<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended JUNE 30, 1996 Commission File No. 0-18734
LIDAK PHARMACEUTICALS
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0314804
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11077 N. TORREY PINES ROAD
LA JOLLA, CALIFORNIA 92037
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (619) 558-0364
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 periods 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 class of
common stock, as of the latest practicable date.
Class Outstanding at August 9, 1996
Class A common stock, no par value 33,783,052
Class B common stock, no par value 283,000
<PAGE> 2
LIDAK Pharmaceuticals
FORM 10-Q
For the quarter ended June 30, 1996
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Balance Sheets at September 30, 1995 and
June 30, 1996......................................................... 3
Statements of Operations for the three and nine month periods
ended June 30, 1995 and 1996 and for the period
from August 31, 1988 (inception) to June 30, 1996..................... 4
Statements of Stockholders' Equity (Deficit) from August
31, 1988 (inception) to June 30, 1996................................. 5
Statements of Cash Flows for the nine month periods ended June
30, 1995 and 1996 and for the period
from August 31, 1988 (inception) to June 30, 1996..................... 9
Notes to Financial Statements......................................... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................... 18
SIGNATURES ...................................................................... 19
</TABLE>
2
<PAGE> 3
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1995 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,244,575 $ 3,269,871
Short-term investments 5,791,152 18,710,759
Interest receivable 54,751 324,070
Prepaid and other 182,931 127,631
------------ ------------
Total current assets 10,273,409 22,432,331
PROPERTY - at cost (less accumulated depreciation of $178,729 and $242,284) 241,486 227,419
PATENT COSTS (less accumulated amortization of $18,719 and $32,955) 438,883 518,248
DEFERRED DEBT ISSUE COSTS 262,669
OTHER ASSETS 265 265
------------ ------------
TOTAL $ 10,954,043 $ 23,440,932
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,520,231 $ 341,724
Accrued compensation and payroll taxes 168,885 256,511
Due to MBI 16,327 17,956
Deferred revenue 500,000
------------ ------------
Total current liabilities 1,705,443 1,116,191
------------ ------------
LONG-TERM DEBT:
Convertible notes payable 6,463,332
------------ ------------
Total liabilities 1,705,443 7,579,523
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock - no par value:
Class A - 99,490,000 shares authorized;
29,847,064 and 33,375,756 shares issued and outstanding 37,235,484 45,758,592
Class B - 510,000 shares authorized;
343,000 and 283,000 shares issued and outstanding (convertible to
Class A common stock) 179,073 147,748
Deficit accumulated during the development stage (28,165,957) (30,044,931)
------------ ------------
Total stockholders' equity 9,248,600 15,861,409
------------ ------------
TOTAL $ 10,954,043 $ 23,440,932
============ ============
</TABLE>
See Notes to Financial Statements
3
<PAGE> 4
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED AUGUST 31,1988
JUNE 30, JUNE 30, (INCEPTION)TO
-------------------------------- -------------------------------- JUNE 30,
1995 1996 1995 1996 1996
<S> <C> <C> <C> <C> <C>
REVENUES:
License fees/Contract research $ 3,000,000 $ 3,965,825
Federal research grants $ 25,168 43,000 783,777
Interest and other $ 300,580 306,050 $ 723,711 775,421 2,911,797
------------ ------------ ------------ ------------ ------------
Total revenues 300,580 331,218 723,711 3,818,421 7,661,399
------------ ------------ ------------ ------------ ------------
EXPENSES:
Research and development 2,223,857 920,336 5,191,308 3,477,105 23,289,488
General and administrative 835,126 636,654 2,691,030 2,188,506 13,719,682
Cost of contract research 533,270
Interest 31,784 31,784 163,890
------------ ------------ ------------ ------------ ------------
Total expenses 3,058,983 1,588,774 7,882,338 5,697,395 37,706,330
------------ ------------ ------------ ------------ ------------
NET LOSS $ (2,758,403) $ (1,257,556) $ (7,158,627) $ (1,878,974) $(30,044,931)
============ ============ ============ ============ ============
NET LOSS PER SHARE $ (0.09) $ (0.04) $ (0.25) $ (0.06)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 29,657,843 32,488,397 29,135,867 31,358,952
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
4
<PAGE> 5
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31, 1988 (INCEPTION) TO JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------
SERIES A SERIES B
----------------- --------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1988 (INCEPTION)
Issuance of common stock for notes
receivable and cash in September 1988
at $.0125 per share
Issuance of preferred stock in October
1988 for license and other rights 2,000,000 $1
Issuance of common stock for cash in
October 1988 at $.05 per share
Issuance of common stock for cash in
January 1989 at $.05 per share
Issuance of stock options effective in
August 1989 to purchase 600,000 shares
of Class B common stock at $.0125 per
share (with an estimated fair market value
of $.05 per share)
Issuance of common stock for cash in
September 1989 at $.0125 per share
(with an estimated fair market value
of $.05 per share)
Collection on notes receivable
Net loss
--------- -- ------ ------
BALANCE, SEPTEMBER 30, 1989 2,000,000 1
Conversion of advances to common stock in
October 1989 at $.50 per share
Issuance of common stock for cash in May
1990 at $1.00 per share (net of stock
issue costs totalling $1,033,280)
Issuance of common stock for cash in June
1990 at $1.00 per share (net of stock
issue costs totalling $97,500)
Exercise of stock options in July and
August 1990 at $.50 per share
Forgiveness of compensation obligation
Collection on notes receivable
Net loss
--------- -- ------ ------
BALANCE, SEPTEMBER 30, 1990 2,000,000 1
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK (1)
------------------------------------------
CLASS A CLASS B
--------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1988 (INCEPTION)
Issuance of common stock for notes
receivable and cash in September 1988
at $.0125 per share 4,235,000 $ 52,937
Issuance of preferred stock in October
1988 for license and other rights
Issuance of common stock for cash in
October 1988 at $.05 per share 80,000 4,000
Issuance of common stock for cash in
January 1989 at $.05 per share 80,000 4,000
Issuance of stock options effective in
August 1989 to purchase 600,000 shares
of Class B common stock at $.0125 per
share (with an estimated fair market value
