SECURITIES AND EXCHANGE COMMISSION CONFORMED
Washington, D.C. 20549 COPY
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1999
---------------
OR
| | TANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
------------- --------------
Commission file number 333-02015
---------
CYTOGEN CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-2322400
- -------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
600 COLLEGE ROAD EAST, CN 5308, PRINCETON, NJ 08540-5308
--------------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (609) 750-8200
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at May 3, 1999
- ---------------------------- -----------------------------
Common Stock, $.01 par value 65,105,097
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item I: Consolidated Financial Statements
<TABLE>
<CAPTION>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,073 $ 3,015
Receivable on common stock sold - 2,500
Accounts receivable, net 1,369 1,362
Inventories 226 250
Other current assets 504 330
--------- ---------
Total current assets 8,172 7,457
--------- ---------
PROPERTY AND EQUIPMENT:
Leasehold improvements 9,080 9,438
Equipment and furniture 4,886 7,350
--------- ---------
13,966 16,788
Less- Accumulated depreciation and amortization (11,891) (14,163)
--------- ---------
Net property and equipment 2,075 2,625
--------- ---------
OTHER ASSETS 838 818
--------- ---------
$ 11,085 $ 10,900
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of long-term liabilities $ 104 $ 848
Accounts payable and accrued liabilities 4,277 7,386
--------- ---------
Total current liabilities 4,381 8,234
--------- ---------
LONG-TERM LIABILITIES 2,247 2,223
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,400,000 shares authorized -
Series C Junior Participating Preferred Stock, $.01 par value,
200,000 shares authorized, none issued and outstanding - -
Common stock, $.01 par value, 89,600,000 shares authorized,
65,112,000 and 61,950,000 shares issued and outstanding
in 1999 and 1998, respectively 651 619
Additional paid-in capital 304,161 301,836
Accumulated deficit (300,355) (302,012)
--------- ---------
Total stockholders' equity 4,457 443
--------- ---------
$ 11,085 $ 10,900
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
REVENUES:
Product Related:
ProstaScint $ 1,592 $ 1,538
Others 164 295
-------- --------
Total product sales 1,756 1,833
Quadramet royalties 199 1,631
-------- --------
Total product related 1,955 3,464
License and contract 369 667
-------- --------
Total revenues 2,324 4,131
-------- --------
OPERATING EXPENSES:
Cost of product and manufacturing revenues 1,104 1,900
Research and development 1,057 3,080
Equity loss in Targon subsidiary - 1,020
Selling and marketing 946 1,051
General and administrative 911 1,405
-------- --------
Total operating expenses 4,018 8,456
-------- --------
Operating loss (1,694) (4,325)
GAIN ON SALE OF LABORATORY AND MANUFACTURING FACILITIES 3,298 --
INTEREST INCOME 95 206
INTEREST EXPENSE (42) (218)
-------- --------
NET INCOME (LOSS) 1,657 (4,337)
DIVIDENDS ON SERIES B PREFERRED STOCK - (82)
-------- --------
NET INCOME (LOSS) TO COMMON STOCKHOLDERS $ 1,657 $ (4,419)
======== ========
NET INCOME (LOSS) PER COMMON SHARE
BASIC AND DILUTED $ 0.03 $ (0.08)
======== ========
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING
BASIC 64,192 52,620
======== ========
DILUTED 64,496 52,620
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,657 $(4,337)
------- -------
Adjustments to reconcile net income (loss) to cash used for
operating activities:
Depreciation and amortization 258 344
Imputed interest - 40
Stock grants - 11
Write down of assets 14 -
Gain on sale of laboratory and manufacturing facilities (3,298) -
Equity loss in Targon subsidiary - 1,020
Changes in assets and liabilites:
Accounts receivable, net (7) (1,730)
Inventories 24 188
Other assets (194) 14
Accounts payable and accrued liabilities (3,109) (445)
------- -------
Total adjustments (6,312) (558)
------- -------
Net cash used for operating activities (4,655) (4,895)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of laboratory and manufacturing facilities 3,584 -
Purchases of property and equipment (8) (8)
------- -------
Net cash provided by (used for) investing activities 3,576 (8)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 4,857 17
Payment of long-term liabilities (720) (28)
------- -------
Net cash provided by (used for) financing activities 4,137 (11)
------- -------
Net increase (decrease) in cash and cash equivalents 3,058 (4,914)
Cash and cash equivalents, beginning of period 3,015 7,401
------- -------
Cash and cash equivalents, end of period $ 6,073 $ 2,487
======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical
company engaged in the development, commercialization and marketing of products
to improve diagnosis and treatment of prostate disease, of products for unmet
needs in the broader urological/oncological market, and certain areas within the
field of oncology, and other areas related to its areas of expertise. In March
1997, CYTOGEN received clearance from the U.S. Food and Drug Administration
("FDA") to market Quadramet(R), CYTOGEN's product for the relief of pain due to
cancers that have spread to the skeleton and that can be visualized on a bone
scan. In October 1996, CYTOGEN received marketing approval from FDA for the
ProstaScint(R) imaging agent, CYTOGEN's prostate cancer diagnostic imaging
product. In December 1992, FDA approved OncoScint CR/OV(R) imaging agent,
CYTOGEN's colorectal and ovarian cancer specific diagnostic imaging product, for
single administration per patient. In November 1995, FDA approved an expanded
indication allowing for repeat administration of OncoScint CR/OV. All three
products are currently available in the marketplace. Operations of the Company
are subject to certain risks and uncertainties including, but not limited to,
access to capital, product market acceptance, product efficacy and clinical
trials, technological uncertainty, uncertainties of future profitability,
dependence on collaborative relationships and key personnel.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of CYTOGEN and
its wholly- owned subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
BASIS OF PRESENTATION
The consolidated financial statements of CYTOGEN Corporation are unaudited
and include all adjustments which, in the opinion of management, are necessary
to present fairly the financial condition and results of operations as of and
for the periods set forth in the Consolidated Balance Sheets, Consolidated
Statements of Operations and Consolidated Statements of Cash Flows. All such
accounting adjustments are of a normal, recurring nature. The consolidated
financial statements do not include all of the information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles and should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission, which includes financial statements as of and for the year ended
December 31, 1998. The results of the Company's operations for any interim
period are not necessarily indicative of the results of the Company's operations
for any other interim period or for a full year.
