PRO FORMA FINANCIAL INFORMATION
- -------------------------------
On July 25, 2000 the Registrant completed the sale of its
cosmeceutical product lines and technology rights for certain
topical pharmaceuticals and other assets ("cosmeceutical and
toiletry business") to R.P. Scherer South, Inc., a subsidiary of
Cardinal Health, Inc. In the transaction, the Registrant
receives $25 million up-front and up to an additional $26.5
million over the next three years relating to performance
milestones of the purchased business. Under the terms of the
sale, Registrant will retain certain rights to its Microsponge(R)
technology in certain topical prescription medicines, including
Retin-A(R) Micro(TM) and a new product for the treatment of
actinic keratoses. Included in the sale was the Registrant's
manufacturing facility in Lafayette, Louisiana.
The sale of the cosmeceutical and toiletry business results in
the disposal of a significant portion of our business associated
with a major class of customer. This will result in the Company
presenting the cosmeceutical and toiletry business as
Discontinued Operations under APB No.30 in our future 10-Q and
10-K filings. Accordingly, the accompanying pro forma condensed
consolidated financial statements illustrate the effect of the
disposition ("Pro Forma") on the Company's financial position as
of March 31, 2000 and results of its operation for the three-
months ended March 31, 2000 and for each of the years in the
three-year period ended December 31, 1999.
The pro forma condensed financial statements have been prepared
pursuant to Article XI of Regulation S-X and may not be
indicative of what the actual operating results would have been
had the transaction occurred at the earlier date assumed in the
pro forma statements of operations.
The accompanying condensed consolidated pro forma financial
statements should be read in connection with the historical
consolidated financial statements of Advanced Polymer Systems,
Inc. and subsidiaries.
PRO FORMA FINANCIAL INFORMATION
- -------------------------------
Advanced Polymer Systems, Inc.
Pro Forma Condensed Consolidated Balance Sheet
March 31, 2000
(Unaudited)
Pro Forma
Historical Adjustments(1) Pro Forma
----------- -------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 3,538,955 $ 21,084,176 $ 24,623,131
Trade accounts receivable, net 3,088,684 -- 3,088,684
Receivables for royalties,
license and option fees and
R&D fees 1,255,001 -- 1,255,001
Inventory 4,753,385 (4,687,339) 66,046
Advances and loans to officers
and employees 81,416 -- 81,416
Prepaid expenses and other 402,793 (121,305) 281,488
----------- ----------- -----------
Total current assets 13,120,234 16,275,532 29,395,766
Property and equipment, net 7,837,707 (5,917,093) 1,920,614
Deferred loan costs, net 36,787 (36,787) --
Goodwill and other intangible
assets, net 1,206,958 (1,206,958) --
Other long-term assets 286,397 (4,350) 282,047
----------- ----------- -----------
Total assets $ 22,488,083 $ 9,110,344 $ 31,598,427
=========== =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 907,284 $ -- 907,284
Accrued expenses 984,658 2,192,596 3,177,254
Taxes payable 12,307 500,000 512,307
Deferred revenue 1,003,088 (428,088) 575,000
Current portion - long-term debt 922,370 (922,370) --
----------- ----------- -----------
Total current liabilities 3,829,707 1,342,138 5,171,845
Deferred revenue - long-term 4,052,599 (2,972,956) 1,079,643
Long-term debt 2,166,282 (1,915,119) 251,163
----------- ----------- -----------
Total liabilities 10,048,588 (3,545,937) 6,502,651
----------- ----------- -----------
Commitments and Contingencies
Shareholders' equity:
Common stock and common stock
warrants 85,714,382 -- 85,714,382
Accumulated deficit (73,274,887) 12,656,281 (60,618,606)
----------- ----------- -----------
Total shareholders' equity 12,439,495 12,656,281 25,095,776
----------- ----------- -----------
Total liabilities and shareholders'
equity $ 22,488,083 $ 9,110,344 $ 31,598,427
=========== =========== ===========
<FN>
See accompanying notes.
