SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______ to ______
Commission file number 0-9065
Golden Pharmaceuticals, Inc.
(Exact name of small business issuer
as specified in its charter)
Colorado 84-0645174
(State or other jurisdiction of (IRS Employer incorporation or
organization)Identification No.)
1313 Washington Avenue, Golden, Colorado 80401
(Address of principal executive offices)
(303-279-9375)
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such
reports),and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
The number of shares outstanding of the issuers Common Stock, no par
value as of January 20, 1997 was 120,785,715 shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
Part I
Item 1. FINANCIAL STATEMENTS
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
November 30, August 31,
1996 1996
CURRENT ASSETS:
Cash and Cash Equivalents $ 32,987 $ 34,872
Receivables
Trade, net of allowance for doubtful
accounts of $48,134 and $43,634 at
November 30 and August 31, 1996 2,273,358 1,443,684
Inventories 1,655,132 1,336,633
Prepaid expenses 229,702 168,582
Deferred Taxes 380,000 380,000
Note Receivable 346,363 165,000
TOTAL CURRENT ASSETS 4,917,542 3,528,771
PROPERTY, PLANT AND EQUIPMENT- AT COST 4,437,540 4,339,707
Less accumulated depreciation
and amortization 1,894,596 1,782,400
2,542,944 2,557,307
OTHER ASSETS
Goodwill, less accumulated amortization
of $66,171 and $16,543 at November 30
and August 31, 1996, respectively 3,871,087 3,948,256
Non-compete Agreement 401,969 425,600
Intangibles, net of amortization 37,362 11,667
Deferred income taxes 220,000 220,000
TOTAL OTHER ASSETS 4,530,418 4,605,523
$11,990,904 $10,691,601
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS(Unaudited)
LIABILITIES AND STOCKHOLDERS'
EQUITY
November 30, August 31,
1996 1996
CURRENT LIABILITIES:
Note payable $ 1,368,889 $ 532,141
Note payable-related party 75,000 -
Current maturities of long-term debt 715,625 785,835
Current maturities of capitalized lease 95,246 95,246
obligations
Accounts payable 1,417,844 921,045
Accrued liabilities
Interest 241,712 144,148
Other 96,575 138,248
TOTAL CURRENT LIABILITIES 4,010,891 2,616,663
LONG-TERM OBLIGATIONS, less current
maturities 3,603,050 3,674,355
CAPITALIZED LEASE OBLIGATIONS, less
current maturities 416,907 299,674
EXCESS LOSS ON INVESTMENT IN JOINT
VENTURE 6,622 10,776
MINORITY INTEREST 884,904 852,372
STOCKHOLDERS' EQUITY
Common stock - no par value; 200,000,000
shares authorized; 124,063,778 and
124,063,778 issued, 120,774,778 and
120,774,778 outstanding, at November 30,
and August 31, 1996, respectively 23,867,384 23,867,384
Preferred stock- no par value; 10,000,000
shares authorized Class A 15%/30% cumulative
convertible 29,653 shares, issued and
outstanding at November 30, and August 31,
1996 292,558 292,558
24,159,942 24,159,942
Accumulated deficit (20,997,280) (20,828,049)
Less Common Stock in treasury at cost,
3,289,000 shares at November 30, and
August 31, 1996, respectively 94,132 94,132
TOTAL STOCKHOLDERS' EQUITY 3,068,530 3,237,761
$ 11,990,904 $10,691,601
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
November 30,
1996 1995
REVENUES:
Net sales $ 3,553,919 $2,264,773
Cost of Sales 2,396,242 1,439,880
GROSS MARGIN 1,157,677 824,893
Selling, general and administrative 1,232,123 711,044
OPERATING INCOME(LOSS) (74,446) 113,849
OTHER INCOME/(EXPENSE)
Interest Expense (264,197) (180,191)
Joint Venture Income(Loss) (16,846) -
Gain on Disposal of Equipment 2,363 -
Other Income 218,026 2,148
TOTAL OTHER INCOME/(EXPENSE) (60,654) (178,043)
INCOME(LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (135,100) (64,194)
INCOME TAX (BENEFIT) EXPENSE 1,600 21,400
INCOME BEFORE MINORITY INTEREST (136,700) (85,594)
MINORITY INTEREST (32,532) -
