<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 September 30, 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 November 12, 1996 12,663,278
Page 1 of 24 pages
<PAGE> 2
DURAMED PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. Financial Information
- -------------------------------
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. . . . . . . . . . . . . . . . . . . . . . . . . . 8-12
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . 13-20
PART II. Other Information
- ---------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders. . . . . . . 21
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
- 2 -
<PAGE> 3
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,170,520 $ 2,600
Trade accounts receivable,
less allowance for doubtful
accounts: 1996 - $996,000
1995 - $576,000 7,703,043 8,543,411
Inventories 14,450,188 9,423,326
Prepaid expenses and other assets 1,351,261 1,276,213
Deferred taxes 1,797,000 1,797,000
----------- -----------
Total current assets 28,472,012 21,042,550
----------- -----------
Property, plant and equipment - net 25,452,018 20,342,945
----------- -----------
Other assets:
Deposits and other assets 495,418 1,687,816
Deferred taxes 2,104,000 2,104,000
----------- -----------
Total other assets 2,599,418 3,791,816
----------- -----------
Total assets $56,523,448 $45,177,311
=========== ===========
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------- --------------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,362,605 $ 3,625,593
Accrued liabilities 4,918,926 4,505,907
Current portion of long-term debt
and other liabilities 7,135,943 7,169,374
Current portion of capital lease obligations 1,121,719 1,140,658
------------------- --------------------
Total current liabilities 16,539,193 16,441,532
------------------- --------------------
Long-term debt, less current portion 9,696,737 17,236,736
Long-term capital leases, less current portion 1,924,508 1,706,836
Other long-term liabilities 592,656 893,885
------------------- --------------------
Total liabilities 28,753,094 36,278,989
------------------- --------------------
Stockholders' equity:
Convertible Preferred Stock Series B - par value $.001;
issued 74,659 shares; outstanding 6,059 and 74,659
shares in 1996 and 1995 respectively 6 75
Convertible Preferred Stock Series C - stated value $100;
issued 240,000 shares;
outstanding -0- and 120,000 shares in 1996 and
1995 respectively --- 12,000,000
Convertible Preferred Stock Series D - stated value $100;
issued 200,000; outstanding
200,000 and -0- shares in 1996 and 1995 respectively 20,000,000 ---
Common stock - authorized 50,000,000 shares, par value $.01;
issued and outstanding 11,427,304 and 8,074,449 shares
in 1996 and 1995 respectively 114,272 80,744
Additional paid-in capital 53,087,129 24,686,871
Accumulated deficit (45,431,053) (27,869,368)
------------------- --------------------
Total Stockholders' Equity 27,770,354 8,898,322
------------------- --------------------
Total liabilities and stockholders' equity $ 56,523,448 $ 45,177,311
=================== ====================
</TABLE>
See accompanying notes.
-4-
<PAGE> 5
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 10,376,186 $13,153,352 $ 32,862,304 $ 38,767,746
Cost of goods sold 7,975,304 7,502,238 23,039,155 22,220,189
--------------------- ------------------ ------------------- ------------------
Gross profit 2,400,882 5,651,114 9,823,149 16,547,557
--------------------- ------------------ ------------------- ------------------
Operating expenses:
Product development 3,506,457 1,270,016 7,363,260 3,253,950
Purchase of in-process
research and development 8,557,275 --- 8,557,275 ---
Selling 1,617,292 1,063,665 3,474,697 2,892,274
General and administrative 1,943,573 2,239,904 6,466,537 6,423,515
--------------------- ------------------ ------------------- ------------------
15,624,597 4,573,585 25,861,769 12,569,739
--------------------- ------------------ ------------------- ------------------
Operating (loss) income (13,223,715) 1,077,529 (16,038,620) 3,977,818
Net interest expense 404,790 750,322 1,523,065 1,968,031
--------------------- ------------------ ------------------- ------------------
(Loss) income before income taxes
and preferred dividends (13,628,505) 327,207 (17,561,685) 2,009,787
Income tax provision --- 10,000 --- 51,750
--------------------- ------------------ ------------------- ------------------
Net (loss) income (13,628,505) 317,207 (17,561,685) 1,958,037
Preferred dividends 293,700 --- 672,269 ---
--------------------- ------------------ ------------------- ------------------
Net (loss) income available to
common shareholders $ (13,922,205) $ 317,207 $(18,233,954) $ 1,958,037
===================== ================== =================== ==================
(Loss) earnings per share: $ (1.28) $ .03 $ (1.85) $ .18
===================== ================== =================== ==================
Weighted average number of
shares outstanding: 10,850,555 10,682,257 9,850,047 10,696,225
===================== ================== =================== ==================
</TABLE>
See accompanying notes.
