<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A-2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 24, 2000
---------------------------------
(Date of earliest event reported)
CELL THERAPEUTICS, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Washington 0-28386 91-1533912
--------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
201 Elliott Avenue West, Suite 400, Seattle, WA 98119
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206) 282-7100
--------------------------------------------------------------------------------
NOT APPLICABLE
--------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
This report on Form 8-K/A-1 supplements the report on Form 8-K filed with
the Securities and Exchange Commission on January 25, 2000 by Cell Therapeutics,
Inc. (the "Company," "CTI" or the "registrant") to report its acquisition of
PolaRx Biopharmaceuticals, Inc. ("PolaRx").
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits
The following financial information is being filed in order to satisfy
the financial statement requirements for the Form 8-K filed on January 25, 2000.
(a) Financial Statements of Business Acquired
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
PolaRx Biopharmaceuticals, Inc.
New York, New York
We have audited the accompanying balance sheets of PolaRx
Biopharmaceuticals, Inc. (A Development Stage Company) as of January 10,
2000, December 31, 1999 and 1998 and the related statements of operations,
changes in stockholders' equity, and cash flows for the years ended
December 31, 1999 and 1998 and the period February 20, 1997 (inception) to
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PolaRx
Biopharmaceuticals, Inc. (A Development Stage Company) as of January 10,
2000, December 31, 1999 and 1998 and the related statements of operations,
changes in stockholders' equity, and cash flows for the years ended
December 31, 1999 and 1998 and the period February 20, 1997 (inception) to
December 31, 1999 in conformity with generally accepted accounting
principles.
SALOMON & COMPANY, P.C.
/s/ Salomon & Company, P.C.
New York, New York
February 25, 2000
<PAGE>
PolaRx Biopharmaceuticals, Inc.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
January 10, December 31, December 31,
2000 1999 1998
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 82,627 $ 139,006 $ 1,195,358
Stock subscription receivable 1,318 8,370 -
Prepaid expenses 21,466 22,978 7,872
Due from affiliates 3,875 873 -
----------- ----------- ------------
Total Current Assets 109,286 171,227 1,203,230
----------- ----------- ------------
Property & Equipment:
Computer equipment 7,047 7,047 4,680
Less: accumulated depreciation (3,760) (3,723) (2,296)
----------- ----------- ------------
Property & Equipment, net 3,287 3,324 2,384
----------- ----------- ------------
Other Assets:
Deferred patent costs 160,321 160,321 87,340
Deferred finance costs - - 75,485
Stock subscription receivable - - 6,269
----------- ----------- ------------
Total Other Assets 160,321 160,321 169,094
----------- ----------- ------------
Total Assets $ 272,894 $ 334,872 $ 1,374,708
=========== =========== ============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses $ 1,067,416 $ 1,049,559 $ 217,106
Notes payable- shareholders 2,673,306 2,672,500 -
Accrued interest payable 502,462 492,046 175,143
Due to affiliates 8,522 7,688 1,924
----------- ------------ -------------
Total Current Liabilities 4,251,706 4,221,793 394,173
Long Term Liabilities:
Notes payable-shareholder - - 2,200,000
----------- ------------ -------------
Total Liabilities 4,251,706 4,221,793 2,594,173
----------- ------------ -------------
Stockholders' Equity (Deficiency):
Common stock 6,949 6,620 6,409
Additional paid in capital 856,560 31,890 -
Deficit accumulated during the
development stage (4,017,321) (3,925,431) (1,225,874)
Less: Treasury stock, at cost 130,174 shares (825,000) - -
----------- ------------ -------------
Total Stockholders' Equity (Deficiency) (3,978,812) (3,886,921) (1,219,465)
----------- ------------ -------------
Total Liabilities and Stockholders' Equity (Deficiency) $ 272,894 $ 334,872 $ 1,374,708
=========== ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PolaRx Biopharmaceuticals, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year For the Year February 20, 1997
Ended Ended (Inception) to
December 31, December 31, December 31,
1999 1998 1999
------------- -------------- -----------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
------------- -------------- -----------------
Expenses:
Research and development 1,513,024 508,444 2,130,271
Professional fees 166,759 27,728 194,949
