1
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 May 31, 1997
( ) 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.)
710 14th Street, 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 July 21, 1997 was 122,813,347 shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
2
PART I
Item 1. FINANCIAL STATEMENTS
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 31, August 31,
ASSETS 1997 1996
- ------ ---------- -----------
CURRENT ASSETS:
Cash and Cash Equivalents $ 34,376 $ 34,872
Receivables
Trade, net of allowance for doubtful
accounts of $65,527 and $63,700 at
May 31, 1997 and August 31, 1996 2,199,207 1,443,684
Inventories 1,299,846 1,336,633
Prepaid expenses 249,583 168,582
Deferred Taxes 380,000 380,000
Note Receivable 775,154 165,000
----------- -----------
TOTAL CURRENT ASSETS 4,938,166 3,528,771
----------- -----------
PROPERTY, PLANT AND EQUIPMENT- AT COST 3,157,828 4,339,707
Less accumulated depreciation
and amortization 787,926 1,782,400
----------- -----------
2,369,902 2,557,307
OTHER ASSETS
Goodwill, less accumulated amortization
of $154,376 and $16,543 at May 31,1997
and August 31, 1996, respectively 3,827,875 3,948,256
Intangibles-net of amortization 35,979 11,667
Non-compete Agreement 354,707 425,600
Deferred income taxes 220,000 220,000
----------- -----------
TOTAL OTHER ASSETS 4,438,561 4,605,523
----------- -----------
$11,746,629 $10,691,601
=========== ===========
3
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 31, August 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------------------------------------- ----------- ---------------
CURRENT LIABILITIES:
Note payable $ 398,649 $ 532,141
Note payable- related party 75,000 -
Current maturities of long-term debt 146,517 785,835
Current maturities of capitalized lease
obligations 95,246 95,246
Accounts payable 1,415,029 921,045
Accrued liabilities
Salaries, wages and other compensation 13,875 42,450
Interest 1,818 144,148
Other 102,596 95,798
------------ ------------
TOTAL CURRENT LIABILITIES 2,248,730 2,616,663
------------ ------------
LONG-TERM OBLIGATIONS, less current
maturities 217,691 3,674,335
CAPITALIZED LEASE OBLIGATIONS, less
current maturities 601,633 299,674
EXCESS LOSS IN INVESTMENT IN JOINT VENTURE 3,521 10,776
MINORITY INTEREST 920,145 852,372
STOCKHOLDERS' EQUITY
Common stock - no par value; 200,000,000
shares authorized; and 122,813,347 and
93,967,583 issued and outstanding, at
May 31, 1997, and August 31, 1996,
respectively 23,927,383 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 May 31, 1997, and
August 31, 1996 292,558 292,558
------------ ------------
24,219,941 24,159,942
Accumulated deficit (16,370,900) (20,828,049)
------------ ------------
7,849,041 3,331,893
Less Common Stock in treasury at cost,
3,289,000 shares at August 31, 1996 94,132 94,132
TOTAL STOCKHOLDERS' EQUITY 7,754,909 3,237,761
------------ ------------
$ 11,746,629 $ 10,691,601
============ ============
4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
May 31,
----------------------------------------
1997 1996
---------- ----------
REVENUES
Net sales $10,332,049 $7,368,900
Cost of Sales 6,967,340 4,908,756
----------- ----------
GROSS MARGIN 3,364,709 2,460,144
Selling, general and administrative 4,219,182 2,245,311
----------- ----------
OPERATING INCOME (LOSS) (854,473) 214,833
OTHER INCOME/(EXPENSE)
Interest Expense (1,368,251) (602,345)
Joint Venture Income (55,746) -
Gain (loss) on Disposal of Assets (2,363) (1,698)
Gain on Sale of Division 6,210,435 -
Other Income 595,673 9,765
----------- ----------
TOTAL OTHER INCOME/(EXPENSE) 5,379,748 (594,278)
INCOME(LOSS) BEFORE TAX (BENEFIT) EXPENSE 4,525,275 (379,445)
----------- ----------
INCOME TAX EXPENSE (BENEFIT) 2,390 21,400
INCOME (LOSS) BEFORE MINORITY INTEREST 4,522,885 (400,845)
MINORITY INTEREST (67,773) -
----------- ----------
NET INCOME (LOSS) $ 4,455,112 $ (400,845)
=========== ==========
PRIMARY EARNINGS PER SHARE .037 *
=========== ==========
Continued on following page.
