-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ANs7FXUHU/SIo5xkPDZF9ME4rt+b8sQF24EWapCKS2NPJRespEqfaZisL4peo1Tl g2eejyetESnlDIZRAddg+w== 0000950134-98-009876.txt : 19981228 0000950134-98-009876.hdr.sgml : 19981228 ACCESSION NUMBER: 0000950134-98-009876 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000312651 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 840645174 STATE OF INCORPORATION: CO FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-09065 FILM NUMBER: 98774192 BUSINESS ADDRESS: STREET 1: 370 17TH STREET STREET 2: SUITE 5200 CITY: DENVER STATE: CO ZIP: 80202-5638 BUSINESS PHONE: 3032799375 MAIL ADDRESS: STREET 1: 370 17TH STREET STREET 2: SUITE 5200 CITY: DENVER STATE: CO ZIP: 802025638 FORMER COMPANY: FORMER CONFORMED NAME: BENEDICT NUCLEAR PHARMACEUTICALS INC DATE OF NAME CHANGE: 19920703 10KSB 1 FORM 10-KSB FOR PERIOD ENDED AUGUST 31, 1998 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 1998 COMMISSION FILE NUMBER: 0-9065 GOLDEN PHARMACEUTICALS, INC. (Name of small business issuer in its charter) COLORADO 84-0645174 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3000 W. WARNER STREET, SANTA ANA, CALIFORNIA 92704 (Address of principal executive office)(Zip Code) (303) 279-9375 Issuer's telephone number Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, no par value (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 --- --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year: $ 6,443,863 Aggregate market value of the voting stock held by non-affiliates of the registrant as of NOVEMBER 30, 1998, was $6,882,955. This calculation is based upon the average of the bid ($.05) and asked ($.06) prices of the voting stock on November 30, 1998. The number of shares of common stock outstanding as of NOVEMBER 30, 1998, was 125,144,644 Transitional Small Business Disclosure Format: Yes NO X --- --- ================================================================================ 2 PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Golden Pharmaceuticals, Inc. (the "Company") was incorporated in 1973 under the name Mini-Dose Labs. In 1979, under the name Benedict Nuclear Pharmaceuticals, Inc., the Company completed its initial public offering of common stock. On October 7, 1992, the Company's name was changed to North American Chemical Corporation and on March 4, 1994 it was changed again to Golden Pharmaceuticals, Inc. From 1979 to April 1997, the Company's primary business was the manufacture and distribution of Sodium Iodide 123 (I-123) diagnostic capsules. In August 1995, the Company acquired Quality Care Pharmaceuticals, Inc. ("QCP"), a repackager and distributor of pharmaceutical products and in April 1997, the Company completed the sale of its assets related to the manufacture and distribution of I-123 capsules. See "Business Developments - Acquisition of Quality Care Pharmaceuticals, Inc." and "Business Developments - Sale of Radiopharmaceutical Division." The Company's main business is now the repackaging and distribution of pharmaceuticals through its wholly owned subsidiary, QCP. BUSINESS DEVELOPMENTS ACQUISITION OF QUALITY CARE PHARMACEUTICALS, INC. - In August 1995, the Company purchased all of the issued and outstanding common stock of QCP for a total purchase price of $3,718,750. QCP is engaged in the repackaging and distribution of pharmaceutical products and related computerized dispensing and patient tracking systems. QCP's customers include physicians, hospitals, group practices, managed care programs and other legally constituted medical facilities throughout the United States. RXDIRECT, LLC - On February 12, 1996, QCP entered into a joint venture agreement with the Visiting Nurses Association of Orange County ("VNA") to establish RxDirect, LLC ("RxDirect"), a mail order or direct delivery pharmacy. QCP provides ongoing management and logistical support to the joint venture. RxDirect is engaged in the dispensing of medications via mail or courier delivery to subscribers of their services. In October 1998, the Company and VNA signed an agreement pursuant to which VNA agreed to withdraw from the RxDirect joint venture upon payment of a withdrawal fee of $154,000, including accounts receivable of $47,761. ISO 9000 CERTIFICATION - On March 14, 1996, and May 13, 1996, QCP was certified by the International Organization for Standardization ("ISO 9000") as having the highest quality standards. ISO 9000's purpose is to establish common worldwide quality standards. The certification audit was performed by the French International Organization called Ascert. QCP believes that they are one of only a few domestic pharmaceutical repackagers that are currently ISO 9002 certified for their manufacturing plant and process. PHARMA LABS, LLC - On June 15, 1996, the Company entered into a joint venture agreement with Pharma France, Inc. to form Pharma Labs, LLC ("Pharma Labs"), a manufacturer and distributor of nutritional health products both domestically and internationally. The Company contributed $1,000,000 for 52% of the equity in Pharma Labs, LLC. As of August 31, 1998, the Company had loaned Pharma Labs $976,274 for inventory, leasehold improvements and operational support. On October 8, 1998, the Company and the other member of Pharma Labs "(Member") entered into a Unit Purchase Agreement whereby the Company purchased the Member's 48% interest in Pharma Labs for $35,000. On November 10, 1998, the Company entered into a Purchase Agreement with Adam Equities, Inc. "(AEI"), pursuant to which on December 3, 1998 AEI purchased substantially all of the assets of Pharma Labs for $150,000. In addition, the AEI assumed Pharma Labs' obligations under two (2) equipment leases and an affiliate of AEI entered into a sublease with the Company to sublease Pharma Labs' facility and reimbursed the Company $57,000 for a lease deposit on the facility. The Company also received a $250,000 payment from AEI pursuant to the terms of a Noncompete Agreement. See "Note G" to "Notes to Consolidated Financial Statements". 1 3 SALE OF RADIOPHARMACEUTICAL DIVISION - On April 7, 1997, the Company completed the sale of the assets related to its business of manufacturing and distributing radiopharmaceuticals for a total purchase price of $6,700,000 pursuant to the terms of an Asset Purchase Agreement dated April 7, 1997, by and between the Company and Syncor Pharmaceuticals, Inc. Included in the sale was the New Drug Application (NDA) for the radiopharmaceuticals, the building that contains the manufacturing facility for this business, and all of the related equipment. JOINT MARKETING AGREEMENT WITH DORNOCH MEDICAL SYSTEMS, INC. - In July 1997, the Company and Dornoch Medical Systems, Inc. ("Dornoch") entered into a Joint Marketing Agreement ("JMA") whereby the Company agreed to market Dornoch's Redaway system, a medical infectious fluid collection and disposal system, in return for royalties on sales. In connection with the JMA, the Company was granted an option to purchase 220 shares of Dornoch common stock at a purchase price of $2,000 per share, which option would vest and be exercisable upon the sale of 80 Redaway systems through the Company's marketing efforts. Sales and royalties from this agreement have been negligible. In addition, Dornoch purchased 1,000,000 shares of the Company's common stock for $0.30 per share and was granted an option to purchase an additional 1,000,000 shares for $0.30 per share. In July 1998, the JMA was terminated by mutual consent and all stock purchase options were cancelled. PHARMACEUTICAL REPACKAGING INDUSTRY Pharmaceutical repackagers, such as QCP, repackage pharmaceuticals from bulk quantities into smaller units-of-use and dose measurements, thereby providing physicians, hospitals, managed care programs and group practices with the ability to dispense medication directly to patients at the point-of-care ("POC"). Dispensing medication at the POC provides physicians, managed health care organizations and patients with a number of significant benefits. Unit-of-use medication is packaged under federal regulations which assures the highest level product quality, purity and safety. Unit-of-use medication may be significantly less expensive than comparable products dispensed from a retail pharmacy. Dispensing medication directly to the patient significantly improves drug therapy compliance, which results in better patient outcomes and reduces the need for additional medical services. This results in lower overall medical costs per patient per incident. In addition, POC dispensing provides greater patient census, patient convenience, patient retention and lower health care costs due to compliance. MANUFACTURING QCP is licensed by the U.S. Food and Drug Administration ("FDA") as a manufacturer of repackaged prescription drugs. QCP purchases bulk quantities of certain pharmaceuticals and repackages them into smaller dispensing units for sale to its customers. QCP's repackaging facility, located in Santa Ana, California, is licensed by the FDA, the United States Drug Enforcement Administration ("DEA")and the California Health and Services Department and maintains rigid quality control standards. RxDirect is licensed by the DEA and the California Board of Pharmacy, and operates as a retail pharmacy engaged in mail order delivery. 2 4 QUALITY CONTROL The Company believes that QCP is the only drug repackager in the U.S. that maintains full compliance to: ISO9002 - International quality standards that currently exceed all existing FDA regulations (ISO certification, March 1996). cGMP's - Current Good Manufacturing Practices - Title 21 Code of Federal Regulations (amended April, 1995). FDA - Food, Drug and Cosmetic Act DEA - Controlled Substances Act. QCP's production batch record requires over 120 specific entries. Every step requires a minimum of two qualified employees to complete and verify. Every batch requires a minimum of seven different employees to complete. Every step in the production process, every tablet, capsule, bottle, cap, and label is 100% traceable. QCP maintains this information no less than one year past the original product's expiration date. In addition to the batch record, QCP maintains over 25 separate logs that must be completed every day the plant operates. These records document and monitor facility temperature, humidity, air pressure differentials, facility and equipment maintenance, equipment cleaning procedures, equipment process validation systems, and many other critical production and drug storage parameters to assure maximum product quality, purity, safety and traceability. QCP packages penicillin and cephalosporin antibiotics in separate negative air flow packaging rooms. This process is designed to prevent antibiotic contamination of non-antibiotic products, and cross contamination between penicillin and cephalosporin products. Antibiotic contamination of non-antibiotic drug products is a dangerous problem with the potential to occur at most pharmacies in the United States. DISTRIBUTION QCP ships orders for its products via United Parcel Service or other types of overnight delivery services. QCP's goal is to ship orders within twenty-four hours of receipt of the order. RxDirect ships orders for its products via UPS express delivery or overnight courier directly to customers. RxDirect's goal is that orders are shipped next day from receipt of order. SUPPLIERS QCP purchases pharmaceuticals from a number of FDA licensed United States drug distributors and manufacturers. QCP's largest supplier is Bergen Brunswig Corporation located in Corona, California. QCP believes its relationship with its suppliers to be good. RxDirect purchases pharmaceuticals from a number of FDA licensed drug wholesalers. RxDirect's largest suppliers are Bergen Brunswig Corporation, Barnes Wholesaler and Wyeth Ayerst. BACKLOG The Company does not have significant backlogs but operates on a daily order and contract basis with its customers. MARKETING QCP markets its products directly to customers through independent sales representatives, corporate sales personnel, trade shows and its World Wide Web site. RxDirect markets through direct sales contact with selected potential customers, as well as through direct mail and magazine advertising. 3 5 RESEARCH AND DEVELOPMENT QCP has developed a proprietary dispensing and patient tracking software, called QScript. This software provides enhanced capabilities to collect and analyze data on patient diagnosis, drug utilization, treatment plans and specific costs and treatment outcomes. This not only provides the health care provider with patient data necessary to augment the patient's treatment, but also gives that provider an additional revenue source or a major cost reduction. QCP's dispensing software assures fast and simple dispensing in full compliance with state pharmacy laws. Software development efforts continue on upgrades to its proprietary dispensing and patient tracking software. COMPETITION QCP competes with other repackagers of pharmaceuticals, including Allscrips Pharmaceuticals, Inc., PDRx, and several other small firms. QCP believes it compares favorably with its competitors on such factors as price, service and delivery, credit terms, breadth of product lines and customer support. RxDirect competes with numerous other mail order pharmacies, many of which have greater resources than RxDirect. GOVERNMENT REGULATIONS QCP operations are regulated by the DEA, the FDA and various state bureaus of pharmacy which govern the distribution of pharmaceutical products and controlled substances. These organizations require distributors of pharmaceutical products and controlled substances to obtain permits and to meet various security and operating standards. QCP has received all necessary regulatory approvals and believes it is in substantial compliance with all applicable requirements. RxDirect is monitored by the same federal and state regulatory organizations as QCP and is also required to obtain permits and to meet various security and operating standards of such federal and state organizations. RxDirect has received all necessary regulatory approvals and believes it is in substantial compliance with all applicable requirements. Any change in government regulations cannot be predicted. The Company also cannot predict whether any agency will adopt regulations that will have a material effect on the Company's operations. In addition, a variety of state and local permits are required under regulations relating to the Company's products. PRODUCT LIABILITY AND INSURANCE The Company currently maintains product liability insurance in the aggregate amount of $5 million per occurrence and per year with a $2,500 deductible. EMPLOYEES As of December 1, 1998, the Company employed seventy-three (73) persons on a full-time basis. Additional employees are hired from time to time during peak production periods. None of the Company's employees are represented by a union or collective bargaining unit and management considers relations with employees to be good. ADDITIONAL INFORMATION Compliance with federal, state and local regulations regarding the discharge of materials into the environment or otherwise relating to the protection of the environment has not had, and is not expected by the Company to have, any adverse effect on capital expenditures, earnings or the competitive position of the Company. The Company is not presently a party to any litigation or administrative proceeding with respect to its compliance with such environmental standards. In addition, the Company does not anticipate being required to expend any funds in the near future for environmental protection in connection with its operations. 4 6 ITEM 2. DESCRIPTION OF PROPERTIES QCP leases a 25,000 square foot facility in Santa Ana, California pursuant to a lease agreement which expires in March 2004. During fiscal 1998, the Company sold a 2,000 square foot office building in Golden, Colorado. This facility was not in use. The Company believes its facilities and equipment are well maintained and in good operating condition and will satisfy its current manufacturing and processing needs. ITEM 3. LEGAL PROCEEDINGS The Company is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. The Company has been a named defendant in a number of diet drug related personal injury lawsuits. These claims have been referred to the Company's product liability insurance carrier. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company's consolidated results of operations or consolidated financial positions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 5 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock is traded in the over-the-counter market and is quoted on the "OTC Bulletin Board" under the symbol "GPHI." The following table sets forth the high and low closing bid prices for the periods indicated, as reported by the OTC Bulletin Board.
For the Year ended August 31, 1998 High Low ---------------------------------- ---- --- 1st Quarter $ 0.19 0.0625 2nd Quarter 0.16 0.09 3rd Quarter 0.12 0.07 4th Quarter 0.085 0.035
For the Year ended August 31, 1997 High Low ---------------------------------- ---- --- 1st Quarter $ 0.23 0.12 2nd Quarter 0.32 0.12 3rd Quarter 0.29 0.17 4th Quarter 0.23 0.15
These quotations are inter-dealer prices without retail markup, markdown or commissions, and may not necessarily represent actual transactions. As of November 30, 1998, there were approximately 2,600 shareholders of record of the Company's common stock. The Company has never paid cash dividends. The Board of Directors of the Company currently anticipates that it will retain all available funds for use in the operation of the business and does not anticipate paying any cash dividends in the foreseeable future. The payment of cash dividends is restricted by the Company's loan agreements with the Bank. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion should be read in conjunction with the selected financial data and the financial statements and notes thereto filed herewith. The statements contained in this report, if not historical, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve risks and uncertainties that could cause actual results to differ materially from the financial results described in such forward looking statements. These risks and uncertainties include, among others, the level and rate of growth in the Company's operations, the capital requirements of the Company and the ability of the Company to achieve earnings per share growth through internal investment, strategic alliances, joint ventures and other methods. The success of the Company's business operations is, in turn, dependent on factors such as the effectiveness of the Company's marketing strategies to grow its customer base and improve customer response rates, the appeal of the Company's mix of products, the Company's success at entering into and collaborating with others to conduct effective strategic alliances and joint ventures, general competitive conditions within the pharmaceutical industry and general economic conditions. Further, any forward looking statements or statements speak only as of the date on which such statement was made, and the Company undertakes no obligation to update any forward looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results. RECENT DEVELOPMENTS The Company incurred a net loss of ($10,067,760) during the fiscal year ended August 31, 1998 and, as of that date, the Company's current liabilities exceeded its current assets by $5,435,000 and its total liabilities exceeded its total assets by $4,595,000. Also, the Company is not in compliance with the covenants of its revolving credit facility and must obtain alternative financing by February 1, 1999. These conditions, as well as others, raise substantial doubt about the Company's 6 8 ability to continue as a going concern. As a result, the Company's auditors have included an explanatory paragraph in their report to the Company's consolidated financial statements at August 31, 1998 that expresses substantial doubt as to the Company's ability to continue as a going concern. See "Note C" to "Notes to Consolidated Financial Statements". The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. For the last year, the Company has been operating in an increasingly difficult environment, and the Company expects to continue to operate in this environment for the foreseeable future. The Company's operations in fiscal 1998 and the first quarter of fiscal 1999 have consumed substantial amounts of cash and have generated significant net losses which reduced shareholder's equity to a deficit of $4,594,000 at August 30, 1998. Also, QCP has a current period operating loss and negative cash flow from operations, and is expected to have continuing losses and negative cash flow from operations in the near term. There is substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to obtain funding to support the Company's operating losses, capital requirements and to replace the revolving credit facility, as to which no assurance can be given. RESULTS OF OPERATIONS FISCAL YEAR ENDED AUGUST 31, 1998, COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1997 ($ ROUNDED TO NEAREST THOUSAND) NET SALES - Net sales for the fiscal year ended August 31, 1998, were $6,444,000, a decrease of $5,514,000 compared to $11,958,000 for the same period last year. The decrease is due to the loss of $2,370,000 in sales arising from the sale of the radiopharmaceutical business on April 7, 1997 and lower sales recorded at QCP and Pharma Labs. QCP recorded net sales of $5,502,000 in fiscal 1998 compared to $8,033,000 in fiscal 1997. The lower sales level was due to the loss of a private label customer and substantially lower diet drug business. Pharma Labs sales in fiscal 1998 were $941,000 compared to $1,555,000 last year. Last year's sales included substantial stocking orders primarily in the quarter ended February 28, 1997 of new product from a Vietnam distributor, affiliated with the Member, in anticipation of strong customer demand. Actual customer demand was well below expectations, which resulted in excess distributor inventory and depressed fiscal 1998 sales. Furthermore, in the last quarter of fiscal 1998, the Pharma Labs business was winding down and production was scaled back. COST OF SALES - Cost of sales as percentage of sales was 82% in fiscal 1998 compared to 68% for fiscal 1997. This increase in cost of sales as a percentage of sales from the prior year is due to the loss of higher margin sales from the radiopharmaceutic business in the current year due to the sale of that business in April 1997 and higher cost of sales at Pharma Labs. Pharma Labs' cost of sales increased from 76% of sales in the prior year to 142% of sales in the current year due primarily to lower selling prices, higher material costs, higher per unit overhead cost resulting from the lower sales volume and a $367,000 write off of inventory. QCP's cost of sales remained at 72% of net sales. SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative expenses (SG&A), excluding the unusual charges discussed below, were $6,819,000, an increase of $425,000 compared to $6,394,000 during fiscal 1997. QCP's SG&A expense increased to $4,788,000 from $4,181,000 in the prior year due to increased spending on staffing and infrastructure costs to support QCP's long term growth program and development of new product initiatives, as discussed in greater detail under "Liquidity and Capital Resources." Golden's SG&A expense decreased $426,000 to $867,000 from $1,293,000 during the prior year. This decrease was due primarily to the elimination of SG&A expenses as a result of the sale of the radiopharmaceutical business. Pharma Labs' SG&A expense during fiscal 1998 was $1,164,000 compared to $920,000 during fiscal 1997 as a result of bad debt expenses of $383,000 during fiscal 1998. 7 9 UNUSUAL CHARGES / IMPAIRMENT LOSS - Efforts to turn around the poor performance of Pharma Labs did not meet expectations, and the Company could no longer be assured that future cash flow from Pharma Labs would cover the carrying value of certain assets. Accordingly, Pharma Labs recorded a non-cash impairment loss of $943,000 related to the write-down of property, plant and equipment to estimated net realizable value and the write-off of capitalized non-compete agreement costs, net of amortization. GOODWILL IMPAIRMENT CHARGE - Based on the current year's operating loss and negative cash flow from operations from operations, combined with a history of operating losses and negative cash flow from operations, the Company has determined that significant uncertainty exists regarding the recoverability of the carrying value of goodwill. Accordingly, a $3,510,000 goodwill impairment charge was recorded in the fourth quarter of fiscal 1998. INTEREST EXPENSE - Interest expense decreased to $598,000 from $1,456,000 in fiscal 1997 primarily due to the repayment of the $3,750,000 term loan on April 7, 1997. GAIN ON DISPOSAL OF ASSETS - In fiscal 1998, the Company recorded a $112,000 gain on the sale of a building located in Golden, Colorado. This facility was no longer needed due to the consolidation of the Company's operations in California. NET INCOME (LOSS) - The Company reported a net loss of ($10,068,000) for fiscal 1998 as compared to a net income of $1,821,000 for fiscal 1997. The fiscal 1998 net loss was primarily due to operating losses of ($10,131,000) compared to an operating loss of ($2,583,000) in the prior year. Contributing to the current year operating loss was a $3,510,000 goodwill impairment charge as discussed above, and a $943,000 unusual charge - impairment loss related to the revaluation of Pharma Labs property, plant and equipment and write-off of an intangible asset pertaining to a non-compete agreement. The current year operating loss also includes the following items related to the shut down of Pharma Labs; a $367,000 write-off of inventory, a $415,000 write-off of a trade receivable from a Vietnam based business and a $676,000 bad debt provision taken against working capital loans made to Pharma Labs. FOURTH QUARTER ADJUSTMENTS - Operating results for the fourth quarter of fiscal 1998 include the following adjustments: (i) A $385,000 write down of property held for sale to re-value Pharma Labs assets to their selling price as specified in a pending sale contract. (ii) A $125,000 adjustment to re-instate a payable due to the other member of Pharma Labs in accordance with a non-complete agreement. These adjustments were included in the category unusual charges impairment loss. And (iii), a $167,000 write-off of Pharma Labs inventory was charged to cost of sales in the fourth quarter of fiscal 1998. As disclosed in "Note R" to "Notes to Consolidated Financial Statements", a $3,510,000 goodwill impairment charge was recorded in the fourth quarter of fiscal 1998. FISCAL YEAR ENDED AUGUST 31, 1997, COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1996 ($ ROUNDED TO NEAREST THOUSAND) NET SALES - Net sales for the fiscal year ended August 31, 1997, increased 18% to $11,958,000 from $10,157,000 for the fiscal year ended August 31, 1996. This increase is primarily due to (1) a 33% or $2,015,000 increase in QCP sales due to an expanded customer base and (2) a full year of Pharma Labs sales of $1,555,000 compared to sales of $249,000 in the prior start-up year. These increases were partially offset by a $1,517,000 decline in the Company's sales as a result of the sale of its radiopharmaceutical business in April 1997. COST OF GOODS SOLD - Cost of goods sold as a percentage of sales increased to 68.1% for the fiscal year ended August 31, 1997, as compared to 64.4% for the fiscal year ended August 31, 1996. This increase is primarily attributable to the loss of gross margin from the sale of the Company's radiopharmaceutical business. SELLING GENERAL AND ADMINISTRATIVE - Selling, general and administration expenses ("SG&A") increased to $6,394,000 in fiscal 1997 from $3,872,000 in the prior year. QCP's SG&A spending increased to $4,181,000 from $2,202,000 in the prior year due to increased spending on staffing and infrastructure costs to support QCP's growth program. QCP's selling and marketing expenses increased $1,049,000 from the prior year primarily to support sales force expansion and addition of key management positions. QCP's general and administrative expenses increased $930,000 from 8 10 the prior year due primarily to (1) increases in staffing and related expenses, (2) higher facility and overhead costs, (3) formation of an MIS department, and (4) higher bad debt expense. The remainder of the increase in SG&A was a result of Pharma Labs' SG&A increasing to $920,000 in the current year from $166,000 in fiscal 1996. This increase is a result of a full year of Pharma Labs operation in fiscal 1997 compared to two months in fiscal 1996. These increases were partially offset by GPI's SG&A expense decrease of $191,000 from the prior year level of $1,485,000 due to the sale of the radiopharmaceutical business in April, 1997. NET INCOME - The Company reported net income of $1,821,000 for fiscal 1997 as compared to a net loss of ($992,000) for fiscal 1996. The fiscal 1997 net income level was attained primarily due to the $6,210,000 gain on the sale of the radiopharmaceutical business in April 1997. Losses from operations were ($2,583,000) in fiscal 1997, compared to an operating loss of ($254,000) in the prior year. The 1997 operating losses were due primarily to significantly increased spending on staff and infrastructure in support of long term growth plans. Fiscal 1997 net income was also negatively impacted by interest expense of $1,456,000 up from $807,000 in the prior year, income tax expense of $642,000 and benefited from a favorable minority interest allocation of $269,000. FOURTH QUARTER ADJUSTMENTS - Operating results for the fourth quarter of fiscal 1997 include the following adjustments: a $483,000 reduction to other income and notes receivable to eliminate revenue due under the terms of the June 14, 1996, Guarantee Agreement with the other member of Pharma Labs. Collectability of this amount is not reasonably assured. Accruals were made to reflect the impact of the September 1997, Pondimin and Redux diet drug product withdrawal. Net sales and receivables were decreased $238,000 for estimated returns applicable to fiscal 1997 sales, and cost of sales was decreased and receivables increased by $197,000 for the estimated cost of the returned product and estimated refund due from the product manufacturer. An additional $222,000 provision for doubtful accounts was made in the last quarter primarily due to adverse conditions in the diet clinic industry. The diet drug withdrawal and adverse publicity in the media have negatively impacted many of the Company's diet clinic customers. LIQUIDITY AND CAPITAL RESOURCES ($ ROUNDED TO NEAREST THOUSAND) The following table is presented to facilitate the discussion of the Company's current liquidity and sets forth the Company's liquidity position as of August 31, 1998, as compared to August 31, 1997.
August 31, 1998 August 31, 1997 --------------- --------------- Current assets $ 2,471,000 $ 3,256,000 Current liabilities 7,906,000 3,132,000 ----------- ----------- Net working capital (deficiency) $(5,435,000) $ 124,000
At August 31, 1998, current assets were $2,471,000, a decrease of $785,000 from the prior year end. Decreases in inventory and trade receivables of $447,000 and $401,000, respectively, from fiscal 1997 year end levels were partially offset by a reclassification of $150,000 in Pharma Labs assets held for sale to the current assets category. The decrease in inventory was due to the following: Pharma Labs' inventory decreased to $0 from $539,000 at last year end as a result of the wind-down of Pharma Labs' business. Partially offsetting the Pharma Labs' inventory decline was an increase in QCP inventory to accommodate an expanded product line. The decrease in trade receivables was primarily due to a $526,000 decrease in Pharma Labs' trade receivables as a result of the wind-down of Pharma Labs' business. At August 31, 1998, current liabilities were $7,906,000, an increase of $4,774,000 from the prior year end, primarily due to an increase in notes payable - related parties of $4,399,000, and an increase in accrued interest on these notes of $313,000. The Company has capitalized leases and operating leases for equipment, facilities and a vehicle used in its business. Minimum lease payments for its capitalized and operating leases are expected to be $311,000 and $367,000, respectively, for the fiscal year ending August 31, 1999. As of August 31, 1998, the Company had net operating loss carry forwards for federal income tax purposes of approximately $15,255,000. The net operating loss carry forwards will expire in the 9 11 years 1998 through 2013. The Company's ability to utilize its net operating loss carry forwards is subject to an annual limitation in future periods pursuant to the "change in ownership" rules under Section 382 of the Internal Revenue Code of 1986. The Company has established a valuation allowance against 100% of the net operating loss carry forwards because it is uncertain whether the Company will utilize these carry forwards due to continuing operating losses. Prior to September 1997, the Company's primary source of funds for working capital was the Company's revolving facility with the Bank. At August 31, 1998, the balance outstanding was $834,000, and the interest rate under the Revolving Facility was 11.5%. The Revolving Facility is collateralized by QCP's accounts receivable and inventory, and availability under the Revolving Facility is determined based on eligible accounts receivable and inventory. At August 31, 1998, the Company was not in compliance with certain covenants of the Revolving Facility, including covenants regarding book net worth, debt service coverage, interest coverage, net income (loss) and capital expenditures. The Company re-negotiated the terms of the Credit Agreement with the Bank, including re-negotiation of the above covenants, and an Amended and Restated Credit Agreement ("Credit Agreement Amendment") was signed by both parties on August 7, 1998, but the effectiveness of the Credit Agreement Amendment was conditional upon the Company obtaining a $2.5 million capital investment by August 31, 1998. To date the Company has not obtained the $2.5 million capital investment, and on October 27, 1998, the Bank informed the Company of its decision to; (1) implement an additional one percent (1%) default rate of interest provided for the Credit Agreement, retroactive back to July 31, 1998; (2) reduce the maximum loan commitment level to $1.0 million; and (3) terminate the credit agreement on February 1, 1999. In such letter, the Bank also reserved its right to take further action with respect to the defaults in the future. If the Company is unable to repay the Revolving Facility or obtain substitute financing, the Bank has the right to, among other things, (i) accelerate all unpaid principal and interest with respect to all debts, liabilities or obligations owed to the Bank by QCP, (ii) put account debtors of QCP on notice that payments due QCP should be made to a lockbox for the benefit of the Bank, collect such payments and apply such collections to payment of the obligations owed to the Bank, (iii) occupy all premises where QCP conducts business without payment of rent and (iv) foreclose its security interest in all the equipment, general intangibles, inventory and receivables owned by QCP. The Company is seeking alternative working capital financing sources, but has no commitment for such financing in place and there can be no assurance that it will be able to obtain any such financing. The Company has been unable to borrow sufficient amounts under the Revolving Facility to finance its working capital requirements. In order to help meet its working capital requirements, the Company has borrowed money from certain shareholders and directors of the Company. The loans are evidenced by promissory notes which provide for interest at the Bank's prime plus 2%. The promissory notes are unsecured obligations. The amounts outstanding under the promissory notes in aggregate were $5,014,200 ($4,544,200 payable to Charles R. Drummond; $470,000 payable to Arch G. Gothard, III) and $5,364,200 ($4,894,200 payable to Charles R. Drummond; $470,000 payable to Arch G. Gothard, III) at August 31, 1998, and December 1, 1998, respectively. Certain of the promissory notes ($1,425,000 payable to Charles R. Drummond and $470,000 payable to Arch G. Gothard, at August 31, 1998) were payable on demand or no later than April 1, 1998 and, accordingly, are past due. Pursuant to a letter dated October 30, 1998, Charles R. Drummond committed not to demand payment of, or take any action to collect, the promissory notes owed him until August 31, 1999 or such time as the Company has the ability to repay such promissory notes. The promissory notes payable to Charles R. Drummond are fully subordinate for all purposes to the security interest of the Bank. The Company has suffered substantial recurring losses from operations. The Company has incurred a net loss of ($10,067,760) during the fiscal year ended August 31, 1998, and, as of that date, the Company's current liabilities exceeded its current assets by $5,435,000 and its total liabilities exceeded its total assets by $4,595,000. These factors, in combination with the matters discussed in the previous paragraphs raise substantial doubt about the Company's ability to continue as a going concern. Approximately $5 million may be required to support the Company's ongoing operations, exclusive of debt repayments, through August 31, 1999. To date, the Company does not have any commitments with respect to such financing and there can be no assurance that financing will be available to the Company on terms acceptable to the Company, if at all. The Company's ability to continue as a going concern is dependent upon its ability to obtain funding for the Company's capital requirements and to refinance the Credit Facility. The 10 12 Company's shareholder deficit, and continuing losses create serious risk of loss for the holders of the Company's securities. DISCLOSURE OF SIGNIFICANT RISK AND UNCERTAINTY At August 31, 1998, the Company conducted a test for asset impairment in accordance with financial Accounting Standard 121. It is management's opinion that, exclusive of the write-downs for Pharma Labs and the write-off of goodwill, no additional impairment loss occurred. QCP has a current period operating loss and negative cash flow from operations, and is expected to have continuing losses in the near term. Key assumptions in the asset impairment test include reversal of recent operating losses and sales declines, several years of significant sales growth, and product cost reduction achieved through purchasing and volume efficiencies. Management feels this projection is achievable considering the size of the retail pharmacy market ($84 billion), the growth rate of competitors in the industry, and based on estimates of growth potential made by companies participating in the industry. If management's assumptions prove too optimistic, an impairment charge, based on an undiscounted cash flow analysis, would result. The impairment charge would be computed based on the excess of carrying value over the fair value of assets. This would result in a valuation adjustment to the $1,293,000 in property, plant and equipment. Accordingly, it is reasonably possible that the results of the impairment test may change in the future and an impairment loss may result. YEAR 2000 The Company recognizes the need to ensure its operations will not be adversely impacted by year 2000 software failures. The Company is addressing this risk to the availability and integrity of financial systems and the reliability of operational systems. The Company has established processes for evaluating and managing the risks and costs associated with this problem. The Company is currently planning to install a new business software package in 1999 to accommodate business growth and upgrade current systems. This package is year 2000 compliant. An initial assessment has been completed and the incremental cost of achieving Year 2000 compliance, exclusive of the upgrade cost for the new software previously discussed, is estimated to be not material. Timely implementation of the new business software package is critical to year 2000 compliance. Cost will be expensed as incurred and are estimated to continue through fiscal 1999. ITEM 7. FINANCIAL STATEMENTS The financial statements of the Company are attached to this Report. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 11 13 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The following persons hold the positions indicated.
Principal Occupation or Employment During the Past Five Years; Director Name & Age Other Directorships Since ---------- ---------------------------------------------------------------- ----- Charles R. Drummond Chairman of the Board of Directors, Chief Executive Officer and 1991 (55) Treasurer of the Company since 1992. Owner and operator of Drummond Ranches, a cattle ranching operation in Pawhuska, Oklahoma, since 1965. Partner in Drummond and Hull Oil Company. Director. Co-owner of Drummond Land and Cattle Company since Ladd A. Drummond January 1991; operator of risk management and investment 1994 (29) businesses. Arch G. Gothard, III Director. President of First Kansas, Inc. since October 1988. Mr. 1995 (53) Gothard is also serves as a director of First State Bank, Kenco Plastics, Inc., LDI, Inc., Pay Phone Concepts, Inc. and Collins Industries, Inc. John H. Grant Vice Chairman & Secretary of the Board of Directors and Chief 1990 (56) Operating Officer of QCP. Professor of Business Administration, University of Pittsburgh, Pennsylvania from January 1972 to August 1997. Gary P. Pryor Vice President, Finance since July 1997. Chief Financial Officer at N/A (49) Johnston Sweeper Company from June 1995, to June 1997, and Vice President, Finance, at Bicore Monitoring Systems, Inc. from December 1991 to June 1995. Richard G. Wahl Director. Owner and President of MRD Construction Incorporated, 1993 (62) since 1964. Mr. Wahl also serves as managing partner of both G & W Construction of Evergreen, Colorado, and Willow Ridge Conference Center of Morrison, Colorado.
The Company's Articles of Incorporation, as amended, provide for a board of directors made up of three classes. The members of each class serve three-year staggered terms with one class to be elected at each annual meeting. As provided in the Company's Bylaws, the Board has currently set the total number of directors at five (5). The current terms of the Class A, Class B and Class C directors expire at the Company's annual meeting of shareholders in 1998, 1999 and 2000, respectively. Officers serve at the discretion of the Board of Directors and are elected at the first meeting of the Board of Directors after each annual meeting of shareholders. Charles R. Drummond and Ladd A. Drummond are father and son. There are no other family relationships between any of the directors and executive officers of the Company. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE - Section 16(a) of the Securities Exchange Act of 1934 and the rules thereunder require the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish the Company with copies. Based solely on its review of the copies of the Section 16(a) forms received by it, or written representations from certain reporting persons, the Company believes that, during the last fiscal year, all Section 16(a) filing requirements applicable to its officers, directors and greater-than-ten-percent beneficial owners were filed in compliance with all applicable filing requirements. 12 14 ITEM 10. EXECUTIVE COMPENSATION The following table sets forth certain information concerning compensation paid by the Company to the Chief Executive Officer and any executive officer whose total annual salary and bonus exceeded $100,000 for the last fiscal year:
-------------------------------------------------------------------------------------------------------------------- SUMMARY COMPENSATION TABLE -------------------------------------------------------------------------------------------------------------------- ANNUAL LONG-TERM COMPENSATION COMPENSATION AWARDS -------------------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (g) (i) -------------------------------------------------------------------------------------------------------------------- SECURITIES ALL OTHER NAME & PRINCIPAL POSITION UNDERLYING COMPENSATION YEAR SALARY ($) BONUS ($) OPTIONS/SARS (#) ($) -------------------------------------------------------------------------------------------------------------------- Charles R. Drummond 1998 150,000 -0- -0- 24,000 (1) Chairman, Chief Executive 1997 150,000 -0- -0- 24,000 (1) Officer and Treasurer 1996 125,000 25,000 -0- -0- -------------------------------------------------------------------------------------------------------------------- John H. Grant 1998 105,000 -0- -0- -0- Vice Chairman, Chief Operating 1997 8,750 -0- -0- -0- Officer and Secretary 1996 -0- -0- -0- -0- -------------------------------------------------------------------------------------------------------------------- Bruce A. Goldberg (2) 1998 105,000 -0- -0- -0- President, GPI 1997 104,000 -0- -0- -0- 1996 104,000 20,000 -0- -0- --------------------------------------------------------------------------------------------------------------------
(1) Living Allowance. (2) Mr. Goldberg is no longer an employee of the Company. The foregoing compensation tables do not include certain fringe benefits made available on a nondiscriminatory basis to all Company employees such as group health insurance, dental insurance, long-term disability insurance, vacation and sick leave. In addition, the Company makes available certain non-monetary benefits to its executive officers with a view to acquiring and retaining qualified personnel and facilitating job performance. The Company considers such benefits to be ordinary and incidental business costs and expenses. The aggregate value of such benefits in the case of each executive officer and of the group listed in the above table, which cannot be precisely ascertained but which is less than the lesser of (a) ten percent of the cash compensation paid to each such executive officer or to the group, respectively, or (b) $50,000, or $50,000 times the number of individuals in the group, as the case may be, is not included in such table. EMPLOYMENT AGREEMENTS - On September 1, 1991 the Company entered into an employment agreement with Mr. Charles R. Drummond whereby Mr. Charles R. Drummond was employed by the Company beginning on September 1, 1991 for a period of three years or the termination of the employment agreement. Pursuant to the terms of the agreement, Mr. Charles R. Drummond's duties are to act as Chairman of the Board and Secretary of the Company. The agreement provides that Mr. Charles R. Drummond will be paid an annual salary subject to periodic increases from time to time at the sole discretion of the Board. The agreement provides that Mr. Charles R. Drummond's employment with the Company may be terminated for cause, as defined therein. If Mr. Charles R. Drummond's employment is terminated without cause, the Company shall pay Mr. Charles R. Drummond, in addition to amounts accrued during the respective periods prior to such termination, severance pay in an amount equal to the amount of compensation that would otherwise be payable to Mr. Charles R. Drummond under the agreement. The Board and Mr. Charles R. Drummond have agreed to extend the employment agreement on a year to year basis. Mr. Charles R. Drummond's salary for the period of September 1, 1998, through August 31, 1999, will be $190,000 plus a living allowance of $60,000. In 1997, the Company entered into an employment agreement with John H. Grant for a period of five years or until termination of the agreement. Mr. Grant's duties include service as Vice Chairman of the Board at a minimum annual salary of $95,000. He is currently being paid a salary of $105,000 per year. 13 15 In October 1992, the Company adopted a Performance Stock Option Plan (the "Plan"), approved by the shareholders, for the benefit of employees, officers and directors of the Company, including the executive officers referred to in the Summary Compensation Table. The Stock Option Committee of the Board of Directors selects the optionee and determines the terms and conditions of the stock option grants. As of August 31, 1998, options to purchase 950,000 shares of common stock were outstanding pursuant to the Plan. COMPENSATION OF DIRECTORS - Directors who are not employees of the Company are entitled to $1,500 for each board meeting attended in person, and $500 for each committee meeting attended in person plus reimbursement for travel and other expenses relating to attendance at each such meeting. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of outstanding shares of common stock as of November 30, 1998, by (i) each person who is known by the Company to own beneficially more than five percent of the outstanding shares of the Company's common stock, (ii) the Company's directors, Chief Executive Officer and executive officers whose total compensation exceeded $100,000 for the last fiscal year; and (iii) all directors and executive officers of the Company as a group.
Shares Name Beneficially Owned Percent of Class ---- ------------------ ---------------- Timothy E. Drummond(1) 15,154,546 12% 623 Kihekah Pawhuska, Oklahoma 74056 Charles R. Drummond(1) 29,086,376 23% 3000 West Warner Avenue Santa Ana, CA 92704 John H. Grant (1) 2,314,435 2% 3000 West Warner Avenue Santa Ana, CA 92704 Richard G. Wahl(1) 3,227,594 3% 150 Buckboard, Box 1328 Edwards, CO 81632 Ladd A. Drummond(1) 15,233,203 12% 623 Kihekah Pawhuska, Oklahoma 74056 Arch G. Gothard, III(1) 3,126,804 3% Box 5950 Breckenridge, CO 80424 Bruce A. Goldberg(1) 6,561,000 5% 5225 Dayton St. Greenwood, CO 80111 Daniel B. Guinn(1) 2,100,000 2% 3000 West Warner Avenue Santa Ana, CA 92704 All executive officers and directors as a group (six persons)(1) 55,088,412 44%
(1) Shares are considered beneficially owned, for purposes of this table, only if held by the person indicated, or if such person, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares the power to vote, to direct the voting of and/or to dispose of or to 14 16 direct the disposition of, such security, or if the person has the right to acquire beneficial ownership within 60 days, unless otherwise indicated. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In August 1995, the Company issued 2,000,000 shares of its common stock to a corporation of which Mr. Charles R. Drummond is the sole shareholder in order to have the Company released from a contingent liability. This matter has been resolved and the shares are in the process of being transferred back to the Company. In January 1997, the Company issued 2,000,000 shares of its common stock to Daniel B. Guinn, President of QCP, as consideration for terminating an employment agreement originally entered into July 9, 1995. The agreement terminating the employment agreement was effective March 9, 1996, but the common stock issued as consideration was not issued until January 1997. The Company is due $34,445 from a related entity with common shareholders and officers. The amount due the Company has been guaranteed by the shareholders. The related shareholders are as follows: Charles R. Drummond, Bruce A. Goldberg, Daniel B. Guinn, and Arch G. Gothard, III, all of whom are officers or directors of the Company. RxDirect subleases approximately 1,500 square feet at the Santa Ana, California, facility for $7,800 per year. LOANS FROM SHAREHOLDERS AND DIRECTORS - During the fiscal year ended August 31, 1998, and subsequent to the end of the year, the Company obtained financing through the issuance of notes payable to certain shareholders and directors of the Company. The amounts outstanding through the issuance of these notes payable were $5,014,200 ($4,544,200 payable to Charles R. Drummond; $470,000 payable to Arch G. Gothard III) and $5,364,200 ($4,894,200 payable to Charles R. Drummond; $470,000 payable to Arch G. Gothard III) at August 31, 1998, and December 1, 1998, respectively. 15 17 PART IV Item 13. Exhibits and Reports on Form 8-K (a) The following documents of the Company are filed as a part of this Report 1. Financial Statements 2. Financial Statement Schedules Schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission have been omitted because they are not required under the related instructions or the information related is contained elsewhere in the financial statements. 3. Exhibits
Exhibit No. Description - ----------- ----------- 3.1(1) Articles of Incorporation filed October 4, 1973. 3.2(1) Articles of Amendment to Articles of Incorporation filed December 22, 1976. 3.3(1) Articles of Amendment to Articles of Incorporation filed August 25, 1978. 3.4(1) Articles of Amendment to Articles of Incorporation filed June 15, 1979. 3.5(1) Articles of Amendment to Articles of Incorporation filed January 12, 1981. 3.6(1) Articles of Amendment to Articles of Incorporation filed June 16,1987. 3.7(1) Articles of Amendment to Articles of Incorporation filed October 9, 1992. 3.8(2) Articles of Amendment to Articles of Incorporation filed December 16, 1997 3.9(1) Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed December 9, 1987. 3.10(1) Corrected Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed December 14, 1987. 3.11(1) Corrected Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed February 5, 1988. 3.12(1) Certificate of Designation of Class A Convertible Preferred Stock filed October 12, 1990. 3.13(3) Second Amended and Restated Bylaws 4.2(1) Specimen Certificate for Common Stock, no par value per share.
16 18 10.1(3) Amended and Restated Credit and Security Agreement dated August 7, 1995 among the Company, Quality Care Pharmaceuticals, Inc. and Norwest Credit, Inc. 10.2(4) Operating Agreement dated June 14, 1996 between the Registrant and Pharma France, Inc. 10.3* Form of Promissory Notes executed by the Company in favor of Charles R. Drummond. Schedule A sets forth the date and principal amount of each promissory note. 10.4* Form of Promissory Notes executed by the Company in favor of Arch G. Gothard, III. Schedule B sets forth the date and principal amount of each promissory note. 10.5* Purchase Agreement dated November 10, 1998 by and among Adams Equities, Inc., Pharma Labs, LLC, GMP Laboratories of America and Golden Pharmaceuticals, Inc. 10.6* Agreement Not to Compete dated November 10, 1998 among Pharma Labs, LLC, Golden Pharmaceuticals, Inc. 21(2) Subsidiaries of the Registrant. 27* Financial Data Schedule. (b) Reports on Form 8-K None.
- ------------- (1) Incorporated by reference to registrant's Annual Report on Form 10-K, dated August 31, 1991, as filed with the Securities and Exchange Commission. (2) Incorporated by reference to registrant's Annual Report on Form 10-K, dated August 31, 1997, as filed with the Securities and Exchange Commission (3) Incorporated by reference to registrant's Annual Report on Form 10-K, dated August 31, 1995, as filed with the Securities and Exchange Commission. (4) Incorporated by reference to registrant's Annual Report on Form 10-K, dated August 31, 1996, as filed with the Securities and Exchange Commission. * Filed herewith. 17 19 GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
Page ---- FINANCIAL STATEMENTS: Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheets as of August 31, 1998 and 1997 F-3 Consolidated Statements of Operations for the Years Ended August 31, 1998 and 1997 F-5 Consolidated Statement of Stockholders' Equity (Deficit) for the Years Ended August 31, 1998 and 1997 F-6 Consolidated Statements of Cash Flows for the Years Ended August 31, 1998 and 1997 F-7 Notes to Consolidated Financial Statements F-9
F-1 20 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Golden Pharmaceuticals, Inc. Golden, Colorado We have audited the accompanying consolidated balance sheets of Golden Pharmaceuticals, Inc. (a Colorado corporation) and Subsidiaries as of August 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Golden Pharmaceuticals, Inc. and Subsidiaries as of August 31, 1998 and 1997, and the consolidated results of their operations and their consolidated cash flows for each of the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $10,067,760 during the year ended August 31, 1998, and, as of that date, the Company's current liabilities exceeded its current assets by $5,435,192 and its total liabilities exceeded its total assets by $4,594,824. These factors, among others, as discussed in Note C to The financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note C. The financial statements do not include any adjustments that might result from the outcome of this uncertainly. GRANT THORNTON LLP Denver, Colorado October 28, 1998 (except for Note T, as to which the date is December 3, 1998) F-2 21 GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
AUGUST 31, ------------------------ 1998 1997 ---------- ---------- CURRENT ASSETS Cash $ 61,860 $ 26,143 Trade receivables, net of allowance for doubtful accounts of $535,945 and $446,834 at August 31, 1998 and 1997 1,377,291 1,778,321 Notes receivable 139,797 252,500 Inventories 577,947 1,024,689 Prepaid expenses and other 141,144 174,768 Net assets held for sale 173,000 -- ---------- ---------- TOTAL CURRENT ASSETS 2,471,039 3,256,421 PROPERTY, PLANT AND EQUIPMENT - AT COST 2,166,642 3,362,288 Less accumulated depreciation and amortization 873,325 908,804 ---------- ---------- TOTAL PROPERTY, PLANT & EQUIPMENT 1,293,317 2,453,484 OTHER ASSETS Goodwill, less accumulated amortization of $422,784 at August 31, 1997 -- 3,740,525 Intangibles - net of accumulated amortization of $1,933 and $1,133 at August 31, 1998 and 1997 10,067 10,867 Non-compete agreement 69,050 331,076 Investment in joint venture -- 1,866 ---------- ---------- TOTAL OTHER ASSETS 79,117 4,084,334 ---------- ---------- TOTAL ASSETS $3,843,473 $9,794,239 ========== ==========
See Notes to Consolidated Financial Statements F-3 22 GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - continued LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31, ----------------------------- 1998 1997 ------------ ------------ CURRENT LIABILITIES Notes payable $ 833,639 $ 743,168 Notes payable - related parties 5,014,200 615,000 Current maturities of long-term debt 212,228 262,506 Current maturities of capitalized lease obligations 224,588 202,061 Accounts payable 1,142,999 1,041,639 Income taxes payable -- 40,000 Accrued liabilities Salaries, wages and other compensation 47,070 161,277 Interest 316,854 3,506 Other 114,653 63,250 ------------ ------------ TOTAL CURRENT LIABILITIES 7,906,231 3,132,407 LONG-TERM OBLIGATIONS, less current maturities 25,000 80,903 CAPITALIZED LEASE OBLIGATIONS, less current maturities 467,191 528,774 EXCESS LOSS ON INVESTMENT IN JOINT VENTURE 39,875 -- CONTINGENCIES AND COMMITMENTS -- -- MINORITY INTEREST -- 582,969 STOCKHOLDERS' EQUITY (DEFICIT) Common stock - no par value; 200,000,000 shares authorized; 128,451,873 and 128,416,847 issued; 125,162,873 and 125,127,847 outstanding in 1998 and 1997, respectively 24,714,858 24,709,383 Preferred stock - no par value; 10,000,000 shares authorized Class A 15%/ 30% cumulative convertible, 29,653 shares issued and outstanding in 1998 and 1997 292,558 292,558 Dividends accrued on preferred stock 236,419 234,363 ------------ ------------ 25,243,835 25,236,304 Accumulated deficit (29,744,527) (19,672,986) ------------ ------------ (4,500,692) 5,563,318 Less common stock in treasury at cost, 3,289,000 shares at August 31, 1998 and 1997 94,132 94,132 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (4,594,824) 5,469,186 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,843,473 $ 9,794,239 ============ ============
See Notes to Consolidated Financial Statements F-4 23 GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, ------------------------------- 1998 1997 ------------- ------------- NET SALES $ 6,443,863 $ 11,957,841 COST OF SALES 5,302,545 8,146,734 ------------- ------------- GROSS MARGIN 1,141,318 3,811,107 Selling, general and administrative expense 6,819,170 6,394,291 Unusual charge - impairment loss 943,275 -- Goodwill impairment charge 3,509,847 -- ------------- ------------- OPERATING LOSS (10,130,974) (2,583,184) OTHER INCOME (EXPENSE) Interest expense (598,160) (1,456,439) Joint venture loss (125,741) (71,358) Gain on disposal of division -- 6,210,434 Gain (loss) on disposal of assets 112,074 (2,048) Other income (expense) 99,786 96,507 ------------- ------------- TOTAL OTHER INCOME (EXPENSE) (512,041) 4,777,096 ------------- ------------- INCOME (LOSS) BEFORE (10,643,015) 2,193,912 INCOME TAX EXPENSE INCOME TAX EXPENSE 7,714 642,390 ------------- ------------- INCOME (LOSS) BEFORE MINORITY INTEREST (10,650,729) 1,551,522 MINORITY INTEREST 582,969 269,404 ------------- ------------- NET INCOME (LOSS) $ (10,067,760) $ 1,820,926 ============= ============= BASIC EARNINGS (LOSS) PER SHARE $ (.08) $ .01 ============= ============= DILUTED EARNINGS (LOSS) PER SHARE $ (.08) $ .01 ============= ============= NUMBER OF SHARES USED IN PER SHARE CALCULATION: Basic 125,149,055 122,192,311 ============= ============= Diluted 125,149,055 122,687,952 ============= =============
See Notes to Consolidated Financial Statements F-5 24 GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
COMMON STOCK PREFERRED STOCK ------------------------------------------------------------ OBLIGATION 15% / 30% TO ISSUE CUMULATIVE COMMON ---------------------------- STOCK SHARES AMOUNT SHARES AMOUNT AMOUNT ------------ ------------ ------------ ------------ ------------ BALANCE - September 1, 1996 124,063,778 $ 23,867,384 29,653 $ 292,558 $ 200,000 Accrued dividends on preferred stock (Note L) -- -- -- -- -- Conversion of debt, bonus and services to common stock 353,069 241,999 -- -- -- Common stock issued pursuant to joint marketing agreement (Note D) 1,000,000 300,000 -- -- -- Stock options exercised 1,000,000 100,000 -- -- -- Common stock issued as consideration for terminating employment agreement 2,000,000 200,000 -- -- (200,000) Net income -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ BALANCE - August 31, 1997 128,416,847 $ 24,709,383 29,653 $ 292,558 $ -- Accrued dividends on preferred stock (Note L) -- -- -- -- -- Conversion of debt, dividends payable and services to common stock 35,026 5,475 -- -- -- Net Loss -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ BALANCE - August 31, 1998 128,451,873 $ 24,714,858 29,653 $ 292,558 $ -- ============ ============ ============ ============ ============ DIVIDENDS ACCRUED ON PREFERRED ACCUMULATED TREASURY STOCK STOCK DEFICIT ---------------------------- AMOUNT AMOUNT SHARES AMOUNT ------------ ------------ ------------ ------------ BALANCE - September 1, 1996 $ 450,740 $(21,478,789) 3,289,000 $ 94,132 Accrued dividends on preferred stock (Note L) 15,123 (15,123) -- -- Conversion of debt, bonus and services to common stock (231,500) -- -- -- Common stock issued pursuant to joint marketing agreement (Note D) -- -- -- -- Stock options exercised -- -- -- -- Common stock issued as consideration for terminating employment agreement -- -- -- -- Net income -- 1,820,926 -- -- ------------ ------------ ------------ ------------ BALANCE - August 31, 1997 $ 234,363 $(19,672,986) 3,289,000 $ 94,132 Accrued dividends on preferred stock (Note L) 3,781 (3,781) -- -- Conversion of debt, dividends payable and services to common stock (1,725) -- -- -- Net Loss -- (10,067,760) -- -- ------------ ------------ ------------ ------------ BALANCE - August 31, 1998 $ 236,419 $(29,744,527) 3,289,000 $ 94,132 ============ ============ ============ ============
See Notes to Consolidated Financial Statements F-6 25 GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, ----------------------------- 1998 1997 ------------ ------------ CASH FLOWS USED IN OPERATING ACTIVITIES Net income (loss) $(10,067,760) $ 1,820,926 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 806,548 777,955 (Gain) Loss on disposal of property, plant and equipment (112,074) 2,048 Gain on sale of division -- (6,210,434) Unusual charge - impairment loss 943,275 -- Goodwill impairment charge 3,509,847 -- Non-cash settlement of land judgement -- 150,000 Stock issued for services and fees 3,750 10,500 Minority interest (582,969) (269,404) Joint venture loss 125,741 71,358 Changes in assets and liabilities net of effects of acquisition and joint venture: (Increase) decrease in accounts receivable 401,030 (334,637) Decrease in inventories 423,743 311,944 (Increase) decrease in prepaid expenses and other 33,624 (6,186) Decrease in deferred taxes -- 600,000 Increase in accounts payable 101,360 120,593 Increase (decrease)in income taxes payable (40,000) 40,000 Increase (decrease) in accrued expenses 250,544 (54,363) ------------ ------------ TOTAL ADJUSTMENTS 5,864,419 (4,790,626) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (4,203,341) (2,969,700) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant, and equipment (332,979) (235,344) Proceeds from sale of property, plant and equipment 198,901 1,153 Proceeds from sale of division -- 6,550,000 Increase investment in joint venture (84,000) (84,000) Decrease (increase) in notes receivable 112,703 (87,500) ------------ ------------ NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES (105,375) 6,144,309 CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under notes payable - related parties 4,480,000 615,000 Payments under notes payable - related parties (80,800) -- Issuance of common stock -- 400,000 Borrowings under capitalized lease and other long term obligations 185,005 -- Payments on capitalized lease and other long-term obligations (330,243) (4,409,365) Borrowings on line of credit 10,208,254 11,449,596 Payments on line of credit (10,117,783) (11,238,569) ------------ ------------ NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES 4,344,433 (3,183,338) ------------ ------------ NET INCREASE (DECREASE) IN CASH 35,717 (8,729) CASH, BEGINNING OF YEAR 26,143 34,872 ------------ ------------ CASH, END OF YEAR $ 61,860 $ 26,143 ============ ============
See Notes to Consolidated Financial Statements F-7 26 GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, ------------------------------ 1998 1997 ------------- ------------- Cash paid during the period for interest $ 284,812 $ 1,597,081 ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Supplemental schedule of non-cash investing and financing activities: Purchase of equipment under a capital lease $ 185,005 $ 478,500 Issue of common stock upon settlement of employment contract -0- 200,000 Issue of note payable in settlement of land judgement -0- 150,000 Conversion of dividends payable to common stock 1,725 231,500 Stock issued for services 3,750 10,500
See Notes to Consolidated Financial Statements F-8 27 A. HISTORY AND BUSINESS ACTIVITY GOLDEN PHARMACEUTICALS, INC. (GPI) is the name of the parent company. In April 1997, GPI sold its radiopharmaceutical and radiochemical drug business (See Note F). GPI is a holding company that provides management support to its subsidiaries. QUALITY CARE PHARMACEUTICALS, INC. (QCP) is a wholly-owned subsidiary of GPI. QCP purchases bulk quantities of pharmaceutical products from manufacturers for repackaging into a single user prescription form, and produces software for dispensing sites. QCP's clients consist of private physicians, hospitals, group practices, managed care programs, pharmacies and other legally constituted medical facilities throughout the United States. PHARMA LABS, LLC. (Pharma Labs), a 52% owned subsidiary of GPI, was engaged in the manufacturing, packaging, and distribution of nutritional supplement products, such as vitamins, minerals and herbal products. Pharma Labs distributed its products primarily to Southeast Asia. On December 3, 1998, the Company completed the sale of Pharma Labs. (See Note G and Note T). RxDIRECT, LLC (RxDirect) is a joint venture with VNA Home Health Systems (VNA), of which the Company owns 50%. RxDirect is engaged in the dispensing of medications via mail order and direct delivery. In October 1998, the Company and VNA signed an agreement pursuant to which VNA would withdraw from the joint venture upon payment of a withdrawal fee of $154,000. (See Note D and Note T). B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include the accounts of GPI, its wholly-owned subsidiary QCP, and its 52% owned subsidiary Pharma Labs, collectively referred to as the Company. All material intercompany balances and transactions have been eliminated in consolidation. Investment in Consolidated Subsidiary - On June 15, 1996, the Company entered into a joint venture agreement with Pharma France, Inc. to form Pharma Labs. At August 31, 1998, the Company owned 52% of Pharma Labs, and accordingly, the accounts of Pharma Labs are consolidated for financial statement purposes. The Company contributed $1,000,000 in working capital, leasehold improvements, and operational support to Pharma Labs, while Pharma France, Inc. contributed $923,076 in machinery and equipment and leasehold improvements. Investment in Joint Venture - RxDirect, a 50% owned subsidiary of QCP, is recorded under the equity method on QCP's financial statements. Inventories - Inventories are stated at the lower of cost or market, determined by the first-in, first-out (FIFO) method. Depreciation and Amortization - Depreciation and amortization are computed on a straight-line basis for book and tax purposes over the estimated useful lives of the respective assets which range from three to fifteen years. Amortization of Capitalized Software Costs - The Company capitalizes and amortizes certain software costs upon project completion on a straight-line basis over a five year period. Goodwill - The Company tests for impairment of goodwill in accordance with the methodology prescribed by the Financial Accounting Standards Board (FASB) in Statement of Financial Accounting Standards (SFAS) 121. Under this method, the goodwill attributable to the acquisition of QCP is grouped with QCP's property, plant and equipment carrying value F-9 28 B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued for comparison to QCP's undiscounted, forecasted cash flow. If the sum of the expected undiscounted cash flow is less than the carrying value of the above assets, an impairment loss is recognized. Earnings Per Common Share - In accordance with SFAS 128, which was effective for periods ending after December 15, 1997, earnings per common share has been revised and the prior period has been restated to present basic and diluted earnings per share. Basic and diluted earnings per share for the fiscal years ended August 31 is calculated as follows:
1998 1997 ------------- ------------- Net income (loss) $ (10,067,760) $ 1,820,926 ------------- ------------- Weighted average number of shares outstanding Basic earnings per share Weighted average shares outstanding for basic earnings per share calculation 125,149,055 122,192,311 ------------- ------------- Diluted earnings per share Weighted average shares outstanding 125,149,055 122,192,311 Effect of exercise of options * ** 495,641 ------------- ------------- Weighted average shares outstanding for diluted earnings per share calculation 125,149,055 122,687,952 ------------- -------------
* The effect of options and convertible shares was not included in the diluted earnings per share calculation for the fiscal year ended August 31, 1998 as they would have been anti-dilutive. The total number of common shares not included in the diluted earnings per share calculation for the fiscal year ended August 31, 1998 that could potentially dilute earnings per share in the future is 1,482,949 shares. ** Options to purchase 350,000 shares of Common Stock at $0.32 per share and 1,000,000 shares of Common Stock at $0.30 per share were outstanding during the fiscal year ended August 31, 1997. These options were not included in the computation of diluted EPS because the exercise prices were greater than the average market price of the Common Stock. These options, which expire June 2001, and July 2001, respectively, were still outstanding at August 31, 1997. Reclassification - Certain reclassifications have been made to conform prior years' information with the current year presentation. Use of Estimates - In preparing the Company's consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, at the date of the consolidated financial statements. Actual results could differ from those estimates. C. REALIZATION OF ASSETS The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Company incurred operating losses of F-10 29 C. REALIZATION OF ASSETS - continued ($10,130,974) and ($2,583,184), respectively, during the years ended August 31, 1998 and 1997. In addition, at August 31, 1998, the Company had a negative working capital position of ($5,435,192) due primarily to $5,014,200 in short term borrowings from related parties (see Note P), and the Company had a total stockholders' deficit of ($4,594,824). These factors among others raises substantial doubt that the Company will be able to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments related to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. As described in Note L, the Company is not in compliance with the covenants of its revolving line of credit, and the Bank elected to exercise certain of its remedies under the Credit Agreement, including termination of the credit agreement by February 1, 1999. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain replacement working capital financing by February 1, 1999, to obtain sufficient equity financing in early fiscal 1999 to re-capitalize the Company, and ultimately to attain profitability. D. INVESTMENT IN JOINT VENTURE On February 12, 1996, QCP entered into a joint venture agreement with VNA to form RxDirect, a mail order/ direct delivery pharmacy. QCP owns 50% of RxDirect and, accordingly, RxDirect is recorded under the equity method on QCP's financial statements. QCP provides management and operational support for RxDirect, and VNA agreed to contribute $300,000 to fund the start up of operations of which $250,000 has been contributed to date. As of August 31, 1998, QCP has contributed $224,000 in services and operational support and has made $244,576 in loans to RxDirect for working capital and to fund operations. In October 1998, the Company and VNA entered into an agreement whereby VNA would withdraw from the joint venture upon payment of a withdrawal fee. Under the terms of the withdrawal agreement, VNA agreed to pay a $154,000 withdrawal fee, including accounts receivable of $47,761. See Note T. The following shows condensed financial information for RxDirect:
AT AUGUST 31, ----------------------- 1998 1997 --------- --------- Total Assets $ 212,071 $ 144,941 ========= ========= Working Capital Loans from QCP $ 244,576 $ 29,503 Total Other Liabilities 21,245 1,706 Total Equity (Deficit) (53,750) 113,732 --------- --------- Total Liabilities & Equity (Deficit) $ 212,071 $ 144,941 ========= =========
FOR THE YEAR ENDED AUGUST 31 ----------------------------- 1998 1997 ------------ ------------ Net Sales $ 546,785 $ 414,604 Total Costs and Expenses 798,267 557,320 ============ ============ Net Loss $ (251,482) $ (142,716) ============ ============
F-11 30 E. JOINT MARKETING AGREEMENT On July 15, 1997, the Company and Dornoch Medical Systems, Inc. (Dornoch) entered into a Joint Marketing Agreement, whereby the Company agreed to market Dornoch's Redaway products. In connection with this agreement, Dornoch purchased 1,000,000 shares of the Company's common stock for $.30 per share and had an option to purchase an additional 1,000,000 shares at $.30 per share. Also, the Company had an option to purchase 220 shares of Dornoch common shares at a purchase price of $2,000 per share. Sales and royalties derived from this agreement were not material. In May 1998, the Joint Marketing Agreement was terminated by mutual consent and all stock purchase options were cancelled. F. SALE OF BUSINESS On April 7, 1997, the Company completed the sale of the assets related to its business line of manufacturing and distributing radiopharmaceutical and radiochemical drugs for a total sale price of $6,700,000 pursuant to the terms of an Asset Purchase Agreement dated April 7, 1997, by and between the Company and Syncor Pharmaceuticals, Inc. Included in the sale was the New Drug Application (NDA) for the radiopharmaceuticals, the building that contains the manufacturing facility for this business, and all of the related equipment. The proceeds from the sale were used to pay off the Company's term loans in the principal amounts of $3,750,000 and $266,660, respectively, and to pay down $1,485,000 of its revolving line of credit. G. DISCONTINUED LINE OF BUSINESS On August 3, 1998, the Company and the other member of Pharma Labs, LLC (Member) entered into an agreement for the Dissolution and Liquidation of Pharma Labs, LLC (Liquidation Plan). In order to facilitate the wind-down of Pharma Labs, the Company entered into a Unit Purchase Agreement on October 8, 1998 with the Member, whereby the Company purchased the Member's 48% equity interest in Pharma Labs for $35,000. On December 3, 1998, the Company completed the sale of Pharma Labs' machinery and equipment to Adams Equities, Inc. (Buyer) for $150,000, pursuant to the terms of a Purchase Agreement dated November 10, 1998. The Purchase Agreement also includes a non-compete agreement between the Company and the Buyer, for which the Company received $250,000 at closing. In addition, the Buyer assumed Pharma Labs' obligations under two (2) equipment leases and an affiliate of Buyer entered into a sublease with the Company to sublease Pharma Labs' facility and reimbursed the Company $57,000 for a lease deposit. Through August 31, 1998, The Company recorded the following adjustments to reduce the carrying value of Pharma Labs assets to estimated net realizable value: Property, plant and equipment, and lease hold improvements were written down $750,775 to the $150,000 sale price per the Purchase Agreement. The unamortized balance of $192,500 remaining on the non-compete agreement with the Member was written-off as no future benefit existed with the shut down of Pharma Labs. These write-downs are reported in the Consolidated Statement of Operations under the category unusual charge. Also, the Pharma Labs' property, plant and equipment is classified in the accompanying Consolidated Balance Sheets as net assets held for sale. The Company recorded a $366,656 loss on the write-off of inventory. All efforts to liquidate this inventory were unsuccessful. In the consolidated Statement of Operations, the inventory write-down was included in cost of sales. F-12 31 G. DISCONTINUED LINE OF BUSINESS - continued The $415,000 trade receivable from a Vietnam-based business affiliated with the Member was written-off as not collectable due to the poor financial condition of the Member and the Company's inability to collect an unsecured debt in Vietnam. To date, the Company loaned Pharma Labs $976,274 in working capital funds. Based on estimated proceeds from the liquidation of Pharma Labs, a $676,000 bad debt provision was recorded against the Pharma Labs loan. In the Consolidated Statement of Operations, the above bad debt provisions were included in selling, general and administrative expense. H. INVENTORIES Inventories consist of the following items which are stated at the lower of cost or market, determined by the first-in, first-out (FIFO) method:
AT AUGUST 31, ------------------------ 1998 1997 ---------- ---------- Raw materials $ 93,359 $ 489,419 Work-in-progress 2,088 82,817 Finished goods 482,500 452,453 ---------- ---------- $ 577,947 $1,024,689 ========== ==========
I. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost and are classified as follows:
AT AUGUST 31, --------------------------- 1998 1997 ----------- ----------- Building and leasehold improvements $ 170,274 $ 486,294 Machinery and equipment 1,208,576 2,051,264 Computers 561,373 502,620 Furniture and fixtures 226,419 248,110 Land -- 74,000 ----------- ----------- 2,166,642 3,362,288 Less accumulated depreciation and amortization (873,325) (908,804) ----------- ----------- $ 1,293,317 $ 2,453,484 =========== ===========
J. NOTES RECEIVABLE The Company holds two note receivable totaling $139,797 as of August 31, 1998, in conjunction with the release of a contingency (see Note O). The $59,797 note accrues interest at the Bank prime plus 1% (totaling 9.5% at August 31, 1998) and the $80,000 note is without interest. The notes are unsecured. The full balance outstanding on both notes is past due. F-13 32 K. LEASE COMMITMENTS Capitalized Leases - The Company leases equipment for use in the production process and administration of its business. Computer equipment is also leased for customer use in prescription drug dispensing. For financial reporting purposes, minimum lease rentals relating to the equipment have been capitalized. The leases, which are non-cancelable, expire at various dates through the year 2003. The recorded cost of assets under capital leases is $1,188,929 and $993,344 at August 31, 1998, and 1997, respectively. Accumulated amortization associated with the recorded assets was $358,991 and $201,235 at August 31,1998 and 1997, respectively. Future minimum annual lease payments under capitalized leases are as follows:
Year ending August 31, 1999 $310,536 2000 273,596 2001 183,075 2002 80,876 2003 24,120 -------- 872,203 Less amount representing interest 180,424 -------- Discounted lease obligations 691,779 Less current portion 224,588 -------- Long-term portion $467,191 ========
Operating Leases - The Company leases business facilities, vehicles and equipment under operating leases which expire at various dates through 2004. Under the terms of the leases, the Company will pay monthly rental ranging from $28,481 in 1998 and $11,301 in 2004. Future minimum annual rental payments under operating leases are as follows:
Year ending August 31, 1999 $ 366,838 2000 375,709 2001 335,349 2002 135,614 2003 135,614 Thereafter 67,804 ---------- $1,416,928 Less: Annual rental payments receivable under sub-lease of facility (See Note G) 657,418 ---------- $ 759,510 ==========
Rent expense totaled approximately $324,850 and $298,050 for the fiscal years ending August 31, 1998 and 1997, respectively. F-14 33 L. NOTES PAYABLE AND LONG-TERM DEBT Notes payable and long-term debt consist of the following:
AT AUGUST 31, ---------------------------- 1998 1997 ----------- ----------- Note payable, term loan, payable in monthly installments of $1,180, including interest at the Bank prime plus 3% (totaling 11.5% at August 31, 1998) through January 1, 1999. Collateralized by equipment, general intangibles, inventory and accounts receivable $ 5,903 $ 20,069 Note payable, $1,000,000 revolving line of credit with interest payable at Bank prime plus 3% (totaling 11.5% at August 31, 1998) through February 1, 1999. Collateralized by equipment, general intangibles, inventory and accounts receivable 833,639 743,168 Non-interest bearing notes payable, to officer of QCP payable in semi-annual installments of $33,334 through July 15, 1998, uncollateralized. The current balance is past due 31,325 73,340 Notes payable to a shareholder who is also an officer and director of the Company payable on demand, including interest at Bank prime plus 2% (totaling 10.5% at August 31, 1998), uncollateralized $1,425,000 of the August 31, 1998 outstanding balance was due April 1, 1998 and is past due. The note holder, however, agreed to defer payment until after August 31, 1999 or until the Company has the ability to pay such obligations 4,544,200 575,000 Notes payable to a director of the Company, payable on demand, including interest at Bank prime plus 2% (totaling 10.5% at August 31, 1998), uncollateralized. The total outstanding balance of the notes was due on April 1, 1998 470,000 40,000 Non-interest bearing note payable in semi-annual installments of $25,000, commencing April 30, 1997, uncollateralized 75,000 125,000 Non-interest bearing note payable to officers of Pharma Labs, currently due but settlement is being withheld pending liquidation of Pharma Labs 125,000 125,000 ----------- ----------- 6,085,067 1,701,577 Less: Note payable, revolving line of credit (833,639) (743,168) Current maturities (5,226,428) (877,506) ----------- ----------- $ 25,000 $ 80,903 =========== ===========
F-15 34 L. NOTES PAYABLE AND LONG-TERM DEBT - continued In connection with the note payable, term loan, and revolving line of credit, the Company was not in compliance at August 31, 1998 with covenants related to book net worth, debt service coverage, interest coverage, net income (loss) and capital expenditures. The Company re-negotiated the terms of the Credit Agreement with the Bank, including re-negotiation of the above covenants and an Amended and Restated Credit Agreement (Credit Agreement Amendment) was signed by both parties on August 7, 1998. However, the Credit Agreement Amendment was conditional upon the Company obtaining a $2.5 million capital investment by August 31, 1998. To date the Company has not obtained the $2.5 million capital investment, and on October 27, 1998, the Bank informed the Company of its decision to exercise certain of its remedies under the Credit Agreement. The Bank elected to; (1) implement an additional one percent (1%) default rate of interest provided for in the Credit Agreement, retroactive to July 31, 1998; (2) reduce the maximum loan commitment level to $1.0 million; and (3) terminate the credit agreement by February 1, 1999. The Bank did not waive any existing defaults or its right to exercise any of the other remedies available under the credit agreement. Aggregate annual principal payments applicable to notes payable and long-term debt for years ending after 1998 are as follows: Year ending August 31, 1999 $6,060,067 2000 25,000 2001 -- 2002 -- 2003 -- ---------- Thereafter $6,085,067 ==========
M. STOCKHOLDERS' EQUITY Preferred Stock - In 1987 the Company initiated a private offering of equity securities comprised of units of one share of Preferred Stock and two shares of Common Stock valued at $10 per unit. The offering became effective in October, 1988. The maximum number issuable is 700,000 shares of Preferred Stock. The annual and quarterly dividend rates of the Preferred Stock, expressed as a percentage of original issue price, are as follows:
Annual Rate Quarterly Rate Period (%) (%) ------ ----------- -------------- 12 calendar months ended October, 1989 0 0.00 12 calendar months ended October, 1990 15 3.75 12 calendar months ended October, 1991 15 3.75 12 calendar months ended October, 1992 30 7.50 12 calendar months ended October, 1993 30 7.50 All periods thereafter 30 7.50
Dividends are payable from the net profits generated from the sale of Iodine 123 HIPDM ("HIPDM") (as defined in the Certificate of Designation). However, the underlying license rights related to Iodine 123 HIPDM were fully impaired in 1991 and released upon termination of the license agreement on November 30, 1993. Because all rights to HIPDM were released, these dividends will only be paid by conversion to Common Stock. F-16 35 M. STOCKHOLDERS' EQUITY - continued The holders of the Preferred Stock may convert any accumulated and unpaid dividends into one share of Common Stock for each dollar accumulated. Additionally, each share of the Preferred Stock may be converted into 10 shares of Common Stock. The Company is required to reserve Common Stock sufficient to allow conversion of all Preferred Stock and accrued dividends. The Preferred Stock shareholders, in the event of liquidation of the Company, will receive an amount equal to the issue price plus accumulated and unpaid dividends before any holder of Common Stock or any other stock ranking junior to the Preferred Stock can be paid. As of August 31, 1998 and 1997, 54,589 of the 84,242 shares of Preferred Stock outstanding were converted into Common Stock. As of August 31, 1998, $233,255 of the $469,644 in accrued dividends on the Preferred Stock were converted into Common Stock. Based on the number of outstanding shares of Preferred Stock, the above mentioned conversions and the dividend rate schedule above, the estimated accrued cumulative dividend is $236,419 and $234,363 at August 31, 1998 and 1997, respectively. At August 31,1998, the holders of Preferred Stock can convert their shares into 532,949 shares of Common Stock including accrued dividends. In the event the Company completes a public offering of its Common Stock where the offering price is at least $1.00 per share, the Preferred Stock and accumulated dividends will automatically convert to Common Stock in the ratios discussed above. Commencing in 1991, the Company has the right but not the obligation to convert all of the outstanding Preferred Stock into Common Stock at the conversion price exhibited below plus any accumulated unpaid dividends.
Stated Redemption Date Percentage ---------------------- ---------- January 1, 1994 - December 31, 1994 108% January 1, 1995 - December 31, 1995 106% January 1, 1996 - December 31, 1996 104% All periods commencing January 1, 1997 102%
Class A Convertible Preferred Stock - In October 1990, the Company created a second series of preferred stock, Class A Convertible Preferred Stock (Convertible Preferred Stock). Issue price was $10 per share and the maximum issuable shares under the series was 200,000 shares. There are currently no shares of Convertible Preferred Stock outstanding. Stock Option Plan - On October 30, 1992, the Company's Stockholders approved the Plan which provides 50,000,000 shares of Common Stock available for the granting of options. The Plan permits the granting of stock options to certain directors, officers and employees of the Company or any subsidiary thereof. Authority to grant options under the Plan will terminate on October 7, 2002 A summary of stock option transactions follows:
1998 1997 ---------------------------- ---------------------------- Weighted Weighted average average Shares exercise price Shares exercise price ---------- -------------- ---------- -------------- Options outstanding September 1 2,000,000 $ 0.23 2,350,000 $ 0.13 Granted -- 1,000,000 0.30 Canceled (1,050,000) 0.30 (350,000) 0.13 Exercised -- (1,000,000) 0.10 ---------- ---------- ---------- ---------- Options outstanding August 31 950,000 $ 0.15 2,000,000 $ 0.23 ========== ========== ========== ==========
Weighted average fair value of options granted during the year ended August 31, 1997, is $0.07. F-17 36 M. STOCKHOLDERS' EQUITY - continued The following information applies to options outstanding at August 31, 1998:
Options Outstanding Options Exercisable ------------------------------------------- ---------------------------- Weighted average remaining Weighted Weighted Exercise Number contractual average Number average Prices Outstanding life (years) exercise price Exercisable exercise price -------- ----------- ------------ -------------- ----------- -------------- $ 0.03 100,000 2.00 $ 0.030 100,000 $ 0.030 0.075 350,000 7.00 0.075 350,000 0.075 0.10 200,000 8.00 0.100 100,000 0.100 0.32 300,000 3.00 0.320 300,000 0.320 ------- ------- 950,000 850,000 ======= =======
The following information applies to options outstanding at August 31, 1997:
Options Outstanding Options Exercisable -------------------------------------------------- ---------------------------- Weighted average Range of remaining Weighted Weighted Exercise Number contractual average Number average Prices Outstanding life (years) exercise price Exercisable exercise price ------------- ----------- ---------------- ----------------- ----------- -------------- $ 0.03 - 0.05 100,000 3.00 $ 0.03 100,000 $ 0.03 0.06 - 0.09 350,000 8.00 0.08 350,000 0.08 0.10 - 0.15 200,000 9.00 0.10 -0- -- 0.25 - 0.38 1,350,000 3.83 0.31 300,000 0.32 --------- ------- 2,000,000 750,000 ========= =======
SFAS 123, "Accounting for Stock-Based Compensation" encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Common Stock at the date of grant over the amount the employee must pay to acquire the stock. The pro forma effect of implementing SFAS 123 is not disclosed as it is deemed to be not material. F-18 37 N. INCOME TAXES The following is a summary of the provision for income taxes:
YEAR ENDED AUGUST 31, ---------------------------- 1998 1997 ----------- ----------- Current provision Federal $ 10,876 $ 40,000 State (3,162) 2,390 ----------- ----------- $ 7,714 $ 42,390 =========== =========== Deferred provision Federal $ -- $ 523,000 State -- 77,000 ----------- ----------- $ -- $ 600,000 =========== =========== Total provision Federal $ 10,876 $ 563,000 State (3,162) 79,390 ----------- ----------- $ 7,714 $ 642,390 =========== =========== The provision for income taxes differs from the amount determined by applying the statutory rate to net income, due to the following reasons for the years ended August 31: Income taxes (benefit) at statutory rate $(3,926,000) $ 882,000 Goodwill impairment charge 1,617,000 -- Change in prior year deferred tax estimate 1,252,000 -- (Benefit) expense due to change in asset valuation allowance 1,072,000 (298,000) Other (7,286) 58,390 ----------- ----------- Income tax provision $ 7,714 $ 642,390 =========== =========== Sources of change in deferred taxes and the deferred tax effect of each were as follows for the year ended August 31: Change in asset valuation allowance $(1,072,000) $ 298,000 Accrued liabilities 25,000 140,000 Depreciation and amortization 118,000 80,000 Carry forward (use) of net operating losses for income tax reporting 929,000 (1,118,000) ----------- ----------- Income tax provision $ -- $ (600,000) =========== =========== Components of deferred tax assets at August 31, were as follows: Net operating loss carry forward $ 5,949,000 $ 5,020,000 Accrued liabilities 188,000 163,000 Depreciation and amortization 282,000 164,000 ----------- ----------- 6,419,000 5,347,000 Valuation allowance (6,419,000) (5,347,000) ----------- ----------- NET ASSET $ -- $ -- =========== ===========
F-19 38 N. INCOME TAXES - continued The Company has net operating loss carry forwards for tax purposes as follows:
Federal Year Net Operating Year Generated Loss Expires --------- ------------- ------- 1984 $ 2,888,000 1999 1985 992,000 2000 1986 909,000 2001 1987 1,074,000 2002 1990 2,092,000 2005 1991 1,075,000 2006 1994 62,000 2009 1996 570,000 2011 1998 5,593,000 2013 ------------ $ 15,255,000 ============
The Company's ability to utilize its net operating loss carry forwards is subject to an annual limitation in future periods pursuant to the "change in ownership" rules under Section 382 of the Internal Revenue Code of 1986. The Company has established a valuation allowance against 100% of the net operating loss carry forwards because it is uncertain whether the Company will utilize these carry forwards due to continuing operating losses. O. CONTINGENCIES AND COMMITMENTS Due to the nature of its products, the Company is subject to regulation by a number of federal and state agencies, including the U.S. Food and Drug Administration, the U.S. Drug Enforcement Agency and the State of California. The Company must comply with regulatory requirements. Should it violate such requirements, its ability to operate could be suspended or terminated. Management believes it has the control system and policies in place so that it will fully comply with regulatory requirements. On November 4, 1991, the Company entered into a settlement agreement which transferred certain undeveloped land in satisfaction of a judgment against the Company. As provided in the settlement agreement, the Company would remain contingently liable to the extent proceeds from the sale of the land were less than $2,715,000. In August, 1995, the Company amended the settlement agreement whereby another corporation, 100% owned by a director, officer and shareholder, has assumed the obligations of the Company under the settlement agreement. In exchange, the Board of Directors approved the issuance of 2,000,000 shares of the Company's Common Stock to this corporation. The judgement has been completely satisfied, and arrangements are being made to have these shares transferred back to the Company. P. RELATED PARTY TRANSACTIONS During fiscal 1998, the Company borrowed $3,929,000, net of repayments, from a shareholder who is also an officer and director, and $470,000, net of repayments, from a shareholder who is also a director. During fiscal 1998, the Company recorded $331,000 in interest expense on these loans. Subsequent to fiscal 1998 year end and through December 1, 1998 an additional $350,000 was borrowed from the same officer and director described above. These loans are payable on demand and bear interest at Bank prime plus 2%. Loan proceeds were used for working capital. See "Management's Discussion and Analysis Liquidity and Capital Resources." F-20 39 P. RELATED PARTY TRANSACTIONS - continued During fiscal 1997, the Company issued 2,000,000 shares to an officer of QCP as consideration for terminating an employment agreement entered into in July, 1995. The Company is due $34,445 from a related entity with common shareholders and officers. The amount due the Company has been guaranteed by the shareholders of the related entity. On July 15, 1997, the Company entered into a Joint Marketing Agreement with Dornoch. This agreement is described further in Note E "Joint Marketing Agreement." Q. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Estimated fair value of financial instruments held for purposes other than trading are as follows:
AT AUGUST 31, 1998 ------------------------------------------ CARRYING VALUE FAIR VALUE ----------------- ------------------- Cash $ 61,860 $ 61,860 Notes receivable 139,797 139,797
AT AUGUST 31, 1997 ------------------------------------------ CARRYING VALUE FAIR VALUE ----------------- -------------------- Cash $ 26,143 $ 26,143 Notes receivable 252,500 252,500 Notes payable - related parties 615,000 615,000 Notes payable 743,168 743,168 Long term debt 343,409 343,409
