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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1997
COMMISSION FILE NUMBER: 0-9065
GOLDEN PHARMACEUTICALS, INC.
(Name of small business issuer in its charter)
COLORADO 84-0645174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
710-14TH STREET, GOLDEN, COLORADO 80401
(Address of principal executive office)(Zip Code)
(303) 279-9375
Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of Class)
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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year: $11,957,841
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of November 21, 1997, was $21,271,734. This calculation is based
upon the average of the bid ($.16) and asked ($.18) prices of the voting stock
on November 21, 1997.
The number of shares of common stock outstanding as of November 21, 1997, was
125,127,847
Transitional Small Business Disclosure Format: Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL.
Golden Pharmaceuticals, Inc. (the "Company") was incorporated in 1973
under the name Mini-Dose Labs. In 1979, under the name Benedict Nuclear
Pharmaceuticals, Inc., the Company completed its initial public offering
of common stock. On October 7, 1992, the Company's name was changed to
North American Chemical Corporation and on March 4, 1994 it was changed
again to Golden Pharmaceuticals, Inc. From 1979 to April 1997, the
Company's primary business was the manufacture and distribution of
Sodium Iodide 123 (I-123) diagnostic capsules. In April 1997, the
Company completed the sale of its assets related to the manufacture and
distribution of I-123 capsules. See "Recent Developments - Sale of
Radiopharmaceutical Division." The Company's primary business is now the
repackaging and distribution of pharmaceuticals through its wholly owned
subsidiary, Quality Care Pharmaceuticals, Inc. ("QCP"). See "Recent
Developments - Acquisition of Quality Care Pharmaceuticals, Inc."
RECENT DEVELOPMENTS.
ACQUISITION OF QUALITY CARE PHARMACEUTICALS, INC. In August 1995, the
Company purchased all of the issued and outstanding common stock of QCP
for a total purchase price of $3,718,750. 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 $2,000,000 revolving
line of credit (the "Revolving Facility") and an additional $400,000
term loan. See "Liquidity and Capital Resources." QCP is engaged in the
repackaging and distribution of pharmaceutical products and related
computerized dispensing and patient tracking systems. QCP's customers
include physicians, hospitals, group practices, managed care programs
and other legally constituted medical facilities throughout the United
States.
INCLUSION OF PHYSICIANS IN THE NATIONAL PRESCRIPTION DRUG CLAIMS
PROCESSING SYSTEM. In October, 1995, the National Council for
Prescription Drug Programs (NCPDP) gave final approval to its pilot
program to include physicians in the national prescription drug claims
processing system. This decision produced a fundamental change in the
market for QCP's products. The Company believes that, at the time of the
acquisition, QCP was the second largest company in an industry with a
market of approximately $100 million. As a result of this change, QCP
products can now be sold in the national prescription drug market for
which sales exceed $50 billion.
RX DIRECT, LLC. On February 12, 1996, QCP entered into a joint venture
agreement with the Visiting Nurses Association of Orange County ("VNA")
to establish Rx Direct, LLC ("RxDirect"), a mail order or direct
delivery pharmacy. QCP provides ongoing management and logistical
support to the joint venture. RxDirect is engaged in the dispensing of
medications via mail or courier delivery to subscribers of their
services. Both QCP and VNA actively market RxDirect's services to their
respective customer bases.
ISO 9000 CERTIFICATION. On March 14, 1996, and May 13, 1996, QCP and the
Company respectively were certified by the International Organization
for Standardization ("ISO 9000") as having the highest quality
standards. ISO 9000's purpose is to establish common worldwide quality
standards. The certification audit was performed by the French
International Organization called Ascert. QCP believes that they are one
of only a few domestic pharmaceutical repackagers that are currently ISO
9002 certified for their manufacturing plant and process.
PHARMA LABS, LLC. On June 15, 1996, the Company entered into a joint
venture agreement with Pharma France, Inc. to form Pharma Labs, LLC
("Pharma Labs"). The Company contributed $1,000,000 for 52% of the
equity in Pharma Labs, LLC. As of August 31, 1997, the Company had
loaned Pharma Labs $643,437 for inventory, leasehold improvements and
operational support.
Pharma Labs is a manufacturer and distributor of nutritional health
products both domestically and internationally. Pharma Labs has a
proprietary nutritional supplements product line which it distributes in
Vietnam. Efforts are currently underway to expand the distribution
throughout Asia. Acquisition of Pharma Labs has enabled the Company to
expand its line of products in health care as well as increase its
contract repackaging capabilities.
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SALE OF RADIOPHARMACEUTICAL DIVISION. On April 7, 1997, the Company
completed the sale of the assets related to its business of
manufacturing and distributing radiopharmaceuticals for a total purchase
price of $6,700,000 pursuant to the terms of an Asset Purchase Agreement
dated April 7, 1997, by and between the Company and Syncor
Pharmaceuticals, Inc.
Included in the sale was the New Drug Application (NDA) for the
radiopharmaceuticals, the building that contains the manufacturing
facility for this business, and all of the related equipment.
The proceeds from the sale were used to pay off the Company's term loans
in the principal amounts of $3,750,000 and $266,660, respectively, and
to pay down $1,485,000 remaining on the Revolving Facility.
JOINT MARKETING AGREEMENT WITH DORNOCH MEDICAL SYSTEMS, INC. In July
1997, the Company and Dornoch Medical Systems, Inc. ("Dornoch") entered
into a Joint Marketing Agreement ("JMA") whereby the Company will market
Dornoch's Redaway system, a medical infectious fluid collection and
disposal system, in return for royalties on sales. In connection with
the JMA, the Company was granted an option to purchase 220 shares of
Dornoch common stock at a purchase price of $2,000 per share, which
option will vest and be exercisable upon the sale of 80 Redaway systems
through the Company's marketing efforts. To date the Company has sold 2
Redaway systems. In addition, Dornoch purchased 1,000,000 shares of the
Company's common stock for $0.30 per share.
PHARMACEUTICAL REPACKAGING INDUSTRY.
Pharmaceutical repackagers, such as QCP, repackage pharmaceuticals from
bulk quantities into smaller units-of-use and dose measurements, thereby
providing physicians, hospitals, managed care programs and group
practices with the ability to dispense medication directly to patients
at the point-of-care (POC).
Dispensing medication at the POC provides physicians, managed health
care organizations and patients with a number of significant benefits.
Dispensing medication directly to the patient significantly improves
drug therapy compliance, which results in better patient outcomes and
reduces the need for additional medical services. This results in lower
overall medical costs per patient per incident. In addition, POC
dispensing provides greater patient census, patient convenience, patient
retention and lower health care costs due to compliance. Unit-of-use
medication is packaged under federal regulations which assures the
highest level of product quality, purity and safety. Unit-of-use
medication is significantly less expensive to the patient than
comparable products dispensed from a retail pharmacy.
MANUFACTURING
QCP is licensed by the U.S. Food and Drug Administration ("FDA") as a
manufacturer of repackaged prescription drugs. QCP purchases bulk
quantities of certain pharmaceuticals and repackages them into smaller
dispensing units for sale to its customers. QCP's repackaging facility,
located in Santa Ana, California, is licensed by the FDA, the United
States Drug Enforcement Administration ("DEA")and the California Health
and Services Department and maintains rigid quality control standards.
RxDirect is licensed by the DEA and the California Board of Pharmacy,
and operates as a retail pharmacy engaged in mail order delivery.
Pharma Labs is licensed by the FDA as a manufacturer and distributor of
nutritional supplement products as well as by the California Health and
Services Department. Pharma Labs manufactures both bulk and finished
packaged nutritional supplement products for international and U.S.
distribution.
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QUALITY CONTROL
The Company believes that QCP is the only drug repackager in the U.S.
that maintains full compliance to:
ISO9002 - International quality standards that currently
exceed all existing FDA regulations (ISO
certification, March 1996).
cGMP's - Current Good Manufacturing Practices - Title 21 Code of
Federal Regulations (amended April, 1995).
FDA - Food, Drug and Cosmetic Act
DEA - Controlled Substances Act.
QCP's production batch record requires over 120 specific entries. Every
step requires a minimum of two qualified employees to complete and
verify. Every batch requires a minimum of seven different employees to
complete.
Every step in the production process, every tablet/ capsule, bottle,
cap, and label is 100% traceable. QCP maintains this information no less
than one year past the original product's expiration date. In addition
to the batch record, QCP maintains over 25 separate logs that must be
completed every day the plant operates. These records document and
monitor facility temperature, humidity, air pressure differentials,
facility and equipment maintenance, equipment cleaning procedures,
equipment process validation systems, and many other critical production
and drug storage parameters to assure maximum product quality, purity,
safety and traceability.
QCP packages Penicillin and Cephalosporin antibiotics in separate
negative air flow packaging rooms. This process is designed to prevent
antibiotic contamination of non-antibiotic products, and cross
contamination between Penicillin and Cephalosporin products. Antibiotic
contamination of non-antibiotic drug products is one of the most
dangerous problems common to most pharmacies in the United States.
DISTRIBUTION.
QCP ships orders for its products via United Parcel Service or other
types of overnight delivery services. QCP's goal is to ship orders
within twenty-four hours of receipt of the order.
RxDirect ships orders for its products via UPS express delivery or
overnight courier directly to customers. RxDirect's goal is that orders
are shipped next day from receipt of order.
Pharma Labs ships via ocean freight containers and air cargo for
international customers and delivers directly via ground transportation
to U.S. customers. Delivery schedule depends on final form and quantity,
but generally products are available within two weeks of the order date.
SUPPLIERS.
QCP purchases pharmaceuticals from a number of FDA licensed United
States drug distributors and manufacturers. QCP's largest supplier is
Bergen Brunswig Corporation located in Corona, California. QCP believes
its relationship with its suppliers to be good.
RxDirect purchases pharmaceuticals from a number of FDA licensed drug
wholesalers. RxDirect's largest suppliers are Bergen Brunswig
Corporation, Barnes Wholesaler and Wyeth Ayerst.
Pharma Labs purchases raw materials from a number of FDA licensed
manufacturers. Pharma Labs' largest suppliers are Hoffman LaRoche,
Klockner Pentaplast and Stauber Performance.
BACKLOG.
The Company does not have significant backlogs but operates on a daily
order and contract basis with its customers.
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MARKETING.
QCP markets its products directly to customers through independent sales
representatives, corporate sales personnel, trade shows and via its
World Wide Web site.
RxDirect markets through QCP and VNA sales representatives, as well as
through direct mail and magazine advertising.
Pharma Labs markets through a distributor in Vietnam and surrounding
countries and directly to U.S. customers.
RESEARCH AND DEVELOPMENT.
QCP has developed a proprietary dispensing and patient tracking
software, called QScript. This software provides enhanced capabilities
to collect and analyze data on patient diagnosis, drug utilization,
treatment plans and specific costs and treatment outcomes. This not only
provides the health care provider with patient data necessary to augment
the patient's treatment, but also gives that provider an additional
revenue source or a major cost reduction. QCP's dispensing software
assures fast and simple dispensing in full compliance with state
pharmacy laws. Software development efforts continue on upgrades to its
proprietary dispensing and patient tracking software.
COMPETITION.
QCP competes with other repackagers of pharmaceuticals, including
Allscrips Pharmaceuticals, Inc., PDRx, and several other small firms.
QCP believes it compares favorably with its competitors on such factors
as price, service and delivery, credit terms, breadth of product lines
and customer support.
RxDirect competes with numerous other mail order pharmacies, many of
which have greater resources than RxDirect.
Pharma Labs competes with numerous other companies in the manufacture of
nutritional supplement products both internationally and in the U.S.
many of which have greater resources than Pharma Labs.
GOVERNMENT REGULATIONS
QCP operations are regulated by the DEA, the FDA and various state
bureaus of pharmacy which govern the distribution of pharmaceutical
products and controlled substances. These organizations require
distributors of pharmaceutical products and controlled substances to
obtain permits and to meet various security and operating standards. QCP
has received all necessary regulatory approvals and believes it is in
substantial compliance with all applicable requirements.
RxDirect is monitored by the same federal and state regulatory
organizations as QCP and is also required to obtain permits and to meet
various security and operating standards of such federal and state
organizations. RxDirect has received all necessary regulatory approvals
and believes it is in substantial compliance with all applicable
requirements.
Since Pharma Labs' products are considered nutritional supplements, they
are regulated by the branch of the FDA which oversees the distribution
of nutritional products. Although the regulations are not quite as
stringent as those that govern pharmaceutical products, they still
require distributors of nutritional supplements to obtain permits and to
meet various security and operating standards. Pharma Labs has received
all necessary regulatory approvals and believes it is in substantial
compliance with all applicable requirements.
Any change in government regulations cannot be predicted. The Company
also cannot predict whether any agency will adopt regulations that will
have a material effect on the Company's and/or subsidiary operations.
In addition, a variety of state and local permits are required under
regulations relating to the Company's products.
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PRODUCT LIABILITY AND INSURANCE.
The Company currently maintains product liability insurance in the
aggregate amount of $2 million per occurrence and per year with a $5,000
deductible.
EMPLOYEES.
As of December 1, 1997, the Company employed seventy-five (75) persons
on a full-time basis. Additional employees are hired from time to time
during peak production periods. None of the Company's or its
subsidiaries' employees is represented by a union or collective
bargaining unit and management considers relations with employees to be
good.
ADDITIONAL INFORMATION.
Compliance with federal, state and local regulations regarding the
discharge of materials into the environment or otherwise relating to the
protection of the environment has not had, and is not expected by the
Company to have, any adverse effect on capital expenditures, earnings or
the competitive position of the Company. The Company is not presently a
party to any litigation or administrative proceeding with respect to its
compliance with such environmental standards. In addition, the Company
does not anticipate being required to expend any funds in the near
future for environmental protection in connection with its operations.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company owns a 2,000 square foot office building in Golden,
Colorado.
QCP leases a 25,000 square foot facility in Santa Ana, California
pursuant to a lease agreement which expires in March 2004.
Pharma Labs sub-leases a 45,000 square foot facility in Anaheim,
California pursuant to a lease agreement which expires in January 2000.
The Company believes its facilities and equipment are well maintained
and in good operating condition and will satisfy its current
manufacturing and processing needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business.
