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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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Quarterly Report under Section 13 of the Securities Exchange Act of 1934
For the Quarterly period Ended Commission File No. 0-27282
March 31, 1998
ATLANTIC PHARMACEUTUCALS, INC.
1017 Main Campus Drive, Suite 3900
Raleigh, North Carolina, 27606
Telephone (919)513-7020
Incorporated in Delaware IRS ID # 36-3898269
Indicate by chech mark whether the registrant (1) has filed all reports
required to filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the last 90 days:
Yes [X] No [ ]
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3,447,164 shares of common stock, $.001 par value per share were
outstanding on March 31, 1998.
Transitional Small Business Disclosure Format Yes [X] No [ ]
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ATLANTIC PHARMACEUTUCALS, INC. AND SUBSIDIARIES
PART ONE -- FINANCIAL INFORMATION Page
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Item 1 -- Financial Statements
Consolidated Balance Sheets
as of March 31, 1998 (unaudited) and December 31, 1997. 1
Consolidated Statements of Operations (unaudited)
for the quarters ended March 31, 1998 and 1997
and the period from July 13, 1993 (inception) to March 31, 1998. 2
Consolidated Statements of Cash Flows (unaudited)
for the quarters ended March 31, 1998 and 1997
and the period from July 13, 1993 (inception) to March 31, 1998. 3
Notes to Consolidated Financial Statements (unaudited) 4
Item 2 -- Management's Discussion and Analysis
of Financial Condition and Results of Operations 5
PART TWO -- OTHER INFORMATION
Item 6 -- Exhibits and Report on Form 8-K 18
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PART ONE -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
ATLANTIC PHARMACEUTUCALS, INC. AND SUBSIDIARIES
(a development stage company)
Consolidated Balance Sheets
March 31, 1998 (unaudited) and December 31, 1997
- --------------------------------------------------------------------------------
Assets 3/31/98 12/31/97
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Current assets:
Cash and cash equivalents $ 6,999,535 $ 8,543,495
Prepaid expenses 72,832 1,250
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Total current assets 7,072,367 8,544,745
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Furniture and equipment, net of accumulated
depreciation of $188,019 and $150,086 at
March 31, 1998 (unaudited) and December 31,
1997, respectively 341,393 250,961
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7,413,760 8,795,706
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Liabilities and Stockholders' Equity
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Current Liabilities
Accured expenses 242,838 392,566
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Total current liabilities 242,838 392,566
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Stockholders' equity
Preferred stock, $.001 par value. Authorized
50,000,000 shares; 1,375,000 designated as Series A
convertible preferred stock Series A convertible
preferred stock, $.001 par value; authorized
1,375,000 shares, 1,034,726 and 1,214,723 shares
issued and outstanding at March 31, 1998 (unaudited)
and December 31, 1997, respectively. 1,035 1,215
Convertible preferred stock warrants, 123,720
issued and outstanding at March 31, 1998 (unaudited)
and December 31, 1997, respectively 570,143 570,143
Common stock $.001 par value. Authorized
80,000,000 shares; 3,447,164 and 3,064,571
shares issued and outstanding at March 31, 1998
(unaudited) and December 31, 1997, respectively 3,447 3,065
Common stock subscribed. 182 shares at March 31,
1998 (unaudited) and December 31, 1997. - -
Additional paid-in capital 21,526,329 21,493,715
Deficit accumulated during development stage (14,862,290) (13,590,056)
Deferred compensation (67,200) (74,400)
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7,171,464 8,403,682
Less common stock subscriptions receivable (218) (218)
Less treasury stock, at cost (324) (324)
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Total stockholders' equity 7,170,922 8,403,140
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$7,413,760 $8,795,706
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See accompanying notes to consolidated financial statements
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ATLANTIC PHARMACEUTUCALS, INC. AND SUBSIDIARIES
(a development stage company)
Consolidated Statements of Operations (Unaudited)
Quarters ended March 31, 1998 and 1997 and the period
from July 13, 1993 (inception) to March 31, 1998.
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Cumulative
Quarter ended March 31 from July 13,
------------------------ 1993 (inception) to
1998 1997 March 31, 1998
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Revenue:
Grant revenue - - $99,932
Total Revenue - - 99,932
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Costs and expenses:
Research and development $756,726 $215,556 5,003,645
License fees - - 173,500
General and administrative 623,993 738,948 9,682,488
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Total operating expenses 1,380,719 954,504 14,859,633
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Other expense (income):
Interest income (108,485) (22,852) (522,986)
Interest expense - - 625,575
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Total other expense (income) (108,485) (22,852) 102,589
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Net loss (1,272,233) (931,652) (14,862,290)
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Imputed convertible preferred
stock dividend 1,016,702 4,720,006
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Net loss applicable to
common shares (2,288,935) (19,582,296)
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Net loss per common
share -- basic ($0.70) ($0.32) ($13.85)
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Shares used in calculation of
net loss per share 3,256,021 2,913,720 1,413,664
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See accompanying notes to consolidated financial statements.
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ATLANTIC PHARMACEUTUCALS, INC. AND SUBSIDIARIES
(a development stage company)
Consolidated Statements of Cash Flows (Unaudited)
Quarters ended March 31, 1998 and 1997 and the period
from July 13, 1993 (inception) to March 31, 1998.
