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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 0-22686
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PALATIN TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 95-4078884
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
214 CARNEGIE CENTER - SUITE 100
PRINCETON, NEW JERSEY 08540
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (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. Yes [X] No [ ]
As of November 9, 1998, 4,712,284 shares of the Issuer's common stock, par value
$.01 per share, were outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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PALATIN TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS -- As of September 30, 1998
and June 30, 1998.......................................... Page 3
CONSOLIDATED STATEMENTS OF OPERATIONS -- For the Three Months
Ended September 30, 1998 and September 30, 1997 and
the Period from January 28, 1986 (Commencement of
Operations) through September 30, 1998..................... Page 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -- For the Three Months
Ended September 30, 1998 and September 30, 1997 and the
Period From January 28, 1986 (Commencement of
Operations) through September 30, 1998..................... Page 5
Notes to Consolidated Financial Statements................... Page 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. Page 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ Page 10
Item 2. Changes in Securities and Use of Proceeds.................... Page 10
Item 3. Defaults Upon Senior Securities.............................. Page 11
Item 4. Submission of Matters to a Vote of Security Holders.......... Page 11
Item 5. Other Information............................................ Page 11
Item 6. Exhibits and Reports on Form 8-K............................. Page 11
Signatures.............................................................. Page 12
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 JUNE 30, 1998
----------------------- ----------------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $185,000 $3,704,725 $4,511,187
Prepaid expenses and other 173,020 277,765
----------------------- ----------------------
Total current assets 3,877,745 4,788,952
Fixed assets, net of accumulated depreciation and amortization
of $509,410 and $454,705 respectively 1,571,237 1,610,117
Intangibles, net of accumulated amortization of $119,299 and
$116,247, respectively 81,804 76,000
----------------------- ----------------------
$5,530,786 $6,475,069
======================= ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $913,751 $461,546
Accrued expenses 682,389 1,134,388
Current portion of long-term debt 697,881 939,588
----------------------- ----------------------
Total current liabilities 2,294,021 2,535,522
----------------------- ----------------------
Deferred license revenue 550,000 550,000
----------------------- ----------------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock of $.01 par value - authorized 10,000,000 shares;
Series A Convertible; 78,284 and 88,329 shares issued and outstanding
as of September 30, 1998 and June 30, 1998, respectively; 783 883
Series B Convertible; 18,875 shares issued and outstanding as of
September 30, 1998 and June 30, 1998; 189 189
Common stock of $.01 par value - authorized 75,000,000 shares;
issued and outstanding 4,669,946 and 4,099,623 shares as of
September 30, 1998 and June 30, 1998, respectively; 46,700 40,996
Additional paid-in capital 28,804,498 26,610,101
Warrants 573,537 573,537
Unamortized deferred compensation (461,298) (516,179)
Deficit accumulated during development stage (26,277,644) (23,319,980)
----------------------- ----------------------
Total stockholder's equity 2,686,765 3,389,547
----------------------- ----------------------
$5,530,786 $6,475,069
======================= ======================
The accompanying notes to the consolidated financial statements are
an integral part of these financial statements.
3
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Inception
(January 28, 1986)
Three Months Ended September 30, through
1998 1997 September 30, 1998
------------------- ------------------- ----------------------
REVENUES:
Grants and contracts $ - $ 33,967 $ 3,244,652
License fees and royalties - - 684,296
Product - - 318,917
------------------- ------------------- --------------------
Total revenues - 33,967 4,247,865
------------------- ------------------- --------------------
OPERATING EXPENSES:
Research and development 2,137,591 1,389,782 17,055,698
General and administrative 846,290 680,234 11,389,890
Restructuring charge - - 284,000
Net intangibles write down - - 259,334
------------------- ------------------- --------------------
Total operating expenses 2,983,881 2,070,016 28,988,922
------------------- ------------------- --------------------
OTHER INCOME (EXPENSES):
Interest income 60,216 145,879 836,375
Interest expense (33,999) (75,523) (1,678,992)
Placement agent commissions and
fees on debt offering - - (168,970)
Merger costs - - (525,000)
------------------- ------------------- --------------------
Total other (expenses) 26,217 70,356 (1,536,587)
------------------- ------------------- --------------------
NET LOSS (2,957,664) (1,965,693) (26,277,644)
PREFERRED STOCK DIVIDEND - - (3,121,525)
------------------- ------------------- --------------------
NET LOSS ATTRIBUTABLE TO COMMON $(2,957,664) $(1,965,693) $(29,399,169)
=================== =================== ====================
Basic and diluted net loss per common share $ (0.66) $ (0.65) $ (33.29)
=================== =================== ====================
Weighted average number of common shares
outstanding used in computing basic and
diluted net loss per common share 4,502,090 3,038,406 882,992
=================== =================== ====================
The accompanying notes to the consolidated financial statements are
an integral part of these financial statements.
