UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
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 NO. 1-14416
BIGMAR, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 31-1445779
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9711 SPORTSMAN CLUB ROAD 43031
JOHNSTOWN, OHIO (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, including area code: (740) 966-5800
Indicate by checkmark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. YES [X] NO [ ]
As of November 11 2001, 10,168,973 shares of common stock of the issuer were
outstanding.
1
BIGMAR, INC. AND SUBSIDIARIES
INDEX
Part I FINANCIAL INFORMATION:
Item 1 Financial Statements.
Consolidated Condensed Balance Sheets as of September 30, 2001 (Unaudited)
and December 31, 2000. 3
Consolidated Condensed Statements of Operations for the quarters and
nine-month periods ended September 30, 2001 and 2000 (Unaudited). 4
Consolidated Condensed Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000 (Unaudited). 5
Consolidated Statements of Comprehensive Loss for the quarters and nine-month
periods ended September 30, 2001 and 2000 (Unaudited). 6
Notes to the Consolidated Condensed Financial Statements (Unaudited).
7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations. 14
Part II OTHER INFORMATION:
Item 2 (c) Changes in Securities - Recent Sales of Unregistered Securities. 21
Item 5 Other Information. 21
Item 6 Exhibits and Reports on Form 8-K. 21
Signatures. 22
2
PART I: FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BIGMAR, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
September 30 December 31
2001 2000
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 133,898 $ 72,971
Accounts receivable, net 1,767,621 1,872,657
Accounts receivable related party 170 141,107
Inventories 2,166,152 2,638,999
Prepaid expenses and other current assets 246,594 119,792
------------ ------------
Total current assets 4,314,435 4,845,526
Property, plant and equipment, net 12,565,119 13,387,698
Intangibles and other assets, net 192,801 283,617
------------ ------------
Total $ 17,072,355 $ 18,516,841
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 2,696,202 3,023,463
Notes payable 658,557 2,481,301
Current portion of long-term debt 623,072 626,940
Due to related party 1,160,829 1,238,781
Accrued expenses and other current liabilities 2,119,256 1,060,965
Deferred revenue 3,429,780 --
------------ ------------
Total current liabilities 10,687,696 8,431,450
Long-term debt 5,453,425 9,642,459
------------ ------------
Total liabilities 16,141,121 18,073,909
------------ ------------
Stockholders' equity:
Preferred stock ($.001 par value; 5,000,000 shares authorized; 1,000,000
designated as Series A and 10,000 designated as Series B): Series B
Preferred Stock, 7,000 and 1,000 shares issued and outstanding at
September 30, 2001 and December 31, 2000, respectively 7 1
Common stock ($.001 par value; 30,000,000 shares authorized;
10,168,973 shares issued and outstanding at September 30, 2001 and
December 31, 2000) 10,169 10,169
Additional paid-in capital 34,550,118 29,023,791
Retained earnings (deficit) (32,315,146) (27,448,377)
Cumulative translation adjustment (1,313,914) (1,142,652)
------------ ------------
Total stockholders' equity 931,234 442,932
------------ ------------
Total $ 17,072,355 $ 18,516,841
============ ============
See accompanying notes to consolidated condensed financial statements.
