1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                 --------------


                                   FORM 10-QSB

(Mark One)
[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the quarterly period ended June 30, 1998

                                       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:       (949) 788-6700

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                Yes [X]    No [ ]

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

             Class                               Outstanding at July 24, 1998
  -----------------------------                  ----------------------------
  Common Stock, $.001 par value                           5,523,806


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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 June 30, 1998 and December 31, 1997......................................................4 Condensed Consolidated Statements of Operations for the three months ended June 30, 1998 and 1997...........................................5 Condensed Consolidated Statements of Operations for the six months ended June 30, 1998 and 1997 and for the period from inception (June 15, 1987) to June 30, 1998.......................................6 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997 and for the period from inception (June 15, 1987) to June 30, 1998.......................................7 Notes to Condensed Consolidated Financial Statements........................9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION..............................11 PART II OTHER INFORMATION........................................................15 ITEM 2. CHANGES IN SECURITIES....................................................15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................................16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.........................................17
Page 2 3 NEOTHERAPEUTICS, INC. (A Development Stage Enterprise) FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1998 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, 1997 as filed with the Securities and Exchange Commission. Page 3 4 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1998 1997 ------------ ------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,913,326 $ 6,063,347 Restricted cash -- 935,000 Marketable securities and short-term investments 2,265,521 2,133,375 Other receivables, principally investment interest 46,965 221,829 Prepaid expenses and refundable deposits 199,907 127,259 ------------ ------------ Total current assets 4,425,719 9,480,810 ------------ ------------ PROPERTY AND EQUIPMENT, at cost: Equipment 2,107,238 1,952,262 Leasehold improvements 1,783,586 1,803,000 Accumulated depreciation and amortization (504,543) (279,913) ------------ ------------ Property and equipment, net 3,386,281 3,475,349 ------------ ------------ DEFERRED CHARGES AND DEPOSITS 180,841 242,314 ------------ ------------ TOTAL ASSETS $ 7,992,841 $ 13,198,473 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $ -- $ 850,000 Accounts payable and accrued expenses 1,048,210 975,339 Accrued payroll and related taxes 77,796 -- Notes payable to related party 558,304 558,304 Current portion of long-term debt 98,867 94,886 ------------ ------------ Total current liabilities 1,783,177 2,478,529 LONG-TERM DEBT, net of current portion 126,100 176,549 DEFERRED RENT 23,154 -- ------------ ------------ Total liabilities 1,932,431 2,655,078 ------------ ------------ STOCKHOLDERS' EQUITY: Common stock, $.001 par value, 25,000,000 shares authorized: Issued and outstanding, 5,523,806 and 5,465,807 shares at June 30, 1998 and December 31, 1997, respectively 23,799,165 23,188,363 Unrealized gains on available-for-sale securities 16,247 20,256 Deficit accumulated during the development stage (17,755,002) (12,665,224) ------------ ------------ Total stockholders' equity 6,060,410 10,543,395 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,992,841 $ 13,198,473 ============ ============
The accompanying notes are an integral part of these condensed consolidated balance sheets. Page 4 5 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months Ended Ended June 30, June 30, 1998 1997 ----------- ----------- (Unaudited) (Unaudited) REVENUES $ -- $ -- ----------- ----------- OPERATING EXPENSES: Research and development 1,886,253 836,206 General and administration 757,222 569,357 ----------- ----------- Total operating expenses 2,643,475 1,405,563 ----------- ----------- LOSS FROM OPERATIONS (2,643,475) (1,405,563) ----------- ----------- OTHER INCOME (EXPENSE): Interest, net 66,591 185,624 Other income (expense) (4,603) 8,354 ----------- ----------- Total other income (expense) 61,988 193,978 ----------- ----------- NET LOSS $(2,581,487) $(1,211,585) =========== =========== BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.47) $ (0.23) =========== =========== Basic and Diluted Weighted Average Common Shares Outstanding 5,493,280 5,364,884 =========== ===========
