<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-28386
CELL THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Washington 91-1533912
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
201 Elliott Avenue West, Suite 400, 98119
Seattle, Washington (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(206) 282-7100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check [x] 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 MARCH 31, 2000
----- -----------------------------
Common Stock, no par value (including
associated Preferred Stock Purchase Rights).... 24,223,486
This report on Form 10-Q, including all exhibits, contains 14 pages.
The exhibit index is located on page 13.
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1
<PAGE>
CELL THERAPEUTICS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets -- March 31, 2000 and December 31, 1999.......... 3
Consolidated Statements of Operations -- Three months ended March 31, 2000
and 1999 and the period from September 4, 1991 (date of incorporation)
to March 31, 2000............................................................ 4
Consolidated Statements of Cash Flows -- Three months ended March 31, 2000
and 1999 and the period from September 4, 1991 (date of incorporation)
to March 31, 2000............................................................ 5
Notes to Consolidated Financial Statements................................... 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................... 8
PART II OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K............................................. 11
SIGNATURES................................................................... 12
EXHIBIT INDEX................................................................ 13
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,891,732 $ 5,674,386
Securities available-for-sale 22,461,839 18,205,630
Interest receivable 364,116 367,636
Prepaid expenses and other current assets 1,492,084 748,506
------------ ------------
Total current assets 54,209,771 24,996,158
Property and equipment 16,580,220 16,550,053
Accumulated depreciation (11,959,891) (11,514,370)
------------ ------------
Property and equipment, net 4,620,329 5,035,683
Acquisition related intangible assets, net 30,469,755 -
Other assets and deferred charges 917,848 816,050
------------ ------------
Total assets $ 90,217,703 $ 30,847,891
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 832,120 $ 1,224,994
Accrued expenses 6,646,629 4,940,626
Notes payable 2,442,500 -
Current portion of long-term obligations 1,253,019 1,125,211
------------ ------------
Total current liabilities 11,174,268 7,290,831
Long-term obligations, less current portion 12,573,384 2,653,111
Commitments
Shareholders' equity:
Preferred Stock, no par value:
Series A and B, 161,118.645 shares designated,
none issued or outstanding - -
Series D, designated, issued and outstanding shares - 3,800 and 10,000
at March 31, 2000 and December 31, 1999, respectively
liquidation preference - $3,800,000 4,375,078 11,384,029
Common Stock, no par value:
Authorized shares--100,000,000
Issued and outstanding shares--24,223,486 and 15,595,536
at March 31, 2000 and December 31, 1999, respectively 231,696,362 168,235,338
Notes receivable from officers (330,000) (330,000)
Deficit accumulated during development stage (169,230,761) (158,350,182)
Accumulated other comprehensive loss (40,628) (35,236)
------------ ------------
Total shareholders' equity 66,470,051 20,903,949
------------ ------------
Total liabilities and shareholders' equity $ 90,217,703 $ 30,847,891
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
September 4, 1991
Three Months Ended March 31, (Date of Incorporation)
-------------------------------------- To March 31,
2000 1999 2000
----------------- ----------------- -------------------
<S> <C> <C> <C>
Revenues:
Collaboration agreements $ - $ - $ 34,252,652
Operating expenses:
Research and development 7,070,932 6,364,195 152,140,534
General and administrative 1,932,932 2,145,675 58,153,697
Amortization of acquisition related intangibles 2,162,605 - 2,162,605
----------------- ----------------- -------------------
11,166,469 8,509,870 212,456,836
----------------- ----------------- -------------------
Loss from operations: (11,166,469) (8,509,870) (178,204,184)
Other income (expense):
Investment income 481,728 583,332 12,136,142
Interest expense (195,838) (133,462) (3,162,719)
----------------- ----------------- -------------------
Net loss: (10,880,579) (8,060,000) (169,230,761)
----------------- ----------------- -------------------
Preferred stock dividend (126,389) - (5,326,902)
----------------- ----------------- -------------------
Net loss applicable to common shareholders: $(11,006,968) $ (8,060,000) $ (174,557,663)
================= ================= ===================
Basic and diluted net loss per common share $ (0.57) $ (0.52)
================= =================
Shares used in calculation of basic and
diluted net loss per common share 19,439,774 15,534,359
================= =================
</TABLE>
See accompanying notes.
