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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A - NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
[ ] 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 0-13304
CHANTAL PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-2276346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12121 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 207-1950
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 twelve (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
--- ---
The number of shares of Common Stock, $.01 par value, outstanding as of
September 30, 1996 was 17,950,516.
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CHANTAL PHARMACEUTICAL CORPORATION
INDEX TO FORM 10-Q/A - No. 1
<TABLE>
<CAPTION>
Part I: Financial Information (unaudited) Page Number
- ------------------------------------------ ----------------
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets as of September 30, 1995
and June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the three months
ended September 30, 1995 and September 30, 1994 . . . . . . . . . . . . . . . 4
Consolidated Statement of Stockholders' Equity for the
three months ended September 30, 1995 . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the three months
ended September 30, 1995 and September 30, 1994 . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 7
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . . . . . . . . . 11
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CHANTAL PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1995 1995
------ --------------- ---------
Current assets (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 8,397,202 $ 2,824,644
Short-term investment 100,000 100,000
Accounts receivable, trade 4,643,939 3,064,087
Inventory 3,706,125 2,747,050
Prepaid expenses 393,591 364,420
-------------- -------------
Total current assets 17,240,857 9,100,201
Property and equipment, at cost:
Equipment and machinery 1,550,371 1,419,202
Furniture, fixtures and leasehold improvements 390,615 369,804
Less accumulated depreciation and amortization (1,265,837) (1,199,511)
-------------- -------------
Net property and equipment 675,149 589,495
License rights, net of accumulated amortization of $516,391
at September 30, 1995 and $307,902 at June 30, 1995 7,823,154 8,031,643
Patents and trademarks, net of accumulated amortization of
$55,126 at September 30, 1995 and $53,403 at June 30, 1995 61,988 63,712
Prepaid royalties, net 801,047 822,281
Deposits and other assets 624,554 373,398
Organization cost, net 125,560 133,407
-------------- -------------
TOTAL ASSETS $ 27,352,309 $ 19,114,137
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,345,224 $ 849,106
Accrued liabilities 405,052 255,513
Income taxes payable 17,225 17,225
Allowance for sales returns 213,221 90,216
Royalties payable 529,026 700,000
Current portion of long-term capital lease obligation 62,760 62,760
Short-term borrowings 109,578 105,557
-------------- -------------
Total current liabilities 2,682,086 2,080,377
Long term liabilities
Capital lease obligation, less current portion 456,642 489,313
Deferred royalties, less current portion 350,000 350,000
-------------- -------------
Total liabilities 3,488,728 2,919,690
Commitments and contingencies
Minority interest 1,797,650 1,793,052
Stockholders' equity
Preferred stock, $.10 par value; 1,000,000 shares authorized; 530,000 and
30,000 Preferred shares issued and outstanding at September 30, 1995
and June 30, 1995, respectively 53,000 3,000
Total voluntary or involuntary liquidation preference of $150,000 at
September 30, 1995 and June 30, 1995, respectively
Common stock, $.01 par value; 20,000,000 shares authorized; 17,850,516 and
16,820,516 shares issued and outstanding at September 30, 1995 and June
30, 1995, respectively 178,505 168,205
Additional paid-in capital-preferred stock 2,351,000 147,000
Additional paid-in capital-common stock 50,913,260 46,294,440
Accumulated deficit (31,429,834) (32,211,250)
-------------- ------------
Total stockholders' equity 22,065,931 14,401,395
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,352,309 $ 19,114,137
============== =============
</TABLE>
See accompanying notes.
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CHANTAL PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30, 1995 and September 30, 1994
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1995 1994
------------- --------------
<S> <C> <C>
Revenues:
Product sales $ 5,330,527 $ 269,817
Sales returns and allowance (161,043) -
Other 31,092 11,829
------------ ------------
Total revenues 5,200,576 281,646
Costs of goods sold 832,452 48,739
------------ ------------
Gross profit 4,368,124 232,907
Marketing and other expenses
related to cosmetic line 2,194,912 203,469
General and administrative 1,018,557 144,812
Amortization of license rights 229,723 -
Research and development 155,291 359,983
------------ ------------
Income (loss) from operations 769,641 (475,357)
Other income (expense):
Interest income 40,962 134
Interest expense: (25,158) (21,870)
------------ ------------
Income (loss) before income taxes
and minority interest 785,445 (497,093)
Income taxes - -
Minority interest (4,029) 13,203
------------ ------------
Net income (loss) $ 781,416 $ (483,890)
============ ============
Net income (loss) per share $ 0.04 $ (0.04)
============ ============
Weighted average shares outstanding 17,817,183 11,333,850
============ ============
</TABLE>
See accompanying notes.
