UNITED STATESU.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549FORM 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, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to----- -----__________
CommissionFile Numberfile number 0-22686INTERFILM,PALATIN TECHNOLOGIES, INC.
(Exact
(Exact name of registrant as specified in its charter)DELAWARE 95-4078884 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 110 Greene Street, Suite 601, New York, New York 10012 (Address of principal executive offices and zip code)
Delaware 95-4078884 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 103 Carnegie Center - Suite 200 Princeton, New Jersey 08540 (Address of principal executive offices) (Zip Code)
Registrant's telephonenumber, including area code: (212) 334-5900 Indicate by check marknumber: (609) 520-1911Check whether the
registrantIssuer (1)hasfiled all reports required to be filed by Section 13 or 15(d) of theSecuritiesExchange Actof 1934during theprecedingpast 12 months (or for such shorterperiods asperiod that theregistrantIssuer was required to file such reports), and (2) has been subject to such filing requirements for the pastninety90 days. YesX[X] No--- ---[ ]As of
May 15, 1996 there were 4,327,500November 14, 2000, 10,886,185 shares ofCommon Stock,the registrants's common stock, par value$0.01$.01 per share, were outstanding.Total numberPALATIN TECHNOLOGIES, INC.
Table ofpages: 13 _____________________________________________________________ 1INTERFILM, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-QContents
PART I - FINANCIAL INFORMATION
PageIndex 2 Part I -- Financial InformationItem 1. Financial Statements: Consolidated Balance Sheets asStatements (unaudited)CONSOLIDATED BALANCE SHEETS -- As of March 31, 1996September 30, 2000
andDecember 31, 1995June 30, 2000
Page 3Consolidated Statements of Operations forCONSOLIDATED STATEMENTS OF OPERATIONS --
For the Three Months EndedMarch 31, 1996September 30, 2000 and1995the Period from January 28, 1986
(Commencement of Operations) through September 30, 2000
Page 4Consolidated Statements of Cash Flows forCONSOLIDATED STATEMENTS OF CASH FLOWS --
For the Three Months EndedMarch 31, 1996September 30, 2000 and1995September 30,
2000 and the Period from January 28, 1986 (Commencement
of Operations) through September 30, 2000
Page 5Notes to Consolidated Financial Statements Page 6 Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations7-12 Part II --
Page 10Item 3. Quantitative and Qualitative Disclosures About Market Risk Page 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Page 13 Item 2. Changes in Securities and Use of Proceeds Page 14 Item 3. Defaults Upon Senior Securities Page 14 Item 4. Submission of Matters to a Vote of Security Holders Page 14 Item 5. Other Information Page 14 Item 1. Legal Proceedings 12 Items 2 -6.None 12Exhibits and Reports on Form 8-K Page 14 Signatures 13Page 15 2-2-
INTERFILM,PART I - FINANCIAL INFORMATION
Item 1. Financial StatementsPALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
(unaudited)September 30, 2000 June 30, 2000 ------------------ ------------- ASSETS Current assets: Cash and cash equivalents $ 11,031,228 $ 3,219,593 Short-term investments 2,831,350 2,155,617 Accounts receivable 795,081 953,163 Prepaid expenses and other 130,707 179,792 ------------- ------------- Total current assets 14,788,366 6,508,165 Fixed assets, net of accumulated depreciation and amortization of $981,464 and $914,846, respectively 1,522,390 1,573,140 Restricted cash 263,075 263,075 Other 440,009 541,017 ------------- ------------- $ 17,013,840 $ 8,885,397 ============= ============= LIABILITIES ANDSUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995
March 31, December 31, 1996 1995 ---- ---- (unaudited) ------------ ------------ASSETS Cash and cash equivalents $ 113,000 $ 26,000 Short-term investments - 257,000 Prepaid expenses and other assets 63,000 20,000 ------------ ------------ TOTAL $ 176,000 $ 303,000 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT LIABILITIES: Accounts payable and accrued expenses $ 159,000 $ 130,000 Accrued compensation and related expenses 350,000 298,000 Contracts payable (note 4) 252,000 252,000 Notes payable - stockholders 264,000 264,000 Accrued interest 17,000 12,000 ------------ ------------ Total liabilities 1,042,000 956,000 ------------ ------------ STOCKHOLDERS' DEFICIT: Preferred stock, $.01 par value, 2,000,000 shares authorized; none issued or outstanding Common stock, $.01 par value, 10,000,000 shares authorized; 4,327,500 issued and outstanding 43,000 43,000 Additional paid-in capital 16,100,000 16,100,000 Accumulated deficit (17,009,000) (16,796,000) ------------ ------------ Total stockholders' deficit (866,000) (653,000) ------------ ------------ TOTAL $ 176,000 $ 303,000 ============ ============SeeSTOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 699,712 $ 1,012,070 Accrued expenses 1,083,237 968,166 ------------- ------------- Total current liabilities 1,782,949 1,980,236 ------------- ------------- Commitments and contingencies (Note 5) Stockholders' equity: Preferred stock of $.01 par value - authorized 10,000,000 shares; Series A Convertible; 30,917 and 31,561 shares issued and outstanding as of September 30, 2000 and June 30, 2000, respectively; 309 316 Series B Convertible; zero and 2,000 shares issued and outstanding as of September 30, 2000 and June 30, 2000 respectively; - 20 Series C Convertible; 700,000 shares issued and outstanding as of September 30, 2000 and June 30, 2000 respectively; 7,000 7,000 Common stock of $.01 par value - authorized 75,000,000 shares; Issued and outstanding 10,022,969 and 7,902,372 shares as of September 30, 2000 and June 30, 2000, respectively; 100,230 79,024 Additional paid-in capital 60,851,233 50,324,603 Deficit accumulated during development stage (45,727,881) (43,505,802) ------------- ------------- Total stockholders' equity 15,230,891 6,905,161 ------------- ------------- $ 17,013,840 $ 8,885,397 ============= =============
The accompanying notes to the consolidated financial statements 3
are an integral part of these financial statements.
