-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ttkp3t8uhQRRJTCrjiA1CoZxvsU064qUHLCyZa10uTPjy9BXuCY70ONFNAHyElfA v4zUdzCU0B29XgLowcT8dg== 0001095811-00-001492.txt : 20000516 0001095811-00-001492.hdr.sgml : 20000516 ACCESSION NUMBER: 0001095811-00-001492 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOTHERAPEUTICS INC CENTRAL INDEX KEY: 0000831547 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 930979187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28782 FILM NUMBER: 633716 BUSINESS ADDRESS: STREET 1: 157 TECHNOLOGY DR STREET 2: STE J-821 CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9497886700 MAIL ADDRESS: STREET 1: 157 TECHNOLOGY DR STREET 2: STE J-821 CITY: IRVINE STATE: CA ZIP: 92618 FORMER COMPANY: FORMER CONFORMED NAME: AMERICUS FUNDING CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 2000 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 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 000-28782 NEOTHERAPEUTICS, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 93-0979187 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 157 TECHNOLOGY DRIVE IRVINE, CALIFORNIA 92618 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (949) 788-6700 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 latest practicable date: Class Outstanding at May 8, 2000 --------------------------- -------------------------- Common Stock, $.001 par value 10,065,653
1 2 NEOTHERAPEUTICS, INC. (A Development-Stage Enterprise) TABLE OF CONTENTS
Page No. -------- PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Statement regarding financial information......................................... 3 Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999............................................................. 4 Condensed Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999 and for the period from inception (June 15, 1987) to March 31, 2000................................... 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 and for the period from inception (June 15, 1987) to March 31, 2000....................................................... 6 Notes to Condensed Consolidated Financial Statements.............................. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION ........................................................... 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................................................... 14 PART II. OTHER INFORMATION................................................................. 15 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................................... 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 16
2 3 NEOTHERAPEUTICS, INC. (A Development Stage Enterprise) FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATEMENT REGARDING FINANCIAL INFORMATION The financial statements included herein have been prepared by NeoTherapeutics, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The Company suggests that you read the financial statements included herein in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Securities and Exchange Commission. 3 4 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
March 31, December 31, 2000 1999 ------------ ------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 6,893,842 $ 6,726,220 Marketable securities and short-term investments 3,061,176 2,955,212 Other receivables, principally investment interest 144,939 148,034 Prepaid expenses and refundable deposits 123,049 130,202 ------------ ------------ Total current assets 10,223,006 9,959,668 ------------ ------------ PROPERTY AND EQUIPMENT, at cost: Equipment 2,707,556 2,607,741 Leasehold improvements 1,814,167 1,814,167 Accumulated depreciation and amortization (1,400,508) (1,261,220) ------------ ------------ Property and equipment, net 3,121,215 3,160,688 ------------ ------------ PREPAID EXPENSES AND DEPOSITS 53,542 53,641 ------------ ------------ $ 13,397,763 $ 13,173,997 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 3,727,513 $ 3,613,680 Accrued payroll and related taxes 114,573 111,822 Note payable to related party 558,304 558,304 Current portion of long-term debt 450,459 472,938 ------------ ------------ Total current liabilities 4,850,849 4,756,744 LONG-TERM DEBT, net of current portion 536,203 637,308 DEFERRED RENT 77,973 75,121 ------------ ------------ Total liabilities 5,465,025 5,469,173 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, par value $0.001 per share, 5,000,000 shares authorized: Issued and outstanding, none at March 31, 2000 and December 31, 1999 - - Common stock, par value $0.001 per share, 25,000,000 shares authorized: Issued and outstanding, 9,535,653 and 8,778,370 shares at March 31, 2000 and December 31, 1999, respectively 67,704,476 58,139,327 Unrealized (losses) on available-for-sale securities (44,213) (38,572) Deficit accumulated during the development stage (59,727,525) (50,395,931) ------------ ------------ Total stockholders' equity 7,932,738 7,704,824 ------------ ------------ $ 13,397,763 $ 13,173,997 ============ ============
