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 Commission File Number 0-8049
ended March 31, 1994
CIRCA PHARMACEUTICALS, INC.
Incorporated under the laws 11-1966265
of the State of New York (I.R.S. Employer Identification Number)
33 RALPH AVENUE, COPIAGUE, NEW YORK 11726
Telephone number (516) 842-8383
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 No
The number of shares of common stock, par value $.01 per share,
outstanding was 22,078,520 as of May 5, 1994.
CIRCA PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGES
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 1994
and December 31, 1993 1
Consolidated Statements of Operations for the
three months ended March 31, 1994 and 1993 2
Consolidated Statements of Cash Flows for the
three months ended March 31, 1994 and 1993 3
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 6. Exhibits and Reports on Form 8-K 7
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ITEM 1.
March 31, December 31,
1994 1993
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 6,330,340 $ 2,410,819
Marketable securities 41,362,856 36,182,077
Securities held as collateral 5,000,000 5,000,000
Accounts receivable 637,516 638,242
Inventories 1,459,869 1,820,883
Other current assets 1,253,876 1,776,843
Total current assets 56,044,457 47,828,864
Property, plant and equipment, net 12,216,606 12,535,586
Investments in joint ventures 29,852,868 29,473,160
Securities held as collateral 6,767,248 9,147,156
Other assets 3,741,600 3,424,519
$108,622,779 $102,409,285
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 5,073,951 $5,102,659
Current portion of legal settlements 7,976,838 7,909,339
Total current liabilities 13,050,789 13,011,998
Deferred joint venture liability 15,097,910 15,242,000
Legal settlements 5,684,012 7,603,845
Deferred income 2,291,663 2,520,830
Commitments and contingencies:
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized 10,000,000 shares; none issued
Common stock, par value $.01 per share;
authorized - 70,000,000 shares; issued and
outstanding - 22,078,220 shares in 1994 and
22,083,420 in 1993 220,782 220,834
Capital in excess of par value 62,484,449 62,570,547
Retained earnings 12,361,326 8,486,846
Unrealized holding gain 4,302,962
Less:
Treasury stock at cost - 367,308 shares (3,168,031) (3,168,031)
Unearned compensation - stock awards (3,703,083) (4,079,584)
Total shareholders' equity 72,498,405 64,030,612
$108,622,779 $102,409,285
See accompanying notes to consolidated financial statements
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1994 1993
Net sales $1,234,209 $ 357,716
Operating costs and expenses:
Cost of goods sold 784,851 306,406
Research & development 1,497,837 1,039,413
Manufacturing overhead 949,227 1,015,611
Selling and administrative 1,460,638 1,763,805
Loss from operations (3,458,344) (3,767,519)
Income from joint ventures 5,526,475 5,799,166
Partnership loss (4,242,000)
Cost of legal settlements (3,000,000)
Investment income 1,956,900 950,653
Other expense (150,551) (152,039)
Net income (loss) $3,874,480 ($4,411,739)
Net income (loss) per share $0.18 ($0.20)
Weighted average shares outstanding 21,710,818 22,166,087
See accompanying notes to consolidated financial statements<PAGE>
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1994 1993
Net cash used for operating activities ($3,034,342) ($6,538,572)
CASH FLOW FROM INVESTING ACTIVITIES:
Decrease in marketable securities and
securities held as collateral 1,349,738 2,110,033
Additions to property, plant and equipment (18,101) (54,381)
Decrease in investments 676,416
Dividends received from equity investees 4,500,000 4,488,077
Proceeds from sale of Marsam stock 1,108,064
Net cash provided by investing activities 6,939,701 7,220,145
CASH FLOW FROM FINANCING ACTIVITIES:
Purchase and retirement of stock (550,000)
Exercise of stock options 14,162
Net cash provided by (used for)
financing activities 14,162 (550,000)
Increase in cash and cash equivalents 3,919,521 131,573
Cash and cash equivalents at
beginning of period 2,410,819 3,680,381
Cash and cash equivalents at end of period $6,330,340 $3,811,954
See accompanying notes to consolidated financial statements
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting principally of normal recurring adjustments) necessary
to present fairly the financial position of the Company as of March
31, 1994 and the consolidated results of operations for the three
months ended March 31, 1994 and 1993 and the statements of cash
flows for the three months then ended. The accompanying
consolidated financial statements and related notes should be read
in conjunction with the Company's annual report on Form 10-K for
the fiscal year ended December 31, 1993. The results of operations
for the three months ended March 31,1994 and 1993 are not
necessarily indicative of the results to be expected for the full
year. Certain reclassifications were made to the 1993 financial
statements to conform to the current year presentation.
