UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
Commission file number 0-28454
ANDRX CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0366879
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 SOUTHWEST 47TH AVENUE
FORT LAUDERDALE, FL 33314
-------------------------- ----------
(Address Of Principal (Zip Code)
Executive Offices)
954-584-0300
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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 [ ]
As of May 8, 1998, 15,034,200 shares of the Registrant's only class of common
stock were issued and outstanding.
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ANDRX CORPORATION
INDEX TO THE FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
PAGE NUMBER
-----------
INDEX TO FORM 10-Q 2
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
as of March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Operations
for the three months ended
March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the three months ended
March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
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ANDRX CORPORATION
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S EXCEPT FOR SHARE AMOUNTS)
Assets MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 3,789 $ 6,625
Investments available-for-sale 17,633 18,918
Accounts receivable, net of allowances of $1,605
(unaudited) and $1,589 as of March 31, 1998
and December 31, 1997, respectively 23,187 22,632
Inventories 33,607 25,901
Investment in and due from joint venture, net 453 416
Prepaid and other current assets 625 636
-------- --------
Total current assets 79,294 75,128
Property and equipment, net 15,524 15,403
Other assets 800 314
-------- --------
Total assets $ 95,618 $ 90,845
======== ========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 27,825 $ 24,299
Accrued liabilities 6,086 5,147
Bank loan 995 538
-------- --------
Total current liabilities 34,906 29,984
-------- --------
Commitments and contingencies
Shareholders' equity
Convertible preferred stock; $0.001 par value,
1,000,000 shares authorized; none issued and
outstanding as of March 31, 1998 (unaudited) and
December 31, 1997 -- --
Common stock; $0.001 par value, 25,000,000 shares
authorized; 14,952,500 (unaudited) and 14,856,700
shares issued and outstanding as of March 31,
1998 and December 31, 1997, respectively 15 15
Additional paid-in capital 83,773 82,954
Accumulated deficit (23,105) (22,145)
Unrealized gain on investments available-for-sale 29 37
-------- --------
Total shareholders' equity 60,712 60,861
-------- --------
Total liabilities and shareholders' equity $ 95,618 $ 90,845
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
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ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN 000'S EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------ ------------
Revenues
Distributed products, net $ 48,080 $ 30,662
Manufactured products, net 2,615 --
------------ ------------
Total revenues 50,695 30,662
------------ ------------
Cost of revenues
Distributed products 40,939 25,889
Manufactured products 617 --
------------ ------------
Total cost of revenues 41,556 25,889
------------ ------------
Gross profit 9,139 4,773
------------ ------------
Operating expenses
Selling, general and administrative 6,081 3,715
Research and development 3,096 2,044
Idle manufacturing facility costs 381 --
Equity in losses of joint venture 298 403
Software development 490 271
------------ ------------
Total operating expenses 10,346 6,433
------------ ------------
Loss from operations (1,207) (1,660)
Interest income 293 387
Interest expense (46) (130)
------------ ------------
Net loss $ (960) $ (1,403)
============ ============
Basic and diluted net loss per share $ (0.06) $ (0.10)
============ ============
Basic and diluted weighted average shares of
common stock outstanding 14,888,900 13,498,900
============ ============
See Accompanying Notes to Consolidated Financial Statements.
4
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ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1998 1997
-------- --------
Cash flows from operating activities
Net loss $ (960) $(1,403)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 678 313
Provision for accounts receivable, net 16 30
Options granted to consultants 50 --
Equity in losses of joint venture 298 403
Contributions to joint venture (600) (300)
Increase in accounts receivable (571) (1,925)
(Increase) decrease in due from joint venture 265 (398)
Increase in inventories (7,706) (4,510)
Decrease in prepaid and other current assets 11 83
Increase in other assets (486) (3)
Increase in accounts payable and accrued liabilities 4,465 7,956
------- -------
Net cash provided by (used in) operating activities (4,540) 246
------- -------
Cash flows from investing activities
Purchase of property and equipment (799) (3,102)
Maturity of investments available-for-sale, net 1,277 9,584
------- -------
Net cash provided by investing activities 478 6,482
------- -------
Cash flows from financing activities
Net borrowings (repayments) under bank loan 457 (2,713)
Proceeds from exercise of stock options and warrants 769 1,347
------- -------
Net cash provided by (used in) financing activities 1,226 (1,366)
------- -------
Net increase (decrease) in cash and cash equivalents (2,836) 5,362
Cash and cash equivalents, beginning of period 6,625 3,428
------- -------
Cash and cash equivalents, end of period $ 3,789 $ 8,790
======= =======
Supplemental disclosure of cash paid during the period for:
Interest $ 46 $ 130
======= =======
See Accompanying Notes to Consolidated Financial Statements
5
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ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared by Andrx Corporation ("Andrx" or the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations. However, management believes that the disclosures contained herein
are adequate to make the information presented not misleading. The unaudited
consolidated financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's financial position and results of operations.
