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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31,1997
or
[X] 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 0-22686
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PALATIN TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
95-4078884
(I.R.S. Employer Identification No.)
214 Carnegie Center - Suite 100
Princeton, New Jersey 08540
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (609) 520-1911
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for
such shorter period that the Issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
[X] Yes [ ] No
As of May 14, 1997, 11,825,855 shares of the Issuer's common stock, par
value $.01 per share, were outstanding.
Transitional Small Business Disclosure Format: [X] Yes [ ] No
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PALATIN TECHNOLOGIES, INC.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS -- As of March 31, 1997
(unaudited) and June 30,1996 (audited) Page 3
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) --
For the Three and Nine Months Ended March 31, 1996 and
March 31, 1997 and the Period from January 28, 1986
(Commencement of Operations) through March 31, 1997 Page 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) --
For the Nine Months Ended March 31, 1996 and March 31,
1997 and the Period From January 28, 1986 (Commencement
of Operations) through March 31, 1997 Page 5
Notes to Consolidated Financial Statements Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Page 14
Item 2. Change in Securities Page 14
Item 3. Defaults Upon Senior Securities Page 16
Item 4. Submission of Matters to a Vote of
Security Holders Page 16
Item 5. Other Information Page 16
Item 6. Exhibits and Reports on Form 8-K Page 16
Signatures Page 17
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, 1997 June 30, 1996
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,863,237 $ 6,791,300
Accounts receivable 267,870 4,574
Prepaid expenses and other 59,137 66,430
------------ ------------
Total current assets 5,190,244 6,862,304
Equipment, net of accumulated depreciation of
$222,174 and $183,535 as of March 31, 1997 and
June 30, 1996, respectively 186,008 96,354
Intangibles, net of accumulated amortization of
$98,782 and $91,336 as of March 31, 1997 and
June 30, 1996, respectively 75,940 82,547
------------ ------------
$ 5,452,192 $ 7,041,205
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 216,572 $ 214,424
Accrued compensation owed to employees - 78,084
Accrued expenses 311,048 655,197
Current portion of long-term financing, including
accrued interest of $352,829 and $38,912 as of
March 31, 1997 and June 30, 1996, respectively 936,950 311,695
Senior bridge notes, including related party
transaction of $110,000 as of June 30, 1996 - 1,100,000
------------ ------------
Total current liabilities 1,464,570 2,359,400
Long-term financing, including accrued interest
of $0 and $273,339 as of March 31, 1997 and
June 30, 1996, respectively 968,527 1,727,619
Deferred license revenue 550,000 -
Notes payable to stockholders, including accrued
interest of $41,979 and $35,979 as of
March 31, 1997 and June 30, 1996, respectively 121,979 115,979
------------ ------------
Total liabilities 3,105,076 4,202,998
------------ ------------
Stockholders' equity:
Preferred stock, $.01, and 2,000,000 shares
authorized, as of March 31,1997 and June 30, 1996;
and 30,630 and no shares issued as of March 31, 1997
and June 30, 1996, respectively 2,680,591 -
Common stock, $.01, and 25,000,000 shares authorized,
as of March 31, 1997 and June 30, 1996; and
11,753,978 and 11,538,777 issued as of March 31, 1997
and June 30, 1996, respectively 117,540 115,388
Treasury stock, 1,229 shares of Common Stock (1,667) (1,667)
Additional paid-in capital 11,018,039 10,804,394
Common stock earned but not issued 279,278 53,030
Unamortized deferred compensation (88,221) -
Deficit accumulated during the development stage (11,658,444) (8,132,938)
------------ ------------
Total stockholders' equity 2,347,116 2,838,207
------------ ------------
$ 5,452,192 $ 7,041,205
============ ===========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
3
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Inception
(January 28, 1986)
Three Months Ended March 31, Nine Months Ended March 31, through
1997 1996 1997 1996 March 31, 1997
REVENUES:
Grants and contracts $ 267,862 - $ 267,862 - $ 3,128,374
License fees and royalties 350,000 - 350,000 - 684,296
Sales - $ 12,240 22,184 $ 20,971 318,917
------------ ----------- ---------- ----------- ------------
Total revenues 617,862 12,240 40,046 20,971 4,131,587
------------ ----------- ---------- ----------- ------------
EXPENSES:
Research and development 1,050,400 242,212 2,300,669 557,955 6,697,077
