<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q/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 MARCH 31, 1999
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 0-23012
NEXSTAR PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
----------------
DELAWARE 84-1173453
-------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
2860 Wilderness Place
Boulder, Colorado 80301
(Address of principal executive offices)
Registrant's telephone number: (303) 444-5893
----------------
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 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. Yes X No ___
The number of shares of the registrant's Common Stock, par value $.01 per
share, outstanding as of April 30, 1999 was 29,172,851.
<PAGE>
NEXSTAR PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- March 31, 1999 and December 31, 1998................... 3
Condensed Consolidated Statements of Operations -- Three Months Ended March 31, 1999 and 1998... 4
Condensed Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1999 and 1998... 5
Notes to Condensed Consolidated Financial Statements............................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 17
Item 2. Changes in Securities.................................................................... 17
Item 6. Exhibits and Reports on Form 8-K......................................................... 17
SIGNATURES ....................................................................................... 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 70,961,000 $ 68,606,000
Marketable securities 6,004,000 143,000
Accounts receivable 42,564,000 43,577,000
Inventories 11,521,000 11,669,000
Prepaid expenses and other 6,709,000 4,584,000
------------- -------------
Total current assets 137,759,000 128,579,000
Property, plant and equipment, net of
accumulated depreciation and amortization 39,631,000 40,837,000
Investment in unconsolidated affiliate 8,648,000 10,261,000
Patent and trademark costs, net of accumulated amortization 5,196,000 5,226,000
Other noncurrent assets 2,700,000 5,227,000
------------- -------------
Total assets $ 193,934,000 $ 190,130,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,415,000 $ 4,240,000
Accrued compensation and employee benefits 6,627,000 7,027,000
Accrued litigation settlement and related expenses
due within one year 2,411,000 2,124,000
Accrued interest payable 833,000 2,083,000
Other accrued expenses 6,556,000 6,038,000
Long-term obligations due within one year 4,024,000 4,072,000
------------- -------------
Total current liabilities 24,866,000 25,584,000
Accrued litigation settlement expenses due after one year 7,607,000 7,848,000
Long-term obligations due after one year 7,414,000 8,320,000
Convertible subordinated debentures 80,000,000 80,000,000
Commitments and contingencies
Stockholders' equity:
Common stock 291,000 287,000
Additional paid-in capital 232,826,000 227,505,000
Deferred compensation (54,000) (68,000)
Other comprehensive loss (361,000) (380,000)
Accumulated deficit (158,655,000) (158,966,000)
------------- -------------
Total stockholders' equity 74,047,000 68,378,000
------------- -------------
Total liabilities and stockholders' equity $ 193,934,000 $ 190,130,000
------------- -------------
------------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Product revenues $30,603,000 $23,517,000
License fee - 3,000,000
Royalties 1,537,000 686,000
Collaborative agreements and contracts 1,199,000 750,000
----------- -----------
Total revenues 33,339,000 27,953,000
----------- -----------
Expenses:
Cost of goods sold 6,528,000 4,840,000
Research and development 9,812,000 13,310,000
Selling, general and administrative 12,925,000 10,760,000
Merger related expenses 906,000 -
Litigation settlement and related expenses 479,000 396,000
----------- -----------
Total expenses 30,650,000 29,306,000
----------- -----------
Operating income (loss) 2,689,000 (1,353,000)
Interest income 851,000 730,000
Interest expense (1,543,000) (1,695,000)
----------- -----------
Income (loss) before provision for income tax and
equity in loss of unconsolidated affiliate 1,997,000 (2,318,000)
Provision for income tax 73,000 263,000
Equity in loss of unconsolidated affiliate (1,613,000) -
----------- -----------
Net income (loss) $ 311,000 $(2,581,000)
----------- -----------
----------- -----------
Net income (loss) per share:
Basic $ 0.01 $ (0.09)
----------- -----------
----------- -----------
Diluted $ 0.01 $ (0.09)
----------- -----------
----------- -----------
Shares used in computing net income (loss) per share:
Basic 28,768,000 27,467,000
----------- -----------
----------- -----------
Diluted 29,243,000 27,467,000
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 311,000 $(2,581,000)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization of property, plant and equipment 2,069,000 2,437,000
Amortization of intangible assets 280,000 372,000
Equity in loss of unconsolidated affiliate 1,613,000 -
Litigation settlement charges 479,000 258,000
Additions to allowance for doubtful accounts 323,000 -
Reduction in allowance for note receivable - (550,000)
Compensation expense related to grant of options and sales
of stock, including amortization of deferred compensation 14,000 24,000
Other 40,000 (68,000)
Changes in operating assets and liabilities:
Accounts receivable 562,000 (1,333,000)
Inventories 148,000 1,017,000
Prepaid expenses and other 108,000 99,000
Other noncurrent assets (56,000) (1,437,000)
Accounts payable 656,000 (1,411,000)
Accrued compensation and employee benefits (400,000) (847,000)
Accrued interest (1,250,000) (1,250,000)
Accrued litigation related expenses - (22,000)
Other accrued expenses 630,000 1,524,000
----------- -----------
Net cash provided by (used in) operating activities 5,527,000 (3,768,000)
INVESTING ACTIVITIES
Purchases of marketable securities (5,861,000) -
Maturities of marketable securities - 13,048,000
Additions to property, plant and equipment (1,344,000) (614,000)
Additions to patent costs (150,000) (277,000)
Payments received on notes receivable 250,000 550,000
----------- -----------
Net cash provided by (used in) investing activities (7,105,000) 12,707,000
FINANCING ACTIVITIES
Payments on short-term borrowings, net - (485,000)
Payments on litigation settlement (438,000) -
Proceeds from sale-leaseback transactions 35,000 -
Payments on capital lease obligations (577,000) (823,000)
Proceeds from issuance of long-term debt - 2,881,000
Repayments on long-term debt (412,000) (337,000)
Proceeds from sale of common stock, net of offering costs 5,325,000 135,000
----------- -----------
Net cash provided by financing activities 3,933,000 1,371,000
----------- -----------
Net increase in cash and cash equivalents 2,355,000 10,310,000
Cash and cash equivalents at beginning of period 68,606,000 39,292,000
----------- -----------
Cash and cash equivalents at end of period $70,961,000 $49,602,000
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three-month period
ended March 31, 1999 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1998.
