Back to GetFilings.com
PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended: JULY 3, 2004
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 22-2367644
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
460 PLAINFIELD AVENUE, EDISON, NJ 08818
(Address of principal executive offices) (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.
|_| Yes |X| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). |_| Yes |X| No
The number of shares outstanding of common stock, $.08 par value, as of August
11, 2004 was 85,955,787.
PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
July 3,
2004 January 3,
ASSETS (Unaudited) 2004
---------------------- -----------------------
CURRENT ASSETS
Cash $ 105,000 $ 363,000
Accounts receivable - net of allowances of $630,000 and $581,000 10,492,000 9,662,000
Inventories 13,719,000 14,052,000
Prepaid expenses and other current assets 603,000 1,373,000
---------------------- -----------------------
Total current assets 24,919,000 25,450,000
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation and amortization
of $33,474,000 and $32,474,000 14,469,000 14,429,000
Goodwill 2,978,000 2,978,000
Trademarks 1,740,000 1,740,000
Other assets 341,000 382,000
---------------------- -----------------------
$ 44,447,000 $ 44,979,000
====================== =======================
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
CURRENT LIABILITIES
Current portion of long-term debt $ 1,749,000 $ 3,026,000
Current portion of capital lease obligations 1,559,000 2,144,000
Due to ICC Industries Inc. 13,586,000 11,856,000
Accounts payable 8,976,000 8,021,000
Accrued expenses 1,837,000 2,218,000
--------------------- ----------------------
Total current liabilities 27,707,000 27,265,000
--------------------- ----------------------
LONG-TERM DEBT DUE ICC INDUSTRIES INC. 19,089,000 18,459,000
--------------------- ----------------------
LONG-TERM DEBT, OTHER 15,425,000 15,024,000
--------------------- -----------------------
LONG-TERM CAPITAL LEASE OBLIGATIONS 2,779,000 2,943,000
--------------------- -----------------------
STOCKHOLDERS' (DEFICIENCY)
Common stock, par value $.08 per share; 200,000,000 shares authorized;
85,955,787 and 85,755,787 shares issued and outstanding as of July 3,
2004 and January 3, 2004, respectively 6,877,000 6,861,000
Capital in excess of par value 53,128,000 52,196,000
Accumulated deficit (80,558,000) (77,769,000)
--------------------- -----------------------
Total stockholders' (deficiency) (20,553,000) (18,712,000)
--------------------- -----------------------
$ 44,447,000 $ 44,979,000
===================== =======================
PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
---------------------------------------------------------------------------------
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
---------------------------------------------------------------------------------
REVENUES
Gross sales $ 37,488,000 $ 34,647,000 $ 18,584,000 $ 18,114,000
Less: Sales discounts and allowances 1,242,000 854,000 699,000 535,000
---------------------------------------------------------------------------------
NET SALES 36,246,000 33,793,000 17,885,000 17,579,000
---------------------------------------------------------------------------------
COST AND EXPENSES
Cost of goods sold 31,220,000 28,487,000 15,509,000 14,542,000
Selling, general and administrative 7,684,000 5,289,000 3,808,000 2,999,000
Research and development 148,000 147,000 77,000 89,000
---------------------------------------------------------------------------------
39,052,000 33,923,000 19,394,000 17,630,000
---------------------------------------------------------------------------------
LOSS FROM OPERATIONS (2,806,000) (130,000) (1,509,000) (51,000)
---------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (1,572,000) (1,707,000) (831,000) (898,000)
Other 86,000 292,000 171,000 248,000
---------------------------------------------------------------------------------
(1,486,000) (1,415,000) (660,000) (650,000)
---------------------------------------------------------------------------------
LOSS BEFORE INCOME TAX BENEFIT (4,292,000) (1,545,000) (2,169,000) (701,000)
INCOME TAX BENEFIT 1,503,000 630,000 755,000 334,000
---------------------------------------------------------------------------------
NET LOSS $ (2,789,000) $ (915,000) $ (1,414,000) $ (367,000)
=================================================================================
LOSS PER SHARE - BASIC AND DILUTED $ (0.03) $ (0.01) $ (0.02) $ (0.00)
=================================================================================
BASIC AND DILUTED AVERAGE COMMON SHARES
OUTSTANDING 85,856,000 85,340,000 85,956,000 85,346,000
=================================================================================
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
---------------------------------------------
July 3, June 28,
2004 2003
--------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,789,000) $ (915,000)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 999,000 1,352,000
Amortization of bond discount and deferred financing costs 116,000 70,000
Amortization of deferred gain on sale/leaseback (26,000) (25,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (830,000) 875,000
Decrease in inventories 333,000 614,000
Decrease (increase) in prepaid expenses and other assets 733,000 (197,000)
Increase in due to ICC Industries Inc. 1,202,000 699,000
Increase (decrease) in accounts payable and accrued expenses 658,000 (830,000)
--------------------- ----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 396,000 1,643,000
--------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Konsyl Pharmaceuticals, Inc., net of cash acquired of $493,000
- (5,952,000)
Purchase of property, plant and equipment (1,039,000) (962,000)
--------------------- ----------------------
NET CASH USED IN INVESTING ACTIVITIES (1,039,000) (6,914,000)
--------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in due to ICC Industries Inc.
