<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/ X / Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period Ended September 30, 1996.
or
/ / Transition report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From _____________ to
__________________.
Commission file number 0-27436
-------
TITAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3171940
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
400 OYSTER POINT BLVD., SUITE 505, SOUTH SAN FRANCISCO, CALIFORNIA 94080
------------------------------------------------------------------------
(Address of Principal Executive Offices including zip code)
(415) 244-4990
--------------
(Issuer's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
State the number of shares outstanding of each of the issuer's common equity
as of September 30, 1996: 12,323,279 shares of Common Stock outstanding,
$.001 par value.
Transitional Small Business Disclosure Format. Yes _____ No __X__
<PAGE>
TITAN PHARMACEUTICALS, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995...................... 2
Condensed Consolidated Statements of Operations
Three months and nine months ended September 30, 1995
and 1996 and period from commencement of
operations (July 25, 1991) to September 30, 1996.............. 3
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1995 and 1996 and
period from commencement of operations
(July 25, 1991) to September 30, 1996......................... 4
Notes to Condensed Consolidated Financial
Statements - September 30, 1996............................... 6
Item 2. Management's Discussion and Analysis
or Plan of Operations......................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 12
SIGNATURES ............................................................... 13
<PAGE>
PART I. FINANCIAL INFORMATION
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(Unaudited) (Note A)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 479,594 $ 947,805
Short-term investments 16,933,986 -
Prepaid expenses and other current assets 64,972 40,071
Receivable from Ansan Pharmaceuticals, Inc. 99,459 57,791
------------ ------------
Total current assets 17,578,011 1,045,667
Furniture and equipment, net 750,909 848,852
Investment in Ansan Pharmaceuticals, Inc. 889,989 1,589,826
Deferred stock offering costs 159,702 522,299
Deferred financing costs 107,912 600,183
Other assets 199,259 125,344
------------ ------------
$ 19,685,782 $ 4,732,171
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 709,350 $ 714,896
Notes payable by Ingenex, Inc. - bridge financing - 1,500,000
Notes payable by Titan Pharmaceuticals, Inc. - bridge financing - 2,800,000
Accrued legal fees - 691,368
Accrued sponsored research 36,566 304,202
Other accrued liabilities 330,409 546,057
Current portion of capital lease obligations 255,195 226,709
Current portion of technology financing - Ingenex, Inc. 550,513 494,107
------------ ------------
Total current liabilities 1,882,033 7,277,339
Noncurrent portion of capital lease obligation 552,016 747,142
Noncurrent portion of technology financing 869,081 1,289,313
Commitments - -
Minority interest 1,241,032 1,241,032
Stockholders' Equity (net capital deficiency):
Preferred stock, at amounts paid in - 18,907,772
Common stock, at amounts paid in 49,439,697 745,476
Additional paid-in capital 6,186,353 6,186,353
Deferred compensation (352,000) (418,000)
Deficit accumulated during the development stage (40,132,430) (31,244,256)
------------ ------------
Total stockholders' equity (net capital deficiency) 15,141,620 (5,822,655)
------------ ------------
$ 19,685,782 $ 4,732,171
------------ ------------
------------ ------------
</TABLE>
Note A: The balance sheet at December 31, 1995 has been derived from
the audited financial statements at that date but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, OF OPERATIONS
-------------------------------- ------------------------------- (JULY 25, 1991) TO
1995 1996 1995 1996 SEPTEMBER 30, 1996
----------- ------------ ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Grant revenue $ 89,905 $ 83,356 $ 99,786 $ 133,061 $ 272,583
Costs and expenses:
Research and development 937,719 1,673,848 4,402,178 4,023,836 26,037,457
Acquired in-process research and development - - - - 686,000
General and administrative 1,405,155 906,729 3,536,075 2,882,715 9,447,097
