SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
-----------------------
Date of Report (Date of earliest event reported):December 14, 1999
IMPAX LABORATORIES, INC. (formerly Global Pharmaceutical Corporation)
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 0-27354 65-0403311
- ---------------------------- ------------------------ ----------------------
<S> <C> <C>
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation or Identification Number)
organization)
</TABLE>
30831 Hayward Avenue
Hayward, California 94544
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(215) 289-2220
------------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
On December 14, 1999 Global Pharmaceutical Corporation ("Global") combined
with Impax Pharmaceuticals, Inc. ("Old Impax") through merger. Global, the
surviving corporation of the merger, changed its name and the combined company
is now known as Impax Laboratories, Inc. (the "Company"). The merger was
accounted for as a reverse acquisition of Global by Old Impax under the purchase
accounting method for financial reporting purposes in accordance with generally
accepted accounting principles. As a result of the merger, the Company's
financial condition and results of operations are being reported on the basis of
Old Impax's historical financial statements.
In the merger Global acquired all of the assets of Old Impax. These assets
were utilized in Old Impax's business of formulation and commercialization of
specialty and controlled-release oral pharmaceuticals utilizing proprietary and
non-proprietary drug delivery technologies. These technologies are being applied
initially to the development of generic versions of selected high sales volume,
controlled-release brand name pharmaceuticals.
As a result of arms-length negotiations between Global and Old Impax, on
the date of the merger the following shares of Global and Old Impax were
converted into capital stock for the Company:
o each outstanding share of Old Impax common stock, Series A preferred
stock and Series B preferred stock was converted into 3.3358 shares of
the Company's common stock.
o each outstanding share of Old Impax Series C preferred stock was
converted into 5.849 shares of the Company's common stock.
o every 20 outstanding shares of Old Impax Series D preferred stock was
converted into one share of the Company's Series 1-B preferred stock.
o each outstanding share of Global Series C preferred stock was
converted into 50 shares of the Company's common stock.
o each outstanding share of Global Series D preferred stock was
converted into one share of the Company's Series 1-A preferred stock.
In the merger the Company issued 17,103,094 shares of its common
stock,50,000 shares of its Series 1-A preferred stock (each share of which is
convertible into 2,500,000 shares of the Company's common stock) and 170,000
shares of Series 1-B Preferred Stock (each share of which is convertible into
11,341,720 shares of the Company's common stock).
2
<PAGE>
ITEM 7. Financial Statements and Exhibits
The following financial statements, pro forma financial information and
exhibits are being filed as part of this report:
(1) The following financial statements with respect to Old Impax, attached
hereto as Appendix I.
Balance Sheet as of December 31, 1998 and June 30, 1999 (unaudited)
Statements of Operations for the period from September 27, 1994 (Date
of Inception) to June 30, 1999, the years ended December 31, 1998 and
1997 and six months ended June 30, 1999 and 1998 (unaudited)
Statement of Cash Flows for the period from September 27, 1994 (Date of
Inception) to June 30, 1999, the years ended December 31, 1998 and 1997
and six months ended June 30, 1999 and 1998 (unaudited)
Statement of Changes in Shareholders' Equity from September 27, 1994 to
December 31, 1998 and for the six months ended June 30, 1999
(unaudited)
Notes to Financial Statements
(2) The following pro forma financial information with respect to the
Company, attached hereto as Appendix II.
Pro Forma Condensed Balance Sheet at June 30, 1999
Pro Forma Condensed Statement of Income for the year ended December 31,
1998 and the six months ended June 30, 1999
(3) Exhibits
Number Title
- ------ -----
2.1 Agreement and Plan of Merger, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and Impax Pharmaceuticals, Inc.*
3.1 Certificate of Designations of Series 1-A Convertible Preferred Stock
and Series 1-B Convertible Preferred Stock.*
- -------------
* Incorporated by reference to such exhibit previously filed with the
Company's Registration Statement on Form S-4 (Registration # 333-90599)
filed with the Securities and Exchange Commission on November 9, 1999.
3
<PAGE>
APPENDIX I
4
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
Of Impax Pharmaceuticals, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of Impax
Pharmaceuticals, Inc. (the Company) (a company in the development stage) at
December 31, 1998 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
August 6, 1999
5
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 589 $ 370
Short-term investments ................................................ 8,062 --
Prepaid expenses and other ............................................ 278 41
--------- ---------
Total current assets ................................................ 8,929 411
Property and equipment, net ............................................ 2,850 2,970
Other assets ........................................................... 109 27
--------- ---------
Total assets ....................................................... $ 11,888 $ 3,408
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Advances from shareholders ............................................ $ -- $ 80
Accounts payable ...................................................... 378 909
Accounts payable -- related party ..................................... -- 93
Accrued expenses ...................................................... 53 124
--------- ---------
Total current liabilities .......................................... 431 1,206
Accrued compensation ................................................... 520 520
--------- ---------
951 1,726
--------- ---------
Commitments and contingencies (Note 8) Shareholders' equity:
Redeemable Convertible Preferred Stock:
Series A, no par value, 1,600 shares authorized, 1,580
shares issued and outstanding at June 30, 1999 and December
31, 1998 (Liquidation value: $1,580) ............................... 1,580 1,580
Series B, no par value, 500 shares authorized, 429 shares issued
and outstanding (Liquidation value: $2,143) at June 30, 1999;
410 shares issued and outstanding (Liquidation value: $2,050)
at December 31, 1998 ............................................... 2,143 2,050
Series C, no par value, 600 shares authorized, 520 shares
issued and outstanding (Liquidation value: $4,559) at June 30,
1999 and December 31, 1998 ......................................... 4,276 4,276
Series D Subscriptions .............................................. -- 4,300
Series D, no par value, 3,400 shares authorized, 3,400
shares issued and outstanding (Liquidation value: $17,000) ......... 17,000 --
Common Stock, no par value, 15,000 shares authorized,
2,147 shares issued and outstanding at June 30, 1999 and
December 31, 1998 .................................................. 335 335
Additional paid-in capital ............................................ 2,227 422
Unearned compensation ................................................. (1,715) --
Accumulated deficit during development stage .......................... (14,909) (11,281)
--------- ---------
Total shareholders' equity ......................................... 10,937 1,682
--------- ---------
Total liabilities and shareholders' equity ......................... $ 11,888 $ 3,408
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
IMPAX PHARMACEUTICALS, INC. AND PREDECESSOR
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
September 27,
1994 (Date of For the Six Months
inception) to Ended June 30, Year Ended December 31,
June 30, ------------------------- -------------------------
1999 1999 1998 1998 1997
--------------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development ........... $ 14,193 $ 3,303 $ 1,730 $ 5,127 $ 3,255
Sales and marketing ................ 202 110 -- 92 --
General and administrative ......... 1,936 430 270 613 516
Other operating income
(expense), net ................... 948 -- -- 565 75
--------- -------- -------- -------- --------
Net loss from operations: (15,383) (3,843) (2,000) (5,267) (3,696)
Interest income ..................... 474 215 41 45 88
--------- -------- -------- -------- --------
Net loss ............................ $ (14,909) $ (3,628) $ (1,959) $ (5,222) $ (3,608)
========= ======== ======== ======== ========
Net loss per share:
Basic and diluted .................. $ (8.26) $ (1.69) $ (0.91) $ (2.43) $ (1.69)
========= ======== ======== ======== ========
Weighted average shares
outstanding ...................... 1,805 2,147 2,142 2,145 2,139
========= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
