<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1997
------------------------------------------------
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 1-7335
---------------------------------------------------------
LEE PHARMACEUTICALS
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
California 95-2680312
-------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1444 Santa Anita Avenue, South El Monte, California 91733
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(626) 442-3141
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant (1) 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.
Yes X No
------- -------
As of December 31, 1997, there were outstanding 4,135,162 shares of common
stock of the registrant.
Transitional Small Business Disclosure Format (check one):
Yes No X
------- -------
<PAGE>
Form 10-QSB
LEE PHARMACEUTICALS
BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Cash $ 27
Accounts and notes receivable (net of allowances: $199) 902
Due from related party 178
Inventories:
Raw materials $ 1,632
Work in process 229
Finished goods 289
--------
Total inventories 2,150
Other current assets 1,003
--------
Total current assets 4,260
Property, plant and equipment (less
accumulated depreciation and
amortization: $6,119) 491
Goodwill and other assets, (net of
accumulated amortization: $5,106) 2,567
--------
TOTAL $ 7,318
--------
--------
</TABLE>
See notes to financial statements.
<PAGE>
Form 10-QSB
LEE PHARMACEUTICALS
BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES
Bank overdraft $ 87
Note payable to bank 8
Notes payable, other 785
Current portion - royalty agreements 542
Current portion - note payable related party 285
Accounts payable 1,160
Other accrued liabilities 575
Due to related parties 427
Deferred income 65
---------
Total current liabilities 3,934
---------
Long-term notes payable to related parties 3,032
---------
Long-term notes payable, other 1,000
---------
Long-term notes payable to bank 247
---------
Long-term payable--royalty agreements, less current portion $542 81
---------
Deferred income 126
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock, $.10 par value; authorized, 7,500,00 shares;
issued and outstanding, 4,135,162 shares 413
Additional paid-in capital 4,222
Accumulated deficit (5,737)
---------
Total stockholders' deficiency (1,102)
---------
TOTAL $ 7,318
---------
---------
</TABLE>
See notes to financial statements.
<PAGE>
Form 10-QSB
LEE PHARMACEUTICALS
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Three Months
Ended December 31,
1997 1996
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Gross revenues $ 2,636 $ 1,992
Less: Sales returns (160) (219)
Cash discounts and others (23) (27)
---------- ----------
Net revenues 2,453 1,746
---------- ----------
Costs and expenses:
Cost of sales 1,023 767
Selling and advertising expense 930 713
General and administrative expense 509 342
---------- ----------
Total costs and expenses 2,462 1,822
---------- ----------
(Loss) from operations (9) (76)
Other income 18 59
---------- ----------
Net income (loss) $ 9 $ (17)
---------- ----------
---------- ----------
Per share:
Net income (loss) $ .00 $ (.00)
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
<PAGE>
Form 10-QSB
LEE PHARMACEUTICALS
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 9 $ (17)
-------- ---------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . 28 28
Amortization of intangibles . . . . . . . . . . . . . . 237 327
(Decrease) in deferred income . . . . . . . . . . . . . (16) (16)
(Gain) on disposal of property, plant, and equipment. . (2) (43)
Change in operating assets and liabilities:
Decrease in accounts receivable . . . . . . . . . . . . 401 317
(Increase) in due from related party. . . . . . . . . . (70) (18)
(Increase) in inventories . . . . . . . . . . . . . . . (170) (376)
Decrease (increase) in other current assets . . . . . . 169 (8)
Increase (decrease) in accounts payable . . . . . . . . 140 (96)
Increase in accounts payable related party. . . . . . . 52 50
(Decrease) increase in notes payable, other . . . . . . (196) 12
Increase in other accrued liabilities . . . . . . . . . 168 398
(Decrease) in accrued royalties . . . . . . . . . . . . (583) (76)
-------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . . 158 499
-------- ---------
Net cash provided by operating activities. . . . . . 167 482