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Inception
(January 28, 1986)
Three Months Ended September 30, through
2000 1999 September 30, 2000
-------------- ------------- ------------------
REVENUES:
Grants and 1995 (UNAUDITED)
The accompanying notes to the consolidated financial statements 4
are an integral part of these financial statements.
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Inception
(January 28, 1986)
Three Months Ended September 30, Through
2000 1999 September 30, 2000
------------ ------------- ------------------
CASH FLOWS THREE MONTHS ENDED MARCH 31, 1996FROM OPERATING ACTIVITIES:
Net loss $(2,222,079) $(1,421,978) (45,727,881) $
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 69,120 59,170 1,154,890
License fee - - 500,000
Interest expense on note payable - - 72,691
Accrued interest on long-term financing - - 796,038
Accrued interest on short-term financing - - 7,936
Intangibles and equipment write down - - 278,318
Common stock and notes payable issued for - 751,038
expenses -
Settlement with consultant - - (28,731)
Acceleration of options previously granted - - 1,170,000
Amortization of stock based compensation - 18,558 3,444,926
Changes in certain operating assets and
liabilities:
Accounts receivable 158,082 (1,250,000) (795,081)
Prepaid expenses and other 147,591 148,459 (1,148,894)
Accounts payable (312,358) 209,872 699,712
Accrued expenses and other 115,071 20,816 622,070
------------ ------------ -------------
Net cash used for operating activities (2,044,573) (2,215,103) (38,202,968)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (675,733) (402,630) (2,831,350)
Purchases of property and equipment (15,868) (4,812) (2,559,195)
------------ ------------ -------------
Net cash used for investing activities (691,601) (407,442) (5,390,545)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, related party - - 302,000
Payments on notes payable, related party - - (302,000)
Proceeds from senior bridge notes payable - - 1,850,000
Payments on senior bridge notes payable - - (1,850,000)
Proceeds from notes payable and long-term debt - - 3,951,327
Payments on notes payable and long-term debt - - (1,951,327)
Proceeds from Common stock, stock option
and warrant issuances, net 10,547,809 13,948 28,416,082
Proceeds from Preferred stock, net - 11,000,000 24,210,326
Purchase of treasury stock - - (1,667)
------------ ------------ -------------
Net cash provided by financing activities 10,547,809 11,013,948 54,624,741
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH
AND 1995 (UNAUDITED)
The accompanying notes to the consolidated financial statements 5
are an integral part of these financial statements.
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Nature of Business -- Palatin Technologies, Inc. ("Interfilm", headquartered in Princeton, NJ with its research facility in Edison, NJ, is a development-stage, pharmaceutical company dedicated to developing and commercializing products and technologies for diagnostic imaging and ethical drug development utilizing peptide, monoclonal antibody, and radiopharmaceutical technologies. We are in the early stages of developing pharmaceutical products and technologies. We are concentrating our efforts on the following:
Business Risk and motion picture post-production industry. Interfilm Technologies, Inc.
("Interfilm Technologies") was organizedLiquidity – As shown in New York on July 6, 1992the accompanying financial statements, we have incurred substantial net losses of $2,222,079 for the three months ended September 30, 2000 and have a deficit accumulated during development stage of $45,727,881. We anticipate incurring additional losses over at least the next several years, and such losses are expected to exploit
the rights related to its interactive motion picture process, including the
production and distribution of interactive motion pictures, which the Company
refers toincrease as "Cinematic Games," for initial exhibition in theatres and
subsequently in enhanced versions for distribution to the home market.
Interfilm Technologies also developed its Interfilm Technology System (the "IT
System"). To date, Interfilm Technologies has devoted a majority of its
resources to the development and production of its Cinematic Games andwe expand our research and development activities directed towardrelating to various technologies. To achieve profitability, we must, alone or with others, successfully develop and commercialize our technologies and proposed products, conduct pre-clinical studies and clinical trials, obtain required regulatory approvals and successfully manufacture and market such technologies and proposed products. The time required to reach profitability is highly uncertain, and there can be no assurance that we will be able to achieve profitability on a sustained basis, if at all.
In September and October of 2000, we received gross proceeds of $15.15 million in a private placement of common stock and warrants.
Management plans to continue to refine operations, control expenses, evaluate alternative methods to conduct its technology.
On November 4, 1993business, and seek available and attractive sources of financing and sharing of development costs. There can be no assurance that the Company acquired (the "Acquisition") all of the
outstanding capital stock of Interfilm Technologies, in exchange for Common
Stock. The principal purpose of the Acquisition was to combine the rights to
the interactive motion picture concept and the IT System, and the development
and creative skills of the principals of Interfilm Technologies, with the motion
picture industry background and experience of the principals of Interfilm. The
Company's initial public offering was consummated on October 28, 1993. The
AcquisitionCompany’s efforts will be successful. Management believes that adequate financing has been reflected for accounting purposes as the acquisitionobtained to fund operations through September 30, 2001, based on current expenditure levels.
