As filed with the Securities and Exchange Commission on April__, 1997.
Registration No. 333-20849
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
PHARMACEUTICAL FORMULATIONS, INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 22-2367644
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
460 PLAINFIELD AVE., EDISON, NJ 08818; TEL: 908-985-7100
(Address Including Zip Code, and Telephone Number of
Registrant's Principal Executive Offices)
FRANK MARCHESE, SECRETARY
PHARMACEUTICAL FORMULATIONS, INC.
460 PLAINFIELD AVE.
EDISON, NJ 08818
(908) 985-7100
(Name, Address Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
----------------------
Copies of all correspondence to:
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
Attn: David W. Lowden, Esq.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes
effective.
-----------------------
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. x/
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
==============================================================================
Title of Amount to be Proposed Proposed Amount of
Shares to be Registered Maximum Maximum Registration
Registered Aggregate Aggregate Fee
Price per Offering
Unit(2) Price(2)
- ------------------------------------------------------------------------------
Common Stock, 400,000(1) $.9685 $387,400 $117.39
$.08 par value
==============================================================================
(1) This Registration Statement covers shares owned by a selling
stockholder which shares may be offered from time to time by the
selling stockholder.
(2) The registration fee was previously computed and paid, with
the proposed per unit price being estimated solely for purposes of
calculating the registration fee pursuant to Rule 457(c), based on the
average of the bid and asked price of the Common Stock on January 29,
1997 as reported by the North American Quotations, Inc.
-----------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED _________, 1997
PROSPECTUS
-----------------------
PHARMACEUTICAL FORMULATIONS, INC.
----------------------
400,000 Shares of Common Stock
This Prospectus relates to up to 400,000 shares (the "Shares") of Common
Stock, par value $.08 (the "Common Stock") of Pharmaceutical Formulations, Inc.
(the "Company"), which may be offered from time to time by the selling
stockholder named herein (the "Selling Stockholder"). See "Selling Stockholder."
The Company shall pay all expenses incident to the registration of the Shares,
including, without limitation, the cost of preparing this Registration
Statement, all registration and filing fees, printing expenses, messenger and
delivery expenses, fees and disbursements of counsel for the Company and all
independent certified public accountants retained by the Company. The Selling
Stockholder shall pay all expenses relating to the sale including any
commissions, discounts or other fees payable to broker-dealers and any attorney
fees or other expenses incurred by such Selling Stockholder, as well as fees and
expenses of compliance with state securities or "blue sky" laws. The Company
will not receive any of the proceeds from the sale of the Shares by the Selling
Stockholder. The Company will receive the proceeds from the issuance of Shares
to the Selling Stockholder upon exercise of certain warrants, which will be used
for general working capital purposes.
The Selling Stockholder has not advised the Company of any specific plans
for the distribution of the shares covered by this Prospectus, but it is
anticipated that the Shares will be sold from time to time primarily in
transactions (which may include block transactions) in the over-the- counter
market at the market price then prevailing, although sales may also be made in
negotiated transactions or otherwise. The Selling Stockholder and the brokers
and dealers through whom sale of the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), and their commissions or discounts and other compensation may be regarded
as underwriters' compensation. See "Plan of Distribution."
The Company's Common Stock is traded on the over-the-counter market (OTC
Bulletin Board symbol "PHFR"). The average of the bid and asked price of the
Common Stock as reported by North American Quotations, Inc. on April 14, 1997
was $.825 per share.
-----------------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------
The date of this Prospectus is April ___, 1997
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement on Form S-2 (the
"Registration Statement") under the Securities Act, with respect to the shares
of Common Stock offered by this Prospectus. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information
contained in the Registration Statement, and reference is made to the
Registration Statement for further information with respect to the Company and
the securities offered hereby.
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected and copied at
the Commission's public reference facilities, maintained by the Commission in
Washington D.C., and at certain of its Regional Offices, during business hours.
The current address of each such facility is set forth below. Copies of such
material can be obtained from the Public Reference Section of the Commission,
Washington D.C. 20549, at prescribed rates. Furthermore, the Commission
maintains a Web site that contains reports, proxy statements and other
information filed electronically by the Company with the Commission. The address
of such Web site is http://www.sec.gov.
Current Addresses of SEC Public Reference Facilities
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth St., NW 7 World Trade Center Northwestern Atrium Center
Room 1024 13th Floor 500 West Madison Street,
Washington D.C. 20549 New York, NY 10048 Suite 1400
Chicago, Illinois 60661
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
delivered herewith and incorporated herein by reference: (i) Annual Report on
Form 10-K for the fiscal year ended June 30, 1996, as amended by Amendments Nos.
1, 2 and 3 by Forms 10- K/A, (ii) Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and (iii) Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996, as amended by Amendment No. 1 on Form 10-Q/A.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon written or oral request of any
such person, a copy of any and all of the information that has been or may be
incorporated by reference in this Prospectus, other than exhibits to such
documents. Written requests should be directed to Frank Marchese at the Company,
460 Plainfield Avenue, Edison, NJ 08818. The Company's telephone number at that
location is 908-985-7100.
THE COMPANY
The Company was incorporated in Delaware on June 3, 1981. It is primarily
engaged in the manufacture and distribution of nonprescription ("over
the-counter" or "OTC") solid dosage pharmaceutical products in tablet, caplet
and capsule form (collectively, "Generic OTC Products"), which are sold under
its customers' store brands or other private labels. The Company also
manufactures products for national brand pharmaceutical companies. To a limited
extent, the Company also sells Generic OTC Products under its own trade name,
Health+Cross(TM). The Company's principal executive offices are located at 460
Plainfield Avenue, Edison, NJ 08818 and its phone number is 908-985-7100.
RECENT DEVELOPMENTS
At the last annual stockholders meeting, held on November 6, 1997, ICC
Industries Inc. ("ICC"), the holder of 67% of the outstanding common stock of
the Corporation, nominated six individuals to serve as directors of the
Corporation and such nominees were elected. As noted in the Company's
Information Statement with respect to such annual meeting, the Board voted
thereafter to reduce the size of the Board of Directors from six persons to
three persons and the newly elected directors other than Messrs. Ray Cheesman,
Charles LaRosa and John Oram tendered their resignations. There was no dispute
between the Corporation and the directors who resigned.
As the majority stockholder of the Corporation, ICC has the ability to
elect such persons to the Board of Directors as it so wishes. At this time,
however, only one employee of ICC, John Oram, serves on the Board. No changes
are expected in the relationship between the Corporation and ICC as a result of
the recent change in composition of the Board of Directors.
