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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 quarterly period ended March 31, 1998
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 0-22686
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PALATIN TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 95-4078884
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
214 CARNEGIE CENTER - SUITE 100
PRINCETON, NEW JERSEY 08540
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (609) 520-1911
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
As of May 14, 1998, 3,482,763 shares of the Issuer's common stock, par value
$.01 per share, were outstanding.
Transitional Small Business Disclosure Format: Yes [_] No [X]
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<PAGE>
PALATIN TECHNOLOGIES, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS -- As of March 31, 1998
and June 30, 1997.................................................Page 3
CONSOLIDATED STATEMENTS OF OPERATIONS --
For the Three and Nine Months Ended March 31, 1998
and March 31, 1997 and the Period from January 28, 1986
(Commencement of Operations) through March 31, 1998.............Page 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -- For the Nine Months
Ended March 31, 1998 and March 31, 1997 and the Period From
January 28, 1986 (Commencementof Operations) through
March 31, 1998..................................................Page 5
Notes to Consolidated Financial Statements........................Page 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................Page 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................Page 10
Item 2. Changes in Securities and Use of Proceeds.......................Page 10
Item 3. Defaults Upon Senior Securities.................................Page 10
Item 4. Submission of Matters to a Vote of Security Holders.............Page 10
Item 5. Other Information...............................................Page 11
Item 6. Exhibits and Reports on Form 8-K................................Page 11
Signatures...............................................................Page 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
(unaudited) (audited)
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $185,000 $ 5,306,812 $ 12,806,717
Accounts receivable ............................................ -- 84,562
Prepaid expenses and other ..................................... 201,682 174,996
------------- -------------
Total current assets ....................................... 5,508,494 13,066,275
Property and equipment, net ...................................... 1,671,202 922,096
Intangibles, net of accumulated amortization of $113,208 and
$103,743, respectively ......................................... 76,754 74,494
------------- -------------
$ 7,256,450 $ 14,062,865
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .......................... $ 1,350,522 $ 1,789,178
Current portion of long-term debt .............................. 989,053 869,549
Notes payable .................................................. -- 80,000
------------- -------------
Total current liabilities .................................. 2,339,575 2,738,727
Deferred license revenue ......................................... 550,000 550,000
Long-term debt, net of current portion ........................... 182,077 939,590
------------- -------------
3,071,652 4,228,317
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 and 2,000,000 shares
authorized and 125,428 and 137,780 shares issued as of
March 31, 1998 and June 30, 1997, respectively ............... 1,254 1,378
Common stock, $.01 par value, 75,000,000 and 25,000,000 shares
authorized and 3,314,509 and 3,020,373 issued as of
March 31, 1998 and June 30, 1997, respectively ............... 33,145 30,204
Additional paid-in capital ...................................... 24,563,441 23,740,864
Warrants ........................................................ 573,537 573,537
Deferred Compensation ........................................... (952,664) (1,078,333)
Deficit accumulated during development stage .................... (20,033,915) (13,433,102)
------------- -------------
4,184,798 9,834,548
------------- -------------
$ 7,256,450 $ 14,062,865
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
3
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Inception
(January 28, 1986)
Three Months Ended March 31, Nine Months Ended March 31, through
1998 1997 1998 1997 March 31, 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Grants and contracts ................. $ -- $ 267,862 $ 33,967 $ 267,862 $ 3,244,652
License fees and royalties ........... -- 350,000 -- 350,000 684,296
Product sales ........................ -- -- -- 22,184 318,917
------------- ------------- ------------- ------------- -------------
Total revenues ................ -- 617,862 33,967 640,046 4,247,865
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES:
Research and development ............ 1,814,572 1,050,400 4,678,421 2,300,669 12,484,812
General and administrative .......... 646,109 793,370 2,125,718 1,740,125 9,678,562
Restructuring charge ................ -- -- -- -- 284,000
Net intangibles write down .......... -- -- -- -- 259,334
------------- ------------- ------------- ------------- -------------
Total operating expenses ...... 2,460,681 1,843,770 6,804,139 4,040,794 22,706,708
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSES):
Interest income .................... 78,717 36,330 347,475 159,023 714,864
Interest expense ................... (53,937) (84,927) (178,116) (301,200) (1,595,966)
Placement agent commissions and
fees on debt offering ........ -- -- -- -- (168,970)
