<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 M a r c h 3 1, 1 9 9 8
-----------------------------------------------
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 - 7 3 3 5
-------------------------------------------------------
L E E P H A R M A C E U T I C A L S
- ------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
C a l i f o r n i a 9 5 - 2 6 8 0 3 1 2
- ------------------------------- ------------------------------------
(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 March 31, 1998, 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
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Cash $ 26
Accounts and notes receivable (net of allowances: $179) 864
Due from related party 213
Inventories:
Raw materials $1,591
Work in process 277
Finished goods 289
------
Total inventories 2,157
Other current assets 691
------
Total current assets 3,951
Property, plant and equipment (less
accumulated depreciation and
amortization: $6,140) 498
Goodwill and other assets (net of
accumulated amortization: $5,347) 2,397
------
TOTAL $6,846
------
</TABLE>
See notes to financial statements.
<PAGE>
Form 10-QSB
LEE PHARMACEUTICALS
BALANCE SHEET
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Bank overdraft $ 119
Note payable to bank 8
Notes payable, other 918
Current portion - royalty agreements 416
Current portion - note payable related party 315
Accounts payable 827
Other accrued liabilities 678
Due to related parties 445
Deferred income 65
-------
Total current liabilities 3,791
-------
Long-term notes payable to related parties 3,000
-------
Long-term notes payable, other 1,037
-------
Long-term notes payable to bank 243
-------
Long-term payable-royalty agreements, less current portion $416 41
-------
Deferred income 109
-------
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 (6,010)
-------
Total stockholders' deficiency (1,375)
-------
TOTAL $ 6,846
-------
-------
</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 For the Six Months
Ended March 31, Ended March 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Gross revenues $2,215 $2,453 $4,851 $4,445
Less: Sales returns (197) (126) (357) (345)
Cash discounts and others (18) (38) (41) (65)
------ ------ ------ ------
Net revenues 2,000 2,289 4,453 4,035
------ ------ ------ ------
Costs and expenses:
Cost of sales 857 997 1,880 1,764
Selling and advertising expense 859 826 1,789 1,539
General and administrative expense 575 458 1,084 800
------ ------ ------ ------
Total costs and expenses 2,291 2,281 4,753 4,103
------ ------ ------ ------
(Loss) income from operations (291) 8 (300) (68)
Other income (loss) 18 (13) 36 46
------ ------ ------ ------
Net loss $ (273) $ (5) $ (264) $ (22)
------ ------ ------ ------
Per share:
Net loss $ (.06) $ .00 $ (.06) $ .00
------ ------ ------ ------
</TABLE>
See notes to financial statements.
<PAGE>
Form 10-QSB
LEE PHARMACEUTICALS
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net (loss)........................................... $(264) $ (22)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation......................................... 57 54
Amortization of intangibles.......................... 477 684
(Decrease) in deferred income........................ (33) (33)
(Gain) on disposal of property, plant, and equipment. (4) (13)
Change in operating assets and liabilities:
Decrease in accounts receivable...................... 439 6
(Increase) in due from related party................. (105) (21)
(Increase) in inventories............................ (177) (225)
Decrease in other current assets..................... 481 24
(Decrease) in accounts payable....................... (194) (253)
Increase (decrease) in accounts payable related
party............................................... 100 (57)
(Decrease) increase in notes payable, other.......... (64) 273
Increase in other accrued liabilities................ 270 421
(Decrease) in accrued royalties...................... (709) (76)
----- -------
Total adjustments.................................... 538 784
----- -------
Net cash provided by operating activities........ 274 762
----- -------
Cash flows from investing activities:
Additions to property, plant, and equipment.......... (38) (76)
Proceeds from sale of equipment...................... 4 13
Acquisition of product brands........................ (70) (1,092)
----- -------
Net cash (used in) investing activities.......... (104) (1,155)
----- -------
Cash flows from financing activities:
(Payments on) bank loans............................. (136) (61)
(Payments on) proceeds from notes payable to related
party.............................................. (64) 80
Proceeds from notes payable, other................... 200 703
(Decrease) in long-term royalty agreements........... (80) (330)
(Decrease) increase in bank overdraft................ (90) 2
----- -------
Net cash (used in) provided by financing
activities...................................... (170) 394
----- -------
Net Increase in cash...................................... 0 1
Cash, beginning of year................................... 26 13
----- -------
Cash, end of period....................................... $ 26 $ 14
----- -------
----- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................. $ 249 $ 258
----- -------
----- -------
Acquisition of product brands:
Fair value of assets acquired........................ $ 70 $ 1,497
Fair value of liabilities incurred................... $ 405
----- -------
Net cash payments................................ $ 70 $ 1,092
----- -------
----- -------
</TABLE>
See notes to financial statements.
