<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
September 30, 1999
[ ] 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
--------------------------------------------
(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
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (215) 289-2220
Not Applicable
----------------------------------------------------
(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 November 4, 1999, the number of shares outstanding of
each of the issuer's classes of common equity was 7,254,053 shares of
common stock ($0.01 par value).
<PAGE>
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
GLOBAL PHARMACEUTICAL CORPORATION
BALANCE SHEET
(Unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,317 $ 1,304
Short term investments 973 0
Accounts receivable 3,138 1,088
Inventories 2,266 763
Prepaid expenses and other assets 242 51
------------- ------------
Total current assets 7,936 3,206
Property, plant and equipment, net 3,823 4,054
Intangible assets, net of accumulated amortization of $ 471 and $ 294 706 883
Deferred financing costs, net 23 26
Investments 635 684
------------- ------------
Total assets $ 13,123 $ 8,853
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 168 $ 161
Notes payable 1,131 804
Accounts payable 1,568 927
Accrued expenses 1,854 1,019
------------- ------------
Total current liabilities 4,721 2,911
Long-term debt 1,836 1,967
------------- ------------
6,557 4,878
------------- ------------
Mandatorily redeemable convertible Preferred Stock: Series A mandatorily
redeemable convertible Preferred Stock, 0 shares and 11,280 shares
outstanding at September 30, 1999 and December 31,
1998, respectively; $.01 par value, redeemable at $100 per share 0 1,128
Series B mandatorily redeemable convertible Preferred Stock, 0 and 43,255
shares outstanding at September 30, 1999 and December 31,
1998, respectively; $.01 par value, redeemable at $100 per share 0 4,326
Series C mandatorily redeemable convertible Preferred Stock, 9,000 shares
outstanding at September 30, 1999 and December 31,
1998, respectively; $.01 par value, redeemable at $100 per share 900 900
Series D mandatorily redeemable convertible Preferred Stock, 50,000 and 0
shares outstanding at September 30, 1999, and December 31,
1998, respectively; $.01 par value, redeemable at $100 per share 5,000 0
------------- ------------
5,900 6,354
------------- ------------
Stockholders' equity (deficit):
Common stock, $.01 par value, 17,000,000 authorized and 7,254,053 shares
issued and outstanding at September 30, 1999, and 10,000,000 authorized
and 4,656,097 shares issued and outstanding at December 31, 1998 73 47
Additional paid-in capital 25,027 20,165
Accumulated deficit (24,434) (22,591)
------------- ------------
Total stockholders' equity (deficit) 666 (2,379)
============= ============
Total liabilities and stockholders' equity (deficit) $ 13,123 $ 8,853
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF OPERATIONS
(unaudited)
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 2,738 $ 1,230 $ 6,955 $ 3,148
Cost of sales 1,743 1,134 4,963 3,389
---------- ----------- --------- ---------
Gross margin (loss) 995 96 1,992 (241)
Research and development 486 402 1,483 1,649
Selling, general and administrative 809 629 2,333 1,803
Other operating income, net (3) (29) (3) (381)
----------- ------------ ---------- ---------
Loss from operations (297) (906) (1,821) (3,312)
Interest expense 37 28 131 67
Interest income (37) (18) (109) (116)
=========== ============ ========= =========
Net loss $ (297) $ (916) $ (1,843) $ (3,263)
=========== ============ ========= =========
Less: Imputed dividend on preferred stock $ ----- $ ----- $ (1,474) $ -----
----------- ------------ --------- ---------
Net loss applicable to common stock $ (297) $ (916) $ (3,317) $ (3,263)
=========== ============ ========= =========
Net loss per share (basic) $ (.04) $ (0.20) $ (.47) $ (.74)
=========== ============ ========= =========
Net loss per share (diluted) $ (.04) $ (0.20) $ (.47) $ (.74)
=========== ============ ========= =========
Weighted average common shares
outstanding 7,254,053 4,472,934 7,083,171 4,405,001
=========== ============ ========= =========
</TABLE>
* The net loss per share for the nine months ended September 30, 1999, includes
a preferred stock dividend of $1,005,000 to reflect the Series D Preferred
Stock at its liquidation value and of $469,000 representing the difference
between the conversion price of $2.00 per share and the market value of the
Common Stock on the date of the issuance of the Preferred Stock.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Common Stock Total
------------------------ Additional Stockholders'
Number of Par paid-in Accumulated equity
shares value capital deficit (deficit)
----------- --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1997 4,287 43 19,311 (17,976) 1,378
Expenses relating to issuance of Series B Preferred
Stock ----- ---- (23) ----- (23)
Conversion of Series A and Series B Preferred Stock 369 4 877 ----- 881
Issuance of Preferred Stock (Series C) ----- ---- 140 ----- 140
Accretion of Preferred Stock dividend (Series C) ----- ---- (140) ----- (140)