RISK FACTORS
The securities offered hereby involve a high degree of risk, including, but
not necessarily limited to, the risk factors described below. Each prospective
investor should carefully consider the following risk factors inherent in and
affecting the business of the Company and this offering before making an
investment decision.
1. HISTORY OF LOSSES AND STOCKHOLDERS' DEFICIENCY. As of December 31, 1996,
the Company had stockholders' equity of $381,000. Until its most recent fiscal
quarter, the Company had a stockholder's deficiency since September 1995. The
Company has sustained substantial losses in many quarterly and full year periods
since its inception of operations. Within the last five completed fiscal years,
it has suffered net losses in two years ($3,465,000 in fiscal 1996 and
$2,314,000 in fiscal 1992) and net income in the other three years ($2,046,000
in fiscal 1995, $2,211,000 in fiscal 1994 and $1,706,000 in fiscal 1993). The
Company had net income for the six months ended December 31, 1996 of $742,000
and net income for the three months ended September 30, 1996 of $211,000. There
can be no assurance, however, that the Company's business operations will
continue to be profitable.
2. RELIANCE UPON CERTAIN CUSTOMERS. Sales to Revco D.S., Inc., accounted
for $11,078,000 (20%), $14,536,000 (25%) and $8,756,000 (16%) of the Company's
net sales for fiscal 1996, 1995 and 1994, respectively. Sales to Walgreen
Company were $7,609,000 (14%), $8,373,000 (14%) and $8,684,000 (16%) for fiscal
1996, 1995 and 1994, respectively. Sales to Price-Costco, Inc. were $6,508,000
(12%), $6,892,000 (12%) and $4,488,000 (8%) in fiscal 1996, 1995 and 1994,
respectively. The loss of either Revco, Walgreen or Price-Costco as a customer
of the Company may have an adverse effect upon the business operations of the
Company. Revco has entered into a merger agreement with CVS Corporation, which
agreement is subject to stockholder and regulatory approval. It is too early to
determine the effects, if any, of this possible merger on the financial position
or results of operation of the Company.
3. RELIANCE UPON ICC. ICC, the Company's majority stockholder, has assisted
the Company in many ways over the past five years. It has in past times been a
significant customer of and supplier to the Company and currently is providing
lease financing for certain machinery and equipment for the expansion of the
Company's production capacity. It has also provided equity capital to the
Company in the form of cumulative redeemable convertible preferred shares of
stock purchased in fiscal 1996 for $2,500,000 and the Company and an affiliate
of ICC have entered into a cooperative joint venture regarding the manufacture
of Cimetidine, an anti-ulcer drug, as to which ICC shall be the exclusive source
of raw materials and for which ICC will receive certain royalties based on net
sales. For the years ended June 30, 1996, 1995 and 1994, sales to ICC were $0,
$0 and $9,267,000; inventory purchases from ICC were $795,000, $1,219,000 and
$14,300,000; service and finance fees paid to ICC were $488,000, $575,000 and
$906,000; accounts payable to ICC were $334,000, $118,000 and $3,233,000;
equipment lease obligations due ICC were $4,635,000, $3,497,000 and $3,251,000
and other receivables from ICC were $213,000, $0 and $0. The loss of ICC as a
source of financing at a time when alternative funding sources are not available
could have a material adverse effect upon the financial condition and operations
of the Company.
4. CASH REQUIREMENTS TO SUSTAIN OPERATIONS. The Company currently has, and
will continue to have, substantial cash requirements to fund its operations and
service debt. Although the Company has been operating profitably since the
quarter ended September 30, 1996 and has been able to generate sufficient cash
to fund its operations, there can be no assurance that the Company will continue
to operate profitably. If the Company were to require funds in excess of its
cash flows and current borrowing capabilities, there can be no assurance that
any loans, lines of credit or other future financings the Company may obtain
will be sufficient to meet its cash requirements. In addition, the amount of
funds available under the Company's present line of credit is based upon levels
of its inventory and receivables acceptable to its institutional lender which
have been modified periodically to accommodate the Company's needs. The failure
of the Company to obtain additional financing, if required, on terms acceptable
to the Company could have an adverse effect on its operations.
5. POSSIBLE ADVERSE EFFECTS OF LOAN COVENANTS UNDER INSTITUTIONAL LENDING
AGREEMENTS; PLEDGE OF THE COMPANY'S Assets. As of December 31, 1996, the Company
was indebted to its institutional lender under a revolving credit loan facility
(the "Revolving Loan") and an equipment and term loan (the "Term Loan Facility")
(collectively, the "Facility Loans") in the total amount of $14,340,000. The
agreements with the institutional lender contain certain loan covenants which,
among other things, prohibit the Company from making dividend payments, limit
the Company's annual capital expenditures and net loss and require the Company
to maintain minimum working capital and net worth. At June 30, 1996, the Company
was not in compliance with the minimum loss covenant, which noncompliance was
waived. Although the Company does not believe that it will be in violation of
its loan covenants in the future, there can be no assurance that the Company
will not be in violation of certain covenants of the Facility Loans in the
future, or that the lender will waive any such non-compliance. In addition, the
loans under the Facility are secured by the Company's accounts receivable,
inventory, equipment, machinery and substantially all of the Company's
intangible assets. The Company's pledge of its assets as security for these
loans restricts the Company's ability to seek additional asset-based financing,
and may have the effect of limiting the Company's operations or growth.
Furthermore, the provisions of the Term Loan require payments of $34,000 per
month until February 4, 1999, at which time any remaining principal indebtedness
under the Facility will be due. There can be no assurance that the Company can
pay or refinance the loans on or before such date.
6. CONTROL BY MAJORITY STOCKHOLDER. As of the date of this Prospectus, ICC
owned a total of 19,635,894 shares of the Company's Common Stock, representing
approximately 66.5% of the total number of shares outstanding on that date.
Accordingly, ICC has the ability to elect all of the Company's directors,
increase the authorized capital, dissolve, merge or sell the assets of the
Company and generally exert substantial control over the business and operations
of the Company.
7. COMPETITION. Competition in the pharmaceutical industry is intense. The
Company competes not only with numerous manufacturers of generic over the
counter products, but also with the brand name drug manufacturers, most of which
are well known to the public, and are promoted and distributed by major
pharmaceutical companies. Many of the Company's competitors, including all of
the manufacturers or distributors of brand name drugs, have greater financial
and other resources and are, therefore, able to expend more effort than the
Company in areas such as product development and marketing.