The accompanying notes are an integral part of these condensed consolidated statements. Page 5 6 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Period from Inception Six Months Six Months (June 15, 1987) Ended Ended Through June 30, June 30, June 30, 1998 1997 1998 ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) REVENUES, from grants $ -- $ -- $ 497,128 ------------ ------------ ------------ OPERATING EXPENSES: Research and development 3,674,215 1,385,021 11,149,282 General and administrative 1,497,511 1,068,321 7,267,893 ------------ ------------ ------------ Total operating expenses 5,171,726 2,453,342 18,417,175 ------------ ------------ ------------ LOSS FROM OPERATIONS (5,171,726) (2,453,342) (17,920,047) ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest income (expense), net 95,362 414,428 580,759 Other income (expense) (13,414) 8,354 33,286 ------------ ------------ ------------ Total other income (expense) 81,948 422,782 614,045 ------------ ------------ ------------ NET LOSS $ (5,089,778) $ (2,030,560) $(17,306,002) ============ ============ ============ BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.93) $ (0.38) ============ ============ Basic and Diluted Weighted Average Common Shares Outstanding 5,482,487 5,363,354 ============ ============
The accompanying notes are an integral part of these condensed consolidated statements. Page 6 7 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from Inception Six Months Six Months (June 15, 1987) Ended Ended Through June 30, June 30, June 30, 1998 1997 1998 ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) CASH FLOW FROM OPERATING ACTIVITIES: Net (loss) $ (5,089,778) $ (2,030,560) $(17,306,002) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 224,630 30,217 630,032 Issuance of common stock for services 184,382 60,000 453,331 Amortization of deferred compensation -- -- 93,749 Increase in deferred rent 23,154 -- 23,154 Compensation expense for extension of Debt Conversion Agreements, net -- -- 503,147 Gain on sale of assets -- -- (5,299) Decrease (increase) in other receivables 174,864 (41,348) (46,719) Decrease (increase) in prepaid expenses and refundable deposits (11,175) 47,985 (330,745) Increase (decrease)in accounts payable and accrued expenses 72,871 830,227 1,208,310 Increase (decrease) in accrued payroll and related payroll taxes 77,796 (280,009) 716,490 Increase (decrease) in employee expense reimbursement and accrued interest to related parties -- (122,396) 300,404 ------------ ------------ ------------ Net cash used in operating activities (4,343,256) (1,505,884) (13,760,148) ------------ ------------ ------------
Page 7 8 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Period from Inception Six Months Six Months (June 15, 1987) Ended Ended Through June 30, June 30, June 30, 1998 1997 1998 ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (135,562) (2,625,553) (3,971,127) Proceeds from sale of equipment -- -- 29,665 Purchases of marketable securities and short-term investments, net (132,146) (2,576,775) (2,265,521) Unrealized gains from investments (4,009) 10,548 16,247 Payment of organization costs -- -- (66,093) Issuance of notes receivable -- -- 100,000 ----------- ----------- ----------- Net cash used in investing activities (271,717) (5,191,780) (6,156,829) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from common stock issuance including Revenue Participation Units converted to common stock 426,420 250 20,646,824 (Repayment) of bank line of credit, net (850,000) -- -- (Repayment) issuance of installment note payable (46,468) -- 224,967 Decrease in restricted cash 935,000 -- -- Proceeds from notes payable to related parties, net -- -- 757,900 Cash at acquisition -- -- 200,612 ----------- ----------- ----------- Net cash provided by financing activities 464,952 250 21,830,303 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (4,150,021) (6,697,414) 1,913,326 Cash and cash equivalents, beginning of period 6,063,347 9,995,062 -- ----------- ----------- ----------- Cash and cash equivalents, end of period $ 1,913,326 $ 3,297,648 $ 1,913,326 =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated statements Page 8 9 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (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 June 30, 1998 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, 1997 as filed with the Securities and Exchange Commission. Results of operations for the six months ended June 30, 1998 are not necessarily indicative of results to be expected for the full year. NeoTherapeutics, Inc. (the "Company") was incorporated in Colorado as Americus Funding Corporation ("AFC") in December 1987. In August 1996, AFC changed its name to "NeoTherapeutics, Inc." and in June 1997, the Company was reincorporated in the state of Delaware. The Company has two wholly-owned subsidiaries, Advanced ImmunoTherapeutics, Inc. ("AIT"), incorporated in California in June 1987, and NeoTherapeutics, GmbH, incorporated in Switzerland in April 1997. All references to the "Company" hereinafter refer to NeoTherapeutics, Inc. 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. 