<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 August 6, 1999 21,744,108
<PAGE> 2
DURAMED PHARMACEUTICALS, INC.
Explanatory Note
This amended quarterly report is being filed to add Note 2 to the Notes to
Consolidated Financial Statements and to revise the Consolidated Statement of
Operations for the three and six months ended June 30, 1998 accordingly.
Other developments relating to Duramed Pharmaceuticals, Inc. since the date of
filing of the original Form 10-Q for the quarter ended June 30, 1999 are
reflected in Duramed's subsequent filings, to which reference is made.
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<PAGE> 3
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements (unaudited)
- -----------------------------------------
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
Unaudited
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,000 $ 3,500
Trade accounts receivable,
less allowance for doubtful accounts:
1999 - $742,000 1998 - $903,000 7,050,903 10,330,816
Inventories 23,431,019 19,786,705
Prepaid expenses and other assets 4,339,306 2,803,460
----------- -----------
Total current assets 34,825,228 32,924,481
Property, plant and equipment - net 27,939,940 27,229,828
Deposits and other assets 1,051,590 1,051,575
----------- -----------
Total assets $63,816,758 $61,205,884
=========== ===========
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES, MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
Unaudited
<S> <C> <C>
Current liabilities:
Accounts payable $ 5,790,937 $ 4,370,181
Accrued liabilities 6,321,280 5,886,201
Current portion of long-term
debt and other liabilities 3,259,413 3,384,860
Current portion of capital lease obligations 785,764 708,891
------------ ------------
Total current liabilities 16,157,394 14,350,133
------------ ------------
Long-term debt, less current portion 32,656,635 22,138,315
Long-term capital leases, less current portion 563,364 441,632
------------ ------------
Total liabilities 49,377,393 36,930,080
------------ ------------
Mandatory redeemable convertible preferred stock 4,900,000 7,700,000
------------ ------------
Stockholders' equity:
Convertible Preferred Stock Series B
Common stock - authorized 50,000,000 shares,
par value $.01; 21,685,693 and 19,811,178 shares
in 1999 and 1998 respectively 216,856 198,111
Additional paid-in capital 99,648,106 94,795,906
Accumulated deficit (90,325,597) (78,418,213)
------------ ------------
Total stockholders' equity 9,539,365 16,575,804
------------ ------------
Total liabilities and stockholders' equity $ 63,816,758 $ 61,205,884
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 5
DURAMED PHARMACEUTICALS, INC.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ------------ -----------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales $ 9,966,776 $11,681,859 $ 23,216,283 $24,422,894
Cost of goods sold 9,492,185 9,078,681 19,909,722 19,366,149
----------- ----------- ------------ -----------
Gross profit 474,591 2,603,178 3,306,561 5,056,745
----------- ----------- ------------ -----------
Operating expenses:
Product development 2,308,576 908,273 3,611,299 2,847,989
Selling 4,359,060 685,732 5,255,046 1,298,821
General and administrative 2,606,198 2,611,744 4,932,799 4,704,761
----------- ----------- ------------ -----------
9,273,834 4,205,749 13,799,144 8,851,571
----------- ----------- ------------ -----------
Operating loss (8,799,243) (1,602,571) (10,492,583) (3,794,826)
Net interest expense 732,002 587,968 1,414,801 1,076,793
----------- ----------- ------------ -----------
Loss before income tax and
preferred stock dividends (9,531,245) (2,190,539) (11,907,384) (4,871,619)
Preferred stock dividends 61,931 150,000 130,223 241,662
Deemed dividend on convertible
preferred stock -- 1,473,233 -- 2,363,648
----------- ----------- ------------ -----------
Net loss applicable
to common shareholders $(9,593,176) $(3,813,772) $(12,037,607) $(7,476,929)
=========== =========== ============ ===========
Basic and diluted loss per share $ (0.45) $ (0.21) $ (0.57) $ (0.42)
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
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<PAGE> 6
DURAMED PHARMACEUTICALS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(11,907,384) $ (4,871,619)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 1,424,688 1,354,887
Provision for doubtful accounts 89,058 96,637
Common stock issued in connection with
employee compensation plans 141,277 104,085
Changes in assets and liabilities:
Trade accounts receivable 3,190,855 (625,650)
Inventories (3,644,314) (6,447,668)
Prepaid expenses
and other assets (1,623,284) 787,890
Accounts payable 1,420,756 (1,012,536)
Accrued liabilities 462,626 607,924
Other (26,469) 9,620
------------ ------------
Net cash (used in) operating activities (10,472,191) (9,996,430)
------------ ------------
Investing activities:
Capital expenditures (1,962,500) (392,628)
Deposits on capital equipment (66,221) (29,418)
------------ ------------
Net cash (used for) investing activities (2,028,721) (422,046)
------------ ------------
Cash flows from financing activities:
Payments of long-term debt, including current maturities (1,535,263) (1,711,320)
Net increase (decrease) in revolving credit facility 9,922,616 (76,762)
Long-term borrowings 2,204,125 1,063,901
Issuance of preferred stock - net -- 11,399,376
Cash redemption of preferred stock -- (149,971)
Issuance of common stock 2,057,593 94,624
Preferred stock dividends paid (147,659) (201,372)
------------ ------------
Net cash provided by financing activities 12,501,412 10,418,476
------------ ------------
Net change in cash 500 --
Cash at beginning of period 3,500 3,500
------------ ------------
Cash at end of period $ 4,000 $ 3,500
============ ============
Supplemental cash flow disclosures:
Interest paid $ 1,201,611 $ 832,786
</TABLE>
See accompanying notes.