8. GOVERNMENT REGULATION. The operations of the Company are subject to
regulation by the FDA. Substantially all of the Company's current products are
not considered new drugs by the FDA and do not require its approval prior to
sale under current rules and regulations. The FDA has not made a final
determination regarding the new drug status of products under OTC Drug Review
and the Company will be required to conform to the final regulations once they
become effective. In the event that the final regulations require the Company to
expend substantial sums to maintain FDA compliance, the Company could be
materially, adversely affected thereby. Such products must be produced and
marketed in accordance with strict regulations and guidelines established by the
FDA as they currently exist. The facilities and products of the Company are all
subject to periodic inspections and testing by the FDA. To the extent that the
Company fails to comply with the FDA's regulations and guidelines, the FDA can
cause the Company to cease manufacturing and distributing non-complying
products, and can seize and prohibit the sale of non-complying products and halt
operations of non-complying manufacturers.
9. ICC'S LIMITED PREEMPTIVE RIGHTS; ADDITIONAL SHARES ISSUABLE TO
MANAGEMENT UNDER CERTAIN CIRCUMSTANCES. Under the 1991 option agreement with ICC
(the "ICC Option Agreement"), ICC was granted certain rights to acquire
additional shares of the Company's Common Stock in the event that additional
shares of Common Stock are issued by the Company pursuant to (i) outstanding
rights; (ii) in settlement of any debts outstanding on September 24,1992; or
(iii) to management (collectively, the "Limited Preemptive Rights"). The number
of shares currently issuable to ICC under its Limited Preemptive Rights is
approximately 3,777,000 shares (based on a total number of outstanding rights
existing on December 31,1996 of 1,889,000, subject to adjustment, at a price
equal to the lesser of the exercise price (or conversion price as the case may
be), of the outstanding rights or $.25 (except with respect to certain warrants
to purchase 400,000 shares of the Company's Common Stock granted to management
in September 1992, in which case the amount is $.50). In addition, if the
Limited Preemptive Rights are exercised by ICC, in whole or in part, up to
approximately 170,000 shares are issuable to management.
10. NO ASSURANCE OF ACTIVE TRADING MARKET. The Company's Common Stock is
traded in the over-the-counter market with prices quoted in the "pink sheets."
Trading to date has been limited with a limited number of shares traded. The
prices quoted in the pink sheets do not represent actual transactions. While the
Company is endeavoring to meet the requirements for stock exchange or Nasdaq
listing, there can no assurance that such listing can be obtained or that an
active trading market for the Common Stock will develop.
11. BROKER-DEALER SALES OF COMMON STOCK. The Common Stock is covered by a
Securities and Exchange Commission rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse). For transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to the sale. Consequently, the rule
may adversely affect the ability of broker-dealers to sell the Company's
securities and also may affect the ability of purchasers in this offering to
sell their shares in the secondary market. The Securities Enforcement Remedies
and Penny Stock Reform Act of 1990 (the "Penny Stock Rule") also requires
additional disclosure in connection with any trades involving a stock defined as
penny stock (any non- Nasdaq equity security that has a market price or exercise
price of less than $5.00 per share and less than $2 million in net tangible
assets, subject to certain exceptions). Unless exempt, the rules require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule prepared by the SEC explaining important concepts involving the penny
stock market, the nature of such market, terms used in such market, the
broker/dealer's duties to the customer, a toll-free telephone number for
inquires about the broker/dealer's disciplinary history and the customer's
rights and remedies in case of fraud or abuse in the sale. Disclosure must also
be made about commissions payable to both the broker/dealer and the registered
representative, and current quotations for the securities. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
hold in the account and information on the limited market in penny stocks.
USE OF PROCEEDS
The Company will receive no proceeds from any sale of the Shares being
offered hereby. The Company, however, did receive approximately $50,000 upon
exercise of warrants with respect to 100,000 shares of stock owned by the
Selling Stockholder and will receive approximately $75,000 if the Selling
Stockholder exercises the outstanding warrants for 300,000 shares currently held
by the Selling Stockholder, which proceeds will be used for general working
capital. The Company will bear all expenses of the offering except the
brokerage, legal, accounting and other professional fees incurred by the Selling
Stockholder and fees and expenses of compliance with state securities or "blue
sky" laws. The expenses to be paid by the Company are estimated to be
approximately $15,000.
DESCRIPTION OF COMMON STOCK
The following description of the common stock of the Company is subject to
the Delaware General Corporation Law (the "GCL") and to provisions contained in
the Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and By-Laws, copies of which have been filed as exhibits to
documents previously filed by the Company with the Commission and are
incorporated by reference into the Registration Statement. Reference is made to
such exhibits for a detailed description of the provisions thereof summarized
below.
COMMON STOCK
The Company's Certificate of Incorporation presently authorizes 40,000,000
shares of Common Stock, $.08 par value per share. The Shares of Common Stock
have no preemptive or other subscription rights, have no conversion rights, and
are not subject to redemption. All shares of Common Stock now outstanding are,
and the shares of Common Stock issuable upon payment of interest on outstanding
debentures, upon conversion of outstanding debentures or upon exercise of
outstanding warrants and options, will be, when issued, fully paid and
non-assessable and not subject to other call or assessment. No personal
liability will attach to the ownership thereof.
The holders of the Common Stock are entitled to one vote for each share
held. The Common Stock has noncumulative voting rights, which means that holders
of more than 50% of the shares voting for the election of directors can elect
all of the directors and take any other action, if they so determine. As of
March 26, ICC owned approximately 67% of the Company's Common Stock.
Accordingly, ICC can elect all directors and take any other action, and the
holders of the remaining shares are not able to elect any directors or take any
action.
In the event of the liquidation, dissolution or winding up of the Company,
either voluntarily or involuntarily, the holders of the outstanding shares of
Common Stock are entitled to receive a PRO RATA portion of such net assets of
the Company as are subject to distribution after payment of all liabilities
including principal of and interest on the Company's 8% Debentures and the 8.25%
Debentures and Series A Cumulative Redeemable Convertible Preferred Stock. There
are no liquidation rights with respect to the warrants or stock options now
outstanding.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer and Trust Co., 2 Broadway, New York, New York 10004.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation law of the State of Delaware provides for
indemnification as set forth in Section 145 thereof. The effect of such
provisions is to indemnify the directors and officers of the Company against all
costs, expenses and amounts of liability incurred by them in connection with any
action, suit or proceeding in which they are involved by reason of their
affiliation with the Company, to the fullest extent permitted by law. Article
EIGHTH of the Company's Certificate of Incorporation also eliminates the
potential monetary liability of directors for unintentional errors in their
deliberations or judgments. In addition, Article NINTH of the Company's
Certificate of Incorporation provides the following:
"NINTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. The Corporation shall provide for
the advance payment of all indemnified expenses."
