<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
Commission file No: 1-12836
PHARMA PATCH PUBLIC LIMITED COMPANY
(Exact Name of small business issuer as Specified in its Charter)
Ireland Not Applicable
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation) Identification No.)
15/16 Fitzwilliam Place, Dublin, Ireland
(Address of Principal Executive Office) (Zip Code)
011-353-1-662-5222
Issuer's Telephone Number, Including Area Code
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the past twelve months
(or for such shorter periods that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past
ninety days.
Yes X No
----- -----
The number of ordinary shares of Registrant outstanding as of August 31, 1996
was 16,942,175 shares.
<PAGE> 2
PHARMA PATCH PUBLIC LIMITED COMPANY
INDEX
PART 1 -- FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets -- February 29, 1996,
August 31, 1996, and August 31, 1995 . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Loss and Deficit -- Year
ended February 29, 1996, three months ended August 31, 1996 and
1995 and six months ended August 31, 1996 and August 31, 1995 . . . 4
Unaudited Consolidated Statements of Cash Flows -- Year Ended
February 29, 1996 and six months ended August 31, 1996 and
August 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Unaudited Statement of Changes in Stockholders Equity --
Six months ended August 31, 1996 and August 31, 1995 . . . . . . . 6
Unaudited Notes to Financial Statements . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . 12
PART 2 -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2
<PAGE> 3
PHARMA PATCH PLC
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
<TABLE>
<CAPTION>
UNAUDITED
-----------------------
February 29 August 31
1996 1996 1995
$ $ $
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current
Cash and cash equivalents 668,822 624,915 500,518
Accounts receivable 22,690 23,281 381,057
Due from Vista 251,500 - -
Investment in TCPI - available for sale at market price 16,805,320 3,103,799 -
Prepaid expenses and other assets - - 67,788
- -------------------------------------------------------------------------------------------------------
Total Current assets 17,748,332 3,751,995 949,363
- -------------------------------------------------------------------------------------------------------
Fixed assets - 6,793 749,489
Investments in and advances to affiliate - 7,931,431 -
Promissory notes - - 741,250
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 17,748,332 11,690,219 2,440,102
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current
Accounts payable 683,269 690,386 647,295
Accrued expenses 773,553 520,034 625,715
Deferred tax liability 1,710,212 - -
- -------------------------------------------------------------------------------------------------------
Total current liabilities 3,167,034 1,210,420 1,273,010
- -------------------------------------------------------------------------------------------------------
Note Payable - net of current portion - - 5,000,000
- -------------------------------------------------------------------------------------------------------
Total Liabilities 3,167,034 1,210,420 6,273,010
- -------------------------------------------------------------------------------------------------------
Shareholders' equity (deficiency)
Capital stock
Authorized - 52,046,576 Ordinary Shares
Issued and outstanding (16,942,175 at
August 31, 1996; 11,410,633 at
February 29, 1996 and 8,724,772 at
August 31, 1995)
Ordinary Shares, at par value 2,256,756 2,343,912 2,229,631
Premium in excess of par value 15,404,580 18,316,829 14,015,164
Cumulative translation adjustment (6,518) (6,518) -
Deficit (6,249,628) (7,574,785) (20,077,703)
Unrealized gain (loss) on securities for sale
(net of deferred taxes of $1,710,212 at
February 29, 1996) 3,176,108 (2,599,639) -
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficiency) $14,581,298 $10,479,799 (3,832,908)
- -------------------------------------------------------------------------------------------------------
$17,748,332 $11,690,219 2,440,102
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
3
<PAGE> 4
PHARMA PATCH PLC
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(Expressed in U.S. dollars)
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
--------------------------- --------------------------
For the Year For the Three Months For the Six Months
Ended Ended Ended
February 29 August 31 August 31
- --------------------------------------------------------------------------------------------------------------------------
1996 1996 1995 1996 1995
