SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly
period ended June 30, 2000
Commission File No. 000-30123
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FIRST HORIZON PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 58-2004779
(State of incorporation) (I.R.S. Employer Identification Number)
660 HEMBREE PARKWAY, SUITE 106, ROSWELL, GEORGIA 30076
(Address of registrant's principal executive offices, including zip code)
---------------------------------
(Registrant's telephone number, including area code): (770) 442-9707
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] (1) No [ ]
As of August 8, 2000, there were 12,919,143 shares of the Registrant's
Common Stock outstanding.
(1) The Registrant has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934, but it has not been subject to
such filing requirements for the past 90 days.
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FIRST HORIZON PHARMACEUTICAL CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL STATEMENTS (UNAUDITED) PAGE
Item 1. Balance Sheets at June 30, 2000 and 1
December 31, 1999
Statements of Operations for the three months ended 2
June 30, 2000 and June 30, 1999 and for the six months
ended June 30, 2000 and June 30, 1999
Statements of Cash Flows for the six months ended 3
June 30, 2000 and June 30, 1999
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about 10
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
FIRST HORIZON PHARMACEUTICAL CORPORATION
BALANCE SHEETS
(unaudited)
June 30, December 31,
2000 1999
---- ----
ASSETS
Current Assets:
Cash and cash equivalents......................... $10,376,111 $ 219,688
Accounts receivable, net of allowance for doubtful
accounts, discounts and contractual adjustments
of $163,516 and $55,783 at June 30, 2000 and
December 31, 1999, respectively................ 4,105,145 2,900,623
Inventories........................................ 2,649,240 798,615
Samples and other prepaid expenses................. 1,466,731 553,614
Deferred tax assets................................ 776,780 550,780
----------- ----------
Total current assets.................... 19,374,007 5,023,320
----------- ----------
Property and equipment, net........................... 639,813 422,096
Other Assets:
Notes receivable from related party............... 37,172 30,000
Intangibles, net.................................. 23,654,742 5,602,328
---------- ---------
Total other assets...................... 23,691,914 5,632,328
---------- ---------
Total assets............................ $43,705,734 $11,077,744
=========== ===========
LIABILITIES AND STOCKHODERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 1,087,918 $ 794,088
Accrued expenses.................................. 6,768,811 2,892,727
Borrowings under revolving loan agreement......... - 800,000
Current portion of long-term debt................. 648,533 1,270,389
----------- ----------
Total current liabilities................ 8,505,262 5,757,204
Long -Term Liabilities:
Long-term debt, net of current maturities.......... - 1,628,497
Deferred tax liabilities........................... 76,479 76,479
----------- ----------
Total liabilities....................... 8,581,741 7,462,180
Stockholders' Equity:
Preferred stock, 1,000,000 shares authorized and none
outstanding.................................... - -
Common stock, $0.001 par value; 40,000,000 shares
authorized; 12,919,143 and 8,539,643 issued and
outstanding at June 30, 2000 and
December 31, 1999, respectively................ 12,921 8,540
Additional paid-in capital........................ 36,983,388 5,788,220
Deferred compensation............................. (1,113,845) (1,284,374)
Accumulated deficit............................... (758,471) (896,822)
------------ -----------
Total stockholders' equity.............. 35,123,993 3,615,564
Total liabilities and stockholders'
equity $43,705,734 $11,077,744
=========== ===========
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<TABLE>
<CAPTION>
FIRST HORIZON PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
<S> <C> <C> <C> <C>
For the Quarter For the Quarter For the Six Months For the Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
Net Revenues $ 7,843,547 $ 3,977,158 $ 14,963,186 $ 8,177,093
Operating costs and expenses
Cost of revenues 1,159,872 632,155 2,221,609 1,351,586
Selling, general and administrative
expenses, excluding non-cash
compensation expense 5,226,907 2,769,271 10,718,561 5,319,426
