SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 19, 2001
Bio-Technology General Corp.
(Exact name of issuer as specified in its charter)
Delaware 0-15313 13-3033811
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
70 Wood Avenue South
Iselin, N.J. 08830
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (732) 632-8800
None
(Former address, if changed since last report)
ITEM 2. ACQUISITION OF ASSETS.
On March 19, 2001, Bio-Technology General Corp. ("BTG") acquired Myelos
Corporation, a privately-held biopharmaceutical company focused on the
development of novel therapeutics to treat diseases of the nervous system. Under
the terms of the acquisition agreement, BTG paid Myelos shareholders $35 million
in a combination of cash and stock ($14 million in cash and $21 million through
the issuance of 2,344,657 shares of BTG common stock (based on a value of
$8.9564, representing the average closing price of BTG's common stock for the 20
trading day period ending one day prior to the February 21, 2001 date the
acquisition agreement was executed)).
In the event that (i) BTG publicly announces that it will file a New
Drug Application ("NDA") related to the use of PROSAPTIDE -TM- to treat
neuropathic pain or neuropathy, (ii) BTG receives minutes of the United
States Food and Drug Administration ("FDA") stating that the clinical data
possessed by BTG is sufficient for an NDA filing for the use of PROSAPTIDE to
treat neuropathic pain or neuropathy without requiring any further testing or
(iii) BTG initiates preparation of an NDA for PROSAPTIDE for the treatment of
neuropathic pain or neuropathy (the date the earliest of the foregoing occurs
being the "Payment Trigger Date"), then BTG shall pay to the Myelos
shareholders an additional $30 million, at least approximately $14 million of
which must be paid in shares of BTG common stock, valued at the average of
the closing prices of BTG common stock during the 20 trading days ending on
the Payment Trigger Date, and the remainder will be paid in cash, shares of
BTG common stock, or a combination thereof, as determined by BTG in its sole
discretion.
In addition, in the event that the FDA approves the sale of PROSAPTIDE
for the treatment of neuropathic pain or neuropathy, BTG will pay the Myelos
shareholders 15% of the net sales of PROSAPTIDE for the treatment of neuropathic
pain or neuropathy during the 12 month period beginning on the earlier of (i)
the 25th full month after commercial introduction of PROSAPTIDE in the United
States for the treatment of neuropathic pain or neuropathy and (ii) April 1,
2010. At least 50% of this payment must be paid in shares of BTG common stock,
valued at the average of the closing prices of BTG common stock during the 20
days ending one day prior to the payment, and the remainder will be paid in
cash, shares of BTG common stock, or a combination thereof, as determined by BTG
in its sole discretion.
In no event will BTG be obligated to issue in aggregate to the Myelos
shareholders more than 10,962,000 shares of BTG common stock. Any amount of the
contingent payments that cannot be paid in shares of BTG common stock shall
instead be paid in shares of BTG's preferred stock. The preferred stock will be
non-voting, non-convertible, non-transferable, non-dividend paying (except to
the extent a cash dividend is paid on the BTG common stock), with no mandatory
redemption for a period of 20 years and one day from the closing date of the
acquisition, and a right to share in proceeds in liquidation, up to the
liquidation amount.
The transaction was treated as a "purchase" for accounting purposes.
The purchase price for accounting purposes is approximately $33,000,000, based
on a value for the approximately 2,344,700 shares of Company common stock issued
in the acquisition of $8.1172, representing the average closing price of the
Company's common stock for the four day period preceding the date the terms of
the acquisition were agreed to (February 21, 2001). In connection with the
Merger and based on an independent valuation, BTG allocated $45,600,000 to
in-process research and development projects of Myelos, representing the
estimated fair value based on risk-adjusted cash flows of the acquired
technology. At the date of the Merger the technology acquired in the acquisition
was not fully commercially developed and had no alternative future uses.
Accordingly, the value was expensed as of the acquisition date. The Company
recorded negative goodwill of $18,357,000 on its balance sheet, primarily
because the amount written off as in-process research and development acquired
exceeded the
1
purchase price for accounting purposes. This negative goodwill will be amortized
over its expected useful life of five years.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The balance sheets of Myelos Corporation as of December 31, 1999 and
2000 and the related statements of operations, stockholders' equity and
cash flows for the years then ended, and for the period from December
1, 1994 (inception) through December 31, 2000, and the notes thereto,
and the report of Ernst & Young LLP, are included herein.
The unaudited statements of operations of Myelos Corporation for the
three months ended March 31, 2000, the period from January 1, 2001
through March 19, 2001 (the date of acquisition) and the period from
December 1, 1994 (inception) through March 19, 2001 (date of
acquisition), and the notes thereto, are included herein.
(b) Pro Forma Financial Information.
Bio-Technology General Corp.'s unaudited pro forma condensed
consolidated balance sheet at December 31, 2000 and unaudited pro forma
condensed consolidated statements of operations for the year ended
December 31, 2000 and the three months ended March 31, 2001, reflecting
the acquisition of Myelos Corporation, are included herein.
(c) Exhibits.
2.1 Agreement and Plan of Reorganization , date February 21, 2001,
by and among Bio-Technology General Corp., MYLS Acquisition
Corp. and Myelos Corporation (previously filed).
2.3 Consent of Ernst & Young LLP, independent auditors.
2
Myelos Corporation
(a development stage company)
Financial Statements
Years ended December 31, 2000 and 1999 and the
period from December 1, 1994 (inception) to
December 31, 2000
CONTENTS
Report of Independent Auditors...........................................................................4
Financial Statements
Balance Sheets...........................................................................................5
Statements of Operations.................................................................................6
Statements of Stockholders' Equity.......................................................................7
Statements of Cash Flows.................................................................................9
Notes to Financial Statements...........................................................................10
3
Report of Independent Auditors
The Board of Directors and Stockholders
Myelos Corporation
We have audited the accompanying balance sheets of Myelos Corporation
(a development stage company) as of December 31, 2000 and 1999, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended, and for the period December 1, 1994 (inception) through December 31,
2000. 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. The financial statements for the period December
1, 1994 (inception) through December 31, 1998, were audited by other auditors
whose report dated March 12, 1999, expressed an unqualified opinion on those
statements. The financial statements for the period December 1, 1994 (inception)
through December 31, 1998, include a net loss of $11,054,344. Our opinion on the
statements of operations, stockholders' equity, and cash flows for the period
December 1, 1994 (inception) through December 31, 2000, insofar as it relates to
amounts for prior periods through December 31, 1998, is based solely on the
report of other auditors.
