EX-99.1 2 ex99-1.htm EXHIBIT 99.1 ex99-1.htm
 
Exhibit 99.1

United States Bankruptcy Court
   
Southern District of New York
   
 
X
 
In re:
:
Chapter 11
 
:
 
K-V Discovery Solutions, Inc. et al.:
:
Case No.  12-13346 (ALG)
 
:
 
Debtors.
X
Jointly Administered
     
 
Monthly Operating Report for the Period
October 1, 2012 to October 31, 2012

Debtors' Address:
2280 Schuetz Road
 
St. Louis, Missouri 63146
 
Telephone:  (314) 645-6600
   
Debtors' Attorneys:
Willkie Farr & Gallagher LLP
 
787 Seventh Avenue
 
New York, New York 10019
 
Telephone:  (212) 728-8000

 
This Monthly Operating Report ("MOR") has been prepared solely for the purposes of complying with the monthly reporting requirements applicable in these Chapter 11 cases and is in a format that the Debtors believe is acceptable to the United States Trustee.  The financial information contained herein is limited in scope and covers a limited time period. Moreover, such information is preliminary and unaudited, and is not prepared in accordance with accounting principles generally accepted in the United States ("GAAP").
 
I declare under penalty of perjury that this report and the attached documents are true and correct to the best of my knowledge and belief.

/s/ Thomas S. McHugh
 
November 15, 2012
Thomas S. McHugh
 
Chief Financial Officer
 
K-V Pharmaceutical Company
 

 
 

 
 
In re
K-V DISCOVERY SOLUTIONS, INC., et al.
 
Case No.
12-13346
 
Debtors.
 
Reporting Period:
10/1/12 -10/31/12
     
Federal Tax I.D.#
13-1587982

CORPORATE MONTHLY OPERATING REPORT
       
File with the Court and submit a copy to the United States Trustee within 20 days after the end of the month and submit a copy of the report to any official committee appointed in the case.
 
(Reports for Rochester and Buffalo Divisions of Western District of New York are due 15 days after the end of the month, as are the reports for Southern District of New York.)
 
REQUIRED DOCUMENTS
Form No.
Document Attached
Explanation Attached
Schedule of Cash Receipts and Disbursements
MOR-1
x
 
Bank Reconciliation (or copies of debtor's bank reconciliations)
MOR-1
x
 
     Copies of bank statements
   
x
     Cash disbursements journals
   
x
Statement of Operations
MOR-2
x
 
Balance Sheet
MOR-3
x
 
Status of Post-petition Taxes
MOR-4
x
x
     Copies of IRS Form 6123 or payment receipt (See Notes to MOR 4)
   
x
     Copies of tax returns filed during reporting period (See Notes to MOR 4)
   
x
Summary of Unpaid Post-petition Debts (See Notes to MOR 4)
MOR-4
 
x
     Listing of Aged Accounts Payable (See MOR 7)
 
 x
 
Accounts Receivable Reconciliation and Aging
MOR-5
 x
 
Taxes Reconciliation and Aging (See MOR 7)
MOR-5
 
x
Payments to Insiders and Professionals
MOR-6
x
 
Post Petition Status of Secured Notes, Leases Payable
MOR-6
x
 
Debtor Questionnaire
MOR-7
x
 
Makena® Performance Metrics
 
x
 

 
- 2 -

 
 
NOTES TO MONTHLY OPERATING REPORT
 
This MOR includes activity from the following Debtors:

Debtor
Case Number
K-V Discovery Solutions, Inc.
12-13346
K-V Pharmaceutical Company
12-13347
Ther-Rx Corporation
12-13348
K-V Generic Pharmaceuticals, Inc.
12-13349
Zeratech Technologies USA, Inc.
12-13350
Drug Tech Corporation
12-13351
K-V Solutions USA, Inc.
12-13352
FP1096, Inc.
12-13353
 
General Notes:
The financial statements and supplemental information contained herein are preliminary, unaudited, and may not comply in all material respects with GAAP.  In addition, the financial statements and supplemental information contained herein represent consolidated information.

The unaudited consolidated financial statements have been derived from the books and records of the Debtors and exclude activity for their non-debtor subsidiaries. This information has not been subject to certain procedures that would typically be applied to financial information in accordance with GAAP, and upon application of such procedures the financial information could be subject to changes, and these changes could be material.

