EXHIBIT 99.3
Unaudited Condensed Financial Statements Eos Biotechnology, Inc. (a development stage company) |
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Eos Biotechnology, Inc.
(a development stage company)
Unaudited Condensed Financial Statements
Three months ended March 31, 2003 and 2002
Contents
Unaudited Condensed Financial Statements |
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Unaudited Condensed Balance Sheets | |
Unaudited Condensed Statements of Operations | |
Unaudited Condensed Statements of Cash Flows | |
Notes to Unaudited Condensed Financial Statements |
Eos Biotechnology, Inc.
(a development stage company)
Unaudited Condensed Balance Sheets
(In thousands, except per share data)
March 31, December 31, 2003 2002 ----------- ----------- Assets Current assets: Cash and cash equivalents $ 2,479 $ 1,221 Available-for-sale investments -- 5,650 Other current assets 662 1,171 ----------- ----------- Total current assets 3,141 8,042 Property and equipment, net 2,679 3,097 Other assets 482 476 ----------- ----------- Total assets $ 6,302 $ 11,615 =========== =========== Liabilities and redeemable convertible preferred stock and stockholders' net capital deficiency Current liabilities: Accounts payable $ 963 $ 656 Accrued liabilities 960 551 Current portion of notes payable 808 913 Current portion of capital lease obligations 464 615 Deferred rent 81 68 Deferred revenue -- 2,406 ----------- ----------- Total current liabilities 3,276 5,209 Notes payable 978 1,044 Capital lease obligations 116 143 Deferred rent -- 17 Commitments Redeemable convertible preferred stock, $0.001 par value, 50,357 shares authorized at March 31, 2003 and December 31, 2002, issuable in series; 47,233 shares issued and outstanding at March 31, 2003 and December 31, 2002; aggregate liquidation preference of $ 71,143 at March 31, 2003 and December 31, 2002 70,557 70,557 Stockholders' net capital deficiency: Common stock, $ 0.001 par value, 75,000 shares authorized at March 31, 2002 and December 31, 2002; 7,676 and 7,641 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively 8 8 Additional paid-in capital 2,523 2,512 Notes receivable from stockholders (478) (471) Deferred stock-based compensation (45) (46) Accumulated other comprehensive loss -- (1) Deficit accumulated during the development stage (70,633) (67,357) ----------- ----------- Total stockholders' net capital deficiency (68,633) (65,363) ----------- ----------- Total liabilities, redeemable convertible preferred stock and stockholders' net capital deficiency $ 6,302 $ 11,615 =========== ===========
See accompanying notes.
Eos Biotechnology, Inc.
(a development stage company)
Unaudited Condensed Statements of Operations
(In thousands)
Period from inception (April 16, Three Months Ended 1996) March 31, through -------------------- March 31, 2003 2002 2003 --------- --------- --------- Research and product revenues $ 2,570 $ 1,159 $ 12,913 Operating expenses: Research and development 4,345 5,393 71,994 General and administrative 1,473 974 16,699 --------- --------- --------- Total operating expenses 5,818 6,367 88,693 --------- --------- --------- Loss from operations (3,248) (5,208) (75,780) Interest income 32 381 6,163 Interest expense (64) (89) (1,612) Other income, net 4 25 596 --------- --------- --------- Net loss $ (3,276) $ (4,891) $ (70,633) ========= ========= =========
See accompanying notes.
Eos Biotechnology, Inc.
