SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
FORM SB-2A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BRADLEY PHARMACEUTICALS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 2834 22-2581418
(State Or Jurisdiction (Primary Standard Industrial I.R.S. Employer
of Incorporation or Organization)Classification Code Number) Identification No.)
383 Route 46 West
Fairfield, NJ 07004
(973) 882-1505
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
Daniel Glassman
Chairman of the Board
Bradley Pharmaceuticals, Inc.
383 Route 46 West
Fairfield, NJ 07004
(973) 882-1505
(Name, Address and Telephone Number of Agent For Service)
Copies to:
W. Raymond Felton
Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, LLP
99 Wood Avenue South, P.O. Box 5600
Woodbridge, New Jersey 07095
(732) 549-5600
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.G
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.G
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.G
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
======================================== --------------------- ---------------------- ----------------------- ---------------------
Title Of Each Number Proposed Maximum Proposed Maximum Amount Of
Class of Securities Of Shares To Offering Price Per Aggregate Offering Registration Fee
to be Registered Be Registered Share Price
- ---------------------------------------- --------------------- ---------------------- ----------------------- ---------------------
Class A Common Stock, par value $.01 130,000(1) $2.50 $ 325,000 $ 95.88
share 19,500(2) 2.80 54,600 16.11
70,000(3) 3.12 218,400 64.43
989,003(4) 1.82 1,799,985 531.00
======================================== ===================== ====================== ======================= =====================
Total $1,208,503 $2,397,985 $707.42
======================================== ===================== ====================== ======================= =====================
</TABLE>
(1) Represents shares to be issued to Kennedy Capital Management, Inc.
("Kennedy") at a price of $2.50 per share pursuant to a purchase agreement dated
May 15, 1998. See "Selling Stockholders."
(2) Represents shares issuable upon exercise of warrants to be issued to
Kennedy, which warrants have an exercise price of $2.80 per share, pursuant to a
purchase agreement dated May 15, 1998. See "Selling Stockholders."
(3) Represents shares issuable upon exercise of warrants held by Stern,
Stewart & Co., Inc. at an exercise price of $3.12 per share. See "Selling
Stockholders."
(4) Represents shares issuable upon exercise of Unit Purchase Options held
by various holders at an exercise price of $1.82 per share. See "Selling
Stockholders."
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or a
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER , 1998
PROSPECTUS
1,208,503 Shares of Class A Common Stock
BRADLEY PHARMACEUTICALS, INC.
This Prospectus relates to an aggregate of 1,208,503 shares (the "Shares")
of Class A Common Stock, par value $.01 per share (the "Common Stock"), of
Bradley Pharmaceuticals, Inc., a Delaware corporation (the "Company"), proposed
to be sold from time to time to various parties named in this Prospectus (the
"Selling Stockholders"). See "The Selling Stockholders."
Shares of the Company's Common Stock are traded on the Nasdaq National
Market under the symbol "BPRX." On July 23, 1998, the closing price per share of
the Company's Common Stock on the Nasdaq National Market was $2.06 per share.
See "Price Range of Common Stock."
It is anticipated that the Selling Stockholders will offer the Shares for
sale at prevailing prices on the Nasdaq National Market on the date or dates of
sale. The Selling Stockholders also may make private sales of the Shares
directly or through broker-dealers at prevailing market prices or at prices
otherwise negotiated. None of the proceeds from the sale of the Shares will be
received by the Company.
All costs, expenses and fees incurred in connection with the registration
of the Shares are being borne by the Company. All brokerage commissions and
other selling expenses incurred by the Selling Stockholders will be borne solely
by the Selling Stockholders. See "Use of Proceeds," "Selling Stockholder" and
"Plan of Distribution."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
INVESTORS IN EVALUATING AN INVESTMENT IN THE SHARES OFFERED HEREBY,
SEE "RISK FACTORS" BEGINNING AT PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy and information statements and other information filed by the
Company can be inspected and copied at the principal office of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should be available at the Commission's Regional Offices at 7 World Trade
Center, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
the Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The Common
Stock of the Company is quoted on the Nasdaq National Market, and reports, proxy
and information statements and other information concerning the Company also may
be inspected and copied at the offices of the Nasdaq National Market, located at
1735 K Street, N.W., Washington, D.C. 20006. The Company also furnishes its
stockholders with annual reports containing audited financial statements and
such other reports as the Company deems appropriate or as may be required by
law.
This Prospectus constitutes a part of the Registration Statement on
Form SB-2 (the "Registration Statement") filed by the Company with the
Commission under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain items of which have
been omitted in this Prospectus in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and the
offering of the Shares, reference is hereby made to the Registration Statement
and the exhibits thereto. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected at, and copies thereof may
be obtained at prescribed rates from, the public reference facilities of the
Commission set forth above.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY. THESE FORWARD LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED, PROJECTED,
FORECAST, ESTIMATED OR BUDGETED IN SUCH FORWARD LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (i) FAILURE OF THE COMPANY TO CARRY
OUT SUCCESSFULLY ITS BUSINESS PLAN; (ii) FAILURE OF THE COMPANY TO SECURE
ADDITIONAL FINANCING ON FAVORABLE TERMS, IF NECESSARY, TO SUPPORT OPERATIONS;
(iii) LOSS OF KEY EXECUTIVES; (iv) HEIGHTENED COMPETITION; (v) GENERAL ECONOMIC
AND BUSINESS CONDITIONS WHICH ARE LESS FAVORABLE THAN EXPECTED; AND (vi)
UNANTICIPATED CHANGES IN INDUSTRY TRENDS. SEE "RISK FACTORS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS."
<PAGE>
PROSPECTUS SUMMARY
The follow summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Each prospective investor is urged to read this Prospectus in its entirety.
The Company
Bradley Pharmaceuticals, Inc. (the "Company") manufactures and markets
over-the-counter and prescription pharmaceutical and health related products.
The Company's product line currently includes dermatological brands (marketed by
the Company's wholly-owned subsidiary, Doak Dermatologics, Inc. ("Doak")) and
nutritional, respiratory, personal hygiene and internal medicine brands
(marketed by the Company's Kenwood Laboratories division ("Kenwood")).
Substantially all of the Company's dermatological product lines are manufactured
and packaged at Doak's Westbury, New York facility. The Company's other product
lines are manufactured and supplied by independent contractors under the
Company's quality control standards. The Company's products are then marketed,
either directly or through intermediaries, to wholesalers, retail chains and
healthcare institutions throughout the United States and to distributors in
selected international markets.
The Company's growth strategy has been to make acquisitions of
established products from major pharmaceutical organizations which the Company
believes require intensified marketing and promotional attention. The Company
believes that significant growth opportunities exist in this market niche as a
result of the divestiture by major pharmaceutical companies of certain
established product lines that have become less profitable in relation to their
other products. As a result, the Company has acquired, and intends to continue
to acquire, rights to manufacture and market pharmaceutical and health related
products which are effective and for which a demonstrated market exists, but
which are not actively promoted and where the surrounding competitive
environment does not necessarily include major pharmaceutical companies.
The Company's ability to make further product acquisitions will depend,
among other things, on the availability of appropriate acquisition opportunities
and financing and the Company's ability to consummate acquisitions on favorable
terms. Because there can be no assurance that the Company will be able to
consummate in a timely manner attractive acquisitions on favorable terms,
management has focused, and will continue to focus, on developing and extending
the Company's existing acquired product lines.
The Company's most significant acquisition to date was in December
1993, when the DECONAMINE(R) cold/flu/allergy product line was purchased from
Berlex Laboratories, Inc., a subsidiary of Schering AG ("Berlex"). During
September 1997, the Company satisfied its remaining payment obligations due to
Berlex arising out of the Company's 1993 acquisition of the DECONAMINE(R)
product line.
The Company was incorporated under the laws of the State of New Jersey
in January 1985 and was reincorporated in Delaware in July 1998. The Company's
principal executive offices are located at 383 Route 46 West, Fairfield, New
Jersey 07004, and its telephone number is (973) 882-1505.
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary historical financial data of the Company (i) as of and for
each of the two fiscal years ended December 31, 1997 have been derived from the
audited financial statements of the Company and (ii) as of and for the six
months ended June 30, 1997 and 1998 have been derived from the interim unaudited
financial statements of the Company which, in the opinion of management, include
all adjustments necessary for a fair presentation of the Company's results of
operations and financial condition. The historical financial information for the
six months ended June 30, 1998 is not necessarily indicative of future results
of operations.
<TABLE>
<CAPTION>
Six Months Ended June 30,
Year ended December 31, (Unaudited)
1997 1996 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales .............. $15,023,762 $12,769,266 $ 7,929,402 $ 7,373,970
Gross Profit ........... $10,831,019 $ 9,457,953 $ 5,594,999 $ 5,566,594
Total Operating Expenses $ 9,866,113 $ 7,709,446 $ 4,670,268 $ 5,000,474
Total Income (Loss) .... $ 906,406 $ 1,598,507 $ 582,731 $ 342,370
Net Income (Loss)
Per Share
Basic .................. $ 0.11 $ 0.22 $ 0.07 $ 0.04
Diluted ................ $ 0.11 $ 0.22 $ 0.06 $ 0.04
Weighted Average Number
of Shares Outstanding
Basic .................. 8,190,000 7,180,000 8,440,000 8,100,000
Diluted ................ 8,460,000 7,240,000 9,350,000 8,150,000
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At June 30,
At December 31, (Unaudited)
1997 1996 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Working Capital (Deficit) .... $ 27,732 $ (2,828,800) $ 827,339 $ (2,039,938)
Total Assets ................. $ 18,181,882 $ 20,703,169 $ 18,828,439 $ 19,606,978
Total Long Term Debt ......... $ 264,406 $ 530,964 $ 226,401 $ 326,292
Total Liabilities ............ $ 5,007,787 $ 8,887,969 $ 5,195,230 $ 7,527,823
Retained Earnings (Accumulated $ (2,094,082) $ (3,000,488) $ (1,511,350) $ (2,658,117)
Deficit)
Stockholders' Equity ......... $ 13,174,095 $ 11,815,200 $ 13,363,209 $ 12,079,155
</TABLE>
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and involve a
high degree of risk, including, but not necessarily limited to, the risk factors
described below. Each prospective investor should carefully consider the
following risk factors inherent in and affecting the business of the Company
before making an investment decision.
1. Dependence on DECONAMINE(R) Product Line Sales; Uncertainty
Regarding Future Marketing of DECONAMINE(R). For the year ended December 31,
1997, and the six months ended June 30, 1998, sales of the Company's
DECONAMINE(R) product line accounted for approximately 45% and 40%,
respectively, of the Company's 1997 and six months ended June 30, 1998 net
sales. As such, the Company's operations can be deemed to be dependent on the
Company's ability to market and sell its DECONAMINE(R) product line. There can
be no assurance, however, that the Company can continue to successfully promote
and market its DECONAMINE(R) product line.
All over-the-counter cough/cold products are regulated by the United
States Food and Drug Administration (the "FDA") pursuant to monographs which
specify permissible active ingredients, labeling and indications and also
determine when specific drug products, such as the DECONAMINE(R) line of
products, change from prescription to over-the-counter status (i.e., a status
not requiring a prescription for the product purchase). The Company's
DECONAMINE(R) product line, which currently has prescription status, falls under
these monographs. Once a final monograph is issued by the FDA with respect to a
product, the product historically can remain as a prescription product for up to
one additional year. The Company anticipates that final monographs for the
Company's DECONAMINE(R) product line, thereby converting the product line from
prescription status to over-the-counter status, are expected to be issued by the
FDA at some time in the future. The Company currently intends to continue to
market and distribute its DECONAMINE(R) line of products as prescription
products for as long as it may lawfully continue to do so. The Company is
exploring its marketing and distribution strategy relating to its DECONAMINE(R)
product line after final monographs covering these products are issued, and, as
such, it is not currently possible for the Company to predict how its operations
and financial condition will be affected, or whether it will have resources
sufficient to aggressively market the DECONAMINE(R) line of products, if, and
when, this product line is converted from prescription status to
over-the-counter status.
Further, the Company's DECONAMINE(R) SR product requires the Company to
file an Abbreviated New Drug Application (an "ANDA") with the FDA to be in
compliance with the regulation that all controlled release products, like
DECONAMINE(R) SR, be the subject of an ANDA. The cost of this ANDA is
approximately $900,000. The Company has entered into an agreement with Phoenix
International to perform the clinical studies required for the issuance of the
ANDA. As of the date of this Prospectus, the Company had paid approximately
$300,000 with respect to this project. This project is being deferred until
regulatory and competitive circumstances warrant completion and submission to
the FDA. Completion of this research and development project is subject, in
addition, to the Company's either generating sufficient cash flow from
operations to fund the same or obtaining requisite financing from outside
sources, of which there can be no assurance. Therefore, the Company cannot at
this time reasonably anticipate the timing of the expenditure of funds necessary
for completing the ANDA with respect to its DECONAMINE(R) SR product. The
inability of the Company to further develop and/or file the necessary ANDA for
DECONAMINE(R) SR would have a material adverse effect on the Company's business.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Business."
2. Reliance on Manufacturers and Suppliers. Prior to 1994, the
Company did not own or operate any manufacturing or production facilities.
Rather, the Company's products were manufactured and supplied by independent
companies, many of which also manufactured and supplied products for many of the
Company's competitors. The Company currently manufacturers and assembles
substantially all of its Doak line of products, which products accounted for
approximately 45% and 40%, respectively, of the Company's Fiscal 1997 and six
months ended June 30, 1998 net sales. The Company is currently implementing a
plan to close its manufacturing facility and outsource its manufacturing. The
Company may therefore have less ability to control and supervise the manufacture
of its products. The remainder of the Company's products, including the
DECONAMINE(R) line of products, continue to be manufactured and supplied by
independent companies. While the Company has entered into a contract, renewable
annually, with Upsher Smith for the manufacture of LUBRIN(R), the Company does
not generally have any licensing or other supply agreements with its
manufacturers or suppliers for its products and is currently dependent upon a
limited number of potential suppliers. Any of these suppliers could terminate
their relationship with the Company at any time. The Company has from time to
time experienced delays in shipments from some of its vendors. Although
management believes it can obtain replacement manufacturing arrangements, the
absence of such agreements between the Company and its present suppliers may, in
certain instances, have an adverse effect upon the Company's sales and marketing
efforts. To date, the Company has not encountered any problems, or experienced
delays, in locating alternative manufacturers and suppliers. Further, all of the
Company's pharmaceutical suppliers must be authorized under FDA regulations or
specific approvals and must manufacture the Company's products in authorized
facilities pursuant to federally regulated current good manufacturing practices
("CGMP'S"). There can be no assurance that in the event the Company were to
experience difficulties with its present manufacturers or suppliers, the Company
would not experience delays in obtaining products which could materially
adversely affect its operations. See "Business."
3. Pharmaceutical Manufacturer. All pharmaceutical manufacturers,
including the Company, are subject to extensive federal and state regulations,
and the Company cannot predict the extent to which it may be affected in the
future by legislative and other regulatory developments concerning its products.
In the United States, drug products manufactured or sold by the Company are
subject to regulation by the FDA, principally under the Federal Food, Drug and
Cosmetic Act, as well as by other federal and state agencies. The FDA regulates
all aspects of the testing, manufacture, safety, labeling, storage, record
keeping, advertising and promotion of new and old drugs, including the
monitoring of compliance with CGMP'S. Non-compliance with applicable
requirements can result in fines and other sanctions, including the initiation
of product seizures, injunction actions and criminal prosecutions based on
practices that violate statutory requirements. In addition, administrative
remedies can involve voluntary recall of products, as well as the withdrawal of
approval of products in accordance with due process procedures. Similar
regulations exist in most foreign countries in which the Company's products are
distributed or sold. The restriction or prohibition of sales of products
marketed by the Company could also materially and adversely affect the Company's
business.
As a pharmaceutical manufacturer, the Company may be subject to
periodic inspections of its manufacturing facilities by the FDA. CGMP violations
or good record keeping deficiencies uncovered by the FDA in such inspections
could have an adverse affect on the Company's operations. The Company's
manufacturing facility has been inspected by the FDA, which found the site to
then be in compliance with CGMP'S. There can be no assurance that the Company's
manufacturing facility will, in the future, continue to be operated in
compliance with CGMP'S. See "Business - Manufacturers and Suppliers" and
"Marketing and Sales."
The Company is currently implementing a plan to close its manufacturing
facility and outsource its manufacturing. The Company may therefore have less
ability to control and supervise the manufacture of its products.
4. Past Due Nature of Accounts Payable. The Company, at June 30,
1998, had approximately $748,937 of accounts payable that were more than 90 days
past due. Only one of these accounts payable, however, was in excess of
$100,000. Moreover, the Company believes that it has meritorious defenses and
legitimate rights of offset with respect to a portion of these accounts payable,
and has received indications from creditors that such creditors are willing to
refrain from taking enforcement action against the Company while the Company
attempts to negotiate or restructure its financial obligations to them.
Notwithstanding the foregoing, the Company presently lacks the cash resources or
borrowing base necessary to satisfy in full these past due accounts payable if
it were required to satisfy them immediately. There can be no assurance that the
Company's creditors will continue to refrain from commencing or otherwise
initiating enforcement or other collection actions against the Company with
respect to the Company's past due accounts payable. The initiation of any such
enforcement or collection actions could have a material adverse affect on the
Company's operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
5. Industry Consolidation Among Wholesalers. The pharmaceutical
distribution industry has recently experienced a significant consolidation among
wholesalers. As a consequence, channels for wholesale pharmaceutical
distribution are less abundant than historically available. As a consequence,
the Company is dependent on a fewer number of wholesalers to distribute its
products and the Company's ability to negotiate price terms with such
wholesalers has been eroded. While management of the Company believes that this
consolidation among wholesalers will ultimately reduce the Company's
distribution costs, the Company's inability to aggressively negotiate price
terms with wholesalers, over the long term, could inhibit the Company's efforts
to achieve targeted profit margins. Notwithstanding the Company's ability to
by-pass the wholesale distribution network by distributing its products to
end-users directly, there can be no assurance that the continued or future
consolidation among pharmaceutical wholesalers will not materially adversely
affect the Company's operations or financial condition. See "Business."
6. Expansion Risks; Capital Requirements; Pledge of Substantially All
Assets. The Company's principal strategy is to continue to expand its business
through the acquisition of businesses and new products, as well as product line
extensions, and increased marketing, distribution, manufacturing and assembling
activities. The Company seeks products that it believes can be profitable under
the Company's management and in which there are no adverse FDA rulings. To date,
none of the Company's products have been subject to any adverse FDA ruling and
the Company has no reason to believe that any of its current products will
become the subject of any adverse FDA ruling. There is no guarantee that sales
of newly acquired products will be profitable to the Company or that such
products will meet anticipated sales levels. Moreover, while the Company
anticipates making future acquisitions in accordance with its strategic plan, no
assurance can be given that the Company will consummate any future acquisitions
or that the Company will be able to achieve the same rates of return and
historical sales levels of any product acquired. In addition, expansion of the
Company's marketing and distribution activities will require the Company to
attract and retain additional qualified personnel. Although the Company, to
date, has attracted and retained qualified personnel, there is no assurance that
the Company will be able to continue to recruit or retain personnel of the
requisite caliber or in adequate numbers to enable it to implement its business
strategy. Moreover, no assurance can be given that the Company will be able to
successfully integrate any newly acquired product or business into the Company's
operations. The failure to do so could have a material adverse effect on the
financial condition and operations of the Company.
The Company's expansion strategy presupposes the Company's ability to
finance new product acquisitions from existing working capital, positive cash
flow from operations and/or new borrowings. While the Company is not currently
prohibited from other borrowings of money, its ability to grant liens upon, and
security interests in, its assets is restricted by the terms of the Company's
current credit facility with The CIT Group ("CIT"), in whose favor the Company
has granted a lien on, and security interest in, substantially all of the
Company's assets to secure the Company's obligations to CIT under the CIT credit
facility. The existence of the encumbrances covering the Company's assets
granted in favor of CIT could adversely affect the Company's ability to secure
new or asset-based borrowings if necessary. Accordingly, there can be no
assurance that the Company will be able to borrow, on commercially reasonable
terms or otherwise, new funds in the future, if necessary, to finance further
acquisitions or support operations. The Company currently has not identified any
specific potential acquisitions and no assurance can be given that additional
capital will be available to the Company in the future, if needed, to finance
further acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
7. Competition. The business of distributing pharmaceutical and
health related products is highly competitive. The Company competes primarily
against established pharmaceutical and consumer product companies which
currently market products that are equivalent or functionally similar to those
the Company markets. The Company focuses its marketing efforts on products, the
major competition for which are products sold by companies other than major
firms in the pharmaceutical industry, and seeks to compete based on targeted
marketing and promotional programs and lower prices. There can be no assurance
that the Company will be successful in this regard. Moreover, there can be no
assurance that major pharmaceutical companies will not develop and market new
and innovative products competitive with any of the Company's products. Further,
since most of the Company's products are not protected by issued patents,
products similar in composition and intended use could be manufactured and
distributed by the Company's competitors. Most of the Company's competitors
possess substantially greater financial, technical and other resources than the
Company. See "Business-Competition."
8. Product Liability. Pharmaceutical and health related products,
such as those marketed by the Company, may carry certain health risks and,
consequently, the Company may be exposed to potential product liability claims
by consumers. The Company maintains a product liability insurance policy
providing direct coverage in the aggregate amount of $3,000,000 and is an
additional insured under its manufacturers' policies. The Company's present
insurance may not be adequate in the event of an adverse judgment against the
Company. In the event that any product liability claim is not fully funded by
applicable insurance, or if the Company is unable to recover damages from the
manufacturer of the product that may have caused such injury, the Company will
be required to pay such claims from its own funds. Any such payment could have a
material adverse affect on the Company's financial condition. In addition, there
is no assurance that the Company will be able to maintain its liability
insurance in effect in the future at reasonable premium rates, if at all. See
"Business-Product Liability Insurance."
9. Government Regulation. The Company's products are subject to
rigorous regulation by the FDA and by state authorities, primarily under the
Federal Food, Drug and Cosmetic Act and the regulations promulgated thereunder
(along with comparable state laws). These laws regulate the manufacture,
shipping, storage and sale of such products, including CGMP'S, and the storage
and use of samples. The FDA, Federal Trade Commission and state authorities also
regulate the advertising of prescription and over-the-counter products. The
Company has received assurance from its suppliers that all of the products meet
the applicable regulatory standards in all substantial respects. There is,
however, no assurance that the Company's current or future suppliers will meet
all applicable standards. A failure to meet such standards could substantially
adversely impact the Company's business. Adverse governmental enforcement
efforts or future adverse regulatory changes could also result in a cessation of
sales of a product, in penalties, adverse publicity and/or recalls or criminal
sanctions.
Certain of the Company's pharmaceutical products are sold
over-the-counter (i.e., without a prescription). These products are subject to
FDA regulations known as monographs, which specify, among other things,
permissible active ingredients, labeling and indications. No assurance can be
given that future FDA enforcement or regulatory decisions or changes to
monographs will not hamper the Company's marketing efforts at considerable cost
to the Company or render the Company's products unlawful for commercial sale,
causing the Company to withdraw its products from the marketplace or spend
substantial funds reformulating the products. See "Business-Government
Regulation."
