U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999
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 0-27282
ATLANTIC PHARMACEUTICALS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 36-3898269
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Broadway Avenue, Suite 1110, New York, New York 10038
(Address of principal executive offices)
(212) 227-4714
(Issuer's telephone number)
1017 Main Campus Drive, Suite 3900, Raleigh, North Carolina 27606
(Former name, former address and former fiscal year, if changed
since last report)
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 registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------ -----
Number of shares of common stock outstanding as of September 30, 1999: 4,776,737
Transitional Small Business Disclosure Format (check one): Yes____ No X
-----
INDEX
Page
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1999 (unaudited) and
December 31, 1998. 1
Consolidated Statements of Operations
(unaudited) for the three months ended
September 30, 1999 and 1998 for the nine
months ended September 30, 1999 and 1998
and the period from July 13, 1993
(inception) to September 30, 1999 2
Consolidated Statements of Cash Flows
(unaudited) for the nine months ended
September 30, 1999 and 1998 and the
period from July 13, 1993 (inception) to
September 30, 1999. 3
Notes to Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 5
PART II -- OTHER INFORMATION
Item 1. Legal Matters 9
Item 2. Changes in Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
EXHIBIT INDEX
Part One- Financial Information
Item 1- Financial Statements
ATLANTIC PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage company)
Consolidated Balance Sheets
September 30, 1999 (unaudited) and December 31, 1998
Assets 9/30/99 12/31/98
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 3,694,484 $ 5,835,669
Prepaid expenses 16,384 42,108
Accounts Receivable 276,820 381,015
----------- ----------
Total current assets 3,987,688 6,258,792
Furniture and equipment, net of accumulated
depreciation of $407,464 and $316,639
at September 30,1999 (unaudited) and
December 31, 1998, respectively. 220,643 262,173
------------ ---------
Total Assets 4,208,331 6,520,965
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses 190,827 657,001
Total current liabilities 190,827 657,001
Stockholders' Equity
Preferred stock, $.001 par value.
Authorized 10,000,000 shares;
1,375,000 designated as Series A
convertible preferred stock Series A
convertible preferred stock, $.001 par
value; authorized 1,375,000 shares,
622,004 and 632,468 shares issued and
outstanding at September 30, 1999
(unaudited) and December 31, 1998,
respectively. 622 632
Series A convertible preferred stock
warrants, 117,195 issued and outstanding
at September 30, 1999 (unaudited) and
December 31, 1998. 540,074 540,074
Common stock $.001 par value.
Authorized 50,000,000 shares;
4,776,737 and 4,503,388 shares
issued and outstanding at
September 30, 1999 (unaudited) and
December 31, 1998, respectively 4,777 4,503
Common stock subscribed. 182 shares
at September 30, 1999 (unaudited) and
December 31, 1998. - -
Additional paid -in capital 21,662,307 21,662,881
Deficit accumulated during development
stage (18,189,734) (16,343,584)
----------- -----------
Subtotal Stockholders' Equity 4,018,046 5,864,506
Less common stock subscriptions
receivable (218) (218)
Less treasury stock, at cost (324) (324)
Total Stockholders' Equity 4,017,504 5,863,964
------------ ------------
4,208,331 6,520,965
See accompanying Notes to Consolidated Financial Statements.
ATLANTIC PHARMACEUTICALS, INC. AND SUBSIDIARIES (a development stage company)
Consolidated Statement of Operations (unaudited)
Three months ended September 30, 1999 and 1998, the nine months ended September
30, 1999 and 1998 and the period from July 13, 1993 (inception) to September 30,
1999.