5
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, cash in banks and all
highly-liquid investments with a maturity of three months or less at the time of
purchase.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is based upon the weighted
average common shares outstanding during each period. Diluted net income per
common share is based upon the weighted average common shares outstanding and
common share equivalents which represent the incremental common shares that
would have been outstanding under certain employee stock options and warrants,
upon assumed exercise of dilutive stock options and warrants. The common stock
equivalents were excluded from the diluted net loss per share calculation for
the three months ended March 31, 1998 as their effect would be antidilutive.
2. SALE OF LABORATORY AND MANUFACTURING FACILITIES:
In January 1999, the Company sold certain of its laboratory and
manufacturing facilities to Bard BioPharma L.P., a subsidiary of Purdue Pharma
L.P. ("Purdue"), for $3.9 million. CYTOGEN also signed a three-year agreement
under which two of CYTOGEN's products, ProstaScint and OncoScint CR/OV, will
continue to be manufactured by CYTOGEN at its former facility. As a result of
the sale, the Company recognized a gain of approximately $3.3 million in its
consolidated statement of operations in the first quarter of 1999. With a
portion of the proceeds from the sale, the Company repaid the $744,000
outstanding balance of a term loan.
3. COMMON STOCK:
In January 1999, the Company sold 2,666,667 shares of CYTOGEN common stock
to a subsidiary of The Hillman Company for an aggregate price of $2.0 million or
$0.75 per share. Also in January, the Company exercised a put right granted to
CYTOGEN under a 1998 equity line agreement with an institutional investor, for
the sale of 475,342 shares of common stock at an aggregate price of $500,000 or
$1.0519 per share.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND. To date, the Company's revenues have resulted primarily from
(i) sales and royalties from ProstaScint, Quadramet and OncoScint CR/OV; (ii)
payments received from contract manufacturing and research services pursuant to
agreements; (iii) fees generated from the licensing of its technology and
marketing rights to its products; and (iv) milestone payments received when
events stipulated in the collaborative agreements with third parties have been
achieved
In January 1999, CYTOGEN sold certain of its laboratory and manufacturing
facilities to Purdue for $3.9 million. CYTOGEN also signed a three-year
agreement under which two of CYTOGEN's products, ProstaScint and OncoScint CR/OV
will continue to be manufactured at its former research and development
facility. Employees involved in manufacturing will remain CYTOGEN employees, but
Purdue will absorb their labor costs except for time spent on manufacturing
CYTOGEN products. Cost of products have decreased under this new arrangement. As
a result of the sale of facilities, the Company recorded a gain of approximately
$3.3 million in the first quarter of 1999.
Also in January 1999, the Company sold an aggregate of $2.0 million of
common stock to a subsidiary of The Hillman Company and $0.5 million of common
stock to an institutional investor upon an exercise of a put right granted to
the Company under a 1998 equity line agreement. See Note 3 of Notes to the
Consolidated Financial Statements.
REVENUES. Total revenues for the first quarter of 1999 and 1998 were $2.3
million and $4.1 million, respectively. Product related revenues, which included
product sales and royalties, accounted for 84% of total revenues in both 1999
and 1998. License and contract revenues accounted for the remainder of revenues.
Product related revenues for the first quarter in 1999 and 1998 were $2.0
million and $3.5 million, respectively. ProstaScint accounted for 81% and 44% of
product related revenues in the first quarter of 1999 and 1998, respectively,
while revenues from Quadramet accounted for 10% and 47% of product related
revenues for the comparable periods in 1999 and 1998, respectively. Sales of
ProstaScint were $1.6 million in the first quarter of 1999 compared to $1.5
million in the first quarter of 1998. ProstaScint sales have experienced growth
since product launch, however, there can be no assurance that such growth will
continue. Revenues from Quadramet decreased to $199,000 in the first quarter of
1999 from $1.6 million in the first quarter of 1998. From the time of product
launch in 1997 through June 1998, CYTOGEN recorded royalty revenues for
Quadramet based on minimum contractual payments, which were in excess of actual
sales. Subsequent to June 1998, the minimum royalty arrangement was discontinued
and CYTOGEN recorded product revenues from Quadramet based on actual sales.
Beginning in 1999, the Quadramet royalties are based on net sales of Quadramet
by Berlex Laboratories ("Berlex"), CYTOGEN's new marketing partner for
Quadramet. The product was re-launched in March 1999. Although CYTOGEN believes
that Berlex is an advantageous marketing partner, there can be no assurance that
Quadramet will, following the re-launch of the product, achieve market
acceptance on a timely basis or sufficiently to result in significant revenues
for CYTOGEN.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
Other product sales, including sales from OncoScint CR/OV, were $164,000
in 1999 compared to $295,000 recorded in the comparable period of 1998. The
decrease from the prior year is due in part to the discontinuation of the
autolymphocyte therapy treatment program resulted from the closure of Cellcor
Inc.("Cellcor"), a subsidiary of CYTOGEN, in September 1998. Sales from
OncoScint CR/OV were $164,000 in the three months ended March 31, 1999 versus
$263,000 in the same period of 1998. The decrease in OncoScint sales was a
result of customers delaying orders pending a new production run with an
extended shelf life.
