U.S. 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 March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-27354
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Global Pharmaceutical Corporation
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(Name of small business issuer in its charter)
Delaware 65-0403311
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Castor & Kensington Aves., Philadelphia, PA 19124-5694
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (215) 289-2220
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Not Applicable
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(Former name, former address, and former fiscal year,
if changed since last report.)
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___
As of April 30, 1998, the number of shares outstanding of each of the
issuer's classes of common equity was 4,465,597 shares of common stock ($0.01
par value).
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
GLOBAL PHARMACEUTICAL CORPORATION
BALANCE SHEET
(in thousands, except share and per share data)
March 31, December 31,
1998 1997
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 2,869 $ 4,719
Accounts receivable.................................................. 681 215
Inventories.......................................................... 558 386
Prepaid expenses and other........................................... 88 46
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Total current assets............................................ 4,196 5,366
Property, plant and equipment, net........................................ 4,292 4,077
Intangible assets, net of accumulated amortization of $59 and $59......... 1,059 1,118
Deferred financing costs, net............................................. 30 32
Investments............................................................... 729 729
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Total assets.................................................... $ 10,306 $ 11,322
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current portion of long-term debt.................................... $ 158 $ 158
Accounts payable..................................................... 739 673
Accrued expenses..................................................... 620 649
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Total current liabilities....................................... 1,517 1,480
Long-term debt............................................................ 2,090 2,129
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3,607 3,609
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Mandatorily redeemable preferred stock:
Series A mandatorily redeemable convertible preferred stock,
13,350 shares outstanding, $.01 par value, redeemable at
$100 per share ................................................... 1,335 1,335
Series B mandatorily redeemable convertible preferred stock,
49,750 and 50,000 shares outstanding, $.01 par value,
redeemable at $100 per share...................................... 4,975 5,000
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6,310 6,335
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Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 authorized 63,100
and 63,350 shares issued and outstanding ......................... -- --
Common stock, $.01 par value, 10,000,000 authorized and
4,295,962 and 4,286,871 shares issued and outstanding............. 43 43
Additional paid-in capital........................................... 19,311 19,311
Accumulated deficit.................................................. (18,965) (17,976)
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Total stockholders' equity ..................................... 389 1,378
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Total liabilities and stockholders' equity...................... $ 10,306 $ 11,322
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The accompanying notes are an integral part of these financial statements.
2
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF OPERATIONS
(dollars in thousands, except share and per share data)
Three Months Ended
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March 31,
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1998 1997
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Net sales $ 898 $ ----
Cost of sales 1,157 ----
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Gross margin (loss) (259) ----
Research and development 592 50 *
Selling expenses 131 30 *
General and administrative 389 1,119 *
Interest expense 22 13
Interest income (62) (42)
Other income (404) (120)
Other expense 62 ----
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Net loss $ (989) $ (1,050)
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Net loss per share (basic) $ (.23) $ (.24)
============ ============
Net loss per share (diluted) $ (.23) $ (.24)
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Weighted average common
shares outstanding 4,288,184 4,286,871
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* Reclassified for comparative purposes.
The accompanying notes are an integral part of these financial statements.
