SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1995
Commission File Number 0-13588
PUREPAC, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2769995
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Elmora Avenue, Elizabeth, New Jersey 07207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 527-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
____________________________ _________________________________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
___________________________________________________________________________
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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
_____ _____
12,581,223
Number of shares outstanding of the Registrant's common stock
as of May 5, 1995.
Page 1 of 12
<PAGE>
PUREPAC, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
Page No.
________
ITEM 1. Consolidated Financial Statements:
Consolidated Balance Sheets
March 31, 1995 and June 30, 1994 3
Consolidated Statements of Operations
Three months ended March 31, 1995
and 1994 and nine months ended
March 31, 1995 and 1994 4
Consolidated Statements of Cash Flows
Nine months ended March 31, 1995
and 1994 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 9
PART II - OTHER INFORMATION
Items 1 thru 6 11
SIGNATURES 12
Page 2 of 12
<PAGE>
<TABLE>
PUREPAC, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
March 31, June 30,
1995 1994
____________ _____________
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 614,558 $ 3,153,844
Accounts receivable 9,723,784 10,973,351
Inventory (Note 3) 18,144,861 19,189,435
Other current assets 753,479 504,766
Deferred income taxes (Note 5) 2,552,053 2,806,000
___________ ___________
Total current assets 31,788,735 36,627,396
___________ ___________
Property, plant and equipment, net 26,479,402 25,705,262
Other assets 3,232,266 3,241,644
Deferred income taxes (Note 5) 1,894,000 1,693,000
___________ ___________
Total Assets $63,394,403 $67,267,302
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,941,628 $ 7,051,025
Due to affiliated companies 21,086 119,593
Loan payable to bank 1,000,000 ---
Accrued expenses 3,455,368 4,411,866
Accrued income taxes (Note 5) 52,790 304,241
Accrued preferred dividends 520,095 520,095
___________ ___________
Total current liabilities 9,990,967 12,406,820
___________ ___________
Stockholders' equity (Note 4)
Class A convertible preferred stock;
par value $.01, authorized
1,834,188 shares; issued and
outstanding 834,188 (liquidation
value $24,995,171) 8,342 8,342
Common stock; par value $.01,
authorized 25,000,000 shares;
issued and outstanding
12,566,348 at March 31, 1995
and 12,510,098 at June 30, 1994 125,663 125,101
Capital in excess of par value 25,247,140 26,261,185
Retained earnings 28,022,291 28,465,854
___________ ___________
Total stockholders' equity 53,403,436 54,860,482
___________ ___________
Total Liabilities and
Stockholder's Equity $63,394,403 $67,267,302
=========== ===========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Page 3 of 12
<PAGE>
<TABLE>
PUREPAC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
_______________________ ______________________
1995 1994 1995 1994
__________ __________ ___________ _________
<S> <C> <C> <C> <C>
Net Sales $14,473,217 $16,314,349 $46,826,965 $53,699,923
Cost of sales 10,864,871 11,191,211 35,084,078 35,369,600
___________ ___________ ___________ ___________
Gross profit 3,608,346 5,123,138 11,742,887 18,330,323
___________ ___________ ___________ ___________
Expenses:
Selling, general and
administration 2,548,593 2,481,274 7,313,600 6,839,475
Reseach and Development 1,864,350 1,329,312 5,109,321 4,073,541
___________ ___________ ___________ ___________
Total Expenses 4,412,943 3,810,586 12,422,921 10,913,016
___________ ___________ ___________ ___________
Income (Loss) from
operations (804,597) 1,312,552 (680,034) 7,417,307
___________ ___________ ___________ ___________
Other income (expense), net (9,961) (848) (23,529) 54,358
___________ ___________ ___________ ___________
Income (Loss) before
income taxes (814,558) 1,311,704 (703,563) 7,471,665
Provision (benefit) for
income taxes (Note 5) (301,000) 250,000 (260,000) 2,745,000
____________ ___________ ___________ ___________
Income (Loss) Before
Cumulative Effect of a
Change in Accounting for
Income Taxes (513,558) 1,061,704 (443,563) 4,726,665
Cumulative effect of a
change in accounting
for income taxes --- --- --- 4,149,000
____________ __________ __________ __________
Net Income (Loss) $ (513,558) $1,061,704 $ (443,563) $8,875,665
============ ========== =========== ==========
Primary Earnings Per
Common Share (Note 2):
Income (Loss) before
cumulative effect of a
change in accounting for
income taxes $ (.08) $ .04 $ (.16) $ .25
Cumulative effect of a
change in accounting for
income taxes --- --- --- .34
___________ __________ __________ __________
Net income (Loss) $ (.08) $ .04 $ (.16) $ .59
=========== ========== ========== ==========
Weighted average number
of common shares
outstanding 12,553,848 12,508,270 12,524,468 12,454,264
____________ __________ __________ __________
Earnings Per Share,
Assuming Full Dilution:
Income before cumulative
effect of a change in
accounting for income
taxes $ .27