September 27, For the Six Months
1994 (Date of Ended June 30,
Inception) to ----------------------------
June 30, 1999 1999 1998
--------------- ------------ --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $ (14,909) $ (3,628) $(1,959)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation .......................................... 1,562 328 255
Loss on disposal of assets ............................ 24 -- 24
Accretion on short-term investments ................... (63) (63) --
Grant of stock options to non-employees ............... 73 -- --
Non-cash compensation charge (warrants and
options) ............................................ 350 90 --
Amortization of discount on credit notes .............. 89 -- --
Changes in operating assets and liabilities:
Receivables, deposits and prepaid expenses........... (387) (319) (1)
Accounts payable, other liabilities and
accrued expenses ................................... 1,045 (602) (125)
--------- -------- ---------
Net cash used in operating activities ............. (12,216) (4,194) (1,806)
--------- -------- ---------
Cash flows from investing activities:
Purchases of short term investments ..................... (14,210) (9,010) --
Sales and maturities of short term investments .......... 6,211 1,011 --
Purchase of property and equipment ...................... (4,436) (208) (1,250)
--------- -------- ---------
Net cash provided by (used in) investing
activities ....................................... (12,435) (8,207) (1,250)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from revolving credit notes from share-
holders ................................................ 715 -- 138
Proceeds from issuance of equity in predecessor ......... 2,511 -- --
Proceeds from issuance of Series A Preferred Stock
upon exercise of warrants .............................. 715 -- 60
Proceeds from issuance of Series C Preferred Stock....... 4,276 -- --
Proceeds from issuance of Series D Preferred Stock
Subscriptions .......................................... 4,300 -- --
Proceeds from issuance of Series D Preferred Stock. 12,700 12,700 --
Proceeds from issuance of Common Stock .................. 23 -- --
Proceeds from advances from shareholders ................ 965 -- --
Repayments of advances from shareholders ................ (965) (80) --
--------- -------- ---------
Net cash provided by financing activities 25,240 12,620 198
--------- -------- ---------
Net increase (decrease) in cash and cash equivalents ..... 589 219 (2,858)
Cash and cash equivalents, beginning of period ........... -- 370 3,248
--------- -------- ---------
Cash and cash equivalents, end of period ................. $ 589 $ 589 $ 390
--------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $ (5,222) $ (3,608)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation .......................................... 509 298
Loss on disposal of assets ............................ 24 --
Accretion on short-term investments ................... -- --
Grant of stock options to non-employees ............... 11 --
Non-cash compensation charge (warrants and
options) ............................................ 260 --
Amortization of discount on credit notes .............. 12 25
Changes in operating assets and liabilities:
Receivables, deposits and prepaid expenses........... (32) (27)
Accounts payable, other liabilities and
accrued expenses ................................... 905 421
-------- --------
Net cash used in operating activities ............. (3,533) (2,891)
-------- --------
Cash flows from investing activities:
Purchases of short term investments ..................... -- --
Sales and maturities of short term investments .......... -- 3,300
Purchase of property and equipment ...................... (1,591) (1,150)
-------- --------
Net cash provided by (used in) investing
activities ....................................... (1,591) 2,150
-------- --------
Cash flows from financing activities:
Proceeds from revolving credit notes from shareholders... 138 --
Proceeds from issuance of equity in predecessor ......... -- --
Proceeds from issuance of Series A Preferred Stock
upon exercise of warrants .............................. 715 --
Proceeds from issuance of Series C Preferred Stock....... -- 556
Proceeds from issuance of Series D Preferred Stock
Subscriptions .......................................... 1,300 3,000
Proceeds from issuance of Series D Preferred Stock....... -- --
Proceeds from issuance of Common Stock .................. 13 10
Proceeds from advances from shareholders ................ 373 282
Repayments of advances from shareholders ................ (293) (282)
-------- --------
Net cash provided by financing activities 2,246 3,566
-------- --------
Net increase (decrease) in cash and cash equivalents ..... (2,878) 2,825
Cash and cash equivalents, beginning of period ........... 3,248 423
-------- --------
Cash and cash equivalents, end of period ................. $ 370 $ 3,248
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
IMPAX PHARMACEUTICALS, INC. AND PREDECESSOR
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 27, 1994 (DATE OF INCEPTION)
THROUGH JUNE 30, 1999
(in thousands)
Pedecessor
Amount
------------
Inception (September 27, 1994) to
September 30, 1996:
Issuance of equity in predeccessor
entities from inception
(September 27, 1994) through
December 31, 1995 ....................... $ 3,010
Losses in predecessor entities
from inception though
December 31, 1995 ....................... (557)
Issuance of equity in predecessor
equity from January 1, 1996
through September 30, 1996 .............. 230
Losses in predecessor entity
from January 1, 1996 through
September 30, 1996 ...................... (1,238)
---------
Balance of net equity before
reorganization at September 30, 1996 ...... 1,445
Equity transfer to Impax
Pharmaceuticals, Inc. in a
reorganization on September 30, 1996...... (1,445)
---------
Balance at September 30, 1996 .............. --
October 1, 1996 to December 31, 1996
Issuance of Series C Preferred
Stock for cash at $8.76 per
share, net of issuance costs of $274 ..... --
Net loss from October 1, 1996
to December 31, 1996 ..................... --
---------
Balance at December 31, 1996 ............... --
<TABLE>
<CAPTION>
Convertible Redeemable Preferred Stock
-----------------------------------------------------------------------------------------
Series A Series B Series C Series D
Shares Amount Shares Amount Shares Amount Shares Amount
-------- -------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception (September 27, 1994) to
September 30, 1996:
Issuance of equity in predeccessor
entities from inception
(September 27, 1994) through
December 31, 1995 .................... -- $ -- -- $ -- -- $ -- -- $ --
Losses in predecessor entities
from inception though
December 31, 1995 .................... -- -- -- -- -- -- -- --
Issuance of equity in predecessor
equity from January 1, 1996
through September 30, 1996 ........... -- -- -- -- -- -- -- --
Losses in predecessor entity
from January 1, 1996 through
September 30, 1996 ................... -- -- -- -- -- -- -- --
----- ------ ----- ------- ----- ------- ----- -------
Balance of net equity before
reorganization at September 30, 1996 ... -- -- -- -- -- -- -- --
Equity transfer to Impax
Pharmaceuticals, Inc. in a
reorganization on September 30, 1996... 727 727 410 2,050 -- -- -- --
----- ------ ----- ------- ----- ------- ----- -------
Balance at September 30, 1996 ........... 727 727 410 2,050 -- -- -- --
October 1, 1996 to December 31, 1996
Issuance of Series C Preferred
Stock for cash at $8.76 per
share, net of issuance costs of $274 .. -- -- -- -- 456 3,720 -- --
Net loss from October 1, 1996
to December 31, 1996 .................. -- -- -- -- -- -- -- --
----- ------ ----- ------- ----- ------- ----- -------
Balance at December 31, 1996 ............ 727 727 410 2,050 456 3,720 -- --
</TABLE>
<TABLE>
<CAPTION>
Convertible
Redeemable
Preferred Stock
---------------- Deficit
Series D Accumulated
Preferred Stock Additional During the
Subscription Common Stock Paid-in Development
Amount Shares Amount Capital Stage Total
--------------- ------ ------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Inception (September 27, 1994) to
September 30, 1996:
Issuance of equity in predeccessor
entities from inception
(September 27, 1994) through
December 31, 1995 ..................... $ -- -- $ -- $ -- $ -- $ 3,010
Losses in predecessor entities
from inception though
December 31, 1995 ..................... -- -- -- -- -- (557)
Issuance of equity in predecessor
equity from January 1, 1996
through September 30, 1996 ............ -- -- -- -- -- 230
Losses in predecessor entity
from January 1, 1996 through
September 30, 1996 .................... -- -- -- -- -- (1,238)
----- ----- ----- -------- -------- --------
Balance of net equity before
reorganization at September 30, 1996 .... -- -- -- -- -- 1,445
Equity transfer to Impax
Pharmaceuticals, Inc. in a
reorganization on September 30, 1996.... -- 2,136 312 151 (1,795) --
----- ----- ----- -------- -------- --------
Balance at September 30, 1996 ............ -- 2,136 312 151 (1,795) 1,445