4
<PAGE>
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 1999
------------- ------------
<S> <C> <C>
Operating Activities
Net loss applicable to common shareholders $ (11,006,968) $ (8,060,000)
Adjustments to reconcile net loss applicable to common shareholders
to net cash used in operating activities:
Preferred stock dividend 126,389 -
Depreciation and amortization 2,608,126 483,163
Noncash research and development expense - -
Noncash interest expense - -
Noncash rent expense (benefit) (28,728) (32,273)
Noncash compensation expense 471,433 80,868
Loss on disposition of property and equipment - -
Investment premium (discount) amortization (accretion) 6,751 135,392
(Gain) loss on sale of investment securities 1,431 -
Changes in assets and liabilities:
Interest receivable 3,520 (132,846)
Collaboration agreement receivables - 3,254,491
Prepaid expenses and other current assets (743,578) 426,339
Other assets and deferred charges (101,798) 7,276
Accounts payable (392,875) (982,270)
Accrued expenses 1,579,614 (1,329,850)
------------- ------------
Total adjustments 3,530,285 1,910,290
------------- ------------
Net cash used in operating activities (7,476,683) (6,149,710)
------------- ------------
Investing activities
Purchases of securities available-for-sale (10,569,937) (9,006,718)
Proceeds from sales of securities available-for-sale 1,495,155 3,415,335
Proceeds from maturities of securities available-for-sale 4,805,000 11,315,000
Purchases of property and equipment (30,167) (123,595)
PolaRx acquisition, net (2,558,290) -
------------- ------------
Net cash provided by (used in) investing activities (6,858,239) 5,600,022
------------- ------------
Financing activities
Sale of common stock to founders - -
Proceeds from borrowings from shareholders - -
Sale of common stock via public offerings, net of offering costs - -
Sale of Series A preferred stock via private placement, net of offering costs - -
Sale of Series B preferred stock via private placement, net of offering costs - -
Sale of Series D preferred stock via private placement, net of offering costs 49,129 -
Sale of common stock via private placements, net of offering costs 37,248,374 -
Repurchase of common stock - -
Notes receivable from officers to acquire common stock - -
Proceeds from common stock options exercised 1,517,957 -
Proceeds from common stock warrants exercised - -
Proceeds from employee stock purchase plan - -
Repayment of long-term obligations (263,192) (277,839)
Proceeds from the issuance of long-term obligations - -
------------- ------------
Net cash provided by (used in) financing activities 38,552,268 (277,839)
------------- ------------
Net increase (decrease) in cash and cash equivalents 24,217,346 (827,527)
Cash and cash equivalents at beginning of period 5,674,386 4,362,486
------------- ------------
Cash and cash equivalents at end of period $ 29,891,732 $ 3,534,959
============= ============
Supplemental schedule of noncash investing and financing activities
Acquisition of equipment pursuant to capital lease obligations $ - $ -
============= ============
Conversion of convertible debt and related accrued interest into common stock $ - $ -
============= ============
Conversion of preferred stock into common stock $ 7,050,080 $ -
============= ============
Common stock warrants issued in conjunction with Series D $ - $ -
============= ============
Reclass to current asset of note receivable from former officer $ - $ -
============= ============
Common Stock and debt issued in PolaRx acquisition $ 27,631,570 $ -
============= ============
Supplemental disclosure of cash flow information
Cash paid during the period for interest obligations $ 195,838 $ 133,462
============= ============
</TABLE>
<TABLE>
<CAPTION>
Period From
September 4, 1991
(Date of Incorporation)
to March 31, 2000
-----------------------
<S> <C>
Operating Activities
Net loss applicable to common shareholders $ (174,557,663)
Adjustments to reconcile net loss applicable to common shareholders
to net cash used in operating activities:
Preferred stock dividend 5,326,902
Depreciation and amortization 14,521,133
Noncash research and development expense 1,155,750
Noncash interest expense 25,918
Noncash rent expense (benefit) 325,595
Noncash compensation expense 1,563,309
Loss on disposition of property and equipment 693,084
Investment premium (discount) amortization (accretion) 917,037
(Gain) loss on sale of investment securities (25,609)
Changes in assets and liabilities:
Interest receivable (94,422)
Collaboration agreement receivables -
Prepaid expenses and other current assets (1,442,084)
Other assets (1,029,073)
Accounts payable 832,119
