PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
| /x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Quarterly Period Ended: | March 29, 2003 |
OR
| /_/ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _______________ to ________________ |
| Commission File Number 0-11274 |
PHARMACEUTICAL FORMULATIONS, INC.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
22-2367644 (IRS Employer Identification No.) |
| 460 Plainfield Avenue, Edison, NJ (Address of principal executive offices) |
08818 (Zip code) |
| (Registrant's telephone number, including area code) | (732) 985-7100 |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
/x/ Yes / / No
The number of shares outstanding of common stock, $.08 par value, as of May 7, 2003 was 85,345,787.
PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 29,
2003 December 28,
ASSETS (Unaudited) 2002
---------------- ----------------
CURRENT ASSETS
Cash $ 45,000 $ 17,000
Accounts receivable - net of allowance for doubtful
accounts of $292,000 and $407,000 8,677,000 9,334,000
Inventories 13,377,000 13,131,000
Prepaid expenses and other current assets 1,575,000 1,547,000
--------------- ---------------
Total current assets 23,674,000 24,029,000
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation and amortization
of $30,210,000 and $29,550,000 13,641,000 13,802,000
OTHER ASSETS 149,000 130,000
--------------- ---------------
$ 37,464,000 $ 37,961,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
CURRENT LIABILITIES
Current portion of long-term debt $ 4,887,000 $ 4,269,000
Current portion of capital lease obligations 2,389,000 2,461,000
Due to ICC Industries Inc. 7,953,000 7,027,000
Accounts payable 7,015,000 7,744,000
Accrued expenses 1,425,000 1,733,000
--------------- ---------------
Total current liabilities 23,669,000 23,234,000
--------------- ---------------
LONG-TERM DEBT DUE ICC INDUSTRIES INC. 16,442,000 17,117,000
--------------- ---------------
LONG-TERM DEBT 12,190,000 11,785,000
--------------- ---------------
LONG-TERM CAPITAL LEASE OBLIGATIONS 3,010,000 3,130,000
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' (DEFICIENCY)
Common stock, par value $.08 per share; 200,000,000 shares authorized;
85,345,787 and 85,327,612 shares issued and outstanding 6,828,000 6,827,000
Capital in excess of par value 51,801,000 51,796,000
Accumulated deficit (76,476,000) (75,928,000)
Total stockholders' (deficiency) (17,847,000) (17,305,000)
---------------- ---------------
$ 37,464,000 $ 37,961,000
=============== ===============
See accompanying notes to consolidated financial statements
PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
------------------------------------
March 29, March 30,
2003 2002
----------------- ----------------
REVENUES
Gross sales $ 16,533,000 $ 12,954,000
Less: Sales discounts and allowances 319,000 286,000
---------------- ----------------
NET SALES 16,214,000 12,668,000
---------------- ----------------
COST AND EXPENSES
Cost of goods sold 13,945,000 11,413,000
Selling, general and administrative 2,289,000 2,221,000
Research and development 59,000 68,000
---------------- ----------------
16,293,000 13,702,000
---------------- ----------------
LOSS FROM OPERATIONS (79,000) (1,034,000)
---------------- ----------------
OTHER INCOME (EXPENSE)
Interest expense (809,000) (1,008,000)
Other 44,000 92,000
---------------- ----------------
(765,000) (916,000)
---------------- ----------------
LOSS BEFORE INCOME TAXES (BENEFIT) (844,000) (1,950,000)
INCOME TAX BENEFIT (296,000) (663,000)
---------------- ----------------
NET LOSS $(548,000) $ (1,287,000)
================ ================
LOSS PER SHARE - BASIC AND DILUTED $ (0.01) $ (0.02)
================ ================
BASIC AND DILUTED AVERAGE COMMON SHARES OUTSTANDING 85,334,000 82,559,000
================ ================
See accompanying notes to consolidated financial statements
PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------------------------
March 29, March 30,
2003 2002
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (548,000) $ (1,287,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Income tax benefit (296,000) (663,000)
Depreciation and amortization of property, plant and equipment 660,000 770,000
Amortization of bond discount and deferred financing costs 40,000 309,000
Amortization of deferred gain on sale/leaseback (13,000) (13,000)
Changes in current assets and liabilities:
Decrease in accounts receivable 657,000 258,000
(Increase) in inventories (246,000) (615,000)
(Increase) in other current assets (70,000) (42,000)
Increase in due to ICC Industries Inc. 1,097,000 183,000
(Decrease) in accounts payable and accrued expenses (1,024,000) (3,033,000)
