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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 September 30, 1998
/ / 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
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PHARMAPRINT INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 33-0640125
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
4 PARK PLAZA, SUITE 1900, 92614
IRVINE, CALIFORNIA (Zip code)
(Address of principal executive
offices)
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(949) 794-7778
Registrants telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 November 13, 1998: Common Stock: 13,651,589
Total number of pages: _______
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PHARMAPRINT INC. AND SUBSIDIARIES
INDEX
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PAGE
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FACING SHEET............................................................................................... 1
INDEX...................................................................................................... 2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheet as of September 30, 1998 (unaudited)..................... 3
Condensed Consolidated Statements of Operations for the three months ended September 30, 1997
and 1998, and for the six months ended September 30, 1997 and 1998 (unaudited)................. 4
Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 1997 and
1998 (unaudited)............................................................................... 5
Notes to Condensed Consolidated Financial Statements (unaudited)............................... 6
Item 2. Management's Plan of Operation................................................................ 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................................. 13
SIGNATURES................................................................................................. 14
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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 "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, or in the
Company's prospectus dated February 11, 1998 and in the Company's Annual Report
on Form 10-KSB for the year ended March 31, 1998, 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: cost and availability of botanical extracts, cost and
availability of manufacturing service contractors, ability to obtain and enforce
patents, dependence on third parties, uncertainties related to the
PharmaPrint-TM- Process, 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, 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 stockholders and general economic and business conditions.
PHARMAPRINT-TM- IS A TRADEMARK OF THE COMPANY AND CENTRUM-REGISTERED TRADEMARK-
IS A REGISTERED TRADEMARK OF AMERICAN HOME PRODUCTS CORPORATION ("AHP").
2
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PHARMAPRINT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET--SEPTEMBER 30, 1998
(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................................... $ 5,785,257
Accounts receivable............................................................................. 4,128,316
Inventories..................................................................................... 5,374,031
Other current assets............................................................................ 842,224
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Total current assets.......................................................................... 16,129,828
FIXED ASSETS, NET................................................................................. 889,431
OTHER ASSETS, net of amortization of $69,509.................................................... 454,067
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Total assets.................................................................................. $ 17,473,326
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................................ $ 8,465,380
Accrued expenses................................................................................ 879,832
Deferred revenue................................................................................ 2,500,000
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Total current liabilities..................................................................... 11,845,212
--------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
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, 13,651,589 shares issued and
outstanding................................................................................... 13,652
Additional paid-in-capital...................................................................... 49,876,358
Deferred compensation........................................................................... (615,331)
Accumulated deficit............................................................................. (43,646,565)
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Total stockholders' equity...................................................................... 5,628,114
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Total liabilities and stockholders' equity...................................................... $ 17,473,326
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The accompanying notes are an integral part of this condensed consolidated
balance sheet.
3
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PHARMAPRINT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
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MANUFACTURING REVENUES.............................. $ -- $ 4,036,215 $ -- $ 4,262,171
COST OF SALES....................................... -- 3,278,892 -- 3,453,158
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GROSS PROFIT........................................ -- 757,323 -- 809,013
OPERATING EXPENSES:
Research and development.......................... 1,687,584 7,140,004 2,717,402 10,442,683
General and administrative........................ 1,089,726 1,459,925 1,863,712 2,607,515
Stock compensation................................ 3,593,540 198,933 3,623,540 228,933
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Total operating expenses.......................... 6,370,850 8,798,862 8,204,654 13,279,131
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NET LOSS............................................ $(6,370,850) $(8,041,539) $(8,204,654) $ (12,470,118)
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BASIC/DILUTED LOSS PER COMMON SHARE................. $ (.58) $ (.59) $ (.75) $ (.91)
------------- ------------- ------------- --------------
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BASIC/DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING....................................... 11,003,393 13,651,589 11,001,706 13,648,064
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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PHARMAPRINT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................. $ (8,204,654) $ (12,470,118)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................................... 38,914 92,532
Stock compensation expense.............................................. 3,623,540 228,933
Changes in assets and liabilities:
Increase in accounts receivable......................................... -- (4,128,316)
Increase in inventories................................................. -- (3,190,749)
Decrease in other current assets........................................ 7,734 57,500
Increase in other assets................................................ (92,287) (38,717)
(Decrease) increase in accounts payable and accrued expenses............ (202,842) 4,265,437
------------------ ------------------
Net cash used in operating activities................................... (4,829,595) (15,183,498)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets................................................ (64,289) (599,150)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.............................. 5,000 9,989
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NET DECREASE IN CASH AND CASH EQUIVALENTS................................. (4,888,884) (15,772,659)
CASH AND CASH EQUIVALENTS, beginning of period............................ 8,170,072 21,557,916
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period.................................. $ 3,281,188 $ 5,785,257
------------------ ------------------
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</TABLE>
The accopanying notes are an integral part of these condensed consolidated
financial statements.
