SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year December 31, 1999
[__] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
Commission File Number 0-18881
BRADLEY PHARMACEUTICALS, INC.
---------------------------------------
(Name of small business issuer in its charter)
DELAWARE 22-2581418
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
383 Route 46 W., Fairfield, NJ 07004
------------------------------ -----
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number including area code): 973-882-1505
------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value Per Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for a 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
------ ------
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-KSB contained herein, and will not be contained, to the best of
the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $18,850,294
The aggregate market value of the Common Stock voting stock held by non-
affiliates of the Registrant as of March 1, 2000 was approximately $23,063,000.
This amount does not include any value for the Class B Common Stock, for which
there is no established United States public trading market.
As of March 1, 2000, there were outstanding 8,200,212 shares of Common Stock
$.01 par value and 431,522 shares of Class B Common Stock $.01 par value.
Documents incorporated by reference: None
PART I
Item 1 Business
General
The Company
We market over-the-counter and prescription pharmaceutical and health
related products. Our product line currently includes dermatological brands
(marketed by our wholly owned subsidiary, Doak Dermatologics, Inc.) and
nutritional, respiratory, personal hygiene and internal medicine brands
(marketed by our Kenwood Therapeutics division). All our product lines are
manufactured and supplied by independent contractors under our quality control
standards and marketed primarily to wholesalers. The wholesalers, in turn,
distribute our products to retail outlets and healthcare institutions throughout
the United States and to distributors in selected international markets.
Our growth strategy is to make acquisitions, including through co-marketing
and licensing agreements, of established products from major pharmaceutical
organizations that we believe require intensified marketing and promotional
attention. We believe 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 are less profitable in relation to
their other products. As a result, we have acquired, and intend 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 environ-
ment does not necessarily include major pharmaceutical companies.
Our ability to make further product acquisitions will depend, among other
things, on the availability of appropriate acquisition opportunities, the
ability to obtain appropriate financing and our ability to consummate
acquisitions on favorable terms. There can be no assurance that we will be able
to consummate in a timely way attractive acquisitions on favorable terms.
Therefore, we have and will continue to focus on developing and extending our
existing acquired product lines.
We were incorporated under the laws of the State of New Jersey in January
1985 and subsequently reincorporated in Delaware in July 1998. Our 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 that reflect our
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 or external
factors could produce significantly different results.
Material Product Acquisitions
- -----------------------------
We commenced operations in January 1985 and through December 1999 acquired
more than 16 product lines from many leading pharmaceutical companies. During
this time, we acquired products from Schering-Plough Corporation, Aventis
Healthcare, Inc., American Home Products Corporation, Upsher-Smith Laboratories,
Inc., and Procter & Gamble Pharmaceuticals, Inc.
In March 1993, we acquired from Tsumura Medical, a division of Tsumura
International, Inc., all technical, proprietary and distribution rights to a
specialized dermal patch product, TRANS-VER-SAL(R) currently used in the treat-
ment of warts.
Our most significant acquisition to date was in December 1993, we acquired
from Berlex Laboratories, a subsidiary of Schering AG, all technical, pro-
prietary rights, including trademarks and registrations to DECONAMINE(R), a
chlorpheniramine maleate/d-pseudoephedrine HCI prescription product line used
in connection with cough, colds, and allergies.
During February 1994, we acquired from The Pharmacia & Upjohn Company all
U.S. manufacturing, packaging and proprietary rights, including all trademarks
and registrations to PAMINE(R), a methscopolamine bromide tablet used in
connection with the treatment of peptic ulcers.
In June 1994, we 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 urea-based moisturizers and
CARMOL(R) HC, a prescription moisturizer containing hydrocortisone.
In May 1996, we acquired the trademark rights to the ACIDMANTLE(R) skin
treatment line from Novartis Pharmaceuticals Corporation, and the exclusive
ACIDMANTLE(R) manufacturing, marketing and distribution rights for the United
States and Puerto Rico. In October 1998, we acquired from Procter & Gamble
Pharmaceuticals, the U.S. manufacturing, packaging and proprietary rights,
including all trademarks and registrations to BRONTEX(R), a potent cough
reliever. In consideration, we agreed to pay Procter & Gamble Pharmaceuticals
up to $1,800,000, of which $600,000 was paid during October 1998. The remaining
balance was paid in February 2000.
Acquisition of DOAK Subsidiary
- ------------------------------
During February 1994, we acquired from Doak Dermatologics' principal
stockholders, a controlling interest in Doak. The remaining capital stock of
Doak was acquired 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 major products, by therapeutic category that
we market and distribute as of March 1, 2000. All of our products are available
over-the-counter, with the exception of BRONTEX(R), DECONAMINE(R), PAMINE(R),
CARMOL(R) HC, CARMOL(R) 40, TYZINE(R), LIDAMANTLE(R) and GLUTOFAC(R) ZX, each
of which is a prescription pharmaceutical.
Dermatological Products Uses
- ----------------------- ----
ACIDMANTLE(R)/LIDAMANTLE(R) Skin acidifier/Rx Topical Anesthetic
CARMOL(R) 10/20/40/HC Rx and OTC urea-based family of
products for a variety of derma-
tological conditions
FORMULA 405(R)/A.H.A/LE PONT(R) Variety of topical products for the
skin, hair and nails
TRANS.VER.SAL(R) Wart Remover Kit Unique dermal patch delivery system for
(l6mm, 12mm, 20mm sizes) wart removal
Nutritional Products Uses
- -------------------- ----
GLUTOFAC(R)/ZX Rx and OTC vitamin/mineral supplements
for conditions such as diabetes
mellitus, alcoholism, stress, or
chronic illness
Internal Medicine Products Uses
- -------------------------- ----
PAMINE(R) 2.5 mg. Tablets Rx Anticholinergic/antispasmodic
Respiratory Products Uses
- -------------------- ----
BRONTEX(R) Rx Antitussive/expectorant
(Tablets/Syrup)
DECONAMINE(R) FAMILY Rx Antihistamine/decongestant
(SR/Syrup/Tablets)
TYZINE(R) (tetrahydrozoline HCl) Rx Nasal decongestant
(Solution/ Nasal Drops)
Product Liability Insurance
- ---------------------------
We maintain $3,000,000 of product liability insurance on our products.
This insurance is in addition to required product liability insurance maintained
by the manufacturers of our products. We believe that this amount of insurance
coverage is adequate and reasonable. To date no product liability claim has
been made, to our knowledge, against us, and we have 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) and
current good manufacturing practices standards (cGMP's). All pharmaceutical
products are subject to rigorous regulation by the FDA and state authorities
(as well as 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
the cGMP'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. We have not been made aware of any violation
of any such applicable regulatory standards existing through the date of this
10-KSB.
We generally purchase products from approximately 20 different vendors on
open credit terms, which are generally payable in 30 days. One company manu-
facturing and packaging products for us accounted for approximately 10% and 16%
of our cost of goods sold for 1999 and 1998, respectively. No other vendor,
packager or manufacturer accounted for more than 9% of our cost of goods sold
for 1999 or 1998. We currently have no manufacturing facilities of our own and,
accordingly, are dependent upon maintaining existing relationships with our
vendors or establishing new vendors to supply inventory. There can be no
assurance that we would be able to replace our current vendors without any dis-
ruption to operations.
With the exception of arrangements relative to BRONTEX(R), CARMOL(R) 40,
LIDAMANTLE(R), and LUBRIN(R), we do not have any licensing, manufacturing or
other supply agreements with manufacturers or suppliers.
Marketing and Sales
- -------------------
We have acquired established products and product lines, developed line
extensions for new products and licensed existing technologies. Therefore, we
have concentrated our marketing efforts on the continued promotion of acquired
product lines and line extensions to established customers and the expansion of
distribution to new customers. Our overall marketing philosophy is to inten-
sify and enhance the promotion of acquired products and line extensions through-
out the United States and, where feasible, in selected international markets.
We market and sell 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. We currently have approximately 1,590 active accounts, of which
there are approximately 200 wholesalers, 890 retail chains and stores, 400
doctors and institutional accounts, 30 government entities and 70 managed care
providers.
Our DECONAMINE(R) product line (categorized below as respiratory products)
accounted for approximately 24%, 37%, 45%, 51% and 40%, respectively, of 1999,
1998, 1997, 1996 and 1995 net sales. Changes in the performance of our
DECONAMINE(R) product line, consequently, will have a material effect on
future operations. Our BRONTEX(R) product line (categorized below as respiratory
products) accounted for 9% and 7% of 1999 and 1998 net sales, respectively.
Doak's CARMOL(R) product line accounted for approximately 22%, 15% and 12%
of our 1999, 1998 and 1997 net sales. The TRANS-VER-SAL(R) product line
accounted for approximately 8%, 8% and 10% of our 1999, 1998, 1997 net sales,
while the ACIDMANTLE(R) product line accounted for approximately 6%, 6% and
4% of our 1999, 1998 and 1997 net sales. Doak's other products, including
Formula 405, accounted for approximately 7%, 9% and 10%, of our 1999, 1998 and
1997 net sales. All of Doak's products are categorized below as dermatologic
products.
Our 1999, 1998, 1997, 1996 and 1995 net sales volume percentages by
category were as follows:
1999 1998 1997 1996 1995
------------------------------------
Respiratory 38% 49% 50% 56% 46%
Dermatologic 43% 40% 40% 32% 40%
Personal Hygiene 3% 3% 4% 4% 3%
Nutritional 8% 6% 5% 6% 6%
Internal Medicine 8% 2% 1% 2% 5%
Sales of our DECONAMINE(R) and BRONTEX(R) product lines and other
cough/cold/flu products are primarily concentrated in the fall and winter
months. Consequently, revenues from these products generally are, and will be,
determined by the severity of the cough/cold/flu season. We promote these
products for allergy symptoms during the spring and summer months to smooth
the seasonality of these sales.
Our principal marketing focus is on the sales of branded pharmaceutical
products. We have a national sales force of over 100 field representatives,
which is comprised of both full and part time employees as well as independent
contractors whose sole focus is the distribution of samples. Our marketing and
sales promotions principally target general/family practitioners, internal
medicine physicians and dermatologists through detailing and sampling to
encourage physicians to prescribe or recommend our products.
The sales force is supported and supplemented chiefly by telemarketing and
direct mail, and to a lesser extent through advertising in trade publications
and participation at regional and national medical conventions. We identify
and target physicians through data available from such companies as IMS America,
Ltd. and Scott-Levin, suppliers of prescriber prescription data. We intend to
seek new markets in which to promote our product lines and will continue
expansion of our field sales force as product growth or product acquisitions
warrant.
We have made a strategic decision to concentrate selling and marketing
resources on ten principal brands (which represented 89%, 92% and 87% of 1999,
1998 and 1997 Net Sales, respectively) as follows:
Kenwood Brands Specialty
- -------------- ---------
BRONTEX(R) General Practitioners,
DECONAMINE(R) Allergists, Pediatricians,
TYZINE(R) Otolaryngologists
ENTsol(R)
PAMINE(R) Gastroenterologists,
Internal Medicine
GLUTOFAC(R)/ZX General Practitioners
Doak Brands Specialty
- ----------- ---------
CARMOL(R) Dermatologists,
TRANS-VER-SAL(R) Podiatrists
ACIDMANTLE(R)
LIDAMANTLE(R)
To facilitate sales of our products internationally (including Puerto
Rico), we have entered into agreements with 31 international pharmaceutical
distributors to provide for distribution and promotion of these products.