10. Chargebacks and Rebates. Chargebacks and rebates are the
difference between the prices at which the Company sells its products
(principally DECONAMINE(R)SR) to wholesalers and the sales price ultimately paid
by the end-user (often governmental agencies and managed care buying groups)
pursuant to fixed price contracts. The Company records an estimate of the amount
either to be charged back to the Company or rebated to the end- user at the time
of sale to the wholesaler. Over recent years, the managed care system of
chargebacks and rebates gained greater acceptance by the pharmaceutical industry
in general. Managed care organizations increasingly began using these sales
price adjustments (chargebacks and rebates) as a method to reduce overall costs
in drug procurement. Levels of chargebacks and rebates have increased momentum
and have caused a greater need for more sophisticated tracking and data
gathering to confirm sales at contract prices to end-users with respect to
related Company sales to wholesalers. Management records an accrual for
chargebacks and rebates based upon factors including current contract prices,
historical chargeback rates and actual chargebacks claimed. The amount of actual
chargebacks claimed could, however, differ (either higher or lower) in the near
term from the amounts accrued by the Company and could materially impact the
Company's financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
11. Control by Insiders. The beneficial holdings of the executive
officers and directors of the Company include 1,589,180 shares of Class A Common
Stock and 407,821 shares of Class B Common Stock, without par value (the "Class
B Common Stock"), which Class B Common Stock possesses five votes per share
(other than with respect to the election of directors). At all times while there
are at least 325,000 shares of Class B Common Stock issued and outstanding,
holders of the Class B Common Stock, voting as a separate class, have the right
to elect a majority of the Board of Directors of the Company. Accordingly, the
executive officers and directors of the Company currently have the ability, and
it is anticipated that in the future they will continue to have the ability, to
elect a majority of the Company's directors and thereby otherwise authorize
certain corporate transactions without concurrence of the outside public
stockholders of the Company. See "Principal Stockholders."
12. Dependence on Key Personnel. The Company's day to day operations
are managed by its President, Chief Executive Officer and Chairman, Daniel
Glassman. Mr. Glassman does not currently have an employment agreement with the
Company. The loss of the services of Mr. Glassman would materially adversely
affect the conduct of the Company's business. See "Management."
13. Outstanding Warrants and Options; Shares Eligible for Future
Sale. There are currently outstanding a substantial number of options and
warrants entitling the holders thereof to purchase shares of Class A Common
Stock. In addition, the holders of shares of Class B Common Stock have the
unilateral right, exercisable at any time, to convert their shares of Class B
Common Stock into shares of Class A Common Stock. If all outstanding warrants
and options were exercised and all shares of Class B Common Stock converted into
shares of Class A Common Stock, approximately an additional 3,891,917 shares of
Class A Common Stock would be required to be issued and be outstanding. The
sale, or availability for sale, of such substantial amounts of additional shares
of Class A Common Stock in the public marketplace could adversely affect the
prevailing market price of the Company's securities and otherwise impair the
Company's ability to raise additional capital through the sale of its equity
securities. See "Description of Securities."
14. Dividends Prohibited and Otherwise Unlikely. The Company's credit
facility with CIT currently prohibits the payment by the Company of any cash
dividends at any time while amounts remain outstanding under the CIT credit
facility. Moreover, and without giving effect to the terms of the CIT credit
facility, the Company currently does not intend to declare or pay cash dividends
in the foreseeable future. Earnings, if any, are expected to be retained to
finance and expand the Company's business.
15. Environmental Matters. On April 8, 1994, the Company was apprised
by the New York State Department of Environmental Conservation ("NYSDEC") that
Doak's current leased manufacturing facility and former manufacturing facility
located in Westbury, New York, is located in the New Cassel Industrial Area,
which had been designated by the NYSDEC on the Registry of Inactive Hazardous
Waste Sites (the "Registry"). On February 7, 1995, the Company was apprised by
the NYSDEC that the current manufacturing facility will be excluded from the
Registry. By letter dated May 3, 1996, the NYSDEC notified the landlord at this
facility that the site has been listed on the Registry due to the presence of
trichloroethylene ("TCE") in soils and groundwater due to the use of TCE by LAKA
Tools and Stamping and LAKA Industries, a former tenant from 1971 through 1984.
The NYSDEC documents refer to Doak as the current tenant but do not refer to any
activities of Doak or the Company as a basis for the listing in the Registry.
The Company cannot at this time determine whether the cost associated with the
investigation and required remediation, if any, of the current manufacturing
facility will be material. With respect to the former manufacturing facility on
Magnolia Avenue, which remains designated by the NYSDEC as part of the Registry,
management believes, but no assurance can be given, that Doak will not be
obligated to contribute to any remediation costs, if any are required. See
"Business - Environmental Matters."
16. Anti-takeover Provisions; Class B Common Stock; Authorization of
Preferred Stock. The Company's charter authorizes the issuance of up to
2,000,000 shares of preferred stock with such designations, rights and
preferences as may be determined from time to time by the Company's Board of
Directors. The authorization of such preferred stock empowers the Board of
Directors, without further stockholder approval, to issue preferred shares with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Company's Common
Stock. In the event of issuance, such preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change of control of the Company. To date, no shares of preferred stock have
been issued.
The Company's charter also provides that at all times while there are
at least 325,000 shares of Class B Common Stock issued and outstanding, the
holders of such shares of Class B Common Stock shall have the right, voting as a
separate class, to elect a majority of the Board of Directors of the Company. As
of the date of this Prospectus, 431,552 shares of Class B Common Stock are
issued and outstanding, 316,736 shares of which are beneficially owned by Daniel
Glassman, the Company's President, Chief Executive Officer and Chairman of the
Board. As such, Mr. Glassman may be deemed to effectively control the Company
and the existence of these shares of Class B Common Stock could have the effect
of preventing a change of control of the Company. See "Principal Stockholders"
and "Description of Securities."
17. Fluctuations in Stock Price. The trading price of the Company's
Class A Common Stock has fluctuated. The price at which shares of Class A Common
Stock trade is determined in the marketplace and may be influenced by many
factors, including the performance of, and investor expectations for, the
Company, the trading volume in the Class A Common Stock and general economic and
market conditions, including pending or newly enacted legislation or regulations
impacting the Company's business. This volatility has also substantially
affected the market prices of securities issued by many companies for reasons
unrelated to their operating performance. These broad market fluctuations may
adversely affect the market price of the Company's Class A Common Stock.
Further, the registration of the shares of Class A Common Stock included in this
Prospectus could create additional selling pressures on the trading market for
outstanding shares of Class A Common Stock. There can be no assurance as to the
price at which the shares of Class A Common Stock of the Company will trade in
the future. See "Price Range of Class A Common Stock."
USE OF PROCEEDS
The Company will use any proceeds from the sale of the Shares being
registered in the Registration Statement of which this Prospectus forms a part
to reduce its outstanding payables and for general corporate purposes.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its shares
of Class A Common Stock and does not anticipate paying any such cash dividends
in the foreseeable future. The Company currently intends to retain any earnings
for use in the operation and expansion of its business. In addition, the Company
is subject to certain covenants in its credit facility with CIT which restrict
the Company's payment of cash dividends while amounts remain outstanding under
the CIT credit facility.
PRICE RANGE OF CLASS A COMMON STOCK
Shares of the Company's Class A Common Stock are traded on the Nasdaq
Stock Market under the trading symbol "BPRX." No other class of the Company's
common stock is publicly traded.
The following table sets forth the high and low sales prices for shares
of the Company's Class A Common Stock on the Nasdaq Stock Market for the periods
indicated:
High Low
Sale Sale
Fiscal year ended December 31, 1996
First quarter ...................... $ 2.09 $ 1.09
Second quarter ............ 1.81 1.22
Third quarter ...................... 1.66 0.78
Fourth quarter ..................... 1.53 0.63
Fiscal year ended December 31, 1997
First quarter ...................... $ 1.44 $ 0.81
Second quarter ..................... 1.47 1.03
Third quarter ...................... 1.63 1.10
Fourth quarter ..................... 2.94 1.50
Fiscal year ended December 31, 1998
First quarter ...................... $ 2.69 $ 1.53
Second quarter ..................... 4.44 1.72
Third quarter (through July 23) .... 2.50 2.06
On July 23, 1998, the last sale price for shares of the Company's Class
A Common Stock as reported by the Nasdaq National Market was $2.06 per share. At
July 23, 1998, there were approximately 260 holders of record of shares of Class
A Common Stock. Based on information available to the Company, the Company
believes that there are approximately 4,000 beneficial holders of shares of
Class A Common Stock held in "street" or other nominee name.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
On June 30, 1998, the Company had working capital of $827,000 an
increase of $800,000 over the December 31, 1997 working capital of $27,000.
Improvement in the Company's working capital position at June 30, 1998 was
primarily due to operating profit and positive cash flow from operations during
the six months ended June 30, 1998. In addition, the Company's analysis of the
trend in actual chargebacks and rebates which resulted in a decrease in the
percentage used to adjust gross sales for the six months ended June 30, 1988
resulting in increased net sales and profits of $234,000.
Working capital as of June 30, 1998 included a decrease of $475,000 in
cash and cash equivalents due to financing activities. Additionally, current
liabilities increased $225,000 from balances at December 31, 1997 as accounts
payable and accrued expenses slightly increased. For the six month period ended
June 30, 1998, accounts receivable increased $1,625,000 from December 31, 1997
due to increased wholesaler inventory stocking, which was prompted by the
offering of slight discounts to major customers during June 1998. This event,
which also occurred in June 1997, may have the effect of reducing revenue in the
Third Quarter 1998 and may have reduced revenue in the Third Quarter 1997.
Inventories decreased $57,000 and prepaid samples/materials decreased $213,000
from levels existing at December 31, 1997, reflecting the normal seasonality of
the Company's second quarter operations.
During 1997, the Company effectively reduced its accounts payable and
accrued expense balances, as compared to its balance at December 31, 1996, by
$1,549,000. This was accomplished principally by the Company's utilization of
its operating cash flow as well as proceeds from the CIT line of credit to
settle outstanding amounts due to vendors. The Company was able to reduce
accounts payable and accrued expenses by negotiating settlements with certain
vendors and Berlex (as it related to accrued interest). The Company also
instituted cost savings initiatives by reducing samples, materials and finished
goods inventory on hand. The Company continues to reduce the impact of managed
care and government contracts by canceling unprofitable contracts and increasing
prices on others.
The Company's 1997 working capital position was further favorably
affected by the September 1997 Berlex Restructuring. At the Closing, on
September 19, 1997, in satisfaction of all outstanding obligations then owing
Berlex (approximately $2,500,000 in the aggregate), and in consideration of
Berlex's release of its lien covering the Company's accounts receivable, the
Company (i) paid to Berlex $1,150,000 in cash, plus accrued interest (the Cash
Payment), (ii) issued to Berlex 450,000 shares of Class A Common Stock of the
Company (which, when added with the other shares of Class A Common Stock
previously issued to Berlex, represented, at the time of issuance, approximately
19% of the outstanding Class A Common Stock of the Company) and (iii) agreed to
issue to Berlex, when permissible in accordance with applicable state corporate
law, warrants entitling Berlex to purchase, under certain conditions, up to an
additional 750,000 shares of Class A Common Stock at an exercise price of $1.25
per share. These warrants are subject to certain antidilution provisions and
expire two years after issuance, subject to extension under certain conditions.
In order to raise the funds necessary for the Company to make the Cash
Payment to Berlex, the Company, concurrently with the Closing, entered into a
$3,000,000 revolving credit facility with CIT. Advances under this facility are
calculated pursuant to a formula which is based upon the Company's then eligible
accounts receivable and inventory levels. This line of credit has an initial
term of three years and is renewable for successive periods of two years each.
Interest accrues on amounts from time to time outstanding under this facility at
the rate equal to the prime rate of interest from time to time announced by The
Chase Manhattan Bank as its prime rate of interest plus 2-1/4%. The Company's
obligations under this credit facility have been secured by the grant by the
Company to CIT of a lien upon, and the pledge of a security in, substantially
all of the Company's assets, including the Company's accounts receivable,
inventory and intangible assets (subject to prior liens). The credit facility
contains certain covenants and restrictions concerning the Company's operations,
generally, and the Company's obligations under this facility have been
personally guaranteed, to a limited extent, by Daniel Glassman, the Company's
Chairman of the Board and Chief Executive Officer.
Accounts Receivable decreased in 1997 by approximately $1,000,000 over
the 1996 amounts due to more timely receipt and processing of chargebacks. The
accrual for chargebacks and rebates decreased by approximately $400,000
reflecting the above improvement in the receipt and processing of chargebacks, $
357,000 in monetary concessions and the release of $ 229,000 of previously
recorded reserves for chargebacks and rebates.
It is not currently possible for the Company to predict how its
operations and financial condition will be affected if the DECONAMINE(R) product
line is converted from prescription status to over-the-counter status (see
"Business - Government Regulation").
Further, the Company is required to file an Abbreviated New Drug
Application ("ANDA") with the FDA for its DECONAMINE(R) SR product, which is
expected to maintain the prescription status of this product beyond the final
monograph. The cost of this application is approximately $900,000. The Company
has entered into an agreement with Phoenix International to perform clinical
studies required for the issuance of the ANDA. As of the date of this
prospectus, the Company has paid approximately $300,000 with respect to this
project. The project is being deferred until regulatory and competitive
circumstances warrant completion and submission to the FDA. Completion of the
research and development project is subject, however, to the Company's either
generating sufficient cash flow from operations to fund the same or obtaining
requisite financing from outside sources, of which there can be no assurance.
Therefore, the Company cannot at this time reasonably anticipate the timing of
the expenditure of funds for these purposes. The inability of the Company to
further develop and/or file the necessary ANDA for DECONAMINE(R) SR would have a
material adverse effect on the Company's business.
While the Company, at June 30, 1998, had approximately $749,000 of
accounts payable that were more than 90 days past due, the Company has received
indications from creditors that they are willing to continue to refrain from
commencing enforcement or collection actions against the Company while the
Company negotiates or attempts to restructure its financial obligations to these
creditors. Moreover, the Company believes that it has meritorious defenses and
legitimate rights of offset with respect to a portion of these accounts payable.
Notwithstanding the foregoing, the Company presently lacks the cash resources or
borrowing base necessary to satisfy in full these past due accounts payable if
the Company were required to satisfy them immediately.
Effective January 1997, the Company implemented a 401(k) Retirement
Plan for employees whereby the Company will match employee contributions up to
25% of the employee's first 6% of contributions with shares of the Company's
Class A Common Stock. The Company expensed $29,000 during Fiscal 1997 based upon
current participants in the plan.
In addition, the Company, during January 1997, began a program to
repurchase in open market transactions over the next twenty-four months, up to
5% of its outstanding Class A Common Stock. As of July 23, 1998, the Company has
repurchased 195,000 shares of Class A Common Stock at a total cost of $340,000.
These shares are held by the Company as treasury shares to be used for purposes
deemed necessary by the Company's Board of Directors, including funding the
Company's 401(k) Retirement Plan matching contribution.
Based upon a review of its computer operations, the Company has
determined that its costs related to the Year 2000 problem will be
insignificant. The Company has no internally developed software that it utilizes
for its operations, but uses software which is compatible with the Year 2000.
The Company expects to upgrade its system in late 1998 or early 1999 and will
receive that upgrade in the normal course of business. However, to the extent
that vendors and customers or other third parties with whom the Company
transmits data electronically are not Year 2000 compliant, there can be no
assurance that any resulting problems will not have a material adverse effect on
the Company.
This document may contain forward-looking statements which reflect
managements current views of future events and operations. These forward looking
statements are based on assumptions and external factors, including assumptions
relating to regulatory action, capital requirements and competing products. Any
changes in such assumptions are external factors and could produce significantly
different results.
Seasonality
Net sales of the DECONAMINE product line accounted for approximately
40%, 45% and 51%, respectively, of the Company's first six months of 1998 and
Fiscal Year 1997 and 1996 net sales. Consequently, revenues from these products
generally are, and will be, determined by the severity of the cough/cold/flu
season. The Company promotes these products for allergy symptoms during the
spring and summer months in an effort to smooth the seasonality of these sales.
Effects of Inflation
Management believes that the Company's operations will not be adversely
affected by the future impact of inflation on sales and results of operations.
Results of Operations
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
NET SALES (net of all adjustments to sales) for the six months ended
June 30, 1998 were $7,929,000, representing an increase of $555,000 compared to
the six months ended June 30, 1997. The net sales increase for the six month
period primarily reflects increases in the sales of the Company's Doak products
of $728,000 (25%), principally due to the introduction of the LePont(R) Beauty
Enhancer. Sales of the Company's Kenwood products decreased slightly (5%), or
$206,000, due to a larger reduction in chargeback reserves in 1997 versus 1998.
The Company's analysis of the trend in actual chargebacks and rebates resulted
in a decrease in the percentage used to adjust gross sales to net sales for the
six months ended June 30, 1998, resulting in increased net sales and profits of
$234,000. Additionally, during the six months ended June 30, 1997, net sales
were positively impacted by the Company's reversal of previously established
reserves of $229,000 ($143,000 from 1997 and $86,000 from prior years). Based
upon the reduction in actual chargeback and rebate trend, the release of these
reserves reflects improvements in processing chargebacks and rebates as well as
less reliance on managed care sales. There can be no assurance, however, that
this trend will continue.
COST OF SALES for the six months ended June 30, 1998 were $2,334,000,
representing an increase of $527,000 from the cost of sales for the six months
ended June 30, 1997. The Company's gross profit margin for the six months ended
June 30, 1998 was 71%, compared to 76% during the six months ended June 30,
1997. This decrease reflects a change in the mix of the Company's sales with
greater sales of Doak products which traditionally carry a lower gross profit
percentage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $4,048,451 for the
six months ended June 30, 1998, representing an increase of $37,000 (1%) over
selling, general and administrative expenses for the six months ended June 30,
1997. The Company continues to implement steps designed to reduce expenses,
maintain cost controls and allocate resources to more productive areas.
DEPRECIATION and AMORTIZATION EXPENSES for the six months ended June
30, 1998 were $538,000, representing a decrease of $268,000 as compared to the
comparable period ended June 30, 1997. This decrease was principally due to the
restructuring and the re-estimating of the DECONAMINE(R) amortization period.
INTEREST EXPENSE - NET for the six months ended June 30, 1998 decreased
by $99,000 as compared to the comparable period ended June 30, 1997. This
decrease was principally due to the elimination of the outstanding debt with
Berlex in 1997.
INCOME TAXES - Income tax expense for the six months ended June 30,
1998 was $342,000, or 37% of income before taxes, versus $224,000 for the six
months ended June 30, 1997, or 40% of income before taxes.
NET INCOME for the six months ended June 30, 1998 was $583,000,
representing an increase in net income of $240,000 (70%) for the six months
ended June 30, 1998 as compared to the comparable period during 1997. This
increase in net income is after the provision for income taxes of $342,000 and
the reversal of the aforementioned reserves of $309,000.
NET INCOME PER COMMON SHARE, on a diluted basis, for the six months
ended June 30, 1998 was $.06. Net income per common share was similarly $.04
for the six months ended June 30, 1997.
1997 Compared to 1996
Net Sales for 1997 were $15,024,000, representing an increase of
$2,225,000, or approximately 18% from 1996. The increase in net sales for Fiscal
1997 is primarily due to (i) an increase in the net average selling prices
(after trade price adjustments) of DECONAMINE and (ii) strong growth from DOAK's
products.
DECONAMINE unit sales during 1997 decreased by approximately $0.8
million, or 6%, because the Company cancelled contracts with managed care
organizations, buying groups and the United States Government which fell below
targeted profit contributions. This decrease, which was planned by the Company,
was offset by renegotiated higher prices on certain managed care and government
contracts, the effect of which the Company has, and will continue to, recognize
in future periods. Chargebacks and rebates, principally relating to
DECONAMINE(R)SR and CARMOL(R), were $5.5 million for 1997 versus $6.5 million
for 1996.
The Company's analysis of the trend in actual chargebacks and rebates
resulted in a decrease in the percentage used to adjust gross sales to net sales
for the second quarter of 1997, resulting in increased net sales and net income
of $45,000. Additionally, during the second quarter of 1997, the Company
released approximately $229,000 of the previously established chargeback and
rebate reserves, resulting in an increase to net sales and net income. During
1997 and 1996, the Company received monetary concessions of approximately
$357,000 and $275,000, respectively from managed care vendors receiving rebates.
Chargebacks and rebates are based on the difference between prices at
which the Company sells its products (principally DECONAMINE(R) SR) to
wholesalers and the sales price ultimately paid by the end-user (often
governmental agencies and managed care buying groups) pursuant to fixed price
contracts. The Company records an estimate of the amount either to be
charged-back to the Company or rebated to the end-user at the time of sale to
the wholesaler.
Cost of Sales for 1997 were $4,193,000, compared to 1996 cost of sales
which were $3,311,000, representing an increase of $882,000, or approximately
27%. This increase was primarily due to a change in the Company's sales product
mix, including stronger growth at the DOAK subsidiary which maintains a higher
Cost of Sales versus KENWOOD. The Company's gross profit margin for 1997 was 72%
as compared to 74% during 1996, due to the change in product mix towards more
Doak products.
Selling, General and Administrative Expenses were $8,085,000 for 1997,
representing an increase of $1,137,000, or 16%. This increase was primarily the
result of increased sales activities, including the addition of sales
representatives as well as increased sampling and promotion. In 1996, the
Company received monetary concessions of approximately $125,000 from its vendors
and suppliers for immediate payments from the proceeds of the Company's legal
settlement. The Company will continue to review and institute cost savings in
the future.
Depreciation and Amortization Expenses for 1997 were $ 1,489,000,
representing a decrease of 20%, as compared to 1996. This decrease was
principally due to the restructuring and the re-estimating of the DECONAMINE
amortization period.
Other Income for 1996 was $ 1,645,000, representing the settlement of a
lawsuit involving the Company's Canadian distributor.
Interest Expense - Net for 1997 decreased by $259,000, or 46% from the
corresponding period in 1996 due to renegotiating outstanding debt with Berlex.
Income Taxes - Income tax expense in 1997 was $58,000, or 6% of income
before taxes versus $150,000 in 1996, or 9% of income before taxes. The
effective income tax rate reflects the benefit derived from previously reserved
deferred tax assets, principally net operating loss carryforwards.
Net Income for 1997 was $ 906,000, representing a decrease of $ 692,000
from net income of $1,599,000 during 1996. This decrease was principally a
result of the impact of the Company's recognizing the aforementioned legal
settlement involving the Company's Canadian distributor, net of expenses, of
$1,645,000 in 1996.
Net Income Per Common Share for 1997 was $0.11 per common share,
representing a decrease for Fiscal 1997 of $0.11, as compared with net income
for 1996 of $.22 per common share.
BUSINESS
The Company manufactures and markets over-the-counter and prescription
pharmaceutical and health related products. The Company's product line currently
includes dermatological brands (marketed by the Company's wholly owned
subsidiary, Doak Dermatologics, Inc. ("Doak")) and nutritional, respiratory,
personal hygiene and internal medicine brands (marketed by the Company's Kenwood
Laboratories division ("Kenwood"). Substantially all of the Company's
dermatological product lines are manufactured and packaged at Doak's Westbury,
New York facility. The Company's other product lines are primarily manufactured
and supplied by independent contractors under the Company's quality control
standards and marketed primarily to wholesalers. The wholesalers, in turn,
distribute the Company's products to retail outlets and healthcare institutions
throughout the United States and to distributors in selected international
markets.
