<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 March 31, 1996
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.
Incorporated Under the IRS Employer I.D.
Laws of the State No. 11-2590026
of Delaware
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 May 10, 1996 10,117,254
Page 1 of 19 pages
<PAGE> 2
DURAMED PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. Financial Information
- -----------------------------
<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 Stockholders'
Equity . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . 8 - 11
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . 12 - 16
PART II. Other Information
- --------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
- 2 -
<PAGE> 3
DURAMED PHARMACETICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
Unaudited
<S> <C> <C>
Current assets:
Cash $2,600 $2,600
Trade accounts receivable,
less allowance of $614,000
and $576,000, respectively 8,944,945 8,543,411
Inventories 13,300,678 9,423,326
Prepaid expenses and other assets 1,672,950 1,276,213
Deferred taxes 1,797,000 1,797,000
----------- -----------
Total current assets 25,718,173 21,042,550
----------- -----------
Property, plant and equipment - net 20,200,099 20,342,945
----------- -----------
Other assets:
Deposits and other assets 1,692,537 1,687,816
Deferred taxes 2,104,000 2,104,000
----------- -----------
Total other assets 3,796,537 3,791,816
----------- -----------
Total assets $49,714,809 $45,177,311
=========== ===========
</TABLE>
See accompanying notes.
<PAGE> 4
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- --------------
Unaudited
<S> <C> <C>
Current liabilities:
Accounts payable $4,513,344 $3,625,593
Accrued liabilities 4,465,623 4,505,907
Current portion of long-term
debt and other liabilities 5,892,103 7,169,374
Current portion of capital lease obligations 1,105,892 1,140,658
-------------- --------------
Total current liabilities 15,976,962 16,441,532
-------------- --------------
Long-term debt, less current portion 13,812,217 17,236,736
Long-term capital leases, less current portion 1,578,821 1,706,836
Other long-term liabilities 802,878 893,885
-------------- --------------
Total liabilities 32,170,878 36,278,989
-------------- --------------
Stockholders' equity:
Convertible Preferred Stock Series B - authorized 500,000
shares, par value $.001; issued 74,659 shares;
outstanding 32,529 and 74,659 shares in 1996 and
1995 respectively 33 75
Convertible Preferred Stock Series C - authorized 250,000
shares, stated value $100; issued 240,000 shares;
outstanding 65,000 and 120,000 shares in 1996 and
1995 respectively 6,500,000 12,000,000
Common stock - authorized 50,000,000
shares, par value $.01; issued and outstanding
9,788,894 and 8,074,449 shares in 1996 and 1995
respectively 97,888 80,744
Additional paid-in capital 40,976,473 24,686,871
Accumulated deficit (30,030,463) (27,869,368)
-------------- --------------
Total stockholders' equity 17,543,931 8,898,322
-------------- --------------
Total liabilities and stockholders' equity $49,714,809 $45,177,311
============== ==============
</TABLE>
See accompanying notes.
- 4 -
<PAGE> 5
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
-------------- ---------------
<S> <C> <C>
Net sales $ 10,700,198 $ 12,581,621
Cost of goods sold 7,825,200 7,324,227
-------------- ---------------
Gross profit 2,874,998 5,257,394
-------------- ---------------
Operating expenses:
Product development 1,099,316 799,960
Selling 1,011,004 888,803
General and administrative 2,374,541 2,031,647
-------------- ---------------
4,484,861 3,720,410
-------------- ---------------
Operating (loss) income (1,609,863) 1,536,984
Interest expense 551,232 499,887
-------------- ---------------
(Loss) income before income taxes
and preferred dividends (2,161,095) 1,037,097
Income tax provision --- 28,750
-------------- ---------------
Net (loss) income (2,161,095) $1,008,347
Preferred stock dividends (274,918) ---
-------------- ---------------
Net (loss) income applicable to common stockholders $ (2,436,013) $ 1,008,347
============== ===============
Net (loss) income per average common
and common equivalent share outstanding:
Primary $ (.28) $ .09
============== ===============
Fully diluted $ (.28) $ .09
============== ===============
Weighted average number of common and
common equivalent shares outstanding:
Primary 8,565,621 10,711,046
============== ===============
Fully diluted 8,565,621 10,713,950
============== ===============
</TABLE>
See accompanying notes.
