<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File NO. 0-15242
DURAMED PHARMACEUTICALS, INC.
State of Incorporation - Delaware
IRS Employer I.D. No. 11-2590026
7155 East Kemper Road
Cincinnati, Ohio 45249
(513) 731-9900
Indicate by checkmark 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 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
Common Stock, $.01 par value per share:
Shares Outstanding as of June 30, 1995 8,046,743
Page 1 of 20 pages
<PAGE> 2
<TABLE>
DURAMED PHARMACEUTICALS, INC.
INDEX
<CAPTION>
PART I. Financial Information Page
-------------------------------
<S> <C>
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets . . . . . . . . . . . . . . 3-4
Consolidated Statements of Operations . . . . . . . . 5
Consolidated Statements of Cash Flows . . . . . . . . . 6
Consolidated Statements of Shareholders'
Equity (Capital Deficiency) . . . . . . . . . . . 7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . 8-11
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . 12-17
PART II. Other Information
---------------------------
ITEM 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . 18-19
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
- 2 -
<PAGE> 3
<TABLE>
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1995 1994
-------------- --------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
------
Current Assets:
Cash $ 2,600 $ 2,900
Trade accounts receivable,
less allowance for doubtful
accounts: 1995 - $416,882
1994 - $504,850 6,468,194 5,249,101
Inventories 11,097,166 8,423,687
Prepaid expenses and other assets 1,149,868 1,318,573
Deferred taxes 2,463,000 2,463,000
-------------- --------------
Total current assets 21,180,828 17,457,261
-------------- --------------
Property, Plant and Equipment:
Land 1,000,000 1,000,000
Building and improvements 7,223,668 6,587,005
Equipment, furniture and
fixtures 14,333,182 12,177,615
Construction in progress 7,937,249 6,394,406
-------------- --------------
Total 30,494,099 26,159,026
Less accumulated depreciation
and amortization 10,782,310 9,972,348
-------------- --------------
Property, plant and
equipment - net 19,711,789 16,186,678
-------------- --------------
Other Assets:
Deposits and other assets 551,680 764,300
Product agreement
marketing rights 997,200 997,200
Goodwill 132,055 158,401
Deferred taxes 1,438,000 1,438,000
-------------- --------------
Total other assets 3,118,935 3,357,901
-------------- --------------
Total Assets $ 44,011,552 $ 37,001,840
============== ==============
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1995 1994
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) (Note)
------------------------------------
(CAPITAL DEFICIENCY)
--------------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 5,611,478 $ 3,840,069
Accrued liabilities 5,696,991 5,209,179
Current portion of long-term debt and
other liabilities 9,684,942 10,916,074
-------------- --------------
Total current liabilities 20,993,411 19,965,322
Long-term debt, less current portion 20,807,039 16,188,411
Other long-term liabilities 1,486,446 2,079,007
-------------- --------------
Total liabilities 43,286,896 38,232,740
-------------- --------------
Commitments and contingent liabilities --- ---
Shareholders' Equity (Capital Deficiency)
Preferred stock Series B - authorized
500,000 shares, par value $.001;
74,659 shares issued and outstanding; 75 75
Common stock - authorized 50,000,000
shares, par value $.01; issued and
outstanding 8,046,743 and 7,968,108
shares in 1995 and 1994, respectively 80,467 79,680
Additional paid-in capital 25,881,704 25,567,765
Accumulated deficit (25,237,590) (26,878,420)
-------------- --------------
Total Shareholders' Equity
(Net Capital Deficiency) 724,656 (1,230,900)
-------------- --------------
Total Liabilities and Shareholders' Equity
(Net Capital Deficiency) $44,011,552 $37,001,840
============== ==============
<FN>
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date but does not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three months ended Six months ended
JUNE 30, June 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 13,032,773 $ 11,170,319 $ 25,614,394 $ 22,311,091
Cost of goods sold 7,393,724 6,073,917 14,717,951 12,627,254
------------- ------------- ------------- -------------
Gross profit 5,639,049 5,096,402 10,896,443 9,683,837
------------- ------------- ------------- -------------
Operating expenses:
Product development 1,183,974 394,398 1,983,934 749,629
Selling 939,806 622,453 1,828,609 1,334,100
General and administrative 2,151,964 2,014,591 4,183,611 3,702,167
------------- ------------- ------------- -------------
Total operating expenses 4,275,744 3,031,442 7,996,154 5,785,896
------------- ------------- ------------- -------------
