-----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, QezE/rVZtIJghOInH1ueUJXY+Sjkg0ioGQex+rwQYhInkP9PWbT0HoFM632L1jJC 0Kat0cAaH/GPeIznL2ilPg== 0000003116-98-000003.txt : 19981116 0000003116-98-000003.hdr.sgml : 19981116 ACCESSION NUMBER: 0000003116-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AKORN INC CENTRAL INDEX KEY: 0000003116 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 720717400 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13976 FILM NUMBER: 98747881 BUSINESS ADDRESS: STREET 1: 100 TRI STATE INTERNATIONAL STREET 2: SUITE 100 CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 BUSINESS PHONE: 8472363800 MAIL ADDRESS: STREET 1: 100 TRI STATE INTERNATIONAL STREET 2: SUITE 100 CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1998 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____ to _____ Commission File Number: 0-13976 AKORN, INC. (Exact Name of Registrant as Specified in its Charter LOUISIANA 72-0717400 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2500 Millbrook Drive Buffalo Grove, Illinois 60089 (Address of Principal Executive Offices) (Zip Code) (847) 279-6100 (Issuer's telephone number) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ____ At November 2, 1998 there were 18,087,114 shares of common stock, no par value, outstanding. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Page Condensed Consolidated Balance Sheets September 30, 1998 and December 31, 1997 2 Condensed Consolidated Statements of Income Three and nine months ended September 30, 1998 and 1997 3 Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 1998 and 1997 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 6. Exhibits and Reports on Form 8-K 12 The information contained in this filing, other than historical information, consists of forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. Such statements regarding the timing of acquiring, developing and financing new products, of bringing them on line and of deriving revenues and profits from them, as well as the effect of those revenues and profits on the company's margins and financial position, is uncertain because many of the factors affecting the timing of those items are beyond the company's control.
AKORN, INC. CONDENSED CONSOLIDATED BALANCE SHEETS DOLLARS IN THOUSANDS (UNAUDITED) September 30, December 31, 1998 1997 * ------------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 259 $ 2,413 Short-term investments - 96 Accounts receivable, net 9,062 5,429 Inventory 12,690 9,955 Deferred income taxes 517 1,350 Prepaid expenses and other assets 736 390 --------- -------- TOTAL CURRENT ASSETS 23,264 19,633 PRODUCT LICENSES AND OTHER ASSETS 19,580 6,687 PROPERTY, PLANT AND EQUIPMENT, NET 14,890 12,395 --------- -------- TOTAL ASSETS $ 57,734 $ 38,715 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ - $ 1,750 Current installments of long-term debt and capital lease obligations 3,725 149 Trade accounts payable 3,060 3,447 Income taxes payable - 462 Accrued compensation 1,160 985 Accrued expenses and other liabilities 774 1,819 -------- ------- TOTAL CURRENT LIABILITIES 8,719 8,612 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 25,007 9,003 OTHER LONG-TERM LIABILITIES 297 849 SHAREHOLDERS' EQUITY Common stock 17,513 16,241 Retained earnings 6,198 4,010 -------- -------- TOTAL SHAREHOLDERS' EQUITY 23,711 20,251 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 57,734 $ 38,715 ======== =========
*Condensed from audited consolidated financial statements. See notes to condensed consolidated financial statements. 2
AKORN, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 ----------------- ----------------- Net sales $ 15,138 $ 11,058 $ 41,177 $30,102 Cost of goods sold 7,270 6,313 20,046 17,013 -------- -------- -------- ------- GROSS PROFIT 7,868 4,745 21,131 13,089 Selling, general and administrative expenses 3,408 2,903 9,734 8,584 Amortization of intangibles 652 90 1,740 213 Research and development 1,187 342 3,143 1,071 Purchased research and development 1,298 - 1,298 - Relocation charges - - - 1,451 -------- ------ ------- ------- 6,545 3,335 15,915 11,319 -------- ------ ------- ------- OPERATING INCOME 1,323 1,410 5,216 1,770 Interest expense (413) (115) (925) (368) Offering expenses (350) - (350) - Interest and other income, net 35 14 33 168 -------- ------- ------ ------- (728) (101) (1,242) (200) -------- ------- ------ ------- INCOME BEFORE INCOME TAXES 595 1,309 3,974 1,570 Income taxes 250 484 1,480 581 -------- ------- ------ ------- NET INCOME $ 345 $ 825 $ 2,494 $ 989 ======== ======== ======== ======= Per Share: NET INCOME - BASIC $ 0.02 $ 0.05 $ 0.14 $ 0.06 NET INCOME - DILUTED $ 0.02 $ 0.05 $ 0.13 $ 0.06 WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 17,948 16,606 17,829 16,599 WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 18,840 17,031 18,820 16,883
