<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 0-28782
------------------------------
NEOTHERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 93-0979187
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
157 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 788-6700
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
Common stock as of the latest practicable date:
Class Outstanding at July 25, 1997
----------------------------- ----------------------------
Common Stock, $.001 par value 5,424,407
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NEOTHERAPEUTICS, INC.
(A Development-Stage Enterprise)
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Statement regarding financial information....................................................3
Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996..............4
Condensed Consolidated Statements of Operations for the three months ended
June 30, 1997 and 1996 ....................................................................5
Condensed Consolidated Statements of Operations for the six months ended
June 30, 1997 and 1996 and for the period from inception
(June 15, 1987) to June 30, 1997........................................................6
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 and for the period from inception
(June 15, 1987) to June 30, 1997........................................................7
Notes to Condensed Consolidated Financial Statements.........................................9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION.......12
PART II OTHER INFORMATION..........................................................................16
ITEM 2. CHANGES IN SECURITIES......................................................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS............................................................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...........................................................17
</TABLE>
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NEOTHERAPEUTICS, INC.
(A Development Stage Enterprise)
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1997
-----------------------------------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENT REGARDING FINANCIAL INFORMATION
-----------------------------------------
The financial statements included herein have been prepared by NeoTherapeutics,
Inc. (the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information normally included in
the financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that the
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996 as filed with the Securities and Exchange
Commission.
Page 3
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NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
(A Development-Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
ASSETS (Unaudited)
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,297,648 $ 9,995,062
Marketable securities and short-term investments 8,110,157 5,702,114
Other receivables, principally investment interest 205,336 163,988
Prepaid expenses and refundable deposits 133,493 239,171
------------ ------------
Total current assets 11,746,634 16,100,335
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Equipment and furniture 1,257,073 158,396
Leasehold improvements 1,559,952 --
Construction in progress -- 33,076
Accumulated depreciation and amortization (89,180) (58,963)
------------ ------------
Property and equipment, net 2,727,845 132,509
------------ ------------
OTHER ASSETS:
Marketable securities 1,915,164 1,746,432
Deposits 57,693 --
------------ ------------
Total other assets 1,972,857 1,746,432
------------ ------------
TOTAL ASSETS $ 16,447,336 $ 17,979,276
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,175,548 $ 262,604
Accrued payroll and related taxes 51,166 331,175
Employee expense reimbursement -- 82,717
Accrued interest to related parties -- 122,396
Notes payable to related parties 558,304 558,304
------------ ------------
Total current liabilities 1,785,018 1,357,196
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, no par value, 25,000,000 shares authorized:
Issued and outstanding, 5,371,807 and 5,361,807 shares at
June 30, 1997 and December 31, 1996, respectively 23,186,013 23,125,763
Deficit accumulated during the development stage (8,534,243) (6,503,683)
Unrealized gains on securities held for sale 10,548 --
------------ ------------
Total stockholders' equity 14,662,318 16,622,080
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 16,447,336 $ 17,979,276
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
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NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
(A Development-Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, June 30,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES $ -- $ --
----------- -----------
OPERATING EXPENSES:
Research and development 836,206 48,567
General and administration 569,357 134,877
----------- -----------
Total operating expenses 1,405,563 183,444
----------- -----------
LOSS FROM OPERATIONS (1,405,563) (183,444)
----------- -----------
OTHER INCOME (EXPENSE):
Interest, net 185,624 (12,997)
Other income (expense) 8,354 (845)
----------- -----------
