1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998
[ ] 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)
Commonwealth of the Bahamas None
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
421 Comstock Road, Toronto, 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 shares, as of the latest practicable date.
Common Shares, $.0167 Par Value 2,996,897 Shares
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(Title of Class) (Outstanding at May 6, 1998)
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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 Balance Sheets
April 30, 1998 and January 31, 1998..........................3
Consolidated Statements of Operations
Three Months ended April 30, 1998 and 1997...................5
Consolidated Statements of Shareholders' Equity
Three Months ended April 30, 1998 and 1997...................6
Consolidated Statements of Cash Flows
Three Months ended April 30, 1998 and 1997...................7
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................8
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK............................................11
PART II OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K.............................12
Signatures...................................................13
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PART I - FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements.
POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
(Expressed in United States dollars)
====================================================================================
(Unaudited)
April 30 January 31
1998 1998
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ASSETS
Current assets:
Cash $ 345,389 $ 288,527
Trade accounts receivable 1,166,854 932,745
Inventories 1,617,472 1,678,280
Prepaid expenses and other current assets 59,334 64,727
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3,189,049 2,964,279
Property, plant and equipment, net 3,862,288 3,800,379
Patents, net 209,158 217,374
Due from Novadex Corp. 712,185 712,185
Due from shareholders 931,072 935,416
Deferred income taxes 797,788 950,000
Other assets 189,558 161,314
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$9,891,098 $9,740,947
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=====================================================================================================
(Unaudited)
April 30 January 31
1998 1998
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 909,182 $ 1,001,620
Accrued liabilities 388,173 355,167
Current portion of long-term debt 60,650 55,392
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1,358,005 1,412,179
Long-term debt 463,210 462,632
Due to shareholders 602,125 590,526
Due to affiliated companies 425,420 425,420
Deferred gain 672,311 672,369
Deferred income taxes 22,663 26,439
Minority interest - -
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Total liabilities 3,543,734 3,589,565
Redeemable capital stock 2,000,000 2,000,000
Shareholders' equity:
Capital stock:
Authorized:
100,000 A preferred shares of $0.10 each
899,400 B preferred shares of $0.0167 each
4,000,000 common shares of $0.0167 each
Issued and outstanding:
899,400 B preferred shares 15,010 15,010
2,847,018 common shares (1998 - 2,846,998) 47,283 47,283
Contributed surplus 21,826,025 21,826,025
Deficit (16,895,155) (17,071,168)
Other comprehensive income (645,799) (665,768)
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4,347,364 4,151,382
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$ 9,891,098 $ 9,740,947
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POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(Expressed in United States dollars)
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Quarter Ended Quarter Ended
April 30 April 30
1998 1997
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Sales $ 2,930,964 $ 2,236,335
Cost of products sold 2,015,282 1,584,905
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915,682 651,430
Expenses:
General and administrative 373,147 389,967
Depreciation and amortization 117,528 144,592
Selling and promotion 44,496 67,658
Research and development 42,403 38,371
Interest expense 34,906 29,018
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612,480 669,606
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Income (loss) from operations 303,202 (18,176)
Other income:
Gain on sale of equipment 6,669 -
Interest and other 18,963 10,998
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25,632 10,998
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Income (loss) before the undernoted 328,834 (7,178)
Provision for income taxes (152,821) -
Minority interest in loss - 702
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Income (loss) for the period $ 176,013 $ (6,476)
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Per share information:
Earnings (loss) per common share for the period:
Basic $ 0.06 $ 0.00
Diluted $ 0.06 $ 0.00
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Weighted average number of common shares
outstanding for the period 2,996,907 2,825,218
==============================================================================================
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POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Income
(Unaudited)
(Expressed in United States dollars)
===================================================================================================
Quarter Ended Quarter Ended
April 30 April 30
1998 1997
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Preferred Shares:
Balance, beginning of period $ 15,010 $ 15,010
Private placement of preferred shares - -
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Balance, end of period $ 15,010 $ 15,010
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Common Shares:
Balance, beginning of period $ 47,283 $ 44,456
Exercise of options - -
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Balance, end of period $ 47,283 $ 44,456
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Contributed Surplus:
Balance, beginning of period $ 21,826,025 $ 20,738,822
Exercise of options - -
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Balance, end of period $ 21,826,025 $ 20,738,822
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Deficit:
Balance, beginning of period $ (17,071,168) $ (17,559,330)
Net income (loss) for the period 176,013 (6,476)
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Balance, end of period $ (16,895,155) $ (17,565,806)
===================================================================================================
Other Comprehensive Income:
Balance, beginning of period $ (665,768) $ (535,230)
Currency translation adjustment for the period 19,969 (62,097)
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Balance, end of period $ (645,799) $ (597,327)
===================================================================================================
Comprehensive Income for the period:
Net income (loss) for the period $ 176,013 $ (6,476)
Currency translation adjustment for the period 19,969 (62,097)
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$ 195,982 $ (68,573)
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NOTE:
The comparative amount presented for shareholders' equity has been
restated to reclassify the common shares subject to the put option with
Continental Grain Company, as described in note 11 of the Company's
Annual Report.