Net loss ----- ---- ----- (4,615) (4,615)
----------- ----- ------------ --------- --------
Balances at December 31, 1998 4,656 47 20,165 (22,591) (2,379)
Conversion of Series A and Series B Preferred Stock 2,598 26 5,428 5,454
Expenses relating to issuance of Series C and Series D
Preferred Stock ----- ---- (566) ----- (566)
Issuance of Preferred Stock (Series D) ----- ---- 1,474 ----- 1,474
Accretion of Preferred Stock dividends (Series D) ----- ---- (1,474) ----- (1,474)
Net loss ----- ---- ----- (1,843) (1,843)
=========== ===== ============ ========= =========
Balances at September 30, 1999 7,254 $ 73 $ 25,027 $ (24,434) $ 666
=========== ====== ============ ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities: $(1,843) $(3,263)
Net loss
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 556 533
Expenses paid through issuance of warrants 0 10
Change in assets and liabilities:
(Increase) in accounts receivable (2,050) (1,163)
(Increase) in inventory (1,503) (258)
(Increase) in prepaid expenses and other assets (188) (7)
Increase (decrease) in accounts payable and accrued expenses 1,476 (108)
------- ------
Net cash used for operating activities (3,552) (4,256)
------- ------
Cash flows from investing activities:
Purchases of short-term investments (973) 0
Purchases of property, plant and equipment (148) (416)
------- -------
Net cash used for investing activities (1,121) (416)
------- -------
Cash flows from financing activities:
Repayments of long-term debt (124) (119)
Short-term debt borrowings 327 706
Redemption of investments 49 45
Issuance of Preferred Stock, net of expense 4,434 (32)
------- ------
Net cash provided by financing activities 4,686 600
------- ------
Net increase (decrease) in cash and cash equivalents 13 (4,072)
------- ------
Cash and cash equivalents, beginning of period $ 1,304 $ 4,719
------- ------
Cash and cash equivalents, end of period $ 1,317 $ 647
======= ======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 131 $ 67
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended
September 30, 1999 and September 30, 1998
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 nine months ended September 30, 1999, are not
necessarily indicative of the results of operations expected for the year ending
December 31, 1999.
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.
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". The Company's comprehensive income (loss) for the nine
months ended September 30, 1998 and 1999 is equal to its net loss for each
period as presented in the statement of operations.
Note 2: In the second quarter of 1999, the Company issued 50,000 shares
of Series D Convertible Preferred Stock for aggregate proceeds of $5,000,000. In
connection with the sale of Series D Convertible Preferred Stock the Company
issued 625,000 five-year warrants at an initial exercise price of $4.00. The
fair value of the warrants, using the Black-Scholes option pricing model of
$712,000 plus other issuance costs of $293,000 were deducted from the gross
proceeds. The difference between the net proceeds and the Series D Preferred
Stock at its liquidation value was recognized as an imputed Preferred Stock
dividend of $1,005,000.
At the option of the holder, each share of Series D Preferred Stock is
convertible into that number of shares of the Company's common stock as is
determined by dividing the liquidation value of $100 per share by the conversion
price. The conversion price is the lower of $2.00 per share or the average
closing sale price of the common stock for the five trading days immediately
preceding conversion. The difference between the $2.00 per share conversion
price and the market value of the common stock on the dates of the issuance of
Series D Preferred Stock was recognized as a Preferred Stock dividend of
$469,000 in the nine months ended September 30, 1999.
Note 3: On July 26, 1999, the Company entered into a definitive merger
agreement with Impax Pharmaceuticals, Inc. ("Impax"), a privately held drug
delivery company located in Hayward, California. Under the terms of the
agreement, Global will acquire all of Impax's outstanding stock in exchange for
an aggregate of 31,571,274 shares of Global's common stock and preferred stock.
This transaction will be accounted for as a reverse acquisition under the
purchase method of accounting with Impax deemed the acquirer. The merger is
expected to be completed in the fourth quarter of 1999, subject to approval by
stockholders and regulatory agencies, and customary closing conditions. The
company has filed a registration statement on Form S-4 (Registration Statement
No. 33390599) to register certain of the shares to be issued pursuant to the
merger.
6
<PAGE>
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 and
maintain governmental approvals on additional products, the ability to integrate
merged businesses and operations, the ability to adequately fund its operating
requirements, the impact of competitive products and pricing, product demand and
market acceptance, new product development, the funding of potential patent
infringement litigation, reliance on key strategic alliances, the 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.
