SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
Commission file number 1-12584
SHEFFIELD PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3808303
(STATE OF INCORPORATION) (IRS EMPLOYEE IDENTIFICATION NUMBER)
425 SOUTH WOODSMILL ROAD 63017 (314) 579-9899
ST. LOUIS, MISSOURI (ZIP CODE) (REGISTRANT'S TELEPHONE,
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock. $.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 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.
[X] Yes [ ] No
The number of shares outstanding of the Registrant's Common Stock is 27,266,346
shares of Common Stock as of May 10, 1999.
<PAGE>
SHEFFIELD PHARMACEUICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
FORM 10-Q
For the Quarter Ended March 31, 1999
Table of Contents
PAGE
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998................................................. 3
Consolidated Statements of Operations
for the three months ended March 31, 1999 and 1998 and for
the period from October 17, 1986 (inception) to March 31, 1999......... 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998 and for
the period from October 17, 1986 (inception) to March 31, 1999......... 5
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency) for the period from October 17, 1986
(inception) to March 31, 1999 ......................................... 6
Notes to Consolidated Financial Statements .............................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 8
PART II
Item 2. Changes in Securities........................................... 11
Item 6. Exhibits and Reports on Form 8-K................................ 11
Signatures............................................................... 12
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December
1999 1998
---- ----
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,908,615 $ 2,456,290
Marketable equity security 138,880 127,774
Prepaid expenses and other current assets 34,594 39,035
------------
------------
Total current assets 2,082,089 2,623,099
------------ ------------
Property and equipment:
Laboratory equipment 323,263 317,032
Office equipment 146,478 175,062
Leasehold improvements 1,323 1,323
------------ ------------
Total at cost 471,064 493,417
Less accumulated depreciation and amortization (245,267) (253,995)
------------
------------
Property and equipment, net 225,797 239,422
------------ ------------
Total assets $ 2,307,886 $ 2,862,521
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable and accrued liabilities $ 570,472 $ 615,138
Sponsored research payable 449,805 449,805
Note payable - related party 104,145 101,323
------------ ------------
Total current liabilities 1,124,422 1,166,266
Convertible promissory note 1,500,000 1,000,000
Other long-term liabilities 65,237 41,050
Commitments and contingencies -- --
------------ ------------
Total liabilities 2,689,659 2,207,316
Stockholders' equity (net capital deficiency):
Preferred stock, $.01 par value, authorized 3,000,0000 shares:
Series C cumulative convertible preferred stock, authorized 23,000
shares; 12,122 and 11,914 shares issued and outstanding at March 31,
1999 and December 31, 1998, respectively 121 119
Common stock, $.01 par value, authorized 50,000,000 shares;
issued and outstanding 27,083,419 and 27,058,419 shares at March 31,
1999 and December 31, 1998, respectively 270,834 270,584
Notes receivable in connection with sale of stock (7,500) (10,000)
Additional paid-in capital 56,093,806 55,773,491
Other comprehensive income (loss) (211,120) (222,226)
Deficit accumulated during development stage (56,527,914) (55,156,763)
------------ ------------
Total stockholders' equity (net capital deficiency) (381,773) 655,205
------------ ------------
Total liabilities and stockholders' equity (net capital deficiency) $ 2,307,886 $ 2,862,521
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1999 and 1998 and for the Period
from October 17, 1986 (inception) to March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
October 17,
Three Months Ended 1986
March 31 (inception) to
1999 1998 December 31,
---- ---- ------------
Revenues:
<S> <C> <C> <C>
Sublicense revenue....................................... $ -- $ -- $1,360,000
Interest income.......................................... 21,877 953 535,977
----------- ----------- ------------
Total revenues...................................... 21,877 953 1,895,977
Expenses:
Acquisition of research and development in-process
technology.............................................. -- -- 14,975,000
Research and development.............................. 654,979 1,609,041 22,258,669
