1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2000
OR
___ TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________to________________________
COMMISSION FILE NUMBER 1-10113
HALSEY DRUG CO., INC.
---------------------
(Exact name of registrant as specified in its charter)
New York 11-0853640
- --------------------------------------------------------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
695 N. Perryville Rd.
Rockford, IL 61107
- --------------------------------------------------------------------------------
(Address of Principal executive offices) (Zip Code)
(815) 399 - 2060
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 50 days.
YES X NO
----- ------
As of July 31, 2000 the registrant had 14,504,405 Shares of Common Stock, $.01
par value, outstanding.
2
HALSEY DRUG CO., & SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page #
Condensed Consolidated Balance Sheets- 3
June 30, 2000 and December 31, 1999
Condensed Consolidated Statements of 5
Operations - Three and six months ended June 30, 2000
and June 30, 1999
Consolidated Statements of Cash 6
Flows - Six months ended June 30, 2000
and June 30, 1999
Consolidated Statements of Stockholders' 7
Equity - Six months ended June 30, 2000
Notes to Condensed Consolidated Financial 8
Statements
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HALSEY DRUG CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
(Amounts in thousands) 2000 1999
JUNE 30 DECEMBER 31
------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 3,843 $ 786
Accounts Receivable - trade, net of
Allowances for doubtful accounts of $153 and
$425 at June 30, 2000 and
December 31, 1999, respectively 3,991 2,716
Other receivables 123 --
Inventories 3,449 3,502
Prepaid insurance and other current assets 379 213
--- ---
Total current assets 11,785 7,217
PROPERTY PLANT & EQUIPMENT, NET 2,951 3,013
DEFERRED PRIVATE OFFERING COSTS 1,444 1,623
OTHER ASSETS AND DEPOSITS 1,072 642
----- ---
$17,252 $ 12,495
======= ========
The accompanying notes are an integral part of these statements
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4
HALSEY DRUG CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
(Amounts in thousands) 2000 1999
JUNE 30 DECEMBER 31
------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable 2,148 4,038
Accounts payable 1,259 2,283
Accrued expenses 5,710 5,777
Department of Justice Settlement 300 300
-------- --------
Total current liabilities 9,417 12,398
CONVERTIBLE DEBENTURES, NET 42,855 41,096
DEPARTMENT OF JUSTICE SETTLEMENT 1,200 1,375
NOTES PAYABLE, LONG TERM 9,000 -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $.01 par value; authorized 80,000,000 shares; issued
14,905,367 shares at June 30,2000 and 14,829,511 shares at
December 31, 1999 149 148
Additional paid-in capital 36,041 35,751
Accumulated deficit (80,421) (77,284)
-------- --------
(44,231) (41,385)
Less: Treasury stock - at cost -(439,603 shares at June 30,
2000 and December 31, 1999) (989) (989)
----- -----
Total stockholders' equity (deficit) (45,220) (42,374)
-------- --------
$ 17,252 $ 12,495
======== =========
The accompanying notes are an integral part of these statements
5
HALSEY DRUG CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
Amounts in thousands except per share data
June 30
-------
For the six months ended For the three months ended
------------------------ --------------------------
2000 1999 2000 1999
---- ---- ---- ----
Product sales.................................. $ 7,217 $ 5,791 $ 4,066 $ 2,567
Product development revenues................... 5,000 -- 5,000 --
----- ------ ----- -----
Net product revenues...................... 12,217 5,791 9,066 2,567
Cost of manufacturing.......................... 8,792 7,424 5,077 3,776
Research & development......................... 670 355 277 179
Selling, general and administrative expenses... 3,200 3,524 1,572 1,703
----- ----- ----- -------
Income (Loss) from operations (445) (5,512) 2,140 (3,091)
Amortization of deferred debt discount and
Private offering costs ..................... (1,222) (463) (616) (256)
Interest expense, net ......................... (1,894) (1,365) (993) (714)
Other income (expense)......................... 128 54 118 51
----- -------- ----- -------
Income (Loss) before income taxes.......... (3,433) (7,286) 649 (4,010)
------- ------- --- -------
Income tax benefit ............................ 296 -- 296 --
----- --------- -------- ------------
Net Income (Loss).......................... ($ 3,137) ($ 7,286) $ 945 ($ 4,010)
============ ============ ============= ============
Net Income (Loss) per share (basic and
diluted) ................................... (0.22) (0.51) .07 (0.28)
====== ====== === ======
Average number of outstanding shares 14,445,463 14,276,064 14,463,050 14,294,070
============ ============ ============= ============
The accompanying notes are an integral part of these statements
5
6
HALSEY DRUG CO., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
