As Filed with the Securities and Exchange Commission on September 3, 2002,
Registration No. 333-86262
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
Flemington Pharmaceutical Corporation
---------------------------------------------------------
(Exact name of Registrant as Specified in Its Charter)
Delaware 2834 22-2407152
----------------------------- --------------------------- -----------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code) Identification No.)
Flemington Pharmaceutical Corporation
31 State Highway 12
Flemington, NJ 08822
(908) 782-3431
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Harry A. Dugger III
President and Chief Executive Officer
Flemington Pharmaceutical Corporation
31 State Highway 12
Flemington, NJ 08822
(908) 782-3431
(Name, address, including zip code, and telephone number
including area code, of agents for service)
____________________________________
Copies to:
Steven F. Wasserman, Esq.
Brown Rudnick Berlack Israels LLP
120 West 45th Street
New York, New York 10036
(212) 704-0100
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
Continued overleaf
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount To Be Offering Price Aggregate Amount of
Securities To Be Registered Registered Per Security Offering Price Registration Fee
--------------------------------------------------------------------------------------------
Common Stock(1) 8,559,852 1.82(2) 15,578,930 $1,433.26
--------------------------------------------------------------------------------------------
Common Stock(3) 7,423,299 1.82(2) 13,510,404 $1,242.96
--------------------------------------------------------------------------------------------
Common Stock(4) 250,000 $3.18(5) $795,000 $73.14
--------------------------------------------------------------------------------------------
Common Stock(6) 150,000 $3.02(5) $453,000 $41.68
--------------------------------------------------------------------------------------------
Common Stock(7) 60,000 $2.00(5) $120,000 $11.04
--------------------------------------------------------------------------------------------
Total 16,443,151 $2,802.08(8)
--------------------------------------------------------------------------------------------
(1) Common stock outstanding held by selling securityholders.
(2) Estimated solely for purposes of calculating registration fee pursuant to
Rule 457(c) under the Securities Act of 1933, as amended (the "Act") based
upon the closing sales price of the common stock on August 28, 2002, as
reported on the NASD OTC Bulletin Board.
(3) These shares of common stock are not outstanding and are issuable upon
exercise of warrants to purchase common stock (that are not being
registered hereunder) held by selling securityholders. In accordance with
Rule 457(g) of the Act, the offering price is based on the highest of the
following: (a) the price at which such warrants may be exercised or (b) the
price of the common stock as determined in accordance with Rule 457(c)
under the Act. See Footnote 2.
(4) These shares of common stock are not outstanding and are issuable upon
exercise of options to purchase common stock (that are not being registered
hereunder) held by selling securityholders. In accordance with Rule 457(g)
of the Act, the offering price is based on the highest of the following:
(a) the price at which such options may be exercised or (b) the price of
the common stock as determined in accordance with Rule 457(c) under the
Act. See Footnote 5.
(5) Estimated solely for purposes of calculating registration fee pursuant to
Rule 457(c) under the Act based upon the closing sales price of the common
stock on August 28, 2002, as reported on the NASD OTC Bulletin Board.
(6) These shares of common stock are not outstanding and are issuable upon
exercise of options to purchase common stock (that are not being registered
hereunder) held by selling securityholders. In accordance with Rule 457(g)
of the Act, the offering price is based on the highest of the following:
(a) the price at which such options may be exercised or (b) the price of
the common stock as determined in accordance with Rule 457(c) under the
Act. See Footnote 5.
(7) These shares of common stock are not outstanding and are issuable upon
exercise of warrants to purchase common stock (that are not being
registered hereunder) held by selling securityholders. In accordance with
Rule 457(g) of the Act, the offering price is based on the highest of the
following: (a) the price at which such warrants may be exercised or (b) the
price of the common stock as determined in accordance with Rule 457(c)
under the Act. See Footnote 5.
(8) $4,394.83 previously paid.
----------------------------
Pursuant to Rule 416 of the Act, this registration statement also covers
such indeterminate additional shares of common stock as may become issuable as a
result of stock splits, stock dividends or other similar events.
----------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registra-tion
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS Subject to Completion; dated September 3, 2002
16,443,151 Shares of Common Stock
of
Flemington Pharmaceutical Corporation
We are registering up to 16,443,151 shares of our common stock for sale by
certain shareholders of our company identified in this prospectus. These
shareholders are referred to throughout this prospectus as "selling
securityholders."
These individuals who wish to sell their shares of our common stock may
offer and sell their shares on a continuous or delayed basis in the future.
These sales may be conducted in the open market or in privately negotiated
transactions and at market prices, fixed prices or negotiated prices. We will
not receive any of the proceeds from the sales of shares by the selling
securityholders but we may receive funds from the exercise of their warrants or
options.
Our common stock is traded on the OTC Electronic Bulletin Board under the
symbol "FLEM". On August 28, 2002, the closing sales price for the common stock
on the OTC Electronic Bulletin Board was $1.82 per share.
Our principal executive offices are located at 31 State Highway 12,
Flemington, NJ 08822. Our telephone number is (908) 782-3431.
Our common stock being offered by this prospectus involves a high degree of
risk. You should read the "Risk Factors" section beginning on page 6 before you
decide to purchase any common stock.
____________________________________
Neither the Securities and Exchange Commission nor any state commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is September __, 2002
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
securities and exchange commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
1
TABLE OF CONTENTS
Prospectus summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Selected financial data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Safe harbor statements under the private securities litigation reform act of 1995 . . 5
Risk factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Selling securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Plan of distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Directors, Executive Officers, Promoters and Control Persons. . . . . . . . . . . . . 19
Security ownership of certain beneficial owners and management. . . . . . . . . . . . 22
Description of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Disclosure of commission position on indemnification for securities act liabilities . 26
Our business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Management's discussion and analysis of financial condition and results of operations 38
Certain relationships and related transactions. . . . . . . . . . . . . . . . . . . . 42
Market for common equity and related stockholders matters . . . . . . . . . . . . . . 43
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Legal matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
You should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
2
Prospectus summary
This summary highlights certain information contained elsewhere in this
prospectus. You should read the following summary together with the more
detailed information regarding Flemington and our financial statements and the
related notes appearing elsewhere in this prospectus.
Our company
Flemington is engaged in consulting activities and the development of novel
application drug delivery systems for presently marketed prescription and
over-the-counter ("OTC") drugs. Our (both patented and patent-pending) delivery
systems are lingual sprays, enabling drug absorption through the oral mucosa and
more rapid absorption into the bloodstream than presently available oral
delivery systems. Our proprietary oral dosage delivery systems enhance and
greatly accelerate the onset of the therapeutic benefits which the drugs are
intended to produce. We refer to our delivery systems as Immediate-Immediate
Release (I2RTM) because our delivery systems are designed to provide therapeutic
benefits within minutes of administration. Our development efforts for our novel
drug delivery systems are concentrated on drugs which are already available and
proven in the marketplace. In addition to increasing bioavailability by avoiding
metabolism by the liver before entry into the bloodstream, we believe that our
proprietary delivery systems offer the following significant advantages: (i)
improved drug safety profile by reducing the required dosage, including possible
reduction of side-effects; (ii) improved dosage reliability; (iii) allowing
medication to be taken without water; and (iv) improved patient convenience and
compliance.
In light of the material expense and delays associated with independently
developing and obtaining approval of pharmaceutical products, we will continue
to seek to develop such products through collaborative arrangements with major
pharmaceutical companies, which will fund that development. Due to our small
revenue base, low level of working capital and inability to increase the number
of development agreements with pharmaceutical companies, we have been unable to
aggressively pursue our product development strategy. We will require
significant additional financing and/or a strategic alliance with a well-funded
development partner to undertake our business plan. See "Management Discussion
and Analysis of Financial Condition and Results of Operations."
Since our inception in 1982, we have been a consultant to the
pharmaceutical industry, focusing on product development activities of various
European pharmaceutical companies, and since 1992 have used our consulting
revenues to fund our own product development activities. Our recent focus on
developing our own products evolved naturally out of our consulting experience
for other pharmaceutical companies. Substantially all of our revenues have been
derived from our consulting activities. In 1998, we changed the name under
which we perform our consulting activities from Pharmaconsult to FPC Consulting.
Our principal business address is 31 State Highway 12, Flemington, New Jersey,
08822, and our telephone number is (908) 782-3431.
3
The Offering
Shares outstanding before offering (1) 14,441,052 shares of common stock.
Shares outstanding offered by selling security holders 8,559,852 shares of common stock.
Shares underlying warrants and options 7,883,299 shares of common stock.
offered by selling securityholders
Plan if Distribution The offering of our shares of
common stock is being made by
shareholders of our company who
wish to sell their shares. Sales of
our common stock may be made by the
selling securityholders in the open
market or in privately negotiated
transactions and at market prices,
fixed prices or negotiated prices.
Use of Proceeds We will not receive any of the
proceeds from the sale of the
shares owned by the selling
securityholders. However, we may
receive funds if warrants or
options are exercised for cash.
However, most of the warrants and
options contain provisions for
cashless exercise. Such funds, if
any, will be used for working
capital and general corporate
purposes.
------------
(1) As of July 31, 2002
4
Selected financial data
The following selected financial data is qualified by reference to, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus. The financial information set forth below is audited with respect to
the annual period ended July 31, 2001 and unaudited for the nine month period
ended April 30, 2002, and has been prepared by our management.
9 Mos. Years Ended
Ended Apr. July 31
30
2002 2001 2000
SUMMARY OPERATING DATA
Consulting Revenues . . . . . $ 335,000 $ 300,000 $ 282,000
Interest Income . . . . . . . 32,000 23,000 44,000
Total Revenues. . . . . . . . $ 367,000 $ 323,000 $ 326,000
Expenses. . . . . . . . . . . 3,043,000 1,478,000 1,505,000
Net Loss Before Taxes . . . $(2,676,000) $(1,155,000) $(1,179,000)
Deferred Income Tax Benefit 88,000 46,000 -
Net Loss. . . . . . . . . . $ 2,588,000 $ 1,109,000 $ 1,179,000
Net Loss Per Common Share . . $ (.25) $ (.18) $ (.27)
BALANCE SHEET DATA
Working Capital . . . . . . . $ 4,308,000 $ 646,000 $ 667,000
Total Assets. . . . . . . . . $ 5,035,000 $ 984,000 $ 1,059,000
Total Liabilities . . . . . . $ 398,000 $ 88,000 $ 217,000
Shareholders' equity. . . . . $ 4,637,000 $ 896,000 $ 842,000
Safe harbor statements under the private securities litigation reform act of
1995
This prospectus includes "forward-looking statements" as that term is
defined in the Private Securities Litigation Reform Act of 1995. The safe harbor
provisions of the Securities Exchange Act of 1934 and the Securities Act of 1933
apply to forward-looking statements made by us. These statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "plans," "future," "intends," "continue,"
"estimate" or "anticipates" or the negatives or variations of these terms, and
other comparable terminology. In addition, any statements discussing strategy
that involve risks and uncertainties are forward-looking.
Forward-looking statements involve risks and uncertainties, including those
risks and uncertainties identified in the section of this prospectus beginning
on page 6 titled "Risk Factors" and those risks and uncertainties identified
elsewhere in, or incorporated by reference into, this prospectus. Due to these
risks and uncertainties, the actual results that we achieve may differ
materially from these
5
current expectations, and we assume no obligation to update this information. In
preparing this prospectus, we may have made a number of assumptions and
projections about the future of our business. These assumptions and projections
could be wrong for several reasons including, but not limited to, those factors
identified in the "Risk Factors" section.
You are urged to carefully review and consider the various disclosures that
we make in this prospectus, any subsequent prospectus supplement and in our
other reports filed with the Commission. These disclosures attempt to advise
interested parties of the risk factors that may affect our business and the
market price of our shares of common stock.
Risk factors
You should carefully consider the following risk factors and all other
information contained in this prospectus before investing in our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could adversely affect our business, financial condition and
results of operations and could result in a complete loss of your investment.
The risks and uncertainties described below are not the only ones we may face.
We have a history of losses
We had an accumulated deficit at April 30, 2002 of approximately
$8,111,000. We incurred operating losses in six of the last seven fiscal years
ended July 31 including a net loss of approximately $1,109,000 for the year
ended July 31, 2001. We also had a net loss of approximately $2,588,000 for the
nine month period ended April 30, 2002. Because we increased our product
development activities, we anticipate that we will incur substantial operating
expenses in connection with continued development, testing and approval of our
proposed products, and expect these expenses will result in continuing and,
perhaps, significant operating losses until such time, if ever, that we are able
to achieve adequate product sales levels.
We are dependent on principal clients
To date, substantially all of our revenues have been derived from
consulting services rendered to a limited number of clients, the loss of certain
of which would have an adverse effect on us. For the year ended July 31, 2001,
consulting activities relating to our two (2) largest clients, with which we
have written agreements, accounted for approximately 40%, and 18% respectively,
of our revenues. There can be no assurance that our clients will continue to
seek consulting services from us or that we will continue to provide consulting
services to the industry. See "Business- Customer Dependence."
Our Business is evolving
Although we have received revenue from our own product development
activities, these revenues are insignificant as compared to our revenues from
product development consultation work done for our clients. The nature of our
revenue received from our own product development consists of payments by
pharmaceutical companies for research and bioavailability studies, pilot
clinical trials, and similar milestone-related payments. Subject to additional
funding, we expect to continue our consulting activities despite increasing our
product development activities. Our future growth and profitability will be
dependent upon our ability to successfully raise additional funds to complete
the development of, obtain regulatory approvals for, and license out or market,
our own proposed products. Accordingly, our prospects must be considered in
light of the risks, expenses and difficulties frequently encountered in
connection with the establishment of a new business in a highly competitive
industry, characterized by frequent new product introductions. We anticipate
6
that we will incur substantial operating expenses in connection with the
development, testing and approval of our proposed products and expect these
expenses to result in continuing and, perhaps, significant operating losses
until such time, if ever, that we are able to achieve adequate levels of sales
or license revenues. There can be no assurance that we will be able to raise
additional financing, increase revenues significantly, or achieve profitable
operations.
We will require significant capital requirements for product development
and commercialization
We have significant capital requirements necessary to fund planned
expenditures in connection with the research, development, testing and approval
of our proposed products. We anticipate, based on our current proposed plans
and assumptions relating to our operations (including the timetable of, and
costs associated with, new product development), that the proceeds of our 2001
and 2002 private placements and projected cash flow from operations will be
sufficient to satisfy our contemplated cash requirements for at least 7 months
from the date hereof. Due to our small revenue base, low level of working
capital and inability to increase the number of development agreements with
pharmaceutical companies, we have been unable to aggressively pursue our product
development strategy. We will require significant additional financing and/or a
strategic alliance with a well-funded development partner to aggressively pursue
our business plan. We have no current arrangements with respect to, or sources
of, additional financing, and there can be no assurance that additional
financing will be available to us on acceptable terms, if at all. In view of
our very limited resources, anticipated expenses and the competitive environment
in which we operate, any inability to obtain additional financing could severely
limit our ability to complete development and commercialization of our proposed
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
We do not have commercially available products
Our principal efforts are the development of, and obtaining regulatory
approvals for, our proposed products. We anticipate that marketing activities
for our proprietary products, whether by us or one or more licensees, will not
begin until 2003 at the earliest. Accordingly, it is not anticipated that we
will generate any revenues from royalties or sales of proprietary products until
regulatory approvals are obtained and marketing activities begin. There can be
no assurance that any of the proposed proprietary products will prove to be
commercially viable, or if viable, that they will reach the marketplace on the
timetables desired by us. The failure or the delay of these products to achieve
commercial viability would have a material adverse effect on us. See "Business
- Proposed Products" and " - Government Regulation."
We have not completed product development
The development of our proposed products has not been completed and we will
be required to devote considerable effort and expenditures to complete such
development. In addition to obtaining adequate financing, satisfactory
completion of development, testing, government approval and sufficient
production levels of such products must be obtained before the proposed products
will become available for commercial sale. We do not anticipate generating
material revenue from product sales until perhaps 2003 or thereafter. Other
potential products remain in the conceptual or very early development stage and
remain subject to all the risks inherent in the development of pharmaceutical
products, including unanticipated development problems, and possible lack of
funds to undertake or continue development. These factors could result in
abandonment or substantial change in the development of a specific formulated
product. There can be no assurance that any of our proposed products will be
successfully developed, be developed on a timely basis or be commercially
accepted once developed. The inability to successfully complete development, or
a determination by us, for financial or other reasons, not to undertake to
7
complete development of any product, particularly in instances in which we have
made significant capital expenditures, could have a material adverse effect on
us.
We do not have direct consumer marketing experience
We have no experience in marketing or distribution at the consumer level of
our proposed proprietary products. Moreover, we do not have the financial or
other resources to undertake extensive marketing and advertising activities.
Accordingly, we intend generally to rely on marketing arrangements, including
possible joint ventures or license or distribution arrangements with third
parties. We have not entered into any significant agreements or arrangements
with respect to the marketing of our proposed products, and there can be no
assurance that we will do so in the future or that any such products can be
successfully marketed. Our strategy to rely on third party marketing
arrangements could adversely affect our profit margins. See "Business -
Marketing and Distribution."
We must comply with good manufacturing practices
The manufacture of our pharmaceutical products will be subject to current
Good Manufacturing Practices ("cGMP") prescribed by the FDA, pre-approval
inspections by the FDA or foreign authorities, or both, before commercial
manufacture of any such products and periodic cGMP compliance inspections
thereafter by the FDA. There can be no assurance that we or any third party
manufacturer will be able to comply with cGMP or satisfy pre- or post-approval
inspections in connection with the manufacture of our proposed products. Failure
or delay by us or any such manufacturer to comply with cGMP or satisfy pre- or
post-approval inspections would have a material adverse effect on us. See
"Business-- Manufacturing."
We are dependent on our suppliers
We believe that the active ingredients used in the manufacture of our
proposed pharmaceutical products are presently available from numerous suppliers
located in the United States, Europe, India and Japan. We believe that certain
raw materials, including inactive ingredients, are available from a limited
number of suppliers and that certain packaging materials intended for use in
connection with our spray products currently are available only from sole source
suppliers. Although we do not believe we will encounter difficulties in
obtaining the inactive ingredients or packaging materials necessary for the
manufacture of our products, there can be no assurance that we will be able to
enter into satisfactory agreements or arrangements for the purchase of
commercial quantities of such materials. We have a written supply agreement
with Dynamit Nobel for certain raw materials for the nitroglycerin lingual spray
product. With respect to other suppliers, we operate primarily on a purchase
order basis beyond which there is no contract memorializing our purchasing
arrangements. The inability to enter into agreements or otherwise arrange for
adequate or timely supplies of principal raw materials and the possible
inability to secure alternative sources of raw material supplies could have a
material adverse effect on our ability to arrange for the manufacture of
formulated products. In addition, development and regulatory approval of our
products are dependent upon our ability to procure active ingredients and
certain packaging materials from FDA-approved sources. Since the FDA approval
process requires manufacturers to specify their proposed suppliers of active
ingredients and certain packaging materials in their applications, FDA approval
of a supplemental application to use a new supplier would be required if active
ingredients or such packaging materials were no longer available from the
originally specified supplier, which could result in manufacturing delays. See
"- Business- Raw Materials and Suppliers."
8
We face intense competition
The markets which we intend to enter are characterized by intense
competition. We or our licensees may be competing against established
pharmaceutical companies which currently market products which are equivalent or
functionally similar to those we intend to market. Prices of drug products are
significantly affected by competitive factors and tend to decline as competition
increases. In addition, numerous companies are developing or may, in the
future, engage in the development of products competitive with our proposed
products. We expect that technological developments will occur at a rapid rate
and that competition is likely to intensify as enhanced dosage from technologies
gain greater acceptance. Additionally, the markets for formulated products which
we have targeted for development are intensely competitive, involving numerous
competitors and products. Most of our prospective competitors possess
substantially greater financial, technical and other resources than us.
Moreover, many of these companies possess greater marketing capabilities than
us, including the resources necessary to enable them to implement extensive
advertising campaigns. There can be no assurance that we will have the ability
to compete successfully. See "Business - Competition."
