1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K/A
(AMENDMENT NO. 2)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 15, 2000
United Therapeutics Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-26301 52-1984749
--------- ------- ----------
(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification Number)
Incorporation)
1110 Spring Street
Silver Spring, MD 20910
- ---------------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(301) 608-9292
--------------------------------------------------
2
This Amendment to the Current Report on Form 8-K/A filed on February 1, 2001 is
being filed to include the financial information required by Item 7 of this Form
8-K relating to the acquisition by the Registrant of all of the assets and
certain liabilities of Cooke Pharma, Inc.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
Page Number
-----------
(a) Financial Statements of Business Acquired.
Report of Independent Public Accountants 4
Cooke Pharma, Inc. Balance Sheets as of December 31, 1999 and 1998 5
Cooke Pharma, Inc. Statements of Operations for the Years Ended
December 31, 1999 and 1998 6
Cooke Pharma, Inc. Statements of Shareholders' Equity for the Years Ended
December 31, 1999 and 1998 7
Cooke Pharma, Inc. Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 8
Notes to the Financial Statements 9
(b) Unaudited Interim Financial Statements of Business Acquired.
Cooke Pharma, Inc. Balance Sheet as of September 30, 2000 19
Cooke Pharma, Inc. Statements of Operations for the Nine Month Periods
Ended September 30, 2000 and 1999 20
Cooke Pharma, Inc. Statements of Cash Flows for the Nine Month Periods
Ended September 30, 2000 and 1999 21
Notes to the Unaudited Interim Financial Statements 22
1
3
(c) Unaudited Pro Forma Combined Financial Statements 23
Unaudited Pro Forma Combined Balance Sheet as of September 30, 2000 24
Unaudited Pro Forma Combined Statement of Operations for the Year Ended
December 31, 1999 25
Unaudited Pro Forma Combined Statement of Operations for the Nine Month
Period Ended September 30, 2000 26
Notes to Unaudited Pro Forma Combined Financial Statements 27
(d) Exhibits
2.1 Asset Purchase Agreement dated as of December 15, 2000 among UP
Sub, the Company and Cooke Pharma.* (Filed previously.)
2.2. Registration Rights Agreement dated as of December 15, 2000 between
the Company and Cooke Pharma. (Filed previously.)
2.3 Escrow Agreement dated as of December 15, 2000 among the
Company, UP Sub, Cooke Pharma and Mahon, Patusky, Rothblatt &
Fisher, Chartered, as escrow agent. (Filed previously.)
23.1 Consent of PricewaterhouseCoopers LLP.
* The Registrant hereby undertakes to furnish supplementally a copy of
any omitted schedule to this Agreement to the Securities and Exchange
Commission upon request.
2
4
SIGNATURE
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.
United Therapeutics Corporation
(Registrant)
Date: March 2, 2001 By: /s/ Fred T. Hadeed
-------------------------------
Name: Fred T. Hadeed
Title: Chief Financial Officer
3
5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Cooke Pharma, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Cooke Pharma, Inc. at December 31,
1999 and 1998, and the results of its operations and cash flows for each of the
years then ended in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has incurred losses from operations since inception that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
July 28, 2000
San Jose, California
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6
COOKE PHARMA, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
------------
1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 2,942,205 $ 1,994,512
Accounts receivable, net of allowance of $30,702 and $0, respectively 240,657 22,912
Inventory 1,393,842 153,093
Other current assets and receivables 21,065 18,824
---------------- ---------------
Total current assets 4,597,769 2,189,341
Property and equipment, net 358,429 451,662
Other assets 16,250 16,250
Total assets $ 4,972,448 $ 2,657,253
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,395,277 $ 332,038
Accrued expenses 176,864 63,672
Capital lease obligation 41,130 37,159
---------------- ---------------
Total current liabilities 1,613,271 432,869
Capital lease obligation - less current portion 127,771 168,901
---------------- ---------------
1,741,042 601,770
---------------- ---------------
Commitments (Note 5)
Shareholders' equity
Series A Preferred Stock, no par value
Authorized: 664,999 shares;
Issued and outstanding: 624,999 in 1999
and 1998 (liquidation value: $874,999) 842,204 842,204
Series B Preferred Stock, no par value
Authorized: 4,000,000 shares;
Issued and outstanding: 3,162,936 and 3,056,372 in 1999
and 1998 respectively, (liquidation value: $4,428,111) 4,428,111 4,291,521
Series C Preferred Stock, no par value
Authorized: 2,000,000 shares;
Issued and outstanding: 1,205,149 and 0 in 1999
and 1998 respectively, (liquidation value: $2,410,298) 2,410,298 -
Series D Preferred Stock, no par value
Authorized: 7,000,000;
Issued and outstanding: 5,000,000 and 0 in 1999
and 1998 respectively, (liquidation value: $12,500,000) 12,358,587 -
Common stock, no par value
Authorized: 375,000,000
Issued and outstanding: 3,992,656 and 3,885,989 in 1999
and 1998, respectively 179,909 146,256
Accumulated deficit (16,987,703) (3,224,498)
---------------- ---------------
Total shareholders' equity 3,231,406 2,055,483
---------------- ---------------
Total liabilities and shareholders' equity $ 4,972,448 $ 2,657,253
---------------- ---------------
The accompanying notes are an integral part of these financial statements.
