UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
___________________________________
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the period ended January 31,
1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
__________ to _________
Commission file number 0-20772
CYPROS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
California 33-0476164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2714 Loker Avenue West
Carlsbad, California 92008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(619) 929-9500
Indicate by mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities
Exchange Act 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.
[ X ] YES [ ] NO
As of March 13, 1997, the Registrant had 12,217,531 shares of
Common Stock, no par value, outstanding.
TABLE OF CONTENTS
Item Page
Part I.
1. Financial Statements:
a. Balance Sheets -- January 31, 1997 and July 3
31,1996
b. Statements of Operations -- Three and Six 4
Months Ended January 31, 1997 and 1996
c. Statements of Cash Flows -- Six Months Ended 5
January 31, 1997 and 1996
d. Notes to Financial Statements 6
2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II.
1. Legal Proceedings *
2. Changes in Securities *
3. Defaults Upon Senior Securities *
4. Submission of Matters to a Vote of Securities Holders 11
5. Other Information *
6. Exhibits and Reports on Form 8-K 11
Signatures 12
* No information provided due to inapplicability of
item.
PART I.
Item 1. Financial Statements
Cypros Pharmaceutical Corporation
Balance Sheets
January 31, July 31,
1997 1996
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 4,172,007 $8,306,752
Short-term investments 7,662,930 7,690,297
Accounts receivable 280,103 149,626
Inventory 104,574 63,386
Prepaid expenses 173,470 61,409
Total current assets 12,393,084 16,271,470
Property, equipment and leasehold
improvements, net 622,110 608,206
Purchased technology, net 5,509,569 2,629,427
[Deferred financing costs 428,961 520,011]
Licenses and patents, net 137,303 111,231
Deposits and other assets, net 119,274 126,180
[Total assets $ 19,210,301 $20,266,525]
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 317,061 $ 119,092
Other accrued liabilities 451,383 387,612
Purchased asset obligation 1,224,000 200,000
Current portion of capital lease
obligations 103,688 81,035
Current portion of long-term debt 91,008 99,282
Total current liabilities 2,187,140 887,021
Capital lease obligations 201,467 187,265
Deferred rent 128,169 120,411
Long-term debt - 41,367
[Mandatorily convertible notes 7,660,481 6,395,574]
[Shareholders' equity:
Common stock, 30,000,000 shares
authorized, 11,613,748
shares issued and outstanding as of
January 31, 1997 and
July 31, 1996 23,455,450 23,421,428]
Deferred compensation (163,477) (304,309)
[Accumulated deficit (14,258,929) (10,482,232)]
[Total shareholders' equity 9,033,044 12,634,887]
[Total liabilities and
shareholders' equity $ 19,210,301 $ 20,266,525]
Note: The balance sheet at July 31, 1996 has been derived from
the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
See accompanying notes.
Cypros Pharmaceutical
Corporation
Statements of Operations
(Unaudited)
Three Six Months Ended
Months January 31,
Ended
January
31,
1997 1996 1997 1996
Net sales $587,665 $353,990 $ 954,796 $578,718
Cost of sales 134,741 141,344 239,862 195,069
Gross profit 452,924 212,646 714,934 383,649
Operating expenses:
Sales and marketing 257,182 76,710 419,638 114,332
General and 699,423 396,788 1,320,934 773,004
administrative
Clinical testing and
regulatory 560,983 391,773 900,433 711,774
Research and 271,004 221,655 486,090 414,929
development
Depreciation and
amortization 290,154 148,347 478,040 295,792
Total operating expenses 2,078,746 1,235,273 3,605,135 2,309,831
Loss from operations (1,625,822) (1,022,627) (2,890,201) (1,926,182)
Research grant income 32,090 91,434 79,490 165,926
Interest income, net 100,217 190,733 384,713 379,316
[Amortization of
discount and costs on
mandatorily convertible (674,184) - (1,350,699) -
notes
[Net loss $(2,167,699) $(740,460) $(3,776,697) $(1,380,940)] ) 7) )]
[Net loss per share $ (0.19) $ (0.06) $ (0.33) $ (0.12)]
Shares used in computing
net loss per share 11,613,748 11,419,590 11,613,748 11,390,301
See accompanying notes.
