<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: October 24, 2000
Date of earliest event reported: August 10, 2000
-----------------------
Maxygen, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
000-28401 77-0449487
(Commission File No.) (I.R.S. Employer Identification No.)
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515 GALVESTON DRIVE
REDWOOD CITY, CA 94063
(Address of principal executive offices, including zip code)
--------------------------
(650) 298-5300
(Registrant's telephone number, including area code)
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<PAGE>
Item 2. Acquisition or Disposition of Assets
On August 15, 2000, Maxygen, Inc. ("Maxygen") filed a Current Report on
Form 8-K with respect to the acquisition of ProFound Pharma A/S (now known as
Maxygen ApS). Such Current Report indicated that the required financial
statements and pro forma financial information would be filed as soon as
practicable after the date of such report. Maxygen hereby amends the following
items, financial statements, exhibits and other portions of the Current Report,
as set forth below and in the pages attached hereto.
Item 5. Other Events
RISK FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
You should carefully consider the risks described below, together with all
of the other information included in this report and other reports we file with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, in considering our business and prospects. The risks and uncertainties
described below are not the only ones facing Maxygen. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations. The occurrence of any of the following
risks could harm our business, financial condition or results of operations.
The acquisition itself may adversely affect Maxygen and Maxygen ApS.
The process of integrating any acquisition may create unforeseen operating
difficulties and expenditures and is itself risky. The areas where we may face
difficulties include:
. diversion of management time (both ours and at Maxygen ApS) from a focus on
operating the businesses to issues of integration and future products
during the period of negotiation through closing and further diversion of
such time after closing;
. decline in employee morale and retention issues resulting from changes in
compensation, reporting relationships, future prospects, or the direction
of the business;
. the need to integrate each company's accounting, management information,
human resource and other administrative systems to permit effective
management and the lack of control if such integration is delayed or not
implemented; and
. the need to implement controls, procedures and policies appropriate for a
larger public company in companies that prior to acquisition had been
smaller, private companies.
Maxygen ApS and Maxygen have almost no experience in managing this integration
process.
There are many risks associated with international operations.
As a result of the acquisition of Maxygen ApS, we now are operating with
international business locations. Expansion into an international operational
entity will require additional
<PAGE>
management attention and resources. We have limited experience in localizing our
operations and in conforming our operations to local cultures, standards and
policies. We may have to compete with local companies who understand the local
market better than we do. We may not be successful in expanding into
international markets or in generating revenues from foreign operations. Even if
we are successful, the costs of operating internationally are expected to exceed
our international revenues for the foreseeable future. As we continue to expand
internationally, we are subject to risks of doing business internationally,
including the following:
. regulatory requirements, including regulation of protein pharmaceutical
products, that may limit or prevent the offering of our products in local
jurisdictions;
. government limitations on pharmaceutical research and/or research including
genetically engineered products or processes;
. difficulties in staffing and managing foreign operations;
. longer payment cycles, different accounting practices and problems in
collecting accounts receivable;
. cultural nonacceptance of genetic manipulation and genetic engineering; and
. potentially adverse tax consequences.
Some of these factors may cause our international costs to exceed our domestic
costs of doing business. To the extent we expand our international operations
and have additional portions of our international revenues denominated in
foreign currencies, we also could become subject to increased difficulties in
collecting accounts receivable and risks relating to foreign currency exchange
rate fluctuations.
Our expanded protein pharmaceutical business depends on public acceptance of
genetically engineered products.
The commercial success of our potential products will depend in part on
public acceptance of the use of genetically engineered products, including
protein pharmaceutical products. Claims that genetically engineered products are
unsafe for consumption or pose a danger to the environment may influence public
attitudes. Our genetically engineered products may not gain public acceptance.
The subject of genetically modified organisms has received negative publicity in
Europe, where Maxygen ApS is based, which has aroused public debate. The adverse
publicity in Europe could lead to greater regulation and restrictions on
production and imports of genetically altered products. As a result, genetic
research and resultant protein pharmaceutical and other products could be
subject to greater domestic and international regulation and could cause a
decrease in the demand for our products.
We may be unable to obtain or maintain regulatory approval for our products.
The manufacturing, testing and marketing of protein pharmaceutical products
are subject to regulation by numerous governmental authorities in the U.S. and
other countries. In the U.S.,
<PAGE>
pharmaceutical products are subject to stringent FDA regulation. Additionally,
other federal, state and local regulations govern the manufacture, testing,
clinical and nonclinical studies to assess safety and efficacy, approval,
advertising and promotion of pharmaceutical products. The process of obtaining
approval for a new pharmaceutical product or for additional therapeutic
indications within this regulatory framework requires a number of years and the
expenditure of substantial resources. Companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in various stages of
clinical trials, even in advanced clinical trials after promising results had
been obtained in earlier trials.
For marketing of pharmaceutical products outside the U.S., we and our
collaborative partners are subject to foreign regulatory requirements and, if
the particular product is manufactured in the U.S., FDA and other U.S. export
provisions. Requirements relating to the manufacturing, conduct of clinical
trials, product licensing, promotion, pricing and reimbursement vary widely in
different countries. Difficulties, delays, unanticipated costs and/or price
controls may be encountered by us or our licensees or marketing partners in our
respective efforts to secure necessary governmental approvals. This could delay
or prevent us or our licensees or our marketing partners from marketing
potential pharmaceutical products.
