SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Amendment No. 2)
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission file number 1-12584
SHEFFIELD PHARMACEUTICALS, INC.
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(Name of Small Business Issuer in its charter)
DELAWARE 13-3808303
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(State or Other Jurisdiction (IRS Employer Identification
of Incorporation or Organi- Number)
zation)
30 Rockefeller Plaza Suite 4515, New York, New York 10112
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (212) 957-6600
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
Check whether the issuer: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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.
Yes /X/ No / /
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.
/X/
(CONTINUED NEXT PAGE)
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State the issuer's revenues for its most recent fiscal year:
The issuer's revenues for the fiscal year ended December 31, 1996 were $673,664.
The aggregate market value at March 14, 1997 of shares of the
issuer's Common Stock, $.01 par value per share (based upon the closing price of
$3.1875 per share of such stock on the American Stock Exchange on such date),
held by non-affiliates of the issuer was approximately $35,033,000. Solely for
the purposes of this calculation, shares held by directors and officers of the
issuer have been excluded. Such exclusion should not be deemed a determination
or an admission by the issuer that such individuals are, in fact, affiliates of
the issuer.
Indicate the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable date: At March
14, 1997, there were outstanding 11,388,274 shares of the issuer's Common Stock,
$.01 par value per share.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The following table sets forth the high and low sale prices of the
Company's Common Stock on the American Stock Exchange (the "AMEX") for the
periods indicated.
1996: HIGH LOW
---- ---
Fourth Quarter.......................... $4.125 $3.125
Third Quarter........................... $4.625 $3.0625
Second Quarter.......................... $6.50 $4.00
First Quarter........................... $6.75 $3.5625
1995:
Fourth Quarter.......................... $4.3125 $3.00
Third Quarter........................... $5.6875 $3.875
Second Quarter.......................... $5.125 $3.50
First Quarter........................... $5.750 $3.125
The closing sale price for the Company's Common Stock on the AMEX on
March 14, 1997 was $3.1875 per share. At March 14, 1997, there were
approximately 4,000 holders of record of the Company's Common Stock. The Company
has never paid dividends on its Common Stock and does not intend to pay cash
dividends on its Common Stock in the foreseeable future.
The following unregistered securities were issued by the Company during
the fiscal year ended December 31, 1996:
<TABLE>
<CAPTION>
Number of Shares
Sold/Issued/ Offering/
Date of Description of Subject to Options Exercise Price
Sale/Issuance Securities Issued or Warrants per share ($) Purchaser or Class
- -------------------- ----------------------- -------------------- --------------- ---------------------
<S> <C> <C> <C> <C>
January 1, 1996- Common Stock 472,000 3-15/16-8-1/4 Issuances to
December 31, 1996 Options employees pursuant to
1993 Stock Option
Plan
January 1, 1996- Common Stock 45,000 4.50 Issuances to directors
December 31, 1996 Options pursuant to Directors
Stock Option Plan
January 1, 1996- Common Stock 30,000 3.50-6.25 Advisor
December 31, 1996 Options
October 1996 Common Stock 100,000 3-15/16 Advisor
Options
October 1996 Common Stock 250,000 5.25 Advisor
Options
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
September 1996 Common Stock 25,000 4-1/8 Director
Options
July 1996 Common Stock 2,922 3-3/8 Advisor
Options
July 1996 Common Stock 40,000 5.50 Advisor
Warrants
April 1996 Common Stock 100,000 n/a Financial advisor
March 1996 Common Stock 50,000 4-7/16 Director
Options
</TABLE>
The issuance of these securities are claimed to be exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, as
transactions by an issuer not involving a public offering. There were no
underwriting discounts or commissions paid in connection with the issuance of
any of these securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
The Company was originally formed in 1986 as Sheffield Strategic
Metals, Inc., a Canadian company, to engage in mineral exploration and
development. It conducted no significant business activities from 1986 until
late 1991. Between December 1991 and February 1992 the Company changed its
strategic direction to focus on the acquisition, development and
commercialization of promising biomedical technologies and raised capital in
private placements of its common stock. In April 1992, the Company changed its
name to Sheffield Medical Technologies Inc. to reflect the nature of its new
business and listed its common stock on the NASDAQ Small Cap Market. In November
1993, the Company commenced trading of its Common Stock on the AMEX.
Since its inception in 1986, the Company has been a development stage
enterprise. The Company has incurred a net loss in each of the fiscal years
since its inception and has had to rely on outside sources of funds to maintain
its liquidity. Substantial operating losses are expected to be incurred for the
next several years as the Company expends its resources for product acquisition,
sponsored research and development and preclinical and clinical testing. The
Company has financed its technology development activities and operations
primarily through public and private offerings of securities. The Company's
operating results have fluctuated significantly during each quarter since its
change of strategic direction in 1992, and the Company anticipates that such
fluctuations, largely attributable to varying sponsored research and development
commitments and expenditures, will continue into the foreseeable future.
