UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
___________________________________
(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,
1997
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:
(760) 929-9500
Indicate by mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 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 12, 1997, the Registrant had 13,484,691 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 -- April 30, 1997 and July 31,
1996 3
b. Statements of Operations -- Three and Nine
Months Ended April 30, 1997 and 1996 4
c. Statements of Cash Flows -- Nine Months Ended
April 30, 1997 and 1996 5
d. Notes to Financial Statements 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
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<CAPTION>
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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<CAPTION>
PART I.
Item 1. Financial Statements
Cypros Pharmaceutical
Corporation
Balance Sheets
April 30, July 31,
1997 1996
Assets (Unaudited) (Note)
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Current assets:
Cash and cash equivalents $ 3,013,404 $ 8,306,752
Short-term investments 12,520,893 7,690,297
Accounts receivable 425,831 149,626
Inventory 98,251 63,386
Prepaid expenses 124,253 61,409
Total current assets 16,182,632 16,271,470
Property, equipment and
leasehold
improvements, net 656,619 608,206
Purchased technology, net 5,285,222 2,629,427
[Deferred Financing Costs 294,216 520,011]
Licenses and patents, net 159,825 111,231
Deposits and other assets, net 127,160 126,180
[Total assets $22,705,674 $20,266,525]
Liabilities and shareholders'
equity
Current liabilities:
Accounts payable $289,718 $ 119,092 289,718
Other accrued liabilities 451,033 387,612
Purchased asset obligation 1,248,000 200,000
Current portion of capital
lease obligations 107,113 81,035
Current portion of long- 66,188 99,282
term debt
Total current liabilities 2,162,052 887,021
Capital lease obligations 173,368 187,265
Deferred rent 130,407 120,411
Long-term debt - 41,367
[Mandatorily convertible notes 4,521,145 6,395,574]
Shareholders' equity:
[Common stock, 30,000,000
shares authorized, 13,460,097
and 11,613,748 shares issued
and outstanding as of
April 30, 1997 and July 31,
1996, respectively 31,602,997 23,421,428]
Deferred compensation (154,352) (304,309)
[Accumulated deficit (15,729,943) (10,482,232)]
)
[Total shareholders' equity 15,718,702 12,634,887]
[Total liabilities and
shareholders' equity $22,705,674 $20,266,525]
</TABLE>
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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<CAPTION>
Cypros
Pharmaceutical
Corporation
Statements of
Operations
(Unaudited)
Three Months Ended Nine Months Ended
April 30, April 30,
1997 1996 1997 1996
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Net sales 717,658 324,859 1,672,454 903,577
Cost of sales 148,154 98,883 388,016 293,952
Gross profit 569,504 225,976 1.284,438 609,625
Operating expenses:
Sales and
marketing 287,212 95,473 706,850 209,805
General and
administrative 599,111 452,192 1,920,045 1,225,196
Clinical testing
and 441,767 298,521 1,342,200 1,010,295
regulatory
Research and
development 234,578 273,254 720,668 688,183
Depreciation and
amortization 293,989 152,368 772,029 448,160
Total operating 1,856,657 1,271,808 5,461,792 3,581,639
expenses
Loss from (1,287,153) (1,045,832)(4,177,354)(2,972,014)
operations
Research grant
income - 83,074 79,490 249,000
Interest and other
income, net 138,486 175,339 523,199 554,655
[Amortization of (322,347) - (1,673,046) -]
discount and costs
on mandatorily
convertible notes
[Net loss $(1,471,014)$(787,419) $(5,247,71 $(2,168,359)]
[Net loss per share $ (0.12) $ (0.07) $ (0.44) $ (0.19)]
Shares used in
computing net loss 12,431,095 11,604,373 11,880,209 11,457,199
per share
</TABLE>
See accompanying notes.