The financial information contained herein is presented on a preliminary and unaudited basis and remains subject to future adjustment.  The Debtors are reviewing their books and records and other information on an ongoing basis to determine whether the financial statements should be supplemented or otherwise amended.  The Debtors reserve the right to file, at any time, such supplements or amendments to the financial statements that form a part of this MOR.  The financial statements should not be considered an admission regarding any of the Debtors’ income, expenditures or general financial condition, but rather, a current compilation of the Debtors’ books and records.  The Debtors do not make, and specifically disclaim, any representation or warranty as to the completeness or accuracy of the information set forth herein.

The unaudited consolidated financial statements contained herein have been prepared on a going concern basis and do not reflect or provide all of the possible consequences of the ongoing chapter 11 cases.  Specifically, the unaudited consolidated financial statements do not present the amount which will ultimately be paid to settle liabilities and contingencies which may be required in these cases.  As a result of the chapter 11 proceedings, the Debtors may take, or may be required to take, actions which may cause assets to be realized, or liabilities to be liquidated, for amounts other than those reflected in the unaudited consolidated financial statements.

Certain footnote disclosures normally included in unaudited consolidated financial statements prepared in accordance with GAAP have been condensed or omitted.  Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period.  The results of operations contained herein are not necessarily indicative of results which may be expected for any other period or for the full year and may not necessarily reflect the consolidated results of operations and financial position of the Debtors in the future.

 
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MOR-1:
SCHEDULE OF CASH RECEIPTS AND DISBURSEMENTS 1
(Dollars in thousands)
 
Debtor
 
Case Number
   
Cash Receipts
 
Ther-Rx Corporation
  12-13348     $ 7,226  
K-V Pharmaceutical Company
  12-13347       87  
DrugTech Corporation
  12-13351       0  
K-V Discovery Solutions, Inc.
  12-13346       0  
K-V Generic Pharmaceuticals, Inc.
  12-13349       0  
Zeratech Technologies USA, Inc.
  12-13350       0  
K-V Solutions USA Inc.
  12-13352       0  
FP1096, Inc.
  12-13353       0  
Total Cash Receipts
    $ 7,313  
               
Debtor
 
Case Number
   
Cash 2
Disbursements
 
K-V Pharmaceutical Company
  12-13347     $ (6,191 )
Ther-Rx Corporation
  12-13348       (2,334 )
DrugTech Corporation
  12-13351       (8 )
K-V Discovery Solutions, Inc.
  12-13346       0  
K-V Generic Pharmaceuticals, Inc.
  12-13349       0  
Zeratech Technologies USA, Inc.
  12-13350       0  
K-V Solutions USA Inc.
  12-13352       0  
FP1096, Inc.
  12-13353       0  
Total Cash Disbursements
    $ (8,533 )

 
Notes
1 –
Cash is received and disbursed by the Debtors as described in the Debtors’ motion to approve continued use of their cash management system (which motion was granted on an interim basis pursuant to an order entered by the Bankruptcy Court on August 7, 2012 and on a second interim basis pursuant to an order entered by the Bankruptcy Court on September 28, 2012) and is consistent with the Debtors’ historical cash management practices.  All amounts listed are the balances reported by the bank as of the end of the reporting period.  Copies of bank statements will be provided upon reasonable request in writing to counsel for the Debtors.
2 –
Cash disbursements during the month of October 2012 include $467 of outstanding checks.

 
- 4 -

 
 
MOR-1 (CON’T):
BANK RECONCILIATIONS 1, 2, 3, 4, 5, 6
(Dollars in thousands)
 
Debtor
Case Number
 
Bank and Account Description
 
Bank Account No. Ending In
 
Bank Balance
 
K-V Pharmaceutical Company
12-13347  
Fifth Third Money Market / Investment Account
  1225     $ 21,687  
K-V Pharmaceutical Company
12-13347  
Fifth Third Bank / Nesher Escrow Account
  0383       7,513  
K-V Pharmaceutical Company
12-13347  
Fifth Third Bank / Operating Account
  9158       7,224  
K-V Pharmaceutical Company
12-13347  
Fifth Third Bank / PDI Escrow Account
  1876 5     1,819  
K-V Pharmaceutical Company
12-13347  
Commerce Bank / Deposit Account
  2433       150  
K-V Pharmaceutical Company
12-13347  
AMEX Centurion Bank / Certificate of Deposit
  8420       75  
K-V Pharmaceutical Company
12-13347  
Fifth Third Bank / Utility Deposit
  0479 7     2  
Drug Tech Corporation
12-13351  
US Bank / DrugTech Custody Account
  3256       4  
Drug Tech Corporation
12-13351  
Wells Fargo Bank/ DrugTech Operating Acct
  6823       1  
                $ 38,475  
 