<TABLE>
<CAPTION>
Cumulative
Quarter ended March 31 from July 13,
---------------------------------- 1993 (inception) to
1998 1997 March 31, 1998
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<S> <C> <C> <C>
Cash flows from operating activites:
Net loss $(1,272,233) (931,652) (14,862,290)
Adjustments to reconcile net loss to net
cash used in operating activites:
Compensation expense relating to
Warrants 85,442 298,202
Stock Options 34,518 7,200 168,900
Channel merger 657,900
Discount on notes payable -- bridge financing - - 300,000
Depreciation 37,933 11,546 188,020
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses (71,582) (55,927) (72,832)
Increase (decrease) in accrued expenses (149,728) 61,680 242,838
Increase (decrease) in accrued interest - - 172,305
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Net cash used in operating activites (1,421,093) (821,711) (12,906,958)
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Net cash used in investing activities -- acquisition
of furniture and equipment (128,365) (9,343) (529,413)
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Cash flows from financing activites:
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 5,498 18 7,553,046
Proceeds from the issuance of convertible
preferred stock
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Net cash provided by (used in) financing activities 5,498 18 20,435,906
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Net increase (decrease) in cash and cash equivalents (1,543,960) (831,036) 6,999,535
Cash and cash equivalents at beginning of period 8,543,495 2,269,532 -
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Cash and cash equivalents at end of period $ 6,999,535 1,438,496 -
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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
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</TABLE>
See accompanying notes to consolidated financial statements.
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Atlantic Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1998 and 1997
(1) BASIS OF PRESENTATION
The accompanying financial statements 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 normal 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, 1998
or for any subsequent period. These financial statements should be read in
conjunction with the Company's Annual Report on Form 10 - KSB for the year ended
December 31, 1997.
(2) STOCK OPTIONS
The 1995 Stock Option Plan which, as amended, provides for the granting of
equity incentives of up to 950,000 shares of the Company's common stock, par
value $0.001 per share (the "Common Stock"), to officers, directors, employees,
and consultants of the Company.
On November 11, 1997, in connection with their public relations services,
the Investor Relations Group (the "Investor") and its designees were issued
options to purchase 24,000 shares of the Company's Common Stock at $9.50 per
share, which options expires on November 10, 2002. In connection with the
issuance of these options, the Company recognized an expense in the amount of
$27,218 for the quarter ended March 31, 1998. This expense is included in
general and administrative expenses in the accompanying Consolidated Statements
of Operations.
As of March 31, 1998, options to purchase 247,185 shares of the Company's
Common Stock were available for future issuance under the Company's 1995 Stock
Option Plan. No options have been exercised as of March 31, 1998.
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the 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, 1997.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1998
For the first quarter ended March 31, 1998, research and development
expense was $756,726, which represents an increase of 251% over the same period
in 1997, primarily due to increased spending on the Company's technologies as
money became available from the proceeds of the 1997 private placement of
convertible preferred stock.
For the first quarter of 1998, general and administrative expense was
$623,993, which represents a decrease of 15.6% over the first quarter of 1997,
primarily due to decrease in travel and compensation expenses.
For the first quarter of 1998, interest income was $108,485, compared to
$22,852 in the first quarter of 1997 an increase of 474%. The increase is due
to the availability of cash from the private placement of convertible preferred
stock
LIQUIDITY AND CAPITAL RESOURCES
From inception to March 31, 1998 the Company had incurred an accumulated
deficit of $14,862,290 and expects to continue to incur additional losses
through the year ending December 31, 1998 and the foreseeable future.
The Company anticipates that its current resources will be sufficient to
finance the Company's currently anticipated needs for operating and capital
expenditures for at least fourteen months. In addition, the Company will
attempt to generate additional capital through a combination of collaborative
agreements, strategic alliances and public and private equity and debt
financings. However, no assurance can be provided that additional capital will
be obtained through these or other sources. If the Company is not able to obtain
continued financing, the Company may cease operation and in all likelihood all
the Company's security holders will lose their entire investment.
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; timing and cost of obtaining regulatory
approvals; levels of
RESEARCH AND DEVELOPMENT ACTIVITIES
Preclinical studies with all four technologies are proceeding according to
plan.
Optex's development of the Catarex device is continuing. The focus is
continued refinement of the clinical prototype device. Provisional patent
applications have been filed related to new developments with the device. A
video review of the Catarex technology was done at the American Academy of
Cataract and Refractive Surgery to introduce the technology to a broad range of
ophthalmologists.
Gemini's research on the antisense enhancing technology is continuing. A
lead product candidate oligonucletoide against Respiratory Syncytial Virus
("RSV") has begun preliminary IN VIVO testing in animal models in preparation
for definitive IN VIVO testing later in the year. IN VITRO studies are
continuing using anti-telomerase oligonucleotides against several potential
cancer targets.
Channel's sulfated cyclodextrin technology is advancing through the testing
of lead compounds. The compounds are being tested in vitro and in vivo with the
most advanced compounds currently in bovine and ursine models. Bioengineering
for the stent-bonding program is also continuing. Final data analysis of the
large animal studies is in progress with results anticipated in the second
quarter.
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Discussions are continuing for potential collaborations for the incorporation of
sulfated cyclodextrins into synthetic vascular graft material.
Preclinical characterization of CT-3 from several IN VIVO models has been
completed and design of the toxicology program is nearly finished. It is
anticipated that formal toxicology testing will begin in the second quarter.
Additionally, the synthesis process is being refined along with the manufacture
of GMP compound to support the toxicology program.
Preclinical studies with all four of the Company's technologies are proceeding
as scheduled. Clinical prototypes of the Catarex-TM- device are being designed
in anticipation of possible human studies later this year. A Notice of Allowance
for additional
FUTURE OUTLOOK
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 below and in the Company's
Annual Report on Form 10-KSB filed with the Securities and Exchange Commission
on March 30, 1998 as well as those set forth elsewhere herein.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS FORM 10-QSB, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS. THIS FORM 10-QSB CONTAINS FORWARD LOOKING STATEMENTS RELATING TO
FUTURE EVENTS OR FUTURE FINANCIAL PERFORMANCE OF THE COMPANY WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES EXCHANGE ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"). INVESTORS ARE CAUTIONED
THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT EVENTS OR RESULTS MAY DIFFER
MATERIALLY. IN EVALUATING SUCH STATEMENTS, INVESTORS SHOULD SPECIFICALLY
CONSIDER THE FOLLOWING FACTORS AND OTHER FACTORS SET FORTH IN THIS FORM 10-QSB
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY
SUCH FORWARD LOOKING STATEMENTS.