<PAGE>
Form 10-QSB
NOTES TO FINANCIAL INFORMATION
1. Basis of presentation:
The accompanying balance sheet as of March 31, 1998, and the statements of
operations and cash flows for the periods ended March 31, 1998, and 1997,
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 six months ended March 31,
1998, 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. Continued existence:
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's recurring past
losses from operations, its first quarter nominal profit, and inability to
generate sufficient cash flow from normal operations raise substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
3. 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.
4. 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 March 31, 1998, the
interest rate was 12.5%. The note is guaranteed by the former Chairman of
the Company and the Company's President.
5. 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%.
<PAGE>
Form 10-QSB
6. Acquisitions:
On October 16, 1996, the Company purchased certain assets from Lactona
Corporation for $175,000 plus inventory valued at approximately $30,000.
The Company remitted $75,000 at closing. Payments of $3,000, including
interest, are due the 16th of each month starting November 1996 and ending
September 1999 and any remaining amount on October 16, 1999. Interest is
to be computed at the highest prime rate during the payment period. The
highest prime rate was 8.25% on March 31, 1998.
On October 21, 1996, the Company purchased certain assets from Roberts
Laboratories, Inc. for $1,168,089. The Company remitted $100,000 at
closing. Payments of $19,752 are due on the first of each month starting
November 1, 1996, and ending on October 1, 2000. Any remaining unpaid
balance is due on November 1, 2000. Interest shall be paid at the highest
prime rate during the preceding month.
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.
On February 17, 1998, the Company purchased certain assets of the
Painalay-Registered Trademark- throat spray line from Medtech Inc. for
$70,000. The Company is required to make five payments of $14,000 each
plus interest at 10% starting 61 days after the close. In addition, the
Company purchased for cash inventory valued at $27,764.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, AND MARCH 31, 1997
Gross revenues for the three months ended March 31, 1998, were $2,215,000,
a decrease of approximately $238,000 or 10% from the comparable three
months ended March 31, 1997. The decrease in gross revenues was due to the
decline in volume generated from the nail products and the 28 items
including ointments, nutritional supplements, vitamins, analgesics, and
various over-the-counter brands which were acquired in October 1996. On
the other hand, the above decreases in sales volume were partially offset
by increases in sales revenues in the depilatory category plus the added
sales of the newly acquired Klutch-Registered Trademark- brand and newly
launched in-house product Lee-Registered Trademark- Lip-Ex-TM-, lip balm.
Net revenues decreased approximately $289,000 or 13% for the three months
ended March 31, 1998, as compared to the three months ended March 31, 1997.
The change in net revenues was due to the same explanation of the decrease
in gross revenues discussed above. In addition, the sales returns
increased $71,000 or 56% when comparing the three months ended March 31,
1998, and 1997. The higher sales returns during the current quarter are
attributable to the higher than normal level of returns related to the
depilatory category plus other over-the-counter products.
Cost of sales as a percentage of gross revenues was 39% for the quarter
ended March 31, 1998, compared to 41% for the quarter ended March 31, 1997.
The cost of sales percentage was slightly lower due to benefits achieved
from the production learning curve, associated with the previously acquired
brands, increased production runs, and favorable product mix.
Selling and advertising expenses increased $33,000 or 4% when comparing the
three months ended March 31, 1998, with the three months ended March 31,
1997. The higher expenses were mainly due to the following factors: 1) an
increase in the amortization expense (approximately $10,000), 2) an
increase in salaries and wages plus related fringe benefits ($84,000) as a
result of new hires which included the addition of two outside salesmen,
and higher related travel and entertainment expenses, 3) higher promotional
allowance expense awarded to a key customer, and 4) higher product samples
expense related to the new brand acquisitions. The above increased
expenses were partially offset by a decrease in the cooperative advertising
costs.
<PAGE>
Form 10-QSB
General and administrative expenses increased $117,000 or 26% when
comparing the three months ended March 31, 1998, with the three months
ended March 31, 1997. The increase in expenses was mainly due to the
following factors: 1) increased salary and wages plus fringe benefits, 2)
addition of three new hires, 3) higher travel and entertainment expense,
and 4) increased legal expenses regarding patent and trademark services
($10,000) and brand acquisitions, etc.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998, AND MARCH 31, 1997
Gross revenues for the six months ended March 31, 1998, were $4,851,000, an
increase of approximately $406,000 or 9% from the comparable six months
period ended March 31, 1997. The increase in gross revenues was due to the
volume generated from the recently acquired brand Aquafilter-Registered
Trademark-, newly acquired brand Klutch-Registered Trademark-, and the
depilatory category. The above increased sales volume was partially offset
by reduced sales revenues of the nail category products.
Net revenues for the six months ended March 31, 1998, were $4,453,000, an
increase of $418,000 or 10% from the comparable six months ended March 31,
1997. The sales returns were slightly higher ($12,000 or 3.5%) during the
six months period ended March 31, 1998, versus March 31, 1997. This was
the result of lower nail extender product returns during this period and a
higher level of returns related to the depilatory category.
