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, 2000
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 27,998,310
shares as of May 11, 2000.
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Form 10-Q
For the Quarter Ended March 31, 2000
Table of Contents
Page
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999......................................................3
Consolidated Statements of Operations
for the three months ended March 31, 2000 and 1999 and for the period from
October 17, 1986 (inception) to March 31, 2000 .............................4
Consolidated Statements of Stockholders' Equity
(Net Capital Deficiency) for the period from October 17, 1986
(inception) to March 31, 2000 ..............................................5
Consolidated Statements of Cash Flows
for the three months ended March 31, 2000
and 1999 and for the period from
October 17, 1986 (inception) to March 31, 2000..............................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 4. Submission of Matters to a Vote of Security Holders.................11
Item 6. Exhibits and Reports on Form 8-K....................................11
Signatures...................................................................12
2
<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, 2000 December 31, 1999
-------------- -----------------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................................................ $ 3,487,892 $ 3,874,437
Marketable equity security ........................................................... 2,004,709 519,387
Prepaid expenses and other current assets ............................................ 349,712 145,237
----------- ------------
Total current assets ............................................................. 5,842,313 4,539,061
------------ ------------
Property and equipment:
Laboratory equipment ................................................................ 415,704 407,624
Office equipment .................................................................... 202,304 178,797
Leasehold improvements .............................................................. 18,320 15,000
------------ ------------
Total at cost .................................................................... 636,328 601,421
Less accumulated depreciation and amortization ...................................... (337,530) (311,752)
------------ ------------
Property and equipment, net ...................................................... 298,798 289,669
------------ ------------
Patent costs, net of accumulated amortization of $5,233
and $0, respectively ................................................................ 204,283 204,283
Other assets ........................................................................... 15,830 15,642
------------ ------------
Total assets ..................................................................... $ 6,361,042 $ 5,048,655
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities ............................................ $ 519,148 $ 773,206
Sponsored research payable .......................................................... 399,712 421,681
------------ ------------
Total current liabilities ........................................................ 918,860 1,194,887
Convertible promissory note ............................................................ 2,000,000 2,000,000
Unearned revenue ....................................................................... 1,000,000 1,000,000
Other long-term liabilities ............................................................ 229,935 182,695
Commitments and contingencies .......................................................... -- --
------------ ------------
Total liabilities ................................................................ 4,148,795 4,377,582
Minority interest in subsidiary ........................................................ -- --
Stockholders' equity:
Preferred stock, $.01 par value, authorized 3,000,0000 shares:
Series C cumulative convertible preferred stock, authorized
23,000 shares; 13,006 and 12,780 shares issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively ................................................................... 130 128
Series D cumulative convertible exchangeable preferred stock,
authorized 21,000 shares; 12,015 issued and outstanding at
March 31, 2000 and December 31, 1999 ........................................... 120 120
Series F convertible non-exchangeable preferred stock,
5,000 shares authorized; 5,000 shares issued and outstanding at
March 31, 2000 and December 31, 1999
50 50
Common stock, $.01 par value, authorized 60,000,000 shares;
Issued and outstanding 27,877,267 and 27,308,846 shares at
March 31, 2000 and December 31, 1999, respectively ............................. 278,772 273,088
Additional paid-in capital ............................................................. 75,371,519 73,638,128
Other comprehensive income ............................................................. 1,654,709 169,387
Deficit accumulated during development stage ........................................... (75,093,053) (73,409,828)
------------ ------------
Total stockholders' equity ..................................................... 2,212,247 671,073
------------ ------------
Total liabilities and stockholders' equity ............................................. $ 6,361,042 $ 5,048,655
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Operations
For the Three Months Ended March 31, 2000
and 1999 and for the Period
