UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number: 0-13976
AKORN, INC.
(Exact Name of Registrant as Specified in its Charter
LOUISIANA 72-0717400
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 Tri-State International, Suite 100
Lincolnshire, Illinois 60069
(Address of Principal Executive Offices) (Zip Code)
(847) 236-3800
(Issuer's telephone number)
Indicate by check mark whether the issuer (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 No ____
At April 29, 1998 there were 17,826,244 shares of common stock, no par value,
outstanding.
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<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
<S> <C>
Condensed Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Income -
Three months ended March 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
</TABLE>
The information contained in this filing, other than historical information,
consists of forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from those described in
such statements. Such statements regarding the timing of acquiring, developing
and financing new products, of bringing them on line and of deriving revenues
and profits from them, as well as the effect of those revenues and profits on
the company's margins and financial position, is uncertain because many of
the factors affecting the timing of those items are beyond the company's
control.
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AKORN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997*
-------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,066 $ 2,413
Short-term investments - 96
Trade accounts receivable, net 7,453 5,429
Inventory 11,248 9,955
Prepaid expenses and other assets 2,020 1,740
-------- --------
TOTAL CURRENT ASSETS 22,787 19,633
OTHER ASSETS 13,126 6,687
PROPERTY, PLANT and EQUIPMENT, NET 12,560 12,395
-------- --------
TOTAL ASSETS $ 48,473 $ 38,715
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 1,000 $ 1,750
Current installments of long-term debt
and capital lease obligations 2,352 149
Trade accounts payable 3,841 3,447
Accrued compensation 905 985
Accrued expenses and other liabilities 2,724 2,281
-------- --------
TOTAL CURRENT LIABILITIES 10,822 8,612
LONG-TERM DEBT AND
CAPITAL LEASE OBLIGATIONS 15,169 9,003
OTHER LONG-TERM LIABILITIES 849 849
SHAREHOLDERS' EQUITY
Common stock 16,575 16,241
Retained earnings 5,058 4,010
-------- --------
TOTAL SHAREHOLDERS' EQUITY 21,633 20,251
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 48,473 $ 38,715
======== ========
</TABLE>
*Condensed from audited consolidated financial statements.
See notes to condensed consolidated financial statements.
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AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
-------------------------
<S> <C> <C>
Net sales $ 12,051 $ 8,869
Cost of sales 5,809 5,441
-------------------------
GROSS PROFIT 6,242 3,428
Selling, general and
administrative expenses 3,745 2,558
Research and development 728 361
Relocation expenses - 1,451
-------------------------
4,473 4,370
-------------------------
OPERATING INCOME (LOSS) 1,769 (942)
Interest expense (190) (116)
Interest and other income, net 1 141
-------------------------
(189) 25
-------------------------
INCOME (LOSS) BEFORE INCOME TAXES 1,580 (917)
Income taxes (benefit) 532 (340)
-------------------------
NET INCOME (LOSS) $ 1,048 $ (577)
=========================
Per Share:
NET INCOME (LOSS) - BASIC $ 0.06 $ (0.03)
NET INCOME (LOSS) - DILUTED $ 0.06 $ (0.03)
WEIGHTED AVERAGE
SHARES OUTSTANDING - BASIC 17,686 16,592
- DILUTED 18,582 16,592
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,048 $ (577)
Adjustments to reconcile net income
(loss) to netcash provided by
operating activities:
Depreciation and amortization 895 376
Building and equipment write down - 400
Changes in operating assets and liabilities (2,840) 1,985
---------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (897) 2,184
INVESTING ACTIVITIES
Purchases of property, plant and equipment (577) (360)
Net maturities of investments 96 -
Product licensing/acquisition costs (6,908) (60)
---------------------------
NET CASH USED IN INVESTING ACTIVITIES (7,389) (420)
FINANCING ACTIVITIES
Repayment of long-term debt - (16)
Proceeds from issuance of long-term debt 8,391 -
Proceeds from sale of stock 334 -
Reductions in capital lease obligations (36) (40)
Repayment of short-term borrowings, net (750) (150)
NET CASH PROVIDED BY (USED IN) ---------------------------
FINANCING ACTIVITIES 7,939 (206)
---------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (347) 1,558
Cash and cash equivalents at
beginning of period 2,413 1,380
---------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,066 $ 2,938
===========================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
AKORN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Akorn, Inc. and its wholly owned subsidiaries (the Company).
Intercompany transactions and balances have been eliminated in consolidation.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and accordingly
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for a full year. For further information, refer to
the consolidated financial statements and footnotes for the year ended December
31, 1997, included in the Company's Annual Report on Form 10-K.
NOTE B - SUBSEQUENT EVENTS
On April 8, 1998, the Company announced a licensing agreement with Bio-
Technology General Ltd. (BTG) for the exclusive rights to market and sell
BTG's BioLonT viscoelastic solution in the U.S. In exchange for these
exclusive rights, the Company paid BTG $1,000,000, with $500,000 paid upon
closing and $500,000 payable upon final FDA approval of the product, and
will pay a product transfer price to BTG.
On April 14, 1998, the Company announced the acquisition of ALZA
Corporation's ophthalmic products and proprietary ophthalmic drug delivery
technology. The Company paid ALZA $475,000, with $175,000 paid upon closing
and $300,000 payable no later than March 31, 1999. The Company will pay ALZA
a royalty on sales of the acquired products, but not on future products
developed with the drug delivery technology.
NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which requires all items of comprehensive income be
reported in a financial statement that is displayed with the same prominence
as other financial statements. Other comprehensive income may include
foreign currency items, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. The
accumulated balance of other comprehensive income must be displayed
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. The Company has
adopted this accounting standard January 1, 1998, as required. Currently,
the Company does not have any items that qualify as "other comprehensive
income." Accordingly, no separate statement has been presented herein.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The Company
will adopt this accounting standard as of December 31, 1998, as required.
The Company expects to continue reporting on ophthalmic and injectable
segments.
<PAGE>
AKORN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to 1997
The following table sets forth, for the periods indicated, net sales by
segment, excluding intersegment sales:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
------------------
<S> <C> <C>
Ophthalmic division $ 6,480 $ 5,676
Injectable division 5,571 3,193
------------------
Total net sales $12,051 $ 8,869
</TABLE>
Consolidated net sales increased 36% in the quarter ended March 31, 1998
compared to the same period in 1997. Ophthalmic division sales increased
14%, reflecting new product introductions and product acquisitions as well
as growth in the base business. Injectable division sales increased 74%
compared to the same period in 1997 due to product acquisitions, growth in
national account sales and increased contract manufacturing activity.
Consolidated gross profit increased 82% during the quarter, with gross
margins increasing from 39% to 52%. Margins for the ophthalmic division
increased from 45% to 47%, reflecting product acquisitions as well as a
higher-margin sales mix. Margins for the injectable division increased
from 29% to 57%, reflecting product acquisitions, reengineering of production
processes, and the ongoing transition of the contract manufacturing business
to turnkey product development.
Selling, general and administrative (SG&A) expenses increased 46% during the
quarter ended March 31, 1998 as compared to the same period in 1997,
reflecting increased marketing and promotional activities in the ophthalmic
division as well as increased amortization of intangibles related to product
acquisitions. The percentage of SG&A expenses to sales increased from 29% to
31%, reflecting the increases noted above.
Research and development (R&D) expense increased 102% in the quarter, to
$728,000 from $361,000 for the same period in 1997. The increase reflects
an increased number of products under development. Management expects R&D
expenses in 1998 to increase over prior year levels.
During the quarter ended March 31, 1997, the Company recorded $1,451,000 in
charges related to the relocation of the ophthalmic division and executive
offices from Abita Springs, Louisiana to the Chicago area. The charges
primarily relate to severance and retention bonus payments as well as a
write-down of the Abita Springs facility and equipment to net realizable
value.
Interest expense of $190,000 was up 64% on higher outstanding debt balances.
The Company's effective tax rate for the quarter was 34% compared to 37% for
the prior-year period. The Company reported net income of $1,048,000 or
$0.06 per diluted share for the three months ended March 31, 1998. The net
loss for the comparable prior-year period was $577,000 or $0.03 per share.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Working capital at March 31, 1998 was $12.0 million compared to $7.4 million
in the comparable prior year. At March 31, 1998 the Company had $0.3 million
of financing available under its line of credit. Management believes that
existing cash and cash flows from operations are sufficient to handle the
Company's working capital requirements for the immediate future, but that
additional financing will be necessary for acquisitions. There is no
guarantee that such financing will be available or available at an
acceptable cost.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Certain legal proceedings in which the registrant, Akorn, Inc. (the "Company"),
is involved are described in Item 3 to the Company's Form 10-K for the year
ended December 31, 1997 and in Note P to the consolidated financial
statements included in that report.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter
ended March 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11.1) Computation of Earnings (Loss) per Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
<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.
AKORN, INC.
/s/ Rita J. McConville
----------------------
Rita J. McConville
Vice President, Chief Financial
Officer and Secretary
(Duly Authorized and Principal
Financial Officer)
Date: April 29, 1998
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<CAPTION>
Akorn, Inc.
Exhibit 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(In Thousands, Except Per Share Data)
Three Months Ended March 31,
1998 1997
----------------------------
<S> <C> <C>
Earnings (Loss):
Income (loss) applicable to common stock $1,048 $ (577)
Weighted average number of shares
outstanding 17,686 16,592
Net income (loss) per share - basic $ 0.06 $ (0.03)
============================
Additional shares assuming conversion
of options and warrants 896 -
----------------------------
Pro forma shares 18,582 16,592
Net income (loss) per share - diluted $ 0.06 $ (0.03)
============================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,066,165
<SECURITIES> 0
<RECEIVABLES> 7,453,077
<ALLOWANCES> 0
<INVENTORY> 11,248,391
<CURRENT-ASSETS> 22,787,485
<PP&E> 22,578,774
<DEPRECIATION> 10,018,613
<TOTAL-ASSETS> 48,473,383
<CURRENT-LIABILITIES> 10,821,740
<BONDS> 0
0
0
<COMMON> 16,575,214
<OTHER-SE> 5,058,230
<TOTAL-LIABILITY-AND-EQUITY> 48,473,383
<SALES> 12,050,914
<TOTAL-REVENUES> 12,050,914
<CGS> 5,808,899
<TOTAL-COSTS> 5,808,899
<OTHER-EXPENSES> 4,472,308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189,621
<INCOME-PRETAX> 1,580,910
<INCOME-TAX> 532,273
<INCOME-CONTINUING> 1,048,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,048,637
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
