SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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OF 1934
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For the quarterly period ended March 31, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
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Commission File Number: 0-18399
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FOUNTAIN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1386759
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7279 Bryan Dairy Road, Largo, Florida 33777
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(Address of principal executive offices)
(813) 548-0900
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(Registrant's telephone number, including area code)
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 past 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.
(1) Yes X No
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(2) Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Check whether the Registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 after
the distribution of securities under a plan confirmed by court.
Yes X No
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<PAGE>
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of May 13, 1997:
Common Stock, par value $.001 - 47,516,049
Class B Common Stock, par value $.001 - 90,100
Transitional Small Business Disclosure Format:
Yes No X
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2
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
INDEX
Page
----
Part I. Financial Information*
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Item 1. Financial Statements
(Unaudited)
Balance Sheets - September 30, 1996,
and March 31, 1997
(Unaudited) 4
Statements of Operations - for the six
months ended March 31, 1997 and 1996
(Unaudited) 5
Statement of Stockholders' Equity -
for the period from September 30, 1996
through March 31, 1997 (Unaudited) 6
Statements of Cash Flows - for the six
months ended March 31, 1997 and 1996
(Unaudited) 7
Notes to Condensed Financial Statements
(Unaudited) 8
Item 2. Management's Discussion and
Analysis or Plan of Operation 9
Part II. Other Information
- -------- -----------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote
of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
* The accompanying financial information is not covered by an Independent
Certified Public Accountant's Report.
3
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, March 31,
1997 September 30, 1997 September 30,
(Unaudited) 1996 (Unaudited) 1996
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Current assets: Current liabilities:
Cash and cash equivalents $ 1,334 $ 66,647 Notes payable, bank $ 84,000 $
Accounts receivable 156,235 236,032 Notes payable, officer 20,000
Inventories 103,768 104,866 Current portion of
Prepaid expenses 36,947 46,574 liabilities not subject
----------- -----------
to compromise 28,107 26,808
Current portion of
liabilities subject to
compromise 87,850 84,983
Accounts payable and
accrued expenses 157,436 108,091
---------- ----------
Total current assets 298,284 454,119 Total current liabilities 377,393 219,882
---------- ----------
Liabilities not subject to
compromise, non-current 17,667 32,053
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Furniture and equipment, less Liabilities subject to
accumulated depreciation compromise, non-current 47,288 92,298
---------- ----------
($246,932, March 31, 1997;
$232,136, September 30, 1996) 17,128 31,924
Stockholders' equity:
Patent costs, less accumulated Preferred stock, par value $.001,
amortization ($23,742, March 2,000,000 shares authorized
31, 1997; $22,065 September Common stock, par value
30, 1996) 131,492 138,575 $.001, 50,000,000 shares
authorized; 47,516,049 issued
Other assets 6,595 6,250 and outstanding (one vote per
----------- -----------
share 47,516 47,516
Class B common stock; par value
$.001, 5,000,000 shares
authorized; 90,100 shares
issued and outstanding (five
votes per share) 90 90
Additional paid-in capital 14,529,102 14,529,102
Accumulated deficit (14,565,557) (14,290,073)
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Total stockholders'
equity 11,151 286,635
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Total liabilities and
Total assets $ 453,499 $ 630,868 stockholders' equity $ 453,499 $ 630,868
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 212,438 568,673 322,358 612,106
Cost of sales 110,596 265,057 149,682 273,512
----------- ----------- ----------- -----------
Gross profit 101,842 303,616 172,676 338,594
----------- ----------- ----------- -----------
Operating expenses:
Research and development 50,633 16,167 112,036 16,661
General and administrative 86,317 104,364 174,258 193,794
Selling 70,857 69,251 129,440 129,332
Depreciation and amortization 8,053 11,550 16,473 23,405
----------- ----------- ----------- -----------
Total operating expenses 215,860 201,332 432,207 363,192
----------- ----------- ----------- -----------
Loss from operations ( 114,018) 102,284 ( 259,531) ( 24,598)
Other income (expenses):
Interest expense ( 6,393) ( 3,789) ( 12,099) ( 3,789)
Other income (expense) ( 808) 47 ( 3,854) 47
Reorganization expenses ( 4,453) ( 22,835)
----------- --------- ---------- ----------
Total other income (expenses) ( 7,201) ( 8,195) ( 15,953) ( 26,577)
Income (loss) before extraordinary item ( 121,219) 94,089 ( 275,484) ( 51,175)
Extraordinary gain, net of $0 income taxes 322,368
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Net income (loss) ($ 121,219) $ 94,089 ($ 275,484) $ 271,193
========== ========== ========== ===========
Earnings per share:
Income (loss) before extraordinary item ($ .0025) $ .0020 ($ .0058) ($ .0013)
Extraordinary gain .0085
Net income (loss) ($ .0025) $ .0020 ($ .0058) $ .0072
======= ======= ======= =======
Weighted average number of shares
outstanding: 47,606,149 47,606,149 47,606,149 37,727,117
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
5
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM SEPTEMBER 30, 1996 THROUGH MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Class B
Common Stock Common Stock Additional
--------------------- ---------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
---------- ------- ------- ------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances
October 1, 1996 47,516,049 $47,516 90,100 $ 90 $14,529,102 ($14,290,073) $286,635
Net loss for the period ( 275,484) (275,484)
---------- ------- ------- ------ ----------- ------------- ---------
Balances
March 31, 1997 47,516,049 $47,516 90,100 $ 90 $14,529,102 ($14,565,557) $ 11,151
========== ======= ====== ====== =========== ============= =========
</TABLE>
See notes to financial statements.
