-----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, TfxtY/lIGy/2gPh3dwKDB6+yr8uIFHN0Yjr5MIk+pQ3cSmG6xpDWHXBcoFKii5yC oowhHerwc6CNf9UEolftKA== 0000038074-96-000005.txt : 19960118 0000038074-96-000005.hdr.sgml : 19960118 ACCESSION NUMBER: 0000038074-96-000005 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950930 ITEM INFORMATION: Changes in control of registrant FILED AS OF DATE: 19960117 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOREST LABORATORIES INC CENTRAL INDEX KEY: 0000038074 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 111798614 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05438 FILM NUMBER: 96504126 BUSINESS ADDRESS: STREET 1: 909 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124217850 MAIL ADDRESS: STREET 1: 909 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION ---------------------------------- WASHINGTON, D.C. 20549 FORM 8-K/A ---------- CURRENT REPORT -------------- PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) November 1, 1995 - ----------------------------------------------------------------------- FOREST LABORATORIES, INC. - ----------------------------------------------------------------------- (Exact name of registrant as specified in its character) DELAWARE 1-5438 11-1798614 - ---------------------------- ------------- --------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 909 THIRD AVENUE, NEW YORK, NEW YORK 10022 - ---------------------------------------- -------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 212-421-7850 ------------ - ------------------------------------------------------------------------- Former name or former address, if changed since last report.) PAGE ITEM 7. FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION ----------------------------------------------------- AND EXHIBITS ------------ (a) Financial Statements. The following financial statements of Biovail Corporation International ("BCI") are filed as part of this Current Report on Form 8-K: (1) The consolidated financial statements of BCI for the fiscal year ended December 31, 1994. Incorporated herein by reference to Item 19(a) of the Annual Report on Form 20-F of BCI for the fiscal year ended December 31, 1994. (2) The consolidated financial statements of BCI for the six months ended June 30, 1995. Incorporated herein by reference to Part I of the Report on Form 6-K of BCI for the quarterly period ended June 30, 1995. (b) Pro-Forma financial information. The Pro Forma Condensed Consolidated Balance Sheet of Forest Laboratories, Inc. and Subsidiaries as at September 30, 1995. PAGE FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ UNAUDITED PRO FORMA ------------------- CONDENSED CONSOLIDATED BALANCE SHEET ------------------------------------ The following unaudited pro forma condensed consolidated balance sheet as of September 30, 1995, reflects the pro forma condensed consolidated balance sheet of Forest Laboratories, Inc. and Subsidiaries ("Forest"), giving effect to the pro forma adjustment described herein as though the acquisitions had occurred on September 30, 1995. Unaudited pro forma condensed consolidated statements of income for the year ended March 31, 1995 and the six months ended September 30, 1995 have not been presented, as the pro forma adjustments would have an immaterial effect on these statements. The unaudited pro forma condensed consolidated balance sheet gives effect to Forest's acquisition of 1,800,000 common shares, without par value, of Biovail Corporation International ("BCI") and the acquisition of an exclusive license to market Biovail Laboratories, Inc.'s, a wholly-owned subsidiary of BCI, once-daily formulation of diltiazem in the United States. The aggregate consideration paid for the acquisitions was approximately $95.6 million. For a more detailed description of the terms of the acquisitions see the Form 8-K filed by Forest on November 1, 1995. PAGE FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ---------------------------------------------- SEPTEMBER 1995 -------------- (UNAUDITED) ----------- Pro Forma Historical Adjustments(1) Pro Forma ---------- -------------- --------- (In thousands except for par values) ASSETS - ------ Current Assets: Cash $103,989 ($95,600) $ 8,389 Marketable securities 20,354 20,354 Accounts receivable, net 162,333 162,333 Inventories 45,396 45,396 Deferred income taxes 12,499 12,499 Other current assets 14,692 14,692 -------- -------- Total current assets 359,263 263,663 -------- -------- Long-term marketable securities 148,404 148,404 -------- -------- Property, plant and equipment, net 76,731 76,731 -------- ------- Total other assets 238,984 95,600 334,584 -------- ------- Total Assets $823,382 $823,382 ======== ======== LIABILITIES AND SHAREHOLDERS EQUITY - ----------------------------------- Current liabilities: Accounts payable $ 13,357 $ 13,357 Accrued expenses 31,822 31,822 Income taxes payable 20,728 20,728 -------- -------- Total current liabilites 65,907 65,907 -------- -------- Deferred income taxes 294 294 -------- -------- Shareholders' equity: Series A junior participating preferred stock $1.00 par, 1,000 shares authorized no shares issued or outstanding Common stock, $.10 par; shares authoirzed 250,000; Issued 47,935 shares 4,794 4,794 Capital in excess of par 299,619 299,619 Retained earnings 493,504 493,504 Cumulative foreign currency translation adjustments ( 75) ( 75) -------- -------- 797,842 797,842 Less common stock in treasury, at cost (2,644 shares) 40,661 40,661 -------- -------- Total shareholders' equity 757,181 757,181 -------- -------- Total Liabilities and Shareholders' Equity $823,382 $823,382 ======== ======== (1) Reflects acquisition of 1,800,000 shares of Biovail Corporation International and exclusive product license.
PAGE (c) The following exhibits are filed herewith: (1) The Investment Agreement. Incorporated by reference to Exhibit (c)(1) to the Schedule 14D-1 filed by Forest on September 18, 1995 (the"Schedule 14D-1"). (2) The License Agreement. Incorporated by reference to Exhibit (c)(2) to the Schedule 14D-1. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registranthas duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FOREST LABORATORIES, INC. Date: January 12, 1996 By: /S Kenneth E. Goodman --------------------- Kenneth E. Goodman, Vice President-Finance PAGE INDEX TO FINANCIAL STATEMENTS ----------------------------- Page Report of Management . . . . . . . . . . . . . . . . . . . . . . . . . .F-2 Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . .F-3 Consolidated Balance Sheets as at December 31, 1993 and 1994 . . . . . .F-4 Consolidated Statements of Income (Loss) and Deficit for each of the years in the three year period ended December 31, 1994 . . . . . . .F-5 Consolidated Statements of Changes in Financial Position for each of the years in the three year period ended December 31, 1994 . . .F-6 Notes to the Consolidated Financial Statements . . . . . . . . . . . . .F-7 F1 PAGE REPORT OF MANAGEMENT - -------------------- The Company's management is responsible for preparing the accompanying consolidated financial statements in conformity with accounting principles generally accepted in Canada. The effect of the application of accounting principles generally accepted in the United States is described in the notes to consolidated financial statements. In preparing these consolidated financial statements, management selects appropriate accounting policies and uses its judgment and best estimates to report events and transactions as they occur. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects. Financial data included throughout this Annual Report is prepared on a basis consistent with that of the financial statements. The Company maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded and that transactions are executed and recorded in accordance with the Company's policies for doing business. This system is supported by written policies and procedures for key business activities; the hiring of qualified, competent staff; and by a continuous planning and monitoring program. Deloitte & Touche has been engaged by the Company's shareholders to audit the consolidated financial statements. During the course of their audit, Deloitte & Touche reviewed the Company's system of internal control to the extent necessary to render their opinion on the consolidated financial statements. The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee. The majority of the members of the Audit Committee are outside Directors. The Committee considers, for review by the Board of Directors and approval by the shareholders, the engagement or re-appointment of the external auditors. Deloitte & Touche has full and free access to the Audit Committee. Management acknowledges its responsibility to provide financial information that is representative of the Company's operations, is consistent and reliable, and is relevant for the informed evaluation of the Company's activities. Toronto, Canada Eugene Melnyk Mahmood Khan April 17, 1995 Chairman of the Board Senior Vice President and Chief Financial Officer F2 PAGE AUDITORS' REPORT - ---------------- To the Board of Directors and Shareholders of BIOVAIL CORPORATION INTERNATIONAL We have audited the consolidated balance sheets of Biovail Corporation International as at December 31, 1993 and 1994 and the consolidated statements of income (loss) and deficit and of changes in financial position for each of the years in the three year period ended December 31, 1994. 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 1standards in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1993 and 1994 and the results of its operations and the changes in its financial position for each of the years in the three year period ended December 31, 1994 in accordance with generally accepted accounting principles in Canada. DELOITTE & TOUCHE Chartered Accountants Toronto, Canada April 17, 1995, except as to Note 17(c) which is as of April 28, 1995. F3 PAGE BIOVAIL CORPORATION INTERNATIONAL CONSOLIDATED BALANCE SHEETS (All dollar amounts are expressed in Canadian dollars) December 31, December 31, 1993 1994 ------------ ------------ ASSETS ------ CURRENT Cash and short-term deposits . ... . . . . . $3,817,894 $ 3,950,746 Trade accounts receivable. .. . . . . . . . 3,756,554 7,493,692 Inventories (Note 4) . . . . . . . . . . . . - 672,625 Deposits and prepaid expenses. . . . . . . . 361,298 80,220 Due from directors, current portion (Note 5) . 956,656 - Loans to related parties . . . . . . . . . . 118,943 - ----------- ----------- 9,011,345 12,197,283 DUE FROM DIRECTORS (Note 5). . . . .. . . . . . 1,074,821 - INVESTMENTS AND ADVANCES (Note 3). .. . . . . . 225,005 - FIXED ASSETS, net (Note 6) . . . . . . . . . . 19,139,953 19,880,074 GOODWILL AND OTHER INTANGIBLE ASSETS, net (Note 3) . . . . . . . . . . . . . . . . 1,350,855 3,848,552 ----------- ----------- $30,801,979 $35,925,909 =========== =========== LIABILITIES ----------- CURRENT Bank indebtedness (Note 7) . . . . . . . . $173,526 $ - Accounts payable and accrued liabilities . . 4,431,723 6,528,984 Income taxes payable . . . . . . . . . . . . 775,868 1,032,395 Deferred revenue . . . ... . . . . . . . . . 465,777 1,736,225 Amount due on acquisition (Note 3) . . . . . - 1,339,000 Current portion of long-term debt (Note 8) .. 68,339 794,381 ----------- ----------- 5,915,233 11,430,985 ------------ ----------- LONG-TERM DEBT (Note 8) Non-interest bearing and forgivable interest government loans . . .. . .. . 12,935,300 6,611,560 Unsecured notes payable. . . . . . . . . . 7,500,000 - Other. . . . . . . . . . . . . . . . . . 7,895,185 7,100,803 ----------- ------------ 28,330,485 13,712,363 ----------- ------------ MINORITY INTEREST (Note 8) . . . . .. . . . 2,869,393 - ----------- ------------ 37,115,111 25,143,348 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Notes 6, 8, 15 and 17) SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY) ----------------------------------------- Share capital (Note 9) .. . . . . . . . . . 15,778,970 18,804,361 Deficit . .. . . . . . . . . . . . . . . (22,292,656) (9,030,116) Cumulative translation adjustment. . . . . . .200,554 1,008,316 ----------- ---------- (6,313,132) 10,782,561 ---------- ---------- $30,801,979 $35,925,909 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F4 PAGE BIOVAIL CORPORATION INTERNATIONAL CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT (All dollar amounts are expressed in Canadian dollars) Year Ended Year Ended Year Ended December 31, December 31, December 31, 1992 1993 1994 ------------ ------------ ------------ REVENUE Contract . . . . .. . . . . . . $4,001,011 $4,992,653 $ 5,478,962 Manufacturing. . .. . . . . . . - - 6,973,361 Royalty, licensing and other. . 3,577,542 9,741,607 11,780,489 ---------- ---------- ---------- 7,578,553 14,734,260 24,232,812 ---------- ---------- ---------- EXPENSES Cost of contract revenue . . . 3,238,387 3,684,331 4,255,128 Cost of manufactured goods sold. . - - 2,946,914 Research and product development . 5,888,236 3,623,638 3,562,723 Selling and administrative (Note 10). . . . . . . . . . . . 6,970,049 7,569,869 8,522,971 Royalty and commission . . . . . . - 1,853,305 1,015,014 ---------- ---------- ---------- 16,096,672 16,731,143 20,302,750 ---------- ---------- ---------- OPERATING INCOME (LOSS). . . . .. . (8,518,119) (1,996,883) 3,930,062 INTEREST EXPENSE, net (Note 8) . . (1,506,882) (955,508) (824,658) GAIN ON DEBT SETTLEMENT (Note 2) . . - - 11,151,170 REORGANIZATION EXPENSES (Note 11). . - - (391,318) OFFERING EXPENSES (Note 12). . . . . (1,416,642) - - ----------- ---------- ----------- INCOME (LOSS) BEFORE INCOME TAXES. (11,441,643) (2,952,391) 13,865,256 PROVISION FOR INCOME TAXES(Note 13) 443,134 328,958 602,716 ----------- ---------- ---------- INCOME (LOSS) BEFORE UNDERNOTED. . (11,884,777) (3,281,349) 13,262,540 MINORITY INTEREST. . . . . . . . . (991,797) (961,669) - DILUTION GAIN ON ISSUANCE OF COMMON SHARES BY A SUBSIDIARY COMPANY (Note 8) . . . . . . 2,468,373 7,773,080 - GAIN ON SALE OF A SUBSIDIARY COMPANY (Note 3). . . . . . . - 1,668,665 - SHARE OF NET LOSS OF EQUITY- ACCOUNTED INVESTMENTS.. . . . (32,126) - - ----------- ---------- ----------- NET INCOME (LOSS) (Note 18). . (10,440,327) 5,198,727 13,262,540 DEFICIT, BEGINNING OF YEAR . . (16,975,459) (27,415,786) (22,292,656) EXCESS OF COST OF COMMON SHARES ACQUIRED OVER THE STATED CAPITAL THEREOF (Note 9). . . . . . - (75,597) - ----------- ------------ ------------ DEFICIT, END OF YEAR . . . .. $(27,415,786) $(22,292,656) $(9,030,116) ============ ============ ============ EARNINGS (LOSS) PER SHARE (Note 14). . . . . . . . . . $(2.94) $ 1.09 $ 1.82 =========== ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING. . . . . 3,617,261 4,222,378 7,283,239 =========== ============ ============
The accompanying notes are an integral part of the consolidated financial statements F5 PAGE BIOVAIL CORPORATION INTERNATIONAL --------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION -------------------------------------------------------- (All dollar amounts are expressed in Canadian dollars) Year Ended Year Ended Year Ended December 31, December 31, December 31, 1992 1993 1994 ------------ ------------ ------------ NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES OPERATING Net income (loss) for year . .. $(10,440,327) $5,198,727 $13,262,540 Depreciation and amortization. . 569,238 901,959 1,134,731 Write-off of deferred costs of proposed share issue. . . . . 913,604 - - Minority interest. . . . . . . . 991,797 961,669 - Dilution gain on issuance of common shares by a subsidiary company. . . . (2,468,373) (7,773,080) - Gain on debt settlement. . . . . - - (11,151,170) Gain on sale of a subsidiary company - (1,668,665) - Share of net loss of equity-accounted investments. . . . . .. . . . 32,126 - - Other. . . . . . . . . . . . . . - (16,866) (135,772) ------------ ----------- ---------- (10,401,935) (2,396,256) 3,110,329 Change in non-cash operating working capital (Note 16) . . . 127,332 (369,289) 470,656 ----------- ----------- ---------- (10,274,603) (2,765,545) 3,580,985 ----------- ----------- ---------- INVESTING Amounts advanced to directors to acquire shares (Note 5). . . . (34,500) (73,419) - Additions to fixed assets . . . (4,626,000) (430,337) (1,643,584) Proceeds from sale of fixed assets. . - 100,669 - Investment and advances . . . . . . . (20,086) - 225,005 Cash paid on acquisition of remaining 50% interest in Professional Drug Systems, Inc., net of cash acquired . . . . . . . - (332,300) - Additional consideration with respect to the acquisition of subsidiary companies and minority interest therein (Note 3) . . . ... - (716,000) (2,814,478) ---------- ----------- ----------- (4,680,586) (1,451,387) (4,233,057) --------- --------- ---------- FINANCING Dividends paid by subsidiary company to minority interest. . . . . . . . (950,665) (790,957) - Issuance of share capital (Note 9) . 