Total other income (expense) 193,978 (13,842)
----------- -----------
NET LOSS $(1,211,585) $ (197,286)
=========== ===========
NET LOSS PER SHARE $ (0.23) $ (0.07)
=========== ===========
Weighted average shares outstanding 5,364,884 2,767,060
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
(A Development-Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND THE PERIOD FROM INCEPTION (JUNE 15, 1987) TO JUNE 30, 1997
<TABLE>
<CAPTION>
Period from
Six Months Six Months Inception
Ended Ended Through
June 30, June 30, June 30,
1997 1996 1997
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES, from grants $ -- $ -- $ 497,128
----------- ----------- -----------
OPERATING EXPENSES:
Research and development 1,385,021 82,637 4,351,833
General and administrative 1,068,321 160,423 4,497,427
----------- ----------- -----------
Total operating expenses 2,453,342 243,060 8,849,260
----------- ----------- -----------
LOSS FROM OPERATIONS (2,453,342) (243,060) (8,352,132)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income (expense), net 414,428 (25,994) 210,236
Other income (expense) 8,354 (1,645) 56,653
----------- ----------- -----------
Total other income (expense) 422,782 (27,639) 266,889
----------- ----------- -----------
NET LOSS $(2,030,560) $ (270,699) $(8,085,243)
=========== =========== ===========
NET LOSS PER SHARE $ (0.38) $ (0.11)
=========== ===========
Weighted Average Shares Outstanding 5,363,354 2,521,308
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
(A Development-Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND THE PERIOD FROM INCEPTION (JUNE 15, 1987) TO JUNE 30, 1997
<TABLE>
<CAPTION>
Period from
Six Months Six Months Inception
Ended Ended Through
June 30, June 30, June 30,
1997 1996 1997
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) $(2,030,560) $ (270,699) $(8,085,243)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 30,217 1,938 214,669
Issuance of common stock for services 60,000 74,250 268,950
Amortization of deferred compensation -- -- 93,749
Compensation expense for extension of Debt
Conversion Agreements, net -- -- 503,147
Gain on sale of assets -- -- (5,299)
Increase in other receivables (41,348) -- (205,090)
Decrease (increase) in prepaid expenses and
refundable deposits 47,985 (10,332) (141,183)
Increase (decrease)in accounts payable and
accrued expenses 830,227 (54,564) 1,335,648
Increase (decrease) in accrued payroll and
related payroll taxes (280,009) 67,053 689,860
Increase (decrease) in employee expense
reimbursement and accrued interest to
related parties (122,396) 31,832 300,404
----------- ----------- -----------
Net cash used in operating activities (1,505,884) (160,522) (5,030,388)
----------- ----------- -----------
</TABLE>
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NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
(A Development-Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Period from
Six Months Six Months Inception
Ended Ended Through
June 30, June 30, June 30,
1997 1996 1997
----------- ----------- ----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,625,553) (6,515) (2,897,328)
Proceeds from sale of equipment -- -- 29,665
Purchases of marketable securities and
short-term investments, net (2,576,775) -- (10,025,321)
Unrealized gains from investments 10,548 10,548
Payment of organization costs -- -- (66,093)
Issuance of notes receivable -- -- 100,000
------------ ------------ ------------
Net cash used in investing activities (5,191,780) (6,515) (12,848,529)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance including
Revenue Participation Units converted to common
stock 250 553,625 20,218,053
Proceeds from notes payable to related
parties, net -- -- 757,900
Cash at acquisition -- -- 200,612
------------ ------------ ------------
Net cash provided by financing activities 250 553,625 21,176,565
------------ ------------ ------------
Net increase(decrease) in cash (6,697,414) 386,588 3,297,648
Cash, beginning of period 9,995,062 859 --
------------ ------------ ------------
Cash, end of period $ 3,297,648 $ 387,447 $ 3,297,648
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
--------------------------------------
(A Development-Stage Enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
JUNE 30, 1997
-------------
(Unaudited)
1. Summary of Significant Accounting Policies
------------------------------------------
a. Organization and Nature of Business
-----------------------------------
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements include all adjustments (which
consist only of normal recurring adjustments) necessary for a fair presentation
of its consolidated financial position at June 30, 1997 and consolidated results
of operations and cash flows for the periods presented. Although the Company
believes that the disclosures in these financial statements are adequate to make
the information presented not misleading, certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted and should be read
in conjunction with the Company's audited financial statements included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996 as filed with the Securities and Exchange Commission. Results of operations
for the six months ended June 30, 1997 are not necessarily indicative of results
to be expected for the full year.