General and administrative 793,370 405,111 1,740,125 1,017,061 6,643,086
------------ ----------- ---------- ----------- ------------
Total expenses 1,843,770 647,323 4,040,794 1,575,016 13,340,163
------------ ----------- ---------- ----------- ------------
OTHER INCOME (EXPENSES):
Other income 36,330 - 159,023 - 230,403
Interest expense (84,927) (143,465) (301,200) (348,121) (1,344,386)
Placement agent commissions
and fees on debt offering - (101,541) - (135,341) (168,970)
Merger costs 17,419 (9,611) 17,419 (9,611) (457,581)
Restructuring charge - (24,309) - (114,309) (450,000)
Net intangibles write down - - - - (259,334)
------------ ----------- ---------- ----------- ------------
Total other income (expenses) (31,178) (278,926) (124,758) (607,382) (2,449,868)
------------ ----------- ---------- ----------- ------------
NET LOSS $ (1,257,086) $ (914,009) $(3,525,506) $(2,161,427) $ 11,658,444)
============ ============ =========== =========== ============
Weighted average number of common
shares outstanding 11,745,837 1,294,792 11,618,271 1,290,451 1,948,514
Net loss per common share $ (0.11) $ (0.71) $ (0.30) $ (1.67) $ (5.98)
============ ============ =========== =========== ============
The accompanying notes to consolidated financial statements are an integral part of these statements.
4
PALATIN TECHNOLOGIES, INC
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Inception
Nine Months Ended (January 28, 1986)
March 31, through
1997 1996 March 31, 1997
-------------- -------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,525,506) $ (2,161,428) $ (11,658,444)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 46,085 58,788 354,659
Interest expense on related-party debt 6,000 6,000 59,387
Accrued interest on long-term financing 226,248 247,407 1,022,286
Accrued interest on short-term financing (100,000) 93,510 7,936
Intangibles and equipment write down - - 278,318
Deferred license revenue 550,000 - 550,000
Accretion of compensatory options and warrants 116,078 - 116,078
Equity and notes payable issued for expenses - - 296,047
Settlement with consultant - - (28,731)
Changes in certain operating assets and liabilities:
Accounts receivable (263,295) (2,999) (267,869)
Prepaid expenses and other 7,293 (12,761) (59,137)
Intangibles (839) (15,833) (428,177)
Accounts payable 2,148 (82,329) 215,672
Accrued compensation owed to employees (78,084) 27,126 16,548
Accrued expenses (344,149) 27,097 339,779
-------------- -------------- ---------------
Net cash used for operating activities 3,358,021) (1,815,422) (9,185,648)
-------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (128,293) (9,513) (463,522)
-------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, related party - - 302,000
Payments on notes payable, related party - (302,000) (309,936)
Proceeds from senior bridge notes payable - 1,850,000 1,850,000
Payments on senior bridge notes (1,000,000) - (1,850,000)
Proceeds from notes payable and long-term financing - - 1,951,327
Payments on notes payable and long-term financing (133,837) (45,000) (323,898)
Proceeds from paid-in capital from common
stock warrants 9,999 - 109,999
Proceeds from common stock, stock option
issuances and preferred stock, net 2,682,089 305,617 12,784,581
Purchase of treasury stock and fractional shares - - (1,667)
-------------- -------------- ---------------
Net cash provided by financing activities 1,558,251 1,808,617 14,512,407
-------------- -------------- ---------------
NET INCREASE (DECREASE) IN CASH (1,928,063) (16,318) 4,863,237
CASH and cash equivalents, beginning of period 6,791,300 46,768 -
-------------- -------------- ---------------
CASH and cash equivalents, end of period $ 4,863,237 $ 30,450 $ 4,863,237
============== ============== ===============
The accompanying notes to consolidated financial statements are an integral part of these statements.
5
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Months Ended March 31, 1997 and 1996
(1) Nature of Business
Through its wholly-owned subsidiary RhoMed Incorporated
("RhoMed"), Palatin Technologies, Inc. (the "Company") is a
development-stage biopharmaceutical company dedicated to developing
and commercializing products and technologies for diagnostic imaging,
cancer therapy and ethical drug development utilizing peptide,
monoclonal antibody and radiopharmaceutical technologies. The
Company was incorporated under the laws of the State of Delaware on
November 21, 1986. Since June 25, 1996, the effective date of the
merger (the "Merger") of a wholly-owned subsidiary of the Company
with and into RhoMed, all outstanding shares of RhoMed equity
securities were exchanged for the Company's common stock, $.01 par
value per share (the "Common Stock"). The business of RhoMed
represents the on-going business of the Company.
