<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
/ / 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 000-21141
PHARMAPRINT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0640125
(State or jurisdiction of incorporation (I.R.S. employer identification No.)
or organization)
4 PARK PLAZA, SUITE 1900, IRVINE,
CALIFORNIA 92614
(Address of principal executive offices) (Zip code)
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 794-7778
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter 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 / /
Number of shares outstanding as of February 17, 1998: Common Stock: 13,303,684
Total number of pages: 15
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PHARMAPRINT INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
FACING SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I. FINANCIAL INFORMATION
Item 1. Balance Sheet as of December 31, 1997 (unaudited) . . . . . . . . . . . . . 3
Statements of Operations for the three months ended December 31, 1996
and 1997, for the nine months ended December 31, 1996 and 1997, and for
the period from inception (September 15, 1994) through December 31,
1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows for the nine months ended December 31, 1996
and 1997 and for the period from inception (September 15, 1994) through
December 31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements (unaudited) . . . . . . . . . . . . . . . . . 6
Item 2. Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains "forward-looking" statements. The Company is
including this statement for the express purpose of availing itself of
protections of the safe harbor provided by the Private Securities Litigation
Reform Act of 1995 with respect to all such forward-looking statements.
Examples of forward-looking statements include, but are not limited to: (a)
projections of revenues, capital expenditures, growth, prospects, dividends,
capital structure and other financial matters; (b) statements of plans and
objectives of the Company or its management or Board of Directors; (c)
statements of future economic performance; (d) statements of assumptions
underlying other statements and statements about the Company and its business
relating to the future; and (e) any statements using the words "believes",
"anticipate," "expect," "may," "project," "intend" or similar expressions.
The Company's ability to predict projected results or the effect of
certain events on the Company's operating results is inherently uncertain.
Therefore, the Company wishes to caution each reader of this report to
carefully consider the following factors and certain other factors discussed
herein and in the Company's Registration Statement on Form SB-2 (Registration
No. 333-41129) and Annual Report on Form 10-KSB for the year ended March 31,
1997, any or all of which have in the past and could in the future affect the
ability of the Company to achieve its anticipated results and could cause
actual results to differ materially than those discussed herein: ability to
attract partners and third parties to transact business with the Company,
government regulation and uncertainty of product approvals, ability to
commercialize and market products, results of research and development and
clinical and toxicology studies, technological advances by third parties and
competition, ability to obtain and enforce patents, future capital needs of
the Company, history of operating losses, dependence upon key personnel,
uncertainty regarding health care reimbursement and reform, limited
manufacturing and marketing experience, control by existing shareholders and
general economic and business conditions.
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<TABLE>
<CAPTION>
PHARMAPRINT INC.
(A development stage company)
BALANCE SHEET - DECEMBER 31, 1997
(Unaudited)
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 1,845,471
Other current assets................................. 422,643
Deferred offering costs.............................. 228,099
------------
Total current assets.............................. 2,496,213
EQUIPMENT, NET 340,994
OTHER ASSETS, net of accumulated depreciation and
amortization of $54,711................................ 262,193
------------
Total assets...................................... $ 3,099,400
------------
------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable..................................... $ 1,035,969
Accrued expenses..................................... 515,180
Deferred revenue..................................... 2,500,000
------------
Total current liabilities......................... 4,051,149
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DECICIT:
Preferred stock, $.001 par value - 1,000,000 shares
authorized, no shares issued or outstanding....... -
Common stock, $.001 par value - 24,000,000 shares
authorized, 11,053,684 shares issued and
outstanding....................................... 23,410,972
Additional paid in capital........................... 1,242,383
Deferred compensation................................ (84,433)
Deficit accumulated during the development stage..... (25,520,671)
------------
Total stockholders' deficit....................... (951,749)
------------
Total liabilities and stockholders' deficit....... $ 3,099,400
------------
------------
</TABLE>
The accompanying notes are an integral part of this balance sheet
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<PAGE>
PHARMAPRINT INC.
