<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K/A (Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) FEBRUARY 11, 1999
-----------------
LEUKOSITE, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-22769 04-3173859
---------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
215 FIRST STREET, CAMBRIDGE, MA 02142
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (617) 621-9350
--------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 26, 1999, LeukoSite, Inc. ("LeukoSite") filed a Current
Report on Form 8-K ("LeukoSite's Initial Report") describing
LeukoSite's acquisition of CytoMed, Inc. by means of a merger.
Pursuant to the terms of the Agreement and Plan of Merger and
Reorganization, dated as of January 4, 1999, LeukoSite Merger
Corporation, a wholly-owned subsidiary of LeukoSite, merged with and
into CytoMed, Inc. The purpose of this Form 8-K/A is to amend
LeukoSite's Initial Report to include the financial statements and pro
forma financial information required pursuant to Item 7 of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
This Item 7 amends and restates in its entirety Item 7 in
LeukoSite's Initial Report.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED : CYTOMED, INC.
INDEX TO CYTOMED, INC. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
DOCUMENT PAGE
-------- ------------
<S> <C>
(1) Report of Independent Public Accountants 3
PricewaterhouseCoopers LLP
(2) Balance Sheet as of December 31, 1998 and 1997 4
(3) Statement of Operations for the Years Ended December 31, 1998, 1997 and 5
1996
(4) Statement of Changes in Stockholders' Deficit for the Years Ended 6
December 31, 1998, 1997 and 1996
(5) Statement of Cash Flows for the Years Ended December 31, 1998, 1997 and 7
1996
(6) Notes to Financial Statements 8
</TABLE>
-2-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
CytoMed, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of CytoMed, Inc.
(the "Company") at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
-3-
<PAGE>
CYTOMED INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 5,394,234 $ 955,643
Marketable securities 4,143,940 7,728,214
Other receivables 6,155,681 --
Other current assets 319,871 130,319
----------- -----------
Total current assets $16,013,726 8,814,176
Fixed assets, net 105,295 541,206
Other assets 5,000 37,600
----------- -----------
$16,124,021 $ 9,392,982
----------- -----------
----------- -----------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of capital lease obligations $ -- $ 112,547
Accounts payable 274,406 799,315
Accrued expenses 586,612 551,253
----------- -----------
Total current liabilities 861,018 1,463,115
----------- -----------
Capital lease obligations -- 28,475
----------- -----------
Redeemable preferred stock:
Convertible preferred stock, $.01 par value, 24,335,060 shares authorized:
Series VII redeemable convertible preferred stock, 17,497,594 and 15,662,732
shares issued and outstanding at December 31, 1998 and 1997, respectively,
stated at net issuance price plus accretion (liquidation preference
$20,625,599) 19,689,845 16,162,471
Series I redeemable convertible preferred stock, 184,670 shares issued and
outstanding, stated at redemption value (liquidation preference $609,411) 609,411 609,411
Series II redeemable convertible preferred stock, 400,000 shares issued and
outstanding, stated at net issuance price plus accretion (liquidation
preference $1,320,000) 1,275,145 1,254,649
Series III redeemable convertible preferred stock, 4,967,373 shares issued and
outstanding, stated at net issuance price plus accretion (liquidation
preference $19,396,436) 19,277,444 18,029,915
Series VI redeemable convertible preferred stock, 1,029,392 shares issued and
outstanding, stated at net issuance price plus accretion (liquidation
preference $3,396,994) 3,180,732 3,143,116
----------- -----------
Total redeemable preferred stock 44,032,577 39,199,562
----------- -----------
Stockholders' deficit:
Series V convertible preferred stock, 185,714 shares issued and outstanding, stated
at issuance price (liquidation preference $1,429,998) 1,299,998 1,299,998
Common stock, $0.1 par value; 29,025,945 and 28,966,312 shares authorized, 15,578 and
13,391 shares issued and 15,033 and 12,846 shares outstanding at December 31, 1998
and 1997, respectively 156 134
Additional paid-in capital 18,186,760 17,856,790
Accumulated deficit (48,244,860) (50,443,464)
----------- -----------
(28,757,946) (31,286,452)
Less - Cost of 545 shares of common stock held in treasury (11,628) (11,628)
----------- -----------
Total stockholders' deficit (28,769,574) (31,298,170)
----------- -----------
Commitments (Note 12) -- --
----------- -----------
$16,124,021 $ 9,392,982
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
CYTOMED, INC.
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Revenue $ 3,385,205 $ 527,725 $ 1,038,087
------------ ------------ ------------
Costs and expenses:
Research and development 6,987,846 7,108,158 5,616,233
General and administrative 2,457,051 2,336,136 1,980,634
------------ ------------ ------------
9,444,897 9,444,294 7,596,867
------------ ------------ ------------
Loss from operations (6,059,692) (8,916,569) (6,558,780)
------------ ------------ ------------
Other income (expense):
Interest expense (8,350) (866,982) (40,124)
Interest income 447,974 24,756 73,231
Other income - 250,000 -
Gain on sale of assets 10,798,451 - -
------------ ------------ ------------
11,238,075 (592,226) 33,107
------------ ------------ ------------
Net income (loss) 5,178,383 (9,508,795) (6,525,673)
Preferred stock preferences (Note 9)
Accrued dividends on Series III and
Series VII convertible preferred stock (2,685,522) (1,252,040) (1,192,170)
Accretion of stock issuance costs (294,257) (119,130) (92,760)
------------ ------------ ------------
Net income (loss) available to common
stockholders $ 2,198,604 $(10,879,965) $ (7,810,603)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
CytoMed, Inc.