Cumulative from
Three Months Ended Nine Months Ended July 13, 1993
September, 30 September, 30 September, 30 September, 30 (inception) to
1999 1998 1999 1998 September 30, 1999
---- ---- ---- ---- ------------------
Revenue:
Grant revenue $ 29,787 -- 29,787 -- 129,719
Contract manufacturing revenue 247,163 -- 247,163 2,500,000 2,747,163
Total revenue 276,750 -- 276,950 2,500,000 2,876,882
Costs and expenses:
Cost of Manufacturing revenue 197,730 -- 197,730 -- 197,730
Research and development 179,594 476,744 1,105,072 1,885,001 8,388,346
License fees -- -- -- -- 173,500
General and administrative 354,099 842,605 1,062,887 2,439,311 12,789,890
Total operating expenses 731,423 1,319,349 2,365,689 4,324,312 21,549,466
Other expense (income):
Interest income (51,430) (106,304) (173,953) (361,588) (1,039,789)
Interest expense -- -- -- -- 625,575
Total other expense (income) (51,430) (106,304) (173,953) (361,588) (414,214)
Net income (loss) from continuing operations (403,043) (1,213,045) (1,914,786) (1,462,724) (18,258,370)
Discontinued operations
Gain on termination of license
agreement 68,636 -- 68,636 -- 68,636
Imputed preferred stock dividend -- (106,009) -- (1,628,431) (5,225,547)
Net income (loss) to common stockholders (334,407) (1,319,054) (1,846,150) (3,091,155) (23,415,281)
Basic net income (loss) per common share (0.07) (0.37) (0.45) (0.91) (11.21)
Shares used in calculation
of basic net income (loss) per
common share 4,767,138 3,608,211 4,138,836 3,408,417 2,088,556
See accompanying Notes to Consolidated Financial Statements.
ATLANTIC PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage company)
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 1999 and 1998 and the period from July 13, 1993
(inception) to September 30, 1999
Cumulative from
July 13, 1993
Nine Months Ended (inception) to
September 30, September 30, September, 30
1999 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (1,846,150) (1,462,724) (18,189,734)
Adjustments to reconcile net loss to net cash used
in operating activities:
Expense relating to issuance of warrants - - 298,202
Expense relating to issuance of options - 129,036 81,952
Expense relating to the Channel merger - - 657,900
Compensation expense relating to stock options - - 208,872
Discount on notes payable-bridge financing - - 300,000
Depreciation 90,825 123,678 407,464
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses 25,724 (51,115) (16,384)
Increase (decrease) in accrued expenses (466,174) 184,082 190,827
Increase (decrease) in accrued interest - - 172,305
(Increase) decrease in accounts receivable 104,195 (293,480) (276,820)
Net cash used in operating activities (2,091,580) (1,370,523) (16,165,506)
Net cash used in investing activities
Acquisition of furniture and equipment (49,295) (177,762) (628,108)
Cash flows from financing activities:
Proceeds from exercise of warrants - - 5,500
Proceeds from exercise of stock options 8 - 52,508
Proceeds from issuance of demand notes payable - - 2,395,000
Repayment of demand notes payable - - (125,000)
Proceeds from the issuance of notes payable
bridge financing - - 1,200,000
Proceeds of issuance of warrants - - 300,000
Repayment of notes payable - bridge financing - - (1,500,000)
Repurchase of common stock - - (324)
Proceeds from the issuance of common stock 30,179 7,547,548
Proceeds from the issuance of Preferred Stock - - 10,316,184
Payment in connection with the preferred stock dividend (318) - (318)
Net cash provided by (used in) financing activities (310) 30,179 20,191,098
Net increase (decrease) in cash and cash equivalents (2,141,185) (1,518,106) 3,397,484
Cash and cash equivalents at beginning of period 5,835,669 8,543,495 -
Cash and cash equivalents at end of period 3,694,484 7,025,389 3,397,484
Supplemental disclosure of noncash financing activities:
Issuance of common stock in exchange for
common stock subscriptions - - 7,027
Conversion of demand notes payable and the
related accrued interest to common stock - - 2,442,304
See accompanying Notes to Consolidated Financial Statements.