</FN>
Advanced Polymer Systems, Inc.
Pro Forma Condensed Consolidated Statements of Operations
For the Three Months ended March 31, 2000
(unaudited)
Pro Forma
Statements of Operations Historical Adjustments(2) Pro Forma
- ------------------------ ----------- -------------- -----------
Product revenues $ 3,176,692 $(2,872,130) $ 304,562
Royalties, license and option
fees and R&D fees 1,468,834 (393,149) 1,075,685
---------- ---------- ----------
Total revenues 4,645,526 (3,265,279) 1,380,247
Expenses:
Cost of sales 1,918,536 (1,862,926) 55,610
Research & development, net 892,248 (377,885) 514,363
Selling & marketing 675,484 (546,242) 129,242
General & administration 848,581 (209,848) 638,733
---------- ---------- ----------
Operating income 310,677 (268,378) 42,299
Interest income 65,093 -- 65,093
Interest expense (118,132) 118,132 --
Other income/expense, net 2,326 -- 2,326
---------- ---------- ----------
Net income/(loss) before taxes 259,964 (150,246) 109,718
Taxes 39,667 -- 39,667
---------- ---------- ----------
Net income from continuing
operations 220,297 (150,246) 70,051
Net income from discontinued
operations -- 150,246 150,246
---------- ---------- ----------
Net income $ 220,297 -- $ 220,297
========== ========== ==========
Net income per common share
-basic:
Continuing operations $ 0.01 $ 0.00
Discontinued operations -- 0.01
Net income $ 0.01 $ 0.01
Net income per common share
-diluted:
Continuing operations $ 0.01 $ 0.00
Discontinued operations -- 0.01
Net income $ 0.01 $ 0.01
Weighted average common shares
outstanding-basic 20,133,683 20,133,683
========== ==========
Weighted average common shares
outstanding-diluted 20,210,068 20,210,068
========== ==========
<FN>
See accompanying notes.
</FN>
Advanced Polymer Systems, Inc.
Pro Forma Condensed Consolidated Statements of Operations
For the Year ended December 31, 1999
(unaudited)
Pro Forma
Statements of Operations Historical Adjustments(2) Pro Forma
- ------------------------ ----------- -------------- -----------
Product revenues $ 14,624,110 $(13,414,196) $ 1,209,914
Royalties, license and option
fees and R&D fees 5,480,926 (1,734,033) 3,746,893
Milestone payments 300,000 -- 300,000
----------- ----------- -----------
Total revenues 20,405,036 (15,148,229) 5,256,807
Expenses:
Cost of sales 6,857,004 (6,623,338) 233,666
Research & development, net 4,266,553 (1,795,409) 2,471,144
Selling & marketing 2,798,434 (2,302,380) 496,054
General & administration 3,656,858 (711,264) 2,945,594
----------- ----------- -----------
Operating income/(loss) 2,826,187 (3,715,838) (889,651)
Interest income 200,650 -- 200,650
Interest expense (585,313) 438,985 (146,328)
Other income/expense, net (4,157) -- (4,157)
----------- ----------- -----------
Net income/(loss) before taxes 2,437,367 (3,276,853) (839,486)
Taxes 64,980 (64,980) --
----------- ----------- -----------
Net income/(loss) from
continuing operations 2,372,387 (3,211,873) (839,486)
Net income from discontinued
operations -- 3,211,873 3,211,873
---------- ---------- ----------
Net income $ 2,372,387 -- $ 2,372,387
========== ========== ==========
Net income/(loss) per common
share-basic:
Continuing operations $ 0.12 $ (0.04)
Discontinued operations -- 0.16
Net income $ 0.12 $ 0.12
Net income/(loss) per common
share-diluted:
Continuing operations $ 0.12 $ (0.04)
Discontinued operations -- 0.16
Net income $ 0.12 $ 0.12
Weighted average common shares
outstanding-basic 20,078,912 20,078,912
========== ==========
Weighted average common shares
outstanding-diluted 20,252,381 20,252,381
========== ==========
<FN>
See accompanying notes.