(a development stage company)
Unaudited Condensed Statements of Cash Flows
(In thousands)
Period from inception (April 16, Three Months Ended 1996) March 31, through -------------------- March 31, 2003 2002 2003 --------- --------- --------- Operating activities Net loss $ (3,276) $ (4,891) $ (70,633) Adjustments to reconcile net loss to net cash used in operating activities: Gain on sale of subsidiary -- -- (6,959) Amortization of prepaid research supply contract -- -- 6,208 Amortization of deferred stock-based compensation 1 6 914 Depreciation and amortization 447 412 5,368 Issuance of stock options to consultants for services -- -- 95 Beneficial conversion feature related to bridge loan -- -- 68 Acquired technology and patent rights for redeemable convertible preferred stock -- -- 113 Accrued interest income on notes receivable from stockholders (7) (33) (215) Forgiveness of interest on notes receivable -- -- 63 Value of warrants issued for bridge loan and lease agreement -- -- 508 Loss on disposal of capital equipment -- -- 16 Changes in operating assets and liabilities: Other current assets 509 297 (662) Other assets (6) 1 (419) Accounts payable and accrued liabilities 716 (196) 1,923 Deferred rent (4) (9) 81 Deferred revenue (2,406) (1,000) -- --------- --------- --------- Net cash used in operating activities (4,026) (5,413) (63,531) --------- --------- --------- Investing activities Purchases of available-for-sale investments -- (4,672) (80,795) Maturities of available-for-sale investments 5,651 5,704 80,795 Capital expenditures (29) (188) (4,550) Proceeds from sale of subsidiary -- -- 7,439 --------- --------- --------- Net cash provided by investing activities 5,622 844 2,889 --------- --------- --------- Financing activities Proceeds from notes payable -- 100 4,119 Principal payments on notes payable (171) (240) (1,333) Principal payments on capital leases (178) (145) (3,413) Repayments on stockholder notes -- -- 452 Net proceeds from issuance of common stock 11 5 186 Net proceeds from issuance of redeemable convertible preferred stock -- -- 63,110 --------- --------- --------- Net cash provided by (used in) financing activities (338) (280) 63,121 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 1,258 (4,849) 2,479 Cash and cash equivalents at beginning of period 1,221 12,325 -- --------- --------- --------- Cash and cash equivalents at end of period $ 2,479 $ 7,476 $ 2,479 ========= ========= ========= Supplemental disclosure of cash flow information Cash paid during the period for interest $ 64 $ 89 $ 1,477 ========= ========= =========
See accompanying notes.
Eos Biotechnology, Inc.
(a development stage company)
Notes to Unaudited Condensed Financial Statements
1. Summary of Significant Accounting Policies
Organization and Business
Eos Biotechnology, Inc. (the "Company"), a Delaware corporation, was formed in 1996. The Company is engaged in drug discovery and development and makes use of proprietary genomics tools and databases to identify disease targets against which therapeutic antibodies are developed. The Company is in the development stage and has devoted substantial effort to developing a new product.
Basis of Presentation
The accompanying unaudited interim condensed financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's financial position as of March 31, 2003 and the results of its operations and cash flows for the three-month periods ended March 31, 2003 and 2002. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. The results of operations of the interim periods are not necessarily indicative of the results of operations for the entire year. The interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2002 included elsewhere in this Form 8K/A. The unaudited condensed balance sheet as of December 31, 2002 is derived from such audited financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Comprehensive Income (Loss)
For the three months ended March 31, 2003 and 2002, total comprehensive loss was $3.3 million and $5.0 million, respectively. Total comprehensive loss is comprised of net loss and unrealized gains and losses on available-for-sale securities.
Stock-Based Compensation
The Company accounts for grants of stock options to employees in accordance with the provisions of Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees (APB 25), and related interpretations. Accordingly, the Company does not recognize compensation cost in accounting for its stock option plan for awards that have an exercise price equal to the estimated fair value of the Company's common stock on the date of grant.
Pro forma net loss information required by SFAS 123 has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS 123. The fair value for these options was estimated at the date of grant using the minimum value method and the following assumptions: risk-free interest rate of 3.8% in 2003 and 2002, an expected life of five years, and no dividends.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options using the straight-line method. The effects of applying SFAS 123 for pro forma disclosures are not likely to be representative of the effects on reported net loss for future years. If the Company had elected to recognize compensation cost based on the fair value of options granted at the grant date and amortized over the options' vesting period as prescribed by SFAS 123, pro forma information is as follows (in thousands):
Period from inception (April 16, Three Months Ended 1996) March 31, through -------------------- March 31, 2003 2002 2003 --------- --------- --------- Net loss, as reported $ (3,276) $ (4,891) $ (70,633) Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects 1 6 914 Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects (110) (107) (820) --------- --------- --------- Pro forma net loss $ (3,385) $ (4,992) $ (70,539) ========= ========= =========
The Company accounts for stock option grants to non-employees in accordance with the Emerging Issues Task Force Consensus No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" (EITF 96-18), which requires the options subject to vesting to be periodically revalued and expensed over their vesting periods.
Merger Agreement
On February 4, 2003, the Company entered into a merger agreement with Protein Design Labs, Inc. (PDL). Upon consummation of the merger Eos shareholders will receive approximately $37,500,000 in PDL common stock, subject to certain conditions. Additionally, consummation of the merger will trigger various provisions of change of control agreements between the Company and certain of its officers. One provision is that the Company will be obligated to pay these officers acquisition bonuses aggregating approximately $2,850,000 and will forgive approximately $579,000 of shareholder and employee notes and accrued interest. Furthermore, vesting of restricted stock and stock options to purchase approximately 2,687,000 shares of the Company's common stock will be accelerated.