The results of operations and cash flows for the three months ended March 31,
1998, are not necessarily indicative of the results of operations or cash flows
which may be expected for the remainder of 1998. The unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes for the year ended December 31, 1997,
included in the Company's December 31, 1997 Form 10-K.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. COMPREHENSIVE INCOME
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income",
effective January 1, 1998. SFAS No. 130 establishes standards for reporting
and presentation of comprehensive income or loss and its components in
financial statements. The components of the Company's comprehensive loss are
as follows:
THREE MONTHS ENDED
MARCH 31,
(IN 000'S)
------------------------------
1998 1997
------- ---------
Net loss $ (960) $ (1,403)
Unrealized gain (loss) on investments
available-for-sale 8 (10)
------- ---------
Comprehensive loss $ (952) $ (1,413)
======= =========
6
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ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
3. BANK LOAN
In April 1998, the Company amended its line of credit agreement whereby
the total available line was increased from $10 million to $30 million and, if
the Company maintains certain levels of average outstanding balance, the
interest rate may be decreased from its present rate of prime (8.5% as of March
31, 1998) plus 0.5%.
4. JOINT VENTURE
Condensed balance sheets and statements of operations for ANCIRC
Pharmaceuticals, the Company's 50/50 joint venture with Watson Pharmaceuticals,
Inc., are as follows:
(IN 000'S)
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
Cash $ 412 $ 416
Inventories 312 312
Laboratory equipment, net 223 237
------- -------
Total assets $ 947 $ 965
======= =======
Current liabilities $ 428 $ 1,050
Partners' equity (deficit) 519 (85)
------- -------
Total liabilities and
partners' equity (deficit) $ 947 $ 965
======= =======
THREE MONTHS ENDED
MARCH 31,
1998 1997
---------- -----------
Research and development
expenses $ 599 $ 814
========== ===========
Net loss $ (596) $ (806)
========== ===========
As of March 31, 1998 and December 31, 1997, the Company was due $193,000
and $458,000, respectively, from ANCIRC Pharmaceuticals for research and
development services rendered. Such amounts are included in "Investment in and
due from joint venture, net" in the consolidated balance sheets. The Company is
committed to the funding of ANCIRC'S future operations.
7
<PAGE>
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
5. CONTINGENCIES
On March 18, 1998 the Company received a letter from counsel for Cymedix
Lynx Corporation ("Cymedix") alleging the theft and unlawful appropriation by
Andrx and certain of its directors, officers and employees of certain computer
medical software and Internet medical communications technology allegedly owned
by Cymedix. The letter demands trebled damages totaling $396.6 million pursuant
to the civil theft provisions of Florida law, and also alleges claims under
Florida's Racketeer Influenced and Corrupt Organization Act and certain other
provisions of federal and state law. The Company believes that Cymedix's
accusations and threatened claims have no basis in substantial fact or legal
support and intends to vigorously defend these accusations and claims. On March
23, 1998, the Company filed a complaint against Cymedix and its parent
corporation, Medix Resources, Inc., for libel and slander arising from the
improper public dissemination of the contents of the aforesaid demand letter.
The Company intends to vigorously prosecute its complaint which seeks damages,
costs, interest and attorneys' fees.
The Company is involved in other litigation matters, all of which arose in
the ordinary course of business. The litigation process is inherently uncertain
and it is possible that the resolution of these may adversely effect the
Company. Except as noted above, there have been no material developments in any
legal matters since the Company's Form 10-K for the year ended December 31,
1997.
