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
From August 4, 2012 to August 31, 2012

Debtors' Address:
2280 Schuetz Road
 
St. Louis, Missouri 63146
 
Telephone:  (314) 645-6000
     
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     
 
September 21, 2012
Thomas S. McHugh
 
Chief Financial Officer
 
K-V Pharmaceutical Company
 
 
 
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In re
K-V DISCOVERY SOLUTIONS, INC., et al.
 
Case No.
12-13346
         
 
Debtors.
 
Reporting Period:
8/4/12 - 8/31/12 1
         
     
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 (CON'T)
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 Professional
MOR-6
x
 
Post Petition Status of Secured Notes, Leases Payable
MOR-6
x
 
Debtor Questionnaire
MOR-7
x
 
Makena® Performance Metrics
 
x
 

 

1
Each of the Debtors filed a voluntary petition for relief under chapter 11 of title 11 of the U.S. Bankruptcy Code on August 4, 2012.  Unless otherwise noted herein, all information presented in this MOR is for the post-petition period of August 4, 2012 through August 31, 2012.
 
 
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NOTES TO MONTHLY OPERATING REPORT
 
The Monthly Operating Report 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
DrugTech 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 accounting principles generally accepted in the United States ("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 its 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
 
K-V Discovery Solutions, Inc
    12-13346       0  
K-V Pharmaceutical Company
    12-13347     $ 469  
Ther-Rx Corporation
    12-13348       4,715  
K-V Generic Pharmaceuticals, Inc
    12-13349       0  
Zeratech Technologies USA, Inc
    12-13350       0  
DrugTech Corporation
    12-13351       0  
K-V Solutions USA Inc
    12-13352       0  
FP1096, Inc
    12-13353       0  
Total Cash Receipts
    $ 5,184  
 
Debtor
 
Case Number
   
Cash 2 Disbursements
 
K-V Discovery Solutions, Inc
    12-13346       0  
K-V Pharmaceutical Company
    12-13347     $ (6,649 )
Ther-Rx Corporation
    12-13348       0  
K-V Generic Pharmaceuticals, Inc
    12-13349       0  
Zeratech Technologies USA, Inc
    12-13350       0  
DrugTech Corporation
    12-13351       0  
K-V Solutions USA Inc
    12-13352       0  
FP1096, Inc
    12-13353       0  
Total Cash Disbursements
    $ (6,649 )


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 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 include $643 of outstanding checks.

 
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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     $ 21,686  
K-V Pharmaceutical Company
    12-13347  
Fifth Third / Nesher Escrow Account
    0383       7,512  
K-V Pharmaceutical Company
    12-13347  
Fifth Third Bank / Operating Account
    9158       7,068  
K-V Pharmaceutical Company
    12-13347  
Fifth Third / PDI Escrow Account
    18766       1,819  
K-V Pharmaceutical Company
    12-13347  
Bank of America / Payroll Account
    6170       961  
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
    04795       2  
DrugTech Corporation
    12-13351  
US Bank / DrugTech Custody Account
    3256       4  
DrugTech Corporation
    12-13351  
Wells Fargo Bank/ DrugTech Operating Acct
    6823       1  
                      $ 39,278  
 
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 $643 of outstanding checks.
5 –
The Debtors opened this bank account post-petition on August 28, 2012 in connection with a request for adequate protection by one of the Debtors’ utility service providers.
6 –
This account was inadvertently identified in the Debtors’ motion to approve continued use of their cash management system as ending in 4187.
 
 
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MOR-2:
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited; Dollars in thousands)

   
For the Month Ended August 31, 2012 1
 
Net revenues
  $ 4,190  
Cost of sales
    260  
Gross profit
    3,930  
         
Research and development
    877  
Selling and administrative
    7,140  
Operating expenses
    8,017  
Operating loss
    (4,087 )
         
Interest, net and other
    219  
Reorganization items, net
    2,217  
Total other expense, net
    2,436  
         
Loss from continuing operations before income taxes
    (6,523 )
Income tax provision
    986  
Net loss from continuing operations
  $ (7,509 )
 
 
Notes
1 -
The Debtors prepare their income statement on an accrual basis.  Attempting to pro-rate accruals for the three-day prepetition period (August 1, 2012 through August 3, 2012) would be burdensome and time-consuming, and such efforts would produce potentially inaccurate or misleading financial information.  Accordingly, the Debtors’ income statement, as set forth in this MOR, reflects the results of the Debtors’ operations for the entire month of August.

