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 three month period ended October 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 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 Identification No.)
incorporation or organization
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.
3,877,300 shares of common stock outstanding as of October 31,1998.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes___ No_ X__
<PAGE>
FLEMINGTON PHARMACEUTICAL CORPORATION
BALANCE SHEETS
October 31, July 31,
1998 1998
----------- --------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and equivalents $1,862,000 $2,141,000
Accounts receivable trade, less allowance
for doubtful accounts of $20,000 and
$40,000 respectively 136,000 146,000
Prepaid expenses and other current assets 28,000 36,000
--------- ---------
Total Current Assets 2,026,000 2,323,000
--------- ---------
FURNITURE, FIXTURES, AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION 36,000 37,000
DEMAND NOTE RECEIVABLE, SHAREHOLDER 60,000 60,000
OTHER ASSETS 80,000 86,000
--------- ---------
$2,202,000 $2,506,000
LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable-trade $ 62,000 $ 79,000
Accrued expenses and other current
liabilities 152,000 23,000
--------- ---------
Total Current Liabilities 214,000 102,000
--------- ---------
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 - 3,877,300
shares in 1998 and 2,597,300 shares
in 1997 39,000 39,000
Additional paid-in capital 4,233,000 4,233,000
Accumulated Deficit (2,284,000) (1,868,000)
---------- ----------
1,988,000 2,404,000
---------- ----------
$2,202,000 $2,506,000
========== ==========
See accompanying notes to financial statements.
<PAGE>
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
October 31,
-------------------
1998 1997
---- ----
REVENUES:
Operating revenues $ 129,000 $ 404,000
Interest Income 28,000 3,000
-------- --------
157,000 407,000
COST AND EXPENSES:
Operating expenses 112,000 183,000
Product development 82,000 57,000
Selling, general and
administrative expenses 379,000 160,000
------- -------
NET INCOME (LOSS) 573,000 400,000
------- -------
(416,000) 7,000
PRO FORMA ADJUSTMENT
Officers' salary - 50,000
PRO FORMA NET INCOME (LOSS) $(416,000) $(43,000)
========= ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,877,300 2,597,300
PER COMMON SHARE:
Net Income (loss) $(.11) $ -
Pro forma net income (loss) $(.11) $(.02)
See accompanying notes to financial statements.
<PAGE>
<TABLE>
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
<CAPTION>
Common Stock
------------------- Stockholders'
Par Paid-in Accumulated Equity
Shares Value Capital Deficit (Deficiency)
------- ----- ------- ----------- -------------
<C> <C> <C> <C> <C>
Balance, July 31,
1998 3,877,300 $ 39,000 $4,233,000 $(1,868,000) $2,404,000
Three months ended
October 31, 1998
Net Loss (416,000) (416,000)
--------- --------- ---------- ----------- ----------
Balance, October
31, 1998 3,877,390 $ 39,000 $4,233,000 $(2,284,000) $1,988,000
========= ========= ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
October 31,
-------------------
1998 1997
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (loss) $(416,000) $ 7,000
Adjustments to reconcile net income
(loss) to net cash flows from operating
activities:
Provisions for losses on accounts
receivable (19,000) -
Options issued for services 4,000 -
Depreciation and amortization 5,000 2,000
Changes in operating assets and
liabilities:
Accounts receivable 29,000 143,000
Prepaid expenses and other current
assets 8,000 (1,000)
Costs and estimated earnings in
excess of billings on uncompleted
contracts - 12,000
Accounts payable, trade (17,000) 94,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts - (237,000)
Accrued expenses and other current
liabilities 129,000 (50,000)
--------- ---------
Net cash flows from operating activities (277,000) (30,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (2,000) (1,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES -
Increase in deferred offering costs - (58,000)
--------- ---------
NET CHANGE IN CASH (279,000) (89,000)
CASH, BEGINNING OF PERIOD 2,141,000 217,000
---------- ---------
CASH, END OF PERIOD $1,862,000 $128,000
========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ - $ -
========== =========
Income taxes paid $ - $ -
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 Form
10KSB of Flemington Pharmaceutical Corporation (the "Company"), for
the year ended July 31, 1998.
Note 2 - In November 1998, the Company did not renew the company's $1,000,000
life insurance policy on the life of the Company s president.
<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 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 years ended July 31, 1997 [ Fiscal 1997 ] and 1998 [ Fiscal 1998 ],
giving rise to an accumulated deficit at October 31, 1998 of approximately
$2,284,000. 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 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 three months ended October 1998 [the 1998 Period] and October 1997 [the
1997 Period]
Revenues for the 1998 Period decreased approximately $275,000 or 68% to
$129,000 from $404,000 for the 1997 Period. This decrease is attributable to
an approximate $269,000 decrease in client studies revenue and an approximate
$6,000 decrease in consulting, product sales, license and other revenues.
Total costs and expenses for the 1998 Period increased approximately $173,000
or 43% to $573,000 from $400,000 for the 1997 Period. This increase includes
an approximate $25,000 increase in product development costs and an
approximate $219,000 increase in selling, general and administrative expenses
offset with an approximate $71,000 decrease in operating expenses associated
with studies and consulting activities.
Liquidity 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
October 31, 1998 the Company had working capital of approximately $1,812,000
as compared to working capital of $2,221,000 at July 31, 1998 representing a
net decrease in working capital of approximately $409,000.
<PAGE>
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 $277,000 for the 1998
Period compared to net cash used in operating activities of approximately
$30,000 for the 1997 Period. Net cash used in operating activities for the
1998 period was primarily attributable to the net loss of $416,000. For the
1998 Period, $2,000 was used for investing activities. Therefore,
notwithstanding a $416,000 net loss and $7,000 net income for the 1998 and
1997 Periods, respectively, total cash flow for the 1998 period increased
approximately $137,000 as compared to $96,000 decrease 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 fifteen
(15) 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 fail 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.
<PAGE>
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. Submissions 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 three months ended October 31, 1998.
b) Reports on Form 8-K
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.
FLEMINGTON PHARMACEUTICAL CORPORATION
By: /s/ Harry A. Dugger, III
--------------------------------
Harry A. Dugger, III, President
(Principal Executive and Financial
Officer)
By: /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)
THREE MONTHS ENDED
OCTOBER 31, 1998
------------------
BASIC
------------------
Weighted average shares outstanding 3,877,300
Dilutive effect of stock performance
plans (1) -
------------------
Total 3,877,300
Net Income (loss) (416)
------------------
Earnings per share (.11)
------------------
THREE MONTHS ENDED
OCTOBER 31, 1997
------------------
BASIC
------------------
Weighted average shares outstanding 2,597,300
Dilutive effect of stock performance
plans(1) -
------------------
Total 2,597,300
Net Income (loss) 7
------------------
Earnings per share (-)
No potential shares from stock performance plans have been presented, as
their effect would be anti-dilutive
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> OCT-31-1998
<CASH> 1,862
<SECURITIES> 0
<RECEIVABLES> 156
<ALLOWANCES> 20
<INVENTORY> 0
<CURRENT-ASSETS> 2,026
<PP&E> 36
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,202
<CURRENT-LIABILITIES> 214
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 1,949
<TOTAL-LIABILITY-AND-EQUITY> 2,202
<SALES> 129
<TOTAL-REVENUES> 157
<CGS> 0
<TOTAL-COSTS> 573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (416)
<INCOME-TAX> 0
<INCOME-CONTINUING> (416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (416)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