Our new business is dependent on a small number of key employees.
Our new business is dependent on attracting and retaining key employees.
The protein pharmaceutical business is particularly dependent on specialists and
senior management because of the technical skills and regulatory experience of
certain individuals. The loss of any of these individuals could result in the
loss of significant future business and would harm us. Such personnel are in
great demand by other pharmaceutical and biotechnology companies. In addition,
employee turnover frequently increases during the period following an
acquisition as employees evaluate possible changes in compensation, culture,
reporting relationships, and the direction of the business. Such increased
turnover could increase our costs and reduce our future revenues.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
Financial statements of the business acquired as of and for the periods
ended December 31, 1999 are included herein.
(b) Pro Forma Financial Information
Pro forma financial information for the year ended December 31, 1999
and the six months ended June 30, 2000 are included herein.
<PAGE>
Item 7(a). Financial Statements of Business Acquired
PROFOUND PHARMA A/S
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Directors' Report for 1999....................................................................... 6
Accounting Policies.............................................................................. 9
Statement of Operations.......................................................................... 11
Balance Sheet.................................................................................... 12
Statement of Cash Flows.......................................................................... 14
Notes to the Financial Statements................................................................ 15
Signatures of the Management and the Board of Directors.......................................... 19
Report of Independent Public Accountants......................................................... 20
</TABLE>
<PAGE>
PROFOUND PHARMA A/S
Financial Statements for the Period April 19 to December 31, 1999
(First Fiscal Year)
Directors' Report for 1999
Business review
The Corporation was founded as a private limited company at the first general
meeting on April 19, 1999. On April 28, 1999, the Corporation was converted into
a public limited company.
The Corporation was founded with a view to developing new protein-based
pharmaceuticals. At the end of 1999, ProFound Pharma A/S had six ongoing
projects in this respect. The basis for the business of ProFound Pharma A/S will
consist in outlicensing and/or sale of projects having a suitable degree of
maturity. Thus, the Corporation makes efforts to enter into partnerships with
well-established pharmaceutical companies with a view to implementing clinical
testing of pharmaceuticals and with a view to registering, producing,
distributing and marketing the end products.
At the time of foundation, the Corporation had 8 employees, while the number was
40 at the end of the year. In June 1999, ProFound Pharma A/S took over the fifth
and sixth floors of the lease ROnnegade 2 from the companies PNA Diagnostics and
DAKO A/S. The lease is 1,077 sqm. In addition, an agreement with the Science
Park in HOrsholm was made regarding the construction of new facilities for the
Corporation, expected to be put into use in May 2000. This lease will be 2,500
sqm. with the option of expansion up to 3,600 sqm., allowing the Corporation to
increase the number of employees to approx. 120.
Financial review
During the period under review, a loss of DKK 10,437 thousand was realized,
which is better than expected.
The level of costs reflects that 1999 is the start-up year. The staffing
development has been lower than expected with a corresponding lower level of
payroll costs. During the period, there were non-recurring establishment costs,
including the takeover of the facilities in R nnegade and initial IT costs, etc.
Research activity
The Corporation took over the laboratory and office facilities in a fairly
usable state in the lease R nnegade 2, allowing the Corporation to initiate
research and development activities in connection with most of the new employees
commencing their employment in August 1999.
<PAGE>
The Corporation has performed a detailed analysis of the market for
biopharmaceutical products with a view to identifying the most attractive
projects for the Corporation. In particular, parameters such as the size of the
market, technical compatibility to the Corporation's technology platform, the
patent situation, the competitive situation and the complexity of clinical
testing have all had considerable impact on the choice of the Corporation's six
projects.
Two of the Corporation's projects have first priority, and they are co-financed
by the Danish Growth Fund.
At year-end, all projects still seemed to have a fair chance of success
considering the necessary investments. The Board of Directors and Management are
currently following the development of the projects-in-progress; and further
project possibilities are evaluated on an ongoing basis. The project portfolio
is dynamic, and resources are allocated with a view to maximizing the chances of
success with regard to the projects chosen.
Furthermore, the Corporation's research activity has resulted in the filing of a
number of patent applications so as to protect ProFound Pharma A/S' technology
platform and specific projects.
Risks
The Corporation is engaged in the development of pharmaceuticals, involving
significant, well-known and accepted technological, clinical, patent and market
risks. The Corporation attempts to minimize these risks by constant monitoring
of the progress of the project portfolio relative to the project plans and the
necessary future investments in the projects, just as the projects are chosen
with a view to optimizing the net present value (NPV) of the portfolio. In
addition, there are business risks such as the ability to enter into agreements
regarding outlicensing and/or sale of projects and the ability to attract the
requisite capital. Finally, the activity is dependent on the Corporation's
ability to attract and maintain key employees.
Profit-sharing
The Board of Directors recommends that the loss for the year, DKK 10,437
thousand, be carried forward to next year.
Initial expenses
Total expenses for founding and capital increase, DKK 100 thousand, are borne by
the Corporation.
