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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, 1999
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
PALATIN TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 95-4078884
(State or other jurisdiction of (I.R.S. Employer Identification No.)
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, 1999, 6,815,157 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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS -- As of March 31, 1999
and June 30, 1998..............................................Page 3
CONSOLIDATED STATEMENTS OF OPERATIONS --
For the Three and Nine Months Ended March 31, 1999 and
March 31, 1998 and the Period from January 28, 1986
(Commencement of Operations) through March 31, 1999............Page 4
CONSOLIDATED STATEMENTS OF CASH FLOWS --
For the Nine Months Ended March 31, 1999 and March 31,
1998 and the Period From January 28, 1986 (Commencement
of Operations) through March 31, 1999..........................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 11
Item 2. Changes in Securities and Use of Proceeds...................Page 11
Item 3. Defaults Upon Senior Securities.............................Page 11
Item 4. Submission of Matters to a Vote of Security Holders.........Page 11
Item 5. Other Information...........................................Page 11
Item 6. Exhibits and Reports on Form 8-K............................Page 11
Signatures.............................................................. Page 12
2
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PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1999 JUNE 30, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $185,000 $3,887,567 $4,511,187
Prepaid expenses and other 165,010 277,765
----------------- -----------------
Total current assets 4,052,577 4,788,952
Fixed assets, net of accumulated depreciation and amortization
of $620,862 and $454,705, respectively 1,487,562 1,610,117
Intangibles, net of accumulated amortization of $124,694 and
$116,247, respectively 67,553 76,000
----------------- ------------------
$5,607,692 $6,475,069
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,443,152 $461,546
Accrued expenses 744,298 1,134,388
Current portion of long-term debt 182,077 939,588
----------------- ------------------
Total current liabilities 2,369,527 2,535,522
----------------- ------------------
Deferred license revenue - 550,000
----------------- -----------------
Commitments and contingencies
Stockholders' equity:
Preferred stock of $.01 par value - authorized 10,000,000 shares;
Series A Convertible; 58,098 and 88,329 shares issued and outstanding
as of March 31, 1999 and June 30, 1998, respectively; 581 883
Series B Convertible; 16,425 and 18,875 shares issued and outstanding
as of March 31, 1999 and June 30, 1998; respectively; 164 189
Common stock of $.01 par value - authorized 75,000,000 shares;
Issued and outstanding 6,618,976 and 4,099,623 shares as of
March 31, 1999 and June 30, 1998, respectively; 66,190 40,996
Additional paid-in capital 34,403,255 26,610,101
Warrants 573,537 573,537
Unamortized deferred compensation (359,855) (516,179)
Deficit accumulated during development stage (31,445,707) (23,319,980)
----------------- -----------------
Total stockholder's equity 3,238,165 3,389,547
----------------- -----------------
$5,607,692 $6,475,069
================= =================
The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
</TABLE>
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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
1999 1998 1999 1998 MARCH 31, 1999
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Grants and contracts $ 59,977 $ - $ 59,977 $ 33,967 $ 3,304,629
License fees and royalties - - 550,000 - 1,234,296
Product - - - - 318,917
------------ ------------ ------------ ------------ -------------
Total revenues 59,977 - 609,977 33,967 4,857,842
------------ ------------ ------------ ------------ -------------
OPERATING EXPENSES:
Research and development 2,472,449 1,814,572 6,815,312 4,678,421 21,733,419
General and administrative 578,773 646,109 1,968,237 2,125,718 12,511,837
Restructuring charge - - - - 284,000
Net intangibles write down - - - - 259,334
------------ ------------ ------------ ------------ -------------
Total operating expenses 3,051,222 2,460,681 8,783,549 6,804,139 34,788,590
------------ ------------ ------------ ------------ -------------
OTHER INCOME (EXPENSES):
Interest income 32,748 78,717 117,968 347,475 894,127
Interest expense (12,523) (53,937) (70,123) (178,116) (1,715,116)
Placement agent commissions
and fees on debt offering - - - - (168,970)
Merger costs - - - - (525,000)
------------ ------------ ------------ ------------ -------------
Total other (expenses) 20,225 24,780 47,845 169,359 (1,514,959)
------------ ------------ ------------ ------------ -------------
NET LOSS (2,971,020) (2,435,901) (8,125,727) (6,600,813) (31,445,707)
PREFERRED STOCK DIVIDEND - - - - (3,121,525)
------------ ------------ ------------ ------------ -------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $(2,971,020) $(2,435,901) $(8,125,727) $(6,600,813) $(34,567,232)
============ ============ ============ ============ =============
Basic and diluted net loss
per common share $ (0.53) $ (0.77) $ (1.64) $ (2.14) $ (32.32)