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The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim
financial information, and accordingly,with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesfootnote disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, these financial statements contain all adjustments (consisting of only normal recurring adjustments) considered necessary to present fairly the financial position as of September 30, 2000 and the results of operations and cash flows for the three month period ended September 30, 2000 and 1999 and for the period from inception (January 28, 1986) to September 30, 2000. The results of operations for the three month period ended September 30, 2000 may not necessarily be indicative of the results of operations expected for the full year, except that the Company expects to incur a significant loss for the fiscal year ended June 30, 2001.
The accompanying financial statements should be read in conjunction with the more detailedaudited financial statements and related footnotesnotes thereto included in our annual report on Form 10-K, filed with the company's Annual ReportSecurities and Exchange Commission, which includes financial statements as of June 30, 2000 and 1999 and for each of the three fiscal years in the period ended June 30, 2000.
In March 2000, the FASB issued interpretation No. 44, (“FIN 44”), “Accounting for certain transactions Involving Stock Compensation – an Interpretation of APB 25.” This Interpretation clarifies the definition of employee for purposes of applying APB 25 and provides the accounting consequences of various modifications to the terms of a previously fixed stock option or award. This Interpretation is effective July 1, 2000. The adoption of FIN 44 does not have a material impact on our financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101) which is effective for fiscal years beginning after December 15, 1999. The bulletin draws on existing accounting rules and provides specific guidance on how those accounting rules should be applied, and specifically addresses revenue recognition for non-refundable technology access fees in the biotechnology industry. We expect that we will be required to defer non-refundable technology fees recorded in 1999 and recognize the related revenue over future periods. The SEC has extended the implementation date of SAB 101 until the fourth quarter of fiscal years beginning after December 15, 1999. In accordance with SAB 101, we expect to report a change in accounting principle and to record the impact of this change as a cumulative effect in our statement of operations.
Principles of Consolidation -- The consolidated financial statements include the accounts of our wholly-owned inactive subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates -- The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and
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assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Short-Term Investments --We account for investments in accordance with Statement of Financial Accounting Standards No. 115 “Accounting For Certain Investments in Debt and Equity Securities.” We classify such investments as available for sale investments and as such all investments are recorded at fair value. The investments consist of certificates of deposit. Unrealized gains and losses are classified as a separate component of stockholder’s equity. As of September 30, 2000 the unrealized gain on investments was immaterial. Realized gains and losses are recorded in the statement of operations in the period that the transaction occurs.
Fixed Assets -- Fixed assets consist of equipment, office furniture and leasehold improvements. Fixed assets are stated at cost. Depreciation is recognized using the straight-line method over the estimated useful lives of 5 years for equipment, 7 years for office furniture and over the term of the lease for leasehold improvements. Maintenance and repairs are expensed as incurred while expenditures that extend the useful life of an asset are capitalized.
Impairment of Long-Lived Assets -- We comply with Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of our long-lived assets, we evaluate the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. Impairment is measured at fair value. Fair value is determined by an evaluation of available price information at which assets could be bought or sold including quoted market prices, if available, or the present value of the estimated future discounted cash flows based on reasonable and supportable assumptions.
Revenue Recognition -- Grant and contract revenues are recognized as services stipulated in the underlying grants and/or contracts are provided based on the time and materials incurred. License revenues are recognized when the license fee is received and we have no further obligations.
Research and Development Costs -- The costs of research and development activities are expensed as incurred.
Stock Options and Warrants -- Warrants and the majority of common stock options have been issued at exercise prices greater than, or equal to, their fair market value at the date granted. Accordingly, no value has been assigned to these instruments. However, certain stock options were issued under non-plan option agreements and a non-qualified stock option plan at exercise prices below market value. The difference between the exercise price and the market value of these securities has been recorded as deferred compensation and is being expensed over the vesting period of the option.
Income Taxes -- We intend to file consolidated federal and combined state income tax returns. We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes.” SFAS 109 requires, among other things, the use of the liability method in computing deferred income taxes.
We provide for deferred income taxes relating to timing differences in the recognition of income and expense items (primarily relating to depreciation, amortization and certain leases) for
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financial and tax reporting purposes. Such amounts are measured using current tax laws and regulations in accordance with the provisions of SFAS 109.
In accordance with SFAS 109, we have recorded a valuation allowance against the realization of its deferred tax assets. The valuation allowance is based on management’s estimates and analysis, which includes tax laws which may limit our ability to utilize tax loss carryforwards.
Net Loss per Common Share -- We apply SFAS No. 128, “Earnings per Share” (“SFAS 128”). SFAS 128 requires dual presentation of basic and diluted earnings per share (“EPS”) for complex capital structures on the face of the statement of operations. Basic EPS is computed by dividing the income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or conversion of securities into common stock, such as stock options. For the three months ended September 30, 2000 and 1999 and for the period from inception (January 28, 1986) through September 30, 2000, there were no dilutive effects of stock options or warrants as we incurred a net loss in each period. Options and warrants to purchase 6,267,192 shares of common stock at prices ranging from $0.20 to $360 per share were outstanding at September 30, 2000.
Fair Value of Financial Instruments -- Statement of Financial Accounting Standards No. 107 (“SFAS 107”), “Disclosures about Fair Value of Financial Instruments,” requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate the value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent our underlying value. Based on the above, the amount reported on the balance sheet approximates the fair value.
Reclassifications –Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.
Leases– We lease two facilities in New Jersey under non-cancelable operating leases.
License Agreements – We currently maintain four license agreements that require minimum yearly payments. The cost to maintain these license agreements for the fiscal year ending June 30, 2001 amounts to $230,000. There were no payments due during the three months ended September 30, 2000 under these agreements.
