<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-18399
FOUNTAIN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1386759
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7279 Bryan Dairy Road, Largo, Florida 33777
(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
----- -----
<PAGE> 2
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, 1999:
Common Stock, par value $.001 - 2,375,796
Class B Common Stock, par value $.001 - 4,505
Transitional Small Business Disclosure Format:
Yes No X
---- ----
2
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FOUNTAIN PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page
Part I. Financial Information*
<S> <C> <C>
Item 1. Condensed Financial Statements (Unaudited)
Balance Sheets - September 30, 1998, 4
and June 30, 1999 (Unaudited)
Statements of Operations - for the three and 5
nine months ended June 30, 1999, and 1998
(Unaudited)
Statement of Stockholders' Equity - 6
for the period from September 30, 1998
through June 30, 1999 (Unaudited)
Statements of Cash Flows - for the nine 7
months ended June 30, 1999 and 1998
(Unaudited)
Notes to Condensed Financial Statements 8
(Unaudited)
Item 2. Management's Discussion and 9
Analysis or Plan of Operation
Part II. Other Information
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.
3
<PAGE> 4
FOUNTAIN PHARMACEUTICALS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, 1999 September 30,
(Unaudited) 1998
----------- ----
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 200,506 $ 452,099
Accounts receivable, net of allowance 274,966 205,194
for uncollectible accounts
($13,266, June 30, 1999;
$16,000, September 30, 1998)
Inventories 307,488 195,240
Prepaid expenses 149,539 32,723
---------- ----------
Total current assets 932,499 885,256
Furniture and equipment, less
accumulated depreciation
($287,990, June 30, 1999;
$268,374, September 30, 1998) 130,554 101,343
Patent costs, less accumulated
amortization ($33,496 June 30,
1999; $26,705, September 30, 1998) 145,277 139,525
Other assets 9,646 6,595
-------- --------
Total assets $1,217,976 $1,132,719
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1999 September 30,
(Unaudited) 1998
----------- ----
Current liabilities:
<S> <C> <C>
Current portion of notes payable, bank $ 15,660 $ 14,497
Current portion of liabilities
not subject to compromise 2,584
Notes payable, Director 1,123,309
Accounts payable and accrued expenses 183,632 222,971
----------- -----------
Total current liabilities 1,322,601 240,052
----------- -----------
Notes payable, bank 35,782 47,677
----------- -----------
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; 2,375,796, June 30, 1999;
2,375,796, September 30, 1998, issued
(1 vote per share) 2,376 2,376
Class B common stock; par value $.001,
5,000,000 shares authorized; 4,505, June
30, 1999; 4,505, September 30, 1998, shares
issued and outstanding (5 votes per share) 5 5
Additional paid-in capital 17,056,450 17,056,449
Accumulated deficit (17,201,214) (16,215,816)
----------- -----------
Subtotal stockholders' equity (Deficit) (140,383) 845,014
Less: Treasury Stock (24) (24)
----------- -----------
Total stockholders' equity (Deficit) (140,407) 844,990
----------- -----------
Total liabilities and stockholders' equity $ 1,217,976 $ 1,132,719
=========== ===========
</TABLE>
See notes to condensed financial statements.
4
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FOUNTAIN PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 933,833 $ 909,329 $ 1,771,157 $ 1,237,862
Cost of sales 503,245 483,580 977,032 653,139
----------- ----------- ----------- -----------
Gross profit 430,588 425,749 794,125 584,723
----------- ----------- ----------- -----------
Operating expenses:
Research and development 90,567 119,929 321,110 281,792
General and administrative 206,671 114,779 803,358 367,277
Selling 349,157 432,503 848,046 836,528
Depreciation and amortization 9,601 5,497 26,656 15,292
----------- ----------- ----------- -----------
Total operating expenses 655,996 672,708 1,999,170 1,500,889
----------- ----------- ----------- -----------
Loss from operations (225,408) (246,959) (1,205,045) (916,166)
Other income (expenses):
Interest income 1,288 19,141 6,564 75,567
Interest expense (19,099) (1,722) (34,707) (8,127)
Litigation settlement 250,000
Other income (expense) (3,669) (3,777) (2,209) (4,925)
------------ ----------- ----------- -----------
Total other income (expenses) (21,480) 13,642 219,648 62,515
------------ ----------- ----------- ------------
Net loss ($246,888) ($233,317) ($985,397) ($853,651)
============ =========== =========== ============
Earnings per share:
Net loss per share ($.11) ($.10) ($.42) ($.36)
=========== =========== =========== ===========
Weighted average number of shares
outstanding: 2,380,301 2,380,301 2,380,301 2,380,301
=========== =========== =========== ============
</TABLE>
See notes to condensed financial statements.