============ ============ ============ ============ =============
Weighted average number of
common shares outstanding
used in computing basic and
diluted net loss per common
share 5,646,652 3,181,222 4,959,922 3,085,511 1,069,688
============ ============ ============ ============ =============
The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
</TABLE>
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PALATIN TECHNOLOGIES, INC
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Inception
(January 28, 1986)
Nine Months Ended March 31, Through
1999 1998 March 31, 1999
------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,125,727) $(6,600,813) $(31,445,707)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 174,604 148,228 779,258
License fee - - 500,000
Interest expense on note payable - - 72,691
Accrued interest on long-term financing - - 796,038
Accrued interest on short-term financing - - 7,936
Intangibles and equipment write down - - 278,318
Equity and notes payable issued for expenses - - 623,688
Settlement with consultant - - (28,731)
Deferred revenue (550,000) - -
Amortization of deferred compensation 485,985 941,825 2,603,677
Changes in certain operating assets and liabilities:
Accounts receivable - 84,562 -
Prepaid expenses and other 112,755 (26,687) (165,011)
Intangibles - (11,725) (445,700)
Accounts payable 981,606 226,822 1,442,252
Accrued expenses (390,090) (665,478) 284,031
-------------- ------------- -------------
Net cash used for operating activities (7,310,867) (5,903,266) (24,697,260)
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (43,602) (887,871) (2,163,764)
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, related party - - 302,000
Payments on notes payable, related party - - (302,000)
Proceeds from senior bridge notes payable - - 1,850,000
Payments on senior bridge notes payable - - (1,850,000)
Proceeds from notes payable and long term debt - - 1,951,327
Payments on notes payable and long term debt (757,511) (718,009) (1,769,250)
Proceeds from paid-in capital from common
stock warrants - - 100,000
Proceeds from common stock, stock option
issuances, net 7,488,360 9,241 17,257,855
Proceeds from preferred stock, net - - 13,210,326
Purchase of treasury stock - - (1,667)
------------- ------------- -------------
Net cash provided by (used for) financing activities 6,730,849 (708,768) 30,748,591
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (623,620) (7,499,905) 3,887,567
CASH AND CASH EQUIVALENTS, beginning
of period 4,511,187 12,806,717 -
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period $3,887,567 $5,306,812 $3,887,567
============= ============= =============
The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
</TABLE>
5
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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 and Liquidity - The Company's accompanying financial statements
have been prepared in conformity with principles of accounting applicable to a
going concern. These principles contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business.
As shown in the accompanying financial statements, the Company incurred
substantial net losses of $8,125,727 for the nine months ended March 31, 1999
and has a deficit accumulated during development stage of $31,445,707 as of
March 31, 1999. 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. 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.
The Company expects that its existing capital resources, including funds
received in February, March and May 1999 (see Notes 5 and 7), will be adequate
to fund the Company's projected operations into the quarter ending September 30,
1999. The Company is actively seeking additional funds through equity or debt
financing, strategic alliances with corporate partners and others, and through
other sources. Based on the Company's historical ability to raise capital and
current market conditions, the Company believes financing alternatives are
available. There can be no assurance the Company's efforts will be successful.
If adequate funds are not available when needed, the Company may be forced to
cease operating, or cut back on one or more of the Company's research and
development programs.
(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 disclosure
normally included in the Company's audited annual financial statements has 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, 1999 and June 30, 1998,
and the results of operations for the three and nine month periods ended March
31, 1999 and 1998 and for the period from inception (January 28, 1996) to March
31, 1999 and cash flows for the nine months ended March 31, 1999 and 1998, and
for the period from inception (January 28, 1986) to March 31, 1999. The results
of operations for the interim periods 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 ending June 30, 1999.
The accompanying financial statements and the related notes should be read in
conjunction with the Company's audited financial statements for the fiscal years
ended June 30, 1998 and 1997 and the ten months ended June 30, 1996, filed with
the Company's Form 10-KSB for the fiscal year ended June 30, 1998.
(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.
6
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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.
