<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended:
June 30, 2000 Commission File Number: 0-19871
-------
STEMCELLS, INC.
(formerly CYTOTHERAPEUTICS, INC.)
---------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-3078125
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No)
525 DEL REY AVENUE SUITE C
SUNNYVALE, CA 94085
-------------------
(Address of principal executive offices including zip code)
(408) 731-8670
--------------
(Registrant's telephone number, including area code)
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 twelve months (or for such shorter periods that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |_| No |X|
At June 30, 2000, there were 19,612,677 shares of Common Stock, $.01 par value,
issued and outstanding.
Page 1 of 14
<PAGE>
STEMCELLS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page Number
<S> <C> <C>
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets (unaudited) June 30, 2000 and 3
December 31, 1999
Condensed Consolidated Statements of Operations (unaudited) Three and 4
six months ended June 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows (unaudited) Six months 5
ended June 30, 2000 and1999
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results 8
of Operations
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security-Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
Page 2 of 14
<PAGE>
PART I - ITEM 1 - FINANCIAL STATEMENTS
STEMCELLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
(unaudited) (Note 1)
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,535,264 $ 4,760,064
Technology sale receivable 200,000 3,000,000
Other current assets 718,145 1,210,791
------------- -------------
Total current assets 6,453,409 8,970,855
Restricted Investments 19,220,165 --
Property, plant and equipment, net 5,028,141 5,251,376
Intangible assets, net 936,745 1,108,768
Other assets 750,000 750,000
------------- -------------
Total assets $ 32,388,460 $ 16,080,999
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 144,269 $ 631,315
Accrued expenses 915,092 2,905,068
Current maturities of capitalized lease obligations 326,250 324,167
------------- -------------
Total current liabilities 1,385,611 3,860,550
Capitalized lease obligations, less current maturities 2,775,000 2,937,083
Deposits 26,000 26,000
Deferred rent 596,222 502,353
Redeemable stock -- 5,248,610
Stockholders' equity
Convertible Preferred Stock 1,500,000 --
Common stock 195,308 186,355
Additional paid in capital 129,526,328 123,917,758
Accumulated deficit (121,698,674) (119,372,710)
Accumulated other comprehensive income 19,220,165 --
Deferred compensation (1,137,500) (1,225,000)
------------- -------------
Total stockholders' equity 27,605,627 3,506,403
------------- -------------
Total liabilities and stockholders' equity $ 32,388,460 $ 16,080,999
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3 of 14
<PAGE>
PART I - ITEM 1 - FINANCIAL STATEMENTS
STEMCELLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(unaudited) Three Months Six Months
Ended June 30 Ended June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue from collaborative arrangements $ -- $ 2,520,672 $ -- $ 5,021,707
Operating expenses:
Research and development 873,793 3,280,826 1,659,932 6,847,383
General and administrative 1,065,693 1,172,856 2,078,286 2,168,315
------------ ------------ ------------ ------------
1,939,486 4,453,682 3,738,218 9,015,698
------------ ------------ ------------ ------------
Loss from operations (1,939,486) (1,933,010) (3,738,218) (3,993,991)
Other income (expense):
Investment income 64,900 184,220 138,232 406,331
Interest expense (73,708) (91,229) (142,566) (185,054)
Other Gain 1,416,588 -- 1,416,588 --
------------ ------------ ------------ ------------
1,407,780 92,991 1,412,254 221,277
------------ ------------ ------------ ------------
Net Loss ($ 531,706) ($ 1,840,019) ($ 2,325,964) ($
3,772,714)
============ ============ ============ ============
Basic and Diluted Net Loss per share ($ 0.03) ($ 0.10) ($ 0.12) ($ 0.20)
============ ============ ============ ============
Shares used in computing Basic and Diluted
Net Loss per share 19,356,928 18,514,236 19,419,236 18,483,437
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 14
<PAGE>
PART I - ITEM 1 - FINANCIAL STATEMENTS
STEMCELLS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(unaudited) Six Months Ended
June 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net Income ($2,325,964) ($3,772,714)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 407,634 1,163,295
Deferred stock compensation 87,500 189,650
Net changes in operating assets and liabilities 909,492 (2,075,873)
----------- -----------
Net cash used in operating activities (921,338) (4,495,642)
----------- -----------
Cash flows from investing activities:
Proceeds from marketable securities -- 6,891,026
Purchases of marketable securities -- (4,397,676)
Purchase/Sale of property, plant and equipment 8,005 (131,113)
Acquisition of other assets (20,380) (274,510)
----------- -----------
Net cash provided by investing activities (12,375) 2,087,727
----------- -----------
Cash flows from financing activities:
Proceeds from the exercise of stock options 368,913 176,545
Proceeds from issuance of Preferred Stock 1,500,000 --
Principal payments under capitalized lease obligations
and mortgage payable (160,000) (881,250)
----------- -----------
Net cash provided by financing activities 1,708,913 (704,705)
----------- -----------
Net increase/(decrease) in cash and cash equivalents 775,200 (3,112,620)
Cash and cash equivalents, beginning of period 4,760,064 7,864,788
----------- -----------
Cash and cash equivalents, end of period $ 5,535,264 $ 4,752,168
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
Page 5 of 14
<PAGE>
PART I - ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2000 and 1999
NOTE 1. BASIS OF PRESENTATION
On May 23, 2000, the Company's name was changed to StemCells, Inc. from
CytoTherapeutics, Inc., by vote of the shareholders at the Annual Meeting.