<PAGE>
Outlook
The Corporation's budget shows total capital requirements of approx. DKK 50
million for the year 2000, broken down to costs and investments. In all
probability, the Corporation will enter into one or more agreements regarding
the outlicensing and/or sale of projects in the year 2000. This may give rise to
significant income in the form of non-recurring income, benchmark payments,
research expenses and/or royalties. If such income is lacking, the Corporation
will need to take out additional subordinate loans in 2000, based on warrants
already issued and/or through the issue of additional shares. The Danish Growth
Fund is still going to finance approx. 45% of the expenses incurred in the
Corporation's two main projects.
Events after the balance sheet date
No post balance sheet events have occurred that could significantly affect the
Corporation's financial position.
Stockholders
The following stockholders are registered in the Corporation's register of
stockholders as owners of 5% or more of the capital stock or as holders of 5% or
more of the voting powers:
Bank Invest, Toldbodgade 33, DK-1253 Copenhagen K
Novo Nordisk A/S, Novo Alle, DK-2880 Bagsvaerd
Christian Karsten Hansen, Osterbrogade 118, 3. tv., DK-2100 Copenhagen O
Jan M ller Mikkelsen, Garderh jvej 8, DK-2820 Gentofte.
Copenhagen, February 23, 2000
<PAGE>
Accounting Policies
General
The financial statements have been prepared pursuant to the provisions of the
Danish Company Accounts Act.
It is the Corporation's first fiscal year. As a result, no comparatives have
been stated in the income statement, balance sheet, statement of cash flows or
notes.
Income statement
The accounts in the income statement are presented by type.
Net sales
Net sales include sales less price reductions directly associated with the sale.
Income on the sale of goods is recognized when invoiced.
External expenses
External expenses comprise research costs and administrative expenses.
Non-operating items
Non-operating items comprise interest and foreign currency adjustments.
Extraordinary items
Extraordinary items comprise income and expenses the nature of which is
extraordinary.
Public grants
Public grants comprise contributions for research, development, investments,
etc. Research contributions are systematically taken to income in the income
statement under the caption "Other operating income" so as to make them cancel
out the costs they compensate. Investment contributions are set off against the
cost of the assets for which contributions are granted. See also Note 8.
Any conditional repayments concerning contributions received are disclosed as a
contingent liability in a note to the financial statements.
Corporate income tax
The corporate income tax charge for the year includes the current tax payable on
the taxable income of the year and changes in the estimated deferred tax charge.
Deferred tax is provided for at 32% concerning tax reserves and differences
between tax and accounting balances.
Balance sheet
Foreign currencies
Amounts in foreign currencies are translated into Danish kroner at the exchange
rate ruling at the date of the transaction. Monetary items in foreign currencies
are translated into Danish kroner at the exchange rate ruling at the balance
sheet date. Any realized or unrealized gains or losses on foreign currency
translation are included in the income statement as financial items.
<PAGE>
Accounting Policies
Intangibles, plant and equipment
Intangibles
Leasehold improvements are stated at cost less contributions granted and
accumulated amortization. The basis of amortization is distributed on a
straight-line basis over the remaining term of the lease, based on the security
of tenure of the lease and the expected useful life of the improvements.
Plant and equipment
Fixtures and equipment are stated at cost less contributions received and
accumulated depreciation.
Depreciation is provided on a straight-line basis over the expected useful lives
of the individual assets.
Fixtures and equipment: 3-5 years
Minor acquisitions not exceeding DKK 9,200 per asset and assets with lives below
3 years are expensed in the year of acquisition.
Current assets
Receivables
The soundness of receivables is assessed on an individual basis, and allowances
are made for losses, as required.
Statement of cash flows
The statement of cash flows shows the Corporation's cash flows for the year and
the Corporations cash and cash equivalents at the beginning and end of the
fiscal year.
Cash flows from operating activities
Cash flows from operating activities are show indirectly and are stated as the
net income or loss, adjusted for non-cash operating items, changes in working
capital, non-operating and extraordinary items not paid and corporate income tax
paid.
Cash flows from investing activities
Cash flows from investing activities include payments in connection with the
acquisition or sale of intangibles, plant and equipment relating to investing
activities.
Cash flows from financing activities
Cash flows from financing activities include dividend distributions to
stockholders and the contraction and repayments of long-term debt.
Cash and cash equivalents
Cash and cash equivalents include cash funds and realizable securities.
<PAGE>
STATEMENT OF OPERATIONS
for the period from April 19 to December 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999
Note DKK
<S> <C> <C>
Net sales 0
Other operating income 1 5,743
External expenses -7,688
-------
Gross margin -1,945
Staff cost 2 -8,193
Amortization and depreciation 3 -867
-------
Loss before non-operating items -11,005
Interest receivable and similar income 571
Interest payable and similar expenses -3
-------
Loss from ordinary activities before tax -10,437
Tax on loss from ordinary activities 4 0
-------
NET LOSS -10,437
=======
Basic and diluted net loss per share -42.08
Shares used in computing basic and diluted net loss per share 248
</TABLE>
The accompanying notes are intergral part of these financial statements.