-5-
<PAGE> 6
DURAMED PHARMACEUTICALS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($17,561,685) $ 1,958,037
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,693,235 1,324,586
Recognition of deferred revenues (500,000) (750,000)
Provision for doubtful accounts 870,304 46,079
Purchase of in-process research and development 8,557,275 --
Common stock issued in connection with
employee compensation plans 144,368 142,929
Changes in assets and liabilities:
Trade accounts receivable (29,936) (4,457,798)
Inventories (4,965,498) (1,432,852)
Prepaid expenses and other assets 210,710 217,778
Accounts payable (280,826) 1,186,869
Accrued liabilities 206,947 (407,324)
Other (192,042) 9,790
------------ -----------
Net cash (used in) operating activities (11,847,148) (2,161,906)
------------ -----------
Investing activities:
Capital expenditures (1,084,595) (4,346,659)
Refunds (deposits) on capital equipment 56,998 (46,822)
Payments in connection with acquisition (1,577,649) --
------------ -----------
Net cash (used for) investing activities (2,605,246) (4,393,481)
------------ -----------
Cash flows from financing activities:
Payments of long-term debt, including current maturities (6,716,434) (5,408,148)
Net (decrease) increase in revolving credit facility (8,664,861) 6,270,230
Long-term borrowings 2,741,300 5,456,118
Issuance of preferred stock - net 29,823,702 --
Issuance of common stock 937,916 236,887
Dividends paid (501,309) --
------------ -----------
Net cash provided by financing activities 17,620,314 6,555,087
------------ -----------
Net change in cash 3,167,920 (300)
Cash at beginning of period 2,600 2,900
------------ -----------
Cash and cash equivalents at end of period $ 3,170,520 $ 2,600
============ ===========
Supplemental cash flow disclosures:
Interest paid $ 1,552,796 $ 2,006,169
Income taxes paid -- $ 100,000
</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 Series D Shares Amount Capital Deficit Total
-------------------------------- ---------------- ------- ------- -----
<S> <C> <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 7,740 77 144,291 144,368
Issuance of stock in connection
with stock options 345,975 3,460 922,070 925,530
Issuance of stock in settlement
of certain liabilities 723 7 12,379 12,386
Issuance of stock in connection
with Hallmark acquisition 640,000 6,400 11,093,600 11,100,000
Issuance of Series C
Convertible Preferred Stock 12,000,000 (1,147,148) 10,852,852
Issuance of Series D
Convertible Preferred Stock 20,000,000 (1,029,150) 18,970,850
Cash redemption requirement
related to Series D (4,900,000) (4,900,000)
Conversion of Series B
Preferred Stock (69) 686,000 6,860 (6,791) --
Conversion of Series C
Preferred Stock (24,000,000) 1,672,417 16,724 23,983,276 --
Net loss for 1996 (17,561,685) (17,561,685)
Series C Preferred Stock dividend (672,269) (672,269)
----- ---------- ---------- ---------- ------- ---------- ---------- ----------
BALANCE - SEPTEMBER 30, 1996 6 -- 20,000,000 11,427,304 $114,272 $53,087,129 $(45,431,053) $27,770,354
===== ========== ========== ========== ======= ========== ========== ==========
</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 and nine month periods ended
September 30,1996 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 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 anti-dilutive.
Note 3: Inventories
- --------------------
Components of inventories include:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------------- ----------------
<S> <C> <C>
Raw materials $ 4,395,787 $ 3,931,836
Work-in-process 425,171 261,671
Finished goods 9,629,230 5,229,819
----------------- ----------------
Total $ 14,450,188 $ 9,423,326
================== ================
</TABLE>
As of September 30, 1996, inventories include approximately $3.0 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 (see Item 2
Management's discussion and analysis of financial condition and results of
operations - Introduction).
- 8 -
<PAGE> 9
Note 4: Acquisition
- --------------------
On September 13, 1996 Duramed completed the acquisition of the assets and
business of Hallmark Pharmaceuticals, Inc. ("Hallmark"). Hallmark is a privately
held pharmaceutical development company headquartered in Somerset, N.J. that has
technical expertise and capabilities with respect to advanced drug delivery
systems technologies. As consideration, Duramed issued 640,000 shares of the
Company's common stock, warrants to purchase 400,000 shares of Duramed common
stock at a purchase price of $25.00, and assumed certain obligations of
Hallmark, a portion of which Duramed paid off at closing. This acquisition was
accounted for by using the purchase method of accounting. The purchase price was
allocated to the tangible assets acquired based on their fair values, and a
one-time, non-cash charge of approximately $8.6 million was recorded for
purchased in-process research and development.