License and contract revenues for the first quarter in 1999 and 1998 were
$369,000 and $667,000, respectively, and included $289,000 and $485,000 of
contract manufacturing revenues in 1999 and 1998, respectively. The Company is
phasing out contract manufacturing services, due to the sale of the
manufacturing facility, and expects to receive no further revenues from this
service after 1999. License and contract research revenues have fluctuated in
the past and may fluctuate in the future.
OPERATING EXPENSES. Total operating expenses were $4.0 million and $8.5
million for the first quarter of 1999 and 1998, respectively. The decrease from
the prior year period was a result of savings realized from various actions
taken in 1999 and 1998, including the sale of the manufacturing facility and
effectively out-sourcing the manufacturing of the Company's products (described
above), closure of the Cellcor subsidiary, corporate downsizing, the termination
of product development efforts through Targon Corporation ("Targon"), and the
curtailing of certain basic research and clinical programs. The savings over the
prior year period included $648,000 from cost of product and manufacturing
revenues under the new agreement with Purdue, $1.2 million from the Cellcor
closure, $1.0 million from the sale of Targon, $442,000 from the termination of
basic research programs, $481,000 from the curtailment of other clinical
programs, and $494,000 from cost containment efforts in general and
administrative services.
Cost of product and contract manufacturing revenues for the first quarter
of 1999 were $1.1 million compared to $1.9 million recorded in the same period
of the prior year. The decrease from the prior year period is due to decreased
contract manufacturing costs associated with decreased contract manufacturing
revenues in 1999 and lower manufacturing costs for CYTOGEN products. Under the
new agreement with Purdue, employees involved in manufacturing will remain
CYTOGEN employees, but Purdue will absorb their labor costs except for time
spent on manufacturing CYTOGEN products (see Note 2 to the Consolidated
Financial Statements). The majority of maintenance and facility related costs
are absorbed by Purdue.
Research and development expenses for the first quarter of 1999 were $1.1
million compared to $3.1 million recorded in the same period of 1998. The
decrease from the prior year period is due to the curtailing of certain of the
Company's product development efforts including the closure of Cellcor, the
termination of basic research programs and scale back of various clinical
programs.
Equity loss in Targon subsidiary was $1.0 million for the first quarter of
1998. The Company sold its interest in Targon in 1998.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
Selling and marketing expenses were $946,000 for the first quarter of 1999
compared to $1.1 million in the same period of 1998. These expenses reflect the
marketing efforts for ProstaScint product and expenses to establish and maintain
PIE ("Partners in Excellence") program, a network of accredited nuclear medicine
imaging centers ("PIE Site") that are certified as proficient in the
interpreting of the ProstScint scans. As of April 1999, there are 261 PIE Sites.
The decrease in expenditures over the prior year period is due to the deferral
of certain marketing programs.
General and administrative expenses for the first quarter of 1999 were
$911,000 compared to $1.4 million for the comparable period in 1998. The
decrease from the prior year is due to various cost containment efforts
implemented in 1999 and 1998 including closure of Cellcor and corporate
downsizing.
GAIN ON SALE OF LABORATORY AND MANUFACTURING FACILITIES. The Company
recorded a gain of $3.3 million in the first quarter of 1999 resulting from a
sale of certain of the Company's laboratory and manufacturing facilities to
Purdue for $3.9 million (see Note 2 to the Consolidated Financial Statements).
INTEREST INCOME/EXPENSE. Interest income for the first quarter of 1999 was
$95,000 compared to $206,000 in the same period of 1998. The 1998 income
included interest realized from the $10.0 million note from Targon, which was
canceled as a result of the sale of Targon in 1998.
Interest expense for the first quarter of 1999 was $42,000 compared to
$218,000 recorded in the same period of 1998. The 1998 expense included interest
associated with the $10.0 million note due to Elan Corporation, plc, which was
canceled as a result of the sale of Targon in 1998.
NET INCOME (LOSS). Net income to common stockholders for the first quarter
in 1999 was $1.7 million compared to a net loss of $4.4 million incurred in the
same period of 1998. The basic earnings per common share were $0.03 on 64.2
million average common shares outstanding compared to a loss of $0.08 on 52.6
million average common shares outstanding for the same period in 1998. The 1999
diluted earnings per common share were $0.03 on 64.5 million average common
shares outstanding compared to a diluted loss per share of $0.08 on 52.6 million
average common shares outstanding in the same period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $6.1 million as of March 31,
1999, compared to $3.0 million as of December 31, 1998. The cash used for
operating activities for the three months ended March 31, 1999 was $4.7 million
versus $4.9 million in the same period of 1998. The decrease in cash used for
operating activities was primarily due to reduced expenditures as a result of
various cost containment efforts, partially offset by a payment of $1.0 million
to The Dupont Pharmaceuticals Company ("Dupont") for Quadramet manufacturing
commitment and payments of various 1998 restructuring costs, including
severances.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
Historically, the Company's primary sources of cash have been proceeds
from the issuance and sale of its stock through public offerings and private
placements, product related revenues, revenues from contract manufacturing and
research services, fees paid under its license agreements and interest earned on
its cash and short term investments.
In October 1998, the Company entered into an agreement with Kingsbridge
Capital Ltd. ("Kingsbridge") for a $12 million common stock equity line.
