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, 1999 Commission File Number 1-9370
BIOPHARMACEUTICS, INC.
DELAWARE 13-3186327
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(State of Incorporation) (I.R.S. Employer Identification No.)
990 Station Road, Bellport, New York 11713
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(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, 1999.
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Class Outstanding
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Common Stock - $.001 Par Value 22,755,399
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
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<TABLE>
<CAPTION>
PAGE
PART I FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheet
March 31, 1999 (Unaudited) and September 30, 1998 (Audited) 3
Consolidated Condensed Statements of Operations
Three Months and Six Months Ended March 31, 1999 and 1998 (Unaudited) 4
Consolidated Condensed Statement of Shareholders' Equity
for the Six Months Ended March 31, 1999 (Unaudited) 5
Consolidated Condensed Statement of Cash Flows
for the Six Months Ended March 31, 1999 and 1998 (Unaudited) 6
Notes to the Consolidated 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
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
BIOPHARMACEUTICS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
(Unaudited) (Audited)
============ ==============
<S> <C> <C>
ASSETS
Current assets:
Cash $ 387,188 $ 34,421
Trade receivables, less allowance for
doubtful accounts 579,991 290,268
Inventories 297,673 179,401
Prepaid expenses and other assets 187,922 124,958
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Total current assets 1,452,774 629,048
Property, plant and equipment, at cost, net of
accumulated depreciation of $3,005 in Mar. l999
and $410 in Sept. 1998 43,754 1,005
Intangible assets, at cost, net of accumulated amortization
of $565,200 in Mar. 1999 and $471,000 in Sept. 1998 3,206,225 3,300,425
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$ 4,702,753 $ 3,930,478
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 369,410 $ 180,147
Accrued expenses 1,450,870 1,423,319
Net liability of discontinued operations 63,933 349,269
State income taxes payable 3,372 29,000
Current maturities of long-term debt 143,264 104,341
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Total current liabilities 2,030,849 2,086,076
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Long-term debt 1,340,076 1,426,688
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Convertible debentures payable 575,000 575,000
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Shareholders' equity:
Common Stock - par value $.00l per share 22,755 17,370
Authorized - 75,000,000 shares
Issued 22,755,399 in Mar. 1999 and 17,370,118 in
Sept. 1998
Additional paid-in capital 34,848,012 33,871,890
Deficit (33,169,327) (33,101,934)
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1,678,685 787,326
Less Treasury Stock, at cost
(103,432 shares) (944,612) (944,612)
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756,828 (157,286)
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$ 4,702,753 $ 3,930,478
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<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 Six Months Ended
March 31, March 31,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues:
Net sales $ 620,223 $ 619,881 $ 1,339,005 $ 1,242,373
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 256,392 240,840 502,438 458,775
Selling, general and
administrative 412,491 353,117 770,255 673,594
Amortization of intangibles 47,100 47,100 94,200 95,100
------------ ------------ ------------ ------------
715,983 641,057 1,366,893 1,227,469
------------ ------------ ------------ ------------
(95,760) (21,176) (27,888) 14,904
Other income (Deductions):
Other income 57,638 --- 57,638 ---
Interest expense (50,280) (31,875) (97,143) (78,243)
------------ ------------ ------------ ------------
Net income-continuing operations (88,402) (53,051) (67,393) (63,339)
Net income-discontinued operations --- 1,363,001 --- 1,775,004
------------ ------------ ------------ ------------ N
Net Income $ (88,402) $ 1,309,950 $ (67,393) $ 1,711,665
============ ============ ============ ============
Income (Loss) per share
Continuing operations $0.00 $0.00 $0.00 $0.00
Discontinued operations 0.00 0.08 0.00 0.10
----- ----- ----- -----
Income per share $0.00 $0.08 $0.00 $0.10
===== ===== ===== =====
Average shares outstanding 21,718,985 16,830,541 19,861,253 16,823,732
========== ========== ========== ==========
<FN>
The six months ended March 31, 1998 reflects certain reclassifications.
