**SECURITIESAND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

| **ý**                                                                                                                                                                                                                   | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                         |                                                                                          |
| **For the quarterly period ended June 30, 2002**                                                                                                                                                                             |
|                                                                                                                                                                                                                         |                                                                                          |   |
| **OR**                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                         |                                                                                          |   |
| **o**                                                                                                                                                                                                                        | **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 1-7335**                                                                                                                                                                                            |

 

| **LEE  PHARMACEUTICALS**                                                            |
|-------------------------------------------------------------------------------------|
| (Exact name of small business issuer as specified in its charter)                   |
|                                                                                |   |   |
| **California**                                                                      |   | **95-2680312** |
| (State or other jurisdiction of incorporation  or organization)                     |   | (I.R.S. Employer Identification No.) |
|                                                                                |   |   |
| **1444 Santa Anita Avenue, South El  Monte, California 91733**                      |
| (Address of principal executive offices)                                            |
| (Zip Code)                                                                          |
|                                                                                |   |   |
| **(626)  442-3141**                                                                 |
| (Registrant’s  telephone number, including area code)                          |
|                                                                                |   |   |
| **N/A**                                                                             |
| (Former name,  former address and former fiscal year, if changed since last report) |

 

As of June 30,2002 there were outstanding 4,135,162 shares of common stock of the registrant.

 

Transitional SmallBusiness Disclosure Format (check one):

Yes  o  No  ý

 

 

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**LEE PHARMACEUTICALS**

**BALANCE SHEET**

**JUNE 30, 2002**

**(Dollars in thousands)**

**(Unaudited)**

 
| **Assets**                                                                              |   |    |      |      |       |
|-----------------------------------------------------------------------------------------|--------|---------|-----------|-----------|------------|
| Cash                                                                                    |   |    |      | **$**     | **16**     | ** ** |
|                                                                                    |   |    |      |      |       |
| Accounts  and notes receivable (net of allowances: $186)                                |   |    |      | **669**   | ** ** |
|                                                                                    |   |    |      |      |       |
| Inventories  (net of reserves: $255)                                                    |   |    |      |      |       |
| Raw  materials                                                                          |   | **$**   | **1,971** |      |       | ** ** |
| Work  in process                                                                        |   | **165** |      |      | ** ** |
| Finished  goods                                                                         |   | **604** |      |      | ** ** |
| Total  inventories                                                                      |   |    |      | **2,740** | ** ** |
|                                                                                    |   |    |      |      |       |
| Other  current assets                                                                   |   |    |      | **336**   | ** ** |
| Total  current assets                                                                   |   |    |      | **3,761** | ** ** |
|                                                                                    |   |    |      |      |       |
| Property,  plant and equipment (less accumulated depreciation and amortization: $5,282) |   |    |      | **533**   |       |
|                                                                                    |   |    |      |      |       |
| Intangibles  and other assets (net of accumulated amortization: $2,082)                 |   |    |      | **3,043** | ** ** |
|                                                                                    |   |    |      |      |       |
| **TOTAL**                                                                               |   |    |      | **$**     | **7,337**  | ** ** |
|                                                                                         |        |         |           |           |            |  |  |

 

See AccompanyingSelected Information to Unaudited Condensed Financial Statements.

 

2

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**LEE PHARMACEUTICALS**

**BALANCE SHEET**

**JUNE 30, 2002**

**(Dollars in thousands)**

**(Unaudited)**

 

 
| **LIABILITIES**                                                                                       |   |       |       |
|-------------------------------------------------------------------------------------------------------|--------|------------|------------|
| Bank  overdraft                                                                                       |   | **$**      | **50**     | ** ** |
| Notes  payable – bank                                                                            |   | **722**    | ** ** |
| Current  portion - notes payable, other                                                               |   | **1,270**  | ** ** |
| Current  portion - note payable related party                                                         |   | **760**    | ** ** |
| Accounts  payable                                                                                     |   | **1,359**  | ** ** |
| Other  accrued liabilities                                                                            |   | **336**    | ** ** |
| Environmental  cleanup liability                                                                      |   | **366**    | ** ** |
| Due  to related parties                                                                               |   | **899**    | ** ** |
| Deferred  income                                                                                      |   | **108**    | ** ** |
|                                                                                                  |   |       |       |
| Total  current liabilities                                                                            |   | **5,870**  | ** ** |
|                                                                                                  |   |       |       |
| Long-term  notes payable to related parties                                                           |   | **1,963**  | ** ** |
| Long-term  notes payable, other                                                                       |   | **1,757**  | ** ** |
| Environmental  cleanup liability - Casmalia Site                                                      |   | **374**    | ** ** |
| Deferred  income                                                                                      |   | **115**    | ** ** |
|                                                                                                  |   |       |       |
| Total  long-term liabilities                                                                          |   | **4,209**  | ** ** |
|                                                                                                  |   |       |       |
| Total  liabilities                                                                                    |   | **10,079** | ** ** |
|                                                                                                  |   |       |       |
| **COMMITMENTS  AND CONTINGENCIES**                                                                    |   |       |       |
|                                                                                                  |   |       |       |
| **STOCKHOLDERS’  (DEFICIT)**                                                                     |   |       |       |
|                                                                                                  |   |       |       |
| Common  stock, $.10 par value; authorized, 7,500,00 shares; issued and outstanding,  4,135,162 shares |   | **413**    | ** ** |
|                                                                                                  |   |       |       |
| Additional  paid-in capital                                                                           |   | **4,222**  | ** ** |
|                                                                                                  |   |       |       |
| Accumulated  (deficit)                                                                                |   | **(7,377** | **)**      |
|                                                                                                  |   |       |       |
| Total  stockholders’ (deficit)                                                                   |   | **(2,742** | **)**      |
|                                                                                                  |   |       |       |
| **TOTAL**                                                                                             |   | **$**      | **7,337**  | ** ** |

 

See AccompanyingSelected Information to Unaudited Condensed Financial Statements.