8
<PAGE>
ANDRX CORPORATION
PART I
FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANDRX CORPORATION AND SUBSIDIARIES ("ANDRX" OR THE "COMPANY") CAUTIONS
READERS THAT CERTAIN IMPORTANT FACTORS MAY AFFECT THE COMPANY'S ACTUAL RESULTS
AND COULD CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING
STATEMENTS WHICH MAY BE DEEMED TO HAVE BEEN MADE IN THIS REPORT OR WHICH ARE
OTHERWISE MADE BY OR ON BEHALF OF THE COMPANY. FOR THIS PURPOSE, ANY STATEMENTS
CONTAINED IN THIS REPORT THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE
DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, WORDS SUCH AS "MAY", "WILL", "EXPECT", "BELIEVE", "ANTICIPATE",
"INTEND", "COULD", "WOULD", "ESTIMATE", OR "CONTINUE" OR THE NEGATIVE OTHER
VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. FACTORS WHICH MAY AFFECT THE COMPANY'S RESULTS
INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS AND UNCERTAINTIES ASSOCIATED WITH A
DRUG DELIVERY COMPANY WHICH HAS ONLY RECENTLY COMMERCIALIZED ITS FIRST PRODUCT,
INCLUDING A HISTORY OF NET LOSSES, RELATIVELY UNPROVEN TECHNOLOGIES, LIMITED
MANUFACTURING EXPERIENCE, CURRENT AND POTENTIAL COMPETITORS WITH SIGNIFICANT
TECHNICAL AND MARKETING RESOURCES, POSSIBLE NEED FOR FUTURE CAPITAL AND
DEPENDENCE ON COLLABORATIVE PARTNERS AND ON KEY PERSONNEL. ADDITIONALLY, THE
COMPANY IS SUBJECT TO THE RISKS AND UNCERTAINTIES ASSOCIATED WITH ALL DRUG
DELIVERY AND PHARMACEUTICAL DISTRIBUTION COMPANIES, INCLUDING COMPLIANCE WITH
GOVERNMENT REGULATIONS AND THE POSSIBILITY OF PATENT INFRINGEMENT LITIGATION.
THE COMPANY IS ALSO SUBJECT TO OTHER RISKS DETAILED HEREIN OR DETAILED FROM TIME
TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
INTRODUCTION
Andrx was organized in August 1992 and in November 1992 commenced
marketing and distributing generic pharmaceuticals manufactured by third
parties. In February 1993, the Company began to engage in the development of
bioequivalent versions of controlled-release pharmaceuticals utilizing its
proprietary drug delivery technologies. During 1996, the Company commenced its
efforts to develop brand name controlled-released products and Internet based
software applications for healthcare providers. Through October 9, 1997, the
Company's distribution operations had generated substantially all of its
revenues. On October 10, 1997, the U.S. Food and Drug Administration ("FDA")
granted final approval of the Abbreviated New Drug Application ("ANDA") for the
Company's bioequivalent version of Dilacor XR(TM), its first manufactured
product, which the Company immediately launched. The Company expects negative
cash flows and net losses to continue at least until the FDA grants final
marketing approval of the Company's bioequivalent version of Cardizem(R) CD when
it will either begin to receive quarterly payments from Hoechst Marion Roussel,
Inc. and Carderm Capital L.P. (collectively, "Hoechst") of $10.0 million
pursuant to a Stipulation and Agreement (the "Stipulation") with Hoechst,
relating to a patent infringement claim brought against the Company by Hochst
(the "HMR Litigation"), or the Company will launch its bioequivalent version of
Cardizem(R) CD. The Company will not receive final FDA marketing approval for
its bioequivalent version of Cardizem(R) CD until after either July 3, 1998 or
the HMR Litigation is resolved in Andrx's favor.
9
<PAGE>
The Company is a 50% partner in ANCIRC Pharmaceuticals ("ANCIRC"), a joint
venture with Watson Pharmaceuticals, Inc. ("Watson"), for the development of up
to eight controlled-release pharmaceutical products. Capital contributions to,
distributions from, and net income or losses generated by ANCIRC are allocated
equally between the Company and Watson. The Company is also party to development
and licensing agreements for additional controlled-release products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THREE MONTHS ENDED MARCH
31, 1997
Net sales from distributed products were $48.1 million for the three
months ended March 31, 1998 ("1998 Quarter"), an increase of $17.4 million or
56.8%, as compared to $30.7 million for the three months ended March 31, 1997
("1997 Quarter"). The increase in net sales from distributed products reflects
increased sales to customers, as well as an increase in the number of customers.
Gross profit on net sales from distributed products was $7.1 million in the 1998
Quarter, an increase of $2.4 million or 49.6% as compared to $4.8 million in the
1997 Quarter. Gross profit on distributed products as a percentage of net sales
from distributed products decreased to 14.9% in the 1998 Quarter as compared to
15.6% in the 1997 Quarter as a result of continuing competition and pricing
pressures within the generic pharmaceutical industry. The Company expects that
such factors will continue to reduce the Company's gross profit percentage on
net sales from distributed products in future periods.
