<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission File No. 0-12943
CYPRESS BIOSCIENCE, INC.
(Exact name of registrant as specified in its charter)
_______________
DELAWARE 22-2389839
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
4350 EXECUTIVE DRIVE, SUITE 325
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 452-2323
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK $.02 PAR VALUE
COMMON STOCK PURCHASE WARRANTS
UNITS CONSISTING OF TWO (2) SHARES OF
COMMON STOCK AND ONE (1) COMMON STOCK PURCHASE WARRANT
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 1, 1999 was $63,130,188.*
The number of shares outstanding of the Registrant's Common Stock as of March 1,
1999 was 42,607,582.
DOCUMENTS INCORPORATED BY REFERENCE: None
______________________
* Calculated based on 20,610,574 shares of Common Stock held as of March 1, 1999
by nonaffiliates and a per share market price of $3.063. Excludes 21,997,008
shares of Common Stock held by directors and executive officers and stockholders
whose ownership exceeds five percent of the Common Stock outstanding at March 1,
1999. Exclusion of such shares should not be construed to indicate that any such
person possesses the power, direct or indirect, to direct or cause the direction
of the management or policies of the Registrant or that such person is
controlled by or under common control with the Registrant.
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PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is traded on the over-the-counter market on the
NASDAQ SmallCap Market under the symbol "CYPB". Prior to May 21, 1996 the
Company's common stock was traded on the NASDAQ SmallCap Market under the symbol
"IMRE". Set forth below are the high and low sales prices for the Company's
common stock for the first quarter of 1999 (through March 1, 1999) and each
quarter of 1998 and 1997 as reported by the NASDAQ Stock Market, Inc.
Price Range of Common Stock
--------------------------------
High LOW
---- ---
YEAR ENDED DECEMBER 31, 1999:
First Quarter (through March 1, 1999).... $3.97 $2.31
YEAR ENDED DECEMBER 31, 1998:
First Quarter............................ $3.81 $1.28
Second Quarter........................... 3.69 2.56
Third Quarter............................ 3.00 1.44
Fourth Quarter........................... 3.25 2.19
YEAR ENDED DECEMBER 31, 1997
First Quarter............................ $2.06 $1.50
Second Quarter........................... 2.56 1.18
Third Quarter............................ 2.63 1.50
Fourth Quarter........................... 1.97 1.15
The above quotations are interdealer prices, without retail mark-up, mark-
down or commission and may not necessarily represent actual transactions. As of
March 1, 1999, there were approximately 943 holders of record of the Common
Stock of the Company. The Company has never paid cash dividends on its common
stock and does not anticipate any being paid in the foreseeable future.
Recent Sales of Unregistered Securities
- ---------------------------------------
In September 1998, the Company completed a private placement of 3,063,561
shares of the Company's Series A convertible preferred stock (the "Preferred
Shares") at a price of $1.50 per share for an aggregate offering price of
approximately $4.6 million. Net proceeds (after deducting placement fees of
approximately $113,000, and other related expenses of approximately $152,000) to
the Company were approximately $4.3 million. Each of the purchasers of the
Preferred Shares was an "accredited investor" within the meaning of rule 501(a)
promulgated under the Securities Act. The Company relied on the exemption
provided by Section 4(2) under the Act. On January 20, 1999, the outstanding
Preferred Shares were automatically converted into an equal number of shares of
the Company's Common Stock.
16.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 1, 1999 with respect
to (i) each stockholder known to the Company to be the beneficial owner of more
than five percent (5%) of the outstanding common stock or Series A Preferred
Stock of the Company, (ii) each director, (iii) each Named Executive Officer and
(iv) all directors and Named Executive Officers of the Company as a group.