3
BIGMAR, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
Three months ended September 30, Nine months ended September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales $ 1,904,251 $ 1,927,885 $ 6,412,959 $ 5,823,345
Cost of goods sold 1,735,175 1,553,540 5,704,681 4,721,822
------------ ------------ ------------ ------------
Gross margin 169,076 374,345 708,278 1,101,523
------------ ------------ ------------ ------------
Operating expenses:
Research and development 678,832 899,860 2,068,692 2,336,806
Selling, general and administrative 1,181,027 716,381 2,855,400 2,296,913
------------ ------------ ------------ ------------
Total operating expenses 1,859,859 1,616,241 4,924,092 4,633,719
------------ ------------ ------------ ------------
Operating loss (1,690,783) (1,241,896) (4,215,814) (3,532,196)
Other income (expense), net (6,037) 8,283 (17,007) 121,489
Interest expense (4,045) (264,665) (429,150) (706,974)
Gain (loss) on foreign currency transactions (355,553) 109,869 (204,798) 121,827
------------ ------------ ------------ ------------
Loss before income taxes and extraordinary item (2,056,418) (1,388,409) (4,866,769) (3,995,854)
Income taxes (benefit) -- -- -- --
------------ ------------ ------------ ------------
Loss before extraordinary item (2,056,418) (1,388,409) (4,866,769) (3,995,854)
Extraordinary item-Gain on extinguishment of debt,
net of income taxes of $0 -- -- -- 361,837
------------ ------------ ------------ ------------
Net loss (2,056,418) (1,388,409) (4,866,769) (3,634,017)
Preferred stock dividends 122,500 -- 285,833 --
------------ ------------ ------------ ------------
Net loss applicable to common stockholders $ (2,178,918) $ (1,388,409) $ (5,152,602) $ (3,634,017)
============ ============ ============ ============
Basic and diluted loss per share from continuing operations $ (0.20) $ (0.14) $ (0.48) $ (0.42)
============ ============ ============ ============
Basic and diluted extraordinary gain per share $ -- $ -- $ -- $ 0.04
============ ============ ============ ============
Basic and diluted net loss per share $ (0.21) $ (0.14) $ (0.48) $ (0.38)
============ ============ ============ ============
Basic and diluted net loss per share applicable to common
stockholders (0.21) (0.14) (0.51) (0.38)
============ ============ ============ ============
Weighted average shares outstanding 10,168,973 10,010,640 10,168,973 9,528,788
============ ============ ============ ============
See accompanying notes to consolidated condensed financial statements.
4
BIGMAR, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30
-----------------------------------
2001 2000
----------- -----------
Cash flow from operating activities :
Net loss $(4,866,769) $(3,634,017)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,082,880 1,286,488
Unrealized foreign exchange losses (gains) 23,962 (26,186)
Changes in operating assets and liabilities:
Decrease in accounts receivable 114,077 250,849
Increase in accounts receivable related parties (170) (852)
Decrease in inventories 435,350 5,836
Increase in prepaid expenses and other current assets (122,000) (74,503)
(Increase) decrease in accounts payable (239,846) 110,685
Decrease in due to related parties (133,719) --
Increase in deferred revenue 3,429,780 --
Increase in accrued expenses and other current liabilities 1,793,622 177,295
----------- -----------
Net cash provided by (used in) operating activities 1,517,167 (1,904,405)
----------- -----------
Cash flows from investing activities :
Purchase of property, plant and equipment (356,154) (305,099)
----------- -----------
Net cash used in investing activities (356,154) (305,099)
----------- -----------
Cash flows from financing activities :
Short-term borrowings 411,765 --
Long-term borrowings -- 2,428,605
Proceeds from borrowing from related party -- 1,017,964
Repayment of short term debt (3,328,432) (215,950)
Repayment of related party loan (100,000)
Repayment of long-term borrowings (4,285,490) (3,802,895)
Preferred stock redemption (1,012,833)
Proceeds from issuance of common stock and warrants 411,554 2,761,325
Proceeds from issuance of preferred stock and warrants, 6,825,000
net of offering costs -- --
----------- -----------
Net cash provided by (used in) financing activities (1,078,436) 2,189,049
----------- -----------
Effect of exchange rates on cash (21,650) (29,663)
----------- -----------
Net increase (decrease) in cash and cash equivalents 60,927 (50,118)
Cash and cash equivalents, beginning of period 72,971 155,855
----------- -----------
Cash and cash equivalents, end of period $ 133,898 $ 105,737
=========== ===========
Supplemental disclosure of cash flow information :
Cash paid during the period for :
Interest $ 427,629 $ 832,985
Income taxes $ -- $ --
See accompanying notes to consolidated condensed financial statements.
5
BIGMAR, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(Unaudited)
Three months ended September 30, Nine months ended September 30,
------------------------------ ------------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net loss $(2,056,418) $(1,388,409) $(4,866,769) $(3,634,017)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments,
net of income taxes of $ 0 in both
2001 and 2000, respectively 629,203 (481,146) (171,262) (696,761)
----------- ----------- ----------- -----------
Comprehensive loss $(1,427,215) $(1,869,555) $(5,038,031) $(4,330,778)
=========== =========== =========== ===========
See accompanying notes to consolidated condensed financial statements.
6
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Bigmar, Inc. (the "Company") is a Delaware corporation that owns 100% of the
outstanding common stock of two Swiss corporations, Bioren, SA ("Bioren") and
Bigmar Pharmaceuticals, SA ("Pharmaceuticals"), and 100% of the outstanding
common stock of a Delaware corporation, Bigmar Therapeutics, Inc.