- 5 -
<PAGE> 6
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,161,095) $ 1,008,347
Adjustments to reconcile net (loss) income to net cash
(used in) operating activities:
Depreciation and amortization 556,082 395,217
Recognition of deferred revenues (250,000) (250,000)
Provision for doubtful accounts 37,871 ---
Common stock issued in connection with
employee compensation plans 61,905 42,554
Changes in assets and liabilities:
Trade accounts receivable (439,405) (1,008,631)
Inventories (3,877,352) (1,874,427)
Prepaid expenses
and other assets (396,737) 426,345
Accounts payable 887,751 1,041,897
Accrued liabilities (192,462) (157,434)
Other (12,086) (70,458)
------------- ------------
Net cash (used in) operating activities (5,785,528) (446,590)
------------- ------------
Investing activities:
Capital expenditures (400,063) (1,496,791)
Deposits on capital equipment (5,808) (23,032)
------------- ------------
Net cash (used for) investing activities (405,871) (1,519,823)
------------- ------------
Cash flows from financing activities:
Payments of long-term debt, including current maturities (1,994,078) (2,263,866)
Net (decrease) increase in revolving credit facility (4,510,332) 2,737,026
Long-term borrowings 1,798,832 1,446,871
Issuance of preferred stock - net 10,857,367 ---
Issuance of common stock 162,350 46,082
Dividends paid (122,740) ---
------------- ------------
Net cash provided by financing activities 6,191,399 1,966,113
------------- ------------
Net change in cash --- (300)
Cash at beginning of period 2,600 2,900
------------- ------------
Cash at end of period $ 2,600 $ 2,600
============= ============
Supplemental cash flow disclosures:
Interest paid $ 562,154 $ 593,379
Income taxes paid --- $ 70,000
</TABLE>
See accompanying notes.
- 6 -
<PAGE> 7
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
-------------------------- -------------------- Paid-In Accumulated
Series B Series C Shares Amount Capital Deficit Total
-------------------------- -------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1995 $ 75 $ 12,000,000 8,074,449 $80,744 $24,686,871 $ (27,869,368) $8,898,322
Issuance of stock in connection
with benefit plans 3,554 36 61,869 61,905
Issuance of stock in connection
with stock options 83,047 830 149,134 149,964
Issuance of stock in settlement
of certain liabilities 723 7 12,379 12,386
Issuance of Series C
Convertible Preferred Stock 12,000,000 (1,142,633) 10,857,367
Conversion of Series B
Preferred Stock (42) 421,300 4,213 (4,171) ---
Conversion of Series C
Preferred Stock (17,500,000) 1,205,821 12,058 17,487,942 ---
Net loss for 1996 (2,161,095) (2,161,095)
Series C Preferred Stock dividend (274,918) (274,918)
---------- -------------- ---------- -------- ------------ -------------- ------------
BALANCE - MARCH 31, 1996 $ 33 $ 6,500,000 9,788,894 $97,888 $40,976,473 $ (30,030,463) $17,543,931
========== ============== ========== ======== ============ ============== ============
</TABLE>
See accompanying notes.
- 7 -
<PAGE> 8
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 period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. 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, 1995, as amended (the "1995
10- K").
Note 2: Earnings (Loss) 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. Loss per
share is computed using the weighted average of common shares outstanding only.
Recognition of outstanding options, warrants and convertible preferred stock in
computing loss per share is not required as their effect would be antidilutive.
Note 3: Inventories
- -------------------
Components of inventories include:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- -------------
<S> <C> <C>
Raw materials $ 4,879,537 $ 3,931,836
Work-in-process 421,371 261,671
Finished goods 7,999,770 5,229,819
-------------- -------------
Total $ 13,300,678 $ 9,423,326
============== =============
</TABLE>
As of March 31, 1996, inventories include approximately $2.0 million (net of
inventory funded by a joint venture partner) of inventory costs, consisting of
both raw materials and conversion costs, relating to the conjugated estrogens
product, for which the Company is awaiting regulatory approval.
- 8 -
<PAGE> 9
Note 4: Debt and Other Long-Term Liabilities
- --------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
Debt 1996 1995
- ---- -------------- -------------
<S> <C> <C>
Revolving credit facility $ 4,154,529 $ 8,664,861
Term note 3,000,000 4,500,000
Manufacturing facility expansion loan 5,500,000 5,500,000
Equipment loans 2,673,141 1,080,155
Note payable to State of Ohio 1,019,218 1,060,770
Convertible note 2,178,132 2,121,465
Installment notes payable 191,753 236,039
-------------- -------------
18,716,773 23,163,290
Less amounts classified as current 4,904,556 5,926,554
-------------- -------------
$ 13,812,217 $ 17,236,736
============== =============
</TABLE>
In the first quarter of 1996, the funds used by the Company in its operations
were primarily provided through borrowings against its revolving credit
facility, and net proceeds of approximately $10.9 million received in February
1996, in connection with the issuance of an additional $12.0 million of the
Company's 8% Cumulative Convertible Preferred Stock, Series C (the "Series C
Stock"). (See Note G of Notes to Consolidated Financial Statements in the 1995
10-K for additional information related to these securities).