B. In May 1993 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, effective for fiscal years beginning after December 15,
1993. SFAS No. 115 requires that marketable equity securities and
all debt securities be classified into three categories: (i)
held-to-maturity debt securities, (ii) trading securities and (iii)
available-for-sale securities. Held-to-maturity debt securities
are carried at amortized cost.Trading securities are carried at
fair market value with unrealized holding gains and losses included
in earnings. Available-for-sale securities are carried at fair
market value with unrealized holding gains and losses excluded
from earnings and reported separately as a component of
shareholders' equity until realized. The Company adopted SFAS No.
115 as of January 1, 1994, and at March 31, 1994, the Company's
investment securities have been classified as "available-for-sale,"
with an unrealized holding gain included as a separate component
of shareholders' equity in the amount of $4,303,000. If the
Company had adopted SFAS No. 115 at December 31, 1993, the
unrealized holding gain in shareholders' equity would have been
approximately $12,200,000 at that date.
The Company sold approximately 67,000 shares of its investment in
Marsam common stock during the three month period ended March 31,
1994, and recorded a gain of $956,000. At March 31, 1994, the
Company owned 568,000 shares of Marsam common stock with a market
value of $7,100,000, included in marketable securities.
C. Components of inventories are summarized as follows:
March 31, December 31,
1994 1993
Raw materials $ 127,982 $ 132,841
Work in process 97,650 67,207
Finished goods 1,234,237 1,620,835
$1,459,869 $1,820,883
D. The Company has recognized income from Somerset Pharmaceuticals,
Inc. (Somerset), of $5,329,000 and $5,589,000 for the three
month periods ended March 31,1994, and March 31, 1993,
respectively. In addition, the Company has recognized income
from American Triumvirate Insurance Company (ATIC) of $197,000
and $210,000 for the three month periods ended March 31, 1994,
and March 31, 1993, respectively.<PAGE>
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The following unaudited information is provided for unconsolidated
investments, accounted for utilizing the equity method, in the
aggregate:
March 31,
1994 1993
Net revenues $24,157,000 $31,184,000
Gross profits $20,757,000 $27,383,000
Net income $10,254,000 $10,090,000
Amounts previously reported for the quarter ended March 31, 1993,
relating to the partnership with RPR are not included in the above
table. These amounts have been reclassified to conform to
the current presentation, reflecting the restructured agreement
with RPR that became effective on September 1, 1993.
E. As of March 31, 1994, the Company had commitments to third
parties of approximately $3,200,000, for research and
development projects to be expended over the next three years.
F. Net income (loss) per share is based on the weighted average
number of common shares and equivalents outstanding for each
period. The effect of stock options was less than 3% of the
weighted average shares outstanding in 1994, was antidilutive in
1993, and accordingly, was not included in earnings per share.
G. The Company, at March 31, 1994, was not required to provide for
federal or state income taxes as pretax income included income
which is excluded for tax purposes, with the remaining taxable
income offset by the Company's net operating loss carryforward.
At March 31, 1994, the Company's net operating loss
carryforward, for federal income tax purposes, was
approximately $79,000,000,which, if not utilized, will begin to
expire in the year 2006.
H. On March 22, 1994, the Company announced a proposed merger with
Hi-Tech Pharmacal Co.,Inc. (Hi-Tech), a pharmaceutical firm
located on Long Island, in a transaction intended to be
accounted for as a "pooling of interests." The merger was
subject to the execution of a definitive agreement, satisfactory
completion of due diligence and approval by each
Company's shareholders.
On May 5, 1994, Circa announced that the companies were unable
to agree on certain terms and conditions and that discussions
regarding the merger were terminated.
