<PAGE> 1
EXHIBIT 99.4
AURORA BIOSCIENCES CORPORATION
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 2
Report of Hildebrand, Limparis & Hevey, CPAs, PC, Independent Auditors 3
Supplemental Consolidated Balance Sheets as of December 31, 1999 and 1998 4
Supplemental Consolidated Statements of Operations for the years ended December
31, 1999, 1998 and 1997 5
Supplemental Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997 6
Supplemental Consolidated Statements of Cash Flows for the years ended December 7
31, 1999, 1998 and 1997
Notes to Supplemental Consolidated Financial Statements 8
</TABLE>
1
<PAGE> 2
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Aurora Biosciences Corporation
We have audited the supplemental consolidated balance sheets of Aurora
Biosciences Corporation (formed as a result of the consolidation of Aurora
Biosciences Corporation and Quorum Sciences Inc.) as of December 31, 1999 and
1998 and the related supplemental consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. The supplemental consolidated financial statements give
retroactive effect to the merger of Aurora Biosciences Corporation and Quorum
Sciences Inc. on October 4, 2000, which has been accounted for using the pooling
of interests method as described in the notes to the supplemental consolidated
financial statements. These supplemental consolidated financial statements are
the responsibility of the management of Aurora Biosciences Corporation. Our
responsibility is to express an opinion on these supplemental consolidated
financial statements based on our audits. We did not audit the financial
statements of Quorum Sciences Inc. which statements reflect total assets of
$144,717 for 1999 and $77,363 for 1998 of the related supplemental consolidated
financial statement totals, and which reflect net loss of $414,793 of the
related supplemental consolidated financial statement totals for the three year
period ended December 31, 1999. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
data included for Quorum Sciences Inc., is based solely on the report of the
other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
supplemental financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Aurora Biosciences
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, after giving retroactive effect to the merger of Quorum
Sciences Inc., as described in the notes to the supplemental consolidated
financial statements, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
February 10, 2000, except for Note 11,
as to which the date is October 4, 2000
2
<PAGE> 3
REPORT OF HILDEBRAND, LIMPARIS & HEVEY, CPAS, PC, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Quorum Sciences, Inc.
Frederick, Maryland
We have audited the accompanying balance sheets of Quorum Sciences, Inc. (a
Delaware development stage corporation) as of December 31, 1999 and 1998, and
the related statements of operations, stockholders' equity, and cash flows for
the year ended December 31, 1999 and the periods from April 6, 1998 (inception)
to December 31, 1998 and 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Quorum Sciences, Inc. as of
December 31, 1999 and 1998, and the results of its operations for the periods
then ended in conformity with generally accepted accounting principles.
HILDEBRAND, LIMPARIS & HEVEY, CPAs, PC
March 7, 2000
3
<PAGE> 4
AURORA BIOSCIENCES CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,049,590 $ 9,534,250
Investment securities, available-for-sale 20,683,696 18,547,991
Accounts receivable 5,284,135 3,750,291
Notes receivable from officers and employees 50,000 210,000
Prepaid expenses 1,443,840 475,927
Other current assets 1,623,301 1,104,249
------------ ------------
Total current assets 45,134,562 33,622,708
Equipment, furniture and leaseholds, net 11,902,464 10,865,880
Notes receivable from officers and employees 115,000 210,000
Restricted cash 669,810 1,096,034
Other assets 6,185,341 5,237,457
------------ ------------
Total assets $ 64,007,177 $ 51,032,079
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,875,441 $ 3,216,696
Accrued compensation 2,219,172 550,770
Other current liabilities 445,195 396,114
Unearned revenue 10,214,848 2,460,833
Capital lease and loan obligations, current portion 2,497,046 2,024,786
------------ ------------
Total current liabilities 19,251,702 8,649,199
Capital lease and loan obligations, less current portion 4,342,726 4,787,667
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 7,500,000 shares
authorized and no shares issued and outstanding -- --
Common stock, $.001 par value; 50,000,000 shares
authorized, 17,519,665 and 17,101,843 shares issued and
outstanding at December 31, 1999 and 1998, respectively 17,520 17,102
Additional paid-in capital 63,267,773 61,603,265
Accumulated other comprehensive loss (48,567) --
Deferred compensation (830,112) (2,240,606)
Accumulated deficit (21,993,865) (21,784,548)
------------ ------------
Total stockholders' equity 40,412,749 37,595,213
============ ============
Total liabilities and stockholders' equity $ 64,007,177 $ 51,032,079
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
AURORA BIOSCIENCES CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 50,521,461 $ 26,557,888 $ 14,907,749
Operating expenses:
Cost of revenue 27,941,512 23,814,409 6,982,875
Research and development 11,593,538 17,145,787 5,405,731
Selling, general and 11,932,950 6,103,808 3,679,317
administrative
------------ ------------ ------------
Total operating expenses 51,468,000 47,064,004 16,067,923
------------ ------------ ------------
Loss from operations (946,539) (20,506,116) (1,160,174)
Interest income 1,545,091 2,444,836 1,793,691
Interest expense (690,869) (645,395) (346,183)
------------ ------------ ------------
Income (loss) before income taxes (92,317) (18,706,675) 287,334
Income taxes (117,000) -- (20,000)
------------ ------------ ------------
Net income (loss) $ (209,317) $(18,706,675) $ 267,334
============ ============ ============
Basic income (loss) per share $ (0.01) $ (1.15) $ 0.03
============ ============ ============
Diluted income (loss) per share $ (0.01) $ (1.15) $ 0.02
============ ============ ============
Shares used in computing:
Basic income (loss) per share 17,019,195 16,336,287 8,970,183