$ $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Product development fees -- -- -- 482,732 --
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES
Administration 1,798,524 217,037 360,457 1,088,563 537,582
Research and development -- -- -- -- --
Depreciation and amortization -- 1,245 -- 151,033 --
Foreign exchange loss (gain) -- (637) 11,743 (70) 15,607
Interest expense (income) 2,285 (9,719) (4,242) (12,613) (9,352)
- --------------------------------------------------------------------------------------------------------------------------
1,800,809 207,926 367,958 1,226,913 543,837
- --------------------------------------------------------------------------------------------------------------------------
Loss from operations (1,800,809) (207,926) (367,958) (744,181) (543,837)
- --------------------------------------------------------------------------------------------------------------------------
Loss on sale of investment -- -- -- 254,903 --
Equity investee loss -- 386,147 -- 393,615 --
Minority interest loss for period -- -- -- (68,434) --
Other (income) expense (72,126) 892 -- 892 --
- --------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (1,728,683) (594,965) (367,958) (1,325,157) (543,837)
- --------------------------------------------------------------------------------------------------------------------------
Discontinued Operations
Loss from discontinued operations (2,593,468) -- (491,095) -- (1,193,562)
Gain on sale of business segment 16,412,627 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Gain (loss) on discontinued operations 13,819,359 -- (491,095) -- (1,193,562)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) for the period 12,090,676 (594,965) (859,053) (1,325,157) (1,737,399)
- --------------------------------------------------------------------------------------------------------------------------
Deficit, beginning of period (18,340,304) (6,979,820) (19,218,650) (6,249,628) (18,340,304)
- --------------------------------------------------------------------------------------------------------------------------
Deficit, end of period (6,249,628) (7,574,785) (20,077,703) (7,574,785) (20,077,703)
- --------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) per Ordinary Share
Loss from continuing operations -- (.04) (.05) (.08) (.07)
Discontinued operations 0.70 na (.06) na (.16)
Net earnings (loss) 0.70 (.04) (.11) (.08) (.23)
- --------------------------------------------------------------------------------------------------------------------------
Number of Ordinary Shares outstanding
used for Earnings Per Share Purposes(1) 19,677,650 16,934,375 7,692,099 16,253,908 7,692,099
</TABLE>
- ---------------
(1) The modified treasury method was used for the year ended February 29, 1996
Earnings (Loss) Per Share calculation due to the dilutive effect of
outstanding warrants. The weighted average method was used for all other
periods.
See accompanying notes.
4
<PAGE> 5
PHARMA PATCH PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollars)
UNAUDITED
<TABLE>
<CAPTION>
UNAUDITED
--------------------------------------
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 29 AUGUST 31
---------------------------------------------------------
1996 1996 1995
$ $ $
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) 12,090,676 (1,325,157) (1,737,399)
Add non-cash items
Depreciation and amortization 253,958 151,033 181,201
Write-down of fixed assets 9,900 -- --
Gain on sale of business (16,412,827) -- --
Non-cash payments of expenses 1,842,478 219,635 --
Loss on sale OF investment -- 254,903 --
Minority interest loss for period (68,434)
Equity investee loss -- 393,615 --
Net change in non-cash working capital items 361,272 (246,993) 79,809
- ---------------------------------------------------------------------------------------------------------------------
(1,854,543) (621,398) (1,476,389)
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase OF fixed assets (50,658) (6,793) (30,312)
Advances to Vista (251,500) -- --
Net proceeds of sale of investment -- 2,928,696 --
Investments in and advances to affiliate -- (2,552,694) --
Purchase of equity investments -- (75,000)
- ---------------------------------------------------------------------------------------------------------------------
(302,158) 294,209 (30,312)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of shares, net 2,186,778 276,894 1,368,474
Other -- 6,388 --
- ---------------------------------------------------------------------------------------------------------------------
2,186,778 283,282 1,368,474
