SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______ to ______
Commission file number 0-9065
Golden Pharmaceuticals, Inc.
(Exact name of small business issuer
as specified in its charter)
Colorado 84-0645174
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1313 Washington Avenue, Golden, Colorado 80401
(Address of principal executive offices)
(303-279-9375)
(Issuer's telephone number)
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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
The number of shares outstanding of the issuers Common Stock, no par value as
of January 12, 1996 was 90,757,755 shares.
Transitional Small Business Disclosure Format (check one): Yes No X
Part I
Item 1. FINANCIAL STATEMENTS
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
November 30, August 31,
1995 1995
CURRENT ASSETS:
Cash and Cash Equivalents $ 70,510 $ 49,557
Receivables
Trade, net of allowance for doubtful
accounts of $66,770 and $63,700 at
November 30 and August 31, 1995 1,069,366 1,255,475
Inventories 668,296 674,955
Prepaid expenses 187,091 131,613
Deferred Taxes 380,000 380,000
Note Receivable 165,000 165,000
TOTAL CURRENT ASSETS 2,540,263 2,656,600
PROPERTY, PLANT AND EQUIPMENT- AT COST 2,781,995 2,736,714
Less accumulated depreciation
and amortization 1,703,935 1,659,768
1,078,060 1,076,946
OTHER ASSETS
Goodwill, less accumulated amortization
of $66,171 and $16,543 at November 30
and August 31, 1995, respectively 3,954,683 3,953,735
Non-compete Agreement 161,116 172,624
Deferred income taxes 220,000 220,000
TOTAL OTHER ASSETS 4,335,799 4,346,359
$7,954,122 $8,079,905
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
November 30, August 31,
1995 1995
CURRENT LIABILITIES:
Note payable $ 910,649 $ 343,454
Current maturities of long-term debt 247,519 276,179
Current maturities of capitalized lease
obligations 33,375 33,375
Accounts payable 783,421 1,198,689
Accrued liabilities
Salaries, wages and other compensation - 133,192
Interest 41,117 36,183
Other 97,741 19,859
TOTAL CURRENT LIABILITIES 2,113,822 2,040,931
LONG-TERM OBLIGATIONS, less current
maturities 4,314,289 4,314,936
CAPITALIZED LEASE OBLIGATIONS, less
current maturities 157,043 178,745
STOCKHOLDERS' EQUITY
Common stock - no par value; 200,000,000
shares authorized; and 90,692,583 and
93,967,583 issued and outstanding, at
November 30, and August 31, 1995,
respectively 21,288,851 21,288,851
Treasury stock (90,562) -
Preferred stock- no par value; 10,000,000
shares authorized Class A 15%/30% cumulative
convertible 29,653 shares, issued and
outstanding at November 30, and August 31,
1995 292,558 292,558
DIVIDENDS ACCRUED ON PREFERRED STOCK 433,393 433,393
Accumulated deficit (20,555,272) (20,469,509)
TOTAL STOCKHOLDERS' EQUITY 1,368,968 1,545,293
$ 7,954,122 $ 8,079,905
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
November 30,
1995 1994
REVENUES:
Net sales $2,264,773 $ 898,560
Cost of Sales 1,439,880 369,979
GROSS MARGIN: 824,893 528,581
Selling, general and administrative 711,044 340,712
OPERATING INCOME 113,849 187,869
OTHER INCOME/(EXPENSE)
Interest Expense (180,191) (16,390)
Other Income 2,148 1,196
TOTAL OTHER INCOME/(EXPENSE) (178,043) (15,194)
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (64,194) 172,675
INCOME TAX (BENEFIT) EXPENSE 21,400 4,206
INCOME BEFORE EXTRAORDINARY ITEMS (85,594) 168,469
EXTRAORDINARY ITEM
Settlement of trade accounts payable - 99,677
NET INCOME $ (85,594) $ 268,146
PRIMARY EARNINGS PER SHARE
Before extraordinary item * *
Extraordinary item * *
PRIMARY EARNINGS PER SHARE * *
Continued on following page.ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
November 30,
1995 1994
FULLY DILUTED EARNINGS PER SHARE
Before extraordinary item $ * $ *
Extraordinary item * *
FULLY DILUTED EARNINGS PER SHARE $ * $ *
WEIGHTED AVERAGE SHARES OUTSTANDING 101,403,953 105,324,724
* Less than $.01 per share
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
November 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss) $(85,594) $268,146
Adjustments to reconcile net income to
net cash provided (used) by operations
Gain on settlement of note payable - (99,677)
Common Stock issued for consulting services - 37,500
Depreciation and amortization 105,303 20,696
(Increase) decrease in -
Accounts receivable 186,109 41,878
Inventory 6,659 (17,000)
Prepaid expenses and other (55,478) (6,663)
Increase (decrease) in -
Accounts payable (415,437) (92)
Accrued interest and other (50,376) 3,030
TOTAL ADJUSTMENTS (223,220) (20,328)
NET CASH PROVIDED BY OPERATING
ACTIVITIES (308,814) 247,818
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (45,281) (52,330)
