UNITED STATES
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 PERIOD ENDED SEPTEMBER 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________
TO _____________
Commission File Number: 0-27088
SANO CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 650263022
- ------------------------------- ------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3250 COMMERCE PARKWAY
MIRAMAR, FLORIDA 33025
- ----------------------------- --------------------------
(Address of principal (Zip Code)
executive offices)
(954) 430-3340
------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 Exchange Act of 1933 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value 9,242,364 shares as of November 13, 1996.
<PAGE>
SANO CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -- September 30, 1996 and December 31, 1995
Statements of Operations -- Three and nine months ended September 30, 1996
and 1995
Statements of Cash Flows -- Nine months ended September 30, 1996 and 1995
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Page 2
<PAGE>
FINANCIAL STATEMENTS
ITEM 1.
SANO CORPORATION
BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31,
1996 1995
------------ ------------
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 3,647,737 $ 5,517,061
Marketable securities 25,388,685 22,782,221
Other current assets 413,820 320,401
------------ ------------
Total current assets 29,450,242 28,619,683
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 9,815,633 5,304,167
------------ ------------
OTHER ASSETS
Patents, net 313,327 236,815
Deposits and other 884,718 463,838
------------ ------------
Total other assets 1,198,045 700,653
------------ ------------
TOTAL ASSETS $ 40,463,920 $ 34,624,503
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 508,760 $ 213,816
Current obligation under capitalized leases 37,268 33,429
Accounts payable 732,719 696,015
Accrued expenses 1,695,181 647,871
------------ ------------
Total current liabilities 2,973,928 1,591,131
------------ ------------
LONG TERM LIABILITIES
Deferred revenue 3,318,509 1,451,655
Capitalized lease obligations, net of current
portion 21,453 48,990
Note payable -- 473,024
------------ ------------
Total long term liabilities 3,339,962 1,973,669
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 5,000,000 -- --
authorized, none issued or outstanding
Common stock $0.01 par value, 25,000,000
shares authorized, 9,241,096 and 9,206,932
issued and outstanding at September 92,411 92,069
30, 1996 and December 31, 1995
respectively
Additional paid-in-capital 45,393,268 45,354,225
Accumulated deficit (11,335,649) (14,386,591)
------------ ------------
Total stockholders' equity 34,150,030 31,059,703
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,463,920 $ 34,624,503
============ ============
SEE ACCOMPANYING NOTES
Page 3
<PAGE>
<TABLE>
<CAPTION>
SANO CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $15,000,000 $ -- $15,000,000 $ --
----------- ----------- ----------- -----------
OPERATING EXPENSES
Research and development 4,326,524 2,893,247 10,161,958 6,418,723
General and administrative 1,603,053 182,349 2,693,919 603,729
----------- ----------- ----------- -----------
Total operating expenses 5,929,577 3,075,596 12,855,877 7,022,452
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 336,967 36,608 975,287 88,418
Interest and other expense (14,082) (32,043) (68,468) (72,326)
----------- ----------- ----------- -----------
Total other income (expense) 322,885 4,565 906,819 16,092
----------- ----------- ----------- -----------
NET INCOME (LOSS) 9,393,308 (3,071,031) 3,050,942 (7,006,360)
Dividends on redeemable preferred
stock -- (279,791) -- (658,973)
----------- ----------- ----------- -----------
Net income (loss)attributable to
common stockholders $ 9,393,308 $(3,350,822) $ 3,050,942 $(7,665,333)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
SHARE (NOTE 2):
Primary $ 0.91 $ (0.54) $ 0.30 $ (1.24)
=========== =========== =========== ===========
Fully diluted $ 0.90 $ (0.54) $ 0.29 $ (1.24)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES:
Primary 10,341,000 6,217,000 10,329,00 6,175,000
=========== =========== =========== ===========
Fully diluted 10,423,000 6,217,000 10,402,000 6,175,000
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
Page 4
<PAGE>
SANO CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,050,942 $(7,006,360)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 518,082 307,103
Loss on sale of equipment 16,640 --
Accretion of discount on
marketable securities (246,106) --
Interest accrued on notes
payable 51,617 68,375
Changes in operating assets and
liabilities:
Increase in other current assets (93,419) (93,574)
Decrease (increase) in
deposits and other (420,880) 34,860
Increase in accounts payable
and accrued expenses 1,084,014 1,629,760
------------ -----------
Net cash provided
by (used in) operating
activities 3,960,890 (5,059,836)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,006,517) (3,006,144)
Sale of equipment 2,200 --
Sale and maturities of
marketable securities 20,022,819 --
Purchase of marketable securities (22,383,177) --
Expenditures for patents (118,383) (106,193)
------------ -----------
Net cash (used in)
investing activities (7,483,058) (3,112,337)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (426,802) --
Proceeds from notes payable 173,407 1,185,758
Collection of notes
receivable from Stockholders -- 13,000
Advances from distributor 1,866,854 432,725
Proceeds from exercise of
stock options 39,385 --
Proceeds from issuance of
preferred stock series E -- 5,096,511
------------ -----------
Net cash provided by
financing activities 1,652,844 6,727,994
------------ -----------
Net decrease in cash and cash
equivalents (1,869,324) (1,444,179)
Cash and cash equivalents at
beginning of period 5,517,061 2,585,918
------------ -----------
Cash and cash equivalents at
end of period $ 3,647,737 $ 1,141,739
============ ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITIES:
Accrued interest on redeemable
preferred stock $ -- $ 658,973
============ ===========
Capitalized leases $ -- $ 53,016
============ ===========
In November 1995, in connection with the initial public offering, the
Company effected a 5 for 6 reverse stock split of its common stock and all
preferred stock was converted into 3,797,213 shares of common stock.