Statement of Changes in Stockholders' Deficit
For the Three Years Ended December 31, 1998
<TABLE>
<CAPTION>
Series V convertible Additional
preferred stock Common stock paid-in Accumulated Treasury stock
Shares Amount Shares Par value capital deficit Shares Amount Total
------- ---------- ------ --------- ----------- ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 -- $ -- 2,984 $ 30 $15,904,757 $(31,752,896) 545 $(11,628) $(15,859,737)
Issuance of Series V
convertible preferred stock... 185,714 1,299,998 1,299,998
Issuance of warrants to
purchase Series VI convertible
preferred stock............... 7,546 7,546
Accrued dividend on Series III
convertible preferred stock... (1,192,170) (1,192,170)
Accretion of redeemable
preferred stock to
redemption value.............. (92,760) (92,760)
Issuance of warrants to
purchase common stock......... 137,000 137,000
Net loss....................... (6,525,673) (6,525,673)
------- ---------- ------ --------- ----------- ------------ ------- -------- ------------
Balance at December 31, 1996... 185,714 1,299,998 2,984 30 16,049,303 (39,563,499) 545 (11,628) (22,225,796)
Issuance of warrants to
purchase common stock as
payment of issuance costs
on Series VII convertible
preferred stock............... 172,000 172,000
Issuance of common stock
pursuant to stock option
exercises..................... 10,407 104 4,579 4,683
Acquisition and retirement of
Series IV convertible
preferred stock............... 1,250,012 1,250,012
Accrued dividend on Series III
and Series VII convertible
preferred stock............... (1,252,040) (1,252,040)
Issuance of warrants to
purchase common stock and
Series VII convertible
preferred stock............... 367,590 367,590
Compensation related to the
grant of common stock
options....................... 13,306 13,306
Accretion of redeemable
preferred stock to redemption
value......................... (119,130) (119,130)
Net loss....................... (9,508,795) (9,508,795)
------- ---------- ------ --------- ----------- ------------ ------- -------- ------------
Balance at December 31, 1997... 185,714 1,299,998 13,391 134 17,856,790 (50,443,464) 545 (11,628) (31,298,170)
Issuance of common stock
pursuant to stock option
exercises..................... 2,187 22 970 992
Accrued dividend on Series III
and Series VII convertible
preferred stock............... (2,685,522) (2,685,522)
Value of options transferred
pursuant to the UCB asset
purchase agreement
(Note 3)...................... 329,000 329,000
Accretion of redeemable
preferred stock to redemption
value......................... (294,257) (294,257)
Net income..................... 5,178,383 5,178,383
------- ---------- ------ --------- ----------- ------------ ------- -------- ------------
Balance at December 31, 1998... 185,714 $1,299,998 15,578 $ 156 $18,186,760 $(48,244,860) 545 $(11,628) $(28,769,574)
------- ---------- ------ --------- ----------- ------------ ------- -------- ------------
------- ---------- ------ --------- ----------- ------------ ------- -------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
CYTOMED, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,178,383 $ (9,508,795) $ (6,525,673)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 235,469 307,038 365,920
Amortization of debt discount - 489,197 4,467
Accrued interest converted to equity - 351,728 -
Compensation related to the grant of common stock options - 13,306 -
Gain on termination of collaboration agreement - (250,000) -
Gain on sale of assets (10,798,451) - -
Changes in assets and liabilities:
Other current assets (189,552) 3,908 (45,533)
Other receivables (155,681) - -
Accounts payable (524,909) 103,642 368,736
Accrued expenses (29,577) 380,787 (76,378)
------------ ------------ -------------
Net cash used in operating activities (6,284,318) (8,109,189) (5,908,461)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (5,657,105) (7,728,214) -
Proceeds from maturities and sales of marketable securities 9,241,379 - -
Decrease in other assets 32,600 - 50,400
Purchases of fixed assets (1,505,681) (329,911) (235,290)
Proceeds from sale of assets 6,898,510 - -
------------ ------------ -------------
Net cash provided by (used in) investing activities 9,009,703 (8,058,125) (184,890)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable from related parties - 5,720,650 1,000,000
Proceeds from sale leaseback transactions - - 127,353
Principal payments on capital lease obligations (141,022) (144,579) (191,269)
Proceeds from issuance of redeemable preferred stock, net 1,853,236 10,540,945 3,042,454
Proceeds from issuance of warrants to purchase preferred
stock and common stock - 13,393 9,546
Proceeds from issuance of common stock 992 4,683 -
------------ ------------ -------------
Net cash provided by financing activities 1,713,206 16,135,092 3,988,084
------------ ------------ -------------
Increase (decrease) in cash and cash equivalents 4,438,591 (32,222) (2,105,267)
Cash and cash equivalents at beginning of year 955,643 987,865 3,093,132
------------ ------------ -------------
Cash and cash equivalents at end of year $ 5,394,234 $ 955,643 $ 987,865
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1997. notes payable and accrued interest totaling $7,072,378 were
converted into 6,488,420 shares of Series VII convertible preferred stock.
During 1997 and 1996, the Company recorded debt discounts and additional
paid-in-capital totaling $354,197 and $135,000, respectively, relating to the
issuance of warrants.
During 1997, the Company acquired its Series IV convertible preferred stock
in exchange for the cancellation of a collaboration and license agreement
(Note 4).
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During 1998, 1997 and 1996, the Company paid approximately $8,000, $26,000
and $29,000, respectively, for interest.
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
CytoMed, Inc. (the "Company") was incorporated under the laws of the
state of Delaware in May 1986. The Company is engaged in the discovery
and development of innovative anti-inflammatory and analgesic
pharmaceutical products. The Company's principal line of business is
to license its proprietary technology to established pharmaceutical
companies worldwide and to create corporate alliances with these
companies to develop its technology for commercialization.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in preparation of the
financial statements are as follows:
REVENUE RECOGNITION
Revenue from collaboration or other contractual agreements is
recognized pursuant to the related agreements as work is performed and
defined milestones are attained. Payments received under these
arrangements for research prior to the completion of the related work
and attainment of milestones are recorded as deferred revenue.
Payments received for license fees or options to license technology
are recognized ratably over the related research period.
PATENT COSTS
The Company has incurred expenditures to register patents and
trademarks for the technology that it sells under various license and
collaboration agreements. Payments made to register these patents and
trademarks have been expensed as incurred because recovery of the
related costs is not sufficiently assured.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
Company invests excess cash primarily in money market accounts,
government debt securities and corporate bonds which have strong
credit ratings. These investments are subject to minimal credit and
market risks. The Company classifies these investments as
available-for-sale. All available-for-sale investments are recorded at
amortized cost which approximates fair market value.
FIXED ASSETS
Fixed assets are stated at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold
improvements are amortized using the straight-line method over the
shorter of their estimated useful lives or the term of the respective
leases. Maintenance and repair costs are expensed as incurred.
STOCK COMPENSATION
Stock options issued to employees under the Company's stock option
plans are accounted for in accordance with Accounting Principles Board
("APB") Opinion No. 25 and related interpretations. The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 123
through disclosure only (Note 10).
FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which
include cash, cash equivalents, marketable securities, accounts
payable, accrued expenses and notes payable approximates their fair
value at the balance sheet dates.
-8-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
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, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 130, "Reporting Comprehensive Income." The statement
establishes standards for the reporting and display of comprehensive
income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner
sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to
owners. This standard requires that an enterprise display an amount
representing total comprehensive income for the period. The adoption
of SFAS No. 130 by the Company in 1998 has no impact on the Company as
the Company has no other components of comprehensive income other than
net income.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes new
standards for the recognition of gains and losses on derivative
instruments and provides guidance as to whether a derivative may be
accounted for as a hedging instrument. Gains or losses from hedging
transactions may be wholly or partially recorded in earnings or
comprehensive income as part of a cumulative translation adjustment,
depending upon the classification of the hedge transaction. Gain or
loss on a derivative instrument not classified as a hedging instrument
is recognized in earnings in the period of change. SFAS No. 133 will
be effective for the Company beginning in 2000. The Company does not
believe adoption of SFAS No. 133 will have a material impact on its
financial position or its results of operations.