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CHANTAL PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Period from June 30, 1995 to September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
COMMON
PREFERRED PREFERRED COMMON SHARES
SHARES SHARES SUB- SHARES SUB- PREFERRED PREFERRED STOCK
ISSUED SCRIBED ISSUED SCRIBED STOCK SUB-SCRIBED COMMON STOCK
--------- ---------- ------ ------- --------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1995 30,000 - 16,820,516 - $ 3,000 - $ 168,205
Common shares issued for
consulting fee in July 1995 - - 30,000 - - - 300
Common shares issued at
$4.90 per share for cash
less expeses of $391,300
in private placement in
August 1995 - - 1,000,000 - - - 10,000
Preferred shares issued
at $4.90 per share for
cash less expense of
$196,000 in private
placement in August 1995 500,000 - - - 50,000 - -
Net Income - - - - - - -
------- ------- ----------- ----- ------- --------- -------------
Balance, September 30, 1995 530,000 - 17,850,516 - $53,000 $ - $ 178,505
======= ======= =========== ===== ======= ========= =============
<CAPTION>
PREFERRED STOCK COMMON STOCK
COMMON STOCK ADDITIONAL PAID-IN ADDITIONAL PAID-IN ACCUMULATED
SUBSRIBED CAPITAL CAPITAL DEFICIT TOTAL
------------ --------------- ------------------ ----------- -----
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1995 $ - $ 147,000 $ 46,294,440 $(32,211,250) $ 14,401,395
Common shares issued for
consulting fee in July 1995 - - 120,120 - 120,420
Common shares issued at
$4.90 per share for cash
less expeses of $391,300
in private placement in
August 1995 - - 4,498,700 - 4,508,700
Preferred shares issued
at $4.90 per share for
cash less expense of
$196,000 in private
placement in August 1995 - 2,204,000 - - 2,254,000
Net Income - - - 781,416 781,416
------ ---------- ------------ ------------ ------------
Balance, September 30, 1995 $ - $2,351,000 $ 50,913,260 $(31,429,834) $ 22,065,931
====== ========== ============ ============ ============
</TABLE>
See accompanying notes.
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CHANTAL PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30, 1995 and September 30, 1994
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 781,416 $ (483,890)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 307,891 53,292
Provisions for sales return 123,005 -
Minority interest 4,029 (13,203)
Loss on disposition of assets - -
Common stock issued in satisfaction of
consulting and legal fee 120,420 -
Changes in operating assets and liabilities:
Accounts receivable, trade (1,579,852) (151,762)
Inventories (959,075) (21,059)
Prepaid expenses (net) (29,171) (18,166)
Other assets (252,859) (8,662)
Accounts payable and accrued liabilities 474,684 (123,417)
----------- ----------
Net cash used in operating activities (1,009,512) (766,867)
----------- ----------
Cash flows from investing activities:
Purchase of short-term certificate of deposit -
Additions to property and equipment (151,980) -
----------- ----------
Net cash provided by (used in) investing activities (151,980) -
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of short-term debt 4,021 (39,524)
Payments on short-term debt - -
Payments on capital lease obligation (32,671) (13,038)
Proceeds from issuance of common stock 4,508,700 920,000
Proceeds from issuance of preferred stock, net 2,254,000 -
----------- ----------
Net cash provided by financing activities 6,734,050 867,438
----------- ----------
Net increase (decrease) in cash and
cash equivalents 5,572,558 100,571
Cash and cash equivalents:
At beginning of period 2,824,644 137,430
----------- ----------
At end of period $ 8,397,202 $ 238,001
=========== ==========
</TABLE>
See accompanying notes.