General and administrative.............................. 499,663 612,490 20,064,992
Interest................................................. 29,891 42,470 441,009
----------- ----------- ------------
Total expenses...................................... 1,184,533 2,264,001 57,739,670
----------- ----------- ------------
Loss before extraordinary item............................ $(1,162,656) (2,263,048) (55,843,693)
Extraordinary item.......................................... -- -- 42,787
----------- ----------- ------------
Net loss.................................................... $(1,162,656) $(2,263,048) $(55,800,906)
=========== =========== ============
Accretion of mandatorily redeemable preferred stock. -- (23,900) (103,400)
----------- ----------- ------------
Net loss - attributable to common shares............... $(1,162,656) $(2,286,948) $(55,904,306)
=========== =========== ============
Weighted average common shares outstanding-
basic and diluted........................................ 27,074,252 13,655,722 6,746,866
Net loss per share of common stock-basic and
diluted:
Loss beforeextraordinary item........................ $(0.04) $(0.17) $(8.28)
Extraordinary item.................................... -- -- .01
----------- ------------ ------------
Net loss per share.................................... $(0.04) $(0.17) $(8.27)
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998 and for the
Period from October 17, 1986 (Inception) to
March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 17, 1986
March 31, (inception) to
1999 1998 March 31, 1999
---- ---- --------------
Cash outflows from development stage activities and
<S> <C> <C> <C>
extraordinary gain: Loss before extraordinary item................ $(1,162,656) $(2,263,048) $(55,843,693)
Extraordinary gain on extinguishment of debt................. -- -- 42,787
----------- ----------- ------------
Net loss..................................................... (1,162,656) (2,263,048) (55,800,906)
----------- ----------- ------------
Adjustments to reconcile net loss to net cash used by
development stage activities:
Issuance of common stock, stock options/warrants for services. 62,567 16,389 2,344,540
Non-cash acquisition of research and development in-process
technology..................................................... -- -- 1,650,000
Depreciation and amortization.................................... 19,856 13,482 413,075
Other items...................................................... 28,514 41,381 440,108
Decrease (increase) in prepaid expenses & other current assets. 4,441 7,049 (93,635)
Decrease in other assets......................................... -- 13,869 59,041
Increase (decrease) in accounts payable and accrued liabilities.. (45,363) 1,721,374 (13,915)
Increase (decrease) in sponsored research payable................ -- (588) 1,026,875
----------- ----------- ------------
Net cash used by development stage activities......................... (1,092,641) (450,092) (49,974,817)
----------- ----------- ------------
Cash flows from investing activities:
Proceeds on sale of marketable securities........................ -- -- 175,085
Acquisition of laboratory and office equipment, and leasehold
improvements................................................. (6,231) -- (455,355)
Disposition of office equipment.................................. -- 33,560 --
Increase in notes receivable in connection with sale of stock.... -- -- (240,000)
Decrease in loan receivable - former officer..................... -- 7,500 --
Payments of notes receivable..................................... 2,500 23,300 222,100
Purchase of Camelot Pharmacal, L.L.C., net cash acquired....... -- -- (46,687)
----------- ----------- ------------
Net cash provided (used) by investing activities..................... (3,731) 64,360 (344,857)
----------- ----------- ------------
Cash flows from financing activities:
Principal payments under capital lease........................... (1,303) -- (77,776)
Proceeds from notes payable - related party...................... -- -- 150,000
Repayments of notes payable - related party...................... -- -- (50,000)
Proceeds from issuance of convertible securities................. 500,000 -- 3,800,000
Conversion of convertible, subordinated notes.................... -- -- 749,976
Proceeds from issuance of common and preferred stock.......... -- -- 37,452,847
Redemption of preferred stock.................................... -- -- (1,250,000)
Proceeds from exercise of warrants/stock options................. 50,000 -- 11,452,158