</FN>
Advanced Polymer Systems, Inc.
Pro Forma Condensed Consolidated Statements of Operations
For the Year ended December 31, 1998
(unaudited)
Pro Forma
Statements of Operations Historical Adjustments(2) Pro Forma
- ------------------------ ----------- -------------- -----------
Product revenues $ 13,637,093 $(12,505,511) $ 1,131,582
Royalties, license and option
fees and R&D fees 6,983,702 (4,456,430) 2,527,272
Milestone payments -- -- --
----------- ----------- -----------
Total revenues 20,620,795 (16,961,941) 3,658,854
Expenses:
Cost of sales 7,126,573 (6,805,457) 321,116
Research & development, net 4,381,913 (2,011,042) 2,370,871
Selling & marketing 2,999,424 (2,614,720) 384,704
General & administration 3,009,488 (844,618) 2,164,870
----------- ----------- -----------
Operating income/(loss) 3,103,397 (4,686,104) (1,582,707)
Interest income 246,260 -- 246,260
Interest expense (805,364) -- (805,364)
Other income/expense, net (19,252) -- (19,252)
----------- ----------- -----------
Net income/(loss) before taxes 2,525,041 (4,686,104) (2,161,063)
Taxes -- -- --
----------- ----------- -----------
Net income/(loss) from
continuing operations 2,525,041 (4,686,104) (2,161,063)
Net income from discontinued
operations -- 4,686,104 4,686,104
---------- ---------- ----------
Net income $ 2,525,041 -- $ 2,525,041
========== ========== ==========
Net income/(loss) per common
share-basic:
Continuing operations $ 0.13 $ (0.11)
Discontinued operations -- 0.24
Net income $ 0.13 $ 0.13
Net income/(loss) per common
share-diluted:
Continuing operations $ 0.12 $ (0.11)
Discontinued operations -- 0.23
Net income $ 0.12 $ 0.12
Weighted average common shares
outstanding-basic 19,854,103 19,854,103
========== ==========
Weighted average common shares
outstanding-diluted 20,380,832 20,380,832
========== ==========
<FN>
See accompanying notes.
</FN>
Advanced Polymer Systems, Inc.
Pro Forma Condensed Consolidated Statements of Operations
For the Year ended December 31, 1997
(unaudited)
Pro Forma
Statements of Operations Historical Adjustments(2) Pro Forma
- ------------------------ ----------- -------------- -----------
Product revenues $ 12,441,484 $(11,168,487) $ 1,272,997
Royalties, license and option
fees and R&D fees 3,266,095 (2,115,760) 1,150,335
Milestone payments 1,500,000 -- 1,500,000
----------- ----------- -----------
Total revenues 17,207,579 (13,284,247) 3,923,332
Expenses:
Cost of sales 7,164,120 (6,488,002) 676,118
Research & development, net 3,740,337 (1,386,667) 2,353,670
Selling & marketing 3,806,030 (3,211,309) 594,721
General & administration 3,551,977 (754,671) 2,797,306
----------- ----------- -----------
Operating income/(loss) (1,054,885) (1,443,598) (2,498,483)
Interest income 370,478 -- 370,478
Interest expense 1,052,715 -- 1,052,715
Other income/expense, net (71,119) -- (71,119)
----------- ----------- -----------
Net income/(loss) before taxes (1,808,241) (1,443,598) (3,251,839)
Taxes -- -- --
----------- ----------- -----------
Net income/(loss) from
continuing operations (1,808,241) (1,443,598) (3,251,839)
Net income from discontinued
operations -- 1,443,598 1,443,598
---------- ---------- ----------
Net loss $(1,808,241) -- $(1,808,241)
========== ========== ==========
Net income/(loss) per common
share-basic and diluted:
Continuing operations $ (0.10) $ (0.17)
Discontinued operations -- 0.07
Net loss $ (0.10) $ (0.10)
Weighted average common shares
outstanding-basic 18,778,921 18,778,921
========== ==========
<FN>
See accompanying notes.
