RHOMED INCORPORATED
FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED MAY 31, 1996 AND 1995
RhoMed Incorporated
(A Development Stage Company)
Balance Sheets
May 31, 1996 and 1995
May 31,
-----------------------------
1996 1995
-------------- -------------
ASSETS
Current assets:
Cash $ 5,400,789 $ 32,485
Accounts receivable 2,936 6,875
Prepaid expenses and other 132,150 3,519
-------------- -------------
Total current assets 5,535,875 42,879
Property and equipment, net of accumulated
depreciation of $217,559 and $161,041 as of May 31, 1996,
and 1995, respectively 110,213 149,467
Intangibles, net of accumulated amortization of $90,304
and $59,374 as of May 31, 1996 and 1995, respectively 64,161 313,887
-------------- -------------
$ 5,710,249 $ 506,233
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 217,810 $ 319,796
Accrued compensation owed to employees 153,491 174,006
Accrued expenses 452,031 69,033
Commissions on stock sales payable 476,760 -
Notes payable, related party - 196,000
Current portion of long-term financing 240,000 60,000
Senior "A" bridge notes, including related party transaction of $100,000
as of May 31, 1996 1,090,000 -
Senior "B" bridge notes, including related party transaction of $100,000
as of May 31, 1996 890,510 -
-------------- -------------
Total current liabilities 3,520,602 818,835
Long-term financing, including accrued interest, of $309,422 and
$285,614 as of May 31, 1996 and 1995, respectively 1,816,485 2,026,140
Convertible notes payable to shareholders, including accrued interest of
$35,312 and $27,312 as of May 31, 1996 and 1995, respectively 115,312 107,312
-------------- -------------
5,452,399 2,952,287
-------------- -------------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, no par value 10,000,000 and 5,000,000 shares authorized
and 4,000,000 and no shares outstanding as of May 31, 1996 and 1995,
respectively 4,000 -
Preferred stock subscribed - 4,000
Preferred stock receivable - (4,000)
Common stock, no par value, 90,000,000 and 15,000,000 shares authorized and
34,108,069 and 6,922,069 outstanding as of May 31, 1996 and 1995
respectively 7,108,295 1,169,078
Common stock earned but not issued 351,187 27,389
Paid-in capital from common stock warrants 100,450 100,000
Deficit accumulated during development stage (7,306,082) (3,642,521)
-------------- -------------
257,850 (2,346,054)
-------------- -------------
$ 5,710,249 $ 606,233
============== =============
<FN>
The accompanying notes to financial statements are an integral part of these balance sheets.
-1-
RhoMed Incorporated
(A Development Stage Company)
Statements of Operations
For the Period from Inception (January 28, 1986)
Through May 31, 1996 and
For the Nine Months Ended May 31, 1996 and 1995
Inception
(January 28, 1986)
through May 31,
--------------------------------
May 31, 1996 1996 1995
------------------ ---------------- --------------
REVENUES:
Grants and contracts $ 2,860,512 $ - $ -
License fees and royalties 334,296 - 56,796
Sales 292,671 20,395 26,104
------------------ ---------------- --------------
Total revenues 3,487,479 20,395 82,900
------------------ ---------------- --------------
EXPENSES:
Research and development 4,205,411 678,899 518,882
General and administrative 4,665,383 1,012,765 480,086
------------------ ---------------- --------------
Total expenses 8,870,794 1,691,664 998,968
------------------ ---------------- --------------
OTHER INCOME (EXPENSES):
Other income 65,322 4,457 2,084
Interest expense (994,668) (410,790) (132,342)
Placement agent commissions and fees on
debt offering (168,970) (168,970) -
Merger costs (115,117) (115,117) -
Facility relocation costs (450,000) (450,000) -
Net intangibles write down (259,334) (259,334) -
------------------ ---------------- --------------
Total other expenses net (1,922,767) (1,399,754) (130,258)
------------------ ---------------- --------------
NET LOSS $ (7,306,082) $ (3,071,023) $ (1,046,326)
================== ================ ==============
Weighted average number of common
shares outstanding 9,943,000 6,673,000
================ ===============
Loss per common share (0.31) (0.17)
================ ===============
<FN>
The accompanying notes to financial statements are an integral part of these statements.