Note 5: Convertible Preferred Stock
- ------------------------------------
In August 1996, the Company raised $20.0 million ($19.0 million net of issuance
costs) through an offering of 200,000 shares of 8% Cumulative Convertible
Preferred Stock, Series D ("the Series D Stock"). The Series D Stock was
initially convertible on October 16, 1996 at the option of the holder at 15%
below the average of the closing bid prices of the common shares of the Company
over the ten day trading period ending the day prior to the date of conversion.
The conversion price for the preferred shares may not be less than $7.00 per
share, nor more than $20.00 per share. The number of common shares to be issued
upon conversion is limited to 2,130,895. Any Series D Stock which remains
outstanding thereafter would be subject to cash redemption. The cash redemption
requirement is computed by multiplying the number of common shares to which the
Series D holder would be entitled upon conversion by the average of the closing
bid prices of the Company's common shares for the ten day trading period ending
the day prior to the date of redemption. If a portion of the Series D Stock is
redeemed in cash, the Company will record any premium paid on the cash
redemptions as a dividend charge in the period of redemption.
As of September 30, 1996, $4.9 million of the Series D Stock has been classified
as debt, based upon the approximate cash redemption requirement if all the
outstanding Series D Stock had been converted and redeemed on November 12, 1996.
Through November 12, 1996, $8.8 million of the Series D Stock had been converted
to 1,232,969 shares of the Company's common stock, at an average conversion
price of $7.14 per common share. The Series D Stock will pay a dividend of 8%
annually, payable quarterly in arrears, on all unconverted preferred shares. Any
shares of the Series D Stock that remain outstanding will be converted or
redeemed automatically on July 18, 1998. The proceeds from the issuance of the
Series D Stock were initially utilized to pay off the Company's revolving credit
facility, with the balance invested in short-term securities.
Previously, the Company had raised $24.0 million through an offering of 8%
Cumulative Convertible Preferred Stock, Series C (the "Series C 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
- 9 -
<PAGE> 10
million ($10.9 million net of issuance costs) was received in February 1996. The
proceeds from the issuance of the Series C Stock were utilized to fund operating
activities including the expanded product development program, as well as, costs
associated with preparing to launch the conjugated estrogens product and
repayment of certain indebtedness. The full $24.0 million of the Series C Stock
has been converted to 1,672,417 shares of the Company's common stock, at an
average conversion price of $14.35 per common share. (See Note G of Notes to
Consolidated Financial Statements in the 1995 10-K for additional information
related to the Series C Stock).
Note 6: Debt and Other Long-Term Liabilities
- ---------------------------------------------
<TABLE>
<CAPTION>
September 30 December 31,
Debt 1996 1995
- ---- ----------- -----------
<S> <C> <C>
Revolving credit facility $ -- $ 8,664,861
Term note -- 4,500,000
Manufacturing facility expansion loan 5,500,000 5,500,000
Equipment loans 2,317,816 1,080,155
Note payable to State of Ohio 921,521 1,060,770
Convertible note 2,302,350 2,121,465
Installment notes payable 146,967 236,039
Series D Preferred Stock 4,900,000 --
----------- -----------
16,088,654 23,163,290
Less amounts classified as current 6,391,917 5,926,554
----------- -----------
$ 9,696,737 $17,236,736
=========== ===========
</TABLE>
During 1996, the Company has funded its operations with proceeds received in
connection with the private placements of the Series C and Series D Convertible
Preferred Stock (second stage of Series C Stock issuance provided net proceeds
of approximately $10.9 million in February 1996, and the Series D Stock issuance
generated net proceeds of approximately $19.0 million in August 1996).
The Company utilized a portion of the proceeds from its Preferred Stock
issuances to pay off its revolving credit facility. The amended terms of the
revolving credit facility permit the Company to borrow up to $12.5 million based
upon eligible collateral ($11.5 million as of September 30, 1996). The Company's
bank, however, has stated that it is not willing to advance funds under the
revolving credit facility for the purposes of paying a cash redemption portion
of the Series D Stock. The Company
- 10 -
<PAGE> 11
anticipates that, in the absence of approval of its conjugated estrogens product
(see Item 2 Management's discussion and analysis of financial condition and
results of operations - Introduction), the availability of borrowings under its
revolving credit facility for at least the first half of 1997 will depend upon
the operating performance of the Company. The revolving credit facility bears
interest at the rate of prime plus 1%, and is collateralized by substantially
all assets of the Company including inventory, receivables and the manufacturing
facility.