 

3

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**LEEPHARMACEUTICALS**

**STATEMENTS OFOPERATIONS**

**(Dollars inthousands, except per share amounts)**

**(Unaudited)**

** **
|                                       |   | **For  the Three Months  Ended June 30,** |       | **For  the Nine Months  Ended June 30,** |   |
|--------------------------------------------|--------|-------------------------------------------|------------|------------------------------------------|--------|
|                                       |   | **2002**                                  |       | **2001**                                 |   | **2002** |   | **2001** |   |
|                                       |   |                                      |       |                                     |   |   |   |   |   |
| Gross  revenues                            |   | **$**                                     | **2,440**  | ** **                               | $      | 2,074 |   | **$** | **7,620** | ** ** | $ | 7,157 |   |
| Less:   Sales returns            |   | **(202**                                  | **)**      | (71                                      | )      | **(648** | **)** | (619 | ) |
| Cash  discounts and others                 |   | **(29**                                   | **)**      | (18                                      | )      | **(70** | **)** | (58 | ) |
|                                       |   |                                      | ** ** |                                     |   |   | ** ** |   |   |
|                                       |   |                                      |       |                                     |   |   |   |   |   |
| Net  revenues                              |   | **2,209**                                 | ** ** | 1,985                                    |   | **6,902** | ** ** | 6,480 |   |
|                                       |   |                                      |       |                                     |   |   |   |   |   |
| Costs  and expenses:                       |   |                                      | ** ** |                                     |   |   | ** ** |   |   |
|                                       |   |                                      | ** ** |                                     |   |   | ** ** |   |   |
| Cost  of sales                             |   | **1,136**                                 | ** ** | 1,072                                    |   | **3,499** | ** ** | 3,311 |   |
| Selling  and advertising expense           |   | **805**                                   | ** ** | 510                                      |   | **2,205** | ** ** | 1,796 |   |
| General  and administrative expense        |   | **281**                                   | ** ** | 313                                      |   | **896** | ** ** | 859 |   |
| Interest  expense                          |   | **193**                                   | ** ** | 182                                      |   | **559** | ** ** | 603 |   |
|                                       |   |                                      | ** ** |                                     |   |   | ** ** |   |   |
|                                       |   |                                      |       |                                     |   |   |   |   |   |
| Total  costs and expenses                  |   | **2,415**                                 | ** ** | 2,077                                    |   | **7,159** | ** ** | 6,569 |   |
|                                       |   |                                      |       |                                     |   |   |   |   |   |
| Income  (loss) from operations             |   | **(206**                                  | **)**      | (92                                      | )      | **(257** | **)** | (89 | ) |
|                                       |   |                                      | ** ** |                                     |   |   | ** ** |   |   |
| Other  income                              |   | **39**                                    | ** ** | 107                                      |   | **92** | ** ** | 133 |   |
|                                       |   |                                      | ** ** |                                     |   |   | ** ** |   |   |
|                                       |   |                                      |       |                                     |   |   |   |   |   |
| Net  income (loss)                         |   | **$**                                     | **(167**   | **)**                                    | $      | 15 |   | **$** | **(165** | **)** | $ | 44 |   |
|                                       |   |                                      | ** ** |                                     |   |   | ** ** |   |   |
| Per  share:                                |   |                                      | ** ** |                                     |   |   | ** ** |   |   |
|                                       |   |                                      | ** ** |                                     |   |   | ** ** |   |   |
| Basic  and diluted income (loss) per share |   | **$**                                     | **(.04**   | **)**                                    | $      | .00 |   | **$** | **(.04** | **)** | $ | .01 |   |

 

See AccompanyingSelected Information to Unaudited Condensed Financial Statements.

 

4

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**LEE PHARMACEUTICALS**

**STATEMENTS OF CASH FLOWS**

**(Dollars in thousands)**

**(Unaudited)**

 
|                                                                                     |   | **For the  Nine Months  Ended June 30,** |       |
|------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|
|                                                                                     |   | **2002**                                 |       | **2001** |   |
|                                                                                     |   |                                     | ** ** |   |   |
| Cash  flows from operating activities:                                                   |   |                                     | ** ** |   |   |
| Net  income (loss)                                                                       |   | **$**                                    | **(165**   | **)** | $ | 44 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:       |   |                                     | ** ** |   |   |
| Depreciation                                                                             |   | **130**                                  | ** ** | 128 |   |
| Amortization  of intangibles                                                             |   | **356**                                  | ** ** | 362 |   |
| (Decrease)  in deferred income                                                           |   | **(82**                                  | **)**      | (11 | ) |
| (Gain)  on disposal of property, plant, and equipment                                    |   | **(1**                                   | **)**      | (2 | ) |
| Change  in operating assets and liabilities:                                             |   |                                     | ** ** |   |   |
| Decrease  in accounts receivable                                                         |   | **222**                                  | ** ** | 425 |   |
| (Decrease)  increase in allowance for doubtful accounts and sales returns and allowances |   | **(142**                                 | **)**      | 52 |   |
| (Increase)  in inventories                                                               |   | **(331**                                 | **)**      | (396 | ) |
| Decrease  (increase) in deposits                                                         |   | **53**                                   | ** ** | (55 | ) |
| (Increase)  in other current assets                                                      |   | **(67**                                  | **)**      | (89 | ) |
| Increase  in accounts payable and accrued liabilities                                    |   | **351**                                  | ** ** | 467 |   |
| Increase  in due to related parties - accrued interest                                   |   | **45**                                   | ** ** | 73 |   |
| (Decrease)  in accrued royalties                                                         |   | —                                   | ** ** | (39 | ) |
| Increase  in deferred income and advance payment                                         |   | —                                   | ** ** | 350 |   |
| Total  adjustments                                                                       |   | **534**                                  | ** ** | 1,265 |   |
| Net  cash provided by operating activities                                               |   | **369**                                  | ** ** | 1,309 |   |
|                                                                                     |   |                                     | ** ** |   |   |
| Cash  flows from investing activities:                                                   |   |                                     | ** ** |   |   |
| Additions  to property, plant, and equipment                                             |   | **(101**                                 | **)**      | (53 | ) |
| Proceeds  from sale of equipment                                                         |   | **1**                                    | ** ** | 7 |   |
| Proceeds  from sale of product brand                                                     |   | **265**                                  | ** ** | — |   |
| Acquisition  of product brands                                                           |   | **(660**                                 | **)**      | (199 | ) |
| Increase  in non-current deposit                                                         |   | —                                   | ** ** | (11 | ) |
| Net  cash (used in) investing activities                                                 |   | **(495**                                 | **)**      | (256 | ) |
|                                                                                     |   |                                     | ** ** |   |   |
| Cash  flows from financing activities:                                                   |   |                                     | ** ** |   |   |
| Proceeds  from notes payable to related party                                            |   | **53**                                   | ** ** | 44 |   |
| (Payments  on) notes payable to related party                                            |   | **(133**                                 | **)**      | (135 | ) |
| Decrease  in due from related party                                                      |   | —                                   | ** ** | 25 |   |
| (Decrease)  in notes payable                                                             |   | **(283**                                 | **)**      | (142 | ) |
| Proceeds  from notes payable, other                                                      |   | **1,365**                                | ** ** | 750 |   |
| Payments  on notes payable, other                                                        |   | **(830**                                 | **)**      | (1,329 | ) |
| (Decrease)  in bank overdraft                                                            |   | **(35**                                  | **)**      | (275 | ) |
| Net  cash provided by (used in) financing activities                                     |   | **137**                                  | ** ** | (1,062 | ) |
|                                                                                     |   |                                     | ** ** |   |   |
| Net  increase (decrease) in cash                                                         |   | **11**                                   | ** ** | (9 | ) |
| Cash,  beginning of period                                                               |   | **5**                                    | ** ** | 12 |   |
|                                                                                     |   |                                     | ** ** |   |   |
| Cash,  end of period                                                                     |   | **$**                                    | **16**     | ** ** | $ | 3 |   |
|                                                                                     |   |                                     | ** ** |   |   |
| **Supplemental  disclosures of cash flow information:**                                  |   |                                     | ** ** |   |   |
| Cash  paid during the period for:                                                        |   |                                     | ** ** |   |   |
| Interest                                                                                 |   | **$**                                    | **497**    | ** ** | $ | 525 |   |
| Taxes                                                                                    |   | **$**                                    | **1**      | ** ** | $ | 1 |   |