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CHANTAL PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(unaudited)
NOTE 1 - GENERAL
The financial information contained in this report should be read in
conjunction with the consolidated financial statements included in the
Company's annual report on Form 10-K for the year ended June 30, 1995. It
should be noted that unaudited results for interim periods may not be
indicative of the actual results for an entire year and that accounting
measurements at interim dates may be less precise than at year end. In the
opinion of the Company's management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the condensed
consolidated financial statements have been made.
Prior to October 1, 1994, the Company was considered to be in the development
stage as defined by Statement of Financial Accounting Standards No. 7
"Accounting and Reporting By Development Stage Enterprises" ("SFAS No. 7").
Due to the launch of the Company's Ethocyn-based cosmetic line during the first
quarter of fiscal year 1995, the Company began realizing revenues associated
with its planned principal operations. Accordingly, beginning October 1, 1994,
the Company emerged from the development stage and began amortizing license
rights and organization costs which were previously unamortized in accordance
with SFAS No. 7.
The financial statements for the three months ended September 30, 1995 have
been restated to reflect a reduction in net revenues from that originally
recorded, see Note 4.
Principles of consolidation
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and its 90.33% owned subsidiary, Chantal Skin Care
Corporation ("Chantal Skin Care"). All significant intercompany accounts and
transactions have been eliminated.
Net earnings (loss) per share
The computation of earnings or loss per share in each year is based on the
weighted average number of common shares outstanding. When dilutive, stock
option, warrants and convertible Preferred Stock are included as share
equivalents using the treasury stock method. Primary and fully diluted
earnings per share are the same for each of the years presented.
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CHANTAL PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(unaudited)
NOTE 2 - INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market.
Inventory consisted of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------ ------------
<S> <C> <C>
Finished goods $1,943,173 $ 157,354
Compound 818,136 1,027,936
Work in progress 107,801 499,272
Raw materials and componentry 837,015 1,062,488
---------- ----------
$3,706,125 $2,747,050
========== ==========
</TABLE>
Included in finished goods inventory as of September 30, 1995 are products
which were the subject of change in package UPC labeling in the second quarter
and with respect to which the financial statements for the three months ended
September 30, 1995 have been restated.
Included in finished goods inventory as of September 30, 1995 and June 30, 1995
are certain products that are available for sale which also may be used by the
Company for clinical testing. However, at this time, the Company does not
anticipate that any inventory on hand will be used for Company sponsored
research and development purposes.
NOTE 3 - LICENSE RIGHTS AND PREPAID ROYALTIES
Prepaid royalties from CBD Pharmaceutical Corporation ("CBD"), a related party,
and license rights from SIG Investment Group Establishment ("SIG") are recorded
at cost. Amortization of such costs is provided by use of the straight-line
method over ten years, their estimated useful lives. The Company began
amortization of prepaid royalties and license rights upon the Company's
emergence from the development stage in fiscal year 1995. The accumulated
amortization expense for prepaid royalties and license rights was $48,328 and
$516,391, respectively.
NOTE 4 - REVENUE RECOGNITION
The Company's sales terms, for all sales by its own direct response
telemarketing operators and all its distributors, allows the end-user customer
the right to return the product within 75 days for a full refund of the
purchase price. Distributors, both U.S. and international, can only return a)
product which does not meet specifically defined product specification (i.e.,
product contamination, broken componentry, etc.) or b) product returned by end
user customers. The Company recognizes anticipated returns based on the
average rate of return to date. Sales returns and allowances are presented
separately as a reduction of product sales.
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CHANTAL PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(unaudited)
NOTE 4 - REVENUE RECOGNITION (Continued)
The Company has the right under its distribution agreement with the Company's
U.S. distributor, Stanson Marketing, Inc. ("Stanson") to direct Stanson to ship
to its customers on what is known in the industry as an 'autoship basis',
which, in accordance with industry standards requires such customers to
purchase higher shelf inventory levels of product. As defined in the
distribution agreement, Stanson's payment terms are: a) 90 days for
non-autoship orders prior to December 31, 1995; b) 60 days for non-autoship
orders after January 1, 1996; c) upon the earlier of ten days after Stanson
receives payment from its customer or 180 days after shipment of product by the
Company to Stanson for autoship product orders.
