SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 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 and 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 October 27, 1995.
Page 1 of 11
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PUREPAC, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements:
Consolidated Balance Sheets
September 30, 1995 and June 30, 1995. . . . . . . 3
Consolidated Statements of Operations
Three months ended September 30, 1995
and 1994. . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
Three months ended September 30, 1995
and 1994. . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . 9
PART II - OTHER INFORMATION
ITEMS 1 thru 6 . . . . . . . . . . . . . . . . . . . . . . 10
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . 11
Page 2 of 11
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<TABLE>
PUREPAC, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
September 30, June 30,
1995 1995
____________ ____________
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 743,113 $ 1,156,109
Accounts receivable 9,756,128 9,702,889
Inventory (Note 3) 16,832,640 17,831,934
Due from affiliated companies --- 172,689
Other current assets 3,135,075 1,806,231
Deferred income taxes (Note 5) 3,513,038 3,513,038
____________ ____________
Total current assets 33,979,994 34,182,890
____________ ____________
Property, plant and equipment, net 26,509,150 26,603,069
Other assets 3,226,014 3,229,140
Deferred income taxes (Note 5) 724,346 914,346
____________ ____________
Total Assets $64,439,504 $64,929,445
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,493,784 $ 4,843,679
Due to affiliated companies 91,145 ---
Loan payable to bank 3,000,000 2,000,000
Accrued expenses 4,269,699 5,008,267
Accrued preferred dividends 520,095 520,095
____________ ____________
Total current liability 13,374,723 12,372,041
____________ ____________
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 12,581,223
at September 30, 1995 and
June 30, 1995, respectively 125,812 125,812
Capital in excess of par value 24,387,800 24,804,252
Retained earnings 26,542,827 27,618,998
____________ ____________
Total stockholders' equity 51,064,781 52,557,404
____________ ____________
Total Liabilities and
Stockholders' Equity $64,439,504 $64,929,445
============ ============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Page 3 of 11
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<TABLE>
PUREPAC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
September 30,
_____________________________
1995 1994
____________ ____________
<S> <C> <C>
Net Sales $14,166,712 $16,876,313
Cost of sales 11,654,559 12,678,729
____________ ____________
Gross profit 2,512,153 4,197,584
____________ ____________
Expenses:
Selling, general and administrative 2,255,102 2,471,463
Research and development 1,950,591 1,764,533
____________ ____________
Total expenses 4,205,693 4,235,996
____________ ____________
Income (Loss) from operations (1,693,540) (38,412)
____________ ____________
Other income (expense), net (40,631) (393)
____________ ____________
Income (Loss) before income taxes (1,734,171) (38,805)
Provision (benefit) for income taxes (Note 5) (658,000) (14,000)
____________ ____________
Income (Loss) Before Preferred Stock Dividends (1,076,171) (24,805)
Preferred stock dividends 520,095 520,095
____________ ____________
Net Income (Loss), Available for Common Stock $(1,596,266) $ (544,900)
============ ============
Primary Earnings Per Common Share (Note 2):
Net income (Loss) $ (.13) $ (.04)
____________ ____________
Weighted average number of
common shares outstanding 12,581,223 12,510,098
____________ ____________
Earnings Per Share, Assuming
Full Dilution (Note 2)
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
Page 4 of 11
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<TABLE>
PUREPAC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
September 30,
____________________________
1995 1994
____________ ____________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss), Available for Common Stock $(1,596,266) $ (544,900)
Adjustments To Reconcile Net Income (Loss)
To Net Cash Provided By (Used For) Operating
Activities:
Depreciation and amortization 519,543 520,404
Compensation expense - stock grants 66,946 96,316
Deferred income tax, assets 190,000 247,947
Increase (Decrease) in Cash From:
Accounts receivable (53,239) (1,112,878)
Inventory 999,294 575,816
Other current assets (444,147) (447,407)
Accounts payable 650,105 (518,350)
Accrued expenses (738,568) (569,294)
Accrued income taxes (848,000) 57,403
Due to/from affiliates 263,834 (24,834)
____________ ____________
Total Adjustments 605,768 (1,174,877)
____________ ____________
Net Cash Provided By (Used For)
Operating Activities (990,498) (1,719,777)
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (422,498) (725,325)
____________ ____________
Net Cash Provided By (Used For)
Investing Activities (422,498) (725,325)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from bank 1,000,000 ---
____________ ____________
Net Cash Provided By (Used For)
Financing Activities 1,000,000 ---
____________ ____________
Increase (Decrease) In Cash and Cash Equivalents $ (412,996) $(2,445,102)
============ ============
Cash and cash equivalents, beginning of period 1,156,109 3,153,844
------------ ------------
Cash and Cash Equivalents, End of Period $ 743,113 $ 708,742
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 54,332 $ 6,764
Income Taxes $ --- $ ---
___________ ____________
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 5 of 11
</TABLE>
<PAGE>
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, 1995 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 September 30, 1995, the Consolidated
Statements of Operations for the three months ended September 30, 1995 and
1994 and the Consolidated Statements of Cash Flows for the three months
ended September 30, 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 not presented as the effect would be anti-dilutive.