(A development stage company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period From
Inception
(September 15,
Three Months Three Months Nine Months Nine Months 1994)
Ended Ended Ended Ended through
December 31, December 31, December 31, December 31, December 31,
1996 1997 1996 1997 1997
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES......................... $ --- $ --- $ --- $ --- $ ---
EXPENSES:
Research and development...... 706,500 2,793,991 1,492,995 5,511,394 9,256,791
General and administrative.... 882,516 1,318,968 2,523,013 3,182,679 6,861,140
Stock compensation............ 439,062 142,013 5,024,062 3,765,553 9,402,740
----------- ----------- ----------- ------------ ------------
2,028,078 4,254,972 9,040,070 12,459,626 25,520,671
----------- ----------- ----------- ------------ ------------
LOSS FROM OPERATIONS............. (2,028,078) (4,254,972) (9,040,070) (12,459,626) (25,520,671)
----------- ----------- ----------- ------------ ------------
NET LOSS......................... $(2,028,078) $(4,254,972) $(9,040,070) $(12,459,626) $(25,520,671)
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
BASIC/DILUTED LOSS PER SHARE .... $ (0.18) $ (0.39) $ (0.93) $ (1.13) $ (2.99)
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
BASIC/DILUTED WEIGHTED AVERAGE
SHARES AND EQUIVALENT SHARES
OUTSTANDING...................... 11,000,000 11,034,713 9,682,123 11,012,767 8,548,218
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
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PHARMAPRINT INC.
(A development stage company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months Period from inception
Ended Ended (September 15, 1994)
December 31, December 31, through December 31,
1996 1997 1997
------------ ------------ ---------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(9,040,070) $(12,459,626) $(25,520,671)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ - 67,727 113,765
Amortization of discount on notes payable............ 31,250 - 31,250
Stock issued for licensing rights.................... - - 315,789
Stock and options issued for services................ 5,024,062 3,765,553 9,402,740
Increase in other current assets..................... (43,885) (85,050) (422,643)
Increase in other non-current assets................. (246,688) (141,371) (316,905)
Increase in accounts payable and accrued expenses.... 316,344 456,554 1,551,150
Increase in deferred revenue......................... - 2,500,000 2,500,000
----------- ------------ ------------
Net cash used in operating activities................ (3,958,987) (5,896,213) (12,345,525)
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment................................ (58,238) (205,289) (400,048)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............... 12,945,225 5,000 14,512,543
Decrease (increase) in deferred offering costs....... 94,203 (228,099) (228,099)
Proceeds from stock subscription receivables......... 100,000 - 306,600
Proceeds from note payable........................... - - 270,000
Repayment of notes payable........................... (250,000) - (270,000)
----------- ------------ ------------
Net cash provided by (used in) financing activities.. 12,889,428 (223,099) 14,591,044
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 8,872,203 (6,324,601) 1,845,471
CASH AND CASH EQUIVALENTS, beginning of period......... 889,740 8,170,072 -
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period............... $ 9,761,943 $ 1,845,471 $ 1,845,471
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
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<PAGE>
PHARMAPRINT INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited financial statements and related notes have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have not been presented. The
accompanying unaudited financial statements and related notes should be read
in conjunction with the financial statements and related notes included in
the PharmaPrint Inc. March 31, 1997, Annual Report on Form 10-KSB.
In the opinion of the Company, all material adjustments (consisting of
normal recurring items) considered necessary to present fairly the Company's
financial condition, results of operations, and changes in financial position
have been made. The results of operations for the three and nine month
periods ended December 31, 1997, are not necessarily indicative of the
results that may be expected for the year ending March 31, 1998.
2. ORGANIZATION, NARRATIVE DISCUSSION OF THE BUSINESS AND RISK FACTORS
ORGANIZATION
PharmaPrint Inc. (the "Company" or "PharmaPrint"), a development stage
company, was incorporated in the State of California in September 1994. In
April 1997, the Board of Directors approved a resolution to change the
Company's state of incorporation from California to Delaware, such resolution
was approved at the August 19, 1997 Annual Meeting of Shareholders. The
Company was formed in order to complete the development and commercialization
of the research initiated by Dr. Tasneem A. Khwaja, a founder and major
shareholder of the Company, over a 20 year period at the University of
Southern California ("USC") School of Medicine.
