<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission file number 33-90516
--------
NEOPHARM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 51-0327886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
225 East Deerpath
Suite 250
Lake Forest, Illinois 60045
(Address of principal executive offices) (Zip Code)
(847) 295-8678
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the 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 .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by
this report:
<TABLE>
<CAPTION>
Title of each class Number of shares outstanding
- ---------------------------------- ----------------------------
<S> <C>
Common Stock ($.0002145 par value) 8,120,268
Warrants to purchase shares of
Common Stock ($.0002145 par value) 2,079,134
</TABLE>
<PAGE> 2
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
Page Number
-----------
PART I. Financial Information
ITEM 1. Financial Statements
Balance Sheets 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7
PART II. Other Information 8
SIGNATURE PAGE 9
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 31, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 4,893,691 $ $671
Equipment and Furniture:
Equipment............................................................. 23,515 18,745
Furniture............................................................. 12,989 10,587
Less accumulated depreciation......................................... (25,384) (20,548)
------------- ------------
Total equipment and furniture, net............................. 11,120 8,784
------------- ------------
Deferred offering costs................................................ -- 486,436
------------- ------------
Total assets................................................... $ $4,904,811 $ 495,891
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities:
Interest payable to principal stockholder............................ $ -- $ 545,379
Obligations under research agreements -- 34,447
Due to related parties............................................... -- 337,740
Professional fees.................................................... 54,113 325,277
Other................................................................ 29,832 106,788
Current portion of loan payable to principal
stockholder.......................................................... -- 1,196,445
Line of credit with bank.............................................. -- 2,007,652
------------- ------------
Total current liabilities...................................... 83,945 4,553,728
------------- ------------
Long-term obligations:
Loan payable to principal stockholder, net of
current portion...................................................... -- 303,555
------------- ------------
Stockholders' equity (deficit):
Common stock, $.0002145 par value;
15,000,000 shares authorized
8,120,268 and 4,700,000 share issued and outstanding, respectively 1,742 1,008
Additional paid-in capital............................................ 5,816,367 108,491
Deficit accumulated during the development stage...................... (997,243) (4,470,891)
------------- ------------
Total stockholders' equity (deficit)........................... 4,820,866 (4,361,392)
------------- ------------
Total liabilities and stockholders'
equity (deficit).............................................. $ 4,904,811 $ 495,891
============= ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
INCEPTION
THREE MONTHS ENDED NINE MONTHS ENDED (JUNE 15, 1990)
SEPTEMBER 30, SEPTEMBER 30, THROUGH SEPTEMBER 30,
1996 1995 1996 1995 1996
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Interest Income..... $ 66,197 $ -- $ 178,898 $ -- $ 178,898
Expenses:
Research and
development....... 203,750 396,109 591,429 862,869 3,554,637
General and
administrative.... 165,949 48,663 537,349 188,683 1,356,791
Interest expense... -- 84,770 47,364 249,474 735,605
---------- ---------- ---------- ------------ ------------
Total expenses... 369,699 529,542 1,176,142 1,301,026 5,647,033
---------- ---------- ---------- ------------ ------------
Net loss $(303,502) $(529,542) $(997,244) $(1,301,026) $(5,468,135)
========== ========== ========== ============ ============
Net loss per share.. $ (.04) $ (.11) $ (.13) $ (.28)
========== ========== ========== ============
Weighted average
number of common
equivalent shares
outstanding......... 8,101,936 4,700,000 7,694,350 4,697,926
========== ========== ========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
INCEPTION
(JUNE 15, 1990)
SEPTEMBER 30, SEPTEMBER 30, THROUGH
1996 1995 SEPTEMBER 30, 1996
------------- ------------- ------------------
<S> <C> <C> <C>
Cash flows used in operating
activities:
Net loss................................... $ (997,244) $ (1,301,026) $ (5,468,135)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization............. 4,835 5,447 37,182
Gain on disposal of equipment
and furniture............................ -- -- (408)
Services contributed (non-cash)
by related party (Note 7)................ -- -- 101,042
Interest converted to stock................ 523,385 -- 523,385
Changes in assets and liabilities:
Decrease (increase) in other
assets................................... 486,436 (332,197) (11,100)
(Decrease) increase in accounts payable
and accrued liabilities.................. (1,265,685) 461,555 83,946
------------- ------------- ------------------
Net cash used in operating
activities............................. (1,248,272) (1,166,221) (4,734,088)
