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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 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.
(Name of small business issuer in its charter)
COLORADO 84-0645174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
710-14TH STREET, GOLDEN, COLORADO 80401
(Address of principal executive office)(Zip Code)
(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
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The number of shares of common stock outstanding as of DECEMBER 31, 1997, was
125,127,847
Transitional Small Business Disclosure Format: Yes NO X
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PART I
ITEM 1. FINANCIAL STATEMENTS
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
NOVEMBER 30, AUGUST 31,
1997 1997
----------------- -----------------
CURRENT ASSETS
Cash $ 40,458 $ 26,143
Receivables
Trade, net of allowance for doubtful accounts of $424,447 and
$446,834 at November 30 and August 31, 1997 1,700,209 1,778,321
Notes receivable 189,797 252,500
Inventories 1,139,441 1,024,689
Prepaid expenses and other 179,967 174,768
----------------- -----------------
TOTAL CURRENT ASSETS 3,249,872 3,256,421
PROPERTY, PLANT AND EQUIPMENT - AT COST 3,444,670 3,362,288
Less accumulated depreciation and amortization 1,031,027 908,804
----------------- -----------------
TOTAL PROPERTY, PLANT & EQUIPMENT 2,413,643 2,453,484
OTHER ASSETS
Goodwill, less accumulated amortization of $475,044 and $422,784 at
November 30 and August 31, 1997 3,688,265 3,740,525
Intangibles - net of accumulated amortization of $1,333 and $1,133 at
November 30 and August 31, 1997 10,667 10,867
Non-compete agreement 307,445 331,076
Investment in joint venture - 1,866
----------------- -----------------
TOTAL OTHER ASSETS 4,006,377 4,084,334
----------------- -----------------
TOTAL ASSETS $ 9,669,892 $ 9,794,239
================= =================
See Note to Consolidated Financial Statements
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ITEM 1. FINANCIAL STATEMENTS (continued)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) - continued
LIABILITIES AND STOCKHOLDERS' EQUITY
NOVEMBER 30, AUGUST 31,
1997 1997
----------------- ------------------
CURRENT LIABILITIES
Notes payable $ 572,410 $ 743,168
Notes payable - related parties 1,965,000 615,000
Current maturities of long-term debt 265,249 262,506
Current maturities of capitalized lease obligations 195,810 202,061
Accounts payable 1,159,853 1,041,639
Income taxes payable 1,400 40,000
Accrued liabilities
Salaries, wages and other compensation 75,154 161,277
Interest 52,083 3,506
Other 131,667 63,250
----------------- ------------------
TOTAL CURRENT LIABILITIES 4,418,626 3,132,407
LONG-TERM OBLIGATIONS, less current maturities 52,361 80,903
CAPITALIZED LEASE OBLIGATIONS, less current maturities 491,863 528,774
EXCESS LOSS ON INVESTMENT IN JOINT VENTURE 4,840 -
CONTINGENCIES AND COMMITMENTS - -
MINORITY INTEREST 477,212 582,969
STOCKHOLDERS' EQUITY
Common stock - no par value; 200,000,000 shares authorized; 128,416,847
issued; and 125,127,847 outstanding at
November 30 and August 31, 1997, respectively 24,774,154 24,774,154
Preferred stock - no par value; 10,000,000 shares authorized Class A
15%/30% cumulative convertible, 29,653 shares, issued and outstanding
at November 30 and August 31, 1997, respectively 292,558 292,558
Dividends accrued on preferred stock 137,122 137,122
----------------- ------------------
25,203,834 25,203,834
Accumulated deficit (20,884,712) (19,640,516)
----------------- ------------------
4,319,122 5,563,318
Less common stock in treasury at cost, 3,289,000 shares at November 30
and August 31, 1997, respectively 94,132 94,132
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 4,224,990 5,469,186
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,669,892 $ 9,794,239
================= ==================
See Note to Consolidated Financial Statements
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ITEM 1. FINANCIAL STATEMENTS (continued)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------------------
1997 1996
------------------- --------------------
REVENUES
Net sales $ 1,311,488 $ 3,553,919
Cost of sales 912,040 2,396,242
------------------- --------------------
GROSS MARGIN 399,448 1,157,677
Selling, general and administrative expense 1,626,045 1,232,123
------------------- --------------------
OPERATING LOSS (1,226,597) (74,446)
OTHER INCOME/ (EXPENSE)
Interest expense (118,616) (264,197)
Joint venture loss (27,706) (16,846)