As a result of the Merger, RhoMed became a wholly-owned
subsidiary of the Company, with the holders of RhoMed preferred stock
and RhoMed common stock (including the holders of "RhoMed Derivative
Securities" as hereafter defined) receiving an aggregate of
approximately 96% interest in the equity securities of the Company on
a fully-diluted basis. Additionally, all warrants and options to
purchase common stock of RhoMed outstanding immediately prior to the
Merger (the "RhoMed Derivative Securities"), including without
limitation, any rights underlying RhoMed's qualified or nonqualified
stock option plans, were automatically converted into rights upon
exercise to receive the Company's Common Stock in the same manner in
which the shares of RhoMed common stock were converted. Since the
former stockholders of RhoMed retained more than a 50% controlling
interest in the surviving company (Palatin Technologies, Inc.), the
Merger was accounted for as a reverse merger. The historical
financial statements prior to June 25, 1996, are those of RhoMed,
except that the net loss per common share has been stated on an as if
converted basis.
Since its inception, RhoMed has devoted substantially all of its
efforts and resources to the research and development of its
technology. RhoMed has experienced operating losses in each year
since its inception and, as of March 31, 1997, the Company, including
its wholly-owned subsidiary RhoMed, had a deficit accumulated during
the development stage of $11,658,444. The Company expects to incur
additional operating losses over the next several years and expects
cumulative losses to increase as the Company's research and
development and clinical testing efforts continue and expand. The
ultimate completion of the Company's development projects is
contingent upon a number of factors, including the successful
completion of technology and product development, obtaining required
regulatory approvals and additional financing and, ultimately,
successfully commercializing its products and achieving profitable
operations.
6
(2) Basis of Presentation
The accompanying financial statements have been prepared by the
Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission"). Certain
information and footnote disclosure normally included in the
Company's audited annual financial statements has been condensed or
omitted in the Company's interim financial statements. In the
opinion of the Company, these financial statements contain all
adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of the Company as
of March 31, 1997 and June 30, 1996, and the results of operations
for the three and nine month periods ended March 31, 1997 and 1996
and cash flows for the nine months ended March 31, 1997 and 1996, and
for the period from inception (January 28, 1986) to March 31, 1997.
The results of operations for the interim period may not necessarily
be indicative of the results of operations expected for the full
year, except that the Company expects to incur a significant loss for
the fiscal year ended June 30, 1997.
The accompanying financial statements and the related notes
should be read in conjunction with the Company's audited financial
statements for the ten months ended June 30, 1996 and the fiscal
years ended August 31, 1995 and 1994 filed with the Company's Form
10-KSB for the transition period from September 1, 1995 to June 30,
1996.
(3) Summary of Significant Accounting Policies:
Research and Development Costs -- The costs of research and
development activities are expensed as incurred.
Net Loss per Common Share -- Net loss per common share is
calculated based upon the weighted average number of shares of Common
Stock, on an as if converted basis, outstanding during each period.
All options and warrants were excluded in the calculation of weighted
average shares outstanding since their inclusion would have had, in
the aggregate, an anti-dilutive effect.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 128 (SFAS 128),
"Earnings per Share." The statement is effective for financial
statements for periods ending after December 15, 1997, and changes
the method in which earnings per share will be determined. Adoption
of this statement by the Company will not have a material impact on
earnings per share.
Use of Estimates -- The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
7
(4) Senior Bridge Notes:
On July 28, 1995, the Board of Directors of RhoMed authorized an
offering of up to 40 units at $25,000 per unit, with each unit
consisting of a $25,000 face amount Senior Bridge Note and a Class A
Warrant to purchase 75,000 shares of RhoMed common stock (equivalent to
13,285 shares of Common Stock) at an exercise price of $.01 per share
(the "Class A Note and Warrant Offering"). The Senior Bridge Notes
sold in the Class A Note and Warrant Offering (the "Senior Bridge
Notes") bore interest at 1% per month, and were payable, with accrued
interest, one year from the date of issuance. All of the 40 Class A
Note and Warrant Offering units were purchased with proceeds prior to
commissions and expenses of $1,000,000. In August and September of
1996, the Senior Bridge Notes sold in the Class A Note and Warrant
Offering were repaid in full, totaling $1,000,000 of principal and
$120,000 of accrued interest.