While the outcome of these claims cannot be predicted with certainty,
management does not believe that the outcome of any of these legal
matters will have a material adverse effect on the Company's
consolidated results of operations or consolidated financial positions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market and
is quoted on the "OTC Bulletin Board" under the symbol "GPHI." The
following table sets forth the high and low closing bid prices for the
periods indicated, as reported by the OTC Bulletin Board.
<TABLE>
<CAPTION>
For the Year ended August 31, 1997 High Low
<S> <C> <C>
1st Quarter $ 0.23 0.12
2nd Quarter 0.32 0.12
3rd Quarter 0.29 0.17
4th Quarter 0.23 0.15
For the Year ended August 31, 1997 High Low
1st Quarter $ .09 $ 0.7
2nd Quarter .12 0.10
3rd Quarter .3125 0.115
4th Quarter .38 0.17
</TABLE>
These quotations are inter-dealer prices without retail markup, markdown
or commissions, and may not necessarily represent actual transactions.
As of December 1, 1997, there were approximately 2,700 shareholders of
record of the Company's common stock.
The Company has never paid cash dividends. The Board of Directors of the
Company currently anticipates that it will retain all available funds
for use in the operation of the business and does not anticipate paying
any cash dividends in the foreseeable future. The payment of cash
dividends is restricted by the Company's loan agreements with the Bank.
ITEM 6. 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 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.
RESULTS OF OPERATIONS.
FISCAL YEAR ENDED AUGUST 31, 1997, COMPARED TO FISCAL YEAR ENDED AUGUST
31, 1996 (RESTATED).
NET SALES. Net sales for the fiscal year ended August 31, 1997,
increased 18% to $11,957,841 from $10,156,647 for the fiscal year ended
August 31, 1996. This increase is primarily due to
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(1) a 33% or $2,014,791 increase in QCP sales due to an expanded
customer base and (2) a full year of Pharma Labs sales of $1,555,174
compared to sales of $249,319 in the prior start-up year. These
increases were partially offset by a $1,517,452 decline in the Company's
sales as a result of the sale of its radiopharmaceutical business in
April 1997.
COST OF GOODS SOLD. Cost of goods sold as a percentage of sales
increased to 68.1% for the fiscal year ended August 31, 1997, as
compared to 64.4% for the fiscal year ended August 31, 1996. This
increase is primarily attributable to the loss of gross margin from the
sale of the Company's radiopharmaceutical business.
SELLING GENERAL AND ADMINISTRATIVE. Selling, general and administration
expenses ("SG&A") increased to $6,394,291 in fiscal 1997 from $3,871,613
in the prior year. QCP's SG&A spending increased to $4,180,625 from
$2,202,120 in the prior year due to increased spending on staffing and
infrastructure costs to support QCP's growth program. QCP's selling and
marketing expenses increased $1,048,768 from the prior year primarily to
support sales force expansion and addition of key management positions.
QCP's general and administrative expenses increased $929,731 from the
prior year due primarily to (1) increases in staffing and related
expenses, (2) higher facility and overhead costs, (3) formation of an
MIS department, and (4) higher bad debt expense. The remainder of the
increase in SG&A was a result of Pharma Labs' SG&A increasing to
$920,485 in the current year from $166,083 in fiscal 1996. This increase
is a result of a full year of Pharma Labs operation in fiscal 1997
compared to two months in fiscal 1996. These increases were partially
offset by GPI's SG&A expense decrease of $191,403 from the prior year
level of $1,484,583, due to the sale of the radiopharmaceutical business
in April, 1997.
NET INCOME. The Company reported net income of $1,820,926 for fiscal
1997 as compared to a net loss of $991,932 for fiscal 1996. The fiscal
1997 net income level was due to a gain of $6,210,434 on the sale of the
radiopharmaceutical business in April 1997. Losses from operations were
$2,583,184 in fiscal 1997, compared to an operating loss of $253,626 in
the prior year. The 1997 operating losses were due primarily to
significantly increased spending on staff and infrastructure in support
of long term growth plans. Fiscal 1997 net income was also negatively
impacted by interest expense of $1,456,439 up from $807,198 in the prior
year, income tax expense of $642,390, and benefited from a favorable
minority interest allocation of $269,404.
FOURTH QUARTER ADJUSTMENTS. Operating results for the fourth quarter of
fiscal 1997 include the following adjustments: a $482,909 reduction to
other income and notes receivable to eliminate revenue due under the
terms of the June 14, 1996, Guarantee Agreement with Pharma Labs' joint
venture partners. Collectability of this amount is not reasonably
assured.
Accruals were made to reflect the impact of the September, 1997,
Pondimin and Redux diet drug product recall. Net sales and receivables
were decreased $238,050 for estimated returns applicable to fiscal 1997
sales, and cost of sales was decreased and receivables increased by
$196,900 for the estimated cost of the returned product and estimated
refund due from the product manufacturer.
An additional $221,913 provision for doubtful accounts was made in the
quarter primarily due to adverse conditions in the diet clinic industry.
The diet drug recall and adverse publicity in the public media have
adversely impacted many of the Company's diet clinic customers.
FISCAL YEAR ENDED AUGUST 31, 1996 (RESTATED), COMPARED TO FISCAL YEAR
ENDED AUGUST 31, 1995.
NET SALES. Net sales for the fiscal year ended August 31, 1996,
increased to $10,156,647 compared to $4,412,377 for the fiscal year
ended August 31, 1995. The increase of $5,744,270 or 130% is primarily
attributable to the consolidation of the operations of QCP with the
Company's for the period September 1, 1995 to August 31, 1996 compared
to only one month in the prior period. QCP sales were $5,984,085 for the
year ended August 31, 1996 as compared to $757,719 for the one month of
operation in August 1995. The remaining increase is primarily
attributable to (i) the consolidation of Pharma Labs' sales which
represented approximately $167,000 of the increase (ii) and an increase
in demand from its primary distributor, Syncor, which represented an
increase of $230,312.
COST OF GOODS SOLD. Cost of goods sold as a percentage of sales was
64.4% for the fiscal year ended August 31, 1996 as compared to 50.9% for
the fiscal year ended August 31, 1995. The increase is primarily the
result of the consolidation of QCP's operations with the Company's for
the
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entire fiscal year compared to only one month in the prior period.
Historically, QCP has had lower margins than the Company due to industry
standards.
SELLING GENERAL AND ADMINISTRATIVE. SG & A expenses were $3,871,613 for
the fiscal year ended August 31, 1996 as compared to $1,255,645 for the
fiscal year ended August 31, 1995. SG&A for the fiscal year ended August
31, 1996, increased $2,615,968 or 192% due to (i) the consolidation of
QCP and Pharma Labs operations for an entire fiscal year and the last
quarter which represented $2,220,784 of the increase; (ii) the
development of a new trademark and marketing and sales materials for QCP
which represented $75,000 of the increase; (iii) relocation and
expansion of QCP's facilities which represented $85,224 of the increase;
(iv) amortization of goodwill and non-competes which represents
$233,036; and (v) expenses for travel and consulting fees in connection
with the Company's efforts to enhance the operations and management of
QCP.
NET INCOME. The Company reported a net loss of $991,932 for the fiscal
year ended August 31, 1996 as compared to net income of $978,574 for the
fiscal year ended August 31, 1995. The net loss was primarily due to (i)
relative increase in SG&A expenses of approximately $981,000, (ii)
increase in interest expense of $666,868, (iii) depreciation and
amortization of approximately $408,300, and (iv) a loss of $66,776 in
connection with its interest in Rx Direct.
LIQUIDITY AND CAPITAL RESOURCES.
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 August 31, 1997, as compared to August 31, 1996.
<TABLE>
<CAPTION>
August 31, 1997 August 31, 1996
<S> <C> <C>
Current assets $ 3,256,421 $ 3,528,771 *
Current liabilities 3,132,407 2,616,663
------------- -----------
Net working capital $ 124,014 $ 912,108
</TABLE>
* Includes $380,000 of deferred taxes per FASB 109 resulting from the
Company's substantial net operating loss carry forwards.
At August 31, 1997, current assets were $3,256,421, a decrease of
$272,350 from the prior year end. This decrease was primarily due to
a decrease in inventory of $311,944 due to an inventory reduction
program at QCP, and as a result of the sale of the radiopharmaceutical
business, partially offset by higher inventories at Pharma Labs. The
deferred income tax benefit included in current assets at August 31,
1996, was charged to fiscal 1997 operating results.
At August 31, 1997, current liabilities were $3,132,407, an increase of
$515,744 from the prior year end, primarily due to an increase in notes
payable and notes payable - related parties of $826,027 and a decrease
of $523,329 in current maturities of long term debt as a result of the
debt payoff from the proceeds from the sale of the radiopharmaceutical
business. The balance of the increase in current liabilities was
primarily due to higher current lease obligations and higher accounts
payable, both arising from a higher level of business activity.
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 expected to be $280,774 and
$278,590, respectively, for the fiscal year ending August 31, 1998.
As of August 31, 1997, the Company had net operating loss carry forwards
for fiscal income tax purposes of approximately $12,872,000. The net
operating loss carry forwards will expire in the years 1998 through
2011. The Company's ability to utilize its net operating loss carry
forwards 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.
During fiscal 1997, the Company experienced increased expenses due to
its expansion and development efforts including (i) restructuring of
QCP's sales department with the addition of key sales executives, (ii)
expansion of QCP's sales in the eastern states, (iii) development of a
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telemarketing division at QCP, and (iv) the expansion of QCP's
information systems and programming department. The Company believes
this expansion program will continue to require significant up-front
expenditures both to service its existing business and to develop new
lines of business.
During fiscal 1997, the Company's cash flow from operations was also
adversely impacted by the following factors: (i) Pharma Labs continued
to experience substantial delays in collecting the account receivable
from its dealer in Vietnam due to delays in selling the related product
in Vietnam; (ii) QCP experienced delays in collecting accounts
receivable due to relocation of its accounting department from Colorado
to California in April 1997 and the resulting disruption in credit and
collection activities and staffing changes; and (iii) payment problems
in collecting from diet clinic customers who have been negatively
impacted by the diet drug controversy in the months leading up to the
Pondimin and Redux product withdrawal. In response to these problems,
the Company has made staffing changes to focus on the collection of past
due accounts receivable and Pharma Labs is pursuing other Asian markets
and contract manufacturing agreements to establish a presence in the
United States. In addition, the Company has increased the reserve for
potential uncollectible accounts by $403,200 to $446,834 at August 31,
1997. See "--Fourth Quarter Adjustments."
The Company's primary source of funds for working capital has been the
Revolving Facility. This facility is payable at the Bank prime rate plus
2% and expires in August 2000. At August 31, 1997, the balance
outstanding on the Revolving Facility was $743,168 and the interest rate
was 10.5%. The Revolving Facility is collateralized by the Company's
accounts receivable and inventory, and the availability under the
Revolving Facility is determined based on eligible accounts receivable
and inventory. The amount of eligible accounts receivable was adversely
impacted for the reasons described above which was the primary cause of
a reduction of the Company's availability under the Revolving Facility
from $1,588,000 at February 28, 1997, to $957,000 at August 31, 1997. As
a result, during the last quarter of fiscal 1997, and into the first
part of fiscal 1998, the Company relied primarily on proceeds from the
exercise of stock options and loans from shareholders and directors to
fund the Company's operations and expansion efforts.
During the fiscal year ended August 31, 1997, the Company raised
approximately $100,000 from the exercise of stock options. Due to the
Company's inability to borrow sufficient amounts under the Revolving
Facility for operations, the Company was required to obtain financing
through the issuance of notes payable to certain shareholders and
directors of the Company. The amounts outstanding through the issuance
of these notes payable was $615,000 ($575,000 payable to Charles R.
Drummond; $40,000 payable to Arch G. Gothard, III) at August 31, 1997.
At August 31, 1997, the Company was not in compliance with certain
covenants of the Revolving Facility, including the breach of loan
covenants regarding debt service, interest coverage and net income. As a
result of the default, the Bank has the right to terminate the Revolving
Facility, declare the outstanding balance due and payable, and seek other
rights and remedies specified in the Revolving Facility agreement. To
date, the Bank has not exercised its right to terminate. The Company is
currently renegotiating the terms of the Revolving Facility with the Bank
including amendments to remedy the non-compliance issues. However, there
can be assurance that the amendment will be available on terms acceptable
to the Company if at all. The Company is also seeking alternative
financing sources, but has no commitments for such alternative financing
in place.
FUTURE OPERATIONS - During the first quarter of fiscal 1998, the Company
expects net sales to be below the sales level recorded during the same
quarter of fiscal 1997. In addition to the loss of sales arising from
the sale of the radiopharmaceutical business, lower sales are
anticipated at QCP and Pharma Labs in the first quarter of fiscal 1998.
QCP's diet drug sales are expected to be substantially below the prior
year level due primarily to the withdrawal of Pondimin and Redux from
the market. Sales to diet clinics represented 16% of QCP's sales during
fiscal 1997. During the first quarter of fiscal 1998, Pharma Labs sales
are expected to be below the prior year due to poor performance of its
Vietnam distributor and due to continuing economic turmoil in Vietnam.
As a result of the expected decrease in sales and problems collecting
accounts receivable discussed above, management does not anticipate that
cash flow from operations will be sufficient to meet its requirements
during fiscal 1998. As it is not anticipated that the availability under
the Revolving Facility will be sufficient, the Company is seeking to
raise additional capital in order to fund its ongoing operations and the
continued investment and expansion of QCP and Pharma Labs. The Company
does not currently have any commitments with respect to any debt or
equity financing and there
9
<PAGE> 11
can be no assurance the required funds will be available to the Company
on terms acceptable to the Company, if at all. If the Company is unable
to find additional financing, it will be forced to cease its expansion
plans and curtail certain operations, including substantial reduction in
staffing and overhead spending. It would also review all aspects of its
operations to determine the necessary steps to reduce expenses and
increase cash flow. This would have a material adverse effect on the
Company's business and financial conditions.
During the first quarter of fiscal 1998, in order to fund its
operations, the Company borrowed $1,350,000 from certain shareholders
and directors of the Company (refer to Item 12). The borrowings are
evidenced by unsecured demand notes, which have a variable interest rate
of 2% over Bank prime. Mr. Charles Drummond has signed a commitment not
to call his loans to the Company through fiscal 1998.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are attached to this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE> 12
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following persons hold the positions indicated.
