<PAGE>
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 six month period ended January 31, 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 333-33201
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 08822
(Address of Principal Executive Offices) (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 January 31,1998.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes No X
--- ---
<PAGE>
FLEMINGTON PHARMACEUTICAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
----------------- ----------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 2,956,000 $ 217,000
Accounts receivable - trade, less allowance for
doubtful accounts of $40,000 116,000 238,000
Costs and estimated earnings in excess of billings
on uncompleted contracts 27,000 12,000
Prepaid expenses and other current assets 22,000 6,000
----------------- ----------------
Total Current Assets 3,121,000 473,000
----------------- ----------------
FURNITURE, FIXTURES, AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION 13,000 13,000
DEFERRED OFFERING COSTS - 77,000
DEPOSITS 3,000 12,000
----------------- ----------------
$ 3,137,000 $ 575,000
----------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable trade $ 319,000 $ 216,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 31,000 277,000
Accrued expenses and other current liabilities 20,000 19,000
----------------- ----------------
Total Current Liabilities 370,000 512,000
----------------- ----------------
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 4,201,000 897,000
Accumulated Deficit (1,473,000) (1,160,000)
----------------- ----------------
Total Stockholders' Equity (Deficiency) 2,767,000 (237,000)
----------------- ----------------
$3,137,000 $ 575,000
----------------- ----------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
--------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Operating revenues $180,000 $203,000 $584,000 $430,000
Interest Income 31,000 8,000 34,000 16,000
-------------- -------------- -------------- ---------------
211,000 211,000 618,000 446,000
-------------- -------------- -------------- ---------------
COST AND EXPENSES:
Operating expenses 178,000 160,000 361,000 308,000
Product development 115,000 6,000 172,000 12,000
Selling, general and
administrative expenses 238,000 131,000 398,000 252,000
-------------- -------------- -------------- ---------------
531,000 297,000 931,000 572,000
-------------- -------------- -------------- ---------------
NET INCOME (LOSS) $(320,000) $(86,000) $(313,000) $(126,000)
============== ============== ============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 3,536,955 2,597,390 3,067,173 2,597,390
============== ============== ============== ===============
PER COMMON SHARE:
Net Income (loss) $ (.09) $ (.03) $ (.10) $ (.05)
============== ============== ============== ===============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
January 31
-------------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (loss) $(313,000) $(126,000)
Adjustments to reconcile net income (loss) to net cash
Flows from operating activities:
Depreciation 2,000 4,000
Non-cash interest expense 6,000
Changes in operating assets and liabilities:
Accounts receivable 122,000 147,000
Deposits 9,000 25,000
Prepaid expenses and other current assets (16,000) 2,000
Costs and estimated earnings in excess of billings on
Uncompleted contracts (15,000) 18,000
Accounts payable - trade 103,000 (69,000)
Billings in excess of costs and estimated earnings
On uncompleted contracts (246,000) 23,000
Accrued expenses and other current liabilities 1,000 (24,000)
----------------- ----------------
Net cash flows from operating activities (347,000) 0
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (2,000) (9,000)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Gross proceeds from initial public offering 4,019,000 -
Costs of initial public offering (931,000) (19,000)
----------------- ----------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 3,088,000 (19,000)
----------------- ----------------
NET CHANGE IN CASH 2,739,000 (28,000)
CASH, BEGINNING OF PERIOD 217,000 115,000
================= ================
CASH, END OF PERIOD $ 2,956,000 $ 87,000
================= ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ - $ -
================= ================
Income taxes paid $ - $ -
================= ================
NON CASH FINANCING ACTIVITIES:
Conversion of Stockholder Note
Payable into Common Stock $300,000 $ -
================= ================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------------------------
Stockholders'
Par Paid-in Accumulated Equity
Shares Value Capital Deficit (Deficiency)
---------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1997 2,597,390 $ 26,000 $ 897,000 $(1,160,000) $ (237,000)
SIX MONTHS ENDED JANUARY 31, 1998
Issuance of Common Stock:
In connection with initial public
offering, Net of $1,008,000
Offering Costs 680,000 7,000 3,004,000 - 3,011,000
Upon conversion of Stockholder
Note including accrued
interest of $6,000 600,000 6,000 300,000 - 306,000
Net Loss - - (313,000) (313,000)
-------------- --------------- ---------------- ----------------- -----------------
BALANCE January 31, 1998 3,877,390 $ 39,000 $4,201,000 $(1,473,000) $2,767,000
-------------- --------------- ---------------- ----------------- -----------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
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 on Form SB-2
(File No. 333-33201), as amended, of Flemington Pharmaceutical
Corporation (the "Company"), which became effective on
November 19, 1997.
