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, 1999
------ 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)
Delaware 22-2407152
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
43 Emery Ave., 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.
3,877,300 shares of common stock outstanding as of January 31,1999.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one): Yes No X
___ ___
FLEMINGTON PHARMACEUTICAL CORPORATION
BALANCE SHEETS
January 31, July 31,
1999 1998
__________ ________
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $1,443,000 $2,141,000
Accounts receivable - trade, less
allowance for doubtful accounts of
$20,000 & $40,000 respectively 168,000 146,000
Costs and estimated earnings in excess
of billings on uncompleted contracts 39,000 -
Prepaid expenses and other current assets 47,000 36,000
---------- ----------
Total Current Assets 1,697,000 2,323,000
---------- ----------
FURNITURE, FIXTURES, AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION 33,000 37,000
DEMAND NOTE RECEIVABLE, SHAREHOLDER 60,000 60,000
OTHER ASSETS 73,000 86,000
--------- ----------
$1,863,000 $2,506,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable trade $ 125,000 $ 79,000
Billings in excess of costs and estimated
earnings on uncompleted contracts 55,000 -
Accrued expenses and other current
liabilities 20,000 23,000
---------- ----------
Total Current Liabilities 200,000 102,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.01 par value:
Authorized 1,000,000 shares, none issued
Common stock, $.001 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 3,877,300
shares 4,000 39,000
Additional paid-in capital 4,268,000 4,233,000
Accumulated Deficit (2,609,000) (1,868,000)
---------- ----------
Total Stockholders' Equity (Deficiency) 1,663,000 2,404,000
---------- ----------
$1,863,000 $2,506,000
========== ==========
See accompanying notes to financial statements.
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
January 31, January 31,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
REVENUES:
Operating revenues $147,000 $180,000 $276,000 $584,000
Interest Income 20,000 31,000 48,000 34,000
-------- -------- -------- --------
167,000 211,000 324,000 618,000
-------- -------- -------- --------
COSTS AND EXPENSES:
Operating Expenses 143,000 178,000 255,000 361,000
Product development 80,000 115,000 162,000 172,000
Selling, general
and administrative
expenses 269,000 238,000 648,000 398,000
-------- -------- --------- --------
492,000 531,000 1,065,000 931,000
-------- -------- --------- --------
NET INCOME (LOSS) $(325,000) $(320,000) $(741,000) $(313,000)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 3,877,300 3,536,955 3,877,300 3,067,173
========= ========= ========= =========
PER COMMON SHARE:
Net Income (loss) $(.08) $ (.09) $(.19) $ (.10)
========== ========= ========= =========
See accompanying notes to financial statements.
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock
----------------- Stockholders'
Par Paid-In Accumulated Equity
Shares Value Capital Deficit (Deficiency)
------ ----- ------- ----------- -------------
Balance,
July 31, 1998 3,877,300 $ 39,000 $4,233,000 $(1,868,000) $2,404,000
Par Value Decrease
from $.01 to $.001 - (35,000) 35,000 - -
Six months ended
January 31, 1999,
Net loss - - - (741,000) (741,000)
--------- -------- --------- ----------- ----------
Balance,
January 31, 1999 3,877,300 $ 4,000 $4,268,000 $(2,609,000) $1,663,000
========= ========= ========== =========== ==========
See accompanying notes to financial statements.
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
January 31,
---------------------
1999 1998
CASH FLOW FROM OPERATING ACTIVITIES: -------- -------
Net (loss) $(741,000) $(313,000)
Adjustments to reconcile net income
(loss) to net cash
Flows from operating activities:
Provisions for losses on accounts
receivable (20,000) -
Options Issued for Services 9,000 -
Depreciation & Amortization 10,000 2,000
Non-cash interest expense - 6,000
Changes in operating assets and liabilities:
Accounts receivable (2,000) 122,000
Deposits - 9,000
Prepaid expenses and other current assets (11,000) (16,000)
Costs and estimated earnings in excess
of billings on uncompleted contracts (39,000) (15,000)
Accounts payable - trade 46,000 103,000
Billings in excess of costs and estimated
earnings on uncompleted contracts 55,000 (246,000)
Accrued expenses and other current
liabilities (3,000) 1,000
--------- ---------
Net cash flows from operating activities (696,000) (347,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (2,000) (2,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES -
Gross proceeds from initial public offering - 4,019,000
Costs of initial public offering - (931,000)
--------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES - 3,088,000
--------- ---------
NET CHANGE IN CASH (698,000) 2,739,000
CASH, BEGINNING OF PERIOD 2,141,000 217,000
--------- ---------
CASH, END OF PERIOD $1,443,000 $2,956,000
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ - $ -
========== ==========
Income taxes paid $ - $ -
========== ==========
NON CASH FINANCING ACTIVITIES:
Conversion of Stockholder Note Payable
into Common Stock $ - $ 300,000
========== ==========
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
Form 10-KSB of Flemington Pharmaceutical Corporation (the "Company"), for the
year ended July 31, 1998.