----------- ----------- ----------- ----------- ------------
Total costs and expenses 2,342,874 2,580,577 7,938,253 6,906,551 36,170,554
----------- ----------- ----------- ----------- ------------
Loss from operations (2,252,969) (2,497,221) (7,838,467) (6,773,490) (35,897,971)
Other income (expense):
Equity in loss of Ansan Pharmaceuticals, Inc. (233,768) (344,348) (233,768) (699,837) (1,156,951)
Interest income 11,880 178,820 45,890 518,568 973,326
Interest expense (500,549) (125,140) (827,001) (1,943,346) (4,095,684)
----------- ----------- ----------- ----------- ------------
Other expense - net (722,437) (290,668) (1,014,879) (2,124,615) (4,279,309)
----------- ----------- ----------- ----------- ------------
Loss before minority interest (2,975,406) (2,787,889) (8,853,346) (8,898,105) (40,177,280)
Minority interest in losses of subsidiaries - - - 9,931 44,850
----------- ----------- ----------- ----------- ------------
Net loss $(2,975,406) $(2,787,889) $(8,853,346) $(8,888,174) $(40,132,430)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net loss per share $ (1.29) $ (0.24) $ (3.84) $ (1.37)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in computation 2,306,355 11,792,738 2,306,395 10,463,149
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Proforma net loss per share $ (0.38) $ (1.18)
----------- -----------
----------- -----------
Shares used in computing pro forma net
loss per share 7,827,204 7,524,168
----------- -----------
----------- -----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, (JULY 25, 1991) TO
------------------------------- SEPTEMBER 30,
1995 1996 1996
----------- ----------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(8,853,346) $(8,888,174) $(40,132,430)
Adjustments to reconcile net loss to net cash used
in operating activities
Amortization and depreciation 231,588 340,963 907,688
Loss on disposal of assets - 227 9,174
Accretion of discount on indebtedness 376,190 1,407,577 2,290,910
Equity in loss of Ansan Pharmaceuticals, Inc. 233,768 699,837 1,156,951
Minority interest - (9,931) (44,850)
Grant of common stock to employee - - 250
Issuance of common stock to acquire
minority interest of Theracell, Inc. - - 686,000
Changes in operating assets and liabilities:
Prepaid sponsored research 36,621 - -
Prepaid expenses and other current assets 22,581 (24,901) (64,972)
Receivable from Ansan Pharmaceuticals, Inc. (58,383) (41,668) (99,459)
Other assets 17,543 (73,915) (204,224)
Accounts payable 564,959 (5,546) 943,540
Accrued legal fees (223,477) (691,368) -
Accrued sponsored research (340,371) (267,636) 135,648
Other accrued liabilities 1,099,454 (215,648) 721,743
----------- ----------- ------------
Net cash used in operating activities (6,892,873) (7,770,183) (33,694,031)
----------- ----------- ------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, (JULY 25, 1991) TO
------------------------------- SEPTEMBER 30,
1995 1996 1996
----------- ----------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (1,895) (142,553) (944,876)
Purchases of short-term investments - (22,883,986) (46,816,479)
Proceeds from sale of short-term investments - 5,950,000 29,882,493
Effect of deconcolidation of Ansan
Pharmaceutical, Inc. (135,934) - (135,934)
----------- ----------- ------------
Net cash used in investing activities (137,829) (17,076,539) (18,014,796)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock - 30,283,748 30,342,974
Offering costs - (134,702) (657,001)
Financing costs (184,239) - (810,248)
Proceeds from issuance of preferred stock 1,143,794 - 17,601,443
Proceeds from notes payable - - 465,000
Repayment of notes payable - - (425,000)
Proceeds from notes and advances
payable to related parties 200,000 - 2,216,500
Repayment of notes payable to related parties - - (1,016,500)
Proceeds from Ansan Pharmaceuticals, Inc. bridge
financing 1,425,000 - 1,425,000
Proceeds from Titan Pharmaceuticals, Inc. and
Ingenex, Inc. bridge financing 1,500,000 - 5,250,000
Repayment of Titan Pharmaceuticals, Inc. and
Ingenex, Inc. bridge financing - (5,250,000) (5,250,000)
Proceeds from capital lease - - 658,206
Payments of principal under capital lease
obligation (158,338) (166,640) (446,231)
Proceeds from Ingenex, Inc. technology financing 2,000,000 - 2,000,000
Principal payments on Ingenex, Inc.