(5) Series A Preferred Stock:
On December 2, 1996, the Company commenced an offering of units
of Series A Preferred Stock (the "Series A Offering"), pursuant to
which up to a maximum of 240 units is being offered at a price of
$100,000 per unit, with each unit consisting of 1,000 shares of
Series A Preferred Stock. As of March 31, 1997, the Company had
sold 30.63 units, representing 30,630 shares of Series A Preferred
Stock, for net proceeds to the Company of $2,680,591, after deducting
commission and other expenses of the Series A Preferred Stock
offering. As of May 14, 1997, the Company had sold an aggregate
total of 137.78 units, representing 137,780 shares of Series A
Preferred Stock, for net proceeds to the Company of approximately
$11,800,000, after deducting commission and other expenses of the
Series A Offering.
Each share of Series A Preferred Stock is convertible, at the
option of the holder thereof, into shares of Common Stock, initially
at a conversion price of (i) $1.35 or (ii) 85% of the average closing
bid price of the Common Stock on the OTC Bulletin Board for twenty
(20) consecutive trading days immediately preceding any interim
closing date or the final closing of the Series A Offering, which
ever is lower. The conversion price is currently $1.24. The Series
A Preferred Stock also contains a reset mechanism (see Part II, Item
2, "Change in Securities"). The Series A Preferred Stock may be
mandatorily converted by the Company, if, commencing twelve (12)
months after the final closing date, the closing bid price of the
Common Stock has exceeded 200% of the then applicable conversion
price for at least twenty (20) trading days in any thirty (30)
consecutive trading day period ending three (3) days prior to the
date of conversion.
In the event that the Company does not, within 270 days
following the final closing date, increase its authorized capital to
at least that number of shares of Common Stock necessary for issuance
upon exercise of all Series A Preferred Stock sold in the offering,
the Company has agreed that the holders of Series A Preferred Stock
shall be entitled, at the option of each holder to either: (i)
require the Company to repurchase all shares of Series A Preferred
Stock then held by such holder at $100.00 per share of Series A
Preferred Stock, or (ii) require the Company to purchase at fair
market value that portion of the shares which would have been
issuable to the holder upon conversion but which the Company was
unable to issue due to the lack of authorized and reserved shares of
Common Stock. The fair market value per share of Common Stock shall
8
be paid in cash, or, if the Company does not have sufficient cash,
then with secured demand notes, the fair market value shall mean the
closing bid price per share of the Common Stock as quoted on the OTC
Bulletin Board for the trading day immediately preceding the
conversion.
The securities offered in the Series A Offering have not been
registered under the Securities Act of 1933, as amended, and may not
be offered or sold in the United States absent registration or an
applicable exemption from registration requirements. The Company has
agreed to undertake, no later than sixty (60) days following the
final closing date of the Series A Offering, to file a registration
statement under the Securities Act to permit resales of the Common
Stock issuable upon conversion of the Series A Preferred Stock.
(6) Equipment:
Equipment consists of the following at March 31, 1997 and June
30, 1996:
March 31, June 30,
1997 1996
---------- --------
Office equipment $ 257,470 $ 202,960
Laboratory equipment 83,285 76,929
Leasehold improvements (not placed
in service) 67,427 --
---------- ---------
Equipment at cost 408,182 279,889
Less: Accumulated depreciation 222,174 183,535
---------- ---------
$ 186,008 $ 96,354
========== ==========
(7) Commitments and Contingencies:
Leases -- The Company leases certain of its facilities and
equipment under noncancellable operating leases. In October 1996,
the lease on the facility in Albuquerque, New Mexico was extended
from March 31, 1997 until August 31, 1997, and in March 1997, the
lease was amended to provide for optional extensions through December
31, 1997. In March 1997, the Company entered into a ten-year lease
on research and development facilities in Edison, New Jersey, with
the lease term expected to commence in July 1997. Minimum future
lease payments escalate from approximately $116,000 per year to
$200,000 per year after the fifth year of the lease term. The lease
will expire in fiscal year 2007.
