<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
JANUARY 8, 2001
------------------------------------------------------
Date of Report (Date of earliest event reported)
INHALE THERAPEUTIC SYSTEMS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 023556 94-3134940
------------------------------- ------------- --------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
150 Industrial Road
San Carlos, CA 94070
------------------------------------------------------
(Address of principal executive offices and zip code)
(650) 631-3100
------------------------------------------------------
(Registrant's telephone number, including area code)
------------------------------------------------------
(Former name, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 8, 2001, the offer (the "Purchase Offer") made by
Inhale Therapeutic Systems, Inc. ("Inhale") to acquire all of the issued and
to be issued share capital of Bradford Particle Design plc ("Bradford"), a
United Kingdom company, was declared unconditional under English law. The
Purchase Offer, which was previously announced in Inhale's Press Release
dated December 21, 2000, was made on and subject to the terms and conditions
set out in the Recommended Offer document by Cazenove & Co. on behalf of
Inhale for Bradford, dated December 21, 2000 and the Form of Acceptance
included therein. As of January 11, 2001, Inhale has received valid
acceptances (the "Offer Acceptances") from the holders of 1,946,939 shares in
the aggregate, representing approximately 95%, of the existing issued
ordinary share capital of Bradford.
Inhale acquired the issued share capital of Bradford for
approximately 3.75 million in newly issued shares of Inhale common stock and
approximately $20.0 million in cash. For each share of Bradford common stock
Inhale will issue 1.8354 new shares of Inhale common stock and pay
approximately $9.80 in cash. This exchange rate was calculated using an
average of the closing market price on Nasdaq of Inhale shares of common
stock, as shown on the Bloomberg stock quotation system, for the period from
November 3, 2000 through December 20, 2000.
The foregoing description of the Purchase Offer is qualified in
its entirety by reference to the Purchase Offer, together with all
attachments, exhibits and appendixes thereto, which is filed herewith as
Exhibit 2.2 and incorporated herein by reference. A Press Release of Inhale
announcing the Purchase Offer was filed as an exhibit to Inhale's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
December 21, 2000.
The cash portion of the purchase price as well as fees, expenses
and other costs related to the Purchase Offer are expected to be funded by
Inhale from a combination of available cash and cash equivalents. The
acquisition will be accounted for using the purchase method of accounting.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The following financial statements and exhibits are filed as part of this
Report, where indicated.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Attached hereto are the audited profit and loss accounts of
Bradford Particle Design plc for the years ended May 31, 2000
and 1999, the balance sheets as of May 31, 2000 and 1999 and
the cash flow statements for the years ended May 31, 2000 and
1999.
Attached hereto are the unaudited profit and loss accounts of
Bradford Particle Design plc for the six-month periods ended
November 30, 2000 and 1999, the unaudited balance sheets as of
November 30, 2000 and 1999 and the unaudited
2.
<PAGE>
cash flow statements for the for the six-month periods ended
November 30, 2000 and 1999.
(b) PRO FORMA FINANCIAL INFORMATION.
Attached hereto are the unaudited pro forma condensed
combined balance sheet of Inhale Therapeutic Systems, Inc.
as of September 30, 2000, the unaudited pro forma condensed
combined statements of operations for the nine months ended
September 30, 2000, and for the year ended December 31, 1999,
based on Inhale Therapeutic Systems, Inc.'s historical
financial statements as adjusted to give effect to the
acquisition of Bradford Particle Design plc.
(c) THE FOLLOWING EXHIBITS ARE FILED HEREWITH AND INCORPORATED
HEREIN BY REFERENCE:
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
2.2 Recommended Offer, dated December 21, 2000, by
Cazenove & Co. on behalf of Inhale Therapeutic
Systems, Inc. for Bradford Particle Design plc
23 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
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 hereunto duly authorized.
INHALE THERAPEUTIC SYSTEMS, INC.
Dated: January 11, 2001 By: /s/ Brigid A. Makes
-------------------------------
Brigid A. Makes
Chief Financial Officer and Vice President,
Finance and Administration
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
3.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BRADFORD PARTICLE DESIGN PLC
<S> <C>
Independent Auditors Report.................................................................... F-1
Profit and Loss Accounts for the years ended May 31, 2000 and 1999............................. F-2
Balance Sheets as of May 31, 2000 and 1999..................................................... F-3
Cash Flow Statements for the years ended May 31, 2000 and 1999................................. F-4
Notes to Financial Statements.................................................................. F-5
Balance Sheets as of November 30, 2000 and 1999................................................ F-21
Profit and Loss Accounts for the six-months periods ended November 30, 2000 and 1999........... F-22
Cash Flow Statements for the six months ended November 30, 2000 and 1999....................... F-23
Notes to Unaudited Financial Statements........................................................ F-24
INHALE THERAPEUTIC SYSTEMS, INC.
Unaudited Pro Forma Condensed Combined Financial Information................................... F-25
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2000.................. F-27
Unaudited Pro Forma Condensed Combined Statement of Operations for the year
ended December 31, 1999................................................................. F-28
Unaudited Pro Forma Condensed Combined Statement of Operations for the nine
months ended September 30, 2000......................................................... F-29
Notes to Unaudited Pro Forma Condensed Combined Financial Information.......................... F-30
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Bradford Particle Design plc
We have audited the accompanying balance sheets of Bradford Particle Design plc
as of May 31, 2000 and 1999, and the related profit and loss account, cash flow
statement, statement of total recognized gains and losses and movements in
shareholders' funds for each of the years in the two-year period ended May 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United Kingdom that are substantially equivalent to auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit 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 the Company as of May 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the years in the two-year period ended May 31, 2000, in conformity with
generally accepted accounting principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States. A description of the significant differences between the
two accounting standards, including presentation differences, that are
applicable to the Company are summarized in Note 21 to the financial
statements.
