<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-27354
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Global Pharmaceutical Corporation
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(Name of small business issuer in its charter)
Delaware 65-0403311
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Castor & Kensington Aves., Philadelphia, PA 19124-5694
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (215) 289-2220
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Not Applicable
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(Former name, former address, and former fiscal year,
if changed since last report.)
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 _____
As of July 31, 1997, the number of shares outstanding of each of the
issuer's classes of common equity was 4,286,871 shares of common stock ($0.01
par value).
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
BALANCE SHEET
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 965 $ 4,044
Prepaid expenses and other ............................ 68 49
Inventory ............................................. 112 --
-------- --------
Total current assets ............................. 1,145 4,093
Property, plant and equipment, net ......................... 4,245 4,135
Intangible assets .......................................... 1,177 1,177
Deferred financing costs, net .............................. 36 35
-------- --------
Total assets ..................................... $ 6,603 $ 9,440
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current portion of long-term debt ..................... $ 90 $ 90
Accounts payable ...................................... 127 383
Accrued expenses ...................................... 330 419
-------- --------
Total current liabilities ........................ 547 892
Long-term debt ............................................. 1,152 1,197
-------- --------
1,699 2,089
-------- --------
Commitments and contingencies
Stockholders' equity :
Preferred stock, $.01 par value, 2,000,000 authorized,
none issued ........................................ -- --
Common stock, $.01 par value, 10,000,000 authorized and
4,286,871 shares issued and outstanding ............ 43 43
Additional paid-in capital ............................ 19,407 19,407
Deficit accumulated during the development stage ...... (14,546) (12,099)
-------- --------
Total stockholders' equity ....................... 4,904 7,351
-------- --------
Total liabilities and stockholders' equity ....... $ 6,603 $ 9,440
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
STATEMENT OF OPERATIONS
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
April 20, 1993
Three Months Ended June 30, Six Months Ended June 30, (inception) to
--------------------------- ------------------------- June 30
1997 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
General and administrative $ 1,411 $ 1,239 $ 2,610 $ 2,072 $ 13,758
Debt conversion expense ... -- -- -- -- 47
Loss on sale of common
stock and warrants .. -- -- -- -- 938
Loss on sale of marketable
securities .......... -- -- -- -- 50
Interest expense .......... 7 8 20 20 489
Interest income ........... (21) (92) (63) (220) (438)
Other income .............. -- (1) (120) (158) (298)
----------- ----------- ----------- ----------- -----------
Net profit (loss) ......... $ (1,397) $ (1,154) $ (2,447) $ (1,714) $ (14,546)
=========== =========== =========== =========== ===========
Net profit (loss) per share $ (.33) $ (.27) $ (.57) $ (.40)
=========== =========== =========== ===========
Weighted average common
shares outstanding .. 4,286,871 4,286,871 4,286,871 4,252,877
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Deficit
accumulated Total
Common stock Additional during the stockholders'
Number of Par paid-in development equity
shares value capital stage (deficit)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Issuance of common stock and common stock warrants:
Inception (April 20, 1993) and stock and
warrants issued for purchase of Richlyn
facility (August 18, 1993) ............................ 1,217 $ 12 $ 42 $ -- $ 54
September 30, 1993 private placement ..................... 177 2 498 -- 500
December 15, 1993 sale of stock and warrants ............. 356 4 996 -- 1,000
Stock issued for services rendered ....................... 27 -- 75 -- 75
Warrants issued for services rendered .................... -- -- 3 -- 3
Exercise of warrants ..................................... 71 -- 250 -- 250
Net loss ...................................................... -- -- -- (1,040) (1,040)
-------- -------- -------- -------- --------
Balances at December 31, 1993 ................................. 1,848 18 1,864 (1,040) 842
Issuance of common stock:
September 1, 1994 private placement ...................... 84 1 479 -- 480
Stock issued for services rendered ....................... 10 -- 50 -- 50
Net loss ...................................................... -- -- -- (1,988) (1,988)
-------- -------- -------- -------- --------
Balances at December 31, 1994 ................................. 1,942 19 2,393 (3,028) (616)
Issuance of common stock:
Conversion of stockholder loans .......................... 297 4 2,473 -- 2,477
Stock and warrants issued to Merck KGaA .................. 150 1 299 -- 300
Sale of stock to Merck KGaA .............................. -- -- 938 -- 938
Initial public offering .................................. 1,650 16 11,472 -- 11,488
Net loss ...................................................... -- -- -- (4,463) (4,463)
-------- -------- -------- -------- --------
Balances at December 31, 1995 ................................. 4,039 40 17,575 (7,491) 10,124
-------- -------- -------- -------- --------
Issuance of common stock for over-allotment exercise
on January 29, 1996 ........................................... 248 3 1,832 -- 1,835
Net loss ...................................................... -- -- -- (4,608) (4,608)
-------- -------- -------- -------- --------
Balances at December 31, 1996 ................................. 4,287 43 19,407 (12,099)
7,351
Net loss ...................................................... -- -- -- (2,447) (2,447)
-------- -------- -------- -------- --------