1,100,000 2,242,000
Proceeds from equipment financing 580,000 1,216,000
(Repayments) of capital lease obligations (1,329,000) (1,207,000)
Borrowings of long-term debt
406,000 3,700,000
(Repayments) of long-term debt
(400,000) (549,000)
Proceeds from stock option exercise
28,000 -
Issuance of common stock under rights offering
- 6,000
--------------------- ----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 385,000 5,408,000
--------------------- ----------------------
NET (DECREASE) INCREASE IN CASH (258,000) 137,000
CASH, BEGINNING OF PERIOD 363,000 17,000
--------------------- ----------------------
CASH, END OF PERIOD $ 105,000 $ 154,000
===================== ======================
Non cash investing and financing transactions:
Interest Paid $ 1,511,000 $ 1,658,000
===================== ======================
Income Taxes Paid $ 8,000 $ 18,000
===================== ======================
Allocation of debt proceeds to conversion feature (Note 6) $ 921,000 $ -
===================== ======================
Note issued to former Konsyl shareholder in connection with Konsyl acquisition $ - $ 2,500,000
===================== ======================
Warrants issued in connection with Konsyl acquisition $ - 223,000
===================== ======================
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
PHARMACEUTICAL FORMULATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of
Pharmaceutical Formulations, Inc. (the "Company", "we" or "us")
have been prepared in accordance with accounting principles
generally accepted in the United States of America and rules and
regulations of the Securities and Exchange Commission for interim
financial information. Accordingly, they do not include all of
the information and footnote disclosures required by accounting
principles generally accepted in the United States of America for
complete financial statements.
In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (consisting of normal recurring entries) necessary to
present fairly the Company's financial position as of July 3,
2004 and its results of operations for the six and three month
periods ended July 3, 2004 and June 28, 2003 and cash flows for
the six months ended July 3, 2004 and June 28, 2003.
The accounting policies followed by the Company are set forth in
Note 3 of the Company's consolidated financial statements as
contained in the Form 10-K for the year ended January 3, 2004
filed with the Securities and Exchange Commission. These
financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
Form 10-K for the year ended January 3, 2004.
The results of operations for the six months and three months
ended July 3, 2004 are not necessarily indicative of the results
to be expected for the fiscal year ending January 1, 2005 or any
other interim period.
The accompanying condensed consolidated financial statements
include the accounts of Pharmaceutical Formulations, Inc. (PFI)
and its wholly-owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated. The Company
acquired Konsyl Pharmaceuticals, Inc. on May 15, 2003. The
results of operations of Konsyl have been included in the
Company's results of operations beginning May 16, 2003.
During December 2002, the Company changed its 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 current fiscal year is the 52 weeks
ended January 1, 2005.
Certain reclassifications have been made to the prior period
financial statements to conform to the current period
presentation.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "ACCOUNTING FOR STOCK- BASED
COMPENSATION", the Company accounts for stock-based compensation
arrangements with employees in accordance with provisions of
Accounting Principles Board ("APB") Opinion No. 25, "ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES". Compensation expense for stock
options issued to employees is based on the difference on the
date of grant between the fair value of the Company's stock and
the exercise price of the option. No stock-based employee
compensation cost is reflected in net loss for the periods
presented, as all options granted under those plans had an
exercise price equal to the market value of the underlying common
stock at the date of grant.
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
six-month and three-month periods ended July 3, 2004 and June 28,
2003 would have been as follows:
Six Months Ended Three Months Ended
-------------------------------- --------------------------------
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
-------------- ------------- ---------------- --------------
Net loss as reported $(2,789,000) $(915,000) $(1,414,000) $ (367,000)
Deduct: Total stock-based
employee compensation
determined under fair value
method for all awards, net of
related tax effects (44,000) (68,000) (22,000) (34,000)
-------------- ------------- ---------------- --------------
Proforma net loss $(2,833,000) $(983,000) $(1,436,000) $ (401,000)
Basic and diluted loss per share
As reported $ (0.03) $ (0.01) $ (0.02) $ (0.00)
Proforma $ (0.03) $ (0.01) $ (0.02) $ (0.00)
The weighted average assumptions used for the periods presented are as follows:
Six Months Ended Three Months Ended
-------------------------------- --------------------------------
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
-------------- ------------- -------------- -------------
Risk-free interest rate 3.65% 2.4% 3.65% 2.4%
Expected dividend yield - - - -
Expected lives 5 years 5 years 5 years 5 years
Expected volatility 140% 125% 140% 125%
NOTE 2 FINANCIAL RESULTS AND LIQUIDITY
As of July 3, 2004, the Company has negative working capital of
$2,788,000, an accumulated deficit of $80,558,000 and a
stockholders' deficit of $20,553,000. In addition, the Company
had net losses of $2,789,000 for the six months ended July 3,
2004 and $1,414,000 for the three months ended July 3, 2004. In
view of these matters, realization of a major portion of the
Company's assets is dependent upon the Company's ability to meet
its financing requirements and the success of its future
operations. The financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts or amounts of liabilities. Management
plans are outlined below.
We continue to address customer relationship issues and are
continuing the process of rebuilding our sales base through the
initiatives detailed below. Note, however, that the FDA Warning
Letter discussed in Note 3 may impact our ability to carryout the
initiatives, objectives and actions noted below and otherwise
affect our business, results of operations or financial
condition. As part of these initiatives, we have undertaken the
following:
o Continuing to expand our custom manufacturing for some major
pharmaceutical companies.
o Eliminating several unprofitable product lines consisting
mainly of items purchased from third parties and repackaged
end products for smaller customers. We continue to evaluate
product line and customer profitability.
o Increasing our business supplying other manufacturers with
bulk tablets and capsules, taking advantage of higher
volumes and better margins.
o Exploring opportunities to expand our product line through
joint venture marketing agreements.
o Exploring opportunities to expand our international sales.
o Hiring new management.
