FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002
[ ] 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 0-16109
A.P. PHARMA, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2875566
- ------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
123 Saginaw Drive, Redwood City, CA 94063
------------------------------------------
(Address of principal executive offices)
(650) 366-2626
----------------------------------------------------
(Registrant's telephone number, including area code)
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 X No
--- ---
At July 31, 2002, the number of outstanding shares of the Company's
common stock, par value $.01, was 20,408,702.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
Condensed Consolidated Statements of Operations
for the three months and six months ended June 30, 2002
and 2001
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2002 and 2001
Notes to Condensed Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 6. Exhibit and Reports on Form 8-K
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Signatures
Exhibit Index
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. Financial Statements (unaudited) (in thousands):
------------------------------------------------
A.P. PHARMA, INC.
- -----------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
- ----------------------------------------------------------------
June 30, 2002 December 31, 2001
------------- -----------------
(1)
ASSETS
Current assets:
Cash and cash equivalents $ 1,844 $ 3,618
Marketable securities 14,482 15,876
Trade accounts receivable, net 354 338
Receivables for royalties and
license fees 1,117 1,130
Inventory 55 61
Prepaid expenses and other 628 601
------ ------
Total current assets 18,480 21,624
Property and equipment, net 1,782 1,668
Other long-term assets 203 215
------ ------
Total assets $ 20,465 $ 23,507
====== ======
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 341 $ 347
Accrued expenses 1,050 1,409
Accrued disposition costs 1,284 1,479
Deferred revenue 265 315
------ ------
Total current liabilities 2,940 3,550
Deferred revenue - long-term 835 785
------ ------
Shareholders' equity:
Common stock 86,537 86,391
Accumulated deficit (69,955) (67,456)
Accumulated other comprehensive
income 108 237
------ ------
Total shareholders' equity 16,690 19,172
------ ------
Total liabilities and shareholders'
equity $ 20,465 $ 23,507
====== ======
(1) Information derived from audited financial statements included
in the Company's Form 10-K for the year ended December 31, 2001.
See accompanying notes.
A.P. PHARMA, INC.
- -----------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS,
- --------------------------------------------------------------------------
EXCEPT, PER SHARE DATA)
- -----------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------- ------------- ------------- -------------
Royalties $ 930 $ 695 $ 1,833 $ 1,343
Contract revenues 38 4 86 31
Product revenues 281 301 567 597
------ ------ ------ ------
Total revenues 1,249 1,000 2,486 1,971
Costs and expenses:
Cost of product revenues 108 113 222 207
Research & development 1,872 1,544 3,369 2,922
Selling & marketing 118 114 244 239
General & administration 819 751 1,529 1,439
------ ------ ------ ------
Total Costs and expenses 2,917 2,522 5,364 4,807
Operating loss (1,668) (1,522) (2,878) (2,836)
Interest income 178 275 364 623
Other (expense) income, net (3) 75 15 78
------- ------ ------ ------
Loss from continuing operations (1,493) (1,172) (2,499) (2,135)
Income from discontinued
operations -- (25) -- (184)
------ ------ ------ ------
Net loss $(1,493) $(1,197) $(2,499) $(2,319)
====== ====== ====== ======
Basic and diluted loss per
common share:
Continuing operations $ (0.07) $ (0.06) $ (0.12) $ (0.11)
Net loss $ (0.07) $ (0.06) $ (0.12) $ (0.11)
Weighted average common shares
outstanding-basic 20,403 20,278 20,381 20,249
====== ====== ====== ======
See accompanying notes.
A.P. PHARMA, INC.