----------- ----------- ------------
Net cash provided by financing activities............................. 548,697 -- 52,227,205
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents.................. (547,675) (385,732) 1,907,531
Cash and cash equivalents at beginning of period...................... 2,456,290 393,608 1,084
----------- ----------- ------------
Cash and cash equivalents at end of period............................ $1,908,615 $7,876 $1,908,615
=========== =========== ============
Noncash investing and financing activities:
Common stock, stock options and warrants issued for services.. $62,567 $16,389 $2,344,540
Common stock redeemed in payment of notes receivable......... -- -- 10,400
Acquisition of research and development in-process
technology.................................................... -- -- 1,655,216
Common stock issued for intellectual property rights............. -- -- 866,250
Common stock issued to retire debt............................... -- -- 600,000
Common stock issued to redeem convertible securities............ -- 2,136,784 5,353,368
Securities acquired under sublicense agreement................... -- -- 850,000
Equipment acquired under capital lease........................... -- -- 121,684
Notes payable converted to common stock.......................... -- -- 749,976
Stock dividends.................................................. 208,495 104,281 987,042
Supplemental disclosure of cash flow information: Interest paid... $1,377 $1,089 $268,778
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
For the Period from October 17, 1986 (Inception) to March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Notes
receivable
in
connection Additional
Preferred Common with sale of paid-in
Stock Stock Stock capital
----- ----- ----- -------
<S> <C> <C> <C> <C>
Balance at October 17, 1986.................................. $ -- $ -- $ -- $ --
Common stock issued.......................................... -- 11,334,252 -- 17,024,469
Reincorporation in Delaware at $.01 par value................ -- (11,220,369) -- 11,220,369
Common stock options issued.................................. -- -- -- 75,000
Common stock subscribed...................................... -- -- (110,000) --
Comprehensive income (loss):
Unrealized loss on marketable securities.............. -- -- -- --
Net loss.............................................. -- -- -- --
---------- ----------- ---------- -----------
Comprehensive income (loss)...........................
Balance at December 31, 1996................................. -- 113,883 (110,000) 28,319,838
Issuance of common stock in connection with
acquisition of Camelot Pharmacal, L.L.C................. -- 6,000 -- 1,644,000
Common stock issued.......................................... -- 6,612 37,400 1,041,750
Common stock options and warrants issued..................... -- -- -- 165,868
Common stock options extended................................ -- -- -- 215,188
Accretion of issuance costs for Series A preferred stock..... -- -- -- --
Comprehensive income (loss):
Unrealized gain on marketable securities................ -- -- -- --
Net loss................................................ -- -- -- --
---------- ----------- ---------- -----------
Comprehensive income (loss).............................
Balance at December 31, 1997................................. -- 126,495 (72,600) 31,386,644
Common stock issued.......................................... -- 144,089 62,600 12,472,966
Series C preferred stock issued.............................. 115 -- -- 11,499,885
Series C preferred stock dividends........................... 4 -- -- 413,996
Accretion of issuance costs for Series A preferred stock..... -- -- -- --
Comprehensive income (loss):
Unrealized loss on marketable securities................ -- -- -- --
Net loss................................................ -- -- -- --
---------- ----------- ---------- -----------
Comprehensive income (loss).............................
Balance at December 31, 1998................................. 119 270,584 (10,000) 55,773,491
Common stock issued.......................................... -- 250 2,500 49,750
Preferred stock dividends.................................... 2 -- -- 207,998
Common stock warrants issued................................. -- -- -- 62,567
Comprehensive income (loss):
Unrealized gain on marketable securities................ -- -- -- --
Net loss................................................ -- -- -- --
---------- ----------- ---------- -----------
Comprehensive income (loss).............................
