UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 period ended October 31,
1996
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 0-20772
CYPROS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
California 33-0476164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2714 Loker Avenue West
Carlsbad, California 92008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(619) 929-9500
Indicate by mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities
Exchange Act 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.
[ X ] YES [ ] NO
As of December 9, 1996, the Registrant had 11,613,748 shares of
Common Stock, no par value, outstanding.
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TABLE OF CONTENTS
Item Page
Part I.
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1.Financial Statements:
a. Balance Sheets -- October 31, 3
1996 and July 31, 1996
b. Statements of Operations -- 4
Three Months ended October 31,
1996 and 1995
c. Statements of Cash Flows -- 5
Three Months Ended October 31,
1996 and 1995
d. Notes to Financial Statements 6
2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II.
1. Legal Proceedings *
2. Changes in Securities *
3. Defaults Upon Senior Securities *
4. Submission of Matters to a Vote of Securities *
Holders
5. Other Information *
6. Exhibits and Reports on Form 8-K 9
Signatures 10
* No information provided due to inapplicability of item.
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PART I.
Item 1. Financial Statements
Cypros Pharmaceutical Corporation
Balance Sheets
October 31, July 31,
1996 1996
Assets (Unaudited) (Note)
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Current assets:
Cash and cash equivalents $ $
5,680,741 8,306,752
Short-term investments
9,264,383 7,690,297
Accounts receivable
179,855 149,626
Inventory
65,717 63,386
Prepaid expenses
24,611 61,409
Total current assets 15,215,307 16,271,470
Property, equipment and leasehold
improvements, net 631,589 608,206
Purchased technology, net
2,519,868 2,629,427
Licenses and patents, net
118,518 111,231
Deposits and other assets, net
119,159 126,180
Total assets $ 18,604,441 $
19,746,514
Liabilities and shareholders'
equity
Current liabilities:
Accounts payable $ $
113,599 119,092
Other accrued liabilities
266,009 387,612
Purchased asset obligation -
200,000
Current portion of capital lease
obligations 101,839 81,035
Current portion of long-term
debt 99,282 99,282
Total current liabilities 580,729 887,021
Capital lease obligations
227,205 187,265
Long-term debt
16,547 41,367
Deferred rent
122,464 120,411
Shareholders' equity:
Common stock, 30,000,000 shares
authorized, 11,613,748 shares
issued
and outstanding as of October 21,871,343 21,838,493
31, 1996
and July 31, 1996
Mandatorily convertible notes
7,463,756 7,458,498
Deferred compensation
(262,887) (304,309)
Accumulated deficit
(11,414,716) (10,482,232)
Total shareholders' equity 17,657,496 18,510,450
Total liabilities and
shareholders' $ 18,604,441 $
equity 19,746,514
Note: The balance sheet at July
31, 1996 has been derived from the
audited financial statements at
that date but does not include all
of the information and footnotes
required by generally accepted
accounting principles for complete
financial statements.
See accompanying notes.
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Cypros Pharmaceutical Corporation
Statements of Operations
(Unaudited)
Three Months
Ended October
31,
1996 1995
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Net sales $ $
367,131 224,728
Cost of sales 105,122 53,725
Gross profit 262,009 171,003
Operating expenses:
Sales and marketing 162,456 37,622
General and administrative 756,962 503,844
Clinical testing and regulatory 376,325 330,434
Research and development
230,646 202,658
Total operating expenses
1,074,558
1,526,389
Loss from operations (1,264,380) (903,555)
Research grant income 47,400 74,492
Interest income, net 284,496 188,583
Net loss $ $
(932,484) (640,480)
Net loss per share $ $
(0.08) (0.06)
Shares used in computing net loss 11,613,748 11,364,881
per share
See accompanying notes.
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Cypros Pharmaceutical Corporation
Statements of Cash Flows
(Unaudited)
Three Months
Ended
October 31,
1996 1995
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Operating activities
Net loss $ $
(932,484) (640,480)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of deferred
compensation 74,272 55,736
Compensation expense related to
warrant - 74,082
issuances
Depreciation and amortization
187,886 147,445
Deferred rent expense
2,053 (3,889)
Changes in operating assets and
liabilities:
Accounts receivable
(30,229) (123,910)
Inventory
(2,331) (79,476)
Prepaid expenses
36,798 79,671
Accounts payable
(5,493) 41,808
Other accrued liabilities
(116,345) (11,527)
Net cash flows used in operating (785,873) (460,540)
activities
Investing activities
Payment for purchase of acquired (200,000)
business (1,635,356)
Short-term investments
(1,574,086) 876,027
Purchase of property, equipment and
leasehold improvements (12,513) (50,366)
Increase in licenses and patents
(14,172) (6,123)
(Increase)/decrease in deposits and
other assets (56,076)
4,701
Net cash flows used in investing (1,796,070) (871,894)
activities
Financing activities
Issuance of common stock, net
- 943,831
Repurchase and retirement of common
stock - (1,540,000)
Repayments of long-term debt
(24,820) (24,821)
Principal payments under capital
lease obligations (19,248) (7,039)
Net cash flows used in financing (44,068) (628,029)
activities
Decrease in cash and cash equivalents
(2,626,011) (1,960,463)
Cash and cash equivalents at
beginning of period 8,306,752
5,026,745
Cash and cash equivalents at end of $ $
period 5,680,741 3,066,282
Supplemental disclosure of cash flow
information:
Cash paid for interest $ $
12,723 9,560
Non-cash investing and financing
activities:
Equipment financed under capital $ $
leases 79,992 26,553
Purchased asset obligation $ $
- 400,000
Common stock issued for business
acquisitions $ $
- 1,032,309
See accompanying notes.