<TABLE>
<CAPTION> Director
Principal Occupation or Employment during the past Five Years; or Officer
Name & Age Other Directorships Since
---------- ------------------------------------------------------------- -----
<S> <C> <C>
Charles R. Drummond Chairman of the Board of Directors, Chief 1991
(54) Executive Officer and Treasurer of the Company since 1992. Owner
and operator of Drummond Ranches, a cattle ranching operation in
Pawhuska, Oklahoma, since 1965. Partner in Drummond and Hull
Oil Company.
Ladd A. Drummond Director. Co-owner of Drummond Land and Cattle Company since 1994
(28) January 1991; operator of risk management and investment
businesses.
Bruce A. Goldberg President from March 1996 to present. Chief Operating Officer 1994
(52) from February 1994 through 1996. Director of Reagent Operation at
Lifescan, Inc. from 1989 to 1994.
Arch G. Gothard, III Director. President of First Kansas, Inc. since October 1988. 1995
(52) Mr. Gothard is also serves as a director of First State Bank,
Kenco Plastics, Inc., LDI, Inc., Pay Phone Concepts, Inc. and
Collins Industries, Inc.
John H. Grant Vice Chairman of the Board of Directors and Secretary. Professor 1990
(55) of Business Administration, University of Pittsburgh,
Pennsylvania since January 1972.
Gary P. Pryor Vice President, Finance since July 1997. Chief Financial 1997
(48) Officer at Johnston Sweeper Company from June, 1995, to June
1997, and Vice President, Finance, at Bicore Monitoring Systems,
Inc. from December 1991 to June 1995.
Richard G. Wahl Director. Owner and President of MRD Construction Incorporated, 1993
(61) since 1964. Mr. Wahl also serves as managing partner of both
G & W Construction of Evergreen, Colorado, and Willow Ridge
Conference Center of Morrison, Colorado.
</TABLE>
The Company's Articles of Incorporation, as amended, provide for a board of
directors made up of three classes. The members of each class serve three-year
staggered terms with one class to be elected at each annual meeting. As
provided in the Company's Bylaws, the Board has currently set the total number
of directors at five (5). The current terms of the Class A, Class B and Class
C directors expire at the Company's annual meeting of shareholders in 1998,
1999 and 2000, respectively. Officers serve at the discretion of the Board of
Directors and are elected at the first meeting of the Board of Directors after
each annual meeting of shareholders.
Charles R. Drummond and Ladd A. Drummond are father and son. There are no
other family relationships between any of the directors and executive officers
of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of
the Securities Exchange Act of 1934 and the rules thereunder require the
Company's officers and directors, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and with the NASDAQ and to furnish the Company with copies.
11
<PAGE> 13
Based solely on its review of the copies of the Section 16(a) forms received by
it, or written representations from certain reporting persons, the Company
believes that, during the last fiscal year, all Section 16(a) filing
requirements applicable to its officers, directors and greater-than-ten-percent
beneficial owners were complied with except for the following:
Mr. Daniel Guinn did not file one (1) transaction for the most recent
fiscal year; Mr. Gary Pryor did not file a Form 3 upon becoming an
officer of the Company; Mr. Charles Drummond did not report one (1)
transaction during the most recent fiscal year; Mr. John Grant did not
report three (3) transactions during the most recent fiscal year; Mr.
Richard Wahl did not report two (2) transactions during the most recent
fiscal year; Mr. Ladd Drummond did not report two (2) transactions
during the most recent fiscal year; and Mr. Arch Gothard, III, did not
report three (3) transactions during the most recent fiscal year.
All the transactions described above will be reported on a Form 5 for each
officer and director.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by the Company to the Chief Executive Officer and any executive officer
whose total annual salary and bonus exceeded $100,000 for the last fiscal year:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
AWARDS
- -----------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (g) (i)
- -----------------------------------------------------------------------------------------------------------------------
SECURITIES ALL OTHER
NAME & PRINCIPAL POSITION UNDERLYING COMPENSATION
YEAR SALARY ($) BONUS ($) OPTIONS/ SARS (#) ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles R. Drummond 1997 150,000 -0- -0- 24,000 (1)
Chairman, Chief Executive 1996 125,000 25,000 -0- -0-
Officer and Treasurer 1995 103,750 -0- -0- -0-
- -----------------------------------------------------------------------------------------------------------------------
Bruce A. Goldberg 1997 104,000 -0- -0- -0-
President, GPI 1996 104,000 20,000 -0- -0-
1995 96,000 13,333 -0- -0-
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Living Allowance.
The foregoing compensation tables do not include certain fringe benefits made
available on a nondiscriminatory basis to all Company employees such as group
health insurance, dental insurance, long-term disability insurance, vacation
and sick leave. In addition, the Company makes available certain non-monetary
benefits to its executive officers with a view to acquiring and retaining
qualified personnel and facilitating job performance. The Company considers
such benefits to be ordinary and incidental business costs and expenses. The
aggregate value of such benefits in the case of each executive officer and of
the group listed in the above table, which cannot be precisely ascertained but
which is less than the lesser of (a) ten percent of the cash compensation paid
to each such executive officer or to the group, respectively, or (b) $50,000,
or $50,000 times the number of individuals in the group, as the case may be, is
not included in such table.
EMPLOYMENT AGREEMENTS. On September 1, 1991 the Company entered into an
employment agreement with Mr. Charles R. Drummond whereby Mr. Charles R.
Drummond was employed by the Company beginning on September 1, 1991 for a
period of three years or the termination of the employment agreement. Pursuant
to the terms of the agreement, Mr. Charles R. Drummond's duties are to act
as Chairman of the Board and Secretary of the Company. The agreement provides
that Mr. Charles R. Drummond will be paid an annual salary subject to
periodic increases from
12
<PAGE> 14
time to time at the sole discretion of the Board. The agreement provides that
Mr. Charles R. Drummond's employment with the Company may be terminated for
cause, as defined therein. If Mr. Charles R. Drummond's employment is
terminated without cause, the Company shall pay Mr. Charles R. Drummond, in
addition to amounts accrued during the respective periods prior to such
termination, severance pay in an amount equal to the amount of compensation
that would otherwise be payable to Mr. Charles R. Drummond under the agreement.
The Board and Mr. Charles R. Drummond have agreed to extend the employment
agreement on a year to year basis. Mr. Charles R. Drummond's salary for the
period of September 1, 1997, through August 31, 1998, will be $150,000 plus a
living allowance of $24,000.
In 1997, the Company entered into an employment agreement with John H. Grant
for a period of five years or until termination of the agreement. Mr. Grant's
duties include service as Vice Chairman of the Board at a minimum annual salary
of $95,000. He is currently being paid a salary of $105,000 per year.
Compensation Pursuant to Plans In October 1992, the Company adopted a
Performance Stock Option Plan (the "Plan"), approved by the shareholders, for
the benefit of employees, officers and directors of the Company, including the
executive officers referred to in the Summary Compensation Table. The Stock
Option Committee of the Board of Directors selects the optionee and determines
the terms and conditions of the stock option grants. As of August 31, 1997,
options to purchase 1,000,000 shares of common stock were outstanding pursuant
to the Plan. In addition, options to purchase an additional 1,000,000 shares
of common stock were outstanding as of August 31, 1997, pursuant to an option
agreement with Dornoch Medical Systems, Inc.
COMPENSATION OF DIRECTORS. Directors who are not employees of the Company are
entitled to $1,500 for each board meeting attended in person, and $500 for each
committee meeting attended in person plus reimbursement for travel and other
expenses relating to attendance at each such meeting.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of outstanding shares of common stock as of December 1, 1997, by (i)
each person who is known by the Company to own beneficially more than five
percent of the outstanding shares of the Company's common stock, (ii) the
Company's directors, Chief Executive Officer and executive officers whose total
compensation exceeded $100,000 for the last fiscal year; and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Shares
Name Beneficially Owned Percent of Class
---- ------------------ ----------------
<S> <C> <C>
Timothy E. Drummond(1) 14,833,748 12%
623 Kihekah
Pawhuska, Oklahoma 74056
Charles R. Drummond(1) 29,086,376 23%
710 14th Street
Golden, CO 80401
John H. Grant (1) 2,314,435 2%
710 14th Street
Golden, CO 80401
Richard G. Wahl(1) 2,503,421 2%
150 Buckboard, Box 1328
Edwards, CO 81632
Ladd A. Drummond(1) 14,723,828 12%
623 Kihekah
Pawhuska, Oklahoma 74056
</TABLE>
(continued on next page)
13
<PAGE> 15
(continued from previous page)
<TABLE>
<CAPTION>
Shares
Name Beneficially Owned Percent of Class
---- ------------------ ----------------
<S> <C> <C>
Arch G. Gothard, III(1) 3,037,429 2%
Box 5950
Breckenridge, CO 80424
Bruce A. Goldberg(1) 6,400,000 5%
3000 West Warner Avenue
Santa Ana, CA 92704
Daniel B. Guinn(1) 2,100,000 2%
3000 West Warner Avenue
Santa Ana, CA 92704
All executive officers
and directors as a group
(nine persons)(1) 74,989,237 59%
</TABLE>
(1) Shares are considered beneficially owned, for purposes of this table,
only if held by the person indicated, or if such person, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise has or shares the power to vote, to direct the voting of and/or to
dispose of or to direct the disposition of, such security, or if the person has
the right to acquire beneficial ownership within 60 days, unless otherwise
indicated.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1995, the Company issued 2,000,000 shares of its common stock to a
corporation of which Mr. Charles R. Drummond is the sole shareholder in order
to have the Company released from a contingent liability. This matter has been
resolved and arrangements are being made to have the shares transferred back to
the Company.
In January 1997, the Company issued 2,000,000 shares of its common stock to
Daniel B. Guinn, President of QCP, as consideration for terminating an
employment agreement originally entered into July 9, 1995. The agreement
terminating the employment agreement was effective March 9, 1996, but the
common stock issued as consideration was not issued until January 1997.
The Company is due $70,127 from a related entity with common shareholders and
officers; $15,000 of the balance due was paid subsequent to Fiscal 1997 year
end. The amount due the Company has been guaranteed by the shareholders. The
related shareholders are as follows: Charles R. Drummond, Bruce A. Goldberg,
and Arch G. Gothard, III, all of whom are officers or directors of the Company.
Rx Direct subleases approximately 1,500 square feet at the Santa Ana,
California, facility for $7,800 per year.
LOANS FROM SHAREHOLDERS AND DIRECTORS. During the fiscal year ended August 31,
1997, and subsequent to the end of the year, the Company obtained financing
through the issuance of notes payable to certain shareholders and directors of
the Company. The amounts outstanding through the issuance of these notes
payable were $615,000 ($575,000 payable to Charles R. Drummond; $40,000
payable to Arch G. Gothard III) and $1,965,000 ($1,425,000 payable to Charles
R. Drummond; $540,000 payable to Arch G. Gothard III) at August 31, 1997, and
November 30, 1997, respectively.
14
<PAGE> 16
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) The following documents of the Company are filed as a part of this
Report
1. Financial Statements
2. Financial Statement Schedules
Schedules for which provision is made in the applicable regulations of the
Securities and Exchange Commission have been omitted because they are not
required under the related instructions or the information related is
contained elsewhere in the financial statements.
3. Exhibits
Exhibit No. Description
- ----------- -----------
*3.1 Articles of Incorporation filed October 4, 1973.
*3.2 Articles of Amendment to Articles of Incorporation filed
December 22, 1976.
*3.3 Articles of Amendment to Articles of Incorporation filed
August 25, 1978.
*3.4 Articles of Amendment to Articles of Incorporation filed
June 15, 1979.
*3.5 Articles of Amendment to Articles of Incorporation filed
January 12, 1981.
*3.6 Articles of Amendment to Articles of Incorporation filed
June 16,1987.
*3.7 Articles of Amendment to Articles of Incorporation filed
October 9, 1992.
#3.8 Articles of Amendment to Articles of Incorporation filed
December 16, 1997.
*3.9 Certificate of Designation of 15%/30% Cumulative
Convertible Preferred Stock filed December 9, 1987.
*3.10 Corrected Certificate of Designation of 15%/30%
Cumulative Convertible Preferred Stock filed December
14, 1987.
*3.11 Corrected Certificate of Designation of 15%/30%
Cumulative Convertible Preferred Stock filed February 5,
1988.
+3.12 Certificate of Designation of Class A Convertible
Preferred Stock filed October 12, 1990.
**3.13 Second Amended and Restated Bylaws
*4.2 Specimen Certificate for Common Stock, no par value per
share.
15
<PAGE> 17
*10.1 Agreement Limiting Execution on Judgment dated November 4,
1991 and Addendum A thereto by and among the Company, GRC,
New Crawford Valley, Ltd. and Gulch Holdings Company.
**10.2 Amended and Restated Distribution Agreement between the
Company and Syncor dated June 1, 1995.
**10.3 Employment Agreement between Quality Care Pharmaceuticals,
Inc. and Charles R. Drummond.
**10.4 Employment Agreement between Quality Care Pharmaceuticals,
Inc. and Daniel B. Guinn.
#10.5 Agreement to Terminate Employment Agreement between Quality
Care Pharmaceuticals, Inc. and Daniel B. Guinn.
#10.6 Employment Agreement between the Company and John Grant.
**10.7 First Amendment to Agreement Executing Judgment dated August
3,1995 among the Company, GHC, Inc., Charles R. Drummond,
Golden Research Corporation, New Crawford Valley, LTD and
Gulch Holdings Company.
**10.8 Credit and Security Agreement dated August 7, 1995 among the
Company, Quality Care Pharmaceuticals, Inc. and Norwest
Credit, Inc.
**10.9 Credit and Security Agreement dated August 7, 1995 among the
Company and Norwest Bank Minnesota, National Association.
**10.10 Promissory Note dated August 7, 1995 executed by the
Company in favor of Norwest Bank Minnesota, National
Association in the principal amount of $4,000,000.
**10.11 Revolving Note dated August 7, 1995 executed by the Company in
favor of Norwest Credit, Inc. in the principal amount of
$400,000.
**10.12 Revolving Note dated August 7, 1995 executed by the Company in
favor of Norwest Credit, Inc. in the principal amount of
$2,500,000.
**10.13 Revolving Note dated August 7, 1995 executed by the Company
and QCP in favor of Norwest Credit, Inc. in the principal
amount of $2,500,000.
***10.14 Operating Agreement dated June 14, 1996 between the Registrant
and Pharma France, Inc.