October 1, 1996 to December 31, 1996
Issuance of Series C Preferred
Stock for cash at $8.76 per
share, net of issuance costs of $274 ... -- -- -- -- -- 3,720
Net loss from October 1, 1996
to December 31, 1996 ................... -- -- -- -- (656) (656)
----- ----- ----- -------- -------- --------
Balance at December 31, 1996 ............. -- 2,136 312 151 (2,451) 4,509
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
IMPAX PHARMACEUTICALS, INC. AND PREDECESSOR
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD FROM SEPTEMBER 27, 1994 (DATE OF INCEPTION)
THROUGH JUNE 30, 1999
(in thousands)
Predecessor
Amount
-----------
Balance at December 31, 1996 ............ $ --
January 1, 1997 to December 31, 1997:
Issuance of Series C Preferred Stock
for cash at $8.76 per share net of
issuance costs of $4................... --
Proceeds from Series D Stock
Subscriptions ......................... --
Issuance of Common Stock upon
exercise of stock options for cash
at $1.67 per share..................... --
Net loss ............................... --
-----
Balance at December 31, 1997 ............ --
January 1, 1998 to December 31, 1998:
Issuance of Series A Preferred Stock
upon exercise of warrants for cash
at $1.00 per share..................... --
Issuance of Series A Preferred Stock
upon conversion of revolving
credit notes .......................... --
Proceeds from Series D Stock
Subscriptions ......................... --
Issuance of Common Stock upon
exercise of stock options for cash
at $2.50 per share..................... --
Grant of stock options to
non-employees ......................... --
Intrinsic value of warrants issued ..... --
Net loss ............................... --
-----
Balance at December 31, 1998 ............ --
January 1, 1999 to June 30, 1999
(unaudited):
Issuance of Series B Preferred Stock
in exchange for amounts payable
to Board member ....................... --
Issuance of Series D Preferred Stock
for cash at $5.00 per share............ --
Intrinsic value of options issued ...... --
Net loss ............................... --
-----
Balance at June 30, 1999 ................ $ --
=====
<TABLE>
<CAPTION>
Convertible Redeemable Preferred Stock
------------------------------------------------------------------------------
Series A Series B Series C Series D
Shares Amount Shares Amount Shares Amount Shares Amount
------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ............ 727 $ 727 410 $2,050 456 $3,720 -- $ --
January 1, 1997 to December 31, 1997:
Issuance of Series C Preferred Stock
for cash at $8.76 per share net of
issuance costs of $4................... -- -- -- -- 64 556 -- --
Proceeds from Series D Stock
Subscriptions ......................... -- -- -- -- -- -- -- --
Issuance of Common Stock upon
exercise of stock options for cash
at $1.67 per share..................... -- -- -- -- -- -- -- --
Net loss ............................... -- -- -- -- -- -- -- --
----- ------ ------ ------ ------ ------ ----- ------
Balance at December 31, 1997 ............ 727 727 410 2,050 520 4,276 -- --
January 1, 1998 to December 31, 1998:
Issuance of Series A Preferred Stock
upon exercise of warrants for cash
at $1.00 per share...................... 715 715 -- -- -- -- -- --
Issuance of Series A Preferred Stock
upon conversion of revolving
credit notes .......................... 138 138 -- -- -- -- -- --
Proceeds from Series D Stock
Subscriptions ......................... -- -- -- -- -- -- -- --
Issuance of Common Stock upon
exercise of stock options for cash
at $2.50 per share..................... -- -- -- -- -- -- -- --
Grant of stock options to
non-employees ......................... -- -- -- -- -- -- -- --
Intrinsic value of warrants issued ..... -- -- -- -- -- -- -- --
Net loss ............................... -- -- -- -- -- -- -- --
----- ------ ------ ------ ------ ------ ----- ------
Balance at December 31, 1998 ............ 1,580 1,580 410 2,050 520 4,276 -- --
January 1, 1999 to June 30, 1999
(unaudited):
Issuance of Series B Preferred Stock
in exchange for amounts payable
to Board member ........................ -- -- 19 93 -- -- -- --
Issuance of Series D Preferred Stock
for cash at $5.00 per share............. -- -- -- -- -- -- 3,400 17,000
Intrinsic value of options issued ...... -- -- -- -- -- -- -- --
Net loss ............................... -- -- -- -- -- -- -- --
----- ------ ------ ------ ------ ------ ----- ------
Balance at June 30, 1999 ................ 1,580 $1,580 429 $2,143 520 $4,276 3,400 $17,000
===== ====== ====== ====== ====== ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Convertible
Redeemable
Preferred Stock
--------------- Deficit
Series D Accumulated
Preferred Stock Additional During the
Subscription Common Stock Paid-In Unearned Development
Amount Shares Amount Capital Compensation Stage
--------------- -------- -------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ............ $ -- 2,136 $312 $ 151 -- $ (2,451)
January 1, 1997 to December 31, 1997:
Issuance of Series C Preferred Stock
for cash at $8.76 per share net of
issuance costs of $4................... -- -- -- -- -- --
Proceeds from Series D Stock
Subscriptions ......................... 3,000 -- -- -- -- --
Issuance of Common Stock upon
exercise of stock options for cash
at $1.67 per share..................... -- 6 10 -- -- --
Net loss ............................... -- -- -- -- -- (3,608)
-------- ----- --- -------- -- ---------
Balance at December 31, 1997 ............ 3,000 2,142 322 151 -- (6,059)
January 1, 1998 to December 31, 1998:
Issuance of Series A Preferred Stock
upon exercise of warrants for cash
at $1.00 per share..................... -- -- -- -- -- --
Issuance of Series A Preferred Stock
upon conversion of revolving
credit notes .......................... -- -- -- -- -- --
Proceeds from Series D Stock
Subscriptions ......................... 1,300 -- -- -- -- --
Issuance of Common Stock upon
exercise of stock options for cash
at $2.50 per share..................... -- 5 13 -- -- --
Grant of stock options to
non-employees ......................... -- -- -- 11 -- --
Intrinsic value of warrants issued ..... -- -- -- 260 -- --
Net loss ............................... -- -- -- -- -- (5,222)
-------- ----- --- -------- ------- ---------
Balance at December 31, 1998 ............ 4,300 2,147 335 422 -- (11,281)
January 1, 1999 to June 30, 1999
(unaudited):
Issuance of Series B Preferred Stock
in exchange for amounts payable
to Board member ....................... -- -- -- -- -- --
Issuance of Series D Preferred Stock
for cash at $5.00 per share............ (4,300) -- -- -- -- --
Intrinsic value of options issued ...... -- -- -- 1,805 (1,715) --
Net loss ............................... -- -- -- -- -- (3,628)
-------- ----- ---- -------- ------- ---------
Balance at June 30, 1999 ................ $ -- 2,147 $335 $ 2,227 $(1,715) (14,909)
========= ===== ==== ======== ======= =========
</TABLE>
Total
-----------
Balance at December 31, 1996 ............ $ 4,509
January 1, 1997 to December 31, 1997:
Issuance of Series C Preferred Stock
for cash at $8.76 per share net of
issuance costs of $4................... 556
Proceeds from Series D Stock
Subscriptions ......................... 3,000
Issuance of Common Stock upon
exercise of stock options for cash
at $1.67 per share..................... 10
Net loss ............................... (3,608)
--------
Balance at December 31, 1997 ............ 4,467
January 1, 1998 to December 31, 1998:
Issuance of Series A Preferred Stock
upon exercise of warrants for cash
at $1.00 per share..................... 715
Issuance of Series A Preferred Stock
upon conversion of revolving
credit notes .......................... 138
Proceeds from Series D Stock
Subscriptions ......................... 1,300
Issuance of Common Stock upon
exercise of stock options for cash
at $2.50 per share..................... 13
Grant of stock options to
non-employees ......................... 11
Intrinsic value of warrants issued ..... 260
Net loss ............................... (5,222)
--------
Balance at December 31, 1998 ............ 1,682
January 1, 1999 to June 30, 1999
(unaudited):
Issuance of Series B Preferred Stock
in exchange for amounts payable
to Board member ........................ 93
Issuance of Series D Preferred Stock
for cash at $5.00 per share............. 12,700
Intrinsic value of options issued ...... 90
Net loss ............................... (3,628)
--------
Balance at June 30, 1999 ................ $ 10,937
========
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of operations
Impax Pharmaceuticals, Inc. is engaged in the development of generic and
branded pharmaceutical products. The Company is currently in a research and
development phase with its first product expected to receive Food and Drug
Administration ("FDA") approval in 1999. The Company's revenue to date has come
from certain licensing and joint development agreements but remains
insignificant in relation to the Company's total operations. Accordingly, the
Company is considered a development stage company as defined in Statement of
Financial Accounting Standards (SFAS) No. 7.