Payroll and related costs 496,161 195,257 732,884
Interest expense, net of interest
income of $26,238, $35,391 and
$61,629, respectively 293,164 143,265 436,429
Insurance 39,290 18,128 57,418
Financing costs 75,485 150,406 225,891
Office 18,841 9,078 28,191
Travel and entertainment 62,408 11,122 73,530
Conferences 12,750 - 12,750
Promotion 4,114 1,865 5,979
Miscellaneous 14,195 4,667 19,217
Depreciation 1,427 1,446 3,723
Taxes 1,939 1,580 4,199
------------- -------------- -----------------
Total expenses 2,699,557 1,072,986 3,925,431
------------- -------------- -----------------
Net loss $ (2,699,557) $ (1,072,986) $ (3,925,431)
============= ============== =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PolaRx Biopharmeceuticals, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Number of
Additional Shares
Common Paid-In Accumulated of common
Stock Capital Deficit stock
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Balance at February 20, 1997 (inception) $ - $ - $ - -
Issuance of 5,000,000 shares of common
stock, at par - February, 1997 5,000 - - 5,000,000
----------------- ----------------- ----------------- -----------------
Balance at December 31, 1997 5,000 - (152,888) 5,000,000
Net loss - 1998 - - (1,072,986) -
Issuance of common stock, at
par at various dates - 1998 1,409 - - 1,409,306
----------------- ----------------- ----------------- -----------------
Balance at December 31, 1998 6,409 - (1,225,874) 6,409,306
Net loss - 1999 - - (2,699,557) -
Capital contributions - 1999 - 31,890 - -
Issuance of common stock, at par
at various dates - 1999 211 - - 210,000
----------------- ----------------- ----------------- -----------------
Balance at December 31, 1999 $ 6,620 $ 31,890 $ (3,925,431) 6,619,306
================= ================= ================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PolaRx Biopharmaceuticals, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year For the Year February 20, 1997
Ended Ended (Inception)
December 31, December 31, to December 31,
1999 1998 1999
------------ ------------ -----------------
<S> <C> <C> <C>
Cash Flows from Development Stage Activities
--------------------------------------------
Net loss $ (2,699,557) $ (1,072,986) $ (3,925,431)
Adjustments necessary to reconcile net loss to net cash
used in development stage activities:
Depreciation and amortization 79,412 151,711 231,973
Accrued interest expense 316,903 175,143 492,046
Increase in assets:
Prepaid expenses (15,106) (7,872) (22,977)
Due to affiliates (873) - (873)
Increase (decrease) in liabilities:
Due to affiliates 5,764 (72,107) 7,688
Accounts payable and accrued expenses 832,453 113,343 1,049,559
------------ ------------ -----------------
Net cash used in development stage activities (1,481,004) (712,768) (2,168,015)
------------ ------------ -----------------
Cash Flows from Investing Activities
------------------------------------
Deferred patent costs (72,981) (65,830) (160,321)
Computer equipment (2,367) (433) (7,047)
------------ ------------ -----------------
Net cash used in investing activities (75,348) (66,263) (167,368)
------------ ------------ -----------------
Cash Flows from Financing Activities
------------------------------------
Proceeds from notes payable - shareholders 500,000 2,200,000 2,700,000
Proceeds from issuance of common stock - 140 140
Payment of financing costs - (225,751) (225,751)
------------ ------------ -----------------
Net cash provided by financing activities 500,000 1,974,389 2,474,389
------------ ------------ -----------------
Net Increase (Decrease) in Cash (1,056,352) 1,195,358 139,006
Cash, beginning of the year 1,195,358 - -
------------ ------------ -----------------
Cash, end of the year $ 139,006 $ 1,195,358 $ 139,006
============ ============ =================
Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
Cash paid during the year for income taxes $ 1,719 $ 1,515 $ 3,234
============ ============ =================
Issuance of common stock in exchange for
stock subscription receivable $ 211 $ 1,269 $ 6,480
============ ============ =================
Discount on shareholder notes payable
in exchange for stock warrants $ 30,000 $ - $ -
============ ============ =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PolaRx, Biopharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1999
Note 1: Business Activity
-------------------------
PolaRx, Biopharmaceuticals, Inc. ("The Company") is a development stage
biopharmaceutical company that intends to develop, test and commercialize
technologies and products for the treatment of a variety of human diseases.