We conducted our audits in accordance with 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 and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Myelos Corporation, at December 31, 2000 and 1999, and
the results of its operations and its cash flows for the years then ended and
the period from December 1, 1994 (inception) through December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
As discussed in Note 1 to the financial statements, the Company's recurring
losses from operations raise substantial doubt about its ability to continue as
a going concern. Management's plans as to these matters are also described in
Note 1. The 2000 financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Ernst & Young LLP
January 15, 2001
4
Myelos Corporation
(a development stage company)
Balance Sheets
DECEMBER 31,
2000 1999
---------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,041,436 $ 4,126,229
Prepaid expenses and other current assets 32,874 6,574
---------------------------------
Total current assets 1,074,310 4,132,803
Property and equipment, net 938,523 1,190,597
Other assets 29,653 29,653
---------------------------------
Total assets $ 2,042,486 $ 5,353,053
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 97,091 $ 191,508
Capital lease obligations, current portion 179,760 199,736
---------------------------------
Total current liabilities 276,851 391,244
Capital lease obligations, net of current portion 129,776 323,320
Stockholders' equity:
Preferred Stock, no par value, 13,312,255 shares authorized, issuable in the
following series:
Series A convertible, 3,070,000 shares authorized, issued and outstanding at
December 31, 2000 and 1999; liquidation preference of
$3,070,000 at December 31, 2000 3,034,808 3,034,808
Series B convertible, 3,428,573 shares authorized, issued and
outstanding at December 31, 2000 and 1999; liquidation preference of
$6,000,003 at December 31, 2000 5,981,703 5,981,703
Series C convertible, 5,313,683 shares authorized,
5,313,683 shares issued and outstanding at December 31, 2000 and
1999, liquidation preference of $9,564,628 at December 31, 2000 9,504,505 9,504,505
Series D convertible, 1,500,000 shares authorized, 1,412,500 shares
issued and outstanding at December 31, 2000 and 1999; liquidation
preference of $2,825,000 at December 31, 2000 2,810,848 2,811,977
Common stock, no par value, 50,000,000 shares authorized, 2,588,129
and 2,446,529 shares issued and outstanding at December 31, 2000 and
1999, respectively 291,077 205,649
Notes receivable from stockholder (150,000) (110,902)
Deferred compensation - (11,771)
Deficit accumulated during the development stage (19,837,082) (16,777,480)
---------------------------------
Total stockholders' equity 1,635,859 4,638,489
---------------------------------
Total liabilities and stockholders' equity $ 2,042,486 $ 5,353,053
=================================
SEE ACCOMPANYING NOTES.
5
Myelos Corporation
(a development stage company)
Statements of Operations
PERIOD FROM
DECEMBER 1, 1994
YEARS ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
2000 1999 2000
------------------------------------ ------------------
Expenses:
Research and development $ 1,864,288 $ 4,484,101 $ 13,687,461
General and administrative 1,346,907 1,298,944 6,892,261
------------------------------------ ------------------
Total operating expenses 3,211,195 5,783,045 20,579,722
Interest income, net 151,593 59,909 742,640
------------------------------------ ------------------
Net loss $(3,059,602) $(5,723,136) $(19,837,082)
==================================== ==================
SEE ACCOMPANYING NOTES.
6
Myelos Corporation
(a development stage company)
Statements of Stockholders' Equity
PREFERRED STOCK COMMON STOCK NOTES
--------------------------- ------------------------- RECEIVABLE FROM
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER
--------------------------- ---------------------------------------------
Initial capitalization at December 1, 1994 250,000 $ 250,000 1,250,000 $ - $ -
Net loss - - - - -
--------------------------- ---------------------------------------------
Balance at December 31, 1994 250,000 250,000 1,250,000 - -
Issuance of Series A Preferred Stock at
$1.00 per share, net of issuance costs of 2,750,000 2,714,808 - - -
$35,192
Net loss - - - - -
--------------------------- ---------------------------------------------
Balance at December 31, 1995 3,000,000 2,964,808 1,250,000 - -
Issuance of Series A Preferred Stock at
$1.00 per share 70,000 70,000 - - -
Issuance of Series B Preferred Stock at
$1.75 per share, net of issuance costs of 3,428,573 5,981,703 - - -
$18,300
Exercise of stock options - - 135,000 13,500 -
Net loss - - - - -
--------------------------- ---------------------------------------------
Balance at December 31, 1996 6,498,573 9,016,511 1,385,000 13,500 -
Exercise of stock options - - 43,074 4,307 -
Issuance of common stock in partial
consideration of a license fee - - 131,443 13,144 -
Issuance of stock options for services - - - 1,060 -
Net loss - - - - -
--------------------------- ---------------------------------------------
Balance at December 31, 1997 6,498,573 9,016,511 1,559,517 32,011 -
Exercise of stock options - - 17,600 3,168 -
Exercise of stock options for common stock
in exchange for a note - - 464,000 63,520 (63,520)
Issuance of common stock for cash - - 25,000 5,000 -
Issuance of Series C Preferred Stock at -
$1.80 per share, net of issuance costs of 3,778,336 6,767,668 - -
$33,336
Net loss and comprehensive loss - - - - -
--------------------------- ---------------------------------------------
Balance at December 31, 1998 10,276,909 15,784,179 2,066,117 103,699 (63,520)
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEFERRED DEVELOPMENT STOCKHOLDERS'
COMPENSATION STAGE EQUITY
----------------------------------------------
Initial capitalization at December 1, 1994 $ - $ - $ 250,000
Net loss - (5,067) (5,067)
----------------------------------------------
Balance at December 31, 1994 - (5,067) 244,933
Issuance of Series A Preferred Stock at
$1.00 per share, net of issuance costs of - - 2,714,808
$35,192
Net loss - (799,271) (799,271)
----------------------------------------------
Balance at December 31, 1995 - (804,338) 2,160,470
Issuance of Series A Preferred Stock at
$1.00 per share - - 70,000
Issuance of Series B Preferred Stock at
$1.75 per share, net of issuance costs of - - 5,981,703
$18,300
Exercise of stock options - - 13,500
Net loss - (1,749,617) (1,749,617)
----------------------------------------------
Balance at December 31, 1996 - (2,553,955) 6,476,056
Exercise of stock options - - 4,307
Issuance of common stock in partial