#10.15 Promissory Note dated November 22, 1996, executed by the
Company in favor of Charles R. Drummond in the principal
amount of $75,000.
#10.16 Promissory Note dated July 29, 1997, executed by the Company in
favor of Arch G. Gothard, III in the principal amount of
$40,000.
16
<PAGE> 18
#10.17 Promissory Note dated August 4, 1997, executed by the Company
in favor of Charles R. Drummond in the principal amount of
$300,000.
#10.18 Promissory Note dated August 18, 1997, executed by the Company
in favor of Charles R. Drummond in the principal amount of
$200,000.
#10.19 Promissory Note dated September 23, 1997, executed by the
Company in favor of Charles R. Drummond in the principal amount
of $300,000.
#10.20 Promissory Note dated October 6, 1997, executed by the
Company in favor of Charles R. Drummond in the principal amount
of $50,000.
#10.21 Promissory Note dated October 8, 1997, executed by the Company
in favor of Arch G. Gothard, III in the principal amount of
$250,000.
#10.22 Promissory Note dated October 21, 1997, executed by the
Company in favor of Charles R. Drummond in the principal
amount of $250,000.
#10.23 Promissory Note dated November 4, 1997, executed by the
Company in favor of Charles R. Drummond in the principal
amount of $250,000.
#10.24 Promissory Note dated November 18, 1997, executed by the
Company in favor of Arch G. Gothard, III in the principal
amount of $150,000.
#10.25 Promissory Note dated November 19, 1997, executed by the
Company in favor of Arch G. Gothard, III in the principal
amount of $100,000.
#21 Subsidiaries of the Registrant.
#27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
+Incorporated by reference to registrant's Annual Report on Form 10-K,
dated August 31, 1991, as filed with the Securities and Exchange
Commission.
++Incorporated by reference to registrant's Current Report on Form 8-K,
and exhibits thereto, dated June 25, 1992, as filed with the Securities
and Exchange Commission.
+++Incorporated by reference to registrant's Quarterly Report on Form 10-Q
for the quarter ended May 31, 1995 as filed with the Securities and
Exchange Commission.
*Incorporated by reference to registrant's Registration Statement on Form
S-1 and all amendments thereto, Registration number 33-32887.
**Incorporated by reference to registrant's Annual Report on Form 10-K,
dated August 31, 1995, as filed with the Securities and Exchange
Commission.
***Incorporated by reference to registrant's Annual Report on Form 10-K,
dated August 31, 1996, as filed with the Securities and Exchange
Commission.
# Filed herewith.
17
<PAGE> 19
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
<TABLE>
<CAPTION>
Page
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of August 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the Years Ended
August 31, 1997 and 1996 F-5
Consolidated Statement of Stockholders' Equity
(Deficiency) for the Years Ended August 31, 1997 and 1996 F-6
Consolidated Statements of Cash Flows for the Years Ended
August 31, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 20
[GRANT THORNTON LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Golden Pharmaceuticals, Inc.
Golden, Colorado
We have audited the accompanying consolidated balance sheets of Golden
Pharmaceuticals, Inc. (a Colorado corporation) and Subsidiaries as of August
31, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for each of the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Golden Pharmaceuticals, Inc.
and Subsidiaries as of August 31, 1997 and 1996, and the consolidated results
of their operations and their consolidated cash flows for each of the years
then ended in conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Denver, Colorado
October 31, 1997 (except for note R, as
to which the date is November 19, 1997)
F-2
<PAGE> 21
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------------
1997 1996
---------------- -----------------
CURRENT ASSETS (RESTATED)
-----------------
<S> <C> <C>
Cash $ 26,143 $ 34,872
Receivables
Trade, net of allowance for doubtful accounts of $446,834 and
$43,634 at August 31, 1997 and 1996 1,778,321 1,443,684
Notes receivable 252,500 165,000
Inventories 1,024,689 1,336,633
Prepaid expenses and other 174,768 168,582
Deferred income taxes - 380,000
---------------- -----------------
TOTAL CURRENT ASSETS 3,256,421 3,528,771
PROPERTY, PLANT AND EQUIPMENT - AT COST 3,362,288 4,339,707
Less accumulated depreciation and amortization 908,804 1,782,400
---------------- -----------------
TOTAL PROPERTY, PLANT & EQUIPMENT 2,453,484 2,557,307
OTHER ASSETS
Goodwill, less accumulated amortization of $422,784 and $215,055 at
August 31, 1997 and 1996 3,740,525 3,948,256
Intangibles - net of accumulated amortization of $1,133 and $333 at
August 31, 1997 and 1996 10,867 11,667
Non-compete agreement 331,076 425,600
Investment in joint venture 1,866 -
Deferred income taxes - 220,000
---------------- -----------------
TOTAL OTHER ASSETS 4,084,334 4,605,523
---------------- -----------------
TOTAL ASSETS $ 9,794,239 $ 10,691,601
================ =================
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 22
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - continued
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------------------
1997 1996
---------------- -----------------
CURRENT LIABILITIES (RESTATED)
-----------------
<S> <C> <C>
Notes payable $ 743,168 $ 532,141
Notes payable - related parties 615,000 -
Current maturities of long-term debt 262,506 785,835
Current maturities of capitalized lease obligations 202,061 95,246
Accounts payable 1,041,639 921,045
Income taxes payable 40,000 -
Accrued liabilities
Salaries, wages and other compensation 161,277 100,028
Interest 3,506 144,148
Other 63,250 38,220
---------------- -----------------
TOTAL CURRENT LIABILITIES 3,132,407 2,616,663
LONG-TERM OBLIGATIONS, less current maturities 80,903 3,674,355
CAPITALIZED LEASE OBLIGATIONS, less current maturities 528,774 299,674
EXCESS LOSS ON INVESTMENT IN JOINT VENTURE -- 10,776
CONTINGENCIES AND COMMITMENTS -- --
MINORITY INTEREST 582,969 852,372
STOCKHOLDERS' EQUITY
Common stock - no par value; 200,000,000 shares authorized; 128,416,847
and 124,063,778 issued; 125,424,118 and 120,774,778 outstanding in 1997
and 1996, respectively 24,774,154 23,867,384
Obligation to issue common stock 200,000
--
Preferred stock - no par value; 10,000,000 shares authorized Class A 15%/
30% cumulative convertible, 29,653 shares, issued and
outstanding in 1997 and 1996, respectively 292,558 292,558
Dividends accrued on preferred stock 137,122 433,393
---------------- -----------------
25,203,834 24,793,335
Accumulated deficit (19,640,516) (21,461,442)
---------------- -----------------
5,563,318 3,331,893
Less common stock in treasury at cost, 3,289,000 shares at August 31,
1997 and 1996, respectively. 94,132 94,132
---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 5,469,186 3,237,761
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,794,239 $ 10,691,601
================= ==================
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 23
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
------------------------------
1997 1996
------------- -------------
REVENUES (RESTATED)
------------- -------------
<S> <C> <C>
Net sales $ 11,957,841 $ 10,156,647
Cost of sales 8,146,734 6,538,660
------------- -------------
GROSS MARGIN 3,811,107 3,617,987
Selling, general and administrative expense 6,394,291 3,871,613
------------- -------------
OPERATING LOSS (2,583,184) (253,626)
OTHER INCOME/ (EXPENSE)
Interest expense (1,456,439) (807,198)
Joint venture loss (71,358) (66,776)
Gain on disposal of division 6,210,434 --
Loss on disposal of assets (2,048) (3,217)
Other income 96,507 68,180
------------- -------------
TOTAL OTHER INCOME/ (EXPENSE) 4,777,096 (809,011)
------------- -------------
INCOME (LOSS) BEFORE 2,193,912 (1,062,637)
INCOME TAX EXPENSE
INCOME TAX EXPENSE 642,390 --
------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST 1,551,522 (1,062,637)
MINORITY INTEREST 269,404 70,705
------------- -------------
NET INCOME (LOSS) $ 1,820,926 $ (991,932)
============= =============
PRIMARY EARNINGS (LOSS) PER SHARE $ .01 $ (.01)
============= =============
FULLY DILUTED EARNINGS (LOSS) PER SHARE $ .01 $ (.01)
============= =============
NUMBER OF SHARES USED IN PER SHARE CALCULATION:
Primary 122,192,311 97,131,318
============= =============
Fully diluted 122,687,952 97,131,318
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 24
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED AUGUST 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
--------------------------- --------------------------
Obligation Dividends
15% / 30% to Issue Accrued on
CUMULATIVE Common Preferred
--------------------------- Stock Stock
Shares Amount Shares Amount Amount Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - September 1, 1995 93,967,583 $ 21,288,851 29,653 $ 292,558 -- $ 433,393
Conversion of debt, bonus and
services to common stock 156,195 23,534 -- -- --
Warrants exercised 8,000,000 600,000 -- -- -- --
Stock options exercised 16,000,000 469,999 -- -- -- --
Common stock issued in private
placement 5,940,000 1,485,000 -- -- -- --
Obligation to issue common stock -- -- -- -- $ 200,000 --
Less treasury stock at cost -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - August 31, 1996 (RESTATED) 124,063,778 $ 23,867,384 29,653 $ 292,558 $ 200,000 $ 433,393
Conversion of debt, dividends
payable and services to common
stock 353,069 306,770 -- -- -- (296,271)
Common stock issued pursuant to
joint marketing agreement (Note
D) 1,000,000 300,000 -- -- -- --
Stock options exercised 1,000,000 100,000 -- -- -- --
Common stock issued as consideration
for terminating employment
agreement 2,000,000 200,000 -- -- (200,000) --
Net income -- -- -- -- -- --
BALANCE - August 31, 1997 128,416,847 $ 24,774,154 29,653 $ 292,558 $ -- $ 137,122
============ ============ ============ ============ ============ ============
<CAPTION>
Accumulated Treasury Stock
Deficit ---------------------------
Amount Shares Amount
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE - September 1, 1995 $(20,469,510) -- --
Conversion of debt, bonus and
services to common stock -- -- --
Warrants exercised -- -- --
Stock options exercised -- -- --
Common stock issued in private
placement -- -- --
Obligation to issue common stock -- -- --
Less treasury stock at cost -- 3,289,000 $ 94,132
Net loss (991,932) -- --
------------ ------------ ------------
BALANCE - August 31, 1996 $(21,461,442) 3,289,000 $ 94,132
(RESTATED)
Conversion of debt, dividends
payable and services to common
stock -- -- --
Common stock issued pursuant to
joint marketing agreement
(Note D) -- -- --
Stock options exercised -- -- --
Common stock issued as
consideration for terminating
employment agreement -- -- --
Net income 1,820,926 -- --
------------ ------------ ------------
BALANCE - August 31, 1997 $(19,640,516) 3,289,000 $ 94,132
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 25
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
-------------------------------
1997 1996
------------ ------------
CASH FLOWS USED IN OPERATING ACTIVITIES (RESTATED)
------------
<S> <C> <C>
Net income (loss) $ 1,820,926 $ (991,932)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 777,955 507,645
Loss on sale of equipment 2,048 3,216
Gain on sale of division (6,210,434) --
Non-cash settlement of employment agreement -- 200,000
Non-cash settlement of land judgement 150,000 --
Stock issued for services and fees 10,500 23,534
Minority interest (269,404) (70,705)
Joint venture loss 71,358 66,776
Changes in assets and liabilities net of effects of acquisition and joint
venture:
Increase in accounts receivable (334,637) (188,209)
(Increase) decrease in inventories 311,944 (661,678)
Increase in prepaid expenses and other (6,186) (36,969)
Decrease in deferred taxes 600,000 --
Increase (decrease) in accounts payable 120,593 (277,644)
Increase in income taxes payable 40,000 --
Increase (decrease) in accrued expenses (54,363) 93,162
------------ ------------
TOTAL ADJUSTMENTS (4,790,626) (340,872)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (2,969,700) (1,332,804)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment (235,344) (614,942)
Proceeds from sale of equipment 1,153 6,146
Proceeds from sale of division 6,550,000 --
Increase investment in joint venture (84,000) (56,000)
Addition to goodwill -- (169,006)
Increase in notes receivable (87,500) --
------------ ------------
NET CASH PROVIDED BY (USED BY)
INVESTING ACTIVITIES 6,144,309 (833,802)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under notes payable - related parties 615,000 --
Issuance of common stock 400,000 2,554,999
Purchase of treasury stock -- (94,132)
Borrowings under note payable -- 42,500
Payment on non-compete agreement -- (175,000)
Payments on capitalized lease and other long-term obligations (4,409,365) (365,133)
Borrowings on line of credit 11,449,596 16,096,917
Payments on line of credit (11,238,569) (15,908,230)
------------ ------------
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES (3,183,338) 2,151,921
------------ ------------
NET DECREASE IN CASH (8,729) (14,685)
CASH, BEGINNING OF YEAR 34,872 49,557
------------ ------------
CASH, END OF YEAR $ 26,143 $ 34,872
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE> 26
GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of non-cash investing and financing activities:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
------------------------------
1997 1996
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: (RESTATED)
----------
<S> <C> <C>
Cash paid during the period for interest $1,597,081 $ 697,678
========== ==========
Purchase of equipment under a capital lease $ 478,500 $ 249,508
Increase in goodwill -0- 24,031
Issue of common stock upon settlement of employment contract 200,000 -0-
Issue of note payable in settlement of land judgement 150,000 -0-
Conversion of dividends payable to common stock 296,271 -0-
Details of joint venture with Pharma Labs, LLC
Fair value of assets contributed, other than cash -0- 100,000
Future obligation incurred for acquisition -0- 900,000
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE> 27
A. HISTORY AND BUSINESS ACTIVITY
GOLDEN PHARMACEUTICALS, INC. (GPI) is the name of the parent company. In
April, 1997, GPI sold its radiopharmaceutical and radiochemical drug
business (See Note E). GPI is currently involved in marketing and product
development activities in support of its subsidiaries, as well as new
business development.
GOLDEN MEDICAL MARKETS CORPORATION is a wholly-owned subsidiary of GPI
engaged in the marketing and selling of products and services to various
segments of the healthcare industry.
QUALITY CARE PHARMACEUTICALS, INC. (QCP), a wholly-owned subsidiary of
GPI, QCP purchases bulk quantities of pharmaceutical products from
manufacturers for repackaging into a single user prescription form. QCP's
clients consist of private physicians, hospitals, group practices,
managed care programs, pharmacies and other legally constituted medical
facilities throughout the United States.