Note 2: Summary of Significant Accounting Policies
--------------------------------------------------
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
-------------------------
For purpose of the statements of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or
less to be cash equivalents.
Concentration of Credit Risk
----------------------------
The Company maintains its operating cash accounts in one commercial bank.
Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC)
up to $100,000. At January 10, 2000, December 31, 1999 and December 31,
1998 the company's uninsured cash balances totaled $27,557, $58,485 and
$1,129,807, respectively.
Income Taxes
------------
Income tax expense includes federal and state taxes currently payable and
deferred taxes arising from temporary differences between income for
financial reporting and income tax purposes. These temporary differences
result principally from net operating losses and tax credits for income tax
purposes.
<PAGE>
PolaRx Biopharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1999
Property & Equipment
--------------------
Property and equipment are stated at cost and depreciation is provided using
accelerated methods over the estimated useful lives of the assets. Expenditures
for maintenance and repairs are charged to operations as incurred.
The useful life of property and equipment for the purposes of calculating
depreciation is 5 years.
Intangible Assets
-----------------
Intangible assets consist of capitalizable patent costs and deferred financing
costs. The deferred financing costs are amortized over the initial life of the
related financing (twelve months). The patent costs will be amortized over the
life of the related patents once the patents are issued.
Research and Development:
------------------------
Research and development costs are expensed as incurred.
Note 3. Related Party Transactions
----------------------------------
Due from affiliates:
The Company has made advances to various affiliates in the normal course of
business. The balances due from the affiliates amount to $3,875, $873 and
$0 at January 10, 2000, December 31, 1999 and December 31, 1998,
respectively. There are no specific repayment terms and the balances do not
accrue interest.
Due to affiliates:
The Company has received advances from various affiliates in the normal
course of business. The balances due to the affiliates amount to $8,522,
$7,688 and $1,924 at January 10, 2000, December 31, 1999 and December 31,
1998, respectively. There are no specific repayment terms and the balances
do not accrue interest.
<PAGE>
PolaRx Biopharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1999
Note 3. Related Party Transactions (Cont.)
------------------------------------------
Finder's Fee to Affiliate:
During 1998, the Company paid a $220,000 finder's fee to an affiliated
company in connection with shareholder notes payable described in Note 4.
The affiliate completed a private placement.
Stock subscription receivable:
The Company has made advances to stockholders in connection with the
issuance of shares of common stock.
Note 4 - Shareholder Notes Payable (Unsecured)
----------------------------------------------
Following is a summary of shareholder notes payable:
January 10, 2000 December 31, 1999 December 31, 1998
---------------- ----------------- -----------------
Promissory Notes (a) $2,200,000 $2,000,000 $2,200,000
Promissory Notes (b) 473,306 672,500 -0-
---------- ---------- ----------
Total $2,673,306 $2,672,500 $2,200,000
========== ========== ==========
(a) Promissory notes payable, issued at various dates ranging from March, 1998
through June, 1998 along with one share of the company's common stock for
each $4 lent to the company. The notes were issued pursuant to the private
placement and bear interest at 12% per annum. The outstanding principal and
accrued interest is due upon the earlier of 5 business days following
closing the sale of equity securities of the Company in a public offering,
the private placement in which gross proceeds exceed $1,500,000, or 1 year
from the date of issuance, subject to extension. The due date was extended
on all of the notes during 1999. During the extension period, the interest
rate will be 15% per annum.
(b) Promissory notes payable, total face value of $500,000, issued in December,
1999 with stated interest at 9% per annum, net of unamortized discount of
$26,694 in 2000 and $27,500 in 1999. The discount arose due to the value of
detachable warrants which were issued to the stockholders upon execution of
the notes (See Note 9). The outstanding principal and accrued interest is
due upon the earlier of
<PAGE>
PolaRx Biopharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1999
Note 4 - Shareholder Notes Payable (Unsecured) (Cont.)
------------------------------------------------------
5 business days following closing the sale of equity securities of the
Company in a public offering, private placement in which gross
proceeds exceed $5,000,000, or 1 year from the date of issuance,
subject to extension. If the due date is extended, the interest rate
will be 12% during the extension period.