I. Pending Litigation:
In the case entitled Cliff Westfall, et al. v. Circa
Pharmaceuticals, Inc. et al. pending in the Circuit
Court for the County of Oakland, State of Michigan, the
plaintiffs' motion for class certification was
denied.
At December 31, 1993, the Company provided an allowance for the
estimated cost of all pending litigation. Based upon the
information it presently possesses, the Company believes that
the outcome of all pending litigation will not have a material
adverse effect on the Company's consolidated financial position.<PAGE>
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
Results of Operations
The Company reported net income of $3,874,000 for the three month
period ended March 31, 1994, compared to a net loss of $4,412,000
for the same period in 1993. The primary reason for the
increase in net income in 1994 was the absence of a $4,242,000 loss
recognized from the partnership with RPR and a $3,000,000 legal
settlement, both incurred during the first quarter of 1993. Income
in 1994 was primarily attributable to equity in earnings of
Somerset Pharmaceuticals, Inc. (Somerset),a 50% owned joint
venture, of $5,329,000 and the gain on sales of 67,000
shares of Marsam common stock of $956,000, which offset the
Company's loss from operations. Net sales were $1,234,000 during
the first quarter of 1994, compared to $358,000 for the same period
in 1993. The sales increase from 1993 to 1994 was primarily due to
the marketing of a transdermal patch for the full quarter in 1994
versus only the month of March in 1993, when such sales originally
commenced.
Research and development expenses were $1,498,000 in 1994, compared
to $1,039,000 in 1993, representing an increase of $459,000 or 44%.
The primary reason for the increase was the Company's
expansion of its research and development program following the
rehabilitation by the FDA in April 1993. The Company is committed
to expanding its research and development program through both
internal efforts and joint venture arrangements with other
companies.
Manufacturing overhead was $949,000 in 1994, compared to $1,016,000
in 1993, representing a decrease of $67,000 or 7%. These costs are
expected to be absorbed by the manufacturing process as new
products are introduced into the system through product approvals
obtained from the Company's internal research and development
program, as well as increased activity in contract
manufacturing and joint venture projects with other companies.
Selling and administrative expenses were $1,461,000 in 1994,
compared to $1,764,000 in 1993, representing a decrease of $303,000
or 17%. The decrease was primarily attributable to a reduction
in legal expenses as a significant portion of pending litigation
was resolved in 1993. In addition, the Company did not incur costs
for FDA rehabilitation in 1994 as it did during the first quarter
of 1993.
The Company received notification in April 1993 that it could
resume functioning under the standard framework of the FDA.
At March 31, 1994, the Company had a net operating loss carry
forward, for federal income tax purposes, of approximately
$79,000,000 which, if not utilized, will begin to expire in the
year 2006.
<PAGE>
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
Working capital increased from $34,800,000 at December 31, 1993 to
$43,000,000 at March 31,1994. The increase of $8,200,000 was
primarily attributable to an unrealized holding gain of
$4,303,000, included in shareholders' equity, resulting from the
Company's adoption of Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities, and dividends of $4,500,000 received from
Somerset.In addition, the Company received $1,108,000 from the
sales of Marsam common stock and $1,350,000 from other marketable
securities. These increases were offset by funds used for
operating activities of $3,034,000.
At March 31, 1994, the Company had commitments of approximately
$3,200,000 to third parties for research and development, which
will be expended over the next three years and be funded
through current working capital. The Company does not anticipate
significant capital expenditures relating to its facilities.
Primary sources of working capital for 1994 will continue to be
dividends and management fees received from Somerset, proceeds from
sales of Marsam common stock and income earned on other marketable
securities. The Company anticipates that its existing capital
resources are sufficient to meet its requirements based on its
current business plans.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, Note I - Pending Litigation
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March
31, 1994.
<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 thereunto duly authorized.
CIRCA PHARMACEUTICALS, INC.
DATE: May 11, 1994 /s/ Melvin Sharoky, M.D.
Melvin Sharoky, M.D.,
President and
Chief Executive Officer
DATE: May 11, 1994 /s/ Thomas P. Rice
Thomas P. Rice,
Executive Vice President,
Chief Operating and Financial Officer