("Therapeutics").
In the opinion of management, the accompanying unaudited financial statements
include all adjustments necessary to present fairly the Company and its
subsidiaries' financial position at September 30, 2001 and December 31, 2000,
and the results of operations, cash flows and comprehensive income for all
periods presented. The results of the interim periods are not necessarily
indicative of the results to be obtained for the entire fiscal year.
For a summary of significant accounting policies (which are consistent with
those in place at December 31, 2000) and additional financial information, see
Bigmar, Inc.'s Annual Report on Form 10-KSB, for the year ended December 31,
2000. The 10-KSB should be read in conjunction with these financial statements.
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated.
The financial statements of subsidiaries outside the United States are stated
using the local currency as the functional currency. Assets and liabilities of
these companies are translated at the rates of exchange at the balance sheet
date. The resulting translation adjustments are included in accumulated and
other comprehensive loss. Income and expenses are translated at average rates of
exchange for the period.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The construction of the Company's
pharmaceutical manufacturing plant in Barbengo, Switzerland and the process of
obtaining regulatory approvals have consumed a substantial amount of the
Company's resources. The manufacturing plant received regulatory approval in
February 1999 from the United States Food and Drug Administration ("FDA") and
the Intercantonal Office for the Control of Medications ("IKS") in Switzerland
to manufacture and sell certain injectible pharmaceutical products in the United
States and Switzerland. As a result, the Company anticipates that these
operations will begin to generate cash to help fund its expansion and further
planned research and development activities. During the nine-month period ending
September 30, 2001, the Company received approximately $6.8 million in proceeds
from the private placements of preferred stock and warrants. The Company
anticipates raising additional funds during 2001 through private stock offerings
and
7
through additional bank borrowings. However, there can be no assurance that the
Company will be successful in these efforts.
(2) INVENTORIES
The components of inventory at September 30, 2001 and December 31, 2000 are as
follows:
September 30, December 31,
2001 2000
----------- -----------
Raw Materials $1,062,030 $ 1,169,320
Finished Goods 1,104,122 1,469,679
----------- -----------
Total $ 2,166,152 $ 2,638,999
----------- -----------
(3) AGREEMENT WITH BAXTER AG
On May 17, 2001, the Company signed a supply and distribution and an asset
purchase agreement with Baxter AG ("Baxter"). The purpose of the agreements is
to allow Baxter to gradually take over and carry on the intravenous solutions
business at Bioren (a wholly owned subsidiary of Bigmar, Inc.). Under the
agreement, the Company retains ownership of the plant and will continue to
produce and sell other products including various pain management and
antibacterial products.
Asset Purchase Agreement
Baxter agrees to purchase many of the assets of Bioren and obtains exclusive
distribution rights as defined in the agreement. The assets include all
specifications and know-how related to the production, all documentation related
to clinical trials for the products, all rights related to trademarks, all
finished goods at the date of closing equal to $425,000, and all agreements with
suppliers and customers. Assets do not include the plant and equipment.
Consideration totals $7,075,000 to be paid as follows: $3,990,000 at closing,
$1,851,000 on May 17, 2002 and $1,234,000 on May 17, 2003. The fees are
nonrefundable once paid except in the event of breach, as defined, prior to year
4.
Supply and Distribution Agreement
The Company will continue to manage the manufacturing process at Bioren. Baxter
commits to purchasing a minimum amount of product per year and retains exclusive
distribution rights for the products produced. Prices of the products are
defined in the agreement. Baxter is required to buy at least 10 million units
during the four-year period (amounts each year defined in the agreement) after
the signing of the agreement. After four years, no minimums exist. In addition,
Baxter also reimburses Bioren for various services as defined in the agreement
including: warehousing and distribution, marketing and sales, and customer
service.
This supply and distribution agreement service portion expires in May 2005,
however Baxter can extend it through May 2007. The distribution rights to
distribute Bioren's products expire in June 2006 but can also be extended
through May 2007. The exclusive
8
distribution rights to distribute the products under the agreement expire in
June 2006, but can be extended through May 2011.
The Company has elected to defer the $3,990,000 received at closing, except for
the amount related to the sale of inventory at $425,000. The Company will
recognize the remainder of the amount through May 2007 based upon the lower of
straight-line amortization or units of production amortization.