Non-cash compensation expense 83,261 8,764 170,529 19,485
Depreciation and amortization 307,261 112,787 402,733 192,089
Research and development expense 612,405 82,599 987,697 225,543
Total operating costs and ------------ ------------ ------------- ------------
expenses 7,389,706 3,605,576 14,501,129 7,108,129
------------ ------------ ------------- ------------
Operating income 453,841 371,582 462,057 1,068,964
------------ ------------ ------------- ------------
Other income (expense):
Interest expense (213,410) (117,031) (304,637) (172,789)
Interest income 41,940 2,077 47,530 4,274
Other 27,950 (700) 37,771 1,750
------------ ------------ ------------- ------------
Total other income
(expense) (143,520) (115,654) (219,336) (166,765)
------------ ------------ ------------- ------------
Income before provision for
income taxes 310,321 255,928 242,721 902,199
Provision for income taxes (133,438) (106,728) (104,370) (377,094)
------------ ------------ ------------- ------------
Net income $ 176,883 $ 149,200 $ 138,351 $ 525,105
============ ============ ============= ============
Net income per common share:
Basic $ 0.02 $ 0.02 $ 0.02 $ 0.07
============ ============ ============= ============
Diluted $ 0.02 $ 0.02 $ 0.01 $ 0.06
============ ============ ============= ============
Weighted average common shares
outstanding:
Basic 9,861,813 7,981,248 9,200,728 7,981,248
Diluted 11,360,489 8,759,904 10,699,404 8,759,904
</TABLE>
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FIRST HORIZON PHARMACEUTICAL CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
Cash flows from operating activities:
Net income............................................ $ 138,351 $ 525,105
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization............... 402,733 192,089
Deferred tax benefit ....................... (226,000) -
Non-cash compensation expense............... 170,529 19,485
Changes in assets and liabilities, net of acquired
assets and liabilities:
Accounts receivable..................... (1,204,522) (639,736)
Inventories.................................. (1,850,625) (328,537)
Samples and other prepaid expenses........... (913,117) (213,140)
Notes receivable from related party.......... (7,172) -
Accrued expenses............................. 1,980,324 714,078
Accounts payable............................. 293,830 33,575
---------------- ---------------
Net cash (used in) provided by operating
activities............................. (1,215,669) 302,919
Cash flows from investing activities:
Purchase of intangibles.......................... (16,501,816) (4,000,000)
Purchase of property and equipment............... (275,288) (75,769)
---------------- ---------------
Net cash (used in) investing activities. (16,777,104) (4,075,769)
Cash flows from financing activities:
Revolving loan agreement payments................ (800,000) (300,000)
Principal payments on long-term debt............. (2,250,353) (352,173)
Proceeds from long-term debt..................... - 4,000,000
Proceeds from issuance of common stock, net...... 31,199,549 -
---------------- ---------------
Net cash provided by financing activities 28,149,196 3,347,827
Net change in cash and cash equivalents............... 10,156,423 (425,023)
Cash and cash equivalents, beginning of period........ 219,688 425,023
---------------- ---------------
Cash and cash equivalents, end of period.............. $ 10,376,111 $ -
================ ===============
</TABLE>
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FIRST HORIZON PHARMACEUTICAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited interim financial statements reflect all
adjustments (consisting solely of normal recurring adjustments) which
management considers necessary for fair presentation of the financial
position, results of operations and cash flows of the Company for the
interim periods. Certain footnote disclosures normally included in
financial statements prepared according to generally accepted accounting
principles have been condensed or omitted from the interim financial
statements as permitted by the rules and regulations of the Securities and
Exchange Commission. Interim results are not necessarily indicative of
results for the full year. The interim results should be read in
conjunction with the financial statements and notes thereto included in the
Company's Registration Statement on Form S-1 (File No. 333-30764).
2. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 established methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as
other hedging activities. The Financial Accounting Standards Board delayed
the effective date of SFAS No. 133 for one year to fiscal years beginning
after June 15, 2000. The delay, published as SFAS No. 137, applies to
quarterly and annual financial statements. Management believes that
adopting SFAS No. 133 will not have a material impact on the Company's
financial condition or results of operations.
3. Inventories
Inventories are stated at the lower of cost or market and primarily
consists of purchased finished goods. Cost is determined using the first-in
first-out method.
4. Earnings Per Share
Below is the calculation of basic and diluted net income per share:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Quarter Ended Quarter Ended Year to Date Year to Date
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
Net income............... $ 176,883 $ 149,200 $ 138,351 $ 525,105
Weighted average shares
outstanding - basic.... 9,861,813 7,981,248 9,200,728 7,981,248
Dilutive effect of stock
options................ 1,498,676 778,656 1,498,676 778,656
------------ ------------ ------------ ------------
Weighted average shares
outstanding - diluted.. 11,360,489 8,759,904 10,699,404 8,759,904
Basic earnings per share $ .02 $ .02 $ .02 $ .07
Diluted earnings per share $ .02 $ .02 $ .01 $ .06
</TABLE>
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5. Product Agreements
The Company entered into a patent license agreement with Jame Fine
Chemicals, Inc., a supplier of raw material for the drug Tanafed, effective
January 1, 2000. This agreement grants the Company a semi-exclusive license
to use, sell and distribute finished products containing an active
ingredient used in Tanned. Pursuant to this agreement, the Company must pay
a royalty on future sales. The license continues through the life of the
licensed patent which expires in 2014.
On April 14, 2000 the Company acquired exclusive rights from
Warner-Lambert Company ("Warner-Lambert") to distribute, market and sell
the drug Ponstel in the U.S. for $9,500,000 in cash and a $3,500,000
promissory note to the seller. The agreement includes the purchase of the
licensing rights and certain trademarks. The purchase price was
preliminarily allocated among the fair values of tangible and intangible
assets and liabilities assumed, the majority of which is being amortized
over 20 years.
The Company negotiated with Warner-Lambert to continue to manufacture
and supply Ponstel to the Company through December 31, 2000 and is
negotiating an agreement with another manufacturer for the manufacturing of
Ponstel subsequent to December 31, 2000.
On June 22, 2000 the Company acquired exclusive rights to market,
distribute and sell the drug Cognex and a new unapproved version of Cognex
called Cognex CR, in the U.S. and other countries for $3,500,000 in cash.
The Company must also pay up to $1,500,000 in additional purchase price if
the Company obtains FDA approval to market Cognex CR. The purchase price
was preliminarily allocated among the fair values of tangible and
intangible assets and liabilities assumed, the majority of which is being
amortized over 20 years.
The Company negotiated a supply agreement with a Warner-Lambert
affiliate to continue to manufacture and supply Cognex and the active
ingredient in Cognex for two years subject to a one year renewal.
In addition, the Company entered into a transition services agreement
with Warner-Lambert under which Warner-Lambert will provide transitional
administrative services to the Company until December 31, 2000 in
connection with the sale of Cognex in European countries. The Company is
currently seeking relationships with third parties to secure marketing,
distribution and administrative services in connection with sales of Cognex
in Europe beginning January 1, 2001.
On April 14, 2000 the Company entered into an amended credit facility
with LaSalle Bank that provided for bridge financing of up to $13,000,000
to finance the Company's acquisitions. The Company borrowed $9,500,000
under this bridge loan agreement for the acquisition of Ponstel. Borrowings
under the bridge loan bore an interest rate at the Company's choice of the
prime rate or LIBOR plus 1.5%. Interest on the bridge loan became payable
monthly on May 1, 2000. The bridge loan matured upon completion of the
Company's initial public offering on May 31, 2000.