Merger costs ....................... -- 17,419 -- 17,419 (525,000)
------------- ------------ ------------- ------------- -------------
Total other income (expenses) 24,780 (31,178) 169,359 (124,758) (1,575,072)
------------- ------------ ------------- ------------- -------------
NET LOSS .................................... (2,435,901) (1,257,086) (6,600,813) (3,525,506) (20,033,915)
PREFERRED STOCK DIVIDEND .................... -- -- -- -- (2,888,935)
------------- ------------ ------------- ------------- -------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS .................... $ (2,435,901) $ (1,257,086) $ (6,600,813) $ (3,525,506) $(22,922,850)
============= ============= ============= ============= =============
Weighted average number of common
shares outstanding .................... 3,181,222 11,745,837 3,085,511 11,618,271 731,995
Net loss per common share ................... (0.77) (0.11) (2.14) (0.30) (31.32)
============= ============= ============= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
4
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Inception
Nine Months Ended March 31, (January 28, 1986)
through
1998 1997 March 31, 1998
------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $ (6,600,813) $ (3,525,506) $(20,033,915)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization ............................ 148,228 46,085 522,722
Interest expense on note payable ......................... -- 6,000 72,691
Accrued interest on long-term financing .................. -- 226,248 796,038
Accrued interest on short-term financing ................. -- (100,000) 7,936
Intangibles and equipment write down ..................... -- -- 278,318
Equity and notes payable issued for expenses ............. -- -- 546,188
Settlement with consultant ............................... -- -- (28,731)
Deferred license revenue ................................. -- 550,000 550,000
Amortization of deferred compensation .................... 941,825 116,078 1,336,208
Changes in certain operating assets and liabilities:
Accounts receivable .................................... 84,562 (263,295) --
Prepaid expenses and other ............................. (26,687) 7,293 (201,683)
Intangibles ............................................ (11,725) (839) (443,415)
Accounts payable and accrued expenses .................. (438,656) (420,085) 740,067
------------- ------------- -------------
Net cash used for operating activities ............. (5,903,266) (3,358,021) (15,857,576)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .......................... (887,871) (128,293) (1,502,805)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, related party ................... -- -- 302,000
Payments on notes payable, related party ..................... -- -- (309,936)
Proceeds from senior bridge notes payable .................... -- -- 1,850,000
Payments on senior bridge notes .............................. -- (1,000,000) (1,850,000)
Proceeds from notes payable and long term financing .......... -- -- 1,951,327
Payments on notes payable and
long-term financing ........................................ (718,009) (133,837) (1,138,245)
Proceeds from common stock, stock option
issuance's and warrants, net ............................... 9,241 9,999 10,226,683
Proceeds from preferred stock ................................ -- 2,682,089 11,637,031
Purchase of treasury stock ................................... -- -- (1,667)
------------- ------------- -------------
Net cash (used for) provided by financing activities (708,768) 1,558,251 22,667,193
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH ................................ (7,499,905) (1,928,063) 5,306,812
CASH AND CASH EQUIVALENTS, beginning of period ................. 12,806,717 6,791,300 --
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period ....................... $ 5,306,812 $ 4,863,237 $ 5,306,812
============= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements (Unaudited)
(1) ORGANIZATION ACTIVITIES:
Nature of Business -- Palatin Technologies, Inc. ("Palatin" or the "Company") is
a development stage enterprise dedicated to developing and commercializing
products and technologies for diagnostic imaging and ethical drug development
utilizing peptide, monoclonal antibody and radiopharmaceutical technologies.
Business Risk -- Since its inception, the Company has devoted substantially all
of its efforts and resources to the research and development of its
technologies. The Company has experienced operating losses in each year since
its inception and, as of March 31, 1998, the Company had a deficit accumulated
during the development stage of $20,033,915. The Company expects to incur
additional operating losses over the next several years and expects cumulative
losses to increase as research and development and clinical testing efforts
continue and expand. The ultimate completion of the Company's development
projects is contingent upon a number of factors, including the successful
completion of technology and product development, obtaining required regulatory
approvals and additional financing and, ultimately, achieving profitable
operations.
Charter Amendment -- On September 5, 1997, an amendment to the Restated
Certificate of Incorporation of the Company (the "Amendment") was filed, which
(i) increased the total number of authorized shares of common stock (the "Common
Stock") from 25,000,000 to 75,000,000, (ii) increased the total number of
authorized shares of preferred stock from 2,000,000 to 10,000,000 and (iii)
effected a 1-for-4 reverse split of Common Stock. The consolidated financial
statements have been retroactively restated to reflect the Amendment.