SELLING STOCKHOLDER
The Selling Stockholder, Patricia Cohen, currently beneficially owns
400,000 shares of Common Stock, consisting of 100,000 shares which she currently
owns and 300,000 shares which she may acquire upon the exercise of outstanding
warrants (in the aggregate, approximately 1.3% of the outstanding shares). Ms.
Cohen is offering for sale all of such shares, to the extent that the warrants
therefore are exercised. If all of such shares are sold, she will thereafter
beneficially own no shares of Common Stock.
PLAN OF DISTRIBUTION
Shares of Common Stock covered hereby may be offered and sold from time to
time by the Selling Stockholder or by pledgees, donees, transferees or other
successors-in- interest, pursuant to this Prospectus or Rule 144 under the
Securities Act (or any other applicable exemption from registration under the
Securities Act). The Selling Stockholder will act independently of the Company
in making decisions with respect to the timing, manner and size of each sale.
The Selling Stockholder may sell the Shares being offered hereby in one or more
transactions, including block transactions, in the over-the-counter market, on
any exchange or quotation system on which the Common Stock may be in the future
admitted for trading (collectively, "Exchanges") pursuant to and in accordance
with the applicable rules of such Exchanges (currently the Common Stock of the
Company is not traded on any Exchange), in negotiated transactions or in a
combination of any such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
The Shares may be offered directly, to or through agents designated from
time to time or through brokers or dealers, or through any combination of these
methods of sale. Such agent, broker or dealer may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholder
and/or the purchasers of the Shares for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). A member
firm of an Exchange may be engaged to act as the Selling Stockholder's agent in
the sale of Shares by the Selling Stockholder. Brokerage fees will be paid by
the Selling Stockholder. The Selling Stockholder and any underwriter, dealer or
agent who participate in the distribution of such shares may be deemed to be
"underwriters" under the Securities Act, and any discount, commission or
concession received by such persons might be deemed to be an underwriting
discount or commission under the Securities Act. All expenses of registration
incurred in connection with this offering are being borne by the Company, but
all brokerage commissions, costs of any Blue Sky filings and other expenses
incurred by individual Selling Stockholder will be borne by such Selling
Stockholder.
Upon the Company being notified by the Selling Stockholder that any
material arrangement has been entered into with a broker or dealer for the sale
of Shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplemented
Prospectus will be filed, if required, pursuant to Rule 424(c) under the
Securities Act, disclosing (a) the name of each such broker-dealer, (b) the
number of Shares involved, (c) the price at which such Shares were sold, (d) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (e) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this Prospectus, as supplemented and (f) other facts material to the
transaction.
The Selling Stockholder may indemnify any broker-dealer or other person
that participates in transactions involving the sale of the shares against
certain liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any such
broker-dealers, and any profits received on the resale of such shares, may be
deemed to be underwriting discounts and commissions under the Securities Act if
any such broker-dealers purchase shares as principal.
At the time a particular offer of the shares of Common Stock registered
hereunder is made, if required, a Prospectus Supplement will be distributed that
will set forth the number of shares being offered and the terms of the offering
including the name of any underwriter, dealer or agent, the purchase price paid
by any underwriter for securities purchased, any discount, commission and other
item constituting compensation and any discount, commission or concession
allowed or reallowed or paid to any dealer, and the proposed selling price to
the public.
There can be no assurance that the Selling Stockholder will sell all or any
of the shares of Common Stock offered hereunder.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Company by Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038. Stroock & Stroock & Lavan LLP has generally represented, and may continue
to represent, the Company and its affiliates in connection with certain legal
matters.
EXPERTS
The financial statements and schedule incorporated by reference in this
Prospectus and in the Registration Statement have been audited by BDO Seidman,
LLP, independent certified public accountants to the extent and for the periods
set forth in their reports, incorporated herein by reference, and are
incorporated herein in reliance upon the authority of said firm as experts in
auditing and accounting.
<PAGE>
==============================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFERING DESCRIBED HEREIN. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
TO ANY PERSON OR BY ANY PERSON, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR
SUCH PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR THE OFFERING OF THE COMPANY TO THE DATE HEREOF.
TABLE OF CONTENTS
Available Information......................... 2
Information Incorporated by Reference......... 2
The Company................................... 3
Recent Developments........................... 3
Risk Factors.................................. 3
Use of Proceeds............................... 7
Description of Common Stock................... 7
Selling Stockholder........................... 8
Plan of Distribution.......................... 9
Legal matters................................. 10
Experts....................................... 10
==============================================================
400,000 SHARES
PHARMACEUTICAL
FORMULATIONS, INC.
COMMON STOCK
-------------
PROSPECTUS
-------------
APRIL --, 1997
=============================================================
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of Common Stock being registered hereby
(all amounts are estimated except the registration fee):
Registration Fee........................ $ 117
Legal Fees and Expenses................. 10,000
Accounting Fees and Expenses............ 1,500
Blue Sky Fees and Expenses.............. 5,000
Miscellaneous Expenses.................. 3,383
----------
Total............. $20,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation law of the State of Delaware provides for
indemnification as set forth in Section 145 thereof. The effect of such
provisions is to indemnify the directors and officers of the Company against all
costs, expenses and amounts of liability incurred by them in connection with any
action, suit or proceeding in which they are involved by reason of their
affiliation with the Company, to the fullest extent permitted by law. Article
EIGHTH of the Company's Certificate of Incorporation also eliminates the
potential monetary liability of directors for unintentional errors in their
deliberations or judgments. In addition, Article NINTH of the Company's
Certificate of Incorporation provides the following:
"NINTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented, indemnify any and all persons
whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any other rights
to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested Directors or otherwise, both as
to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has
ceased to be director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a
person. The Corporation shall provide for the advance payment of all
indemnified expenses."