-------- ---------
Cash flows from investing activities:
Additions to property, plant, and equipment . . . . . . (2) (10)
Proceeds from sale of equipment . . . . . . . . . . . . 2 43
Acquisition of product brands . . . . . . . . . . . . . - (1,188)
-------- ---------
Net cash (used in) investing activities. . . . . . . - (1,155)
-------- ---------
Cash flows from financing activities:
(Payments on) bank loans. . . . . . . . . . . . . . . . (71) (31)
(Payments on) notes payable to related party. . . . . . (33) (19)
Proceeds from notes payable, other. . . . . . . . . . . 100 829
(Decrease) in long-term royalty agreements. . . . . . . (40) (165)
(Decrease) increase in bank overdraft . . . . . . . . . (122) 98
-------- ---------
Net cash (used in) provided by financing activities. (166) 712
-------- ---------
Net increase in cash . . . . . . . . . . . . . . . . . . . . 1 39
Cash, beginning of year. . . . . . . . . . . . . . . . . . . 26 13
-------- ---------
Cash, end of period. . . . . . . . . . . . . . . . . . . . . $ 27 $ 52
-------- ---------
-------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . $ 125 $ 93
-------- ---------
-------- ---------
Acquisition of product brands:
Fair value of assets acquired . . . . . . . . . . . . . - 1,670
Fair value of liabilities incurred. . . . . . . . . . . $ - (482)
-------- ---------
Net cash payments. . . . . . . . . . . . . . . . . . $ - 1,188
-------- ---------
-------- ---------
</TABLE>
See notes to financial statements.
<PAGE>
Form 10-QSB
NOTES TO FINANCIAL INFORMATION
1. BASIS OF PRESENTATION:
The accompanying balance sheet as of December 31, 1997, and the statements
of operations and cash flows for the periods ended December 31, 1997, and
1996, have not been audited by independent accountants but reflect all
adjustments, consisting of any normal recurring adjustments, which are, in
the opinion of management, necessary to a fair statement of the results for
such periods. The results of operations for the three months ended
December 31, 1997, are not necessarily indicative of results to be expected
for the year ending September 30, 1998.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the requirements of the Securities
and Exchange Commission, although the Company believes that the disclosures
included in these financial statements are adequate to make the information
not misleading.
The financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on
Form 10-KSB for the fiscal year ended September 30, 1997.
The Company is involved in various matters involving environmental cleanup
issues. SEE "Item 2. Management's Discussion and Analysis or Plan of
Operations" and Note 10 of Notes to Financial Statements included in the
Company's Form 10-KSB for the fiscal year ended September 30, 1997. The
ultimate outcome of these matters cannot presently be determined.
Environmental expenditures that relate to an existing condition caused by
past operations, and which do not contribute to current or future revenue
generation, are expensed. The Company's proportionate share of the
liabilities are recorded when environmental remediation and/or cleanups are
probable, and the costs can be reasonably estimated.
2. NET LOSS PER SHARE:
Net loss per share is based on the weighted average number of shares of
common stock outstanding during the periods presented. Common stock
equivalents (common stock options) are not included in these calculations
where their effect on net loss per share is anti-dilutive. The weighted
average number of shares was 4,135,162 for all periods presented.
3. NOTE PAYABLE TO BANK:
Effective April 26, 1996, the Company renewed its real estate loan with the
bank. The note payable to the bank, secured by deed on land and building,
requires a monthly payment of $4,200, including interest at Bank of
America's base rate plus 4%, maturing March 2001. At December 31, 1997,
the interest rate was 12.5%. The note is guaranteed by the former Chairman
of the Company and the Company's President.
4. LINE OF CREDIT:
In May 1996, the Company obtained $1,000,000 of financing, in the form of a
revolving credit facility. The financing is secured by accounts
receivable, equipment, inventories and certain other assets. It is a two
year agreement, maturing May 1998, and will automatically continue
thereafter until either party terminates on a 90 day prior written notice.