technology financing (103,786) (363,826) (580,406)
Increase in minority interest from issuances of
preferred stock by Ingenex, Inc. - - 1,241,032
Issuance of common stock by subsidiaries - 9,931 173,652
----------- ----------- ------------
Net cash provided by financing activities 5,822,431 24,378,511 52,188,421
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents (1,208,271) (468,211) 479,594
Cash and cash equivalents, beginning of period 1,346,444 947,805 -
----------- ----------- ------------
Cash and cash equivalents, end of period $ 138,173 $ 479,594 $ 479,594
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND ITS SEVERAL DEVELOPMENT STAGE SUBSIDIARIES
Titan Pharmaceuticals, Inc. (the "Company") was incorporated in February
1992 in the State of Delaware. It is the holding company for several
development stage biotechnology companies ("the Operating Companies"). The
development stage companies, which rely significantly on third parties to
conduct sponsored research, are Ansan Pharmaceuticals, Inc. ("Ansan"),
Ingenex, Inc. ("Ingenex"), Theracell, Inc. ("Theracell"), ProNeura, Inc.
("ProNeura"), and Trilex Pharmaceuticals, Inc., formerly Ascalon, Inc.
("Trilex").
ANSAN PHARMACEUTICALS, INC.
Ansan was incorporated in November 1992 to engage in the development of
novel analogs of butyric acid for the treatment of cancer and other
disorders. It was a majority-owned consolidated subsidiary until August
1995. In August 1995, Ansan completed an initial public offering of its
securities. Such offering reduced the Company's ownership in Ansan from
approximately 95% to approximately 44%. From August 1995, the Company has
accounted for its investment in Ansan using the equity method. Concurrent
with the Ansan public offering, Ansan granted the Company a one-year option
to purchase up to 400,000 shares of Ansan common stock with an exercise price
of $6.00 per share. In July 1996, Ansan extended the option through
September 8, 1996, in order to allow the Company and Ansan an opportunity to
renegotiate the terms of the option. The two companies continue to negotiate
and Titan may again hold a majority interest in Ansan.
INGENEX, INC.
Ingenex, a majority-owned consolidated subsidiary, was incorporated in
July 1991 and reincorporated in June 1992. It is engaged in the development
of gene-based therapeutics and the discovery of medically important genes for
the treatment of cancer and viral diseases. In June 1996, Ingenex issued
981,818 shares of common stock to the Company converting $5,400,000 of debt
to the Company to equity. At September 30, 1996, the Company owned 81% of
Ingenex.
THERACELL, INC.
Theracell was incorporated in November 1992 to engage in the development
of novel treatments for various neurologic disorders through the
transplantation of neural cells and neuron-like cells directly into the
brain. At September 30, 1996, the Company owned 100% of Theracell.
PRONEURA, INC.
ProNeura was incorporated in October 1995 to engage in the development
of cost effective, long term treatment solutions to neurological and
psychiatric disorders through an implantable drug delivery system. At
September 30, 1996, the Company owned 79% of ProNeura.
TRILEX PHARMACEUTICALS,, INC.
Trilex was incorporated in May 1996 to engage in research and
development of cancer therapeutic vaccines utilizing anti-idiotypic antibody
technology. At September 30, 1996, the Company owned 100% of Trilex.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and
6
<PAGE>
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. These financials
should be read in conjunction with the audited consolidated financial
statements and footnotes thereto included in the Titan Pharmaceuticals, Inc.
annual report on Form 10-KSB for the year ended December 31, 1995.
PER SHARE DATA
For purposes of computing net share data in the nine months ended
September 30, 1996, the net loss has been increased by a $5,431,871 deemed
dividend (see Note 2). Except as noted below, per share data is computed
using the weighted average number of common shares outstanding. Common
equivalent shares are excluded from the computation as their effect is
antidilutive, except that, pursuant to the Securities and Exchange Commission
("SEC") Staff Accounting Bulletins, common and common equivalent shares
(stock options, warrants and preferred stock) issued during the period
commencing 12 months prior to the initial filing of an initial public
offering at prices below the assumed public offering price have been included
in the calculation as if they were outstanding for all periods presented
(using the treasury stock method for stock options and warrants and the
if-converted method for preferred stock).
