United States
Securities and Exchange Commission
Washington DC 20549
Form 10-QSB
Quarterly Report under Section 13 of the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File No. 0-27282
September 30, 1997
Atlantic Pharmaceuticals, Inc.
1017 Main Campus Drive, Suite 3900
Raleigh, North Carolina, 27606
Telephone (919)513-7020
Incorporated in Delaware IRS ID # 36-3898269
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 last 90 days: Yes [ x ] No [ ]
Transitional Small Business Disclosure Format Yes [ ] No [x ]
3,016,920 shares of common stock, $.001 par value, were outstanding on
September 30, 1997
Atlantic Pharmaceuticals , Inc. and Subsidiaries
PART ONE--FINANCIAL INFORMATION PAGE
Item1--Financial Statements (unaudited)
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996.................. 1
Consolidated Statements of Operations for the three months ended September 30, 1997
and 1996 for the nine months ended September 30, 1997 and 1996 and the period from
July 13, 1993(inception) to September 30, 1997............................................ 2
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997
and 1996 and the period from July 13, 1993 (inception) to September 30, 1997.............. 3
Notes to Consolidated Financial Statements.................................................. 4
Item 2--Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................. 7
Part Two--Other Information
Item 6--Exhibits and Repors on Form 8-K..................................................... 23
PART ONE
ATLANTIC PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage company)
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
ASSETS SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents....................... $ 9,939,494 2,269,532
Prepaid expenses................................ 28,315 24,949
------------------ -----------------
Total current assets.............................. 9,967,809 2,294,481
------------------ -----------------
Furniture and equipment, net of accumulated
depreciation of $122,524 and $75,133 at
September 30,1997 and December 31, 1996,
respectively.................................... 217,049 82,761
------------------ -----------------
Total assets...................................... $ 10,184,858 2,377,242
------------------ -----------------
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses................................ $ 282,894 281,792
------------------ -----------------
Total current liabilities......................... 282,895 281,792
------------------ -----------------
Stockholders' equity
Preferred stock, $.001 par value.
Authorized 50,000,000 shares; none issued
and outstanding Series A Convertible
Preferred stock, $.001 Par value authorized
1,375,000 shares 1,237,200 and 0 shares
issued and outstanding at September 30,
1997 and December 31, 1996, respectively..... 1,237 --
Preferred Warrants 123,720 and 0 shares issued
and outstanding at September 30, 1997 and
December 31, 1996, respectively............... 570,143 --
Common stock $.001 par value. Authorized
80,000,000 shares; 3,016,920 and 2,913,720
shares issued and outstanding at
September 30, 1997 and December 31, 1996,
respectively.................................. 3,017 2,914
Common stock subscribed. 182 shares at
September 30,1997 and December 31,1996........ -- --
Additional paid-in capital...................... 21,546,779 10,634,938
Deficit accumulated during development stage.... (12,137,071) (8,438,660)
Deferred compensation........................... (81,600) (103,200)
------------------ -----------------
9,902,505 2,095,992
Less common stock subscriptions receivable...... (218) (218)
Less treasury stock, at cost.................... (324) (324)
------------------ -----------------
Total stockholders' equity........................ 9,901,963 2,095,450
------------------ -----------------
$ 10,184,858 2,377,242
------------------ -----------------
------------------ -----------------
See accompanying notes to consolidated financial statements.
1
ATLANTIC PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage company)
Consolidated Statements of Operations (Unaudited)
Three months ended September 30, 1997 and 1996, the nine months ended
September 30, 1997 and 1996 and the period from July 13, 1993 (inception) to
September 30, 1997.
CUMULATIVE
THREE MONTHS ENDED NINE MONTHS ENDED FROM JULY 13,
---------------------------- ---------------------------- 1993 (INCEPTION)
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, TO
1997 1996 1997 1996 SEPTEMBER 30,1997
------------- ------------- ------------- ------------- -----------------
Revenue:
Grant income................... -- 52,531 2,288 52,531 99,932
Total Revenue.................... -- 52,531 2,288 52,531 99,932
------------- ------------- ------------- ------------- -----------------
Costs and expenses:
Research and development....... $ 507,194 251,811 1,795,375 739,124 3,481,710
License fees................... -- 10,000 -- 10,000 173,500
General and administrative..... 555,121 892,382 2,030,880 2,002,251 8,251,044
------------- ------------- ------------- ------------- -----------------
Total operating expenses......... 1,062,315 1,154,193 3,826,255 2,751,375 11,906,254
------------- ------------- ------------- ------------- -----------------
------------- ------------- ------------- ------------- -----------------
Other expense (income):
Interest income................ (80,483) (37,933) (125,556) (127,434) (294,826)
Interest expense............... -- -- -- -- 625,575
------------- ------------- ------------- ------------- -----------------
Total other expense (income)..... (80,483) (37,933) (125,556) (127,434) 330,749
------------- ------------- ------------- ------------- -----------------
------------- ------------- ------------- ------------- -----------------
Net loss......................... $ (981,832) (1,063,729) (3,698,411) (2,571,410) (12,137,071)
Imputed Preferred Stock
dividend....................... $(1,775,479) -- (1,896,593) -- (1,896,593)
------------- ------------- ------------- ------------- -----------------
------------- ------------- ------------- ------------- -----------------
Net Loss to common
stockholders................... (2,757,311) (1,063,729) (5,595,004) (2,571,410) (14,033,664)
Net loss per common share........ $ (0.91) (0.38) (1.89) (0.95) (11.59)
------------- ------------- ------------- ------------- -----------------
------------- ------------- ------------- ------------- -----------------
Shares used in calculation of net
loss per common share.......... 3,016,920 2,788,720 2,965,887 2,705,691 1,210,504
------------- ------------- ------------- ------------- -----------------
------------- ------------- ------------- ------------- -----------------
See accompanying notes to consolidated financial statements.