Except as set forth below, each of the named persons and members of the group
has sole voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF PERCENT OF CLASS OF
BENEFICIAL OWNER OF COMMON STOCK (1) COMMON STOCK (2) COMMON STOCK (2)
- ------------------------------------ ----------------------- -------------------
<S> <C> <C>
Allen & Company Incorporated............................. 7,328,307 (3) 16.9%
711 Fifth Avenue
New York, New York 10022
Paramount Capital Asset Management, Inc.................. 10,117,302 (4) 23.7%
787 Seventh Avenue, 44th Floor
New York, NY 10019
Jay D. Kranzler.......................................... 3,477,277 (5) 7.6%
Debby Jo Blank........................................... 1,465,966 (6) 3.4%
R. Michael Gendreau...................................... 322,414 (7) *
Richard M. Crooks, Jr.................................... 1,131,897 (8) 2.7%
Jack H. Vaughn........................................... 66,000 (9) *
Philip J. O'Reilly....................................... 66,050 (10) *
Samuel D. Anderson...................................... 128,558 (11) *
David Golde............................................. 27,052 (12) *
All Directors and Named Executive Officers as a
Group (8 persons)....................................... 6,685,214 14.2%
----------
</TABLE>
________________________
*Less than one percent
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedule 13Ds filed with the Securities and
Exchange Commission (the "Commission"). Except as shown otherwise in the
table, the address of each stockholder listed is in care of the Company at
4350 Executive Drive, Suite 325, San Diego, California, 92121.
(2) Except as otherwise indicated in the footnotes of this table and pursuant
to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options or
warrants exercisable within 60 days of March 1, 1999 are deemed outstanding
for computing the percentage of the person or entity holding such options
or warrants but are not deemed outstanding for computing the percentage of
any other person. Percentage of beneficial ownership is based upon
42,607,582 shares of the Company's Common Stock outstanding as of March 1,
1999.
(3) This information was derived from information provided to the Company by
Allen & Company Incorporated. Includes warrants to purchase 478,000 shares
of Common Stock exercisable within 60 days of March 1, 1999 (125,000 of the
warrants are held in the name of Susan Allen). Also includes 250,000 shares
of Common Stock held in the name of Susan Allen.
(4) Dr. Lindsay A. Rosenwald is the sole shareholder of Paramount Capital Asset
Management, Inc. ("Paramount Capital"). Paramount Capital is the general
partner of Aries Domestic Fund, L.P., a limited partnership incorporated in
Delaware ("Aries Domestic") and the investment manager of The Aries Master
Fund, a Cayman Islands trust ("The Aries Master Fund"). Includes warrants
to purchase 37,500 shares of Common Stock held by Aries Domestic and
warrants to purchase 87,500 shares of Common Stock held by The Aries Master
Fund, in each case such warrants being exercisable within 60 days of March
1, 1999. Of the 9,992,302 shares of Common Stock (excluding warrants)
indicated as beneficially held, Paramount Capital shares voting and
dispositive power with the following persons or entities: Dr. Rosenwald
with respect to 791,667 of the shares; Aries Domestic with respect to
2,696,000 of the shares; and The Aries Master Fund with respect to
6,504,635 of the shares.
33.
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(5) Includes 3,007,343 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 1, 1999. Also includes 264,936 shares
of Common Stock held by the Company's 401(k) plan for which Dr. Kranzler,
as co-trustee of the 401(k) plan, has voting rights to such shares and
5,000 shares of Common Stock held by the Kranzler Children's Trust dated
1991. Mr. Kranzler disclaims beneficial ownership of the shares held by the
Kranzler Children's Trust.
(6) Includes 1,001,032 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 1, 1999. Also includes 264,936 shares
of Common Stock held by the Company's 401(k) plan for which Dr. Blank, as
co-trustee of the 401(k) plan, has voting rights to such shares.
(7) Includes 322,414 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 1, 1999.
(8) Includes 50,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 1, 1999. Also includes 692,829 shares
of Common Stock and presently exercisable warrants to purchase 6,667 shares
of Common Stock held by Allen & Company Incorporated, in which Mr. Crooks
has a pecuniary interest pursuant to an arrangement with Allen & Company
Incorporated.
(9) Includes 65,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 1, 1999.
(10) Includes 50,000 shares of Common Stock issuable pursuant to options or
other rights exercisable within 60 days of March 1, 1998.
(11) Includes 100,000 shares of Common Stock held by Samuel D. and Mary Ann H.
Anderson as trustees of the Samuel and Mary Ann Anderson trust dated March
22, 1979. Also includes 28,558 shares of Common Stock issuable pursuant to
options exercisable within 60 days of March 1, 1999.
(12) Includes 27,052 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 1, 1998.
34.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CYPRESS BIOSCIENCE, INC.
By: /s/ JAY D. KRANZLER
---------------------
Jay D. Kranzler, M.D., Ph. D.
Chief Executive Officer, and
Chief Financial Officer
Date: April 21, 1999
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
JAY D. KRANZLER Chief Executive Officer, Chief Financial Officer and April 21, 1999
- ----------------------------------------- Chairman of the Board (Principal Executive Officer
Jay D. Kranzler, M.D., Ph.D. and Principal Financial and Accounting Officer)
RICHARD M. CROOKS, JR.* Director April 21, 1999
- -----------------------------------------
Richard M. Crooks, Jr.
PHILIP J. O'REILLY* Director April 21, 1999
- -----------------------------------------
Philip J. O'Reilly
JACK H. VAUGHN* Director April 21, 1999
- -----------------------------------------
Jack H. Vaughn
SAMUEL D. ANDERSON* Director April 21, 1999
- -----------------------------------------
Samuel D. Anderson
DAVID GOLDE* Director April 21, 1999
- -----------------------------------------
David Golde, M.D.
*By: /s/ JAY D. KRANZLER
-------------------------------------
Jay D. Kranzler
Attorney-in-Fact
</TABLE>
40.
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In accordance with certain provision of the Internal Revenue Code ("IRC"),
a change in ownership of greater than 50% within a three-year period will place
an annual limitation on the Company's ability to utilize its existing net
operating loss and tax credit carryforwards.
As a result of the Company's sales of common stock, ownership changes
occurred in September 1991 and October 1997. Accordingly, the utilization of
net operating loss carryforwards which had accumulated as of September 1991 and
October 1997 will be limited to a prescribed amount in each successive year.
However, the Company believes that this limitation will not have a material
effect on the financial statements.
11. SUBSEQUENT EVENTS
On January 20, 1999, the average closing sales price of the Company's
common stock was equal to or greater than $3.00 per share for a period of 20 out
of 30 trading days. Therefore, the 1,156,832 shares of outstanding preferred
stock at December 31, 1998 were automatically converted into common stock.
In February 1999, the Company entered into a sublease to occupy 21,000
additional square feet of manufacturing space in Redmond, Washington, which
expires in 2005. Future minimum lease obligations under this operating lease is
as follows: $243,250 in 1999; $357,000 in 2000; $369,250 in 2001; $378,000 in
2002; $388,500 in 2003, and $565,250 thereafter.
In February 1999, the Company entered into an employment agreement to hire
a president, chief operating officer and corporate secretary, whereby the
compensation consists of a base salary of $215,000 and the eligibility, at the
sole discretion of the Board of Directors, for an annual bonus equal to 25% of
the base salary. The Company also granted options to purchase up to 500,000
shares of the Company's common stock at an exercise price of $2.75 per share,
the fair market value on the date of grant. The options vest 25% in February
2000 and monthly thereafter. In the event the employment is terminated by the
Company without cause due to a corporate merger or acquisition, the options will
vest and become fully exercisable.
The Company entered into a license and distribution agreement with
Fresenius AG, a German company, and its U.S. subsidiary, Fresenius
Hemotechnology, Inc. ("Fresenius") on March 26, 1999, whereby the Company
granted to Fresenius the exclusive right to manufacture, sell and distribute the
Prosorba column in the United States, Europe and Latin America, and subject to
certain conditions, Japan, Thailand, China, New Zealand, Hong Kong, Korea, India
and China. The agreement also provides for the equal sharing of profits
attributable to the marketing of the Prosorba column and related products. As
part of this agreement, the Company received approximately $1.0 million from the
sale of 297,530 shares of the Company's common stock at $3.361 per share,
$500,000 from the issuance of a warrant to purchase 342,466 shares of the
Company's common stock at $7.50 per share, and approximately $4.1 million under
a line of credit agreement due upon the earlier of (i) the date on which
Fresenius exercises its option to purchase the Company's manufacturing facility
in Redmond, Washington or (ii) December 31, 2000. Management believes that these
funds, along with the existing cash balances, are adequate to fund operations
through December 31, 1999.
In March 1999, the Company demanded redemption of warrants to purchase
approximately 2.7 million shares of common stock with an exercise price of $2.00
per share. The warrants will be redeemed on April 19, 1999 if not exercised
prior to or on April 12, 1999.
F-17
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-3 and S-8) of our report dated January 21, 1999, except for Note 11, as
to which the date is March 26, 1999, with respect to the consolidated financial
statements of Cypress Bioscience, Inc. included in this Annual Report (Form
10-K/A) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
San Diego, California
April 19, 1999