The absence of product liability insurance coverage may affect our business
We may be exposed to potential product liability claims by consumers. We
presently maintain no product liability insurance coverage. Although we will
seek to obtain product liability insurance before the commercialization of any
proprietary products, there can be no assurance that we will be able to obtain
such insurance or, if obtained, that any such insurance will be sufficient to
cover all possible liabilities to which we may be exposed. In the event of a
successful suit against us, insufficiency of insurance coverage could have a
material adverse effect on us. In addition, certain food and drug retailers
require minimum product liability insurance coverage as a condition precedent to
purchasing or accepting products for retail distribution. Failure to satisfy
such insurance requirements could impede the ability of us or our distributors
to achieve broad retail distribution of our proposed products, which could have
a material adverse effect on us. See "Business - Product Liability."
Extensive government regulation may affect our business
The development, manufacture and commercialization of pharmaceutical
products are generally subject to extensive regulation by various federal and
state governmental entities. The FDA, which is the principal United States
regulatory authority, has the power to seize adulterated or misbranded products
and unapproved new drugs, to request their recall from the market, to enjoin
further manufacture or sale, to publicize certain facts concerning a product and
to initiate criminal proceedings. As a result of federal statutes and FDA
regulations, pursuant to which new pharmaceuticals are required to undergo
extensive and rigorous testing, obtaining pre-market regulatory approval
requires extensive time and expenditures. Under the Federal Food, Drug and
Cosmetic Act (the "FDC Act"), a new drug may not be commercialized or otherwise
distributed in the United States without the prior approval of the FDA. The FDA
approval processes relating to new drugs differ, depending on the nature of the
particular drug for which approval is sought. With respect to any drug product
with active ingredients not previously approved by the FDA, a prospective drug
manufacturer is required to submit a new drug application ("NDA"), including
complete reports of pre-clinical, clinical and laboratory studies to prove such
product's safety and efficacy. The NDA process generally requires, before the
submission of the NDA, submission of an IND pursuant to which permission is
sought to begin preliminary clinical testing of the new drug. An NDA, based on
published safety and efficacy studies conducted by others, may also be required
to be submitted for a drug product with a previously approved active ingredient
if the method of delivery, strength or dosage form is changed. Alternatively, a
drug having the same active ingredient as a drug previously approved by the FDA
may be eligible to be submitted under an ANDA, which is significantly less
9
stringent than the NDA approval process. While the ANDA process requires a
manufacturer to establish bioequivalence to the previously approved drug, it
permits the manufacturer to rely on the safety and efficacy studies contained in
the DNA for the previously approved drug. We believe that some of our drug
products developed in capsule form will be substantially similar to products
which have previously obtained FDA approval and, accordingly, that approvals for
such products can be obtained by submitting an ANDA. We, however, may be
required, before submitting an ANDA, to submit a suitability petition, the
purpose of which is to permit the FDA to evaluate whether a change in strength,
dosage form or method of delivery is significant enough to require clinical
trials and, therefore, an NDA filing. There can be no assurance that the FDA
will not require us to conduct clinical trials for such products and otherwise
comply with the NDA approval process. We believe that products developed in
spray dosage form will require submission of an NDA. We estimate that the
development of new formulations of pharmaceutical products, including
formulation, testing and obtaining FDA approval, generally takes three to five
years for the ANDA process and four to seven years for the NDA process. There
can be no assurance that our determinations will prove to be accurate or that
pre-marketing approval relating to our proposed products will be obtained on a
timely basis, or at all. The failure by us to obtain necessary regulatory
approvals, whether on a timely basis, or at all, would have a material adverse
effect on our business.
We are dependent on existing management
Our success is substantially dependent on the efforts and abilities of our
founder, President and Chief Executive Officer, Harry A. Dugger, III, Ph.D., our
Chairman, John Klein, and our Chief Financial Officer, Donald Deitman. Mr.
Klein is not required to devote full time to us. Decisions concerning our
business and our management are and will continue to be made or significantly
influenced by these individuals. The loss or interruption of their continued
services would have a materially adverse effect on our business operations and
prospects.
We are controlled by current stockholders, officers and directors
Management and our affiliates currently beneficially own (including shares
they have the right to acquire) approximately 83% of our common stock. These
persons are and will continue to be able to exercise control over the election
of our directors and the appointment of officers, increase the authorized
capital, dissolve, merge or engage us in other fundamental corporate
transactions.
There is a potential adverse effect if we redeem our publicly traded
warrants
The warrants issued in connection with our initial public offering may be
redeemed by us, at a redemption price of $.10 per warrant, upon not less then
thirty days prior written notice provided the last sale price of our common
stock on the NASD OTC Bulletin Board, Nasdaq (or another national securities
exchange) for twenty consecutive trading days ending within three days of the
notice of redemption, equals or exceeds 200% of the current warrant exercise
price, subject to adjustment. Redemption of the warrants could force the
holders thereof to exercise the warrants and pay the exercise price at a time
when it may be disadvantageous for the holders to do so, to sell the warrants at
the then current market price when they might otherwise wish to hold the
warrants, or to accept the redemption price, which is likely to be substantially
less than the market value of the warrants at the time of redemption. The
warrants expire in November 2002.
The limited prior public market and trading market may cause possible
volatility in our stock price
There has only been a limited public market for our securities and there can be
no assurance that an active trading market in our securities will be maintained.
10
The OTC Bulletin Board is an unorganized, inter-dealer, over-the-counter market
which provides significantly less liquidity than the Nasdaq Stock market, and
quotes for stocks included on the OTC Bulletin Board are not listed in the
financial sections of newspapers as are those for the Nasdaq Stock Market. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that have particularly affected the market prices of many
smaller companies. The trading price of our common stock is expected to be
subject to significant fluctuations in response to variations in quarterly
operating results, changes in analysts' earnings estimates, announcements of
innovations by us or our competitors, general conditions in the industry in
which we operate and other factors. These fluctuation, as well as general
economic and market conditions, may have a material or adverse effect on the
market price of our common stock.
Penny stock regulations may impose certain restrictions on marketability of
our securities
The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. As a result,
our common stock is subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our securities and may affect the
ability of investors to sell our securities in the secondary market and the
price at which such purchasers can sell any such securities.
Shareholders should be aware that, according to the Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include:
- control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer;
- manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases;
- "boiler room" practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
- excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
- the wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level,
along with the inevitable collapse of those prices with consequent
investor losses.
Our management is aware of the abuses that have occurred historically in
the penny stock market. Although we do not expect to be in a position to
11
dictate the behavior of the market or of broker-dealers who participate in the
market, management will strive within the confines of practical limitations to
prevent the described patterns from being established with respect to our common
stock.
Additional authorized shares of common stock and preferred stock available
for issuance may adversely affect the market
We are authorized to issue 50,000,000 shares of our common stock. As of July
31, 2002 there were 14,441,052 shares of our common stock issued and
outstanding. However, the total number of shares of common stock issued and
outstanding does not include the exercise of options or warrants. We have
reserved up to 13,110,281 shares of our common stock for issuance upon exercise
of stock options and warrants. Of the reserved shares, a total of 2,075,000
shares have been reserved among Flemington's 1992, 1997 and 1998 Stock Option
Plans, of which options to purchase an aggregate of 500,000, 500,000 and 787,500
shares have been issued under the respective Plans. Another 2,800,000 shares are
reserved for issuance and available for the options granted pursuant to the
terms of the employment agreements of Mr. Moroney, a former director, Dr.
Dugger, our CEO, Robert Galler, a director, and John Klein, our chairman and
Mohammed El-Shafy, Vice President of Formulation Development. All of such
options and warrants contain provisions for cashless exercise.
Exercise of the outstanding convertible securities, will reduce the
percentage of common stock held by the public stockholders. Further, the terms
on which we could obtain additional capital during the life of the convertible
securities may be adversely affected, and it should be expected that the holders
of the convertible securities would exercise them at a time when we would be
able to obtain equity capital on terms more favorable than those provided for by
such convertible securities. As a result, any issuance of additional shares of
common stock may cause our current shareholders to suffer significant dilution
which may adversely affect the market.
In addition to the above-referenced shares of common stock which may be
issued without shareholder approval, we have 1,000,000 shares of authorized
preferred stock, the terms of which may be fixed by our Board of Directors. We
presently have no issued and outstanding shares of preferred stock and while we
have no present plans to issue any shares of preferred stock, our Board of
Directors has the authority, without shareholder approval, to create and issue
one or more series of such preferred stock and to determine the voting, dividend
and other rights of holders of such preferred stock. The issuance of any of
such series of preferred stock could have an adverse effect on the holders of
common stock.
Shares eligible for future sale may adversely affect the market
Of the 14,441,052 shares of common stock (as of July 31, 2002) held by our
present stockholders, 7,774,385 shares may be available for public sale by means
of ordinary brokerage transactions in the open market pursuant to Rule 144,
promulgated under the Act, subject to certain limitations. In general, under
Rule 144, a person (or persons whose shares are aggregated) who has satisfied a
one-year holding period may, under certain circumstances, sell within any
three-month period a number of securities which does not exceed the greater of
1% of the then outstanding shares of common stock or the average weekly trading
volume of the class during the four calendar weeks prior to such sale. Rule 144
also permits, under certain circumstances, the sale of securities, without any
limitation, by a person who is not an affiliate of Flemington and who has
satisfied a two-year holding period. In addition, 8,559,852 shares of our
outstanding common stock are being registered for resale by certain selling
stockholders.
We have reserved up to 13,110,281 shares of common stock for issuance upon
exercise of various stock options and warrants, of which 1,600,000 shares were
registered under a Registration Statement on Form S-8 under the Act (with the
balance registered under a registration statement of which this prospectus forms
a part). Although all of our officers and directors have executed lock-up
12
agreements in which they agreed not to publicly offer, sell or otherwise dispose
of directly or indirectly, any of our securities owned by them, until December
2002 (except that 50% of each such person's shares have already been released
and that on each of September 12, 2002 and December 12, 2002, 25% of each such
person's remaining shares become released from such lock-up), any substantial
sale of common stock pursuant to Rule 144 may have an adverse effect on the
market price of our securities.
Limitation on director/officer liability
As permitted by Delaware law, our certificate of incorporation limits the
liability of our directors for monetary damages for breach of a director's
fiduciary duty except for liability in certain instances. As a result of our
charter provision and Delaware law, stockholders may have limited rights to
recover against directors for breach of fiduciary duty. In addition, our
certificate of incorporation provides that we shall indemnify our directors and
officers to the fullest extent permitted by law.
We have no history of paying dividends on our common stock
We have never paid any cash dividends on our common stock and do not anticipate
paying any cash dividends on our common stock in the foreseeable future. We
plan to retain any future earnings to finance growth. If we determine that we
will pay dividends to the holders of our common stock, there is no assurance or
guarantee that such dividends will be paid on a timely basis.
Use of proceeds
We will not receive any of the proceeds from the sale of the shares owned
by the selling securityholders. However, we may receive funds if warrants are
exercised for cash. All of such warrants contain provisions for cashless
exercise. We intend to use all of such proceeds, if any, for working capital
and general corporate purposes. Pending use of the proceeds, they will be
invested in short-term, interest bearing securities or money market funds.
Selling securityholders
The following table sets forth the shareholders who are offering their
shares for sale under this prospectus, the amount of shares owned by such
shareholder prior to this offering, the amount to be offered by such shareholder
and the amount to be owned by such shareholders following completion of the
offering. The prior-to-offering figures are as of April 15, 2002. All share
numbers are based on information that these shareholders supplied to us. This
table assumes that each shareholder will sell all of its shares available for
sale during the effectiveness of the registration statement that includes this
prospectus. Shareholders are not required to sell their shares. Beneficial
ownership is determined in accordance with SEC rules and includes voting or
investment power with respect to the securities.
The percentage interest of each selling securityholder is based on the
beneficial ownership of that selling securityholder divided by the sum of the
current outstanding shares of common stock plus the additional shares, if any,
which would be issued to that selling securityholder (but not any other selling
shareholder) when exercising warrants or other rights in the future.
13
Position with Number of Percentage of Number of Number of Shares
Name The Company Shares Owned Shares Owned Shares Being Owned After
Prior to Offered Offering
Offering
Eduard Orlov and Roman Orlov, JTWROS (1) None 641,377 4.4% 0
Christopher Hohenthal None 25,000 * 25,000 0
Alf Johansson None 25,000 * 25,000 0
Carol Franco None 40,000 * 40,000 0
Lemeau Arrot Watt None 33,333 * 33,333 0
Leonard Cohen None 33,333 * 33,333 0
Henderson Orthopedics - Profit Sharing Plan None 20,800 * 20,000 800
Ronald Brown None 66,666 * 66,666 0
C. Ames Byrd None 24,000 * 24,000 0
Gilbert Kaye Trust None 60,000 * 60,000 0
Robert Karsten None 100,000 * 100,000 0
Israel Cohen None 66,666 * 66,666 0
Jerome Belson None 500,000 3.45% 100,000 400,000
Harvey Ross None 50,000 * 50,000 0
Gerald A. Brauser None 150,000 1.03% 100,000 50,000
E. Gerald Kaye None 200,000 1.38% 200,000 0
Michael Stahl None 20,000 * 20,000 0
Marvin Sheeber None 34,000 * 34,000 0
G. Michael Dart None 60,000 * 60,000 0
Lindsay Dart None 60,000 * 60,000 0
Elizabeth Dart None 60,000 * 60,000 0
Lindsay A. Rosenwald (2)(4) None 13,233,334 62.84% 13,233,334 0
14
Biomedical Investment Group, LLC (3)(4) None 5,333,334 31.18% 5,333,334 0
Saggi Capital Corp. None 600,000 3.99% 280,000(5) 320,000
Bridge Ventures Inc. None 375,000 2.58% 280,000(6) 95,000
Lawrence Zaslow None 14,379 * 14,379 0
Peter Adolph None 17,553 * 17,553 0
Marc Komorsky None 17,553 * 17,553 0
First Montauk Securities(7) None 13,389 * 13,389 0
Daniel Walsh(8) None 37,766 * 37,766 0
Kevin Martin(9) None 37,765 * 37,765 0
Charles Eckert None 24,517 * 24,517 0
Kevin Raidy None 35,003 * 35,003 0
Samuel Shipley None 24,517 * 24,517 0
William Wood(10) None 5,000 * 5,000 0
Carol Adaman(11) None 3,000 * 3,000 0
Trout Group(12) Consultant 60,000 * 60,000 0
Alexander Resources(13) None 10,000 * 10,000 0
Willstar Corp.(14) None 10,000 * 10,000 0
Mill River Capital (15) None 20,000 * 20,000 0
Donald Drapkin(16) Consultant 250,000 1.73% 250,000 0
Mohammed Abd El-Shefy(17) Officer 150,000 1.02% 150,000 0
Riverdale Partners(18) None 100,000 * 100,000 0
*Less than 1%
(1) Includes 9,712 warrants (50% of which are owned individually by each
of Eduard and Roman Orlov) exercisable at $.75 per share which expires
in May 2011.
(2) Includes 3,950,000 warrants exercisable at $.75 per share which
expires in December 2008 and 2,666,667 warrants exercisable at $.75
per share, held by Biomedical Investment Group, LLC (See Footnote 3
below) which expire in March 2009.
(3) Includes 2,666,667 warrants exercisable at $.75 per share which expire
in March 2009.
(4) Biomedical Investment Group, LLC is a limited liability company which
is wholly owned by Lindsay A. Rosenwald.
15
(5) Includes 280,000 warrants, 80,000 of which are exercisable at $1.00
per share and expire in January 2010 and 200,000 of which are
exercisable at $.75 per share and expire in November 2010. Also
includes 320,000 options, 200,000 of which are exercisable at $2.00
per share and 120,000 of which are exercisable at $1.00 per share, all
of which expire in March 2003.
(6) Includes 280,000 warrants, 80,000 of which are exercisable at $1.00
per share and expire in January 2010 and 200,000 of which are
exercisable at $.75 per share and expire in November 2010.
(7) Includes 13,389 warrants exercisable at $.75 per share which expire in
May 2011.
(8) Includes 37,766 warrants exercisable at $.75 per share which expire in
May 2011.
(9) Includes 37,765 warrants exercisable at $.75 per share which expire in
May 2011.
(10) Includes 5,000 warrants exercisable at $.75 per share which expire in
December 2008.
(11) Includes 3,000 warrants exercisable at $.75 per share which expire in
December 2008.
(12) Includes 60,000 warrants exercisable at $2.00 per share which expire
in January 2007.
(13) Includes 10,000 warrants exercisable at $1.00 per share which expire
in January 2010.
(14) Includes 10,000 warrants exercisable at $1.00 per share which expire
in January 2010.
(15) Includes 20,000 warrants exercisable at $1.00 per share which expire
in January 2010.
(16) Includes 250,000 non-plan options exercisable at $3.18 per share which
expire in April 2012.
(17) Includes 150,000 non-plan options exercisable at $3.02 per share which
expire in May 2012.
(18) Includes 50,000 warrants exercisable at $.75 per share which expire in
December 2008.
16
Plan of distribution
In this section of the prospectus, the term "selling securityholder" means
and includes: (1) the persons identified in the tables above as the selling
securityholders and (2) any of their donees, pledgees, distributees, transferees
or other successors in interest who may (a) receive any of the common stock
offered hereby after the date of this prospectus and (b) offer or sell those
shares hereunder.
The common stock offered by this prospectus may be sold from time to time
directly by the selling securityholders. Alternatively, the selling
securityholders may from time to time offer those shares through underwriters,
brokers, dealers, agents or other intermediaries. The selling securityholders
as of the date of this prospectus have advised us that at that time there were
no underwriting or distribution arrangements entered into with respect to the
common stock offered hereby. The distribution of the common stock by the
selling securityholders may be effected in one or more transactions that may
take place on the OTC Electronic Bulletin Board (including one or more block
transaction) through customary brokerage channels, either through brokers acting
as agents for the selling securityholders, or through market makers, dealers or
underwriters acting as principals who may resell these shares on the OTC
Electronic Bulletin Board; in privately-negotiated sales; by a combination of
such methods; or by other means. These transactions may be effected at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at other negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the selling
securityholders in connection with sales of the common stock.
The selling securityholder may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
such transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with the selling securityholder.
The selling securityholder also may sell shares short and redeliver the shares
to close out such short positions. The selling securityholder may enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares pursuant to this prospectus.
The selling securityholders also may lend or pledge the shares to a
broker-dealer. The broker-dealer may sell the shares so lent, or upon a default
the broker-dealer may sell the pledged shares pursuant to this prospectus. Any
securities covered by this prospectus which qualify for sale pursuant to Rule
144 promulgated under the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus. The selling securityholders have advised us that
they have not entered into any agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the sale of their securities.
There is no underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling securityholders.
Although the common stock covered by this prospectus are not currently
being underwritten, the selling securityholders or their underwriters, brokers,
dealers or other agents or other intermediaries that may participate with the
selling securityholders in any offering or distribution of common stock may be
deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any profits realized or commissions received
by them may be deemed underwriting compensation thereunder.
At the time a particular offer of common stock is made by or on behalf of a
selling securityholder, to the extent required under applicable rules of the
SEC, we will prepare a prospectus supplement setting forth the number of shares
being offered and the terms of the offering, including the name or names of any
17
underwriters, dealers, brokers, agents or other intermediaries, if any, the
purchase price paid by any underwriter for securities purchased from the selling
securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to others, and the proposed selling price to the public.
Under applicable rules and regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), any person engaged in a distribution of
the common stock offered hereby may not simultaneously engage in market making
activities with respect to the common stock for a period of up to five days
preceding such distribution. The selling securityholders will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
promulgated thereunder, including without limitation Regulation M, which
provisions may limit the timing of purchases and sales by the selling
securityholders.
In order to comply with certain state securities laws, if applicable, the
common stock offered hereby will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states, the common stock
may not be sold unless they are registered or qualified for sale in such state,
or unless an exemption from registration or qualification is available and is
obtained.