The accompanying notes are an integral part of these condensed consolidated balance sheets. 4 5 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 AND FOR THE PERIOD FROM INCEPTION (JUNE 15, 1987) TO MARCH 31, 2000
Three Months Three Months Inception Ended Ended Through March 31, March 31, March 31, 2000 1999 2000 ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) REVENUES, from grants $ - $ - $ 497,128 ------------ ------------ ------------ OPERATING EXPENSES: Research and development 8,500,203 3,307,432 44,574,991 General and administrative 955,002 1,096,435 13,313,333 Settlement of litigation - - 2,458,359 ------------ ------------ ------------ 9,455,205 4,403,867 60,346,683 ------------ ------------ ------------ LOSS FROM OPERATIONS (9,455,205) (4,403,867) (59,849,555) ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest income (expense), net 123,120 (14,731) 643,623 Other income 491 - 63,653 ------------ ------------ ------------ Total other income (expense) 123,611 (14,731) 707,276 ------------ ------------ ------------ NET LOSS $ (9,331,594) $ (4,418,598) $(59,142,279) ============ ============ ============ BASIC AND DILUTED LOSS PER SHARE $ (1.02) $ (0.71) ============ ============ BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,135,488 6,204,149 ============ ============
The accompanying notes are an integral part of these condensed consolidated statements. 5 6 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 AND FOR THE PERIOD FROM INCEPTION (JUNE 15, 1987) TO MARCH 31, 2000
Three Months Three Months Inception Ended Ended Through March 31, March 31, March 31, 2000 1999 2000 ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (9,331,594) $ (4,418,598) $(59,142,279) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 139,388 122,425 1,525,165 Compensation expense arising from the grant of warrants and stock options 25,279 207,358 1,110,244 Issuance of common stock in settlement of litigation - - 2,458,359 Amortization of deferred compensation - - 93,749 Increase in deferred rent 2,853 7,203 77,973 Compensation expense for extension of Debt Conversion Agreements, net - - 503,147 Gain on sale of assets - - (5,299) Decrease (increase) in other receivables 3,095 (41,610) (144,693) Decrease (increase) in prepaid expenses, deferred charges and refundable deposits 7,153 288,394 (80,756) Increase in accounts payable and accrued expenses 113,833 209,441 3,887,613 Increase in accrued payroll and related taxes 2,749 6,740 753,265 Decrease in employee expense reimbursement and accrued interest to related parties - - 300,404 ------------ ------------ ------------ Net cash used in operating activities (9,037,244) (3,618,647) (48,663,108) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (99,815) (210,832) (4,602,026) Purchases of marketable securities and short-term investments, net (105,964) (1,322,135) (3,061,176) Unrealized loss on available-for-sale securities (5,641) (18,864) (44,213) Payment of organization costs - - (66,093) Proceeds from sale of equipment - - 29,665 Issuance of notes receivable - - 100,000 ------------ ------------ ------------ Net cash used in investing activities (211,420) (1,551,831) (7,643,843) ------------ ------------ ------------
6 7 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Months Three Months Inception Ended Ended Through March 31, March 31, March 31, 2000 1999 2000 ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from common stock issuance including Revenue Participation Units converted to common stock 9,426,171 949,387 57,144,288 Proceeds from preferred stock issuance, net of offering costs - 3,633,221 3,608,788 Proceeds from exercise of stock options and warrants 52,139 - 863,788 Proceeds from long-term debt - 33,786 1,862,958 Repayment of long-term debt (123,584) (144,857) (876,295) Repayment (issuance) of notes from officers and directors for exercise of stock options 61,560 - (225,000) Dividends paid to preferred stockholders - - (136,246) Proceeds from notes payable to related parties, net - - 757,900 Cash at acquisition - - 200,612 ------------ ------------ ------------ Net cash provided by financing activities 9,416,286 4,471,537 63,200,793 ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents 167,622 (698,941) 6,893,842 Cash and cash equivalents, beginning of period 6,726,220 1,097,341 - ------------ ------------ ------------ Cash and cash equivalents, end of period $ 6,893,842 $ 398,400 $ 6,893,842 ============ ============ ============ SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of accrued payroll into shares of common stock $ - $ - $ 1,141,838 ============ ============ ============ Conversion of notes payable to related parties into shares of common stock $ - $ - $ 500,000 ============ ============ ============ Conversion of accrued interest into notes payable to related parties $ - $ - $ 300,404 ============ ============ ============ Conversion of preferred stock into shares of common stock $ - $ - $ 3,608,788 ============ ============ ============ Conversion of Revenue Participation Units into shares of common stock $ - $ - $ 676,000 ============ ============ ============ Issuance of stock options and warrants for services $ 12,183 $ 207,358 $ 1,097,148 ============ ============ ============ Issuance of common stock and warrants in connection with settlement of litigation $ - $ - $ 2,458,359 ============ ============ ============ Issuance of warrants in connection with equity and debt financings $ - $ 344,610 $ 389,610 ============ ============ ============ Conversion of other accrued liabilities to shares of common stock $ - $ - $ 52,104 ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated statements. 