As filed with the Securities and Exchange Commission on March __, 1997.
Registration No. 333-20849
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1 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. [ ]
-----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
Title of Shares to be Amount to be Registered Proposed Maximum Proposed Maximum Amount of Registration
Registered Aggregate Price per Aggregate Offering Fee
Unit(1) Price(1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.08 par 400,000 $.9685 $387,400 $117.39
value
=================================================================================================================================
(1) 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.
</TABLE>
-----------------------
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>
SUBJECT TO COMPLETION, DATED _________, 1997
400,000 Shares
-----------------------
PHARMACEUTICAL FORMULATIONS, INC.
----------------------
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 will receive no part of the proceeds from this
offering. The Common Stock of the Company is traded on the over-the-counter
market (OTC Bulletin Board Symbol:
PHFR).
-----------------
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.
<TABLE>
<CAPTION>
====================================================================================================================================
Proceeds to
Price Underwriting Proceeds to Selling
to Public Discount Company(1) Stockholder(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................... $ None None $
Total....................... $ None None $
====================================================================================================================================
(1) Estimated based on the average of the bid and asked prices for the Company's Common Stock on March __, 1997
($._____ and $_____ respectively) as reported by North American Quotations, Inc.
(2) Before deducting expenses payable by the Company, estimated at $15,000.
See "Use of Proceeds" regarding payments which have been or will be
received by the Company upon the exercise of the warrants relating to
the shares.
(3) Before deducting expenses payable by the Selling Stockholder, estimated at $5,000.
</TABLE>
---------------------------
Sales of the Shares by the Selling Stockholder may be made
from time to time, pursuant to this Prospectus or Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act") (or any other applicable
exemption from registration under the Securities Act). See "Plan of
Distribution."
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.*
---------------------------
The date of this Prospectus is __________, 1997
- --------
* To be noted in margin if any copies of this Prospectus are distributed
prior to effectiveness
<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.
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.
USE OF PROCEEDS
The Company will receive no proceeds from any sale of the
Shares being offered hereby. The Company however, received 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 of 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 over $5,000 except
the brokerage, legal, accounting and other professional fees incurred by the
Selling Stockholder. The expenses to be paid by the Company are estimated to be
approximately $15,000.
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.
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.
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."
PLAN OF DISTRIBUTION
Shares of Common Stock covered hereby may be offered and sold from
time to time by the Selling Stockholder, 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.
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.
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.
<PAGE>
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 (filed
herewith)
13.3 Form 10-Q/A (Amendment No. 1) for the quarter ended December
31, 1996 (to be filed)
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 discolsed 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 26th day of March, 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
President (Principal Executive
Officer), Chief Executive Officer,
and Director March 26, 1997
/s/ Charles E. LaRosa*
Charles E. LaRosa
Vice President-Finance, Chief Financial Officer
(Principal Financial Officer), Secretary and
Treasurer (Principal Accounting Officer)
March 26, 1997
/s/ Frank Marchese
Frank Marchese
Chairman of the Board March 26, 1997
/s/ John Oram*
John Oram
Director March 26, 1997
/s/ Ray Cheesman*
Ray Cheesman
- ---------------------------------------
* By /s/ Frank Marchese
(Frank Marchese, Attorney-in-Fact)
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
13.2 Form 10-Q for the quarter ended December 31, 1996
24.2 Consent of BDO Seidman, LLP to be named in the Registration
Statement.
EXHIBIT 13.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(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.