- -----------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN
- ---------------------------------------------------------------
THOUSANDS)
- ----------
For the six months ended June 30,
---------------------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net loss $(2,499) $(2,319)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Gain on sale of marketable
securities (21) (81)
Depreciation and amortization 215 195
Provision for doubtful accounts
and note receivable 43 --
Amortization of deferred revenue -- (127)
Stock and stock option
compensation awards to non-
employees 61 137
Restricted stock awards 33 80
Amortization of premium/discount
and accretion of marketable
securities 52 125
Loss on retirements of fixed
assets 2 --
Changes in operating assets and
liabilities:
Accounts receivable (133) 128
Receivables for royalties,
license fees and R&D fees 129 301
Inventory 6 (9)
Advances to employees -- 34
Prepaid expenses and other (70) 66
Other long-term assets 12 --
Accounts payable (5) 338
Accrued expenses (359) (330)
Accrued disposition costs (195) (928)
Income taxes payable -- (18)
------ ------
Net cash used in operating activities (2,729) (2,408)
------ ------
Cash flows from investing activities:
Purchases of property and equipment (331) (127)
Purchases of marketable securities (7,003) (10,769)
Maturities and sales of marketable
securities 8,237 10,938
------ ------
Net cash provided by investing
activities 903 42
------ ------
Cash flows from financing activities:
Proceeds from issuance of shares
under the Employee Stock Purchase
Plan 52 29
------ ------
Net cash provided by financing
activities 52 29
------ ------
Net decrease in cash and cash
equivalents (1,774) (2,337)
Cash and cash equivalents, beginning
of the period 3,618 6,493
------ ------
Cash and cash equivalents, end
of the period $ 1,844 $ 4,156
====== ======
See accompanying notes.
A.P. PHARMA, INC.
- -----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
JUNE 30, 2002 AND 2001 (UNAUDITED)
- ----------------------------------
(1) Summary of Significant Accounting Policies
Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in
the United States for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the
opinion of management, all adjustments (consisting only of
adjustments of a normal recurring nature) considered necessary
for a fair presentation have been included. Operating results
for the three and six month periods ended June 30, 2002 and
2001 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. The condensed
consolidated balance sheet as of December 31, 2001 has been
derived from the audited financial statements as of that date.
For further information, refer to the consolidated financial
statements and notes thereto included in our Annual Report on
Form 10-K for the year ended December 31, 2001.
The condensed consolidated financial statements include the
financial statements of A.P. Pharma (the Company or APP) and
its subsidiary, APS Analytical Standards, Inc. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Certain reclassifications have been made to the prior period
financial statements to conform with the presentation in 2002.
Use of Estimates
----------------
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in our financial statements and
accompanying notes. Estimates were made relating to useful
lives of fixed assets, valuation allowances, impairment of
assets and accruals. Actual results could differ materially
from those estimates. The items in our financial statements
requiring significant estimates and judgments are as follows:
Revenue Recognition
-------------------
Product revenues are recorded upon shipment of products when
four basic criteria are met: 1) persuasive evidence of an
arrangement exists, 2) delivery has occurred or services have
been rendered, 3) the fee is fixed and determinable, and 4)
collectibility is reasonably assured. Determination of
criteria 3 and 4 are based on management's judgments regarding
the fixed nature of the fees charged for products delivered and
the collectibility of those fees. Should changes in conditions
cause management to determine these criteria are not met for
certain future transactions, revenue recognized for any
reporting period could be adversely affected.
The Company has licensing agreements that generally provide for
the Company to receive periodic minimum payments, royalties,
milestone payments and/or non-refundable license fees. These
licensing agreements typically require a non-refundable license
fee and allow partners to sell the Company's proprietary
products in a defined field or territory for a defined period.
The license agreements provide for APP to earn future revenue
through royalty payments. These non-refundable license fees
are initially reported as deferred revenues and recognized as
contract revenues over the estimated life of the product to
which they relate as long as the Company has continuing
involvement with licensees and until the related product is
discontinued. Revenue recognized from deferred license fees is
classified as contract revenues in the accompanying condensed
consolidated statements of operations. License fees received
in connection with arrangements where the Company has no
continuing involvement are recognized as revenue when the
amounts are received or when collectibility is assured,
whichever is earlier.
Contractually required minimum royalties are recorded ratably
throughout the contractual period. Royalties in excess of
minimum royalties are recognized as earned when the related
product is shipped to the customer by the Company's licensees
based on information received by the Company from its
licensees.