3. Inventory
September 30, June 30,
1995 1995
____________ _____________
Raw materials $ 6,889,121 $ 4,813,344
Work-in-process 3,515,696 5,327,342
Finished goods 6,427,823 7,691,248
____________ ____________
Total $16,832,640 $17,831,934
============ ============
Page 6 of 11
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4. Capital Stock
During the quarter ended September 30, 1995, no additional shares were
issued.
A reconciliation of the change in total stockholders' equity is as follows:
Par Value of
Common and Capital in Total
Preferred Excess of Retained Stockholders'
Stock Par Value Earnings Equity
__________ ___________ ___________ ___________
Balance, June 30, 1995 $134,154 $24,804,252 $27,618,998 $52,557,404
Class A preferred
stock dividend (520,095) (520,095)
Stock grant amortization 66,946 66,946
Reduction of income tax
liability from issuance
of stock grants 36,697 36,697
Net Income (Loss) (1,076,171) (1,076,171)
_________ ____________ ____________ ____________
Balance, Sept. 30, 1995 $134,154 $24,387,800 $26,542,827 $51,064,781
========= ============ ============ ============
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.
Beginning with the adoption of SFAS 109, 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.
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.
Page 7 of 11
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The provision (benefit) for income tax expense was comprised of the
following:
Three Months Ended
September 30,
___________________________
1995 1994
___________ ___________
Current
Federal $ (533,000) $ (6,000)
State (63,000) (2,000)
____________ ___________
(596,000) (8,000)
Deferred
Federal (24,000) (5,000)
State (38,000) (1,000)
____________ ____________
Total provision (benefit) $ (658,000) $ (14,000)
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 September 30, 1995, for
federal tax purposes, the net operating loss and tax credit carryforwards
amounted to $13,048,000 and $707,000, respectively; they expire through
2003. The future utilization of the net operating loss carryforwards is
subject to limitation under provisions of the Internal Revenue Code.
Page 8 of 11
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results Of Operations - Three Month Period Ended September 30, 1995
Compared with the Three Month Period Ended September 30, 1994
Net sales for the current three month period was $14,167,000 compared
with $16,876,000 for the corresponding 1994 period. The decrease
reflects lower sales of certain mature products including nifedipine.
The nifedipine products accounted for 8% of net sales in the current
quarter compared with 11% for the corresponding 1994 quarter.
Gross profit for the current period was $2,512,000 compared with
$4,198,000 for the corresponding 1994 period. Gross profit as a
percent of net sales for the current period was 18% compared with
25% for the 1994 period. The decline was attributable to both the
reduced sales and to lower selling prices for nifedipine and several
other products.
Selling, general and administrative expense for the current period
of $2,255,000 decreased from the corresponding prior period expense
of $2,471,000 by $216,000 (9%). The expense as a percent of net
sales was 16% compared with 15% for the 1994 period. The decrease
in expense was primarily due to lower personnel expenses.