Cost of sales as a percentage of gross revenues for the six months ended
March 31, 1998, as compared to the six months ended March 31, 1997, was 39%
versus 40% respectively. The lower cost of sales percentage for the six
months ended March 31, 1998, compared to March 31, 1997, is due to the
reasons explained above regarding the material changes of the three months
period ended March 31, 1998, and 1997.
Selling and advertising expenses increased $250,000 or 16% when comparing
the six months ended March 31, 1998, with the six months ended March 31,
1997. The increased expenses were basically due to; 1) an increase in the
amortization expense, 2) an increase in salaries and wages plus fringe
benefits, the result of new hires which includes two outside salesmen, and
higher related travel and entertainment expenses, 3) higher manufacture
representative commissions, 4) higher product samples expense related to
the new brand acquisitions, and 5) increased freight costs. The
aforementioned increased expenses were offset, in part, by a decrease in
the cooperative advertising costs.
General and administrative expenses increased $284,000 or 36% when
comparing the six months ended March 31, 1998, with the six months ended
March 31, 1997. This significant increase was principally due to the same
factors outlined above when comparing the three months ended March 31,
1998, versus the comparable period ended March 31, 1997, plus slightly
higher supplies and printing costs.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, working capital increased to
$160,000 from $114,000 at September 30, 1997. The ratio of current assets
to current liabilities was 1.0 to 1 at March 31, 1998, and September 30,
1997. The increase in working capital of $46,000 ($160,000 - $114,000) was
basically due to an increase in inventories and decreases in accounts
payable (improved timely vendor payments) and accrued royalties (payment
after fiscal year end of minimum royalties due as of September 30, 1997).
The Company has an accumulated deficit of $6,010,000. The Company's past
recurring losses and first quarter 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.
<PAGE>
Form 10-QSB
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 Company. The Company resisted further
work on its property until the property upgradient was tested in greater
detail since two "apparent source" lots had not been tested. 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 for the reasons listed above as well as "financial
constraints". 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, in consort with their comprehensive
general liability carriers (CGL), have engaged a consultant to perform a
site investigation with respect to soil and shallow groundwater
contamination over the entire city block. 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 of 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 has been completed
but the final program has not been reported. 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
<PAGE>
Form 10-QSB
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 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 and other property owners engaged Geomatrix Consultants, Inc.,
to do a survey of vadose soil and shallow groundwater in the "hot spots"
detected in the previous studies. Geomatrix issued a report dated December
1, 1997 (the "Report"), on 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 indicated generally low concentrations of tetrachloroethene,
trichloaethene and trichloroethane in the groundwater of the upgradient
neighbor. The Report was submitted to the RWQCB for its comments and
response. A meeting with the parties and RWQCB was held on February 10,
1998. The RWQCB had advised companies that vadose soil contamination is
minimal and requires no further action. However, there is an area of
shallow groundwater which has a higher than desired level of chlorinated
solvents, and the RWQCB requested a proposed work plan be submitted, by
Geomatrix, which is due on June 15, 1998. Until the work plan is
available, 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 and
location of these chemicals are upgradient from the Company facilities, as
shown by the most recent testing done in 1997, the cleanup of those sources
may materially reduce any cleanup costs of the Company, an engineering
position that the Company has maintained for years.
The Company continues to seek reimbursement from various CGL carriers,
although 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.
As previously reported, the Securities and Exchange Commission (the
"Commission") had been conducting a formal investigation of the Company
concerning certain matters, including the Company's disclosure of its
environmental liabilities. The Company, Dr. Henry L. Lee, a director of
the Company, Ronald G. Lee, the President, Chairman and a director of
the Company, and Michael L. Agresti, the Vice President-Finance,
Treasurer and Secretary of the Company, without admitting or denying the
Commission's findings, consented to the entry of an Order directing the
Company and Messrs. Henry Lee, Ronald Lee, and Agresti to cease and
desist from violating and causing violations of the antifraud,
reporting, record-keeping and internal control provisions of the
Securities Exchange Act of 1934. The Order also suspends Mr. Agresti
from practicing before the Commission as an accountant, with a right to
reapply after three years.
<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.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the registrant occurred on March 10, 1998.
At that meeting, the following directors were elected:
<TABLE>
<CAPTION>
VOTES
-------------------------
Director FOR WITHHELD
--- --------
<S> <C> <C>
Dr. Henry L. Lee 3,354,556 216,411
Ronald G. Lee 3,368,254 202,713
William M. Caldwell IV 3,370,324 200,643
</TABLE>
<TABLE>
<CAPTION>
VOTES
--------------------------------------
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
The appointment of George Brenner, CPA
as independent auditor 3,459,131 47,730 64,106
</TABLE>
Item 6. 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.
<PAGE>
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.
LEE PHARMACEUTICALS
-------------------
(Registrant)
Date: May 12, 1998 Ronald G. Lee
-------------- ---------------------------
Ronald G. Lee
President (Chief Executive Officer
and Chief Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
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