Accrued expenses 6,475,796
--------------
Total adjustments 29,245,455
--------------
Net cash used in operating activities (145,312,208)
--------------
Investing activities
Purchases of securities available-for-sale (265,483,831)
Proceeds from sales of securities available-for-sale 55,521,477
Proceeds from maturities of securities available-for-sale 186,287,952
Purchases of property and equipment (17,265,396)
PolaRx acquisition, net (2,558,290)
--------------
Net cash provided by (used in) investing activities (43,498,088)
--------------
Financing activities
Sale of common stock to founders 80,000
Proceeds from borrowings from shareholders 850,000
Sale of common stock via public offerings, net of offering costs 61,064,250
Sale of Series A preferred stock via private placement, net of offering costs 47,366,204
Sale of Series B preferred stock via private placement, net of offering costs 4,960,000
Sale of Series D preferred stock via private placement, net of offering costs 9,394,089
Sale of common stock via private placements, net of offering costs 89,555,458
Repurchase of common stock (2,522)
Notes receivable from officers to acquire common stock (380,000)
Proceeds from common stock options exercised 2,291,985
Proceeds from common stock warrants exercised 305,558
Proceeds from employee stock purchase plan 333,093
Repayment of long-term obligations (12,960,688)
Proceeds from the issuance of long-term obligations 15,844,601
--------------
Net cash provided by (used in) financing activities 218,702,028
--------------
Net increase (decrease) in cash and cash equivalents 29,891,732
Cash and cash equivalents at beginning of period -
--------------
Cash and cash equivalents at end of period $ 29,891,732
==============
Supplemental schedule of noncash investing and financing activities
Acquisition of equipment pursuant to capital lease obligations $ 362,425
==============
Conversion of convertible debt and related accrued interest into common stock $ 875,918
==============
Conversion of preferred stock into common stock $ 59,376,284
==============
Common stock warrants issued in conjunction with Series D $ 3,117,000
==============
Reclass to current asset of note receivable from former officer $ 50,000
==============
Common Stock and debt issued in PolaRx acquisition $ 27,631,570
==============
Supplemental disclosure of cash flow information
Cash paid during the period for interest obligations $ 3,162,719
==============
</TABLE>
See accompanying notes.
5
<PAGE>
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial information of Cell Therapeutics, Inc.
(the Company) as of March 31, 2000 and for the three months ended March 31, 2000
and 1999 has been prepared in accordance with the instructions to Form 10-Q. In
the opinion of management, such financial information includes all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation of the financial position at such date and the operating
results and cash flows for such periods. Operating results for the three month
period ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the entire year. These financial statements and the related
notes should be read in conjunction with the Company's audited annual financial
statements for the year ended December 31, 1999 included in the Company's Form
10-K for the year ended December 31, 1999.
Certain prior year balances have been reclassified to conform to the
current year presentation.
(2) REPORTING COMPREHENSIVE INCOME
For the three months ended March 31, 2000 and 1999, the Company's
comprehensive loss was as follows:
<TABLE>
<CAPTION>
Three months ended
---------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net loss applicable to common shareholders $(11,006,968) $(8,060,000)
Other comprehensive loss:
Unrealized holding losses arising
during period (5,392) (10,545)
-------------- --------------
Total comprehensive loss $(11,012,360) $(8,070,545)
============== ==============
</TABLE>
3) CAPITAL STOCK
In February, 2000, the Company completed a $40 million private placement of
3,333,334 shares of common stock at an offering price of $12.00 per share,
resulting in net proceeds of approximately $37.2 million. In connection with
the offering, the Company issued 170,000 warrants to purchase shares of common
stock to a placement agent and finder. The warrants are exercisable for a
period of five years at a price equal to 110% of the price per share of common
stock sold in the offering. The value of warrants were accounted for as a cost
of the offering. The shares of common stock issued and issuable upon the
exercise of the warrants have certain registration rights.
6
<PAGE>
4) ACQUISITION OF POLARX BIOPHARMACEUTICALS, INC.