DEVELOPMENT STAGE COMPANIES; HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT;
UNCERTAINTY OF FUTURE PROFITABILITY
The technologies and products under development by the Company are in the
research and development stage and no operating revenue (outside of grant
revenues) has been generated to date. The Company does not expect to generate
any revenues in the near future. As a result, the Company must be evaluated in
light of the problems, delays, uncertainties and complications encountered in
connection with recently established businesses. The Company has incurred
operating losses since its inception. As of March 31, 1998, the Company's
working capital and accumulated deficit were $6,829,529 and $14,862,290,
respectively. Operating losses have resulted principally from costs incurred in
identifying and acquiring the technologies under development, research and
development activities, patent prosecution and maintenance costs and general and
administrative costs. The Company expects to incur significant operating losses
over the next several years, primarily due to continuation and expansion of its
research and development programs, including preclinical studies and clinical
trials for its products and technologies under development, as well as costs
incurred in identifying and, possibly, acquiring, additional technologies. The
Company's ability to achieve profitability depends upon its ability to develop
pharmaceutical and medical device products, obtain regulatory approval for its
proposed products and/or enter into agreements either for the sale or sublicense
of its technologies or for product development, manufacturing and
commercialization. There can be no assurance that the Company will ever achieve
significant revenues or profitable operations from the sale of its proposed
products.
NEED FOR ADDITIONAL FINANCING; ISSUANCE OF SECURITIES BY THE COMPANY AND ITS
SUBSIDIARIES; FUTURE DILUTION
The Company will require, and is constantly considering potential sources
for, substantial additional financing to continue its research, to complete its
product development and to manufacture and market any products that may be
developed. Based solely upon its currently existing consulting, license,
sponsored research, independent contractor and employment agreements, the
Company currently anticipates that it will spend all of its current cash
reserves by mid-1999. There can be no assurance, however, that the Company's
current cash reserves will not be expended prior to that time. The Company
anticipates that further funds may be raised at any time through additional
public or private debt or equity financings conducted either by the Company or
by one or more of its subsidiaries, or through collaborative ventures entered
into between the Company or one or more of its subsidiaries and one or more
corporate partners. There can be no assurance that the Company will be able to
obtain additional financing or that such financing, if available, can be
obtained on terms acceptable to the Company. If additional financing is not
otherwise available, the Company will be required to modify its business
development plans or reduce or cease certain or all of its operations. In such
event, holders of securities of the Company will, in all likelihood, lose their
entire investment.
Although the Company and each of its subsidiaries will seek to enter into
collaborative ventures with corporate partners to fund some or all of its
activities, as well as to manufacture or market the products which may be
successfully developed, neither the Company nor any of its subsidiaries
currently has any such arrangements with corporate partners, and there can be no
assurance that the Company or any of its
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subsidiaries will be able to enter into such ventures on favorable terms, if at
all. In addition, no assurance can be given that the Company or any of its
subsidiaries would be able to complete a subsequent private placement or public
offering of its securities. Failure by the Company or any of its subsidiaries
to enter into such collaborative ventures or to receive additional funding
either through a public offering or a private placement to complete its proposed
product development programs would have a material adverse effect on the
Company.
In the event that the Company obtains any additional funding, such
financings may have a dilutive effect on the holders of the Company's
securities. In addition, if one or more of the Company's subsidiaries raises
additional funds through the issuance and sale of its equity securities, the
interest of the Company and its stockholders in such subsidiary or subsidiaries,
as the case may be, could be diluted and there can be no assurance that the
Company will be able to maintain its majority interest in any or all of its
current subsidiaries. In addition, the interest of the Company and its
stockholders in each subsidiary will be diluted or subject to dilution to the
extent any such subsidiary issues shares or options to purchase shares of its
capital stock to employees, directors, consultants and others. In the event
that the Company's voting interest in any of its current subsidiaries falls
below 50%, the Company may not be able to exercise an adequate degree of control
over the affairs and policies of such subsidiary as currently being exercised.
In addition, the Company has outstanding Redeemable Warrants (that are
currently exercisable) as well as options and warrants (that are currently
exercisable in part) to purchase 3,537,750 and 1,028,155 shares of its Common
Stock, respectively, at exercise prices ranging from $5.50 to $6.05, and $0.75
to $10.00, respectively, and the exercise price for most of such convertible
securities is below the per share price of the Common Stock as currently quoted
on the SmallCap tier of the Nasdaq Stock Market ("Nasdaq"). As of March 31,
1998, the Company also had outstanding 1,034,726 shares of its Series A
Preferred Stock and warrants to purchase 123,720 shares of Series A Preferred
Stock, all of which currently are convertible into shares of the Company's
Common Stock at a conversion rate of 2.12 shares of Common Stock for each share
of Series A Preferred Stock. The aforementioned conversion rate is subject to
adjustment in favor of the holders of the Series A Preferred Stock upon the
occurrence of certain events. The exercise of such convertible securities or
the conversion of the Series A Preferred Stock, if any, may dilute the value of
the Common Stock. In addition, so long as such convertible securities remain
unexercised, the terms under which the Company could obtain additional capital
may be adversely affected.
NO DEVELOPED OR APPROVED PRODUCTS
To achieve profitable operations, the Company, alone or with others, must
successfully develop, obtain regulatory approval for, introduce and market its
products under development. The great majority of the preclinical and clinical
development work for the products under development of the Company remains to be
completed. The Company has not generated, nor is it expected to generate in the
near future, any operating revenues. In addition, the Company has no
manufacturing or marketing facilities nor any contracts with any commercial
manufacturing or marketing entities to manufacture for or market the Company's
products to consumers. No assurance can be given that any of its product
development efforts will be successfully completed, that required regulatory
approvals will be obtained, or that any such products, if developed and
introduced, will be successfully marketed or achieve market acceptance.
