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| BJGP > SEC Filings for BJGP > Form 10-Q on 11-Aug-2008 | All Recent SEC Filings |
11-Aug-2008
Quarterly Report
• clinical trial management;
• product registration;
• market research;
• pharmaceutical marketing to physicians, hospitals and other healthcare providers;
• OTC marketing to retail pharmacies; and
• pharmaceutical distribution.
We were incorporated in the State of Delaware in November 2003 as a wholly-owned subsidiary of Just Great Coffee, Inc., a New Jersey corporation. In January 2004, Just Great Coffee, Inc. merged with and into us and we were the surviving corporation. BMP China was incorporated in China in May 1994. In December 2001, Abacus acquired a 100% equity interest in BMP China. In February 2004, we acquired all of the equity interests of BMP China from Abacus in exchange for our issuance to Abacus of 7,807,509 shares of our common stock, which represented approximately 90% of our common stock at the time of the exchange. As a result of this exchange, BMP China became our wholly-owned subsidiary. In December 2005, we completed our acquisition of Wanwei. On October 31, 2007, we completed the acquisition of 49% of the issued share capital of Sunstone China Limited, or
Sunstone China, which holds a 100% equity interest in Sunstone. On January 28,
2008, Alliance BMP Limited, an investment vehicle based in the United Kingdom
that is 80 percent-owned by Alliance Boots Ltd. and 20 percent-owned by us,
completed its acquisition of a 50 percent stake in Guangzhou Pharmaceuticals
Corporation. On February 18, 2008, we completed the acquisition of the remaining
51% interest in Sunstone China that we had not already acquired in exchange for
up to 8 million shares of our common stock which was valued at approximately
$94.7 million based on our quarterly average market price two days before and
after the date of the Sales and Purchase Agreement of September 28, 2007.
Financial Overview
The majority of our revenues have been derived from two sources: branded OTC
revenues from Sunstone products and revenue from the distribution of
pharmaceutical products, including our licensed products, in China through our
wholly-owned subsidiary Wanwei. Each revenue source accounts for 60.9% and 39.1%
of total revenue, respectively, for the six months ended June 30, 2008. Revenues
for Sunstone are for the period February 18, through June 30, 2008.
Our future success will depend on expanding sales of our current products,
obtaining additional promotional and market research agreements and licensing
rights for China, expanding our OTC sales through Sunstone as well as acquiring
additional distribution companies currently operating in China. During 2008 and
2007, we have pursued a strategy of broadening our range of promoted products
and we are currently actively reviewing for license various branded
pharmaceutical and OTC products and products in development from western
pharmaceutical companies for marketing and distribution in China.
Acquisitions
Acquisition of Guangzhou Pharmaceutical Corporation
On January 28, 2008, Alliance BMP Limited, an investment vehicle based in the
United Kingdom that is 80 percent-owned by Alliance Boots Ltd. and
20 percent-owned by the Company, completed its acquisition of a 50% stake in
Guangzhou Pharmaceuticals Corporation. The investment in Alliance BMP Limited
was accounted for as an investment at cost. Our total investment in Alliance BMP
Limited was $15.1 million. The remaining 50 percent ownership of Guangzhou
Pharmaceutical Company Limited is retained by a Hong Kong and Shanghai
Exchange-listed company, subject to semi-annual reporting requirements.
Acquisition of Sunstone
On October 31, 2007, the Company acquired 49% of the issued share capital of
Sunstone China, which holds 100% of the equity interests of Sunstone, for cash
consideration of $32 million, plus direct acquisition costs of $1.1 million.
Sunstone is a manufacturer of primarily OTC medicines, with operations in
Tangshan, Hebei Province, People's Republic of China. The acquisition has been
accounted for under the purchase method of accounting.
On February 17, 2008, the Company acquired the remaining 51% of Sunstone for
eight million shares of BMP's common stock, valued at approximately
$94.7 million (based upon the average quoted prices of our stock for two days
prior to the agreement, the day of the agreement and two days subsequent to the
agreement).