6. Initial Public Offering
On May 31, 2000, the Company completed its initial public offering of
3,800,000 shares of common stock at a price of $8.00 per share. On June 5,
2000, the Company received net proceeds of $28,272,000 pursuant to the
offering. On June 30, 2000, the Company's underwriters exercised an
over-allotment option and the Company sold an additional 570,000 shares of
common stock at $8.00 per share from which the Company received $4,240,800
in net proceeds. After deducting offering expenses of $1,326,374, the
Company received net proceeds of $31,186,426 from its initial public
offering. The proceeds are being used to finance product acquisitions,
repay indebtedness and for general corporate purposes.
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7. Related Party Transactions
In connection with the $9,500,000 bridge loan discussed above, the
Company paid a fee of $16,848 to a Trust affiliated with John N. Kapoor,
Ph.D., a Director and the President and sole stockholder of the managing
general partner of the Company's majority stockholder, in return for the
pledge of certain Trust assets as collateral for the loan.
On May 3, 2000, the Company entered into an Amendment to the
Collaboration Agreement with Inpharmakon Corporation, a related party, to
amend certain payment terms under its existing Collaboration Agreement
between Inpharmakon and the Company relating to the Company's migraine
product under development. Under the amended agreement, the Company paid
$200,000 to Inpharmakon on June 15, 2000. See "Item 2 - Changes in
Securities and Use of Proceeds."
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND
FINANCIAL CONDITION
The following should be read with the financial statements and related
footnotes and Management's Discussion and Analysis of Results of Operations and
Financial Condition included in the Company's Registration Statement on Form S-1
(File No. 333-30764). The results discussed below are not necessarily indicative
of the results to be expected in any future periods. The following discussion
contains forward-looking statements that are subject to risks and uncertainties
which could cause actual results to differ from the statements made.
OVERVIEW
The Company currently markets and sells 13 brand name prescription drugs
through its nationwide sales and marketing force of 141 professionals. The
Company seeks to acquire and obtain licenses for pharmaceutical products that
other companies do not actively market and increase sales through aggressive
promotion and marketing. In addition, the Company seeks to increase the value of
existing products by developing new formulations, new delivery methods and
seeking new indications for existing products.
RESULTS OF OPERATIONS
Net Revenues. Net revenues increased $3,866,389, or 97%, over the quarter
ended June 30, 1999, to $7,843,547 for the quarter ended June 30, 2000. Sales of
existing products increased $1,301,367, or 33%, over the quarter ending June 30,
1999. Net revenues increased $6,786,093, or 83%, over the six month period ended
June 30, 1999, to $14,963,186 for the six months ended June 30, 2000. Sales of
existing products increased $2,980,225, or 36%, over the six months ended June
30, 1999. These increases in sales of existing products for the quarter and six
month period were due to higher unit sales. Sales of the Company's newly
acquired and licensed products Nitrolingual Pumpspray, Ponstel and Cognex were
$2,565,022 for the quarter ended June 30, 2000 and $3,805,868 for the six months
ended June 30, 2000. The Company began to sell Nitrolingual Pumpspray on
February 1, 2000 (under a license agreement entered into in 1999), Ponstel on
April 14, 2000 and Cognex on June 22, 2000.
Cost of Revenues. Cost of revenues increased $527,717 or 83%, to $1,159,872
for the quarter ended June 30, 2000 compared to $632,155 for the quarter ended
June 30, 1999. Cost of revenues increased $870,022 or 64%, to $2,221,609 for the
six months ended June 30, 2000 compared to $1,351,586 for the six months ended
June 30, 1999.
Gross Margin. Gross margin for the quarter ended June 30, 2000 was 85%
compared to 84% for the quarter ended June 30, 1999. Gross margin for the six
months ended June 30, 2000 was 85% compared to 83% for the six months ended June
30, 1999. This increase resulted primarily from increased sales of Robinul and
Robinul Forte, which have higher margins than the Company's other products, as
well as sales of the newly acquired Cognex and Ponstel products, which also have
higher margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2,457,636, or 89%, to $5,226,907 for the
quarter ended June 30, 2000 from the quarter ended June 30, 1999. Selling,
general and administrative expenses increased $5,399,135, or 101%, to
$10,718,561 for the six months ended June 30, 2000. Selling related expenses
increased due to continued expansion of the Company's sales force, higher
commission expense due to increased sales and higher salary expense for existing
sales representatives. Marketing and promotional expenses increased
significantly due to the promotional campaign for Nitrolingual Pumpspray, the
Company's launch of Ponstel and increased sampling of the Company's products.
