Commission File Number 33-35153-D
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 May 12, 1997
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES |_| NO |X|
<PAGE>
AMERICAN PHARMACEUTICAL COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
March 31, December 31,
1997 1996
--------- ------------
ASSETS
Current assets:
Cash $ 105 $ 94
Accounts receivable, net of allowances
of $35,000 369 475
Inventories 591 517
Prepaid expenses and other current assets 24 11
-------- --------
Total current assets 1,089 1,097
Fixed assets at cost less accumulated
depreciation and amortization 422 452
Other assets 72 72
-------- --------
$ 1,583 $ 1,621
======== ========
LIABILITIES AND (CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 957 $ 1,240
Notes payable - shareholders 1722 1722
Current portion of long term debt 145 145
Accrued expenses and other liabilities 373 289
-------- --------
Total current liabilities 3,197 3,396
Long-term debt, less current portion - shareholders 1,100 575
Long-term debt, less current portion - other 538 581
Dividends in arrears 1,023 921
Commitments, contingencies and other matters
(Capital deficiency):
Redeemable 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 shares (aggregate liquidation
preference $2,950,000) 2,280 2,280
Series B Voting Cumulative Convertible Preferred Stock,
authorized 1,000,000 shares; issued and outstanding
624,000 shares (aggregate liquidation
prefenerce $1,913,000) 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 (14,608) (14,185)
-------- --------
Total (capital deficiency) (4,275) (3,852)
-------- --------
$ 1,583 $ 1,621
======== ========
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)
Three Months Ended
-------------------
March 31, March 31,
1997 1996
--------- ---------
Net sales $ 917 $ 1,114
Cost of sales 828 941
------- -------
Gross profit (loss) 89 173
Operating expenses:
Selling and distribution 176 240
General and administrative 155 134
Amortization of intangible assets 9
------- -------
331 383
------- -------
Operating (loss) (242) (210)
Interest expense 78 43
------- -------
Net (loss) $ (320) $ (253)
======= =======
Net (loss) per share of Common Stock $ (.07) $ (.05)
======= =======
Weighted average number of common shares outstanding 4,682 4,682
======= =======
The accompanying notes are an integral part of these statements.
3
<PAGE>
AMERICAN PHARMACEUTICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
-------------------
March 31, March 31,
1997 1996
--------- ---------
Cash flows from operating activities:
Net (loss) $ (320) $ (253)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation and amortization 30 31
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 106 (325)
(Increase) decrease in inventories (74) 176
(Increase) in prepaid expenses and
other assets (13) (16)
(Decrease) in accounts payable and other
current liabilities (200) (152)
------- -------
Net cash (used) by operating activities (471) (539)
Cash flows from financing activities:
Proceeds from loan payable - shareholders 525 520
Principle payments under long-term debt (43) (34)
------- -------
Net cash provided by financing activities 482 486
Cash flows from investing activities:
Capital expenditures (24)
-------
Net cash (used) by investing activities (24)
-------
Net increase (decrease) in cash 11 (77)
Cash at beginning of period 94 109
------- -------
Cash at end of period $ 105 $ 32
======= =======
The accompanying notes are an integral part of these statements.
4
<PAGE>
AMERICAN PHARMACEUTICAL COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
The Company:
The Company operates in one business segment, the repackaging and distribution
(both domestically and internationally) of over-the-counter (non-prescription)
drugs and vitamin products.
Basis of Preparation:
The accompanying financial statements as at March 31, 1997 and for the three
month periods ended March 31, 1997 and March 31, 1996 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, 1996 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 the former president 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) This 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.
Maturities of debt during the next five years, including the portion classified
as current, are $1,830,000 in 1997, $1,245,000 in 1998, $144,000 in 1999,
$144,000 in 2000, $144,000 in 2001, $28,000 in 2002, less amounts representing
imputed interest of $32,000.
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 of $917,000 for the three months ended March 31, 1997 compare to sales
of $1,114,000 in the corresponding period of the prior fiscal year.
The Company 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 three months ended March 31, 1997 decreased
to $89,000 compared to $173,000 for the corresponding period of the prior fiscal
year. The decrease in gross margins were attributable to an unfavorable sales
mix and lower sales volume.
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 a\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 three months ended March 31, 1997
decreased $64,000 to $176,000, from the corresponding period of the prior fiscal
year. The decrease in such costs is primarily attributable to decreases in
personnel costs and the reassignment of personnel to other departments within
the Company. Management expects selling and distribution costs in the futures to
remain, as a percentage of sales, at the level of the past three months, but
there ca be no assurance that such efforts to control costs will be successful.
7
<PAGE>
General and administrative:
General and administrative costs for the three months ended March 31, 1997
increased $21,000 from the corresponding period of the prior fiscal year. The
increases in such costs are primarily attributable to the reassignment of
personnel within the Company.
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 increased $191,000 to $(2,108,000), at March 31,
1997 from $(2,299,000) at December 31, 1996. During the three months ended March
31, 1997 the Company received loans from shareholders of $525,000. 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 2. Changes in Securities
The Warrant expiration dates of the Class B and Class C Warrants were extended
from April 30, 1997 to October 31, 1997, entitling the holders thereof to
exercise their Warrants at any time prior to October 31, 1997.
ITEM 3. Defaults Upon Senior Securities
Unpaid cumulative dividends on the Company's Series A and Series B Voting
Cumulative Convertible Preferred Stock aggregated $1,023,000 through March 31,
1997.
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 April 14, 1997,
reporting under Item 5. "Other Events" that the expiration date of the
Company's Class B and Class C Warrants was extended from April 30, 1997
to October 31, 1997.
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)
June 25, 1997 /s/ Christian M. Van Pelt
--------------------------------------
Christian M. Van Pelt, Chairman of the
Board
June 25, 1997 /s/ Alfred C. Bagwell
--------------------------------------
Alfred C. Bagwell, President,
(Chief Executive Officer)
10
EXHIBIT 11
COMPUTATION OF PER SHARE DATA
(UNAUDITED)
Three Months Ended
--------------------------
March 31, March 31,
1997 1996
--------- ---------
Net loss $ (320,000) $ (253,000)
Preferred Stock dividend (102,000) (97,000)
----------- -----------
Loss applicable to Common Stock $ (422,000) $ (350,000)
=========== ===========
Primary:
Weighted average number of common
shares outstanding 4,681,765 4,681,765
=========== ===========
Net loss per share of Common Stock
(primary): $ (.09) $ (.07)
=========== ===========
Assuming Full Dilution:
Weighted average number of common
shares outstanding 4,681,765 4,681,765
=========== ===========
Net loss per share of Common Stock
(assuming full dilution) (a) $ (.09) $ (.07)
=========== ===========
(a) Not presented because dilution is less than 3 percent from primary amounts.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10QSB
and is qualified in its' entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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<SECURITIES> 0
<RECEIVABLES> 404
<ALLOWANCES> 35
<INVENTORY> 591
<CURRENT-ASSETS> 1,089
<PP&E> 766
<DEPRECIATION> 344
<TOTAL-ASSETS> 1,583
<CURRENT-LIABILITIES> 3,197
<BONDS> 1,638
0
3,840
<COMMON> 47
<OTHER-SE> (8,162)
<TOTAL-LIABILITY-AND-EQUITY> 1,583
<SALES> 917
<TOTAL-REVENUES> 917
<CGS> 538
<TOTAL-COSTS> 828
<OTHER-EXPENSES> 331
<LOSS-PROVISION> 0
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<EPS-DILUTED> (.07)
</TABLE>