In connection with our acquisition of Sunstone, 1.6 million of the issued
shares represent consideration that is contingent upon certain events. Under the
agreement, 800,000 shares are contingent upon certain conditions precedent
relating to the veracity and propriety of the facts and circumstances
surrounding the acquisition for a three year period from the date of the
completion of the agreement for the 51% ownership in Sunstone China. The
remaining 800,000 shares, including any declared dividends and bonuses, are
contingent upon Sunstone China's achievement of certain performance targets, and
are issuable in 400,000 share increments during a two year measurement period.
Such performance targets are predicated upon net profit from Sunstone China in
the amount of not less than $11.5 million in 2007 and $13.5 million in 2008. For
the year ended December 31, 2007, the performance target has been met.
The acquisition of Sunstone has been accounted for as a business combination,
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" ("SFAS 141"). We have allocated our investment basis to
our pro rata share of Sunstone's assets and liabilities at each significant
acquisition date based on the estimated fair values of such assets and
liabilities on such dates, and the excess of our investment basis over the
adjusted estimated fair values of such identifiable net assets has been
allocated to goodwill. For financial reporting purposes, we have accounted for
Sunstone using the equity method through February 17, 2008, and as a
consolidated subsidiary thereafter.
Acquisition of Rongheng
On July 4, 2008, the Company completed its acquisition of 63.3% of Shanghai
Rongheng Pharmaceutical Co., Ltd. ("Rongheng"). Rongheng is a pharmaceutical
distribution company which distributes over 400 pharmaceutical products to more
than 140 top-tier hospitals and 1,000 retail pharmacies in Shanghai. Rongheng
was founded in 1999 by CAS Shanghai Shenglongda Biotech Group, a high-tech
biomedical group focused on research and development, marketing and sales of new
biotechnology and pharmaceuticals in China, and Orient International (Holding)
Co., one of the largest foreign trade enterprises in China. Shanghai Rongheng
International Trade Co., Ltd. of Orient International (Holding) Co., CAS
Shanghai Shenglongda Biotech Group and one other individual own the remaining
36.7% of Rongheng.
Liquidity and Capital Resources
Cash
As of June 30, 2008, we had unrestricted cash and cash equivalents of
approximately $4.7 million which represented 2% of our total assets. Our cash
and cash equivalents are highly liquid investments with a maturity of three
months or less at the time of purchase and are primarily invested in short-term
money market instruments. However, we do not anticipate any losses with respect
to such cash balances because the balances are invested in highly-rated
securities.
Notes Receivable
As of June 30, 2008, we had notes receivable of approximately $17.5 million
which represented 8% of our total assets. Notes receivable are notes received
from customers for the settlement of trade receivable balances. As of June 30,
2008, all notes receivable were guaranteed by established banks in the PRC and
have maturities of six months or less. The fair value of the notes receivable
approximated their carrying value.
Cash Flow
We anticipate that our June 30, 2008 balance of approximately $4.7 million in
unrestricted cash and cash equivalents and $17.5 million in notes receivable
will be sufficient to fund our current level of operations for at least the next
12 months. Our future capital requirements will depend on many factors,
including those factors described in Part II, Item 1A. "Risk Factors" in this
quarterly report on Form 10-Q and in Part I, Item 1A. "Risk Factors - Risks
Relating to Our Business" in our Annual Report on Form 10-K for the year ended
December 31, 2007 as well as our ability to maintain our existing cost structure
and return on sales, fund obligations for additional capital that will occur on
additional product licenses and acquisitions and execution of our business and
strategic plans as currently conceived.