Meeting and training expenses increased due to training of new sales
representatives as well as continuing education for existing sales
representatives. Royalty expense increased due to increased sales of Robinul and
Robinul Forte, and royalties on sales of Nitrolingual Pumpspray and Tanafed.
There was no comparable royalty expense on Tanafed sales in 1999. The Company
incurred additional third party market research expense due to additional data
needed for Nitrolingual Pumpspray and Ponstel. The Company expects selling
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expenses to continue to increase for the remainder of 2000 due to higher
marketing and promotional expenses for Nitrolingual Pumpspray and Ponstel and
continued expansion of its sales force.
General and administrative expenses increased due to additions to the
Company's management team and support personnel in the Company's corporate
office, higher insurance costs due to increased insurance coverage and higher
professional fees related to the Company's SEC reporting requirements. In
addition, in March 2000, the Company engaged a consulting firm to make
recommendations on the alignment and optimization of its sales force and future
expansion possibilities. As a result, effective July 1, 2000 the Company
realigned its sales force in order to increase its sales territory coverage area
and to optimize the efficiency of the Company's sales representatives.
Non-Cash Compensation. Non-cash compensation expense was $83,261 for the
quarter ended June 30, 2000 compared to $8,764 for the quarter ended June 30,
1999. Non-cash compensation expense was $170,529 for the six months ended June
30, 2000 compared to $19,485 for the six months ended June 30, 1999. This
increase resulted from the Company issuing stock options at exercise prices that
were lower than the market value of the Company's stock at the time the options
were issued, as determined by an independent valuation.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $194,473 or 172% to $307,261 for the quarter ended June 30,
2000. Depreciation and amortization expense increased $210,644 or 110% to
$402,733 for the six months ended June 30, 2000. This increase resulted from
higher amortization expense related to the acquisition of Robinul and Robinul
Forte in January 1999, Ponstel on April 14, 2000, Cognex on June 22, 2000 and
increased depreciation expense for furniture, computer equipment and leasehold
improvements at the Company's corporate headquarters. Amortization expense could
further increase if the Company concludes any more product acquisitions.
Research and Development Expense. Research and development expense
increased $529,806, or 641%, to $612,405 for the quarter ended June 30, 2000.
Research and development expense increased $762,154, or 338%, to $987,697 for
the six months ended June 30, 2000. This increase resulted from continued
development of FHPC 01, the Company's migraine product under development, and
the Robinul line extension. In addition, on May 3, 2000, the Company amended the
payment terms under its Collaboration Agreement with Inpharmakon Corporation
relating to the development of FHPC 01. Under the amended terms, the Company
paid a $200,000 fee to Inpharmakon upon completion of the Company's initial
public offering. The Company anticipates incurring $900,000 for the remainder of
2000 and $3,000,000 through 2002 in research and development cost for FHPC 01
relating to conducting clinical trials, filing a new drug application and making
milestone payments under the Company's development agreements.
Interest Expense. Interest expense increased $96,379, or 82%, to $213,410
for the quarter ended June 30, 2000. Interest expense increased $131,848, or
76%, to $304,637 for the six months ended June 30, 2000. This increase resulted
from borrowings under the bridge loan agreement with LaSalle Bank used for the
acquisition of Ponstel as well as higher average interest rates. The Company
currently does not have any long- term debt outstanding and therefore expects
interest expense to decrease. However, the Company could incur significant
interest expense in the future if it continues to acquire products and finance
the purchase of these products with debt.