Certain reclassifications have been made to prior year amounts to
agree with the current year presentation.
NOTE 2: AGREEMENT AND PLAN OF MERGER
On February 28, 1999, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to which the
Company will be acquired through merger (the "Merger") by Gilead
Sciences, Inc., a Delaware corporation ("Gilead").
Pursuant to terms of the Merger Agreement, each issued and
outstanding share of Company common stock, par value $.01 per
share ("Company Common Stock"), will be converted into the right
to receive that number of shares of Gilead Common Stock, par value
$.001 per share ("Gilead Shares") equal to the "Exchange Ratio."
The Exchange Ratio equals 0.425 , provided, however, that if the
Gilead Share Value (defined as the average of the closing prices
of the Gilead Shares as reported on the NASDAQ National Market for
the 20 consecutive trading days ending on the third trading day
preceding the date on which the stockholders of the Company vote
on the Merger at the special meeting of the Company's stockholders
called to approve and adopt the Merger Agreement and the Merger)
is (i) less than $36.47, then the Exchange Ratio shall be equal to
the lesser of 0.50 or a fraction having a numerator equal to
$15.50 and having a denominator equal to the Gilead Share Value,
or (ii) greater than $45.88, then the Exchange Ratio shall be
equal to the greater of 0.3786 or a fraction having a numerator
equal to $19.50 and having a denominator equal to the Gilead Share
Value. Cash will be paid in lieu of fractional shares.
The Merger is subject to several conditions, including that it be
approved by the stockholders of both the Company and Gilead. The
Merger will be accounted for as a "pooling of interests" and the
exchange of the shares will be tax free to the holders of the
Company Common Stock.
NOTE 3: INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Finished goods $ 3,358,000 $ 3,712,000
Work in process 5,924,000 5,785,000
Raw materials 2,239,000 2,172,000
----------- -----------
Total inventories $11,521,000 $11,669,000
----------- -----------
----------- -----------
</TABLE>
6
<PAGE>
NOTE 4: EARNINGS (LOSS) PER SHARE
The Company's basic net income (loss) per share is computed using
the weighted average number of shares of common stock outstanding.
Common equivalent shares from stock options and warrants are
included in the computation of diluted net income per share for
the three months ended March 31, 1999. Common equivalent shares
from convertible securities are excluded from the computation for
the three months ended March 31, 1999, as their effect is
antidilutive. Common equivalent shares from stock options,
warrants and convertible securities are excluded from the
computation of diluted earnings per share for the three months
ended March 31, 1998 as their effect is antidilutive.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
BASIC:
Net income (loss) $ 311,000 $(2,581,000)
----------- -----------
----------- -----------
Weighted average shares outstanding
during the period 28,768,000 27,467,000
----------- -----------
----------- -----------
Net income (loss) per basic common share $ 0.01 $ (0.09)
----------- -----------
----------- -----------
DILUTED:
Net income (loss) $ 311,000 $(2,581,000)
----------- -----------
----------- -----------
Applicable common shares and common
share equivalents:
Weighted average shares outstanding
during the period 28,768,000 27,467,000
Shares assumed issued for stock options 1,677,000 -
Shares assumed issued for warrants 195,000 -
Less: treasury stock assumed purchased (1,397,000) -
----------- -----------
Total 29,243,000 27,467,000
----------- -----------
----------- -----------
Net income (loss) per diluted common share $ 0.01 $ (0.09)
----------- -----------
----------- -----------
</TABLE>
NOTE 5: COMPREHENSIVE INCOME
The Company has elected to disclose comprehensive income in the
Consolidated Statements of Stockholders' Equity in its annual
report and in its Notes to Condensed Consolidated Financial
Statements for interim reporting. The components of the Company's
comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
-------- -----------
<S> <C> <C>
Net income (loss) $311,000 $(2,581,000)
Foreign currency translation adjustments 19,000 (34,000)
-------- -----------
Comprehensive income (loss) $330,000 $(2,615,000)
-------- -----------
-------- -----------
</TABLE>
7
<PAGE>
NOTE 6: DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION
The Company has determined that it has only one reportable segment
because management has organized the business around the Company's
products and services and, for the periods presented herein, only
the Company's AmBisome business meets the reportable segment
criteria.