NARRATIVE DESCRIPTION OF THE BUSINESS
PharmaPrint uses its PharmaPrint-TM- Process technology to develop high
quality dietary supplement products and pharmaceuticals from botanical
sources. Unlike the traditional drug development process of identifying and
synthesizing single bioactive molecules from plant sources, the Company's
core technologies were developed based on empirical data that suggest that
the health benefits and safe usage of certain plant-derived therapeutics
might be the result of the natural combination of multiple molecules found in
the plant extract and that single molecules, in isolation, may not replicate
the natural plants' effectiveness. The PharmaPrint-TM- Process technology
enables the Company to identify and quantify the bioactives within plant
sources that are believed to provide therapeutic benefits and produce dietary
supplements and pharmaceuticals having consistent batch-to-batch quantities
of these bioactives.
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PHARMAPRINT, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
The Company is applying a dual commercialization strategy with its
PharmaPrint-TM- Process technology. The first application of the
PharmaPrint-TM- Process is for the development of high quality dietary
supplements. The second application of the PharmaPrint-TM- Process is the
development FDA-approvable pharmaceuticals from natural plant sources. The
Company's initial pharmaceutical product candidate, PPRT-321, a saw
palmetto-derived drug that is being developed for the treatment of symptoms
associated with benign prostatic hyperplasia ("BPH") is currently in Phase II
clinical trials. In addition, the Company has begun development of five
additional plant-derived medicines that have long histories of safe use and
indications of efficacy.
DEVELOPMENT STAGE COMPANY AND RISK FACTORS
PharmaPrint is considered to be a development stage company. Since
inception (September 15, 1994), the Company has engaged only in research and
development activities and intends to continue research, development and
testing of its proprietary technologies and dietary supplement and
pharmaceutical products. The Company has not received any royalties or
revenues from product sales.
The Company, as a development stage enterprise, has yet to generate
revenues and has no assurance of future revenues. There can be no assurance
that the Company will obtain FDA approval or be able to successfully market
its PharmaPrint-TM- Process. The Company is likely to incur substantial and
increasing operating losses as it continues its research and development
efforts and until such time, if ever, as product sales, royalties, and
license and development and other fees can generate sufficient revenue to
fund its continuing operations. The Company's future capital requirements
will depend on many factors, including but not limited to the Company's
ability to successfully market its PharmaPrint-TM- Process to third parties,
overall product development costs including the cost of toxicology testing
and clinical trials, the length of time required to obtain FDA approval, if
any, competing technological and market developments, changes in existing
collaborative relationships, sales and marketing arrangements and the costs
of establishing subcontracts for research and development. Additionally, no
assurance can be given that additional capital, if needed, will be available
when required or upon terms acceptable to the Company.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
-7-
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PHARMAPRINT, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of
Information About Capital Structure" effective December 31, 1997. Under
such statements, common equivalent shares are excluded from the computation
as their effect is antidilutive, except that, pursuant to the Securities and
Exchange Commission 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 the Company's 1996
initial public offering (the Initial Offering ) at prices below the public
offering price have been weighted in the basic loss per share calculation as
if they were outstanding for all periods presented prior to the date the
Initial Offering was completed (using the treasury stock method). As
required, SFAS No. 128 was adopted retroactively. The adoption did not have
a significant impact on the previously reported results of operations.
RECLASSIFICATIONS
Certain reclassifications were made to prior period amounts, enabling
them to conform to current period presentation.
4. OTHER CURRENT ASSETS
In December 1996, the Company amended a Personal Services Agreement with
Dimension Memory, Inc. ("Dimension") and Robert J. Burgess. The amended
agreement provided for the immediate payment by the Company of all amounts
due under the Personal Services Agreement in exchange for Dimension agreeing
to provide additional services to the Company. As a result of this
Agreement, in December 1996 the Company paid and deferred an amount to
Dimension of $312,000. Such agreement was deemed satisfied as of October 1,
1997 and as a result the Company recognized $190,000 of compensation expense
in the three and nine months ended December 31, 1997.