---------------- ----------------
NET CASH PROVIDED BY (USED IN)
OPERATIN ACTIVITIES 257,000 (4,133,000)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) in other assets (17,000) (28,000)
(Increase) in property, plant and equipment, net (499,000) (403,000)
---------------- ----------------
NET CASH (USED IN) INVESTING ACTIVITIES (516,000) (431,000)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in due to ICC Industries Inc. 65,000 4,100,000
Proceeds from equipment financing
395,000 -
(Repayments) of capital lease obligations (587,000) (267,000)
Borrowings of long term debt 408,000 671,000
Issuance of common stock under rights offering
6,000 -
--------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 287,000 4,504,000
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 28,000 (60,000)
CASH, BEGINNING OF PERIOD 17,000 149,000
--------------- ---------------
CASH, END OF PERIOD
$ 45,000 $ 89,000
=============== ===============
See accompanying notes to consolidated financial statements
PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Note 1 | Interim Financial Reporting and Change in Fiscal Year |
| During December 2002, we changed our fiscal year-end from the
52-53 week period which ends on the Saturday closest to June 30 to the 52-53
week period which ends on the Saturday closest to December 31. The consolidated balance sheet as of December 28, 2002 has been derived from the audited consolidated balance sheet of that date and is presented for comparative purposes. Certain amounts have been reclassified to conform to the current period presentation. The accompanying financial statements presume that users have read the audited financial statements for the six months ended December 28, 2002 as filed in the Company’s Form 10-K. Accordingly, footnotes that would substantially duplicate such disclosure have been omitted. The interim financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Such adjustments consist of normal recurring accruals. The results of operations for the three months ended March 29, 2003 are not necessarily indicative of the results to be expected for a full year or any other period. Stock Based Compensation The Company follows SFAS No. 123, “Accounting for Stock-Based Compensation.” We chose to apply Accounting Principle Board Opinion 25 and related interpretations in accounting for stock options granted to our employees. The Company provides proforma disclosures of compensation expense under the fair value method of SFAS No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” The weighted average assumptions used for the period presented are as follows: |
Three Months Ended
March 29, 2003
---------------
Risk-free interest rate 2.4%
Expected dividend yield -
Expected lives 5 years
Expected volatility 125%
| Had compensation cost for the Company’s option plans been determined using the fair value method at the grant dates, the effect on the Company’s net loss and loss per share for the three months ended March 29, 2003 would have been as follows: |
Three Months Ended
March 29, 2003
------------------
Net income (loss) as reported $(548)
Add: Stock based employee compensation expense
included in reported net income, net of related
tax effects -
Deduct: Total stock based employee compensation
determined under fair value method for all awards,
net of related tax effects (34)
Proforma net loss $(582)
======
Basic and diluted loss per share $(0.01)
| Note 2 | Commitments and Contingencies |
| In March 2002, action was brought against PFI in the United States
District Court for the Southern District of New York seeking $20 million in
damages and $40 million in punitive damages related to the sales of allegedly
defective product. Management believes the lawsuit is without merit and is
vigorously defending against it. In May 1998, PFI brought an action against one of its former outside corporate counsels seeking damages for conflict of interest, breaches of fiduciary duty and loyalty, negligence and malpractice during its representation of the Company. The action is still pending. In July 2000, an action was instituted in the Circuit Court of Cook County, Illinois against the Company by Apotex Corporation and Torpharm, Inc. seeking an unspecified amount in damages and specific performance in the nature of purchasing a certain product from Apotex. The complaint alleges that the Company would purchase a certain product exclusively from Apotex. The counts specified in the complaint include breach of contract, negligent misrepresentation, breach of implied covenant of good faith and fair dealing, breach of implied covenant to use best efforts, specific performance, breach of fiduciary duty, reformation and a Uniform Commercial Code action for the price of 3 million tablets. Management believes the lawsuit is without merit and is vigorously defending against it. PFI is a party to various other legal proceedings arising in the normal conduct of business. Management believes that the final outcome of all current legal matters will not have a material adverse effect upon our financial position or results of operations. |