The loan and security agreement is subject to a minimum interest of $3,000
per month. The loan bears interest at Bank of America's prime plus 8%.
5. ACQUISITIONS:
On September 8, 1997, the Company purchased certain assets of the
Klutch-Registered Trademark- denture adhesive powder line from I. Putnam,
Inc. for $320,000. The Company remitted $225,000 at closing and is
required to make one payment of $7,000 plus interest, and eleven equal
monthly payments of $8,000, plus interest at the prime rate. In addition,
the Company purchased certain inventories from I. Putnam, Inc. for $51,063
at closing.
<PAGE>
Form 10-QSB
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997, AND DECEMBER 31, 1996
Gross revenues for the three months ended December 31, 1997, were
$2,636,000, an increase of approximately $644,000 or 32% from the
comparable three months period ended December 31, 1996. The increase in
gross revenues was due to the volume generated from the newly acquired
brands such as; Klutch-Registered Trademark- and 28 items including
ointments, nutritional supplements, vitamins, analgesics, and various
over-the-counter brands. In addition to the aforementioned sales volume
increases, the Company reported sales volume increases in the depilatory
category plus a newly launched in-house product Lee-Registered Trademark-
Lip-Ex-TM-, lip balm. The above increased sales volume was partially
offset by reduced sales revenues of the nail category products. This
continued decline is primarily due to customers' discontinuance of several
of the nail extender SKU's (stock keeping units).
Net revenues increased approximately $707,000 or 40% for the three months
ended December 31, 1997, as compared to the three months ended December 31,
1996. The change in net revenues was due to the same explanation of the
increase in gross revenues discussed above. In addition, the sales returns
declined $59,000 or 27% when comparing the three months ended December 31,
1997, and 1996. The lower sales returns during the current quarter was the
result of fewer returns related to the nail extender category. As
discussed earlier, the nail products sales volume has continued to decline,
thereby resulting in lesser returns of the nail category.
Cost of sales was a constant 39% of gross revenues for the quarter ended
December 31, 1997, and 1996.
Selling and advertising expenses increased $217,000 or 30% when comparing
the three months ended December 31, 1997, with the three months ended
December 31, 1996. The increase in expenses was mainly due to the
following factors; 1) an increase in the amortization expense
(approximately $40,000 representing a full quarter of expense) related to
acquisitions by the Company during October 1996, 2) an increase in
salaries and wages plus related fringe benefits ($84,000) the result of new
hires plus the addition of two outside salesmen, 3) an increase in
commissions ($53,000) due to higher sales revenues, and 4) higher freight
costs ($30,000).
General and administrative expenses increased $167,000 or 49% when
comparing the three months ended December 31, 1997, with the three months
ended December 31, 1996. The increase in expenses was mainly due to the
following factors; 1) higher salaries and wages plus related fringe
benefits ($38,000), 2) increased interest expense of approximately $38,000
as a result of increased borrowings from the Company's asset based
financing lender, and 3) higher travel and entertainment expense, and
consultant fees.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1997, working capital increased
to $326,000 from $114,000 at September 30, 1997. The ratio of current
assets to current liabilities was 1.1 to 1 at December 31, 1997, and 1.0 to
1 at September 30, 1997. The increase in working capital of $212,000
($326,000 - $114,000) was primarily due to an increase in inventories and a
decrease in the Company's bank overdraft and the current portion of the
royalty agreements.
The Company has an accumulated deficit of $5,737,000. The Company's past
recurring losses and current nominal profit from operations and inability
to generate sufficient cash flow from normal operations to meet its
obligations as they came due raise substantial doubt about the Company's
ability to continue as a going concern. The Company's ability to continue
in existence is dependent upon future developments, including retaining
current financing and achieving a level of profitable operations sufficient
to enable it to meet its obligations as they become due.