GEOGRAPHIC INFORMATION
AmBisome revenues accounted for approximately 96% and 93% of total
revenues for the three months ended March 31, 1999 and 1998,
respectively. The following is a summary of revenues from external
customers by geographic areas:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
United States $ 4,161,000 $ 5,124,000
Germany 5,095,000 4,384,000
United Kingdom 3,245,000 3,139,000
Italy 4,285,000 2,705,000
Spain 3,925,000 3,042,000
Other European countries 8,350,000 6,876,000
Other foreign countries 3,278,000 2,683,000
----------- -----------
Consolidated total $32,339,000 $27,953,000
----------- -----------
----------- -----------
</TABLE>
As of March 31, 1999, the net book value of the Company's
long-lived assets was $39.6 million. Approximately 91% of such
assets were located in the United States. As of December 31, 1998,
the net book value of the Company's long-lived assets was $40.8
million. Approximately 90% of such assets were located in the
United States.
MAJOR CUSTOMERS
For the three months ended March 31, 1999, revenues from two
customers accounted for approximately 11% and 10% of total
revenues, respectively. For the three months ended March 31, 1998,
revenues from one customer accounted for approximately 11% of
total revenues.
NOTE 7: INVESTMENT IN UNCONSOLIDATED AFFILIATE
In 1998, the Company sold 51% of its interest in its subsidiary,
Proligo L.L.C. ("Proligo"), to SKW Americas, Inc. Proligo was
formed in July 1998 and initially consisted of the assets of the
Company's NeXstar Technology Products division, a manufacturer of
oligonucleotides and specialty chemicals for the pharmaceuticals
industry. As part of the transaction, the consideration included
up to $20.5 million in performanced-based milestones which were
not included in the $22.1 million gain recorded on the sale in
1998. During the first quarter 1999, the Company earned and
collected $1 million for a milestone related to the issuance of a
patent.
The Company accounts for its investment in Proligo using the
equity method and the net book value of the investment at March
31, 1999 was approximately $8.6 million. For the three months
ended March 31, 1999, the Company recorded $1.6 million as its
equity in loss from Proligo representing its 49% share of
losses for the three months ended February 28, 1999, the
Proligo fiscal first quarter. The loss reported by Proligo for
the three months ended February 28, 1999 included five months
of operating losses (October 1, 1998 through February 28, 1999)
for Proligo's Hamburg, Germany subsidiary (the "Hamburg
Company"). The additional two months of losses from the Hamburg
Company were recorded in Proligo's first quarter operating
results because the Hamburg Company changed from a September 30
fiscal year end to a November 30 fiscal year end during the
first quarter of 1999 to conform to Proligo's November 30
fiscal year end. As a result, the Hamburg Company will report
14 months of operating results in its 1999 fiscal year
operating results (October 1, 1998 through November 30, 1999)
and these 14 months of operating results will be included in
the Proligo fiscal 1999 operating results. The Proligo
operating loss for March 1999 is approximately $1.1 million, of
which the Company will recognize its 49% share (approximately
$550,000) in the three months ending June 30, 1999.
8
<PAGE>
Proligo's unaudited summarized statement of operations
information for the three months ended February 28, 1999 is as
follows:
<TABLE>
<S> <C>
Net sales $ 1,846,000
Gross profit 301,000
Net loss (3,291,000)
</TABLE>
Proligo is in the business of supplying nucleic acid and peptide
synthesis products to the pharmaceutical and biopharmaceutical
industry for sale and use as laboratory research reagents and in
therapeutic and diagnostic products. The Company does not have any
commitments to provide additional funding or to support the
operations of Proligo.
NOTE 8: COMMITMENTS AND CONTINGENCIES
The Company maintains a $10 million unsecured line of credit (the
"Credit Agreement") with an average interest rate of 7.50% with a
financial institution. Under the terms of the Credit Agreement,
the Company is required to maintain certain financial ratios and
there are limitations on the Company's ability to incur additional
debt or to engage in certain significant transactions. The Credit
Agreement, which includes a foreign exchange facility, terminates
on November 1, 1999. As of March 31, 1999, the Company had no
borrowings under the Credit Agreement.
NOTE 9: REPORTING ON THE COSTS OF START-UP ACTIVITIES
Effective January 1, 1999, the Company adopted Accounting
Standards Executive Committee Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP
98-5 requires the costs of start-up activities to be expensed as
incurred. The initial application of SOP 98-5 is reported as a
cumulative effect of a change in accounting principle. The
adoption of SOP 98-5 had no material effect on the Company's
financial position or results of operations.
NOTE 10: ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("Statement No. 133"). Statement No. 133
requires recording all deriviative instruments as assets or
liabilities, measured at fair value. Statement No. 133 is
effective for fiscal years beginning after June 15, 1999 and,
therefore, the Company will adopt the new requirement effective
January 1, 2000. Management has not completed its review of
Statement No. 133 and has not yet determined the impact on its
financial position or results of operations.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS
OF THE COMPANY, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHER THINGS, RISKS
ASSOCIATED WITH THE FOLLOWING: RELIANCE ON A SINGLE PRODUCT FOR A SUBSTANTIAL
PORTION OF THE COMPANY'S REVENUES; GENERAL ECONOMIC AND BUSINESS CONDITIONS,
INCLUDING FLUCTUATIONS IN CURRENCY EXCHANGE RATES; COMPETITION; TECHNOLOGICAL
ADVANCES; ABILITY TO OBTAIN RIGHTS TO TECHNOLOGY; ABILITY TO OBTAIN AND
ENFORCE PATENTS; ABILITY TO COMMERCIALIZE AND MANUFACTURE PRODUCTS; RESULTS
OF CLINICAL STUDIES; RESULTS OF RESEARCH AND DEVELOPMENT ACTIVITIES;
AVAILABILITY OF QUALIFIED PERSONNEL; CHANGES IN, OR FAILURE TO COMPLY WITH,
GOVERNMENTAL REGULATIONS; ABILITY TO OBTAIN ADEQUATE FINANCING IN THE FUTURE;
AND OTHER FACTORS REFERENCED UNDER "RISK FACTORS" IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998. IN
PARTICULAR, STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT INCLUDE THE WORDS
"EXPECT", "ANTICIPATES", AND "PLANS" ARE OR MAY CONSTITUTE FORWARD-LOOKING
STATEMENTS. THE COMPANY'S STOCKHOLDERS AND POTENTIAL INVESTORS SHOULD
CONSIDER CAREFULLY THESE RISKS AND UNCERTAINTIES IN EVALUATING NEXSTAR
PHARMACEUTICALS' FINANCIAL CONDITION AND RESULTS OF OPERATIONS. AMBISOME,
DAUNOXOME, MIKASOME AND NEXSTAR PHARMACEUTICALS ARE REGISTERED TRADEMARKS OF
THE COMPANY.
NeXstar Pharmaceuticals is an integrated biopharmaceutical company
engaged in the discovery, development, manufacture and marketing of
proprietary pharmaceutical products to treat life-threatening and other
serious oncological, hematological and infectious diseases.
The Company markets AmBisome, a liposomal formulation of
amphotericin B, for the treatment of life-threatening fungal infections and
DaunoXome, a liposomal formulation of the anticancer agent daunorubicin,
which is used as a first line therapy for the treatment of HIV-associated
Kaposi's sarcoma. The Company currently relies on sales of AmBisome in Europe
for a substantial majority of its product revenues and expects sales of
AmBisome in Europe to account for a majority of its revenues in 1999.
The Company is conducting Phase II clinical trials with a third
product, the antibiotic MiKasome, a liposomal formulation of amikacin (a
potent aminoglycoside antibiotic) in patients with complicated urinary tract
infections, cystic fibrosis, nosocomial pneumonia and tuberculosis. The
Company recently commenced Phase I clinical trials in Europe and Canada for
NX211, its liposomal formulation of a topoisomerase I inhibitor, lurtotecan,
a camptothecin derivative and potent anti-cancer compound. In May 1999, the
Company received United States Food and Drug Administration approval of its
Investigational New Drug application for NX211 and plans to commence a Phase
I clinical trial in the United States by mid 1999.
The Company has discovered several aptamers using the SELEX process,
a combinatorial chemistry technology, which are currently in the research and
early clinical/preclinical development stages. The Company has begun Phase I
clinical trials for NX1838, its aptamer which binds to vascular endothelial
growth factor ("VEGF"). VEGF is a growth factor which is believed to
contribute to age-related macular degeneration, the leading cause of
adult-onset blindness, by inducing the formation of blood vessels associated
with the disease state.
The timing of the clinical trials for MiKasome, NX211, and NX1838
may be affected by many factors including, among others, unanticipated
delays; unexpected preclinical or clinical trial results, as applicable; and
difficulties in enrolling patients. There can be no assurance that the
Company will be able to meet the time schedule which it has established for
any of its products.
AGREEMENT AND PLAN OF MERGER WITH GILEAD SCIENCES, INC.
On February 28, 1999, the Company entered into an Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which the Company will be
acquired through merger ("the Merger") by Gilead Sciences, Inc., a Delaware
corporation ("Gilead").
10
<PAGE>
Pursuant to terms of the Merger Agreement, each issued and
outstanding share of Company common stock, par value $.01 per share ("Company
Common Stock"), will be converted into the right to receive that number of
shares of Gilead Common Stock, par value $.001 per share ("Gilead Shares")
equal to the "Exchange Ratio." The Exchange Ratio equals 0.425, provided,
however, that if the Gilead Share Value (defined as the average of the
closing prices of the Gilead Shares as reported on the NASDAQ National Market
for the 20 consecutive trading days ending on the third trading day preceding
the date on which the stockholders of the Company vote on the Merger at the
special meeting of the Company's stockholders called to approve and adopt the
Merger Agreement and the Merger) is (i) less than $36.47, then the Exchange
Ratio shall be equal to the lesser of 0.50 or a fraction having a numerator
equal to $15.50 and having a denominator equal to the Gilead Share Value, or
(ii) greater than $45.88, then the Exchange Ratio shall be equal to the
greater of 0.3786 or a fraction having a numerator equal to $19.50 and having
a denominator equal to the Gilead Share Value. Cash will be paid in lieu of
fractional shares.
