EXHIBIT 2.2
-----------
TRANSFUSION TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
as of December 31, 1999 and 1998
<TABLE>
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,144,739 $ 8,111,407
Accounts receivable, net of allowance for
doubtful accounts of $34,500 and $24,000,
respectively 108,706 144,277
Inventories 846,150 942,142
Prepaid expenses and other current assets 76,688 73,531
----------------------------
Total current assets 21,176,283 9,271,357
Property and equipment, net 2,097,971 1,798,674
Other assets 17,946 57,647
----------------------------
Total assets $ 23,292,200 $ 11,127,678
============================
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable 680,987 295,754
Accrued expenses 1,188,492 1,079,437
Deferred revenues 1,988,465 81,000
----------------------------
Total current liabilities 3,857,944 1,456,191
Redeemable convertible preferred stock:
Mandatorily redeemable preferred stock,
Series A convertible, $.01 par value;
365,000 shares authorized; 365,000 shares
issued and outstanding at December 31, 1999
and 1998 (liquidation preference of $365,000) 365,000 365,000
Mandatorily redeemable preferred stock,
Series B convertible, $.01 par value;
599,983 shares authorized; 586,657 and
573,333 shares issued and outstanding at
December 31, 1999 and 1998, respectively
(liquidation preference of $4,553,382 and
$4,259,739 at December 31, 1999 and 1998,
respectively) 4,493,266 4,174,149
Mandatorily redeemable preferred stock,
Series C convertible, $.01 par value;
1,144,357 shares authorized; 1,117,690
shares issued and outstanding at
December 31, 1999 and 1998 (liquidation
preference of $10,059,210) 9,969,450 9,948,568
Mandatorily redeemable preferred stock,
Series D convertible, $.01 par value;
1,500,000 shares authorized; 1,439,729
shares issued and outstanding at
December 31, 1999 and 1998 (liquidation
preference of $16,196,951) 16,139,414 16,125,893
Mandatorily redeemable preferred stock,
Series E convertible, $.01 par value;
600,000 shares authorized; 551,111 shares
issued and outstanding at
<PAGE> 11
December 31, 1999 (liquidation preference of
$6,199,999) 6,040,332 -
Mandatorily redeemable preferred stock,
Series F convertible, $.01 par value;
1,200,000 shares authorized; 1,155,624
shares issued and outstanding at
December 31, 1999 (liquidation
preference of $15,000,000) 12,613,709 -
----------------------------
Total redeemable convetible
preferred stock 49,621,171 30,613,610
Commitments (Note 7)
Stockholders' deficit:
Common stock, $.01 par value; 7,000,000 shares
authorized; 628,101 and 600,079 shares issued,
and 628,101 and 597,279 shares outstanding at
December 31, 1999 and 1998, respectively 6,281 6,001
Additional paid-in-capital - -
Accumulated deficit (30,181,507) (20,943,051)
Accumulated other comprehensive loss (11,689) (3,393)
Less: -0- and 2,800 shares of common
stock held in treasury, at cost,
at December 31, 1999 and 1998, respectively - (1,680)
----------------------------
Total stockholders' deficit (30,186,915) (20,942,123)
----------------------------
Total liabilities, redeemable convertible
preferred stock and stockholders' deficit $ 23,292,200 $ 11,127,678
============================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
TRANSFUSION TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ending December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net revenues $ 976,388 $ 348,905 -
Operating expenses:
Cost of goods sold 1,600,206 1,086,855 -
Research and development 3,720,091 3,484,851 $ 3,675,604
Selling, general and administrative 4,984,102 3,817,956 3,424,934
-----------------------------------------
Loss from operations (9,328,011) (8,040,757) (7,100,538)
Interest income 356,123 619,607 602,576
-----------------------------------------
Net loss $(8,971,888) $(7,421,150) $(6,497,962)
=========================================
</TABLE>
<PAGE> 12
TRANSFUSION TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
for the years ending December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Shares Preferred Mandatorily Redeemable Convertible Preferred
Preferred Series A ---------------------------------------------------------------------------
Stock Convertible Series A Series B Series C Series D Series E Series F
--------- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 2,056,023 $ 3,650 $3,712,252 $9,904,470
Exercise of common
stock options
Exercise of common
stock warrants at $.60