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referred to in Item 15 of this
registration statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO. DESCRIPTION
----------- -----------
4.1 Specimen Common Stock Certificate of the
Registrant.*
5.1 Opinion of Stroock & Stroock & Lavan LLP with
respect to the shares of Common Stock registered
hereunder.*
10.1 Employment Agreement with Max A. Tesler, as
extended (1) **
10.2 Employment Agreement with Anthony Cantaffa, as
extended (1)**
10.3 Employment Agreement with Charles E. LaRosa (2) **
10.4 Loan and Security Agreement between Fidelcor
Business Credit Corporation and the Registrant
(formerly known as PharmaControl Corp.) (3)
10.5 Agreement dated September 6, 1991 among the
Registrant (formerly known as PharmaControl
Corp.), Private Formulations, Inc. and ICC
Industries Inc. (4)
10.6 Agreement dated September 24, 1992 among the
Registrant (formerly known as PharmaControl
Corp.), Private Formulations, Inc. and ICC
Industries Inc. (5)
10.7 Agreement dated March 29, 1993 among the
Registrant (formerly known as PharmaControl
Corp.), Private Formulations, Inc. and ICC
Industries Inc. (6)
10.8 Agreement dated May 8, 1992, among the Registrant
(formerly known as PharmaControl Corp.), Private
Formulations, Inc. and ICC Industries Inc. (5)
10.9 Agreement dated May 28, 1992, among the
Registrant (formerly known as PharmaControl
Corp.)., Private Formulations, Inc. and ICC
Industries Inc. (5)
10.10 Agreement dated May 24, 1993, among the
Registrant (formerly known as PharmaControl
Corp.), Private Formulations, Inc. and ICC
Industries Inc. (6)
10.11 Agreement dated September 26, 1996 between
the Registrant and ICC Chemical Corporation (7)
10.12 Agreement dated September 29, 1992 among
Materials Processing Technology, Inc. and the
Registrant (formerly known as PharmaControl
Corp.) (5)
10.13 Form of Warrant Agreement dated October 1,
1992 between the Registrant (formerly known as
PharmaControl Corp.) and Max A. Tesler, Anthony
Cantaffa, George Chin and Sandra J. Brown) (5)**
10.14 1994 Stock Option Plan (8)**
13.1 Form 10-Q for the quarter ended September 30,
1996*
13.2 Form 10-Q for the quarter ended December 31,
1996.*
13.3 Form 10-Q/A (Amendment No. 1) for the quarter
ended December 31, 1996 (filed herewith)
24.1 Consent of Counsel to be named in the
Registration Statement. Reference is made to
Exhibit 5.1 to this Registration Statement which
contains a copy of this consent.
24.2 Consent of BDO Seidman, LLP to be named in the
Registration Statement (filed herewith)
25.1 Power of Attorney. Reference is made to the
signature pages, which contain such power of
attorney.
- ----------------
* Previously filed.
**Management contracts or compensatory plans:
(1) Filed with the Registrant's Annual Report on Form 10-K for the year ended
June 30, 1993 and incorporated herein by reference.
(2) Filed with the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 and incorporated herein by reference.
(3) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated August 2, 1989.
(4) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated September 6, 1991.
(5) Filed with the Registrant*s Annual Report on Form 10-K for the year ended
June 30, 1992 and incorporated herein by reference.
(6) Filed with the Registrant*s Annual Report on Form 10-K for
the year ended June 30, 1994 and incorporated herein by reference.
(7) Registration's Annual Report as Form 10-K for the year ended June 30,
1996.
(8) Filed with the Registrant's Annual Report on Form 10-K for the year ended
June 30, 1989 and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3), of the Securities Act of 1933;
(ii) To reflect in the prospectus any
facts or events arising after the effective date of
the registration statement (or the most recent
post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high and of the estimated
maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to
Rule 424(h) if, in the aggregate, the changes in
volume and price represent no more than 20 percent
change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information
with respect to the plan of distribution not
previosuly disclosed in the registration statement or
any material change to such information in the
registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to
be a new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof; and
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S- 2 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Edison, State of New Jersey, on the 17th day of
April, 1997.
PHARMACEUTICAL FORMULATIONS, INC.
By: /S/ CHARLES E. LAROSA
Charles E. LaRosa,
President
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
President
(Principal Executive
Officer),
Chief Executive
Officer, and Director
/S/ Charles E. LaRosa April 17, 1997
_____________________*
Charles E. LaRosa
Vice President-Finance,
Chief Financial Officer
(Principal Financial
Officer), Secretary and
/S/ Frank Marchese Treasurer (Principal April 17, 1997
____________________ Accounting Officer)
Frank Marchese
/S/ John Oram Chairman of the Board April 17, 1997
________________________*
John Oram
/S/ Ray Cheesman Director April 17, 1997
____________________*
Ray Cheesman
* By /S/ Frank Marchese
_______________________
(Frank Marchese, Attorney-in-Fact)
<PAGE>
EXHIBIT INDEX
Exhibit
NUMBER DESCRIPTION
13.3 Form 10-Q/A (Amendment No. 1) for the quarter ended
December 31, 1996
24.2 Consent of BDO Seidman, LLP to be named in the Registration
Statement.
EXHIBIT 13.3
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A - NO. 1
(Mark one)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: DECEMBER 31, 1996
-----------------
OR
/ / 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 0-11274
PHARMACEUTICAL FORMULATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2367644
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
460 PLAINFIELD AVENUE, EDISON, NJ 08818
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) (908) 985-7100
-------------
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.
/x/ Yes / / No
The number of shares outstanding of common stock, $.08 par value, as of January
31, 1997 was 29,558,814.