NET INCOME(LOSS) $ (169,232) $ (85,594)
INCOME(LOSS) PER COMMON SHARE
NET INCOME(LOSS) * *
WEIGHTED AVERAGE SHARES OUTSTANDING 120,774,778 101,403,953
* Less than $.01 per share
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
November 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss) $(169,232) $(85,594)
Adjustments to reconcile net income to
net cash provided (used) by operations
Depreciation and amortization 191,323 105,303
Minority interest in earnings 32,532 -
Gain/loss on sale of assets 2,363 -
(Increase) decrease in -
Accounts receivable (829,673) 186,109
Note receivable (181,363) -
Inventory (318,499) 6,659
Prepaid expenses and other (61,120) (55,478)
Increase (decrease) in -
Accounts payable 496,796 (415,437)
Accrued interest and other 55,891 (50,376)
TOTAL ADJUSTMENTS (611,750) (223,220)
NET CASH PROVIDED BY OPERATING
ACTIVITIES (705,982) (308,814)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiary 2,500 -
Purchase of property and equipment (106,718) (45,281)
Excess loss in investment (21,000) -
Proceeds from sale of assets 16,846 -
Purchase of treasury stock - (90,562)
Addition to goodwill - (50,576)
NET CASH (USED) BY INVESTING ACTIVITIES (108,372) (186,419)
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable - related party 75,000 -
Long term borrowings 154,365 -
Payments of note payable (178,644) (51,009)
Issuance of line of credit 4,528,931 2,162,374
Payments on line of credit (3,692,183) (1,595,179)
NET CASH (USED) BY FINANCING ACTIVITIES 887,469 516,186
NET INCREASE (DECREASE) IN CASH (1,885) 20,953
CASH, Beginning of period 34,872 49,557
CASH, End of period $ 32,987 $ 70,510
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Interest paid $ 166,632 $ 102,309
Income taxes paid $ 1,600 $ 21,400
GOLDEN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SUMMARY OF ACCOUNTING
POLICIES
The accompanying unaudited financial statements of Golden
Pharmaceuticals, Inc. and its consolidated subsidiaries
(collectively, the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include
all of the information and notes required by generally accepted
accounting principles for annual financial statements.
The accompanying unaudited condensed financial statements and
disclosures reflect all adjustments which, in the opinion of the
management, are necessary for a fair presentation of the results of
operations, financial position, and cash flow of the Company. The
results of operations for the periods indicated are not necessarily
indicative of the results for the full year.
The financial statements should be read in conjunction with the
audited financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended August 31,
1996 as filed with the Securities and Exchange Commission.
Net Income Per Common Share - Net income per common share was
determined by dividing net income, as adjusted below, by applicable
weighted average shares outstanding.
Three Months Ended
November 30
1996 1995
NET INCOME(LOSS) $ (169,232) $(85,594)
Weighted average number of
shares outstanding 120,774,778 101,403,953
Common stock equivalents and stock held in escrow have been included
in the computation for the three months ended November 30, 1996 and
1995. The common stock equivalents that have been included in the
computation for earnings per share are common stock and treasury
stock. Stock options, Class A Convertible Preferred Stock, 15%/30%
Cumulative Convertible Preferred Stock, and accrued dividends on the
15%/30% Cumulative Convertible Preferred Stock are considered
antidilutive and accordingly, are not included in the computation of
earnings per share.
Reclassification - Certain reclassifications have been made to
conform prior years' information with the current year presentation.