These objectives, along with sustaining market share and
increasing sales, are projected to be driven by the following:
o Re-establishing strong relationships within our distribution
network.
o Controlling and reducing, where appropriate, our fixed and
variable expenses.
o Improving our manufacturing efficiencies.
o Shortening delivery time.
o Filing ANDAs for new products as they come to the OTC
Market.
o Obtaining marketing rights for products produced by other
generic pharmaceutical manufacturers.
We believe that cash flow from operations, our revolving credit
facility and equipment and term loan financing, plus continued
financial support from ICC Industries Inc., our parent company,
will be sufficient to fund our currently anticipated operations,
working capital, capital spending and debt service through June
30, 2005. While no assurance can be given that cash flow will be
sufficient to fund operations, ICC has committed to provide us
with the necessary financing to continue our operations through
March 31, 2005. ICC has supported us in the past by providing
loans, replacing loans from our asset-based lenders and providing
us with working capital. Based upon prior history, management
believes ICC will continue to support PFI after March 31, 2005
but that ICC has not made any legal commitment to do so.
Additionally, ICC has guaranteed our debt with our major lender
(see Note 6).
See Note 6 below regarding waivers of our violation of certain
debt covenants as of July 3, 2004.
NOTE 3 CONTINGENCIES
LITIGATION
(a) FIORITO VS. PFI
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.
The Company believes the lawsuit is without merit and is
vigorously defending against it.
(b) CASE RELATING TO MAX TESLER
In May 1998, the Company brought an action in Middlesex
County Superior Court, NJ 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.
(c) APOTEX CORPORATION AND TORPHARM VS. PFI
In July 2000, an action was instituted in the Circuit Court
of Cook County, Illinois against the Company by Apotex
Corporation ("Apotex") 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.
(d) OTHER MATTERS
The Company 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 the Company's
financial position or results of operations.
ENVIRONMENTAL MATTERS
The prior owner of our Edison, New Jersey manufacturing facility,
Revco, conducted a soil and groundwater cleanup of such facility,
under the New Jersey Industrial Site Recovery Act (ISRA), as
administered by the New Jersey Department of Environmental
Protection (NJDEP). NJDEP determined that the soil remediation
was complete and approved the groundwater remediation plan,
subject to certain conditions. Revco began operating a
groundwater remediation treatment system in 1995. Although CVS
(as the successor to Revco) is primarily responsible for the
entire cost of the cleanup, we guaranteed the cleanup. In
addition, we agreed to indemnify the owner of the facility under
the terms of the 1989 sale lease-back. If CVS defaults in its
obligations to pay the cost of the clean-up, and such costs
exceed the amount of the bond posted by Revco, we may be required
to make payment for any cleanup. The likelihood of CVS being
unable to satisfy any claims which may be made against it in
connection with the facility, however, are remote in our opinion.
Accordingly, we believe that we will not have to bear any costs
associated with remediation of the facility and we will not need
to make any material capital expenditures for environmental
control facilities.
FDA WARNING LETTER
Our facilities are subject to periodic inspection by the Food and
Drug Administration for, among other things, conformance to
current Good Manufacturing Practices, or cGMP. Following an
inspection, the FDA typically provides its observations, if any,
in the form of a Form 483 (Notice of Inspectional Observations).
In January 2004, the FDA initiated an inspection of our Edison,
New Jersey manufacturing facility. Following the inspection, the
FDA issued to us a Form 483 notice concerning our compliance with
cGMP, including observations related to training, personnel and
control systems. Although we responded to the Form 483 to address
and correct the deficiencies, the FDA further issued a warning
letter dated May 5, 2004 (received by us on May 11, 2004)
relating to these observations. On June 3, 2004, the Company
responded to the FDA with a plan of the corrective actions that
the Company has taken or proposes to take. In that response, the
Company committed to further developing and implementing, in a
timely manner, the principles and strategies of systems-based
quality management for improved cGMP compliance, operational
performance and efficiencies. While there can be no assurance
that an adverse determination of any of the matters identified in
the FDA's warning letter could not have a material adverse impact
on our business in any future period, management does not
believe, based on the information currently known to it, that the
warning letter, or the actions that need to be taken in response
to such letter, will materially adversely affect our operations.
On July 19, 2004, the FDA acknowledged the Company's response and
continues to review the matter.
There can be no assurance, however, that our actions in response
to the Form 483 and warning letter will be deemed adequate by the
FDA or that additional actions will not be required by us. In
addition, we remain subject to periodic FDA inspections and there
can be no assurances that we will not be required to undertake
additional actions to comply with the Federal Food, Drug and
Cosmetic Act and any other applicable regulatory requirements.
Any failure by us to comply with applicable regulatory
requirements could have a material adverse effect on our ability
to continue to manufacture and distribute our products. The FDA
has many enforcement tools including recalls, seizures,
injunctions, civil fines and/or criminal prosecutions. During the
pendancy of any FDA action it is also possible that the FDA will
not approve any NDAs or ANDAs that we may submit for products to
be manufactured at this facility. At this time, the FDA has not
taken any action other than to issue the Form 483 and warning
letter. Any additional actions that the FDA may take could have a
material adverse effect on our business, results of operations or
financial condition.
