2/2: sorry about the word dump:
The financials are at the company website. Fox.
Research and Development Expenses
Research and development expenses were $2.3 million for the fourth
quarter ended May 31, 2005, up from $2.1 million for the comparable period
last year. For the twelve-month period, research and development expenses
amounted to $6.0 million, compared to $3.7 million for the same period last
year. The three- and twelve-month period increases are mainly due to expenses
incurred in relation to Pennsaid(R) Phase III clinical trials, which the
Company expects to complete by the end of calendar 2005. Research and
development expenses are expected to decrease in fiscal 2006 since the Phase
III trials for Pennsaid(R) will be completed and the balance of other drug
development programs are at earlier stages of development. In the future, the
Company will seek development partners to offset the significant costs
associated with the drug development.
SG&A Expenses
Total SG&A expenses for the quarter were $2.0 million, down 52 percent
from the comparable period last year primarily due to reductions in sales and
marketing overhead. SG&A expenses for the year decreased significantly to
$10.8 million in fiscal 2005, from $16.3 million in the prior year, again due
to reductions in sales and marketing overhead.
Selling and marketing expenses for the fourth quarter were $700,000, down
more than 78% from $3.3 million for the comparable period last year. This
decrease is mostly due to the termination of the Company's Canadian sales
force and the cancellation of its U.K. sales and marketing contract. For the
fiscal year, selling and marketing expenses decreased by 49% from
$11.8 million in fiscal 2004 to $6.1 million in fiscal 2005. The decrease is
due to termination of both the Company's Canadian sales force and the
cancellation of its U.K. sales and marketing contract in October 2004. Sales
and marketing in Canada is handled by Solvay Pharma under a co-promotion
agreement between DHCL and Solvay in which both companies share sales and
marketing costs equally and Solvay receives a percentage of the gross margin
generated from Pennsaid(R) sales in Canada.
Administrative expenses are unchanged at $3.2 million and $3.3 million
for the fiscal years 2005 and 2004 respectively. These costs are expected to
increase in 2006 when the Company expects to sell its current head office and
move to smaller rental offices. Rental expense will be offset by a reduction
in amortization and interest costs.
Compensation expense related to stock options for the year ended May 31,
2005 was $764,000. The statements of operations show no comparable amount for
prior years because this charge results from a change in accounting policy
effective with the commencement of the current fiscal year, June 1, 2004. The
corresponding amount for the year ended May 31, 2004 was $543,000. Last year's
amount was accounted for using the intrinsic-value-based method and was not
charged to expense.
Amortization
Amortization of intangibles has decreased 46% to $1.1 million in 2005,
down from $2.1 million in the prior year. This follows the writedown booked in
2004 that reduced the carrying value of acquired technology. Effective May 31,
2005, the carrying value of acquired technology has been reduced to nil. This
reduction is explained below under the heading "Intangibles". Consequently,
there will be no further amortization charges for intangibles in 2006.
Foreign Currency
The Company reported a foreign exchange gain in fiscal 2005 of
$2.1 million as compared to a loss of $100,000 in fiscal 2004. This gain is
almost entirely due to favourable foreign exchange adjustments to acquisition
commitments, which were U.S. dollar based. For 2006 any foreign exchange gains
or losses are expected to be relatively small as outstanding acquisition
commitments have been restructured and consequently eliminated as at May 31,
2005.
Restructuring Costs
Restructuring costs of $5.7 million were recorded in fiscal 2005. These
charges include a $3.7 million non-cash write-down of construction in
progress, plus loss on disposal of packaging machinery following the Company's
decision not to complete the expansion project at its Varennes, Québec
manufacturing facility. It also includes $925,000 in severance costs, $688,000
in expenses related to the recent proxy fight and $391,000 related to the
termination of the Company's U.K. sales and marketing contract.
Intangibles
A review of the Company's drug development plan for WF10 determined there
are currently more promising indications for WF10 than HIV/AIDS. While the
Company has commenced development of some of these other indications, it has
been unable to determine the full market potential. Because the original
intangible values were attributed to the potential of WF10 to treat HIV/AIDS
and no development is currently being done with HIV/AIDS, the Company has
written off the remaining balances of acquired technology and goodwill
resulting in a $15.5 million charge to income for the fiscal year ended
May 31, 2005.
