U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-18881
BRADLEY PHARMACEUTICALS, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 22-2581418
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
383 Route 46 W., Fairfield, NJ
(Address of principal executive offices)
973-882-1505
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months ( or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Title of Each Class Number of Shares Outstanding
of Common Stock as of May 8, 1998
------------------- ----------------------------
Class A, No Par Value 8,181,948
Class B, No Par Value 431,552
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
BRADLEY PHARMACEUTICALS, INC.
INDEX TO FORM 10 - QSB
March 31, 1998
Page
Number
Part I - Financial Information
Financial Statements (unaudited):
Condensed Consolidated Balance Sheet -
March 31, 1998 3
Condensed Consolidated Statements of
Operations - three months ended March 31,
1998 and 1997 4
Condensed Consolidated Statements of Cash
Flows - three months ended March 31, 1998
and 1997 5
Condensed Notes to Consolidated Financial
Statements 7
Management's Discussion and Analysis 8
Part II - Other Information
Item 1. Legal Proceedings 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
BRADLEY PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
ASSETS
Current assets
--------------
Cash and cash equivalents $ 864,200
Accounts receivable - net 3,998,976
Finished goods inventory 1,006,465
Prepaid samples and materials 1,377,486
Prepaid expenses and other 21,726
------------
Total current assets 7,268,853
Property and equipment - net 353,899
Intangibles - net 12,813,455
Other assets 82,825
------------
Total Assets $ 20,519,032
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
-------------------
Current maturities of long-term debt $ 176,008
Revolving credit line 1,837,460
Accounts payable and accrued expenses 4,350,807
Accrued income taxes 363,632
------------
Total current liabilities 6,727,907
Long-term debt, less current maturities 257,541
Commitments & contingencies
Stockholders' equity
--------------------
Preferred stock, no par value;
authorized, 2,000,000 shares; issued, none -
Common, Class A, no par value, authorized
26,400,000; issued 8,180,606 shares at
March 31, 1998 14,658,834
Common, Class B, no par value, authorized
900,000 shares, issued and outstanding,
431,552 shares at March 31, 1998 845,448
Treasury Stock, Class A, at cost (161,487 shares at
March 31, 1998) (280,172)
Accumulated deficit (1,690,526)
------------
13,533,584
------------
Total Liabilities & Stockholders' Equity $ 20,519,032
============
See Notes to Condensed Consolidated Financial Statements
3
BRADLEY PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
Net sales 4,241,281 $ 3,671,649
Cost of sales 1,314,797 854,517
------------ ------------
2,926,484 2,817,132
------------ ------------
Selling, general and
administrative expenses 1,970,327 1,946,149
Depreciation and amortization 273,434 405,688
Interest expense - net 42,167 111,862
------------ ------------
2,285,928 2,463,699
Income before
income taxes 640,556 353,433
Income tax provision 237,000 141,000
------------ ------------
Net income $ 403,556 $ 212,433
============ ============
Net income
per common share
Basic $ 0.05 $ 0.03
============ ============
Diluted $ 0.04 $ 0.03
============ ============
Weighted average number
of common shares
Basic 8,466,000 8,087,000
============ ============
Diluted 9,316,000 8,106,000
============ ============
See Notes to Condensed Consolidated Financial Statements
4
BRADLEY PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 403,556 $ 212,433
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation & amortization 273,434 405,688
Other 7,961 -
Changes in operating assets and liabilities
Accounts receivable (2,250,120) (1,248,306)
Inventory and prepaid samples and materials 111,206 247,690
Income taxes payable 229,700 97,550
Prepaid expenses and other (9,097) 27,113
Accounts payable and accrued expenses 1,180,258 796,423
---------- ----------
Net cash provided by (used in) operating activities (53,102) 538,591 "
---------- ----------
Cash flows from investing activities:
Additional investments in trademarks, patents and
other intangible assets (18,673) (20,334)
Purchase of property & equipment - net (100,163) (536)
---------- ----------
Net cash used in investing activities (118,836) (20,870)
---------- ----------
Cash flows from financing activities:
Payment of notes payable - (479,326)
Revolving credit line, net 567,703 -
Proceeds from exercise of stock options 3,438 -
Purchase of treasury shares (48,974) (29,014)
---------- ----------
Net cash provided by (used in) financing activities 522,167 (508,340)
---------- ----------
Increase in cash and cash equivalents 350,229 9,381
Cash and cash equivalents at beginning of period 513,971 -
---------- ----------
Cash and cash equivalents at end of period $ 864,200 $ 9,381
========== ==========
(Continued)
5
BRADLEY PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 38,748 43,108
Income taxes $ 7,300 -
See Notes to Condensed Consolidated Financial Statements
6
BRADLEY PHARMACEUTICALS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - 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 for 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 March 31, 1998 and the results of
operations and cash flows for the three month periods ended March 31, 1998 and
1997, respectively.