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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BIOPHARMACEUTICS, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional
Number of Par Paid-In Treasury
Shares Value Capital Deficit Stock Total
---------- ------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1998 17,370,118 $17,370 $33,871,890 $(33,101,934) $(944,612) $(157,286)
(Audited)
Shares issued to debenture
holders in lieu of interest
payment 121,867 122 23,033 --- --- 23,155
Shares issued in payment of
note payable and interest due 101,846 102 18,230 --- --- 18,332
Shares issued pursuant to
sale of common stock 4,444,443 4,444 795,556 --- --- 800,000
Shares issued in payment
of professional services 717,125 717 139,303 --- --- 140,020
Net loss for the six months
ended March 31, 1999 --- --- --- (67,393) --- (67,393)
---------- ------- ----------- ------------- ---------- ----------
Balance, March 31, 1999 22,755,399 $22,755 $34,848,012 $(33,169,327) $(944,612) $ 756,828
========== ======= =========== ============= ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
5
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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>
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Income (Loss) from continuing operations $ (67,393) $ (63,339)
Income from discontinued operations --- 1,775,004
Operating activities:
Shares issued in lieu of payment 181,507 353,513
Depreciation and amortization
Continuing operations 96,795 96,000
Depreciation and amortization
Discontinued operations --- 383,836
Changes in certain assets and liabilities:
Accounts receivable (289,723) (989,792)
Inventories (118,272) 6,553
Other current assets (62,964) (157,047)
Other assets --- 40,881
Accounts payable and accrued expenses (94,150) (469,910)
Payment in settlement of litigation --- (250,000)
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Net cash provided by (used in) operating activities (354,200) 725,699
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Cash flows from investing activities:
Purchase of property, plant and equipment (45,344) (108,132)
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Net cash provided by (used in) investing activities (45,344) (108,132)
Cash flows from financing activities:
Sale of common stock 800,000 ---
Repayments of long-term debt (47,689) (1,047,773)
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Net cash provided by (used in) financing activities 752,311 (1,047,773)
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Net change in cash 352,767 (430,206)
Cash at beginning of period 34,421 502,304
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Cash at end of period $ 387,188 $ 72,098
============ ============
<FN>
The six months ended March 31, 1998 reflects certain reclassifications.
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, 1999
A. Consolidated Condensed Financial Statements
The Consolidated Condensed Balance Sheet as of March 31, 1999, the
Consolidated Condensed Statement of Operations for the three and six month
periods ended March 31, 1999 and 1998, the Consolidated Condensed Statement of
Shareholders' Equity for the six month period ended March 31, 1999, and the
Consolidated Condensed Statements of Cash Flows for the periods ended March 31,
1999 and 1998 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, 1999 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, 1998. Results of operations for the
period ended March 31, 1999 are not necessarily indicative of the operating
results to be expected for the full year and such results are subject toyear-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.
B. Discontinued Operations
On December 11, 1998, the Company completed the sale of its wholly owned
subsidiary, Caribbean Medical Testing Centers, Inc. ("CMT"), which was in the
business of multi-phase specialty medical testing and laboratory services
throughout Puerto Rico. Under the terms of the sale, common stock of CMT was
sold for $4,700,000, payable as follows: $600,000 to be held in escrow for
specified outstanding taxes, $2,600,000 in cash and the waiver of the Company's
guaranty of a $1,500,000 note held by the purchaser. In addition and as part of
its settlement with other creditors, the Company settled an outstanding
indebtedness to Dondo Associates, Inc. ("Dondo") by assigning $2,600,000 of the
cash proceeds from the CMT sale to Dondo in exchange for the cancellation of the
Company"s outstanding promissory note (incurred by the Company as a result of
the acquisition of CMT) to Dondo totaling $4,117,715 inclusive of interest. The
results of operations of CMT for the fiscal year ended September 30, 1998, have
been classified as discontinued operations.
In connection with the Company's restructuring plan, the manufacturing
operations of its generic pharmaceutical product subsidiary were discontinued
effective September 30, 1998. The Company is presently liquidating the entire
manufacturing operations.
The quarter ended March 31, 1999 reflects only the continuing operations of
the feminine hygiene product line.
The three and six month numbers for CMT and the manufacturing operations
for the period ended March 31, 1998 have been reclassified as discontinued
operations.
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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 long and short-term debt, convertible
debentures or notes and the sale of common stock. The Company incurred
$2,000,000 of long-term debt in fiscal 1996 for the acquisition of the feminine
hygiene product line. The payment of this note was restructureded in December
1998. In fiscal 1997, the Company incurred long-term debt of $575,000 with the
issuance of Convertible Debentures. As of September 30, 1998, all other
long-term debt was converted to common stock, repaid or canceled. In December
1998, the Board of Directors authorized the issuance of Rule 144 restricted
shares of common stock in a private placement to raise up to $1,000,000 in order
to provide immediate and essential working capital. As a result of this private
placement, the Company has raised $800,000: $100,000 in December 1998, $500,000
in January 1999 and $200,000 in February 1999. The Company also raised capital
from the sales of common shares, the proceeds of which are as follows:
$2,547,658 in Fiscal 1996, $1,075,000 in Fiscal 1997 and $182,556 in Fiscal
1998. As of March 31, 1999, the Company has cash of $387,188.
With the restructuring of the Company, the feminine hygiene Branded
products have become the core business with which the company expects to grow.