ENVIRONMENTAL MATTERS
The Company owns a manufacturing facility located in South El Monte,
California. The California Regional Water Quality Control Board (The
"RWQCB") ordered the Company in 1988 and 1989 to investigate the
contamination on its property (relating to soil and groundwater
contamination). The Company engaged a consultant who performed tests and
reported to the then Chairman of the
<PAGE>
Form 10-QSB
Company. On August 12, 1991, the RWQCB issued a "Cleanup and Abatement
Order" directing the Company to conduct further testing and cleanup the
site. In October 1991, the Company received from an environmental
consulting firm an estimate of $465,200 for investigation and cleanup
costs. The Company believed that this estimate was inconclusive and
overstated the contamination levels. The Company believes that subsequent
investigations will support the Company's conclusions about that estimate.
The Company did not complete the testing, and in June 1992 the RWQCB
requested that the EPA evaluate the contamination and take appropriate
action. At the EPA's request, Ecology & Environment, Inc. conducted an
investigation of soil and groundwater on the Company's property. Ecology &
Environment Inc.'s Final Site Assessment Report, which was submitted to the
EPA in June 1994, did not rule out the possibility that some of the
contamination originated on-site, and resulted from either past or current
operations on the property. The Company may be liable for all or part of
the costs of remediating the contamination on its property. The EPA has
not taken any further action in this matter, but may do so in the future.
The Company and nearby property owners have engaged a consultant to perform
a site investigation with respect to soil and shallow groundwater
contamination. The Company currently estimates the cost to perform the
site investigation to be $175,000. Accordingly, while recognizing it may
be jointly and severally liable for the entire cost, the financial
statements as of September 30, 1995, recognized the proportionate amount
($87,500) which the Company believes is its liability for a site
investigation.
The tenants of nearby properties upgradient have sued the Company alleging
that hazardous materials from the Company's property caused contamination
on the properties leased by the tenants. The case name is DEL RAY
INDUSTRIAL ENTERPRISES, INC. v. ROBERT MALONE, ET AL., Los Angeles County
Superior Court, Northwest District, commenced August 21, 1991. In this
action, the plaintiff alleges environmental contamination by defendants of
its property, and seeks a court order preventing further contamination and
monetary damages. The Company does not believe there is any basis for the
allegations and is vigorously defending the lawsuit.
The Company's South El Monte manufacturing facility is also located over a
large area of possibly contaminated regional groundwater which is part of
the San Gabriel Valley Superfund site. The Company has been notified that
it is a potentially responsible party ("PRP") for the contamination. In
1995, the Company was informed that the EPA estimated the cleanup costs for
the South El Monte's portion of the San Gabriel Valley Superfund site to be
$30 million. The Company's potential share of such amount has not been
determined. Superfund PRPs are jointly and severally liable for superfund
site costs, and are responsible for negotiating among themselves the
allocation of the costs based on, among other things, the outcome of
environmental investigation.
In August 1995 the Company was informed that the EPA entered into an
Administrative Order on Consent with Cardinal Industrial Finishes
("Cardinal") for a PRP lead remedial investigation and feasibility study
(the "Study") which, the EPA states, will both characterize the extent of
groundwater contamination in South El Monte and analyze alternatives to
control the spread of contamination. The Company and others have entered
into the South El Monte Operable Unit Site Participation Agreement with
Cardinal pursuant to which, among other things, Cardinal will contract with
an environmental firm to conduct the Study. The Study is anticipated to
take eighteen to twenty-four months. The Company's share of the cost of
the Study is currently $15,000 and was accrued for in the financial
statements as of September 30, 1995.
The City of South El Monte, the city in which the Company has its
manufacturing facility, is located in the San Gabriel Valley. The San
Gabriel Valley has been declared a Superfund site. The 1995 Water Quality
Control Plan issued by the California Regional Water Quality Control Board
states that the primary groundwater basin pollutants in the San Gabriel
Valley are volatile organic compounds from industry, nitrates from
subsurface sewage disposal and past agricultural activities. In addition,
the Plan noted that hundreds of underground storage tanks leaking gasoline
and other toxic chemicals have existed in the San Gabriel Valley. The
California Department of Toxic Substance Control have declared large areas
of the San Gabriel Valley to be environmentally hazardous and subject to
cleanup work.