</FN>
NOTES PRO FORMA FINANCIAL INFORMATION
- -------------------------------------
(1) Pro Forma Condensed Consolidated Balance Sheet Adjustments
----------------------------------------------------------
The pro forma condensed consolidated balance sheet assumes that
the sale of the Company's cosmeceutical and toiletry business to
R.P. Scherer South, Inc. occurred as of March 31, 2000. The pro
forma adjustments reflect the sale of the cosmeceutical and
toiletry business on a discontinued operation basis and include:
(a) The estimated net cash proceeds resulting from the sale of
the cosmeceutical and toiletry business to R.P. Scherer South,
Inc.:
$25.0 million Sales price.
Less: $2.9 million Estimated costs resulting directly
from the sale including transaction
fees, legal, accounting and
professional fees, investment banking
fees, lease termination fees,
termination benefits, cost of early
extinguishment of debt, contract
termination expenses
$0.1 million Payment of accrued vacation for
terminated employees
$0.4 million Facility and contract reserves
$0.5 million Income taxes
$2.9 million Debt extinguished
Add: $2.9 million Estimated costs resulting from the
sale that are not due on the date of
sale and reflected in accrued
liabilities
$21.1 million Estimated net cash proceeds
(b) The estimated after-tax-gain resulting from the sale of the
cosmeceutical and toiletry business to R.P. Scherer South, Inc.:
$25.0 million Sales price.
Less: $2.9 million Estimated costs resulting directly
from the sale including transaction
fees, legal, accounting and
professional fees, investment banking
fee, lease termination fees,
termination benefits, cost of early
extinguishment of debt, contract
termination expenses
$0.4 million Facility and contract reserves
$0.5 million Income taxes
$12.0 million Net operating assets of the
cosmeceutical and toiletry business as
of March 31, 2000
$3.4 million Recognition of deferred revenue
resulting from termination of related
licensing agreements
$12.6 million Estimated after-tax gain
Certain employee termination benefits and costs for severance
provisions have been included in the estimated costs resulting
directly from the sale of the cosmeceutical and toiletry
business.
The extinguishment of debt has been included in the adjustments
to the condensed consolidated balance sheet, as repayment of the
debt was necessary in order to release the liens on the assets
sold as part of the cosmeceutical and toiletry business.
As a result of the sale of the cosmeceutical and toiletry
business, certain licensing and supply agreements have been
terminated thereby resulting in recognition of the related
deferred revenues. The pro forma condensed consolidated balance
sheet includes the recognition of the deferred revenues on the
terminated licensing agreements.
The asset purchase agreement between the two parties which closed
on July 25, 2000 provides for payment of up to an additional
$26.5 million over the next three years subject to achievement of
certain performance milestones of the cosmeceutical and toiletry
business. As this additional consideration is of a contingent
nature, it has not been reflected in the pro forma condensed
consolidated financial statements or adjustments.
(2) Pro Forma Condensed Consolidated Statements of Operations
---------------------------------------------------------
Adjustments
-----------
The pro forma condensed consolidated statements of operations
assume that the sale of the cosmeceutical and toiletry business
to R.P. Scherer South, Inc. occurred as of January 1 of each
fiscal year presented. The statements do not include non-
recurring items or the gain on disposal or costs related to the
sale. The pro forma adjustments reflect the sale on a
discontinued operation basis and remove from the historical
results of continuing operations the cosmeceutical and toiletry
business. The pro forma adjustments also include an adjustment
for interest expense assuming that the debt was extinguished at
the beginning of the period.