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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to ____________.
Commission File Number 1-8366
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POLYDEX PHARMACEUTICALS LIMITED
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(Exact Name of Registrant as specified in its charter)
BAHAMAS NONE
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
421 Comstock Road, Scarborough, Ontario, Canada M1L 2H5
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(Address of principal executive offices)
Registrant's telephone number, including area code (416) 755-2231
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 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
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Shares 28,252,152
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(Title of Class) (Outstanding at October 31, 1996)
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POLYDEX PHARMACEUTICALS LIMITED
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TABLE OF CONTENTS
PAGE
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PART I FINANCIAL INFORMATION
Item 1 CONSOLIDATED FINANCIAL STATEMENTS
- ------ (UNAUDITED)
CONSOLIDATED CONDENSED BALANCE SHEETS
October 31, 1996 and January 31, 1996................................................2
CONSOLIDATED STATEMENTS OF OPERATIONS
Year to date October 31, 1996 and 1995...............................................4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year to date October 31, 1996 and 1995...............................................5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year to date October 31, 1996 and 1995...............................................6
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------ OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...........................................................................7
PART II OTHER INFORMATION
Item 6 EXHIBITS AND REPORT ON FORM 8-K
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Signatures..........................................................................11
Exhibit Index.......................................................................12
Exhibit 27 - Financial Data Schedule
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POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES
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Consolidated Condensed Balance Sheets
(Expressed in United States dollars)
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(Unaudited)
October 31 January 31
1996 1996
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ASSETS
CURRENT ASSETS
Cash $ 699,559 $ 12,321
Trade accounts receivable, net of
allowance 1,243,046 727,135
Interest receivable 14,192 --
Inventories:
Finished goods 673,849 802,812
Work in process 72,660 98,281
Raw materials 515,865 506,862
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1,262,374 1,407,955
Prepaid expenses and other current
assets 89,976 64,394
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TOTAL CURRENT ASSETS . . . . . 3,309,147 2,211,805
Property, plant and equipment
(at cost)
Land and buildings 2,624,589 2,320,588
Machinery and equipment 5,008,965 4,689,083
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7,633,554 7,009,671
Less allowances for depreciation and
amortization (3,901,159) (3,506,611)
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3,732,395 3,503,060
Patents and animal drug
applications at cost, net of
accumulated amortization 916,847 991,731
Investment in Novatek International, -- 400,000
Inc.
Due from affiliated companies 834,626 838,911
Goodwill, net of accumulated
amortization 17,771 38,396
Other Assets 62,035 81,087
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TOTAL ASSETS . . . . . . . . . . $ 8,872,821 $ 8,064,990
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POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES
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Consolidated Condensed Balance Sheets
(Expressed in United States dollars)
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(Unaudited)
October 31 January 31
1996 1996
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $ 5,157 $ --
Accounts payable 1,194,231 1,307,588
Accrued liabilities 740,477 572,612
Loans payable 70,967 10,000
Current portion of long-term debt 203,676 78,097
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TOTAL CURRENT LIABILITIES . . . $ 2,214,508 $ 1,968,297
Long-term debt 370,691 558,829
Due to shareholders 597,016 648,792
Due to affiliated companies 425,420 425,420
Minority interest 22,935 22,935
SHAREHOLDERS' EQUITY
Capital stock:
Authorized:
1,000,000 A preferred shares
of $0.01 each
8,994,000 B preferred shares
of $0.00167 each
40,000,000 common shares of
$0.00167 each
Issued and outstanding:
8,994,000 B preferred shares 15,010 15,010
28,252,182 common shares
(January 31, 1996 -
28,052,182) of which 82,400
are held in treasury 46,959 46,625
Contributed surplus 22,733,319 22,583,653
Deficit (17,080,324) (17,681,720)
Currency translation adjustments (472,713) (522,851)
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TOTAL SHAREHOLDERS' EQUITY 5,242,251 4,440,717
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TOTAL LIABILITIES & SHAREHOLDERS' $ 8,872,821 $ 8,064,990
EQUITY ============ ============
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POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES
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Consolidated Statements of Operations (Unaudited)
(Expressed in United States dollars)
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Quarter ended Year to date Quarter ended Year to date
October 31 October 31 October 31 October 31
1996 1996 1995 1995