The accompanying, unaudited, condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying financial statements include
all adjustments, consisting of normal recurring accruals considered
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented. Results of operations
for the six months ended June 30, 2000 are not necessarily indicative of
the results that may be expected for the entire fiscal year ending December
31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required for complete financial statements in
accordance with generally accepted accounting principles.
For the complete financial statements, refer to the audited financial
statements and footnotes thereto as of December 31, 1999 included in the
Company's Annual Report to Stockholders and the Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
NOTE 2. EARNINGS PER SHARE
Net loss-per-share is computed using the weighted-average number of shares
of common stock outstanding. Common equivalent shares from stock options
and warrants are excluded, as their effect is antidilutive.
NOTE 3. COMPREHENSIVE INCOME
For the six months ended June 30, 2000 and 1999, total comprehensive
income/(loss) was $16,894,201 and ($3,772,714) respectively. For the
quarter ended June 30, 2000 and 1999 the comprehensive income/(loss) was
$18,688,459 and ($1,840,019) respectively. The reported net loss for the
six months ended June 30, 2000 and 1999 was $2,325,964 and $3,772,714. The
reported net loss for the quarter ended June 30, 2000 and 1999 was $531,706
and $1,840,019 respectively. During the second quarter of 2000, the Company
recorded its ownership of 126,193 shares of Modex Therapeutics Ltd as
available for sale at an estimated fair value of $19,220,165 (see note 4).
NOTE 4. INVESTMENTS
At June 30, 2000, the Company owned 126,193 shares of Modex Therapeutics
Ltd ("Modex"), a public Swiss biotechnology company. The investment is
recorded as available-for-sale at estimated fair value with the unrealized
gain reported in other comprehensive income. Estimated fair value at June
30, 2000 is as follows:
-----------------------------------------------------------------
COST GROSS UNREALIZED GAIN FAIR VALUE
-----------------------------------------------------------------
$0 $19,220,165 $19,220,165
-----------------------------------------------------------------
Page 6 of 14
<PAGE>
NOTE 5. WIND-DOWN OF ENCAPSULATED CELL TECHNOLOGY
In the last two quarters of 1999, the Company wound down operations
relating to its former encapsulated cell technology to focus its resources
on the research and development of its proprietary stem cell technology
platform. At the end of 1999 balance in the reserve created for wind-down
expenses was $1,934,569. For the first half of 2000 the roll-forward of
this balance is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Description Reserve as at Cash Payments Reserve as at
12/31/99 6/30/00
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Assets $300,000 $0 $300,000
--------------------------------------------------------------------------------
Facilities,
Maintenance and other
Expenses 462,569 462,569 0
--------------------------------------------------------------------------------
RIPSAT Settlement 1,172,000 1,172,000 0
--------------------------------------------------------------------------------
Totals $1,934,569 $1,634,569 $300,000
--------------------------------------------------------------------------------
</TABLE>
NOTE 6. SUBSEQUENT EVENTS
On August 3, 2000, the Company completed a $4 million common stock
financing transaction with Millennium Partners, LP (the "Fund"). StemCells
received $3 million of the purchase price at the closing and will receive
the remaining $1 million upon effectiveness of a registration statement
covering the shares owned by the Fund. The Fund purchased the Company's
common stock at $4.33 per share. The Fund will be entitled to receive
additional shares of common stock on eight dates beginning six months from
the closing and every three months thereafter. The number of additional
shares the Fund will be entitled to on each date will be based on the
number of shares of common stock the Fund continues to hold on each date
and the market price of the Company's common stock over a period prior to
each date. The Company will have the right, under certain circumstances, to
cap the number of additional shares by purchasing part of the entitlement
from the Fund. The Fund also received a warrant to purchase up to 101,587
shares of common stock at $4.725 per share. This warrant is callable by
StemCells at $8.6625 per underlying share. In addition, the Fund has the
option for twelve months to purchase up to $3 million of additional common
stock.