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<CAPTION>
Cypros Pharmaceutical
Corporation
Statements of Cash Flows
(Unaudited)
Nine
Months
Ended
April 30,
1997 1996
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Operating activities
[Net loss $(5,247,711) $(2,168,359)]
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of deferred
compensation 283,519 208,296
Compensation expense related
to - 74,082
warrant issuances
[Amortization of discount and 1,673,046 -]
costs on mandatorily
convertible notes
Depreciation and amortization
772,029 448,160
Deferred rent expense
9,996 20,451
Changes in operating assets
and
liabilities, net of effects
from acquisitions:
Accounts receivable
(276,205) (206,855)
Inventory 37,729 (27,030)
Prepaid expenses (62,844) (71,530)
Accounts payable 170,626 131,203
Other current liabilities 116,679 91,033
Net cash flows used in
operating activities (2,523,136) (1,500,549)
Investing activities
Payment for purchase of
acquired businesses (2,286,642) (1,835,356)
Short-term investments
(4,830,596) 2,741,435
Note receivable - (200,000)
Purchase of property, equipment
and leasehold improvements (152,298) (169,877)
Increase in licenses and
patents (71,533) (27,182)
(Increase)/decrease in deposits
and other assets (7,940) 38,442
Net cash flows from/(used in)
investing activities (7,349,009) 547,462
Financing activities
Issuance of common stock, net
4,721,069 902,036
Issuance of mandatorily
convertible notes - 939,825
Repurchase and retirement of
common stock - (1,540,000)
Repayments of long-term debt (74,461) (74,462)
Principal payments under
capital lease obligations (67,811) (25,390)
Net cash flows from financing 4,578,797 202,009
activities
Decrease in cash and cash
equivalents (5,293,348) (751,078)
Cash and cash equivalents at
beginning of period 8,306,752 5,026,745
Cash and cash equivalents at
end of period $ 3,013,404 $ 4,275,667
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 40,362 $ 34,261
Non-cash investing and
financing activities:
Issuance of common stock in
business acquisition $ - $ 1,032,309
[Notes converted into common
stock 3,326,938 -]
Issuance of purchased asset
obligation in business $ 1,200,000 $ 200,000
acquisitions
Equipment financed under
capital leases $ 79,992 76,553
</TABLE>
See accompanying notes.
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. It is currently marketing three products, Glofil,
Inulin and Ethamolin and developing two drugs, CPC-111 and
Ceresine (formerly CPC-211), which are in various Phase II
clinical trials for cardiovascular and neurological disorders.
The Company's clinical and pre-clinical development programs
focus on cytoprotective drugs designed to reduce ischemia (low
blood flow) induced tissue damage in acute-care settings.
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 accounted for using the purchase method. 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 (the "Schwarz
Note") bearing interest at 8% per annum at closing. The
principal and accrued interest on the Schwarz Note are due and
payable on November 3, 1997. Repayment of the principal and
interest on the Schwarz Note is secured by the Ethamolin Assets.
The Company used its working capital to make the cash payment at
closing.
Basis of Presentation
The unaudited financial statements for the three and nine months
ended April 30, 1997 and 1996 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/A.
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 $5,818 and
finished goods of $92,433.
Revenue Recognition
Revenues from product sales of Ethamolin and 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.
Sales are reported net of returns during the period in which
product is shipped. These sales are subsequently adjusted for
discounts on certain pharmaceuticals under contracts with
hospitals and hospital buying groups. For the nine months ended
April 30, 1997, such discounts totalled $34,923.
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 1997 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.
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/A) for the fiscal year ended July 31, 1996 and those discussed
in the S-3 Registration Statement (File No. 333-17501) 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 and a third FDA-cleared product,
Ethamolin, in November 1996. The Company has sustained an
accumulated deficit of $15,729,943 from inception through April
30, 1997. 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
Three Months Ended April 30, 1997 Versus Three Months Ended April
30, 1996
During the quarter ended April 30, 1997, the Company reported
sales of $717,658, a 121% increase over the $324,859 reported in
the prior-year period, and a gross profit on sales of $569,504, a
152% increase over the $225,976 reported in the prior-year
period, both increases resulting principally from the acquisition
of Ethamolin. For this same reason, the gross margin in the
current quarter as a percent of sales was 79% compared to 70% in
the prior-year period.
[For the quarter, the Company sustained a loss of $1,471,014 (or
$.12 per share), compared to a loss of $787,419 (or $.07 per
share) for the prior-year quarter, as expenses increased in all
operating areas, except research and development. Sales and
marketing expense increased by more than 200%, principally due to
the tripling of the field sales force and the hiring of a product
manager during the second quarter, increased travel expense by
sales and marketing personnel and increased promotional expense.
General and administrative expense increased more than 32%,
principally due to the continuation of the substantial investor
relations program begun during the second quarter and the
increased insurance premiums from the product liability insurance
coverage obtained during the second quarter. Clinical testing and
regulatory expense increased more than 47%, principally due to
increased enrollment at the various sites for the Phase II trials
of CPC-111 and Ceresine and increased usage of consultants to
perform clinical monitoring, data base management and statistical
analysis functions. Depreciation and amortization expense
increased by $141,621, or nearly 93%, $114,788 of which was due
to the amortization of the purchased technology related to the
acquisition of Ethamolin during the current quarter.]
During the current quarter, research grant income decreased 100%
due to the prior-year quarter receiving income from a Phase II
SBIR grant that was completed in September 1996. The research and
development expense for the quarter includes expenses incurred in
connection with the grant.
In addition, net interest and other income for the current
quarter declined more than 21% principally due to interest income
received in the prior-year quarter from fees and interest on a
loan that the Company made during that quarter which was
subsequently repaid, coupled with interest expense during the
current quarter accruing on the Schwarz Note.
