UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-30347
------
CURIS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-3505116
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
61 MOULTON STREET, CAMBRIDGE, MA 02138
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 876-0086
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ ] Yes [X] No *
* The Registrant has been subject to such filing requirements since
June 19, 2000.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
As of August 7, 2000, the Registrant had 25,944,393 shares of Common Stock,
$0.01 par value per share, ("Common Stock") outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet - June 30, 2000 3
Consolidated Statements of Operations for the
Three Months Ended June 30, 2000 and for the
Period From Inception (February 14, 2000) to
June 30, 2000 4
Consolidated Statement of Cash Flow for the
Period From Inception (February 14, 2000) to
June 30, 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II. OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
This Quarterly Report on Form 10-Q may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CURIS, INC.
CONSOLIDATED BALANCE SHEET (unaudited)
- -------------------------------------------------------------------------------
June 30,
2000
--------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 30
Marketable securities -
Accounts receivable -
Prepaid expenses and other -
-----
Total current assets 30
-----
PLANT AND EQUIPMENT -
OTHER ASSETS:
Assembled workforce goodwill -
Deposits and other -
-----
Total other assets -
-----
TOTAL ASSETS $ 30
=====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ -
Deferred revenue -
-----
Total current liabilities -
-----
COMMITMENTS -
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding -
Common Stock, $.01 par value, 125,000,000 shares authorized,
300 shares issued and outstanding at June 30, 2000 3
Additional paid-in capital 27
Accumulated deficit -
-----
Total stockholders' equity 30
-----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30
=====
See accompanying notes to unaudited consolidated financial statements
3
CURIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
- -------------------------------------------------------------------------------
Period From
Three Months Inception
Ending Through
June 30, June 30,
2000 2000
----------- -----------
REVENUES:
Research and development contracts $ - $ -
Total revenues - -
---- ----
COSTS AND EXPENSES:
Research and development - -
General and administrative - -
---- ----
Total costs and expenses - -
---- ----
NET OPERATING LOSS - -
---- ----
OTHER INCOME/(EXPENSES):
Interest and other - -
Interest expense - -
---- ----
Total other income/(expenses) - -
---- ----
NET LOSS $ - $ -
==== ====
NET LOSS PER SHARE $ - $ -
==== ====
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 300 300
==== ====
See accompanying notes to unaudited consolidated financial statements
4
CURIS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
- ------------------------------------------------------------------------------
Period from
Inception
Through
June 30, 2000
-------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ -
Depreciation and amortization -
Increase (decrease) in cash from:
Accounts receivable -
Prepaid expenses -
Accounts payable and accrued liabilities -
Deferred contract revenue -
---
Net cash used for operating activities -
---
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 30
---
Net cash provided by financing activities 30
---
NET INCREASE IN CASH AND CASH EQUIVALENTS 30
---
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -
---
CASH AND CASH EQUIVALENTS, END OF PERIOD $30
===
See accompanying notes to unaudited consolidated financial statements
5
CURIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
1. Operations - Curis, Inc. (the "Company"), incorporated on February
14, 2000 and formed as a vehicle to effect the Merger discussed below in Note 3,
is engaged in field of regenerative medicine in which therapeutics are used to
improve, restore or preserve the function of tissues and organs. The Company
applies its expertise in protein factors, cell therapies, tissue engineering and
small molecules to facilitate the development of new regenerative medicine
therapies.
2. Basis of Presentation - The accompanying consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles applicable to interim periods. These statements, however, are
condensed and do not include all disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, the unaudited financial statements contain all adjustments (all of
which were considered normal and recurring) necessary to present fairly the
Company's financial position at June 30, 2000 and the results of operations and
cash flows for the three months ended June 30, 2000 and for the period from
inception through June 30, 2000. The preparation of the Company's consolidated
financial statements in conformity with general accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosure of certain assets and liabilities at the balance sheet
date. Such estimates include the carrying value of property and equipment and
intangible assets and the value of certain liabilities. Actual results may
differ from such estimates.
These interim results are not necessarily indicative of results for a full year
and such results are subject to year-end adjustments and independent audit.
3. Subsequent Event - On July 31, 2000, Creative BioMolecules, Inc., a Delaware
corporation ("Creative"), Ontogeny, Inc., a Delaware corporation ("Ontogeny")
and Reprogenesis, Inc., a Texas corporation ("Reprogenesis") merged (the
"Merger") with and into the Company, pursuant to an Agreement and Plan of Merger
dated as of February 14, 2000 (the "Merger Agreement"). On that date, the
Company, as the surviving company of the Merger, assumed the rights and
obligations of Creative, Ontogeny and Reprogenesis. The Company's Common Stock
is listed on the Nasdaq National Market under the symbol "CRIS." Immediately
after the Merger, the Company was owned approximately 43% by the former
stockholders of Creative, approximately 38% by the former stockholders of
Ontogeny and approximately 19% by the former stockholders of Reprogenesis.