Loss from Operations
Loss from operations for the quarter ended May 31, 2005 was $3.5 million
compared with a $5.9 million for the corresponding period last year. For the
year ended May 31, 2005, Loss from operations was $11.6 million, compared with
$14.6 million for the prior year. The annual and quarterly improvement in
performance year-over-year was attributable to higher sales volumes and
savings from restructuring, in particular the reductions in sales overhead.
Gain on Debt Settlements
In 2005 the Company recognized a $4.1 million gain on debt settlements.
Agreements were reached with creditors of Dimethaid and its subsidiaries to
accept approximately $864,000 in full and final settlement of obligations
totaling approximately $5.0 million. Settled claims include those of the
Company's former U.K. sales and marketing partners. In 2006, no significant
further gains are expected as the majority of legacy debts have been settled.
Net Loss
Earnings (loss) per share calculations are based on the net income or
loss for the period, adjusted for charges to deficit for both accretion and
any gains on acquisition commitments. In May 2005 there was a $22.9-million
gain on restructuring of acquisition commitments that exceeded the net loss of
$19.1 million for the quarter ended May 31, 2005; as a result, that quarter
showed a positive $0.02 earnings per share. Net loss for the quarter ended
May 31, 2004 was $12.9 million, or $0.23 per share. For the year ended May 31,
2005, the net loss was $29.8 million, or $0.14 per share, compared with
$27.2 million, or $0.53 per share, for the corresponding period last year.
Gain on Acquisition Commitments
Prior to the end of fiscal 2005, the Company owed Dr. Kuhne
US $27.7 million (net present value of CDN $26.9 million) representing the
balance of the purchase price of Dimethaid AG (formerly Oxo Chemie AG).
Effective May 31, 2005 the Company exchanged this debt for:
- A CDN $4.0 million debenture (part of the November 2004 debenture
issue by Dimethaid)
- A 40% equity interest in Dimethaid AG, which owns the intellectual
property related to WF10 and the manufacturing plant, Dimethaid
GmbH
- A 6% royalty on any WF10 license fees and royalties generated by
Dimethaid AG
- Exclusive marketing rights for WF10 in Thailand
The resulting $22.9-million gain on restructuring of acquisition
commitments was credited to deficit.
Cash Position
Consolidated cash and cash equivalents amounted to $3.4 million as at
May 31, 2005, compared to $416,000 for the comparable period last year. Funds
used in operating activities were $11.8 million in fiscal 2005 compared to
$15.4 million in the same period last year, reflecting the cash savings from
overhead reductions.
The net reduction in working capital employed of $2.0 million is largely
due to an increase in accounts payable and accrued liabilities (an
$800,000-increase to $5.9 million in fiscal 2005, after excluding $4.1 million
in debt forgiveness and a $600,000-reduction due to termination of production
equipment contract). Accounts receivable decreased $224,000 due to the
majority of sales occurring in Canada where early payment discounts are
offered. Inventory levels decreased by $534,000 as demand became more
predictable and inventory levels could be more closely managed. Prepaid
expenses decreased $492,000, primarily as a result of terminations of our
contract sales force in the U.K. and the Company's Canadian sales force, both
of which reduced product sample inventory and deposits on contracts.
Funds used in investing activities for the year ended May 31, 2005
decreased to $32,000, down from $792,000 in the previous year. The decrease
represents the cancellation of the expansion project at the Company's
production facility in Varennes, Québec.
Net cash provided by financing activities totaled $14.9 million for the
year ended May 31, 2005, compared to $14.6 million for the previous year. On
June 10, 2004 the Company completed a special warrant private placement
resulting in net proceeds of $3.6 million. On November 16, 2004 the Company
completed a debenture offering that raised net proceeds of $11.2 million. To
assist the Company in meeting its immediate cash requirements in October 2004,
Dr. Kuhne (the former principal of the Company's subsidiary Oxo Chemie AG)
provided the Company with a loan of $674,000. In January 2005, one million
shares were issued to reduce the loan by $425,000. The balance of $249,000 is
payable in 12 equal installments, commencing January 2006. During the year,
the Company made $700,000 in scheduled term loan repayments. |