Interest Income. Interest income was $41,940 for the quarter ended June 30,
2000 compared to $2,077 for the quarter ended June 30, 1999. Interest income was
$47,530 for the six months ended June 30, 2000 compared to $4,274 for the six
months ended June 30, 1999. The increase was the result of interest earned on
proceeds from the Company's initial public offering.
Other Income and Expense. Other income and expense was income of $27,950
for the quarter ended June 30, 2000 versus $700 in expenses for the quarter
ended June 30, 1999. Other income and expense was income of $37,771 for the six
months ended June 30, 2000 versus $1,750 in income for the six months ended June
30, 1999. This increase was the result of gains recognized from foreign currency
transactions related to purchases of inventory.
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Provision for Income Taxes. Income taxes were provided for at a rate of 43%
in 2000 compared to 41.8% in 1999. The increase is due to higher non-deductible
travel and entertainment expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from debt service, working
capital requirements and funding of acquisitions. The Company has met these cash
requirements through cash from operations, proceeds from its line of credit,
borrowings for product acquisitions and issuance of common stock.
The Company's cash and cash equivalents were $10,376,111 at June 30, 2000.
Net cash used in operating activities for the six months ended June 30, 2000 was
$1,215,669. This use of cash was the result of increased purchases of inventory
primarily for Nitrolingual Pumpspray, increased accounts receivable due to
higher sales, and higher prepaid expenses. This use was partially offset by
increased accounts payable and accrued expenses, net income and non-cash
depreciation, amortization and compensation expense. The Company estimates that
its supply agreements with its manufacturers require that it purchase
approximately $2,200,000 of inventory during the remaining two quarters of 2000.
The Company expects to use significant cash for operating activities in the
future in connection with the development of FHPC 01. The Company expects to
incur approximately $900,000 of research and development expense through the
last six months of 2000 and approximately $3,000,000 through 2002.
Net cash used in investing activities for the six months ended June 30,
2000 was $16,777,104. The Company purchased Ponstel on April 14, 2000 for
$9,500,000 in cash and an additional $3,500,000 financed by the seller. In
addition, the Company assumed liabilities for returned products shipped by the
seller prior to the acquisition. The Company purchased Cognex on June 22, 2000
for $3,500,000 in cash and assumed liabilities for returned products shipped by
the seller prior to the acquisition. Purchases of property and equipment were
$275,288 for the six months ended June 30, 2000 primarily for computer equipment
and leasehold improvements at the Company's corporate headquarters.
Net cash provided by financing activities was $28,149,196 for the six
months ended June 30, 2000. This source of cash was the result of the Company's
initial public offering and the exercise of stock options by former employees
that provided net proceeds of $31,199,549 offset by payment on the revolving
loan agreement of $800,000 and payment of long-term debt of $2,250,353.
In May 1998, the Company entered into a credit facility with LaSalle Bank
National Association, which was subsequently amended to include a revolving
credit facility, a term loan and a bridge loan. The revolving loan is subject to
borrowing base limitations. The revolving credit facility provides for
borrowings up to $2,500,000 and bears interest at the bank's prime rate, and is
due May 2, 2001. At June 30, 2000, the Company had no outstanding balance under
the revolving credit facility.
In January 1999, the Company borrowed $2,400,000 under a term loan. The
term loan bore an interest rate of the Company's choice of either the bank's
prime rate or LIBOR plus 2%. The term loan was payable in monthly installments
of $40,000 plus accrued interest and was due to mature on May 2, 2001. On June
5, 2000 the outstanding balance of $1,640,000 payable under the term loan was
paid with proceeds from the Company's initial public offering. On April 14,
2000, the credit facility was further amended to include bridge financing of up
to $13,000,000 to finance product acquisitions. On April 14, 2000, the Company
borrowed $9,500,000 under this bridge loan for its purchase of Ponstel.