(4) LONG-TERM DEBT
As of September 30, 2001, the Company had various notes, bonds, mortgages and
other borrowings from related parties totaling approximately $7.90 million,
including $2.44 million that is short term in nature. These monies were used to
partially fund the acquisition of Bioren, to acquire, construct, and equip the
manufacturing facility and to fund ongoing research and development and product
registration activities. In February 2001, the Company repaid $4.0 million
convertible notes and related interest pursuant to a private placement of
preferred stock and warrants. During May 2001, the Company extinguished $2.0
million of its short-term debt and related interest of $11,922.
(5) COMMON STOCK ISSUED
On December 21, 2000, the Company executed an agreement with Banca del Gottardo
to issue 1,000 shares of Series B Convertible Preferred Stock, $0.001 par value
per share, for $1,000,000. On February 27, 2001, the Company redeemed these
shares of preferred stock for $1,012,833 and reissued 7,000 shares of Series B
preferred stock and a warrant for the purchase of 1,400,000 shares of the
Company's common stock for $2.00 per share for a total of $7 million.
In connection with the February issuance, the Company was required to use the
proceeds as follows:
- $4,160,000 was paid to Banca del Gottardo to pay off the $4 million 8%
convertible debt and related interest;
- $1,012,833 was used to redeem the original preferred stock plus
cumulative dividends;
- $175,000 was paid as fees to the Bank for offering costs;
The remaining amount was deposited for working capital purposes with the
Company.
The following is a discussion of each of the major terms of the preferred stock:
- Cumulative Dividends - The preferred stock has dividends of $70 per
share per annum. Such dividends shall be cumulative and shall be due
and payable annually in arrears. Cumulative dividends were
approximately $286,000 at September 30, 2001.
- Liquidation Preference - The preferred has a liquidation preference of
$1,000 per share, plus all accrued plus unpaid dividends.
9
- Redemption - The Corporation may on or after January 1, 2003 redeem,
from any source of funds legally available, the Series B Preferred
Stock. The redemption price shall be the conversion price (see below).
- Voting Rights - The preferred shareholders have no voting rights.
- Conversion - The preferred is convertible at any time to common stock
prior to December 31, 2005. At that point, it automatically converts
into common stock. The conversion price shall initially be $2.50 per
share through December 31, 2001. Between January 1, 2002 through
December 31, 2005, the Series B Conversion price shall be 90 percent
of the 20 tracking day average closing price of the Common Stock prior
to the date the certificate is surrendered for conversion. At no time
will the Series B conversion price be less than $2.00 per share of
common stock.
- Warrant - The agreement has a detachable warrant to purchase common
stock of the Company. The warrant is exercisable at any time prior to
February 2006 and the exercise price is $2.00 per share. In addition,
the Company may call all or part of the unexercised warrants at a
price of $2.50 per share at any time. Upon receipt of the call notice,
Banca del Gottardo may either exercise the unexercised warrants or
surrender the warrants to the Company for the $2.50 per share payment.
The Company determined the warrant to be valued at $1,778,000 as of
the date of issuance.
In October 2001, the Company issued 60,000 shares of common stock to two
private investors at $.50 per share.
In October 2001, the Company committed to issue 200,000 shares of common stock
to Massimo Pedrani, a director of the Company, through a Professional Consulting
Services Agreement. Massimo Pedrani is performing certain professional
consulting services, in regards to strategic planning and development of certain
proprietary technology.
In October 2001, the Company committed to issue 108,000 shares of common stock
to Declan Service, a director of the Company, through a Professional Consulting
Services Agreement. Declan Service is performing certain professional consulting
services, including but not limited to strategic planning and negotiations in
regards to the business relationship with Baxter.
(6) RECENTLY ISSUED ACCOUNTING STANDARDS
On October 3, 2001, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", which addresses financial accounting and reporting for the impairment
or disposal of
10
long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", it retains many of the fundamental provisions of that
Statement. Statement No. 144 also supersedes the accounting and reporting
provisions of Accounting Principles Board (APB) Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business. However, it retains
the requirement in APB Opinion 30 to report separately discontinued operations
and extends that reporting to a component of an entity that either has been
disposed of (by sale, abandonment, or in a distribution to owners) or is
classified as held for sale. By broadening the presentation of discontinued
operations to include more disposal transactions, the FASB has enhanced
managements' ability to provide information that helps financial statement users
to assess the effects of a disposal transaction on the ongoing operations of an
entity. Statement No. 144 is effective for fiscal years beginning after December
15, 2001 and interim periods within those fiscal years. The Company has not
determined what impact this pronouncement will have on its accounting for its
assets.