Page 7 of 14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company for the six months ended June 30, 2000 and 1999 should be read in
conjunction with the accompanying unaudited condensed consolidated financial
statements and the related footnotes thereto.
The statements contained in this report, other than statements of historical
fact, constitute forward-looking statements. Such statements include, without
limitation, all statements as to expectation or belief and statements as to the
Company's future results of operations, the progress of the Company's research
and product development programs, the need for, and timing of, additional
capital and capital expenditures, partnering prospects, the need for additional
intellectual property rights, effects of regulations, and the need for
additional facilities and potential market opportunities. The Company's actual
results may vary materially from those contained in such forward-looking
statements because of risks to which the Company is subject, such as failure to
obtain a corporate partner or partners to support the Company's stem cell
programs, the Company's ability to sell, assign or sublease its interests in its
facilities related to its former encapsulated cell technology program, risks of
delays in research, development and clinical testing programs, obsolescence of
the Company's technology, lack of available funding, competition from third
parties, intellectual property rights of third parties, failure of the Company's
collaborators to perform, regulatory constraints, litigation and other risks to
which the Company is subject. In addition, the value of the Company's holdings
of Modex Therapeutics Ltd ("Modex") is subject to change. The performance of
Modex stock since Modex's initial public offering does not predict its future
value. See also "Cautionary Factors Relevant to Forward-Looking-Information"
filed as Exhibit 99 to the Company's Annual Report for the fiscal year ended
December 31, 1999 and incorporated herein by reference.
OVERVIEW
Since its inception in 1988, the Company has been primarily engaged in research
and development of human therapeutic products. As a result of a restructuring in
the second half of 1999, the Company's sole focus is now on its platform stem
cell technology. At the beginning of last year, by contrast, the Company's main
headquarters, most of its employees, and a main focus of its operations were
primarily devoted to a different technology (encapsulated cell technology, or
"ECT"). Since that time, a clinical trial of the ECT then in progress was
terminated, the Company's other operations relating to the ECT were wound down,
the employment of those who worked on the ECT was terminated, the ECT has been
sold and the Company has relocated from Rhode Island to Sunnyvale, California.
Comparisons with last year's results are correspondingly less meaningful than
they may be under other circumstances.
No revenues have been derived from the sale of any products, and the Company
does not expect to receive revenues from product sales for at least several
years. The Company has not commercialized any product and in order to do so it
must, among other things, substantially increase its research and development
expenditures as research and product development efforts accelerate and clinical
trials are initiated. The Company has incurred annual operating losses since
inception and expects to incur substantial operating losses in the future. As a
result, the Company is dependent upon external financing from equity and debt
offerings and revenues from collaborative research arrangements with corporate
sponsors to finance its operations. There can be no assurance that such
financing or partnering revenues will be available when needed or on terms
acceptable to the Company.
The Company's results of operations have varied significantly from year to year
and quarter to quarter and may vary significantly in the future due to the
occurrence of material, nonrecurring events, including without limitation the
receipt of one-time, nonrecurring licensing payments, and the initiation or
termination of research collaborations, in addition to the winding-down of
terminated research and development programs referred to above.
Page 8 of 14
<PAGE>
Results of Operations
Six months ended June 30, 2000 and 1999
For the six months ended June 30, 2000 and 1999, revenues from collaborative
agreements totaled $0 and $5,021,707, respectively. The decrease in revenues
resulted from the June 1999 termination of a Development, Marketing and License
Agreement related to the Company's former encapsulated cell technology. The
Company has not yet entered into revenue-producing collaborations with respect
to its platform stem cell technology.