SEE ACCOMPANYING NOTES
Page 5
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(1) BASIS OF PRESENTATION:
The information at September 30, 1996 and for the nine months ended September
30, 1996 and 1995 is unaudited. However, such information includes all
adjustments (consisting of normal recurring adjustments) which in the opinion of
management of Sano Corporation (the "Company") believes are necessary for a fair
financial presentation of the results for the periods presented. The results of
operations and cash flows for the nine month period ended September 30, 1996 are
not necessarily indicative of results of operations and cash flows to be
expected for the entire year or any subsequent period. These financial
statements should be read in conjunction with the audited financial statements
for the year ended December 31, 1995.
In November 1995, in connection with its initial public offering, the Company
effected a 5 for 6 reverse stock split of its common stock and all preferred
stock was converted into 3,797,213 shares of common stock.
(2) DEFERRED REVENUE:
In 1994, the Company entered into an agreement with a distribution company
pursuant to which such distribution company agreed to pay certain product
development fees in exchange for the right to distribute certain products in
development by the Company. In 1994, fees under this agreement of $228,025, were
classified as other income in the statement of operations. In May 1995, the
agreement was modified whereby any monies received by the Company would be
repaid out of future gross profits of certain products developed by the Company
and distributed by the distribution company. Accordingly, the Company expensed
as research and development expense, amounts previously received aggregating
$228,025 and reported such amount and current year receipts as deferred revenue.
(3) NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share is determined by dividing the net income
(loss) attributable to holders of the Company's common stock by the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding after applying the treasury stock method and after giving effect to
the reverse stock split effected in November 1995 and the conversion into common
stock of all outstanding preferred stock in connection with the Company's
initial public offering. For loss periods, common stock equivalents do not
include the issuance of stock options and warrants because their effect would be
anti-dilutive.
Page 6
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
CONTINUED
(4) STOCK OPTION PLAN:
During 1993, the Board of Directors of the Company adopted the Sano Corporation
1993 Nonqualified Stock Option Plan (the "1993 Plan") which has been approved by
the Company's stockholders. All directors, officers, employees and certain
related parties of the Company designated by the Board are eligible to receive
options under the 1993 Plan. The 1993 Plan provides for the granting of stock
options for the purchase of up to 1,224,083 shares of the Company's common
stock. The 1993 Plan is administered by the stock option committee of the Board
of Directors of the Company. The 1993 Plan was established on May 5, 1993 and
terminates on May 4, 2003. The purchase price per share of stock purchased under
an option pursuant to the 1993 Plan is determined by the Board, but in no event
may such price be below the fair market value of such stock. The maximum term of
any option is ten years from the date of grant. All options terminate within 120
days of termination of employment.
In September 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Plan") which provides for the granting of stock options to employees, officers,
directors and independent contractors for the purchase of up to 500,000 shares
of the Company's common stock. Options granted under the 1995 Plan may be
incentive stock options or nonqualified options. Additionally, under the 1995
Plan, each non-employee director shall receive on the date of his appointment as
director an option to purchase 5,000 shares of common stock, and each subsequent
year an option to purchase 5,000 shares of common stock upon the release of
prior year earnings.