-2-
RhoMed Incorporated
(A Development Stage Company)
Statements of Shareholders' Equity (Deficit)
For the Period from Inception (January 28, 1986)
Through May 31, 1996
Common Stock
------------------------------------------------------------------------------
Paid-in
Earned but Capital from
Shares Amount not Issued Warrants
------------------ ------------------ ------------------ ------------------
Balance at inception - $ - $ - $ -
Issuance of shares from inception 6,562,467 1,158,883 - -
Net loss from inception - - - -
------------------ ------------------ ------------------ ------------------
Balance, August 31, 1994 6,562,467 1,158,883 - -
Issuance of shares 359,602 10,203 - -
Shares earned but not issued - - 27,389 -
Paid-in capital from common
stock warrants - - - 100,000
Preferred stock subscriptions - - - -
Net loss - - - -
------------------ ------------------ ------------------ ------------------
Balance, May 31, 1995 6,922,069 1,169,086 27,389 100,000
Shares earned but not issued - - 83,444 -
Preferred stock subscriptions - - - -
Issuance of options - 8,700 - -
Net loss - - - -
------------------ ------------------ ------------------ ------------------
Balance, August 31, 1995 6,922,069 1,177,786 110,833 100,000
Issuance of shares 27,186,000 5,930,509 - 450
Shares earned but not issued - - 240,354 -
Preferred stock subscriptions - - - -
Net loss - - - -
------------------ ------------------ ------------------ ------------------
Balance, May 31, 1996 34,108,069 $7,108,295 $ 351,187 $ 100,450
================== ================== ================== ==================
<FN>
The accompanying notes to financial statements are an integral part of these statements.
-3-
RhoMed Incorporated
(A Development Stage Company)
Statements of Shareholders' Equity (Deficit)
For the Period from Inception (January 28, 1986)
Through May 31, 1996
- Continued -
Deficit
Accumulated
During
Preferred Stock Development
--------------------------------------------------------
Shares Amount Subscriptions Receivable Stage Total
------------ ----------- ------------- ------------ -------------- ---------------
Balance at inception - $ - $ - $ - $ - $ -
Issuance of shares from inception - - - - - 1,158,883
Net loss from inception - - - - (2,596,195) (2,596,195)
------------ ----------- ------------ ------------ -------------- ---------------
Balance, August 31, 1994 - - - - (2,596,195) (1,437,312)
Issuance of shares - - - - - 10,203
Shares earned but not issued - - - - - 27,389
Paid-in capital from common
stock warrants - - - - - 100,000
Preferred stock subscriptions 4,000 (4,000) - -
Net loss - - - - (1,146,326) (1,146,326)
------------ ----------- ------------ ------------ -------------- ---------------
Balance, May 31, 1995 - - 4,000 (4,000) (3,742,521) (2,446,046)
Shares earned but not issued - - - - - 83,444
Preferred stock subscriptions - - - - - -
Issuance of shares - - - - - 8,700
Net loss - - - - (492,538) (492,538)
------------ ----------- ------------ ------------ -------------- ---------------
Balance, August 31, 1995 - - 4,000 (4,000) (4,235,059) (2,846,440)
Issuance of shares 4,000,000 4,000 - - - 5,934,959
Shares earned but not issued - - - - - 240,354
Preferred stock subscriptions - - (4,000) 4,000 - -
Net loss - - - - (3,071,023) (3,071,023)
------------ ----------- ------------ ------------ -------------- ---------------
-
Balance, May 31, 1996 4,000,000 $ 4,000 $ - $ - $(7,306,082) $ 257,850
============= =========== ============ ============= ============== ================
<FN>
The accompanying notes to financial statements are an integral part of these statements.