The accounting policies followed by the Company are set forth in Note A of the
Company's financial statements as contained in the Form 10-KSB for the year
ended December 31, 1997 filed with the Securities and Exchange Commission. The
Form 10-KSB contains additional data and information with respect to long-term
debt, intangible assets, stock agreements, stock option plans, private place-
ment of securities and reserved shares, escrow shares, chargebacks and rebates,
related party transactions, income taxes, commitments, economic dependency and
other items and is incorporated by reference.
The results reported for the three month period ended March 31, 1998 are not
necessarily indicative of the results of operations which may be expected for a
full year.
7
BRADLEY PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This document may contain forward-looking statements which reflect management's
current views of future events and operations. These forward-looking statements
are based on assumptions and external factors, including assumptions relating to
to regulatory action, capital requirements and competing products. Any changes
in such assumptions or external factors could produce significantly different
results.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1998, the Company had positive working capital of $540,946, an
increase of $513,714 over December 31, 1997 positive working capital of $27,232.
Improvement in the Company's working capital position at March 31, 1998 was
primarily due to an operating profit and positive cash flow from financing
activities during the three months ended March 31, 1998 ("First Quarter 1998").
In an effort to improve the Company's financial position, the Company has, and
will continue to, implement steps to control its expenses and maintain cost
controls (including reducing general and administrative expenses as well as
reducing samples, materials and finished goods inventory on hand) and its
reliance on managed care sales.
Working capital for First Quarter 1998 included (i) an increase in
accounts receivable balances over December 31, 1997 of approximately $2,250,000
due, principally, to a high percentage of First Quarter 1998 sales occurring in
March 1998, (ii) a decrease in the Company's inventory and prepaid samples and
materials of approximately $111,000, (iii) increase in income taxes payable of
approximately $230,000, and (iv) increase in accounts payable and accrued
expenses of approximately $1,180,000.
The United States Food and Drug Administration (the "FDA") is currently
reviewing cough and cold products for its Over-the-Counter ("OTC") monograph,
and could designate the formula that is in DECONAMINE(r) as an OTC formulation.
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.
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 10-QSB, the
Company has paid approximately $225,000 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 could have a
material adverse effect on the Company's business.
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 May 8, 1998, the Company has
repurchased 197,045 shares of Class A Common Stock at a total cost of $343,452.
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.
RESULTS OF OPERATIONS
Chargebacks and rebates are the difference between prices at which the Company
sells its products (principally DECONAMINE(r) SR and Carmol(r)) 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.
NET SALES (net of all adjustments to sales) for First Quarter 1998 were
$4,241,281, representing an increase of $569,632, or approximately 16%, over net
sales for First Quarter 1997. This increase primarily reflects gains resulting
from increases in Doak Dermatologic products Carmol(r), Acid Mantle(r), and new
product sales of LePont(r) Beauty Enhancer. Sales of Acid Mantle(r) and
LePont(r) Beauty Enhancer are generally not subject to chargebacks or rebates.