In January, 2000, the Company completed the acquisition of PolaRx
Biopharmaceuticals, Inc. (PolaRx), a biopharmaceutical company that owns the
rights to Arsenic TriOxide (ATO), an anti-cancer compound for which the Company
has submitted a New Drug Application with the FDA. Under the terms of the
Agreement and Plan of Merger and Reorganization, dated January 7, 2000, (the
Agreement), the Company assumed PolaRx's liabilities and commitments. In
addition, PolaRx's shareholders received 2,000,000 shares of the Company's
common stock at signing and will earn 3,000,000 additional shares upon the
earlier of the approval of a New Drug Application by the FDA of PolaRx's anti-
cancer compound ATO, or five years from the acquisition date.
The acquisition was accounted for as a purchase transaction. Aggregate
consideration for the acquisition was approximately $32.6 million consisting of
Cell Therapeutics stock valued at $27.6 million, assumed net liabilities of $3.9
million and approximately $1.1 million of transaction costs. The purchase price
was allocated based on the fair value on the acquisition date to the marketing
intangible assets ($16.1 million), patented technology ($6.6 million) and
goodwill ($9.9 million). The intangible assets are amortized over their
estimated useful lives of three to five years.
The issuance of 2,000,000 of the total shares is subject to shareholder
approval, and as such, the $10.3 million value of such shares is currently
reflected as a liability (if the issuance is not approved by the shareholders,
the Company is required to satisfy the liability via cash). Valuation of these
shares will be finalized upon receipt of shareholder approval. In addition, the
Company is required to make contingent payments of up to $9.0 million and future
royalties if certain milestones and target net sales specified in the merger
agreement are attained.
The pro forma consolidated financial information for the quarter ended
March 31, 1999, determined as if the acquisition had occurred on January 1,
1999, would have resulted in no revenues, a net loss applicable to common
shareholders of $10,897,494 and basic and diluted net loss per common share of
$.70. This unaudited pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the results that would have
been achieved had the Company and PolaRx been combined during the specified
period.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES.
WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
BELOW AS WELL AS THOSE DISCUSSED IN OUR ANNUAL REPORTS ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1999 WHICH IS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-
LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. WE UNDERTAKE NO
OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-
LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER
THE DATE OF THIS FORM 10-Q OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
OVERVIEW
We focus on developing, acquiring and commercializing novel treatments for
cancer. Our goal is to build a leading, vertically-integrated pharmaceutical
company with a diversified portfolio of oncology drugs and drug candidates.
Since commencement of operations in 1992, we have been engaged in research
and development activities, including conducting preclinical studies and
clinical trials. We have not received any revenue from product sales to date. As
of March 31, 2000, we had incurred aggregate net losses of approximately $169.2
since inception. We expect to continue to incur significant additional operating
losses over the next several years from our research and development efforts.
Operating losses may fluctuate from quarter to quarter as a result of
differences in the timing of expenses incurred and revenues recognized.
In the fourth quarter of 1995, we began to receive revenue under a
collaboration agreement with BioChem Pharma, Inc. (BioChem Pharma) and in the
fourth quarter of 1996, we began to receive revenue under a collaboration
agreement (the Collaboration Agreement) with subsidiaries of Johnson & Johnson.
Under the terms of the Collaboration Agreement, Johnson & Johnson paid 60% of
the U.S. development costs of lisofylline (LSF), a product we are no longer
developing. In November 1998, after reviewing the results of our phase III
clinical trial for LSF, we and Johnson & Johnson formally amended the
Collaboration Agreement. Under the terms of the amended Collaboration Agreement,
Johnson & Johnson agreed to pay us $13.1 million for development cost
reimbursements for the year ended December 31, 1998. On April 18, 2000, we and
Johnson & Johnson terminated the Collaboration Agreement.
On June 30, 1998, we entered into an agreement with PG-TXL Company, L.P.
and scientists at the M.D. Anderson Cancer Center, granting us an exclusive
worldwide license to the rights to PG-TXL, and to all potential uses of its
polymer technology. Under the terms of the agreement, we will fund the research,
development, manufacture, marketing and sale of drugs developed using PG-TXL's
polymer technology.
In January 2000, we acquired ATO upon our acquisition of PolaRx, a single
product company that owned the rights to ATO. In connection with the
acquisition, we issued 2,000,000 shares of our common stock at signing and will
issue an additional 3,000,000 shares to PolaRx shareholders upon the earlier of
approval of an NDA by the FDA for ATO or five years from the acquisition date.