NeoTherapeutics, Inc. (the "Company") was incorporated in Colorado as
Americus Funding Corporation ("AFC") in December 1987. In August 1996, AFC
changed its name to "NeoTherapeutics, Inc." In June 1997 the stockholders
approved the reincorporation of NeoTherapeutics as a Delaware corporation. Its
wholly-owned subsidiary, Advanced ImmunoTherapeutics, Inc. ("AIT"), was
incorporated in California in June 1987. In July 1989, AIT completed an
agreement with the Company, which provided for AIT to become a wholly-owned
subsidiary of AFC in a transaction accounted for as a reverse acquisition. In
April, 1997, the Company established NeoTherapeutics, GmbH, a wholly-owned
subsidiary in Switzerland, for the purpose of conducting future licensing and
other related activities in the international market. All references to the
"Company" hereinafter refer to NeoTherapeutics and its subsidiaries as a
consolidated entity.
The Company is a development-stage biopharmaceutical enterprise engaged
in the discovery and development of novel therapeutic drugs intended to treat
neurodegenerative diseases and conditions such as memory deficits associated
with Alzheimer's disease and aging, stroke, spinal cord injuries and Parkinson's
disease.
b. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
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NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
--------------------------------------
(A Development-Stage Enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
c. Marketable Securities and Short Term Investments
------------------------------------------------
The Company accounts for investments in marketable securities under
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The statement requires
investments in debt and equity securities to be classified among three
categories as follows: Held-to-maturity, trading and available-for-sale. As of
June 30, 1997, securities held by the Company were classified as
"held-to-maturity" and "available for sale." Securities held-to-maturity are
stated at cost, adjusted for amortization of premiums and accretion of
discounts, which are recognized as adjustments to interest income on investment
securities. A valuation allowance is not established to recognize temporary
market value fluctuations as the Company has the intent and ability to hold
these investments until maturity. Available for sale securities are carried at
fair value, with unrealized gains and losses, net of income taxes, if any,
reported as a separate component of shareholders' equity. Short-term investments
consist of commercial paper and equivalent corporate obligations and are stated
at amortized cost with respect to held to maturity investments included therein,
and at fair value with respect to investments classified as available for sale
securities.
d. Net Loss Per Share
------------------
Net loss per share is calculated using the weighted average number of
shares outstanding for the period. With respect to the periods ended June 30,
1996, common equivalent shares are excluded from the computation as their effect
is antidilutive except that, pursuant to the Securities and Exchange Commission
("SEC") Staff Accounting Bulletins, common and common equivalent shares (stock
options, warrants and RPU's converted to common stock in July 1996) issued
during the period commencing 12 months prior to the initial filing of a proposed
public offering at prices below the public offering price have been included in
the calculation as if they were outstanding for all periods presented (using the
treasury stock method for stock options and warrants at the estimated initial
public offering price).
e. Research and Development
------------------------
All costs related to research and development activities are treated as
expenses in the period incurred.
f. New Pronouncements
------------------
Effective January 1, 1997, the Company adopted SFAS No. 128, "Earnings
per Share." The statement requires, at a minimum, new calculations of earnings
per share and disclosures. The Company has reviewed the provisions of SFAS No.
128 and has determined that adoption of this pronouncement had no material
effect on the Company's reporting of its results of operations.
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NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
--------------------------------------
(A Development-Stage Enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
2. Commitments and Contingencies
-----------------------------
Facility leases:
During June 1997, the Company relocated to a new facility which it
leases from a property developer under a non-cancelable operating lease which
expires June 2004 and contains two five year options to renew at fair value
rates in effect at that time. Minimum monthly rents under this lease range from
$38,800 to $47,600 through its term. The total minimum commitment under the new
facility lease aggregates approximately $3.6 million through June 2004.
University Research Grants:
The Company has committed an aggregate of $304,000 to several
universities to conduct general scientific research programs and to provide for
a two year Fellowship Grant. During the six month period ended June 30, 1997,
the Company paid or accrued $160,000 towards the grants, thereby reducing the
remaining commitment to $144,000 at June 30, 1997.
Stock Options and Warrants:
- ---------------------------
Stock option activities for the six month period ended June 30, 1997
were as follows:
<TABLE>
<CAPTION>
Option Price
Shares per Share
------- -------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 270,173 $0.025-$3.75
Granted 324,000 $3.88-$12.88
------- -------------
594,173
Exercised 10,000 $0.025
Expired -- --
------- -------------
Outstanding at June 30, 1997 584,173 $0.025-$12.88
======= =============
</TABLE>
Options granted to consultants consist of options that vest both
immediately and upon the occurrence of certain events as specified in the
related agreements.