============ ============ ============
Diluted income (loss) per share 17,019,195 16,336,287 15,422,755
============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
AURORA BIOSCIENCES CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------------- ------------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 9,915,973 $ 9,916 2,865,156 $ 2,865 $ 18,887,790
Costs incurred in connection
with issuance of Series D
preferred stock -- -- -- -- (37,485)
Conversion of Series A, B, C
and D preferred stock into
common stock (9,915,973) (9,916) 9,915,973 9,916 --
Exercise of warrants to
purchase common stock -- -- 45,290 45 (45)
Issuance of common stock, net -- -- 4,206,466 4,207 37,905,268
Deferred compensation related
to stock and stock options -- -- -- -- 3,741,944
Amortization of deferred
compensation -- -- -- -- --
Net income -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 -- -- 17,032,885 17,033 60,497,472
Issuance of common stock, net -- -- 125,369 125 511,510
Issuance of common stock for
acquired technology -- -- 75,000 75 569,456
Issuance of common stock for
acquisition of Quorum
Sciences, Inc. -- -- 76,924 77 106,423
Repurchases of common stock -- -- (208,335) (208) (24,436)
Deferred compensation related
to stock and stock options -- -- -- -- (57,160)
Amortization of deferred
compensation -- -- -- -- --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 -- -- 17,101,843 17,102 61,603,265
Issuance of common stock, net -- -- 439,515 440 2,243,941
Repurchases of common stock -- -- (21,693) (22) (2,671)
Deferred compensation related
to stock and stock options -- -- -- -- (576,762)
Amortization of deferred
compensation -- -- -- -- --
Net income -- -- -- -- --
Unrealized loss from
investments -- -- -- -- --
Comprehensive loss
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 -- $ -- 17,519,665 $ 17,520 $ 63,267,773
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE DEFERRED ACCUMULATED STOCKHOLDERS'
LOSS COMPENSATION DEFICIT EQUITY (DEFICIT)
------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ -- $ (371,573) $ (3,345,207) $ 15,183,791
Costs incurred in connection
with issuance of Series D
preferred stock -- -- -- (37,485)
Conversion of Series A, B, C
and D preferred stock into
common stock -- -- -- --
Exercise of warrants to
purchase common stock -- -- -- --
Issuance of common stock, net -- -- -- 37,909,475
Deferred compensation related
to stock and stock options -- (3,513,702) -- 228,242
Amortization of deferred
compensation -- 812,715 -- 812,715
Net income -- -- 267,334 267,334
------------ ------------ ------------ ------------
Balance at December 31, 1997 -- (3,072,560) (3,077,873) 54,364,072
Issuance of common stock, net -- -- -- 511,635
Issuance of common stock for
acquired technology -- -- -- 569,531
Issuance of common stock for
acquisition of Quorum
Sciences, Inc. -- -- -- 106,500
Repurchases of common stock -- -- -- (24,644)
Deferred compensation related
to stock and stock options -- 57,160 -- --
Amortization of deferred
compensation -- 774,794 -- 774,794
Net loss -- -- (18,706,675) (18,706,675)
------------ ------------ ------------ ------------
Balance at December 31, 1998 -- (2,240,606) 37,595,213
Issuance of common stock, net -- -- -- 2,244,381
Repurchases of common stock -- -- -- (2,693)
Deferred compensation related
to stock and stock options -- 576,762 -- --
Amortization of deferred
compensation -- 833,732 -- 833,732
Net income -- -- (209,317) (209,317)
Unrealized loss from
investments (48,567) -- -- (48,567)
------------
Comprehensive loss (257,884)
------------ ------------ ------------ ------------
Balance at December 31, 1999 $ (48,567) $ (830,112) $(21,993,865) $ 40,412,749
============ ============ ============ ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
AURORA BIOSCIENCES CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (209,317) $(18,706,675) $ 267,334
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,236,771 2,423,249 964,323
Amortization of deferred compensation 833,732 774,794 812,715
Other non-cash items, net (184,000) 569,531 --
Changes in operating assets and liabilities:
Accounts receivable (1,533,844) (543,125) (2,090,643)
Prepaid expenses and other current assets (1,186,965) (253,829) (929,143)
Other assets (1,932,531) (1,480,639) (230,376)
Accounts payable and accrued compensation 2,325,722 2,381,088 999,451
Other current liabilities 50,506 163,916 227,778
Unearned revenue 7,754,015 136,832 2,074,001
Other noncurrent liabilities -- (154,346) 154,346
------------ ------------ ------------
Net cash provided by (used in) operating activities 9,154,089 (14,689,204) 2,249,786
Investing activities:
Purchases of short-term investments (10,893,919) (23,015,257) (24,459,286)
Sales and maturities of short-term investments 8,709,647 30,205,000 7,974,422
Purchases of property and equipment (1,587,219) (2,841,145) (1,951,776)
Notes receivable from officers and employees 235,000 (130,000) (90,000)
Restricted cash 426,224 215,889 (1,311,923)
Other assets -- (2,448,917) (339,283)
------------ ------------ ------------
Net cash provided by (used in) investing activities (3,110,267) 1,985,570 (20,177,846)
Financing activities:
Issuance of convertible preferred stock, net -- -- (37,485)
Issuance of common stock, net 2,145,688 586,991 37,909,475
Proceeds from capital lease and loan obligations 619,225 -- --
Principal payments on capital lease and
loan obligations (2,293,395) (1,517,797) (689,278)
------------ ------------ ------------
Net cash provided by (used in) financing activities 471,518 (930,806) 37,182,712
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 6,515,340 (13,634,440) 19,254,652
Cash and cash equivalents at beginning of year 9,534,250 23,168,690 3,914,038
============ ============ ============
Cash and cash equivalents at end of year $ 16,049,590 $ 9,534,250 $ 23,168,690
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 690,869 $ 645,395 $ 346,183
============ ============ ============
Supplemental schedule of non-cash investing
and financing activities:
Property and equipment acquired under capital
leases and loans $ 1,701,489 $ 3,755,413 $ 3,802,971
============ ============ ============
</TABLE>
See accompanying notes.