5
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COOKE PHARMA, INC.
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
1999 1998
Revenues $ 1,712,684 $ 56,989
------------ ------------
Operating expenses:
Cost of revenues 1,528,873 20,997
Research and development 1,035,658 462,478
Sales and marketing 11,215,483 637,570
General and administrative 1,794,335 1,394,737
------------ ------------
Total operating expenses 15,574,349 2,515,782
------------ ------------
Loss from operations (13,861,665) (2,458,793)
Interest income, net 98,460 30,744
------------ ------------
Net loss $(13,763,205) $ (2,428,049)
============ ============
The accompanying notes are an integral part of these financial statements.
6
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COOKE PHARMA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
TOTAL
PREFERRED STOCK COMMON STOCK ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
Balance at December 31, 1997 350,000 $ 842,204 4,088,450 $ 109,985 $ (796,449) $ 155,740
Issuance of Series A Preferred Stock
in exchange for equivalent shares
of Common Stock in March 1998 274,999 - (275,000) - - -
Issuance of Common Stock at $0.50
per share in June 1998 for services
rendered - - 10,150 5,075 - 5,075
Issuance of Common Stock at $0.50
per share in August 1998 for services
rendered - - 62,389 31,196 - 31,196
Issuance of Series B Preferred Stock
at $1.40 per share in March 1998
through December 1998 for cash 3,011,872 4,216,621 - - - 4,216,621
Issuance of Series B Preferred Stock
at $1.40 per share in June through
November 1998 for services rendered 53,500 74,900 - - - 74,900
Net loss - - - - (2,428,049) (2,428,049)
----------- ------------ ----------- ------------ ------------ ------------
Balance at December 31, 1998 3,690,371 5,133,725 3,885,989 146,256 (3,224,498) 2,055,483
Issuance of Common Stock at $0.50 per
share in March 1999 for services
rendered - - 12,000 6,000 - 6,000
Issuance of Common Stock at $0.50 per
share in August 1999 for cash - - 30,000 15,000 - 15,000
Issuance of Common Stock upon
exercise of stock options - - 44,667 2,653 - 2,653
Issuance of Common Stock at $0.50 per
share in March 1999 in exchange for
amendment to license agreement - - 20,000 10,000 - 10,000
Issuance of Series B Preferred Stock at
$1.40 per share in March 1999 through
December 1999 for cash 87,000 121,800 - - - 121,800
Issuance of Series B Preferred Stock at
$1.40 per share in March 1999
for services rendered 10,564 14,790 - - - 14,790
Issuance of Series C Preferred Stock at
$2.00 per share in February through
May 1999 for cash 1,103,500 2,207,000 - - - 2,207,000
Issuance of Series C Preferred Stock at
$2.00 per share in March through
September 1999 for services rendered 101,649 203,298 - - - 203,298
Issuance of Series D Preferred Stock at
$2.50 per share in June through August
1999 for cash, net of issuance costs of
$141,414 4,807,344 11,876,946 - - - 11,876,946
Issuance of Series D Preferred Stock at
$2.50 per share in September 1999
upon conversion of note 180,071 450,178 - - - 450,178
Issuance of Series D Preferred Stock at
$2.50 per share in September 1999 for
services rendered 12,585 31,463 - - - 31,463
Net loss - - - - (13,763,205) (13,763,205)
----------- ------------ ----------- ------------ ------------ ------------
Balance at December 31, 1999 9,993,084 $ 20,039,200 3,992,656 $ 179,909 $(16,987,703) $ 3,231,406
=========== ============ =========== ============ ============ ============
The accompanying notes are an integral part of these financial statements.