A milestone payment is a payment made by a third party or
corporate partner to the Company upon the achievement of a
predetermined milestone as defined in a legally binding
contract. Milestone payments are recognized as revenue when
the milestone event has occurred and the Company has completed
all milestone related services such that the milestone payment
is currently due and is non-refundable.
Contract revenues from research and development arrangements
are recognized as the related research and development costs
are incurred.
Cash Equivalents and Short-term Investments
- -------------------------------------------
The Company considers all short-term investments in debt
securities which have original maturities of less than three
months at date of purchase to be cash equivalents. Investments
which have original maturities longer than three months are
classified as marketable securities in the accompanying balance
sheets.
Recent Accounting Pronouncements
--------------------------------
In July 2001, the FASB issued FAS 141, "Business Combinations"
(FAS 141). FAS 141 supersedes APB 16, "Business Combinations,"
and FAS 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises." FAS 141 requires the purchase method
of accounting for all business combinations initiated after
June 30, 2001 and eliminates the pooling-of-interests method.
FAS 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising
from business combinations completed after June 30, 2001.
In July 2001, the FASB issued FAS 142, "Goodwill and Other
Intangible Assets" (FAS 142). FAS 142 supersedes APB 17,
"Intangible Assets," and requires the discontinuance of
goodwill amortization. In addition, FAS 142 includes
provisions regarding the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful
lives of existing recognized intangibles, reclassification of
certain intangibles out of previously reported goodwill and the
testing for impairment of existing goodwill and other
intangibles out of previously reported goodwill and other
intangibles. FAS 142 is required to be applied for fiscal
years beginning after December 15, 2001, with certain early
adoption permitted. Adoption of this statement did not have a
material effect on the Company's financial condition or results
of operations.
In August 2001, the FASB issued FAS 143, "Accounting for Asset
Retirement Obligations" (FAS 143). FAS 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
retirement costs. Adoption of this statement did not have a
material effect on the Company's financial condition or results
of operations.
In October 2001, the FASB issued FAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144), which
supersedes FAS 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" (FAS
121). FAS 144 addresses financial accounting and reporting for
the impairmment of long-lived assets and for long-lived assets
to be disposed of. However, FAS 144 retains the fundamental
provisions of FAS 121 for: 1) recognition and measurement of
the impairment of long-lived assets to be held and used; and 2)
measurement of long-lived assets to be disposed of by sale.
FAS 144 is effective for fiscal years beginning after December
15, 2001. Adoption of this statement did not have a material
effect on the Company's financial condition or results of
operations.
(2) Net Loss Per Share Information
------------------------------
Basic loss per share is calculated using the weighted average
number of common shares outstanding. Because the Company is in
a net loss position for the three and six months ended June 30,
2002 and 2001, diluted earnings per share is also calculated
using the weighted average number of common shares outstanding
and excludes the effects of options, warrants and convertible
securities which are antidilutive.
(3) Comprehensive Loss
------------------
Comprehensive losses for the three and six months ended June
30, 2002 and June 30, 2001 consist of the following (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------- ------- ------- -------
Net loss $(1,493) $(1,197) $(2,499) $(2,319)
Unrealized holding (losses)
gains arising during the
period (6) (59) (130) 66
------ ------ ------ ------
Comprehensive loss $(1,499) $(1,256) $(2,629) $(2,253)
====== ====== ====== ======
(4) Inventory
---------
The major components of inventory are as follows (in
thousands):
June 30, 2002 December 31, 2001
-------------- -----------------
Raw materials $ 26 $ 28
Finished goods 29 33
--- ---
Total inventory $ 55 $ 61
=== ===
(5) Discontinued Operations
-----------------------
On July 25, 2000, the Company completed the sale of certain
technology rights for topical pharmaceuticals and its
cosmeceutical product lines and other assets ("cosmeceutical
and toiletry business") to R.P. Scherer Corporation, a
subsidiary of Cardinal Health, Inc. The Company received $25
million on closing and is entitled to receive further earnout
amounts for the subsequent three years, the amounts of which
are dependent on the performance of the business sold. In
2001, the Company received an additional $3.6 million due to
the performance of the business sold. The cosmeceutical and
toiletry business is reported as a discontinued operation for
all periods presented in the accompanying Consolidated
Statement of Operations.