The acquisition agreement requires shareholder approval for 2,000,000 of the
3,000,000 additional shares. If our shareholders do not approve the issuance of
these additional shares, we will pay the PolaRx shareholders in cash. Two
additional payouts tied to sales thresholds of $10 million and $20 million in
any four consecutive quarters, may be payable in tranches of $4 million and $5
million at the then fair market value of our stock, at the time such thresholds
are achieved. For annual sales of ATO in excess of $40 million, PolaRx
shareholders will receive a 2% royalty on net sales payable at the then fair
market value of our common stock or, in certain circumstances, cash. We assumed
$5 million of PolaRx's outstanding liabilities and commitments and expect to
incur substantial pre-commercialization expenses associated with the launch of
ATO, should we receive marketing approval from the FDA.
RESULTS OF OPERATIONS
Quarters ended March 31, 2000 and 1999.
Revenues. We did not record any collaboration agreement revenues during
the quarters ended March 31, 2000 and 1999.
8
<PAGE>
Research and development expenses. Research and development expenses
increased to approximately $7.1 million for the quarter ended March 31, 2000,
from approximately $6.4 million for the quarter ended March 31, 1999. This
increase was due primarily to clinical and manufacturing development activities
for ATO, and increased manufacturing and preclinical development activities for
PG-TXL, offset in part by the winding down of manufacturing and clinical
activities for LSF and a reduction in research and development staff personnel.
We have almost eliminated research and development expenses for LSF and
anticipate increased research and development expenses in connection with our
other products.
General and administrative expenses. General and administrative expenses
decreased to approximately $1.9 million for the quarter ended March 31, 2000,
from approximately $2.1 million for the quarter ended March 31, 1999. This
decrease was due primarily to a reduction in operating expenses required to
support research and development activities, offset in part by premarketing
expenses for ATO. General and administrative expenses are expected to increase
to support our expected increase in research, development and commercialization
efforts.
Amortization of acquisition related intangibles. In January, 2000, we
acquired PolaRx Biopharmaceuticals, Inc. and used the purchase method of
accounting for the acquisition. Accordingly, we recorded acquired intangible
assets for marketing, patents and excess of purchase price over assets acquired
which totaled approximately $32.6 million at March 31, 2000. These intangible
assets are amortized over their remaining lives, estimated to be three to five
years. The amortization for the quarter ended March 31, 2000 was approximately
$2.2 million.
Investment income. Investment income decreased to approximately $482,000
for the quarter ended March 31, 2000 from approximately $583,000 for the quarter
ended March 31, 1999. This decrease was associated primarily with lower average
cash balances on hand during the quarter ended March 31, 2000 compared to the
quarter ended March 31, 1999.
Interest expense. Interest expense increased to approximately $196,000 for
the quarter ended March 31, 2000 from approximately $133,000 for the quarter
ended March 31, 1999. This increase was due primarily to higher average balances
of outstanding long-term obligations and the assumption of approximately $2.7
million in notes payable associated with the acquisition of PolaRx.
Preferred stock dividend. We issued preferred stock in November, 1999. The
preferred stock has a 5% dividend, payable annually for four years in cash or in
shares of our common stock, commencing September 30, 2000. We accrued
approximately $126,000 for the preferred stock dividend at March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through the sale
of equity securities and our collaboration with Johnson & Johnson. As of March
31, 2000, we had raised aggregate net proceeds of approximately $215.7 million
through the sale of equity securities, including $37.2 million in net proceeds
from a private placement of common stock completed in February, 2000. We have
received approximately $40.8 million from Johnson & Johnson including $10
million from the sale of equity securities. In addition, we financed the
purchase of $16.2 million of property and equipment through financing agreements
and capital lease obligations of which approximately $3.2 million remained
outstanding as of March 31, 2000.
At March 31, 2000, we had $52.4 million in cash, cash equivalents, and
securities available-for-sale.
We expect to generate losses from operations for several years due to
substantial additional research and development costs, including costs related
to clinical trials, and increased sales and marketing expenditures. We expect
that our existing capital resources will enable us to maintain our current and
planned operations through at least mid-2001. Our future capital requirements
will depend on many factors, including:
. success of our sales and marketing efforts
. progress in and scope of our research and development activities
. competitive market developments
. success in acquiring complementary products, technologies or
businesses
Future capital requirements will also depend on the extent to which we acquire
or invest in businesses, products and technologies. If we should require
additional financing due to unanticipated developments, additional financing may
not be available when needed or, if
9
<PAGE>
available, we may not be able to obtain this financing on terms favorable to us
or to our shareholders. Insufficient funds may require us to delay, scale back
or eliminate some or all of our research and development programs, or may
adversely affect our ability to operate as a going concern. If additional funds
are raised by issuing equity securities, substantial dilution to existing
shareholders may result.