The Company's growth strategy has been to make acquisitions of established
products from major pharmaceutical organizations which the Company believes
require intensified marketing and promotional attention. The Company believes
that significant growth opportunities exist in this market niche as a result of
the divestiture by major pharmaceutical companies of certain established product
lines that have become less profitable in relation to their other products. As a
result, the Company has acquired, and intends to continue to acquire, rights to
manufacture and market pharmaceutical and health related products which are
effective and for which a demonstrated market exists, but which are not actively
promoted and where the surrounding competitive environment does not necessarily
include major pharmaceutical companies.
The Company's ability to make further product acquisitions will depend,
among other things, on the availability of appropriate acquisition opportunities
and financing and its ability to consummate acquisitions on favorable terms.
Because there can be no assurance that the Company will be able to consummate in
a timely way attractive acquisitions on favorable terms, management has and will
also continue to focus on developing and extending its existing acquired product
lines.
The Company's most significant acquisition to date was in December 1993,
when the DECONAMINE(R) cold/flu/allergy product line was purchased from Berlex
Laboratories, Inc., a subsidiary of Schering AG ("Berlex"). On September 19,
1997 (the "Closing"), in satisfaction of all outstanding obligations then owing
to Berlex (approximately $2,500,000 in the aggregate), and in consideration of
Berlex's release of its lien covering the Company's accounts receivable, the
Company (i) paid to Berlex $1,150,000 million in cash, plus accrued interest
(the "Cash Payment"), (ii) issued to Berlex 450,000 shares of Class A Common
Stock of the Company (which, when added with the other shares of Class A Common
Stock previously issued to Berlex, at the time of issuance, approximately 19% of
the outstanding Class A Common Stock of the Company) and (iii) agreed to issue
Berlex, when permissible in accordance with applicable state corporate law,
warrants entitling Berlex to purchase, under certain conditions, up to an
additional 750,000 shares of Class A Common Stock at an exercise price of $1.25
per share. These warrants are subject to certain anti-dilution provisions and
expire two years after issuance, subject to extension under certain conditions.
In order to raise the funds necessary for the Company to make the Cash
Payment to Berlex, the Company, concurrently with the Closing, entered into a
$3,000,000 revolving credit facility with CIT Group/Credit Finance, Inc.
("CIT"). Advances under this facility are calculated pursuant to a formula which
is based upon the Company's then eligible accounts receivable and inventory
levels. This line of credit has an initial term of three years and is renewable
for successive periods of two years each. Interest accrues on amounts from time
to time outstanding under this facility at the rate equal to the prime rate of
interest from time to time announced by The Chase Manhattan Bank at its prime
rate of interest plus 2-1/4%. The Company's obligations under this credit
facility have been secured by the grant by the Company to CIT of a lien upon,
and the pledge of a security in, substantially all of the Company's assets,
including the Company' s accounts receivable, inventory and intangible assets
(subject to prior liens). The credit facility contains certain covenants and
restrictions concerning the Company's operations, generally, and the Company' s
obligations under this facility have been personally guaranteed, to a limited
extent, by Daniel Glassman, the Company's Chairman of the Board and Chief
Executive Officer.
The Company was incorporated under the laws of the State of New Jersey in
January 1985. The Company's principal executive offices are located at 383 Route
46 West, Fairfield, New Jersey 07004, telephone number (973) 882-1505.
This document may contain forward-looking statements which reflect
management's current view of future events and operations. These forward-looking
statements are based on assumptions and external factors, including assumptions
relating to regulatory action, capital requirements and competing products. Any
changes in such assumptions are external factors and could produce significantly
different results.
Material Product Acquisitions
The Company commenced operations in January 1985 with the purchase of
certain rights (principally trademarks) to a line of dermatological products
from Alvin Last Co., Inc.
In August 1985, the Company acquired certain trademark rights to several
vitamin and nutritional products and certain other assets from Kenwood
Laboratories.
In September 1988, the Company acquired rights to certain products from
Schering-Plough Corporation, including TYZINE(R), a nasal decongestant,
NITROGLYN(R), nitroglycerin capsules, IRCON(R), an iron supplement, and
IPSATOL(R), a cough medicine.
In August 1991, the Company acquired certain rights, including the
trademark to the over-the-counter cold and allergy medication DUADACIN(R), from
Hoechst Roussel Pharmaceuticals, Inc.
In April 1992, the Company acquired certain rights, including the
trademark, to the over-the-counter laxative NEOLOID(R), from American Cyanamid
Company.
In October 1992, the Company acquired the assets of Ram Laboratories
("RAM"), a pharmaceutical company. RAM specializes in marketing healthcare
products to the Hispanic market in the United States and Puerto Rico.
In December 1992, the Company acquired certain rights, including the
trademark and patent, to the personal lubricating insert LUBRIN(R)
("LUBRIN(R)"). In connection with this acquisition, the Company granted
Upsher-Smith a security interest in LUBRIN(R) and the associated intangible
assets to secure its repayment obligation with respect to certain deferred
amounts incurred. The Company and Upsher-Smith Laboratories Inc.
("Upsher-Smith") have since entered into a manufacturing contract, renewable
annually, whereby Upsher-Smith will manufacture LUBRIN(R) for the Company.
In March 1993, the Company acquired from Tsumura Medical, a division of
Tsumura International, Inc. ("Tsumura"), all technical, proprietary and
distribution rights to a specialized dermal patch product, TRANS-VER-SAL(R),
currently used in the treatment of warts and a license to market GLANDOSANE(R),
a synthetic saliva aerosol product used to alleviate dry mouth caused by various
treatments and illnesses. The Company has granted Tsumura a security interest in
the trademarks acquired to secure the Company's payment obligations to Tsumura
for the products acquired.
During February 1994, the Company purchased from The Upjohn Company
("Upjohn") all United States manufacturing, packaging and proprietary rights,
including all trademarks and registrations, to two prescription products,
ADEFLOR M(R), a vitamin and mineral tablet with fluoride, and PAMINE(R), a
methscopolamine bromide tablet used in connection with the treatment of peptic
ulcers.
In June 1994, the Company acquired from Syntex (U.S.A.) Inc. all
manufacturing, packaging, quality control, stability, drug experience, file
history, customers and marketing rights, titles and interests, including all
U.S. trademarks to CARMOL(R) 10 and CARMOL(R) 20 (nonprescription total body
moisturizers) and CARMOL(R) HC (a prescription moisturizer containing
hydrocortisone)(the "Carmol(R) Products").
In May, 1996, the Company acquired the trademark rights to the ACID
MANTLE(R) skin treatment line from Sandoz Pharmaceuticals Corporation
("Sandoz"), and the exclusive ACID MANTLE(R) manufacturing, marketing and
distribution rights for the United States and Puerto Rico. In consideration, the
Company agreed to pay Sandoz $900,000, $250,000 of which was paid during May
1996. An additional $250,000 was paid in 1997, with the remaining $400,000
payable in equal annual installments of $100,000 commencing May 8, 1998. The
Company also purchased Sandoz's entire inventory of ACID MANTLE(R) saleable
products and raw materials.
The Company did not acquire any products during Fiscal 1997.
Acquisition of DOAK Subsidiary
During February 1994, the Company acquired, from Doak's principal stockholders,
a controlling interest in Doak. The remaining capital stock of Doak was acquired
by the Company pursuant to a merger consummated in January 1995. Total
consideration paid by the Company for Doak was approximately $1.4 million.
Products
The following is a list of products, by therapeutic category that are
marketed and distributed by the Company as of March 18, 1998. All of the
Company's products are available over-the-counter, with the exception of
DECONAMINE(R), PAMINE(R), CARMOL(R) HC, CARMOL(R) 40, ADEFLOR M(R),
NITROGLYN(R), TYZINE(R), and GLUTOFAC(R)-ZX, each of which is a prescription
pharmaceutical.
Dermatological Products Uses
<TABLE>
<CAPTION>
<S> <C>
ACID MANTLE(R)
Skin acidifier
BURO-SOL(R) Antiseptic Powder (4 oz.)
Skin care
CARMOL(R) HC - 1% Hydrocortisone Acetate Cream (1 oz.)
Prescription Product
for a variety of dermatological conditions
CARMOL(R)-10 Deep Moisturizing
Lotion (6 oz.) and
CARMOL(R)-20 Cream (3 oz.) Skin care
CARMOL(R) 40L - 40%
(Carbamide Cream) Prescription Potent tissue-softener
DOAK(R) DERMATOLOGY Products Mostly coal tar based therapies
FORMULA 405(R) Variety of topical products for the skin, hair and nails
FORMULA 405(R) AoHoA Alpha Hydroxy Acid skin care
OMIDERM(R)
Wound and burn dressings in various sizes
SULFOAM(R) Medicated Anti-dandruff Shampoo (8 oz.)
Control of dandruff
SULPHO-LAC(R) Acne Medication (1.0 oz. tube and 1.75 oz. jar)
Treatment of acne
SULPHO-LAC(R) Medicated Soap (3 oz.)
Treatment of acne
TERSASEPTIC(R) Skin cleanser
TRANS-VER-SAL(R) Wart Remover Kit (6mm, 12mm, 20mm sizes)
Dermal patch delivery system for wart removal
Nutritional Products Uses
ADEFLOR M(R) L (100s) Prescription Vitamins and minerals with sodium fluoride
APATATE(R) Liquid (4 oz. and 8 oz.) B-complex supplement for nutritional deficiencies associated with
illness in adults or children
APATATE(R) Tablets (50s)
Same as above
APATATE(R) FORTE Liquid (8 oz.) High-potency nutritional supplement containing eight essential
vitamins and minerals plus L-lysine
GLUTOFAC(R) Caplets (90s) Vitamin/mineral supplement for replenishing nutrients in
patients with conditions such as diabetes mellitus,
alcoholism, psychological stress, or chronic illness
GLUTOFAC(R)-ZX Capsules L (60's) Prescription high-potency multivitamin and multimineral
supplement including zinc and folic acid)
Elixir (8 oz.);
IoLoX(R) B12 Elixir (8 oz.);
IoLoX(R) B12 Sugar Free Elixir (8 oz.);
IoLoX(R) B12 Caplets (100s) Iron supplement for nutritional and iron deficiency anemias
IRCON(R) (100s) Iron supplement
IRCON(R)-FA (100s) Iron supplement with folic acid
KENWOOD THERAPEUTIC LIQUID(R) (8 oz.) Vitamin/mineral supplement for children and adults with poor diet
Internal Medicine Products Uses
NITROGLYN(R)
Extended Release Nitroglycerin
Capsules L 2.5 mg.; 6.5 mg., 9.0
mg.; (100s) For the prevention of angina pectoris (due to coronary artery disease
PAMINE(R) 2.5 mg. Tablets L (100s) Anticholinergic/ antispasmatic
Personal Hygiene Products Uses
GLANDOSANE(R) (15 ml) Mouth moisturizer
LUBRIN(R) Inserts (5s, 12s) Personal lubricating inserts
NEOLOID(R) Castor Oil (4 oz.) Laxative
Respiratory Products Uses
DECONAMINE(R) SR Capsules
(HCL 120 mg.) L (100s; 500s) Prescription sustained release antihistamine decongestant
DECONAMINE(R) Chewable Tablets
(HCL 15 mg.) L (100s) Prescription Pediatric antihistamine/decongestant
DECONAMINE(R) Dye-Free Syrup
(HCL 30 mg.) L (4(R)3 ml) Prescription Liquid antihistamine/decongestant
DECONAMINE(R) Dye-Free Tablets
(HCL 60 mg.) L (100s) Prescription Antihistamine/decongestant
DECONAMINE(R) CX Liquid (HCL 5mg.)(473 ml) Prescription liquid antitussive/ expectorant
DECONAMINE(R) CX Tablets (HCL 5mg.) L (100s) Prescription Antitussive/expectorant
DUADACIN(R) Capsules (100s; 1000s;
Dispense-A-Pak [125 unit packs of
8]) Antipyretic/analgesic/ decongestant
IPSATOL(R) Cough Formula (4 oz.) Pediatric antitussive/ expectorant
TYZINE(R) (tetrahydrozoline HCl)
Solution 30 ml; Spray 15 ml;
Pediatric Nasal Drops 15 ml Prescription Nasal decongestant
</TABLE>
New Beauty Patch Product
The Company, through its Doak subsidiary, launched during October 1997, an
evening dermal, antiwrinkle patch, LE PONT(R). This patch, which has been
designed to release, throughout an eight-hour period during the night, Vitamin
C, is perceived by the Company as a new alternative anti-wrinkle product. The
Company and Osmotics Corporation, the manufacturer of the product, have entered
into a distribution agreement pursuant to which, among other things, the Company
has been granted, through December 1998, the exclusive, and thereafter, the
non-exclusive, U.S. and International distribution rights for this product in
consideration for a royalty against sales.
Product Liability Insurance
The Company maintains $3,000,000 of product liability insurance on its
products. This insurance is in addition to required product liability insurance
maintained by other manufacturers of the Company's products. The Company
believes that this amount of insurance coverage is adequate and reasonable. To
date, no product liability claim has been made, to the Company's knowledge,
against the Company, and management has no reason to believe that any claim is
pending or threatened.
Manufacturers and Suppliers
The manufacturing processes and operations of manufacturing facilities for
pharmaceutical products are subject to rigorous regulation, including the need
to comply with the United States Food and Drug Administration's ("FDA") current
good manufacturing practices standards ("CGMP's"). The Company, manufactures and
packages, for its own account, its Doak product line, including FORMULA 405(R),
DOAK(R) DERMATOLOGY, CARMOL(R), ACID MANTLE(R) and TRANS-VER-SAL(R) products.
These products represented during fiscal years ended December 31, 1997 and 1996,
approximately 34% and 32%, respectively, of the Company's net sales. The Company
currently does not manufacture any products outside of its Doak product line.
Further, the Company does not anticipate doing any contract manufacturing or
packaging for unaffiliated third parties.
The Company generally purchases its products from nineteen different
vendors on open credit terms, which are generally payable in 30 days. One
company manufacturing and packaging products for the Company accounted for
approximately 19% and 16% of the Company's cost of goods sold for 1997 and 1996,
respectively. No other vendor, packager or manufacturer accounted for more than
10% of the Company's cost of goods sold for 1997 or 1996. Management believes it
can promptly obtain replacement manufacturing and packaging arrangements on
acceptable terms. Consequently, the Company believes that a loss of any or all
of its current vendors, manufacturers or packagers would not have a material
adverse effect on the Company's business operations.
With the exception of arrangements relative to LUBRIN(R) and the Company's
new beauty patch product, LE PONT(R), the Company does not have any licensing,
manufacturing or other supply agreements with its manufacturers or suppliers.
Consequently, any of the Company's manufacturers or suppliers could terminate
their relationship with the Company at any time, without liability to the
Company. Management believes it can promptly procure replacement manufacturing
arrangements on acceptable terms and, as a precautionary measure, has begun to
arrange for alternative manufacturers for each of the Company's pharmaceutical
products.
Marketing and Sales
The Company has acquired established products and product lines, developed
line extensions for new products and licensed existing technologies. Therefore,
the Company has concentrated its marketing efforts on the continued promotion of
its acquired product lines and line extensions to established customers and the
expansion of distribution to new customers. The Company's overall marketing
philosophy is to intensify and enhance the promotion of its acquired products
and line extensions throughout the United States and, where feasible, in
selected international markets.
The Company markets and sells its products through full time sales
personnel and a network of distributors and brokers. Non-prescription products
are sold primarily to drug wholesalers, chain and independent pharmacies, chain
and independent food stores, mass merchandisers, physician supply houses and
hospitals. Prescription products are sold primarily to wholesalers, retail
chains and managed care providers. The Company currently has approximately 1,425
active accounts, of which there are approximately 200 wholesalers, 700 retail
chains and stores, 300 doctors and institutional accounts, 125 government
entities and 100 managed care providers.
During 1997, three wholesale customers accounted for approximately 15%, 12%
and 12%, respectively, of the Company's net sales, and a similar concentration
was exhibited in the six months ended June 30, 1998. During 1996, the same three
wholesale customers accounted for approximately 15%, 12% and 10% of the
Company's net sales. No other single customer accounted for more than 10% of the
Company's net sales for 1997 or 1996. The loss of any of these three customers
would have a material adverse effect on the Company's future operations.
The Company's DECONAMINE(R) product line (categorized below as respiratory
products) accounted for approximately 40%, 45%, 51% and 40%, respectively, of
the Company's six months ended June 30, 1998 and the years 1997, 1996 and 1995
net sales. The DECONAMINE(R) product line, consequently, will have a material
effect on the Company's future operations.
Doak's TRANS-VER-SAL(R) products accounted for approximately 10% of both
the Company's 1997 and 1996 net sales. ACID MANTLE(R) accounted for
approximately 4% of net sales for both 1997 and 1996 net sales. Doak's other
products, including Formula 405(R), accounted for approximately 10% and 18%, of
the Company's 1997 and 1996 net sales. Doak's products are all categorized below
as dermatologic products.
The Company's 1997, 1996 and 1995 and six months ended June 30, 1998 net
sales volume percentages by category were as follows:
<TABLE>
<CAPTION>
6 Months Fiscal Fiscal Fiscal
Ended 6/30/98 1997 1996 1995
<S> <C> <C> <C> <C>
Respiratory 44% 50% 56% 46%
Dermatologic 46% 40% 32% 40%
Personal Hygiene 2% 4% 4% 3%
Nutritional 6% 5% 6% 6%
Internal Medicine 2% 1% 2% 5%
</TABLE>
Sales of the Company's DECONAMINE(R) product line and other cough/cold/flu
products are concentrated in the fall and winter months. Consequently, sales
revenues of these products generally are, and will be, determined by the
severity of the cough cold flu season. The Company promotes these products for
allergy symptoms during the spring and summer months to smooth the seasonality
of these sales.
The Company's principal marketing strategy is to furnish samples of the
Company's products and related literature to physicians to encourage them to
recommend the Company's products to their patients. The Company's marketing
department consists of a Senior Vice President of Marketing and Business
Planning, Kenwood Product Manager, Doak Product Manager and a Customer Service
Manager.
The sales department consists of a Vice President of Sales, Regional Sales
Director, four district managers, a U.S. Government representative, 36 full time
and one part time salespersons located in Alabama, New Jersey, Georgia,
California, Puerto Rico, Tennessee, Texas, Florida, Pennsylvania and New York.
The Company's sales force also attends medical conventions to increase physician
awareness of the Company's products.
As of July 23, 1998, the Company has contracted with 25 independent
contractors to form a Drug Sample Distributor (DSD) network throughout the
United States whose objective is to distribute samples and literature directly
to physicians in areas inaccessible to full-time sales staff or in key regions
where more comprehensive coverage is appropriate. The Company has made a
strategic decision to concentrate selling and marketing resources on nine
principal brands (which represents 87% of 1997 Net Sales) as follows:
<TABLE>
<CAPTION>
<S> <C>
Kenwood Brands Specialty
DECONAMINE(R) General Practitioners, Allergists
Pediatricians, Ear, Nose and Throat
Specialists
TYZINE(R) General Practitioners, Allergists
Pediatricians, Ear, Nose and Throat
Specialists
PAMINE(R) Gastroenterologists
GLUTOFAC(R) /GLUTOFAC (R) -ZX General Practitioners
LUBRIN(R) Obstetricians/Gynecologists
Doak Brands Specialty
CARMOL(R) Dermatologists, Podiatrists
TRANS-VER-SAL(R) Dermatologists, Podiatrists
ACID MANTLE(R) Dermatologists
FORMULA 405(R)/AoHoA/LE PONT(R) Dermatologists/Cosmeticians
</TABLE>
To facilitate sales of the Company's products internationally (including
Puerto Rico), the Company, with an international staff which includes a
President of the Bradley International division, a full-time sales associate and
one consultant, has entered into agreements with 26 international pharmaceutical
distributors to provide for distribution and promotion of the Company's
products. Approximately 13% and 11%, respectively, of the Company's 1997 and
1996 net sales were from international business.
The Company has received product registrations and has applied for
additional product registrations to distribute its products in certain
international markets as follows:
<PAGE>
THE COMPANY'S INTERNATIONAL MARKETING STATUS
CURRENTLY MARKETING
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Barbados CARMOL(R) Finland LUBRIN(R) Saudi Arabia AoHoA LINE(R)
DECONAMINE(R) CARMOL(R)
GLUTOFAC(R) France TRANS-VER-SAL(R) FORMULA 405(R)
IoLoX(R) LE PONT(R)
KTL(R) Hong Kong AoHoA LINE(R) SULPHO-LAC(R)
LUBRIN(R) CARMOL(R) TAR PRODUCTS
TRANS-VER-SAL(R) DOAK LINE TRANS-VER-SAL(R)
DECONAMINE(R)
GLUTOFAC(R)
IRCON(R)
NITROGLYN(R)
Canada DOAK LINE(R) Singapore AoHoA LINE(R)
FORMULA 405(R) APATATE(R)
KTL(R) BURO-SOL(R)
LUBRIN(R) LUBRIN(R)
NEOLOID(R) Iceland DOAK LINE(R) SULPHO-LAC(R)
TAR PRODUCTS FORMULA 405(R) TERSASEPTIC(R)
TERSASEPTIC(R) TRANS-VER-SAL(R) TRANS-VER-SAL(R)
TRANS-VER-SAL(R)
Israel Spain TAR DISTALLATE(R)
TRANS-VER-SAL(R)
LUBRIN(R)
Chile TRANS-VER-SAL(R)
Italy TRANS-VER-SAL(R)
Cyprus AoHoA LINE(R) IPSATOL(R) Taiwan AoHoA LINE(R)
IRCON(R) Jamaica APATATE(R) FORMULA 405(R)
KTL(R) I.L.X.(R)
LUBRIN(R) IPSATOL(R) Vietnam AoHoA LINE(R)
TYZINE(R) IRCON(R) FORMULA 405(R)
Jordan A.H.A. LINE(R)
CARMOL(R)
DOAK TAR
FORMULA 405(R)
TRANS-VER-SAL(R)
Denmark TRANS-VER-SAL(R)
Dominican APATATE(R)
Republic DUADACIN(R)
GLUTOFAC(R)
IRCON(R) Portugal TRANS-VER-SAL(R)
I.L.X.(R)
KTL(R)
LUBRIN(R)
El Salvador A.H.A. LINE(R) Puerto Rico COMPLETE BRADLEY
LINE
</TABLE>
<PAGE>
THE COMPANY'S INTERNATIONAL MARKETING STATUS
<TABLE>
<CAPTION>
EXPECT TO MARKET WITHIN A YEAR* WORKING ON REGISTRATION*
<S> <C> <C> <C>
Austria LUBRIN(R) Belgium TRANS-VER-SAL(R)
TRANS-VER-SAL(R)
Bangladesh LUBRIN(R) Cyprus APATATE(R)
TRANS-VER-SAL(R) DECONANIME(R)
GLUTOFAC(R)
China NITROGLYN(R) Dominican FORMULA 405(R)
Republic
Dominium Republic CARMOL(R) Egypt CARMOL(R)
DECONAMINE(R) DOAK LINE
TRANS-VER-SAL(R) SULPHO-LAC(R)
TRANS-VER-SAL(R)
El Salvador CARMOL(R) Guatemala APATATE(R)
TRANS-VER-SAL(R) DECONAMINE(R)
FORMULA 405(R)
IRCON(R)
LUBRIN(R)
France TRANS-VER-SAL(R) 12 TRANS-VER-SAL(R)
MMs
Hong Kong DUADACIN(R)
Ireland TRANS-VER-SAL(R) Israel CARMOL 10 & 20(R)
Israel TRANS-VER-SAL(R) Malta CARMOL(R)
DECONAMINE(R)
Italy LE PONT(R) IoLoX(R)
IPSATOL(R)
Korea FORMULA 405(R) TRANS-VER-SAL(R)
LE PONT(R)
Lebanon DOAK LINE(R) Panama APATATE(R)
TRANS-VER-SAL(R) DUADACIN(R)
GLUTOFAC(R)
IRCON(R)
Malaysia LUBRIN(R)
TRANS-VER-SAL(R)
Russia DUADACIN(R)
Mexico CARMOL 10 & 20(R)
LE PONT(R) SULPHO-LAC(R) Turkey DECONAMINE(R)
Yemen DECONAMINE(R)
DUADACIN(R)
Singapore CARMOL 10 & 20(R) GLUTOFAC(R)
Turkey LUBRIN(R)
TRANS-VER-SAL(R)
United Kingdom TRANS-VER-SAL(R)
Zimbabwe TRANS-VER-SAL(R)
</TABLE>
* Although the Company anticipates that it will receive the necessary
TRANS-VER-SAL(R) approvals to market its products in the countries listed above,
there can be no assurance that such approvals will be received.