Pro forma loss per share has been computed as described above and also
gives effect, pursuant to SEC policy, to common equivalent shares from
convertible preferred stock issued more than 12 months from the proposed
initial public offering that automatically converted upon completion of the
Company's initial public offering (using the if-converted method) from the
original date of issuance.
2. STOCKHOLDERS' EQUITY
UNIT OFFERING
In January 1996, the Company issued 3,200,000 units at $5.00 per unit in
its initial public offering ("IPO"). Each unit consisted of one share of
common stock and one redeemable Class A warrant. The net proceeds (after
underwriter's discount and expenses, and other costs associated with the IPO)
totaled approximately $13,690,000. At the closing of the IPO, all of the
Company's outstanding preferred stock automatically converted into common
stock. Each share of Series A and Series B preferred stock was converted
into 1.4310444107 and 1.8993878755 shares of common stock, respectively.
In January 1996, the Company repaid $3,750,000 of principal and accrued
interest of $105,083 related to a bridge financing with a portion of the
proceeds of the IPO. The Company also repaid $1,500,000 of principal and
accrued interest of $87,898 related to notes issued by Ingenex in a private
placement.
In February 1996, the Company issued an additional 480,000 units, at
$5.00 per share, in accordance with the underwriter's over-allotment option.
The net proceeds of the underwriter's over-allotment option totaled
$2,160,000.
DEEMED DIVIDEND
The holders of Series A and Series B preferred stock received common
stock in January 1996 with an aggregate fair value (at the $5.00 per share
value of the IPO) which exceeded by $5,431,871 the cost of their initial
investment in Series A and Series B preferred stock. This amount has been
deemed to be the
7
<PAGE>
equivalent of a preferred stock dividend. The Company recorded the deemed
dividend at the time of the conversion by offsetting charges and credits to
additional paid in capital, without any effect on total stockholders' equity
(net capital deficiency). There was no effect on net loss from the mandatory
conversion. However, the amount did increase the loss applicable to common
stock, in the calculation of net loss per share in the 1996 period.
PRIVATE PLACEMENT
On July 31, 1996 and August 2, 1996, the Company completed a private
placement of 1,536,000 units, each unit consisting of one share of common
stock and one redeemable Class A warrant, for total gross proceeds of
$16,000,000. After deducting placement agent fees and other expenses of the
private placement, the net proceeds to the Company were approximately
$13,795,000.
3. SUBSEQUENT EVENTS
In October 1996, the Company and the underwriters determined to postpone
the initial public offering of securities of Ingenex due to poor market
conditions.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion contains certain forward-looking statements,
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the attainment of which involves various risks
and uncertainties. Forward-looking statements may be identified by the use
of forward-looking terminology such as "may," "will," "expect," "believe,"
"estimate," "anticipate," "continue" or similar terms, variations of those
terms or the negative of those terms. The Company's actual results may
differ materially from those described in these forward-looking statements
due to, among other factors, the results of ongoing research and development
activities and preclinical testing.
RESULTS OF OPERATIONS
The Company is a development stage company which currently conducts its
operations through five operating companies: Ansan Pharmaceuticals, Inc.,
Ingenex, Inc., Theracell, Inc., ProNeura, Inc. and Trilex Pharmaceuticals,
Inc. (collectively, the "Operating Companies"). Since its inception, the
Company's efforts have been principally devoted to acquiring licenses and
technologies, research and development, securing patent protection and
raising capital. The Company has had no significant revenue and has incurred
an accumulated deficit through September 30, 1996 of approximately
$40,132,000. These losses have resulted from expenditures for research and
development and general and administrative activities including legal and
professional activities, and are expected to continue for the foreseeable
future.
Total revenues for the three months ended September 30, 1996 ("1996
quarter") were approximately $83,000 and approximately $133,000 for the nine
months ended September 30, 1996 ("1996 nine months") from NIH grants. There
were approximately $90,000 in revenues for the three months ended September
30, 1995 ("1995 quarter") and approximately $100,000 for the nine months
ended September 30, 1995 ("1995 nine months").
