SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file Number 0-15597
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
(Exact name of registrant as specified in its charter)
DELAWARE 11-2718528
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Building 31, Olney Avenue, Cherry Hill, New Jersey 08003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(609)424-5600
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
At March 31, 1995 (the close of the Registrant's first fiscal
quarter), there were 11,051,562 shares of the Registrant's common
stock, par value $. 01 per share (the "Common Stock") outstanding.
This report contains a total of 10 pages.
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
INDEX
to
FORM 10-Q for Quarter ended March 31, 1995
Page Number
Part I. FINANCIAL INFORMATION 3
Item 1. Financial Statements
Consolidated Statements of Income for 3
the three-month periods ended March 31, 1995
and 1994 (unaudited)
Consolidated Balance Sheets as of March 31, 1995 4
(unaudited) and December 31, 1994
Consolidated Statements of Cash Flows for the 5
three-month periods ended March 31, 1995
and 1994 (unaudited)
Notes to Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis 8
of Financial Condition and Results of Operations
Part II. OTHER INFORMATION 10
SIGNATURES 10
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended March 31,
1995 1994
Net revenues $10,595,900 $ 7,074,200
Cost of goods sold 8,117,000 5,159,400
Gross profit 2,478,900 1,914,800
Operating costs and expenses:
Selling, general and administrative 1,276,300 987,600
Research and development 781,200 543,800
Total operating expenses 2,057,500 1,531,400
Income from operations 421,400 383,400
Other income, net 787,500 137,800
Income before income taxes 1,208,900 521,200
Provision for income taxes 362,600 10,000
Net income $ 846,300 511,200
Net income per common and common
equivalent share $ 0.08 $ 0.05
Weighted average common & common
equivalent shares outstanding 11,140,800 11,218,600
See accompanying notes to consolidated financial
statements.
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, 1995 December 31, 1994
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,658,400 $ 10,470,300
Investments available-for
-sale, at fair market value 4,210,000 4,710,000
Accounts receivable, net of
reserves of $1,279,100 and
$1,222,400 at March 31, 1995
and December 31, 1994 5,977,600 6,147,800
Inventory 11,785,800 10,830,200
Deferred income taxes 529,300 526,400
Other current assets 2,231,300 2,111,800
Total current assets 35,392,400 34,796,500
Property and equipment, net of
accumulated depreciation of
$7,406,100 and $7,009,200 at
March 31, 1995 and December
31, 1994 20,149,400 20,042,100
Deposits for property and
equipment 283,600 250,000
Deferred income taxes 172,200 253,200
Other assets 1,484,000 1,520,100
Total assets $ 57,481,600 $ 56,861,900
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,258,700 2,012,500
Accrued compensation 282,100 346,800
Accrued liabilities 1,442,300 1,342,500
Deferred revenue 587,500 1,175,000
Total current liabilities 4,570,600 4,876,800
Long-term liabilities:
Deferred compensation 890,200 813,800
Deferred income taxes 13,300 14,500
Total liabilities 5,474,100 5,705,100
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01
per share; authorized 1,000,000
shares - -
Common stock, par value $.01 per
share; authorized 30,000,000
shares; issued and outstanding
11,051,562 shares at March 31,
1995 and 11,047,562 shares at
December 31, 1994 110,500 110,500
Additional paid-in capital 51,743,900 51,739,500
Retained earnings (deficit) 153,100 (693,200)
Total stockholders' equity 52,007,500 51,156,800
Total liabilities and
stockholders' equity $ 57,481,600 $ 56,861,900
See accompanying notes to consolidated financial statements.
MARSAM PHARMACUETICALS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31,
1995 1994
Cash flows from operations:
Net income $ 846,300 $ 511,200
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 396,900 308,300
Deferred compensation expense 76,400 60,000
Deferred tax provision 76,900 -
Decrease in accounts receivable 170,200 2,293,800
(Increase) decrease in inventory (955,600) 481,700
(Increase) in other assets (83,400) (45,600)
Increase in accounts payable 246,200 758,500
Increase (decrease) in accrued
expenses 35,100 (45,200)
(Decrease) in deferred
liabilities (587,500) (25,000)
Net cash provided by operating
activities 221,500 4,297,700
Investment activities:
Purchase of investments
available-for-sale - (404,300)
Sale of investments
available-for-sale 500,000 -
Purchase of property and
equipment (504,200) (294,400)
Deposits on property and
equipment (33,600) (333,800)
Net cash used in investment
activities (37,800) (1,032,500)
Financing activities:
Proceeds from issuance of common
stock 4,400 66,200
Net cash provided by financing
activities 4,400 66,200
Increase (decrease) in cash and
cash equivalents 188,100 3,331,400
Cash and cash equivalents,
beginning of period 10,470,300 6,836,700
Cash and cash equivalents, end
of period $ 10,658,400 $ 10,168,100
See accompanying notes to consolidated financial statements.