------------- ------------- ------------------
Cash flows used in investing activities:
Purchase of equipment and
furniture................................. (7,172) (583) (37,605)
Proceeds from disposal of
equipment and furniture................... -- -- 810
------------- ------------- ------------------
Net cash used in investing
activities.............................. (7,172) (583) (36,795)
------------- ------------- ------------------
Cash flows from financing
activities:
Proceeds from loan payable to
principal stockholder..................... -- -- 1,500,000
Advance on line of credit.................. 107,000 1,161,000 2,114,652
Reduction in line of credit................ (2,114,652) -- (2,114,652)
Proceeds from issuance of common
stock..................................... 8,156,117 8 8,164,574
------------- ------------- ------------------
Net cash provided by
financing activities.................... 6,148,465 1,161,008 9,664,574
------------- ------------- ------------------
Net increase (decrease) in cash............. 4,893,020 (5,796) 4,893,691
Cash, beginning of period................... 671 9,205 --
------------- ------------- ------------------
Cash, end of period......................... $ 4,893,691 $ 3,409 $ 4,893,691
============= ============= ==================
Supplemental disclosure of cash paid
for:
Interest.................................... 84,585 85,581 212,222
Income taxes................................ -- -- --
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1
The financial information herein is unaudited, other than the Balance Sheet at
December 31, 1995, which is derived from the audited financial statements.
In the opinion of the Company, the accompanying unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the Company's financial position as of September
30, 1996, the results of operations for the three and nine months ended
September 30, 1996 and 1995 and changes in cash flows for the nine month
periods ended September 30, 1996 and 1995.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these financial statements
be read in conjunction with the financial statements and notes included in the
Company's 1995 annual report on Form 10-K filed with the Securities and
Exchange Commission.
NOTE 2
In 1996, the Company amended its Certificate of Incorporation to convert each
share of outstanding Common Stock into two shares of Common Stock and to
restate the par value of the Common Stock from $.000429 per share to $.0002145
per share. The stock split has been reflected retroactively in these financial
statements for all periods presented. At December 31, 1995 and September 30,
1996 as adjusted, there were 4,700,000 and 8,120,268 shares of common stock
issued and outstanding.
<PAGE> 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations - Nine Months Ended September 30, 1996 vs. Nine Months
- ----------------------------------------------------------------------------
Ended September 30, 1995
- ------------------------
Revenue, consisting of interest and dividend income for the nine months ended
September 30, 1996 was $178,898. Interest and dividend income was earned on
the investment of the net proceeds from the Company's initial public offering
of common stock, completed January 30, 1996. No revenue was recorded for the
nine months ended September 30, 1995, as the Company had no surplus cash
balances.
Research and development expenses decreased by 31% or $271,440 for the nine
month period ended September 30, 1996 compared to the nine month period ended
September 30, 1995. The decrease is due to the completion of the Company's
obligation to fund certain university supportive research relating to the
liposome development program.
General and administration expense expenses increased 185% or $348,666 for the
nine month period ended September 30, 1996 compared to the nine month period
ended September 30, 1995 primarily due to salaries paid to employees and
officers of the Company in 1996. Prior to the completion of the initial public
offering, officers of the Company were not paid salaries.
Interest expense decreased by 81% or $202,110 for the nine month period ended
September 30, 1996 compared to the nine month period ended September 30, 1995
as proceeds from the initial public offering were used to repay principal and
interest due on the Company's outstanding line-of-credit. In addition, a loan
by the Chairman of the Company was converted into common stock at the initial
public offering price. Both the line-of-credit and loan from the Chairman were
outstanding in the nine month period ended September 30, 1995.
The net loss for the nine month period ended September 30, 1996 decreased by
23% or $303,782 compared to the nine month period ended September, 30, 1995.
The Company expects losses to continue as planned product development
continues.
Results of Operations - Three Months Ended September 30, 1996 vs. Three Months
- ------------------------------------------------------------------------------
Ended September 30, 1995
- ------------------------
Revenue, consisting of interest and dividend income for the three months ended
September 30, 1996 was $66,197. Interest and dividend income was earned on the
investment of the net proceeds from the Company's initial public offering of
common stock, completed January 30, 1996. No revenue was recorded for the
three months ended September 30, 1996, as the Company had no surplus cash
balances.
