-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HIWaqlq3RkoEFyWAkcpfzcHGgUcSMIYeYFe5Ob1X2lBnMt9G8WZmOR6ydjgl/3SK 9AOFaZKtH0342/GR4Q+u+A== 0000013006-94-000021.txt : 19940808 0000013006-94-000021.hdr.sgml : 19940808 ACCESSION NUMBER: 0000013006-94-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIRCA PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000013006 STANDARD INDUSTRIAL CLASSIFICATION: 2834 IRS NUMBER: 111966265 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08338 FILM NUMBER: 94541036 BUSINESS ADDRESS: STREET 1: 33 RALPH AVE CITY: COPIAGUE STATE: NY ZIP: 11726 BUSINESS PHONE: 5168428383 MAIL ADDRESS: STREET 1: 33 RALPH AVENUE CITY: COPIAGUE STATE: NY ZIP: 11726 FORMER COMPANY: FORMER CONFORMED NAME: BOLAR PHARMACEUTICAL CO INC DATE OF NAME CHANGE: 19920703 10-Q 1 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period Commission File Number 0-8049 ended June 30, 1994 CIRCA PHARMACEUTICALS, INC. Incorporated under the laws 11-1966265 of the State of New York (I.R.S. Employer Identification Number) 33 RALPH AVENUE, COPIAGUE, NEW YORK 11726 Telephone number (516) 842-8383 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 No The number of shares of Common Stock, par value $.01 per share, outstanding were 21,711,612 as of July 27, 1994. CIRCA PHARMACEUTICALS, INC. INDEX PART I. FINANCIAL INFORMATION PAGES Item 1. Financial Statements Consolidated Balance Sheets, June 30, 1994 and December 31, 1993 1 Consolidated Statements of Operations for the three and six months ended June 30, 1994 and 1993 2 Consolidated Statements of Cash Flows for the six months ended June 30, 1994 and 1993 3 Notes to Consolidated Financial Statements 4-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 4. Submission of Matters to Vote of Security Holders' 10 Item 6. Exhibits and Reports on Form 8-K 10 PART I - FINANCIAL INFORMATION CIRCA PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS ITEM 1. June 30, December 31, 1994 1993 (Unaudited) ASSETS: Current assets: Cash and cash equivalents $ 11,789,157 $ 2,410,819 Marketable securities 33,180,130 36,182,077 Securities held as collateral 5,000,000 5,000,000 Accounts receivable 360,234 638,242 Inventories 1,387,080 1,820,883 Other current assets 2,653,979 1,776,843 Total current assets 54,370,580 47,828,864 Property, plant and equipment, net 12,222,508 12,535,586 Investments in joint ventures 29,834,046 29,473,160 Securities held as collateral 6,739,555 9,147,156 Other assets 4,362,256 3,424,519 $107,528,945 $102,409,285 LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable and accrued expenses $ 3,815,648 $ 5,102,659 Current portion of legal settlements 8,044,338 7,909,339 Total current liabilities 11,859,986 13,011,998 Deferred joint venture liability 14,881,030 15,242,000 Legal settlements 5,764,177 7,603,845 Deferred income 2,062,496 2,520,830 Commitments and contingencies: Shareholders' equity: Preferred stock, par value $.01 per share; authorized 10,000,000 shares; none issued Common stock, par value $.01 per share; authorized - 70,000,000 shares; issued and outstanding - 22,078,920 shares in 1994 and 22,083,420 in 1993 220,789 220,834 Capital in excess of par value 62,488,992 62,570,547 Retained earnings 14,669,916 8,486,846 Unrealized holding gain 2,156,421 Less: Treasury stock at cost (3,168,031) (3,168,031) Unearned compensation - stock awards (3,406,831) (4,079,584) Total shareholders' equity 72,961,256 64,030,612 $107,528,945 $102,409,285 See accompanying notes to consolidated financial statements -1- PART I - FINANCIAL INFORMATION CIRCA PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1994 1993 1994 1993 Net sales $961,289 $745,710 $ 2,195,498 $1,103,426 Operating costs and expenses: Cost of goods sold 619,961 620,437 1,404,812 926,843 Research and development 1,621,761 1,070,143 3,119,598 2,109,556 Manufacturing overhead 972,884 787,931 1,922,111 1,803,542 Selling and administrative 1,492,009 3,703,539 2,952,647 5,467,344 Loss from operations (3,745,326) (5,436,340 (7,203,670) (9,203,859) Income from joint ventures 5,514,848 5,891,426 11,041,323 11,690,563 Investment income 1,040,979 1,848,926 2,997,879 2,799,579 Partnership loss 2,460,000 6,702,000 Cost of legal settlements 847,870 3,847,870 Other expenses, net 501,911 190,567 652,462 342,577 Net income (loss) $2,308,590 $(1,194,425) $6,183,070 $(5,606,164) Net income(loss)per share $0.11 $(0.05) $ 0.29 $(0.25) Weighted average shares outstanding 21,711,364 22,101,521 21,711,092 22,133,626 See accompanying notes to consolidated financial statements -2- PART I - FINANCIAL INFORMATION CIRCA PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1994 1993 Net cash used for operating activities $(7,177,059) $(14,674,985) CASH FLOW FROM INVESTING ACTIVITIES: Dividends received from equity investees 9,000,000 8,888,078 Decrease in marketable securities and securities held as collateral 7,359,153 5,373,261 Proceeds from sale of shares of Marsam stock 1,370,139 1,383,500 Additions to property, plant