9,558,000 230,000 86,289 Redemption of share capital (Note 9) . - (1,504,000) - Proceeds from issuance of convertible subordinated debentures, net of financing costs . . . . . . . . 7,769,622 - - Proceeds from issuance of common shares of a subsidiary company, net of financing costs. . . . . . . - 3,902,334 - Proceeds from sale of a subsidiary company . . . . . . . . - 2,656,000 - Increase in long-term debt . . . . 12,258,041 1,489,714 514,260 Reduction in long-term debt. . . . (9,966,510) (567,413) (68,340) Purchase of common shares. . . . . - (168,481) - ----------- ---------- --------- 18,668,488 5,247,197 532,209 ----------- ---------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH. . . . . . .. . . . . . . . 38,280 46,261 426,241 ---------- --------- --------- INCREASE IN CASH . . . . . . . . . . 3,751,579 1,076,526 306,378 CASH (BANK INDEBTEDNESS), BEGINNING OF YEAR. . . . . . . . . . . . . .. (1,183,737) 2,567,842 3,644,368 ----------- --------- --------- CASH, END OF YEAR. . . . . . . . . . $ 2,567,842 $3,644,368 $3,950,746 =========== ========== ========== REPRESENTED BY Cash and short-term deposits. . . $3,576,476 $3,817,894 $3,950,746 Bank indebtedness . . . . . . . . (1,008,634) (173,526) - ---------- ---------- ---------- $2,567,842 $3,644,368 $3,950,746 ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statements
F6 BIOVAIL CORPORATION INTERNATIONAL --------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (All dollar amounts are expressed in Canadian dollars) 1. SIGNIFICANT ACCOUNTING POLICIES ------------------------------- Biovail Corporation International (the "Company"), was amalgamated effective March 29, 1994 (See Note 2) under the laws of the province of Ontario. The Company's accounting and reporting policies conform to generally accepted accounting principles in Canada. The applicable differences between generally accepted accounting principles in Canada and generally accepted accounting principles in the United States are disclosed in Note 18. (For purposes of this reconciliation, the adoption of SFAS No. 109 - "Account for Income Taxes" does not have a material effect on the financial statements prepared in accordance with generally accepted accounting principles in the United States). The significant accounting policies are: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all companies more than 50% owned after the elimination of intercompany transactions and balances. INVESTMENTS Prior to their disposition, the Company's investments in companies and joint ventures in which it had a significant influence were accounted for using the equity method. REVENUE RECOGNITION Revenue from contract research activities is recognized using the percentage of completion method based upon the stage of the project or the amount of time spent on the project. Revenue from the sale of manufactured products is recognized when the product is shipped to the customer. Royalty revenue is recognized on an accrual basis in accordance with the contractual agreements with third parties. Licensing revenue is recognized at the date the license is granted unless there are specific events which must be completed under the terms of the licensing agreement in which case a portion of the revenue is recognized upon the completion of each specific event. Amounts received in excess of revenue recognized are included in deferred revenue. INVENTORIES Raw materials are valued at the lower of cost and replacement cost. Work in process and finished goods are valued at the lower of cost and net realizable value. Cost is determined on the first-in, first-out basis. FIXED ASSETS AND RELATED DEPRECIATION Fixed assets are recorded at cost. Annual rates and bases of depreciation applied to depreciate the cost of fixed assets over their estimated useful lives using the straight line basis are follows: Buildings including manufacturing facility . . .. . . . . .25 years Manufacturing equipment. . . . . . . . . . . . . . . . . .10 years Other equipment. . . . . . . . . . . . . . . . . . . . . 5 years Computer software. . . .. . . . . . . . . . . . . . . . . . 3 years Furniture and fixtures . . . . . . . . . . . . . . . . . . 5 years Leasehold improvement. . . . . . . . . . . . . . . .term of lease Automobiles. . . . . . . . . . . . . . . . . . . . . . . .. 3 years F7 PAGE BIOVAIL CORPORATION INTERNATIONAL ---------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (All dollar amounts are expressed in Canadian dollars) 1. SIGNIFICANT ACCOUNTING POLICIES - (Continued) GOODWILL Goodwill is amortized on a straight-line over 20 years. Goodwill is evaluated periodically and if conditions warrant, an impairment valuation is provided. RESEARCH AND PRODUCT DEVELOPMENT Research and product development costs, including the cost of licenses for products under development, net of any investment tax credits, are charged to earnings in the year in which they are incurred. FOREIGN CURRENCY TRANSLATION Foreign currency transactions Monetary assets and liabilities are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities are translated at historic rates. Revenue and expenses are translated at the average rate of exchange for the year. Exchange gains and losses are included in operations except for unrealized gains or losses on long-term debt which are deferred and amortized over the term of the debt. Self-sustaining foreign subsidiaries Assets and liabilities of self-sustaining foreign subsidiaries are translated at the rate of exchange in effect at the balance sheet date. Revenue and expenses are translated at the average rate of exchange for the year. Gains or losses arising on the translation of financial statements of self-sustaining foreign subsidiaries are deferred and included as a separate component of shareholders' equity (capital deficiency). The net change in the cumulative translation adjustment balance in the periods presented is primarily due to the fluctuations in the exchange rate in respect to the Swiss Franc. 1992 AND 1993 FIGURES Certain of the 1992 and 1993 figures have been reclassified to conform to the 1994 presentation. 2. AMALGAMATION AND DEBT ASSUMPTION AGREEMENTS The Company was formed upon the amalgamation of its predecessor companies, Trimel Corporation ("Trimel") and its then subsidiary Biovail Corporation International ("BCI") involving transactions which included the following: (a) The assumption by Trimel (Canada) Inc. ("TCI"), a company controlled by a director of the Company, of Trimel's indebtedness to Western Economic Diversification ("WED") of $6,838,000 and the indebtedness to Trimel's noteholders of $8,625,000, which includes principal and accrued interest to the date of maturity of such notes. In consideration for assuming such indebtedness aggregating $15,463,000, Trimel assigned to TCI, amounts due from directors of approximately $2,000,000 and 1,656,000 shares of BCI owned by Trimel. This transaction resulted in a gain on settlement of debt of $11,151,000. No provision for income taxes has been recorded with respect to this gain as the loss carry forwards available are sufficient to offset the gain in its entirety. Under U.S. GAAP, this gain would be recorded as contributed surplus. (See Note 18) (b) The amalgamation of Trimel and BCI whereby shareholders of Trimel and BCI each received one common share of the amalgamated company for each common share of Trimel and BCI, respectively (other than shares of BCI held by Trimel) and the holders of Class A Special Shares of Trimel received one common share of the amalgamated company for each 5.35 Class A Special Shares. Following the amalgamation there were 8,245,576 common shares of the amalgamated company outstanding. Since virtually all of the assets of the amalgamated company were those of BCI prior to the amalgamation, in substance no change in the ownership interest of the BCI minority shareholders has taken place. Accordingly, the exchange of BCI shares held by minority shareholders for shares of the amalgamated company has been accounted for based on the carrying amounts of BCI's assets and liabilities prior to the amalgamation. F8 PAGE BIOVAIL CORPORATION INTERNATIONAL --------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (All dollar amounts are expressed in Canadian dollars) 3. BUSINESS ACQUISITIONS AND DISPOSITIONS -------------------------------------- ACQUISITION OF BIOVAIL SA AND BIOSYTES N.V. Effective May 4, 1991, a subsidiary of the Company acquired 50.2% of Biovail SA ("BSA") and 52% of Biosytes N.V.