<PAGE>
BALANCE SHEET
at December 31, 1999
<TABLE>
<CAPTION>
1999
Note DKK'000
<S> <C> <C>
ASSETS
Leasehold improvements 228
Deposits 204
-------
Total intangibles 5 432
-------
Fixtures and equipment 2,916
-------
Total property, plant and equipment 6 2,916
-------
TOTAL FIXED ASSETS 3,348
=======
Inventories 0
-------
Trade accounts receivable 0
Other receivables 9,494
Prepaid expenses 298
-------
Total receivables 9,792
-------
Cash at bank and in hand 20,511
-------
TOTAL CURRENT ASSETS 30,303
-------
TOTAL ASSETS 33,651
=======
</TABLE>
The accompanying notes are an intergral part of these financial statements.
<PAGE>
BALANCE SHEET
at December 31, 1999
<TABLE>
<CAPTION>
1999
Note DKK'000
<S> <C> <C>
LIABILITIES
Capital stock 526
Additional paid-in capital 29,156
Retained earnings 0
-------
TOTAL STOCKHOLDERS' EQUITY 7 29,682
-------
ALLOWANCE FOR DEFERRED TAX 4 0
-------
Trade accounts payable 1,771
Corporate income tax payable 4 0
Other accounts payable 2,198
-------
TOTAL CURRENT LIABILITIES 3,969
-------
TOTAL LIABILITIES 33,651
=======
Contingent liabilities, security for loans, etc. 8
</TABLE>
The accompanying notes are an intergral part of these financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
for the period from April 19 to December 31, 1999
<TABLE>
<CAPTION>
1999
Note DKK'00
<S> <C> <C>
Net loss -10,437
Adjustments 9 299
Change in working capital 10 -5,823
-------
Cash flows from operating activities before non-operating items -15,961
Interest receivable and similar income 571
Interest payable and similar expenses -3
-------
Cash flows from loss on ordinary activities -15,393
Corporate income tax paid 0
-------
Cash flow from operating activities -15,393
-------
Leasehold improvements -620
Additions of fixtures and equipment -3,391
Deposits -204
-------
Cash flows from investing activities -4,215
-------
Capital contributions on formation and subsequent
capital increase 40,119
-------
Cash flows from financing activities 40,119
-------
Change in cash and cash equivalents 20,511
=======
Cash and cash equivalents at December 31, 1999 20,511
=======
</TABLE>
The accompanying notes are an intergral part of these financial statements.
<PAGE>
Notes to the Financial Statements
Note 1. Other operating income
Other operating income includes contributions from the Danish Growth Fund
subject to conditional repayment. The contribution is received in part
settlement of project development costs incurred. Reference is otherwise made to
note 8.
1999
DKK'000
Note 2. Staff costs
Analysis of the staff costs incurred in the year:
Wages and salaries 7,550
Pension contributions 284
Social security costs 38
Other staff costs 321
-----
8,193
=====
The amount is inclusive of remuneration to the Management
in the amount of DKK 1,385 thousand.
Average number of employees in the period 23
=====
Note 3. Amortization and depreciation
Leasehold improvements 393
Fixtures and equipment 474
-----
867
=====
Amortization and depreciation is made up net of contribution set off against the
cost of the assets, totaling DKK 664 thousand.
Note 4. Corporate income tax
No corporate income tax was paid in the financial period.
No current or deferred tax charge is incumbent on the Corporation.
<PAGE>
Notes to the Financial Statements
<TABLE>
<CAPTION>
Leasehold
improv. Deposits
DKK'000 DKK'000
Note 5. Intangibles
<S> <C> <C>
Additions in the year 1,128 204
Contribution set off -508 0
--------- -----------
Cost at December 31 620 204
--------- -----------
Amortization in the year 392 0
--------- -----------
Amortization at December 31 392 0
--------- -----------
Net book value at December 31 228 204
========= ===========
Fixtures
and equipm.
DKK'000
Note 6. Plant and equipment
Additions in the year 5,743
Contribution set off -2,352
-----------
Cost at December 31 3,391
-----------
Depreciation in the year 475
-----------
Depreciation at December 31 475
-----------
Net book value at December 31 2,916
===========
</TABLE>
<TABLE>
<CAPTION>
Share Paid-in Retained
capital surplus loss Total
DKK'000 DKK'000 DKK'000 DK007
<S> <C> <C> <C> <C>
Note. 7 Stockholders' equity
Formation:
Capital contribution on formation 175 0 0 175
Capital increase at April 28, 1999 325 34,660 0 34,985
Capital increase at May 4, 1999 26 4,933 0 4,959
Net loss 0 0 -10,437 -10,437
Appropriated to cover the net loss 0 -10,437 -10,437 0
--- ------- --------- -----------
Stockholders' equity at December 31 526 29,156 0 29,682
=== ======= ========= ===========
</TABLE>
<PAGE>
Notes to the Financial Statements
DKK
Note 7. Stockholders' equity - continued
The capital stock is comprised of the following denominations of shares:
175,000 Class A shares of DKK 1 each 175,000
351,316 Class B shares of DKK 1 each 351,316
-------
526,316
=======
Note 8. Contingent liabilities, security for loans, etc.
Leasing commitment
Total leasing commitments incumbent on the Corporation are DKK 458 thousand.