Cumulative effect of a
change in accounting
for income taxes .24
___________
Net income $ .51
===========
Weighted average number of
fully diluted shares 17,563,286
___________
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
Page 4 of 12
<PAGE>
<TABLE>
PUREPAC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
March 31,
__________________________
1995 1994
___________ ___________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (443,563) $8,875,665
Adjustments to Reconcile Net Income (Loss)
to Net Cash
Provided By (Used For) Operating Activities:
Depreciation and amortization 1,547,439 1,298,360
Compensation expense - stock grants 288,948 277,264
Deferred income tax, asset 52,947 (3,094,000)
Deferred income tax, long term liability --- (153,000)
Increase (Decrease) in Cash From:
Accounts receivable 1,249,567 (833,142)
Inventory 1,044,574 (4,860,539)
Other current assets (248,713) (184,257)
Accounts payable (2,109,397) (2,672,643)
Accrued expenses (956,498) (1,815,214)
Accrued income taxes 6,403 (64,560)
Due to/from affiliates (98,507) (509,433)
____________ ____________
Total Adjustments 776,763 (12,611,164)
____________ ____________
Net Cash Provided By (Used For)
Operating Activities 333,200 (3,735,499)
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (2,312,201) (3,784,317)
____________ ____________
Net Cash Provided by (Used For)
Investing Activities (2,312,201) (3,784,317)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from bank 1,000,000 ---
Preferred dividends paid (1,560,285) (1,560,285)
____________ ____________
Net Cash Provided by (Used For)
Financing Activities (560,285) (1,560,285)
____________ ____________
Increase (Decrease) In Cash
And Cash Equivalents $(2,539,286) $(9,080,101)
============ ============
Cash and cash equivalents,
beginning of period 3,153,844 10,639,723
____________ ____________
Cash And Cash Equivalents,
End Of Period $ 614,558 $ 1,559,622
=========== ===========
Supplemental disclosure of
cash flow information:
Cash paid during the period for:
Interest $ 56,279 $ 23,031
Income Taxes $ --- $ 1,907,560
___________ ____________
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE)
Page 5 of 12
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PUREPAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Notes to the Financial Statements included in Purepac, Inc.'s (the "Company")
Form 10-K for the year ended June 30, 1994, contain information pertinent to
the accompanying financial statements. There has been no material change in
the information contained in such footnotes except as set forth below. The
Consolidated Balance Sheet at March 31, 1995, the Consolidated Statements
of Operations for the three and nine months ended March 31, 1995 and 1994
and the Consolidated Statements of Cash Flows for the nine months ended
March 31, 1995 and 1994, have not been audited.
In the opinion of management, all adjustments (consisting only of normal
recurring entries) necessary for a fair presentation of such financial
results have been included.
1. Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Purepac Pharmaceutical Co.
("Purepac").
2. Earnings Per Common Share
Primary earnings per common share is calculated by (i) dividing
income before the cumulative effect of a change in accounting for
income taxes less preferred dividends by the weighted average number
of common shares outstanding during the period and (ii) by dividing
the cumulative effect of a change in accounting for income taxes,
if any, by such average number of common shares. Common stock
equivalents are excluded as the effect is either not material or
anti-dilutive. Earnings per share, assuming full dilution, is
also presented for the three and nine months ended March 31, 1994
and is based on the assumption that all contingently issuable shares
were outstanding from the beginning of the period to the extent
dilution results. For the current three and nine month periods
ended March 31, 1995 and prior three month period, fully diluted
earnings per share is not presented as the effect would be
anti-dilutive.
3. Inventory
March 31, June 30,
1995 1994
___________ ___________
Raw materials $ 7,283,747 $ 7,734,277
Work-in-process 3,427,646 3,676,862
Finished goods 7,433,468 7,778,296
___________ ___________
Total $18,144,861 $19,189,435
=========== ===========
Page 6 of 12
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Notes to Financial Statements (Continued)
4. Capital Stock
During the quarter ended March 31, 1995 the Company issued 56,250
shares of common stock to employees pursuant to the Company's 1991
Restricted Stock Incentive Plan. The Company received no proceeds
from this transaction. As a result of the issuance of these shares,
the Company will have an income tax deduction of $610,313 in the
fiscal year ending June 30, 1996. The deduction will result in a
reduction in the taxes payable of approximatley $232,000. In the
same fiscal year, for financial reporting purposes, the tax benefit
will be recorded as a reduction of the deferred tax asset to the
extent previously provided and the remainder of the benefit will
be recorded as additional capital in excess of par value. It will
not be reflected in the reported earnings or the earnings per
share calculations.