2
ATLANTIC PHARMACEUTICALS, INC. AND SUBSIDIARIES
(a development stage company)
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1997 and 1996 and the period from July 13,
1993 (inception) to September 30, 1997
CUMULATIVE FROM
JULY 13, 1996,
NINE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997
------------- ------------- ---------------
Cash flows from operating activities:
Net loss....................................................... $(3,698,411) (2,571,410) (12,137,071)
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock based compensation -- development.................... 657,900 -- 657,900
Stock based compensation -- general and administrative..... 143,922 160,000 388,504
Discount on notes payable bridge financing................. -- -- 300,000
Depreciation............................................... 47,390 35,245 122,523
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses.................. (3,366) 15,500 (28,315)
Increase (decrease) in accrued expenses.................. 1,102 (510,091) 282,894
Increase (decrease) in accrued interest.................. -- (115,011) 172,305
------------- ------------- ---------------
Net cash used in operating activities............................ (2,851,463) (2,985,767) (10,241,260)
------------- ------------- ---------------
Net cash used in investing activities - acquisition of
furniture and equipment........................................ (181,675) (66,649) (339,570)
------------- ------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of demand notes payable................. -- -- 2,395,000
Repayment of demand notes payable.............................. -- (125,000) (125,000)
Proceeds from the issuance of notes payable -- bridge
financing.................................................... -- -- 1,200,000
Proceeds of issuance of warrants............................... -- -- 300,000
Repayment of notes payable -- bridge financing................. -- (75,000) (1,500,000)
Repurchase of common stock..................................... -- -- (324)
Proceeds from the issuance of common stock..................... 18 1,452,313 7,547,566
Proceeds from the issuance of preferred stock.................. 10,703,082 10,703,082
------------- ------------- ---------------
Net cash provided by (used in) financing activities ............. 10,703,100 1,252,313 20,520,324
------------- ------------- ---------------
Net increase (decrease) in cash and cash equivalents............. 7,669,962 (1,800,103) 9,939,494
Cash and cash equivalents at beginning of period................. 2,269,532 5,044,632 --
------------- ------------- ---------------
Cash and cash equivalents at end of period....................... $ 9,939,494 3,244,529 9,939,494
------------- ------------- ---------------
------------- ------------- ---------------
Supplemental disclosure of noncash financing activities:
Issuance of common stock in exchange for common stock
subscriptions................................................ $ -- -- 7,027
Conversion of demand notes payable and the related
accrued interest to common stock......................... -- -- 2,442,304
------------- ------------- ---------------
------------- ------------- ---------------
See accompanying notes to consolidated financial statements.
3
Atlantic Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1997 and 1996
(1) Basis of Presentation
The accompanying financial statements have been prepared in accordance with
Generally Accepted Accounting Principles for interim financial information.
Accordingly, they do not include all information and footnotes required by
Generally Accepted Accounting Principles for complete financial statements.
In the opinion of management, the accompanying financial statements reflect
all adjustments, consisting of only normal recurring adjustments, considered
necessary for fair presentation. Operating results are not necessarily
indicative of results that may be expected for the year ending December 31,
1997. These financial statements should be read in conjunction with the
Company's Annual Report on form 10 -- KSB for the year ended
December 31, 1996.
(2) Stock Options
In July 1995, Atlantic Pharmaceuticals, Inc. (the "Company") established
the 1995 Stock Option Plan (the "Plan") which, as amended, provides for the
granting of up to 950,000 shares of the Company's common stock, par value
$0.001 per share (the "Common Stock") to officers, directors, employees, and
consultants of the Company.
As of December 31, 1996, options to purchase 419,316 shares of the
Company's Common stock were available for future issuance under the Company's
1995 Stock Option Plan. On February 19, 1997 the Company granted options to
employees to purchase an aggregate of 115,000 shares of Common Stock exercisable
for seven years at an exercise price of $6.875 per share. During the four-year
period commencing February 19, 1998, 25% of such options shall cliff vest and
the remainder of the shares will be exercisable in equal successive one-year
installments. No options have been exercised as of September 30, 1997.
(3) Private Placement
Pursuant to a private placement (the "Private Placement") of its Series A
Convertible Preferred Stock, par value $0.001 per share (the "Preferred Stock'),
the Company issued and sold an aggregate of 1,237,200 shares of Preferred Stock
to certain accredited investors in consideration of $12,372,000. The net
proceeds to the Company after deducting commissions and expenses of the private
placement were $10,703,082.
In connection with this private placement the Company issued to the
underwriter and its designees a warrant to purchase 123,720 shares of the
Company's Preferred Stock at $11.00 per share, which warrant expires on August
7, 2008. In accordance with Statement of Financial Accounting Standard No. 123,
the Company determined the fair value of the warrants using the
4
Black-Sholes model and recognized issuance cost in the amount of $570,143 which
offset the proceeds and increased the Company's stockholders' equity.
(4) Series A Convertible Preferred Stock
The Company has designated 1,375,000 shares of Preferred Stock as "Series A
Convertible Preferred Stock". As of August 15, 1997, there were outstanding
1,237,000 shares of Series A Preferred and warrants to purchase 123,720 shares
of Series A Preferred. The following is a brief summary of the rights,
preferences and privileges of the Series A Preferred. A complete description of
the rights, preferences and privileges of the Series A Preferred is set forth in
the Company's Certificate of Designation that was filed with the Secretary of
State of the State of Delaware on May 22, 1997.
Dividends. Holders of Series A Preferred will be entitled to receive
dividends as, when and if declared by the Board of Directors. Commencing on
August 7, 1998, holders of Series A Preferred will be entitled to a cumulative
payment-in-kind in dividend (the "PIK Dividend") payable in additional shares of
Series A Preferred at the rate of 10% per annum of the Dividend Base Amount,
payable semi-annually, unless their shares of Series A Preferred have previously
been converted into Common Stock. The Dividend Base Amount shall be $13.00 plus
accrued and unpaid dividends (subject to antidilution adjustment). The Company
shall not declare any dividend or distribution on any other capital stock of the
Company unless and until a special dividend or distribution of $13.00 per share
(subject to appropriate adjustment to reflect any stock split, combination,
reclassification or reorganization of the Series A Preferred) has been declared
and paid on the Series A Preferred. No dividend or distribution, as the case may
be, shall be declared or paid on any junior stock unless the same dividend is
paid to holders of Series A Preferred. The Company does not intend to pay cash
dividends on the Series A Preferred or the underlying Common Stock for the
foreseeable future.