Balances at June 30, 1997 ..................................... 4,287 $ 43 $ 19,407 $(14,546) $ 4,904
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
April 20,
Six months ended 1993
June 30, (inception)
---------------- to June 30,
1997 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................................ $ (2,447) $ (1,714) $(14,546)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization ............................... 191 110 844
Expenses paid through issuance of common stock and
warrants .................................................... -- --
128
Loss on sale of common stock and warrants ................... -- -- 938
Loss on debt conversion ..................................... -- -- 47
Loss on sale of marketable securities ....................... -- -- 50
Change in assets and liabilities:
Decrease due from/to related party ..................... -- 2 --
(Increase) in prepaid expenses and other assets ........ (20) (84) (65)
(Increase) in inventory ................................ (112) -- (112)
Decrease in note receivable from stockholders .......... -- -- 264
Increase (decrease) in accounts payable and
accrued expenses ....................................... (345) (390) (181)
-------- -------- --------
Net cash used for operating activities ............. (2,733) (2,076) (12,633)
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment ...................... (301) (809) (4,087)
Sales (purchases) of marketable securities ...................... -- -- (50)
-------- -------- --------
Net cash used for investing activities ............. (301) (809) (4,137)
-------- -------- --------
Cash flows from financing activities:
Long-term debt:
Borrowings .................................................. -- -- 1,596
Payments .................................................... (45) (131) (402)
Payment of financing costs .................................. -- -- (40)
Long-term debt, related party:
Borrowings .................................................. -- -- 2,755
Payments .................................................... -- -- (1,777)
Issuance of common stock and warrants:
September 30, 1993 private placement ........................ -- -- 500
December 15, 1993 sale of stock and warrants ................ -- -- 1,000
September 1, 1994 private placement ......................... -- -- 480
November 8, 1995 stock and warrants issued to Merck KA... -- -- 300
December 19, 1995 initial public offering ................... -- -- 11,488
January 29, 1996 sale of common stock ....................... -- 1,835 1,835
-------- -------- --------
Net cash provided by financing activities .......... (45) 1,704 17,735
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................. (3,079) (1,181) 965
Cash and cash equivalents, beginning of period ....................... 4,044 9,518 --
-------- -------- --------
Cash and cash equivalents, end of period ............................. $ 965 $ 8,337 $ 965
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest .......................................... $ 20 $ 20 $ 417
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
Six Months Ended
June 30, 1997 and June 30, 1996
When used in this discussion, the words "believes", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected.
The Company's business and results of operations are affected by a wide
variety of factors that could materially and adversely affect the Company and
its actual results, including, but not limited to, the ability to obtain
governmental approvals, the impact of competitive products and pricing, product
demand and market acceptance, new product development, reliance on key strategic
alliances, availability of raw materials and the regulatory environment. As a
result of these and other factors, the Company may experience material
fluctuations in future operating results on a quarterly or annual basis
(including, to the extent appropriate governmental approvals are not obtained,
the inability to manufacture and sell products), which could materially and
adversely affect its business, financial condition, operating results, and stock
price. An investment in the Company involves various risks, including those
referred to above and those which are detailed from time-to-time in the
Company's other filings with the Securities and Exchange Commission.
These forward-looking statements speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Note 1: The financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest annual report on Form 10-KSB.
The results of operations for the six months ended June 30, 1997, are not
necessarily indicative of the results of operations expected for the year ending
December 31, 1997.
In the opinion of management, the information contained in this report
reflects all adjustments necessary, which are of a normal recurring nature, to
present fairly the results for the interim periods presented.
6
<PAGE>
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The Company has generated no revenues to date and, from inception until
June 30, 1997, the Company accumulated a deficit of $14,546,000.
Since its inception, the Company has devoted substantially all of its
efforts to improving and renovating its manufacturing plant, equipment and
certain related assets (the "Facility"), establishing policies and procedures to
bring the Facility into compliance with Current Good Manufacturing Practices,
and obtaining all government approvals necessary to begin operating the
Facility. The Facility was not in operation during the six months ended June 30,
1997. The Company received on July 14, 1997 written notification from the United
States Food and Drug Administration ("FDA") indicating the Company's compliance
with Current Good Manufacturing Practices in the production of drugs at its
Facility in Philadelphia, PA. On August 6, 1997 the Company received approval
from the United States Drug Enforcement Agency ("DEA") licensing Global to
manufacture products in Classes II through V, thereby allowing the Company to
implement its niche strategy relating to controlled substances. The Company will
not start shipping its manufacturing products until the fourth quarter of 1997
and accordingly, Global is considered a development stage company as defined in
Financial Accounting Standards No. 7.