Approximately 9%, 11%, 13% and 11%, respectively, of our 1999, 1998, 1997 and
1996 net sales were from international business.
We continue to seek out new distributors and are currently in process of
obtaining market approvals in at least 13 new country markets. Although we
anticipate to receive the necessary approvals to market our products in these
countries, there can be no assurance that such approvals will be received.
We have received product registrations and applied for additional product
registrations to distribute its products in certain international markets as
follows:
OUR INTERNATIONAL MARKETING STATUS
CURRENTLY MARKETING
Barbados CARMOL(R) Italy TRANS.VER.SAL(R)
GLUTOFAC(R)
IPSATOL(R) Jordan A.H.A LINE
KTL(R) CARMOL(R)
LUBRIN(R) DOAK(R) TAR
NEOLOID(R) FORMULA 405(R)
LE PONT(R)
Canada ENTsol(R) SULPHO-LAC(R)
LUBRIN(R) TRANS.VER.SAL(R)
NEOLOID(R) PETROPHYLLIC(R)
TRANS.VER.SAL(R)
Chile TRANS.VER.SAL(R) Malaysia LUBRIN(R)
Cyprus A.H.A LINE Mexico A.H.A LINE
IPSATOL(R) DOAK(R) TAR
IRCON(R) FORMULA 405(R)
KTL(R) LE PONT(R)
LUBRIN(R) LUBRIN(R)
TYZINE(R) TERSASEPTIC(R)
TRANS.VER.SAL(R)
Denmark TRANS.VER.SAL(R)
LUBRIN(R) Panama GLUTOFAC(R)
LUBRIN(R)
Dominican APATATE(R) Qatar TRANS.VER.SAL(R)
Republic GLUTOFAC(R)
IRCON(R) Portugal TRANS.VER.SAL(R)
I.L.X(R) B12
KTL(R) Puerto Rico COMPLETE BRADLEY LINE
LUBRIN(R)
Saudi Arabia A.H.A LINE
El Salvador A.H.A.LINE CARMOL(R)
CARMOL(R) DOAK(R) TAR
FORMULA 405(R)
Greece LE PONT(R) LE PONT(R)
SULFOAM(R)
Finland LUBRIN(R) SULPHO-LAC(R)
TERSASEPTIC(R)
France TRANS.VER.SAL(R) TRANS.VER.SAL(R)
Hong Kong A.H.A LINE Singapore APATATE(R)
CARMOL(R) LUBRIN(R)
DUADACIN(R) SULPHO-LAC(R)
DOAK(R) TAR TERSASEPTIC(R)
DECONAMINE(R) TRANS.VER.SAL(R)
FORMULA 405(R)
GLUTOFAC(R) South Africa LUBRIN(R)
NITROGLYN(R) ENTsol(R)
TERSASEPTIC(R)
TERSA-TAR(R) Spain TAR DISTILLATE
TRANS.VER.SAL(R)
Iceland DOAK(R) TAR
FOMULA 405(R) Taiwan A.H.A LINE
LUBRIN(R) FORMULA 405(R)
TRANS.VER.SAL(R) LE PONT(R)
LUBRIN(R)
Israel LUBRIN(R) TRANS.VER.SAL(R)
United Arab A.H.A. LINE
Emirates LUBRIN(R)
TRANS.VER.SAL(R)
Yemen A.H.A LINE
CARMOL(R)
DOAK(R) TAR
FORMULA 405(R)
Competition
We compete with other pharmaceutical companies for product and product
line acquisitions and more broadly for the distribution and marketing of
pharmaceutical and consumer products. These competitors include Jones Medical
Industries, Inc., ICN Pharmaceuticals, Inc., Dura Pharmaceuticals, Inc., King
Pharmaceuticals, Inc., Medicis Pharmaceutical Corporation, Forest Laboratories,
Inc., Shire Pharmaceuticals, Watson Pharmaceuticals, Inc. and other companies
which also acquire branded pharmaceutical products and product lines from other
pharmaceutical companies. Most of our competitors possess substantially greater
financial, technical, marketing and other resources than we do. In addition,
we compete for the manufacture of our products from suppliers who manufacture
and supply such products to other companies, including those competitive with
our products.
Additionally, since our products are generally established and commonly
sold, they are subject to competition from products with similar qualities. Our
pharmaceutical products may be subject to competition from alternate therapies
during the period of patent protection, if applicable, and thereafter from
generic equivalents. The manufacturers of generic products typically do not
bear the related research and development costs or the invested capital in
acquired brands and consequently are able to offer such products at considerably
lower price. There are, however, a number of factors that enable products to
remain profitable once patent protection has ceased. These include the esta-
blishment of a strong brand image with the prescriber or the consumer, supported
by the development of a broader range of alternative formulations than the
manufacturers of generic products typically supply.
Government Regulation
Our business and our products, including manufacturing processes and
operations of our subcontracted manufacturing facilities, are subject to
extensive and rigorous regulation at both the federal and state levels. At
the federal level, we and our manufacturers and suppliers are principally
regulated by the FDA as well as by the DEA, the Consumer Product Safety Com-
mission, the Federal Trade Commission (FTC), the U.S. Department of Agriculture,
Occupational Safety and Health Administration (OSHA) and the U.S. Environmental
Protection Agency (EPA). The FDC Act, the regulations promulgated thereunder,
and other federal and state statutes and regulations, govern, among other
things, the development, testing, manufacture, safety, effectiveness, labeling,
storage, record keeping, approval, advertising and promotion of our products
and those manufactured by and for third parties. Non compliance to any govern-
ment regulations could have a material adverse effect on our business,
financial condition and results from operations.
We believe that we have the proper FDA approvals or other marketing
authority for the drugs that we currently market and distribute. Failure to
comply with the statutory and regulatory requirements subjects a manufacturer
to possible legal or regulatory action, such as suspension of manufacturing,
seizure of product or voluntary recall of a product. The federal government
has extensive enforcement powers over the activities of pharmaceutical manu-
facturers, including authority to withdraw product approvals, commence actions
to seize and prohibit the sale of unapproved or non-complying products, to halt
manufacturing operations that are not in compliance with cGMPs, and to impose
or seek injunctions, voluntary recalls, and civil monetary and criminal
penalties. Such a restriction or prohibition on sales or withdrawal of approval
of products marketed by us could materially adversely affect our business,
financial condition and results of operation.
While we believe that all of our current pharmaceutical products are
legally marketed under applicable FDA enforcement policies or have received
requisite government approvals for manufacture and sale, such marketing
authority is subject to revocation by the applicable government agencies. In
addition, modifications or enhancements of approved products or changes in
manufacturing locations are in many circumstances subject to additional FDA
approvals which may or may not be received and which may be subject to a lengthy
application process. Our subcontractors are continually subject to inspection
by such governmental agencies and manufacturing operations could be interrupted
or halted in any such facilities if such inspections prove unsatisfactory.
The distribution of pharmaceutical products is subject to the Prescription
Drug Marketing Act (PDMA), as part of the FDC Act, which regulates such
activities at both the federal and state level. Under the PDMA and its
implementing regulations, states are permitted to require registration of
manufacturers and distributors who provide pharmaceuticals even if such
manufacturers or distributors have no place of business within the state and
states are also permitted to adopt regulations limiting the distribution of
product samples to licensed practitioners. The PDMA also imposes extensive
licensing, personnel record keeping, packaging, quantity, labeling product
handling and facility storage and security requirements intended to prevent the
sale of pharmaceutical product samples or other diversions.
We cannot determine what effect changes in regulations or statutes or
legal interpretation, when and if promulgated or enacted, may have on our
business in the future. Changes could, among other things, require changes to
manufacturing methods, expanded or different labeling, the recall, replacement
or discontinuance of certain products, additional record keeping or expanded
documentation of the properties of certain products and scientific substan-
tiation. Such changes, or new legislation, could have a material adverse effect
on our business, financial condition and results of operations.
Certain of our pharmaceutical 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 our marketing
efforts or render our products unlawful for commercial sale, causing us to
withdraw our products from the marketplace or spend substantial funds
reformulating the products.
Specifically, our 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. We anticipate
that final monographs for our DECONAMINE(R) product line, thereby converting
the product line from prescription status to over-the-counter status, may
possibly be issued by the FDA at some time in the future. We currently intend
to continue to market and distribute the DECONAMINE(R) line of products as
prescription products as long as we may lawfully continue to do so. We are
presently exploring our marketing and distribution strategy relating to the
DECONAMINE(R) product line after final monographs covering these products are
issued, and, as such, we are not currently possible to predict how our
operations and financial condition will be affected, or whether we 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, we are required to file an Abbreviated New Drug Application, an
ANDA, with the FDA for our 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. We have 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-KSB, we have paid
approximately $350,000 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 us being able to generate sufficient cash flow from
operations to fund the same or obtaining requisite financing from outside
sources, of which there can be no assurance. Therefore, we cannot at this time
reasonably anticipate the timing of the expenditure of funds for these purposes.
Our inability to further develop and/or file the necessary ANDA for
DECONAMINE(R) SR would have a material adverse effect on our business.
We currently are the registered holder of one New Drug Application for
PAMINE(R) and two ANDAs 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 re-
imbursement 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, we 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, we must pay certain statutorily prescribed rebates on Medicaid purchases.
In most other developed markets in which our 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 our business and activities are
subject to change. Current political and public interest in pharmaceutical
products may lead to changes in federal and state law, which can affect the
way we do business. We cannot anticipate what effect, if any, such legislation
may have on our operations.
Patents and Trademarks
The products currently sold by us, with the exception of TRANS-VER-SAL(R),
ENTsol(R) and CARMOL(R) 40 are not patented and we intend to pursue patents
where it is logical, however, we do not currently intend to apply for patents
for all of our products. Products with benefits similar to those marketed by
us could easily be developed by other companies.
The LUBRIN(R) United States patent expired on August 31, 1999 and TRANS-
VER-SAL(R), CARMOL(R) 40, and ENTsol(R) United States patent expires on October
18, 2005, April 2, 2018, and June 24, 2018, respectively. Patents maintained
for LUBRIN(R) and TRANS-VER-SAL(R) in other countries have various expiration
dates.
We own all trademarks associated with each of our products including
national and international trademark registrations, or common law rights, for
each of our material products. No assurance can be given as to the extent or
scope of the trademarks or other proprietary protection secured by us on our
products. To our knowledge, none of the trademarks owned by us infringe on
any trademarks owned or used by others.
Human Resources
As of March 1, 2000, we employed 63 full and 35 part-time associates. We
believe that our relationship with our associates is good.
Scientific Advisors
We have formed a group of scientific advisors having extensive experience
in the areas in which we market our products to advise us in long-range planning
and development. The following sets forth information with respect to the our
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. Dr. 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. Dr. 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. Dr. Gross is also a member of the New York State Board of
Pharmacy.
Lewis H. Kaminester, M.D., F.A.A.D., F.A.C.P., is a dermatologist
practicing in North Palm Beach for the past 25 years. Dr. Kaminester graduated
Franklin and Marshall College with Honors in Biology and as member of Phi Beta
Kappa. He graduated from University of Pennsylvania School of Medicine, where
he was also a dermatology resident. He is on the clinical staff at University
of Miami School of Medicine, Department of Dermatology and Dermatological
Surgery.