(2) BASIS OF PRESENTATION:
The accompanying financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). Certain information and footnote disclosures
normally included in the Company's audited annual financial statements have been
condensed or omitted in the Company's interim financial statements. In the
opinion of the Company, these financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the Company as of March 31, 1998 and June 30, 1997,
and the results of operations for the three and nine month periods ended March
31, 1998 and 1997 and cash flows for the nine months ended March 31, 1998 and
1997, and for the period from inception (January 28, 1986) to March 31, 1998.
The results of operations for the interim period may not necessarily be
indicative of the results of operations expected for the full year, except that
the Company expects to incur a significant loss for the fiscal year ended June
30, 1998.
The accompanying financial statements and the related notes should be read in
conjunction with the Company's audited financial statements for the fiscal year
ended June 30, 1997, the ten months ended June 30, 1996 and the fiscal year
ended August 31, 1995 filed with the Company's report on Form 10-KSB for the
fiscal year ended June 30, 1997.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation -- The consolidated financial statements include the
accounts of Palatin and its wholly owned subsidiary, RhoMed Incorporated
("RhoMed"). The remaining subsidiary of Palatin, Interfilm Technologies, Inc.,
is inactive. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates -- The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
6
<PAGE>
Cash and Cash Equivalents -- For purposes of presenting cash flows, the Company
considers cash and cash equivalents as amounts on hand, on deposit in financial
institutions and highly liquid investments purchased with an original maturity
of three months or less.
Revenue Recognition -- The Company recognizes revenue on grants and contracts at
the time such related expenses are incurred in compliance with contractual
terms, license fees and royalties ratably over the term of the license or
royalty agreement, and sales upon shipment.
Research and Development Costs -- The costs of research and development
activities are expensed as incurred.
Net Loss per Common Share -- Net loss per common share is calculated based upon
the weighted average number of shares of Common Stock, on an as if converted
basis, outstanding during each period. All options and warrants were excluded in
the calculation of weighted average shares outstanding since their inclusion
would have had, in the aggregate, an anti-dilutive effect.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings per Share." The statement is
effective for financial statements for periods ending after December 15, 1997,
and changes the method in which earnings per share are determined. Adoption of
this statement by the Company will not have a material impact on earnings per
share.
(4) PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at:
March 31, June 30,
1998 1997
------------- --------------
Office equipment $ 349,905 $ 263,827
Laboratory equipment 374,006 145,310
Leasehold improvements 1,323,105 750,008
------------- -------------
2,047,016 1,159,145
Less: Accumulated depreciation 375,814 237,049
------------- -------------
$ 1,671,202 $ 922,096
============= =============
(5) LONG - TERM DEBT:
The Company has a long-term financing agreement with Aberlyn Holding Co., Inc.,
and its affiliates ("Aberlyn"). The Company is obligated to make monthly
principal and interest payments of $91,695 from June 1, 1997 through May 1,
1999. At March 31, 1998, the total principal on the long-term debt was
$1,171,130.
(6) COMMITMENTS AND CONTINGENCIES:
Consulting Agreements -- The Company is obligated under four consulting
agreements to make payments totaling $181,300 in fiscal 1998.
Legal Proceedings -- The Company is subject to various claims and litigation in
the ordinary course of its business. Management believes that the outcome of
such legal proceedings will not have a material adverse effect on the Company's
financial position or future results of operation.
(7) STOCKHOLDERS' EQUITY (DEFICIT):
On March 24, 1998, the stockholders of the Company approved a proposal to grant
non-plan options to acquire 74,196 shares of Common Stock, exercisable at $1.00
per share, to each of Carl Spana, Ph.D., and Charles Putnam, executive officers
of the Company, to replace options to acquire the same number of shares of
Common Stock exercisable at $5.42 per share. The grant of these options resulted
in recognition of compensation expense, as to that portion of the options
exercisable at March 31, 1998, of $408,078.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto filed as part of this Form
10-QSB. Unless otherwise indicated herein, all references to the Company include
Palatin and its wholly owned subsidiary, RhoMed.
Certain statements in this Form 10-QSB contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance, or achievements express or implied by such forward looking
statements.