[During the current quarter, the Company recognized $322.347 of
expense related to the amortization of (i) the discount on the $8
million in principal amount of mandatorily convertible notes
issued in three private placements between April and July of
1996 and (ii) the deferred financing costs related to these
placements.]
Nine Months Ended April 30, 1997 Versus Nine Months Ended April
30, 1996
During the nine months ended April 30, 1997, the Company reported
sales of $1,672,454, an 85% increase over the $903,577 reported
in the prior-year period, principally due to the acquisition of
Ethamolin. Gross profit on sales was $1,284,438, a 111% increase
over the $609,625 reported in the prior-year period, principally
due to the acquisition of Ethamolin and because the gross profit
in the prior-year period was adversely affected by the recall of
a lot of Inulin. As a percent of sales, the gross margin in the
current period was 77% compared to 67% in the prior-year period.
Without the effect of the recall of the Inulin lot, the gross
margin for the prior-year period would have been 72%.
[During the nine months ended April 30, 1997, the Company
sustained a loss of $5,247,711 (or $.44 per share), compared to a
loss of $2,168,359 (or $.19 per share) for the prior-year period,
as expenses increased in all operating areas. Sales and
marketing expense increased more than 237% for the reasons set
forth in the three-month analysis above, plus executive search
fees related to the hiring of the previously-mentioned sales and
marketing personnel. General and administrative expense increased
57% for the reasons set forth in the three-month analysis above,
in addition to a one-time payment of $100,000 to a financial
advisor in September 1996, the payment of 1996 and 1997 annual
product user fees to the Food and Drug Administration for Glofil
and Inulin and increased rent (related to leasing the Company's
new executive offices). Clinical testing and regulatory expense
increased by nearly 33% for the reasons set forth in the three-
month analysis above. Depreciation and amortization expense
increased by $323,869, or more than 72%, $229,575 of which was
due to the amortization of the purchased technology related to
the acquisition of Ethamolin during the current nine-month
period.]
During the current nine-month period, research grant income
declined more than 68% for the reason set forth in the three-
month analysis above. The research and development expense for
the current nine-month period includes expenses incurred in
connection with the SBIR grants.
[During the current nine-month period, the Company recognized
$1,673,046 of expense related to the amortization of (i) the discount
on the $8 million in principal amount of mandatorily convertible
notes issued in three private placements between April and July
of 1996 and (ii) the deferred financing costs related to these
placements.]
Liquidity and Capital Resources
The Company has principally funded its activities to date
through its initial public offering ("IPO") in November 1992,
which raised net proceeds of $5,951,000, subsequent exercises of
its Redeemable Class A Warrants in 1994 and early 1995, which
raised net proceeds of $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 net proceeds of
$1,681,000, three private placements of mandatorily convertible
notes during April and July 1996, which raised net proceeds of
$7,464,000 (the "Notes") and a private placement of Common Stock
to the President and Fellows of Harvard College and another
institutional investor during March 1997, which raised net
proceeds of $4,714,000.
During the current quarter, $3,326,938 in principal amount of the
Notes was converted into 769,849 shares of Common Stock, no par
value, of the Company.
At April 30, 1997, the Company had cash, cash equivalents and
short-term investments of $15,534,297 compared to $15,997,049 at
July 31, 1996. At April 30, 1997, working capital was
$14,020,580, compared to $15,384,449 at July 31, 1996.
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
Ceresine 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.
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 6th day of August, 1997.
CYPROS PHARMACEUTICAL CORPORATION
By Paul J. Marangos
/s/----------------------------
Paul J. Marangos
Chairman of the Board,
President and Chief Executive Officer
By David W. Nassif
/s/----------------------------
Vice President, Chief Financial Officer
and Secretary
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> 3,013,404
<SECURITIES> 12,520,893
<RECEIVABLES> 425,831
<ALLOWANCES> 0
<INVENTORY> 98,251
<CURRENT-ASSETS> 16,182,632
<PP&E> 1,120,414
<DEPRECIATION> (463,795)
<TOTAL-ASSETS> 22,705,674
<CURRENT-LIABILITIES> 2,162,052
<BONDS> 0
0
0
<COMMON> 31,602,997
<OTHER-SE> (15,884,295)
<TOTAL-LIABILITY-AND-EQUITY> 22,705,674
<SALES> 1,672,454
<TOTAL-REVENUES> 2,363,504
<CGS> 388,016
<TOTAL-COSTS> 388,016
<OTHER-EXPENSES> 5,461,792
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,362
<INCOME-PRETAX> (5,247,711)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,247,711)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (5,247,711)
<EPS-PRIMARY> (0.44)
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