("BNV"), companies involved in the development and licensing of controlled release pharmaceuticals. Under the terms of the purchase of 50.2% of the shares of BSA and 52% of the shares of BNV, the Company was obligated to pay contingent consideration, calculated on a formula basis, relative to net royalties earned by BSA and BNV for the six month period immediately preceding the second anniversary of the closing of the acquisition, less the amounts originally payable on closing in May 1991. On August 19, 1993, the parties agreed to a final determination of the additional consideration in the amount of $716,000 which was satisfied by payment of $300,000 in cash and the issuance of 46,355 shares of the Company's common stock. Such consideration was recorded as additional goodwill related to the acquisition. Pursuant to the terms of various Shareholders' agreements, as amended, by and among the Company, BSA and the minority shareholder (the "Minority Shareholder"), on December 29, 1993, the Company gave notice to the Minority Shareholder of the exercise of its call option to require the Minority Shareholder to sell his minority interests in BSA and BNV to the Company. In January 1995, the Company and the Minority Shareholder reached an agreement whereby the effective date of the acquisition of the minority interests was determined to be January 1, 1994 and the aggregate amount payable to the Minority Shareholder with respect to all entitlements was determined to be $4,153,000 of which $2,814,000 had been paid prior to December 31, 1994. Accordingly, the consolidated balance sheet as at December 31, 1994 reflects an amount due on acquisition of $1,339,000 being the excess of the aggregate cost of the acquisition of the minority interest over the amount previously paid to the Minority Shareholder which amount was paid in January 1995 and goodwill has been increased by $2,729,000 being the amount of the consideration paid in excess of the net book value of the minority interest acquired effective January 1, 1994. OTHER ACQUISITIONS AND DISPOSITIONS On January 23, 1993, the Company acquired the remaining 50% interest in Professional Drug Systems, Inc. (which represents all shares not already owned by the Company) for a total cash consideration of $382,970 (U.S. $275,000). As part of a strategy to dispose of non-core business activities, on October 22, 1993, the Company sold its investment in Professional Drug Systems, Inc. for aggregate proceeds (including settlement of intercompany indebtedness) of approximately $3,000,000, resulting in a gain on sale of $1,669,000. In addition during 1994, the PhoneServe Joint Venture in which the Company had a 50% interest was liquidated and the joint venture partners agreed to a settlement of all amounts previously in dispute. Upon the distribution of the net assets to the joint venture partners, the Company realized an amount approximating the carrying value of its investment and advances in the joint venture which at December 31, 1993 amounted to $225,005. 4. INVENTORIES December 31, December 31, 1993 1994 ------------ ------------ Raw materials . . . . $ - $385,722 Work in process . . . . - 286,903 --------- -------- $ - $672,625 F9 BIOVAIL CORPORATION INTERNATIONAL --------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (All dollar amounts are epxressed in Canadian dollars) 5. DUE FROM DIRECTORS ------------------ Included in the amounts due from directors as at December 31, 1993 were loans of $1,644,908, made to finance the acquisitions of shares of the Company. These loans bore interest at 1/2% over the bank prime rate. As disclosed in Note 2, the amounts due from directors were assigned to TCI in March 1994. 6. FIXED ASSETS ------------ December 31, 1994 ----------------------------------------------- Accumulated Net Book Cost Depreciation Value --------- ------------ ---------- Land. . . . . . . . . . . 1,255,171 $ - $ 1,255,171 Building . . . . . . . . 3,590,639 687,806 2,902,833 Manufacturing facility . . 12,589,727 125,897 12,463,830 Machinery and equipment. . 4,247,656 1,364,873 2,882,783 Computer software. . . . . 31,224 8,902 22,322 Furniture and fixtures . . 976,434 632,997 343,437 Leasehold improvements . . 200,044 192,218 7,826 Automobiles. . . . . . . . 74,760 72,888 1,872 ----------- ---------- ----------- $22,965,655 $3,085,581 $19,880,074 =========== ========== ===========
December 31, 1993 ------------------------------------------------ Accumulated Net Book Cost Depreciation Value --------- ------------ --------- Land . . . . . . . . . . $ 1,255,171 $ - $ 1,255,171 Building . . . . . . . . . 3,499,509 547,255 2,952,254 Manufacturing facility . . 12,598,504 - 12,598,504 Machinery and equipment. . 2,819,563 946,217 1,873,346 Computer software. . . . . 9,070 6,203 2,867 Furniture and fixtures . . 863,356 470,072 393,284 Leasehold improvements . . 200,044 162,515 37,529 Automobiles. . . . . . . . 89,166 62,168 26,998 ----------- ----------- ------------ $21,334,383 $ 2,194,430 $ 19,139,953 =========== =========== ============
Construction of the manufacturing facility was substantially completed in March 1993. As at December 31, 1994, the Company expected to spend a further amount of approximately $4,000,000 in additional capital expenditures for production and other equipment, of which 37.5% of such expenditures will be financed by a non-interest bearing loan from a Canadian government agency. The Company has obtained a commitment from a Canadian chartered bank for the balance of the equipment financing. 7. BANK INDEBTEDNESS ----------------- The current bank indebtedness is secured by a general security agreement, a general assignment of accounts receivable and bears interest at the bank prime rate plus %. The bank prime rate at December 31, 1994 and December 31, 1993 was 8.0% and 5.5%, respectively. F10 PAGE BIOVAIL CORPORATION INTERNATIONAL NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All dollar amounts are expressed in Canadian dollars) 8. LONG-TERM DEBT -------------- December 31, December 31, 1993 1994 ------------- ------------ NON-INTEREST BEARING AND FORGIVABLE INTEREST GOVERNMENT LOANS Non-Interest Bearing Unsecured Loan Payable to Western Economic Diversification, a Canadian federal government agency. This loan will be advanced to a maximum of $5,947,000 to assist in the building and equipping of a manufacturing facility. This loan, after receipt of the maximum loan amount, is repayable on a semi-annual instalment basis commencing in 1996 and ending in 2001. (See below). . . . . . . . . . $10,068,880 $3,664,577 Forgivable Interest Loan Payable to Manitoba Development Corporation and secured by a debenture with a fixed charge on the manufacturing facility land and building. Funds have been advanced to assist in the building of a manufacturing facility. This loan is repayable on a quarterly instalment basis commencing December 31, 1996 and ending on December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 2,866,420 2,946,983 ----------- ---------- 12,935,300 6,611,560 =========== ========== UNSECURED LOANS Unsecured Notes Payable Interest of 5% per annum, payable at maturity and originally was maturing at various dates in 1995 through 1996 (see below). . . . . . . . . . . . 7,500,000 - ----------- ----------- OTHER Term Bank Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000 - Construction Bank Loan Secured by general security agreement, pledging all of the Company's assets, including the shares of subsidiary companies and a debenture with a fixed charge on the manufacturing facility land and building, bearing interest at bank prime rate plus 1.5%. This loan is repayable in 20 equal quarterly installments of $250,000 commencing June 30, 1995, with a final payment due September 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,394,000 5,429,000 Mortgage Payable Secured by land and building, bearing interest at 12.125% per annum, payable in blended monthly instalments of $25,052, and the balance of approximately $2,400,000 is due on maturity, November 1, 1999. . . . . . . . . . 2,474,524 2,466,184 ----------- ----------- 7,963,524 7,895,184 ----------- ----------- 28,398,824 14,506,744 Less current portion. . . . . . . . . . . . . . . . . . . . . . . . . 68,339 794,381 ----------- ---------- $28,330,485 $13,712,363 =========== ===========