In September and October of 2000, we received gross proceeds of $15.15 million in a private placement common stock and warrants. Investors purchased 2,532,368 shares of common stock in two tranches: 1,800,000 shares at $6.00 per share and 732,368 shares at $5.94 per share. For every five shares purchased, the investors also received a five-year warrant to purchase one share of common stock at an exercise price of $7.50 for the first tranche and $7.42 for the second tranche.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
General
The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes filed as part of this report.
We make forward-looking statements in this report. Sometimes these statements contain words such as “anticipates,” “plans,” “intends,” “expects” and similar expressions to identify forward-looking statements. These statements are not guarantees of our future performance. Our business involves known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from what we say in this report. We describe a number of these factors in our annual report on Form 10-K for the year ended December
31, 1995 filed with the Securities and Exchange CommissionJune 30, 2000. Given these uncertainties, you should not place undue reliance on March 29, 1996.
In the opinion of management, the accompanying unaudited financialthese forward-looking statements, contain all adjustments (which includewhich speak only normal recurring
accruals) necessary to present fairly the financial positionas of the Companydate of this report. We will not revise these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
We expect to incur substantial operating losses over the next several years due to continuing expenses associated with our research and development programs, including pre-clinical testing, clinical trials and manufacturing. Operating losses may fluctuate from quarter to quarter as a result of March 31, 1996differences in the timing of when we incur expenses.
Three Month Period Ended September 30, 2000 Compared to Three Month Period Ended September 30, 1999.
Grants and Contracts –Contract revenue decreased to $795,081 for the resultsthree month period ended September 30, 2000 compared to $1,250,000 for the three month period ended September 30, 1999, mainly due to decreased shared development costs of its operations and its cash flowsLeuTech pursuant to our strategic collaboration agreement with Mallinckrodt, Inc. We recorded $60,000 as grant revenue for the three months ended March 31, 1996 and 1995, respectively. The results of
operationsSeptember 30, 2000. We had no revenue from grants recorded for the periodsthree-month period ended March 31, 1996 areSeptember 30, 1999.
License Fees and Royalties – We did not 6
record any revenues from license fees for the three-month period ended September 30, 2000. We recorded $500,000 in license fees as revenue during the three month period ended September 30, 1999. We received these fees as a one-time, non-refundable payment pursuant to our strategic collaboration agreement with Mallinckrodt.
Research and development - Research and development expenses increased slightly to $2,455,597 for the three month period ended September 30, 2000 compared to $2,448,623 for the three month period ended September 30, 1999. These expenses related primarily to the development of LeuTech, including expenses for manufacturing scale-up and regulatory consulting. We expect research and development expenses to continue to increase in future quarters as we expand clinical trials and manufacturing efforts on LeuTech and expand our efforts to develop our MIDAS and PT-141 technologies.
General and administrative - General and administrative expenses decreased to $706,575 for the three month period ended September 30, 2000 compared to $769,434 for the three month period ended September 30, 1999. The decrease in general and administrative expenses is mainly
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attributable to a decrease in administrative salaries following the resignation of our former president and CEO in June 2000.
Interest income - Interest income increased to $87,292 for the three month period ended September 30, 2000 compared to $71,315 for the three month period ended September 30, 1999. Interest income increased primarily from the additional funds available pursuant to our recent financing.
Interest expense - Interest expense decreased to $2,280 for the three month period ended September 30, 2000 compared to $25,236 for the three month period ended September 30, 1999. Interest expense decreased because of the results expectedrepayment of debt in the three months ended September 30, 1999.
Net loss - Net loss increased to $2,222,079 for the entire year ending
December 31, 1996.
NOTE 2
On May 10, 1995,three month period ended September 30, 2000 compared to $1,421,978 for the Boardthree month period ended September 30, 1999. The increase is due to the reduction of Directorsrevenues recorded pursuant to the provisions of the Company decided to
substantially curtail the operations of the Company and initiate legal
proceedings against the Sony Corporation of America ("Sony") for, among other
things, breach of contract, and other causes of action (see Item 2, Litigation
against Sony). Since that time the Company has conducted no on-going business
other than (a) liquidating its assets, (b) terminating existing contracts, (c)
negotiating the repayment terms for obligations to its primary creditors, and
(d) attempting to find acquisition or merger candidates (see Note 3).
The Company's assets are currently less than its liabilities. In order to
address this situation, the Company has, on an on-going basis, been negotiating
with its creditors to reduce such liabilities although there can be no assurance
that the Company will be able to reachour strategic collaboration agreement with all of its creditors (See
"LiquidityMallinckrodt.
Liquidity and Capital Resources").
NOTE 3
On April 12, 1996,Resources
Since inception, we have incurred net operating losses. As of September 30, 2000, we had a deficit accumulated during development stage of $45,727,882. We have financed our net operating losses through September 30, 2000 by a series of debt and equity financings. At September 30, 2000, we had cash and investments of $14,513,139.
For the Company announced that it has entered into an
Agreementthree months ended September 30, 2000, the net increase in cash was $7,811,635. Net cash used for operating activities was $2,044,573, net cash used for investing activities was $69,601 and Plannet cash provided by financing activities was $10,547,809.