A reconciliation of the change in total stockholders' equity
for the nine month period ended March 31, 1995 is as follows:
Par Value of
Common and Capital in Total
Preferred Excess of Retained Stockholders'
Stock Par Value Earnings Equity
__________ ___________ ___________ ___________
Balance, June 30, 1994 $133,443 $26,261,185 $28,465,854 $54,860,482
Common stock issued
pursuant to stock
grant plan 562 (562)
Class A preferred
stock dividend (1,560,285) (1,560,285)
Stock grant amortization 288,948 288,948
Reduction of income tax
liability from issuance
of stock grants 257,854 257,854
Net Income (443,563) (443,563)
__________ ___________ ___________ ___________
Balance, March 31, 1995 $134,005 $25,247,140 $28,022,291 $53,403,436
========== =========== =========== ===========
5. Accounting for Income Taxes
The Company adopted Statement of Financial Accounting Standard No.
109 ("SFAS 109"), "Accounting for Income Taxes," effective July 1, 1993.
The cumulative effect of adopting SFAS 109 on the Company's financial
statements, for the nine months ended March 31, 1994, was to increase
income by $4,149,000 ($.34 per primary common share and $.24 per share
on a fully diluted basis) with a corresponding increase in the deferred
tax asset.
Page 7 of 12
<PAGE>
Notes to Financial Statements (Continued)
Deferred income tax assets, both current and non-current, reflect the
net tax effects of (a) temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards.
Beginning with the adoption of SFAS 109 on July 1, 1993, the income
tax expense provision will not include the benefit of recognizing
available loss carryforwards to the extent they have already been
recognized as a deferred tax asset. Instead, there will be a
reduction in the deferred tax asset when such benefits are utilized
to reduce taxes payable.
The provision (benefit) for income tax expense was comprised of the following:
Three Months Ended Nine Months Ended
March 31, March 31,
______________________ _______________________
1995 1994 1995 1994
__________ __________ __________ __________
Current
Federal $(24,000) $ 400,000 $ (20,000) $2,306,000
State (45,000) (150,000) (39,000) 439,000
__________ __________ __________ __________
(69,000) 250,000 (59,000) 2,745,000
Deferred
Federal (232,000) --- (201,000) ---
__________ __________ __________ __________
Total (benefit) provision $(301,000) $ 250,000 $(260,000) $2,745,000
========== ========== ========== ==========
The Company has net operating losses and tax credits available as
carryforwards to reduce future payments of federal income taxes. State
tax losses are also available as carryforwards. At March 31, 1995, for
federal tax purposes, the net operating loss and tax credit carryforwards
amounted to $13,048,000 and $707,000, respectively, and expire through
2003. The Company believes it will achieve sufficient taxable income
to realize the tax benefit of the net operating loss. The utilization
of the net operating loss carryforwards to reduce future tax payments
is subject to limitation under provisions of the Internal Revenue Code.
Page 8 of 12
<PAGE>
PUREPAC, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Results Of Operations - Three and Nine Month Periods Ended March 31, 1995
Compared With The Three and Nine Month Periods Ended March 31, 1994
Net sales for the three and nine month periods ended March 31, 1995 were
$14,473,000 and $46,827,000, respectively, compared with $16,314,000 and
$53,700,000 for the corresponding 1994 periods. The declines in both periods
reflect lower sales of certain mature products, including nifedipine,
partially offset by increased volumes for several new products. The
nifedipine products accounted for 12% of net sales for both the current
three and nine month periods compared with 11% and 13% respectively,
for the corresponding prior periods.
Gross profits for the three and nine month periods were $3,608,000
and $11,743,000, respectively, compared with $5,123,000 and $18,330,000
for the corresponding 1994 periods. Gross profits as a percent of net
sales were 25% for both the current three and nine month periods compared
with 31% and 34% for the corresponding prior periods. The gross profit
declines are attributable to higher raw material costs and to lower
selling prices.
Selling, general and administrative expenses for the current three and nine
month periods of $2,549,000 and $7,314,000, respectively, increased over
the corresponding prior period expenses of $2,481,000 and $6,839,000,
respectively. The expenses as a percent of net sales for the three and
nine month periods were 18% and 16%, respectively, compared with 15% and
13% for the corresponding 1994 periods. The increases are due primarily
to higher personnel expenses.