3. SALE OF ASSETS
On October 23, 1998, the Company entered into an asset purchase
agreement ("Purchase Agreement") with UCB Research, Inc., UCB Farchim,
S.A., and UCB, S.A. (collectively "UCB"). Under the terms of the
agreement, the Company sold to UCB assets relating to certain research
programs for a total of $12.9 million, of which $6.9 million was
received in 1998 and the remaining $6.0 million is due in October 1999
and is recorded as an other receivable on the accompanying balance
sheet. An additional payment of up to $6.0 million from UCB is
contingently due upon programs sold to UCB reaching certain future
milestones. The Company recognized a gain of $10.8 million on this
sale, which is included in other income for 1998. Under the terms of
the Purchase Agreement, the terms of the outstanding stock options of
employees who were offered employment by UCB were modified to allow
for each individual to retain ownership of, and continue vesting in,
their stock options upon the individual's continued employment with
UCB. The Company determined the aggregate fair value of the affected
options at the date of the modification to be $329,000, which was
recorded as a reduction in the gain recognized on the sale of assets.
In February 1998, the Company had entered into a three year research
and license option agreement with UCB, SA. Under the terms of this
agreement, the Company received $3 million in February 1998, of which
$1.5 million represented an option fee to obtain an exclusive
worldwide license to develop and market a specified compound and $1.5
million represented prepaid research fees. During 1998, the Company
recognized the entire option fee as this agreement was canceled in
October 1998 upon the signing of the asset purchase agreement. The
Company recognized a total of $1,872,617 in research fees under the
research and license option agreement during 1998.
-9-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
4. SIGNIFICANT AGREEMENTS
In April 1994, the Company entered into a License and Collaboration
Agreement (the "Chiron Agreement") and an Equity Letter Agreement
(Note 9) with Chiron Corporation ("Chiron"). Under the terms of the
Chiron Agreement, the Company will develop a specific compound and
will complete the preclinical trials, after which the Company will
license the compound to Chiron. In exchange, the Company will receive
milestone payments up to $7.5 million during drug development and
royalty payments based on sales of the product. The Chiron Agreement
will expire eight years from the date of the first commercial sale of
the licensed product. Chiron also made payments to the Company of $1.5
million for certain research and development activities, of which $1.0
million and $0.5 million was received and recognized as revenue in
1995 and 1996, respectively.
In March 1995, the Company entered into a Collaboration Agreement, a
License Agreement (collectively the "Grelan Agreement") and a Stock
Purchase Agreement (Note 9), with Grelan Pharmaceutical Co. Ltd.
("Grelan"). Under the terms of the Grelan Agreement, the Company
participated in the joint development of a specified Company compound
for use in a Grelan product. In exchange, the Company was entitled to
receive milestone payments during drug development and royalty
payments based on sales of the product. The Collaboration Agreement
was set to expire in 1998, and the License Agreement was set to expire
on the later of ten years from the date of the first commercial sale
of the licensed compound or the expiration of the related patent.
Under the Grelan Agreement, Grelan was required to reimburse 50% of
the preclinical expenses incurred by the Company and was required to
make two $500,000 license fee payments on each of the first two
anniversaries of the Grelan Agreement of which $500,000 was received
and recognized as revenue in 1996. Reimbursements of approximately
$205,000 of preclinical expenses were recorded as an offset to
research and development expense in 1996. During 1997, the Company and
Grelan agreed to terminate the Grelan Agreement.
Under the termination agreement, the Company reacquired the 258,400
shares of Series IV convertible preferred stock that was originally
issued for proceeds of $1,500,012 and the license to a certain
compound that had been issued to Grelan under the terms of the Stock
Purchase Agreement and Grelan Agreement, respectively. In addition,
Grelan was released from all future obligations under the Grelan
Agreement, which included the payment of a $53,000 receivable due to
the Company at December 31, 1996, the second $500,000 license fee
payment and reimbursements for 50% of the preclinical expenses
incurred by the Company in 1997. The Company recorded $250,000 as
other income resulting from the termination agreement and wrote off
the $53,000 receivable balance to expense during 1997.
-10-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
In May 1996, the Company entered into an Option Agreement and a Stock
Purchase Agreement (Note 9) with Stiefel Laboratories Inc.
("Stiefel"). Under the terms of this Option Agreement, the Company
will deliver a sample of a specified Company compound to Stiefel for
clinical testing. Within sixty days after completion of the clinical
tests or within nine months of the date of delivery, whichever is
earlier, Stiefel may exercise its option to obtain an exclusive
license to develop, market and sell the compound in specific
territories. Upon exercise of the option, Stiefel is required to make
a $1.0 million non-refundable license fee payment. The Option
Agreement also grants Stiefel the right to purchase $5.0 million of
capital stock in lieu of a certain $3.0 million milestone payment that
would be required under the license.
In December 1997, the Company entered into an Option Agreement with
Boehringer Ingelhiem International, GmbH ("BI"). Under the terms of
the Option Agreement, the Company delivered a specified compound to BI
for clinical testing. At any time during the option period, which was
set to expire within 90 days after completion of the clinical tests or
by October 31, 1998, whichever was earlier, BI had the right to
exercise its option to obtain an exclusive worldwide license to
develop, market and sell the compound. BI did not exercise its option
during 1998. Under the terms of this Option Agreement, BI paid to the
Company a $500,000 nonrefundable option fee, which was recognized as
revenue in 1997.
5. CASH EQUIVALENTS AND MARKETABLE SECURITIES
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
DECEMBER 31,
MATURITY 1998 1997
<S> <C> <C> <C>
Money market funds -- $3,954,363 $ 955,643
Government securities 3 months 625,081 7,728,214
Corporate Bonds 3-12 months 4,294,577 --
Municipal Bonds 12 months 649,675 --
---------- ----------
$9,523,696 $8,683,857
---------- ----------
---------- ----------
</TABLE>
The Company has not realized any gains or losses on available-for-sale
securities during the three years ended December 31, 1998.