/s/ Ernst & Young LLP
Palo Alto, California
January 5, 2001
F-1
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Profit and Loss Account
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31
--------------------------------
NOTE 2000 1999
----------------------------------------------
(pound) (pound)
<S> <C> <C> <C>
Turnover 2 615,420 1,305,780
Other operating income 3 36,673 96,614
Raw materials and consumables (137,131) (94,126)
Staff costs:
Wages and salaries (748,829) (434,056)
Social security costs (68,861) (38,424)
Other pension costs (99,805) (60,476)
Depreciation (168,606) (165,506)
Other operating charges (639,143) (520,621)
--------------------------------
Operating (loss) profit 4 (1,210,282) 89,185
Interest receivable and similar income 7 4,358 5,670
Interest payable and similar charges 7 (13,209) --
--------------------------------
(Loss) profit on ordinary activities before taxation (1,219,133) 94,855
Tax on (loss) profit on ordinary activities 8 88,979 (22,984)
--------------------------------
Retained (loss) profit for the financial year 15 (1,130,154) 71,871
================================
</TABLE>
There were no recognized gains or losses other than the (loss) profit for the
year.
A statement of movements on reserves is shown in Note 14 to the financial
statements and a reconciliation of shareholders' funds is shown in Note 15.
The results for the year relate solely to continuing activities.
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Balance Sheets
<TABLE>
<CAPTION>
Note MAY 31, 2000 MAY 31, 1999
-------------------------------------------------------------------
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
Fixed assets:
Tangible assets 9 1,196,764 378,647
Current assets:
Debtors 10 171,446 488,037
-------------- --------------
171,446 488,037
Creditors: amounts falling due within
one year 11 (993,628) (456,961)
-------------- --------------
Net current (liabilities) assets (822,182) 31,076
--------------- --------------
Total assets less current liabilities 374,582 409,723
Provisions for liabilities and charges 12 -- (75,729)
--------------- --------------
Net assets 374,582 333,994
=============== ==============
Capital and reserves:
Called up equity share capital 13 181,851 1,000
Share premium account 14 1,143,891 --
Profit and loss account 14 (951,160) 332,994
--------------- --------------
Equity shareholders' funds 15 374,582 333,994
=============== ==============
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Cash Flow Statements
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31
--------------------------------
2000 1999
Note
----------------------------------------------
(pound) (pound)
<S> <C> <C> <C>
Net cash outflow from operating activities (659,494) (124,583)
Returns on investments and servicing of finance 18 (349) 5,670
Taxation (12,085) (2,922)
Capital expenditure 18 (964,633) (216,400)
--------------------------------
Cash outflow before use of liquid resources and
financing (1,636,561) (338,235)
Financing 18 1,170,741 --
--------------------------------
Decrease in cash (465,820) (338,235)
================================
RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN NET DEBT
Decrease in cash (465,820) (338,235)
(Overdraft) cash at June 1 (174,992) 163,243
--------------------------------
Overdraft at May 31 19 (640,812) (174,992)
================================
RECONCILIATION OF OPERATING (LOSS) PROFIT TO NET CASH
OUTFLOW FROM OPERATING ACTIVITIES
Operating (loss) profit (1,210,282) 89,185
Depreciation charge 168,606 165,506
Decrease in provisions -- (14,000)
Decrease (increase) in debtors 328,677 (352,749)
Increase (decrease) in creditors 53,505 (12,525)
--------------------------------
Net cash outflow from operating activities (659,494) (124,583)
================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements
May 31, 2000
1. ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the Company's financial
statements.
BASIS OF PREPARATION
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules in the
United Kingdom (UK). Amounts are presented in UK Pound Sterling. The Pound
Sterling conversion rate at May 31, 2000 and May 31, 1999 was approximately
$1.48 to (pound)1.00 and 1.60 to (pound)1.00, respectively. The average pound
sterling conversion rate for the fiscal years ended May 31, 2000 and 1999 was
1.60 to (pound)1.00 and 1.65 to (pound)1.00, respectively.
TURNOVER
Turnover comprises the invoices value of equipment sold, receipts in respect of
the granting of license rights together with collaboration, consultancy and
similar payments.
GRANTING OF LICENSE RIGHTS
Receipts in respect of the granting of license rights or options to purchase
license rights to industry partners or other third parties are recognized in the
profit and loss account in the year in which they are receivable.
COLLABORATION, CONSULTANCY, AND SIMILAR PAYMENTS
Amounts receivable from industry partners in relation to contributions to
research activities or specific technology applications are recognized in the
profit and loss account over the period of collaboration in order to match the
expenditure profile.
F-5
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
GRANT INCOME
Grants are recognized in the profit and loss account so as to match them with
the expenditure towards which they are intended to contribute providing the
conditions for their receipt have been complied with.
RESEARCH AND DEVELOPMENT EXPENDITURE
Research and development expenditure is written off to the profit and loss
account in the year in which it is incurred.
DEPRECIATION
Depreciation is provided by the Company to write off the cost less estimated
residual value of tangible fixed assets by equal installments over their
estimated useful economic lives, as follows:
<TABLE>
<CAPTION>
LEASE TERM
-----------------------
(IN YEARS)
<S> <C>
Leasehold improvements Lease term
Research plant and equipment 2-9
Office equipment 3
</TABLE>
No depreciation is provided on assets in the course of construction.
The carrying value of tangible fixed assets are reviewed for impairment in
periods if events or changes in circumstances indicate the carrying amount
may not be recoverable.
TAXATION
The charge for taxation is based on the profit for the year and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes. Provision is made for
deferred tax only to the extent that it is probable that an actual liability
will crystallize in the foreseeable future.
