Exhibit 99.1
United States Bankruptcy Court |
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Southern District of New York |
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In re: | : | Chapter 11 |
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K-V Discovery Solutions, Inc. et al., | : | Case No. 12-13346 (ALG) |
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Debtors. | X | Jointly Administered |
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Monthly Operating Report for the Period
July 1, 2013 to July 31, 2013
Debtors’ Address: | 16640 Chesterfield Grove Road | |
| Suite 200 | |
Chesterfield, Missouri 63005 | ||
| Telephone: (314) 645-6600 | |
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Debtors’ Attorneys: | Willkie Farr & Gallagher LLP | |
| 787 Seventh Avenue | |
| New York, New York 10019 | |
| Telephone: (212) 728-8000 | |
This Monthly Operating Report ("MOR") has been prepared solely for the purposes of complying with the monthly reporting requirements applicable in these Chapter 11 cases and is in a format that the Debtors believe is acceptable to the United States Trustee. The financial information contained herein is limited in scope and covers a limited time period. Moreover, such information is preliminary and unaudited, and is not prepared in accordance with accounting principles generally accepted in the United States ("GAAP").
I declare under penalty of perjury that this report and the attached documents are true and correct to the best of my knowledge and belief.
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| August 15, 2013 |
Thomas S. McHugh |
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Chief Financial Officer |
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K-V Pharmaceutical Company |
In re | K-V DISCOVERY SOLUTIONS, INC., et al., |
| Case No. | 12-13346 (ALG) |
Debtors. |
| Reporting Period: | 7/1/13 - 7/31/13 | |
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| Federal Tax I.D.# | 13-1587982 |
CORPORATE MONTHLY OPERATING REPORT
File with the Court and submit a copy to the United States Trustee within 20 days after the end of the month and submit a copy of the report to any official committee appointed in the case.
(Reports for Rochester and Buffalo Divisions of Western District of New York are due 15 days after the end of the month, as are the reports for Southern District of New York.)
REQUIRED DOCUMENTS | Form No. | Document Attached | Explanation Attached |
Schedule of Cash Receipts and Disbursements | MOR-1 | x |
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Bank Reconciliation (or copies of debtor's bank reconciliations) | MOR-1 | x |
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Copies of bank statements |
| x | |
Cash disbursements journals |
| x | |
Statement of Operations | MOR-2 | x |
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Balance Sheet | MOR-3 | x |
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Status of Post-petition Taxes | MOR-4 | x | x |
Copies of IRS Form 6123 or payment receipt (See Notes to MOR 4) |
| x | |
Copies of tax returns filed during reporting period (See Notes to MOR 4) |
| x | |
Summary of Unpaid Post-petition Debts (See Notes to MOR 4) | MOR-4 |
| x |
Listing of Aged Accounts Payable (See MOR 7) | x | ||
Accounts Receivable Reconciliation and Aging | MOR-5 | x | |
Taxes Reconciliation and Aging (See MOR 7) | MOR-5 |
| x |
Payments to Insiders and Professionals | MOR-6 | x |
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Post Petition Status of Secured Notes, Leases Payable | MOR-6 | x |
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Debtor Questionnaire | MOR-7 | x |
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Makena® Performance Metrics |
| x |
NOTES TO MONTHLY OPERATING REPORT
This MOR includes activity from the following Debtors:
Debtor | Case Number |
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K-V Discovery Solutions, Inc. | 12-13346 | |
K-V Pharmaceutical Company | 12-13347 | |
Ther-Rx Corporation | 12-13348 | |
K-V Generic Pharmaceuticals, Inc. | 12-13349 | |
Zeratech Technologies USA, Inc. | 12-13350 | |
Drug Tech Corporation | 12-13351 | |
K-V Solutions USA, Inc. | 12-13352 | |
FP1096, Inc. | 12-13353 |
General Notes:
The financial statements and supplemental information contained herein are preliminary, unaudited, and may not comply in all material respects with GAAP. In addition, the financial statements and supplemental information contained herein represent consolidated information.