7
<PAGE> 8
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
Aurora Biosciences Corporation ("Aurora" or the "Company") was incorporated in
California on May 8, 1995 and subsequently re-incorporated in Delaware on
January 22, 1996. The Company combines innovative biotechnology with its novel,
high technology, automation and software to provide solutions to challenges in
drug discovery for the pharmaceutical and biotechnology industries. Aurora's
core technologies include a broad portfolio of proprietary fluorescence assay
technologies; its functional genomics GenomeScreen(TM) program; as well as its
ultra-high throughput screening system ("UHTSS Platform") and subsystems to
miniaturize and automate assays derived from those technologies within a
computer-controlled integrated system, capable of searching through expansive
libraries of compounds to identify those that might lead to new medicines.
To date, the Company's revenue has been generated from a limited number of
customers in the biotechnology and pharmaceutical industries in the U.S. and
Europe. In 1999, greater than 10% of the Company's revenue resulted from
transactions with each of the following customers: Pfizer, Inc. ("Pfizer")
(21%), Warner-Lambert Company ("Warner-Lambert") (19%), Merck & Co., Inc.
("Merck") (16%) and Bristol-Myers Squibb Company ("BMS") (13%). The loss of such
customers could have a material adverse impact on the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of Aurora and its
wholly-owned subsidiary, Quorum Sciences, Inc. (see Note 11). All significant
intercompany accounts and transactions have been eliminated.
Generally accepted accounting principles prohibit giving effect to a consummated
business combination accounted for by the pooling of interests method in
financial statements that do not include the date of consummation of the
business combination. These supplemental consolidated financial statements do
not extend through the date of combination; however, they will become the
historical consolidated financial statements of the combined Company after
financial statements covering the date of consummation of the business
combination are issued.
Cash, Cash Equivalents and Investment Securities
The Company considers all highly liquid investments with maturities of three
months or less from the date of purchase to be cash equivalents. Management
determines the appropriate classification of its cash equivalents and investment
securities at the time of purchase and reevaluates such determination as of each
balance sheet date. Management has classified the Company's cash equivalents and
investment securities as available-for-sale securities in the accompanying
financial statements. Available-for-sale securities are carried at fair value,
with unrealized gains and losses reported in other comprehensive income (loss).
The cost of debt securities classified as available-for-sale is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion, as well as interest and dividends, are included in
interest income. Realized gains and losses are also included in interest income.
The cost of securities sold is based on the specific identification method.
The Company invests its excess cash in U.S. government and agency securities,
debt instruments of financial institutions and corporations and money market
funds with strong credit ratings. The Company has established guidelines
regarding diversification of its investments and their maturities which are
designed to maintain safety and liquidity.
Equipment, Furniture and Leaseholds
Equipment, including capitalized leased equipment, furniture and leaseholds, is
stated at cost less accumulated depreciation and amortization. Depreciation and
amortization is calculated using the straight-line method over the shorter of
the estimated useful lives of the respective assets (generally three to five
years) or the term of the applicable lease.
8
<PAGE> 9
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements (cont'd.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other Assets
Equity investments in closely-held companies are carried at cost and reviewed
quarterly for permanent impairment. Patents are carried at cost and amortized
using the straight-line method over the expected useful lives, which are
estimated to be four to eight years. Chemical compounds are carried at cost and
amortized over the expected useful lives, which are estimated to be five years.
Long-Lived Assets
The Company investigates potential impairments of its long-lived assets when
there is evidence that events or changes in circumstances may have made recovery
of an asset's carrying value unlikely. An impairment loss is recognized when the
sum of the expected undiscounted future cash flows is less than the carrying
amount of the asset. The Company has not identified any such losses.
Warranty Reserve
Estimated expenses for warranty obligations are accrued as revenue is
recognized. Reserve estimates are adjusted periodically to reflect actual
experience.
Stock Options
In accordance with the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related Interpretations in accounting
for its employee stock options. Under APB 25, if the purchase price of
restricted stock or the exercise price of the Company's employee stock options
equals or exceeds the fair value of the underlying stock on the date of issuance
or grant, no compensation expense is recognized. Option grants to non-employees
are valued in accordance with SFAS 123 and EITF 96-18 and are therefore expensed
at fair value as services are performed.
Revenue Recognition
Revenue under collaborative agreements with UHTSS syndicate customers typically
consists of non-refundable, non-creditable upfront fees, ongoing research and
co-development payments, and milestone, royalty and other contingent payments.
