<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 1998
[ ] 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.)
1350 AVENUE OF THE AMERICAS, 16TH FLOOR, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 767-1776
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 May 13,
1998, was 40,809,884.
- --------------------------------------------------------------------------------
<PAGE>
CHANTAL PHARMACEUTICAL CORPORATION
INDEX TO FORM 10-Q
PART I: FINANCIAL INFORMATION PAGE NUMBER
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of March 31, 1998
and June 30, 1997...........................................3
Consolidated Statements of Operations for the three and
nine months ended March 31, 1998 and March 31, 1997.........4
Consolidated Statements of Cash Flows for the nine months
ended March 31, 1998 and March 31, 1997.....................5
Notes to Consolidated Financial Statements ......................6
ITEM 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations.......9
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings......................................11
Item 6 - Exhibits and Reports on Form 8-K.......................11
Signatures......................................................12
2
<PAGE>
Item 1. Financial Statements
CHANTAL PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1998 1997
---------- ----------
<S> <C> <C>
Current assets (unaudited)
Cash and cash equivalents $ 227,164 $ 150,587
Short-term investment 23,883 23,883
Accounts receivable, trade, net 359,220 796,762
Inventory, net 1,990,550 2,904,723
Prepaid expenses and other current assets 43,026 203,248
---------- ----------
Total current assets 2,643,843 4,079,203
Long-term inventory 2,586,896 2,832,822
Property and equipment, net of accumulated depreciation 568,189 783,014
License rights, net 5,228,012 5,800,000
Patents and trademarks, net 44,748 49,920
Prepaid royalties, net 588,703 652,406
Deposits and other assets 120,599 684,272
Organization cost, net 47,085 70,628
---------- ----------
TOTAL ASSETS $11,828,075 $14,952,265
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,696,998 $ 5,438,600
Accrued liabilities 3,451,281 2,294,013
Royalties payable 652,668 652,668
Current portion of long-term capital lease - 47,653
obligation
Short-term note payable to distributor - 183,000
Related party note payable 318,440 -
Short-term borrowings 19,552 41,465
---------- ----------
Total current liabilities 10,138,939 8,657,399
Long term liabilities
Capital lease obligation, less current portion - 289,014
Convertible Debentures 440,000 5,250,000
---------- ----------
Total liabilities 10,578,939 14,196,413
---------- ----------
Stockholders' equity
Preferred stock, $.10 par value; 1,000,000
shares authorized; 500,000 Preferred Series C
shares issued and outstanding. Liquidation
preference of $500,000 50,000 50,000
Common stock, $.01 par value; 50,000,000 shares
authorized; 40,809,884 and 18,190,516 shares
issued and outstanding at March 31, 1998 and
June 30, 1997 408,099 181,905
Additional paid-in capital-preferred stock 2,204,000 2,204,000
Additional paid-in capital - common stock 56,740,062 52,204,860
Accumulated deficit (58,153,025) (53,884,913)
---------- ----------
Total stockholders' equity (See Note 1) 1,249,136 755,852
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,828,075 $14,952,265
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
3
<PAGE>
CHANTAL PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended March 31, 1998 and March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 1,035,128 $ 1,399,694 $ 3,365,628 $ 7,034,147
License fees and other income 237 14,770 145,803 126,050
----------- ----------- ----------- -----------
Total revenues 1,035,365 1,414,464 3,511,431 7,160,197
Costs of goods sold 264,385 578,321 1,062,539 1,667,138
----------- ----------- ----------- -----------
Gross profit 770,980 836,143 2,448,892 5,493,059
Marketing and other expenses 517,703 2,380,077 2,417,676 6,014,978
General and administrative 1,583,336 1,268,800 3,516,591 4,152,063
Amortization of license rights 211,896 229,723 635,691 689,170
Research and development 1,000 22,761 17,399 113,291
----------- ----------- ----------- -----------
Loss from operations (1,542,955) (3,065,218) (4,138,465) (5,476,443)
Other income (expense):
Interest income 1,435 2,175 4,620 10,678