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Sales $ 2,560,527 $ 6,709,605 $ 2,032,867 $ 6,136,456
Cost of products sold,
exclusive of depreciation
reported below 1,977,662 5,132,067 1,597,683 4,937,274
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582,865 1,577,538 435,184 1,199,182
Expenses:
Selling and promotion 42,075 109,447 26,638 125,721
General and administrative 366,429 1,126,018 304,347 808,972
Depreciation and amortization 151,732 451,969 137,537 398,635
Interest expense 32,874 110,700 40,098 94,862
Research and development 12,876 98,231 78,868 174,276
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605,986 1,896,365 587,488 1,602,466
Loss from operations (23,121) (318,827) (152,304) (403,284)
Other income and expenses:
Gain on sale of investment in
Novatek International, Inc. -- 878,412 -- --
Gain (loss) on sale of -- -- (2,527) (2,527)
equipment
Interest and other 12,564 41,811 23,726 74,347
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12,564 920,223 21,199 71,820
Profit (loss) before the
undernoted (10,557) 601,396 (131,105) (331,464)
Provision for income taxes -- -- 3,947 3,947
Minority interest in loss -- -- 2,924 (7,191)
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Profit(loss) for the period (10,557) 601,396 (137,976) (328,220)
Per share information:
Profit (loss) per common
share:
For the period $ 0.00 $ 0.02 $ 0.00 $ (0.01)
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POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES
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Consolidated Statements of Shareholders' Equity (Unaudited)
(Expressed in United States dollars)
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Year to date Year to date
October 31 October 31
1996 1995
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PREFERRED SHARES
Balance, beginning of period $ 15,010 $ 4,990
Private placement of preferred shares -- 10,020
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Balance, end of period $ 15,010 $ 15,010
COMMON SHARES
Balance, beginning of period $ 46,625 $ 46,609
Exercise of options 334 16
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Balance, end of period $ 46,959 $ 46,625
CONTRIBUTED SURPLUS
Balance, beginning of period $ 22,583,653 $ 22,573,669
Exercise of options $ 149,666 $ 9,984
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Balance, end of period $ 22,733,319 $ 22,583,653
DEFICIT
Balance, beginning of period $(17,681,720) $(16,516,186)
Net income (loss) for the period 601,396 (328,220)
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Balance, end of period $(17,080,324) $(16,844,406)
CURRENCY TRANSLATION ADJUSTMENTS
Balance, beginning of period $ (522,851) $ (463,689)
Currency translation adjustment for the
period 50,138 50,038
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Balance, end of period $ (472,713) $ (413,651)
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POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES
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Consolidated Statements of Cash Flows (Unaudited)
(Expressed in United States dollars)
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Year to date Year to date
October 31 October 31
1996 1995
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Cash provided by (used in):
OPERATING ACTIVITIES
Profit (loss) for the period $ 601,396 $ (328,220)
Add (deduct) items not affecting cash:
Depreciation and amortization 451,969 398,635
Gain on sale of investment in
Novatek International Inc. (878,412) --
Loss (gain) on sale of equipment -- 2,527
Minority interest -- 7,191
Expenses paid by issuance of common
shares -- 10,000
Change in non-cash operating working
capital (355,596) (291,701)
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(180,643) (201,568)
INVESTING ACTIVITIES
Proceeds from sale of investment in 1,278,412 --
Novatek International Inc.
Additions to property, plant and
equipment (523,240) (484,727)
Additions to patents and animal drug
applications (2,323) 6,349
Proceeds from sale of equipment -- 5,087
Acquisition of subsidiary company -- 250,000
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752,849 (223,291)
FINANCING ACTIVITIES
Increase in (repayment of) loan payable 60,967 107,769
Repayment of long-term debt (62,559) (23,158)
Proceeds from long-term debt -- 196,660
Increase in (repayment of) due to
shareholders 98,224 544,417
Decrease (increase) in due from
affiliated companies 4,285 (74,469)
Increase (decrease) in bank indebtedness 5,157 94,853
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106,074 846,072
Effect of exchange rate changes on cash 8,958 (37,040)
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Increase (decrease) in cash position 687,238 384,173
Cash position, beginning of period 12,321 135,195
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Cash position, end of period $ 699,559 $ 519,368
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POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES
(a) Results of Operations
During the fiscal quarter ended October 31, 1996, the Registrant's pre-tax
profit from operations, before research and development, interest charges,
depreciation and interest and income, amounted to $174,361. This is a
significant improvement over a similarly calculated pre-tax profit of $104,199
for the same period last fiscal year and $57,978 for the second quarter of this
fiscal year. The Registrant's improved profits is primarily attributable to the
increased sales and profits at Dextran Products Limited ("Dextran") this
quarter, which increased $28,579 over the second quarter Dextran profits. Also
contributing to the improved profits is the $138,279 reduction in losses at
Veterinary Laboratories Inc. ("Vet Labs") over the second quarter of this fiscal
year.