At December 31, 1997, the Company had capitalized and deferred certain
legal, accounting and other costs associated with its planned public offering
of common stock. In February 1998, due to the completion of the public
offering these costs were applied against the proceeds of such offering.
-8-
<PAGE>
PHARMAPRINT, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
5. EQUIPMENT
Equipment is stated at cost and consisted of the following at December 31,
1997:
<TABLE>
<S> <C>
Equipment......................... $ 166,528
Furniture......................... 233,520
Less accumulated depreciation..... (59,054)
--------
Equipment, net.................... $ 340,994
--------
--------
</TABLE>
Depreciation is provided using the straight-line method over the
estimated useful life for equipment of three years and furniture for five
years.
6. STOCKHOLDER'S EQUITY
WARRANTS
At March 31, 1997, the underwriter of the Company's Initial Offering had
a warrant outstanding for the purchase of 300,000 shares of common stock at a
purchase price of $8.25 per share. The warrant is exercisable through August
2001. In May 1997, the underwriter agreed that any shares of common stock
purchased pursuant to the warrant would not be sold for an additional year
(until August 20, 1998) and the Company agreed to reduce the purchase price
of the warrant to $5.50 per share.
COMMON STOCK
In February 1998, the Company completed a public offering of 2,250,000
shares of its common stock at $10.50 per share. The net proceeds from this
public offering are estimated to be approximately $21.5 million.
Additionally, the underwriter of the public offering has a 30-day option to
purchase up to an aggregate of 337,500 shares of the Company's common stock
at $10.50 per share, the net proceeds of such sale, if any, would be
approximately $3.3 million.
7. COMMITMENTS AND CONTINGENCIES
The Company leases its corporate headquarters under an operating lease
that expires in December 1998. Future minimum lease payments under this
lease, as of December 31, 1997, are approximately $59,000 payable through
March 31, 1998, and $178,000 payable for fiscal year 1999. Rent expense for
the three and nine months ended December 31, 1997 totaled approximately
$46,000 and $129,000, respectively.
-9-
<PAGE>
PHARMAPRINT, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
In November 1997, the Company entered into a commitment to purchase
$20,000,000 of raw materials over the next three years in order to supply
certain dietary supplements under the AHP Supply Agreement. See note 9.
8. STOCK COMPENSATION EXPENSE
Pursuant to an agreement with the underwriter of the Initial Offering,
in September 1997, the underwriter agreed to release an officer of the
Company from a lock-up agreement and thereby accelerated the vesting of
712,708 shares of common stock. Accordingly, the Company recorded $3,564,000
of compensation expense related to this transaction during the nine months
ended December 31, 1997.
9. AGREEMENTS
In October 1997, the Company entered into several agreements with
American Home Products Corporation ("AHP") whereby AHP will market the
Company's dietary supplements under AHP's Centrum-Registered Trademark- brand
name. Pursuant to the terms of the agreement, AHP paid the Company $2.5
million in an up-front licensing fee and is required to pay an additional fee
of $500,000 upon the achievement of each of (i) the issuance of a patent
containing claims covering the PharmaPrint-TM- Process and (ii) receipt and
approval by AHP of the initial AHP Products in sufficient time to permit AHP
to meet its proposed launch date. At the time of the first commercial sale by
AHP of AHP Products the Company will have completed all research and
development efforts relating to the $2.5 million licensing fee. The Company
will record the $2.5 million licensing fee as revenue in the periods such fee
was earned and at such time as it is no longer forfeitable. This will occur
at the time of the first commercial sale by AHP of AHP Products.
Additionally, AHP has agreed to spend at least the lesser of $20 million or
an amount equal to 50% of net sales of the AHP Products in advertising and
other marketing expenditures during each of the two years following product
launch. AHP has also agreed to purchase the dietary supplements under a
Supply Agreement at specified prices. In addition, if the Company succeeds
in securing a patent containing a claim or claims comprising the
PharmaPrint-TM- Process applied generally or on a product-by-product basis
covering the production of one or more of the AHP Products, AHP will pay
royalties to the Company on sales of those products of 4% in the first year
and 6% thereafter.