Balance at March 31, 1999.................................... $121 $270,834 $(7,500) $56,093,806
========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit Total
Other accumulated stockholders
comprehen- during equity (net
sive income development capital
(loss) stage deficiency
------ ----- ----------
<S> <C> <C> <C>
Balance at October 17, 1986.................................. $ -- $ -- $ --
Common stock issued.......................................... -- -- 28,358,721
Reincorporation in Delaware at $.01 par value................ -- -- --
Common stock options issued.................................. -- -- 75,000
Common stock subscribed...................................... -- -- (110,000)
Comprehensive income (loss):
Unrealized loss on marketable securities.............. (39,232) -- (39,232)
Net loss.............................................. -- (26,588,652) (26,588,652)
---------- ------------- -------------
Comprehensive income (loss)........................... (26,627,884)
-------------
Balance at December 31, 1996................................. (39,232) (26,588,652) 1,695,837
Issuance of common stock in connection with
acquisition of Camelot Pharmacal, L.L.C................. -- -- 1,650,000
Common stock issued.......................................... -- -- 1,085,762
Common stock options and warrants issued..................... -- -- 165,868
Common stock options extended................................ -- -- 215,188
Accretion of issuance costs for Series A preferred stock..... -- (79,500) (79,500)
Comprehensive income (loss):
Unrealized gain on marketable securities................ 39,232 -- 39,232
Net loss................................................ -- (9,489,138) (9,489,138)
---------- ------------- -------------
Comprehensive income (loss)............................. (9,449,906)
----------
Balance at December 31, 1997................................. -- (36,157,290) (4,716,751)
Common stock issued.......................................... -- -- 12,679,655
Series C preferred stock issued.............................. -- -- 11,500,000
Series C preferred stock dividends........................... -- (415,112) (1,112)
Accretion of issuance costs for Series A preferred stock..... -- (23,900) (23,900)
Comprehensive income (loss):
Unrealized loss on marketable securities................ (222,226) -- (222,226)
Net loss................................................ -- (18,560,461) (18,560,461)
---------- ------------- -------------
Comprehensive income (loss)............................. (18,786,782)
-----------
Balance at December 31, 1998................................. (222,226) (55,156,763) 655,205
Common stock issued.......................................... -- -- 52,500
Preferred stock dividends.................................... -- (208,495) (495)
Common stock warrants issued................................. -- -- 62,567
Comprehensive income (loss):
Unrealized gain on marketable securities................ 11,106 -- 11,106
Net loss................................................ -- (1,162,656) (1,162,656)
---------- ------------- -------------
Comprehensive income (loss)............................. (1,151,550)
----------
Balance at March 31, 1999.................................... $(211,120) $(56,527,914) $(381,773)
========== ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated balance sheet as of March 31, 1999 and the
accompanying consolidated statements of operations, stockholders' equity
and cash flows for the three months ended March 31, 1999 and 1998 and for
the period from October 17, 1986 (inception) to March 31, 1999, have been
prepared by Sheffield Pharmaceuticals, Inc. without audit. In the opinion
of management, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position, results of
operations, stockholders' equity and cash flows at March 31, 1999 and for
all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1998. The results of
operations for the three months ended March 31, 1999 and 1998 are not
necessarily indicative of the operating results for the full years.
Sheffield Medical Technologies Inc. ("Sheffield") was incorporated under
Canadian law in October 1986. In May 1992, the Company became domesticated
as a Wyoming Corporation pursuant to a "continuance" procedure under
Wyoming law. In January 1995, the Company's shareholders approved the
proposal to reincorporate Sheffield in Delaware, which was effected on
June 13, 1995. On January 10, 1996, Ion Pharmaceuticals, Inc. ("Ion"), was
formed as a wholly owned subsidiary of the Company. At that time, Ion
acquired the Company's rights to certain early-stage biomedical
technologies. On April 17, 1997, CP Pharmaceuticals, Inc. ("CP") was
formed for the purpose of acquiring Camelot Pharmacal, L.L.C., a privately
held pharmaceutical development company, which acquisition was consummated
on April 25, 1997. In June 1997, the Company's shareholders approved the
proposal to change Sheffield's name from Sheffield Medical Technologies
Inc. to Sheffield Pharmaceuticals, Inc. As part of an agreement with Elan
Corporation, plc, on June 30, 1998, Systemic Pulmonary Delivery, Ltd.
("SPD") was formed as a wholly owned subsidiary of the Company. At that
time, SPD acquired the Company's rights to the systemic applications of
the Metered Solution Inhaler and acquired Elan's rights to certain
pulmonary delivery technologies. Unless the context requires otherwise,
Sheffield, Ion, CP and SPD are referred herein to as "the Company." All
significant intercompany transactions are eliminated in consolidation.