Consequently, for accounting purposes, the Company is deemed to be the successor
to Creative, and the Merger will be accounted for as a purchase of Ontogeny and
Reprogenesis in accordance with Accounting Principles Board (APB) Opinion No.
16. Upon the Merger, the historical financial statements of Creative have become
the historical financial statements of the Company.
Pursuant to the Merger Agreement, the following conversion ratios were applied
to the outstanding securities of Creative, Ontogeny and Reprogenesis:
o Creative's common stockholders received 0.3000 shares of the Company's
Common Stock in exchange for each share of Creative stock that they
owned;
o Ontogeny's capital stockholders received 0.2564 shares of the Company's
Common Stock in exchange for each share of Ontogeny stock that they
owned; and
6
o Reprogenesis' capital stockholders received and the holders of
options or warrants to acquire the capital stock of Reprogenesis are
entitled to receive, upon the exercise thereof, an aggregate number
of shares of the Company's Common Stock equal to 0.1956 multiplied
by the total number of shares of Reprogenesis capital stock
outstanding or subject to options or warrants.
In accordance with APB No. 16, the purchase price for Ontogeny and Reprogenesis
is to be allocated to the assets and liabilities of Ontogeny and Reprogenesis
based on their fair values. The average market price of Creative's Common Stock
of $8.357 was determined based on a reasonable period (February 11, 2000 through
February 16, 2000) before and after the date the terms of the Merger were agreed
to and announced. Based on this price, the purchase price as of June 30, 2000
has been estimated at $303,600,000 and $154,800,000 for Ontogeny and
Reprogenesis, respectively, which includes the value of the outstanding options
and warrants exchanged for options and warrants to purchase the Company's Common
Stock and the estimated transaction costs of the Merger. The ultimate purchase
price will be dependent upon the number of Ontogeny and Reprogenesis shares,
options and warrants outstanding upon closing, as well as final transaction
costs related to the Merger.
Significant portions of the purchase price of both Ontogeny and Reprogenesis
were identified as intangible assets in independent appraisals, using proven
valuation procedures and techniques. These intangible assets include in-process
research and development and the in-place workforce. The preliminary valuation
of intangibles included $186,200,000 and $108,600,000, respectively, for in-
process research and development ("IPR&D") of Ontogeny and Reprogenesis and
$400,000 and $100,000, respectively, for the in-place workforce of Ontogeny and
Reprogenesis. The excess of the purchase price over the fair value of
identifiable tangible and intangible net assets of $80,400,000 and $42,900,000,
respectively, for Ontogeny and Reprogenesis will be allocated to goodwill.
Intangible assets are expected to be amortized over 4 to 5 years. The fair value
of the IPR&D relating to current in-process research and development projects
will be recorded as an expense in the Company's September 30, 2000 financial
statements.
The acquired IPR&D consists of development work to date on 10 primary projects
and 7 primary projects, respectively, for Ontogeny and Reprogenesis. The
technology resulting from these development efforts offer no alternative uses in
the event that they prove not to be feasible. If a technology fails to achieve
FDA approval and was proposed for an alternate indication, it would be subjected
to the risk associated with another series of clinical trials. The new
indication would also face regulatory risks associated with the FDA approval
process.
7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
OVERVIEW
Curis, Inc. (the "Company"), incorporated on February 14, 2000 and
formed as a vehicle to effect the Merger discussed below, is engaged in the
field of regenerative medicine in which therapeutics are used to improve,
restore or preserve the function of tissues and organs. The Company applies its
expertise in protein factors, cell therapies, tissue engineering and small
molecules to facilitate the development of new regenerative medicine therapies.
On July 31, 2000, Creative BioMolecules, Inc., a Delaware corporation
("Creative"), Ontogeny, Inc., a Delaware corporation ("Ontogeny") and
Reprogenesis, Inc., a Texas corporation ("Reprogenesis") merged (the "Merger")
with and into the Company, pursuant to an Agreement and Plan of Merger dated as
of February 14, 2000 (the "Merger Agreement"). On that date, the Company, as the
surviving company of the Merger, assumed the rights and obligations of Creative,
Ontogeny and Reprogenesis. The Company's Common Stock is listed on the Nasdaq
National Market under the symbol "CRIS." Immediately after the Merger, the
Company was owned approximately 43% by the former stockholders of Creative,
approximately 38% by the former stockholders of Ontogeny and approximately 19%
by the former stockholders of Reprogenesis. Consequently, for accounting
purposes, the Company is deemed to be the successor to Creative, and the Merger
will be accounted for as a purchase of Ontogeny and Reprogenesis in accordance
with Accounting Principles Board (APB) Opinion No. 16. Upon the Merger, the
historical financial statements of Creative have become the historical financial
statements of the Company.