All costs, expenses and fees in connection with the registration of the
common stock offered hereby will be borne by Flemington. However, any brokerage
or underwriting commissions and similar selling expenses, if any, attributable
to the sale of the common stock will be borne by the selling securityholders.
We have agreed to indemnify certain of the selling securityholders against
certain liabilities, including liabilities under the Securities Act of 1933, or
to contribute to payments to which any of those securityholders may be required
to make in respect thereof.
18
Directors, Executive Officers, Promoters and Control Persons
Officers and directors
The names and ages of the directors and executive officers of
Flemington are set forth below. All directors are elected annually by the
stockholders to serve until the next annual meeting of the stockholders and
until their successors are duly elected and qualified. Officers are elected
annually by the Board to service at the pleasure of the Board.
Name Age Position with the Company
Harry A. Dugger, III, Ph.D. 65 President, Chief Executive Officer and Director
John Klein 56 Chairman of the Board
Donald Deitman 59 Chief Financial Officer
Robert F. Schaul, Esq. 62 Secretary and Director
Jack J. Kornreich, Esq. 62 Director
Robert C. Galler 41 Vice President - Corporate Development and Director
Mohammed Abd El-Shefy, Phd. 47 Vice President - Formulation Development
Background of Executive Officers and Directors
Harry A. Dugger, III, Ph.D. Dr. Dugger is a founder of Flemington and has been
President and a director of Flemington since inception in May 1982. Prior to
founding Flemington, from June 1980 to November 1982, Dr. Dugger was employed as
Vice President of Research and Development by Bauers-Krey Associates, a company
engaged in the development of pharmaceutical products. From 1964 to 1980, Dr.
Dugger was Associate Section Head for Research and Development at Sandoz
Pharmaceuticals Corporation. Dr. Dugger received an MS in Chemistry from the
University of Michigan in 1960 and received a Ph.D. in Chemistry from the
University of Michigan in 1962.
John Klein. Mr. Klein joined Flemington in February 2002 as a consultant and as
Chairman of its Board of Directors. From April 1996 to the present Mr. Klein has
been affiliated with a number of enterprises, including True North Capital
(Chairman / Managing Director ), Kindred Healthcare (Director), US Interactive,
Inc. (Director), America's Plan (Director and Chairman), Coleman Co., Inc.
(Director), Sunbeam Corp. (Director), Bi Logix, Inc. (Director), Strategic
Business and Technology Solutions, LLC (Chairman), Cybear (Director and
Chairman) and Image Vision (Director and Vice Chairman). From 1996 to 1998, Mr.
Klein was Chairman and CEO of Mim Corp. From 1989 to 1996 he was President, CEO
and Director of Zenith Laboratories, Inc., which in 1995 merged into IVAX, Inc.,
of which Mr. Klein is an Executive Officer and President of its IVAX North
American Multi-Source Pharmaceutical Group. Mr. Klein holds BS and MBA degrees
from Roosevelt University, Chicago, Illinois.
Donald Deitman, Chief Financial Officer. Mr. Deitman joined Flemington in 1998.
From 1988 until joining Flemington, Mr. Deitman was employed as a business
consultant implementing multi-module MRP II software systems. From 1982 to
1988, Mr. Deitman was corporate controller for FCS Industries, Inc. of
Flemington, New Jersey. From 1975 to 1982, he was manager of materials and
systems for the Walworth Company operations located in Linden and Elizabeth, NJ
and from 1966 to 1975, he was employed by Ortho Pharmaceuticals, Inc. and Ortho
Diagnostics, Inc. Mr. Deitman received a BS in Accounting from Rutgers
University in 1972.
19
Robert F. Schaul, Esq. Mr. Schaul has been a Director of Flemington since
November 1991 and was Vice President, Secretary and General Counsel of
Flemington from November 1991 to February 1995. He has advised Flemington since
its formation. From 1989 to 1991, Mr. Schaul was a partner with the law firm of
Glynn, Byrnes and Schaul, and for twenty years prior thereto was an attorney and
partner with the law firm Kerby, Cooper, English, Schaul & Garvin, specializing
in business law and business related litigation. Mr. Schaul received a BA from
New York University in 1961 and a JD from Harvard University in 1964.
Jack J. Kornreich, Esq Mr. Kornreich has been a director of Flemington since
1996. He presently acts as an independent consultant. From 1989 to 1993, Mr.
Kornreich was Executive Vice President and General Counsel of Circa
Pharmaceuticals Corp. (formerly Bolar Pharmaceuticals, Inc. and now known as
Watson Pharmaceutical Corp.). From 1980 to 1989, Mr. Kornreich practiced law as
a partner in the firm of Baum & Kornreich (from 1980 to 1984 the firm was named
Baum, Skigen & Kornreich). From 1975 to 1980, Mr. Kornreich was in private
practice. Mr. Kornreich received a JD from Brooklyn Law School in 1963 and an
LLM in Corporate Law from New York University in 1975.
Robert C. Galler. Mr. Galler has been an employee and Director of Flemington
since September, 2001. From 1992 to the present, Mr. Galler has been the
President and Chairman of the Lois Joy Galler Foundation for Hemolytic Uremic
Syndrome, a non-profit charity. From 1999 to 2001, Mr. Galler was Vice
President, Corporate Development and Director of Select Therapeutics, Inc. From
1994 to 1998 Mr. Galler was a Director and advisor of Synsorb Biotech, Inc. From
1992 to 1994 Mr. Galler was an equity coordinator at Gallers Financial Group,
Inc., and from 1984 to 1992 he was Vice President of Investments with Gruntal &
Co. Mr. Galler attended Hofstra University, Hempstead, N.Y.
Mohammed Abd El-Shafy, Phd. Dr. El-Shafy has been an employee of Flemington
since May of 2002. He serves as Vice President-Formulation Development. From
1999 to 2002 he was employed as a Team Leader and Senior Scientist with Nastech
Pharmaceutical Inc., Hauppauge, New York. From 1998 to 1999 Dr. El-Shafy was a
Post-Doctoral Fellow at the University of Wisconsin's School of Pharmacy. He
received his doctorate in 1997 from the School of Pharmacy, University of Wales,
Cardiff, Wales, UK. From 1983 to 1993 he was an Assistant Lecturer of
Pharmaceutical Sciences on the Faculty of Pharmacy, Al-Azhar University, Cairo,
Egypt.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than ten percent (10%) of a
registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of Flemington. Officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely upon its review of the copies of such
reports furnished to us during the year ended July 31, 2001, all Section 16(a)
filing requirements applicable to its officers and directors and greater than
ten percent beneficial owners were satisfied.
Director compensation
The Directors of Flemington are elected annually and serve until the next
annual meeting of stockholders and until a successor shall have been duly
elected and qualified. Effective February 15, 2002, Directors of Flemington,
20
who are not employees or consultants receive for each meeting attended directors
fees of $1,000 for their services as members of the Board of Directors. Such
Directors are also reimbursed for expenses incurred in connection with their
attendance at meetings of the Board of Directors. Directors may be removed with
or without cause by a vote of the majority of the stockholders then entitled to
vote. There were no other arrangements pursuant to which any Director was
compensated during fiscal 2001 for any services provided as a Director.
21
Security ownership of certain beneficial owners and management
The following table sets forth information, as of July 31, 2002 with
respect to the beneficial ownership of the outstanding shares of our common
stock (14,441,052 as of such date plus, where relevant for particular beneficial
owners, shares which such beneficial owner has the right to acquire), by (i) any
holder known to us owning more than five percent (5%) of the outstanding shares;
(ii) our officers and directors; and (iii) the directors and officers of
Flemington as a group:
Name of Beneficial Owner (1) No. of Shares of Common Stock (2) Percentage of Class
Harry A. Dugger, III, Ph.D. 1,829,003(3) 12.12%
John Klein 0 (4) ---
Donald Deitman 0 ---
Robert C. Galler 700,000(5) 4.62%
Robert F. Schaul, Esq. 264,310(6) 1.80%
Jack J. Kornreich, Esq. 244,000(6) 1.67%
Mohammed Abd El-Shafy 0(7) ---
Lindsay A. Rosenwald 13,233,334(8) 62.84%
Biomedical Investment Group, LLC 5,333,334(8)(9) 31.18%
All Executive Officers and Directors as 3,037,599 (3)(4)(5)(6)(7) 20.21%
a group (7 persons)
(1) The address of all holders listed herein is c/o Flemington Pharmaceutical
Corporation, 31 State Highway 12, Flemington, New Jersey 08822.
(2) Except as otherwise indicated, each named holder has, to our knowledge,
sole voting and investment power with respect to the shares indicated.
Beneficial ownership as reported in the table above has been determined in
accordance with Instruction (4) to Item 403 of Regulation S-B of the
Exchange Act.
(3) Includes options to purchase 200,000 shares of common stock (exercisable at
$.70 per share) issued under the 1992 Stock Option Plan which expire in
July 2006; options to purchase 50,000 shares of common stock (exercisable
at $.70 per share) under the 1997 Stock Option Plan which expire in
December 2006; options to purchase 95,000 shares of common stock
(exercisable at $.70 per share) issued under the 1998 Stock Option Plan
which expire in January 2005, options to purchase 300,000 shares of common
stock issued outside of the Plans (exercisable at $1.84 per share) which
expire November 2007; 108,000 shares owned by his daughter Christina Dugger
Sommers; and 108,000 shares owned by his son Andrew Dugger. Dr. Dugger may
be deemed to be a "parent" of the Company as such term is defined under the
Federal securities laws.
(4) Does not include Non-Plan options, issued in February 2002, to purchase
1,000,000 shares of common stock at an exercise price of $2.40 per share.
These options vest in three equal annual installments, beginning in 2003,
and expire in January 2012.
(5) Mr. Galler was granted Non-Plan options to purchase 1,050,000 shares of
common stock, at an exercise price of $0.75 per share. 700,000 of these
options are vested; the remaining 350,000 options are subject to
22
a condition precedent which has not yet been met. The vested options expire
in September 2011.
(6) Includes: 20,000 options, issued under the 1992 Option Plan, to purchase
common stock at an exercise price of $.63 per share, expiring in July,
2006; 25,000 options issued under the 1997 Option Plan, to purchase common
stock at an exercise price of $.63 per share, expiring in March 2008;
10,000 options issued under the 1998 Option Plan, to purchase common stock
at an exercise price of $.63 per share, expiring in September 2009: 95,000
options issued under the 1998 Option Plan, to purchase common stock at an
exercise price of $.63 per share, expiring in January 2010; and 75,000
options issued under the 1998 Option Plan, to purchase common stock at an
exercise price of $2.63 per share, expiring in February 2012.
(7) Does not include Non-Plan options, issued in May 2002, to purchase 150,000
shares of common stock at an exercise price of $3.02 per share. The options
vest equally in November 2002, May 2003 and May 2004 and expire in May
2012.
(8) Includes 3,950,000 shares of common stock and warrants to purchase
3,950,000 shares of common stock at an exercise price of $.75 per share
which expire in December 2008. Also includes 2,666,667 shares of common
stock and 2,666,667 warrants to purchase 2,666,667 shares of common stock,
which expire in March 2009, owned by Biomedical Investment Group, LLC which
is a limited liability company wholly owned by Lindsay A. Rosenwald.
(9) Includes warrants to purchase 2,666,667 shares of common stock at an
exercise price of $.75 per share which expire in March 2009.
Description of Securities
General
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the applicable
provisions of Delaware law.
We are authorized to issue up to 50,000,000 shares of common stock, $.001
par value per share, of which 14,441,052 shares were issued and outstanding as
of July 31, 2002. Our certificate of incorporation authorizes 1,000,000 shares
of "blank check" preferred stock, none of which are outstanding.
Common Stock
Subject to the rights of holders of preferred stock, if any, holders of
shares of our common stock are entitled to share equally on a per share basis in
such dividends as may be declared by our Board of Directors out of funds legally
available therefore. There are presently no plans to pay dividends with respect
to the shares of our common stock. Upon our liquidation, dissolution or winding
up, after payment of creditors and the holders of any of our senior securities,
including preferred stock, if any, our assets will be divided pro rata on a per
share basis among the holders of the shares of our common stock. The common
stock is not subject to any liability for further assessments. There are no
conversion or redemption privileges nor any sinking fund provisions with respect
to the common stock and the common stock is not subject to call. The holders of
common stock do not have any pre-emptive or other subscription rights.
Holders of shares of common stock are entitled to cast one vote for each
share held at all stockholders' meetings for all purposes, including the
election of directors. The common stock does not have cumulative voting rights.
23
All of the issued and outstanding shares of common stock are fully paid,
validly issued and non-assessable.
Preferred Stock
None of the 1,000,000 "blank check" preferred shares are currently
outstanding. Our Board of Directors have the authority, without further action
by the holders of the outstanding common stock, to issue shares of preferred
stock from time to time in one or more classes or series, to fix the number of
shares constituting any class or series and the stated value thereof, if
different from the par value, and to fix the terms of any such series or class,
including dividend rights, dividend rates, conversion or exchange rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price and the liquidation preference of such class or series.
Warrants
As of July 31, 2002, we had 8,482,781 warrants outstanding as follows:
680,000 publicly traded warrants exercisable at $5.80 per share; 68,000 warrants
exercisable at $9.74 per share; 68,000 warrants exercisable at $5.80 per share;
100,000 warrants exercisable at $2.50 per share; 200,000 warrants exercisable at
$1.00 per share; 60,000 warrants exercisable at $2.00 per share and the balance
at $.75 per share. All of such warrants contain provisions for cashless
exercise.
The exercise price of the warrants and the number of shares issuable upon
exercise of the warrants are subject to adjustment to protect against dilution
in certain events such as stock splits, combinations, subdivisions and
reclassifications.
Publicly Traded Class A Warrants
The following statements are summaries of the Warrant Agreement (defined
below) and are qualified in their entirety by reference to the Warrant
Agreement, which is incorporated herein in its entirety by reference.
In connection with our initial public offering, 680,000 of our publicly
traded warrants were issued pursuant to a warrant agreement (the "Warrant
Agreement") between Flemington and American Stock Transfer and Trust Company, as
Warrant Agent, and are evidenced by warrant certificates in registered form.
Each warrant entitles the holder to purchase one share of common stock at
an exercise price, subject to adjustment, of $5.80 at any time during the period
ending at 5:00 P.M., New York City time, on November 18, 2002 (the "Expiration
Date"), unless previously redeemed.
The warrants are subject to redemption by the Company upon 30 days written
notice at $.10 per Warrant, if the last sale price of the common stock has been
at least 200% of the current warrant exercise price, subject to adjustment, for
at least twenty consecutive trading days ending within three days prior to the
date on which notice of redemption is given. The right to purchase common stock
will be forfeited unless exercised before the date of notice.
The exercise price of the warrants and the number of shares issuable upon
exercise of the warrants are subject to adjustment to protect against dilution
in certain events such as stock splits, combinations, subdivisions and
reclassifications.
24
Warrants may be exercised upon surrender of the warrant certificate on or
prior to the Expiration Date (or earlier redemption date) at the office of
American Stock Transfer & Trust Company, the Warrant Agent, with the
Subscription Form on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by payment of the full exercise price (by
certified or bank check payable to the order of Flemington) for the number of
shares with respect to which the warrants are being exercised. Shares issued
upon exercise of warrants and payment in accordance with the terms of the
warrants will be fully paid and non-assessable.
The warrants do not confer upon the warrant holder any voting or other
rights of a stockholder of Flemington. Upon notice to the warrant holders,
Flemington has the right to reduce the exercise price or extend the Expiration
Date of the warrants.
Upon the exercise of the warrants, Flemington may pay NASD members a fee of
5% of the aggregate exercise price if (i) the market price of our common stock
on the date the warrant is exercised is greater than the then exercise price of
the warrants; (ii) the exercise of the warrant was solicited by a member of NASD
and the customer states in writing that the transaction was solicited and
designates in writing the broker-dealer to receive compensation for the
exercise; (iii) the warrant is not held in a discretionary account; (iv)
disclosure of compensation arrangements were made both at the time of the
offering and at the time of exercise of the warrants; and (v) the solicitation
of exercise of the warrant was not in violation of Regulation M promulgated
under the Exchange Act.
Limitation on liability of directors
Our certificate of incorporation provides that a director of Flemington
will not be personally liable to Flemington or its stockholders for monetary
damages for breach of the fiduciary duty of care as a director, including
breaches which constitute gross negligence. By its terms and in accordance with
the Delaware General Corporation Law, however, this provision does not eliminate
or limit the liability of a director of Flemington (i) for breach of the
director's duty of loyalty to Flemington or its stockholders, (ii) for acts or
omissions not in good faith or which involve international misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law (relating to unlawful payments or dividends or unlawful stock
repurchases or redemptions)or (iv) for any improper benefit.
Dividend policy
We have not paid any dividends on our common stock since our inception and
do not intend to pay dividends on our common stock in the foreseeable future.
Any earnings which we may realize in the foreseeable future will be retained to
finance the growth of Flemington.
Shares eligible for future resale
Of the 14,441,052 shares of common stock held by our present stockholders,
7,774,385 shares may be available for public sale by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the Act,
subject to certain limitations. In general, under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a one-year holding period
may, under certain circumstances, sell within any three-month period a number of
securities which does not exceed the greater of 1% of the then outstanding
shares of common stock or the average weekly trading volume of the class during
the four calendar weeks prior to such sale. Rule 144 also permits, under
certain circumstances, the sale of securities, without any limitation, by a
person who is not an affiliate of Flemington and who has satisfied a two-year
holding period. In addition, 8,559,852 shares of our outstanding common stock
have been registered for resale hereunder by the selling securityholders.
25
Transfer agent and registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company, 59 Maiden Lane, New York, NY 10038.
Disclosure of commission position on indemnification for securities act
liabilities
Our bylaws provide that we will indemnify our officers and directors and
for all costs and expenses incurred by them on account of their being or having
been directors or officers of Flemington.
Section 145 of the Delaware General Corporation Law (the "GCL") empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers. The GCL provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's by-laws, any
agreement, vote of stockholders or otherwise.
Article Ninth of our Certificate of Incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102 of the
GCL. Article Tenth provides for indemnification of all persons whom we shall
have the power to indemnify pursuant to Section 145 of the GCL.
The effect of the foregoing is to require Flemington to the extent
permitted by law to indemnify the officers and directors of Flemington for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of Flemington, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
Flemington pursuant to the foregoing provisions, we have been informed that in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Our business
Summary
Flemington is engaged in consulting activities and the development of novel
application drug delivery systems for presently marketed prescription and
over-the-counter ("OTC") drugs. Flemington's (both patented and patent-pending)
delivery systems are lingual sprays, enabling drug absorption through the oral
mucosa and more rapid absorption into the bloodstream than presently available
oral delivery systems. Our proprietary oral dosage delivery systems enhance and
greatly accelerate the onset of the therapeutic benefits which the drugs are
intended to produce. We refer to our delivery systems as Immediate-Immediate
Release (I2RTM) because our delivery systems are designed to provide therapeutic
benefits within minutes of administration. Flemington's development efforts for
its novel drug delivery systems are concentrated on drugs which are already
available and proven in the marketplace. In addition to increasing
bioavailability by avoiding metabolism by the liver before entry into the
bloodstream, we believe that our proprietary delivery systems offer the
following significant advantages: (i) improved drug safety profile by reducing
the required dosage, including possible reduction of side-effects; (ii) improved
dosage reliability; (iii) allowing medication to be taken without water; and
(iv) improved patient convenience and compliance.
26
In light of the material expense and delays associated with independently
developing and obtaining approval of pharmaceutical products, we will continue
to seek to develop such products through collaborative arrangements with major
pharmaceutical companies, which will fund that development. Due to our small
revenue base, low level of working capital and inability to increase the number
of development agreements with pharmaceutical companies, we have has been unable
to aggressively pursue its product development strategy. We will require
significant additional financing and/or a strategic alliance with a well-funded
development partner to undertake our business plan.
