PALATIN TECHNOLOGIES INC

Previous wording

Our significant accounting policies, which are described in the notes to our consolidated financial statements included in this report and in our Annual Report on Form 10-K for the year ended June 30, 2023, have not changed during the three and six months ended December 31, 2023. We believe that our accounting policies and estimates relating to the carrying value of inventory, revenue recognition, accrued expenses, purchase commitment liabilities, warrants and stock-based compensation are the most critical.

Current wording

Our significant accounting policies, which are described in the notes to our consolidated financial statements included in this report and in our Annual Report on Form 10-K for the year ended June 30, 2023, have not changed during the three and nine months ended March 31, 2024. We believe that our accounting policies and estimates relating to the carrying value of inventory, revenue recognition, accrued expenses, purchase commitment liabilities, warrants and stock-based compensation are the most critical.

Previous wording

*Revenues –*For the three and six months ended December 31, 2023, we recognized $2,034,113 and $4,140,090 in product revenue, net of allowances, respectively. For the three and six months ended December 31, 2022, we recognized $1,026,416 and 1,896,070, in product revenue, net of allowances, respectively. The increase in net revenue was the result of increased sales volume and reduced product sales allowances as a percentage of gross sales during the three and six months ended December 31, 2023, compared to the three and six months ended December 31, 2022.

Current wording

*Revenues –*For the three and nine months ended March 31, 2024, we recognized $0 and $4,140,090 in product revenue, net of allowances, respectively. For the three and nine months ended March 31, 2023, we recognized $1,195,675 and $3,091,745, in product revenue, net of allowances, respectively. The decrease in net revenue for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was driven by the sale of Vyleesi’s worldwide rights to Cosette on December 19, 2023. The increase in net revenue for the nine months ended March 31, 2024 compared to the nine months ended March 31, 2023 was the result of increased sales volume and reduced product sales allowances as a percentage of gross sales.

Previous wording

*Cost of Products Sold –*Cost of products sold was $97,637 for the three and six months ended December 31, 2023. Cost of products sold was $98,707 and $185,203 for the three and six months ended December 31, 2022, respectively. The decrease is as a result of the sale of fully reserved inventory during the three months ended September 30, 2023.

Current wording

*Cost of Products Sold –*Cost of products sold was $0 and $97,637 for the three and nine months ended March 31, 2024. Cost of products sold was $129,235 and $314,438 for the three and nine months ended March 31, 2023, respectively. The decrease is driven by the sale of Vyleesi’s worldwide rights to Cosette on December 19, 2023.

Previous wording

Research and Development – Research and development expenses were $5,554,200 and $10,568,830 for the three and six months ended December 31, 2023, respectively, compared to $4,367,538 and $10,394,569 for the three and six months ended December 31, 2022, respectively. The increase for the three months ended December 31, 2023, was related to the overall increase in spending on our MCr programs.

Current wording

Research and Development – Research and development expenses were $7,159,686 and $17,728,516 for the three and nine months ended March 31, 2024, respectively, compared to $4,830,327 and $15,224,896 for the three and nine months ended March 31, 2023, respectively. The increase was related to the overall increase in spending on our MCr programs.

Previous wording

Research and development expenses related to our Vyleesi, MCr programs and other preclinical programs were $3,828,383 and $7,287,971 for the three and six months ended December 31, 2023, respectively, compared to $2,895,268 and $7,258,451 for the three and six months ended December 31, 2022, respectively. The increase was primarily related to an increase in spending on our MCr programs.

Current wording

Research and development expenses related to our Vyleesi, MCr programs and other preclinical programs were $5,487,259 and $12,775,230 for the three and nine months ended March 31, 2024, respectively, compared to $3,261,362 and $10,519,814 for the three and nine months ended March 31, 2023, respectively. The increase was primarily related to an increase in spending on our MCr programs.

Previous wording

The amounts of project spending above exclude general research and development spending, which was $1,725,817 and $3,280,859 for the three and six months ended December 31, 2023, respectively compared to $1,472,270 and $3,136,118 for the three and six months ended December 31, 2022, respectively. The increase in general research and development spending for the three and six months ended December 31, 2023, compared to the three and six months ended December 31, 2022, is primarily attributable to an increase in compensation related expenses.

Current wording

The amounts of project spending above exclude general research and development spending, which was $1,672,427 and $4,953,286 for the three and nine months ended March 31, 2024, respectively compared to $1,568,965 and $4,705,082 for the three and nine months ended March 31, 2023, respectively. The increase is primarily attributable to an increase in compensation related expenses.