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<PAGE> 7
DURAMED PHARMACEUTICALS, INC.
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1998 19,811,178 $ 198,111 $94,795,906 $(78,418,213) $16,575,804
Issuance of stock in connection
with benefit plans 22,746 227 141,050 141,277
Issuance of stock in connection
with stock options and warrants 858,989 8,590 2,049,003 2,057,593
Conversion of Series F
Preferred Stock 992,780 9,928 2,792,370 2,802,298
Net loss for 1999 (11,907,384) (11,907,384)
Preferred Stock dividend (130,223) (130,223)
----------- ------------ ----------- ------------ -----------
BALANCE - JUNE 30, 1999 21,685,693 $ 216,856 $99,648,106 $(90,325,597) $ 9,539,365
=========== ============ =========== ============ ===========
</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 six-month period ended June 30, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
financial statements and notes thereto included in the Annual Report of Duramed
Pharmaceuticals, Inc. (the "Company" or "Duramed") on Form 10-K/A for the year
ended December 31, 1998, (the "1998 10-K/A").
Note 2: Loss Per Common Share
The following table presents the calculation of losses applicable to common
stockholders. The Company has restated its consolidated financial statements for
the three and six month periods ended June 30, 1998 to conform its accounting
for a beneficial conversion feature, related to the issuance of mandatory
redeemable convertible preferred stock in February 1998 to Emerging Issues Task
Force Topic No. D-60 ("Topic No. D-60"). Topic No. D-60 requires that the
intrinsic value of beneficial conversion features of convertible preferred stock
should be treated as a return to the preferred stockholder over the period from
issuance to the first date that conversion can occur. The Company had not
previously assigned a value to the beneficial conversion feature of its Series F
mandatory redeemable convertible preferred stock which provided for maximum
discount on conversion of 22%. The restated amounts have been amortized over 300
days, the minimum period which the preferred shareholders can realize the
maximum beneficial conversion.
-8-
<PAGE> 9
As a result of the aforementioned restatement, the net loss applicable to common
stockholders increased by $1,473,233 and $2,363,648 and basic and diluted loss
per share increased by $0.08 and $0.14 for the three and six month periods ended
June 30, 1998 respectively:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net loss $(9,531,245) $(2,190,539) $(11,907,384) $(4,871,619)
Less dividends on
preferred shares 61,931 150,000 130,223 241,662
----------- ----------- ------------ -----------
Net loss applicable to
common stockholders
as previously reported $(9,593,176) $(2,340,539) $(12,037,607) $(5,113,281)
Less deemed dividend on
convertible preferred stock -- 1,473,233 -- 2,363,648
----------- ----------- ------------ -----------
Net loss applicable to common
stockholders as restated $(9,593,176) $(3,813,772) $(12,037,607) $(7,476,929)
=========== =========== ============ ===========
Basic and diluted loss per
share as previously reported $ (0.45) $ (0.13) $ (0.57) $ (0.28)
=========== =========== ============ ===========
Restated basic and diluted
loss per share $ (0.45) $ (0.21) $ (0.57) $ (0.42)
=========== =========== ============ ===========
</TABLE>
Weighted-average common shares outstanding for the computation of basic and
diluted loss per share were 21,476,065 and 21,046,006 for the three and six
month periods ended June 30, 1999 and 17,920,937 and 17,911,590 for the same
periods in 1998.
For the six month periods ended June 30, 1999 and 1998 outstanding options and
warrants covering 4,159,077 and 4,595,119 shares, respectively, were not
recognized in computing net loss per share as their effect would be
anti-dilutive.
Note 3: Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Components of inventories include:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Raw materials $ 10,385,529 $ 6,841,241
Work-in-process 304,284 476,404
Finished goods 15,260,494 14,914,588
Obsolescence reserve (2,519,288) (2,445,528)
------------ ------------
Net inventory $ 23,431,019 $ 19,786,705
============ ============
</TABLE>
-9-
<PAGE> 10
The Company had $3.5 million in inventory of its synthetic conjugated estrogens
product, in raw material and finished dosage form, which had previously been
expensed. The product is being utilized in the sales effort for Cenestin(TM)
(synthetic conjugated estrogens, A) Tablets ("Cenestin"). The Company shipped
$10.9 million of Cenestin through June 30, 1999. The cost of these shipments has
been retained in inventory as of June 30, 1999 and will be recorded as revenue
as evidence of product movement through the distribution system is obtained.