In September and October 2000, we received gross proceeds of Reorganization (the "Acquisition Agreement") with RhoMed
Incorporated ("RhoMed"). Pursuant to the Agreement and Plan, at the closing of
the transaction, RhoMed will become a wholly-owned subsidiary of Interfilm and
the shareholders of RhoMed will hold an approximately 90% interest in the equity
securities of Interfilm on a fully diluted basis, with the current stockholders
of Interfilm retaining an 8% interest and other parties holding approximately
2%. These percentages are calculated before taking into account shares issued
and to be issued$15.15 million in a private placement of RhoMed securitiescommon stock and certainwarrants. Investors, consisting of European financial institutions and other foreign accredited investors, purchased approximately 2.5 million shares which mayof common stock in two tranches: 1,800,000 shares at $6.00 per share and 732,368 shares at $5.94 per share. The net proceeds of approximately $14.1 million will be issuable pursuant to stock options of RhoMed to be assumed by the
Company. The transaction is contingent on a number of conditions, including the
receipt of a permit from the California Department of Corporationsused primarily for general corporate purposes, especially for the issuancedevelopment and clinical trials of new products based on our proprietary technologies.
We have three license agreements that require minimum yearly payments. Future minimum fiscal year payments under the Interfilm securities to the RhoMed shareholders. Further,
effective immediately following the closinglicense agreements are: 2001 - $230,000, 2002 - $280,000, 2003 - $280,000, 2004 - $280,000 and 2005 - $280,000.
As of the transaction, the current
officers and directors of Interfilm will resign and will be replaced by the
current officers and directors of RhoMed.
Under the Acquisition Agreement, certain assets and liabilities of
Interfilm (consisting principally of certain intellectual property and
litigation claims against Sony) will be transferred to a separate entity for the
benefit of the stockholders of Interfilm as of a record date immediately prior
to closing.
RhoMed is a development stage biopharmaceutical company focused on the
development of a platform technology for the design and synthesis of receptor-
specific metallopeptide mimics of native peptides, as well as other types of
molecules, such as steroids and hormones. RhoMed believes that this technology
may represent an advantageous pathway to drug design and development for a broad
range of diagnostic and therapeutic applications. Following the closing of the
transaction, the business of RhoMed shall represent the on-going business of the
combined entity.
7
NOTE 4
On April 18, 1996 the Company2000, we entered into a settlement agreement with
General Cinema Theatres ("General Cinema") whereby General Cinema accepted
$35,000 as payment in full against a contractual obligation that was accrued on
the Company's books for $252,000. Accordingly, during the second quarter of
1996, the Company will recognize income of $217,000 for the difference between
the amount accrued and the actual amount paid.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
RECENT DEVELOPMENTS:
CURTAILMENT OF COMPANY'S OPERATIONS:
On May 10, 1995, the Board of Directors of the Company decided to
substantially curtail the operations of the Company and initiate legal
proceedings against Sony for, among other things, breach of contract, and other
causes of action. The decision to materially curtail operations was made after
taking into account a number of factors, although it was substantially the
result of Sony's failure, through its subsidiary AEC, to meet its contractual
obligations to the Company to produce additional Cinematic Games for release.
Since curtailment, the Company has terminated all but two of its employees,
canceled all of its property leases, and has been largely dormant other than
pursuing its litigation claims against Sony and seeking a merger with (or
reverse acquisition of) a third party. (See "Liquidity and Capital Resources").
The Company's assets are currently less than its liabilities. In order to
address this situation, the Company has, on an on-going basis, been negotiating
with its creditors to reduce such liabilities although there can be no assurance
that the Company will be able to reach agreement with all of its creditors (See
"Liquidity and Capital Resources").
THE COMPANY'S CURRENT PLANS:
During the past few months, the Company has reviewed a number of reverse
acquisition proposals. In this connection, the Company entered into the
Acquisition Agreement with RhoMed and a newly formed wholly owned subsidiary of
the Company, InSub ("InSub"), whereby InSub will merge with and into RhoMed
(the "Merger"). Pursuant to the Merger, each share of RhoMed Preferred Stock
outstanding immediately prior to the effective date of the Merger (the
"Effective Time") will be converted into .01 shares of the Series A Convertible
Preferred Stock of Interfilm (the Interfilm Series A Preferred"), and each share
of RhoMed Common Stock outstanding immediately prior to the Effective Time will
be converted into .01 shares of Series B Convertible Preferred Stock of
Interfilm (the "Interfilm Series B Preferred"). Additionally, all warrants and
options to purchase common stock of RhoMed outstanding immediately prior to the
Effective Time (the "RhoMed Derivative Securities"), including without
limitation, any
8
rights underlying RhoMed's qualified or non-qualified stock option plans, will
be automatically converted into rights upon exercise to receive Interfilm
capital stock in the same manner in which the shares of RhoMed Common Stock are
to be converted at the Effective Time.
Holders of each class of Preferred Stock will be entitled to vote on
matters submitted to a vote of stockholders of Interfilm as if the applicable
shares of Preferred Stock were converted into shares of Common Stock. Each
share of the Interfilm Series A Preferred Stock will automatically convert into
466.95404349 shares of Interfilm Common Stock and each share of Interfilm Series
B Preferred Stock will automatically convert into 184.332593 shares of Interfilm
Common Stock upon the filing of an amendment to Interfilm's Certificate of
Incorporation increasing the number of authorized shares of Common Stock.our research facility’s lease, which increased our rentable space from approximately 10,500 square feet to approximately 15,800. Our aggregate future minimum lease payments escalate from approximately $203,000 until July 13, 2002 to $300,000 from July 14, 2002 through July 13, 2007.
On March 15, 2000 we entered into an agreement with Watson Laboratories Inc. (f/k/a TheraTech, Inc.) to terminate our License and Development Agreement with Watson dated March 18, 1998. In connection with the Merger, the holderstermination, we paid Watson approximately $500,000.