ATLANTIC PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
(1) Basis of Presentation
The accompanying financial statements of Atlantic Pharmaceuticals, Inc.
and its subsidiaries (the "Company") have been prepared in accordance with
Generally Accepted Accounting Principles for interim financial information.
Accordingly, they do not include all information and footnotes required by
Generally Accepted Accounting Principles for complete financial statements. In
the opinion of management, the accompanying financial statements reflect all
adjustments, consisting of only normally recurring adjustments, considered
necessary for fair presentation. Operating results are not necessarily
indicative of results that may be expected for the year ending December 31, 1999
or for any subsequent period. These financial statements should be read in
conjunction the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
2) Computation of Net Loss per Common Share
The Company has adopted Statement of Financial Accounting Standards No.
128 Earnings Per Share ("SFAS No. 128"). In accordance with this statement,
primary net loss per common share is replaced with basic loss per common share,
which is calculated by dividing net loss by the weighted average number of
common shares outstanding for the period. Fully-diluted net income per common
share is replaced with diluted net income per common share reflecting the
maximum dilutive effect of common stock issuable upon exercise of stock options,
stock warrants, stock subscriptions and conversion of preferred stock. Diluted
net loss per common share is not shown, as common equivalent shares from stock
options, stock warrants, stock subscriptions and convertible preferred stock
would have an antidilutive effect.
(3) Liquidity
Since June 1999, the board of directors implemented a cost reduction
program aimed at permitting the Company's existing capital to finance the
Company's operations (including research, product development and general
administration) through such time as the Company becomes profitable, which would
occur as a result of the receipt of anticipated $6 million milestone payments
under the agreement between Optex Ophthalmologics, Inc., a subsidiary of the
Company ("Optex"), and Bausch & Lomb Surgical, Inc. ("Bausch & Lomb"), a
subsidiary of Bausch & Lomb Incorporated, and the potential commercial launch of
the Catarex(TM) cataract-removal surgical device.
(4) Preferred Stock Dividend
On August 9, 1999, the Company's board of directors declared a dividend
to the holders of record of shares of the Company's Series A convertible
preferred stock as of August 2, 1999 (see Part II, Item 5).
(5) Amendment to the Agreement with Bausch & Lomb Surgical, Inc.
On September 21, 1999, Optex and Bausch & Lomb amended their existing
License and Development Agreement (see Part II, Item 5), effective as of
September 1, 1999.
(6) Termination of Agreement with the Trustees of the University of
Pennsylvania
On October 12, 1999, the Company and Channel Therapeutics, Inc., a
subsidiary of the Company, announced the termination of a certain License
Agreement, dated as of June 16, 1994, between the Trustees of the University of
Pennsylvania and Channel (see Part II, Item 5).
4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998, filed with the
Securities and Exchange Commission on March 25, 1999. Except for the historical
information contained herein, this Quarterly Report may contain certain forward
looking statements that involve risks and uncertainties, such as statements of
the Company's plans, objectives, expectations and intentions. In addition to
historical information, this report contains predictions, estimates and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from any future performance suggested in
this report as a result of many factors, including the risk factors set forth in
the Company's Annual Report on Form 10-KSB as well as those set forth elsewhere
herein.
Results of Operations for the Quarter Ended September 30, 1999
On September 22, 1999, the Company announced the amendment of the
existing Development and License Agreement between Bausch & Lomb Surgical, Inc.
("Bausch & Lomb"), a subsidiary of Bausch & Lomb Incorporated, and Optex
Ophthalmologics, Inc. ("Optex"), a subsidiary of the Company, to provide for an
expanded role for Optex in development of the Catarex(TM) surgical device.
Under the agreement as amended, Optex, in addition to the basic design
work provided for in the original agreement, is required to deliver to Bausch &
Lomb within a stated period Catarex(TM) devices for use in clinical trials, and
is required to assist Bausch & Lomb in connection with development of
manufacturing processes for scale-up of manufacture of the Catarex(TM) device.
This increased role in the development of the Catarex(TM) device will expedite
introduction of this innovative product in the marketplace.