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value. Cash - The Company classifies as cash the amounts on deposit in banks. Notes receivable - The carrying value approximates fair value as the interest rate at August 31, 1998 and 1997, is considered to approximate the market rate. Notes payable and long term debt - Due to the defaults discussed in Note L and the related party nature of the debt, the fair market value is not determinable at August 31, 1998. The carrying value approximates fair value at August 31, 1997 as the interest rate at August 31, 1997, is considered to approximate the market rate in all material respects. R. GOODWILL IMPAIRMENT CHARGE Based on the current year's operating loss and negative cash flow from operations, combined with a history of operating losses and negative cash flow from operations, the Company has determined that significant uncertainty exists regarding the recoverability of the carrying value of goodwill. Accordingly, a $3,509,847 goodwill impairment charge was recorded in the fourth quarter of fiscal 1998. S. FOURTH QUARTER ADJUSTMENTS Operating results for the fourth quarter of fiscal 1998 include the following adjustments: A $384,775 write down of property held for sale to re-value Pharma Labs assets to their selling price as specified in a pending sale contract. A $125,000 adjustment to re-instate a payable due to the other member of Pharma Labs in accordance with a non-complete agreement. F-21 40 S. FOURTH QUARTER ADJUSTMENTS - continued These adjustments were included in the category unusual charges impairment loss. A $166,656 write-off of obsolete Pharma Labs inventory was charged to cost of sales. In addition, as disclosed in Note R, a $3,509,847 goodwill impairment charge was recorded in the fourth quarter of fiscal 1998. T. SUBSEQUENT EVENTS During the first quarter of fiscal 1999, the Company obtained $350,000 through the issuance of notes payable to a shareholder who is also an officer and director of the Company. The notes are unsecured, due and payable upon demand and have a variable interest rate of 2% over Bank prime (prime was 8.5% at August 31, 1998). In October 1998, the Company and VNA signed an agreement pursuant to which VNA will withdraw from the RxDirect joint venture. Under the terms of the withdrawal agreement, VNA was to pay the Company a $154,000 withdrawal fee by December 1, 1998. See Note D. On December 3, 1998, the sale of Pharma Labs assets was completed. See Note G. U. DISCLOSURE OF SIGNIFICANT RISK AND UNCERTAINTY At August 31, 1998, the Company conducted a test for asset impairment in accordance with Financial Accounting Standard 121. It is management's opinion that, exclusive of the write-downs for Pharma Labs and the write-off of goodwill, no impairment has occurred. Management's opinion is based upon key assumptions regarding sales growth through new business development, and obtaining necessary funding to support the Company during continuing near term operating losses and negative cash flow from operations. Also QCP has a current period operating loss and negative cash flow from operations, and is expected to have continuing losses and negative cash flow from operations in the near term. Accordingly, it is reasonably possible that the results of the impairment test may change in the near future and an impairment loss may result. F-22 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOLDEN PHARMACEUTICALS, INC. Dated: December 23, 1998 By /s/ Charles R. Drummond ------------------------- Charles R. Drummond, President, Chief Executive Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ Charles R. Drummond Chairman of the Board, December 23, 1998 - -------------------------------- Chief Executive Officer Charles R. Drummond and Treasurer /s/ Ladd A. Drummond Director December 23, 1998 - -------------------------------- Ladd A. Drummond /s/ Arch G. Gothard, III Director December 23, 1998 - -------------------------------- Arch G. Gothard, III /s/ John H. Grant Vice Chairman of the Board December 23, 1998 - -------------------------------- and Corporate Secretary John H. Grant /s/ Gary P. Pryor Vice President of Finance December 23, 1998 - -------------------------------- Gary P. Pryor /s/ Richard G. Wahl Director December 23, 1998 - -------------------------------- Richard G. Wahl
42 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 3.1(1) Articles of Incorporation filed October 4, 1973. 3.2(1) Articles of Amendment to Articles of Incorporation filed December 22, 1976. 3.3(1) Articles of Amendment to Articles of Incorporation filed August 25, 1978. 3.4(1) Articles of Amendment to Articles of Incorporation filed June 15, 1979. 3.5(1) Articles of Amendment to Articles of Incorporation filed January 12, 1981. 3.6(1) Articles of Amendment to Articles of Incorporation filed June 16,1987. 3.7(1) Articles of Amendment to Articles of Incorporation filed October 9, 1992. 3.8(2) Articles of Amendment to Articles of Incorporation filed December 16, 1997. 3.9(1) Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed December 9, 1987. 3.10(1) Corrected Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed December 14, 1987. 3.11(1) Corrected Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed February 5, 1988. 3.12(1) Certificate of Designation of Class A Convertible Preferred Stock filed October 12, 1990. 3.13(3) Second Amended and Restated Bylaws 4.2(1) Specimen Certificate for Common Stock, no par value per share. 10.1(3) Amended and Restated Credit and Security Agreement dated August 7, 1995 among the Company, Quality Care Pharmaceuticals, Inc. and Norwest Credit, Inc. 10.2(4) Operating Agreement dated June 14, 1996 between the Registrant and Pharma France, Inc. 10.3* Form of Promissory Notes executed by the Company in favor of Charles R. Drummond. Schedule A sets forth the date and principal amount of each promissory note.
43 10.4* Form of Promissory Notes executed by the Company in favor of Arch G. Gothard, III. Schedule B sets forth the date and principal amount of each promissory note. 10.5* Purchase Agreement dated November 10, 1998 by and among Adams Equities, Inc., Pharma Labs, LLC, GMP Laboratories of America and Golden Pharmaceuticals, Inc. 10.6* Agreement Not to Compete dated November 10, 1998 among Pharma Labs, LLC, Golden Pharmaceuticals, Inc., Adams Equities, Inc. and GMP Laboratories of America. 21(2) Subsidiaries of the Registrant. 27* Financial Data Schedule. (b) Reports on Form 8-K None
- ----------------------- (1) Incorporated by reference to registrant's Annual Report on Form 10-K, dated August 31, 1991, as filed with the Securities and Exchange Commission. (2) Incorporated by reference to registrant's Annual Report on Form 10-K dated August 31, 1997, as filed with the Securities and Exchange Commission. (3) Incorporated by reference to registrant's Annual Report on Form 10-K dated August 31, 1995, as filed with the Securities and Exchange Commission. (4) Incorporated by reference to registrant's Annual Report on Form 10-K dated August 31, 1996, as filed with the Securities and Exchange Commission. * Filed herewith. EX-10.3 2 PROMISSORY NOTE 1 EXHIBIT 10.3 PROMISSORY NOTE $(PRINCIPAL AMOUNT) Golden, Colorado (ISSUE DATE) FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W. Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Charles R. Drummond, (hereinafter referred to as the "Lender"), [Address] on demand [or no later than April 1, 1998] the principal sum of (PRINCIPAL AMOUNT) ($) or the principal still outstanding if prepayments of principal have been made prior to the demand or due date. Any accrued but unpaid interest will also be paid at the time the Lender makes a demand for the outstanding principal. Interest shall be calculated at the prime rate charged by Norwest Bank from time to time plus two percent (2%) on the basis of a three hundred and sixty (360) day year. Interest shall be due and payable at least quarterly commencing with the fifteenth day of the month ending the quarter in which this loan was made The amounts due under the terms of the promissory note may be prepaid in whole or in part at the sole option of the Borrower without penalty. All payments of both principal and interest are to be made to the Lender at his address above in lawful money of the United States of America. In the event any amount is not paid when due under the terms of this note, the unpaid balance shall thereafter bear interest until paid at the maximum rate permitted by law, or if the rate is unlimited, at the rate of eighteen percent (18%) per annum, until paid, said interest to be compounded quarterly. If this promissory note is placed in the hands of an attorney for collection after the same for any reason becomes due, or if collected by legal proceedings or through the probate or bankruptcy courts, the Borrower hereby agrees to reimburse the Lender for reasonable attorney's fees together with all out-of-pocket costs. The Borrowers and all endorsers, sureties, guarantors and all other persons liable or who may become liable hereon hereby severally waiver demand, presentment, notice of dishonor or nonpayment, and assent to each and any extension or postponement of the time of payment at or after maturity, or of any indulgence. The undersigned individuals hereby represent that they are duly authorized to execute this "promissory note" on behalf of the borrowers and obligate them to the terms and conditions contained herewith. 2 Lender: Borrower: Golden Pharmaceuticals, Inc. By: - ------------------------------- -------------------------------------- Charles R. Drummond Title: ----------------------------------- Quality Care Pharmaceuticals, Inc. By: ------------------------------------- Title: ----------------------------------- 3 EXHIBIT A LENDER CHARLES R. DRUMMOND
Loan Advance Date Amount ------------ ------ November 22, 1996 $ 75,000 August 4, 1997 300,000 August 18, 1997 200,000 September 23, 1997 300,000 October 6, 1997 50,000 October 21, 1997 250,000 November 4, 1997 250,000 December 2, 1997 320,000 December 17, 1997 300,000 January 5, 1998 150,000 January 20, 1998 150,000 February 5, 1998 120,000 February 19, 1998 200,000 March 5, 1998 180,000 March 16, 1998 150,000 April 1, 1998 200,000 April 17, 1998 100,000 May 4, 1998 180,000 May 21, 1998 100,000 June 3, 1998 80,000 June 15, 1998 200,000 June 30, 1998 200,000 July 14, 1998 200,000 August 3, 1998 100,000 August 24, 1998 100,000 August 31, 1998 100,000
EX-10.4 3 PROMISSORY NOTE 1 EXHIBIT 10.4 PROMISSORY NOTE $(PRINCIPAL AMOUNT) Golden, Colorado (DATE) FOR VALUE RECEIVED, Golden Pharmaceuticals, Inc., a Colorado Corporation and its subsidiary Quality Care Pharmaceuticals, Inc., a California Corporation (hereinafter collectively referred to as the "Borrower"), 3000 W. Warner Ave., Santa Ana, CA 92704 promises to pay to the order of Arch G. Gothard III, (hereinafter referred to as the "Lender"), P.O. Box 5950, 0120 Flintstone Lane, Breckenridge, CO 80424 on demand or no later than April 1, 1998 the principal sum of (PRINCIPAL AMOUNT) ($) or the principal still outstanding if prepayments of principal have been made prior to the demand or due date. Any accrued but unpaid interest will also be paid at the time the Lender makes a demand for the outstanding principal. Interest shall be calculated at the prime rate charged by Norwest Bank from time to time plus two percent (2%) on the basis of a three hundred and sixty (360) day year. Interest shall be due and payable at least quarterly commencing with the fifteenth day of the month ending the quarter in which this loan was made The amounts due under the terms of the promissory note may be prepaid in whole or in part at the sole option of the Borrower without penalty. All payments of both principal and interest are to be made to the Lender at his address above in lawful money of the United States of America. In the event any amount is not paid when due under the terms of this note, the unpaid balance shall thereafter bear interest until paid at the maximum rate permitted by law, or if the rate is unlimited, at the rate of eighteen percent (18%) per annum, until paid, said interest to be compounded quarterly. If this promissory note is placed in the hands of an attorney for collection after the same for any reason becomes due, or if collected by legal proceedings or through the probate or bankruptcy courts, the Borrower hereby agrees to reimburse the Lender for reasonable attorney's fees together with all out-of-pocket costs. The Borrowers and all endorsers, sureties, guarantors and all other persons liable or who may become liable hereon hereby severally waiver demand, presentment, notice of dishonor or nonpayment, and assent to each and any extension or postponement of the time of payment at or after maturity, or of any indulgence. The undersigned individuals hereby represent that they are duly authorized to execute this "promissory note" on behalf of the borrowers and obligate them to the terms and conditions contained herewith. 2 Lender: Borrower: Golden Pharmaceuticals, Inc. By: - ------------------------------- -------------------------------------- Arch G. Gothard III Title: ----------------------------------- Quality Care Pharmaceuticals, Inc. By: ------------------------------------- Title: ----------------------------------- 3 EXHIBIT B
Advance Date Principal Amount - ------------ ---------------- July 29, 1997 $ 40,000 October 8, 1997 250,000 November 18, 1997 150,000 November 19, 1997 100,000
EX-10.5 4 PURCHASE AGREEMENT 1 EXHIBIT 10.5 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (the "Agreement"), dated as of November __, 1998 is entered into by and between Adam Equities, Inc., a Nevada corporation ("Purchaser") and Pharma Labs, LLC, a Colorado limited liability company ("Seller"), GMP Laboratories of America, a California corporation, ("GMT") and Golden Pharmaceuticals, a Colorado corporation ("Golden"). Purchaser and Seller are sometimes referred to collectively herein as the "Parties" and individually as "Party". RECITALS WHEREAS, Seller is primarily engaged in the business (the "Business") of manufacturing, packaging and distributing neutraceuticals, vitamins, medicinal herbs, minerals and other nutritional substances. WHEREAS, Purchaser desires to purchase certain of the assets of Seller set forth on Schedule I hereto (the "Assets") on an "as is, where is" basis. Such asset of Seller not desired to be purchased by Purchaser are referred to herein a the "Excluded Assets." WHEREAS, Purchaser desires to assume certain liabilities of Seller a more fully described in Sections 2.04 and 2.05 hereof WHEREAS, subject only to the limitations and exclusion contained in this Agreement and on the terms and conditions hereinafter set forth, Seller desires to sell and Purchaser desires to purchase the Assets. WHEREAS, Seller and Buyer acknowledge that this Agreement contemplates solely the sale of the Assets and not the sale of an ongoing business concern. WHEREAS, Buyer and Seller have entered in an Agreement for the operation of the business of Pharma Labs dated October 12, 1998, ("Operating Agreement") and desire to extend such Operating Agreement to December 1, 1998. WHEREAS, Buyer and GMP desire that Seller and Golden provide covenants that they shall not compete with either Buyer or GMP as hereinafter set forth; NOW THEREFORE, in consideration of the covenants, representations, warranties and agreements herein contained, and intending to be legally bound hereby, the Parties hereto hereby agree as follows: 1 2 AGREEMENT ARTICLE I DEFINITIONS 1.10 DEFINITIONS (A) The following terms used herein, have the following meanings: "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person; provided that no party to this Agreement shall be deemed to be an affiliate of any other party to this Agreement (including, without limitation, Seller) solely by reason of its ownership of common stock. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct the management or operations of such person. "Closing Date" means the date of the Closing, as set forth in Section 3.01. "Dollar" means U. S. Dollars unless otherwise specified. "Escrow Agent" shall mean Burrows Escrow. "Escrow Closing Date" shall be November 25, 1998. "Facility" means the facility located at 2931 E. La Jolla Street, Anaheim, California at which Seller currently conducts operations. "Lease Consents" means collectively the consents to the assignment and assumption of the Facilities Lease, the Telephone Lease and the Machine Lease. "Material Adverse Effect" means a material adverse effect or effect which would reasonably be expected to have a Material Adverse Effect on the Assets. "Operating Agreement" means the operating agreement in the form of Exhibit B hereto. "Person" means an individual, corporation, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Sublease Agreement" means the sublease agreement, substantially in the form of Exhibit C hereto, to be entered into between the Parties on the Closing Date. 2 3 ARTICLE II PURCHASE AND SALE 2.01 AGREEMENT TO SELL. At the Closing hereunder (as defined in Section 3.01 hereof) and except as otherwise specifically provided in this Section 2.01, Seller hereby grants, sell, convey, assign, transfer and deliver to Purchaser, upon and subject to the terms and conditions of this Agreement, all right, title and interest of Seller in and to the Assets on an "as is, where is" basis free and clear of all liens, claims and encumbrances. The Parties shall execute the escrow instructions in the form attached hereto Exhibit "F." In addition to the Assets, a copy of a list of which is attached as Exhibit "E," Golden shall cause to be delivered to Purchaser a "Scorpion!' equipment which was missing at the time of closing. Such Scorpio equipment may be used, shall be operational, and free and clear of all liens and encumbrances, and shall be delivered to Purchaser within six (6) months after the Close of Escrow. 2.02 AGREEMENT TO PURCHASE. At the Closing hereunder, Purchaser shall purchase the Assets from Seller, upon and subject to the terms and conditions of this Agreement and in reliance on the representations, warranties and covenants of Seller contained herein, in exchange for the Purchase Price (as defined in Section 2.03 hereof). In addition, Purchaser assumes and agrees to pay, discharge or perform, as appropriate, certain liabilities and obligations of Seller only to the extent and as provided in Section 2.04 of this Agreement. 2.03 PURCHASE PRICE. The purchase price for the Assets (the "Purchase Price) is One Hundred Fifty Thousand ($150,000) and shall be paid to Seller, or its designee, on the Closing Date. Purchaser shall forthwith deposit the Purchase Price with the Escrow Agent. 2.04 ASSUMPTION OF LIABILITIES. In addition to paying the Purchase Price at the Closing, Purchaser hereby assumes, agrees to pay, discharge or perform as appropriate the following liabilities and obligations, and only those liabilities an none other, of Seller: (a) Security Agreement dated as of December 1, 1997 between Seller and Phoenix Leasing Incorporated secured by an IMA Zanasi Model 40F Capsule Filler Machine, and all promissory notes entered into by Seller pursuant to such security agreement (the "Machine Lease"); and (b) Lease dated as of August 20, 1996 between Seller and Steams County National Bank of Albany for Telco Toshiba DK1280 Digital Communications (the "Telephone Lease"). The Machine Lease, the Telephone Lease and the Facilities Lease (as defined in Section 2.05) shall be collectively referred to as the "Leases". 2.05 FACILITIES LEASE. On the Closing Date. Purchaser, agrees to pay, discharge and perform, as appropriate all of Seller's rights, liabilities and obligations under that certain Lease dated December 8, 1997 by and between Seller, Golden 3 4 Pharmaceuticals, Inc. ("GPI") and ES2 Partners for real estate located at 2931 E. La Jolla Street, Anaheim, California (the "Facilities Lease") pursuant to the terms of the Sublease, a copy of which is attached hereto as Exhibit "C." Purchaser shall provide any required documents to DSA Associates prior to close of escrow. Any repairs to the roof, HVAC, ceiling tile and other elements of the work being performed on the property (as of the close of escrow) shall be agreed to by DSA, GMP and GPI in writing in advance to bring the facility to a satisfactory condition as of close of escrow. The costs to repair the facility shall be borne as follows: (a) The first twenty thousand dollars ($20,000) shall be paid by GUT; (b) Any amount in excess of twenty thousand dollars shall be paid by GPI. Both GUT and GPI reserve the right to object to any assessment made by the DSA with respect to the condition of the property and any claim made by DSA or anyone else with regard to the condition of the property as of close of escrow. Any assessments or repairs due by either GMP or GPI shall be paid according to the terms of the Facilities Lease. GPI shall be held harmless from any additional costs or claims relating to the property with respect to the condition of the Property after close of escrow, or any rental payment or other obligation that may become due under the terms of the Facilities Lease that may become due in the future. 2.06 BULK SALES ESCROW. On the Closing Date, the Parties and the Escrow Agent shall enter into the Escrow Agreement pursuant to which the Escrow Agent shall hold the Purchase Price in escrow ("Escrow") for the benefit of the Seller to be distributed pursuant to Division 6 of the California Uniform Commercial Code (the "Bulk Sales Law") and pursuant to the Escrow Agreement. 2.07 OPERATION OF FACILITY UNTIL CLOSE OF ESCROW. The Property shall continue to be operated by Purchaser pursuant to the Operation Agreement until Close of Escrow. Operating expenses, rent (including taxes, insurance and maintenance, utilities, etc.) will continue being paid by Purchaser on a timely basis until escrow closes, pursuant to the Operating Agreement, and Purchaser will continue to fulfil as many of Pharma Labs' customers' orders as practical under the Operating Agreement. 2.08 OTHER MATTERS RELATING TO OPERATION. Any items belonging to Pharma France or associated parties, will be removed from the external premises under pre-scheduled and supervised condition within ten (10) days from the signing of this Agreement at their expense. GPI will maintain its insurance with Lockton Agency and GMP will maintain its coverage in Clarendon America Insurance during the period between the signing of this Agreement and the close of escrow. 4 5 In order to expedite the completion of the documents in California, GPI will pay $2,000 at the close of escrow as its share toward legal fees and expenses associated with the processing of the documents. Smith & Ure does not represent Seller or Golden. ARTICLE III CLOSING 3.01 CLOSING. The closing (the "Closing") of the sale and purchase of the Assets shall take place at such location as may be mutually agreed upon in writing by Purchaser and Seller concurrently with the execution of this Agreement (the "Closing Date"). The obligations of each of the Parties to consummate the Closing are subject to and shall be conditioned on the satisfaction or written waiver (in whole or in part) by each of Buyer and Seller of each of the following conditions on or prior to the closing Date: (a) No provision of any applicable law or regulation and no judgement, injunction, order or decree shall (i) make the consummation of the transactions contemplated hereby illegal; or (ii) prohibit the consumption of the Closing; and (b) There shall not be any action taken, or any statute, rule, regulation, injunction, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to the transactions contemplated hereby, by any court, government or governmental authority or agency, domestic or foreign, that, in the reasonable judgement of Purchaser or Seller could, directly or indirectly result in any of the consequences referred to above. 3.02 ITEMS TO BE DELIVERED AT CLOSING. At the Closing and subject to the terms and conditions herein contained: (a) Seller shall deliver to Purchaser the following: (i) a Bill of Sale and Assignment and Assumption Agreement "Bill of Sale") executed by Seller, in the form of Exhibit A. (ii) all of the assets and other personal property identified Exhibit E. (iii) a copy of this Agreement duly and validly executed by the Seller; and (iv) a copy of the Operating Agreement duly and validly executed by the Seller and simultaneously with such delivery, all such steps will be taken as may be required to put Purchaser in actual possession of the Assets. (v) a copy of the Non Compete Agreement duly and validly executed by the Seller and Golden, a copy of which is attached hereto as Exhibit D. 5 6 (vi) a copy of the Sublease, duly and validly executed by Seller, attached as Exhibit C. (b) Purchaser shall deliver to Seller the following: (i) a copy of the Sublease Agreement duly and validly executed by Purchaser; (ii) counterpart signatures to the Bill of Sale; (iii) a copy of this Agreement duly and validly executed by the Purchaser; (iv) a copy of the Operating Agreement duly and validly executed by the Purchaser; and (v) a copy of the Non Compete Agreement duly and validly executed by the Purchaser and GUT. (c) Purchaser shall forthwith deliver to the Escrow Agent the following: (i) the Purchase Price; and (ii) a copy of the Escrow Agreement. (d) Seller shall forthwith deliver to the Escrow Agent a copy of the Escrow Agreement duly and validly executed by the Seller. 3.03 FURTHER ASSURANCES. Seller from time to time after the Closing, at Purchaser's request, will execute, acknowledge and deliver to Purchaser such other instruments of conveyance and transfer and will take such other actions and execute and deliver such other documents, certifications and further assurances as Purchaser may reasonably require in order to vest more effectively in Purchaser, or to put Purchaser more fully in possession of the Assets, or to better enable Purchaser to complete, perform or discharge any of the liabilities or obligations assumed by Purchaser at the Closing pursuant to Sections 2.04 and 2.05 hereof. Each of the parties hereto will cooperate with the other and execute and deliver to the other parties hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence and confirm the intended purposes of this Agreement. 3.04 CONSUMMATION OF CLOSING. All acts, deliveries and confirmations comprising the Closing, regardless of chronological sequence, shall be deemed to occur contemporaneously and simultaneously upon the occurrence of the last act, delivery or confirmation of the Closing, and none of such acts, deliveries or confirmations shall be effective unless and until the last of the same shall have occurred. 3.05 TRUST ACCOUNT AT SMITH & URE. The purchaser shall forthwith deposit into an interest bearing trust account for the benefit of purchaser the sum of Three Hundred and Seven Thousand Dollars ($307,000), which account shall be held at 6 7 the Bank of Yorba Linda. At close of escrow, which is specifically conditioned upon the simultaneous close of the Burrows Escrow referred to above, and the delivery by Seller to Purchaser of each item set forth in Section 3.02, Smith & Ure shall deliver cash or a cashier's check to payable to Golden, or its assigns, in the amount of $307,000. Any interest which shall have accrued in the trust account between the date of its deposit and the close of escrow shall accrue to the benefit of the purchaser. The $307,000 paid to Golden pursuant to this provision is allocated as follows: (a) $250,000 represents the consideration for the Non-Compete Agreement, a copy of which is attached hereto as Exhibit "D". (b) $57,000 which represents a security deposit paid by Golden to the landlord for the billing, as more fully set forth in a Sublease, attached hereto as Exhibit "C." As a result of the reimbursement by the purchaser to Golden of the $57,000, representing the lease deposit, the deposit held by the landlord shall accrue to and be assigned to the purchaser. The seller and Golden each disclaims any interest whatsoever in the security deposit held by the landlord. Purchaser, or its assigns, may at its option, terminate the lease agreement with the consent of the landlord. Purchaser may, with the consent of the landlord, purchase the real property and have credited to the purchaser any security deposit held by the landlord. In the event of a termination of a lease, or any other matter of or concerning the lease, Purchaser shall receive a credit for the deposit held by the Landlord. Smith & Ure may deduct from such funds $2,000 as set forth in paragraph 2.09. 3.06 INTEREST ON DEPOSITS IN TRUST OR IN ESCROW. Any interest accrued with respect to funds deposited in the trust account shall be credited to Buyer. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Purchaser that: 4.01 CORPORATE EXISTENCE. Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation. Seller is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the conduct of the Business by it requires it to be so qualified, except for those jurisdictions where failure to be so qualified, individually or in the aggregate would not have a Material Adverse Effect. 4.02 POWER AND AUTHORIZATION. Seller has the corporate power, authority and legal right to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Seller has been duly authorized by all necessary corporate action. This Agreement has been, and the other agreements, documents and instruments required to be delivered by Seller in 7 8 accordance with the provisions hereof (the "Seller's Documents") will be duly executed and delivered on behalf of Seller by duly authorized officers of Seller, and this Agreement constitutes, and the Seller's Documents when executed and delivered will constitute, the legal, valid and binding obligations of Seller, enforceable against it in accordance with their respective terms except as the same may be limited by bankruptcy, moratorium, fraudulent conveyance and similar laws affecting creditors rights generally and to the application of general equitable principles. 4.03 VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC The execution, delivery and performance of this Agreement by Seller does not and will not violate, conflict with or result in the breach of any term, condition or provision of, or require the consent of any other party to: (a) any existing law, ordinance, or governmental rule or regulation to which Seller is subject; (b) any judgment, order, writ injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority which is applicable to Seller; or (c) any mortgage, indenture, agreement, contract, commitment, lease, plan or other instrument, document or understanding, oral or written, to which Seller is a party or by which Seller is otherwise bound. 4.04 TITLE TO PROPERTIES. Seller has good, valid and marketable title to the Assets free and clear of all liens, claims and encumbrances. 4.05 CONSENTS. Except for the Lease Consents, no consent, waiver, approval, order or authorization of, or registration, declaration or filing with any court, administrative agency or commission or other federal, state, county, local or other foreign governmental authority, instrumentality, agency or commission or any third party, including a party to any agreement with the Seller is required by or with respect to the Seller in connection with the execution and delivery of this Agreement or any of Seller's Documents or the consummation of the transactions contemplated hereby and thereby. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller that: 5.01 POWER AND AUTHORIZATION. Purchaser has the legal capacity to execute, deliver and perform this Agreement. This Agreement has been duly executed and delivered by Purchaser and constitutes the legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms except as the same may be limited by bankruptcy, moratorium, fraudulent conveyance and similar laws affecting creditors rights generally and to the application of general equitable principles. 5.02 VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC. The execution, delivery and performance of this Agreement by Purchaser does not and will not violate, conflict with or result in the breach of any term, condition or provision of, or require the consent of any other party to: (a) any existing law, ordinance, or 8 9 governmental rule or regulation to which Purchaser is subject; (b) any judgment, order, writ injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority which is applicable to Purchaser; or (c) any mortgage indenture, agreement, contract, commitment, lease, plan or other instrument, document or understanding, oral or written, to which Purchaser is a party or by which Purchaser is otherwise bound. 5.03 CONSENTS. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with any court, administrative agency or commission or other federal, state, county, local or other foreign governmental authority, instrumentality, agency or commission or any third party, including a party to any agreement with the Purchaser is required by or with respect to the Purchaser in connection with the execution and delivery of this Agreement or any related agreement to which the Purchaser is a party or the consummation of the transactions contemplated hereby an thereby. ARTICLE VI FAILURE TO CLOSE ESCROW 6.01 TERMINATION. Purchaser and Seller acknowledge that if the Escrow fails to close by December 1, 1998, Purchaser shall be entitled to a return of the Purchase Price, less expenses withheld pursuant to the Operating Agreement; Seller shall be entitled to a return of the Assets and all other actions necessary to return the parties to their positions, prior to the execution hereof shall be undertaken by the Parties. 6.02 EXTENSION. If escrow cannot close as otherwise set forth in the escrow instructions, (i) Seller reserves the right to extend the close of escrow an additional 15 days upon written request to buyer, or (ii) Buyer reserves the right to extend the close of escrow an additional 30 days upon written request to seller. 6.03 RETURN OF SUMS ON DEPOSIT. In the event escrow fails to close on or before December 1, 1998, unless otherwise extended as set forth in Section 6.02, then all sums paid by Purchaser, less reasonable costs of escrow to be borne by Purchaser, shall be paid by escrow to Purchaser upon receipt from Purchaser of a certified or registered letter that Purchaser is terminating the escrow. Escrow Agent shall immediately issue good funds to Purchaser of any amounts deposited by Purchaser, less expenses as set forth in this paragraph. Escrow Agent shall have no responsibility to either party after payment of the sum to Purchaser pursuant to this paragraph. 6.04 RETURN OF SUMS HELD IN SMITH & URE TRUST ACCOUNT. In the event escrow fails to close on or before December 1, 1998, unless otherwise extended as set forth in Section 6.02, then all sums deposited by Purchaser, less reasonable costs of escrow to be borne by Purchaser, shall be paid by Smith & Ure Trust Account to Purchaser upon receipt from Purchaser of a certified or registered letter that Purchaser is terminating the escrow. Smith & Ure shall immediately issue good funds to Purchaser of any amounts deposited by Purchaser, less expenses as set forth in this paragraph. Smith & Ure shall have no responsibility to either party after payment of the sum to Purchaser pursuant to this paragraph. 9 10 6.05 RETURN OF ASSETS TO SELLER. If escrow fails to close though fault of GPI, (which shall be defined to include any breach of this agreement, impossibility, mistake, or a negligent or intentional act or omission, including, but not limited to, the failure to transfer and convey the personal property free and clear of all liens and encumbrances as set forth in this Agreement), then all escrow funds held by Escrow Agent or Smith & Ure, less any unpaid and owing operating expenses, will be returned to purchaser, and all of the equipment on the "Revised Equipment List" returned to Seller. In the event AMS orders cannot be completed on a mutually satisfactory basis or AMS otherwise requests a return of their material, its materials or other monetary settlement will be returned to AMS immediately by Purchaser upon written request. Any material returned to AM S shall be FOB the Anaheim facility. Purchaser shall not be required to pay any operating expenses, pursuant to the Operating Agreement, if escrow fails to close on or before December 1, 1998, if such failure to close is the fault of GPI, and either GPI or GMP elects to extend escrow pursuant to Section 6.02, for the period between December 1, 1998 and close of escrow. All expenses for operating after December 1, 1998 shall be paid for-by Seller. ARTICLE VII POST CLOSING MATTERS 7.01 INDEMNITY BY SELLER. Seller agrees to indemnify Purchaser against, and to hold Purchaser harmless from, all claims, suits, losses, liabilities, assessments, fines, judgment, costs, damages and expenses (including but not limited to reasonable attorney fees, including attorney fees necessary to enforce their rights to indemnification hereunder) ("Damages") arising out of, related to or resulting by reason of: (a) the breach of any of the warranties or agreement made by Seller in this Agreement; (b) the breach or default in performance by the Seller of any of the obligations or covenants to be performed by it hereunder; (c) any claim by any Person that Purchaser is liable for obligations of Seller, not expressly assumed by Purchaser hereunder; or (d) all other indebtedness, claims and liabilities, contingent or otherwise, of whatever kind or nature, relating to the Assets, the Leases or the operation of the Business by the Purchaser pursuant to the Operating Agreement arising prior the Closing Date. 7.02 INDEMNITY BY PURCHASER. Purchaser shall indemnify Seller, its officers, managers, agents, and employees, against, and to hold each of them harmless from any and all Damages arising out of, relating to or resulting by reason of: 10 11 (a) the breach of any of the warranties or agreements made by Purchaser in this Agreement; (b) the breach or default in the performance by Purchaser of any of the obligations or covenants to be performed by it hereunder; (c) any obligation or liability of Seller expressly assumed by Purchaser pursuant to the terms of this Agreement; or (d) all other indebtedness, claims and liabilities, contingent or otherwise, of whatever kind of nature, relating to the Assets, the Leases or the operation of the Business by the Purchaser pursuant to the Operating Agreement arising from and after the Closing Date. 7.03 UNDERTAKING BY PURCHASER. Purchaser shall within ten (10) business days following the Closing Date complete and deliver to each lessor or lender under the Leases all applications, forms, agreements, documents or other material requesting by such lessor or lender necessary in order for Purchaser to assume the obligations of Seller under each such Lease. 7.04 PROPERTY NOT PURCHASED. All property located at the Facility and not purchased by Purchaser pursuant to this Agreement shall be collected by Purchaser and placed in a separate room at the Facility as soon as possible. All such property will be removed by its owner under supervised conditions prior to the Escrow Closing Date. ARTICLE VII GENERAL PROVISIONS 8.01 PAYMENT OF EXPENSES. Each party will bear all of its own costs incurred in connection with the transactions contemplated by this Agreement. 8.02 SALES, TRANSFER AND DOCUMENTARY TAXES, ETC. Purchaser shall pay all federal, state or local sales, documentary and other transfer taxes, if any, due as a result of the purchase, sale, use or transfer of the Assets in accordance herewith whether imposed by law on Seller or Purchaser and Purchaser shall indemnify, reimburse and hold harmless Seller in respect of the liability for payment of or failure to pay any such sales, documentary and other transfer taxes or the filing of or failure to file any reports required in connection therewith. 8.03 CONTENTS OF AGREEMENT, PARTIES IN INTEREST, ETC. This Agreement sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby. It shall not be amended or modified except by written instrument duly executed by each of the parties hereto. Any and all previous agreements and understandings between or among the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement. 8.04 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be assigned prior to the Closing by any party hereto without the prior written consent of the other parties. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of Seller and Purchaser. 11 12 8.05 WAIVER. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. 8.06 NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be deemed to have been given if delivered personally, mailed by certified mail (return receipt requested) or sent by cable, telegram, telecopier or recognized overnight delivery service to the parties at the following addresses or at such other addresses as, specified by the parties by like notice, as follows: If to Purchaser, to: Adam Equities Inc. 3880 East Eagle Drive Anaheim, California 92807 Telephone: (714)630-2467 Facsimile: (714)237-1354 With a required copy to: Smith & Ure 1800 North Broadway, Suite 200 Santa Ana, California 92706 Attention: Steven C. Smith, Esq. Telephone: (714)550-7720 Facsimile: (714)550-1251 If to Seller, to: Pharma Labs, LLC c/o Golden Pharmaceuticals, Inc. 3000 West Warner Avenue Santa Ana, California 92704 Attention: Charles R. Drummond Telephone: (714)754-2440 Facsimile: (714)754-5745 With a required copy to: Morrison & Foerster, LLP 5200 Republic Plaza 370 Seventeenth Street Denver, Colorado 80202 12 13 Attention: Warren L. Troupe, Esq. Telephone: (310) 592-1500 Facsimile: (310) 592-1510 8.07 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of California. 8.08 NO BENEFIT TO OTHERS. The representations, warranties, covenants, and agreements contained in this Agreement are for the sole benefit of the parties hereto, and their heirs, executors, administrators, legal representatives, successors and assigns, and they shall not be construed as conferring any rights on any other persons. 8.09 PUBLIC ANNOUNCEMENTS. The Parties agree to consult with each other before issuing any press release or making any public statement with respect to this Agreement of the transactions contemplated hereby and, except as may be required by applicable law will not issue any such press release, or make any such public statement prior to such consultation. 8.10 HEADINGS, GENDER AND "PERSON." All section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. Words used herein, regardless of the number and gender specifically used, shall be deemed and constructed to include any other number, singular or plural, and any other gender, masculine, feminine, or neuter, as the context requires. 8.11 SCHEDULES AND EXHIBITS. All Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 8.12 SEVERABILITY. Any provision of this Agreement which is invalid or enforceable in any jurisdiction shall be ineffective to the extent to such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provisions in any other jurisdiction. 8.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts any party hereto may execute any such counterpart, each of which when executed and delivered. shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. This Agreement shall become binding when one or more counterparts taken together shall have been executed and delivered by the parties. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 8.14 CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent and no rule of strict construction shall be applied against any Party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officer or person as of the day and year first above written. 13 14 PURCHASER ADAM EQUITIES, INC A Nevada corporation By: --------------------------------- SELLER PHARMALABS, LLC A Colorado limited liability company By: --------------------------------- Name ------------------------------- Title ------------------------------ GMP LABORATORIES OF AMERICA, A California corporation By: --------------------------------- Name ------------------------------- Title ------------------------------ GOLDEN PHARMACEUTICALS, INC. A Colorado corporation By: --------------------------------- Name ------------------------------- Title ------------------------------ 14 EX-10.6 5 AGREEMENT NOT TO COMPETE 1 EXHIBIT 10.6 AGREEMENT NOT TO COMPETE AGREEMENT NOT TO COMPETE ("Agreement") dated November _____. 1998, by and between Pharma Labs, LLC, a Colorado limited liability company and Golden Pharmaceuticals, a Colorado corporation (hereinafter collectively referred to as "Covenantor") and Adams Equity, Inc. a Nevada corporation ("Adams") and GMP Laboratories of America, a California corporation (hereinafter collectively referred to as "Covenantee"): WITNESSETH: WHEREAS, on this date Adams has acquired from Pharma Labs substantially all of the assets of the nutraceutical manufacturing business known as Pharma Labs, located at 2931 East La Jolla Street, Anaheim, California 92806 (the "Business"); and WHEREAS, Covenantor has for years been actively and prominently engaged in the nutraceutical manufacturing business and related services in the United States and during such period has been an owner of the Business; and WHEREAS, the execution of this Agreement was a condition of and dependant covenant to the sale of the assets of the Business to Adams; NOW, THEREFORE, in consideration of the premises and the agreements herein contained, the parties, intending to be legally bound, hereby agree as follows: Section 1. Noncompetition. Covenantor agrees that for a period of 1 (one) year from the date of this Agreement, such period not to include any period of violation hereof or period to enforce the covenants herein ("Terms of this Agreement"), Covenantor will not: 1 2 (a) Directly or indirectly, alone or for the account of Covenantor, or as a partner, member, employee, advisor, or agent of any partnership or joint venture, or as a trustee, officer, director, shareholder, employee, advisor, or agent of any corporation, trust, or other business organization or entity, own, manage, advise, encourage, support, finance, operate, join, control or participate in the ownership, management, operation or control of, or be connected in any manner with, any business which (i) is either located within, or solicits business from within, the continental United States, and (ii) is or may be in the nutraceutical manufacturing business ("nutraceutical manufacturing" includes the formulating and tableting of capsules, tablets, and other like procedures, but excludes the packaging in bottles, strip packs or blisters of such capsules and/or tablets), or any business related to the above, other than for bariatic and related products of Physicians Pro Care; (b) Cause, induce or assist anyone in causing or inducing in any way any employee of Covenantee or any of its affiliates to resign or sever such employee's employment or to breach an employment agreement with Covenantee or any of its affiliates; (c) Cause, induce or assist any past or present customer of Pharma Labs, or any other person or. entity for which Parma Labs provided a quotation in the past 24 months, to have nutraceuticals manufactured by anyone other dm Covenantee; (d) Be the owner of more than one percent (1 %) of the outstanding capital stock of any publicly traded corporation which is in any of the businesses set forth above; or (e) Use in any corporate name or the name of any other business venture operating to any extent within any part of the aforesaid area, the words "Pharma Labs" or any other trade names presently or at any time during the Term of this Agreement used by Covenantee, or any word or words or expressions so closely resembling such words or words as to be likely to be confused therewith. These covenants shall not be held invalid or unenforceable because of the scope of the territory or actions subject hereto or restricted hereby, or the period of time within which such covenants are operative; but the maximum territory, the actions subject to such covenants and the period of time in which such covenants are enforceable, respectively, are subject to determination by a final judgement of any court which has jurisdiction over the parties and subject matter. Covenantor recognizes that the foregoing covenants provided substantial inducement for the acquisition of the Business and (i) are therefore reasonable and justified, and (ii) provided the essential assurance necessary to induce the parties hereto to effect such transaction. 2 3 Section 2. Consulting Duties. Also during the Term of this Agreement, Covenantor agrees to and shall furnish to Covenantee, Covenantor's best advice, information, judgement and knowledge with respect to the affairs, business, business methods and practices, history, patrons, customers, employees and suppliers of the Business, and to generally preserve and increase the Business and goodwill thereof. Covenantor shall be an independent contractor, and not an employee of Covenantee, as to these duties. After an initial transition period of not less than six (6) months, Covenantor's services may be provide wholly by telephone while he is absent from the Anaheim area, and he agrees to make himself available by telephone during such absences. Section 3. Consideration. As consideration for the covenants by Covenantor herein (separate and apart from any consideration paid for the assets of the Business on even date herewith), Covenantee agrees to pay to Covenantor (and, subject to the terms of Section 7 of this Agreement, Covenantor's heirs or legal representatives), so long as Covenantor is not in default hereunder, the total sum of Two Hundred and Fifty Thousand Dollars and No/Dollars ($250,000), to be paid in full to the trust account of Steven C. Smith, Esq. in accordance with the Asset Purchase Agreement signed by both parties. Section 4. Miscellaneous Covenants. Covenantor agrees that at all times during the Term of this Agreement: (a) Covenantee shall have the right to display, and may use in its advertising, the name of "Pharma Labs" in a professional manner; (b) Covenantee shall have the right to advertise the Business as being carried on in the manner and tradition and according to the standards established by Covenantor; (c) Covenantor will not knowingly or intentionally do or say any act or thing which will or may damage or destroy the business or the goodwill and esteem of Covenantee with its suppliers, employees, patrons, customers and others who may at any time have or have had business relations with the Business or Covenantee; (d) Covenantor will not reveal to any third person (other than legal counsel) any difference of opinion, if there be such at any time, between Covenantor and Covenantee; 3 4 (e) Covenantor will not knowingly or intentionally do any act of thing detrimental to Covenantee; and (f) Covenantor will encourage and recommend the use of Covenantee's services by all acquaintances. Section 5. Trade Secrets and Confidential Information. Covenantor acknowledges that in the course of Covenantor's previous involvement with the Business, and in the course of Covenantor's association with Covenantee, Covenantor has received and learned and will receive and learn of trade secrets, lists of customer and other confidential information which Covenantee desires and intends to protect. Covenantor acknowledges that, among other things, the management methods, operating techniques, procedures and methods, customer lists, prospective acquisitions, employee lists, training manuals and procedures, personnel evaluation procedures, collection procedures, pricing structures, and financial reports, including results of operations of the Business and Covenantee, are confidential. Covenantor agrees not re reveal or divulge to anyone not affiliated with the Business and Covenantee any such confidential information or trade secrets so long as the confidential or secret nature of such information shall continue (which shall be continually presumed by Covenantor, unless given written directive otherwise by Covenantee), unless specifically required to do so by law or by order of a court. Covenantor further agrees not to use any such confidential information or trade secrets in competing with Covenantee at any time during or after the Term of this Agreement. Section 6. Severability and Waiver. In case any term, phrase, clause, paragraph, restriction. covenant, or agreement herein contained shall be held to be invalid or unenforceable, it shall be deemed severable and such invalidity or unenforceability shall not defeat or impair the remaining provisions hereof. A waiver by Covenantee of any breach by Covenantor of this Agreement or of any duties imposed upon Covenantor hereunder or by law shall not be construed as a waiver by Covenantee of any remedy available to it for any subsequent or continuing breach of this Agreement or of any of the duties, obligations or agreements herein contained or imposed by law. 4 5 Section 7. Parties in Interest . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their successors, heirs and legal representatives. This Agreement shall not be assigned by either party hereto without the prior written consent of the other party, provided, however, that following the execution of this Agreement, Covenantee may assign its rights hereunder in whole or in part without the consent of Covenantor to a successor-in-interest to Covenantee in all or in part of the Business (whether by merger, sale of assets or otherwise), provided that Covenantee shall not thereby be relieved of its obligations hereunder and the successor-in-interest to Covenantee expressly assumes the duties and obligations of Covenantee set forth herein. Section 8. Remedies. Covenantor agrees that the remedy at law for any actual or threatened breach of this Agreement would be inadequate and the Covenantee shall be entitled to specific performance hereof or injunctive relief, or both, by temporary or permanent injunction or other appropriate Judicial remedy, writ or order, in addition to any other remedies to which Covenantee may be legally entitled. It is agreed that in the event of any dispute or litigation concerning this Agreement or the respective rights and duties of each party hereunder, each party shall pay its own attorneys fees and expenses. Section 9. Dispute Resolution. (a) Any and all disputes among the parties to this Agreement (defined for the purpose of this provision to include their principals, agents and/or affiliates) arising out of or in conjunction with the negotiation, execution, interpretation, performance or nonperformance of this Agreement and the transaction contemplated herein shall be solely and finally settled by 5 6 arbitration, which shall be conducted in Orange County, California, by a single arbitrator selected by the parties. The arbitrator shall be a lawyer (preferably a former judge) familiar with business transactions of the type contemplated in this Agreement, shall not have been previously employed or affiliated with any of the parties hereto, and shall be from a large, reputable firm (such as Judicial Arbitration & Mediation Services; Inc. Located in Orange County, California). If the parties fail to agree on the arbitrator within thirty (30) days of the date one of them invokes this arbitration provision, either party may make application to the American Arbitration Association to make the appointment. (b) The parties hereby renounce all recourse to litigation and agree that the award of the arbitrator shall be final and subject to no judicial review. The arbitrator shall conduct the proceedings pursuant to the Commercial Arbitration Rules of the American Arbitration Association, as now or hereafter amended (the "Rules"). (c) The arbitrator shall decide the issues submitted (i) in accordance with the provisions and commercial purposes of this Agreement, and (ii) with all substantive questions of law determined under the laws of the State of California (without regard to its principles of conflicts of laws). The arbitrator shall promptly hear and determine (after giving the parties due notice and a reasonable opportunity to be heard) the issues submitted and shall render a decision in writing within sixty (60) days after the appointment of the arbitrator. (d) The parties agree to facilitate arbitration by (i) conducting arbitration hearings to the greatest extent possible on successive days, and (ii) observing strictly the time periods established by the Rules or by the arbitrator for submission of evidence and briefs. (e) Judgement on the award of the arbitrator may be entered in any court having jurisdiction over the party against which enforcement of the award 6 7 is being sought and the parties hereby irrevocably consent to the jurisdiction of any such court for the purpose of enforcing any such award. The arbitrator shall divide all costs (other than fees and expenses of counsel) incurred in conducting the arbitration in the final award in accordance with what the arbitrator deems just and equitable under the circumstances. (f) The parties hereto agree that the provisions of this Section 9 shall not be construed to prohibit any party from obtaining, in the proper case, specific performance or injunctive relief with respect to the enforcement of any covenant or agreement of another party to this Agreement. Section 10. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 11. Notices. All notices provided for hereunder shall be in writing and shall be deemed to be given: (i) when delivered to the individual or to an officer of the company to which notice is directed; or (ii) three days after the same has been deposited in the United States mail sent Certified or Registered mail with Return Receipt Requested, postage prepaid and addressed as provided in this Section; or (iii) when delivered by an overnight delivery service (including United States Express Mail) with receipt acknowledged and with all charges prepaid by the sender addressed as provided in this Section. Notices shall be directed as follows: (a) If to Covenantor, addressed to: Pharma Labs, LLC c/o Golden Pharmaceuticals, Inc. 3000 West Warner Avenue Santa Ana, CA 92704 Attention: Charles R. Drummond Telephone: (714) 754-2440 Facsimile: (714) 754-5745 7 8 with a copy to: Morrison & Foerster, LLP 5200 Republic Plaza 370 Seventeenth Street Denver, CO 80202 Attention: Warren L. Troupe, Esq. Telephone: (303) 592-1500 Facsimile: (303) 592-1510 (b) If to Covenantee, addressed to: Adams Equity, Inc. 3880 East Eagle Drive Anaheim, CA 92807 Telephone: (714) 630-2467 Facsimile: (714) 237-1354 with a copy to: Smith & Ure 1800 North Broadway Suite 200 Santa Ana, CA 92706 Attention: Steven C. Smith, Esq. Telephone: (714) 550-7720 Facsimile: (714) 550-1251 or at such other place or places or to such other person or persons as shall be designated by notice by either party hereto. Section 12. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Section 13. Entire Agreement: Modification. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof, and may be modified only by a written instrument Signed by each of the parties hereto. 8 9 Section 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to its principles of conflicts of laws. 9 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. COVENANTOR: PHARMA LABS, LLC, a Colorado limited liability company By ---------------------------------- Its ------------------------------- COVENANTEE: ADAMS EQUITY, INC., a Nevada Corporation By ---------------------------------- Its ------------------------------- GMP LABORATORIES OF AMERICA, a California corporation By ---------------------------------- Its ------------------------------- 10 EX-27 6 FINANCIAL DATA SCHEDULE
5 YEAR AUG-31-1998 SEP-01-1997 AUG-31-1998 61,860 0 1,377,291 535,945 577,947 2,471,039 2,166,042 873,325 3,843,473 7,906,231 0 0 292,558 24,714,858 (29,508,108) 3,843,473 6,443,863 6,443,863 5,302,545 5,302,545 11,272,292 0 598,760 (10,643,015) 7,714 (10,517,274) (125,741) (453,122) 0 (10,067,760) (.08) (.08)
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