Common stock repurchased
at $.90
Mandatorily redeemable
preferred stock, Series D
convertible, issued at
$11.25 per share, net of
issuance costs of $90,121 1,439,729 $16,106,830
Conversion of Series A
preferred stock (3,650) $365,000
Other comprehensive loss -
translation adjustment
Accretion of
preferred stock 230,499 22,049 4,767
Net loss
-----------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 3,495,752 - 365,000 3,942,751 9,926,519 16,111,597
Exercise of common
stock options
Common stock repurchased
at $.60
Accretion of
preferred stock 231,398 22,049 14,296
Other comprehensive
income - translation
adjustment
Net loss
-----------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 3,495,752 - 365,000 4,174,149 9,948,568 16,125,893
Common stock repurchased
at $.90
Exercise of common
stock options
Exercise of common stock
warrants at $.60
Exercise of Series B
preferred stock warrants
at $6.00 13,324 79,944
Mandatorily redeemable
preferred stock, Series E
convertible, issued at
$11.25 per share, net of
issuance costs of $164,128 551,111 $6,035,871
Mandatorily redeemable
preferred stock, Series F
convertible, issued at
$11.25 per share, net of
issuance costs of $397,083 1,155,624 $12,602,916
Accretion of
preferred stock 239,173 20,882 13,521 4,461 10,793
Other comprehensive loss -
translation adjustment
Net loss
-----------------------------------------------------------------------------------------------------
Balance at
December 31, 1999 5,215,811 $ - $365,000 $4,493,266 $9,969,450 $16,139,414 $6,040,332 $12,613,709
=====================================================================================================
<CAPTION>
Number of
Shares Accumulated
Common Additional Other Total
Stock Common Treasury Paid-In Comprehensive Accumulated Stockholders'
Total Issued Treasury Stock Stock Capital Income (Loss) Deficit Deficit
----- --------- -------- ------ -------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $13,620,372 498,600 $4,986 $ (1,424) $ (6,240,297) $ (6,236,735)
Exercise of common
stock options 28,040 160 281 $ 144 $24,955 25,380
Exercise of common
stock warrants at $.60 8,335 83 4,918 5,001
Common stock repurchased
at $.90 (160) (144) (144)
Mandatorily redeemable
preferred stock, Series D
convertible, issued at
$11.25 per share, net of
issuance costs of $90,121 16,106,830
Conversion of Series A
preferred stock 361,350 (361,350) (361,350)
Other comprehensive loss -
translation adjustment (6,764) (6,764)
Accretion of
preferred stock 257,315 (29,873) (227,442) (257,315)
Net loss (6,497,962) (6,497,962)
----------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 30,345,867 534,975 - 5,350 - - (8,188) (13,327,051) (13,329,889)
Exercise of common
stock options 65,104 651 72,893 73,544
Common stock repurchased
at $.60 (2,800) (1,680) (1,680)
Accretion of
preferred stock 267,743 (72,893) (194,850) (267,743)
Other comprehensive
income - translation
adjustment 4,795 4,795
Net loss (7,421,150) (7,421,150)
----------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 30,613,610 600,079 (2,800) 6,001 (1,680) - (3,393) (20,943,051) (20,942,123)
Common stock repurchased
at $.90 (1,530) (1,530)
Exercise of common
stock options 11,352 4,500 113 3,210 12,427 15,750
Exercise of common stock
warrants at $.60 16,670 167 9,835 10,002
Exercise of Series B
preferred stock warrants
at $6.00 79,944
Mandatorily redeemable
preferred stock, Series E
convertible, issued at
$11.25 per share, net of
issuance costs of $164,128 6,035,871
Mandatorily redeemable
preferred stock, Series F
convertible, issued at
$11.25 per share, net of
issuance costs of $397,083 12,602,916
Accretion of
preferred stock 288,830 (22,262) (266,568) (288,830)
Other comprehensive loss -
translation adjustment (8,296) (8,296)
Net loss (8,971,888) (8,971,888)
----------------------------------------------------------------------------------------------------
Balance at
December 31, 1999 $49,621,171 628,101 $ - $6,281 $ - $ - $(11,689) $(30,181,507) $(30,186,915)
====================================================================================================
</TABLE>
TRANSFUSION TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ending December 31, 1999, 1998 and 1997
<PAGE> 13
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows for operating activities:
Net loss $(8,971,888) $(7,421,150) $(6,497,962)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 869,563 789,309 380,222
Provision for bad debts 10,500 24,000 -