consideration of a license fee - - 13,144
Issuance of stock options for services - - 1,060
Net loss - (3,395,945) (3,395,945)
----------------------------------------------
Balance at December 31, 1997 - (5,949,900) 3,098,622
Exercise of stock options - - 3,168
Exercise of stock options for common stock
in exchange for a note - - -
Issuance of common stock for cash - - 5,000
Issuance of Series C Preferred Stock at
$1.80 per share, net of issuance costs of - - 6,767,668
$33,336
Net loss and comprehensive loss - (5,104,444) (5,104,444)
----------------------------------------------
Balance at December 31, 1998 - (11,054,344) 4,770,014
7
Myelos Corporation
(a development stage company)
Statements of Stockholders' Equity (continued)
PREFERRED STOCK COMMON STOCK NOTES
------------------------------------------------------- RECEIVABLE FROM
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER
--------------------------------------------------------------------------
Balance at December 31, 1998 10,276,909 15,784,179 2,066,117 103,699 (63,520)
Issuance of Series C Preferred Stock at
$1.80 per share, net of issuance costs of 1,535,347 2,736,837 - - -
$26,784
Issuance of Series D Preferred Stock at
$2.00 per share, net of issuance costs of 1,412,500 2,811,977 - - -
$13,023
Repayment of note receivable from stockholder - - - - 32,710
Issuance of restricted common stock in
exchange for note receivable from - - 500,000 100,000 (100,000)
stockholder
Employee stock award - - 11,000 3,960 -
Exercise of stock options - - 14,835 2,499 -
Issuance of stock options to consultants - - - 438 -
Deferred compensation related to stock - - - 14,961 -
options
Amortization of deferred compensation - - - - -
Repurchase of non-vested common stock - - (145,423) (19,908) 19,908
Net loss and comprehensive loss - - - - -
------------------------------------------------------------------------
Balance at December 31, 1999 13,224,756 21,332,993 2,446,529 205,649 (110,902)
Series D Preferred Stock issuance costs - (1,129) - - -
Repayment of note receivable from stockholder - - - - 10,902
Issuance of common stock in exchange for
note receivable from stockholder - - 100,000 50,000 (50,000)
Exercise of stock options - - 41,600 4,928 -
Amortization of deferred compensation - - - - -
Issuance of stock options to consultants - - - 30,500 -
Net loss and comprehensive loss - - - - -
------------------------------------------------------------------------
Balance at December 31, 2000 13,224,756 $21,331,864 2,588,129 $ 291,077 $ (150,000)
========================================================================
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEFERRED DEVELOPMENT STOCKHOLDERS'
COMPENSATION STAGE EQUITY
---------------------------------------------
Balance at December 31, 1998 - (11,054,344) 4,770,014
Issuance of Series C Preferred Stock at
$1.80 per share, net of issuance costs of - - 2,736,837
$26,784
Issuance of Series D Preferred Stock at
$2.00 per share, net of issuance costs of - - 2,811,977
$13,023
Repayment of note receivable from stockholder - - 32,710
Issuance of restricted common stock in
exchange for note receivable from - - -
stockholder
Employee stock award - - 3,960
Exercise of stock options - - 2,499
Issuance of stock options to consultants - - 438
Deferred compensation related to stock (14,961) - -
options
Amortization of deferred compensation 3,190 - 3,190
Repurchase of non-vested common stock - - -
Net loss and comprehensive loss - (5,723,136) (5,723,136)
---------------------------------------------
Balance at December 31, 1999 (11,771) (16,777,480) 4,638,489
Series D Preferred Stock issuance costs - - (1,129)
Repayment of note receivable from stockholder - - 10,902
Issuance of common stock in exchange for
note receivable from stockholder - - -
Exercise of stock options - - 4,928
Amortization of deferred compensation 11,771 - 11,771
Issuance of stock options to consultants - - 30,500
Net loss and comprehensive loss - (3,059,602) (3,059,602)
---------------------------------------------
Balance at December 31, 2000 $ - $(19,837,082) $ 1,635,859
=============================================
SEE ACCOMPANYING NOTES.
8
Myelos Corporation
(a development stage company)
Statements of Cash Flows
PERIOD FROM
DECEMBER 1, 1994
YEARS ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
2000 1999 2000
------------------------------------------------------
OPERATING ACTIVITIES
Net loss $(3,059,602) $ (5,723,136) $(19,837,082)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 260,973 268,849 866,982
Amortization of deferred compensation 11,771 3,190 14,961
Options issued to consultants 30,500 438 45,142
Employee stock award - 3,960 3,960
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (26,300) 221,143 (70,522)
Other assets - (29,653) (29,653)
Accounts payable and accrued expenses (94,417) (120,333) 97,091
------------------------------------------------------
Net cash used in operating activities (2,877,075) (5,375,542) (18,909,121)
INVESTING ACTIVITIES
Purchases of property and equipment (12,225) (45,115) (1,152,402)
Proceeds on disposal of property and equipment 3,326 1,927 5,253
Deposits of restricted cash - - 722,905
Reduction of restricted cash - 72,905 (722,905)
------------------------------------------------------
Net cash (used in) provided by investing activities (8,899) 29,717 (1,147,149)
FINANCING ACTIVITIES
Issuance of common stock for cash 4,928 2,499 33,402
Issuance of preferred stock for cash, net (1,129) 5,548,814 21,331,864
Collection on note receivable issued for common stock 10,902 32,710 43,612
Proceeds from line of credit - - 650,000
Payments on line of credit - - (650,000)
Proceeds from capital lease obligations - 175,000 175,000
Payments on capital lease obligations (213,520) (162,935) (486,172)
------------------------------------------------------
Net cash (used in) provided by financing activities (198,819) 5,596,088 21,097,706
------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,084,793) 250,263 1,041,436
Cash and cash equivalents at beginning of period 4,126,229 3,875,966 -
------------------------------------------------------
Cash and cash equivalents at end of period $ 1,041,436 $ 4,126,229 $ 1,041,436
======================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 58,586 $ 87,749 $ 252,421
======================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Purchase of property and equipment through
capital lease obligations $ - $ - $ 620,708
======================================================
Issuance of common stock for note receivable $ 50,000 $ 100,000 $ 213,520
======================================================
SEE ACCOMPANYING NOTES.