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POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
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April 30 April 30
1998 1997
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Cash provided by (used in):
Operating activities:
Net income (loss) for the period $ 176,013 $ (6,476)
Add (deduct) items not affecting cash:
Depreciation and amortization 117,528 144,592
Deferred income taxes 152,821 -
Loss (gain) on sale of equipment (6,669) -
Legal expenses charged to deferred gain (58) (41,819)
Minority interest - (702)
Change in non-cash operating working capital (251,383) (87,459)
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188,252 8,136
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Investing activities:
Additions to property, plant and equipment (170,366) (39,103)
Additions to patents (856) -
Proceeds from sale of equipment 9,500 -
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(161,722) (39,103)
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Financing activities:
Repayment of long-term debt (14,164) (20,549)
Proceeds from long-term debt 20,000 -
Proceeds from advances from shareholders 11,599 697
Repayment of advances to shareholders 4,344 -
Advances from (repayment to) Novadex Inc. - (3,823)
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21,779 (23,675)
Effect of exchange rate changes on cash 8,553 (32,623)
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Increase (decrease) in cash position 56,862 (87,265)
Cash, beginning of period 288,527 603,491
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Cash, end of period $ 345,389 $ 516,226
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(a) RESULTS OF OPERATIONS
During the fiscal quarter ended April 30, 1998, the Registrant's pre-tax profit
from operations prior to research and development, interest expense and other
income and depreciation and amortization amounted to $498,039, as compared to a
similarly calculated pre-tax profit of $193,805 for the same period last year.
This improvement in results is due to an increase in such profits during the
quarter at Dextran Products Limited ("Dextran") of $26,702, and at Veterinary
Laboratories Inc. ("Vet Labs") of $248,269 and a reduction in expenses at the
corporate head office of $19,723. The improvement in results at both Dextran and
Vet Labs is primarily attributable to increased sales during the quarter as
compared to the same quarter last year.
Sales volume this quarter increased significantly from the same period last year
by $694,629. Dextran experienced a quarter over quarter increase in sales of
$99,331 as a result of increased demand for its products, while Vet Labs
experienced a quarter over quarter increase in sales of $595,298 due to
increased sales of injectable iron and other injectable products.
Gross margins increased from 29% in the first quarter last year to 31% this
quarter. Dextran's quarter over quarter gross margin decreased from 49% to 40%
while Vet Labs' gross margin increased from 8% to 18%. The margin decrease at
Dextran is due to increased intercompany sales. The intercompany product sales
are lower margin because they are further refined at Vet Labs. The increase in
margin at Vet Labs is attributable to increased sales of higher margin products,
primarily the injectable products.
Management expects strong sales and margins to continue at Dextran. The summer
months are typically slower sales months for Vet Labs as large animals are put
outdoors to pasture and therefore have less need for vitamins and other
supplements. Management is therefore forecasting lower sales levels in the
second quarter than was achieved in the first quarter at Vet Labs. Margins are
expected to remain steady, but the expected lower sales volume will reduce
operating profits for the coming quarter.
Selling and promotion expenses in the quarter decreased by $23,162 as compared
to the first quarter last year due to the termination during the quarter of a
contract with a marketing company. In future quarters, this will save the
Registrant $60,000 per quarter.
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General and administrative expenses have decreased by $16,820, primarily
attributable to a reduction in salary expense due to the departure of the former
Chairman.
Depreciation and amortization have decreased by $27,064 primarily due to the
reduction in patent amortization resulting from the write-down of the cellulose
sulphate patent at January 31, 1998.
There was no significant quarter over quarter change in either research and
development expenses or interest expense.
Operating results for the first quarter ended April 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended January 31,
1999. For further information, refer to the consolidated statements and
footnotes thereto included in the Registrant's annual report on Form 10-K for
the year ended January 31, 1998.
(b) LIQUIDITY AND CAPITAL RESOURCES
The Registrant in the first quarter generated cash flow from operations of
$188,252 compared to the prior year first quarter cash flow from operations of
$8,136. This increase in working capital is primarily due to the large increase
in net income partially offset by the increase in accounts receivable. Accounts
receivable at Dextran increased from $414,954 at the previous year end to
$626,313, while Vet Labs receivable balance increased from $517,791 at the
previous year end to $540,539. These increases in receivable balances are due in
part to the increase in sales during the quarter, but also Dextran had large
sales towards the end of the quarter further increasing the receivable balance.
There were no significant changes in inventory levels at either Dextran or Vet
Labs during the quarter.
The majority of capital expenditures on plant and equipment during the quarter
relate to engineering plans for the plant refurbishment at Dextran. Management
plans to begin to purchase equipment for this refurbishment during the next
quarter. There are no production interruptions planned for the next quarter due
to this refurbishment.
Positive operational cash flows are expected to continue in the future, but
should the need for further cash infusions arise, the Registrant believes that
continued loans and/or capital contributions from principal shareholders will
meet these requirements.