Note 5 - Commitments and Contingencies
--------------------------------------
The Company is committed under various clinical testing, licensing,
research, development and consulting agreements in the ordinary course of
business. Under several of these agreements, payments will become due upon
achievement of milestones included in the agreements. The company is also
involved in discussions with a licensor to enter into a research agreement.
Under the agreement, the licensor would be paid in undetermined amount over
a 5-year period, not to exceed $850,000.
Note 6 - Income Taxes
---------------------
Deferred Tax Asset:
December 31, 1999 December 31, 1998
----------------- -----------------
Deferred Tax Asset $ 2,205,000 $ 631,000
Less: Valuation Allowance (2,205,000) (631,000)
----------- ---------
Net Deferred Tax Asset $ -0- $ -0-
=========== =========
During the year ended December 31, 1999, the valuation allowance increased
by $1,574,000.
The deferred tax asset is due to the following:
(1) Unused net operating loss carryforwards as of December 31, 1999 and
December 31, 1998 of approximately $2,866,000 and $989,000,
respectively, which may be applied against future taxable income and
that expire in various years through December 31, 2012 and December
31, 2019.
<PAGE>
PolaRx Biopharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1999
Note 6 - Income Taxes (Cont.)
-----------------------------
(2) Unused orphan drug and research and development credits as of December
31, 1999 and December 31, 1998 of approximately $1,059,000 and
$235,000 which may be applied against future tax liabilities and that
expire in various years through December 31, 2012 and December 31,
2019 respectively.
Provision for income taxes (all current):
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Federal $ -0- $ -0-
State 1,639 1,280
City 300 300
------ ------
Total $1,939 $1,580
====== ======
Note 7 - Common Stock:
---------------------
The number of shares of common stock, par value .001 per share, authorized,
issued, outstanding, and held in treasury is as follows:
January 10, 2000 December 31, 1999 December 31, 1998
---------------- ----------------- -----------------
Authorized 20,000,000 20,000,000 20,000,000
Issued 6,949,306 6,619,306 6,409,306
Outstanding 6,819,132 6,619,306 6,409,306
Treasury 130,174
Note 8 - Preferred Stock
------------------------
The Company has authorized 5,000,000 shares of preferred stock. There was
no preferred stock issued or outstanding at January 10, 2000, December 31,
1999 or December 31, 1998.
<PAGE>
PolaRx Biopharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1999
Note 9 - Stock Options and Warrants
-----------------------------------
During the period ended January 10, 2000, the Company issued 330,000 common
shares pursuant to the exercise of detachable stock warrants. The warrants were
originally issued to the recipients simultaneously with the execution of certain
promissory notes (See Note 4).
During the year ended December 31, 1998 and 1999 respectively, the Company
issued 150,000 and 60,000 shares of common stock pursuant to the exercise of
stock options.
The number of options and warrants issued and outstanding is as follows:
January 10, 2000 0
December 31, 1999 330,000
December 31, 1998 60,000
Note 10 - Sale of Business
--------------------------
On January 10, 2000, pursuant to a merger agreement, Cell Therapeutics Inc.
("CTI") acquired the outstanding common stock of the Company. As part of the
agreement, CTI will assume substantially all of the assets, liabilities
and contractual obligations of the Company.
<PAGE>
(b) Pro Forma Financial Information
Unaudited Pro Forma Combined Consolidated Financial Statements
The following unaudited pro forma consolidated financial statements give effect
to the PolaRx Biopharmaceuticals, Inc. (PolaRx) acquisition by Cell
Therapeutics, Inc. (Cell Therapeutics) using the purchase method of accounting.
The unaudited pro forma consolidated financial statements do not purport to
represent what Cell Therapeutics' financial position or results of operations
would actually have been if the acquisition had in fact occurred on such date or
to project Cell Therapeutics' financial position or results of operations as of
any future date or for any future period.
For pro forma purposes:
- Cell Therapeutics' consolidated balance sheet as of December 31, 1999 has
been combined with the PolaRx balance sheet as of December 31, 1999 as if
the acquisition had occurred on December 31, 1999;
- Cell Therapeutics' statement of operations for the year ended
December 31, 1999 has been combined with PolaRx's statement of operations
for the year ended December 31, 1999.
