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, 1996 [ ] 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 20, 1997 was 120,785,715 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, 1996 1996 CURRENT ASSETS: Cash and Cash Equivalents $ 32,987 $ 34,872 Receivables Trade, net of allowance for doubtful accounts of $48,134 and $43,634 at November 30 and August 31, 1996 2,273,358 1,443,684 Inventories 1,655,132 1,336,633 Prepaid expenses 229,702 168,582 Deferred Taxes 380,000 380,000 Note Receivable 346,363 165,000 TOTAL CURRENT ASSETS 4,917,542 3,528,771 PROPERTY, PLANT AND EQUIPMENT- AT COST 4,437,540 4,339,707 Less accumulated depreciation and amortization 1,894,596 1,782,400 2,542,944 2,557,307 OTHER ASSETS Goodwill, less accumulated amortization of $66,171 and $16,543 at November 30 and August 31, 1996, respectively 3,871,087 3,948,256 Non-compete Agreement 401,969 425,600 Intangibles, net of amortization 37,362 11,667 Deferred income taxes 220,000 220,000 TOTAL OTHER ASSETS 4,530,418 4,605,523 $11,990,904 $10,691,601 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS(Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY November 30, August 31, 1996 1996 CURRENT LIABILITIES: Note payable $ 1,368,889 $ 532,141 Note payable-related party 75,000 - Current maturities of long-term debt 715,625 785,835 Current maturities of capitalized lease 95,246 95,246 obligations Accounts payable 1,417,844 921,045 Accrued liabilities Interest 241,712 144,148 Other 96,575 138,248 TOTAL CURRENT LIABILITIES 4,010,891 2,616,663 LONG-TERM OBLIGATIONS, less current maturities 3,603,050 3,674,355 CAPITALIZED LEASE OBLIGATIONS, less current maturities 416,907 299,674 EXCESS LOSS ON INVESTMENT IN JOINT VENTURE 6,622 10,776 MINORITY INTEREST 884,904 852,372 STOCKHOLDERS' EQUITY Common stock - no par value; 200,000,000 shares authorized; 124,063,778 and 124,063,778 issued, 120,774,778 and 120,774,778 outstanding, at November 30, and August 31, 1996, respectively 23,867,384 23,867,384 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, 1996 292,558 292,558 24,159,942 24,159,942 Accumulated deficit (20,997,280) (20,828,049) Less Common Stock in treasury at cost, 3,289,000 shares at November 30, and August 31, 1996, respectively 94,132 94,132 TOTAL STOCKHOLDERS' EQUITY 3,068,530 3,237,761 $ 11,990,904 $10,691,601 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended November 30, 1996 1995 REVENUES: Net sales $ 3,553,919 $2,264,773 Cost of Sales 2,396,242 1,439,880 GROSS MARGIN 1,157,677 824,893 Selling, general and administrative 1,232,123 711,044 OPERATING INCOME(LOSS) (74,446) 113,849 OTHER INCOME/(EXPENSE) Interest Expense (264,197) (180,191) Joint Venture Income(Loss) (16,846) - Gain on Disposal of Equipment 2,363 - Other Income 218,026 2,148 TOTAL OTHER INCOME/(EXPENSE) (60,654) (178,043) INCOME(LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (135,100) (64,194) INCOME TAX (BENEFIT) EXPENSE 1,600 21,400 INCOME BEFORE MINORITY INTEREST (136,700) (85,594) MINORITY INTEREST (32,532) - NET INCOME(LOSS) $ (169,232) $ (85,594) INCOME(LOSS) PER COMMON SHARE NET INCOME(LOSS) * * WEIGHTED AVERAGE SHARES OUTSTANDING 120,774,778 101,403,953 * 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, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net income(loss) $(169,232) $(85,594) Adjustments to reconcile net income to net cash provided (used) by operations Depreciation and amortization 191,323 105,303 Minority interest in earnings 32,532 - Gain/loss on sale of assets 2,363 - (Increase) decrease in - Accounts receivable (829,673) 186,109 Note receivable (181,363) - Inventory (318,499) 6,659 Prepaid expenses and other (61,120) (55,478) Increase (decrease) in - Accounts payable 496,796 (415,437) Accrued interest and other 55,891 (50,376) TOTAL ADJUSTMENTS (611,750) (223,220) NET CASH PROVIDED BY OPERATING ACTIVITIES (705,982) (308,814) CASH FLOWS FROM INVESTING ACTIVITIES: Investment in subsidiary 2,500 - Purchase of property and equipment (106,718) (45,281) Excess loss in investment (21,000) - Proceeds from sale of assets 16,846 - Purchase of treasury stock - (90,562) Addition to goodwill - (50,576) NET CASH (USED) BY INVESTING ACTIVITIES (108,372) (186,419) CASH FLOWS FROM FINANCING ACTIVITIES: Note payable - related party 75,000 - Long term borrowings 154,365 - Payments of note payable (178,644) (51,009) Issuance of line of credit 4,528,931 2,162,374 Payments on line of credit (3,692,183) (1,595,179) NET CASH (USED) BY FINANCING ACTIVITIES 887,469 516,186 NET INCREASE (DECREASE) IN CASH (1,885) 20,953 CASH, Beginning of period 34,872 49,557 CASH, End of period $ 32,987 $ 70,510 SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES: Interest paid $ 166,632 $ 102,309 Income taxes paid $ 1,600 $ 21,400 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, 1996 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 1996 1995 NET INCOME(LOSS) $ (169,232) $(85,594) Weighted average number of shares outstanding 120,774,778 101,403,953 Common stock equivalents and stock held in escrow have been included in the computation for the three months ended November 30, 1996 and 1995. The common stock equivalents that have been included in the computation for earnings per share are common stock and treasury stock. Stock options, Class A Convertible Preferred Stock, 15%/30% Cumulative Convertible Preferred Stock, and accrued dividends on the 15%/30% Cumulative Convertible Preferred Stock are considered antidilutive and accordingly, are not included in the computation of earnings per share. Reclassification - Certain reclassifications have been made to conform prior years' information with the current year presentation. Note 2. RECENT ACQUISITIONS On August 7, 1995, the Company purchased all of the issued and outstanding capital stock of Quality Care Pharmaceuticals, Inc., a California corporation ("QCP") for a total of $3,718,750 in cash. 