Operating income 1,363,305 2,064,960 2,900,289 3,897,941
Interest expense 717,822 572,270 1,217,709 1,134,214
------------- ------------- ------------- -------------
Income before income taxes 645,483 1,492,690 1,682,580 2,763,727
Provision for income taxes 13,000 39,000 41,750 69,000
------------- ------------- ------------- -------------
Net income $ 632,483 $ 1,453,690 $ 1,640,930 $ 2,694,727
============= ============= ============= =============
Earnings per average
common and common
equivalent shares outstanding:
Primary $ .06 $ .15 $ .15 $ .27
============= ============= ============= =============
Fully Diluted $ .06 $ .14 $ .15 $ .27
============= ============= ============= =============
Weighted average number
of common and common
equivalent shares outstanding:
Primary 10,699,075 9,997,715 10,705,138 9,948,549
============= ============= ============= =============
Fully Diluted 10,699,075 10,061,950 10,706,425 10,054,996
============= ============= ============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
- 5 -
<PAGE> 6
<TABLE>
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six months ended June 30,
1995 1994
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,640,830 $ 2,694,727
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 836,308 957,576
Recognition of deferred revenues (500,000) ---
Provision for bad debts --- 60,262
Common stock contributed to employee benefits plan 89,649 72,786
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (1,131,125) (418,976)
(Increase) decrease in inventories (2,673,479) (829,260)
(Increase) decrease in prepaid expenses 168,705 245,434
Increase (decrease) in accounts payable 1,771,409 (1,621,122)
Increase (decrease) in accrued liabilities 250,750 (306,687)
Other, net (99,305) 14,788
------------------- -------------------
Net cash provided by operating activities 353,742 869,528
Cash flows from investing activities:
Capital expenditures (3,365,912) (901,866)
Deposits (79,466) (213,283)
------------------- -------------------
Net cash (used for) investing activities (3,445,378) (1,115,149)
Cash flows from financing activities:
Net borrowings (repayments) under revolving line of credit 3,829,034 (1,880,431)
Payments of long-term debt, including current
maturities (5,019,705) (258,394)
Proceeds from long-term borrowings 4,056,930 2,282,736
Issuance of common stock 225,077 101,610
------------------- -------------------
Net cash provided by financing activities 3,091,336 245,521
Net (decrease) in cash and cash equivalents (300) (100)
Cash and cash equivalents at beginning of period 2,900 1,800
------------------- -------------------
Cash and cash equivalents at end of period $ 2,600 $ 1,700
=================== ===================
Supplemental cash flow disclosures:
Interest paid $ 1,317,068 $ 869,509
Income taxes paid $ 90,000 $ 42,000
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
- 6 -
<PAGE> 7
<TABLE>
DURAMED PHARMECEUTICALS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(UNAUDITED)
<CAPTION>
Preferred Stock Common Stock
------------------------ -----------------------
Shares Amount Shares Amount
------------------------ -----------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 74,659 $ 75 7,968,108 $ 79,680
Issuance of stock in connection
with the Company's 401(k)
Plan --- --- 5,236 53
Stock options exercised net of
shares surrendered --- --- 73,399 734
Net income for 1995 --- --- --- ---
-------- ------------ --------- ---------
Balance at June 30, 1995 74,659 $ 75 8,046,743 $ 80,467
======== ============ ========= =========
<CAPTION>
Additional
Paid-In Accumulated
Capital Deficit Total
-------------- ------------ -----------
<S> <C> <C> <C>
Balance at December 31, 1994 $ 25,567,765 $ (26,878,420) $(1,230,900)
Issuance of stock in connection
with the Company's 401(k)
Plan 89,596 --- 89,649
Stock options exercised net of
shares surrendered 224,343 --- 225,077
Net income for 1995 --- 1,640,830 1,640,830
-------------- ------------ -----------
Balance at June 30, 1995 $ 25,881,704 $(25,237,590) $ 724,656
============== ============ ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
- 7 -
<PAGE> 8
DURAMED PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Interim Financial Data
-------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month and six
month periods ended June 30, 1995 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1995. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
Note 2: Earnings Per Share
---------------------------
The fully diluted and primary earnings per share calculations are computed
using weighted average common shares outstanding and common equivalent shares,
which include dilutive options, warrants and convertible preferred stock.
