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                                   FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

       [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
               For the quarterly period ended September 30, 1997

                                       OR

       [  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                       For the transition period from to

                         Commission File Number 0-28782
                         ------------------------------

                             NEOTHERAPEUTICS, INC.
             (Exact name of Registrant as specified in its charter)

                  DELAWARE                                       93-0979187
           (State or other jurisdiction                        (I.R.S. Employer
        of incorporation or organization)                    Identification No.)

            157 TECHNOLOGY DRIVE
             IRVINE, CALIFORNIA                                     92618
   (Address of principal executive offices                       (Zip Code)

Registrant's telephone number, including area code:            (714) 788-6700

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
           Yes  [X]                                                 No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
Common stock as of the latest practicable date:


                  Class                         Outstanding at October 27, 1997
        -----------------------------           -------------------------------
        Common Stock, $.001 par value                      5,465,807

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                              NEOTHERAPEUTICS, INC.
                        (A Development-Stage Enterprise)

                                TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION Page No. -------- ITEM 1. FINANCIAL STATEMENTS Statement regarding financial information...................................3 Condensed Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996......................................................4 Condensed Consolidated Statements of Operations for the three months ended September 30, 1997 and 1996......................................5 Condensed Consolidated Statements of Operations for the nine months ended September 30, 1997 and 1996 and for the period from inception (June 15, 1987) to September 30, 1997..........................................6 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 and for the period from inception (June 15, 1987) to September 30, 1997..........................................7 Notes to Condensed Consolidated Financial Statements........................9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION......................................................12 PART II. OTHER INFORMATION......................................................16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.........................................16
2 3 NEOTHERAPEUTICS, INC. (A Development Stage Enterprise) FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1997 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATEMENT REGARDING FINANCIAL INFORMATION The financial statements included herein have been prepared by NeoTherapeutics, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information normally included in the financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that the financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996 as filed with the Securities and Exchange Commission. 3 4 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
September 30, December 31, ASSETS 1997 1996 ------------ ------------ CURRENT ASSETS: (Unaudited) Cash and cash equivalents $ 981,932 $ 9,995,062 Marketable securities and short-term investments 8,462,130 5,702,114 Other receivables, principally investment interest 184,434 163,988 Prepaid expenses and refundable deposits 131,370 239,171 ------------ ------------ Total current assets 9,759,866 16,100,335 ------------ ------------ PROPERTY AND EQUIPMENT, at cost: Equipment 1,658,361 158,396 Leasehold improvements 1,645,913 - Construction in progress - 33,076 Accumulated depreciation and amortization (176,813) (58,963) ------------ ------------ Property and equipment, net 3,127,461 132,509 ------------ ------------ OTHER ASSETS: Marketable securities 1,747,773 1,746,432 Deferred charges and deposits 268,443 - ------------ ------------ Total other assets 2,016,216 1,746,432 ------------ ------------ TOTAL ASSETS $ 14,903,543 $ 17,979,276 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit note payable to bank $ 550,000 $ - Accounts payable and accrued expenses 577,302 262,604 Accrued payroll and related taxes 65,654 331,175 Employee expense reimbursement - 82,717 Accrued interest to related parties - 122,396 Notes payable to related parties 558,304 558,304 Current portion of installment note payable 93,033 - ------------ ------------ Total current liabilities 1,844,293 1,357,196 INSTALLMENT NOTE PAYABLE, net of current portion 200,930 - ------------ ------------ 2,045,223 1,357,196 ------------ ------------ STOCKHOLDERS' EQUITY: Common stock, no par value, 25,000,000 shares authorized: Issued and outstanding, 5,465,807 and 5,361,807 shares at September 30, 1997 and December 31, 1996, respectively 23,188,363 23,125,763 Deficit accumulated during the development stage (10,347,372) (6,503,683) Unrealized gains on available-for-sale securities 17,329 - ------------ ------------ Total stockholders' equity 12,858,320 16,622,080 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,903,543 $ 17,979,276 ============ ============
