SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --- -------------------------------------------------------------
EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 1998
[ ] 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
FOUNTAIN PHARMACEUTICALS, INC.
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(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 Identification No.)
incorporation or organization)
7279 Bryan Dairy Road, Largo, Florida 33777
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(Address of Principal Executive Offices)
(727) 548-0900
--------------
(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
-----
(2) Yes X No
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<PAGE>
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of August 10, 1998:
Common Stock, par value $.001 - 2,375,802
Class B Common Stock, par value $.001 - 4,505
Transitional Small Business Disclosure Format:
Yes No X
2
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. Financial Information*
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Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 1997, 4
and June 30, 1998 (Unaudited)
Statements of Operations - for the nine 5
months ended June 30, 1998 and 1997
(Unaudited)
Statement of Stockholders' Equity - 6
for the period from September 30, 1997
through June 30, 1998 (Unaudited)
Statements of Cash Flows - for the nine 7
months ended June 30, 1998 and 1997
(Unaudited)
Notes to Condensed Financial Statements 8
(Unaudited)
Item 2. Management's Discussion and 9
Analysis or Plan of Operation
Part II. Other Information
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Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote 12
of Security Holders
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
* The accompanying financial information is not covered by an Independent
Certified Public Accountant's Report.
<PAGE>
<TABLE>
<CAPTION>
FOUNTAIN PHARMACEUTICALS, INC.
BALANCE SHEETS
ASSETS
June 30,
1998 September 30,
(Unaudited) 1997
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,169,678 $ 2,371,071
Accounts receivable 410,607 109,808
Inventories 242,374 95,678
Prepaid expenses 88,378 31,360
----------- -----------
Total current assets 1,911,037 2,607,917
Furniture and equipment, less
accumulated depreciation
($263,458, June 30, 1998;
$254,699, September 30, 1997) 79,116 9,360
Patent costs, less accumulated
amortization ($22,747, June 30,
1998; $17,753, September 30, 1997) 134,450 138,036
Other assets 6,595 6,595
----------- -----------
Total assets $ 2,131,198 $ 2,761,908
=========== ===========
(table continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
1998 September 30,
(Unaudited) 1997
------------- ---------------
Current liabilities:
Notes payable, bank $ 14,129 $
Notes payable, officer 40,000
Current portion of liabilities
not subject to compromise 10,215 29,469
Current portion of liabilities
subject to compromise 23,936 92,298
Accounts payable and accrued expenses 410,996 123,402
------------ ------------
Total current liabilities 459,276 285,169
------------ ------------
Notes payable, bank 51,442
------------
Liabilities not subject to compromise, non-current 2,584
------------
Stockholders' equity:
Preferred stock, par value $.001,
2,000,000 shares authorized, issued
and outstanding (1.2 votes per share) 2,000 2,000
Common stock, par value $.001, 50,000,000
shares authorized; 2,375,802, June 30,
1998; 47,516,049, September 30, 1997, issued
and outstanding (1 vote per share) 2,376 47,516
Class B common stock; par value $.001,
5,000,000 shares authorized; 4,505, June
30, 1998; 90,100, September 30, 1997, shares
issued and outstanding (5 votes per share) 5 90
Additional paid-in capital 17,056,449 17,011,224
Accumulated deficit (15,440,326) (14,586,675)
------------ ----------
Subtotal stockholders' equity 1,620,504 2,474,155
Less: Treasury Stock (24)
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Total stockholders' equity 1,620,480 2,474,155
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Total liabilities and stockholders' equity $ 2,131,198 $ 2,761,908
============ ============
</TABLE>
See notes to financial statements.
4
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------------- ----------------------------
1998 1997 1998 1997
---------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Revenue $ 909,329 $ 819,403 $1,237,862 $1,141,761
Cost of sales 483,580 448,204 653,139 597,886
------------ ----------- ------------ ----------
Gross profit 425,749 371,199 584,723 543,875
------------ ----------- ----------- ----------
Operating expenses:
Research and development 119,929 35,863 281,792 147,899
General and administrative 114,779 87,988 367,277 262,246
Selling 432,503 74,697 836,528 204,137
Depreciation and amortization 5,497 5,855 15,292 22,328
------------ ----------- ------------ ----------
Total operating expenses 672,708 204,403 1,500,889 636,610
------------ ----------- ---------- ----------
Income (loss) from operations (246,959) 166,796 (916,166) (92,735)
Other income (expenses):
Interest income 19,141 75,567
Interest expense (1,722) (9,339) (8,127) (21,438)
Other income (expense) (3,777) (4,239) (4,925) (8,093)
------------ ----------- ------------ ----------
Total other income (expenses) 13,642 (13,578) 62,515 (29,531)
------------ ----------- ------------ ----------
Net income (loss) ($ 233,317) $ 153,218 ($ 853,651) ($ 122,266)
============ ============ ============ ==========
Earnings per share:
Net income (loss) per share ($ .10) $ .06 ($ .36) ($ .05)
============ =========== ============ ==========
Weighted average number of shares
outstanding: 2,380,307 2,380,307 2,380,307 2,380,307
============= =========== =========== ==========
</TABLE>
See notes to financial statements.