<PAGE>
Competition
The distribution and marketing of pharmaceutical and health related
products is highly competitive. The Company competes primarily against
established pharmaceutical and consumer product companies which currently market
products that are equivalent, or functionally similar, to those the Company
markets. The Company seeks to compete based on targeted marketing, promotional
programs, lower prices and better service. Direct competition is primarily
limited by larger pharmaceutical companies unless "next generation" formulas are
introduced. Most of the Company's competitors possess substantially greater
financial, technical, marketing and other resources than the Company. In
addition, the Company competes for the manufacture of its products from
suppliers who manufacture and supply such products to other companies, including
those competitive with the Company's products.
Government Regulation
All pharmaceutical products are subject to rigorous regulation by the FDA
and by state authorities (and comparable agencies in foreign countries),
primarily under the Federal Food Drug and Cosmetic Act and the regulations
promulgated thereunder (along with comparable state laws). These laws regulate
the manufacture, shipping, storage, sale and use of such products and product
samples, including current GMP's, and Standard Operating Procedures (SOP's). The
FDA, Federal Trade Commission and state authorities also regulate the
advertising of prescription and over-the-counter products. The Company has
obtained assurances from its suppliers that all of the Company's products,
(including the products manufactured by the Company) meet all applicable
regulatory standards in all substantial respects.
Certain of the Company's pharmaceuticals products are sold
over-the-counter. These products are subject to FDA regulations known as
monographs, which specify permissible active ingredients, labeling and
indications. The monographs are subject to change. No assurance can be given
that future FDA enforcement or regulatory decisions or changes to monographs
will not hamper the Company's marketing efforts or render the Company's products
unlawful for commercial sale, causing the Company to withdraw its products from
the marketplace or spend substantial funds reformulating the products.
Specifically, the Company's DECONAMINE(R) product line, which currently has
prescription status, falls under these monographs. Once a final monograph is
issued by the FDA with respect to a product, the product historically can remain
as a prescription product for up to one additional year. The Company anticipates
that final monographs for the Company's DECONAMINE(R) product line, thereby
converting the product line from prescription status to over-the-counter status,
may be issued by the FDA at some time in the future. The Company currently
intends to continue to market and distribute its DECONAMINE(R) line of products
as prescription products as long as it may lawfully continue to do so. The
Company is presently exploring its marketing and distribution strategy relating
to its DECONAMINE(R) product line after final monographs covering these products
are issued, and, as such, it is not currently possible for the Company to
predict how its operations and financial condition will be affected, or whether
it will have resources sufficient to aggressively market the DECONAMINE(R) line
of products, if, and when, this product line is converted from prescription
status to over-the-counter status.
Further, the Company is required to file an Abbreviated New Drug
Application ("ANDA") with the FDA its DECONAMINE(R) SR product, which is
expected to maintain the prescription status of this product beyond the final
monograph. The cost of this application is approximately $900,000. The Company
has entered into an agreement with Phoenix International to perform clinical
studies required for the issuance of the ANDA. As of the date of this
Prospectus, the Company has paid approximately $300,000 with respect to this
project. The project is being deferred until regulatory and competitive
circumstances warrant completion and submission to the FDA. Completion of the
research and development project is subject, however, to the Company's either
generating sufficient cash flow from operations to fund the same or obtaining
requisite financing from outside sources, of which there can be no assurance.
Therefore, the Company cannot at this time reasonably anticipate the timing of
the expenditure of funds for these purposes. The inability of the Company to
further develop and/or file the necessary ANDA for DECONAMINE(R) SR would have a
material adverse effect on the Company's business.
The Company currently is the registered holder of one New Drug Application
for PAMINE(R) and two ANDA's for TYZINE(R) and CARMOL(R) HC. These applications,
approved by the FDA, permit companies to market products either considered by
the FDA to be new drugs or drugs previously approved by the FDA.
U.S. Federal and state governments continue to seek means to reduce costs
of Medicare and Medicaid programs, including placement of restrictions on
reimbursement for, or access to, certain drug products. Major changes were made
in the Medicaid program under the Omnibus Budget Reconciliation Act of 1990. As
a result, the Company entered into a Medicaid Rebate Agreement ("Rebate
Agreement") with the U.S. Government. Pursuant to the Rebate Agreement, in order
for federal reimbursement to be available for prescription drugs under state
Medicaid plans, the Company must pay certain statutorily-prescribed rebates on
Medicaid purchases (approximately l1%). In most other developed markets in which
the Company's products are marketed and sold, governments exert controls over
pharmaceutical prices either directly or by controlling admission to, or levels
for, reimbursement by government health programs. The nature of such controls
and their effect on the pharmaceutical industry varies greatly from country to
country.
The statutes and regulations that govern the Company's business and
activities are subject to change, and current political and public interest in
pharmaceutical products may lead to changes in federal and state law may affect
the Company and the way it does business. Management cannot anticipate what
effect, if any, such legislation may have on the Company's operations.
Patents and Trademarks
The products currently sold by the Company, with the exception of LUBRIN(R)
and TRANS-VER-SAL(R), are not patented. The Company intends to pursue patents
where it is practical, however, it does not currently intend to apply for
patents for all of its products. Products with benefits similar to those
marketed by the Company could easily be developed by other companies.
The LUBRIN(R) and TRANS-VER-SAL(R) United States patents expire on August
31, 1999 and October l8, 2005, respectively. Patents maintained by the Company
for LUBRIN(R) and TRANS-VER-SAL(R) in other countries have various expiration
dates.
The Company owns all trademarks associated with each of its products and
owns and maintains national and international trademark registrations, or common
law rights, on all of its material products. No assurance can be given as to the
extent or scope of the trademarks or other proprietary protection secured by the
Company on its products. To the Company's knowledge, none of the trademarks
owned by the Company infringe on any trademarks owned or used by others.
Human Resources
As of July 23, 1998, the Company employed 67 full and 18 part-time
associates. The Company believes that its relationship with its associates is
good.
Scientific Advisors
The Company has formed a group of scientific advisors (the "Scientific
Advisors") having extensive experience in the areas in which the Company markets
its products to advise the Company concerning long-range planning and
development. The following sets forth information with respect to the Company's
Scientific Advisors:
Cory A. Golloub, M.D., is a doctor of internal medicine and pediatrics
currently practicing in Montville, New Jersey. Dr. Golloub received his B.S.
from SUNY Stony Brook and his M.D. from the University of Medicine, Tampico,
Mexico with postgraduate affiliations with SUNY Downstate - Brookdale Hospital
and UMDNJ - New Jersey Medical School. Dr. Golloub is currently affiliated with
UMDNJ-NJMS, University Hospital and Chilton Memorial Hospital in New Jersey.
Stephen M. Gross, Ed.D., is Dean of the Arnold and Marie Schwartz College
of Pharmacy & Health Sciences, and of the School of Health Professions, Long
Island University. Mr. Gross was awarded a B.S. degree in pharmacy in 1960, and
earned his M.A. and Ed.D. degrees in college and university administration in
1969 and 1975, respectively, from Columbia University. Mr. Gross' expertise is
in the area of pharmacy administration, where he has authored numerous articles
on a variety of subjects, including cost-effectiveness of drug therapy,
pharmaceutical advertising, and other educational and pharmacy practice topics.
Mr. Gross is also a member of the New York State Board of Pharmacy.
Richard H. Mann, D.P.M. is a doctor of podiatric medicine. He is
board-certified in foot and ankle surgery, microscopic laser surgery of the foot
and is a Fellow of the Academy of Ambulatory Foot Surgeons and American College
of Foot Surgeons. Dr. Mann received his B.A. from Queens College of the City
University of New York and his D.P.M. from the New York College of Podiatric
Medicine. Dr. Mann has developed several new pharmaceutical products in a wide
variety of medical areas.
David Parsons, M.D. is a board certified ear, nose and throat surgeon, and
a Fellow of the American College of Surgeons. He is a recognized as an
international authority on paranasal sinus disease and has written the
authoritative textbook on sinus care. Dr. Parsons enjoyed a 26-year Air Force
career which included serving as the Consultant to the Surgeon General for Head
& Neck Surgery, Vice Chairman of the Department of Otolarygology, Wilford Hall
USAF Medical Center, and Clinical Professor of Otolarynogology/Head & Neck
Surgery at the University of Texas-San Antonio and at the University of
Colorado. Most recently, he was Professor of Surgery and Pediatrics at the
University of Missouri-Columbia. Dr. Parsons received his M.D. degree from the
University of Texas-Houston, and is now in private practice of Otolaryngology.
Mitchell J. Spirt, M.D. is a doctor of internal medicine currently on
faculty as Assistant Clinical Professor of Medicine at the UCLA School of
Medicine, California. Dr. Spirt received his B.S. from University Center of New
York at Binghamton and received his M.D. from Mount Sinai Medical Center in New
York. Dr. Spirt performed his internship and residency at Mount Sinai Medical
Center, New York and a Fellow at the University of California at Los Angeles
(UCLA).
Gerald N. Wachs, M.D. is a doctor of dermatology currently practicing in
Millburn, New Jersey. Dr. Wachs received his B.S. and M.D. from the University
of Illinois. Dr. Wachs is currently affiliated with St. Barnabas Hospital and
Overlook Hospital in New Jersey and is a consulting dermatologist for the New
Jersey Nets and New Jersey Devils.
Each of the Company's Scientific Advisors, over time, has been or will be
granted options to purchase shares of the Company's Class A Common Stock. All
options granted to the Scientific Advisors are exercisable at the fair market
value of the Company's Class A Common Stock as of the date of grant. To date, no
options have been exercised by the Company's Scientific Advisors. Each
Scientific Advisor will be compensated by the Company for his time and
reasonable expenses should he provide services to the Company.
Environmental Matters
On April 8, 1994, the Company was apprised by the New York State Department
of Environmental Conservation ("NYSDEC") that Doak's current leased
manufacturing facility located on adjoining parcels at 67 Sylvester Street and
at 62 Kinkel Street, and former manufacturing facility located at 128 Magnolia
Avenue, Westbury, New York, is located in the New Cassel Industrial Area, which
had been designated by the NYSDEC on the Registry of Inactive Hazardous Waste
Sites (the "Registry"). The real property on which Doak's current manufacturing
facility is situated is owned by and leased to the Company by Dermkraft, Inc.,
an entity owned by the former controlling shareholders and officers of Doak.
On February 7, 1995, the Company was apprised by the NYSDEC that the
current manufacturing facility will be excluded from the Registry. By letter
dated April 21, 1995, the NYSDEC notified the Company that it intended to
investigate the Company's current manufacturing facility to determine if
hazardous substances had previously been deposited on that property. By letter
dated October 24, 1995, NYSDEC notified Dermkraft, Inc. that the current
manufacturing facility is included in or near an inactive hazardous waste site
described as "Kinkel and Sylvester Streets" and that NYSDEC intends to conduct a
Preliminary Site Assessment to study the site and immediate vicinity. The
Company has been advised that NYSDEC has made a preliminary determination to
include the 62 Kinkel Street portion of the current manufacturing facility on
the Registry and that the 67 Sylvester Street portion of the facility will not
be included, but those determinations could be changed before they are
finalized. Thereafter, by letter dated May 3, 1996 and addressed to Dermkraft,
Inc., the NYSDEC notified Dermkraft that the site at 62 Kinkel Street has been
listed on the Registry due to the presence of trichloroethylene ("TCE") in soils
and groundwater due to the use of TCE by LAKA Tools and Stamping and LAKA
Industries, a former tenant from 1971 through 1984. The NYSDEC documents refer
to Doak as the current tenant but do not refer to any activities of Doak or the
Company as a basis for the listing in the Registry. The Company cannot at this
time determine whether the cost associated with the investigation and required
remediation, if any, of the current manufacturing facility will be material.
With respect to the former manufacturing facility on Magnolia Avenue, which
remains designated by the NYSDEC as part of the Registry, management believes,
but no assurance can be given, that Doak will not be obligated to contribute to
any remediation costs, if any are required.
Properties
The Company leases 14,000 square feet of office and warehouse space at 383
Route 46 West, Fairfield, New Jersey, pursuant to a lease expiring on January
31, 2013 with Daniel Glassman, the Company's Chairman and President, and Iris
Glassman, Mr. Glassman's wife and Treasurer of the Company. Rent expense,
including the Company's proportionate share of real estate taxes, was
approximately $194,000 and $176,000 for 1997 and 1996, respectively.
In connection with the Doak acquisition, Doak entered into a three year
lease with the former principal stockholders of Doak for the Doak manufacturing
facility (the "Doak Lease"). The Doak manufacturing facility is located in
Westbury, New York and consists of approximately 11,000 square feet. The Doak
Lease runs through February 1999 and rent expense is approximately $60,000 per
annum.
During 1997 and 1996, the Company rented 760 square feet of office space in
Chicago, Illinois at cost of $10,000 per annum.
The Company believes that the aforementioned facilities are sufficient to
meet the Company's current, and presently anticipated, future needs.
The Company has also entered into a distribution arrangement with a third
party public warehouse located in Tennessee to warehouse and distribute
substantially all of the Company's products. This arrangement provides that the
Company will be billed based on invoiced sales of the products distributed by
such party, plus certain additional charges.
Legal Proceedings
The Company and Doak have been named defendants in a lawsuit filed in the
Supreme Court of the State of New York, County of Nassau, Index Number 96-32988,
Captioned Michael Schiliro, individually and as the father and natural guardian
of Joseph M. Schiliro, a minor vs. Erick L. Roland, Doak Dermatologics and
Bradley Pharmaceuticals, Inc. This lawsuit was commenced on November 29, 1996.
The complaint alleges, among other things, that the Company and Doak were
negligent in their hiring and supervision of one of their employees. The
employee in question, in turn, allegedly committed an assault against one of the
plaintiffs to this litigation. The complaint seeks $600,000 of compensatory
damages from the Company and Doak and punitive damages of $ 1,000,000. The
Company believes that it has meritorious defenses to the allegations brought
against it.
The Company is involved in other litigation incidental to its business,
which the Company does not expect to have a material adverse effect on its
business or financial condition.
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Age Position(s)
Daniel Glassman 56 Chairman of the Board, President and Chief
Executive Officer
Iris S. Glassman 55 Treasurer and Director
David H. Hillman 57 Secretary and Director
Dr. Philip McGinn 71 Director
Seymour Schlager, M.D., J.D. 49 Director
Alan G. Wolin, Ph.D. 64 Director
Robert Dubin 60 Senior Vice President-Marketing & Business Planning
Gene L. Goldberg 60 Senior Vice President - Marketing & Business Planning
Maurice Woosley 57 President, Bradley International
</TABLE>
Daniel Glassman is the founder of the Company and has served as its Chief
Executive Officer since the Company's inception in January 1985. Mr. Glassman
has also served as the Company's Chairman of the Board since January 1985. Mr.
Glassman has also served as President of the Company since February 1991. Mr.
Glassman, a registered pharmacist, is also Chairman of the Board of Banyan
Communications Group, Inc., a communications company controlled by Mr. Glassman
("Banyan"). Banyan encompasses two marketing research organizations (Danis
Research and Hospital Research Associates) and an advertising agency (Daniel
Glassman Advertising). Mr. Glassman has operated these companies for more than
the last eighteen years. Mr. Glassman was previously Vice President for Client
Services for Medicus Communications, Inc., where he directed marketing programs
for pharmaceutical companies such as Procter & Gamble, Rorer, Schering-Plough
Corporation, and Merrill-Dow, Inc. Mr. Glassman is the husband of Iris Glassman,
the Treasurer and a director of the Company. Mr. Glassman is also Chairman of
the Board, President and Chief Executive Officer of Doak, Bradley
Pharmaceuticals (Canada), Inc. and Bradley Pharmaceuticals, Overseas, Ltd.,
Inc., each a subsidiary of the Company.
Iris S. Glassman has served as Treasurer of the Company since its inception
in 1985. Mrs. Glassman has also served as a director of the Company since
January 1985. Mrs. Glassman is the wife of Daniel Glassman and has fifteen years
of diversified administrative and financial management experience, including
serving in the capacity of Secretary of Banyan.
David H. Hillman has served as Secretary of the Company since 1985 and as a
director of the Company from January 1990. For more than the past five years,
Mr. Hillman has also served as a director of Banyan and since 1990, as President
of Banyan's Health Care Division and Treasurer of Banyan. Mr. Hillman, a
registered pharmacist, has also served as President of Hospital Research
Associates, a division of Banyan engaged in the business of conducting market
research for the pharmaceutical industry since 1983. Mr. Hillman has over
sixteen years of market research, sales and marketing experience, including
product group manager for Lederle Laboratories.
Dr. Philip McGinn has served as a director of the Company since December
1996. Since 1984, Dr. McGinn has also served as President of Worldwide Marketing
and Translation Services, Inc., a New Jersey based company providing consulting
services in new product and company acquisitions, marketing, market analysis,
promotional planning, sales training, management development and business,
educational and translation services. Dr. McGinn also served as Associate Dean,
School of Health Professions, Long Island University from 1990 to 1996.
Seymour Schlager, M.D., J.D., has served as a director of the Company since
July 1998. From 1989 to 1991, Dr. Schlager served as Venture Head of the
AIDS/Antiviral Pharmaceutical product development group of Abbott Laboratories.
In 1997, Dr. Schlager received a Juris Doctor degree, cum laude, from William
Howard Taft University School of Law.
Alan G. Wolin, Ph. D., has served as a director of the Company since May
12, 1997. Since 1988, Dr. Wolin has served as an independent consultant to
various companies in the food, drug and cosmetic industries. Between 1962 and
1987, Dr. Wolin served M&M/Mars, the world's largest candy company, in various
capacities, including Director of Consumer Quality Assurance and Quality
Coordination. In his capacity as Director of Consumer Quality Assurance and
Quality Coordination, Dr. Wolin was responsible for ensuring consumer quality
and public health issues relating to M&M/Mars' products.
Robert Dubin, R.Ph. has served as Vice President, Sales and Contract
Administration since 1997. Prior experience as a manufacturer of food products
for a major U.S. food distributor. Previously held Consultant Pharmacist
position for a major group of nursing homes in the Chicago area; also
owner/operator of 15 pharmacies and health clinics.
Gene L. Goldberg has served as Senior Vice President - Marketing and
Business Planning of the Company since January 1, 1997. Mr. Goldberg also served
as Executive Vice President of Daniel Glassman Advertising, a division of
Banyan, from 1984 to 1996 and as Vice President and Account Supervisor for
William Douglas McAdams from 1979 to 1983. Previously, Mr. Goldberg served as
Senior Product Manager for USV Pharmaceutical Corporation, a division of Revlon
Healthcare Group, and Project Director in Market Research at William Douglas
McAdams, Geigy Pharmaceutical Company and Lea-Mendota Research Group.
Maurice Woosley has served as President and Vice President of the Company's
international division since January 1997. From May 1996 to December 1996, Mr.
Woosley served as Vice President of the Company's international division. From
November 1994 to April 1996, Mr. Woosley served as Worldwide Marketing Director
of Datascope, Inc., a New Jersey based medical device manufacturer. From
September 1990 to October 1994, Mr. Woosley served as Global Marketing Director
for Davis & Geck, a New Jersey based medical product manufacturer.
Directors of the Company are scheduled to hold office until the next Annual
Meeting of Stockholders of the Company and until their respective successors
shall have been duly elected and qualified.
Significant Employees
Gene Carpenter has served as Regional Sales Director of the Company since
January 1994. From May 1988 through December 1993, Mr. Carpenter served as
National Sales Manager of Poly Pharmaceuticals, Inc., a Mississippi based
pharmaceutical company. Prior thereto, Mr. Carpenter served as Regional Sales
Manager of Savage Laboratories, Inc., Houston, Texas.
Robert Corbo has served as Quality Assurance/Control Director of the
Company since March 1993. From 1989 to 1993, Mr. Corbo served as Quality
Assurance/Control manager for Par Pharmaceuticals, a New York based generic
pharmaceutical manufacturer.
R. Brent Lenczycki, C.P.A., has served as Manager of Finance and Purchasing
since March 17, 1998. Prior experience includes public accounting for Arthur
Andersen LLP and internal audit for Harrah's Hotel Casino. In 1996, Mr.
Lenczycki received a Masters of Business Administration from Tulane University.
Executive Compensation
Summary Compensation Table
The following table shows all the cash compensation paid by the Company, as
well as certain other compensation paid or accrued during the fiscal years ended
December 31, 1997, 1996 and 1995, to Daniel Glassman, the Company's President
and Chief Executive Officer, Robert Dubin, Vice President of Sales, Gene L.
Goldberg, Senior Vice President of Marketing and Business Planning and Maurice
Woosley, President, Bradley International. No other executive officer of the
Company earned total annual salary and bonus for Fiscal 1997 in all capacities
in which such person served the Company in excess of $ 100,000. There were no
restricted stock awards, long-term incentive plan payouts or other compensation
paid during Fiscal 1997 to the executive officers named in the following table
except as set forth below:
Long-Term
Compensation
Annual Compensation Awards
Name and Principal Position Year Salary Bonus Securities Underlying
Options(1)
Daniel Glassman ............. 1997 $128,900 -0- -0-
President and ................ 1996 $122,500 -0- 404,500(2)
Chief Executive ............. 1995 $114,542 -0- 359,589(3)
Officer
Robert Dubin ................ 1997 $100,600 -0- -0-
Vice President of Sales ... 1996 $ 70,600 $20,000 7,500
and Contract Administration 1995 $ 50,900 -0- 7,500
Gene L. Goldberg ............ 1997 $129,400 -0- -0-
Senior Vice President ........ 1996 N/A N/A N/A
Marketing and Business ...... 1995 N/A N/A N/A
Planning
Maurice Woosley ............. 1997 $114,500 -0- -0-
President, Bradley ........... 1996 $ 68,800 -0- 18,000
International ............... 1995 N/A N/A N/A
(1) All of these options are exercisable into shares of Class A Common
Stock.