F-6
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
WARRANTY PROVISIONS
Where a warranty is provided in relation to prototype and test equipment sold,
provision is made for the commitment on each specific sale, having regard to the
level of innovation in the product.
PENSIONS
The Company operates a self-administered defined contribution scheme for its
executive directors. Contributions are charged to the profit and loss account
when payable. The Company also operates a defined contribution scheme for other
staff. Contributions are independently administered by an insurance company and
are charged to the profit and loss account when payable.
2. TURNOVER
The geographical analysis of turnover, which arises from the principal
activities of the Company is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31,
2000 1999
---------------------------------------------
(pound) (pound)
<S> <C> <C>
ANALYSIS OF TURNOVER BY GEOGRAPHICAL MARKET:
United Kingdom 438,881 743,111
Other Europe 95,925 449,176
USA 59,014 93,493
Asia 21,600 20,000
---------------------------------------------
615,420 1,305,780
=============================================
</TABLE>
F-7
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
2. TURNOVER (CONTINUED)
ANALYSIS OF TURNOVER BY CATEGORY:
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31,
2000 1999
-------------------------------------------
(pound) (pound)
<S> <C> <C>
Equipment sales 45,850 --
Collaboration, consultancy, and similar payments 562,070 675,780
Granting of licenses 7,500 630,000
-----------------------------------------
615,420 1,305,780
=========================================
</TABLE>
3. OTHER OPERATING INCOME
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31,
2000 1999
--------------------------------------
(pound) (pound)
<S> <C> <C>
Grant income 36,673 96,356
Other -- 258
--------------------------------------
36,673 96,614
======================================
</TABLE>
4. OPERATING (LOSS) PROFIT
Operating (loss) profit is stated after charging:
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31,
2000 1999
-------------------------------------
(pound) (pound)
<S> <C> <C>
Auditors' remuneration:
Audit 12,000 12,000
Other services 3,600 3,450
Operating lease rentals:
Property 64,343 44,004
Motor vehicles -- 15,469
Depreciation 168,606 165,506
Research and development expenditure 1,303,662 919,246
</TABLE>
F-8
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
5. DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31,
2000 1999
---------------------------------------------
(pound) (pound)
<S> <C> <C>
Remuneration 264,958 150,249
Pension contributions 47,155 31,850
---------------------------------------------
312,113 182,099
=============================================
</TABLE>
The emoluments (excluding pension contributions) of the highest paid director
were (pound)127,292. The pension contribution of the highest paid director
was (pound)31,823.
Retirement benefits are accruing to four directors (1999: 3 directors) under
defined contribution schemes.
6. STAFF NUMBERS
The average number of persons employed by the Company (including directors)
during the year, was as follows:
<TABLE>
<CAPTION>
NUMBER OF EMPLOYEES FOR
YEARS ENDED
MAY 31,
2000 1999
---------------------------------------------
<S> <C> <C>
Research and administration 25 15
</TABLE>
7. INTEREST
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31,
2000 1999
---------------------------------------------
(pound) (pound)
<S> <C> <C>
Bank interest receivable 4,358 5,670
Bank interest payable (13,209) --
---------------------------------------------
(8,851) 5,670
=============================================
</TABLE>
F-9
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
8. TAX ON (LOSS) PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31,
2000 1999
---------------------------------------------
(pound) (pound)
<S> <C> <C>
Corporation tax at 20% (1999: 21%):
Current year (12,085) 13,250
Prior year (1,165) (2,128)
Deferred tax:
Current year (75,207) 10,156
Prior year (522) 1,706
---------------------------------------------
(88,979) 22,984
=============================================
</TABLE>
Tax losses available to be set off against future profits of the Company amount
to approximately(pound)2,200,000 subject to the agreement of the Inland Revenue
(1999:(pound)nil).
F-10
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
9. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
ASSETS
IN THE RESEARCH
COURSE OF PLANT OFFICE
CONSTRUCTION EQUIPMENT EQUIPMENT TOTAL
-----------------------------------------------------------------------
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
COST
At beginning of year 47,361 672,814 36,216 756,391
Additions 861,851 73,721 51,151 986,723
-----------------------------------------------------------------------
At end of year 909,212 746,535 87,367 1,743,114
-----------------------------------------------------------------------
DEPRECIATION
At beginning of year -- 351,009 26,735 377,744
Charge for year -- 154,929 13,677 168,606
-----------------------------------------------------------------------
At end of year -- 505,938 40,412 546,350
-----------------------------------------------------------------------
NET BOOK AMOUNT AT MAY 31, 2000 909,212 240,597 46,955 1,196,764
=======================================================================
AT MAY 31, 1999 47,361 321,805 9,481 378,647
=======================================================================
</TABLE>
10. DEBTORS
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------
(pound) (pound)
<S> <C> <C>
Trade debtors 111,153 420,570
Other debtors 20,511 19,683
Prepayments and accrued income 39,782 47,784
---------------------------------------------
171,446 488,037
=============================================
</TABLE>
F-11
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
11. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------
(pound) (pound)
<S> <C> <C>
Bank overdrafts 640,812 174,992
Trade creditors 118,062 62,785
Corporation tax -- 13,250
Other creditors, including other taxation
and social security 24,323 17,291
Accruals and deferred income 210,431 188,643
---------------------------------------------
993,628 456,961
=============================================
</TABLE>
12. PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation provided in the accounts and the amounts not provided are
as follows:
<TABLE>
<CAPTION>
PROVIDED NOT PROVIDED
---------------------------------------------
(pound) (pound)
<S> <C> <C>
At June 1, 1999 75,729 --
Credit in the year (75,729) --
---------------------------------------------
At May 31, 2000 -- --
=============================================
</TABLE>
F-12
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
13. CALLED UP EQUITY SHARE CAPITAL
<TABLE>
<CAPTION>
2000 1999 2000 1999
--------------------------------------------------------------------------
Number Number (pound) (pound)
<S> <C> <C> <C> <C>
AUTHORIZED
Ordinary shares of(pound)1 each -- 10,000 -- 10,000
"A" shares of(pound)1 each 1 -- 1 --
Ordinary shares of 10p each 1,899,990 -- 189,999 --
--------------------------------------------------------------------------
190,000 10,000
=====================================
ALLOTTED, CALLED UP AND FULLY
PAID
Ordinary shares of(pound)1 each -- 1,000 -- 1,000
"A" shares of(pound)1 each 1 -- 1 --
Ordinary shares of 10p each 1,818,500 -- 181,850 --
--------------------------------------------------------------------------
181,851 1,000
=====================================
</TABLE>
On July 22, 1999, a special resolution was passed subdividing each ordinary
share of (pound)1 each in the issued and authorized but unissued share capital
of the Company into ten ordinary shares of 10 pence each.