| Note 3 | Inventories |
| Inventories consist of the following: |
March 29, 2003 December 28, 2002
-------------- ------------------
Raw materials $ 4,349,000 $ 4,423,000
Work in progress 1,017,000 1,315,000
Finished goods 8,011,000 7,393,000
------------ -----------
$13,377,000 $13,131,000
============ ===========
| Note 4 | Related Party Transactions |
| ICC Industries Inc., a major international manufacturer and marketer of chemical, plastic and pharmaceutical products, is our principal shareholder. The following transactions with ICC are reflected in the consolidated financial statements as of or for the three months ended March 29, 2003 and March 30, 2002: |
2003 2002
------------ -------------
Inventory purchases from ICC $ 1,944,000 $ 243,000
Interest charges from ICC 240,000 154,000
Accounts payable to ICC 7,953,000 4,283,000
Note payable to ICC 18,842,000 12,560,000
Advances from ICC 65,000 4,100,000
| Note 5 | Subsequent Event |
| On April 15, 2003, PFI announced that it had entered into an
agreement to acquire the stock of Konsyl Pharmaceuticals, Inc. of Fort Worth,
Texas for approximately $8.5 million, which provides for $6 million is to be paid in cash
at closing and a $2.5 million promissory note payable over 4 years at the rate
of 7% per annum, subject to certain purchase price adjustments. In
addition, as part of the purchase price, PFI will issue warrants to the
stockholder of Konsyl equal to a total of 1.2 million shares of common stock of
PFI at an exercise price of $.204 per share. The closing is expected to occur on
or about May 15, 2003. The $6 million cash payment is expected to be financed by a
combination of asset-based and term loan financing. Konsyl is a manufacturer and distributor of powdered, dietary natural fiber supplements, which has been in business for over 35 years. The products are manufactured at their plant in Easton, Maryland and are sold, both domestically and internationally, to pharmaceutical wholesalers, drugstore chains, mass merchandisers, grocery store chains, and grocery distributors. Products are sold under both the “Konsyl®” brand name and various private labels. The “Konsyl®” brand product line and private label products are generally merchandised in pharmacy sections with other bulk forming laxatives. Konsyl also manufactures a gastrointestinal diagnostic product, “Sitzmarks”, that is sold to hospitals, colon and rectal surgeons, and radiologists. We believe this acquisition provides an opportunity to increase our presence in both the private label and branded pharmaceutical markets. It also affords PFI the opportunity to introduce new products and product line extensions under the “Konsyl®” brand and PFI’s own laxative products. Management believes there also exist considerable opportunities for cost savings through consolidation of the two companies. |
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
RESULTS OF OPERATIONS
| Gross sales for the three months ended March 29, 2003 were
$16,533,000 as compared to $12,954,000 in the comparable period in the prior
year, an increase of $3,579,000 or 27.6%. In July 2002, we began shipments to a
major national retailer. This new relationship contributed approximately $1.9
million of gross sales in the current quarter. The balance of the sales increase
came from established private label customers. Net sales for the three months ended March 29, 2003 were $16,214,000 as compared to $12,668,000 in the comparable period in the prior fiscal year, an increase of $3,546,000 or 28.0% due to higher gross sales. Cost of sales as a percentage of net sales was 86% for the three months ended March 29, 2003 as compared to 90% in the prior year period. This decrease resulted primarily from lower material costs and the efficiencies gained from the increased levels of production. Selling, general and administrative expenses were $2,289,000 for the three months ended March 29, 2003 as compared to $2,221,000 in the prior year period, an increase of $68,000 or 3% as compared with the 28% growth in net sales. This reflects our continued efforts to control costs. Interest expense was $809,000 for the three months ended March 29, 2003 as compared to $1,008,000 for the prior year period. The decrease is primarily a result of lower interest rates. In December 