Quarterly Report (10-q)

Date : 08/13/2019 @ 8:21PM
Source : Edgar (US Regulatory)
Stock : Egalet Corporation (ZCOR)
Quote : 2.55  0.0 (0.00%) @ 1:26PM

Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

(Mark One)

 

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

Or

 

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to

 

Commission File Number 001-36295

 

Zyla Life Sciences

 

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

 

46-3575334
(I.R.S. Employer
Identification No.)

 

 

 

600 Lee Road
Suite 100
Wayne, PA
(Address of Principal Executive Offices)

 

19087
(Zip Code)

 

Registrant’s telephone number, including area code: (610) 833-4200

 

 

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 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer ☐

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☐ 

 

Smaller reporting company ☒

 

 

 

Emerging growth company ☒

 

 

 

  If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act

of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Par value $0.001

 

ZCOR

 

OTCQX

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

 

Common Stock, $0.001 par value                                 Shares outstanding as of August 9, 2019: 9,360,968

 

 

 

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.  

Financial Statements

 

 

Consolidated Balance Sheets as of June 30, 2019 (Successor) (unaudited) and December 31, 2018 (Predecessor)

1

 

Consolidated Statements of Operations unaudited for the three months ended June 30, 2019 (Successor), the Period February 1, 2019 through June 30, 2019 (Successor), the Period January 1, 2019 through January 31, 2019 (Predecessor)   and the three and six months ended June 30, 2018 (Predecessor)

2

 

Consolidated Statements of Comprehensive Loss unaudited for the three months ended June 30, 2019 (Successor), the Period February 1, 2019 through June 30, 2019 (Successor), the Period January 1, 2019 through January 31, 2019 (Predecessor)   and the three and six months ended June 30, 2018 (Predecessor)

3

 

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended June 30, 2019 (Successor), Period February 1, 2019 through June 30, 2019 (Successor),   the Period January 1, 2019 through January 31, 2019 (Predecessor) and the six months ended June 30, 2018 (Predecessor)

4

 

Consolidated Statements of Cash Flows unaudited for the Period February 1, 2019 through June 30, 2019 (Successor), the Period January 1, 2019 to January 31, 2019 (Predecessor) and the six months ended June 30, 2018 (Predecessor)

5

 

Notes to Unaudited Consolidated Financial Statements

6

Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

41

Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4.  

Controls and Procedures

51

 

PART II - OTHER INFORMATION

 

Item 1.  

Legal Proceedings

52

Item 1A.  

Risk Factors

52

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 3  

Defaults Upon Senior Securities

54

Item 4.  

Mine Safety Disclosures

54

Item 5.  

Other Information

54

Item 6.  

Exhibits

55

 

 

 

SIGNATURES  

59

 

Unless otherwise indicated or the context otherwise requires, references to the “Company”, “we”, “us” and “our” refer to Zyla Life Sciences and its subsidiaries. The Zyla logo is our trademark and Zyla is our registered trademark. All other trade names, trademarks and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. We have assumed that the reader understands that all such terms are source-indicating. Accordingly, such terms, when first mentioned in this Quarterly Report on Form 10-Q, appear with the trade name, trademark or service mark notice and then throughout the remainder of this Quarterly Report on Form 10-Q without the trade name, trademark or service mark notices for convenience only and should not be construed as being used in a descriptive or generic sense. Unless otherwise indicated, all statistical information provided about our business in this report is as of June 30, 2019.

 

 

i

PART I

 

ITEM 1.  FINANCIAL STATEMENTS

 

Zyla Life Sciences and Subsidiaries

 

Consolidated Balance Sheet s

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

Successor

 

 

Predecessor

 

 

    

June 30, 2019

  

   

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,054

 

 

$

35,323

 

Marketable securities, available for sale

 

 

 —

 

 

 

4,988

 

Accounts receivable, net

 

 

21,217

 

 

 

8,006

 

Inventory

 

 

14,585

 

 

 

2,639

 

Prepaid expenses and other current assets

 

 

2,181

 

 

 

2,715

 

Other receivables

 

 

160

 

 

 

846

 

Total current assets

 

 

50,197

 

 

 

54,517

 

Intangible assets, net

 

 

117,477

 

 

 

4,281

 

Restricted cash

 

 

400

 

 

 

400

 

Property and equipment, net

 

 

3,752

 

 

 

1,059

 