 

See AccompanyingSelected Information to Unaudited Condensed Financial Statements.

 

5

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SELECTED FINANCIALINFORMATIONSUBSTANTIALLY ALL DISCLOSURES REQUIRED BY GENERALLY ACCEPTED ACCOUNTINGPRINCIPALS ARE NOT INCLUDED

 

**Notes to Financial Information**

 

1.               Basisof presentation:

 

The condensedinterim financial statements included herein have been prepared by LeePharmaceuticals without audit, pursuant to the rules and regulations of theSecurities and Exchange Commission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted pursuant to such rules andregulations, although the Company believes that the disclosures are adequate tomake the information presented not misleading.

 

These statementsreflect all adjustments, consisting of normal recurring adjustments which, inthe opinion of management, are necessary for fair presentation of theinformation contained herein.  It issuggested that these condensed financial statements be read in conjunction withthe financial statements and notes thereto included in the Company’s AnnualReport on Form 10-KSB for the year ended September 30, 2001.  The Company follows the same accountingpolicies in preparation of interim reports.

 

Results ofoperations for the interim periods may not be indicative of annual results.

 

The Company isinvolved in various matters involving environmental cleanup issues.  See “Item 2. Management’s Discussionand Analysis or Plan of Operations” and Note 11 of Notes to FinancialStatements included in the Company’s Form 10-KSB for the fiscal year endedSeptember 30, 2001.  The ultimateoutcome of these matters cannot presently be determined.  Environmental expenditures that relate to anexisting condition caused by past operations, and which do not contribute tocurrent or future revenue generation, are expensed.  The Company’s proportionate share of the liabilities are recordedwhen environmental remediation and/or cleanups are probable, and the costs canbe reasonably estimated.

 

2.               Continuedexistence:

 

The accompanyingfinancial statements have been prepared assuming that the Company will continueas a going concern.  Although the Companyexperienced nominal net income in fiscal years 2000 and 2001, past recurringlosses and inability to generate sufficient cash flow from normal operations tomeet its obligations as they became due, raises substantial doubt about itsability to continue as a going concern. The financial statements do not include any adjustments to reflect thepossible future effects on the recoverability and classification of assets orthe amounts and classification of liabilities that may result from the possibleinability of the Company to continue as a going concern.

 

3.               UseOf Estimates

 

The preparation offinancial statements in conformity with generally accepted accountingprincipals requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosures of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

4.               Reclassification

 

Certainreclassifications have been made to the prior year financial statements to beconsistent with the 2002 presentation.

 

5.               ImpairmentOf Long-Lived Assets And Long-Lived Assets To Be Disposed Of

 

The Companyevaluates is long-lived assets, including goodwill and certain identifiableintangibles, for impairment whenever events or changes in circumstancesindicate that the carrying amount of such assets or intangibles may not berecoverable.  Recoverability of assetsto be held and used is measured by a comparison of the carrying amount of anasset to future undiscounted net cash flows expected to be generated by theasset.  If such assets are considered tobe impaired, the impairment

 

6

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SELECTED FINANCIALINFORMATIONSUBSTANTIALLY ALL DISCLOSURES REQUIRED BY GENERALLY ACCEPTED ACCOUNTINGPRINCIPALS ARE NOT INCLUDED

 

to be recognizedis measured by the amount by which the carrying amount of the assets exceed thefair value of the assets.  If an assetis to be disposed of, it is reported at the lower of the carrying amount orfair value less costs to sell.  To date,there has been no impairment of long-lived assets.

 

6.               Earningsper share:

 

The Company has asimple capital structure, and there were no changes under the SFAS 128methodology to the previously reported earnings (loss) per share amounts forany of the fiscal years.  Basic earningsper share under SFAS 128 were computed using the weighted average number ofshares outstanding of 5,265,162 for the three and nine months ended June 2002and 5,194,496 for the three and nine months ended June 2001.  Differences in the weighted average numberof shares outstanding for purposes of computing diluted earnings per share weredue to the inclusion of the dilutive effect of stock options previouslygranted.  These differences in theweighted average number of shares outstanding for the calculation of basic anddiluted earnings per share resulted in no differences in the earnings pershare.

 

7.               Acquisitions:

 

On October 30,2000, the Company purchased certain assets of the Sloans® liniment temporary pain reliefproduct from C.B. Fleet Co., Inc. for $50,000 plus approximately $600 ofinventory.  The Company remitted thefull $50,000 at closing.  The balance of$50,000 is for a five year covenant not to compete.