FORWARD-LOOKING STATEMENTS SAFE HARBOR
This Form 10-Q/A, including the Management's Discussion and Analysis, contains
various "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
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Securities Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs concerning future events, including, but not limited to
statements regarding management's expectations of regulatory approval and the
commencement of sales and the sufficiency of the Company's cash flow for the
Company's future liquidity and capital resource needs. In addition, statements
containing expressions such as "believes", "anticipates" or "expects" used in
this Form 10-Q/A, the Company's Annual Report, and the Company's periodic
reports on Forms 10-K and 10-Q previously filed with the Securities and Exchange
Commission are intended to identify forward-looking statements. The Company
cautions that these and similar statements in this Form 10-Q/A, the Company's
Annual Report, and in previously filed periodic reports including reports filed
on Forms 10-K and 10-Q are further qualified by important factors that could
cause actual results to differ materially from those in the forward-looking
statements. These factors include, without limitation, changing market
conditions, the progress of clinical trials, and the results obtained, the
establishment of new corporate alliances, the impact of competitive products and
pricing, and the timely development, FDA approval and market acceptance of the
Company's products, none of which can be assured. Results actually achieved may
differ materially from expected results included in these statements as a result
of these or other factors.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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
financial statements. In the opinion of management, all adjustments (consisting
of normally recurring accruals) considered necessary for a fair presentation
have been included.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. All
financial instruments are held for other than trading purposes. The
Company does not have a material exposure to interest rate risk.
The table presents principal cash flows and related weighted
average interest rates by expected maturity dates.
EXPECTED MATURITY DATE
31-Jan-99 31-Jan-00 31-Jan-01 31-Jan-02
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(US$ EQUIVALENT)
ASSETS
Short-term deposits:
Fixed rate ($US) 149,352 - - -
Average interest rate 4.80%
Notes receivable:
Variable rate ($US) 60,059 83,225 71,016 26,389
Average interest rate 7.71% 7.80% 7.90% 8.00%
LIABILITIES
Long-term debt:
Fixed rate ($US)) 25,161 357,766 16,015 1,297
Average interest rate 10.40% 10.42% 9.50% 9.50%
Fixed rate ($CDN) 21,507 31,247 31,960 36,907
Average interest rate 8.50% 8.50% 8.50% 8.50%
Variable rate ($US) (48,168) (52,022) (56,184) (60.678)
Average interest rate 8.00% 8.00% 8.00% 8.00%
Fair
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31-Jan-03 Thereafter Total Value
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ASSETS
Short-term deposits:
Fixed rate ($US) - - 149,352 149,352
Average interest rate 4.80%
Notes receivable:
Variable rate ($US) 28,500 575,967 845,157 845,157
Average interest rate 8.00% 8.00% 7.90%
LIABILITIES
Long-term debt:
Fixed rate ($US)) - - 400,239 400,239
Average interest rate 0.00% 0.00% 9.95%
Fixed rate ($CDN) - - 123,621 123,621
Average interest rate 8.50% 8.50% 8.50%
Variable rate ($US) (65,533) 884,691 602,106 602,106
Average interest rate 8.00% 8.00% 8.00%
The table below provides information about the Company's financial
instruments that are sensitive to changes in foreign currency
exchange rates. All financial instruments are held for other than
trading purposes. The Company's major exposure to exchange rate
risk is that the Canadian dollar rises dramatically in relation to
the U.S. dollar and that this significantly reduces the gross
margin experienced at Dextran Products. Management monitors the
margin at Dextran to ensure that an acceptable margin level is
maintained. Management has the ability, to some extent, to adjust
sales prices to maintain an acceptable margin level.
EXPECTED MATURITY DATE
31-Jan-99 31-Jan-00 31-Jan-01 31-Jan-02
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(US$ EQUIVALENT)
LIABILITIES
Long-term debt:
Fixed rate ($CDN) 21,507 31,247 33,960 36,907
Average interest rate 8.50% 8.50% 8.50% 8.50%
Fair
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31-Jan-03 Thereafter Total Value
--------- ---------- ----- -----
LIABILITIES
Long-term debt:
Fixed rate ($CDN) - - 123,621 123,621
Average interest rate 8.50% 8.50% 8.50%
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PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Memorandum of Association of Polydex Pharmaceuticals
Limited, as amended to date (filed as Exhibit 3.1 to
the Annual Report on Form 10-K filed April 30, 1997,
and incorporated herein by reference)
3.2 Articles of Association of Polydex Pharmaceuticals
Limited, as amended to date (filed as Exhibit 3.2 to
the Quarterly Report on Form 10-Q filed September 9,
1997, and incorporated herein by reference)
27 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable.
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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.
Date: September 15, 1998
POLYDEX PHARMACEUTICALS LIMITED
(Registrant)
By \s\ George G. Usher
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George G. Usher, Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
By \s\ Sharon L. Wardlaw
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Sharon L. Wardlaw, Treasurer, Secretary and
Chief Financial and Accounting Officer
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit Number Exhibit Description
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27 Financial Data Schedule