Previous wording

Cumulative spending from inception to December 31, 2023, was approximately $311,900,000 on our Vyleesi program and approximately $222,000,000 on all our other programs (which include PL3994, melanocortin receptor agonists, other discovery programs and terminated programs). Due to various risk factors described in our Annual Report on Form 10-K for the year ended June 30, 2023, under “Risk Factors,” including the difficulty in currently estimating the costs and timing of future Phase 1 clinical trials and larger-scale Phase 2 and Phase 3 clinical trials for any product under development, we cannot predict with reasonable certainty when, if ever, a program will advance to the next stage of development or be successfully completed, or when, if ever, related net cash inflows will be generated.

Current wording

Cumulative spending from inception to March 31, 2024, was approximately $311,900,000 on our Vyleesi program and approximately $229,400,000 on all our other programs (which include PL3994, melanocortin receptor agonists, other discovery programs and terminated programs). Due to various risk factors described in our Annual Report on Form 10-K for the year ended June 30, 2023, under “Risk Factors,” including the difficulty in currently estimating the costs and timing of future Phase 1 clinical trials and larger-scale Phase 2 and Phase 3 clinical trials for any product under development, we cannot predict with reasonable certainty when, if ever, a program will advance to the next stage of development or be successfully completed, or when, if ever, related net cash inflows will be generated.

Previous wording

Selling, General and Administrative – Selling, general and administrative expenses, which consist mainly of compensation and related costs, were $3,032,613 and $6,232,857 for the three and six months ended December 31, 2023, respectively, compared to $3,174,344 and $6,683,142 for the three and six months ended December 31, 2022, respectively. The decrease in selling, general and administrative expenses for the six months ended December 31, 2023 was primarily attributable to a decrease in selling expenses relating to Vyleesi of $802,742 and $1,912,243 for the three and six months ended December 31, 2023 respectively, compared to $1,022,687 and $2,269,254 for the three and six months ended December 31, 2022, respectively.

Current wording

Selling, General and Administrative – Selling, general and administrative expenses, which consist mainly of compensation and related costs, were $2,033,410 and $8,266,267 for the three and nine months ended March 31, 2024, respectively, compared to $3,537,376 and $10,220,518 for the three and nine months ended March 31, 2023, respectively. The decrease is a result of a decrease in selling expenses relating to Vyleesi.

Previous wording

Gain on Sale of Vyleesi – On December 19, 2023, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Cosette pursuant to which Cosette acquired from the Company worldwide rights to Vyleesi. As a result of the transaction, the Company recorded a gain of $7,823,482 on the sale of Vyleesi for the three and six months ended December 31, 2023. The gain represents the upfront purchase price of $9,500,000 less the cost of net assets transferred to the purchaser.

Current wording

Gain on Sale of Vyleesi – On December 19, 2023, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Cosette pursuant to which Cosette acquired from the Company worldwide rights to Vyleesi. As a result of the transaction, the Company recorded a loss of $25,202 and a gain of $7,798,280 on the sale of Vyleesi for the three and nine months ended March 31, 2024. The gain represents the upfront purchase price of $9,500,000 less the cost of net assets transferred to the purchaser.

Previous wording

*Other Income (Expense) -*For the three and six month ended December 31, 2023, Other income (expense) was ($9,017,179) and ($8,114,281), respectively. For the three and six months ended December 31, 2022, Other Income (expense) was $3,619,298 and $4,116,561, respectively. The decrease in other income (expense) for the three and six months ended December 31, 2023 compared to the three and six months ended December 31, 2022 was driven primarily by a decrease in the change in fair values of the warrant liability.

Current wording

*Other Income (Expense) -*For the three and nine months ended March 31, 2024, other income (expense) was $782,648 and ($7,331,633), respectively. For the three and nine months ended March 31, 2023, other income (expense) was ($1,368,069) and $2,748,492, respectively. The increase in other income (expense) for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was driven primarily by an increase in the change in fair values of the warrant liability, a gain on foreign currency, and investment income. The decrease in other income (expense) for the nine months ended March 31, 2024 compared to the nine months ended March 31, 2023 was driven primarily by a decrease in the change in fair values of the warrant liability.

Previous wording

Income Tax Benefit* –*Income tax benefit for the three and six months ended December 31, 2022 was $4,674,999 as a result of the Company’s sale of NOLs and R&D credits.

Current wording

Income Tax Benefit* –*Income tax benefit for the nine months ended March 31, 2023 was $4,674,999 as a result of the Company’s sale of NOLs and R&D credits.

Previous wording

During the six months ended December 31, 2023, net cash used in operating activities was $16,382,079 compared to $18,257,265 for the six months ended December 31, 2022. The decrease in cash used in operations for the six months ended December 31, 2023, compared to the six months ended December 31, 2022, was primarily related to a decrease in the fair value of liability classified warrants offset by the gain on sale of Vyleesi and working capital changes.

Current wording

During the nine months ended March 31, 2024, net cash used in operating activities was $24,988,985 compared to $19,665,582 for the nine months ended March 31, 2023. The increase in cash used in operations for the nine months ended March 31, 2024, compared to the nine months ended March 31, 2023, was primarily related to an increase in the net loss during the period and working capital changes.