PHARMA LABS, LLC. (Pharma Labs), a 52% owned subsidiary of GPI, is
engaged in the manufacturing, packaging, and distribution of nutritional
supplement products, such as vitamins, minerals and herbal products.
Pharma Labs distributes its products primarily to Vietnam. In addition,
Pharma Labs sells product to retail customers and performs contract
manufacturing and packaging for certain U.S. customers.
RX DIRECT, LLC (RxDirect), a 50% owned subsidiary of QCP was formed in a
joint venture with the VNA Home Health Systems (VNA). Rx Direct is
engaged in the dispensing of medications via mail order and direct
delivery. Both QCP and VNA market RxDirect's mail order/ direct delivery
pharmacy to their respective customer base.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of GPI, its wholly-owned subsidiary QCP, and its 52%
owned subsidiary Pharma Labs, collectively referred to as the Company.
All material intercompany balances and transactions have been eliminated
in consolidation.
Investment in Consolidated Subsidiary - On June 15, 1996, the Company
entered into a joint venture agreement with Pharma France, Inc. to form
Pharma Labs. The Company owns 52% of Pharma Labs, and accordingly, the
accounts of Pharma Labs are consolidated for financial statement
purposes. The Company contributed $1,000,000 in working capital,
leasehold improvements, and operational support to Pharma Labs, while
Pharma France, Inc. contributed $923,076 in machinery and equipment and
leasehold improvements.
Investment in Joint Venture - Rx Direct, a 50% owned subsidiary of QCP,
is recorded under the equity method on QCP's financial statements.
Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out (FIFO) method.
Depreciation and Amortization - Depreciation and amortization are
computed on a straight-line basis for book and tax purposes over the
estimated useful lives of the respective assets which range from three to
fifteen years.
Amortization of Capitalized Software Costs - The Company capitalizes and
amortizes certain software costs upon project completion on a straight-
line basis over a five year period.
Goodwill - The Company tests for impairment of goodwill in accordance
with the methodology prescribed by the Financial Accounting Standards
Board (FASB) in Statement of Financial Accounting Standards (SFAS) 121.
Under this method, the goodwill attributable to the acquisition of QCP is
grouped with QCP's property, plant and equipment carrying value for
comparison to QCP's undiscounted, forecasted cash flow. If the sum of the
expected discounted cash flow is less than the carrying value of the
above assets, an impairment loss would be recognized.
F-9
<PAGE> 28
Earnings Per Common Share - Earnings per share is computed by dividing
net income by the weighted average number of shares outstanding during
the period. The Company's 15%/30% cumulative preferred stock (Preferred
Stock) and accrued dividends on the Preferred Stock were convertible into
296,530 and 137,122 shares, respectively, of the Company's common stock -
no par value (Common Stock). Also, during fiscal 1997, there were a total
of 2,000,000 shares outstanding under the Company's Performance Stock
Option Plan (Plan). Any dilutive effect of the outstanding options and
conversion rights to purchase the 2,433,652 shares as of August 31, 1997,
are reflected in the financial statements.
The FASB issued SFAS 128, Earnings per Share, which will be effective for
periods ending after December 15, 1997. Early application is not
permitted. Had SFAS 128 been adopted the following table illustrates the
basic and diluted earnings per share (EPS) for Fiscal Year 1997:
<TABLE>
<CAPTION>
For the Year Ended August 31, 1997
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net income $ 1,820,926
===========
<S> <C> <C> <C>
BASIC EPS
Net income available to common
stockholders 1,820,926 122,192,311 0.01
EFFECTIVE OF DILUTIVE SECURITIES
Options -- 495,641 --
DILUTED EPS
Income available to stockholders plus
assumed conversions $ 1,820,926 122,687,952 0.01
=========== =========== =======
</TABLE>
Options to purchase 350,000 shares of Common Stock at $0.32 per share and
1,000,000 shares of Common Stock at $0.30 per share were outstanding
during the year. These options were not included in the computation of
diluted EPS because the exercise prices were greater than the average
market price of the Common Stock. These options, which expire June 2001,
and July 2001, respectively, were still outstanding at August 31, 1997.
Cash Equivalents - For the purpose of the statements of cash flows, the
Company considers all highly liquid cash investments with original
maturity dates of three months or less to be cash equivalents.
Reclassification - Certain reclassifications have been made to conform
prior years' information with the current year presentation.
Use of Estimates - In preparing the Company's consolidated financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, at the date of the
consolidated financial statements. Actual results could differ from those
estimates.
C. INVESTMENT IN JOINT VENTURE
On February 12, 1996, QCP entered into a joint venture agreement with the
VNA to form Rx Direct, a mail order/ direct delivery pharmacy. QCP owns
50% of Rx Direct and, accordingly, Rx Direct is recorded under the equity
method on QCP's financial statements. QCP provides management and
operational support for Rx Direct, and the VNA has agreed to contribute
$300,000 to fund the start up of operations. As of August 31, 1997, QCP
has contributed $140,000 in services and operational support and the VNA
has contributed $250,000 in working capital.
F-10
<PAGE> 29
C. INVESTMENT IN JOINT VENTURE- continued
The following shows condensed financial information for Rx Direct:
<TABLE>
<CAPTION>
AT AUGUST 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Total Assets $ 144,941 $ 143,010
========= =========
Total Liabilities 31,209 94,562
Total Equity 113,732 48,448
--------- ---------
Total Liabilities & Equity $ 144,941 $ 143,010
========= =========
FOR THE YEAR ENDED AUGUST 31,
-----------------------------
1997 1996
--------- ---------
Net Sales $ 414,604 $ 10,684
Total Expenses 557,320 144,236
========= =========
Net Loss $(142,716) $(133,552)
========= =========
</TABLE>
D. JOINT MARKETING AGREEMENT
On July 15, 1997, the Company and Dornoch Medical Systems, Inc.
(Dornoch) entered into a Joint Marketing Agreement, whereby the Company
will market Dornoch's Redaway products. The Company will receive
royalties on sales of the products. In connection with the Joint
Marketing Agreement, the Company was granted an option to purchase 220
shares of common stock of Dornoch (Dornoch Stock Option Agreement) at a
purchase price of $2,000 per share which option will vest and be
exercisable upon the sale of 80 Redaway products through the Company's
marketing efforts. In addition, and in connection with the transaction,
Dornoch purchased 1,000,000 shares of the Company's common stock for
$.30 per share and has an option to purchase 1,000,000 shares at $.30
which vest pursuant to the Dornoch Stock Option Agreement.
E. SALE OF BUSINESS
On April 7, 1997, the Company completed the sale of the assets related to
its business of manufacturing and distributing radiopharmaceutical and
radiochemical drugs for a total sale price of $6,700,000 pursuant to the
terms of an Asset Purchase Agreement dated April 7, 1997, by and between
the Company and Syncor Pharmaceuticals, Inc.
Included in the sale was the New Drug Application (NDA) for the
radiopharmaceuticals, the building that contains the manufacturing
facility for this business, and all of the related equipment.
The proceeds from the sale were used to pay off the Company's term loans
in the principal amounts of $3,750,000 and $266,660, respectively, and to
pay down $1,485,000 of its revolving line of credit.
F. INVENTORIES
Inventories consist of the following items which are stated at the lower
of cost or market, determined by the first-in, first-out (FIFO) method:
<TABLE>
<CAPTION>
AT AUGUST 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $ 489,419 $ 801,359
Work-in-progress 82,817 52,368
Finished goods 452,453 482,906
---------- ----------
$1,024,689 $1,336,633
========== ==========
</TABLE>
F-11
<PAGE> 30
G. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and are classified as
follows:
<TABLE>
<CAPTION>
AT AUGUST 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Building and improvements $ 486,294 $ 1,057,600
Machinery and equipment 2,051,264 2,383,491
Computers 502,620 244,431
Furniture and fixtures 248,110 506,185
Land 74,000 148,000
----------- -----------
3,362,288 4,339,707
Less accumulated depreciation and amortization (908,804) (1,782,400)
----------- -----------
$ 2,453,484 $ 2,557,307
=========== ===========
</TABLE>
H. NOTES RECEIVABLE
The Company holds two note receivable agreements totaling $165,000 as of
August 31, 1997, in conjunction with the release of a contingency (see
Note M). The $85,000 note accrues interest at the Bank prime plus 1%
(totaling 9.5% at August 31, 1997) and the $80,000 is without interest.
The notes are without collateral.
The Company has entered into a note receivable agreement in the amount of
$150,000 in conjunction with the sale of assets to Syncor
Pharmaceuticals, Inc. (see Note E). The note is repayable in monthly
installments of $12,500 plus interest at 8.5%. The amount outstanding
under this note as of August 31, 1997, was $87,500. The note is without
collateral.
I. LEASE COMMITMENTS
Capitalized Leases - The Company leases equipment for use in the
production process and administration of its business. Computer equipment
is also leased for customer use in prescription drug dispensing. For
financial reporting purposes, minimum lease rentals relating to the
equipment have been capitalized.
The leases, which are non-cancelable, expire at various dates through the
year 2002. The recorded cost of assets under capital leases is $993,344
and $500,405 at August 31, 1997, and 1996, respectively. Accumulated
amortization associated with the recorded assets was $201,235 and $59,514
at August 31,1997 and 1996, respectively.
Future minimum annual lease payments under capitalized leases are as
follows:
<TABLE>
<S> <C>
Year ending August 31,
1998 $ 280,774
1999 254,483
2000 217,211
2001 128,525
2002 30,680
---------------
911,673
Less amount representing interest 180,838
---------------
Discounted lease obligations 730,835
Less current portion 202,061
---------------
Long-term portion $ 528,774
===============
</TABLE>
F-12
<PAGE> 31
Operating Leases - The Company leases office facilities, vehicles and
equipment under operating leases which expire at various dates through
2004. Under the terms of the leases, the Company will pay monthly rental
ranging from $22,468 in 1997 and $11,301 in 2004. Future minimum annual
rental payments under operating leases are as follows:
<TABLE>
<S> <C>
Year ending August 31,
1998 $ 278,590
1999 282,782
2000 201,417
2001 136,679
2002 135,614
Thereafter 203,418
===============
$ 1,238,500
===============
</TABLE>
Rent expense totaled approximately $298,050 and $162,000 at August 31,
1997 and 1996, respectively.
F-13
<PAGE> 32
J. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
AT AUGUST 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Note payable, term loan, payable in sixteen quarterly installments of
$125,000, including interest at the Bank prime plus 3%
Collateralized by a second perfected security interest in all
personal property of the Company, all issued and outstanding
shares of common stock of QCP and a second deed of trust on real
property $ -- $ 3,875,000
Note payable, term loan, payable in monthly installments of $6,667,
including interest at the Bank prime plus 3% through August, 2000
Collateralized by equipment, general
intangibles, inventory and accounts receivable -- 319,996
Note payable, term loan, payable in monthly installments of $1,180,
including interest at the Bank prime plus 3% (totaling 11.5% at
August 31, 1997) through January 1, 1999. Collateralized by
equipment, general intangibles,
inventory and accounts receivable 20,069 34,238
Note payable, $2,500,000 revolving line of credit with interest payable
at Bank prime plus 2% (totaling 10.5% at August 31, 1997) through
August 1, 2000. Collateralized by equipment, general intangibles,
inventory and accounts receivable 743,168 532,141
Non-interest bearing notes payable, to officers of QCP payable in
semi-annual installments of $33,334 through July 15, 1998,
uncollateralized 73,340 105,956
Three notes payable to an officer of GPI payable on demand, including
interest at Bank prime plus 2% (totaling 10.5% at
August 31, 1997), uncollateralized 575,000 --
Note payable to a director of GPI, payable on demand, including
interest at Bank prime plus 2% (totaling 10.5% at August 31,
1997), uncollateralized 40,000 --
Non-interest bearing note payable in semi-annual installments of
$25,000, commencing April 30, 1997, uncollateralized 125,000 --
Non-interest bearing note payable to officers of Pharma Labs, currently
due but payment is being withheld pending settlement of other
amounts due to the Company 125,000 125,000
----------- -----------
1,701,577 4,992,331
Less: Note payable, revolving line of credit (743,168) (532,141)
Current maturities (877,506) (785,835)
----------- -----------
$ 80,903 $ 3,674,355
=========== ===========
</TABLE>
F-14
<PAGE> 33
J. NOTES PAYABLE AND LONG-TERM DEBT - continued
In connection with the note payable, term loan, and note payable,
revolving line of credit, the Company is required to maintain compliance
with certain covenants. At August 31, 1997, the Company was not in
compliance with certain covenants. The Company is currently renegotiating
the terms of the loan agreement with the Bank which includes
renegotiation of the covenants.
Aggregate annual principal payments applicable to notes payable and
long-term debt for years ending after 1997 are as follows:
<TABLE>
<S> <C>
Year ending August 31, 1997
1998 $ 1,620,674
1999 55,903
2000 25,000
2001 -
2002 -
Thereafter -
===============
$ 1,701,577
===============
</TABLE>
K. STOCKHOLDERS' EQUITY
The Preferred Stock - In 1987 the Company initiated a private offering of
equity securities comprised of units of one share of Preferred Stock and
two shares of Common Stock valued at $10 per unit. The offering became
effective in October, 1988. The maximum number issuable is 700,000 shares
of Preferred Stock.
The annual and quarterly dividend rates of the Preferred Stock, expressed
as a percentage of original issue price, are as follows:
<TABLE>
<CAPTION>
Annual Rate Quarterly Rate
----------- --------------
Period (%) (%)
------ --- ---
<S> <C> <C>
12 calendar months ended October, 1989 0 0.00
12 calendar months ended October, 1990 15 3.75
12 calendar months ended October, 1991 15 3.75
12 calendar months ended October, 1992 30 7.50
12 calendar months ended October, 1993 30 7.50
All periods thereafter 30 7.50
</TABLE>
Dividends are payable from the net profits generated from the sale of
Iodine 123 HIPDM ("HIPDM") (as defined in the Certificate of
Designation). However, the underlying license rights related to Iodine
123 HIPDM were fully impaired in 1991 and released upon termination of
the license agreement on November 30, 1993. Because all rights to HIPDM
were released, these dividends will only be paid by conversion to Common
Stock.
The holders of the Preferred Stock may convert any accumulated and unpaid
dividends into one share of Common Stock for each dollar accumulated.