Page 11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL POSITION
PRELIMINARY NOTE REGARDING FORWARD LOOKING STATEMENTS
- -----------------------------------------------------
This Quarterly Report on Form 10-QSB contains 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. The Company's actual results
may differ materially from the results projected in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed below under "Factors Affecting Future Operating
Results."
RESULTS OF OPERATIONS
- ---------------------
Overview:
- ---------
From the inception of the Company in 1987 through June 30, 1997, the
Company incurred a cumulative net loss of approximately $8.1 million. The
Company expects its operating expenses to increase over the next several years
as it continues to expand its research and development and commercialization
activities and operations. The Company expects to incur significant additional
operating losses for at least the next several years unless such operating
losses are offset, if at all, by licensing revenues under strategic alliances
with larger pharmaceutical companies which the Company is currently seeking.
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996:
- ------------------------------------------------------------------------------
There were no revenues during the three months ended June 30, 1997 or
the three months ended June 30, 1996.
Research and development expenses increased approximately $787,600 or
1,622% from the same period in 1996. Research and development activities were
restricted in the prior period due to the lack of sufficient funds. Current
period increases were due primarily to personnel additions, salary increases,
consulting fees, research grants made by the Company, facilities rent and costs
and expenses associated with the commencement of clinical trials. The Company
expects its research and development expenses to continue to increase in
absolute dollars as it expands its product development and clinical trial
activities.
General and administrative expenses increased approximately $434,500 or
322% from the same period in 1996 due to the addition of personnel, salary
increases, insurance, professional and consulting fees, travel and facilities
rent in the current period, whereas for substantially all of the prior period,
the Company operated from the Chief Executive Officer's residence on a rent-free
basis with a very limited administrative and technical staff. The Company
expects general and administrative expenses to increase in future periods in
support of the expected increases in both research and development activities as
well as marketing activities and as the Company incurs expenses associated with
being a public company. Net interest income increased by approximately $198,600
due to interest income from higher cash balances resulting from the investments
of unallocated proceeds from its public offering. The Company expects its
interest earnings to decrease over the next year due to the use of its funds in
current operations.
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<PAGE> 13
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996:
- --------------------------------------------------------------------------
There were no revenues during the six months ended June 30, 1997 or the
six months ended June 30, 1996.
Research and development expenses for the six months ended June 30,
1997 increased by approximately $1,302,400 or 1,576%. Research and development
expenses were restricted in the prior period due to lack of sufficient funds.
Substantially all categories of research and development increased during the
current period including, but not limited to, additional personnel, salary
increases, rent as the Company consolidated its laboratories into one location,
consulting fees, license fees and expenses associated with the conduct of
clinical trials. Research and development expenses are expected to increase in
future periods as the Company continues to expand its laboratories in its new
facility and increase its product development and clinical trial activities.
General and administrative expenses for the six months ended June 30,
1997 increased by approximately $907,900 or 566% from the same period in 1996
due to the addition of personnel, salary increases, insurance, professional and
consulting fees, commissions, travel and facilities rent in the current period,
whereas for substantially the entire prior period, the Company operated from the
Chief Executive Officer's residence on a rent-free basis with very limited
administrative and technical staff. The Company expects general and
administrative expenses to increase in future periods in support of the expected
increases in both research and development activities as well as sales and
marketing activities should the Company successfully bring one or more of its
products to market. Net interest income increased by approximately $440,400 due
to interest income from higher cash balances resulting from the investments of
unallocated proceeds from its recent public offering. The Company expects its
interest earnings to decrease in future periods due to the use of its funds in
current operations.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
From inception through June 30, 1997, the Company financed its
operations primarily through grants, sales of equity securities, borrowings and
deferred payment of salaries and other expenses from related parties. On
September 26, 1996, the Company effected the public sale of 2,500,000 units of
its common stock and attached warrants. Each unit consisted of one share of
common stock and one warrant to purchase one share of common stock. The closing
took place on October 1, 1996 and on that date, the Company realized net cash
proceeds of approximately $17,363,000 from the sale. On October 11, 1996, the
underwriter of the public offering exercised an option to purchase an additional
200,000 units resulting in net proceeds of approximately $1,389,000 to the
Company. Expenses directly related to the public offering of units were
approximately $576,000, and have been offset in stockholders' equity against the
common stock proceeds of the offering.