Conversion. Each share of Series A Preferred is convertible at the
option of the holder thereof, at any time after the issuance thereof, into
shares of Common Stock initially at a conversion price equal to $4.72. The
conversion price is subject to adjustment upon the occurrence of certain events,
including the issuance of Common Stock at a per share price less than the
conversion price, or the occurrence of a merger reorganization, consolidation,
reclassification, stock dividend or stock split which will result in an increase
or decrease in the number of shares of Common Stock outstanding. Unless
converted earlier, the Company may, at any time on or after August 7, 1998, at
its option, cause the conversion of the Series A Preferred, in whole or in part,
on a pro rata basis, into shares of Common Stock at the conversion price in
effect at that time if the closing bid price of the Common Stock has exceeded
200% of the then applicable conversion price for at least 20 trading days in any
30 consecutive trading day period ending three days prior to the date of notice
of conversion.
Liquidation Preference. Upon (i) a liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, (ii) a sale or other
disposition of all or substantially all of the assets of the Company or (iii)
any consolidation, merger, combination, reorganization or other transaction in
which the Company is not the surviving entity or in which the shares of
5
Common Stock constituting in excess of 50% of the voting power of the Company
are exchanged for or changed into other stock or securities, cash and/or any
other property, after payment or provision for payment of the debts and other
liabilities of the Company, the holders of the Series A Preferred then
outstanding will first be entitled to receive, pro rata (on the basis of the
number of shares of the Series A Preferred then outstanding), and in preference
to the holders of the Common Stock and any capital stock of the Company, an
amount per share equal to $13.00 plus accrued but unpaid dividends, if any,
which in certain circumstances may be paid in securities of another corporation.
Voting Rights. The holders of shares of Series A Preferred have the right
at all meetings of stockholders of the Company to that number of votes equal to
the number of shares of Common Stock issuable upon conversion of the Series A
Preferred at the record date for determination of the stockholders entitled to
vote on such matters or, if no such record date is established, at the date such
vote is taken. So long as at least 50% of the shares of Series A Preferred
remain outstanding, the affirmative vote or consent of the holders of 66.67% of
the shares of Series A Preferred shall be necessary to permit, effect or
validate any one or more of the following: (i) the amendment of the Certificate
of Incorporation or Bylaws of the Company if it adversely affects the relative
rights of the holders of the Series A Preferred, (ii) the declaration or payment
of a dividend on any securities of the Company other than the Series A Preferred
or the authorization of the repurchase of any securities of the Company, (iii)
the issuance of any security ranking senior to or on a parity with the Series A
Preferred with respect to (A) a liquidation event, (B) the payment of dividends
or (C) voting rights (except class voting rights required by law), (iv) any
liquidation, dissolution or sale of substantially all of the assets of the
Company, (v) the incorporation of any subsidiary company and (vi) the issuance
of any debt securities or incurrence of indebtedness for borrowed money in
excess of $1,000,000, provided, however, that any issuance of debt securities or
incurrence of indebtedness for borrowed money in excess of $500,000 shall be
approved by a supermajority of the Board of Directors of the Company.
(5) Imputed Preferred Stock Dividend
In connection with the issuance of the Preferred Stock, the Company
recognized $121,114 in the second quarter and $1,775,479 in the third quarter as
an imputed Preferred Stock dividend to record the difference between the
conversion price of the Preferred Stock and the market price of the Common Stock
on the effective date of the Private Placement. These imputed dividends were
non-cash charges.
6
Item 2 - Management's Discussion and Analysis
Of Financial Condition and Results of Operations
The following discussion of the results of operations and financial
condition should be read in conjunction with the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996.
Results of Operations for the quarter ended September 30, 1997
For the third quarter ended September 30, 1997 there was no grant income
available compared to $52,531 grant income in the third quarter of 1996.
For the third quarter ended September 30, 1997, research and development
expense increased 100% to $507,194 to from $251,811 over the similar period in
1996, primarily due to increased research and development activity in each of
the Company's three subsidiaries, as money was available from the Company's
Private Placement.
For the third quarter of 1997, general and administrative expense decreased
38% to $555,121 from $892,338 in the third quarter of 1996 due to decrease in
payroll and travel expenses.
For the third quarter of 1997, interest income increased 112% to $80,483,
as compared to $37,993 in the third quarter of 1996, as increased cash was
available during the third quarter of 1997 from proceeds received from the
Company's Private Placement.
Results of Operations for the nine month period ended September 30, 1997
For the nine-month period ended September 30, 1997, grant income was $2,288
compared to $52,531 in the similar period of 1996.
For the nine-month period ended September 30, 1997, research and
development expense increased 143% to $1,795,375 from$739,124 over the similar
period in 1996. This increase was primarily due to increased spending on
research and development activity and due to a recognition of research and
development expense in the amount of $657,900 in connection with the issuance of
Common Stock to the minority stockholders of Channel Therapeutics, Inc.
("Channel") as part of the merger of Channel and the Company.
For the nine-month period ended September 30, 1997 general and
administrative expense was $2,030,082, representing no change from the similar
period of 1996.
For the nine-month period ended September 30, 1997, interest income
decreased 1.5% to $125,556 from $127,434 in the similar period of 1996, as less
cash was available during the nine months ended September 30, 1997.
7
Liquidity and Capital Resources
Pursuant to a Private Placement of its Series A Preferred Stock, the
Company issued and sold an aggregate of 1,237,200 shares of Series A Preferred
Stock to certain accredited investors in consideration of $12,372,000. The net
proceeds to the Company after deducting commissions and expenses of the private
placement were $10,703,082.
The Company has incurred an accumulated deficit of approximately
$12,137,071 since inception in July 1993 and expects to continue to incur
additional losses for the foreseeable future.
The Company anticipates that its current resources will be sufficient to
finance the Company's currently anticipated needs for operating and capital
expenditures for a period of approximately 24 months. In addition, the Company
may attempt to generate additional capital through a combination of
collaborative agreements, strategic alliances and equity and debt financings.
However, no assurance can be given that additional capital can be obtained
through these sources on attractive terms or at all. If the Company is not able
to obtain additional financing, the Company may cease operation and in all
likelihood all of the Company's security holders will lose their entire
investment.
The Company's working capital requirements will depend upon numerous
factors, including progress of the Company's research and development programs;
preclinical and clinical testing; timing and cost of obtaining regulatory
approvals; levels of resources that the Company devotes to the development of
manufacturing and marketing capabilities; technological advances; status of
competitors; and ability of the Company to establish collaborative arrangements
with other organizations.
Research and Development Activities
Preclinical studies with all four technologies are proceeding according to plan.