Merger Costs -- In conjunction with the Merger which occurred on
June 25, 1996, costs of $475,000 were charged to operations for the
ten months ended June 30, 1996. With no additional Merger costs
anticipated, the remaining accrual of $17,419 was written off as of
March 31, 1997.
Restructuring Charge -- In conjunction with the Company's
decision to consolidate and relocate its research and development
9
facilities and executive offices in the New Jersey area, the Company
established a restructuring charge of $450,000. The restructuring
charge to date represents mainly severance costs, facility closing
expenses and recruiting fees. Included in accrued expenses at March
31, 1997, is $60,057 of this restructuring charge.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and notes
thereto filed as part of this Form 10-QSB. Unless otherwise indicated
herein, all references to the Company include Palatin Technologies,
Inc. and its wholly owned subsidiary, RhoMed.
Certain statements in the Company's Form 10-QSB contain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially
different from any future results, performance, or achievements
express or implied by such forward looking statement.
The Company's business is subject to significant risks,
including the uncertainties associated with product development of
pharmaceutical products, problems or delays with clinical trials,
failure to receive or delays in receiving regulatory approval, lack
of enforceability of patents and proprietary rights, industry
capacity, industry trends, competition, material costs and
availability, changes in business strategy or development plans,
quality of management, availability of capital, availability of
qualified personnel, the effect of government regulation and other
risks detailed in the Company's Commission filings, including the
Company's Form 10-KSB for the transition period from September 1,
1995 to June 30, 1996. The Company expects to incur substantial
operating losses over the next several years due to continuing
expenses associated with its research and development programs,
including pre-clinical testing, clinical trials and manufacturing.
Operating losses may also fluctuate from quarter to quarter as a
result of differences in the timing of expenses incurred.
Results of Operations
Three and Nine Month Periods Ended March 31, 1997 Compared to
Three and Nine Month Periods Ended March 31, 1996. During the three
month period ended March 31, 1997, the Company discontinued the
manufacture and sale of RhoChek, the sole product sold by the
Company, due to insufficient sales. There were no revenues from the
sale of products in the three month period ended March 31, 1997,
compared to $12,240 in the three month period ended March 31, 1996.
Revenues in the nine month period ended March 31, 1997 were $22,184
compared to $20,971 in the nine month period ended March 31, 1996.
The Company anticipates no additional revenues from the sale of
products in the current fiscal year.
10
In December 1996, the Company entered into a License Option
Agreement ("Option Agreement") with Nihon Medi-Physics Ltd.
("Nihon"), pursuant to which the Company received, in January 1997,
an initial payment of $900,000 net of Japanese withholding taxes of
$100,000 (the "Initial Payment"). The Company has accounted for the
Initial Payment in the period ended March 31, 1997 by recognizing
license fee revenue of $350,000 and deferred license fee revenue of
$550,000. The deferred license fee revenue will be recognized if a
license agreement is consummated with Nihon or eliminated if the
Company is required to repay certain monies to Nihon under the Option
Agreement. There were no revenues from license fees in the three
month period ended March 31, 1996.
During the three month period ended March 31, 1997, the Company
had four Phase I grants under the Small Business Innovative Research
program active with the National Institutes of Health of the
Department of Health and Human Services. Grant revenue from these
grants was $267,862 in the three month period ended March 31, 1997,
compared to no revenues in the three month period ended March 31,
1996. Grant revenue in the nine month period ended March 31, 1997
was $267,862, compared to no revenues in the nine month period ended
March 31, 1996. The Company has approximately $100,000 in additional
grant revenue which can be drawn under the four Phase I grants. The
Company recognizes the grant revenue at the time submissions are made
to the respective government agencies for payment.
Research and development expenses increased to $1,050,400 for
the three month period ended March 31, 1997 from $242,212 for the
three month period ended March 31, 1996, with expenses of $2,300,669
for the nine month period ended March 31, 1997 compared to $557,955
for the nine month period ended March 31, 1996. The increase in
expenses for both the current three and nine month periods is
attributable to expansion in the scale of the Company's research and
development operations, which expanded following completion of a
Common Stock offering in June 1996. The Company substantially
increased research and development spending, primarily relating to
development of the LeuTech product for diagnostic imaging of
infections, including increased expenses for manufacturing scale-up,
consulting and clinical trials, and also relating to research
expenses on the Company's MIDAS metallopeptide technology. The
Company expects research and development expenses to continue to
increase in future quarters as the Company expands manufacturing
efforts and initiates clinical trials on the LeuTech product and
significantly expands its efforts to develop the MIDAS metallopeptide
technology including the hiring of scientists and the acquisition of
equipment and supplies in conjunction with completion of the new
research and development facility in Edison, New Jersey.
