FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15d) OF
THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q SB
[X] QUARTERLY REPORT PER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the period ended SEPTEMBER 30, 1999.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
__________________to_________________.
Commission File Number 0-9860
BIOSEARCH MEDICAL PRODUCTS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2090421
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
35 INDUSTRIAL PARKWAY, SOMERVILLE, NEW JERSEY 08876-1276
- --------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code + 4)
Registrant's telephone number, including area code: (908) 722-5000
-----------------
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 such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] No
Indicate the number of shares outstanding of each of the issuers classes of
Common Stock, as of the close of the period covered by this report.
OUTSTANDING AT
CLASS SEPTEMBER 30, 1999
---------------- --------------------
Common Stock,
without par value 2,202,878
BIOSEARCH MEDICAL PRODUCTS, INC.
INDEX TO FORM 10-Q SB
SEPTEMBER 30, 1998
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Condensed Balance Sheet at September 30, 1999 (unaudited)
and December 31, 1998. ......................................... 3 - 4
Condensed Statements of Operations (unaudited)
for the three month periods and nine month periods ended
September 30, 1999 and September 30, 1998. ..................... 5
Condensed Statements of Cash Flows (unaudited)
for the nine month periods ended
September 30, 1999 and September 30, 1998. ..................... 6
Notes to (unaudited) Condensed
Financial Statements. .......................................... 7 - 8
Management's Discussion and Analysis of the Financial
Condition and the Results of Operations. ....................... 9 - 10
PART II - OTHER INFORMATION
Signatures. .................................................... 11
2
PART I
ITEM I - FINANCIAL STATEMENTS
BIOSEARCH MEDICAL PRODUCTS, INC.
CONDENSED BALANCE SHEETS
ASSETS
SEPTEMBER 30 DECEMBER 31
1999 1998(1)
------------ -----------
UNAUDITED
CURRENT ASSETS:
Cash and cash equivalents ................ $ 10,206 $105,768
Trade receivables ........................ 213,366 78,751
Inventories (note 2) ..................... 404,366 297,613
Other assets ............................. 182,874 256,127
-------- --------
TOTAL CURRENT ASSETS ..................... 810,812 738,259
PROPERTY, PLANT AND EQUIPMENT, (NET) ............. 81,837 152,887
OTHER ASSETS ..................................... 3,251 5,862
-------- --------
TOTAL ASSETS ............................. $895,900 $896,998
======== ========
(1) - Derived from audited financial statements.
(continued)
3
BIOSEARCH MEDICAL PRODUCTS, INC.
CONDENSED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
SEPTEMBER 30 DECEMBER 31
1999 1998(1)
------------ ------------
UNAUDITED
CURRENT LIABILITIES:
Customer deposit ........................ $ -- $ 380,000
Accounts payable ........................ 390,439 253,498
Accrued liabilities ..................... 77,582 174,330
------------ ------------
TOTAL CURRENT LIABILITIES ............... 468,021 807,828
LONG-TERM DEBT (NOTE 3) ......................... -- --
------------ ------------
TOTAL LIABILITIES ....................... 468,021 807,828
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 5,000,000
shares authorized; issued 2,202,878
at Sept 30, 1999, and at
Dec 31, 1998 .......................... 11,129,954 11,129,954
Accumulated deficit ..................... (10,670,836) (11,009,545)
Treasury stock, at cost; 7,920 shares
at Sept 30, 1999 and at Dec 31, 1998 .. (31,239) (31,239)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY .............. 427,879 89,170
------------ ------------
$ 895,900 $ 896,998
============ ============
(1) -- Derived from audited financial statements.
See accompanying notes to unaudited condensed
financial statements.