 

On February 12,2001, the Company purchased certain assets of the Black Draught® laxative product line from TheMonticello Companies, Inc. for $185,000. This amount includes $37,000 of inventory and was remitted in full atclosing.  The balance of $148,000 is fora five year covenant not to compete.

 

On August 22,2001, the Company purchased certain assets of the DeWitt’s® Pills product line from TheMonticello Companies, Inc. for $265,000. The Company remitted the full $265,000 at closing.  On October 16, 2001, the Company exercisedit’s option to resell certain assets of DeWitt’s® Pills product line back to The Monticello Companies,Inc.  The Company received $265,000related to the resell of DeWitt’s®Pills.

 

On March 9, 2002,the Company purchased certain assets of product lines from Merz PharmaceuticalsLLC for $225,000 plus approximately $63,000 for inventory.  The product lines included Cankaid®, an oral antiseptic, Medicone®, a hemorrhoidal suppository,and Sayman®, anastringent cleansing bar.  The purchaseprice of $225,000 includes $200,000 for goodwill and $25,000 for a covenant notto compete.  The full $225,000 wasremitted at closing.  In addition, theCompany is obligated to pay a royalty as follows:  for the first twelve-month period following closing (i)twenty-five percent (25%) of the net sales of Medicone® and Sayman®; (ii) twenty-five percent (25%)of the net sales of the first 4,800 dozen sold of Cankaid®, and (iii) forty percent (40%)of the Cankaid® soldin excess of the first 4,800 dozen.  Forthe next two 12-month periods after closing (8 consecutive quarters), theroyalty payments will be (i) twenty percent (20%) of the net sales of Medicone® and Sayman®; (ii) twenty percent (20%) ofthe net sales of the first 4,800 dozen sold per 12-month period of Cankaid®, and (iii) forty percent (40%)of the Cankaid® unitssold in excess of the first 4,800 dozen per 12-month period.  Notwithstanding the above, no royalty shallbe due on Lee’s sales of Cankaid®inventory with 10/02 or 11/02 expirations to closeout/dollar store/off-priceretailers at wholesale prices of less than seventy cents ($.70).  The minimum royalty due is $75,000 per yearfor the next three years.  As of June30, 2002, $33,542 of royalties related to the above agreement have beenaccrued.

 

On April 5, 2002,the Company purchased certain assets of the One Step at a Time®, a nicotine addictionwithdrawal system, and lite’n®Up, a reusable cigarette filter, product lines from Category One Products,L.L.C., for $350,000 plus inventory.  Aclause in the agreement stipulates that if certain customers delete one of theproduct lines, the purchase price will be adjusted downward.  The full $350,000 was remitted at the closing.  The $350,000 has been recorded as goodwilland is included in intangible assets. The Company also acquired the rights to a royalty agreement for$100,000.  The Company is paying $4,000per week for this royalty obligation. As of June 30, 2002 the Company is paying $6,000 per week for inventorythat is estimated to be $150,000 - $175,000 in value.  The final value of the inventory has not been determined as ofthe date of this report.

 

7

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SELECTED FINANCIALINFORMATIONSUBSTANTIALLY ALL DISCLOSURES REQUIRED BY GENERALLY ACCEPTED ACCOUNTINGPRINCIPALS ARE NOT INCLUDED

 

On April 23, 2002,the Company purchased certain assets of product lines Unguentine®, an ointment for burns, andUnguentine® Plus, a firstaid antiseptic and pain relieving cream, from U.S. Dermatologics, Inc.  The purchase price is $85,000 for a covenantnot to compete and as yet an undetermined amount of inventory.  $25,000 of the purchase price was paid atclosing and a Promissory note was signed for the remaining $60,000.  The note calls for a monthly payment of$3,000 plus interest at the highest prime rate published in the Wall StreetJournal the prior month beginning June 15, 2002.  This agreement also calls for the Company to pay a 20% royaltyannually, for a period of three years, on net sales of one of the products,with a minimum payment of $6,000.  As ofJune 30, 2002, no amount has been accrued for this royalty, as the Companysales have only been for the inventory purchased.

 

8.               Incometaxes:

 

As of June 30,2002, the Company had net operating loss (NOL) carryforwards of approximately$10,300,000 for Federal and $1,600,000 for California tax purposes which can beused to offset future Federal and California income taxes.  The differences in the state carryforwardsrelate primarily to the treatment of loss carryforwards and depreciation ofproperty, plant and equipment.  TheFederal carryforwards expire from 2005 through 2020; California expires from2001 through 2005.  The Company hasprovided an allowance for the entire amount of the deferred asset applicable tothe NOL.

 

9.               Otherincome:

 

For the ninemonths ended June 30, 2002, the Company realized a gain of approximately$82,000 related to the sale of the Klutch® product line.  The realized gain pertains to therecognition of the earned portion of the deferred income of the consultingagreements arising from the sale of the Klutch® brand.  Alsoincluded in other income is $10,000 in property tax refunds paid in prioryears.

 

The other incomefor the nine months ended June 30, 2001 consisted of $18,000 related to thesale of the Klutch®product line, $11,000 for the final amortization of the prior sale of twobuildings, $11,000 for the sale of a trademark and $82,000 recorded as reliefof debt, as well as gain from the sale of equipment.

 

8

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**Item 2.**

 

**Management’s Discussion and Analysisor Plan of Operations**

**Material Changes in Results ofOperations**

**Three Months Ended June 30, 2002, andJune 30, 2001**

 

Gross revenues forthe three months ended June 30, 2002, were $2,440,000, an increase ofapproximately $366,000, or 18%, from the comparable three months ended June 30,2001.  The Company reported increasedvolume in several products. The primary increase in revenues was related toLactona®($65,000), depilatories ($33,000) and other over-the-counter (OTC) brands($116,000).  In addition, the Companyhad added sales of newly acquired brands ($247,000) and the private label lineof business ($253,500).  The aboveincreases were partially offset by lower sales volume of existing brandsnamely; Lee® Lip-Ex® line of products ($95,000),nail category ($77,000), Aquafilter®($50,000), and several personal care category of brands ($166,000).