Research and development expenses decreased by 49% or $192,359 for the three
month period ended September 30, 1996 compared to the three month period ended
September 30, 1995. The decrease is due to the completion of the Company's
obligation to fund certain university supportive research relating to the
liposome development program.
General and administration expense expenses increased 241% or $117,286 for the
three month period ended September 30, 1996 compared to the three month period
ended September 30, 1995 primarily due salaries paid to employees and officers
of the Company in 1996. Prior to the completion of the initial public
offering, officers of the Company were not paid salaries.
Interest expense decreased by 100% or 84,770 for the three month period ended
September 30, 1996 compared to the three month period ended September 30, 1995
as proceeds from the initial public offering were used to repay principal and
interest due on the Company's outstanding line-of-credit. In addition, a
<PAGE> 8
loan by the Chairman of the Company was converted into common stock at the
initial public offering price. Both the line-of-credit and loan from the
Chairman were outstanding in the three month period ended September 30, 1995.
The net loss for the three month period ended September 30, 1996 decreased by
43% or $226,040 compared to the three month period ended September, 30, 1995.
The Company expects losses to continue as planned product development
continues.
Liquidity and Capital Resources
Cash expenditures have exceeded revenues since the Company's inception.
Operations have principally been funded through a loan from the Company's
Chairman, a bank line-of-credit and since January 1996, the initial public
offering of common stock. The Company expects to incur additional expenses,
resulting in potentially significant losses, as it continues and expands its
research and development activities and undertakes additional clinical trials
of compounds obtained under proprietary licenses. The Company also expects to
incur substantial administrative and commercialization expenditures in the
future as it seeks FDA approval of drugs under development and initiates
marketing activities.
At September 30, 1996, the Company's cash and cash equivalents were $4,893,691
compared to $671 at December 31, 1995. This increase was a direct result of
completing the initial public offering of common stock in January, which
generated approximately $7.9 million, net of underwriter's discounts and
related offering costs. After closing the initial public offering, the Company
paid accrued consulting fees, legal and accounting costs related to the public
offering, and as was previously mentioned, repaid the outstanding
line-of-credit.
The Company plans to finance its needs principally from its existing capital
resources and interest thereon, and to the extent available, through
collaborative agreements with corporate partners, future public and private
financing. The Company's long-term capital requirements and the adequacy of
its available funds will depend upon many factors, including results of
research and development, results of product testing, relationships with
potential partnerships and collaborations, and the FDA regulatory process.
Additional funding may not be available when needed or on terms acceptable to
the Company. Insufficient funds my require the Company to delay, scale-back or
eliminate certain of its research and development programs or to license third
parties to commercialize products or technologies that the Company would
otherwise undertake itself.
Statements made in this document that present information that is not historic,
including among other things, anticipated financial performance, business
prospects, new products and markets, and research and development activities,
are forward-looking statements. The risks that may affect operations,
development and results include clinical outcomes in drug development programs,
regulatory matters, proprietary rights challenges, market acceptance,
competition, and other matters discussed in the Company's Form 10-K and other
periodic reports.
<PAGE> 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities
The Board of Directors of the
Corporation authorized a two-for-one
stock split to stockholders of
record as of the close of business
on August 26, 1996. The par value of
NeoPharm, Inc. common stock was
adjusted from $0.000429 per share to
$0.0002145 per share, in connection
with this stock split.
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to Vote
of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) Reports on Form 8-K None
<PAGE> 10
SIGNATURE PAGE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
NEOPHARM, INC.
By: /s/ David E. Riggs
_________________________________
David E. Riggs,,
Chief Financial Officer
Date: November 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000942788
<NAME> NEOPHARM, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,893,691
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,893,691
<PP&E> 36,504
<DEPRECIATION> 25,384
<TOTAL-ASSETS> 4,904,811
<CURRENT-LIABILITIES> 83,945
<BONDS> 0
<COMMON> 0
0
1,742
<OTHER-SE> 5,816,367
<TOTAL-LIABILITY-AND-EQUITY> 4,904,811
<SALES> 0
<TOTAL-REVENUES> 66,197
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 369,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (303,502)
<INCOME-TAX> 0
<INCOME-CONTINUING> (303,502)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (303,502)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> 0
</TABLE>
