UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
----- ACT OF 1934
For the nine month period ended April 30, 1998
--------------
----- TRANSITION REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file number 000-23399
FLEMINGTON PHARMACEUTICAL CORPORATION
_______________________________________________________________
(Exact name of small business issuer as specified in its charter)
New Jersey 22-2407152
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
43 Emery Avenue
Flemington, New Jersey
_______________________________________
(Address of Principal Executive Offices)
08822
_______
(Zip Code)
(908)782-3431
_______________________
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes___No__
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 3,877,390 shares of common
stock outstanding as of April 30,1998.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes No X
____ ____
PART I
FINANCIAL INFORMATION
FLEMINGTON PHARMACEUTICAL CORPORATION
BALANCE SHEETS
April 30, July 31,
1998 1997
_________ ________
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and equivalents $2,486,000 $ 217,000
Accounts receivable - trade, less allowance
for doubtful accounts of $40,000 79,000 238,000
7% demand note receivable 60,000 -
Costs and estimated earnings in excess of
billings on uncompleted contracts 14,000 12,000
Prepaid expenses and other current assets 45,000 6,000
__________ ___________
Total Current Assets 2,684,000 473,000
FURNITURE, FIXTURES, AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION 25,000 13,000
DEFERRED OFFERING COSTS - 77,000
DEPOSITS 2,000 12,000
__________ ___________
$2,711,000 $ 575,000
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable-trade $ 82,000 $ 216,000
Billings in excess of costs and estimated
earnings on uncompleted contracts 17,000 277,000
Accrued expenses and other current
liabilities 15,000 19,000
___________ __________
Total Current Liabilities 114,000 512,000
7% CONVERTIBLE NOTES PAYABLE - 300,000
___________ __________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.01 per value:
Authorized 1,000,000 shares, none issued
Common stock, $.01 par value:
Authorized - 10,000,000 shares
Issued and outstanding - 3,877,390 shares
in 1998 and 2,597,390 shares in 1997 39,000 26,000
Additional paid-in capital 4,197,000 897,000
Accumulated Deficit (1,639,000) (1,160,000)
__________ __________
Total Stockholders' Equity (Deficiency) 2,597,000 (237,000)
__________ __________
$2,711,000 $ 575,000
========== ==========
See accompanying notes to financial statements.
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
April 30, April 30,
__________________ __________________
1998 1997 1998 1997
____ ____ ____ ____
REVENUES:
Operating revenues $ 61,000 $159,000 $645,000 $589,000
Interest Income 31,000 1,000 65,000 17,000
_________ ________ ________ ________
92,000 160,000 710,000 606,000
_________ ________ ________ ________
COST AND EXPENSES:
Operating expenses 39,000 87,000 400,000 395,000
Product development 56,000 24,000 228,000 36,000
Selling, general and
administrative expenses 163,000 124,000 561,000 376,000
_________ ________ _________ ________
258,000 235,000 1,189,000 807,000
_________ ________ _________ ________
NET LOSS $ 166,000 $ 75,000 $ 479,000 $ 201,000
========= ======== ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,877,390 2,597,390 3,331,309 2,597,390
========= ========= ========= =========
BASIC AND DILUTED LOSS PER COMMON
SHARE $ .04 $ .03 $ .14 $ .08
========= ========= ========= =========
See accompanying notes to financial statements.
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
April 30,
_______________________
1998 1997
__________ __________
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (479,000) $(201,000)
Adjustments to reconcile net income
(loss) to net cash flows from operating
activities:
Provisions for losses on accounts
receivable - 20,000
Depreciation 7,000 6,000
Changes in operating assets and liabilities:
Accounts receivable 159,000 167,000
Note receivable (60,000) -
Deposits 10,000 9,000
Prepaid expenses and other current assets (39,000) 9,000
Costs and estimated earnings in excess of
billings on uncompleted contracts (2,000) 18,000
Accounts payable - trade (134,000) (81,000)
Billings in excess of costs and estimated
earnings on uncompleted contracts (260,000) 60,000
Accrued expenses and other current
liabilities (4,000) (20,000)
_________ ___________
Net cash flows from operating activities (802,000) (13,000)
_________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (19,000) (10,000)
_________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES -
Initial public offering 3,090,000 (39,000)
_________ ___________
NET CHANGE IN CASH 2,269,000 (62,000)
CASH, BEGINNING OF PERIOD 217,000 115,000
_________ ___________
CASH, END OF PERIOD $2,486,000 $ 53,000
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 7,000 $ -
========== ===========
Income taxes paid $ - $ -
========== ===========
NON CASH FINANCING ACTIVITIES:
Conversion of Stockholder Note
Payable into Common Stock $ 300,000 $ -
========== ===========
Reclassification of deferred offering
costs into paid in capital $ 77,000 $ -
========== ===========
See accompanying notes to financial statements.