5
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FOUNTAIN PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM SEPTEMBER 30, 1998 THROUGH JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Class B
Common Stock Common Stock Preferred Stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balances
<S> <C> <C> <C> <C> <C> <C>
October 1, 1998 2,375,796 $ 2,376 4,505 $ 5 2,000,000 $ 2,000
Net Loss for the Period
--------- ------- ----- ------- --------- ------------
Balances,
June 30, 1999 2,375,796 $ 2,376 4,505 $5 2,000,000 $ 2,000
========= ======= ====== ======= ========= ============
</TABLE>
<TABLE>
<CAPTION>
Additional Accumulated Treasury Stock
Paid-in Capital Deficit Shares Amount Total
---------------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Balances
October 1, 1998 $ 17,056,450 ($16,215,817) 12 ($24) $ 844,990
Net Loss for the Period (985,397) (985,397)
------------ ------------ -- ---- ------------
Balances,
June 30, 1999 $ 17,056,450 ($17,201,214) 12 ($24) ($ 140,407)
============ ============= ======= ==== ============
</TABLE>
See notes to condensed financial statements.
6
<PAGE> 7
FOUNTAIN PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss ($ 985,397) ($ 853,651)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 19,865 10,298
Amortization 6,791 4,994
Loss on disposal of assets 1,988
Increase (decrease) in cash due to changes in:
Accounts receivable ( 69,772) ( 300,799)
Inventories ( 112,248) ( 146,696)
Prepaid expenses and other assets ( 116,816) ( 57,018)
Other assets ( 3,051)
Accounts payable and accrued expenses ( 39,339) 287,594
----------- -----------
Net cash used in operating activities ( 1,297,979) ( 1,055,278)
----------- -----------
Cash flows from investing activities:
Deferred patent costs incurred ( 12,543) ( 1,408)
Acquisition of furniture and equipment ( 51,064) ( 80,054)
----------- -----------
Net cash used in investing activities ( 63,607) ( 81,462)
----------- -----------
Cash flows from financing activities:
Proceeds from line of credit 100,000
Repayment of line of credit ( 100,000)
Director loans 1,123,309
Repayment of liabilities under Reorganization Plan ( 2,584) ( 90,201)
Proceeds from equipment financing 66,110
Payments on note payable, bank ( 10,732) ( 538)
Repayment of officer loan ( 40,000)
Repurchase of factional shares ( 24)
---------- -----------
Net cash provided by (used in) financing activities 1,109,993 ( 64,653)
---------- -----------
Decrease in cash and cash equivalents ( 251,593) ( 1,201,393)
Cash and cash equivalents at beginning of period 452,099 2,371,071
---------- -----------
Cash and cash equivalents at end of period $ 200,506 $ 1,169,678
============= ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid was $ 6,435 and $8,127 for the nine months ended June 30, 1999 and
1998, respectively.
See notes to condensed financial statements.
7
<PAGE> 8
FOUNTAIN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(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, 1998.
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, 1999 and 1998
are not necessarily indicative of the results for a full year.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
BACKGROUND
The Company was organized during 1989 to develop and
commercialize certain proprietary compound encapsulation technologies. Following
several years of continued developmental efforts, the Company was able to secure
patents on several aspects of its technologies in the United States and Europe,
introduce branded products in certain markets and develop strategic associations
with pharmaceutical companies.
From inception through 1994, the Company remained in the development
stage while experiencing substantial losses. Its principal source of capital was
derived from a series of private financing transactions and an initial public
offering in 1990. Sales revenues during this period were insufficient to offset
the Company's operating costs and liabilities. Consequently, the Company filed
for protection under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Middle District of Florida, Tampa
Division on November 30, 1994. Upon successfully reorganizing its operations and
finances, the Company emerged from bankruptcy in July 1996.