Bausch & Lomb will reimburse Optex for all costs, including labor,
professional services and materials, incurred by Optex in delivering those
Catarex(TM) devices and performing manufacturing services, and will pay Optex a
profit component based upon certain of those costs. Optex has budgeted at $8
million its costs for the work to be performed by it under the amendment; this
would result in it receiving a total of $9.6 million from Bausch & Lomb pursuant
to the amendment, $1.6 million of which would be profit.
In 1998, Optex received a milestone payment of $2.5 million under the
Development and License Agreement. It is entitled to royalties on net sales of
the Catarex(TM) device, and is also entitled to further milestone payments
totalling $4 million upon successful completion of clinical trials and an
additional $2 million upon the later of (1) successful completion of clinical
trials and (2) receipt of approval from the FDA to market the Catarex(TM)
device.
For the third quarter ended September 30, 1999, grant revenue was
$29,787, compared to no revenue in the third quarter of 1998. This increase is
due to payment received for the start of a Phase I study under a Small Business
Innovation Research ("SBIR") grant of approximately $100,000 awarded to Gemini
Technologies, Inc. ("Gemini"), a subsidiary of the Company, and initiated on
August 1, 1999.
For the third quarter ended September 30, 1999, contract manufacturing
revenue was $247,163 compared to no revenue in the third quarter of 1998. This
increase in revenue is due to the amendment of the License and Development
Agreement between Optex and Bausch & Lomb and the start of manufacture of the
Catarex(TM) devices pursuant to the agreement.
In accordance with its agreement with the Company, Bausch & Lomb
reimbursed Optex in the amount of $330,900 for Optex's costs related to
development of the Catarex(TM) technology in the third quarter. This
reimbursement reduced the Company's research and development expense by $326,582
and general and administrative expenses by $4,318.
5
For the third quarter ended September 30, 1999, the cost of
manufacturing revenue increased to 197,730 as compared to no revenue in the
third quarter of 1998. This increase reflects the manufacturing expenses paid by
Bausch & Lomb to Optex pursuant to the Bausch & Lomb agreement effective
September 1, 1999.
For the third quarter ended September 30, 1999, research and
development expense was $179,594 compared to $476,744 in the third quarter of
1998, a decrease of 62%. The Company was reimbursed $326,582 by Bausch & Lomb
and the net research and development expense was $308,688. The increase was
largely due to accelerated spending on the Catarex(TM) technology by Bausch &
Lomb.
For the quarter ended September 30, 1999, the Company recognized a gain
on discontinued operations in the amount of $68,636 representing the reversal of
previously recognized accrued research and development expenses related to the
license agreement between Channel Therapeutics, Inc. ("Channel"), a subsidiary
of the Company, and the Trustees of the University of Pennsylvania ("Penn") (see
Part II, Item 5).
For the third quarter ended September 30, 1999, general and
administrative expense was $358,417 compared to $842,605 in the third quarter of
1998, a decrease of 57%. The Company was reimbursed $4,318 by Bausch & Lomb and
the net general and administrative expense was $354,099. This decrease was
largely due to a reduction in compensation, travel and marketing expenses.
For the third quarter ended September 30, 1999, interest income was
$51,430 compared to $106,304 the third quarter of 1998, a decrease of 52%. This
decrease was due to the decline in the Company's cash reserves.
Results of Operations for the Nine-Month Period Ended September 30, 1999
In accordance with its license and development agreement with the
Company, Bausch & Lomb reimbursed Optex in the amount of $ 1,252,819, for
Optex's costs related to development of the Catarex(TM) technology in the
nine-month period ended in September 30, 1999. This reimbursement reduced the
Company's research and development expense by $1,204,781 and general
administrative expenses by $48,038.
For the nine-month period ended September 30, 1999, grant and license
revenue was $29,787 compared to $2,500,000 over the similar period in 1998. The
decrease is due to the fact that last year the Company received the first
milestone payment from Bausch & Lomb.