9
Myelos Corporation
(a development stage company)
Notes to Financial Statements
December 31, 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Myelos Corporation (the "Company") is a privately held company incorporated in
California on December 1, 1994. The Company develops technology and products
based on inventions both licensed from the University of California, San Diego
and developed in its own laboratory. The Company is developing potential
therapeutic products based on stimulatory peptides of several key cytokines
primarily for use in treating diseases and disorders of the peripheral and
central nervous systems. As of December 31, 1999, the Company completed a "Phase
II" clinical trial on its lead compound Prosaptide-TM- TX14(A).
The Company is a development stage company in the initial stage of its
operations, and since inception, the Company has been engaged in organizational
activities, including recruiting personnel, establishing office facilities,
research and development and obtaining financing. Since inception, and through
December 31, 2000, the Company has incurred losses of $19,837,082.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of business. Successful completion of the Company's
development program and its transition to attaining profitable operations is
dependent upon obtaining financing adequate to fulfill its research and market
introduction activities, and achieving a level of revenues adequate to support
the Company's cost structure. Without additional financing, the Company will be
required to reduce the scope of its research and development activities and/or
significantly reduce its expenditures on infrastructure. There can be no
assurance that the Company will be able to obtain such additional financing. The
accompanying financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
10
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a remaining maturity of
less than three months when purchased to be cash equivalents. Cash equivalents
are recorded at cost, which approximates market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated on the basis of cost less accumulated
depreciation and amortization. Depreciation and amortization is calculated using
the straight-line method over the shorter of the estimated useful lives of the
assets (two to seven years) or the term of the applicable lease.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist primarily of cash and cash equivalents. The Company
limits its exposure to credit loss by placing its cash with high credit quality
financial institutions.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF if indicators of impairment exist, the Company assesses the
recoverability of the affected long-lived assets by determining whether the
carrying value of such assets can be recovered through the undiscounted future
operating cash flows. If impairment is indicated, the Company measures the
amount of such impairment by comparing the carrying value of the asset to the
present value of the expected future cash flows associated with the use of the
asset. While the Company's current and historical operating and cash flow losses
are indicators of impairment, the Company believes the future cash flows to be
received from the long-lived assets will exceed the assets' carrying value, and
accordingly, the Company has not recognized any impairment losses through
December 31, 2000.
11
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
In accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES, a deferred tax
asset or liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted tax
rates, which will be in effect when these differences reverse. The Company
provides a valuation allowance against net deferred tax assets unless, based
upon the available evidence, it is more likely than not that the deferred tax
assets will be realized.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
COMPREHENSIVE INCOME (LOSS)
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income (loss) and other
comprehensive income (loss), including foreign currency translation adjustments,
and unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income (loss). Comprehensive loss
for the years ended December 31, 2000 and 1999, and for the period December 1,
1994 (inception) to December 31, 2000, did not differ from reported net loss.
12
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related Interpretations
in accounting for its employee stock options. Under APB 25, when the purchase
price of restricted stock or the exercise price of the Company's employee stock
options equals or exceeds the fair value of the underlying stock on the date of
issuance or grant, no compensation expense is recognized.
Options or stock awards issued to non-employees are recorded at their fair value
as determined in accordance with SFAS No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION and EITF 96-18, ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED
TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING GOODS AND
SERVICES and recognized over the related service period.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK
COMPENSATION, an interpretation of APB 25 ("FIN 44" or the "Interpretation").
The Interpretation, which has been adopted prospectively as of July 1, 2000,
requires that stock options that have been modified to reduce the exercise price
be accounted for as variable. Management believes the Company's accounting for
its stock options is in compliance with the guidelines provided in FIN 44, and
therefore, the adoption of FIN 44 will not significantly affect the Company's
results of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 2001, the Company will adopt SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The adoption of SFAS No. 133 is
not anticipated to have an impact on the Company's results of operations or
financial condition as the Company believes it does not engage in activities
covered by the statement.
13
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
2000 1999
------------------------------------
Furniture and equipment $ 963,324 $ 954,425
Tenant improvements 804,533 804,533
------------------------------------
1,767,857 1,758,958
Less accumulated depreciation and amortization (829,334) (568,361)
------------------------------------
$ 938,523 $ 1,190,597
====================================
3. COMMITMENTS
The Company leases its office and research facilities under a noncancelable
operating lease which expires in 2004. The lease requires the Company to pay for
all maintenance, insurance and property taxes.
The Company leases a significant portion of its equipment under capital lease
agreements. At December 31, 2000 and 1999, assets purchased under these capital
lease agreements totaled approximately $782,989 with accumulated amortization
totaling approximately $259,105 and $189,433, respectively.
Future minimum payments are as follows at December 31, 2000:
OPERATING CAPITAL
LEASES LEASES
----------------- -------------
2001 $ 111,962 $ 213,667
2002 115,177 128,741
2003 115,691 9,918
2004 97,100 -
----------------- -------------
Total minimum lease payments $ 439,930 352,326
=================
Less amounts representing interest 42,790
-------------
Present value of capital lease obligations 309,536
Less current portion 179,760
-------------
Capital lease obligations, non current $ 129,776
=============
Rent expense for 2000 and 1999 was $101,012 and $93,529, respectively.