At December 31, 1995 the Company had a $4.5 million outstanding principal
balance on a term note which was paid off in 1996.
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 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 through November 1, 2000, and certain other payments as defined by
the agreement. This debt is personally guaranteed by a former officer and by a
director.
The convertible note represents funds advanced in July 1995 from a joint venture
partner. The note bears interest at a variable rate approximating prime rate
+3%, compounded annually, and both principal and interest are due at maturity on
July 10, 1998. As amended, 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 15% below the average of the closing bid prices of
the common shares of the Company over the ten day trading period ending the day
prior to the date of conversion. The conversion price may not be less than $7.00
per share, nor more than $14.44 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 equal to the conversion price existing at the time of repayment.
As discussed in Note 5, the Series D Preferred Stock has a cash redemption
feature which based upon the trading range of the Company's common stock
subsequent to September 30, 1996, will more likely than not
- 11 -
<PAGE> 12
require the Company to redeem a portion of the Series D stock in cash. The
amount of the Series D Stock for which cash redemption would be applicable is
dependent on the timing of the conversions and redemptions and closing bid
prices of the company's common stock. The $4.9 million portion of the Series D
Stock classified as current debt, was computed as if all the outstanding Series
D Stock had been converted and redeemed on November 12, 1996. (See Note 5,
Convertible Preferred Stock for additional information.)
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>
September 30, December 31,
Other Long-Term Liabilities 1996 1995
- --------------------------- ------------- ------------
<S> <C> <C>
Abandoned facility obligation - net $1,336,682 $1,636,705
Deferred revenue -- 500,000
---------- ----------
1,336,682 2,136,705
Less amount classified as current 744,026 1,242,820
---------- ----------
$ 592,656 $ 893,885
========== ==========
</TABLE>
The abandoned facility obligation represents the amounts due, net of sublease
income, under the 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 $500,000 in deferred revenue at December 31, 1995 represented 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 June 30,
1996, all of the deferred revenue had been recognized as income.
- 12 -
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
- ------------
The Company has invested a substantial amount of resources pursuing the
development, approval, and launch of a generic conjugated estrogens product. The
Company's financial condition and results of operations have been substantially
impacted by this pursuit and, accordingly, management believes a review of the
chronology of key events related to this matter provides an important
perspective.
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. FDA
approval is required for Duramed to market conjugated estrogens. On September
27, 1994, the Company filed with the FDA an ANDA for the .625 mg strength of
conjugated estrogens. Subsequently, the Company filed amendments covering the
other dosage strengths of conjugated estrogens. These products are formulated
and designed to meet the conjugated estrogens product composition standards and
bioequivalency guidance established by the FDA in 1991 and USP composition
standards.
Since 1991, Wyeth-Ayerst, a Division of American Home Products
("Wyeth-Ayerst"), the manufacturer of the brand name product Premarin(R) has
made several submissions to the FDA requesting changes in the USP 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 in conjugated estrogens.
On November 30, 1994, Wyeth-Ayerst filed a Citizen 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
equilin sulfate need to be present to achieve clinical safety and efficacy in
conjugated estrogens.
On October 6, 1995 the Company filed with the FDA an extensive response to the
Citizen Petition filed by Wyeth-Ayerst. Duramed's filing included scientific and
medical data, as well as the opinions of renowned experts, who all conclude,
consistent with the FDA's 1991 guidance,
- 13 -
<PAGE> 14
that delta8,9 DHES has no impact on the safety or efficacy of conjugated
estrogens and should not be a required component in generic pharmaceutical
equivalent dosages to Premarin(R).
Throughout 1996 the Company has closely monitored the status of its conjugated
estrogens application and anticipated that approval of its application would be
granted by the end of the third quarter of 1996. However, in October 1996,
management was informed that a decision on the Company's conjugated estrogens
application would be delayed as a result of FDA's decision to publish a notice
for public comment.
On November 7, 1996 the FDA made available for public comment a report entitled
"Preliminary Analysis of Scientific Data on the Composition of Conjugated
Estrogens" as well as other documents submitted by Wyeth-Ayerst which were
included in the FDA's analysis. The deadline for comments on the FDA analysis is
December 9, 1996.