 

Net revenuesincreased approximately $224,000, or 11%, for the three months ended June 30,2002, as compared to the three months ended June 30, 2001.  The Company reported increased volume inseveral products.  The primary increasein revenues was related to Lactona® ($65,000), depilatories ($72,000) and other OTC brands($125,000).  In addition, the Companyhad added sales of newly acquired brands ($226,000) and the private label lineof business ($247,400).  Theaforementioned increases were partially offset by lower sales volume ofexisting brands namely; Lee®Lip-Ex® line ofproducts ($95,000), nail category ($77,000), Aquafilter® ($50,000), and several personalcare category of brands ($157,000). Also, sales returns decreased approximately $21,000 or 9% when comparingthe three months ended June 30, 2002 ($202,000) and the three months ended June30, 2001 ($223,000).  During the quarterended June 30, 2001, the Company made an adjustment lowering its sales returnsand allowances reserve account by $152,000, bringing the balance shown forsales returns on the statement of operations to $71,000.

 

Cost of sales as apercentage of gross revenues was 47% for the three months ended June 30, 2002,as compared to 52% for the three months ended June 30, 2001.  The decreased cost of sales percentage wasdue to the product mix which was more favorable because the recently acquiredbrands had a lower cost of sales than the Company’s overall average.

 

Selling andadvertising expenses increased $295,000, or 58%, when comparing the threemonths ended June 30, 2002 with the three months ended June 30, 2001.  The increase in expenses were due to thefollowing factors: (1) increase in the bad debt expense ($99,000), (2) highersalesmen salaries and related fringe benefits due to the hiring of a highersalaried salesman who replaced lower salaried sales personnel plus addedtemporary help ($43,000), (3) increased freight costs ($39,000), (4) higheramortization expense as a result of recent product brand acquisitions ($33,000),(5) higher sales force commission/bonuses resulting from increased sales toconvenience store accounts and private label business ($17,000), (6) addedroyalty expense from new acquisitions ($45,000), and (7) higher commission($9,000) due to added manufacturer representatives covering territories thatwere previously open.

 

General andadministrative expenses decreased $32,000, or 10%, when comparing the threemonths ended June 30, 2002, with the three months ended June 30, 2001.  This decrease included lower general legalfees ($16,000), reduction in general supplies expense ($20,000), and reducedbuilding rental expenses ($10,000).  Therental income from subleasing three of the Company’s facilities, offsets the rentalexpense on the master lease.

 

Interest expenseincreased $11,000, or 6%, when comparing the three months ended June 30, 2002,with the three months ended June 30, 2001. The increase was due to a higher borrowings (principal) from theCompany’s related party.  The above wassomewhat offset by a lower average prime interest rate (4.75% vs. 7.16%) inreference to certain loans which are tied to prime.

 

**Material Changes in Results ofOperations**

**Nine Months Ended June 30, 2002, andJune 30, 2001**

 

Gross revenues forthe nine months ended June 30, 2002, were $7,620,000, an increase ofapproximately $463,000 or 6% from the comparable nine months ended June 30,2001.  The increase in gross revenueswas due to the higher sales volume of the Lee® Lip-Ex®line of products, the added volume of newly acquired brands along with theintroduction of private label sales revenue.

 

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The aboveincreases were partially offset by the lower sales volume of depilatories($86,000), Nosebetter®($137,000), Take-Off®($87,000) and other over-the-counter items.

 

Net revenues forthe nine months ended June 30, 2002 were $6,902,000, an increase of $422,000 or7% from the comparable nine months ended June 30, 2001.  The increase in net revenues was due to thehigher sales volume of the Lee® Lip-Ex®line of products, the added volume of newly acquired brands along with theintroduction of private label sales revenue. The above increases were partially offset by the lower sales volume ofdepilatories ($128,000), Nosebetter®($150,000), Take-Off®($81,000), and other OTC items.  TheCompany’s sales returns increased $29,000 or 5% when comparing fiscal years2002 and 2001.  The Company experiencedthe discontinuance of a few of its SKU’s (stock keeping units) at the retailstore level in certain territories of the country.

 

Cost of sales as apercentage of gross revenues for the nine months ended June 30, 2002, ascompared to the nine months ended June 30, 2001, remained consistant at 46%.

 

Selling andadvertising expenses increased $409,000, or 23% when comparing the nine monthsended June 30, 2002 with the nine months ended June 30, 2001.  The increase in expenses was due to thefollowing factors:  1) increase in baddebt expense ($108,000), (2) higher salesmen salaries and related fringebenefits due to the hiring of a higher salaried salesman who replaced lowersalaried sales personnel plus added temporary help ($82,000), (3) increasedfreight costs ($65,000), (4) higher sales force commissions/bonuses resultingfrom increased sales to convenience store accounts and private label business($39,000), and (5) added commissions ($47,000) due to added manufacturerrepresentatives covering territories that were previously open, and higherroyalty expenses from new acquisitions ($45,000).

 

General andadministrative expenses increased $37,000, or 4%, when comparing the ninemonths ended June 30, 2002, with the nine months ended June 30, 2001.  The increase in expense was related tohigher consulting service fees ($42,000), increased general supplies expense($31,000) and higher costs related to stockholders meeting, annual reports,etc. ($9,000).  The above increases werepartially offset by lower general legal fees ($29,000) and reduced buildingrental expenses ($23,000).  The rental incomefrom subtenants, subleasing three of the Company’s facilities, offsets therental expense on the master lease.

 

Interest expensedecreased $44,000, or 7%, when comparing the nine months ended June 30, 2002,with the nine months ended June 30, 2001. The decrease was due to lower average prime interest rate (4.86% vs.8.44%) in reference to certain loans which are tied to prime.

 

**Liquidity and Capital Resources**

 

At June 30, 2002,working capital was a negative $2,109,000 compared with a negative $1,750,000as of September 30, 2001.  The ratio ofcurrent assets to current liabilities was .6 to 1 at June 30, 2002, and .7 to 1at September 30, 2001.  The increase inthe Company’s negative working capital was primarily due to a decrease inaccounts receivable and an increase in the current portion of long termborrowings and accounts payable.

