<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 DECEMBER 31, 1995 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.
<TABLE>
<CAPTION>
Class Outstanding at February 9, 1996
<S> <C>
Class A common stock, no par value 30,477,168
Class B common stock, no par value 283,000
</TABLE>
<PAGE> 2
LIDAK Pharmaceuticals
FORM 10-Q
For the quarter ended December 31, 1995
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Balance Sheets at September 30, 1995 and
December 31, 1995 ............................................. 3
Statements of Operations for the three month period
ended December 31, 1994 and 1995 and for the period
from August 31, 1988 (inception) to December 31, 1995 ......... 4
Statements of Stockholders' Equity (Deficit) from August
31, 1988 (inception) to December 31, 1995 ..................... 5
Statements of Cash Flows for the three month period
ended December 31, 1994 and 1995 and for the period
from August 31, 1988 (inception) to December 31, 1995 ......... 9
Notes to Financial Statements ................................. 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................. 17
SIGNATURES .............................................................. 18
</TABLE>
2
<PAGE> 3
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1995 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,244,575 $16,174,484
Short-term investments 5,791,152 3,208,593
Interest receivable 54,751 65,925
Prepaid and other 182,931 214,937
----------- -----------
Total current assets 10,273,409 19,663,939
PROPERTY - at cost (less accumulated depreciation of $178,729 and $199,224) 241,486 238,156
PATENTS AND PATENTS PENDING (less accumulated amortization
of $18,719 and $23,121) 438,883 451,528
DEFERRED DEBT ISSUE COSTS 584,467
OTHER ASSETS 265 265
----------- -----------
TOTAL $10,954,043 $20,938,355
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,520,231 $ 1,289,465
Accrued compensation and payroll taxes 168,885 192,976
Due to MBI 16,327 12,893
----------- -----------
Total current liabilities 1,705,443 1,495,334
----------- -----------
LONG-TERM DEBT:
Convertible notes payable 10,500,000
----------- -----------
Total liabilities 1,705,443 11,995,334
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - no par value:
Class A - 99,490,000 shares authorized;
29,847,064 and 30,470,132 shares issued and outstanding 37,235,484 38,856,261
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) (30,060,988)
----------- -----------
Total stockholders' equity 9,248,600 8,943,021
----------- -----------
TOTAL $10,954,043 $20,938,355
=========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE> 4
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31, 1988
DECEMBER 31, (INCEPTION) TO
-------------------------------- DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
REVENUES:
License fees/Contract research $ 1,065,825
Federal research grants $ 6,500 747,277
Interest and other $ 212,958 190,035 2,226,411
------------ ------------ ------------
Total revenues 212,958 196,535 4,039,513
------------ ------------ ------------
EXPENSES:
Research and development 1,092,288 1,441,423 21,253,806
General and administrative 872,081 650,143 12,181,319
Cost of contract research 533,270
Interest 132,106
------------ ------------ ------------
Total expenses 1,964,369 2,091,566 34,100,501
------------ ------------ ------------
NET LOSS $ (1,751,411) $ (1,895,031) $(30,060,988)
============ ============ ============
NET LOSS PER SHARE $ (0.06) $ (0.06)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 28,641,159 30,457,152
============ ============
</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 DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<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 DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<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 DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<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 DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK COMMON STOCK (1)
------------------------------ --------------------------------------------
SERIES A SERIES B CLASS A CLASS B
-------------- -------------- ----------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <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 totalling $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 DECEMBER 31, 1995 (Unaudited):
Exercise of Class D Warrants in October, 1995
at $1.50 per share for cash 26,667 40,000
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
Exercise of stock options between October, 1995
and December, 1995 at exercise prices ranging
from $0.50 per share to $3.56 per share 54,750 132,947
Conversion of common stock 60,000 31,325 (60,000) (31,325)
Net loss
------ ------ ------ ------ ---------- ----------- -------- -------
BALANCE, DECEMBER 31, 1995 - - - - 30,470,132 $38,856,261 283,000 147,748
====== ====== ====== ====== ========== =========== ======== =======
</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 totalling $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 DECEMBER 31, 1995 (Unaudited):
Exercise of Class D Warrants in October, 1995
at $1.50 per share for cash 40,000
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
Exercise of stock options between October, 1995
and December, 1995 at exercise prices ranging
from $0.50 per share to $3.56 per share 132,947
Conversion of common stock
Net loss (1,895,031) (1,895,031)
------------ ---- ------------
BALANCE, DECEMBER 31, 1995 $(30,060,988) - $ 8,943,021
============ ==== ============
</TABLE>
(Concluded - 4.)