Optex Ophthalmologics, Inc. ("Optex") development of the Catarex device is
continuing. The focus is continued refinement of the clinical prototype device.
The device has been used by a number of outside ophthalmologists in ex vivo
studies to assist in the refinement process.
Gemini Technologies Inc. ("Gemini") antisense enhancing technology is
continuing to make good progress. The new oligonucleotides against Respiratory
Syncytial Virus have produced promising results in vitro and preparation has
begun for in vivo testing in animal models. Studies are continuing in the areas
of Chronic Myelogenous Leukemia and other cancer targets.
Channel's sulfated cyclodextrin technology is advancing through the testing
of lead compounds. The compounds are being tested in vitro and in vivo with the
most advanced compounds currently in bovine and ursine models. Bioengineering
for the stent-bonding program has begun. Discussions are continuing for
potential collaborations for the incorporation of sulfated cyclodextrins into
synthetic vascular graft material.
8
Preclinical characterization of CT-3 is continuing in a number of in vivo
models. Additionally, the synthesis process is being refined along with the
manufacture of Good Manufacturing Procedure compound.
Future Outlook
In addition to historical information, this report contains
predictions, estimates and other 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. Actual results could differ materially from any future
performance suggested in this report as a result of the risk factors set forth
below and in the Company's Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission on March 30, 1997.
9
RISK FACTORS
In addition to the historical information contained herein, the discussion
in this Quarterly Report contains certain forward-looking statements, within the
meaning of Section 27A of the Securities Act and Section 27E of the Exchange
Act, that involve risks and uncertainties, such as statements of the Company's
plans, objectives, expectations and intentions. The cautionary statements made
in this Quarterly Report should be read as being applicable to all related
forward-looking statements wherever they appear in this Quarterly Report. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include those
discussed below as well as those cautionary statements and other factors set
forth elsewhere herein.
Development Stage Companies; History of Operating Losses; Accumulated Deficit;
Uncertainty of Future Profitability
The technologies and products under development by the Company are in the
research and development stage and no operating revenue, outside of grant
revenues, has been generated to date. The Company does not expect to generate
any revenues in the near future. As a result, the Company must be evaluated in
light of the problems; delays, uncertainties and complications encountered in
connection with newly established businesses. The Company has incurred
operating losses since its inception. As of September 30, 1997, the Company's
working capital and accumulated deficit were $9,684,915 and $12,137,071,
respectively. Operating losses have resulted principally from costs incurred in
identifying and acquiring the technologies under development, research and
development activities and from general and administrative costs. The Company
expects to incur significant operating losses over the next several years,
primarily due to continuation and expansion of its research and development
programs, including preclinical studies and clinical trials for its
pharmaceutical products under development. The Company's ability to achieve
profitability depends upon its ability to develop pharmaceutical and medical
device products, obtain regulatory approval for its proposed products and enter
into agreements for product development, manufacturing and commercialization.
There can be no assurance that the Company will ever achieve significant
revenues or profitable operations from the sale of its proposed products.
Auditor's Opinion
The Company's independent accountants have included an explanatory paragraph in
their report on the Company's financial statements at December 31, 1996,
included in the Company's 1996 Annual Report on Form 10-KSB, which states that
the Company has suffered recurring losses from operations and has limited
capital resources, both of which raise substantial doubt about the Company's
ability to continue as a going concern.
10
Need for Additional Financing; Issuance of Securities by the Company and its
Subsidiaries; Future Dilution
The Company will require, and is constantly considering potential sources for,
substantial additional financing to continue its research, to complete its
product development and to manufacture and market any products that may be
developed. Based solely upon its currently existing consulting, license,
sponsored research and employment agreements, the Company currently anticipates
that it will spend all of its current cash reserves by late 1999. There can be
no assurance, however, that the Company's current cash reserves will not be
expended prior to that time. The Company anticipates that further funds may be
raised at any time through additional public or private debt or equity
financings conducted either by the Company or by one or more of its
subsidiaries, or through collaborative ventures entered into between the Company
or one or more of its subsidiaries and a corporate partner. There can be no
assurance that the Company will be able to obtain additional financing or that
such financing, if available, can be obtained on terms acceptable to the
Company. If additional financing is not otherwise available, the Company will
be required to modify its business development plans or reduce or cease certain
or all of its operations. In such event, holders of securities of the Company
will, in all likelihood, lose their entire investment.
Although the Company and each of its subsidiaries will seek to enter into
collaborative ventures with corporate sponsors to fund some or all of such
activities, as well as to manufacture or market the products which may be
successfully developed, neither the Company nor any of its subsidiaries
currently has any such arrangements with corporate sponsors, and there can be no
assurance that the Company or any of its subsidiaries will be able to enter into
such ventures on favorable terms, if at all. In addition, no assurance can be
given that the Company or any of its subsidiaries will be able to complete a
subsequent private placement or public offering of their securities. Failure by
the Company or any of its subsidiaries to enter into such collaborative ventures
or to receive additional funding to complete its proposed product development
programs either through a public offering or a private placement would have a
material adverse effect on the Company.
In the event that the Company obtains any additional funding, such financings
may have a dilutive effect on the holders of the Company's securities. In
addition, if one or more of the Company's subsidiaries raises additional funds
through the issuance and sale of its equity securities, the interest of the
Company and its stockholders in such subsidiary or subsidiaries, as the case may
be, could be diluted and there can be no assurance that the Company will be able
to maintain its majority interest in any or all of its current subsidiaries. In
addition, the interest of the Company and its stockholders in each subsidiary
will be diluted or subject to dilution to the extent any such subsidiary issues
shares or options to purchase shares of its capital stock to employees,
directors, consultants and others. In the event that the Company's voting
interest in any of its current subsidiaries falls below 50%, the Company may not
be able to exercise an adequate degree of control over the affairs and policies
of such subsidiary as currently being exercised. In addition, the Company has
outstanding currently exercisable Redeemable Warrants and options to purchase
3,826,750 and 699,155 shares of its Common Stock, respectively, at exercise
prices ranging from
11
$5.50 to $10.00, and $0.75 to $7.50, respectively, and the exercise price for
most of such Redeemable Warrants and options is below the per share price of the
Common Stock as currently quoted on the Nasdaq SmallCap Market ("Nasdaq"). The
Company also has outstanding 1,237,200 shares of its Series A Preferred Stock
and warrants to purchase 123,720 shares of Series A Preferred Stock, all of
which are convertible into shares of the Company's Common Stock. The exercise
of such warrants and options or the conversion of the Series A Preferred Stock,
if any, may dilute the value of the Common Stock.