Gain on disposal of assets - 2,363
Other income 24,567 218,026
------------------- --------------------
TOTAL OTHER INCOME (EXPENSE) (121,755) (60,654)
------------------- --------------------
LOSS BEFORE INCOME TAX EXPENSE (1,348,352) (135,100)
------------------- --------------------
INCOME TAX EXPENSE 1,600 1,600
------------------- --------------------
LOSS BEFORE MINORITY INTEREST (1,349,952) (136,700)
MINORITY INTEREST 105,756 (32,532)
------------------- --------------------
NET LOSS $ (1,244,196) $ (169,232)
=================== ====================
LOSS PER SHARE $ (.01) $ *
=================== ====================
WEIGHTED AVERAGE SHARES OUTSTANDING 125,127,847 120,774,778
=================== ====================
* Less than $.01 per share
See Note to Consolidated Financial Statements
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ITEM 1. FINANCIAL STATEMENTS (continued)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER
30,
-------------------------------------
1997 1996
---------------- -----------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $ (1,244,196) $ (169,232)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 198,313 191,323
Gain on sale of equipment - 2,363
Minority interest (105,756) 32,532
Joint venture loss 27,706 16,846
Changes in assets and liabilities net of effects of acquisition and joint
venture:
(Increase) decrease in accounts receivable 78,112 (829,673)
Increase in inventories (114,752) (318,499)
Increase in prepaid expenses and other (5,199) (61,120)
Increase in accounts payable 118,214 496,796
Decrease in income taxes payable (38,600) -
Increase in accrued liabilities 30,871 55,891
---------------- -----------------
TOTAL ADJUSTMENTS 188,909 (413,541)
---------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (1,055,287) (582,773)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment (82,382) (106,718)
Proceeds from sale of equipment - 2,500
Increase investment in joint venture (21,000) (21,000)
(Increase) decrease in notes receivable 62,703 (181,363)
---------------- -----------------
NET CASH USED BY INVESTING ACTIVITIES (40,679) (306,581)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under notes payable - related parties 1,350,000 75,000
Borrowings under capitalized lease and other long-term obligations 21,855 154,365
Payments on capitalized lease and other long term obligations (90,816) (178,644)
Borrowings on line of credit 2,390,743 4,528,931
Payments on line of credit (2,561,501) (3,692,183)
---------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,110,281 887,469
---------------- -----------------
NET INCREASE (DECREASE) IN CASH 14,315 (1,885)
CASH, BEGINNING OF YEAR 26,143 34,872
---------------- -----------------
CASH, END OF YEAR $ 40,458 $ 32,987
================ =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Interest paid $ 70,039 $ 166,632
================ =================
Income taxes paid $ 1,600 $ 1,600
================ =================
See Note to Consolidated Financial Statements
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GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
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, 1997, as filed with the
Securities and Exchange Commission.
Net Loss Per Common Share - net loss per common share was determined by dividing
net loss, by applicable weighted average shares outstanding.
THREE MONTHS ENDED
NOVEMBER 30,
--------------------------------------------
1997 1996
------------------- ---------------------
Net loss $ (1,244,196) $ (169,232)
=================== =====================
Weighted average number of shares outstanding
125,127,847 120,774,778
=================== =====================
Common stock equivalents and stock held in escrow have been included in the
computation for the three months ended November 30, 1997 and 1996. The common
stock equivalents that have been included in the computation for loss 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
anti-dilutive and, accordingly, are not included in the computation of loss per
share.
Reclassification - Certain reclassifications have been made to conform prior
years' information with the current year presentation.
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 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
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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 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.
THREE MONTHS ENDED NOVEMBER 30, 1997, COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 1996.