Note 3: Inventories
--------------------
Components of inventories include:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------------- ----------------
<S> <C> <C>
Raw materials $ 3,051,345 $ 1,939,890
Work-in-process 298,297 498,975
Finished goods 7,747,524 5,984,822
----------------- ----------------
Total $ 11,097,166 $ 8,423,687
================= ================
</TABLE>
- 8 -
<PAGE> 9
DURAMED PHARMACEUTICALS, INC.
Note 4: Debt and Other Long-Term Liabilities
--------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
Debt 1995 1994
---- ------------ ------------
<S> <C> <C>
Revolving credit facility $ 11,294,203 $ 7,465,169
Term note 5,500,000 9,500,000
Note payable to State of Ohio 1,141,580 1,230,985
Industrial Revenue Bond --- 221,605
Construction loan 5,500,000 4,504,671
Equipment loans 1,207,235 685,061
Convertible note 986,240 -
Installment notes payable 3,019,903 1,554,174
------------ ------------
$ 28,649,161 $ 25,161,665
------------ ------------
Less amounts classified as current 7,842,122 8,973,254
------------ ------------
$ 20,807,039 $ 16,188,411
============ ============
Other Long-Term Liabilities
---------------------------
Abandoned facility obligation - net $ 1,829,266 $ 2,021,827
Deferred revenue 1,500,000 2,000,000
------------ ------------
3,329,266 4,021,827
Less amount classified as current 1,842,820 1,942,820
------------ ------------
$ 1,486,446 $ 2,079,007
============ ============
</TABLE>
Debt
During 1995 the funds used by the Company in its operation have been primarily
provided through borrowings against its revolving credit facility. Under the
terms of the amended and restated bank agreement dated December 31, 1994 two
facilities were established, a term note in the amount of $9,500,000 and a
revolving credit facility. These facilities are collateralized by substantially
all assets of the Company including inventory, receivables and a mortgage
interest on the manufacturing facility. The term note, prior to the revisions
outlined below which extend the remaining payments of this note, required
quarterly principal payments in the amount of $2,000,000 payable on the first
day of March, June, September and December of 1995 with the remaining balance
due on March 31, 1996. Through June 30, 1995, two principal payments totalling
$4,000,000 had been made on the term note. The terms of the revolving credit
facility permit the Company to borrow up to $10,500,000 based upon eligible
collateral ($10,515,186 as of June 30, 1995). The bank, at its discretion, has
permitted the Company to exceed the $10.5 million limit. Per the terms of the
Agreement, borrowings in excess of $10.5 million are payable on demand, and are
classified accordingly. The expressed intention of the Company and its bank is
to review quarterly the Company's financial condition and, if appropriate,
extend the due date
- 9 -
<PAGE> 10
DURAMED PHARMACEUTICALS, INC.
of its revolving credit facility in order to maintain a fifteen month term. In
accordance with this, the bank has extended the term of the revolving credit
facility from June 30, 1996 to September 30, 1996. Both facilities provide for
monthly interest payments at a rate of prime plus 1% (9.75% at June 30, 1995).
Subject to a definitive agreement being executed, the Company and its
bank have agreed in principle to an expanded borrowing arrangement. As part of
this arrangement, the bank has agreed to extend the due date to September 1996
on the $5.5 million in remaining term loan payments that were scheduled for
1995, and March 31, 1996. Additionally, the bank has agreed to make an
additional $3.0 million of credit available to the Company on a short term
basis. The additional $3.0 million will bear interest at the prime rate plus
2% and commencing January 1, 1996 additional monthly interest payments
initially at $150,000 per month increasing to $250,000 per month if the $3.0
million of new credit and the $4.0 million of loan payments previously due in
1995 have not been repaid by that time. The Company will grant to the bank
warrants to purchase 200,000 shares of common stock of the Company at the
current market price in consideration of this expanded borrowing arrangement.
The note payable to the State of Ohio is secured by the Company's manufacturing
facility. The loan bears interest at 7.5% and requires minimum monthly payments
of $20,394 and certain other payments as defined by the agreement. The final
payment of approximately $1,067,000, is due November 1, 1996. The State has
agreed to waive, through October 1, 1996, certain financial covenants which
require minimum levels of working capital and stockholders' equity. This debt
is personally guaranteed by a former officer and by a director.