NOTE 4 INVENTORIES
Inventories consist of the following:
JULY 3, 2004 JANUARY 3, 2004
Raw materials $ 5,270,000 $ 5,676,000
Work in progress 1,135,000 1,233,000
Finished goods 7,314,000 7,143,000
------------- --------------
$ 13,719,000 $ 14,052,000
============= =============
NOTE 5 RELATED PARTY TRANSACTIONS
As of July 3, 2004, ICC owned a total of 74,488,835 shares of our
common stock, representing approximately 86.7% of the total
number of shares outstanding on that date. The following
additional transactions with ICC are reflected in the
consolidated financial statements as of July 3, 2004 and June 28,
2003 or for the six and three months ended July 3, 2004 and June
28, 2003:
Six Months Ended Three Months Ended
----------------------------------- ----------------------------------
July 3, 2004 June 28, 2003 July 3, 2004 June 28, 2003
--------------- ---------------- --------------- ---------------
Inventory purchases $ 4,210,000 $3,245,000 $ 2,344,000 $1,301,000
Interest charges 569,000 514,000 293,000 265,000
As of
------------------------------------------
July 3, 2004 June 28, 2003
------------------ -----------------
Accounts payable $9,916,000 $ 9,109,000
Note payable 22,759,000 19,842,000
NOTE 6 DEBT
The Company has a revolving credit facility with CIT, which is
secured by accounts receivable and inventory, which expires on
December 31, 2006. The above agreement includes certain financial
covenants including a requirement to maintain minimum tangible
net worth, net worth for Konsyl, and minimum net income on a
rolling three-month basis.
The Company was in violation of certain financial covenants
(specifically the minimum tangible net worth and the minimum net
income covenants) of this agreement with CIT as of July 3, 2004.
The Company has obtained a waiver and amendment to the agreement,
dated August 20, 2004, from CIT stating that such violations
shall not be deemed to be defaults or events of default under the
financing agreement with respect to the period ended July 3,
2004. The waiver states that on and after the date of the waiver,
the Company shall be in compliance with all of the terms and
provisions of the Financing Agreement. The waiver also states
that it waives only the specific events of default noted in the
waiver and does not waive any other existing events of default or
future events of default.
The Company does not believe that there are any other events of
default under the agreement.
The amendment to the agreement sets, effective April 26, 2004,
new financial covenants beginning with July 31, 2004 for minimum
tangible net worth and minimum fixed charge coverage ratio, each
calculated on a rolling three-month basis and additional
financial covenants for maximum accounts payable (other than to
CIT or ICC) and minimum borrowing availability as of each month
end beginning July 31, 2004. The Company does not believe it will
be in default of such amended covenants. The amendment also
requires that the parties agree to an EBITDA covenant by
September 20, 2004.
On August 20, 2004, the President of ICC signed the waiver and
amendment letter reaffirming ICC's guarantee of this debt.
The Company has a requirement to maintain a lockbox with CIT.
On September 27, 2003 the Company modified its term loan and
security agreement with ICC. The modification consisted of a
reduction in the interest rate from prime + 1% to prime. The loan
principal under this agreement was $21,289,000 as of September
27, 2003. On March 31, 2004 the Company further modified its term
loan and security agreement with ICC. The loan principal under
this modification was increased to $21,989,000. Principal
payments were due commencing in July 2004 at $275,000 per month
and in increasing amounts thereafter with a final payment of
$18,139,000 in July 2005. Interest is payable monthly on
outstanding principal and is payable in arrears commencing on
July 31, 2004 at the prime rate (4.25% at July 3, 2004). The
Company did not make the principal or interest payments that were
due commencing in July 2004. On August 20, 2004 the Company
further modified its term loan and security agreement with ICC,
effective June 30, 2004. The loan principal under this
modification was increased to $22,389,000 to reflect $400,000 of
advances made by ICC during the three-month period ended July 3,
2004. Under the modified loan agreement, principal payments are
now due commencing in September 2004 at $300,000 per month and in
increasing amounts thereafter with a final payment of $18,339,000
in September 2005. The loan is secured by a secondary security
interest in all of our assets. Additionally, the agreement with
ICC contains certain negative covenants including a cross-default
provision. The Company obtained a waiver dated August 12, 2004 of
this cross-default provision.
In June 2004, holders of $1,105,000 in principal amount of our 8%
and 8.25% convertible subordinated debentures agreed to extend
the payment terms on those bonds, which were due to mature on
June 15, 2004, to June 15, 2005, at the current interest rate of
8% or 8.25%, depending on which bonds are held. In exchange for
the bondholders' signed agreements to extend the maturity date on
the bonds, they received a one-time up-front fee of $10 per
$1,000 of bond principal held by them. The fee of approximately
$11,000 is included in deferred financing costs and is being
amortized over the life of the debt. In addition, the bondholders
obtained the right to convert the bonds into our common stock at
a reduced price of $.30 per share from $.34 per share.
In accordance with EITF 00-27, "Application of EITF Issue 98-5 to
Certain Convertible Instruments", the Company measured the
intrinsic value of the beneficial conversion feature at $921,000
based on the market price of the stock of $0.55 and recorded this
as a debt discount and a related increase in paid in capital.
This debt discount will be amortized over the extended due date
of the bonds using the straight line method (which approximates
the effective interest method since the amortization period is
one year). During the six and three months ended July 3, 2004,
the Company recognized additional interest expense related to the
amortization of this conversion feature of $38,000.
Additionally in June 2004, the Company repaid the remainder of
the outstanding debentures for $400,000, on their due date of
June 15, 2004. ICC advanced to the Company the funds in order to
repay these debentures. Such advances were included in the ICC
note discussed above, as modified effective June 30, 2004.
At July 3, 2004, the Company had an aggregate of $828,000
outstanding principal amount of convertible subordinated
debentures due June 15, 2005 (originally due June, 2002) (the "8%
Debentures") with interest payable semi-annually. The holders of
the 8% Debentures may convert them at any time into common stock
of the Company at a conversion price of $.30 per share. The
obligations under the debentures may be paid at any time.
At July 3, 2004, the Company had an aggregate of $277,000
outstanding principal amount of convertible subordinated
debentures due June 15, 2005 (originally due June, 2002) (the "8
1/4 % Debentures") wiTH interest payable annually. The holders of
the 8 1/4 % debentures may convert them at any time into shares
OF common stock at a conversion price of $.30 per share. The
obligations under the debentures may be paid at any time.