Richard H. Mann, D.P.M. is a doctor of podiatric medicine, 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 international
authority on paranasal sinus disease and has written an 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 Otolaryngology, Wilford Hall USAF Medical Center,
and Clinical Professor of Otolaryngology/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.
Alan R. Shalita, M.D. is a board certified dermatologist and currently
Professor and Chairman of the State University of New York Health Science Center
at Brooklyn. Dr. Shalita received his B.S. from University of Brussels, Belgium
and M.D. from Bowman Gray School of Medicine. Dr. Shalita is also licensed in
New Jersey, North Carolina, California and Florida.
Keyoumars Soltani, M.D. is currently Professor of Dermatology in the
Department of Medicine at the University of Chicago. Dr. Soltani completed his
residency at Temple University Skin & Cancer Hospital of Philadelphia.
Dr. Soltani is a member of numerous scientific professional societies. He is
the author/co-author of over 200 publications, especially in the fields of
immunodermatology, cutaneous manifestations of systemic diseases and derma-
topharmacology.
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 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 our Scientific Advisors, over time, has been or will be granted
options to purchase shares of our common stock. All options granted to the
Scientific Advisors are exercisable at the fair market value of our common stock
as of the date of grant. To date, the Scientific Advisors have exercised no
options. We will compensate each Scientific Advisor for his time and reasonable
expenses should he provide services.
Environmental Matters
We are subject to claims or threatened claims relating to environmental
matters from our former Doak manufacturing site in Westbury, New York. We
believe that none of such claims or threatened claims made through the date of
this 10-KSB, either individually or in the aggregate, will have a material
adverse affect on our business, financial condition or results from operations.
Item 2. Properties
We lease 14,100 square feet of office and warehouse space at 383 Route 46
West, Fairfield, New Jersey, expiring on February 1, 2003 with Daniel Glassman,
Chairman and President, and his spouse Iris Glassman, Treasurer. Rent expense,
including our proportionate share of real estate taxes, was approximately
$224,000 and $228,000 in 1999 and 1998, respectively.
During 1999 and 1998, Doak rented its former 11,000 square foot manu-
facturing facility, owned by the former principal stockholders of Doak, and an
independent satellite warehouse in Westbury, NY for rent expense totaling
$5,000 and $39,000, respectively. In conjunction with the closing of Doak's
factory, we did not renew this lease as of February 1999 and vacated the
independent warehouse in June 1998.
During 1999 and 1998, we rented 760 square feet of office space in Chicago,
Illinois at cost of $17,000 and $18,000, respectively, per annum.
During 1999, we entered into a two year, 6,000 ft. lease, with a one year
renewal option, for warehouse space at 33 Route 46 West, Fairfield, New Jersey
primarily for the storage of promotional items and pharmaceutical samples.
Rent expense, which includes common area maintenance and real estate taxes, for
1999 was $45,000.
We believe that the aforementioned facilities are sufficient to meet our
current, and presently anticipated, future needs.
We also have a distribution arrangement with a third party public warehouse
located in Tennessee to warehouse and distribute substantially all of our
products. This arrangement provides that we will be billed based on invoiced
sales of the products distributed by such party, plus certain additional
charges.
Item 3. Legal Proceedings
We are involved in legal proceedings of various types in the ordinary
course of business. While any such litigation to which we are a party contains
an element of uncertainty, we presently believe that the outcome of each such
proceeding or claim which is pending or known to be threatened, or all of them
combined, will not have a material adverse effect on our consolidated financial
position.
Item 4. Submission of Matters to a Vote of Security Holders
No issues were submitted to a vote of the security holders during the
fourth quarter of 1999.
Item 5. Market for Common Equity and Related Stockholder Matters.
Shares of our common stock are traded on The Nasdaq Stock MarketTM under
the trading symbol "BPRX". Our Class B common stock is not publicly traded.
The following table sets forth the high and low sales prices for shares of
our common stock on The Nasdaq Stock MarketTM for the periods indicated.
High Sale Low Sale
--------- --------
Fiscal year ended December 31, 1999
First quarter $ 1.56 $ 1.00
Second quarter 1.63 1.03
Third quarter 1.50 1.03
Fourth quarter 1.38 1.00
Fiscal year ended December 31, 1998
First quarter $ 2.69 $ 1.53
Second quarter 4.44 1.69
Third quarter 2.34 0.94
Fourth quarter 1.41 1.00
On March 1, 2000 the last sale price for our shares of common stock as
reported by the Nasdaq National Market was $2.81 per share. At March 1, 2000,
there were approximately 290 registered holders of record of shares of common
stock. Based on information available, we believe that there are approximately
2,900 beneficial holders of shares of common stock held in "street" or other
nominee name at such date.
We have not paid any dividends on our common stock since organization in
January 1985. We anticipate in the foreseeable future, any earnings will be
retained for use in our business and, accordingly, we do not anticipate the
payment of cash dividends.
We have authorized an aggregate of 900,000 shares of Class B common stock,
$.01 par value per share, of which 431,552 shares were issued and outstanding
at March 1, 2000. The Class B common stock is not publicly traded. The rights,
preferences and limitations of common stock and Class B common stock are equal
and identical in all respects, except that the holders of the Class B common
stock are entitled to elect a majority of our directors and each share of
common stock entitles the holder thereof to one vote upon any and all matters
submitted to the stockholders of the Corporation for a vote, and each share of
Class B common stock entitles the holder thereof to five votes upon certain
matters (other than the election of directors) submitted to the stockholders
of the Corporation for a vote.
At March 1, 2000, there were outstanding 8,200,212 (exclusive of 737,605
shares held in treasury) of common stock.
This document may contain forward-looking statements that reflect our
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 or external
factors could produce significantly different results.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net Sales (net of all adjustments to sales) for 1999 was $18,850,000,
representing an increase of $2,997,000 or approximately 19% from 1998. This
increase primarily reflects gains resulting from Doak Dermatologics' products
CARMOL(R), ACIDMANTLE(R), TRANS-VER-SAL(R), and Kenwood Therapeutics'
products PAMINE(R), TYZINE(R) and GLUTOFAC(R). The increase in product sales
was primarily due to special promotions to market key brands, an expanding field
force, the utilization of market research data to ensure product messages are
received by the most potentially productive audiences, and the offering of
slight discounts to wholesalers to encourage stocking. The above increase in
net sales was partially offset by a sales decline in LEPONT(R) Beauty Enhancer
and DECONAMINE(R). The sales decline of DECONAMINE(R) was primarily attributable
to an increase in generic competition, formulary restrictions, and the launch
of new competitive products. Our 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 1999 and 1998, resulting in increased net sales and profits
of $464,000 and $633,000, respectively. The decrease in the percentage used to
adjust gross sales to net sales reflects improvements in processing chargebacks
and rebates as well as less reliance on managed care sales. Any future
reductions of this percentage will reflect continuing and future analysis of
this trend. There is no assurance that this trend will continue.
Cost of Sales for 1999 was $5,083,000, representing an increase from 1998
of $488,000. Our gross profit margin for 1999 was 73% as compared to 71% during
1998. The improvement in the gross profit margin reflects a change in our sales
mix with greater sales of prescription products that historically carry a higher
gross profit percentage. The change in the sales mix represented an increase
in prescription products of PAMINE(R), CARMOL(R) 40, TYZINE(R), and GLUTOFAC(R)
ZX. Also, the sales mix reflected a decrease in sales for LEPONT(R) Beauty
Enhancer, which historically has a lower gross margin. In addition, we
benefited from cost savings by outsourcing previously manufactured products.
Selling, General and Administrative Expenses was $11,473,000 for 1999,
representing an increase of $2,512,000 over 1998. The increases in selling,
general and administrative expenses continue to reflect increased investment
in our sales and marketing areas, with resulting increases in salaries, employee
benefits, payroll taxes, promotional and advertising expenses. Additionally,
we initiated the EVA(R) Financial Management System, which is based upon the
attainment of certain corporate goals, resulted in an increase in compensation
of $142,000.
Depreciation and Amortization Expenses for 1999 was $1,138,000, repre-
senting an increase of $33,000 as compared to 1998. The increase for 1999 was
principally due to full year 1999 of amortization of trademarks resulting from
the BRONTEX(R) acquisition, which occurred in October 1998.
Interest Expense, Net for 1999 was $235,000, representing an increase of
$35,000 from 1998. This increase was principally due to the imputed interest
related to the BRONTEX(R) acquisition note, which was outstanding for the full
year 1999 as compared to a partial 1998 year.
Income Tax Expense for 1999 was $360,000, representing an increase of
$240,000 from 1998. The increase was principally due to utilization of tax
benefits in 1998 for which deferred tax assets were previously fully reserved.
In 1999 no net operating loss carryforwards were available to offset current
taxable income.
Net Income for 1999 was $561,000, representing a decrease of $358,000 from
1998. The decrease was principally due to an increase in the selling, general
and administrative expense and income tax expense, which was partially offset
by an increase in net sales and an increase in the gross profit percentage.
Net loss for Kenwood Therapeutics for 1999 was ($248,000), representing a
decrease of $1,285,000 from 1998. The decrease was principally due to an
increase in selling, general, and administrative expenses with resulting
increases for promotional and advertising activities. In particular, promo-
tional and advertising increased due to the new product BRONTEX(R) and other
existing cough/cold products, which was in expectation of the upcoming season.
Net income for Doak Dermatologics for 1999 was $809,000, representing an
increase of $928,000 from 1998. The increase was principally due to an increase
in net sales and an increase in the gross profit margin. The products CARMOL(R),
ACIDMANTLE(R), and TRANS-VER-SAL(R) primarily contributed to the increase in
net sales. While, the increase in the gross profit margin was primarily due to
an increase in sales of the higher margined CARMOL(R) 40, decrease in sales of
the lower margined LEPONT(R) Beauty Enhancer, and cost savings from outsourcing.
Market Risk
Our major market risk is primarily due to competitive products, generic
competition, sourcing exposure and government regulation. Please see above
captioned information for a more thorough review of these three topics.
Stock prices of emerging growth pharmaceutical and micro-cap companies,
such as us, are subject to significant fluctuations. Our stock price may be
affected by a variety of factors that could cause the price to fluctuate,
perhaps, substantially, including: announcements of developments related to the
our business; quarterly fluctuations in our actual or anticipated operating
results; general conditions in the pharmaceutical and health care industries;
new products or product enhancements by us or our competitors; developments in
patents or other intellectual property rights and litigation; and developments
in our relationships with our customers and suppliers. In addition, in recent
years the stock market in general and the market for shares for small
capitalization and emerging growth pharmaceutical companies in particular, have
experienced extreme price fluctuations which may or may not be related to the
operating performance of affected companies. Any such fluctuations in the
future could adversely affect the market price of our common stock. There can
be no assurance that the market price of our common stock will not decline.
Our major interest exposure is due to its asset-based financing agreement
with LaSalle Business Credit, Inc., of which it accrues interest on outstanding
revolver loans and the acquisition note at 1% and 2% above the prime rate
announced from time to time by LaSalle National Bank, respectively. An increase
in interest rates would apply upward pressure on our operating costs.