Changes in assets and liabilities:
Accounts receivable 25,071 (168,277) -
Inventories 95,992 362,039 (1,269,320)
Prepaid expenses and other current assets (3,157) 1,241 (10,671)
Other assets 39,701 (37,660) (9,927)
Accounts payable 385,233 (35,249) 175,979
Accrued expenses 109,055 251,730 644,170
Deferred revenues 1,907,465 - -
---------------------------------------------
Net cash used for operating activities (5,532,465) (6,234,017) (6,587,509)
---------------------------------------------
Cash flows for investing activities:
Purchases of property and equipment (1,168,860) (1,284,808) (816,395)
---------------------------------------------
Net cash used for investing activities (1,168,860) (1,284,808) (816,395)
---------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 105,696 73,544 30,381
Proceeds from issuance of preferred stock, net of issuance costs 18,638,787 - 16,106,830
Purchase of treasury stock (1,530) (1,680) (144)
---------------------------------------------
Net cash provided by financing activities 18,742,953 71,864 16,137,067
---------------------------------------------
Currency translation adjustment (8,296) 4,795 (6,764)
---------------------------------------------
Net increase (decrease) in cash and cash equivalents 12,033,332 (7,442,166) 8,726,399
<PAGE> 14
Cash and cash equivalents, beginning of year 8,111,407 15,553,573 6,827,174
---------------------------------------------
Cash and cash equivalents, end of year $20,144,739 $ 8,111,407 $15,553,573
=============================================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
TRANSFUSION TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Segment Information:
------------------------------------------
Transfusion Technologies Corporation (the "Company"), which began
operations on May 19, 1993, is engaged in principally one operating
segment, the design and development of devices for the processing of
human blood for transfusion to patients. In March 1998, the Company
commenced product sales. The Company has incurred losses since
inception and has an accumulated deficit, which has been funded by
issuing equity securities. The Company believes that it will be able
to raise the additional financing required to permit the investment
in equipment, materials and resources necessary to develop a viable
operation. However, there can be no assurance that such financing
will be available when needed or on terms acceptable to the Company.
The Company is subject to risks common to companies at its stage of
development and in its industry including, but not limited to,
technological innovation, dependence on key personnel, protection of
proprietary technology, compliance with government regulations,
uncertainty of market acceptance of products, product liability and
the need to obtain financing.
2. Summary of Significant Accounting Policies:
------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of
Transfusion Technologies Corporation and its wholly owned subsidiary,
Transfusion Technologies GmbH. Intercompany accounts and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to be
cash equivalents. Cash equivalents consist primarily of money market
accounts and are stated at cost, which approximates market value.
<PAGE> 15
Revenue Recognition
Revenues are derived principally from disposable product sales, which
are recognized upon shipment. Product instruments placed with
customers under agreements to purchase disposables are capitalized as
property and equipment. (See Property and Equipment below and in Note
3) Revenues from product instruments sold are recognized upon
shipment. The Company provides for the costs of warranty based on
product instruments sold.
Concentration of Credit Risk and Fair Value of Financial Instruments
and Significant Customers
Cash, cash equivalents and accounts receivable are financial
instruments that are potentially subject to concentrations of credit
risk. At December 31, 1999 and 1998, substantially all cash and cash
equivalents were invested in a single money market mutual fund. With
short maturities and a geographic diversity of customers, the Company
believes that the carrying value of trade accounts receivable
approximates fair value and concentration of credit risk is limited.
As of December 31, 1999, one customer accounted for 16% of accounts
receivable.
Comprehensive Income
In June 1997, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS 130").