14
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Series A, B, C and D preferred stock are convertible at the option of the
holder into the number of shares of common stock which results from dividing the
original issuance price for such series of preferred stock by 83.33% of the
conversion price for such series of preferred stock that is in effect at the
time of conversion. The initial conversion price for a series of preferred stock
shall be the original issuance price for such series, subject to certain
adjustments. In addition, the preferred stock will automatically convert into
common shares upon the closing of an underwritten public offering of equity
securities which results in gross proceeds of at least $20,00,000, at a per
share price of not less than $10.00. The holder of each share of preferred stock
is entitled to one vote for each share of common stock into which it would
convert.
Holders of the preferred shares have parity with holders of common stock on an
as-if converted basis for all dividends declared by the Board of Directors. To
date, the Company has not declared any dividends.
In the event of liquidation, the preferred stockholders receive a liquidation
preference equal to the original issuance price plus declared but unpaid
dividends. The liquidation preference has priority over all distributions to
common stockholders. After payment of the liquidation preference, all remaining
assets from liquidation are to be paid to the preferred stockholders and common
stockholders according to the number of shares held.
WARRANTS
In July 1997, in connection with a capital lease agreement, the Company issued
warrants to purchase 34,286 shares of common stock at an exercise price of $1.75
per share. The warrants expire on August 25, 2004. As of December 31, 2000, no
warrants had been exercised.
15
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK
The majority of the outstanding shares of common stock have been issued to the
founders, directors, employees, and consultants to the Company. In connection
with certain stock purchase agreements, the Company has the option to
repurchase, at the original issuance price, the unvested shares in the event of
termination of employment or engagement. Shares under these agreements vest over
periods up to four years. At December 31, 2000, 360,417 shares were subject to
repurchase by the Company.
STOCK OPTIONS
Various employees, directors, and consultants have been granted options to
purchase common shares under equity incentive plans adopted in 1995 and 1997.
These plans provide for the grant of up to 2,507,944 incentive and nonstatutory
stock options. Options granted under these plans generally expire no later than
10 years from the date of grant (five years for a 10% stockholder). Options
granted to each participant who is not an officer, director or consultant of the
Company generally vest and become fully exercisable over a period of five years.
The exercise price of incentive stock options must be equal to at least the fair
market value of the Company's common stock on the date of grant, and the
exercise price of non-statutory stock options may be no less than 85% of the
fair value of the Company's common stock on the date of grant. The exercise
price of any option granted to a 10% stockholder may be no less than 110% of the
fair value of the Company's common stock on the date of grant.
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 requires use
of option valuation models which the Company believes were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma net loss information is required to be disclosed by SFAS No. 123, and
has been determined as if the Company has accounted for its employee stock
options under the fair value method prescribed in that statement. The fair value
of these options was estimated
16
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. STOCKHOLDERS' EQUITY (CONTINUED)
at the date of grant using the minimum value pricing model with the following
weighted average assumptions for 2000 and 1999: risk-free interest rate of 6%;
dividend yield of 0%; and a weighted-average life of the option of four years.
Pro forma net loss under SFAS No. 123 for 2000 and 1999 was $3,077,633 and
$5,730,450 respectively.
The minimal value pricing model is similar to Black-Scholes option valuation
model, which was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable, except
that it excludes the factor for volatility. In addition, option valuation models
require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
The weighted average grant-date fair value of options granted during 2000 and
1999 was $0.50 and $0.38 per share, respectively. At December 31, 2000,
1,372,914 stock options to purchase common stock were vested and exercisable and
at December 31, 2000, 537,967 shares remain available for future grant under the
1997 Plan.
A summary of the Company's stock option activity and related information from
December 1, 1994 (inception) to December 31, 2000 is as follows:
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
------------------------------------
Outstanding at December 1, 1994 - -
Granted 425,250 $.10
Cancelled/forfeited (135,625) $.10
-------------------
Balance at December 31, 1995 289,625 $.10
Granted 622,750 -
Exercised (135,000) $.10
Cancelled (4,375) $.10
-------------------
Balance at December 31, 1996 773,000 $.10
Granted 66,400 $.18
Exercised (43,074) $.10
Cancelled (46,926) $.10
-------------------
17
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. STOCKHOLDERS' EQUITY (CONTINUED)
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
------------------------------------
Balance at December 31, 1997 749,400 $.13
Granted 245,800 $.20
Exercised (336,177) $.14
Cancelled (31,889) $.18
-------------------
Balance at December 31, 1998 627,134 $.16
Granted 665,100 $.38
Exercised (14,835) $.17
Cancelled (179,953) $.19
-------------------
Balance at December 31, 1999 1,097,446 $.30
Granted 361,000 $.50
Exercised (41,600) $.12
Cancelled (17,555) $.31
-------------------
Balance at December 31, 2000 1,399,291 $.35
===================
Exercise prices for options outstanding as of December 31, 2000, were $.10 to
$.50. The weighted average remaining contractual life of those options is 8.24
years.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
A total of 15,869,708 shares of common shares have been reserved for the
conversion of preferred stock into common stock. In addition, 1,399,291 and
34,286 shares have been reserved for the exercise of stock options and warrants,
respectively.
5. LICENSE AND RESEARCH AGREEMENTS
In June 1999, the Company entered into a 21 year exclusive worldwide license
agreement with the Regents of the University of California for the use, sale,
offer to sell, make, export or import certain of the University's Peptide
Patents. Pursuant to the terms of the agreement, the Company agreed to pay a
license maintenance fee of $15,000 for each year that the Company is not selling
a commercially licensed product. The Company will reimburse the University for
all patent costs, and shall also pay an annual fee for
18
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
5. LICENSE AND RESEARCH AGREEMENTS (CONTINUED)
patent costs up to $5,000. The agreement also provides for the Company to pay
royalties of 1.5% of net sales. Under this agreement the Company has made
payments totaling approximately $174,514 through December 31, 2000. In
conjunction with this agreement the Company is expected to fund research on
Peptides in an amount not less than $500,000 per year until the first commercial
sale of a licensed product. The Company has the right to terminate this
agreement without cause upon a 90-day written notice to the University.