Note 2. RECENT ACQUISITIONS
On August 7, 1995, the Company purchased all of the issued and
outstanding capital stock of Quality Care Pharmaceuticals, Inc., a
California corporation ("QCP") for a total of $3,718,750 in cash. To
facilitate the financing of the acquisition of QCP, the Company
obtained from a national bank (the "Bank") a $4,000,000 term loan
(the "Term Loan"), a $2,500,000 revolving line of credit (the
"Revolving Facility") and a $400,000 term loan. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS - Liquidity and Capital
Resources."
On February 12, 1996 QCP entered into a joint venture agreement
with Visiting Nurses Association of Orange County ("VNA") to
establish Rx Direct, LLC ("RxD"), a mail order pharmacy, whereby it
acquired a 50% interest in Rx Direct.
On June 15, 1996, the Company entered into a joint venture
agreement with PharmaFrance, Inc. to form Pharma Labs, LLC ("Pharma
Labs"). The Company contributed a total of $1,000,000 for 52%
interest in Pharma Labs. Pharma Labs is engaged in the
manufacturing, packaging, and distribution of nutritional
supplements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
selected financial data and the financial statements and notes
thereto filed herewith.
The statements contained in this report, if not historical, are
forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, and involve risks and
uncertainties that could cause actual results to differ materially
from the financial results described in such forward looking
statements. These risks and uncertainties include, among others, the
level and rate of growth in the Company's operations, the capital
requirements of QCP and Pharma Labs and the ability of the Company to
achieve earnings per share growth through internal investment,
strategic alliances, joint ventures and other methods. The success
of the Company's business operations is in turn dependent on factors
such as the effectiveness of the Company's marketing strategies to
grow its customer base and improve customer response rates, the
appeal of the Company's mix of products, the Company's success at
entering into and collaborating with others to conduct effective
strategic alliances and joint ventures, general competitive
conditions within the pharmaceutical industry and general economic
conditions. Further, any forward looking statements or statements
speak only as of the date on which such statement was made, and the
Company undertakes no obligation to update any forward looking
statement or statements to reflect events or circumstances after the
date on which such statement is made or to reflect the occurrence of
unanticipated events. Therefore, forward-looking statements should
not be relied upon as a prediction of actual future results.
Overview
As of June 15, 1996 the financial results of the Company and
Pharma Labs were reported on a consolidated basis.
Results of Operations
Three Months Ended November 30, 1996 Compared to Three Months Ended
November 30, 1995
Net Sales. Net sales for the three months ended November 30,
1996 increased to $3,553,919 compared to $2,264,773 for the three
months ended November 30, 1995. The increase of $1,289,146 or 57% is
primarily attributable to (i) the consolidation of the operations of
Pharma Labs' with the Company's for the current period, which
represents approximately $680,000 of the increase, and (ii) an
increase in QCP sales of $550,000.
Cost of Goods Sold. Cost of goods sold as a percentage of sales
was 67% for the three months ended November 30, 1996 as compared to
64% for the three months ended November 30, 1995. The increase is
primarily the result of the consolidation of Pharma Labs' operations
with the Company's, which has a lower gross profit margin.
Selling General and Administrative. Selling, general and
administration expenses ("SG&A") were $1,232,123 for the three months
ended November 30, 1996 as compared to $711,044 for the three months
ended November 30, 1995. The increase of $521,079 or 73% is due to
(i) the consolidation of Pharma Labs' operations with the Company's
for the three months ended November 30, 1996, which represented
$275,000 of the increase; and (ii)increased expenses for personnel,
travel, trade shows and consulting fees in connection with the
Company's efforts to enhance the operations and management of QCP,
which represented approximately $429,000 of the increase.
Net Income. The Company reported a net loss of $169,232 for the
three months ended November 30, 1996 as compared to a net loss of
$85,594 for the three months ended November 30, 1995. The increased
net loss was primarily due to (i) the increase in SG&A expenses of
approximately $521,000, and (ii) an increase in interest expense of
$84,000 as a result of increased borrowings under the Revolving Loan
Facility. The increase in expenses was partially offset by increased
sales.