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents for the year 30,077 (43,907) (138,227)
Cash and cash equivalents, beginning of year 638,745 668,822 638,745
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 668,822 624,915 500,518
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
5
<PAGE> 6
PHARMA PATCH PLC
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Six Month Periods Ended August 31, 1995 and 1996
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
UNREALIZED
GAIN (LOSS) TOTAL
PREMIUM IN CUMULATIVE ON SHAREHOLDER
EXCESS OF ACCUMULATED TRANSLATION EQUITY EQUITY
NUMBER OF PAR VALUE PAR VALUE DEFICIT ADJUSTMENT SECURITIES (DEFICIENCY)
SHARES $ $ $ $ $ $
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance on
February 28, 1995 5,740,253 2,183,643 11,448,439 (18,340,304) -- -- (4,708,222)
Issuance of Stock (Unaudited)
Payment of Professional Fees 300,389 4,712 324,110 -- -- -- 328,822
Payment of Accrued Salaries 174,167 2,525 171,642 -- -- -- 174,167
Private Placement 1,583,400 24,111 1,540,689 -- -- -- 1,564,800
Shares Issuance Costs -- -- (196,326) -- -- -- (196,326)
Officers and Directors 926,563 14,640 726,610 -- -- -- 741,250
Net (Loss) Aug. 31 1995
(Unaudited) -- -- -- (1,737,399) -- -- (1,737,399)
-------------------------------------------------------------------------------------------------
Balance on
August 31, 1995 (Unaudited) 8,724,772 2,229,631 14,015,164 (20,077,703) -- -- (3,832,908)
-------------------------------------------------------------------------------------------------
Balance on
February 29, 1996 11,410,633 2,256,756 15,404,580 (6,249,628) (6,518) 3,176,108 14,581,298
Issuance of Stock (Unaudited)
Payment of Professional Fees 431,542 6,584 213,051 -- -- -- 219,635
Shares issued to acquire
900,000 of Vista's
outstanding common
stock 4,500,000 71,100 2,178,900 -- -- -- 2,250,000
Private Placement 600,000 9,472 290,528 -- -- -- 300,000
Shares Issuance Costs -- -- (23,106) -- -- -- (23,106)
Unrealized gain (loss) on
capital issued by Vista
Technologies, Inc. (Unaudited) -- -- 252,876 -- -- -- 252,876
Unrealized gain (loss) on
equity securities for
the period (Unaudited) -- -- -- -- -- (5,775,747) (5,775,747)
Net loss Aug. 31 1996
(Unaudited) -- -- -- (1,325,157) -- -- (1,325,157)
-------------------------------------------------------------------------------------------------
Balance Aug. 31 1996 (Unaudited) 16,942,175 2,343,912 18,316,829 (7,574,785) (6,518) (2,599,639) 10,479,799
-------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
Unaudited
All information should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition, Results of Operations and Financial
Statements and Notes to Financial Statements included in the Company's Annual
Report on Form 10KSB for the year ended February 29, 1996. Operating results
for the six month period ending August 31, 1996 are not necessarily indicative
of the results that may be obtained for the entire year.
1. ORGANIZATION
Pharma Patch Plc ("Pharma Patch") or ("the Company") is currently engaged,
through its only operating subsidiary Vista Technologies, Inc. ("Vista"), in
providing photorefractive keratectomy ("PRK") and other laser vision correction
("LVC") facilities and services to the health care industry. Pharma Patch was
incorporated under the laws of the Republic of Ireland in January, 1992. Prior
to July, 1993, Pharma Patch had no significant assets or operations.
On November 15, 1995, the Company sold substantially all of the operating assets
to Technical Chemicals and Products, Inc. (TCPI) for a gain of approximately
$16.4 million. These assets included eleven United States patents relating to
transdermal drug delivery and skin permeation technology, license rights to skin
penetration enhancers and electronically assisted drug delivery, proprietary
information and trade secrets related thereto, certain licensing and product
feasibility agreements entered into by the Company and one of its subsidiaries
fixed assets. In consideration for the purchased assets, TCPI issued an
aggregate of 786,214 shares of its common stock with a fair value of $11,919,000
at November 15, 1995 and satisfied the $5,000,000 promissory note previously
issued by the Company to Flora, Inc. (Flora). As a result of this transaction,
the Company owned 9.9% of TCPI's outstanding common shares.
On January 16, 1996, the Company entered into a supplemental agreement with TCPI
which amended certain provisions of the November 1995 asset purchase agreement.
TCPI filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to the sale of 1,800,000 TCPI common shares (Offering).