The amended terms of the revolving credit facility permit the Company to borrow
up to $12.5 million based upon eligible collateral ($12.5 million as of May 10,
1996). 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 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 March 31, 1997 to June 30, 1997.
At December 31, 1995 the Company had a $4.5 million outstanding principal
balance on the term note, with a $1.5 million payment due on March 1, 1996 and
the remaining $3.0 million due on June 1, 1996. In February 1996 the Company
made the $1.5 million term note principal payment due on March 1, 1996.
Both the revolving credit facility and the term note bear interest at the rate
of prime plus 1%, require monthly interest payments and are collateralized by
substantially all assets of the Company including inventory, receivables and a
mortgage interest on the manufacturing facility.
- 9 -
<PAGE> 10
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
balloon payment of approximately $1,021,000, is due November 1, 1996. This debt
is personally guaranteed by a former officer and by a director.
The manufacturing facility expansion 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 this 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 loans represent financing by the Company's bank for equipment
purchases, bear interest at the rate of prime plus 1%, and require monthly
installments of principal and interest. One of the loans is payable over a three
year term and requires a monthly principal payment of $42,355 plus interest
through April 1, 1999, and the other loan is payable over a five year term and
requires a monthly principal payment of $23,925 plus interest through March 1,
2000. These loans are collateralized by the assets financed.
The convertible note represents funds advanced from a joint venture partner. The
note bears interest at a variable rate approximating prime rate + 3% (initially
12%), and both principal and interest are due at maturity 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
common stock at a conversion price of $15.00 per share. If the Company repays
this obligation prior to maturity, the note holder is entitled to receive
warrants, in an amount equal to the principal amount plus accrued interest that
is paid, to purchase shares of the Company's common stock. The exercise price of
such warrants would be $15.00 per share.
Other long-term debt also includes facilities of varying amounts and terms which
are generally collateralized by the assets financed.
The Company's other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
Other Long-Term Liabilities 1996 1995
- --------------------------- ------------ ------------
<S> <C> <C>
Abandoned facility obligation - net $ 1,540,425 $ 1,636,705
Deferred revenue 250,000 500,000
------------ ------------
1,790,425 2,136,705
Less amount classified as current 987,547 1,242,820
------------ ------------
$ 802,878 $ 893,885
============ ============
</TABLE>
- 10 -
<PAGE> 11
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. In 1994 the Company commenced
payment of its current net obligations under the lease and also commenced
quarterly payments on the accumulated outstanding balance.
The $250,000 in deferred revenue at March 31, 1996 represents the unamortized
balance from $2.0 million cash received from Ortho-McNeil Pharmaceuticals, Inc.
("Ortho-McNeil") pursuant to the terms of distribution and marketing agreements
entered into in 1994 (see Note B of Notes to Consolidated Financial Statements
in the 1995 10-K for additional details). As of March 31, 1996, the remaining
$250,000 of 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 decreased by $1.9 million (15%) for the three month period ended March
31, 1996 as compared to the same period in 1995. The decline in net sales was
primarily attributable to lower revenues from the Company's Methylprednisolone
product (resulting from both lower unit sales and lower prices per unit) as well
as lower sales on many of the products that the Company previously sourced from
Invamed Inc. These sales declines were offset to a degree by continued growth
in sales of the Ortho-McNeil products.
The gross margin, and the corresponding percentage of net sales, was $2.9
million (26.9%) for the first quarter of 1996 compared to $5.3 million (41.8%)
for the first quarter of 1995. The lower gross margin percentage in 1996 was due
primarily to the product sales mix and lower sales prices on certain of the
Company's products. 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.
