Commission File Number 33-35153-D
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 1
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
AMERICAN PHARMACEUTICAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 84-1139559
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Webro Rd., Parsippany, New Jersey 07054
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (201) 515-1000
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15 (d) of the Exchange Act during the past 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|_|
4,681,765
Number of shares of Common Stock outstanding as of November 11, 1996
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES |_| NO |X|
<PAGE>
AMERICAN PHARMACEUTICAL COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 33 $ 109
Accounts receivable, net of allowances
of $28,600 and $91,000 632 301
Inventories 524 583
Prepaid expenses and other current assets 49 17
-------- --------
Total current assets 1,238 1,010
Fixed assets at cost less accumulated
depreciation and amortization 486 532
Goodwill 548 574
Other assets 67 69
-------- --------
$ 2,339 $ 2,185
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (Capital Deficiency)
Current liabilities:
Current portion of long term debt $ 131 $ 131
Accounts payable 1,280 926
Loans payable-shareholders 1,970 1,050
Accrued expenses and other liabilities 281 471
-------- --------
Total current liabilities 3,662 2,578
Long-term debt, less current portion 610 715
Dividends in arrears 829 537
Commitments, contingencies and other matters
Shareholders' equity:
Preferred Stock, par value $.0001 per share; authorized
10,000,000 shares:
Series A Voting Cumulative Convertible Preferred Stock,
authorized 1,000,000 shares; issued and outstanding
912,000 (aggregate liquidation preference $2,835,000) 2,280 2,280
Series B Voting Cumulative Convertible Preferred Stock,
authorized 1,000,000 shares; issued and outstanding
624,000 (aggregate liquidation value $1,834,000) 1,560 1,560
Common Stock, par value $.01 per share;
authorized 20,000,000 shares; outstanding 4,681,765
shares 47 47
Additional capital 6,446 6,446
Deficit (13,095) (11,978)
-------- --------
Total shareholders' equity (2,762) (1,645)
-------- --------
$ 2,339 $ 2,185
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
AMERICAN PHARMACEUTICAL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
--------------------- --------------------
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 3,148 $ 3,644 $ 1,101 $ 1,336
Cost of sales 2,688 3,879 928 1,044
------- ------- ------- -------
Gross profit 460 (235) 173 292
Operating expenses:
Selling and distribution 693 1,015 232 342
General and administrative 403 1,180 135 330
Amortization of intangible assets 26 35 8 11
------- ------- ------- -------
1,122 2,230 375 683
------- ------- ------- -------
Operating (loss) (662) (2,465) (202) (391)
Other income 107 107
Interest expense (163) (46) (71) (20)
------- ------- ------- -------
Net (loss) $ (825) $(2,404) $ (273) $ (304)
======= ======= ======= =======
Net (loss) per share of
Common Stock $ (.18) $ (.60) $ (.06) $ (.09)
======= ======= ======= =======
Weighted average number of
common shares outstanding 4,682 4,408 4,682 4,504
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
AMERICAN PHARMACEUTICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
Sept 30, Sept 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (825) $ (2,404)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation and amortization 86 81
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (331) 85
Decrease in inventories 59 911
(Increase) decrease in prepaid expenses and
other assets (32) 145
Increase (decrease) in accounts payable and other
current liabilities 174 (1,260)
-------- --------
Net cash (used) by operating activities (869) (2,442)
Cash flows from financing activities:
Net reduction in long-term debt from re-structure -- 81
Net proceeds (costs) from sales of capital stock -- 1,625
Principle payments under long-term debt (105) (79)
Loans 920 650
-------- --------
Net cash provided by financing activities 815 2,277
Cash flows from investing activities:
Capital expenditures (22) (90)
-------- --------
Net cash (used) by investing activities (22) (90)
Net (decrease) increase in cash (76) (255)
Cash at beginning of period 109 255
-------- --------
Cash at end of period $ 33 $ 0
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
AMERICAN PHARMACEUTICAL COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
The Company:
The Company operates in one business segment, the repackaging and distribution
(both domestically and internationally) of over-the-counter and prescription
drugs and vitamin products.
Basis of Preparation:
The accompanying financial statements as at September 30, 1996 and for the nine
and three month periods ended September 30, 1996 and September 30, 1995 are
unaudited; however, in the opinion of management of the Company such statements
include all adjustments (consisting of normal recurring accruals) necessary to a
fair statement of the information presented therein. The balance sheet as at
December 31, 1995 was derived from the audited financial statements at such
date.
Pursuant to accounting requirements of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-QSB, the accompanying financial
statements and these notes do not include all disclosures required by generally
accepted accounting principles for complete financial statements. Accordingly,
these statements should be read in conjunction with the Company's most recent
annual financial statements.