During 1985, Hamilton County, Ohio issued Industrial Revenue Bonds in the
amount of $995,000, the proceeds of which were used by the Company to purchase
new machinery and equipment. The balance was paid in April 1995 with the
proceeds of a $185,000 bank note. The interest rate of the note is prime plus
1%. The term of the note is three years and requires monthly payments of
principal and interest in the amount of $6,400.
The construction loan is a ten year $5.5 million facility which provided a
portion of the financing for the expansion of the Company's manufacturing
facility and is supported by a loan guaranty from Johnson & Johnson. Under the
terms of the construction loan, principal payments do not commence until the
occurrence of certain defined events or January 1, 1997, whichever occurs
first. Interest is payable monthly based upon the prime rate.
The equipment line of credit is a $1.5 million facility provided by the
Company's bank for financing equipment which is collateralized by the assets
financed. The term of the facility is five years at an interest rate of prime
plus 1%.
- 10 -
<PAGE> 11
DURAMED PHARMACEUTICALS, INC.
As of June 30, 1995 the Company had received from a joint venture partner
$986,240 of a $2,000,000 convertible note commitment. The remaining $1,013,760
was received on July 5, 1995. The note bears interest at a variable rate
approximating prime rate + 3% (initially 12%), and matures on July 10, 1998.
Upon the occurrence of certain events, or at the option of the lender, the
principal amount of the note and accrued interest may be convertible to shares
of Duramed stock.
Other long-term debt also includes facilities of varying amounts and terms
which are generally collateralized by the assets financed.
Other Long-Term Liabilities
The abandoned facility obligation represents the amounts due, net of sublease
income, under terms of a lease which extends through September 30, 1998. Due
to the Company's financial condition at the time, the Company was unable to
meet its commitments under the lease and vacated the facility in 1991. The
facility was sublet for a period of five years in 1992.
The $1,500,000 in deferred revenue represents the unamortized balance from the
$2.0 million cash received from Ortho-McNeil Pharmaceuticals Corporation
("Ortho-McNeil") pursuant to the terms of distribution and marketing agreements
entered into in 1994. This amount will be amortized over a period which
matches the performance of certain activities pursuant to the terms of the
agreements. As of June 30, 1995, $1.0 million of the deferred revenue is
classified as current.
-11-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Net sales increased $1,862,454 (17%) and $3,303,303 (15%) for the three month
and six month periods ended June 30, 1995 as compared to the same periods in
1994. The increase in net sales was due primarily to increased sales volume
for certain of the Company's products and continued growth in sales of the
Ortho-McNeil products, which the Company commenced marketing late in the fourth
quarter of 1994.
The gross margin percentage for the three and six month periods ended June 30,
1995 was 43%, compared to 46% and 43% for the same periods in 1994. The
decrease in the gross margin percentage in the second quarter was due primarily
to the product sales mix. There can be no assurance that, with the Company's
current product line, the present gross margin levels can be maintained if the
Company's products, particularly Methylprednisolone, should experience
increased competition.
The marketing agreement under which the Company distributed products
manufactured by Invamed Inc. ("Invamed") expired on December 31, 1994. In May
1995 Invamed notified the Company that it was assuming responsibility for
marketing its product line and would no longer make available its products for
distribution under the Duramed label effective June 10, 1995. The Company
expects to offset the impact of this development by obtaining most of the
products which had been supplied by Invamed from alternative sources, and
enhancing revenues through certain pending business development pursuits.
Accordingly, the Company does not believe that this development will have a
materially adverse impact on its operations. The Company's right to market the
Invamed product Cyclobenzaprine is subject to a separate agreement under which
the Company's exclusive distribution rights will continue. For additional
information on Invamed, see the Company's Form 10-K for the year ended December
31, 1994 (the "1994 10-K") under "Item 1. Business - Recent Developments:
Strategic Alliances/Product Development Status."
Product development expenditures are net of reimbursements received from Schein
Pharmaceutical, Inc. ("Schein") pursuant to the terms of a contractual
agreement in connection with the development of a new formulation of conjugated
estrogens tablets, the generic equivalent of the name brand product
Premarin(R). The increased product development expenditures reflect the
Company's expansion of its research and development activities to pursue
additional products. The Company plans to continue to expand product
development activities as its resources permit. Additionally, product
development expenditures in the first half of 1995 include pre-launch start up
costs associated with the Company's pending Abbreviated New Drug Application
("ANDA") for conjugated estrogens. The Company continues to prepare for the
launch of conjugated estrogens; accordingly, as deemed appropriate, the Company
will increase spending levels throughout 1995.