For the nine-month period ended September 30, 1999, research and
development expense was $2,438,947 compared to $1,885,001 over the similar
period in 1998, an increase of 29%. The Company was reimbursed $1,204,781 by
Bausch & Lomb and the net research and development expense was $1,234,166. The
increase was due to accelerated spending on the Catarex(TM) technology and the
CT-3 technology.
For the nine-month period ended September 30, 1999, general and
administrative expense was $1,110,925 compared to $2,439,311 in the similar
period in 1998, a decrease of 54%. The Company was reimbursed $48,038 by Bausch
& Lomb and the net general and administrative expense was $1,062,887. This
decrease is largely due to a reduction in personnel compensation, marketing and
travel expenses.
For the nine-month period ended September 30, 1999, the Company
recognized a gain on discontinued operations in the amount of $68,636
representing the reversal of previously recognized accrued research and
development expenses related to the license agreement between Channel and Penn.
For the nine-month period ended September 30, 1999, interest income was
$173,953 compared to $361,588 for the nine-month period ended September 30,
1998, a decrease of 52%. This decrease was due to the decline in the Company's
cash reserves.
Liquidity and Capital Resources
The Company anticipates that its current resources will be sufficient
to finance the Company's currently anticipated needs for operating and capital
expenditures until such time as the Company becomes profitable, which could
occur as a result of receipt of the anticipated $6 million milestone payments
under the Bausch & Lomb agreement and the anticipated commercial launch of the
Catarex(TM) device. If such developments are delayed or terminated, the Company
might be required to further reduce its operating expenses and/or seek
additional capital through a combination of collaborative agreements, strategic
alliances and public and private equity and debt financing. The Company cannot
assure that, under such circumstances, additional capital would be obtainable
through these or other sources.
6
The Company's working capital requirements will depend upon numerous
factors, including: progress of the Company's research and development programs;
preclinical and clinical testing; and timing and cost of obtaining regulatory
approvals.
From its inception to September 30, 1999, the Company incurred an
accumulated deficit of $18,189,734 and the Company expects to continue to incur
additional losses through the year ending December 31, 1999, and the foreseeable
future.
Research and Development Activities
Preclinical studies with all three of the Company's primary
technologies are proceeding according to plan.
Optex's development of the Catarex(TM) cataract removal device is
continuing in cooperation with Bausch & Lomb. We have finished constructing a
clean room laboratory that we will use to further develop the manufacturing
process for the Catarex(TM) device. In addition, Optex and Bausch & Lomb have
amended their Development and License Agreement to provide for an expanded role
for Optex in development of the Catarex(TM) device. In this amendment Optex
agreed to manufacture the handpieces for use in clinical studies and agreed to
provide Bausch & Lomb certain services in connection with development of the
manufacturing process for the Catarex(TM) device (see Part II, Item 5). The
Company anticipates that Bausch & Lomb will file a 510(k) application with the
United States Food and Drug Administration (the "FDA") by the first quarter of
the year 2000, with clinical studies to begin shortly thereafter.
Gemini is continuing research on its antisense-enhancing technology.
Gemini's lead therapeutic compound targets respiratory syncytial virus, or
"RSV," a major cause of lower-respiratory-tract disease in infants, young
children, and the elderly. Gemini completed the primate proof-of-principle
studies of this compound in the third quarter of 1999. In July 1999, Gemini
received a SBIR grant of approximately $100,000, which Gemini is using to fund a
Phase I pre-clinical study of this compound. The Company is currently seeking a
corporate development partner for the RSV compound. In addition to developing
this compound, Gemini is focusing its research on developing other applications
for the antisense technology and on improving the basic chemistry of the
antisense technology.