General
During the three months ended September 30, 1999, the Company has
introduced to market several new products including Minocycline 50mg Capsules,
Hydrocortisone 20mg Tablets and three new strengths in the LIPRAM(TM) family of
Pancrelipase Capsules.
Results of Operations
The Company's net loss for the three months ended September 30, 1999,
was $297,000, compared to a net loss of $916,000 in the same period in 1998. The
decrease in the net loss was due primarily to increased revenues and lower
unabsorbed manufacturing overhead.
The net sales for the three months ended September 30, 1999, were
$2,738,000 compared to $1,230,000 in the three months ended September 30, 1998.
The increase in net sales in 1999 was due primarily to an increase in the number
of products and customers as compared to the same period in 1998.
The gross margin for the three months ended September 30, 1999, was
$995,000 compared to a gross margin of $96,000 in the three months ended
September 30, 1998, due primarily to higher sales and higher absorption of
manufacturing overhead by the increased production.
The research and development costs for the three months ended September
30, 1999, were $486,000 compared to $402,000 in the three months ended September
30, 1998. The increase was due primarily to higher material costs.
7
<PAGE>
The selling, general and administrative expenses were $809,000 for the
three months ended September 30, 1999, compared to $629,000 for the same period
in 1998. The increase of $180,000 over 1998 was due primarily to merger-related
expenses in connection with the proposed merger with Impax Pharmaceuticals, Inc.
and higher personnel and consulting costs.
The other operating income net was $3,000 for the three months ended
September 30, 1999, compared to $29,000 for the three months ended September 30,
1998. The decrease in other income was due to lower U.S. Ranitidine profit
distribution from Genpharm, Inc. in the third quarter of 1999.
The interest expense of $37,000 for the three months ended September
30, 1999, was $9,000 higher than the interest expense of $28,000 in the
comparable period in 1998, due to increased levels of borrowings, primarily for
working capital purposes.
The interest income was $37,000 for the three months ended September
30, 1999, compared to $18,000 in the same period of 1998 due to an increase in
investments in cash equivalents resulting from the proceeds from the sale of
Series D Convertible Preferred Stock.
The Company's net loss excluding charges of $1,474,000 related to
imputed stock dividends on the Company's Series D Convertible Preferred Stock
for the nine months ended September 30, 1999, was $1,843,000 as compared to a
net loss of $3,263,000 in the same period in 1998. The decrease in the net loss
was due primarily to increased revenues and lower unabsorbed manufacturing
overhead.
The net sales for the nine months ended September 30, 1999, were
$6,955,000 compared to $3,148,000 in the comparable period in 1998. The increase
in net sales in 1999 was due primarily to an increase in the number of products
and customers as compared to the same period in 1998.
The gross margin for the nine months ended September 30, 1999, was
$1,992,000 compared to a gross margin loss of ($241,000) in the nine months
ended September 30, 1998, due primarily to higher sales and higher absorption of
manufacturing overhead by the increased production.
The research and development costs for the nine months ended September
30, 1999, were $1,483,000 compared to $1,649,000 in the nine months ended
September 30, 1998,which included payments of $200,000 for development costs to
Eurand America.
The selling, general and administrative expenses were $2,333,000 for
the nine months ended September 30, 1999, compared to $1,803,000 for the same
period in 1998. The increase of $530,000 over 1998 was due primarily to
merger-related expenses in connection with the proposed merger with Impax
Pharmaceuticals, Inc. and higher personnel, advertising, travel and consulting
costs.
The other operating income net was $3,000 for the nine months ended
September 30, 1999, compared to $381,000 for the nine months ended September 30,
1998, due to lower U.S. Ranitidine profit distribution from Genpharm Inc. in
1999 as compared to 1998.
The interest expense was $131,000 for the nine months ended September
30, 1999, compared to $67,000 for the same period of 1998, due to increased
level of borrowings, primarily for working capital purposes.
The interest income was $109,000 for the nine months ended September
30, 1999, compared to $116,000 in the same period of 1998 due primarily to a
decrease in investments in cash equivalents in the first quarter of 1999.
8
<PAGE>
Liquidity and Capital Resources
In July 1997, the Company received a $758,000 loan from Pennsylvania
Industrial Development Authority ("PIDA") bearing annual interest of 3.75% for
15 years and a $350,000 loan from the Delaware River Port Authority ("DRPA") via
the Philadelphia Industrial Development Corporation ("PIDC") bearing annual
interest of 5.00% for 10 years. These loans are secured by land, building and
building improvements. A portion of the loans funded capital projects, with the
remaining proceeds invested in interest bearing certificates of deposit owned by
the Company and pledged as additional collateral.