The unaudited consolidated financial statements have been derived from the books and records of the Debtors and exclude activity for their non-debtor subsidiaries. This information has not been subject to certain procedures that would typically be applied to financial information in accordance with GAAP, and upon application of such procedures the financial information could be subject to changes, and these changes could be material.
The financial information contained herein is presented on a preliminary and unaudited basis and remains subject to future adjustment. The Debtors are reviewing their books and records and other information on an ongoing basis to determine whether the financial statements should be supplemented or otherwise amended. The Debtors reserve the right to file, at any time, such supplements or amendments to the financial statements that form a part of this MOR. The financial statements should not be considered an admission regarding any of the Debtors’ income, expenditures or general financial condition, but rather, a current compilation of the Debtors’ books and records. The Debtors do not make, and specifically disclaim, any representation or warranty as to the completeness or accuracy of the information set forth herein.
The unaudited consolidated financial statements contained herein have been prepared on a going concern basis and do not reflect or provide all of the possible consequences of the ongoing chapter 11 cases. Specifically, the unaudited consolidated financial statements do not present the amount which will ultimately be paid to settle liabilities and contingencies which may be required in these cases. As a result of the chapter 11 proceedings, the Debtors may take, or may be required to take, actions which may cause assets to be realized, or liabilities to be liquidated, for amounts other than those reflected in the unaudited consolidated financial statements.
Certain footnote disclosures normally included in unaudited consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. The results of operations contained herein are not necessarily indicative of results which may be expected for any other period or for the full year and may not necessarily reflect the consolidated results of operations and financial position of the Debtors in the future.
MOR-1:
SCHEDULE OF CASH RECEIPTS AND DISBURSEMENTS1
(Dollars in thousands)
Debtor | Case Number | Cash Receipts | ||||||
Ther-Rx Corporation | 12-13348 | $ | 13,235 | |||||
DrugTech Corporation | 12-13351 | 25 | ||||||
K-V Pharmaceutical Company | 12-13347 | 8 | ||||||
K-V Discovery Solutions, Inc | 12-13346 | 0 | ||||||
K-V Generic Pharmaceuticals, Inc | 12-13349 | 0 | ||||||
Zeratech Technologies USA, Inc | 12-13350 | 0 | ||||||
K-V Solutions USA Inc | 12-13352 | 0 | ||||||
FP1096, Inc | 12-13353 | 0 | ||||||
Total Cash Receipts | $ | 13,268 |
Debtor | Case Number | Cash2 Disbursements | ||||||
K-V Pharmaceutical Company | 12-13347 | $ | (6,694 | ) | ||||
Ther-Rx Corporation | 12-13348 | (6,282 | ) | |||||
DrugTech Corporation | 12-13351 | (30 | ) | |||||
K-V Discovery Solutions, Inc | 12-13346 | 0 | ||||||
K-V Generic Pharmaceuticals, Inc | 12-13349 | 0 | ||||||
Zeratech Technologies USA, Inc | 12-13350 | 0 | ||||||
K-V Solutions USA Inc | 12-13352 | 0 | ||||||
FP1096, Inc | 12-13353 | 0 | ||||||
Total Cash Disbursements | $ | (13,006 | ) |
Notes
1 – Cash is received and disbursed by the Debtors as described in the Debtors’ motion to approve continued use of their cash management system (which motion was granted on a final basis pursuant to an order entered by the Bankruptcy Court on January 15, 2013) and is consistent with the Debtors’ historical cash management practices. All amounts listed are the balances reported by the bank as of the end of the reporting period. Copies of bank statements will be provided upon reasonable request in writing to counsel for the Debtors.
2 – Cash disbursements during the month of July 2013 include $201 of outstanding checks.