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COOKE PHARMA, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,763,205) $ (2,428,049)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 100,110 36,520
Reserve for obsolete inventories 511,760 -
Issuance of Common Stock in exchange
for services rendered 6,000 36,271
Issuance of Preferred Stock in exchange
for services rendered 249,551 74,900
Issuance of Common Stock in exchange
for amendment to license agreement 10,000 -
Changes in assets and liabilities:
Accounts receivable (217,745) (22,912)
Inventory (1,752,509) (153,093)
Other assets (2,241) (16,541)
Accounts payable 1,063,239 290,089
Accrued expenses 113,192 59,545
------------ ------------
Net cash used in operating activities (13,681,848) (2,123,270)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,877) (259,150)
------------ ------------
Net cash used in investing activities (6,877) (259,150)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock, net 17,653 -
Proceeds from issuance of Preferred Stock, net 14,205,746 4,216,621
Proceeds from issuance of notes payable 450,178 -
Repayment of capital lease obligations (37,159) (16,275)
------------ ------------
Net cash provided by financing activities 14,636,418 4,200,346
------------ ------------
Net increase in cash and cash equivalents 947,693 1,817,926
Cash and cash equivalents at beginning of year 1,994,512 176,586
Cash and cash equivalents at end of year $ 2,942,205 $ 1,994,512
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Common Stock issued for services rendered $ 6,000 $ 36,271
============ ============
Preferred Stock issued for services rendered $ 249,551 $ 74,900
============ ============
Common Stock issued for amendment to license agreement $ 10,000 $ -
============ ============
Preferred Stock issued upon conversion of notes payable $ 450,178 $ -
============ ============
Acquisition of property and equipment under capital leases $ - $ 222,335
============ ============
The accompanying notes are an integral part of these financial statements.
8
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COOKE PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Cooke Pharma (the "Company"), was incorporated in California on April 21,
1995 to develop formulations for the treatment of atherosclerosis
through an understanding of the role of endothelium-derived nitric oxide
in the disease process. In 1998, the Company launched HeartBar(R), the
first medical food developed for the dietary management of cardiovascular
disease.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company's financial statements have been prepared on a basis of
accounting which contemplates realization of assets and satisfaction of
liabilities in the normal course of business. The Company has incurred
cumulative losses of $17 million through December 31, 1999. The continued
existence of the Company is dependent on the Company's ability to obtain
adequate funding and eventually establish profitable operations (see Note
9 - Subsequent Events). The financial statements do not include any
adjustments relating to the recoverability of assets and satisfaction and
classification of liabilities that might be necessary should the Company
be unable to continue in existence.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original or remaining maturity of three months or less at the time of
purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK AND RISKS AND UNCERTAINTIES
The Company's cash and cash equivalents are maintained with two financial
institutions in the United States. Deposits in these institutions may
exceed the amount of insurance provided on such deposits.
The Company operates in one business segment in the United States. To
achieve profitable operations, the Company must successfully manufacture
and market its product. These can be no assurance that the product can be
manufactured at an acceptable cost or that the product will be
successfully marketed. These factors could have a material adverse effect
upon the Company's financial results.
The Company sells primarily to wholesalers and retailers accounting for
over 75% of the Company's revenues. For the year ended December 31, 1999,
the Company had five primary customers.
9
11
COOKE PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
Revenues, other than those earned under consignment agreements, are
recognized when products are shipped. Revenues under consignment
agreements are recognized when product is sold to a third party by the
consignee.
INVENTORIES
Inventories are stated at the lower of cost, determined on a
first-in-first out method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives, generally three to
ten years. Leasehold improvements are amortized on a straight-line basis
over the lesser of the estimated useful lives or the lease term.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," ("APB No. 25") and
complies with the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123").
The Company accounts for stock issued to non-employees in accordance with
the provisions of SFAS No. 123 and Emerging Issue Task Force No. 96-18,
"Accounting for Equity Instruments that are issued to other than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."
INCOME TAXES
The Company accounts for income taxes under the liability method, whereby
deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. In July 1999, the
Financial Accounting Standards Board issued ("SFAS No. 137"), "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the
effective date until fiscal years beginning after June 15, 2000. The
Company has not engaged in hedging activities or invested in derivative
instruments.