Since our inception in 1982, we have been a consultant to the
pharmaceutical industry, focusing on product development activities of various
European pharmaceutical companies, and since 1992 has used our consulting
revenues to fund our own product development activities. Our recent focus on
developing our own products evolved naturally out of our consulting experience
for other pharmaceutical companies. Substantially all of our revenues have been
derived from our consulting activities. In 1998, we changed the name under
which we perform our consulting activities from Pharmaconsult to FPC Consulting.
Our principal business address is 31 State Highway 12, Flemington, New Jersey,
08822, and our telephone number is (908) 782-3431.
Recent Developments
Filing of two Estradiol INDs and initiation of Phase II Studies
In mid-1999, as part of our joint development agreement with Nace
Resources, (see Development Agreements, below), we completed our open label
clinical pilot study of our Estradiol lingual spray product. In the opinion of
management, the results of the study were favorable. We believe that the product
would be appropriate for premenstrual migraine, for treatment of hot flashes in
post- and perimenopausal women and as a long-term, low-dose, low side-effect
treatment of post-menopausal symptomsA Pre-IND meeting with FDA was held in the
third quarter of 2000 and, based on the results of that meeting, a plan for
further development was prepared. Two INDs were subsequently filed - one for
vasomotor symptoms and a second for treatment of menstrual migraines. Both INDs
were approved in 2000. Under the vasomotor IND a pilot study was started to see
if rapid relief of hot flushes could be obtained with the lingual spray. The
study, due to the small number of subjects and/or the study design, was not able
clearly to demonstrate an advantage for the rapid relief of vasomotor symptoms.
At this time a study large enough to demonstrate this rapid relief and/or to
demonstrate the utility of the Lingual Spray for maintenance therapy has been
delayed pending identification of a partner to fund the studies. A pilot study
under the second IND was planned to start in the fourth quarter 2000, but has
been delayed until a partner has been identified to fund the study. We are
presently engaged in discussions with potential partners which would fund the
further development of the product and the necessary regulatory filings.
Doxylamine Succinate Lingual Spray
Flemington has developed a formulation and performed stability studies
for doxylamine succinate as a sleep-inducing agent. Flemington has conducted a
pilot clinical study. The study did not support the use of the product as a
fast-onset OTC sleep inducer so reformulation is necessary. The earliest time
that we could reasonably expect to have a commercially salable product in this
category is early 2003.
27
Loratadine Lingual Spray
A loratadine lingual spray formulation has been developed and successfully
undergone stability testing. A Pre-IND meeting with FDA was held in the third
quarter of 2000 and based on the results of that meeting a plan for further
development was prepared. An IND was filed and a pharmacokinetic study was
carried out under this IND to compare the plasma levels following administration
of a 5.0 mg and a 2.5 mg lingual spray to those after administration of a 10 mg
tablet. Both lingual spray doses resulted in higher plasma levels concentrations
than the 10 mg tablet. In the case of the 5.0 mg dose the peak plasma levels
were greater than twice those of the tablet and those after the 2.5 mg dose were
about 50% higher. Therapeutic plasma levels based on the claimed start of
antihistaminic effect for the Claritin tablet (1-3 hours) were achieved between
24 and thirty minutes. Flemington is presently seeking a partner to develop this
product.
Clemastine Lingual Spray
The formulation of clemastine lingual spray that was terminated by Novartis
in 1998 was revised and a Pre-IND meeting with FDA was held in the third quarter
of 2000. Based on the results of that meeting a plan for further development
was prepared and an IND was filed. A pilot nasal challenge efficacy study was
initiated in the second quarter of 2000. This study tested the relative response
of subjects challenged with allergy producing substances to an OTC tablet (1.34
mg) and a lingual spray dose of 0.68 mg. The antihistamine was administered 15
minutes prior to the challenge. The results showed that the spray had the same
antihistaminic effect when compared to placebo at 45 minutes after dosing as the
tablet even though the dose was only half that of the tablet. Eight of the
parameters measured in the study showed a clear trend that the spray was better
than the tablet and the tablet was better than placebo. Even though the study
was only a pilot study, the results appear to support the concept that a
clemastine lingual spray could be the first OTC non-sedating antihistamine
product in that there were two cases of drowsiness when the tablet was given and
one with the placebo but none when the lingual spray was administered. A larger
confirmatory study as well as other pilot studies are planned. Flemington is
seeking a partner to develop this product.
Replacement Lingual Spray
Pursuant to a prior agreement with Novartis (see Agreements below),
formulation development was carried out to formulate a replacement lingual spray
for one of their products. Formulation work was completed and the samples for
the planned pharmacokinetic study were manufactured and tested for stability.
Recently, Novartis divested itself of that product; discussions are ongoing with
the firm which acquired the product and with other alternative partners.
Lavipharm Lingual Spray
Pursuant to an agreement with Lavipharm Laboratories a formulation
development company (see Agreements below), formulation development was started
in the second quarter of 2001 to formulate a compound of their choice as a
lingual spray. Lavipharm had been unsuccessful in formulating the drug in their
drug delivery systems to achieve a rapid increase in blood levels and faster
onset of action. It is contemplated that after confirmation of the ability of
Flemington's lingual spray formulation to deliver a rapid increase in plasma
levels is demonstrated in a pilot pharmacokinetic study that a program will be
developed to further develop the product. Lavipharm is paying the costs of the
formulation development and the pilot pharmacokinetic study.
28
Development Agreements
In November 1996, we entered into an Agreement with Altana Inc. ("Altana"),
a U.S. subsidiary of Altana GmbH, under which we agreed to prepare for Altana an
Abbreviated New Drug Application ("ANDA") for our patent-pending lingual spray
for treatment of angina. Under the terms of the Agreement, Altana will, upon
approval of the product by the FDA, market the product in the U.S., and source
all of its related product requirements from us. We were paid a consulting fee
for preparation of the ANDA. In March 1998, the FDA refused to accept the ANDA
for filing. Subsequently, Flemington and Altana met with representatives of FDA
and agreed upon a plan for us to file an NDA under Section 505(1)(b)(2) of the
Act, together with two agreed-upon small clinical trials. Altana has agreed to
fund those trials and to pay us a consulting fee in connection with our
preparation of the NDA and our oversight of the trials. Those trials presently
are underway.
In February 1998, we entered into a joint development agreement with Nace
Resources, Inc. (now Nace Pharma) of Highland Park, Illinois ("Nace") for the
development of various products using Flemington's delivery technologies. Under
the terms of such agreement, Flemington and Nace will conduct a series of pilot
studies (at the parties' joint expense) to validate the efficacy of the various
products being tested. If Flemington and its partners are satisfied with the
results of a particular pilot study, the parties will seek a license to fund
further trials to support applications with the FDA and foreign regulatory
agencies. Under such agreement, we will conduct the clinical trials and file
all approval applications, and Flemington and our partner will share equally in
the expenses and profits (if any) arising from such arrangements. The first
product identified for development studies is estradiol.
During 1999 the estradiol clinical study was completed to the satisfaction
of Flemington and Nace. During 2000 two INDs were filed, one for Vasomotor
relief (hot flushes) and one for abortive treatment of migraines associated with
the menses. A phase II study was conducted under the Vasomotor IND to
investigate the possibility of rapid relief of hot flush symptoms on
administration of the lingual spray. Additional work is dependent on obtaining a
partner firm to finance the development.
In 2000, Flemington entered into a joint development agreement with
Lavipharm Laboratories to develop a lingual spray formulation of a product of
its choice. Formulation work has been completed and the samples for a follow-on
pilot pharmacokinetic study are being prepared for stability testing. Following
stability testing a second pharmacokinetic study comparing plasma levels of the
drug after administration of the spray at low dose levels and the standard
tablet is planned. Lavipharm is financing the project.
Business Strategy
Flemington's strategy is to concentrate our product development activities
primarily on those pharmaceuticals for which there already are significant
prescription and OTC sales, where the use of Flemington's innovative delivery
systems will greatly enhance speed of onset of therapeutic effect, reduce side
effects through a reduction of the amount of active drug substance required to
produce a given therapeutic effect, and improve patient convenience or
compliance.
In light of the material expense and delays associated with independently
developing and obtaining approval of pharmaceutical products, we will continue
to seek to develop such products through collaborative arrangements with major
pharmaceutical companies, which will fund that development. Flemington is
presently a party to such a development agreement with Altana. Our lack of
working capital has impaired our ability to pursue our strategy. See
"Management Discussion and Analysis."
29
Patented and Patent Pending Delivery Systems
Flemington has patent applications pending for two oral dosage delivery
systems, the Lingual (Oral) Spray and the Soft Gelatin Bite Capsule, for which
FDA approval is not a prerequisite for patent approval (See "Patents and
Protection of Proprietary Information" below). The expected year of
marketability will vary depending upon the specific drug product with which the
delivery system will be utilized. Each individual use of the delivery system
will require registration and/or approval with the FDA prior to marketability,
and the amount of regulatory oversight required by the FDA will also depend on
the specific type of drug product for which the delivery system is implemented.
The following are descriptions of the two oral dosage delivery systems for which
patent applications are either granted or pending:
Lingual (Oral) Spray. Flemington's aerosol and pump spray formulations
release the drug in the form of a fine mist into the mouth for immediate
absorption into the bloodstream via the mucosal membranes. We believe that this
delivery system offers certain advantages, including improving the safety
profile of certain drugs by lowering the required dosage, improving dose
reliability, and allowing medication to be taken without water. Drug absorption
through the mucosal membranes of the mouth is rapid and minimizes the first-pass
metabolism effect (i.e., total or partial inactivation of a drug as it passes
through the gastrointestinal tract and liver).
Proposed Products
Flemington's proposed products described below are subjected to laboratory
testing and stability studies and tested for therapeutic comparison to the
originators' products by qualified laboratories and clinics. To the extent that
two drug products with the same active ingredients are substantially identical
in terms of their rate and extent of absorption in the human body
(bioavailability), they are considered bioequivalent. If the accumulated data
demonstrates bioequivalency, submission is then made to the FDA (through the
filing of an ANDA) for its review and approval to manufacture and market. If
the accumulated data demonstrates that there are differences in the two drugs'
rate and extent of absorption into the human body, or if it is intended to make
additional or different claims regarding therapeutic effect for the newly
developed product, submission is made to the FDA via a NDA for its review and
approval under Section 505(1)(b)(2) or Section 505(b)(2) of the FDC Act. An NDA
submitted under these sections of the FDC Act are generally less complex than an
ordinary NDA and are usually acted upon by FDA in a shorter period of time. It
is our expectation that the majority of our products in development will require
the filing of these shorter versions of an NDA because the products are known
chemical entities, but Flemington or our licensees will be making new claims as
to therapeutic effects or lessened side effects, or both.
Flemington estimates that development of new formulations of pharmaceutical
products, including formulation, testing and obtaining FDA approval, generally
takes three to five years for the ANDA process. Development of products
requiring additional clinical studies under Section 505(b)(2) NDAs, may take
four to seven years. There can be no assurance that our determinations will
prove to be accurate or that pre-marketing approval relating to our proposed
products will be obtained on a timely basis, or at all. See "Government
Regulation."
Flemington's initial proposed products fall into the following therapeutic
classes:
- Estradiol Lingual Spray
Several new "non-estrogen" products have recently been introduced to treat
osteoporosis without the associated side effects of estrogens. Due to the
30
non-estrogen nature of these products, we believe that patients often experience
"hot-flashes" and find it difficult to maintain the required dosage regimen.
The lingual spray is intended to relieve the "hot-flashes" within minutes,
which, we believe, will allow such patients to maintain the required dosage
regimen more easily. We have completed preformulation development of this
product, and have manufactured and packaged supplies for stability and clinical
studies. The pilot clinical study was completed in mid-1999 and we consider the
results of that study to be favorable. A Pre-IND meeting with FDA was held in
the third quarter of 2000 and based on the results of that meeting a plan for
further development was prepared. Two INDs were subsequently filed - one for
vasomotor symptoms and a second for treatment of menstrual migraines. Both INDs
were approved in 2000. Under the vasomotor IND a pilot study was started to see
if rapid relief of hot flushes could be obtained with the lingual spray. The
study results have been received. A pilot study under the second IND will be
carried out when a development partner has successfully been identified.
- Doxylamine Succinate Lingual Spray
Flemington has developed a formulation and performed stability studies for
doxylamine succinate as a sleep-inducing agent. We have conducted a pilot
pharmacokinetic study comparing two doses of the lingual spray to those obtained
after administration of the tablet. The results did not show any advantage for
the lingual spray except possible ease of administration for those such as
phagic patients, the elderly or children who cannot take or do not like to take
tablets. It is believed that the very water soluble nature of the succinate
salt was the cause of these results. Re-formulation was started to make the
product less water soluble and more suitable for fast onset. These efforts are
on hold pending identification of a partner to finance the further development.
- Cardiovascular (Nitroglycerin)
Flemington's Nitroglycerin product has been formulated and stability
testing has been completed. A United States patent was issued in 1999. This
product is subject to a license agreement with Altana. See " -- Recent
Developments." An IND has been filed with the FDA and a program for clinical
trials has begun. It is expected an NDA will be filed during the fourth quarter
of 2002.
- Loratadine Lingual Spray
A loratadine lingual spray formulation has been developed and successfully
undergone stability testing. A Pre-IND meeting with FDA was held in the third
quarter of 2000 and based on the results of that meeting a plan for further
development was prepared. An IND was filed in the fourth quarter of 2000 and a
pharmacokinetic study was completed in the second quarter of 2001. Phase II
clinical trials are presently under way.
- Clemastine Lingual Spray
The formulation of clemastine lingual spray that was terminated by Novartis
in 1998 was revised and a Pre-IND meeting with FDA was held in the third quarter
of 2000. Based on the results of that meeting a plan for further development
was prepared and an IND was filed. A pilot nasal challenge efficacy study was
initiated in the second quarter of 2000 and was completed in the fourth quarter
of 2000. This study tested the relative response of subjects challenged with
allergy producing substances to an OTC tablet (1.34 mg) and a lingual spray dose
of 0.68 mg. The antihistamine was administered 15 minutes prior to the
challenge. The results showed that the spray had the same antihistaminic effect
when compared to placebo at 45 minutes after dosing as the tablet even though
the dose was only half that of the tablet. Eight of the parameters measured in
the study showed a clear trend that the spray was better than the tablet and the
tablet was better than placebo. Even though the study was only a pilot study,
the results support the concept that a clemastine lingual spray could be the
first OTC non-sedating antihistamine product in that there were two cases of
drowsiness when the tablet was given and one with the placebo but none when the
31
lingual spray was administered. A larger confirmatory study, as well as other
pilot studies, is planned. We are seeking a partner to develop this product.
Marketing and Distribution
We intend, generally, to license products developed with our technology to
drug companies already selling such drug substances under their own brand names,
or to market our products to pharmaceutical wholesalers, drug distributors,
drugstore chains, hospitals, United States governmental agencies, health
maintenance organizations and other drug companies. It is anticipated that
promotion of our proposed products will be characterized by an emphasis on their
distinguishing characteristics, such as dosage form and packaging, as well as
possible therapeutic advantages of such products. We will seek to position our
proposed products as alternatives or as line extensions to brand-name products.
We believe that to the extent that our formulated products are patent-protected,
such formulations may offer brand-name manufacturers the opportunity to expand
their product lines. Alternatively, products which are not patented may be
offered to brand-name manufacturers as substitute products after patent
protection on existing products expire.
Inasmuch as we do not have the financial or other resources to undertake
extensive marketing activities, we generally intend to seek to enter into
marketing arrangements, including possible joint ventures or license or
distribution arrangements, with third parties. We believe that such third-party
arrangements will permit us to maximize the promotion and distribution of our
products while minimizing our direct marketing and distribution costs. Other
than the aforementioned agreements for our proposed lingual spray products for
angina, we have not entered into any agreements or arrangements with respect to
the marketing of our proposed products and there can be no assurance that we
will do so in the future. There can be no assurance that our proposed products
can be successfully marketed.
Strategies relating to marketing of Flemington's other proposed formulated
products have not yet been determined; these will be formulated in advance of
anticipated completion of development activities relating to the particular
formulated product. We have no experience in marketing or distribution of our
proposed proprietary products, and our ability to fund such marketing activities
will require us to raise additional funds and/or consummate a strategic alliance
or combination with a well-funded business partner.
Manufacturing
Flemington has entered into an agreement with a contract manufacturer in
Pennsylvania. Flemington will manufacture all of its spray products for
clinical studies at that facility. Within the next year, Flemington anticipates
internalizing its spray manufacturing requirements.
It is anticipated that we will arrange with third-party suppliers for
supplies of active and inactive pharmaceutical ingredients and packaging
materials used in the manufacture of our proposed products. It is our present
intent to seek to enter into similar manufacturing arrangements for other
products to be developed by us in the future.
The manufacture of Flemington's pharmaceutical products will be subject to
current Good Manufacturing Processes ("cGMP") prescribed by the FDA, and
pre-approval inspections by the FDA and foreign authorities prior to the
commercial manufacture of any such products. See "Government Regulation" and
"Raw Materials and Suppliers."
32
In addition, the raw materials necessary for the manufacture of the
Flemington's products will, in all likelihood, be purchased by us from suppliers
in the United States, Europe and Japan and delivered to our manufacturing
facilities by such suppliers. Accordingly, Flemington and our manufacturers may
be subject to various import duties applicable to both finished products and raw
materials and may be affected by various other import and export restrictions as
well as other developments impacting upon international trade. These
international trade factors will, under certain circumstances, have an impact
both on the manufacturing cost (which will, in turn, have an impact on the cost
to us of the manufactured product) and the wholesale and retail prices of the
products to be manufactured abroad. To the extent that transactions relating to
the foreign manufacture of our proposed products and purchase of raw materials
involve currencies other than United States dollars (e.g., Swiss francs and
Euros), the operating results of Flemington will be affected by fluctuations in
foreign currency exchange rates.
Raw Materials and Suppliers
Flemington believes that the active ingredients used in the manufacture of
its proposed pharmaceutical products are presently available from numerous
suppliers located in the United States, Europe and Japan. Generally, certain
raw materials, including inactive ingredients, are available from a limited
number of suppliers and certain packaging materials intended for use in
connection with Flemington's lingual spray products that may only be available
from sole source suppliers. Although we believe that we will not encounter
difficulties in obtaining the inactive ingredients or packaging materials
necessary for the manufacture of our products, there can be no assurance that
Flemington or our manufacturers will be able to enter into satisfactory
agreements or arrangements for the purchase of commercial quantities of such
materials. The failure to enter into agreements or otherwise arrange for
adequate or timely supplies of principal raw materials and the possible
inability to secure alternative sources of raw material supplies could have a
material adverse effect on the ability to manufacture formulated products.
Development and regulatory approval of Flemington's pharmaceutical products
are dependent upon Flemington's ability to procure active ingredients and
certain packaging materials from FDA-approved sources. Since the FDA approval
process requires manufacturers to specify their proposed suppliers of active
ingredients and certain packaging materials in their applications, FDA approval
of a supplemental application to use a new supplier would be required if active
ingredients or such packaging materials were no longer available from the
specified supplier, which could result in manufacturing delays. Accordingly, we
will seek to locate alternative FDA approved suppliers.
Government Regulation
The development, manufacture and commercialization of pharmaceutical
products are generally subject to extensive regulation by various federal and
state governmental entities. The FDA, which is the principal United States
regulatory authority, has the power to seize adulterated or misbranded products
and unapproved new drugs, to request their recall from the market, to enjoin
further manufacture or sale, to publicize certain facts concerning a product and
to initiate criminal proceedings. As a result of federal statutes and FDA
regulations, pursuant to which new pharmaceuticals are required to undergo
extensive and rigorous testing, obtaining pre-market regulatory approval
requires extensive time and expenditures.
Under the FDC Act, a new drug may not be commercialized or otherwise
distributed in the United States without the prior approval of the FDA. The FDA
approval process relating to a new drug differs, depending on the nature of the
particular drug for which approval is sought. With respect to any drug product
with active ingredients not previously approved by the FDA, a prospective drug
manufacturer is required to submit a NDA, including complete reports of
pre-clinical, clinical and laboratory studies to prove such product's safety and
efficacy. The NDA process generally requires, before the submission of the NDA,
33
submission of an IND pursuant to which permission is sought to begin preliminary
clinical testing of the new drug. An NDA based on published safety and efficacy
studies conducted by others may also be required to be submitted for a drug
product with a previously approved active ingredient, if the method of delivery,
strength or dosage is changed. Alternatively, a drug having the same active
ingredients as a drug previously approved by the FDA may be eligible to be
submitted under an ANDA, which is significantly less stringent than the NDA
approval process.