Note 2 - In November 1998, the Company declined renewal of the
$1,000,000 life insurance policy on the life of the Company's president.
Note 3 - On November 24, 1998, pursuant to Shareholders' authorization,
the Company established a Delaware Corporation. On January 29, 1999,
Flemington Pharmaceutical Corporation (the Company) was merged into the
Delaware Corporation. Authorized common shares were increased from 10,000,000
to 50,000,000 and par value per common share was decreased from $.01 to $.001.
See part II. OTHER INFORMATION, Item 2. Changes in Securities.
Note 4 - On December 23, 1998, a former shareholder filed a lawsuit
against the Company, its president and its chairman. The lawsuit alleges
violations of the federal securities laws, and purports to seek damages on
behalf of a class of shareholders who purchased the Company's common stock
during a period from Nov. 19, 1997 to Dec. 29, 1997. The Company believes
the lawsuit is without merit and intends to defend against it vigorously.
See Part II. OTHER INFORMATION, Item 1. Legal Proceedings.
Note 5 - Subsequent Events
a) Letter of Intent - On March 2, 1999, the Company signed a Letter of Intent
to acquire the assets, and certain of the liabilities, of Ash Corporation,
located in Gulfport, Mississippi. Ash is a contract manufacturer and packager
of over-the-counter pharmaceuticals and personal care products with 96
employees. On March 16, 1999, all parties agreed to terminate discussions and
the Letter of Intent.
b) Patent Issued - On March 2, 1999, the Company announced the issuance of a
patent for a Buccal, non-polar spray for nitroglycerin. The patented product
has been licensed by the Company to Altana Corporation.
c) Sale of laboratory reagent distribution business - On March 3, 1999, the
Company agreed to sell the laboratory reagent distribution business,
conducted by the Company under the name of Goldmark Biologicals, to Ted Pella,
Inc., a California corporation, for $25,000. The purchase price to be paid in
3 annual installments beginning April 20, 1999 plus 7.5% interest on the
unpaid principal.
FLEMINGTON PHARMACEUTICAL CORPORATION
Part I, Item 2. MANAGEMENT'S 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 January 31, 1999 of approximately
$2,609,000. 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 SIX MONTHS ENDED JANUARY 1999 [the "1999 Period"] AND JANUARY 1998
[the "1998 Period"]
Revenues for the 1999 Period decreased approximately $308,000 or 72% to
$276,000 from $584,000 for the 1998 Period. The revenue decrease for the
1999 period was primarily attributable to the lack of clinical studies.
Total costs and expenses for the 1999 Period increased approximately $134,000
or 14% to $1,065,000 from $931,000 for the 1998 Period. This increase includes
an approximate $233,000 increase in payroll and payroll taxes, an approximate
$144,000 increase in legal and professional fees, an approximate $31,000
increase in public company expenses and an approximate $20,000 increase in
product development costs. An approximate $216,000 decrease in clinical
studies costs, an approximate $49,000 decrease in commissions and an
approximate $39,000 decrease in outside consulting fees offset the increased
costs.
The resulting net loss for the 1999 Period was $741,000 compared to a net loss
of $313,000 for the 1998 Period.
THE THREE MONTHS ENDED JANUARY 1999 [the "1999 Period"] AND JANUARY 1998
[the "1998 Period"]
Revenues for the 1999 Period decreased approximately $33,000 or 18% to
$147,000 from $180,000 for the 1998 Period.
Total costs and expenses for the 1999 Period decreased approximately $39,000
or 7% to $492,000 from $531,000 for the 1998 Period. This decrease includes
an approximate $122,000 decrease in consulting fees and commissions and an
approximate $111,000 decrease in clinical studies costs. An approximate
$99,000 increase in payroll and payroll taxes, an approximate $74,000 increase
in legal and professional fees, an approximate $8,000 increase in product
development costs, an approximate $7,000 increase in business franchise taxes
and an approximate $5,000 increase in public company expenses offset these
decreased costs.
LIQUIDITY AND CAPITAL RESOURCES
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 $696,000 for the 1999
Period compared to net cash used in operating activities of approximately
$347,000 for the 1998 Period. Net cash used in operating activities for the
1999 period was primarily attributable to the net loss of $741,000. For the
1999 Period, $2,000 was used for investing activities. Therefore,
notwithstanding a $741,000 net loss and a $313,000 net loss for the 1999 and
1998 Periods, respectively, total cash flow for the 1999 period increased
approximately $43,000 as compared to $3,052,000 increase for the 1998 period
due to the completion of the offering in November 1997.