Basic and diluted loss per share from discontinued operations
was ($0.00) for the three and six months ended June 30, 2002.
Basic and diluted loss per share from discontinued operations
was ($0.00) and ($0.01) for the three and six months ended June
30, 2001, respectively.
ITEM 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (all dollar amounts rounded to the
------------------------------------------------------------
nearest thousand)
-----------------
Except for statements of historical fact, the statements herein are
forward-looking and are subject to a number of risks and
uncertainties that could cause actual results to differ materially
from the statements made. These include, among others, uncertainty
associated with timely development, approval, launch and acceptance
of new products, establishment of new corporate alliances, progress
in research and development programs, and other risks described
below or identified from time to time in the Company's Securities
and Exchange Commission filings.
The preparation of the Company's financial statements in conformity
with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the amounts reported in our financial statements and accompanying
notes. Estimates were made relating to useful lives of fixed
assets, valuation allowances, impairment of assets and accruals.
Actual results could differ materially from those estimates. The
items in the Company's financial statements requiring significant
estimates and judgments are as follows:
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
- -------------------
Product revenues are recorded upon shipment of products when four
basic criteria are met: 1) persuasive evidence of an arrangement
exists, 2) delivery has occurred or services have been rendered, 3)
the fee is fixed and determinable, and 4) collectibility is
reasonably assured. Determination of criteria 3 and 4 are based on
management's judgments regarding the fixed nature of the fees
charged for products delivered and the collectibility of those fees.
Should changes in conditions cause management to determine these
criteria are not met for certain future transactions, revenue
recognized for any reporting period could be adversely affected.
The Company has licensing agreements that generally provide for the
Company to receive periodic minimum payments, royalties, milestone
payments and/or non-refundable license fees. These licensing
agreements typically require a non-refundable license fee and allow
partners to sell the Company's proprietary products in a defined
field or territory for a defined period. The license agreements
provide for APP to earn future revenue through royalty payments.
These non-refundable license fees are initially reported as deferred
revenues and recognized as revenues over the estimated life of the
product to which they relate as the Company has continuing
involvement with licensees until the related product is
discontinued. Revenue recognized from deferred license fees is
classified as contract revenues in the accompanying condensed
consolidated statements of operations. License fees received in
connection with arrangements where the Company has no continuing
involvement are recognized as revenue when the amounts are received
or when collectibility is assured, whichever is earlier.
Contractually required minimum royalties are recorded ratably
throughout the contractual period. Royalties in excess of minimum
royalties are recognized as earned when the related product is
shipped to the customer by the Company's licensees based on
information received by the Company from its licensees.
A milestone payment is a payment made by a third party or corporate
partner to the Company upon the achievement of a predetermined
milestone as defined in a legally binding contract. Milestone
payments are recognized as revenue when the milestone event has
occurred and the Company has completed all milestone related
services such that the milestone payment is currently due and is
non-refundable.
Contract revenues from research and development arrangements are
recognized as the related research and development costs are
incurred.
Results of Operations for the Three Months Ended June 30, 2002 and
- -------------------------------------------------------------------
2001
- ----
The Company's revenues are derived principally from royalties,
license fees, contract revenues and product sales. Under strategic
alliance arrangements entered into with certain corporations, APP
can receive non-refundable upfront fees, future milestone payments
and royalties based on third party product sales.
Royalties for the second quarter of 2002 increased by 34% or
$235,000 to $930,000 from $695,000 in the corresponding quarter of
the prior year. This increase was due mainly to increased sales of
Retin-A Micro(R), a prescription acne treatment which is marketed by
Ortho Neutrogena, following the marketing clearance of a low-dose
product line extension in the second quarter of 2002, and increased
sales of Carac(TM) for the treatment of actinic keratoses by the
Company's marketing partner Dermik Laboratories, an Aventis company.
Product revenues for the second quarter of 2002 relating to sales of
analytical standards products decreased by $20,000 or 7% to $281,000
from $301,000 in the second quarter of the prior year.