3
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars and shares in thousands)
Total
Common stock Additional stockholders'
Number of Par paid-in Accumulated equity
shares value capital deficit (deficit)
------ ----- ------- ------- ---------
Balances at December 31, 1994............................ 1,942 $ 19 $ 2,393 $ (3,028) $ (616)
Issuance of common stock:
Conversion of stockholder loans..................... 297 4 2,473 -- 2,477
Stock and warrants issued to Merck KGaA............. 150 1 299 -- 300
Sale of stock to Merck KGaA......................... -- -- 938 -- 938
Initial public offering on December 31, 1995........ 1,650 16 11,472 -- 11,488
Net loss................................................. -- -- -- (4,463) (4,463)
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Balances at December 31, 1995............................ 4,039 40 17,575 (7,491) 10,124
Issuance of common stock for over-allotment exercise
on January 29, 1996.................................... 248 3 1,832 -- 1,835
Net loss................................................. -- -- -- (4,608) (4,608)
------ ----- ------- ------- ---------
Balances at December 31, 1996............................ 4,287 43 19,407 (12,099) 7,351
Issuance of convertible preferred stock.................. -- -- 2,547 -- 2,547
Accretion of preferred stock dividend.................... -- -- (2,547) -- (2,547)
Expenses relating to issuance of Series A and Series B
Preferred Stock........................................ -- -- (96) -- (96)
Net loss................................................. -- -- -- (5,877) (5,877)
------ ----- ------- ------- ---------
Balances at December 31, 1997............................ 4,287 43 19,311 (17,976) 1,378
Conversion of Series B Preferred Stock into common
stock.................................................. 9 -- 25 -- 25
Expenses relating to issuance of Series B
Preferred Stock .................................... -- -- (25) -- (25)
Net loss ................................................ -- -- -- (989) (989)
------ ----- ------- ------- ---------
Balances at March 31, 1998............................... 4,296 $ 43 $19,311 $(18,965) $ 389
====== ===== ======= ======= =========
The accompanying notes are an integral part of these financial statements.
4
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF CASH FLOWS
(dollars in thousands)
Three Months Ended
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March 31,
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1998 1997
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Cash flows from operating activities:
Net loss................................................................... $ (989) $(1,050)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization ......................................... 177 90
Change in assets and liabilities:
(Increase)in accounts receivable.................................. (466) --
(Increase) in inventory........................................... (172) (141)
(Increase) in prepaid expenses and other assets .................. (40) (20)
Increase (decrease) in accounts payable and accrued
expenses.......................................................... 37 (293)
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Net cash used for operating activities ....................... (1,453) (1,414)
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Cash flows from investing activities:
Purchases of property, plant and equipment................................. (333) (249)
Net cash used for investing activities........................ (333) (249)
Cash flows from financing activities:
Long-term debt repayments.................................................. (39) (30)
Issuance of stock and warrants:
Costs associated with issuance of Series B Preferred Stock............. (25) --
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Net cash used for financing activities ....................... (64) (30)
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Net (decrease) in cash and cash equivalents..................................... (1,850) (1,693)
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Cash and cash equivalents, beginning of period ................................. 4,719 4,044
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Cash and cash equivalents, end of period........................................ $ 2,869 $ 2,351
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Supplemental disclosure of cash flow information:
Cash paid for interest .................................................... $ 21 $ 13
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The accompanying notes are an integral part of these financial statements.
5
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
Three Months Ended
March 31, 1998 and March 31, 1997
When used in this discussion, the words "believes", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected.
The Company's business and results of operations are affected by a wide
variety of factors that could materially and adversely affect the Company and
its actual results, including, but not limited to, the ability to obtain and
maintain governmental approvals, the ability to adequately fund its operating
requirements, the impact of competitive products and pricing, product demand and
market acceptance, new product development, reliance on key strategic alliances,
the availability of raw materials and the regulatory environment. As a result of
these and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis (including, to the
extent appropriate governmental approvals are not obtained, the inability to
manufacture and sell products), which could materially and adversely affect its
business, financial condition, operating results, and stock price. An investment
in the Company involves various risks, including those referred to above and
those which are detailed from time-to-time in the Company's other filings with
the Securities and Exchange Commission.
These forward-looking statements speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Note 1: The financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest annual report on Form 10-KSB.
The results of operations for the three months ended March 31, 1998, are not
necessarily indicative of the results of operations expected for the year ending
December 31, 1998.
In the opinion of management, the information contained in this report
reflects all adjustments necessary, which are of a normal recurring nature, to
present fairly the results for the interim periods presented.
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ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
During the three months ended March 31, 1998, the Company commenced
shipments of the following new products: Chloroquine Phosphate 250 mg tablets,
an antimalarial medication, Methyltestosterone 10 mg and 25 mg tablets, an
androgenic steroid and Guaifenesin/Pseudoephedrine ER 600 mg/120 mg tablets, a
cold and cough product.
Results of Operations
The Company's net loss for the three months ended March 31, 1998 was
$989,000, as compared to a net loss of $1,050,000 in the same period in 1997.