from October 17, 1986 (inception) to March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
October 17,
1986
Three Months Ended (inception) to
March 31 March 31,
------------------------------------------------------
2000 1999 2000
------------- ---------- ---------------
Revenues:
<S> <C> <C> <C>
Contract research revenue ........................................ $ 121,170 $ 26,000 $ 520,548
Sublicense revenue ............................................... -- -- 1,360,000
------------ ------------ ------------
Total revenues .............................................. 121,170 26,000 1,880,548
Expenses:
Acquisition of research and development
in-process technology ...................................... -- -- 29,975,000
Research and development ......................................... 902,023 680,979 25,927,447
General and administrative ....................................... 694,724 499,663 22,537,189
------------ ------------ ------------
Total expenses .............................................. 1,596,747 1,180,642 78,439,636
------------ ------------ ------------
Loss from operations ................................................ (1,475,577) (1,154,642) (76,559,088)
Interest income ..................................................... 52,501 21,877 658,542
Interest expense .................................................... (50,033) (29,891) (623,388)
Minority interest in loss of subsidiary ............................. 16,019 -- 3,001,019
------------ ------------ ------------
Loss before extraordinary item ...................................... (1,457,090) (1,162,656) (73,522,915)
Extraordinary item .................................................. -- -- 42,787
------------ ------------ ------------
Net loss ............................................................ $ (1,457,090) $ (1,162,656) $(73,480,128)
============ ============ ============
Accretion of mandatorily redeemable preferred stock ................. -- -- (103,400)
------------ ------------ ------------
Net loss - attributable to common shares ............................ $ (1,457,090) $ (1,162,656) $(73,583,528)
============ ============ ============
Weighted average common shares outstanding-
basic and diluted ................................................ 27,588,397 27,074,252 8,282,153
Net loss per share of common stock - basic and diluted:
Loss before extraordinary item
$ (0.05) $ (0.04) $ (8.88)
Extraordinary item ............................................ -- -- .01
------------ ------------ ------------
Net loss per share ............................................ $ (0.05) $ (0.04) $ (8.87)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<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, 2000
(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.......................................... -- 11,340,864 37,400 18,066,219
Reincorporation in Delaware at $.01 par value................ -- (11,220,369) -- 11,220,369
Issuance of common stock in connection with
acquisition of Camelot Pharmacal, L.L.C................. -- 6,000 -- 1,644,000
Common stock options issued.................................. -- -- -- 240,868
Common stock options extended................................ -- -- -- 215,188
Accretion of issuance costs for Series A preferred stock..... -- -- -- --
Common stock subscribed...................................... -- -- (110,000) --
Comprehensive income (loss):.................................
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.......................................... -- 2,504 10,000 89,059
Series C preferred stock dividends........................... 9 -- -- 865,991
Series D preferred stock issued.............................. 120 -- -- 12,014,880
Series F preferred stock issued.............................. 50 -- -- 4,691,255
Common stock warrants issued................................. -- -- -- 203,452
Comprehensive income (loss):.................................
Unrealized gain on marketable securities................ -- -- -- --
Net loss................................................ -- -- -- --
Comprehensive income (loss)............................. -- -- -- --
-------- ----------- -------- -----------
Balance at December 31, 1999................................. 298 273,088 -- 73,638,128
Common stock issued.......................................... -- 5,684 -- 1,474,891
Series C preferred stock dividends........................... 2 -- -- 225,998
Common stock warrants issued................................. -- -- -- 32,502
Comprehensive income (loss):.................................
Unrealized gain on marketable securities................ -- -- -- --
Net loss................................................ -- -- -- --
Comprehensive income (loss)............................. -- -- -- --
-------- ----------- -------- -----------
Balance at March 31, 2000.................................... $300 $278,772 $ -- $75,371,519
======== =========== ======== ===========
</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.......................................... -- -- 29,444,483
Reincorporation in Delaware at $.01 par value................ -- -- --
Issuance of common stock in connection with
acquisition of Camelot Pharmacal, L.L.C................. -- -- 1,650,000
Common stock options issued.................................. -- -- 240,868
Common stock options extended................................ -- -- 215,188
Accretion of issuance costs for Series A preferred stock..... -- (79,500) (79,500)
Common stock subscribed...................................... -- -- (110,000)
Comprehensive income (loss):.................................