Pursuant to the terms of the supplemental agreement, the Company executed a
lock-up letter with the representative of the TCPI Underwriters providing that
it would not sell or otherwise dispose of any of its shares of common stock for
a period to expire 180 days following the closing date of the Offering (April
30, 1996) without their prior consent. As consideration for the execution of
the lock-up agreement, TCPI (i) terminated an existing lock-up agreement
covering TCPI common stock owned by the Company, executed in connection with the
asset purchase agreement; (ii) effective as of closing date of the Offering,
terminated the voting trust agreements, shareholders' agreement and irrevocable
proxy, executed in connection with the asset purchase agreement which, among
other things, limited the Company's ability to vote or dispose of its shares of
common stock; (iii) allowed the Company to offer for sale 100,000 shares of this
common stock in the Offering (plus
7
<PAGE> 8
up to an additional 110,000 if the Underwriters over-allotment option was
exercised); (iv) effective as of the closing date of the Offering, issue to
the Company a two-year warrant to purchase 100,000 shares of common stock at an
exercise price equal to the per share Offering price; and (v) file a
Registration Statement on Form S-3 to register all of the remaining shares of
common stock owned by the Company after the Offering. On April 30, 1996, TCPI
completed the offering whereby Pharma Patch sold 210,000 of its TCPI stock for
net proceeds of approximately $2.9 million.
On March 21, 1996, the Company completed the acquisition of 61.3% of the voting
interest of Vista. Vista provides photo refractive keratectomy and other
laser vision correction facilities and services to the health care industry.
The Company acquired its position in Vista by executing a stock purchase
agreement for 200,000 newly issued shares of Vista common stock for a cash
price of $500,000. The Company and Vista executed an additional agreement under
which Vista provided 2,060,000 newly issued shares of its common stock to the
Company plus 500,000 Vista Class C common stock purchase warrants. In exchange,
Vista received a $750,000 interest-free note due six months after the
transaction date and 200,000 restricted shares of TCPI common stock previously
held by the Company with a fair value on the date of the transaction of
$3,550,000 (original cost basis to the Company of $3,032,000). The Company
repaid the $750,000 note in full during the first quarter of fiscal 1997. The
Company also received an option to acquire 250,000 Vista shares at $2.50 per
share. In a separate transaction, the Company agreed to provide 4,500,000 newly
issued Ordinary Shares in exchange for a total of 900,000 shares of Vista's
outstanding common stock owned by three shareholders. A summary of the
consideration for both components of the Vista transaction include the
following:
<TABLE>
<S> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500,000
Note payable . . . . . . . . . . . . . . . . . . . . . . . . 750,000
TCPI investment (200,000 shares) . . . . . . . . . . . . . . 3,032,000
----------
Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . 4,282,000
Pharma Patch plc common stock (4,500,000 shares) . . . . . . 2,250,000
----------
$6,532,000
</TABLE>
Vista had net liabilities before the two transactions, which were
simultaneously consummated in late March 1996, of approximately $700,000. The
first step represented a payment by the Company to Vista of approximately $4.2
million in consideration to acquire approximately 41% of Vista through the
issuance by Vista of new shares of common stock. This transaction resulted in
cost in excess of net assets of approximately $3.1 million (as Pharma Patch
acquired 41% of Vista, the consideration of $4.2 million must be reduced by its
residual ownership of the assets to approximately $2.4 million which, when
compared to net liabilities of 700,000 generates the $3.1 million of excess
purchase price).
The second phase of the transaction was Pharma Patch transferring $2.2 worth
of its common stock to three existing Vista owners in exchange for an
additional 20% ownership in Vista. Cost in excess of net assets from this phase
of the transaction is calculated by comparing the $2.2 consideration to 20% of
net assets of $3.2 million (the net assets after the first transaction is
completed). The resulting $1.5 cost in excess combined with the aforementioned
$3.1 million represents the total cost in excess from the acquisition of $4.6
million. The TCPI investment value was calculated utilizing the original
carrying value of the TCPI investment from November 1995 ($15.16 per share).
This price was determined by the Company to represent the estimated fair value
of the TCPI shares at the date of the acquisition. The TCPI shares were trading
at prices between $21.00 and $11.00 per share during a short period of time
before and after announcement of the transaction (approximately $17.00 per
share as of the closing of the transaction). The Company is currently
amortizing such cost in excess of net assets acquired over a 15 year period.
The final allocation of the purchase price is not yet available.