Cypros Pharmaceutical Corporation
Statements of Cash Flows
(Unaudited)
Six Months Ended
January 31,
1997 1996
Operating activities
[Net loss $(3,776,697) $(1,380,940)]
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of deferred
compensation 174,854 96,509
Compensation expense related to
warrant issuances - 74,082
[Amortization of discount and costs
on 1,350,699 -]
mandatorily convertible notes
Depreciation and amortization 478,040 295,792
Deferred rent expense 7,758 2,222
Changes in operating assets and
liabilities; net of effects from
acquisitions:
Accounts receivable (130,477) (229,557)
Inventory 31,406 (40,902)
Prepaid expenses (112,061) (108,070)
Accounts payable 197,969 8,474
Other current liabilities 93,029 292,397
Net cash flows used in operating
activities (1,685,480) (989,993)
Investing activities
Payment for purchase of acquired (2,286,642) (1,835,356)
business
Short-term investments 27,367 2,701,802
Note receivable - (1,000,000)
Purchase of property, equipment and
leasehold improvements (59,269) (60,360)
(Increase)/decrease in licenses and 2,266 (6,597)
patents
Increase in deposits and other assets (40,209) (18,411)
Net cash flows used in investing (2,356,487) (218,922)
activities
Financing activities
Issuance of common stock, net -
869,749
Repurchase and retirement of common - (1,540,000)
stock
Repayments of long-term debt (49,641) (49,642)
Principal payments under capital
lease obligations (43,137) (14,307)
Net cash flows used in financing (92,778) (734,200)
activities
Decrease in cash and cash equivalents (4,134,745) (1,943,115)
Cash and cash equivalents at
beginning of period 8,306,752 5,026,745
Cash and cash equivalents at end of $ 4,172,007 $ 3,083,630
period
Supplemental disclosure of cash flow
information:
$ 26,932 $ 17,955
Cash paid for interest
Non-cash investing and financing
activities:
Issuance of common stock in business
acquisition $ - $ 1,032,309
Issuance of purchased asset
obligation in business acquisitions $ 1,200,000 $ 200,000
Equipment financed under capital $ 79,992 $ 26,553
leases
See accompanying notes.
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization and Business Activity
Cypros Pharmaceutical Corporation (the "Company") is engaged in
the development and marketing of acute-care, hospital-based
products.
On November 4, 1996, the Company acquired the New Drug
Application, the U.S. trademark for Ethamolin Injection (the
"Ethamolin Assets") and the finished goods inventory on hand at
closing from Schwarz Pharma, Inc., a Delaware corporation. The
acquisition was accounted for using the purchase method. The
total purchase price was $3,286,642, of which the Company paid
$2,086,642 in cash and issued a $1,200,000 note bearing interest
at 8% per annum at closing. The principal and accrued interest
on the note are due and payable on November 3, 1997. Repayment
of the principal and interest on the note is secured by the
Ethamolin Assets. The Company used its working capital to make
the cash payment at closing.
The Company's pre-clinical and clinical development programs
focus on cytoprotective drugs designed to reduce ischemia (low
blood flow) induced tissue damage in acute-care settings. The
Company's two clinical programs, CPC-111 and CPC-211, are in
various Phase II trials for cardiovascular and neurological
disorders.
Basis of Presentation
The unaudited financial statements for the three and six months
ended January 31, 1997 and 1996 have been prepared on the same
basis as the Company's audited financial statements for the year
ended July 31, 1996 and reflect all adjustments (consisting only
of normal recurring accruals) which are, in the opinion of
management, necessary for the fair presentation of the results of
the interim periods presented. Results for the interim periods
are not necessarily indicative of the results for the entire
year.
For more complete financial information, these financial
statements should be read in conjunction with the audited
financial statements and the related notes thereto for the year
ended July 31, 1996 included in the Company's Annual Report on
Form 10-K.
The Company has experienced significant quarterly fluctuations in
operating results and increases in expenses and losses since
inception and it expects these fluctuations, expenses and losses
will continue.
Inventory
Inventory is stated at the lower of cost (first-in, first-out
method) or market and is comprised of raw materials of $24,570
and finished goods of $80,004.
Revenue Recognition
Revenues from product sales of whole vials of Glofil and Inulin
are recognized upon shipment. Revenues from Glofil unit sales
are recognized upon receipt by the Company of monthly sales
reports from Syncor, the exclusive marketing agent for Glofil in
this form.
Sales are reported net of returns during the period in which
product is shipped. These sales are subsequently adjusted for
discounts and allowances due to contractual discounts on certain
pharmaceuticals under contracts with hospitals and hospital
buying groups. At January 31, 1997, such discounts and
allowances totalled $11,991.
Net Loss Per Share
Net loss per share is computed using the weighted average number
of common shares outstanding during the periods.
Reclassifications
Certain previously reported amounts have been reclassified to
conform with the 1997 presentation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and disclosures made in the
accompanying notes to the financial statements. Actual results
could differ from those estimates.
2. Subsequent Events
On March 5, 1997, the Company entered into private placement
agreements for $5 million of the Company's Common Stock, no par
value, under SEC Regulation D. The placement was sold to two
institutions led by the President and Fellows of Harvard College.