Net loss.............................................. -- (36,077,790) --
Comprehensive income (loss)........................... -- -- (36,077,790)
-------- ------------ ------------
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) -- --
Net loss................................................ -- (18,560,461) --
Comprehensive income (loss)............................. -- -- (18,782,687)
-------- ------------ -------------
Balance at December 31, 1998................................. (222,226) (55,156,763) 655,205
Common stock issued.......................................... -- -- 101,563
Series C preferred stock dividends........................... -- (868,277) (2,277)
Series D preferred stock issued.............................. -- -- 12,015,000
Series F preferred stock issued.............................. -- -- 4,691,305
Common stock warrants issued................................. -- -- 203,452
Comprehensive income (loss):.................................
Unrealized gain on marketable securities................ 391,613 -- --
Net loss................................................ -- (17,384,788) --
Comprehensive income (loss)............................. -- -- (16,993,175)
-------- ------------ -------------
Balance at December 31, 1999................................. 169,387 (73,409,828) 671,073
Common stock issued.......................................... -- -- 1,480,575
Series C preferred stock dividends........................... -- (226,135) (135)
Common stock warrants issued................................. -- -- 32,502
Comprehensive income (loss):.................................
Unrealized gain on marketable securities................ 1,485,322 -- --
Net loss................................................ -- (1,457,090) --
Comprehensive income (loss)............................. -- -- 28,232
---------- ------------ ------------
Balance at March 31, 2000.................................... $1,654,709 $(75,093,053) $2,212,247
========== ============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999 and for
the Period from October 17, 1986 (inception) to
March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 17, 1986
March 31, (inception) to
---------------------------- March 31,
2000 1999 2000
------------ ------------ -------------
Cash outflows from operating activities:
<S> <C> <C> <C>
Net loss ...................................................................... $(1,457,090) $(1,162,656) $(73,480,128)
Adjustments to reconcile net loss to net cash used by
development stage activities:
Issuance of common stock, stock options/warrants for
services ................................................................. 44,502 62,567 2,529,927
Non-cash acquisition of research and development in-process technology
-- -- 1,650,000
Depreciation and amortization ................................................ 31,012 19,856 510,572
(Increase) decrease in prepaid expenses & other current assets ............... (204,475) 4,441 (408,753)
Decrease in other assets ..................................................... (5,239) -- (166,123)
Decrease in accounts payable and accrued liabilities ......................... (238,409) (45,363) (52,543)
(Decrease) increase in sponsored research payable ............................ (21,969) -- 976,782
Increase in unearned revenue ................................................. -- -- 1,000,000
Other ........................................................................ 32,978 28,514 595,968
----------- ----------- ------------
Net cash used by development stage activities ..................................... (1,818,690) (1,092,641) (66,844,298)
----------- ----------- ------------
Cash flows from investing activities:
Acquisition of laboratory and office equipment, and leasehold
improvements ............................................................. (34,907) (6,231) (620,619)
Other ........................................................................ -- 2,500 117,998
----------- ----------- ------------
Net cash used by investing activities ............................................. (34,907) (3,731) (502,621)
----------- ----------- ------------
Cash flows from financing activities:
Payments on debt and capital leases .......................................... (1,523) (1,303) (837,697)
Net proceeds from issuance of:
Debt ...................................................................... -- 500,000 5,050,000
Common stock .............................................................. -- -- 21,418,035
Preferred stock ........................................................... -- -- 32,741,117
Proceeds from exercise of warrants/stock options ............................. 1,468,575 50,000 12,962,296
Other ........................................................................ -- -- (500,024)
----------- ----------- ------------
Net cash provided by financing activities ......................................... 1,467,052 548,697 70,833,727
----------- ----------- ------------
Net (decrease) increase in cash and cash equivalents .............................. (386,545) (547,675) 3,486,808
Cash and cash equivalents at beginning of period .................................. 3,874,437 2,456,290 1,084
----------- ----------- ------------
Cash and cash equivalents at end of period ........................................ $ 3,487,892 $ 1,908,615 $ 3,487,892
=========== =========== ============
Noncash investing and financing activities:
Common stock, stock options/warrants issued for services ..................... $ 44,502 $ 62,567 $ 2,529,927
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 ......................... -- -- 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 .............................................................. 226,000 208,495 1,872,824
Supplemental disclosure of cash flow information: Interest paid .................. $ 821 $ 1,377 $ 277,141
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Consolidated Financial Statements
March 31, 2000
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q of the
Securities and Exchange Commission and should 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,
1999. 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, 2000 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. The results of operations
for the three months ended March 31, 2000 and 1999 are not necessarily
indicative of the operating results for the full years.