The 1995 Plan provides for immediate vesting of options in the event of certain
changes in control of the Company.
The following is a summary of stock option activity:
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- --------------
Outstanding at December 31, 1995 1,272,500 $ .67 - 11.50
Granted 326,250 11.88 - 16.75
Exercised (34,164) .67 - 3.60
Canceled (99,057) 1.50 - 16.75
--------- --------------
Outstanding at September 30, 1996 1,465,529 $ .67 - 16.75
========= ==============
Options exercisable at
September 30, 1996 941,423 $ .67 - 14.38
========= ==============
Shares of common stock
available for future grants
at September 30, 1996 224,390
=========
Page 7
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
CONTINUED
(5) LEGAL PROCEEDINGS:
On March 6, 1996, Key Pharmaceuticals, Inc. ("Key") filed a complaint in
the United States District Court of Florida alleging that one of the Company's
transdermal nitroglycerin patches, for which the Company had filed an
Abbreviated New Drug Application with the U.S. Food and Drug Administration,
infringed certain patents owned by Key. The Company had previously obtained
non-infringement opinions with regard to its product and believes that there is
no merit to the allegations in the complaint. The Company has filed an answer
and counterclaim to the complaint and intends to vigorously defend this lawsuit.
(6) AGREEMENT WITH BRISTOL-MYERS SQUIBB:
In August 1996, the Company entered into an exclusive worldwide
distribution and supply agreement with Bristol-Myers Squibb Company ("BMS") and
received a $15 million license payment. Because the $15 million license payment
is non-refundable and the Company has no further obligations related to the
license payment, such amount has been recognized as revenue. Any milestone
payments Sano may receive under the BMS agreement will also be recorded as
revenue upon the achievement of the related milestones. An advance to be
received from BMS to fund the purchase of production equipment will be reflected
as deferred revenue and recognized as revenue as sales of the products are made
and related royalties are earned.
The Company was classified as a development stage company until the third
quarter of 1996, during which it began to generate revenue through its receipt
of the $15 million license payment under its agreement with BMS.
(7) EMPLOYMENT AGREEMENTS:
In October 1996, the employment agreements between the Company and each of
Charles Betlach, Cheryl Gentile, Jesus Miranda and Joseph Gentile were amended
to provide for an additional employment term of three years and provide for
increased base salaries of $150,000, $135,000, $135,000 and $150,000,
respectively, for 1997, from $110,000, $97,000, $97,000 and $110,000
respectively, for 1996.
Pursuant to the employment agreements between the Company and Marc M.
Watson and Reginald Hardy, the Company increased the base salaries paid to each
of them to $185,000 for 1997 from $135,000 and $145,000 respectively, for 1996.
(8) PUBLIC OFFERING:
In October 1996, the Company filed a registration statement with the
Securities and Exchange Commission regarding a public offering of 2,150,000
shares of its common stock. Of the 2,150,000 shares of common stock, 1,250,000
are being offered by the Company, and 900,000 shares are being offered by
certain selling shareholders, including members of the Company's management. The
Company will not receive any of the proceeds from the sale of common stock by
selling shareholders. Certain selling shareholders have granted the underwriters
an option to purchase an additional 322,500 shares of common stock pursuant to
an overallotment option.
Page 8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Since its commencement of operations in October 1992, the Company has devoted
substantially all of its resources to drug delivery research and development
programs and now has nine Proprietary Products and ten Generic Products in
various stages of development. The Company was classified as a development stage
company until the third quarter of 1996, when it began to generate revenue
through its receipt of a $15.0 million non-refundable license payment under its
agreement with BMS. At September 30, 1996, after giving effect to the receipt of
the payment from BMS, the Company had an accumulated deficit of $11.3 million,
resulting from expenses incurred in research and development, clinical trials,
facilities operations, the acquisition of supplies and, to a lesser extent,
general and administrative operations. The Company expects to incur losses at
least through 1997, which losses may be substantial. The Company's sources of
working capital have been an initial public offering, equity financings prior to
the initial public offering and, to a far lesser extent, interest earned on
investment of cash. In the near term, revenues are expected to consist
principally of revenues from license fees, milestone payments, research fees and
payments from other entities under collaborative marketing and other agreements,
which payments are likely to be irregular and unpredictable.
Under its product development agreement with PAR, the Company receives fees
from PAR with respect to the development of specified transdermal Generic
Products to which PAR wishes to obtain distribution rights. Prior to 1995, the
Company recorded the amounts received from PAR as product development fees.