Sales volume in the third quarter was higher than the same period last year by
$527,660 and higher than the previous quarter of this fiscal year by $658,409.
The increase in sales over the previous quarter may be attributed, in large
part, to the increased sales at Vet Labs of $439,340. Vet Labs' sales rose as a
result of the end of the price war for Iron Dextran, an increase in the selling
price of Iron Dextran and the increased demand caused by the end of the drought
in the Southern region of the United States. The increased sales volume also
resulted from the strong sales experienced at Dextran this quarter. Dextran has
seen an increasing demand for its products as the result of increased pork
production.
Gross margins were consistent with that of the previous quarter at 23%, and were
up slightly from the third quarter of last year when the gross margin was 21%.
Dextran's gross margin dropped slightly as a result of the strengthening of the
Canadian dollar relative to the U.S. dollar. Vet Labs' gross margin increased
during this quarter from -1% to 11% due to both the increased selling price for
Iron Dextran and the significantly increased sales volume.
General and administrative expenses have increased this quarter by $62,082 over
the same period last fiscal year as a result of the legal expenses incurred in
connection with defending a lawsuit filed against the Registrant last quarter by
the former option holders of Novatek International, Inc. The amount of the loss,
if any, that may result from this lawsuit remains indeterminable at this time.
The Registrant continues to maintain a reserve in the amount of $100,000 to
cover any additional legal fees that are incurred in connection with the
lawsuit.
Research and development expenditures decreased by $65,992 in the third quarter
this year relative to the same period last year due to a renegotiation of the
research agreement with the University of British Columbia. The revised
agreement has significantly lowered funding requirements.
(b) Liquidity and Capital Resources
The Registrant has generated a year-to-date negative cash flow from operations
of $180,643 which is an improvement of $20,925 over last year's nine month
period of negative cash flow from operations totalling $201,568. The improved
cash flow is primarily due to improved profits at Dextran. Dextran had sales of
$1,190,601 during this quarter resulting
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in an increase in accounts receivable of $167,537. The build up of working
capital is mainly attributable to Vet Labs' sales of $1,353,838 during this
quarter, a significant portion of which occurred towards the end of the quarter,
resulting in an increase in accounts receivables of $332,500. The Registrant
anticipates that its cash flow should continue to improve during the next
quarter, provided its current sales volume remains constant. Notwithstanding the
foregoing, should the need for further cash flow infusions arise, the Registrant
believes that continued loans and/or capital contributions from principal
shareholders will meet these requirements.
Inventory levels remained relatively constant during the quarter as continued
strong sales resulted in movement of current production.
The Registrant has invested $523,240 year-to-date in its property, plant and
equipment. The majority of this expenditure, $494,581, was used to build new
labs at Dextran. The is the first phase of the modernization and refurbishment
of Dextran's existing plant in order to improve productivity and keep pace with
rising demand for its products.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete full
financial statements. In the opinion of management, all adjustments (consisting
of normally recurring accruals) considered necessary for a fair presentation
have been included.
Operating results for the third quarter ended October 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
January 31, 1997. For further information, refer to the consolidated statements
and footnotes thereto included in the Registrant's annual report on Form 10-K
for the fiscal year ended January 31, 1996.
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PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
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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.
Date: December 11, 1996
POLYDEX PHARMACEUTICALS LIMITED
(Registrant)
By /s/ George Usher
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George Usher, President and CEO
(Chief Operating Officer)
By /s/ Sharon Wardlaw
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Sharon Wardlaw, Treasurer
(Chief Financial Officer)
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EXHIBIT INDEX
Description
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Exhibit 27 Financial Data Schedule
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