Right of use assets, net

 

 

1,577

 

 

 

 —

 

Goodwill

 

 

58,747

 

 

 

 —

 

Deposits and other assets

 

 

3,423

 

 

 

1,676

 

Total assets

 

$

235,573

 

 

$

61,933

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,011

 

 

$

8,561

 

Accrued expenses

 

 

49,602

 

 

 

24,584

 

Debt - current, net

 

 

4,428

 

 

 

 —

 

Acquisition-related contingent consideration

 

 

2,500

 

 

 

 —

 

Other current liabilities

 

 

994

 

 

 

 —

 

Total current liabilities

 

 

64,535

 

 

 

33,145

 

Debt - non-current portion, net

 

 

93,247

 

 

 

 —

 

Acquisition-related contingent consideration

 

 

15,200

 

 

 

 —

 

Deferred income tax liability

 

 

24

 

 

 

24

 

Credit agreement

 

 

3,953

 

 

 

 —

 

Other liabilities

 

 

935

 

 

 

536

 

Total liabilities not subject to compromise

 

 

177,894

 

 

 

33,705

 

 

 

 

 

 

 

 

 

 

Liabilities subject to compromise

 

 

 —

 

 

 

139,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Predecessor common stock--$0.001 par value; 275,000,000 shares authorized; 56,547,101 shares issued and outstanding at December 31, 2018

 

 

 —

 

 

 

55

 

Successor common stock--$0.001 par value; 100,000,000 shares authorized; 9,360,968 shares issued and outstanding at June 30, 2019

 

 

 9

 

 

 

 —

 

Additional paid-in capital

 

 

87,806

 

 

 

276,569

 

Accumulated other comprehensive (loss) income

 

 

(10)

 

 

 

869

 

Accumulated deficit

 

 

(30,126)

 

 

 

(388,853)

 

Total stockholders' equity (deficit)

 

 

57,679

 

 

 

(111,360)

 

Total liabilities and stockholders’ equity

 

$

235,573

 

 

$

61,933

 

 

See accompanying notes to unaudited consolidated financial statements.

 

1

Zyla Life Sciences and Subsidiaries

 

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Successor

 

 

Predecessor

 

Successor

 

 

Predecessor

 

 

 

 

 

 

 

 

Period from

 

 

Period from

 

 

 

 

 

 

Three months

 

 

Three months

 

February 1, 2019

 

 

January 1, 2019

 

Six months

 

 

 

ended

 

 

ended

 

through

 

 

through

 

ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

June 30, 2019

 

 

January 31, 2019

 

June 30, 2018

  

Revenue

  

 

 

  

  

 

 

 

 

 

 

 

 

 

  

 

 

 

Net product sales

 

$

22,034

 

 

$

7,443

    

$

37,843

 

 

$

1,775

 

$

13,704

 

Total revenue

 

 

22,034

 

 

 

7,443

 

 

37,843

 

 

 

1,775

 

 

13,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excluding amortization of product rights)

 

 

14,172

 

 

 

1,565

 

 

26,633

 

 

 

554

 

 

3,780

 

Amortization of product rights

 

 

3,497

 

 

 

531

 

 

5,828

 

 

 

171

 

 

1,068

 

General and administrative

 

 

7,417

 

 

 

6,694

 

 

10,782

 

 

 

5,413

 

 

13,767

 

Sales and marketing

 

 

9,135

 

 

 

9,019

 

 

14,265

 

 

 

2,773

 

 

18,074

 

Research and development

 

 

 4

 

 

 

999

 

 

11

 

 

 

186

 

 

2,302

 

Restructuring and other charges

 

 

648

 

 

 

 —

 

 

648

 

 

 

799

 

 

 —

 

Change in fair value of contingent consideration payable

 

 

2,700

 

 

 

 —

 

 

2,900

 

 

 

 —

 

 

 —

 

Total costs and expenses

 

 

37,573

 

 

 

18,808

 

 

61,067

 

 

 

9,896

 

 

38,991

 

Loss from operations

 

 

(15,539)

 

 

 

(11,365)

 

 

(23,224)

 

 

 

(8,121)

 

 

(25,287)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant and derivative liability

 

 

 —

 

 

 

(3,181)

 

 

 —

 

 

 

 —

 

 

(8,306)

 

Interest expense, net

 

 

3,636

 

 

 

3,804

 