No Developed or Approved Products
To achieve profitable operations, the Company, alone or with others, must
successfully develop, obtain regulatory approval for, introduce and market its
products under development. The great majority of the preclinical and clinical
development work for the products under development of the Company remains to be
completed. The Company has not generated, nor is it expected to generate in the
near future, any operating revenues. In addition, the Company has no
manufacturing or marketing facilities nor any contracts with any commercial
manufacturing or marketing entities. No assurance can be given that any of its
product development efforts will be successfully completed, that required
regulatory approvals will be obtained, or that any such products, if developed
and introduced, will be successfully marketed or achieve market acceptance.
Technological Uncertainty and Early Stage of Product Development
The technologies and products which the Company intends to develop are in the
early stages of development, require significant further research, development
and testing and are subject to the risks of failure inherent in the development
of products based on innovative or novel technologies. These risks include the
possibility that any or all of the Company's proposed technologies and products
will be found to be ineffective or unsafe, that such technologies and products
once developed, although effective, are uneconomical to market, that third
parties hold proprietary rights that preclude the Company from marketing such
technologies and products or that third parties market superior or equivalent
technologies and products.
The Company's agreements with licensors do not contain any representations by
the licensors as to the safety or efficacy of the inventions or discoveries
covered thereby. The Company is unable to predict whether the research and
development activities it is funding will result in any commercially viable
products or applications. Further, due to the extended testing required before
marketing clearance can be obtained from the United States Food and Drug
Administration (the "FDA") or other similar agencies, the Company is not able to
predict with any certainty, when, if ever, the Company will be able to
commercialize any of its proposed technologies or products.
Government Regulation; No Assurance of Product Approval
The Company's proposed products and technologies are in very early stages of
development. The research, preclinical development, clinical trials, product
manufacturing and marketing to be
12
conducted by the Company is subject to regulation by the FDA and similar health
authorities in foreign countries. FDA approval of the Company's products, as
well as the manufacturing processes and facilities, if any, used to produce such
products will be required before such products may be marketed in the U.S. The
processes of obtaining approvals from the FDA are costly, time consuming and
often subject to unanticipated delays. There can be no assurance that approvals
of the Company's proposed products, processes or facilities will be granted on a
timely basis, or at all. In addition, new government regulations may be
established that could delay or prevent regulatory approval of the Company's
products under development. Any future failure to obtain or delay in obtaining
any such approval will materially and adversely affect the ability of the
Company to market its proposed products and the business, financial condition
and results of operations of the Company.
Even if regulatory approval of the Company's proposed products is granted, such
approval may include significant limitations on indicated uses for which any
such products could be marketed. Further, even if such regulatory approvals are
obtained, a marketed drug or device and its manufacturer are subject to
continued review, and later discovery of previously unknown problems may result
in restrictions on such product or manufacturer, including withdrawal of the
product from the market. Failure of the Company to obtain and maintain
regulatory approval of its proposed products, processes or facilities would have
a material adverse effect on the business, financial condition and results of
operations of the Company.
The Company's proposed products and technologies may also be subject to certain
other federal, state and local government regulations, including, but not
limited to, the Federal Food, Drug and Cosmetic Act, the Environmental
Protection Act, the Occupational Safety and Health Act and state, local and
foreign counterparts to certain of such acts. The Company intends to develop
its business to strategically address regulatory needs. However, the Company
cannot predict the extent of the adverse effect on its business or the financial
and other costs that might result from any government regulations arising out of
future legislative, administrative or judicial action.
Securities Law Restrictions on the Exercise of Redeemable Warrants
A holder of Redeemable Warrants will have the right to exercise such Redeemable
Warrants for the purchase of shares of Common Stock only if the Company has
filed with the Securities and Exchange Commission a current prospectus meeting
the requirements of the Securities Act covering the issuance of such shares of
Common Stock issuable upon exercise of the Redeemable Warrants and only if the
issuance of such shares has been registered or qualified, or is deemed to be
exempt from registration or qualification under, the securities laws of the
state of residence of the holder of the Redeemable Warrant. The Company has
undertaken and intends to file and keep effective and current a prospectus which
will permit the purchase and sale of the Common Stock underlying the Redeemable
Warrants, but there can be no assurance that the Company will be able to do so.
Although the Company intends to seek to qualify for sale the shares of Common
Stock underlying the Redeemable Warrants in those states in which the securities
are to be offered, no assurance can be given that such qualification will occur.
The Redeemable Warrants may be deprived of any value if a prospectus covering
the shares issuable upon the exercise thereof is not
13
kept effective and current or if such underlying shares are not, or cannot be,
registered in the applicable states.
Dependence on License and Sponsored Research Agreements
The Company depends on license agreements that form the basis of its proprietary
technology, and, with the exception of its majority-owned subsidiary, Optex
Ophthalmologics, Inc., a Delaware corporation ("Optex"), the Company relies on
sponsored research agreements for its research and development efforts. The
license agreements that have been entered into by the Company typically require
the use of due diligence in developing and bringing products to market and the
payment of certain milestone amounts that in some instances may be substantial.
With the exception of Optex, the Company is also obligated to make royalty
payments on the sales, if any, of products resulting from such licensed
technology and, is responsible for the costs of filing and prosecuting patent
applications and maintaining issued patents. With the exception of Optex, the
Company does not currently have laboratory facilities, and, accordingly, certain
research and development activities of the Company is intended to be conducted
by universities or other institutions pursuant to sponsored research agreements.
The sponsored research agreements entered into and contemplated to be entered
into by the Company generally require periodic payments on an annual, quarterly
or monthly basis.
If the Company does not meet its financial, development or other obligations
under either its license agreements or its sponsored research agreements in a
timely manner, the Company could lose the rights to its proprietary technology
or the right to have the applicable university or institution conduct its
research and development efforts. If the rights of the Company under its
license or sponsored research agreements are terminated, such termination could
have a material adverse effect on the business and research and development
efforts of the Company.