As of the RhoMed Preferred Stock
and RhoMed Common Stock (including the holders of RhoMed Derivative Securities)
will be receive an aggregate of approximately 90% of the outstanding capital
stock of Interfilm (on a fully diluted basis) after giving effect to the (a)
shares of Interfilm Series A Preferred Stock and Interfilm Series B Preferred
issuable pursuant to the merger, and (b) shares of the capital stock of
Interfilm issuable pursuant to the exercise or conversion of the RhoMed
Derivative Securities. The current stockholders of Interfilm will retain
approximately an 8% interest and other parties will hold approximately 2%.
These percentages are calculated before taking into account shares issued and to
be issued in a private placement of RhoMed securities up to an amount of
$10,750,000 and certain shares which may be issuable pursuant to stock options
of RhoMed to be assumed by the Company.
As a result of the Merger, RhoMed will become a wholly owned subsidiary of
Interfilm. The merger will not affect any of the rights of the existing
security holders of Interfilm except that, upon the merger, such holders will
indirectly receive their pro rata share of certain assets of Interfilm existing
immediately prior to the closing.
Immediately prior to the Effective Time, all of the then remaining assets
of Interfilm (the "Interfilm Assets") will be transferred to a separate entity
for the benefit of the stockholders of Interfilm as of a record date immediately
prior or the Effective Time. It is expected that such entity will either be a
liquidating trust or limited partnership. The Interfilm Assets consist
principally of funds which may be recoverable from a lawsuit filed against Sony
Corporation of America ("Sony") and certain intellectual property rights of
Interfilm. The Interfilm Assets will be available to secure the indemnification
obligations of Interfilm pursuant to the Reorganization Agreement, including any
tax (including interest and penalties) imposed on Interfilm arising from the
transfer of the Interfilm Assets.
9
LITIGATION AGAINST SONY:
On May 10, 1995, the Company initiated legal proceedings against Sony for,
among other things, breach of contract and other causes of action related to the
actions or inactions of Sony under the Sony New Technologies AgreementDecember 7, 1999, we entered into bya five-year lease on administrative offices in Princeton, New Jersey. Minimum future lease payments range from approximately $187,374 in year one to approximately $202,070 in year five. We have entered into a sublease agreement with Derma Sciences, Inc. on our former administrative offices. Under the sublease agreement Derma reimburses us 100% of all rents and between the Company on the one hand,utility charges.
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On August 16, 1999, we entered into a strategic collaboration agreement with Mallinckrodt, a large international healthcare products company, to jointly develop and Advanced Exhibition
Corporation ("AEC"), an indirect subsidiary of Sony, and Sony Theatres, on the
other hand, in April 1993 and which was subsequently amended as of November 19,
1993 and October 19, 1994, (collectively, the "Sony New Technologies
Agreement"). Pursuant to the original terms of the Sony New Technologies
Agreement, Sony was obligated, among other things, to develop, produce, market distribute and exhibit three Cinematic Games ("Sony-financed Cinematic Games").
Subsequently, at Sony's request, the Sony New Technologies agreement was amended
so that Sony's commitment to produce Cinematic Games was reduced to two
Cinematic Games in exchange for, among other things, an increased financial
marketing commitment by Sony. The first Sony-financed Cinematic Game was
initially slated for a first half 1994 release, although the release date was
delayed until February 1995, when "Mr. Payback", the first Sony-financed
Cinematic Game, was released. Among other things, the Company alleges that the
delay in the opening of the first Cinematic Game, which delay the Company
alleges was primarily a result of Sony's failure to abide by the terms of the
Sony New Technologies Agreement, seriously harmed the Company.LeuTech. Under the terms of the revised Sonyagreement, Mallinckrodt:
| • | received an exclusive worldwide license (excluding Europe) for sales, marketing and distributions of LeuTech and paid a licensing fee of $500,000; |
| • | agreed to make milestone payments totaling $5,000,000 upon FDA approval of the first LeuTech indication and $5,000,000 on the attainment of sales goals following product launch; |
| • | agreed to reimburse us for 50% of all ongoing LeuTech development costs, subject to a cap, which can be amended; |
| • | agreed to pay to us a transfer price for each LeuTech product unit delivered to Mallinckrodt and a quarterly royalty on Mallinckrodt's future net sales of LeuTech; |
| • | purchased 700,000 restricted shares of our non-voting Series C convertible preferred stock for $13,000,000; and |
| • | agreed that the Series C convertible preferred stock would be convertible after five years, or earlier upon the occurrence of a change in control (as defined in the agreement), into 700,000 shares of our common stock with certain registration rights and anti-dilution rights. |
In March 1997, we entered into a ten-year lease on research and development facilities in Edison, New Technologies Agreement, Sony was obligatedJersey, which commenced August 1, 1997. Minimum future lease payments escalate from approximately $116,000 per year to begin
principal photography$200,000 per year after the fifth year of the next Sony-financed Cinematic Game by May 15, 1995.
Because Sony advisedlease term. The lease will expire in fiscal year 2007.
We are and expect to continue actively searching for certain products and technologies to license or acquire, now or in the Company that Sony had no intention of producing,
distributingfuture. If we are successful in identifying a product or technology for acquisition, we may require substantial funds for such an acquisition and marketing additional Sony-financed Cinematic Games,subsequent development or commercialization. We do not know whether any acquisition will be consummated in the Company
decided initiated litigation against Sony.
On July 7, 1995, Sony filed a motionfuture.