Gross profit margin on sales of analytical standards for the second
quarter of 2002 was essentially flat compared with the corresponding
quarter of the prior year.
Research and development expense for the second quarter of 2002
increased by $328,000 to $1,872,000 due mainly to increased
headcount and related expenses as the Company undertook a variety of
new product development activities and conducted clinical trials on
the Company's first product candidate, APF112, for the treatment of
post-surgical pain. The Company plans to initiate human clinical
studies in the second half of 2002 for APF112, and in July 2002
submitted to the Food and Drug Administration (FDA) the protocol for
Phase II clinical studies. The Phase II clinical studies may be
subject to delay as questions or comments to which the Company must
respond may arise in the normal course of the FDA review. Research
and development expense is expected to increase in 2002 as clinical
trials for the Company's lead product candidate, APF112, progress.
Selling and marketing expense for the second quarter of 2002
increased by $4,000 or 4% to $118,000. Selling and marketing
expense is expected to remain essentially unchanged in 2002.
General and administrative expense for the second quarter of 2002
increased by $68,000 or 9% from $751,000 to $819,000, due mainly to
increased investor relations activities and the addition of the
business development function in May 2001. General and
administrative expense is expected to increase only moderately in
2002, primarily due to increased investor relations activities.
Interest income for the second quarter of 2002 decreased by $97,000
or 35% to $178,000 from $275,000 due to lower interest rates earned
on lower average cash balances.
Results of Operations for the Six Months Ended June 30, 2002 and
- ----------------------------------------------------------------
2001
- ----
Royalties for the six months ended June 30, 2002 of $1,833,000
increased by $490,000 or 36% over the corresponding period of the
prior year. This increase was due primarily to increased sales of
Carac(TM) by Dermik Laboratories, an Aventis Company, and the launch
of a new product line extension of Retin-A Micro(R) by Ortho
Neutrogena, a Johnson & Johnson company.
Product revenues for the six months ended June 30, 2002 decreased by
$30,000 or 5% to $567,000.
Research and development expense increased by $447,000 or 15% to
$3,369,000 due mainly to increased headcount and related expenses as
the Company initiated clinical trials for its first product
candidate, APF112, for the treatment of post-surgical pain, and
undertook a variety of new product development activities. The
Company plans to initiate human clinical studies in the second half
of 2002 for APF112, and in July 2002 submitted to the Food and Drug
Administration (FDA) the protocol for Phase II clinical studies.
The Phase II clinical studies may be subject to delay as questions
or comments to which the Company must respond may arise in the
normal course of the FDA review. Research and development expense
is expected to increase in 2002 as clinical trials for the Company's
lead product candidate, APF112, progress.
Selling and marketing expense for the six months ended June 30, 2002
of $244,000 increased by $5,000 or 2% from $239,000 in the
corresponding period of the prior year. Selling and marketing
expense is expected to remain essentially unchanged in 2002.
General and administrative expense for the first six months of 2002
increased by $90,000 or 6% to $1,529,000 due mainly to increased
investor relations activities and the addition of the business
development function in May 2001. General and administrative
expense is expected to increased moderately in 2002, primarily due
to increased investor relations activities.
Interest income for the first six months of 2002 decreased by
$259,000 or 42% to $364,000 due to lower interest rates earned on
lower average cash balances.
Capital Resources and Liquidity
- -------------------------------
Total assets as of June 30, 2002 were $20,465,000 compared with
$23,507,000 at December 31, 2001. Cash, cash equivalents and
marketable securities decreased by $3,168,000 to $16,326,000 at June
30, 2002 from $19,494,000 at December 31, 2001.
Net cash used in operating activities for the six months ended June
30, 2002 and 2001 was $2,729,000 and $2,408,000, respectively. The
decrease in net cash used in operating activities was due to lower
payments of accrued disposition costs. In the first three months of
the prior year, cash used in operating activities included severance
and retention payments to employees that were part of the
cosmeceutical and toiletry business that was sold to RP Scherer in
July 2000.