The unaudited pro forma adjustments have been applied to the financial
information derived from the financial statements of Cell Therapeutics and
PolaRx to account for the acquisition as a purchase; accordingly, assets
acquired and liabilities assumed are reflected at their estimated fair values
which are subject to further refinement, including appraisals and other
analyses.
The unaudited pro forma consolidated financial information has been prepared
based on the assumptions described in the notes thereto and includes assumptions
relating to the allocation of the consideration paid for the assets and
liabilities of PolaRx based on preliminary estimates of their fair value. In the
opinion of Cell Therapeutics, all adjustments necessary to present fairly such
unaudited pro forma consolidated financial information have been made based on
the proposed terms and structure of the acquisition.
As a result of the acquisition, Cell Therapeutics expects to record acquired
intangible assets for marketing, patents, and acquired goodwill. The unaudited
pro forma consolidated balance sheet reflects an allocation to marketing and
patents estimated to be $16.1 million and $6.6 million, respectively, and
acquired goodwill estimated to be $13.4 million.
The unaudited pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the acquisition had been consummated on January 1,
1999 or December 31, 1999, nor is it necessarily indicative of future operating
results of financial position.
These unaudited pro forma consolidated financial statements and accompanying
notes should be read in conjunction with the historical consolidated financial
statements and the related notes thereto of Cell Therapeutics and other
financial information pertaining to Cell Therapeutics, including "Cell
Therapeutics Management's Discussion and Analysis of Financial Condition and
Results of Operations" incorporated by reference from its Form 8-K filed on
March 2, 2000, and its Forms 10-Q's filed on March 17, 1999, August 16, 1999,
and November 15, 1999.
<PAGE>
Cell Therapeutics, Inc.
(A Development Stage Company)
Pro Forma Combined Consolidated Balance Sheet
As of December 31, 1999
<TABLE>
<CAPTION>
Cell Pro Forma Pro Forma
Therapeutics PolaRx Adjustments Note 2 Combined
------------------------------------------------------------------------------
(restated) (restated)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,674,386 $ 139,006 $ - $ 5,813,392
Securities available-for-sale 18,205,630 - 18,205,630
Interest receivable 367,636 - 367,636
Prepaid expenses and other current assets 748,506 32,221 780,727
------------------------------------------ -------------
24,996,158 171,227 25,167,385
Property, plant, and equipment, net 5,035,683 3,324 5,039,007
Goodwill and other purchased intangibles - - 36,152,000 (ii) (iii) (iv) (v) 36,152,000
Other assets and deferred charges 816,050 160,321 976,371
------------------------------------------ -------------
Total assets $ 30,847,891 $ 334,872 $36,152,000 $ 67,334,763
========================================== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,224,994 $ 1,049,559 $ - $ 2,274,553
Accrued expenses 4,940,626 499,734 825,000 (vii) 6,265,360
Current portion of long-term debt obligations 1,125,211 - 1,125,211
Notes payable to shareholders - 2,672,500 2,672,500
------------------------------------------ -------------
Total current liabilities 7,290,831 4,221,793 825,000 12,337,624
Long-term obligations, less current portion 2,653,111 - 2,653,111
Commitments
Shareholders' equity (deficit):
Preferred stock 6,227,960 - 6,227,960
Common stock 173,391,407 38,510 13,781,069 (i) (vi) 187,210,986
Common shares issuable in PolaRx transaction - - 17,620,500 (vi) 17,620,500
Notes receivable from officers (330,000) - (330,000)
Deficit accumulated during development stage (158,350,182) (3,925,431) 3,925,431 (i) (158,350,182)
Accumulated other comprehensive loss (35,236) - (35,236)
------------------------------------------ -------------
Total shareholders' equity (deficit) 20,903,949 (3,886,921) 35,327,000 52,344,028
------------------------------------------ -------------
Total liabilities and shareholders' equity $ 30,847,891 $ 334,872 $36,152,000 $ 67,334,763
========================================== =============
</TABLE>
See accompanying notes.
<PAGE>
Cell Therapeutics, Inc.