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and
satisfaction of liabilities and commitments in the normal course of
business. The Company is in the development stage and to date has been
principally engaged in research, development and licensing efforts. The
Company has generated minimal operating revenue, sustained significant net
operating losses, and requires additional capital that the Company intends
to obtain through out-licensing as well as through equity and debt
offerings to continue to operate its business. The Company's ability to
meet its obligations as they become due and to continue as a going concern
must be considered in light of the expenses, difficulties and delays
frequently encountered in developing a new business, particularly since
the Company will focus on product development that may require a lengthy
period of time and substantial expenditures to complete. Even if the
Company is able to successfully develop new products, there can be no
assurance that the Company will generate sufficient revenues from the sale
or licensing of such products to be profitable. Management believes that
the Company's ability to meet its obligations as they become due and to
continue as a going concern through December 1999 is dependent upon
obtaining additional funding. However, the accompanying financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
2. BASIC LOSS PER COMMON SHARE
Basic net loss per share is calculated in accordance with Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE. Basic net loss
per share is based upon the weighted average common stock outstanding
during each year. Potentially dilutive securities such as stock options,
warrants, convertible debt and preferred stock, have not been included in
any years presented as their effect is antidilutive.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE INTENDED TO BE COVERED BY
THE SAFE HARBORS CREATED HEREBY. ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS
AND UNCERTAINTY, INCLUDING WITHOUT LIMITATION, THE SUCCESSFUL DEVELOPMENT AND
LICENSING OF THE COMPANY'S TECHNOLOGIES AND THE SUCCESSFUL COMPLETION OF PLANNED
FINANCINGS. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THE
ASSUMPTIONS COULD BE INACCURATE, AND THEREFORE, THERE CAN BE NO ASSURANCE THAT
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT WILL PROVE TO BE
ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION
SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON
THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
OVERVIEW
The Company is a specialty pharmaceutical company focused on the development and
commercialization of later stage, lower risk pharmaceutical products that
utilize the Company's delivery technologies. In 1997, the Company acquired the
Metered Solution Inhaler ("MSI") pulmonary delivery system through a worldwide
exclusive license and supply arrangement with Siemens AG. During the second half
of 1998, the Company acquired the rights to an additional pulmonary delivery
technology, the Aerosol Drug Delivery System ("ADDS") from a subsidiary of
Aeroquip-Vickers, Inc. ("Aeroquip-Vickers"). The ADDS technology is a new
generation propellant-based pulmonary delivery system.
Using these pulmonary delivery systems as platforms, the Company has established
strategic alliances with Elan Corporation, plc ("Elan"), Siemens AG ("Siemens")
and Zambon Group SpA ("Zambon") for developing the initial products. In a
collaboration with Zambon, the Company is developing a range of pharmaceutical
products delivered by the MSI to treat respiratory diseases. As part of the
strategic alliance with Elan, a world leader in pharmaceutical delivery
technology, the Company is developing therapies for systemic diseases to be
delivered to the lungs. The initial systemic programs are for therapies in the
breakthrough pain and migraine headache markets. Elan licensed two of its own
delivery technologies to the Company that complement the MSI and ADDS
technologies. Outside of its alliances, the Company owns the worldwide rights to
respiratory disease applications of all of its technologies, subject only to the
MSI respiratory rights licensed to Zambon. The Company will seek to acquire
additional novel platform drug delivery systems and technologies.
RESULTS OF OPERATIONS
REVENUE
From inception through the period ended March 31, 1999, the Company has earned
sublicense revenue of $1,360,000 related to the sublicensing of various early
stage technologies. As part of the Company's focus on later stage opportunities,
the Company continues seeking to outlicense its remaining portfolio of early
stage technologies. There can be no assurance that the Company will receive
license fees or other payments related to these technologies. The Company
believes these early stage technologies will have no material impact on the
financial position of the Company.