NET SALES - Net sales for the three months ended November 30, 1997, decreased
$2,242,431 to $1,311,488 from $3,553,919 for the same period last year. The
decrease is due to the loss of sales arising from the sale of the
radiopharmaceutical business on April 7, 1997, and lower sales recorded at
Quality Care Pharmaceuticals, Inc. ("QCP") and Pharma Labs, LLC ("Pharma Labs").
Last year's first quarter results included $995,787 in sales from the
radiopharmaceutical business. QCP recorded net sales of $1,216,907 in the first
quarter of fiscal 1998 compared to $1,880,390 in the same period last year. The
lower level of sales was due to the loss of a private label customer and
substantially lower diet drug business. Pharma Labs sales in the first quarter
of fiscal 1998 were $94,581 compared to $677,742 in the same period last year
due to a decline in sales to Vietnam caused by the poor performance of our
distributor and continuing economic turmoil in Vietnam.
COST OF SALES - Cost of goods sold as a percentage of sales was 69.5% in the
first quarter of fiscal 1998 compared to 67.4% for the comparable quarter last
year. This increase is attributable to the loss of gross margin from the sale of
the Company's radiopharmaceutical business and lower gross margin at Pharma Labs
due to the lower sales volume, offset somewhat by higher gross margins at QCP.
QCP's gross margins improved during the current period due to the loss of a
lower margin private label customer.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
expenses (SG&A) increased to $1,626,045 in the first quarter of fiscal 1998 from
$1,232,123 during the same quarter last year. QCP's SG&A increased to $1,166,743
from $650,225 in the prior year due to increased spending on staffing and
infrastructure costs to support QCP's long term growth program. Pharma Labs'
SG&A was $211,313 compared to $271,887 in the prior year as a result of lower
business volume in the current year. Golden's SG&A decreased to $247,989
compared to $310,011 in the prior year due to the sale of the
radiopharmaceutical business.
NET LOSS - As a result of the factors described above, the Company reported a
net loss of ($1,244,196) for the three months ended November 30, 1997, as
compared to a net loss of ($169,232) for the three months ended November 30,
1996. Losses from operations were $1,226,597 in the first quarter of fiscal 1998
compared to operating losses of $74,446 for the same quarter last year. QCP's
operating losses increased to ($759,265) from ($157,774) in the prior year due
to lower sales volume and higher SG&A expenses. Pharma Labs' operating loss was
($219,343) compared to an operating loss of ($111,307) in the prior year due to
the lower sales volume. GPI's operating losses were ($247,989) compared to an
operating profit of $194,635 in the comparable period as a result of the loss of
revenue due to the sale of the radiopharmaceutical business.
The first quarter net loss also includes interest expense of $118,616
and joint venture losses of $27,706 from the Company's equity investment in
RxDirect. In addition, the Company also had other income of $24,567 compared to
$218,026 in other income last year. Fiscal 1997 first quarter other income
included $181,363 in revenue due under the terms of the June 14, 1996, Guarantee
Agreement with Pharma Labs' joint venture partners.
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LIQUIDITY AND CAPITAL RESOURCES
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 November
30, 1997, as compared to August 31, 1997.
NOVEMBER 30, AUGUST 31,
1997 1997
------------------- ---------------------
Current Assets $ 3,249,872 $ 3,256,421
Current Liabilities 4,418,626 3,132,407
=================== =====================
Net Working Capital $ (1,168,754) $ 124,014
=================== =====================
At November 30, 1997, current liabilities were $4,418,626 compared to $3,132,407
at August 31, 1997. This increase was due primarily to an increase of $1,350,000
in notes payable to shareholders and directors of the Company. The proceeds from
the notes payable were used primarily to fund the Company's negative cash flow
from operations during the first quarter of fiscal 1998 and to pay down its
Revolving Facility (defined below) by $170,758, which resulted in a balance
under the Credit Facility of $572,410 at November 30, 1997.
During the first quarter of fiscal 1998, the Company experienced increased
expenses compared to the same period last year due to its expansion and
development efforts including: (i) expansion of QCP's sales department including
the addition of key sales executives; (ii) expansion of QCP's sales operations
in the eastern states; (iii) development of a telemarketing division at QCP; and
(iv) the expansion of QCP's information systems and programming department. The
Company believes this expansion program will continue to require significant
up-front expenditures both to service its existing business and to develop new
lines of business.