MOR-1 (CON’T):
BANK RECONCILIATIONS1, 2, 3, 4
(Dollars in thousands)
Debtor | Case Number | Bank and Account Description | Bank Account No. Ending In | Bank Balance | |||||||||
K-V Pharmaceutical Company | 12-13347 | Fifth Third Money Market / Investment Account | 1225 | $ | 30,994 | ||||||||
K-V Pharmaceutical Company | 12-13347 | Fifth Third Bank / Operating Account | 9158 | 6,419 | |||||||||
K-V Pharmaceutical Company | 12-13347 | Fifth Third Bank / Deposit Account | 0941 | 2,141 | |||||||||
K-V Pharmaceutical Company | 12-13347 | Fifth Third Bank / Nesher Escrow Account | 0383 | 501 | |||||||||
K-V Pharmaceutical Company | 12-13347 | Commerce Bank / Certificate of Deposit | 2433 | 150 | |||||||||
K-V Pharmaceutical Company | 12-13347 | AMEX Centurion Bank / Certificate of Deposit | 8420 | 60 | |||||||||
Drug Tech Corporation | 12-13351 | Wells Fargo Bank/ DrugTech Operating Acct | 6823 | 2 | |||||||||
Drug Tech Corporation | 12-13351 | US Bank / DrugTech Custody Account | 3256 | 2 | |||||||||
$ | 40,269 |
Notes
1 –The Debtors have not included copies of their bank statements or cash disbursement journals due to the voluminous nature of these reports. Copies of the Debtors’ bank statements and cash disbursement journals will be provided upon reasonable request in writing to counsel for the Debtors.
2 –The Debtors reconcile their bank accounts on a monthly basis.
3 –The Debtors have excluded accounts with no balance as of the end of the reporting period.
4 –The Debtors’ bank balances exclude $245 of outstanding checks.
MOR-2:
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited; Dollars in thousands)
For the Month Ended July 31, 20131 | ||||
Net revenues | $ | 11,539 | ||
Cost of sales | 124 | |||
Gross profit | 11,415 | |||
Research and development | 972 | |||
Selling and administrative | 5,915 | |||
Operating expenses | 6,887 | |||
Operating income | 4,528 | |||
Interest, net and other | 872 | |||
Reorganization items, net | 1,829 | |||
Total other expense | 2,701 | |||
Income from continuing operations before income taxes | 1,827 | |||
Income tax provision | 1,081 | |||
Net income from continuing operations | $ | 746 |
Notes
1 – The Debtors prepare their income statement on an accrual basis. Accordingly, the Debtors’ Statement of Operations, as set forth in this MOR, reflects the results of the Debtors’ operations for the month of July 2013.
MOR-3:
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in thousands)
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As of July 31, 2013 | ||||
ASSETS | ||||
Current Assets: | ||||
Cash and cash equivalents | 39,311 | |||
Restricted cash | 561 | |||
Undrawn DIP Facility proceeds | 21,950 | |||
Receivables, net | 24,792 | |||
Inventories, net | 6,821 | |||
Other current assets | 2,862 | |||
Total Current Assets | 96,297 | |||
Property and equipment, less accumulated depreciation | 1,253 | |||
Intangible assets, net | 104,576 | |||
Other assets | 15,110 | |||
Total Assets | $ | 217,236 | ||
LIABILITIES | ||||
LIABILITIES NOT SUBJECT TO COMPROMISE: | ||||
Current Liabilities: | ||||
Accounts payable | $ | 5,786 | ||
Accrued expenses | 34,320 | |||
Other current liabilities | 501 | |||
Debtor-in-Possession Financing1 | 86,612 | |||
Total Current Liabilities | 127,219 | |||
Other long-term liabilities | 62 | |||
Total Liabilities not subject to compromise | 127,281 | |||
Total liabilities subject to compromise | 585,276 | |||
Total Liabilities | 712,557 | |||
SHAREHOLDERS' DEFICIT | ||||
Preferred Stock | – | |||
Class A Common Stock | 660 | |||
Class B Common Stock | 96 | |||
Additional paid-in capital | 206,515 | |||
Accumulated deficit | (645,183 | ) | ||
Less: Treasury stock | (57,409 | ) | ||
Total Shareholders' Deficit | (495,321 | ) | ||
Total Liabilities and Shareholders' Deficit | $ | 217,236 |
Notes
1 – Debtor-in-Possession Financing includes the amount of $85,000 under the Debtors’ debtor-in-possession financing facility (the “DIP Facility”), which was approved pursuant to an order of the Bankruptcy Court (the “DIP Order”) entered on December 27, 2012 [Docket No. 497], as well as accrued paid-in-kind interest of $1,612. For administrative purposes, the unused proceeds of the DIP Facility are being held in an account in the name of Silver Point Finance, LLC, the agent for the DIP Facility.