 

The Company has anaccumulated deficit of $7,377,000. Although the Company experienced nominal net income in fiscal years 2000and 2001, past recurring losses and inability to generate sufficient cash flowfrom normal operations to meet its obligations as they become due, raisessubstantial doubt about the Company’s ability to continue as a goingconcern.  The Company’s ability tocontinue in existence is dependent upon future developments, includingretaining current financing and achieving a level of profitable operationssufficient to enable it to meet its obligations as they become due.

 

**Environmental Matters**

 

The Company owns amanufacturing facility located in South El Monte, California.  The California Regional Water QualityControl Board (The “RWQCB”) ordered the Company in 1988 and 1989 to investigatethe contamination on its property (relating to soil and groundwater contamination).  The Company engaged a consultant whoperformed tests and reported to the then Chairman of the Company.  The Company resisted further work on itsproperty until the property upgradient was tested in greater detail since two“apparent source” lots had not been tested. On August 12, 1991, the RWQCB issued a “Cleanup and Abatement Order”directing the Company to conduct further testing and cleanup the site.  In October 1991, the Company received froman environmental consulting firm an estimate of $465,200 for investigation andcleanup costs.  The Company believed

 

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that this estimatewas inconclusive and overstated the contamination levels.  The Company believes that subsequentinvestigations will support the Company’s conclusions about that estimate.  The Company did not complete the testing forthe reasons listed above as well as “financial constraints”.  In June 1992, the RWQCB requested that theEPA evaluate the contamination and take appropriate action.  At the EPA’s request, Ecology &Environment, Inc. conducted an investigation of soil and groundwater on theCompany’s property.  Ecology &Environment Inc.’s Final Site Assessment Report, which was submitted to the EPAin June 1994, did not rule out the possibility that some of the contaminationoriginated on-site, and resulted from either past or current operations on theproperty.

 

On April 24, 2002,the RWQCB notified the Company that the detection of emergent chemicals ingroundwater, above State and Federal maximum containment levels or actionlevels, has caused the RWQCB and the EPA to reassess the threat posed togroundwater resources used for domestic supply.  The RWQCB directed the Company to test for the presence ofemergent chemicals in its groundwater monitoring wells.  The groundwater monitoring analyticalresults were due by July 15, 2002.  OnMay 24, 2002, the Company informed RWQCB that it could not comply with therequirement to conduct groundwater sampling due to ongoing financialdifficulties.

 

On July 8, 2002,the RWQCB sent a “Second Notice of Violation” to the Company directing theCompany to comply with the requirement to prepare a groundwater remedial actionplan (RAP).  The Company previouslynotified the RWQCB that it could not comply with the requirement to submit aRAP because of ongoing financial difficulties. The RWQCB requested that the Company submit certain financialinformation by July 29, 2002 to “substantiate any alleged financial losses anddetermine whether any suspension of implementating the...(Cleanup and AbatementOrder) is warranted.”  The Company hasreceived an extension to submit the required financial information to August19, 2002.  The Company may be liable forall or part of the costs of remediating the contamination on its property and couldbe subject to enforcement action by the RWQCB, including injunctive and civilmonetary remedies.

 

The Company and nearbyproperty owners, in consort with their comprehensive general liability (CGL)carriers, engaged a consultant to perform a site investigation with respect tosoil and shallow groundwater contamination over the entire city block.  The CGL carriers provided $290,000 infunding which paid for the $220,000 study, $20,000 in legal fees for project oversight,and a $50,000 balance in the operating fund. Earlier the Company had accrued $87,500 as its proportionate share ofthe earlier quote of $175,000. Since that time, the overall scope of theproject was increased to $205,000 plus $15,000 for waste water disposal,bringing the total to the above listed $220,000.  The $87,500 accrualwas not spent on this project (as the entire cost was borne by the CGLcarriers), but remains on the books as an accrual against the cost ofremediation of the same site that was included in the study.

 

The tenants of nearbyproperties upgradient have sued the Company alleging that hazardous materialsfrom the Company’s property caused contamination on the properties leased bythe tenants.  The case name is DelRay Industrial Enterprises, Inc. v. Robert Malone, et al., LosAngeles County Superior Court, Northwest District, commenced August 21,1991.  In this action, the plaintiffalleges environmental contamination by defendants of its property, and seeks acourt order preventing further contamination and monetary damages.  The Company does not believe there is anybasis for the allegations and is vigorously defending the lawsuit.

 

The Company’s South ElMonte manufacturing facility is also located over a large area of possiblycontaminated regional groundwater which is part of the San Gabriel ValleySuperfund Site.  The Company has beennotified that it is a potentially responsible party  (“PRP”) for the contamination.  In 1995, the Company was informed that the EPA estimated the cleanupcosts for the South El Monte’s portion of the San Gabriel Valley Superfund Siteto be $30 million.  The Company’spotential share of such amount has not been determined.  Superfund PRPs are jointly and severallyliable for superfund site costs, and are responsible for negotiating amongthemselves the allocation of the costs based on, among other things, theoutcome of environmental investigation.

 

In August 1995, theCompany was informed that the EPA entered into an Administrative Order ofConsent with Cardinal Industrial Finishes (“Cardinal”) for a PRP lead remedialinvestigation and feasibility study (the “Study”) which, the EPA states, willboth characterize the extent of groundwater contamination in South El Monte andanalyze alternatives to control the spread of contamination.  The Company and others entered into theSouth El Monte Operable Unit Site Participation Agreement with Cardinalpursuant to which, among other things, Cardinal contracted with anenvironmental firm to conduct the Study. The Study has been completed. The Company’s share of the cost of the Study was $15,000 and was accruedfor in the financial statements as of September 30, 1995.  The South El

 

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Monte Operable Unit(SEMOU) participants developed four remedial alternatives.  The capital cost of the four alternativesrange from $0 (no action) up to $3.49 million. The estimated annual operating cost for the four alternatives range from$0 (no action) to $770,300.  Over a30-year period, the total cost of the four alternatives range from $0 (noaction) up to $13.05 million.  The EPAprefers an alternative which estimates the capital cost up to $3.08 million,the annual operating cost at $.48 million, and the 30-year period total cost upto approximately $9.09 million.  Theselection of the actual alternative implemented is subject to publiccomment.  At the present time, theCompany does not know what its share of the cost may be, if any.  Therefore, no additional accrual has beenrecognized as a liability on the Company’s books.  The Company requested that the EPA conduct an “ability-to-payevaluation” to determine whether the Company is entitled to an early settlementof this matter based upon a limited ability to pay costs associated with siteinvestigation and remediation.  InAugust 2000, the EPA informed the Company that it does not qualify for an earlysettlement at this time.

 

The EPA has informed theCompany that it has learned that the intermediate zone groundwatercontamination in the western portion of the SEMOU has migrated further west andhas now impacted the City of Monterey Park and Southern California WaterCompany production wells.  The EPAstated that the City of Monterey Park Water Department, San Gabriel ValleyWater Company and Southern California Water Company are planning to buildtreatment facilities for their wells. The EPA stated that these three water purveyors contacted some of theSEMOU PRPs, other than the Company, to seek funding to develop groundwatertreatment facilities for the contaminated wells.  A group of these PRPs calling themselves the “South El MonteCooperative Group” has been formed and purportedly has reached a generalagreement with the water purveyors to fund the development of treatmentfacilities and use the water purveyors’ wells in an attempt to contain thegroundwater contamination to meet EPA’s goals. At this time, the EPA has not reviewed or approved any specific plan toaddress contamination at the purveyor wells, nor has the EPA compromised itsright to recover response costs from any person who is legally responsible forcontamination within the SEMOU.  As ofthe date of this report, the Company has not been contacted by the South ElMonte Cooperative Group in respect to its participation in any proposed cleanupactivity.  As a result, the Company isnot able to determine what contribution, if any, it may be assessed inconnection with this cleanup activity.

 

By letter dated November13, 2000, the Company was notified that the City of Monterey Park, San GabrielValley Water Company and Southern California Water Company intend to bring suitunder the Safe Drinking Water and Toxic Enforcement Act of 1986 alleging thatthe Company has knowingly released volatile organic compounds in the soil andshallow ground water beneath the Company’s property between at least on orbefore November 8, 1996 and the present and has failed to promptly clean up allof the contamination.  As of the date ofthis report, the Company has not been served with this lawsuit.

 

The City of South ElMonte, the city in which the Company has its manufacturing facility, is locatedin the San Gabriel Valley.  The SanGabriel Valley has been declared a Superfund site.  The 1995 Water Quality Control Plan issued by the CaliforniaRegional Water Quality Control Board states that the primary groundwater basinpollutants in the San Gabriel Valley are volatile organic compounds fromindustry, nitrates from subsurface sewage disposal and past agriculturalactivities.  In addition, the Plan notedthat hundreds of underground storage tanks leaking gasoline and other toxicchemicals have existed in the San Gabriel Valley.  The California Department of Toxic Substance Control has declaredlarge areas of the San Gabriel Valley to be environmentally hazardous andsubject to cleanup work.

 

The Company believes theCity of South El Monte does not appear to be located over any of the majorplumes.  However, the EPA has announcedit is studying the possibility that, although the vadose soil and groundwater,while presenting cleanup problems, there may be a contamination by DNAPs (densenon-aqueous phase liquids), i.e., “sinkers”, usually chlorinated organiccleaning solvents.  The EPA has proposedto drill six “deep wells” throughout the City of South El Monte at an estimatedcost of $1,400,000.  The EPA isconferring with SEMPOA (South El Monte Property Owners Association) as to costsharing on this project.  SEMPOA hasobtained much lower preliminary cost estimates.  The outcome cost and exact scope of this are unclear at thistime.

 

The Company and otherproperty owners engaged Geomatrix Consultants, Inc., to do a survey of vadosesoil and shallow groundwater in the “hot spots” detected in the previousstudies.  Geomatrix issued a reportdated December 1, 1997 (the “Report”), on the impact of volatile organiccompounds on the soil and groundwater at the Lidcombe and Santa Anita Avenuesite located in South El Monte, California (which includes the Company’sfacilities).  The Report indicatedgenerally low concentrations of tetrachloroethene, trichloaethene andtrichloroethane in the groundwater of the upgradient neighbor.  The Report was submitted to the RWQCB forits comments and response.  A

 

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meeting with the partiesand RWQCB was held on February 10, 1998. The RWQCB had advised companies that vadose soil contamination isminimal and requires no further action. However, there is an area of shallow groundwater which has a higher thandesired level of chlorinated solvents, and the RWQCB requested a proposed workplan be submitted by Geomatrix. Geomatrix has submitted a “Focused Feasibility Study” which concludesthat there are five possible methods for cleanup.  The most expensive are for a pump and sewer remediation whichwould cost between $1,406,000 and $1,687,000. The Company is actively exploring the less expensive alternativeremediation methods, of which the two proposed alternatives range in costbetween $985,000 and $1,284,000.  Sincethere are four economic entities involved, the Company’s best estimate at thistime, in their judgment, would be that their forecasted share would be $287,000less the liability already recognized on the books of $165,000 therebyrequiring an additional $122,000 liability. Accordingly, the Company recorded an additional accrual of $122,000 inthe third quarter of fiscal 1998.  The$122,000 accrual is in addition to the $79,000 accrual for the Monterey Site aswill be explained in the following paragraph.

 

The $79,000 accrual, inthe third quarter of fiscal 1998, related to the Monterey Site is not includedin the $287,000 figure above.  In April2000, the Company received a Notice of Violation from the RWQCB.  The Notice of Violation states that theCompany and other property owners were required to submit a groundwaterremedial action plan by November 1, 1999, and that the RWQCB has been advisedthat the Company and the other property owners were unable to submit therequired remedial action plan because the Company and the other property ownerscould not agree on the allocation of financial responsibility to prepare theaction plan.  The RWQCB stated that itwill no longer encourage the cooperative approach among the Company and   the other property owners in completing thecleanup requirements and will pursue appropriate measures, including whennecessary, enforcement actions.  TheRWQCB states that it may impose civil liability penalties of up to $1,000 perday from November 1, 1999 for failure to file the action plan.  In light of these events, no assurances canbe given that the cleanup costs and possible penalties will not exceed theamount of the Company’s current accruals of $287,000 (which includes the$122,000 charge to income in the third quarter of fiscal 1998).