Additionally, each share of the Preferred Stock may be converted into 10
shares of Common Stock. The Company is required to reserve Common Stock
sufficient to allow conversion of all Preferred Stock and accrued
dividends.
The Preferred Stock shareholders, in the event of liquidation of the
Company, will receive an amount equal to the issue price plus accumulated
and unpaid dividends before any holder of Common Stock or any other stock
ranking junior to the Preferred Stock can be paid.
F-15
<PAGE> 34
K. STOCKHOLDERS' EQUITY - continued
As of August 31, 1997 and 1996, 54,589 of the 84,242 shares of Preferred
Stock outstanding were converted into Common Stock. As of August 31,
1997, $296,271 of the $433,393 in accrued dividends on the Preferred
Stock were converted into Common Stock. Based on the number of
outstanding shares of Preferred Stock, the above mentioned conversions
and the dividend rate schedule above, the estimated accrued cumulative
dividend is $137,122 and $433,393 at August 31, 1997 and 1996,
respectively. At August 31,1997, the holders of Preferred Stock can
convert their shares into 433,652 shares of Common Stock including
accrued dividends.
In the event the Company completes a public offering of its Common Stock
where the offering price is at least $1.00 per share, the Preferred Stock
and accumulated dividends will automatically convert to Common Stock in
the ratios discussed above.
Commencing in 1991, the Company has the right but not the obligation to
convert all of the outstanding Preferred Stock into Common Stock at the
conversion price exhibited below plus any accumulated unpaid dividends.
<TABLE>
<CAPTION>
Stated Redemption Date Percentage
---------------------- ----------
<S> <C>
January 1, 1994 - December 31, 1994 108%
January 1, 1995 - December 31, 1995 106%
January 1, 1996 - December 31, 1996 104%
All periods commencing January 1, 1997 102%
</TABLE>
Class A Convertible Preferred Stock - In October 1990, the Company
created a second series of preferred stock, Class A Convertible Preferred
Stock (Convertible Preferred Stock). Issue price was $10 per share and
the maximum issuable shares under the series was 200,000 shares. There
are currently no shares of Convertible Preferred Stock outstanding.
Stock Option Plan - On October 30, 1992, the Company's Stockholders
approved the Plan which provides 50,000,000 shares of Common Stock
available for the granting of options. The Plan permits the granting of
stock options to certain directors, officers and employees of the Company
or any subsidiary thereof. Authority to grant options under the Plan will
terminate on October 7, 2002
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Options outstanding
September 1 2,350,000 $ 0.13 16,950,000 $ 0.05
Granted 1,000,000 0.30 9,900,000 0.09
Canceled (350,000) (500,000) 0.02
Exercised (1,000,000) 0.10 (24,000,000) 0.06
---------- ---------- ----------- --------
Options outstanding
August 31 2,000,000 $ 0.23 2,350,000 $ 0.13
========== ========== =========== ========
</TABLE>
Weighted average fair value of options granted during the year ended
August 31, 1997, and August 31, 1996, is $0.07 and $0.08 per share,
respectively.
F-16
<PAGE> 35
The following information applies to options outstanding at August 31,
1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- ------------------------------
Weighted
average
remaining Weighted Weighted
Range of Exercise Number contractual average Number average
prices Outstanding life (years) exercise price Exercisable exercise price
----------------- ----------- ----------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.03 - 0.05 100,000 3.00 $ 0.030 100,000 $ 0.030
0.06 - 0.09 350,000 2.00 0.075 350,000 0.075
0.10 - 0.15 200,000 0.50 0.100 -0- --
0.25 - 0.38 1,350,000 3.83 0.305 300,000 0.320
--------- -------
2,000,000 750,000
========= =======
</TABLE>
SFAS 123, "Accounting for Stock-Based Compensation" encourages, but does
not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Common Stock at the
date of grant over the amount the employee must pay to acquire the stock.
Had compensation cost for the plan been determined based on the fair
value of the options at the grant dates consistent with the method of
SFAS 123, the Company's net earnings and earnings per share would have
been:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
(RESTATED)
-------------
<S> <C> <C>
Net income
As reported $ 1,820,926 $ (991,932)
Pro forma 1,770,926 (1,644,932)
Primary earnings per share
As reported $ 0.01 $ (0.01)
Pro forma 0.01 (0.02)
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before the fiscal year ended August 31, 1996. In
addition, potential deferred tax benefits of approximately $20,000 in
1997 and $261,200 in 1996 have not been reflected in the pro forma
amounts due to the uncertainty of realizing any benefit. The fair value
of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 1997 and 1996:
<TABLE>
<S> <C>
Expected life (years) 6.87
Risk free interest rate 6.11%
Volatility 326.34%
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
In addition to the above, at August 31, 1997, the Preferred Stock and
accrued dividends could be converted into a total of 433,652 shares of
Common Stock.
F-17
<PAGE> 36
L. INCOME TAXES
The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------
1997 1996
----------- -----------
Current provision (RESTATED)
-----------
<S> <C> <C>
Federal $ 40,000 $ --
State 2,390 --
----------- -----------
$ 42,390
=========== ===========
Deferred provision --
Federal $ 523,000 --
State 77,000 --
----------- -----------
$ 600,000 --
=========== ===========
Total provision
Federal $ 563,000 --
State 79,390 --
----------- -----------
$ 642,390 --
=========== ===========
The provision for income taxes differs from the
amount determined by applying the statutory rate to
net income, due to the following reasons for the years
ended August 31:
Income taxes (benefit) at statutory rate $ 882,000 $ (387,000)
(Benefit) expense due to change in asset valuation
allowance (298,000) 376,000
Other 58,390 11,000
----------- -----------
Income tax provision $ 642,390 $ --
=========== ===========
Sources of change in deferred taxes and the deferred
tax effect of each were as follows for the year ended
August 31:
Change in asset valuation allowance $ 298,000 $ (376,000)
Accrued liabilities 140,000 (3,000)
Depreciation and amortization 80,000 77,000
Carry forward (use) of net operating losses for
income tax reporting (1,118,000) 302,000
----------- -----------
Income tax provision $ (600,000) $ --
=========== ===========
Components of deferred tax assets at August 31,
were as follows:
Net operating loss carry forward $ 5,020,000 $ 7,114,000
Accrued liabilities 163,000 23,000
Depreciation and amortization 164,000 84,000
----------- -----------
5,347,000 7,221,000
Valuation allowance (5,347,000) (6,621,000)
----------- -----------
NET ASSET $ -- $ 600,000
=========== ===========
</TABLE>
F-18
<PAGE> 37
L. INCOME TAXES - continued
The Company has net operating loss carry forwards for tax purposes as
follows:
<TABLE>
<CAPTION>
Federal
Year Net Operating Year
Generated Loss Expires
--------- ------------- -------
<S> <C> <C>
1983 $ 3,009,000 1998
1984 2,941,000 1999
1985 992,000 2000
1986 909,000 2001
1987 1,074,000 2002
1990 2,086,000 2005
1991 1,091,000 2006
1996 770,000 2011
------------
$ 12,872,000
============
</TABLE>
M. CONTINGENCIES AND COMMITMENTS
Due to the nature of its products, the Company is subject to regulation
by a number of federal and state agencies, including the Federal Food and
Drug Administration, the Drug Enforcement Agency and the State of
California. The Company must comply with regulatory requirements. Should
it violate such requirements, its ability to operate could be suspended
or terminated. Management believes it has the control system and policies
in place so that it will fully comply with regulatory requirements.
On November 4, 1991, the Company entered into a settlement agreement
which transferred certain undeveloped land in satisfaction of a judgment
against the Company. As provided in the settlement agreement, the Company
would remain contingently liable to the extent proceeds from the sale of
the land were less than $2,715,000.
In August, 1995, the Company amended the settlement agreement whereby
another corporation, 100% owned by a director, officer and stockholder,
has assumed the obligations of the Company under the settlement
agreement. In exchange, the Board of Directors approved the issuance of
2,000,000 shares of the Company's Common Stock to this corporation. The
judgement has been completely satisfied, and arrangements are being made
to have these shares transferred back to the Company.
N. RELATED PARTY TRANSACTIONS
The Company is due $70,127 from a related entity with common shareholders
and officers. The amount due the Company has been guaranteed by the
shareholders of the related entity.
During 1997, $575,000 in loans were obtained from a shareholder, officer,
and director, and a $40,000 loan was obtained from a shareholder and
director. These loans are payable on demand and bear interest at Bank
prime rate plus 2%. Loan proceeds were used for working capital
During 1997, the Company issued 2,000,000 shares to an officer of QCP as
consideration for terminating an employment agreement entered into in
July, 1995.
On July 15, 1997, the Company entered into a Joint Marketing Agreement
with Dornoch. This agreement is described further in Note D, "Joint
Marketing Agreement."
F-19
<PAGE> 38
O. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of financial instruments held for purposes other
than trading are as follows:
<TABLE>
<CAPTION>
AT AUGUST 31, 1997
------------------------------------------
CARRYING VALUE FAIR VALUE
----------------- --------------------
<S> <C> <C>
Cash and cash equivalents $ 26,143 $ 26,143
Notes receivable 252,500 252,500
Notes payable - related parties 615,000 615,000
Notes payable 743,168 743,168
Long term debt 343,409 343,409
Capital leases 730,835 730,835
</TABLE>
<TABLE>
<CAPTION>
AT AUGUST 31, 1996
------------------------------------------
CARRYING VALUE FAIR VALUE
----------------- --------------------
<S> <C> <C>
Cash and cash equivalents $ 34,872 $ 34,872
Notes receivable 165,000 165,000
Notes payable 532,141 532,141
Long term debt 4,460,190 4,460,190
Capital leases 394,920 394,920
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable
to estimate that value.
Cash and cash equivalents - The carrying value approximates fair value
due to the short maturity of those instruments.
Notes receivable - The carrying value approximates fair value as the
interest rate at August 31, 1997, is considered to approximate the market
rate.
Notes payable, long term debt and capital leases - The carrying value
approximates fair value as the interest rate at August 31, 1997, is
considered to approximate the market rate.
P. FOURTH QUARTER ADJUSTMENTS
Operating results for the fourth quarter of fiscal 1997 include the
following adjustments: A $482,909 reduction to other income and notes
receivable to eliminate revenue due under the terms of the June 14, 1996,
Guarantee Agreement with Pharma Labs' joint venture partners.
Collectability of this amount is not reasonably assured.
Accruals were made to reflect the impact of the September, 1997, Pondimin
and Redux diet drug product recall. Net sales and receivables were
decreased $238,050 for estimated returns applicable to fiscal 1997 sales,
and cost of sales was decreased and receivables increased by $196,900 for
the estimated cost of the returned product and estimated refund due from
the product manufacturer.
An additional $221,913 provision for doubtful accounts was made in the
quarter primarily due to adverse conditions in the diet clinic industry.
The diet drug recall and adverse publicity in the public media have
adversely impacted many of the Company's diet clinic customers.
Q. PRIOR PERIOD ADJUSTMENT
In January, 1997, the Company issued 2,000,000 shares of Common Stock to
an employee as compensation for termination of his employment agreement.
This agreement was executed in March 1996, and accordingly, it was
determined that the compensation related to these shares should have been
recorded in the fiscal year ended August 31, 1996. The financial
statements for the year ended August 31, 1996, have been restated. The
effect of the restatement was to increase the loss for the year ended
August 31, 1996, by $200,000 ($.00 per share).
F-20
<PAGE> 39
R. SUBSEQUENT EVENTS
During the first quarter of fiscal 1998, the Company obtained $1,350,000
through the issuance of notes payable to certain shareholders and
directors of the Company. The notes are unsecured, due and payable upon
demand and have a variable interest rate of 2% over Bank prime (prime was
8.5% at August 31, 1997).
S. DISCLOSURE OF SIGNIFICANT RISK AND UNCERTAINTY
The Company conducted a test for asset impairment in accordance with
Financial Accounting Standard 121 and determined that no impairment loss
occurred. Both QCP and Pharma Labs have a current period operating loss
and cash flow loss, and are expected to have continuing losses in the
near term. Accordingly, it is reasonably possible that the results of the
impairment test may change in the near future and an impairment loss may
result.
F-21
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GOLDEN PHARMACEUTICALS, INC.
Dated: December 1, 1997 By /s/ Charles R. Drummond
---------------------------------
Charles R. Drummond, President,
Chief Executive Officer and
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Charles R. Drummond Chairman of the Board, December 1, 1997
- ----------------------------- Chief Executive Officer
Charles R. Drummond and Treasurer
/s/ Ladd A. Drummond Director December 1, 1997
- -----------------------------
Ladd A. Drummond
/s/ Arch G. Gothard, III Director December 1, 1997
- -----------------------------
Arch G. Gothard, III
/s/ John H. Grant Vice Chairman of the Board December 1, 1997
- ----------------------------- and Corporate Secretary
John H. Grant
/s/ Gary P. Pryor Vice President of Finance December 1, 1997
- -----------------------------
Gary P. Pryor
/s/ Richard G. Wahl Director December 1, 1997
- -----------------------------
Richard G. Wahl
</TABLE>
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C> <C>
*3.1 Articles of Incorporation filed October 4, 1973.
*3.2 Articles of Amendment to Articles of Incorporation filed
December 22, 1976.
*3.3 Articles of Amendment to Articles of Incorporation filed
August 25, 1978.
*3.4 Articles of Amendment to Articles of Incorporation filed June
15, 1979.
*3.5 Articles of Amendment to Articles of Incorporation filed
January 12, 1981.
*3.6 Articles of Amendment to Articles of Incorporation filed June
16,1987.
*3.7 Articles of Amendment to Articles of Incorporation filed
October 9, 1992.
#3.8 Articles of Amendment to Articles of Incorporation filed
December xx, 199x
*3.9 Certificate of Designation of 15%/30% Cumulative Convertible
Preferred Stock filed December 9, 1987.
*3.10 Corrected Certificate of Designation of 15%/30% Cumulative
Convertible Preferred Stock filed December 14, 1987.
*3.11 Corrected Certificate of Designation of 15%/30% Cumulative
Convertible Preferred Stock filed February 5, 1988.
+3.12 Certificate of Designation of Class A Convertible Preferred Stock
filed October 12, 1990.
**3.13 Second Amended and Restated Bylaws
*4.2 Specimen Certificate for Common Stock, no par value per share.