(2) Of these shares, 31,500 shares underlie options granted on December 5,
1996 to replace a like number of options previously granted to Mr. Glassman
which expired by their terms. These options are exercisable at any time prior to
December 4,2001 at an exercise price of $0.825 per share, 110% of the fair
market value for shares of Class A Common Stock on the date of grant. The
remaining 373,000 shares underlie options which were repriced by the Company on
April 18, 1996. These repriced options vest at various times through 1998 and
are exercisable at various times through 2000 at an exercise price of
approximately $ 1.44 per share, 110% of the fair market value for shares of
Class A Common Stock on the date of repricing. See "Report on Repricing of
Options" below.
(3) Of these shares,341,589 shares underlie options granted on December 5,
1995. These options are exercisable at any time prior to December 4,2000 at an
exercise price of $ 1.16875 per share,110% of the fair market value for shares
of Class A Common Stock on the date of grant. These options were granted by
agreement with the Company in consideration for Mr. Glassman's agreement to
retire 341,589 shares of Class B Common Stock previously distributed to him. The
remaining 18,000 shares underlie options granted on September 12,1995, which
options expire during 2000 and vest in equal, one third increments in 1996, 1997
and 1998. The exercise price for these 18,000 options was originally $3.7125 per
share, approximately 110% of the fair market value for shares of Class A Common
Stock on the original date of grant. These 18,000 options comprise a portion of
the 373,000 options owned by Mr. Glassman which were repriced by the Company on
April 18, 1996. See "Report on Repricing of Options" below.
Option Grants in 1997
The following table sets forth information concerning outstanding options
to purchase shares of the Company's Class A Common Stock granted during 1997 by
the Company to Alan Wolin, a director during 1997. Neither options to purchase
shares of Class B Common Stock nor stock appreciation rights were granted by the
Company during 1997. The exercise prices for all options reported below are not
less than 100% of the per share market prices for Class A Common Stock on their
dates of grant.
<TABLE>
<CAPTION>
Individual Grants
% of Total Options
Number of Securities Granted to Exercise or
Underlying Options Employees Base
Name Granted in Fiscal 1997(1) Price ($/Sh) Expiration Date
- ----- ------------------ ----------------- ------------ ---------------
<S> <C> <C> <C> <C>
Alan G. Wolin 15,000 22.06% 1.25 05/11/07
</TABLE>
Aggregated Option Exercises in Fiscal 1997 and
Fiscal Year-End Option Values
The following table presents the value, on an aggregate basis, as of
December 31, 1997, of outstanding stock options held by the executive officers
of the Company listed in the Summary Compensation Table above. No stock options
were exercised by the executive officers listed below during Fiscal 1997.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Options at
Fiscal Year-End Fiscal Year-End(1)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Daniel Glassman 721,089 6,000 $521,208 $3,337
</TABLE>
(1) Based on the closing sale price of $2.000 per share of Class A Common
Stock on December 31, 1997, as reported by NASDAQ.
Employment Contracts and
Termination of Employment and Chance-in-Control Arrangements
The Company does not have any employment contracts or termination of
employment or change-in-control arrangements with any of its executive officers.
Compensation of Directors
Directors who are not officers or employees of the Company receive a
director's fee of $600 for each meeting of the Board of Directors, or a
committee thereof, attended by such director, plus out-of-pocket costs.
Directors who are also officers or employees of the Company receive no
additional compensation for their services as directors.
On December 5, 1996, concurrently with Dr. Philip McGinn's appointment as a
director of the Company, Dr. McGinn was granted options to purchase up to 15,000
shares of Class A Common Stock of the Company. These options vest in three equal
and annual installments commencing on December 5,1997 and expire on December
4,2006. These options are exercisable at $0.6875 per share (the fair market
value per share of Class A Common Stock as of the date of grant).
On January 5, 1996, Mr. David Hillman was granted options to purchase up to
53,568 shares of Class A Common Stock of the Company at an exercise price of $
1.1875 per share (the fair market value per share of Class A Common Stock as of
the date of grant). These options vested immediately and expire January 4,2006.
These options were granted by agreement with the Company in consideration for
Mr. Hillman's agreement to retire 53,568 shares of Class B Common Stock
previously owned by him.
On August 29, 1997, Alan G. Wolin, Ph.D., was granted options to purchase
up to 15,000 shares of Class A Common Stock of the Company at an exercise price
of $1.25 per share (the fair market value per share of Class A Common Stock as
of the date of grant). These options vest in three equal and annual installments
commencing on May 12, 1998 and expire on May 11, 2007.
On July 21, 1998, Seymour Schlager, M.D., J.D., was granted options to
purchase up to 15,000 shares of Class A Common Stock of the Company at an
exercise price of $2.1875 per share (the fair market value per share of the
Class A Common Stock as of the date of grant). These options vest in three equal
and annual installments commencing on July 21, 1999 and expire on July 20, 2008.
Report on Repricing of Options
The following table sets forth certain information regarding options that
were repriced by the executive officers of the Company listed in the Summary
Compensation Table above and the directors of the Company in 1996.
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Number of Exercise Price Price
Optionee Options Repriced Before Repricing After Repricing
<S> <C> <C> <C>
Daniel Glassman 373,000 $ 3.72 $ 1.44
Iris S. Glassman 145,192 $ 3.41 $ 1.31
David Hillman .. 28,750 $ 3.17 $ 1.54
Alan G. Wolin ... 2,300 $ 3.09 $ 1.69
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 31, 1997,
regarding the ownership of the Company's Class A and Class B Common Stock by (i)
each director of the Company, (ii) the executive officers of the Company named
in the Summary Compensation Table set forth elsewhere in this document, (iii)
each beneficial owner of more than five percent of the Class A and Class B
Common Stock of the Company known by management and (iv) all directors and
executive officers of the Company, as a group, and the percentage of outstanding
shares of Class A and Class B Common Stock beneficially held by them on that
date.
Since each share of Class B Common Stock may be converted at any time by
the holder into one share of Class A Common Stock, the beneficial ownership
rules promulgated under the Securities Exchange Act of 1934, as amended, require
that all shares of Class A Common Stock issuable upon the conversion of Class B
Common Stock by any stockholder be included in determining the number of shares
and percentage of Class A Common Stock held by such stockholder.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Owner(l)(2) Percent of Class(2)
Name of Address of Class A Class B Class A Class B
Beneficial Owner Common Stock Common Stock Common Stock Common Stock
<S> <C> <C> <C> <C> <C> <C>
Daniel Glassman ......... 1,098,142(3) 316,736(4) 12.76% 73.39%
383 Route 46 West
Fairfield, NJ
Iris S. Glassman ........ 231,373(5) 37,283(6) 2.69% 8.64%
383 Route 46 West
Fairfield, NJ
David H. Hillman ........ 117,433(7) 43,610 1.36% 10.11%
383 Route 46 West
Fairfield, NJ
Philip McGinn, Jr ....... 6,528(3) -0- * ----
383 Route 46 West
Fairfield, NJ
Alan G. Wolin 65,730(9) . -0- -0- * ------
383 Route 46 West
Fairfield, NJ
Robert S. Dubin ......... 7,500(11) -0- * ------
383 Route 46 West
Fairfield, NJ
Seymour Schlager
383 Route 46 West
Fairfield, NJ ............ -0- -0- -- ------
Gene L. Goldberg ........ 54,722(10) 10,192 * 2.36%
383 Route 46 West
Fairfield, NJ
Maurice Woosley ......... 7,752(12) -0- * -----
383 Route 46 West
Fairfield, NJ
Berlex Laboratories, Inc. 1,450,000 -0- 16.85% -----
110 East Hanover Avenue
Cedar Knolls, NJ
All executive officers .. 1,589,180(3)(4)(5) 407,821(4)(6) 18,47% 94.50%
and Directors as a group
(7 Persons)
</TABLE>
* Represents less than one percent
(1) Unless otherwise indicated, the stockholders identified in this table
have sole voting and investment power with respect to the shares beneficially
owned by them.
(2) Each named person and all executive officers and directors, as a group,
are deemed to be the beneficial owners of securities that may be acquired within
60 days through the exercise of options, warrants or exchange or conversion
rights. Accordingly, the number of shares and percentage set forth opposite each
stockholder's name under the columns class a common stock includes shares of
class a common stock issuable upon exercise of presently exercisable warrants
and stock options and shares of Class A common stock issuable upon conversion of
shares of Class B common stock. The shares of Class A common stock so issuable
upon such exercise, exchange or conversion by any such stockholder are not
included in calculating the number of shares or percentage of class a common
stock beneficially owned by any other stockholder.
(3) Includes 316,736 shares issuable upon conversion of a like number of
shares of Class B common stock. Of these shares, 54,117 shares are owned
indirectly by Mr. Glassman through affiliates and 721,089 shares underlie
presently exercisable options owned by Mr. Glassman. Mr. Glassman's affiliates
have ownership over shares and options owned by his wife. Iris S. Glassman.
(4) Includes 26,098 shares owned indirectly by Mr. Glassman through
affiliates. Mr. Glassman's affiliates have disclaimed beneficial ownership over
these shares. Does not include 16,403 shares beneficially owned by Iris S.
Glassman, Mr. Glassman's wife.
(5) Includes 37,283 shares issuable upon conversion of a like number of
shares of Class B common stock, 6,800 shares owned indirectly by Mrs. Glassman
through affiliates, 25,220 shares owned indirectly by Mrs. Glassman as trustee
for her children's trusts and 162,070 shares underlying presently exercisable
options. Mrs. Glassman disclaims beneficial ownership over all shares
beneficially owned by her husband, Daniel Glassman.
(6) Includes 20,880 shares owned indirectly by Mrs. Glassman as trustee for
the Bradley Glassman 1995 Trust. Mrs. Glassman disclaims beneficial ownership
over all shares of Class B common stock beneficially owned by her husband,
Daniel Glassman.
(7) Includes 43,610 shares issuable upon conversion of a like number of
shares of Class B common stock. 1,780 shares owned indirectly by Mr. Hillman
through an affiliate and 65,568 shares underlying presently exercisable options.
Mr. Hillman's affiliate has disclaimed beneficial ownership over shares owned by
it.
(8) Includes 5,000 shares underlying presently exercisable options.
(9) Includes 2,300 shares underlying presently exercisable options.
(10) Includes 10,192 shares issuable upon conversion of a like number of
shares of Class B common stock. Of these shares 44,446 shares underlie presently
exercisable options.
(11) Includes 7,500 shares underlying presently exercisable options.
(12) Includes 6,000 shares underlying presently exercisable options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the six months ended June 30, 1998 and during 1997 and 1996, the
Company received administrative support services (consisting principally of
advertising services, mailing, copying, data processing and other office
service) which were charged to operations and paid from Banyan, an affiliated
company, amounting to approximately $84,000, $135,000 and $280,000,
respectively. At December 31, 1996, $11,000 was due the Company from Banyan. At
December 31, 1997, there were no outstanding balances between the Company and
Banyan.
The Company rents its Fairfield, New Jersey operating facility from Daniel
Glassman and Iris S. Glassman pursuant to a lease expiring on January 31, 2013.
Rent expense, including an allocated portion of real estate taxes, was
approximately $89,000, $194,000 and $176,000, respectively, for the six months
ended June 30, 1998 and for 1997 and 1996.
During 1996 and 1995, Daniel Glassman, the Company's President and Chief
Executive Officer also served as Chief Executive Officer of Banyan. As such, Mr.
Glassman allocated a portion of his working time to the business of each of the
Company and Banyan (Mr. Glassman estimates that less than 5% of his time is
spent on Banyan business). During 1996 and 1995, Mr. Glassman received
compensation from the Company and Banyan.
DESCRIPTION OF SECURITIES
General
The Company is authorized to issue up to 27,300,000 shares of Common Stock,
26,400,000 shares of which have been designated as Class A Common Stock and
900,000 shares of which have been designated as Class B Common Stock, and
2,000,000 shares of preferred stock, no par value per share (the "Preferred
Stock"). As of June 30, 1998 there were issued and outstanding 8,188,281 shares
of Class A Common Stock, 431,552 shares of Class B Common Stock and no shares of
Preferred Stock.
Common Stock
Holders of Class A Common Stock and Class B Common Stock have equal rights
to receive dividends when, as and if declared by the Board of Directors of the
Company, out of funds legally available therefor.
Holders of Class A Common Stock have one vote for each share held of record
and holders of Class B Common Stock have five votes for each share held of
record on all matters to be voted on by stockholders, except for the election of
directors. So long as there are at least 325,000 shares of Class B Common Stock
issued and outstanding, holders of the Class B Common Stock, voting as a
separate class, have the right to elect a majority of the directors of the
Company (consisting of the sum of one plus one-half of the total number of
directors) (the "Class B Directors") and may remove any Class B Director with or
without cause at any time and fill all vacancies among Class B Directors, and
the holders of Class A Common Stock and voting Preferred Stock, if any, have the
right to vote together as a single class to elect the remainder of the directors
of the Company (the "Class A Directors") and may remove any Class A Director
with or without cause and fill vacancies among Class A Directors. Holders of
Class A Common Stock and Class B Common Stock do not have cumulative voting
rights and vote as one class on all other matters requiring stockholder
approval, except that under Delaware law the affirmative vote of a majority of
the outstanding shares of a class of capital stock, voting separately as a
class, is required for any amendment to the Company's Certificate of
Incorporation which would alter or change the powers, preferences or special
rights of such class of the Company's capital stock.
Holders of Common Stock are entitled upon liquidation of the Company to
share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any Preferred Stock then outstanding. Shares of
Common Stock are not redeemable and have no preemptive or similar rights.
Preferred Stock
The Board of Directors of the Company has the authority to issue shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by stockholders. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by
stockholders and may adversely affect the voting and other rights of the holders
of Common Stock. Further, the issuance of Preferred Stock with voting and
conversion rights may adversely affect the voting power of the holders of Common
Stock, including the loss of voting control to others. As of June 30, 1998, no
shares of Preferred Stock were outstanding and the Company had no plans to issue
any Preferred Stock.
Indemnification for Securities Act Liabilities
The Delaware General Corporation Law (the "DGCL") provides that a
corporation may limit the liability of each director to the corporation or its
stockholders for monetary damages except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases and (iv) for any transaction from which the
director derives an improper personal benefit. The Company's certificate of
incorporation provides for the elimination and limitation of the personal
liability of directors of the Company for monetary damages to the fullest extent
permitted by the DGCL. In addition, the certificate of incorporation provides
that if the DGCL is amended to authorize the further elimination or limitation
of the liability of a director, then the liability of the directors shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended. The effect of this provision is to eliminate the rights of the Company
and its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligence or grossly negligent behavior), except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
The certificate of incorporation also provides that the Company shall, to the
full extent permitted by the DGCL, as amended from time to time, indemnify and
advance expenses to each of its currently acting and former directors, officers,
employees and agents.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
Transfer Agent
The transfer agent for shares of the Company's capital stock is American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
SELLING STOCKHOLDERS
The Shares are being registered for the issuance of shares pursuant to (a)
a Stock Purchase Agreement dated May 15, 1998 between Kennedy Capital
Management, Inc. ("Kennedy") pursuant to which, upon the effectiveness of the
Registration Statement of which this Prospectus is a part, Kennedy must purchase
130,000 shares of the Company's Class A Common Stock for a purchase price of
$2.50 per share and warrants to purchase 19,500 shares of Class A Common Stock
exercisable at $2.80 per share, (b) a Warrant issued to Stern, Stewart & Co.,
Inc. to purchase 70,000 shares of Class A Common Stock at an exercise price of
$3.12 per share, and (c) Unit Purchase Options held by various investors
entitling them to purchase in the aggregate 989,000 shares of Class A Common
Stock for $1.82 per share. The Company is obligated to register the shares
issuable under the Unit Purchase Option when it files a registration statement
with the Securities and Exchange Commission. The Stock Purchase Agreement with
Kennedy requires the Company to file the Registration Statement of which this
Prospectus is a part. The Company is voluntarily registering the Shares issuable
to Stern, Stewart & Co., Inc. pursuant to such Registration Statement. Kennedy,
Stern, Stewart & Co., Inc. and the holders of the Unit Purchase Options are
referred to collectively as the "Selling Stockholders."
The following table sets forth certain information with respect to the
beneficial ownership of Shares by the Selling Stockholders.
<TABLE>
<CAPTION>
Beneficial Ownership
of Shares Assuming Beneficial Ownership Class A
Full Exercise or of Shares to be Common Stock
Name Contractual Compliance Offered for Sale After Sale
<S> <C> <C> <C>
Kennedy Capital Management 149,500 149,500 0
Sterns, Stewart & Co., Inc. 70,000 70,000 0
Richard Mish 30,906 30,906 0
Richard Molinsky 12,363 12,363 0
Alfred Palagonia 12,363 12,363 0
Stevens Monroe 12,363 12,363 0
Michael Solomon 37,088 37,088 0
Brian Frank 18,544 18,544 0
Michael Morris 18,544 18,544 0
Martin A. Bell 49,450 49,450 0
D.H. Blair Investment Banking Corp. 161,949 161,949 0
J. Morton Davis 24,725 24,725 0
Alan Stahler 368,403 368,403 0
Kalmon Renov 242,305 42,305 0
</TABLE>
PLAN OF DISTRIBUTION
Shares of the Company's Class A Common Stock are traded currently on the
Nasdaq National Market under the symbol "BPRX."
This Prospectus, as appropriately amended or supplemented, may be used from
time to time by the Selling Stockholders, or by their pledgees, donees,
transferees or other successors in interest, who have received Shares and who
wish to offer and sell such Shares in the public marketplace. The Company will
receive none of the proceeds from any such sales. The Selling Stockholders have
advised the Company that, prior to the date of this Prospectus, they have not
made any agreement or arrangement with any underwriter, broker or dealer
regarding the distribution and resale of the Shares. If the Company is notified
by the Selling Stockholders that any material arrangement has been entered into
with an underwriter for the sale of the Shares, a supplemental prospectus will
be filed to disclose such of the following information as the Company believes
appropriate: (i) the name of the participating underwriter; (ii) the number of
the Shares involved; (iii) the price at which such Shares are sold, the
commissions paid or discounts or concessions allowed to such underwriter; and
(iv) other facts material to the transaction.
The Company anticipates that the Selling Stockholders will sell the Shares
covered by this Prospectus through customary brokerage channels, either through
broker-dealers acting as agents or brokers for the seller, or through
broker-dealers acting as principals, who may resell the Shares through the
Nasdaq National Market or through private sales or otherwise, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholders may effect such
transactions by selling its Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of concessions or
commissions from the Selling Stockholders and/or the purchaser of the Shares for
whom such broker-dealer may act as agent (which compensation may be in excess of
customary commissions.) The Selling Stockholders and any broker-dealer that
participates with the Selling Stockholders in the distribution of the Shares may
be deemed to be an underwriter and commissions received by them and any profit
on the resale of the Shares positioned by them might be deemed to be
underwriting discounts and commissions under the Securities Act. In addition,
any Shares covered by this Prospectus that qualify for sale pursuant to Rule 144
under the Securities Act may qualify thereunder rather than pursuant to this
Prospectus.
Sales of the Shares on the Nasdaq National Market may be by means of a
variety of methods, including without limitation, the following: (i) a block
trade in which a broker or dealer will attempt to sell the Shares as agent, but
may position and resell a portion of the block as principal to facilitate the
transactions; (ii) purchases by a dealer as principal and resale by such dealer
for its account pursuant to this Prospectus; (iii) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (iv)
face-to-face or other direct transactions between the Selling Stockholder and
purchasers without a broker or other intermediary. In effecting sales, brokers
or dealers engaged by the Selling Stockholder may arrange for other brokers or
dealers to participate.
The Selling Stockholders are not restricted as to the price or prices at
which it may sell the Shares. Sales of the Shares at less than market price may
depress the market price of the Company's Class A Common Stock. Moreover, the
Selling Stockholders are not restricted as to the number of Shares which may be
sold at any one time and the Selling Stockholder is permitted to buy, from time
to time, an unlimited number of additional shares of Class A Common Stock in
open market transactions or otherwise.
The Company will pay all of the expenses incident to the offer and sale of
the Shares to the public by the Selling Stockholders other than commissions and
discounts of underwriters, dealers or agents. There can be no assurance that the
Selling Stockholders will sell any or all of the Shares offered by them
hereunder.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
the Company by Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, LLP, Woodbridge,
New Jersey.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996, included in this Prospectus have been so included in reliance on
the report of Grant Thornton LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act with respect to the
securities offered by this Prospectus. This Prospectus, filed as part of such
Registration Statement, does not contain all of the information set forth in, or
annexed as exhibits to, the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and this offering, reference is
made to the Registration Statement, including the exhibits filed therewith,
which may be inspected without charge at the office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549; Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
New York, New York 10048. Copies of the Registration Statement may be obtained
from the Commission at its principal office upon payment of prescribed fees.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, where the contract or other
document has been filed as an exhibit to the Registration Statement, each such
statement is qualified in all respects by reference to the applicable document
filed with the Commission.