Interest expense (18,208) (126,227) (134,267) (259,707)
Non-cash interest expense on
Convertible debenture - - - (1,045,000)
----------- ----------- ----------- -----------
Loss before minority interest (1,559,728) (3,189,270) (4,268,112) (6,770,472)
Minority interest - 154,691 - 268,468
----------- ----------- ----------- -----------
Net Loss $(1,559,728) $(3,034,579) $(4,268,112) $(6,502,004)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Loss per share $ (0.04) $ (0.17) $ (0.16) $ (0.36)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares outstanding 35,174,266 18,190,516 25,996,622 18,190,516
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
4
<PAGE>
CHANTAL PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31, 1998 and March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (4,268,112) $ (6,502,004)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,041,237 1,088,604
Allowance for sales returns 186,272 (42,729)
Loss on disposition of assets 149,187 36,667
Minority interest (268,468)
Non-cash interest expense on Convertible
debenture 1,045,000
Redemption of certificate of deposit (50,000)
Changes in operating assets and liabilities:
Accounts receivable 251,270 (291,786)
Inventory 1,160,099 657,390
Prepaid expenses and other current assets 160,222 (792,125)
Other assets 337,552 21,890
Accounts payable and accrued liabilities 1,415,666 (19,757)
--------- ----------
Net cash provided by (used in) operating activities 383,393 (5,067,318)
--------- ----------
Cash flows from investing activities:
Additions to property and equipment (83,676) (21,009)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of short-term
debt/notes payable from distributor 167,851 5,874,226
Payments on short-term borrowings (372,764) (853,715)
Payments and cancellation on capital lease
obligation (336,667) (79,925)
Proceeds from issuance of related party
note payable 318,440 -
--------- ----------
Net cash provided by (used in) financing activities (223,140) 4,940,586
--------- ----------
Net decrease in cash and cash equivalents 76,577 (147,741)
Cash and cash equivalents:
At beginning of period 150,587 305,668
--------- ----------
At end of period $ 227,164 $ 157,927
--------- ----------
--------- ----------
</TABLE>
Supplemental non-cashflow information: See Note 3.
See accompanying notes.
5
<PAGE>
CHANTAL PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - GENERAL
The accompanying interim consolidated financial statements of Chantal
Pharmaceutical Corporation (the "Company") have been prepared without audit
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of March 31, 1998, and
the results of its operations for the three and nine months periods ended March
31, 1998 and 1997, and the cash flows for the nine months ended March 31, 1998
and 1997 have been included. The results of operations for the interim periods
are not necessarily indicative of the results which may be realized for the full
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997.
Effective December 31, 1997, in order to properly reflect the Company's 90%
interest in its Chantal Skin Care Corporation subsidiary ("CSCC"), the Company
eliminated $910,615 of minority interest because the liabilities of CSCC
exceeded the assets at that date. The effect of the adjustments on prior periods
will be determined in conjunction with the year end closing.
The Company has been informed that the extensive delays in its realizing due VAT
reimbursements from the German Finanzamt office in excess of $345,000
(DM600,000), which amount has been the allocated funding sources for payment to
the outstanding creditors of the Company's wholly-owned German subsidiary,
Chantal Pharmaceutical GmbH, has caused Chantal Pharmaceutical GmbH employees
and creditors to seek the equivalent of bankruptcy protection in Germany. A
consequence may be that the Company risks loss of control of the subsidiary;
accordingly the assets and liabilities and results of operations of the
subsidiary are not included in the accompanying financial statements. For the
nine months ended March 31, 1998, the financial statements reflect a $161,083
write-off of the net assets of the subsidiary.
NOTE 2 - LITIGATION AND CONTINGENCIES
The Company and Chantal Burnison are defendants in an action titled Marksman
Partners, L.P., on behalf of itself and all others similarly situated vs.