On November 1, 2007, the Company issued an aggregate of $23,000,000 principal
amount of 10% Senior Secured Debt due May 1, 2009. The Senior Secured Debt bears
interest of 10% per annum, payable semi-annually in arrears on May 1, 2008,
November 1, 2008 and May 1, 2009. Although our June 30, 2008 balance of
approximately $4.7 million in unrestricted cash and cash equivalents and
$17.5 million in notes receivable is sufficient to fund our current level of
operations for the next 12 months, we anticipate that a sufficient amount of
notes receivable will not be able to be converted into cash and transferred to a
U.S. bank account in order to pay the outstanding principal and interest that
will be due on May 1, 2009. We are reviewing alternative financing arrangements
for the repayment of the $23,000,000 principal amount which may include entering
into an amendment with respect to our Senior Secured Debt, securing new debt,
entering into a new debt arrangement or issue additional equity securities to
pay off our Senior Secured Debt prior to May 1, 2009.
Net cash used in operating activities was $6,282,000 for the six months ended
June 30, 2008. This amount reflected our loss of $3,745,000, offset by
$4,676,000 in net non-cash charges including amortization of intangible assets
and inventory marked to fair value incurred as a result of the Hong Kong Health
Care acquisition of $2,095,000, amortization of debt discount and debt issuance
costs of $1,954,000, stock based compensation expense of $1,180,000,
depreciation and amortization of equipment and leasehold improvements of
$809,000 and equity method investment income of $996,000. In addition, we
generated $6,572,000 of operating cash as result in changes in certain of our
operating liabilities during the six months ended June 30, 2008. The changes
were the increases in accounts payable of $5,258,000 and accrued other expenses
of $1,314,000. Offsetting these changes were increases in inventory of
$4,033,000, other receivables of $2,677,000, accounts receivable of $2,188,000,
prepaid and other assets of $1,671,000 value added tax receivable of $554,000
and due from related parties of $346,000 and a decrease in deferred revenue of
$1,363,000 and a decrease in due to related parties of $953,000.
Cash used in investing activities was $13,496,000 and reflects the payment
for Alliance BMP of $12,319,000, cash received in the acquisition of Hong Kong
Health Care of $2,132,000, deposit on the Rongheng acquisition of $1,565,000,
repayment of $212,000 on a note from Rongheng and the acquisition of property,
plant and equipment of $1,956,000. Net cash provided by financing activities of
$1,016,000, consisted of $541,000 from the exercise of warrants and options and
net proceeds from note payables of $475,000.
Net cash used in operating activities was $4,020,000 for the six months ended
June 30, 2007. This amount principally reflected our net loss of $3,246,000,
partially offset by $872,000 in non-cash charges including stock-based
compensation expense of $672,000, intangible amortization of $128,000,
depreciation of $52,000 and loss on disposal of assets of $20,000. In addition,
we generated $541,000 of operating cash as a result of changes in certain of our
operating assets and liabilities during the six months ended June 30, 2007. The
most significant changes were the decrease in value added tax receivable of
$240,000, other receivables of $63,000 and
inventory of $99,000 and increases in deferred revenue of $62,000, accrued
expenses of $77,000. Offsetting these changes were increases in accounts
receivable of $1,587,000 and prepaid expenses and other current assets of
$484,000 and a decrease in accounts payable of $116,000. Cash used in investing
activities was $1,072,000 of which $214,000 was paid to the Chinese Taxing
Authority for taxes related to the Wanwei acquisition, $199,000 was for the
acquisition of equipment and a $659,000 note receivable with Rongheng. Cash
generated from financing activities was $51,000 and reflects $801,000 from the
exercise of warrants offset by $357,000 in reduction of notes payable and
$391,000 increase in restricted cash.
Critical Accounting Policies
Our management's discussion and analysis of our financial condition and
results of operations are based on our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets or liabilities as of the
dates of the financial statements as well as the reported revenues and expenses
during the reporting periods. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates on historical experience and various other
factors and assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results might differ materially from these estimates under
different assumptions or conditions.