In July 1997, the Company completed a private placement of 2,000,000
newly-designated and issued shares of Series A Convertible Preferred Stock (the
"Preferred Stock") to Fountain Holdings, LLC ("Holdings"), a Wyoming limited
liability company, controlled by Joseph S. Schuchert, Jr. As a result of this
private placement (the "Private Placement"), the Company obtained additional
working capital of $2.5 million, which it 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. As a result of significant increases in
marketing costs associated with the expansion of existing product lines and the
introduction of new products during fiscal 1998, which were not offset by sales
revenues during the period, the Company substantially utilized its working
capital resources. Accordingly, the Company initiated a program to obtain
additional working capital. In order to provide working capital in the near
term, as of December 31, 1998, the Company entered into a secured credit
arrangement with Mr. Schuchert, a Director of the Company. The credit agreement
provides for a two year line of credit of up to $1,500,000 subject to the
Company satisfying certain agreed upon quarterly operating budget guidelines. In
order to fund operations in the long term and pursue its business strategy, the
Company intends to continue to seek additional sources of capital, including
debt and equity financing. However, there can be no assurances that such
financing will be available or, that it will be available upon terms
advantageous to the Company. See "LIQUIDITY AND CAPITAL RESOURCES."
RESULTS OF OPERATIONS
During the quarter ended June 30, 1999, the Company realized a net loss
of $246,888 on revenues of $933,833, compared to net loss of $233,317 on
revenues of $909,329 for the quarter ended June 30, 1998. The increase in losses
from the prior year's quarter ended June 30, 1998, is attributable primarily due
to increased sales and marketing efforts relating to existing and new markets
and interest expense on a secured line of credit arrangement with Mr. Joseph S.
Schuchert, Jr. (See "LIQUIDITY AND CAPITAL RESOURCES.") The increase in revenues
of 2.7% from the prior year's quarter
9
<PAGE> 10
ended June 30, 1998 was a result of earlier than expected re-orders and
increased sales growth from the Company's European licensees which occurred in
the quarter ended June 30, 1999. The Company expects additional orders from
these licensees during subsequent months of the fiscal year ending September 30,
1999. However, there can be no assurances that subsequent orders will be
received.
During the quarter ended June 30, 1999 the Company incurred operating
expenses of $655,996, a 2.5% decrease over operating expenses of $672,708 in the
quarter ended June 30, 1998. This decrease in expenses was primarily due to the
timing of research and development clinical research studies, relating to new
projects and formulations, that are expected to be completed during the fourth
fiscal quarter ending September 30, 1999.
During the nine months ended June 30, 1999, the Company incurred a net
loss of $985,397 on revenues of $1,771,157, compared to a net loss of $853,651
on revenues of $1,237,862 for the comparable period ended June 30, 1998. This
increase in losses from the prior year's nine months ended June 30, 1998, is
attributable primarily to expenses relating to increased sales and marketing
efforts, legal fees relating to the Dermik Laboratories, Inc. lawsuit and
clinical research studies. The increase in revenues from the prior year's nine
months ended June 30, 1998, was a result of increase in orders from the
Company's European licensees of sunscreen product for the current summer season
as well as proceeds from the settlement relating to the Dermik Laboratories,
Inc. lawsuit.
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.
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, as well as the sale of 25,000,000 shares
(pre-split) of the Company's Common Stock to its then Chief Executive Officer at
a purchase price of $250,000 in December 1995. Since emerging from bankruptcy,
the Company's primary source of working capital have been sales revenues, short
term advances from the Company's then Chief Executive Officer and proceeds of
$2.5 million generated from a private placement offering in July 1997.
As a result of such significant increase in marketing costs and legal
fees, which were not offset by sales revenues, the Company had substantially
utilized its working capital resources by December 1998. Accordingly, the
Company initiated a program to obtain additional working capital. In order to
provide working capital in the near term, as of December 31, 1998, the Company
entered into a secured credit arrangement with Mr. Schuchert. The Credit
Agreement provides for a secured line of credit of up to $1,500,000, the
principal and unpaid interest of which is due on the earlier of December 31,
2000, 180 days from written demand of Mr. Schuchert as lender or upon an event
of default under the agreement. The line of credit bears interest at an
adjustable monthly rate equal to the greater of (i) the prime rate quoted in the
Wall Street Journal,
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plus 1-1/2% or (ii) 9%, which is payable monthly or may be accrued. The facility
is secured by all of the assets of the Company (subject to any existing liens).
The facility is subject to the Company satisfying certain agreed upon quarterly
operating budget guidelines. As of August 10, 1999, the Company had $1,173,309
outstanding under this facility plus accrued interest of $37,576 as of July 31,
1999. The proceeds of the loan have been utilized to fund operations and to pay
legal fees in connection with the Dermik lawsuit. Under the terms of the warrant
granted in connection with the Credit Agreement, Mr. Schuchert is entitled to
purchase 1.6 shares of Common Stock for each dollar advanced under the facility
and 1.6 shares of Common Stock for each dollar of accrued interest that is
unpaid when due under the facility at an exercise price of $.65 per share with
an expiration date of December 31, 2003. As of August 10, 1999, Mr. Schuchert is
entitled to purchase an aggregate of 1,937,416 shares of Common Stock under such
warrant.