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained Investment
Class A common stock, Class B common stock, Treasury earnings in ITG
no par value no par value Stock (accumulated Laboratories,
Shares Amount Shares Amount Amount deficit) Inc. Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ........... 6,780,267 $ 13,495,443 $ 845,448 --- --- --- (4,598,995)$ 8,866,818
Shares issued to Berlex Inc. pursuant
to amendment to asset purchase
agreement .............................1,000,000 1,125,000 1,125,000
Shares issued for consulting services... 12,000 16,875 16,875
Compensation charge for stock
options issued to consultants 58,000 58,000
Return and retirement of Class B shares . (63,891) --
Disposition of investment in ITG
Laboratories, Inc. .................... (100,000) (415,625) 565,625 150,000
Net income for the year 1,598,507 1,598,507
Balance at December 31, 1996 ........... 7,692,267 13,970,240 431,552 845,448 -- (3,000,488) --- 11,815,200
Stock options exercised ............... 31,500 40,010 40,010
Other .................................. 56,274 56,274
Shares issued to Berlex, Inc. pursuant
to amendment to asset purchase
agreement ........................... 450,000 586,215 586,215
Shares issued for consulting services. 528 1,188 1,188
Purchase of treasury stock, net (231,198) (231,198)
Net income for the year 906,406 906,406
Balance at December 31, 1997 .......... 8,174,295 14,653,927 431,552 845,448 (231,198)$ (2,094,082) --- 13,174,095
Stock options excercised (unaudited)... 10,000 11,388 11,388
Shares issued for consulting
and compensation services (unaudited). 3,986 8,533 8,533
Purchase of treasury stock,
net (unaudited) (143,539) (143,539)
Net income for the six months ended
June 30, 1998 (unaudited) 582,731 582,731
Balance at June 30, 1998 (unaudited) 8,188,281 14,673,848 431,552 845,448 (374,737) (1,511,351) --- 13,633,208
The accompanying notes are an integral part of these statements
F-6
</TABLE>
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31, Six months ended June 30,
1996 1997 1997 1998
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 12,769,266 $ 15,023,762 $ 7,373,970 $ 7,929,402
Cost of sales 3,311,313 4,192,743 1,807,376 2,334,403
9,457,953 10,831,019 5,566,594 5,594,999
Selling, general and administrative expen 6,947,871 8,084,668 4,011,810 4,048,451
Depreciation and amortization 1,855,141 1,488,794 806,064 538,147
Other income - litigation settlement, net (1,645,132) - - -
Interest expense - net 551,566 292,651 182,600 83,670
7,709,446 9,866,113 5,000,474 4,670,268
Income before income taxes 1,748,507 964,906 566,120 924,731
Income tax expense 150,000 58,500 223,750 342,000
NET INCOME $ 1,598,507 $ 906,406 $ 342,370 $ 582,731
Net income
per common share
Basic $ 0.22 $ 0.11 $ 0.04 $ 0.07
Diluted $ 0.22 $ 0.11 $ 0.04 $ 0.06
Weighted average number
of common shares
Basic 7,180,000 8,190,000 8,100,000 8,440,000
Diluted 7,240,000 8,460,000 8,150,000 9,350,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 3Six months ended June 30,
1996 1997 1997 1998
(unaudited)(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,598,507 $ 906,406 $ 342,370 $ 582,731
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,855,141 1,488,794 806,064 538,147
(Gain) loss on sale of fixed assets 8,437 (534) - -
Noncash compensation charges 74,875 1,188 - 8,533
Changes in operating assets and liabilities
Accounts receivable (481,280) 987,181 761,405 (1,625,085)
Inventory and prepaid samples and 1,188,380 244,027 380,342 269,961
Income taxes payable/refundable 1,957,532 (59,344) 108,165 177,621
Prepaid expenses and other 58,392 40,354 (124,233) (146,245)
Accounts payable and accrued expe(3,426,907) (1,726,204) (817,638) 673,605
Net cash provided by operating activities 2,833,077 1,881,868 1,456,475 479,268
Cash flows from investing activities
Investment in Doak Pharmacal Co., Inc. (7,236) (5,852) (2,372) (419)
Additional investments in trademarks, patents and
other intangible assets (350,244) (117,250) (55,890) (21,923)
Proceeds from disposition of common stock of ITG
Laboratories, Inc. 33,000 13,500 - -
Purchase of property and equipment (22,312) (85,282) (18,223) (135,677)
Proceeds from sale of fixed assets 6,200 800 - -
Net cash used in investing activities (340,592) (194,084) (76,485) (158,019)
</TABLE>
<PAGE>
F-7
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Years ended December 3Six months ended June 30,
1996 1997 1997 1998
(unaudited)(unaudited)
<S> <C> <C> <C> <C>
Cash flows from financing activities
Payment of notes payable (3,048,549) (2,252,382) (650,671) (100,697)
Borrowings from revolving credit line, net - 1,269,757 - (563,085)
Proceeds from exercise of stock options - 40,010 - 11,388
Purchase of treasury stock, net - (231,198) (78,416) (143,539)
Net cash used in financing activities (3,048,549) (1,173,813) (729,087) (795,933)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (556,064) 513,971 650,903 (474,684)
Cash and cash equivalents at beginning of y 556,064 - - 513,971
Cash and cash equivalents at end of year $ - $ 513,971 $ 650,903 $ 39,287
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 224,000 $ 156,000 $ 66,000 $ 78,000
Income taxes 42,000 105,000 74,000 164,000
Reference is made to Notes C and D for product acquisitions, and the payment terms for such acquisitions.
The Company issued 1,000,000 shares of its Class A common stock in partial satisfaction of its obligation to
Berlex in 1996
(see Note C).
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Bradley Pharmaceuticals, Inc. and Subsidiaries
Report of Independent Certified Public Accountants......................F-2
Consolidated Balance Sheets at December 31, 1997
and 1996 and June 30, 1998 (unaudited).............................F-3
Consolidated Statements of Income for the
Years Ended December 31, 1997 and 1996
and the six months ended June 30 1998
(unaudited) .......................................................F-5
Consolidated Statement of Shareholders' Equity for the
Years Ended December 31, 1997 and 1996
and the six months ended June 30, 1998 (unaudited) ............... F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997 and 1996
and the six months ended June 30, 1998 (unaudited)................. F-7
Notes to Consolidated Financial Statements.......................F-9 - F-30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Bradley Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Bradley
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the two years in the period ended December 31, 1997. 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 audit 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 Bradley
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations, and their consolidated shareholders'
equity and their consolidated cash flows for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Parsippany, New Jersey
March 18, 1998
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1996 1997 1998
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ - $ 513,971 $ 39,287
Accounts receivable - net of allowance for
doubtful accounts of $71,000 in 1996,
$61,000 in 1997, and $30,000 in 1998 2,736,037 1,748,856 3,373,941
Inventory 1,057,985 977,344 920,394
Prepaid samples and materials 1,681,199 1,517,813 1,304,802
Prepaid expenses and other 52,984 12,629 157,744
Total current assets 5,528,205 4,770,613 5,796,168
PROPERTY AND EQUIPMENT - AT COST, less
accumulated depreciation of $900,000 in 1996,
$1,050,000 in 1997, and $1,098,000 in 1998 343,428 277,805 364,967
INTANGIBLE ASSETS, NET 14,831,536 13,044,147 12,576,857
OTHER ASSETS - 89,317 90,447
$ 20,703,169 $ 18,181,882 $18,828,439
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
F-3
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1997 1998
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,444,569 $ 169,143 $ 106,451
Accounts payable and accrued expenses 4,719,160 3,170,549 3,844,154
Revolving credit line - 1,269,757 706,672
Income taxes payable 193,276 133,932 311,553
Total current liabilities 8,357,005 4,743,381 4,968,830
LONG-TERM DEBT, less current maturities 530,964 264,406 226,401
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized, 2,000,000
shares; issued - none - - -
Common, Class A, no par value, authorized,
26,400,000 shares; issued 7,692,267 in 1996,
8,174,295 shares in 1997 and 8,188,281 in 1998 13,970,240 14,653,927 14,673,848
Common, Class B, no par value, authorized,
900,000 shares; issued and outstanding,
431,552 shares in 1996, 1997, and 1998 845,448 845,448 845,448
Treasury stock - Class A Common Stock - at cost
(146,008 shares in 1997 and 197,045 in 1998) - (231,198) (374,737)
Accumulated deficit (3,000,488) (2,094,082) (1,511,351)
11,815,200 13,174,095 13,633,208
$ 20,703,169 $ 18,181,882 $18,828,439
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
F-4
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and
1997 (Information with respect to June 30, 1998
and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
Bradley Pharmaceuticals, Inc. (the "Company") is a New Jersey corporation
founded in 1985 and was reincorporated in Delaware in July 1998. The Company's
primary business activity is the manufacturing and marketing of various
pharmaceutical and dermatological products, which have been acquired through the
purchase of trademark rights and patents.
A summary of the significant accounting policies of the Company applied in the
preparation of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of Bradley
Pharmaceuticals, Inc. and its wholly-owned subsidiary, Doak Dermatologics Inc.
("Doak"), acquired February 1, 1994 (Note C) and its wholly-owned foreign sales
corporation, Bradley Pharmaceuticals Overseas, Ltd., formed in February 1995,
and its wholly-owned subsidiary, Bradley Pharmaceuticals (Canada) Inc., formed
in June 1996. All intercompany transactions have been eliminated in
consolidation.
2. Inventory
Inventory, consisting principally of finished goods, is stated at the lower of
cost or market. Cost is determined by the first-in, first-out method.
3. Prepaid Samples and Materials
The Company capitalizes product samples and promotional materials. These items
are charged to operations in the period in which they are distributed to
customers.
4. Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives using the
straight-line and accelerated methods over a period of five to seven years for
equipment and ten years for leasehold improvements.
5. Intangible Assets
The costs of noncompete agreements, goodwill, license agreements, and purchased
trademarks and patents are capitalized and amortized on a straight-line basis to
operations over their estimated useful lives or statutory lives, whichever are
shorter. The estimated lives for trademarks are 10 to 40 years (See Note B for
discussion of a change in estimate). The estimated amortization periods for
other intangible assets are as follows: 10 to 20 years for goodwill, 10 years
for license agreements, 17 years (or the remaining life at the time of purchase,
if shorter) for patents and 3 years for noncompete agreements.
The Company has adopted Statement of Financial Accounting Standards No. 121,
"Impairment of Long-Lived Assets to be Disposed Of." Accordingly, whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable, management assesses the recoverability of the asset. Management
compares the cash flows, on an undiscounted basis, expected to be generated from
the related assets to the carrying amounts to determine whether an impairment
has occurred. It is reasonably possible that the actual cash flows that result
will be insufficient to recover the carrying amount of certain of these
intangibles. No impairment loss was recorded for 1997 or 1996.
6. Cash and Cash Equivalents
Cash and cash equivalents include investments in highly liquid securities having
an original maturity of three months or less at the time of purchase.
7. Certain Concentrations
The Company is potentially subject to concentrations of credit risk, which
consist principally of cash and cash equivalents and trade accounts receivable.
The cash and cash equivalent balances at December 31, 1997 were principally held
by one institution, and are in excess of the Federal Deposit Insurance
Corporation ("FDIC") insurance limit. Concentration of credit risk with respect
to accounts receivable is generally limited due to the Company's large, diverse
customer base. However, at December 31, 1997 and 1996, two wholesale customers
accounted for approximately 44% and 59%, respectively, of the total accounts
receivable balance.
Approximately 40%, 45% and 51% of the Company's net sales for the six months
ended June 30, 1998 and for the years ended December 31, 1997 and 1996 were
derived from sales of its Deconamine(R) products. The Company cannot predict the
date Deconamine(R)SR status, mandated by the United States Food and Drug
Administration, ("FDA") will change from a prescription product to an
over-the-counter product. The Company, however, based upon information obtained
currently from the FDA, believes the status will not change in the foreseeable
future.
For the year ended December 31, 1997, three wholesale customers accounted for
approximately 39% (15%, 12% and 12%) of net sales. For the year ended December
31, 1996, three wholesale customers accounted for approximately 37% (15%, 12%
and 10%) of net sales. The Company had similar concentrations in wholesale
customers, manufacturers and export sales during the six months ended June 30,
1998.
One company manufacturing products for the Company accounted for approximately
19% and 16% of the Company's cost of goods sold for the years ended December 31,
1997 and 1996. Management believes it can obtain replacement manufacturing
arrangements and that a loss of any or all of their vendors and/or manufacturers
would not have a material effect on the Company.
The Company had export sales of approximately 13% and 11% of its net sales
for the years ended December 31, 1997 and 1996, respectively.
8. Net Income Per Common Share
The Company computes income per share in accordance with Statement of Financial
Accounting Standards No. 128 Earnings per Share (SFAS 128) which specifies the
compilation, presentation and disclosure requirements for income per share for
entities with publicly held common stock or potential common stock. The
requirements of this statement are effective for interim and annual periods
ending after December 15, 1997. All prior years were restated in accordance with
SFAS 128.
Basic net income per common share is determined by dividing the net income by
the weighted average number of shares of common stock outstanding. Diluted net
income per common share is determined by dividing the net income by the weighted
number of shares outstanding and dilutive common equivalent shares from stock
options and warrants.
9. Income Taxes
The Company and Doak file a consolidated Federal income tax return.
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
statement requires, among other things, an asset and liability approach for
financial accounting and reporting for deferred income taxes. In addition, the
deferred tax liabilities and assets are required to be adjusted for the effect
of any future changes in the tax law or rates. Deferred income taxes arise from
temporary differences resulting in the basis of assets and liabilities for
financial reporting and income tax purposes.
10. Accounting for Stock Options
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," introduced a method of accounting for employee stock-based
compensation plans based upon the fair value of the awards on the date they are
granted. Under this fair value based method, public companies estimate the fair
value of stock options using a pricing model, such as the Black Scholes model,
which requires inputs such as the expected volatility of the stock price and an
estimate of the dividend yield over the option's expected life. This statement
gives entities a choice of recognizing related compensation expense by adopting
the new valuation method or to continue to measure compensation using the
intrinsic value approach under Accounting Principles Board ("APB") Opinion No.
25. The Company has adopted the APB No. 25 method of measurement (see Note G-2).
11. Reclassifications
Certain reclassifications have been made to the prior year financial statements
in order to conform to the current presentation.
12. Using Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The Company's estimate for chargebacks, rebates and the
determination of useful lives of intangibles represent particularly sensitive
estimates.
13. Chargebacks and Rebates
Chargebacks and rebates are based on the difference between the prices at which
the Company sells its products (principally DECONAMINE(R)SR) to wholesalers and
the sales price ultimately paid by the end-user (often governmental agencies and
managed care buying groups) pursuant to fixed price contracts. The Company
records an estimate of the amount either to be charged back to the Company, or
rebated to the end user, at the time of sale to the wholesaler. Management has
recorded an accrual for chargebacks and rebates of $1,150,000 and $1,565,000 at
December 31, 1997 and 1996, respectively (included in accounts payable and
accrued expenses), based upon factors including current contract prices,
historical chargeback rates and actual chargebacks claimed. The amount of actual
chargebacks claimed could differ (either higher or lower) in the near term from
the amounts accrued by the Company.
The Company's analysis of the trend in actual chargebacks and rebates resulted
in a decrease in the percentage used to adjust gross sales to net sales for the
second quarter of 1998, resulting in increased net sales and net income of
$235,000. During 1997, the Company received monetary concessions of
approximately $357,000 from managed care vendors receiving rebates.
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and
1997 (Information with respect to June 30, 1998
and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1
14.ab New Accounting Standards
The Financial Accounting Standards Board released Statement of Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), governing
the reporting and display of comprehensive income and its components, and
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information" (SFAS No. 131), requiring that all
public businesses report financial and descriptive information about their
reportable operating segments. The Company adopted SFAS 130 and SFAS 131 as
required in 1998. The impact of adopting SFAS No. 130 had no effect on the
consolidated financial statements. Management is currently evaluating the effect
of SFAS No. 131 on the consolidated financial statement disclosures.
15. Summary of Accounting Policies
The unaudited interim financial statements of Bradley Pharmaceuticals, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles of complete financial statements.
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (consisting of normal recurring entries) necessary to
present fairly the financial position as of June 30, 1998 and the results of
operations for the three and six month periods ended June 30, 1998 and 1997 and
cash flows for the six months ended June 30, 1998 and 1997, respectively.
The results reported for the three and six month periods ended June 30, 1998 are
not necessarily indicative of the results of operations which may be expected
for a full year.
NOTE B - INTANGIBLE ASSETS
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C> <C>
Accumulated Accumulated
Cost Amortization Cost Amortization
Trademarks............................ $ 16,324,790 $4,564,412 $16,905,140 $3,675,007
Patents............................... 1,327,454 919,080 1,327,454 735,517
Licenses.............................. 124,886 59,280 124,886 46,800
Goodwill.............................. 1,253,975 444,186 1,248,125 318,399
Covenants not to compete.............. 162,140 162,140 162,140 160,486
------- ------- --------- --------
$19,193,245 $6,149,098 $19,767,745 $4,936,209
=========== ========== =========== ==========
</TABLE>
Intangible assets arose principally from the Doak acquisition (Note C) and
the following transactions in 1992 through 1997.
1. LUBRIN(R)
In December 1992, the Company acquired certain rights, including the
trademark and patent, to the personal lubricating insert, LUBRIN(R) INSERTS
("LUBRIN(R)") and agreed for seven years not to compete with the Company with
respect to the product LUBRIN(R). The Company and UPSHER-SMITH LABORATORIES,
INC. ("UPSHER-SMITH"), have since entered into a manufacturing contract,
renewable annually, to manufacture LUBRIN(R) for the Company.
Total consideration for the Company's acquisition of LUBRIN(R) consisted
of: (i) $1 million, $500,000 of which was paid at closing, with the balance
payable at a rate of 9% per annum, in 20 quarterly installments of $31,321 each,
commencing on March 15, 1993; (ii) a 4% royalty on adjusted sales of LUBRIN(R)
up to and including the first $5,000,000 and 3% of adjusted sales in excess of
the first $5,000,000 through October 30, 1999; and (iii) warrants to purchase up
to 60,000 shares of the Company's Class A common stock at a price of $4.50 per
share which expired on December 15, 1997. Of the total purchase price, $1
million was attributed to patents with an estimated life of seven years.
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and
1997 (Information with respect to June 30, 1998
and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1
2.AB TRANS-VER-SAL(R) Wart Products/GLANDOSANE(R)
On March 30, 1993, the Company acquired from Tsumura Medical, a division of
Tsumura International, Inc., all technical, proprietary and distribution rights
to five specialized dermal patch products currently used in the treatment of
warts ("TRANS-VER-SAL(R)") and a synthetic saliva aerosol product
("GLANDOSANE(R)") used to alleviate dry mouth caused by various treatments and
illnesses.
Total consideration for the Company's acquisition of these products
consisted of: (i) $1,300,000, of which $850,000 was paid at closing and the
balance of $450,000 payable by the Company's promissory note at 7% per annum in
twenty quarterly installments of $26,861; (ii) a 5.5% royalty on net sales of
the products payable for a period of five years or until an aggregate $600,000
of royalty payments are made; (iii) approximately $170,000 paid for the
acquisition of inventory on hand; and (iv) warrants granted to purchase up to
150,000 shares of the Company's Class A common stock at $4.50 per share
exercisable at any time through March 30, 1998. Of the total purchase price,
$866,250 was attributed to trademarks with an estimated life of 20 years.
3. DECONAMINE(R)
On December 10, 1993 (the "Closing Date"), in accordance with the terms and
conditions set forth in the Purchase Agreement dated as of November 10, 1993, as
amended (the "Purchase Agreement"), between Bradley Pharmaceuticals, Inc. and
Berlex Laboratories, Inc. ("Berlex"), the Company acquired all technical,
proprietary and distribution rights to an allergy and decongestant remedy called
DECONAMINE(R) ("DECONAMINE(R)").
Specifically, the Company acquired customer receivables, net of chargebacks
and rebates from sales of DECONAMINE(R) from the close of business on October
29, 1993 to the Closing Date; all DECONAMINE(R) inventory existing at the
Closing Date; and all intellectual property rights, marketing materials, books
and records, licenses and permits and goodwill relating to DECONAMINE(R).
Total consideration for the Company's acquisition (after giving effect to
imputed interest of approximately $1.6 million) was originally approximately
$16.4 million (the "Purchase Price") and consisted of: (i) approximately $4.3
million, paid at closing, from the proceeds of a private placement (Note G-3),
with an additional $1.7 million paid from proceeds of DECONAMINE(R) sales from
November 1, 1993 to the date of closing; (ii) $0.4 million representing the
standard costs of the inventory as of the close of business on October 29, 1993
(except for 50% of the inventory of the raw material active ingredient) paid 30
days from the Closing Date; (iii) the standard costs of 50% of the inventory of
the raw material active ingredient paid 60 days from closing; (iv) a
non-interest-bearing note calling for payments of $2 million during December
1994, approximately $2.66 million each on the second, third and fourth
anniversaries of the Closing Date; and (v) $84,000 to be paid on the last day of
each month beginning with January 1996, up to a maximum of $2 million if the
effective date (plus grace period for compliance, if any) announced by the FDA
publication with respect to the final "Monograph" for DECONAMINE(R) has
occurred; and the Company has, prior to or during such month, expended funds for
the purpose of preserving the prescription drug status of DECONAMINE(R).
During the fourth quarter of 1995, the Company accrued approximately
$1,512,000 representing 18 months of payments pursuant to item (v) above as the
minimum amount it determined to be payable prior to DECONAMINE(R) coming off
prescription status. During the first quarter of 1996, an additional $252,000
was accrued, representing an additional three months of payments.
On January 5, 1996, the Company and Berlex amended the agreement to
provide for the following:
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and
1997 (Information with respect to June 30, 1998
and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1 ab The $2.67 million due on December 9, 1995 was rescheduled to provide
a payment of $800,000 in February 1996 and the remainder to be paid on June 30,
1996. All payments were collateralized by the Company's accounts receivable and
inventory until after the June 30, 1996 payment was made.
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and
1997 (Information with respect to June 30, 1998
and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1 ab The $84,000 monthly payments described in item (v) above became
payable beginning in January 1, 1998.
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and
1997 (Information with respect to June 30, 1998
and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1 ab Interest accrued on the deferred $2.67 million payment at prime plus
4%. Interest accrued on the $84,000 per month beginning February, 1996 at prime
plus 2%.
On December 23, 1996, the Company and Berlex further amended the
agreement to provide the following:
The Company was to make payments of $250,000 each on December 23, 1996,
December 31, 1996, January 30, 1997 and February 18, 1997; $700,000 was due on
March 17, 1997; $1.0 million was due on May 15, 1997; and $100,000 per month was
due June 15, 1997 through January 15, 1998. $500,000 of the $1,200,000 due
Berlex for the period January 1997 through March 1997 was paid through March
1997. A one-month extension until April 15, 1997 was granted by Berlex for the
March 1997 payment.
The Company also issued to Berlex 1,000,000 Class A shares (approximately
13% of the new public float of 7.7 million shares) with a then market value of
$1,125,000, which the Company caused to be registered with the Securities and
Exchange Commission.
The difference between the carrying amount of the obligation to Berlex and
the amount of consideration to be paid under the December 23, 1996 amendment
represents a reduction in the net purchase price of DECONAMINE(R) pursuant to
the December 1996 amended agreement, amounted to $2,413,000 and was recorded as
a reduction of the intangible assets.
On September 19, 1997 (the "Closing"), the Company consummated the
negotiated settlement of all of its outstanding obligations to Berlex by
amending the purchase agreement. Immediately prior to the Closing, the Company
was indebted to Berlex in the approximate aggregate amount of $2.5 million.
At the Closing, in satisfaction of all outstanding obligations owing to
Berlex, and in consideration of Berlex's release of its lien covering the
Company's accounts receivable, the Company (i) paid to Berlex $1.15 million in
cash, plus accrued interest (the "Cash Payment"), (ii) issued to Berlex 450,000
shares of Class A Common Stock (which, when added with the other shares of Class
A Common Stock previously issued to Berlex represented, at the time of issuance,
approximately 19% of the outstanding Class A Common Stock of the Company) and
(iii) agreed to issue to Berlex, when permissible in accordance with applicable
state corporate law, warrants entitling Berlex to purchase, under certain
conditions, up to an additional 750,000 shares of Class A Common Stock with an
exercise price of $1.25 per share. These warrants are subject to certain
anti-dilution provisions and expire two years after issuance, but may be
extended under certain conditions.
The difference between the carrying amount of the obligation to Berlex and
the total consideration specified by the September 19, 1997 amendment amounted
to $572,000 and was recorded as a reduction in the net purchase price of
DECONAMINE(R), and was recorded as a reduction to the intangible assets.
In conjunction with the final amendment to the purchase agreement, the
Company revised its estimate of the useful life of DECONAMINE(R). Based on
various changes in circumstances, the Company determined that a useful life of
25 years (21 years from the date of the final amendment) is appropriate. This
change in estimate resulted in a reduction of amortization expense of
approximately $100,000 for the quarter and year ended December 31, 1997.