The Merger is subject to several conditions, including that it be
approved by the stockholders of both the Company and Gilead. The Merger will
be accounted for as a "pooling of interests" and the exchange of the shares
will be tax free to the holders of the Company Common Stock. The merger is
expected to be completed by early summer. During the three months ended March
31, 1999, the Company incurred $906,000 in expenses associated with the
merger and anticipates that it will incur approximately $5 million in
additional merger related expenses in 1999.
INTERNATIONAL OPERATIONS, CURRENCY FLUCTUATIONS
In connection with a majority of its European sales, the Company
prices its products in the currencies of the countries into which they are
sold (the "Payment Currencies"), and revenues in the past have been and in
the future could be adversely affected by currency fluctuations. A
significant majority of the Company's manufacturing costs are in U.S.
Dollars. Therefore, any decline in the value of the Payment Currencies
relative to the U.S. Dollar is likely to negatively impact gross margins for
the Company's products since the Company's manufacturing costs would stay
approximately the same while its revenue in terms of U.S. Dollars would
decline. Sales in Germany, the U.K., Italy and Spain together accounted for
54% of the Company's product revenues for the three months ended March 31,
1999. The Company prices its products in each of these four countries in the
local currency.
NeXstar Pharmaceuticals hedges certain of its foreign currency
exposures, with respect to its outstanding trade accounts receivable and
accounts payable, through the use of forward contracts. NeXstar
Pharmaceuticals does not currently enter into speculative foreign currency
transactions and does not write speculative options. In the future, the
Company may begin currency hedging in connection with anticipated revenues
and expenses and may use options in addition to forward contracts. Such
hedging will be done solely for the purpose of protecting the Company from
foreign currency fluctuations. The Company recognizes a gain or loss for each
forward contract equal to the difference between the contract rate and the
market rate on each balance sheet date which is recorded as a selling,
general and administrative expense. At present, no deferred accounting is
used in connection with the Company's hedging activities. Notwithstanding its
hedging activities (which have not always included fully hedging against
potential gains or losses), the Company has in the past recognized foreign
exchange gains and losses. There can be no assurance that significant gains
or losses will not be incurred in the future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
PRODUCT REVENUES. Product revenues increased 30% to $30.6 million
for the three months ended March 31, 1999 from $23.5 million for the
corresponding period in 1998 primarily due to an increase in unit sales of
AmBisome in both European and U.S. markets. As a result of the U.S. approval
of AmBisome in the third quarter of 1997, the Company anticipates that an
increasing percentage of sales during future periods will occur outside of
Europe.
LICENSE FEE. During the three months ended March 31, 1998, the
Company recorded a $3 million milestone payment from Sumitomo Pharmaceuticals
Co., Ltd. related to AmBisome rights in Japan.
11
<PAGE>
ROYALTIES. Royalties increased 119% to $1.5 million for the three
months ended March 31, 1999 from $686,000 for the corresponding period in
1998 due to increased sales of AmBisome in the U.S. by its marketing partner,
Fujisawa Healthcare, Inc. ("Fujisawa"). This amount will increase if the
amount of sales of AmBisome in the U.S. increases.
COLLABORATIVE AGREEMENTS AND CONTRACTS. Collaborative agreement and
contract revenues increased to $1.2 million for the three months ended March
31, 1999 compared to $750,000 for the corresponding period of 1998 primarily
due to the receipt of a $1 million milestone payment from SKW Americas, Inc.
related to the issuance of a patent to Proglio L.L.C. ("Proligo") in the
first quarter of 1999. In addition, the first quarter 1999 funding from
Schering A.G. was $125,000 as compared to $600,000 in the first quarter of
1998. Collaborative agreement and contract revenue fluctuations are generally
the result of changes in the number of funded research projects as well as
the timing and performance of contract benchmarks.
COST OF GOODS SOLD. Cost of goods sold was $6.5 million for the
three months ended March 31, 1999, compared to $4.8 million for the
corresponding period of 1998. The increase in cost of goods sold was
primarily due to increased sales of the Company's products. Although the
average manufacturing cost of products sold by the Company during the three
months ended March 31, 1999 was less than the corresponding period in 1998,
the cost of goods sold as a percentage of product revenue was 21% for both
the 1999 and 1998 periods. This was primarily due to (i) a 1999 expense of
$455,000 related to the write off of an AmBisome lot which failed to pass
certain of the Company's stringent internal quality control specifications
and (ii) increased sales to Fujisawa at cost in 1999. Pursuant to an
agreement between the two firms, the Company and Fujisawa co-promote AmBisome
in the United States and the Company sells AmBisome to Fujisawa at cost for
sale in the U.S. In addition, the Company receives 20% of the gross profits
from all U.S. sales which the Company records as royalty income. If the
Company's unit sales of AmBisome to Fujisawa increase as a percentage of
total AmBisome unit sales, the cost of goods sold as a percentage of revenues
is expected to increase. Cost of goods sold consists primarily of raw
materials, allocations of overhead, labor and equipment costs and charges
associated with services provided by outside vendors.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development
expenses decreased 26% to $9.8 million for the three months ended March 31,
1999 compared to $13.3 million for the corresponding period of 1998. The
decrease in research and development expenses is primarily attributable to a
reduction in expenses due to (i) the sale of 51% of the Company's interest in
a subsidiary, Proligo L.L.C. ("Proligo") in the third quarter of 1998, (ii) a
reduction in the Company's workforce in the fourth quarter of 1998, and (iii)
reduced preclinical toxicology studies costs. These decreases were partially
offset by increased clinical and medical costs. For the three months ended
March 31, 1999, $184,000 of research and development expenses were sponsored
by third parties compared to $664,000 for the corresponding period in 1998.
