FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) 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, 1998. OR
[X] 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
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BIOSEARCH MEDICAL PRODUCTS, INC.
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(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.
Class Outstanding at
September 30, 1998
Common Stock,
without par value 2,202,878
BIOSEARCH MEDICAL PRODUCTS, INC.
INDEX TO FORM 10-Q SB
SEPTEMBER 30, 1998
Page No.
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Part I - FINANCIAL INFORMATION
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Condensed Balance Sheet at September 30, 1998
(unaudited) and December 31, 1997. 3 - 4
Condensed Statements of Operations (unaudited)
for the three month periods and nine month periods ended
September 30, 1998 and September 30, 1997. 5
Condensed Statements of Cash Flows (unaudited)
for the three month periods and nine month periods
ended September 30, 1998 and September 30, 1997. 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
1998 1997(1)
Unaudited
Current assets:
Cash and cash equivalents $ 122,110 $ 14,486
Trade receivables 115,615 351,964
Inventories (note 2) 354,191 372,012
Other assets 279,250 18,762
---------- ----------
Total current assets 871,166 757,224
Property, plant and equipment, (net) 161,953 1,351,882
Other assets 11,194 8,123
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Total assets $1,044,313 $2,117,229
========== ==========
(1) - Derived from audited financial statements.
(continued)
3
BIOSEARCH MEDICAL PRODUCTS, INC.
CONDENSED BALANCE SHEETS
(continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
September 30 December 31
1998 1997(1)
Unaudited
Current liabilities:
Current maturities of L/T debt (note 3) $ -- $ 691,041
Customer deposit 245,000 --
Accounts payable 186,121 353,712
Accrued liabilities 129,324 132,330
------------ ------------
Total current liabilities 560,445 1,177,083
Long-term debt (note 3) -- --
------------ ------------
Total liabilities 560,445 1,177,083
------------ ------------
Shareholders' equity:
Common stock, no par value; 5,000,000
shares authorized; issued 2,202,878
at Sept 30, 1998, and at Dec 31, 1997 11,129,954 11,129,954
Accumulated deficit (10,614,847) (10,158,569)
Treasury stock, at cost; 7,920 shares
at Sept 30, 1998 and at Dec 31, 1997 (31,239) (31,239)
------------ ------------
Total shareholders' equity 483,868 940,146
------------ ------------
$ 1,044,313 $ 2,117,229
============ ============
(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
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues, net $ 186,169 $ 550,508 $ 1,171,351 $ 1,227,657
Cost of goods sold 223,683 398,650 974,755 1,075,490
----------- ----------- ----------- -----------
Gross profit (37,514) 151,858 196,596 152,167
Selling, general and
administrative costs 211,274 209,953 637,334 650,363
----------- ----------- ----------- -----------
Operating loss (248,788) (58,095) (440,737) (498,196)
Other income/(expense):
Interest expense -- (21,339) (22,427) (55,360)
Other, net 5,000 8,000 6,886 17,465
----------- ----------- ----------- -----------
5,000 (13,339) (15,541) (37,895)
----------- ----------- ----------- -----------
Pre-tax net income/(loss) (243,788) (71,434) (456,278) (536,091)
Federal income taxes
Net loss $ (243,788) $ (71,434) $ (456,278) $ (536,091)
=========== =========== =========== ===========
Net loss per common share $ (.11) $ (.03) $ (.21) $ (.24)
=========== =========== =========== ===========
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
Increase/(Decrease) in Cash and Cash Equivalents
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
Cash flows from operating activities:
Net loss $(243,788) $ (71,434) $(456,278) $(536,092)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 10,503 22,380 49,394 64,376
--------- --------- --------- ---------
Sub total 10,503 22,380 49,394 64,376
--------- --------- --------- ---------
Changes in assets and liabilities:
(Increase)/decrease in accts receivable 100,220 (70,177) 236,349 (83,875)
Decrease/(increase) in inventory (6,095) 33,013 17,820 122,187
Decr/(incr) in other current assets 29,952 14,200 33,534 13,055
Decrease in other assets (4,135) 865 (3,071) 4,584
(Decrease)/increase in accounts payable (55,229) 23,626 (58,739) 127,108
Increase in other liabilities
and customer deposits 276,862 673,651 292,103 629,827
--------- --------- --------- ---------
Sub total 341,575 675,178 517,996 812,686
--------- --------- --------- ---------
Total adjustments 352,078 697,558 567,390 877,062
--------- --------- --------- ---------
Net cash used in operating activities 108,290 626,124 111,112 340,970
--------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures -- (8,117) (3,488) 23,204
Net cash provided by investing activities -- (8,117) (3,488) 23,204
--------- --------- --------- ---------
Cash flows from financing activities:
Principal payments on long-term borrowings -- (647,883) -- (662,734)
--------- --------- --------- ---------
Net cash used in financing activities -- (647,883) -- (662,734)
--------- --------- --------- ---------
Net increase/(decrease) in cash & cash equivalents 108,290 (29,876) 107,624 (298,560)
Cash & cash equivalents at beginning of period 13,820 52,692 14,486 321,376
--------- --------- --------- ---------
Cash & cash equivalents at end of period $ 122,110 $ 22,816 $ 122,110 $ 22,816
========= ========= ========= =========
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 1997 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,
1998 and the results of operations for the three month periods and nine month
periods ended September 30, 1998 and September 30, 1997 and the statement of
cash flows for the three month periods and nine month periods ended September
30, 1998 and September 30, 1997.