-11-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
6. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Research equipment $ -- $1,307,560
Office equipment 111,446 427,319
Furniture and fixtures 51,417 64,528
Leasehold improvements -- 156,286
-------- ----------
162,863 1,955,693
Less-accumulated depreciation and 57,568 1,414,487
amortization -------- ----------
$105,295 $ 541,206
-------- ----------
-------- ----------
</TABLE>
Included in research and office equipment are assets held under capital
leases of $488,683 at December 31, 1997. Accumulated amortization on
these assets totaled $308,406 at December 31, 1997. For the years ended
December 31, 1998, 1997 and 1996, amortization expense on assets held
under capital lease obligations was $70,308, $97,737, and $84,856,
respectively.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Employee compensation and benefits $266,866 $ 280,377
Professional services 202,094 49,893
Other 117,652 220,983
-------- ----------
$586,612 $ 551,253
-------- ----------
-------- ----------
</TABLE>
8. CONVERTIBLE NOTES PAYABLE
In September 1996, the Company entered into a Credit Agreement (the
"Agreement") with certain of its stockholders which provided for
financing up to $3.0 million through the issuance of one year unsecured
promissory notes at a 10.25% interest rate per annum. Pursuant to the
Agreement, the Company was also required to issue warrants to purchase up
to 400,000 shares of the Company's common stock with an exercise price of
$1.95 per share. The Agreement provided that 100,000 warrants will be
issued upon the initial borrowing, one warrant will be issued for each
$10 borrowed and each warrant will be purchased by the investors for
$0.01 per warrant. In December 1996, the
-12-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
Company borrowed $1.0 million under the Agreement and issued warrants to
purchase 200,000 shares of the Company's common stock. The warrants were
exercisable and expire at various times through December 11, 2006. The
proceeds of this financing were allocated to the notes and to the
warrants based on management's estimate of their fair values. This
resulted in $137,000 being ascribed to warrants which was recorded as
additional paid-in-capital. Of this amount, $135,000 was recorded as a
discount to the face value of the notes and was amortized over the term
of the notes. In 1997, the Company borrowed the remaining $2.0 million
under the Agreement and issued warrants to purchase 200,000 shares of the
Company's common stock. In addition, during 1997 the Company borrowed
$3,720,650 under separate agreements from existing stockholders in the
form of unsecured promissory notes at an interest rate of 10.50% per
annum. In connection with these notes, the Company issued warrants to
purchase up to 493,050 and 18,397 shares of the Company's common stock
with an exercise price of $1.95 and $7 per share of common stock,
respectively. The proceeds from the 1997 financings were allocated to the
notes and to the warrants based on management's estimate of their fair
values. This resulted in $363,312 being ascribed to warrants which was
recorded as additional paid-in-capital. Of this amount, $354,197 was
recorded as a discount to the face value of the notes. The discount was
amortized over the period from issuance of the notes to the conversion
into Series VII convertible preferred stock (see Note 9) and is included
in interest expense for the year ended December 31, 1997.
-13-
<PAGE>
9. PREFERRED STOCK AND STOCKHOLDERS' EQUITY
The following table summarizes redeemable preferred stock activity during
each of the three years in the period ended December 31, 1998.
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE
PREFERRED STOCK
----------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Balance at December 31, 1995 5,810,443 $18,859,695
Issuance of Series VI preferred stock 248,922 1,742,456
Accrued dividend on Series III preferred stock -- 1,192,170
Accretion to redemption value -- 92,760
---------- -----------
Balance at December 31, 1996 6,059,365 $21,887,081
Issuance of Series VI preferred stock 192,246 1,345,722
Issuance of Series VII preferred stock,
net issuance cost of $976,777 9,174,312 9,195,223
Issuance of warrants to purchase common stock
as payment of issuance costs on Series VII
preferred stock -- (172,000)
Issuance of Series VII preferred stock upon
conversion of convertible notes payable 6,488,420 7,072,378
Issuance of Series VI preferred stock 588,224 --
Acquisition and retirement of Series IV
preferred stock (258,400) (1,500,012)
Accrued dividend on Series III and VII
preferred stock -- 1,252,040
Accretion to redemption value -- 119,130
---------- -----------
Balance at December 31, 1997 22,244,167 39,199,562
Issuance of Series VII preferred stock, net
of issuance costs of $146,764 1,834,862 1,853,236
Accrued dividend on Series III and Series VII
preferred stock -- 2,685,522
Accretion to redemption value -- 294,257
---------- -----------
Balance at December 31, 1998 24,079,029 $44,032,577
---------- -----------
---------- -----------
</TABLE>
In December 1997, the Company sold 9,174,312 shares of newly designated
Series VII convertible preferred stock for net proceeds of $9,195,223. As
payment of certain offering costs associated with the issuance of the
Series VII convertible preferred stock, the Company issued a warrant,
which expires in ten years, to purchase 500,000 shares of the Company's
common stock with an exercise price of $1.09 per share of common stock.
Management ascribed a value to the warrant of $172,000 which was recorded
as issuance costs for the Series VII convertible preferred stock. The
Company issued an additional 1,834,862 shares of Series VII preferred
stock for net proceeds of $1,853,236 in March 1998.
Also in December 1997, the Company converted notes payable plus accrued
interest in the amount of $7,072,378 into 6,488,420 shares of Series VII
convertible preferred stock.
-14-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
In May 1996 and pursuant to the Stiefel Stock Purchase Agreement (Note
4), the Company sold 185,714 shares of newly designated Series V
convertible preferred stock to Stiefel for net proceeds of $1,299,998.
This agreement also granted to Stiefel the right to purchase an
additional $5.0 million in Series V convertible stock at the then-current
fair value on or before October 1, 1999.
In May 1995 and pursuant to the Grelan Stock Purchase Agreement (Note 4),
the Company sold 258,400 of newly designated Series IV convertible
preferred stock to Grelan for net proceeds of $1,500,012. This stock was
reacquired by the Company in 1997 (Note 4).
In July 1994 and pursuant to the amended Chiron Equity Letter Agreement
(Note 4), the Company sold 400,000 shares of newly designated Series II
convertible preferred stock to Chiron for net proceeds of $1,200,000. The
Company also sold to Chiron for $100,000 a warrant to purchase an
additional 25,000 shares of Series II preferred stock with an exercise
price of $3.90 per share. In October 1996 and pursuant to the Equity
Letter Agreement, the Company sold 248,922 shares of newly designated
Series VI convertible preferred stock to Chiron for net proceeds of
$1,742,456. Also during 1996, the Company sold to Chiron for $7,546 a
warrant to purchase an additional 5,390 shares of the Series VI
convertible preferred stock with an exercise price of $9.10 per share. In
May 1997 and pursuant to the Equity Letter Agreement, the Company sold an
additional 192,246 shares of Series VI convertible preferred stock to
Chiron for net proceeds of $1,345,722. The Company also sold to Chiron
for $4,278 a warrant to purchase an additional 3,054 shares of the Series
VI convertible preferred stock with an exercise price of $9.10 per share.
In December 1997 and in connection with the issuance of the Series VII
convertible preferred stock, the Company issued 588,224 shares of Series
VI convertible preferred stock to Chiron in settlement of the
anti-dilutions provisions of the Series VI convertible preferred stock.
During 1998, the Company increased the number of authorized shares of
common stock to 29,025,945 shares.