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." On February 12, 1996 QCP entered into a joint venture agreement with Visiting Nurses Association of Orange County ("VNA") to establish Rx Direct, LLC ("RxD"), a mail order pharmacy, whereby it acquired a 50% interest in Rx Direct. On June 15, 1996, the Company entered into a joint venture agreement with PharmaFrance, Inc. to form Pharma Labs, LLC ("Pharma Labs"). The Company contributed a total of $1,000,000 for 52% interest in Pharma Labs. Pharma Labs is engaged in the manufacturing, packaging, and distribution of nutritional supplements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion should be read in conjunction with the selected financial data and the financial statements and notes thereto filed herewith. The statements contained in this report, if not historical, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve risks and uncertainties that could cause actual results to differ materially from the financial results described in such forward looking statements. These risks and uncertainties include, among others, the level and rate of growth in the Company's operations, the capital requirements of QCP and Pharma Labs and the ability of the Company to achieve earnings per share growth through internal investment, strategic alliances, joint ventures and other methods. The success of the Company's business operations is in turn dependent on factors such as the effectiveness of the Company's marketing strategies to grow its customer base and improve customer response rates, the appeal of the Company's mix of products, the Company's success at entering into and collaborating with others to conduct effective strategic alliances and joint ventures, general competitive conditions within the pharmaceutical industry and general economic conditions. Further, any forward looking statements or statements speak only as of the date on which such statement was made, and the Company undertakes no obligation to update any forward looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results. Overview As of June 15, 1996 the financial results of the Company and Pharma Labs were reported on a consolidated basis. Results of Operations Three Months Ended November 30, 1996 Compared to Three Months Ended November 30, 1995 Net Sales. Net sales for the three months ended November 30, 1996 increased to $3,553,919 compared to $2,264,773 for the three months ended November 30, 1995. The increase of $1,289,146 or 57% is primarily attributable to (i) the consolidation of the operations of Pharma Labs' with the Company's for the current period, which represents approximately $680,000 of the increase, and (ii) an increase in QCP sales of $550,000. Cost of Goods Sold. Cost of goods sold as a percentage of sales was 67% for the three months ended November 30, 1996 as compared to 64% for the three months ended November 30, 1995. The increase is primarily the result of the consolidation of Pharma Labs' operations with the Company's, which has a lower gross profit margin. Selling General and Administrative. Selling, general and administration expenses ("SG&A") were $1,232,123 for the three months ended November 30, 1996 as compared to $711,044 for the three months ended November 30, 1995. The increase of $521,079 or 73% is due to (i) the consolidation of Pharma Labs' operations with the Company's for the three months ended November 30, 1996, which represented $275,000 of the increase; and (ii)increased expenses for personnel, travel, trade shows and consulting fees in connection with the Company's efforts to enhance the operations and management of QCP, which represented approximately $429,000 of the increase. Net Income. The Company reported a net loss of $169,232 for the three months ended November 30, 1996 as compared to a net loss of $85,594 for the three months ended November 30, 1995. The increased net loss was primarily due to (i) the increase in SG&A expenses of approximately $521,000, and (ii) an increase in interest expense of $84,000 as a result of increased borrowings under the Revolving Loan Facility. The increase in expenses was partially offset by increased sales. LIQUIDITY AND CAPITAL RESOURCES The operations of QCP and Pharma Labs have consumed substantial amounts of cash. As a result the Company, on a consolidated basis, experienced negative cash flow from operations for the three months ended November 30, 1996. Management anticipates that QCP will operate on a "break-even" basis for fiscal year 1997 but that Pharma Labs will continue to experience negative cash flow from operations. As a result of the continuing capital requirements of QCP and Pharma Labs, management projects that the Company may