The Company's business is subject to significant risks, including the
uncertainties associated with product development of pharmaceutical products,
problems or delays with clinical trials, failure to receive or delays in
receiving regulatory approval, lack of enforceability of patents and proprietary
rights, manufacturing capacity, industry trends, competition, material costs and
availability, changes in business strategy or development plans, quality of
management, availability of capital, availability of qualified personnel, the
effect of government regulation, the possible effect of Year 2000 issues and
other risks detailed in the Company's Commission filings, including the
Company's Form 10-KSB for the year ended June 30, 1997. The Company expects to
incur substantial operating losses over the next several years due to continuing
expenses associated with its research and development programs, including
pre-clinical testing, clinical trials and manufacturing. Operating losses may
also fluctuate from quarter to quarter as a result of differences in the timing
of when expenses are incurred.
RESULTS OF OPERATIONS
Three and Nine Month Periods Ended March 31, 1998 Compared to Three and Nine
Month Periods Ended March 31, 1997.
Grants and contracts - During the nine month period ended March 31, 1998, the
Company completed its four Phase I grants under the Small Business Innovative
Research program with the National Institutes of Health of the Department of
Health and Human Services. Grant revenue from these grants was $33,967 and
$267,862 in the nine month periods ended March 31, 1998 and 1997, compared to no
grant revenues in the three month period ended March 31, 1998 and $267,862 in
grant revenues in the three month period ended March 31, 1997.
Sales - There was no revenue from the sale of products in the three and nine
month periods ended March 31, 1998, and the three month period ended March 31,
1997, compared to $22,184 in the nine month period ended March 31, 1997. During
the fiscal year ended June 30, 1997 the Company discontinued the manufacture and
sale of RhoChek, the sole product sold by the Company, due to insufficient
sales.
Research and development expenses increased to $1,814,572 for the three month
period ended March 31, 1998 compared to $1,050,400 for the three month period
ended March 31, 1997, and increased to $4,678,421 for the nine month period
ended March 31, 1998 compared to $2,300,669 for the nine month period ended
March 31, 1997. The Company substantially increased research and development
spending, primarily relating to development of the LeuTech product for
diagnostic imaging of infections, including increased expenses for manufacturing
scale-up, consulting and clinical trials, and also relating to research expenses
on the Company's MIDAS metallopeptide technology. The Company expects research
and development expenses to continue to increase in future quarters as the
Company expands manufacturing efforts and clinical trials on the LeuTech
product, significantly expands its efforts to develop the MIDAS technology and
initiates development on the PT-14 peptide therapeutic product. The increase is
also attributable to the amortization of deferred compensation, and to the value
of options granted at exercise prices below the then current market price of the
Company's Common Stock, totaling $408,078 for the three and nine month period
ended March 31, 1998.
General and administrative expenses decreased to $646,109 for the three month
period ended March 31, 1998 compared to $793,370 for the three month period
ended March 31, 1997 and expenses increased to $2,125,718 for the nine month
period ended March 31, 1998 compared to $1,740,125 for the nine month period
8
<PAGE>
ended March 31, 1997. The increase in general and administrative expenses were
mainly attributable to the amortization of deferred compensation, totaling
$164,000 for the three month period ended March 31, 1998 and $493,000 for the
nine month period ended March 31, 1998, and the value of options granted at
exercise prices below the then current market price of the Company's Common
Stock. General and administrative expenses are expected to remain consistent
with the current levels through the remainder of fiscal year 1998.
Interest income increased to $78,717 and $347,475 for the three and nine month
periods ended March 31, 1998 compared to $36,330 and $159,023 for the three and
nine month periods ended March 31, 1997. The increase in interest income is
primarily the result of interest on net proceeds from the Company's offering of
Series A Convertible Preferred Stock.
Interest expense decreased to $53,937 and $178,116 for the three and nine month
periods ended March 31, 1998 compared to $84,927 and $301,200 for the three and
nine month periods ended March 31, 1997. The decrease is due to the repayment by
the Company of outstanding principal.
Net loss increased to $2,435,901 and $6,600,813 for the three and nine month
periods ended March 31, 1998 compared to $1,257,086 and $3,525,506 for the three
and nine month periods ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has incurred net operating losses and, as of
March 31, 1998, had an accumulated deficit of $20,033,915. The Company has
financed its net operating losses through March 31, 1998 by a series of debt and
equity financings. At March 31, 1998, the Company had cash and cash equivalents
of $5,306,812.