These consolidated financial statements include the accounts of
Sheffield Pharmaceuticals, Inc. and its wholly owned subsidiaries,
Systemic Pulmonary Delivery, Ltd., Ion Pharmaceuticals, Inc., and CP
Pharmaceuticals, Inc., and its 80.1% owned subsidiary, Respiratory
Steroid Delivery, Ltd. and are herein referred to as "Sheffield" or the
"Company." All significant intercompany transactions are eliminated in
consolidation.
The Company is focused on the development and commercialization of
later stage, lower risk pharmaceutical products that utilize the
Company's unique proprietary pulmonary delivery technologies. 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. 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.
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 period. Potentially dilutive securities such as
stock options, warrants, convertible debt and preferred stock, have not
been included in any periods presented as their effect is antidilutive.
3. RECLASSIFICATIONS
Certain amounts in the prior year financial statements and notes have
been reclassified to conform to the current year presentation.
7
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following 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 thereby. All forward-looking statements involve risks
and uncertainty. 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. Important factors that could cause actual results to differ materially
from the forward-looking statements include the Company's need to obtain
substantial additional capital (through financings or otherwise) to fund its
operations and the progress of development and licensing/commercialization of
the Company's technologies. 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 development and
commercialization of later stage, lower risk pharmaceutical products that
utilize the Company's unique proprietary pulmonary delivery technologies. The
Company is in the development stage and, as such, has been principally engaged
in the development of its pulmonary delivery systems. The Company and its
development partners currently have nine products in various stages of
development.
In 1997, the Company acquired the Metered Solution Inhaler ("MSI"), a portable
nebulizer-based pulmonary delivery system, through a worldwide exclusive license
and supply arrangement with Siemens AG ("Siemens"). 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. Additionally, during
1998, Sheffield licensed from Elan Corporation, plc ("Elan"), the Ultrasonic
Pulmonary Drug Absorption System ("UPDAS(TM)"), a novel disposable unit dose
nebulizer system, and Elan's Absorption Enhancing Technology ("Enhancing
Technology"), a therapeutic agent to increase the systemic absorption of drugs.
In October 1999, the Company licensed Elan's Nanocrystal(TM) technology to be
used in developing certain steroid products.
Using the above pulmonary delivery systems and technologies as platforms, the
Company has established strategic alliances for developing its initial products
with Elan, Siemens and Zambon Group SpA ("Zambon").
In a collaboration with Zambon, the Company is developing a range of
pharmaceutical products delivered by the MSI to treat respiratory diseases.
Under its agreement with Zambon, MSI commercial rights for respiratory products
have been sublicensed to Zambon in return for an equity investment in the
Company (approximately 10%). The Company has maintained co-marketing rights for
the U.S. The Company's ability to co-market MSI respiratory products in the U.S.
requires no additional payment by the Company. Zambon has committed to fund the
development costs for respiratory compounds delivered by the MSI, as well as
make certain milestone payments and pay royalties on net sales to the Company
resulting from these MSI products. Initial products for respiratory disease
therapy delivered through the MSI include albuterol, ipratropium, cromolyn and
inhaled steroids.