Referenced in this Preliminary Analysis is a report by FDA's Office of Clinical
Pharmacology and Biopharmaceutics (OCPB) which summarizes their analysis of
clinical data submitted by Wyeth-Ayerst. OCPB, after analyzing this data in the
most favorable light, stated that "NONE OF THE PHARMACOKINETIC DATA PRESENTED BY
THE FIRM (WYETH-AYERST) CAN BE INTERPRETED AS DEMONSTRATING THAT
DELTA(8,9)-DEHYDROESTRONE OR ITS METABOLITE 17(BETA)-DELTA(8,9)-DEHYDROESTRONE
IS ESSENTIAL TO THE ESTROGENIC ACTIVITY OF PREMARIN(R)."
In the Preliminary Analysis, the FDA spells out the scientific/clinical basis
for estrone sulfate and equilin sulfate as being the active ingredients in
Conjugated Estrogens. The Analysis states that if a drug contains more than one
active drug ingredient, then clinical trials are necessary if it is to be shown
that the combination is superior to each of its components alone.
The FDA Preliminary Analysis covered all the scientific data submitted to the
agency to date, and includes the following extracted conclusions:
o No comparative clinical trials have been performed to
ascertain the contribution of individual components to
Premarin(R)'s overall effect.
o It is difficult to draw firm conclusions about the
contribution of Premarin(R) components to clinical effects
based solely on in vitro data.
o Drawing definitive conclusions about clinical effects of
Premarin(R) based on animal data is currently not possible.
o The clinical studies submitted to evaluate
delta(8,9)-dehydroestrone were unblinded, small and do not
provide definitive results.
o No studies have evaluated the contributions of individual
Premarin(R) components to the long-term safety profile of
Premarin(R). The available epidemiologic evidence does not
definitively establish safety differences.
- 14 -
<PAGE> 15
Duramed has completed its development of Conjugated Estrogens in accordance with
FDA published guidance established in 1991 and official USP compositional
standards which not only do not require the presence of
delta(8,9)-dehydroestrone, but classifies it as an impurity subject to maximum
tolerance limits. During FDA's Joint Advisory Committee meeting in July 1995,
the FDA's position was that COMPELLING data would be required to make any
changes in the guidance. The Company believes that Wyeth-Ayerst has not met this
standard, and is in agreement with the conclusions set forth in the FDA
Preliminary Analysis of scientific/clinical data.
Duramed intends to provide additional scientific data and comments to support
the FDA's conclusion in the 1991 guidance that delta(8,9)-dehydroestrone is
nothing more than a non-essential impurity and is not required to be present in
a generic conjugated estrogens product.
Although the Company has been advised that the FDA is committed to closure on
this matter, at this time the Company is unable to determine when or if it will
obtain FDA approval to market conjugated estrogens. If the Company receives
approval from the FDA for its ANDA filings on all strengths 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
or the FDA's decision is substantially delayed, 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).
Results of Operations
- ---------------------
Net sales decreased by $2.8 million (21.1%) and $5.9 million (15.2%) for the
three and nine month periods, ended September 30, 1996 as compared to the same
periods 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 some of
the products that the Company has sourced from other manufacturers. These sales
declines were offset to a degree by continued growth in sales of the
Ortho-McNeil products, as well as sales of certain recently introduced products
which the Company markets under various arrangements with the manufacturers. In
the third quarter of 1995 the Company's net sales were positively impacted by
the timing of certain customer orders. The Company expects that in the fourth
quarter of 1996 the sales from the current product line will be similar to the
comparable period of 1995, however, due to the continued competitive
environment, the Company expects that the gross profit in the fourth quarter of
1996 may be lower than for the same period of 1995.
- 15 -
<PAGE> 16
The gross margin percentage for the three and nine month periods ended September
30, 1996 was 23% and 30% respectively, compared to 43% for the three and nine
month periods ended September 30, 1995. The lower gross margin percentages in
1996 were due primarily to the product sales mix and lower sales prices on
certain of the Company's products. Additionally, in the third quarter of 1996
the Company's cost of sales included approximately $600,000 of continuing
expenses incurred to maintain production readiness for conjugated estrogens.