(A Development Stage Company)
Pro Forma Combined Consolidated Statement of Operations
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Cell Pro Forma Pro Forma
Therapeutics PolaRx Adjustments (Note 2) Combined
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Collaboration agreements $ - $ - - $ -
Operating expenses:
Research and development 27,682,174 1,513,024 29,195,198
General and administrative 9,788,292 893,369 10,681,661
Amortization of goodwill and other
purchased intangibles - - $ 9,377,129(viii) 9,377,129
------------------------------------------------------------------
37,470,466 2,406,393 9,377,129 49,253,988
------------------------------------------------------------------
Loss from operations (37,470,466) (2,406,393) (9,377,129) (49,253,988)
Other income (expense):
Investment income 1,691,912 26,238 1,718,150
Interest expense (501,596) (319,402) (820,998)
------------------------------------------------------------------
Net loss (36,280,150) (2,699,557) (9,377,129) (48,356,836)
Preferred stock dividend (5,200,513) - (5,200,513)
------------------------------------------------------------------
Net loss applicable to common shareholders $ (41,480,663) $(2,699,557) $(9,377,129) $(53,557,349)
==================================================================
Basic and diluted net loss per common share $ (2.67) $ (3.05)
=============== ============
Shares used in calculation of basic and diluted
net loss per common share 15,551,526 17,551,526
=============== ============
(Note 3)
</TABLE>
See accompanying notes.
<PAGE>
1. Basis of Presentation
The following unaudited pro forma combined consolidated financial statements
give effect to the acquisition of PolaRx using the purchase method of
accounting. The unaudited pro forma combined consolidated balance sheet gives
effect to the acquisition as if it had occurred on December 31, 1999. The PolaRx
acquisition occurred on January 7, 2000. The unaudited pro forma combined
consolidated statement of operations for the year ended December 31, 1999 gives
effect to the acquisition as if it had occurred on January 1, 1999. The
unaudited pro forma combined consolidated financial statements do not purport to
represent what Cell Therapeutics' financial position or results of operations
would actually have been if the acquisition had in fact occurred on such date or
to project Cell Therapeutics' financial position or results of operations as of
any future date or for any future period.
2. Unaudited Pro Forma Combined Consolidated Financial Statements
(a) The unaudited pro forma combined consolidated financial statements reflect
the conversion of all of the outstanding shares of PolaRx capital stock
into shares of Cell Therapeutics common stock as a result of the
acquisition by Cell Therapeutics on January 7, 2000, which was accounted
for as a purchase transaction.
(b) The total consideration of $36.1 million consisted of Cell Therapeutics
common stock valued at $31.4 million, assumed net liabilities of $3.9
million and approximately $825,000 of transaction costs. The purchase
price will be allocated based on the fair value, to the marketing
intangible asset ($16.1 million), patents ($6.6 million), and excess of
purchase price over assets acquired ($13.4 million).
(c) The unaudited pro forma combined consolidated balance sheet includes the
adjustments necessary to give effect to the acquisition as if it had
occurred on December 31, 1999, and to reflect the allocation of the
proposed acquisition to the fair value of tangible and intangible assets
acquired. Also included are the transaction costs, including payments to
attorneys and other related costs. Approximate adjustments included in the
unaudited pro forma consolidated balance sheet are summarized as follows:
(i) Elimination of PolaRx shareholders' deficit of $3,886,921 to reflect
Cell Therapeutics assumption of net liabilities of PolaRx;
(ii) Marketing intangible asset acquired by Cell Therapeutics,
$16,100,000, three-year remaining life. The marketing of a commercial
product bridges the gap in Cell Therapeutics' pipeline of products
and creates an opportunity to access a broader market segment with a
relatively non-controversial and accepted product. The value of this
marketing strategy is related to the acquisition of successfully-
completed clinical trial studies which included bioanalytical and
statistical data, analyses and reports which have enabled the
subsequent timely filing of a New Drug Application.
The timely filing of the New Drug Application greatly enhances Cell
Therapeutics' relative competitive market position. The value of the
preclinical and clinical research acquired together with the Orphan
Drug Designation by the FDA accelerates the potential for regulatory
approval and commercialization of a marketable product.