PREFERRED STOCK
Preferred stock has the following characteristics:
DIVIDEND PROVISIONS
The holders of the Series III and Series VII convertible preferred
stock are entitled to a cumulative dividend of 8% of the initial
issuance price of the shares per annum which accrues daily whether or
not such dividend is declared or paid. This cumulative dividend is
being recorded by a charge to accumulated deficit and by an increase in
the carrying value of the Series III and the Series VII convertible
preferred stock. When and if declared by the Board of Directors and
prior to the payment of dividends to common stockholders, the Company
will first pay the cumulative dividend on the Series VII convertible
preferred stock, then pay the cumulative dividend on the Series III
convertible preferred stock and lastly pay the declared dividend to all
preferred stockholders.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding-up of the
Company, the Series VII convertible preferred stock shall rank senior
to any other class of stock. The Series I, II, III and VI convertible
preferred stock (the "Senior Preferred Stock") shall rank equally with
each other and senior to the Series V convertible preferred stock and
common stock. The Series V convertible preferred stock ranks senior to
the common stock of the Company. The holders of the Series VII
convertible preferred stock will be entitled to receive, before
payments to any other class of stock are made, and amount equal to
$1.09 per share plus any cumulative and declared but unpaid dividends.
After all payments have been made to the Series VII preferred
stockholders, the holders of the Senior Preferred Stock will be
entitled to receive, before payments to the Series V preferred
stockholders and the common stockholders are made, an amount equal to
$3.30 for the Series I and II preferred stock, $3.00 for the Series III
preferred stock and $7.70 for the Series VI preferred stock per share,
subject to adjustment, plus any declared but unpaid dividends and, in
the case of the Series III preferred stockholders, any unpaid
cumulative dividends. After all payments described above have been made
to the holders of the Senior Preferred Stock, the holders of the Series
V convertible preferred stock and Senior Preferred Stock will be
entitled to receive, before payments to the
-15-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
common stockholders are made, the following amounts: Series V preferred
stockholders will receive an amount equal to $7.70 per share, plus any
declared but unpaid dividends; and the holders of Senior Preferred
Stock will receive an amount equal to the aggregate amount
distributable to the Series V preferred stockholders, distributed in an
equal amount per share of the Senior Preferred Stock then outstanding.
VOTING RIGHTS
Holders of the preferred stock are entitled to vote upon any matter
submitted to the stockholders for a vote. Each share of preferred stock
will have one vote for each share of common stock into which the
respective share of preferred stock is convertible on the record date
for the vote.
CONVERSION RIGHTS
The preferred stock is convertible, at the option of the holder, into
common stock of the Company based on a formula which currently would
result in a 1-for-1 exchange for the Series I, II, III, VI and VII
stockholders and a 1-for-1.47 exchange for the Series V stockholder.
The preferred stock will automatically convert into common stock upon
the closing of a public offering of the Company's common stock in which
net proceeds equal or exceed $15 million and the price per share equals
or exceeds $3.00.
REDEMPTION
Upon the written request from the holders of at least the majority of
the Series VII preferred stock, on December 15, 2002 and the first and
second anniversaries thereof, the Company will redeem the Series VII
preferred stock at a price equal to the amount to which the holder
would be entitled to receive in the event of a liquidation (the
"Redemption Price"). Upon the written request from the holders of at
least the majority of the Senior Preferred Stock at any time after
March 22, 2000, the Company will redeem the Senior Preferred Stock at a
price equal to the amount to which the holder would be entitled to
receive in the event of a liquidation (the "Redemption Price") in three
annual payments. The difference between the net issuance price and the
Redemption Price for the Series II, III, VI and VII convertible
preferred stock is being accreted by a charge to accumulated deficit.
The Series V preferred stock is not redeemable.
RESERVED STOCK
At December 31, 1998, the Company has 1,512 shares, 25,000 shares, 24,102
shares and 19,703 shares of Series I, II, III and VI convertible
preferred stock, respectively, reserved for issuance upon the exercise of
warrants. At December 31, 1998, the Company also has 29,009,754 shares of
common stock reserved for issuance upon the conversion of the preferred
stock outstanding and upon the exercise of warrants and options.
WARRANTS
The Company has issued warrants to purchase common and preferred stock in
connection with the issuance of notes payable (Note 8), the establishment
of capital lease facilities (Note 12) and the issuance of the Series VII
preferred stock (Note 9). Warrants outstanding at December 31, 1998 are
as follows:
-16-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EXERCISE
NUMBER PRICE
SECURITY OF SHARES PER SHARE EXPIRATION DATE
<S> <C> <C> <C>
Series I convertible preferred stock 614 $3.00 July 31, 2001
Series I convertible preferred stock 898 3.00 April 30, 2003
Series II convertible preferred stock 25,000 3.90 July 11, 1999
Series III convertible preferred stock 24,102 3.00 See Note 12
Series VI convertible preferred stock 19,703 3.90 October 3, 2001
Common stock 47,080 0.28 June 18, 2001 - February 25, 2006
Common stock 898,009 1.95 December 11, 2006 - December 15, 2007
Common stock 559,633 1.09 April 13, 2003 - December 15, 2007
Common stock 18,397 7.00 August 22, 2007
</TABLE>
Certain of the warrant agreements contain antidilution provisions related
to future issuances of stock. In 1997, in connection with the issuance of
the Series VII convertible preferred stock, the Company issued additional
warrants to purchase 11,259 shares of the Series VI convertible preferred
stock at an exercise price of $3.90 per share and reduced the exercise
price on outstanding warrants to purchase 8,444 shares of Series VI
convertible preferred stock from $9.10 to $3.90 per share to satisfy
antidilution provisions.
10. STOCK OPTION PLANS
The 1991 Stock Option Plan (the "Plan") provides for the grant of
incentive and nonqualified stock options for the purchase of shares of
the Company's common stock by employees, directors and consultants of the
Company. In 1998, the Plan was amended to provide for the purchase of up
to an aggregate of 2,969,453 shares of the Company's common stock. The
Board of Directors is responsible for the administration of the Plan. The
Board of Directors determines the term of each option, number of shares
for which each option is granted and the price at which each option is
exercisable. The Company may not grant an employee incentive stock
options with a fair market value in excess of $100,000 that is
exercisable during any one calendar year. The term of incentive stock
options granted cannot exceed ten years (five years for options granted
to holders of more than 10% of the voting stock of the Company). The
exercise price for incentive stock options granted may not be less than
100% of the fair market value per share of the underlying common stock
(110% for options granted to holders of more than 10% of the voting stock
of the Company). Stock appreciation rights may be granted in tandem with
option grants and would be exercisable to the same extent and under the
same conditions as the underlying option.
In September 1996, the Company established the 1996 Director Stock Option
Plan (the "Director Plan") which provides for the grant of non-qualified
stock options for the purchase of up to 110,000 shares of the Company's
common stock to the members of the Board of Directors of the Company. The
Director Plan also provides for the automatic grant of options (the
"Automatic Options") to purchase 6,000 shares to each eligible member of
the Board of Directors on the date the Director Plan becomes effective
and, subsequently, on the date that the Director is elected to the Board
of Directors. Each Automatic Option vests ratably over a five year period
beginning on the first
-17-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
anniversary of the date of the grant. Options granted under the Director
Plan that are not Automatic Options vest in accordance with the terms of
each option agreement as established by the Board of Directors. The
exercise price for all options under the Director Plan may not be less
than the fair market value of the underlying common stock on the date of
grant.