Pursuant to the Equity Line Agreement, the Company, subject to the satisfaction
of certain conditions was granted the right to issue and sell to Kingsbridge,
and Kingsbridge would be obligated to purchase up to $12 million of CYTOGEN
common stock from time to time (collectively, the "Put Rights") over a two year
period at a purchase price per share equal to 85% of the average of lowest
trading prices of CYTOGEN common stock during five designated trading days as
determined under the Equity Line Agreement. The Company can exercise the Put
Rights every 20 trading days in the amounts ranging from $150,000 to $1 million,
subject to the satisfaction of minimum trading volumes and market price of
CYTOGEN common stock and registration of the shares of common stock under the
Securities Act of 1933, as amended. The Company is required to exercise the Put
Rights with respect to a minimum of $3 million over the life of the Equity Line
Agreement. In addition, the Company granted to Kingsbridge a warrant to purchase
up to 200,000 shares of CYTOGEN common stock at an exercise price of $1.016 per
share through April 2002. In January 1999, the Company exercised a Put Right for
the sale of 475,342 shares of common stock at an aggregate price of $500,000 or
$1.0519 per share.
January 1999, CYTOGEN sold 2,666,667 shares to a subsidiary of The Hillman
Company at $0.75 per share for a total of $2.0 million. The shares were sold
under a registration statement.
In January 1999, the Company sold its manufacturing and laboratory
facilities for $3.9 million, of which $744,000 of the proceeds was used to repay
the outstanding balance of a term loan entered in 1998.
Quadramet. Under an exclusive license agreement in October 1998 with
Berlex for the manufacture and sale of Quadramet, Berlex will pay CYTOGEN
royalties on net sales of Quadramet, as well as milestone payments based on
achievement of certain sales levels. In connection with the Berlex agreement,
CYTOGEN granted Berlex a warrant to purchase 1,000,000 shares of CYTOGEN common
stock at an exercise price of $1.002 per share through October 2003, which is
exercisable after the earlier of one year or the achievement of defined sales
levels.
CYTOGEN paid DuPont $1 million in the first quarter of 1999 as final
payment for the securing of the long-term manufacturing commitment for
Quadramet.
ProstaScint. ProstaScint was launched in February 1997. Significant cash
will be required to support the Company's marketing program and expansion and
maintenance of the PIE program.
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
In 1996, CYTOGEN entered into an agreement with C.R Bard Inc. ("Bard")
(the "Co-Promotion Agreement") to market and promote ProstaScint, pursuant to
which Bard will make payments upon the occurrence of certain milestones, which
include expansion of co-marketing rights in selected countries outside the U.S.
During the term of the Co-Promotion Agreement, Bard will receive
performance-based compensation for its services. In the first quarter of 1999
and 1998, the Company recorded $159,000 and $154,000, respectively, for Bard
commissions.
The Company's capital and operating requirements may change depending upon
various factors, including: (i) the success of the Company and its strategic
partners in manufacturing, marketing and commercialization of its other
products; (ii) the amount of resources which the Company devotes to clinical
evaluations and the expansion of marketing and sales capabilities; (iii) results
of clinical trials and research and development activities; and (iv) competitive
and technological developments.
The Company's financial objectives are to meet its capital and operating
requirements through revenues from existing products, license and research
contracts, and control of spending. To achieve its strategic objectives, the
Company may enter into research and development partnerships and acquire,
in-license and develop other technologies, products or services. Certain of
these strategies may require payments by the Company in either cash or stock in
addition to the costs associated with developing and marketing a product or
technology. The Company currently has no commitments or specific plans for
acquisitions or strategic alliances. However, the Company believes that, if
successful, such strategies may increase long term revenues. There can be no
assurance as to the success of such strategies or that resulting funds will be
sufficient to meet cash requirements until product revenues are sufficient to
cover operating expenses. To fund these strategic and operating activities, the
Company may sell equity and debt securities as market conditions permit or enter
into credit facilities.
New Jersey has enacted legislation permitting certain New Jersey
Corporations to sell tax losses and research and development credits. The
Company has been advised that the state is developing procedures to implement
the program, including potential changes to the legislation in order to clarify
the intent of the legislation. The Company also understands that the program is
expected to be implemented during the summer of 1999; however, no assurance can
be given as to the program.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, including
acquisition of products and complementary technologies, research and
development, clinical studies and regulatory activities, and to further its
marketing and sales. The Company expects that its existing capital resources as
of March 31, 1999, together with decreased operating costs, but exclusive of the
amounts which may be available under the Equity Line Agreement, or other sources
of capital will be adequate to fund the Company's operations into the year 2000.
Management believes the addition of the Equity Line Agreement, will provide the
Company with additional cash flow to sustain operations well into year 2000. No
assurance can be given that the Company will not consume a significant amount of
its available resources before that time. In addition, the Company expects that
it will have additional requirements for debt or equity capital, irrespective of
whether and when it reaches profitability, for further development of products,
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
product and technology acquisition costs, and working capital. The Company's
future capital requirements and the adequacy of available funds will depend on
numerous factors, including the successful commercialization of its products,
the costs associated with the acquisition of complementary products and
technologies, progress in its product development efforts, the magnitude and
scope of such efforts, progress with clinical trials, progress with regulatory
affairs activities, the cost of filing, prosecuting, defending and enforcing
patent claims and other intellectual property rights, competing technological
and market developments, and the expansion of strategic alliances for the sales,
marketing, manufacturing and distribution of its products. To the extent that
the currently available funds and revenues including the Equity Line Agreement
are insufficient to meet current or planned operating requirements, the Company
will be required to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. Based on the Company's historical ability to raise capital and current
market conditions, the Company believes other financing alternatives are
available. There can be no assurance that the financing commitments described
above or other financial alternatives will be available when needed or at terms
commercially acceptable to the Company. If adequate funds are not available, the
Company may be required to delay, further scale back or eliminate certain
aspects of its operations or attempt to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates, products or potential
markets. If adequate funds are not available, the Company's business, financial
condition and results of operations will be materially and adversely affected.