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 $2.2 million (176%) and $4.1 million
(126%) for the three and nine month periods ended September, 30, 1996 as
compared to the same periods of 1995. The increase was due to spending for
bioequivalency studies, funding of the operating expenses of Hallmark and
expansion of the Company's research and development activities to pursue
additional products. Throughout 1995 product development expenditures 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, focused on products where the
barriers to market entry are high and present long-term profit opportunities
with minimal competition. The Company intends to continue its investment in
product development activities as its available resources permit.
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 was 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 will contribute
significantly to the long term success of the Company's product development
program. As part of the agreement, Duramed agreed to fund the operating expenses
of Hallmark and certain bio-study costs commencing April 1, 1996 until the close
of the transaction. In the three month periods ended June 30, 1996 and September
30, 1996 product development expenses included Hallmark funding of $900,000 and
$1,100,000, respectively. On September 13, 1996, following Hallmark shareholder
approval on September 11, 1996, Duramed completed the acquisition of the assets
and business of Hallmark. The consummation of the acquisition resulted in the
company recognizing a one-time, non-cash charge of approximately $8.6 million
for the portion of the consideration allocated to purchased in-process research
and development. (See Note 4: Acquisition for additional information).
- 16 -
<PAGE> 17
In the third quarter of 1996 the Company recognized additional expense of
$750,000 to supplement the reserve for potential uncollectible receivables,
primarily as a result of the Chapter 11 bankruptcy petition filed by a large
wholesaler customer. Exclusive of this charge, the Company's selling expenses
decreased by $196,000 (18.5%) and $168,000 (5.8%) for the three and nine month
periods ended September 30, 1996 as compared to the same periods of 1995. The
decrease in expense levels was attributable to steps implemented to control
costs.
General and administrative expenditures decreased by $296,000 (13.2%) and
$43,000 (0.7%) for the three and nine month periods ended September, 30, 1996 as
compared to the same periods of 1995. The decrease was due to steps implemented
by management to reduce certain controllable expenses. The expense levels in
both 1995 and 1996 reflect incremental levels of legal and consulting costs
associated with responding to various issues in connection with the Company's
pending ANDA for conjugated estrogens.
Interest expense for the three and nine month periods ended September 30, 1996
was lower than in the comparable periods of 1995, as a result of lower average
borrowings during 1996, achieved by paying down bank indebtedness with a portion
of the proceeds raised through the issuance of the Series C and Series D
Preferred Stock.
Due to the reported net losses during 1996, no provision for income tax has been
recorded. The tax provision recognized during 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. As of September 30,
1996, the Company had a net deferred tax asset of $3.9 million. Full utilization
of this deferred tax benefit would require future taxable income of
approximately $10.3 million. The Company evaluates the valuation of its deferred
tax asset on a quarterly basis. Given the Company's operating performance with
its current product line and planned expenditures resulting from its commitment
to an expanded product development program, the Company may restore the
valuation reserve associated with the deferred tax asset, which would result in
a non-cash charge to earnings for the quarter during which such action is taken.
Preferred stock dividends in 1996 represent the dividend provision associated
with the $24.0 million of Series C Stock issued in November 1995 and February
1996, and the $20.0 million offering of Series D Stock which was completed in
August 1996. If the Company is required to redeem in cash a portion of the
Series D Preferred Stock, an additional dividend requirement may result, which
could be significant, to recognize the premium that will be paid to the holders
in excess of the amount of their investment. (See Notes 5 and 6, and Note G of
Notes to Consolidated Financial Statements in the 1995 10-K for additional
information related to the Series C and Series D Stock.)
- 17 -
<PAGE> 18
Under the terms of agreements with Ortho-McNeil, Duramed has non-exclusive
distribution rights to the Ortho-McNeil products Acetaminophen with Codeine,
Tolmetin Sodium, Tolmetin Sodium DS, Oxycodone with Acetaminophen and
Estropipate. The term of the distribution agreement for each of these products
is ten years subject to reduction to three years (if not extended) from date of
first sale if Duramed's conjugated estrogens product has not been approved by
the Food and Drug Administration (FDA) by June 30, 1996. Such approval was not
received by June 30, 1996. Duramed commenced marketing Estropipate during the
fourth quarter of 1993 and the other Ortho-McNeil products during the fourth
quarter of 1994. Duramed is discussing an extension of these rights with
Ortho-McNeil and based on discussions to date believes that the distribution
rights to these products will be extended. Loss of these distribution rights
would likely have a material adverse effect upon the Company's results of
operations.
A conscious decision has been made to incur certain 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.