6
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended March 31
----------------------------
1997 1996
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Cash flows from operating activities:
Net income (loss) ($275,484) $271,193
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Extraordinary gain ( 322,368)
Depreciation and amortization 16,473 23,405
Increase (decrease) in cash due to
changes in assets and liabilities:
Accounts receivable, trade 79,797 (174,894)
Inventories 1,098 28,713
Prepaid expenses and
other assets 14,688 30
Accounts payable and
accrued expenses 49,345 92,659
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Net cash used in
operating activities ( 114,083) ( 81,262)
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Cash flows from investing activities:
Deferred patent costs incurred - ( 16,255)
Acquisition of furniture and
equipment - ( 718)
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Net cash used in
investing activities - ( 16,973)
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Cash flows from financing activities:
Proceeds from line of credit 157,000
Repayment of line of credit ( 73,000)
Officer loans and advances 20,000
Proceeds from stock offering, net - 250,000
Repayment of liabilities under
Reorganization Plan ( 55,230) ( 44,193)
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Net cash provided by (used in)
financing activities 48,770 205,807
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Increase (decrease) in cash ( 65,313) 107,572
Cash at beginning of period 66,647 82,245
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Cash at end of period $ 1,334 $189,817
======== ========
See notes to financial statements.
7
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1. The financial statements and notes thereto should be read in conjunction
with the financial statements and notes for the year ended September 30,
1996.
2. In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results of
operations for the periods presented have been included. The results of
operations for the six months ended March 31, 1997 and 1996 are not
necessarily indicative of the results for a full year.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Background
During the quarter ended December 31, 1995, the Company emerged from
bankruptcy proceedings which commenced in November 1994. During and subsequent
to the bankruptcy proceedings, the principal source of the Company's revenues
has been from sales of its sunscreen products to licensees who act as
distributors and from royalties which are earned as the result of the subsequent
sale of these products by such distributors.
During the fiscal year ended September 30, 1995 ("Fiscal 1995") while the
Company was in bankruptcy proceedings, management restructured the Company and
significantly reduced its overall cost structure such that revenues derived from
sales and royalties were sufficient to cover the Company's costs. As such,
management no longer considers itself to be in the development stage.
The Company's Plan of Reorganization (the "Plan"), which became effective
on December 20, 1995, resulted in, among other things, a substantial reduction
in the Company's outstanding liabilities, infusion of capital by the Company's
Chief Executive Officer through the purchase of newly issued shares of the
Company's Common Stock and the Company's emergence from the bankruptcy
proceedings. The U.S. Bankruptcy Court entered its final decree on July 25,
1996, and as such, the Court no longer has jurisdiction over matters in
connection with the bankruptcy.
Results of Operations
During the quarter ended March 31, 1997, the Company realized a net loss
of $121,219 on revenues of $212,438, compared to net income of $94,089 on
revenues of $568,673 for the quarter ended March 31, 1996. The decreases in
revenues and income were primarily attributable to delays in orders from two
principal European licensees. The Company received orders from these licensees
in April and May 1997 and expects additional orders during subsequent months of
the fiscal year ending September 30, 1997 ("Fiscal 1997"). However, there can
be no assurances that subsequent orders will be received.
During the quarter, the Company incurred operating expenses of $215,860, a
7.2% increase over operating expenses of $201,332 in the quarter ended March 31,
1996. This increase in operating expenses was primarily due to expanded research
and development activities. Management expects that operating expenses are
likely to increase modestly during the remainder of the year ending September
30, 1997 due to anticipated increases in research and development expenses
relating to new projects. Based upon historic sales levels, current orders and
accounts receivable, management believes that the Company will realize receipts
during that time period sufficient to satisfy these expenses as well as other
anticipated obligations. However, there can be no assurances to that effect.