Rent commitment
The rent commitment incumbent on the Corporation concerning the leasehold
premises in ROnnegade totals - until the premises are vacated in May 2000 - DKK
282 thousand.
The commitment once the premises have been vacated will be DKK 855 thousand. No
allowance has been made for this commitment in the Financial Statements, as the
Corporation expects that new tenants will occupy the vacated premises.
Moreover, an agreement with the Science Park in HOrsholm has been entered into
regarding leasehold premises in HOrsholm. Under the agreement, the Corporation
will be obliged in a 5-year period from May 1, 2000 to rent the premises. The
annual rent payments are DKK 2,877 thousand, rising to DKK 3,158 thousand in
connection with the agreed expansion of the lease.
Obligation concerning project development subsidies subject to conditional
repayment
The Corporation has assumed a conditional repayment obligation concerning
project development subsidies for 1999 in the amount of DKK 8,603 thousand.
Depending on the possibilities to market and sell the underlying development
projects, the contribution will be subject to repayment. In the alternative, the
contribution will be waived.
If there is commercial success, at June 30, 2007, at least 20% of the
contributed installments must be repaid. The repayment obligation has not been
provided for in the balance sheet, as the projects at that time will either be
wholly or partly completed and, thus, add income to the Corporation - and the
contribution will be repaid - or be completed without resulting in any
subsequent sale, following which the repayment obligation may be waived at the
Corporation's request.
<PAGE>
Notes to the Financial Statements
If the objectives of the projects are fulfilled, the contribution must be repaid
in the form of either a possible early repayment or sales-based repayments. In
both cases, repayment must, according to the agreement entered into with the
Danish Growth Fund, be effected subject to a certain surcharge in addition to
interest added, depending on the time of repayment.
Security for loans
The repayment obligation concerning project development installments received
has been secured by DKK 220 million on the development projects. Total
contributions received in 1999 were DKK 8,603 thousand. The related project
development costs incurred have been expensed, and contributions for leasehold
improvements, fixtures and equipment have been set off against the cost, cf.
otherwise notes 5 and 6. Operating equipment concerning the projects, with
regard to which contributions have been set off, was capitalized by a total of
DKK 2,456 thousand at December 31, 1999.
Other liabilities
The Corporation has granted warrants to employees and existing stockholders of a
total nominal amount of DKK 275,677, the total utilization value being DKK 51.3
million.
<PAGE>
Notes to the Financial Statements
1999
DKK'000
Note 9. Adjustments
Amortization and depreciation 867
Interest receivable and similar income -571
Interest payable and similar expenses 3
Corporate income tax 0
------
Total adjustments 299
======
Note 10. Change in working capital
Increase in receivables and prepaid expenses -9,792
Increase in trade accounts payable 1,771
Increase in other accounts payable 2,198
------
Change in working capital -5,823
======
Note 11. Summary of differences between Danish and United States Generally
Accepted Accounting Principles
The accompanying financial statements have been prepared in accordance with the
provisions of the Danish Company Accounts Act ("Danish GAAP"), which differs in
certain material respects from accounting principles generally accepted in the
United States ("US GAAP"). The application of the latter would not have
materially affected the determination of shareholders' equity and financial
position as of December 31, 1999 and the determination of net income for the
period from April 19, 1999 (date of inception) through December 31, 1999.
Note 12. Subsequent Event
On August 10, 2000, the Company announced that it was acquired by Maxygen, Inc.
Pursuant to the acquisition, the Company repaid the amounts received from the
Danish Growth Fund with additional surcharges aggregating DKK25,232,000. As a
result of the repayment, the Company will record an extraordinary loss of
approximately DKK19,872,000 during the fiscal year ending December 31, 2000. As
of the date of our report (February 23, 1999), the Company did not intend to
repay amounts received from the Danish Growth Fund and recorded operating income
of DKK5,743,000 during the period from April 19, 1999 through December 31, 1999.
Copenhagen, February 23, 2000,
except as to Notes 11 and 12, as to which the date is October 23, 2000
Management
/s/ Jan Moller Mikkelsen /s/ Christian Hansen
Board of Directors
/s/ Claus Braestrup /s/ Knud Aunstrup /s/ Thue Schwartz
Chairman
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and the Shareholders of
ProFound Pharma A/S
We were engaged to audit the accompanying balance sheets of ProFound Pharma A/S
(the "Company") as of December 31, 1999, and the related statements of
operations and cash flows for the period from April 19, 1999 (date of inception)
through December 31, 1999 (the "Period"), which have been prepared on the basis
of accounting principles generally accepted in Denmark ("Danish Company Accounts
Act"). These financial statements are the responsibility of the Directors of the
Company. 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
in the United States of America. These 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 the above present fairly,
in all material respects the financial position of the Company as of December
31, 1999, and the results of operations and cash flows for the Period in
conformity with the Danish Company Accounts Act.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred a net loss of
DKK10,437,000 and used cash from operating activities of approximately
DKK15,400,000 during the Period. Although the Company's current assets exceeded
current liabilities by DKK26,000,000 at December 31, 1999, the Company's budget
for fiscal 2000 suggests capital requirements of approximately DKK50,000,000.