For the 1998 Quarter, net sales from the Company's first manufactured
product, a bioequivalent version of Dilacor XR(TM), were $2.6 million. Gross
profit on this product was $2.0 million or 76.4%.
Selling, general and administrative expenses as a percentage of total
revenues decreased to 12.0% for the 1998 Quarter as compared to 12.1% for the
1997 Quarter. Selling, general and administrative expenses increased to $6.1
million in the 1998 Quarter, as compared to $3.7 million in the 1997 Quarter,
primarily due to an increase in selling activities to support the increase in
net sales from distributed products, and the costs related to the sale of the
Company's first manufactured product.
Research and development expenses increased to $3.1 million in the 1998
Quarter, as compared to $2.0 million in the 1997 Quarter. This 51.5% increase in
research and development expenses reflects the progress and expansion of
activities in the Company's ANDA program to develop bioequivalent
controlled-release products and the expansion of activities in the Company's New
Drug Application ("NDA") program to develop brand name controlled-release
products. Research and development expenses exclude the cost of research and
development services rendered to ANCIRC of $193,000 in the 1998 Quarter and
$399,000 in the 1997 Quarter.
10
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The Company commenced its commercial-scale manufacturing operation in the
second quarter of 1997. As the Company did not fully utilize this facility for
its commercial manufacturing operations during the 1998 Quarter the Company
incurred $381,000 of idle manufacturing facility costs during such period. As
the Company increases its production of saleable products in the future periods,
these idle manufacturing facility costs will be absorbed as a component of the
cost of inventory.
The Company's equity in losses of ANCIRC was $298,000 in the 1998 Quarter
as compared to $403,000 in the 1997 Quarter. ANCIRC's losses decreased to
$596,000 in the 1998 Quarter as compared to $806,000 in the 1997 Quarter.
The Company incurred $490,000 of software development costs in the 1998
Quarter as compared to $271,000 in the 1997 Quarter. These costs relate to the
Company's efforts to develop and commercialize the Company's CyBear(R) and
AndaNet(TM) healthcare software applications.
Interest income was $293,000 in the 1998 Quarter as compared to $387,000
in the 1997 Quarter. The decrease in interest income was the result of the lower
average level of cash, cash equivalents and investments available-for-sale
maintained during the 1998 Quarter as compared to the 1997 Quarter, primarily as
a result of spending on research and development efforts. The Company invests in
short-term investment grade interest bearing securities.
Interest expense decreased to $46,000 in the 1998 Quarter from $130,000 in
the 1997 Quarter. The decrease in interest expense was primarily the result of a
lower average level of borrowings under the Company's line of credit during the
1998 Quarter as compared to the 1997 Quarter. Such borrowings are utilized to
fund the Company's distribution operations and the Company used a portion of the
net proceeds from the June 1997 private placements to reduce the revolving line
of credit balance.
Due to its net losses for the 1998 Quarter and the 1997 Quarter, the
Company was not required to provide for federal or state income taxes. As of
December 31, 1997, for financial reporting purposes and federal income tax
purposes, the Company has net operating loss carryforwards of approximately $19
million and $14 million, respectively, which, if not utilized, will begin to
expire in 2008.
LIQUIDITY AND CAPITAL RESOURCES
Prior to June 1996, the Company financed its operations primarily through
private placements of equity securities which generated net proceeds of $27.9
million and, to a lesser extent, through bank borrowings. In June 1996, the
Company consummated its initial public offering which generated net proceeds of
$27.4 million. In June 1997, the Company completed two private placements which
generated net proceeds of $21.3 million. As of March 31, 1998, Andrx had $21.4
million in cash, cash equivalents and investments available-for-sale and $44.4
million of working capital.
11
<PAGE>
Net cash used in operating activities for the 1998 Quarter was $4.5
million, as compared to net cash provided by operating activities of $246,000
for the 1997 Quarter. In the 1998 Quarter, the net cash used in operating
activities was used to fund research and development efforts and the increase in
inventories, offset by increases in accounts payable and accrued liabilities.
Net cash provided by operating activities for the first quarter of 1997, was
primarily attributable to increases in accounts payable and accrued liabilities,
offset by increases in accounts receivable and inventories.