-12 -
<PAGE> 13
DURAMED PHARMACEUTICALS, INC.
The Company's selling expense was primarily comprised of expenses of the sales
and marketing staff and related activities. The increase in 1995 compared to
1994 is a result of personnel additions and expanded sales and marketing
activities.
The increase in general and administrative expenses in 1995 compared to 1994 is
due primarily to increased compensation expense as a result of additional staff
positions, and increased expense levels necessary to provide the administrative
support required to execute the Company's business plan and support the
increased business level. Additionally, the Company has incurred costs
associated with responding to various issues in connection with its pending
ANDA for conjugated estrogens.
Interest expense increased in the second quarter of 1995 compared to 1994, due
primarily to interest expense associated with the $5.5 million construction
loan which financed a portion of the expansion of the Company's manufacturing
facility. Construction of the expansion was completed in the second quarter
and accordingly, interest expense of $143,000 was recorded. In the first
quarter of 1995, during the construction phase, interest of $94,000 was
capitalized.
The 1995 tax provision represents alternative minimum tax; no regular income
tax provision is required due to the offset of taxable income by the
carryforward of net operating losses.
The Company expects that its product development and operating expenses during
the remainder of 1995 will continue to increase over 1994 levels. To the
extent that these increases are not offset by revenue increases, operating
results will be adversely affected. The Company is discussing several
potential business development opportunities which could provide additional
product revenues. However, it is not certain when these revenues would be
available. Accordingly, the Company's reported income for the remaining
quarters of 1995 may be less than for the comparable quarters of 1994.
Liquidity and Capital Resources
-------------------------------
As explained in the 1994 10-K under "Item 1. Business - Business and
Regulatory Environment Background," audits of the Company's ANDAs in 1990 and
1991 resulted in the withdrawal of all of the Company's ANDAs except those for
Methylprednisolone and Isoniazid. As a result of the substantially reduced
revenue levels and charges incurred due to product recalls and related
inventory write-offs, the Company's financial base was nearly exhausted.
- 13 -
<PAGE> 14
DURAMED PHARMACEUTICALS, INC.
From that time through much of 1993, the Company's efforts were focused on
three primary pursuits: (1) continued execution of a plan to, at a minimum,
generate sufficient cash flows to meet current obligations exclusive of bank
debt and related interest, (2) seeking other sources of revenue and (3)
continuing discussions with potential sources of capital in an effort to secure
the resources needed to fund the Company's recovery.
Additionally, the Company's product development efforts were focused primarily
on development of a new formulation for conjugated estrogens products under the
agreement with Schein.
With improving sales and operating results commencing in 1993, the Company's
operating plan was modified to address the needs of the expanded product
development, sales and marketing, and general corporate activities required for
long-term success.
On December 31, 1994 the Company entered into an amended and restated agreement
with its bank. The new agreement provides for two new facilities, a term loan
in the amount of $9,500,000 and a revolving credit facility. The term note,
prior to the revisions outlined below which extend the remaining payments of
this note, required quarterly principal payments in the amount of $2,000,000
payable on the first day of March, June, September and December of 1995 with
the remaining balance due on March 31, 1996. Through June 30, 1995 two
principal payments totalling $4,000,000 had been made on the term note. The
terms of the revolving credit facility permit the Company to borrow up to
$10,500,000 based upon eligible collateral ($10,515,186 as of June 30, 1995).
The bank, at its discretion, has permitted the Company to exceed the $10.5
million limit. Per the terms of the Agreement, borrowings in excess of $10.5
million are payable on demand, and are classified accordingly. The expressed
intention of the Company and its bank is to review quarterly the Company's
financial condition and, if appropriate, extend the due date of the revolving
credit facility in order to maintain a fifteen month term and the long-term
status of this facility. In accordance with this, the bank has extended the
term of the revolving credit facility from June 30, 1996 to September 30, 1996.
See Note F of Notes to Consolidated Financial Statements in the 1994 10-K for
additional information related to the Company's obligations.