 
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MOR-3:
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in thousands)
 
   
As of
August 31,
2012
 
ASSETS
     
Current Assets:
     
Cash and cash equivalents
  $ 29,079  
Restricted cash
    9,556  
Receivables, net
    7,572  
Inventories, net
    4,340  
Other current assets
    4,334  
Income taxes receivable
    460  
Total Current Assets
    55,341  
Property and equipment, less accumulated depreciation
    1,989  
Intangible assets, net
    122,996  
Other assets
    16,324  
Total Assets
  $ 196,650  
         
LIABILITIES
       
LIABILITIES NOT SUBJECT TO COMPROMISE:
       
Current Liabilities:
       
Accounts payable
  $ 1,168  
Accrued expenses
    17,465  
Other current liabilities
    9,330  
Total Current liabilities
    27,963  
Total Liabilities not subject to compromise
    27,963  
Total liabilities subject to compromise
    670,392  
Total Liabilities
    698,355  
         
SHAREHOLDERS' DEFICIT
       
Preferred Stock
    0  
Class A Common Stock
    643  
Class B Common Stock
    112  
Additional paid-in capital
    205,653  
Accumulated deficit
    (650,704 )
Less: Treasury stock
    (57,409 )
Total Shareholders' Deficit
    (501,404 )
Total Liabilities and Shareholders' Deficit
  $ 196,650  

 
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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     $ 453     $ (453 )   $ 0  
FICA-Employee
    0       121       (121 )     0  
FICA-Employer
    0       161       (161 )     0  
Total Federal Taxes
  $ 0     $ 735     $ (735 )   $ 0  
                                 
State and Local
                               
Withholding
  $ 0     $ 111     $ (111 )   $ 0  
Sales Tax
    9       0       0       9  
Unemployment
    0       0       0       0  
Real Property
    3       1       0       4  
Personal Property
    52       0       0       52  
Franchise Tax
    (20 )     20       (36 )     (36 )
Total State and Local
  $ 44     $ 132     $ (147 )   $ 29  
Total Taxes
  $ 44     $ 867     $ (882 )   $ 29  


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
  $ 1,168  
31+ days old
    0  
Total Vendor Accounts Payable Post-petition
  $ 1,168  

Notes
1 -
The Debtors believe they are paying all undisputed post-petition obligations according to terms.  Aged amounts represent certain items which have been paid subsequent to the end of the reporting period.

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

Description
 
Amount
 
0 - 30 days old
  $ 8,058  
31 - 60 days old
    270  
61 - 90 days old
    48  
90+ days old
    888  
Total Customer Accounts Receivable
  $ 9,264  
Customer Allowances
    (1,692 )
Total Accounts Receivable
  $ 7,572  

 
- 10 -

 
 
MOR-6:
PAYMENTS TO INSIDERS AND PROFESSIONALS
(Dollars in thousands)
 
INSIDERS
 
         
Name
Category
 
Amount
 
         
Christmas, Patrick
Salary
  $ 17  
Christmas, Patrick
Travel
    2  
Divis, Gregory
Salary
    27  
McHugh, Thomas
Salary
    18  
McHugh, Thomas
Travel
    2  
Total Insiders
    $ 66  
 
 
PROFESSIONALS
 
       
Name
 
Amount
 
Houlihan Lokey Capital, Inc
  $ 273  
         
Total Professionals
  $ 273  

 
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MOR-6 (CON’T):

POST-PETITION STATUS OF SECURED NOTES, LEASES PAYABLE
AND ADEQUATE PROTECTION PAYMENTS 1
(Dollars in thousands)
 
Name of Creditor
 
Scheduled Monthly
Payment Due
   
Amount Paid
During Month
 
Building lease payable
  $ 38     $ 38  
Utility deposit
    N/A       2  
                 
Total Payments
    $ 40  

 
Notes
1 -
The Debtors’ schedule of lease payments, as set forth in the MOR, only reflects payments made pursuant to the Debtors’ real property lease.  Immaterial leases of personal property are not reflected in the financial statements that comprise part of this MOR.

 
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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.
12
 
Pursuant to an order entered by the Bankruptcy Court, the Debtors were authorized to pay certain pre-petition taxes and other fees.
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  
8/31/2012 (4)
  $ 13,938       2,939       4,041  
 
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 June, July, and August 2012 is used in the absence of complete data for three months ending September 30, 2012.


 
 
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