5
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 30, 1997 THROUGH JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Class B
Common Stock Common Stock Preferred Stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances
October 1, 1997 47,516,049 $47,516 90,100 $90 2,000,000 $2,000
Reverse Stock Split (45,140,247) ( 45,140) (85,595) ( 85)
Repurchase of
Factional Shares
Net Loss for the Period
------------- --------- -------- ----- ------------ --------
Balances,
June 30, 1998 2,375,802 $ 2,376 4,505 $ 5 2,000,000 $2,000
============= ========= ======== ===== ============ ========
(table continued)
Additional Accumulated Treasury
Paid-in Capital Deficit Stock Total
--------------- -------------- --------- -----
Balances
October 1, 1997 $17,011,224 ($14,586,675) $2,474,155
Reverse Stock Split 45,225
Repurchase of
Factional Shares ( 24) ( 24)
Net Loss for the Period ( 853,651) ( 853,651)
-------------- ------------ ----- ----------
Balances,
June 30, 1998 $17,056,449 ($15,440,326) ($24) $1,620,480
============== ============ ===== ==========
</TABLE>
See notes to financial statements.
6
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended June 30
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1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss ($853,651) ($122,266)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 10,298 19,813
Amortization 4,984 2,515
Increase (decrease) in cash due to changes in:
Accounts receivable (300,799) (193,788)
Inventories (146,696) 2,066
Prepaid expenses and other assets (57,018) 2,720
Accounts payable and accrued expenses 287,594 228,978
-------------- -------------
Net cash used in operating activities (1,055,278) (59,962)
------------- -------------
Cash flows from investing activities:
Deferred patent costs incurred (1,408)
Acquisition of furniture and equipment (80,054)
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Net cash used in investing activities (81,462)
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Cash flows from financing activities:
Proceeds from line of credit 270,000
Repayment of line of credit (270,000)
Officer loans and advances 80,000
Repayment of liabilities under Reorganization Plan (90,201) (83,165)
Repayment of officer loan (40,000)
Repurchase of factional shares (24)
Proceeds from equipment financing 66,110
Repayment of equipment financing (538)
--------------- --------------
Net cash used in financing activities (64,653) (3,165)
--------------- --------------
Decrease in cash and cash equivalents (1,201,393) (63,127)
Cash and cash equivalents at beginning of period 2,371,071 66,647
--------------- --------------
Cash and cash equivalents at end of period $ 1,169,678 $ 3,520
=============== ==============
</TABLE>
Supplemental Schedule of Cash Flow Information
----------------------------------------------
Interest paid was $8,127 and $21,438 for the nine months ended June 30, 1998 and
1997, respectively.
See notes to financial statements.
7
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(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, 1997.
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 nine months ended June 30, 1998 and 1997
are not necessarily indicative of the results for a full year.
3. The Company completed a one for twenty reverse stock split on December
11, 1997. At June 30, 1998, the Company had repurchased fractional
shares associated with this reverse stock split. All weighted average
shares and per share amounts have been calculated by giving retroactive
effect of the reverse stock split to the earliest period presented.
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.
While in bankruptcy, the Company was able to successfully reorganize
its operations and finances. It achieved significant reductions in overhead and
other costs of operations, while recognizing an increase in revenues and a
redirection of its marketing efforts to focus upon its licensing arrangements.
The Company's Plan of Reorganization, which was approved and became
effective on December 20, 1995 (the "Plan"), resulted in, among other things, a
substantial reduction in the Company's outstanding liabilities, an 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. On July 25, 1996, the U.S. Bankruptcy Court issued a
final decree stating the Court no longer has jurisdiction over matters in
connection with the bankruptcy.
In July 1997, the Company completed a private placement of 2,000,000
newly-designated and issued shares of Series A Convertible Preferred Stock to
Fountain Holdings, LLC, a Wyoming limited liability company, controlled by
Joseph S. Schuchert, Jr. As a result of the Private Placement, the Company
obtained additional working capital of $2.5 million, which has been utilized to
enhance the expansion of the Company's sales and marketing program, as well as
to further the Company's research and development efforts.
In order to facilitate the conversion of the Company's Preferred Stock
and to enhance the market price and liquidity of the Company's Common Stock, the
Company completed a one for twenty reverse stock split, specifically, a
conversion of every twenty issued and outstanding shares into one share of the
same class of Common Stock (the "Reverse Stock Split"), which became effective
on December 11, 1997.
Results of Operations
During the quarter ended June 30, 1998, the Company realized a net loss
of $233,317 on revenues of $909,329, compared to net income of $153,218 on
revenues of $819,403 for the quarter ended June 30, 1997. The increase in losses
from the prior year's quarter ended June 30, 1997, is attributable primarily to
expenses relating to increased sales and marketing efforts. Due to the increased
sales and marketing efforts, in connection with the Company's new sunscreen
brand in the golf market, Daylong(R), revenues for the quarter ended June 30,
1998 increased by 11% from the quarter ended June 30, 1997.