Notes
1 –
The Debtors have not included copies of their bank statements or cash disbursement journals due to the voluminous nature of these reports.  Copies of the Debtors’ bank statements and cash disbursement journals will be provided upon reasonable request in writing to counsel for the Debtors.
2 –
The Debtors reconcile their bank accounts on a monthly basis.
3 –
The Debtors have excluded accounts with no balance as of the end of the reporting period.
4 –
The Debtors’ bank balances exclude $503 of outstanding checks.
5 –
This account was inadvertently identified in the Debtors’ motion to approve continued use of their cash management system as ending in 4187.
6 –
During this reporting period, the Debtors closed a bank account in the name of K-V Pharmaceutical Company with Bank of America (“Payroll Account”, bank account no. ending in 6170).
7 –
The Debtors opened this bank account post-petition on August 28, 2012 in accordance with the order of the Bankruptcy Court, entered on August 23, 2012, that, among other things, established procedures for providing deposits to the Debtors’ utility service providers that request adequate assurance of payment and deemed such utility service providers to have adequate assurance of payment.

 
- 5 -

 
 
MOR-2:
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited; Dollars in thousands)

   
For the
 Month Ended
 October 31, 20121
 
Net revenues
  $ 7,730  
Cost of sales
    139  
Gross profit
    7,591  
         
Research and development
    382  
Selling and administrative
    6,585  
Operating expenses
    6,967  
Operating income
    624  
         
Interest, net and other
    0  
Reorganization items, net
    1,507  
Total other expense, net
    1,507  
         
Loss from continuing operations before income taxes
    (883 )
Income tax provision
    1,008  
Net loss from continuing operations
  $ (1,891 )
 
 
Notes
1 –
The Debtors prepare their income statement on an accrual basis.  Accordingly, the Debtors’ Statement of Operations, as set forth in this MOR, reflects the results of the Debtors’ operations for the month of October 2012.

 
- 6 -

 
 
MOR-3:
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in thousands)
 
   
As of
October 31,
 
   
2012
 
ASSETS
     
Current Assets:
     
Cash and cash equivalents
  $ 28,414  
Restricted cash
    9,408  
Receivables, net
    10,542  
Inventories, net
    5,446  
Other current assets
    4,311  
Income taxes receivable
    421  
Total Current Assets
    58,542  
Property and equipment, less accumulated depreciation
    1,867  
Intangible assets, net
    119,641  
Other assets
    15,531  
Total Assets
  $ 195,581  
         
LIABILITIES
       
LIABILITIES NOT SUBJECT TO COMPROMISE:
       
Current  Liabilities:
       
Accounts payable
  $ 2,068  
Accrued expenses
    22,941  
Other current liabilities
    9,331  
Total Current liabilities
    34,340  
Total Liabilities not subject to compromise
    34,340  
Total liabilities subject to compromise
    672,106  
Total Liabilities
    706,446  
         
SHAREHOLDERS' DEFICIT
       
Preferred Stock
    0  
Class A Common Stock
    643  
Class B Common Stock
    112  
Additional paid-in capital
    205,802  
Accumulated deficit
    (660,013 )
Less: Treasury stock
    (57,409 )
Total Shareholders' Deficit
    (510,865 )
Total Liabilities and Shareholders' Deficit
  $ 195,581  

 
- 7 -

 

MOR-4:
STATUS OF POST-PETITION TAXES 1, 2
(Dollars in thousands)
 
Federal
 
Beginning Tax
   
Amount Withheld and/or Accrued
   
Amount Paid
   
Ending Tax
 
Withholding
  $ 0     $ 268     $ (268 )   $ 0  
FICA-Employee
    0       59       (59 )     0  
FICA-Employer
    0       77       (77 )     0  
   Total Federal Taxes
  $ 0     $ 404     $ (404 )   $ 0  
                                 