FISCAL YEARS ENDED DECEMBER 31, 1996 AND 1995
In 1996, the Company signed its first sub-license agreement for its
Liposome-CD4 technology and earned a sub-license fee, which is included in
sub-license fee revenue. Interest income was $163,664 in 1996 and $80,610 in
1995, and a total of $396,913 since the Company's inception in 1986. The
increase in 1996 interest income of $83,054, compared to 1995, was due primarily
to the increase in the amount of funds available for investment as the result of
the completion of the Company's warrant discount program completed in 1996,
which raised total gross proceeds of $5.6 million.
Research and product development expenses for 1996 decreased by
$582,336 to $3,841,818 compared with 1995 expenses of $4,424,154. The lower
research and development costs were attributable to negotiating extensions of
two major Sponsored Research Agreements signed in October 1996 and the winding
down of the RBC-CD4 Electroinsertion Technology project, partially offset by the
increased development of the Ion Anti-Proliferative technology projects. In
1996, the Company entered into five (5) major research and development
agreements. See Note 6 to the consolidated financial statements. The funds
expended for these new projects totaled $892,694 in 1996.
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<PAGE>
General and administrative expenses for 1996 were $3,831,204, an
increase of $851,767 compared with expenses of $2,979,437 for 1995, primarily
resulting from the one-time cashless exercise of options and warrants by a
former employee of the Company, totaling $562,912, and private placement
professional fees relating to Ion. The major items included in general and
administrative expenses for 1996 were (i) salaries of $1,011,527 which increased
by $490,418 as compared to 1995, primarily due to the increase in management and
staff, (ii) consulting fees of $643,508 or $48,701 less than 1995, (iii)
professional fees of $653,968 or $31,225 less than last year, (iv) the one-time
cashless exercise of options and warrants by a former employee of the Company of
$562,912, (v) private placement professional fees relating to Ion of $244,515
and (vi) other expenses of $711,622.
Interest expense for 1996 was $9,531, a decrease of $55,205 compared
with interest expense for 1995 of $64,736. The decrease was due to satisfaction
in full of the Company's $550,000 loan from SMT Investment Partnership in 1995.
See Notes 4 and 7 to the consolidated financial statements.
As a result of the above, net loss for 1996 decreased by $378,828 to
$7,008,889 compared with a net loss of $7,387,717 for 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through the sale of securities, from which it has raised an aggregate of
approximately $24.7 million through December 31, 1996. On February 28, 1997, the
Company closed a private offering of 35,000 shares of its 7% Series A Cumulative
Convertible Redeemable Preferred Stock, which raised total gross proceeds of
$3.5 million. See Note 9 to the consolidated financial statements. The proceeds
of this offering will be used to fund research and development, patent
prosecution and for working capital and general corporate purposes, including
the possible acquisition of rights in new technologies in the Company's ordinary
course of business.
From inception through December 31, 1996, the Company earned $396,913
in interest on cash, cash equivalents and short-term investments. The Company
invests excess cash in cash equivalents and short-term investments in a cash
management account that invests in U.S. government securities and high grade
corporate investments. In addition, in 1996, the Company signed its first
sub-license agreement for its Liposome-CD4 technology and earned a sub-license
fee that is included in sub-license fee revenue.
Net cash used in development stage activities was $6,043,876,
$7,541,937 and $23,521,045 during 1996, 1995, and from inception in 1986 through
1996, respectively. Cash of $6,420,834, $9,346,901 and $25,220,193 was provided
by the issuance of securities in 1996, 1995 and from inception in 1986 through
1996, respectively.
The Company's total assets at December 31, 1996, were $2,773,884, an
increase of $552,834 from the previous year's total assets of $2,221,050,
principally due to an increase in cash and cash equivalents and marketable
securities, reflecting the cash received from the warrant discount program and
sub-license revenue. The Company's liabilities at December 31, 1996, consisting
of accounts payable, sponsored research and capital lease obligations, totaled
$1,078,047 compared to $428,687 at December 31, 1995.
The Company spent approximately $15.5 million through December 31, 1996
to fund certain ongoing technology research projects and expects to incur
additional costs in the future, including costs relating to its ongoing
sponsored research and development activities, preclinical and clinical testing
of its product candidates and the hiring of additional personnel. The Company
may also bear considerable costs in connection with filing, prosecuting,
defending and/or enforcing its patent and other intellectual property claims.