5
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PHARMAPRINT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED 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. Annual
Report on Form 10-KSB for the year ended March 31, 1998.
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 six month period ended
September 30, 1998, are not necessarily indicative of the results that may be
expected for the year ending March 31, 1999.
2. ORGANIZATION, NARRATIVE DISCUSSION OF THE BUSINESS AND RISK FACTORS
ORGANIZATION
PharmaPrint Inc. (the "Company" or "PharmaPrint") was originally
incorporated in the State of California in September 1994. In October 1997, the
Company's state of incorporation was changed from California to Delaware. The
Company was formed in order to complete the development of and commercialize the
research initiated by Dr. Tasneem A. Khwaja, a founder and significant
stockholder 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 pharmaceutical candidates from botanical
sources. Unlike the traditional drug development process of identifying 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 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, quantify and standardize the bioactives within plant
sources that are believed to provide therapeutic benefits and produce dietary
supplements and pharmaceuticals having consistent batch-to-batch quantities and
ratios of these bioactives.
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, herbal dietary supplements. The
second application of the PharmaPrint-TM- Process is the development of
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 is currently in Phase II clinical trials. In addition, the Company
continues to evaluate additional plant-derived medicines that have long
histories of safe use and indications of efficacy for development into
pharmaceuticals.
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
6
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PHARMAPRINT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. ORGANIZATION, NARRATIVE DISCUSSION OF THE BUSINESS AND RISK FACTORS
(CONTINUED)
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 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 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 and accordingly,
during the three months ending December 31, 1998, the Company will record such
licensing fee as revenue. 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. In October 1998, AHP commenced marketing six of the Company's
dietary supplement products.
In November 1998, the Company entered into an additional agreement with AHP.
Pursuant to the terms of the agreement, AHP agreed to pay the Company $5.0
million as reimbursement for certain development and production costs and
increase the per unit amount for the AHP Products delivered prior to February
28, 1999.
During the three months ended September 30, 1998, the Company substantially
completed the development of the AHP Products and commenced significant
manufacture and delivery of such products. Prior to this time, the Company
engaged primarily in research and development activities and the Company
reported as a development stage entity.
RISK FACTORS
During the three months ended September 30, 1998, the Company recognized its
first significant manufacturing revenues from the sale of herbal dietary
supplements to AHP. The Company has incurred net operating losses since its
inception. The Company's future ability to generate revenues in excess of its
expenses is dependent upon many factors including its ability to obtain patents,
future sales of the AHP Products and manufacturing and research and development
expenses.
The Company's future capital requirements will depend on many factors,
including but not limited to the overall product development costs including the
cost of toxicology testing and clinical trials, cost and availability of
botanical extracts, cost and availability of manufacturing service contractors,
the amount of purchase orders received from AHP, the ability to obtain certain
patent approvals, the Company's ability to further market its PharmaPrint-TM-
Process to third parties, 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. The Company believes
that its current capital resources will enable it to maintain its current and
planned operations for at least the next nine months. However, no assurance can
be given that additional capital, if needed, will be available when required or
upon terms acceptable to the Company.
7
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PHARMAPRINT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
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.
LOSS PER SHARE
During fiscal 1998, the Company adopted SFAS No. 128 "Earnings Per Share."
As required pursuant to SFAS No. 128, basic loss per share is computed based on
the weighted average number of common shares outstanding for the period assuming
no dilution from outstanding stock options and diluted loss per share is
computed assuming dilution from stock options and warrants. Prior period net
loss per share data have been restated for all periods presented. The Company
excluded all outstanding stock options and warrants from the diluted computation
as their effect is antidulutive.
RECLASSIFICATIONS
Certain reclassifications were made to prior period amounts, enabling them
to conform to current period presentation.
REVENUE RECOGNITION
Sales of products are recorded based on shipment of products.