Purchase of treasury stock (90,562) -
Addition to goodwill (50,576) -
NET CASH (USED) BY INVESTING ACTIVITIES (186,419) (52,330)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of note payable (51,009) (241,678)
Issuance of line of credit 2,162,374 -
Payments on line of credit (1,595,179) -
NET CASH (USED) BY FINANCING ACTIVITIES 516,186 (241,678)
NET INCREASE (DECREASE) IN CASH 20,953 (46,190)
CASH, Beginning of period 49,557 94,792
CASH, End of period $ 70,510 $ 48,602
Continued on following page.ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
November 30,
1995 1994
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Interest paid $ 102,309 $ 16,390
Income taxes paid $ 21,400 $ 4,200
NON-CASH TRANSACTIONS
Settlement of note payable $ - $ 99,677
Issuance of Stock for Consulting
Services $ - $ 37,500
GOLDEN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited financial statements of Golden Pharmaceuticals,
Inc. and its consolidated subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of
the information and notes required by generally accepted accounting principles
for annual financial statements.
The accompanying unaudited condensed financial statements and disclosures
reflect all adjustments which, in the opinion of the management, are necessary
for a fair presentation of the results of operations, financial position, and
cash flow of the Company. The results of operations for the periods indicated
are not necessarily indicative of the results for the full year.
The financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended August 31, 1995 as filed with the
Securities and Exchange Commission.
Net Income Per Common Share - Net income per common share was determined by
dividing net income, as adjusted below, by applicable weighted average shares
outstanding.
Three months Ended
November 30,
1995 1994
Income before extraordinary
item as reported ($85,594) $168,469
Extraordinary item -0- 99,677
NET INCOME ($ 85,594) $ 268,146
Weighted average number of
shares outstanding 101,403,953 105,324,724
Common stock equivalents and stock held in escrow have been included in the
computation for the three months ended November 30, 1995 and 1994. The common
stock equivalents that have been included in the computation for earnings per
share are stock options, Class A Convertible Preferred Stock, 15%/30%
Cumulative Convertible Preferred Stock, and accrued dividends on the 15%/30%
Cumulative Convertible Preferred Stock.
Reclassification - Certain reclassifications have been made to conform prior
years' information with the current year presentation.
Note 2. ACQUISITION OF QUALITY CARE PHARMACEUTICALS, INC.
On August 7, 1995, the Company purchased all of the issued and outstanding
capital stock of Quality Care Pharmaceuticals, Inc., a California corporation
("QCP") pursuant to a Stock Purchase Agreement (the "Agreement") among the
Company, QCP and the shareholders of QCP. The Company paid a total of
$3,718,750 in cash for QCP, of which $222,065 is being held in escrow to
secure the indemnification obligations of certain shareholders of QCP pending
the Company's receipt of audited financial statements for QCP for the fiscal
year ending December 31, 1995.
QCP is engaged in the repackaging and distribution of pharmaceutical products.
QCP's customers include physicians, hospitals, group practices, managed care
programs and other legally constituted medical facilities throughout the
United States. QCP's assets include, but are not limited to, (I) contracts
with pharmaceutical suppliers and distributors, (ii) certain building and
equipment leases, (iii) licenses and permits, and (iv) certain intellectual
property. In connection with the Agreement, the Company entered into
employment agreements with Daniel B. Guinn and Gary A. Klingsheim, the
President and Executive Vice President, respectively, of QCP.
To facilitate the financing of the acquisition of QCP, the Company obtained
from a national bank (the "Bank") a $4,000,000 term loan (the "Term Loan"), a
$2,500,000 revolving line of credit (the "Revolving Facility") and a $400,000
term loan. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS -
Liquidity and Capital Resources."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Three Months Ended November 30, 1995 Compared to Three Months Ended
November 30, 1994
Net Sales - Net sales totaled $2,264,773 for the three months ended
November 30, 1995, as compared to $898,560 for the three months ended
November 30, 1994. The increase of $1,366,213 or 152% was primarily
attributable to the consolidation of QCP's operations with the Company's, of
which QCP represented $1,327,112 of the increase.