YEAR 2000 COMPLIANCE
The "Year 2000 problem" describes the concern that certain computer
applications, which use two digits rather than four to represent dates, will
interpret the year 2000 as 1900 and malfunction on January 1, 2000.
CYTOGEN's Internal Systems. The efficient operation of the Company's
business is dependent in part on its computer software programs and operating
systems (collectively, Programs and Systems). These Programs and Systems are
used in several key areas of the Company's business, including clinical,
purchasing, inventory management, sales, shipping, and financial reporting, as
well as in various administrative functions. The Company has completed its
evaluation of the Program and Systems to identify any potential year 2000
compliance problem. Based on present information, the Company believes that it
will be able to achieve year 2000 compliance through a combination of
modifications or replacement of existing Programs and Systems. The majority of
the Company's internal systems have been replaced with fully compliant systems.
The remaining systems are expected to be compliant by July 31, 1999 at a cost of
$10,000. However, there can be no assurance that the required expenditures will
not exceed that amount.
Readiness of Third Parties. The Company is also working with its
processing banks, network providers and manufacturing partners to ensure their
systems are year 2000 compliant. All these costs will be borne by the
processors, network and software companies and manufacturing partners.
Currently, the Company's processing banks and manufacturing partners are in the
process of completing their year 2000 compliance programs. If the manufacturing
12
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
partners systems fail on January 1, 2000 the Company's revenues may be adversely
impacted. In the event that some or all of the processing banks are unable to be
compliant, the Company will switch merchant year 2000 accounts to those that are
compliant.
Risks Associated with the Year 2000. The Company is not aware, at this
time, of any Year 2000 non-compliance that will not be fixed by the Year 2000.
However, some risks that the Company faces include: the failure of internal
information systems, defects in its work environment, a slow down in its
customers' ability to make payments, and the availability of products for sale.
Contingency Plans. The Company is in the process of developing contingency
plans to address a worst case year 2000 scenario. This contingency plan is
expected to be completed by August 31, 1999.
========================
Cautionary Statement
The foregoing discussion contains historical information as well as
forward looking statements that involve a number of risks and uncertainties. In
addition to the risks discussed above, among other factors that could cause
actual results to differ materially from expected results are the following: (i)
the Company's ability to access the capital markets in the near term and in the
future for continued funding of existing projects and for the pursuit of new
projects; (ii) the ability to attract and retain personnel needed for business
operations and strategic plans; (iii) the timing and results of clinical
studies, and regulatory approvals; (iv) market acceptance of the Company's
products, including programs designed to facilitate use of the products, such as
the PIE Program; (v) demonstration over time of the efficacy and safety of the
Company's products; (vi) the degree of competition from existing or new
products; (vii) the decision by the majority of public and private insurance
carriers on whether to reimburse patients for the Company's products; (viii) the
profitability of its products; (ix) the ability to attract, and the ultimate
success of, strategic partnering arrangements, collaborations, and acquisition
candidates; (x) the ability of the Company and its partners to identify new
products as a result of those collaborations that are capable of achieving FDA
approval, that are cost-effective alternatives to existing products and that are
ultimately accepted by the key users of the product; (xi) the success of the
Company's marketing partners in obtaining marketing approvals in Canada and in
European countries, in achieving milestones and achieving sales of products
resulting in royalties; and (xii) the ability to protect and practice the
Company's intellectual property, including patents and know-how.
13
<PAGE>
PART II - OTHER INFORMATION
- ------- -----------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- ------
(a) Exhibits:
3.1 By-Laws of the Company, as amended.
27 Financial Data Schedule (Submitted to SEC only in electronic
format).
(b) Reports on Form 8-K:
During the first quarter of 1999, the Company filed a Form
8-K dated February 1, 1999 to report on "Item 5. Other
Events" the fourth quarter and year-end 1998 results.
14
<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 thereunto duly authorized.
CYTOGEN CORPORATION
Date May 14, 1999 By /s/ Jane M. Maida
---------------- -------------------------------
JANE M. MAIDA
Chief Accounting Officer
(Authorized Accounting Officer)
15
B Y - L A W S
OF
CYTOGEN CORPORATION
(a Delaware corporation)
(as amended April 1, 1999)
ARTICLE I
OFFICES
SECTION 1. OFFICES. The corporation shall maintain its registered office in
the State of Delaware at 100 West Tenth Street, City of Wilmington, County of
New Castle and its resident agent at such address is The Corporation Trust
Company. The Corporation may also have offices in such other places in the
United States or elsewhere as the Board of Directors may, from time to time,
appoint or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may properly be conducted
at such meeting shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors shall determine
by resolution and set forth in the notice of the meeting. In the event that the
Board of Directors fails to so determine the time, date and place for the annual
meeting, it shall be held, beginning in 1981, at the principal office of the
Corporation at 10 o'clock A.M. on the last Friday in February of each year.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders, unless
otherwise prescribed by statute, may be called by the Chairman of the Board, the
President or by resolution of the Board of Directors and shall be called by the
President or Secretary upon the written request of not less than 50% in interest
of the stockholders entitled to vote thereat. Notice of each special meeting
shall be given in accordance with Section 3 of this Article II. Unless otherwise
permitted by law, business transacted at any special meeting of stockholders
shall be limited to the purpose stated in the notice.