7 8 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND NATURE OF BUSINESS In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements include all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation of its consolidated financial position at March 31, 2000, and consolidated results of operations and cash flows for the periods presented. Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted and should be read in conjunction with the Company's audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 as filed with the Securities and Exchange Commission. Results of operations for interim periods are not necessarily indicative of results to be expected for the full year. NeoTherapeutics, Inc. (the "Company") was incorporated in Colorado as Americus Funding Corporation ("AFC") in December 1987. In August 1996, AFC changed its name to "NeoTherapeutics, Inc." and in June 1997, the Company was reincorporated in the state of Delaware. The Company has three subsidiaries, Advanced ImmunoTherapeutics, Inc., incorporated in California in June 1987, NeoTherapeutics, GmbH, incorporated in Switzerland in April 1997 and NeoGene Technologies, Inc., incorporated in California in October 1999. All references to the "Company" hereinafter refer to NeoTherapeutics, Inc. and its subsidiaries as a consolidated entity. The Company is a development-stage biopharmaceutical company engaged in the discovery and development of novel therapeutic drugs intended to treat neurological and psychiatric diseases and conditions such as memory deficits associated with Alzheimer's disease, aging, stroke, spinal cord injuries, Parkinson's disease, migraine, depression and obesity. The accompanying condensed consolidated financial statements include the results of the Company and its subsidiaries. 8 9 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. COMMITMENTS AND CONTINGENCIES Research and Fellowship Grants: The Company periodically makes non-binding commitments to various Universities and not-for-profit research organizations to fund scientific research and fellowship grants that may further the Company's research programs. As of March 31, 2000, the Company had committed to pay, through April 2002, approximately $1,096,600 for such grants and fellowships. Grant expense for the three-month periods ended March 31, 2000 and 1999, amounted to $260,300 and $83,000, respectively. Major Clinical Trials: The Company has entered into agreements with a contract research organization and a University to conduct multiple clinical trials in a number of countries involving approximately 2,500 patients. The agreements, all of which are cancelable by either party upon thirty days notice, are expected to result in aggregate future expenditures ranging from $29 to $35 million through June 2001. The costs of these clinical trials which were incurred and charged to operations for the three months ended March 31, 2000 and 1999 were approximately $6.7 million and $1.5 million, respectively. 3. STOCKHOLDERS' EQUITY Common Stock: During the quarter ended March 31, 2000, the Company sold to a private investor, pursuant to its existing Equity Line Agreement, an aggregate of 186,961 shares of common stock for cash proceeds of $2.0 million. At March 31 and May 8, 2000, $7.5 million remains available under the agreement. On February 25, 2000 the Company sold to two private investors 520,324 shares of common stock for $8.0 million. The investors also received five-year warrants to purchase 104,000 shares of common stock at an exercise price of $21.00 per share. On March 2, 2000 the Company issued to the two private investors who financed a $10 million sale of stock in November 1999, an aggregate of 43,383 additional shares of common stock pursuant to a reset provision in a warrant issued at the November 1999 closing. Since the reset option was included in the November 1999 sale of securities, the issuance of shares pursuant to the reset option for no additional consideration had no net impact on common stock during the quarter. The investors waived a second reset as consideration for entering into a new financing which closed on April 6, 2000. During the quarter ended March 31, 2000, the Company issued (i) 4,490 shares of its common stock pursuant to the exercise of a like amount of public warrants at $11.40 per share, for aggregate consideration of $51,186; and (ii) 2,000 shares of common stock to two consultants in exchange for their services. 