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 - Grant and contract revenues are recognized as services are
provided. License and royalty revenues are recognized when earned. Product
revenues are recognized upon shipment.
Research and Development Costs - The costs of research and development
activities are expensed as incurred.
Net Loss per Common Share - Effective December 31, 1997 the Company adopted SFAS
No. 128, "Earnings per Share" ("SFAS 128"), which supersedes Accounting
Principles Board Opinion No. 15, "Earnings per Share." SFAS 128 requires dual
presentation of basic and diluted earnings per share ("EPS") for complex capital
structures on the face of the statement of operations. Basic EPS is computed by
dividing the income (loss) by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from the
exercise or conversion of securities into common stock, such as stock options.
For the nine months ended March 31, 1999 and 1998 and for the period from
inception (January 28, 1986) through March 31, 1999, there were no dilutive
effects of stock options or warrants as the Company incurred a net loss in each
period. Options and warrants to purchase 3,811,166 shares of common stock at
prices ranging from $0.20 to $360 per share were outstanding at March 31, 1999.
In accordance with the provisions of SFAS 128, EPS for prior periods have been
restated.
(4) COMMITMENTS AND CONTINGENCIES:
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.
(5) STOCKHOLDERS' EQUITY:
In February 1999, the Company sold in a private placement, 651,750 shares of its
$.01 par value common stock, at $4.00 per share and 651,750 detachable five-year
non-redeemable warrants. Each warrant is exercisable for one share of common
stock at an exercise price of $4.70. The Company received net proceeds of
approximately $2,350,000, which is being used for working capital and research
and development programs.
At various times in March 1999, the Company sold in a private placement, an
aggregate of 514,215 shares of its $.01 par value common stock, and 565,629
detachable five-year non-redeemable warrants. Each warrant is exercisable for
one share of common stock at an exercise price equal to the per share common
stock purchase price. The common stock purchase price, which was based on the
average closing bid price for the five business days immediately prior to the
respective closing dates, ranged from $4.48 per share to $5.06 per share. The
private placement was terminated on April 30, 1999. The Company received net
proceeds of approximately $2,044,000, which is being used for working capital
and research and development programs.
(6) LICENSING FEES AND ROYALTIES:
The Company recognized $550,000 in license fees as revenue during the quarter
ended December 31, 1998 related to its license option agreement with Nihon
Medi-Physics Ltd. ("Nihon"). This $550,000 which was previously reported as
deferred license revenue, was reclassified pursuant to a determination by both
Nihon and the Company to change the development emphasis; that shift led to the
signing of a new letter of intent. The letter provides for certain up-front
payments, together with certain milestone-based payments at later dates.
7
<PAGE>
(7) SUBSEQUENT EVENTS:
On May 13, 1999, the Company received $2,000,000 pursuant to a subordinated
non-negotiable promissory note ("Note"). Principal and interest, accrued at 9%
per annum, is due by December 31, 2000. The Note is secured by the assets of the
Company.
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".
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. When used in this Form 10-QSB, statements that are
not statements of historical fact may be deemed to be forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Form 10-QSB.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events
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, 1998. 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, 1999 Compared to Three and Nine
Month Periods Ended March 31, 1998.
Grants and contracts - During the three and nine month periods ended March 31,
1999, the Company recognized $59,977 as revenue under the Small Business
Technology Transfer program,("SBTT") of the Department of Health and Human
Services. Grant revenue under the Small Business Innovative Research
program,("SBIR") of the Department of Health and Human Services was $33,967 for
the nine month period ended March 31, 1998. In addition, the Company recognized
$550,000 in license fees as revenue during the nine months ended March 31, 1999
related to its termination of a license option agreement with Nihon. This
$550,000 was previously reported as deferred license revenue.
Research and development - Research and development expenses increased to
$2,472,449 for the three month period ended March 31, 1999 compared to
$1,814,572 for the three month period ended March 31, 1998, and increased to
$6,815,312 for the nine month period ended March 31, 1999 compared to $4,678,421
for the nine month period ended March 31, 1998. The Company substantially
increased research and development spending, primarily relating to development
of the LeuTech(TM) 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 PT-14(TM) peptide
therapeutic product and MIDAS(TM) technology. The Company
8
<PAGE>
expects research and development expenses to continue to increase in future
quarters as the Company expands research and manufacturing efforts on the
LeuTech product and expands efforts to develop PT-14 and MIDAS technology.