Amounts in thousands SIX MONTHS ENDED
JUNE 30
-------
2000 1999
---- ----
Cash flows from operating activities
Net loss ...................................................... ($3,137) ($7,286)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization ............................. 348 657
Deferred debt discount and private offering costs.......... 1,222
Gain on sale of equipment.................................. (123) --
Issuance of common stock for payment of interest and
Payable............................................... 155 427
Issuance of convertible subordinated debentures............ 841 9,247
(Increase) decrease in operating assets and liabilities
Accounts receivable .................................... (1,281) (219)
Other receivable ..................................... (117) (28)
Inventories ............................................ 52 1,603
Prepaid insurance and other current assets ............. (166) (26)
Other assets (555) --
Accounts payable ....................................... (1,024) (654)
Accrued expenses ...................................... 71 (585)
----- ------
Total adjustments ...................................... (577) 10,422
----- ------
Net cash (used in) provided by operating activities . (3,714) 3,136
------- -----
Cash flows from investing activities
Capital expenditures ...................................... (287) (119)
Proceeds from the sale of equipment ....................... 123 --
(Decrease) in other assets................................. -- (204)
---- -----
Net cash used in investing activities .................. (164) (323)
----- -----
Cash flows from financing activities
Increase (decrease) in notes payable ...................... 7,110 (54)
Payments to Department of Justice ........................ (175) (150)
----- ------
Net cash provided by (used in) financing activities .... 6,935 (204)
----- -----
Net increase in cash and cash equivalents.................. 3,057 2,609
Cash and cash equivalents at beginning of period ............... 786 1,850
----- ------
Cash and cash equivalents at end of period ..................... $3,843 $4,459
====== ======
Supplemental disclosure of noncash activities
For the 6 months ended June 30, 2000:
The Company issued 55,022 shares of common stock as payment for $139,613 in
accrued interest.
The Company issued 12,000 shares of common stock as payment for $15,000 in trade
payables.
The Company issued $840,846 debentures as payment for like amount of accrued
debenture interest.
The accompanying notes are an integral part of these statements
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7
HALSEY DRUG CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Six months ended June 30, 2000
Amounts in thousands except per share data
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value Additional Accumulated
---------------------------- Paid-in
Shares Amount Capital Deficit
------ ------ --------- -------
Balance January 1, 2000 14,829,511 $148 $35,751 ($ 77,284)
Net Loss for the six months
ended June 30, 2000 (3,137)
Issuance of shares as payment
of interest 55,022 1 138
Issuance of common stock -
Conversion of debentures 8,834 -- 12
Deferred debt discount on
warrants and private issuance costs 125
Issuance of shares as payment of trade
payables 12,000 -- 15
---------- ------ --------- -----------
Balance at June 30, 2000 14,905,367 $149 $36,041 ($ 80,421)
========== ====== ========= ===========
Treasury stock, at cost
-----------------------
Shares Amount Total
------ ------ -----
Balance January 1, 2000 439,603 ($ 989) ($ 42,374)
Net Loss for the six months ended June
30, 2000 (3,137)
Issuance of shares as payment of
interest 139
Issuance of common stock -
Conversion of debentures 12
Deferred debt discount on
warrants and private issuance costs 125
Issuance of shares as payment
of trade payables 15
---------- -------- ----------
Balance at June 30, 2000 439,603 ($ 989) ($ 45,220)
========== ======== ==========
The accompanying notes are an integral part of this statement
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8
HALSEY DRUG CO., INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Halsey Drug Co., Inc. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
to present fairly the financial position, results of operations and changes in
cash flows for the six months ended June 30, 2000 have been made. The results of
operations for the six months period ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the full year ended December
31, 2000. The unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and footnotes
thereto for the year ended December 31, 1999 included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
As of June 30, 2000, the Company had working capital of approximately
$2,368,000 and an accumulated deficit of approximately $80,421,000. The Company
incurred a loss of approximately $3,137,000 during the six months ended June 30,
2000.