2. Debt Line of Credit: The Company has available through August 30, 1998, a line of credit agreement with its bank, whereby it may borrow up to $1,600,000. Borrowings are collateralized by cash or marketable securities acceptable to the bank, equal to approximately 111% of the outstanding loan amount. Interest on any borrowings is payable at the lower of the bank's prime rate or another similar index as specified in the Agreement. At June 30, 1998, the Company had no borrowings under this line of credit. Long-Term Debt: The Company has financed the premium for a three year insurance policy. The loan is payable through August 2000 in monthly installments of $9,475, including 8.25% interest. Page 9 10 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Commitments and Contingencies Research and Fellowship Grants: The Company periodically makes non-binding commitments to various Universities and not-for-profit research organizations to fund scientific research and fellowship grants that may further the Company's research programs. As of June 30, 1998, the Company had committed to pay, through November 1998, approximately $105,000 for such grants and fellowships. Grant expense for the six-month periods ended June 30, 1998, and 1997 amounted to $248,000 and $160,000, respectively. 4. Common Stock Line of Equity Agreement: On March 27, 1998, the Company executed an Agreement with a private investor for a $15 million equity line. The Agreement runs for a thirty month period commencing on the effective date of a Registration Statement that was filed on May 11, 1998 with the Securities and Exchange Commission. The Registration Statement was declared effective by the Securities and Exchange Commission on August 13, 1998. The Agreement provides for the Company, at its sole discretion, and subject to certain restrictions, to periodically sell ("put") shares of its common stock to the investor. Puts can be made every 15 days in amounts ranging from $250,000 to $2,000,000, depending on the trading volume and the market price of the stock at the time of each put, subject to aggregate minimum puts of $1 million over the life of the Agreement. At the time of each put, the investor receives a discount of 12% from the then current average market price, as determined under the Agreement. Pursuant to the Agreement, the Company also issued to the investor warrants to purchase 25,000 shares of common stock at $11.62 per share. 5. Stock Options: Stock option activities for the six month period ended June 30, 1998 were as follows:
Option Price Shares per Share ------- ------------- Outstanding at December 31, 1997 658,173 $0.025-$12.88 Granted 123,300 8.38-8.88 Exercised (12,000) 3.75-4.50 Expired/forfeited (300) 8.88 ------- ------------- Outstanding at June 30, 1998 769,173 $0.025-$12.88 ======= =============
During the six month periods ended June 30, 1998 and 1997, the Company recognized compensation expense for vested consultant options pursuant to SFAS 123 of $184,382 and $60,000, respectfully. Options granted to consultants consist of options that vest both immediately and upon the occurrence of certain events as specified in the related agreements. Page 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-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 June 30, 1998, the Company incurred a cumulative net loss of approximately $17.3 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 June 30, 1998 Compared to Three Months Ended June 30, 1997: There were no revenues during the three months ended June 30, 1998 or the three months ended June 30, 1997. Research and development expenses for the three months ended June 30, 1998 increased approximately $1,050,000 or 126% over the same period in 1997. Current period increases were due primarily to costs and expenses associated with the conduct of clinical trials and preclinical testing, rent and operating costs of the Company's new facility, personnel additions and salary increases, research grants made by the Company and depreciation. Partially offsetting these costs and expense increases was a reduction in consulting and professional fees during the current period. In the same period in 1997, the Company did not occupy its new facility until the last month of the quarter and had conducted most of its research at offsite facilities with fewer personnel. The Company expects its research and development expenses to continue to increase as it expands its laboratories in its new facility and increases its product development and clinical trial activities. General and administrative expenses increased approximately $187,900 or 33% from the same period in 1997 due to facilities rent, the addition of personnel, salary increases and professional and consulting fees. These cost and expense increases were partially offset by a reduction in travel expense during the current period. The Company expects general and administrative expenses to increase in future periods in support of the expected increases in research and development activities as well as sales and marketing activities should the Company successfully bring one or more of its products to market. Net interest income decreased by approximately $119,000 due to the reduction of invested funds remaining from the Company's public offering in September 1996 and increased interest expense on borrowings. The Company expects its interest earnings to continue to decrease over the next year due to the use of its funds in current operations. Page 11 12 Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997: There were no