For the nine months ended March 31, 1998, the net decrease in cash amounted to
$7,499,905. Cash used for operating activities was $5,903,266, net cash used for
investing activities was $887,871 and cash used for financing activities was
$708,768.
Pursuant to a license option agreement with Nihon Medi-Physics Ltd. ("Nihon"),
Nihon can maintain its option to license certain products based on the Company's
MIDAS technology provided Nihon makes certain milestone payments based on
progress in product development. Nihon may exercise its right to negotiate a
license at any time upon notice and payment of additional monies to the Company.
In the event that the parties cannot agree on terms of a license agreement, then
the Company may be required to repay $550,000 to Nihon. There can be no
assurance that the Company and Nihon will ever enter into a definitive license
agreement, that additional payments provided for in the license option agreement
will be made, or that a strategic alliance between the Company and Nihon will
result in the development or commercialization of any product.
The Company's monthly payments on long-term debt provided by Aberlyn are
$91,695, representing payment of current interest and principal. The final
monthly payment is scheduled to be made in May 1999.
In March 1997, the Company entered into a ten-year lease on research and
development facilities in Edison, New Jersey which commenced August 1, 1997.
Minimum future lease payments escalate from approximately $116,000 per year to
$200,000 per year after the fifth year of the lease term. The lease will expire
in fiscal year 2007.
Effective August 1, 1997, the Company entered into a five-year lease on
administrative offices in Princeton, New Jersey. Minimum future lease payments
are approximately $97,000 per year.
The Company has entered into three license agreements, which require minimum
yearly payments. Future minimum payments under the license agreements are as
follows: 1998 - $150,000, 1999 - $150,000, 2000 - $200,000, 2001 - $150,000 and
2002 - $200,000.
The Company believes that it has sufficient cash and cash equivalents to fund
the Company's projected debt obligations and operations through September 30,
1998.
The Company expects to continue actively searching for certain products and
technologies to license or acquire in the future. If the Company is successful
9
<PAGE>
in identifying a product or technology for acquisition, substantial funds may be
required for such acquisition and subsequent development or commercialization.
There can be no assurance that any acquisition will be consummated in the
future.
The Company anticipates incurring additional losses over at least the next
several years, and such losses are expected to increase as the Company expands
its research and development activities relating to LeuTech, PT-14 and its MIDAS
technology. To achieve profitability, the Company, alone or with others, must
successfully develop and commercialize its technologies and proposed products,
conduct pre-clinical studies and clinical trials, obtain required regulatory
approvals and successfully manufacture and market such technologies and proposed
products. The time required to reach profitability is highly uncertain, and
there can be no assurance that the Company will be able to achieve profitability
on a sustained basis, if at all.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On January 7, 1998, the Company sold 10,368 shares of Common Stock to exercising
warrant holders for an aggregate consideration of $2,250. None of the shares of
Common Stock were publicly offered or sold through underwriters, and no
underwriting discounts or commissions were paid. The Company claimed exemption
from registration pursuant to Section 4(2) of the Securities Act because each
transaction involved the sale of restricted stock to the exercising holder of a
restricted warrant, not involving any public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the annual meeting of stockholders held on March 24, 1998 (the "Annual
Meeting"), the following matters were voted on by the stockholders: (i) the
election of five directors, (ii) approval of the grant of certain replacement
stock options to Carl Spana, Ph.D., and Charles Putnam, executive officers of
the Company, and (iii) ratification of the appointment of Arthur Andersen LLP as
the Company's independent public accountants for the fiscal year ending June 30,
1998. The five directors elected, who constitute the Board of Directors of the
Company, are Edward J. Quilty, Carl Spana, Michael S. Weiss, James T. O'Brien
and John K.A. Prendergast. The following tables set forth the total votes, with
Common Stock and Series A Convertible Preferred Stock voting as a single class:
(i) Election of Directors
For Withhold Authority
--------- ------------------
Edward J. Quilty 3,059,422 13,405
Carl Spana 3,059,924 12,903
Michael S. Weiss 3,059,924 12,903
James T. O'Brien 3,059,924 12,903
John K.A. Prendergast 3,059,924 12,903
Affirmative Negative Broker
Votes Votes Abstentions Non-Votes
----------- -------- ----------- ---------
(ii) Grant of 1,570,760 125,174 24,076 -
replacement stock options
(iii) Appointment of 3,056,814 7,312 8,701 -
Arthur Andersen LLP
10
<PAGE>
ITEM 5. OTHER INFORMATION.