Since March 21, 1996, Pharma Patch's interest in Vista has been diluted by the
issuance of Vista stock to Vista's Regional affiliates. As August 31, 1996,
Pharma Patch owns 44.6% of the issued and outstanding shares of Vista.
8
<PAGE> 9
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the consolidated results of
operations and financial position for the interim periods presented. The
consolidated financial statements have been prepared in accordance with the
requirements for Form 10-Q and, therefore, do not include all disclosures of
financial information required by generally accepted accounting principles.
These consolidated financial statements should be read in conjunction with the
Company's February 29, 1996 consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K and the Management,
Discussion and Analysis included herewith.
The results of operations for the interim period ended August 31, 1996 are not
necessarily indicative of the operating results for the full year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Pharma Patch and
its wholly-owned subsidiaries. On March 21, 1996, the Company acquired 61.3% of
the issued and outstanding common stock on Vista. In May 1996, Vista issued
1,450,000 shares of its common stock to acquire interests in three
developmental stage companies involved in providing PRK and other LVC facilities
and services to the health care industry. In June 1996, Vista sold 100,000
common shares for cash proceeds. In July 1996, Vista issued 520,000 to acquire
520,000 Series A preferred shares of five regional affiliates. Pharma Patch
exercised its right to acquire 200,000 Vista shares in July 1996. The results
of Vista were consolidated from the acquisition date through May 31, 1996. In
late May 1996, the Company's ownership of Vista dropped to 47.1%. As such,
effective May 31, 1996, the Company ceased consolidating the results of Vista
and began utilizing the equity method of accounting for investments, due to the
Company no longer having a controlling interest. Additionally, in July 1996 the
Company increased its ownership in Vista from 47.1% to 48.7% by exercising
200,000 of its 250,000 existing rights to acquire Vista Common Stock. All
significant intercompany balances and transactions have been eliminated on
consolidation.
REVENUE RECOGNITION
Revenues are recognized when photorefractive keratectomy related facility
and service fees are earned. Product development fees in the prior year are
included in discontinued operations and represent charges to third parties for
research and development work performed by the Company and are recorded in the
period the fees are earned.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures included in discontinued operations are
charged to expense as incurred.
9
<PAGE> 10
FOREIGN CURRENCY TRANSLATION
Assets and liabilities stated in functional currencies other than the U.S.
dollar are translated at the year-end exchange rate and revenues and expenses
at the average rate of exchange for the year. Foreign exchange gains and
losses from transactions in currencies other than the applicable functional
currency are reflected in income during the year. Gains or losses arising on
the translation of financial statements give rise to a cumulative translation
adjustment which is included as a component of shareholders' deficiency.
GOODWILL
Goodwill resulting from the Company's investment in Vista represents the excess
purchase price paid for Vista after allocating the purchase price to the net
assets. Goodwill is being amortized on over 15 years on a straight-line method,
pending final review of the allocation of the purchase price by the Company's
management. At each balance sheet date, the Company evaluates the realizability
of acquisition-related intangible assets based on expectations of
nondiscontinued cash flows of the acquired entity. Based upon its most recent
analysis, the Company believes that no impairment of acquisition-related
intangible assets exists at August 31, 1996. Goodwill at August 31, 1996 is as
follows:
<TABLE>
<S> <C>
Goodwill . . . . . . . . . . . . . . . . . . . . . 4,585,828
Less: Accumulated amortization . . . . . . . . . . (127,385)
---------
4,458,443
=========
</TABLE>
10
<PAGE> 11
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Equity securities that are purchased which might be sold in order to support
the Company's investment strategies and liquidity needs are classified as
investment securities available for sale and are carried at fair market value.
Unrealized holding gains and losses are excluded from earnings and reported as
a net amount in a separate component of stockholders equity. At August 31,
1996 Investment Securities available for sale consist of 576,214 shares of
common stock in TCPI.
PRO FORMA RESULTS
The following unaudited consolidated pro forma financial information represents
the results of operations of the Company and Vista as if the acquisition has
occurred as of March 1, 1996 and March 1, 1995. The unaudited consolidated
financial information does not necessarily reflect the results of operations
that would have occurred had the Company and Vista constituted a single entity
during such periods nor does it represent a basis for assessing future
performance.