In the Company's first quarter, $10,543,637 of product was shipped to Stanson
and was originally recorded as revenue. The Company, during the second
quarter, took back a portion of the products previously shipped to Stanson to
redo uniform product code labeling, and reshipped. In consideration and
accommodation to the Company's distributor for the redoing of uniform product
code labeling, the Company's distributor's payment term for subject products
was extended. The Company's then independent accountants advised the
Company that according to generally accepted accounting principles, these
events made it necessary to offset the original shipment as if products were
returned in the first quarter. In addition, in the second quarter, the Company
directed Stanson to commence shipment on an autoship basis to all possible
customers, which resulted in $21,662,831 of product being shipped to Stanson,
including $5,955,000 of product that was the subject of changes in package UPC
labeling in the second quarter.
As a result, the financial statements as of and for the three months ended
September 30, 1995 have been restated to reflect a $5,955,000 reduction in
product sales from the amount initially recorded in that period.
Other revenues is comprised of revenues ancillary to product sales.
NOTE 5 - CONCENTRATION OF CREDIT RISK
Concentration of credit risk in the Company's uncollateralized accounts
receivable balance at September 30, 1995 was approximately $4,000,000. This
represented a receivable from Stanson, the Company's distributor, for
non-sutoship orders, which was paid subsequent to September 30, 1995.
NOTE 6 - STOCKHOLDERS EQUITY
In August 1995, pursuant to a private placement, the Company sold 1,000,000
shares of common stock and 500,000 shares of Series C voting Convertible
Preferred Stock at $4.90 per share. The net proceeds to the Company, after
payment of placement fees, are $6,762,700 and are used for general corporate
purposes.
In July 1995, the Company issued 30,000 shares of common stock to a European
financial public relations company in payment of consulting fees.
As of September 30, 1995, 25,000 warrants to purchase shares of the Company's
common stock at a price of $5.81 per share lapsed unexercised.
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CHANTAL PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(unaudited)
NOTE 7 - INCOME TAXES
Based on the Company's projected net income (loss) for the fiscal year ending
June 30, 1996, the Company has determined that by virtue of its net operating
loss carryforwards no income taxes will be due for such period. Accordingly,
the net operating loss carryforwards have been applied to the income for the
three months ended September 30, 1995 and no provision for income taxes has
been recorded.
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<PAGE> 11
CHANTAL PHARMACEUTICAL CORPORATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Prior to October 1, 1994, the Company was considered to be in the development
stage as defined by Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting By Development Stage Enterprises" (SFAS No. 7). Due
to the launch of the Company's Ethocyn-based cosmetic line during the first
quarter of fiscal year 1995, the Company began realizing revenues associated
with its planned principal operations. Accordingly, beginning October 1, 1994,
the Company emerged from the development stage and began amortizing license
rights and organization costs which were previously unamortized in accordance
with SFAS No. 7. The commencement of full scale operations relating to the
launch of the Company's Ethocyn-based cosmetic line significantly effects the
comparability of results of operations for the current quarter with last year's
quarter.
Net revenues for the three months ended September 30, 1995 increased to
$5,200,576 from $281,646 for the three months ended September 30, 1994
principally due to revenues from the Company's sales of Ethocyn-based Chantal
skin care products.
Net revenues of $5,200,576 for the three months ended September 30, 1995 as
restated reflect a $5,955,000 reduction in product sales from the amount
initially recorded in that period. The Company during the second quarter took
back a portion of the products to redo uniform product code labeling, and
reshipped under the autoship basis in the second quarter. In consideration and
accommodation to the Company's distributor for the redoing of uniform product
code labeling, the Company's distributor's payment term for subject products
was extended.
Cost of goods sold as a percentage of revenues from product sales during the
three months ended September 30, 1995 was 16% of revenues as compared with 18%
of revenues for the three month period ended September 30, 1994. The slight
decrease is due to reduced costs for componentry and increased manufacturing
efficiencies.
Cost of goods sold as restated reflect the reduction in product sales discussed
above.