10
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COOKE PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
3. INVENTORY
Inventories consist of the following:
DECEMBER 31,
1999 1998
Finished goods $ 1,905,602 $ 153,093
Less: Reserve for obsolescence (511,760) -
----------- ----------
$ 1,393,842 $ 153,093
=========== ==========
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
1999 1998
Furniture and fixtures $ 92,950 $ 92,169
Computer and equipment 273,863 267,767
Leasehold improvements 136,418 136,418
--------- ---------
503,231 496,354
Less: Accumulated depreciation and amortization (144,802) (44,692)
--------- ---------
Property and equipment, net $ 358,429 $ 451,662
========= =========
Property and equipment includes $222,335 of computer equipment under
capital leases at December 31, 1999 and 1998. Accumulated amortization of
assets under capital leases totaled $62,924 and $18,507 at December 31,
1999 and 1998, respectively.
5. COMMITMENTS
In July 1998, the Company entered into a noncancelable operating lease
for a facility which expires in June 30, 2003. Rent expense for the years
ended December 31, 1999 and 1998 was $68,000 and $54,910, respectively.
11
13
Future minimum lease payments under noncancelable operating and capital
leases are as follows:
YEAR ENDED CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
2000 $ 56,470 $ 70,020
2001 56,470 72,540
2002 56,470 75,060
2003 32,941 38,160
-------- --------
Total minimum lease payments 202,351 $255,780
Less: Amount representing interest 33,450 ========
--------
Present value of capital lease obligations 168,901
Less: Current portion 41,130
--------
Long-term portion of capital lease obligations $127,771
========
In May 1999, the Company entered into an Accounts Receivable Purchase
Line (the "Line") with a Bank. Under the Line, the Company was able to
sell to the Bank receivables up to a limit of $2,000,000. The Line
expired in May 2000. At December 31, 1999, no amounts were due to the
Bank under the line.
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COOKE PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
In March 1997, the Company entered into a license agreement with Leland
Stanford Junior University. Under this agreement the Company paid an
upfront license fee of $50,000 and issued the licensor 50,000 shares of
Common Stock. The Company is also obliged to pay a $10,000 annual royalty
and an additional royalty on net sales of its products. The agreement
expires 10 years from the date of the first commercial sale of the
Company's product.
In April 1999, the Company entered into a license agreement with New York
Medical College. Under this agreement the Company paid an upfront license
fee of $25,000 and issued the licensor 35,000 shares of Series C
Preferred Stock. A further $25,000 is payable by the Company in April
2000 as well as a $10,000 annual royalty on net sales of its products.
The agreement expires at the end of the term for which the Patent rights
are granted.
6. STOCKHOLDERS' EQUITY
In June 1999, the Company issued convertible promissory notes for gross
proceeds of $450,178. These notes were converted to Series D Preferred
Stock in September 1999.
Convertible Preferred Stock at December 31, 1999 consists of the
following:
PROCEEDS
NET OF
SHARES LIQUIDATION ISSUANCE
SERIES AUTHORIZED OUTSTANDING AMOUNT COSTS
A 664,999 624,999 $ 874,999 $ 842,204
B 4,000,000 3,162,936 4,428,111 4,428,111
C 2,000,000 1,205,149 2,410,298 2,410,298
D 7,000,000 5,000,000 12,500,000 12,358,587
---------- --------- ----------- -----------
13,664,999 9,993,084 $20,213,408 $20,039,200
========== ========= =========== ===========
The holders of Preferred Stock have various rights and preferences as
follows:
PREFERRED STOCK
VOTING RIGHTS
Holders of Series A, Series B, Series C, and Series D preferred stock
("Preferred Stock"), are entitled to the number of votes equal to the
number of shares of common stock into which such shares of preferred
stock could be converted.
13
15
Each Series of Preferred Stock shall be convertible into such a number of
duly paid and non-assessable shares of common stock as is determined by
dividing $1.40, $1.40, $2.00, and $2.50 for Series A, B, C and D,
respectively, by the conversion price of that series, in effect at the
time of the conversion. The initial conversion price shall be subject to
adjustment, in order to adjust the number of shares of common stock into
which each series of preferred stock is convertible. Each share of
Preferred Stock shall automatically be converted into shares of common
stock at the then effective conversion price upon the closing of the
offer and sale of capital stock to the public involving a pre-sale
capitalization of at least $100,000,000 with gross proceeds of at least
$30,000,000 for the account of the Company.