Organization and history
The Company was originally organized on September 27, 1994 as a California
corporation (Impax Pharmaceuticals, Inc.). Actual operations commenced in the
first quarter of 1995. On September 1, 1995, the Company was reorganized as a
California limited liability company (Impax Pharmaceuticals, LLC) and operated
in this form through September 30, 1996. On October 1, 1996, the Company
reorganized once again assuming its current legal form as Impax Pharmaceuticals,
Inc., a California corporation.
Funding of activities
To date, the Company has funded its research and development efforts
entirely through equity financing. This includes $12,539,743 raised through
December 31, 1998 and an additional $12,700,000 raised in the first quarter of
1999.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation
Certain statements including the cumulative statement of operations, the
cumulative statement of cash flows and the statement of shareholders' equity,
include activity of the Company's predecessor entities, Impax Pharmaceuticals,
Inc., and/or Impax Pharmaceuticals, LLC (See Note 1). The activity of these
predecessor entities is included in these financial statements in order to
present the history of a development stage company from its inception as
required by SFAS No. 7.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Short-term investments
The Company classifies all short-term investments as available-for-sale in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." The Company places its
short-term investments primarily in treasury bills. At December 31, 1998, there
were no short-term investments.
Concentration of credit risk and other risks and uncertainties
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and short-term
investments. Products developed by the Company may require approvals
11
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
or clearances from the Food and Drug Administration ("FDA") or other
international regulatory agencies prior to commercialized sales. There can be no
assurance that the Company's products will receive any of the required approvals
or clearances. If the Company was denied approval or clearance or such approval
was delayed, it may have a material adverse impact on the Company.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally five to seven years, or the lease term of the respective assets.
Long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". SFAS 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
Other income
The Company has contracts in which it performs research and development on
behalf of third parties. Under the terms of the contracts, the Company receives
milestone payments from those third parties and recognizes these payments as
other income upon completion of the specified milestone.
Income taxes
The Company utilizes the liability method of accounting for income taxes as
set forth in SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax liabilities and assets are recognized for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities. Valuation allowances are provided on deferred
tax assets for which it is more likely than not that some portion or all will
not be realized.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation".
Comprehensive income
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". This statement establishes standards for the reporting
and display of comprehensive income and its components. Comprehensive income is
defined to include all changes in equity during a period except those resulting
from investments by owner and distributions to owners. Since inception, the
Company has not had significant transactions that are required to be reported in
other comprehensive income. Comprehensive income (loss) for each period
presented is equal to the net loss for each period as presented in the
Statements of Operations.
Business segments
The Company operates in one business segment, the pharmaceutical industry.
Computation of basic and diluted net loss per share
The Company adopted SFAS No. 128, "Earnings Per Share" and the Securities
and Exchange Commission Staff Accounting Bulletin No. 98 ("SAB No. 98")
effective December 31, 1997. Accordingly, all prior periods have been restated.
Basic and diluted net loss per share are computed using the weighted average
number of shares of common stock outstanding. No additional shares are
considered to be outstanding for either computation under the provisions of SAB
No. 98.
12
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
Stock options to purchase 286,500 shares of common stock at prices ranging
from $1.00 to $8.77 per share were outstanding at December 31, 1998, but were
not included in the computation of diluted net loss per share because they
anti-dilutive. The Company had 2,510,000 shares of convertible Preferred Stock
outstanding at December 31, 1998, which were excluded in the computation of
diluted net loss per share as they were anti-dilutive. Warrants to purchase
520,000 shares of common stock at $2.50 per share were outstanding at 1998 but
were not included in the computation of diluted net loss per share because they
were anti-dilutive. The aforementioned stock options, preferred stock and
warrants could potentially dilute earnings per share in future.
Recent accounting pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities". This statement establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS No. 133 will be
effective for the year beginning January 1, 2001. The adoption of SFAS No. 133
is not expected to have a material effect on the Company's results of
operations, financial position or cash flows.
NOTE 3 -- SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
Period from
September 27, For the Six
1994 (date of Months Year Ended
inception) to Ended June 30, December 31,
June 30, -------------- ---------------
1999 1999 1998 1998 1997
--------------- ------ ------ ------ -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental cash flow information:
Cash paid for income taxes ........................... $ 24 $ -- $ -- $ 8 $ 8
---- ---- ---- ---- ----
Supplemental noncash financing activities:
Conversion of revolving credit notes for
Series A preferred stock ........................... $715 $ -- $ -- $138 $ --
---- ---- ---- ---- ----
Conversion of accounts payable to Board
Member to Series B preferred stock ................. $ 93 $ 93 $ -- $ -- $ --
---- ---- ---- ---- ----
Issuance of warrants and options at below market. $350 $ 90 $ -- $260 $ --
---- ---- ---- ---- ----
</TABLE>
NOTE 4 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):
December 31,
1998
-------------
Property and equipment, net
Equipment .............................................. $ 3,071
Furniture and fixtures ................................. 212
Leasehold improvements ................................. 857
--------
4,140
Less: Accumulated depreciation and amortization ........ (1,170)
--------
$ 2,970
========
Depreciation expense in 1997 and 1998 was $298,000 and $509,000, respectively.
December 31,
1998
------------
Accrued liabilities:
Payroll and related expenses ......... $ 8
Other ................................ 116
----
$124
====
13
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 5 -- RELATED PARTY TRANSACTIONS:
The Company was advanced $373,000 in fiscal 1998 from certain shareholders.
A total amount of $293,000 was repaid prior to year end and the remaining
balance was paid in January 1999.
As of December 31, 1998, the Company had accrued $520,000 of compensation
payable to four key employees in recognition of past services rendered. The
amount is due at the Company's discretion on or before November 1, 2001.
As of December 31, 1998, the Company had $93,000 payable to a related
party, one of the Company's Board Members, for commissions due from assisting
the Company obtaining equity financing.
In April 1997, the Company paid $150,000 for a 15% interest in, and loaned
an additional $100,000 to, a California pharmaceutical research and development
company. As part of its investment, the Company is entitled to certain exclusive
licensing rights. The investment has been accounted for as purchased research
and development and has been expensed. The loan is unlikely to be repaid and has
been written off to general and administrative expenses.
NOTE 6 -- INCOME TAXES:
No provision for income taxes is recorded for any period due to the
Company's losses during the development stage. The difference between the
federal statutory tax rate and the Company's effective income tax rate is
attributable to losses and future tax deductions for which no tax benefits have
been recognized.