On July 22, 1999, a special resolution was passed to increase the authorized
share capital of the Company to (pound)190,000, divided into 1,899,990 10p
ordinary shares and one "A" share of (pound)1 each. On a transfer of a
controlling interest in the Company or on a winding up, or on return of the
capital, the "A" shares are entitled to receive, in priority to the holders
of the ordinary shares (pound)17.70 per share and any arrears or accruals of
dividend on the "A" shares.
On July 22, 1999, a special resolution was passed under which (pound)169,000
of the Company's profit and loss account was capitalized and 1,690,000
ordinary shares of 10 pence each were allotted and issued, credited as paid
in full, to the shareholders of the Company in proportion to their existing
shareholdings. Following the issue of an offer for subscription in July 1999,
the Company issued 118,500 ordinary shares of 10p each at a price of
(pound)10 per share, raising (pound)1,185,000 less expenses.
F-13
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
14. RESERVES
<TABLE>
<CAPTION>
SHARE PROFIT
PREMIUM AND LOSS
ACCOUNT ACCOUNT
---------------------------------------------
(pound) (pound)
<S> <C> <C>
At June 1, 1999 -- 332,994
Capitalization of reserves (NOTE 13) -- (169,000)
Transfer of prior year expenses on share issue (15,000) 15,000
Retained loss for financial year -- (1,130,154)
Premium on shares issued during the year (net of
current year expenses) 1,158,891 --
---------------------------------------------
At May 31, 2000 1,143,891 (951,160)
=============================================
</TABLE>
15. RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------
(pound) (pound)
<S> <C> <C>
Opening shareholders' funds 333,994 262,123
Retained (loss) profit for the financial year (1,130,154) 71,871
New equity share capital subscribed (net of
current year expenses) 1,170,742 --
---------------------------------------------
Closing shareholders' funds 374,582 333,994
=============================================
</TABLE>
16. COMMITMENTS
Capital commitments authorized and contracted for at the balance sheet date but
not provided for within the accounts amounted to (pound)nil (1999:
(pound)516,980).
F-14
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
16. COMMITMENTS (CONTINUED)
Annual commitments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------
(pound) (pound)
<S> <C> <C>
Property leases terminating
Within one year 9,126 15,581
In one to two years -- 9,105
In the second to the fifth years inclusive 14,777 --
After five years 51,075 --
---------------------------------------------
74,978 24,686
=============================================
</TABLE>
17. POST BALANCE SHEET EVENT
Since the year end, a contract has been signed for a license agreement with a
major U.S. pharmaceutical company, which triggered an upfront license fee of
(pound)1.9m, paid during October 2000.
On December 21, 2000, a U.S. drug delivery company (Inhale Therapeutic Systems,
Inc.) offered to purchase the Company for approximately (pound)135 million. The
offering will grant each shareholder 1.8354 new shares of the acquiring company
and (pound)6.146 in cash for each Bradford share.
F-15
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
18. GROSS CASH FLOW
<TABLE>
<CAPTION>
2000 1999
-------------------------------------
(pound) (pound)
<S> <C> <C>
RETURNS ON INVESTMENTS AND SERVICING OF FINANCES
Interest received 4,358 5,670
Interest paid (4,707) --
-------------------------------------
(349) 5,670
=====================================
CAPITAL EXPENDITURE
Payments to acquire intangible fixed assets (964,633) (216,400)
=====================================
FINANCING
New equity share capital subscribed 1,185,000 --
Expenses paid in connection with share issues (14,259) --
-------------------------------------
1,170,741 --
=====================================
</TABLE>
19. ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
AT JUNE 1, CASH AT MAY 31,
1999 FLOW 2000
------------------------------------------------------------
(pound) (pound) (pound)
<S> <C> <C> <C>
Overdrafts (174,992) (465,820) (640,812)
============================================================
</TABLE>
20. RELATED PARTY TRANSACTIONS
During the year the University of Bradford, which has an interest in the
share capital of the Company, charged the Company (pound)36,000 (1999:
(pound)36,000) for research activities and(pound)38,034 (1999:(pound)43,442)
for salary costs. The Company also made sales of(pound)63,332 (1999:
(pound)10,113) to the University of Bradford.