14
16
COOKE PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DIVIDENDS
The holders of outstanding shares of Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors,
non-cumulative dividends at the annual rate of $0.11, $0.11, and $0.16
for Series A, B, and C, respectively, and cumulative dividends at an
annual rate of $0.25 for Series D, payable in preference and priority to
any payment of any dividend on common stock of the Company. No dividends
or other distributions shall be made with respect to common stock, until
all declared dividends on the Preferred Stock have been paid. No
dividends on Preferred Stock or common stock have been declared by the
Board from inception through December 31, 1999.
LIQUIDATION PREFERENCES
In the event of any liquidation, dissolution, or winding up of the
Corporation, either voluntary or involuntary, holders of Preferred Stock
shall be entitled to be paid, before any payment shall be made in respect
of the Company's common stock, an amount equal to $1.40, $1.40, $2.00,
and $2.50, for series A, B, C and D Preferred Stock, respectively, plus
all declared and unpaid dividends thereon. After payment has been made to
the holders of Preferred Stock under the aforementioned liquidation
preferences, the remaining assets and funds of the Corporation legally
available for distribution to shareholders, if any, shall be distributed
ratably among the holders of Preferred Stock and the holders of Common
Stock based upon the relative number of shares of Common Stock then
outstanding assuming conversion into Common Stock of the total number of
shares of Preferred Stock outstanding, provided however, that at such
time as the distribution of liquidation of preferences equals $2.80,
$2.80, $4.00 and $5.00, for series A, B, C and D, respectively, the
holders of Preferred Stock will not be entitled to any further
distributions.
In March 1998, the Company issued warrants to purchase 519,363 shares of
Common Stock to selected Series B Preferred shareholders at an exercise
price of $1.40. The warrants expire in March 2003.
In July and August 1999, the Company issued warrants to purchase
357,398,436 shares of Common Stock to selected Series D Preferred
shareholders at an exercise price of $2.50. The warrants expire in March
2000. The warrants were valued using the Black-Scholes pricing model. The
resulting fair value was not material.
7. STOCK OPTION PLAN
In 1995, the Company authorized the 1995 Stock Option Plan (the "Plan")
under which the Board of Directors may issue incentive stock options to
employees, including officers and members of the Board of Directors, who
are also employees, and nonqualified stock options to employees,
officers, directors and consultants and advisors of the Company. Under
the Plan, incentive options to purchase the Company's common shares may
be granted to employees at prices not lower than fair market value at the
date of grant, as determined by the Board of Directors. Nonstatutory
options (options which do not qualify as incentive options) may be
granted to key employees, including directors and consultants, at prices
not lower than 85% of fair market value at the date of grant (110% in
certain cases), as determined by the Board of Directors.
15
17
COOKE PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Activity under the plan is as follows:
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE
AVAILABLE NUMBER PRICE
FOR GRANT OF SHARES PER SHARE
Balances at December 31, 1997 658,400 2,328,600 $0.01-$2.50
Additional shares authorized 1,500,000 - -
Options granted (1,041,600) 1,041,600 0.50
Options exercised - (72,539) 0.57
Options canceled 1,530,007 (1,530,007) 1.15
----------- -----------
Balances at December 31, 1998 2,646,807 1,767,654 -
Reduction in shares authorized (272,000) - -
Options granted (1,262,528) 1,262,528 0.53
Options exercised - (44,667) 0.01
Options canceled 128,800 (128,800) 0.40
----------- -----------
Balances at December 31, 1999 1,241,079 2,856,715 $ 0.40
=========== ===========
The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
OPTIONS CURRENTLY
OPTIONS OUTSTANDING EXERCISABLE
- -------------------------------------------------------------------- ----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
$0.01-$0.03 725,137 6.5 $0.03 731,250 $0.02
$0.10 140,000 6.8 $0.10 105,000 $0.10
$0.50 1,759,683 8.8 $0.50 302,066 $0.50
$0.75 201,895 9.8 $0.75 - -
$2.50 30,000 7.5 $2.50 15,000 $2.50
--------- ---------
2,856,715 8.2 $0.40 1,153,316 $0.19
========= =========
16
18
COOKE PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
FAIR VALUE DISCLOSURES
Had compensation cost for the Company's stock-based compensation plan
been determined based on the fair value at the grant dates for the awards
under a method prescribed by SFAS No. 123, there would have been no
material impact on the Company's net loss for 1999 and 1998.