The Company has financed its operations, including technology and
product research and development, from royalties on Retin-A Micro
and Carac, proceeds from the sale of the cosmeceutical and toiletry
business to RP Scherer, the sales of analytical standards products,
interest earned on short-term investments and research and
development fees received from corporate collaborators.
The Company's existing cash and cash equivalents, marketable
securities, collections of trade accounts receivable, together with
interest income and other revenue-producing activities including
royalties, license and option fees and research and development
fees, are expected to be sufficient to meet the Company's cash needs
for at least two years, assuming no changes to business plans.
The Company's future capital requirements will depend on numerous
factors including, among others, royalties from sales of products of
third party licensees; the Company's ability to enter into
collaborative research and development and licensing agreements;
progress of product candidates in preclinical and clinical trials;
investment in new research and development programs; time required
to gain regulatory approvals; resources that the Company devotes to
self-funded products; the Company's ability to obtain and retain
funding from third parties under collaborative agreements; and the
costs of defending or prosecuting any patent opposition or
litigation necessary to protect the Company's proprietary
technology.
Recent Accounting Pronouncements
- --------------------------------
In July 2001, the FASB issued FAS 141, "Business Combinations" (FAS
141). FAS 141 supersedes APB 16, "Business Combinations," and FAS
38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises." FAS 141 requires the purchase method of accounting
for all business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. FAS 141 also includes
guidance on the initial recognition and measurement of goodwill and
other intangible assets arising from business combinations completed
after June 30, 2001.
In July 2001, the FASB issued FAS 142, "Goodwill and Other
Intangible Assets" (FAS 142). FAS 142 supersedes APB 17,
"Intangible Assets," and requires the discontinuance of goodwill
amortization. In addition, FAS 142 includes provisions regarding
the reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of
previously reported goodwill and the testing for impairment of
existing goodwill and other intangibles out of previously reported
goodwill and other intangibles. FAS 142 is required to be applied
for fiscal years beginning after December 15, 2001, with certain
early adoption permitted. Adoption of this statement did not have a
material effect on the Company's financial condition or results of
operations.
In August 2001, the FASB issued FAS 143, "Accounting for Asset
Retirement Obligations" (FAS 143). FAS 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
retirement costs. Adoption of this statement did not have a
material effect on the Company's financial condition or results of
operations.
In October 2001, the FASB issued FAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144), which
supersedes FAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (FAS 121). FAS
144 addresses financial accounting and reporting for the impairmment
of long-lived assets and for long-lived assets to be disposed of.
However, FAS 144 retains the fundamental provisions of FAS 121 for:
1) recognition and measurement of the impairment of long-lived
assets to be held and used; and 2) measurement of long-lived assets
to be disposed of by sale. FAS 144 is effective for fiscal years
beginning after December 15, 2001. Adoption of this statement did
not have a material effect on the Company's financial condition or
results of operations.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
---------------------------------------------------------
Since December 31, 2001, there have been no material changes in the
Company's market risk exposure.
PART II. OTHER INFORMATION
-----------------
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's annual shareholder's meeting was held on May 22, 2002,
at which the following proposals were approved:
Proposal I: Election for the following directors:
Votes For Votes Withheld
--------- --------------
Paul Goddard
Chairman of the Board 18,073,194 823,912
Stephen Drury 18,074,224 822,882
Michael O'Connell 18,012,893 884,213
Peter Riepenhausen 18,035,874 861,232
Toby Rosenblatt 18,034,189 862,917
Gregory Turnbull 18,042,424 854,682
Dennis Winger 18,040,084 857,022
Proposal II: To approve adoption of the Company's 2002 Equity
Incentive Plan.
Votes For Votes Against Abstain
--------- ------------- -------
15,583,772 3,237,255 76,079
ITEM 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
A.P. PHARMA, INC.
Date: August 8, 2002 By: /S/ Michael O'Connell
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Michael O'Connell
President and Chief
Executive Officer
Date: August 8, 2002 By: /S/ Gordon Sangster
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Gordon Sangster
Chief Financial Officer
EXHIBIT INDEX
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002