TECHNOLOGICAL UNCERTAINTY AND EARLY STAGE OF PRODUCT DEVELOPMENT
The technologies and products which the Company intends to develop are in
the early stages of development, require significant further research,
development and testing and are subject to the risks of failure inherent in the
development of products based on innovative or novel technologies. These risks
include the possibility that any or all of the Company's proposed technologies
and products will be found to be ineffective or unsafe, will fail to meet
applicable regulatory standards or will fail to obtain required regulatory
approvals or that such technologies and products once developed, although
effective, are uneconomical to market, that third parties hold proprietary
rights that preclude the Company from marketing such technologies and products,
that third parties market superior or equivalent technologies and products or
that third parties have superior resources to market similar products or
technologies. Further,
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the Company's proposed technologies and products might prove to have undesirable
or unintended side effects that prevent or limit their commercial use.
The Company's agreements with licensors do not contain any representations
by the licensors as to the safety or efficacy of the inventions or discoveries
covered thereby. The Company is unable to predict whether the research and
development activities it is funding will result in any commercially viable
products or applications. In addition, there can be no assurance that the
Company's research and development schedules will be met. Further, due to the
extended testing required before marketing clearance can be obtained from the
FDA or other similar agencies, the Company is not able to predict with any
certainty, when, if ever, the Company will be able to commercialize any of its
proposed technologies or products.
RESULTS OF A PIVOTAL STUDY OF THE CYCLODEXTRIN TECHNOLOGY EXPECTED IN
MID-1998
The Company has performed several studies in small animal models of its
cyclodextrin technology and the results of this research have indicated that the
sulfated cyclodextrins may have potential as a treatment for restenosis and late
vein graft failure. The Company is currently conducting research in large
animal models of the cyclodextrin technology, and the results of the research in
the large animal models are believed to be more predictive of the effect of the
cyclodextrin technology in humans. In mid-1998, the Company expects to have the
results of the studies performed in large animal models of the cyclodextrin
technology. Depending on the results of these studies, the Company may elect,
among other alternatives, to relinquish its proprietary rights to the
cyclodextrin technology.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The Company's proposed products and technologies are in very early stages
of development. The research, preclinical development, clinical trials, product
manufacturing and marketing to be conducted by, or on behalf of, the Company is
subject to extensive regulation by the FDA, comparable agencies in state and
local jurisdictions and similar health authorities in foreign countries. FDA
approval of the Company's products, as well as the manufacturing processes and
facilities, if any used to produce such products will be required before such
products may be marketed in the United States. The processes of obtaining
approvals from the FDA are costly, time consuming and often subject to
unanticipated delays. There can be no assurance that approvals of the Company's
proposed products, processes or facilities will be granted on a timely basis, or
at all. In addition, new government regulations may be established that could
delay or prevent regulatory approval of the Company's products under
development. Any future failure to obtain or delay in obtaining any such
approval will materially and adversely affect the ability of the Company to
market its proposed products and the business, financial condition and results
of operations of the Company.
The Company's proposed products and technologies may also be subject to
certain other federal, state and local government regulations, including, but
not limited to, the Federal Food, Drug and Cosmetic Act, the Environmental
Protection Act, the Occupational Safety and Health Act and state, local and
foreign counterparts to certain of such acts. The Company intends to develop
its business to strategically address regulatory needs. However, the Company
cannot predict the extent of the adverse effect on its business or the financial
and other costs that might result from any government regulations arising out of
future legislative, administrative or judicial action.
Before a new medical device can be introduced in the market, the
manufacturer must generally obtain FDA clearance or approval through either
clearance of a 510(k) notification or approval of a Pre-Market Approval
Application. A 510(k) clearance will be granted if the submitted information
establishes that the proposed device is "substantially equivalent" to certain
categories of legally marketed medical devices. The FDA recently has been
requiring more rigorous demonstration of substantial equivalence than in the
past, including in some cases requiring submission of clinical data. The FDA
may determine that the proposed device is not substantially equivalent to a
predicate device or that additional information is needed before a substantial
equivalence determination can be made. It generally takes from 4 to 12 months
from submission to obtain 510(k) premarket clearance, but may take longer. A
"not substantially
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equivalent" determination, or a request for additional information, could
prevent or delay the market introduction of products that fall into this
category. For any devices that are cleared through the 510(k) process,
modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions.
The steps required before a drug may be approved by applicable government
agencies for marketing in the United States generally include (i) preclinical
laboratory and animal tests, (ii) the submission to the FDA of an
Investigational New Drug Application, (iii) adequate and well controlled human
clinical trials to establish the safety and efficacy of the drug, (iv)
submission to the FDA of a New Drug Application and (v) satisfactory completion
of an FDA inspection of the manufacturing facility or facilities at which the
drug is made to assess compliance with Good Manufacturing Practices. Lengthy
and detailed preclinical and clinical testing, validation of manufacturing and
quality control processes, and other costly and time-consuming procedures are
required. Satisfaction of these requirements typically takes several years and
the time needed to satisfy them may vary substantially, based on the type,
complexity and novelty of the pharmaceutical product. The effect of government
regulation may be to delay or to prevent marketing of potential products for a
considerable period of time and to impose costly procedures upon the Company's
activities. There can be no assurance that the FDA or any other regulatory
agency will grant approval for any products developed by the Company on a timely
basis, or at all. Success in preclinical or early stage clinical trials does
not assure success in later stage clinical trials. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
that could delay, limit or prevent regulatory approval. If regulatory approval
of a product is granted, such approval may impose limitations on the indicated
uses for which a product may be marketed. Further, even if such regulatory
approvals are obtained, a marketed drug or device and its manufacturer are
subject to continued review, and later discovery of previously unknown problems
may result in restrictions on such product or manufacturer, including withdrawal
of the product from the market. Any delay or failure of the Company to obtain
and maintain regulatory approval of its proposed products, processes or
facilities would have a material adverse effect on the business, financial
condition and results of operations of the Company.
DEPENDENCE ON LICENSE AND SPONSORED RESEARCH AGREEMENTS
The Company depends on license agreements from third parties that form the
basis of its proprietary technology. In general, the Company also relies on
sponsored research agreements for its research and development efforts.