Note 2 - Inventories
(Amounts in thousands)
Inventories consists of the following:
June 30, 2000 December 31, 1999
------------- -----------------
Finished Goods $ 384 $ 725
Work in Process 891 720
Raw Materials 2,174 2,057
------- -------
$ 3,449 $ 3,502
======= =======
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Note 3 - Convertible Subordinated Debentures
Convertible Subordinated Debentures consist of the following:
June 30, 2000 December 31, 1999
------------- -----------------
Debentures - 5.0% $ 45,443 $ 44,601
Debentures - 10.0% 2,500 2,500
-------- --------
47,943 47,101
Less unamortized debt discount (5,088) (6,005)
-------- --------
$ 42,855 $ 41,096
======== ========
Note 4 - Notes Payable
Notes payable consist of the following:
June 30, 2000 December 31, 1999
------------- -----------------
Unsecured promissory demand notes $ 2,148 $ 2,529
Bridge loans -- 1,509
------- -------
$ 2,148 $ 4,038
======== ========
As of June 30, 2000, Watson Pharmaceuticals, Inc. had advanced $9,000,000 to the
Company under a term loan. The loan is secured by a first lien on all of the
Company's assets, senior to the lien securing all other Company indebtedness,
carries a floating rate of interest equal to prime plus two percent and matures
on March 31, 2003.
NOTE 5 - Contingencies
The Company currently is a defendant in several lawsuits involving
product liability claims. The Company's insurance carriers have assumed the
defense for all product liability and other actions involving the Company. The
final outcome of these lawsuits cannot be determined at this time, and
accordingly, no adjustment has been made to the consolidated financial
statements.
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HALSEY DRUG CO.,INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------
Six months ended June 30
Percentage
Change
Year-to-Year
Increase
------------
Percentage of Net Sales (decrease)
----------------------- ----------
2000 as
-------
compared to
-----------
2000 1999 1999
---- ---- ----
Product Sales................................... 59.1 100.0 24.6
Product Development Revenues.................... 40.9 -- N/A
---- ----- -----
Net Product Revenues......................... 100.0 100.0 111.0
Cost of Manufacturing........................... 72.0 128.2 18.4
Research & development.......................... 5.5 6.1 88.7
Selling, general and administrative expenses ... 26.2 60.9 (9.2)
---- ---- -----
Income (Loss) from operations................ (3.7) (95.2) (91.9)
Amortization of deferred debt discount and
private offering costs....................... 9.0 8.0 137.1
Interest expense, net........................... 16.5 23.6 47.8
Other (income) ................................. (1.0) (.9) 137.0
----- ---- -----
Income (Loss) before income taxes .......... (28.2) (125.8) (52.9)
------ ------- ------
Income tax benefit ............................. (2.4) -- --
----- ------- ------
Net Income (Loss)............................... (25.8) (125.8) (56.9)
====== ======= ======
Three months ended June 30
Percentage
Change Year
to-Year
Increase
-----------
Percentage of Net Sales (decrease)
----------------------- ----------
2000 as
-------
compared to
-----------
2000 1999 1999
---- ---- ----
Product Sales................................... 44.8 100.0 58.4
Product Development Revenues.................... 55.2 -- N/A
---- ----- -----
Net Product Revenues......................... 100.0 100.0 253.2
Cost of Manufacturing........................... 56.0 147.1 34.5
Research & development.......................... 3.1 7.0 54.7
Selling, general and administrative expenses ... 17.3 66.3 (7.7)
---- ---- -----
Income (Loss) from operations................ 23.6 (120.4) (169.2)
Amortization of deferred debt discount and
private offering costs....................... 5.4 10.0 92.0
Interest expense, net........................... 12.3 27.8 56.4
Other (income) ................................. (1.3) (2.2) 107.0
----- ----- -----
Income (Loss) before income taxes .......... 7.2 (156.0) (116.2)
--- ------- -------
Income tax benefit ............................. (3.3) -- --
----- -------
Net Income (Loss)............................... 10.5 (156.0) (123.6)
==== ======= =======
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- --------------------------------------------------------------------------------
Six months ended June 30, 2000 vs six months ended June 30, 1999
- --------------------------------------------------------------------------------
Net Product Revenues
The Company's net product revenues for the six months ended June 30,
2000 of $12,217,000 represents an increase of $6,426,000 (111.0%) as compared to
net product revenues for the six months ended June 30, 1999 of $5,791,000. This
increase is primarily a result of the recognition of $5,000,000 of product
development revenues associated with the sale of certain product rights to
Watson Pharmaceuticals, Inc. On an ongoing basis, the Company expects to
generate revenues from the development and manufacture of both finished dosage
and active pharmaceutical ingredients ("API's"), and then partnering with others
for the marketing and distribution of these products.