Marketing and other expenses related to cosmetic sales increased in the three
months ended September 30, 1995 to $2,194,912 from $203,469 in the three months
ended September 30, 1994. These increases resulted from marketing and
promoting the Ethocyn-based skin care products. The Company anticipates that
although marketing expenses will increase as the Company expands its marketing
program with respect to such products, such expense should decline over time
as a percentage of revenues.
General and administrative expenses increased to $1,018,557 for the three
months ended September 30, 1995 from $144,812 for the three months ended
September 30, 1994. The increase in the three month period resulted
principally from increase in rent, insurance and personnel expense.
Research and development expenditures decreased to $155,291 in the three months
ended September 30, 1995 from $359,983 in the three months ended September 30,
1994. Research and development activities decreased, with the launch of the
Chantal Ethocyn-based skin care product line in August 1994. The research and
development represents ongoing stability and clinical testing of the
Ethocyn-based Chantal Skin Care cosmetic products, continued analysis of data
and test results of Cyoctol generated by The Upjohn Company, and Ethocyn
scale-up synthesis and isomer resolution research.
Interest expense increased slightly for the three months ended September 30,
1995 as compared with the three months ended September 30, 1994 due to an
increase in interest rates on short term borrowings during the September 1995
quarter.
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<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, as restated, the Company had working capital of
$14,558,771 and stockholders' equity of $22,065,931, including an accounts
receivable of $4,000,000 from the Company's distributor, Stanson, which was
paid subsequent to September 30, 1995.
The Company used net cash flows in operations of $1,009,512 for the three
months ended September 30, 1995 principally due to increases in accounts
receivables, partly offset by operating income, as well as increases in
accounts payable and accrued liabilities. During the quarter ended September
30, 1994, cash flows used in operations were $766,867.
The Company used cash flows from investing activities of $151,980 for the three
months ended September 30, 1995 for the purchase of computer and telemarketing
equipment requisite for its marketing activities.
In August 1995, pursuant to a private placement under Regulation D of the
Securities Act, the Company sold 1,000,000 shares of common stock and 500,000
shares of Series C Convertible Preferred Stock at $4.90 per share. The net
proceeds to the Company from such sales, after placement fees, were $6,762,700
and will be used for general corporate purposes. The shares of Common Stock
were registered for sale by investors in a registration statement declared
effective January 5, 1996, subject to the agreement of the investors not to
sell pursuant to such registration statement for 90 days following such
effectiveness. The registration statement is currently not available for sales
by such investors, pending amendment to reflect current financial information.
Series C Preferred shares will automatically be converted into shares of Common
Stock at the rate of one (1) share of the Company's Common Stock for each
Series C Preferred share, at the later of (i) the day the Company's Certificate
of Incorporation is amended to increase the number of authorized shares of
Common Stock to at least 30,000,000, and (ii) the date a registration statement
with respect to the Common Stock issuable upon such conversion is declared
effective by the Securities and Exchange Commission. The Series C Preferred
shares will also entitle the holder to dividends and to vote on stockholder
matters as if converted into common shares and will have a liquidation
preference of $1.00 per Series C Preferred share.
In June 1995, the Company completed the sale of 1,200,000 shares of common
stock in a private placement under Regulation S of the Securities Act, for an
aggregate $3,678,000 or an average price per share of $3.06, and received net
proceeds from such sale of $3,540,000 or $2.95 per share, after selling
commissions. The proceeds were used for working capital, primarily to fund the
marketing campaign for the Ethocyn- based cosmetic product line and for the
production of Ethocyn and the Ethocyn-based Chantal Skin Care cosmetic
products.
On February 24, 1995, the Company announced that it had decided to seek to
acquire the shares of Chantal Skin Care (formerly Cyto Skin Care Corporation)
which the Company did not then presently own. In furtherance thereof, on March
9, 1995, the Company commenced an exchange offer seeking to acquire the shares
of Chantal Skin Care owned by shareholders located outside the United States,
through the exchange of one (1) share of Company Common Stock for one share of
Chantal Skin Care common stock. On June 16, 1995, the Company accepted for
exchange 1,780,000 shares of Chantal Skin Care common stock. Accordingly, the
Company now owns 12,690,812 shares of Chantal Skin Care common stock, or 90.33%
of the outstanding Chantal Skin Care shares. The Company intends to effect a
merger of Chantal Skin Care with and into a newly formed wholly owned
subsidiary of the Company on the same one share for one share basis as the
previously effected exchange with persons outside the United States.