of $.05 per share) 22,500
Issuance of common stock for cash in
September 1989 at $.0125 per share
(with an estimated fair market value
of $.05 per share) 400,000 20,000
Collection on notes receivable
Net loss
--------- ---------- --------- --------
BALANCE, SEPTEMBER 30, 1989 4,795,000 103,437
Conversion of advances to common stock in
October 1989 at $.50 per share 250,000 125,000
Issuance of common stock for cash in May
1990 at $1.00 per share (net of stock
issue costs totalling $1,033,280) 5,000,000 $3,966,820
Issuance of common stock for cash in June
1990 at $1.00 per share (net of stock
issue costs totalling $97,500) 750,000 652,500
Exercise of stock options in July and
August 1990 at $.50 per share 21,500 10,750
Forgiveness of compensation obligation 66,923
Collection on notes receivable
Net loss
--------- ---------- --------- --------
BALANCE, SEPTEMBER 30, 1990 5,750,000 4,619,320 5,066,500 306,110
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED NOTES
DURING THE RECEIVABLE
DEVELOPMENT FROM
STAGE STOCKHOLDERS TOTAL
----- ------------ -----
<S> <C> <C> <C>
BALANCE, AUGUST 31, 1988 (INCEPTION)
Issuance of common stock for notes
receivable and cash in September 1988
at $.0125 per share $(14,525) $ 38,412
Issuance of preferred stock in October
1988 for license and other rights 1
Issuance of common stock for cash in
October 1988 at $.05 per share 4,000
Issuance of common stock for cash in
January 1989 at $.05 per share 4,000
Issuance of stock options effective in
August 1989 to purchase 600,000 shares
of Class B common stock at $.0125 per
share (with an estimated fair market value
of $.05 per share) 22,500
Issuance of common stock for cash in
September 1989 at $.0125 per share
(with an estimated fair market value
of $.05 per share) 20,000
Collection on notes receivable 1,635 1,635
Net loss $ (409,718) (409,718)
---------- -------- --------
BALANCE, SEPTEMBER 30, 1989 (409,718) (12,890) (319,170)
Conversion of advances to common stock in
October 1989 at $.50 per share 125,000
Issuance of common stock for cash in May
1990 at $1.00 per share (net of stock
issue costs totalling $1,033,280) 3,966,820
Issuance of common stock for cash in June
1990 at $1.00 per share (net of stock
issue costs totalling $97,500) 652,500
Exercise of stock options in July and
August 1990 at $.50 per share 10,750
Forgiveness of compensation obligation 66,923
Collection on notes receivable 12,890 12,890
Net loss (2,319,231) (2,319,231)
---------- -------- --------
BALANCE, SEPTEMBER 30, 1990 (2,728,949) - 2,196,482
</TABLE>
(Continued) - 1.
5
<PAGE> 6
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31, 1988 (INCEPTION) TO JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK COMMON STOCK (1)
-------------------------------------- -----------------------
SERIES A SERIES B CLASS A
----------------- ------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1990 2,000,000 $1 5,750,000 $ 4,619,320
Exercise of stock options in November
1990 at $.50 per share
Issuance of preferred stock in July 1991
for cash (net of stock issue costs
totalling $130,339) 960,003 $ 769,670
Conversion of common stock 115,000 5,750
Net loss
--------- -- --------- ---------- ---------- -----------
BALANCE, SEPTEMBER 30, 1991 2,000,000 1 960,003 769,670 5,865,000 4,625,070
Issuance of preferred stock in February 1992
for cash (net of stock issue costs
totalling $428,605) 4,266,680 3,571,395
Exercise of stock options in March 1992 at
$.50 per share
Exercise of Class A warrants in May 1992 at
$1.50 per share for cash (net of stock issue
costs totalling $317,930) 5,650,200 8,157,370
Conversion of common stock 395,000 6,250
Net loss
--------- -- --------- ---------- ---------- -----------
BALANCE, SEPTEMBER 30, 1992 2,000,000 1 5,226,683 4,341,065 11,910,200 12,788,690
Exercise of Unit Purchase Options between October
1992 and September 1993 for cash 793,645 600,010
Exercise of Class A Warrants between October 1992
and September 1993 at $.9450 per share for cash 793,645 749,995
Exercise of Class B Warrants between October 1992
and September 1993 at $2.25 per share for cash
(net of stock issue costs totalling $8,720) 96,897 209,298
Exercise of Class C Warrants between October 1992
and September 1993 at $1.00 per share for cash
(net of stock issue costs totalling $4,122) 103,050 98,928
Exercise of Class D Warrants between October 1992
and September 1993 at $1.50 per share for cash
(net of stock issue costs totalling $42,125) 836,335 1,212,376
Exercise of Class E Warrants between October 1992
and September 1993 at $.20 per share for cash 315,000 63,000
Exercise of Class F Warrants between October 1992
and September 1993 at $100,000 per warrant for
cash 320,000 300,000
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK (1) DEFICIT
-------------------- ACCUMULATED NOTES
CLASS B DURING THE RECEIVABLE
------------------ DEVELOPMENT FROM
SHARES AMOUNT STAGE STOCKHOLDERS TOTAL
------ ------ ----- ------------ -----
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1990 5,066,500 $306,110 $(2,728,949) - $ 2,196,482
Exercise of stock options in November
1990 at $.50 per share 2,000 1,000 1,000
Issuance of preferred stock in July 1991
for cash (net of stock issue costs
totalling $130,339) 769,670
Conversion of common stock (115,000) (5,750)
Net loss (1,949,588) (1,949,588)
--------- -------- ----------- --- ----------
BALANCE, SEPTEMBER 30, 1991 4,953,500 301,360 (4,678,537) - 1,017,564
Issuance of preferred stock in February 1992
for cash (net of stock issue costs
totalling $428,605) 3,571,395
Exercise of stock options in March 1992 at
$.50 per share 119,000 59,500 59,500
Exercise of Class A warrants in May 1992 at
$1.50 per share for cash (net of stock issue
costs totalling $317,930) 8,157,370
Conversion of common stock (395,000) (6,250)
Net loss (2,361,855) (2,361,855)
--------- -------- ----------- --- ----------
BALANCE, SEPTEMBER 30, 1992 4,677,500 354,610 (7,040,392) - 10,443,974
Exercise of Unit Purchase Options between October
1992 and September 1993 for cash 600,010
Exercise of Class A Warrants between October 1992
and September 1993 at $.9450 per share for cash 749,995
Exercise of Class B Warrants between October 1992
and September 1993 at $2.25 per share for cash
(net of stock issue costs totalling $8,720) 209,298
Exercise of Class C Warrants between October 1992
and September 1993 at $1.00 per share for cash
(net of stock issue costs totalling $4,122) 98,928
Exercise of Class D Warrants between October 1992
and September 1993 at $1.50 per share for cash
(net of stock issue costs totalling $42,125) 1,212,376
Exercise of Class E Warrants between October 1992
and September 1993 at $.20 per share for cash 63,000
Exercise of Class F Warrants between October 1992
and September 1993 at $100,000 per warrant for
cash 300,000
</TABLE>
(Continued) - 2.