MARSAM PHARMACEUTICALS INC. & SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation:
The accompanying unaudited consolidated financial
statements of Marsam Pharmaceuticals Inc. and Subsidiary have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the applicable
regulations of the Securities and Exchange Commission. 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. For further information,
reference is made to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
The consolidated financial statements include the
accounts of Marsam Pharmaceuticals Inc. and Subsidiary. All
intercompany transactions are eliminated in consolidation.
Investments in corporate joint ventures in which the Company
has a 20 to 50 percent ownership are accounted for by the
equity method. Other investments, less than 20 percent owned,
are carried at their original cost. Equity and cost
investments are included in other assets in the consolidated
financial statements.
2. Inventory:
At March 31, 1995 and December 31, 1994, inventory
consisted of the following:
March 31, 1995 December 31, 1994
Raw Materials (including
components) $6,211,000 $5,954,700
Work-in-process 203,400 95,900
Finished goods 5,371,400 4,779,600
11,785,800 $10,830,200
3. Settlement Agreement with Great Lakes Chemical
Corporation:
On July 18, 1994, the Company and Great Lakes Chemical
Corporation (GLCC) executed a comprehensive settlement agreement
which resolved the outstanding litigation between them
concerning the failure of GLCC to supply the Company certain
raw materials. Under the terms of the settlement, GLCC paid
$2.35 million to the Company and agreed to begin supplying the
Company with the inhaled anesthetic raw material commencing
upon the availability of production quantities from its
existing facility and continuing for at least five years after
completion of a new, larger production facility. The payment,
received by the Company on July 19, 1994, is being ratably
recognized as income during the period of July 1, 1994
through June 30, 1995, the period during which the Company
originally expected to launch the product.
For the three-month period ended March 31, 1995, the
Company recognized $587,500, of the $2.35 million received from
GLCC, as other income. The balance is $587,500 and is included
in deferred revenue at March 31, 1995.
If GLCC fails to deliver agreed quantities of product by
specified dates, or if the product does not receive FDA approval
by July 15, 1995, the Company is entitled to be reimbursed for lost
profits associated with the inability of the Company to market
the product. Such payments can be received until January 15,
1998.
4. Income Taxes:
The provision for income tax expenses is based on an
estimated full year effective income tax rate. The rate
reflects the Company's utilization of certain federal tax
credits and its remaining state net operating loss carryforward
during 1995. The provision for income tax for the same period
in 1994 was insignificant due to the availability of a federal
net operating loss carryforward.
MARSAM PHARMACEUTICALS INC. & SUBSIDIARY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company was founded in 1985 and is engaged in the business of
developing, manufacturing, marketing and distributing generic
injectable prescription drug products. The Company markets
penicillin, cephalosporin and other injectable products to
pharmaceutical wholesalers and distributors, contract manufacturing
customers, hospitals, home infusion companies and other medical
facilities.
The Company originally sold its products through joint venture
distribution agreements and under manufacturing agreements with
other pharmaceutical companies. During the last two years the
Company has developed its own sales force and sells its products
under the Marsam label and private labels.
Settlement Agreement with Great Lakes Chemical Corporation
On July 18, 1994, the Company and Great Lakes Chemical
Corporation (GLCC) executed a comprehensive settlement agreement
which resolved the outstanding litigation between them
concerning the failure of GLCC to supply the Company certain
raw materials. Under the terms of the settlement, GLCC paid
$2.35 million to the Company and agreed to begin supplying the
Company with the inhaled anesthetic raw material commencing
upon the availability of production quantities from its
existing facility and continuing for at least five years after
completion of a new, larger production facility. The payment,
received by the Company on July 19, 1994, is being ratably
recognized as income during the period of July 1, 1994
through June 30, 1995, the period during which the Company
originally expected to launch the product. For the three-month
period ended March 31, 1995, the Company recognized $587,500,
of the $2.35 million received from GLCC, as other income. The
balance is $587,500 and is included in deferred revenue at March
31, 1995.