Year 2000 Disclosure
The "Year 2000" problem concerns the inability of information and
technology-based operating systems to properly recognize and process date-
sensitive information beyond December 31, 1999. The Year 2000 problem is
potentially pervasive; virtually every computer operation or business system
that utilizes embedded computer technology may be affected in some way by the
rollover of the two-digit year value to 00. The risk is that computer systems
will not properly recognize date sensitive information when the year changes to
2000, which can result in system failures or miscalculations, resulting in a
serious threat of business disruption.
To date, we have not suffered any disruptions in our computer systems or
software by the rollover of the two-digit year value to 00. In addition, to
date, we have not been made aware that any third-party systems we rely
on, the manufacturing systems of our vendors or the systems our customers use
have suffered disruptions. However, given the complexity of the Year
2000 issue, there can be no assurance that we will be able to address potential
unidentified future problems without costs and uncertainties that might affect
future financial results or cause reported financial information not to be
necessarily indicative of future operating results or future financial
condition.
The total costs incurred to date in the evaluation and remediation of the
Year 2000 compliance matters including total software and equipment costs is
$95,000.
Seasonality
Net sales of DECONAMINE(R) product line accounted for approximately 24%,
37%, 45%, 51% and 40%, respectively, of our 1999, 1998, 1997, 1996 and 1995 net
sales. Consequently, revenue from these products as well as BRONTEX(R) potent
cough reliever product line with 9% and 7% of 1999 and 1998 net sales,
respectively, generally are, and will be, determined by the severity of the
cough/cold/flu season. We promote these products for allergy symptoms during
the spring and summer months in an effort to smooth the seasonality of these
sales.
Effects of Inflation
Although inflation rates have been comparatively low in recent years,
inflation would apply upward pressure on our operating costs.
Liquidity and Capital Resources
On December 31, 1999, we had working capital of $737,000, a decrease of
$134,000 over the December 31, 1998 working capital of $871,000. The decrease
in our working capital position at December 31, 1999 was primarily due to the
reclassification of the BRONTEX(R) acquisition note from long-term to short-
term.
Working capital as of December 31, 1999 included (i) a decrease of
$1,032,000 in cash and cash equivalents principally due to net repayments of
the revolving credit line and purchases of treasury stock; (ii) an increase in
accounts receivable of $1,762,000, primarily due to year end wholesaler stock-
ing programs and our issuance of an annual price increase in December 1999,
which was further prompted by offering slight discounts. This event, which
also occurred in December 1998, may have the effect of reducing revenue in the
First Quarter 2000 and may have reduced revenue in the First Quarter 1999;
(iii) an increase in inventory and prepaid samples and materials of $166,000,
primarily due to inventory stocking for Year 2000; (iv) a decrease in prepaid
expenses and other of $90,000 principally due to increased distribution of
promotional material by the sales force in the Fourth Quarter 1999 versus 1998;
(v) an increase in accounts payable of $190,000 primarily due to an increase in
promotional and advertising activities in the Fourth Quarter 1999; (vi) a
decrease in accrued expenses of $95,000 due to a decrease in the chargeback and
rebate accruals, which was prompted by higher volume sales for products that
historically have lower charges against sales and reductions in the accrual
necessitated by a reduction in the chargeback and rebate trends; and (vii) an
increase in income taxes payable of $154,000 due to the utilization of remaining
net operating loss carryforwards in 1998.
During 1999, we increased our borrowing capacity with a new revolving
asset-based line of credit and acquisition note from LaSalle Business Credit,
Inc. This facility increased our asset-based lending capacity from $3,000,000
to $5,000,000 and provides an acquisition note for an additional $2,500,000.
We had $2,120,000 in borrowings issued under the revolving asset-based line of
credit at December 31, 1999, with a remaining availability of $1,350,000.
The facility with LaSalle includes various restrictive covenants pro-
hibiting us with certain limited exceptions, from, among other things, in-
curring additional indebtedness and paying dividends, substantial asset sales
and certain other payments. The facility also contains financial covenants
including net worth, interest coverage ratio, debt service ratio, and earnings
before interest, taxes, depreciation, and amortization. As of June 30, 1999
and December 31, 1999, we were in violation of the net worth covenant and
EBITDA covenant, respectively, which have been waived by LaSalle. We anticipate
future violations of certain covenants during 2000 and are currently in dis-
cussions with LaSalle in attempt to amend those covenants. We believe that it
is "more likely than not" that the covenants will be amended or waived. How-
ever, there can be no assurance that the covenants will be waived or amended.
Such future defaults, if not amended or waived, could have a material adverse
effect on our business, financial condition and results of operations. All of
our borrowings under the revolving asset-based credit facility have been
classified as current as of December 31, 1999.
On February 7, 2000, we borrowed $1,161,000 from our available acquisition
note in order to satisfy the current note payable that was in connection with
the acquisition of BRONTEX(R). Subsequent to borrowing the funds, the remaining
balance available for future product acquisitions from the acquisition note is
$1,339,000.
In January 1999, we completed the repurchase program of 400,000 of our out-
standing shares and also initiated the repurchasing of an additional 600,000
shares in open market transactions resulting in a cumulative repurchase of 12%
of the outstanding common stock over the next 36 months. These shares will be
held in our Treasury and be used for purposes deemed necessary by the Board of
Directors, including funding our 401(k) Plan matching contribution. Through
March 1, 2000, we have repurchased 849,000 shares of common stock at a total
cost of $1,068,000.
On January 1, 1999, we initiated Stern Stewart's EVA(R) Financial
Management System. The EVA(R) program is based upon our creation of economic
value. EVA(R) is a financial calculation based upon our net income less a
charge for capital used. Depending upon our improvement in EVA(R), a bonus to
employees may be distributed. As of December 31, 1999, we have expensed for
approximately $142,000 and distributed $95,000 to employees for this program.
We established a defined contribution 401(k) plan whereby we match
employee contributions up to 25% of the employees first 6% of contributions
with shares of our common stock. Contributions of $44,700 and $23,500 were
charged to expenses for the year ended December 31, 1999 and 1998, respectively.
We believe that cash flow from operations, funds available from the
revolving credit facility and the acquisition note will be sufficient to satis-
fy the working capital requirements for at least the next 12 months.
Item 7. Financial Statements and Supplementary Data
The financial statements required by Item 7 are appended to this
Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item 9. Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Age Position(s)
--- -----------
Daniel Glassman 57 Chairman of the Board, President
and Chief Executive Officer
Richard C. Fuisz, M.D. 60 Director
Iris S. Glassman 57 Treasurer and Director
David H. Hillman 59 Secretary and Director
Philip W. McGinn, Ph.D. 74 Director
Seymour I. Schlager, M.D. 50 Director
Bruce W. Simpson 58 Director
Alan G. Wolin, Ph.D. 67 Director
Dileep Bhagwat, Ph.D. 49 Vice President, Chief Scientific
Officer
Robert Dubin 52 Sr. Vice President, Sales and
Contract Administration
Gene L. Goldberg 62 Sr. Vice President, Marketing and
Business Planning
Maurice Woosley 59 President, Bradley International
Daniel Glassman is our founder and has served as our Chief Executive
Officer since inception in January 1985. Mr. Glassman has also served as our
Chairman of the Board since January 1985. Mr. Glassman has also served as our
President since February 1991. Mr. Glassman, a registered pharmacist, is also
Chairman of the Board of Banyan Communications Group, Inc., a communications
company founded 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 Merrell-Dow, Inc.
Mr. Glassman is the spouse of Iris Glassman, our Treasurer and a director.
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 our subsidiary. In 1995,
Mr. Glassman was awarded the Ernst & Young LLP Entrepreneur of the Year.
Richard C. Fuisz, M.D. has served as one of our directors since March 2000.
Dr. Fuisz founded Fuisz Technologies, Ltd., in 1990. Fuisz Technologies Ltd.,
a leading specialty pharmaceutical company focusing on drug delivery, was
purchased by Biovail Corporation International in 1999. Prior to founding
Fuisz Technologies, Ltd., Dr. Fuisz founded Medcom, Inc., a publicly traded
company functioning in manpower development for training programs. He served
as CEO until the company was sold to Baxter International in 1980. Dr. Fuisz
received his M.D. from Georgetown University School of Medicine. He served his
Internship and Residency at Harvard University Service of Cambridge City
Hospital. While in the military, Dr. Fuisz served in the Executive Office of
the President of the United States, Office of Telecommunications Management.
Dr. Fuisz holds 90 U.S. patents in technology and currently serves as consultant
to Elan Corporation, PLC and Biovail Corporation.
Iris S. Glassman has served as our Treasurer since its inception in 1985.
Mrs. Glassman, the spouse of Mr. Daniel Glassman, has also served as one of our
directors from January 1985. Mrs. Glassman has approximately 20 years of
diversified administrative and financial management experience, including
serving in the capacity of Secretary of Banyan.
David H. Hillman has served as our Secretary since 1985 and as one of our
directors 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 group product manager
for Lederle Laboratories.
Philip W. McGinn, Jr., Ph.D. has served as one of our directors 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 I. Schlager, M.D., J.D. has served as one of our directors 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 Doctorate, cum laude, from William Howard
Taft University School of Law complementing his M.D. from the University of
Miami School of Medicine. Currently, Dr. Schlager is Worldwide Medical
Director for the Becton Dickinson Medical and Advanced Drug Delivery businesses.
Bruce W. Simpson, has served as one of our directors since January 2000.
Mr. Simpson currently heads a private consulting firm that specializes in
marketing and business development in the healthcare industry. Prior to
founding his own healthcare consulting firm, Mr. Simpson was President of
Genpharm, Inc. and President and CEO of Medeva Pharmaceuticals. Previous to
those positions, Mr. Simpson served in the capacity of Vice President of Sales
& Marketing, and Executive Vice President of Ethical Pharmaceuticals for Fisons
Corporation. Mr. Simpson received a M.B.A. from the University of Hartford.
He has been affiliated with the American Academy of Allergy and currently is a
Board Member of Menley & James Pharmaceuticals.
Alan G. Wolin, Ph.D., has served as one of our directors since May 1997.
Since 1988, Dr. Wolin has served as an independent consultant to various
companies in the food, drug and cosmetic industries. Prior to 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.
Dileep Bhagwat, Ph.D. has served as our Vice President and Chief Scientific
Officer since September 1999. Previously, Dr. Bhagwat was employed at Penwest
Pharmaceuticals, as Vice President, Scientific Development and Regulatory
Affairs. Prior to that appointment, Dr. Bhagwat was Assistant Director of
Pharmaceutical Development at Purdue Frederick Research Center. Dr. Bhagwat
holds a M.S. and Ph.D. in Industrial Pharmacy from St. John's University and a
M.B.A. from Pace University.
Robert Dubin, R.Ph. has served as our Senior 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 our Senior Vice President, Marketing and
Business Planning since January 1997. Formerly Executive Vice President of
Daniel Glassman Advertising and Vice President and Account Supervisor for
William Douglas McAdams. Also garnered experience as Senior Product Manager
for USV Pharmaceutical Corporation, division of Revlon Healthcare Group; Project
Director in Market Research at McAdams, Geigy Pharmaceutical Company and
Lea-Mendota Research Group.
Maurice Woosley has served as our President of the international division
and Vice President since January 1997. From May 1996 to December 1996,
Mr. Woosley served as our Vice President of the 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.
Our directors are scheduled to hold office until the next Annual Meeting
of Stockholders and until their respective successors shall have been duly
elected and qualified.