In July 2001, the FASB issued Statement No. 141, "Business Combinations", and
Statement No. 142, "Goodwill and Other Intangible Assets". Statement No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement No. 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment on an annual basis in
accordance with the provisions of Statement No. 142. Statement No. 142 will also
require that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
The Company has not determined what impact these new pronouncements will have on
its accounting for its intangible assets.
(7) SEGMENT DATA
The Company manages its business segments primarily on a geographic basis with
each location representing a distinct segment. The Company's reportable segments
are comprised of the following: Bioren, located in Couvet, Switzerland;
Pharmaceuticals, located in Barbengo, Switzerland; and the Company's Corporate
Headquarters, located in Johnstown, Ohio, U.S.A.
The Company evaluates the performance of its segments based on segment
profit/(loss). Segment profit/(loss) for each segment includes sales and
marketing expenses, certain research and development expenses, and overhead
charges directly attributable to the segment. Segment profit/(loss) excludes
certain expenses, which are managed outside the reportable segments. Costs
excluded from segment profit primarily consist of corporate expenses, other
research and development charges for the testing of products targeted for
11
U.S. markets, as well as other general and administrative expenses which are
separately managed.
The Company does not include intercompany transfers between segments for
management reporting purposes. Summary information by segment for the nine
months and three months ended September 30, 2001 and 2000 is as follows:
12
NINE MONTHS ENDED SEPTEMBER 30, 2001:
PHARMA-
BIOREN CEUTICALS CORPORATE TOTAL
Sales - International 4,912,671 1,500,288 - 6,412,959
Gross Margin 1,093,354 (385,076) - 708,278
Operating expenses and other
expenses (1,508,638) (2,119,609) (1,946,800) (5,575,047)
Segment Income (Loss) (415,284) (2,504,685) (1,946,800) (4,866,769)
NINE MONTHS ENDED SEPTEMBER 30, 2000:
PHARMA-
BIOREN CEUTICALS CORPORATE TOTAL
Sales - International 4,280,622 1,542,723 - 5,823,345
Gross Margin 950,646 150,877 - 1,101,523
Operating expenses and other
expenses (1,166,580) (1,811,872) (1,757,088) (4,735,540)
Segment Income (Loss) (215,934) (1,660,995) (1,757,088) (3,634,017)
THREE MONTHS ENDED SEPTEMBER 30, 2001:
PHARMA-
BIOREN CEUTICALS CORPORATE TOTAL
Sales - International 1,508,162 396,089 - 1,904,251
Gross Margin 478,142 (309,066) - 169,076
Operating expenses and other
expenses (601,649) (480,646) (1,142,999) (2,225,294)
Segment Income (Loss) (123,507) (789,912) (1,142,999) (2,056,418)
THREE MONTHS ENDED SEPTEMBER 30, 2000:
PHARMA-
BIOREN CEUTICALS CORPORATE TOTAL
Sales - International 1,341,148 586,737 - 1,927,885
Gross Margin 242,376 131,969 - 374,345
Operating expenses and other
expenses (414,386) (721,784) (626,584) (1,762,754)
Segment Income (Loss) (172,010) (589,815) (626,584) (1,388,409)
(8) GOING CONCERN
The Company anticipates that additional capital funding together with cash from
operations will be required to sustain operations through December 2001.
However, there can be no assurance that events affecting the Company's
operations will not result in the Company depleting its funds before that time
and, therefore, raises substantial doubt about the Company's ability to continue
as a going concern. Management is currently discussing additional financing with
a number of financial institutions and investors, but there are no assurances
that the Company will be able to obtain additional financing or that such
financing, if available, will be available on acceptable terms.
13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion of significant factors that affected
the Company's interim financial condition and results of operations. This should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2000.