Net cash provided by investing activities was $478,000 in the 1998 Quarter
as compared to $6.5 million in the 1997 Quarter. In the 1998 Quarter, the
Company invested $799,000 in capital expenditures as compared to $3.1 million in
the 1997 Quarter. The capital expenditures in the 1998 Quarter and the 1997
Quarter were primarily for the procurement of manufacturing equipment. In the
1998 Quarter and the 1997 Quarter, $1.3 million and $9.6 million of investments
available-for-sale matured, respectively.
Net cash provided by financing activities was $1.2 million in the 1998
Quarter as compared to net cash used in financing activities of $1.4 million in
the 1997 Quarter. Net cash provided by financing activities in the 1998 Quarter
consisted of net borrowings of $457,000 from the Company's revolving line of
credit and $769,000 in proceeds from the issuance of shares of common stock upon
the exercise of stock options and warrants. Net cash provided by financing
activities for the 1997 Quarter consists of $2.7 million in repayments to the
Company's line of credit, offset by proceeds from the issuance of shares of
common stock upon the exercise of stock options and warrants of $1.3 million.
The Company had an outstanding short-term borrowing balance under its
distribution subsidiary's revolving line of credit of $995,000 as of March 31,
1998 as compared to $538,000 as of December 31, 1997. Borrowings under the line
of credit are only available for the financing of the Company's distribution
operations, are secured by all of the assets of that operation and are subject
to a borrowing base related to the value of that operation's accounts receivable
and inventories. The line of credit agreement requires compliance by the Company
with certain covenants including the maintenance of minimum working capital and
net worth levels by the distribution subsidiary. Under certain circumstances,
the agreement permits the payment of dividends, and repayments and advances from
the Company's distribution subsidiary to Andrx Corporation and its other
subsidiaries. In April 1998, the Company amended its line of credit agreement
whereby the total available line was increased from $10.0 million to $30.0
million and, if the Company maintains certain levels of an average outstanding
balance, the interest rate may be decreased from its present rate of prime (8.5%
as of March 31, 1998) plus 0.5%.
The Company anticipates that its existing capital resources will be
sufficient to enable it to maintain its operations through 1998. Because the
Company will use substantial funds for its product development efforts, both for
its bioequivalent (ANDA) and brand name (NDA) controlled-release products, and
for software development costs related to its healthcare software products, the
Company expects negative cash flows and net losses to continue at least until it
receives final marketing approval for its bioequivalent version of
Cardizem(R) CD, when it will either begin to receive quarterly payments from
Hoechst of $10.0 million pursuant to the Stipulation or the Company will launch
its bioequivalent version of Cardizem(R) CD. The Company will not receive
final
12
<PAGE>
marketing approval until after either July 3, 1998 or the HMR Litigation is
resolved in Andrx's favor. The Company anticipates that approximately $20
million will be used for research and development activities related to
bioequivalent and brand name controlled-release products (including the
Company's share of the funding of the ANCIRC joint venture) during 1998. In
1999, the Company may need additional funding in order to continue research and
development for its product candidates and to commercialize products after
receipt of FDA approvals. Additional funding, whether obtained through public or
private debt or equity financing, or from collaborative arrangements, may not be
available when required or may not be available on terms favorable to the
Company, if at all. If additional financing is not available, the Company may be
required to delay, scale back or eliminate some or all of its research and
development programs and software development programs or to license to third
parties products or technologies that the Company would otherwise seek to
develop and commercialize itself.
13
<PAGE>
ANDRX CORPORATION
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 14, 1996, the U.S. Securities and Exchange Commission declared
effective the Company's registration statement on Form S-1 (Registration
Statement No. 333-03614). The offering of the securities registered pursuant to
the registration statement commenced on June 14, 1996. The offering terminated
after the sale of 2,530,000 shares of the Company's common stock, $.001 par
value per share for $12.00 per share. The managing underwriters for the public
offering of the Company's securities were Oppenheimer & Co., Inc. and Gruntal &
Co., Incorporated.
In connection with the offering, the Company incurred expenses of
approximately $2.9 million. These expenses were in the form of direct or
indirect payments to others and not direct or indirect payments to directors or
officers of the Company or to persons owning more than 10% of any class of
securities of the Company. Through March 31, 1998 the net proceeds of
approximately $27.4 million have been applied as follows: approximately $12.8
million for research and development costs, $4.7 million for the construction of
plant, building and facilities, $6.2 million for the purchase and installation
of machinery and equipment, and $3.7 million for contributions to ANCIRC
Pharmaceuticals, a joint venture between the Company and Watson Pharmaceuticals,
Inc. With the exception of the contributions to ANCIRC, none of the payments
from the use of proceeds were made to officers, directors or persons
beneficially owning more than 10% of any class of securities of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
10.35 Eighth Amendment to Loan and Security Agreement by and
between Congress Financial Corporation (Florida) and Anda
Generics, Inc.
