----------------------
Vincent H. Pontillo
Controller
Dated: August, 20, 1998
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