Deferred tax assets consist of the following (in thousands):
December 31,
1998
------------
Net operating losses ........................... $ 2,708
Depreciation and amortization .................. (100)
Research and development credit ................ 716
--------
Total deferred tax assets .................... 3,324
Deferred tax asset valuation allowance ......... (3,324)
---------
$ --
=========
Due to historical losses incurred by the Company, a full valuation
allowance for net deferred tax assets has been provided. If the Company achieves
profitability, certain of these net deferred tax assets would be available to
offset future income taxes.
Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not limited
to, a cumulative ownership change of more than 50%, as defined, over a three
year period.
14
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 6 -- INCOME TAXES: -- (Continued)
The Company has loss carryforwards totaling approximately $7,840,000 to
offset against future Federal taxable income and approximately $8,065,000 to
offset against future California taxable income. The carryforwards will expire
as follows (in thousands):
Year Ending December 31, Federal California
- ------------------------ ------- ----------
2004 ..................... $ -- $8,065
2011 ..................... 590 --
2012 ..................... 3,160 --
2018 ..................... 4,090 --
------ ------
$7,840 $8,065
====== ======
The Company also has research expenditures tax credits totaling
approximately $530,000 to offset against future Federal tax and approximately
$290,000 to offset future California tax. The credits have no expiration date.
NOTE 7 -- BORROWINGS:
Revolving credit note
The Company had revolving credit notes with four of the Company's
shareholders. These facilities originally allowed for total borrowings of
$715,000 and bear interest at 7% per annum. During 1997 and the first six months
of 1998 there was $138,000 available under these facilities. At June 30, 1998
the $138,000 was borrowed and shortly thereafter the facilities were cancelled.
All of the borrowings were converted into Series A preferred stock. In addition,
the Company issued 715,000 warrants to purchase preferred stock in connection
with these facilities (see Note 9).
NOTE 8 -- COMMITMENTS:
Leases
The Company leases office space under a noncancelable operating lease that
expires in 2002. Rent expense for the year ended December 31, 1997 and 1998 was
$132,000 and $165,000, respectively. The terms of the facility lease provide for
rental payments on a graduated scale. The Company recognizes rent expense on a
straight-line basis over the lease period, and has accrued for rent expense
incurred but not paid.
Future minimum lease payments under the noncancelable operating lease are
as follows (in thousands):
Year Ended Operating
December 31, Leases
- ------------ ---------
1999 ........................................... $155
2000 ........................................... 165
2001 ........................................... 165
2002 ........................................... 83
----
Total minimum lease payments ................... $568
====
NOTE 9 -- SHAREHOLDERS' EQUITY:
Redeemable Convertible Preferred Stock
Payments for Series D Preferred Stock received prior to issuance is
reflected in the financial statements as Series D Preferred Stock Subscriptions.
The balances at December 31, 1997 and 1998 were $3,000,000 and $4,300,000,
respectively. See Note 12 for final closing of Series D in 1999.
15
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 9 -- SHAREHOLDERS' EQUITY: -- (Continued)
On September 30, 1996, the Company acquired the net assets of Impax
Pharmaceuticals, LLC in exchange for the issuance of 2,136,362 shares of Common
Stock, 726,637 shares of Series A Preferred Stock and 410,000 shares of Series B
Preferred Stock.
The holders of Preferred Stock have various rights and preferences as
follows:
Voting
Each share of Series A, B, C and D has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes together
as one class with the Common Stock.
As long as at least 400,000 shares of Redeemable Convertible Preferred
Stock remain outstanding, the Company must obtain approval from a majority of
the holders of Redeemable Convertible Preferred Stock in order to alter the
Articles of Incorporation as related to Redeemable Convertible Preferred Stock,
change the authorized number of shares of Redeemable Convertible Preferred
Stock, repurchase any shares of Common Stock other than shares subject to the
right of repurchase by the Company, change the authorized number of Directors,
authorize a dividend for any class or series other than Redeemable Convertible
Preferred Stock, create a new class of stock or effect a merger, consolidation
or sale of assets where the existing shareholders retain less than 50% of the
voting stock of the surviving entity.
Dividends
Holders of Series A, B, C and D Redeemable Convertible Preferred Stock are
entitled to receive noncumulative dividends at the per annum rate of $0.01,
$0.05, $0.0877 and $0.50 per share, respectively, when and if declared by the
Board of Directors. No dividends on Convertible Redeemable Preferred Stock or
Common Stock have been declared by the Board from inception through December 31,
1998.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners of
the Company's Common Stock and Convertible Redeemable Preferred Stock own less
than 51% of the resulting voting power of the surviving entity, the holders of
Series A, B C and D Redeemable Convertible Preferred Stock are entitled to
receive an amount of $1.00, $5.00, $8.76 and $5.00 per share, respectively, plus
any declared but unpaid dividends prior to and in preference to any distribution
to the holders of Common Stock. The remaining assets, if any, shall be
distributed and shared pro rata among all holders of capital stock of the
Company on a basis which assumes conversion of all outstanding Preferred Stock
into Common Stock. Should the Company's legally available assets be insufficient
to satisfy the liquidation preferences, the funds will be distributed ratably in
proportion to the respective amounts which would be payable on the shares held
by them if the respective preference amounts were paid in full.
Conversion
Each share of Series A, B, C and D Redeemable Convertible Preferred Stock
is convertible, at the option of the holder, according to a conversion ratio,
subject to adjustment for dilution. Each share of Series A, B and D Redeemable
Convertible Preferred Stock automatically converts on a 1 to 1 basis into the
number of shares of Common, Series C converts on a 1 to 1.7534 basis. Automatic
conversion should occur upon the closing of a public offering of Common Stock at
a per share price of at least $5.00 per share with gross proceeds of at least
$5,000,000.
16
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 9 -- SHAREHOLDERS' EQUITY: -- (Continued)
Redemption
On or at any time after September 30, 2005, for Series A, B, C and D, the
Company may, at any time, at the option of the Board of Directors, redeem in
whole or in part any shares of Series A, B, C and D by paying in cash, $1.00,
$5.00, $8.767 and $5.00 per share, respectively, plus all declared but unpaid
dividends if any.
Warrants for Redeemable Convertible Preferred Stock
In connection with issuing revolving credit notes in July 1995 (see Note 7)
to the Company's founders, the Company issued warrants to purchase 715,000
shares of Series A Redeemable Convertible Preferred Stock for $1.00 per share.
There were no warrants outstanding at December 31, 1998. Using the Black-Scholes
pricing model, the Company determined that the fair value of the warrants was
$369,000 at the date of grant. A total of $89,000 was amortized and the
remaining amount of $280,000 was treated as issuance costs based on the
conversions of the debt to Series A reedemable convertible preferred stock.
Common Stock
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 15,000,000 shares of no par value Common Stock.
Warrants for Common Stock
In connection with a deferred compensation agreement in 1998 with the
Company's founders, the Company issued warrants to purchase 520,000 shares of
Common Stock for $2.50 per share. Such warrants are outstanding at December 31,
1998 and expire in 2003. The Company determined that the intrinsic value of the
warrants at the date of grant was $260,000 and has charged this amount to
expense in 1998 in accordance with APB No. 25.
NOTE 10 -- STOCK OPTION PLANS:
In September 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants. The Company has reserved 500,000
shares of Common Stock for issuance under the Plan. To date, options granted
generally vest from three to five years.
On September 30, 1996, as part of its acquisition of the assets of Impax
Pharmaceuticals, LLC, the Company agreed to exchange option agreements entitled
holders to acquire Common or Preferred Units of the LLC for options entitled
these same holders to acquire equivalent amounts of common and Preferred Stock
in the Company. Accordingly, on September 30, 1996, the Company reflected
options granted to prior members of the LLC covering 113,000 shares.