In March 1994, Trimel and WED finalized the transfer of $6,838,000 of the WED loan to TCI on a non-recourse basis and revised the repayment terms of the unsecured loan (See Note 2). In March 1994, $7,500,000 of the unsecured notes payable and accrued interest thereon were transferred to TCI on a non-recourse basis. (See Note 2) Interest expense on long-term debt amounted to $983,698 in the year ended December 31, 1994, $1,034,513 in the year ended December 31, 1993, and $1,507,500 in the year ended December 31, 1992. In addition, in the F11 PAGE BIOVAIL CORPORATION INTERNATIONAL --------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (All dollar amounts are expressed in Canadian dollars) 8. LONG-TERM DEBT - (Continued) -------------- years ended December 31, 1992 and 1993, interest on the construction bank loan aggregating $317,758 and $111,785, respectively, was capitalized and included in the cost of the manufacturing facility. No interest was capitalized in the year ended December 31, 1994. In November 1992, a then subsidiary company issued 4% convertible subordinated debentures (the "Debentures") with an aggregate principal amount of $8,697,000. The Debentures bore interest from their date of issuance at the rate of 4% per annum. On December 31, 1992 and February 23, 1993, $3,050,160 and $5,550,600 principal amounts, respectively, of the Debentures plus accrued interest thereon were converted into 344,284 and 627,556 share of common stock of a then subsidiary company, at a per share conversion price of U.S.$7.00. The conversions of these Debentures resulted in dilution gains of $2,468,373 and $4,775,996 in 1992 and 1993, respectively. In addition, on September 3, 1993, the then subsidiary company issued 464,243 shares of common stock at a price of U.S. $7.00 per share for net proceeds of $3,486,339 resulting in a further dilution gain of $2,997,114. Pursuant to contractual arrangements with respect to the use of proceeds from the issuance of the unsecured notes, the Company is obligated to make expenditures which will directly or indirectly be of economic benefit to the Province of Saskatchewan in the amount of $6,750,000 at December 31, 1994. Principal repayments on long-term debt are as follows: 1995 . . . . . . . . . . . . . . . . $ 794,381 1996 . . . . . . . . . . . . . . . . 2,407,553 1997 . . . . . . . . . . . . . . . . 4,761,854 1998 . . . . . . . . . . . . . . . . 1,713,354 1999 and thereafter.. . . . . . . . . 4,829,602 ---------- $14,506,744 =========== 9. SHARE CAPITAL ------------- AUTHORIZED AND ISSUED SHARES Following the March 29, 1994 amalgamation described in Note 2, the Company is authorized to issue 25,000,000 shares of common stock without par value. Common shares Number of Shares - ------------- Amount ----------------- ---------- Balance, December 31, 1991 . . . .. . . . 3,579,296 $ 7,587,854 Issued for cash. . . . . . . . . . . .. . 17,000 204,000 Issued for settlement of debt and accrued interest thereon. . . . . . 600,000 3,000,000 --------- ---------- Balance, December 31, 1992 . . . . . . . 4,196,296 10,791,854 Issued on the exercise of options. . . . 40,000 230,000 Shares acquired for cancellation . . . . (35,700) (92,884) ---------- ------------ Balance, December 31, 1993 (see Note 2). 4,200,596 10,928,970 In exchange for Class A Special Shares 906,542 4,850,000 In exchange for BCI's common shares held by the minority interest. 3,138,438 2,939,102 Issued on the exercise of options. . . . 28,763 86,289 ---------- ----------- Balance, December 31, 1994 . . . . . . . 8,274,339 $18,804,361 ========== ===========
F12 PAGE BIOVAIL CORPORATION INTERNATIONAL --------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (All dollar amounts are expressed in Canadian dollars) 9. SHARE CAPITAL - (CONTINUED) ------------- Class A Special Shares Number of Shares ---------------------- Amount ----------------- -------- Issued in settlement of debt and accrued interest thereon in 1992 and balance, December 31, 1992 . . . . . . . . . 6,354,000 $ 6,354,000 Shares acquired on redemption. . . . . . (1,504,000) (1,504,000) ----------- ----------- Balance, December 31, 1993 . . . . . . . 4,850,000 4,850,000 ---------- ---------- Exchange for common shares on amalgamation. . . . . . . . . . . . 4,850,000 (4,850,000) ---------- ----------- Balance, December 31, 1994 . . . . . . . - - ========== ==========
35,700 common shares were acquired for cancellation in 1993 at a cost of $168,481. The excess of the cost of common shares acquired over the stated capital thereof has been charged to deficit. The Company has reserved 742,500 common shares for issuance under the Company's stock option plan. As at December 31, 1994, the Company has granted to certain directors, employees, and consultants options which entitle them to acquire an aggregate of 595,814 shares of common stock at exercise prices ranging from CDN $3.00 to U.S.$7.30 per share and which become exercisable in three equal annual amounts commencing one year after the date of grant. As at December 31, 1994, options on 101,973 shares of common stock were exercisable. 10. SELLING AND ADMINISTRATIVE EXPENSES ----------------------------------- Included in selling and administrative expenses are $1,607,599, $1,484,051 and $1,031,683 for the years ended December 31, 1994, 1993, and 1992, respectively, which relate to activities associated with preparing the Company's manufacturing facility in Steinbach, Manitoba for commercial production. The manufacturing facility commenced commercial production in October 1994. 11. REORGANIZATION EXPENSES ----------------------- Reorganization expenses comprise amounts incurred in connection with the March 29, 1994 amalgamation of the Company's predecessor companies as described in Note 2. 12. OFFERING EXPENSES ----------------- Offering expenses comprise amounts incurred in connection with a proposed public offering of a subsidiary company's common shares in 1992 that was not consummated. F13 PAGE BIOVAIL CORPORATION INTERNATIONAL --------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (All dollar amounts are expressed in Canadian dollars) 13. INCOME TAXES ------------ The major factors which caused variations from the Company's combined federal and provincial statutory income tax rate of 44.34% applicable to income (loss) from continuing operations are as follows: Year ended Year ended Year ended December 31, December 31, December 31, 1992 1993 1994 ------------- -------------- ------------ Provision for (recovery of) income taxes based on statutory rate . . . . . . . . . $(5,073,225) $(1,309,090) $5,880,610 Reduction of income taxes resulting from income of foreign subsidiary taxed at lower effective rate. . .. . . . . . . . . . (441,715) (764,213) (862,124) Non-taxable portion of capital gain on settlement of debt. . .. . . . . . . . . . - - 236,107) Benefit of losses not recognized for accounting purposes . . . . . . . 5,958,074 2,402,261 - Benefit of utilization of loss carry forwards. . . - - (3,179,663) ---------- ---------- ---------- $ 443,134 $328,958 $602,716 ========== ========== ==========
At December 31, 1994 the Company has accumulated losses for federal and provincial income tax purposes and unclaimed investment tax credits which can be used to offset future taxable income and/or to reduce income taxes payable. These losses and investment tax credits expire as follows: Investment Losses Tax Credits --------------------------- ----------- Federal Provincial ------- ---------- 1996 . . . . . . $ 189,000 $ 1,567,000 $ - 1997 . . . . . . 7,501,000 8,451,000 - 1998 . . . . . . 9,592,000 10,493,000 122,000 1999 . . . . . . 4,680,000 5,661,000 1,293,000 2000 . . . . . . - - 695,000 2001 . . . . . . - - 671,000 2002 . . . . . . - - 620,000 2003 . . . . - - 375,000 ----------- ----------- ---------- $21,962,000 $26,172,000 $3,776,000 =========== =========== ==========