F-16
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
21. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The financial statements of the Company have been prepared in accordance with
United Kingdom generally accepted accounting principles (UK GAAP) which differ
in certain significant respects from United States generally accepted accounting
principles (US GAAP). A description of the significant differences between UK
GAAP and US GAAP, including presentation differences, that are applicable to the
Company is set out below:
REVENUE RECOGNITION
UK GAAP requires that revenue be recognized based on an assessment of the
substance of a transaction and whether the transaction has given rise to new
assets or liabilities for the reporting entity or has changed the entity's
existing assets or liabilities. Where a transaction incorporates one or more
options, guarantees or conditional provisions, their commercial effect should be
assessed in the context of all the aspects and implications of the transaction,
including assessment of the inherent risks and the likelihood of those risks
having a commercial effect in practice, in order to determine what assets and
liabilities arise from the transaction. Furthermore, in order to recognize
assets/liabilities arising from a transaction there must be sufficient evidence
of the existence of these items and their monetary amount must be measurable
with sufficient reliability.
US GAAP, as interpreted by the U.S. Securities and Exchange Commission ("SEC")
under Staff Accounting Bulletin ("SAB") No. 101, has specific revenue
recognition criteria that apply to nonrefundable upfront license fees and
certain guaranteed payments associated with multiyear collaborations. In
particular, when the Company has continuing involvement with the customer,
up-front, nonrefundable fees and certain other payments are earned over the
period of the continued involvement. This period of continuing involvement
represents the culmination of the earnings process.
Prior to the SEC's issuance of Staff Accounting Bulletin 101, UK GAAP revenue
recognition practices for up-front, nonrefundable technology fees were similar
to US GAAP. SAB 101 is effective for companies no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999, and therefore, no
adjustments were required for the period under audit in order to reconcile to US
GAAP.
F-17
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
21. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
CASH FLOWS
The Cash Flow Statement is prepared in accordance with Financial Reporting
Standard No. 1 (revised) `Cash Flow Statements' ("FRS 1"). Its objectives and
principles are similar to those set out in SFAS 95. The principal difference
between the standards relates to classification. Under FRS 1, the Company
presents its cash flows for: (a) operating activities; (b) exceptional
non-operating items; (c) dividends from associated undertakings; (d) returns on
investments and servicing of finance; (e) taxation; (f) capital expenditure and
financial investment; (g) acquisition and disposals; (h) equity dividend paid;
and (i) financing. SFAS 95 requires only three categories of cash flow
activity:(a) operating; (b) investing; and (c) financing. Cash flows from
exceptional non-operating items, returns on investments and servicing of
finance, and taxation shown under FRS 1 would be included as operating
activities under SFAS 95. Changes in overdrafts are included within cash
equivalents under FRS 1 and would be considered a financing activity under SFAS
95. Under US GAAP, capital expenditure and financial investment and acquisitions
and disposals are reported within investing activities.
DEFERRED TAXATION
UK GAAP requires that no provision for deferred taxation should be recorded if
there is reasonable evidence that such taxation will not be payable in the
foreseeable future. Deferred tax assets are only recognized when they are
expected to be recoverable without replacement by equivalent deferred tax
assets.
US GAAP requires full provision of deferred taxation liabilities and permits
deferred tax assets to be recognized if their realization is considered to be
more likely than not. There are no differences in respect of the amounts of
deferred taxation recorded in the financial statements because the Company has
net deferred tax assets and considers that it is more likely than not that they
will not be recovered.
STATEMENT OF COMPREHENSIVE INCOME
Under UK GAAP, the Company presents a statement of Profit and Loss Account,
which is equivalent to a Statement of Comprehensive Income under US GAAP.
F-18
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
21. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
PROSPECTIVE ACCOUNTING CHANGES
In June 1998, the FASB issued Statement of Financial Accounting Standards,
("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
SFAS No. 133 establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those instruments, as
well as other hedging activities. Because the Company does not currently hold
any derivative instruments and does not engage in hedging activities, SFAS No.
133 would not create significant differences between its financial position,
results of operations or cash flows prepared on UK GAAP and US GAAP bases. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which
provides guidance related to revenue recognition based on interpretations and
practices followed by the SEC. SAB 101 was effective the first fiscal quarter of
fiscal years beginning after December 15, 1999 and requires companies to report
any changes in revenue recognition as cumulative change in accounting principle
at the time of implementation in accordance with Accounting Principles Board
Opinion 20, "ACCOUNTING CHANGES." In March 2000, the SEC issued SAB 101A,
"AMENDMENT: REVENUE RECOGNITION IN FINANCIAL STATEMENTS," and in June 2000, the
SEC issued SAB 101B, "SECOND AMENDMENT: REVENUE RECOGNITION IN FINANCIAL
STATEMENTS," which delay the implementation. SAB 101, as modified, is effective
for companies no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999.
Upon adoption of the SAB interpretation, management expects the cumulative
effect on shareholders' funds would be a net decrease of approximately
(pound)690,000 as of May 31, 2000.
F-19
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Financial Statements (continued)
21. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
PROSPECTIVE ACCOUNTING CHANGES (CONTINUED)
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"), ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION - AN INTERPRETATION OF APB 25.
This Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a non compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after either
December 15, 1998, or January 12, 2000. To the extent that this Interpretation
covers events occurring during the period after December 15, 1998, or January
12, 2000, but before the effective date of July 1, 2000, the effects of applying
this Interpretation are recognized on a prospective basis from July 1, 2000. The
Company currently issues stock to employees at the deemed fair market value and
does not give stock options to nonemployees. As such, the Company expects that
FIN 44 would not create significant differences between its financial position,
results of operations or cash flows prepared on UK GAAP and US GAAP bases.
The Company does not believe that the effect of the adoption of FRS 16 "Current
Taxation" for UK GAAP purposes in the year ending May 31, 2001 will be material.