4
PALATIN TECHNOLOGIES, INC
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Inception
(January 28,
1986)
Three Months Ended September 30, Through
1998 1997 September 30, 1998
---------------- -------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,957,664) $(1,965,693) $(26,277,644)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 57,757 29,975 662,411
License fee - - 500,000
Interest expense on note payable - 3,382 72,691
Accrued interest on long-term financing - - 796,038
Accrued interest on short-term financing - - 7,936
Intangibles and equipment write down - - 278,318
Equity and notes payable issued for expenses - - 623,688
Settlement with consultant - - (28,731)
Deferred revenue - - 550,000
Amortization of deferred compensation 254,881 215,714 2,372,574
Changes in certain operating assets and
liabilities:
Accounts receivable - (400,967) -
Prepaid expenses and other (104,578) 24,154 (382,344)
Intangibles (8,856) (7,961) (454,556)
Accounts payable 452,205 (89,090) 912,851
Accrued expenses (451,999) 249,583 222,122
---------------- -------------- ------------------
Net cash used for operating activities (2,758,254) (1,940,903) (20,144,646)
---------------- -------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (15,825) (1,115,452) (2,135,988)
---------------- -------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, related party - - 302,000
Payments on notes payable, related party - - (389,936)
Proceeds from senior bridge notes payable - - 1,850,000
Payments on senior bridge notes - - (1,850,000)
Proceeds from notes payable and long term debt 1,951,327
Payments on notes payable and long term debt (241,707) (203,650) (1,531,494)
Proceeds from paid-in capital from common
stock warrants - - 100,000
Proceeds from common stock, stock option
issuances, net 2,209,324 6,184 12,344,803
Proceeds from preferred stock, net - - 13,210,326
Purchase of treasury stock - - (1,667)
---------------- -------------- ------------------
Net cash provided by (used for)
financing activities 1,967,617 (197,466) 25,985,359
---------------- -------------- ------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (806,462) (3,253,821) 3,704,725
CASH AND CASH EQUIVALENTS, beginning
of period 4,511,187 12,806,717 -
---------------- -------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $3,704,725 $9,552,896 $3,704,725
================ ============== ==================
The accompanying notes to the consolidated financial statements are
an integral part of these financial statements.
5
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements (Unaudited)
(1) ORGANIZATION ACTIVITIES:
Nature of Business -- Palatin Technologies, Inc. ("Palatin" or the
"Company") is a development stage enterprise dedicated to developing and
commercializing products and technologies for diagnostic imaging and ethical
drug development utilizing peptide, monoclonal antibody and radiopharmaceutical
technologies.
Business Risk and Liquidity - The Company's accompanying financial
statements have been prepared in conformity with principles of accounting
applicable to a going concern. These principles contemplate the realization of
assets and the satisfaction of liabilities in the normal course of business.
As shown in the accompanying financial statements, the Company incurred
substantial net losses of $2,957,664 for the three months ended September 30,
1998 and has a deficit accumulated during development stage of $26,277,644. The
Company anticipates incurring additional operating 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 various technologies. To
achieve profitability, the Company, alone or with others, must successfully
develop and commercialize its technologies and proposed products, conduct
pre-clinical studies and clinical trials, obtain required regulatory approvals
and successfully manufacture and market such technologies and proposed 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.
Management plans to continue to refine its operations, control
expenses, evaluate alternative methods to conduct its business, and seek
available and attractive sources of debt or equity financing through a
combination of private placements and sharing of development costs, or other
resources. Management believes that through one or a combination of such factors
that it will be able to obtain adequate financing to fund the Company's
operations through fiscal 1999. There can be no assurance that the Company's
efforts will be successful. If a significant operating expense reduction plan
were implemented, it would require the Company to delay, scale back or eliminate
significant aspects of the Company's operations.