General and administrative expenses increased to $793,370 for
the three month period ended March 31, 1997 from $405,111 for the
three month period ended March 31, 1996, and increased to $1,740,125
for the nine month period ended March 31, 1997 from $1,017,061 for
the nine month period ended March 31, 1996. The increase is
attributable primarily to the hiring of certain key executives, the
leasing of executive offices in New Jersey, and increased travel and
consulting expenses. General and administrative expenses were also
affected by the amortization of the value of options and warrants
issued to consultants. General and administrative expenses are
expected to remain approximately at current levels through the
remainder of fiscal year 1997.
11
Interest income was $36,330 and $159,023 for the three and nine
month periods ended March 31, 1997, compared with no interest income
for the three and nine month periods ended March 31, 1996. The
interest income is primarily the result of interest on net proceeds
from a Common Stock offering of approximately $8,400,000 completed in
June 1996. Interest income is expected to increase in coming
quarters as a result increased cash balances from the proceeds of the
Series A Offering.
Interest expenses decreased to $84,927 for the three month
period ended March 31, 1997 compared with $143,465 for the three
month period ended March 31, 1996, and decreased to $301,200 from
$348,121 for the nine month periods ended March 31, 1997 and 1996
respectively. Interest expense for the nine months ending March 31,
1997, is comprised of (i) interest on long-term financing provided by
Aberlyn Holding Company, the principal and accrued interest of which
totaled $1,905,477, (ii) interest on notes payable to stockholders,
the principal amount of which is $80,000, and (iii) interest on
Senior Bridge Notes which were repaid in full in the quarter ended
September 30, 1996. Under an agreement with Aberlyn Holding Company,
the accrued interest as of April 30, 1997, totaling $303,171, will be
converted to Common Stock at a discounted rate, with the Company
obligated to issue 255,641 shares of Common Stock in payment of
accrued interest. As a result of repayment by the Company of the
Senior Bridge Notes, the principal amount of which was $1,000,000,
interest expense is expected to remain at current levels for the
balance of the current fiscal year, and substantially below the
levels for the prior fiscal year.
Net loss increased to $1,257,086 for the three month period
ended March 31, 1997 compared with $914,009 for the three month
period ended March 31, 1996, and increased to $3,525,506 for the nine
month period ended March 31, 1997 compared to $2,161,427 for the nine
month period ended March 31, 1996. The net loss per share decreased
in both the three and nine month period ended March 31, 1997 compared
to the prior year, a result related to the substantial increase in
the weighted average shares outstanding. There were 11,745,837
shares of Common Stock outstanding in the three month period ended
March 31, 1997 compared to 1,294,792 shares outstanding in the three
month period ended March 31, 1996, and 11,618,271 shares outstanding
in the nine month period ended March 31, 1997 compared to 1,290,451
shares outstanding in the nine month period ended March 31, 1996.
The increase in the shares outstanding is primarily the result of
issuance of 7,664,844 shares of Common Stock in connection with the
sale of Common Stock completed in June 1996.
Liquidity and Capital Resources
Since its inception, the Company has incurred net operating
losses and, as of March 31, 1997, had an accumulated deficit of
$11,658,444. The Company has financed its net operating losses
through March 31, 1997 by a series of debt and equity financings.
At March 31, 1997, the Company had cash and cash equivalents of
$4,863,237. The cash is cash equivalents which are composed of: (i)
the remaining net proceeds from the Company's offering of Common
Stock in June 1996 which totaled approximately $8,400,000, (ii) the
receipt from Nihon of $900,000 pursuant to the Agreement, and (iii)
the net proceeds from the Company's Series A Offering of $2,680,591
as of March 31, 1997.
12
For the nine months ended March 31, 1997, the net decrease in
cash amounted to $1,928,063. Cash used for operating activities was
$3,358,021, net cash used for investing activities was $128,293, and
cash provided by financing activities was $1,558,251, primarily from
the proceeds from Series A Offering less repayment of the Senior
Bridge Notes.