 

5,828

 

 

 

(52)

 

 

7,360

 

Other gain

 

 

(135)

 

 

 

(25)

 

 

(135)

 

 

 

(140)

 

 

(25)

 

Total other expense (income)

 

 

3,501

 

 

 

598

 

 

5,693

 

 

 

(192)

 

 

(971)

 

Reorganization items

 

 

603

 

 

 

 —

 

 

1,209

 

 

 

(115,169)

 

 

 —

 

(Loss) income after reorganization charges and before provision (benefit) for income taxes

 

 

(19,643)

 

 

 

(11,963)

 

 

(30,126)

 

 

 

107,240

 

 

(24,316)

 

Provision (benefit) for income taxes

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

Net (loss) income

 

$

(19,643)

 

 

$

(11,963)

 

$

(30,126)

 

 

$

107,240

 

$

(24,316)

 

Per share information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per share of common stock, basic and diluted

 

$

(1.37)

 

 

$

(0.22)

 

$

(2.10)

 

 

$

1.90

 

$

(0.48)

 

Weighted-average shares outstanding, basic and diluted

 

 

14,333,332

 

 

 

53,302,399

 

 

14,333,332

 

 

 

56,547,101

 

 

50,302,419

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

2

Zyla Life Sciences and Subsidiaries

 

Consolidated Statements of Comprehensive Los s (Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Successor

 

 

Predecessor

 

Successor

 

 

Predecessor

 

 

 

 

 

 

 

 

Period from

 

 

Period from

 

 

 

 

 

 

Three months

 

 

Three months

 

February 1, 2019

 

 

January 1, 2019

 

Six months

 

 

 

ended

 

 

ended

 

through

 

 

through

 

ended

 

 

 

June 30, 2019

    

    

June 30, 2018

 

June 30, 2019

 

 

January 31, 2019

    

June 30, 2018

    

Net (loss) income

    

$

(19,643)

 

 

$

(11,963)

    

$

(30,126)

 

 

$

107,240

 

$

(24,316)

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on available for sale securities

 

 

 —

 

 

 

59

 

 

 

 

 

 

 —

 

 

29

 

Foreign currency translation adjustments

 

 

(1)

 

 

 

(235)

 

 

(10)

 

 

 

 —

 

 

(111)

 

Comprehensive (loss) income

 

$

(19,644)

 

 

$

(12,139)

 

$

(30,136)

 

 

$

107,240

 

$

(24,398)

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

3

Zyla Life Sciences and Subsidiaries

 

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

$0.001

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

Number of

 

Par

 

Paid-in

 

Accumulated

 

Comprehensive

 

 

 

 

 

    

Shares

    

Value

    

Capital

    

Deficit

    

Income

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2017 (Predecessor)

 

45,939,663

 

$

46

 

$

254,871

 

$

(295,300)

 

$

1,008

 

$

(39,375)

 

Cumulative adjustment - ASU 2014-09

 

 —

 

 

 —

 

 

 —

 

 

1,901

 

 

 —

 

 

1,901

 

Deferred tax liability

 

 —

 

 

 —

 

 

(920)

 

 

 —

 

 

 —

 

 

(920)

 

Issuance of common stock, net of costs

 

5,941,538

 

 

 6

 

 

4,151

 

 

 —

 

 

 —

 

 

4,157

 

Exchange of convertible debt and issuance of warrants

 

1,000,000

 

 

 1

 

 

12,497

 

 

 —

 

 

 —

 

 

12,498

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

952

 

 

 —

 

 

 —

 

 

952

 

Unrealized loss on available for sale securities

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(30)

 

 

(30)

 

Foreign currency translation adjustment

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

124

 

 

124

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(12,353)

 

 

 —

 

 

(12,353)

 

Balance as of March 31, 2018 (Predecessor)

 

52,881,201

 

$

53

 

$

271,551

 

$

(305,752)

 

$

1,102

 

$

(33,046)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of April 1, 2018 (Predecessor)

 

52,881,201

 

$

53

 

$

271,551

 

$

(305,752)

 

$

1,102

 

$

(33,046)

 

Restricted shares of common stock issued

 

1,500,000

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Deferred tax liability

 

 —

 

 

 —

 

 

(60)

 

 

 —

 

 

 —

 

 

(60)

 

Issuance of common stock, net of costs

 

1,917,172

 

 

 —

 