4
BIOSEARCH MEDICAL PRODUCTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues, net ...................... $ 370,685 $ 186,169 $ 1,087,160 $ 1,171,351
Cost of goods sold ................. 318,243 223,683 874,156 974,765
----------- ----------- ----------- -----------
Gross profit ....................... 52,442 (37,514) 213,004 196,596
Selling, general and
administrative costs ........... 202,577 211,274 616,186 637,334
----------- ----------- ----------- -----------
Operating loss ..................... (150,135) (248,788) (403,182) (440,737)
Other income/(expense):
Interest expense ............... -- -- -- (22,427)
Other, net ..................... 10 5,000 150,632 6,886
Gain on sale of fixed assets
and technology ............... -- -- 591,259 --
----------- ----------- ----------- -----------
10 5,000 741,891 (15,541)
----------- ----------- ----------- -----------
Pre-tax net income/(loss) .......... (150,125) (243,788) 338,708 (456,278)
Federal income taxes
----------- ----------- ----------- -----------
NET INCOME/(LOSS) .................. $ (150,125) $ (243,788) $ 338,708 $ (456,278)
=========== =========== =========== ===========
NET INCOME/(LOSS) PER COMMON SHARE.. $ (.07) $ (.11) $ .15 $ (.21)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES ................. 2,202,878 2,202,878 2,202,878 2,202,878
========= ========= ========= =========
See accompanying notes to
unaudited condensed financial statements
5
BIOSEARCH MEDICAL PRODUCTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 338,708 $(456,278)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization ................... 24,426 49,394
Gain on sale of fixed assets and technology ..... (591,259) --
--------- ---------
Sub total ............................ (566,833) 49,394
--------- ---------
CHANGES IN ASSETS AND LIABILITIES:
(Increase)/decrease in accts receivable ......... (134,615) 236,349
(Increase/decrease in inventory ................. (106,752) 17,820
Decr/(incr) in other current assets ............. 73,253 33,534
Increase in other assets ........................ 2,611 (3,071)
Increase)/(decrease) in accts payable ........... 136,941 (58,739)
Increase/(decrease) in other liabilities ........ (96,747) 245,000
Increase/(decrease) in customer deposits ........ (180,000) 47,103
--------- ---------
Sub total ............................ (305,309) 517,996
--------- ---------
Total adjustments ................................... (872,142) 567,390
--------- ---------
Net cash (used)/provided by operating activities .... (533,434) 111,112
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................ (12,128) (3,488)
Proceeds from sale of fixed assets and technology 450,000 --
Net cash(used)/provided by investing activities ..... 437,872 (3,488)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings ...... -- --
--------- ---------
Net cash used in financing activities ............... -- --
--------- ---------
Net (decrease)/increase in cash & cash equivalents .. (95,562) 107,624
Cash & cash equivalents at beginning of period ...... 105,768 14,486
--------- ---------
Cash & cash equivalents at end of period ............ $ 10,206 $ 122,110
========= =========
See accompanying notes to
unaudited condensed financial statements
6
BIOSEARCH MEDICAL PRODUCTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The accounting policies followed by the Company are set forth in Note 1 of
Notes to Condensed Financial Statements in the 1998 Annual Report on Form
10-KSB.
In the opinion of the management of the Company, the accompanying condensed
financial statements contain only normal and recurring adjustments necessary for
the fair presentation of the Company's financial position as of September 30,
1999 and the results of operations for the three month periods and nine month
periods ended September 30, 1999 and September 30, 1998 and the statement of
cash flows for the three month periods and nine month periods ended September
30, 1999 and September 30, 1998.
The results of operations for the three month periods and nine month
periods ended September 30, 1999 are not necessarily indicative of the results
to be expected for a succeeding quarter or for the full year.
2. INVENTORIES
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
UNAUDITED
Finished Goods ............. $129,397 $ 96,263
Work In Process ............ 84,917 61,915
Raw Materials .............. 190,052 139,435
-------- --------
$404,366 $297,613
======== ========
3. OTHER INCOME
In February 1999, the Company reached an agreement with C.R.Bard where they
purchased the worldwide exclusive rights to the coating technology for
intermittent urinary catheters and the related coating machine for $650,000. The
machine had a net book value of $58,741 creating a gain on the sale of $591,259.
The Company received $450,000 cash and applied a $200,000 deposit.
On June 7, 1999 the Company entered into an agreement with Applied Medical
Resources in which they were granted a perpetual, non exclusive, worldwide
license for using the Company's Licensed Technology for the sum of $150,000. The
entire amount was recognized as other income.
4. COMMITMENTS AND CONTINGENCIES
There are no claims or actions against the Company which will materially
effect its financial statements.
7
BIOSEARCH MEDICAL PRODUCTS, INC.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues were $370,685 for the three months ended September 30, 1999, up
$184,516 or 199.1% compared to revenues of $186,169 for the prior year three
month period. Year to date sales were$1,087,160 down by $84,191 or 8.2% from
last years sales of $1,171,351.OEM sales were off approximately $124,000 due
primarily to the loss of the SIMS/Portex business which stopped in June 1998 and
was replaced by the Company's agreement with C.R.Bard in February 1999. The
delay in finalizing the agreement cost the Company OEM revenues. Purchase orders
from C.R. have not been as significant as expected due to the delay in their
product launch. OEM sales were partially offset by the arrangement with
Wilson-Cook to sell our bi-polar coagulation probes which generated revenues of
approximately $290,000 during the first nine months of 1999. Direct sales were
ahead of last year by approximately $45,000.
Gross profit for the third quarter 1999 was $52,442, up $89,956 from a
loss of $37,514 for the same period in 1998.There was a significant increase in
gross profit due primarily to the increase in OEM sales from Wilson-Cook and
C.R.Bard. Nine month figures reflect the same trend, gross profit of $196,596 is
29.2% better than last years gross profit of $152,167. As a percent of sales
however, gross profit has dropped from 23.8% of year to date second quarter
sales to 16.8% of sales for year to date third quarter sales. This was due
primarily to the loss of the SIMS/ Portex business as discussed earlier, offset
by the cost reduction procedures implemented in 1996 and which still continue
today.
The operating loss for the third quarter 1999 was $168,135 or 45.3% of
sales. This represents a decline in the loss of $80,653 or 33.4% compared to the
1998 loss of $248,788 or 133.6% of sales during the same period last year. Year
to date 1999, the operating loss is $421,182 or 38.7% of sales against a loss of
$440,737 or 37.6% of sales for 1998. These losses are largely due to the loss of
the SIMS/Portex business as discussed earlier along with the new OEM business
with Wilson-Cook and C.R.Bard, offset by significant cost reductions attained in
the sales and general administration area during this period.