INVENTORIES
Inventories are stated at lower of cost (determined on the first-in,
first-out method) or market, and consisted of the following at September 30,
1998:
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Raw materials..................................... $ 1,648,075
Work-in-process................................... 3,725,956
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Total inventories................................. $ 5,374,031
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FIXED ASSETS
Fixed assets are stated at cost and consisted of the following at September
30, 1998:
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Equipment......................................... $ 848,632
Furniture......................................... 184,119
Less accumulated depreciation..................... (143,320)
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Fixed assets, net................................. $ 889,431
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8
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PHARMAPRINT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation is provided using the straight-line method over the estimated
useful life for equipment of three to ten years and furniture for five years.
4. COMMITMENTS AND CONTINGENCIES
The Company leases its corporate headquarters under an operating lease that
expires in December 1998. The Company is currently negotiating for a lease for
its corporate headquarters that extends beyond December 1998. Future minimum
lease payments under this lease, as of September 30, 1998, are approximately
$59,000 payable through December 31, 1998. Rent expense for the six months ended
September 30, 1998, totaled approximately $118,000.
The Company has a $10 million purchase commitment, expiring in December
2000, with a vendor to purchase raw materials to be used for one herbal product
and to provide processing services for an additional herbal product. The
aforementioned product and services are anticipated to be used by the Company to
meet its obligations under the AHP Agreements. The Company currently has a
purchase commitment for $2.5 million of manufacturing equipment that it intends
to lease.
In June 1998, the Company entered into a service agreement with a vendor.
Under the terms of the agreement, the vendor will provide certain manufacturing
services for the Company at agreed upon prices based upon production volume. The
Company is committed to reimburse the vendor a minimum of $300,000 per quarter.
The Company is also subject to the following termination fees: (i) $1,000,000 if
the agreement is terminated within 6 months of effective date; (ii) $700,000 if
the agreement is terminated within 6 to 12 months of effective date; (iii)
$200,000 if the agreement is terminated within 12 to 24 months of effective date
and; (iv) $100,000 if the agreement is terminated after 24 months of the
effective date.
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ITEM 2. MANAGEMENT'S PLAN OF OPERATION
OVERVIEW
PharmaPrint uses its PharmaPrint-TM- Process technology to develop high
quality dietary supplement products and pharmaceutical candidates 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 combination of
multiple molecules found in the plant extract and that single molecules, in
isolation, may not replicate the natural plant's effectiveness. The
PharmaPrint-TM- Process technology enables the Company to identify, quantify and
standardize 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.
In October 1997, the Company entered into the AHP Agreements whereby the
Company is applying its 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. At the time of the first commercial sale by AHP by AHP Products, the
Company will have competed all research and development efforts relating to the
$2.5 million licensing fee and accordingly, during the three months ending
December 31, 1998, the Company will record such licensing fee as revenue.
Additionally, 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
lessor 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
commenced marketing six of the Company's dietary supplement products in October
1998. AHP and the Company will examine from time to time the opportunity to
increase or modify this product line.
In November 1998, the Company entered into an additional agreement with the
AHP. Pursuant to the terms of the agreement AHP agreed to pay the Company $5.0
million as reimbursement for certain development and production costs and
increase the per unit amount for the AHP Products delivered by the Company prior
to February 28, 1999.
During the three months ended September 30, 1998, the Company substantially
completed the development of the AHP Products and commenced significant
manufacture and delivery of such products pursuant to the Supply Agreement.
Prior to this time, the Company engaged primarily in research and development
activities.
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 to commence clinical
trials at the Phase II stage, while concurrently performing toxicology
10
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studies. The Company has received such FDA permission for its initial
pharmaceutical candidate, PPRT-321.
The Company incurred approximately $2,717,000 and $10,443,000 of research
and development expenses relating to its dietary supplement products and
pharmaceutical candidates for the six months ended September 30, 1997 and 1998,
respectively.
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 $2.1 million 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 $12.7 million. In February 1998, the
Company completed a public offering of 2,587,500 shares of its common stock at
$10.50 per share. The net proceeds from this public offering were approximately
$24.4 million.
As of September 30, 1998, the Company's staff of full-time employees and
consultants was 26.
The Company has a $10 million purchase commitment, expiring in December
2000, with a vendor to purchase raw materials to be used for one herbal product
and to provide processing services for an additional herbal product. The
aforementioned product and services are anticipated to be used by the Company to
meet its obligations under the AHP Agreements. The Company currently has a
purchase commitment for $2.5 million of manufacturing equipment that it intends
to lease.