As of June 30, 1999, the Company had a deficit working capital of
$390,102, a decrease of $1,035,306 from the level of working capital of $645,204
as of September 30, 1998, and a $1,841,863 decrease from the Company's working
capital of $1,451,761 as of June 30, 1998. Such decrease in working capital is
primarily attributable to increased expenses associated with sales and marketing
efforts relating to existing and new markets, research and development relating
to new projects and formulations, legal fees relating to Dermik Laboratories,
Inc. lawsuit and additional personnel.
The Company's sales revenues during the nine months ended June 30,
1999 were not adequate to offset expenses. Based upon the Company's current
budget guidelines as agreed to with Mr. Schuchert as lender, management believes
that the funds available under the line of credit will be sufficient to enable
the Company to meet its anticipated operating expenses through December 31,
1999. However, in order to continue longer term operations and to pursue its
business strategy, the Company will require additional financing unless and
until sales revenues provide sufficient working capital. The Company is in the
process of pursuing such additional sources of financing. There can be no
assurances that such financing will be available or that it will be available
upon terms advantageous to the Company. Failure to obtain such additional
financing or the earlier termination of the line of credit would have a material
adverse effect on the Company's ability to operate beyond December 1999.
During the nine months ended June 30, 1999, the Company's other
principal sources of working capital were derived from revenues, royalties, the
litigation settlement with Dermik Laboratories, Inc., and a $100,000 line of
credit from First Union National Bank of Florida ("First Union"). The line of
credit bears interest at a rate of prime plus .5%, payable upon demand. As of
June 30, 1999 the Company had no outstanding balance due under its line of
credit of $100,000.
EFFECTS OF INFLATION
The Company does not expect inflation to materially effect 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
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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
On July 1, 1999, the Company filed an Information Statement in order to
ensure that the stock options granted under the 1998 Stock Option Plan qualify
as incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended and to comply with other tax provisions relevant to such
options. The 1998 Plan was approved by written consent of the holder of
1,251,100 shares (52.2%) of the outstanding Common Stock and the holder of all
of the Preferred Stock as of the Record Date, as permitted under Section 228 of
the Delaware General Corporation Law. The approval of the plan by the
stockholders of the company became effective July 21, 1999.
ITEM 5. OTHER INFORMATION
a. General
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
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 obtain additional sources of capital to fund
operations in the long term and pursue its business strategies; (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; and (iv) 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
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<PAGE> 13
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.10 - 1998 Stock Option Plan
Exhibit 27 - Financial Data Schedule (Electronic filing only).
(b) Reports on Form 8-K:
None.
13
<PAGE> 14
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 13, 1999 /s/Gerald T. Simmons
--------------------
GERALD T. SIMMONS
Chief Executive Officer, President and
Chief Accounting Officer
<PAGE> 1
Exhibit 10.10
FOUNTAIN PHARMACEUTICALS, INC.
1998 STOCK OPTION PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS. The name of the
plan is the Fountain Pharmaceuticals, Inc. 1998 Stock Option Plan (the "Plan").
The purpose of the Plan is to encourage and enable the officers, employees,
directors and consultants of Fountain Pharmaceuticals, Inc. (the "Company") and
its subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company and its shareholders, thereby
stimulating their efforts on the Company's behalf and strengthening their desire
to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Effective Date" means the date on which the Plan is approved by the
Board as set forth in Section 14.
"Fair Market Value" of the Stock on any given date means (i) if the
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall be the average of the highest bid and lowest asked prices of the Stock
reported for such date or, if no bid and asked prices were reported for such
date, for the last day preceding such date for which such prices were reported,
or (ii) if the Stock is admitted to trading on a United States securities
exchange or the NASDAQ National Market System, the Fair Market Value on any date
shall be the closing price reported for the Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last day
preceding such date for which a sale was reported; and (iii) if the Fair Market
Value cannot be determined on the basis previously set forth in this definition
on the date that Fair Market Value is to be determined, the Board shall in good
faith determine the Fair Market Value of the Stock on such date.
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not an
employee or officer of the Company or any Subsidiary.
-2-
<PAGE> 2
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any Option to purchase shares of Stock
granted pursuant to Section 6.