-4-
RhoMed Incorporated
(A Development Stage Company)
Statements of Cash Flows
For the Period from Inception (January 28, 1986)
Through May 31, 1996 and
The Nine Months Ended May 31, 1996 and 1995
Inception
(January 28, 1986)
Through May 31,
--------------------------------------------
May 31, 1996 1996 1995
--------------------- --------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,306,182) $ (3,071,023) $ (1,146,326)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 303,333 62,664 64,460
Interest expense on related-party debt 52,720 6,000 6,000
Accrued interest on long-term financing 766,820 264,162 232,383
Accrued interest on short-term financing 138,446 130,510 -
Write-down of intangibles 259,334 259,334
Equity and notes payable issued for expenses 93,169 - 10,195
Changes in certain operating assets and liabilities:
Accounts receivable (2,936) 1,569 (1,080)
Accounts receivable, employees - 1,121 2,388
Prepaid expenses and other (132,151) (112,399) 11,022
Intangibles (407,918) (24,895) (53,686)
Accounts payable 216,910 (88,047) 178,683
Accrued compensation owed to employees 170,039 (17,799) 3,409
Accrued expenses 480,762 339,284 (3,753)
Commissions payable 476,760 476,760 -
--------------------- --------------------- ---------------------
Net cash used for operating activities (4,890,894) (1,772,759) (696,305)
--------------------- --------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (325,445) (16,793) (4,294)
--------------------- --------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, related party 302,000 - 196,000
Payments on notes payable, related party (309,936) (23,286) -
Proceeds from senior bridge notes payable 1,850,000 850,000 -
Proceeds from convertible notes payable and
long-term financing 1,951,327 - 292,063
Payments on convertible notes payable and
long-term financing (170,061) (45,000) (77,384)
Proceeds from paid-in capital from common
stock warrants 100,000 - 100,000
Proceeds from common stock, stock option
issuances and preferred stock, net 6,893,798 5,934,609 -
--------------------- --------------------- ---------------------
Net cash provided by financing activities 10,617,128 6,716,323 510,679
--------------------- --------------------- ---------------------
NET INCREASE (DECREASE) IN CASH 5,400,789 4,926,771 (189,920)
CASH, beginning of period - 474,018 222,405
--------------------- --------------------- ---------------------
CASH, end of period $ 5,400,789 $ 5,400,789 $ 32,485
===================== ===================== =====================
<FN>
The accompanying notes to financial statements are an integral part of these statements.
-5-
RhoMed Incorporated
(A Development Stage Company)
Statements of Cash Flows
for the Period from Inception (January 28, 1986)
Through May 31, 1996 and
the Nine Months Ended May 31, 1996 and 1995
- Continued -
Inception
(January 28, 1986)
through May 31,
-----------------------------
May 31, 1996 1996 1995
------------------ --------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 28,029 $ - $ 28,029
================== =============== =============
NON-CASH TRANSACTION:
Settlement of accounts payable with equipment $ 900 $ - $ -
================== =============== =============
NON-CASH STOCK ACTIVITY:
Conversion of loans from employees to common stock $ 74,187 $ - $ -
================== =============== =============
Conversion of note payable to common stock $ 16,000 $ - $ -
================== =============== =============
Common stock issued for equipment $ 2,327 $ - $ -
================== =============== =============
Common stock issued for expenses (included above) $ 111,185 $ - $ 10,195
================== =============== =============
Common stock issued for accrued salaries and bonuses $ 16,548 $ - $ -
================== =============== =============
Accrued interest payable in common stock $ 351,187 $ 242,004 $ 27,389
================== =============== =============
<FN>
The accompanying notes to financial statements are an integral part of these statements.
-6-
RHOMED INCORPORATED
(A Development Stage Company)
Notes to Financial Statements (Unaudited)
For the Nine Months Ended May 31, 1996 and 1995
(1) NATURE OF BUSINESS:
RhoMed Incorporated (the "Company" or "RhoMed") is a development
stage company developing products and technologies for diagnostic imaging,
cancer therapy and ethical drug development based upon its monoclonal
antibody, radiolabeling and enabling peptide platform technologies.
(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"). 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 May 31, 1996 and 1995, and the results of operations and its
cash flows for the nine months ended May 31, 1996 and 1995, and for the period
from inception (January 28, 1986) to May 31, 1996. The results of operations for
the nine months ended May 31, 1996, are not necessarily indicative of results
to be expected for the full year.
The accompanying financial statements and the related notes should
be read in conjunction with the Company's audited financial statements for the
fiscal years ended August 31, 1995, 1994 and 1993 filed with the Interfilm,
Inc. Form 8-K bearing a Date of Report of June 25, 1996.