Items 1 and 2 of Part I and Item 1 of Part II are amended to
read as follows:
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1996 1996
ASSETS (UNAUDITED) (NOTE 1)
<S> <C> <C>
CURRENT ASSETS
Cash $ 932,000 $ 1,284,000
Accounts receivable - net of allowance for
doubtful accounts of $421,000 and $300,000 12,331,000 8,511,000
Income tax receivable 1,161,000
Inventories 14,834,000 9,720,000
Prepaid expenses and other current assets 904,000 747,000
Deferred tax asset 400,000 400,000
------------ ----------
Total current assets 29,401,000 21,823,000
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation and amortization of $13,403,000
and $12,303,000 17,121,000 16,802,000
OTHER ASSETS
Deferred financing costs 75,000 94,000
Deferred tax asset 270,000 750,000
Other assets 177,000 192,000
------- -------
$ 47,044,000 $ 39,661,000
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT
LIABILITIES
Current portion of long-term debt $ 497,000 $ 587,000
Current portion of capital lease obligations, including
$1,266,000 and 1,879,000 1,877,000
$1,296,000 due to ICC in December and
June, respectively
Accounts payable 15,310,000 9,441,000
Accrued expenses 1,234,000 1,990,000
----------- ----------
Total current liabilities 18,920,000 13,895,000
LONG TERM DEBT 18,829,000 16,284,000
LONG TERM CAPITAL LEASE OBLIGATIONS, including $2,701,000 and $3,339,000 8,515,000 9,468,000
in December and June, respectively
DEFERRED GAIN ON SALE/LEASEBACK 399,000 425,000
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock - par value $1.00 per share;
10,000,000 shares authorized; 2,500,000 2,500,000 2,500,000
shares issued and outstanding
Common stock - par value $.08 per share
Authorized - 40,000,000 shares
Issued and outstanding - 29,558,814 and
29,508,814 shares in December
and June, respectively 2,365,000 2,361,000
Capital in excess of par value 37,332,000 37,286,000
Accumulated deficit ( 41,816,000) ( 42,558,000)
----------- -----------
Total stockholders' equity (deficiency) 381,000 ( 411,000)
---------- -----------
$ 47,044,000 $ 39,661,000
============= ============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Three Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Gross sales $36,549,000 $29,167,000 $20,724,000 $15,772,000
Less: Sales
discounts and allowances 2,003,000 1,668,000 1,174,000 835,000
----------- ---------- -------- ---------
Net sales 34,546,000 27,499,000 19,550,000 14,937,000
COST AND EXPENSES
Cost of goods sold 26,310,000 22,289,000 14,989,000 12,188,000
Selling, general
and administrative 4,927,000 4,443,000 2,625,000 2,256,000
Special compensation 678,000 678,000
Research and
development 420,000 426,000 205,000 218,000
----------- --------- -------- ---------
31,657,000 27,836,000 17,819,000 15,340,000
PROFIT (LOSS) FROM
OPERATIONS 2,889,000 (337,000) 1,731,000 (403,000)
OTHER INCOME (EXPENSE)
Interest expense (1,820,000) (1,911,000) (927,000) (933,000)
Other 153,000 40,000 97,000 34,000
---------- --------- ------- -------
(1,667,000) (1,871,000 ( 830,000) ( 899,000)
----------- --------- ------- -------
INCOME (LOSS) BEFORE
INCOME TAXES 1,222,000 (2,208,000) 901,000 (1,302,000)
(BENEFIT)
INCOME TAXES (BENEFIT) 480,000 (731,000) 370,000 (431,000)
----------- --------- ------- --------
NET INCOME (LOSS) $742,000 ($1,477,000) $531,000 ($871,000)
======== ========== ======== =========
INCOME (LOSS) PER
COMMON AND COMMON
EQUIVALENT SHARE $.02 ($.05) $.02 ($.03)
========= ===== ==== ====
WEIGHTED AVERAGE
NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 30,711,000 29,381,000 30,711,000 29,439,000
==========
OUTSTANDING
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 742,000 ($1,477,000)
Adjustments to reconcile net income
(loss) to net cash provided by (used for)
operating activities:
Depreciation and amortization
of property, plant and equipment 1,100,000 805,000
Amortization of bond discount and 69,000 57,000
deferred financing costs
Amortization of deferred gain on
sale/leaseback (26,000) (26,000)
Deferred tax 480,000 (150,000)
Non-cash special compensation 578,000
Changes in current assets and liabilities
(Increase) in accounts receivable (3,820,000) (2,262,000)
(Increase)/decrease in income taxes 1,161,000
recoverable (581,000)
(Increase)/decrease in inventories (5,114,000) 2,756,000
(Increase)/decrease in other current (157,000) 69,000
assets
(Increase)/decrease in accounts
payable, accrued expenses and income 5,113,000 (644,000)
taxes payable ----------- -------
Net cash (used in) operating activities (452,000) (875,000)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase)/decrease in other assets 15,000 (6,000)
(Increase) in property, plant and (1,419,000) (992,000)
equipment --------- -------
Net cash (used in) investing
activities (1,404,000) (998,000)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in borrowings under line of credit 2,996,000 1,803,000
Principal payments of capital lease obligations (951,000) (785,000)
Principal repayments of long-term debt (591,000) (291,000)
Refinancing of capital leases - 968,000
Issuance of common stock 50,000 19,000
Net cash provided by financing
activities 1,504,000 1,714,000
----------- ---------
Net (decrease) in cash (352,000) (159,000)
CASH, beginning of period 1,284,000 655,000
----------- -------
CASH, end of period $ 932,000 $ 496,000
=========== ===========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: INTERIM FINANCIAL REPORTING:
The consolidated balance sheet as of June 30, 1996 has been
derived from the audited consolidated balance sheet for the fiscal
year then ended and is presented for comparative purposes.
The accompanying financial statements presume that users have read
the audited financial statements for the preceding fiscal year.
Accordingly, footnotes which would substantially duplicate such
disclosure have been omitted.
The interim financial statements reflect all adjustments which
are, in the opinion of management, necessary for a fair statement
of the results for the interim periods presented. Such adjustments
consist solely of normal recurring accruals.
Certain amounts appearing in the December 31, 1995 financial
statements have been reclassified to conform to the December 31,
1996 presentation. There was no effect on net income due to the
reclassification.
The results of operations for the six and three months ended
December 31, 1996 are not necessarily indicative of the results to
be expected for a full year.
Note 2: CONTINGENCIES:
Other than as described below, no material proceedings to which
the Company is a party, or to which any of its properties are
subject, are pending or are known to be contemplated, and the
Company knows of no material legal proceedings, pending or
threatened, or judgments entered against any director or officer
of the Company in his capacity as such.
In or about October 1991, an action was instituted in the Superior
Court of New Jersey, County of Middlesex, against the Company by
an individual, Marvin Rosenblum, seeking monies claimed to be due
under an alleged employment agreement. The Company believes that
the amount sought, $3,500,000, has been frivolously asserted to
harass the Company and that the allegations are completely
baseless. The Company has interposed counterclaims against
plaintiff for fraud and related claims and seeks damages in the
amount of $5,000,000. As a result of plaintiff's poor physical
condition, in April 1994, he moved to transfer the matter to the
"inactive" trial list, which motion has been granted. Accordingly,
no further action will be taken by either party with respect to
the matter unless and until plaintiff seeks to restore the matter
to the active trial calendar.