Chantal Pharmaceutical Corporation and Chantal Burnison, filed on February 7,
1996 in the United States District Court, Central District of California,
Western Division, Case No. 96-0872. This action is a securities class action on
behalf of all persons who purchased or otherwise acquired the common stock of
the Company between July 10, 1995 and January 5, 1996, inclusive.
The Marksman Partners action is based on a contention that the Company's
accounting for sales revenue, because of the nature of its distribution
agreement with Stanson Marketing, Inc. overstated its revenues for fiscal (June
30) 1995 and for the September 30, 1995 quarter ($3 million and $10 million,
respectively), which , the action claims, violated generally accepted accounting
principles and the Federal securities laws. The complaint notes that Chantal
Burnison sold 300,000 shares during the class period (The sales were actually
made by CBD Pharmaceutical Corporation from approximate holdings of 1.3 million
shares.) The complaint appears to rely on details of the contractual
relationship with the distributor to contend that the revenues should not have
been booked by the Company based on shipped orders from the distributor, since
among other reasons, plaintiffs allege that Stanson, during the relevant time
period, had the right to require the Company to purchase Stanson on a formula
dependent on its income from the Company's products' sales, and the Company did
not have a substantial history of selling through the distributor and the
distribution system. The action seeks monetary damages in an unspecified
amount. An amount sought on the basis stated in the complaint would be
substantially in excess of the Company's current net worth.
6
<PAGE>
The Company believes its financial reports were correctly presented under
generally accepted accounting principles. A motion to dismiss the Marksman
Partners action was denied, and pre-trial discovery in the Marksman Partners
action has commenced. The Company is defending itself against the claims
asserted in the litigation.
In late January 1998, the District Court granted Plaintiff's motion to amend the
complaint to include Coopers and Lybrand, LLP, the Company's former auditors
("C&L"), Stanson Medical Marketing, Inc., the Company's North America
distributor ("Stanson"), and Fred Reinstein, identified as the President of
Stanson, as defendants. On February 9, 1998, the Court entered an order
allowing the Company's local counsel in this action to withdraw. At the same
time the Court ordered a 30-day stay in the proceedings. After expiration of
these 30 days, the Company has now been given until May 28, 1998 to answer the
class action complaint.
A derivative action based on many of the same contentions as made in Marksman
has been filed against the Company and Chantal Burnison. The action, entitled
Baruch Singer and Dorothea E. Wakefield vs. Chantal Burnison, defendant, and
Chantal Pharmaceutical Corporation, nominal defendant, was filed in the Superior
Court of the State of California, the County of Los Angeles, case No. BC 147327.
In June 1997, the plaintiffs amended the complaint to assert a claim against C&L
for negligence and professional malpractice arising out of C&L's audit of the
Company's fiscal year 1995 financial statements which are the subject of both
the Marksman and Singer actions. C&L's motion to dismiss the case was denied.
On October 2, 1997, C&L filed a cross complaint naming the Company, Ms. Burnison
and Does 1-50 as defendants. The Company did not answer the Complaint but the
Plaintiffs filed an answer on their behalf. On January 29, 1998, the Court (i)
granted C&L's motion to strike the answer filed by Plaintiffs; (ii) denied
Plaintiffs' motion to intervene without prejudice; and (iii) instructed C&L not
to take the default of the Company prior to a status conference on April 3,
1998. A status conference was held. A settlement-in-principle in this
derivative action has been reached between the Company and C&L. The
plaintiffs in the derivative action have announced they will oppose the
settlement action. At the present time, the mechanics of the settlement
between the Company and C&L are being formulated and will be subject to a
court hearing after documents are finalized.
On February 25, 1998, the Company received from NASDAQ a notice that its
Common Stock was being deleted from The NASDAQ SmallCap Market because the
security did not meet the NASDAQ maintenance requirement of a minimum bid
price of $1.00 per share. The Company has been consulting with an investment
banker to develop a program under which the NASDAQ criteria can be met. The
Company notes that, in order to achieve investment banking support, there
must be satisfactory resolutions of the pending litigation and creditor
claims.