6
<PAGE> 7
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31, 1988 (INCEPTION) TO JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
----------------------------------------
SERIES A SERIES B
--------------------- -----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Exercise of Preferred Stock Units between October 1992
and September 1993 for cash 96,000 $ 90,000
Exercise of stock options in August 1993 and
September 1993 at exercise prices ranging from
$0.81 to $1.53 per share
Compensation expense related to stock options
granted at an exercise price below fair market
value
Cancellation of Series A Preferred and Class B
Common Stock in July 1993 (1,500,000)
Issuance of Class A Common Stock in July 1993 in
connection with amendment to a license agreement
Conversion of preferred and common stock (100,000) (5,642,653) (4,731,065)
Cancellation of partial shares (30)
Net loss
--------- --- --------- ----------
BALANCE, SEPTEMBER 30, 1993 400,000 $ 1 - -
Exercise of non-redeemable Class B Warrants in
April 1994 at $1.4175 per share for cash
Exercise of redeemable Class B Warrants between
October 1993 and June 1994 at $2.25 per share for
cash (net of stock issue costs totalling $541,340)
Exercise of Class C Warrants between October 1993
and September 1994 at $1.00 per share for cash
(net of commissions totalling $4,414)
Exercise of Class D Warrants between October 1993
and September 1994 at $1.50 per share for cash
(net of commissions totalling $2,875)
Exercise of Class F Warrants between October 1993
and November 1993 at $100,000 per warrant for cash 106,666 100,000
Exercise of stock options between October 1993 and
September 1994 at exercise prices ranging from
$0.50 to $2.4375 per share
Compensation expense related to stock options granted
at an exercise price below fair market value
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in September 1994 (net
of issue costs of $192,215)
Conversion of preferred and common stock (400,000) (1) (106,666) (100,000)
Cancellation of Class A Common and Class B Common
Stock between January 1994 and May 1994
Cancellation of partial shares
Net loss
--------- --- --------- ----------
BALANCE, SEPTEMBER 30, 1994 - - - -
--------- --- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK (1)
----------------------------------------------
CLASS A CLASS B
------------------------ --------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Exercise of Preferred Stock Units between October 1992
and September 1993 for cash
Exercise of stock options in August 1993 and
September 1993 at exercise prices ranging from
$0.81 to $1.53 per share 27,480 $ 37,480
Compensation expense related to stock options
granted at an exercise price below fair market
value 163,333
Cancellation of Series A Preferred and Class B
Common Stock in July 1993 28,003 (2,240,250) $(28,003)
Issuance of Class A Common Stock in July 1993 in
connection with amendment to a license agreement 1,500,000 2,670,000
Conversion of preferred and common stock 6,040,653 4,790,121 (298,000) (59,056)
Cancellation of partial shares
Net loss
---------- ----------- --------- -------
BALANCE, SEPTEMBER 30, 1993 22,416,905 23,411,234 2,139,250 267,551
Exercise of non-redeemable Class B Warrants in
April 1994 at $1.4175 per share for cash 17,202 24,384
Exercise of redeemable Class B Warrants between
October 1993 and June 1994 at $2.25 per share for
cash (net of stock issue costs totalling $541,340) 4,312,060 9,160,795
Exercise of Class C Warrants between October 1993
and September 1994 at $1.00 per share for cash
(net of commissions totalling $4,414) 106,340 101,926
Exercise of Class D Warrants between October 1993
and September 1994 at $1.50 per share for cash
(net of commissions totalling $2,875) 78,335 114,627
Exercise of Class F Warrants between October 1993
and November 1993 at $100,000 per warrant for cash
Exercise of stock options between October 1993 and
September 1994 at exercise prices ranging from
$0.50 to $2.4375 per share 113,267 156,048
Compensation expense related to stock options granted
at an exercise price below fair market value 245,000
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in September 1994 (net
of issue costs of $192,215) 522,449 1,807,785
Conversion of preferred and common stock 653,416 113,911 (146,750) (13,910)
Cancellation of Class A Common and Class B Common
Stock between January 1994 and May 1994 (70,000) 20,794 (1,546,500) (20,794)
Cancellation of partial shares (3)
Net loss
---------- ----------- --------- -------
BALANCE, SEPTEMBER 30, 1994 28,149,971 35,156,504 446,000 232,847
---------- ----------- --------- -------
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED NOTES
DURING THE RECEIVABLE
DEVELOPMENT FROM
STAGE STOCKHOLDERS TOTAL
----- ------------ -----
<S> <C> <C> <C>
Exercise of Preferred Stock Units between October 1992
and September 1993 for cash $ 90,000
Exercise of stock options in August 1993 and
September 1993 at exercise prices ranging from
$0.81 to $1.53 per share 37,480
Compensation expense related to stock options
granted at an exercise price below fair market
value 163,333
Cancellation of Series A Preferred and Class B
Common Stock in July 1993
Issuance of Class A Common Stock in July 1993 in
connection with amendment to a license agreement 2,670,000
Conversion of preferred and common stock
Cancellation of partial shares
Net loss $(6,139,223) (6,139,223)
----------- -- -----------
BALANCE, SEPTEMBER 30, 1993 (13,179,615) - 10,499,171
Exercise of non-redeemable Class B Warrants in
April 1994 at $1.4175 per share for cash 24,384
Exercise of redeemable Class B Warrants between
October 1993 and June 1994 at $2.25 per share for
cash (net of stock issue costs totalling $541,340) 9,160,795