Cost of Manufacturing
For the six months ended June 30, 2000, cost of manufacturing increased
$1,368,000 to $8,792,000 as compared to the six months ended June 30, 1999 of
$7,424,000. This is primarily attributable to the addition of manufacturing
overhead costs from the March, 1999 acquisition of the Congers manufacturing
facility as well as the additional costs associated with increased sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales
for the six months ended June 30, 2000 and 1999 were 26.2% and 60.9%,
respectively. Overall these expenses in the first six months of 2000 decreased
$324,000 over the same period in 1999. The decrease is primarily attributable to
the decreased costs of litigation and professional services ($218,000) and wages
and benefits ($106,000).
Research and Development Expenses
Research and development expenses as a percentage of sales for the six
months ended June 30, 2000 and 1999 were 5.5% and 6.1%, respectively. The
Company's research and development program is concentrating its efforts in three
areas.
First, the Company is continuing development efforts relating to certain API's.
The Company currently manufactures two API's and has seven others under
development.
Second, the Company is proceeding with the development of products, apart from
those obtained from Barr Laboratories, for submission to the FDA. The Company
expects to file an additional three ANDAs with the FDA within the next twelve
months.
Third, the Company is performing the necessary regulatory steps to effect the
transfer of the products obtained from Barr Laboratories in April, 1999 to the
Company. The Company expects to have completed the process for one of these
products by the end of 2000 with an additional six products expected to be
submitted to the FDA for approval in 2001.
Net Income (Loss)
For the six months ended June 30, 2000, the Company had net loss of
$3,137,000 as compared to a net loss of $7,286,000 for the six months ended June
30, 1999. Included in the results for the six months ended June 30, 2000 was
interest expense of $1,894,000 and amortization of deferred debt discount and
private offering costs of $1,222,000 as compared to $1,365,000 and $463,000,
respectively, for the year earlier period. Also, included in results for the six
months ended June 30, 2000 was a tax benefit of $296,000 from the settlement of
a income tax refund claim originally submitted in 1996. Additionally, the
Company recorded a gain on the sale of equipment of $128,000 in 2000 compared to
a gain of $54,000 in 1999.
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- --------------------------------------------------------------------------------
Three months ended June 30, 2000 vs Three months ended June 30, 1999
- --------------------------------------------------------------------------------
Net Product Revenues
The Company's net product revenues for the three months ended June 30,
2000 of $9,066,000 represents a increase of $6,499,000 (253.2%) as compared to
net product revenues for the three months ended June 30, 1999 of $2,567,000.
This increase is primarily a result of the recognition of $5,000,000 of product
development revenues associated with the sale of certain product rights to
Watson Pharmaceuticals, Inc. On an ongoing basis, the Company expects to
generate revenues from the development and manufacture of both finished dosage
and active pharmaceutical ingredients ("API's"), and then partnering with others
for the marketing and distribution of these products.
Cost of Manufacturing
For the three months ended June 30, 2000, cost of manufacturing
increased by approximately $1,301,000 as compared to the three months ended June
30, 1999. The increase for 2000 is attributable to additional costs associated
with increased sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales
for the three months ended June 30, 2000 and 1999 were 17.3% and 66.3%,
respectively. The decrease of $131,000 is due primarily to decreased costs of
litigation and professional services ($174,000) and wages and benefits ($97,000)
offset against higher general administration costs of $140,000.
Research and Development Expenses
Research and development expenses as a percentage of sales for the
three months ended June 30, 2000 and 1999 was 3.1% and 7.0%, respectively. The
Company's research and development program is concentrating its efforts in three
areas.
First, the Company is continuing development efforts relating to certain API's.
The Company currently manufactures two API's and has seven others under
development.
Second, the Company is proceeding with the development of products, apart from
those obtained from Barr Laboratories, for submission to the FDA. The Company
expects to file an additional three ANDA with the FDA within the next twelve
months.