The Company is engaged in the development of innovative compounds for use in
dermatology and skin care pharmaceutical and consumer market products. The
Company has three principal patented compounds for which it holds exclusive
manufacturing and distribution rights, Cyoctol, Ethocyn and Metcyclor, none of
which has completed the clinical testing required in order to be marketed as a
pharmaceutical product in any major market. The Company is currently devoting
its efforts to a worldwide Ethocyn-based skin care product launch with the
expectation that in the future the cash flow to be generated from sale of these
cosmetic products will contribute to funding the Company's other activities.
In connection with the ongoing Chantal Skin Care product launch, the Company
has used significant cash flows to increase its compound and componentry
inventories in anticipation of future sales of Ethocyn-based skin care
products.
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<PAGE> 13
The Company has recently raised $10,302,700 net proceeds from sales of its
common stock and Series C Convertible Preferred Stock. This includes private
placements in June 1995 for $3,540,000 and in August 1995 for $6,762,700. The
Company may consider raising additional funds to augment its working capital.
This will enable the Company to fund the simultaneous rollout of the Chantal
Skin Care product line in multiple distribution channels. There can be no
assurance that, if the Company seeks to raise additional funds at this time, it
will be able to effect a financing arrangement on acceptable terms.
In the long term, the Company expects to incur additional costs as it evaluates
additional marketing and distribution channels for its Ethocyn-based cosmetic
products and continues to develop certain of its compounds to pharmaceutical
market approvals, both U.S. and foreign. In this regard, the Company may be
required to obtain additional funds to complete the research and development
and commercialization of such products. Such funds are expected to be obtained
from one or more of the following sources: (i) sales of Ethocyn-based cosmetics
products (ii) amounts to be received pursuant to the Company's license
agreements, including royalties from anticipated sales of Ethocyn-based and
Cyoctol-based products; (iii) strategic alliances with other companies,
including joint venture, joint development or license agreements; and (iv)
additional equity or debt offerings. However, there can be no assurance that
the Company will be successful in obtaining additional funds from any of the
foregoing sources.
From time to time, the Company may use inventory for research and development
purposes. However, at this time, the Company does not anticipate any inventory
on hand will be used for research and development purposes.
During fiscal 1992, the Company entered into a capital lease to finance the
acquisition of certain improvements and equipment for its laboratory in
Germany. In connection therewith, the Company recorded a $646,000 capital
lease obligation that calls for monthly payments, in German marks, which, at
current exchange rates, approximates $7,500 through December 31, 1995 and a
decreasing balloon payment currently of $435,000 at the end of the lease term
which continues on a yearly basis subject to termination of twelve months
notice. The Company intends to continue using the laboratory for the
foreseeable future and has not received, nor does it expects to receive a
notice of termination from the lessor. Accordingly, the balloon payment is
classified as a long term liability.
The Company, at this time, does not have any material commitments for capital
expenditures.
-13-
<PAGE> 14
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.
CHANTAL PHARMACEUTICAL CORPORATION
----------------------------------
(Registrant)
October 14, 1996 BY: /s/ CHANTAL BURNISON
--------------------------------
CHANTAL BURNISON
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive, Financial
and Accounting Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,397,202
<SECURITIES> 0
<RECEIVABLES> 4,643,939
<ALLOWANCES> 0
<INVENTORY> 3,706,125
<CURRENT-ASSETS> 17,240,857
<PP&E> 1,940,986
<DEPRECIATION> 1,265,837
<TOTAL-ASSETS> 27,352,309
<CURRENT-LIABILITIES> 2,682,086
<BONDS> 0
0
53,000
<COMMON> 178,505
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,352,309
<SALES> 5,169,484
<TOTAL-REVENUES> 5,200,576
<CGS> 832,452
<TOTAL-COSTS> 4,430,935
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,962
<INCOME-PRETAX> 781,416
<INCOME-TAX> 0
<INCOME-CONTINUING> 781,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 781,416
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
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