continue to experience negative cash flow from operations for fiscal year 1997. During the three months ended November 30, 1996, the Company used proceeds from its Revolving Loan Facility to expand QCP's marketing and sales force and to purchase hardware and software for QCP's operations. The Company is unable to use the proceeds from its Revolving Loan Facility to fund the operations of Pharma Labs, LLC. due to restrictions in the related loan agreement. Therefore, the Company also obtained a loan in the principal amount of $25,000 from its Chief Executive Officer to fund the operations of Pharma Labs, LLC. The Company expects that its future cash needs for fiscal year 1997 will primarily relate to the continued expansion of QCP's operations. In addition the Company will require additional funds to continue the development of Pharma Labs operations internationally and domestically as a repackager of unit doses. If the Company cannot obtain additional sources of financing it may be forced to curtail the activities of QCP and Pharma Labs. 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, 1996 as compared to August 31, 1996. ,November 30,1996,August 31, 1996 Current Assets,$4,917,542, $3,528,771* Current Liabilities, 4,010,891, 2,616,663 Net Working Capital,$ 906,651, $ 912,108 * Includes $380,000 of deferred taxes per FASB 109 resulting from the Company's substantial net operating loss carryforwards. Current assets were $4,917,542, an increase of $1,388,771 or 39% at November 30, 1996 as compared to $3,528,771 at August 31, 1996. The increase was primarily due to (i) an increase in accounts receivable for QCP due to increased sales which represented $830,000 of the increase, and (ii) an increase in QCP's inventories of $318,000 which was a result of an increase of QCP's top 100 inventory items in an effort to produce larger lots and reduce manufacturing costs through the utilization of automated packaging equipment. Current liabilities were $4,010,891, an increase of $1,394,228 or 53% at November 30, 1996 compared to current liabilities of $2,616,663 at August 31, 1996. The increase in current liabilities was primarily the result of (i) additional borrowings of $837,000 under the Revolving Loan Facility to support the operations and expansion of QCP, and (ii) an increase in accounts payable of approximately $500,000, which is a result of the build up of inventory. The Company had working capital of $906,651 and a current ratio of 1.2:1.0 for the period ended November 30, 1996. 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 Loan Facility. Interest on the Term Loan is payable at the Bank prime plus 3% (which totaled 11.25% at November 30, 1996). 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's prime plus 2% and expires in August, 2000. At November 30, 1996 the balance on the Revolving Facility was $1,368,889 and the interest rate was 10.25%. The Company has an additional term loan of $400,000 with an interest rate at the Bank's prime plus 3% (which totaled 11.25% at November 30, 1996) and which is payable in monthly installments of $6,667 through August 1, 2000. In November 1996, the Company and the Bank entered into a Fourth Amendment to the Credit and Security Agreement, which amendment revised certain covenants and waived prior defaults related to certain financial ratios. The Company's long term debt, including the current portion thereof, at November 30, 1996 consisted of notes payable to the Bank totaling $4,318,675 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 approximately $30,000 per month, as of November 30, 1996. As of November 30, 1996, the Company had net operating loss carryforwards for fiscal income tax purposes of approximately $16,000,000. The net operating loss carryforwards will expire in the years 1997 through 2006. The Company's ability to utilize its net operating loss carryforwards is subject to an annual limitation in future periods pursuant to the "change in ownership" rules under Section 382 of the Internal Revenue Code of 1986. 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 currently has no commitments or arrangements for raising additional capital. 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 No Current Reports on Form 8-K were filed during the period covered by this report 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 20, 1997 BY: /s/ Glen H. Weaver Glen H. Weaver, Vice President, Finance Chief Financial OfficerExhibit No. 11 To The Form 10-QSB For The Quarterly Period Ended November 30, 1996EXHIBIT NO. 11 GOLDEN PHARMACEUTICALS, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS Three months Ended November 30, 1996 1995 Shares of common stock and equivalents outstanding at beginning of period 120,774,778 106,331,371 Weighted-average shares or equivalents issued during the period - 410,737 Weighted-average shares or equivalents canceled during the period - (5,958,242) Weighted-average shares assumed issued under stock option plans during the period - 620,087 Average common and common stock equivalents outstanding 120,774,778 101,403,953 Income before extraordinary item (169,232) (85,594) Extraordinary Item - - Accrual of dividends on 15%/30% convertible preferred stock - - Net Income $ (169,232) $ (85,594) 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