8
<PAGE> 9
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31, 1988
DECEMBER 31, (INCEPTION) TO
---------------------------- DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,751,411) $(1,895,031) $(30,060,988)
Adjustments to reconcile net loss to net cash used for operating activities:
Technology license fee 3,545,713
Depreciation and amortization 18,128 24,897 328,837
Compensation paid with common stock and stock options 109,375 575,625
Compensation forgiven by stockholder 66,923
Imputed interest under technology license fees 82,613
Changes in assets and liabilities:
Interest receivable (57,535) (11,174) (65,925)
Prepaid and other (568,124) (32,006) (215,202)
Patents and patents pending (15,520) (17,047) (474,649)
Organizational costs (20,242)
Accounts payable (250,065) (230,767) 1,289,464
Accrued compensation and payroll taxes 52,190 24,091 192,976
Due to MBI (15,263) (3,434) 12,893
----------- ----------- ------------
Net cash used for operating activities (2,478,225) (2,140,471) (24,741,962)
----------- ----------- ------------
INVESTING ACTIVITIES:
Short-term investments 514,842 2,582,559 (3,208,593)
Capital expenditures (36,846) (17,165) (437,380)
Note receivable - employee (10,301)
----------- ----------- ------------
Net cash provided by (used for) investing activities 467,695 2,565,394 (3,645,973)
----------- ----------- ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock 108,874 1,672,948 38,465,640
Stock issue costs (3,507) (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 10,500,000 10,500,000
Deferred debt issue costs (584,467) (584,467)
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 105,367 11,504,986 44,562,419
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,905,163) 11,929,909 16,174,484
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,495,888 4,244,575
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,590,725 $16,174,484 $ 16,174,484
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ - $ - $ 46,493
----------- ----------- ------------
</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 (see Note 2).
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 (see Note
2).
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.
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
ended December 31, 1995 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 December 31, 1995 have been reclassified to conform to the
1995 presentation.
2. STOCKHOLDER'S 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.
3. CONVERTIBLE NOTES PAYABLE
In November 1995, December 1995 and January 1996 (See Note 5) the Company
sold an aggregate total of $13.5 million of Convertible Notes (the
"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 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 conversion schedule with respect to $10.5
million of the principal amount of the Notes is as follows: One third may
be converted on February 9, 1996 (See Note 5), March 10, 1996 and March 30,
1996, respectively. The conversion schedule with respect to $3 million of
the principal amount of the Notes is as follows: One third may be converted
on February 24, 1996, March 25, 1996 and April 24, 1996, respectively.
10
<PAGE> 11
LIDAK PHARMACEUTICALS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
3. CONVERTIBLE NOTES PAYABLE (continued)
The $13.5 million of Notes are 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. To the extent the Notes are not converted, they are due
and payable two years from the issue date.
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 the $3 million of the principal amount of the Notes sold in
January, 1996 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.
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. 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. SUBSEQUENT EVENTS
In January 1996, the Company sold $3 million in principal amount of the
Notes. See Note 3 above.
In February 1996, $3,166,667 of principal amount of Notes was converted
into 707,159 shares of Class A Common Stock. See Note 3 above.
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(TM)) as a topical treatment
for oral herpes in the U.S. and Canada and all remaining major territories
throughout the world which are
11
<PAGE> 12
LIDAK PHARMACEUTICALS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
5. SUBSEQUENT EVENTS (continued)
not currently licensed to other parties, including Mexico, China, South and
Central America, Australia and India, and portions of the Far East. Terms of
the agreement include an up-front licensing fee, payments based on the
achievement of certain milestones, payment of costs associated with the final
stages of product development and filing for regulatory approval, and royalty
payments on net sales in the licensed territories after market introduction.
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. Since inception in August 1988,
the Company has been engaged primarily in research and development activities.
The Company is currently focusing its efforts primarily on the commercialization
of n-docosanol 10% cream (LIDAKOL(TM)) and its Large Multivalent Immunogen (LMI)
technology. The Company has not generated any significant product revenues and
has been unprofitable since inception. For the period from inception to December
31, 1995, the Company incurred a cumulative net loss of $30.1 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.
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. 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.
RESULTS OF OPERATIONS
Revenues totalled $197,000 for the three months ended December 31, 1995
("the 1995 three months") as compared to $213,000 for the three month period
ended December 31, 1994 ("the 1994 three months"). Of the 1995 three months
total, $190,000 was attributable to interest income and $6,500 was revenue from
a federal research grant. The decrease in revenues during the 1995 three months
was primarily attributable to decreased interest income as a result of lower
average cash balances available for investment during the 1995 three months.