4. STOCK OPTIONS During the three month period ended March 31, 2000, there were no new stock options granted. Options were exercised for 125 shares of common stock at $7.625 per share and none were forfeited. Stock options to purchase 1,389,248 shares of common stock remained outstanding at March 31, 2000 at exercise prices ranging from $0.025 to $13.00 per share. 9 10 5. EQUITY TRANSACTIONS SUBSEQUENT TO MARCH 31, 2000 On April 6, 2000, the Company entered into a financing transaction with two private investors who have invested previously in the Company. The transaction consists of (a) $10 million in 5% subordinated convertible debentures due April 6, 2005, (b) redeemable warrants to purchase up to 4 million shares of common stock over a two-year period (the "B" warrants) and (c) five-year warrants to purchase from 115,000 up to 265,000 shares of the Company's common stock at an exercise price of $19.672 per share. The "B" warrants can be redeemed in part by the Company as frequently as several times per week and when called for redemption can be exercised by the investors at 97% of the per share closing market price (i.e., a discount of 3%), and are exercisable at the sole option of the investors at the price of $33.75 per share. The number of "B" warrants that are exercisable at each redemption are subject to average daily volume restrictions. To the extent the "B" warrants have not been exercised, the investors have agreed to fund two additional tranches of $10 million each of 5% subordinated convertible debentures, subject to certain restrictions, including the following: - The investors will limit their investment to 10% of the Company's market capitalization at the time of each tranche, such investment not to exceed $10 million; - The shares underlying the April 6, 2000 transaction and the additional tranches must be successfully registered with the SEC; and - The Company must maintain the continued listing requirements of the Nasdaq Stock Market. In the event any of these conditions cannot be met and the additional tranches (or other financing alternatives) are not available, the Company may be required to scale-back or cancel certain of its clinical development activities. The debentures are convertible into common stock at $20.25 per share for the first 90 days after the closing. Thereafter, they are convertible at the lesser of $20.25 per share or 101% of the market price of the common stock as determined under the agreement. The two additional tranches of convertible debentures of up to $10 million each, 5 and 10 months after the closing, are at the option of either the Company or the investor. If the Company exercises the option, the two tranches are under similar terms and conditions as the initial tranche. If the investor exercises the option, the convertible debentures in each of the two tranches will be issued at the fixed conversion price of $20 per share. The amount available under the two additional tranches will be reduced pro-rata to the extent that the investors have exercised or the Company has redeemed the "B" warrants to purchase common stock. On May 1, 2000 the Company completed a private placement of 500,000 shares of common stock for $7.0 million cash. The investor, a major Canadian financial institution, also received five-year warrants to purchase 125,000 shares of common stock at $17.50 per share. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results may differ materially from the results projected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below under "Factors Affecting Future Operating Results." RESULTS OF OPERATIONS Overview: From the inception of the Company in 1987 through March 31, 2000, the Company incurred a cumulative net loss of approximately $59.1 million. The Company expects its operating expenses to increase over the next several years as it continues to expand its research and development and commercialization activities and operations. The Company expects to incur significant additional operating losses for at least the next several years unless such operating losses are offset, if at all, by licensing revenues under strategic alliances with larger pharmaceutical companies which the Company is currently seeking. Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999: There were no revenues during the three months ended March 31, 2000 or the three months ended March 31, 1999. Research and development expenses for the three months ended March 31, 2000 increased approximately $5,193,000 or 157% over the same period in 1999. Current period increases were due primarily to costs and expenses associated with the conduct of clinical and preclinical trials as the Company continued the acceleration of its program to commercialize its lead compound, NEOTROFIN(TM). These costs and expenses, all of which were conducted by outside organizations, were attributable primarily to increases in the number and duration of outside clinical and preclinical trials, and were partially offset by lower quantity requirements for manufacturing and formulation by the Company's contract manufacturer of NEOTROFIN(TM) and other compounds used in the Company's research