Revenue from ongoing research and co-development payments is recognized ratably
over the term of the agreement, and the Company believes such payments will
approximate the research and development expense being incurred associated with
the agreement. The Company does not have an obligation to refund, nor does there
exist the presumption of an obligation to refund, ongoing research and
co-development payments. Revenue from milestone or other contingent payments is
recognized upon satisfaction of the contractual terms of the milestone or
contingency. Revenue from equipment sales under short-term production contracts
is recognized using the completed contract method. Revenue from equipment sales
under long-term production contracts is recognized using the percentage of
completion method, measured based on costs incurred to-date compared to
estimated costs at completion. In 1999, the Company entered into its first
long-term production contract. As of December 31, 1999, revenue recognized
exceeded billings on the contract by $1.9 million and such amount is included in
accounts receivable in the accompanying balance sheet. License revenue is
recognized ratably over the term of the licensing agreement. Revenue from
royalty payments will be recognized upon applicable product sales.
Revenue from screen development, screening and other services is recognized as
the services are performed or ratably over the service period if the Company
believes such method will approximate the expense being incurred. Revenue from
upfront fees is deferred and recognized over the service period. Advance
payments received in excess of amounts earned through performance are classified
as unearned revenue. Revenue under cost reimbursement contracts is recognized as
the related costs are incurred.
9
<PAGE> 10
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements (cont'd.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development Expense
All research and development costs are expensed in the period incurred.
Customer-sponsored research and development expenses totaled approximately $4.6
million, $5.7 million and $1.8 million in 1999, 1998 and 1997, respectively.
Company-sponsored research and development expenses totaled approximately $7.0
million, $11.4 million and $3.6 million in 1999, 1998 and 1997, respectively.
Income (Loss) Per Share
In accordance with Statement of Financial Accounting Standards No. 128, Earnings
Per Share ("SFAS 128"), basic income (loss) per share is calculated based upon
the weighted average shares of common stock outstanding during the period, and
excludes any dilutive effects of options, warrants and convertible securities.
In 1999 and 1997, diluted income per share also gives effect to all potential
dilutive common shares outstanding during the period. In 1998, all potential
dilutive common shares have been excluded from the calculation of diluted loss
per share as their inclusion would be anti-dilutive.
Segment Information
Statement of Financial Accounting Standards No. 131, Segment Information ("SFAS
131"), requires disclosure of certain financial information about operating
segments, products, services and geographic areas in which they operate. The
Company has not reported segment information because the Company operates in
only one business segment.
Effect of New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"), which will be effective January 1, 2001.
This Statement establishes accounting and reporting standards requiring that
every derivative instrument, including certain derivative instruments imbedded
in other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company has not yet determined what impact SFAS
133 will have on the financial statements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB 101)
which provides guidance related to revenue recognition based on interpretations
and practices followed by the SEC. SAB 101 is effective the first fiscal quarter
of fiscal years beginning after December 15, 1999 and requires companies to
report any changes in revenue recognition as a cumulative change in accounting
principle at the time of implementation in accordance with APB Opinion No. 20,
"Accounting Changes." The Company is currently in the process of evaluating the
impact, if any, SAB 101 will have on the financial position or results of
operations of the Company.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
10
<PAGE> 11
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements (cont'd.)
2. CASH EQUIVALENTS AND INVESTMENT SECURITIES
A summary of cash equivalents and available-for-sale investment securities is
shown below:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1999 COST GAINS LOSSES FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Money market funds $ 4,622,220 $ -- $ -- $ 4,622,220
U.S. government and agency securities 9,934,933 220 3,096 9,932,057
U.S. corporate securities 15,944,345 203 45,894 15,898,654
------------ ------------ ------------ ------------
Total debt securities 30,501,498 423 48,990 30,452,931
Less amounts classified as cash
equivalents (9,769,235) -- -- (9,769,235)
============ ============ ============ ============
Total investment securities,
available-for-sale $ 20,732,263 $ 423 $ 48,990 $ 20,683,696
============ ============ ============ ============
DECEMBER 31, 1998
Money market funds $ 1,627,317 $ -- $ -- $ 1,627,317
U.S. government and agency securities 14,134,679 -- -- 14,134,679
U.S. corporate securities 12,263,312 -- -- 12,263,312
------------ ------------ ------------ ------------
Total debt securities 28,025,308 -- -- 28,025,308
Less amounts classified as cash
equivalents (9,477,317) -- -- (9,477,317)
============ ============ ============ ============
Total investment securities,
available-for-sale $ 18,547,991 $ -- $ -- $ 18,547,991
============ ============ ============ ============
</TABLE>
Realized gains or losses on sales of available-for-sale securities in 1999, 1998
and 1997 were not significant. The net adjustment to unrealized holding gains
(losses) on available-for-sale securities included in comprehensive income
totaled $48,567, net of tax, in 1999. The estimated fair value of
available-for-sale debt securities as of December 31, 1999 by contractual
maturity is as follows: $16.7 million due within one year and $4.0 million due
in one to two years.
3. NOTES RECEIVABLE FROM OFFICERS AND EMPLOYEES
Notes receivable from officers and employees generally consist of relocation and
housing loans to assist in the relocation of new employees. These notes are
generally secured by a deed of trust on the individual's principal residence.