Research and development expense for the current period remained
relatively constant at $1,951,000 compared with $1,765,000 for the
corresponding 1994 period. The expense as a percent of net sales
was 14% compared with 10% for the 1994 period. The increase of
$186,000 (11%) primarily reflects timing differences.
The net loss before preferred stock dividends for the current three
month period was $1,076,000 compared with a net loss before preferred
stock dividends of $25,000 for the corresponding 1994 period.
The first quarter result was adversely affected by strong pricing
pressures within the oral generic pharmaceutical industry and some
unexpected delays in new product regulatory approvals did not allow
the Company to offset those pressures, even though expense levels
generally did not increase. The continuation of such delays could
materially adversely impact on fiscal 1996 results.
Page 9 of 11
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had $743,000 in cash and cash equivalents at September 30, 1995,
compared with $1,156,000 at June 30, 1995. The decrease in the current
three month period of $413,000 resulted primarily from cash used for
operating activities of $990,000, investments in property, plant and
equipment of $423,000 offset by $1,000,000 borrowed from a bank.
A comparison of the balance sheet accounts at September 30, 1995 to the
June 30, 1995 balances shows the following to be noteworthy:
Inventory decreased by $999,000 in response to lower sales volumes.
Other current assets increased by $1,329,000 primarily due to the
recording of a federal income tax receivable based on the Company
carrying back the current period's net operating loss.
The accrued preferred dividend, payable to the Company's principal
stockholder, Faulding Holdings Inc., of $520,095 for the three month
period ended September 30, 1995 was subsequently paid on October 2, 1995.
In October 1995, the Company made the decision to restructure certain
aspects of its business. This restructuring was considered necessary to
make the Company more competitive in the oral generic pharmaceutical
industry. Costs associated with this restructuring, including severance
payments, will be incurred beginning in the second fiscal quarter and are
expected to total less than $1 million. This restructuring will better
position the Company to integrate the proposed acquisitions from Faulding
Holdings Inc., which were announced in August 1995. These acquisitions
are subject to approval by the Company's shareholders.
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 11
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On September 11, 1995, the United States District Court for the District of
New Jersey granted the Company's motion to dismiss the complaint filed
against the Company and certain of its senior executives in a lawsuit
entitled Dechter vs. Purepac, Inc., Robert H. Bur and Russell J. Reardon,
94 Civ. 6195. The complaint, which purported to be a class action on behalf
of purchasers of Purepac, Inc. common stock, asserted, among other things,
violations of Section 10(b) of the Securities Exchange Act of 1934 and
certain common law claims. At that hearing, the court dismissed the
complaint in its entirety, finding that the complaint failed to allege
any actual violation of the U.S. securities laws on the part of
Purepac, Inc. or its senior executives. Pursuant to the court's decision,
the plaintiffs had the opportunity to consider filing a motion with the
court for permission to submit a proposed amended complaint to address
the deficiencies that led to the court's dismissal of the current action.
The plaintiffs elected not to file such a motion, thereby terminating such
litigation.
Item 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
On August 17, 1995, the Company filed a current report on Form 8-K to report
the execution of a letter of intent to acquire certain businesses from its
principal stockholder.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUREPAC, INC.
Registrant
Date: November 13, 1995 /s/ Richard F. Moldin
____________________________________
Richard F. Moldin
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1995 /s/ Lee H. Craker
_____________________________________
Lee H. Craker
Chief Financial Officer
(Principal Accounting Officer)
Page 11 of 11
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 743
<SECURITIES> 0
<RECEIVABLES> 9,756
<ALLOWANCES> 0
<INVENTORY> 16,833
<CURRENT-ASSETS> 33,980
<PP&E> 26,509
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<CURRENT-LIABILITIES> 13,375
<BONDS> 0
<COMMON> 126
0
8
<OTHER-SE> 51,065
<TOTAL-LIABILITY-AND-EQUITY> 64,440
<SALES> 14,167
<TOTAL-REVENUES> 14,167
<CGS> 11,655
<TOTAL-COSTS> 4,206
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<INTEREST-EXPENSE> (41)
<INCOME-PRETAX> (1,734)
<INCOME-TAX> (658)
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<EPS-PRIMARY> (.13)
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