The net sales for the three months ended March 31, 1998 were $898,000, as
compared to zero in the comparable period in 1997, during which time Global was
still a development stage company. Upon receipt of FDA notification indicating
compliance with Current Good Manufacturing Practices ("cGMP's"), the Company
became operational in the quarter ended December 31, 1997.
The cost of sales of $1,157,000 for the three months ended March 31, 1998
had associated cost of goods sold of $451,000 and an unabsorbed manufacturing
overhead of $706,000 representing the under capacity utilization of the plant
and infrastructure. For the three months ended March 31, 1997, the comparable
operational costs were estimated at $709,000 and were reported as part of the
general and administrative expenses.
The research and development costs for the three months ended March 31,
1998 were $592,000; the research and development costs for the three months
ended March 31, 1997 were estimated at $50,000 and were reported as part of the
general and administrative expenses.
The selling expenses for the three months ended March 31, 1998 were
$131,000; the selling expenses for the three months ended March 31, 1997 were
estimated at $30,000 and were reported as part of the general and administrative
expenses.
The general and administrative expenses were $389,000 for the three months
ended March 31, 1998 as compared to an estimated $410,000 for the same period in
1997. The amount reported as general and administrative expenses for the three
months ended March 31, 1997, when Global was still a development stage company,
was $1,199,000, and included operational, research and development and selling
expenses, as previously indicated.
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The interest expense was $22,000 for the three months ended March 31, 1998
as compared to $13,000 in the same period of 1997 due to additional borrowings
from the Pennsylvania Industrial Development Authority ("PIDA") and the Delaware
River Port Authority ("DRPA") through the Philadelphia Industrial Development
Corporation ("PIDC").
The interest income was $62,000 for the three months ended March 31, 1998
as compared to $42,000 in the same period of 1997 due to an increase in
investments in cash equivalents resulting from the Series B Preferred Stock
financing.
The other income of $404,000 for the three months ended March 31, 1998
included the first payment of $402,000 for the U.S. Ranitidine profit
distribution from Genpharm, Inc. ("Genpharm"). The other income of $120,000
generated during the three months ended March 31, 1997 was due primarily to an
amount received from a supplier for a claim relating to unacceptable materials
purchased from the supplier.
The other expense of $62,000 for the three months ended March 31, 1998
represents amounts due to a sales organization for a one time non-repeating
profit sharing arrangement for the distribution of one of the Company's
products.
Liquidity and Capital Resources
On July 29, 1997 the Company received a $758,000 loan from PIDA at 3.75%
annually fixed for 15 years and a $350,000 loan from the DRPA via PIDC at 5%
annually fixed for 10 years. These loans were partially used to fund capital
projects, and are secured by land, building and building improvements. The
remaining proceeds of $729,000 were invested in interest bearing Certificates of
Deposit owned by the Company and pledged as additional collateral for these
loans.
The Company sold 13,350 shares of its Series A Mandatorily Redeemable
Convertible Preferred Stock in the third quarter of 1997 for approximately $1.3
million. In addition, the Company completed the closing of $5 million of its
Series B Mandatorily Redeemable Convertible Preferred Stock in December, 1997.
The Company has expended significant funds to purchase production and
laboratory equipment, and to develop its sales and marketing and product
development activities. With the commencement of operations in the fourth
quarter of 1997, the Company believes it will require additional financing in
1998 for working capital requirements. The Company believes that such financing
is available through asset-based debt financing, collaborative arrangements with
corporate partners, or through other sources, although there can be no assurance
that such funds will be available on terms and conditions acceptable to the
Company.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None Applicable.
Item 2. Changes in securities: None Applicable
Item 3. Defaults Upon Senior Securities: None Applicable
Item 4. Submission of Matters to a Vote of Security Holders: None Applicable
Item 5. Other Information: None Applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL PHARMACEUTICAL CORPORATION
By: /s/ MAX L. MENDELSOHN
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President and Chief Executive Officer (Principal Executive
Officer)
By: /s/ CORNEL C. SPIEGLER
---------------------------------
Chief Financial Officer, (Principal Financial
Vice President--Administration and Accounting
Officer)
9