Research and Development
In October 2001, the Company filed a patent application for its ready-to-use
formulation of acetaminophen (paracetamol), a common analgesic and antipyretic
drug with a broad spectrum of indication and with a well-known low toxicity
profile. The patent will cover the preparation of acetaminophen in a
ready-to-use infusion bag of 100 ml. This drug has an analgesic effect,
alleviating pain, as well as an antipyretic action, which means it helps to
reduce fever. The indications for use of this ready-to-use drug is to offer pain
relief during the immediate post-operative period when oral administration is
not possible. Clinical trials are expected to commence shortly in Europe, where
the market potential has been estimated by the Company to be approximately $80
million.
In October 2001, the Company received approval from ANVISA (the Brazilian
equivalent to the United States FDA) to market the following oncological drugs
in Brazil: Doxorubicin, Daunorubicin, Calcium Leucovorin, Methotrexate,
Fluorouracil and Etoposide. These drugs are used in the treatment of the
following cancers: breast and lung carcinomas, leukemia, ovarian, bladder,
cervix, head and neck, colorectal, prostate and in the rescue therapies. Once
the products are fully introduced, the Company expects to capture a relevant
share of this market that is estimated to be approximately $100 million.
In July 2001, the Company received approval from the Intercantonal Office for
the Control of Medications ("IKS") to market a specialty injectable preparation
of Bupivacaine in Switzerland in three dosage strengths and two different
presentations. Five different products of Bupivacaine will be marketed in the
"ready to use" polypropylene infusion bag and five in glass vials. Bupivacaine
HCl is a long-acting local anesthetic used for caudal, epidural or peripheral
nerve block. Although injectable Bupivacaine was approved by the FDA in 1972,
Bioren's easy-to-use pre-mix solution delivered in the IV infusion bag is the
first such formulation of the drug.
Marketing and Sales
In the second quarter of 2001, the Company completed a distribution agreement
with Baxter A.G. ("Baxter"), based in Volketswil, Switzerland. The distribution
agreement gives to Baxter exclusive rights to market Bioren's standard
intravenous solutions products throughout Switzerland and Liechtenstein for a
minimum period of 4 years. Terms of the agreement call for Bioren to continue to
manufacture the Pre-Mix Solutions for Baxter and Baxter is contractually
obligated to purchase from Bioren a minimum of 10 million units of product over
the next four years. In addition, Bioren will provide
14
Baxter regulatory support for the products throughout the four-year period of
the agreement. The agreement also provides Baxter first refusal rights for other
geographic distribution areas as well as other products currently sold or under
development stage by Bioren.
The Company plans to continue to develop commercial partnerships in other
countries for current registered products and sign significant distribution
agreements with major pharmaceutical companies for new products.
Production
The Company intends to devote additional capital resources to increase the
production capacity in the next 12 months, especially in the field of
lyophilized products. The Company believes its manufacturing concept is
attractive to a number of pharmaceutical companies and hopes to fund some of its
manufacturing growth needs through joint ventures with other pharmaceutical
companies, although no contractual agreements are in place as of September 30,
2001.
RESULTS OF OPERATIONS
Sales
The Company reported net sales of $1,904,000 for the third quarter of 2001,
representing a decrease of 1.2% over sales of $1,928,000 for the same quarter of
2000. This decrease resulted from a lower average selling price in the third
quarter 2001 with regard to the intravenous solution business that was sold to
Baxter during the second quarter. The Company expects the impact of Baxter sales
to decrease in subsequent quarters due primarily to the registrations recently
obtained. With respect to the Baxter acquisition, $392,000 on the deferred
$3,990,000 received at closing was recognized in the third quarter 2001.
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For the nine-month period ended September 30, 2001 net sales increased by
$590,000 or 10.1% over the same period in 2000, from $5,823,000 in 2000 to
$6,413,000 in 2001. The rise in sales resulted from new customers and new
products as well as the recognition of $392,000 related to the Company's
agreement with Baxter.
The Company expects product sales to increase in 2001 compared to 2000 resulting
from the continued growth of the Company's existing product lines as well as
from introductions of new products, which are currently awaiting FDA approval.
The Company expects several of their new products to be approved for sale by
regulatory agencies in Europe, the United States and South America during 2001.
Gross Margin
Gross margin decreased from approximately $374,000 for the third quarter of 2000
to $169,000 for the third quarter of 2001. For the nine-month period ended
September 30, 2001, gross margin amounted to $708,000 compared with $1,102,000
in the prior year. The gross margin was at approximately 11.0% for the first
nine months of 2001, compared to approximately 18.9% for the prior year. The
decrease in the gross margin percent was somewhat due to a different product mix
resulting in lower unit margins of certain products. However, most of the
decrease can be attributed to the Company's agreement with Baxter; the selling
prices to Baxter are lower than those that the Company typically would receive
selling to end customers. During third quarter 2001, a customer return was
accepted by the Company which negatively impacted gross margin by $119,000.