INCOME TAXES
As of March 31, 2000, we had available for Federal income tax purposes net
operating loss carryforwards of approximately $163.6 million and research and
development credit carryforwards of approximately $5.8 million. These
carryforwards begin to expire in 2007. Our ability to utilize these net
operating loss and research and development credit carryforwards is subject to
annual limitations of $5.6 million for losses incurred prior to March 26, 1997
and may be subject to additional limitations thereafter pursuant to the "change
in ownership" rules under Section 382 of the Internal Revenue Code of 1986.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates that
could adversely affect the value of our investments. We do not use derivative
financial instruments for speculative or trading purposes. We maintain a short-
term investment portfolio consisting of interest bearing securities with an
average maturity of less than one year. These securities are classified as
"available-for-sale" securities. These securities are interest bearing and thus
subject to interest rate risk and will fall in value if market interest rates
increase. Because we have the ability to hold our fixed income investments until
maturity, we do not expect our operating results or cash flows to be affected to
any significant degree by a sudden change in market interest rates on our
securities portfolio. We have operated primarily in the United States and all
revenues to date have been in U.S. dollars. Accordingly, we do not have material
exposure to foreign currency rate fluctuations. We have not entered into any
foreign exchange contracts to hedge any exposure to foreign currency rate
fluctuations because such exposure is immaterial.
YEAR 2000
Based on a review of our computer and business systems and significant
third party vendors, we have concluded that the change from the year 1999 to the
year 2000 did not have an effect on our day-to-day operations or otherwise pose
significant operational problems. However, we will continue to monitor our
mission critical computer applications and those of our suppliers and vendors
throughout the year 2000 to ensure that any latent year 2000 matters that may
arise are promptly addressed.
10
<PAGE>
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(1) On March 22, 2000, the Company filed an amended current report
on Form 8-K/A which supplements the report on Form 8-K that
was filed on January 25, 2000 to report is acquisition of
PolaRx Biopharmaceuticals, Inc.
(2) On March 2, 2000, the Company filed a current report on
Form 8-K reporting its consolidated financial position at
December 31, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in
the period ended December 31, 1999 and for the period from
September 4,1991 (date of incorporation) to December 31, 1999,
together with its management discussion and analysis.
(3) On February 29, 2000, the Company filed a current report on
Form 8-K reporting that on February 17, 2000, Cell
Therapeutics, Inc. completed an offering of 3.3 million shares
of common stock at a price of $12 per share, raising gross
proceeds of $40.0 million.
(4) On January 25, 2000, the Company filed a current report on
Form 8-K reporting that on January 13, 2000, Cell
Therapeutics, Inc. completed the acquisition of PolaRx
Biopharmaceuticals, Inc., pursuant to the terms of the
Agreement and Plan of Merger and Reorganization dated January
7, 2000.
11
<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:
CELL THERAPEUTICS, INC.
(Registrant)
Dated: May 15, 2000 By: /s/ James A. Bianco, M.D.
-----------------------------------
James A. Bianco, M.D.
President and Chief Executive
Officer
Dated: May 15, 2000 By: /s/ Louis A. Bianco
-----------------------------------
Louis A. Bianco
Executive Vice President,
Finance and Administration
(Principal Financial Officer,
Chief Accounting Officer)
12
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
EXHIBIT 27.1 Financial Data Schedule
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
2000 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 29,891,732
<SECURITIES> 22,461,839
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 54,209,771
<PP&E> 16,580,220
<DEPRECIATION> 11,959,891
<TOTAL-ASSETS> 90,217,703
<CURRENT-LIABILITIES> 11,174,268
<BONDS> 0
0
4,375,078
<COMMON> 231,696,362
<OTHER-SE> (169,601,389)
<TOTAL-LIABILITY-AND-EQUITY> 90,217,703
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 11,166,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,838
<INCOME-PRETAX> (11,006,968)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,006,968)
<EPS-BASIC> (.57)
<EPS-DILUTED> (.57)
</TABLE>