F-20
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Unaudited Balance Sheets
<TABLE>
<CAPTION>
NOVEMBER 30,
2000 1999
----------------------------
(pound) (pound)
<S> <C> <C>
Fixed assets:
Tangible assets 1,102,220 893,397
-----------------------------
Current assets:
Debtors 523,356 189,066
Cash at bank and in hand 4,728,662 144,754
-----------------------------
5,252,018 333,820
Creditors: amounts falling due within one year (474,245) (90,581)
Net current assets 4,777,773 243,239
-----------------------------
Total assets less current liabilities 5,879,993 1,136,636
Creditors: amounts falling due after more than one year -- 75,729
-----------------------------
Net assets 5,879,993 1,060,907
=============================
Capital and reserves:
Called up share capital 181,850 1,000
Share premium account 5,055,441 1,185,000
Profit and loss account 642,702 (125,093)
-----------------------------
Equity shareholders' funds 5,879,993 1,060,907
=============================
</TABLE>
SEE ACCOMPANYING NOTES.
F-21
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Unaudited Profit and Loss Account
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
2000 1999
------------------------------
(pound) (pound)
<S> <C> <C>
Turnover and other operating income 2,884,760 382,725
Total operating charges 1,298,291 840,638
---------------------------
Operating (loss) profit 1,586,469 (457,913)
Other (charges) income 7,394 (173)
---------------------------
Total recognized (loss) profit 1,593,863 (458,086)
===========================
</TABLE>
There were no recognized gains or losses other than the (loss) profit for the
year.
SEE ACCOMPANYING NOTES.
F-22
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Unaudited Cash Flow Statements
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
2000 1999
-------------------------------
(pound) (pound)
<S> <C> <C>
Cash (outflow) inflow from operating activities (253,867) 1,493,367
Returns on investments and servicing of finance (173) 7,394
Taxation -- (12,085)
Capital expenditure and financial investment (596,954) (30,751)
-------------------------------
Cash (outflow) inflow before use of liquid resources and (850,994) 1,457,925
financing
Financing 1,170741 3,911,549
-------------------------------
(Decrease) increase in cash in the period 319,747 5,369,474
===============================
</TABLE>
SEE ACCOMPANYING NOTES.
F-23
<PAGE>
Bradford Particle Design plc
(formerly Bradford Particle Design Limited)
Notes to Unaudited Financial Statements
1. ACCOUNTING POLICIES
The profit and loss account and balance sheet for the half-year periods ended
November 30, 2000 and 1999 have been prepared on a basis consistent with the
accounting policies disclosed in the audited financial statements of Bradford
Particle Design plc for the two years ended May 31, 2000.
2. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with United Kingdom
generally accepted accounting principles (UK GAAP) which differ in certain
significant respects from generally accepted accounting principles in the United
States of America (US GAAP). A description of the significant differences
between UK GAAP and US GAAP, including presentation differences, that are
applicable to the Company, is set out in the financial statements for the two
years ended May 31, 2000.
3. STATUS OF UNAUDITED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED
NOVEMBER 30, 2000
The financial information included in these half-year unaudited financial
statements does not comprise statutory financial statements within the meaning
of Section 240 of the United Kingdom Companies act 1985.
4. PROSPECTIVE ACCOUNTING CHANGES
A description of the prospective US GAAP accounting changes is set out in the
financial statements for the two years ended May 31, 2000. Upon adoption of
the SAB 101 revenue recognition interpretations, the six-month period ended
November 30, 2000, total revenue would decrease approximately
(pound)2,235,000 and the cumulative effect on shareholders' funds would be a
net decrease of approximately (pound)2,925,000.
All other prospective accounting pronouncements described in the May 31, 2000
audited financial statements would not have a significant effect on the results
of operations or the financial position of the Company.
F-24
<PAGE>
INHALE THERAPEUTIC SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANICAL INFORMATION
The following unaudited pro forma condensed combined financial
statements give effect to the acquisition by Inhale Therapeutic Systems, Inc.
("Inhale") of the entire issued share capital of Bradford Particle Design plc
("Bradford").
The unaudited pro forma condensed combined financial information
including the accompanying notes, have been derived from the historical
financial statements of Inhale, are based on and qualified in their entirety by
reference to, and should be read in conjunction with, the reported audited
consolidated financial statements and the accompanying notes of Inhale and
Bradford.
The unaudited pro forma condensed combined balance sheet as of
September 30, 2000, has been prepared assuming the acquisition had been
consummated as of that date. The unaudited pro forma condensed combined
statements of operations are provided for the year ended December 31, 1999 and
the nine months ended September 30, 2000, including the amortization of goodwill
and other intangible assets, giving effect to the acquisition as though it had
occurred as of January 1, 1999.
The acquisition of Bradford has been accounted for using the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the assets purchased and the liabilities assumed based on fair values at the
date of acquisition. The allocation of the aggregate purchase price for the
acquisition, together with the liabilities assumed pursuant thereto, to the net
assets acquired has been based on management's preliminary estimate. Adjustments
to asset values and liabilities in the final allocation may differ from these
estimates, which could impact future earnings.
Inhale Therapeutic Systems, Inc.'s historical condensed financial
information included in these pro forma financial statements is derived from its
September 30, 2000 unaudited consolidated financial statements included in its
Form 10-Q for the same period, and from its December 31, 1999 audited
consolidated financial statements included in its most recent Form 10-K/A.
Bradford's financial information included in these pro forma financial
statements is derived from its nine months ended August 31, 2000 unaudited
financial statements, and from its twelve months ended November 30, 1999
unaudited financial statements. Bradford's financial statements included in the
pro forma information as of all dates and for all periods presented have been
adjusted, where appropriate, to present Bradford's financial position and
results of operations in accordance with generally accepted accounting
principles in the United States. These adjustments are more fully described in
Bradford's November 30, 2000 unaudited financial statements, and in its May 31,
2000 audited financial statements, which are included as exhibits to this
filing.