The benefits of these losses carried forward and investment tax credits will be recorded when realized. 14. EARNINGS (LOSS) PER SHARE ------------------------- Earnings (loss) per share has been calculated using the weighted average number of shares outstanding during the year. For the purpose of this calculation, the loss for the year ended December 31, 1992 was increased, and the income for the years ended December 31, 1993 and 1994 was reduced, by cumulative undeclared dividends on the Class A Special Shares. The effect on the loss per share of the exercise or conversion of all options and Class A Special Shares outstanding in 1992 is not dilutive. The earnings per share in 1993 on a fully diluted basis giving effect to the exercise of all options and conversion of all Class A Special Shares into common shares effective January 1, 1993 would have been $1.02 per share. Adjusted basic earnings per share in 1994, calculated as though the conversion of Class A Special shares had occurred at the beginning of the year amounted to $1.76 per share. Fully diluted earnings per share in 1994, giving effect to the conversion of Class A Special Shares and the exercise of all outstanding options as if they had occurred at the beginning of the year, amounted to $1.50 per share. F14 PAGE BIOVAIL CORPORATION INTERNATIONAL NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All dollar amounts are expressed in Canadian dollars) 15. OPERATING LEASES ---------------- Minimum lease commitments under operating leases for premises, automobiles and offices and laboratory equipment for each of the next five years are as follows: 1995 . . . . . . . . . . $379,000 1996 . . . . . . . . . . .260,000 1997 . . . . . . . . . . .261,000 1998 . . . . . . . . . . .175,000 1999 . . . . . . . . . . . 55,000 16. CHANGE IN NON-CASH OPERATING WORKING CAPITAL -------------------------------------------- Year ended Year ended Year ended December 31, December 31, December 31, 1992 1993 1994 ----------- ------------ ------------ Accounts receivable. . . $ 910,462 $(1,294,295) $(3,505,486) Due from directors . . . . . . . (101,211) (393,177) - Deposits and prepaid expenses. . (262,817) 98,690 281,078 Inventories. . . . . . . . . . . - - (672,625) Loans to related parties . . . . - 67,494 118,943 Accounts payable and accrued liabilities. . . . (533,222) 842,190 2,665,244 Income taxes payable . . . . . . 114,120 (155,968) 313,054 Deferred revenue . . . . . . . . - 465,777 1,270,448 ---------- ---------- --------- $ 127,332 $(369,289) $470,656 ========== =========== ========
17. CONTINGENCIES ------------- a) On November 12, 1993, a patent infringement lawsuit was commenced in U.S. District Court, for the District of New Jersey, by Marion Merrell Dow Inc. ("MMD"), Carderm Capital L.P. and Elan Corporation PLC against Hoechst-Roussel Pharmaceuticals, Inc. ("Hoechst-Roussel"). Hoechst-Roussel was licensed by the Company for the once-daily controlled release formulation of diltiazem. The complaint alleges that Hoechst-Roussel has infringed certain patents relating to controlled absorption of diltiazem formulations and seeks, among other things, to enjoin Hoechst-Roussel from infringing the plaintiffs' patents. Hoechst-Roussel has answered the complaint alleging that Hoechst-Roussel has not infringed the patents and that the patents are invalid and unenforceable. The Company believes the lawsuit is without merit. On February 21, 1995 Hoechst-Roussel filed a Motion for an Order granting Summary Judgement of Non-infringement under Rule 56 Fed. R. Civ. P., to dismiss all patent litigation with MMD. Hoechst-Roussel's parent, Hoechst AG has announced its intention to acquire MMD. As a consequence, Hoechst-Roussel and the Company agreed that the rights agreement between it and the Company dated June 30, 1993 (the "Rights Agreement") will be terminated effective June 30, 1995. b) On October 20, 1994, the Company commenced legal proceedings in the United States District Court, District of Puerto Rico against MMD, four of its officers and a related limited partnership. The action was brought to recover damages in the sum of U.S. $480,000,000, before trebling, and for injunctive relief for a number of violations and based on 12 counts of anti-trust and business torts. F15 PAGE BIOVAIL CORPORATION INTERNATIONAL --------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (All dollar amounts are expressed in Canadian dollars) 17. CONTINGENCIES - (Continued) ------------- c) Effective April 28,1995, the Company entered into a settlement whereby Hoechst-Roussel agreed to pay the Company the sum of U.S.$7.5 million in consideration for the Company entering into a series of agreements and releases. The agreements and releases provide for the immediate payment to the Company of U.S.$2 million, now received. Payment of the remaining U.S.$5.5 million together with the withdrawal of the Company's complaint against MMD, four officers of MMD and a related limited partnership in the United States District Court for the District of Puerto Rico, as referred to in (b) above, shall be undertaken upon the completion by Hoechst AG of the acquisition of all of the outstanding shares of the common stock of MMD pursuant to a merger or otherwise. In addition, the said agreements and releases provide that within five days from the completion of such acquisition, Hoechst-Roussel will also at that time (a) withdraw or otherwise dismiss the patent-related complaint filed by MMD and Carderm Capital L.P. against Hoechst-Roussel in the United States District Court for the District of New Jersey; (b) use its best efforts to have Elan Corporation plc withdraw or otherwise dismiss the same complaint;and (c) withdraw the Citizen's Petition bearing the date August 5, 1994 filed by MMD with the United States Food and Drug Administration. As a consequence of the settlement agreement, the Rights Agreement has been terminated and Hoechst-Roussel has agreed to re-assign and transfer to the Company all rights pertaining to the licensed product, which now includes all relevant clinical and scientific data and intellectual property. 18. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ------------------------------------------------------ Year ended Year ended Year ended Year ended December 31, December 31, December 31, 1992 1993 1994 ----------- ------------ ------------- Reconciliation of net income (loss) under Canadian and U.S. GAAP Net income (loss) as shown in the consolidated statement of income (loss) and deficit . . . . . . . $(10,440,327) $ 5,198,727 $13,262,540 Items excluded from income under U.S. GAAP Dilution gain on issuance of common shares by a subsidiary company . . . . . . . . . . . . . . (2,468,373) (7,773,080) - Interest income on amounts due from directors deducted from shareholders' equity under U.S. GAAP . . . . . . . . . . . . . . . . . . . . (119,825) (121,529) (29,979) Gain on debt settlement treated as contributed surplus under U.S. GAAP. . . . . . . . .. . . . . . - - (11,151,170) Unrealized foreign exchange gain included in income under U.S. GAAP. . . . . . . . . . . . . . 75,236 - - ------------- ------------ ----------- Net income (loss) according to U.S. GAAP . . .. . . . . . $(12,953,289) $(2,695,882) $2,081,391 ============= ============ =========== Earnings (loss) per share under U.S. GAAP. . . . . . . . . . . . $(3.80) $(0.66) 0.28 ============ ============ Weighted average number of common shares outstanding under U.S. GAAP(1). . . . . . . . . . .3,409,575 4,066,473 7,545,105 =========== ============ _______________________________ (1) The weighted average number of common shares outstanding for purposes of the computation of the earnings (loss) per share data under U.S. GAAP gives effect to the exercise of all outstanding options and excludes the shares acquired by directors in consideration for loans to directors deducted from shareholders' equity.
