BioElectronics Corporation

(OTC:BIEL)

BioElectronics is a company which is plagued by a poor financial balance sheet, unaudited filings and barely sustainable ongoing operations with its current expenses constantly exceeding revenues, however is it worth investing in? Here is a top-down unbiased analysis which tells all, investigating deeper into the lion’s den.

About: BioElectronics Corporation (BioElectronics) designs, develops and markets a variety of drug-free, anti-inflammatory patches for a range of medical indications. The Company’s patch products, which are marketed under the name ActiPatch Therapy, deliver pulsed electromagnetic field therapy, an anti-inflammatory and pain relief therapy. The ActiPatch Therapy products combine a miniaturized microchip, power source and antenna in a soft, flexible outer envelope. When applied to the body, these devices deliver a pulsed radio frequency signal into the body on a 27 megahertz (MHz) frequency wave that induces a low frequency electromagnetic field to damaged cell tissue.

Balance Sheet & Financial Analysis

It doesn’t take a rocket scientist to notice that their balance sheet looks poised for failure: Their liabilities greatly outweighs their assets (by almost 3-4x). So why should we care about this? Well this is a negative aspect because current assets (cash) are the most important item for a small business – more importantly the liquidity of the asset which in turn grants the ability to finance their ongoing operations, as well as pay off any liabilities (short-term, long-term debts). From an overall business standpoint, their balance sheet is really weak. A quick comparison with other small-cap BioPharma companies and you will notice by contrast that they usually posses enough cash in hand to ensure survival. An example is Nephros (OTC:NEPH), they have 9x the assets vs. liabilities, thus do not have to worry about obligations while producing products, and thus have the ability to continuously take on researching and development of their product.

Moreover, BIEL’s Debt-to-Equity ratio (total liabilities / total shareholders equity) is a negative number, but what does this really mean? The Debt-to-Equity Ratio measures how much money a company should safely be able to borrow over long periods of time. It does this by comparing the company’s total debt (including short term and long term obligations) and dividing it by the amount of owner’s equity. For now, you only need to know that the number can be found at the bottom of the balance sheet. You’ll actually calculate the debt to equity ratio in segment two when we look at real balance sheets.) The result you get after dividing debt by equity is the percentage of the company that is indebted (or “leveraged”). The normal level of debt to equity has changed over time, and depends on both economic factors and society’s general feeling towards credit. Generally, any company that has a debt to equity ratio of over 40 to 50% should be looked at more carefully to make sure there are no liquidity problems. If you find the company’s working capital, and current / quick ratios drastically low, this is is a sign of serious financial weakness.

The next issue at hand is the net profit margins, operating margins ect., which are all well in the negative percentages, however when it comes to small BioPharmas involved with PDUFAs, these should be overlooked due to the fact that if one of their products sees FDA approval, these numbers will once again begin to see a positive value.

If you already don’t already know, PinkSheets.com is a premier source for penny stock fanatics to gain access of financial data otherwise unavailable on their favourite multi-million dollar financial news portals. Here is an updated unaudited sept/30/08 financial overview on BIEL (.pdf). One of the poorest balance sheets we have ever seen. At first peek into the raw data, from 2007 to 2008 they seem to have been reducing the difference between their assets and liabilities, although the difference is still staggering. Now the big problem which insues is that their most important and liquid asset account, cash has gone down by almost 100%, this is extremely dangerous should they continue at this pace.

Lastly, although volatile, their one year chart has been through its ups and downs, while maintaining a fairly steady pace around its current price per share point — Expect to see more of this if the company continues to disregard the use of press release syndication to excite new shareholders into buying in.

Company Achievements

*All data and information used is courtesy of BioElectronics Investor Overview

The dermal patch delivery system creates a multitude of new product opportunities for chronic and acute inflammatory conditions. The market potential is estimated at $10 billion or 400 million incidents worldwide. The distinctive value proposition of ActiPatch is the delivery of drug-free therapy that reduces pain and inflammation and accelerates healing by 30% to 50% when compared with the present standard methods of patient care. The current major applications are:

• Medical Surgeries
• Chronic Wounds
• Oral Surgeries
• Sprains and Strains
• Lower Back Pain
• Chronic Repetitive Stress Injuries, Heel Pain, Carpal Tunnel, Bursitis, etc.

Below is a list of the Company’s accomplishments to date.

• United States Food and Drug Administration market clearance
• Canadian market approval for relief of pain in muscosketal complaints in both medical and over-the-counter markets
• CE Mark (European Common Market) Certification for the medical and retail over-the-counter markets
• ISO Certification
• Chosen as “One of 9 Medical Breakthroughs That May Change Your Life” by MedicalHeadway.com
• 15+ domestic independent sales agents
• 20+ International distributors with additional agreements in place or awaiting regulatory approvals
• A medical research agreement with the David Genecov, MD, Dallas Medical Center, a leading medical researcher to supervise and write manuscripts for four studies, plantar fascitis (heel pain), ankle sprains, breast augmentations, and cesarean sections.
• Canadian retail product line launched in June of 2008, actively interviewing distribution partners throughout the rest of the world.
• A solid intellectual property portfolio covering both the product design and the pulse signature.
• A 3-year pipeline of new products for treatment of sports injuries, bone fractures, chronic injuries, chronic wounds, skin conditions, arthritis and post-operative care.
• Product now available online to the consumer market via multiple websites in several countries.
• Projected annual sales in 2008 of over $2,000,000.