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
----------------------------------------------------------
(Unaudited)
Stockholders'
Common Stock Paid-in Accumulated Equity
Shares Par Value Capital Deficit (Deficiency)
__________ __________ _______ ___________ ____________
BALANCE, JULY 31,
1997 2,597,390 $ 26,000 $ 897,000 $(1,160,000) $ (237,000)
NINE MONTHS ENDED
APRIL 30, 1998
Issuance of
Common Stock:
In Connection with
Initial Public
Offering, net of
offering costs 680,000 7,000 3,006,000 - 3,013,000
Upon Conversion of
Stockholder Note 600,000 6,000 294,000 - 300,000
Net Loss - - (479,000) (479,000)
__________ _______ __________ ___________ __________
BALANCE, April 30,
1998 3,877,390 $ 39,000 $4,197,000 $(1,639,000) $2,597,000
========== ======== ========== =========== ==========
See accompanying notes to financial statements.
FLEMINGTON PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - Basis of Presentation:
The financial statements presented herein are unaudited. In the opinion of
management, all adjustments, which include only normal recurring adjustments
necessary to present fairly the financial position, results of operations and
cash flows for all periods presented, have been made in the interim
statements. Results of operations for interim periods are not necessarily
indicative of the operating results for a full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. The financial statements in this report should be read
in conjunction with the financial statements and notes thereto included in
the Registration Statement of Flemington Pharmaceutical Corporation (the
"Company"), which became effective on November 19, 1997. on Form SB-2
(File No. 333-33201), as amended.
Note 2 - Shareholders' equity:
A. Initial Public Offering - In November 1997, the Company
successfully closed an offering of its securities ["Public Offering" or
"Offering"]. The Offering provided for the sale of 675,000 units at a per
unit price of $5.90, each unit consisting of one share of common stock, par
value $.01 per share and one redeemable Class A common stock purchase warrant
with an exercise price of $5.80 per share, subject to adjustment. As part of
the Offering, the underwriter exercised part of its over allotment option to
purchase an additional 5,000 units. As a result of the Offering, the Company
received proceeds, net of offering costs and underwriting discounts, of
approximately $3,013,000.
B. Bridge Financing Conversion - In November 1997, upon the consummation
of the Public Offering, two of the Company's officer shareholders converted
a total of $300,000 of the Company's notes payable to them into an aggregate
of 600,000 shares of the Company's common stock in accordance with the terms
of the notes.
C. Status of Underwriter - Monroe Parker Securities, Inc., the
representative of several underwriters involved in underwriting the Company's
Public Offering ceased market making activities in the Company's securities
in late December 1997, and on January 5, 1998 was the subject of a complaint
issued by the NASD for alleged violations of the NASD's rules in 1994 and
1995. These alleged violations have no connections with the company's
securities.
D. Stock Options - In March 1998, the company granted 50,000 stock options
each to two of the company's officer shareholders at an exercise price of
110% of the closing sale price on that date. Additionally, the company
granted 25,000 stock options each to the company's four directors at an
exercise price of 100% of the closing sale price on that date.
- - In March 1998, the Company amended its consulting agreement with its public
relations consultant, pursuant to which the consultant, to expand the scope
and duration of the services provided, surrendered 200,000 unexercised stock
options, granted to it in June 1997 and having an exercise price of $5.00 in
exchange for 200,000 stock options having an exercise price of $1.00 plus
120,000 stock options having an exercise price of $2.00. These options are
exercisable for a period of 5 years following the date of the grant.
Note 3 - Shareholders' Loans:
In April 1998, the company provided a $60,000 loan to its president and CEO
in exchange for a 7% demand promissory note. Accrued interest is to be paid
quarterly.