Exercise of Class C Warrants between October 1993
and September 1994 at $1.00 per share for cash
(net of commissions totalling $4,414) 101,926
Exercise of Class D Warrants between October 1993
and September 1994 at $1.50 per share for cash
(net of commissions totalling $2,875) 114,627
Exercise of Class F Warrants between October 1993
and November 1993 at $100,000 per warrant for cash 100,000
Exercise of stock options between October 1993 and
September 1994 at exercise prices ranging from
$0.50 to $2.4375 per share 156,048
Compensation expense related to stock options granted
at an exercise price below fair market value 245,000
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in September 1994 (net
of issue costs of $192,215) 1,807,785
Conversion of preferred and common stock
Cancellation of Class A Common and Class B Common
Stock between January 1994 and May 1994
Cancellation of partial shares
Net loss (4,813,341) (4,813,341)
----------- -- -----------
BALANCE, SEPTEMBER 30, 1994 (17,992,956) - 17,396,395
----------- -- -----------
</TABLE>
See notes to financial statements. (Continued) - 3
7
<PAGE> 8
LIDAK PHARMACEUTICALS
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31, 1988 (INCEPTION) TO JUNE 30, 1996
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-----------------------------------
SERIES A SERIES B
--------------- ----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
OCTOBER 1, 1994 TO SEPTEMBER 30, 1995
Exercise of non-redeemable Class B Warrants in
January and February, 1995 at $1.4175 per
share for cash
Exercise of Class C Warrants between October,
1994 and June, 1995 at $1.00 per share for
cash (net of commissions totaling $26,743)
Exercise of Class D Warrants between April, 1995
and September, 1995 at $1.50 per share for cash
Exercise of Class E Warrants in April and August,
1995 at $0.20 per share for cash
Exercise of stock options between October, 1994
and September, 1995 at exercise prices ranging
from $0.50 per share to $3.56 per share
Compensation expense related to stock options
granted at an exercise price below fair market
value
Conversion of common stock
Net loss
------ ------ ------ ------
BALANCE, SEPTEMBER 30, 1995 - - - -
------ ------ ------ ------
OCTOBER 1, 1995 TO JUNE 30, 1996 (Unaudited):
Exercise of Class D Warrants between October, 1995
and June, 1996 at $1.50 per share for cash
Exercise of Class E Warrants in March, 1996
at $0.20 per share for cash
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in November 1995 (net
of issue costs of $83,495)
Issuance of Class A Common Stock between February and
June, 1996 from the conversion of Convertible Notes
(net of issue costs of $346,969)
Exercise of stock options between October, 1995
and June, 1996 at exercise prices ranging
from $0.50 per share to $3.56 per share
Conversion of common stock
Net loss
------ ------ ------ ------
BALANCE, JUNE 30, 1996 - - - -
------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK (1)
--------------------------------------
CLASS A CLASS B
----------------- ----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
OCTOBER 1, 1994 TO SEPTEMBER 30, 1995
Exercise of non-redeemable Class B Warrants in
January and February, 1995 at $1.4175 per
share for cash 97,202 137,783
Exercise of Class C Warrants between October,
1994 and June, 1995 at $1.00 per share for
cash (net of commissions totaling $26,743) 415,600 388,857
Exercise of Class D Warrants between April, 1995
and September, 1995 at $1.50 per share for cash 153,335 230,003
Exercise of Class E Warrants in April and August,
1995 at $0.20 per share for cash 85,000 17,000
Exercise of stock options between October, 1994
and September, 1995 at exercise prices ranging
from $0.50 per share to $3.56 per share 842,956 1,121,771
Compensation expense related to stock options
granted at an exercise price below fair market
value 129,792
Conversion of common stock 103,000 53,774 (103,000) (53,774)
Net loss
---------- ----------- ------- --------
BALANCE, SEPTEMBER 30, 1995 29,847,064 37,235,484 343,000 179,073
---------- ----------- ------- --------
OCTOBER 1, 1995 TO JUNE 30, 1996 (Unaudited):
Exercise of Class D Warrants between October, 1995
and June, 1996 at $1.50 per share for cash 78,334 117,500
Exercise of Class E Warrants in March, 1996
at $0.20 per share for cash 25,000 5,000
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in November 1995 (net
of issue costs of $83,495) 481,651 1,416,505
Issuance of Class A Common Stock between February and
June, 1996 from the conversion of Convertible Notes
(net of issue costs of $346,969) 2,740,900 6,689,699
Exercise of stock options between October, 1995
and June, 1996 at exercise prices ranging
from $0.50 per share to $3.56 per share 142,807 263,079
Conversion of common stock 60,000 31,325 (60,000) (31,325)
Net loss
---------- ----------- ------- --------
BALANCE, JUNE 30, 1996 33,375,756 $45,758,592 283,000 $147,748
========== =========== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE RECEIVABLE
DEVELOPMENT FROM
STAGE STOCKHOLDERS TOTAL
------------- ------------ ---------
<S> <C> <C> <C>
OCTOBER 1, 1994 TO SEPTEMBER 30, 1995
Exercise of non-redeemable Class B Warrants in
January and February, 1995 at $1.4175 per
share for cash 137,783
Exercise of Class C Warrants between October,
1994 and June, 1995 at $1.00 per share for
cash (net of commissions totaling $26,743) 388,857
Exercise of Class D Warrants between April, 1995
and September, 1995 at $1.50 per share for cash 230,003
Exercise of Class E Warrants in April and August,
1995 at $0.20 per share for cash 17,000
Exercise of stock options between October, 1994
and September, 1995 at exercise prices ranging