revenues during the six months ended June 30, 1998 or the six months ended June 30, 1997. Research and development expenses for the six months ended June 30, 1998 increased approximately $2,289,000 or 165% over the same period in 1997. Current period increases were due primarily to costs and expenses associated with the conduct of clinical trials, rent and operating costs of the Company's new facility, personnel additions and salary increases. In the same period in 1997, the Company did not occupy its new facility until the last month of the period and was conducting most of its research at offsite facilities with fewer personnel. The Company expects its research and development expenses to continue to increase as it expands its laboratories in its new facility and increases its product development and clinical trial activities. General and administrative expenses increased approximately $429,000 or 40% from the same period in 1997 due to increases in rent and operating costs of the Company's new facility, the addition of personnel, salary increases and professional and consulting fees. These cost increases were partially offset by a reduction in travel expense during the current period. The Company expects general and administrative expenses to increase in future periods in support of the expected increases in research and development activities as well as sales and marketing activities should the Company successfully bring one or more of its products to market. Net interest income decreased by approximately $319,000 due to the reduction of invested funds remaining from the Company's public offering in September 1996 and increased interest expense on borrowings. The Company expects its interest earnings to continue to decrease over the next year due to the use of its funds in current operations. LIQUIDITY AND CAPITAL RESOURCES From inception through June 30, 1998, the Company financed its operations primarily through grants, sales of equity securities, borrowings and deferred payment of salaries and other expenses from related parties. During September and October 1996, the Company effected the public sale of a total of 2,700,000 units of its common stock and attached warrants to the public. Each unit consisted of one share of common stock and one warrant to purchase one share of common stock. The aggregate net proceeds of this offering amounted to approximately $18,176,000. At June 30, 1998, working capital amounted to approximately $2.6 million. This amount included cash and cash equivalents of approximately $1.9 million and marketable securities and short-term investments of approximately $2.3 million. In comparison, at December 31, 1997, the Company had working capital of approximately $7 million, which included cash and cash equivalents of approximately $7 million (of which approximately $0.9 million was restricted) and marketable securities and short-term investments of approximately $2.1 million. The $4.4 million decrease in working capital during the six months is attributable primarily to the operating loss for the period. 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 $17.3 million through June 30, 1998, 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 Page 12 13 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 required governmental regulatory approvals, become commercially viable or achieve market acceptance. The Company has no experience in manufacturing, procuring products in commercial quantities or marketing, and only limited experience in negotiating, setting up or maintaining strategic relationships and conducting clinical trials or other late stage phases of the regulatory approval process, and there is no assurance that the Company will successfully engage in any of these activities. The Company's need for additional funding is expected to be substantial and will be determined by the progress and cost of the development and commercialization of its products and other activities. The Company believes that its existing capital resources will be sufficient to satisfy its current and projected funding requirements for at least the next twelve months. However, if the Company experiences unanticipated cash requirements during the interim period or fails to obtain sufficient funding under its recent $15 million line of equity agreement, the Company could require additional funds sooner. The source, availability, and terms of such funds have not been determined. Although funds may be received from the sale of equity securities or the exercise of outstanding warrants and options to acquire common stock of the Company, there is no assurance any such funding will occur. Factors impacting the future success of the Company include, among other things, the ability to develop products which will be safe and effective in treating neurological diseases and the ability to obtain government approval. The Company faces numerous other risks in the operation of its business, including, but not limited to, protecting its proprietary technology and trade secrets and not infringing 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. Page 13 14 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, 1997, in "Item 1. Description of Business" under the caption "Factors Which May Affect Future Performance." 