Notes receivable as of December 31, 1999 include separate loans to officers of
the Company of $60,000, $40,000 and $15,000. The $60,000 note is interest-free
and is due in 2003, but will be forgiven in four annual increments provided that
such officer remains an employee of the Company. The $40,000 note bears interest
payable monthly at approximately 6% per annum and is due in 2001, but will be
forgiven in $20,000 increments during 2000 provided that such officer remains an
employee of the Company. The $15,000 note bears interest payable monthly at
approximately 6% per annum and is due in 2002.
4. BALANCE SHEET DETAILS
Equipment, furniture and leaseholds consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Scientific equipment $ 6,305,697 $ 5,394,363
Office furniture, computers and equipment 5,142,450 4,113,065
Leasehold improvements 5,335,996 4,887,714
Construction in process 1,636,249 --
------------ ------------
18,420,392 14,395,142
Less accumulated depreciation and amortization (6,517,928) (3,529,262)
============ ============
$ 11,902,464 $ 10,865,880
============ ============
</TABLE>
The cost of equipment, furniture and leaseholds under capital leases and loans
at December 31, 1999 and 1998 was $11,469,708 and $9,148,994, respectively. The
accumulated depreciation and amortization of equipment, furniture and leaseholds
under capital leases and loans at December 31, 1999 and 1998 was $5,283,909 and
$2,693,324, respectively.
11
<PAGE> 12
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements (cont'd.)
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Chemical compounds $2,862,494 $1,148,654
Equity investments 2,400,003 2,400,003
Patents and licenses 905,081 675,426
Deposits, noncurrent -- 994,868
Miscellaneous 17,763 18,506
---------- ----------
$6,185,341 $5,237,457
========== ==========
</TABLE>
The above amounts are net of accumulated amortization of patents, licenses and
compounds of $298,548 and $33,544 at December 31, 1999 and 1998, respectively.
5. COMMITMENTS
Consulting Agreements
The Company has entered into various consulting agreements with its Scientific
Advisors and others for aggregate minimum annual fees of approximately $90,000
over the next four years. The agreements are cancelable by either party upon 60
or 90 days written notice. During the years ended December 31, 1999, 1998 and
1997, the Company expensed approximately $190,000, $250,000 and $440,000,
respectively, of fees and expense reimbursements related to these agreements.
Technology and License Agreements
The Company has entered into various strategic technology and license agreements
with third parties pursuant to the development of its screening systems and the
synthesis of chemical compounds. These agreements contain varying terms and
provisions which require the Company to make payments to the third parties,
subject to satisfactory performance by the third parties. Pursuant to these
agreements, the Company paid approximately $1,700,000, $1,400,000 and $850,000
in 1999, 1998 and 1997, respectively, and is obligated to pay a total of
approximately $4.5 million over the next four years.
The Company has also entered into various license agreements with corporations
and academic institutions regarding rights to certain inventions and
technologies. Most such agreements may be terminated by the Company with 60 days
written notice without significant financial penalty. Pursuant to these
agreements, the Company paid approximately $520,000, $1,070,000 and $140,000 in
1999, 1998 and 1997, respectively, and is obligated to pay a total of
approximately $1.2 million over the next four years.
Leases and Loans
The Company leases its facilities and certain equipment under operating lease
agreements which expire at various dates through September 2008. The facilities
lease agreement is secured by a letter of credit totaling $0.7 million, which is
secured by a certificate of deposit. At December 31, 1999, such restricted cash
totaling $670,000 was included in noncurrent assets. The letter of credit will
be reduced over the next two years on a predetermined schedule. Rent expense
totaled approximately $1,615,000, $1,596,000 and $1,205,000 in 1999, 1998 and
1997, respectively.
In November 1997, the Company subleased certain of its facilities to a third
party under an operating lease which expired in October 1999. Total sublease
income in 1999, 1998 and 1997 included as a credit to rent expense is $763,000,
$935,000 and $79,000, respectively.
The Company leases certain equipment and improvements under capital lease and
loan agreements which expire at various dates through November 2003. Unused
capital loans available at December 31, 1999 totaled $1.7 million.
12
<PAGE> 13
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements (cont'd.)
5. COMMITMENTS (CONTINUED)
Annual future minimum lease payments for operating and capital leases and loans
as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES
OPERATING LEASES AND LOANS
---------------- --------------
<S> <C> <C>
Years ended December 31,
2000 $ 1,745,627 $ 3,028,490
2001 1,797,515 2,290,360
2002 1,852,071 2,001,069
2003 1,907,633 509,666
2004 1,963,818 --
Thereafter 7,899,858 --
----------- -----------
Total minimum lease and loan payments $17,166,522 7,829,585
===========
Less amounts representing interest (989,813)
-----------
Present value of capital lease and loan payments 6,839,772
Less current portion (2,497,046)
===========
Capital lease and loan obligations, noncurrent $ 4,342,726
===========
</TABLE>
6. STOCKHOLDERS' EQUITY
Common Stock
Certain shares of common stock have been issued to founders, directors and
employees of, and consultants to, the Company. In connection with certain stock
purchase agreements, the Company has the option to repurchase, at the original
issue price, any unvested shares in the event of termination of employment or
engagement. Shares issued under these agreements generally vest over four years.
At December 31, 1999, 84,667 shares of common stock were subject to repurchase
by the Company.