The Brands, which were acquired in March 1996, have been established
approximately over thirty years on average and are sold under the Brand names
Vaginex*, Koromex* and Feminique*. Sales of these Brands are being made to food
and drug chains, drug wholesalers, domestic and overseas distributors, clinics
and government agencies. The Company expects to expand sales of these Brand
names in Fiscal 1999 through increased advertising, aggressive sales marketing
through the Company's new nationwide independent sales representatives as well
as new marketing programs and new products.
The Company believes that the foregoing, private placement, the
restructuring of its long-term debt and the expected increased sales volume will
be adequate to meet its current objectives.
RESULTS OF OPERATIONS
Revenues of continuing operations for the quarter ended March 31, 1999 were
$620,223 representing a slight increase over revenues of $619,881 in the
comparable quarter ended March 31, 1998. Revenues for the prior quarter ended
December 31, 1998 were $718,782. For the six months ended March 31, 1999
revenues were $1,339,005 versus $1,242,373 in the comparable six months of
fiscal 1998. Revenues for fiscal 1999 and 1998 remained fairly constant even
though the industry as a whole has been consolidating.
Gross margins of continuing operations for the quarter ended March 31, 1999
were 58.7% compared to 61.2% in the same quarter in 1998. Gross margin for the
prior quarter was 65.8%. Gross margins of continuing operations for the six
months ended March 31, 1999 were 62.5% compared to 63.1% in the same period in
1998. The net loss of continuing operations for the second quarter of fiscal
1999 was $88,402 or 14.3% compared to $53,051 or 8.6% in 1998. For the six
months ended March 31, 1999 the net loss of continuing operations was $67,393 or
5.0% compared to $63,339 or 5.1% in 1998. For the six months ended March 31,
1999 the overall net loss was $67,393 compared to a net profit in 1998 of
$1,711,665 which includes income of $1,775,004 from discontinued operations. The
decrease in gross margin and the minor increase in net losses from continuing
operations were primarily due to the climate of the industry in order to
maintain market share. During the latter part of the second quarter the Company
has implemented various maneuvers which should secure the Compan's overall
improvement in both gross margin and net income.
Selling, general and administrative expenses of continuing operations
increased to $412,491 from $353,117 and $770,255 from $673594 for the quarter
and six months ended March 31, 1999 respectively. The increases in these
expenses were primarily due to advertising and consulting fees to better
position the Company's products within the industry.
Interest expense of continuing operations for the quarter ended March 31,
1999 was $50,280 compared to $31,875 in the same quarter in 1998. For the six
months ended March 31, 1999 interest expense was $97,143 versus $78,243 for the
same period in 1998. The increase in interest expense was primarily due to the
Company's note obligations which was restructured December 15, 1998.
8
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
On July 28, 1998, the Company's former President tendered his resignation
but remained with the Company as a consultant. The consulting arrangement was
terminated shortly thereafter by the Company. The former President commenced an
action on September 15, 1998 against the Company asserting non-payment of, among
things, salary of $23,000 and fees arising from a consulting agreement
aggregating approximately $94,000. The Company intends to vigorously defend this
lawsuit and has filed counterclaims for breach of contract and breach of
fiduciary duty. Due to uncertainties inherent in litigation and the Company's
intention to pursue its counterclaims, only $23,000 of accrued payment has been
provided for in the Consolidated Financial Statements.
The Company has accrued estimated settlements of pending litigation
aggregating $219,000 and recorded this amount in its Consolidated Statements of
Operations for the year ended September 30, 1998. These claims are substantially
in connection with alleged legal services performed and disputes over
merchandise purchases.
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/ Jonathan Rosen
BIOPHARMACEUTICS, INC.
REGISTRANT
By: JONATHAN ROSEN, Acting President and Chief Executive Officer
/s/ John J. Grein
JOHN J. GREIN
Sr. Vice President-Finance/Secretary
Dated: May 14, 1999
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