We have completed all dosing in the toxicology program for CT-3, and
are currently conducting bioanalytical analyses and compiling toxicology
reports. To date, these studies have not resulted in any data that would cause
the development of CT-3 to be discontinued or delayed. The compound is currently
ready for a Phase I study, and we are in the process of finalizing the design of
this study. We believe we must conduct studies to determine the safety of CT-3,
in addition to assessing the potential for any detrimental central nervous
system side effects of CT-3. Designing the clinical program will require
additional toxicology testing and formulation development prior to beginning
large scale clinical trials. The Company intends to file an Investigative New
Drug Application for CT-3 with the FDA in the first quarter of 2000.
No work was conducted on the cyclodextrin technology during the third
quarter of 1999. After a thorough review of this technology, the Company decided
to cause Channel to terminate its license agreement for this technology with
Penn and discontinue its development of the technology (see Part
II, Item 5).
7
Year 2000 Compliance
Many computer systems and software products are coded to accept only
two digit entries in the date code field. Beginning in the year 2000, these date
code fields must accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, computer systems and software used by many
companies may need to be upgraded to avoid "Year 2000" difficulties which arise
if such date code fields cannot accept four digit entries. Significant
uncertainty exists concerning the potential effects of failing to insure that
all computer systems and software are appropriately upgraded and Year 2000
complaint.
We have reviewed our internal computer systems and have concluded that
they are Year 2000 compliant. All of our hardware and software was purchased or
licensed less than four years ago. Additionally, we have received verbal
assurances from our service providers that they will be Year 2000 compliant in a
timely fashion. Accordingly, we do not expect Year 2000 issues to have any
material effect on our business, financial condition or operating results.
8
PART II -- OTHER INFORMATION
Item 1. Legal Matters
Litigation Brought by Stephen R. Miller and Margaret A. Schalk
On July 12, 1999, Dr. Stephen R. Miller and Margaret A. Schalk filed
suit against the Company in Wake County Superior Court, North Carolina. This
lawsuit is described in the Company's Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 1999.
In July 1999, the Company duly filed a response to the complaint, and
the lawsuit is now in the discovery stage. The Company has also paid Dr. Miller
and Ms. Schalk for their accrued vacation days. The Company is being represented
by the Raleigh, North Carolina office of the law firm Kennedy, Covington,
Lobdell & Hickman LLP.
The Company believes that the asserted claims are without merit and
intends to defend vigorously the action instituted by the plaintiffs. The
Company further believes that the outcome of this suit will not be material to
the Company.
Litigation Brought by Christopher R. Richied
On May 13, 1999, Christopher R. Richied filed suit against a group of
defendants, including the Company, in the U.S. District Court for the Southern
District of New York. This lawsuit is described in the Company's Quarterly
Report Form 10-QSB for the quarterly period ended June 30, 1999.
For a period extending through the second quarter of the year 2000, the
parties will be engaged in factual and expert-related discovery. The Company and
all other defendants in this action are being jointly represented by the
Wilmington, Delaware office of the law firm Skadden, Arps, Slate, Meagher & Flom
LLP.
The Company believes that the asserted claims are without merit and
intends to defend vigorously the action instituted by the plaintiff. The Company
further believes that the outcome of this suit will not be material to the
Company.
Item 2. Changes in Securities.
Pursuant to an amendment duly authorized by the Company's stockholders
(see Part II, Item 4), the Certificate of Designations of the Company's Series A
convertible preferred stock no longer requires transactions between the Company
and its directors and executive officers to be approved by 66.67% of the
preferred stock voting separately as a class. The Company found this
clarification of the scope of the voting rights of the preferred stock necessary
to conduct business efficiently and to avoid unnecessary expenses.
Item 4. Submission of Matters to a Vote of Security Holders
On August 24, 1999, the Company filed with the Securities and Exchange
Commission, and mailed to stockholders on or about the same date, a definitive
proxy statement seeking stockholder proxies consenting to the following three
proposals:
1. RESOLVED, that A. Joseph Rudick, Yuichi Iwaki, Steve H. Kanzer and
Frederic P. Zotos be and hereby are re-elected as directors of the
Company, to serve until their respective successors are duly elected
and qualified.