Since 1995, the Company has entered into various research agreements with the
Regents of the University of California ("the University"), with the most recent
agreement to expire on June 30, 2001. Pursuant to the terms of the agreement,
the Company agreed to fund research of $500,000 through June 30, 2001, for
specified research performed by the University. Total amounts paid under this
agreement for the years ended December 31, 2000 and 1999, and for the period
from December 1, 1994 (inception) to December 31, 2000, are $750,015, $912,416
and $4,418,934, respectively.
CLINICAL RESEARCH AGREEMENT
In September 1998, the Company entered into a $2,700,000 clinical research
agreement with Neuroclinical Trials Center, Inc. ("NTC"). Pursuant to the terms
of the agreement NTC will perform clinical trials management services in support
of clinical investigation of the Company's potential products. For the year
ended December 31, 1999, and for the period from December 1, 1994 (inception) to
December 31, 2000, total amounts paid under this agreement are $1,901,367 and
$2,836,806, respectively. No amounts were paid under the agreement for the year
ended December 31, 2000.
6. INCOME TAXES
At December 31, 2000, the Company had federal and California tax net operating
loss carryforwards of approximately $19,417,000 and $5,102,000 respectively. The
difference between the tax loss carryforwards for federal and California
purposes is primarily attributable to the capitalization of research and
development expenses for California. The federal tax loss carryforwards will
begin expiring in 2009, unless previously utilized. The remaining tax loss
carryforward will begin expiring in 2001 unless previously utilized. The Company
also has federal and California research and development tax
19
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
credit carryforwards totaling $679,000 and $502,000 which will expire beginning
in 2005 unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company's net
operating loss and tax credit carryforwards will be limited as a result of
certain cumulative changes in the Company's stock ownership, which occurred
during 1998. However, the Company believes that the limitation will not have a
material impact on the utilization of the carryforwards.
Significant components of the Company's deferred tax assets as of December 31,
2000 and 1999 are shown below. A valuation allowance of $8,720,000, of which
$7,686,000 relates to 1999, has been recognized to offset the deferred tax
assets as realization of such assets is uncertain.
2000 1999
------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 7,089,000 $ 6,303,000
Research and development credits 1,006,000 784,000
Capitalized research expense 596,000 578,000
Other 46,000 40,000
------------------------------------
Total deferred tax assets 8,737,000 7,705,000
Valuation allowance for deferred tax assets (8,720,000) (7,686,000)
------------------------------------
Net deferred tax assets 17,000 19,000
Deferred tax liabilities:
Depreciation and amortization (17,000) (19,000)
------------------------------------
Net deferred taxes $ - $ -
====================================
7. RELATED PARTY TRANSACTIONS
Since 1995, the Company has entered into various consulting agreements with its
founder whereby the Company pays a monthly consulting fee ranging from $2,000 to
$4,000 and travel expenses in exchange for services performed. For the years
ended December 31, 2000 and 1999, and the period from December 1, 1994
(inception) to December 31, 2000, the Company recorded expenses related to these
agreements of approximately $40,000, $48,774 and $198,774, respectively.
20
Myelos Corporation
(a development stage company)
Notes to Financial Statements (continued)
8. EMPLOYEE BENEFIT PLAN
Effective January 1, 1999, the Company adopted a defined contribution 401(k)
Profit Sharing Plan (the "Plan") covering substantially all employees that have
been employed for at least six months and meet certain age requirements.
Employees may contribute up to 20% of their compensation per year (subject to a
maximum limit by federal law). The Company matches $0.50 on the dollar up to the
first 6% of pay. The employer matching portion vests 100% upon completion of two
years of service. Employer contributions for the periods ended December 31, 2000
and 1999, totaled $24,402 and $24,178, respectively.
Prior to January 1, 2000, the Company sponsored a Simplified Employee Pension
("SEP") arrangement under Section 408(k) of the Internal Revenue Code for
employees which met certain service requirements. For the year ended December
31, 1999, and the period from December 1, 1994 (inception) to December 31, 1999,
the Company contributed approximately $22,000 and $32,000, respectively.
21
MYELOS CORPORATION
(a development stage company)
Unaudited Statement of Operations
for the Three Months Ended March 31, 2000,
the Period from January 1, 2001 to March 19, 2001
and the Period from December 1, 1994 to March 19, 2001
(in thousands)
Period from
Period from December 1, 1994
Three Months Ended January 1, 2001 to (inception) to
March 19, 2001 March 19, 2001
March 31, 2000 (date of acquisition) (date of acquisition)
------------------ --------------------- ---------------------
Expenses:
Research and development $ 660 $ 311 $ 13,999
General and administrative 415 826 7,718
------------------ --------------------- ---------------------
Total operating expenses 1,075 1,137 21,717
Interest income, net 53 8 751
------------------ --------------------- ---------------------
Net loss $(1,022) $(1,129) $(20,966)
================== ===================== =====================
22
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
In the opinion of management, the condensed financial statements
include all adjustments, consisting of only normal recurring accruals,
considered necessary for a fair presentation. Operating results for interim
periods are not necessarily indicative of the results that may be expected for
the full year. The accounting policies continue unchanged from December 31,
2000. For further information, refer to the Financial Statements and footnotes
thereto included elsewhere in this Current Report on Form 8-K. Cash flow
statements have not been provided because the cash used in operations is not
significantly different from the net loss.
Note 2. ACQUISITION
On March 19, 2001, Bio-Technology General Corp. ("BTG") acquired Myelos
Corporation. Under the terms of the acquisition agreement, BTG paid Myelos
shareholders $35 million in a combination of cash and stock ($14 million in cash
and $21 million through the issuance of 2,344,657 shares of BTG common stock
(based on a value of $8.9564, representing the average closing price of BTG's
common stock for the 20 trading day period ending one day prior to the February
21, 2001 date the acquisition agreement was executed)). BTG will make additional
payments to the Myelos shareholders upon the occurrence of certain events.
Note 3. SEVERANCE PAYMENTS
In connection with the acquisition of Myelos by BTG, Myelos
terminated the employment of its President and Chief Executive Officer and
its Vice President-Business Development. In connection with this termination
of employment Myelos made severance payments aggregating $244,000 to these
individuals. These payments are included in general and administrative
expense for the periods from January 1, 2001 to March 19, 2001 and from
December 1, 1994 to March 19, 2001.
