EXHIBIT 99.3
KALI LABORATORIES, INC.
UNAUDITED COMBINED BALANCE SHEET
JULY 4, 2004
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents $1,246
Accounts receivable 1,191
Inventories 138
Prepaid expenses and other current assets 828
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Total current assets 3,403
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Property, plant and equipment--At cost 7,171
Less accumulated depreciation and amortization (1,210)
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Property, plant and equipment--Net 5,961
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TOTAL ASSETS $9,364
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities $1,005
Taxes payable 5
Payable to Par 12,000
Deferred income - current portion 500
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Total current liabilities 13,510
Deferred income 1,800
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Total liabilities 15,310
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Commitments and contingencies
Stockholders' deficit:
Common stock 130
Additional paid-in capital 96
Accumulated deficit (6,172)
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Total stockholders' deficit (5,946)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $9,364
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See notes to unaudited combined financial statements
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KALI LABORATORIES, INC.
UNAUDITED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 4, 2004 AND JUNE 30, 2003
(IN THOUSANDS)
2004 2003
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Revenue:
Research and development fees $214 $908
Royalty income 1,466 -
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Total revenue 1,680 908
Operating expenses:
Research and development 6,381 1,258
General and administrative 343 99
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Total operating expenses 6,724 1,357
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Operating loss (5,044) (449)
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Other income (expenses):
Interest expense (69) (70)
Dividend and interest income 29 -
Other income 40 15
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Total other income (expenses) - (55)
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Loss before provision for state income taxes (5,044) (504)
Provision for state income taxes 1 5
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Net loss $(5,045) $(509)
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See notes to unaudited combined financial statements.
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KALI LABORATORIES, INC.
UNAUDITED COMBINED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 4, 2004
(IN THOUSANDS)
Cash flows from operating activities:
Net loss $(5,045)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 228
Amortization of deferred financing costs 7
Changes in assets and liabilities:
Accounts receivable (747)
Inventories 284
Prepaids and other current assets (627)
Accounts payable and accrued liabilities 1,084
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Net cash used in operating activities (4,816)
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Cash flows from investing activities
Proceeds from sale of available-for-sale securities 6,554
Purchases of property, plant and equipment (1,448)
Sale of property, plant and equipment, net 75
Closing costs (363)
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Net cash provided by investing activities 4,818
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Cash flows from financing activities:
Repayment of loan from Perrigo (10,000)
Borrowings from Par Pharmaceutical, Inc. 12,000
Repayment of note payable-stockholder (553)
Distributions of S Corporation earnings (444)
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Net cash provided by financing activities 1,003
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Net change in cash and cash equivalents 1,005
Cash and cash equivalents--Beginning of year 241
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Cash and cash equivalents--End of period $1,246
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Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $68
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State income taxes $1
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See notes to unaudited combined financial statements.
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KALI LABORATORIES, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
JULY 4, 2004
(In Thousands)
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1. BASIS OF PRESENTATION
On June 10, 2004, Kali Laboratories, Inc. ("Kali" or the "Company") was
acquired by Par Pharmaceutical Companies, Inc. ("Par") for $140,430 in cash and
$2,530 in warrants. The purchase price included adjustments for debt repayment
of a $10,000 loan made to the Company by Par in March 2004. Under the terms of
the agreement, Par purchased all of the capital stock of Kali. Kali may be
entitled to up to an additional $10,000 if certain product related performance
criteria are met over the next four years. VGS Holdings, Inc. ("VGS") was not
included in the purchase.
The combined financial statements at July 4, 2004 and for the six-month
periods ended July 4, 2004 and June 30, 2003 are unaudited; in the opinion of
the Company's management, however, such statements include all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
information presented therein. The combined financial statements include the
accounts of VGS, which are under common control.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to reports on Form 8K/A, the accompanying combined
financial statements and these notes do not include all disclosures required by
accounting principles generally accepted in the United States for audited
financial statements. Accordingly, these statements should be read in
conjunction with the Company's most recent annual combined financial statements.
2. INVENTORIES
Inventories include the following major categories at July 4, 2004:
Finished goods $ -
Raw materials and supplies 138
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$138
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The inventory has been capitalized in anticipation of commercialization of
related products.
3. PROPERTY, PLANT AND EQUPMENT
Property, plant and equipment include the following at July 4, 2004:
Land and buildings $2,934
Production and laboratory equipment 3,816
Leasehold improvements 202
Furniture and fixtures 169
Automobile 50
--
7,171
Less accumulated depreciation and amortization (1,210)
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Property, plant and equipment--net $5,961
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Depreciation and amortization expense related to property, plant and
equipment was $228 for the six months ended July 4, 2004.
4. RELATED PARTY TRANSACTIONS
LOAN RECEIVABLE-- In December 2002, Kali advanced $2,135 to VGS to purchase
the building located in Somerset, New Jersey, in which Kali operates. The amount
advanced to VGS was borrowed by Kali under their reducing revolver loan with
Merrill Lynch. The loan of $2,135 plus interest at the annual rate of 2.3% is
due on June 9, 2006. The outstanding balance of the loan of $2,688 was
eliminated in the accompanying combined balance sheet.
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LEASING OF OPERATING FACILITIES--Kali leases two operating facilities from
VGS on a month-to-month basis. Kali was charged rent of $80 by VGS for the six
months ended July 4, 2004, which was eliminated in the accompanying combined
balance sheet.
5. COMMITMENTS AND CONTINGENCIES
On July 7, 2004, Xcel Pharmaceuticals, Inc. ("Xcel") filed a complaint in
the U.S. District Court for the District of New Jersey against Kali alleging
that Kali's proposed generic version of Diastat(R) (diazepam) infringes one or
more claims of U.S. Patent No. 5,462,740 (the "740 patent"). Xcel alleges that
Kali infringed the `740 patent by filing an ANDA with the FDA containing a
Paragraph IV certification and by seeking approval to manufacture and market its
proposed generic version of Diastat(R) before the expiration of the `740 patent.
In the Complaint, Xcel seeks an order of the court enjoining Kali from marketing
its proposed generic version of Diastat(R) until the expiration date of the `740
patent, together with its attorneys' fees. This action is in its earliest stage.
Kali has not yet responded to the complaint, but intends to vigorously defend
this action.
On November 25, 2002, Ortho-McNeil Pharmaceutical, Inc. ("Ortho-McNeil")
filed a lawsuit against Kali in the United States District Court for the
District of New Jersey. Ortho-McNeil alleged that Kali infringed U.S. Patent No.
5,336,691 (the "`691 patent") by submitting a Paragraph IV certification to the
FDA for approval of tablets containing tramadol hydrochloride and acetaminophen.
Par is Kali's exclusive marketing partner for these tablets. Kali has denied
Ortho-McNeil's allegation, asserting that the `691 patent was not infringed and
is invalid and/or unenforceable, and that the lawsuit is barred by unclean
hands. Kali also has counterclaimed for declaratory judgments of
non-infringement, invalidity and unenforceability of the `691 patent. Summary
judgment papers were served on opposing counsel on May 28, 2004; however under
New Jersey practice the summary judgment papers will not be filed with the court
until the briefing is complete.
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