F-25
<PAGE>
The unaudited pro forma condensed combined financial information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial positions that would have occurred if the
transaction had been consummated at the dates indicated, nor is it necessarily
indicative of future operating results or financial position of the combined
companies and should not be construed as respresentative of these amounts for
any future dates or periods.
F-26
<PAGE>
INHALE THERAPEUTIC SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
INHALE BRADFORD PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
-------------------------------------------------------- -------------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................ $ 93,095 $ 9 $ (20,000) (B) $ 73,104
Short-term investment.................... 187,819 -- 187,819
Accounts receivable...................... 1,942 199 2,141
Other current assets..................... 5,788 1 5,789
-------------------------------------------------------- -------------------
Total current assets........................ 288,644 209 (20,000) 268,853
Property, plant and equipment, net.......... 101,472 1,650 103,122
Equity investment .......................... 16,314 -- 16,314
Goodwill.................................... 103,507 (D) 103,507
Other assets................................ 13,895 -- 23,200 (C) 37,095
-------------------------------------------------------- -------------------
Total assets ............................... $ 420,325 $ 1,859 $ 106,707 $ 528,891
======================================================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 17,158 $ 1,398 $ 1,500 (E) $ 20,056
Deferred revenue......................... 4,361 4,361
-------------------------------------------------------- -------------------
Total current liabilities................... 21,519 1,398 1,500 24,417
Tenant improvement loan..................... 4,867 -- 4,867
Convertible subordinated debentures......... 237,760 -- 237,760
Other long-term liabilities................. 2,010 -- 6,960 (L) 8,970
Stockholders' Equity:
Common stock............................. 4 -- 4
Capital in excess of par value........... 296,734 1,929 (1,929) (A) 296,734
158,708 (F) 158,708
Deferred compensation.................... (2,081) -- (2,081)
Accumulated other comprehensive loss..... 11,772 -- 11,772
(60,000) (G) (60,000)
Accumulated deficit...................... (152,260) (1,468) 1,468 (A) (152,260)
-------------------------------------------------------- -------------------
Total stockholders' equity (deficit)........ 154,169 461 98,247 252,877
-------------------------------------------------------- -------------------
Total liabilities and shareholder's equity.. $ 420,325 $ 1,859 $ 106,707 $ 528,891
======================================================== ===================
</TABLE>
F-27
<PAGE>
INHALE THERAPEUTIC SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------------
INHALE BRADFORD PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS
----------------------------------------------------------- --------------------
<S> <C> <C> <C> <C>
Revenue:
Contract research revenue ........ $ 41,358 $ 1,864 $ (895) (J) $ 42,327
----------------------------------------------------------- --------------------
Total revenues 41,358 1,864 (895) 42,327
Operating costs and expenses:
Research and development ......... 64,083 1,197 -- 65,280
General and administrative ....... 7,869 1,261 -- 9,130
Purchased in-process research and
development .................... 9,890 -- -- 9,890
Amortization of goodwill and other
intangible assets............... -- -- 25,447 (H) 25,447
----------------------------------------------------------- --------------------
Total operating expenses ............ 81,842 2,458 25,447 109,747
----------------------------------------------------------- --------------------
Loss from operation ................. (40,484) (594) (26,342) (67,420)
Other income ........................ -- 2 -- 2
Interest income/(expense), net ...... 2,036 (37) (1,200) (I) 799
----------------------------------------------------------- --------------------
Net loss before income tax .......... (38,448) (629) (27,542) (66,619)
Income tax benefit .................. -- -- 1,613 (K) 1,613
----------------------------------------------------------- --------------------
Net loss............................. $ (38,448) $ (629) $ (25,929) $ (65,006)
=========================================================== ====================
Basic and diluted net loss per share. $ (1.72)
====================
Weighed average number of shares..... 37,768
====================
</TABLE>
F-28
<PAGE>
INHALE THERAPEUTIC SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------------------------------------------
INHALE BRADFORD PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS
-------------------------------------------------------- -------------------
<S> <C> <C> <C> <C>
Revenue:
Contract research revenue $ 38,483 $ 1,074 $ 327 (J) $ 39,884
-------------------------------------------------------- -------------------
Total revenues 38,483 1,074 327 39,884
Operating costs and expenses:
Research and development 74,797 1,167 -- 75,964
General and administrative 9,696 1,085 -- 10,781
Purchased in-process research and
development 2,292 -- -- 2,292
Amortization of goodwill and other
intangible assets -- -- 19,085 (H) 19,085
-------------------------------------------------------- -------------------
Total operating expenses 86,785 2,252 19,085 108,122
-------------------------------------------------------- -------------------
Loss from operation (48,302) (1,178) (18,758) $(68,238)
Other income 752 129 (900) (I) (19)
Interest income/(expense), net (10,244) (13) (10,257)
-------------------------------------------------------- -------------------
Net loss before income tax (57,794) (1,062) (19,658) (78,514)
Income tax benefit 1,387 (K) 1,387
-------------------------------------------------------- -------------------
Net loss $ (57,794) $(1,062) $ (18,271) $ (77,127)
======================================================== ===================
Basic and diluted net loss per share $ (1.73)
===================
Weighed average number of shares 44,494
===================
</TABLE>
F-29
<PAGE>
INHALE THERAPEUTIC SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
On December 21, 2000, Inhale Therapeutic Systems, Inc. ("Inhale")
announced an offer to purchase all of the outstanding shares of Bradford
Particle Design plc ("Bradford") an unquoted British company for cash and stock
valued at approximately $200 million in a purchase business combination (the
"Agreement"). On January 8, 2000, Inhale received irrevocable undertakings from
95% of Bradford's shareholders to accept the offer.