5
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
May 31,
------------------------------
1997 1996
------------ ------------
FULLY DILUTED EARNINGS PER SHARE $ .037 $ *
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 121,662,879 112,615,914
============ ============
* Less than $.01 per share
6
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
May 31,
-----------------
1997 1996
------------ --------
REVENUES
Net sales $ 2,673,327 $ 2,627,886
Cost of Sales 1,855,447 1,728,854
------------ ------------
GROSS MARGIN 817,880 899,032
Selling, general and administrative 1,662,002 958,324
------------ ------------
OPERATING INCOME (LOSS) (844,122) (59,292)
OTHER INCOME/(EXPENSE)
Interest Expense (815,961) (216,599)
Joint Venture Income (18,667) -
Gain (Loss) on Disposal of Assets - (1,698)
Gain on Sale of Division 6,210,435 -
Other Income 319,252 2,173
------------ ------------
TOTAL OTHER INCOME/(EXPENSE) 5,695,059 (216,124)
INCOME(LOSS) BEFORE TAX (BENEFIT) EXPENSE 4,850,937 (275,416)
INCOME TAX EXPENSE (BENEFIT) 1,590 -
INCOME BEFORE MINORITY INTEREST 4,849,347 (275,416)
MINORITY INTEREST (634) -
------------ ------------
NET INCOME (LOSS) $ 4,848,713 $ (275,416)
============ ============
PRIMARY EARNINGS PER SHARE .039 *
============ ============
FULLY DILUTED EARNINGS PER SHARE $ .039 $ *
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 122,813,347 116,984,037
============ ============
* Less than $.01 per share
7
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
May 31,
-----------------------------------
1997 1996
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss) $ 4,455,112 $ (400,845)
Adjustments to reconcile net income to
net cash provided (used) by operations
Depreciation and amortization 583,309 328,606
Minority interest in earnings 67,773 3,216
Gain on sale of division (6,208,072)
(Increase) decrease in -
Accounts receivable (775,927) (82,123)
Inventory (99,030) (267,879)
Note receivable (460,154) (124,595)
Prepaid expenses and other (85,972) (96,304)
Increase (decrease) in -
Accounts payable 493,981 (405,795)
Accrued interest and other (164,107) 48,702
----------- ----------
TOTAL ADJUSTMENTS (6,648,199) (596,172)
----------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES (2,193,087) (997,017)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (505,902) (589,986)
Purchase of treasury stock - (94,132)
Excess loss in investment 55,745 -
Investment in subsidiary (63,000) -
Addition to goodwill (60,218) (121,656)
Sale of property and equipment - 4,980
Proceeds from sale of division 6,550,000 -
Proceeds from sale of equipment 2,500 850
----------- ----------
NET CASH (USED) BY INVESTING ACTIVITIES 5,979,125 (799,944)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of note payable (4,032,686) (173,637)
Issuance(payments) of line of credit (133,492) 617,785
Note payable related party 75,000 -
Long term borrowings 244,645 254,562
Issuance of common stock 59,999 1,070,000
----------- ----------
NET CASH (USED) BY FINANCING ACTIVITIES (3,786,534) 1,768,710
----------- ----------
Continued on following page.
8
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
May 31,
-------------------------
1997 1996
--------- ---------
NET INCREASE (DECREASE) IN CASH (496) (28,251)
CASH, Beginning of period 34,872 49,557
---------- --------
CASH, End of period $ 34,376 $ 21,306
========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Interest paid $1,368,251 $526,259
========== ========
Income taxes paid $ 2,390 $ 21,400
========== ========
9
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.
Nine Months Ended
May 31,
---------------------------
1997 1996
------------ -----------
NET INCOME (LOSS) $ 4,455,112 $ (400,845)
============ ============
Weighted average number of
shares outstanding 121,662,879 112,615,914
============ ============
Common stock equivalents and stock held in escrow have been included in the
computation for the nine months ended May 31, 1997 and 1996. 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.
10
Note 2. RECENT ACQUISITIONS AND DISPOSITIONS
On February 12, 1996 QCP and the Visiting Nurses Association of Orange
County ("VNA") established Rx Direct, LLC ("RxD"), a mail order pharmacy.