<TABLE>
<CAPTION>
For the For the
six months six months
ended August 31, 1996 ended August 31, 1995
<S> <C> <C>
Loss from continuing operations. (1,804,611) (3,588,139)
Earnings Per Share . . . . . . . (.11) (.56)
</TABLE>
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
GENERAL
The operations of the Company for the six months ended August 31, 1996 consisted
primarily of providing photorefractive keratectomy and other laser vision
correction facilities to the healthcare industry through its subsidiary Vista
since the acquisition in March 1996. The operations of the Company for fiscal
1996 consisted primarily of the research and development of drug delivery
technologies through the Company's wholly owned subsidiary PP Holdings, Inc. On
November 15, 1995 the Company sold substantially all of its assets to TCPI for
786,214 shares of TCPI common stock. Operating results related to this business
have been treated as discontinued operations in the consolidated financial
statements. Accordingly, the financial statements for fiscal 1996 include a loss
from the discontinued operations of approximately $2,600,000 and a gain on the
sale of approximately $16,400,000. The consolidated financial statements have
been prepared in accordance with US GAAP. Additionally, the Company completed
the balance of a Private Placement financing in April 1996 contributing net
proceeds of approximately $276,000 during the six month period ended August 31,
1996. The results of Vista are consolidated through May 31, 1996 and then, as a
result of Vista's issuance of additional shares of its common stock, Pharma
Patch's ownership dropped below 50%, the equity method of accounting was
utilized through August 31, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1996
Expenses for the three month period ended August 31, 1996 totalled $207,926.
The reduction of $160,030 from the three months ended August 31, 1995 is
primarily attributable to the reduction in operating expenses, specifically
related to the TCPI transaction.
The Company recorded equity investor losses related to Vista of $386,147
for the three months ended August 31, 1996 relating to its ownership of the
losses generated by its regional affiliates.
Pharma Patch's loss from discontinued operations for the three month period
ended August 31, 1995 was $491,095.
12
<PAGE> 13
SIX MONTHS ENDED AUGUST 31, 1996
Revenues for the six months ended August 31, 1996 of $482,732 versus nil for
the six months ended August 31, 1995 were generated from photo refractive
keratectomy and other laser vision correction facility and service fees earned
by European operations of Vista through May 31, 1996.
Expenses for the six months ended August 31, 1996 and 1995 were $1,226,913 and
$543,837 respectively. The six month period over period increase of $683,076
is primarily attributable to the inclusion of Vista operations since March 21,
1996 when the Company acquired its interest in Vista to May 31, 1996 when the
Company's ownership dropped below 50% and the equity method was utilized.
During the six months period ended August 31, 1996, the Company sold 210,000
shares of Technical Chemicals and Products, Inc. resulting in a loss on
sale of investment of $254,903.
The Company recorded $393,615 of equity investee losses related to Vista.
Further, during the period in which Vista was consolidated the Company recorded
a minority interest credit of $68,434.
Pharma Patch recorded a loss from discontinued operations of $1,193,562 for the
six months ended August 31, 1996. Pharma Patch sold all its assets related to
drug delivery technologies to TCPI in November 1995 and accordingly, reports
results related to its drug delivery operations as discontinued operations.
The net loss for the six month periods ending August 31, 1996 and 1995 were
$1,325,157 and $1,737,399 or $0.08 and $0.23 per share respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has relied upon private and public equity
financing and internally generated cash flows to finance its operations.
The decrease in cash of $43,907 from February 29, 1996 to August 31, 1996
represents the net proceeds from the issuance of shares for net cash proceeds of
$701,894 and the net proceeds from the sale of 210,000 TCPI shares of $2,928,696
offset primarily by the net cash component of the purchase price paid to Vista
($998,500) less investments in and advances to Vista and its affiliated Joint
Ventures, the purchase of fixed assets of $23,174 and other on going working
capital requirements. The Company has 576,214 shares of TCPI for which the
lock up agreement expires October 23, 1996, at which time the shares can be
sold. As of October 21, 1996 the TCPI shares had a market value of $8.375 per
share.
