<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or the transition period from to
------------------- -------------------
Commission file number 0-18443
MEDICIS PHARMACEUTICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 52-1574808
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4343 East Camelback Road, Suite 250
Phoenix, Arizona 85018-2700
(Address of principal executive offices)
(602) 808-8800
(Registrant's telephone number, including area code)
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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 28, 1996
----- -------------------------------
Class A Common Stock $.014 Par Value 9,096,782
Class B Common Stock $.014 Par Value 125,322
Series B Preferred Stock $.01 Par Value 62,660
<PAGE> 2
MEDICIS PHARMACEUTICAL CORPORATION
Table of Contents
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1-- Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1996, and June 30, 1996 3
Condensed Consolidated Statements of
Operations for the Three Months
Ended September 30, 1996, and 1995 5
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
September 30, 1996, and 1995 6
Notes to the Condensed Consolidated Financial Statements 7
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K 11
SIGNATURE 12
</TABLE>
2
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, 1996 June 30, 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $11,014,687 $7,956,050
Accounts receivable, net 4,673,939 5,210,704
Inventories, net 1,834,820 2,080,014
Deferred tax assets 5,000,000 3,000,000
Other current assets 866,806 738,911
----------- -----------
Total current assets 23,390,252 8,985,679
----------- -----------
Property and equipment:
Furniture and equipment 344,714 336,544
Leasehold improvements 170,000 170,000
Less accumulated depreciation (125,054) (100,897)
----------- -----------
Net property and equipment 389,660 405,647
----------- -----------
Intangible assets:
Intangible assets related to the
Esoterica(R) products acquisition 9,168,853 9,168,853
Other intangible assets 303,326 203,326
Less accumulated amortization (2,573,018) (2,450,705)
----------- -----------
Net intangible assets 6,899,161 6,921,474
----------- -----------
$30,679,073 $26,312,800
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 1996 June 30, 1996
<S> <C> <C>
LIABILITIES
Current liabilities:
Accounts payable $3,405,423 $3,371,184
Accrued salaries and wages - 204,750
Notes payable 10,000 10,000
Accrued incentives 733,507 1,184,111
Accrued royalties 639,049 552,952
Other accrued liabilities 1,370,511 1,262,134
----------- -----------
Total current liabilities 6,158,490 6,585,131
----------- -----------
Long-term liabilities:
Notes payable 116,580 116,580
Other non-current liabilities 144,227 151,437
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value, 4,937,340
shares authorized; no shares issued - -
Series B Automatically Convertible Preferred
Stock, $0.01 par value, shares authorized,
issued and outstanding: 62,660 at
September 30, 1996 and at June 30, 1996 627 627
Class A Common Stock, $0.014 par value,
shares authorized: 10,000,000; 6,939,614
and 6,816,318 issued and outstanding at
September 30, 1996 and at June 30, 1996,
respectively 97,155 95,429
Class B Common Stock, $0.014 par value,
125,322 shares authorized, issued and
outstanding at September 30, 1996 and
at June 30, 1996 1,754 1,754
Additional paid-in capital 45,446,435 44,251,722
Accumulated deficit (21,286,195) (24,889,880)
----------- -----------
Total stockholders' equity 24,259,776 19,459,652
----------- -----------
$30,679,073 $26,312,800
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1996 September 30, 1995
<S> <C> <C>
Net sales $7,268,227 $4,574,009
-------------- --------------
Operating costs and expenses:
Cost of product revenue 1,954,608 1,317,370 *
Selling, general and administrative 3,410,390 2,191,645 *
Research and development 159,764 250,528
Depreciation and amortization 148,297 141,040
-------------- --------------
Operating costs and expenses 5,673,059 3,900,583
-------------- --------------
Operating income 1,595,168 673,426
Interest income 121,624 20,970
Interest expense (9,331) (23,503)
Income tax benefit (expense) 1,896,224 (24,914) *
-------------- --------------
Net Income $3,603,685 $645,979
============== ==============
Net income per common and common
equivalent share $0.46 $0.10
============== ==============
Shares used in computing net income
per common and common equivalent
share: 7,756,961 6,686,804
============== ==============
</TABLE>
* Certain immaterial amounts have been reclassified to conform with current
year's presentation.