4. ADEFLOR M(R) and PAMINE(R) Acquisitions
In February 1994, the Company acquired from The Upjohn Company ("Upjohn"),
all United States manufacturing, packaging and proprietary rights, including all
trademarks, registrations, marketing data, and customer lists of ADEFLOR M(R), a
vitamin and mineral tablet with fluoride, and PAMINE(R) tablets, methscopalamine
bromide, used in connection with the treatment of peptic ulcers. In
consideration therefor, the Company agreed to pay Upjohn $225,000, $50,000 at
closing, with the remaining $175,000 payable in equal quarterly installments of
$25,000, each commencing on June 30, 1994. In addition, the Company agreed to
pay Upjohn an 8% royalty against net sales of these products through February 1,
1996, and a 4% royalty thereafter until February 1, 2004. In 1996, the Company
and Upjohn entered into an agreement whereby the Company paid Upjohn $25,000 in
lieu of royalty payments accruingon or after December 31, 1996. The Company
further agreed to purchase from Upjohn, at approximately Upjohn's cost, all
salable inventory of ADEFLOR M(R) and PAMINE(R) existing at the closing date.
5. CARMOL(R) Acquisition
In June 1994, the Company acquired from Syntex (U.S.A.) Inc. ("Syntex") all
manufacturing, packaging, quality control, stability, drug experience, file
history, customer lists and marketing rights, titles and interests, including
all U.S. trademarks to CARMOL(R) 10 and CARMOL(R) 20 (nonprescription total body
moisturizers) and CARMOL(R) HC (a prescription moisturizer containing
hydrocortisone) (the "CARMOL Products"). In consideration for this acquisition,
the Company agreed to pay Syntex $450,000, $150,000 of which was paid at
closing. The remaining $300,000 is payable in three (3) equal annual
installments of $100,000 each, commencing on June 10, 1995. In addition, the
Company agreed to pay Syntex a 3% royalty on sales of the CARMOL Products,
commencing June 10, 1997 for a period of seven years.
6. ITG LABORATORIES, INC. Investment
Effective June 15, 1995, the Company entered into a Stock Purchase and
Distribution Agreement with ITG Laboratories, Inc. ("ITG"), a product research
company headquartered in Atherton, CA and Yavne, Israel, whereby:
The Company purchased approximately 17% of the stock of ITG (approximately
1,000,000 shares) for 100,000 shares of Bradley Class A Common Stock, which was
distributed during August 1995, and $150,000.
The Company was appointed exclusive U.S. distributor for all of ITG's
Omiderm products, including ITG's Synthetic Polyurethane Wound Dressing. Omiderm
is a clinically proven, unique wound dressing line which allows permeability of
water, oxygen and aqueous medications, while maintaining a sterile environment
for healing by preventing microbial invasion. The value of consideration for
this acquisition was $565,625 and is included as a reduction of stockholders'
equity on the accompanying consolidated balance sheet.
During 1996, the Company and ITG entered into an agreement that resulted in
an unwinding of this transaction, and the recording of a $90,000 loss, and that
provided for the following:
The Company delivered the 1,000,000 shares of ITG stock to ITG.
ITG delivered the 100,000 shares of Bradley stock and $60,000 (payable by
ITG through April 1998) to Bradley.
Bradley retained its nonexclusive U.S. distribution rights for the Omiderm
products.
7. ACID MANTLE(R) Acquisition
In May 1996, the Company acquired from Sandoz Pharmaceuticals Corp.
("Sandoz") the trademark rights to the ACID MANTLE(R) skin treatment line,
including the manufacturing, marketing and distribution rights within the United
States and Puerto Rico. In consideration for this acquisition, the Company
agreed to pay Sandoz $900,000, of which $250,000 was paid at closing. The
remaining $650,000 is payable in installments of $250,000 in May 1997 and
$100,000 per year from May 1998 through May 2001. The Company also purchased
Sandoz's entire inventory of ACID MANTLE(R) salable products and raw material.
The majority of the Purchase Price was attributed to trademarks with an
estimated life of 15 years.
NOTE C - ACQUISITION OF DOAK PHARMACAL CO., INC.
In 1994, 67.7% of the shares of Doak Pharmacal Co., Inc. ("Doak") were
acquired for approximately $929,000. Doak was a publicly traded company engaged
in the manufacture and sale of cosmetic dermatologic products and pharmaceutical
dermatologic products. The acquisition was accounted for as a purchase. Goodwill
resulting from this purchase totaling approximately $640,000 is being amortized
over ten years.
In January 1995, the Company consummated the merger of Doak with the
Company, pursuant to which the Company acquired substantially all of the
remaining outstanding shares of Doak (at the same $1.74 per share price as the
initial acquisition) for a total of approximately $420,000, of which
approximately $335,000 was paid through March 15, 1996 (representing the Doak
shares forwarded to the Company for redemption to date). Subsequently, the
Company acquired certain minor additional shares of Doak which are recorded as
additional goodwill.
NOTE D - INCOME TAXES
The provision for income tax expense (benefit) is as follows:
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and 1997
(Information with respect to June 30, 1998 and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and 1997
(Information with respect to June 30, 1998 and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1
<TABLE>
<CAPTION>
Year Year
ended ended
12/31/97 12/31/96
<S> <C> <C>
Current
Federal $395,000 $950,000
State 76,500 193,000
------ -------
$471,500 $1,143,000
-------- ----------
Utilization of net operating loss carryforwards
Federal (378,000) (895,000)
State (35,000) (98,000)
(413,000) (993,000)
$ 58,500 $150,000
=========== ========
</TABLE>
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and 1997
(Information with respect to June 30, 1998 and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1
The following is a summary of the items giving rise to deferred tax benefits at
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current
Allowance for doubtful accounts $ 23,000 $26,000
Allowance on sales 226,000 286,000
Inventory reserves and capitalization 100,000 124,000
Accrued expenses -0- 93,000
--- ------
349,000 529,000
------- -------
Long-term
Net operating loss carryforward 191,000 307,000
Alternative minimum tax credit 181,000 188,000
Amortization of intangibles and fixed assets 340,000 352,000
------- -------
712,000 847,000
------- -------
Total deferred tax assets 1,061,000 1,376,000
Less valuation allowance (1,061,000) (1,376,000)
----------- -----------
$ ------------ $
=============== =
-----------
</TABLE>
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and 1997
(Information with respect to June 30, 1998 and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1
A valuation allowance has been recorded at December 31, 1997 and 1996
reflecting the uncertainty of the future utilization of these tax benefits.
The difference between the actual Federal income tax expense and the amount
computed by applying the prevailing statutory rate to income before income taxes
is reconciled as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31,1997 December 31,1996
<S> <C> <C>
Tax at statutory rate 34.0% 34.0%
State income tax expense, net of
Federal tax effect 2.8 3.5
Change in valuation allowance and previously
unrecorded benefits (32.6) (31.5)
[GRAPHIC OMITTED]
Other 1.9 2.6
--- ---
Effective tax rate 6.1 % 8.6 %
== ===== === =====
</TABLE>
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and 1997
(Information with respect to June 30, 1998 and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1
The Company has a net operating loss carryforward for Federal income tax
purposes of $ 215,000, which will expire in 2010.
Internal Revenue Code Section 382 places a limitation on the utilization of
Federal net operating loss and other credit carryforwards when an ownership
change, as defined by the tax law, occurs. Generally, this occurs when a greater
than 50 percentage point change in ownership occurs. Accordingly, the actual
utilization of the net operating loss carryforwards and other deferred tax
assets for tax purposes may be limited annually to the percentage (about 6%) of
the fair market value of the Company at the time of any such ownership change.
NOTE E -REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
In order to raise the funds necessary for the Company to make the Cash Payment
to Berlex (See Note B), the Company entered into a $3 million revolving credit
facility with The CIT Group/Credit Finance Inc. ("CIT"). Advances under this
facility are calculated pursuant to a formula which is based upon the Company's
then "eligible" accounts receivable and inventory levels. This line of credit
has an initial term of three years and is renewable for successive periods of
two years each. The credit facility requires an annual facility fee and is
subject to an unused credit line percentage fee. Interest accrues on amounts
outstanding under this facility at the rate equal to the prime rate of interest
from time to time announced by The Chase Manhattan Bank as its prime rate of
interest plus 2 1/4%. The Company's obligations under this credit facility have
been collateralized by the grant by the Company to CIT of a lien upon, and the
pledge of a security in, all of the Company's inventory, accounts receivable,
intangible assets (subject to prior lien) and other assets. The credit facility
contains certain covenants and restrictions and a limited personal guaranty by
Daniel Glassman, the Company's Chairman and Chief Executive Officer.
Long-term debt consists of the following:
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and 1997
(Information with respect to June 30, 1998 and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Installment note due 2001 (a) $85,001 $ 118,989
Installment note due 1997 (b) - 118,542
Installment note due 1998 (c) 26,399 151,738
Installment note due 1997 (d) - 2,879,882
Installment note due 1997 (e) - 98,282
Installment note due 2001 (f) 320,448 520,957
Other installment notes and capital lease obligations 1,701 87,143
-------- ----------
433,549 3,975,533
Less: current maturities (169,143) (3,444,569)
--------- -----------
$ 264,406 $ 530,964
========= ===========
</TABLE>
(a) The note, which originated in August 1991 in connection with the acquisition
of a trademark (DUADACIN(R)), calls for interest only, at the rate of 10%
commencing August 1992, and quarterly installments consisting of principal and
interest in the amount of $6,865 for the eight-year period commencing November
1993. This note is collateralized by the trademark assigned to the Company. (b)
The note payable, which originated in December 1992 and was repaid in 1997 in
connection with the acquisition of a patent and trademark (LUBRIN(R)), bears
interest at the rate of 9% with quarterly installments consisting of principal
and interest in the amount of $31,321.
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and 1997
(Information with respect to June 30, 1998 and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1
(c)ab The note payable, which originated in March 1993 in connection with the
acquisition of trademarks and a patent (TRANSVER-SAL(R)/GLANDOSANE(R)), bears
interest at the rate of 7% and is payable in 20 equal quarterly installments of
$26,861. The seller has been granted a security interest in the assets acquired
by the Company. The Company is in default of this note for failure to make
timely payments.
(d) The note payable, which originated in December 1993 in connection with the
acquisition of a trademark (DECONAMINE(R)), was non-interest-bearing. Pursuant
to the renegotiated terms (Note B), the note was satisfied in full in 1997.
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and 1997
(Information with respect to June 30, 1998 and the
six months ended June 30, 1998 and 1997 is unaudited)
F-1 (e)ab The note payable, which originated in June 1994 and was repaid in
1997,in connection with the acquisition of trademarks (CARMOL(R)), was
non-interest-bearing and was payable in annual installments of $100,000
commencing June 1995. Interest at an annual rate of 7% was imputed for this
note.
(f)ab The note payable, which originated in May 1996 in connection with the
acquisition of trademarks (ACID MANTLE(R)) is noninterest bearing and is payable
in installments of $250,000 in May 1997, and $100,000 each per year from May
1998 through 2001. Interest at an annual rate of 9.5% has been imputed for this
note. The seller has been granted a security interest in the assets acquired by
the Company.
The annual maturities of long term debt is $103,000 due in 1999, $113,000 due
in 2000 and $48,000 due in 2001. Because of the nature of the Company's debt, it
is impractical to determine its fair value.
NOTE F - RELATED PARTY TRANSACTION
During the years ended December 31, 1997 and 1996, the Company received
administrative support services (consisting principally of advertising services,
mailing, copying, data processing and other office services) which were charged
to operations from Banyan Communications Group, Inc. ("Banyan"), an affiliate,
in the amount of $135,000 and $280,000, respectively. At December 31, 1997, the
Company owed Banyan $2,897.
NOTE G -SHAREHOLDERS' EQUITY
The Company's authorized shares of common stock are divided into two classes,
of which 26,400,000 shares are Class A common stock and 900,000 shares are Class
B common stock. The rights, preferences and limitations of the Class A and the
Class B common stock are equal and identical in all respects, except that each
Class A share entitles the holder thereof to one vote upon any and all matters
submitted to the shareholders of the Company for a vote, and each Class B share
entitles the holder thereof to five votes upon certain matters submitted to the
shareholders of the Company for a vote.
Both Class A common stock and Class B common stock vote together as a single
class upon any and all matters submitted to the shareholders of the Company for
a vote, provided, however, that the holders of Class A common stock and holders
of Class B common stock vote as two separate classes to authorize any proposed
amendment to the Company's Certificate of Incorporation, which affects the
rights and preferences of such classes. So long as there are at least 325,000
shares of Class B common stock issued and outstanding, the holders of Class B
common stock vote as a separate class to elect a majority of the directors of
the Company (who are known as "Class B Directors"), and the holders of Class A
common stock and voting preferred stock, if any, vote together as a single class
to elect the remainder of the directors of the Company.
The Board of Directors may divide the preferred stock into any number of series,
fix the designation and number of shares of each such series, and determine or
change the designation, relative rights, preferences and limitations of any
series of preferred stock. The Board of Directors may increase or decrease the
number of shares initially fixed for any series, but no such decrease shall
reduce the number below the number of shares then outstanding and shares duly
reserved for issuance.
<PAGE>
1. Stock Repurchase Plan
In January 1997, the Company announced a program to repurchase up to 5% of the
outstanding Class A common stock in open market transactions over the next 24
months. These shares will be held in Treasury by the Company to be used for
purposes deemed necessary by the Board of Directors, including funding company
matching contributions to the 401(k) Plan. During 1997, the Company acquired
146,008 shares at a cost of $ 231,198, net.
2. Stock Option Plan
The Board of Directors has adopted the 1990 Stock Option Plan, reserving
1,500,000 shares of Class A common stock for issuance. The number of shares
reserved for issuance was increased to 2,600,000 in 1996 (see Note G-6). The
plan will expire on January 31, 2000, but options may remain outstanding past
this date.
The number of shares covered by each outstanding option, and the exercise price,
must be proportionately adjusted for any increase or decrease in the number of
issued shares resulting from a subdivision or consolidation of shares, stock
split, or the payment of a stock dividend, and are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
<S> <C> <C>
Balance, December 31, 1995 1,637,328 $3.42
Granted 265,391 1.32
Exercised -- --
Canceled (423,354) 1.72
---------
Balance, December 31, 1996 1,479,365 $1.34
Granted 68,000 1.25
Exercised (31,500) 1.39
Canceled (174,740) 1.51
- ---------
Balance, December 31, 1997 1,341,125 $1.32
========= =====
</TABLE>
As of December 31, 1997, options outstanding for 1,243,000 shares were
exercisable at prices ranging from $.68 to $3.65, and the weighted remaining
contractual life was 4.9 years. As of December 31, 1996, options outstanding for
1,177,236 shares were exercisable at prices ranging from $.68 to $3.65, and the
weighted remaining contractual life was 4.9 years. Compensation cost charged to
operations, which the Company records for options granted to nonemployees, was
none and $58,000 in the years ended December 31, 1997 and 1996, respectively.
There were 131,645 options outstanding to nonemployees at December 31, 1997, of
which 128,145 were exercisable. There were 232,805 options outstanding to
nonemployees at December 31, 1996, of which 211,697 were exercisable.
The following table summarizes option data as of December 31, 1997:
<TABLE>
<CAPTION>
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of Exercise as of Remaining Average as of Average
Prices December 31, Contractual Exercise December 31, Exercise
1997 Life Price 1997 Price
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
$ .68 - $1.40 691 5.5 $1.19 613 $1.18
1.41 - 3.65 518 3.0 1.49 498 1.50
--- ---
1,209 1,111
===== =====
</TABLE>
The Company measures compensation in accordance with the provisions of APB
Opinion No. 25 in accounting for its stock compensation plans. Accordingly, no
compensation cost has been recorded for options granted to employees or
directors in the years ended December 31, 1997 and 1996. The fair value of each
option granted has been estimated on the grant date using the Black-Scholes
Option Valuation Model. The following assumptions were made in estimated fair
value:
<TABLE>
<CAPTION>
<S> <C>
Dividend yield 0%
Risk-free interest rate 6.0%
Expected life after vesting period
Directors and officers 4 years
Others 2 years
Expected volatility - through December 1, 1995 60%
December 2, 1995 - through December 31, 1997 90%
</TABLE>
Had compensation cost been determined under SFAS No. 123, net income and net
income per share would have been as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
<S> <C> <C>
Net income
As reported $ 906,406 $1,598,507
Pro forma for SFAS No. 123 adjustment 783,702 1,206,544
Net Income per share
As reported $ .11 $ .22
Pro forma for SFAS No. 123 adjustment .09 .17
</TABLE>
The weighted average fair value of options granted during 1997 and 1996
was $ .69 and $ .83, respectively.
During 1996, the Company allowed holders of stock options to reprice their
options at then prevailing market prices. Repriced options were included as new
grants for purposes of determining SFAS No. 123 compensation cost and the
weighted average fair value of options granted during the year. The weighted
average exercise price of repriced options was $1.46.
The weighted average fair value and weighted average exercise price of
options granted in 1996, for which the exercise price equals the market price on
the grant date, were $.83 and $1.42, respectively. The weighted average fair
value and weighted average exercise price of options granted in 1996, for which
the exercise price exceeded the market price on the grant date were $.84 and
$1.41, respectively. For the year ended December 31, 1997, the exercise price of
all options equalled the market price on the grant date.
In November 1993, the Company granted options to purchase an aggregate of
447,500 shares of Class A common stock at option prices of $2.3125-$2.5438 per
share for a period of five to ten years. The grant of these options was
conditional upon a portion (447,500 shares) of the shares being granted as
options to persons who have placed their shares in escrow should those original
escrow shares be lost due to their inability to accomplish the release of the
shares from escrow. Management attained the required earnings level in 1994 and
accordingly the Company has obtained the release of the escrow shares. These
options were therefore canceled. Certain of these escrow shares were
subsequently returned to the Company and retired (Note G-5) and the Company has
issued new options.
During the initial phase-in period of SFAS No. 123, such compensation
expense may not be representative of the future effects of applying this
statement.
3. Private Placement of the Company's Securities
In December 1993, the Company completed a private placement of its
securities, issuing an aggregate of 160 units at $45,000 per unit. The net
proceeds to the Company, after commissions and expenses of $1,014,063, were
$6,185,937. Each unit consists of 24,000 shares of the Company's Class A stock
and 12,000 Class D warrants. Each Class D warrant entitled the bearer to
purchase one share of Class A stock at a cost of $3 per share and expired
December 1996. In addition, the placement agent received an option to purchase
an additional 40 units through December 1998.
4. Reserved Shares
The following table summarizes shares of common stock reserved for issuance
at December 31, 1997, as adjusted for the dilutive effect of the private
placement of the Company's securities:
<TABLE>
<CAPTION>
Number
of shares
Reserved for issuable
<S> <C>
Warrants to Tsumura for products acquired (expiring March 1998) 150,000
Placement agent's options to purchase private placement units
(expiring December, 1998) 960,000*
1990 Stock Option Plan 1,341,125
---------
2,451,125
</TABLE>
*Adjusted to 989,000 as a result of anti-dilution provisions.
5. Escrow Shares
During fiscal 1993, certain members of the Board of Directors and certain
other parties were conditionally granted options to purchase an aggregate of
447,500 shares of Class A common stock. These options were canceled effective
January 1, 1995, due to the release of 450,000 shares of the Company's Class B
common stock held in escrow to such members of the Board of Directors and other
persons upon the Company achieving certain financial performance tests in fiscal
1994.
On November 2, 1995, the Company announced that 450,000 shares of the
Company's Class B common stock released from escrow to certain members of the
Board of Directors of the Company and other persons upon achieving certain
financial performance tests in fiscal 1994 were to be voluntarily returned to
the Company and retired. The three members of the Board of Directors who
directly received escrow shares have agreed to return such shares to the Company
(418,035 of the total 450,000). The other parties have been contacted by the
Company and asked to voluntarily return their 31,965 escrow shares. During 1995,
two directors returned 364,467 escrow shares to the Company. During 1996, the
third director returned 53,568 escrow shares and other parties returned a total
of 10,323 escrow shares.
As a result of the Company's determination to have such escrow shares
voluntarily returned to the Company and retired, the Company has granted to such
members of the Board of Directors options to purchase 428,358 shares of Class A
common stock at an exercise price equal to the fair market value of the shares
on the date the escrow shares were returned to the Company.
6. Reissuance of Class B Shares
On June 2, 1997, the Board of Directors of the Company authorized the
issuance of 254,311 shares of Class B common stock (the "New Class B Stock") to
Daniel Glassman. The New Class B Stock was issued to Daniel Glassman in
consideration for, among other things, Daniel Glassman's delivery to the
Company, for cancellation, of 254,311 shares of Class A common stock of the
Company. The issuance of the New Class B Stock to Daniel Glassman was the result
of the Board of Directors' decision to restore management status quo following
the Board's recently learning that Daniel Glassman had pledged (the "Pledge"),
in April 1995, 254,311 shares of Class B common stock then owned by Daniel
Glassman (the "Pledged Shares") to secure certain obligations of Daniel Glassman
to an unaffiliated third-party lender. Daniel Glassman has delivered to the
Company a letter in which he states that the Pledge was an inadvertent error on
his part and that had he been aware of the potential ramifications of the
Pledge, he would have pledged other collateral to secure the obligations in
question.
Pursuant to the Company's Certificate of Incorporation, as amended (the
"Charter"), the Pledged Shares automatically converted into shares of Class A
common stock upon the Pledge by Daniel Glassman. Consequently, the number of
outstanding shares of Class B common stock following the Pledge was reduced from
431,552 shares to 177,241 shares. Pursuant to the Charter, holders of the
Company's Class B common stock are entitled to elect a majority of the Company's
directors so long as there are at least 325,000 shares of Class B common stock
issued and outstanding; otherwise, all holders of Class A and Class B common
stock, voting as a single class, are entitled to elect all of the Company's
directors. During November 1995, and pursuant to matters unrelated to the
Pledge, an aggregate of 428,358 other shares of Class B common stock were
returned to, and retired by, the Company (see Note G-5). As a result thereof,
the number of outstanding shares of Class B common stock fell below the
aforementioned 325,000 share threshold. In light of the Company's being unaware
of the Pledge, holders of the Company's Class A and Class B common stock, voting
as separate classes, elected two directors and three directors, respectively, at
the Company's Annual Stockholders' Meeting held in May 1996 (the "1996 Annual
Meeting"), rather than voting together as a single class to elect all of the
Company's directors. Accordingly, since the 1996 Annual Meeting, only the two
directors of the Company elected by the holders of the Class A common stock (the
"Class A Directors") have been duly and validly elected. Prior to June 3, 1997,
the Company's By-Laws stated that the Company shall have three directors. Since
their election by stockholders at the 1996 Annual Meetings, the two Class A
Directors, each of whom was an independent director, voted in favor of all
matters approved by the Board of Directors. Prior to the authorization of the
issuance of the New Class B Stock to Daniel Glassman, the Class A Directors
appointed David Hillman, Secretary of the Company, as the third director of the
Company.