The fair value of each employee option grant is estimated on the date of
grant using the minimum value method assuming an expected life of five
years, risk-free interest rate of 4.73% to 6.18% and expected dividend
yield of zero percent. The weighted-average per share fair value of
options granted to employees during 1999 and 1998 was $0.121 and $0.119,
respectively.
For options granted to consultants and other third-parties, the Company
determined the fair value of the options using the Black-Scholes option
pricing model with the following assumptions: expected life of five
years; risk-free interest rates of 4.73% to 6.18%, expected dividend
yield of zero percent and volatility of 60%. The resulting compensation
cost was not material.
8. INCOME TAXES
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset are as follows:
DECEMBER 31,
1999 1998
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 5,853,000 $ 926,000
Capitalized start-up costs 15,000 15,000
Capitalized research and development costs 326,000 326,000
Other 239,000 26,000
----------- -----------
6,433,000 1,293,000
Less: Valuation allowance (6,433,000) (1,293,000)
----------- -----------
$ - $ -
=========== ===========
At December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $15,671,000 and $8,996,000,
respectively, and federal and state credits of approximately $57,000 and
$60,000, respectively, available to offset future regular and alternative
minimum taxable income. The Company's federal and state net operating
loss carryforwards expire between 2005 and 2019, if not used before such
time to offset future taxable income or tax liabilities.
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the
stock ownership of a company. In the event the Company has a change in
ownership, utilization of the carryforwards could be restricted.
The Company has established a 100% valuation allowance because at this
time it appears more likely than not that no benefit will be realized for
its deferred tax assets.
17
19
COOKE PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
9. SUBSEQUENT EVENTS
In April 2000, the Company issued 1,220,000 shares of Series D Preferred
Stock at $2.50 per share for gross proceeds of $3,050,000.
On November 4, 2000, the Company signed a letter of intent with a third
party for the third party to acquire all the assets of the Company.
10. SUBSEQUENT EVENT TO DATE OF THE REPORT OF INDEPENDENT ACCOUNTANTS
(UNAUDITED)
On December 28, 2000, the Company completed the sale of all its assets
and certain liabilities to United Therapeutics Corporation (United
Therapeutics). The Company received 294,635 shares of common stock of
United Therapeutics valued at approximately $15.7 million, subject to
adjustment. In addition, the Company will receive cash royalties on
future product sales of up to $49 million. The sale will be accounted for
as a purchase.
18
20
COOKE PHARMA, INC.
BALANCE SHEET AS OF SEPTEMBER 30, 2000
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 608,082
Accounts receivable, net of allowance of $997,982 525,537
Inventory 339,660
Other current assets and receivables 566,961
------------
Total current assets 2,040,240
Property and equipment, net 320,314
Other assets 16,250
------------
Total assets $ 2,376,804
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 877,070
Accrued expenses 122,952
Capital lease obligation 44,385
------------
Total current liabilities 1,044,407
Capital lease obligation - less current portion 94,063
------------
1,138,470
------------
Shareholders' equity:
Series A Preferred Stock, no par value
Authorized: 664,999 shares;
Issued and outstanding: 624,999 in 2000
(liquidation value: $874,999) 842,204
Series B Preferred Stock, no par value
Authorized: 4,000,000 shares:
Issued and outstanding: 3,162,936 in 2000
(liquidation value: $4,428,111) 4,428,111
Series C Preferred Stock, no par value
Authorized: 2,000,000 shares;
Issued and outstanding, 1,205,149 in 2000
(liquidation value: $2,410,298) 2,410,298
Series D Preferred Stock, no par value
Authorized: 7,000,000;
Issued and Outstanding, 6,220,000 in 2000
(liquidation value: $12,500,000) 15,374,082
Common stock, no par value
Authorized; 375,000,000
Issued and outstanding: 4,084,747 in 2000
respectively 214,741
Accumulated deficit (22,031,102)
------------
Total shareholders' equity 1,238,334
------------
Total liabilities and shareholders' equity $ 2,376,804
============
The accompanying notes are an integral part of these financial statements.
19
21
COOKE PHARMA, INC.