In or about November 1992, an action was instituted against the
Company in the Supreme Court of New York, County of New York, by
Univest Technologies, alleging that the Company breached its
agreement by refusing to furnish Soluble Aspirin to such entity.
Plaintiff seeks "consequential damages" of $1,500,000. The Company
denies that any such agreement existed and vigorously denies that
any monies are owed to plaintiff. The Company moved to dismiss the
complaint, which motion was granted with leave to replead.
Plaintiff served an amended complaint thereafter and the Company
again moved to dismiss the complaint. The Company is awaiting a
decision from the court with respect to the Company's second
motion. If the complaint is not dismissed, the Company intends to
assert counterclaims against plaintiff for amounts in excess of
the amount sought, on the basis of, among other things,
plaintiff's fraud and misrepresentation.
Two of the legal matters outstanding as of June 30, 1996 have been
settled by the Company. The settlement amounts were not material
to the financial position and results of operations of the
Company.
Note 3: INVENTORIES:
December 31, June 30,
Inventories consist of the 1996 1996
following: ------------------ ----------
Raw materials $ 6,108,000 $ 3,849,000
Work in process 944,000 648,000
Finished goods 7,782,000 5,223,000
----------- -----------
$14,834,000 $ 9,720,000
=========== ===========
Note 4: DIVIDENDS:
No dividends were declared during any period presented.
Note 5: EARNINGS PER SHARE:
Earnings per share are based on the weighted average number of
common and common equivalent shares outstanding for the period.
Common equivalent shares consist of the dilutive effect of
unissued shares under options, warrants and in the case of
fully-diluted earnings per share, convertible debentures and
preferred stock, computed using the treasury stock method with the
average stock prices for the primary basis and the higher of
average or period end stock prices for fully- diluted basis.
Fully-diluted earnings per share are not presented since the
amounts are substantially the same as primary earnings per share.
In December 1996, undeclared dividends on preferred stock totaling
$100,000 for the six-months and $50,000 for the three-months then
ended were deducted from net income to determine earnings per
share for common stockholders.
No effect has been given to shares issuable for common stock
equivalents for the six and three months ended December 31, 1995
as the effect would be anti-dilutive.
Note 6: RELATED PARTY TRANSACTIONS:
The following transactions with ICC Industries Inc. ("ICC"), an
affiliated Company, are reflected in the consolidated financial
statements as of or for the six months ended December 31, 1996 and
1995:
1996 1995
---- -----
Inventory purchases from ICC $ 668,000 $ 315,000
Interest expense 232,000 223,000
Accounts payable to ICC 885,000 144,000
Equipment lease obligations due ICC 3,967,000 5,112,000
Other receivables from ICC 213,000 -
ITEM 2: Management's Discussion and Analysis of Financial
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Gross sales for the six months ended December 31, 1996 were $36,549,000 as
compared to $29,167,000 in the comparable period in the prior fiscal year. The
increase in sales of $7,382,000 or 25% is a result of new customers and
increased sales to existing customers. All three sectors of the Company's
business-private label (store brand), bulk and contract had an increase in sales
as compared to the prior period. Four customers represented 57% of sales for the
six months ended December 31, 1996. These four customers are Revco D.S.
("Revco"), Walgreen Company ("Walgreen"), Price-Costco("Price-Costco") and
Leiner Health Products ("Leiner"). Sales for these four customers were
$20,988,000 or 57% of sales as compared to $18,889,000 or 65% of sales in the
comparable period in the prior fiscal year. One of the Company's largest
customers, Revco, has entered into a merger agreement with CVS Corporation which
is subject to stockholders and regulatory approval. It is too early to determine
the effects, if any, of this possible merger on the financial position or
results of operations of Pharmaceutical Formulations, Inc.
Sales for the three months ended December 31, 1996 were $20,724,000 as compared
to $15,772,000 in the comparable period in the prior fiscal year. The increase
of $4,952,000 or 31% is mainly a result of the items discussed above.
Cost of sales as a percentage of net sales was 76% for the six months ended
December 31, 1996 as compared to 81% in the comparable period in the prior
fiscal year. Cost of sales as a percentage of net sales was 77% for the three
months ended December 31, 1996 as compared to 82% in the comparable period in
the prior fiscal year. The reduction in cost of sales as a percentage of net
sales is a result of the increased sales, manufacturing efficiencies, lower raw
material costs and overall cost containment.
Selling, general and administrative expenses were $4,927,000 or 14% of net
sales for the six months ended December 31, 1996 as compared to $4,443,000 or
16% of net sales for the comparable period in the prior fiscal year. The
increase of $484,000 is mainly a result of increased sales and distribution
costs due to the increased sales volume. Selling, general and administrative
expenses were $2,625,000 or 13% of net sales for the three months ended December
31, 1996 as compared to $2,256,000 or 15% of net sales in the comparable period
in the prior fiscal year. The increase of $369,000 is due mainly to the reasons
stated above.
The six and three months ended December 31, 1995 included an accrual for special
compensation expense of $678,000.
Research and development costs were $420,000 for the six months ended December
31, 1996 as compared to $426,000 in the comparable period in the prior fiscal
year. Research and development costs were $205,000 for the three months ended
December 31, 1996 as compared to $218,000 in the comparable period in the prior
fiscal year.
Interest and other expenses were $1,667,000 for the six months ended December
31, 1996 as compared to $1,871,000 in the comparable period in the prior fiscal
year. Interest and other expenses were $830,000 for the three months ended
December 31, 1996 as compared to $899,000 in the comparable period in the prior
fiscal year. The reduction in interest expense is a result of reductions in
capital lease obligations and other long- term debt.
The Company recorded a provision for income taxes of $480,000 and $370,000 in
the six and three months ended December 31, 1996 as compared to a tax benefit of
$731,000 and $431,000 in the comparable periods in the prior fiscal year.
Net income for the six and three months ended December 31, 1996 was $742,000 and
$531,000, respectively, or $.02 per share as compared to a loss of $1,477,000
and $871,000, respectively, or $.05 and $.03 per share, respectively, in the
prior fiscal year.