Previous wording

During the six months ended December 31, 2023, net cash provided by investing activities was $12,455,275 compared to cash used in investing activities of $264,656 for the six months ended December 31, 2022. The increase was primarily related to proceeds from the sale of Vyleesi and the maturity of marketable securities.

Current wording

During the nine months ended March 31, 2024, net cash provided by investing activities was $12,455,275 compared to net cash used in investing activities of $381,531 for the nine months ended March 31, 2023. The increase was primarily related to proceeds from the sale of Vyleesi and the maturity of marketable securities.

Previous wording

During the six months ended December 31, 2023, net cash provided by financing activities was $5,422,474 which consisted of proceeds from the sale of common stock of $5,531,266 and proceeds from the exercise of warrants of $103 offset by $56,401 for payment of withholding taxes related to restricted stock units and $52,494 for payment of finance lease obligations. During the six months ended December 31, 2022, net cash provided by financing activities was $9,765,606, which consisted of proceeds from the sale of common stock of $9,961,462, offset by $146,062 for payment of withholding taxes related to restricted stock units and $49,794 for payment of finance lease obligations.

Current wording

During the nine months ended March 31, 2024, net cash provided by financing activities was $14,558,216, which consisted of proceeds from the sale of common stock of $14,693,779 and proceeds from the exercise of warrants of $103 offset by $56,401 for payment of withholding taxes related to restricted stock units and $79,265 for payment of finance lease obligations. During the nine months ended March 31, 2023, net cash provided by financing activities was $9,740,289, which consisted of proceeds from the sale of common stock of $9,961,462, and proceeds from the exercise of warrants of $78, offset by $146,062 for payment of withholding taxes related to restricted stock units and $75,189 for payment of finance lease obligations.

Previous wording

We have incurred cumulative negative cash flows from operations since our inception, and have expended substantial funds to complete our planned product development efforts. Continued operations are dependent upon our ability to complete equity or debt financing activities and to enter into additional licensing or collaboration arrangements. As of December 31, 2023, our cash and cash equivalents were $9,485,252, and our current liabilities were $11,199,403.

Current wording

We have incurred cumulative negative cash flows from operations since our inception, and have expended substantial funds to complete our planned product development efforts. Continued operations are dependent upon our ability to complete equity or debt financing activities and to enter into additional licensing or collaboration arrangements. As of March 31, 2024, our cash and cash equivalents were $10,014,088, and our current liabilities were $8,532,782.

Previous wording

Based on our available cash and cash equivalents as of December 31, 2023 and $9,224,056 received in February 2024, the Company has concluded that substantial doubt exists about our ability to continue as a going concern for one year from the date our consolidated financial statements are issued. We are evaluating strategies to obtain additional funding for future operations which include but are not limited to obtaining equity financing, issuing debt, or reducing planned expenses. A failure to raise additional funding or to effectively implement cost reductions could harm our business, results of operations, and future prospects. If we are not able to secure adequate additional funding in future periods, we would be forced to make additional reductions in certain expenditures. This may include liquidating assets and suspending or curtailing planned programs. We may also have to delay, reduce the scope of, suspend, or eliminate one or more research and development programs or its commercialization efforts or pursue a strategic transaction. If we are unable to raise capital when needed or enter into a strategic transaction, then we may be required to cease operations, which could cause our stockholders to lose all or part of their investment. Based on our current operating and development plans, we expect that our existing cash and cash equivalents as of the date of this filing will be sufficient to enable the Company to fund its operations into the second half of the calendar year 2024.

Current wording

As a result of our sale of worldwide rights to Vyleesi pursuant to the Purchase Agreement, we currently do not have a recurring source of revenue. Based on our available cash and cash equivalents as of March 31, 2024, the Company has concluded that substantial doubt exists about our ability to continue as a going concern for one year from the date our consolidated financial statements are issued. We are evaluating strategies to obtain additional funding for future operations which include but are not limited to obtaining equity financing, issuing debt, or reducing planned expenses. A failure to raise additional funding or to effectively implement cost reductions could harm our business, results of operations, and future prospects. If we are not able to secure adequate additional funding in future periods, we would be forced to make additional reductions in certain expenditures. This may include liquidating assets and suspending or curtailing planned programs. We may also have to delay, reduce the scope of, suspend, or eliminate one or more research and development programs or its commercialization efforts or pursue a strategic transaction. If we are unable to raise capital when needed or enter into a strategic transaction, then we may be required to cease operations, which could cause our stockholders to lose all or part of their investment. Based on our current operating and development plans, we expect that our existing cash and cash equivalents as of the date of this filing will be sufficient to enable the Company to fund its operations into the second half of the calendar year 2024.