F16 18. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - (Continued) ------------------------------------------------------ December 31, December 31, 1993 1994 ------------- ------------- Reconciliation of shareholders' equity (capital deficiency) under Canadian and U.S. GAAP Shareholders' equity (capital deficiency) as shown in consolidated balance sheet. . . . . . . . . . . . . . . . . . . . . . $(6,313,132) $10,782,561 Amounts due from directors added to capital deficiency under U.S. GAAP . . . . . . . . . . . . . . . . (2,031,477) - ------------ ------------ Shareholders' equity (capital deficiency) according to U.S. GAAP $(8,344,609) $10,782,561 ============ =============
The following items included in the table above give rise to differences in net income under generally accepted accounting principles in the United States ("U.S. GAAP") Accounting for issuance of shares by a subsidiary Under Canadian GAAP, the issuance by a subsidiary of its common shares, in an amount in excess of the Company's carrying value, is reflected as a dilution gain on issuance of common shares by a then subsidiary company in the Company's consolidated statement of income (loss) and deficit. Under U.S. GAAP, the additional equity raised by BCI would be reflected as a capital transaction in the Company's shareholders equity (capital deficiency). Accounting for gain on debt settlement Under Canadian GAAP, the assignment of debt of TCI, in an amount in excess of the carrying value of the net assets transferred to TCI in consideration for assuming such debt, is reflected as gain on debt settlement in the Company's consolidated statement of income and deficit. Under U.S. GAAP, the gain on settlement of such debt would be reflected as a capital transaction in the Company's shareholders' equity. Amounts due from directors and interest thereon Under U.S. GAAP, the capital deficiency would be adjusted to reflect amounts due from directors arising on the issuance of shares as an increase in capital deficiency as opposed to amounts receivable as is the case under Canadian GAAP. Furthermore, under U.S. GAAP, interest income earned on the amounts due from directors would be treated as a capital transaction and excluded from income. Unrealized foreign exchange gain on long-term debt Under U.S. GAAP, the unrealized foreign exchange gain on the U.S. dollar denominated convertible subordinated debentures outstanding at December 31, 1992 of $75,236 would have been included in income as opposed to being deferred as is the case under Canadian GAAP. F17 PAGE BIOVAIL CORPORATION INTERNATIONAL --------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (All dollar amounts are expressed in Canadian dollars) 18. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - (Continued) ------------------------------------------------------ Under U.S. GAAP, for purposes of presentation of changes in financial position, the following non-cash transactions would not be shown as financing or investing activities but would be shown as supplemental cash flow information: 1992 Conversion of Debentures into common shares of a subsidiary company and the equivalent amount included in issuance of share capital. . . . . $ 5,771,280 Issuance of common shares on settlement of debt. . . . 3,000,000 Issuance of Class A Special Shares on settlement of debt. . . . . . . . . . . . . . . . .. . 6,354,000 1993 Conversion of Debentures into common shares and the equivalent aggregate amount included in minority interest and dilution gain . . . . . . . . . . . . . . . . . . . . 5,218,056 Issuance of common shares on the exercise of stock options. . . . . . . . . . . . . . . . . . . . . 230,000
Furthermore, current bank indebtedness would not be included as a component of cash and cash equivalents as is the case under Canadian GAAP. Accordingly, under U.S. GAAP, the increase in bank indebtedness of $2,496,713 in the year ended December 31, 1992, and the decrease in bank indebtedness of $835,108 in the year ended December 31, 1993 and $173,526 in the year ended December 31, 1994 would be included in cash provided by (used in) financing activities, and cash at December 31, 1992, 1993 and 1994 would have been $3,576,476, $3,817,894 and $3,950,746 respectively. Under U.S. GAAP, the following additional supplemental cash flow disclosure would be provided: Year ended Year ended Year ended December 31, December 31, December 31, 1992 1993 1994 ------------ ----------- ----------- Cash paid for: Interest . . . . . . . . . . . . $1,980,520 $859,858 $759,402 Income taxes . . . . . . . . . . 383,213 499,980 501,560 Under U.S. GAAP, the following additional disclosure would be provided pursuant to the requirements of SFAS No. 109 - "Accounting for Income Taxes": As at December 31, 1994, the Company has unused tax benefits of $25,738,000 related to net operating loss and tax credit carry forwards. Under U.S. GAAP, a valuation allowance of an equivalent amount would be recognized to offset the related deferred tax asset due to the uncertainty of realizing the benefit of the loss and tax credit carry forwards. The net change in the valuation allowance for the deferred tax asset was an increase of $2,402,261 in the year ended December 31, 1993 related to the additional benefit arising from the operating loss carry forwards in 1993 and a reduction in the year ended December 31, 1994 of $3,179,663 relating to the utilization of such benefits. F18 PAGE 19. SEGMENTED INFORMATION AND MAJOR CUSTOMERS The Company considers that its operations fall principally into one class - providing formulation, development and registration of pharmaceutical products for the pharmaceutical industry. Operations by geographic segment Canadian Foreign Operations Operations Eliminations Consolidated ---------- ---------- ------------ ------------- December 31, 1994 - ----------------- Revenue - External $15,202,823 $9,029,989 $ - $24,232,812 - Inter-segment 1,796,423 - (1,796,423) - ------------ ----------- ------------ ----------- $16,999,246 $ 9,029,989 $(1,796,423) 24,232,812 ----------- ----------- ----------- Operating income (loss) $(1,440,677) $ 5,370,739 $ - 3,930,062 ------------ ----------- ------------- Interest expense (824,658) Gain on debt settlement 11,151,170 Reorganization expenses (391,318) Provision for income taxes (602,716) ----------- Net income 13,265,540 Total assets $30,508,096 $ 5,417,813 $ - $35,925,909 ----------- ----------- ----------- =========== December 31, 1993 - ----------------- Revenue - External $8,831,242 $5,903,018 $ - $14,734,260 - Inter-segment 1,558,745 (1,558,745) ----------- ----------- ------------ ------------ $10,389,987 $ 5,903,018 $(1,558,745) 14,734,260 ----------- ----------- ------------ ----------- Operating income (loss) $(4,430,026) $ 2,433,143 $ - (1,996,883) ----------- ----------- ------------ Interest expense (955,508) Provision for income taxes (328,958) Minority interest (961,669) Dilution gain on issuance of common shares by a subsidiary company 7,773,080 Gain on sale of a subsidiary company 1,668,665 ----------- Net income $ 5,198,727 =========== Identifiable assets $26,474,409 $ 4,102,565 $ - $30,576,974 ----------- ----------- ----------- Corporate assets 225,005 ----------- Total assets $30,801,979 ===========
F19 BIOVAIL CORPORATION INTERNATIONAL QUARTERLY REPORT INDEX PART 1. FINANCIAL INFORMATION PAGES - ------ --------------------- ----- Consolidated Balance Sheets, December 31, 1994 and June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Consolidated Statements of Income and Loss for the three and six months ended June 30, 1994 and 1995 . . . . . .2 Consolidated Statements of Changes in Financial Position for the six months ended June 30, 1994 and 1995 . . . . . . . . . . .3 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . .4 Management s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . .6 PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . .11 - -------- ----------------- (ALL DOLLAR AMOUNTS IN THIS DOCUMENT ARE EXPRESSED IN U.S. DOLLARS UNLESS OTHERWISE STATED.) BIOVAIL CORPORATION INTERNATIONAL CONSOLIDATED BALANCE SHEETS (All dollar amounts are expressed in U.S. dollars) June 30, December 31, 1995 1994 -------------- ------------ ASSETS (Unaudited) CURRENT Cash and short-term deposits $ 7,419,271 $ 2,818,462 Trade accounts receivable 2,946,037 5,346,000 Inventories 282,991 479,851 Deposits and prepaid expenses 545,623 57,229 ----------- ----------- 11,193,922 8,701,542 FIXED ASSETS, net 14,506,195 14,182,445 GOODWILL 2,718,432 2,745,557 ----------- ------------ $ 28,418,549 $ 25,629,544 ============ ============ LIABILITIES CURRENT Accounts payable and accrued liabilities $ 4,384,033 $ 4,657,777 Income taxes payable 971,651 736,511 Deferred revenue 205,199 1,238,623 Amount due on acquisition - 955,243 Current portion of long-term debt 1,463,040 566,711 ------------- ------------- 7,023,923 8,154,865 ------------- ------------- LONG-TERM DEBT Non-interest bearing and forgivable interest government loans 4,914,166 4,716,687 Other 6,620,748 5,065,713 ------------ ------------- 11,534,914 9,782,400 ------------ ------------- 18,558,837 17,937,265 CONTINGENCIES (Note 3) SHAREHOLDERS EQUITY Share Capital 13,771,195 13,415,031 Deficit (4,766,637) (6,442,085) Cumulative translation adjustment 855,154 719,333 ----------- ---------- 9,859,712 7,692,279 ----------- ---------- $ 28,418,549 $25,629,544 ============ ===========