Pursuant to the Agreement, Inhale issued 3,752,406 shares of its common
stock and $20.0 million in cash in exchange for 100% of the outstanding shares
of Bradford's common stock, including outstanding stock options. At closing, all
outstanding stock options of Bradford were fully vested.
Inhale's total cost to acquire Bradford is estimated to be $187.2
million based on an average price of $42 per share of Inhale's common stock. The
stock price used for the pro forma presentation is based on an average price
from receipt of unconditional acceptances of the offer. The actual book value
used to record the transaction may differ from these preliminary estimates.
Bradford's financial statements included in the pro forma financial
information as of all dates and for all periods presented have been adjusted,
where appropriate, to present Bradford's financial position and results of
operations in accordance with generally accepted accounting principles in the
United States. Included in these adjustments is the assumed conversion of the
functional currency from UK Pound Sterling to U.S. dollars. The assumed
conversion rates used at August 31, 2000, for the twelve-month period ended
November 30, 1999 and for the nine-month period ended August 31, 2000 were
$1.4550, $1.5927, and $1.4550 per (pound)1.00, respectively.
The cost to acquire Bradford has been allocated to the assets
acquired and liabilities assumed according to their respective fair values,
with the excess purchase price being allocated to goodwill. The allocation of
the aggregate purchase price is based on management's preliminary estimate. A
formal valuation analysis for purposes of allocating the fair value of
purchased assets and liabilities has not been completed. As such, adjustments
to asset values and liabilities in the final allocation may differ
significantly from these estimates, which could impact future earnings.
F-30
<PAGE>
INHALE THERAPEUTIC SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION (CONTINUED)
The estimated purchase cost of Bradford is as follows (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents................................................... $ 20,000
Value of securities issues.................................................. 157,601
Assumption of Bradford's common stock options............................... 1,107
Deferred tax liability...................................................... 6,960
Estimated transaction costs and expenses.................................... 1,500
----------
$ 187,168
==========
</TABLE>
The preliminary purchase price allocation as of September 30, 2000 is as follows
(in thousands):
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION
AMOUNT USEFUL LIFE OF INTANGIBLES
---------------------------------------------------------
(IN YEARS)
<S> <C> <C> <C>
Net tangible assets of Bradford.................. $ 461
Intangible assets acquired:
Patents..................................... 15,000 5 $3,000
In-process research and development......... 60,000 -- --
Assembled workforce......................... 800 3 266
Customer base............................... 2,000 5 400
Trademark/tradename......................... 5,400 5 1,080
Goodwill.................................... 103,507 5 20,701
-------- -------
Total preliminary purchase price allocation...... $187,168 $25,447
======== =======
</TABLE>
In-process research and development represents that portion of the
purchase price of an acquisition related to the research and development
activities which: (i) have not demonstrated their technological feasibility, and
(ii) have no alternative future uses. Accordingly, Inhale will recognize an
expense of $60.0 million upon consummation of the transaction.
The acquired assembled workforce is comprised of all the skilled
employees and includes the estimated cost to replace existing employees,
including recruiting and training costs and loss of productivity costs. Inhale
will amortize the value assigned to the assembled workforce on a straight-line
basis over an average estimated useful life of 3 years.
F-31
<PAGE>
INHALE THERAPEUTIC SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION (CONTINUED)
Acquired customer base is based on historical costs incurred and is
comprised of management's estimation of resources that have been devoted to
development of the relationships with key customers. Inhale will amortize the
value assigned to customer relationships on a straight-line basis over an
average estimated life of 5 years.
The acquired trademark is recognized for the intrinsic value of
Bradford's name and products in the market place. Inhale will amortize the value
assigned on a straight-line basis over an average estimated life of 5 years.
Goodwill, which represents the excess of the purchased price of an
investment in an acquired business over the fair value of the underlying net
identifiable asset, will be amortized on a straight-line basis over its
estimated remaining useful life.
<TABLE>
<CAPTION>
DESCRIPTION OF PRO FORMA ADJUSTMENTS RECORDED IN PRO FORMA FINANCIAL INFORMATION
<S> <C>
(A) To eliminate Bradford's historical equity accounts.
(B) To reflect the cash payment of cash and cash equivalents to fund a portion of the
purchase consideration.
(C) To reflect the estimated fair value of identifiable intangible assets acquired as a
result of the acquisition.
(D) To reflect the goodwill originating from the acquisition.
(E) To reflect the estimated direct transaction costs recorded as part of the purchase
price.
(F) To reflect the issuance of Inhale's common stock to Bradford
Particle Design plc and to replace vested Bradford stock
options.
(G) To reflect the estimated purchase in-process research and development
charge. This charge is excluded from the unaudited pro forma
condensed combined statements of operations due to its
non-recurring nature.
(H) To reflect the amortization of goodwill and identifiable
intangible assets on a straight-line basis over estimated
useful lives of 3 to 5 years.
(I) To reflect a reduction of interest income earned as a result
of the $20 million cash payment, assumed at 6% for purposes of
the unaudited pro forma condensed combined statement of
operations.
F-32
<PAGE>
INHALE THERAPEUTIC SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION (CONTINUED)
DESCRIPTION OF PRO FORMA ADJUSTMENTS RECORDED IN PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(J) To conform Bradford's revenue recognition policy to Inhale's
revenue recognition policy. Inhale amortizes upfront fees and
milestone payments over the estimated research and development
period, or estimated period of continuing involvement.
(K) To reflect a reduction in the deferred tax liability
attributable to amortization of non-goodwill intangibles and
Bradford operating loss.
(L) To reflect the estimated deferred tax liability associated with the acquisition.
</TABLE>
F-33