(However, all of the research and development for the Catarex device is
conducted at the laboratory facilities of the Company's subsidiary, Optex, and
some of the research and development concerning the 2-5A Chimeric Antisense
Technology is conducted at the laboratory facilities of the Company's
subsidiary, Gemini.) The license agreements that have been entered into by the
Company typically require the Company's use of due diligence in developing and
bringing products to market and the payment of certain milestone amounts that in
some instances may be substantial. With the exception of Optex, the Company is
also obligated to make royalty payments on the sales, if any, of products
resulting from such licensed technology. The Company is also responsible for
the costs of filing and prosecuting patent applications and maintaining issued
patents. Certain research and development activities of the Company are
intended to be conducted by universities or other institutions pursuant to
sponsored research agreements. The sponsored research agreements entered into
and contemplated to be entered into by the Company generally require periodic
payments on an annual, quarterly or monthly basis.
If the Company does not meet its financial, development or other
obligations under either its license agreements or its sponsored research
agreements in a timely manner, the Company could lose the rights to its
proprietary technology or the right to have the applicable university or
institution conduct its research and development efforts. If the rights of the
Company under its license or sponsored research agreements are terminated, such
termination could have a material adverse effect on the business and research
and development efforts of the Company.
10
<PAGE>
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The success of the Company will depend in large part on its or its
licensors' ability to obtain patents, defend their patents, maintain trade
secrets and operate without infringing upon the proprietary rights of others,
both in the United States and in foreign countries. The patent position of
firms relying upon biotechnology is highly uncertain and involves complex legal
and factual questions. To date there has emerged no consistent policy regarding
the breadth of claims allowed in biotechnology patents or the degree of
protection afforded under such patents. The Company relies on certain United
States patents and pending United States and foreign patent applications
relating to various aspects of its products and technologies. With the
exception of Optex, all of these patents and patent applications are owned by
third parties and are licensed or sublicensed to the Company. The patent
application and issuance process can be expected to take several years and
entail considerable expense to the Company, as it is responsible for such costs
under the terms of its license agreements. There can be no assurance that
patents will issue as a result of any such pending applications or that the
existing patents and any patents resulting from such applications will be
sufficiently broad to afford protection against competitors with similar
technology. In addition, there can be no assurance that such patents will not
be challenged, invalidated, or circumvented, or that the rights granted
thereunder will provide competitive advantages to the Company. The commercial
success of the Company will also depend upon avoiding infringement of patents
issued to competitors. A United States patent application is maintained under
conditions of confidentiality while the application is pending, so the Company
cannot evaluate any inventions being claimed in pending patent applications
filed by its competitors. Litigation may be necessary to defend or enforce the
Company's patent and license rights or to determine the scope and validity of
others' proprietary rights. Defense and enforcement of patent claims can be
expensive and time consuming, even in those instances in which the outcome is
favorable to the Company, and can result in the diversion of substantial
resources from the Company's other activities. An adverse outcome could subject
the Company to significant liabilities to third parties, require the Company to
obtain licenses from third parties, or require the Company to alter its products
or technologies, or cease altogether any related research and development
activities or product sales, any of which could have a material adverse effect
on the Company's business, results of operations and financial condition.
The Company has certain proprietary rights and in the future may require
additional licenses from other parties to develop, manufacture and market
commercially viable products effectively, and the Company's commercial success
could depend in part on obtaining and maintaining such licenses. There can be
no assurance that such licenses can be obtained or maintained on commercially
reasonable terms, if at all, that the patents underlying such licenses will be
valid and enforceable or that the proprietary nature of the patented technology
underlying such licenses will remain proprietary.
The Company relies substantially on certain technologies that are not
patentable or proprietary and are therefore available to its competitors. The
Company also relies on certain proprietary trade secrets and know-how that are
not patentable. Although the Company has taken steps to protect its unpatented
trade secrets and know-how, in part through the use of confidentiality
agreements with its employees, consultants and contractors, there can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently developed or discovered by
competitors.
The success of the Company is also dependent upon the skills, knowledge and
experience of its scientific and technical personnel (both employees and
independent contractors). The management and scientific personnel of the
Company has been recruited primarily from other scientific companies,
pharmaceutical companies and academic institutions. In some cases, these
individuals may be continuing research in the same areas with which they were
involved prior to their employment by the Company. Although the Company has not
received any notice of any claims and knows of no basis for any claims, it could
be subject to allegations of violation of trade secrets and similar claims which
could, regardless of merit, be time consuming, expensive to defend, and have a
material adverse effect on the Company's business, results of operations and
financial condition.
11
<PAGE>
RAPID TECHNOLOGICAL CHANGE; COMPETITION
The Company's business is characterized by intensive research efforts and
intense competition and is subject to rapid and substantial technological
change. Many companies, research institutes, hospitals and universities are
working to develop products and technologies in the Company's fields of
research. Most of these entities have substantially greater financial,
technical, research and development, manufacturing, marketing, distribution and
other resources than the Company. Certain of such entities have experience in
undertaking testing and clinical trials of new or improved products similar in
nature or that have a similar therapeutic effect to that which the Company is
developing. In addition, certain competitors have already begun testing of
similar products or technologies and may introduce such products or technologies
before the Company may do so. Accordingly, other entities may succeed in
developing products earlier than the Company or that are more effective, more
widely accepted or more economical than those proposed to be developed by the
Company. There can be no assurance that developments by others will not render
the Company's products or technologies noncompetitive or that the Company will
be able to keep pace with technological developments. Further, it is expected
that competition in the Company's fields will intensify. There can be no
assurance that the Company will be able to compete successfully in the future.