MOR-4:
STATUS OF POST-PETITION TAXES1, 2
(Dollars in thousands)
Federal | Beginning Tax | Amount Withheld and/or Accrued | Amount Paid | Ending Tax | ||||||||||||
Withholding | $ | 0 | $ | 186 | $ | (186 | ) | $ | 0 | |||||||
FICA-Employee | 0 | 70 | (70 | ) | 0 | |||||||||||
FICA-Employer | 0 | 70 | (70 | ) | 0 | |||||||||||
Total Federal Taxes | $ | 0 | $ | 326 | $ | (326 | ) | $ | 0 | |||||||
State and Local | ||||||||||||||||
Withholding | $ | 0 | $ | 52 | $ | (52 | ) | $ | 0 | |||||||
Sales Tax | 2 | 0 | 0 | 2 | ||||||||||||
Unemployment Tax | 0 | 0 | 0 | 0 | ||||||||||||
Real Property | 13 | 0 | 0 | 13 | ||||||||||||
Personal Property | 24 | 1 | 0 | 25 | ||||||||||||
Franchise Tax | 7 | 18 | (60 | ) | (35 | ) | ||||||||||
Total State and Local | $ | 46 | $ | 71 | $ | (112 | ) | $ | 5 | |||||||
Total Taxes | $ | 46 | $ | 397 | $ | (438 | ) | $ | 5 |
Notes
1 - The Debtors have not annexed copies of tax returns filed with various taxing authorities during the current reporting period to this MOR, nor have they included the Debtors’ IRS Form 6123 with this MOR. Copies of such tax returns and IRS Form 6123 will be provided upon reasonable request in writing to counsel for the Debtors.
2 - The Debtors believe they are paying all undisputed taxes and preparing and filing all tax returns when due or obtaining extensions where necessary.
MOR-4 (CON’T):
SUMMARY OF UNPAID POST-PETITION DEBTS1
(Dollars in thousands)
Description | Amount | |||
0 - 30 days old | $ | 2,288 | ||
31+ days old | 3,498 | |||
Total Vendor Accounts Payable Post-petition | $ | 5,786 |
Notes
1 - The Debtors believe they are paying all undisputed post-petition obligations according to terms.
MOR-5:
ACCOUNTS RECEIVABLE RECONCILIATION AND AGING
(Dollars in thousands)
Description | Amount | |||
0 - 30 days old | $ | 26,209 | ||
31 - 60 days old | 51 | |||
61 - 90 days old | (69 | ) | ||
91+ days old | 1,013 | |||
Total Customer Accounts Receivable | $ | 27,204 | ||
Customer Allowances | (2,412 | ) | ||
Total Accounts Receivable | $ | 24,792 |
MOR-6:
PAYMENTS TO INSIDERS AND PROFESSIONALS
(Dollars in thousands)
INSIDERS | |||||||||
Name | Type of Payment 1 | Current Month Amount Paid | Total Paid Since August 4, 20122 | ||||||
Christmas, Patrick | Salary/Expenses | $ | 19 | $ | 247 | ||||
Divis, Gregory | Salary/Expenses | 29 | 362 | ||||||
McHugh, Thomas | Salary/Expenses | 18 | 241 | ||||||
Stancic, Ana | Director Fees/Expenses | 54 | 180 | ||||||
Hermelin, David | Director Fees/Expenses | 57 | 190 | ||||||
Sidransky M.D., David | Director Fees/Expenses | 55 | 184 | ||||||
Bentley, Greg | Director Fees/Expenses | 53 | 176 | ||||||
Lehrer, Joe | Director Fees/Expenses | 74 | 248 | ||||||
Dow, Mark | Director Fees/Expenses | 62 | 208 | ||||||
Baldini, Robert | Director Fees/Expenses | 54 | 180 | ||||||
Total | $ | 475 | $ | 2,216 |
Notes
1 – Additional detail concerning payments to the Debtors’ insiders will be provided upon reasonable request in writing to counsel for the Debtors.