(b) Reports on Form 8-K:
None
14
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ANDRX CORPORATION
SIGNATURES
Pursuant to the requirements 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.
By /s/ ALAN P. COHEN
------------------------------------
Alan P. Cohen
Chairman and Chief Executive Officer
(Principal Executive Officer)
By /s/ ANGELO C. MALAHIAS
------------------------------------
Angelo C. Malahias
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
May 15, 1998
15
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.35 Eighth Amendment to Loan and Security Agreement between Congress
Financial Corporation (Florida) and Anda Generics, Inc.
27 Financial Data Schedule
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Eighth
Amendment"), made and entered into this ___ day of April, 1998, by and between:
ANDA GENERICS, INC.,
a Florida corporation
(hereinafter referred to as "Borrower")
-and-
CONGRESS FINANCIAL CORPORATION (FLORIDA)
777 Brickell Avenue, Suite 808
Miami, Florida 33131
(hereinafter referred to as "Lender")
R E C I T A L S:
A. On July 21, 1994, Borrower and Lender entered into a Loan and
Security Agreement (the "Agreement"), establishing a credit facility by Lender
in favor of Borrower (the "Facility").
B. On December 13, 1994, Lender and Borrower entered into an Amendment
to the Agreement (the "First Amendment"), increasing the maximum principal
amount of the Facility to SIX MILLION AND NO/100 DOLLARS ($6,000,000.00).
C. On January 19, 1995, Lender and Borrower entered into an Amendment
to the Agreement (the "Second Amendment"), increasing the amount of the
inventory sublimit to TWO MILLION AND NO/100 DOLLARS ($2,000,000.00).
D. On April 4, 1995, Lender and Borrower entered into an Amendment to
the Agreement (the "Third Amendment"), increasing the maximum principal amount
of the Facility to SEVEN MILLION AND NO/100 DOLLARS ($7,000,000.00), increasing
the advance rate against the Net Amount of Eligible Accounts to eighty-five
percent (85%), and increasing the amount of the inventory sublimit to TWO
MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($2,500,000.00).
E. On July 18, 1995, Lender and Borrower entered into an Amendment to
the Agreement (the "Fourth Amendment"), increasing the maximum principal amount
of the
<PAGE>
Facility to EIGHT MILLION AND NO/100 DOLLARS ($8,000,000.00) and increasing the
amount of the inventory sublimit to THREE MILLION AND NO/100 DOLLARS
($3,000,000.00).
F. On January 5, 1996, Lender and Borrower entered into an Amendment to
the Agreement (the "Fifth Amendment"), increasing the maximum principal amount
of the Facility to TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), increasing
the amount of the inventory sublimit to FOUR MILLION AND NO/100 DOLLARS
($4,000,000.00), decreasing the pre-default interest rate to one and one-half
percent (1 1/2%) per annum in excess of the Prime Rate, and extending the term
of the Agreement to July 21, 1997.
G. On October 18, 1996, Lender and Borrower entered into an Amendment
to the Agreement (the "Sixth Amendment"), further increasing the amount of the
inventory sublimit to FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), further
decreasing the pre-default interest rate to one percent (1%) per annum in excess
of the Prime Rate, reducing the unused line fee to one-quarter of one percent
(1/4%) per annum, modifying certain reporting requirements and certain
covenants, and extending the term of the Agreement to July 21, 1998.
H. On October 24, 1997, Lender and Borrower entered into an Amendment
to the Agreement (the "Seventh Amendment"), further decreasing the pre-default
interest rate to one-half of one percent (1/2%) per annum in excess of the Prime
Rate, reducing to one business day the number of collection days utilized for
interest rate calculations applicable to the receipt of federal funds, and
extending the term of the Agreement to July 21, 1999.
I. Borrower and Obligors (as defined in the Agreement) have requested
that Lender further increase the maximum principal amount of the Facility,
further increase the amount of the inventory sublimit, further decrease the
pre-default interest rate, further reduce the unused line fee, and further
extend the term of the Agreement, and Lender is agreeable to same, subject to
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants of the parties
hereto, and for other good and valuable consideration, it is agreed as follows:
1. The foregoing statements are true and correct and are incorporated
herein as if set forth in full.