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are described in the Directors' Report included in the financial statements. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The Danish Company Accounts Act varies in certain material respects from
accounting principles generally accepted in the United States. The application
of the latter would not have materially affected the determination of
shareholders' equity and financial position as of December 31, 1999 and the
determination of net income for the Period.
/s/ Grant Thornton Denmark Ltd.
Copenhagen, Denmark
February 23, 2000 (except for Notes 11 and 12, as to which the
date is October 23, 2000)
<PAGE>
Item 7(b). Pro Forma Financial Information
On August 10, 2000, Maxygen, Inc. ("Maxygen" or the "Company") acquired all
the equity interests of ProFound Pharma A/S ("ProFound", now known as Maxygen
ApS). Prior to the acquisition, ProFound was a privately-held company. ProFound
develops improved second-generation protein pharmaceutical products.
Consideration for this purchase was 1,102,578 shares of Maxygen common stock and
options to purchase 41,812 shares of Maxygen common stock. Maxygen also incurred
approximately $1.0 million of acquisition related cost. The purchase price,
including liabilities assumed of $6.3 million, aggregated approximately $72.7
million, of which $4.2 million was allocated to tangible assets, $28.0 million
to acquired in-process research and development and $38.9 million to other
identified intangibles and goodwill. The intrinsic value of the unvested options
was equal to approximately $1.5 million and was allocated to deferred
compensation. The allocation of the purchase price was done on the basis of an
independent appraisal.
The Maxygen statement of operations for the period in which the merger with
ProFound occurs will include a significant charge for acquired in-process
research and development, currently estimated to be approximately $28.0 million.
This amount represents the value determined by management, using a discounted
cash flow methodology, to be attributable to the in-process research and
development of ProFound based on a valuation analysis of such research and
development. The charge relates to specific on-going research and development.
Management of Maxygen believes that the allocation of the purchase price to in-
process research and development is appropriate given the future potential of
this research and development to contribute to the operations of Maxygen.
Assuming this research continues through all stages of clinical development,
Maxygen projects substantial future research and development expenditures
related to this technology. If Maxygen would have allocated less of the purchase
price to in-process research and development, the value would have been recorded
as goodwill on the balance sheet and amortized over the expected benefit period,
resulting in increased amortization expense during that period.
The following unaudited pro forma condensed combined financial information
reflects the business combination between Maxygen and ProFound accounted for
using the purchase method of accounting. The pro forma condensed combined
balance sheet combines Maxygen's historical balance sheet with ProFound's
historical balance sheet as of June 30, 2000. The pro forma condensed combined
balance sheet reflects the combination as if it had occurred as of June 30,
2000. The pro forma condensed combined statements of operations combine
Maxygen's historical statements of operations with ProFound's historical
statements of operations for the period ended December 31, 1999 and the six
months ended June 30, 2000. The pro forma condensed combined statements of
operations reflect the combination as if it had occurred at the beginning of
each period presented.
The unaudited pro forma condensed combined statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the transaction been effected as of the beginning of such period and should
not be construed as representative of future operations.
<PAGE>
MAXYGEN, INC. AND PROFOUND PHARMA A/S
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 30, 2000
-------------
ProFound ProFound Pro Forma Pro Forma
Maxygen (DKK) ($US) Adjustments Combined
------- ----- ----- ----------- ---------
(Note 1)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 213,923 kr 20,868 $ 2,661 $ -- $ 216,584
Short-term investments............................ 9,995 -- -- -- 9,995
Grant and other receivables....................... 6,087 3,188 407 -- 6,494
Prepaid expenses and other current assets......... 1,151 48 6 -- 1,157
--------- --------- -------- ------------- -----------
Total current assets............................ 231,156 24,104 3,074 -- 234,230
--------- --------- -------- ------------- -----------
Property and equipment, net....................... 5,208 9,097 1,161 -- 6,396
Long-term investments............................. 46,835 -- -- -- 46,835
Goodwill and other intangible assets.............. -- -- -- 38,937 (C) 38,937
Deposits and other assets......................... 1,387 -- -- (580) (B) 807
--------- --------- ------- ------------- -----------
Total assets.................................... $ 284,586 kr 33,201 $ 4,235 $ 41,529 $ 327,178
========= ========= ======= ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 894 kr 3,084 $ 393 $ -- $ 1,287
Accrued compensation.............................. 1,843 -- -- -- 1,843
Other accrued liabilities......................... 2,704 3,584 457 5,907 (B) 9,068
Deferred revenue.................................. 4,686 -- -- -- 4,686
Current portion of equipment financing
obligations...................................... 392
--------- --------- ------- ------------- -----------
Total current liabilities....................... 10,519 6,668 850 5,907 17,276
Deferred revenue.................................... 2,127 -- -- -- 2,127
Non-current portion of equipment financing
obligations........................................ 1,579 1,579
--------- --------- ------- ------------- -----------