While the ANDA process requires a manufacturer to establish bioequivalence
to the previously approved drug, it permits the manufacturer to rely on the
safety and efficacy studies contained in the NDA for the previously approved
drug.
The NDA approval process generally requires between four to seven years
from NDA submission to pre-marketing approval, although in the case of an NDA
submitted pursuant to Section 505(1)(b)(2) of the Act this time frame may be
significantly shorter. By contrast, the ANDA process permits an expedited FDA
review pursuant to which pre-marketing regulatory approval can generally be
obtained in three to five years. The ANDA process is available for drugs with
the same active ingredients, dosage form, strength and method of delivery as a
product which has previously received FDA approval pursuant to the NDA process.
Manufacturing information, including a review of chemical and physical data,
stability data, facilities and processes, must also be evaluated by FDA before
approval. Flemington believes that products developed in lingual spray and soft
gelatin bite capsule delivery systems (dosage forms) usually will require
submission of an NDA.
Flemington estimates that the development of new formulations of
pharmaceutical products, including formulation, testing and obtaining FDA
approval, generally takes three to five years for the ANDA process and four to
seven years for the NDA process, although NDAs submitted under Section
505(1)(b)(2) or Section 505(b)(2) are generally less complex than an ordinary
NDA and are usually acted upon by the FDA in a shorter period of time. There can
be no assurance that our determinations will prove to be accurate or that
pre-marketing approval relating to our proposed products will be obtained on a
timely basis, or at all. The FDA application procedure has become more rigorous
and costly and the FDA currently performs pre-approval and periodic inspections
of each finished dosage form and each active ingredient.
The manufacture of Flemington's pharmaceutical products will be subject to
cGMP prescribed by the FDA, pre-approval inspection by the FDA and foreign
authorities prior to the commercial manufacture of such products and periodic
cGMP compliance inspection by the FDA. Our European manufacturers will be
required to be in compliance with cGMP with respect to the manufacture of our
products. There can be no assurance that our manufacturers will be deemed to be
in compliance with cGMP with respect to any particular product. To the extent
that our manufacturers are deemed not to be in compliance with cGMP, there can
be no assurance that we will be able to enter into other suitable manufacturing
arrangements with third parties which are in compliance with cGMP.
Competition
The markets which we intend to enter are characterized by intense
competition. We will be competing against established pharmaceutical companies
which currently market products which are equivalent or functionally similar to
those we intend to market. Prices of drug products are significantly affected
by competitive factors and tend to decline as competition increases. In
addition, numerous companies are developing or may, in the future, engage in the
development of products competitive with our proposed products. We expect that
technological developments will occur at a rapid rate and that competition is
likely to intensify as enhanced delivery system technologies gain greater
acceptance. Additionally, the markets for formulated products which we have has
34
targeted for development are intensely competitive, involving numerous
competitors and products. We will seek to enhance our competitive position by
focusing our efforts on our novel dosage forms.
Patents and Protection of Proprietary Information
Flemington has applied for United States and foreign patent protection for
the delivery systems which are the primary focus of our development activities
as well as the delayed contact allergy topical formulations. Three United
States patents have been issued and other applications are pending. There can
be no assurance, however, that any additional patent applications will be
granted, or, if granted, will provide any adequate protection to us. We also
intends to rely on whatever protection the law affords to trade secrets,
including unpatented know-how. Other companies, however, may independently
develop equivalent or superior technologies or processes and may obtain patent
or similar rights with respect thereto.
Although we believe that our technology has been developed independently
and does not infringe on the patents of others, there can be no assurance that
the technology does not and will not infringe on the patents of others. In the
event of infringement, we or our manufacturers could, under certain
circumstances, be required to modify the infringing process or obtain a license.
There can be no assurance that we or our manufacturers would be able to do
either of those things in a timely manner or at all, and failure to do so could
have a material adverse effect on us and our business. In addition, there can be
no assurance that we will have the financial or other resources necessary to
enforce or defend a patent infringement or proprietary rights violation action.
If any of the products developed by us infringe upon the patent or proprietary
rights of others, we could, under certain circumstances, be enjoined or become
liable for damages, which would have a material adverse effect on us.
We also rely on confidentiality and nondisclosure arrangements with our
licensees and potential development candidates. There can be no assurance that
other companies will not acquire information which we consider to be
proprietary. Moreover, there can be no assurance that other companies will not
independently develop know-how comparable to or superior to that of Flemington.
Buccal Nonpolar Spray. On April 12, 1996 Flemington filed an application
with the United States Patent and Trademark Office ("PTO") for protection of
this subject matter. On September 1, 1998 the PTO allowed the claims. On October
21, 1999, the PTO issued a patent (5955098) to Flemington on the claims.
On February 21, 1997, Flemington filed an application under the Patent
Cooperation Treaty ("PCT") for the above-subject matter. The International
Preliminary Examination Authority has issued an opinion in which the PCT
examiner determined that the subject matter of the invention while novel is not
inventive for obviousness. This opinion, with which Flemington disagrees, is not
dispositive, however, it may be highly persuasive in subsequent proceedings in
the European and individual national patent offices should Flemington decide to
proceed in these jurisdictions.
In October 1998, Flemington filed a patent application in the European
Patent Office and in Canada for the buccal nonpolar spray claims. The former has
not yet been acted on, the latter is not yet due for examination.
Buccal Polar Spray. On April 12, 1996, Flemington filed an application with
the United States Patent and Trademark Office ("PTO") for protection of this
subject matter, no claims were allowed. On November 25, 1998, Flemington filed
the application in the PTO directed to the method of use of the spray and
subsequently the PTO issued a patent (6110486) to Flemington on these claims.
35
On February 21, 1997, Flemington filed an application under the Patent
Cooperation Treaty ("PCT") for the above-subject matter. The International
Preliminary Examination Authority has issued an opinion in which the PCT
examiner determined that the subject matter of the invention while novel is not
inventive for obviousness. This opinion, with which Flemington disagrees, is not
dispositive, however, it may be highly persuasive in subsequent proceedings in
the European and individual national patent offices should Flemington decide to
proceed in these jurisdictions.
In October and November 1998, Flemington filed patent applications in
Europe and Canada for the buccal polar spray claims. In the former case an
Official action has been received and responded to. The latter is not ripe for
examination yet.
Buccal Nonpolar Spray for Nitroglycerin. On April 12, 1996, Flemington
filed an application in the PTO directed to the above subject matter. On August
5, 1998 the PTO allowed claims to the above subject matter, and a patent
(5869082) was issued in February 1999. On February 21, 1997, Flemington filed a
PCT application directed to the above subject matter. The application was
rejected for lack of inventive step on the ground that the manner in which the
claims differed from the prior art was required by legislation. European and
Canadian counterpart applications have been filed. The Canadian application is
not yet ripe for examination.
Buccal/Polar/Nonpolar Sprays (Different Medicaments as Above). An
application was filed with the PCT on October 1, 1997 designating a large number
of possible countries including the United States. This application differs from
the first two applications above in that it utilizes different ingredients. The
PCT Examiner allowed two rather limited (but not commercially insignificant)
claims, and rejected the remaining claims for lack of inventive step and lack of
unity.
Flemington has made individual filings for patent protection in USA, Japan,
Canada, and Europe.
In the United States, the original application has been refiled as a CIP
(008) directed only to pump spray compositions. An initial Official Action has
been received and responded to. No examination is yet due in Japan and Canada.
Upon advice of our European Associate, the original application was filed as
three separate divisional applications. While some new references have been
cited no Official Action has been received in any of these cases.
Antihistamine Syrup and Ointment. On November 10, 1997, Flemington filed an
application with the U.S. PTO for protection of our antihistamine syrup and
ointments, a technology to be utilized in Flemington's proposed poison ivy
product. In October 1998, the PTO initially rejected the application for this
product. The application was refiled in May 2000 with claims directed solely to
method of protection claims. The patent (6391282) was granted in May 2002.
General Comment with Respect to the Foregoing PCT Applications. Flemington
is interested in obtaining patent protection in Europe and Canada. It is to be
expected that the same examiner who examined these applications in Europe as a
PCT examiner will be the examiner who will handle applications in the European
"National" Phase. Hence, Flemington anticipates it may be necessary to appeal to
the Board of Appeals in Munich. At the present time, it is not possible to
accurately predict the expenses involved in pursuing the foregoing applications.
However, expenses may exceed $100,000 (in the aggregate for all three
applications) before a final disposition is obtained. Flemington expects this
process to take between two and four years.
36
Product Liability
Flemington may be exposed to potential product liability claims by
consumers. We do not presently maintain product liability insurance coverage.
Although we will seek to obtain product liability insurance prior to the
commercialization of any products, there can be no assurance that we will obtain
such insurance or, if obtained, that any such insurance will be sufficient to
cover all possible liabilities. In the event of a successful suit against us,
insufficiency of insurance coverage could have a material adverse effect on us.
In addition, certain food and drug retailers require minimum product liability
insurance coverage as a condition precedent to purchasing or accepting products
for retail distribution. Failure to satisfy such insurance requirements could
impede the ability of Flemington or our distributors to achieve broad retail
distribution of our proposed products, which would have a material adverse
effect upon the business and financial condition of Flemington.
Customer Dependence
Since inception, substantially all of our revenues have been derived from
consulting activities primarily in connection with product development for
various pharmaceutical companies. Among other things, we work with our European
clients to obtain regulatory approvals for new drug formulations in the United
States. For the year ended July 31, 2001, consulting activities relating to our
two (2) largest clients accounted for approximately 40% and 18% respectively, of
our revenue. For the year ended July 31, 2000, consulting activities relating to
our two largest clients accounted for approximately 27% and 18% respectively, of
our revenue. For the year ended July 31, 1999 consulting activities relating to
our three largest clients accounted for approximately 19%, 14% and 10%
respectively, of our revenue.
Employees
We currently have 15 full-time employees, 4 of whom are executive officers,
6 of whom are engaged in administrative functions and 5 of whom are laboratory
personnel. Our success will be dependent in part, upon our ability to hire and
retain additional qualified sales and distribution personnel, however, there can
be no assurance that we will be able to hire or retain such necessary personnel.
Facilities
Our executive offices are located at 31 State Highway 12, Flemington, New
Jersey. The facility, constituting approximately 4,500 square feet is occupied
under a five-year lease which expires during September 2005. Should this
tenancy be terminated for any reason, there is ample comparable space available
in the area for the us to occupy. Since the manufacture of our products
presently is conducted by outside vendors, we do not own or lease any production
or manufacturing facilities. We presently are exploring the acquisition of a
manufacturing facility.
Legal proceedings
There are no legal proceedings pending to which we are a party, and we are
unaware of any contemplated material legal actions against us.
37
Management's discussion and analysis of financial condition and results of
operations
General
Since inception, substantially all of our revenues have been derived from
consulting activities, primarily in connection with product development for
various pharmaceutical companies. In recent years, we have been shifting our
focus away from consulting for other companies to the development of our own
products, generally in joint arrangements with other pharmaceutical companies.
We have has had a history of recurring losses from operations, giving rise to an
accumulated deficit at April 30, 2002 of approximately $8,111,000. Although
substantially all of our revenues to date have been derived from our consulting
business, our future growth and profitability will be principally dependent upon
our ability successfully to develop our products and to enter into license
agreements with drug companies which will market and distribute the products
utilizing our delivery system. Our revenues from consulting continued to
decline during the two years ended July 31, 2001 and are likely to continue to
decline in the future as we continue to shift our emphasis away from consulting
for clients and towards development of our own products.
Our financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
Our continued existence is dependent upon our ability to achieve profitable
operations or obtain additional financing. We are currently seeking
collaborative arrangements with pharmaceutical companies for joint development
of delivery systems and the successful marketing of these delivery systems. In
order to pursue this strategy, we will be required to obtain financing and/or
consummate a strategic alliance with a well-funded business partner in the near
future. In view of our very limited resources, our anticipated expenses and the
competitive environment in which we operate, there can be no assurance that our
operations will be sustained for the duration of our next fiscal year.
Results of Operations
Fiscal Year 2001 Compared to Fiscal Year 2000
Consulting Revenues for fiscal 2001 decreased approximately $67,000 or 65%
to $36,000 from $103,000 for fiscal 2000. Product Development Revenues for
fiscal 2001 increased approximately $85,000 or 47% to $264,000 from $179,000 for
fiscal 2000. The decrease in Consulting Revenues and increase in Product
Development Revenues was due to our decision to concentrate additional efforts
in the area of product development. Interest income for fiscal 2001 decreased
approximately $21,000 or 48% to $23,000 from $44,000 for fiscal 2000. The
interest income decrease was primarily attributable to significantly lower
average cash balances for the 2001 year.
Total costs and expenses for fiscal 2001 decreased approximately $27,000 or
2% to approximately $1,478,000 from approximately $1,505,000 for fiscal 2000.
Consulting costs and expenses for fiscal 2001 decreased approximately $117,000
or 70% to approximately $49,000 from approximately $166,000 for fiscal 2000.
This decrease was primarily attributable to an approximate $112,000 decrease in
payroll related expenses associated with consulting activities.
Product Development costs and expenses for fiscal 2001 increased
approximately $242,000 or 61% to approximately $642,000 from approximately
$400,000 for fiscal 2000. This increase was attributable to an approximate
$194,000 increase in product development payroll expenses, an
approximate $40,000 increase in rent expense allocated to product development
38
due to our expanded facilities occupied during October 2000, an approximate
$18,000 increase in clinical studies expense and an approximate $12,000 increase
in depreciation and amortization expense due to fixed assets acquisitions for
laboratory activities. Expense decreases for product development were an
approximate $28,000 decrease in legal fees related to intellectual property and
an approximate $24,000 decrease in outside laboratory testing due to the
establishment of an internal laboratory.
Selling, General and Administrative costs and expenses for fiscal 2001
decreased approximately $152,000 or 16% to approximately $787,000 from
approximately $939,000 for fiscal 2000. This decrease was primarily
attributable to an approximate $134,000 decrease in payroll related expenses due
to employee resignations and an approximate $47,000 decrease in legal fees due
to the satisfaction of our deductible for our D & O insurance policy. Expense
increases for selling, general and administrative were an approximate $29,000
increase in outside consultant expenses due to the aforementioned employee
resignations and an approximate $12,000 increase in the portion of rent expense
allocated to SG&A due to more costly offices occupied during October 2000.
Nine months ended April 30, 2002 Compared to April 30, 2001
Consulting revenues for the 2002 Period increased approximately $193,000 or
136% to $335,000 from $142,000 for the 2001 Period. This revenue increase for
the 2002 Period was primarily attributable to an increase in project management
of clinical studies for clients.
Total costs and expenses for the 2002 Period increased approximately
$1,878,000 or 166% to $3,011,000 from $1,133,000 for the 2001 Period. This
increase includes an approximate $1,413,000 in outside consultant fees primarily
due to options issued to consultants, an approximate $142,000 in payroll expense
primarily due to additional employees and the establishment of a vacation pay
accrual, an approximate $116,000 in legal & professional fees, an approximate
$89,000 in bad debt expense, an approximate $32,000 in settlement with a
consultant (see note 4), an approximate $31,000 in depreciation and amortization
expense due to the earlier purchases of laboratory equipment , an approximate
$28,000 in public company expenses due primarily to an increase in the number of
outside directors and the increased number of board meetings held during the
2002 Period, an approximate $21,000 in rent expenses due to increased rents for
our facilities, occupied in October 2000, and the establishment of our Florida
office during October 2001, an approximate $21,000 in trade show and conference
expenses, an approximate $18,000 in laboratory expenses due to additional lab
employees and an approximate $11,000 in insurance expenses due to increased
premiums for directors and officers coverage and additional clinical studies
coverage.
Decreases in costs and expenses for the 2002 Period, as compared to the
2001 Period, includes an approximate $56,000 in laboratory testing and clinical
studies costs due primarily to our earlier decision to establish an internal
laboratory and an approximate $11,000 in automobile expense. A buy-out of a
consultant's contract, during the 2002 Period, resulted in an approximate
$32,000 increase in expenses.
Interest income increased approximately $17,000 or 113% to $32,000 for the
2002 Period from $15,000 for the 2001 Period due to an increased average cash
balance in conjunction with reduced interest rates for the 2002 Period.
Deferred income tax benefit for the 2002 Period was approximately $88,000
compared to approximately $47,000 for the 2001 Period. These benefits resulted
from the sale of the Company's New Jersey net operating losses.
The resulting net loss for the 2002 Period was $2,588,000 compared to a net
loss of $929,000 for the 2001 Period.
39
Three months ended April 30, 2002 Compared to April 30, 2001
Operating revenues for the 2002 Period increased approximately $80,000 to
$81,000 from $1,000 for the 2001 Period.
Total costs and expenses for the 2002 Period increased approximately
$1,900,000 to $2,139,000 from $239,000 for the 2001 Period. This increase
includes an approximate $1,464,000 in outside consultant fees primarily due to
options issued to consultants, an approximate $122,000 in payroll expense
primarily due to additional employees and the establishment of a vacation pay
accrual, an approximate $83,000 in bad debt expense, an approximate $67,000 in
legal & professional fees, an approximate $43,000 in laboratory testing and
clinical studies costs, an approximate $26,000 in travel expense, an approximate
$17,000 in public company expenses due primarily to an increase in the number of
outside directors and the increased number of board meetings held during the
2002 Period, an approximate $13,000 in trade show and conference expenses, an
approximate $13,000 in laboratory expenses due to additional lab employees, an
approximate $13,000 in insurance expenses, an approximate $12,000 increase in
depreciation and amortization expense due to the earlier purchase of internal
laboratory equipment, an approximate $8,000 in rent expenses and an approximate
$7,000 increase in general outside services.
Interest income increased approximately $15,000 to $17,000 for the 2002
Period from $2,000 for the 2001 Period due to an increased average cash balance.
The resulting net loss for the 2002 Period was $2,041,000 compared to a net
loss of $236,000 for the 2001 Period.
Liquidity and Capital Resources
From inception, our principal sources of capital have been provided by
consulting revenues, private placements and a public offering of our securities,
as well as loans and capital contributions from our principal stockholders. At
April 30, 2002, we had working capital of approximately $4,308,000 as compared
to working capital of $(236,000) at April 30, 2001 representing a net increase
in working capital of approximately $4,544,000.
Net cash used in operating activities approximated $810,000 for the 2002
Period compared to net cash used in operating activities of approximately
$609,000 for the 2001 Period. Net cash used in operating activities for both
the 2002 and 2001 Periods was primarily attributable to the net loss of
$2,588,000 and $929,000, respectively. For the 2002 Period, $179,000 was used
for investing activities compared to $59,000 for the 2001 Period. Total cash
flow for the 2002 Period increased approximately $3,945,000 as compared to a
$668,000 decrease for the 2001 Period.
We believe that our current cash levels together with revenues from
operations will be sufficient to satisfy our cash requirements for at least 7
months. We have substantial doubt about our ability to continue operations
beyond such period without obtaining additional financing and/or consummating a
strategic alliance with a well-funded business partner. No assurance can be
given that future unforeseen events will not adversely affect our ability to
continue operations or to successfully obtain additional financing, which may
not be available on terms acceptable to us, if at all.
40
Inflation
We do not believe that inflation has had a material effect on our results
of operations during the past three fiscal years. There can be no assurance that
our business will not be affected by inflation in the future.
New Accounting Pronouncements
See Note 1 to the Financial Statements for a discussion of New Accounting
Pronouncements affecting Flemington.
41
Certain relationships and related transactions
To the best of management's knowledge, other than as set forth below, there
were no material transactions, or series of similar transactions, or any
currently proposed transactions, or series of similar transactions, to which
Flemington was or is to be a party, in which the amount involved exceeds
$60,000, and in which any director or executive officer, or any security holder
who is known by us to own of record or beneficially more than 5% of any class of
our common stock, or any member of the immediate family of any of the foregoing
persons, has an interest.