During the second quarter 2000 the Company realized a $1,427,686 gain in
connection with its investment in Modex Therapeutics Ltd ("Modex"), a Swiss
biotechnology company that completed an initial public offering on June 23,
2000. At June 30, 2000, the Company owned 126,193 shares with an estimated fair
value of $19,220,165.
Research and development expenses totaled $1,659,932 for the six months ended
June 30, 2000, compared with $6,847,383 for the same period in 1999. The
decrease of $5,187,451, or 76%, from 1999 to 2000 was primarily attributable to
the wind-down of research activities relating to the ECT.
General and administrative expenses were $2,078,286 for the six months ended
June 30, 2000, compared with $2,168,315 for the same period in 1999. The
decrease of $90,029, or 4%, from 1999 to 2000 was primarily attributable to the
establishment of a smaller corporate office in California.
Interest income for the six months ended June 30, 2000 and 1999 was $138,232 and
$406,331, respectively. The decrease in interest income in 2000 was attributable
to the lower average investment balances during such period.
Interest expense was $142,566 for the six months ended June 30, 2000, compared
with $185,054 for the same period in 1999. The decrease in 2000 was attributable
to lower outstanding debt and capital lease balances in 2000 compared to 1999.
Net loss for the six months ended June 30, 2000 was $2,325,964, or ($0.12) per
share, as compared to net loss of $3,772,714, or ($0.20) per share, for the
comparable period in 1999. The decrease in net loss of $1,446,750 from the same
period in 1999 primarily reflects the Company's stock in Modex, as the
reductions in expenses were offset by the decrease in revenues from
collaboration agreements. The Company (then known as CytoTherapeutics, Inc.) was
one of the founders of Modex, a Swiss biotherapeutics company established in
1996 to pursue encapsulated cell technologies related to former programs of the
Company. After Modex' Initial Public offering on the Swiss Neue Markt in late
June, StemCells owns 126,193 shares of Modex common stock. The IPO price was
168.00 Swiss Francs, and the share price on June 30 was 247.50 Swiss Francs. The
shares are subject to a lockup for 6 months from the date of the IPO.
Results of Operations
Three months ended June 30, 2000 and 1999
For the three months ended June 30, 2000 and 1999, revenues from collaborative
agreements totaled $0 and $2,520,672, respectively. The decrease in revenues
resulted from the June 1999 termination of a Development, Marketing and License
Agreement related to the Company's former encapsulated cell technology. The
Company has not yet entered into revenue-producing collaborations with respect
to its platform stem cell technology.
During the second quarter 2000 the Company realized a $1,427,686 gain in
connection with its investment in Modex Therapeutics Ltd ("Modex", a Swiss
biotechnology company that completed an initial public offering on June 23,
2000. At June 30, 2000, the Company owned 126,193 shares with an estimated fair
value of $19,220,165.
Research and development expenses totaled $873,793 for the three months ended
June 30, 2000, compared with $3,280,826 for the same period in 1999. The
decrease of $2,407,033, or 73%, from 1999 to 2000 was primarily attributable to
the wind-down of research activities relating to the ECT.
Page 9 of 14
<PAGE>
General and administrative expenses were $1,065,693 for the three months ended
June 30, 2000, compared with $1,172,856 for the same period in 1999. The
decrease of $107,163, or 9%, from 1999 to 2000 was primarily attributable to the
establishment of a smaller corporate office in California.
Interest income for the three months ended June 30, 2000 and 1999 was $64,900
and $184,220, respectively. The decrease in interest income in 2000 was
attributable to the lower average investment balances during such period.
Interest expense was $73,708 for the three months ended June 30, 2000, compared
with $91,229 for the same period in 1999. The decrease in 2000 was attributable
to lower outstanding debt and capital lease balances in 2000 compared to 1999.