"Stock" means the Common Stock, par value $.001 per share, of the
Company, subject to adjustments pursuant to Section 9.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning with
the Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
SECTION 2. ADMINISTRATION. The Plan shall be administered by the full
Board of Directors of the Company or a committee of such Board of Directors
comprised of two or more "Non-Employee Directors" within the meaning of Rule
16b-3(a)(3) promulgated under the Act (the "Plan Administrator"). Subject to the
provisions of the Plan, the Plan Administrator is authorized to:
(a) construe the Plan and any Option under the Plan;
(b) select the directors, officers, employees and consultants of
the Company and its Subsidiaries to whom Options may be
granted;
(c) determine the number of shares of Stock to be covered by any
Option;
(d) determine and modify from time to time the terms and
conditions, including restrictions, of any Option and to
approve the form of written instrument evidencing Options;
(e) accelerate at any time the exercisability or vesting of all or
any portion of any Option and/or to include provisions in
options providing for such acceleration;
(f) impose limitations on Options, including limitations on
transfer and repurchase provisions;
(g) extend the exercise period within which Stock Options may be
exercised; and
(h) determine at any time whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to
an Option shall be deferred either automatically or at the
election of the participant and whether and to what extent the
Company shall pay or credit amounts
-3-
<PAGE> 3
constituting interest (at rates determined by the Plan
Administrator) or dividends or deemed dividends on such
deferrals.
The determination of the Plan Administrator on any such matters shall be
conclusive.
SECTION 3. DELEGATION OF AUTHORITY TO GRANT OPTIONS. The Plan
Administrator, in its discretion, may delegate to the Chief Executive Officer
and President of the Company all or part of the Plan Administrator's authority
and duties with respect to granting Options to individuals who are not subject
to the reporting provisions of Section 16 of the Act or "covered employees"
within the meaning of Section 162(m) of the Code. The Plan Administrator may
revoke or amend the terms of such a delegation at any time, but such revocation
shall not invalidate prior actions of the Co-Chairmen that were consistent with
the terms of the Plan.
SECTION 4. ELIGIBILITY. Directors, officers, full-time employees and
consultants of the Company or its Subsidiaries who, in the opinion of the Plan
Administrator, are mainly responsible for the continued growth and development
and future financial success of the business shall be eligible to participate in
the Plan.
SECTION 5. SHARES SUBJECT TO THE PLAN. The number of shares of Stock
which may be issued pursuant to the Plan shall be 750,000. For purposes of the
foregoing limitation, the shares of Stock underlying any Options which are
forfeited, canceled, reacquired by the Company, satisfied without the issuance
of Stock or otherwise terminated (other than by exercise) shall be added back to
the number of shares of Stock available for issuance under the Plan.
Notwithstanding the foregoing, on and after the date that the Plan is subject to
Section 162(m) of the Code, Stock Options with respect to no more than 500,000
shares of Stock may be granted to any one individual participant. Common Stock
to be issued under the Plan may be either authorized and unissued shares or
shares held in treasury by the Company.
SECTION 6. STOCK OPTIONS. Options granted pursuant to the Plan may be
either Options which are Incentive Stock Options or Non-Qualified Stock Options.
Incentive Stock Options and Non-Qualified Stock Options shall be granted
separately hereunder. The Plan Administrator, shall determine whether and to
what extent Options shall be granted under the Plan and whether such Options
granted shall be Incentive Stock Options or Non-Qualified Stock Options;
provide, however, that: (a) Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code; and (b) No Incentive Stock
Option may be granted following the tenth anniversary of the effective date of
the Plan. The provisions of the Plan and any stock Option agreement pursuant to
which Incentive Stock Options shall be issued shall be construed in a manner
consistent with Section 422 of the Code (or any successor provision) and rules
and regulations promulgated thereunder.
SECTION 7. TERMS OF OPTIONS. Each Option granted under the Plan shall
be evidenced by an agreement between the Company and the person to whom such
Option is granted and shall be subject to the following terms and conditions:
-4-
<PAGE> 4
(a) Subject to adjustment as provided in Section 9 of this Plan,
the price at which each share covered by an Option may be
purchased shall be determined in each case by the Plan
Administrator; provided, however, that such price shall not,
in the case of an Incentive Stock Option, be less than the
Fair Market Value of the underlying Stock at the time the
Option is granted. If an optionee owns (or is deemed to own
under applicable provisions of the Code and rules and
regulations promulgated thereunder) more than ten percent
(10%) of the combined voting power of all classes of the stock
of the Company and an Option granted to such optionee is
intended to qualify as an Incentive Stock Option, the Option
price shall be no less than 110% of the Fair Market Value of
the Common Stock covered by the Option on the date the Option
is granted.