Research and development expenses for the 1995 three months increased to
$1.4 million from $1.1 million in the 1994 three months. The increase in
expenses during the 1995 three months, was attributable primarily to
expenditures associated with Phase 3 clinical trials conducted in the United
States and Canada of LIDAKOL for the topical treatment of oral herpes which were
initiated in the first quarter of fiscal 1995.
13
<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
RESULTS OF OPERATIONS (concluded)
General and administrative expenses for the 1995 three months decreased to
$650,000 from $872,000 during the 1994 three months. The decrease in expenses
during the 1995 three months was attributable primarily to non-recurring
investment banking fees in the 1994 three months in connection with the
Company's license agreement for LIDAKOL in Japan and non-recurring expenses
related to the issuance of stock options during the 1994 three months in
connection with a consulting agreement.
As a result of the foregoing revenues and expenses, the Company's net loss
during the 1995 three months increased to $1.9 million from $1.8 million during
the 1994 three months.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
the sale of equity and debt securities and stockholder loans raising an
aggregate $46.5 million (net of issuance costs) through December 31, 1995. After
deducting repayments of stockholder loans and subordinated notes totalling
$323,000 and $625,000, respectively, and technology license fee payments to MBI
totalling $958,000, net cash provided from financing activities through December
31, 1995 was $44.5 million.
At December 31, 1995, the Company had cash, cash equivalents and
short-term investments totalling $19.4 million and working capital of $18.5
million, as compared to $10 million and $8.6 million, respectively, at September
30, 1995. The increases in cash and working capital during the 1995 three months
were attributable primarily to net proceeds of approximately $11.3 million
received by the Company in a private financing through the sale of $1.5 million
of Class A Common Stock and $10.5 million of Convertible Notes (the "Notes")..
Subsequent to December 31, 1995, the Company sold an additional $3 million of
Notes. (See Note 2, 3, 4 and 5 to the Financial Statements).
In November 1995 and December 1996, the Company recorded deferred debt
issue costs in the amount of approximately $584,000 related to the issuance of
$10.5 million of Notes. Such costs will be amortized over the life of the Notes,
for a maximum of two-years from the date of issuance. 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.
Cash utilized by the Company to fund operating activities for the three
months ended December 31, 1995 was $5.1 million as a result of losses incurred
during the period. In addition, $17,000 of cash was utilized for capital
expenditures.
14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
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. The conversion
schedule with respect to $10.5 million of the principal amount of the Notes is
as follows: One third may be converted on February 9, 1996, March 10, 1996 and
March 30, 1996, respectively. The conversion schedule with respect to $3 million
of the principal amount of the Notes is as follows: One third may be converted
on February 24, 1996, March 25, 1996 and April 24, 1996, respectively.
The $13.5 million of Notes are 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. To the extent the Notes are not converted they are due and payable
two years from the issue date.
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 $3 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.
In February 1996, $3,166,667 of principal amount of the Notes was
converted into 707,159 shares of Class A Common Stock.
In February 1996, the Company entered into an exclusive license agreement
with Bristol-Myers Squibb Company for the manufacture, marketing and
distribution of LIDAKOL (See Note 5 to the Financial Statements) as a topical
treatment for oral herpes in the U.S. and certain other territories. Terms of
the agreement include an up-front licensing fee, payments based on the
achievement of certain milestones, payment of costs associated with
the final stages of product development and filing for regulatory approval, and
royalty payments on net sales in the licensed territories after market
introduction.
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 other proposed pharmaceutical products not covered
by existing licensing agreements.
15
<PAGE> 16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (concluded)
LIQUIDITY AND CAPITAL RESOURCES (continued)
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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
December 31, 1995:
On November 20, 1995 a report on Form 8-K was filed reporting under Item 5
the completion of the first stage of a planned $15 million dollar
financing.
16
<PAGE> 17
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: February 13, 1996 By:/s/David H. Katz
----------------------------------
David H. Katz, M.D., President and
Chief Executive Officer
(Duly Authorized Officer)
(Principal Executive Officer)
Date: February 13, 1996 By:/s/Michael H. Lorber
----------------------------------
Michael H. Lorber, Vice President
Chief Financial Officer and
Secretary
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 16,174,484
<SECURITIES> 3,208,593
<RECEIVABLES> 65,925
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,663,939
<PP&E> 437,380
<DEPRECIATION> 199,224
<TOTAL-ASSETS> 20,938,355
<CURRENT-LIABILITIES> 1,495,334
<BONDS> 10,500,000
0
0
<COMMON> 38,856,261
<OTHER-SE> 147,748
<TOTAL-LIABILITY-AND-EQUITY> 20,938,355
<SALES> 0
<TOTAL-REVENUES> 196,535
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,091,566
<LOSS-PROVISION> (1,895,031)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,895,031)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