<PAGE>
SECTION 3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting,
which shall state the place, date and time of the meeting, and, in the case of a
special meeting, the purposes for which the meeting is called, shall be mailed
to or delivered to each stockholder of record entitled to vote thereat. Such
notice shall be given not less than ten (10) days nor more than sixty (60) days
before the date of any such meeting.
SECTION 4. QUORUM. Unless otherwise required by law or the Certificate of
Incorporation, the holders of a majority of the issued and outstanding stock
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of
stockholders.
SECTION 5. VOTING. Unless otherwise provided in the certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder. Upon the request of not less than 10% in
interest of the stockholders entitled to vote at a meeting, voting shall be by
written ballot. All elections of directors shall be decided by plurality vote.
Unless otherwise required by law, these By-laws or the Certificate of
Incorporation, all other corporate action shall be decided by majority vote of
the shares cast on the proposed action.
SECTION 6. INSPECTORS. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the results, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
2
<PAGE>
On request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors.
SECTION 7. CHAIRMAN OF MEETINGS. The Chairman of the Board of Directors of
the Corporation, if one is elected, or, in his absence or disability, the
President of the Corporation, shall preside at all meetings of the stockholders.
SECTION 8. SECRETARY OF MEETING. The Secretary of the Corporation shall act
as Secretary at all meetings of the stockholders. In the absence or disability
of the Secretary, the Chairman of the Board of Directors or the President shall
appoint a person to act as Secretary at such meetings.
SECTION 9. LISTS OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, showing the address of each
stockholder and the number and class of shares held by each. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the meeting and may be inspected by any stockholder who is
present.
SECTION 10. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required by law to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
such meetings, may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
3
<PAGE>
SECTION 11. ADJOURNMENT. At any meeting of stockholders of the Corporation,
if less than a quorum be present, a majority of the stockholders entitled to
vote thereat, present in person or by proxy, shall have the power to adjourn the
meeting from time to time without notice other than announcement at the meeting
until a quorum shall be present. Any business may be transacted at the adjourned
meeting which might have been transacted at the meeting originally noticed. If
the adjournment is for more than thirty days, or if after the adjournment a new
record date, as provided for in Section 5 of Article V of these By-Laws, is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. POWERS. The property, business and affairs of the Corporation
shall be managed and controlled by its Board of Directors. The Board shall
exercise all of the powers and duties conferred by law except as provided by the
Certificate of Incorporation or these By-Laws.
SECTION 2. NUMBER AND TERM. The number of directors shall be fixed at no
less than two nor more than seven. Within the limits specified above, the number
of directors shall be fixed from time to time by the Board. The Board of
Directors shall be elected by the stockholders at their annual meeting, and each
director shall be elected to serve for the term of one year and until his
successor shall be elected and qualify or until his earlier resignation or
removal. Directors need not be stockholders.
SECTION 3. RESIGNATIONS. Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time is specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 4. REMOVAL. Any director or the entire Board of Directors may be
removed either for or without cause at any time by the affirmative vote of the
holders of a majority of the shares entitled to vote for the election of
directors at any annual or special meeting of the stockholders called for that
purpose. Vacancies thus created may be filled at such meeting by the affirmative
4
<PAGE>
vote of a majority of the stockholders entitled to vote, or, if the vacancies
not so filled, by the directors as provided in Section 5 of this Article III.
SECTION 5. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Except as provided in
Section 4 of this Article III, vacancies occurring in any directorship and newly
created directorship may be filled by a majority vote of the remaining directors
then in office. Any director so chosen shall hold office for the unexpired term
of his predecessor and until his successor shall be elected and qualify or until
his earlier death, resignation or removal. The Board may not fill the vacancy
created by removal of a director by electing the director so removed.
SECTION 6. MEETINGS. The newly elected. directors shall hold their first
meeting to organize the Corporation, elect officers and transact any other
business which may properly come before the meeting. An annual organizational
meeting of the Board of Directors shall be held immediately after each annual
meeting of the stockholders, or at such time and place as may be noticed for the
meeting.
Regular meetings of the Board may be held without notice at such places and
times as shall be determined from time to time by resolution of the directors.
Special meetings of the Board shall be called by the President or by the
Secretary on the written request of any director with at least two days' notice
to each director and shall be held at such place as may be determined by the
directors or as shall be stated in the notice of the meeting.
SECTION 7. QUORUM, VOTING AND ADJOURNMENT. A majority of the total number
of directors or any committee thereof shall constitute a quorum for the
transaction of business. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum, a majority of the directors present thereat may adjourn
such meeting to another time and place. Notice of such adjourned meeting need
not be given if the time and place of such adjourned meeting are announced at
the meeting so adjourned.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the Board, designate one or more committees, including but not
limited to an Executive Committee and an Audit Committee, each such committee to
consist of one or more of the directors of the Corporation. The Board may
5
<PAGE>
designate one or more directors as alternate members of any committee to replace
any absent or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority to amend the Certificate of
Incorporation, adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease, or exchange of all or substantially all of the
Corporation's properties and assets, recommend to the stockholders a dissolution
of the Corporation or a revocation of a dissolution or to amend these By-laws.
Unless a resolution of the Board expressly provides, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock of the Corporation. All committees of the Board shall report their
proceedings to the Board when recruited.
SECTION 9. ACTION WITHOUT A MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or any committee
thereof consent thereto in writing.
SECTION 10. COMPENSATION. The Board of Directors shall have the authority
to fix the compensation of directors for their services. A director may also
serve the Corporation in other capacities and receive compensation therefor.