Research and development expenses for the 1996 quarter were $1,674,000,
an increase of $736,000 or 79% from the 1995 quarter. The increase reflects
the addition of ProNeura, Inc. ("ProNeura") in the fourth quarter of 1995 and
Trilex Pharmaceuticals, Inc. ("Trilex") in the second quarter of 1996. For
the 1996 nine months, research and development expenses were $4,024,000 as
compared to $4,402,000 for the 1995 nine months, a decrease of 9%. The
decrease reflects the deconsolidation of Ansan Pharmaceuticals, Inc.
("Ansan") effective August 1995, the cessation of operations of Geneic
Sciences, Inc. ("Geneic") in September 1995 and the completion of certain
sponsored research for Ingenex, Inc. ("Ingenex') in 1995, offset by the
addition of ProNeura and Trilex.
General and administrative expenses for the 1996 quarter were
approximately $907,000 compared with $1,405,000 for the 1995 quarter, a
decrease of 35%. For the 1996 nine months, general and administrative
expenses were $2,883,000 as compared to $3,536,000 for the 1995 nine months,
a decrease of 18%. The decrease was due primarily to a planned resource
reallocation.
As a result of the foregoing expenses, the Company incurred an operating
loss of approximately $2,497,000 during the 1996 quarter compared with
$2,253,000 for the 1995 quarter. For the 1996 nine months, the operating
loss was approximately $6,773,000 compared with $7,838,000 for the 1995 nine
months. The Company expects to continue to incur substantial research and
development costs in the future as a result of funding (i) ongoing research
and development programs at the Operating Companies, (ii) manufacturing of
products for use in clinical trials, (iii) patent and regulatory related
expenses, and (iv) preclinical and clinical testing of the Operating
Companies' products. The Company also expects that general
9
<PAGE>
and administrative costs necessary to support such research and development
activities will increase. The Company will also seek to identify new
technologies and/or product candidates for possible in-licensing or
acquisition. Accordingly, the Company expects to incur increasing operating
losses for the foreseeable future.
Other income includes interest income which was approximately $179,000
during the 1996 quarter as compared to $12,000 during the 1995 quarter. For
the 1996 nine months, interest income was $519,000 compared with $46,000 for
the 1995 nine months. This was a result of a substantial increase in the
amount of cash and short-term investments subsequent to the IPO. Interest
expense increased to approximately $1,943,000 during the 1996 nine months
from $827,000 for the 1995 nine months. Approximately $950,000 of the
increase for the 1996 period reflects a non-recurring charge due to the
repayment in January 1996 of notes issued in a bridge financing ("Bridge
Notes"). This non-recurring charge represents the unamortized portion of the
$1,200,000 debt discount and $458,000 of debt issuance costs relating to the
Bridge Notes. Interest expense for the 1996 quarter was approximately
$125,000 as compared to $501,000 for the 1995 quarter. Approximately
$350,000 of the expense for the 1995 quarter represents amortization of the
debt discount relating to certain warrants issued by Ingenex in May 1995 and
amortization of deferred financing costs.
Other income for the 1995 and 1996 nine months also includes
approximately $234,000 and $700,000, respectively, of losses representing the
Company's share of Ansan's losses. The Company's share of Ansan's losses was
approximately $234,000 and $344,000 for the 1995 and 1996 quarter,
respectively.
LIQUIDITY AND SOURCES OF CAPITAL
In January 1996, the Company completed the IPO which resulted in net
proceeds to the Company of approximately $8,622,000 after payment of
underwriting discounts, a non-accountable expense allowance to the
underwriter and other expenses of the offering and the repayment of the
Bridge Notes and notes issued by Ingenex. In February 1996, the underwriter
of the Company's IPO exercised its overallotment option, resulting in net
proceeds to the Company, after discounts and commissions to the underwriter,
of $2,160,000.
Upon completion of the IPO, the Company's previously outstanding shares
of preferred stock were converted automatically into shares of common stock
at adjusted conversion prices per common share less than the public offering
price per common share. The deemed benefit to the preferred stockholders
approximated $5,400,000 which deemed benefit was recorded by offsetting
charges and credits to additional paid-in capital at the time of conversion.
There will be no effect on net income (loss) per share from the mandatory
conversion. However, the amount would reduce the income allocable to common
stock, or increase the loss allocable to common stock, in the calculation of
net income (loss) per share in the period of the conversion.