General and administrative - General and administrative expenses decreased to
$578,773 for the three month period ended March 31, 1999 compared to $646,109
for the three month period ended March 31, 1998 and expenses decreased to
$1,968,237 for the nine month period ended March 31, 1999 compared to $2,125,718
for the nine month period ended March 31, 1998. The decrease in general and
administrative expenses is mainly attributable to the decrease in amortization
expense of options issued to consultants and the value of options granted at
exercise prices below the then current market price of the Company's common
stock. In addition, the decrease resulted from the continued efforts of
management to control administrative expenses such as salaries and consulting
fees in addition to the aggressive pursuit of price negotiations and discounts.
Interest income - Interest income decreased to $32,748 and $117,968 respectively
for the three and nine month periods ended March 31, 1999 compared to $78,717
and $347,475 respectively for the three and nine month periods ended March 31,
1998. The decrease in interest income is primarily the result of the depletion
of funds available for investment purposes and used to fund the Company's
operations.
Interest expense - Interest expense decreased to $12,523 and $70,123
respectively for the three and nine month periods ended March 31, 1999 compared
to $53,937 and $178,116 respectively for the three and nine month periods ended
March 31, 1998. The decrease in interest expense is due to the repayment by the
Company of a portion of outstanding principal on long-term debt.
Net loss - Net loss increased to $2,971,020 and $8,125,727 respectively for the
three and nine month periods ended March 31, 1999 compared to $2,435,901 and
$6,600,813 respectively for the three and nine month periods ended March 31,
1998. The increases are attributable to the factors discussed above under
"Results of Operations".
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has incurred net operating losses and, as of
March 31, 1999, had an accumulated deficit during development stage of
$31,445,707. The Company has financed its net operating losses through March 31,
1999 by a series of debt and equity financings. At March 31, 1999, the Company
had cash and cash equivalents of $3,887,567.
For the nine months ended March 31, 1999, the net decrease in cash amounted to
$623,620. Cash used for operating activities was $7,310,867, net cash used for
investing activities was $43,602 and cash provided by financing activities was
$6,730,849.
The Company's monthly payments on long-term debt are $91,695, representing
payment of current interest and principal. The final monthly payment is
scheduled to be made in May 1999.
In February 1999, the Company was awarded two new SBIR grants by the Department
of Health and Human Services. The grants are for the development of the
Company's MIDAS technology and consist of a Phase 1 for approximately $100,000
and a Phase 2 for approximately $750,000. The Phase 1 grant will fund the
initial work on a treatment for obesity based on the Company's proprietary MIDAS
drug discovery technology. The Phase 2 grant will fund the completion of the
preclinical and initial clinical work of a MIDAS based imaging agent. The basis
for the Phase 2 grant approval was work done using the Company's proprietary
MIDAS drug development technology funded by a Phase 1 grant received in 1998.
In the nine months ended March 31, 1999, the Company sold in private placements,
an aggregate of 1,817,101 shares of its $.01 par value common stock, and
1,504,879 detachable five-year non-redeemable warrants. Each warrant is
exercisable for one share of common stock at prices ranging from $4.375 to
$5.06. The Company received net proceeds of approximately $7,500,000. The net
proceeds are being used for working capital and the Company's research and
development programs.
On May 13, 1999, the Company received $2,000,000 pursuant to a Note. Principal
and interest, accrued at 9% per annum, is due by December 31, 2000. The Note is
secured by the assets of the Company.
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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 fiscal year payments under the license
agreements are as follows: 1999 - $150,000, 2000 - $200,000, 2001 - $150,000,
2002 - $200,000 and 2003 - $200,000.
The Company expects to continue actively searching for certain products and
technologies to license or acquire in the future and corporate partnerships,
depending on the financial resources of the Company. If the Company is
successful 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 has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. 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. 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.
The Company expects that its existing capital resources, including funds
received in February, March and May 1999, will be adequate to fund the Company's
projected operations into the quarter ending September 30, 1999. The Company is
actively seeking additional funds through equity or debt financing, strategic
alliances with corporate partners and others, and through other sources. Based
on the Company's historical ability to raise capital and current market
conditions, the Company believes financing alternatives are available. There can
be no assurance the Company's efforts will be successful. If adequate funds are
not available when needed, the Company may be forced to cease operating, or cut
back on one or more of the Company's research and development programs.