<PAGE>
PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1996 1996
ASSETS (UNAUDITED) (NOTE 1)
CURRENT ASSETS
<S> <C> <C>
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 1,879,000 1,877,000
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 8,515,000 9,468,000
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 shares
issued and outstanding 2,500,000 2,500,000
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>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Three Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C>
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 (BENEFIT) 1,222,000 ( 2,208,000) 901,000 (1,302,000)
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
OUTSTANDING 30,711,000 29,381,000 30,711,000 29,439,000
=========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31,
1996 1995
---- -----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
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
deferred financing costs 69,000 57,000
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
recoverable 1,161,000 (581,000)
(Increase)/decrease in inventories ( 5,114,000) 2,756,000
(Increase)/decrease in other current assets ( 157,000) 69,000
(Increase)/decrease in accounts payable,
accrued expenses and income taxes payable 5,113,000 ( 644,000)
------------- -----------
Net cash (used in) operating actvities ( 452,000) ( 875,000)
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase)/decrease in other assets 15,000 ( 6,000)
(Increase) in property, plant and equipment ( 1,419,000) ( 992,000)
------------ -----------
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>
See accompanying notes to consolidated financial statements.
<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 -
<PAGE>
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 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 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
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.
<PAGE>
PART II. OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
See Note 2 to Notes to Consolidated Financial
Statements.
On December 30, 1996, the Company settled the Gary Sherman
Investments, Inc. lawsuit. The settlement included (1) $50,000
in cash, (2) 50,000 shares of the Company's common stock and
(3) an option to purchase 100,000 shares of the Company's
common stock exercisable until December 30, 2000.
In January 1997, the Company settled the Puritan-Quartz
lawsuit for an undisclosed sum of money.
The above two lawsuit settlements were not material to the
financial position or results of operations of the Company.
Item 2: CHANGES IN SECURITIES
50,000 shares of the Common Stock of the Company were issued
to FIFO, Inc. on December 30, 1996 as part of a settlement of
a pending litigation with Gary Sherman Investments, Inc. (see
Item 1 above.) As part of such settlement, the Company also
issued an option to FIFO, Inc. to purchase 100,000 shares of
the Company's Common Stock at a price of $1.00 per share,
exercisable until December 30, 2000. The issuance of such
shares was, and the issuance of the shares pursuant to
exercise of such options is conditioned upon such issuance
being, exempt from registration as a transaction not involving
a public offering of securities.
Item 3: DEFAULTS UPON SENIOR SECURITIES
None.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
HOLDERS
At the Company's 1996 Annual Stockholders Meeting held on
November 6,1996, stockholders approved (i)the election of Ray W.
Cheesman, Paul Falick, Charles E. LaRosa, Frank Marchese, John L.
Oram and John Scagnelli to the Company's Board of Directors (after
the stockholders meeting, the Board of Directors unanimously voted
to reduce the size of the Board to three directors and Frank
Marchese, Paul Falick and John Scagnelli resigned their positions
as directors after the Board of Directors meeting) and (ii) the
ratification of the re-election by the Company of BDO Seidman,
LLP, independent certified public accountants, to audit the
financial statements of the Company for the year ending June
30,1997.
Item 5: OTHER INFORMATION
When used in the Form 10-Q and in future filings by the Company
with the Securities and Exchange Commission, in the Company's
press releases and in oral statements made with the approval of an
authorized executive officer, the words or phrases "will likely
result," "are expected to,", "will continue," "is anticipated",
"estimate," "project," "expect," "believe," "hope," or similar
expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place
undue reliance on such forward-looking statements, which speak
only as of the date made.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits.
27 - Financial Data Schedule
(b). Reports on Form 8-K
None.
<PAGE>
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.
PHARMACEUTICAL FORMULATIONS, INC.
(REGISTRANT)
Date: February 10, 1997 By: /S/ CHARLES E. LAROSA
--------------------------
Charles E. LaRosa
Chief Executive Officer and President
(Principal Executive Officer)
Date: February 10, 1997 By: /S/ FRANK MARCHESE
--------------------------
Frank Marchese
Chief Financial Officer and Treasurer
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
27. Financial Data Schedule
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 report dated August
26, 1996 relating to the consolidated financial statements and schedule of
Pharmaceutical Formulations, Inc. appearing in the Company's Annual Report on
Form 10-K for the year ended June 30, 1996.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Woodbridge, NJ
March 25, 1997