During fiscal 2001 we paid Mr. Schaul approximately $85,000 for legal
services rendered to us.
In fiscal 1998, we loaned the principal amount of $60,000 to Dr. Dugger in
exchange for a 7% promissory note. The note was due on demand, with interest due
quarterly. Interest approximated $4,200 for fiscal 2001. This note was paid in
full in January 2002.
In September 2001, the Company entered into a short-term employment
agreement with Robert Galler, who was appointed as Vice President - Corporate
Development and a Director. That agreement provided for the issuance to Mr.
Galler of options to purchase 700,000 shares of our common stock at an exercise
price of $.75 per share. Under the agreement, the vesting of these options was
subject to the satisfaction of certain conditions precedent. In December 2001,
the agreement with Mr. Galler was amended to recognize the accomplishment of the
conditions. Among other things, the term was extended to three years, his
compensation was increased, the options became vested, and he was granted an
additional 350,000 options (on the same terms) which would become vested upon
satisfaction of a condition in the amended agreement.
During November 2001, we cancelled and reissued certain options under the
1992, 1997 and 1998 Option Plans. An aggregate of 345,000 options were issued to
each of Harry A. Dugger and John J. Moroney at an exercise price of $.70 per
share (110% of the market price), having a term of five years. An aggregate of
150,000 options were issued to each of Jack Kornreich and Robert Schaul at an
exercise price of $.63 per share (100% of the market price), having a term of
ten years.
During December 2001, we received net proceeds of approximately $3,000,000
from a private placement of 4,000,000 units which was purchased by Lindsay
Rosenwald. Each unit consisted of one share of common stock, and a warrant
(which expires December 2008) to purchase an additional share of our common
stock at an exercise price of $.75. The sale price of each unit is $.75. In
March 2002 we received net proceeds of approximately $2,000,000 from a private
placement of 2,666,667 additional units at a sale price of $.75 per unit. These
units were purchased by Biomedical Investment Group LLC. These warrants expire
in March 2009.
In February 2002, we entered into a consulting agreement with John H.
Klein, who was simultaneously elected as our chairman of the Board. The
agreement is for a term of one year. Under the agreement, Mr. Klein was granted
options to purchase 1,000,000 shares of our common stock at an exercise price of
$2.40 per share. The options have a term of ten years and vest in three equal
annual installments, beginning in February 2003.
Also in February 2002, 187,500 options were issued under the 1998 Option
Plan; 37,500 to John J. Moroney, and 75,000 to each of Jack Kornreich and Robert
Schaul. The options have an exercise price of $2.63 per share and a term of ten
years.
42
Market for common equity and related stockholders matters
Since the November 1997 closing of our public offering, our common stock
has traded in the over-the-counter market on the OTCBB under the symbol "FLEM".
The following table sets forth the range of high and low closing bid quotations
of our common stock as reported by the OTCBB for each fiscal quarter for the
past three fiscal years. High and low bid quotations represent prices between
dealers without adjustment for retail mark-ups, mark-downs or commissions and
may not necessarily represent actual transactions.
Bid Prices
High Low
FISCAL 2000
First Quarter (August 1, 1999 through October 25, 1999) 1.687 0.875
Second Quarter (November 1, 1999 through January 31, 2000) 2.25 .875
Third Quarter (February 1, 2000 through April 30, 2000) 3.375 1.00
Fourth Quarter (May 1, 2000 through July 31, 2000) 1.406 .750
FISCAL 2001
First Quarter (August 1, 2000 through October 31, 2000) 2.125 .969
Second Quarter (November 1, 2000 through January 31, 2001) 1.562 .438
Third Quarter (February 1, 2001 through April 30, 2001) 1.094 .550
Fourth Quarter (May 1, 2001 through July 31, 2001) .950 .510
FISCAL 2002
First Quarter (August 1, 2001 through October 31, 2001) .60 .43
Second Quarter (November 1, 2001 through January 31, 2002) 2.30 .63
Third Quarter (February 1, 2002 through April 30, 2002) 3.79 2.40
Fourth Quarter (May 1, 2002 through July 31, 2002) 3.62 1.65
The closing sales price of our common stock as reported by the OTCBB was
$1.82 on August 28, 2002.
As of July 31, 2002 there were approximately 80 record holders of our
common stock.
We have never declared or paid a dividend on our common stock, and
management expects that all or a substantial portion of our future earnings will
be retained for expansion or development of our business. The decision to pay
dividends, if any, in the future is within the discretion of the Board of
Directors and will depend upon our earnings, capital requirements, financial
condition and other relevant factors such as contractual obligations.
Management does not anticipate that we will pay dividends on the common stock in
the foreseeable future. Moreover, there can be no assurance that dividends can
or will ever be paid.
43
Executive Compensation
The following table sets forth a summary for the fiscal years ended July
31, 2001, 2000 and 1999, respectively, of the cash and non-cash compensation
awarded, paid or accrued by Flemington to our CEO and our four most highly
compensated officers other than the CEO, who served in such capacities at the
end of fiscal 2001 (collectively, the "Named Executive Officers"). No other
executive officer of Flemington earned in excess of $100,000 in total annual
salary and bonus for 2001, 2000 and 1999 in all capacities in which such person
served Flemington. There were no restricted stock awards, long-term incentive
plan payouts or other compensation paid during fiscal 2001, 2000 and 1999 to the
Named Executive Officers, except as set forth below:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
SECURITIES
OTHER UNDER-
ANNUAL RESTRICTED LYING ALL
NAME AND FISCAL COMPEN- STOCK OPTIONS LTIP OTHER
PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARDS SAR (1) PAYOUTS COMPENSATION
($) ($) ($) ($) ($) (#) ($) ($)
Harry A. Dugger, III, Ph.D.
President and CEO 2001 232,000(2) 0 0 0 0 0 0
2000 226,000 0 0 0 95,000 0 0
1999 210,000 0 0 0 0 0 0
John J. Moroney
Former Director 2001 57,781 0 0 0 0 0 0
2000 169,000 0 0 0 95,000 0 0
1999 157,500 0 0 0 0 0 0
Donald Deitman
Chief Financial Officer 2001 70,800 0 0 0 0 0 0
2000 68,000 0 0 0 0 0 0
1999 67,500 0 0 0 0 0 0
(1) No Stock Appreciation Rights have been issued.
(2) Includes $49,000 accrued, but unpaid, salary
OPTION GRANTS IN LAST FISCAL YEAR
(individual grants)
There were no options granted during fiscal 2001. See "Certain Relationships
and Related Party Transactions," above, regarding option grants in fiscal 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercises of options during fiscal 2001 and
the number and value of unexercised options held as of the end of fiscal 2001.
44
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR END; AT FISCAL YEAR END ($);
ACQUIRED ON (EXERCISABLE/ (EXERCISABLE/
(1) NAME OF EXECUTIVE OFFICER EXERCISE VALUE REALIZED ($) UNEXERCISABLE) UNEXERCISABLE)
Harry A. Dugger, III, Ph.D. 0 - 645,000 / 0 0 / 0
John J. Moroney 0 - 645,000 / 0 0 / 0
Donald Deitman 0 - - -
Stock Option Plans
Flemington has three stock option plans, adopted in 1992, 1997 and 1998,
respectively (collectively referred to as the "Plans"). The 1992 and 1997 Plans
provides for the issuance of options to purchase 500,000 shares of common stock,
and the 1998 Plan provides for the issuance of options to purchase 1,075,000
shares of common stock, for a total of 2,075,000 shares. The 1997 Stock Option
Plan is administered by Harry A. Dugger, III, Ph.D. and John Klein (as of March
27, 2002), who constitute the Compensation Committee of the Board of Directors
("Committee"), and the 1992 Stock Option Plan and 1998 Stock Option Plan are
administered by the entire Board of Directors. For purposes of the following
discussion, the term "Committee" will be used to reference the Committee with
respect to the 1997 Stock Option Plan and the entire Board of Directors with
respect to the 1992 Stock Option Plan and 1998 Stock Option Plan, as applicable.
The Committee has sole discretion and authority, consistent with the provisions
of the Plans, to select the Eligible Participants to whom options will be
granted under the Plans, the number of shares which will be covered by each
option and the form and terms of the agreement to be used. All employees and
officers of the Company are eligible to participate in the Plans.
At April 30, 2002, 500,000, 500,000 and 787,500 shares of our common stock
was reserved for issuance pursuant to the 1992, 1997 and 1998 Plans,
respectively. The exercise prices for the outstanding options reserved under
the 1992 Plan range between $.63 and $2.00 per share; the exercise prices for
the outstanding options reserved under the 1997 Plan range between $.63 and
$2.00 per share; and the exercise prices for the outstanding options reserved
under the 1998 Plan range between $.63 and $2.63 per share.
The Committee is empowered to determine the exercise price of options
granted under the Plans, but the exercise price of ISOs must be equal to or
greater than the fair market value of a share of common stock on the date the
option is granted (110% with respect to optionees who own at least 10% of the
outstanding common stock). The Committee has the authority to determine the
time or times at which options granted under the Plans become exercisable, but
options expire no later than ten years from the date of grant (five years with
respect to Optionees who own at least 10% of the outstanding common stock of
Flemington). Options are nontransferable, other than by will and the laws of
descent, and generally may be exercised only by an employee while employed by
Flemington or within 90 days after termination of employment (one year from
termination resulting from death or disability).
No ISO may be granted to an employee if, as the result of such grant, the
aggregate fair market value (determined at the time each option was granted) of
the shares with respect to which ISOs are exercisable for the first time by such
employee during any calendar year (under all such plans of Flemington and any
parent and subsidiary) exceeds $100,000. The Plans do not confer upon any
45
employee any right with respect to the continuation of employment by Flemington,
nor do the Plans interfere in any way with the employee's right or Flemington's
right to terminate the employee's employment at any time.
Non-Plan Options
As of July 31, 2002, we had 2,700,000 non-plan options outstanding as
follows: 600,000 options exercisable at $1.84 per share; 700,000 options
exercisable at $.75 per share; 1,000,000 options exercisable at $2.40 per share;
250,000 options exercisable at $3.18 per share; and 150,000 options exercisable
at $3.02 per share.
Compensation Committee Interlocks and Insider Participation
Harry A. Dugger, III and John Klein (since March 27, 2002) serve as the
members of the Company's Compensation Committee, which reviews and makes
recommendations with respect to compensation of officers, employees and
consultants, including the granting of options under the Company's 1997 Stock
Option Plan. The 1992 and 1998 Stock Option Plans are administered by the
entire Board.
Compensation Committee Report on Executive Compensation
Compensation of Flemington's executives is intended to attract, retain and
award persons who are essential to the enterprise. The fundamental policy of
Flemington's executive compensation program is to offer competitive compensation
to executives that appropriately rewards the individual executive's contribution
to corporate performance. The Board of Directors utilizes subjective criteria
for evaluation of individual performance. The Board focuses on two primary
components of Flemington's executive compensation program, each of which is
intended to reflect individual and corporate performance: base salary
compensation and long-term incentive compensation. Flemington has not paid cash
incentive bonuses during fiscal 2001.
Except as set forth herein, Flemington does not have any annuity,
retirement, pension, deferred or incentive compensation plan or arrangement
under which any executive officer is entitled to benefits, nor does Flemington
have any long-term incentive plan pursuant to which performance units or other
forms of compensation are paid. Executive officers who qualify will be
permitted to participate in Flemington's 1992, 1997 and 1998 Stock Option Plans
which were adopted in May 1992, February 1997 and June 1998, respectively. In
September 1998 the Board of Directors adopted an investment retirement account
plan in which all employees of Flemington are eligible to participate.
Executive officers may participate in group life, health and hospitalization
plans, if and when such plans are available generally to all employees. The
Compensation Committee is satisfied that the compensation and stock option plans
provided to the officers of Flemington are structured and operated to create
strong alignment with the long-term best interests of Flemington and its
stockholders.
The compensation of Flemington's Chief Executive Officer, Dr. Dugger, for
fiscal 2001 consisted of base salary of $ 232,000. Because of an inadequacy of
cash flow during the second and third quarters of fiscal 2001, Dr. Dugger agreed
to accrue all of his salary until the cash flow situation resolved itself. In
May 2001, Dr. Dugger's salary was resumed and one-half of his accrued salary was
paid out. The remaining half ($49,000) was paid out in January 2002. In
February 2002, effective January 1, 2002, Dr. Dugger entered into a new
three-year employment at a base salary of $248,500 per year (which is subject to
increase, see "Employment Agreements and Change in Control Agreements" below).
No bonuses, stock grants or option grants were awarded to Dr. Dugger during
fiscal 2001. The determination by the Compensation Committee of Dr. Dugger's
remuneration is based upon methods consistent with those
46
used for other senior executives. The committee considers certain quantitative
factors, including Flemington's financial, strategic and operating performance
for the year. The qualitative criteria include Dr. Dugger's leadership
qualities and management skills, as exhibited by his innovations, time and
effort devoted to Flemington, and other general considerations. The
Compensation Committee also takes note of comparable remuneration of other CEOs
at similar companies. Based on the performance of Flemington, the Compensation
Committee believes that Mr. Dugger's compensation was appropriate.
Employment Agreements and Change in Control Arrangements
Dr. Dugger. In February 2002, effective January 1, 2002, Dr. Dugger
entered into a new three-year employment agreement at a base salary, for the
first year, of $248,500 per year (which increases each year by the greater of
the CPI index or 5%). Except for the increase in base salary, there was no
material difference between the new employment agreement and that previously in
effect.
John Klein. In February 2002, Mr. Klein entered into a one-year consulting
agreement at a base compensation of $300,000, plus certain fringe benefits of
approximately $72,000 per year. Pursuant to the agreement, he was granted
1,000,000 non-plan options at $2.40 per share. See "Certain relationships and
related transactions." In addition, Mr. Klein is entitled to certain success
fees upon completion of corporate deals he introduces to Flemington.
Robert C. Galler. In December 2001, we entered into a three year employment
agreement with Mr. Galler, who was appointed Vice President - Corporate
Development and elected to the Board of Directors. Pursuant to the agreement,
he receives a base salary of $180,000 per year. In addition, he was granted
1,050,000 non-plan options at $.75 per share. See "Certain relationships and
related transactions."
Donald Deitman. In February 2002, effective January 1, 2002, Mr. Deitman
entered into a three year employment agreement as our Chief Financial Officer.
The agreement provides for a base salary, for the first year, of $125,000 per
year (which increases each year by the greater of the CPI index or 5%). All
other provisions of the agreement are the same as those in effect for our other
executives.
Mohammed Abd El-Shafy, Phd. In May 2002, we entered into a three year
employment agreement with Dr. El-Shafy, who was appointed Vice
President-Formulation Development. Pursuant to the agreement, he receives a
base salary, for the first year, of $110,000 (which increases each year by the
greater of the CPI index or 5%). In addition, he was granted 150,000 non-plan
options at $3.02 per share.
The foregoing agreements also provide for certain non-competition and
non-disclosure covenants on the part of such executive. However, with respect to
the non-competition covenants, a court may determine not to enforce such
provisions or only partially enforce such provisions. Additionally, each of the
foregoing agreements (other than John Klein) provides for certain fringe
benefits, such as inclusion in pension, profit sharing, stock option, savings,
hospitalization and other benefit plans at such times as Flemington shall adopt
them.
47
Legal matters
The validity of the common stock offered hereby will be passed upon for
Flemington by Brown Rudnick Berlack Israels LLP, New York, New York.
Experts
Certain of the financial statements of Flemington included in this
prospectus and elsewhere in the registration statement, to the extent and for
the periods indicated in their reports, have been audited by Wiss & Company,
LLP, independent certified public accountants, whose reports thereon appear
elsewhere herein and in the registration statement.
Available Information
Reports and other information filed by us with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington D.C. 20549, and at
the Commission's New York Regional office at Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission, Washington, DC 20549 at
prescribed rates.
This Registration Statement, as well as all amendments thereto and
subsequent reports, have been and will be filed through the Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. Documents filed through
EDGAR are publicly available through the Commission's Website at
http:/www.sec.gov.
Statements contained herein as to the contents of any document are
summaries of such documents and, in each instance, reference is hereby made to
the copy of such document filed as an exhibit to the Registration Statement, and
each such statement is qualified in all respects by such reference. All
material information of such exhibits are discussed in this Form SB-2. The
Registration Statement may be inspected and copied at the places set forth
above.
48
INDEX TO FINANCIAL STATEMENTS
PAGE
FINANCIAL STATEMENT (UNAUDITED) - April 30, 2002
Consolidated Balance Sheets as of April 30, 2002 and July 31, 2001 F-1
Statements of Operations for the Three Months and Nine Months Ended April 30, 2002 and 2001 F-2
Statement of Changes in Shareholders' Equity For the Nine Months Ended April 30, 2002 F-3
Statements of Cash Flows For the Nine Months Ended April 30, 2002 and 2001 F-4
Notes to Financial Statements F-5
FINANCIAL REPORT - JULY 31, 2001
Independent Auditors' Report F2-1
Balance Sheet F2-2
Statement of Operations F2-3
Statements of Changes in Shareholders' Equity F2-4
Statements of Cash Flows F2-5
Notes to Financial Statements F2-6
FLEMINGTON PHARMACEUTICAL CORPORATION
BALANCE SHEETS
April 30, July 31,
2002 2001
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 4,530,000 $ 585,000
Accounts receivable - trade, less allowance for
doubtful accounts of $15,000 at April 30, 2002 and $9,000 at
July 31, 2001 97,000 92,000
Prepaid expenses and other current assets 79,000 57,000
----------- -----------
Total Current Assets 4,706,000 734,000
----------- -----------
FURNITURE, FIXTURES, AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION 301,000 167,000
DEMAND NOTE RECEIVABLE, OFFICER - 60,000
DUE FROM JOINT VENTURE PARTNER FOR REIMBURSABLE EXPENSES 10,000 6,000
OTHER ASSETS 18,000 17,000
----------- -----------
$ 5,035,000 $ 984,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable trade $ 202,000 $ 11,000
Accrued expenses 196,000 77,000
----------- -----------
Total Current Liabilities 398,000 88,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.01 par value:
Authorized 1,000,000 shares, none issued
Common stock, $.001 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 14,391,567 shares in 2002 and 7,724,900
shares in 2001 14,000 8,000
Additional paid-in capital 12,734,000 6,411,000
Accumulated Deficit (8,111,000) (5,523,000)
----------- -----------
Total Stockholders' Equity (Deficiency) 4,637,000 896,000
----------- -----------
$ 5,035,000 $ 984,000
=========== ===========
See accompanying notes to financial statements.
F-1
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
April 30, April 30,
------------------------ ------------------------
2002 2001 2002 2001
----------- ---------- ----------- ----------
CONSULTING REVENUES $ 81,000 $ 1,000 $ 335,000 $ 142,000
CONSULTING, SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 2,139,000 239,000 3,011,000 1,133,000
----------- ---------- ----------- ----------
LOSS FROM OPERATIONS (2,058,000) (238,000) (2,676,000) (991,000)
BUY-OUT OF CONSULTANT'S CONTRACT - - (32,000)
INTEREST INCOME 17,000 2,000 32,000 15,000
----------- ---------- ----------- ----------
NET LOSS BEFORE TAXES (2,041,000) (236,000) (2,676,000) (976,000)
DEFERRED INCOME TAX BENEFIT - - 88,000 47,000
----------- ---------- ----------- ----------
NET LOSS $(2,041,000) $ (236,000) $(2,588,000) $ (929,000)
============ =========== ============ ===========
BASIC AND DILUTED LOSS PER
SHARE $ (.15) $ (.04) $ (.25) $ (.16)
============ =========== ============ ===========
SHARES USED IN COMPUTATION
OF BASIC AND DILUTED LOSS
PER SHARE 13,432,765 5,881,237 10,332,959 5,879,910
============ =========== ============ ===========
See accompanying notes to financial statements.