The results of operations for the three month periods and nine month
periods ended September 30, 1998 are not necessarily indicative of the results
to be expected for a succeeding quarter or for the full year.
2. Inventories
-----------
September 30, 1998 December 31, 1997
Unaudited
Finished Goods $ 84,935 $ 95,992
Work In Process 98,147 140,271
Raw Materials 171,109 135,749
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$354,191 $372,012
======== ========
7
BIOSEARCH MEDICAL PRODUCTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Unaudited
3. Long-Term Debt
--------------
September 30, 1998 December 31, 1997
Unaudited
Note payable - bank (a) -- 691,041
Less current maturities -- 691,041
----- --------
Long-term debt $ -- $691,041
===== ========
(a) On June 12,1998 the Company sold its property at 35 Industrial Parkway,
Branchburg to Hydromer Inc., a related party, for the sum of $850,000 and a
prepaid lease back of approximately two thirds of the building for three years
with a value of approximately $346,500 bringing the value of the total deal to
$1,196,500. The Company considers this transaction fair and reasonable. The
Company paid off its debt to Summit Bank and all judgements against the Company
have been dismissed.
4. Sale-Leaseback Transaction
--------------------------
The Company has entered into an agreement with a related party, through a
common stockholder (or common stockholders), for the sale and leaseback of their
facility. The lease is classified as an operating lease in accordance with SFAS
No. 13 "Accounting for Leases". As of June 12, 1998, the building, land and
improvements with net book values totaling $1,144,023 have been removed from the
balance sheet, and the loss realized on the sale transaction of $294,022 has
been deferred as Prepaid Rent and is being charged as rent expense over the
lease term of 36 months.
In conjunction with the above transaction, the following noncash activity
took place:
Sale of building $(1,144,023)
Payoff of mortgage principal and interest 722,419
Royalty payment 18,730
Additional fees to satisfy bank debt 108,851
-----------
Prepaid rent $ 294,022
===========
8
BIOSEARCH MEDICAL PRODUCTS, INC.
Item 2. Management Discussion and Analysis of the Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Revenues were $186,169 for the three months ended September 30, 1998, down
$364,339 or 66.2% compared to revenues of $550,508 for the prior year three
month period. This drop in sales was due primarily to the loss of the
SIMS/Portex and Sherwood Davis & Geck business. Revenues for the nine months
ended September 30, 1998 were $1,171,351,down $56,306 or 4.6% compared to last
year's $1,227,657.
Gross profit for the third quarter 1998 was a loss of $37,514, down
$189,372 or 124.7% from a profit of $151,858 for the same period in 1997,
showing a major decline in gross margins versus prior periods. The major cause
of this decline is due to the loss of the SIMS/Portex business. The loss of this
business caused the Company to not generated enough sales to overcome the fixed
manufacturing overhead and cause a loss at the gross profit level.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 implimented in 1996 and which still continue today.
The operating loss for the third quarter 1998 was $248,788 or 133.6% of
sales. This represents a increase in the loss of $190,693 or 428.2% compared to
the 1997 loss of $58,095 or 10.6% of sales during the same period last year.
Year to date 1998, the operating loss is $440,737 or 37.6% of sales against a
loss of $498,196 or 40.6% of sales for 1997. These losses are largely due to the
loss of the SIMS/Portex business as discussed earlier, offset by significant
cost reductions attained in the sales and general administration area during
this period.
The net loss for the third quarter 1998 was $243,788 or 130.9%, which was
$172,354 or 341.37% greater than 1997 third quarter net loss of $71,434 or 13%of
sales. As of September 30, 1998 the year to date net loss is $456,278 or 39% of
sales, which is less by $79,813 or 14.9% from last years loss of $536,091 or
43.7% of sales. Cost reductions continue to be attained, however sales volumes
have to be increased for the company to continue as a going concern.
9
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 generated $108,290 for the third quarter
1998, and year to date 1998 generated $111,112. There were no Investing
activities during the third quarter 1998 and year to date $3,488 was used. There
were no financing activities during 1998.
For the three month period ended September 30, 1998 the Company's cash
generation was due primarily from a deposit of $245,000 from a large
conglomerate and receivable collections of over $100,000 offset by a third
quarter loss of $243,788.
Management believes that the Company's financial condition at September
30,1998 represents an uncertain base to conduct operations. There is no
assurance that the Company will attain the needed volumes to sustain the
Companys' operations and generate sufficient cash flow to meet all its
obligations.
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 comapnies who have not received their CE certification and
wish to sell their products in Europe.
10
Part II - Other Information
SIGNATURES
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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.
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Dated: November 13, 1998 /s/ Manfred F. Dyck
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Manfred F. Dyck
Chief Executive Officer and Director
Dated: November 13, 1998 /s/ Robert C. Keller
-------------------------------------
Robert C. Keller
Treasurer
Chief Financial and Accounting Officer
11