Note 4 - Subsequent Events:
In May 1998, the Company entered into 3 year employment contracts with a Vice
President for Research and Development and a Vice President for Product
Development at annual salaries of $125,000 and $100,000 respectively.
In addition, the Company granted each officer 100,000 ten (10) year stock
options with an exercise price of $1.00 as consideration for employment
contracts. One third of the options vest in each of the years 1999, 2000 and
2001.
FLEMINGTON PHARMACEUTICAL CORPORATION
Part I, Item 2. MANAGEMENT DISCUSSION AND ANALYSIS
Flemington Pharmaceutical Corporation, a New Jersey corporation (the
"Company"), is engaged in development of novel application drug delivery
systems for presently marketed prescription and over-the-counter ("OTC")
drugs. Since its inception in 1982, the Company has been a consultant to
the pharmaceutical industry, focusing on product development activities of
various European pharmaceutical companies, and since 1992 has used its
consulting revenues to fund its own product development activities.
Since its inception, substantially all of the Company's revenues have been
derived from consulting activities, primarily in connection with product
development for various pharmaceutical companies. The Company has had a
history of recurring losses from operation through July 31, 1995, and also
for the year ended July 31, 1997 ["Fiscal 1997"], giving rise to an
accumulated deficit at April 30, 1998 of approximately $1,639,000. Although
substantially all of the Company's revenues to date have been derived from
its consulting business, the future growth and profitability of the Company
will be principally dependent upon its ability to successfully develop its
products and to enter into license agreements with drug companies who will
market and distribute the final products. The Company's revenues from
consulting declined during Fiscal 1997 and through the first nine months of
Fiscal 1998. Revenues from consulting may continue to decline in the future
as the Company shifts its emphasis away from product development consulting
for its clients and towards development of its own products.
For the reasons stated above, the Company anticipates that it will incur
substantial operating expenses in connection with the joint development,
testing and approval of its proposed delivery systems, and expects these
expenses will result in continuing and significant operating losses until
such time, if ever, that the Company is able to achieve adequate sales levels.
RESULTS OF OPERATIONS
THE NINE MONTHS ENDED APRIL 1998 [the "1998 Period"] AND APRIL 1997
[the "1997 Period"]
Revenues for the 1998 Period increased approximately $56,000 or 10% to
$645,000 from $589,000 for the 1997 Period. The revenue increase for the
1998 period was primarily attributable to the completion of studies in
progress from July 31, 1997.
Total costs and expenses for the 1998 Period increased approximately $382,000
or 47% to $1,189,000 from $807,000 for the 1997 Period. This increase includes
an approximate $192,000 increase in product development costs and an
approximate $161,000 increase in consulting fees and commissions related to
client studies, business development and financial public relations.
The resulting net loss for the 1998 Period was $479,000 compared to a net
loss of $201,000 for the 1997 Period.
THE THREE MONTHS ENDED APRIL 1998 [the "1998 Period"] AND APRIL 1997
[the "1997 Period"]
Revenues for the 1998 Period decreased approximately $98,000 or 62% to
$61,000 from $159,000 for the 1997 Period. This decrease is attributable to
an approximate $114,000 decrease in client studies revenue offset by an
approximate $16,000 increase in consulting, product sales, license and other
revenues.
Total costs and expenses for the 1998 Period increased approximately $23,000
or 10% to $258,000 from $235,000 for the 1997 Period. This increase includes
an approximate $32,000 increase in product development costs and an
approximate $39,000 increase in selling, general and administrative expenses
offset with an approximate $48,000 decrease in operating expenses associated
with studies and consulting activities.
LIGUIDITY AND CAPITAL RESOURCES
From its inception, the Company's principal sources of capital have been
provided by consulting revenues and private placements, as well as loans and
capital contributions from the Company's principal stockholders. At
April 30, 1998 the Company had working capital of approximately $2,570,000 as
compared to a working capital deficit of $39,000 at July 31, 1997
representing a net increase in working capital of approximately $2,609,000.