9
<PAGE>
During the six months ended March 31, 1997, the Company incurred a net
loss of $275,484, on revenues of $322,358, compared to net income of $271,193 on
revenues of $612,106 for the comparable period ended March 31, 1996. This
decrease in net income was attributable primarily to decreased revenues during
the six months ended March 31, 1997 and an extraordinary gain of $322,368
recorded on December 31, 1995 as a result of debt reduction pursuant to the
Plan. Such decreased revenues were a result, primarily, of reduced sales due to
delays in orders from the Company's two principal European licensees. The
Company received orders from these licensees during April and May 1997.
Management believes that these orders and subsequent orders from these licensees
will be shipped in the remaining third and fourth quarters of Fiscal 1997,
however, there can be no assurances to that effect.
For the near term, the Company's operations will continue to focus upon
increasing sales through its existing and new license arrangements and expanding
upon these associations. In January 1996, the Company entered into a long term
license and supply agreement with the Dermik Laboratories subsidiary of the
Rhone- Poulenc Rorer Corporation. In October 1996, Dermik terminated the
agreement based on their interpretation of a technical provision of the
agreement. The Company is not in agreement with Dermik's interpretation and has
engaged counsel to determine the Company's legal remedies in this regard. The
Company is actively pursuing similar marketing arrangements with other
licensees, including several who had previously expressed interest in the
Company's products. In May 1996, the Company entered into a seven year license
and supply agreement with a pharmaceutical company in Colombia. Revenues from
this agreement are expected to be recognized in the fourth quarter of Fiscal
1997. However, there can be no assurances to that effect.
Liquidity and Capital Resources
From inception through the quarter ended June 30, 1994, the Company's
principal sources of working capital were derived from a series of private
financing transactions and an initial public offering in 1990. As a result of
the Company's declining equity and assets, the Company's securities were
delisted from The NASDAQ SmallCap Market(sm) during May 1994 and the securities
have since traded on the less liquid market of the OTC Bulletin Board, which
would limit the Company's efforts to obtain additional working capital through
the sale of its securities.
During the period from the quarter ended June 30, 1994 throughout the
bankruptcy proceedings, the Company's operations were funded primarily through
sales of products and from royalties. Under the terms of the Plan, the
liabilities of the Company were reduced by approximately 55% and the Company
obtained working capital of $250,000 as the result of the purchase by the
Company's Chief Executive Officer of 25,000,000 shares of the Company's Common
Stock at a purchase price of $.01 per share.
10
<PAGE>
As of March 31, 1997, the Company had a working capital deficit of
$79,109, a $313,346 decrease from working capital of $234,237 as of September
30, 1996, and a $361,813 decrease from the Company's working capital of $282,704
as of March 31, 1996. Such deficit in working capital is primarily attributable
to expenses incurred in connection with increased marketing activity, research
and development efforts, and European patent fees, in addition to debt
obligations under the Plan and delays in orders from the Company's European
licensees.
Management believes the Company's working capital deficit as of March 31,
1997 will be offset by future funding from current accounts receivable and
orders received subsequent to March 31, 1997 from its European licensees and
domestic customers. Based upon its analysis, management believes that it will
have sufficient working capital to fund its operations through Fiscal 1997, and
beyond that time through increasing revenues.
In the event that the shortfall in working capital continues in the near
term, the Company intends to fund such shortfall through additional short-term
loans from the Company's president. The Company is also considering additional
sources of funding through sales of debt or equity securities or strategic
alliances or other arrangements with third party corporate sponsors during the
next twelve months. However, there can be no assurances that the Company will be
able to obtain such additional sources of financing, which would have a material
adverse effect upon the Company's ability to continue operations in the
long-term.
Under the Plan, the Company was subject to $319,278 of pre- bankruptcy
liabilities to be paid under the Plan over a maximum of thirty-three months
which commenced February 1996. Presently, pre- bankruptcy liabilities amount to
$180,912. Payments pursuant to the Plan were current as of March 31, 1997, and
management expects all such required payments to be made on a timely basis.
As of October 17, 1996, the Company was granted a $100,000 line of credit
at an interest rate of prime plus .5% from First Union National Bank of Florida.
This line of credit is secured by the Company's accounts receivable and
inventory. The Company utilizes this line of credit to purchase additional
inventory and/or fund the Company's research and development efforts, as
necessary. The Company has borrowed $96,100 under the line of credit as of May
13, 1997.