Dependence on Others for Clinical Development of, Regulatory Approvals for and
Manufacture and Marketing of Pharmaceutical Products
The Company does not have the resources to directly manufacture, market or
sell any of the Company's proposed products and the Company has no current plans
to acquire such resources. The Company anticipates that it will, in the future,
enter into collaborative agreements with pharmaceutical and/or biotechnology
companies for the development of, clinical testing of, seeking of regulatory
approval for, manufacturing of, marketing of and commercialization of certain of
its proposed products. The Company may in the future grant to its collaborative
partners rights to license and commercialize any products developed under these
collaborative agreements, and such rights would limit the Company's flexibility
in considering alternatives for the commercialization of such products. Under
such agreements, the Company may rely on its respective collaborative partners
to conduct research efforts and clinical trials on, obtain regulatory approvals
for and manufacture, market and commercialize certain of its products. The
Company expects that the amount and timing of resources devoted to these
activities generally will be controlled by each such individual partner. The
inability of the Company to acquire such third party development, clinical
testing, seeking of regulatory approval, manufacturing, distribution, marketing
and selling arrangements on commercially acceptable terms for the Company's
long-term needs for such anticipated products would have a material adverse
effect on the Company's business. There can be no assurance that the Company
will be able to enter into any arrangements for the development, clinical
testing, seeking of regulatory approval, manufacturing, marketing and selling of
its products, or that, if such arrangements are entered into, such future
partners will be successful in commercializing products or that the Company will
derive any revenues from such arrangements.
UNCERTAINTY OF PRODUCT PRICING AND REIMBURSEMENT; HEALTH CARE REFORM AND RELATED
MEASURES
The levels of revenues and profitability of pharmaceutical and/or
biotechnology products and companies may be affected by the continuing efforts
of governmental and third party payors to contain or reduce the costs of health
care through various means and the initiatives of third party payors with
respect to the availability of reimbursement. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar governmental control. Although the Company cannot predict
what legislative reforms may be proposed or adopted or what impact actions taken
by federal, state or private payors for health care goods and services in
response to any health care reform proposals or legislation may have on its
business, the existence and pendency of such proposals could have a material
adverse effect on the Company in general.
12
<PAGE>
In addition, the Company's ability to commercialize potential pharmaceutical
and/or biotechnology products may be adversely affected to the extent that such
proposals have a material adverse effect on other companies that are prospective
collaborators with respect to any of the Company's product candidates.
In addition, in both the United States and elsewhere, sales of medical
products and services are dependent in part on the availability of reimbursement
to the consumer from third party payors, such as government and private
insurance plans. Third party payors are increasingly challenging the prices
charged for medical products and services. If the Company succeeds in bringing
one or more products to the market, there can be no assurance that these
products will be considered desirable or cost effective and that reimbursement
to the consumer will be available or will be sufficient to allow the Company to
sell its products on a competitive basis.
DEPENDENCE UPON KEY PERSONNEL AND CONSULTANTS
The Company is highly dependent upon its officers and directors, as well as
its Scientific Advisory Board members, consultants and collaborating scientists.
Atlantic and its subsidiaries have an aggregate of only twelve full-time
employees, four of whom are officers of Atlantic and each of its subsidiaries,
and the loss of any of these individuals would have a material adverse effect on
the Company. Although Atlantic has entered into employment agreements with each
of its officers, such employment agreements do not contain provisions which
would prevent such employees from resigning their positions with Atlantic at any
time or from competing with the Company, directly or indirectly. The Company
does not maintain key-man life insurance policies on any of such key personnel.
Each of the Company's non-employee directors, advisors and consultants devotes
only a portion of his or her time to the Company's business. The loss of
certain of these individuals could have a material adverse effect on the
Company.
The Company may seek to hire additional personnel. Competition for
qualified employees among pharmaceutical and biotechnology companies is intense,
and the loss of any of such persons, or the inability to attract, retain and
motivate any additional highly skilled employees required for the expansion of
the Company's activities could have a material adverse effect on the Company.
There can be no assurance that the Company will be able to retain its existing
personnel or to attract additional qualified employees.
The Company's scientific advisors are employed on a full time basis by
employers unrelated to the Company and some have entered into one or more
additional consulting or other advisory arrangements with other entities which
may conflict or compete with their obligations to the Company. Inventions or
processes discovered by such persons, other than those for which the Company is
able to acquire licenses or those which were invented while performing
consulting services on behalf of the Company pursuant to a proprietary
information agreement, will not become the property of the Company, but will
likely remain the property of such persons or of such persons' full-time
employers. Failure to obtain needed patents, licenses or proprietary
information held by others could have a material adverse effect on the Company.
CERTAIN INTERLOCKING RELATIONSHIPS; POTENTIAL CONFLICTS OF INTEREST
Lindsay A. Rosenwald, M.D., a principal stockholder of the Company, is the
President and sole stockholder of Paramount Capital, Incorporated ("Paramount"),
the placement agent for the Company's 1997 private placement of its Series A
Preferred Stock. Steven Kanzer, a Director of the Company, is the Senior
Managing Director, Head of Venture Capital of Paramount. Michael S. Weiss, the
Company's Secretary, is a Senior Managing Director of Paramount. In the regular
course of its business, Paramount identifies, evaluates and pursues investment
opportunities in biomedical and pharmaceutical products, technologies and
companies. Generally, Delaware corporate law requires that any transactions
between the Company and any of its affiliates be on terms that, when taken as a
whole, are substantially as favorable to the Company as those then reasonably
obtainable from a person who is not an affiliate in an arms-length transaction.
The Company is obligated to enter into an agreement with Paramount pursuant to
which Paramount will provide financial advisory services to the Company.
Nevertheless, neither Paramount, Dr. Rosenwald nor Messrs. Kanzer or Weiss are
obligated pursuant to any agreement or understanding with the Company to make
any additional products or technologies available to the Company, nor can there
be any assurance, and the Company does not expect and securityholders should not
expect, that any biomedical or
13
<PAGE>
pharmaceutical product or technology identified by Paramount, Dr. Rosenwald or
Messrs. Kanzer or Weiss in the future will be made available to the Company. In
addition, certain of the officers and directors of the Company may from time to
time serve as officers or directors of other biopharmaceutical or biotechnology
companies. There can be no assurance that such other companies will not, in the
future, have interests in conflict with those of the Company.