SECTION 11. TELEPHONIC MEETING. Unless otherwise restricted by the
Certificate of Incorporation, members of the Board, or any committee designated
by the Board, may participate in a meeting by means of conference telephone or
similar communications equipment in which all persons participating in the
meeting can hear each other. Participation in such telephonic meeting shall
constitute the presence in person at such meeting.
ARTICLE IX
OFFICERS
SECTION 1. The officers of the Corporation shall include a President, a
Secretary and one or more subordinate officers, all of whom shall be elected by
the Board of Directors and who shall hold office for a term of one year and
6
<PAGE>
until their successors are elected and qualify or until their earlier
resignation or removal. In addition, the Board of Directors may elect a Chairman
of the Board, one or more Vice Presidents, including an Executive Vice
President, a Treasurer and one or more Assistant Treasurers and one or more
Assistant Secretaries, who shall hold their office for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors. The initial officers shall be elected at the
first meeting of the Board of Directors and, thereafter, at the annual
organizational meeting of the Board held after each annual meeting of the
stockholders. Any number of offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint
such other officers and agents as it deems advisable, who shall hold their
office for such terms and shall exercise and perform such powers and duties as
shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors shall be a
member of the Board and shall preside at all meetings of the Board of Directors
and of the stockholders. In addition, the Chairman of the Board shall have such
powers and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. The President shall be the Chief Executive Officer of
the Corporation. He shall exercise such duties as customarily pertain to the
office of President and Chief Executive Officer, and shall have general and
active management of the property, business and affairs of the Corporation,
subject to the supervision and control of the Board. He shall perform such other
duties as prescribed from time to time by the Board or these By-laws.
In the absence, disability or refusal of the Chairman of the Board to act,
or the vacancy of such office, the President shall preside at all meetings of
the stockholders and of the Board of Directors. Except as the Board of Directors
shall otherwise authorize, the President shall execute bonds, mortgages and
other contracts on behalf of the Corporation, and shall cause the seal to be
affixed to any instrument requiring it and, when so affixed, the seal shall be
attested by the signature of the Secretary or the Treasurer or an Assistant
Secretary or an Assistant Treasurer.
7
<PAGE>
SECTION 5. VICE PRESIDENTS. Each Vice President, if any are elected, of
whom one or more may be designated an Executive Vice President, shall have such
powers and shall perform such duties as shall be assigned to him by the
President or the Board of Directors.
SECTION 6. TREASURER. The Treasurer shall have custody of the corporate
funds, securities, evidences of indebtedness and other valuables of the
Corporation and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation. He shall deposit all moneys
and other valuables in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation, taking proper vouchers therefor. He shall
render to the President and Board of Directors, upon their request, a report of
the financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond for the faithful discharge of
his duties in such amount and with such surety as the Board shall prescribe.
The Treasurer shall have such further powers and perform such other duties
incident to the office of Treasurer as from time to time assigned to him by the
Board.
SECTION 7. SECRETARY. The Secretary shall be the Chief Administrative
Officer of the Corporation and shall: (a) cause minutes of all meetings of the
stockholders and directors to be recorded and kept; (b) cause all notices
required by these By-Laws or otherwise to be given properly; (c) see that the
minute books, stock books, and other nonfinancial books, records and papers of
the Corporation are kept properly; and (d) cause all reports, statements,
returns, certificates and other documents to be prepared and filed when and as
required. The Secretary shall have such further powers and perform such other
duties as prescribed from time to time by the Board.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Each Assistant
Treasurer and each Assistant Secretary, if any are elected, shall be vested with
all the Powers and shall perform all the duties of the Treasurer and Secretary,
respectively, in the absence or disability of such officer, unless or until the
Board of Directors shall otherwise determine. In addition, Assistant Treasurers
and Assistant Secretaries shall have such powers and shall perform such duties
as shall be assigned to them by the Board.
8
<PAGE>
SECTION 9. CORPORATE FUNDS AND CHECKS. The funds of the Corporation shall
be kept in such depositories as shall from time to time be prescribed by the
Board of Directors. All checks or other orders for the payment of money shall be
signed by the President or the Treasurer or such other person or agent as may
from time to time be authorized and with such countersignature, if any, as may
be required by the Board of Directors.
SECTION 10. CONTRACTS AND OTHER DOCUMENTS. The President or Treasurer, or
such other officer or officers as may from time to time be authorized by the
Board of Directors, shall have power to sign and execute on behalf of the
Corporation deeds, conveyances and contracts, and any and all other documents
requiring execution by the Corporation.
SECTION 11. OWNERSHIP OF STOCK OF ANOTHER CORPORATION. The President or the
Treasurer, or such other officer or agent as shall be authorized by the Board of
Directors, shall have the power and authority, on behalf of the Corporation, to
attend and to vote at any meeting of stockholders of any corporation in which
the Corporation holds stock and may exercise, on behalf of the corporation, any
and all of the rights and powers incident the ownership of such stock at any
such meeting, including authority to execute and deliver proxies and consents on
behalf of the corporation.
SECTION 12. DELEGATION OF DUTIES. In the absence, disability or refusal of
any officer to exercise and perform his duties, the Board of Directors may
delegate to another officer such powers or duties.
SECTION 13. RESIGNATION AND REMOVAL. Any officer of the Corporation may be
removed from office for or without cause at any time by the Board of Directors.
Any officer may resign at any time in the same manner prescribed under Section 3
of Article III of these By-laws.
SECTION 14. VACANCIES. The Board of Directors shall have power to fill
vacancies occurring in any office.