The net loss for the third quarter 1999 was $168,125 or 45.3%of sales,
which was $75,663 or 31% less than 1998 third quarter net loss of $243,788 or
130.9% of sales. As of September 30, 1999 the year to date net income is
$320,708 or 29.5% of sales, which is greater by $776,986 or 170.3% from last
years loss of $456,278 or 39% of sales. Cost reductions continue to be attained,
however sales volumes have to be increased for the company to continue as a
going concern. The major reason for the change in net income is because of the
C.R.Bard deal signed in earl 1999, in which the Company recognized a gain on the
sale of fixed assets and technology of $591,259 and the agreement signed in June
1999 with Applied Medical Resources in which the Company recognized $150,000 in
other income(see footnote No.3).
8
BIOSEARCH MEDICAL PRODUCTS, INC.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $533,434 for the nine months ended
September 30, 1999 and investing activities generated $437,872. There were no
financing activities during the same period.
For the nine month period ended September 30, 1999 the Company used
$533,434 from operating activities. This is due primarily to increases in
accounts receivable of $134,615; inventory of $106,752; decreases in other
liabilities of $96,747; customer deposits of $180,000 and a gain on sale of a
fixed asset of $591,259 offset by a decrease in other assets of $73,253;
increase in accounts payable of $136,941 and the net income for nine months of
$338,708. Investing activities generated $437,872 during the nine month period.
This was primarily due to the cash proceeds of the sale of a fixed asset of
$450,000 offset by capital expenditures of $12,128 during the same period. Net
income was positive because of two separate agreements during 1999: the C.R.Bard
agreement amounting to $650,000 for the worldwide exclusive to the coating
technology for intermittent urinary catheters and its related coating machine
and an agreement with Applied Medical Resources in which the Company granted
perpetual worldwide, non exclusive license to use the Company's Licensed
Technology for the sum of $150,000. Efforts are underway to collect receivables
in a more timely fashion and to consult with its vendors to extend terms thereby
increasing the Company's cashflow. The prepaid purchase order from C.R.Bard of
$180,000 has been completed.
Management believes that the Company's financial condition at September
30,1999 represents an uncertain base to conduct operations. The Company's
ability to continue as a going concern is dependent upon its success at
generating cash flow or obtaining additional financing to meet its capital needs
and curtailing the ongoing losses by generating profitable revenue levels. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
The Company continues to focus all its efforts on its OEM business and its
intermittent urinary catheter product line. The Company is ISO 9001 certified
and received its CE mark certification for all its products including devices
such as the coagulation probe, indwelling biliary stent, urinary and fecal
incontinence/constipation device, intermittent urinary catheter and
enteral/gastrostomy related devices. The Company feels this will open up the
European market to its products and allow additional relationships with other
large medical product companies who have not received their CE certification and
wish to sell their products in Europe.
9
YEAR 2000 ISSUE
The Company has conducted a review of its computer systems and products to
identify what could be affected by the "Year 2000" issue. No products are
affected; all PC based hardware and software are not affected; the Company's
System 36 software may not perform the Year 2000 calculation correctly, hence
the Company is developing an implementation plan to resolve the issue. The Year
2000 problem is a result of computer programs written using only two digits
rather than four digits to define the applicable year. The Company presently
believes with modification to existing software or converting to new software
and hardware, the Year 2000 will not pose significant operational problems for
the Company's computer system.
In 1998 the Company formed a Y2K committee of its CEO, President and two
Vice Presidents. The committee has determined:
1. The contents of all previous disclosures in its filings with the
S.E.C., remain accurate except as noted below.
2. It has been reaffirmed that the design of all the Company's products do
not contain any characteristics that will be affected by the Y2K issue.
The only product that contained software code is an enteral feeding pump
(discontinued) which did not use any date functions.
As to operations, the Company is still evaluating its suppliers and vendors for
any potential business interruption against a worse case scenario of:
1. Loss of power for fourteen days, brown outs for another fourteen days.
2. Loss of natural gas after twenty one days, outage is indefinite.
3. Disruptions in transportation for thirty days.
4. Banking closure for four weeks.
Originally the Company's expenditure to deal with this scenario was thought to
be material, however the landlord has made all necessary expenditures needed,
therefor the Company's expenditure will not be material. It has advised its
clients that shipments will be held after 12/1/99 and does not expect to begin
shipments until 2/1/2000. Loss of two months shipments is expected to have a
material effect on its financial statements.
10
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements 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.
BIOSEARCH MEDICAL PRODUCTS, INC.
Dated: November 15, 1999 /s/ MANFRED F. DYCK
-----------------------------------
Manfred F. Dyck
Chief Executive Officer and Director
Dated: November 15, 1999 /s/ ROBERT C. KELLER
-----------------------------------
Robert C. Keller
Treasurer
Chief Financial and Accounting Officer
11