2001, ICC became an 85.6% owner of our common stock. As a result of the increase in ICC’s ownership of PFI, we file a consolidated tax return with ICC. In accordance with a tax sharing agreement between the two companies, we will be reimbursed for the tax savings generated from ICC’s use of our losses. In addition, the agreement provides for an allocation of the group’s tax liability, based upon the ratio that each member’s contribution of taxable income bears to the consolidated taxable income of the group. In connection with this tax sharing agreement, we recorded a tax benefit of $296,000 for the three months ended March 29, 2003 and a benefit of $663,000 for the three months ended March 30, 2002. PFI reported a net loss of $548,000 or $.01 per share for the three months ended March 29, 2003 as compared to a net loss of $1,287,000 or $.02 per share in the prior year period. |
LIQUIDITY AND CAPITAL RESOURCES
| Cash increased $28,000 during the three months ended March 29,
2003. Total funds provided by operating activities were $257,000 for the three months ended March 29, 2003. This was primarily attributable to a decrease in accounts receivable of $657,000 and non-cash charges of $700,000 from depreciation and amortization, offset by a pre-tax loss of $844,000 and an increase in inventories of $246,000. Net cash used in investing activities for the three months ended March 29, 2003 was $516,000, principally attributable to expenditures for capital equipment for additional capacity. Net cash provided by financing activities for the three months ended March 29, 2003 was $287,000, primarily from a new capital equipment financing of $395,000, borrowings of long-term debt of $408,000 and $65,000 of advances from ICC, offset by lease repayments of $587,000. Current assets at March 29, 2003 include $8,677,000 of accounts receivable as compared to $9,334,000 at December 28, 2002. The accounts receivable decrease of $657,000 is a result of the lower gross sales compared with the preceding quarter due to seasonal factors. Working capital also includes $13,377,000 of inventory as compared to $13,131,000 at December 28, 2002. Current liabilities include $7,953,000 due ICC at March 29, 2003, compared to $7,027,000 at December 28, 2002. Current liabilities also includes $8,440,000 of accounts payable and accrued expenses as compared to $9,477,000 at December 28, 2002. The decrease reflects our efforts to re-establish vendor relationships. There were no significant backorders of purchases at March 29, 2003. We have a deferred tax asset of approximately $14,015,000 before the valuation allowance of $13,300,000 at March 29, 2003, which consists of future tax benefits of net operating loss carry forwards and various other temporary differences. Based on the assessment of all available evidence, our inconsistent operating results in prior years, the current status of our business and the uncertainty with respect to generating taxable income in future years, management has recorded a valuation allowance on the total of the deferred tax asset. Reductions in the valuation allowance, which could benefit results of operations in the future, will be recorded when, in the opinion of management, PFI’s ability to generate taxable income is considered more likely than not. Any utilization of net operating loss carryforwards will reduce our future tax obligation. We intend to spend an estimated $1,000,000 to $1,500,000 for capital improvements, during the fiscal year ending January 3, 2004, of which we have spent $499,000 through March 29, 2003, to increase manufacturing capacity and reduce costs. We anticipate that these capital expenditures will be funded through equipment lease financing and working capital. While we have in the past had no difficulty in obtaining such financing, there can be no assurance that we will obtain the lease financing in the future. We believe that cash flow from our revolving credit facility and equipment and term loan financing, plus continued financial support from ICC, will be sufficient to fund our currently anticipated working capital, capital spending and debt service through calendar 2003. We have extended our working capital facility through December 31, 2005. While no assurance can be given that any such extension, renewal, replacement or refinancing can be successfully accomplished, ICC has committed to provide us with the necessary financing to continue our operations through December 31, 2004. ICC has supported us in the past by providing loans, replacing loans from our asset-based lenders and providing us with working capital. On April 15, 2003, PFI announced that it had entered into an agreement to acquire the stock of Konsyl Pharmaceuticals, Inc. of Fort Worth, Texas for approximately $8.5 million, which provides for $6 million is to be paid in cash at closing and a $2.5 million promissory note payable over 4 years at the rate of 7% per annum, subject to certain purchase price adjustments. In addition, as part of the purchase price, PFI will issue warrants to the stockholder of Konsyl equal to a total of 1.2 million shares of common stock of PFI at an exercise price of $.204 per share. The closing is expected to occur on or about May 15, 2003. The $6 million cash payment is expected to be financed by a combination of asset-based and term loan financing. Aggregate term loan financing of $3.1 million will be repayable over four years. Management expects that Konsyl's internal cash flows will fund the repayments. |
| ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
| PFI would be adversely affected by an increase in interest rates. Each 1% change in the prime rate will change the Company’s annual expenditure by approximately $350,000. |
| ITEM 4 | CONTROLS AND PROCEDURES |
| The Company maintains a system of internal controls and procedures
designed to provide reasonable assurance that information required to be
disclosed in its filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The Company’s
principal executive and financial officers have evaluated the disclosure
controls and procedures within 90 days prior to the filing of this Quarterly
Report on Form 10-Q and have determined that such disclosure controls and
procedures are effective. There have been no significant changes in the Company’s internal controls or in other factors which could significantly affect internal controls subsequent to the completion of the evaluation. |
PART II. OTHER INFORMATION
| ITEM 1 | LEGAL PROCEEDINGS |
| See Note 2 to Notes to Consolidated Financial Statements. |
| ITEM 2 | CHANGES IN SECURITIES AND USE OF PROCEEDS |
| None. |
| ITEM 3 | DEFAULTS UPON SENIOR SECURITIES |
| None. |
| ITEM 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS |
| None. |
| ITEM 5 | OTHER INFORMATION |
| When used in the Form 10-Q and in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases and in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated”, “estimate,” “project,” “expect,” “believe,” “hope,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on such forward-looking statements, which speak only as of the date made. |
| ITEM 6 | EXHIBITS AND REPORTS ON FORM 8-K |
| (a) Exhibits |
| 99.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 99.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| (b) Reports on Form 8-K - The Registrant filed the following report on Form 8-K during the first quarter of the fiscal year ending January 3, 2004: |
| Date of Report January 21, 2003 |
Item Number (Summary) 5 (regarding payment of interest on debentures) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PHARMACEUTICAL FORMULATIONS, INC.
(REGISTRANT)
| Date: May 12, 2003 | By: /s/ James Ingram
James Ingram Chief Operating Officer and President (Principal Executive Officer) |
| Date: May 12, 2003 | By: /s/ Walter Kreil
Walter Kreil Chief Financial Officert (Principal Accounting Officer) |
CERTIFICATIONS UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, John L. Oram, Chief Executive Officer of Pharmaceutical Formulations, Inc., certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Pharmaceutical Formulations, Inc. (the "registrant") |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within these entities, particularly during the period in which this quarterly report is being prepared; |
| b) | evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and |
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors: |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and |
| 6. | The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Dated: May 12, 2003
/s/ John L. Oram
John L. Oram, Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Walter Kreil, Chief Financial Officer of Pharmaceutical Formulations, Inc., certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Pharmaceutical Formulations, Inc. (the "registrant"); |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within these entities, particularly during the period in which this quarterly report is being prepared; |
| b) | evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and |
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors: |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and |
| 6. | The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Dated: May 12, 2003
/s/ Walter Kreil
Walter Kreil, Chief Financial Officer
Exhibit Index
99.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002