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CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization and Business Activity
Cypros Pharmaceutical Corporation (the "Company") is engaged in
the development and marketing of acute-care, hospital-based
products. Through July 31, 1995, the Company was considered to
be in the development stage. In connection with the acquisitions
of Glofil and Inulin, two injectable renal diagnostic products,
on August 9, 1995, the Company commenced product sales and became
an operating company.
The Company's pre-clinical and clinical development programs
focus on cytoprotective drugs designed to reduce ischemia (low
blood flow) induced tissue damage in acute-care settings. The
Company's two clinical programs are currently in six Phase II
trials, which include four for CPC-111 (acute complications of
angioplasty, coronary artery bypass grafting surgery, congestive
heart failure and sickle cell anemia crises), and two for CPC-211
(stroke and head injury).
Basis of Presentation
The unaudited financial statements for the three months ended
October 31, 1996 and 1995 have been prepared on the same basis as
the Company's audited financial statements for the year ended
July 31, 1996 and reflect all adjustments (consisting only of
normal recurring accruals) which are, in the opinion of
management, necessary for the fair presentation of the results of
the interim periods presented. Results for the interim periods
are not necessarily indicative of the results for the entire
year.
For more complete financial information, these financial
statements should be read in conjunction with the audited
financial statements and the related notes thereto for the year
ended July 31, 1996 included in the Company's Annual Report on
Form 10-K.
The Company has experienced significant quarterly fluctuations in
operating results and increases in expenses and losses since
inception and it expects these fluctuations, expenses and losses
will continue.
Inventory
Inventory is stated at the lower of cost (first-in, first-out
method) or market and is comprised of raw materials of $24,663
and finished goods of $41,054.
Revenue Recognition
Revenues from product sales of whole vials of Glofil and Inulin
are recognized upon shipment. Revenues from Glofil unit sales
are recognized upon receipt by the Company of monthly sales
reports from Syncor, the exclusive marketing agent for Glofil in
this form. The Company is not obligated to accept returns of
products sold that have reached their expiration date.
Net Loss Per Share
Net loss per share is computed using the weighted average number
of common shares outstanding during the periods.
Reclassifications
Certain previously reported amounts have been reclassified to
conform with the 1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and disclosures made in the
accompanying notes to the financial statements. Actual results
could differ from those estimates.
2. Subsequent Event
On November 4, 1996, the Company acquired the New Drug
Application, the U.S. trademark for Ethamolin Injection (the
"Ethamolin Assets") and the finished goods inventory on hand at
closing from Schwarz Pharma, Inc., a Delaware corporation. The
acquisition was accomplished in an arm's length negotiation
through a purchase of assets and accounted for using the purchase
method of accounting. The total purchase price was $3,286,642,
of which the Company paid $2,086,642 in cash and issued a
$1,200,000 note bearing interest at 8% per annum at closing. The
principal and accrued interest on the note are due and payable on
November 3, 1997. Repayment of the principal and interest on the
note is secured by the Ethamolin Assets. The Company used its
working capital to make the cash payment at closing.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties, including statements regarding
the period of time during which the Company's existing capital
resources and income from various sources will be adequate to
satisfy its capital requirements. The Company's actual results
could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include but are not
limited to, those discussed in this section, as well as in the
sections entitled "Business", "Licenses", "Manufacturing", "Sales
and Marketing", "Competition", "Government Regulation", "Patents
and Proprietary Rights"of the Company's Annual Report (Form 10-K)
for the fiscal year ended July 31, 1996 and those discussed in
the S-3 Registration Statement File No. 333-3507 filed with U.S.
Securities and Exchange Commission, as well as those discussed in
any documents incorporated by reference herein or therein..
The Company was founded in 1990, commenced its research and
development activities in 1991, completed an initial public
offering (the "IPO") in November 1992, commenced clinical trials
in December 1994 and acquired two FDA-cleared products, Glofil
and Inulin, in August 1995. The Company has sustained an
accumulated deficit of $11,414,716 from inception through October
31, 1996. As the Company will not have significant positive net
operating cash flow for the next few years and the Company's
sales and marketing, research and development, clinical testing
and regulatory and general and administrative expenses during
these years will be substantial and increasing, the Company
expects to incur increasing losses for the foreseeable future.
Results of Operations
During the fiscal quarter ended October 31, 1996, the Company
sustained a loss of $932,484 (or $.08 per share) compared to a
loss of $640,480 (or $.06 per share) for the prior-year quarter.
Sales for the current quarter were $367,131, a 63% increase over
the $224,728 in sales reported in the prior-year quarter. Sales
and marketing expense increased by 332% to $162,456 in the
current quarter due to increased payroll expense related to
additional field sales representatives, their travel and related
expense and increased promotional expense.
General and administrative expense increased by 50% to $756,962
in the current quarter. While increases were recorded in payroll,
rent (related to leasing the Company's new executive offices),
investor relations, business development and travel related to
investor relations and business development, a one-time payment
of $100,000 to a financial advisor accounted for nearly 40% of
the increase.
During the current quarter, research grant income decreased by
36% to $47,400, as a result of the Phase II SBIR Grant for the
Company's NCCB program coming to an end.
In addition, net interest and other income for the current
quarter increased by 51% to $284,496 during the prior-year
quarter due principally to the interest income from a larger
investment portfolio.
Liquidity and Capital Resources
The Company has principally funded its activities to date
through its initial public offering ("IPO") in November 1992, in
which it raised net proceeds of $5,951,000, subsequent exercises
of its Redeemable Class A Warrants in 1994 and early 1995, which
raised $10,497,000, exercises by the underwriter of the IPO of
its unit purchase options (and the Redeemable Class A Warrants
within such options), which raised $1,681,000, that it had
received as part of its compensation for the IPO, and two private
placements of mandatorily convertible notes during July 1996,
which raised $7,000,000. through the issuance of 1,150,000 units,
each comprising a share of Common Stock, a Redeemable Class A
Warrant ("Class A Warrant") and a Redeemable Class B Warrant
("Class B Warrant"). In October 1993, the Company received
proceeds of $725,625 from the exercise of "bridge" warrants for
537,500 shares of Common Stock (the "Bridge Warrant Exercise")
which had been issued in connection with a bridge loan to the
Company prior to the IPO.
From December 1993 to March 1994, the Company conducted a
special program designed to encourage holders of Class A
Warrants to exercise their warrants immediately (the "Class A
Warrant Program") in order to provide the Company with additional
working capital prior to commencing clinical testing. The holders
of the Class A Warrants were offered one-half of a Class B
Warrant and 1.175 shares of Common Stock upon exercise of each
Class A Warrant at an adjusted price of $9.253 (equal to 117.5%
of the original exercise price of $7.875). This program resulted
in the Company's receipt of net proceeds of $2,355,123 from the
exercise of 258,831 Class A Warrants and the Company's issuance
of 304,123 shares of Common Stock and 129,414 Class B Warrants.
At October 31, 19964, the Company had cash, cash equivalents
and short-term investments of $14,945,124, compared to
$15,997,049, compared to $4,444,259 at July 31, 19936. Bridge
Warrant Exercise and the At October 31, 1996, working capital was
$14,634,578, compared to $15,384,449, compared to $4,311,350 at
July 31, 19963.
The Company expects that its cash needs will increase
significantly in future periods due to expansion of research and
development programs, increased clinical testing activity, growth
of administrative, clinical and laboratory staff and expansion
of facilities to accommodate increased numbers of employees. The
Company's management believes that the Company's working capital
will be sufficient to fund the operations of the Company for more
than two years dependent, in part, on the timing of the
commencement of each phase of the clinical trials on CPC-111 and
CPC-211 and the funding priorities that it gives its various
research programs, the results of clinical tests and research
programs; competing technological and market developments; the
time and costs involved in obtaining regulatory approvals and in
obtaining, maintaining and enforcing patents; the cost of product
acquisitions and their resulting cash flows and other factors.
The Company is funding a significant portion of its operating
expenses through cash flow from product sales but expects to seek
additional funds through exercises of its currently outstanding
options and warrants, public or private equity financings,
collaborations or from other sources. There can be no assurance
that additional funds can be obtained on desirable terms or at
all. The Company may seek to raise additional capital whenever
conditions in the financial markets are favorable, even if the
Company does not have an immediate need for additional cash at
that time.
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Part II.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits.
No exhibits are included in this report.
(b) Reports on Form 8-K.
A report on Form 8-K was filed by the Company on
November 18, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Carlsbad, County of San
Diego, State of California, on the 12th day of December, 1996.
CYPROS PHARMACEUTICAL CORPORATION
(Signature)
Paul J. Marangos
Chairman of the Board,
President and Chief Executive Officer
David W. Nassif
Vice President, Chief Financial Officer
and Secretary
(Principal Financial and Accounting Officer)