This Statement requires disclosure of comprehensive income, as defined,
and its components in financial statements. Components of comprehensive
income include any changes in equity during a period that are not the
result of transactions with owners which includes cumulative foreign
currency translation adjustments for the Company. The Company adopted
SFAS 130 during the year ended December 31, 1999.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method. Inventories at December
31, 1999 and 1998 consist of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Raw materials $162,346 $149,855
Work in process 14,241 733
Finished goods 669,563 791,554
--------------------
$846,150 $942,142
====================
</TABLE>
Property and Equipment
<PAGE> 16
Property and equipment are stated at cost and include product
instruments employed for usage, loan, demonstration or evaluation by
customers. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets, generally three to
five years. Leasehold improvements are stated at cost and are
amortized over the shorter of the life of the lease or the estimated
useful lives. The cost of maintenance and repairs is charged to
expense as incurred. Costs of major additions and betterments are
capitalized and tooling costs that have a useful life exceeding one
year are capitalized. On disposal, the related cost and accumulated
depreciation are eliminated from the accounts and any resulting gain
or loss is included in the statement of operations.
Research and Development Costs
Research and development costs are expensed as incurred.
Foreign Currency Translation
Assets and liabilities of the foreign subsidiary are translated into
U.S. dollars at the year-end exchange rate. Resulting cumulative
translation adjustments are reflected as accumulated other
comprehensive loss in stockholders' equity. Income and expense items
are translated at average exchange rates prevailing during the year.
Gains and losses that result from transactions in foreign currencies,
which have not been material, are included in the consolidated
statement of operations.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities
reflect the impact of temporary timing differences between amounts of
assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. A valuation allowance is required to
offset any net deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("FAS 123"), encourages, but does not
require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has elected to
continue to account for employee stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, compensation cost for stock
options granted to employees is measured as the excess, if any, of
the fair value of the Company's stock at the date of the grant over
the amount an employee must pay to acquire the stock.
<PAGE> 17
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 amounts reported in the consolidated
financial statements and related notes. Changes in such estimates and
assumptions may affect amounts reported in future periods.
Reclassifications
Certain amounts in prior year financial statements have been
reclassified to conform with the current year's presentation.
3. Property and Equipment:
----------------------
Property and equipment at December 31, 1999 and 1998 consist of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Machinery and equipment $ 448,744 $ 444,851
Tooling and dies 1,395,835 1,303,280
Leasehold improvements 162,169 162,169
Furniture, fixtures and office equipment 745,964 708,887
Product instruments 1,660,800 591,600
Construction in progress 7,550 41,415
-------------------------
4,421,062 3,252,202
Less accumulated depreciation and amortization (2,323,091) (1,453,528)
-------------------------
Property and equipment, net $2,097,971 $1,798,674
=========================
</TABLE>
Depreciation and amortization expense amounted to $869,563, $789,309
and $380,222 for the years ended December 31, 1999, 1998 and 1997,
respectively.
<PAGE> 18
4. Redeemable Preferred Stock and Stockholders' Equity:
---------------------------------------------------
Common Stock
In November of 1999, the Company increased the authorized common
stock to 7,000,000 shares of which 628,101 are issued and outstanding
at December 31, 1999. Of the remaining authorized shares, 5,409,340
shares are reserved for the conversion of the six series of preferred
stock and related preferred stock warrants outstanding, and 890,644
are reserved pursuant to the Equity Incentive Plan.
Dividends may be declared and paid on common stock at the discretion
of the Company's Board of Directors. Each share of common stock is
entitled to one vote on all matters presented to the stockholders.
Preferred Stock
The Company has six series of mandatorily redeemable noncumulative
convertible preferred stock, Series A, B, C, D, E and F. In
conjunction with the Series E/F offering, the total number of
preferred shares authorized was increased to 5,500,000 of which
5,409,340 have been designated into certain classes of preferred
stock and there are 5,215,811 shares issued and outstanding at a par
value of $.01, as further described below.
On May 19, 1993, the founders of the Company purchased 100,000 shares
of the Company's common stock for $100,000 in connection with the
Company's formation. On December 1, 1993, the founders of the Company
purchased an additional 265,000 shares of the Company's common stock
for $265,000. On March 25, 1994, all of the 365,000 shares of common
stock then outstanding were converted to Series A convertible
preferred stock at $1.00 per share.