Pursuant to the Merger Agreement, the following conversion ratios were applied
to the outstanding securities of Creative, Ontogeny and Reprogenesis:
o Creative's common stockholders received 0.3000 shares of the Company's
Common Stock in exchange for each share of Creative stock that they
owned;
o Ontogeny's capital stockholders received 0.2564 shares of the Company's
Common Stock in exchange for each share of Ontogeny stock that they
owned; and
o Reprogenesis' capital stockholders received and the holders of options or
warrants to acquire the capital stock of Reprogenesis are entitled to
receive, upon the exercise thereof, an aggregate number of shares of the
Company's Common Stock equal to 0.1956 multiplied by the total number of
shares of Reprogenesis capital stock outstanding or subject to options or
warrants.
In accordance with APB No. 16, the purchase price for Ontogeny and Reprogenesis
is to be allocated to the assets and liabilities of Ontogeny and Reprogenesis
based on their fair values. The average market price of Creative's Common Stock
of $8.357 was determined based on a reasonable period (February 11, 2000 through
February 16, 2000) before and after the date the terms of the Merger were agreed
to and announced. Based on this price, the purchase price as of June 30, 2000
has been estimated at $303,600,000 and $154,800,000 for Ontogeny and
Reprogenesis, respectively, which includes the value of the outstanding options
and warrants exchanged for options and warrants to purchase the Company's Common
Stock and the estimated transaction costs of the Merger. The ultimate purchase
price will be dependent upon the number of Ontogeny and Reprogenesis shares,
options and warrants outstanding upon closing, as well as final transaction
costs related to the Merger.
8
Significant portions of the purchase price of both Ontogeny and Reprogenesis
were identified as intangible assets in independent appraisals, using proven
valuation procedures and techniques. These intangible assets include in-process
research and development and the in-place workforce. The preliminary valuation
of intangibles included $186,200,000 and $108,600,000, respectively, for in-
process research and development ("IPR&D") of Ontogeny and Reprogenesis and
$400,000 and $100,000, respectively, for the in-place workforce of Ontogeny and
Reprogenesis. The excess of the purchase price over the fair value of
identifiable tangible and intangible net assets of $80,400,000 and $42,900,000,
respectively, for Ontogeny and Reprogenesis will be allocated to goodwill.
Intangible assets are expected to be amortized over 4 to 5 years. The fair value
of the IPR&D relating to current in-process research and development projects
will be recorded as an expense in the Company's September 30, 2000 financial
statements.
The acquired IPR&D consists of development work to date on 10 primary projects
and 7 primary projects, respectively, for Ontogeny and Reprogenesis. The
technology resulting from these development efforts offer no alternative uses in
the event that they prove not to be feasible. If a technology fails to achieve
FDA approval and was proposed for an alternate indication, it would be subjected
to the risk associated with another series of clinical trials. The new
indication would also face regulatory risks associated with the FDA approval
process.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND THE PERIOD FROM INCEPTION (FEBRUARY 14,
2000) THROUGH JUNE 30, 2000
From inception through June 30, 2000, the Company had no operating activities
and did not incur any expenses beyond those related to filing its joint proxy
statement-prospectus. Such expenses were shared by Creative, Ontogeny and
Reprogenesis according to their stockholders' relative ownership of the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had $30 in cash received from the sale of
Common Stock.
Upon the closing of the Merger on July 31, 2000, the capital resources of the
Company were equal to the combined cash, cash equivalents and marketable
securities of Creative, Ontogeny and Reprogenesis. The Company anticipates that
these existing capital resources should be sufficient to fund the Company's
operations through the end of 2001.
9
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------------------
As of June 30, 2000, the Company did not have market risks that require
disclosure.
10
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company has engaged Arthur Anderson LLP to serve as its independent
public accountants to audit its financial statements for the current
fiscal year.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
10.01 Second Amendment to Lease between Reprogenesis, Inc.
and 21 Erie Street Trust dated June 29, 2000
10.02 Agreement of Sublease between Ontogeny, Inc. and
Reprogenesis, Inc. dated June 29, 2000
27.1 Financial Data Schedule for the period from inception
(February 14, 2000) to June 30, 2000
27.2 Financial Data Schedule for the three months ended
June 30, 2000
(b) Reports on Form 8-K
Not Applicable
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed
on its behalf by the undersigned, thereunto duly authorized.
CURIS, INC.
Date: August 11, 2000 By: /s/ George A. Eldridge
--------------- ---------------------------
Vice President, Finance and
Chief Financial Officer
12
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.01 Second Amendment to Lease between Reprogenesis, Inc. and 21 Erie
Street Trust dated June 29, 2000
10.02 Agreement of Sublease between Ontogeny, Inc. and Reprogenesis, Inc.
dated June 29, 2000
27.1 Financial Data Schedule for the period from inception (February 14,
2000) to June 30, 2000
27.2 Financial Data Schedule for the three months ended June 30, 2000
13