Significant Employees
Robert Corbo has served as our Vice President Quality Assurance since 1997
and as Quality Assurance/Control Director 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.
Brad Glassman has served as our Director of Corporate Development since
May 1998 and as a Corporate Development Analyst since May 1996. In 1996,
Mr. Glassman received a Masters of Business Administration from Tulane
University.
R. Brent Lenczycki, C.P.A. has served as our Director of Finance since
March 1999 and as Manager of Finance and Purchasing since March 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 concentrating in finance and management.
Item 10. Executive Compensation
Summary Compensation Table
The following table shows all of our cash compensation paid, as well as
certain other compensation paid or accrued during the years ended December 31,
1999, 1998 and 1997, to Daniel Glassman, President and Chief Executive Officer,
Robert Dubin, Senior Vice President of Sales and Contract Administration, Gene
L. Goldberg, Senior Vice President of Marketing and Business Planning and
Maurice Woosley, President, Bradley International. No other of our executive
officers earned total annual salary and bonus for 1999 in all capacities in
which such person served was in excess of $100,000. There were no restricted
stock awards, long-term incentive plan payouts or other compensation paid during
1999 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 1999 $196,700 $18,400 300,000(3)
President and 1998 $164,800 -0- 55,000(2)
Chief Executive Officer 1997 $128,900 -0- -0-
Robert Dubin 1999 $127,900 $7,600 -0-
Senior Vice President of 1998 $115,400 -0- 6,000
Sales and Contract 1997 $100,600 -0- -0-
Administration
Gene L. Goldberg 1999 $141,200 $8,100 -0-
Senior Vice President 1998 $135,400 -0- -0-
Marketing and Business 1997 $129,400 -0- -0-
Planning
Maurice Woosley 1999 $127,700 $7,600 -0-
President, Bradley 1998 $120,900 -0- -0-
International 1997 $114,500 -0- -0-
(1) All of these options are exercisable into shares of common stock.
(2) Of these shares, 25,000 underlie options granted on January 27, 1998 to
replace a like number of options previously granted to Mr. Glassman, which
expired by their terms. These options are exercisable after January 27,
1999, 2000, 2001 for 8,333, 8,333 and 8,333 shares, respectively, at an
exercise price of $1.99 per share, 110% of the fair market value for shares
of common stock on the date of the grant. These options will expire on
January 26, 2003. The remaining 30,000 shares underlie options granted on
June 9, 1998 to replace like number of options previously granted to
Mr. Glassman which expired by their terms. These options are exercisable
anytime prior to June 8, 2003 at an exercise price of $2.07 per share,
110% of the fair market value for shares of common stock on the date of
grant.
(3) Of these shares, 150,000 underlie options granted on January 21, 1999 to
replace a like number of options previously granted to Mr. Glassman, which
expired by their terms. These options are exercisable after January 21,
1999, 2000, 2001 for 50,000, 50,000 and 50,000 shares, respectively, at an
exercise price of $1.44 per share, 110% of the fair market value for shares
of common stock on the date of the grant. These options will expire on
January 20, 2004. The remaining 150,000 shares underlie options granted
on October 26, 1999 to replace like number of options previously granted to
Mr. Glassman which expired by their terms. These options are exercisable
after October 26, 2000, 2001, 2002 for 50,000, 50,000 and 50,000 shares,
respectively, at an exercise price of $1.17 per share, 110% of the fair
market value for shares of common stock on the date of grant. These options
will expire on October 25, 2004.
Option Grants in 1999
---------------------
The following table sets forth information concerning outstanding options
to purchase shares of our common stock granted by us to our Directors and
Officers during 1999. Neither options to purchase shares of Class B common
stock nor stock appreciation rights were granted by us during 1999. The exer-
cise prices for all options reported below are not less than 100% of the per
share market prices for common stock on their dates of grant.
Number of Individual Grants
Securities % of Total Options
Underlying Granted to Exercise or
Options Employees Base Expiration
Name Granted IN 1999(1) Price ($/Sh) Date
- ---- ---------- ------------------ ------------ ----------
Daniel Glassman 150,000 45.87% 1.44 01/21/04
150,000 45.87% 1.17 10/25/04
Dileep Bhagwat 12,000 3.67% 1.09 09/07/09
Aggregated Option Exercises in 1999
And Year-End Option Values
-----------------------------------
The following table presents the value, on an aggregate basis, as of
December 31, 1999, of outstanding stock options held by our executive officers
listed in the Summary Compensation Table above. No stock options were exer-
cised by the executive officers listed below during 1999.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End at Year-End(1)
---------------------- --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Daniel Glassman 479,422 266,667 $25,988 -0-
Robert Dubin 17,000 4,000 $7,500 -0-
Gene L. Goldberg 48,446 -0- $12,750 -0-
Maurice Woosley 18,000 -0- -0- -0-
(1) Based on the closing sale price of $1.094 per share of common stock on
December 31, 1999, as reported by NASDAQ.
Employment Contracts and
Termination of Employment and Change-in-Control Arrangements
------------------------------------------------------------
We do not have any employment contracts or termination of employment or
change-in-control arrangements with any of our executive officers.
Compensation of Directors
-------------------------
Directors who are not officers or employees 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 receive no additional compensation for their services as
directors.
On January 26, 1998, Dr. David Hillman was granted options to purchase up
to 16,750 shares of our common stock at an exercise price of $1.99 per share,
110% of the fair market value for shares. These options vest in three annual
installments of 5,583, 5,583 and 5,584 with 9,750 expiring January 26, 2003 and
the remaining 7,000 expiring January 26, 2008. These options were granted by
agreement with us in consideration for Mr. Hillman's previous options, which
expired by their terms.
On July 12, 1998, Seymour Schlager, M.D., J.D., was granted options to
purchase up to 15,000 shares of our common stock at an exercise price of $2.19
per share (the fair market value per share of common stock as of the date of
grant). These options vest in three equal and annual installments commencing
on July 12, 1999 and expire on July 11, 2008.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of December 31, 1999,
regarding the ownership of our common stock and Class B common stock by (i) each
director, (ii) the executive officers named in the Summary Compensation Table
set forth elsewhere in this document, (iii) each beneficial owner of more than
five percent of common stock and Class B common stock known by us and (iv) all
directors and executive officers, as a group, and the percentage of outstanding
shares of common stock 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 common stock, the beneficial ownership rules
promulgated under the Securities Exchange Act of 1934, as amended, require that
all shares common stock issuable upon the conversion of Class B common stock
by any stockholder be included in determining the number of shares and per-
centage of common stock held by such stockholder.
Amount and Nature of
Beneficial Owner(1)(2) Percent of Class(2)
---------------------- ----------------------
Name and Address of Class B Class B
Beneficial Owner Common Stock Common Stock Common Stock Common Stock
- ------------------- ------------ ------------ ------------ ------------
Daniel Glassman 891,806(3) 316,736(4) 10.88% 73.39%
383 Route 46 West
Fairfield, NJ
Iris S. Glassman 252,373(5) 37,283(6) 3.08% 8.64%
383 Route 46 West
Fairfield, NJ
David H. Hillman 123,016(7) 43,610 1.50% 10.11%
383 Route 46 West
Fairfield, NJ
Philip McGinn, Jr. 20,198(8) -0- * -
383 Route 46 West
Fairfield, NJ
Alan G. Wolin 78,941(9) -0- * -
383 Route 46 West
Fairfield, NJ
Seymour Schlager 5,000(13) -0- * -
383 Route 46 West
Fairfield, NJ
Robert Dubin 19,769(11) -0- * -
383 Route 46 West
Fairfield, NJ
Gene L. Goldberg 61,383(10) 10,192 * 2.36%
383 Route 46 West
Fairfield, NJ
Maurice Woosley 26,194(12) -0- * -
383 Route 46 West
Fairfield, NJ
Berlex Laboratories,
Inc. 2,200,000(14) -0- 26.68% -
340 Changebridge Road
Montville, NJ 07045
All executive officers 1,478,680 407,821(4)(6) 18.03% 94.50%
and Directors as a (3)(4)(5)
group 9 Persons) (6)(7)(8)(9)(10)
(11)(12)(13)
* 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 Common Stock includes shares of
common stock issuable upon exercise of presently exercisable warrants and
stock options and shares of common stock issuable upon conversion of shares
of Class B common stock. The shares of 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 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, 86,548 shares are owned
indirectly by Mr. Glassman through affiliates and 479,422 shares underlie
presently exercisable options owned by Mr. Glassman. Mr. Glassman's
affiliates have disclaimed beneficial ownership over all of these shares.
Mr. Glassman disclaims beneficial ownership over shares and options owned
by his spouse, 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 spouse.
(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, 40,220 shares owned indirectly by Mrs. Glassman as
trustee for her children's trusts and 168,070 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 71,151 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 12,300 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 48,446 shares underlie presently
exercisable options.
(11) 2,769 shares are owned indirectly as trustee for Mr. Dubin's children and
by his spouse. Includes 17,000 shares underlying presently exercisable
options.
(12) Includes 18,000 shares underlying presently exercisable options.
(13) Includes 5,000 shares underlying presently exercisable options.
(14) Includes 1,450,000 shares of common stock and 750,000 shares underlying
presently exercisable warrants.
Item 12. Certain Relationships and Related Transactions
During the years ended December 31, 1999 and 1998, we 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., an affiliate, in the
amount of $197,770 and $184,800, respectively.
We lease office facilities in Fairfield, New Jersey from Daniel and Iris S.
Glassman. The lease is for the period from February 1, 1998 to January 31,
2003 for 14,100 square feet of office and warehouse space. The rent expense,
including an allocated portion of real estate taxes, was approximately $224,000
and $228,000 for the years ended December 31, 1999 and 1998, respectively.
On January 3, 2000, we issued a loan bearing interest at 8-1/4% per annum
in the amount of $100,000 to Daniel Glassman, Chairman and Chief Executive
Officer. The accrued interest and principal sum is due in full three years
from the execution date, with fifty percent of all future bonus payments will be
applied first to accrued interest, then to principal.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Reports on Form 8-K
None filed in the Fourth Quarter.
(b) Exhibits
Exhibit
Number Description of Document
- ------- -----------------------
3.1 Certificate of Incorporation of the Company, as amended (Incorporated
by reference from the Company's Proxy Statement for the
1998 Annual Meeting)
3.2 By-laws of the Registrant, as amended (Incorporated by reference from
the Company's Proxy Statement for the 1998 Annual Meeting)
4.1 Placement Agent's Unit Purchase Option (Incorporated by reference from
the Company's Proxy Statement for the 1998 Annual Meeting)
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
10.24 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 Common Stock of the Company
issued to Berlex
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)
23.2 Consent of Independent Certified Public Accountants
24.1 Power of Attorney (see page II-5)
27 Financial Data Schedule
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.
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.
DATE SIGNATURE TITLE
March 30, 2000 /s/Daniel Glassman Chairman of the Board
--------------------------- President and Chief
(Daniel Glassman) Financial Officer
(Principal Executive
Officer)
March 30, 2000 /s/Richard C. Fuisz Director
---------------------------
(Dr. Richard C. Fuisz)
March 30, 2000 /s/Iris S. Glassman Treasurer and Director
---------------------------
(Iris S. Glassman)
March 30, 2000 /s/David H. Hillman Secretary and Director
---------------------------
(David H. Hillman)
March 30, 2000 /s/Philip W. McGinn, Jr. Director
---------------------------
(Dr. Philip W. McGinn, Jr.)