Prior to September 1997, the Company's primary source of funds for working
capital was the Company's revolving facility with its principal bank ("Bank").
This facility is payable at the Bank prime rate plus 2% and expires in August
2000. At November 30, 1997, the balance outstanding was $572,410, and the
interest rate under the Revolving Facility was 10.5%. The Revolving Facility is
collateralized by the Company's accounts receivable and inventory, and the
availability under the Revolving Facility is determined based on eligible
accounts receivable and inventory. As a result of the Company's poor sales
performance in the first quarter of fiscal 1998, borrowing capacity under the
$2,500,000 Revolving Facility was limited to $622,873 at November 30,1997.
At November 30, 1997, the Company was not in compliance with certain covenants
of the Revolving Facility, including the breach of loan covenants regarding debt
service, interest coverage and net income. As a result of the default, the Bank
has the right to terminate the Revolving Facility, declare the outstanding
balance due and payable, and seek other rights and remedies specified in the
Revolving Facility agreement. To date, the Bank has not exercised its right to
terminate. The Company is currently renegotiating the terms of the Revolving
Facility with the Bank including amendments to remedy the non-compliance issues.
However, there can be no assurance that the amendment will be available on terms
acceptable to the Company, if at all. The Company is also seeking alternative
financing sources, but has no commitments for such alternative financing in
place.
As a result of the Company's inability to borrow sufficient amounts under the
Revolving Facility for operations, the Company was required to obtain financing
through the issuance of notes payable to certain shareholders and directors of
the Company. The amounts outstanding through the issuance of these notes payable
were $615,000 ($575,000 payable to Charles R. Drummond; $40,000 payable to Arch
G. Gothard, III) and $1,965,000 ($1,425,000 payable to Charles R. Drummond;
$540,000 payable to Arch G. Gothard, III) at August 31, 1997, and November 30,
1997, respectively.
FUTURE OPERATIONS - During the second quarter of fiscal 1998, the Company
expects net sales to be below the sales level recorded during the same quarter
of fiscal 1997. In addition to the loss of sales arising from the sale of the
radiopharmaceutical business, lower sales are
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anticipated at QCP and Pharma Labs in the second quarter of fiscal 1998. QCP's
diet drug sales are expected to be substantially below the prior year level due
primarily to the withdrawal of certain diet drugs from the market. Sales to diet
clinics represented a substantial portion of QCP's sales during fiscal 1997.
During the second quarter of fiscal 1998, Pharma Labs sales are expected to be
below the prior year due to continued poor performance of its Vietnam
distributor and due to continuing economic turmoil in Vietnam.
As a result of the expected decrease in sales and continued spending on
expansion, cash flow from operations will not be sufficient to meet the
Company's cash requirements during fiscal 1998. As it is not anticipated that
availability under the Revolving Facility will be sufficient, the Company is
seeking to raise additional capital in order to fund its ongoing operations and
the continued expansion of QCP. In Fiscal 1997 and 1998, the Company received
loans from certain shareholders and directors to fund its cash requirements;
however management is actively seeking other sources of financing. To date, the
Company does not have any commitments with respect to such financing and there
can be no assurance that financing will be available to the Company on terms
acceptable to the Company, if at all. If the Company is unable to obtain
financing, it will be forced to terminate its expansion activities, curtail
certain existing operations and substantially reduce SG&A. These activities
would have a material adverse effect on the Company's business and financial
condition.
During the first quarter of fiscal 1998, in order to fund its operations, the
Company borrowed $1,350,000 from certain shareholders and directors of the
Company. Subsequent to November 30, 1997, an additional $795,000 was borrowed
from Mr. Charles Drummond. The borrowings are evidenced by unsecured demand
notes, which have a variable interest rate of 2% over Bank prime. The majority
of the loans are not callable prior to August 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
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.
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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: January 19, 1998 BY: /s/ Gary P. Pryor
-----------------------------
Gary P. Pryor
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EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule