EX-99 3 exhibit99-3.txt EXHIBIT 99.3 EXHIBIT 99.3 KALI LABORATORIES, INC. UNAUDITED COMBINED BALANCE SHEET JULY 4, 2004 (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents $1,246 Accounts receivable 1,191 Inventories 138 Prepaid expenses and other current assets 828 ----- Total current assets 3,403 ----- Property, plant and equipment--At cost 7,171 Less accumulated depreciation and amortization (1,210) ----- Property, plant and equipment--Net 5,961 ----- TOTAL ASSETS $9,364 ===== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable and accrued liabilities $1,005 Taxes payable 5 Payable to Par 12,000 Deferred income - current portion 500 ----- Total current liabilities 13,510 Deferred income 1,800 ------ Total liabilities 15,310 ====== Commitments and contingencies Stockholders' deficit: Common stock 130 Additional paid-in capital 96 Accumulated deficit (6,172) ----- Total stockholders' deficit (5,946) ----- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $9,364 ===== See notes to unaudited combined financial statements 1 KALI LABORATORIES, INC. UNAUDITED COMBINED STATEMENT OF OPERATIONS SIX MONTHS ENDED JULY 4, 2004 AND JUNE 30, 2003 (IN THOUSANDS) 2004 2003 ---- ---- Revenue: Research and development fees $214 $908 Royalty income 1,466 - ----- ----- Total revenue 1,680 908 Operating expenses: Research and development 6,381 1,258 General and administrative 343 99 ----- ----- Total operating expenses 6,724 1,357 ----- ----- Operating loss (5,044) (449) ----- ----- Other income (expenses): Interest expense (69) (70) Dividend and interest income 29 - Other income 40 15 ----- ----- Total other income (expenses) - (55) ----- ----- Loss before provision for state income taxes (5,044) (504) Provision for state income taxes 1 5 ----- ----- Net loss $(5,045) $(509) ===== ===== See notes to unaudited combined financial statements. 2 KALI LABORATORIES, INC. UNAUDITED COMBINED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JULY 4, 2004 (IN THOUSANDS) Cash flows from operating activities: Net loss $(5,045) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 228 Amortization of deferred financing costs 7 Changes in assets and liabilities: Accounts receivable (747) Inventories 284 Prepaids and other current assets (627) Accounts payable and accrued liabilities 1,084 ----- Net cash used in operating activities (4,816) ----- Cash flows from investing activities Proceeds from sale of available-for-sale securities 6,554 Purchases of property, plant and equipment (1,448) Sale of property, plant and equipment, net 75 Closing costs (363) ----- Net cash provided by investing activities 4,818 ----- Cash flows from financing activities: Repayment of loan from Perrigo (10,000) Borrowings from Par Pharmaceutical, Inc. 12,000 Repayment of note payable-stockholder (553) Distributions of S Corporation earnings (444) ------ Net cash provided by financing activities 1,003 ----- Net change in cash and cash equivalents 1,005 Cash and cash equivalents--Beginning of year 241 ----- Cash and cash equivalents--End of period $1,246 ===== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $68 ===== State income taxes $1 ===== See notes to unaudited combined financial statements. 3 KALI LABORATORIES, INC. NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS JULY 4, 2004 (In Thousands) -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION On June 10, 2004, Kali Laboratories, Inc. ("Kali" or the "Company") was acquired by Par Pharmaceutical Companies, Inc. ("Par") for $140,430 in cash and $2,530 in warrants. The purchase price included adjustments for debt repayment of a $10,000 loan made to the Company by Par in March 2004. Under the terms of the agreement, Par purchased all of the capital stock of Kali. Kali may be entitled to up to an additional $10,000 if certain product related performance criteria are met over the next four years. VGS Holdings, Inc. ("VGS") was not included in the purchase. The combined financial statements at July 4, 2004 and for the six-month periods ended July 4, 2004 and June 30, 2003 are unaudited; in the opinion of the Company's management, however, such statements include all adjustments (consisting only of normal recurring accruals) necessary to present fairly the information presented therein. The combined financial statements include the accounts of VGS, which are under common control. Pursuant to accounting requirements of the Securities and Exchange Commission applicable to reports on Form 8K/A, the accompanying combined financial statements and these notes do not include all disclosures required by accounting principles generally accepted in the United States for audited financial statements. Accordingly, these statements should be read in conjunction with the Company's most recent annual combined financial statements. 2. INVENTORIES Inventories include the following major categories at July 4, 2004: Finished goods $ - Raw materials and supplies 138 --- $138 ==== The inventory has been capitalized in anticipation of commercialization of related products. 3. PROPERTY, PLANT AND EQUPMENT Property, plant and equipment include the following at July 4, 2004: Land and buildings $2,934 Production and laboratory equipment 3,816 Leasehold improvements 202 Furniture and fixtures 169 Automobile 50 -- 7,171 Less accumulated depreciation and amortization (1,210) ----- Property, plant and equipment--net $5,961 ===== Depreciation and amortization expense related to property, plant and equipment was $228 for the six months ended July 4, 2004. 4. RELATED PARTY TRANSACTIONS LOAN RECEIVABLE-- In December 2002, Kali advanced $2,135 to VGS to purchase the building located in Somerset, New Jersey, in which Kali operates. The amount advanced to VGS was borrowed by Kali under their reducing revolver loan with Merrill Lynch. The loan of $2,135 plus interest at the annual rate of 2.3% is due on June 9, 2006. The outstanding balance of the loan of $2,688 was eliminated in the accompanying combined balance sheet. 4 LEASING OF OPERATING FACILITIES--Kali leases two operating facilities from VGS on a month-to-month basis. Kali was charged rent of $80 by VGS for the six months ended July 4, 2004, which was eliminated in the accompanying combined balance sheet. 5. COMMITMENTS AND CONTINGENCIES On July 7, 2004, Xcel Pharmaceuticals, Inc. ("Xcel") filed a complaint in the U.S. District Court for the District of New Jersey against Kali alleging that Kali's proposed generic version of Diastat(R) (diazepam) infringes one or more claims of U.S. Patent No. 5,462,740 (the "740 patent"). Xcel alleges that Kali infringed the `740 patent by filing an ANDA with the FDA containing a Paragraph IV certification and by seeking approval to manufacture and market its proposed generic version of Diastat(R) before the expiration of the `740 patent. In the Complaint, Xcel seeks an order of the court enjoining Kali from marketing its proposed generic version of Diastat(R) until the expiration date of the `740 patent, together with its attorneys' fees. This action is in its earliest stage. Kali has not yet responded to the complaint, but intends to vigorously defend this action. On November 25, 2002, Ortho-McNeil Pharmaceutical, Inc. ("Ortho-McNeil") filed a lawsuit against Kali in the United States District Court for the District of New Jersey. Ortho-McNeil alleged that Kali infringed U.S. Patent No. 5,336,691 (the "`691 patent") by submitting a Paragraph IV certification to the FDA for approval of tablets containing tramadol hydrochloride and acetaminophen. Par is Kali's exclusive marketing partner for these tablets. Kali has denied Ortho-McNeil's allegation, asserting that the `691 patent was not infringed and is invalid and/or unenforceable, and that the lawsuit is barred by unclean hands. Kali also has counterclaimed for declaratory judgments of non-infringement, invalidity and unenforceability of the `691 patent. Summary judgment papers were served on opposing counsel on May 28, 2004; however under New Jersey practice the summary judgment papers will not be filed with the court until the briefing is complete. 5