Research and development expenses consist primarily of salaries and benefits
for scientific, regulatory, medical, clinical, quality control and pilot
manufacturing personnel, consultants, supplies, occupancy costs and
depreciation of laboratory equipment and facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 19% to $12.9 million for the three months
ended March 31, 1999 compared to $10.8 million for the corresponding period
of 1998. The increase in expenses was primarily due to (i) increased selling
and marketing expenses due to increased sales, (ii) a $323,000 addition to
the allowance for doubtful accounts receivable relating to certain Italian
accounts receivable, and (iii) a credit recorded in the first quarter of 1998
in connection with the settlement of a fully reserved outstanding loan due to
the Company from a biotechnology firm. The Company recognized a foreign
exchange loss of $109,000 for the three months ended March 31, 1999 compared
to a loss of $54,000 for the corresponding period in 1998.
MERGER RELATED EXPENSES. The Company recorded $906,000 of merger
related expenses in connection with its planned merger with Gilead Sciences.
These expenses primarily represent legal and accounting fees. The Company
expects to record approximately $5 million in additional expenses in 1999
related to the merger.
LITIGATION SETTLEMENT AND RELATED EXPENSES. Litigation settlement
and related expenses were $479,000 for the three months ended March 31,1999
compared to $396,000 for the corresponding period of 1998. These expenses are
related to a 1997 settlement agreement between The Liposome Company, Inc.
("TLC") and the Company in which the Company is required to make payments to
TLC based on AmBisome sales over the next several years, subject to certain
minimum and maximum amounts. The Company recorded accounting charges in 1997
of $10.0 million, which represented the net present value of all future
minimum payments it is required to make. In 1998, the Company began recording
a quarterly amortization expense related to the difference between all future
minimum payments and the expense recorded in 1997 and is expensing
12
<PAGE>
the difference between the minimum and maximum payments, if any. The Company
does not expect the difference between its future minimum and maximum
payments to TLC to be material.
GAIN ON SALE OF A MAJORITY INTEREST IN A SUBSIDIARY. In 1998, the
Company sold 51% of its interest in its subsidiary, Proligo, to SKW Americas,
Inc. Proligo was formed in July 1998 and initially consisted of the assets of
the Company's NeXstar Technology Products division, a manufacturer of
oligonucleotides and specialty chemicals for the pharmaceuticals industry. As
part of the transaction, the consideration included up to $20.5 million in
performanced-based milestones which were not included in the $22.1 million
gain recorded on the sale in 1998. During the first quarter 1999, the Company
earned and collected $1 million for a milestone related to the issuance of a
patent.
INTEREST INCOME. Interest income increased to $851,000 for the
three months ended March 31, 1999 compared to $730,000 for the corresponding
period of 1998. Interest income generally fluctuates as a result of the
average amount of cash available for investment and prevailing interest rates.
INTEREST EXPENSE. Interest expense decreased to $1.5 million for
the three months ended March 31, 1999 from $1.7 million for the corresponding
period of 1998. The decrease was primarily due to a reduction in borrowings
in connection with several equipment lease arrangements.
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE. For the three months
ended March 31, 1999, the Company recorded $1.6 million as its equity in loss
from Proligo representing its 49% share of losses for the three months ended
February 28, 1999, the Proligo fiscal first quarter. The loss reported by
Proligo for the three months ended February 28, 1999 included five months of
operating losses (October 1, 1998 through February 28, 1999) for Proligo's
Hamburg, Germany subsidiary (the "Hamburg Company"). The additional two
months of losses from the Hamburg Company were recorded in Proligo's first
quarter operating results because the Hamburg Company changed from a
September 30 fiscal year end to a November 30 fiscal year end during the
first quarter of 1999 to conform to Proligo's November 30 fiscal year end.
The Hamburg Company will report 14 months of operating results in its 1999
fiscal year operating results (October 1, 1998 through November 30, 1999) and
these 14 months of operating results will be included in the Proligo fiscal
1999 operating results. The Proligo operating loss for March 1999 is
approximately $1.1 million, of which the Company will recognize its 49% share
(approximately $550,000) in the three months ending June 30, 1999. The
Company expects to record additional equity in the loss from its investment
in Proligo through fiscal year 1999.
NET INCOME (LOSS). The Company reported net income of $311,000, or
$0.01 per basic and diluted share, for the three months ended March 31, 1999,
compared to a net loss of $2.6 million, or $0.09 per basic and diluted share,
for the corresponding period of 1998.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities
position at March 31, 1999 was $77.0 million compared to $68.8 million on
December 31, 1998. The $8.2 million increase in cash and cash equivalents and
marketable securities position was primarily the result of the following:
<TABLE>
<S> <C>
Net cash providing by operating activities $ 5,527,000
Proceeds from sale of common stock, net 5,325,000
Additions to property, plant and equipment (1,344,000)
Payments on capital lease obligations (577,000)
Payments on litigation settlement (438,000)
Repayments on long-term debt (412,000)
Other 135,000
-----------
$ 8,216,000
-----------
-----------
</TABLE>
The Company invests its cash and cash equivalents and marketable
securities in interest-bearing investment grade securities.