The accompanying notes are an integral part of consolidated financial statements. BIOVAIL CORPORATION INTERNATIONAL --------------------------------- CONSOLIDATED STATEMENTS OF INCOME AND LOSS ------------------------------------------ (All dollar amounts are expressed in U.S. dollars) (Unaudited) Three Months Six Months Ended June 30 Ended June 30 -------------- ------------- 1995 1994 1995 1994 --------- ----------- ---------- ----------- REVENUE Contract $ 994,658 $ 983,402 $2,856,951 $1,555,550 Manufacturing - 248,898 1,253,479 248,898 Royalty and licensing 1,642,670 1,263,237 4,129,235 3,190,298 --------- --------- --------- --------- 2,637,328 2,495,537 8,239,665 4,994,746 --------- --------- --------- --------- EXPENSES Cost of contract revenue 656,260 687,093 1,670,029 1,314,392 Cost of manufactured goods sold - 139,746 485,890 139,746 Research and product development 797,755 613,743 1,458,010 1,188,274 Selling and administrative 1,550,786 1,582,955 3,217,854 2,577,065 Royalty and commission 104,716 61,799 439,952 284,545 --------- --------- --------- 3,109,517 3,085,336 7,271,735 5,504,022 --------- --------- --------- --------- OPERATING INCOME (LOSS) (472,189) (589,799) 967,930 (509,276) INTEREST EXPENSE, net (115,558) (102,406) (223,590) (258,672) GAIN ON LICENSING SETTLEMENT 1,130,046 - - GAIN ON DEBT SETTLEMENT - - 8,071,217 REORGANIZATION EXPENSES - - - (283,236) ---------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES 542,299 (692,205) 1,874,386 7,020,033 PROVISION FOR INCOME TAXES 109,505 73,257 198,938 124,027 ---------- ----------- ----------- ---------- NET INCOME ((LOSS) $ 432,794 $ (765,462) $1,675,448 $6,896,006 EARNINGS PER SHARE Net income (loss) before gians on debt settlement and licensing settlement $ (0.08) $ (0.13) $ 0.07 $ (0.20) ============ ============ =========== ============ Net income (loss) $ 0.05 $ (0.13) $ 0.20 $ 1.17 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OPUTSTANDING 8,279,809 5,906,795 8,279,809 5,906,795 =========== ============ ========== ==========
The accompanying notes are an integral part of consolidated financial statements 2 PAGE BIOVAIL CORPORATION INTERNATIONAL --------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION --------------------------------------------------------- (All dollar amounts are expressed in U.S. dollars) (Unaudited) Six Months Ended June 30 --------------------------- 1995 1994 ---------- ------------ NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES OPERATING Net income for period $1,675,448 $6,896,006 Depreciation and amortization 588,265 359,212 Gain on debt settlement - (8,071,217) ---------- ---------- 2,263,713 (815,999) Change in non-cash operating working capital (Note 2) (72,265) 2,229,349 ---------- ---------- 2,191,448 1,413,350 ---------- ---------- INVESTING Additions to fixed assets (540,826) (516,282) FINANCING Issuance of share capital 83,500 8,686 Increase in long-term debt 2,831,236 181,667 Reduction in long-term debt (392,742) (24,653) --------- ---------- 2,521,994 165,700 --------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 428,193 114,447 --------- --------- INCREASE IN CASH 4,600,809 1,177,215 CASH AND SHORT-TERM DEPOSITS, BEGINNING OF PERIOD 2,818,462 2,883,655 --------- --------- CASH AND SHORT-TERM DEPOSITS, END OF PERIOD $7,419,271 $4,060,870 ========== ==========
The accompanying notes are an integral part of consolidated financial statements. 3 1. SIGNIFICANT ACCOUNTING POLICIES -------------------------------- Biovail Corporation International (the Company ), was amalgamated effective March 29, 1994 under the laws of the province of Ontario. The Company s accounting and reporting policies confirm to generally accepted accounting principles in Canada. Change in reporting currency Effective January 1, 1995, the Company has commenced reporting its financial statements in U.S. dollars, while the currency of measurement remains Canadian dollars. For purposes of this presentation, Canadian dollar amounts, including the 1994 amounts shown for purposes of comparison, have been translated into U.S. dollars at the respective period end rates of exchange. 1994 figures Certain of 1994 figures have been reclassified to conform to the 1995 presentation. For a full description of the other accounting policies of the Company, reference is made to the annual report on Form 20-F for the year ended December 31, 1994. In the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the period presented have been made and all such adjustments are of a normal recurring nature. 2. CHANGE IN NON-CASH OPERATING WORKING CAPITAL -------------------------------------------- Six Months Six Months ended ended June 30, June 30, 1995 1994 ------------- ------------- Accounts receivable $2,412,418 $(26,634) Inventory 206,613 (636,340) Due from directors - 25,368 Deposits and prepaid expenses (487,231) 34,988 Amount due on acquisition (974,658) - Accounts payable and accrued liabilities (382,667) 444,586 Income taxes payable 211,857 (142,595) Deferred revenue (1,058,599) 2,529,976 ---------- ---------- $(72,265) $2,229,349 ========== ========== 3. CONTINGENCIES ------------- a) On November 12, 1993, a patent infringement lawsuit was commenced in U.S. District Court, for the District of New Jersey, by Marion Merrell Dow Inc.("MMD"), Carderm Capital L.P. and Elan Corporation PLC against Hoechst-Roussel Pharmaceuticals, Inc. ("Hoechst-Roussel"). Hoechst-Roussel was licensed by the Company for the once-daily controlled release formulation of Diltiazem. The complaint alleges that Hoechst-Roussel has infringed certain patents relating to controlled absorption of Diltiazem formulations and seeks, among other things, to enjoin Hoechst-Roussel from infringing the plaintiffs' patents. Hoechst-Roussel has answered the complaint alleging that Hoechst-Roussel has not infringed the patents and that the patents are invalid and unenforceable. The Company believes the lawsuit is without merit. 4 3. CONTINGENCIES (Continued) On February 21, 1995 Hoechst-Roussel filed a Motion for an Order granting Summary Judgement of Non-infringement under Rule 56 Fed. R. Civ. P., to dismiss all patent litigation with MMD. Hoechst-Roussel's parent, Hoechst AG has announced its intention to acquire MMD. As a consequence, Hoechst-Roussel and the Company agreed that the rights agreement between it and the Company dated June 30, 1993 (the "Rights Agreement") will be terminated effective June 30, 1995. b) On October 20, 1994, the Company commenced legal proceedings in the United States District Court, District of Puerto Rico against MMD, four of its officers and a related limited partnership. The action was brought to recover damages in the sum of U.S. $480,000,000, before trebling, and for injunctive relief for a number of violations and based on 12 counts of anti-trust and business torts. c) Effective April 28,1995, the Company entered into a settlement whereby Hoechst-Roussel agreed to pay the Company the sum of U.S. $7.5 million in consideration for the Company entering into a series of agreements and releases. The agreements and releases provide for the immediate payment to the Company of U.S. $2 million, which has been received. Payment of the remaining U.S. $5.5 million together with the withdrawal of the Company's complaint against MMD, four officers of MMD and a related limited partnership in the United States District Court for the District of Puerto Rico, as referred to in (b) above, was to be undertaken upon the completion by Hoechst AG of the acquisition of all of the outstanding shares of the common stock of MMD pursuant to a merger or otherwise. The completion of the acquisition has now been completed and Hoechst-Roussel has paid the company the remaining U.S. $5.5 million; as well, the Puerto Rico suit has been withdrawn by the Company. Furthermore, the said agreements and releases provide that within five days from the completion of such acquisition, Hoechst-Roussel will also at that time (a) withdraw or otherwise dismiss the patent-related complaint filed by MMD and Carderm Capital L.P. ( Carderm ) against Hoechst-Roussel in the United States District Court for the District of New Jersey; (b) use its best efforts to have Elan Corporation plc withdraw or otherwise dismiss the same complaint; and (c) withdraw the Citizen's Petition bearing the date August 5, 1994 filed by MMD with the United States Food and Drug Administration. As a result of the Agreements and releases above referred to, the Rights Agreement between Hoechst-Roussel and the Company has been terminated and Hoechst-Roussel has re-assigned and transferred to the Company all rights pertaining to the licensed product, which now includes all relevant, clinical and scientific data and intellectual property. In addition, MMD and Carderm have filed stipulations with prejudice in the United States District Court for the District of New Jersey, the effect of which is to terminate the involvement by MMD and Carderm in the New Jersey suit. Hoechst-Roussel is currently engaged in effecting Elan Corporation plc s withdrawal of the New Jersey suit. Furthermore, MMD has now formally withdrawn the Citizen s Petition by so advising the United States Food and Drug Administration in writing. -----END PRIVACY-ENHANCED MESSAGE-----