The Company completed an initial closing of approximately $1.2 million of
its Series A Convertible Preferred Stock in August 1997, and a subsequent
closing of $150,000 in September 1997. In addition, the Company completed the
closing of $5 million of its Series B Convertible Preferred Stock in December
1997. The Company used the net proceeds from these offerings for working capital
purposes. As of March 2, 1999, all the shares of Series A and Series B Preferred
Stock were converted to common stock.
In July 1998, the Company entered into a revolving credit facility with
General Electric Capital Corporation ("GECC"), providing financing to the
Company of up to $5 million based on levels of accounts receivable and
inventory. Amounts borrowed under the credit facility bear interest, payable
monthly, at the Index Rate plus 4% per annum. The Index Rate is the latest rate
for 30-day dealer placed commercial paper published in the "Money Rates" section
of The Wall Street Journal. The Company also pays a fee of .125% per annum on
the unused available portion of the credit line. At September 30, 1999 the
Company had outstanding borrowings of $1,131,000 with additional availability of
approximately $1,900,000.
In November 1998, the Company issued 9,000 shares of Series C Convertible
Preferred Stock and a five year warrant to purchase 225,000 shares of common
stock at an initial exercise price equal to $4.00 per share, for proceeds of
$900,000. The proceeds were used for working capital purposes.
In the first half of 1999, the Company issued 50,000 shares of Series D
Convertible Preferred Stock and a five year warrant to purchase 625,000 shares
of common stock at an initial exercise price equal to $4.00 per share for
aggregate proceeds of $5,000,000. The proceeds of this private placement are
being used for research and development efforts, working capital and general
corporate needs.
The Year 2000 Issue
The Company's computer system and programs were designed in recent years
and concerns related to the Year 2000 issue were addressed at the time the
decision to purchase the system was made. During 1998, management initiated a
program to prepare the Company's computer systems, applications and other
equipment that may employ date sensitive embedded chips for the Year 2000. The
Company has been advised by its hardware and software vendors that all databases
used by current systems are Year 2000 compliant. The Company completed an
inventory of all computer hardware and software applications and successfully
tested their Year 2000 compliance. The Company completed its process of
addressing the Year 2000 issues with suppliers, service providers and other
constituents, and continues the process with its customers. During the nine
months ending September 30, 1999, the Company contracted with an outside firm
regarding contingency support for its computer hardware system and completed the
remaining areas of its contingency planning as of October 31, 1999. At this
time, the Company does not believe that the Year 2000 issue represents a
material event or uncertainty or that the cost of addressing the Year 2000 issue
is material to the Company's business, operations or financial condition.
9
<PAGE>
Risk of the Company's Year 2000 Issues
Achieving Year 2000 compliance is dependent on many factors, some of which
are not completely within the Company's control. There can be no assurance that
the Company will be able to identify all aspects of its business that are
subject to Year 2000 problems of customers or suppliers that affect the
Company's business. There also can be no assurance that the Company's software
vendors are correct in their assertions that the software is Year 2000
compliant, or that the Company's estimate of the costs of systems preparation
for Year 2000 compliance will prove ultimately to be accurate. Should either the
Company's internal systems or internal systems of one or more significant
suppliers or customers fail to achieve Year 2000 compliance, or the Company's
estimate of the costs of becoming Year 2000 compliant prove to be materially
inaccurate, the Company's business and its results of operations could be
adversely affected.
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:
a) Exhibit:
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/ BARRY R. EDWARDS
-------------------------------------
President and Chief Executive Officer (Principal
Executive Officer)
By: /s/ CORNEL C. SPIEGLER
-------------------------------------
Chief Financial Officer, (Principal
Vice President--Administration Financial and
Accounting Officer)
10
<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 NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,317
<SECURITIES> 973
<RECEIVABLES> 3,138
<ALLOWANCES> 0
<INVENTORY> 2,266
<CURRENT-ASSETS> 7,936
<PP&E> 5,731
<DEPRECIATION> 1,908
<TOTAL-ASSETS> 13,123
<CURRENT-LIABILITIES> 4,721
<BONDS> 0
<COMMON> 73
5,900
0
<OTHER-SE> 593
<TOTAL-LIABILITY-AND-EQUITY> 13,123
<SALES> 6,955
<TOTAL-REVENUES> 6,955
<CGS> 4,963
<TOTAL-COSTS> 4,963
<OTHER-EXPENSES> 3,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131
<INCOME-PRETAX> (3,317)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,317)
<EPS-BASIC> (.47)
<EPS-DILUTED> (.47)
</TABLE>