As part of a strategic alliance with Elan, a world leader in pharmaceutical
delivery technology, the Company is developing therapies for non-respiratory
diseases to be delivered to the lungs using both the ADDS and MSI. In 1998, the
systemic applications of the MSI and ADDS were licensed to Systemic Pulmonary
Delivery, Ltd. ("SPD"), a wholly owned subsidiary of the Company. In addition,
two Elan technologies, UPDAS(TM) and the Enhancing Technology, were also
licensed to SPD. The Company retained exclusive rights outside of the strategic
alliance to respiratory disease applications utilizing the ADDS technology and
the two Elan technologies. Two systemic compounds for pulmonary delivery are
currently under development. For the treatment of breakthrough pain, the Company
is developing morphine delivered through the MSI. Ergotamine, a therapy for the
treatment of migraine headaches, is currently being developed for use in the
ADDS.
In addition to the above alliance with Elan, in 1999, the Company and Elan
formed a joint venture, Respiratory Steroid Delivery, Ltd. ("RSD"), to develop
certain inhaled steroid products to treat respiratory diseases using Elan's
NanoCrystal technology. The inhaled steroid products to be developed include a
propellant-based steroid formulation for delivery through the ADDS, a
solution-based unit-dose-packaged steroid formulation for delivery using a
conventional tabletop nebulizer, and a solution-based steroid formulation for
delivery using the MSI system, subject to further agreement with Zambon.
8
<PAGE>
Outside of these alliances, the Company owns the worldwide rights to respiratory
disease applications of all of its technologies, subject only to the MSI
respiratory rights sublicensed to Zambon.
Results of Operations
Revenue
Contract research revenues primarily represent revenue earned from a
collaborative research agreement with Zambon relating to the development of
respiratory applications of the MSI. Contract research revenue for the quarters
ended March 31, 2000 and 1999 were $121,170 and $26,000, respectively. The
increase relates to three additional respiratory programs in development in the
first quarter of 2000 as compared to 1999. Costs of contract research revenue
approximate such revenue and are included in research and development expenses.
Future contract research revenues and expenses are anticipated to fluctuate
depending, in part, upon the success of current clinical studies, and obtaining
additional collaborative agreements.
The Company's ability to generate material revenues is contingent on the
successful commercialization of 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.
Research and Development
Research and development expenses were $902,023 for the first quarter of 2000 as
compared to $680,979 for the first quarter of 1999. The increase of $221,044
from 1999 primarily reflects costs associated with modifications being made to
the MSI to enhance its commercial appeal prior to the start of Phase III
MSI-albuterol clinical trials, partially offset by lower development and
engineering costs related to the ADDS device.
General and Administrative
General and administrative expenses were $694,724 for the quarter ended March
31, 2000, compared with $499,663 for the same quarter of 1999. The increase from
the first quarter of 1999 of $195,061 was primarily due to higher consulting
costs and legal fees associated with expanded business development activity.
Interest
Interest income was $52,501 for the quarter ended March 31, 2000 as compared to
$21,877 for the same quarter of 1999. The $30,624 increase in interest income
was primarily due to larger balances of cash available for investment and higher
average yields on those investments.
Interest expense was $50,033 for the first quarter of 2000, compared with
$29,891 for the first quarter of 1999. The increase of $20,142 in 2000 as
compared to 1999 resulted from higher outstanding balances on the Company's
convertible promissory note with Elan, as well as a higher average interest rate
on the note.
Liquidity and Capital Resources
At March 31, 2000, the Company had $3,487,892 in cash and cash equivalents
compared to $3,874,437 at December 31, 1999. The decrease of $386,545 primarily
reflects $1,818,690 of cash disbursements used primarily to fund operating
activities, partially offset by $1,468,575 in net proceeds from the exercise of
common stock options and warrants.