The accompanying notes are an integral part of these condensed consolidated balance sheets. 4 5 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Three Months Three Months Ended Ended September 30, September 30, 1997 1996 ----------- ----------- (Unaudited) (Unaudited) REVENUES $ - $ - ----------- ----------- OPERATING EXPENSES: Research and development 1,372,040 122,261 General and administration 604,782 148,143 ----------- ----------- Total operating expenses 1,976,822 270,404 ----------- ----------- LOSS FROM OPERATIONS (1,976,822) (270,404) ----------- ----------- OTHER INCOME (EXPENSE): Interest income (expense), net 165,291 (12,125) Other income (expense), net (1,599) 22,482 ----------- ----------- Total other income 163,692 10,357 ----------- ----------- NET LOSS $(1,813,130) $ (260,047) =========== =========== NET LOSS PER SHARE $ (0.33) $ (0.09) =========== =========== Weighted Average Shares Outstanding 5,433,194 2,757,459 =========== ===========
The accompanying notes are an integral part of these condensed consolidated statements. 5 6 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND THE PERIOD FROM INCEPTION (JUNE 15, 1987) TO SEPTEMBER 30, 1997
Nine Months Nine Months Inception Ended Ended Through September 30, September 30, September 30, 1997 1996 1997 ----------- ----------- ------------ (Unaudited) (Unaudited) (Unaudited) REVENUES, from grants $ - $ - $ 497,128 ----------- ----------- ------------ OPERATING EXPENSES: Research and development 2,757,061 204,898 5,723,873 General and administration 1,673,103 308,566 5,102,209 ----------- ----------- ------------ Total operating expenses 4,430,164 513,464 10,826,082 ----------- ----------- ------------ LOSS FROM OPERATIONS (4,430,164) (513,464) (10,328,954) ----------- ----------- ------------ OTHER INCOME (EXPENSE): Interest income (expense), net 579,720 (38,119) 375,527 Other income 6,755 20,837 55,054 ----------- ----------- ------------ Total other income (expense) 586,475 (17,282) 430,581 ----------- ----------- ------------ NET LOSS $(3,843,689) $ (530,746) $ (9,898,373) =========== =========== ============ NET LOSS PER SHARE $ (0.71) $ (0.22) =========== =========== Weighted Average Shares Outstanding 5,397,698 2,430,510 =========== ===========
The accompanying notes are an integral part of these condensed consolidated statements. 6 7 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND THE PERIOD FROM INCEPTION (JUNE 15, 1987) TO SEPTEMBER 30, 1997
Period from Nine Months Nine Months Inception Ended Ended Through September 30, September 30, September 30, 1997 1996 1997 ----------- --------- ----------- (Unaudited) (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $(3,843,689) $(530,746) $(9,898,372) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 117,850 4,163 302,302 Issuance of common stock for services 60,000 103,950 268,950 Amortization of deferred compensation - - 93,749 Compensation expense for extension of Debt Conversion Agreements, net - - 503,147 Gain on sale of assets - - (5,299) Increase in other receivables (21,787) (46,000) (185,529) Increase in prepaid expenses, deferred charges and refundable deposits (160,642) (228,820) (349,810) Increase (decrease) in accounts payable and accrued expenses 314,698 (13,290) 654,685 Increase (decrease) in accrued payroll and related taxes (265,521) 98,388 704,348 Increase (decrease) in employee expense reimbursement and accrued interest to related parties (205,113) 36,321 383,121 ----------- --------- ----------- Net cash used in operating activities (4,004,204) (576,034) (7,528,708) ----------- --------- -----------
7 8 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Period from Nine Months Nine Months Inception Ended Ended Through September 30, September 30, September 30, 1997 1996 1997 ----------- ---------- ----------- (Unaudited) (Unaudited) (Unaudited) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (3,112,802) (29,875) (3,384,577) Proceeds from sale of equipment - - 29,665 Purchases of marketable securities and short-term investments, net (2,742,687) - (10,191,233) Payment of organization costs - - (66,093) Issuance of notes receivable - - 100,000 ----------- --------- ------------ Net cash used in investing activities (5,855,489) (29,875) (13,512,238) ----------- --------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from common stock issuance including Revenue Participation Units converted to common stock 2,600 633,624 20,220,403 Issuance of Line of Credit note payable to bank 550,000 - 550,000 Issuance of installment note payable 293,963 - 293,963 Proceeds from notes payable to related parties, net - - 757,900 Cash at acquisition - - 200,612 ----------- --------- ------------ Net cash provided by financing activities 846,563 633,624 22,022,878 ----------- --------- ------------ Net increase (decrease) in cash (9,013,130) 27,715 981,932 Cash, beginning of period 9,995,062 859 - ----------- --------- ------------ Cash, end of period $ 981,932 $ 28,574 $ 981,932 =========== ========= ============
The accompanying notes are an integral part of these condensed consolidated statements. 8 9 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (Unaudited) 1. Summary of Significant Accounting Policies a. Organization and Nature of Business In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements include all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation of its consolidated financial position at September 30, 1997 and consolidated results of operations and cash flows for the periods presented. Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted and should be read in conjunction with the Company's audited financial statements included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996 as filed with the Securities and Exchange Commission. Results of operations for the nine months ended September 30, 1997 are not necessarily indicative of results to be expected for the full year. NeoTherapeutics, Inc. (the "Company") was incorporated in Colorado as Americus Funding Corporation ("AFC") in December 1987. In August 1996, AFC changed its name to "NeoTherapeutics, Inc." In June 1997, the stockholders approved the reincorporation of NeoTherapeutics as a Delaware corporation. Its wholly-owned subsidiary, Advanced ImmunoTherapeutics, Inc. ("AIT"), was incorporated in California in June 1987. In July 1989, AIT completed an agreement with the Company, which provided for AIT to become a wholly-owned subsidiary of AFC in a transaction accounted for as a reverse acquisition. In April 1997, the Company established NeoTherapeutics, GmbH, a wholly-owned subsidiary in Switzerland, for the purpose of conducting future licensing and other related activities in the international market. All references to the "Company" hereinafter refer to NeoTherapeutics and its subsidiaries as a consolidated entity. The Company is a development-stage biopharmaceutical enterprise engaged in the discovery and development of novel therapeutic drugs intended to treat neurodegenerative diseases and conditions such as memory deficits associated with Alzheimer's disease and aging, stroke, spinal cord injuries and Parkinson's disease. b. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. 9 10 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) c. Marketable Securities and Short Term Investments The Company accounts for investments in marketable securities under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The statement requires investments in debt and equity securities to be classified among three categories as follows: Held-to-maturity, trading and available-for-sale. As of September 30, 1997, securities held by the Company were classified as "held-to-maturity" and "available-for-sale." Securities held-to-maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income on investment securities. A valuation allowance is not established to recognize temporary market value fluctuations as the Company has the intent and ability to hold these investments until maturity. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of income taxes, if any, reported as a separate component of shareholders' equity. Short-term investments consist of commercial paper and equivalent corporate obligations and are stated at amortized cost with respect to held-to-maturity investments, and at fair value with respect to investments classified as available-for-sale securities. d. Debt During August 1997, the Company established a line of credit with its bank. Borrowings under the line of credit are secured by a marketable security instrument having a face value of $1.75 million at maturity in December 1998, at which time the Company is required to replace the collateral or repay any outstanding borrowings. Interest is payable monthly at the bank's prime rate. At September 30, 1997, the Company had borrowed $550,000 under the line of credit. In September 1997, the Company funded the premium for a three year insurance policy through the vendor's borrowing affiliate. The loan is payable through August 2000 in monthly installments of $9,475, including principal and 8.2% interest. e. Net Loss Per Share Net loss per share is calculated using the weighted average number of shares outstanding for the period. Common equivalent shares are excluded from the computation as their effect is antidilutive except that, pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting Bulletins, common and common equivalent shares (stock options, warrants and RPU's converted to common stock in July 1996) issued during the period commencing 12 months prior to the initial filing of a proposed public offering at prices below the public offering price have been included in the calculation as if they were outstanding for all periods presented (using the treasury stock method for stock options and warrants at the estimated initial public offering price). f. Research and Development All costs related to research and development activities are treated as expenses in the period incurred. 10 11 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) g. New Pronouncements Effective January 1, 1997, the Company adopted SFAS No. 128, "Earnings per Share." The statement requires, at a minimum, new calculations of earnings per share and disclosures. The Company has reviewed the provisions of SFAS No. 128 and has determined that adoption of this pronouncement had no material effect on the Company's reporting of its results of operations. 2. Commitments and Contingencies Facility leases: During June 1997, the Company relocated to a new facility which it leases from a property developer under a non-cancelable operating lease expiring in June 2004. The lease contains two five year options to renew at the fair value rates in effect at that time. Minimum monthly rents under this lease range from $38,800 to $47,600 through its term. The total minimum commitment under the new facility lease aggregates approximately $3.6 million through June 2004. University Research Grants: The Company has committed an aggregate of $425,200 to several universities to conduct general scientific research programs and to provide for a two year Fellowship Grant. During the nine month period ended September 30, 1997, the Company paid or accrued $250,000 towards the grants, thereby reducing the remaining commitment to $175,200 at September 30, 1997. 3. Stock Options and Warrants: Stock option activities for the nine month period ended September 30, 1997 were as follows:
Option Price Shares per Share ------ --------- Outstanding at December 31, 1996 270,173 $0.025-$3.75 Granted 327,000 3.88-12.88 Exercised (104,000) 0.025 Expired - - -------- ------------- Outstanding at September 30, 1997 493,173 $0.025-$12.88 ======== =============