On July 31 and August 2, 1996, the Company completed a private placement
of its securities which resulted in net proceeds to the Company of
approximately $13,795,000 after payment of placement agent fees and other
expenses of the private placement.
The Company is party to a master capital equipment lease with respect to
which the Operating Companies have entered into a sublease and assignment
with the Company. At September 30, 1996, the amount outstanding under the
equipment lease was $807,211 with monthly payments of $30,459. The Company
has also guaranteed the obligations of Ingenex under an assignment and
sublicense agreement pursuant to which Ingenex received $2,000,000 in
financing in January 1995. Such agreement currently provides for monthly
10
<PAGE>
payments of $60,060 through January 1999. At September 30, 1996, the amount
outstanding under the agreement was $1,419,594.
The Operating Companies have entered into various agreements with
research institutions, universities, and other entities for the performance
of research and development activities and for the acquisition of licenses
related to those activities. The aggregate commitments the Company has under
these agreements, including minimum license payments, for the next 12 months
is approximately $763,000. Certain of the licenses provide for the payment
of royalties by the Company on future product sales, if any. In addition, in
order to maintain license and other rights during product development, the
Company must comply with various conditions including the payment of patent
related costs and obtaining additional equity investments by specified dates.
The Company expects to continue to incur substantial additional
operating losses from costs related to continuation and expansion of research
and development, clinical trials, and increased administrative and fund
raising activities over at least the next several years. While the Company
believes that the proceeds of the IPO and the private placement will be
sufficient to sustain its planned operations for approximately 18 months, the
Company will be required to seek additional financing to continue its
activities beyond that period. There can be no assurance that the Company
will be able to obtain additional funds, as and when needed.
11
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement of Computation of Net Loss Per Share
(b) Reports on Form 8-K
A current report on Form 8-K was filed with the Securities
and Exchange Commission on August 5, 1996.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TITAN PHARMACEUTICALS, INC.
November 14, 1996 By: /s/Louis R. Bucalo
-----------------------------------
Louis R. Bucalo, President
November 14, 1996 By: /s/Robert E. Farrell
-----------------------------------
Robert E. Farrell, Chief Financial
Officer
13
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EXHIBIT 11
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
1995 1996 1995 1996
----------- ----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss $(2,975,406) $(2,787,889) $(8,853,346) $ (8,888,174)
Deemed dividend upon conversion of preferred stock - - - (5,431,871)
----------- ----------- ----------- ------------
Net loss applicable to common stock (2,975,406) (2,787,889) (8,853,346) (14,320,045)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Weighted average shares of
common stock outstanding 1,408,519 11,792,738 1,408,559 10,463,149
Shares related to Staff Accounting
Bulletin topic 4D:
Stock options and warrants 897,836 - 897,836 -
----------- ----------- ----------- ------------
Shares used in computing net loss per share 2,306,355 11,792,738 2,306,395 10,463,149
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Net loss per share $ (1.29) $ (0.24) $ (3.84) $ (1.37)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
PRO FORMA
Net loss applicable to common stock $(2,975,406) $(8,853,346)
----------- -----------
----------- -----------
Calculation of shares outstanding for
computing pro forma net loss per share:
Shares used in computing net loss per share 2,306,355 2,306,395
Adjusted to reflect the effect of the
assumed conversion of preferred stock 5,520,849 5,217,773
----------- -----------
Shares used in computing pro forma net
loss per share 7,827,204 7,524,168
----------- -----------
----------- -----------
Pro forma net loss per share $ (0.38) $ (1.18)
----------- -----------
----------- -----------
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 479,594
<SECURITIES> 16,933,986
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,578,011
<PP&E> 1,529,028
<DEPRECIATION> 778,119
<TOTAL-ASSETS> 19,685,782
<CURRENT-LIABILITIES> 1,882,032
<BONDS> 0
0
0
<COMMON> 49,439,697
<OTHER-SE> (34,298,077)
<TOTAL-LIABILITY-AND-EQUITY> 19,685,782
<SALES> 0
<TOTAL-REVENUES> 133,061
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,906,551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,943,346
<INCOME-PRETAX> (8,888,174)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,888,174)
<EPS-PRIMARY> (1.37)
<EPS-DILUTED> (1.37)
</TABLE>