and equipment (367,607) (180,416) (Increase) decrease in investments (825,000) 676,416 Net cash provided by investing activities 16,536,685 16,140,839 CASH FLOW FROM FINANCING ACTIVITIES: Exercise of stock options 18,712 1,037 Purchase and retirement of stock (825,000) Net cash provided by (used for) financing 18,712 (823,963) activities Increase in cash and cash equivalents 9,378,338 641,891 Cash and cash equivalents at beginning of period 2,410,819 3,680,381 Cash and cash equivalents at end of period $11,789,157 $4,322,272 See accompanying notes to consolidated financial statements -3- PART I - FINANCIAL INFORMATION CIRCA PHARMACEUTCIALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting principally of normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 1994 and the consolidated results of operations for the three and six months ended June 30, 1994 and 1993 and the statements of cash flows for the six months then ended. The accompanying consolidated financial statements and related notes should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended December 31, 1993. The results of operations for the three and six months ended June 30, 1994 and 1993 are not necessarily indicative of the results to be expected for the full year. Certain 1993 amounts have been reclassified to conform to the current year presentation. 2. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities as of January 1, 1994, and at June 30, 1994, the Company's investment securities have been classified as "available-for-sale," with an unrealized holding gain included as a separate component of shareholders' equity in the amount of $2,156,421. If the Company had adopted SFAS No. 115 at December 31, 1993, the unrealized holding gain in shareholders' equity would have been approximately $12,200,000 at that date. The Company sold shares of its investment in Marsam common stock during the six month period ended June 30, 1994, and recorded a gain of $1,163,323. At June 30, 1994, the Company owned 544,655 shares of Marsam common stock with a market value of $5,991,205, included in marketable securities. 3. Components of inventories are summarized as follows: June 30, December 31, 1994 1993 Raw Material $ 163,502 $ 132,841 Work in process 46,518 67,207 Finished goods 1,177,060 1,620,835 $1,387,080 $1,820,883 4. The Company has recognized income from Somerset Pharmaceuticals, Inc., of $10,660,311 and $11,263,685 for the six month periods ended June 30, 1994 and 1993, respectively. In addition, the Company has recognized income from American Triumvirate Insurance Company of $381,012 and $426,878 for the six month periods ended June 30, 1994 and 1993, respectively. -4- PART I - FINANCIAL INFORMATION CIRCA PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) The following unaudited information is provided for unconsolidated investments, accounted for utilizing the equity method, in the June 30 1994 1993 Net revenues $49,472,000 $60,070,000 Gross profit $42,590,000 $53,033,000 Net income $19,711,000 $20,461,000 Amounts previously reported for the six months ended June 30, 1993, relating to the partnership with Rhone-Poulenc Rorer (RPR) are excluded from the above table. These amounts have been reclassified to conform to the current presentation, reflecting the restructured agreement with RPR that became effective on September 1, 1993. 5. As of June 30, 1994, the Company had commitments to third parties of approximately $3,600,000, for research and development projects to be expended over the next three years. 6. Net income (loss) per share is based on the weighted average number of common shares and equivalents outstanding for each period. The effect of stock options was less than 3% of the weighted average shares outstanding in 1994, was antidilutive in 1993, and accordingly, was not included in earnings per share. 7. At June 30, 1994, the Company was not required to provide for federal or state income taxes as pretax income included income which is excluded income for tax purposes, with the remaining taxable income offset by the Company's net operating loss carryforward. At June 30, 1994, the Company's net operating loss carryforward, for federal income tax purposes, was approximately $78,000,000, which, if not utilized, will begin to expire in the year 2006. 8. On March 22, 1994, the Company announced a proposed acquisition with Hi-Tech Pharmacal Co., Inc. (Hi-Tech), a pharmaceutical firm located on Long Island, in a transaction intended to be accounted for as a "pooling of interests". The acquisition was subject to the execution of a definitive agreement, satisfactory completion of due diligence and approval by each company's shareholders. On May 5, 1994, Circa announced that the companies were unable to agree on certain terms and conditions and that discussions regarding the acquisition were terminated. Included in other expenses, net in the 1994 statements of operations are the costs of the terminated acquisition. 9. On June 16, 1994, Larry Raisfeld voluntarily resigned as Officer and Director of the Company. -5- PART I - FINANCIAL INFORMATION CIRCA PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) 10. On July 8, 1994, the Company announced a preliminary settlement of civil antitrust claims brought against it in a class action pending in the U.S. District Court in Maryland with respect to the sale of generic Dyazide. Under the settlement agreement, the Company will pay $1.35 million into a settlement fund for the benefit of class plaintiffs, and will issue $2.5 million of coupons permitting the class of former customers to purchase products from the Company at a predetermined discount from market prices. At December 31, 1993, the Company provided for the estimated cost of outstanding litigation which included the cost of this proposed settlement. In the case entitled Cliff Westfall, et al. v. Circa Pharmaceuticals, Inc., et al. pending in the Circuit Court for the County of Oakland, State of Michigan, the plaintiffs' motion for class certification was denied. Based upon the information it presently possesses, the Company believes that the outcome of all pending litigation will not a material adverse effect on the Company's consolidated financial position. 11. On July 11, 1994, the Company and Andrx Corporation (Andrx) announced the signing of an agreement to jointly develop, manufacture and market at least six controlled release generic pharmaceutical products. The Company also acquired an equity interest in Andrx by payment of $6 million. The Company may acquire further equity interest in Andrx by exercising certain warrants. The joint venture, which will develop generic pharmaceuticals for world-wide markets utilizing Andrx's controlled release technology, will address products that have current sales in excess of $1 billion. -6- PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CIRCA PHARMACEUTICALS, INC. ITEM 2. Results of Operations Three Month Period Ended June 30, 1994 The Company reported net income of $2,309,000 for the three month period ended June 30, 1994, compared to a net loss of $1,194,000 for the same period in 1993. The primary reason for the increase in net income in the 1994 period was the absence of a $2,460,000 loss recognized from the partnership with Rhone-Poulenc Rorer (RPR) and a $848,000 legal settlement, both incurred during the second quarter of 1993. Income in 1994 was primarily attributable to $5,331,000 of income from Somerset Pharmaceuticals, Inc. (Somerset), a 50% owned joint venture. Net sales were $961,000 during the second quarter of 1994, compared to $746,000 for the same period in 1993. Cost of goods sold as a percentage of net sales decreased from 83% in 1993 to 64% in the 1994. The increase in sales and gross profit from 1993 to 1994 was primarily due to royalty income, which began January 1, 1994, for the sale of Dilacor XR, which is being marketed by RPR. Research and development expenses were $1,622,000 in 1994, compared to $1,070,000 in 1993, representing an increase of $552,000 or 52%. The primary reason for the increase was the Company's expansion its research and development program following the rehabilitation by the FDA in April 1993. The Company is committed to expanding its research and development program through both internal efforts and joint venture arrangements with other companies. Manufacturing overhead was $973,000 in 1994, compared to $788,000 in 1993, representing an increase of $185,000 or 23%. These costs are expected to be absorbed by the manufacturing process as new products are introduced into the system through product approvals obtained from the Company's internal research and development programs, as well as increased activity in contract manufacturing and joint venture projects with other companies. Selling and administrative expenses were $1,492,000 in 1994, compared to $3,704,000 in 1993, representing a decrease of $2,212,000 or 60%. The decrease was primarily attributable to a reduction in legal expenses as a significant portion of pending litigation was resolved in 1993. Ivestment income was $1,041,000 in 1994 as compared to $1,849,000 in 1993, representing a decrease of $808,000 or 44%. In the second quarter of 1994, the Company recognized a gain of $208,000 on the sale of shares of Marsam common stock as compared to $1,135,000 in the 1993 period. Other expenses, net were $502,000 in 1994, as compared to $191,000 in 1993, representing an increase of $311,000. The increase is primarily attributable to the cost of the terminated discussions related to the proposed acquisition of Hi-Tech Pharmacal Co., Inc. At June 30, 1994, the Company was not required to provide for federal or state income taxes as pretax income included income which is excluded for tax purposes, with the remaining taxable income offset by the Company's net operating loss carryforward. At June 30, 1994, the Company's net operating loss carryforward, for federal income tax purposes, was approximately $78,000,000, which, if not utilized, will begin to expire in the year 2006. -7- PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CIRCA PHARMACEUTICALS, INC. (Continued) ITEM 2. Results of Operations Six Month Period Ended June 30, 1994 The Company reported net income of $6,183,000 for the six month period ended June 30, 1994, compared to a net loss of $5,606,000 for the same period in 1993. The primary reason for the increase in net income in the 1994 period was the absence of a $6,702,000 loss recognized from the partnership with RPR and $3,848,000 in legal settlements, which were incurred during the 1993 period. Income in 1994 was primarily attributable to joint venture income from Somerset of $10,660,000. Net sales were $2,195,000 during the 1994 period, compared to $1,103,000 for the same period in 1993. The sales increase from 1993 to 1994 was primarily due to the marketing of a transdermal patch for the 1994 period versus only four months in the 1993 period, when such sales commenced. Cost of goods sold as a percentage of net sales decreased for 84% in 1993 to 64% in 1994. The increase in gross profit from 1993 to 1994 was primarily due to royalty income, which began January 1, 1994, for the sale of Dilacor XR. Research and development expenses were $3,120,000 in 1994, compared to $2,110,000 in 1993, representing an increase of $1,010,000 or 48%. The primary reason for the increase was the Company's expansion of its research and development program following the rehabilitation by the FDA in April 1993. Manufacturing overhead was $1,922,000 in 1994, compared to $1,804,000 in 1993, representing an increase of $118,000 or 7%. Selling and administrative expenses were $2,953,000 in 1994, compared to $5,467,000 in 1993, representing a decrease of $2,514,000 or 46%. The decrease was primarily attributable to a reduction in legal expenses as a significant portion of pending litigation was resolved in 1993. Investment income was $2,998,000 in 1994 as compared to $2,800,000 in 1993, representing an increase of $198,000 or 7%. In the 1994 and 1993 periods, the Company recognized a gain of $1,163,000 and $ 1,135,000, respectively, on the sale of shares of Marsam common stock. Other expenses, net were $652,000 in 1994, as compared to $343,000 in 1993, representing an increase of $309,000. The increase is primarily attributable to the cost of the terminated discussions related to the proposed acquisition of Hi-Tech Pharmacal Co., Inc. -8- PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION CIRCA PHARMACEUTICALS, INC. (Continued) Liquidity and Capital Resources Working capital increased from $34,800,000 at December 31, 1993 to $42,500,000 at June 30, 1994. The increase of $7,700,000 was primarily attributable to $9,000,000 of dividends received from Somerset and $2,100,000 of unrealized holding gain included in shareholders' equity, resulting from the Company's adoption of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. In addition, the Company received $1,200,000 from the sales of Marsam common stock and $400,000 from other marketable securities. These increases were offset by working capital used for operating activities. At June 30, 1994, the Company had commitments of approximately $3,600,000 to third parties for research and development, which will be expended over the next three years and be funded through current working capital. The Company does not anticipate significant capital expenditures relating to its facilities. Primary sources of working capital for 1994 will continue to be dividends received from Somerset, proceeds from sales of marketable securities and income earned on other marketable securities. The Company anticipates that its existing capital resources are sufficient to meet its requirements based on its current business plans. -9- PART II - OTHER INFORMATION CIRCA PHARMACEUTICALS, INC. Item 1. Legal Proceedings See Part 1, Item 1, Note 10 Item 4. Submission of Matter to a Vote of Security Holders' (a) The Annual Meeting of the Company's Shareholders was held on July 15, 1994. (b) Michael Fedida, Stanley Grey, Thomas P. Rice and Kenneth Siegel were elected as Class I directors to serve until the date of the 1996 Annual Meeting. Melvin Sharoky, M.D. and Bruce Hausman will continue to serve until the date of the 1995 Annual Meeting. (c) To ratify the selection of Coopers & Lybrand as independent accountants for 1994 (For - 19,561,387, Against - 97,609). (d) To approve the adoption of the 1994 Long-Term Incentive Plan (For - 11,611,924, Against - 1,632,229). Item 6. Exhibit and Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1994. -10- 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. CIRCA PHARMACEUTICALS, INC. DATE: July 29, 1994 /s/Melvin Sharoky, M.D. Melvin Sharoky, M.D., President and Chief Executive Officer DATE: July 29, 1994 /s/Thomas P. Rice Thomas P. Rice, Executive Vice President, Chief Operating and Financial Officer -11- -----END PRIVACY-ENHANCED MESSAGE-----