and testing programs. Internally, research and development expenses increased in the categories of salaries, due to additional personnel and salary increases, research grants and seminars. The Company expects its research and development expenses to continue to increase as it expands its laboratories and increases its internal product development and external preclinical and clinical trial activities. General and administrative expenses decreased approximately $141,000 or 13% from the same period in 1999 due primarily to the reduction of investor relations, legal and other professional fees which were partially offset by increases in salaries due to increases in personnel and salary increases. The Company expects general and administrative expenses to increase in future periods in support of the expected increases in research and development activities as well as sales and marketing activities should the Company successfully bring one or more of its products to market. Net interest income increased by approximately $138,000 due to interest earnings from higher cash balances resulting from the investments of unallocated proceeds from recent equity financings. The Company expects its interest income to decrease in future periods due to the use of its funds in current operations, unless offset by revenues or additional equity financings. 11 12 LIQUIDITY AND CAPITAL RESOURCES From inception through March 31, 2000, the Company financed its operations primarily through sales of equity securities. The Company has also financed its operations through government grants, borrowings and deferred payment of salaries and other expenses due to related parties. In March 1998, the Company entered into an Equity Line Agreement with a private investor which allows the Company, in its sole discretion and subject to certain restrictions, to sell ("put") to the investor, through February 2001, up to $15 million of its common stock. Through March 31, 2000, the Company has put to the investor 904,403 shares of its common stock and realized gross proceeds of $7.5 million. As of March 31, 2000, $7.5 million remains available under the Equity Line Agreement. On February 25, 2000, the Company sold to two private investors 520,324 shares of common stock for $8.0 million. The investors also received five-year warrants to purchase 104,000 shares of common stock at an exercise price of $21.00 per share. At March 31, 2000, working capital amounted to approximately $5.4 million. This amount included cash and cash equivalents of approximately $6.9 million and marketable securities and short-term investments of approximately $3.1 million. In comparison, at December 31, 1999, the Company had working capital of approximately $5.2 million, which included cash and cash equivalents of approximately $6.7 million and short-term investments of approximately $3.0 million. The $200,000 increase in working capital during the three months is attributable primarily to the sale of $9.4 million of common stock to private investors plus proceeds from exercise of stock options, offset by (i) the operating loss for the period, (ii) purchases of property and equipment and (iii) long-term debt repayment. The Company periodically makes non-binding commitments to various Universities and not-for-profit research organizations to fund scientific research and fellowship grants that may further the Company's research programs. As of March 31, 2000, the Company had committed to pay, through April 2002, approximately $1.1 million for such grants and fellowships. The Company has entered into agreements with a contract research organization and a University to conduct multiple clinical trials in a number of countries involving approximately 2,500 patients. The agreements, all of which are cancelable by either party upon thirty days notice, are expected to result in aggregate future expenditures ranging from $29 million to $35 million through June 2001. On April 6, 2000, the Company entered into a financing transaction with two private investors and received on that date $10 million cash from the sale of convertible debentures and warrants, representing the initial segment of the transaction. Subject to certain conditions, other elements of this transaction will provide a minimum of an additional $20 million cash over a ten-month period,. On May 1, 2000, the Company completed a private placement of 500,000 shares of common stock for $7 million cash. The Company is in the development stage and devotes substantially all of its efforts to research and development. The Company has incurred cumulative losses of approximately $59.1 million through March 31, 2000, and expects to incur substantial losses over the next several years. In addition to the funds derived from its initial public offering and subsequent private placement equity offerings, the Company will require substantial additional funds in order to complete the research and development activities currently contemplated and to commercialize its proposed products. The Company's future capital requirements and availability of capital