CONTROL BY EXISTING STOCKHOLDERS
Dr. Rosenwald and VentureTek, L.P. (a limited partnership controlled by
certain relatives of Dr. Rosenwald but of which Dr. Rosenwald disclaims
beneficial ownership) together beneficially own approximately 26% of the
outstanding shares of Common Stock of the Company. Accordingly, such holders,
if acting together, may have the ability to exert significant influence over the
election of the Company's Board of Directors and other matters submitted to the
Company's stockholders for approval. The voting power of these holders may
discourage or prevent any proposed takeover of the Company.
NO ASSURANCE OF IDENTIFICATION OF ADDITIONAL PROJECTS
The Company is engaged in the development and commercialization of
biomedical and pharmaceutical products and technologies. From time to time, if
the Company's resources allow, the Company may explore the acquisition and
subsequent development and commercialization of additional biomedical and
pharmaceutical products and technologies. However, there can be no assurance
that the Company will be able to identify any additional products or
technologies and, even if suitable products or technologies are identified, the
Company may not have sufficient resources to pursue any such products or
technologies.
Potential Adverse Effect of Redemption of Redeemable Warrants
The Redeemable Warrants as described in the notes to the financial
statement are subject to redemption commencing December 14, 1996 by the Company
under certain conditions. Redemption of the Redeemable Warrants could encourage
holders to exercise the Redeemable Warrants and pay the exercise price at a time
when it may be disadvantageous for the holders to do so, to sell the Redeemable
Warrants at the current market price when they might otherwise wish to hold the
Redeemable Warrants, or to accept the redemption price, which may be
substantially less than the market value of the Redeemable Warrants at the time
of redemption. The holders of the Redeemable Warrants will automatically
forfeit their rights to purchase the shares of Common Stock issuable upon
exercise of such Redeemable Warrants unless the Redeemable Warrants are
exercised before they are redeemed. The holders of Redeemable Warrants do not
possess any rights as stockholders of the Company unless and until such
Redeemable Warrants are exercised.
POSSIBLE ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales by existing stockholders could adversely affect the prevailing
market price of the Company's Common Stock. The outstanding shares of the
Company's Common Stock are all freely tradable, subject to volume and other
restrictions imposed by Rule 144 under the Securities Act of 1933 as amended
(the "Securities Act") with respect to sales by affiliates of the Company. An
18-month restriction on transfer applicable to the shares of Common Stock now
owned or hereafter acquired by the Company's officers, directors and certain
stockholders expired on June 14, 1997. Sales of substantial amounts of Common
Stock may have an adverse effect on the market price of the Company's Common
Stock.
No prediction can be made as to the effect, if any, that sales of Units,
Redeemable Warrants and/or Common Stock or the availability of such securities
for sale will have on the market prices prevailing from time to time for the
Units, the Redeemable Warrants and/or the Common Stock. Nevertheless, the
possibility that substantial amounts of such securities may be sold in the
public market may adversely affect prevailing market prices for the Company's
equity securities and could impair the Company's ability to raise capital in the
future through the sale of equity securities.
14
<PAGE>
SECURITIES LAW RESTRICTIONS ON THE EXERCISE OF REDEEMABLE WARRANTS
A holder of Redeemable Warrants has the right to exercise such Redeemable
Warrants for the purchase of shares of Common Stock only if the Company has
filed with the Securities and Exchange Commission a current prospectus meeting
the requirements of the Securities Act covering the issuance of such shares of
Common Stock issuable upon exercise of the Redeemable Warrants and only if the
issuance of such shares has been registered or qualified, or is deemed to be
exempt from registration or qualification under, the securities laws of the
state of residence of the holder of the Redeemable Warrant. The Company has
filed and has undertaken to keep effective and current a prospectus permitting
the purchase and sale of the Common Stock underlying the Redeemable Warrants,
but there can be no assurance that the Company will be able to keep suck
prospectus effective and current. Although the Company intends to seek to
qualify for sale the shares of Common Stock underlying the Redeemable Warrants
in those states in which the securities are to be offered, no assurance can be
given that such qualification will occur. The Redeemable Warrants may be
deprived of any value if a prospectus covering the shares of Common Stock
issuable upon the exercise thereof is not kept effective and current or if such
underlying shares are not, or cannot be, registered in the applicable states.
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock since its
formation and does not anticipate paying any cash dividends in the foreseeable
future. Management anticipates that all earnings and other resources of the
Company, if any, will be retained by the Company for investment in its business.
POSSIBLE DELISTING FROM NASDAQ AND MARKET ILLIQUIDITY
Although the Common Stock, Redeemable Warrants and Units of the Company are
quoted on Nasdaq, continued inclusion of such securities on Nasdaq will require
that (i) the Company maintain at least $2,000,000 in net tangible assets, (ii)
the minimum bid price for the Common Stock be at least $1.00 per share, (iii)
the public float consist of at least 500,000 shares of Common Stock, valued in
the aggregate at more than $1,000,000, (iv) the Common Stock have at least two
active market makers, (v) the Common Stock be held by at least 300 holders and
(vi) the Company adhere to certain corporate governance requirements. If the
Company is unable to satisfy such maintenance requirements, the Company's
securities may be delisted from Nasdaq. In such event, trading, if any, in the
securities would thereafter be conducted in the over-the-counter market in the
"pink sheets" or the National Association of Securities Dealers' "Electronic
Bulletin Board." Consequently, the liquidity of the Company's securities could
be materially impaired, not only in the number of securities that can be bought
and sold at a given price, but also through delays in the timing of transactions
and reduction in security analysts' and the media's coverage of the Company,
which could result in lower prices for the Company's securities than might
otherwise be attained and could also result in a larger spread between the bid
and asked prices for the Company's securities.