 

In July 2000, theproperty owners formed the Lidcombe & Santa Anita Avenue Work Group (LSAAW)in response to the RWQCB request for the preparation of an action plan.  The LSAAW submitted a Focused FeasibilityStudy to the RWQCB for their review and approval of the selected remedialaction method for the site.  Afterreceiving RWQCB approval, LSAAW obtained three cost proposals to implement theRWQCB approved pump and treat remedial method. According to these cost proposals, the lowest estimated costs for anassumed five (5) years of pump and treat remediation is $600,000.  This cost is lower than the previous costproposed work plan, discussed above, from Geomatrix Consultants, Inc.  The capital costs including contingenciesare approximately $300,000.

 

The LSAAW is hopeful theWater Quality Authority (WQA) is willing and able to reauthorize its grant forone-half (1/2) of the capital costs of its remediation system construction notto exceed $150,000.  It is estimated atthis time that the reserves for the Company’s share of this cost proposal areadequate since its prior accrual was based on the higher cost estimate fromGeomatrix.

 

Without any priorcorrespondence or inkling of the Company’s potential liability, the EPAinformed the Company that the Company may have potential liability for theongoing remediation of Operating Industries, Inc. (as they have gone out ofbusiness) Landfill Superfund Site in Monterey Park, California (the “MontereySite”).  The Monterey Site is a 190 acrelandfill that operated from 1948 to 1984, in which the Company disposed of nontoxic pH balanced waste water on six occasions between 1974 and 1978.  Over 4,000 companies have been identified ashaving contributed waste to the Monterey Site. The EPA has offered to settle the Company’s potential liability withrespect to the Monterey Site for a cost to the Company of $79,233.  The Company accrued a $79,000 charge in thethird quarter of fiscal 1998 with respect to this possible liability.  The Company has elected to file for relieffrom these obligations under the financial hardship option in the EPA’sresponse form.  On June 30, 2000, theEPA informed the Company that the EPA believed the Company is able to pay thefull settlement cost, but offered to reduce the amount of the settlement to$75,271.

 

The Company was notifiedby the EPA that the Company may have potential liability for waste material itdisposed of at the Casmalia Disposal Site (“Site”) located on a 252-acre parcelin Santa Barbara County, California. The Site was operational from 1973 to 1989, and over 10,000 separateparties disposed of waste there.  TheEPA stated that federal, state and local governmental agencies along with thenumerous private entities that used the Site for waste disposal will beexpected to pay their share as part of this settlement.  The U.S. EPA is also pursuing theowner(s)/operator(s) of the Site to pay for Site remediation.  The EPA has a settlement offer to the Companywith respect to the Site for a

 

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cost of $373,950.  The Company accrued a $374,000 charge in thefirst quarter of fiscal 1999 with respect to this possible liability.  The Company has elected to file for relieffrom these obligations under the financial hardships option in the EPA’sresponse form.  The Company, the EPA andcertain PRPs have entered into an agreement tolling the applicable statutes oflimitation.  The Company has beennotified by the EPA that their request for a waiver, due to financial hardship,was “partially granted.”  Improvementsin the bidding process has lowered the Company’s estimated share down to$245,000 (from $374,000) and of that, the EPA was requesting that the Companypay $113,000, as a result of their findings on the application for waiver dueto financial hardship.  The Company isconsidering the EPA’s request.

 

The total amount ofenvironmental investigation and cleanup costs that the Company may incur withrespect to the foregoing is not known at this time.  However, based upon information available to the Company at thistime, the Company has expensed since 1988 a total of $860,000, of which $89,000were legal fees, exclusive of legal fees expended in connection with the SECenvironmental investigation.  The actualcosts could differ materially from the amounts expensed for environmentalinvestigation and cleanup costs to date.

 

As of June 30, 2002, noadditional amounts have been incurred and no settlements have been reached.

** **

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**PART II - Other Information**

 

Item 1.            Legal Proceedings

 

The informationset forth under Part I, Item 2, “Management’s Discussion and Analysis or Planof Operations - Environmental Matters” is incorporated herein byreference.  See also “LegalProceedings” in the Company’s Form 10-KSB for the fiscal year ended September30, 2001.

 

Item 6.                                     Thefollowing exhibits are filed herewith:

 

10.1 -   Promissorynote evidencing advance made to the Registrant

 

10.2 -   Promissorynote evidencing advance made to the Registrant

 

10.3 -   Promissorynote evidencing advance made to the Registrant

 

10.4 -   Promissorynote evidencing advance made to the Registrant

 

10.5   -   Promissory note dated April 23, 2002, betwen Lee Pharmaceuticalsand U.S. Dermatologics, Inc.

 

The followingexhibits have previously been filed by the Company:

 

3.1   -   Articlesof Incorporation, as amended (1)

 

3.4   -   By-laws,as amended December 20, 1997 (2)

 

3.5   -   Amendmentof By-laws effective March 14, 1978 (2)

 

3.6   -   Amendmentto By-laws effective November 1, 1980 (3)

 

(1)          Filed as an Exhibit ofthe same number with the Company’s Form S-1 Registration Statement filed withthe Securities and Exchange Commission on February 5, 1973, (Registrant No.2-47005), and incorporated herein by reference.

 

(2)          Filed as Exhibits 3.4and 3.5 with the Company’s Form 10-K Annual Report for the fiscal year endedSeptember 30, 1978, filed with the Securities and Exchange Commission andincorporated herein by reference.

 

(3)          Filed as an Exhibit ofthe same number with the Company’s Form 10-K Annual Report for the fiscal yearended September 30, 1979, filed with the Securities and Exchange Commission andincorporated herein by reference.

 

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SIGNATURES

 

In accordance withthe requirements of the Securities Exchange Acts of 1934, the registrant hascaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |            |   |   |                                                                           | LEE  PHARMACEUTICALS |   |
|--------|-----------------|--------|--------|--------------------------------------------------------------------------------|----------------------|--------|
|   |            |   |   | (Registrant)                                                                   |
|   |            |   |   |                                                                           |
|   |            |   |   |                                                                           |
| Date:  | August 14, 2002 |   |   | RONALD G. LEE                                                                  |
|   |            |   |   | Ronald G. Lee                                                                  |
|   |            |   |   | Chairman of the Board,  President and   Chief Financial and Accounting Officer |

 

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