2. RESOLVED, that the board of directors' selection of KPMG Peat Marwick,
LLP to serve as the Company's independent
9
auditors for the year ending December 31, 1999 be and hereby is
ratified.
3. RESOLVED, that the Certificate of Designations of Series A Convertible
Preferred Stock of the Corporation be amended by deleting clause (vii)
of Section 6(b) in its entirety and substituting a new clause (vii),
which reads in its entirety as follows:
"(vii) the approval of any transactions between the Corporation and its
affiliates (other than (A) transactions between the Corporation and its
subsidiaries in the ordinary course of business and (B) transactions
between the Corporation and its directors and executive officers)."
Approval of all three proposals required the affirmative vote of a
majority of the common stock and preferred stock, voting together as a class.
Approval of the third proposal also required the consent of the holders of at
least 66.67% of all outstanding shares of the preferred stock, voting
separately.
The board of directors of the Company presented these proposals for
stockholder consideration at the Company's 1999 annual meeting held on September
23, 1999, for which there was a quorum. All three proposals received the
affirmative vote of more than a majority of those stockholders present in person
or by proxy. Accordingly, effective as of September 23, 1999, all four nominees
were re-elected as members of the board of directors and the selection of KPMG
Peat Marwick, LLP to serve as the Company's independent auditors for the year
1999 was ratified. The following table presents the results of the common and
preferred stock voting together. The total number of shares of common stock
voted was 3,179,405 out of the 4,774,121 shares entitled to vote. The total
number of shares of preferred stock voted was 377,797 out of the 622,942 shares
entitled to vote, with each share being entitled to 3.27 votes.
Proposal 1: Election of Directors:
Votes of Holders of Common Stock Votes of Holders of Preferred Stock
For Withheld For Withheld
--- -------- --- --------
A. Joseph Rudick 3,166,905 12,500 1,216,869 18,527
Yuichi Iwaki 3,166,905 12,500 1,216,869 18,527
Steve H. Kanzer 3,164,875 14,530 1,216,869 18,527
Frederic P. Zotos 3,164,675 14,730 1,216,869 18,527
Proposal 2: Selection of KPMG as the Company's Independent Auditors:
Votes of Holders of Common Stock
For Against Abstain
- --- ------- -------
3,164,605 6,100 8,700
Votes of Holders of Preferred Stock
For Against Abstain
- --- ------- -------
1,216,869 18,527 0
Proposal 3: Amendment of the Company's Certificate of Designations:
Votes of Holders of Common Stock
For Against Abstain
- --- ------- -------
3,060,128 63,788 55,489
Votes of Holders of Preferred Stock
For Against Abstain
- --- ------- -------
1,104,129 64,847 66,420
10
The vote of the preferred stock voting as a class on the third proposal
was adjourned until October 12, 1999, when the Company announced it had received
proxies from stockholders holding 69.7% of all outstanding shares of preferred
stock approving the amendment to the Certificate of Designations. A total number
of 485,964 shares of preferred stock voted out of the 622,942 shares entitled to
vote. The following table provides the results of the vote. The Company
thereafter amended the Certificate of Designations (see Item 2).
Proposal 3: Amendment of the Company's Certificate of Designations:
For Against Abstain
- --- ------- -------
1,420,779 101,903 66,420
Item 5. Other Information
Dividend Payments to Holders of Preferred Stock
Pursuant to the Company's Certificate of Designations, holders of
shares of preferred stock were entitled to receive, commencing February 7, 1999,
dividends on each share of preferred stock, payable in kind, at the rate of 10%
of the Dividend Base Amount of $13.00, payable semiannually in arrears. The
Company did not make the February 7, 1999 dividend payment. On August 9, 1999,
the Company issued a payment-in-kind dividend of 0.13325 of a share of Preferred
Stock per share of Preferred Stock to holders of shares of preferred stock as of
the record date of August 2, 1999, amounting to an aggregate of 73,219 shares.