Effective June 1, 1998, the Company's Board of Directors approved the
re-pricing of all outstanding options to $2.50 per share, the fair market value
of common stock on that date. As a result, all outstanding options at June 1,
1998 were effectively rescinded and re-issued at an exercise price of $2.50 per
share.
17
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 10 -- STOCK OPTION PLANS: -- (Continued)
A summary of the status of the Company's stock option plan as of December
31, 1998, 1997 and 1996 and changes during the year ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at September 30, 1996 .. -- $ -- -- $ -- 113,000 $4,009
Options outstanding at January 1 ........... 143,500 6,496 156,000 5,320 -- --
Granted ................................. 174,500 5,686 22,500 8,767 43,000 8,767
Exercised ............................... (5,000) 2,500 (6,000) 1,667
Cancelled ............................... (26,500) 2,500 (29,000) 2,931
Rescinded ............................... (195,500) 8,339 -- -- -- --
Reissued ................................ 195,500 2,500 -- -- -- --
-------- ------- -------
Options outstanding at December 31 ......... 286,500 2,458 143,500 6,496 156,000 5,320
-------- ------- -------
Options exercisable at December 31 ......... 54,700 -- 32,000 -- 4,000 --
-------- ------- -------
Options available for grant at December 31. 202,500 -- 350,500 -- 344,000 --
-------- ------- -------
</TABLE>
At December 31, 1998, options outstanding had a weighted average remaining
contractual life of 8.72 years.
Fair value disclosures
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below (in thousands):
Year Ended December 31,
-----------------------
1998 1997
------- -------
Net loss:
As reported ................... $(5,222) $(3,608)
------- -------
Pro forma ..................... $(5,668) $(3,657)
------- -------
Year Ended December 31,
-----------------------
1998 1997
------ ------
Net loss per common share:
As reported ................... $(2.43) $(1.69)
------- ------
Pro forma ..................... $(2.64) $(1.71)
-------
The pro forma results may not representative of the effect on reported
operations for future years.
Of the $446,000 pro forma increase in net loss for 1998, $388,000 is
attributable to a re-pricing of outstanding stock options and $58,000 is due to
normal amortization.
18
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 10 -- STOCK OPTION PLANS: -- (Continued)
The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes pricing method with the following assumptions:
dividend yield at 0%; weighted average expected option term of five years; risk
free interest rate of 6.50% to 6.93% and 5.01% to 5.95% for the year ended
December 31, 1997 and 1998, respectively. The weighted average fair value of
options granted during 1997 and 1998 was $4.33 and $1.51, respectively.
NOTE 11 -- EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) defined contribution plan covering all
employees. Contributions made by the Company are determined annually by the
Board of Directors. There were no contributions under this plan for the year
ended December 31, 1997 and 1998, respectively.
NOTE 12 -- SUBSEQUENT EVENTS:
In March 1999 the Company issued 3,400,000 shares of its Redeemable
Convertible Preferred Stock at $5.00 per share for a total of $17,000,000. The
rights and preferences for Series D are stated in Note 9.
In July 1999, the Company announced the signing of a merger agreement with
Global Pharmaceutical Corporation. Global will acquire all of the Company's
outstanding shares in exchange for shares of Global's common and preferred
shares.
In April 1999, the Company granted 250,700 options to employees to purchase
common stock for $2.50 per share. As a result of the grant the Company recorded
$1,805,000 of unearned compensation in accordance with APB No. 25. $90,000 of
the unearned compensation was amortized to expense during the period ended June
30, 1999. The Company amortizes unearned compensation over the vesting period of
the underlying option.
19
<PAGE>
APPENDIX II
20
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Global Impax
Pharmaceutical Pharmaceuticals, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
-------------- ---------------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 4,401 $ -- $ 4,401
Cost of sales .................................. 4,681 -- $ 122(a2) 4,803
---------- ---------- ----------- -----------
Gross profit (loss) ............................ (280) -- (122) (402)
Research and development ....................... 2,229 5,127 37(a2) 7,393
Selling, general and administrative ............ 2,537 705 12(a2) 7,434
873(a3)
3,307(a4)
Other operating income, net .................... (407) (565) -- (972)
---------- ---------- ----------- -----------
Operating loss ................................. (4,639) (5,267) (4,351) (14,257)
Interest income ................................ (137) (45) -- (182)
Interest expense ............................... 113 -- -- 113
---------- ---------- ----------- -----------
Net loss ....................................... (4,615) (5,222) (4,351) (14,188)
Less: Imputed dividends on preferred stock...... (140) -- -- (140)
---------- ---------- ----------- -----------
Net loss applicable to common stock ............ $ (4,755) $ (5,222) $ (4,351) $ (14,328)
========== ========== =========== ===========
Net loss per common share (basic and diluted)... $ (1.07) $ (2.43) $ (0.66)
========== ========== ===========
Shares used in per share calculation ........... 4,432,016 2,145,000 21,722,750(b)
========== ========== ===========
</TABLE>
21
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Global Impax
Pharmaceutical Pharmaceuticals, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
-------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 4,217 $ -- $ 4,217
Cost of sales .................................. 3,220 $ 61(a2) 3,281
---------- ---------- ------ -----------
Gross profit ................................... 997 -- (61) 936
Research and development ....................... 997 3,303 19(a2) 4,319
Selling, general and administrative ............ 1,524 540 6(a2) 4,160
436(a3)
1,654(a4)
Other operating income, net .................... -- -- -- --
---------- ---------- ------- -----------
Operating loss ................................. (1,524) (3,843) (2,176) (7,543)
Interest income ................................ (72) (215) -- (287)
Interest expense ............................... 94 -- -- 94
---------- ---------- ------- -----------
Net loss ....................................... (1,546) (3,628) (2,176) (7,350)
Less: Imputed dividends on preferred stock ..... (1,474) -- -- (1,474)
---------- ---------- ------- -----------
Net loss applicable to common stock ............ $ (3,020) $ (3,628) $(2,176) $ (8,824)
========== ========== ======== ===========
Net loss per common share (basic and diluted)... $ (0.43) $ (1.69) $ (0.36)
========== ========== ===========
Shares used in per share calculation ........... 6,995,831 2,147,362 24,349,945(b)
========== ========== ===========
</TABLE>
22
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS:
(dollars in thousands, except share and per share data)
a. Adjustments to the Pro Forma Combined Statement of Operations for the
year ended December 31, 1998 and the six months ended June 30, 1999 in
connection with the proposed merger are presented below:
1. Management believes $48 of the excess fair value over book value of
Global's net assets is related to inventory. We have not reflected any
adjustment to cost of sales in the unaudited pro forma combined statement of
income for the year ended December 31, 1998 or the six months ended June 30,
1999 with respect to the fair value adjustment to Global's inventory as any
adjustment is considered to be a non-recurring charge directly related to this
transaction.
2. As a result of recording property, plant and equipment at fair value,
depreciation expense is increased on a pro forma basis.
3. Adjustment reflects the amortization of the amount of the purchase price
allocated to identified intangible assets. Amortization was calculated on the
straight-line basis using useful lives between 3 and 8 years.