5
<PAGE> 6
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1996 September 30, 1995
<S> <C> <C>
Net income $3,603,685 $645,979
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 148,297 141,040
Deferred income tax asset (2,000,000) -
Non-cash interest - 13,100
Other non-cash expenses 5,000 -
Change in operating assets and liabilities
Inventories 245,194 (430,916)
Accounts receivable 536,765 1,303,177
Accounts payable 34,239 (178,686)
Accrued salaries and wages (204,750) -
Accrued incentives (450,604) (326,338)
Other current liabilities 211,142 (239,161)
Other current assets (127,895) (107,628)
---------- ---------
Net cash provided by operating activities 2,001,073 820,567
---------- ---------
Cash flows from investing activities:
Purchase of property and equipment (9,997) (66,049)
Payment of license agreement (116,667) -
---------- ---------
Net cash used in investing activities (126,664) (66,049)
---------- ---------
Cash flows from financing activities:
Proceeds from the exercise of stock options 1,191,440 -
Payments of notes payable - (84,852)
Payment of other non-current liabilities (7,212) -
---------- ---------
Net cash provided by/(used in)
financing activities 1,184,228 (84,852)
---------- ---------
Net increase in cash and cash equivalents 3,058,637 669,666
Cash and cash equivalents at beginning of period 7,956,050 953,438
----------- ----------
Cash and cash equivalents at end of period $11,014,687 $1,623,104
----------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $7,274 $10,403
Taxes $79,045 $51,113
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 7
MEDICIS PHARMACEUTICAL CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Medicis Pharmaceutical Corporation ("Medicis" or the "Company") is an
independent pharmaceutical company in the United States that offers
prescription and non-prescription (over-the-counter) products exclusively
to treat dermatological conditions. Emphasizing the clinical effectiveness,
quality, affordability and cosmetic elegance of its products, the Company
has achieved a leading position in the treatment of acne and acne-related
conditions using prescription pharmaceuticals, while also offering the
leading domestic over-the-counter ("OTC") fade cream product line. The
Company has built its business through the successful introduction of
DYNACIN(R) and TRIAZ(R) products for the treatment of acne, and the
acquisition of the ESOTERICA(R) fade cream product line.
Except as otherwise specified herein, all information in this Form 10-Q
has been adjusted to give effect to a 3-for-2 stock split in the form of
a 50% stock dividend paid on August 2, 1996 to holders of record on
July 22, 1996.
The financial information is unaudited but reflects all adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
the Company's management, necessary to a fair statement of the results for
the interim periods presented. Interim results are not necessarily
indicative of results for a full year. The financial statements should be
read in conjunction with the Company's audited financial statements for the
fiscal year ended June 30, 1996.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT
Net income per common and common equivalent share have been computed by
using the weighted average number of shares outstanding and common
equivalent shares.
3. CONTINGENCIES
The Company and certain of its subsidiaries, from time to time, are parties
to certain actions and proceedings incident to their business. Liability
in the event of final adverse determinations in any of these matters is
either covered by insurance and/or established reserves or, in the opinion
of management, after consultation with counsel, should not, in the
aggregate, have a material adverse effect on the consolidated financial
position or results of operations of the Company and its subsidiaries.
7
<PAGE> 8
4. INVENTORIES
Although the Company utilizes third parties to manufacture and package
inventories held for sale, the Company takes title to certain inventories
and records the associated liability once inventories are manufactured.
Inventories are valued at the lower of cost or market as determined by
net realizable value using the first-in-first-out method. Inventories,
net of reserves, at September 30, 1996, and June 30, 1996, consist of
the following:
September 30, 1996 June 30, 1996
Raw materials $108,491 $72,633
Work in process -- 23,749
Finished goods 1,726,329 1,983,632
---------- ----------
Total inventories $1,834,820 $2,080,014
========== ==========
5. SUBSEQUENT EVENT
On October 2, 1996, the Company completed a public offering of 1,850,000
shares of its Class A Common Stock priced at $45.00 per share. All of the
shares were primary shares from the Company. The offering was managed by
an underwriting group led by Robertson, Stephens and Company LLC and A.G.
Edwards & Sons, Inc. The underwriters also exercised the over allotment
option of 277,500 shares at a price of $45.00 per share. Gross proceeds
from the offering before related expenses totaled $95,737,500. The Company
anticipates using the proceeds from the offering for marketing expenses
associated with new product introductions; the licensing or acquisition of
formulations, technologies, products or businesses; research and
development; expansion of marketing and sales capabilities and general
corporate purposes.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto and with the
Company's audited financial statements, notes to the consolidated financial
statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations relating thereto included or incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996.