Now all of this seems really impressive, however how successful could they really be when you look at the poor quarterly and annual revenues when their balance sheets were in fact audited, after all, a lot of these numbers speak for 2008 in which their balance sheet was feasible. Personally, when looking at their current products, nothing really impresses or jumps out at you. They are simple patches to help reduce pain and discomfort.

Their distributors are very infintesimle, and while at first glance the number of overseas countries on their list is impressive, a deeper analysis and read into the situation reveals the products are only available at minor, small stores and pharmacies which are quite insignificant for the time being.

Now on a lighter note, a positive is their growth. To date the Company has signed agreements with 20 countries. Sales for the first 6 months of 2008 were just under $400,000 and year end sales are projected to be between $1 and $1.2 million. This does show they have a willingness to expand operations and are just as unsatisfied with their current status as we are.

Seems like they are really struggling to maintain current operations, however how do other investors feel about this company, and more importantly how should you feel?

According to PinkSheets.com, Short interest in the stock is up by 1,678.32% or 471,362 shares in May 2009, so it is clear that many are betting against this little company looking to break through its troubles.

However, amongst all the troubles this company is experiencing, there does seem to be light at the end of the tunnel — StocksHaven Investments believes there lies opportunity amongst uncertainty, thus an investment in this company may not be such a bad idea after all, and here’s why: upcoming PDUFA. Yes indeed, even poor financials will not stop the frenzy of investors from piling in and purchasing this stock in anticipation of an FDA approval.

FDA NEWS

Allay (TM) Product – Menstrual Pain Therapy

The Allay product, which is based on proven and effective ActiPatch(tm)
technology, uses electromagnetic pulse therapy to reduce many of the symptoms
and discomfort associated with a woman’s menstrual cycle. Approximately 50% of
women experience such symptoms, with approximately 30% of women having to
curtail normal activities due to the pain and discomfort. While millions of
women suffer, very few solutions exist. The Allay product is specifically
designed to fill this need.

“The Allay device is a natural extension of the use of ActiPatch technology. Knowing the positive benefits of low frequency pulse electromagnetic fields after invasive surgery, applying it to the problem of menstrual discomfort is a logical and no risk extension of those potential benefits. The product is easy to wear, well accepted by the patient, and has no downside,” commented Dr. Barry
Eppley of Indianapolis, Indiana. “The product is a non-drug, anti-inflammatory therapy that is immediately reversible and affordable. While it will not eliminate all menstrual pain in every patient, it will clearly be of benefit for many women.”

CEO of BioElectronics Andrew Whelan added, “We are very excited about the introduction of this new product. Thus far, reaction has been very positive, with many of our retail oriented distributors expressing significant interest and already placing orders. We expect this to be our biggest product to date and we are very positive about the revenue generation possibilities.”

The filing follows a very successful double blinded, placebo controlled clinical trial in which 71% of women in the active group reported either complete elimination or a reduction in their typical menstrual pain symptoms, with 49% showing at least a 50% reduction in pain associated with dysmenorrhea.

“While between 60% and 70% of women suffer from pain during menstruation, with millions of women experiencing pain severe enough to significantly restrict daily activities, there are very few safe alternatives for pain relief,” commented Andrew Whelan, CEO of BioElectronics, Corp. “The most widely used treatment for dysmenorrheal is acetaminophen, but it is also the leading causes of liver failure in the U.S(1). The Allay Menstrual Pain Relief Patch offers a far safer, highly effective and drug-free solution for millions of women who suffer from period pain and cramps. We are excited to bring this product to market.”

Here is a MSN Money article which recaps BioElectronic’s recent conference call which was held on Thursday, June, 18th regarding their new product and FDA submission.

This new product does intrigue us, however based on the financial analysis we would advise you invest a small portion of your portfolio, we’re talking <5%,  because if they do not gain FDA clearance for this, the
company looks prime for bankruptcy as their current products are not enough to suffice their ongoing business operations as seen from their net incomes.

In conclusion, an investment in BioElectronics Corporation does have a staggering risk, however the potential for massive gains does exist as well. A treatment for menstruation does have a huge market potential, however in this company’s current state they would need some extensive cash infusion and partnerships in order to maintain operations and even touch upon marketing, advertising, and mass production of their new product.

—–

Disclosure: Long-term Position

—–

By reading StocksHaven Investments you agree to the disclaimer, and thereby will not hold Michael Vlaicu accountable for any transactions or decisions you make. It is up to you to do your own due diligence.