4. Reflects the pro forma impact of the amortization of goodwill.
Amortization was calculated on the straight-line basis over ten years.
b. Shares used in the per share calculation reflect 16,840,734 shares as of
December 31, 1998 (16,904,114 shares as of June 30, 1999) issued to Impax
shareholders as if they were outstanding from the beginning of the period
presented and 450,000 Global shares following the conversion of Global Series C
preferred stock into common stock as if the conversion had occurred at January
1, 1998. Impax shares are calculated using 1,990,000 shares of series A and B
preferred stock as of December 31, 1998 (2,009,000 shares as of June 30, 1999)
and 2,147,362 shares of common stock converted at the exchange ratio of 3.3358
per share and 519,631 shares of series C preferred stock converted at the
exchange ratio of 5.849 per share. Global shares are calculated using 9,000
shares of series C preferred stock converted at the exchange ratio of 50 per
share. Shares used in the pro forma income (loss) per share basic and diluted
calculation for the year ended December 31, 1998 are as follows:
Impax shares based on assumed exchange ratios .................. 16,840,734
Global preferred shares based on assumed exchange ratio ........ 450,000
Global weighted average common shares issued and outstanding ... 4,432,016
----------
Shares used in per share calculation ........................... 21,722,750*
==========
Shares used in the pro forma income (loss) per share basic and diluted
calculation for the six months ended June 30, 1999 are as follows:
Impax shares based on assumed exchange ratios .................. 16,904,114
Global preferred shares based on assumed exchange ratio ........ 450,000
Global weighted average common shares issued and outstanding ... 6,995,831
----------
Shares used in per share calculation ........................... 24,349,945*
==========
- ----------
* Because there are pro forma net losses in both the six-month period ended
June 30, 1999 and the year ended December 31, 1998, only the common shares
outstanding have been used to calculate both the basic earnings per share
and diluted earnings per share as the inclusion of the potential common
shares would be anti-dilutive.
Note: In-process research and development costs in the amount of $1,425, which
will be written off immediately after the transaction is completed, have been
excluded from these unaudited pro forma combined statements of operations.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AT JUNE 30, 1999
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Global Impax
Pharmaceutical Pharmaceuticals, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
-------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ..................... $ 2,602 $ 589 $ 3,191
Short term investments ........................ 507 8,062 8,569
Accounts receivable ........................... 2,583 -- 2,583
Inventories ................................... 1,321 -- $ 48 (1a) 1,369
Prepaid expenses and other .................... 118 278 396
--------- -------- --------- ---------
Total current assets .......................... 7,131 8,929 48 16,108
Property, plant and equipment, net ............. 3,890 2,850 1,631 (1b) 8,371
Intangible assets, net ......................... 765 -- 4,472 (1c) 38,311
1,425 (1e)
(1,425)(2)
33,074 (1f)
Deferred financing costs, net .................. 24 -- (24)(1d) --
Investments .................................... 684 -- 684
Deposits ....................................... -- 109 109
--------- -------- --------- ---------
Total Assets ................................... $ 12,494 $ 11,888 $ 39,201 $ 63,583
========= ======== ========= =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable .............................. $ 1,149 $ 378 $ 1,527
Notes payable ................................. 764 -- 764
Current portion of long-term debt ............. 168 -- 168
Accrued expenses .............................. 1,595 53 1,648
--------- --------- --------- --------
Total current liabilities ..................... 3,676 431 4,107
Long-term debt ................................. 1,876 -- 1,876
Accrued compensation ........................... -- 520 520
--------- -------- --------- --------
Total Liabilities .............................. 5,552 951 6,503
--------- -------- --------- --------
Mandatorily redeemable preferred stock ......... 5,900 -- (5,900)(3c) 22,000
17,000 (3d)
5,000 (3f)
---------
Stockholders' Equity
Preferred stock ............................... -- 24,999 (24,999)(3a) --
Common stock .................................. 73 335 (335)(3b) 246
173 (3e)
Additional paid-in capital .................... 25,106 2,227 (25,106)(1h) 52,883
41,595 (1g)
9,061 (3g)
Unearned compensation ......................... (1,715) (1,715)
Accumulated deficit ........................... (24,137) (14,909) (1,425) (2)
24,137 (1i) (16,334)
--------- -------- --------- --------
Total Stockholders' Equity ..................... 1,042 10,937 23,101 35,080
--------- -------- --------- --------
Total Liabilities and Stockholders' Equity ..... $ 12,494 $ 11,888 $ 39,201 $ 63,583
========= ======== ========= ========
</TABLE>
24
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET:
(dollars in thousands, except share and per share data)
Because the merger will be accounted for as a reverse acquisition purchase
and Impax, which is treated as the acquirer for accounting purposes, is
receiving Global common stock and preferred stock rather than Global's assets
and liabilities, the fair market value of the Global common stock and preferred
stock outstanding for a reasonable period of time before and after the
announcement of the merger determines the purchase price for accounting
purposes. For purposes of the pro forma statements, the purchase price for
Global consists of the following:
Global stock issued and outstanding ..................... $40,050
Global stock options and warrants at fair value ......... 7,063
Direct expenses of the purchase ......................... 455
-------
Total purchase price ................................. $47,568
=======
The average market value of Global common stock for a reasonable period of
time before and after the announcement of the merger was $3.925 per share and
there were 7,254,053 common shares issued and outstanding. There were also 9,000
shares of Global Series C preferred stock and 50,000 shares of Global Series D
preferred stock outstanding of the date of acquisition with an aggregate fair
value of $11,578. The fair value of Global stock options and warrants was
determined using the Black-Scholes option pricing model. The fair value of each
option and warrant was estimated on the date of grant with the following
assumptions: (i) no expected dividend yield in 1999, (ii) expected stock price
volatility of 108.26%, (iii) weighted average risk free interest rate of 5.89%
and (iv) expected life of option of five years in 1999.
The direct expenses of the purchase consist primarily of legal, accounting
and other fees.
1. For purposes of determining the pro forma effect of the acquisition on
the combined financial statements, the fair value of Global's net assets have
been estimated in accordance with Accounting Principles Board Opinion No. 16:
<TABLE>
<S> <C>
Net assets of Global at June 30, 1999 ...................................... $ 6,942
Fair value adjustments:
1a. Adjustment of inventory to estimated fair value ........................ 48
1b. Adjustment of property, plant and equipment to estimated fair value .... 1,631
1c. Adjustment of other intangibles to estimated fair value ................ 4,472
1d. Adjustment of deferred financing costs to estimated fair value ......... (24)
1e. Adjustment to record in-process R&D at estimated fair value ............ 1,425
1f. Recording of goodwill .................................................. 33,074
-------
$47,568
=======
</TABLE>
The purchase price was allocated to the mandatorily redeemable preferred
stock and shareholders equity as follows:
Purchase Price ......................................... $47,568
Less amounts allocated:
Mandatorily redeemable preferred stock ................ (5,900)
Common stock .......................................... (73)
-------
Amount allocated to additional paid-in capital ......... $41,595(1g)
=======
Additionally as part of the purchase price allocation, the Global
historical additional paid-in capital balance of $25,106(1h) and accumulated
deficit of ($24,137)(1i) are written off.
2. Purchased in-process research and development represents the value
assigned in a purchase business combination to research and development projects
of the acquired business that were commenced, but not yet
25
<PAGE>
completed, at the date of acquisition and which, if unsuccessful, have no
alternative future use in research and development activities or otherwise. In
accordance with Statement of Financial Accounting Standards No. 2, "Accounting
for Research and Development Costs," as interpreted by FASB Interpretation No.
4, amounts assigned to purchased in-process research and development meeting the
above criteria must be charged to expense at the date of consumption of the
purchase business combination. In this regard, the company estimates charges for
purchased in-process research and development of $1,425 with respect to the
merger. The company has not reflected any adjustments to the pro forma
statements of operations for the year ended December 31, 1998 or the six months
ended June 30, 1999 as any adjustment is considered to be a non-recurring charge
directly related to this transaction. The impact of the write-off of in-process
research and development has been reflected in stockholders' equity as at June
30, 1999. The company believes that the assumptions and forecasts used in
valuing purchased in-process research and development are reasonable. No
assurance can be given, however, that future events will transpire as estimated.
As such, actual results may vary from the projected results.