At June 30, 1997, working capital amounted to approximately $10
million. This amount included cash and cash equivalents of approximately $3.3
million and marketable securities and short-term investments of approximately
$8.1. million. In comparison, at December 31, 1996, the Company had working
capital of $14.7 million, which included cash and cash equivalents of
approximately $10 million and marketable securities and short-term investments
of approximately $5.7 million. The $4.7 million decrease in working capital
during the six months is attributable primarily to (1) investments in property
and equipment of $2.6 million and transfers of cash to non-current marketable
securities of $0.2 million with (2) the balance expended to fund the operating
loss for the six months ended June 30, 1997.
Page 13
<PAGE> 14
The Company is in the development stage devoting substantially all of
its efforts to research and development. During its development stage, the
Company has incurred cumulative losses of approximately $8.1 million through
June 30, 1997, and expects to incur substantial losses over the next several
years. In addition to the funds derived from its public offering, the Company
will require substantial additional funds in order to complete the research and
development activities currently contemplated and to commercialize its proposed
products. The Company's future capital requirements and availability of capital
will depend upon many factors, including continued scientific progress in
research and development programs, the scope and results of preclinical studies
and clinical trials, the time and costs involved in obtaining regulatory
approvals, the cost involved in filing, prosecuting and enforcing patent claims,
competing technological developments, the cost of manufacturing scale-up, the
cost of commercialization activities and other factors which may not be within
the Company's control. While the Company believes that its existing capital
resources will be adequate to fund its capital needs for at least 12 months, the
Company also believes that ultimately it will require substantial additional
funds in order to complete the research and development activities currently
contemplated and to commercialize its proposed products.
Without additional funding, the Company may be required to delay,
reduce the scope or eliminate one or more of its research and development
projects, or obtain funds through arrangements with collaborative partners or
others which may require the Company to relinquish rights to certain
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize on its own.
FACTORS AFFECTING FUTURE OPERATING RESULTS:
- -------------------------------------------
The future operating results of the Company are highly uncertain, and
the following factors should be carefully reviewed in addition to the other
information contained in this quarterly report on Form 10-QSB:
The Company has incurred losses in every year of its existence and
expects to continue to incur significant operating losses for the next several
years. The Company has never generated revenues from product sales and there is
no assurance that revenue from product sales will ever be achieved. In addition,
there is no assurance that any of the Company's proprietary products will ever
be successfully developed, receive and maintain require governmental regulatory
approvals, become commercially viable or achieve market acceptance.
The Company has no experience in manufacturing, procuring products in
commercial quantities or marketing, and only limited experience in negotiating,
setting up or maintaining strategic relationships and conducting clinical trials
or other late stage phases of the regulatory approval process, and there is no
assurance that the Company will successfully engage in any of these activities.
The Company's need for additional funding is expected to be substantial
and will be determined by the progress and cost of the development and
commercialization of its products and other activities. The Company believes
that its existing capital resources will be sufficient to satisfy its current
and projected funding requirements for at least the next twelve months. However,
if the Company experiences unanticipated cash requirements during the interim
period, the Company could require additional funds sooner. The source,
availability, and terms of such funds have not been determined. Although funds
may be received from the sale of equity securities or the exercise of
outstanding warrants and options to acquire common stock of the Company, there
is no assurance any such funding will occur.
Page 14
<PAGE> 15
Factors impacting the future success of the Company include, among
other things, the ability to develop products which will be safe and effective
in treating neurological and immunological diseases and the ability to obtain
government approval.
The Company faces numerous other risks in the operation of its
business, including, but not limited to, protecting its proprietary technology
and trade secrets and not infringing those of others; attaining a competitive
advantage; entering into agreements with others to source, manufacture, market
and sell its products; attracting and retaining key personnel in research and
development, manufacturing, marketing, sales and other operational areas;
managing growth, if any; and avoiding potential claims by others in such areas
as product liability and environmental matters.