On June 5, 1996, the Company and Pharma France, Inc. formed Pharma
Labs, LLC ("Pharma Labs"). The Company contributed a total of $1,000,000 for
52% of Pharma Labs. Pharma Labs is engaged in the manufacturing, packaging,
and distribution of nutritional supplements.
On April 7, 1997, the Company completed the sale of the assets related
to its business of manufacturing and distributing Iodine-123 capsules for a
total purchase price of $6,700,000 pursuant to the terms of an Asset Purchase
Agreement (the "Agreement") dated April 7, 1997 by and between the Company and
Syncor Pharmaceuticals, Inc.
Included in the sale was the New Drug Application for the Iodine-123
capsules, the building that contains the manufacturing facility for the
Iodine-123 capsules and all of the equipment related to the Iodine-123
business.
The proceeds from the sale were used to pay off the Company's
$4,000,000 term loan and $400,000 term loan obtained in connection with the
Company's acquisition of Quality Care Pharmaceuticals, Inc. ("QCP") and to pay
down a portion of its $2,500,000 revolving line of credit (the "Revolving
Facility") and will allow the Company to expand its operations and presence in
other sectors of the health care market. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS - Liquidity and Capital Resources."
Note 3. SUBSEQUENT EVENTS
On July 15, 1997, the Company and Dornoch Medical Systems, Inc.
("Dornoch") entered into a Joint Marketing Agreement (the "JMA"), whereby the
Company will market Dornoch's Redaway Products. The Company will receive
royalties on sales of the products. In connection with the JMA, the Company
was granted an option to purchase 220 shares of common stock of Dornoch at a
purchase price of $2,000 per share which option will vest and be exercisable
upon the sale of 80 Redaway Products through the Company's marketing efforts.
In addition and in connection with the transaction, Dornoch purchased 1,000,000
shares of the Company's common stock for $.30 per share.
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
11
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,
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 health care market
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.
RESULTS OF OPERATIONS
Nine Months Ended May 31, 1997 Compared to Nine Months Ended May 31, 1996
Net Sales. Net sales from operations for the nine months ended May
31, 1997 increased to $ 10,332,049 compared to $7,368,900 for the nine months
ended May 31, 1996. The increase of 40% is primarily attributable to (i) the
consolidation of Pharma Labs operations, which represents approximately $1.4
million of the increase, and (ii) an increase in QCP sales of $2.1 million due
to increased demand for its principal products and an expanded client base.
Cost of Goods Sold. Cost of goods sold for continuing operations as a
percentage of sales was 67.4% for the nine months ended May 31, 1997 compared
to 66.6% for the nine months ended May 31, 1996. This increase is attributable
to the loss of gross margin from the sale of the Company's radiopharmaceutical
division.
Selling General and Administrative. Selling, general and
administration expenses ("SG&A") were $4.2 million for the nine months ended
May 31, 1997 as compared to $2.2 million for the nine months ended May 31,
1996. The increase of $2 million or 88% is due to (i) the consolidation of
Pharma Labs' operations, which represented $636,600 of the increase; (ii)
increases in sales commissions and salaries, training and travel expense;
expenses related to the improvement and sales expenses, which represented
$737,500 of the increase and expansion of QCP's telemarketing and customer
service department; and (iii) increased depreciation expense on additional
production equipment purchased in 1997, which represented $130,000 of the
increase.
12
In addition, the Company incurred expenses for travel and consulting
fees of $210,000 in connection with the Company's efforts to enhance the
operations and management of QCP.
Net Income. The Company reported net income of $4,455,112 for the
nine months ended May 31, 1997 as compared to a net loss of $(400,845)for the
nine months ended May 31, 1996. The net income was attributable to the sale of
the radiopharmaceutcial division which resulted in a gain of approximately $6.2
million.
Three Months Ended May 31, 1997 Compared to Three Months Ended May 31, 1996
Net Sales. Net sales for the three months ended May 31, 1997
increased to $2,673,327 compared to $2,627,886 for the three months ended May
31, 1996. The increase of $45,441 or 1.7% is primarily attributable to an
increase in QCP sales due to increased demand for its principal products and an
expanded client base net with a loss of sales from the sale of the radio
pharmaceutical division.