The Company's accounts receivable balance at March 31, 1999 was
$42.6 million as compared to $43.6 million on December 31, 1998. Payment
practices vary significantly between countries and increased sales in
countries in which payments tend to be slower, often as a result of the pace
at which governmental entities reimburse the Company's customers, have in the
past increased, and in the future may increase, the financial risk of certain
of the Company's customers. In certain countries, in particular Greece, Spain
and Italy, in which payments have been slow, the amount of accounts
receivable owed to the Company is significant. At March 31, 1999, the
Company's past due accounts receivable for Greece, Spain and Italy totaled
approximately $16 million, of which approximately $6 million was more than
120 days past due. To date, the Company has experienced only modest losses
with respect to the collection of its accounts receivable and believes that
the past due accounts receivable for Greece, Spain and Italy are collectible.
The Company continually seeks improvement in its collection process to
maximize its cash flow from product sales in a timely manner.
As of March 31, 1999, the Company's inventory value was $11.5
million compared to $11.7 million as of December 31, 1998.
The Company maintains a $10 million unsecured line of credit (the
"Credit Agreement") with an average interest rate of 7.50% with a financial
institution. Under the terms of the Credit Agreement, the Company is required
to maintain certain financial ratios and there are limitations on the
Company's ability to incur additional debt or to engage in certain
significant transactions. The Credit Agreement, which includes a foreign
exchange facility, terminates on November 1, 1999. As of March 31, 1999, the
Company had no borrowings under the Credit Agreement.
The Company does not have any commitments to provide additional
funding to Proligo.
The Company believes that in the future it may be advisable to
augment its cash in order to fund all of its activities, including potential
product acquisitions. Therefore, the Company will consider raising cash
whenever market conditions are favorable. Such capital may be raised through
additional public or private financing, as well as collaborative
relationships, borrowings and other available sources. In addition, in the
course of its business, the Company evaluates products and technologies held
by third parties which, if acquired, could result in the development of
product candidates by the Company or which complement technologies currently
being developed by the Company. The Company expects from time to time to be
involved in discussions with other entities concerning the Company's
potential acquisition of rights to additional pharmaceutical products. In the
event that the Company acquires such products or third-party technologies,
the Company may find it necessary or advisable to obtain additional funding.
The Company's future capital requirements will be substantial and
will depend on, and could increase as a result of, many factors, including
progress of the Company's research, drug discovery and development programs;
whether the Company acquires interests in products currently held by third
parties; the results and costs of preclinical and clinical testing
14
<PAGE>
of the Company's products, if developed; the time and costs involved in
obtaining regulatory approvals; the costs involved in filing, prosecuting and
enforcing patent claims; competing technological and market developments; the
Company's success in entering into collaborative agreements; changes in
collaborative research relationships; the costs associated with potential
commercialization of its products, if any, including the development of
additional manufacturing, marketing and sales capabilities; the cost and
availability of third-party financing for capital expenditures; and
administrative and legal expenses. However, the Company believes its cash and
cash equivalents and marketable securities position at March 31, 1999 is
sufficient to meet its short-term liquidity needs. There can be no assurance
that additional or sufficient financing will be available, or, if available,
that it will be available on acceptable terms. If additional funds are raised
by issuing equity securities of the Company, dilution to then existing
stockholders may result. If adequate funds are not available, the Company may
be required to significantly curtail one or more of its research and
development programs or commercialization efforts or obtain funds through
arrangements with collaborative partners or others on less favorable terms
than might otherwise be available.
YEAR 2000 ISSUE
The "Year 2000 Issue" is the result of computer programs being
written using two digits rather than four to define the applicable year. Any
of the Company's computer programs or hardware that have date-sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has substantially completed a review of its internal
computer systems and is conducting a review of the external computer systems
on which it relies to determine what action will be necessary or appropriate
in connection with the Year 2000 issue. As a result of its review, the
Company has determined:
It will be required to modify or replace certain portions of its
software and hardware, and upgrade certain software so that those systems
will properly utilize dates beyond December 31, 1999. The Company presently
believes that with modifications or replacements of existing software and
certain hardware, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue could have an impact on the efficiencies of the Company.
The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, planning, testing and implementation and
two categories: information technology systems ("IT Systems") and
manufacturing and laboratory equipment ("Operating Equipment").
With respect to IT Systems, the completed assessment indicated that
most of the Company's significant IT Systems, in particular, the general
ledger, billing, and inventory systems, are Year 2000 compliant. This is a
result of (a) the newness of the Company's personal and mini-computer systems
(most of its date data is stored using four digits for years and the software
residing in its embedded chips recognizes correctly the nuances of the
upcoming uncommon leap year), (b) the Company's reliance primarily on
personal and mini-computers and not on older mainframes for most of its
computing needs and (c) the nature of the Company's business (i.e., the
Company is neither a consumer nor financial-based business). For the
remaining IT Systems exposures, to date, the Company has completed the
planning phase and expects to complete software replacement and upgrades no
later than June 30, 1999. Once software is replaced or upgraded for a system,
the Company begins testing and implementation. These phases run concurrently
for different systems. Completion of the testing and implementation phases
for all significant systems is expected by July 31, 1999.