Note 4: Debt
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
----------- -----------
<S> <C> <C>
Revolving credit facility $20,624,105 $10,701,489
Merrill Lynch note payable 7,931,904 8,144,404
Equipment term note 5,162,587 5,564,866
Loan payable to contract sales organization 1,650,000 --
Note payable to strategic alliance partner 521,711 1,081,146
Installment notes payable 25,741 31,270
----------- -----------
35,916,048 25,523,175
Less amount classified as current 3,259,413 3,384,860
----------- -----------
$32,656,635 $22,138,315
=========== ===========
Mandatory redeemable
convertible preferred stock $ 4,900,000 $ 7,700,000
=========== ===========
</TABLE>
During the second quarter of 1999, the Company financed its operations with
borrowings on its revolving credit facility, a loan payable to a contract sales
organization and proceeds from the exercise of stock options and warrants.
Debt
The Company's principal lender is NationsCredit Commercial Corporation
("NationsCredit"). The initial term of the agreement with NationsCredit is
through November 2002 with provisions for renewals. The financing agreement
provides for a revolving credit facility collateralized by the Company's
receivables and inventories and a $5,631,913 term note secured by the Company's
equipment. The Company's borrowing capacity under the revolving credit facility
adjusts based on the change in receivables and inventory and bears an interest
rate of prime plus 0.50% (8.25% at June 30, 1999). The $5,631,913 term note
bears an interest rate of prime plus 0.75% (8.50% at June 30, 1999) and requires
monthly principal payments of $158,342 plus interest through July 30, 2000 and
$67,047 plus interest for the remaining term of the note, subject to renewal of
the financing agreement.
On August 4, 1999, the Company announced the addition of a second four-year term
loan, in the amount of $7.0 million. Under the terms of the agreement, the new
term note will be repaid in equal monthly installments and bear an interest rate
of prime plus 1.25%.
-10-
<PAGE> 11
The Company has an $8.1 million note payable to Merrill Lynch, which is
guaranteed by the Warner-Lambert Company ("Warner-Lambert"). Warner-Lambert
holds a first mortgage on the Company's Cincinnati, Ohio manufacturing facility.
The note payable to Merrill Lynch bears a variable interest rate based upon the
average commercial paper dealer rate plus 2.65% (7.85% on June 30, 1999). The
monthly principal payment required is $35,417 plus interest. Principal payments
are based upon a twenty year amortization with a balloon payment due on October
1, 2007 of $4,250,000.
The $1,650,000 loan payable to a contract sales organization represents the
initial cost to establish the brand sales force which is representing the
Company's branded products (initially Cenestin) to the physicians community. The
firm contracted to establish and manage the Company's dedicated sales force
agreed to finance its startup costs over the 36-month term of the agreement in
exchange for a monthly principal and interest payment by the Company of $53,240.
The loan is unsecured and carries an interest rate of 10%.
The note payable to a strategic alliance partner is an unsecured note. The note
requires payment in full on April 30, 2000.
Other long-term debt also includes facilities of varying amounts and terms which
are generally collateralized by the assets financed.
The carrying value of the Company's debt approximates fair market value.
Mandatory Redeemable Convertible Preferred Stock
In February 1998, the Company issued $12.0 million in Series F Preferred Stock.
The Series F Preferred Stock is convertible into shares of common stock and pays
a dividend of 5% annually, payable quarterly in arrears, on all unconverted
shares. Any of the Series F Preferred Stock that remain outstanding will be
redeemed automatically on February 4, 2000. The terms of the Series F Preferred
Stock limit the number of shares of Common Stock that can be issued upon
conversion to 3,580,252, with an option for the Company to satisfy any remaining
unconverted Series F Preferred Stock in cash or stock. In November 1998, the
Company received a waiver of the Nasdaq requirement for shareholders approval
which permits the Company to issue, as required, 1,401,584 shares beyond the
original 3,580,252. The terms of the Series F Preferred Stock provide for a
conversion price based upon a trailing 20 day period and were structured such
that the Series F Preferred Shares were convertible into common shares at
varying discounts to the market price (as defined) depending on the date the
conversion occurred.
-11-
<PAGE> 12
At August 12, 1999 $7.1 million of the stated value of the Series F Preferred
Stock had been converted into 2,794,702 shares of Common Stock at an average
price of $2.54 per share. Per the terms of the Series F Stock, assuming that the
stock price remains above $4.88 and the Series F holder converts, the balance of
the Series F preferred shares will convert into common shares at $3.80 per
share. Based upon a $3.80 conversion price, the Company will be required to
issue approximately 1.3 million common shares upon the conversion of the
remaining Series F Preferred Stock. This would result in the Company issuing 4.1
million common shares at an average price of $2.94 upon the complete conversion
of the Series F Stock.
-12-
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized, as of the 22nd day of November 1999.
DURAMED PHARMACEUTICALS, INC.
by: /s/ Timothy J. Holt
----------------------------------
Timothy J. Holt
Senior Vice President - Finance,
Treasurer, Chief Financial Officer
-13-