In addition, if the securities are delisted from trading on Nasdaq and the
trading price of the Common Stock is less than $5.00 per share, trading in the
securities would also be subject to the requirements of Rule 15g-9 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Under such rule, broker/dealers who recommended such low-priced securities to
persons other than established customers and accredited investors must satisfy
special sales practice requirements, including a requirement that they make an
individualized written suitability determination for the purchaser and receive
the purchaser's written consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional
disclosure in connection with any trades involving a stock defined as a penny
stock (generally, according to recent regulations adopted by the Securities and
Exchange Commission (the "Commission"), any equity security not traded on an
exchange or quoted on Nasdaq that has a market price of less than $5.00 per
share, subject to certain exceptions), including the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. Such requirements could severely
limit the market
15
<PAGE>
liquidity of the Common Stock, Redeemable Warrants or Units of the Company.
There can be no assurance that such securities will not be delisted or treated
as penny stock.
LIQUIDITY OF INVESTMENT; VOLUME OF TRADING
The Company's securities are traded on the Nasdaq SmallCap Market, and the
Company's securities lack the liquidity of securities traded on the principal
trading markets. Accordingly, an investor may be unable to promptly liquidate
an investment in the Company's securities.
POSSIBLE VOLATILITY OF STOCK PRICE
The securities markets have, from time to time, experienced significant
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. These fluctuations often substantially affect the
market price of a company's common stock. In particular, the market prices for
securities of medical device companies and biotechnology companies have in the
past been, and can in the future be expected to be, especially volatile. The
market price of the Company's securities has in the past and in the future may
be subject to volatility in general and from quarter to quarter in particular
depending upon announcements regarding developments of the Company or its
competitors, or other external factors, as well as continued operating losses by
the Company and fluctuations in the Company's financial results. These factors
could have a material adverse effect on the Company's business, financial
condition and results of operations and may not be indicative of the prices that
may prevail in the public market.
RISK OF PRODUCT LIABILITY; NO INSURANCE
Should the Company develop and market any products, the marketing of such
products, through third-party arrangements or otherwise, may expose the Company
to product liability claims. The Company presently does not carry product
liability insurance. Upon clinical testing or commercialization of the
Company's proposed products, certain of the licensors require that the Company
obtain product liability insurance. There can be no assurance that the Company
will be able to obtain such insurance or, if obtained that such insurance can be
acquired in sufficient amounts to protect the Company against such liability or
at a reasonable cost. The Company is required to indemnify the Company's
licensors against any product liability claims incurred by them as a result of
the products developed by the Company. None of the Company's licensors has
made, and are not expected to make, any representations as to the safety or
efficacy of the inventions covered by the licenses or as to any products which
may be made or used under rights granted therein or thereunder.
ENVIRONMENTAL REGULATION
In connection with its research and development activities, the Company is
subject to federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes. Although the
Company believes that it has complied with these laws and regulations in all
material respects and has not been required to take any action to correct any
noncompliance, there can be no assurance that the Company will not be required
to incur significant costs to comply with environmental and health and safety
regulations in the future.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
Atlantic's Certificate of Incorporation authorizes the issuance of shares
of "blank check" Preferred Stock. The Board of Directors has the authority to
issue the Preferred Stock in one or more series and to fix the relative rights,
preferences and privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control of
the Company without further action by the stockholders of the Company. The
issuance of Preferred Stock with
16
<PAGE>
voting and conversion rights may adversely affect the voting power of the
holders of the Common Stock, including the loss of voting control to others.
The Company is subject to Section 203 of the Delaware General Corporation
Law, which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. The foregoing
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect
of preventing changes in the management of the Company.
Limitation of Liability and Indemnification
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Company's
Bylaws provide that the Company shall indemnify its officers and directors and
may indemnify its employees and other agents to the fullest extent permitted by
law. The Company has entered into indemnification agreements with its officers
and directors containing provisions which are in some respects broader than the
specific indemnification provisions contained in Delaware law. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature) and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified. Section 145 of the Delaware law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Delaware law does not
permit a corporation to eliminate a director's duty of care, and the provisions
of the Company's Certificate of Incorporation have no effect on the availability
of equitable remedies, such as injunction or rescission, for a director's breach
of the duty of care.
YEAR 2000 COMPLIANCE
Many currently installed 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 will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in
approximately two years, computer systems and/or software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated with
such compliance. The Company has reviewed its internal system and doesn't expect
material adverse effect on the Company's business, financial condition and
operating results. The Company is in the process of reviewing third party
software to comply with this issue.
17
<PAGE>
Part Two - Other Information
Item 6. Exhibits and reports on form 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Form 8-K Reports
No Current reports on Form 8-K were filed in the quarter ended March 31, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
In accordance with the requirements of the Securities Exchange Act of 1934 as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Atlantic Pharmaceuticals, Inc.
May 8, 1998
/s/ Jon D. Lindjord
--------------------------
Jon D. Lindjord
Chief Executive Officer and President
/s/ Shimshon Mizrachi
--------------------------
Shimshon Mizrachi
Chief Financial Officer
(Principal Accounting and Financial Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,999,535
<SECURITIES> 0<F1>
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 7,072,367
<PP&E> 341,393
<DEPRECIATION> 188,019
<TOTAL-ASSETS> 7,413,760
<CURRENT-LIABILITIES> 242,838
<BONDS> 0<F1>
0<F1>
1,035
<COMMON> 3,447
<OTHER-SE> 21,526,328
<TOTAL-LIABILITY-AND-EQUITY> 7,413,760
<SALES> 0<F1>
<TOTAL-REVENUES> 0<F1>
<CGS> 0<F1>
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 1,380,718
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> (108,485)
<INCOME-PRETAX> 1,272,233
<INCOME-TAX> 0<F1>
<INCOME-CONTINUING> 1,272,233
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (1,272,233)
<EPS-PRIMARY> (0.70)
<EPS-DILUTED> (0.70)
<FN>
<F1>AMOUNTS INAPPLICABLE OR NOT DISCLOSED AS A SEPARATE LINE ON THE STATEMENT OF
FINANCIAL OR RESULTS OF OPERATIONS ARE REPORTED AS 0 HEREIN.
</FN>
</TABLE>