2. Unless otherwise defined herein, all terms used herein shall have
the definitions specified in the Agreement, as modified by the First Amendment,
the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth
Amendment, the Sixth
2
<PAGE>
Amendment and the Seventh Amendment; all references hereinafter made to the
Agreement to include the modifications thereto effectuated pursuant to the First
Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the
Fifth Amendment, the Sixth Amendment and the Seventh Amendment.
3. Borrower and Obligors each confirm and acknowledge that, as of March
31, 1998, the balance due Lender under the Facility was the principal amount of
$994,818.19, plus accrued interest since the date last paid, all free and clear
of any defense, set-off or counterclaim.
4. The Agreement is hereby modified as follows (all references to
Sections and subsections being the applicable Sections and subsections of the
Agreement):
(A) The "Maximum Credit" amount, as defined in subsection 1.16, is
increased from Ten Million Dollars ($10,000,000.00) to Thirty Million Dollars
($30,000,000.00); PROVIDED HOWEVER, that no Loan shall be made under such
increased Maximum Credit amount (i.e., the first Loan which would cause the
outstanding principal balance of all Loans to exceed Ten Million and No/100
Dollars ($10,000,000.00)) until Lender shall have received Borrower's written
request to utilize such increased Maximum Credit amount.
(B) The sublimit for Revolving Loans based upon Eligible Inventory, as
specified in subsection 2.1(a)(ii)(B), is increased from the sum of Five Million
and No/100 Dollars ($5,000,000.00) to the sum of Ten Million and No/100 Dollars
($10,000,000.00).
(C) The pre-default interest rate, as specified in subsection 3.1(a),
is modified to: (i) the Prime Rate, effective for any three (3) month period (or
part thereof) immediately following any three (3) month period during which the
average daily principal balance of the outstanding Revolving Loans exceeds
Twenty Million Dollars ($20,000,000.00); (ii) one-quarter of one percent (1/4%)
per annum in excess of the Prime Rate, effective for any three (3) month period
(or part thereof) immediately following any three (3) month period during which
the average daily principal balance of the outstanding Revolving Loans exceeds
Ten Million Dollars ($10,000,000.00); and (iii) one-half of one percent (1/2%)
per annum in excess of the Prime Rate at all other times.
(D) The following provision is substituted, in its entirety, for the
terms of Section 3.3:
3.3 UNUSED LINE FEE. While this Agreement is in effect and for
so long thereafter as any of the Obligations are outstanding, Borrower
shall pay to Lender monthly an unused line fee, which fee shall be
payable on the first day of each month in arrears, at a rate equal to
one-quarter of one percent (1/4%) per annum calculated
3
<PAGE>
upon the amount by which: (a) Ten Million Dollars ($10,000,000.00)
exceeds the average daily principal balance of the outstanding
Revolving Loans during the immediately preceding month (or part
thereof), if the average daily principal balance of the outstanding
Revolving Loans during the immediately preceding three (3) months does
not exceed Ten Million Dollars ($10,000,000.00), and (b) Thirty Million
Dollars ($30,000,000.00) exceeds the average daily principal balance of
the outstanding Revolving Loans during the immediately preceding month
(or part thereof), if the average daily principal balance of the
outstanding Revolving Loans during the immediately preceding three (3)
months exceeds Ten Million Dollars ($10,000,000.00).
(E) The Renewal Date, as specified in subsection 12.1 (a), is extended
from July 21, 1999, to July 21, 2000.
5. Each and every reference to the Agreement in the other Financing
Agreements shall be deemed to refer to the Agreement, as modified by this Eighth
Amendment and the prior amendments specified above.
6. The obligation of Lender to hereafter make any Loan(s) to Borrower
is subject to satisfactory compliance with conditions precedent requiring that
Lender shall have received from Obligors, prior to or simultaneously with the
execution of this Eighth Amendment, current certificates of good standing,
certified articles of incorporation and certified by-laws for each of the
Obligors from the appropriate governmental official(s) of their respective
jurisdictions of incorporation or, as to their respective articles of
incorporation and by-laws, from their respective corporate secretaries.