 

886

 

 

 —

 

 

 —

 

 

886

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,002

 

 

 —

 

 

 —

 

 

1,002

 

Unrealized loss on available for sale securities

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

59

 

 

59

 

Foreign currency translation adjustment

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(235)

 

 

(235)

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(11,963)

 

 

 —

 

 

(11,963)

 

Balance as of June 30, 2018 (Predecessor)

 

56,298,373

 

$

53

 

$

273,379

 

$

(317,715)

 

$

926

 

$

(43,357)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2018 (Predecessor)

 

56,547,101

 

$

55

 

$

276,569

 

$

(388,853)

 

$

869

 

$

(111,360)

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

4,125

 

 

 —

 

 

 —

 

 

4,125

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

107,240

 

 

 —

 

 

107,240

 

Cancellation of Predecessor common stock and stock-based compensation

 

(56,547,101)

 

 

(55)

 

 

(280,694)

 

 

 —

 

 

 —

 

 

(280,749)

 

Elimination of Predecessor accumulated deficit and accumulated other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

281,613

 

 

(869)

 

 

280,744

 

Common stock issued for settlement of predecessor debt

 

4,774,093

 

 

 5

 

 

31,000

 

 

 —

 

 

 —

 

 

31,005

 

Common stock issued for asset purchase

 

4,586,875

 

 

 4

 

 

29,784

 

 

 —

 

 

 —

 

 

29,788

 

Warrants issued for settlement of predecessor debt

 

 —

 

 

 —

 

 

14,303

 

 

 —

 

 

 —

 

 

14,303

 

Warrants issued for asset purchase

 

 —

 

 

 —

 

 

11,841

 

 

 —

 

 

 —

 

 

11,841

 

Balance as of January 31, 2019 (Predecessor)

 

9,360,968

 

$

 9

 

$

86,928

 

$

 —

 

$

 —

 

$

86,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of February 1, 2019 (Successor)

 

9,360,968

 

 

 9

 

 

86,928

 

 

 —

 

 

 —

 

 

86,937

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

60

 

 

 —

 

 

 —

 

 

60

 

Unrealized loss on available for sale securities

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

(1)

 

Foreign currency translation adjustment

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8)

 

 

(8)

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(10,483)

 

 

 —

 

 

(10,483)

 

Balance as of March 31, 2019 (Successor)

 

9,360,968

 

$

 9

 

$

86,988

 

$

(10,483)

 

$

(9)

 

$

76,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of April 1, 2019 (Successor)

 

9,360,968

 

 

 9

 

 

86,988

 

 

(10,483)

 

 

(9)

 

 

76,505

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

818

 

 

 —

 

 

 —

 

 

818

 

Foreign currency translation adjustment

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

(1)

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(19,643)

 

 

 —

 

 

(19,643)

 

Balance as of June 30, 2019 (Successor)

 

9,360,968

 

$

 9

 

$

87,806

 

$

(30,126)

 

$

(10)

 

$

57,679

 

 

4

Zyla Life Sciences and Subsidiaries

 

Consolidated Statements of Cash Flow s (Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Successor

 

 

Predecessor

 

 

 

 

Period from

 

 

Period from

 

 

 

 

 

 

 

February 1, 2019

 

 

January 1, 2019

 

Six months

 

 

 

 

through

 

 

through

 

ended

 

 

 

 

June 30, 2019

    

    

January 31, 2019

 

June 30, 2018

    

 

Operating activities:

    

 

    

 

 

 

 

    

 

    

 

 

Net (loss) income

 

$

(30,126)

 

 

$

107,240

 

$

(24,316)

 

 

Adjustment to reconcile net (loss) income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

6,175

 

 

 

204

 

 

2,407

 

 

Non-cash reorganization items

 

 

 —

 

 

 

(121,144)

 

 

 —

 

 

Change in fair value of warrant and derivative liability

 

 

 —

 

 

 

 —

 

 

(8,306)

 

 

Stock-based compensation expense

 

 

877

 

 

 

4,125

 

 

1,954

 

 

Non-cash interest and amortization of debt discount

 

 

2,931

 

 

 

(9)

 

 

1,242

 

 

Accretion of discount on marketable securities

 

 

(3)

 

 

 

(5)

 

 

(144)

 

 

Change in fair value of contingent consideration

 

 

2,900

 

 

 

 —

 

 

 —