Subject to a definitive agreement being executed, the Company and its bank have
agreed in principle to an expanded borrowing arrangement. As part of this
arrangement, the bank has agreed to extend the due date to September 1996 on
the $5.5 million in remaining term loan payments that were scheduled for 1995,
and March 31, 1996. Additionally, the bank has agreed to make an additional
$3.0 million of credit available to the Company on a short term basis. The
additional $3.0 million will bear interest at the prime rate plus 2%
- 14 -
<PAGE> 15
DURAMED PHARMACEUTICALS, INC.
and commencing January 1, 1996 additional monthly interest payments initially
at $150,000 per month increasing to $250,000 per month if the $3.0 million
of new credit and the $4.0 million of loan payments previously due in 1995
have not been repaid by that time. The Company will grant to the bank warrants
to purchase 200,000 shares of common stock of the Company at the current
market price in consideration of this expanded borrowing arrangement.
As of June 30, 1995 the Company had received from a joint venture partner
$986,240 of a $2,000,000 convertible note commitment. The remaining $1,013,760
was received on July 5, 1995. The note bears interest at a variable rate
approximating prime rate + 3% (initially 12%), and matures on July 10, 1998.
Upon the occurrence of certain events, or at the option of the lender, the
principal amount of the note and accrued interest may be convertible to shares
of Duramed stock.
An additional important element of the Company's plan has been the continued
support of its unsecured creditors. At June 30, 1995, the Company owed
approximately $2,039,180 to certain unsecured creditors relating to outstanding
balances prior to 1992. The Company has been making progress payments toward
the outstanding obligations to these unsecured creditors and intends to
continue periodic payments as the Company's resource level permits. At
present, this program is progressing successfully but there can be no assurance
that creditor support will continue.
The increase in inventories and trade payables as of June 30, 1995 results
primarily from product purchases from Ortho-McNeil, and procurement of raw
materials for the Company's conjugated estrogens products.
As discussed in Note B of Notes to Consolidated Financial Statements in the
1994 10-K, the Company's agreement with Schein for the development, manufacture
and marketing of a new formulation of conjugated estrogens tablets provides for
project financing by Schein and, if the project is successful, participation by
both firms in the marketing and distribution of the products. The conjugated
estrogens products have been formulated and are designed to meet bioequivalence
guidance established by the FDA in 1991.
FDA approval is required for Duramed to market conjugated estrogens. On
September 27, 1994, the Company filed with the FDA and ANDA for the .625 mg
strength of conjugated estrogens. This product is formulated and designed to
meet the conjugated estrogens product composition standards and bioequivalency
guidance established by the FDA in 1991.
Since 1991, Wyeth-Ayerst, a Division of American Home Products
("Wyeth-Ayerst"), the manufacturer of the brand product Pramarin(R), has made
several submissions to the FDA requesting changes in the FDA's 1991 conjugated
estrogens product composition standards and bioequivalency guidance. Among
other things, Wyeth-Ayerst requested that the FDA change the product
composition standards for conjugated estrogens by requiring the generic version
to include a specific equine estrogenic substance, delta 8,9 dehydroestrone
sulfate (Delta 8,9 DHES). In response to each submission, the FDA determined
that the information submitted by Wyeth-Ayerst was insufficient to justify
changes in the standards or guidance. In so responding, the FDA let stand the
1991 product composition standards, which established Delta 8,9 DHES as an
impurity and not a necessary ingredient.
- 15 -
<PAGE> 16
DURAMED PHARMACEUTICALS, INC.
On November 30, 19994, Wyeth-Ayerst filed a Ciltizen Petition with the FDA
which reiterates some of its earlier arguments and again requests that the FDA
require the inclusion of Delta 8,9 DHES in generic conjugated estrogens. On
July 27-28, 1995, the FDA's Fertility and Maternal Health Drugs and Generic
Drugs Advisory Committees met to address this issue. The outcome of this
meeting was a unanimous vote by the advisory committees that there is
insufficient data to assess whether any individual component (including Delta
8,9 DHES) or combination of components other than estrone sulfate and equllin
sulfate need to be present to achieve clinical safety and efficacy in
conjugated estrogens.