With respect to Operating Equipment, the assessment indicated that
certain software and embedded chips used in certain Operating Equipment may
be at risk. For its Operating Equipment exposures, the Company has completed
its planning phase. Scheduling and testing of this equipment is more
difficult than the testing of the IT Systems; a substantial majority of the
testing occurred during an annual manufacturing shutdown in December 1998.
Once testing is complete, the Company will implement any upgrades or replace
any non-compliant software or hardware. Testing and implementation of
affected equipment is expected to be complete by September 30, 1999.
15
<PAGE>
The Company does not share information systems with any suppliers,
subcontractors, customers or other outside parties ("Third-party Entities").
The Company has requested, and will continue to seek, information from
Third-party Entities on which it relies, certifying that their computer
systems will not negatively affect the Company's operations. The Company
currently relies on third-party vendors in connection with much of its
payroll and benefits systems. In addition, the Company could be affected by
the failure of various governmental entities to appropriately address the
Year 2000 Issue. To date, the Company is not aware of any Third-party
Entities with a Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or capital resources. However, the Company
has no means of ensuring that Third-party Entities will be Year 2000 ready.
The inability of Third-party Entities to complete their Year 2000 resolution
process in a timely fashion could materially impact the Company. The effect
of non-compliance by Third-party Entities is not determinable.
The Company will utilize both internal and external resources to
reprogram, or replace, test, and implement the software and Operating
Equipment for Year 2000 modifications. It is the Company's belief that the
costs to the Company as a result of the Year 2000 Issue will be nominal, but
no assurance can be given that there will not be some unforeseen issue, in
particular, in connection with Third-party Entities' computer systems, that
may materially affect the Company's operations.
Management of the Company believes it has an effective program in
place to resolve the Year 2000 issue in a timely manner. As noted above, the
Company has not yet completed all necessary phases of the Year 2000 program.
The most reasonably likely worst case Year 2000 scenario for the Company is
that manufacturing and laboratory efficiencies will be adversly affected. The
Company has contingency plans for certain critical applications and is
working on such plans for others. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely
affect the Company. The amount of potential liability and lost revenue cannot
be reasonably estimated at this time.
EURO CONVERSION
A single currency called the euro was introduced in Europe on
January 1, 1999. Eleven of the fifteen member countries of the European Union
("EU") adopted the euro as their common legal currency as of that date. Fixed
conversion rates between these participating countries' existing currencies
(the "legacy currencies") and the euro were established as of that date. The
legacy currencies will remain legal tender as denominations of the euro until
at least January 1, 2002 (but not later than July 1, 2002). During this
transition period, parties may settle transactions using either the euro or a
participating country's legal currency.
The Company is still in the process of evaluating the effect, if
any, of the euro on its pricing of products in the eleven participating
countries. The Company does not expect a material impact on its results of
operations from foreign currency gains or losses as a result of its
transition to the euro as the functional currency for its subsidiaries based
in EU countries.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 1999, the Company's $80 million 6 1/4 % Convertible
Subordinated Debentures had a fair value of $90.9 million. There have been no
other significant changes in quantitative or qualitative market risk as
compared to the disclosures in Item 7A of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company believes that there will continue to be
significant litigation in the pharmaceutical industry regarding
patents and other intellectual property rights, but cannot predict
the likelihood of it being involved in any disputes. Any new
litigation could consume a substantial portion of the Company's
resources regardless of the outcome of such litigation.
Both the Company and certain of its competitors have filed
oppositions against each other as to patents granted by the
European Patent Office and patents granted by the Japanese Patent
Office. The Liposome Company, Inc. ("TLC") has patents or patent
applications relating to active drug loading techniques that the
owners could claim are used in the manufacture of products such as
DaunoXome. The Company has opposed the grant of a European and a
Japanese patent owned by TLC relating to such loading technology.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
On March 9, 1999, the Company filed a report on
Form 8-K with respect to its announcement that it
had entered into an Agreement and Plan of Merger on
February 28, 1999 pursuant to which the Company
will be acquired through merger by Gilead Sciences,
Inc., a Delaware corporation.
17
<PAGE>
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.
NEXSTAR PHARMACEUTICALS, INC.
Dated: June 23, 1999 By: /S/MICHAEL E. HART
------------------------------------------
Michael E. Hart
Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 AND IS QUALIFED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 70,961,000
<SECURITIES> 6,004,000
<RECEIVABLES> 44,043,000
<ALLOWANCES> 1,479,000
<INVENTORY> 11,521,000
<CURRENT-ASSETS> 137,759,000
<PP&E> 81,077,000
<DEPRECIATION> 41,446,000
<TOTAL-ASSETS> 193,934,000
<CURRENT-LIABILITIES> 24,866,000
<BONDS> 87,414,000
0
0
<COMMON> 291,000
<OTHER-SE> 73,756,000
<TOTAL-LIABILITY-AND-EQUITY> 193,934,000
<SALES> 30,603,000
<TOTAL-REVENUES> 33,339,000
<CGS> 6,528,000
<TOTAL-COSTS> 6,528,000
<OTHER-EXPENSES> 24,122,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,543,000
<INCOME-PRETAX> 1,997,000
<INCOME-TAX> 73,000
<INCOME-CONTINUING> 311,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 311,000
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