Research and development expenses for the curren three and nine month
periods were $1,864,000 and $5,109,000, respectively, compared with
$1,329,000 and $4,074,000 for the corresponding prior periods. The
expenses as a percent of net sales for the current three and nine month
periods were 13% and 11%, respectively, compared with 8% for both
corresponding prior periods. The increases in both periods reflect
higher clinical expenses and additions of scientific personnel.
Loss before cumulative effect of a change in accounting for income taxes
for the three and nine month periods ended March 31, 1995 was ($514,000)
and ($444,000), respectively, compared with income of $1,062,000 and
$4,727,000 for the corresponding 1994 periods.
Page 9 of 12
<PAGE>
Net loss for the current nine month period was ($440,000). Net income
for the corresponding 1994 nine month period of $8,876,000 included
the cumulative effect of a change in accounting for income taxes of
$4,149,000 as a result of the adoption of SFAS 109, effective
July 1, 1993. Refer to Note 5 of the Notes to Consolidated Financial
Statements.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had $615,000 in cash and cash equivalents at March 31, 1995
compared with $3,154,000 at June 30, 1994. The decrease in the current
nine month period of $2,539,000 resulted primarily from cash used for
investments in property, plant and equipment of $2,312,000 and the
preferred dividend payment of $1,560,000, partially offset by $333,000
of cash provided by operating activities and $1,000,000 borrowed from
a bank on October 3, 1994, under the Company's revolving credit and loan
agreement.
In comparing the balance sheet amounts at March 31, 1995 to the June 30,
1994 balances, the following are noteworthy:
Accounts receivable decreased by $1,250,000 due to the lower
sales levels.
Inventory decreased by $1,045,000 due in part to the
discontinuance of certain products.
Accounts payable decreased by $2,109,000 due in part to timing
differences in the purchase of materials and the lower inventory
level.
The accrued preferred dividend, payable to the Company's principal
stockholder, Faulding Holdings Inc., of $520,095 for the three month period
ended March 31, 1995 was subsequently paid on April 3, 1995.
The Company believes current cash resources, anticipated operating cash
flows and funds available under a revolving credit and loan arrangement with
a bank will be sufficient to fund its working capital needs for the foreseeable
future.
Page 10 of 12
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On December 20, 1994, an action was commenced against the Company and
two officers of the Company in the United States District Court for the
District of New Jersey entitled Dechter vs. Purepac, Inc., Robert H. Bur
and Russell J. Reardon, 94 Civ. 6195. The plaintiff alleges, on behalf
of all persons who purchased common stock during the period from
August 12, 1994 through November 16, 1994 that, among other things,
the Company and the named officers materially misled the financial
community and artifically inflated the price of the Company's common
stock in violation of Section 10(b) of the Securities and Exchange Act
of 1934, as amended, and Rule 10b-5 promulgated thereunder, by failing
to disclose until December 16, 1994 the Company's lack of compliance
with certain federal regulations for manufacturing generic drugs, as
alledged in a warning letter from the Food and Drug Administration to
the Company, dated November 23, 1994, and received by the Company on
November 28, 1994. A second stockholder action, containing substantially
similar allegations, was commenced on January 5, 1995 in the United States
District Court for the District of New Jersey.
The two actions have been consolidated. Defendants have made a motion
to dismiss and are awaiting a reponse by plaintiffs.
Items 2 through Item 4.
Not Applicable.
Item 5. OTHER EVENTS
Not Applicable.
Item 6. (a). EXHIBITS
Not Applicable.
Item 6. (b). REPORTS ON FORM 8-K
Not Applicable.
Page of 11 of 12
<PAGE>
PUREPAC, INC.
SIGNATURES
Pursuant to the requirments of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PUREPAC, INC.
Registrant
Date: May 15, 1995 /s/ Michael R.D. Ashton
-------------------------------------
Michael R.D. Ashton
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1995 /s/ Russell J. Reardon
-------------------------------------
Russell J. Reardon
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
Page 12 of 12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 615
<SECURITIES> 0
<RECEIVABLES> 9,724
<ALLOWANCES> 0
<INVENTORY> 18,145
<CURRENT-ASSETS> 31,789
<PP&E> 26,479
<DEPRECIATION> 0
<TOTAL-ASSETS> 63,394
<CURRENT-LIABILITIES> 9,991
<BONDS> 0
<COMMON> 126
0
8
<OTHER-SE> 53,269
<TOTAL-LIABILITY-AND-EQUITY> 63,394
<SALES> 46,827
<TOTAL-REVENUES> 46,827
<CGS> 35,084
<TOTAL-COSTS> 12,423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> (704)
<INCOME-TAX> (260)
<INCOME-CONTINUING> (444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (444)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