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<PAGE>
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
OVERVIEW
PharmaPrint uses its PharmaPrint-TM- Process technology to develop high
quality dietary supplement and pharmaceutical products from botanical
sources. The Company believes that its PharmaPrint-TM- Process technology
represents a new paradigm in the development of therapeutic products from
botanical sources. Unlike the traditional drug development process of
identifying, isolating and synthesizing single bioactive molecules from
plant and other sources, the Company's core technologies were developed based
on empirical data that suggest that the health benefits and safe usage of
certain plant-derived therapeutics might be the result of the natural plant's
effectiveness. The PharmaPrint-TM- Process technology enables the Company to
identify and quantify the bioactives within plant sources that are believed
to provide therapeutic or other health benefits and produce dietary
supplements and pharmaceuticals having consistent batch-to-batch quantities
of these bioactives.
Since its inception in 1994, the Company has engaged only in research
and development activities and intends to continue research, development and
testing of its proprietary technologies and dietary supplement and
pharmaceutical products. The Company has not received any royalties or
revenues from product sales.
In October 1997 the Company entered into the AHP Agreements whereby the
Company will apply the PharmaPrint-TM- Process to produce a line of high
quality dietary supplement products to be marketed in the U.S., Canada and
Mexico exclusively by AHP under the Centrum-Registered Trademark- brand name.
In exchange for the exclusive right to use the PharmaPrint-TM- Process in
the production of dietary supplements, AHP paid the Company $2.5 million as
an up-front licensing fee and is required to pay additional fees of $500,000
upon each of (i) the issuance of a patent containing claims covering the
PharmaPrint-TM- Process and (ii) receipt and acceptance of the initial AHP
Products in sufficient time to permit AHP to meet its proposed product launch
date. AHP has agreed, in the first two years following shipment by AHP of
commercial quantities of the first AHP Product, to spend annually at least
the lesser of $20 million or an amount equal to 50% of net sales of the AHP
Products in advertising and other marketing expenditures. AHP has also
agreed to purchase the AHP Products from the Company under a Supply Agreement
at specified prices. In addition, if the Company succeeds in securing a
patent containing a claim or claims comprising the PharmaPrint-TM- Process
applied generally or on a product-by-product basis, AHP will pay royalties to
the Company on net sales of such patented AHP products of 4% in the first
year and 6% thereafter. AHP plans to commence marketing seven of the
Company's dietary supplement products under development in 1998. AHP and the
Company will examine from time to time the opportunity to increase or modify
this product line.
The Company is also developing pharmaceuticals from natural plant
sources for the purpose of seeking FDA approval. Products derived from the
same botanical sources as those used in the Company's product development
programs historically have been widely used as medicines and dietary
supplements. Because of the well-documented history of safe usage of dietary
supplements derived from the same plant source as the Company's drug
candidates, the Company believes that, in certain cases, the FDA may allow
the Company, or its prospective
-11-
<PAGE>
partners, to commence clinical trials at the Phase II stage, while
concurrently performing toxicology studies. The Company has received such
FDA permission for its initial pharmaceutical candidate, PPRT-321. The
Company anticipates filing investigational new drug ("IND") applications for
at least two other drug candidates within the next 12 months. As a result of
these anticipated filings, and the clinical development program for PPRT-321,
the Company believes that its research and development expenses will
substantially increase over the next 12 months.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of
equity securities. From inception (September 15, 1994) through May 1996, the
Company had raised an aggregate net amount of approximately $2,100,000
through private sales of equity securities. In August 1996, the Company
completed an initial public offering of 3,000,000 shares of its common stock
at $5.00 per share, raising net proceeds of approximately $12,705,000. In
February 1998, the Company completed a public offering of 2,250,000 shares of
its common stock at $10.50 per share. The net proceeds from this public
offering are estimated to be approximately $21.5 million. Additionally, the
underwriter of the public offering has a 30-day option to purchase up to an
aggregate of 337,500 shares of the Company's common stock at $10.50 per
share, the net proceeds of such sale, if any, would be approximately $3.3
million.
During the nine months ended December 31, 1997 the Company increased its
staff of full-time employees and consultants from 12 to 22. The Company
expects to continue to significantly increase its staffing levels in the next
12 months.
In November 1997, the Company entered into a commitment with Hauser,
Inc. to purchase $20,000,000 of raw materials over the next three years in
order to supply certain dietary supplements under the AHP Supply Agreement.
The Company does not presently have any material commitments for capital
expenditures.
The Company has incurred net operating losses since its inception and
expects substantial net operating losses in the near term as it continues its
research and development efforts. The Company will incur additional net
operating losses until such time as the Company can generate sufficient
revenue from product sales, royalties, development, license and other fees to
fund continuing operations. The Company's ability to generate revenues are
dependent upon many factors, including, but not limited to its ability to
develop, introduce and market products, enter into collaborative arrangements
and obtain regulatory approvals.
While the Company has not had any operating profits, the Company
believes that its current capital resources and the proceeds of recently
completed public offering will enable it to maintain its current and planned
operations for at least 18 months. However, no assurance can be given that
there will be no change in the Company's operations that would consume
available resources more rapidly than anticipated. The Company will need
substantial funds to support its long term pharmaceutical product development
programs. The Company has no established bank financing arrangement and it
is unlikely that the Company will establish a bank financing arrangement in
the foreseeable future. The Company's future capital requirements will depend
-12-
<PAGE>
on many factors, including, without limitation, the progress of the Company's
research, drug discovery and development programs, the progress and results
of toxicology studies and clinical trials, the timing and costs involved in
obtaining regulatory approvals, the costs of filing, prosecuting, defending
and enforcing any patent claims and other intellectual property rights,
competing technological and market developments, changes in the Company's
existing research relationships, the ability of the Company to establish
collaborative arrangements, the initiation of commercialization activities,
the purchase of capital equipment and the availability of other financing.
To the extent that the Company's capital resources, including the net
proceeds from recently completed public offering, are insufficient to meet
its operating requirements, the Company will seek additional funds through
equity or debt financings, collaborative or other arrangements with corporate
partners, licensees and others. The Company has no current arrangements with
respect to, or sources of, such additional financing, and the Company does
not anticipate that existing stockholders will provide any portion of the
Company's future financing requirements. Any additional financing may have
the effect of substantially diluting the Company's book value per share and
the ownership percentage of the Company's then existing stockholders.
Additionally, no assurance can be given that additional financing will be
available when needed or upon terms acceptable to the Company. If adequate
funds are not available, the Company may be required to delay or terminate
expenditures for certain or all of its programs or to license to third
parties the rights to commercialize products or technologies that the Company
would otherwise seek to develop and commercialize itself, any of which could
have a materially adverse effect on the business, financial condition or
results of operations of the Company.
At March 31, 1997, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $5,100,000 and
$2,550,000 respectively; such carryforwards expire in various years through
2012.
-13-
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Other than as described below, the Company is not presently involved in
any legal proceedings.
The Company filed an action against Costas Loullis, Ph.D., the Company's
former Group Senior Vice President of Research and Development, in December
1997, in Superior Court in the County of Orange, State of California. The
Company's action alleged, among other things, conversion and misappropriation
of Company property, fraud, breach of fiduciary obligations and related
damages. The Company's actions stem from Costas Loullis' employment with the
Company from September 1996 through October 1997, and the termination of that
employment. Dr. Loullis filed a response and a cross-complaint to the
Company's action claiming unpaid wages, accrued benefits, stock option
rights, breach of contract, wrongful termination and ownership rights in the
Company's pending patent applications. The Company views its actions as
meritorious and has evaluated the Loullis claim as having limited merit, if
any, and intends to dispute any and all claims raised by Loullis vigorously.
The Company does not believe this matter represents a significant risk of
material liability to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHARMAPRINT INC.
Registrant
Date: February 17, 1998 /s/ James R. Wodach
-------------------
James R. Wodach
Senior Vice President and
Chief Financial Officer
-15-
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