Interest income was $21,877 for the quarter ended March 31, 1999 compared to
$953 for the same quarter of 1998. The increase between years is attributable to
an increase in cash available for investment during the period ended March 31,
1999. From inception through the period March 31, 1999, the Company has earned
interest income of $535,977.
The Company's ability to generate material revenues is contingent on the
successful commercialization its technologies and other technologies and
products that it may acquire, followed by the successful marketing and
commercialization of such technologies through licenses, joint ventures and
other arrangements.
ACQUISITION OF RESEARCH & DEVELOPMENT IN-PROCESS TECHNOLOGY
The acquisition of research and development in-process technology from inception
to March 31, 1999 was attributable to the acquisition of Camelot Pharmacal, LLC
in 1997 for $1,650,000 and the 1998 acquisitions of certain pulmonary delivery
technologies from Elan for $12,500,000 and ADDS from Aeroquip-Vickers for
$825,000.
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses were $654,979 for the first quarter of 1999 as
compared to $1,609,041 for the first quarter of 1998. The decrease of $954,062
from 1998 primarily reflects the shifting of responsibility for development
expenses of the respiratory applications of the MSI to the Company's partner,
Zambon. The Company's direct research and development expenses for its pulmonary
delivery systems were $483,273 and $1,514,832 for the first quarters of 1999 and
1998, respectively, and $4,275,773 from inception through March 31, 1999. The
Company incurred $894 of R&D costs in 1999 versus $244 in 1998 associated with
its early stage technologies, which include RBC-CD4 Electroinsertion technology,
Liposome-CD4 technology, HIV/AIDS vaccine, UGIF technology-prostate cancer, and
anti-proliferative technologies. Since the Company is focused on development of
its pulmonary delivery systems, it does not anticipate incurring additional
research and development costs for these early stage projects.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $499,663 for the quarter ended March
31, 1999, compared with the $612,490 same quarter of 1998. This decrease from
1998 to 1999 of $112,827 was primarily due to lower compensation expense
reflecting fewer employees during the first quarter of 1999 as compared to the
same quarter of 1998.
INTEREST EXPENSE
Interest expense was $29,891 for the first quarter of 1999, compared with
$42,470 for the first quarter of 1998. The decrease of $12,579 in 1999 as
compared to 1998 resulted from interest associated with the Company's Series A
Cumulative Convertible Preferred Stock and 6% Convertible Subordinated
Debentures which were both converted into Common Stock during 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash available as of March 31, 1999 for funding its operations was
$1,908,615. As of such date, the Company had trade payables of $570,472, current
research obligations of $449,805 and a note payable due in May 1999 of $104,145.
In addition, the Company has committed to fund an additional $1,729,000 for
development of pulmonary delivery systems subsequent to March 31, 1999.
As part of an agreement with Elan, Elan agreed to make available to the Company
a convertible promissory note that provides the Company the right to borrow up
to $2,000,000, subject to satisfying certain conditions. No more than $500,000
may be drawn under the note in any calendar quarter and at least one-half of the
proceeds must be used to fund SPD's development activities. As of March 31,
1999, the Company had remaining $500,000 available for borrowing under this
note.
In May 1999, in conjunction with the completion of its Phase I/II MSI-albuterol
trial, Zambon provided the Company with a $1 million interest free advance
against future milestone payments. The advance will be repaid in quarterly
installments of $250,000 commencing on January 1, 2002 or upon the receipt of
certain future milestones, whichever is earlier. The proceeds from this advance
are not restricted as to its use by the Company. Upon the achievement of certain
other early milestones, Zambon will provide an additional $1,000,000 advance
under the terms of the agreement.
The Company expects to incur additional costs in the future to fund certain
ongoing technology research projects, including costs relating to its ongoing
research and development activities, and preclinical and clinical testing of its
product candidates. The Company may also bear considerable costs in connection
with filing, prosecuting, defending and/or enforcing its patent and other
intellectual property claims. 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.