Third, the Company is performing the necessary regulatory steps to effect the
transfer of the products obtained from Barr Laboratories in April, 1999 to the
Company. The Company expects to have completed the process for one of these
products by the end of 2000 with an additional six products expected to be
submitted to the FDA for approval in 2001.
Net Income (Loss)
For the three months ended June 30, 2000, the Company had a net income
of $945,000 as compared to a net loss of $4,010,000 for the three months ended
June 30, 1999. Included in the results for the three months ended June 30, 2000
was interest expense of $993,000 and amortization of deferred debt discount and
private offering costs of $616,000 as compared to $714,000 and $256,000,
respectively, for the year earlier period. Also, included in results for the
three months ended June 30, 2000 was a tax benefit of $296,000 from the
settlement of a income tax refund claim originally submitted in 1996.
Additionally, the Company recorded a gain on the sale of equipment of $118,000
in 2000 compared to a gain of $51,000 in 1999.
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Liquidity and Capital Resources
At June 30, 2000, the Company had cash and cash equivalents of
$3,843,000 as compared to $786,000 at December 31, 1999. The Company had working
capital at June 30, 2000 of $2,368,000 as compared to a working capital
deficiency of $5,181,000 at December 31, 1999.
On March 29, 2000, the Company completed various strategic alliance
transactions with Watson Pharmaceuticals, Inc. ("Watson"). The transactions with
Watson provided for Watson's purchase of a certain pending ANDA from the
Company, for Watson's rights to negotiate for Halsey to manufacture and supply
certain identified future products to be developed by Halsey, for Watson's
marketing and sale of the Company's core products and for Watson's extension of
a $17,500,000 term loan to the Company.
The product acquisition portion of the transactions with Watson
provided for Halsey's sale of a pending ANDA and related rights (the "Product")
to Watson for aggregate consideration of $13,500,000 (the "Product Acquisition
Agreement"). As part of the execution of the Product Acquisition Agreement, the
Company and Watson executed ten year supply agreements covering the active
pharmaceutical ingredient ("API") and finished dosage form of the Product
pursuant to which Halsey, at Watson's discretion, will manufacture and supply
Watson's requirements for the Product API and, where the Product API is sourced
from the Company, finish dosage forms of the Product. The purchase price for the
Product is payable in three approximately equal installments as certain
milestones are achieved. The first of those milestones is the receipt of FDA
approval to manufacture the Product. On April 28, 2000 the Company received this
approval and Watson paid the first milestone payment of $5,000,000 to the
Company.
The Company and Watson also executed a right of first negotiation
agreement providing Watson with a first right to negotiate the terms under which
the Company would manufacture and supply certain specified APIs and finished
dosage products to be developed by the Company. The right of first negotiation
agreement provides that upon Watson's exercise of its right to negotiate for the
supply of a particular product, the parties will negotiate the specific terms of
the manufacturing and supply arrangement, including price, minimum purchase
requirements, if any, territory and term. In the event Watson does not exercise
its right of first negotiation upon receipt of written notice from the Company
as to its receipt of applicable governmental approval relating to a covered
product, or in the event the parties are unable to reach agreement on the
material terms of a supply arrangement relating to such product within sixty
(60) days of Watson's exercise of its right to negotiate for such product, the
Company may negotiate with third parties for the supply, marketing and sale of
the applicable product. The right of first negotiation agreement has a term of
ten years, subject to extension in the absence of written notice from either
party for two additional periods of five years each. The right of first
negotiation agreement applies only to API and finished dosage products
identified in the agreement and does not otherwise prohibit the Company from
developing APIs or finished dosage products for itself or third parties.
The Company and Watson also completed a manufacturing and supply
agreement providing for Watson's marketing and sale of the Company's existing
core products portfolio (the "Core Products Supply Agreement"). The Core
Products Supply Agreement obligates Watson to purchase a minimum amount of
approximately $18,363,000 (the "Minimum Purchase Agreement") in core products
from the Company, in equal quarterly installments over a period of 18 months
(the "Minimum Purchase Period"). At the expiration of the Minimum Purchase
Period if Watson does not continue to satisfy the Minimum Purchase Amount, the
Company may market and sell the core products on its own or through a third
party. Pending the Company's development and receipt of regulatory approval for
its APIs and finished dosage products currently under development, including,
without limitation, the Product sold to Watson, and the marketing and sale of
same, of which there can be no assurance, substantially all the Company's
revenues will be derived from the Core Products Supply Agreement with Watson and
the purchase price installments relating to the Product purchased by Watson as
described above.