23
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On March 19, 2001, BTG acquired Myelos Corporation, a privately-held
biopharmaceutical company focused on the development of novel therapeutics to
treat diseases of the nervous system. Under the terms of the acquisition
agreement, BTG paid Myelos shareholders $35 million in a combination of cash and
stock ($14 million in cash and $21 million through the issuance of 2,344,657
shares of BTG common stock (based on a value of $8.9564, representing the
average closing price of BTG's common stock for the 20 trading day period ending
one day prior to the February 21, 2001 date the acquisition agreement was
executed)). BTG will be obligated to make additional payments to the Myelos
shareholders upon the occurrence of certain events.
The transaction was treated as a "purchase" for accounting purposes.
The purchase price for accounting purposes is approximately $33,000,000, based
on a value for the approximately 2,344,700 shares of BTG common stock issued in
the acquisition of $8.1172, representing the average closing price of the
Company's common stock for the four day period preceding the date the terms of
the acquisition were agreed to (February 21, 2001). In connection with the
Merger and based on an independent valuation, BTG allocated $45,600,000 to
in-process research and development projects of Myelos, representing the
estimated fair value based on risk-adjusted cash flows of the acquired
technology. At the date of the Merger the technology acquired in the acquisition
was not fully commercially developed and had no alternative future uses.
Accordingly, the value was expensed as of the acquisition date. BTG recorded
negative goodwill of $18,357,000 on its balance sheet, primarily because the
amount written off as in-process research and development acquired exceeded the
purchase price for accounting purposes. This negative goodwill will be amortized
over its expected useful life of five years.
The following unaudited pro forma condensed consolidated financial data
gives effect to BTG's acquisition of Myelos Corporation, which has been
accounted for by the purchase method. The pro forma unaudited condensed
consolidated balance sheet as of December 31, 2000 gives effect to BTG's
acquisition of Myelos as if the acquisition had occurred on December 31, 2000,
the last day of our fiscal year. No pro forma balance sheet as of March 31, 2001
is presented as the acquisition of Myelos is reflected in the actual balance
sheet of Bio-Technology General Corp. at March 31, 2001, which is included in
Bio-Technology General Corp's Quarterly Report in Form 10-Q for the quarter
ended March 31, 2001. The pro forma unaudited condensed consolidated statements
of operations give effect to BTG's acquisition of Myelos as if the acquisition
had occurred on January 1, 2000. The pro forma adjustments discussed herein as
based on available information and assumptions that BTG believes are reasonable.
The following pro forma unaudited condensed consolidated financial data
should be read in conjunction with the historical consolidated financial
statements of BTG and Myelos Corporation. The unaudited pro forma financial data
is presented for informational purposes only and is not necessarily indicative
of BTG's consolidated operating results or consolidated financial position that
would have occurred had the acquisition of Myelos occurred at the dates
indicated, nor is it necessarily indicative of BTG's future operating results or
financial position following the acquisition.
24
BIO-TECHNOLOGY GENERAL CORP.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of December 31, 2000
(in thousands, except share data)
Historical
BTG Myelos Adjustments Pro Forma
------------- -------------- ----------------- ----------
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 26,353 $ 1,041 $(14,000) (a) $ 13,394
Short-term investments............................... 93,217 - 93,217
Accounts receivable.................................. 39,188 - 39,188
Inventories.......................................... 9,880 - 9,880
Deferred income taxes................................ 2,445 - 2,445
Prepaid expenses and other........................... 989 33 1,022
------------- -------------- ----------------- ----------
Total current assets.............................. 172,072 1,074 (14,000) 159,146
Accounts receivable - trade............................... 1,703 - 1,703
Severance pay funded...................................... 2,321 - 2,321
Deferred income taxes..................................... 5,745 - 7,011 (b) 12,756
Property and equipment, net............................... 27,819 938 (938)(c) 27,819
Intangibles, net of accumulated amortization of $5,639.... 540 - 192 (d) 732
Patents, net of accumulated amortization of $499.......... 260 - 260
Other assets.............................................. 2,765 31 2,796
------------- -------------- ----------------- ----------
Total assets...................................... $213,225 $ 2,043 $(7,735) $207,533
============= ============== ================= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................... $ 6,420 $97 $ 6,517
Deferred revenues.................................... 1,153 - 1,153
Other current liabilities............................ 11,155 180 $1,348 (e) 12,683
------------- -------------- ----------------- ----------
Total current liabilities......................... 18,728 277 1,348 20,353
------------- -------------- ----------------- ----------
Negative goodwill......................................... - - 19,121 (f) 19,121
------------- -------------- ----------------- ----------
Long-term debt............................................ 20,000 130 20,130
------------- -------------- ----------
Deferred revenues......................................... 10,551 - 10,551
------------- -------------- ----------
Severance pay............................................. 4,593 - 4,593
------------- -------------- ----------
Commitments and contingent liabilities
Stockholders' Equity:
Preferred stock - $.01 par value; 4,000,000 shares
authorized; no shares issued........................ - - -
Common stock - $.01 par value; 150,000,000 shares
authorized; issued and outstanding - 54,765,000 actual (21,473) (g)
and 57,109,000 pro forma............................ 547 21,473 23 (h) 570
Additional paid in capital........................... 179,586 - 19,009 (h) 198,595
19,837 (i)
Accumulated deficit.................................. (14,817) (19,837) (45,600) (j) (60,417)
Accumulated other comprehensive loss................. (5,963) - (5,963)
------------- -------------- ----------------- ----------
Total stockholders' equity........................ 159,353 1,636 (28,204) 132,785
------------- -------------- ----------------- ----------
Total liabilities and stockholders' equity....... $213,225 $ 2,043 $ (7,735) $207,533
============= ============== ================= ==========
25
Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet
(dollars in thousands, except per share amounts)
(a) Adjustment to reflect the use of cash on hand to pay a portion of the
purchase price for Myelos.