In October 1999, as part of a licensing agreement with Elan, the Company
received gross proceeds of $17,000,000 related to the issuance to Elan of 12,015
shares of Series D Cumulative Convertible Exchangeable Preferred Stock and 5,000
shares of Series F Convertible Non-Exchangeable Preferred Stock. In turn, the
Company made an equity investment of $12,015,000 in a joint venture, RSD,
representing an initial 80.1% ownership. The remaining proceeds from the
above-mentioned preferred stock issuance will be utilized for general operating
purposes. As part of the agreement, Elan also committed to purchase, on a
drawdown basis, up to an additional $4,000,000 of the Company's Series E
Cumulative Convertible Preferred Stock ("Series E Preferred Stock"). The
proceeds from the Series E Preferred Stock will be utilized by the Company to
fund its portion of RSD's operating and development costs. As of March 31, 2000,
no purchases of Series E Preferred Stock have been made.
9
<PAGE>
In May 1999, in conjunction with the completion of its Phase I/II MSI-albuterol
trial, Zambon provided the Company with a $1,000,000 interest-free advance
against future milestone payments. Upon the attainment of certain future
milestones, the Company will recognize this advance as revenue. If the Company
does not achieve these future milestones, the advance must be repaid in
quarterly installments of $250,000 commencing January 1, 2002. The proceeds from
this advance are not restricted as to their use by the Company. Upon the
achievement of certain other technical milestones, Zambon will provide an
additional $1,000,000 advance under the terms of the agreement.
Since its inception, the Company has financed its operations primarily through
the sale of securities and convertible debentures, from which it has raised an
aggregate of approximately $72.2 million through March 31, 2000, of which
approximately $30.0 million has been spent to acquire certain in-process
research and development technologies, and $25.9 million has been incurred to
fund certain ongoing technology research projects. The Company expects to incur
additional costs in the future, 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. 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. There can be no assurance that any of the technologies
to which the Company currently has or may acquire rights 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.
10
<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, 2000:
<TABLE>
<CAPTION>
Number of
Shares
Sold/Issued
Description /Subject to
Date of of Securities Options or Offering/Exercise
Sale/Issuance Issued Warrants Price per Share($) Purchaser or Class
------------- ------ -------- ------------------ ------------------
<S> <C> <C> <C> <C>
January 2000 Common stock 21,524 $5.00 Advisor in lieu of cash
warrants. consideration.
January 2000 Common stock 45,000 $5.00 Issuance to certain
options. Directors pursuant to
the 1996 Directors
Stock Option Plan.
March 2000 Common stock 4,465 $2.69 Advisor in lieu of cash
consideration.
</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 4. Submission of Matters to a Vote of Security Holders
A special meeting of stockholders was held on January 20, 2000.
Listed below are the matters voted on by stockholders and the
number of votes cast at the meeting.
(a) Approval of issuance of the Company's Series D Cumulative
Convertible Exchangeable Preferred Stock and the Company's Common
Stock issuable upon conversion of such Preferred Stock.
Voted For 14,535,522
Voted Against 765,533
Votes Withheld 161,450
(b) Approval of issuance of Series E Cumulative Convertible
Non-Exchangeable Preferred Stock and the Company's Common Stock
issuable upon conversion of such Preferred Stock.
Voted For 14,516,258
Voted Again 784,198
Votes Withheld 162,549
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March
31, 2000.
Exhibits
No. Description
27 Financial Data Schedule.
11
<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 11, 2000 /s/ Loren G. Peterson
---------------------
Loren G. Peterson
President & Chief Executive Officer
Dated: May 11, 2000 /s/ Scott A. Hoffmann
---------------------
Scott A. Hoffmann
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,487,892
<SECURITIES> 2,004,709
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,842,313
<PP&E> 636,328
<DEPRECIATION> 337,530
<TOTAL-ASSETS> 6,361,042
<CURRENT-LIABILITIES> 918,860
<BONDS> 0
0
300
<COMMON> 278,772
<OTHER-SE> 1,933,175
<TOTAL-LIABILITY-AND-EQUITY> 6,361,042
<SALES> 0
<TOTAL-REVENUES> 121,170
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,596,747
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,033
<INCOME-PRETAX> (1,457,090)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,457,090)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,457,090)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