Since the issuance of the New Class B Stock to Daniel Glassman caused the
number of issued and outstanding shares of Class B common stock to increase to
431,552 shares (above the 325,000 share threshold set forth in the Company's
Charter), the holders of Class B common stock became entitled to elect a
majority (consisting of three) of the Company's directors. Following the
issuance to Daniel Glassman of the New Class B Stock, the directors of the
Company amended the Company's By-Laws to provide that the Board of Directors
shall be comprised of five persons and the holders of the outstanding Class B
common stock, acting separately as a class in accordance with the Company's
Charter, elected, by majority written consent in lieu of a meeting, Daniel
Glassman and Iris Glassman as directors of the Company and David Hillman was
designated as a director by the holders of the Class B common stock.
At a Special Meeting of Stockholders held in August 1996, it was reported
that an amendment (the "Option Plan Amendment") to the Company's 1990 Stock
Option Plan, as amended (the "Plan"), had been approved by stockholders
increasing, from 1,500,000 shares to 2,600,000 shares, the number of shares of
Class A common stock authorized for issuance under the Plan. Given the
ramifications of the Pledge, and, in particular, that the 254,311 Class B shares
voted in favor of the Option Plan Amendment by Daniel Glassman were counted as
1,271,555 votes (giving effect to the 5:1 voting power attributable to Class B
shares) but should have been counted as only 254,311 shares of Class A common
stock voting in favor of the Option Plan Amendment, there was an insufficient
number of shares of common stock of the Company voting to approve the Option
Plan Amendment. Accordingly, the Board of Directors has determined to treat the
Option Plan Amendment as having been rejected by the Company's stockholders.
Options under the Plan to acquire an aggregate of 140,000 shares of Class A
common stock granted by the Company in reliance upon the Option Plan Amendment
having been approved by stockholders have been returned voluntarily to the
Company by the relevant optionees for cancellation. As a consequence of
believing, in good faith, that the Option Plan Amendment had been approved by
stockholders, between August 15, 1996 and December 31, 1996, there were
outstanding options to acquire under the Plan in excess of 1,500,000 shares of
Class A common stock. As a result of options to acquire an aggregate of 423,354
shares of Class A common stock under the Plan being canceled during 1996 due to
optionees leaving the employ of the Company, there are outstanding, as of August
1997, options to acquire an aggregate of 1,489,845 shares of Class A common
stock under the Plan. At a Special Meeting of Stockholders held in August 1997,
an amendment to the Company's 1990 Stock Option Plan, as amended, was approved
by stockholders increasing, from 1,500,000 shares to 2,600,000 shares, the
number of shares of Class A Common Stock authorized for issuance under the Plan.
NOTE H - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases office facilities in Fairfield, New Jersey from Daniel
and Iris S. Glassman, directors and shareholders of the Company, and in
Westbury, New York.
The lease on the Fairfield, New Jersey facility was extended in February
1995 for a period expiring January 31, 2013 for 14,120 square feet of office and
warehouse space, and also includes payments of electric, water and sewer and the
allocated portion of the real estate taxes. The average annual rent over the
life of the lease is $189,000. Rent expense, including an allocated portion of
real estate taxes, was approximately $194,000 and $176,000 for the years ended
December 31, 1997 and 1996, respectively.
The term of the lease occupied by Doak in Westbury, New York is through
January 31, 1999 and contains a monthly rental payment of $5,000. From May 1994
to October 1994, the lease payments for such property were suspended pending
further investigation of the environmental matters discussed below.
Approximate aggregate minimum annual rental commitments, including rent and
real estate taxes, are as follows: $173,000 for 1998 and $5,000 for 1999. Total
rent expense for the years ended December 31, 1997 and 1996 was $312,000 and
$301,000, respectively.
2. Research and Development Agreement
The Company is required to file an ANDA with the FDA for its DECONAMINE(R)
SR product. The cost of developing the necessary studies for this application is
estimated to be approximately $900,000. The Company completed the first phase of
these studies at a cost of approximately $300,000. The Company has entered the
second phase of these studies at a cost of $190,000 of which $150,000 has
already been charged to operations as of the date of this document. Following
the completion of the second phase, the project will be deferred until the
regulatory and competitive environment warrants completion.
However, these research and development projects are subject to the Company
either generating sufficient cash flows from operations or obtaining requisite
financing from outside sources, of which there can be no assurance. Therefore,
the Company cannot at this time reasonably anticipate the timing of the
expenditure of funds for these purposes. The inability of the Company to further
develop and/or file the necessary ANDA for DECONAMINE(R) SR would have a
material adverse effect on the Company.
3. Environmental Matters
On April 8, 1994, the Company was apprised by the New York State Department
of Environmental Conservation ("NYSDEC") that Doak's current leased
manufacturing facility located on adjoining parcels at 62 Kinkel Street and 67
Sylvester Street, Westbury, New York and former leased facility located at 128
Magnolia Avenue, Westbury, New York are located in the New Cassel Industrial
Area, which has been designated by the NYSDEC on the Registry of Inactive
Hazardous Waste Sites (the "Registry"). The real property on which Doak's
current manufacturing facility is situated is owned by and leased to the Company
by Dermkraft, Inc., an entity owned by the former controlling shareholders and
officers of Doak.
On February 7, 1995, the Company was apprised by NYSDEC that the current
manufacturing facility will be excluded from the Registry. By letter dated April
21, 1995, the NYSDEC notified the Company that it intended to investigate the
Company's current manufacturing facility to determine if hazardous substances
had previously been deposited on that property. By letter dated October 24,
1995, NYSDEC notified Dermkraft, Inc. that the Company's current manufacturing
facility is included in or near an inactive hazardous waste site described as
"Kinkel and Sylvester Streets" and that NYSDEC intends to conduct a Preliminary
Site Assessment to study the site and immediate vicinity. The Company has been
advised that NYSDEC has made a preliminary determination to include the 62
Kinkel Street portion of the current manufacturing facility on the Registry and
that the 67 Sylvester Street portion of the facility will not be included, but
those determinations could change before they are finalized. Thereafter, by
letter dated May 3, 1996 and addressed to Dermkraft, Inc., the NYSDEC notified
Dermkraft that the site at 62 Kinkel Street has been listed on the Registry due
to the presence of trichloroethylene ("TCE") in soils and groundwater due to the
use of TCE by LAKA Tools and Stamping and LAKA Industries, a former tenant from
1971 through 1984. The NYSDEC documents refer to Doak Dermatologics as the
current tenant but do not refer to any activities of Doak Dermatologics or the
Company as a basis for the listing in the Registry. The Company cannot at this
time determine whether the cost associated with the investigation and required
remediation, if any, of the current manufacturing facility will be material.
With respect to the former manufacturing facility on Magnolia Avenue, which
remains designated by the NYSDEC as part of the Registry, management believes
that Doak will not be obligated to contribute to any remediation costs, if any
are required.
4. Consulting Agreements
The Company entered into consulting agreements with the sellers of Doak
that provide for monthly payments of $8,333 from April 1994 through March 1997.
The amounts due under such agreements have been accrued for at December 31,
1995, as the parties have ceased providing services.
5. Legal Proceedings
The Company and Doak have been named defendants in a lawsuit filed November
29, 1996. The complaint alleges that the Company and Doak were negligent in
their hiring and supervising an employee who in turn allegedly assaulted the
plaintiff. The complaint seeks $600,000 in compensatory and $1,000,000 in
punitive damages. The Company believes that it has meritorious defenses.
6. Trans CanaDerm Settlement
On June 5, 1996, Trans CanaDerm, Inc. ("Trans CanaDerm"), Louis Vogel
("Vogel"), the former controlling stockholder of Trans CanaDerm, and other
former stockholders of Trans CanaDerm (collectively, "Plaintiffs") commenced an
action against the Company and its subsidiary, Doak Dermatologics ("Doak"), in
the United States District Court for the Southern District of New York, 96 Civ.
4175 (JFK). The complaint alleged that in 1957 Doak and Vogel entered into an
agreement (the "Agreement") under which Vogel was given the sole and exclusive
right to distribute Doak's products in Canada, which Agreement was thereafter
assigned by Vogel to Trans CanaDerm. In May 1996, Vogel and the other Trans
CanaDerm stockholders sold their stock in Trans CanaDerm to Stiefel Canada, Inc.
("Stiefel"), a competitor of the Company. Shortly thereafter, the Company and
Doak terminated the Agreement. The complaint alleged: (i) that the termination
was wrongful, (ii) that the Company and Doak tortiously interfered with the
contract between the former stockholders and Stiefel, and (iii) that the Company
and Doak should be equitably stopped from terminating the Agreement. The
complaint sought an injunction restraining the Company and Doak from terminating
the Agreement and compensatory and punitive damages in unspecified amounts.
On September 30, 1996, the Company and Doak entered into a settlement
agreement with the Plaintiffs. Pursuant to the settlement, the Company received
$2 million relating to the sale of the Company's independent Canadian
distributor, Trans CanaDerm, Inc., of which the Company did not have an
ownership position, to Stiefel, a competitor of the Company, and the Company
transferred to Trans CanaDerm all of the Company's rights, title and interest in
certain Doak products in Canada. Direct expenses related to this transaction
were $354,868.
Trans CanaDerm currently distributes several Doak products, as well as
other unrelated brands in Canada, and by virtue of the foregoing transfer and
payment, Trans CanaDerm will continue to market the Doak product line in Canada.
Trans CanaDerm also has agreed to continue to purchase certain materials used in
connection with the manufacture of the transferred Doak products through
December 31, 1997.
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996, and June 30, 1998 and 1997
(Information with respect to June 30, 1998 and the
six months ended June 30, 1998 and 1997 is unaudited)
7. Defined Contribution 401(k) Plan
Effective January, 1997, the Company established a defined contribution
401(k) plan whereby the Company matches employee contributions up to 25% of the
employee's first 6% of contributions with shares of the Company's Class A common
stock. Contributions of $28,600 were charged to expenses for the year ended
December 31, 1997.
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of these securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation. Except where otherwise indicated, this Prospectus speaks as of the
effective date of the Registration Statement. Neither the delivery of this
Prospectus nor any sale hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof.
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 10
Dividend Policy 10
Price Range of Class A
Common Stock 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Business 15
Management 29
Principal Stockholders 34
Description of Securities 37
Selling Stockholders 37
Plan of Distribution 39
Legal Matters 40
Experts 40
Additional Information 40
Index to Financial Statements F-1
Until , 1998 (90 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether
or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
1,208,503 Shares of
Class A Common Stock
BRADLEY
PHARMACEUTICALS, INC.
PROSPECTUS
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation, as amended (the "Certificate
of Incorporation"), provides that the Company shall, to the fullest extent
permitted by the Delaware General Corporation Law (the "GCL"), indemnify all
corporate agents (including the Company's officers and directors) against their
expenses and liabilities in connection with any proceeding involving them by
reason of their being or having been corporate agents. This indemnification
right is not deemed exclusive of any other right to which corporate agents may
be entitled under any other statute or any By-law, agreement or vote of
stockholders and shall continue as to a person who has ceased to be a corporate
agent and shall inure to the benefit of the heirs, executors, administrators and
personal representatives of a corporate agent. No indemnification, however,
shall be made to or on behalf of a corporate agent if a judgment or other final
adjudication adverse to the corporate agent establishes that his acts or
omissions (i) were in breach of his duty of loyalty to the Company or its
stockholders, (ii) were not in good faith or involved a knowing violation of law
or (iii) resulted in receipt by the corporate agent of an improper personal
benefit.
The GCL permits a corporation to indemnify any corporate agent (including
officers and directors) against expenses and liabilities incurred in connection
with any proceeding brought by reason of the fact that such person is or was a
director or officer of the corporation, other than a proceeding by or in the
right of the corporation, if such person acted in good faith and in a manner
that he or she reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, if he
or she had no reasonable cause to believe his or her conduct was unlawful. In a
derivative action, indemnification may be made only for expenses incurred by any
director or officer in connection with the defense or settlement of an action or
suit, if such person has acted in good faith and in a manner that he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action or suit was brought shall determine
upon application that the defendant is reasonably entitled to indemnification
for such expenses despite such adjudication of liability.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses expected to be incurred in
connection with the offering described in this Registration Statement.
SEC registration fee $ 707.42
Nasdaq National Market
additional listing fee 2,600.00
Accounting fees and expenses 7,000.00
Legal fees and expenses 7,500.00
Miscellaneous 1,192.58
----------
Total $19,000.00
Itcm 26. Recent Sales of Unregistered Securities.
During December 1996 and September 1997, the Company issued an aggregate
of 1,450,000 shares of Class A Common Stock to Berlex in connection with the
restructuring of the Company's monetary obligations owing to Berlex arising out
of the Company's 1993 acquisition of the DECONAMINE(R) product line (1,000,000
shares were issued in December 1996 and 450,000 shares were issued in September
1997). The December 1996 issuance was in consideration of approximately
$2,230,000 of indebtedness then outstanding to Berlex and the September 1997
issuance was in consideration of approximately $ 1,350,000 of indebtedness then
outstanding to Berlex. Section 4(2) of the Securitics Act provides an exemption
for the Company for the stock issuances to Berlex described above.
Item 27. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
<S> <C>
3.1 Certificate of Incorporation of the Company (incorporated by reference from the Company's proxy
statement for the 1998 Annual Stockholders' meeting)
3.2 By-Laws of the Registrant (incorporated by reference from the Company's proxy statement for the 1998
Annual Stockholders' meeting)
4.1 Placement Agent's unit purchase option (incorporated by reference to Exhibit 4.5 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993)
5.1 Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP - Page II-9
10.1 1990 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996
10.2 Form of 11% subordinated note dated June 14, 1990 (incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1, Registration No. 33-36120)
10.3 Asset Purchase Agreement between the Company and Hoechst
Roussel Pharmaceuticals (incorporated by reference to Exhibit
10.10 to the Company's Registration Statement on Form S-1,
Registration No.
33-36120)
10.4 Asset Purchase Agreement dated December 15, 1992 between the Company, Upsher Smith and Kenneth
Evenstad (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K for
an event dated December 15, 1992)
10.5 Manufacturing Agreement dated December 15, 1992 between the Company, Upsher Smith and Kenneth
Evenstad (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K for
an event dated December 15, 1992)
10.6 Asset Purchase Agreement dated March 30, 1993 between the company and Tsumura Medical Inc.
(incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992)
10.7 Trademark Security Agreement dated March 30, 1993 between the company and Tsumura International Inc.
(incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993)
10.8 Purchase Agreement dated November 10, 1993 between Berlex and
the Company, as amended by Amendments Numbers One and Two
thereto, dated November 19, 1993 and December 9, 1993,
respectively (incorporated by reference to Exhibit 10.1
through 10.3 to the Company's Current Report on Form 8-K for
an event dated December 10, 1993)
10.9 Trademark Security Agreement dated December 9, 1993 between Berlex and the Company (incorporated by
reference to Exhibit 10.4 to the Company's Current Report on Form 8-K for an event dated December
10, 1993)
10.10 Supply and Distribution Agreement dated December 9, 1993 between Berlex and the Company
(incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K for an event
dated December 10, 1993)
10.11 Stock Purchase Agreement dated as of January 31, 1994 among the Company, Doak and the Krafchuks
(incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K for an event
dated February 14, 1994)
10.12 Form of Plan of Merger dated as of January 31, 1994 between Doak and the Company (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K for an event dated February
14, 1994)
10.13 Consulting Agreement dated as of January 31, 1994 between the Company and Dr. Krafchuk (incorporated
by references to Exhibit 10.3 to the Company's Current Report on Form 8-K for an event dated
February 14, 1994)
10.14 Consulting Agreement dated as of January 31, 1994 between the Company and Mrs. Krafchuk
(incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K for an event
dated February 14, 1994)
10.15 Lease Modification Agreement dated as of February 1994 between Dermkraft, Inc., and Doak
(incorporated by reference to Exhibit 10.6b to the Company's Current Report on Form 8-K for an event
dated February 14, 1994)
10.16 Purchase and Assignment Agreement between Upjohn and the
Company, (incorporated by reference to Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993)
10.17 Amendment No. 4 dated January 6, 1996 to the Asset Purchase Agreement dated November 10, 1993
between Berlex Laboratories, Inc. and the Company (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K for an event dated January 5, 1996)
10.18 Security Agreement, dated as of January 5, 1995, between the Company and Berlex Laboratories, Inc.
(incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K for an event
dated January 5, 1996)
10.19 Amendment to Trademark Security Agreement, dated as of January 5, 1995, between the Company and
Berlex Laboratories, Inc. (incorporated by reference to Exhibit 10.3 to the Company's Current Report
on Form 8-K for an event dated January 5, 1996)
10.20 Settlement Agreement, dated as of September 30, 1996, among the Company, Stiefel Canada, Inc., Trans
CanaDern, Inc. and Louis Vogel, et al. (Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K for an event dated September 30, 1996)
10.21 Amendment No. 5 dated as of December 23, 1996, to Asset Purchase Agreement between the Company and
Berlex (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K for an
event dated December 23, 1996).
10.22 Security Agreement and Subsidiary Security Agreement, dated as of December 23, 1996, among Doak
Dermatologics, Inc. and Berlex (incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K for an event dated December 23, 1996).
10.23 Confession of Judgement from the Company and Doak Dermatologics, Inc. with respect to the March 1997
payment (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K for
an event dated December 23, 1996).
10.24 Amendment No. 6 to Asset Purchase Agreement, dated as of September 19, 1997, between the Company and
Berlex
10.25 Warrant to purchase up to 750,000 shares of Class A Common Stock of the Company issued to Berlex
10.26 Loan and Security Agreement, dated as of September 19, 1997, among CIT, the Company, Doak, Bradley
Pharmaceuticals (Canada), Inc. and Bradley Pharmaceuticals Overseas, Ltd.
10.27 Assignment, Security Agreement and Mortgage - Trademarks and Patents, dated as of September 19,
1997, between the Company and CIT
10.28 Assignment, Security Agreement and Mortgage - Trademarks, dated as of September 19, 1997, between
Doak and CIT
10.29 Guaranty dated September 19, 1997 of Daniel Glassman issued to CIT
11.1 Statement Regarding Computation of Per Share Income
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996)
23.1 Consent of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, LLP (included in Exhibit 5.1)
23.2 Consent of Grant Thornton LLP - Page II-11
24.1 Power of Attorney - Page II-7
</TABLE>
Item 28. Undertakings.
The Company hereby undertakes:
(a). To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) To include any additional or changed material on the plan of
distribution.
(b) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
For determining any liability under the Securities Act, the
Company will treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
For determining liability under the Securities Act, the Company will treat
each post-effective amendment as a new registration statement for the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized this 5th
day of August, 1998.
BRADLEY PHARMACEUTICALS, INC.
By/s/ Daniel Glassman
-----------------------
Daniel Glassman
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
DATE SIGNATURE TITLE
<S> <C> <C>
August 5, 1998 /s/Daniel Glassman Chairman of the Board
Daniel Glassman President and Chief Financial Officer
(Principal Executive Officer
and Principal Financial Officer)
August 5, 1998 /s/Iris S. Glassman Treasurer and Director
Iris S. Glassman
August 5, 1998 /s/David H. Hillman Secretary and Director
David H. Hillman
August 5, 1998 /s/Alan Wolin Director
Dr. Alan Wolin
August 5, 1998 /s/Philip W. McGinn Director
Dr. Philip W. McGinn
August 5, 1998 /s/Seymour Schlager Director
Dr. Seymour Schlager
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Daniel Glassman and Iris S.
Glassman, or either of them his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection with the
above premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
DATE SIGNATURE TITLE
<S> <C> <C>
August 5, 1998 /s/Daniel Glassman Chairman of the Board
Daniel Glassman President and Chief Financial Officer
(Principal Executive
Officer and Principal Financial Officer)
August 5, 1998 /s/Iris S. Glassman Treasurer and Director
Iris S. Glassman
August 5, 1998 /s/David H. Hillman Secretary and Director
David H. Hillman
August 5, 1998 /s/Alan Wolin Director
Dr. Alan Wolin
August 5, 1998 /s/Philip W. McGinn Director
Dr. Philip W. McGinn
August 5, 1998 /s/Seymour Schlager Director
Dr. Seymour Schlager
</TABLE>
<PAGE>
Exhibit Index
<TABLE>
<S> <C>
5.1 Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP - Page II-9
11.1 Statement Regarding Computation of Per Share Income - Page II-11
23.1 Consent of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP (included in Exhibit 5.1)
23.2 Consent of Grant Thornton LLP - Page II-12
24.1 Power of Attorney - Page II-7
</TABLE>
<PAGE>
Exhibit 5.1
Greenbaum, Rowe, Smith,
Ravin, Davis & Himmel LLP
99 Wood Avenue South
P.O. Box 5600
Woodbridge, New Jersey 07095
(732) 549-5600
August , 1998
Bradley Pharmaceuticals, Inc.
383 Route 46 West
Fairfield, New Jersey 07004
Re: Registration Statement on Form SB-2
Gentlemen:
As counsel for Bradley Pharmaceuticals, Inc., a New Jersey
corporation (the "Company"), we have been requested to furnish our opinion as to
the matters hereinafter set forth relating to the proposed offering to the
public pursuant to the registration statement of the Company on Form SB-2, as
the same may be amended (the "Registration Statement"), of up to 1,450,000
shares of Class A common stock, no par value per share, of the Company (the "
Shares"), to be sold by Berlex Laboratories, Inc. ("Berlex"), the Selling
Stockholder listed in the Registration Statement.
In connection therewith, we have examined, among other
things, the Certificate of Incorporation and By-Laws of the Company, each as
amended, and the various proceedings taken by the Company in connection with the
filing of the Registration Statement and the proposed sale by Berlex, pursuant
to the Registration Statement, of the Shares. In addition, we have examined such
other agreements, documents, certificates and instruments, and made such further
investigations as we have deemed necessary as a basis for the opinions set forth
below. In our examinations of all such agreements, documents, certificates and
instruments, we have assumed the genuineness of all signatures and the
authenticity of all agreements, documents, signatures and instruments submitted
to us as originals and the conformity with the originals of all agreements,
instruments, documents and certificates submitted to us as copies.
Based upon the foregoing, and having regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. The Company is a corporation duly incorporated and existing in good
standing under the laws of the State of New Jersey.
2. The Shares being sold by Berlex pursuant to the Registration Statement
have been duly authorized, issued and delivered to Berlex and upon the sale of
such Shares by Berlex in accordance with the terms of the Registration
Statement, will continue to be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the references to us contained therein
under the heading "Legal Matters." In giving the foregoing consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
GREENBAUM, ROWE, SMITH,
RAVIN, DAVIS & HIMMEL, LLP
<PAGE>
Exhibit 11.1
Bradley Pharmaceuticals, Inc.
Statement Regarding Computation of Per Share Income
<TABLE>
<CAPTION>
Six Months Six Months
Ended June Ended June
30, 1998 30, 1997
<S> <C> <C>
Net Income $ 582,731 $ 342,370
Weighted average number of common shares outstanding:
Basic 8,440,000 8,100,000
Effect of Dilutive Securities 910,000 50,000
Diluted 9,350,000 8,150,000
Net Income per Common Share:
Basic $.07 $.04
Diluted $.06 $.04
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 18, 1998 accompanying the financial
statements of Bradley Pharmaceuticals, Inc. contained in the Registration
Statement. We consent to the use of the aforementioned report in the
Registration Statement and to the use of our name as it appears under the
caption "Experts."
GRANT THORNTON LLP
Parsippany, New Jersey
August 4, 1998