See notes to condensed consolidated financial statements. 3
AKORN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS DOLLARS IN THOUSANDS (UNAUDITED) Nine months ended September 30, 1998 1997 ----------- ---------- OPERATING ACTIVITIES Net income $ 2,494 $ 989 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 2,709 1,214 Purchased research and development 1,298 - Building and equipment write down - 400 Changes in operating assets and liabilities (7,872) (242) ----------- -------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,371) 2,361 INVESTING ACTIVITIES Purchases of property, plant and equipment (3,464) (1,233) Product license acquisitions (12,473) (4,313) Net maturities of investments 96 192 ----------- -------- NET CASH USED IN INVESTING ACTIVITIES (15,841) (5,354) FINANCING ACTIVITIES Repayment of long-term debt (12) (33) Issuance of long-term debt 16,371 1,500 Proceeds from sale of stock 686 50 Reductions in capital lease obligations (111) (113) Short-term borrowings, net (1,750) 905 Debt acquisition costs (126) - ----------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 15,058 2,309 ----------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,154) (684) Cash and cash equivalents at beginning of period 2,413 1,380 ----------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 259 $ 696 =========== =======
See notes to condensed consolidated financial statements. 4 AKORN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of Akorn, Inc. and its wholly owned subsidiaries (the Company). Intercompany transactions and balances have been eliminated in consolidation. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and accordingly do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and nine-month periods ended September 30, 1998 are not necessarily indicative of the results that may be expected for a full year. For further information, refer to the consolidated financial statements and footnotes for the transition period ended December 31, 1997, included in the Company's Annual Report on Form 10-K. NOTE B - NONCASH TRANSACTIONS On June 5, 1998, a former employee exercised options for 105,000 shares of the Company's common stock. The individual tendered approximately 22,000 shares of the Company's outstanding stock as consideration for the option exercise and approximately 33,000 shares to satisfy the personal income tax withholding requirements of the transaction, all of which was recorded as treasury stock. The net effect of this transaction was to increase accrued liabilities by $280,000, increase common stock and paid in capital by $185,000, and increase treasury stock by $465,000. In July 1998, the Company financed the acquisition of four product licenses with long-term debt in the amount of $3.332 million. NOTE C - SUBSEQUENT EVENTS On October 8, 1998, the Company closed the acquisition, effective July 1, 1998, of the trade name and other rights to Endosol Extra, a surgical irrigation solution, from Allergan, Inc. The Company paid Allergan $1.0 million, with $0.5 million paid upon closing and an additional $0.5 million payable on the first anniversary of the closing date. NOTE D - RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires all items of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Other comprehensive income may include foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. The 5 accumulated balance of other comprehensive income must be displayed separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The Company has adopted this accounting standard January 1, 1998, as required. Currently, the Company does not have any items that qualify as "other comprehensive income." Accordingly, no separate statement has been presented herein. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. The Company will adopt this accounting standard as of December 31, 1998, as required. The Company expects to continue reporting on ophthalmic and injectable segments. 6 AKORN, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three Months Ended September 30, 1998 Compared to 1997 The following table sets forth, for the periods indicated, net sales by segment, excluding intersegment sales:
Three Months Ended September 30, ------------------- 1998 1997 -------- -------- (in thousands) Ophthalmic division $ 7,392 $ 6,535 Injectable division 7,746 4,523 -------- ------- Total net sales $ 15,138 $11,058 ======== =======