F-2
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock
-------------------
Stockholders'
Par Paid-in Accumulated Equity
Shares Value Capital Deficit (Deficiency)
---------- ------- ----------- ------------ ------------
BALANCE, JULY 31, 2001 7,724,900 $ 8,000 $ 6,411,000 $(5,523,000) $ 896,000
NINE MONTHS ENDED
APRIL 30, 2002 -
In Connection with private placements,
net of costs 6,666,667 6,000 4,928,000 - 4,934,000
Options issued for services 1,348,000 - 1,348,000
Warrants issued for services - - 47,000 - 47,000
Net Loss - - - (2,588,000) (2,588,000)
---------- ------- ----------- ------------ ------------
BALANCE, April 30, 2002 14,391,567 $14,000 $12,734,000 $(8,111,000) $ 4,637,000
========== ======= =========== ============ ============
See accompanying notes to financial statements.
F-3
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
April 30,
-------------------------
2002 2001
------------ -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) $(2,588,000) $(929,000)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Options issued for services 1,348,000
Warrants issued for Services 47,000 -
Shares Issued for Services - 6,000
Depreciation & Amortization 45,000 12,000
Allowance for Doubtful Accounts 89,000 -
Changes in operating assets and liabilities:
Accounts receivable (94,000) (41,000)
Due from D&O Insurance Carrier - 61,000
Prepaid expenses and other current assets (22,000) 26,000
Demand note receivable, officer 60,000 -
Due from joint venture partner for reimbursable expenses (4,000) 74,000
Other Assets (1,000) (7,000)
Accounts payable - trade 191,000 124,000
Billings in excess of costs and estimated earnings
on uncompleted contracts - (34,000)
Accrued expenses and other current liabilities 119,000 17,000
------------ -----------
Net cash flows from operating activities (810,000) (609,000)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (179,000) (59,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds received from issuance of common stock through
a private placement offering 4,934,,000 -
------------ -----------
NET CHANGE IN CASH 3,945,000 (668,000)
CASH, BEGINNING OF PERIOD 585,000 700,000
------------ -----------
CASH, END OF PERIOD 4,530,000 32,000
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ - $ -
Income taxes paid ============ ===========
$ - $ -
============ ===========
See accompanying notes to financial statements.
F-4
FLEMINGTON PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - Basis of Presentation:
The balance sheet at the end of the preceding fiscal year has
been derived from the audited balance sheet contained in the
Company's Form 10-KSB and is presented for comparative purposes.
All other financial statements are unaudited. In the opinion of
management, all adjustments, which include only normal recurring
adjustments necessary to present fairly the financial position,
results of operations and cash flows for all periods presented,
have been made in the interim statements. Results of operations
for interim periods are not necessarily indicative of the
operating results for a full year.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
has had a history of recurring losses from operations, giving
rise to an accumulated deficit through April 30, 2002. Resulting
operating losses and negative cash flows from operations are
likely to occur until, if ever, profitability can be achieved
through successful marketing of the Company's developed products.
Footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been omitted in accordance with the published
rules and regulations of the Securities and Exchange Commission.
The financial statements in this report should be read in
conjunction with the financial statements and notes thereto
included in the Form 10-KSB of Flemington Pharmaceutical
Corporation (the "Company"), for the year ended July 31, 2001.
Note 2 - Stockholder's Note Receivable:
During January 2002, the Company's President repaid a $60,000; 7%
demand loan and approximately $5,000 accrued interest to the
Company. The Company granted this loan during April 1998.
Accrued expenses:
Approximately $80,000 of accrued employee vacation, approximately
$68,000 of accrued clinical study costs for clients and
approximately $23,000 of payroll taxes are included in the
$196,000 total. The remainder is other accrued expenses and other
current liabilities.
Note 3 - Private Placement:
During December 2001 and March 2002, the Company received net
proceeds of approximately $4,934,000 from a private placement of
6,666,667 Units of the Company's securities. Each Unit consisted
of a common share, par value $.001, and a warrant to purchase an
additional share of the company's common stock at an exercise
price of $0.75 within seven (7) years. The sale price of each
Unit was $0.75.
F-5
Note 4 - Stock Options and Warrants
Pursuant to an employment agreement dated September 4, 2001, and
an amendment in December 2001, the Company granted 1,050,000
non-plan options to Robert C. Galler, a director and officer of
the Company. The term of the options is ten years and the
exercise price is $.75 per share. 700,000 of these options vested
in December 2001. An additional 350,000 options will be issued to
Mr. Galler if certain conditions in his employment agreement are
achieved. The Company applies Accounting Principle Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and the
related interpretations in accounting for its stock options to
employees. See also Note 6.
During November 2001, the Company cancelled and re-issued to four
(4) officers and directors of the Company, 440,000 options under
the 1992 plan; 150,000 options under the 1997 plan and 400,000
options under the 1998 plan. 345,000 of those options were issued
to each of Harry Dugger and John Moroney at an exercise price of
$.70 per share (110% of the fair market value on the date of
issuance), which options have a term of five (5) years. 150,000
of those options were issued to each of Robert Schaul and Jack
Kornreich at an exercise price of $.63 per share, which options
have a term of ten (10) years.
During December 2001, the Company granted an aggregate of 100,000
stock options under the Company's 1998 option plan, exercisable
at $0.80 per share for a term of ten (10) years, to four (4)
non-managerial employees. The Company applies Accounting
Principle Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and the related interpretations in accounting for its
stock options to employees.
During December 2001, the Company extended the term of 50,000
options previously granted to each of the Company's CEO and
Chairman, respectively. These options, previously set to expire
on March 25, 2003, now expire on December 10, 2006. All other
terms of the options remain unchanged. In accordance with
Financial Interpretation No. 44, "Accounting for certain
transactions involving Stock Compensation (Interpretation of APB
opinion No. 25), no expense was recorded because the exercise
price of the option was higher than the price of the common stock
on the date that the life of the options was extended.
During December 2001, the Company's Board of Directors acted to
increase the number of options provided by the Company's 1998
option plan from 500,000 to 1,075,000. The Board's action in this
respect was submitted for ratification by the shareholders at the
Company's 2001 Annual Meeting, held February 15, 2002, at which
it was approved.
During December 2001, to resolve a disagreement with a
consultant, the Company agreed to issue 50,000 warrants, having a
term of seven (7) years, to purchase the Company's common stock
at $0.75 per share, in exchange for which all relationships
between the Company and the consultant were terminated. An
expense of $33,000 was recorded to recognize the settlement.
In January 2002, pursuant to an agreement with The Trout Group,
LLC (see Note 6, below), the Company issued warrants to purchase
60,000 shares of common stock at an exercise price of $2.00 per
share. The warrants have a 5-year life and vest quarterly through
October 1, 2002.
F-6
In February 2002, pursuant to a consulting agreement with John H.
Klein (see Note 7, below), 1,000,000 options were issued at an
exercise price of $2.40 per share with a 10 year life. The
options vest and become exercisable in three equal annual
installments commencing February 1, 2003. At April 30, 2002, the
Company has recorded $599,000 of expense to recognize the value
of the options issued in connection with the consulting
agreement. The value of the options are being recognized over the
life of the consulting agreement.
In February 2002, the board issued options from the 1998 plan to
outside directors. 75,000 options were issued to each of two
directors and 37,500 options to one director. These options have
an exercise price of $2.69 and a term of 10 years.
During April 2002, a consultant was issued 250,000 options to
provide investment banking assistance to the Company. These
options have an exercise price of $3.18 and a term of 10 years.
An expense of $749,000 was recorded to recognize these services.
Note 5 - Deferred income tax benefit:
On December 19, 2001, the Company received approximately $88,000
as consideration for transferring approximately $1,159,000 of New
Jersey net operating loss tax benefit to a third party
corporation buyer. The Technology Tax Certificate Transfer
Program for transferring net operating loss and R & D tax
benefits is the responsibility of New Jersey Economic Development
Authority.
Note 6 - Contracts:
In September, 2001 the Company entered into an employment
agreement with Robert Galler, who became Vice President -
Corporate Development and a Director of the Company. The
Agreement was amended in December, 2001. Under the Agreement as
amended, Mr. Galler was hired for a period of three years, at a
base salary of $180,000 per year. See also Note 4.
During January 2002, the Company entered into a consulting
agreement, and will pay $25,000 per quarter through December 31,
2002 for investor relations with The Trout Group, LLC. See also
Note 4.
In February 2002 the Company entered into an employment
agreement, effective January 1, 2002, with its President, Harry
A. Dugger III. The Agreement has a term of three years and
provides for a base salary of $248,000 per year.
In February, 2002 the Company entered into an employment
agreement, effective January 1, 2002, with its Chief Financial
Officer, Donald Deitman. The Agreement has a term of three years
and provides for a base salary of $125,000 per year.
F-7
Note 7 - Related Parties:
In February 2002 the Company entered into a consulting agreement
with John H. Klein for the rendition of advice regarding
strategic transactions. The Agreement has a term of one year, and
is renewable annually thereafter. The Agreement provides for base
fees of $300,000 per year, with additional compensation payable
for the achievement of certain goals set forth in the Agreement.
Upon execution of this agreement, 1,000,000 options were issued
with a 10 year life at an exercise price of $2.40 per common
share. The options vest and become exercisable in three equal
annual installments commencing February 1, 2003. In addition, in
February 2002, this consultant was elected as a member and
Chairman of the Company's Board of Directors.
F-8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Flemington Pharmaceutical Corporation
We have audited the balance sheet of Flemington Pharmaceutical Corporation as of
July 31, 2001 and the related statements of operations, changes in stockholders'
equity and cash flows for each of the two years in the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Flemington Pharmaceutical
Corporation at July 31, 2001, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has had a history of recurring losses from
operations, giving rise to a stockholders' deficiency through July 31, 2001 and
is currently developing pharmaceutical products which will require substantial
financing to fund anticipated product development costs. Resulting operating
losses and negative cash flows from operations are likely to occur until, if
ever, profitability can be achieved through successful marketing of newly
developed products. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WISS & COMPANY, LLP
Livingston, New Jersey
August 31, 2001
F2-1
FLEMINGTON PHARMACEUTICAL CORPORATION
BALANCE SHEET
JULY 31, 2001
ASSETS
CURRENT ASSETS:
Cash $ 585,000
Accounts receivable - trade, less allowance for doubtful accounts
of $9,000 92,000
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . 57,000
-----------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . $734,000
FURNITURE, FIXTURES, AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION OF $95,000 167,000
DEMAND NOTE RECEIVABLE, SHAREHOLDER. . . . . . . . . . . . . . . . . . . . . . . . 60,000
DUE FROM JOINT VENTURE PARTNER FOR REIMBURSABLE EXPENSES . 6,000
OTHER ASSETS 17,000
-----------
$984,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade . $11,000
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . 77,000
-----------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . $88,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred stock, $.01 per value:
Authorized 1,000,000 shares, none issued -
Common stock $.001 par value:
Authorized - 50,000,000 shares
Issued and outstanding -7,724,900 shares. . . . . . . . . . . . . . . . 8,000
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,411,000
Accumulated Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,523,000)
-----------
Total Stockholders' Equity . 896,000
-----------
$984,000
===========
See accompanying notes to financial statements.
F2-2
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS
Year Ended
July 31,
-------------------------
2001 2000
----------- -----------
REVENUES:
Consulting. . . . . . . . . . . . . . . . . . . . $ 36,000 $ 103,000
Product Development . . . . . . . . . . . . . . . 264,000 179,000
----------- -----------
300,000 282,000
----------- -----------
COST AND EXPENSES:
Consulting . . . . . . . . . . . . . . . . . . . . 49,000 166,000
Product 642,000 400,000
development. . . . . . . . . . . . . . . . . .
Selling, general and
administrative expenses. . . . . . . . . . . . . 787,000 939,000
----------- -----------
1,478,000 1,505,000
----------- -----------
LOSS FROM (1,178,000) (1,223,000)
OPERATIONS. . . . . . . . . . . . . . . . .
INTEREST INCOME 23,000 44,000
INCOME. . . . . . . . . . . . . . . . .
----------- -----------
NET LOSS BEFORE TAXES (1,155,000) (1,179,000)
Deferred Income Tax Benefit. . . . . . . . . . . . 46,000 -
----------- -----------
NET LOSS . . . . . . . . . . . . . . . . . $(1,109,000) $(1,179,000)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING. . . . . . . . . . . . . . . . . 6,326,000 4,447,000
=========== ===========
BASIC AND DILUTED LOSS
PER COMMON SHARE:
Net
Loss . . . . . . . . . . . . . . . . . . . . . $ (.18) $ (.27)
=========== ===========
See accompanying notes to financial statements.
F2-3
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
----------------------
Additional
Par Paid-in Accumulated Stockholders'
Shares Value Capital Deficit Equity
------------ -------- ------------ --------------- ------------
BALANCE, JULY 31, 1999 3,877,300 $4,000 $4,268,000 $(3,235,000) $1,037,000
------------ -------- ------------ --------------- ------------
YEAR ENDED JULY 31, 2000
In connection with private placement,
net of costs 2,000,000 2,000 982,000 - 984,000
Net Loss - - - (1,179,000) (1,179,000)
------------ -------- ------------ --------------- ------------
BALANCE, JULY 31, 2000 5,877,300 $6,000 $5,250,000 $(4,414,000) $842,000
------------ -------- ------------ --------------- ------------
YEAR ENDED JULY 31, 2001
Common Shares Issued for Services 3,937 - 6,000 - 6,000
In connection with private placement,
net of costs 1,843,663 2,000 1,155,000 - 1,157,000
Net Loss - - - (1,109,000) (1,109,000)
------------ -------- ------------ --------------- ------------
BALANCE, JULY 31, 2001 7,724,900 $8,000 $6,411,000 $(5,523,000) $896,000
============ ======== ============ =============== ===========
See accompanying notes to financial statements.
F2-4
FLEMINGTON PHARMACEUTICAL CORPORATION
STATEMENTS OF CASH FLOWS
Year Ended
July 31,
--------------------------
2001 2000
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(1,109,000) $(1,179,000)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Shares issued for services 6,000 -
Options issued for services - 10,000
Depreciation and amortization 24,000 14,000
Changes in operating assets and liabilities:
Accounts receivable (46,000) 76,000
Due from D&O Insurance Carrier 86,000 (86,000)
Prepaid expenses and other current assets (5,000) 6,000
Due from Joint Venture partner for reimbursable expenses 74,000 (80,000)
Other Assets (7,000) 9,000
Accounts payable - trade (57,000) 20,000
Billings in excess of costs and estimated earnings
on uncompleted contracts (49,000) 49,000
Accrued expenses and other current liabilities (23,000) 22,000
------------ ------------
Net cash flows from operating activities (1,106,000) (1,139,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (166,000) (9,000)
------------ ------------
Net cash flows from investing activities (166,000) (9,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Private placement 1,157,000 984,000
------------ ------------
Net cash flows from financing activities 1,157,000 984,000
------------ ------------
NET CHANGE IN CASH (115,000) (164,000)
CASH, BEGINNING OF YEAR 700,000 864,000
------------ ------------
CASH, END OF YEAR $ 585,000 $ 700,000
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ - $ -
============= ============
Income taxes paid $ - $ -
============= ============
See accompanying notes to financial statements.
F2-5
FLEMINGTON PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of the Business and Summary of Significant Accounting
Policies:
Nature of the Business - Flemington Pharmaceutical Corporation
(the "Company") , which was formerly incorporated under the laws
of New Jersey was reincorporated in the State of Delaware in
November 1998. The Company is engaged in domestic and
international consulting activities and the development of novel
pharmaceutical products combining presently marketed drugs with
innovative patent-pending oral dosage delivery systems of the
Company, designed to enhance and accelerate the onset of the
therapeutic benefits which the drugs are intended to produce.
Management intends to develop the products in collaboration with
pharmaceutical companies having significant existing sales of the
pharmaceutical compounds being incorporated into the Company's
dosage delivery systems, thereby creating a more effective, and
more attractive product.
Revenues and Costs - Revenues from contract clinical research are
recognized as earned.
Contract costs normally consist of fees paid to outside clinics
for studies and an allocable portion of the Company's operating
expenses. General and administrative costs pertaining to
contracts are charged to expense as incurred.
Financial Instruments - Financial instruments include cash,
accounts receivable, amounts due from joint venture partner,
loans to stockholders and employees, accounts payable, and
accrued expenses. The amounts reported for financial instruments
are considered to be reasonable approximations of their fair
values, based on market information available to management.
Furniture, Fixtures and Equipment - Furniture, fixtures and
equipment are stated at cost. The Company provides for
depreciation using accelerated methods, based upon estimated
useful lives of 5 to 7 years for furniture, fixtures and
equipment.
Income Taxes - Temporary differences between financial statement
and income tax reporting result primarily from net operating
losses and reporting on the cash basis of accounting for tax
reporting purposes. As a result of these temporary differences,
the Company has recorded a deferred tax asset with an offsetting
valuation allowance for the same amount.
Defined Contribution Retirement Plans - The Company has a Simple
IRA retirement plan providing for contributions at management's
discretion. During the years ended July 2000 and July 2001, the
Company made contributions to the retirement plan of
approximately $5,000 and approximately $15,000, respectively.
Risk Concentrations:
(a) Credit Risk - The Company maintains its cash balances in
financial institutions that are insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000 each.
Such balances, at times, may exceed the FDIC limits.
F2-6
(b) Major Customers - During fiscal 2001, the Company had
revenue from two customers located in United States
approximating 40% and 18%, respectively, of the Company's
total revenue.
During fiscal 2000, the Company had revenue from two
customers located in the United States approximating 27% and
18%, respectively, of the Company's total revenue.
(c) Accounts Receivable - At July 31, 2001, the Company had
unsecured accounts receivable from one customer located in
United States of America and one customer located in France,
approximating 55% and 30%, respectively, of the Company's
total accounts receivable. At July 31, 2000, the Company had
unsecured accounts receivable from one customer located in
the United States, one customer located in France and one
customer located in the United Arab Emirates, approximating
33%, 20% and 15%, respectively, of the Company's total
accounts receivable. The Company has long-standing
relationships with its principal customers and feels that
credit risk associated with these customers is limited. With
regard to new customers, the Company receives customer
referrals through long standing relationships.
(d) Supplier Dependence - The Company believes that certain raw
materials, including inactive ingredients, are available
only from a limited number of suppliers internationally and
that certain packaging materials intended for use in
connection with its spray products currently are available
from limited supply sources. The Company does not believe it
will encounter difficulties in obtaining inactive
ingredients or packaging materials necessary for the
manufacture of its products. However, there can be no
assurance that the Company will be able to enter into
satisfactory purchasing agreements or arrangements, thereby,
causing a potential significant adverse effect on the
Company's ability to arrange for the manufacture of
formulated products.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Earnings (Loss) per Share - Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" requires the
disclosure of both diluted and basic earnings per share. Basic
earnings per share is based on the weighted average of all common
shares outstanding. The computation of diluted earnings per share
does not assume the conversion, exercise or contingent issuance
of securities that would have an antidilutive effect on earnings
per share.
Recent Accounting Pronouncements - In July 2001, the FASB issued
SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 provides new
guidance on the accounting for a business combination at the date
a business combination is completed. Specifically, it requires
use of the purchase method of accounting for all business
combinations initiated after June 30, 2001, thereby eliminating
use of the pooling-of-interests method. SFAS No. 142 establishes
new guidance on how to account for goodwill and intangible assets
after a business combination is completed. Among other things, it
requires that goodwill and certain other intangible assets will
no longer be amortized and will be tested for impairment at least
annually and written down only when impaired. This statement will
F2-7
apply to existing goodwill and intangible assets, beginning with
fiscal years starting after December 15, 2001. The Company is
currently evaluating these statements but does not expect that
they will have a material impact as the results of operations of
financial position of the Company.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition in Financial Statements." The Company adopted SAB 101
as of August 1, 2000. The adoption of SAB 101 did not have an
effect on the results of operations or financial portion of the
Company.
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities which, as amended, will be effective for its fiscal
year ending July 31, 2001. The Company does not expect any
significant impact to its financial statements from SFAS No. 133.