Additionally, the Company has been aggressively increasing product development
spending, including funding the operations at Hallmark. This planned investment
in the future has contributed substantially to increased expenses, and therefore
reduced levels of performance. 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, in addition to cost reduction actions taken in the second quarter of
1996, additional cost reduction measures, including personnel reductions and
salary rollbacks, have been implemented during the fourth quarter to reduce
certain operating expenses consistent with these two corporate goals.
Additionally, the Company continues to seek potential business development
opportunities which could provide additional product revenues. However, it is
not 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 would expect to report a substantial loss for the fourth quarter of
1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In August 1996 the Company raised $20.0 million ($19.0 million net of issuance
costs) through an offering of 200,000 shares of 8% Cumulative Convertible
Preferred Stock, Series D. The proceeds from the issuance of the Series D Stock
were initially utilized to pay off the Company's revolving credit facility, with
the balance initially invested in short-term securities. If the unconverted
Series D Stock should convert to common stock at a price level that would
- 18 -
<PAGE> 19
trigger the cash redemption provisions, the Company could incur a dividend
charge, which could be significant, to recognize the premium paid to the holders
in excess of the amount of their investment. Previously, the Company had raised
$24.0 million through an offering of 8% Cumulative Convertible Preferred Stock,
Series C 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 proceeds from the
issuance of the Series C Stock were utilized to fund operating activities
including the expanded product development program, as well as, costs associated
with preparing to launch the conjugated estrogens product and repayment of
certain indebtedness. The Series D Preferred Stock has a cash redemption
feature, which based upon the trading range of the Company's common stock
subsequent to September 30, 1996, will more likely than not require the Company
to redeem a portion of the Series D stock in cash. The amount of the Series D
Stock for which cash redemption would be applicable, is dependent on the timing
of the conversions and redemptions, and closing bid prices of the company's
common stock. The $4.9 million portion of the Series D Stock classified as
current debt, was computed as if all the outstanding Series D Stock had been
converted and redeemed on November 12, 1996. (See Notes 5 and 6, and Note G of
Notes to Consolidated Financial Statements in the 1995 10-K for additional
information related to the Series C and Series D Stock).
The Company has a revolving credit facility which permits the Company to borrow
up to $12.5 million, based upon eligible collateral ($11.5 million as of
September 30, 1996). The Company's bank, however, has stated that it is not
willing to advance funds under the revolving credit facility for the purposes of
paying a cash redemption portion of the Series D Stock. The Company anticipates
that, in the absence of approval of its conjugated estrogens product, the
availability of borrowings under its revolving credit facility for at least the
first half of 1997 will depend upon the operating performance of the Company. As
of September 30, 1996, the Company had no outstanding borrowings drawn against
the revolving credit facility.
The Company paid off a $4.5 million term note during 1996 with the proceeds from
the Series C Preferred Stock offering. 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.
Operating activities through September 1996 used approximately $11.8 million in
cash, principally attributable to a $5.0 million increase in inventory and
funding of operating losses. 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, additional new products which
- 19 -
<PAGE> 20
the Company commenced marketing and distributing in 1996 and 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 $9.0 million for the nine months ended September 30, 1996, excluding the
one-time charge for purchase of in process research and development in
connection with the Hallmark acquisition.
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.
As part of the agreement, Duramed agreed to fund the operating expenses of
Hallmark commencing April 1, 1996 until the close of the transaction, which
occurred on September 13, 1996. In the three month periods ended June 30, 1996
and September 30, 1996 product development expenses included Hallmark funding of
$900,000 and $1,100,000 respectively. The Company is currently pursuing several
business development opportunities, which could result in additional products
and profit contributions. On a longer term basis, if the Company receives FDA
approval on pending ANDA applications (other than its conjugated estrogens
application) and 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 continue aggressively funding 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. The
resources required to satisfy the capital requirements of the Company's expanded
business plan 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.
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, in the fourth quarter of 1996, after
management was informed that a decision by the FDA on the Company's conjugated
estrogens application would be delayed as a result of FDA's decision to publish
a notice for public comment, management implemented major changes to the
business plan to reduce operating expenses while preserving key long-term
projects, pending the FDA decision on the conjugated estrogens application.
As the Company advances with the expanded product development program, which
includes the costs of funding product development pursuits through the Company's
Hallmark division, 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 may need to execute additional
restructurings and cost reduction actions to further curtail operating expenses.
- 20 -
<PAGE> 21
DURAMED PHARMACEUTICALS, INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1996 Annual Meeting of Shareholders of Duramed
Pharmaceuticals, Inc. (the "Meeting") was held on July 8, 1996.