Deferred Compensation
The Company records and amortizes over the related vesting periods deferred
compensation representing the difference between the price per share of
restricted stock issued or the exercise price of stock options granted and the
fair value of the Company's common stock at the date of issuance or grant.
Stock Option and Purchase Plans
In 1996, the Company adopted the 1996 Stock Plan (the "Stock Plan"), under
which, as amended, 6,000,000 shares of the Company's common stock were reserved
for future issuance. The Stock Plan provides for the grant of incentive stock
options and stock appreciation rights to employees and nonstatutory stock
options and stock purchase rights to employees, directors and consultants. All
options granted under the Stock Plan expire not later than ten years from the
date of grant and vest and become fully exercisable after not more than five
years of continued employment or engagement. Options generally vest over four
years, with one-fourth of the shares vesting after one year and the remainder
vesting monthly over the next thirty-six months. The exercise price of incentive
stock options must be equal to at least the fair market value of the Company's
common stock on the date of grant, and the exercise price of nonstatutory
options may be no less than 85% of the fair market value of the Company's common
stock on the date of grant.
In 1997, the Company adopted a Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"), under which 240,000 shares of the Company's common stock
were reserved for future issuance. All options granted under the Directors' Plan
expire no later than ten years from the date of grant and vest and become fully
exercisable after not more than four years of continued service. Options issued
to date generally vest monthly over four years. The exercise price of each
option must be equal to the fair market value of the Company's common stock on
the date of grant.
13
<PAGE> 14
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements (cont'd.)
6. STOCKHOLDERS' EQUITY (CONTINUED)
In 1997, the Company adopted an Employee Stock Purchase Plan (the "Purchase
Plan"), under which, as amended, 700,000 shares of the Company's common stock
were reserved for future issuance. The Purchase Plan provides for all eligible
employees to purchase the Company's common stock through payroll deductions at a
price equal to 85% of the lesser of the fair market value per share of the
Company's common stock on the start date of each overlapping two-year offering
period or on the date on which each semi-annual purchase period ends. At
December 31, 1999, 308,218 shares of common stock have been issued pursuant to
the Purchase Plan.
Pro forma information regarding net income (loss) and income (loss) per share is
required by SFAS 123, and has been determined as set forth below as if the
Company had accounted for stock options and shares issued under the Purchase
Plan under the fair value method of SFAS 123. The fair value of stock options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions for 1999, 1998 and 1997:
risk-free interest rates of 6.57%, 4.59% and 5.44%, respectively; no annual
dividends; volatility factor of 60%; and an expected option life of five years.
The weighted-average fair value of stock options granted during 1999, 1998 and
1997 was $4.44, $4.15 and $3.33, respectively.
Shares issued under the Purchase Plan were valued based upon the difference, if
any, between the market value of the stock and the purchase price of the shares
on the date of purchase. The weighted-average fair value on the date of purchase
for stock purchased under this plan was $5.32, $5.32 and $5.19 in 1999, 1998 and
1997, respectively.
For purposes of pro forma disclosures, the estimated fair value of stock options
is amortized to expense over the options' respective vesting periods and the
estimated fair value of shares issued under the Purchase Plan are amortized to
expense over the respective offering periods. If compensation cost for the
Company's Stock and Purchase plans had been determined based on the fair value
at the grant date as defined by SFAS 123, the Company's pro forma results for
1999, 1998 and 1997 would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma loss $ (4,392,000) $(19,641,000) $ (124,000)
Pro forma basic and diluted loss per share $ (0.26) $ (1.20) $ (0.01)
</TABLE>
The following table summarizes stock option activity and related information
through December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1996 4,000 $ 0.09
Granted 1,119,120 $ 5.90
Exercised (4,000) $ 1.15
Cancelled (12,700) $ 5.02
----------
Outstanding at December 31, 1997 1,106,420 $ 5.90
Granted 2,945,830 $ 7.33
Exercised (30,409) $ 1.40
Cancelled (1,277,351) $10.78
----------
Outstanding at December 31, 1998 2,744,490 $ 5.23
Granted 1,350,070 $ 8.20
Exercised (237,994) $ 3.57
Cancelled (334,754) $ 6.36
==========
Outstanding at December 31, 1999 3,521,812 $ 6.38
==========
</TABLE>
At December 31, 1999, 2,095,964 shares remain available for grant under the
Stock and Directors' Plans.
14
<PAGE> 15
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements (cont'd.)
6. STOCKHOLDERS' EQUITY (CONTINUED)
In November 1998, the Board of Directors authorized a plan whereby employee
option holders could have exchanged all of his or her current vested and
unvested options on a one-for-one basis for new options priced at the market
value as of November 19, 1998. This plan was not available to members of the
Board of Directors and executive officers were not permitted to exchange options
with an exercise price of $10.00 or below, with the exception of one officer who
did not meet the criteria to be included as a "Named Executive Officer" in the
Company's Proxy Statement. Under this plan, an aggregate of 1,099,430 options
with an average exercise price of $11.04 per share were exchanged for options
with an exercise price of $5.25 per share. The replacement options vest and
expire based on the original grant date. The replacement options were not
exercisable until November 20, 1999. All replacement options are included in
grants and cancellations in the above summary of stock option activity.