13
14
The final component of the Company's strategic alliance with Watson
provided for Watson's extension of a $17,500,000 term loan to the Company. The
loan will be funded in installments upon the Company's request for advances and
the provision to Watson of a supporting use of proceeds relating to each such
advance. As of June 30, 2000, Watson had advanced $9,000,000 to the Company
under the Watson term loan. The loan is secured by a first lien on all of the
Company's assets, senior to the lien securing all other Company indebtedness,
carries a floating rate of interest equal to prime plus two percent and matures
on March 31, 2003. At June 30, 2000, a portion of the net proceeds of the Watson
term loan were used to satisfy in full the approximately $3,300,000 in bridge
financing provided by Galen Partners, to satisfy payment obligations under the
Settlement Agreement with the landlord of its Brooklyn, New York facility and
for working capital. The remaining net proceeds from the term loan will, in
large part, be used to upgrade and equip the API manufacturing facility of
Houba, Inc., the Company's wholly-owned subsidiary, to upgrade and equip the
Company's Congers, New York leased facility and for working capital to fund
continued operations.
The remaining net proceeds from the Watson term loan combined with the payments
to be received by the Company from Watson under each of the Product Acquisition
Agreement and the Core Products Supply Agreement will provide the Company with
sufficient working capital to fund operations for at least the next twelve
months.
14
15
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2000, the Company issued an aggregate
of 26,142 shares of Common Stock and 5% Convertible Senior Secured Debenture in
the principal amount of $481,004 in satisfaction of accrued interest on the
Company's outstanding 5% convertible senior secured debentures issued in March
and June 1998, and May and July 1999 (the "Convertible Debentures").
Each of the holders of the Convertible Debentures for which interest
payments were made in Common Stock and 5% Convertible Senior Secured Debentures
are accredited investors as defined in Rule 501(a) of Regulation D promulgated
under the Securities Act of 1933, as amended (the "Act"). The Common Stock and
5% Convertible Senior Secured Debentures issued in satisfaction of the interest
payments under the Convertible Debentures were issued without registration under
the Act in reliance upon Section 4(2) of the Act and Regulation D promulgated
thereunder.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2000 Annual Meeting of Shareholders was held on Thursday,
June 29, 2000 for the following purposes:
1. To elect nine directors to the Company's Board of
Directors to hold office until the 2001 Annual
Meeting of Shareholders ("Proposal 1"); and
2. To ratify the appointment of Grant Thornton LLP as
independent auditors of the Company for the fiscal
year ending December 31, 2000 ("Proposal 2").
The voting as to each Proposal was as follows:
Proposal 1
Name For Withheld
---- --- --------
William Skelly 33,348,174 146,478
Michael Reicher 33,363,874 130,778
Alan Smith, Ph.D. 33,365,674 128,978
William Sumner 33,367,674 126,978
Bruce Wesson 33,362,374 132,278
Srini Conjeevaram 33,362,374 132,278
Zubeen Shroff 33,362,374 132,278
Peter A. Clemens 33,367,474 132,178
Joel Liffmann 33,362,374 132,278
Proposal 2
For Against Abstain
--- ------- -------
33,471,946 17,445 5,261
15
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits required to be filed as part of this
report on form 10-Q are listed in the attached Index.
(b) Reports on Form 8-K. None.
16
17
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.
Date: August 9, 2000 HALSEY DRUG CO., INC.
By: /s/ Michael K. Reicher
--------------------------------
Michael K. Reicher
Chairman, President
and Chief Executive Officer
By: /s/ Peter A. Clemens
--------------------------------
Peter A. Clemens
VP & Chief Financial Officer
17
18
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO. -----------
- ---
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission
for information only and not filed.
18
5
1,000
6-MOS
DEC-31-2000
JUN-30-2000
3,843
0
4,267
153
3,449
11,785
14,296
11,345
17,252
9,417
0
0
0
149
(45,220)
17,252
12,217
12,217
8,792
8,792
3,870
0
3,116
(3,433)
296
(3,137)
0
0
0
(3,137)
(0.22)
(0.22)