LIQUIDITY AND CAPITAL RESOURCES
The operations of QCP and Pharma Labs have consumed substantial
amounts of cash. As a result the Company, on a consolidated basis,
experienced negative cash flow from operations for the three months
ended November 30, 1996. Management anticipates that QCP will
operate on a "break-even" basis for fiscal year 1997 but that Pharma
Labs will continue to experience negative cash flow from operations.
As a result of the continuing capital requirements of QCP and Pharma
Labs, management projects that the Company may continue to experience
negative cash flow from operations for fiscal year 1997.
During the three months ended November 30, 1996, the Company
used proceeds from its Revolving Loan Facility to expand QCP's
marketing and sales force and to purchase hardware and software for
QCP's operations. The Company is unable to use the proceeds from its Revolving
Loan Facility to fund the operations of Pharma Labs, LLC. due to restrictions in
the related loan agreement. Therefore, the Company also obtained a loan in the
principal amount of $25,000 from its Chief Executive Officer to fund the
operations of Pharma Labs, LLC. The Company expects that its future cash needs
for fiscal year 1997 will primarily relate to the continued expansion of QCP's
operations. In addition the Company will require additional funds to continue
the development of Pharma Labs operations internationally and domestically as a
repackager of unit doses. If the Company cannot obtain additional
sources of financing it may be forced to curtail the activities of
QCP and Pharma Labs.
The following table is presented to facilitate the discussion of
the Company's current liquidity and sets forth the Company's
liquidity position as of November 30, 1996 as compared to August 31,
1996.
,November 30,1996,August 31, 1996
Current Assets,$4,917,542, $3,528,771*
Current Liabilities, 4,010,891, 2,616,663
Net Working Capital,$ 906,651, $ 912,108
* Includes $380,000 of deferred taxes per FASB 109 resulting from the
Company's substantial net operating loss carryforwards.
Current assets were $4,917,542, an increase of $1,388,771 or
39% at November 30, 1996 as compared to $3,528,771 at August 31,
1996. The increase was primarily due to (i) an increase in accounts
receivable for QCP due to increased sales which represented
$830,000 of the increase, and (ii) an increase in QCP's inventories
of $318,000 which was a result of an increase of QCP's top 100
inventory items in an effort to produce larger lots and reduce
manufacturing costs through the utilization of automated packaging
equipment.
Current liabilities were $4,010,891, an increase of
$1,394,228 or 53% at November 30, 1996 compared to current
liabilities of $2,616,663 at August 31, 1996. The increase in
current liabilities was primarily the result of (i) additional
borrowings of $837,000 under the Revolving Loan Facility to support
the operations and expansion of QCP, and (ii) an increase in accounts
payable of approximately $500,000, which is a result of the build up
of inventory. The Company had working capital of $906,651 and a
current ratio of 1.2:1.0 for the period ended November 30, 1996.
To facilitate the financing of the acquisition of QCP, to
refinance existing debt of the Company and QCP and to provide working
capital for the Company and QCP, the Company obtained the Term Loan
and the Revolving Loan Facility. Interest on the Term Loan is
payable at the Bank prime plus 3% (which totaled 11.25% at November
30, 1996). The Term Loan is payable in sixteen quarterly
installments of $125,000 to be made August 1, 1996 through August 1,
2000 with a lump sum payment of $2,000,000 due in August 2000. The
Revolving Facility is payable at the Bank's prime plus 2% and expires
in August, 2000. At November 30, 1996 the balance on the Revolving
Facility was $1,368,889 and the interest rate was 10.25%. The
Company has an additional term loan of $400,000 with an interest rate
at the Bank's prime plus 3% (which totaled 11.25% at November 30,
1996) and which is payable in monthly installments of $6,667 through
August 1, 2000. In November 1996, the Company and the Bank entered
into a Fourth Amendment to the Credit and Security Agreement, which
amendment revised certain covenants and waived prior defaults related
to certain financial ratios.