The Company believes the City of South El Monte does not appear to be
located over any of the major plumes. However, the EPA recently announced
it is studying the possibility that, although the vadose soil and
groundwater, while presenting cleanup problems, there may be a
contamination by DNAPs (dense non-aqueous phase liquids), i.e., "sinkers",
usually chlorinated organic cleaning solvents. The EPA has proposed to
drill six "deep wells" throughout the City of South El Monte at an
estimated cost of $1,400,000. The EPA is conferring with SEMPOA (South El
Monte Property
<PAGE>
Form 10-QSB
Owners Association) as to cost sharing on this project. SEMPOA has
obtained much lower preliminary cost estimates. The outcome cost and
exact scope of this are unclear at this time.
The Company has received a report from Geomatrix Consultants, Inc., dated
December 1, 1997 (the "Report"), containing a site assessment to evaluate
the impact of volatile organic compounds on the soil and groundwater at the
Lidcombe and Santa Anita Avenue site located in South El Monte, California
(which includes the Company's facilities). The Report has been submitted
to the RWQCB for its comments and response. While the Report appears to
indicate generally low concentrations of tetrachloroethene, trichloaethene
and trichloroethane, until the comments and response of the RWQCB have been
received and analyzed, no determination can be made as to what, if any,
cleanup will be required by the Company or what, if any, additional
environmental costs the Company may incur. The Company is optimistic that
since the sources of these chemicals appear to be upgradient from the
Company facilities as a result of the most recent testing done in 1997, the
cleanup of those sources should materially reduce any cleanup costs of the
Company, an engineering position that the Company has maintained for years.
The Company has been seeking reimbursement of cleanup costs from its
insurance carriers. One carrier has paid certain amounts towards cleanup
costs that may be incurred by buying back its policy and legal fees
actually incurred. The Company continues to seek reimbursement from other
carriers, although no such other payments have been received or agreed to,
and there can be no assurances that any such payments will be received.
Some carriers have denied liability for costs, based on their review and
analysis of the insurance policies, the history of the site, the nature of
the claims, and current court decisions in such cases.
The total amount of environmental investigation and cleanup costs that the
Company may incur with respect to the foregoing is not known at this time.
However, based upon information available to the Company at this time, the
Company has expensed a total of $261,000, of which $126,000 were legal
fees, since 1991 for environmental investigation and cleanup costs. The
actual costs could differ materially from the amounts expensed for
environmental investigation and cleanup costs to date.
The Securities and Exchange Commission has issued a formal order of
investigation concerning certain matters, including the Company's
environmental liabilities. The Company is cooperating with the
investigation.
<PAGE>
Form 10-QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under Part I, Item 2, "Management's Discussion and
Analysis or Plan of Operations - Environmental Matters" is incorporated herein
by reference. SEE ALSO "Legal Proceedings" in the Company's Form 10-KSB for the
fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
<S> <C>
Item 6. The following exhibits are filed herewith:
10.37 - Promissory note evidencing advance made to the
Registrant
10.38 - Promissory note evidencing advance made to the
Registrant
Exhibits
3.1 - Articles of Incorporation, as amended (1)
3.4 - By-laws, as amended December 20, 1977 (2)
3.5 - Amendment of By-laws effective March 14, 1978 (2)
3.6 - Amendment to By-laws effective November 1, 1980 (3)
27 - Financial Data Schedule
(1) Filed as an Exhibit of the same number with the Company's Form
S-1 Registration Statement filed with the Securities and Exchange
Commission on February 5, 1973, (Registrant No. 2-47005), and
incorporated herein by reference.