Options granted to consultants consist of options that vest both immediately and upon the occurrence of certain events as specified in the related agreements. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION PRELIMINARY NOTE REGARDING FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results may differ materially from the results projected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below under "Factors Affecting Future Operating Results." RESULTS OF OPERATIONS Overview: From the inception of the Company in 1987 through September 30, 1997, the Company incurred a cumulative net loss of approximately $9.9 million. The Company expects its operating expenses to increase over the next several years as it continues to expand its research and development and commercialization activities and operations. The Company expects to incur significant additional operating losses for at least the next several years unless such operating losses are offset, if at all, by licensing revenues under strategic alliances with larger pharmaceutical companies which the Company is currently seeking. Three Months Ended September 30, 1997 Compared to Three Months Ended September 30, 1996: There were no revenues during the three months ended September 30, 1997 or the three months ended September 30, 1996. Research and development expenses increased approximately $1,249,800 or 1,022% from the same period in 1996. Research and development activities were restricted in the prior period due to the lack of available funds. Current period increases were due primarily to personnel additions, salary increases, consulting fees, research grants made by the Company, facilities rent and costs and expenses associated with the conduct of clinical trials. The Company expects its research and development expenses to continue to increase in absolute dollars as it expands its laboratories in its new facility and increases its product development and clinical trial activities. General and administrative expenses increased approximately $456,600 or 308% from the same period in 1996 due to the addition of personnel, salary increases, insurance, professional and consulting fees, travel and facilities rent in the current period. General and administrative expenses in the prior period were significantly lower due to the lack of funds. The Company expects general and administrative expenses to increase in future periods in support of the expected increases in both research and development activities as well as sales and marketing activities should the Company successfully bring one or more of its products to market. Net interest income increased by approximately $177,400 due to interest income from higher cash balances resulting from the investments of unallocated proceeds from the Company's public offering in September, 1996. The Company expects its interest earnings to decrease over the next year due to the use of its funds in current operations. 12 13 Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996: There were no revenues during the nine months ended September 30, 1997 or the nine months ended September 30, 1996. Research and development expenses for the nine months ended September 30, 1997 increased by approximately $2,552,200 or 1,246%. Research and development expenses were restricted in the prior period due to lack of available funds. Substantially all categories of research and development increased during the current period including, but not limited to, additional personnel, salary increases, rent as the Company consolidated its laboratories into one location, consulting fees, license fees and expenses associated with the conduct of clinical trials. Research and development expenses are expected to increase in future periods as the Company continues to expand its laboratories in its new facility and increase its product development and clinical trial activities. General and administrative expenses for the nine months ended September 30, 1997 increased by approximately $1,364,500 or 442% from the same period in 1996 due to the addition of personnel, salary increases, insurance, professional and consulting fees, commissions, travel and facilities rent in the current period, whereas for a major portion of the prior period, the Company operated from the Chief Executive Officer's residence on a rent-free basis with very limited administrative and technical staff. The Company expects general and administrative expenses to increase in future periods in support of the expected increases in both research and development activities as well as sales and marketing activities should the Company successfully bring one or more of its products to market. Net interest income increased by approximately $617,800 due to interest income from higher cash balances resulting from the investments of unallocated proceeds from its public offering consummated during October, 1996. The Company expects its interest earnings to decrease in future periods due to the use of its funds in current operations. LIQUIDITY AND CAPITAL RESOURCES: From inception through September 30, 1997, the Company financed its operations primarily through grants, sales of equity securities, borrowings and deferred payment of salaries and other expenses from related parties. On September 26, 1996, the Company effected the public sale of 2,500,000 units of its common stock and attached warrants. Each unit consisted of one share of common stock and one warrant to purchase one share of common stock. The closing took place on October 1, 1996, and on that date, the Company realized net cash proceeds of approximately $17,363,000 from the sale. On October 11, 1996, the underwriter of the public offering exercised an option to purchase an additional 200,000 units resulting in net proceeds of approximately $1,389,000 to the Company. Expenses directly related to the public offering of units were approximately $576,000, and have been offset in stockholders' equity against the common stock proceeds of the offering. At September 30, 1997, working capital amounted to approximately $7.9 million. This amount included cash and cash equivalents of approximately $1.0 million and marketable securities and short-term investments of approximately $8.5 million. In comparison, at December 31, 1996, the Company had working capital of $14.7 million, which included cash and cash equivalents of approximately $10 million and marketable securities and short-term investments of approximately $5.7 million. The $6.8 million decrease in working capital during the nine months is attributable primarily to (1) investments in property and equipment of $3.1 million with (2) the balance expended to fund the operating loss for the nine months ended September 30, 1997. 