March 30, 2000 Director
---------------------------
(Dr. Seymour I. Schlager)
March 30, 2000 /s/Bruce W. Simpson Director
---------------------------
(Bruce W. Simpson)
March 30, 2000 /s/Alan G. Wolin Director
---------------------------
(Dr. Alan Wolin)
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, 1999 and 1998 F-3
Consolidated Statements of Income for the
Years Ended December 31, 1999 and 1998 F-5
Consolidated Statement of Shareholders' Equity for the
Years Ended December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8 - F-24
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, 1999 and 1998, and
the related consolidated statements of income, shareholders' equity and cash
flows for the years then ended. These financial statements are the respon-
sibility 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 auditing standards generally accepted
in the United States. 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 state-
ment 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, 1999 and 1998, and the
consolidated results of their operations, and their consolidated shareholders'
equity and their consolidated cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States.
GRANT THORNTON LLP
Edison, New Jersey
February 23, 2000
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
ASSETS 1999 1998
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 385,640 $ 1,417,746
Accounts receivable - net of allowance for
doubtful accounts of $267,000 in 1999,
$411,000 in 1998 5,947,266 4,215,303
Inventory 2,181,754 1,506,731
Prepaid samples and materials 635,507 1,144,912
Prepaid expenses and other 65,742 33,252
---------- ----------
Total current assets 9,215,909 8,317,944
PROPERTY AND EQUIPMENT, NET
298,244 357,010
INTANGIBLE ASSETS, NET 12,841,504 13,778,878
OTHER ASSETS 167,921 110,429
---------- ----------
$ 22,523,578 $ 22,564,261
========== ==========
The accompanying notes are an integral part of these statements.
F-3
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
----------- ------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,228,674 $ 170,531
Revolving credit line 2,120,321 2,395,703
Accounts payable 2,032,026 1,842,297
Accrued expenses 2,858,567 2,953,944
Income taxes payable 238,998 84,532
---------- ----------
Total current liabilities 8,478,586 7,447,007
LONG-TERM DEBT, less current maturities 162,922 1,245,851
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value;
authorized, 2,000,000 shares; issued - none - -
Common stock, $.01 par value, authorized,
26,400,000 shares; issued 8,199,683 in 1999,
8,189,315 shares in 1998 14,759,011 14,761,947
Common, Class B, $.01 par value, authorized,
900,000 shares; issued and outstanding,
431,552 shares in 1999 and 1998 845,448 845,448
Treasury stock - common stock - at cost
(766,425 shares in 1999 and 373,933 in 1998) (1,107,842) (560,883)
Accumulated deficit (614,547) (1,175,109)
---------- ----------
13,882,070 13,871,403
---------- ----------
$ 22,523,578 $ 22,564,261
========== ==========
The accompanying notes are an integral part of these statements.
F-4
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
---------------------------
1999 1998
--------- ---------
Net sales $ 18,850,294 $ 15,853,002
Cost of sales 5,083,148 4,595,582
----------- -----------
13,767,146 11,257,420
----------- -----------
Selling, general and administrative expenses 11,473,059 8,961,198
Depreciation and amortization 1,138,052 1,104,753
Interest expense - net 235,473 200,180
Other income - (47,684)
----------- -----------
12,846,584 10,218,447
----------- -----------
Income before income taxes 920,562 1,038,973
Income tax expense 360,000 120,000
----------- -----------
NET INCOME $ 560,562 $ 918,973
=========== ===========
Net income per common share
Basic $ 0.07 $ 0.11
=========== ===========
Diluted $ 0.07 $ 0.10
=========== ===========
Weighted average number
of common shares
Basic 7,970,000 8,410,000
=========== ===========
Diluted 8,020,000 8,950,000
=========== ===========
The accompanying notes are an integral part of these statements.
F-5
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common stock, Class B common stock,
$.01 par value $.01 par value
-------------------- ------------------------
Shares Amount Shares Amount
--------- -------- ------------ ---------
Balance at December 31, 1997 8,174,295 14,653,927 431,552 845,448
Stock options excercised 10,000 11,388
Shares issued for consulting
services 5,020 9,798
Compensation charge for stock
options issued to consultants 86,834
Purchase of treasury stock, net
Net income for the twelve
months ended December 31, 1998
---------- ---------- ------------ --------
Balance at December 31, 1998 8,189,315 14,761,947 431,552 845,448
Stock options excercised 5,000 3,438
Shares issued for consulting
services 5,368 12,101
Purchase of treasury stock,
net
Registration costs (18,475)
Net income for the twelve
months ended December 31,
1999
Balance at December 31, 1999 8,199,683 14,759,011 431,552 845,448
========== ========== ======== ========
Retained
Treasury Stock earnings
--------------------- (accumulated
Shares Amount deficit) Total
--------- ---------- ------------ ----------
Balance at December 31, 1997 146,088 (231,198) $ (2,094,082) 13,174,095
Stock options exercised 11,388
Shares issued for consulting
services 9,798
Compensation charge for stock
options 86,834
Purchase of treasury stock, net 227,845 (329,685) (329,685)
Net income for the twelve months
ended December 31, 1998 918,973 918,973
--------- --------- ----------- ----------
Balance at December 31, 1998 373,933 (560,883) (1,175,109) 13,871,403
Stock options excercised 3,438
Shares issued for consulting
services 12,101
Purchase of treasury stock, net 392,492 (546,959) (546,959)
Registration costs (18,475)
Net income for the twelve months
ended December 31,1999 560,562 560,562
Balance at December 31, 1999 766,425 (1,107,842) (614,547) 13,882,070
========= =========== ========== ==========
The accompanying notes are an integral part of these statements.
F-6
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
-----------------------------
1999 1998
------------ ------------
Cash flows from operating activities
Net income $ 560,562 $ 918,973
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 1,138,052 1,104,753
Allowance for doubtful accounts 30,000 350,000
Loss (Gain) on sale of fixed assets 6,905 (38,610)
Noncash compensation charges 12,101 96,632
Changes in operating assets and
liabilities
Accounts receivable (1,761,963) (2,816,447)
Inventory and prepaid samples and
materials (165,618) (156,486)
Income taxes payable 154,466 (49,400)
Prepaid expenses and other (89,982) (41,735)
Accounts payable 189,729 1,186,995
Accrued expenses (95,377) 438,697
------------ ------------
Net cash provided by (used in) operating
activities (21,125) 993,372
------------ ------------
Cash flows from investing activities
Investments in trademarks, patents and other
intangible assets (91,814) (646,994)
Purchase of property and equipment (59,918) (242,955)
Proceeds from sale of fixed assets 88,855 93,400
------------ ------------
Net cash used in investing activities (62,877) (796,549)
------------ ------------
Cash flows from financing activities
Payment of notes payable (110,726) (100,697)
Borrowings from revolving credit line, net (275,382) 1,125,946
Payment of registration costs (18,475) -
Proceeds from exercise of stock options 3,438 11,388
Purchase of treasury stock, net (546,959) (329,685)
------------ ------------
Net cash provided by (used in) financing
activities (948,104) 706,952
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,032,106) 903,775
Cash and cash equivalents at beginning of
year 1,417,746 513,971
------------ ------------
Cash and cash equivalents at end of year $ 385,640 $ 1,417,746
============ ============
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 135,000 $ 152,000
Income taxes 206,000 169,000
The Company financed a portion of the purchase of BRONTEX(R) (See Note B-6)
The Company entered into capital leases of approximately $86,000 in 1999 (See
Note E)
The accompanying notes are an integral part of these statements.
F-7
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
Bradley Pharmaceuticals, Inc. (the "Company") is a Delaware corporation founded
in 1985. The Company's primary business activity is the marketing of various
pharmaceutical and dermatological products, which have been acquired through
the purchase of trademark rights and patents. The products are sold either
over-the-counter or by prescription throughout the United States and to dis-
tributors in selected international markets.
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"), and its wholly-owned foreign sales corporation, Bradley
Pharmaceuticals Overseas, Ltd., and its wholly-owned subsidiary, Bradley
Pharmaceuticals (Canada) Inc. 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 certain product samples and promotional materials.
These items are charged to operations in the period in which they are dis-
tributed to customers.
4. Property and Equipment
Property and equipment is stated at cost. 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 the lesser of ten
years or the life of the lease 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 25 years.
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 intan-
gibles. No impairment loss was recorded for 1999 or 1998.
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. Revenue Recognition
Revenue is recognized when products are shipped to customers. An accrual for
chargebacks and rebates is recognized at the time of sale.
8. Risks, Uncertainties and Certain Concentrations
The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from expectations include, but are
not limited to, dependence on key personnel, government regulation, manu-
facturing disruptions, competition, reliance on certain customers and vendors,
absence of redundant facilities, and credit risk.
The Company is potentially subject to concentrations of credit risk, which con-
sist principally of cash and cash equivalents and trade accounts receivable.
The cash and cash equivalent balances at December 31, 1999 and 1998 were
principally held by one institution, and are in excess of the Federal Deposit
Insurance Corporation ("FDIC") insurance limit. At December 31, 1999 and 1998,
two wholesale customers accounted for approximately $2,980,000 and $1,434,000 or
48% and 31%, respectively, of the total accounts receivable balance.
Approximately 24% and 37% of the Company's net sales for the years ended
December 31, 1999 and 1998 were derived from sales of its DECONAMINE(R)
products. The Company cannot predict the date Deconamine(R)SR status, will
change from a prescription product to an over-the-counter product as mandated
by the United States Food and Drug Administration, ("FDA"). Based upon infor-
mation obtained from the FDA, the Company believes the status as a prescription
product will not change in the foreseeable future.
For the year ended December 31, 1999, four wholesale customers accounted for
approximately 24%, 17%, 12% and 10% respectively, of net sales. For the year
ended December 31, 1998, three wholesale customers accounted for approximately
20%, 13% and 10% of net sales.
One vendor that manufactures products for the Company accounted for approx-
imately 10% and 16% of the Company's cost of goods sold for the years ended
December 31, 1999 and 1998. The Company currently has no manufacturing
facilities of its own and, accordingly, is dependent upon maintaining its
existing relationship with its vendors or establishing new vendor relationships
to avoid a disruption in the supply of products to supply inventory. There can
be no assurance that the Company would be able to replace its current vendors
without any disruption to operations.
The Company had export sales of approximately 9% and 12% of its net sales for
the years ended December 31, 1999 and 1998, respectively.
9. 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 instruments which are
potentially common stock.
10. Income Taxes
The Company and its subsidiaries file a consolidated Federal income tax return.
Deferred income taxes are provided for the future tax consequences attributable
to the differences between the financial statement carrying amounts of assets
and liabilities and their respective tax base. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion of the deferred tax assets will not be realized.
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 $1,630,000 and $2,020,000
at December 31, 1999 and 1998, respectively (included in 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 during
the year ended December 31, 1999, resulted in increased net sales and net income
of $464,000. During the year ended December 31, 1998 the Company's analysis
of the trend in actual chargebacks and rebates resulted in a reduction of the
accrual in the amount of $633,000. During 1998, the Company received monetary
concessions of approximately $44,000 from managed care vendors receiving
rebates.