will depend upon many factors, including continued scientific progress in research and development programs, the scope and results of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in 12 13 filing, prosecuting and enforcing patent claims, the effect of competing technological developments, the cost of manufacturing scale-up, the cost of commercialization activities, and other factors which may not be within the Company's control. While the Company believes that its existing capital resources, including the financings subsequent to March 31, 2000, will be adequate to fund its capital needs for at least 12 months, the Company also believes that it will require substantial additional funds in order to complete the research and development activities currently contemplated and to commercialize its proposed products. Without additional funding, the Company may be required to delay, reduce the scope of, eliminate one or more of its research and development projects, or obtain funds through arrangements with collaborative partners or others which may require the Company to relinquish rights to certain technologies, product candidates or products that the Company would otherwise seek to develop or commercialize on its own, and which could be on terms unfavorable to the Company. FACTORS AFFECTING FUTURE OPERATING RESULTS The future operating results of the Company are highly uncertain, and the following factors should be carefully reviewed in addition to the other information contained in this quarterly report on Form 10-Q: The Company has incurred losses in every year of its existence and expects to continue to incur significant operating losses for the next several years. The Company has never generated revenues from product sales and there is no assurance that revenue from product sales will ever be achieved. In addition, there is no assurance that any of the Company's proprietary products will ever be successfully developed, receive and maintain required governmental regulatory approvals, become commercially viable or achieve market acceptance. The Company has no experience in manufacturing, procuring products in commercial quantities or marketing, and only limited experience in negotiating, setting up or maintaining strategic relationships and conducting clinical trials or other late stage phases of the regulatory approval process, and there is no assurance that the Company will successfully engage in any of these activities. The Company's need for additional funding is expected to be substantial and will be determined by the progress and cost of the development and commercialization of its products and other activities. The Company believes that its existing capital resources will be sufficient to satisfy its current and projected funding requirements for at least the next twelve months. However, if the Company experiences unanticipated cash requirements during the interim period or fails to obtain sufficient funding under its line of equity agreement, the Company could require additional funds sooner. The source, availability, and terms of such funds have not been determined. Although funds may be received from the sale of equity securities or the exercise of outstanding warrants and options to acquire common stock of the Company, there is no assurance any such funding will occur. Factors impacting the future success of the Company include, among other things, the ability to develop products which will be safe and effective in treating neurological diseases and the ability to obtain government approval. The Company faces numerous other risks in the operation of its business, including, but not limited to, protecting its proprietary technology and trade secrets and not infringing on those of others; attaining a competitive advantage; entering into agreements with others to source, manufacture, market and sell its products; attracting and retaining key personnel in research and development, manufacturing, 13 14 marketing, sales and other operational areas; managing growth, if any; and avoiding potential claims by others in such areas as product liability and environmental matters. The above factors are not intended to be inclusive. A more comprehensive list of factors which could affect the Company's future operating results can be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, in "Item 1. Description of Business" under the caption "Risk Factors." Failure to satisfactorily achieve any of the Company's objectives or avoid any of the above or other risks would likely have a material adverse effect on the Company's business and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK QUANTITATIVE DISCLOSURES The Company is exposed to certain market risks associated with interest rate fluctuations on its marketable securities and borrowing arrangements. All investments in marketable securities and borrowing arrangements are entered into for purposes other than trading. The Company is not subject to risks from currency rate fluctuations. In addition, the Company does not utilize hedging contracts or similar instruments. The