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVERAGE -----------------------------
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
--------------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.09 - $ 5.25 1,399,172 7.91 $4.14 661,886 $3.72
$ 5.34 - $ 6.72 1,011,176 9.18 $6.15 23,207 $6.12
$ 7.13 - $17.79 1,111,464 9.13 $9.40 172,852 $8.48
--------- ---------
$ 0.09 - $17.79 3,521,812 8.66 $6.38 857,945 $4.75
========= =========
</TABLE>
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At December 31, 1999, the Company has reserved shares of common stock for future
issuance as follows:
<TABLE>
<S> <C>
Common stock and stock options under 1996 Stock Plan 5,386,966
Common stock under Employee Stock Purchase Plan 391,782
Stock options under Directors' Plan 228,001
Other 6,809
===========
6,013,558
===========
</TABLE>
7. INCOME TAXES
The provision for income taxes on earnings subject to income taxes differs from
the statutory federal rate due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal income taxes (benefit) $ 94,000 $(6,528,000) $ 101,000
State income tax, net of federal benefit 1,000 -- 3,000
Tax effect of permanent differences 330,000 414,000 301,000
Alternative minimum taxes 116,000 -- 17,000
Increase (decrease) in valuation allowance
and other (424,000) 6,114,000 (402,000)
----------- ----------- -----------
$ 117,000 $ -- $ 20,000
=========== =========== ===========
</TABLE>
The provision for income taxes attributable to continuing operations consisted
of current federal income taxes of $116,000 and $17,000 in 1999 and 1997,
respectively, and current state income taxes of $1,000 and $3,000 in 1999 and
1997, respectively.
15
<PAGE> 16
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements (cont'd.)
7. INCOME TAXES (CONTINUED)
At December 31, 1999, the Company had federal income tax net operating loss
carryforwards of approximately $13,221,000. The federal tax loss carryforwards
will begin to expire in 2018, unless previously utilized. The Company also had
federal and California research tax credit carryforwards of approximately
$670,000 and $291,000, respectively, which will begin to expire in 2010 and
2012, respectively, unless previously utilized. The Company also had California
manufacturer's investment tax credit carryforwards of approximately $351,000,
which will begin to expire in 2005 unless previously utilized. Aurora has
federal and California alternative minimum tax credit carryforwards of
approximately $158,000 and $7,000, respectively, which may be carried forward
indefinitely.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, use of these net
operating loss and credit carryforwards may be substantially limited because of
cumulative changes in the Company's ownership of more than 50%. However, the
Company does not believe such limitations will have a material impact upon the
utilization of these carryforwards.
Significant components of the Company's net deferred tax assets as of December
31, 1999 and 1998 are shown below. Valuation allowances of $9,201,000 and
$9,148,000 at December 31, 1999 and 1998, respectively, have been recognized to
offset the net deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 4,733,000 $ 7,048,000
Deferred revenue 2,402,000 --
Tax credit carryforwards 1,154,000 1,184,000
Capitalized research and development 779,000 915,000
Other, net 865,000 346,000
----------- -----------
Total deferred tax assets 9,933,000 9,493,000
Deferred tax liability:
Depreciation (732,000) (345,000)
----------- -----------
Net deferred tax assets 9,201,000 9,148,000
Valuation allowance for net deferred tax assets (9,201,000) (9,148,000)
=========== ===========
Net deferred taxes $ -- $ --
=========== ===========
</TABLE>
8. INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income
(loss) per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ (209,317) $(18,706,675) $ 267,334
============ ============ ============
Denominator:
Shares used in basic income (loss)
per share computations - weighted average
common shares outstanding 17,019,195 16,336,287 8,970,183
Effect of dilutive securities:
Convertible preferred stock -- -- 4,591,231
Nonvested common stock -- -- 1,452,820
Warrants -- -- 20,970
Common stock options -- -- 387,551
------------ ------------ ------------
Shares used in diluted income (loss)
per share computations 17,019,195 16,336,287 15,422,755
============ ============ ============
</TABLE>
16
<PAGE> 17
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements (cont'd.)
8. INCOME (LOSS) PER SHARE (CONTINUED)
For additional disclosures regarding nonvested common stock and common stock
options, see Note 6.
Basic income (loss) per share excludes the weighted average effects of the
Company's nonvested common stock totaling 184,628, 693,861 and 1,452,820 shares
for the years ended December 31, 1999, 1998 and 1997, respectively. Nonvested
common stock is not included in basic income (loss) per share until the
time-based vesting restrictions have lapsed.
Options to purchase 1,089,597 and 2,744,490 shares of common stock and 184,628
and 349,428 shares of nonvested common stock were outstanding at December 31,
1999 and 1998, respectively, but were not included in the computation of diluted
earnings per share because the effect would be anti-dilutive.
In computing income (loss) per share for periods prior to the Company's IPO in
June 1997, the Company excluded the impact of convertible preferred stock to
conform to current interpretations by the Securities and Exchange Commission.
For comparative purposes, basic income per share under the if-converted method
would have been $0.02 in 1997 with 13,561,414 weighted average shares.
9. 401(k) RETIREMENT SAVINGS PLAN
In 1996, the Company adopted a 401(k) Retirement Savings Plan covering
substantially all employees who have completed certain service requirements.
Participants may contribute a portion of their compensation to the Plan through
payroll deductions. The Company paid Plan expenses totaling $7,000, $6,000 and
$3,000 in 1999, 1998 and 1997, respectively. Company matching contributions, if
any, are determined by the Company at its sole discretion. Company contributions
under the Plan totaled $167,000 and $120,000 in 1999 and 1998, respectively. No
Company contributions were made in 1997.