Borrowings under the bridge loan bore interest at the Company's choice of the
bank's prime rate or LIBOR plus 1.5%. On June 5, 2000 the outstanding balance of
$9,500,000 payable under the bridge loan was paid with proceeds from the
Company's initial public offering.
The Company's credit facility with LaSalle Bank is secured by the Company's
accounts receivable, inventories, equipment and intangible assets including the
Company's intellectual properties. Under the terms of the credit facility, the
Company must maintain a minimum net worth plus subordinated debt of $3,300,000
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plus 75% of net income, a ratio of liabilities to net worth plus subordinated
debt of 2.25 to 1.00, a minimum specified EBITDA, and a fixed charge coverage
ratio ranging from .75 to 1.00 to 1.25 to 1.00. The credit facility also limits
the Company's ability to incur additional indebtedness, and prohibits
substantial asset sales and cash dividends. As of June 30, 2000, the Company was
in compliance with these covenants.
On April 14, 2000, the Company issued a promissory note to Warner-Lambert
evidencing $3,500,000 of the purchase price of Ponstel. This promissory note was
interest free. The Company paid this promissory note in full with proceeds from
the initial public offering.
The Company believes that its cash and cash equivalents, cash generated
from operations plus borrowings available under its credit facility with LaSalle
Bank for will be adequate to fund its current working capital requirements for
at least the next 12 months. However, in the event that the Company makes
significant acquisitions in the future, it may be required to raise additional
funds through additional borrowings or the issuance of debt or equity
securities.
The Management's Discussion and Analysis of Financial Condition and Results
of Operations discussion as well as information contained elsewhere in this
Report contains forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934. These forward-looking statements include
statements about the following:
o developing new formulations, new delivery methods and seeking new
indications for existing products;
o increases in selling expenses for Nitrolingual Pumpspray and Ponstel;
o the expansion of the Company's sales force;
o the Company's product development efforts for FHPC 01 and the Robinul
line extension;
o obtaining regulatory clearance for FHPC 01;
o future development expenses;
o capital expenditures;
o future inventory purchases; and
o adequacy of capital resources.
When used in this Report, the Company intends the words "may", "believe,"
"anticipate," "planned," "expect," "require," "intend," and "depend" to identify
"forward-looking statements." The Company's forward-looking statements involve
uncertainties and other factors, including those described in the "Risk Factors"
section of the Company's Registration Statement on Form S-1 (File No.
333-30764), that may cause actual results, performance or achievements, to be
different from that suggested by the Company's forward-looking statements . You
should not place undue reliance on forward-looking statements. The Company does
not intend to update any of these factors or to publicly announce the results of
any revisions to any of these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operating results and cash flows are subject to fluctuations
from changes in foreign currency exchange rates and interest rates. The
Company's purchases of Nitrolingual Pumpspray under its agreement with
Pohl-Boskamp are made in German Deutsche marks. The Company expects to make
purchases several times per year under this agreement and has an obligation due
on August 15, 2000 for $200,479.
In addition, sales of Cognex are recognized in the foreign currencies of
the respective European countries in which it is sold. While the effect of
foreign currency translations has not been material to the Company's results of
operations to date, currency translations on export sales or import purchases
could be adversely affected in the future by the relationship of the U.S. dollar
with foreign currencies. To the extent that the Company borrows under its credit
facility with LaSalle Bank, it will experience market risk with respect to
changes in the general level of the interest rates and its effect upon the
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Company's interest expense. Borrowings under the Company's credit facility with
LaSalle Bank bears interest at variable rates. Because such rates are variable,
an increase in interest rates will result in additional interest expense and a
reduction in interest rates will result in reduced interest expense.
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's Registration Statement on form S-1 (File No. 333-30764)
relating to its initial public offering was declared effective on May 31, 2000.