No compensation expense was recorded related to stock-based employee
compensation awards. Had compensation cost been determined based on the
fair value of the options granted to employees at the grant date, as
prescribed by SFAS No. 123, the Company's net income (loss) for the years
ended December 31, 1998, 1997 and 1996 would have been approximately
$5,100,000, $(9,595,000) and $(6,576,000), respectively.
For purposes of the pro forma disclosure, the fair value of each option
grant was estimated on the date of grant based upon the following
assumptions: no dividend yield; no volatility; risk-free interest rate of
5.1%, 6.2% and 6.8% for 1998, 1997 and 1996, respectively; and expected
option term of 7 years.
During 1997, the Company granted options in the amount of 17,693 to
nonemployees under the Plan. The estimated fair value of these options
totaled $13,306 which was recorded as compensation expense during 1997.
A summary of the status of the Company's stock option plans as of
December 31, 1998, 1997 and 1996 and changes during the years then ended
is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year $1,055,679 $1.01 970,142 $0.96 558,518 $0.45
Granted 2,077,638 0.50 130,693 1.40 434,864 1.58
Exercised (2,187) 0.45 (10,407) 0.45 -- --
Cancelled (251,258) 1.66 (34,749) 1.12 (23,240) 0.46
---------- ----- ------- ----- -------- -----
Outstanding at end of year 2,809,872 0.60 1,055,679 1.01 970,142 0.96
---------- --------- --------
---------- --------- --------
Options exercisable at end of year 805,173 0.64 488,768 0.66 362,616 0.45
---------- --------- --------
---------- --------- --------
Weighted-average fair value of
options granted during the year $ 0.15 $ 0.68 0.60
---------- --------- --------
---------- --------- --------
Options available for future grant 254,993
----------
----------
</TABLE>
-18-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE REMAINING NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING PRICE CONTRACTUAL LIFE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$0.30 - $0.50 2,449,166 $0.49 8.7 649,367 $0.46
0.53 - 0.70 116,513 0.68 7.2 68,113 0.68
1.40 - 1.95 194,193 1.93 8.0 87,693 1.93
--------- -------
2,809,872 0.60 8.6 805,173 0.64
--------- -------
--------- -------
</TABLE>
11. INCOME TAXES
The Company's deferred tax assets and (liabilities) consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Net operating loss carryforwards $ 17,317,000 $ 18,067,000
Tax credit carryforwards 2,522,000 2,086,000
Other 84,000 229,000
------------ ------------
Gross deferred tax assets 19,923,000 20,382,000
Deferred gain on sale of assets (4,381,000) --
------------ ------------
Net deferred tax assets 15,542,000 20,382,000
Valuation allowance (15,542,000) (20,382,000)
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
</TABLE>
Deferred income taxes reflect the tax impact of temporary differences
between the amount of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws and regulations.
Under SFAS No. 109, the benefit associated with future deductible
temporary differences is recognized if it is more likely than not that
a benefit will be realized. Based on historical evidence, the Company
has recorded a valuation allowance that offsets all net deferred tax
assets.
-19-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
At December 31, 1998, the Company has U.S. Federal net operating loss
carryforwards and tax credit carryforwards available to reduce future
tax liabilities which expire as follows:
<TABLE>
<CAPTION>
NET OPERATING
YEAR OF LOSS TAX CREDIT
EXPIRATION CARRYFORWARDS CARRYFORWARDS
<S> <C> <C>
2005 $ 429,000 $ 32,000
2006 2,969,000 142,000
2007 5,192,000 100,000
2008 6,418,000 314,000
2009 8,287,000 373,000
2010 5,045,000 101,000
2011 6,459,000 108,000
2012 9,544,000 322,000
2018 -- 423,000
----------- ----------
$44,343,000 $1,915,000
----------- ----------
----------- ----------
</TABLE>
The Company has $29,107,000 of state net operating loss carryforwards
which expire at various dates in 1999 to 2002 in approximately the
same proportion as the federal net operating loss carryforwards
expiring in 2005 to 2008 described above. The Company also has
$1,163,000 of state tax credit carryforwards which expire at various
dates in 2006 to 2013 in approximately the same proportion as the
federal tax credit carryforwards expiring in the same years described
above. Under the Internal Revenue Code, certain substantial changes in
the Company's ownership could result in an annual limitation on the
amount of net operating loss and tax credit carryforwards which can be
utilized in future years.
12. COMMITMENTS
LEASES
The Company leases facilities under a noncancellable operating lease,
which expires in March 1999. The minimum lease commitments under this
lease total approximately $25,000.
Rent expense was approximately $682,000, $782,000 and $514,000 in
1998, 1997 and 1996, respectively.
In connection with the facilities lease, the Company had a standby
letter of credit outstanding in favor of the lessor for $25,000 at
December 31, 1997. This letter of credit was collateralized by a
certificate of deposit, which was included in other assets, totaling
$25,000 at December 31, 1997. In October 1998, in conjunction with the
UCB asset purchase agreement (Note 3), the letter of credit and
related certificate of deposit were transferred to UCB.
The Company had entered into an agreement which allowed the Company to
lease up to $750,000 of laboratory and office equipment. At December
31, 1997, the Company had acquired approximately $665,000 of equipment
under the agreement. In October 1998, in conjunction with the UCB
asset purchase agreement (Note 3), the Company purchased all assets
held under this lease agreement. In connection with this lease, the
Company issued warrants to the lessor in 1995 for the purchase of
24,102 shares of Series III convertible preferred stock in 1995 at an
exercise price of $3.00 per share. This warrant expires on August 2,
2005 or five years from the effective date of an initial public
offering of common stock by the Company, whichever is sooner. The
value ascribed to the warrant totaled $19,300 and was accounted for as
discount on the related capital lease obligation. The discount was
amortized as interest expense during the term of the lease.
In April 1998, the Company entered into an agreement to lease
up to $2.5 million of equipment and tenant improvements. At
December 31, 1998, no amounts were outstanding under the
agreement. In connection with this agreement, the Company
issued a warrant to the lessor for the purchase of 59,633
shares of common stock at an exercise price of $1.09 per share.
The warrant expires in April 2003. The value ascribed to the
warrant was not significant.
-20-
<PAGE>
CYTOMED, INC.
NOTES TO FINANCIAL STATEMENTS
RESEARCH, LICENSE AND CONSULTING AGREEMENTS The Company has entered
into research, license and consulting agreements to support its
research and development activities which expire at various dates
through June 1999. Amounts charged to operations in connection with
these agreements for the years ended December 31, 1998, 1997 and 1996
totaled approximately $321,000, $470,000 and $540,000, respectively.