Following a May 1995 modification of the original agreement, pursuant to which
the Company agreed to repay the amounts paid by PAR from the gross profits
derived from product sales, amounts received from PAR have been classified as
deferred revenue. As a result, $228,000 recorded in 1994 as product development
fees was charged to research and development expense in 1995 and a corresponding
amount was recorded as deferred revenue.
In August 1996, the Company entered into an exclusive worldwide distribution
and supply agreement with BMS and received a $15.0 million license payment.
Because the $15.0 million license payment is non-refundable and the Company has
no further obligations related to the license payment, that amount has been
recognized as revenue. Any milestone payments Sano may receive under the BMS
agreement will also be recorded as revenue upon the achievement of the related
milestones. An advance to be received from BMS to fund the purchase of
production equipment will be reflected as deferred revenue and recognized as
revenue as sales of the products are made and related royalties are earned.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
REVENUES. As a result of the August 1995 license payment under the BMS
agreement, the Company recognized revenue of $15.0 million for the three months
ended September 30, 1996. Prior to that time, the Company had recognized no
revenue.
RESEARCH AND DEVELOPMENT. The Company's research and development expenses
increased by $1.4 million, or 50%, to $4.3 million for the three months ended
September 30, 1996, from $2.9 million during the comparable period in 1995. This
increase is primarily attributable to the Company's increased clinical trial
expenses. The significant increase in laboratory and clinical activity required
by the number of products in development resulted in a $322,000 increase in
personnel and personnel related expenditures, a $175,000 decrease in consulting
and professional fees, a $451,000 increase in the cost of clinical trial
programs and a $648,000 increase in supplies, primarily consisting of chemical
supplies. In addition, operating overhead allocated to research and development
increased by $160,000 as a result of the expansion of the Company's facility and
increased rent, common area maintenance and taxes. All manufacturing expenses
incurred in production of supplies for clinical trials are included within
research and development expenses. The Company intends to continue to increase
its research and development expenditures. Actual expenditures will depend on,
among other things, the outcome of clinical testing of products under
development, delays or changes in required governmental testing and approval
procedures, technological and competitive development and strategic marketing
decisions.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased to
$1.6 million for the three months ended September 30, 1996 from $182,000 in the
comparable period of 1995. This increase was attributable to increases in
personnel
Page 9
<PAGE>
and personnel-related expenditures associated with the expansion of facilities
and administrative support for the Company's research and development efforts,
as well as increases in professional fees, principally the $1.0 million
investment banking fee incurred in connection with the BMS agreement and legal
fees incurred in connection with A patent lawsuit.
OTHER INCOME (EXPENSE). Interest income increased by $300,000 to $337,000 for
the three months ended September 30, 1996 from $37,000 in the comparable period
in 1995, as a result of the investment of the remaining proceeds of the
Company's initial public offering, and the $15.0 million non-refundable license
payment received in August from BMS. Interest and other expense was $14,082 for
the three months ended September 30, 1996 compared to $32,043 in the comparable
period in 1995. Interest and other expense principally reflects the accretion of
interest on a discounted note.
NET INCOME. As a result of the foregoing, the Company reported net income of
$9.4 million for the three months ended September 30, 1996, compared to a net
loss of $3.1 million in the comparable period in 1995.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
REVENUES. As a result of the August 1995 license payment under the BMS
agreement, the Company recognized revenue of $15.0 million for the nine months
ended September 30, 1996. Prior to that time, the Company had recognized no
revenue.
RESEARCH AND DEVELOPMENT. The Company's research and development expenses
increased by $3.7 million, or 58%, to $10.2 million for the nine months ended
September 30, 1996, from $6.4 million during the comparable period in 1995. This
increase is primarily attributable to the Company's increased clinical trial
expenses. The significant increase in laboratory and clinical activity required
by the number of products in development resulted in a $959,000 increase in
personnel and personnel related expenditures, a $1.1 million increase in the
cost of clinical trial programs and a $1.2 million increase in supplies,
primarily consisting of chemical supplies. In addition, operating overhead
allocated to research and development increased by $540,000 as a result of the
expansion of the Company's facility and increased rent, common area maintenance
and taxes. All manufacturing expenses incurred in production of supplies for
clinical trials are included within research and development expenses. The
Company intends to continue to increase its research and development
expenditures. Actual expenditures will depend on, among other things, the
outcome of clinical testing of products under development, delays or changes in
required governmental testing and approval procedures, technological and
competitive development and strategic marketing decisions.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased to
$2.7 million for the nine months ended September 30, 1996 from $604,000 in the
comparable period of 1995. This increase was attributable to increases in
personnel and personnel-related expenditures associated with the expansion
of facilities and administrative support for the Company's research and
development efforts, as well as increases in professional fees, principally the
$1.0 million investment banking fee incurred in connection with the BMS
agreement and legal fees incurred in connection with a patent lawsuit.