The net loss for the six month period ended August 31, 1996 included
depreciation and amortization and a net change in non-cash working capital of
$151,033 and $933,994 respectively.
The Company has had limited operating revenues and has an accumulated deficit of
$7,574,785. The Company expects to continue to incur operating losses until
such time, if ever, it generates sufficient revenues. There is no assurance
that the Company will ever operate profitably.
The Company's principal capital requirements include cash requirements to
finance programs to acquire additional LVC equipment and support activities of
Regional Joint Ventures sponsored by Vista since June 1996, working capital for
management and administration and, in the future, anticipated requirements to
finance sales and marketing. Subject to availability of adequate capital, as to
which there can be no assurance, expenditures for additional excimer laser
equipment may be significant during the foreseeable future to support the
Company's program of expanding LVC Services and supporting the activities of
Regional Joint Ventures.
The Company, through Vista and its Regional Joint Ventures, plans to select
strategically located sites for additional expansion, each of which will be
equipped with state-of-the-art laser equipment systems permitted for commercial
use in the state or province in which such equipment is located, as well as
diagnostic, pre- operative and post-operative facilities. These corporate
affiliates will own or lease and maintain the LVC equipment at each site, will
lease real estate facilities for each location, and will offer MDs and ODs
billing, accounting, administrative, marketing and management services, as well
as access to a trained support staff and necessary LVC equipment and supplies,
so that health care professionals may concentrate their efforts on patient care.
The current cost of an excimer laser ranges from approximately $475,000 to
$525,000, plus sales tax. For laser equipment purchased from VISX or Summit, the
manufacturer generally requires an additional royalty equal to $250 per PRK
procedure to be paid to Pillar Point Partners, a partnership between VISX and
Summit that holds certain patent rights with respect to their current laser
technology. The purchase price typically includes a one or two year warranty on
all parts except the optics (mirror and glass components) which generally carry
a 30-day warranty. Annual maintenance and service fees are contracted for
separately at the time of purchase and range from approximately $40,000 to
$60,000 per year, but these estimates may vary with usage. Due to the equipment
cost, the Company believes that most ophthalmologists interested in LVC surgery
will not be able or willing to purchase a laser. As a result, the Company,
through Vista will seek financing for the purchase and/or arrange for required
maintenance of the laser equipment.
Vista's strategic plan is to expand its laser vision correction center network
and locations as quickly as possible within the limits of available financial
resources and prudent operating and financial policies. This growth strategy
includes: (i) rapidly increasing market penetration, principally in the United
States, through expansion of the number of locations at which LVC equipment and
services are offered by Vista's subsidiaries; (ii) continuing to promote
development of alliances with experienced ophthalmologists and optometrists with
the goal of maximizing excimer laser usage; (iii) actively training additional
physicians in advanced LVC procedures; and (iv) developing marketing and
advertising programs targeted to specific regional markets and key demographic
groups within those markets.
Vista is currently seeking additional private placement equity capital in an
amount of at least $5 million up to $10 million. Although it has identified a
source through which a financing may be sought, the Company has not received any
binding commitments to obtain such financing. Subject to its ability to obtain
additional private placement capital, as to which there can be no assurance, the
Company currently projects that additional capital expenditures for investment
in equipment and facilities of Vista's Regional Joint Ventures in North America
for the next twelve months will be as much as $6,600,000. Additional projected
requirements during that period for the implementation of sales and marketing
programs are approximately $400,000 and Vista anticipates it will also seek to
expand its administrative and management personnel and systems at a projected
expense of approximately $600,000 for that period. Management anticipates that
substantial additional public and/or private financings in excess of the above
amounts will be required after twelve months, in amounts not yet determined, to
finance continued growth of its laser vision correction center network and that
purchase money equipment financing and/or leasing arrangements will be utilized
to the extent available, if any, to leverage the amount of additional equipment
available to expand Vista's operations. The Company's actual future capital
requirements will depend on numerous factors, including, but not limited to,
Vista's progress in acquiring additional laser equipment and facilities for LVC
centers, the ability of Vista to establish additional affiliations with vision
care professionals, the availability, amount and terms of additional equipment
lease and/or installment purchase financing, competing technological and market
developments, and the cost of marketing and advertising programs. The Company is
unable to state the amount or potential source of additional financing.