Net loss for the three months ended June 30, 2000 was $531,706, or ($0.03) per
share, as compared to net loss of $1,840,019, or ($0.10) per share, for the
comparable period in 1999. The decrease in net loss of $1,308,313 from the same
period in 1999 primarily reflects a gain of $1,427,686 in connection with the
Company's stock in Modex, as the reductions in expenses were offset by the
decrease in revenues from collaboration agreements. The Company (then known as
CytoTherapeutics, Inc.) was one of the founders of Modex, a Swiss
biotherapeutics company established in 1996 to pursue encapsulated cell
technologies related to former programs of the Company. After Modex's Initial
Public offering on the Swiss Neue Markt in late June, StemCells owns 126,193
shares of Modex common stock. The IPO price was 168.00 Swiss Francs, and the
share price on June 30 was 247.50 Swiss Francs. The shares are subject to a
lockup for 6 months from the date of the IPO.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations through the sale of
common and preferred stock, the issuance of long-term debt and capitalized lease
obligations, revenues from collaborative agreements, research grants and
interest income.
The Company had unrestricted cash and cash equivalents totaling $5,535,264 at
June 30, 2000. Cash equivalents are invested in money market funds.
The Company's liquidity and capital resources were, in the past, significantly
affected by its relationships with corporate partners, which were related to the
Company's former ECT. These relationships are now terminated, and the Company
has not yet established corporate partnerships with respect to its stem cell
technology.
The Company continues to have substantial outstanding obligations in regard to
its facilities in Lincoln, Rhode Island, including lease payments and operating
costs of approximately $950,000 per year associated with its former research
laboratory and corporate headquarters building, and debt service payments and
operating costs of approximately $1,000,000 per year with respect to the its
pilot manufacturing and cell processing facility. The Company is actively
seeking to sublease, assign or sell its interests in these facilities. Failure
to do so within a reasonable period of time will have a material adverse effect
on the Company's liquidity and capital resources.
On April 13, 2000, the Company sold 1,500 shares of 6% cumulative convertible
preferred stock plus warrants for a total of 75,000 shares of the Company's
common stock to two members of its Board of Directors for $1,500,000, on terms
more favorable than it was then able to obtain from outside investors. The
shares of preferred stock are convertible at the option of the holders into
common stock at $3.77 per share. The holders of the preferred stock have
liquidation rights equal to their original investments plus accrued but unpaid
dividends. The investors would be entitled to make additional investments in the
Company on the same terms as those on which the Company completes offerings of
its securities with third parties within 6 months, if any such offerings are
completed. They have waived that right with respect to the common stock
transaction described below. If offerings totaling at least $6 million are not
completed during the 6 months, the investors have the right to acquire up to a
total of 1,126 additional shares of convertible preferred stock at $6.33 per
share. Any unconverted preferred stock is converted, at the applicable
conversion price, on April 13, 2002 in the case of the original stock and two
years after the first
Page 10 of 14
<PAGE>
acquisition of any of the additional 1,126 shares, if any are acquired. The
warrants expire on April 13, 2005.
On August 3, 2000, the Company completed a $4 million common stock financing
transaction with Millennium Partners, LP (the "Fund"), an investment fund with
more than a billion dollars in assets under management. StemCells received $3
million of the purchase price at the closing and will receive the remaining $1
million upon effectiveness of a registration statement covering the shares owned
by the Fund. The Fund purchased the Company's common stock at $4.33 per share.
The Fund will be entitled to receive additional shares of common stock on eight
dates beginning six months from the closing and every three months thereafter.
The number of additional shares the Fund will be entitled to on each date will
be based on the number of shares of common stock the Fund continues to hold on
each date and the market price of the Company's common stock over a period prior
to each date. The Company will have the right, under certain circumstances, to
cap the number of additional shares by purchasing part of the entitlement from
the Fund. The Fund also received a warrant to purchase up to 101,587 shares of
common stock at $4.725 per share. This warrant is callable by StemCells at
$8.6625 per underlying share. In addition, the Fund has the option for twelve
months to purchase up to $3 million of additional common stock.
The Company has limited liquidity and capital resources and must obtain
significant additional capital resources in the future in order to sustain its
product development efforts. Substantial additional funds will be required to
support the Company's research and development programs, for acquisition of
technologies and intellectual property rights, for preclinical and clinical
testing of its anticipated products, pursuit of regulatory approvals,
acquisition of capital equipment, laboratory and office facilities,
establishment of production capabilities and for general and administrative
expenses. The Company's ability to obtain additional capital will be
substantially dependent on its ability to obtain partnering support for its stem
cell technology and, in the near term, on its ability to realize proceeds from
the sale, assignment or sublease of its facilities in Rhode Island. Failure to
do so will have a material effect on the Company's liquidity and capital
resources. Until the Company's operations generate significant revenues from
product sales, the Company must rely on cash reserves and proceeds from equity
and debt offerings, proceeds from the transfer or sale of its intellectual
property rights, equipment, facilities or investments, government grants and
funding from collaborative arrangements, if obtainable, to fund its operations.