from $0.50 per share to $3.56 per share 1,121,771
Compensation expense related to stock options
granted at an exercise price below fair market
value 129,792
Conversion of common stock
Net loss (10,173,001) (10,173,001)
----------- ------------ -----------
BALANCE, SEPTEMBER 30, 1995 (28,165,957) - 9,248,600
------------ ------------ -----------
OCTOBER 1, 1995 TO JUNE 30, 1996 (Unaudited):
Exercise of Class D Warrants between October, 1995
and June, 1996 at $1.50 per share for cash 117,500
Exercise of Class E Warrants in March, 1996
at $0.20 per share for cash 5,000
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in November 1995 (net
of issue costs of $83,495) 1,416,505
Issuance of Class A Common Stock between February and
June, 1996 from the conversion of Convertible Notes
(net of issue costs of $346,969) 6,689,699
Exercise of stock options between October, 1995
and June, 1996 at exercise prices ranging
from $0.50 per share to $3.56 per share 263,079
Conversion of common stock
Net loss (1,878,974) (1,878,974)
----------- ----------- ------------
BALANCE, JUNE 30, 1996 $(30,044,931) - $ 15,861,409
============ =========== ============
</TABLE>
See notes to financial statements.
(Concluded) - 4
8
<PAGE> 9
LIDAK PHARMACEUTICALS
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 31, 1988
NINE MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
------------------------------ ------------
1995 1996 1996
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (7,158,627) $ (1,878,974) $(30,044,931)
Adjustments to reconcile net loss to net cash used for operating activities:
Technology license fee 3,545,713
Depreciation and amortization of patents 60,638 77,791 381,731
Amortization of deferred debt issue costs 161,713 161,713
Compensation paid with common stock and stock options 129,792 575,625
Compensation forgiven by stockholder 66,923
Imputed interest under technology license fees 82,613
Changes in assets and liabilities:
Interest receivable (36,468) (269,319) (324,070)
Prepaid and other (279,579) 55,300 (127,896)
Patent costs (110,622) (93,601) (551,203)
Organizational costs (20,242)
Accounts payable 411,332 (1,178,507) 341,724
Accrued compensation and payroll taxes 85,759 87,626 256,511
Due to MBI (930) 1,629 17,956
Deferred revenue 500,000 500,000
------------ ------------ ------------
Net cash used for operating activities (6,898,705) (2,536,342) (25,137,833)
------------ ------------ ------------
INVESTING ACTIVITIES:
Short-term investments 6,091,988 (12,919,607) (18,710,759)
Capital expenditures (78,757) (49,488) (469,703)
Note receivable - employee (13,919)
------------ ------------ ------------
Net cash provided by (used for) investing activities 5,999,312 (12,969,095) (19,180,462)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock 1,253,599 1,885,579 38,678,271
Stock issue costs (26,443) (83,495) (2,913,703)
Advances for purchase of common stock 125,000
Collection of notes receivable for common stock 14,525
Proceeds from stockholder loans 322,788
Repayment of stockholder loans (322,788)
Proceeds from the issuance of convertible notes payable 13,500,000 13,500,000
Deferred debt issue costs (771,351) (771,351)
Proceeds from issuance of subordinated notes payable-net of issue costs 538,750
Repayment of subordinated notes payable (625,000)
Payment on technology license fee (958,326)
------------ ------------ ------------
Net cash provided by financing activities 1,227,156 14,530,733 47,588,166
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 327,763 (974,704) 3,269,871
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,495,888 4,244,575
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,823,651 $ 3,269,871 $ 3,269,871
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ -- $ 11,200 $ 152,690
============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH OPERATING AND FINANCING ACTIVITIES:
In October 1989, advances of $125,000 were converted into 250,000 shares of
Class B Common Stock.
In December 1989, accrued compensation due to the Chairman of the Board and
Chief Executive Officer of $66,923 was converted into capital.
In May 1990 and September 1992, the Company recorded an expense and a liability
in the amount of $817,387 and $58,326, respectively, related to the technology
license agreement and the grant-in-aid agreement with MBI.
During 1993, the Company recorded expense and equity in the amount of $2,670,000
related to the amendment of the technology license agreement with MBI.
During 1993, 1994 and 1995, the Company recorded expense and equity in the
amount of $163,333, $245,000 and $81,666, respectively, related to the issuance
of stock options (below fair market value) as compensation for services provided
under a consulting agreement and $48,126 in 1995 related to compensation to an
employee.
Between February and June, 1996, an aggregate of $7,036,668 of Convertible Notes
were converted into 2,740,900 shares of Class A Common Stock. In connection with
this issuance $346,969 was reclassified from Deferred Debt Issue Costs to stock
issue costs (See Note 4).
See notes to financial statements.
9
<PAGE> 10
LIDAK PHARMACEUTICALS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q. These statements should be
read in conjunction with the Company's audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1995. In the opinion of management, the financial
statements include all adjustments, consisting only of normal recurring
accruals, necessary to summarize fairly the Company's financial position
and results of operations. The results of operations for the three months
and nine months ended June 30, 1996 may not be indicative of the results
that may be expected for the year ending September 30, 1996.