Operating Expenses
Operating expenses increased from approximately $1,616,000 in the third quarter
of 2000 to $1,860,000 in the third quarter of 2001, a 15% increase. This
increase is primarily due to lower research and development expenses and higher
general and administrative expenses. For the nine month period ended September
30, 2000 and September 30, 2001 respectively, operating expenses increased from
approximately $4,634,000 to $4,924,000, an increase of 6.3%. This increase is
also primarily due to lower research and development expenses as well as higher
general and administrative expenses. Research and development expenses decreased
by $268,000 in the same nine month period from $2,337,000 in 2000 to $2,069,000
in 2001. Selling, general and administrative expenses increased by $558,000 from
$2,297,000 in the nine month period of 2000 to $2,855,000 in the same period of
2001. This increase is primarily due to higher consultant services.
Other Income and Expenses
Other expense was $6,000 in the third quarter of 2001 compared with an income of
$8,000 in the same period of 2000. For the nine-month period ended September 30,
2001, other expense was $17,000 compared with an income of $121,000 in the prior
year.
Interest expense
Interest expense decreased $278,000 from the nine-month period ending September
30, 2000 to the same period of 2001, due to a decrease of total debt in the
first nine months of 2001, as compared to the first nine months of 2000.
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Gain, Loss on Foreign Currency Transactions
Foreign exchange losses amounted to $205,000 for the nine-month period ending
September 30, 2001, compared to a gain of $122,000 in the prior year during the
same time period. Fluctuations are due primarily to changes in the exchange
rates between the Swiss Franc and the U.S. Dollar.
The Company recorded an extraordinary gain during the first quarter 2000 due to
the forgiveness of $362,000 in long-term debt from a Swiss bank.
Net Loss
As a result of all of the foregoing, the Company's net loss for the nine month
period ended September 30, 2001 amounted to $4,867,000 or ($0.48) per share on a
basic and diluted basis versus $3,634,000 during the same period of 2000 or
($0.42) per share on a basic and diluted basis. Net loss for the quarter ended
September 30, 2001 was $2,056,000 in comparison to a net loss of $1,388,000 in
the comparable quarter ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001 and December 31, 2000, the Company had cash and cash
equivalents of $134,000 and $73,000, respectively. The Company's working capital
was a $6.4 million deficit and $3.6 million deficit at September 30, 2001 and
December 31, 2000, respectively.
The Company has incurred and will continue to incur substantial expenditures for
research and development activities related to bringing its products to the
commercial market. The Company intends to devote significant additional funds to
product development, formulation, clinical testing, product registration, and
other activities required for regulatory review of generic oncological products.
The amount required to complete such activities depends upon the outcome of
regulatory reviews and the number of new products the Company plans to add
during the year. The regulatory bodies may require more testing than is
currently planned by the Company. There can be no assurance that the Company's
generic oncological products will be approved for marketing by the FDA or any
foreign government agency, or that any such products will be successfully
introduced or achieve market acceptance.
Property, plant and equipment totaled $12.6 million and $13.4 million at
September 30, 2001 and at December 31, 2000, respectively. Additions were
approximately $356,000 whereas depreciation expense was $1.1 million.
As of September 30, 2001, the Company had various notes, bonds, mortgages and
other borrowings totaling approximately $7.90 million including $2.44 million
that is short term in nature. These monies were used to partially fund the
acquisition of Bioren, to acquire, construct, and equip the manufacturing
facility and to fund ongoing research and development and product registration
activities.
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During the first quarter of 2001, pursuant to a private placement transaction
with Banca del Gottardo, the Company raised $6,825,000 after bank commission of
2.5% or $175,000, which was applied: to repay $4 million convertible notes and
related interest and to repurchase 1,000 shares of Series B Convertible
Preferred Stock including accrued dividends. Net proceeds were applied to
working capital and general corporate purposes.
The Company anticipates that additional capital funding together with cash from
operations will be required to sustain operations through December 2001.