(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
disclosures normally included in the Company's audited annual financial
statements have 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 September 30, 1998
and June 30, 1998, and the results of operations for the three month period
ended September 30, 1998 and 1997 and for the period from inception (January 28,
1986) to September 30, 1998 and cash flows for the three months ended September
30, 1998 and 1997, and for the period from inception (January 28, 1986) to
September 30, 1998. 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, 1999.
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 June 30, 1998 and 1997 and the ten months ended June 30,
1996, filed with the Company's Form 10-KSB for the year ended June 30, 1998.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation -- The consolidated financial statements include the
accounts of Palatin and its wholly owned subsidiary, RhoMed Incorporated
("RhoMed"). The remaining subsidiary of Palatin, Interfilm Technologies, Inc.,
is inactive. All significant intercompany accounts and transactions have been
eliminated in consolidation.
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
6
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.
Cash and Cash Equivalents -- For purposes of presenting cash flows, the
Company considers cash and cash equivalents as amounts on hand, on deposit in
financial institutions and highly liquid investments purchased with an original
maturity of three months or less.
Revenue Recognition -- Grant and contract revenues are recognized as services
are provided. License and royalty revenues are recognized when earned. Product
revenues are recognized upon shipment.
Research and Development Costs -- The costs of research and development
activities are expensed as incurred.
Net Loss per Common Share -- Effective December 31, 1997 the Company adopted
SFAS No. 128, "Earnings per Share" ("SFAS 128"), which supersedes Accounting
Principles Board Opinion No. 15, "Earnings per Share." SFAS 128 requires dual
presentation of basic and diluted earnings per share ("EPS") for complex capital
structures on the face of the statement of operations. Basic EPS is computed by
dividing the income (loss) by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from the
exercise or conversion of securities into common stock, such as stock options.
For the three months ended September 30, 1998 and 1997 and for the period from
inception (January 28, 1986) through September 30, 1998, there were no dilutive
effects of stock options or warrants as the Company incurred a net loss in each
period. Options and warrants to purchase 1,872,118 shares of common stock at
prices ranging from $0.20 to $360 per share were outstanding at September 30,
1998. In accordance with the provisions of SFAS 128, EPS for prior periods have
been restated.
(4) PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at:
September 30, June 30,
1998 1998
------------- -------------
Office equipment $ 368,051 $ 361,087
Laboratory equipment 381,991 380,631
Leasehold improvements 1,330,605 1,323,104
----------- -----------
2,080,647 2,064,822
Less: Accumulated depreciation and
Amortization (509,410) (454,705)
----------- -----------
$1,571,237 $1,610,117
=========== ===========
(5) LONG - TERM DEBT:
The Company has long-term financing agreements with Phoenixcor, Inc.
("Phoenixcor"). The Company is obligated to make monthly principal and interest
payments of $91,695 through May 1, 1999. At September 30, 1998, the total
principal on the long-term debt was $697,881.
(6) COMMITMENTS AND CONTINGENCIES:
Consulting Agreements -- The Company is obligated under four consulting
agreements to make payments totaling $200,800 in fiscal 1999.
Legal Proceedings -- The Company is subject to various claims and
litigation in the ordinary course of its business. Management believes that the
outcome of such legal proceedings will not have a material adverse effect on the
Company.
(7) STOCKHOLDERS' EQUITY (DEFICIT):
As of July 8, 1998, the Company sold 363,636 shares of common stock to
TheraTech, Inc. ("TheraTech") at a sale price of $5.50 per share, for gross
proceeds of $2,000,000 and net proceeds of approximately $1,964,000.
7
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 and its wholly owned subsidiary, RhoMed.
Certain statements in this 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 statements. When used in this Form 10-QSB, statements that are
not statements of historical fact may be deemed to be forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Form 10-QSB.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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, manufacturing 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, the possible effect of Year 2000 issues and
other risks detailed in the Company's filings with the Commission, including the
Company's Form 10-KSB for the year ended June 30, 1998. 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 when expenses are incurred.
RESULTS OF OPERATIONS
Three Month Period Ended September 30, 1998 Compared to Three Month
Period Ended September 30, 1997.
Grants and contracts - There was no revenue from grants and contracts
during the three month period ended September 30, 1998, compared to $33,967 from
grants in the three month period ended September 30, 1997. During the three
month period ended September 30, 1997, the Company completed its four Phase I
grants under the Small Business Innovative Research program with the National
Institutes of Health of the Department of Health and Human Services.