Certain amounts in the Statements of Operations for August 31, 1988
(Inception) to June 30, 1996 have been reclassified to conform to the 1996
presentation.
2. CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments purchased with
original maturities of three months or less, or other investments which
provide for liquidity within three months.
3. CONVERTIBLE NOTES PAYABLE
In November 1995, December 1995 and January 1996, the Company sold a total
of $13.5 million of Convertible Notes (the "Notes") to institutional
investors as part of a private placement. The Notes accrue interest at an
annual rate of 7%, beginning six months from the date of issue, with the
principal due and payable two years from the date of issue if and to the
extent that the Notes are not previously converted. The Notes are
convertible at the option of the holder (subject to the maximum share
limitations set forth below) into Class A Common Stock at a price equal to
80% of the average closing bid price for the Class A Common Stock on the
NASDAQ for the seven trading days prior to the date of conversion.
The $13.5 million original principal amount of the Notes is convertible
into an aggregate maximum of 5,513,018 shares of the Company's Class A
Common Stock at the option of the holders, with each individual Note
limited to a pro-rata amount of such number of shares. As of June 30, 1996,
an aggregate of $7,036,667 of the principal amount of Notes had been
converted into 2,740,900 shares of Class A Common Stock (See Notes 5 & 9).
10
<PAGE> 11
LIDAK PHARMACEUTICALS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CONVERTIBLE NOTES PAYABLE (CONTINUED)
In the event that shares of Class A Common Stock underlying a particular
Note cannot be issued upon request for conversion due to the above
referenced maximum share limitations, the Company is immediately obligated
to repay the principal of that portion of the Note which is presented for
conversion which cannot be converted plus a premium equal to 25% of such
principal plus any accrued and unpaid interest. At its option, the
holder(s) of $2.5 million of the principal amount of the Notes sold in
January, 1996 can require the Company to issue shares of Class A Common
Stock based on a conversion price equal to 100% of the average closing bid
price for the Class A Common Stock on the NASDAQ for the seven trading days
prior to the date of conversion in lieu of the above-referenced principal
and premium payment.
Based on the market price of the Company's Class A Common Stock at August
9, 1996, the above referenced maximum share limitation would be reached in
the event that all currently outstanding Notes were presented for
conversion and the Company would be required to pay approximately $2.3
million as repayment of remaining principal plus premium.
4. DEFERRED DEBT ISSUE COSTS
Deferred debt issue costs represent costs related to the issuance of Notes
which will be amortized over the life of the Notes, for a maximum of
two-years from the date of issuance. As of June 30, 1996, $161,713 of
deferred debt issue costs have been amortized and $346,969 have been
reclassified to stock issue costs in connection with the conversion of the
Notes (See Note 5). In the event the Notes are converted prior to their due
date, any remaining unamortized costs will be charged to the equity
resulting from the conversion of the Notes.
5. STOCKHOLDERS' EQUITY
In November 1995 the Company issued 481,651 shares of Class A Common Stock
for $1.5 million pursuant to a stock purchase agreement.
Between February and June, 1996, the Company issued an aggregate of
2,740,900 shares of Class A Common Stock from the conversion of $7,036,668
principal amount of Convertible Notes. The amount recorded as Stockholders'
Equity in connection with this conversion was reduced by $346,969 due to
the reclassification of previously recorded deferred debt issue costs (See
Notes 3, 4 & 9).
11
<PAGE> 12
LIDAK PHARMACEUTICALS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares have been
excluded from the number of shares used in the calculation of weighted
average number of common shares outstanding as their inclusion would be
anti-dilutive.
7. LICENSE AGREEMENT
In February 1996, the Company entered into an exclusive license agreement
with Bristol-Myers Squibb Company for the manufacture, marketing and
distribution of n-docosanol 10% cream (LIDAKOL(R) ) as a topical treatment
for oral herpes in the U.S. and Canada and all remaining major territories
throughout the world which are not currently licensed to other parties,
including Mexico, China, South and Central America, Australia and India,
and portions of the Far East.
8. DEFERRED REVENUE
In February 1996, the Company recorded $500,000 of deferred revenue in
connection with certain license fee payments received. This revenue will be
realized following a specified period of time after receipt by licensee of
final results of the recently completed Phase 3 clinical trials of LIDAKOL,
and based on their continued participation in the joint development
program.
9. SUBSEQUENT EVENTS
In July 1996, the Company issued a total of 407,296 shares of Class A
Common Stock in connection with the conversion of $800,000 principal amount
of Convertible Notes.
12
<PAGE> 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a development stage company engaged in the research and
development of human health care products. The Company is currently focusing its
efforts primarily on the commercialization of n-docosanol 10% cream (LIDAKOL(R))
and its Large Multivalent Immunogen (LMI) technology. The Company has not
generated any significant product sales and has been unprofitable since
inception in August 1988. For the period from inception to June 30, 1996, the
Company incurred a cumulative net loss of approximately $30.0 million. The
Company's research and development, clinical trial and general and
administrative expenses will continue to be substantial and the Company expects
to continue to incur operating losses during the next several years.
In March 1996 and May 1996, the Company reported preliminary results
from three Phase 3 clinical trials of LIDAKOL as a treatment of recurrent oral
herpes. The primary endpoint of these trials was a comparison of healing time of
the herpes episodes using either LIDAKOL cream or a placebo cream. If the
results of these trials had shown that using LIDAKOL resulted in a statistically
and clinically significant reduction in healing times compared to placebo, the
Company had intended to file a New Drug Application (NDA) with the U.S. Food and
Drug Administration for marketing approval of LIDAKOL as a treatment of
recurrent oral herpes. In these trials, LIDAKOL did not show a statistically
significant difference in healing times versus the intended placebo cream used
in the trials. As a result of this outcome, it will be necessary for the Company
to conduct additional clinical trials to prove the efficacy of LIDAKOL before an
NDA can be filed. In July 1996, the Company initiated the first of two planned
additional Phase 3 clinical trials of LIDAKOL.