State and Local
                               
Withholding
  $ 0     $ 68     $ (68 )   $ 0  
Sales Tax
    9       1       0       10  
Real Property
    5       1       0       6  
Personal Property
    52       0       0       52  
Franchise Tax
    (17 )     20       (37 )     (34 )
   Total State and Local
  $ 49     $ 90     $ (105 )   $ 34  
                                 
Total Taxes
  $ 49     $ 494     $ (509 )   $ 34  

 
Notes
1 –
The Debtors have not annexed copies of tax returns filed with various taxing authorities during the current reporting period to this MOR, nor have they included the Debtors’ IRS Form 6123 with this MOR.  Copies of such tax returns and IRS Form 6123 will be provided upon reasonable request in writing to counsel for the Debtors.
2 –
The Debtors believe they are paying all undisputed taxes and preparing and filing all tax returns when due or obtaining extensions where necessary.

 
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MOR-4 (CON’T):
SUMMARY OF UNPAID POST-PETITION DEBTS 1
(Dollars in thousands)
 
Description
 
Amount
 
     0 - 30 days old
  $ 2,053  
     31+ days old
    15  
        Total Vendor Accounts Payable Post-petition
  $ 2,068  

 
Notes
1 –
The Debtors believe they are paying all undisputed post-petition obligations according to terms.  

 
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MOR-5:
ACCOUNTS RECEIVABLE RECONCILIATION AND AGING
(Dollars in thousands)

Description
 
Amount
 
0 - 30 days old
  $ 10,892  
31 - 60 days old
    5  
61 - 90 days old
    1  
90+ days old
    913  
Total Customer Accounts Receivable
  $ 11,811  
Customer Allowances
    (1,269 )
Total Accounts Receivable
  $ 10,542  

 
- 10 -

 

MOR-6:
PAYMENTS TO INSIDERS AND PROFESSIONALS
(Dollars in thousands)
 
INSIDERS
Name
Type of Payment 1
 
Current Month Amount Paid
   
Total Paid Since
August 4, 2012
 
Christmas,  Patrick
Salary/Expenses
  $ 21     $ 62  
Divis, Gregory
Salary/Expenses
    31       89  
McHugh, Thomas
Salary/Expenses
    24       69  
Stancic, Ana
Director Fees
    29       29  
Hermelin, David
Director Fees
    31       31  
Sidransky, David MD
Director Fees
    30       30  
Bentley, Gregory
Director Fees
    29       29  
Lehrer, Joseph
Director Fees
    41       41  
Dow, Mark
Director Fees
    34       34  
Baldini, Robert
Director Fees
    30       30  
Total
    $ 300     $ 444  
 
Notes
1 –
Additional detail concerning payments to the Debtors’ insiders will be provided upon reasonable request in writing to counsel for the Debtors.

PROFESSIONALS 1
Name
Date of Court Order Authorizing Payment
 
Amount Requested 2
   
Current Month Amount Paid
   
Total Paid To Date 3
   
Total Incurred & Unpaid
 
Alston & Bird, LLP
September 14, 2012
  $ 99     $ 61     $ 61     $ 38  
Arnall Golden Gregory, LLP
October 10, 2012
    -       -       -       -  
Duff & Phelps, LLC
October 10, 2012
    205       -       -       205  
Epiq Bankruptcy Solutions
September 27, 2012
    155       65       65       90  
Fortgang Consulting
September 14, 2012
    -       -       -       -  
Houlihan & Lokey Capital, Inc.
September 14, 2012
    155       -       472       155  
Jefferies & Company, Inc.
October 10, 2012
    -       -       -       -  
Stroock, Stroock & Lavan, LLP
October 10, 2012
    -       -       -       -  
Weil, Gotshal & Manges, LLP
September 27, 2012
    381       381       381       -  
Willkie, Farr & Gallagher, LLP
September 27, 2012
    1,455       531       531       924  
Total
    $ 2,450     $ 1,039     $ 1,510     $ 1,412  
 
Notes
1 –
Represents professional services exclusive of those rendered by professionals retained by the Debtors pursuant to the September 27, 2012 order of the Bankruptcy Court authorizing the Debtors to employ and retain professionals utilized in the ordinary course of business professional service providers.
2 –
Represents amounts requested during the current reporting period.
3 –
Represents payments made from the date of the Bankruptcy Court’s order authorizing each firm’s retention.