(b) The aggregate Fair Market Value of shares of Stock with
respect to which Incentive Stock Options are first exercisable
by the optionee in any calendar year (under all plans of the
Company) shall not exceed the limitations, if any, imposed by
Section 422(d) of the Code (or any successor provision). If
any Option designated as an Incentive Stock Option, either
alone or in conjunction with any other Option or Options,
exceeds the foregoing limitation, the portion of such Option
in excess of such limitation shall automatically be
reclassified (in whole share increments and without fractional
share portions) as a Non-Qualified Stock Option, with later
granted Options being so reclassified first.
(c) Options shall not be transferable by the participant otherwise
than by will or by the laws of descent and distribution or
pursuant to a domestic relations order.
(d) Options may be exercised in whole at any time, or in part from
time to time, within such period or periods as may be
determined by the Plan Administrator and set forth in the
agreement (such period or periods being hereinafter referred
to as the "Option Period"), provided that such period may not
exceed ten years, unless the agreement provides otherwise:
(i) If a participant who is an employee of the Company
shall cease to be employed by the Company, all
Options which the employee is then entitled to
exercise may be exercised only within three months
after the termination of employment and within the
Option Period or, if such termination was due to
death, disability or retirement (as hereinafter
defined), within six months after termination of
employment and within the Option Period.
Notwithstanding the foregoing: (a) in the event that
any termination of employment shall be for Cause (as
defined herein) or the participant becomes an officer
or director of, a consultant to or employed by a
Competing Business (as defined herein), during the
Option Period, then any and all Options held by such
participant shall forthwith terminate;
-5-
<PAGE> 5
and (b) the Plan Administrator may, in its sole
discretion, extend the post termination Option Period
of any Option provided that such extension does not
extend beyond the original Option Period.
For purposes of this Plan, the term "Cause" shall
mean (a) with respect to an individual who is party
to a written agreement with the Company which
contains a definition of "cause" or "for cause" or
words of similar import for purposes of termination
of employment thereunder by the Company, "cause" or
"for cause" as defined in such agreement; (b) in all
other cases (I) the willful commission by an employee
of a criminal or other act that causes substantial
economic damage to the Company or substantial injury
to the business reputation of the Company; (II) the
commission of an act of fraud in the performance of
such person's duties to or on behalf of the Company;
or (III) the continuing willful failure of a person
to perform the duties of such person to the Company
(other than a failure to perform duties resulting
from such person's incapacity due to illness) after
written notice thereof (specifying the particulars
thereof in reasonable detail) and a reasonable
opportunity to cure such failure are given to the
person by the Board of Directors of the Company or
the Plan Administrator. For purposes of the Plan, no
act, or failure to act, on the part of any person
shall be considered "willful" unless done or omitted
to be done by the person other than in good faith and
without reasonable belief that the person's action or
omission was in the best interest of the Company.
(ii) If a participant who is a director of the Company
shall cease to serve as a director of the Company,
any Options then exercisable by such director may be
exercised only within three months after the
cessation of service and within the Option Period
unless such cessation was due to death or disability,
in which case such optionee may exercise such Option
within six months after cessation of service and
within the Option Period. Notwithstanding the
foregoing (a) if any cessation of service as a
director was the result of removal for cause (as
determined under the corporation laws of Delaware)
any Options held by such participant shall forthwith
terminate; and (b) the Plan Administrator may in its
sole discretion extend the post service Option Period
of any Option provided that such extension does not
extend beyond the original Option Period;
(iii) Options may not be exercised for more shares (subject
to adjustment as provided in Section 9) after the
termination of the participant's employment,
cessation of service as a director or the
participant's death, as the case may be, than the
participant was
-6-
<PAGE> 6
entitled to purchase thereunder at the time of the
termination of the participant's employment or the
participant's death; and
(iv) If a participant owns (or is deemed to own under
applicable provisions of the Code and regulations
promulgated thereunder) more than 10% of the combined
voting power of all classes of stock of the Company
(or any parent or subsidiary corporation of the
Company) and an Option granted to such participant is
intended to qualify as an Incentive Stock Option, the
Option by its terms may not be exercisable after the
expiration of five years from the date such Option is
granted.