On August 9, 1994, the Company issued 573,333 shares of Series B
mandatorily redeemable convertible preferred stock at $6.00 per share
resulting in proceeds to the Company of $3,230,678, net of issuance
costs. On October 16, 1995, the Company issued 1,117,690 shares of
Series C mandatorily redeemable convertible preferred stock at $9.00
per share resulting in proceeds to the Company of $9,875,071, net of
issuance costs. On July 7, 1997, the Company issued 1,439,729 shares
of Series D mandatorily redeemable convertible preferred stock at
$11.25 per share resulting in proceeds to the Company of $16,106,830,
net of issuance costs. In conjunction with the Series D offering, the
rights of the Series A preferred shareholders were amended to include
liquidation and redemption provisions similar to those of the Series
B and C shareholders. On November 8, 1999, the Company issued 555,111
shares of Series E mandatorily redeemable convertible preferred stock
at $11.25 per share and 1,155,624 shares of Series F mandatorily
redeemable convertible preferred stock at $11.25. (See Note 5)
<PAGE> 19
Each share of preferred stock is convertible into common stock at the
option of the shareholder, and the conversion rate is determined by
dividing the purchase price of the preferred stock by the "conversion
price." Initially, the "conversion price" will be equal to the
original purchase price, but is subject to adjustment for events such
as a stock split, stock dividend, or an issuance of stock at a price
less than the applicable conversion price in effect. At December 31,
1999, the conversion rate was one share of common stock for one share
of preferred stock. Mandatory conversion is required under certain
circumstances such as an initial public offering at an offering price
per share of at least $22.50 and minimum aggregate proceeds of
$25,000,000.
Each share of preferred stock is entitled to the number of votes
equal to the number of shares of common stock into which such shares
of preferred stock could be converted.
In the event of a liquidation, dissolution, or winding up of the
Company, the shareholders of each of the preferred series are
entitled to a liquidation preference over the Company's common stock.
The liquidation preference equals the original issuance price plus
any declared and unpaid dividends. No dividends have been declared as
of December 31, 1999.
The holders of each share of preferred stock shall be entitled to
receive dividends in cash, stock or otherwise, if, when, and as
declared by the Board of Directors of the Company prior to any
distributions to holders of common stock.
The holders of Series A, B, C, D, E and F mandatorily redeemable
convertible preferred stock collectively, and the holders of Series D
separately, at the option of the holders of at least a majority of
the then outstanding shares, have the right to require the Company to
redeem shares at the "base price" plus all accrued and unpaid
dividends. The Series B shareholders would also be entitled to all
accrued and unpaid interest calculated at the rate of 5% of the "base
price" per annum compounded annually. The "base price" is initially
set at the original purchase price for each series of preferred
stock, but is subject to adjustment for stock splits, combinations,
and reclassifications. The mandatory redemption expires on June 1,
2004. If voted upon prior to this expiration date, the Company will
redeem the shares in four equal annual installments commencing on
August 31, 2004.
Equity Incentive Plan
In June 1996, the Company adopted the 1996 Equity Incentive Plan (the
"Incentive Plan"). The Incentive Plan is administered by a Committee
of the Company's Board of Directors (the "Committee"), and allows for
the granting of awards in the form of incentive stock options,
nonstatutory stock options, stock appreciation rights, and restricted
stock to eligible employees and consultants of the Company. During
1999, shareholders approved an increase in the number of shares that
may be issued pursuant
<PAGE> 20
to the Incentive Plan from 536,940 to 1,036,940. Awards granted under
the plan are subject to terms and conditions as determined by the
Committee, except that no incentive stock options may be issued at less
than the fair market value of the common stock on the date of grant or
have a term in excess of ten years. Awards are normally fully
exercisable at the date of grant. Upon exercise, the Company issues
restricted shares which generally vest at 2% per month commencing with
the date of grant or six months thereafter, and are subject to
disposition restrictions, limitations on transfers and the Company's
right to buy back unvested shares. At December 31, 1999, 140,189 shares
were available for the granting of future awards.