The valuation of in-process research and development followed established
pharmaceutical industry practices used to value and manage in-process research
and development. A simplified model of that valuation methodology is as follows:
Cash Flows from Successful Completion
Less: Cash Flows to Complete
Less: Return on assets Employed
-------------------------------------
Equals: Adjusted Cash Flows
Times: Probability of Technical Success
-------------------------------------
Equals: Risk Adjusted Cash Flows
Times: Present Value Factor
-------------------------------------
Equals: Fair Value
Cash Flows from Successful Completion represents the estimated future
revenues forecast to be earned over the life of the product less the costs and
expenses required to generate those revenues, assuming successful completion of
the project in process. Cash Flows to Complete represents the estimated future
research and development costs required to complete the project, assuming the
project is ultimately successful. Return on Assets Employed represents an
allocation of the estimated future profits from the product to existing assets,
including identifiable intangible assets, thereby ensuring that all appropriate
future cash flows are attributed to existing assets for purposes of determining
their fair value. Probability of Technical Success represents management's
assessment of all risks associated with successfully completing a given project.
Management has identified four products which have been valued as
in-process research and development. Management estimates that these products
range from 12% to 87% complete. In the aggregate, these products will require a
total of approximately $1,225,000 of research and development expenditures to
complete. Estimated remaining research and development expenditures for
individual products range from $30,000 to $450,000.
New product development efforts for generic drugs generally involve four
main areas:
1. Pre-formulation
2. Formulation development
3. Method development and validation
4. Bioequivalency
5. Regulatory filing
o Pre-formulation involves analytical testing of the reference product,
sourcing of necessary ingredients and review of literature searches to
aid in formulation development.
o Formulation development involves the lab scale production of
experimental batches to determine the optimal formula or formulas which
best match the desired characteristics of the reference product. This
stage ends with production of pivotal batch(es) for bioequivalency
testing.
26
<PAGE>
o The method development and validation stage involves the development of
the manufacturing process and the validation that the process creates
the appropriate results.
o Bioequivalence testing involves the comparative evaluation of the test
and reference products in human volunteers according to preset
protocols. Typically this is the most costly phase of new product
development.
o Regulatory filing involves collection, assembly and review of all of the
information and data required for the applicable regulatory filing with
the FDA.
For one compound, the Company needs to complete phases 4 and 5. For two of
the compounds, the Company needs to complete phases 2 through 5. For one of the
compounds, the Company needs only to revalidate the method.
Commercialization is expected to be achieved in 2001 for one of the
compounds and in 2002 for the remaining three. For all of the above compounds
the brand name drug patent has previously expired.
3. As a result of the proposed transaction, the pro forma impact of the
conversion of the historical equity of Impax and Global is as follows:
<TABLE>
<S> <C>
3a. Elimination of Impax historical preferred stock ................. $(24,999)
3b. Elimination of Impax historical common stock .................... (335)
3c. Elimination of Global historical Series C and D preferred stock.. (5,900)
3d. Establish Global Series 1-B preferred stock ..................... 17,000
3e. Establish new common stock ...................................... 173
3f. Establish Global Series 1-A preferred stock ..................... 5,000
--------
3g. Establish pro forma additional paid-in capital .................. $ 9,061
========
</TABLE>
According to the merger agreement, each share of Impax common stock, Series
A preferred stock and Series B preferred stock is converted into 3.3358 shares
of Global common stock and each share of Impax Series C preferred stock is
converted into 5.849 shares of Global common stock. In addition, each share of
Global Series C preferred stock is converted into 50 shares of Global common
stock. The following summarizes the shares to be issued and the determination of
par value of the common stock on a pro forma combined basis:
Conversion of Impax Stock to Global Common Stock
<TABLE>
<S> <C>
Impax common stock issued and outstanding at June 30, 1999 ............. 2,147,362
Impax Series A preferred stock issued and outstanding at June 30, 1999.. 1,580,000
Impax Series B preferred stock issued and outstanding at June 30, 1999.. 429,000
-----------
Total .................................................................. 4,156,362
Exchange ratio ......................................................... 3.3358
-----------
Shares issued .......................................................... 13,864,792
-----------
Impax Series C preferred stock issued and outstanding at June 30, 1999.. 519,631
Exchange ratio ......................................................... 5.849
-----------
Shares issued .......................................................... 3,039,322
-----------
Conversion of Global Preferred Stock to Global Common Stock
Global Series C preferred stock issued and outstanding at June 30, 1999 9,000
Exchange ratio ......................................................... 50
-----------
Shares issued .......................................................... 450,000
-----------
Pro forma combined common stock shares issued .......................... 17,354,114
Par value per share .................................................... $ .01
-----------
Pro forma combined common stock par value .............................. $ 173
===========
</TABLE>
27
<PAGE>
According to the merger agreement, each share of Impax Series D preferred
stock is converted into .05 shares of Global Series 1-B mandatorily redeemable
preferred stock. At June 30, 1999, there were 3,400,000 shares of Impax Series D
preferred stock outstanding. In addition, each share of Global Series D
preferred stock is converted into one share of Global Series 1-A mandatorily
redeemable preferred stock. At June 30, 1999, there were 50,000 shares of Global
Series D preferred stock outstanding. Therefore, for purposes of the unaudited
pro forma combined balance sheet, 220,000 shares of Global Series 1-A and 1-B
mandatorily redeemable preferred stock will be issued. The following summarizes
the shares to be issued and the determination of par value of the Series 1-A and
1-B mandatorily redeemable preferred stock on a pro forma combined basis:
<TABLE>
<S> <C>
Conversion of Impax Preferred Stock to Global Series 1-B preferred stock:
Impax Series D preferred stock issued and outstanding at June 30, 1999 ................ 3,400,000
Exchange ratio ........................................................................ .05
---------
Shares issued ......................................................................... 170,000
Redemption value per share ............................................................ $ 100
Pro forma Global Series 1-B preferred stock at redemption value ....................... $ 17,000
=========
Conversion of Global Preferred Stock to Global Series 1-A Convertible Preferred Stock:
Global Series D preferred stock issued and outstanding at June 30, 1999 ............... 50,000
Exchange ratio ........................................................................ 1
---------
Shares issued ......................................................................... 50,000
---------
Redemption value per share ............................................................ $ 100
---------
Pro forma Global Series 1-A at redemption value ....................................... $ 5,000
=========
</TABLE>
The combined company is required to redeem the Series 1-A and Series 1-B
preferred stock, on March 31, 2004, at a price per share equal to $100 plus all
declared but unpaid dividends. The holders of the Series 1-A and 1-B preferred
stock can also require the redemption of their preferred stock upon the
happening of certain events, including the sale of the combined company or its
assets, the elimination of a public trading market for shares of its common
stock, or the insolvency of or bankruptcy filing by the combined company.
4. The unaudited pro forma combined financial information does not give
effect to any one-time charges, restructuring costs, nor any potential cost
savings, revenue enhancements or other synergies that could result from the
merger. To the extent that any restructuring costs are accounted for as accrued
liabilities and included in the allocation of the purchase price consideration,
goodwill would increase and the pro forma net loss included in the unaudited pro
forma combined statement of income would increase as a result of increased
amortization expense.
28
<PAGE>
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 hereunto duly authorized.
Impax Laboratories, Inc.
Date: May 11, 2000 By: /s/ Cornel C. Spiegler
------------ ------------------------------
Name: Cornel C. Spiegler
Title: Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Number Title
- ------ -----
2.1 Agreement and Plan of Merger, dated as of July 26, 1999, between
Global Pharmaceutical Corporation and Impax Pharmaceuticals, Inc.*
3.1 Certificate of Designations of Series 1-A Convertible Preferred Stock
and Series 1-B Convertible Preferred Stock.*
- ----------
* Incorporated by reference to such exhibit previously filed with the
Company's Registration Statement on Form S-4 (Registration #333-90599)
filed with the Securities and Exchange Commission on November 9, 1999.