(2) Filed as Exhibits 3.4 and 3.5 with the Company's Form 10-K
Annual Report for the fiscal year ended September 30, 1978,
filed with the Securities and Exchange Commission and
incorporated herein by reference.
(3) Filed as an Exhibit of the same number with the Company's Form
10-K Annual Report for the fiscal year ended September 30, 1979,
filed with the Securities and Exchange Commission and
incorporated herein by reference.
</TABLE>
<PAGE>
Form 10-QSB
SIGNATURES
In accordance with the requirements of the Securities Exchange Acts of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C> <C>
LEE PHARMACEUTICALS
---------------------
(Registrant)
Date: FEBRUARY 11, 1998 RONALD G. LEE
---------------------
Ronald G. Lee
President
Date: FEBRUARY 11, 1998 MICHAEL L. AGRESTI
-------------------------
Michael L. Agresti
Vice President - Finance
</TABLE>
<PAGE>
EXHIBIT 10.37
Page 1
STRAIGHT NOTE
$100,000 South El Monte, California November 4, 1997
- ------------
For value received, Lee Pharmaceuticals promises to pay Mark DiSalvo or
order, at South El Monte, California the sum of ONE HUNDRED THOUSAND DOLLARS,
with interest from November 4, 1997, on unpaid principal at the rate of
twenty (20) per cent per annum; principal payable on December 1, 1998.
Interest shall be calculated on the basis of the unpaid principal balance
daily, based on a 365 day year, actual day month, payable monthly. Principal
and interest shall be payable in lawful money of the United States. If action
be instituted on this note, I promise to pay such sum as the Court may fix as
attorney's fees. This note is secured by the trademark in the product brand
KLUTCH -Registered Trademark-.
NOVEMBER 7, 1997 RONALD G. LEE
-------------------- -------------------------------------
Date Lee Pharmaceuticals - Ronald G. Lee
NOVEMBER 7, 1997 MICHAEL L. AGRESTI
-------------------- --------------------------------------
Date Lee Pharmaceuticals - Michael L. Agresti
<PAGE>
EXHIBIT 10.38
Page 1
STRAIGHT NOTE
$100,000 South El Monte, California January 12, 1998
- ------------
For value received, Lee Pharmaceuticals promises to pay Mark DiSalvo or
order, at South El Monte, California the sum of ONE HUNDRED THOUSAND DOLLARS,
with interest from January 12, 1998, on unpaid principal at the rate of
twenty (20) per cent per annum; principal payable on January 1, 1999.
Interest shall be calculated on the basis of the unpaid principal balance
daily, based on a 365 day year, actual day month, payable monthly. Principal
and interest shall be payable in lawful money of the United States. If action
be instituted on this note, I promise to pay such sum as the Court may fix as
attorney's fees. This note is secured by the trademark in the product brand
KLUTCH -Registered Trademark-.
JANUARY 12, 1997 RONALD G. LEE
-------------------- -------------------------------------
Date Lee Pharmaceuticals - Ronald G. Lee
JANUARY 12, 1997 MICHAEL L. AGRESTI
-------------------- --------------------------------------
Date Lee Pharmaceuticals - Michael L. Agresti
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 27
<SECURITIES> 0
<RECEIVABLES> 1,101
<ALLOWANCES> (199)
<INVENTORY> 2,150
<CURRENT-ASSETS> 4,260
<PP&E> 6,610
<DEPRECIATION> (6,119)
<TOTAL-ASSETS> 7,318
<CURRENT-LIABILITIES> 3,934
<BONDS> 0
0
0
<COMMON> 413
<OTHER-SE> (1,515)
<TOTAL-LIABILITY-AND-EQUITY> 7,318
<SALES> 2,453
<TOTAL-REVENUES> 2,636
<CGS> 1,023
<TOTAL-COSTS> 2,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 9
<INCOME-TAX> 0
<INCOME-CONTINUING> 9
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