Product development expenditures increased by $299,000 (37.4%) over the first
quarter of 1995. The increase was due to spending for bioequivalency studies,
and expansion of the Company's research and development activities to pursue
additional products. Product development expenditures during the first quarter
of 1995 included certain manufacturing start up costs associated with the
Company's pending Abbreviated New Drug Application ("ANDA") for conjugated
estrogens. 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 increase in product development expenditures reflects the
Company's commitment to expanding its product development activities. The
Company intends to significantly increase its investment in product development
activities as its available resources permit. On April 11, 1996 the Company and
Hallmark Pharmaceuticals, Inc. ("Hallmark") entered into a definitive agreement
providing for the acquisition by Duramed of the assets and business of Hallmark.
Hallmark is a privately held pharmaceutical development company headquartered in
Somerset, N.J. The Company believes that Hallmark's technical expertise and
capabilities with respect to advanced drug delivery systems could contribute
significantly to the long term success of the Company's product development
program. As part of the agreement, Duramed has agreed to fund the operating
expenses of Hallmark commencing April 1, 1996 until the close of the
transaction. These product development expenses are forecasted to approximate
$314,000 per month, plus certain bro-study costs and will impact future
operating results and cash requirements (further discussion regarding the
Hallmark transaction is included in "Liquidity and Capital Resources" below).
- 12 -
<PAGE> 13
The Company's sales and marketing expenses in the first quarter of 1996 were up
by $122,000 (13.7%) over the same period in 1995 resulting primarily from
expansion of the Company's sales staff in order to prepare for the launch of
conjugated estrogens, develop strategic alliance opportunities and provide
additional resources to service existing customers.
The increase in general and administrative expenses in the first quarter of
1996 compared to the same period in 1995 was due primarily to additional staff
positions and attendant costs incurred to support and execute the Company's
business plans. Additionally, the expense levels in both the first quarter of
1995 and 1996 reflect comparable incremental levels of legal and consulting
costs associated with responding to various issues in connection with its
pending ANDA for conjugated estrogens.
Interest expense increased in the first quarter of 1996 compared to the same
period in 1995, 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. In the first quarter of 1995, during the
construction phase, interest of $94,000 was capitalized.
Due to the reported net loss in the first quarter of 1996, no provision for
income tax was recorded. The tax provision in the first quarter of 1995
represents alternative minimum tax; no regular income tax provision was required
due to the offset of taxable income by the carryforward of net operating losses.
Preferred dividends in the first quarter of 1996 were $274,918, and represent
the dividend provision associated with the $24.0 million of Series C Stock
issued in November 1995 and February 1996. Through May 10, 1996, $19.5 million
of the Series C Stock had been converted to 1,340,518 shares of the Company's
common stock, at an average conversion price of $14.55 per common share.
Accordingly, the dividend provision associated with the Series C Stock will be
substantially lower in future periods. (See Note G of Notes to Consolidated
Financial Statements in the 1995 10-K for additional information related to
these securities).
A conscious decision has been made to increase expenditures for manufacturing
and other launch activities in anticipation of the approval of the Company's
conjugated estrogens product and to provide the additional personnel and capital
resources needed to implement the Company's business plan. This planned
investment in the future has contributed substantially to increased expenses,
and therefore reduced levels of performance. Additionally, as previously
discussed, on April 1, 1996 the Company commenced funding Hallmark's operations
at a monthly amount not to exceed $314,000 per month, plus certain bio-study
costs. The Company remains optimistic regarding the approval of its conjugated
estrogens product. However, management also recognizes the importance of
balancing a strong product development commitment against the need to conserve
resources. In keeping with this combined commitment, steps were implemented in
the second quarter of 1996 to reduce certain operating expenses consistent with
these two corporate goals. Additionally, the Company is discussing several
potential business development opportunities which could provide additional
product revenues. However, it is not
- 13 -
<PAGE> 14
certain if and when these revenues would be available. Accordingly, if the
Company's revenue stream is not supplemented by the approval and launch of the
conjugated estrogens product, or success in other business development pursuits
the Company's reported income for the second and third quarters of 1996 is
likely to be less than for the comparable quarters of 1995, and the Company may
well report a loss for each of the remaining quarters of 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company successfully raised $24.0 million through an offering of Series C
Convertible Preferred Stock, of which the first $12.0 million ($10.8 million net
of issuance costs) was received in November 1995, and the remaining $12.0
million ($10.9 million net of issuance costs) was received in February 1996.
The Company has funded its operations in substantial part through its revolving
credit facility which permits the Company to borrow up to $12.5 million, based
upon eligible collateral, through June 30, 1997 when the principal balance is
due. 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. At May
10, 1996 the Company's borrowings on the revolving credit facility were $5.5
million. Based on the eligible collateral value of $12.5 million on that date,
the Company could borrow an additional $7.0 million under this facility.