The Company intends to pursue opportunities to obtain additional financing in
the future through equity and debt financings, grants and collaborative research
arrangements. The source, timing and availability of any future financing will
depend principally upon market conditions, interest rates and, more
specifically, on the Company's progress in its exploratory, preclinical and
future clinical development programs. Lack of necessary funds may require the
Company to delay, reduce or eliminate some or all of its research and product
development programs or to license its potential products or technologies to
third parties. Funding may not be available when needed - at all, or on terms
acceptable to the Company.
While the Company's cash requirements may vary, as noted above, the Company
currently expects that its existing capital resources, including income earned
on invested capital, will be sufficient to fund its operations into the first
quarter of 2001. The Company's cash requirements may vary, however, depending on
numerous factors. Lack of necessary funds may require the Company to delay,
scale back or eliminate some or all of its research and product development
programs and/or its capital expenditures or to license its potential products or
technologies to third parties.
PART II - ITEM 1
LEGAL PROCEEDINGS
None.
PART II - ITEM 2
(c) On April 13, 2000, the Company sold 1,500 shares of 6% cumulative
convertible preferred stock plus warrants for a total of 75,000 shares of the
Company's common stock to two members of its Board of
Page 11 of 14
<PAGE>
Directors for $1,500,000, on terms more favorable than it was then able to
obtain from outside investors. The sale was made in reliance on Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended. The
shares of preferred stock are convertible at the option of the holders into
common stock at $3.77 per share. The holders of the preferred stock have
liquidation rights equal to their original investments plus accrued but unpaid
dividends. The investors would be entitled to make additional investments in the
Company on the same terms as those on which the Company completes offerings of
its securities with third parties within 6 months, if any such offerings are
completed. They have waived that right with respect to the common stock
transaction described in Note 6, Subsequent Events. If offerings totaling at
least $6 million are not completed during the 6 months, the investors have the
right to acquire up to a total of 1,126 additional shares of convertible
preferred stock at $6.33 per share. Any unconverted preferred stock is
converted, at the applicable conversion price, on April 13, 2002 in the case of
the original stock and two years after the first acquisition of any of the
additional 1,126 shares, if any are acquired. The warrants, which are
exercisable at $6.58 per share, expire on April 13, 2005.
PART II - ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The Annual Meeting of Stockholders was held in Menlo Park, California on
May 23, 2000.
(b) Not applicable
(c) The following is a brief description of each matter voted upon at the
meeting and a breakdown of the votes cast for, against or withheld, as well
as the number of abstentions voted for each proposal.
1. Proposal to elect Donald Kennedy, Ph.D. as a Director of the Company -
15,622,499 votes in favor, 85,855 votes against, no abstentions.
2. Amendment to the Company's Restated Certificate of Incorporation to Change
its Corporate Name From CytoTherapeutics, Inc. to StemCells, Inc. - 15,561,786
votes in favor, 119,993 votes against, 26,575 abstentions.
3. Ratification of Selection of Ernst & Young LLP as the Company's Independent
Public Accountants - 5,634,955 votes in favor, 52,904 votes against, 20,495
abstentions.
PART II - ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1 - Form of Certificate of Designations of 6% Cumulative Convertible
Preferred Stock of the Registrant
Exhibit 3.2 - Restated Certificate of Incorporation of the Registrant, as
amended on May 24, 2000 Exhibit 10.1 - Form of Securities
Purchase Agreement dated as of April 13, 2000
Exhibit 10.2 - Form of Registration Rights Agreement dated as of April 13, 2000
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the period April 1
to June 30, 2000.
Page 12 of 14
<PAGE>
SIGNATURE
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.
STEMCELLS, INC.
---------------------------------------
(Name of Registrant)
August 14, 2000 /s/ George W. Dunbar, Jr.
---------------------------
Acting Chief Executive Officer and
Acting Chief Financial Officer
(principal financial officer and
principal accounting officer)