The fair value of the marketing intangibles was determined by the
replacement cost approach, which seeks to measure the future benefits
of ownership by quantifying the amount of money that would be
required to replace the future service capability of the subject
intangible property. Replacement cost was the total cost to create a
successful marketing strategy and included an examination of the
substantial research and development cost savings achieved by Cell
Therapeutics through the acquisition of PolaRx.
(iii) Acute Promyelocytic Leukemia refractory patent acquired by Cell
Therapeutics, $2,018,000, five-year remaining life. Through the
purchase of PolaRx we also acquired a patent for the treatment of
primary and metastic neoplastic diseases using arsenic compounds. By
forecasting the incremental revenues and net incomes expected by the
utilization of this patent in the areas of Acute Promyelocytic
Leukemia and Multiple Myeloma over an expected five-year period, it
is possible to separate the value attributable to the patent by
utilizing an income approach. The fair value of the patented
technology was determined by discounting the forecasted earnings
streams to each application at 30% over the anticipated revenue life
of five years, which produced net present values of $2,018,000 and
$4,594,000 for the Acute Promyelocytic Leukemia and Multiple Myeloma
indications, respectively;
(iv) Multiple myeloma application patent acquired by Cell Therapeutics,
$4,594,000, five-year remaining life;
(v) Goodwill acquired by Cell Therapeutics of $13,440,000, five-year
remaining life;
(vi) 5,000,000 shares of Cell Therapeutics common stock, no par value,
valued at $31,440,000. The value of Cell Therapeutics common stock is
equal to the product of 2,000,000 shares multiplied by Cell
Therapeutics' market price per share of $6.91 at the date of the
transaction and 3,000,000 shares multiplied by the market price per
share at the date of the transaction discounted by 15% for the lack
of marketability inherent in this equity because such issuable
securities are restricted under SEC Rules 144 and 145 and accordingly
are less liquid than freely tradable securities. In addition, these
3,000,000 shares, which may only be issued in the future, and which
are subject to subsequent conditions to issuance, are not currently
marketable.
2,000,000 shares were issued at closing and 3,000,000 shares will be
issued at the sooner of January 6, 2005 or approval of a New Drug
Application by the FDA of PolaRx's anti-cancer compound, Arsenic
TriOxide. The value of the 3,000,000 shares yet to be issued is
included in Shareholders' Equity as "Common shares issuable in PolaRx
transaction." Issuance of 2,000,000 of the total shares is subject to
shareholder approval. If the issuance of the 2,000,000 shares is not
approved by the shareholders, the Company is required to satisfy that
portion of the liability with cash (or other equity securities as may
be offered by CTI and acceptable to a majority of the PolaRx
Stockholders (based upon the number of shares held by each), to be
determined in the sole and absolute discretion of a majority of the
PolaRx Stockholders) equal to the fair market value of the CTI common
stock at the time of such delivery date. If the issuance of the
shares is not approved by the shareholders and the obligation is
settled in cash, the amount of cash paid will be reflected as a
reduction of common stock.
<PAGE>
In addition, Cell Therapeutics is required to make contingent
payments of up to $9,000,000 and future royalties if certain
milestones and target net sales specified in the merger agreement are
attained.
(vii) Transaction costs incurred, related to finders fee, legal and
accounting costs, of $825,000.
(d) The unaudited pro forma combined consolidated statement of operations
includes the adjustments necessary to give effect to the acquisition as if
it had occurred on January 1, 1999, and to reflect the amortization of the
fair value of intangible assets acquired.
(viii) To record amortization of $9,377,129 related to acquired marketing,
patents and goodwill.
3. Unaudited Pro Forma Combined Consolidated Net Loss Per Share
The pro forma combined share and net loss per common share data was prepared
assuming the issuance of 2,000,000 shares of Cell Therapeutics common stock on
January 1, 1999.
4. Conforming and Reclassification Adjustments
There were no material adjustments required to conform the accounting policies
of Cell Therapeutics and PolaRx. Certain amounts have been reclassified to
conform to Cell Therapeutics financial statement presentation. There have been
no significant intercompany transactions.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities 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.
/s/ James A. Bianco
Date: September 11, 2000 --------------------------------
Name: James A. Bianco, M.D.
Title: Chief Executive Officer