*10.1 Agreement Limiting Execution on Judgment dated November 4, 1991
and Addendum A thereto by and among the Company, GRC, New
Crawford Valley, Ltd. and Gulch Holdings Company.
**10.2 Amended and Restated Distribution Agreement between the Company
and Syncor dated June 1, 1995.
**10.3 Employment Agreement between Quality Care Pharmaceuticals, Inc.
and Charles R. Drummond.
**10.4 Employment Agreement between Quality Care Pharmaceuticals, Inc.
and Daniel B. Guinn.
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
#10.5 Agreement to Terminate Employment Agreement between Quality Care
Pharmaceuticals, Inc. and Daniel B. Guinn.
#10.6 Employment Agreement between the Company and John Grant.
**10.7 First Amendment to Agreement Executing Judgment dated August 3,
1995 among the Company, GHC, Inc., Charles R. Drummond, Golden
Research Corporation, New Crawford Valley, LTD and Gulch Holdings
Company.
**10.8 Credit and Security Agreement dated August 7, 1995 among the
Company, Quality Care Pharmaceuticals, Inc. and Norwest Credit,
Inc.
**10.9 Credit and Security Agreement dated August 7, 1995 among the
Company and Norwest Bank Minnesota, National Association.
**10.10 Promissory Note dated August 7, 1995 executed by the Company in
favor of Norwest Bank Minnesota, National Association in the
principal amount of $4,000,000.
**10.11 Revolving Note dated August 7, 1995 executed by the Company in
favor of Norwest Credit, Inc. in the principal amount of
$400,000.
**10.12 Revolving Note dated August 7, 1995 executed by the Company in
favor of Norwest Credit, Inc. in the principal amount of
$2,500,000.
**10.13 Revolving Note dated August 7, 1995 executed by the Company and
QCP in favor of Norwest Credit, Inc. in the principal amount of
$2,500,000.
***10.14 Operating Agreement dated June 14, 1996 between the Registrant
and Pharma France, Inc.
#10.15 Promissory Note dated November 22, 1996, executed by the Company
in favor of Charles R. Drummond in the principal amount of
$75,000.
#10.16 Promissory Note dated July 29, 1997, executed by the Company in
favor of Arch G. Gothard, III in the principal amount of $40,000.
#10.17 Promissory Note dated August 4, 1997, executed by the Company in
favor of Charles R. Drummond in the principal amount of $300,000.
#10.18 Promissory Note dated August 18, 1997, executed by the Company in
favor of Charles R. Drummond in the principal amount of $200,000.
#10.19 Promissory Note dated September 23, 1997, executed by the Company
in favor of Charles R. Drummond in the principal amount of
$300,000.
</TABLE>
<PAGE> 43
<TABLE>
<S> <C>
#10.20 Promissory Note dated October 6, 1997, executed by the Company in
favor of Charles R. Drummond in the principal amount of $50,000.
#10.21 Promissory Note dated October 8, 1997, executed by the Company in
favor of Arch G. Gothard, III in the principal amount of
$250,000.
#10.22 Promissory Note dated October 21, 1997, executed by the Company
in favor of Arch G. Gothard, III in the principal amount of
$250,000.
#10.23 Promissory Note dated November 4, 1997, executed by the Company
in favor of Charles R. Drummond in the principal amount of
$250,000.
#10.24 Promissory Note dated November 18, 1997, executed by the Company
in favor of Arch G. Gothard, III in the principal amount of
$150,000.
#10.25 Promissory Note dated November 19, 1997, executed by the Company
in favor of Arch G. Gothard, III in the principal amount of
$100,000.
#21 Subsidiaries of the Registrant.
#27 Financial Data Schedule.
</TABLE>
- ----------
+ Incorporated by reference to registrant's Annual Report on Form 10-K, dated
August 31, 1991, as filed with the Securities and Exchange Commission.
++ Incorporated by reference to registrant's Current Report on Form 8-K, and
exhibits thereto, dated June 25, 1992, as filed with the Securities and
Exchange Commission.
+++ Incorporated by reference to registrant's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1995 as filed with the Securities and Exchange
Commission.
* Incorporated by reference to registrant's Registration Statement on Form
S-1 and all amendments thereto, Registration number 33-32887.
** Incorporated by reference to registrant's Annual Report on Form 10-K dated
August 31, 1995, as filed with the Securities and Exchange Commission.
*** Incorporated by reference to registrant's Annual Report on Form 10-K dated
August 31, 1996, as filed with the Securities and Exchange Commission.
# Filed herewith.
<PAGE> 1
EXHIBIT 3.8
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
GOLDEN PHARMACEUTICALS, INC.
Pursuant to the provisions of Section 7-110-107 of the Colorado Business
Corporation Act, the undersigned hereby adopts the following Articles of
Amendment to its Articles of Incorporation (the "Articles of Amendment").
The Articles of Amendment were duly adopted, as required by law by a vote of
the shareholders on January 31, 1997. The number of shares voted for the
Articles of Amendment was sufficient for approval.
FIRST: The new Article VI of the Articles of Incorporation shall be as
follows:
"The authorized number of directors of this Corporation shall be not less
than 5 and not more than 9. The number of directors within this range shall be
specified or stated in the Corporation's Bylaws, as may be amended from time to
time. When the number of directors is changed, the Board shall determine the
class or classes to which the increased or decreased number of directors in
each class shall be as nearly equal in number as possible. No decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director.
Effective as of the annual meeting of shareholders in 1997, the Board shall
be divided into three classes, designated as Class A, Class B, and Class C, as
nearly equal in number as possible, and the term of office of directors of one
class shall expire at the annual meeting of shareholders, and in all cases
until their successors shall be elected and shall qualify, or until their
earlier resignation, removal from office, death or incapacity. The initial
term of office of Class A shall expire at the annual meeting of shareholders in
1998, that of Class B shall expire at the annual meeting in 1999, and that of
Class C shall expire at the annual meeting in 2000, and in all cases as to each
director until his successor shall be elected and shall qualify, or until his
earlier resignation, removal from office, death or incapacity.
Subject to the foregoing, at each annual meeting of shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting and until their successors shall be elected and qualified. The
directors remaining in office acting by a majority vote, or a sole
<PAGE> 2
remaining director, although less than a quorum, are hereby expressly delegated
the power to fill any vacancies in the Board, however occurring, whether by an
increase in the number of directors, death, resignation, retirement,
disqualification, removal from office or otherwise, and any director shall have
been chosen and until his successor shall have been elected and qualified, or
until his earlier resignation, removal from office, death or incapacity."
<PAGE> 3
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment this 16th day of December, 1997.
GOLDEN PHARMACEUTICALS, INC.
By
------------------------------------
Gary Pryor, Vice President, Finance
<PAGE> 1
Exhibit 10.5
AGREEMENT
THIS AGREEMENT (the "Agreement") is made this 9th day of March, 1996,
by and between Quality Care Pharmaceutical, Inc., a California corporation (the
"Company") wholly owned by Golden Pharmaceuticals, Inc., a Colorado corporation
("Golden"), and Daniel B. Guinn (the "Executive"). The Company and the
Executive are sometimes referred to herein as the Parties. Terms not otherwise
defined herein shall have the meaning attributed to them in the Employment
Agreement as defined below.
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement (the "Employment Agreement") dated July 7, 1995; and
WHEREAS, the Company and Executive have mutually agreed to terminate
the Employment Agreement and desire to enter into this Agreement to set forth
the ongoing relationship of the Parties.
NOW THEREFORE, in consideration of the covenants undertaken and the
releases contained in this Agreement, the Executive and the Company agree as
follows:
1. TERMINATION OF AGREEMENT. Except as provided in this Section
1, the Employment Agreement is terminated effective as of March 9, 1996 (the
"Effective Date"). Notwithstanding the above, the Parties agree that Section 7
of the Employment Agreement shall remain in full force and effect.
2. CONSIDERATION FOR TERMINATION. As consideration for
termination of the Employment Agreement, Golden, on behalf of the Company,
shall issue or cause to be issued to Executive 2,000,000 shares of Golden's no
par value common stock (the "Shares").
In order to induce Golden to issue the Shares, the Executive hereby
represents and warrants to Golden and the Company that:
(a) Executive has been given access to full and complete
information regarding Golden and has had the opportunity to obtain any
additional information necessary to verify the accuracy of the
information contained in such documents, and has been given the
opportunity to meet with representatives of Golden and to have them
answer any questions regarding the terms and conditions of the Shares,
and all such questions have been answered to his full satisfaction and
all documents or other information requested has been provided.
(b) Executive understands that the Shares have not been
registered under the Securities Act of 1933, as amended, but are
offered pursuant to an exemption from registration under the
Securities Act of 1933, as amended.
(c) Executive understands that any and all certificates
for the Shares will bear a restrictive legend indicating: (1) the
Shares have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"); and (2) that there are restrictions on the
transfer of such Shares. Executive also understands and agrees that
Golden will place appropriate notations in its records to stop any
transfer of the Shares other than in accordance with the 1933 Act or
an exemption therefrom.
<PAGE> 2
(d) Executive is informed of the significance to the
Company and Golden of the foregoing representations, and such
representations are made with the intention that the Company and
Golden rely on them. The undersigned shall indemnify and hold
harmless the Company and Golden, their respective officers, directors,
employees and representatives against any losses, claims, damages or
liabilities to which they, or any of them, may become subject insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise from any actual or alleged misrepresentation or
misstatement of facts or omission to represent or state facts made by
Executive to the Company or Golden concerning the Executive.
3. EMPLOYMENT.
(a) At Will. Effective as of the date of this Agreement,
Executive shall be employed by the Company as an employee "at will,"
which means that Executive is not being employed by the Company for
any definite or specified term, and that the employment may be
terminated by either Executive or the Company, at the will of either,
at any time, with or without cause, and with or without any advance
notice. Nothing in this section 3 of the Agreement, setting forth the
terms of any benefits to be paid Executive, shall alter or affect the
at-will nature of the employment relationship.
(b) Title. Executive shall serve as President of the
Company and shall perform the duties and services incident to that
position, or such other duties and services of a similar nature as may
be reasonably required of him by the Chairman of the Company or the
Board of Directors of the Company. Executive shall serve as an
officer of the Company without additional compensation.
(c) Base Salary. The Company shall pay Executive a base
annual salary of $96,000 (the "Base Salary"). At the Company's sole
discretion, Executive's Base Salary shall be increased to $110,000.
(d) Cost of Living. Executive shall be eligible to
receive cost of living increases that may be paid to other senior
executive level officers of the Company.
(e) Fringe Benefits. Executive shall be eligible to
participate in the various retirement, welfare, fringe benefit and
other executive prerequisite plans, programs and arrangements of the
Company available for senior executive level officers of the Company.
(f) Bonus. Executive shall be eligible to receive a cash
bonus in the range of 0% to 20% of his Base Salary based upon the
Executive's performance and the Company's achievement of certain
operating and/or financial goals established by the Board of Directors
of the Company. This annual bonus shall be in lieu of the Executive's
participation in any other cash bonus or incentive plan or arrangement
of the Company; provided, however, that the foregoing shall not
preclude Executive from participating in any equity or equity based
compensation program of the Company. Notwithstanding the above, the
Executive acknowledges and agrees that nothing contained herein shall
be deemed to entitle the Executive to an annual bonus and that the
grant and award of an annual bonus, if any, is subject to the sole
discretion of the Board of Directors of the Company.
(g) Severance Pay. In the event the Company terminates
the employment of Executive during the first year of this Agreement,
except for Cause, which is defined as (i) Executive is convicted of,
pleads guilty or nolo contendere to a felony or a crime involving
moral turpitude or (ii)
<PAGE> 3
Executive conducts his duties as an officer of the Company in a manner
that constitutes gross negligence or willful misconduct, then
Executive shall continue to receive his Base Salary for six (6) months
following his termination of employment.
4. RELEASE. In exchange for the consideration set forth in
Paragraph 2 hereof, Executive hereby, on behalf of himself, his descendants,
ancestors, dependents, heirs, executors, administrators, assigns and
successors, covenants not to sue, and fully and forever releases and discharges
the Company, and its parent, subsidiaries, affiliates, divisions, successors,
and assigns, together with its past and present trustees, directors, officers,
agents, attorneys, insurers, employees, stockholders, and representatives, from
any and all claims, wages, demands, rights, liens, agreements, contracts,
covenants, actions, suits, causes of action, obligations, debts, costs,
expenses, attorneys' fees, damages, judgments, orders or liabilities of
whatsoever kind or nature in law, equity or otherwise, whether now known or
unknown, suspected or unsuspected with the Executive now owns or holds or has
at any time heretofore owned or held as against said Company, arising out of or
in any way connected with the Executive's employment relationship with the
Company, the Employment Agreement or any other transactions, occurrences, acts
or omissions or any loss, damage or injury whatsoever, known or unknown,
suspected or unsuspected, resulting from any act or omission by or on the part
of the Company committed or omitted prior to the date of this Agreement,
including, but not limited to, claims for race, color, religion, sex, national
origin, creed, and ancestry discrimination under federal, state, and local
statutes or laws, or any claim for severance pay, bonus, salary, sick leave,
holiday pay, vacation pay, life insurance, health or medical insurance or any
other fringe benefit, workers' compensation or disability.
It is understood by Executive that as a condition of this Agreement,
all rights under Section 1542 of the Civil Code of the State of California are
expressly waived by Executive. Section 1542 reads as follows: "A General
Release does not extend to claims which a creditor does not know or suspect to
exist in his favor at the time of executing the Release, which if known by him
must have materially affected his settlement with the debtor." For the purpose
of giving Executive a full and complete release and discharge as set forth in
this Agreement, Executive expressly acknowledges that this Agreement is
intended to include and does include, without limitation, all claims that
Executive does not know or suspect to exist in Executive's favor against the
Company at the time of signing this Agreement. By signing this Agreement,
Executive waives all such claims.
5. TAXES. The Executive understands and agrees that he is
responsible for any federal, state or local tax, charge or assessment which may
be owed by virtue of the receipt of any portion of the consideration herein
provided.
6. ADVICE OF COUNSEL. The Executive acknowledges that he has
been encouraged to seek the advice of an attorney of his choice in regard to
this Agreement. The Company and the Executive represent that they have relied
upon the advice of their attorneys, who are attorneys of their own choice, or
they have knowingly and willingly not sought the advice of their attorneys.