Our critical accounting policies are described in MD&A included in our Annual
Report on Form 10-K for the year ended December 31, 2007. There have been no
changes in these accounting policies.
Our significant accounting policies are described in Note 2 to our 2007
consolidated financial statements contained in our 2007 Annual Report on Form
10-K for the year ended December 31, 2007. Information concerning our
implementation and the impact of recent accounting standards issued by the
Financial Accounting Standards Board is included in the notes to our 2007
consolidated financial statements and also in Note 1 to our consolidated
financial statements contained in this quarterly report on Form 10-Q. In
addition, we believe the following new accounting estimates reflect our more
significant estimates and assumptions used in the preparation of our financial
statements:
Results of Operations
Three Months Ended June 30, 2008 Compared to Three Months June 30, 2007
The following table sets forth the amounts and the percentage relationship to
revenues of certain items in our consolidated statements of income for the three
months ended June 30, 2008 and 2007:
For the Three Months Ended For the Three Months Ended
June 30, June 30,
($ amounts in thousands) 2008 2007 2008 2007
Net Revenues $ 29,638 $ 7,180 100.0 % 100.0 %
Cost of Sales 13,077 6,204 44.1 % 86.4 %
Gross Profit 16,561 976 55.9 % 13.6 %
Sales and Marketing Expenses 11,138 733 37.6 % 10.2 %
General and Administrative Expenses 3,819 1,896 12.9 % 26.4 %
Total Operating Expenses 14,957 2,629 50.5 % 36.6 %
Profit (Loss) From Operations 1,604 (1,653 ) 5.4 % -23.0 %
Other Income (Expense):
Interest Income 14 119 0.0 % 1.7 %
Interest Expense (1,611 ) (24 ) -5.4 % 0.3 %
Debt Issuance Cost Amortization (210 ) - -0.7 % -
Total Other Income (Expense) (1,807 ) 95 -6.1 % 1.3 %
Loss Before Provision for Income Taxes (203 ) (1,558 ) -0.7 % -21.7 %
Provision for Income Taxes 1,064 - -3.6 % -
Net Loss $ (1,267 ) $ (1,558 ) -4.3 % -21.7 %
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Net Revenues:
Net revenues were approximately $29,638,000 for the three months ended
June 30, 2008 as compared with approximately $7,180,000 for the three months
ended June 30, 2007. Sunstone revenues were included for the period April 1,
2008 through June 30, 2008.
Revenue by product categories was as follows:
Three Months Ended June 30,
($ amounts in thousands) 2008 2007 $ Increase % Increase
Branded OTC $ 19,612 $ - $ 19,612 N/A
Distribution products 8,657 6,509 2,148 33 %
Licensed products 1,369 671 698 104 %
$ 29,638 $ 7,180 $ 22,458 313 %
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Branded OTC. Sunstone revenues were $19,612,000 for the three months ended
June 30, 2008. Sunstone manufactures and sells pediatric products under the
Goodbaby brand, women's health products under the Confort brand and nutritional
products under the Nemei brand. The Goodbaby franchise accounted for 80% of
Sunstone's total product sales for the three months ended June 30, 2008. The top
products were Pediatric Paracetamol and Amantadine Hydrochloride Granules for
the treatement of the common cold, Pediatric Huatan Zhike Granules for the
treatment of coughing, Pediatric Kechuanling Oral Solution for the treatment of
coughing and Pidotimod Tablets for pediatric diarrhea. The Confort franchise
accounts for 14% of Sunstone's total product sales for the three months ended
June 30, 2008 with Confort Pessaries as the leading product. These top five
products accounted for approximately 87% of Sunstone's revenue for the period.
Distribution Products. Distribution revenue for the three months ended
June 30, 2008, excluding licensed products, was $8,657,000 as compared to
$6,509,000 for the three months ended June 30, 2007. The top five products were
Xingnaojing, Glurenorm, Ferrous Succinate Tablets, Citicoline Monosodium Salt
and Cephalexin which accounted for 42% of total distribution revenue for the
three months ended June 30, 2008.