The above debentures, net of the debt discount resulting from the
beneficial conversion feature, are included on the Company's
condensed consolidated balance sheet in current portion of
long-term debt.
NOTE 7 MAJOR CUSTOMERS AND PRODUCTS
Sales to customers which represented more than 10% of consolidated gross
sales in the six and three months ended July 3, 2004 and June 28, 2003, as
a percentage of gross sales, were as follows:
Six Months Ended Three Months Ended
------------------------------ -------------------------
July 3, June 28, July 3, June 28,
CUSTOMER 2004 2003 2004 2003
----------- ------------- ----------- ----------
Dollar General 14% 11% 12% 12%
Target 12% 11% 11% 9%
Costco 9% 12% 7% 11%
As of July 3, 2004 and January 3, 2004, the three customers
mentioned above collectively represented 36.8% and 37.2% of net
accounts receivable, respectively.
Sales of ibuprofen represented 30.1% of net sales for the six
months ended July 3, 2004 and 30.1% of net sales for the six
months ended June 28, 2003. Sales of ibuprofen represented 31.4%
of net sales for the quarter ended July 3, 2004 and 31.4% of net
sales for the quarter ended June 28, 2003.
NOTE 8 DILUTIVE SECURITIES
As of July 3, 2004 and June 28, 2003, the Company had options and
warrants and convertible debentures outstanding that were not
considered in diluted loss per share because the effect would be
antidilutive as the Company has losses in all periods presented.
The following summarizes the options and warrants outstanding as
of the dates indicated:
July 3, June 28,
2004 2003
--------------- --------------
Options 2,798,750 2,953,750
Warrants 1,310,000 1,310,000
Total 4,108,750 4,263,750
As of July 3, 2004 and June 28, 2003, the conversion of the
Company's convertible debentures would have resulted in the
issuance of 3,683,000 and 4,513,000 shares, respectively.
NOTE 9 STOCK OPTION PLAN
The Pharmaceutical Formulations, Inc. 2004 Stock Option Plan (the
"2004 Plan") was effective upon adoption by the Board on May 20,
2004, subject to stockholder approval, which was obtained on June
16, 2004.
The purpose of the 2004 Plan is to advance the interests of the
Company and its stockholders by strengthening the ability of the
Company and its subsidiaries to attract and retain persons of
ability as key employees, directors and consultants and to
motivate such employees, directors and consultants, upon whose
judgment, initiative and efforts the financial success and growth
of the Company largely depend, to exercise their best efforts on
behalf of the Company. The 2004 Plan replaced, effective as of
the date of such stockholder approval, the 1994 Stock Option Plan
(the "1994 Plan") as to future grants; options previously granted
under the 1994 Plan will continue for the life of such options.
The 1994 Plan authorized the grant of up to 7,500,000 shares of
common stock, of which options on 3,136,750 shares had been
granted. The options that were granted under the 1994 Plan prior
to its termination survived the termination of that plan.
The aggregate number of shares of common stock which may be the
subject of options under the 2004 Plan is 5,000,000. As of July
3, 2004 no options have been granted under the 2004 Plan. The
maximum number of shares of common stock which may be the subject
of options granted to any person during any calendar year can not
exceed 300,000.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company acquired Konsyl Pharmaceuticals, Inc. on May 15,
2003. Results of operations of Konsyl are included in the
Company's results beginning May 16, 2003. References to "PFI"
mean the operations of the Company excluding the Konsyl
operations.
GROSS SALES
The Company's gross sales for the six months ended July 3, 2004
were $37,488,000 as compared to $34,647,000 in the comparable
period in the prior year, an increase of $2,841,000 or 8.2%. This
increase in gross sales is due to the inclusion of Konsyl's gross
sales for a full six-month period offset by a decrease in gross
sales at PFI. Konsyl's gross sales were $5,480,000 in the current
six-month period as compared to $1,339,000 in the prior period.
Gross sales for PFI for the six months ended July 3, 2004 were
$32,008,000 as compared to $33,308,000 in the comparable period
in the prior year, a decrease of $1,300,000 or 3.9%.
The Company's gross sales for the three months ended July 3, 2004
were $18,584,000 as compared to $18,114,000 in the comparable
period in the prior year, an increase of $470,000 or 2.6%. Gross
sales of Konsyl were $2,912,000 in the current three-month period
as compared to $1,339,000 in the comparable prior period. Gross
sales for PFI for the three months ended July 3, 2004 were
$15,672,000 as compared to $16,775,000 in the comparable period
in the prior year, a decrease of $1,103,000, or 6.6%.
PFI's decrease in gross sales for both the six and three month
periods was primarily due to increased price competition in the
Private Label Over the Counter market and a decrease in
production for certain contract manufacturing customers. Konsyl's
sales increase is due to the fact the results of operations for
2003 only begin on May 16, 2003.
NET SALES
The Company's net sales for the six months ended July 3, 2004
were $36,246,000 as compared to $33,793,000 in the comparable
period in the prior fiscal year, an increase of $2,453,000 or
7.3%. This increase in net sales is due to the inclusion of
Konsyl's net sales offset by a decrease in net sales at PFI.
Konsyl's net sales were $5,278,000 in the current six-month
period as compared to $1,286,000 in the prior period, reflecting
the above-noted ownership periods. Net sales for PFI for the six
months ended July 3, 2004 were $30,968,000 as compared to
$32,507,000 in the comparable period in the prior year, a
decrease of $1,539,000 or 4.7%.
The Company's net sales for the three months ended July 3, 2004
were $17,885,000 as compared to $17,579,000 in the comparable
period in the prior fiscal year, an increase of $306,000 or 1.7%.