- 7 -
(3) INTANGIBLES:
The Company wrote off the net book value of certain patents
($259,334) which the Company is currently not utilizing in its development
projects because the patents had no demonstrated future value.
(4) SENIOR "B" BRIDGE NOTES:
On January 25, 1996, the Board of Directors increased the Company's
offering of $100,000 units from 7.5 units to 8.5 units, with each unit
consisting of a $100,000 face amount Series B Senior Bridge Note and a Warrant
to purchase 100,000 shares of common stock, no par value, of the Company at an
exercise price of the lesser of (a) $.25 per share and (b) 50% of the price
per share of common stock in a subsequent equity offering of the Company's
common stock in which gross proceeds exceed $2,500,000. On February 15, 1996,
the purchase of units was completed. The Company issued warrants to purchase
850,000 shares of common stock, no par value, to unit purchasers, and is
obligated to issue placement agent's warrants for 42,500 shares of common
stock, no par value. On June 28, 1996, the Series B Senior Bridge Notes with
accrued interest were paid in full.
(5) ACCRUED EXPENSES:
At May 31, 1996, the Company had established a facility relocation
reserve of $450,000. The facility relocation reserve represents mainly
severance costs, facility closing expenses and recruiting fees. Included in
accrued expenses at May 31, 1996, is $293,213 of the restructuring reserve.
- 8 -
(6) COMMON STOCK PLACEMENT:
On March 4, 1996, the Board of Directors authorized an offering of
up to 40 units at $100,000 per unit, with each unit consisting of 400,000
shares of common stock, no par value, of the Company at a purchase price of
$.25 per share (the "Offering"). On May 14, 1996, the Board of Directors
authorized an increase in the Offering of up to 100 units. At May 31, 1996,
the Company had received subscriptions for 67.95 units. Paramount Capital,
Inc., served as placement agent for the Offering. As placement agent,
Paramount Capital, Inc., received a cash commission equal to 9% of the gross
proceeds from the sale of the units, a non-accountable expense allowance equal
to 4% of gross proceeds and placement agent's warrants, at an exercise price
of $.30 per share and which terminate ten years from the date of issuance,
equal to 10% of the common stock issued in the Offering.
(7) INCREASE IN COMMON STOCK:
By Articles of Amendment approved by the shareholders on April 4,
1996 and filed April 10, 1996, the Company amended its Articles of Incorporation
to increase its authorized capital from 40,000,000 to 60,000,000
common stock shares with no par value. By Articles of Amendment approved by
the shareholders on May 24, 1996 and filed June 7, 1996, the Company amended
its Articles of Incorporation to increase its authorized capital to 90,000,000
common stock shares with no par value.
(8) STOCK OPTION PLANS:
During the nine months ended May 31, 1996, options for 2,939,611
shares under the 1995 Employee Incentive Stock Option Plan were granted and
outstanding, at option prices ranging from $.01 to $.25 per share, expiring at
various dates through February 1, 2006, and options for 475,000 shares under
the 1995 Nonqualified Stock Option Plan were granted and outstanding, at an
option price of $.25 per share, expiring at various dates through February 16,
2006. Options as to
- 9 -
389,935 shares under the 1995 Employee Incentive Stock Option Plan were
exercisable at May 31, 1996. No options under any plan were exercised or
terminated during the nine months ended May 31, 1996.
Effective April 15, 1996, and ratified by the shareholders on May
24, 1995, the Company increased the shares reserved for its 1995 Employee
Incentive Stock Option Plan to 7,500,000 shares of common stock.
(9) SUBSEQUENT EVENTS:
Aberlyn Transaction -- On June 24, 1996, the Company entered into
an agreement with Aberlyn Capital Management Limited Partnership and Aberlyn
Holding Company, Inc. (collectively "Aberlyn"), pursuant to which designees of
Aberlyn received 930,023 shares of common stock, no par value, of the Company
in payment of accrued interest through April 30, 1996 in the amount of
$324,546. Under the agreement, Aberlyn's outstanding right to purchase 930,023
shares of the Company's common stock was terminated.