10. COLLABORATIVE AGREEMENTS
The Company has entered into the following collaborative agreements:
Ultra-high Throughput Screening System and Screen Development Agreements
The Company entered into collaborative agreements (the "Agreements") with BMS
and Eli Lilly and Company, Inc. ("Lilly") in 1996, Warner-Lambert and Merck in
1997, and Pfizer in 1999 (collectively, the "Collaborators") regarding the
development and installation of the Company's UHTSS Platform at each of the
Collaborators. Under the terms of each of the Agreements, the Company is
required to develop and separately install three modules to be integrated into
one complete UHTSS Platform. In return, the Collaborators are obligated to make
certain payments to the Company in the form of non-refundable upfront fees,
delivery or installation payments and ongoing research and co-development
funding. The Company is obligated to provide service and support for each
installed UHTSS Platform for a limited period of time.
The Company and the Collaborators will also co-develop high throughput screening
assays for use by the Collaborators. In addition to certain payments to be made
by the Collaborators for the use of these assays and assay technologies, the
Collaborators will also make certain milestone and royalty payments to the
Company if the Collaborators develop and commercialize certain compounds
identified using a screen developed by the Company.
The Collaborators may terminate the Agreements at any time without cause upon
written notice, provided that certain withdrawal payments are made. One of the
Agreements provide for penalties, defined at $2,777 per day up to $1 million,
payable by the Company if it fails to deliver the completed UHTSS Platform by a
specified time. As of December 31, 1999, the Company has not accrued for any
penalties.
In November 1999, the Company and Lilly agreed to amend their collaborative
research and license agreement and discontinue further development of Lilly's
UHTSS Platform. The companies continued their collaborative screen development
program and Lilly extended its license to certain Aurora technologies as part of
the amendment.
The Company entered into agreements with Warner-Lambert in 1998 and Pfizer in
1999 to develop an automated master compound storage ("AMCS") system for
long-term housing of chemical and biological compounds.
17
<PAGE> 18
AURORA BIOSCIENCES CORPORATION
Notes to Supplemental Consolidated Financial Statements (cont'd.)
10. COLLABORATIVE AGREEMENTS (CONTINUED)
Screening Services Agreements
In 1998, the Company entered into a collaboration with Cytovia, Inc., whereby
Aurora will provide screening services and access to its compound library. In
1999, Aurora entered into agreements to develop screening assays and/or provide
screening services with Pharmacia & Upjohn, Inc., F.Hoffman-LaRoche Ltd. and the
Cystic Fibrosis Foundation. The Company also entered into agreements with
Warner-Lambert, Becton Dickinson and Company and Merck to provide functional
genomics services using the Company's GenomeScreen(TM) technology. In addition,
Aurora entered into agreements in the area of ion channel drug discovery with
certain UHTSS Collaborators, Glaxo Wellcome and Wyeth-Ayerst Laboratories, the
Pharmaceutical Division of American Home Products Corporation. Under these
agreements, the Company will develop assays, deliver instrumentation and provide
ongoing scientific and technical support related to ion channels.
The Company intends to continue to enter into such agreements to provide
services. Such agreements vary in length and size, however, under these
agreements, the Company is required to develop screening assays and to perform
screening services. The customer is obligated to make certain payments to the
Company in the form of upfront fees, development payments and fees for screening
services. Generally, the customer is also required to make certain milestones
and royalty payments to Aurora in the event of development and commercialization
of a compound identified using a screen developed by Aurora.
11. BUSINESS COMBINATION
In October 2000, Aurora completed a merger with Quorum Sciences, Inc., a
development stage biotechnology company incorporated in April 1998. Quorum
Sciences is developing anti-infective technology based upon the disruption of
chemical signaling between bacteria cells. The merger was effected by exchanging
76,924 shares of Aurora common stock for all of the outstanding common stock of
Quorum Sciences. Each share of Quorum Sciences was exchanged for approximately
0.028 of one share of Aurora common stock. In addition, outstanding Quorum
Sciences stock options were converted at the same exchange factor into options
to purchase 4,354 shares of Aurora common stock.
The merger constituted a tax-free reorganization and has been accounted for as a
pooling of interests under Accounting Principles Board Opinion No. 16, "Business
Combinations." Accordingly, all prior period consolidated financial statements
presented have been restated to include the combined results of operations,
financial position and cash flows of Quorum Sciences as though it had been a
part of Aurora since Quorum Sciences' inception on April 6, 1998. There were no
transactions between Aurora and Quorum Sciences prior to the combination.
Certain reclassifications were made to the Quorum Sciences financial statements
to conform to Aurora's presentations.
The results of operations for the separate companies and the combined amounts
presented in the supplemental consolidated financial statements follow:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Aurora $ 50,324,301 $ 26,537,888
Quorum Sciences 197,160 20,000
============ ============
Combined $ 50,521,461 $ 26,557,888
============ ============
Net income (loss):
Aurora $ 151,919 $(18,653,118)
Quorum Sciences (361,236) (53,557)
============ ============
Combined $ (209,317) $(18,706,675)
============ ============
</TABLE>
12. SUBSEQUENT EVENT
In February 2000, the Company completed a private placement of 1.8 million
shares of newly issued Common Stock to selected institutional and other
accredited investors. The purchase price was $42.00 per share, resulting in net
proceeds of approximately $71 million.
18