Because the Company does not expect to generate significant cash flows from
operations for at least the next few years, the Company believes it will require
additional funds to meet future costs. The Company will attempt to meet 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 development programs may be curtailed if future financings
are not completed.
<PAGE>
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the Year 2000 compliance issue. Such
systems that are not Year 2000 compliant may not be able to properly interpret
dates beyond the Year 1999, which could lead to business disruptions in the U.S.
and internationally. The potential costs and uncertainties associated with the
Year 2000 issue will depend on a number of factors, including software, hardware
and the nature of the industry in which a company operates. Additionally,
companies must coordinate with other entities with which they electronically
interact, such as customers, creditors and borrowers.
During 1998, the Company conducted an assessment of its computer systems to
identify systems that could be affected by the Year 2000 issue. Substantially
all software programs used by the Company have been determined to be Year 2000
compliant. In addition, the Company believes that with readily available
upgrades to existing hardware, the Year 2000 issue will not pose significant
operational problems for its computer system. The completion of hardware
modifications to assure Year 2000 compliance is expected by the end of the
second quarter of 1999.
The Company relies on various universities and laboratories for conducting a
significant portion of the research and development of its products. The Company
is currently in the process of communicating with the parties with which it does
significant business to determine their Year 2000 compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
The Company expects to complete its assessment of Year 2000 compliance of these
third parties by July 1999. However, there can be no guarantee that the systems
of other companies on which the Company relies will be timely converted or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have material adverse effect on the
Company.
The total cost to the Company of these Year 2000 compliance activities is
estimated to be less than $25,000, and is not anticipated to be material to its
financial position or results of operations. These costs and the date on which
the Company plans to complete the Year 2000 modification and testing processes
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no assurance that these estimates will be achieved and actual results could
differ from those plans.
<PAGE>
PART II: OTHER INFORMATION
Item 2. CHANGES IN SECURITIES.
The following unregistered securities were issued by the Company
during the quarter ended March 31, 1999:
<TABLE>
<CAPTION>
Number of
Shares Number of Shares
Sold/Issued Sold/Issued /Subject to
Description /Subject to
Date of of Securities Options or Offering/Exercise
Sale/Issuance Issued Warrants Price per Share($) Purchase or Class
------------- ------ -------- ------------------ -----------------
<S> <C> <C> <C> <C>
January 1999 Common stock 19,640 $2.3125 Advisor in lieu of cash
warrants. consideration.
January 1999 Common stock 45,000 2.3125 Issuance to certain
options. Directors pursuant to
the 1996 Directors
Stock Option Plan.
January 1999 Common stock 50,000 2.3125 Holder of short-term
warrants. note.
January 1999 Common stock 150,000 0.8125 Advisor under terms of
warrants. engagement agreement.
February 1999 Common stock 16,000 2.750 Issuance to employees
options. pursuant to 1993
Stock Option Plan.
</TABLE>
The issuance of these securities is 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. EXHIBITS AND REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended March 31,
1999.
EXHIBITS
NO. DESCRIPTION
27 Financial Data Schedule.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHEFFIELD PHARMACEUTICALS, INC.
Dated: May 10, 1999 /S/ LOREN G. PETERSON
---------------------
Loren G. Peterson
President & Chief Executive Officer
Dated: May 10, 1999 /S/ SCOTT A. HOFFMANN
---------------------
Scott A. Hoffmann
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed financial statements for the quarter ended March 31, 1999 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,908,615
<SECURITIES> 138,880
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,082,089
<PP&E> 471,064
<DEPRECIATION> 245,267
<TOTAL-ASSETS> 2,307,886
<CURRENT-LIABILITIES> 1,124,422
<BONDS> 0
0
121
<COMMON> 270,834
<OTHER-SE> (652,728)
<TOTAL-LIABILITY-AND-EQUITY> 2,307,886
<SALES> 0
<TOTAL-REVENUES> 21,877
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,184,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,891
<INCOME-PRETAX> (1,162,656)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,162,656)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,162,656)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