This dividend included the dividend payment of 0.065 of a share of preferred
stock per share of preferred stock that had not been made on February 7, 1999,
and the portion of the dividend payment due August 9, 1999, was increased from
0.065 of a share to 0.06825 of a share to reflect non-payment of the February 7,
1999 dividend.
Amendment to Agreement with Bausch & Lomb Surgical, Inc.
On September 22, 1999, the Company announced the amendment of the
existing Development and License Agreement between Bausch & Lomb and Optex to
provide for an expanded role for Optex in development of the Caterex(TM)
surgical device.
Under the agreement as amended, Optex, in addition to the basic design
work provided for in the original agreement, is required to deliver to Bausch &
Lomb within a stated period Caterex(TM) devices for use in clinical trials, and
is required to assist Bausch & Lomb in connection with development of
manufacturing processes for scale-up of manufacture of the Caterex(TM) device.
This increased role in the development of the Caterex(TM) device will expedite
introduction of this innovative product in the marketplace.
Bausch & Lomb will reimburse Optex for all costs, including labor,
professional services and materials, incurred by Optex in delivering those
Caterex(TM) devices and performing manufacturing services, and will pay Optex a
profit component based upon certain of those costs. Optex has budgeted at $8
million its costs for the work to be performed by it under the amendment; this
would result in it receiving a total of $9.6 million from Bausch & Lomb pursuant
to the amendment, $1.6 million of which would be profit.
In 1998, Optex received a milestone payment of $2.5 million under the
Development and License Agreement. It is entitled to royalties on net sales of
the Caterex(TM) device, and is also entitled to further milestone payments
totalling $6 million upon successful completion of clinical trials and receipt
of approval from the FDA to market the Caterex(TM) device.
Termination of Agreement with the Trustees of the University of Pennsylvania
On October 12, 1999, the Company and Channel announced the termination
of the License Agreement
11
dated as of June 16, 1994, between Penn and Channel pursuant to which Channel
received the rights to use cyclodextrin technology. The Company and Channel, on
the one hand, and Penn, on the other hand, released each other from any further
obligations under the license agreement. The Company paid Penn a portion of the
patent costs for which Penn was seeking reimbursement under the agreement.
The reason for this termination is that the Company determined that the
cyclodextrin technology would not have the potential to attract development
partners without considerable investment by the Company over an extended period.
Terminating the agreement permitted the Company to avoid additional patent costs
and focus its resources on technologies that offer greater potential for
near-term development and corporate partnerships.
Relocation of Principal Office
Effective November 1, 1999, the Company relocated its principal office
from Raleigh, North Carolina to New York, New York. This move will allow the
Company to avoid unnecessary general and administrative expenses associated with
its North Carolina office, and places its principal office close to the
Company's management, which is New York-based. The new office information is as
follows:
Atlantic Pharmaceuticals, Inc.
150 Broadway Avenue, Suite 1110
New York, New York 10038
Telephone: (212) 227-4714
Facsimile: (212) 732-9453
12
Item 6. Exhibits
(a) Exhibits
Exhibit No. Description
- ----------- -----------
10.1 Amendment No. 1 dated September 16, 1999, to the Development and
License Agreement between Bausch & Lomb Surgical, Inc. and Optex
Ophthalmologics, Inc. (filed herewith).
27.1 Financial Data Schedule (filed herewith)
(b) Form 8-K
The Company did not file any reports on Form 8-K in the quarter ending
September 30, 1999.
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ATLANTIC PHARMACEUTICALS, INC.
Date: November 15, 1999 /s/ A. Joseph Rudick, M.D.
---------------------------
A. Joseph Rudick, M.D.
President
14
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Amendment No. 1 dated September 16, 1999, to the Development and
License Agreement between Bausch & Lomb Surgical, Inc. and Optex
Ophthalmologics, Inc. (filed herewith).
27.1 Financial Data Schedule (filed herewith)
15