The closing of the transaction is conditioned upon the
effectiveness of a registration statement which has been filed by
the Company covering resale of the acquired shares by the
purchasers.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties, including statements regarding
the period of time during which the Company's existing capital
resources and income from various sources will be adequate to
satisfy its capital requirements. The Company's actual results
could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include but are not
limited to, those discussed in this section, as well as in the
sections entitled "Business", "Licenses", "Manufacturing", "Sales
and Marketing", "Competition", "Government Regulation", "Patents
and Proprietary Rights"of the Company's Annual Report (Form 10-K)
for the fiscal year ended July 31, 1996 and those discussed in
the S-3 Registration Statement File No. 333-17501 filed with U.S.
Securities and Exchange Commission, as well as those discussed in
any documents incorporated by reference herein or therein.
The Company was founded in 1990, commenced its research and
development activities in 1991, completed an initial public
offering (the "IPO") in November 1992, commenced clinical trials
in December 1994 and acquired two FDA-cleared products, Glofil
and Inulin, in August 1995. The Company has sustained an
accumulated deficit of $12,908,230 from inception through January
31, 1997. As the Company will not have significant positive net
operating cash flow for the next few years and the Company's
sales and marketing, research and development, clinical testing
and regulatory and general and administrative expenses during
these years will be substantial and increasing, the Company
expects to incur increasing losses for the foreseeable future.
Results of Operations
Three Months Ended January 31, 1997 Versus Three Months Ended
January 31, 1996
During the quarter ended January 31, 1997, the Company reported
sales of $587,665, a 66% increase over the $353,990 reported in
the prior-year period, principally due to the acquisition of
Ethamolin, and a gross profit on sales of $452,924, a 113%
increase over the $212,646 reported in the prior-year period. As
a percent of sales, the gross margin in the current quarter was
77% compared to 60% in the prior-year period. Without the effect
of the recall of a lot of Inulin, the gross margin for the prior-
year period would have been 72%.
[For the quarter, the Company sustained a loss of $2,167,699 (or
$.19 per share), compared to a loss of $740,460 (or $.06 per
share) for the prior-year quarter, as expenses increased in all
operating areas. Sales and marketing expense increased by more
than 235% principally due to the tripling of the field sales
force, the hiring of a product manager, executive search fees
relating to these hires and increased travel expense by sales and
marketing personnel. General and administrative expense increased
more than 76% principally due to the launch of a substantial
investor relations program, the payment of 1996 and 1997 annual
product user fees to the Food and Drug Administration for Glofil
and Inulin, and increased payroll expense. Clinical testing and
regulatory expense increased more than 43% principally due to
increased enrollment at the various sites for the Phase II trials
of CPC-111 and CPC-211. Depreciation and amortization expense
increased more than 95% principally due to the amortization of
the purchased technology related to the acquisition of Ethamolin
during the current quarter.]
During the current quarter, research grant income decreased 65%,
principally due to the prior-year quarter receiving income from
a Phase II SBIR grant that was completed in September 1996. The
research and development expense for the quarter includes
expenses incurred in connection with the grant.
In addition, net interest income for the current quarter declined
more than 47% principally due to interest income received in the
prior-year quarter from fees and interest on a loan that the
Company made during that quarter which was subsequently repaid,
coupled with interest expense during the current quarter accruing
on the promissory note issued to Schwarz Pharma as part of the
acquisition of Ethamolin.
[During the current quarter, the Company recognized $674,184 of
expense related to the amortization of (i) the discount available
upon conversion of the $8 million in principal amount of
mandatorily convertible notes issued in three private placements
between April and July of 1996 and (ii) the deferred financing
costs related to these placements.]
Six Months Ended January 31, 1997 Versus Six Months Ended January
31, 1996
During the six months ended January 31, 1997, the Company
reported sales of $954,796, a 65% increase over the $578,718
reported in the prior-year period, principally due to the
acquisition of Ethamolin, and a gross profit on sales of
$714,934, an 86% increase over the $383,649 reported in the prior-
year period, principally because the gross profit in the prior-
year period was adversely affected by the recall of a lot of
Inulin. As a percent of sales, the gross margin in the current
period was 75% compared to 66% in the prior-year period. Without
the effect of the recall of the Inulin lot, the gross margin for
the prior-year period would have been 74%.