Consolidated net sales increased 37% in the quarter ended September 30, 1998 compared to the same period in 1997. Ophthalmic division sales increased 13%, reflecting new product acquisitions and introductions as well as growth in the base business. Injectable division sales increased 71% compared to the same period in 1997, reflecting strong sales in the base business as well as in acquired products. Consolidated gross profit increased 66% during the quarter ended September 30, 1998 compared to the same period in 1997, with gross margins increasing from 43% to 52%. Margins for the ophthalmic division increased from 46% to 54% during the comparable periods, primarily due to product acquisitions and a shift in sales mix to higher-margin products. Margins for the injectable division increased from 38% to 50%, primarily due to sales of acquired products. Selling, general and administrative (SG&A) expenses increased 17% during the quarter ended September 30, 1998 as compared to the same period in 1997, reflecting increased marketing and promotional expenses and provisions for contractual and management bonus obligations. The percentage of SG&A expenses to sales decreased from 26% to 23% despite the spending increases previously noted, reflecting the ability to leverage existing operations to cover incremental sales growth. Research and development (R&D) expense increased 247% in the quarter ended September 30, 1998, to $1,187,000 from $342,000 for the same period in 1997. The increase reflects an increased number of proprietary products under development. Improved gross profits have allowed the Company to devote substantially greater resources to developing patented products as part of its long-term growth strategy. The Company incurred one-time charges of $1,298,000 for R&D charges related to the acquisition of Advanced Remedies, Inc. (ARI) in July 1998. The approximately $4,000,000 purchase price included, in addition to capital equipment, all Abbreviated New Drug Applications (ANDAs) for any product previously approved for ARI or under review 7 by the FDA. The purchase price also included regulatory files for products under development by ARI but not yet filed with the FDA. The total purchase price was allocated among the acquired assets, and the price associated with products not yet approved by the FDA was designated purchased R&D and charged to expense. Interest expense of $413,000 was higher than the prior-year quarter's $115,000, primarily due to higher average outstanding debt balances. The Company incurred approximately $350,000 in expenses associated with a proposed offering of 5.5 million shares of common stock. Market conditions led the Company to request withdrawal of the registration statement, and the related accounting legal and printing fees were charged to expense in the quarter ended September 30, 1998. The Company's effective tax rate for the quarter ended September 30, 1998 was 42% compared to 37% for the prior-year period, resulting primarily from changes in the state tax provision. The Company reported net income of $345,000 or $0.02 per diluted share for the three months ended September 30, 1998. Net income for the comparable prior-year period was $825,000. Nine Months Ended September 30, 1998 Compared to 1997 The following table sets forth, for the periods indicated, net sales by segment, excluding intersegment sales:
Nine Months Ended September 30, ------------------- 1998 1997 --------- -------- (in thousands) Ophthalmic division $ 21,206 $ 18,160 Injectable division 19,971 11,942 -------- -------- Total net sales $ 41,177 $ 30,102 ======== ========
Consolidated net sales increased 37% in the nine months ended September 30, 1998 compared to the same period in 1997. Ophthalmic division sales increased 17%, primarily due to product acquisitions and introductions. Injectable division sales increased 67% compared to the same period in 1997, due to product acquisitions as well as strong sales in the base business. Consolidated gross profit increased 61% during the nine months ended September 30, 1998 compared to the same period in 1997, with gross margins increasing from 43% to 51%. Margins for the ophthalmic division increased from 45% to 51% during the comparable periods, primarily due to product acquisitions and introductions and a shift in sales mix to higher-margin products. Margins for the injectable division increased from 41% to 52%, primarily due to product acquisitions. Selling, general and administrative (SG&A) expenses increased 13% during the nine months ended September 30, 1998 as compared to the same period in 1997, reflecting increased marketing and promotional activities, as well as provisions for employee and management bonuses. The percentage of SG&A expenses to sales decreased from 8 29% to 24% despite the increases noted above, reflecting the ability to leverage existing operations to cover incremental sales growth. Research and development (R&D) expense increased 194% in the nine months ended September 30, 1998, to $3,143,000 from $1,071,000 for the same period in 1997. The increase reflects an increased number of proprietary products under development. Improved gross profits have allowed the Company to devote substantially greater resources to developing patented products as part of its long-term growth strategy. The Company incurred one-time charges of $1,298,000 for R&D charges related to the acquisition of Advanced Remedies, Inc. (ARI) in July 1998. The approximately $4,000,000 purchase price included, in addition to capital equipment, all Abbreviated New Drug Applications (ANDAs) for any product previously approved for ARI or under review by the FDA. The purchase price also included regulatory files for products under development by ARI but not yet filed with the FDA. The total purchase price was allocated among the acquired assets, and the price associated with products not yet approved by the FDA was designated purchased R&D and charged to expense. During the nine months ended September 30, 1997, the Company recorded $1,451,000 in charges related to the relocation of the ophthalmic division and executive offices from Abita Springs, Louisiana to the Chicago area. The charges primarily relate to severance and retention bonus payments as well as a write-down of the Abita Springs facility and equipment to net realizable value. Interest expense increased 151% to $925,000 from $368,000 in the prior-year period, reflecting higher average debt balances. The Company incurred approximately $350,000 in expenses associated with a proposed offering of 5.5 million shares of common stock. Market conditions led the Company to request withdrawal of the registration statement, and the related accounting legal and printing fees were charged to expense in the quarter ended September 30, 1998. The Company's effective tax rate for the nine months ended September 30, 1998 was 37%, unchanged from the prior-year period. The Company's average effective tax rate will increase due to the move to a state with higher tax rates. The Company reported net income of $2,494,000 or $0.13 per diluted share for the nine months ended September 30, 1998. Net income for the comparable prior-year period was $989,000. FINANCIAL CONDITION AND LIQUIDITY Working capital at September 30, 1998 was $14.5 million compared to $11.0 million at December 31, 1997. The Company amended its bank credit facilities in July 1998 to allow for additional financing. The Company borrowed $6.0 million under its line of credit in July 1998 to finance acquisitions. At September 30, 1998 the Company had $1.9 million of financing available under its line of credit. Management believes that existing cash, cash flows from operations and available bank credit are sufficient to handle the Company's requirements for the immediate future. 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings Certain legal proceedings in which the registrant, Akorn, Inc. (the "Company"), is involved are described in Item 3 to the Company's Form 10-K for the transition period ended December 31, 1997 and in Note P to the consolidated financial statements included in that report. Item 4. Submission of Matters to a Vote of Security Holders None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (11.1) Computation of Earnings (Loss) per Share (27) Financial Data Schedule (b) Reports on Form 8-K None. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AKORN, INC. /s/ Rita J. McConville Rita J. McConville Vice President, Chief Financial Officer and Secretary (Duly Authorized and Principal Financial Officer) Date: November 2, 1998 11 EX-11.1 2 EXHIBIT 11.1 Akorn, Inc. Exhibit 11.1 COMPUTATION OF NET INCOME PER SHARE (In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1998 1997 1998 1997 ------- ------ -------- ------ Earnings: Income applicable to common stock $ 345 $ 825 $ 2,494 $ 989 Weighted average number of shares outstanding 17,948 16,606 17,829 16,599 Net income per share - basic $ 0.02 $ 0.05 $ 0.14 $ 0.06 Additional shares assuming conversion of options and warrant 892 425 991 284 Pro forma shares 18,840 17,031 18,820 16,883 Net income per share - diluted $ 0.02 $ 0.05 $ 0.13 $ 0.06
EX-27 3 EXHIBIT 27
5 3-MOS 9-MOS DEC-31-1998 DEC-31-1998 SEP-30-1998 SEP-30-1998 259,237 259,237 0 0 9,062,322 9,062,322 0 0 12,689,677 12,689,677 23,264,570 23,264,570 25,335,009 25,335,009 (10,445,184) (10,445,184) 57,734,236 57,734,236 8,718,915 8,718,915 0 0 0 0 0 0 17,314,904 17,314,904 6,396,242 6,396,242 57,734,236 57,734,236 15,138,372 41,176,688 15,138,372 41,176,688 7,270,742 20,046,079 7,270,742 20,046,079 5,596,373 14,966,485 0 0 412,647 925,201 595,486 3,974,648 250,107 1,480,380 345,379 2,494,268 0 0 0 0 0 0 345,379 2,494,268 .02 .14 .02 .13
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