Sales - There was no revenue from the sale of products during the three
month periods ended September 30, 1998 and September 30, 1997. During the fiscal
year ended June 30, 1997, the Company discontinued the manufacture and sale of
RhoChek, the sole product sold by the Company, due to insufficient sales.
Research and development - Research and development expenses increased
to $2,137,591 for the three month period ended September 30, 1998 compared to
$1,389,782 for the three month period ended September 30, 1997. The Company
substantially increased research and development spending, primarily relating to
development of the LeuTech(TM) 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 PT-14(TM)
peptide therapeutic product and MIDAS(TM) metallopeptide technology. The Company
expects research and development expenses to continue to increase in future
quarters as the Company expands clinical trials and manufacturing efforts and
the LeuTech product and expands efforts to develop PT-14 and MIDAS technology.
General and administrative - General and administrative expenses
increased to $846,290 for the three month period ended September 30, 1998
compared to $680,234 for the three month period ended September 30, 1997. The
increase in general and administrative expenses were mainly attributable to the
amortization of deferred compensation, totaling $254,881 for the three month
period ended September 30, 1998, and the value of options granted at exercise
prices below the then current market price of the Company's common stock.
Interest income - Interest income decreased to $60,216 for the three
month period ended September 30, 1998 compared to $145,879 for the three month
period ended September 30, 1997. The decrease in interest income is primarily
8
the result of the depletion of funds available for investment purposes and used
to fund the Company's operations.
Interest expense - Interest expense decreased to $33,999 for the three
month period ended September 30, 1998 compared to $75,523 for the three month
period ended September 30, 1997. The decrease is due to the repayment by the
Company of a portion of outstanding principal on long-term debt provided by
Phoenixcor.
Net loss - Net loss increased to $2,957,664 for the three month period
ended September 30, 1998 compared to $1,965,693 for the three month period ended
September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has incurred net operating losses and
as of September 30, 1998, had a deficit accumulated during development stage of
$26,277,644. The Company has financed its net operating losses through September
30, 1998 by a series of debt and equity financings. At September 30, 1998, the
Company had cash and cash equivalents of $3,704,725.
For the three months ended September 30, 1998, the net decrease in cash
amounted to $806,462. Cash used for operating activities was $2,758,254, net
cash used for investing activities was $15,825 and cash provided by financing
activities was $1,967,617.
As of July 8, 1998, the Company completed a private placement of
363,636 shares of common stock of the Company for gross proceeds of $2,000,000
and net proceeds of approximately $1,964,000. The net proceeds will be used
for research and development of an oral dosage form of PT-14.
Pursuant to a license option agreement with Nihon Medi-Physics Ltd.
("Nihon"), Nihon can maintain its option to license certain products based on
the Company's MIDAS 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 may be required to repay $550,000 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 license option
agreement will be made, or that a strategic alliance between the Company and
Nihon will result in the development or commercialization of any product.
The Company's monthly payments on long-term debt payable to Phoenixcor
are $91,695, representing payment of current interest and principal. The final
monthly payment is scheduled to be made in May 1999.
In March 1997, the Company entered into a ten-year lease on research
and development facilities in Edison, New Jersey, which commenced August 1,
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.
Effective August 1, 1997, the Company entered into a five-year lease on
administrative offices in Princeton, New Jersey. Minimum future lease payments
are approximately $97,000 per year.
The Company has entered into three license agreements, which require
minimum yearly payments. Future minimum fiscal year payments under the license
agreements are as follows: 1999 - $150,000, 2000 - $200,000, 2001 - $150,000,
2002 -$200,000 and 2003 - $200,000.
The Company expects to continue actively searching for certain
products, technologies to license or acquire in the future, and corporate
partnerships, depending on the financial resources of the Company. If the
Company is successful in identifying a product or technology for acquisition,
substantial funds may be required for such acquisition and subsequent
development or commercialization. There can be no assurance that any acquisition
will be consummated in the future.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. The
Company anticipates incurring additional losses over at least the next several
years, and expects such losses to increase as the Company expands its research
and development activities relating to LeuTech, PT-14 and its MIDAS technology.