The foregoing Form 10-Q contains certain forward-looking statements which
are subject to risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those discussed in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
8
<PAGE> 9
Results of Operations
Three Months Ended September 30, 1996 Compared to the Three Months Ended
September 30, 1995
Net Sales
Net sales for the three months ended September 30, 1996 (the "first quarter of
fiscal 1997") increased 58.9%, or $2.7 million, to $7.3 million from $4.6
million for the three months ended September 30, 1995 (the "first quarter of
fiscal 1996"). The Company's net sales increased in the first quarter of fiscal
1997 primarily as a result of both unit and dollar sales growth of the
DYNACIN(R) products, as well as, the sales attributable to the TRIAZ(R)
products launched subsequent to the first quarter of fiscal 1996. The
Company's prescription products accounted for 85.4% of net sales in the first
quarter of fiscal 1997 and 71.2% in the first quarter of fiscal 1996. The
increase in sales of prescription products in the first quarter of fiscal 1997
was partially offset by a decrease in unit sales of the over-the-counter
products, primarily the ESOTERICA(R) product line. The over-the-counter
products accounted for 14.6% of net sales in the first quarter of fiscal 1997
and 28.8% in the first quarter of fiscal 1996. The Company continues to invest
a majority of its marketing funds in the Company's prescription products.
Gross Profit
Gross profit during the first quarter of fiscal 1997 increased 63.1%, or
$2.0 million, to $5.3 million from $3.3 million in the first quarter of fiscal
1996. As a percentage of net sales, gross profit grew to 73.1% in the
first quarter of fiscal 1997 from 71.2% in the first quarter of fiscal 1996
primarily as a result of the change in sales mix toward the Company's
prescription products, which have a higher gross profit than its over-the-
counter products, and a modest increase in the average sales price of the
Company's DYNACIN(R) products, which products account for a majority of the
prescription sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the first quarter of fiscal
1997 increased 55.6%, or $1.2 million, to $3.4 million from $2.2 million in
the first quarter of fiscal 1996, primarily due to promotional costs
attributable to increased sampling and marketing of the Company's prescription
products, and an increase in advertising expenses for the Company's over-the-
counter products. Selling, general and administrative expenses also increased
due to an increase in variable compensation commensurate with increased sales
volume, and cost of living salary adjustments. Selling, general and
administrative costs, as a percentage of sales, have decreased in the first
quarter of fiscal 1997 relative to the first quarter of fiscal 1996.
Research and Development Expenses
Research and development expenses in the first quarter of fiscal 1997 decreased
36.2%, or $91,000, to $160,000 from $251,000 in the first quarter of fiscal
1996, primarily due to the timing of ongoing research and development projects.
9
<PAGE> 10
Depreciation and Amortization Expenses
Depreciation and amortization expenses remain materially unchanged, at $148,000
in the first quarter of fiscal 1997 compared with $141,000 in the first quarter
of fiscal 1996.
Operating Income
Operating income during the first quarter of fiscal 1997 increased 136.9%, or
$.9 million, to $1.6 million from $.7 million in the first quarter of fiscal
1996. This increase was primarily a result of higher sales volume, coupled
with a 1.9% increase in the Company's gross profit and a decrease in
selling, general, and administrative cost as a percentage of sales.
Interest Income (Expense)
Interest income in the first quarter of fiscal 1997 increased 480%, or $101,000,
to $122,000 from $21,000 in the first quarter of fiscal 1996, primarily due to
higher cash and cash equivalent balances in the first quarter of fiscal 1997.
Interest expense in the first quarter of fiscal 1997 decreased 60.3%, or
$14,200, to $9,300 from $23,500 in the first quarter of fiscal 1996 primarily
due to the repayment of a substantial portion of the Company's debt.
Income Tax Benefit (Expense)
Income tax benefit (expense) during the first quarter of fiscal 1997 increased
$1.9 million to a benefit of $1.9 million from an expense of $25,000 in the
first quarter of fiscal 1996. During the first quarter of fiscal 1997, the
Company reevaluated the estimated amount of valuation allowance required in
light of the funds to be received from the public offering to reduce deferred
tax assets in accordance with Statement of Financial Accounting Standard
No. 109, Accounting for Income Taxes ("SFAS No. 109") to an amount the Company
believed appropriate. Accordingly, a credit to income tax benefit of $2.0
million was reflected in the first quarter of fiscal 1997's Consolidated Income
Statement and the corresponding deferred tax asset on the Company's Condensed
Consolidated Balance Sheet. The amount of net deferred tax assets estimated to
be recoverable was based upon the Company's assessment of the likelihood of
near term operating income coupled with uncertainties with respect to the
impact of future competitive and market conditions. No such income tax benefit
was recorded in the first quarter of fiscal 1996.