Uncertainty Regarding Patents and Proprietary Rights
The success of the Company will depend in large part on its or its licensors'
ability to obtain patents, defend their patents, maintain trade secrets and
operate without infringing upon the proprietary rights of others, both in the
United States and in foreign countries. The patent position of firms relying
upon biotechnology is highly uncertain and involves complex legal and factual
questions. To date there has emerged no consistent policy regarding the breadth
of claims allowed in biotechnology patents or the degree of protection afforded
under such patents. The Company relies on certain United States patents and
pending United States and foreign patent applications relating to various
aspects of its products and processes. All of these patents and patent
applications are owned by third parties and are licensed or sublicensed to the
Company. The patent application and issuance process can be expected to take
several years and entail considerable expense to the Company, as it is
responsible for such costs under the terms of such license agreements. There
can be no assurance that patents will issue as a result of any such pending
applications or that the existing patents and any patents resulting from such
applications will be sufficiently broad to afford protection against competitors
with similar technology. In addition, there can be no assurance that such
patents will not be challenged, invalidated, or circumvented, or that the rights
granted thereunder will provide competitive advantages to the
14
Company. The commercial success of the Company will also depend upon avoiding
infringement of patents issued to competitors. A United States patent
application is maintained under conditions of confidentiality while the
application is pending, so the Company cannot determine the inventions being
claimed in pending patent applications filed by its competitors. Litigation may
be necessary to defend or enforce the Company's patent and license rights or to
determine the scope and validity of others' proprietary rights. Defense and
enforcement of patent claims can be expensive and time consuming, even, in those
instances in which the outcome is favorable to the Company, and can result in
the diversion of substantial resources from the Company's other activities. An
adverse outcome could subject the Company to significant liabilities to third
parties, require the Company to obtain licenses from third parties, or require
the Company to alter its products or processes, or cease altogether any related
research and development activities or product sales, any of which may have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company has certain licenses from third parties and in the future may
require additional licenses from other parties to develop, manufacture and
market commercially viable products effectively. The Company's commercial
success will depend in part on obtaining and maintaining such licenses. There
can be no assurance that such licenses can be obtained or maintained on
commercially reasonable terms, if at all, that the patents underlying such
licenses will be valid and enforceable or that the proprietary nature of the
patented technology underlying such licenses will remain proprietary.
The Company relies substantially on certain technologies that are not patentable
or proprietary and are therefore available to its competitors. The Company also
relies on certain proprietary trade secrets and know-how that are not
patentable. Although the Company has taken steps to protect its unpatented
trade secrets and know-how, in part through the use of confidentiality
agreements with its employees, consultants and contractors, there can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently developed or discovered by
competitors.
The success of the Company is also dependent upon the skills, knowledge and
experience of its scientific and technical personnel. The management and
scientific personnel of the Company has been recruited primarily from other
scientific companies, pharmaceutical companies and academic institutions. In
some cases, these individuals may be continuing research in the same areas with
which they were involved prior to joining the Company. Although the Company has
not received any notice of any claims and knows of no basis for any claims, it
could be subject to allegations of violation of trade secrets and similar claims
which could, regardless of merit, be time consuming, expensive to defend, and
have a material adverse effect on the Company's business, results of operations
and financial condition.
15
Uncertainty of Product Pricing and Reimbursement; Health Care Reform and Related
Measures
The levels of revenues and profitability of pharmaceutical and/or biotechnology
products and companies may be affected by the continuing efforts of governmental
and third party payors to contain or reduce the costs of health care through
various means and the initiatives of third party payors with respect to the
availability of reimbursement. For example, in certain foreign markets, pricing
or profitability of prescription pharmaceuticals is subject to government
control. In the United States there have been, and the Company expects that
there will continue to be, a number of federal and state proposals to implement
similar governmental control. Although the Company cannot predict what
legislative reforms may be proposed or adopted or what impact actions taken by
federal, state or private payors for health care goods and services in response
to any health care reform proposals or legislation may have on its business, the
existence and pendency of such proposals could have a material adverse effect on
the Company in general. In addition, the Company's ability to commercialize
potential pharmaceutical and/or biotechnology products may be adversely affected
to the extent that such proposals have a material adverse effect on other
companies that are prospective collaborators with respect to any of the
Company's product candidates.
In addition, in both the United States and elsewhere, sales of medical products
and services are dependent in part on the availability of reimbursement to the
consumer from third party payors, such as government and private insurance
plans. Third party payors are increasingly challenging the prices charged for
medical products and services. If the Company succeeds in bringing one or more
products to the market, there can be no assurance that these products will be
considered cost effective and that reimbursement to the consumer will be
available or will be sufficient to allow the Company to sell its products on a
competitive basis.
Dependence Upon Key Personnel and Consultants
The Company is highly dependent upon its officers and directors, as well as its
Scientific Advisory Board members, consultants and collaborating scientists.
Atlantic and its subsidiaries have an aggregate of only eight full-time
employees, four of whom are officers of Atlantic, and the loss of any of these
individuals could have a material adverse effect on the Company. Although
Atlantic has entered into employment agreements with each of its officers, such
employment agreements do not contain provisions, which would prevent such
employees from resigning their positions with Atlantic at any time. The Company
does not maintain key-man life insurance policies on any of such key personnel.
Each of the Company's non-employee directors, advisors and consultants devotes
only a portion of his or her time to the Company's business. The loss of
certain of these individuals could have a material adverse effect on the
Company.
The Company may seek to hire additional personnel. Competition for qualified
employees among pharmaceutical and biotechnology companies is intense, and the
loss of any of such persons, or the inability to attract, retain and motivate
any additional highly skilled employees required for the expansion of the
Company's activities could have a material adverse effect on the Company.
16
There can be no assurance that the Company will be able to retain its existing
personnel or to attract additional qualified employees.
The Company's scientific advisors are employed on a full time basis by unrelated
employers and some have one or more consulting or other advisory arrangements
with other entities which may conflict or compete with their obligations to the
Company. Inventions or processes discovered by such persons, other than those
to which the licenses may relate, those to which the Company is able to acquire
licenses for or those which were invented while performing consulting services
on behalf of the Company pursuant to a proprietary information agreement or
utilizing the Company's facilities, will not become the property of the Company,
but will remain the property of such persons or of such persons' full-time
employers. Failure to obtain needed patents, licenses or proprietary
information held by others could have a material adverse effect on the Company.