YEAR 2000 COMPATIBILITY
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions and information or engage in similar normal
business activities.
The Company is working to resolve the potential impact of the year 2000 on the
ability of the Company's computerized information systems to accurately process
information that may be date-sensitive. The Company is in the process of
conducting a review of all hardware and software throughout the organization.
With this review the Company will be better able to measure the scope of effort
needed to ensure that all departmental operations will continue to function as
of January 1, 2000. With approximately 25 stand-alone personal computers the
Company believes that it does not have significant year 2000 issues related to
its computerized information systems. This review is expected to be completed
during 1999.
In addition, it is also possible that certain computer systems or software
products of the Company's suppliers and contractors may not be year 2000
compatible. Since the Company is not heavily dependent on any particular
software package or vendor in its operations, the Company's assessment of these
year 2000 issues related to its suppliers and contractors is minimal.
10
<PAGE>
The Company currently believes that costs of addressing these issues will not
have a material adverse impact on the Company's financial position and plans to
devote all resources required to resolve any significant year 2000 issues in a
timely manner.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In February 1999, the Company sold in a private placement 651,750 shares of its
$.01 par value common stock, at $4.00 per share and 651,750 detachable five-year
non-redeemable warrants. Each Warrant is exercisable for one share of common
stock at an exercise price of $4.70. The Company received net proceeds of
approximately $2,350,000, which is being used for working capital and research
and development programs. The private placement was made to accredited investors
pursuant to Rule 506 of Regulation D promulgated under the Securities Act of
1933, as amended. The investors represented to the Company that they were
purchasing the securities on their own account for investment and not with a
view toward resale or distribution to others. The certificates representing the
shares of common stock and warrants bear restrictive legends.
In connection with the private placement, the Company paid compensation to third
parties consisting of an aggregate of $294,130 in cash and agreed to issue
five-year warrants to purchase an aggregate of 194,600 shares of common stock at
$4.70. The warrants were sold pursuant to the exemption from registration
provided by section 4(2) of the Securities Act of 1933, as amended.
At various times in March 1999, the Company sold in a private placement, an
aggregate of 514,215 shares of its $.01 par value common stock and 565,629
detachable five-year non-redeemable warrants. Each Warrant is exercisable for
one share of common stock at an exercise price equal to the per share common
stock purchase price. The common stock purchase price, which was based on the
average closing bid price for the five business days immediately prior to the
respective closing dates, ranged from $4.48 per share to $5.06 per share. The
Company received net proceeds of approximately $2,044,000, which is being used
for working capital and research and development programs. The private
placement, which terminated on April 30, 1999, was made to accredited investors
pursuant to Rule 506 of Regulation D promulgated under the Securities Act of
1933, as amended. The investors represented to the Company that they were
purchasing the securities on their own account for investment and not with a
view toward resale or distribution to others. The certificates representing the
shares of common stock and warrants bear restrictive legends. The Company has
agreed to undertake to file a registration statement under the Securities Act,
registering the shares of common stock and the common stock underlying the
warrants.
In connection with the private placement, the Company paid compensation to third
parties consisting of an aggregate of $222,370 in cash and agreed to issue
five-year warrants to purchase an aggregate of 114,075 shares of common stock at
not less than the exercise prices of the warrants sold in the private placement.
The warrants were sold pursuant to the exemption from registration provided by
section 4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On March 17, 1999, the Company announced the completion of patient enrollment in
the Phase 3 trial of LeuTech, its kit-packaged radiolabeled infection imaging
system. The trials are specific for difficult-to-diagnose appendicitis, of which
about 250,000 cases occur each year in the United States. The Company will meet
with the FDA during the third week of May to review study results and discuss
the LeuTech Biologics
11
<PAGE>
License Application (BLA), which is planned for July.
On May 13, 1999, the Company received $2,000,000 pursuant to a Note. Principal
and interest, accrued at 9% per annum, is due by December 31, 2000. The Note is
secured by the assets of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the three months
ended March 31, 1999.
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 17, 1999 Edward J. Quilty
Chairman of the Board
and Chief Executive Officer
/s/ Stephen T. Wills
----------------------------
Date: May 17, 1999 Stephen T. Wills
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
12
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This schedule contains summary financial information extracted from financial
statements for the nine month period ended March 31, 1999 and is qualified in
its entirety be reference to such financial statements.
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<NAME> Palatin Technologies, Inc.
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