Due to the continuing cash flow problems (see "Management's Discussion and
Analysis - Liquidity and Capital Resources") the Company is delinquent in the
payment of its operating expenses. During the second fiscal quarter the
Company employed a crisis manager who directed the financial affairs of the
Company for a period of months. Part of this direction was to suspend payments
to a number of the Company's creditors. At this time, in addition to legal
action previously reported, there have been a number of additional actions
filed by creditors of the Company for collection of alleged amounts due and
owing to them. The Company is evaluating with its legal advisors how best to
resolve these actions in the best interest of the Company. Included in such
litigation is seven creditors receiving judgments totaling approximately
$1,700,000, of which $1,450,000 is damages and interest alleged by two
Regulation S investors of the Company's October 1996 convertible debenture
(See Note 3 below). The Company is negotiating with these creditors to
preclude further legal action by them.
A former international marketing consultant to the Company, Epic Group (Mark and
Mary Presser), has brought an action in Hong Kong courts against the Company for
alleged $180,000 consulting fees due it. The Company has retained Hong Kong
counsel to both defend and file a cross-complaint against Epic Group/the
I for breach of contract and damages. The Company presently maintains
approximately $900,000 (at cost) inventory of Chantal Skin Care products at a
third party Hong Kong-based warehouse. The plaintiffs have attempted seizure of
the inventory pending resolution of the litigation. The Court reversed a motion
for subject seizure by plaintiffs. However, pending resolution, either by
settlement or court judgment of this litigation, the carrying value of the
inventory has been completely reserved as of March 31, 1998.
NOTE 3 - CONVERTIBLE DEBENTURES
As of March 31, 1998, the Company issued an aggregate of 22,619,368 shares of
common stock upon conversion of $4,810,000 principal and $107,089 accrued
interest, at an average of $.22 per share, of its 8% convertible debentures
which were sold in October 1996 in a $5.25 million principal amount offering
completed under Regulation S. The conversion price is the lesser of $3.91 or
80% of the average closing bid price of the Company's common stock for the five
business days preceding the conversion date.
7
<PAGE>
Certain investors have commenced action against the Company relating to the
offering. The Company has honored all conversions tendered and has accrued an
amount it believes adequate to cover all damages relating to the conversions.
On January 30, 1998, Arbinter Omnivalor S.A. ("Arbinter") filed a "Motion for
appointment of receiver for failure to obey order of court" in the Court of
Chancery of the State of Delaware in and for New Castle County (C.A. No. 15788-
NC). Arbinter alleges that the Company failed to pay $400,000 of damages and
interest related to Arbinter's conversion of its debentures and additionally
failed to issue unrestricted shares for some of the conversions.
Another October 1996 Regulation S Investor, Buchanan Partners Ltd.
("Buchanan"), has received a judgment in its favor of $1,050,000. Buchanan
alleged the Company failed to timely issue the stock certificates thereby
resulting in damages equating to the judgment amount.
8
<PAGE>
CHANTAL PHARMACEUTICAL CORPORATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company is experiencing a severe cash flow shortage and is delinquent in
payments of its operating expenses. At the present time, and during the nine
months ended March 31, 1998, its primary sources of cash revenue are: (i) its
telemarketing sales, (ii) its own July 1997 launched sales to North American
retail outlets, (iii) payments by Stanson Marketing Inc., from Stanson's
collection of its outstanding accounts receivable relating to Chantal Skin Care
products and (iv) payments by Stanson from sales of Chantal Skin Care products
on Home Shopping Network.
The Company's telemarketing operations and retail sales for the nine months
ended March 31, 1998 aggregated approximately $232,000 per month (see RESULTS OF
OPERATIONS). During the nine months, the Company also received approximately
$1,165,000 from Stanson and $318,000 of loans from Chantal Burnison, the
Company's Chairman and Chief Executive Officer.