The above factors are not intended to be inclusive. A more
comprehensive list of factors which could affect the Company's future operating
results can be found in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996, under the caption "Business-Risk Factors."
Failure to satisfactorily achieve any of the Company's objectives or avoid any
of the above or other risks would likely have a material adverse effect on the
Company's business and results of operations.
Page 15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES:
The following is a summary of transactions by the Company during the
quarter ended June 30, 1997 involving sales of the Company's securities that
were not registered under the Securities Act of 1933 (the "Securities Act"):
1. In April 1997 pursuant to its 1991 Stock Option Plan, the Company granted to
one employee, an incentive option to purchase 50,000 shares of Common Stock at
the exercise price of $7.25 per share, and a non-qualified option to purchase
12,000 shares of Common Stock at the exercise price of $5.13 per share. In May
1997, pursuant to its 1991 Stock Option Plan, the Company granted to four
employees incentive options to purchase an aggregate of 17,500 shares of Common
Stock at the exercise price of $8.25 per share.
2. In June 1997, pursuant to its 1997 Stock Option Plan, the Company granted to
four outside members of the Board of Directors, options to purchase an aggregate
of 40,000 shares of Common Stock at the exercise price of $12.88 per share.
In the transactions described above, exemption from the registration
requirements of the Securities Act was claimed under Section 4(2) of the
Securities Act. The foregoing transactions did not involve any public offering
and the recipients either received adequate information about the Company or had
access, through employment or other relationships, to such information. In each
of the foregoing transactions, the Company reasonably believed that each of the
recipients was "sophisticated" within the meaning of Section 4(2) of the
Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were voted upon at the Annual Meeting of
Shareholders of the Company held on June 17, 1997:
1. The following five persons were elected as directors of the
Company, to serve until the next Annual Meeting of the Shareholders and until
their successors are elected and have qualified:
<TABLE>
<CAPTION>
Name Number of Votes Cast
---- --------------------
For Authority Withheld
--- ------------------
<S> <C> <C>
Alvin J. Glasky, Ph.D 4,734,680 700
Mark J. Glasky 4,734,680 700
Frank M. Meeks 4,734,680 700
Carol O'Cleireacain, Ph.D 4,734,680 700
Paul H. Silverman, Ph.D., D.Sc 4,734,680 700
</TABLE>
Page 16
<PAGE> 17
2. A proposal to approve a change in the Company's state of
incorporation from Colorado to Delaware was approved by the following vote:
<TABLE>
<CAPTION>
Votes Cast: Number of Shares
----------- ----------------
<S> <C>
For 2,990,225
Against 3,100
Abstain 4,380
Broker Non-Votes 1,737,675
</TABLE>
3. A proposal to approve the Company's 1997 Stock Incentive Plan was approved by
the following vote:
<TABLE>
<CAPTION>
Votes Cast: Number of Shares
----------- ----------------
<S> <C>
For 2,970,995
Against 7,940
Abstain 18,770
Broker Non-Votes 1,737,675
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K was filed on June 26, 1997 to report the
reincorporation of the Company in the State of Delaware.
Page 17
<PAGE> 18
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.
NEOTHERAPEUTICS, INC.
Date: August 13, 1997 By /s/ Alvin J. Glaky
-------------------------------------
Alvin J. Glasky, Ph.D., President
Date: August 13, 1997 By /s/ Samuel Gulko
-------------------------------------
Samuel Gulko, Chief Financial Officer
Page 18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,297,648
<SECURITIES> 8,110,157
<RECEIVABLES> 205,336
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,746,634
<PP&E> 2,817,025
<DEPRECIATION> 89,180
<TOTAL-ASSETS> 16,447,336
<CURRENT-LIABILITIES> 1,785,018
<BONDS> 0
0
0
<COMMON> 23,186,013
<OTHER-SE> (8,523,695)
<TOTAL-LIABILITY-AND-EQUITY> 14,662,318
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (2,453,342)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,030,560)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,030,560)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,030,560)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