14. Advertising
The Company expenses advertising costs as incurred. Total advertising costs
charged to expense amounted to approximately $2,714,000 and $1,520,000 for the
years ended December 31, 1999 and 1998, respectively.
15. Stock Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees," and related inter-
pretations in accounting for its employee stock options. Under APB 25, because
the exercise price of the employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recorded.
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation."
16. New Accounting Standards
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instru-
ments and Hedging Activities". SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction and, if it is, the type of hedge transaction. The Company does
not expect that the adoption of SFAS No. 133 will have a material impact on its
consolidated financial statements because the Company does not currently hold
any derivative instruments.
NOTE B - INTANGIBLE ASSETS
Intangible assets are summarized as follows:
December 31, December 31,
1999 1998
---- ----
Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
Trademarks......... $18,135,614 $6,018,144 $18,053,654 $5,249,199
Patents............ 1,327,454 1,211,758 1,327,454 1,091,364
Licenses........... 124,886 84,240 124,886 71,760
Goodwill........... 1,265,490 697,798 1,255,637 570,430
Covenants not to
compete............ 162,140 162,140 162,140 162,140
----------- ---------- ----------- ----------
$21,015,584 $8,174,080 $20,923,771 $7,144,893
=========== ========== =========== ==========
Intangible assets arose principally from the Doak acquisition (Note C) and the
following significant transactions.
1. TRANS-VER-SAL(R) Acquisition
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)"). Of the total purchase price, $866,250 was attri-
buted to trademarks with an estimated life of 20 years.
2. DECONAMINE(R) Acquisition
On December 10, 1993, the Company acquired from Berlex Laboratories, Inc.
("Berlex"), a subsidiary of Schering AG, all technical, proprietary rights,
distribution rights, including trademarks and registrations to an allergy and
decongestant remedy called DECONAMINE(R) ("DECONAMINE(R)"). The purchase
agreement was amended several times.
The total amount of consideration issued for the DECONAMINE(R) acquisition is
as follows: (1) Cash paid for 1993- $6,000,000; 1994- $2,000,000;
1996- $2,660,000; 1997- $1,650,000 (2) Common stock issued for 1996- 1,000,000
shares; and 1997- 450,000 shares (3) Warrants issued for 1997- 750,000 warrants
with an exercise price of $1.25 expiring on September 19, 2001. Of the total
purchase price, $12,962,994 was attributed to trademarks with an estimated life
of 25 years.
3. PAMINE(R) Acquisition
In February 1994, the Company acquired from Pharmacia & Upjohn, Inc., all United
States manufacturing, packaging and proprietary rights, including all trade-
marks, registrations, marketing data, and customer lists of PAMINE(R) tablets,
methscopalamine bromide, used in connection with the treatment of peptic ulcers.
Of the total purchase price, $251,000 was allocated to trademarks with a useful
life of 15 years.
4. CARMOL(R) Acquisition
In June 1994, the Company acquired from Syntex (U.S.A.) Inc. ("Syntex"),
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(R) Products"). The Company agreed to pay Syntex a 3% royalty on sales
of the CARMOL(R) Products, commencing June 10, 1997 for a period of seven
years. Of the total purchase price, $495,000 was allocated to trademarks with a
useful life of 10 years.
5. ACIDMANTLE(R) Acquisition
In May 1996, the Company acquired from Novartis Pharmaceuticals Corp.
("Novartis") the trademark rights to the ACIDMANTLE(R) skin treatment line,
including the manufacturing, marketing and distribution rights within the United
States and Puerto Rico. Approximately $200,000 of the purchase price remains
due at December 31, 1999. The majority of the Purchase Price of $900,000 was
attributed to trademarks with an estimated life of 10 years.
6. BRONTEX(R) Acquisition
In October 1998, the Company acquired from Procter & Gamble Pharmaceuticals, Inc
("P&G") all technical information, know-how, formulae, processes, clinical
studies, trade secrets, confidential and/or proprietary information, documents
and/or materials, customer lists, technology, formulations, specifications,
stability protocols and product impurity data, testing data and analytical
methods and other information relating to an antitussive/expectorant remedy
called BRONTEX(R) ("BRONTEX(R)"). The remaining $1,228,000 of the purchase
price was paid on February 7, 2000. The majority of the purchase price of
$1,842,000 was attributed to trademarks with an estimated life of 20 years.
NOTE C - ACQUISITION OF DOAK PHARMACAL CO., INC.
In 1994 and 1995, the Company acquired the shares of Doak Pharmacal Co., Inc.
("Doak"), for approximately $1,349,000. Doak was a publicly traded company
engaged in the manufacture and sale of over-the-counter cosmetic dermatologic
products and ethical dermatologic products. The acquisition was accounted for
as a purchase. Goodwill resulting from this purchase totaling approximately
$1,136,000 is being amortized over ten years.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
Year ended Year ended
December 31,1999 December 31,1998
---------------- ----------------
Furniture and Fixtures $ 560,708 $ 618,949
Equipment 538,161 669,086
Leasehold Improvements 19,783 69,969
--------- ---------
1,118,652 1,358,004
Accumulated Depreciation (820,408) (1,000,994)
--------- ---------
$ 298,244 $ 357,010
========= =========
NOTE E - INCOME TAXES
The provision for income tax expense (benefit) is as follows:
Year ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Current
Federal $268,000 $173,000
State 92,000 50,000
------- -------
360,000 223,000
Utilization of Federal net operating
loss carryforwards - (103,000)
------- -------
$360,000 $120,000
======= =======
The following is a summary of the items giving rise to deferred tax assets at
December 31, 1999 and 1998.
1999 1998
---- ----
Current
Allowance for doubtful accounts $ 99,000 $ 147,000
Allowance on sales 193,000 168,000
Inventory reserves and capitalization 99,000 73,000
Accrued expenses 73,000 58,000
------- -------
464,000 446,000
------- -------
Long-term
Amortization of intangibles and
fixed assets 129,000 177,000
------- -------
Total deferred tax assets 593,000 623,000
Less valuation allowance (593,000) (623,000)
------- -------
$ ----------- $ -----------
=========== ===========
A valuation allowance has been recorded at December 31, 1999 and 1998 reflecting
the uncertainty of the future utilization of these tax benefits.
The difference between the actual Federal income tax expense and the amount com-
puted by applying the prevailing statutory rate to income before income taxes is
reconciled as follows:
Year ended Year ended
December 31, 1999 December 31, 1998
----------------- -----------------
Tax at statutory rate 34.0% 34.0%
State income tax expense, net of
Federal tax effect 6.6 3.2
Change in valuation allowance
and previously Unrecorded
benefits - (33.2)
Other (1.5) 7.6
----- ------
Effective tax rate 39.1% 11.6%
===== =====
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 F - REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
On April 7, 1999, the Company entered into a loan agreement with LaSalle
Business Credit, Inc. ("LaSalle") that is comprised of a $5 million revolving
asset-based credit facility and a $2.5 million acquisition note for future
product acquisitions. In order to close this new loan agreement with LaSalle,
the Company paid in full the outstanding loan balance and early termination
penalties to The CIT Group/Credit Finance, Inc. ("CIT") of approximately $1.6
million, using a portion of the availability from the new revolving credit
facility. Advances under this new revolving credit facility are calculated
pursuant to a formula, which is based on the Company's then "eligible" accounts
receivable and inventory levels. Advances under the $2.5 million acquisition
note are pursuant to the Company finding a potential acquisition and receiving
LaSalle's final approval. This new loan agreement has an initial term of three
years, requires an annual fee, and is subject to an unused credit line percent-
age fee. Interest accrues on amounts outstanding under this new loan agreement
at the rate equal to the prime rate of interest, announced from time to time,
by LaSalle National Bank plus 1% for the revolving credit facility and plus 2%
for the amount outstanding for the acquisition note. The prime rate of interest
announced by LaSalle National Bank at December 31, 1999 was 8.5%. The Company's
obligations under this new loan have been collateralized by the Company's grant
to LaSalle of a lien upon, and the pledge of a security interest to the
Company's prior lien with CIT, which consists of substantially all assets of the
Company. As of December 31, 1999, $1,350,000 was available under the revolving
asset-based credit facility.
The loan agreement with LaSalle includes various restrictive covenants
prohibiting the Company with certain limited exceptions, from, among other
things, incurring additional indebtedness and paying dividends, substantial
asset sales and certain other payments. The loan agreement also contains
financial covenants including net worth, interest coverage ratio, debt service
ratio, and earnings before interest, taxes, depreciation, and amortization.
As of June 30, 1999 and December 31, 1999, the Company was in violation of the
net worth covenant and EBITDA covenant, respectively, which have been waived
by LaSalle. The Company expects that violations of certain covenants may occur
during 2000 and is currently in discussions with LaSalle in attempt to amend
those covenants. All of the Company's borrowings under the revolving
asset-based credit facility have been classified as current as of December 31,
1999.
On February 7, 2000, the Company borrowed $1,161,130 from the acquisition note
in order to satisfy the note payable that was in connection with the acquisition
of BRONTEX(R). Subsequent to borrowing the funds, the remaining balance
available for future product acquisitions from the acquisition note is
$1,338,870.
Long-term debt consists of the following:
December 31, 1999 December 31, 1998
----------------- -----------------
Installment note due 2001 (a) $ 60,084 $ 80,261
Installment note due 2001 (b) 174,725 250,890
Promissory note due 2000 (c) 1,083,530 1,083,530
Capital lease obligations (d) 71,556 -
Other installment notes 1,701 1,701
--------- ---------
1,391,596 1,416,382
Less: current maturities (1,228,674) (170,531)
--------- ---------
$ 162,922 $ 1,245,851
========= =========
(a) The note payable, 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 May 1996 in connection with the
acquisition of a trademark (ACIDMANTLE(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.
(c) The note payable, which originated in October 1998 in connection with the
acquisition of trademark (BRONTEX(R)) is noninterest bearing and was paid
in February 2000. Interest at an annual rate of 10% was imputed for this
note. This note is collateralized by the trademark assigned to the
Company.
(d) The capital lease obligations consist of a forklift and automobile lease
payable in monthly installments of $1,928 through April 2002 and $1,225 from
April 2002 through March 2004.
The annual maturities of long term debt are $1,229,000 due in 2000, $130,000 due
in 2001, $16,000 due in 2002 and $17,000 due in 2003. Because of the nature of
the Company's debt, it is impractical to determine its fair value.
NOTE G - RELATED PARTY TRANSACTION
1. Transactions With an Affiliated Company
During the years ended December 31, 1999 and 1998, the Company received
administrative support services (consisting principally of advertising services,
mailing, copying, financial services, data processing and other office services)
which were charged to operations from Banyan Communications Group, Inc.
("Banyan"), an affiliate, in the amount of $197,800 and $184,800, respectively.
2. Transactions With Shareholders
The Company leases office facilities in Fairfield, New Jersey from Daniel and
Iris S. Glassman, directors and shareholders of the Company. The lease is for
the period from February 1, 1998 to January 31, 2003 for 14,100 square feet of
office and warehouse space. The rent expense, including an allocated portion of
real estate taxes, was approximately $224,000 and $228,000 for the years ended
December 31, 1999 and 1998, respectively.