Duramed believes that the conclusions of the advisory committees reaffirm the
product composition standards for conjugated estrogens established by the FDA
in 1991, and that the FDA review of the Company's ANDA will continue. Duramed
further believes that its conjugated estrogens product as filed meets the
product composition standards and current bioequivalency guidance established
by the FDA in 1991. At this time, the Company is unable to determine when or
if it will obtain FDA approval to market the .625 mg strength product. If
approval is obtained and the product is successfully manufactured and marketed,
the Company believes the product will have a substantial positive effect on the
Company's operating results and financial condition. Work on other conjugated
estrogens strengths is continuing and results to date are encouraging.
In 1994 the Company commenced a project to expand its manufacturing facility by
approximately 38,000 square feet in order to meet the projected manufacturing
requirements of hormonal replacement therapy ("HRT") products under
development, primarily its anticipated conjugated estrogens products. The
facility expansion and related facility testing was completed in the second
quarter of 1995. Investment in facility and equipment with respect to the HRT
facility is approximately $11 million, approximately $9.5 million of which has
been satisfied under the Company's agreement with Ortho-McNeil (see Note B of
Notes to Consolidated Financial Statements in the 1994 10-K).
- 16 -
<PAGE> 17
DURAMED PHARMACEUTICALS, INC.
In addition to the capital resource requirements of the HRT facility expansion,
the Company has identified additional significant capital requirements for
equipment and facility which will be required if it is to carry out the planned
substantial expansion of its research and development capabilities and to
pursue other planned corporate projects designed to foster long-term growth.
The Company's current product line is limited and the Company's current
operating results are heavily dependent on the performance of its
Methylprednisolone product. If the Company receives approval of its ANDA
filing for the .625 mg strength of conjugated estrogens, and successfully
manufactures and markets the product, the resulting favorable financial impact
is expected to be significant. Additionally, the Company has an agreement with
Invamed for the marketing rights to Verapamil S.R.(R) which has been
formulated and will be manufactured by Invamed, if an ANDA is filed and FDA
approval is obtained. The availability of this product could also
significantly improve the Company's operating results. However, in the case of
both conjugated estrogens and Verapamil S.R.(R), FDA approval is not assured.
Therefore, while the Company's capital needs could be met from new product
revenues, this is not certain.
The Company has an aggressive business plan. In the absence of sufficient
internally generated funds, the additional capital required to execute the
Company's business plan must come from other sources. The Company is currently
exploring financing alternatives with respect to its capital requirements. At
this time, the Company cannot determine the outcome of these discussions or
whether it will result in a substantial dilution of the ownership interest of
the Company's current stockholders. As a result, the Company's expanded future
plans must remain uncertain.
On September 16, 1994 the Company's common stock was approved for re-listing on
The Nasdaq Stock Market ("Nasdaq"). Although the Company does not currently
meet the tangible net assets requirement for Nasdaq listing, an exception has
been granted contingent upon the Company meeting the listing requirements as of
September 30, 1995. If the Company's securities should cease to be quoted on
the Nasdaq they should continue to be quoted in the over-the-counter market.
- 17 -
<PAGE> 18
DURAMED PHARMACEUTICALS, INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1995 Annual Meeting of Shareholders of Duramed
Pharmaceuticals, Inc. (the "Meeting") was held on May 19,
1995. The holders of 6,829,617 shares of the Company's
7,990,165 then outstanding shares of common stock
(approximately 85.5%) were present at the Meeting in person
or by proxy.
(b) At such Meeting, the following five individuals were duly
nominated and properly elected as Directors of the Company to
serve until the 1996 Annual Meeting of Shareholders or until
their successors are elected and qualified - E. Thomas
Arington, George W. Baughman, Doane F. Darling, Stanley L.
Morgan, and S. Sundararaman. The number of votes cast for
and withheld with respect to each nominee for office, as
well as broker non-votes are indicated below:
<TABLE>
<CAPTION>
Against/ Broker
For Withheld Non-Votes
<S> <C> <C> <C>
E. Thomas Arington 6,573,336 256,281 0
George W. Baughman 6,570,011 259,606 0
Doane F. Darling 6,560,511 269,106 0
Stanley L. Morgan 6,562,136 267,481 0
S. Sundararaman 6,569,036 260,581 0
</TABLE>
(c) At such meeting, a proposal to ratify and approve the
amendment of the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of
commons stock, $.01 par value, from 20,000,000 to 50,000,000
shares was passed. The number of votes cast for, against
and to abstain on the proposal, as well as broker non-votes,
are indicated below:
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
<S> <C> <C> <C>
6,240,480 475,544 113,593 0
</TABLE>
- 18 -
<PAGE> 19
DURAMED PHARMACEUTICALS, INC.