Note 2 - Management's Plans to Overcome Operating and Liquidity Difficulties
The Company's financial statements have been presented on the
basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business.
The Company's continued existence is dependent upon its ability
to achieve profitable operations or obtain additional financing.
The Company is currently seeking collaborative arrangements with
pharmaceutical companies for the joint development of delivery
systems and the successful marketing of these delivery systems.
The Company is exploring merger opportunities or other strategic
alternatives to fund future operations.
In view of the Company's very limited resources, its anticipated
expenses and the competitive environment in which the Company
operates, there can be no assurance that its operations will be
sustained for the duration of its next fiscal year.
Note 3 - Prepaid and Accrued expenses:
Prepaid expenses and other current assets - Approximately $38,000
of prepaid supplies and an approximate $5,000 employee loan (see
note 6) are included in the $57,000 total. The remainder is
prepaid expenses and other current assets.
Accrued expenses and other current liabilities - Approximately
$49,000 of accrued salary and related payroll taxes due to the
Company's president and CEO are included in the $77,000 total.
The remainder is accrued expenses and other current liabilities.
Note 4 - Furniture, Fixtures and Equipment
Furniture, fixtures and equipment is summarized as follows:
July 31, 2001
-------------
Equipment $ 198,000
Furniture and fixtures 64,000
-------------
262,000
Less: Accumulated 95,000
depreciation =============
$ 167,000
=============
F2-8
Note 5 - Stockholders' equity:
Preferred Stock - The Company's Certificate of Incorporation
authorizes the issuance of up to 1,000,000 shares of Preferred
Stock. None of such Preferred Stock has been designated or issued
to date. The Board is authorized to issue shares of Preferred
Stock from time to time in one or more series and to establish
and designate any such series and to fix the number of shares and
the relative conversion rights, voting, terms of redemption and
liquidation.
Note 6 - Related Party Transactions:
Employee Note Receivable - During June 2001, the company granted
a six (6) months loan of approximately $5,000 to an employee.
This loan provides for seven percent (7%) annual interest.
Forgiven Salary - During April 2001, the Company's chairman
resigned as an employee and forgave approximately $72,000 of
accrued and unpaid salary. The Company agreed to a four (4)
months consulting contract with the chairman's consulting company
for an immediate cash payment of $25,000 and a $6,500 per month
fee.
Legal Fees - The Company has incurred legal fees with an officer
and director of the Company. These fees approximated $85,000 and
$66,000 for the years ended July 31, 2001 and 2000, respectively.
Stockholder's Note Receivable - In April 1998, the Company lent
$60,000 to its President. The note is due on demand with interest
at 7% due quarterly. Interest approximated $4,200 for each of the
two years ended July 31, 2001.
Note 7 - Commitments and Contingencies:
Joint Venture - In December 1997, the Company entered into a
joint venture agreement with a business development corporation
for the purposes of developing products. For the year ended July
31, 2001, approximately $46,000 total costs had been recorded for
this venture and approximately $23,000 had been invoiced to the
joint venture partner. At July 31, 2001, approximately $6,000 was
due from the joint venture partner.
Leases - In August 2000, the Company entered into a 5-year lease
agreement, effective October 2000, for approximately 4,500 square
feet of office, laboratory and manufacturing space. Annual rent
is approximately $63,000, for each year, plus real estate taxes,
currently estimated to be approximately $11,000 annually.
Previously, the Company rented office space on a month to month
basis. Rent expense for the Company totaled approximately $69,000
and $26,000 for the years ended July 31, 2001 and 2000,
respectively.
Government Regulation - The development, manufacture and
commercialization of pharmaceuticals are subject to extensive
regulation by various federal and state government entities. The
Company cannot determine the impact of government regulations on
the development of its delivery systems.
Note 8 - Income Taxes:
No provision for current and deferred income taxes is required
for the years ended July 31, 2001 and 2000.
F2-9
The significant components of the Company's net deferred tax
asset are summarized as follows:
July 31
------------------------
2001 2000
----------- -----------
Differences between the cash basis of accounting
for income tax reporting and the accrual basis
for financial reporting purposes $ (27,000) $ (19,000)
Net operating loss carryforwards. . . . . . . . 2,003,00 1,610,00
0 0
----------- -----------
1,976,000 1,591,000
Valuation allowance 1,976,000 1,591,000
----------- -----------
Net deferred tax asset . . . . . . . . . . . . . $ - $ -
=========== ===========
The following is a reconciliation of income tax benefit computed at the 34%
statutory rate to the provision for income taxes:
------------------------
2001 2000
----------- -----------
Tax at statutory rate. . . . . . . . . . . . . $ 377,000 $ 401,000
State Income Tax. . . . . . . . . . . . . 48,000 47,000
Valuation allowance. . . . . . . . . . . . . (425,000) (448,000)
----------- -----------
$ - $ -
=========== ===========
A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax asset will not be realized.
The Company has determined, based on the Company's prior history
of recurring losses, that a full valuation allowance is
appropriate at July 31, 2001 and 2000.
At July 31, 2001, the Company has federal and state net operating
loss carryforwards for financial reporting and income tax
purposes of approximately $5,516,000 and $2,381,000,
respectively, which can be used to offset current and future
taxable income through the year 2021. During fiscal 2001 the
Company sold a portion of its state net operating loss
carryforwards realizing approximately $46,000. The Company has
been informed that it is eligible to sell another portion of its
state NOL during fiscal 2002.
Note 9 - Stock Options:
At July 31, 2001, the Company had three plans to allow for the
issuance of stock options and other awards, the 1992 Stock Option
Plan, the 1997 Stock Option Plan and the 1998 Stock Option Plan
(the "Plans"). The total number of shares of common stock
reserved for issuance, either as incentive stock options
("ISO's") under the Internal Revenue Code or as non-qualified
options, under each of the Plans is 500,000 shares. ISOs may be
granted to employees and officers of the Company and
non-qualified may be granted to consultants, directors, employees
and officers of the Company. Options to purchase Company's common
stock could not be granted at a price less than the fair market
value of the common stock at the date of grant and will expire
not more than ten years from the date of grant. ISOs granted to a
10% or more stockholder could not be for less than 110% of fair
market value or for a term of more than 5 years.
F2-10
The Company uses the intrinsic value method prescribed by APB
Opinion No. 25 to measure compensation expense. If the fair value
method had been used to measure compensation expense as
prescribed by SFAS No. 123, net loss would have increased by
$361,000 or $.08 per share to $1,540,000 or $.35 per share for
fiscal 2000. There were no options granted in fiscal 2001.
The fair value of options granted in fiscal 2000 were estimated
at the date of grant using a Black-Sholes option model with the
following weighted-average assumptions, respectively: risk-free
interest rates of 5.5% yield of 0.0% volatility factors of the
expected market price of the Company's Common Stock of 10% to
174% and a weighted-average expected life of the options of five
(5) to ten (10) years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require input of highly subjective
assumptions including the expected stock price volatility. When
the Company shares were not traded publicly, the employee stock
options had characteristics significantly different from those of
publicly traded options. Because changes in the subjective input
assumptions can materially affect fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable single estimate of the fair value of its
employee stock options.
Information with respect to stock option activity is as follows
(in thousands, except exercise price amounts):
Outstanding Options
-------------------------------
Options Number of Weighted
Available for Options Average
Grant Exercise Price
---------------- ------------- ---------------
Balance at August 1, 1999 400 1,900 $1.66
Grants (400) 400 .93
Exercises - - -
Cancellations - - -
Balance at July 31, 2000 - 2,300 1.53
----- ----- -----
Grants - - -
Exercises - - -
Cancellations - - -
Balance at July 31, 2001 - 2,300 $1.53
===== ===== =====
Option price per share: $.88 - $2.00
Options exercisable: 2,300,000
The following table summarizes significant ranges of outstanding and exercisable
options at July 31, 2001 (in thousands, except exercise price amounts):
Outstanding Options Options Exercisable
-------------------------- -------------------------
Weighted Weighted
Average Average Weighted
Remaining Exercise Average
Option Life in Price Option Exercise
Range of Exercise Prices s Years s Price
------------------------ ------ --------- ------- ------ -------
0.51 -
$1.00 . . . . . 680 4.5 $ .95 680 $ .95
-
$1.50 . . . . . 120 2.5 1.11 120 1.11
1.51 -
$2.00 . . . . . 1,500 4.9 1.83 1,500 1.83
-------- -------- -------- ------ -------
2,300 4.7 $1.53 2,300 $1.53
======== ======== ======== ====== =======
F2-11
In addition to stock options issued by the Company under the
Plans, the Company has reserved 2,105,472 shares of common stock
for non-plan options and warrants as detailed below.
Non-plan Options and Warrants - At July 31, 2001 there were
outstanding the following classes and numbers of instruments
exercisable for Common Stock:
A. 680,000 Class A Warrants, issued in connection with the Public
Offering, exercisable until November 2002, to purchase a like
number of shares of Common Stock at an exercise price of $5.80
per share.
B. 68,000 warrants, issued to the Underwriter in connection with
the Public Offering, exercisable until November 2002, to purchase
68,000 units, each consisting of one share of Common Stock and
one Class A Warrant at an exercise price of $9.74 per unit. Each
Class A Warrant included in the units is exercisable on the same
terms as is described above in paragraph A.
C. 800,000 stock options, not issued under any of the plans, as
follows:
- 300,000 options each issued to the Company's President and
Chairman of the Board of Directors, for a total of 600,000,
having an exercise price of $1.84 per share, issued in
connection with their respective employment agreements in
June 1997, exercisable until November 2007.
- 100,000 options each issued to the Company's Vice
President for Research and Development and Vice President
for Product Development in May 1998, for a total of 200,000,
in connection with their respective employment agreements,
having an exercise price of $1.75 per share, exercisable
until May 2008. These options expired in August 2001.
D. 100,000 warrants issued to a consulting company exercisable
until March 2003 at a price of $2.50.
E. 200,000 warrants issued to a consulting company exercisable
until November 2010 at a price of $.75.
F. 257,472 warrants at $.75 per share issued to broker/dealers in
connection With the fiscal year 2001 private placement. 50,000
warrants expire in October 2010, and remaining warrants of
207,472 shares expire in May 2011.
F2-12
--------------------------------------- ---------------------------------------
You should rely only on the
information contained in this document.
We have not authorized anyone to provide
you with information that is different.
This document may only be used where it
is legal to sell these securities. The
information in this document may only be Flemington Pharmaceutical Corporation
accurate on the date of this document.
Distribution of 16,443,151 shares of
Additional risks and uncertainties common stock
not presently known or that are
currently deemed immaterial may also
impair our business operations. The
risks and uncertainties described in
this document and other risks and
uncertainties which we may face in the
future will have a greater impact on ----------------
those who purchase our common stock. PROSPECTUS
These purchasers will purchase our ----------------
common stock at the market price or at
a privately negotiated price and will
run the risk of losing their
entire investment.
September __, 2002
--------------------------------------- ---------------------------------------
2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "GCL") empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers. The GCL provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's by-laws, any
agreement, vote of stockholders or otherwise.
Article Ninth of our Certificate of Incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102 of the
GCL. Article Tenth provides for indemnification of all persons whom we shall
have the power to indemnify pursuant to Section 145 of the GCL.
The effect of the foregoing is to require Flemington to the extent
permitted by law to indemnify the officers and directors of Flemington for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of Flemington, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
Flemington pursuant to the foregoing provisions, we have been informed that in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
We currently have liability insurance coverage for our officers and
directors.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by the
registrant in connection with the sale of the securities being registered. All
amounts are estimates except the SEC registration fee:
SEC registration fee. . . . . . . . . . . . . . . . $ 4,394.83
Printing and engraving expenses. . . . . . . . . . $ 2,500.00
Accounting fees and expenses . . . . . . . . . . . $ 5,000.00
Attorneys' fees and expenses . . . . . . . . . . . $ 40,000.00
Transfer agent's fees and expenses. . . . . . . . $ 1,500.00
Miscellaneous $ 1,605.17
----------
Total $ 55,000.00
----------
Item 26. Recent Sales of Unregistered Securities.
Set forth below is information regarding the issuance and sales of
Flemington's common stock without registration during the last three years.
Other than as set forth below, no such sales involved the use of an underwriter
and no commissions were paid in connection with the sale of any securities.
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During July 2002, we issued 35,106 shares of common stock (via cashless
exercise of warrants to purchase 48,142 shares). The sales were made in
reliance of Section 3(a)(9) of the Act.
During June 2002, we issued 14,379 shares of our common stock (via cashless
exercise of warrants to purchase 19,216 shares). The sale was made in reliance
of Section 3(a)(9) of the Act.
During March 2002, we issued 2,666,667 units (each consisting of one share
of common stock and one warrant to purchase a share of common stock at $.75 per
share) at $.75 per unit, to an accredited investor pursuant to Section 4(2) of
the Act.
During December 2001, we issued 4,000,000 units (each consisting of one
share of common stock and one warrant to purchase a share of common stock at
$.75 per share) at $.75 per unit, to an accredited investor pursuant to Section
4(2) of the Act.
In May 2001, we issued 1,843,663 shares of our common stock, in a private
placement, at $.75 per share, to accredited investors. The sales were made in
reliance of Section 4(2) of the Act. We paid $138,275 in commissions in
connection with that transaction.
In October 2000, we issued 3,937 shares of our common stock to an investor
relations firm. The sale was made in reliance on Section 4(2) of the Act.
In April 2000, we issued 2,000,000 shares of our common stock, in a private
placement, at $0.50 per share, to accredited investors. The sales were made a
reliance on Section 4(2) of the Act. We paid no commissions in connection with
that transaction.
II-2
Item 27. Exhibits
Exhibit
EXHIBIT
NUMBER NAME
------ ----
INCORPORATED DOCUMENTS SEC EXHIBIT REFERENCE
---------------------------------------- --------------------------------------------
As filed with the Registrant's Preliminary
2.1 Agreement of Merger dated as of Proxy Statement on October 20, 1998, File
October 29, 1998 No. 000-23399
As filed with the Registrant's Preliminary
3.1 Certificate of Incorporation of the Proxy Statement on October 20, 1998, File
Registrant, as amended No. 000-23399
As filed with the Registrant's Preliminary
Proxy Statement on October 20, 1998, File
3.2 Bylaws of the Registrant, as amended No. 000-23399
4.1 Form of Warrant Agreement relating to As filed with the Registrant's Form SB-2, on
Public Warrants October 31, 1997, File No. 333-33201
As filed with the Registrant's Form SB-2, on
4.3 Form of Class A Warrant Certificate October 31, 1997, File No. 333-33201
4.4 Form of Underwriters' Option As filed with the Registrant's Form SB-2, on
Agreement October 31, 1997, File No. 333-33201
5 Opinion of Brown Rudnick Berlack
Israels LLP*
10.1 Employment Agreement with Harry A. As filed with the Registrant's Form SB-2, on
Dugger, III, Ph.D. April 15, 2002, File No. 333-86262
10.2 Employment Agreement with John J. As filed with the Registrant's Form SB-2, on
Moroney October 3, 1997, File No. 333-33201
10.3 Agreement dated December 7, 1996 As filed with the Registrant's Form SB-2, on
between the Registrant and Altana, Inc. August 8, 1997, File No. 333-33201
As filed with the Registrant's Form SB-2, on1
10.4 Registrant's 1992 Stock Option Plan August 8, 1997, File No. 333-33201
10.5 Form of Option Agreement under the As filed with the Registrant's Form SB-2, on
1992 Stock Option Plan October 3, 1997, File No. 333-33201
As filed with the Registrant's Form SB-2, on
10.6 Registrant's 1997 Stock Option Plan August 8, 1997, File No. 333-33201
10.7 Form of Option Agreement under the As filed with the Registrant's Form SB-2, on
1997 Stock Option Plan October 3, 1997, File No. 333-33201
II-3
10.8 Agreement with Rapid Spray As filed with the Registrant's Form SB-2, on
(Clemastine) dated June 2, 1992 August 8, 1997, File No. 333-33201
10.9 Agreement with Rapid Spray As filed with the Registrant's Form SB-2, on
(Nitroglycerin) dated June 2, 1992 August 8, 1997, File No. 333-33201
10.10 Agreement with Creative Technologies, As filed with the Registrant's Form SB-2, on
Inc. dated December 26, 1996 October 3, 1997, File No. 333-33201
10.11 Registrant's 1998 Stock Option Plan As filed with the Registrant's Preliminary
Proxy Statement on October 20, 1998,
File No. 000-23399
10.12 Employment Agreement with Donald P. As filed with the Registrant's Form 10-KSB
Cox, Ph.D. on October 28, 1999, File No. 000-23399
10.13 Employment Agreement with Kenneth As filed with the Registrant's Form 10-KSB
Cleaver, Ph.D. on October 28, 1999, File No. 000-23399
10.14 Amendment to Consulting Agreement As filed with the Registrant's Form 10-KSB
with Saggi Capital Corp. dated March on October 28, 1999, File No. 000-23399
25, 1998
10.15 Agreement with Altana, Inc., dated As filed with the Registrant's Form 10-KSB/A
December 7, 1996 on September 26, 2001, File No. 000-23399
10.16 Agreement with CLL Pharma dated As filed with the Registrant's Form 10-KSB/A
February 12, 1998 on September 26, 2001, File No. 000-23399
10.17 Agreement with Nace Resources, Inc.,
dated December 29, 1997, together
with Amendment Number 1 dated
February 9, 1998; Amendment Number
2 dated November 29, 1999; and,
Amendment Number 3, dated May 5, As filed with the Registrant's Form 10-KSB/A
2000 on September 26, 2001, File No. 000-23399
10.18 Agreement with PolyMASC
Pharmaceuticals plc, dated July 25, As filed with the Registrant's Form 10-KSB/A
2000 on September 26, 2001, File No. 000-23399
10.19 Authorization to proceed with Innovex,
Inc. and Novartis Pharmaceuticals As filed with the Registrant's Form 10-KSB/A
Corp., dated June 15, 2000 on September 26, 2001, File No. 000-23399
10.20 Consulting Agreement with John As filed with the Registrant's Form SB-2, on
Klein April 15, 2002, File No. 333-86262
II-4
10.21 Employment Agreement with Robert As filed with the Registrant's Form SB-2, on
Galler April 15, 2002, File No. 333-86262
10.22 Employment Agreement Amendment As filed with the Registrant's Form SB-2, on
No. 1 with Robert Galler April 15, 2002, File No. 333-86262
10.23 Employment Agreement with Donald As filed with the Registrant's Form SB-2, on
Deitman April 15, 2002, File No. 333-86262
Incorporated by Reference to Schedule 13D
10.24 Common Stock and Warrant Purchase filed on December 21, 2001 by Lindsay A.
Agreement dated December 12, 2001. Rosenwald, M.D.
10.25 Amendment No. 1 to Common Stock As filed with the Registrant's Form SB-2, on
and Warrant Purchase Agreement April 15, 2002, File No. 333-86262
10.26 Employment Agreement with Mohammed
Abd El-Shafy, Phd.*
11.1 Computation of earnings per share*
23 Consent of Wiss & Company LLP*
* Filed herewith
II-5
Item 28. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of
Securities Act.
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the commission
pursuant to Rule 424(B) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Hunterdon, State of New
Jersey, on August 30, 2002.
FLEMINGTON PHARMACEUTICAL CORPORATION
By: /s/ Harry A. Dugger, III
-----------------------------------
Harry A. Dugger, III, President
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Harry A. Dugger, III President, Chief Executive Officer August 30, 2002
---------------------------- (Principal Executive
Harry A. Dugger, III Officer) and Director
/s/ Donald Deitman Chief Financial Officer
-------------------- (Principal Financial Officer) August 30, 2002
Donald Deitman
/s/John Klein Chairman of the Board August 30, 2002
--------------
John Klein
/s/ Robert F. Schaul Secretary and Director August 30, 2002
-----------------------
Robert F. Schaul
/s/ Jack J. Kornreich Director August 30, 2002
------------------------
Jack J. Kornreich
/s/ Robert C. Galler Director August 30, 2002
-----------------------
Robert C. Galler
II-7