The Company's term note, with a principal balance of $4.5 million at December
31, 1995, required a principal payment of $1.5 million on March 1, 1996, with
the remaining $3.0 million due on June 1, 1996. In February 1996 the Company
made the $1.5 million term note principal payment due on March 1, 1996. Under a
separate agreement, in March 1996 the bank made available to the Company an
additional $1.5 million of term financing collateralized by existing equipment.
The current terms of the note payable to the State of Ohio require a balloon
payment of $1,021,000 in November 1996.
Operating activities in the first quarter of 1996 used approximately $5.8
million in cash, principally attributable to an increase in inventories of $3.9
million. The majority of the inventory increase was in the category of finished
goods, reflecting planned growth in inventory levels in order to improve
customer service levels, additional new products which the Company commenced
marketing and distributing in the first quarter of 1996 and continued
manufacturing of the conjugated estrogens product in anticipation of FDA
approval. As a result of a reduction in sales, continued expenditures associated
with the anticipated commercial launch of conjugated estrogens and an increase
in product development expenditures other than for conjugated estrogens, the
Company recorded a net loss of $2.2 million in the first quarter of 1996.
On April 11, 1996 the Company and Hallmark entered into a definitive agreement
providing for the acquisition by Duramed of the assets and business of
Hallmark. Hallmark is a privately held pharmaceutical development company
headquartered in Somerset, N.J. As consideration, the
- 14 -
<PAGE> 15
Company will issue to Hallmark 640,000 shares of common stock and warrants to
purchase 400,000 shares of Duramed Common Stock at a purchase price of $25 per
share and will satisfy certain obligations of Hallmark. The Company will also
acquire at book value certain assets leased to Hallmark by a related
partnership. Consummation of the transaction is subject to certain customary
conditions, including approval of Hallmark's shareholders and certain regulatory
agencies and other third parties. The consummation of this transaction would
result in the Company recording, for financial reporting purposes, of a
substantial non-cash charge for the recognition of purchased research and
development. Additionally, the Company has agreed to fund the operating expenses
of Hallmark commencing April 1, 1996 until the close of the transaction,
expected to occur in July, 1996. These expenses are forecasted to approximate
$314,000 per month, plus certain bio-study costs and will impact future
operating results and cash requirements.
The Company continues to prepare for the anticipated commercial launch of
conjugated estrogens and, accordingly, is maintaining a higher level of
operational and corporate infrastructure than would otherwise be required. The
Company is monitoring the status of its conjugated estrogens application closely
and continues to remain optimistic on ultimate approval of the product; however,
approval is not assured. If the Company receives approval from the FDA for its
ANDA filing for the .625 mg. strength of conjugated estrogens and this product
is successfully manufactured and marketed, the resulting favorable financial
impact is expected to be significant. Accordingly, the Company's longer term
operating plan is significantly impacted by this event. If, however, conjugated
estrogens is ultimately not approved by the FDA, the Company will incur certain
write offs related to investments made to date in inventory and other pre-launch
activities, and provisions of certain of the Company's contractual agreements
would become applicable. (See Note B of Notes to Consolidated Financial
Statements in the 1995 10-K for additional details.)
The Company is currently pursuing several business development opportunities,
which could result in additional products and profit contributions. On a longer
term basis, if Invamed is ultimately successful with its Verapamil S.R. product
development efforts, or the Company is successful with certain of its other
product development pursuits, the availability of these products could
significantly improve the Company's operating results. Again, success is not
assured. The Company intends to increase its funding of product development
activities as its resources permit. Continued expansion of the Company's product
development efforts will likely necessitate capital investment in equipment and
facility to provide the capabilities to produce the resulting products in
commercial quantities. While the Company has not finalized the capital
requirements related to its business plan, the resources required are
significant. To the extent the necessary capital is not available, either from
operations or other sources, implementation of the Company's plans will be
restricted or delayed. In addition, the Company's general and administrative
expenses have increased as needed to support and execute the Company's business
plan and to address the requirements of the Company's current and anticipated
increased operating levels. Management recognizes the importance of both the
future benefits from continuing these increased expenditures and the current
necessity of conserving the Company's resources. Accordingly, management has
taken certain actions and is continuing to
- 15 -
<PAGE> 16
implement steps designed to balance these dual concerns. These steps will result
in reductions in operating expenses pending approval of the Company's conjugated
estrogens product or success in other pending business development
opportunities.