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. Page 14 15 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES USE OF PROCEEDS FROM REGISTERED SECURITIES The following information is provided pursuant to Rule 463 of the Securities Act and Item 701(f) of Regulation S-B in connection with the Company's Registration Statement on Form SB-2 filed under the Securities Act: (1) Effective date of Registration Statement: September 26, 1996 Commission file number: 333-05342-LA (2) Date offering commenced: September 26, 1996 (3) Offering terminated before securities sold: Not applicable (4) Disclosures: (i) Has offering terminated: No (ii) Managing underwriter(s): Paulson Investment Company, Inc. First Colonial Securities Group, Inc. (iii) Title of each class of securities registered: Common stock Common stock purchase Warrants*
*Each common stock purchase warrant entitles the holder to purchase one share of common stock at an exercise price of $11.40 per share. The common stock purchase warrants expire 5 years from September 26, 1996. Outstanding common stock purchase warrants may be redeemed by the Company, in whole or in part, at any time upon at least 30 days prior written notice to the registered holders thereof, at a price of $0.25 per warrant, provided that the closing bid price of the common stock has been at least $22.80 for the 20 consecutive trading days immediately preceding the date of the notice of redemption. (iv) Information regarding each class of securities:
Common Stock Common Purchase Stock Warrants ----------- ----------- Amount registered 2,875,000 2,875,000 Aggregate offering price of amount registered $21,850,000 $ 0 Amount sold 2,700,000 2,700,000 Aggregate offering price of amount sold $20,520,000 $ 0
Page 15 16
(v) Expenses of offering: A* B* ----------- ----------- Underwriting discounts and commissions $ 0 $ 1,436,400 Finders fees $ 0 $ 50,000 Expenses paid to or for underwriter $ 0 $ 331,317 Other expenses $ 0 $ 525,502 =========== Total expenses $ 2,343,219 =========== (vi) Net offering proceeds $18,176,781 =========== (vii) Use of Net Proceeds through June 30, 1998: A* B* ----------- ----------- Construction of plant, building and facilities $ 1,783,586 Purchase and installation of machinery and equipment $ 2,017,491 Repayment of indebtedness $ 533,613 9,000 Working capital $ 9,636,507 TEMPORARY INVESTMENT Money market and short-term investments $ 4,196,584
*A: Direct or indirect payments to directors, officers, general partners of the issuer or their associates; to persons owning ten percent or more of any class of equity securities of the issuer; and to affiliates of the issuer. *B: Direct or indirect payments to others. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following matters were voted upon at the Annual Meeting of Stockholders of the Company held on June 16, 1998: 1. Five of the following persons were elected as Class I directors to serve for a two-year term expiring at the Annual Meeting of Stockholders to be held in 2000, and Dr. Joseph Rubinfeld was elected as a Class II director to serve for the remainder of the current two-year term expiring at the Annual Meeting of the Stockholders to be held in 1999 or until their successors are elected and qualified:
Number of Votes Cast Name For Authority Withheld ---- --------- -------------------- Samuel Gulko 4,791,488 50,700 Frank M. Meeks 4,827,713 14,475 Eric L. Nelson, Ph.D 4,837,413 4,775 Stephen Runnels 4,791,788 50,400 Joseph Rubinfeld, Ph.D 4,837,713 4,475 Paul H. Silverman, Ph.D., D.Sc 4,837,413 4,775
Page 16 17 2. A proposal to consider and act upon the ratification of the selection of Arthur Andersen LLP as independent public accountants of the Company was approved by the following vote:
Votes Cast Number of Shares ---------- ---------------- For 4,830,813 Against 1,405 Abstain 9,970
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K. A report on Form 8-K was filed on April 2, 1998 to report two press releases of the Company, each dated April 1, 1998, and a transcript of the Company's web site page dated April 1, 1998. A report on Form 8-K was filed on April 23, 1998 to report a press release of the Company dated April 16, 1998. A report on Form 8-K was filed on May 12, 1998 to report a press release of the Company dated May 11, 1998. A report on Form 8-K was filed on May 22, 1998 to report three press releases of the Company, each dated May 21, 1998. A report on Form 8-K was filed on June 1, 1998 to report a transcript of the Company's web site page dated June 1, 1998. Page 17 18 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: August 14, 1998 By /s/ Alvin J. Glasky, Ph.D. ------------------------------------------ Alvin J. Glasky, Ph.D., President Date: August 14, 1998 By /s/ Samuel Gulko ------------------------------------------ Samuel Gulko, Chief Financial Officer Secretary and Treasurer (Principal Accounting Officer) Page 18 19 EXHIBIT INDEX (a) Exhibits 27. Financial Data Schedule
 

5 6-MOS DEC-31-1997 JAN-01-1998 JUN-30-1998 1,913,326 2,265,521 46,965 0 0 4,425,719 3,890,824 504,543 7,992,841 1,783,177 126,100 0 0 23,799,165 (17,738,755) 7,992,841 0 0 0 0 5,171,726 0 51,400 (5,089,778) 0 (5,089,778) 0 0 0 (5,089,778) (0.93) (0.93)