[During the six months ended January 31, 1997, the Company
sustained a loss of $3,776,697 (or $.33 per share), compared to a
loss of $1,380,940 (or $.12 per share) for the prior-year period,
as expenses in all operating areas. Sales and marketing expense
increased more than 267% for the reasons set forth in the three-
month analysis above. General and administrative expense
increased 71% for the reasons set forth in the three-month
analysis above in addition to a one-time payment of $100,000 to a
financial advisor in September 1996. Clinical testing and
regulatory expense increased by more than 26% principally due to
increased payments to clinical research organizations managing
two of the Company's Phase II clinical trials and increased usage
of consultants to perform clinical monitoring, data base
management and statistical analysis functions. Depreciation and
amortization expense increased more than 61% for the reason set
forth in the three-month analysis above.]
During the current six-month period, research grant income
declined more than 52% for the reason set forth in the three-
month analysis above. The research and development expense for
the current six-month period includes expenses incurred in
connection with the SBIR grants.
[During the current six-month period, the Company recognized
$1,350,699 of expense related to the amortization of (i) the
discount available upon conversion of the $8 million in principal
amount of mandatorily convertible notes issued in three private
placements between April and July of 1996 and (ii) the deferred
financing costs related to these placements.]
Liquidity and Capital Resources
The Company has principally funded its activities to date
through its initial public offering ("IPO") in November 1992,
which raised net proceeds of $5,951,000, subsequent exercises of
its Redeemable Class A Warrants in 1994 and early 1995, which
raised net proceeds of $10,497,000, exercises by the underwriter
of the IPO of its unit purchase options (and the Redeemable Class
A Warrants within such options), which raised net proceeds of
$1,681,000, that it had received as part of its compensation for
the IPO, and three private placements of mandatorily convertible
notes during April and July 1996, which raised $7,464,000. At
January 31, 1997, the Company had cash, cash equivalents and
short-term investments of $11,834,937 compared to $15,997,049 at
July 31, 1996. At January 31, 1997, working capital was
$10,205,944, compared to $15,384,449 at July 31, 1996.
The Company expects that its cash needs will increase
significantly in future periods due to expansion of research and
development programs, increased clinical testing activity, growth
of administrative, clinical and laboratory staff and expansion
of facilities to accommodate increased numbers of employees. The
Company's management believes that the Company's working capital
will be sufficient to fund the operations of the Company for more
than two years dependent, in part, on the timing of the
commencement of each phase of the clinical trials on CPC-111 and
CPC-211 and the funding priorities that it gives its various
research programs, the results of clinical tests and research
programs; competing technological and market developments; the
time and costs involved in obtaining regulatory approvals and in
obtaining, maintaining and enforcing patents; the cost of product
acquisitions and their resulting cash flows and other factors.
The Company is funding a significant portion of its operating
expenses through cash flow from product sales, but expects to
seek additional funds through exercises of its currently
outstanding options and warrants, public or private equity
financings, collaborations or from other sources. There can be no
assurance that additional funds can be obtained on desirable
terms or at all. The Company may seek to raise additional capital
whenever conditions in the financial markets are favorable, even
if the Company does not have an immediate need for additional
cash at that time.
Part II.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on January 28,
1997. The following matters received the votes for, votes against,
abstentions and broker non-votes set forth across from them at the
meeting:
Vote Votes Abstensions Broker For Against ns r
For Against Non-Votes
(1) Election of Directors
to hold office
until the 1998
Annual Meeting of
Shareholders
Paul J. Marangos 8,872,294 7,589 0 0
Robert F. 8,868,693 11,190 0 0
Allnutt
Digby W. Barrios 8,875,793 4,090 0 0
Virgil Thompson 8,875,693 4,190 0 0
Robert A. 8,865,797 14,086 0 0
Vukovich
(2) Ratification of
the selection of
Ernst &
Young LLP as the
Company's
independent
auditors for the
fiscal year
ending July 31, 8,860,284 5,100 4,499 10,000
1997
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
No exhibits are included in this report.
(b) Reports on Form 8-K.
A report on Form 8-K/A, pertaining to Item 7, "Financial
Statements and Exhibits", was filed by the Company on
January 16,1997.
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, in the City of Carlsbad, County of San
Diego, State of California, on the 5th day of August, 1997.
CYPROS PHARMACEUTICAL CORPORATION
/s/----------------------------
By Paul J. Marangos
Chairman of the Board,
President and Chief Executive Officer
/s/----------------------------
By David W. Nassif
Vice President, Chief Financial Officer
and Secretary
(Principal Financial and Accounting Officer)
5
6-MOS
JUL-31-1997
JAN-31-1997
4,172,007
7,662,930
280,103
0
104,574
12,393,084
1,027,358
(405,248)
19,210,301
2,187,140
0
7,660,481
0
23,455,450
(14,422,406)
19,210,301
954,796
1,469,931
239,862
239,862
3,605,135
0
50,932
(3,776,697)
0
(3,776,697)
0
0
0
(3,776,697)
(0.33)
0