Licensed Products. We provided sales and marketing and distribution services
for Anpo, Propess and Galake with revenue of $1,369,000 for the three months
ended June 30, 2008 as compared to $671,000 for the three months ended June 30,
2007, an increase of 104%. This increase was the result of continued sales and
marketing efforts promoting Propess and Anpo and initiating sales of Galake
during the third quarter of 2007. As of June 30, 2008 there were 452 and 481
hospitals selling Propess and Anpo respectively, versus 348 and 267 as of
June 30, 2007. In addition, there were 152 hospitals selling Galake as of
June 30, 2008.
Cost of Sales:
Three Months Ended June 30,
($ amounts in thousands) 2008 2007 $ Increase % Increase
Branded Sunstone OTC
Revenues $ 19,612 $ N/A $ N/A N/A
Cost of Sales 4,294 N/A N/A N/A
Gross Profit $ 15,318 $ N/A $ N/A N/A
Gross Margin % 78.1 % N/A
Distribution and Licensed Products
Revenues $ 10,026 $ 7,180 $ 2,846 39.6 %
Cost of Sales 8,783 6,204 2,579 41.6 %
Gross Profit $ 1,243 $ 976 $ 267 27.4 %
Gross Margin % 12.4 % 13.6 %
Total
Revenues $ 29,638 $ 7,180 $ 22,458 312.8 %
Cost of Sales 13,077 6,204 6,873 110.8 %
Gross Profit $ 16,561 $ 976 $ 15,585 1596.8 %
Gross Margin % 55.9 % 13.6 %
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Cost of goods sold was approximately $13,077,000 for the three months ended
June 30, 2008 as compared with $6,204,000 for the three months ended June 30,
2007. The Gross Profit for the three months ended June 30, 2008 was 55.9% as
compared to 13.6% for the three months ended June 30, 2007. The gross profit for
the three months ended June 30, 2008 of Sunstone products was $15,318,000, which
included $107,000 of amortization resulting from the Sunstone acquisition. The
Gross Profit for the three months ended June 30, 2008 was 78.1% which included
the purchase accounting adjustments. The combined Gross Profit for the three
months ended June 30, 2008 for distribution and licensed products was $1,243,000
as compared to $976,000 for the three months ended June 30, 2007. The gross
profit for distribution and licensed products was 12.4% for the three months
ended June 30, 2008 as compared to 13.6% for the three months ended June 30,
2007.
Sales and Marketing Expenses:
Sales and marketing expenses were $11,138,000 for the three months ended
June 30, 2008 as compared with $733,000 for the three months ended June 30,
2007. The acquisition of Sunstone in February 2008 accounted for $10,293,000 of
the increase in sales and marketing for the three months ended June 30, 2008 as
compared to the three months ended June 30, 2007. Marketing, advertising,
salaries and related benefits, selling expenses, travel and entertainment and
amortization of intangibles account for $10,062,000 or 90% of sales and
marketing expenses for the three months ended June 30, 2008. The most
significant sales and marketing expense increases for the three months ended
June 30, 2008 as compared to the three months ended June 30, 2007 are as
follows: marketing $2,428,000; salaries and related benefits of $1,174,000;
television, newspaper and magazine advertising of $1,911,000; sales office
selling expenses $1,671,000; travel and entertainment of $1,611,000; and
amortization of intangibles of $850,000 which resulted from the acquisition of
Sunstone.
General and Administrative Expenses:
General and administrative expenses were approximately $3,819,000 for the
three months ended June 30, 2008 as compared to $1,896,000 for the three months
ended June 30, 2007. General and administrative expenses percentage of net
revenues decreased to 12.9% for the three months ended June 30, 2008 as compared
to 26.4% for the three months ended June 20, 2007. Sunstone's general and
. . .
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