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 twelve (12)
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 c
omputer 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On December 23, 1998, a former shareholder filed a lawsuit against the
Company in United States District Court for the District of New Jersey by
Richard F. Biborosch, individually and as class representative. Defendants in
the lawsuit include the Company, John J. Moroney, Harry A. Dugger III, Ph.D.
and Monroe Parker Securities, Inc. and two of its principals (collectively,
"Monroe Parker"). The complaint alleges certain securities law violations
against the Company relative to Monroe Parker's role as underwriter for the
Company's initial public offering and the Company's failure to properly
disclose certain information relating to Monroe Parker. Relief sought by the
plaintiff includes certification of the action as a class action, damages,
rescission and costs. The Company has retained special litigation counsel to
assist in defense of the claim and believes the allegations contained in the
Complaint are without merit.
Item 2. Changes in Securities
In connection with the Company's reincorporation merger from New
Jersey to Delaware as described in Item 4 below, the Company's Certificate of
Incorporation was changed to authorize the issuance of 50,000,000 shares of
common stock with a par value of $.001, rather than 10,000,000 shares of
common stock with a par value of $.01. Authorized preferred shares remained
at 1,000,000.
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submissions of Matters to a Vote of Security Holders
(a) On November 23, 1998, the Company held its annual meeting of
shareholders ("Annual Meeting").
(b) Directors elected at the meeting were Harry A. Dugger III,
Ph.D., Robert F. Schaul, John J. Moroney, Jean-Marc Maurette,
Ph.D., John R. Toedtman and Jack J. Kornreich, all of whom
have served as Directors during the prior year.
(c) Matters addressed at the Annual Meeting included the election
of directors, the ratification of the appointment of auditors,
the adoption of the Company's 1998 Stock Option Plan, and the
reincorporation merger of the Company from New Jersey to
Delaware including the related increase in the authorized
common stock of the Company from 10,000,000 shares to
50,000,000 shares.
(d) The table below indicates each matter voted upon at the Annual
Meeting and states the number of votes cast for or against each
proposal, as well as the number of abstentions and broker non
votes for each proposal:
Abstentions
Proposal Description or Votes Against and Broker
Name of Director Votes For or Withheld Non Votes
- --------------------------------------- --------- ------------ -----------
Adoption of 1998 Stock Option Plan 2,090,090 62,110 1,725,100
Reincorporation Proposal 1,713,740 43,610 2,119,950
Ratification of Appointment of Auditors 2,490,559 16,000 1,370,741
Harry A. Dugger III, Ph.D. 2,490,559 16,000 1,370,741
John J. Moroney 2,490,559 16,000 1,370,741
Robert F. Schaul 2,490,559 16,000 1,370,741
Jean-Marc Maurette 2,490,559 16,000 1,370,741
John R. Toedtman 2,490,559 16,000 1,370,741
Jack R. Kornreich 2,490,559 16,000 1,370,741
Item 5. Other Information
On March 2, 1999, the Company entered into a Letter of Intent with
Ash Corporation ("Ash") in connection with the proposed acquisition
of all of the assets and certain of the liabilities of Ash in
exchange for 2,000,000 shares of Flemington Common Stock. On March
5, 1999, the Company filed a current report on Form 8-K to report
this event. On March 16, 1999, all parties agreed to terminate
discussions and the Letter of Intent.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 11. Statement re: computation of earnings per share
for the six months ended January 31, 1999
b) Reports on Form 8-K
On March 5, 1999 the Company filed a current report on Form
8-K (event Item 5.) to report the March 2, 1999 execution of
a Letter of Intent with Ash Corporation regarding the
proposed acquisition of the assets and certain of the
liabilities of Ash Corporation.
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
Date :March 17, 1999 By: /s/ Harry A. Dugger, III
-------------- ------------------------------------------
Harry A. Dugger, III, President
(Principal Executive and Financial Officer)
Date: March 17, 1999 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)
SIX MONTHS ENDED
JANUARY 31, 1999
----------------
BASIC
------
Weighted average shares outstanding 3,877,300
Dilutive effect of stock performance plans (1) --
---------
Total 3,877,300
Net Income (loss) (741)
---------
Earnings per share (.19)
---------
SIX MONTHS ENDED
JANUARY 31, 1998
----------------
BASIC
------
Weighted average shares outstanding 3,067,173
Dilutive effect of stock performance plans (1) --
---------
Total 3,067,173
Net Income (loss) (313)
---------
Earnings per share ( .10)
---------
(1) No potential shares from stock performance plans have been presented,
as their effect would be anti-dilutive
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<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 1,443
<SECURITIES> 0
<RECEIVABLES> 188
<ALLOWANCES> 20
<INVENTORY> 0
<CURRENT-ASSETS> 1,697
<PP&E> 83
<DEPRECIATION> 50
<TOTAL-ASSETS> 1,863
<CURRENT-LIABILITIES> 200
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 1,624
<TOTAL-LIABILITY-AND-EQUITY> 1,863
<SALES> 276
<TOTAL-REVENUES> 324
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<TOTAL-COSTS> 1,065
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<INCOME-PRETAX> (741)
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