We have incurred negative cash flows from operations since our inception, and have expended, and expect to dismiss or staycontinue to expend in the action on
grounds of Forum Non Conviens arguing that New York rather than California was
the appropriate venue for the action. A hearing on the motion was held on
September 13, 1995, at which time, the California Court ruled in favor of the
Sony motion. The Company has elected notfuture, substantial funds to pursue an appeal of the California
Court's ruling and has instead engaged counsel in New York to file the lawsuit
and pursue its claims in New York. In April 1996 the Company refiled the cause
of action in New York.
The Company believes it has legitimate claims against Sony and has asked
for significant monetary damages. There are many uncertainties associated in
any litigation proceeding which the Company cannot foresee,complete our planned product development efforts. We expect our existing capital resources, including the ultimate financial cost to the Company of pursuing the litigation to a final
judgment. Additionally, it should be noted that Sony has far greater resources
than the Companyfunds we received in September and could prevail in the litigation if the Company's financial
resources are depleted (see "Liquidity and Capital Resources'), regardless of
the merits of the Company's claims. The Company has retained New York
litigation counsel on a fee arrangement that is contingent upon the results of
the litigation. There can be no assurance as to the outcome of the litigation,
or even if the Company ultimately obtains a judgment against Sony, whether the
CompanyOctober 2000, will be awarded an amount sufficientadequate to cover itsfund our projected operations through September 30, 2001, based on current expenditure levels.
We anticipate incurring additional losses sufferedover at least the next several years, and we expect our losses to increase as a
result of the aforesaid breaches. Although the Sony litigationwe expand our research and development activities relating to MIDAS, LeuTech and PT-141. To achieve profitability, we, alone or with others, must successfully develop and commercialize our technologies and proposed products, conduct pre-clinical studies and clinical trials, obtain required regulatory approvals and successfully manufacture and market such technologies and proposed products. The time required to reach profitability is being pursued
on a contingency fee basis, the Company is
10
responsible to pay all out-of-pocket costs for which the Company has already
deposited $25,000 into escrow with its New York litigation attorneys. The
Company will place additional funds into escrow as needed. The Company believes
it has sufficient funds to cover such out-of-pocket costs although there can be
no assurance that the Companyhighly uncertain, and we do not know whether we will be able to pay all such costs. Inachieve profitability on a sustained basis, if at all.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. Our exposure to market risk related to changes in interest rates relates primarily to our investment portfolio. We invest in instruments that meet high credit quality standards, and we limit the eventamount of credit exposure as to any one issue, issuer and type of investments.
As of September 30, 2000, our cash and cash equivalents and investments consisted of $14,250,064, most of which were short term investments having a maturity of less than one year. Due to the Company doesaverage maturity and conservative nature of our investment portfolio, we do not have sufficient fundsbelieve that short term fluctuations in interest rates would materially affect the value of our securities.
On March 14, 2000, we announced that we would not be extending the merger consummation date of March 31, 2000 for our previously announced proposed merger with San Diego-based Molecular Biosystems, Inc. and would not be proceeding with the merger. Our decision not to cover such expenses it may have to
look to an outside third party to fund such expenses or causeproceed with the litigation to
be dismissed.
SOURCES OF REVENUE
Withmerger was based on management’s view that the curtailment of its operations, the Company has no reasonable
expectations of any revenuemerger was not in the foreseeable future.
RESULTS OF OPERATIONS
best interests of our stockholders.
On May 10, 1995,or about April 28, 2000, Molecular Biosystems commenced a legal action against us and against Evergreen Merger Corporation, our wholly-owned shell subsidiary, in the Board of Directors decided to substantially curtail
the operations of the Company. The consequences of such curtailment included
the write down of substantially all of the Company's remaining assets associated
with its Cinematic Game business and other selected assets to net realizable
value, as well as the accrual of certain liabilities.
System sales for the three months ended March 31, 1996 and 1995 were $0 and
$1,236,000 respectively and represent sales of the Company's IT System to
theatre operators. Costs of revenues for same periods were $0 and
$935,000 respectively, and represent the costs of goods associated with the
Company's IT System.
Other revenues were $0 and $7,000for the three months ended March 31, 1996
and 1995 respectively and represent programming and technology fees charged by
the Company to theater exhibitors.
Selling, general and administrative expenses for the three months ended
March 31, 1996 were $209,000, and consist primarily of legal fees associated
with the Company's litigation claims against Sony and other general and
administrative expenses associated with pursuing a merger or acquisition
candidate. For the same three month period ending March 31, 1995, Selling,
general and administrative expenses were $945,000 and represented the Company's
effort to build public awareness and product identity for its Cinematic Games,
expenses associated with technical advancements of the IT System, as well as,
other expenditures include salaries and employee benefits, professional fees,
and other general and administrative expenses such as rent and telephone
expenses.
Depreciation and amortization expense for the three months ended March 31,
1996 and 1995 were $0 and $93,000 respectively, and represents depreciation and
amortization of the Company's property and equipment, and purchased technology.
On October 7, 1994, the Company elected to discontinue its editing division
due to its inability to establish profitability, and the Company's desire to
fully focus its efforts in
11
the interactive motion picture business. Gains from the discontinued division
totaled $0 and $81,000for the three months ended March 31, 1996 and 1995,
respectively.
Other (expenses) and income for the three months ended March 31, 1996 and
1995 were ($4,000 and $41,000 respectively, and represent the combination of
interest and dividend income earned on the Company's marketable securities,
interest expense from the Company's bank line of credit and, gains and losses
from the sale of the Company's marketable securities.