The Company continues to take steps aimed at increasing sales and reducing costs
to reverse the losses incurred in fiscal year ended June 30, 1996. These steps
include: (a) adding new customers and products to increase sales volume, (b)
continuing efforts to reduce material costs and (c) other cost-saving measures
as well as other actions to improve profitability. There can be no assurance
that such actions will be successful in enabling the Company to continue to
realize profitable results and return the Company to profitability for the
fiscal year ending June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $10,481,000 as compared
to $7,928,000 at June 30, 1996. The increase of $2,553,000 is due to the net
income for the six months ended December 31, 1996 and an increase in borrowing
from the Company's institutional lender to finance the growth in accounts
receivable and inventory. The increase in working capital includes increases in
accounts receivable of $3,820,000 due to the increased sales. In addition,
inventories increased $5,114,000 to support the sales growth, including expected
increases in sales in the third quarter and the balance of the fiscal year. The
increase in inventory is necessary to support the customer service requirements
of the new customers obtained by the Company and the increased sales to current
customers. The increases in accounts receivable and inventory were offset
somewhat by an increase in accounts payable and accrued expenses of $5,113,000.
Capital expenditures of $1,419,000 for the six months ended December 31, 1996
were related to the continued efforts to upgrade the manufacturing equipment and
plant facilities. Capital expenditures for the fiscal year ending June 30, 1997
are currently estimated to be approximately $2,500,000.
The Company had a $15,000,000 asset-based line of credit with an institutional
lender. At December 31, 1996, the Company had $660,000 of unused availability
under this agreement. The line of credit expires February 4, 1999 and bears
interest at 1 3/4% above the prime lending rate (currently 8 1/4%). In January
1997, the Company negotiated a reduction in interest rate with this lender from
1 3/4% above the prime lending rate to 1 1/4%, subject to certain conditions. In
addition, the line of credit was increased to $17,500,000.
The Company has outstanding 2,500,000 shares of series A cumulative preferred
stock sold to ICC. Dividends from April 8, 1996 through December 31, 1996
(approximately $150,000) have accumulated and are in arrears. There is no
obligation or intention to pay dividends currently on the preferred stock.
Dividends will continue to accrue at the rate of $50,000 per quarter until
declared and paid.
The Company continues to take steps to increase sales and reduce costs to
improve operating results and meet working capital needs. As stated above, the
Company intends to add an estimated $2,500,000 of capital equipment in the
fiscal year ending June 30, 1997 to increase capacity and reduce costs. The
Company intends for these capital expenditures to be financed through capital
leases with either ICC or other parties. While the Company has in the past had
no difficulty in obtaining capital lease financing or meeting working capital
needs, there can be no assurance the Company will obtain the capital lease
financing or meet working capital needs in the future.
PART II. OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
See Note 2 to Notes to Consolidated Financial Statements.
Puritan Quartz v. PFI. In or about July 1994, Puritan
Quartz, Inc. ("Puritan") brought suit against the Company in
the U.S. District Court for the Southern District of New York,
alleging breach of (i) a purported contractual obligation to
supply Puritan with acetaminophen and ibuprofen for resale to
an unrelated party and (ii) related confidentiality
obligations. The complaint seeks damages in the aggregate
amount of $3,600,000 plus $300,000 for each additional month
of continuing breach. The Company's answer denies any
liability to Puritan noting that the agreement had a one-year
term ending on October 16, 1993, prior to the events giving
rise to the alleged breach, and that such agreement was never
extended. The Company's answer also disputes the aggregate
amount of Puritan's alleged lost profits. On January 15, 1997
this case was settled for an undisclosed sum of money.
Gary Sherman Investments v. PFI. In March 1996,
the Company was named as a defendant in a lawsuit
filed in the United States District Court for the
District of New Jersey by Gary Sherman Investments,
Inc., formerly known as Polystar Corporation ("GSI").
GSI alleged that it was owed $400,000 pursuant to a
promissory note allegedly executed in GSI's favor in or about
March 1991, and sought to recover the full face amount of the
note plus accrued interest. The Company's answer denied that
such money was owed and the Company filed a counterclaim
alleging, INTER ALIA, breaches of fiduciary duty and fraud by
GSI. On December 30, 1996 this case was settled with the
Company (i) paying $50,000 in cash, (2) issuing 50,000 shares
of the Company's common stock and (3) issuing an option to
purchase 100,000 shares of the Company's common stock
exercisable until December 30, 2000.
The above two lawsuit settlements were not material
to the financial position or results of operations of the
Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to the Registrant's Quarterly
Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly
authorized.
PHARMACEUTICAL FORMULATIONS, INC.
(REGISTRANT)
Date: April 15, 1997 By: /S/ FRANK MARCHESE
Frank Marchese
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
Exhibit 24.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Pharmaceutical Formulations, Inc.
Edison, New Jersey
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our reports dated
August 26, 1996, relating to the consolidated financial statements and
schedule of Pharmaceutical Formulations, Inc. and subsidiaries appearing in
the Company's Annual Report on Form 10-K for the year ended June 30, 1996
as amended by Forms 10-K/A, amendments numbers 1, 2 and 3.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Woodbridge, New Jersey
April 17, 1997
<PAGE>
Pharmacuetical Formulations, Inc.
460 Plainfield Avenue
Edison, NJ 08818
April 17, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.
Re: Pharmaceutical Formulations, Inc. -
Registration Statement for 400,000 Shares of Common Stock,
Par Value $.08 Per Share, Filed on January 31, 1997 (Reg. No.
333-20849)
Ladies and Gentlemen:
The undersigned Registrant joins with the selling shareholder named in
the captioned registration statement in requesting that the above Registration
Statement become effective at 9 A.M. on April 22, 1997 or as soon as possible
thereafter.
This will confirm that the undersigned is aware of its responsibilities
under the Securities Act of 1933 and the Securities Exchange Act of 1934 as they
relate to the proposed public offering of the securities specified in the
Registration Statement.
PHARMACEUTICAL FORMULATIONS, INC.
By: /s/ Frank Marchese
Name: Frank Marchese
Title:V.P. Finance
<PAGE>
Patricia A. Cohen
6 Danton Lane South
Lattingtown, New York 11560
April 17, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.
Re: Pharmaceutical Formulations, Inc. -
Registration Statement for 400,000 Shares of Common Stock,
Par Value $.08 Per Share, Filed on January 31, 1997 (Reg. No.
333-20849)
Ladies and Gentlemen:
As a selling shareholder named in the captioned registration statement,
I join with the Registrant in requesting that the above Registration Statement
become effective at 9 A.M. on April 22, 1997 or as soon as possible thereafter.
This will confirm that the undersigned is aware of her responsibilities
under the Securities Act of 1933 and the Securities Exchange Act of 1934 as they
relate to the proposed public offering of the securities specified in the
Registration Statement.
Sincerely,
/s/ Patricia Cohen
Patricia Cohen