The need to balance spending for the future and conserving current resources may
become even more significant if the Company completes its acquisition of
Hallmark. The Company believes that Hallmark's technical expertise and its
capabilities with respect to advanced drug delivery systems will contribute
significantly to the long-term success of the Company's product development
program. However, the only commercial product currently manufactured by Hallmark
is Captopril. With the highly competitive market conditions associated with this
product, the Company does not anticipate that Captopril will make a significant
contribution to sales or profits. Therefore, as the Company proceeds with the
Hallmark acquisition, if the Company's revenue base is not enhanced by the
approval and marketing of the Company's conjugated estrogens product or through
other products, the Company expects that it will need to execute certain
restructurings and other additional cost- cutting efforts to curtail operating
expenses in order to support the Company's and Hallmark's product development
activities.
- 16 -
<PAGE> 17
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) A Special Meeting of Stockholders of Duramed Pharmaceuticals,
Inc. (the "Meeting") was held on January 24, 1996. The holders
of 4,315,758 shares of the Company's then outstanding
8,074,279 shares of common stock (approximately 53.45%) were
present at the Meeting in person or by proxy.
1. The proposal to issue 120,000 additional shares of the Company's 8%
Cumulative Convertible Preferred Stock, Series C (the "Series C
Stock"). with the effect that, upon conversion of all shares of
Series C Stock, the holders of the Series C Stock could own in
excess of 20% of the number of shares of the Company's common stock
outstanding prior to the issuance of the Series C Stock received the
following votes:.
For Against Abstentions
4,031,314 228,709 55,735
Item 6. Exhibit and Reports on Form 8-K
-------------------------------
(a) Exhibit:
(11) Statement re: Computation of Earnings Per Share
(27) Financial Data Schedule*
(b) Reports on Form 8-K for the quarter ended March 31, 1996:
On February 29, 1996 the Company filed a Current Report on
Form 8-K (Date of Report: February 22, 1996), with comments
regarding operating results and conjugated estrogens.
- ------------------
*Contained only in electronic filing with Securities and Exchange Commission.
- 17 -
<PAGE> 18
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: May 14, 1996 by: /s/ E. Thomas Arington
----------------------------- ----------------------
E. Thomas Arington
President, Chairman of the Board
Chief Executive Officer
Dated: May 14, 1996 by: /s/ Timothy J. Holt
----------------------------- ----------------------
Timothy J. Holt
Senior Vice President - Finance,
Treasurer, Chief Financial Officer
- 18 -
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
DURAMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
--------------------------------------------
<S> <C> <C>
Primary:
Weighted average common shares
outstanding 8,565,621 7,984,078
Assumed conversion of preferred shares
to common shares * 746,590
Net effect of dilutive stock options and
warrants - based on the treasury stock
method using the average market price * 1,980,378
--------------- --------------
Totals 8,565,621 10,711,046
=============== ==============
Net (loss) income (2,436,013) $ 1,008,347
=============== ==============
Per share amount $ (.28) $ .09
=============== ==============
Fully diluted:
Weighted average common shares
outstanding 8,565,621 7,984,078
Assumed conversion of preferred shares
to common shares * 746,590
Net effect of dilutive stock options - based
on the treasury stock method using the
year-end market price, if higher than
average market price * 1,983,282
--------------- --------------
Totals 8,565,621 10,713,950
=============== ==============
Net(loss)income $ (2,436,013) $ 1,008,347
=============== ==============
Per share amount $ (.28) $ .09
=============== ==============
<FN>
*Conversion of stock options and preferred shares not assumed in the
computations because their effect is antidilutive.
</TABLE>
- 19 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,600
<SECURITIES> 0
<RECEIVABLES> 9,558,945
<ALLOWANCES> 614,000
<INVENTORY> 13,300,678
<CURRENT-ASSETS> 25,718,173
<PP&E> 20,200,099
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,714,809
<CURRENT-LIABILITIES> 15,976,962
<BONDS> 18,716,773
<COMMON> 97,888
0
6,500,033
<OTHER-SE> 10,946,010
<TOTAL-LIABILITY-AND-EQUITY> 49,714,809
<SALES> 10,700,198
<TOTAL-REVENUES> 10,700,198
<CGS> 7,825,200
<TOTAL-COSTS> 8,836,204
<OTHER-EXPENSES> 3,473,857
<LOSS-PROVISION> 37,871
<INTEREST-EXPENSE> 551,232
<INCOME-PRETAX> (2,161,095)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,161,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,436,013)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