Net Income
Net income during the first quarter of fiscal 1997 increased approximately
457.9%, or $3.0 million, to $3.6 million from $.6 million from the first
quarter of fiscal 1996. The increase is primarily attributable to an increase
in sales volume, an increase in gross margin as a percentage of sales and the
recording of the $2.0 million income tax benefit in the first quarter of
fiscal 1997.
10
<PAGE> 11
Liquidity and Capital Resources
At September 30, 1996 and June 30, 1996, the Company had cash and cash
equivalents of approximately $11.0 million and $8.0 million, respectively.
The Company's working capital was $17.2 million and $12.4 million at
September 30, 1996 and June 30, 1996, respectively. The increase in working
capital is primarily attributable to the Company's income from operations of
approximately $1.6 million, the $2.0 million income tax benefit and funds
received due to the exercise of stock options of approximately $1.2 million.
At September 30, 1996 and June 30, 1996, the Company had inventories of
$1.8 million and $2.1 million, respectively. The decrease in the Company's
inventory balance is primarily due to a decrease in the level of inventory at
the Company's manufacturers, which is reflected in the Company's inventory
balance.
During the first quarter of fiscal 1997, the Company reevaluated the estimated
amount of valuation allowance required or necessary to reduce deferred tax
assets available in accordance with SFAS No. 109 to an amount the Company
believed appropriate. Accordingly, a deferred tax asset of an additional
$2.0 million was reflected in the consolidated balance sheet and a credit to
deferred tax benefit of $2.0 million in the consolidated income statement. The
amount of net deferred tax assets available that are estimated to be recoverable
was based upon the Company's assessment of the likelihood of near-term operating
income coupled with the uncertainties with respect to the impact of future
competitive and market conditions. The amount of deferred tax asset available
that ultimately will be realized will depend upon future events which are
uncertain.
Subsequent to September 30, 1996, the Company completed a public offering for
1,850,000 primary shares of the Company's Class A Common Stock at a price of
$45.00 per share. The underwriters also exercised the over allotment option
of 277,500 shares at a price of $45.00 per share. Gross proceeds from the
offering before related expenses totaled $95,737,500. The Company anticipates
using the proceeds from the offering for marketing expenses associated with
new product introductions; the licensing or acquisition of formulations,
technologies, products or businesses; research and development; expansion
of marketing and sales capabilities and general corporate purposes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
No. 11.1 Computation of Per Share Earnings
No. 27 Financial Data Schedule
(b) Reports on Form 8-K
During the first quarter of fiscal 1997, the company filed the
following report on Form 8-K:
(i) Current Report on Form 8-K dated August 2, 1996 reporting
under Item 5, the Company effected a three for two stock split
in the form of a 50% stock dividend.
11
<PAGE> 12
SIGNATURE
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.
MEDICIS PHARMACEUTICAL CORPORATION
Date: 1/6/97 By: /s/ Mark A. Prygocki Sr.
--------------- -------------------------
Mark A. Prygocki, Sr.
Chief Financial Officer
and Assistant Treasurer
12
<PAGE> 13
MEDICIS PHARMACEUTICAL CORPORATION
FORM 10-Q
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11 Statements re: Computations of Net Income Per Share
27 Financial Data Schedule
<PAGE> 14
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
1996 1995
<S> <C> <C>
PRIMARY
Average shares outstanding 7,055 6,687
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 702 --
------ ------
TOTAL 7,757 6,687
------ ------
Net income $3,604 $646
------ ------
Per share amount $0.46 $0.10
------ ------
FULLY DILUTED
Average shares outstanding 7,055 6,687
Net effect of dilutive stock options -
based on the treasury stock method
using the quarter-end market price,
if higher than the average market price 774 --
------ ------
TOTAL 7,829 6,687
------ ------
Net income $3,604 $646
------ ------
Per share amount $0.46 $0.10
------ ------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996, AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996, AND THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 11,014,687
<SECURITIES> 0
<RECEIVABLES> 5,353,939
<ALLOWANCES> 680,000
<INVENTORY> 1,834,820
<CURRENT-ASSETS> 23,390,252
<PP&E> 514,714
<DEPRECIATION> 125,054
<TOTAL-ASSETS> 30,679,073
<CURRENT-LIABILITIES> 6,158,490
<BONDS> 0
0
627
<COMMON> 98,909
<OTHER-SE> 24,160,240
<TOTAL-LIABILITY-AND-EQUITY> 30,679,073
<SALES> 7,268,227
<TOTAL-REVENUES> 7,268,227
<CGS> 1,954,608
<TOTAL-COSTS> 3,718,451
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (112,293)
<INCOME-PRETAX> 1,707,461
<INCOME-TAX> 1,896,224
<INCOME-CONTINUING> 3,603,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,603,685
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