Certain of the agreements contain provisions for future royalties to
be paid on sales of products developed under the agreements.
13. SUBSEQUENT EVENTS
On February 11, 1999, LeukoSite, Inc. ("LeukoSite") acquired all of
the outstanding common and preferred stock of the Company in exchange
for approximately 935,000 shares of LeukoSite Series A preferred
stock. All outstanding options and warrants of the Company became
immediately exercisable and were either exercised or terminated. Upon
the receipt of the $6 million payment from UCB due in October 1999
pursuant to the UCB asset purchase agreement (Note 3), the
stockholders of the Company will receive approximately 631,000
additional shares of LeukoSite Series A preferred stock. In the event
that LeukoSite receives milestone payments pursuant to the UCB asset
purchase agreement or receives the $1 million license fee payment upon
the execution of the Stiefel license agreement (Note 4) , LeukoSite
will make additional payments of up to $7.0 million to the
stockholders of the Company. In addition, in the event that the
Company's remaining research programs achieve certain milestones,
LeukoSite will make additional cash payments of up to $16.5 million
and issue up to approximately 84,000 additional shares of LeukoSite
Series A preferred stock to the stockholders of the Company.
-21-
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION.
INDEX TO LEUKOSITE/CYTOMED INC. PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
DOCUMENT PAGE
-------- ------------
<S> <C>
(7) Introduction 23
(8) Pro Forma Consolidated Balance Sheets as of December 31, 1998 24
(9) Pro Forma Consolidated Statements of Operations for the Year Ended 25
December 31, 1998
(10) Notes to Pro Forma Consolidated Financial Statements 26
</TABLE>
-22-
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet as of December
31, 1998 and the unaudited pro forma consolidated statement of operations for
the year ended December 31, 1998 give effect to the Merger as of December 31,
1998 for the pro forma consolidated balance sheet and as of January 1, 1998
for the pro forma statement of operations.
The unaudited pro forma consolidated financial statements are based on
historical financial statements of LeukoSite and CytoMed, giving effect to
the Merger applying the purchase method of accounting and the assumptions and
adjustments as discussed in the accompanying notes to the unaudited pro forma
consolidated financial statements (see Note A). These unaudited pro forma
consolidated financial statements have been prepared by the management of
LeukoSite based upon the consolidated financial statements of LeukoSite and
CytoMed as of December 31, 1998 and for the year ended December 31, 1998. The
unaudited pro forma consolidated financial statements should be read in
conjunction with the historical financial statements and notes thereto. The
unaudited pro forma consolidated financial statements are not necessarily
indicative of what actual results of operations would have been for the
period presented had the transaction occurred on the dates indicated and do
not purport to indicate the results of the future operations.
-23-
<PAGE>
<TABLE>
<CAPTION>
LEUKOSITE, INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998
MERGER MERGER
PRO FORMA PRO FORMA
LEUKOSITE CYTOMED ADJUSTMENTS AS ADJUSTED
(NOTE B)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................... $ 5,361,339 $ 5,394,234 $ (480,000)(a) $ 10,275,573
Marketable securities........................ 15,802,376 4,143,940 -- 19,946,316
Other receivables............................ -- 6,155,681 -- 6,155,681
Other current assets......................... 544,779 319,871 -- 864,650
------------------- ------------ ------------ ------------
Total current assets.................. 21,708,494 16,013,726 (480,000) 37,242,220
------------------- ------------ ------------ ------------
Property and equipment, at cost:
Laboratory furniture, fixtures and equipment. 3,761,263 -- -- 3,761,263
Leasehold improvements....................... 3,561,757 -- -- 3,561,757
Office furniture, fixtures and equipment..... 454,427 105,295 -- 559,722
------------------- ------------ ------------ ------------
Less--Accumulated depreciation and 7,777,447 105,295 -- 7,882,742
amortization................................. (4,383,574) -- -- (4,383,574)
------------------- ------------ ------------ ------------
3,393,873 105,295 -- 3,499,168
Marketable securities.......................... 2,168,324 -- -- 2,168,324
Other assets................................... 231,930 5,000 -- 236,930
------------------- ------------ ------------ ------------
Total assets.......................... 27,502,621 $ 16,124,021 $ (480,000) $ 43,146,642
------------------- ------------ ------------ ------------
------------------- ------------ ------------ ------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................. $ 272,128 $ 274,406 $ -- $ 546,534
Accrued expenses............................. 4,115,301 586,612 264,346 (b) 4,966,259
Obligation to fund joint venture............. 203,445 -- -- 203,445
Deferred revenue............................. 2,172,058 -- -- 2,172,058
Deferred rent................................ 222,907 -- -- 222,907
Current portion of capital lease obligations. 733,848 -- -- 733,848
------------------- ------------ ------------ ------------
Total current liabilities............. 7,719,687 861,018 264,346 8,845,051
------------------- ------------ ------------ ------------
Capital lease obligations, net of current 1,315,813 -- -- 1,315,813
portion........................................ ------------------- ------------ ------------ ------------
Redeemable preferred stock.................... -- 44,032,577 (44,032,577)(d) --
------------------- ------------ ------------ ------------
Stockholders' equity/(deficit):
Preferred stock, $.01 par value.............. -- -- 9,356 (c) 9,356
Series V convertible preferred stock......... -- 1,299,998 (1,299,998)(d) --
Common stock, $.01 par value................. 119,164 156 (156)(d) 119,164
Paid-in capital.............................. 65,280,443 18,175,132 (18,175,132)(d) 81,378,356
16,097,913 (c)
Accumulated deficit.......................... (46,932,486) (48,244,860) 48,244,860 (d) (48,521,098)
(1,588,612)(e)
------------------- ------------ ------------ ------------
Total stockholders' equity/(deficit).... 18,467,121 (28,769,574) 43,288,231 32,985,778
------------------- ------------ ------------ ------------
Total liabilities and stockholders'
equity............................... 27,502,621 $ 16,124,021 $ (480,000) $ 43,146,642
------------------- ------------ ------------ ------------
------------------- ------------ ------------ ------------
</TABLE>
-24-
<PAGE>
LEUKOSITE, INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MERGER MERGER
PRO FORMA PRO FORMA
LEUKOSITE CYTOMED ADJUSTMENTS AS ADJUSTED
(NOTE C)
<S> <C> <C> <C> <C>
Revenues:
Corporate collaborations ............. $ 10,020,468 $ 1,512,589 $ -- $ 11,533,057
Joint venture revenue ................ 1,260,185 -- -- 1,260,185
Government grants .................... 791,218 -- -- 791,218
------------ ------------ ------------ ------------
Total revenues ............... 12,071,871 1,512,589 -- 13,584,460
------------ ------------ ------------ ------------
Operating expenses:
Research and development ............. 21,141,587 3,393,858 -- 24,535,445
General and administrative ........... 2,624,773 1,519,115 -- 4,143,888
------------ ------------ ------------ ------------
Total operating expenses ..... 23,766,360 4,912,973 -- 28,679,333
------------ ------------ ------------ ------------
Loss from operations ......... (11,694,489) (3,400,384) -- (15,094,873)
Other income (expense):
Equity in operations of joint venture (3,857,640) -- -- (3,857,640)
Interest income ..................... 1,367,936 447,974 (26,912)(a) 1,788,998
Interest expense .................... (162,870) (8,350) -- (171,220)
------------ ------------ ------------ ------------
Net loss ..................... $(14,347,063) $ (2,960,760) $ (26,912) $(17,334,735)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per common share:
Basic and diluted ............ $ (1.32) $ (1.39)
------------ ------------
------------ ------------
Shares used in computing net loss
per common share:
Basic and diluted ............ 10,895,411 12,462,349
------------ ------------
------------ ------------
</TABLE>
-25-
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
As consideration for LeukoSite's acquisition of CytoMed through the Merger,
LeukoSite has paid and has agreed to pay to holders of CytoMed Capital Stock
and certain creditors and obligees of CytoMed the Merger Consideration
pursuant to the terms of the Merger Agreement, as follows:
1. The Closing Consideration, paid at the Closing, in the form of 935,625
shares of LeukoSite Series A Convertible Preferred Stock, par value $.01
per share. The Company will issue another 631,313 shares of LeukoSite
Common Stock to CytoMed shareholders upon receipt of a $6 million
payment to CytoMed from UCB Pharma; and
2. The Milestone Consideration, payable within sixty days of the
occurrence, in the event that development and regulatory
milestones as outlined in the Merger Agreement are achieved. The
Milestone Consideration, if any, may be paid in the form of cash, shares
of LeukoSite Common Stock or a combination of both as determined by the
Merger Agreement. For purposes of the pro forma consolidated financial
statements, the milestone consideration has not been included.