Results of operations for interim periods are not necessarily indicative of
those to be achieved for a full year.
Significant Accounting Policies:
Principles of consolidation:
The consolidated financial statements include the accounts of American
Pharmaceutical Company, its wholly-owned subsidiary (U.S. Labs), and a majority
owned subsidiary (Rx Mail). Significant intercompany accounts and transactions
have been eliminated in consolidation. References herein to the "Company" refer
to American Pharmaceutical Company and its subsidiaries, or American
Pharmaceutical Company, as the context may require.
Income Taxes:
Income tax benefits associated with the Company's net operating losses have not
been recognized since the likelihood of realization cannot be determined.
Contingencies and Other Matters:
Legal proceedings:
The Company's wholly-owned subsidiary, APC, has been named as a defendant in
several product liability cases involving Diethylstilbestrol, or DES, a product
produced by an unrelated corporation which, in 1973, sold certain tangible and
intangible assets to APC. All of the pending cases are being defended by
insurance carriers and in no case has a judgement been entered against APC.
While the lawsuits seek damages in excess of the Company's insurance coverage,
Christian Van Pelt, P.C., General Counsel to the Company has advised the Company
that the likelihood of a successful material judgement against the Company is
remote, accordingly, it is the opinion of management that the outcome of this
litigation will not have a material effect on the Company's financial
statements.
5
<PAGE>
A shareholder of the Company filed a lawsuit in 1995 in the United States
District Court for the Eastern District of Virginia contending that certain
misrepresentations were made to him in the written offering materials circulated
by the Company in connection with the private placement of the Company's
securities. As damages, plaintiff was seeking a return of his investment
(approximately $57,000, plus an unspecified amount of interest). On May 13, 1996
the Court directed a verdict in favor of the Company.
In April, 1996 the former president and director of the Company filed a
complaint against the Company and Christian Van Pelt in the United Stated
District Court for the Southern District of New York. The Company was notified
on August 12, 1996 that Mr. Brown discontinued the complaint.
Debt Restructuring:
In April 1995, the Company and the former shareholders of the Company entered
into an agreement to amend certain agreements relating to the sale and purchase
of the Company in 1992. Pursuant to the agreement, amounts payable to the former
shareholders of $439,000 and $1,229,000 due them pursuant to notes payable and
noncompetition obligations, respectively, were exchanged for $1,000,000 of
modified promissory notes and 267,363 shares of the Company's Common Stock
valued at $2.50 per share. The transaction was accounted for in accordance with
SFAS 15, Accounting for Debt Restructuring.
(1) $805,000 of such amount represents the discounted value of the promissory
notes issued in connection with the debt restructuring and is payable in monthly
installments through 2002. The discount relects an effective interest rate of 1
1/2%. The notes are subordinated to certain future financings and are
collateralized by substantially all of the assets of the Company. Notes for
$660,000 were exchanged for 267,363 shres of the Company's Common Stock in April
1995.
Maturities of debt during the next five years, including the portion classified
as current, are $144,000 in 1996, $144,000 in 1997, $144,000 in 1998, $144,000
in 1999, $144,000 in 2000 and $137,000 thereafter, less amounts representing
imputed interest of $45,000.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Company's financial
statements and the related notes thereto included elsewhere herein.
Results of Operations:
Sales:
Net sales for the nine and three months ended September 30, 1996 were $3,148,000
and $1,101,000 compared to $3,644,000 and $1,336,000 in the corresponding period
of the prior fiscal year.
The Company recently appointed a new President and Chief Executive Officer, a
new Vice President of Sales and Marketing to assist management in increasing
sales and improving customer relations and service, and a new Vice President of
Production to reduce costs and shorten inventory turnaround time. Immediate
attention has been given to (I) expanding the company's customer base, (ii)
evaluating the current product line to eliminate the Company's internal sales
staff evaluating the productivity and geographic dispersion of its independent
sales representatives. In addition, the Company intends to aggressively develop
and promote its sales programs and new product introductions.
While management believe these actions are important steps toward increasing
sales, future increases in sales continue to be dependent on, among other
things, (I) sufficient levels of capital, (ii) increases in repackaging
throughput (see "Gross Margins" below), and (iii) its ability to broaden the
customer base and product line. There can be no assurance that such efforts will
be successful.
Gross Margins:
The Company's gross margin for the nine and three months ended September 30,
1996 increased to $460,000 and $173,000 compared to ($235,000) and $292,000 for
the corresponding period of the prior fiscal year. The increase in gross margins
were attributable to an favorable sales mix, favorable absorption and spending
variances resulting from reductions in personnel.