During the quarter ended March 31, 1997, the Company obtained funding from
a short-term loan in the amount of $20,000 from the Company's president, such
loan to be payable upon demand at an interest rate of 10% per annum. During
April 1997, the Company obtained an additional short-term loan from the
Company's president in the amount of $40,000 upon substantially the same terms.
If the Company attempts to obtain financing through the sale of additional
securities, it would require a restructuring of the Company's capital structure
11
<PAGE>
which currently has insufficient authorized capital stock available to
facilitate any such financing transaction. Additional capital may be utilized to
increase the Company's research and development efforts and to seek
collaborative associations with pharmaceutical companies. Any increases in
equity and assets may also enable the Company to relist its securities on NASDAQ
and thereby regain access to a more liquid trading market. However, there can be
no assurances that the Company's business strategy can be realized.
Historically, the Company's unexercised warrants had been a potential
source of capital financing for the Company. However, all previously existing
Class A, B, C and D Warrants have expired. The 1,416,668 common stock warrants
presently vested and outstanding bear exercise prices ranging from $.04 to $.78.
Given the market price of the Company's Common Stock, it is feasible that some
of these Warrants could be exercised, but there can be no assurance in this
matter.
In addition to the Warrants identified above, the Company has 2,033,333
additional Warrants outstanding, which are held by its existing directors and
certain employees which vest over a two year period commencing in July 1997.
Based upon the Company's current capital structure, an exercise of all of
the issued and outstanding Warrants would not be possible since the number of
Warrants (assuming full vesting) exceeds the number of shares that remain
authorized and available for issuance. An inability to issue shares upon the
exercise of the Warrants could conceivably delay any funding which the Company
could otherwise receive from the exercise of such Warrants pending adequate
capitalization. Management does not believe this is likely to occur given the
vesting provisions of certain of the outstanding Warrants, the present market
price of the Company's Common Stock and since a restructuring of the Company's
capital structure would likely occur prior to any exercise of such Warrants.
Effects of Inflation
The Company does not expect inflation to materially affect its results of
operations, however, it does expect that its operating costs and the cost of
capital equipment to be acquired in the future may be subject to general
economic and inflationary pressures.
12
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
When used in this Quarterly Report on Form 10-QSB and in other public
statements by the Company and Company officers, the words "may", "will",
"expect", "anticipate", "continue", "estimate", "project", "intend", and similar
expressions are intended to identify forward-looking statements regarding events
and financial trends which may affect the Company's future operating results and
financial position. Such statements are subject to risks and uncertainties that
could cause the Company's actual results and financial position to differ
materially. Such factors include, among others: (i) the Company's ability in the
near term to obtain working capital from operations and to develop additional
sources of financing sufficient to fund the Company's operation subsequent to
Fiscal 1997; (ii) the Company's ability to retain existing or obtain additional
licensees who act as distributors of its products; (iii) the Company's ability
to obtain additional patent protection for its encapsulation technology; (iv)
the potential difficulty the Company may have in obtaining financing through the
placement of securities until the Company's Common Stock is relisted on the
NASDAQ system; and (v) other economic, competitive and governmental factors
affecting the Company's operations, market, products and services. Additional
factors are described in the Company's other public reports and registration
statements filed with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on forward-looking statements when made,
which speak only as of the date made. The Company undertakes no obligation to
publicly release the results of any revision of these forward-looking statements
to reflect events or circumstances after the date they are made or to reflect
the occurrence of unanticipated events.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 27 - Financial Data Schedule (Electronic filing only).
(b) Reports on Form 8-K
None.
14
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
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.
FOUNTAIN PHARMACEUTICALS, INC.
Dated: May 15, 1997 /s/John C. Walsh
--------------------------------------
JOHN C. WALSH,
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FOUNTAIN PHARMACEUTICALS, INC. FOR THE SIX MONTHS ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 156
<ALLOWANCES> 0
<INVENTORY> 104
<CURRENT-ASSETS> 298
<PP&E> 264
<DEPRECIATION> 247
<TOTAL-ASSETS> 454
<CURRENT-LIABILITIES> 377
<BONDS> 0
0
0
<COMMON> 48
<OTHER-SE> (36)
<TOTAL-LIABILITY-AND-EQUITY> 454
<SALES> 322
<TOTAL-REVENUES> 322
<CGS> 149
<TOTAL-COSTS> 432
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (275)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (275)
<EPS-PRIMARY> (.003)
<EPS-DILUTED> (.003)
</TABLE>