Company's exposure to interest rate risk arises from financial instruments entered into in the normal course of business. Certain of the Company's financial instruments are fixed rate, short-term investments in government and corporate notes and bonds, which are available for sale (and have been marked to market in the accompanying financial statements). Changes in interest rates generally affect the fair value of these investments, however, because these financial instruments are considered "available for sale," all such changes are reflected in the financial statements in the period affected. The Company's borrowings bear interest at fixed annual rates. Changes in interest rates generally affect the fair value of such debt, but do not have an impact on earnings or cash flows. Because of the relatively short-term nature of the Company's borrowings, fluctuations in fair value are not deemed to be material. QUALITATIVE DISCLOSURES The Company's primary exposures relate to (1) interest rate risk on its borrowings, (2) the Company's ability to pay or refinance its borrowings at maturity at market rates, (3) interest rate risk on the value of the Company's investment portfolio and rate of return, (4) the impact of interest rate movements on the Company's ability to obtain adequate financing to fund future cash requirements. The Company manages interest rate risk on its investment portfolio by matching scheduled investment maturities with its cash requirements. The Company manages interest rate risk on its outstanding borrowings by using fixed rate debt. While the Company cannot predict or manage its ability to refinance existing borrowings and investment portfolio, management evaluates the Company's financial position on an ongoing basis. 14 15 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS RECENT SALES OF UNREGISTERED SECURITIES 1. On February 25, 2000 the Company sold to two private investors 520,324 shares of common stock for $8.0 million. The investors also received five-year warrants to purchase 104,000 shares of common stock at an exercise price of $21.00 per share. 2. Brighton Capital, Ltd, ("Brighton") acted as a finder with respect to the negotiation and execution of the agreement described above. As consideration for the services provided by Brighton in connection with the Agreement, the Company paid Brighton a cash commission of $400,000, representing 5% of the gross sale proceeds realized from sale of the preferred stock, plus warrants to purchase 40,000 shares of common stock at $15.00 per share. The warrants are exercisable over a five-year period and may be called by the Company if the market value of the common stock equals or exceeds $30.00 for any 10 consecutive days during the exercise period. 3. During the quarter ended March 31, 2000, the Company made two sales of common stock to Kingsbridge Capital Limited pursuant to the Equity Line Agreement entered into between the Company and Kingsbridge on March 27, 1998. The sales occurred on January 10, 2000, and February 3, 2000, whereby the Company issued to Kingsbridge 93,721 shares and 93,240 shares and realized proceeds of $1.0 million from each of the sales. Equity Transactions Subsequent to March 31, 2000: The Company entered into two financing transactions subsequent to March 31, 2000. On April 6, 2000, the Company entered into a convertible debenture and warrant financing transaction with two investors and received an initial amount of $10 million cash. On May 1, 2000, the Company completed a private placement of 500,000 shares of common stock for $7 million cash plus warrants. See Note 5 to the Condensed Consolidated Financial Statements included in Part I of this Form 10-Q, incorporated herein by reference. The securities issued by the Company pursuant to the transactions described above have been issued without registration under the Securities Act of 1933 in reliance upon the exemptions from registration provided under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. The foregoing transactions did not involve any public offering, the investors either received or had access to adequate information about the Company in order to make an informed investment decision, and the Company reasonably believed that each of the investors was "sophisticated" within the meaning of Section 4(2) of the Securities Act. 15 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K None 16 17 SIGNATURES 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. NEOTHERAPEUTICS, INC. Date: May 15, 2000 By: /s/Samuel Gulko -------------------------------------------- Samuel Gulko, Chief Financial Officer (Principal Accounting and Financial Officer) 17 18 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 27 Financial Data Schedule
18 EX-27 2 EXHIBIT 27
5 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 6,893,842 3,061,176 144,939 0 0 10,223,006 4,521,723 1,400,508 13,397,763 4,850,459 536,203 0 0 67,704,476 (59,771,738) 13,397,763 0 0 0 0 9,455,205 0 0 (9,331,594) 0 (9,331,594) 0 0 0 (9,331,594) (1.02) (1.02)
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