Cost of Goods Sold. Cost of goods sold as a percentage of sales was
69.4% for the three months ended May 31, 1997 as compared to 65.7% for the
three months ended May 31, 1996. This increase is attributable to the loss of
gross margin from the sale of the Company's radiopharmaceutical division.
Selling General and Administrative. SG&A expenses were $1,662,002 for
the three months ended May 31, 1997 as compared to $958,324 for the three
months ended May 31, 1996. The increase of $703,678 or 73.4% is due to (i) the
consolidation of Pharma Labs' operations, which represented $485,000 of the
increase; (ii) increases in sales commissions and salaries, training and travel
expense; expenses related to the improvement and sales expenses, which
represented $107,000 of the increase and expansion of QCP's telemarketing and
customer service department; and (iii) increased depreciation expense on
additional production equipment purchased in 1997, which represented $20,000 of
the increase.
Net Income (loss). The Company reported net income of $4,848,713 for
the three months ended May 31, 1997 as compared to a net loss of $(275,416) for
the three months ended May 31, 1996. The net income was attributable to the
sale of the radiopharmaceutcial division which resulted in a gain of
approximately $6.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company, on a consolidated basis, experienced negative cash flow
from operations for the three months ended May 31, 1997. Management
anticipates that QCP and Pharma Labs will continue to experience negative cash
flow from operations for the remainder of fiscal year 1997 and beyond until
such time as QCP generates sufficient
13
revenue to cover the Company's increased SG&A expenses incurred in connection
with its expansion efforts.
During the three months ended May 31, 1997, the Company relied
primarily on the Revolving Facility to fund its operations. The funds were
primarily used to develop marketing and sales materials and to purchase
hardware and software to expand QCP's operations and to fund Pharma Labs'
operations. The Company expects that its future cash needs for fiscal year
1997 will primarily relate to the continued expansion of QCP's operations
through the hiring of additional sales and telemarketing staff and the
development of Pharma Labs operations 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 Pharma Labs and/or QCP.
Interest on the Revolving Facility is payable at the Bank prime plus
2% and the outstanding balance on the Revolving Facility is payable in full in
August, 2000. At May 31, 1997 the balance on the Revolving Facility was
$398,649 and the interest rate was 11.5%. 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.
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 May 31, 1997 as compared to August 31, 1996.
May 31, 1997 August 31, 1996
------------ ---------------
Current Assets $4,938,166* $3,528,771*
Current Liabilities 2,248,730 2,616,663
---------
Net Working Capital $2,689,436 $ 912,108
* Includes $380,000 of deferred taxes per FASB 109 resulting from the Company's
substantial net operating loss carry forwards.
Current assets were $4,938,166, an increase of $1,409,395 or 40% at
May 31, 1997 as compared to $3,528,771 at August 31, 1996. The increase was
primarily due to (i) the growth of accounts receivable and inventory at Pharma
Labs which represented $568,000 of the increase, (ii) an increase in QCP's
accounts receivable of $520,000 which was a result of an increase in QCP's
sales.
Current liabilities were $2,248,730, a decrease of $367,933 or 14%
for the period ended May 31, 1997 compared to current liabilities of $2,616,663
for the period ended August 31, 1996. The decrease in current liabilities was
primarily the result of the payoff of the current portion of long term debt in
the amount of $715,000, partially offset by an increase in Pharma Labs accounts
payable due to an increase in its production. The Company had working capital
of $2,689,436 and a current ratio of 2.20:1 for the period ended May 31, 1997.
14
The Company's long term debt, including the current portion thereof,
at May 31, 1997 consisted of a note payable totaling approximately $218,000
incurred as a final settlement of a contingent liability.
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 $20,277 and $1,888,
respectively, for the fiscal year ending August 31, 1997.
As of August 31, 1996, the Company had net operating loss carry
forwards for federal income tax purposes of approximately $15,500,000. The net
operating loss carry forwards will expire in the years 1997 through 2006. The
Company's ability to utilize its net operating loss carry forwards 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 gain on the
sale of the radiopharmaceutical division is expected to result is the use of
several layers of the NOL.
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.
15
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
16
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: July 20, 1997 BY: /s/ Glen H. Weaver
---------------------------------
Glen H. Weaver,
17
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule