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 April 30,
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
(State or other jurisdiction of
incorporation or organization)
2714 Loker Avenue West, Carlsbad, California 92008
(Address of principal executive offices)(Zip Code)
33-0476164 (I.R.S. Employer Identification No.)
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 June 7, 1996, the Registrant had 11,613,748 shares of
Common Stock, no par value, outstanding.
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TABLE OF CONTENTS
Part I.
Item Page
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1. Financial Statements:
a. Balance Sheets -- April 30, 1996 and July 31, 3
1995
b. Statements of Operations -- Three Months and
Nine 4
Months Ended April 30, 1996 and 1995
c. Statements of Cash Flows -- Nine Months Ended
April 5
30, 1996 and 1995
d. Notes to Financial Statements 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 7
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Part II.
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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 *
Signatures 11
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* No information provided due to inapplicability of item.
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PART I.
Item 1. Financial Statements
Cypros Pharmaceutical Corporation
Balance Sheets
April 30, 1996 July 31, 1995
Assets (Unaudited) (Noted)
_______________ _______________
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Current assets:
Cash and cash equivalents $ 4,275,667 $ 5,026,745
Short-term investments 5,673,815 8,415,250
Note receivable 200,000 -
Accounts receivable 206,855 -
Inventory 27,030 -
Prepaid expenses 97,440 25,910
_______________ _______________
Total current assets 10,480,807 13,467,905
Property, equipment and
leasehold improvements, net 562,364 411,651
Purchased technology, net 2,738,987 -
Licenses and patents, net 109,968 99,591
Deposits and other assets, net 105,290 195,692
_______________ _______________
Total assets $ 14,042,416 $ 14,174,839
_______________ _______________
Liabilities and shareholder
equity
Current Liabilities:
Accounts payable $ 269,740 $ 138,537
Other accrued liabilities 273,307
364,340
Purchased asset obligation 200,000 -
Current portion of long-term
debt 99,282 99,282
Current portion of capital
lease obligations 45,615 22,517
_______________ _______________
Total current liabilities 978,977 533,643
Long-term debt 66,188 140,650
Capital lease obligations 82,214 54,149
Deferred rent 100,970 80,519
Shareholders equity:
Common stock, 20,000,000
shares authorized,
11,613,748
and 11,352,017 shares issued
and outstanding as of April
30, 1996 and July 31, 1995, 21,826,793 20,944,995
respectively
Mandatorily convertible note 939,825 -
Deferred compensation (392,068) (186,993)
Accumulated deficit (9,560,483) (7,392,124)
_______________ ______________
Total shareholders'equity 12,814,067 13,365,878
_______________ ______________
Total liabilities and
shareholders' equity $ 14,042,416 $14,174,839
_______________ ______________
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Cypros
Pharmaceutical
Corporation
Statements of
Operations
(Unaudited)
Three Nine Months
Months Ended April
Ended April 30,
30,
1996 1995 1996 1995
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Net sales $ $ $ $ -
324,859 - 903,577
Cost of sales 98,883 - 293,952 -
Gross profit 225,976 - 609,625 -
Operating expenses:
Sales and 95,473 - 209,805 -
marketing
1,162,765
General and 581,185 559,436 1,609,726
administrative
Clinical testing 311,051 416,065 1,043,906 1,153,310
and
regulatory
Research and 284,099 189,527 718,202 545,014
development
Total operating 1,271,808 1,165,028 3,581,639 2,861,089
expenses
_
Loss from operations (1,045,832) (1,165,028) (2,972,014)
(2,861,089)
Research grant 83,074 66,423 249,000
income 156,806
Interest income, net 175,339 201,403 554,655
344,606
Net loss $ (787,419) $ (897,202) $(2,168,359 $(2,359,677)
)
Net loss per share $ (0.07) $ $ $ (0.25)
(0.08) (0.19)
Shares used in
computing net loss 11,604,373 11,173,980 11,457,199 9,366,410
per share
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See Accompanying Notes
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Cypros Pharmaceutical Corporation
Statements of Cash Flows
Nine Months April
Ended 30,
1996 1995
Operating activities
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Net loss $ $
(2,168,359 (2,359,677)
)
Adjustments to reconcile net loss to net
cash
used in operating activities:
Amortization of deferred compensation 208,296 (25,125)
Compensation expense related to warrant
issuances 74,082 380,312
Depreciation and amortization 448,160 81,029
Deferred rent expense 20,451 14,777
Changes in operating assets and
liabilities:
Accounts receivable (206,855) -
Inventory (27,030) -
Prepaid expenses (71,530) (22,059)
Accounts payable 131,203 (193,417)
Other accrued liabilities 91,033 200,104
Net cash flows used in operating (1,500,549 (1,924,056)
activities )
Investing activities
Short-term investments 2,741,435 (4,712,867)
Note receivable (200,000) -
Purchase of property, equipment and
leasehold improvements (169,877) (143,757)
Investment in purchased technology (1,635,356 -
)
Increase in licenses and patents (27,182) (2,204)
Increase in deposits and other assets 38,442 (2,937)
Net cash flows provided by (used in)
investing activities 747,462 (4,861,765)
Financing activities
Issuance of common stock, net 902,036 10,330,283
Issuance of mandatorily convertible note 939,825 -
Repurchase and retirement of common stock (1,540,000 -
)
Installment payment on purchased asset (200,000) -
obligation
Repayments of long-term debt (74,462) (74,462)
Principal payments under capital lease (25,390) ( 8,826)
obligations
Net cash flows provided by financing 2,009 10,246,995
activities
Increase (decrease) in cash and cash (751,078) 3,461,174
equivalents
Cash and cash equivalents at beginning of 5,026,745 1,208,161
period
Cash and cash equivalents at end of period $ $
4,275,667 4,669,335
Supplemental disclosure of cash flow
information:
Cash paid for interest $ $
34,261 29,075
Supplemental disclosure of non-cash
investing and financing activities:
Purchase of technology for common stock and
installment
$ $
1,432,309 -
Equipment financed under capital leases $ $
76,553 89,549
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See accompanying notes.
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Business Activity
Through July 31, 1995, Cypros Pharmaceutical Corporation
(the "Company") was a development stage company. In connection
with the acquisition of the Glofil and Inulin products on August
9, 1995, the Company commenced product sales and is therefore an
operating company.
In January 1996, the Company entered into an agreement with
Syncor International ("Syncor") to distribute Glofil in unit
doses through Syncor's nationwide pharmacies. Under the
agreement, the Company ships vials of Glofil on consignment to
selected Syncor pharmacies who then repackage them into unit
doses and ship them to customers upon request. Syncor is also
responsible for invoicing, collections and disposal of expired
unused vials.
Basis of Presentation
The unaudited financial statements for the nine months ended
April 30, 1996 have been prepared on the same basis as the
Company's audited financial statements for the year ended July
31, 1995 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, 1995 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 and
finished goods as follows:
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Raw materials $ 7,463
Finished goods 19,567
________
$ 27,030
________
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Revenue Recognition
Revenues from sales of whole vials of Glofil and Inulin are
recognized upon shipment. Revenues from Glofil sales under the
Syncor agreement are recognized upon receipt by the Company of
monthly sales reports from Syncor on unit dose sales by its
pharmacies. 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 April 30, 1996 presentation.
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. 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 the
sections entitled Licenses, Manufacturing, Sales and Marketing,
Competition, Government Regulation, and Patents and Proprietary
Rights in the Company's Form 10-K for the fiscal year ended July
31, 1995 and the Risk Factors section of the Company's
Registration Statement No. 33-80645.
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, (the "Acquisitions") in August 1995. The Company has
sustained a net loss of $9,501,121 for the period November 2,
1990 (inception) through April 30, 1996. As the Company will not
have significant operating cash flow for the next few years and
the Company's 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
Three Months Ended April 30, 1996 Versus Three Months Ended
April 30, 1995
During the fiscal quarter ended April 30, 1996, the Company
sustained a loss of $787,419 (or $.07 per share), compared to a
loss of $897,202 (or $.08 per share) for the prior-year quarter.
The gross profit of $225,976 during the current quarter, on sales
of Glofil and Inulin was offset by $1,271,808 in expenses in the
sales and marketing, general and administrative, clinical testing
and regulatory and research and development areas. Clinical
testing and regulatory expenses declined during the current
quarter principally due to lower accruals for contract research
organization and clinical trial site costs for the Company's
Phase II congestive heart failure trial on CPC-111 (which was
scheduled for completion in late 1995 but is still ongoing).
Research and development costs increased principally due to two
contracts issued to third-party vendors of research services.
Nine Months Ended April 30, 1996 Versus Nine Months Ended
April 30, 1995
During the nine months ended April 30, 1996, the Company
sustained a loss of $2,168,359 (or $.19 per share), compared to a
loss of $2,359,677 (or $.25 per share) for the prior-year period.
The Company's margin on sales was adversely impacted by a recall
of one lot of Inulin during the second quarter which, after a
settlement with the manufacturer of the lot, cost the Company
$43,845. The gross profit of $609,625, during the current period,
on sales of Glofil and Inulin was offset by $3,581,639 in
expenses in the sales and marketing, general administrative,
clinical testing and regulatory and research and development
areas.
General and administrative expense increased significantly
during the current period due to $328,678 in amortization expense
of the purchased technology related to the acquisition of Glofil
and Inulin, a $138,957 increase in payroll expense and a $135,994
increase in the amortization of deferred compensation related to
the issuance of stock, stock options and warrants at prices below
market value. Clinical testing and regulatory expenses declined
significantly during the current period despite $161,263 in
additional personnel costs due to (i) the one-time $177,000
expense recorded during the prior-year period from the issuance
of a non-qualified stock option grant to the licensor of CPC-211
as a milestone payment for the completion of that drug's Phase I
trial, (ii) the completion of the Company's Phase I trial of CPC-
211 in the prior-year period and (iii) a lower accrual for
contract research organization costs for the Company's Phase II
congestive heart failure trial on CPC-111. Research and
development expenses increased significantly during the current
period principally due to $147,838 in additional personnel costs
and contracts issued to third party vendors of research services.