Management, including the recently appointed President and Chief Executive
Officer and new Vice Presidents, are taking steps to improve efficiencies,
reduce costs and enhance customer service. Such steps include new procedures to
ensure that the Company is purchasing quality material at competitive prices,
establishing minimum and maximum inventory levels, establishing larger and
standard batch sizes, establishing "brite" (filled but unlabeled bottles) stock
to expedite filling of customer orders and evaluate the current equipment with
the intention of reducing labor intensive operations. Also, the company will
utilize excess capacity by providing custom packaging of products provided by
the customer (toll packaging). In addition, management expects to work with
employees and their union to develop an incentive plan to increase output and
maintain the quality of the products. There can be no assurance that such
efforts will be successful.
Operating Expenses:
Selling and distribution:
Selling and distribution costs for the nine and three months ended September 30,
1996 decreased $322,000 and $110,000 respectively, from the corresponding period
of the prior fiscal year. The decrease in such costs is primarily attributable
to decreases in personnel costs. Management expects selling and distribution
costs in the futures to remain, as a percentage of sales, at the level of the
past six months, but there can be no assurance that such efforts to control
costs will be successful.
General and administrative:
General and administrative costs for the nine and three months ended September
30, 1996 decreased $777,000 and $195,000 respectively, from the corresponding
period of the prior fiscal year. The
7
<PAGE>
decreases in such costs are primarily attributable to decreases in personnel
costs, professional fees and the provision for severance costs relating to the
reorganization of personnel in 1995.
Loss from operations:
Management's effort to achieve profitability is largely dependent on its ability
to increase sales and improve gross margins and control operating costs.
Financial Condition:
Liquidity and Capital Resources:
The Company's working capital decreased $856,000 to ($2,424,000), at September
30, 1996 from ($1,568,000) at December 31, 1995. During the nine months ended
September 30, 1996 the Company received short term loans from shareholders of
$920,000. Since the Company's acquisition, cash expenditures have substantially
exceeded its cash generated from operations and the Company has relied on the
sale of capital stock and capital contributions and loans to fund its operating
activities and capital expenditures. While the Company is taking steps to
generate working capital, increase sales and achieve profitability, the current
level of liquidity and capital resources, is not sufficient to fund the
operations and growth of the Company. Management is currently seeking alternate
sources of financing to fund its operations including the sale of additional
capital stock. There can be no assurance that alternative sources of financing
would be available to the Company on agreeable terms.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Reference is made to "Notes to Financial Statements - Contingencies and Other
Matters - Legal proceedings" which are incorporated herein.
ITEM 3. Defaults Upon Senior Securities
Unpaid cumulative dividends on the Company's Series A and Series B Voting
Cumulative Convertible Preferred Stock aggregated $829,000 through September 30,
1996.
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K dated May 24,
1996, reporting under Item 5. "Other Events" that Mr. Alfred
C. Bagwell was appointed President and Chief Executive
Officer, effective immediately.
9
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
American Pharmaceutical Company
(Registrant)
May 12, 1997 /s/ Alfred C. Bagwell
------------------
Alfred C. Bagwell, President
(Chief Executive Officer)
10
EXHIBIT 11
COMPUTATION OF PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
--------------------------- ----------------------
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Net Loss $(825,000) $(2,404,000) $(273,000) $(304,000)
Preferred Stock dividend (292,000) (257,000) (97,000) (97,000)
----------- ----------- --------- ---------
Loss applicable to Common Stock $(1,117,000) $(2,661,000) $(370,000) $(401,000)
=========== =========== ========= =========
Primary:
Weighted average number of common
shares outstanding 4,681,765 4,408,044 4,681,765 4,503,719
=========== =========== ========= =========
Net loss per share of Common Stock
(primary): $(.24) $(.60) $(.08) $(.09)
=========== =========== ========= =========
Assuming Full Dilution:
Weighted average number of common
shares outstanding 4,681,765 4,408,044 4,681,765 4,503,710
=========== =========== ========= =========
Net loss per share of Common Stock
(assuming full dilution)(a) $ (.24) $ (.60) $ (.08) $ (.09)
=========== =========== ========= =========
</TABLE>
(a) Not presented because dilution is less than 3 percent from primary amounts.
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 661
<ALLOWANCES> (29)
<INVENTORY> 524
<CURRENT-ASSETS> 1,238
<PP&E> 766
<DEPRECIATION> (280)
<TOTAL-ASSETS> 2,339
<CURRENT-LIABILITIES> 3,662
<BONDS> 829
0
3,840
<COMMON> 47
<OTHER-SE> (6,649)
<TOTAL-LIABILITY-AND-EQUITY> 2,339
<SALES> 3,148
<TOTAL-REVENUES> 3,148
<CGS> 1,817
<TOTAL-COSTS> 2,688
<OTHER-EXPENSES> 1,122
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163
<INCOME-PRETAX> (825)
<INCOME-TAX> 0
<INCOME-CONTINUING> (825)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (825)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