The Company's business is subject to significant risks including, but
not limited to, the success of its research and development efforts,
uncertainties associated with obtaining and enforcing patents important to the
Company's business and lengthy and expensive regulatory approval processes and
competition from pharmaceutical and biotechnology companies, increasing pressure
on pharmaceutical pricing from payors, patients, and government agencies and
limitations on the availability of capital. Even if the Company's products
appear promising at an early stage of development, they may not reach the market
for a number of reasons. Such reasons include, but are not limited to, the
possibilities that the potential products will be found ineffective or toxic
during clinical trials, fail to receive the necessary regulatory approvals, be
difficult to manufacture on a large scale, be uneconomical to market, or be
precluded from commercialization by proprietary rights of third parties, or that
the Company may not have sufficient financial resources to complete final
development and/or marketing. Additional expenses, delays and losses of
opportunities that may arise out of these and other risks could have a material
adverse effect on the Company's financial condition and results of operations.
13
<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
RESULTS OF OPERATIONS
NET LOSSES
During the three and nine months ended June 30, 1996 ("the 1996 three
and nine months"), the Company incurred net losses of $1.3 million and $1.9
million, respectively. This compares to respective net losses of $2.8 million
and $7.2 million incurred in the three and nine months ended June 30, 1995 ("the
1995 three and nine months").
REVENUES
Total revenues for the 1996 three and nine months were $331,000 and
$3.8 million, respectively. For the 1996 three months, total revenue consisted
of interest and other income of $306,000 and federal research grant income of
$25,000. For the 1996 nine months, total revenue consisted of license
fee/contract research income of $3.0 million, interest and other income of
$775,000 and federal research grant income of $43,000. Total revenues for the
1995 three and nine months were $301,000 and $724,000, respectively, and
consisted entirely of interest and other income.
The increase in revenues in the 1996 three months was due primarily to
income earned during the period from research grants issued by the National
Institutes of Health which were not in place during the 1995 three months. The
increase in revenues during the 1996 nine months was attributable primarily to
license fee revenues in the amount of $3.0 million earned in the 1996 period in
connection with certain licensing agreements, most of which was derived from the
Company's agreement with Bristol-Myers Squibb Company.
EXPENSES
Research and development expenses for the 1996 three and nine months
decreased to $920,000 and $3.5 million, respectively, from $2.2 million and $5.2
million, respectively, in the 1995 three and nine months. The decrease in
expenses during the 1996 three and nine months, was attributable primarily to
decreased activities related to toxicology testing and the completion of certain
U.S./Canadian Phase 3 clinical trials of LIDAKOL during the 1996 periods.
General and administrative expenses for the 1996 three and nine months
decreased to $637,000 and $2.2 million, respectively, from $835,000 and $2.7
million, respectively, during the 1995 three and nine months. The decrease in
expenses during the 1996 three months is attributable primarily to non-recurring
expenses incurred in the 1995 period for legal and investment banking services
related to a proposed acquisition which is no longer being pursued by the
Company and for market research information purchased by the Company. This
decrease is also attributable to lower legal expenses in the 1996 period related
to the write off of previously capitalized patents and other corporate matters,
and to reduced expenditures in the 1996 period for investor relation consulting
services.
14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
RESULTS OF OPERATIONS (concluded)
Also contributing to the decreased expenses during the 1996 nine months were
non-recurring expenses included in the 1995 nine months for a one-time payment
of fees related to a consulting agreement which was no longer in effect in
fiscal 1996 and non-recurring investment banking fees paid in connection with
the Company's license agreement for LIDAKOL in Japan. Partially offsetting the
overall decrease in general and administrative expenses during the 1996 three
and nine months are increased non-cash expenses from the amortization of
deferred debt issue costs related to the Convertible Notes recorded during
fiscal 1996 (See Note 4 to Financial Statements).
Interest expense recorded during the 1996 three and nine months represents
interest accrued on outstanding Convertible Notes through June 30, 1996. No
interest expense was incurred in the 1995 periods as the Convertible Notes were
not outstanding during fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through the sale of equity and debt securities raising an aggregate $49.5
million (net of issuance costs) through June 30, 1996. After deducting
repayments of stockholder loans and subordinated notes totaling $323,000 and
$625,000, respectively, and technology license fee payments to MBI totaling
$958,000, net cash provided from financing activities through June 30, 1996 was
$47.5 million.
At June 30, 1996, the Company had cash, cash equivalents and short-term
investments totaling $22.0 million and working capital of $21.3 million, as
compared to $10 million and $8.6 million, respectively, at September 30, 1995.
The increases in cash and working capital during the 1996 nine months were
attributable primarily to net proceeds of approximately $14.5 million received
by the Company through the sale of $1.5 million of Class A Common Stock and
$13.5 million of Convertible Notes (the "Notes") in a private financing and
$386,000 from the exercise of certain stock options and warrants during this
period.
Net cash used by the Company to fund operating activities during the
1996 nine months decreased to $2.5 million from $6.9 million during the 1995
nine months. This decrease is attributable primarily to the decreased net loss
during the 1996 period as discussed in "Results of Operations". Also
contributing to the reduction in cash used to fund operating activities during
the 1996 nine months was the receipt of $500,000 during the period in connection
with a licensing agreement which has been recorded as deferred revenue.
Partially offsetting the decrease in net cash used to fund operating activities
during the 1996 nine months was a $1.2 million increase in cash used to reduce
the Company's outstanding accounts payable balances.