(e) The Option exercise price of each share purchased pursuant to
an Option shall be paid in full at the time of each exercise
(the "Payment Date") of the Option (i) in cash; (ii) by
delivering to the Company a notice of exercise with an
irrevocable direction to a broker-dealer registered under the
Act to sell a sufficient portion of the shares and deliver the
sale proceeds directly to the Company to pay the exercise
price; (iii) in the discretion of the Plan Administrator,
through the delivery to the Company of previously-owned shares
of Common Stock having an aggregate Fair Market Value equal to
the Option exercise price of the shares being purchased
pursuant to the exercise of the Option; provided, however,
that shares of Common Stock delivered in payment of the Option
price must have been held by the participant for at least six
(6) months in order to be utilized to pay the Option price;
(iv) in the discretion of the Plan Administrator, through an
election to have shares of Common Stock otherwise issuable to
the optionee withheld to pay the exercise price of such
Option; or (v) in the discretion of the Plan Administrator,
through any combination of the payment procedures set forth in
subsections (i)-(iv) of this Section 7(e).
(f) The Plan Administrator, in its discretion, may authorize
"stock retention Options" which provide, upon the exercise of
an Option previously granted under this Plan (a "prior
Option"), using previously owned shares, for the automatic
issuance of a new Option under this Plan with an exercise
price equal to the current Fair Market Value and for up to the
number of shares equal to the number of previously-owned
shares delivered in payment of the exercise price of the prior
Option. Such stock retention Option shall have the same Option
Period as the prior Option.
(g) Nothing contained in the Plan nor in any Option agreement
shall confer upon any participant any right with respect to
the continuance of employment by the Company nor interfere in
any way with the right of the Company to terminate his
employment or change his compensation at any time.
-7-
<PAGE> 7
(h) The Plan Administrator may include such other terms and
conditions not inconsistent with the foregoing as the Plan
Administrator shall approve. Without limiting the generality
of the foregoing sentence, the Plan Administrator shall be
authorized to determine that Options shall be exercisable in
one or more installments during the term of the Option,
subject to the attainment of performance goals and objectives
and the right to exercise may be cumulative as determined by
the Plan Administrator.
SECTION 8. TAX WITHHOLDING.
(a) Whenever shares are to be issued under the Plan, the Company
shall have the right to require the participant to remit to
the Company an amount sufficient to satisfy federal, state and
local tax withholding requirements prior to the delivery of
any certificate for shares or any proceeds. If a participant
makes a disposition of shares acquired upon the exercise of an
Incentive Stock Option within either two years after the
Option was granted or one year after its exercise by the
participant, the participant shall promptly notify the Company
and the Company shall have the right to require the
participant to pay to the Company an amount sufficient to
satisfy federal, state and local tax withholding requirements.
(b) A participant who is obligated to pay the Company an amount
required to be withheld under applicable tax withholding
requirements may pay such amount (i) in cash; (ii) in the
discretion of the Plan Administrator, through the delivery to
the Company of previously-owned shares of Common Stock having
an aggregate Fair Market Value on the relevant date equal to
the tax obligation provided that the previously owned shares
delivered in satisfaction of the withholding obligations must
have been held by the participant for at least six (6) months;
or (iii) in the discretion of the Plan Administrator, through
a combination of the procedures set forth in subsections (i)
and (ii) of this Section 8(b).
(c) A participant who is obligated to pay to the Company an amount
required to be withheld under applicable tax withholding
requirements in connection with either the exercise of a
Non-Qualified Stock Option, in the discretion of the Plan
Administrator, elect to satisfy this withholding obligation,
in whole or in part, by requesting that the Company withhold
shares of stock otherwise issuable to the participant having a
Fair Market Value on the relevant date equal to the amount of
the tax required to be withheld. Any fractional amount shall
be paid to the Company by the participant in cash or shall be
withheld from the participant's next regular paycheck.
(d) An election by a participant to have shares of stock withheld
to satisfy federal, state and local tax withholding
requirements pursuant to Section 8(c) must be in writing and
delivered to the Company prior to the relevant date.
-8-
<PAGE> 8
SECTION 9. ADJUSTMENT OF NUMBER AND PRICE OF SHARES.
Any other provision of the Plan notwithstanding:
(a) If, through or as a result of any merger, consolidation, sale
of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar
transaction, the outstanding shares of Stock are increased or
decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or additional
shares or new or different shares or other securities of the
Company or other non-cash assets are distributed with respect
to such shares of Stock or other securities, the Plan
Administrator shall make an appropriate or proportionate
adjustment in (i) the number of Stock Options that can be
granted to any one individual participant, (ii) the number and
kind of shares subject to any then outstanding Options Plan,
and (iii) the price for each share subject to any then
outstanding Stock Options under the Plan, without changing the
aggregate exercise price (i.e., the exercise price multiplied
by the number of shares) as to which such Stock Options remain
exercisable. The adjustment by the Plan Administrator shall be
final, binding and conclusive.