Therefore, the Company will need substantial additional capital before it will
recognize significant cash flow from operations, which is contingent on the
successful commercialization of the Company's technologies by third parties
through licenses, joint ventures or other arrangements. There can be no
assurance that any of the technologies to which the Company currently has or may
acquire rights to can or will be commercialized or that any revenues generated
from such commercialization will be sufficient to fund existing and future
research and development activities.
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While the Company does not believe that inflation has had a material
impact on its results of operations, there can be no assurance that inflation in
the future will not impact financial markets which, in turn, may adversely
affect the Company's valuation of its securities and, consequently, its ability
to raise additional capital, either through equity or debt instruments, or any
off-balance sheet refinancing arrangements, such as collaboration and licensing
agreements with other companies.
The Company expects that its existing capital resources, including the
current private placement offering noted above, will enable it to fund its
operations for at least the next 12 months. Because the Company does not expect
to generate significant cash flows from operations for at least several years,
the Company believes it will require additional funds to meet future costs.
The Company will attempt to meet the balance of its capital
requirements with existing cash balances and through additional public or
private offerings of its securities, debt financing, and collaboration and
licensing arrangements with other companies. There can be no assurance that the
Company will be able to obtain such additional funds or enter into such
collaborative and licensing arrangements on terms favorable to the Company, if
at all. The Company's sponsored research and technology development program may
be curtailed if future financings are not completed.
The table below indicates (i) the Company's direct research and
development expenses by project for the fiscal year ended December 31, 1996 and
from the Company's inception to December 31, 1996, (ii) the Company's current
estimate by project of committed and/or anticipated funding requirements after
December 31, 1996 and (iii) revenues received to date by project.
DIRECT RESEARCH AND DEVELOPMENT EXPENSES
(IN DOLLARS)
<TABLE>
<CAPTION>
COMMITTED AND/OR
FISCAL YEAR ANTICIPATED R&D
ENDED INCEPTION TO FUNDING AFTER REVENUE
R&D PROJECT 12/31/96 12/31/96 12/31/96* RECEIVED
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<S> <C> <C> <C> <C>
Ion Pharmaceuticals, 2,097,020 3,808,564 1,462,309 10,000
Inc. Technologies
RBC-CD4 Electroinsertion 515,036 6,238,426 16,577 0
Technology
Liposome-CD4 Technology 60,449 2,322,322 0 500,000
HIV/AIDS Vaccine 414,849 1,074,118 150,000 0
UGIF Technology 16,398 103,401 100,000 0
Membrane Attack Complex 121,874 121,874 262,808 0
(MAC)/Complement
Technology
</TABLE>
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* These figures include management's estimates of anticipated direct R&D
funding as of the date of this report. The amounts and rate of
application of the Company's funds to any particular project are
expected to fluctuate and will depend in part on the Company's
successful completion of various stages of research, the availability
of additional financing and the Company's identification and
acquisition of rights in new technologies in the future.
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<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their positions
with the Company are set forth below.
NAME AGE POSITION
- ---- --- --------
Douglas R. Eger 35 Chairman, Chief Executive
Officer and Director
Thomas M. Fitzgerald 47 President and Chief
Operating Officer and
Director
Michael Zeldin 59 Chief Scientific Officer
and Director
Anthony B. Alphin, Jr. 51 Director
Dr. Stephen Sohn 52 Director
Bernard Laurent 45 Director
George Lombardi 53 Vice President, Chief
Financial Officer,
Treasurer and Secretary
DOUGLAS R. EGER. Mr. Eger has been a Director of the Company since
November 1991, served as President of the Company from March 1992 through June
1994 and has served as Chairman of the Company since June 1994. On February 13,
1995, Mr. Eger was elected Co-Chief Executive Officer of the Company and was
elected Chief Executive Officer in February 1996. From 1987 to 1990, Mr. Eger
was the owner of Eger Innovation Group, a privately held company engaged in a
variety of technology development and venture capital activities. Mr. Eger was a
founder of Eger Innovation Group, Inc. and a successor company, TechSource
Development Corporation, a company founded in 1990 and operated by Mr. Eger
until 1992 to assist universities in the development and commercialization of
promising scientific discoveries.
THOMAS M. FITZGERALD. Mr. Fitzgerald has been a Director of the Company
since September, 1996, has served as Chief Operating Officer of the Company
since June 1996 and has served as President of the Company since February 1997.
From 1989 to 1996 Mr. Fitzgerald was the Vice President and General Counsel of
Fisons Corporation, an operating unit of Fisons Group plc, a U.K.-based ethical
pharmaceutical company ("Fisons"). Mr. Fitzgerald was Assistant General Counsel
of SmithKline Beecham prior to joining Fisons.