Cash flow has been severely affected by Stanson's discontinuance of an active
Chantal Skin Care products' marketing program (see RESULTS OF OPERATIONS) and
the inability of the Company to effectively launch its own direct-to-retail
marketing program with national advertising. Financing to fund a national
advertising program has been seriously curtailed by the uncertainty and
litigation cost prohibitiveness of pending litigation. Management, in
cooperation with crisis management advisors, is pursuing settlement
negotiations.
Both telemarketing and sales at retail are highly dependent on advertising.
Broad-based advertising has been limited by the lack of available cash.
In second fiscal quarter, 1998 the Company, in consult with investment
bankers, retained crisis management financial and operational advisors to (i)
evaluate its retail marketing operations, (ii) finalize an agreement with
Stanson, (iii) negotiate with creditors, (iv) settle pending litigation and
(v) develop a going forward business plan. There can be no assurances,
however, that all these plans can be accomplished or that sufficient cash can
be realized to meet marketing and distribution plans.
In their opinion on the June 30, 1997 financial statements, the Company's
auditors, because of the continuing losses from operation and the deficiency in
working capital, raised substantial doubt about its ability to continue as a
going concern.
The Company does not have any material commitments for capital expenditures.
The Company's operations are not significantly affected by inflation. Due to
the recent and continuing devaluation of the currencies of certain Pacific Rim
countries against the US dollar, the Company's licensees and sub-licensees have
been forced to delay the launch of the Company's product in those areas.
RESULTS OF OPERATIONS
The Company announced June 9, 1997 that it had reached an Agreement in
Principle with Stanson, its North American distributor, for termination of
its June 1995 Marketing Agreement. Concomitant with such Agreement in
Principle, the Company, through its 90% owned subsidiary, Chantal Skin Care
Corporation, in July, 1997 commenced its own launch of sales of Chantal Skin
Care products to U.S. and Canada retail outlets. The Company instructed
Stanson, and Stanson complied, to phase out its sales to U.S. and Canada
retail and cooperate in the transitional assignment to the Company of these
retail accounts. Through March 31, 1998, a substantial portion of the
Company's sales to retail store customers are upon payment terms such that
the retail store customers' obligations to pay the Company for the product
does not arise until a product sale is made to the products' end-consumer.
Such sales are referred to, in the industry, as Point of Sale ("POS").
Additionally, the POS payment term retail outlets have the right to return
unsold product to the Company. Accordingly, no revenue is recognized on such
POS sales until cash is collected. During these nine months, the Company
directly shipped approximately $3,388,000 of its products to retailers. A
substantial portion,
9
<PAGE>
approximately $2,095,000 (valued at the Company's wholesale prices to the retail
outlet customers), was inventory sold on POS terms. As of March 31, 1998,
approximately $100,000 was recognized as revenue from POS sales.
Stanson, with agreement of the Company, continued its sale of Chantal Skin Care
products to Home Shopping Network, a distribution channel established, with the
permission of the Company, by Stanson. For the six months ended December 31,
1997, Sales to HSN by Stanson of the Company's products were approximately $1.5
million; the majority of which was for sale of Stanson inventory. For the
three months ended March 31, 1998, additional $1.8 million of the Company's
products were sold to HSN, approximately 50% of which was for sale of Stanson
inventory and the Company supplied the balance of inventory needed for such
sales.