On December 2, 1996, the Company commenced the Series A Offering
pursuant to which up to a maximum of 240 units is being offered at a
price of $100,000 per unit, with each unit consisting of 1,000 shares
of Series A Preferred Stock. As of March 31, 1997, the Company had
sold 30.63 units, representing 30,630 shares of Series A Preferred
Stock, for net proceeds to the Company of $2,680,591, after deducting
commission and other expenses of the Series A Offering. As of May
14, 1997, the Company had sold an aggregate total of 137.78 units,
representing 137,780 shares of Series A Preferred Stock, for net
proceeds to the Company of approximately $11,800,000, after deducting
commission and other expenses of the Series A Offering. The Company
does not anticipate selling the maximum number of units.
Pursuant to the Option Agreement, Nihon can maintain its option
to license certain products based on the Company's MIDAS
metallopeptide technology provided Nihon makes certain milestone
payments based on progress in product development. Nihon may
exercise its right to negotiate a license at any time upon notice and
payment of additional monies to the Company. In the event that the
parties cannot agree on terms of a license agreement, then the
Company will be required to repay certain monies to Nihon. There can
be no assurance that the Company and Nihon will ever enter into a
definitive license agreement, that additional payments provided for
in the Option Agreement will be made, or that the strategic alliance
between the Company and Nihon will result in the development or
commercialization of any product.
Pursuant to the terms of the notes payable to stockholders
("Notes"), repayment of principal and interest is required 30 days
after the completion of a fiscal year when the Company has net assets
of at least $5,000,000.
In March 1997, the Company entered into a ten-year lease on
research and development facilities in Edison, New Jersey, with the
lease term expected to commence in July 1997. Minimum future lease
payments escalate from approximately $116,000 per year to $200,000
per year after the fifth year of the lease term. The lease will
expire in fiscal year 2007. The Company anticipates that the cost of
tenant improvements, net of the landlord's contribution, and
acquisition of laboratory equipment may exceed $1,500,000.
Commencing May 1997, the Company's monthly payments on long-term
financing provided by Aberlyn Holding Company will increase to
$91,695, representing payment of current interest and principal. The
final monthly payment is scheduled to be made in April 1999.
13
The Company's future capital requirements depend on numerous
factors which cannot be quantified, including continued progress in
its research and development activities, progress with pre-clinical
studies and clinical trials, prosecuting and enforcing patent claims,
technological and market developments, the ability of the Company to
establish product development arrangements, the cost of manufacturing
scale-up, effective marketing activities and arrangements, and
licensing or acquisition activity.
The Company has been seeking and expects to continue to seek to
license or acquire certain products and technologies. If the Company
is successful in acquiring a product or technology, substantial funds
may be required for such acquisition and subsequent development or
commercialization. To date, the Company has not completed an
acquisition and there can be no assurance that any acquisition will
be consummated in the future.
The Company believes that the net proceeds from the Series A
Offering of $11,800,000 as of May 14, 1997 and the Initial Payment
received under the Option Agreement, together with its other cash, is
sufficient to fund the Company's projected debt obligations and fund
projected operations through fiscal year 1998.
The Company anticipates incurring additional losses over at
least the next several years, and such losses are expected to
increase as the Company expands its research and development
activities relating to its MIDAS metallopeptide technology and its
radiolabeling technology. To achieve profitability, the Company,
alone or with others, must successfully develop and commercialize its
technologies and products, conduct pre-clinical studies and clinical
trials, obtain required regulatory approvals and successfully
manufacture, introduce and market such technologies and products.
The time required to reach profitability is highly uncertain, and
there can be no assurance that the Company will be able to achieve
profitability on a sustained basis, if at all.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Change in Securities.
Common Stock. During the three months ended March 31, 1997 the
Company sold the following shares of Common Stock which were not
registered under the Securities Act:
Date Number of Shares Sold To Total
Offering Price
January 10, 1997 13,824 Warrant Holder $750
February 14, 1997 13,824 Warrant Holder $750
None of the shares of Common Stock were publicly offered or sold
through underwriters, and no underwriting discounts or commissions
14
were paid. The Company claimed exemption from registration pursuant
to Section 4(2) of the Securities Act because each transaction was
the sale of restricted stock to the exercising holder of a restricted
warrant, not involving any public offering.