However, there can be no assurance that events affecting the Company's
operations will not result in the Company depleting its funds before that time
and, therefore, raises substantial doubt about the Company's ability to continue
as a going concern. Management is currently discussing additional financing with
a number of financial institutions and investors, but there are no assurances
that the Company will be able to obtain additional financing or that such
financing, if available, will be available on acceptable terms.
The Swiss Federal Code of Obligation provides that at least 5% of a Swiss
company's net income each year must be appropriated to a legal reserve until
such time as this reserve is equal to 20% of the company's paid-in share
capital. In addition, 10% of any distribution made by a company in excess of a
5% dividend must also be appropriated to the legal reserve. The reserve of up to
5% of share capital is not available for distribution to stockholders.
The results of the Company's operations are affected by changes in exchange
rates between the United States and Swiss currencies. Changes in exchange rates
between currencies may negatively impact the Company's results of operations,
specifically, net sales and gross profit margins from international operations.
In addition, the dollar-value equivalent of anticipated cash flows could also be
adversely affected. When the Company determines that this risk has become
significant, the Company may attempt to manage that risk by using hedging
techniques.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On January 1, 1999, 11 member countries of the European Union (Switzerland
excluded) established fixed conversion rates between their existing sovereign
currencies, and adopted the Euro as their own common legal currency. The Euro is
currently trading on currency exchanges and the legacy currencies will remain
legal tender in the participating countries for a transition period between
January 1, 1999 and December 31, 2001. Between January 1, 2002 and July 1, 2002,
the participating countries will introduce Euro notes and coins and withdraw all
legacy currencies so that they will no longer be available. Based on current
information and management's current assessment, the Company does not expect
that the Euro conversion will have a material adverse effect on its business or
financial condition.
In the normal course of business, operations of the Company are exposed to
fluctuations in currency values. These fluctuations can vary the costs of
financing, investing, and
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operating activities. The Company does not have any programs in place to control
these risks.
The Company's foreign currency risk exposure results from fluctuating currency
exchange rates, primarily the fluctuation of the U.S. dollar against the Swiss
Franc ("Sfr"). The Company faces transactional currency exposures that arise
when its foreign subsidiaries (or the Company itself) enter into transactions
denominated in currencies other than their local currency. The Company also
faces currency exposure that arises from translating the results of its Swiss
operations to the U.S. dollar at exchange rates that have fluctuated from the
beginning of the period. The Company does not have any programs in place to
control these risks.
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Certain statements in this report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 including,
without limitation, statements regarding future cash requirements and statements
which include words such as "expect", "anticipate", "hope", "intend", and other
similar words. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors, which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied in such forward-looking statements. Such factors and risks
include, but are not limited to the following: delays in product development,
problems with clinical testing, failure to receive regulatory approvals, lack of
proprietary rights and changes in business strategy. These risk factors and
their associated impact on the Company are discussed in greater detail in the
Company's Form 10-KSB for the 2000 fiscal year. Many of the factors that will
determine results and values are beyond the Company's ability to control or
predict. For those statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
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BIGMAR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 2 (c) CHANGES IN SECURITIES - RECENT SALES OF UNREGISTERED SECURITIES
On February 28, 2001, the Company issued 7,000 shares of Series B Convertible
Preferred Stock, $0.001 par value per share and warrants at $2.00 for the
purchase of 1,400,000 shares of the Company's Common Stock, $0.001 par value per
share, to Banca del Gottardo via a private placement offering. Proceeds from the
sale of shares after bank commission of 2.5% or $175,000 totaled $6,825,000 and
were applied to repay $4 million convertible notes and related interest and to
repurchase 1,000 shares of Series B Convertible Preferred Stock including
accrued dividends. Net proceeds will be applied to working capital and general
corporate purposes.
The above-described offering of Preferred Stock and warrants was made pursuant
to an exemption from registration under Regulation S.
ITEM 5. OTHER INFORMATION
In August 2001, the Company decided to initiate a stock repurchase program. The
Board of Directors believes that the Company's common stock is significantly
undervalued and presents an attractive investment opportunity for the Company.
Up to $500,000 of the Company's funds may be used to repurchase its common stock
in the open market. However, given the Company's current financial situation,
there are no current plans to repurchase stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September
30, 2001.
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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.
November 11, 2001
BIGMAR, INC.
Registrant
By: /s/ Philippe J.H. Rohrer
---------------------------------
Philippe J.H. Rohrer
Chief Financial Officer and Treasurer
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