During the current nine-month period, the Company received
$249,000 of income from the Phase II SBIR Grant (the "Grant")
compared to $156,806 in the prior year period. This increase was
principally due to a large supplies reimbursement during the
second quarter of this fiscal year, the purchase of an item of
laboratory equipment needed for the Grant program during the
first quarter of this fiscal year and a greater number of
scientific personnel working on the Grant program during the
current period compared to the prior-year period. The research
and development expense for the current period includes expenses
incurred in connection with the Grant.
In addition, net interest and other income for the current
period increased to $554,655 from $344,606 in the prior year
period principally due to (i) having more capital to invest
during the current period as a result of the Class A Warrant
Program (described below in Liquidity and Capital Resources),
which was not available for all of the prior-year period because
the program began in November 1994 and was completed in February
1995 and (ii) $83,346 in fees and interest earned on a loan that
the Company made during the second quarter to a financial
advisor.
Liquidity and Capital Resources
The Company has principally funded its activities to date
through its IPO, in which it raised net proceeds of $5,951,335
through the issuance of 1,150,000 units, each unit comprising a
share of Common Stock, a Redeemable Class A Warrant and a
Redeemable Class B Warrant, and subsequent exercises of the
Redeemable Class A Warrants in 1994 and early 1995 (as discussed
in more detail below).
From December 1993 to March 1994, the Company initiated a
special program designed to encourage holders of Redeemable 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 Redeemable Class A Warrants were offered one-half of a
Redeemable Class B Warrant and 1.175 shares of Common Stock upon
exercise of each Class A Warrant at an adjusted price of $3.701
(equal to 117.5% of the original exercise price of $3.15). This
program resulted in the Company's receipt of net proceeds of
$2,355,123 from the exercise of 647,077 Class A Warrants and the
Company's issuance of 760,306 shares of Common Stock and 323,535
Class B Warrants.
In November 1994, the Company initiated the Class A Warrant
Program again. It was completed in February 1995, resulting in
net proceeds of $8,141,882 from the exercise of 2,199,960 Class A
Warrants and the concurrent issuance of 2,584,930 shares of
Common and 1,099,977 Redeemable Class B Warrants. Subsequent to
the end of the Class A Warrant Program, the Company issued a
notice of mandatory redemption to the remaining holders of Class
A Warrants. The holders of 20,250 Class A Warrants exercised
their warrants upon their original terms, resulting in $63,787
proceeds to the Company and the issuance of 20,250 shares of
Common Stock. The Company repurchased all of the unexercised
Class A Warrants outstanding at the end of the 30-day mandatory
redemption period for $0.02 per warrant.
At April 30, 1996, the Company had cash, cash equivalents,
and short-term investments and a note receivable of $10,149,482,
compared to $13,441,995 at July 31, 1995, and working capital of
$9,501,830 at April 30, 1996, compared to $12,934,262 at July 31,
1995. The decreases in cash, cash equivalents and short-term
investments, as well as working capital, are principally due to
the costs of the Acquisitions in August 1995, a related
installment payment of $200,000 made in January 1996 and the
$1,500,000 share repurchase program during August 1995, which
were partially offset by a $1,000,000 private placement of common
stock under SEC Regulation D during August 1995 to a major
institutional investor and a $1,000,000 private placement under
SEC Regulation D during April 1996 in the form of a non-interest-
bearing, mandatorily convertible three-year note with a minimum
one-year lock-up. Working capital also reflects a $200,000
increase in current liabilities, representing the final
installment payment that the Company is obligated to make on
August 9, 1996 as part of the Acquisitions.
The note receivable referred to in the preceding paragraph
relates to a short-term loan of $1,000,000 made by the Company
during the second quarter to a financial advisor. During the
third quarter, $800,000 of the loan principal was paid off, plus
$39,000 in interest and fees, and the remainder of the principal,
plus interest, was paid off subsequent to the end of the third
quarter.
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 at
least 21 months dependent, in part, on the level of sales of
Glofil and Inulin; the success of the Company's distribution
arrangement with Syncor International for unit doses of Glofil;
the ability of the Company to control the manufacturing,
distribution and sales and marketing costs of Glofil and Inulin;
the timing of the commencement of each phase of the clinical
trials on CPC-111 and CPC-211; 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 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.
PART II.
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhitits and Reports on Form 8-K.
(a) Exhibits
There are no exhibits included in this report.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the third quarter of
1996.
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 June, 1996.
CYPROS PHARMACEUTICAL CORPORATION
Paul J. Marangos
(Signature)
Chairman of the Board, President and Chief Executive Officer
David W. Nassif
(Signature)
Vice President, Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