13 14 The Company is in the development stage devoting substantially all of its efforts to research and development. During its development stage, the Company has incurred cumulative losses of approximately $9.9 million through September 30, 1997, and expects to incur substantial losses over the next several years. In addition to the funds derived from its public offering, the Company will require substantial additional funds in order to complete the research and development activities currently contemplated and to commercialize its proposed products. The Company's future capital requirements and availability of capital will depend upon many factors, including continued scientific progress in research and development programs, the scope and results of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in filing, prosecuting and enforcing patent claims, competing technological developments, the cost of manufacturing scale-up, the cost of commercialization activities and other factors which may not be within the Company's control. While the Company believes that its existing capital resources will be adequate to fund its capital needs for at least 12 months, the Company also believes that ultimately it will require substantial additional funds in order to complete the research and development activities currently contemplated and to commercialize its proposed products. Without additional funding, the Company may be required to delay, reduce the scope or eliminate one or more of its research and development projects, or obtain funds through arrangements with collaborative partners or others which may require the Company to relinquish rights to certain technologies, product candidates or products that the Company would otherwise seek to develop or commercialize on its own. FACTORS AFFECTING FUTURE OPERATING RESULTS: The future operating results of the Company are highly uncertain, and the following factors should be carefully reviewed in addition to the other information contained in this quarterly report on Form 10-QSB: The Company has incurred losses in every year of its existence and expects to continue to incur significant operating losses for the next several years. The Company has never generated revenues from product sales and there is no assurance that revenue from product sales will ever be achieved. In addition, there is no assurance that any of the Company's proprietary products will ever be successfully developed, receive and maintain require governmental regulatory approvals, become commercially viable or achieve market acceptance. The Company has no experience in manufacturing, procuring products in commercial quantities or marketing, and only limited experience in negotiating, setting up or maintaining strategic relationships and conducting clinical trials or other late stage phases of the regulatory approval process, and there is no assurance that the Company will successfully engage in any of these activities. The Company's need for additional funding is expected to be substantial and will be determined by the progress and cost of the development and commercialization of its products and other activities. The Company believes that its existing capital resources will be sufficient to satisfy its current and projected funding requirements for at least the next twelve months. However, if the Company experiences unanticipated cash requirements during the interim period, the Company could require additional funds sooner. The source, availability, and terms of such funds have not been determined. Although funds may be received from the sale of equity securities or the exercise of outstanding warrants and options to acquire common stock of the Company, there is no assurance any such funding will occur. Factors impacting the future success of the Company include, among other things, the ability to develop products which will be safe and effective in treating neurological diseases and the ability to obtain government approval. 14 15 The Company faces numerous other risks in the operation of its business, including, but not limited to, protecting its proprietary technology and trade secrets and not infringing those of others; attaining a competitive advantage; entering into agreements with others to source, manufacture, market and sell its products; attracting and retaining key personnel in research and development, manufacturing, marketing, sales and other operational areas; managing growth, if any; and avoiding potential claims by others in such areas as product liability and environmental matters. The above factors are not intended to be inclusive. A more comprehensive list of factors which could affect the Company's future operating results can be found in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996, under the caption "Business-Risk Factors." Failure to satisfactorily achieve any of the Company's objectives or avoid any of the above or other risks would likely have a material adverse effect on the Company's business and results of operations. 15 16 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K. None 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEOTHERAPEUTICS, INC. Date: November 13, 1997 By /s/ Alvin J. Glasky ---------------------------------- Alvin J. Glasky, Ph.D., President Date: November 13, 1997 By /s/ Samuel Gulko ---------------------------------- Samuel Gulko, Chief Finanacial Officer 17 18 Exhibit Index (a) Exhibits 27. Financial Data Schedule 18
 

5 9-MOS DEC-31-1996 JAN-01-1997 SEP-30-1997 981,932 8,462,130 184,434 0 0 9,759,866 3,304,274 176,813 14,903,543 1,844,293 200,930 0 0 23,188,363 (10,330,043) 14,903,543 0 0 0 0 (4,430,164) 0 0 (3,843,689) 0 (3,843,689) 0 0 0 (3,843,689) (0.71) (0.71)