MICHAEL ZELDIN, PH.D. Mr. Zeldin has been a Director of the Company
since May 1996, served as the Chief Operating Officer and Executive Vice
President Corporate Development of the Company from March 1996 to June 1996 and
has served as Chief Scientific Officer of the Company since June 1996. From 1989
to March 1996, Mr. Zeldin was President of Cambridge Biomedical Management, a
management assistance firm specializing in the biomedical and pharmaceutical
industries. From 1985 to 1989, Mr. Zeldin was President and Director of Research
of Procept, Inc., a developer of immunotherapeutic technologies and products.
ANTHONY B. ALPHIN, JR. Mr. Alphin has been a Director of the Company
since November 1993. Mr. Alphin has been Chairman and Chief Executive Officer of
Moneywatch Investments, Inc., a real estate investment and development company,
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since 1981. Mr. Alphin has been a director of Norcross & Co., Inc., the managing
underwriter of the Company's February 1993 public offering, since 1991.
DR. STEPHEN SOHN. Dr. Sohn has been a Director of the Company since
January 1995. Dr. Sohn has been on the plastic and reconstructive surgery staff
of the Brigham & Women's Hospital since 1974. From 1974 to 1990 Dr. Sohn was a
Clinical Instructor in surgery at the Harvard University Medical School.
BERNARD LAURENT. Mr. Laurent has been a Director of the Company since
May 1995. Mr. Laurent has been the owner of B. Laurent & Co., an investment firm
based in London, England, since 1990. Prior to 1990, Mr. Laurent served in
various positions at Charterhouse Bank Limited (London), Dillon Read Limited and
Bear Stearns & Co. Mr. Laurent is a director of International CHS Resources
Corporation (Canada), International Telepresence (Canada) Inc. and Global
Equities S.A. (Paris).
GEORGE LOMBARDI. Mr. Lombardi has been the Vice President and Chief
Financial Officer of the Company since September 1995. From October 1994 until
September 1995, Mr. Lombardi was Vice President and Chief Financial Officer and
Director of Fidelity Medical Inc. From 1993 to 1994, Mr. Lombardi was the Senior
Financial Executive for the New Jersey and New England operations of National
Health Laboratories Inc. From 1986 until 1992, Mr. Lombardi was Vice President,
Finance and Administration for Henley Chemicals, Inc., a subsidiary of
Boehringer Engleheim Pharmaceutical Company. From 1976 until 1986, Mr. Lombardi
held various financial positions with the Revlon Healthcare Group in New York.
MEETINGS AND COMMITTEES
The Board of Directors of the Company held five meetings during the
fiscal year ended December 31, 1996. From time to time during such fiscal year,
the members of the Board acted by unanimous written consent. The Company has
standing Stock Option, Compensation, Audit and Scientific Review Committees. The
Stock Option Committee reviews, analyzes and approves grants of stock options
and stock to eligible persons under the Company's 1993 Stock Option Plan and the
Company's 1993 Restricted Stock Plan. The current members of the Stock Option
Committee (appointed in June 1996) are Anthony B. Alphin, Jr. and Stephen Sohn.
The Stock Option Committee did not hold any formal meetings in 1996, but
approved certain actions by written consent. The Compensation Committee reviews,
analyses and makes recommendations to the Board of Directors regarding
compensation of Company directors, employees, consultants and others, including
grants of stock options (other than stock option grants under the Company's 1993
Stock Option Plan). The current members of the Compensation Committee (appointed
in June 1996) are Anthony B. Alphin, Jr., Stephen Sohn and Bernard Laurent. The
Compensation Committee did not hold any formal meeting in 1996, but approved
certain actions by written consent. The Audit Committee reviews, analyzes and
makes recommendations to the Board of Directors with respect to the Company's
compensation and accounting policies, controls and statements and coordinates
with the Company's independent public accountants. The current members of the
Audit Committee (appointed in June 1996) are Anthony B. Alphin, Jr. and Bernard
Laurent. The Audit Committee held one formal meeting in 1996. The Scientific
Review Committee was established to discuss the science and potential
commercialization, clinical development and business development of existing and
future technologies of the Company. The current members of the Scientific Review
Committee (appointed in June 1996) are Douglas R. Eger, Dr. Stephen Sohn and Dr.
Michael Zeldin. The Scientific Review Committee held no formal meetings in 1996.
The Company does not have a standing nominating committee or a committee which
serves nominating functions.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized.
SHEFFIELD PHARMACEUTICALS, INC.
Dated: July 30, 1997 /S/ GEORGE LOMBARDI
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Vice President and Chief Financial Officer
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