Competition
The Company's business is characterized by intensive research efforts and
intense competition. Many companies, research institutes, hospitals and
universities are working to develop products and technologies in the Company's
fields of research. Most of these entities have substantially greater
financial, technical, manufacturing, marketing, distribution and other resources
than the Company. Certain of such companies have experience in undertaking
testing and clinical trials of new or improved products similar in nature to
that which the Company is developing. In addition, certain competitors have
already begun testing of similar compounds or processes and may introduce such
products or processes before the Company. Accordingly, other companies may
succeed in developing products earlier than the Company or that are more
effective than those proposed to be developed by the Company. Further, it is
expected that competition in the Company's fields will intensify. There can be
no assurance that the Company will be able to compete successfully in the
future.
Dependence on Others for Clinical Development of, Regulatory Approvals for and
Marketing of Pharmaceutical Products
The Company currently does not have the resources to directly manufacture,
market or sell any of the Company's proposed products and the Company has no
current plans to acquire such resources. The Company anticipates that it will,
in the future, enter into collaborative agreements with pharmaceutical and/or
biotechnology companies for the development of, clinical testing of, seeking of
regulatory approval for, manufacturing of, marketing of and commercialization of
certain of its proposed products. The Company may in the future grant to its
collaborative partners rights to license and commercialize any products
developed under these collaborative agreements, and such rights would limit the
Company's flexibility in considering alternatives for the commercialization of
such products. Under such agreements, the Company may rely on its respective
collaborative partners to conduct research efforts and clinical trials on,
obtain regulatory approvals for and manufacture, market and commercialize
certain of its products. The Company expects that the amount and timing of
resources devoted to these activities generally will be controlled by each such
individual partner. The inability of the Company to acquire such third party
manufacturing, distribution, marketing and selling arrangements for such
anticipated
17
products would have a material adverse effect on the Company's business. There
can be no assurance that the Company will be able to enter into any arrangements
for the manufacturing, marketing and selling of its products, or that, if such
arrangements are entered into, such future partners will be successful in
commercializing products or that the Company will derive any revenues from such
arrangements.
Risk of Product Liability; No Insurance
Should the Company develop and market any products, the marketing of such
products, through third-party arrangements or otherwise, may expose the Company
to product liability claims. The Company presently does not carry product
liability insurance. Upon clinical testing or commercialization of the
Company's proposed products, certain of the licensors require that the Company
obtain product liability insurance. There can be no assurance that the Company
will be able to obtain such insurance or, if obtained, that such insurance can
be acquired in sufficient amounts to protect the Company against such liability
or at a reasonable cost. The Company is required to indemnify the Company's
licensors against any product liability claims incurred by them as a result of
the products developed by the Company. None of the Company's licensors has
made, and are not expected to make, any representations as to the safety or
efficacy of the inventions covered by the licenses or as to any products which
may be made or used under rights granted therein or thereunder.
Control by Existing Stockholders
Two principal stockholders of the Company beneficially own approximately 27% of
the outstanding shares of Common Stock. Accordingly, such holders, if acting
together, may have the ability to exert significant influence over the election
of the Company's Board of Directors and other matters submitted to the Company's
stockholders for approval. The voting power of these holders may discourage or
prevent any proposed takeover of the Company.
No Assurance of Identification of Additional Projects
The Company is engaged in the development and commercialization of biomedical
and pharmaceutical products and technologies. From time to time, if the
Company's resources allow, the Company may explore the acquisition and
subsequent development and commercialization of additional biomedical and
pharmaceutical products and technologies. However, there can be no assurance
that the Company will be able to identify any additional products or
technologies and, even if suitable products or technologies are identified, the
Company does not expect to have sufficient resources to pursue any such products
or technologies in the foreseeable future.
Certain Interlocking Relationships; Potential Conflicts of Interest
Two of the five members of the Board of Directors and one of the officers of the
Company are full-time or part-time officers of Paramount Capital Investments,
LLC ("Investments"), a New York-based merchant banking and venture capital firm
specializing in biotechnology companies. In the regular course of its business,
Investments identifies, evaluates and pursues investment
18
opportunities in biomedical and pharmaceutical products, technologies and
companies. Generally, Delaware corporate law requires that any transactions
between the Company and any of its affiliates be on terms that, when taken as a
whole, are substantially as favorable to the Company as those then reasonably
obtainable from a person who is not an affiliate in an arms-length transaction.
Nevertheless, neither Investments nor any such directors are obligated pursuant
to any agreement or understanding with the Company to make any additional
products or technologies available to the Company, nor can there be any
assurance, and the Company does not expect and security holders should not
expect, that any biomedical or pharmaceutical product or technology identified
by Investments or any such directors in the future will be made available to the
Company. In addition, certain of the officers and directors of the Company may
from time to time serve as officers or directors of other biopharmaceutical or
biotechnology companies. There can be no assurance that such other companies
will not, in the future, have interests in conflict with those of the Company.
The Company has entered into several agreements with an affiliate of Investments
pursuant to which such entity provides financial advisory services to the
Company.
Lindsay A. Rosenwald, M.D., a principal stockholder of the Company, is the
President and sole stockholder of Paramount Capital, Inc., the placement agent
for the Company's 1997 private placement of its Series A Preferred Stock
("Paramount"). Michael S. Weiss, the Company's Secretary, is a Senior Managing
Director of Paramount.
Risks Associated With Litigation
In November 1996 and February 1997, related complaints alleging claims under the
Securities Exchange Act of 1934, as amended, and common law causes of action
were filed against the Company in the United States District Court for the
District of Delaware and the Delaware Chancery Court, respectively. The parties
have reached a settlement with respect to such complaints, pursuant to which an
existing stockholder of the Company owning greater than five percent of the
Company's capital stock transferred to plaintiff an aggregate of 5,000 shares of
the Company's Common Stock.
Potential Adverse Effect of Redemption of Redeemable Warrants
The Redeemable Warrants are subject to redemption commencing December 14, 1996
by the Company under certain conditions. Redemption of the Redeemable Warrants
could encourage holders to exercise the Redeemable Warrants and pay the exercise
price at a time when it may be disadvantageous for the holders to do so, to sell
the Redeemable Warrants at the current market price when they might otherwise
wish to hold the Redeemable Warrants, or to accept the redemption price, which
may be substantially less than the market value of the Redeemable Warrants at
the time of redemption. The holders of the Redeemable Warrants will
automatically forfeit their rights to purchase the shares of Common Stock
issuable upon exercise of such Redeemable Warrants unless the Redeemable
Warrants are exercised before they are redeemed. The holders of Redeemable
Warrants will not possess any rights as stockholders of the Company unless and
until such Redeemable Warrants are exercised.