The report of the Company's independent auditors on the Company's financial
statements for each of the two years ended July 31, 1997 contains an
explanatory paragraph expressing substantial doubt with respect to the
Company's ability to continue as a going concern without obtaining additional
financing. In November 1997, the Company successfully closed an offering of
its securities ["Public Offering" or "Offering"]. The offering provided for
the sale of 675,000 units, each unit consisting of one share of common stock,
par value $.01 per share and one redeemable Class A common stock purchase
warrant with an exercise price of $5.80 per share, subject to adjustment.
As part of the offering, the underwriter exercised part of its over allotment
option to purchase an additional 5,000 units. As a result of the offering,
the company received proceeds, net of offering costs and underwriting
discounts, of approximately $3,013,000.
Net cash used in operating activities approximated $802,000 for the 1998
Period compared to net cash used in operating activities of approximately
$13,000 for the 1997 Period. Net cash used in operating activities for the
1998 period was primarily attributable to the net loss of $479,000 and the
completion of studies in progress from July 31, 1997. For the 1998 Period,
$19,000 was used for investing activities and $3,090,000 was provided by
financing activities. Therefore, notwithstanding a $479,000 net loss and
$201,000 net loss for the 1998 and 1997 Periods, respectively, total cash
flow for the 1998 period increased approximately $2,748,000 as compared to
$139,000 increase for the 1997 Period. The Company, upon the completion of
the offering in November 1997, incurred salary obligations of $200,000 and
$150,000 per annum to its two executive officers.
Although there can be no assurance, the Company believes that the proceeds
from the Public Offering together with revenues from operations will be
sufficient to satisfy its cash requirements for at least the next eighteen
(18) months. No assurance can be given that future unforeseen events will
not adversely affect the Company's ability to implement its expansion plan,
requiring it to seek additional financing, which may not be available on
terms acceptable to the Company, if at all.
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations during the past three fiscal years. There can be no
assurance that the Company's business will not be affected by inflation in
the future.
YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected many
computer applications could fall or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations. Although the company feels that the Year 2000 issue will not
have a significant impact on its internal operations, there can be no
assurance that the Company's suppliers, creditors, customers and financial
service organizations may not be adversely affected by the Year 2000 issue
and as a result, there can be no assurance as to the impact of the Year 2000
issue on the Company.
PART II
OTHER INFORMATION
Item 1. Legal proceedings
N/A
Item 2. Changes in securities
N/A
Item 3. Defaults upon senior securities
N/A
Item 4. Submission of matters to a vote of security holders
N/A
Item 5. Other information
N/A
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 11. Statement re: computation of earnings per share
for the nine months ended April 30, 1998.
b) Reports on Form 8-K
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: June 12, 1998 /s/ Harry A. Dugger, III
------------------------------------
Harry A. Dugger, III, President
Chief Executive and Financial Officer
Date: June 12, 1998 /s/ John J. Moroney
-------------------------------------
John J. Moroney
Chairman of the Board
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.
Flemington Pharmaceutical Corporation
Date: June 12, 1998 /s/ Harry A. Dugger, III
--------------------------------------
Harry A. Dugger, III, President
(Chief Executive and Financial Officer)
Date: June 12, 1998 /s/ John J. Moroney
--------------------------------------
John J. Moroney, Chairman of the Board
EXHIBIT 11
FLEMINGTON PHARMACEUTICAL CORPORATION
EARNINGS PER SHARE COMPUTATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NINE MONTHS ENDED
APRIL 30, 1998
-----------------
BASIC
------
Weighted average shares outstanding 3,331,309
Dilutive effect of stock performance plans (1) -
_________
Total 3,331,309
Net loss (479)
Earnings per share (.14)
NINE MONTHS ENDED
APRIL 30, 1997
----------------
BASIC
-----
Weighted average shares outstanding 2,597,390
Dilutive effect of stock performance plans (1) -
---------
Total 2,597,390
Net loss (201)
Earnings per share (.08)
QUARTER ENDED
APRIL 30, 1998
---------------
BASIC
-----
Weighted average shares outstanding 3,877,390
Dilutive effect of stock performance plans (1) -
---------
Total 3,877,390
Net loss (166)
Earnings per share (.04)
(1) Since the company has reported a loss for each period, no potential
shares from stock performance plans have been presented as their effect
would be anti-dilutive.
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<ALLOWANCES> 40
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