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 $3,011,000.
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 connection with the company or its securities.
Note 3 - Commitments:
Chief Financial Officer - In January 1998, the Company hired a
Chief Financial Officer to manage the Company's internal
accounting functions.
6
<PAGE>
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 it 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
January 31, 1998 of approximately $1,473,000. 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 six 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 six months ended January 1998 [the "1998 Period"] and January 1997 [the
"1997 Period"]
Revenues for the 1998 Period increased approximately $154,000 or 36% to $584,000
from $430,000 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 $359,000 or
63% to $931,000 from $572,000 for the 1997 Period. This increase includes an
approximate $69,000 increase in legal and professional fees associated with the
public offering and an approximate $89,000 increase in consulting fees and
commissions related to client studies and business development. The resulting
net loss for the 1998 Period was $313,000 compared to a net loss of $126,000
for the 1997 Period.
The three months ended January 1998 [the "1998 Period"] and January 1997 [the
"1997 Period"]
Revenues for the 1998 Period decreased approximately $23,000 or 11% to $180,000
from $203,000 for the 1997 Period.
Total costs and expenses for the 1998 Period increased approximately $234,000 or
79% to $531,000 from $297,000 for the 1997 Period. This increase includes the
aforementioned increases in legal and professional fees and consulting fees and
commissions.
7
<PAGE>
Liquidity and Capital Resources
From its inception, the Company's principal sources of capital have been
provided by consulting revenues, private placements, conversion of debt, as well
as loans and capital contributions from the Company's principal stockholders. At
January 31, 1998 the Company had working capital of approximately $2,751,000 as
compared to a working capital deficit of $39,000 at July 31, 1997
representing a net increase in working capital of approximately $2,790,000. 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 $3,011,000.
Net cash used in operating activities approximated $347,000 for the 1998 Period
compared to net cash from operating activities of approximately $0 for the 1997
Period. For the 1998 Period, $2,000 was used for investing activities and
$3,088,000 was provided by financing activities. Therefore, notwithstanding a
$313,000 net loss and $126,000 net loss for the 1998 and 1997 Periods,
respectively, total cash flow for the 1998 period increased approximately
$3,052,000 as compared to $98,000 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 twenty-four (24) 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 affects 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. 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.
8
<PAGE>
EXHIBIT 11
FLEMINGTON PHARMACEUTICAL CORPORATION
EARNINGS PER SHARE COMPUTATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SIX MONTHS ENDED
JANUARY 31, 1998
------------------
BASIC
-----
Weighted average shares outstanding ......... 3,067,173
Dilutive effect of stock performance plans .. --
------------
Total .................................. 3,067,173
Net loss ................................... $ (313,000)
------------
Earnings per share .......................... $ (.10)
------------
SIX MONTHS ENDED
JANUARY 31, 1997
-----------------
BASIC
-----
Weighted average shares outstanding ......... 2,597,390
Dilutive effect of stock performance plans .. --
------------
Total .................................. 2,597,390
------------
Net loss ................................... $ (126,000)
------------
Earnings per share .......................... $ (.05)
------------
QUARTER ENDED
JANUARY 31, 1998
----------------
BASIC
-----
Weighted average shares outstanding ......... 3,536,955
Dilutive effect of stock performance plans .. --
------------
Total .................................. 3,536,955
------------
Net loss ................................... $ (320,000)
------------
Earnings per share .......................... $ (.09)
------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 2,956
<SECURITIES> 0
<RECEIVABLES> 156
<ALLOWANCES> 40
<INVENTORY> 0
<CURRENT-ASSETS> 3,121
<PP&E> 13
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,137
<CURRENT-LIABILITIES> 370
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 2,728
<TOTAL-LIABILITY-AND-EQUITY> 3,137
<SALES> 0
<TOTAL-REVENUES> 584
<CGS> 0
<TOTAL-COSTS> 931
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (313)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (313)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