After analysis and evaluation of its July 1, 1997 - March 31, 1998 own retail
marketing operations and negotiations by the Company's retained crisis
management financial advisor with Stanson management, an Agreement was
entered into April 24, 1998 between CPC, CSCC and Stanson Marketing Inc.
which essential terms and conditions include: (i) a sharing of the cash
proceeds from Stanson sale of its inventory, including HSN sales; (ii) a
percentage of sales fee-for-services-and-expenses expended by Stanson in its
exclusive marketing of Chantal Skin Care Products sold; (iii) a performance
bonus fee to Stanson if certain product sales volume milestones are met; (iv)
resolution of certain accounting disputes between the parties; (v) Stanson
being the exclusive billing party; and (vi) termination of the Company's
February 14, 1996 UCC-1 security interest in Stanson's Chantal Skin Care
Products inventory and receivables. This Agreement is for a term to expire
December 31, 1998 unless Stanson marketing efforts realize calendar year 1998
sales (at wholesale prices) of Chantal Skin Care Products in excess of
$15 million at December 31, 1998.
At the present time because of, among other things, the uncertainty of
collection, revenue from POS sales and Stanson is recognized when cash is
collected. Accordingly, the Company has established, by decreasing revenues, a
100% allowance against the Stanson receivable.
Revenue for the three and nine months periods ended March 31, 1998 decreased by
27% and 51% respectively from the comparable period in 1997. The 1997 periods
included $960,000 (principally in the December quarter) of export sales to
Taiwan -- there were no such sales in 1998. Revenues recognized on sales to
Stanson decreased in the 1997 periods by $3.0 million for the nine months ($0.4
million for the three months) from the comparable 1997 periods. A substantial
portion of the 1997 revenues were reserved as of June 30, 1997 -- see the June
30, 1997 Form 10-K. In addition, telemarketing sales decreased by 49% and 42%
for the three and nine months periods.
Cost of good sold, as a percentage of revenues, for the nine months periods
ended March 31, 1998 increased to 30% from 23% in the comparable period in 1997,
primarily due to the effect of company implemented lower prices of product to
consumers . Cost of good sold, as a percentage of revenues, for the three months
periods ended March 31, 1998 was lower than the previous six months and the
comparable period in 1997 primarily due to the discontinuing of operation in
the Company's German subsidiary.
Marketing and other selling expenses decreased by 78% and 60% for the three and
nine months periods ended March 31, 1998, as compared to the 1997 periods;
primarily due to decreases in advertising expenditures of approximately $2.5
million, decreased consulting services of approximately $893,000 and decreased
promotional expenditures of approximately $282,000.
General and administrative expenses increased by 25% for the three months
periods ended March 31, 1998, as compared to the 1997 period. The increase is
due primarily due to the Company reflecting the aforementioned $1,050,000
judgment in favor of Buchanan Partner Ltd. Otherwise, general and
administrative expenses decreased by 58% and 41% for the three and nine months
periods ended March 31, 1998, as compared to the 1997 periods, primarily due to
decrease in legal expenses expenditure of approximately $687,000, decrease in
audit expenditures of approximately $189,000 and decrease in insurance
expenditures of approximately $186,000.
Interest expense relates primarily to the convertible debentures which were
issued in October 1996 and which were substantially converted in the 1998
periods.
Research and development expenditures decreased in 1997 due to the Company's
limited financial resources.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 1, 2 and 3 to financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHANTAL PHARMACEUTICAL CORPORATION
----------------------------------
(Registrant)
May 20, 1997 BY: /S/ CHANTAL BURNISON
-------------------------
CHANTAL BURNISON
Chairman of the Board
and Chief Executive Officer
/S/ CHARLES P. SCALZO
--------------------------
CHARLES P. SCALZO
(Principal Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 227,164
<SECURITIES> 0
<RECEIVABLES> 359,220
<ALLOWANCES> 0
<INVENTORY> 1,990,550
<CURRENT-ASSETS> 2,643,843
<PP&E> 568,189
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,828,075
<CURRENT-LIABILITIES> 10,138,939
<BONDS> 0
0
50,000
<COMMON> 408,099
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,828,075
<SALES> 3,365,628
<TOTAL-REVENUES> 3,511,431
<CGS> 1,062,539
<TOTAL-COSTS> 7,649,896
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,267
<INCOME-PRETAX> (4,268,112)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,268,112)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,268,112)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