The holders of 8,987,363 shares of the Company's 10,117,254 then
outstanding shares of common stock (approximately 88.83%) 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 Annual Meeting of Shareholders in 1997 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 8,682,862 304,501 0
George W. Baughman 8,545,897 441,466 0
Doane F. Darling* 8,543,047 444,316 0
Stanley L. Morgan 8,683,150 304,213 0
S. Sundararaman 8,680,344 307,019 0
* Mr. Darling, a director of the Company since
May 1988 and the Senior Vice President, Corporate
Planning, died on September 29, 1996. His board seat
will remain vacant until the Board of Directors appoints a
successor.
(c) At such meeting, a proposal to ratify and approve the 1996
amendment and restatement of the Company's 1988 Stock Option Plan
to increase the number of shares for which options may be granted
from 2,360,000 to 4,360,000 and to make other revisions,
including amendments necessary to bring the Plan into compliance
with Section 162(m) of the Internal Revenue Code.
</TABLE>
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
<S> <C> <C> <C>
3,152,008 938,926 169,912 4,726,517
</TABLE>
- 21 -
<PAGE> 22
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>
8,926,192 30,624 30,547 0
</TABLE>
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:
On August 8, 1996 the Company filed a Current Report on Form
8-K announcing the completion of the issuance of 200,000
shares of Series D Convertible Preferred Stock.
On September 12, 1996 the Company filed a Current Report on
Form 8-K announcing the completion of the acquisition of
Hallmark Pharmaceuticals, Inc.
- ------------------
* Contained only in electronic filing with Securities and Exchange
Commission.
- 22 -
<PAGE> 23
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: by: /s/ E. Thomas Arington
------------------ --------------------------------
E. Thomas Arington
President, Chairman of the Board
Chief Executive Officer
Dated: by: /s/ Timothy J. Holt
------------------ --------------------------------
Timothy J. Holt
Senior Vice President - Finance
Treasurer, Chief Financial Officer
- 23 -
<PAGE> 1
EXHIBIT 11
Statement Regarding Computation of Earnings Per Share
DURAMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------------------------------------------------
<S> <C> <C> <C> <C>
Primary:
Weighted average common shares
outstanding 10,850,555 8,050,367 9,850,047 8,015,820
Assumed conversion of preferred
shares to common shares * 746,590 * 746,590
Net effect of dilutive stock options
and warrants - based on the
treasury stock method using the
average market price * 1,885,300 * 1,933,815
------------ ----------- ------------ -----------
Totals 10,850,555 10,682,257 9,850,047 10,696,225
============ =========== ============ ===========
Net (loss) income ($13,922,205) $ 317,207 ($18,233,954) $ 1,958,038
============ =========== ============ ===========
Per share amount $ (1.28) $ .03 $ (1.85) $ .18
============ =========== ============ ===========
Fully diluted:
Weighted average common shares
outstanding 10,850,555 8,050,367 9,850,047 8,015,820
Assumed conversion of preferred
shares to common shares * 746,590 * 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 * 1,885,300 * 1,933,815
------------ ----------- ------------ -----------
Totals 10,850,555 10,682,257 9,850,047 10,696,225
Net (loss) income ($13,922,205) $ 317,207 ($18,233,954) $ 1,958,037
============ =========== ============ ===========
Per share amount $ (1.28) $ .03 $ (1.85) $ .18
============ =========== ============ ===========
<FN>
* Conversion of stock options and preferred shares not assumed in the
computations because their effect is antidilutive.
</TABLE>
-24-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,170,520
<SECURITIES> 0
<RECEIVABLES> 8,699,043
<ALLOWANCES> 996,000
<INVENTORY> 14,450,188
<CURRENT-ASSETS> 28,472,012
<PP&E> 25,452,018
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,523,448
<CURRENT-LIABILITIES> 16,539,193
<BONDS> 9,696,737
<COMMON> 114,272
0
20,000,006
<OTHER-SE> 7,656,076
<TOTAL-LIABILITY-AND-EQUITY> 56,523,448
<SALES> 32,862,304
<TOTAL-REVENUES> 32,862,304
<CGS> 23,039,155
<TOTAL-COSTS> 26,513,852
<OTHER-EXPENSES> 22,387,072
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,523,065
<INCOME-PRETAX> (17,561,685)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,561,685)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,233,954)
<EPS-PRIMARY> (1.85)
<EPS-DILUTED> (1.85)
</TABLE>