OTHER INCOME (EXPENSE). Interest income increased by $887,000 to $975,000 for
the nine months ended September 30, 1996 from $88,000 in the comparable period
in 1995, as a result of the investment of the remaining proceeds of the
Company's initial public offering, and the $15.0 million non-refundable license
payment received in August from BMS. Interest and other expense was $68,000 for
the nine months ended September 30, 1996 compared to $72,000 in the comparable
period in 1995. Interest and other expense principally reflects the accretion of
interest on a discounted note.
NET INCOME. As a result of the foregoing, the Company reported net income of
$3.1 million for the nine months ended September 30, 1996, compared to a net
loss of $7.0 million in the comparable period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.0 million for the nine
months ended September 30, 1996, compared to net cash used in operating
activities of $5.1 million in the comparable period of 1995. This increase
reflects the Company's receipt of $15.0 million in licensing revenue from BMS,
which more than offset increased cash outlays for clinical trials, payroll and
overhead.
The Company had capital expenditures of $5.0 million for plant and equipment
acquisitions and $118,000 in expenditures for patents during the nine months
ended September 30, 1996, compared to $3.0 million and $106,000, respectively,
for the same period in 1995.
Page 10
<PAGE>
Net cash provided by financing activities totaled $1.7 million for the nine
months ended September 30, 1996 compared to $6.7 million for the same period in
1995. The difference is primarily the result of the proceeds received from the
issuance of $5.1 million of preferred stock in the same period in 1995.
At September 30, 1996, the Company had working capital of $26.5 million
compared to working capital of $27.0 million at December 31, 1995. Cash and cash
equivalents and marketable securities were $29.0 million and $28.3 million at
September 30, 1996 and December 31, 1995, respectively.
Based on its current expectations of product development, the Company expects
to use approximately $8,000,000 in 1996 on capital improvements and purchases of
machinery and equipment. Based on its current expectations of product
development, the Company also anticipates using $5,000,000 to fund clinical
trials in 1996. Assuming it does not incur any unanticipated material expenses,
the Company believes that giving effect to the receipt of the estimated net
proceeds of the Secondary Offering (see note 8 to the unaudited financial
statements included elsewhere herein) it has enough working capital to fund
current operations and capital requirements through at least mid 1998.
The Company believes that it maintains certain technologies that are
relatively flexible and can be modified to apply to a variety of pharmaceutical
products. The Company is currently evaluating new product opportunities, which
include the formulation and commercialization of controlled release oral
pharmaceuticals. This advanced drug delivery system offers benefits similar to
the transdermal delivery system as compared to immediate release dosage forms.
These benefits include improved efficacy, increased patient compliance, and a
more consistent and appropriated drug level in the bloodstream. As of September
30, 1996, the Company has expended approximately $470,000 in research and
development expenses and $261,000 in capital expenditures relating to controlled
release oral pharmaceuticals.
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contains various "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933 which represent the
Company's intentions, expectations or beliefs concerning future events,
including, but not limited to, statements regarding management's expectations
with respect to FDA approval, the commencement of sales and the sufficiency of
the Company's cash flow for the Company's future liquidity and capital resource
needs. These forward looking statements are qualified by important factors that
could cause actual results to differ materially from those in the forward
looking statements, including, without limitation, the Company's ability to
continue to complete development and clinical trials of its products and
ultimately to obtain approval for the sale of such products from the FDA,
neither of which is assured. Results actually achieved may differ materially
from expected results included in these statements as a result of these or other
factors.