19
No Dividends
The Company has not paid any cash dividends on its Common Stock since its
formation and does not anticipate paying any cash dividends in the foreseeable
future. Management anticipates that all earnings and other resources of the
Company, if any, will be retained by the Company for investment in its business.
Possible Delisting from Nasdaq and Market Illiquidity
Although the Common Stock is quoted on Nasdaq continued inclusion of such
securities on NASDAQ will require that (i) the Company maintain at least
$2,000,000 in total assets and $1,000,000 in capital and surplus, (ii) the
minimum bid price for the Common Stock be at least $1.00 per share, (iii) the
public float consist of at least 100,000 shares of Common Stock, valued in the
aggregate at more than $200,000, (iv) the Common Stock have at least two active
market makers and (v) the Common Stock be held by at least 300 holders. If the
Company is unable to satisfy such maintenance requirements, the Company's
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Common Stock would thereafter be conducted in the over-the-counter market in the
"pink sheets" or the National Association of Securities Dealers' "Electronic
Bulletin Board." Consequently, the liquidity of the Company's securities could
be materially impaired, not only in the number of securities that can be bought
and sold at a given price, but also through delays in the timing of transactions
and reduction in security analysts' and the media's coverage of the Company,
which could result in lower prices for the Company's securities than might
otherwise be attained and could also result in a larger spread between the bid
and asked prices for the Company's securities.
In addition, if the Common Stock is delisted from trading on Nasdaq and the
trading price of the Common Stock is less than $5.00 per share, trading in the
Common Stock would also be subject to the requirements of Rule 15g-9 promulgated
under the Exchange Act. Under such rule, broker/dealers who recommended such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock (generally, according to recent regulations
adopted by the Commission, any equity security not traded on an exchange or
quoted on Nasdaq that has a market price of less than $5.00 per share, subject
to certain exceptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. Such requirements could severely limit the market
liquidity of the Common Stock. There can be no assurance that the Common Stock
will not be delisted or treated as penny stock.
20
Liquidity of Investment
The Company's securities are traded on Nasdaq, and the Company's securities lack
the liquidity of securities traded on the principal trading markets.
Accordingly, an investor may be unable to promptly liquidate an investment in
the Common Stock.
Possible Volatility of Stock Price
The market price of the Company's securities, like the stock prices of many
publicly traded biotechnology and smaller pharmaceutical companies, has been and
may continue to be highly volatile.
Environmental Regulation
In connection with its research and development activities, the Company is
subject to federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes. Although the
Company believes that it has complied with these laws and regulations in all
material respects and has not been required to take any action to correct any
noncompliance, there can be no assurance that the Company will not be required
to incur significant costs to comply with environmental and health and safety
regulations in the future.
Possible Adverse Effect of Shares Eligible for Future Sale
Future sales by existing stockholders could adversely affect the prevailing
market price of the Company's Common Stock. The outstanding shares of the
Company's Common Stock are all freely tradeable, subject to volume and other
restrictions imposed by Rule 144 under the Securities Act with respect to sales
by affiliates of the Company. An 18-month restriction on transfer applicable to
the shares of Common Stock now owned or hereafter acquired by the Company's
officers, directors and certain stockholders expired on June 14, 1997. Sales of
substantial amounts of Common Stock may have an adverse effect on the market
price of the Company's Common Stock.
In connection with the Company's initial public offering, the Company granted to
Joseph Stevens & Company, L.P., the underwriter that managed the Company's
initial public offering (the "Underwriter"), warrants to purchase from the
Company 165,000 units, each consisting of one share of Common Stock and one
redeemable warrant to purchase one share of Common Stock at an initial exercise
price of $6.60 per unit. Such warrants are exercisable during the four-year
period commenced December 13, 1996. The redeemable warrants issuable upon
exercise of these warrants have an exercise price of $6.05 per share. As long
as the warrants remain unexercised, the terms under which the Company could
obtain additional capital may be adversely affected. The Company granted to
holders of the warrants issued to such Underwriter the right on two occasions
(one at the expense of the Company) to file a registration statement under the
Securities
21
Act covering the securities underlying such warrants and the additional right to
include such securities in any registration filed by the Company under the
Securities Act.
No prediction can be made as to the effect, if any, that sales of Units,
Redeemable Warrants and/or Common Stock or the availability of such securities
for sale will have on the market prices prevailing from time to time for the
Units, the Redeemable Warrants and/or the Common Stock. Nevertheless, the
possibility that substantial amounts of such securities may be sold in the
public market may adversely affect prevailing market prices for the Company's
equity securities and could impair the Company's ability to raise capital in the
future through the sale of equity securities.
Antitakeover Effects of Provisions of the Certificate of Incorporation and
Delaware Law
Atlantic's Certificate of Incorporation authorizes the issuance of shares of
"blank check" Preferred Stock. The Board of Directors has the authority to
issue the Preferred Stock in one or more series and to fix the relative rights,
preferences and privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control of
the Company without further action by the stockholders of the Company. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of the Common Stock, including the loss
of voting control to others.
The Company is subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. The foregoing
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect
of preventing changes in the management of the Company.
22
Part Two - Other Information
Item 6. Exhibits and reports on form 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Form 8-K Reports
No Current reports on Form 8-K were filed in the quarter ended September 30,
1997.
23
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.
Atlantic Pharmaceuticals, Inc.
November 6, 1997
/S/ Jon D. Lindjord
----------------------------------
Jon D. Lindjord
Chief Executive Officer and President
/S/ Shimshon Mizrachi
----------------------------------
Shimshon Mizrachi
Chief Financial Officer
Principal Accounting and Financial
Officer
24
5
9-MOS
DEC-31-1997
SEP-30-1997
9,939,494
0
0
0
0
9,967,809
217,049
122,524
10,184,858
282,894
0
0
1,237
3,017
22,035,322
10,185,858
0
2,288
0
0
3,826,255
0
(125,556)
(5,595,004)
0
(5,595,004)
0
0
0
(595,004)
(1.89)
(1.89)
Amounts inapplicable or not disclosed as a separate line on the Statement of
Financial or Results of Operations are reported as 0 herein.