LIQUIDITY AND CAPITAL RESOURCES
On May 10, 1995, the Board of Directors of the Company decided to
substantially curtail the operations of the Company and initiate legal
proceedings in Superior Court of the State of CaliforniaDelaware, County of New Castle. In the complaint, Molecular Biosystems seeks damages against us and Evergreen arising from the Sony
Corporationalleged improper termination of America ("Sony")the merger agreement dated November 11, 1999, among Molecular Biosystems, Palatin and Evergreen. Under the merger agreement, Evergreen would have merged with and into Molecular Biosystems, which would have become a wholly-owned subsidiary of ours.
As a consequence of the claims alleged in the complaint, Molecular Biosystems contends that it is entitled to an award of damages against us and Evergreen in amounts to be determined at trial, but in any event, at least equal to $1,765,305. This figure represents the amount of a “breakup fee” of $1,000,000 provided for among other things, breachin the merger agreement and $765,305 for the costs and expenses incurred by Molecular Biosystems in connection with the proposed merger. In addition, Molecular Biosystems seeks consequential damages in an unstated amount plus interest and Molecular Biosystems’ costs and expenses of contract,the action.
In our response filed in June of 2000, we have denied the material allegations. Management believes that we have good and other causesmeritorious defenses to the action and we intend vigorously to defend the action.
We are involved in various claims and litigation arising in the normal course of action (see Litigationbusiness, consisting of actions commenced against Sony). Since that timePalatin prior to the Company has conducted no on-going business other than (a) liquidating its
assets, (b) terminating existing contracts, (c) negotiating the repayment terms
for obligations to its primary creditors, and (d) attempting to find acquisition
or merger candidates (see Note 3 and Item 2 "the Company's Current Plans").
The Company's assets are currently less than its liabilities. In order to
address this situation, the Company has, on an on-going basis, been negotiating
with its creditors to reduce such liabilities although there can be no assuranceRhoMed merger. We believe that the Companyoutcome of such claims and litigation will be ablenot have a material adverse effect on our business.
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Item 2. Changes in Securities and Use of Proceeds.
In a private placement of common stock and warrants in September and October 2000, we sold 2,532,368 shares of our $.01 par value common stock to reach agreement with alla total of its creditors.
For the three month period ended March 31, 1996, net cash provided by
operating activities was $87,000and resulted primarily fromnine investors in two tranches: 1,800,000 shares at $6.00 per share and 732,368 shares at $5.94 per share. The gross proceeds were approximately $15.15 million and the net proceeds were approximately $14.1 million. For every five shares purchased, the investors also received an immediately exercisable five-year warrant to purchase one share of the
proceeds from the sales of marketable securities, and a net loss of $213,000.
INFLATION AND SEASONALITY AND VARIATION IN QUARTERLY RESULTS
As the Company's operations will be largely dormant, neither inflation nor
seasonality and variation in quarterly results should have any effect on the
Company
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 10, 1995 the Company initiated legal proceedings against Sony in
Superior Court of the State of Californiacommon stock. The warrants for among other things, breach of
contract, fraud and other causes of action. (See "Item 2. Litigation against
Sony".) In April 1996, the Company refiled the action360,000 shares issued in the Supreme Courtfirst tranche have an exercise price of $7.50 per share, and the Statewarrants for 146,472 shares issued in the second tranche have an exercise price of New York. Except$7.42. We made the private placement solely to foreign accredited investors pursuant to Regulation D under the Securities Act of 1933. The investors represented to us that they were purchasing the securities for their own accounts for investment and not with a view toward resale or distribution to others. The certificates representing the above mentioned litigation,shares of common stock and warrants bear restrictive legends.
In connection with the Company
is not involved in any other material legal proceedings, other than ordinary
routine litigation incidentalprivate placement, we paid a finder's fee of $1,060,391 and issued five-year warrants to the Company's business.
ITEMS 2. -finder to purchase 216,000 shares of common stock at $6.60 per share and 87,884 shares of common stock at $6.53 per share.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. NONE.
ITEMOther Information.
None.
Item 6. (A) Exhibit 27 - FDS
12
Exhibits and Reports on Form 8-K.
(a) Exhibits
| 10.1 Form of stock purchase agreement for the September-October 2000 private placement. | |
| 10.2 Form of registration rights agreement for the September-October 2000 private placement. | |
| 10.3 Form of warrant issued to purchasers in the September-October 2000 private placement. | |
| 27 Financial Data Schedule | |
(b) Reports on Form 8-K
| During the quarter ended September 30, 2000, we filed one report on Form 8-K. On September 21, 2000, we filed a report dated September 19, 2000, containing Item 5, Other Information, and Item 7, Exhibits. Item 5 reported our announcement that we received gross proceeds of $10.8 million in the first tranche of our private placement of stock and warrants. The Item 7 exhibit was our press release concerning the receipt of proceeds in the offering. |
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In accordance with 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.
INTERFILM, INC.
-----------------
(Registrant)
May 14, 1996 /s/ William Franzblau
------------------ --------------------------
(Date) William Franzblau
Chief Operating Officer, and
Principal Executive Officer
May 14, 1996 /s/ Brian Cooper
------------------- ------------------------
(Date) Brian Cooper
Vice President of Finance
13
| Palatin Technologies, Inc. (Registrant) | ||
Date: November 14, 2000 | /s/ Carl Spana Carl Spana, Ph.D. President and Chief Executive Officer | |
Date: November 14, 2000 | /s/ Stephen T. Wills Stephen T. Wills Executive Vice President and Chief Financial Officer |
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