PART II - OTHER INFORMATION
(d) At such meeting, a proposal to ratify the appointment of
Ernst & Young as the Company's independent auditors for
fiscal 1995 was approved. The number of votes cast for,
against and to abstain on the proposal, as well as broker
non-votes, are indicated below:
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
<S> <C> <C> <C>
6,702,013 23,260 104,344 0
</TABLE>
Item 6. Exhibit and Reports on Form 8-K
-------------------------------
(a) Exhibit:
Convertible note: This document is not being filed as an
exhibit since the amount of debt is less than 10% of total
assets. A copy will be provided to the SEC upon request.
(11) Statement re: Computation of Earnings Per Share
(27) Financial Data Schedule*
(b) Reports on Form 8-K:
On April 6, 1995 the Company filed a Current Report on Form
8-K (date of report: March 31, 1995) relating to recent
developments in connection with its conjugated estrogens
product.
__________________
*Contained only in electronic filing with Securities and Exchange Commission.
- 19 -
<PAGE> 20
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.
DURAMED PHARMACEUTICALS, INC.
Dated: August 21, 1995 by: /s/ E. Thomas Arington
------------------------- --------------------------
E. Thomas Arington
President, Chairman of the Board
Chief Executive Officer
Dated: August 21, 1995 by: /s/ Timothy J. Holt
------------------------- --------------------------
Timothy J. Holt
Senior Vice President - Finance,
Treasurer, Chief Financial Officer
- 20 -
<PAGE> 1
<TABLE>
EXHIBIT (11)
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
DURAMED PHARMACEUTICALS, INC.
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Primary:
Weighted average common shares
outstanding 8,012,287 7,787,756 7,998,260 7,755,920
Net effect of preferred shars
converted to common shares -
based on the treasury stock
method using the average
market price 746,590 669,100 746,590 662,073
Net effect of dilutive stock
options and warrants - based
on the treasury stock method
using the average market price 1,940,198 1,540,859 1,960,288 1,530,556
----------- ----------- ------------ -----------
Totals 10,699,075 9,997,715 10,705,138 9,948,549
=========== =========== ============ ===========
Net income $ 632,483 $ 1,453,690 $ 1,640,830 $ 2,694,727
=========== =========== ============ ===========
Per share amount $ .06 $ .15 $ .15 $ .27
=========== =========== ============ ===========
Fully diluted:
Weighted average common
shares outstanding 8,012,287 7,787,756 7,998,260 7,755,920
Net effect of preferred shares
converted to common shares -
based on the treasury stock
method using the quarter-end
market price 746,590 679,809 746,590 679,809
Net effect of dilute stock
options and warrants - based
on the treasury stock method
using the quarter-average market
price 1,940,198 1,594,385 1,961,575 1,619,267
----------- ----------- ------------ -----------
Totals 10,699,075 10,061,950 10,706,425 10,054,996
=========== =========== ============ ===========
Net income $ 632,483 $ 1,453,690 $ 1,640,830 $ 2,694,727
=========== =========== ============ ===========
Per share amount $ .06 $ .14 $ .15 $ .27
=========== =========== ============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,600
<SECURITIES> 0
<RECEIVABLES> 6,885,076
<ALLOWANCES> 416,882
<INVENTORY> 11,097,166
<CURRENT-ASSETS> 21,180,828
<PP&E> 30,494,099
<DEPRECIATION> 10,782,310
<TOTAL-ASSETS> 44,011,552
<CURRENT-LIABILITIES> 20,993,411
<BONDS> 20,807,039
<COMMON> 80,467
0
75
<OTHER-SE> 644,114
<TOTAL-LIABILITY-AND-EQUITY> 44,011,552
<SALES> 13,032,773
<TOTAL-REVENUES> 13,032,773
<CGS> 7,393,724
<TOTAL-COSTS> 8,333,530
<OTHER-EXPENSES> 3,335,938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 717,822
<INCOME-PRETAX> 645,483
<INCOME-TAX> 13,000
<INCOME-CONTINUING> 632,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 632,483
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