Total long-term liabilities..................... 3,706 -- -- -- 3,706
Stockholders' equity................................ 270,361 26,533 3,385 32,450 (A) 306,196
--------- --------- ------- ------------- -----------
Total liabilities and stockholders' equity $ 284,586 kr 33,201 $ 4,235 $ 38,357 $ 327,178
========= ========= ======= ============= ===========
</TABLE>
See accompanying notes
<PAGE>
MAXYGEN, INC. AND PROFOUND PHARMA A/S
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000
-----------------
ProFound ProFound Pro Forma Pro Forma
Maxygen (DKK) (USD) Adjustments Combined
-------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Collaborative research and development revenue.. $ 6,241 kr -- $ -- $ -- $ 6,241
Grant revenue................................... 5,328 3,155 403 (403) (B) 5,328
-------- ------------ -------- ----------- ---------
Total revenues.................................. 11,569 3,155 403 (403) 11,569
Operating expenses:
Research and development (Including Maxygen
charge for stock compensation of $5,456 in
the six months ended June 30, 2000)........... 19,501 21,552 2,801 218 (D) 22,520
General and administrative (Including Maxygen
charge for stock compensation of $2,675 in
the six months ended June 30, 2000)........... 7,531 -- -- 25 (D) 7,556
Amortization of purchased intangibles......... 912 -- -- 6,555 (E) 7,467
-------- ------------ -------- ----------- ---------
Total operating expenses........................ 27,944 21,552 2,801 6,798 37,543
-------- ------------ -------- ----------- ---------
Loss from operations............................ (16,375) (18,397) (2,398) (7,201) (25,974)
Interest income (expense), net.................. 6,391 248 32 -- 6,423
-------- ------------ -------- ----------- ---------
Net loss........................................ $ (9,984) kr (18,149) $ (2,366) $ (7,201) $ (19,551)
-------- ------------ -------- ----------- ---------
Basic and diluted net loss per share............ $ (0.34) kr (42.11) $ (5.49) $ -- $(0.65)
Shares used in computing basic and diluted
net loss per share............................ 29,125 431 431 1,103 (F) 30,228
</TABLE>
See accompanying notes.
<PAGE>
MAXYGEN, INC. AND PROFOUND PHARMA A/S
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
ProFound ProFound Pro Forma Pro Forma
Maxygen (DKK) (USD) Adjustments Combined
-------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Collaborative research and development revenue........ $ 8,895 kr -- $ -- $ -- $ 8,895
Grant revenue......................................... 5,122 5,743 808 (808) (B) 5,122
-------- ----------- -------- ----------- ---------
Total revenues........................................ 14,017 5,743 808 (808) 14,017
Operating expenses:
Research and development (Including Maxygen
charge for stock compensation of $3,998 in 1999).... 19,250 16,748 2,356 306 (D) 21,912
General and administrative (Including Maxygen
charge for stock compensation of $2,501 in 1999).... 7,498 -- -- 34 (D) 7,532
Amortization of purchased intangibles............... -- -- -- 9,176 (E) 9,176
-------- ----------- -------- ----------- ---------
Total operating expenses.............................. 26,748 16,748 2,356 9,516 38,620
-------- ----------- -------- ----------- ---------
Loss from operations.................................. (12,731) (11,005) (1,548) (10,324) (24,603)
Interest income (expense), net........................ 1,413 568 80 -- 1,493
-------- ----------- -------- ----------- ---------
Net loss.............................................. (11,318) (10,437) (1,468) (10,324) (23,110)
Deemed dividend upon issuance of convertible
preferred stock..................................... (2,200) -- -- -- (2,200)
-------- ----------- -------- ----------- ---------
Net loss attributable to common stockholders.......... $(13,518) kr (10,437) $ (1,468) $ (10,324) $ (25,310)
-------- ----------- -------- ----------- ---------
Basic and diluted net loss per share.................. $ (1.53) kr (42.08) $ (5.92) $ -- $ (2.54)
Shares used in computing basic and diluted
net loss per share.................................. 8,854 248 248 1,103 (F) 9,957
</TABLE>
See accompanying notes.
<PAGE>
MAXYGEN, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
Pro Forma Basis of Presentation
The pro forma condensed combined financial statements reflect the issuance of a
total of 1,102,578 shares of Maxygen common stock for all the outstanding equity
interests in ProFound Pharma A/S ("ProFound"). ProFound's financial statements
have been translated into U.S. dollars using an exchange rate of 7.84 Danish
kroner to the U.S. dollar for the June 30, 2000 balance sheet, an exchange rate
of 7.76 Danish kroner to the U.S. dollar for the Statement of Operations for the
six months ended June 30, 2000 and an exchange rate of 7.11 Danish kroner to the
U.S. dollar for the Statement of Operations for the period ended December 31,
1999.
2. Merger Transaction Costs
Maxygen and ProFound incurred direct transaction costs of approximately $1.0
million associated with the transaction, including $800,000 for legal and other
professional consulting fees, which are included in the calculation of the
purchase price. There can be no assurance that Maxygen will not incur
additional charges in subsequent quarters to reflect costs associated with the
transaction, including integration costs, or that management will be successful
in their efforts to integrate the operations of ProFound. These acquisition
costs are estimated and are subject to change.
3. Pro Forma Adjustments
Note A.
Maxygen acquired ProFound for 1,102,578 shares of Maxygen common stock. For
this analysis, we utilized a stock price of $57.48, which was based on a seven
day closing price average ending April 18, 2000. Based upon the above
variables, the stock consideration was estimated to equal $63.4 million.
With respect to ProFound warrants exchanged for Maxygen options, these options
were valued using the Black-Scholes option pricing model and were estimated to
equal $46.87 per option or $2.0 million.