On October 23, 1998 CytoMed entered into an asset purchase agreement with UCB
Research Inc., UCB Farchim, S.A. and UCB, S.A. (collectively "UCB"). Under
the terms of the agreement, the Company sold to UCB assets relating to
certain research programs for a total of $12.9 million, of which $6.9 million
was received in 1998 and the remaining $6.0 million is due in October 1999
and is recorded as an other receivable on CytoMed's balance sheet.
NOTE B
The pro forma consolidated balance sheet includes the adjustments necessary
to give full effect to the Merger as if it had occurred on December 31, 1998
and reflects the allocation of the cost of the merger to the estimated fair
value of assets acquired and liabilities assumed including the issuance of
approximately 1,566,938 shares of LeukoSite Series A Convertible Preferred
Stock which is convertible into one share of Common Stock valued $16.1
million in the aggregate; payment of $480,000 in Merger transaction costs;
and elimination of CytoMed's equity accounts.
These adjustments are summarized as follows:
<TABLE>
<S> <C>
(a) Use of cash for Merger and related transaction costs (480,000)
(b) Additional liabilities assumed in the acquisition 264,346
(c) Issuance of LeukoSite Series A Convertible Preferred Stock 16,107,269
(d) Elimination of CytoMed equity accounts (15,263,003)
(e) In process research and development (1,588,612)
</TABLE>
The amount allocated to in-process research and development projects was
determined by estimating the costs to develop the technology into commercially
viable products, estimating cash flows resulting from the expected revenues
generated from such products, and discounting the net cash flows back to
their present value using a risk-adjusted discount rate. Consideration was
given to the value creation efforts of CytoMed prior to the close of the
acquisition. These projections are based on management's estimates of market
size and growth, expected trends in technology, and the expected timing of
new product introductions.
Management's estimate of net cash flow was discounted to present value using
discount rates ranging from 50 to 70 percent. These rates were based on
industry rates of return for early stage biotechnology companies. The
discount rates utilized for the in-process technologies reflect the inherent
uncertainties in the cash flow estimates, including the uncertainty
surrounding the successful development of the purchased in-process
technologies, government regulations, the useful life of such technologies,
the profitability levels of such technologies, and the uncertainty of
technological advances that are unknown at this time.
The nature of the efforts to develop the purchased in-process technologies
into commercially viable products principally relate to the completion of all
development, testing, and high-volume manufacturing activities that are
necessary to establish that the products can be produced to meet its design
specifications and are proven to be safe and effective for their respective
indications.
As of the acquisition date, technological feasibility of the compounds in
development had not been established and the technologies have no alternative
future uses. If these projects are not successfully developed, the Company
will not realize the value assigned to the in-process research and
development.
NOTE C
The pro forma consolidated statement of operations includes adjustments
necessary to reflect the Merger as if it had occurred on January 1, 1998. As
discussed in Note A, in October 1998 CytoMed sold to UCB assets relating to
certain research programs. CytoMed's audited statements of operations
included in this Form 8-K/A include all revenues and expenses associated with
the programs sold to UCB. CytoMed's statement of operations included in the
attached proforma information has been adjusted to reflect the revenues and
expenses related to the remaining research programs acquired by LeukoSite.
For purposes of the pro forma consolidated statement of operations, acquired
in-process research and development was assumed to have been written off
prior to January 1, 1998. Accordingly, the pro forma consolidated statement
of operations does not included such charge.
-26-
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The pro forma adjustment is summarized as follows:
<TABLE>
<S> <C>
(a) Reduction of interest income resulting from use of $480,000 for the
Merger at an annual interest rate of 5.47% 26,912
</TABLE>
The net loss per share and the shares used in computing the net loss per
share for the year ended December 31, 1998 are based upon LeukoSite's
historical weighted average common shares outstanding for the period adjusted
to reflect the issuance of approximately 1,566,938 shares of LeukoSite Series
A Convertible Preferred Stock as described in Note A.
-27-
<PAGE>
(C) EXHIBITS.
Exhibit 2 Agreement and Plan of Merger and Reorganization,
dated as of January 4, 1999, by and among
LeukoSite, Inc., LeukoSite Merger Corporation and
CytoMed, Inc. Does not include Exhibits or
Disclosure Schedules. LeukoSite will furnish a
copy of any such omitted exhibit or schedule to
the Commission upon request. *
Exhibit 23.1 Consent of PricewaterhouseCoopers LLP.
* Previously filed as an Exhibit in LeukoSite's Initial Report.
-28-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LEUKOSITE, INC.
By: /s/ Augustine Lawlor
--------------------------------
Augustine Lawlor,
Vice President, Corporate Development and
Chief Financial Officer
Dated: April 27, 1999
-29-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-76173) of LeukoSite, Inc. of our report dated
February 12, 1999 relating to the financial statement CytoMed, Inc., which
appears in the Current Report on Form 8-K/A of LeukoSite, Inc. dated
February 11, 1999.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 26, 1999