(b) In the event that, by reason of a corporate merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board of Directors shall
authorize the issuance or assumption of a Stock Option or
Stock Options in a transaction to which Section 424(a) of the
Code applies, then, notwithstanding any other provision of the
Plan, the Plan Administrator may grant an Option or Options
upon such terms and conditions as it may deem appropriate for
the purpose of assumption of the old Option, or substitution
of a new Option for the old Option, in conformity with the
provisions of Code Section 424(a) and the rules and
regulations thereunder, as they may be amended from time to
time.
(c) No adjustment or substitution provided for in this Section 9
shall require the Company to issue or to sell a fractional
share under any stock Option agreement or share award
agreement and the total adjustment or substitution with
respect to each stock Option and share award agreement shall
be limited accordingly.
(d) In the case of (i) the dissolution or liquidation of the
Company, (ii) a merger, reorganization or consolidation in
which the Company is acquired by another person or entity
(other than a holding company formed by the Company), (iii)
the sale of all or substantially all of the assets of the
Company to an unrelated person or entity, or (iv) the sale of
all of the stock of the Company to a unrelated person or
entity (in each case, a "Fundamental Transaction"), the Plan
and all Options granted hereunder shall terminate, unless
provision is made in connection with the
-9-
<PAGE> 9
Fundamental Transaction for the assumption of the Options
heretofore granted, or the substitution of such Options with
new awards of the successor entity, with appropriate
adjustment as to the number and kind of shares and, if
appropriate, the per share exercise price as provided in
Subsections (a) and (b) of this Section 9. In the event of
such termination each participant shall be notified of such
proposed termination and permitted to exercise for a period of
at least 15 days prior to the date of such termination all
Options held by such participant which are then exercisable.
SECTION 10. AMENDMENT AND DISCONTINUANCE. The Board of Directors may
alter, amend, suspend or discontinue the Plan at any time, provided that no such
action shall deprive any person without such person's consent of any rights
theretofore granted pursuant hereto.
SECTION 11. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Notwithstanding
any provision of the Plan or the terms of any agreement entered into pursuant to
the Plan, the Company shall not be required to issue any shares hereunder prior
to registration of the shares subject to the Plan under the Securities Act of
1933 or the Act, if such registration shall be necessary, or before compliance
by the Company or any participant with any other provisions of either of those
acts or of regulations or rulings of the Securities and Exchange Commission
thereunder, or before compliance with other federal and state laws and
regulations and rulings thereunder, including the rules of any applicable
exchange or of the Nasdaq Stock Market. The Company shall use its best efforts
to effect such registrations and to comply with such laws, regulations and
rulings forthwith upon advice by its counsel that any such registration or
compliance is necessary.
SECTION 12. COMPLIANCE WITH SECTION 16. With respect to persons subject
to Section 16 of the Act, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 (or its successor rule and shall be
construed to the fullest extent possible in a manner consistent with this
intent). To the extent that any Option fails to so comply, it shall be deemed to
be modified to the extent permitted by law and to the extent deemed advisable by
the Plan Administrator in order to comply with Rule 16b-3.
SECTION 13. PARTICIPATION BY FOREIGN NATIONALS. The Plan Administrator
may, in order to fulfill the purposes of the Plan and without amending the Plan,
modify grants to foreign nationals or United States citizens employed abroad in
order to recognize differences in local law, tax policy or custom.
SECTION 14. EFFECTIVE DATE OF PLAN. The Plan became effective on
December 8, 1998.
-10-
<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, 1999 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-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 201
<SECURITIES> 0
<RECEIVABLES> 288
<ALLOWANCES> (13)
<INVENTORY> 307
<CURRENT-ASSETS> 933
<PP&E> 419
<DEPRECIATION> (288)
<TOTAL-ASSETS> 1,218
<CURRENT-LIABILITIES> 1,323
<BONDS> 0
0
2
<COMMON> 2
<OTHER-SE> (144)
<TOTAL-LIABILITY-AND-EQUITY> 1,218
<SALES> 1,771
<TOTAL-REVENUES> 1,771
<CGS> 977
<TOTAL-COSTS> 1,999
<OTHER-EXPENSES> (254)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> (985)
<INCOME-TAX> 0
<INCOME-CONTINUING> (985)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (985)
<EPS-BASIC> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