Series A Preferred Stock. On February 21, 1997 the Company sold
units representing 30,630 shares of Series A Preferred Stock in its
Series A Offering which were not registered under the Securities Act,
pursuant to a private placement limited to accredited investors. The
total offering price for the units was $3,063,000, with the placement
agent receiving a nine percent (9%) commission, amounting to
$275,670, a four percent (4%) non-accountable expense allowance,
amounting to $122,520, and warrants issuable to the placement agent
and its designees to purchase 3,063 shares of Series A Preferred
Stock at an exercise price of $110 per share. The warrants are
exercisable for five (5) years commencing six (6) months following
the final closing of the Series A Offering. The Company claimed
exemption from registration pursuant to Regulation D under the
Securities Act because the Series A Offering was the sale of
restricted securities to accredited investors, as defined in Rule 501
of Regulation D, and not involving any public offering.
Each share of Series A Preferred Stock is convertible, at the
option of the holder thereof, into shares of Common Stock, initially
at a conversion price of (i) $1.35 or (ii) 85% of the average closing
bid price of the Common Stock on the OTC Bulletin Board for twenty
(20) consecutive trading days immediately preceding any interim
closing date or the final closing of the Series A Offering, whichever
is lower. The conversion price is currently $1.24. A reset
mechanism provides that the conversion price is subject to adjustment
on the date which is twelve (12) months after the final closing on
the Series A Offering (the "Reset Date"), if the average closing bid
price of the Common Stock for the thirty (30) consecutive trading
days immediately preceding the Reset Date (the "Reset Trading Price")
is less than 130% of the then applicable conversion price (a "Reset
Event"). Upon the occurrence of a Reset Event, the then applicable
conversion price will be reduced to the greater of (i) the Reset
Trading Price divided by 1.3 and (ii) 50% of the then applicable
conversion price. The conversion price is also subject to
adjustment, under certain circumstances, upon the sale or issuance of
Common Stock for consideration per share less than either (i) the
conversion price in effect on the date of sale or issuance, or (ii)
the market price of the Common Stock as of the date of the sale or
issuance. Upon the occurrence of a merger, reorganization,
consolidation, reclassification, stock dividend or stock split which
will result in an increase or decrease in the number of shares of
Common Stock outstanding the conversion price is subject to
adjustment.
Series A Preferred Stock has a preference over Common Stock as
to dividends and distributions. In addition, holders of Series A
Preferred Stock vote on an "as if converted" basis with Common Stock
as a single class (unless separate class voting is required by law),
except that approval of holders of two-thirds of the Series A
Preferred Stock then outstanding is required to approve (i) any
alteration in the Company's charter documents or by-laws that would
adversely affect the relative rights, preferences, qualifications,
limitations or restrictions of the Series A Preferred Stock, (ii) the
declaration or payment of any dividend on any other securities or the
repurchase of any securities of the Company other than the Series A
Preferred Stock, and (iii) the authorization or issuance, or increase
of the authorized amount of, any security ranking prior to the Series
A Preferred Stock as to liquidation, payment of dividends or
distributions or voting rights.
15
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
As of May 14, 1996, the Company had closed in the aggregate on
137.78 units, representing 137,780 shares of Series A Preferred
Stock, in its private placement of Series A Preferred Stock, for
gross proceeds of $13,778,000 and net proceeds to the Company of
approximately $11,800,000, after deducting commission and other
expenses of the Series A Offering. The issued Series A Preferred
Stock is convertible to approximately 11,110,000 shares of Common
Stock at the conversion price, $1.24, now in effect.
Placed with accredited investors, the securities have not been
registered under the Securities Act, and may not be offered or sold
in the United States absent registration or an applicable exemption
from registration requirements. The Company has agreed to undertake,
no later than sixty (60) days following the final closing date of the
Series A Offering, to file a registration statement under the
Securities Act to permit resales of the Common Stock issuable upon
conversion of the Series A Preferred Stock.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.2 Bylaws of the Company
10.26 1996 Stock Option Plan as Amended
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
16
Signatures
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Palatin Technologies, Inc.
(Registrant)
Date: May 15, 1997 /s/ Edward J. Quilty
------------------------
Edward J. Quilty
Chairman of the Board, President
and Chief Executive Officer
Date: May 15, 1997 /s/ John J. McDonough
-------------------------
John J. McDonough
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
17