The Company's net loss for the three months ended June 30, 1997 was
$1,397,000 as compared to $1,154,000 in the same period in 1996.
General and administrative expenses were $1,411,000 in the quarter ended
June 30, 1997, as compared to $1,239,000 during the same period in 1996 due
primarily to increased payroll costs resulting from hiring of personnel
necessary to support the Company's infrastructure and recent FDA certification.
Interest income was $21,000 for the quarter ended June 30, 1997, as
compared to interest income of $92,000 during the quarter ended June 30, 1996,
due to a decrease in short term investments.
The Company's net loss for the six months ended June 30, 1997 was
$2,447,000 as compared to $1,714,000 in the same period in 1996.
General and administrative expenses were $2,610,000 in the six months ended
June 30, 1997, as compared to $2,072,000 during the same period in 1996 due
primarily to increased payroll costs resulting from hiring of personnel
necessary to support the Company's infrastructure and recent FDA certification.
Interest income was $63,000 for the six months ended June 30, 1997, as
compared to interest income of $220,000 during the same period in 1996, due to a
decrease in short term investments.
7
<PAGE>
Other income of $120,000 generated during the six months ended June 30,
1997 was due primarily to an amount received from a supplier for a claim filed
by the Company in 1996 relating to unacceptable materials purchased from the
supplier.
Liquidity and Capital Resources
On December 19, 1995, the Company completed its initial public offering
("IPO") of common stock, in which 1,650,000 shares of common stock were sold by
the Company for net proceeds of $11,488,000. An additional 247,500 shares of
common stock were sold to the underwriter of the IPO in January 1996, upon the
exercise of the underwriters' over-allotment option for net proceeds to the
Company of $1,835,000.
On July 29, 1997 the Company received a $758,000 loan from the Pennsylvania
Industrial Development Authority ("PIDA") at 3.75% annually fixed for 15 years
and a $350,000 loan from the Delaware River Port Authority ("DRPA") via the
Philadelphia Industrial Development Corporation ("PIDC") at 5% annually fixed
for 10 years. Both loans funded monies previously spent on capital projects and
are secured by land, building and building improvements.
The PIDA and DRPA/PIDC loans contain certain financial covenants which are
not effective until the Company commences operations. A portion of the loans'
proceeds was invested in interest bearing Certificates of Deposit owned by the
Company and pledged as additional collateral for these loans.
The Company has expended, and will continue to expend funds to purchase
production and laboratory equipment and to develop its manufacturing, sales and
marketing, and product development capabilities. The Company will require
additional funds in 1997 and 1998 for these purposes. Additional funds are
expected to be raised through subsequent equity or debt financings,
collaborative arrangements with corporate partners, or through other sources.
The Company is in the process of completing an initial closing of $1.2
million of its Series A Convertible Preferred Stock. The sale, which includes an
investment of an aggregate of $675,000 by certain officers and directors of the
Company, is part of a private placement by Global of up to $6 million of Series
A Preferred Stock. The Preferred Stock is convertible into Global common stock
at a predetermined formula, subject to certain antidilution provisions afforded
the investors.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None Applicable.
Item 2. Changes in securities: None Applicable
Item 3. Defaults Upon Senior Securities: None Applicable
Item 4. Submission of Matters to a Vote of Security Holders: None Applicable
Item 5. Other Information: None Applicable
Item 6. Exhibits and Reports on Form 8-K:
8
<PAGE>
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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.
GLOBAL PHARMACEUTICAL CORPORATION
By: /s/ MAX L. MENDELSOHN
--------------------------------------
President and Chief Executive Officer (Principal Executive
Officer)
By: /s/ CORNEL C. SPIEGLER
--------------------------------------
Chief Financial Officer, (Principal Financial
Vice President--Administration and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET (UNAUDITED) AND THE CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 965
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 112
<CURRENT-ASSETS> 1,145
<PP&E> 5,084
<DEPRECIATION> 839
<TOTAL-ASSETS> 6,603
<CURRENT-LIABILITIES> 547
<BONDS> 0
43
0
<COMMON> 0
<OTHER-SE> 4,904
<TOTAL-LIABILITY-AND-EQUITY> 6,603
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> (2,447)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,447)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> (.57)
</TABLE>