9
<PAGE>
During the quarter, the Company incurred operating expenses of
$672,708, a 229% increase over operating expenses of $204,403 in the quarter
ended June 30, 1997. This increase in expenses was primarily due to increased
sales and marketing efforts relating to existing and new markets, research and
development relating to new projects and formulations, and additional personnel.
During the nine months ended June 30, 1998, the Company incurred a net
loss of $853,651 on revenues of $1,237,862, compared to a net loss of $122,266
on revenues of $1,141,761 for the comparable period ended June 30, 1997. Revenue
for the nine months ended June 30, 1998, increased by 8% from the nine months
ended June 30, 1997. This increase in revenue is attributable to the Company's
new sunscreen brand in the golf market, Daylong(R), and additional sales to
European licensees. Substantial investment in marketing expenses in support of
new business launches which commenced in April 1998, in addition to increased
research and development expenses, largely on in vitro and in vivo testing of
compounds employing the Company's encapsulation system and additional personnel,
resulted in an increase in losses in comparison to the nine months ended June
30, 1997.
For the near term, the Company will continue to focus upon increasing
sales through new business launches, and expects to increase research and
development expenditures for the balance of Fiscal 1998.
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 during May 1994 and the securities have
since traded on the less liquid market of the OTC Bulletin Board.
During the period from the quarter ended June 30, 1994 throughout the
bankruptcy proceedings, and to the current date, the Company's operations were
funded primarily through sales of products, royalties and proceeds of $2.5
million generated from a private placement offering.
As of June 30, 1998, the Company had working capital of $1,451,761, a
decrease of $870,987 from the level of working capital of $2,322,748 as of
September 30, 1997, and a $1,410,624 increase from the Company's working capital
of $41,137 as of June 30, 1997. The increase in working capital from June 30,
1997, is primarily attributable to the sale of $2.5 million of Preferred Stock
in July 1997. The decrease in working capital from September 30, 1997, reflects
increased sales and marketing efforts relating to existing and new markets,
research and development relating to new projects and formulations, and
additional personnel. During the quarter ended June 30, 1998, the Company
entered into equipment financing arrangements with First Union National Bank of
Florida (First Union) in connection with the purchase of certain research
equipment. Pursuant to such financing, First Union loaned the Company $66,110 at
an interest rate of 9% for a 48 month term beginning June 1998. During the nine
months ended June 30, 1998, the Company's other principal sources of working
capital were derived from revenues and a $100,000 line of credit from First
Union. As of June 30, 1998, the Company had no outstanding balance under its
line of credit. The balance due on the equipment financing as of June 30, 1998
is $65,571.
10
<PAGE>
During July 1997, the Company completed a private placement of
2,000,000 shares of Series A Convertible Preferred Stock to Fountain Holdings,
LLC. As a result of such private placement, the Company obtained additional
working capital of $2.5 million, which management believes has enhanced the
expansion of the Company's sales and marketing program, as well as further the
Company's research and development efforts. The Preferred Stock is convertible,
at the election of the holder, into shares of the Company's Common Stock, which
currently represents approximately one-third of the Company's outstanding stock
on a post-conversion basis. Prior to conversion, the holders of the Preferred
Stock have the right to elect a majority of the Company's Board of Directors and
to vote as a class on all matters that require a vote of stockholders.
In order to facilitate the conversion of the Company's Preferred Stock
and to enhance the market price and liquidity of the Company's Common Stock, the
Company completed the reverse stock split, which became effective on December
11, 1997. The Company has 2,380,307 shares of Common Stock (including Class B)
outstanding as of August 10, 1998.
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.
11
<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
-----------------
a. General
-------
When used in this Quarterly Report on Form 10-QSB, the words "may",
"will", "expect", "anticipate", "continue", "estimate", "intend", and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 regarding events, conditions and financial
trends which may affect the Company's future plans of operations, business
strategy, operating results and financial position. Such statements are not
guarantees of future performance and are subject to risks and uncertainties and
actual results may differ from those included within the forward-looking
statements as a result of various factors. Such factors include, among others:
(i) the Company's ability to retain existing or obtain additional licensees who
act as distributors of its products; (ii) the Company's ability to obtain
additional patent protection for its encapsulation technology; and (iii) 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 filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the result 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.
12
<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.
13
<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: August 14, 1998 /s/John C. Walsh
------------------------
JOHN C. WALSH,
Chief Executive Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FOUNTAIN PHARMACEUTICALS, INC. FOR THE NINE MONTHS
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,170
<SECURITIES> 0
<RECEIVABLES> 411
<ALLOWANCES> 0
<INVENTORY> 242
<CURRENT-ASSETS> 1,911
<PP&E> 342
<DEPRECIATION> 263
<TOTAL-ASSETS> 2,131
<CURRENT-LIABILITIES> 459
<BONDS> 0
0
2
<COMMON> 2
<OTHER-SE> 1,616
<TOTAL-LIABILITY-AND-EQUITY> 2,131
<SALES> 1,238
<TOTAL-REVENUES> 1,238
<CGS> 653
<TOTAL-COSTS> 1,501
<OTHER-EXPENSES> (70)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (854)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (854)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