Page 11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Incorporated by reference to "Notes to Financial Statements Legal
Proceeding" in Part I of this Quarterly Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
- ------- -----------
10.1 1993 Non-Qualified Stock Option Plan of Registrant (1)
10.2 1995 Stock Option Plan of Registrant (1)
10.3 Form of Indemnification Agreement between the Registrant and
each of its directors and executive
officers (1)
10.4 Employment Agreement, dated as of September 20, 1995, between the
Registrant and Marc M. Watson (2)
10.5 Employment Agreement, dated as of September 20, 1995, between the
Registrant and Reginald L. Hardy (2)
10.6 Employment Agreement, dated as of May 31, 1993, between the
Registrant and Charles Betlach (1)
10.7 Employment Agreement, dated as of September 30, 1993, between the
Registrant and Cheryl Gentile, as amended (2)
10.8 Employment Agreement, dated as of May 28, 1993, between the
Registrant and Jesus Miranda, as amended (2)
10.9 Employment Agreement, dated as of September 30, 1993, between the
Registrant and Joseph Gentile (1)
10.10 Distribution Agreement, dated February 24, 1994, between the
Registrant and Pharmaceutical Resources, Inc. (1)
10.11 Lease Agreement, dated May 6, 1994, between the Registrant and
Sunbeam Properties, Inc. (3250 Commerce Parkway, Miramar, Florida
property) (1)
10.12 Lease Agreement, dated September10, 1994, between the Registrant and
Sunbeam Properties, Inc. (3251 Corporate Way, Miramar, Florida
property) (1)
10.13 Consulting Agreement dated January 7, 1994 between the Registrant and
Dr. Donald Robinson (2)
10.14(a) License Agreement dated October 28, 1994 by and between Dr. Jed E.
Rose, Dr. Edward D. Levin and Robert J. Schaap and the Registrant (3)
10.14(b) Amendment No. 1 dated May 15, 1996 to License Agreement dated
October 28, 1994 by and between Dr. Jed E. Rose, Dr. Edward D. Levin
and Robert J. Schaap and the Registrant (5)
10.15 Distribution and Supply Agreement for Transdermal Buspirone, dated
August 28, 1996, between the Registrant and Bristol-Myers Squibb
Company (5)
10.16 Letter agreement, dated May 8, 1995, between the Registrant and
Pharmaceutical Resources, Inc. and PAR Pharmaceutical, Inc. amending
the PAR Agreement (5)
10.17 Extension of Employment Agreement, dated October 24, 1996, between
the Registrant and Charles Betlach (4)
10.18 Extension of Employment Agreement, dated October 24, 1996, between
the Registrant and Cheryl Gentile (4)
10.19 Extension of Employment Agreement, dated October 24, 1996, between
the Registrant and Jesus Miranda (4)
10.20 Extension of Employment Agreement, dated October 24, 1996, between
the Registrant and Joseph Gentile (4)
10.21 Business Lease, dated September 11, 1996, between the Registrant and
Sunbeam Properties, Inc. (4)
10.22 Lease Extension and Amendment, dated September 11, 1996, between the
Registrant and Sunbeam Properties, Inc. (3251 Corporate Way, Miramar,
Florida property) (4)
10.23 Lease Extension and Amendment dated September 11, 1996, between the
Registrant and Sunbeam Properties, Inc. (3251 Corporate Way, Miramar,
Florida property) (4)
- -------------------------------
(1) Exhibit is incorporated by reference to an identically numbered
exhibit to the Company's Registration Statement on Form S-1, file
number 33-97194.
(2) Exhibit is incorporated by reference to an identically numbered
exhibit to the Company's Amendment No. 1 to Registration Statement on
Form S-1, file number 33-97194.
(3) Exhibit is incorporated by reference to an identically numbered
exhibit to the Company's Amendment No. 2 to Registration Statement on
Form S-1, file number 33-97194.
Page 12
<PAGE>
(4) Exhibit is incorporated by reference to an identically numbered
exhibit to the Company's Registration Statement on Form S-1, filed
October 25, 1996
(5) Exhibit is incorporated by reference to the Company's Current Report
on Form 8-K dated October 21, 1996.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the third quarter of 1996. On
October 21, 1996, the Company filed a report on Form 8-K dated May 15, 1996.
Page 13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: /s/ REGINALD L. HARDY
-------------------------
Dated: November 13, 1996 Reginald L. Hardy
PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
By: /s/ GERALD S. COOMBS
-------------------------
Dated: November 13, 1996 Gerald S. Coombs
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,647,737
<SECURITIES> 25,388,685
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 413,820
<PP&E> 10,892,242
<DEPRECIATION> (1,076,609)
<TOTAL-ASSETS> 40,463,920
<CURRENT-LIABILITIES> 2,973,928
<BONDS> 0
0
0
<COMMON> 92,411
<OTHER-SE> 34,057,619
<TOTAL-LIABILITY-AND-EQUITY> 40,463,920
<SALES> 0
<TOTAL-REVENUES> 15,000,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,929,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,082
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,393,308
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.90
</TABLE>