MOR-6 (CONT):
PROFESSIONALS1 | |||||||||||||||||
Name | Date of Court Order Authorizing Payment | Amount Requested2 | Current Month Amount Paid | Total Paid To Date3 | Total Invoiced & Unpaid | ||||||||||||
Alston & Bird LLP | 14-Sep-12 | $ | 21 | $ | 0 | $ | 393 | $ | 21 | ||||||||
Arnall Golden Gregory LLP | 10-Oct-12 | 2 | 2 | 61 | 15 | ||||||||||||
Brown Rudnick LLP5 | 07-Jun-13 | 24 | 0 | 109 | 24 | ||||||||||||
Curtis, Mallet-Prevost, Colt & Mosle LLP | 15-Jan-13 | 0 | 13 | 174 | 84 | ||||||||||||
Dechert LLP5 | 07-Jun-13 | 0 | 0 | 1,059 | 0 | ||||||||||||
Duff & Phelps, LLC | 10-Oct-12 | 115 | 92 | 922 | 225 | ||||||||||||
Epiq Bankruptcy Solutions, LLC | 27-Sep-12 | 49 | 39 | 326 | 25 | ||||||||||||
Ernst & Young, LLP | 28-Sep-12 | 0 | 33 | 105 | 26 | ||||||||||||
Fortgang Consulting | 14-Sep-12 | 0 | 0 | 301 | 0 | ||||||||||||
FourSquare Partners | 5-Apr-13 | 13 | 13 | 88 | 0 | ||||||||||||
Houlihan & Lokey Capital, Inc. | 14-Sep-12 | 150 | 302 | 1,998 | 0 | ||||||||||||
Jefferies & Company, Inc. | 10-Oct-12 | 0 | 0 | 1,883 | 190 | ||||||||||||
Lowenstein Sandler PC4,5 | 27-Dec-12 | 0 | 0 | 1,585 | 0 | ||||||||||||
Riker, Danzig, Scherer, Hyland, Perretti LLP5 | 07-Jun-13 | 0 | 0 | 31 | 0 | ||||||||||||
Sidley Austin LLP5 | 07-Jun-13 | 0 | 0 | 741 | 0 | ||||||||||||
Stroock Stroock & Lavan LLP | 10-Oct-12 | 423 | 0 | 2,833 | 1,478 | ||||||||||||
Weil, Gotshal & Manges LLP | 27-Sep-12 | 0 | 958 | 4,771 | 0 | ||||||||||||
White & Case LLP5 | 07-Jun-13 | 0 | 0 | 741 | 0 | ||||||||||||
Willkie Farr & Gallagher LLP | 27-Sep-12 | 486 | 697 | 5,932 | 1,921 | ||||||||||||
Total | $ | 1,295 | $ | 2,149 | $ | 24,053 | $ | 4,021 |
Notes
1 – Represents professional services exclusive of those rendered by professionals retained by the Debtors pursuant to the September 27, 2012 order of the Bankruptcy Court authorizing the Debtors to employ and retain professionals utilized in the ordinary course of business.
2 – Represents amounts requested during the current reporting period.
3 – Represents payments made from the date of the Bankruptcy Court’s order authorizing each firm’s retention.
4 – Of the total fees paid to date, $400 represents a payment made pursuant to the DIP Order.
5 – Represents fees authorized to be paid as set forth on the record of the hearing held on June 7, 2013 [Docket 937];seealso Order: (A) Authorizing Debtors To Enter Into And Satisfy Obligations Under Share Purchase Agreement; (B) So Ordering Record Of June 7, 2013 Hearing; And (C) Granting Related Relief [Docket No. 962].