<PAGE> 21
The following is a summary of activity during 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Weighted Weighted
Average Stock Average
Restricted Exercise Option Exercise
Shares Price Shares Price
---------- -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996 39,000 $.90 77,000 $ .90
1997 Activity:
Granted 15,000 $.90 88,300 $1.11
Exercised - - (13,200) $ .90
Canceled - - (200) $ .90
--------------------------------------------
Outstanding at December 31, 1997 54,000 $.90 151,900 $1.02
1998 Activity:
Granted - - 215,000 $1.13
Exercised - - (65,104) 1.13
Canceled - - (696) 1.03
--------------------------------------------
Outstanding at December 31, 1998 54,000 $.90 301,100 $1.08
1999 Activity:
Granted - - 482,555 $1.13
Exercised - - (15,852) .99
Canceled - - (17,348) 1.05
--------------------------------------------
Outstanding at December 31, 1999 54,000 $.90 750,455 $1.11
============================================
Shares vested at December 31, 1999 36,420 $.90 132,040 $1.06
============================================
</TABLE>
At December 31, 1999, options outstanding had exercise prices ranging
from $0.90 to $1.13 with a weighted-average contractual remaining
life of 9.0 years, and options vested had exercise prices ranging
from $0.90 to $1.13 with a weighted average contractual life of 7.6
years.
Had compensation cost for the Company's stock-based compensation been
determined based on the fair value at the date of grant as prescribed
by FAS 123, the Company's pro-forma net loss would not have been
materially impacted in any of the years reported. For these pro-forma
calculations, the following weighted average assumptions were used:
(1) expected option life of five years; (2) expected dividend yield
of zero; (3) expected volatility of zero; and (4) risk free rates of
return of 5.3%, 5.4%, and 6.1% for 1999, 1998 and 1997, respectively.
<PAGE> 22
Restricted Stock
Prior to the adoption of the Incentive Plan, the Company granted
awards of restricted stock to key employees and consultants at the
fair market value of the common stock at the date of grant. The
restricted stock awards entitle the holder to full voting rights, but
are generally subject to disposition restrictions, limitations on
transfer, and the Company's right to buy back unvested shares. Prior
to 1996, 462,000 shares of common stock were issued in this manner,
of which 2,400 were repurchased in 1996, and 2,800 were repurchased
in 1998. At December 31, 1999, 456,760 were vested.
Warrants
Pursuant to a Stock Purchase Agreement dated August 11, 1994, the
Company granted to an unaffiliated entity warrants to purchase 26,650
shares of Series B preferred stock at $6.00 per share in exchange
underwriting services. During 1999, 13,324 shares of Series B
preferred stock were issued pursuant to the exercise of these
warrants and 13,326 of these warrants expired. At December 31, 1999,
no Series B preferred stock warrants remained outstanding.
Pursuant to a Stock Purchase Agreement dated October 16, 1995, the
Company granted to an unaffiliated entity warrants to purchase 26,667
shares of Series C preferred stock at $9.00 per share in exchange for
underwriting services. These warrants may be exercised on or before
October 16, 2000.
Pursuant to a Stock Purchase Agreement dated August 11, 1994, the
Company granted warrants to two holders of Series B preferred stock
to purchase an aggregate of 25,005 shares of common stock at $.60 per
share. During 1999 and 1997, 16,670 and 8,335 shares of common stock,
respectively, were issued pursuant to the exercise of these warrants.
At December 31, 1999, no common stock warrants remained outstanding.
5. Stock Purchase and Related Agreements:
-------------------------------------
On November 8, 1999, the Company issued two series of mandatorily
redeemable convertible preferred stock under a Series E/F Stock
Purchase Agreement ("Purchase Agreement"). (See Note 4 for the
preferred stock terms). Under the Purchase Agreement, the Company
issued 551,111 shares of Series E mandatorily redeemable convertible
preferred stock ("Series E") to new and current investors for net
proceeds of $6,035,871. In addition, the Company issued 1,155,624
shares of Series F mandatorily redeemable convertible preferred stock
("Series F") under the Purchase Agreement and concurrently entered
into several other agreements, including a Distribution Agreement,
with Haemonetics Corporation ("Haemonetics") resulting in net
proceeds to the Company of $14,602,916. Of this total, the Company
has recorded $12,602,916 as
<PAGE> 23
Series F preferred stock, and the balance of the proceeds, $2,000,000
as deferred revenue, which the Company is amortizing to revenue over
the five-year term of the Distribution Agreement. During 1999, this
resulted in approximately $67,000 of revenue recognized, and
approximately $1,933,000 is deferred at December 31, 1999.