The Company's future capital requirements and the adequacy of available funds
depends on numerous factors, including progress in its product development
efforts, the magnitude and scope of such efforts, progress with pre-clinical
studies and clinical trials, progress with regulatory affairs activities, the
cost of filing, prosecution, defending and enforcing patent claims and other
9
intellectual property rights, competing technological and market developments,
and identifying and consummating suitable strategic alliances. To achieve
profitability, the Company, alone or with others, must successfully develop and
commercialize its technologies and proposed 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.
The Company expects that its existing capital resources will be adequate
to fund the Company's projected debt obligations and operations through the
first calendar quarter of 1999, based on current expenditure levels. The Company
is actively attempting to obtain additional funds through equity or debt
financing, strategic alliances with corporate partners and others, or through
other sources. Based on the Company's historical ability to raise capital and
current market conditions, the Company believes financing alternatives are
available. There can be no assurance the Company's efforts will be successful.
If adequate funds are not available, the Company may be required to delay, scale
back or eliminate certain aspects of its operations or attempt to obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not available, the
Company's business, financial condition and results of operations will be
materially and adversely affected.
YEAR 2000 COMPATIBILITY
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions and information or engage in similar normal
business activities.
The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. The Company believes that it
does not have significant year 2000 issues related to its computerized
information systems and is currently reviewing these systems. This review is
expected to be completed during 1999.
In addition, it is also possible that certain computer systems or
software products of the Company's suppliers and contractors may not be year
2000 compatible. The Company is requesting assurances from all software vendors
from which it has purchased or from which it may purchase software that such
software will correctly process all date information at all times. Furthermore,
the Company is querying its suppliers and contractors as to their progress in
identifying and addressing problems that their computer systems will face in
correct processing date information as the year 2000 approaches. The Company
expects this assessment to be completed during 1999 and currently believes that
costs of addressing this issue will not have a material adverse impact on the
Company's financial position. However, if the Company and third parties upon
which it relies are unable to address this issue in a timely manner, it could
result in a material financial risk to the Company. In order to asssure that
this does not occur, the Company plans to devote all resources required to
resolve any significant year 2000 issues in a timely manner.
To date the Company has not made any contingency plans to address
third-party year 2000 risks. The Company plans to formulate contingency plans to
the extent necessary in 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As reported in Item 3 of the Company's Form 10-KSB for the year ended
June 30, 1998, and incorporated herein by reference, in July 1998 the litigation
between the Company and Sony Corporation of America and certain of its
affiliates and subsidiaries was settled.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
As of July 8, 1998, the Company sold 363,636 shares of unregistered
common stock to TheraTech at a sale price of $5.50 per share in a
non-underwritten transaction, for gross proceeds of $2,000,000. The net proceeds
of the offering, approximately $1,964,000, will be used for research and
development of the dosage form of PT-14. The common stock was sold to TheraTech,
10
an accredited investor, pursuant to Rule 506 of Regulation D promulgated under
the Securities Act of 1933, as amended. TheraTech represented to the Company
that it was purchasing the common stock for its own account for investment and
not with a view toward resale or distribution to others. The certificate
representing the common stock bears a restrictive legend. On October 14, 1998,
the Commission declared a registration statement registering these shares of
common stock for resale effective.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On October 1, 1998, the Company announced that it had initiated Phase 3
clinical trials of its LeuTech infection imaging agent for diagnosis of
equivocal appendicitis at ten major medical centers around the United States.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
10.37 Employment Agreement effective August 1, 1998 between
Palatin Technologies, Inc. and Charles Putnam.*
10.38 Employment Agreement effective August 1, 1998 between Palatin
Technologies, Inc. and Carl Spana.*
10.39 Employment Agreement effective August 1, 1998 between
Palatin Technologies, Inc. and Stephen T. Wills.*
27.1 Financial Data Schedule
* A management contract or compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K
One report on Form 8-K was filed by the Company during the three months
ended September 30, 1998. The report was filed on July 9, 1998, with a date of
report of July 8, 1998, and reported on Item 5, Other Events, relating to the
sale of 363,636 shares of common stock of the Company to TheraTech.
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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: November 16, 1998 /s/ Edward J. Quilty
----------------------------
Edward J. Quilty
Chairman of the Board
and Chief Executive Officer
Date: November 16, 1998 /s/ Stephen T. Wills
----------------------------
Stephen T. Wills
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
12