The Company's long term debt, including the current portion
thereof, at November 30, 1996 consisted of notes payable to the Bank
totaling $4,318,675 incurred primarily as a result of the acquisition
of QCP.
The Company has capitalized leases and operating leases for
equipment, facilities and vehicles used in its business. Minimum
lease payments for its capitalized and operating leases are
approximately $30,000 per month, as of November 30, 1996.
As of November 30, 1996, the Company had net operating loss
carryforwards for fiscal income tax purposes of approximately
$16,000,000. The net operating loss carryforwards will expire in the
years 1997 through 2006. The Company's ability to utilize its net
operating loss carryforwards is subject to an annual limitation in
future periods pursuant to the "change in ownership" rules under
Section 382 of the Internal Revenue Code of 1986.
The Company's long-term capital expenditure requirements
will depend upon numerous factors, including the demand for the
Company's product and any expansion activities. The Company
currently has no commitments or arrangements for raising additional
capital.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit 11 Statement Regarding Computation of Per Share
Earnings
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
No Current Reports on Form 8-K were filed during the period
covered by this report
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GOLDEN PHARMACEUTICALS, INC.
(Registrant)
DATED: January 20, 1997 BY: /s/ Glen H. Weaver
Glen H. Weaver,
Vice President, Finance
Chief Financial
OfficerExhibit No. 11
To The Form 10-QSB
For The Quarterly Period Ended November 30, 1996EXHIBIT NO.
11
GOLDEN PHARMACEUTICALS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three months Ended
November 30,
1996 1995
Shares of common stock and
equivalents outstanding at
beginning of period 120,774,778 106,331,371
Weighted-average shares or
equivalents issued during
the period - 410,737
Weighted-average shares or
equivalents canceled during
the period - (5,958,242)
Weighted-average shares assumed
issued under stock option plans
during the period - 620,087
Average common and common
stock equivalents
outstanding 120,774,778 101,403,953
Income before extraordinary
item (169,232) (85,594)
Extraordinary Item - -
Accrual of dividends on 15%/30%
convertible preferred stock - -
Net Income $ (169,232) $ (85,594)
Earnings per share:
Income before extraordinary
item $ * $ *
Extraordinary Item * *
Accrual of dividends on 15%/30%
convertible preferred stock * *
Earnings per share $ * $ *
* Less than $.01 per share
Exhibit No. 27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant fiancial statement for the quarter ended November 30, 1996 contained
in its report on Form 10-QSB and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> AUG-31-1997 AUG-31-1996 AUG-31-1996
<PERIOD-END> NOV-30-1996 NOV-30-1995 AUG-31-1996
<CASH> 32,987 0 34,872
<SECURITIES> 0 0 0
<RECEIVABLES> 2,273,358 0 1,443,684
<ALLOWANCES> 48,134 0 43,634
<INVENTORY> 1,655,132 0 1,336,633
<CURRENT-ASSETS> 4,917,542 0 3,528,771
<PP&E> 4,437,540 0 4,339,707
<DEPRECIATION> 1,894,596 0 1,782,400
<TOTAL-ASSETS> 11,990,904 0 10,691,601
<CURRENT-LIABILITIES> 4,010,891 0 2,616,663
<BONDS> 0 0 0
0 0 0
292,558 0 292,558
<COMMON> 23,867,384 0 23,867,384
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 11,990,904 0 10,691,601
<SALES> 3,553,919 2,264,773 0
<TOTAL-REVENUES> 3,553,919 2,264,773 0
<CGS> 2,396,242 1,439,880 0
<TOTAL-COSTS> 2,396,242 1,439,880 0
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (264,197) (180,191) 0
<INCOME-PRETAX> (135,100) (64,194) 0
<INCOME-TAX> 1,600 21,400 0
<INCOME-CONTINUING> (169,232) (85,594) 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (169,232) (85,594) 0
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