COST OF SALES for First Quarter 1998 was $1,314,797, representing an increase of
$460,280, or approximately 54%, over First Quarter 1997 cost of sales. This
increase was primarily due to a change in the Company's sales product mix,
including stronger growth in Doak Dermatologics' products which maintain a
higher Cost of Sales versus Kenwood. The Company's gross profit margin
9
decreased, from 77% during First Quarter 1997 to 69% during First Quarter 1998,
reflecting the change in product mix towards more Doak Dermatologics' products.
SELLING, GENERAL and ADMINISTRATIVE EXPENSES were $1,970,327 for First Quarter
1998, representing an increase of $24,178, or approximately 1%, over selling,
general and administrative expenses for First Quarter 1997. This increase
reflects, primarily, savings in general and administrative and offset by
increased investment in other areas of sales and marketing, and decreased
legal/professional fees. The Company has and will continue to institute cost
saving programs during 1998.
DEPRECIATION and AMORTIZATION EXPENSES for First Quarter 1998 were $273,434, or
$132,254 below First Quarter 1997 expenses. This decrease was principally due
to the restructuring of the Berlex transaction as well as the re-estimating of
the DECONAMINE(r) amortization period.
INTEREST EXPENSE - Net for First Quarter 1998 was $42,167, or a decrease of
$69,695 from the First Quarter 1997. This decrease was principally due to
renegotiating and payment of the outstanding debt due to Berlex and repayment
other debt (As discussed in detail in Form 10-KSB for the year ended December
31, 1997).
NET INCOME for First Quarter 1998 was $403,556, as compared to $212,433 for
First Quarter 1997, an increase of over 90%. This increase was principally due
to an increase in net sales and a decrease in depreciation and amortization and
interest expense. This increase in net income results in an increase of $96,000
from income taxes from the corresponding period in 1997. The increase in income
tax is due to a higher pretax income. The effective income tax rate decreased
from 40% in the First Quarter 1997 to 37% in the First Quarter 1998 due to the
benefit derived from previous net operating losses, which a deferred tax asset
had been fully reserved.
NET INCOME PER COMMON SHARE for the First Quarter 1998 on a diluted basis was
$.04 per common share, representing a $.01 increase over First Quarter 1997
results. The First Quarter 1998 net income per basic common share was $.05,
representing a $.02 increase over First Quarter 1997 results.
10
Item 1. Legal Proceedings
The Company is a party to various legal proceedings from time to time incidental
to the conduct of its business, none of which are material to the business or
financial condition of the Company, except as may be disclosed in this or prior
reports.
11
Item 5. Other Information
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, Westbury, New York, are 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.
Thereafter, by letter dated May 3, 1996 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.
12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
13
SIGNATURES
In accordance with the requirement of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRADLEY PHARMACEUTICALS, INC.
(REGISTRANT)
Date: May 13, 1998 /s/ Daniel Glassman
------------------------------
Daniel Glassman
Chairman of The Board, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1998 /s/ R. Brent Lenczycki, CPA
------------------------------
R. Brent Lenczycki, CPA
Manager of Finance
(Principal Financial and
Accounting Manager)
14
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Balance Sheet, Cash Flow and Statement of Operations and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 864,200
<SECURITIES> 0
<RECEIVABLES> 4,061,824
<ALLOWANCES> 62,848
<INVENTORY> 2,383,951
<CURRENT-ASSETS> 7,268,853
<PP&E> 1,427,788
<DEPRECIATION> 1,073,889
<TOTAL-ASSETS> 20,519,032
<CURRENT-LIABILITIES> 6,727,907
<BONDS> 257,541
0
0
<COMMON> 14,658,834
<OTHER-SE> (1,125,250)
<TOTAL-LIABILITY-AND-EQUITY> 20,519,032
<SALES> 4,241,281
<TOTAL-REVENUES> 4,241,281
<CGS> 1,314,797
<TOTAL-COSTS> 1,314,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,167
<INCOME-PRETAX> 640,556
<INCOME-TAX> 237,000
<INCOME-CONTINUING> 403,556
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<CHANGES> 0
<NET-INCOME> 403,556
<EPS-PRIMARY> .05
<EPS-DILUTED> .04
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