Because of the Company's potential long-term capital requirements, it may
undertake additional equity offerings through Vista whenever conditions are
favorable, even if it does not have an immediate need for additional capital at
that time. There can be no assurance that the Company will be able to obtain
additional funding when needed, or that such funding, if available will be
obtainable on reasonable terms. Any such additional funding may result in
significant dilution to existing stockholders of Vista. If adequate funds are
not available, Vista may be required to accept unfavorable alternatives,
including (i) the delay, reduction or elimination of its planned expansion,
capital expenditures, marketing and advertising and other operating programs, or
(ii) arrangements with collaborative partners that may require Vista to
relinquish material interests in its operating subsidiaries that it would not
otherwise relinquish.
Vista's European subsidiaries currently own or lease and maintain six excimer
lasers, and at present Vista's Regional Joint Ventures in the United States and
Canada collectively own or lease and maintain six excimer lasers. Expenditures
for additional excimer laser equipment to support Vista's program of expanding
LVC Services offered its corporate affiliates may be significant. To date, Vista
and its corporate affiliates have been able to provide a deposit of
approximately $50,000 per laser and have not experienced difficulty in arranging
for equipment financing of the balance of the purchase price, either from the
equipment manufacturer or a third party, by means of a capital equipment lease
or an installment note secured by the equipment. Due to current demand for and
the cost of excimer lasers, the Company believes that the resale value of an
excimer laser has facilitated obtaining equipment financing for a substantial
portion of the equipment price, especially when the third party financing source
has reason to believe the laser will be utilized on a consistent basis by
experienced professionals. Vista intends to continue to rely upon such third
party financing techniques to finance a substantial portion of additional
equipment acquisitions, as well as raising additional capital through a future
offering of equity securities by Vista. In addition, Regional Joint Ventures
sponsored by Vista each plan to raise additional capital through either the
private placement and/or initial public offerings of their securities to enhance
their ability to obtain additional equipment to expand operations in their
region. There can be no assurance that additional equipment financing will
continue to be available to Vista and its corporate affiliates or that either
Vista or any of its Regional Joint Ventures will be successful in obtaining
additional equity capital from private and/or public offerings of their
securities.
Vista plans to continue to seek additional capital through the private placement
and/or public sale of its equity securities, use of equipment lease financing,
and sale of marketable securities to finance operations and expansion plans in
North America.
Although Vista's European operating subsidiaries appear to have achieved
positive or neutral cash flow levels of operations, the Company's management
anticipates that its consolidated operations will incur negative cash flows for
the immediate future, primarily due to fixed expenses for corporate general and
administrative overhead. Management is actively pursuing strategies to increase
the Company's revenues and reduce its negative cash flow. There can be no
assurance that consolidated revenues will increase to the point that operating
expenses will be fully absorbed by revenues from operations.
The Company has a significant investment in Vista, however, the Company will
continue to look at other investment opportunities over the next twelve months.
Based on currently planned activities, the Company believes that its cash and
marketable securities (if necessary) are sufficient to meet the Company's
anticipated cash requirements for the next twelve months.
13
<PAGE> 14
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
A. Exhibits
Financial Data Schedule
B. Reports on Form 8-K
None
14
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PHARMA PATCH PUBLIC LIMITED COMPANY
Registrant
Date: December 12, 1996 By: /s/ MURRAY D. WATSON
--------------------
/s/ Murray D. Watson
Chairman & Chief Executive Officer
15
<PAGE> 16
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
Ex. 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 624,915
<SECURITIES> 3,103,799
<RECEIVABLES> 23,281
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,751,995
<PP&E> 10,793
<DEPRECIATION> 4,000
<TOTAL-ASSETS> 11,489,256
<CURRENT-LIABILITIES> 1,210,421
<BONDS> 0
0
0
<COMMON> 2,343,912
<OTHER-SE> 7,934,924
<TOTAL-LIABILITY-AND-EQUITY> 11,489,256
<SALES> 0
<TOTAL-REVENUES> 482,732
<CGS> 0
<TOTAL-COSTS> 1,226,913
<OTHER-EXPENSES> 580,976
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,325,157)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,325,157)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>