9
<PAGE>
ARTICLE V
STOCK
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation by, the Chairman of the Board or the President or a Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, certifying the number and class of shares of stock in the Corporation
owned by him. Any or all of the signatures on the certificate may be a
facsimile. The Board of Directors shall have the power to appoint one or more
transfer agents and/or registrars for the transfer or registration of
certificates of stock of any class, and may require stock certificates to be
countersigned or registered by one or more of such transfer agents and/or
registrars.
SECTION 2. TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferable upon its books by the holders thereof, in person or by their duly
authorized attorneys or legal representatives, upon surrender to the Corporation
by delivery thereof to the person in charge of the stock and transfer books and
ledgers. Such certificates shall be cancelled and new certificates shall
thereupon be issued. A record shall be made of each transfer. Whenever any
transfer of shares shall be made for collateral security, and not absolutely, it
shall be so expressed in the entry of the transfer if, when the certificates are
presented, both the transferor and transferee request the Corporation to do so.
The Board shall have power and authority to make such rules and regulations as
it may deem necessary or proper concerning the issue, transfer and registration
of certificates for shares of stock of the corporation.
SECTION 3. LOST CERTIFICATES. A new certificate of stock may be issued in
the place of any certificate previously issued by the Corporation, alleged to
have been lost, stolen, destroyed or mutilated, and the Board of Directors may,
in their discretion, require the owner of such lost, stolen, destroyed or
mutilated certificate, or his legal representative, to give the Corporation a
bond, in such sum as the Board may direct, not exceeding double the value of the
stock, in order to indemnify the Corporation against any claims that may be made
against it in connection therewith.
SECTION 4. STOCKHOLDERS OF RECORD. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder
thereof, in fact, and shall not be bound to recognize any equitable or other
10
<PAGE>
claim to or interest in such shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise expressly
provided by law.
SECTION 5. STOCKHOLDERS RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting, provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may at any regular or special meeting, out
of funds legally available therefor, declare dividends upon the stock of the
Corporation. Before the declaration of any dividend, the Board of Directors may
set apart, out of any funds of the Corporation available for dividends, such sum
or sums as from time to time in their discretion may be deemed proper for
working capital or as a reserve fund to meet contingencies or for such other
purposes as shall be deemed conducive to the interests of the Corporation.
ARTICLE VI
NOTICE AND WAIVER OF NOTICE
SECTION 1. NOTICE. Whenever any written notice is required to be given by
law, the Certificate of Incorporation or these By-Laws, such notice, if mailed,
shall be deemed to be given when deposited in the United States mail, postage
prepaid, addressed to the person entitled to such notice at his address as it
appears on the books and records of the Corporation. Such notice may also be
sent by telegram.
SECTION 2. WAIVER OF NOTICE. Whenever notice is required to be given by
law, the Certificate of Incorporation or these By-laws, a written waiver thereof
signed by the person entitled to notice, whether before or after the time stated
11
<PAGE>
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any meeting of the stockholders, directors, or members of a
committee of the Board need be specified in any written waiver of notice.
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. AMENDMENTS. These By-Laws may be amended or repealed or new
By-Laws may be adopted by the affirmative vote of a majority of the Board of
Directors at any regular or special meeting of the Board. If any By-Law
regulating an impending election of directors is adopted, amended or repealed by
the Board, there shall be set forth in the notice of the next meeting of
shareholders for the election of directors the By-Law(s) so adopted, amended, or
repealed, together with a precise statement of the changes made. By-Laws adopted
by Board of Directors may be amended or repealed by shareholders.
ARTICLE VITI
SECTION 1. SEAL. The seal of the Corporation shall be circular in form and
shall have the name of the corporation on the circumference and the jurisdiction
and year of incorporation in the center.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall end on
September 30 of each year, or such other twelve consecutive months as the Board
of Directors may designate.
ARTICLE IX INDEMNIFICATION
SECTION 1. A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
12
<PAGE>
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
SECTION 2. Each person who has or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity as a director, officer, employee or agent or
in any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
permitted by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in this Section 2, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section 2 shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition as authorized
by the Board of Directors; provided, however, that if the Delaware General
13
<PAGE>
Corporation Law so requires, the payment of such expenses incurred by a
director, officer, employee or agent of the Company in his or her capacity as
such in advance of the final disposition of a proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director,
officer, employee or agent of the Company, to repay all amounts so advanced if
it shall ultimately be determined that such director, officer, employee or agent
of the Company is not entitled to be indemnified under this Section 2 or
otherwise.
SECTION 3. If a claim under Section 2 of this Article IX is not paid in
full by the Corporation within 30 days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standard of conduct which makes it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
SECTION 4. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Article IX shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the Certificate of
incorporation, these By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
14
<PAGE>
SECTION 5. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1999 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,073,000
<SECURITIES> 0
<RECEIVABLES> 1,442,000
<ALLOWANCES> (73,000)
<INVENTORY> 226,000
<CURRENT-ASSETS> 504,000
<PP&E> 13,966,000
<DEPRECIATION> (11,891,000)
<TOTAL-ASSETS> 11,085,000
<CURRENT-LIABILITIES> (4,381,000)
<BONDS> 0
0
0
<COMMON> 651,000
<OTHER-SE> 3,806,000
<TOTAL-LIABILITY-AND-EQUITY> 11,085,000
<SALES> 1,756,000
<TOTAL-REVENUES> 2,324,000
<CGS> 1,104,000
<TOTAL-COSTS> 2,050,000
<OTHER-EXPENSES> 1,968,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,000
<INCOME-PRETAX> 1,657,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,657,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,657,000
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