In June 1998, the Company entered into a service agreement with a vendor.
Under the terms of the agreement, effective July 1, 1998, the vendor will
provide certain manufacturing services for the Company at agreed upon prices
based upon production volume. The Company is committed to reimburse the vendor a
minimum of $300,000 per quarter. The Company is also subject to the following
termination fees: (i) $1,000,000 if the agreement is terminated within 6 months
of effective date; (ii) $700,000 if the agreement is terminated within 6 to 12
months of effective date; (iii) $200,000 if the agreement is terminated within
12 to 24 months of effective date and; (iv) $100,000 if the agreement is
terminated after 24 months of the effective date.
The Company increased its inventories from approximately $2,183,000 at March
31, 1998 to approximately $5,374,000 at September 30, 1998 in order to supply
certain dietary supplement products to AHP pursuant to the Supply Agreement. The
Company anticipates that its inventories will significantly increase in the next
12 months.
The Company has incurred net operating losses since its inception. The
Company's future ability to generate revenues in excess of its expenses is
dependent upon many factors including its ability to obtain patents, future
sales of the AHP Products and manufacturing and research and development
expenses.
The Company believes that its current capital resources, the proceeds from
its public offering completed in February 1998, its $5,000,000 anticipated
payment from AHP and its expected manufacturing revenue will enable it to
maintain its current and planned operations for at least the next nine 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. Currently, the Company has no established bank
financing arrangement. The amount and type of the Company's future capital
requirements will depend on many factors, including, without limitation, the
cost and availability of botanical extracts, the cost and availability of
manufacturing service contractors, 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,
11
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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 its
public offering completed in February, 1998, 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 financings 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
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, 1998, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $27.2 million; such
carryforwards expire in various years through 2013.
YEAR 2000 COMPLIANCE
Many older computer programs use only the last two digits to refer to a
year. Therefore, they do not properly recognize a year that begins with "20"
rather than "19." This is referred to as the Year 2000, or Y2K Problem. The Y2K
problem has been eliminated in many new programs and systems, which are said to
be "Y2K compliant." The Company has completed its initial assessment of the Y2K
Problem and believes, based on manufacturers' specifications and subject to
completion of testing later in 1998, that all its information technology ("IT")
systems and applications and related hardware are Y2K compliant. The Company has
not completed assessing Y2K compliance of its non-IT systems, principally
manufacturing systems, but it believes that any non-compliance will not affect
the ability to use the related manufacturing equipment. The Company will attempt
to assess later in 1998 and in 1999 whether third parties with whom it deals,
such as customers, vendors and governments have any Y2K problems that could
affect the Company; such problems could result in interruptions in delivery of
services and materials and payments, among other things. The Company has not
developed Y2K non-compliance contingency plans, but will consider the need for
such plans upon completion of the Y2K compliance assessments. Costs to assure
Y2K compliance have so far been and are expected to remain nominal.
While the Company is not currently aware of any significant Y2K compliance
problems in its own systems, Y2K compliance of those systems cannot be assured
until completion of testing. Further, the Company cannot assure that the
information it receives from third parties about their Y2K compliance will be
meaningful or accurate. Failure to achieve compliance for the Company's systems,
or failure of significant third parties with whom the Company deals to achieve
Y2K compliance, could have a material adverse effect on the Company's
operations.
12
<PAGE>
PART II.
OTHER INFORMATION
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.
13
<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.
<TABLE>
<S> <C> <C>
PHARMAPRINT INC.
REGISTRANT
Date: November 16, 1998 By: /s/ JAMES R. WODACH
-----------------------------------------
James R. Wodach
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,785,257
<SECURITIES> 0
<RECEIVABLES> 4,128,316
<ALLOWANCES> 0
<INVENTORY> 5,374,031
<CURRENT-ASSETS> 16,129,828
<PP&E> 1,032,751
<DEPRECIATION> 143,320
<TOTAL-ASSETS> 17,473,326
<CURRENT-LIABILITIES> 11,845,212
<BONDS> 0
0
0
<COMMON> 13,652
<OTHER-SE> 5,614,462
<TOTAL-LIABILITY-AND-EQUITY> 17,473,326
<SALES> 4,262,171
<TOTAL-REVENUES> 4,262,171
<CGS> 3,453,158
<TOTAL-COSTS> 3,453,158
<OTHER-EXPENSES> 13,279,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,470,118)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,470,118)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,470,118)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