If GLCC fails to deliver agreed quantities of product by
specified dates, or if the product does not receive FDA approval
by July 15, 1995, the Company is entitled to be reimbursed for
lost profits associated with the inability of the Company to
market the product. Such payments can be received until
January 15, 1998.
Results of Operations
During the three-month period ended March 31, 1995, the Company
had revenues of $10,595,900, consisting of Marsam-label sales
of $7,526,100 and contract sales of $3,069,800. During the
same period in 1994, the Company had revenues of $7,074,200
consisting of Marsam-label sales of $5,110,000 and contract
sales of $1,964,200.
Revenues increased in the three-month period ended March 31,
1995 as compared to the same period in 1994 due primarily to
increased market penetration of Marsam-label products, as well
as increased demand for contract business.
Gross profit margin decreased in the three-month period ended
March 31, 1995 when compared to the same period in 1994, from
27.1% to 23.4%. The decrease is attributable mainly to
increased expenses in the New Facility associated with
increased utilization of that plant, product mix, and an
increased level of contract sales, which have a lower
selling price than Marsam-label products.
Selling, general, and administrative costs increased during the
three- month period ended March 31, 1995 compared to the same
period in 1994 due mainly to increases of $123,200 in
administrative personnel and personnel-related expenses, and
$112,700 in sales and marketing personnel and personnel-related
expenses.
Research and development costs increased during the three-month
period ended March 31, 1995 as compared to the same period in
1994 as the result primarily of increases in personnel and
personnelrelated expenses and development material expenses.
Other income for the three-month period ended March 31, 1995
consisted of interest income of $200,000 and income recognized
as a result of the settlement agreement with GLCC of $587,500.
(See Note 3 of the Notes to Consolidated Financial Statements).
For the same period in 1994, other income consisted entirely of
interest income of $137,800. Interest income increased for the
three-month period ended March 31, 1995 as compared to the same
period in 1994 due primarily to higher interest rates, partially
offset by lower levels of cash and cash equivalents.
The provision for income taxes for the three-month period ended
March 31, 1995 is based on an estimated full year effective
income tax rate. The provision for income taxes was $362,600.
The rate reflects the Company's utilization of certain federal
tax credits and its remaining state net operating loss
carryforward during 1995. The provision for income tax for the
same period in 1994 was insignificant due to the availability of
a federal net operating loss carryforward.
The ratio of net income to net sales increased from 7.2% to 8.0%
for the three month period ended March 31, 1995, as compared to
the same period in 1994.
Capital Resources and Liquidity
As of March 31, 1995, the Company had cash, cash equivalents, and
investments available for sale of $14,868,400 as compared to $15,180,300
at December 31, 1994. Cash, cash equivalents, and investments
available for sale generated during the three-month period ended March
31, 1995 were primarily from income from operations and interest
income. Cash, cash equivalents, and investments available-for-sale were
used during this same period mainly to increase inventory
levels, and to equip the Company's manufacturing and
distribution facilities. Working capital increased from
$29,919,700 at December 31, 1994 to $30,821,800 at March 31, 1995,
as a result primarily of increased inventory levels and decreased
deferred revenue related to the Great Lakes settlement.
In January 1994, the Company entered into an agreement to
purchase a property which includes a total of approximately 109,800
square feet on approximately 8.5 acres of land, in March 1997. This
property is being utilized for product development laboratories and as
the Company's distribution center. The purchase price is $5,319,000
and includes a $250,000 deposit which was paid during the first
quarter of 1994 and two installment payments of $3,000,000 in
March 1997 and $2,069,000 in October 1997.
Management believes that the Company's capital resources are
adequate to meet the Company's needs for the foreseeable future and that,
because of the Company's overall financial condition, the
Company will have access to additional capital in the form of debt
or equity.
Inflation has not had a significant impact on the Company's
revenues or retained earnings.
Part II. OTHER INFORMATION
Items 1-5 Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable.
(b) Not applicable.
SIGNATURES
Pursuant to 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.
Marsam Pharmaceuticals Inc.
(Registrant)
Date: May 12, 1995 By: /S/ Marvin Samson
Marvin Samson
President, Treasurer and Chief
Executive Officer
Date: May 12, 1995 By: /S/ Richard Baron
Richard Baron
Vice President, Finance and
Chief Financial Officer