The Executive hereby understands and acknowledges the significance and
consequences of such Agreement and represents that the terms of this Agreement
are fully understood and voluntarily accepted by him.
7. MISCELLANEOUS. The Executive acknowledges that he has had a
sufficient amount of time to consider the terms of this Agreement. Both the
Executive and the Company have cooperated in the drafting and preparation of
this Agreement. Hence, in any construction to be made of this Agreement, the
same shall not be construed against any party on the basis that the party was
the drafter.
<PAGE> 4
8. BINDING AGREEMENT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement concerning the termination of the Employment Agreement and all other
subjects addressed herein. This Agreement supersedes and replaces all prior
negotiations and all agreements proposed or otherwise, whether written or oral,
concerning all subject matters covered herein. No alteration, amendment,
change or addition to this Agreement shall be binding unless reduced to writing
and signed by all Parties hereto.
11. SEVERABILITY. If one or more of the provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect or
impair any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provisions had not been
contained herein.
<PAGE> 5
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date and year first written above.
QUALITY CARE PHARMACEUTICAL, INC.
By
--------------------------------------
Charles R. Drummond, Chairman and
Chief Executive Officer
EXECUTIVE
----------------------------------------
Daniel B. Guinn
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") effective as of April 24, 1997
("Effective Date") by and between Golden Pharmaceuticals, Inc. (the "Company"),
a Colorado corporation, with its business at 710-14th Street, Golden, Colorado
80401 and John H. Grant ("Employee"), an individual, with his principal address
at 1288 Denniston Street, Pittsburgh, Pennsylvania 15217.
ARTICLE I
ENGAGEMENT
1. TERM. The term of the Agreement shall be five (5) years ("Employment
Term") commencing not later than July 27, 1997, and terminating July 26,
2002 (the "Initial Term").
2. DUTIES. The individual agrees to serve in a management capacity with the
Company, including initial work as Vice Chairman of the Board.
3. COMMUNICATION. The Employee will report to the Chairman of the Board,
Charles R. Drummond or his successor as may be elected.
ARTICLE II
COMPENSATION
1. SALARY. Compensation for the Employee's service will consist of a minimum
payment of $95,000 (ninety-five thousand dollars) per year, with
adjustments from time to time depending on performance and roles assigned.
2. BENEFITS. Benefits to the Employee shall consist of health insurance, life
insurance, holidays, vacation and other benefits as from time to time shall
be made available to the employees of the Company.
3. RELOCATION EXPENSES. The Employee shall be reimbursed for out-of-pocket
expenses in conjunction with his family's relocation to sites requested by
the Employer.
4. CHANGE IN CONTROL. If there should be a change in the management control
of the Company and the Employee's role should change significantly, the
remaining salary due under the Term of this Agreement will become due and
payable at the Employee's request within ten days of said transaction.
<PAGE> 2
ARTICLE III
NONCOMPETITION
1. NONCOMPETITION. The employee acknowledges the highly competitive nature of
the industry and agrees that during the term of his employment and for a
period of two years thereafter he will not work for a competitor of any
unit of the Company.
ARTICLE IV
MISCELLANEOUS
1. WAIVER. The failure of either party to enforce any provision of this
Agreement shall not be construed as a waiver or limitation of that party's
right to subsequently enforce and compel strict compliance with every
provision of this Agreement.
2. ARBITRATION OF ALL DISPUTES. Any claims arising out of or relating to this
Agreement or the breach thereof shall be settled by arbitration in the City
of Denver, Colorado in accordance with the laws of the State of Colorado.
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective authorized representatives as of the day and year
first above written.
GOLDEN PHARMACEUTICALS, INC.
By:
--------------------------------
Charles R. Drummond, Chairman of
the Board of Directors and CEO
By:
--------------------------------
John H. Grant, an individual
<PAGE> 1
Exhibit 10.15
PROMISSORY NOTE
$75,000.00 Golden, Colorado
November 22, 1996
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Charles R.
Drummond, (hereinafter referred to as the "Lender"), 710-14th Street, Golden,
CO 80401 on demand or no later than April 1, 1998 the principal sum of
Seventy-Five Thousand Dollars ($75,000.00) or the principal still outstanding
if prepayments of principal have been made prior to the demand or due date. Any
accrued but unpaid interest will also be paid at the time the Lender makes a
demand for the outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- -------------------------------- ------------------------------------
Charles R. Drummond Title:
---------------------------------
Quality Care Pharmaceuticals, Inc.
By:
------------------------------------
Title:
---------------------------------
<PAGE> 1
Exhibit 10.16
PROMISSORY NOTE
$40,000.00 Golden, Colorado
July 29, 1997
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Arch G.
Gothard III, (hereinafter referred to as the "Lender"), P.O. Box 5950, 0120
Flintstone Lane, Breckenridge, CO 80424 on demand or no later than April 1,
1998 the principal sum of Forty Thousand Dollars ($40,000.00) or the principal
still outstanding if prepayments of principal have been made prior to the
demand or due date. Any accrued but unpaid interest will also be paid at the
time the Lender makes a demand for the outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- ---------------------------------- -------------------------------------
Arch G. Gothard III Title:
----------------------------------
Quality Care Pharmaceuticals, Inc.
By:
-------------------------------------
Title:
----------------------------------
<PAGE> 1
Exhibit 10.17
PROMISSORY NOTE
$300,000.00 Golden, Colorado
September 23, 1997
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Charles R.
Drummond, (hereinafter referred to as the "Lender"), 710-14th Street, Golden,
CO 80401 on demand or no later than April 1, 1998 the principal sum of Three
Hundred Thousand Dollars ($300,000.00) or the principal still outstanding if
prepayments of principal have been made prior to the demand or due date. Any
accrued but unpaid interest will also be paid at the time the Lender makes a
demand for the outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- -------------------------------- -------------------------------------
Charles R. Drummond Title:
----------------------------------
Quality Care Pharmaceuticals, Inc.
By:
-------------------------------------
Title:
----------------------------------
<PAGE> 1
Exhibit 10.17
PROMISSORY NOTE
$200,000.00 Golden, Colorado
August 18, 1997
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Charles R.
Drummond, (hereinafter referred to as the "Lender"), 710-14th Street, Golden,
CO 80401 on demand or no later than April 1, 1998 the principal sum of Two
Hundred Thousand Dollars ($200,000.00) or the principal still outstanding if
prepayments of principal have been made prior to the demand or due date. Any
accrued but unpaid interest will also be paid at the time the Lender makes a
demand for the outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made.
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- -------------------------------- ------------------------------------
Charles R. Drummond Title:
---------------------------------
Quality Care Pharmaceuticals, Inc.
By:
------------------------------------
Title:
---------------------------------
<PAGE> 1
Exhibit 10.19
PROMISSORY NOTE
$300,000.00 Golden, Colorado
August 4, 1997
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Charles R.
Drummond, (hereinafter referred to as the "Lender"), 710-14th Street, Golden,
CO 80401 on demand or no later than April 1, 1998 the principal sum of Three
Hundred Thousand Dollars ($300,000.00) or the principal still outstanding if
prepayments of principal have been made prior to the demand or due date. Any
accrued but unpaid interest will also be paid at the time the Lender makes a
demand for the outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made.
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- -------------------------------- ------------------------------------
Charles R. Drummond Title:
---------------------------------
Quality Care Pharmaceuticals, Inc.
By:
------------------------------------
Title:
---------------------------------
<PAGE> 1
Exhibit 10.20
PROMISSORY NOTE
$50,000.00 Golden, Colorado
October 6, 1997
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Charles R.
Drummond, (hereinafter referred to as the "Lender"), 710-14th Street, Golden,
CO 80401 on demand or no later than April 1, 1998 the principal sum of Fifty
Thousand Dollars ($50,000.00) or the principal still outstanding if prepayments
of principal have been made prior to the demand or due date. Any accrued but
unpaid interest will also be paid at the time the Lender makes a demand for the
outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made.
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- -------------------------------- ------------------------------------
Charles R. Drummond Title:
---------------------------------
Quality Care Pharmaceuticals, Inc.
By:
------------------------------------
Title:
---------------------------------
<PAGE> 1
Exhibit 10.21
PROMISSORY NOTE
$250,000.00 Golden, Colorado
October 8, 1997
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Arch G.
Gothard III, (hereinafter referred to as the "Lender"), P.O. Box 5950, 0120
Flintstone Lane, Breckenridge, CO 80424 on demand or no later than April 1,
1998 the principal sum of Two Hundred Fifty Thousand Dollars ($250,000.00) or
the principal still outstanding if prepayments of principal have been made
prior to the demand or due date. Any accrued but unpaid interest will also be
paid at the time the Lender makes a demand for the outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made.
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- -------------------------------- ------------------------------------
Arch G. Gothard III Title:
---------------------------------
Quality Care Pharmaceuticals, Inc.
By:
------------------------------------
Title:
---------------------------------
<PAGE> 1
Exhibit 10.22
PROMISSORY NOTE
$250,000.00 Golden, Colorado
October 21, 1997
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Charles R.
Drummond, (hereinafter referred to as the "Lender"), 710-14th Street, Golden,
CO 80401 on demand or no later than April 1, 1998 the principal sum of Two
Hundred Fifty Thousand Dollars ($250,000.00) or the principal still outstanding
if prepayments of principal have been made prior to the demand or due date. Any
accrued but unpaid interest will also be paid at the time the Lender makes a
demand for the outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made.
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- -------------------------------- ------------------------------------
Charles R. Drummond Title:
---------------------------------
Quality Care Pharmaceuticals, Inc.
By:
------------------------------------
Title:
---------------------------------
<PAGE> 1
Exhibit 10.23
PROMISSORY NOTE
$250,000.00 Golden, Colorado
November 4, 1997
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Charles R.
Drummond, (hereinafter referred to as the "Lender"), 710-14th Street, Golden,
CO 80401 on demand or no later than April 1, 1998 the principal sum of Two
Hundred Fifty Thousand Dollars ($250,000.00) or the principal still outstanding
if prepayments of principal have been made prior to the demand or due date. Any
accrued but unpaid interest will also be paid at the time the Lender makes a
demand for the outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- -------------------------------- ------------------------------------
Charles R. Drummond Title:
---------------------------------
Quality Care Pharmaceuticals, Inc.
By:
------------------------------------
Title:
---------------------------------
<PAGE> 1
Exhibit 10.24
PROMISSORY NOTE
$150,000.00 Golden, Colorado
November 18, 1997
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Arch G.
Gothard III, (hereinafter referred to as the "Lender"), P.O. Box 5950, 0120
Flintstone Lane, Breckenridge, CO 80424 on demand or no later than April 1,
1998 the principal sum of One Hundred Fifty Thousand Dollars ($150,000.00) or
the principal still outstanding if prepayments of principal have been made
prior to the demand or due date. Any accrued but unpaid interest will also be
paid at the time the Lender makes a demand for the outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- -------------------------------- ------------------------------------
Arch G. Gothard III Title:
---------------------------------
Quality Care Pharmaceuticals, Inc.
By:
------------------------------------
Title:
---------------------------------
<PAGE> 1
Exhibit 10.25
PROMISSORY NOTE
$100,000.00 Golden, Colorado
November 19, 1997
FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado
Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California
Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W.
Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Arch G.
Gothard III, (hereinafter referred to as the "Lender"), P.O. Box 5950, 0120
Flintstone Lane, Breckenridge, CO 80424 on demand or no later than April 1,
1998 the principal sum of One Hundred Thousand Dollars ($100,000.00) or the
principal still outstanding if prepayments of principal have been made prior to
the demand or due date. Any accrued but unpaid interest will also be paid at
the time the Lender makes a demand for the outstanding principal.
Interest shall be calculated at the prime rate charged by Norwest Bank
from time to time plus two percent (2%) on the basis of a three hundred and
sixty (360) day year. Interest shall be due and payable at least quarterly
commencing with the fifteenth day of the month ending the quarter in which this
loan was made
The amounts due under the terms of the promissory note may be prepaid
in whole or in part at the sole option of the Borrower without penalty. All
payments of both principal and interest are to be made to the Lender at his
address above in lawful money of the United States of America.
In the event any amount is not paid when due under the terms of this
note, the unpaid balance shall thereafter bear interest until paid at the
maximum rate permitted by law, or if the rate is unlimited, at the rate of
eighteen percent (18%) per annum, until paid, said interest to be compounded
quarterly.
If this promissory note is placed in the hands of an attorney for
collection after the same for any reason becomes due, or if collected by legal
proceedings or through the probate or bankruptcy courts, the Borrower hereby
agrees to reimburse the Lender for reasonable attorney's fees together with
all out-of-pocket costs.
The Borrowers and all endorsers, sureties, guarantors and all other
persons liable or who may become liable hereon hereby severally waiver demand,
presentment, notice of dishonor or nonpayment, and assent to each and any
extension or postponement of the time of payment at or after maturity, or of
any indulgence.
The undersigned individuals hereby represent that they are duly
authorized to execute this "promissory note" on behalf of the borrowers and
obligate them to the terms and conditions contained herewith.
<PAGE> 2
Lender: Borrower:
Golden Pharmaceuticals, Inc.
By:
- -------------------------------- ------------------------------------
Arch G. Gothard III Title:
---------------------------------
Quality Care Pharmaceuticals, Inc.
By:
------------------------------------
Title:
---------------------------------
<PAGE> 1
Exhibit 21
Subsidiaries of the Company
Quality Care Pharmaceuticals, Inc., a California Corporation
Pharma Labs, LLC, a California Corporation
Rx Direct, LLC, a California Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 26,143
<SECURITIES> 0
<RECEIVABLES> 1,778,321
<ALLOWANCES> 446,834
<INVENTORY> 1,024,689
<CURRENT-ASSETS> 3,256,421
<PP&E> 3,362,288
<DEPRECIATION> 908,804
<TOTAL-ASSETS> 9,794,239
<CURRENT-LIABILITIES> 3,132,407
<BONDS> 0
292,558
0
<COMMON> 24,774,154
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,794,239
<SALES> 11,957,841
<TOTAL-REVENUES> 11,957,841
<CGS> 8,146,734
<TOTAL-COSTS> 8,146,734
<OTHER-EXPENSES> (4,777,096)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,456,439
<INCOME-PRETAX> 2,193,912
<INCOME-TAX> 642,390
<INCOME-CONTINUING> 1,551,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,820,926
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