The offering of 3,800,000 shares of common stock, $.001 par value, commenced on
May 31, 2000 and closed on June 5, 2000. All 3,800,000 of the shares registered
were sold at $8.00 per share for an aggregate price of $30,400,000 before
deducting underwriting discounts commissions and underwriting expenses. The
managing underwriters of the initial public offering were Chase Securities,
Inc., Banc of America Securities LLC, and Thomas Weisel Partners LLC (the
"Underwriters"). The company deducted $2,128,000 in underwriting discounts and
commissions and $1,326,374 in offering expenses incurred through June 30, 2000.
The Company received net proceeds of $26,945,626. On June 30, 2000, the
Underwriters exercised their over-allotment option, pursuant to which the
Company sold an additional 570,000 shares of common stock at $8.00 per share for
an aggregate price of $4,560,000 before deducting underwriting discounts and
commissions of $319,200. The Company received net proceeds of $4,240,800 from
the exercise of the over-allotment option. The total net proceeds to the Company
from its initial public offering including the exercise of the over-allotment
option was $31,186,426.
Through June 30, 2000, the Company used the proceeds from the initial
public offering to repay $9,500,000 due under the bridge loan with LaSalle Bank
which it borrowed to purchase Ponstel, $1,640,000 due under the term loan
facility with LaSalle Bank and $2,000,000 under the revolving loan facility with
LaSalle Bank. The Company also repaid $3,500,000 due under the promissory note
issued to Warner-Lambert for the purchase of Ponstel and $3,500,000 to
Warner-Lambert Company for the purchase of Cognex. The Company also paid a
$200,000 fee to Inpharmakon Corporation under the terms of the Amendment to the
Collaboration Agreement with Inpharmakon Corporation dated May 3, 2000.
The Company currently expects that the remaining proceeds will be used
primarily for working capital and general corporate purposes, including the
development of new products, the expansion of the Company's sales and marketing
force and for new product acquisitions.
None of the Company's offering expenses or net proceeds from the initial
public offering were paid directly or indirectly to any director, officer or
their associates, persons owning 10% or more of any class of the Company's
equity securities or to any affiliates of the Company except for the $200,000
fee paid under the Amendment to the Collaboration Agreement to Inpharmakon
Corporation and the $16,848 fee paid to the Kapoor Children's 1992 Trust in
consideration of its pledge of securities and investments in the amount of
$10,000,000 under the bridge loan with LaSalle Bank.
The John N. Kapoor Trust, dated September 30, 1989 (the "Trust") owns 50%
of the common stock of Inpharmakon Corporation. The Trust is a partner of
Kapoor-Pharma Investments, L.P., the Company's majority stockholder and John
Kapoor, Ph.D., the Trustee of the Trust is one of the Company's Directors and is
the President and sole stockholder of the managing general partner of Kapoor -
Pharma Investments, L.P. In addition, Mahendra Shah, Ph.D., the Company's
Chairman and Chief Executive Officer is a director of Inpharmakon Corporation
and owns options to purchase 25,000 shares of its common stock.
Dr. Kapoor is the husband of Edith Kapoor, the Trustee of the Kapoor
Children's 1992 Trust and their children are the beneficiaries.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1* - Restated Certificate of Incorporation
3.2* - Amended and Restated By-Laws
4.1* - Form of Stock Certificate
27 - Financial Data Schedule - June 30, 2000 (for SEC use only)
---------------------
* Incorporated by Reference from the Company's Registration Statement on
Form S-1 (File. No. 333-30764)
(b) The Registrant filed a Report on Form 8-K on June 27, 2000 under Item
2 of Form 8-K.
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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 on August 10, 2000.
FIRST HORIZON PHARMACEUTICAL CORPORATION
By: /s/ Mahendra G. Shah
---------------------------------------
Mahendra G. Shah, Ph.D.
Chairman and Chief Executive Officer
By: /s/ Balaji Venkataraman
---------------------------------------
Balaji Venkataraman
Vice President of Corporate Development
and Chief Financial Officer
(Principal Accounting and Financial Officer)
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