Cost of Sales - Cost of sales as a percent of net sales for the three months
ended November 30, 1995 was 64% as compared to 41% for the three months ended
November 30, 1994. The increase was primarily the result of the consolidation
of QCP's operations with the Company's. QCP's cost of sales are higher than
the Company's due to the fact that QCP purchases pharmaceuticals in bulk from
third parties for repackaging and distribution. The Company's cost of sales
are lower than QCP's because the Company manufactures its products from raw
materials which have lower margins. Cost of sales for the Company for the
three months ended November 30, 1995 was 47% prior to the consolidation. The
increase of 6% was primarily the result of manufacturing equipment
depreciation and manufacturing facility utility costs alocated to Cost of
Sales for the three months ended November 30, 1995. These costs were recorded
in S,G&A during the same period in 1994.
Selling General and Administration - Selling, general and administrative
expenses ("SG&A") for the three months ended November 30, 1995 were $711,044
as compared to $340,712 for the three months ended November 30, 1994. This
increase of $370,322 or 109% is primarily the result of the consolidation of
QCP's operations with the Company's. SG&A for the three months ended
November 30, 1995 were $368,037 prior to the consolidation.
Interest Expense - Interest expense for the three months ended November 30,
1995 was $180,191 as compared to $16,390 for the three months ended
November 30, 1994. The increase of $163,801 was primarily the result of the
increase in the Company's total debt in connection with the acquisition of QCP
and the establishment of the Revolving Facility.
Net income (loss) - The Company reported a net loss of $85,594 for the three
months ended November 30, 1995 compared to net income of $268,146 for the same
period in 1994. The net loss was a result of the increased expenses described
above resulting from the consolidation of QCP's operations with the Company's
for the three months ended November 30, 1995. The Company had a net loss of
$65,290 prior to the consolidation, which was primarily a result of
(I) approximately $120,000 in interest expenses; (ii) the accrual of
approximately $34,500 in contingent interest expenses; and (iii) $66,600 for
amortization of goodwill and noncompete agreements. In addition, net income
for the three months ended November 30, 1994 included $99,677 in an
extraordinary item relating to the settlement of certain trade payables.
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented to facilitate the discussion of the Company's
current liquidity and sets forth the Company's liquidity position as of
November 30, 1995 as compared to August 31, 1995.
November 30, August 31,
1995 1995
Current Assets *$2,540,263 *$2,656,600
Current Liabilities 2,113,822 2,040,931
Net Working Capital (Deficiency) $ 426,441 $ 615,669
*Includes $380,000 of deferred taxes per FASB 109 resulting from the Company's
substantial Net Operating Loss Carryforward.
At November 30, 1995, the Company had $70,510 in cash and $2,469,753 in other
current assets as compared to $49,557 in cash and $2,607,043 in other current
assets for the year ended August 31, 1995. Current liabilities were
$2,113,822 at November 30, 1995 compared to $326,289 at November 30, 1994
which resulted in a working capital position of $426,441 and a current ratio
of 1.2:1. The increase in current liabilities was a result of the
consolidation of the current liabilities of QCP with the Company's at
November 30, 1994. For the three months ended November 30, 1995, the Company
generated cash flow from operations of ($308,814) as compared to $247,818 for
the three months ended November 30, 1994. The $556,632 decrease in cash flow
is primarily attributable to the net loss for the current period and the
consolidation of QCP operations with the Company. During the period QCP paid
$415,345 in outstanding payables.
To facilitate the financing of the acquisition of QCP, to refinance existing
debt of the Company and QCP and to provide working capital for the Company and
QCP, the Company obtained the Term Loan and the Revolving Facility. Interest
on the Term Loan is payable at the Bank prime plus 3% (which totaled 8.75% at
November 30, 1995). The Term Loan is payable in sixteen quarterly
installments of $125,000 to be made August 1, 1996 through August 1, 2000 with
a lump sum payment of $2,000,000 due in August 2000. The Revolving Facility
is payable at the Bank prime plus 2% and expires in August, 2000. At
November 30, 1995 the balance on the Revolving Facility was $910,649 and the
interest rate was 10.75%. The Company has an additional term loan of $400,000
with an interest rate at the Bank prime plus 3% (which totaled 11.75% at
November 30, 1995) and which is payable in monthly installments of $6,667
through August 1, 2000. The balance at November 30, 1995 was $380,000. At
November 30, 1995, the Company was not in compliance with book net worth, debt
service coverage, interest coverage and net income covenants contained in the
Credit Agreement with the Bank. The Company and the Bank are currently in
negotiations concerning amendments to the Credit Agreement which would cure
the existing defaults effective as of November 30, 1995. The Company is
confident that the Credit Agreement will be amended to cure the defaults.