7. As partial consideration for Lender extending the Renewal Date for
the Facility, and certain other amendments as provided above, Lender has fully
earned a nonrefundable facility fee in the amount of Fifty Thousand Dollars
($50,000.00), which shall be paid to Lender simultaneously with the execution of
this Eighth Amendment, irrespective of any actual further funding under the
Facility. On the date that the principal balance of the outstanding Revolving
Loans first exceeds Ten Million Dollars ($10,000,000.00), an additional Fifty
Thousand Dollar ($50,000.00) fully earned nonrefundable facility fee shall be
paid to Lender as partial consideration for Lender increasing the principal
amount of the Facility.
8. Borrower and Obligors each represents and warrants to Lender that,
except as has been otherwise disclosed to Lender in writing, the representations
and warranties contained in the Agreement and all related loan documentation are
true and correct on and as of the date hereof (with the same force and effect as
if made on and as of the date hereof)
4
<PAGE>
and with respect to this Eighth Amendment and the related documentation
referenced herein.
9. Borrower acknowledges and confirms that all Collateral furnished in
connection with the Agreement continues to secure the Obligations, as modified
by this Eighth Amendment and the prior amendments specified above.
10. Borrower shall pay all out-of-pocket expenses incurred by Lender in
connection with the preparation for and closing of the transaction contemplated
under this Eighth Amendment, including, without limitation, the fees and
expenses of special counsel for Lender. In addition, Borrower shall pay any and
all taxes (together with interest and penalties, if any, applicable thereto) and
fees, including, without limitation, documentary stamp taxes, now or hereafter
required in connection with the execution and delivery of the Agreement, as
modified by this Eighth Amendment and the prior amendments specified above, and
all related documents, instruments and agreements.
11. Except as expressly modified herein, all terms and provisions of
the Agreement, and all other documents, instruments and agreements executed
and/or delivered in connection with the Agreement, shall remain unchanged and in
full force and effect. No consent of Lender hereunder shall operate as a waiver
or continuing consent with respect to any instance or event other than those
specified herein.
12. All covenants, agreements, representations and warranties contained
herein shall be binding upon and inure to the benefit of the parties hereto,
their respective successors and assigns, except that Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of Lender.
13. LENDER, BORROWER AND OBLIGORS EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
EIGHTH AMENDMENT OR THE AGREEMENT AND ANY AGREEMENT, DOCUMENT OR INSTRUMENT
EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR BANK ENTERING INTO THIS EIGHTH AMENDMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Eighth
Amendment the day and year first above written.
5
<PAGE>
BORROWER:
ANDA GENERICS, INC.,
a Florida corporation
By: /S/ SCOTT LODIN
Title: Vice President/General Counsel
LENDER:
CONGRESS FINANCIAL CORPORATION
(FLORIDA)
By: /S/ MARTIN J. COLOSON
Title: Vice President
6
<PAGE>
JOINDER
Each of the undersigned: (1) acknowledges and confirms that Lender's
loans, advances and credit to Borrower have been, are and will continue to be of
direct economic benefit to the undersigned, (2) consents to all terms and
provisions of the Eighth Amendment which are applicable to them, and agrees to
be bound by and comply with such terms and provisions, and (3) acknowledges and
confirms that their respective guarantees in favor of Lender executed in
connection with the Agreement are each valid and binding and remain in full
force and effect in accordance with their respective terms (without defense,
setoff or counterclaim against enforcement thereof), which include, without
limitation, their guarantees in connection with the Agreement, as modified by
the Eighth Amendment and the prior amendments specified therein.
GUARANTORS:
(CORPORATE SEAL) ANDRX CORPORATION, a Florida corporation
Attest: /S/ ANGELO C. MALAHIAS By: /S/ SCOTT LODIN
As: Treasurer As: Vice President and General Counsel
(CORPORATE SEAL) ANDRX PHARMACEUTICALS INC., a Florida
corporation
Attest: /S/ ANGELO C. MALAHIAS By: /S/ SCOTT LODIN
As: Treasurer As: Vice President and General Counsel
7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,789,000
<SECURITIES> 17,633,000
<RECEIVABLES> 23,187,000
<ALLOWANCES> 1,605,000
<INVENTORY> 33,607,000
<CURRENT-ASSETS> 79,294,000
<PP&E> 15,524,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 95,618,000
<CURRENT-LIABILITIES> 34,906,000
<BONDS> 0
0
0
<COMMON> 15,000
<OTHER-SE> 60,697,000
<TOTAL-LIABILITY-AND-EQUITY> 95,618,000
<SALES> 48,080,000
<TOTAL-REVENUES> 50,695,000
<CGS> 41,556,000
<TOTAL-COSTS> 10,346,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,000
<INCOME-PRETAX> (960,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (960,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (960,000)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