6. Related Party:
-------------
As a result of the transaction described in Note 5 above, Haemonetics
owned 19.8% of all outstanding shares at December 31, 1999 and became
the Distributor for the Company's OrthoPAT(r) product line outside the
United States and Canada. Under this relationship, the Company
shipped Haemonetics $23,000 of products during 1999 of which $2,000
was recognized in revenues and $21,000 was deferred.
7. Lease Commitments:
-----------------
The Company leases its facility under a noncancelable operating lease
that expires on January 15, 2003. Under the terms of the lease, the
Company is required to pay excess operating expenses, which have not
been significant to date. Future minimum lease payments for the
respective years ended December 31 are as follows:
<TABLE>
<S> <C>
2000 $183,169
2001 198,042
2002 211,461
2003 8,834
--------
$601,506
========
</TABLE>
Total rent expense was $164,724, $185,507 and $145,425 for the years
ended December 31, 1999, 1998 and 1997, respectively.
8. Income Taxes:
------------
Since the Company has incurred net losses for each year since
inception, no provision for income taxes has been recorded.
Deferred income taxes reflect the net tax effects of temporary timing
differences between the carrying amounts of assets and liabilities
for financial reporting and income tax purposes. A valuation
allowance is established when uncertainty exists as to
<PAGE> 24
whether all or a portion of the net deferred tax assets will be
realized. Deferred income taxes consist principally of deferred tax
assets relating to net operating losses and research and development
tax credits offset by deferred tax liabilities relating to
depreciation. The net deferred tax asset is approximately $11,600,000
at December 31, 1999, for which a full valuation allowance has been
provided.
At December 31, 1999, the Company had approximately $26,000,000 of
federal net operating loss carryforwards and approximately $540,000
of federal tax credit carryforwards available for income tax
purposes. These net operating loss and tax credit carryforwards will
expire in the years 2009 through 2019. However, changes in the
Company's ownership as defined in the Internal Revenue Code limit the
Company's ability to utilize net operating loss and tax credit
carryforwards in any one year.
9. Employees' Savings Plan:
-----------------------
The Company has a 401(k) savings plan for eligible employees. Under
the provisions of the plan, eligible employees may voluntarily
contribute up to 15% of their compensation up to the statutory limit.
In addition, the Company can make a matching contribution at its
discretion. The Company has not made any contribution to the Plan.
10. Subsequent Event:
----------------
Effective September 15, 2000, Haemonetics Corporation, a Massachusetts
corporation ("Haemonetics") acquired the Company pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated
September 4, 2000 among Haemonetics, the Company, Transfusion
Merger Co., the holders of a majority of outstanding shares of
Preferred and Common Stock of Transfusion and certain principals of
the Company. The acquisition was effected in the form of a merger
(the "Merger") of Transfusion Merger Co., a wholly-owned subsidiary
of Haemonetics, with and into the Company. The Company was the
surviving corporation in the merger. As a result of the Company
became a wholly-owned subsidiary of Haemonetics and the shares of
common stock of the Company issued and outstanding immediately prior
to the acquisition converted into the right to receive an aggregate
of $1,587,618, the shares of preferred stock of the Company issued and
outstanding immediately prior to the acquisition (other than those
shares held by Haemonetics) were converted into the right to receive
an aggregate of $32,906,948 and
<PAGE> 25
an outstanding warrant to purchase 100,000 shares of common stock was
converted into the right to receive $137,000, for a total of $34,631,566
to be paid by Haemonetics at the Effective Time, less certain escrow
holdback amounts. The Merger Agreement also provides for a cash
adjustment to certain of the amounts paid in the Merger based upon the
amount of the Company's gross cash (as defined in the Merger Agreement)
immediately after the Effective Time.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Transfusion Technologies Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, redeemable convertible
preferred stock and stockholders' deficit and cash flows present fairly, in
all material respects, the financial position of Transfusion Technologies
Corporation and its subsidiary at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America. 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 audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States
of America, which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 22, 2000, except as to the information
in Note 10, for which the date is September 15, 2000.
<PAGE> 26