However, these amendments have not been approved by the Bank.
As of November 30, 1995, the Company has two notes receivable agreements
totaling $165,000 from Harvey G. Mozer, an individual. Mr. Mozer is a
principal of New Crawford, and an officer and director of Gulch Holdings
Company. These loans are evidenced by promissory notes in the principal
amounts of $85,000 and $80,000, respectively, and provide for interest on the
unpaid principal balance at the prime rate plus 1% as charged by the Company's
bank (totaling 9.75% at November 30, 1995). The first note matured on
December 31, 1995 and was not paid. However, the Company and Mr. Mozer are
currently negotiating an extension for the due date on this note. The second
note matures February 29, 1996.
The Company's long term debt at November 30, 1995 consisted of notes payable
to the Bank, including the current portion thereof, totaling $4,718,851
incurred primarily as a result of the acquisition of QCP.
The Company has capitalized leases and operating leases for equipment,
facilities and vehicles used in its business. Minimum lease payments for its
capitalized and operating leases are expected to be $52,227 and $80,704,
respectively, for the fiscal year ending August 31, 1996.
As of November 30, 1995, the Company had net operating loss carryforwards of
approximately $17,467,000 available to reduce taxable income through 2006 for
federal and state income tax reporting purposes.
The Company believes that the Revolving Facility with the Bank and net cash
provided from operating activities will provide sufficient sources of
liquidity to fund the Company's future financial requirements. In the event
that the Company should require significant expansion of its business
resulting in additional capital requirements or if the Revolving Line and net
cash from operations are inadequate to fund the Company's financial
equirements, the Company would attempt to raise additional capital through the
placement of debt or equity. However, there can be no assurance that the
Company would be able to secure such financing, or, if so, that the terms of
such financing would be acceptable to the Company.
The Company's long-term capital expenditure requirements will depend upon
numerous factors, including the demand for the Company's product and any
expansion activities. The Company anticipates that QCP will need approximately
$700,000 for capital expenditures in the current fiscal year to upgrade its
production line. The Company expects that the majority of these expenditures
will be in the form of capital leases and will be funded through operations
and the Revolving Facility. However, the Company does not have any
commitments for capital leases and there are no assurances that the Company
will be able to secure such financing or, if so, that the terms of such
financing would be acceptable to the Company.
Although the Company experienced a net loss for the three months ended
November 30, 1995 for the reasons discussed above, the Company is currently
experiencing its highest level of sales to date. Although QCP is currently
generating a net loss, the Company's management believes QCP will begin to
generate net income in the third and fourth quarters of fiscal 1996 as a
result of an expected reduction in expenses and increase in sales due to more
efficient production methods.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit 11 Statement Regarding Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
1. A Current Report on Form 8-K dated October 2, 1995 was filed
under Item 8.
2. An Amendment to the Current Report on Form 8-K dated
October 2, 1995 was filed under Item 8.
3. An amendment to the Current Report on Form 8-K dated
August 7, 1995 was filed on October 23, 1995 under Item 7.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GOLDEN PHARMACEUTICALS, INC.
(Registrant)
DATED: January 16, 1996 BY: /s/ Glen H. Weaver
Glen H. Weaver,
Vice President, Finance
Exhibit No. 11
To The Form 10-QSB
For The Quarterly Period Ended November 30, 1995
EXHIBIT NO. 11
GOLDEN PHARMACEUTICALS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three months Ended
November 30,
1995 1994
Shares of common stock and
equivalents outstanding at
beginning of period 106,331,371 94,733,790
Weighted-average shares or
equivalents issued during
the period 410,737 10,578,846
Weighted-average shares or
equivalents canceled during
the period (5,958,242) 0
Weighted-average shares assumed
issued under stock option plans
during the period 620,087 12,088
Average common and common
stock equivalents
outstanding 101,403,953 105,324,724
Income before extraordinary
item $(85,594) $168,469
Extraordinary Item 0 99,677
Accrual of dividends on 15%/30%
convertible preferred stock 0 (22,179)
Net Income $ (85,594) $ 245,967
Earnings per share:
Income before extraordinary
item $ * $ *
Extraordinary Item * *
Accrual of dividends on 15%/30%
convertible preferred stock * *
Earnings per share $ * $ *
* Less than $.01 per share
Exhibit No. 27