Common Stock Placement -- On June 24, 1996, the Company completed
its private placement of common stock pursuant to the Offering (see Note 6).
The Company sold 96.454 units with gross proceeds of $9,645,400, and is
obligated to issue placement agent's warrants for 3,858,160 shares of common
stock, no par value.
Stock Option Plans -- Subsequent to May 31, 1996, options for
4,457,593 shares under the 1995 Employee Incentive Stock Option Plan were
granted at an option price of $.25 per share, expiring at various dates
through June 21, 2006, and options for 1,235,123 shares under the 1995
Nonqualified Stock Option Plan were granted at an option price of $.25 per
share, expiring on June 21, 2006.
- 10 -
Merger -- On June 25, 1996, pursuant to the terms and conditions of
the Agreement and Plan of Reorganization dated as of April 12, 1996
("Reorganization Agreement") by and between Interfilm, Inc. ("Interfilm"),
Interfilm Acquisition Corp. ("InSub"), and RhoMed, InSub merged with and into
RhoMed (the "Merger"). Pursuant to the Merger, all of RhoMed's capital stock
was acquired by Interfilm in exchange for Interfilm preferred stock, which
upon the filing of an Amended Certificate of Incorporation will automatically
convert into shares of Interfilm common stock. Additionally, all warrants and
options to purchase RhoMed common stock outstanding immediately prior to the
Merger were converted into rights upon exercise to receive Interfilm capital
stock in the same manner in which shares of RhoMed common stock were
converted. As a result of the Merger, RhoMed has become a wholly-owned
subsidiary of Interfilm, and the former shareholders of RhoMed have acquired
an approximately 96% interest in the equity securities of Interfilm on a
fully-diluted basis. Pursuant to the Reorganization Agreement, immediately
prior to the closing of the Merger certain stockholders of Interfilm and third
parties purchased 3,000,000 shares of RhoMed's common stock, no par value, at
a purchase price of $.25 per share. In addition, pursuant to the
Reorganization Agreement warrants to purchase 1,500,000 shares of RhoMed's
common stock, no par value, at an exercise price of $.40 were issued. The
warrants terminate four years from the date of issuance, have certain
registration rights, contain a call provision, and are subject to adjustment
in certain circumstances. The directors and officers of RhoMed became the
directors and officers of Interfilm upon the closing of the Merger.
Interfilm gave notice, in an Information Statement filed pursuant to
Section 14(c) of the Securities Exchange Act of 1934 and dated June 25, 1996,
that Interfilm will amend its Certificate of Incorporation to (a) increase the
total number of shares of authorized common stock from 10,000,000 to
25,000,000, (b) effect a 1-for-10 reverse stock split and (c) change its name
to Palatin Technologies, Inc. ("Palatin Technologies"). The amendment to
Interfilm's Certificate of Incorporation will be effective on or about July
19, 1996. As a result of the Merger and the amendment to Interfilm's
Certificate of Incorporation, each share of RhoMed common stock will convert
into .184332593 shares of Palatin Technologies common stock, and each share of
RhoMed preferred stock will convert into .46695404349 shares of Palatin
Technologies common stock.
- 11 -
Immediately upon all conversions pursuant to the Merger and the
amendment to Interfilm's Certificate of Incorporation, the issued and
outstanding RhoMed preferred stock and common stock, 4,000,000 and 49,558,217
shares respectively, will convert into an aggregate total of approximately
11,003,000 shares of Palatin Technologies common stock, representing
approximately 95.4% of the approximate total of 11,538,700 shares of Palatin
Technologies common stock then issued and outstanding. There will be no shares
of Palatin Technology preferred stock outstanding. All outstanding RhoMed
warrants, options and convertible securities, representing rights to acquire
20,715,815 shares of RhoMed common stock, will convert into rights to acquire
approximately 3,818,600 shares of Palatin Technologies common stock.
(10) PRO FORMA FINANCIAL INFORMATION:
As stated above, on June 25, 1996, Interfilm, a public shell,
acquired all of the outstanding capital stock of RhoMed. For accounting
purposes, the acquisition has been treated as a recapitalization of RhoMed
with RhoMed as the acquirer (reverse acquisition). Pro forma information
is not presented since the Merger is not a business combination.
- 12 -