15
<PAGE> 16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
The Company does not believe that the net cash used to fund operating activities
during the 1996 nine months is representative of future cash requirements. Net
cash requirements are expected to increase to levels more consistent with net
cash used in the 1995 period as a result of continuing research and development,
clinical trial and general and administrative expenses.
As discussed above, the results of the clinical studies reported in
March 1996 of the Company's lead drug candidate, LIDAKOL, do not support the
filing of an NDA at this time. The Company has recently initiated the first of
two planned additional clinical studies to prove the efficacy of LIDAKOL versus
a placebo which, if successful, would enable it to file an NDA. The Company
estimates that direct costs associated with conducting these two additional
clinical studies will be approximately $1.5 to $2.0 million.
In November 1995, December 1995 and January 1996, the Company issued an
aggregate $13.5 million in principal amount of Convertible Notes. The Notes
accrue interest at an annual rate of 7% beginning six months from the date of
issue, with the principal due and payable two-years from the date of issue if
and to the extent that the Notes are not previously converted. The Notes are
convertible into Class A Common Stock at a price equal to 80% of the average
closing bid price of the Company's Class A Common Stock on the NASDAQ for seven
trading days prior to the date of conversion.
In connection with the issuance of these Notes, the Company recorded
deferred debt issue costs totaling approximately $771,000. Such costs are being
amortized over the life of the Notes, for a maximum of two-years from the date
of issuance. As of June 30, 1996, $161,713 of deferred debt issue costs have
been amortized and $346,969 have been reclassified to stock issue costs in
connection with the conversion of Notes (See Notes 4 & 5 to Financial
Statements). In the event the Notes are converted prior to their due date, any
remaining unamortized costs will be charged to the equity resulting from the
conversion of the Notes.
The $13.5 million original principal amount of Notes was convertible
into an aggregate maximum of 5,513,018 shares of the Company's Class A Common
Stock at the option of the holders, with each individual Note limited to a
pro-rata amount of such number of shares. Between February and July, 1996, a
total of 3,148,196 shares of Class A Common Stock have been issued in connection
with the conversion of $7,836,667 principal amount of Notes, leaving an
aggregate principal balance of $5,663,333 outstanding as of August 9, 1996. In
the event that shares of Class A Common Stock underlying a particular Note
cannot be issued upon request for conversion due to the above referenced maximum
share limitation, the Company is obligated to immediately repay the principal of
that portion of the Note which is
16
<PAGE> 17
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (concluded)
LIQUIDITY AND CAPITAL RESOURCES (concluded)
presented for conversion which cannot be converted plus a premium equal to 25%
of such principal plus any accrued and unpaid interest. At its option, the
holder(s) of $2.5 million of the principal amount of the Notes can require the
Company to issue shares of Class A Common Stock at the then fair market value in
exchange for the above-referenced principal and premium payment. Based on the
market price of the Company's Class A Common Stock at August 9, 1996, the above
referenced maximum share limitation would be reached in the event that all
currently outstanding Notes were presented for conversion and the Company would
required to pay approximately $2.3 million as repayment of remaining principal
plus premium.
The Company expects to continue to incur substantial operating losses
for the foreseeable future. The Company's available funds may not be sufficient
to permit the Company to successfully complete development or commercialize any
of its proposed pharmaceutical products. Accordingly, the Company may be
required to raise substantial additional capital or to collaborate with one or
more large pharmaceutical or biotechnology companies which could provide the
necessary financing and expertise to complete clinical development, manufacture
and package finished product and obtain regulatory approvals to market its
products. Furthermore, the Company may not have sufficient funds to repay the
Notes in the event the Notes are not converted or if the Company becomes
obligated to repay the Notes in lieu of conversion. There can be no assurance
that the Company can successfully obtain such additional capital, enter into the
collaborative arrangements necessary to fully develop or commercialize any of
its proposed products on acceptable terms, or to repay the Notes, if not
converted.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Statement Data Schedule
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
June 30, 1996:
Report on Form 8-K was filed on April 26, 1996 reporting under Item 5
issuance of 656,938 shares of Class A Common Stock in connection with
the conversion of $1,220,000 principal amount of Convertible Notes.
Report on Form 8-K was filed on May 6, 1996 reporting under Item 5
issuance of 599,060 shares of Class A Common Stock in connection with
the conversion of $1,200,000 principal amount of Convertible Notes.
Report on Form 8-K was filed on May 16, 1996 reporting under Item 5 new
data regarding pain relief and additional new healing-time data from
its Phase 3 U.S./Canadian clinical trials of LIDAKOL as a topical
treatment for recurrent oral herpes.
Report on Form 8-K was filed on June 25, 1996 reporting under Item 5
issuance of 558,927 shares of Class A Common Stock in connection with
the conversion of $1,050,000 principal amount of Convertible Notes.
Report on Form 8-K was filed on June 26, 1996 reporting under Item 5
issuance of 211,316 shares of Class A Common Stock in connection with
the conversion of $400,000 principal amount of Convertible Notes.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIDAK Pharmaceuticals
Date: August 13, 1996 By:/s/David H. Katz
----------------
David H. Katz, M.D., President and
Chief Executive Officer
(Duly Authorized Officer )
(Principal Executive Officer)
Date: August 13, 1996 By: /s/Michael H. Lorber
---------------------
Michael H. Lorber, Vice President
Chief Financial Officer and
Secretary
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM FORM 10-Q FOR THE
QUARTER ENDED JUNE 30,1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,980,630
<SECURITIES> 0
<RECEIVABLES> 324,070
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,432,331
<PP&E> 469,703
<DEPRECIATION> 242,284
<TOTAL-ASSETS> 23,440,932
<CURRENT-LIABILITIES> 1,116,190
<BONDS> 0
0
0
<COMMON> 45,758,592
<OTHER-SE> 147,748
<TOTAL-LIABILITY-AND-EQUITY> 23,440,932
<SALES> 0
<TOTAL-REVENUES> 3,818,421
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,665,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,784
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,878,974)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