 
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MOR-6 (CON’T):
POST-PETITION STATUS OF SECURED NOTES, LEASES PAYABLE
AND ADEQUATE PROTECTION PAYMENTS1
(Dollars in thousands)
 
Name of Creditor
 
Scheduled Monthly
Payment Due
   
Amount Paid
During Month
 
Building lease payable
  $ 42     $ 42  
                 
Total Payments
    $ 42  


Notes
1 –
The Debtors’ schedule of lease payments, as set forth in this MOR, only reflects payments made pursuant to the Debtors’ real property lease.  Immaterial leases of personal property are not included in this MOR-6.

 
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MOR-7:
DEBTOR QUESTIONNAIRE

Must be completed each month.  If the answer to any of the questions is "Yes", provide a detailed explanation of each item.  Attach additional sheets if necessary.
Yes
No
         
1
 
Have any assets been sold or transferred outside the normal course of business this reporting period?
 
X
2
 
Have any funds been disbursed from any account other than a debtor in possession account this reporting period?
 
X
3
 
Is the Debtor delinquent in the timely filing of any post-petition tax returns?
 
X
4
 
Are workers compensation, general liability or other necessary insurance coverages expired or cancelled, or has the debtor received notice of expiration or cancellation of such policies?
 
X
5
 
Is the Debtor delinquent in paying any insurance premium payment?
 
X
6
 
Have any payments been made on pre-petition liabilities this reporting period?
X
 
7
 
Are any post-petition receivables (accounts, notes or loans) due from related parties?
 
X
8
 
Are any post-petition payroll taxes past due?
 
X
9
 
Are any post-petition State or Federal income taxes past due?
 
X
10
 
Are any post-petition real estate taxes past due?
 
X
11
 
Are any other post-petition taxes past due?
 
X
12
 
Have any pre-petition taxes been paid during this reporting period?
 
X
13
 
Are any amounts owed to post-petition creditors delinquent?
 
X
14
 
Are any wages payments past due?
 
X
15
 
Have any post-petition loans been received by the Debtor from any party?
 
X
16
 
Is the Debtor delinquent in paying any US Trustee fees?
 
X
17
 
Is the Debtor delinquent with any court ordered payments to attorneys or other professionals?
 
X
18
 
Have the owners or shareholders received any compensation outside of the normal course of business?
 
X
         
Explanations
   
         
6
 
Pursuant to various orders entered by the Bankruptcy Court, the Debtors were authorized to pay certain pre-petition employee salary and benefit obligations, as well as certain pre-petition vendor, warehousemen and common carrier obligations.  The Bankruptcy Court also approved the Debtors’ motion to honor certain prepetition obligations to their customers.
13
 
The Debtors believe that all undisputed post-petition accounts payable have been and are being paid according to agreed-upon terms specific to each vendor and/or service provider.  Any aged amounts represent items subject to valid disputes and certain items which have been paid subsequent to the end of this reporting period.

 
- 13 -

 

MAKENA® PERFORMANCE METRICS

Makena® (hydroxyprogesterone caproate injection) is the Debtors’ single-most valuable product.  The information below addresses certain key performance metrics related to Makena®.  The amounts shown are based on estimates and are subject to change.  Gross revenues are preliminary and unaudited, and are not prepared in accordance with GAAP.

Three Months Ended
Gross Revenues ($ in thousands)(1)
Total Prescriptions (2)
Vials Shipped to Customers (3)
9/30/2011
$     1,318
1,255
382
12/31/2011
$     1,670
1,687
484
3/31/2012
$     6,396
2,240
1,854
6/30/2012
$   13,393
2,577
3,882
9/30/2012
$   13,006
3,046
3,770
10/31/2012(4)
$   17,974
3,317
5,210
 
Notes:
     
(1) Amounts shown are estimated based on the number of vials shipped and list price/vial.
(2) Represents total prescriptions reported to the Debtors and does not include cancellations.
(3) Represents paid vials shipped to the Debtors' customers, which include specialty pharmacies and distributors.
(4) Data for the months of August, September, and October 2012 is used in the absence of complete data for the three months ending December 31, 2012.
 
 
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