On January 3, 2000, the Company advanced $100,000 to Daniel Glassman, pursuant
to a promissory note bearing interest at 8.25% per annum. The accrued interest
and principal is due in full, three years from the execution date, except that
fifty percent of all future bonus payments will be applied first to accrued
interest, then to principal.
NOTE H - SHAREHOLDERS' EQUITY
The Company's authorized shares of common stock are divided into two classes, of
which 26,400,000 shares are common stock and 900,000 shares are Class B common
stock. The rights, preferences and limitations of the common stock and the
Class B common stock are equal and identical in all respects, except that each
common stock 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 sub-
mitted to the shareholders of the Company for a vote.
Both 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 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 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.
1. Stock Repurchase Plan
In January 1997, the Company announced a program to repurchase up to 400,000
shares of the outstanding common stock in open market transactions over 24
months. In January 1999, the Company completed the program and began another
program to repurchase an additional 600,000 shares of the outstanding common
stock in open market transactions or a cumulative repurchase of 12% over the
next 36 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 the
Company's matching contributions to the 401(k) Plan. During 1999, the Company
acquired 429,000 shares at a cost of $580,000 and in 1998 the Company acquired
257,000 shares at a cost of $370,000.
2. Incentive and Non-Qualified Stock Option Plan
Under the 1990 Stock Option Plan, 2,600,000 shares of common stock are reserved
for issuance. This plan expired upon the adoption of the 1999 Incentive and
Non-Qualified Stock Option Plan.
During 1999, the Board of Directors adopted the 1999 Incentive and Non-Qualified
Stock Option Plan, reserving 3,250,000 shares of common stock for issuance.
The plan will expire on January 31, 2010, but options may remain outstanding
past this date. As of December 31, 1999, 3,073,000 shares were available for
grant.
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:
Weighted
Average
Number of Exercise
Options price
--------- --------
Balance, January 1, 1998 1,341,125 $1.32
Granted 111,950 2.05
Exercised (10,000) 1.14
Canceled (144,130) 1.45
--------- ----
Balance, December 31, 1998 1,298,945 $1.43
Granted 327,000 1.29
Exercised (5,000) .69
Canceled (309,375) 1.46
--------- ----
Balance, December 31, 1999 1,311,570 $1.37
========= ====
As of December 31, 1999, options outstanding for 974,436 shares were exercisable
at a weighted average price of $1.37, and the weighted remaining contractual
life was 3.8 years. As of December 31, 1998, options outstanding for 1,188,495
shares were exercisable at a weighted average price of $1.43, and the weighted
remaining contractual life was 3.6 years. Compensation cost charged to
operations, which the Company records for options granted to nonemployees, was
none and $10,444 in the years ended December 31, 1999 and 1998, respectively.
There were 103,577 options outstanding to nonemployees at December 31, 1999,
of which 97,677 were exercisable. There were 108,952 options outstanding to
nonemployees at December 31, 1998, of which 99,852 were exercisable. Options
issued typically vest over 3 years and have expiration dates ten years after
issuance for employees and five years for board members.
The following table summarizes option data as of December 31, 1999:
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of Exercise as of Remaining Average as of Average
Prices December31, Contractual Exercise December31, Exercise
------ 1999 Life Price 1999 Price
---- ---- ----- ---- -----
$.68 - $1.40 880,433 3.3 1.15 697,233 1.19
1.41 - 3.65 431,137 4.3 1.81 277,203 2.00
--------- -------
1,311,570 974,436
========= =======
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:
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, 1999 90%
Had compensation cost been determined under SFAS No. 123, net income and net
income per share would have been as follows:
Year ended December 31,
1999 1998
---- ----
Net income
As reported $ 560,562 $ 918,973
Pro forma for SFAS No. 123 adjustment 476,945 828,965
Net Income per share
As reported
Basic $.07 $.11
Diluted .07 .10
Pro forma for SFAS No. 123 adjustment
Basic $.06 $.10
Diluted .06 .09
The weighted average fair value of options granted during 1999 and 1998 was
$ 1.29 and $ 2.05, respectively.
The exercise price of all options granted during the years ended December 31,
1999 and 1998 equaled the market price on the grant date.
3. Reserved Shares
The following table summarizes shares of common stock reserved for issuance at
December 31, 1999:
Number
Of shares
Reserved for Issuable
------------ --------
Warrants to Stern Stewart for consulting services
(expiring October 1, 2001) 70,000
Warrants to NetWorld Capital, Inc. for consulting services
(expiring July 9, 2008) 8,500
Warrants to Berlex Laboratories, Inc.
(expiring September 19, 2001) 750,000
1990 and 1999 Stock Option Plans 1,311,570
---------
2,140,070
=========
NOTE I - 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 warehouse
facilities in Fairfield, New Jersey; and office facilities in Chicago, Illinois.
The Company vacated its leased manufacturing and warehouse space in Westbury,
New York in 1999 and 1998, respectively.
The lease on the Fairfield, New Jersey facility is for a period from February 1,
1998 to January 31, 2003 for 14,100 square feet of office and warehouse space,
with an option to renew and also includes payments of electric, water and
sewer and the allocated portion of the real estate taxes. Rent expense,
including an allocated portion of real estate taxes, was approximately $224,000
and $228,000 for the years ended December 31, 1999 and 1998, respectively.
During 1999, the Company rented 6,000 square foot warehouse in Fairfield, New
Jersey for rent expense totaling $45,000, with an option to renew and also
includes payments of electric, water and sewer, insurance, and common area
maintenance. The term of the lease is for two years.
Approximate aggregate minimum annual rental commitments, including rent and real
estate taxes, are as follows: $279,000 for 2000, $233,000 for 2001, $229,000
for 2002, $19,000 for 2003, and none for 2004. Total rent expense for the years
ended December 31, 1999 and 1998 was $282,000 and $331,000, respectively.
2. Distribution Arrangement
The Company has a distribution arrangement with a third party public warehouse
located in Tennessee to warehouse and distribute substantially all of its pro-
ducts. This arrangement provides that the Company will be billed based on
invoiced sales of the products distributed by such party, plus certain
additional charges.
3. Environmental Matters
On April 8, 1994, the Company was apprised by the New York State Department of
Environmental Conservation ("NYSDEC") that Doak's former leased manufacturing
facility (through January 1999) located at 67 Sylvester Street in 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 desig-
nated by the NYSDEC on the Registry of Inactive Hazardous Waste Sites (the
"Registry"). The real property on which Doak's former manufacturing facility,
Sylvester Street, is situated is owned by and was leased to the Company by
Dermkraft, Inc., an entity owned by the former controlling shareholders and
officers of Doak.
The NYSDEC refer to Doak Dermatologics as the former tenant and do not refer to
any activities of Doak Dermatologics or the Company as a basis for the listing
in the Registry. The Company believes that remediation costs, if any, of the
former manufacturing facility on Sylvester Street will not 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. Legal Proceedings
The Company is involved in legal proceedings of various types in the ordinary
course of business. While any such litigation to which the Company is a party
contains an element of uncertainty, management presently believes that the out-
come of each such proceeding or claim which is pending or known to be
threatened, or all of them combined, will not have a material adverse effect on
the Company's consolidated financial position.
5. 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 common stock
held in Treasury. Contributions of $44,700 and $23,500 incurred for the year
ended December 31, 1999 and 1998, respectively.
NOTE J - WEIGHTED AVERAGE SHARES
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. A reconciliation of the weighted average basic common
shares outstanding to weighted average diluted common shares outstanding
follows:
As of December 31, As of December 31,
1999 1998
---- ----
Basic Shares 7,970,000 8,410,000
Dilution: Stock options and warrants 50,000 540,000
--------- ---------
Diluted shares 8,020,000 8,950,000
Income available to common shares $ 560,562 $ 918,973
Basic earnings per share $ .07 $ .11
Diluted earnings per share $ .07 $ .10
NOTE K - BUSINESS SEGMENT INFORMATION
The Company's two reportable segments are Kenwood Therapeutics (nutritional,
respiratory, personal hygiene and internal medicine brands) and Doak
Dermatologics, Inc. (dermatological brands).
The accounting policies used to develop segment information correspond to those
described in the summary of significant accounting policies. The reportable
segments are distinct business units operating in different industries with no
intercompany sales. The following information about the two segments is
for the year ended December 31, 1999 and 1998.
1999 1998
---- ----
Net sales:
Kenwood Laboratories $10,688,229 $9,505,958
Doak Dermatologics, Inc. 8,162,065 6,347,044
---------- ---------
$18,850,294 $15,853,002
========== ==========
Interest expense, net:
Kenwood Laboratories $205,897 $170,582
Doak Dermatologics, Inc. 29,576 29,598
---------- ----------
$235,473 $200,180
========== ==========
Depreciation and
amortization:
Kenwood Laboratories $893,721 $858,739
Doak Dermatologics, Inc. 244,331 246,014
---------- ----------
$1,138,052 $1,104,753
========== ==========
Net income (loss):
Kenwood Laboratories ($248,825) $1,037,664
Doak Dermatologics, Inc. 809,387 (118,691)
---------- ----------
$560,562 $918,973
========== ==========
Segment total assets:
Kenwood Laboratories $19,601,902 $19,190,431
Doak Dermatologics, Inc. 2,921,676 3,373,830
---------- ----------
$22,523,578 $22,564,261
========== ==========
Expenditure for segment
assets:
Kenwood Laboratories $165,066 $1,885,497
Doak Dermatologics, Inc. 132,258 87,982
---------- ----------
$297,324 $1,973,479
========== ==========
Geographic information
(revenues):
Kenwood Laboratories
United States $10,213,932 $8,866,129
Other countries 474,297 639,829
---------- ----------
$10,688,229 $9,505,958
========== ==========
Doak Dermatologics, Inc.
United States $6,920,031 $5,177,608
Other countries 1,242,034 1,169,436
---------- ----------
$8,162,065 $6,347,044
========== ==========
The basis of accounting that is used by the Company to allocate expenses that
relate to both segments are based upon the proportionate quarterly net sales
of each segment. Accordingly, the allocation percentage used can differ
between quarters and years depending on the segments proportionate net sales
over total net sales.
F - 22
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 23, 2000, accompanying the consolidated
financial statements included in the Annual Report of Bradley Pharmaceuticals,
Inc. and subsidiaries on Form 10-KSB for the year ended December 31, 1999. We
hereby consent to the incorporation by reference of said report in the
Registration Statements of Bradley Pharmaceuticals, Inc. on Form S-3
(No. 333-75997) and (No. 333-60879) on Form SB-2.
GRANT THORNTON LLP
Edison, New Jersey
March 30, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 385,640
<SECURITIES> 0
<RECEIVABLES> 5,947,266
<INVENTORY> 2,181,754
<CURRENT-ASSETS> 9,215,909
<PP&E> 1,118,652
<DEPRECIATION> 820,408
<TOTAL-ASSETS> 22,523,578
<CURRENT-LIABILITIES> 8,478,586
<LT DEBT> 162,922
0
0
<COMMON> 15,604,459
<OTHER-SE> (1,722,389)
<TOTAL-LIABILITY-AND-EQUITY> 22,523,578
<SALES> 18,850,294
<TOTAL-REVENUES> 18,850,294
<CGS> 5,083,148
<TOTAL-COSTS> 5,083,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235,473
<INCOME-PRETAX> 920,562
<INCOME-TAX> 360,000
<INCOME-CONTINUING> 560,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 560,562
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