MOR-6 (CON’T):
POST-PETITION STATUS OF SECURED NOTES, LEASES PAYABLE
AND ADEQUATE PROTECTION PAYMENTS1
(Dollars in thousands)
Name of Creditor | Scheduled Monthly Payment Due | Amount Paid During Month | ||||||
Building lease payable2 | $ | 19 | $ | 19 | ||||
Total Payments | $ | 19 |
Notes
1 - The Debtors’ schedule of lease payments, as set forth in this MOR, only reflects payments made pursuant to the Debtors’ real property leases. Immaterial leases of personal property are not included in this MOR-6.
2 – On February 13, 2013, the Bankruptcy Court entered an order authorizing the Debtors to enter into a new corporate headquarters lease agreement for premises located at 16640 Chesterfield Grove Road, Suite 200, Chesterfield, Missouri [Docket No. 598].
MOR-7:
DEBTOR QUESTIONNAIRE
Must be completed each month. If the answer to any of the questions is "Yes", provide a detailed explanation of each item. Attach additional sheets if necessary. | Yes | No | ||||
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1 |
| Have any assets been sold or transferred outside the normal course of business this reporting period? | X | |||
2 |
| Have any funds been disbursed from any account other than a debtor in possession account this reporting period? | X | |||
3 |
| Is the Debtor delinquent in the timely filing of any post-petition tax returns? |
| X | ||
4 |
| Are workers compensation, general liability or other necessary insurance coverages expired or cancelled, or has the debtor received notice of expiration or cancellation of such policies? |
| X | ||
5 |
| Is the Debtor delinquent in paying any insurance premium payment? |
| X | ||
6 |
| Have any payments been made on pre-petition liabilities this reporting period? | X |
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7 |
| Are any post-petition receivables (accounts, notes or loans) due from related parties? |
| X | ||
8 |
| Are any post-petition payroll taxes past due? |
| X | ||
9 |
| Are any post-petition State or Federal income taxes past due? |
| X | ||
10 |
| Are any post-petition real estate taxes past due? |
| X | ||
11 |
| Are any other post-petition taxes past due? |
| X | ||
12 |
| Have any pre-petition taxes been paid during this reporting period? | X | |||
13 |
| Are any amounts owed to post-petition creditors delinquent? |
| X | ||
14 |
| Are any wages payments past due? |
| X | ||
15 |
| Have any post-petition loans been received by the Debtor from any party? | X | |||
16 |
| Is the Debtor delinquent in paying any US Trustee fees? |
| X | ||
17 |
| Is the Debtor delinquent with any court ordered payments to attorneys or other professionals? |
| X | ||
18 |
| Have the owners or shareholders received any compensation outside of the normal course of business? |
| X |
Explanations
| 6 | Pursuant to an order entered by the Bankruptcy Court, the Debtors were authorized to pay certain pre-petition customer obligations [Docket Nos. 85 & 338]. |
| 13 | The Debtors believe that all undisputed post-petition accounts payable have been and are being paid according to agreed-upon terms specific to each vendor and/or service provider. Any aged amounts represent items subject to valid disputes and certain items which have been paid subsequent to the end of this reporting period. |
Makena® Performance Metrics
Makena® (hydroxyprogesterone caproate injection) is the Debtors’ single-most valuable product. The information below addresses certain key performance metrics related to Makena®. The amounts shown are based on estimates and are subject to change. Gross revenues are preliminary and unaudited, and are not prepared in accordance with GAAP.
Three Months Ended | Gross Revenues ($ in thousands)(1) | Total Prescriptions(2) | Vials Shipped to Customers(3) | |||||||||
12/31/2012 | $ | 23,495 | 3,452 | 6,810 | ||||||||
3/31/2013 | $ | 29,014 | 4,302 | 8,410 | ||||||||
6/30/2013 | $ | 38,009 | 4,821 | 11,017 | ||||||||
7/31/2013(4) | $ | 41,507 | 4,715 | 12,031 |
Notes: | |||
(1) Amounts shown are estimated based on the number of vials shipped to customers and list price/vial. | |||
(2) Represents total prescriptions reported to the Debtors. | |||
(3) Represents paid vials shipped to the Debtors' customers, which include specialty pharmacies and distributors. | |||
(4) Data for the months of May 2013, June 2013, and July 2013 is used in the absence of complete data for the three months ending September 30, 2013. |
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