The following factors were used in the Black-Scholes model:
. Expected life of 4 years
. Expected volatility factor of 0.9
. Risk-free interest rate of 6.27%
<PAGE>
. Expected dividend rate of 0%
In accordance with applicable accounting rules, the intrinsic value of the
unvested options was allocated to deferred compensation. The intrinsic value
was estimated to equal $34.83 per option or $1.5 million, which will be
amortized to compensation expense over the remaining vesting term of the
options.
The pro forma adjustment to stockholders' equity also reflects (i) the
elimination of ProFound's stockholders' equity in the amount of $3.4 million
(ii) the impact of the issuance of Maxygen common stock in connection with the
acquisition and (iii) a one-time charge of $28.0 million for in-process research
and development.
The table below summarizes the pro forma adjustment (in thousands):
<TABLE>
<CAPTION>
Value
--------------
<S> <C>
Stock consideration.................................................... $ 63,378
Plus: Stock option consideration....................................... 1,960
Less: Intrinsic value of unvested options.............................. (1,456)
Less: Elimination of ProFound's stockholders' equity................... (3,385)
Less: One-time charge for in-process research and development.......... (28,047)
-------------
$ 32,450
=============
</TABLE>
Note B.
Maxygen assumed $5.5 million of liabilities in connection with the acquisition,
which includes both bonus payments to ProFound employees and payment of the
ProFound conditional loan from the Danish Growth Fund. This loan by its terms
was only conditionally repayable based on the successful completion of the
funded research and development and thus was not recognized as a liability in
ProFound's historical financial statements. Maxygen decided, in connection with
the acquisition, to repay such balances. Maxygen also incurred a total of
approximately $1.0 million in acquisition costs, of which approximately $580,000
had already been accrued by Maxygen as of June 30, 2000.
Note C.
The pro forma adjustment consists of goodwill ($32.2 million), capitalized
acquisition costs ($0.6 million), patents and patent applications ($3.4
million), acquired workforce ($0.7 million) and other intangible assets ($2.0
million) totaling $38.9 million. Such aounts are expected to be amortized to
expense over a three-year term. Maxygen is still evaluating the useful lives of
the acquired intangibles.
Note D.
The pro forma adjustment consists of the amortization of deferred compensation
resulting from the acquisition. The ProFound warrants that were acquired, and
the Maxygen options that were exchanged for the warrants, vest at the end of
three years and will be amortized over those three
<PAGE>
years. Maxygen recorded amortization of $243,000 for the six months ended June
30, 2000, which was allocated $218,000 to research and development expense and
$25,000 to general and administration expense; and $340,000 for the period ended
December 31, 1999, which was allocated $306,000 to research and development
expense and $34,000 to general and administrative expense.
Note E.
The pro forma adjustment consists of the amortization of purchased intangibles,
which are being amortized over three years. The total pro forma amortization
for the six months ended June 30, 2000 was $6.6 million and for the period ended
December 31, 1999 was $9.2 million.
Note F.
Basic and diluted net loss per share has been adjusted to reflect the issuance
of 1,102,578 shares of Maxygen common stock in connection with the acquisition,
as if the shares had been outstanding for the entire periods presented. The
effect of the Maxygen options exchanged for the ProFound warrants in the
acquisition has not been included as their inclusion would be anti-dilutive.
4. Nonrecurring Charges
The nonrecurring charge of $28.0 million, resulting from in-process research and
development is not reflected in the pro forma information presented herein
pursuant to Article 11 of Regulation S-X. Amounts allocated to technology were
estimated based upon an independent appraisal that used a risk adjusted income
approach applied to specifically identified technologies giving consideration to
the stage of completion of such technologies. In-process technology was
expensed upon acquisition as technological feasibility had not been established
and no alternative future uses existed.
<PAGE>
Item 7(c). Exhibits
2.1* Exchange Agreement, dated as of April 12, 2000 (the "Exchange
Agreement"), by and among Maxygen, Inc., Maxygen Holdings Ltd.,
ProFound Pharma A/S ("ProFound") and the shareholders of ProFound
2.2* Amendment No. 1 to the Exchange Agreement, dated as of July 31,
2000, by and among Maxygen, Inc., Maxygen Holdings Ltd., ProFound
and the shareholders of ProFound
23.1 Consent of Independent Auditors
______________
* Previously filed.
<PAGE>
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 hereunto duly authorized.
Maxygen, Inc.
Date: October 24, 2000 By: /s/ Michael Rabson
------------------------------
Michael Rabson
General Counsel, Senior Vice
President of Legal Affairs
<PAGE>
Exhibit
No. Exhibits
------- ---------
2.1* Exchange Agreement, dated as of April 12, 2000 (the
"Exchange Agreement"), by and among Maxygen, Inc., Maxygen
Holdings Ltd., ProFound Pharma A/S ("ProFound") and the
shareholders of ProFound
2.2* Amendment No. 1 to the Exchange Agreement, dated as of July
31, 2000, by and among Maxygen, Inc., Maxygen Holdings Ltd.,
ProFound and the shareholders of ProFound
23.1 Consent of Independent Auditors
__________________
* Previously filed.