Net sales of Konsyl were $2,779,000 in the current three-month
period as compared to $1,286,000 in the prior period. Net sales
for PFI for the three months ended July 3, 2004 were $15,106,000
as compared to $16,293,000 in the comparable period in the prior
year, a decrease of $1,187,000, or 7.3%. PFI's decrease in net
sales for both the six and three months periods was primarily due
to lower gross sales due to increased price competition in the
Private Label Over the Counter market, decreased production for
certain contract manufacturing customers and higher sales
discounts and allowances.
DISCOUNTS AND ALLOWANCES
The Company's sales discounts and allowances as a percentage of
gross sales for the six months ended July 3, 2004 was 3.3% as
compared to 2.5% in the prior period. Konsyl's sales discounts
and allowances as a percentage of gross sales was 3.7% in the
current six-month period as compared to 4.0% in the prior period.
PFI's sales discounts and allowances as a percentage of gross
sales for the six months ended July 3, 2004 was 3.2% as compared
to 2.4% in the prior period.
The Company's sales discounts and allowances as a percentage of
gross sales in the three months ended July 3, 2004 was 3.8% as
compared to 3.0% in the comparable period in the prior year.
Konsyl's sales discounts and allowances as a percentage of gross
sales was 4.6% in the three months ended July 3, 2004 as compared
to 4.0% in the prior period. Konsyl's increase is due to higher
sales allowances and charge backs from Konsyl's retail customers.
PFI's sales discounts and allowances as a percentage of gross
sales for the three months ended July 3, 2004 was 3.6% as
compared to 2.9% in the prior period.
PFI's increases in sales returns for both the six and three
months periods were primarily due to volume related rebate
programs and additional charge backs from our private label
customers.
COST OF SALES
The Company's cost of sales as a percentage of net sales was
86.1% for the six months ended July 3, 2004 as compared to 84.3%
in the prior year period. Konsyl's cost of sales as a percentage
of net sales was 51.8% for the current six-month period as
compared to 62.1% in the prior period. PFI's cost of sales as a
percentage of net sales was 92.0% for the current six-month
period as compared to 85.2% in the prior period. The Company's
cost of sales as a percentage of net sales was 86.7% for the
three months ended July 3, 2004 as compared to 82.7% in the prior
year period. Konsyl's cost of sales as a percentage of net sales
was 52.6% for the current three-month period as compared to 62.1%
in the prior period. Konsyl's higher cost of sales percentage in
the prior period is primarily due to acquisition related
inventory adjustments. PFI's cost of sales as a percentage of net
sales for the current three-month period increased to 93.0% from
84.4% in the prior period due to a decrease in sales as a result
of increased competition in the Private Label Over the Counter
market, decreased production for certain contract manufacturing
customers, increased sales returns and allowances due to higher
retailer rebate programs and charge backs from our private label
customers, and a shift in product mix in both the Private Label
and Contract Manufacturing businesses to lower margin products.
SELLING, GENERAL AND ADMINISTRATIVE
The Company's selling, general and administrative expenses were
$7,684,000 or 21.2% of net sales for the six months ended July 3,
2004 as compared to $5,289,000 or 15.7% of net sales in the prior
year period, an increase of $2,395,000 or 45.3%. This increase is
primarily due to Konsyl's operating results being included as of
May 16, 2003. Konsyl's selling, general and administrative
expenses were $2,030,000 or 38.5% of net sales for the six months
ended July 3, 2004 as compared to $448,000 or 34.8% of net sales
in the prior period, an increase of $1,582,000. PFI's selling,
general and administrative expenses were $5,654,000 or 18.3% of
net sales for the six months ended July 3, 2004 as compared to
$4,841,000 or 14.9% of net sales in the prior period. The
Company's selling, general and administrative expenses were
$3,808,000 or 21.3% of net sales for the three months ended July
3, 2004 as compared to $2,999,000 or 17.1% of net sales in the
prior year period, an increase of $809,000 or 27.0%. Konsyl's
selling, general and administrative expenses were $1,029,000 or
37.0% of net sales for the three months ended July 3, 2004 as
compared to $448,000 or 34.8% of net sales in the prior period.
This increase is due to Konsyl's operating results being included
as of May 16, 2003 and higher advertising and promotional
expenses for new and existing products. PFI's selling, general
and administrative expenses were $2,779,000 or 18.4% of net sales
for the three months ended July 3, 2004 as compared to $2,552,000
or 15.7% of net sales in the prior period. This increase in
selling, general and administrative expenses for the six and
three months period was primarily due to higher distribution
expenses, professional fees, insurance expenses and personnel
expenses.
INTEREST EXPENSE
Interest expense was $1,572,000 for the six months ended July 3,
2004 as compared to $1,707,000 for the prior year period.
Interest expense was $831,000 for the three months ended July 3,
2004 as compared to $898,000 for the prior year period. This
reduction in interest expense in the six and three months period
was primarily attributable to the capital lease on the Company's
building in Edison, New Jersey.
TAXES
We file a consolidated tax return with ICC Industries Inc., our
majority shareholder. In accordance with a tax sharing agreement
between the two companies, we will be reimbursed for the federal
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 federal tax benefit of $1,503,000 for the six months ended July
3, 2004 and a federal tax benefit of $630,000 for the six months
ended June 28, 2003. The tax benefit was $755,000 for the three
months ended July 3, 2004 as compared to $334,000 for the
comparable prior year period.
LOSS
The Company reported a net loss of $2,789,000 or $.03 per share
for the six months ended July 3, 2004 as compared to a net loss
of $915,000 or $.01 per share in the prior year period. The
Company reported a net loss of $1,414,000 or $.02 per share for
the three months ended July 3, 2004 as compared to a net loss of
$367,000 or $.00 per share in the prior year period.
CRITICAL ACCOUNTING ESTIMATES
Our critical estimates are discussed in our Form 10-K for the
year ended January 3, 2004. The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions in certain circumstances that affect
amounts reported in the accompanying financial statements and
related notes. In preparing these financial statements, our
management has made its best estimates and judgments of certain
amounts included in the financial statements, giving due
consideration to materiality. We believe that the critical
accounting policies discussed in our Form 10-K affect our more
significant estimates used in the preparation of financial
statements. Management has discussed the development and
selection of the critical accounting estimates with the audit
committee of our Board of Directors, and the audit committee has
reviewed our disclosures in the 10-K relating to these estimates.
There have been no changes during the quarter in our
identification of critical accounting policies and estimates.
Commitments:
As of July 3, 2004, our commitments are as follows:
Operating
Lease Capital Lease Long-Term
Fiscal year: Obligations Obligations1 Debt2 Total
------------------- --------------- ------------------- ----------------- ----------------------
2004 $ 859,000 $ 953,000 $ 2,016,000 $ 3,828,000
2005 2,135,000 1,801,000 24,165,000 28,101,000
2006 1,964,000 872,000 13,881,000 16,717,000
2007 1,964,000 543,000 750,000 3,257,000
2008 1,856,000 361,000 - 2,217,000
Thereafter 17,493,000 219,000 - 17,712,000
------------------- -------------- ------------------- ----------------- ----------------------
Total Payments $26,271,000 $4,749,000 $40,812,000 $71,832,000
------------------- --------------- ------------------- ----------------- ----------------------
1 Amounts include principal payments of $4,338,000 and interest
payments of $411,000.
2 Includes note payable amounts due to ICC Industries Inc. of
$22,759,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased by $258,000 during the six months ended July 3,
2004.
Total cash provided by operating activities was $396,000 for the
six months ended July 3, 2004. This was primarily attributable to
non-cash charges of $1,089,000 for depreciation and amortization,
an increase in amounts due ICC Industries Inc. of $1,202,000, an
increase in accounts payable and accrued expenses of $658,000, a
decrease in prepaid expenses and other assets of $733,000 and a
decrease in inventories of $333,000, offset by a pretax loss of
$2,789,000 and an increase in accounts receivable of $830,000 .
Net cash used in investing activities for the six months ended
July 3, 2004 was $1,039,000, attributable to expenditures for
capital equipment.
Net cash provided by financing activities for the six months
ended July 3, 2004 was $385,000, primarily attributable to cash
advances from ICC of $1,100,000, $580,000 received from Coach
Capital, LLC under a new equipment financing agreement,
additional borrowings of $406,000 and repayments of $400,000 of
debt and proceeds from stock option exercise of $28,000, offset
by repayments of existing capital lease obligations of
$1,329,000.
We intend to spend up to an estimated $2,000,000 for capital
improvements during the fiscal year ending January 1, 2005 to
increase manufacturing capacity and reduce manufacturing 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 financing in
the future.
As of July 3, 2004, the Company has negative working capital of
$2,788,000, an accumulated deficit of $80,558,000 and a
stockholders' deficit of $20,553,000. In addition, the Company
had net losses of $2,789,000 for the six months ended July 3,
2004 and $1,414,000 for the three months ended July 3, 2004. In
view of these matters, realization of a major portion of the
Company's assets is dependent upon the Company's ability to meet
its financing requirements and the success of its future
operations.
We continue to address customer relationship issues and are
continuing the process of rebuilding our sales base through the
actions detailed below. We continue to pursue our plan to
increase revenues and improve operational efficiencies to restore
profitability. To carry out these plans, we have set forth
certain initiatives, objectives and actions detailed in Note 3 to
the Notes to the Condensed Consolidated Financial Statements.
Note, however, that the FDA Warning Letter discussed in Note 3 in
the Notes to Condensed Consolidated Financial Statements may
impact our ability to carryout these initiatives, objectives and
actions and otherwise affect our business, results of operations
or financial condition.
We believe that cash flow from operations, our revolving credit
facility and equipment and term loan financing, plus continued
financial support from ICC Industries Inc., our parent company,
will be sufficient to fund our currently anticipated operations,
working capital, capital spending and debt service through June
30, 2005. While no assurance can be given that cash flow will be
sufficient to fund operations, ICC has committed to provide us
with the necessary financing to continue our operations through
March 31, 2005. ICC has supported us in the past by providing
loans, replacing loans from our asset-based lenders and providing
us with working capital. Based upon prior history, management
believes ICC will continue to support PFI after March 31, 2005
but that ICC has not made any legal commitment to do so.
Additionally, ICC has guaranteed our debt with our major lender
(see Note 6).
Our debt agreement with CIT includes certain financial covenants
including a requirement to maintain minimum tangible net worth,
net worth for Konsyl, and minimum net income on a rolling
three-month basis. As noted in Note 6 to Notes to Condensed
Consolidated Financial Statements, we were in violation of
certain financial covenants of our agreement with CIT as of July
3, 2004 but obtained a waiver of such defaults. Additionally, on
August 20, 2004, the President of ICC signed the waiver letter
reaffirming ICC's guarantee of this debt. The amendment to the
agreement sets, effective April 26, 2004, new financial covenants
beginning with July 31, 2004, for minimum tangible net worth and
minimum fixed charge coverage ratio, each calculated on a rolling
three-month basis and additional financial covenants for maximum
accounts payable (other than to CIT or ICC) and minimum borrowing
availabilities as of each month end beginning July 31, 2004.
Additionally, as noted in Note 6 to the Condensed Consolidated
Financial Statements, the Company's loan agreement with ICC
contains a cross-default provision. The Company has obtained a
waiver of this cross-default provision as of August 12, 2004. We
do not believe we will be in default of the amended covenants.
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
interest expenditures by approximately $430,000, based on current
levels of borrowing and related base interest rates.
ITEM 4 CONTROLS AND PROCEDURES
We have carried out an evaluation under the supervision of our
management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on
that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of July 3, 2004, except as
otherwise noted below, our disclosure controls and procedures
were effective to ensure that information required to be
disclosed by us in the reports filed or submitted under the
Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods
specified in the rules and forms of the SEC, and include controls
and procedures designed to ensure that information required to be
disclosed by us in such reports is assembled and reported to our
management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.
Our independent auditors, Grant Thornton LLP, have advised
management and the audit committee of our board of directors of
two matters that they considered to be material weaknesses in our
internal controls, which constitute reportable conditions as that
term is defined under standards established by the American
Institute of Certified Public Accountants: (i) the lack of
adequate preparation of account reconciliations and analysis
necessary to accurately prepare financial statements and (ii) the
lack of sufficient qualified personnel in our accounting
department.
We considered these matters in connection with the quarter-end
closing process and the preparation of the consolidated financial
statements for the quarter ended July 3, 2004 included in this
Form 10-Q and believe that the concerns identified by our
auditors have not impaired or prevented our ability to report
accurately our financial condition and results of operation for
the periods covered by this report. Management is actively
working to assess and correct the conditions reported by our
auditors and we plan to implement certain enhancements to our
disclosure controls and our internal controls over financial
reporting in 2004 which we believe should address the issues
identified by Grant Thornton. Our efforts to-date have included
reinforcing existing policies and procedures, undertaking timely
accounting reconciliations, and actively assessing the
qualifications of personnel needed in the accounting department.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
See Note 3 to Notes to Condensed 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
At the Company's annual meeting held on June 16, 2004, the
following are the results of issues presented for shareholder
approval:
1. Election of Directors:
FOR WITHHELD
Balram Advani 83,092,346 115,649
Frank X. Buhler 83,069,681 138,134
Ray W. Cheesman 82,878,806 329,189
James C. Ingram 83,062,341 145,654
Steve Jacoff 83,088,959 119,036
John L. Oram 82,885,026 322,969
Michael A. Zeher 83,077,666 130,329
2. Proposal to approve the 2004 Stock Option Plan:
FOR AGAINST ABSTAIN NOT VOTED
75,859,916 209,551 37,898 7,100,630
3. Proposal to approve the appointment of Grant Thornton LLP as
independent auditors for the Company for the year ending
January 1, 2005:
FOR AGAINST ABSTAIN
82,923,941 273,690 10,364
ITEM 5 OTHER INFORMATION
See Note 3 to Notes to Condensed Consolidated Financial
Statements regarding the recent FDA warning letter.
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
10.1 Waiver and Amendment between The CIT Group/Business
Credit, Inc., Pharmaceutical Formulations, Inc. and
Konsylv Pharmaceuticals, Inc. dated August 20, 2004
amending and waiver certain terms of the First Amended
and Restated Financing Agreement between The CIT
Group/Business Credit, Inc. successor by merger to The
CIT Group/Credit Finance, Inc. and assignee of Fidelcor
Business Credit Corporation (as Lender) and
Pharmaceutical Formulations, Inc. (successor by merger
to Private Formulations, Inc. f/k/a PharmaControl
Corp.) and Konsyl Pharmaceuticals, Inc., jointly and
severally (collectively as Borrower) dated as of May
15, 2003
10.2 Term Loan and Security Agreement dated as of June 30,
2004 between ICC and the Registrant
10.3 Employment Agreement between Pharmaceutical
Formulations, Inc. and Brian Bradley, dated July 26,
2004
31 Certifications of the Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) REPORTS ON FORM 8-K
The Registrant filed or furnished the following report on
Form 8-K during the second quarter of the fiscal year ending
January 1, 2005:
DATE OF REPORT ITEM NUMBER (SUMMARY)
May 18, 2004 12 (regarding results of operations
and financial conditions for the
quarter ended April 3, 2004)
May 20, 2004 5 (regarding other events and
required FD disclosure)
7 (regarding financial statements,
proforma financial statements and
exhibits)
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: AUGUST 23, 2004 By: /s/ James Ingram
James Ingram
Chairman and Chief Executive
Officer
(Principal Executive Officer)
Date: AUGUST 23, 2004 By: /s/ A. Ernest Toth, Jr.
A. Ernest Toth, Jr.
Chief Financial Officer
(Principal Accounting Officer)
EXHIBIT INDEX
10.1 Waiver and Amendment between The CIT Group/Business Credit, Inc.,
Pharmaceutical Formulations, Inc. and Konsylv Pharmaceuticals, Inc. dated
August 20, 2004 amending and waiver certain terms of the First Amended and
Restated Financing Agreement between The CIT Group/Business Credit, Inc.
successor by merger to The CIT Group/Credit Finance, Inc. and assignee of
Fidelcor Business Credit Corporation (as Lender) and Pharmaceutical
Formulations, Inc. (successor by merger to Private Formulations, Inc. f/k/a
PharmaControl Corp.) and Konsyl Pharmaceuticals, Inc., jointly and
severally (collectively as Borrower) dated as of May 15, 2003
10.2 Term Loan and Security Agreement dated as of June 30, 2004 between ICC and
the Registrant
10.3 Employment Agreement between Pharmaceutical Formulations, Inc. and Brian
Bradley, dated July 26, 2004
31 Certifications of the Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002