Series A Convertible Preferred Stock Conversion Price and Warrant Exercise Price
Adjustments. As a result of approval at the Annual Meeting of the grant of
certain replacement stock options, the conversion price for conversion of shares
of Series A Convertible Preferred Stock into Common Stock (the "Series A
Conversion Price") was adjusted from $4.96 to $4.88. An aggregate of
approximately 41,284 additional shares of Common Stock became issuable. As of
April 28, 1998, the Company completed a private placement of 18,875 shares of
Series B Convertible Preferred Stock of the Company for net proceeds of
approximately $1,600,000. The Series A Conversion Price decreased from $4.88 to
$4.85 as a result of this private placement. An aggregate of approximately
15,552 additional shares of Common Stock became issuable. The Series A
Conversion Price is defined in the Certificate of Designations for the Series A
Convertible Preferred Stock, filed as Exhibit 3.6 to the Company's quarterly
report on Form 10-QSB/A dated March 31, 1997. As a further result of the grant
of the replacement stock options and the private placement of Series B
Convertible Preferred Stock, the exercise prices of the following warrants were
also adjusted:
<TABLE>
<CAPTION>
Adjusted Price Per Net Increase
Adjusted Price Per Share Resulting from in Shares
Initial Exercise Share Resulting from Series B Private of Common Stock
Warrant Price Per Share Option Grant Placement Issuable
- -------------------------- ---------------- -------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Class B Offering $2.71 $2.64 NO CHANGE 1,040
Class B Placement Agent $6.51 $6.27 $6.20 98
Common Stock Offering $6.51 $6.27 $6.20 8,890
Placement Agent
Financial Advisory Services $9.00 $8.66 $8.37 470
Financial Advisory Services $8.75 $8.42 $8.15 460
</TABLE>
Appointment of Director. On April 30, 1998, Robert G. Moussa was appointed to
the Board of Directors of the Company.
Series A Convertible Preferred Stock Conversion Price Reset Event. The
Certificate of Designations for the Series A Convertible Preferred Stock
provided for a Conversion Price Reset Event (as such term is defined in the
Certificate of Designations) in the event that the average closing bid price of
the Common Stock for the thirty (30) consecutive trading days immediately
preceding May 9, 1998 was less than 130% of the then applicable Series A
Conversion Price. The 30 consecutive trading day average for the Common Stock
was higher than 130% of the Series A Conversion Price, and accordingly no
adjustment in the Series A Conversion Price was required on account of the
Conversion Price Reset Event.
PT-14 Product. As of March 31, 1998, the Company entered into a license
agreement with Competitive Technologies, Inc. relating to PT-14, pursuant to
which the Company was granted an exclusive worldwide license to a patented
peptide hormone for the diagnosis and treatment of sexual dysfunction. There can
be no assurance that the Company's efforts to develop PT-14 will be successful,
that PT-14 will exhibit the expected biological results in humans, that PT-14
will prove to be safe and efficacious in clinical trials, that the Company will
obtain the required regulatory approvals to market PT-14, that the Company or
its collaborators will be successful in obtaining market acceptance of PT-14 or
that PT-14 will ever be commercialized.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
10.29 Convertible Preferred Stock Purchase Agreement dated as of
April 28, 1998, between the Company and the purchasers named
therein, relating to Series B Convertible Preferred Stock.
(Incorporated by reference to Exhibit 99.1 of the Company's
Form 8-K dated April 28, 1998, filed with the Commission on
May 8, 1998.)
10.30 Registration Rights Agreement dated as of April 28, 1998,
between the Company and the purchasers named therein, relating
to Common Stock issuable on conversion of Series B Convertible
11
<PAGE>
Preferred Stock. (Incorporated by reference to Exhibit 99.2 of
the Company's Form 8-K dated April 28, 1998, filed with the
Commission on May 8, 1998.)
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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.
PALATIN TECHNOLOGIES, INC.
(Registrant)
/s/ Edward J. Quilty
----------------------------
Date: May 14, 1998 Edward J. Quilty
Chairman of the Board
and Chief Executive Officer
/s/ Edward J. Quilty
----------------------------
Date: May 14, 1998 Stephen T. Wills
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements for the three and nine month period ended March 31, 1998 and is
qualified in its entirety be reference to such financial statements.
</LEGEND>
<CIK> 0000911216
<NAME> Palatin Technologies, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> MAR-31-1998
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0
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</TABLE>