(b) Adjustment to record a deferred tax asset representing the net
operating loss ("NOL") of Myelos that will be available to offset taxes
in the future.
(c) Adjustment to eliminate fixed assets acquired in connection with
purchase accounting.
(d) Adjustment to record the value of the assembled work force acquired.
(e) Adjustment to record acquisition expenses.
(f) Adjustment to record the negative goodwill resulting from the
acquisition of Myelos. The negative goodwill is computed as follows:
Purchase price paid...................... $33,032
Estimated transaction costs.............. 1,348
-------
34,380
Less: value of assembled workforce....... 192
Less: deferred tax asset................. 7,011
Less: net assets acquired (less fixed assets
of $938)........................... 698
Less: in-process research and development
acquired........................... 45,600
53,501
-------
Negative goodwill $19,121
=======
(g) Adjustment to eliminate Myelos equity.
(h) Adjustment to reflect the issuance of 2,344,657 shares of BTG common
stock to the Myelos shareholders having a value of $19,032, based on a
value of $8.1172 per share, representing the average closing price of
the Company's common stock for the four day period preceding the date
the terms of the acquisition were agreed to (February 21, 2001)
(i) Adjustment to eliminate Myelos' accumulated deficit.
(j) Adjustment to record one-time write-off of in-process research and
development acquired.
26
BIO-TECHNOLOGY GENERAL CORP.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the Year Ended December 31, 2000
(In thousands except per share data)
Historical
----------------------------
BTG Myelos Adjustments Pro Forma
--------- ------------ ---------------- ------------
Revenues $84,944 $ 151 $ (994) (a) $84,101
Expenses:
Research and development 22,360 1,864 24,224
Cost of goods sold 9,887 - 9,887
General and administrative 12,685 1,347 (3,671) (b) 10,361
Marketing and sales 17,614 - 17,614
Other 2,028 - 2,028
--------- ------------ ---------------- ------------
64,574 3,211 (3,671) 64,114
--------- ------------ ---------------- ------------
Income before income taxes 20,370 (3,060) 2,677 19,987
(1,132) (c)
Income tax expense (benefit) 4,475 - (368) (d) 2,975
--------- ------------ ---------------- ------------
Income before cumulative
effect of change in accounting
principle 15,895 (3,060) 4,177 17,012
Cumulative effect of change
in accounting principle, net of
income taxes of $4,380 8,178 - 8,178
--------- ------------ ---------------- ------------
Net income (loss) $ 7,717 $(3,060) $4,177 $ 8,834
========= ============ ================ ============
Earnings Per Common Share:
Basic:
Income before cumulative
effect of change in accounting
principle $0.29 $0.30
Cumulative effect of change in
accounting principle (0.15) (0.14)
--------- ------------
Net income $0.14 $0.16
========= ============
Diluted:
Income before cumulative
effect of change in accounting
principle $0.28 $0.29
Cumulative effect of change in
accounting principle (0.14) (0.14)
--------- ------------
Net income $0.14 $0.15
========= ============
Weighted Average Number of
Common and Common Equivalent Shares:
Basic 54,320 2,345(e) 56,665
========= ================ ============
Diluted 56,885 2,345(e) 59,230
========= ================ ============
27
BIO-TECHNOLOGY GENERAL CORP.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2001
(In thousands except per share data)
Historical
------------------------------
BTG Myelos* Adjustments Pro Forma
----------- ------------ ---------------- ------------
Revenues $33,736 $8 $(225)(a) $33,519
Expenses:
Research and development 5,930 311 6,241
Cost of goods sold 5,139 - 5,139
General and administrative 3,277 826 (918)(b) 3,185
Marketing and sales 4,741 - 4,741
Other 663 - 663
Write-off of in-process research
and development acquired 45,600 - (45,600)(f) -
----------- ------------ ---------------- ------------
65,350 1,137 (46,518) 19,969
----------- ------------ ---------------- ------------
Income (loss) before income taxes (31,614) (1,129) 46,293 13,550
(418)(c)
Income tax expense (benefit) 4,515 - (83)(d) 4,014
----------- ------------ ---------------- ------------
Net income (loss) $(36,129) $(1,129) $46,794 $9,536
=========== ============ ================ ============
Earnings Per Common Share:
Basic $(0.66) $0.17
=========== ============
Diluted $(0.66) $0.16
=========== ============
Weighted Average Number of
Common and Common Equivalent Shares:
Basic 55,117 2,032 (g) 57,149
=========== ================ ============
692 (h)
Diluted 55,117 2,032 (g) 57,841
=========== ================ ============
* Represents the period from January 1, 2001 to March 19, 2001, the date the
acquisition was consummated.
28
Notes to Unaudited Pro Forma Condensed
Consolidated Statements of Operations
(dollars in thousands)
(a) Adjustment to record the decrease in interest income resulting from the
payment of $14,000 to the Myelos shareholders in partial payments of
the purchase price.
(b) Adjustment to record amortization of negative goodwill of $18,357
(calculated as of March 19, 2001 (the closing date of the
acquisition)), which is being amortized over its expected useful life
of five years. The negative goodwill arose primarily because the amount
written-off as in-process research and development acquired exceeded
the purchase price for accounting purposes.
(c) Adjustment to reflect the tax benefit from Myelos net loss.
(d) Adjustment to record the adjustment to the income tax provision related
to pro forma adjustments.
(e) Represents shares issued to the Myelos shareholders in partial payment
of the purchase price.
(f) Adjustment to eliminate the one-time non-cash charge equal to the value
of technology acquired which was not fully commercially developed and
had no alternative use at the time of the acquisition.
(g) Represents shares issued to the Myelos shareholders in partial payment
of the purchase price which are not included in the historical BTG
weighted average shares calculation.
(h) Represents dilutive common stock equivalents included in the
computation of diluted earnings per share because BTG would have net
income on a pro forma basis, rather than the net loss it incurred on a
historical basis.
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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.
BIO-TECHNOLOGY GENERAL CORP.
(Registrant)
By: /s/ Robert Shaw
---------------------------------------
Robert Shaw
Senior Vice President-General Counsel
Dated: June 1, 2001
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