STATEMENTS OF OPERATIONS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND
1999
(UNAUDITED)
2000 1999
Revenues $ 1,925,972 $ 1,370,725
------------ ------------
Operating expenses:
Cost of revenues 1,388,766 1,410,476
Research and development 398,293 844,884
Sales and marketing 4,333,122 8,390,081
General and administrative 893,827 1,470,010
------------ ------------
Total operating expenses 7,014,008 12,115,451
------------ ------------
Loss from operations (5,088,036) (10,744,726)
Interest income, net 44,637 69,160
------------ ------------
Net loss $ (5,043,399) $(10,675,566)
------------ ------------
The accompanying notes are an integral part of these financial statements.
20
22
COOKE PHARMA, INC.
STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND
1999
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,043,399) $(10,675,566)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 38,115 75,082
Reserve for obsolete inventories 21,961 511,760
Issuance of Common Stock in exchange
for services rendered - 6,000
Issuance of Preferred Stock in exchange
for services rendered - 249,551
Issuance of Common Stock in exchange
for amendment to license agreement - 10,000
Changes in assets and liabilities:
Accounts receivable (284,880) (510,325)
Inventory 1,032,221 (1,935,338)
Other assets (545,896) (31,498)
Accounts payable (518,207) 319,698
Accrued expenses (53,912) 384,835
------------ ------------
Net cash used in operating activities (5,353,997) (11,595,801)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment - (5,865)
------------ ------------
Net cash used in investing activities - (5,865)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock, net 34,832 17,653
Proceeds from issuance of Preferred Stock, net 3,015,495 14,205,746
Proceeds from issuance of notes payable - 450,178
Repayment of capital lease obligations (30,453) (28,458)
------------ ------------
Net cash provided by financing activities 3,019,874 14,645,119
------------ ------------
Net increase in cash and cash equivalents (2,334,123) 3,043,453
Cash and cash equivalents at beginning of period 2,942,205 1,994,512
------------ ------------
Cash and cash equivalents at end of period $ 608,082 $ 5,037,965
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Common Stock issued for services rendered $ - $ 6,000
============ ============
Preferred Stock issued for services rendered $ - $ 249,551
============ ============
Common Stock issued for amendment to license agreement $ - $ 10,000
============ ============
Preferred Stock issued upon conversion of notes payable $ - $ 450,178
============ ============
The accompanying notes are an integral part of these financial statements.
21
23
COOKE PHARMA INC.
NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
1. Interim Financial Statements
The accompanying unaudited financial statements of Cooke Pharma, Inc.
(the Company) have been prepared in accordance with generally accepted
accounting principles for interim financial information. In the opinion
of the Company's management, the financial statements reflect all
adjustments necessary to present fairly the results of the Company's
financial position as of September 30, 2000 and its operations and cash
flows for the nine month periods ended September 30, 2000 and 1999. These
adjustments are of a normal recurring nature. The results of operations
for the nine months ended September 30, 2000 are not necessarily
indicative of future financial results. Certain notes and other
information have been condensed or omitted from the interim financial
statements presented in this Form 8-K/A.
2. Barter Transactions
The Company values barter exchanges of its inventory at the cost of the
inventory. Profit is not recognized on these transactions. During the
nine month period ended September 30, 2000, the Company exchanged
inventory for credits to be used in the future. The barter credits are
classified as other current assets and totaled approximately $307,000 at
September 30, 2000.
3. Subsequent Event
On December 28, 2000, the Company completed the sale of all its assets
and certain liabilities to United Therapeutics Corporation (United
Therapeutics). The Company received 294,635 shares of common stock of
United Therapeutics valued at approximately $15.7 million, which number
of shares is subject to adjustment within one year of the closing of the
transaction. In addition, the Company will receive cash royalties on
future product sales of up to $49 million. The sale will be accounted for
as a purchase.
22
24
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined balance sheet gives effect to the
acquisition of Cooke Pharma, Inc., completed by United Therapeutics
Corporation on December 28, 2000, as if it had occurred on September 30,
2000.
The unaudited pro forma combined statement of operations for the year
ended December 31, 1999 gives effect to the acquisition of Cooke Pharma,
Inc. as if it had occurred on January 1, 1999. The unaudited pro forma
combined statement of operations for the nine months ended September 30,
2000 gives effect to the acquisition of Cooke Pharma, Inc. as if it had
occurred on January 1, 2000.
The unaudited pro forma combined balance sheet and statements of
operations are based on available information and on certain assumptions
and adjustments described in the accompanying notes which United
Therapeutics believes are reasonable. The unaudited pro forma combined
statements of operations are provided for informational purposes only and
do not purport to present the results of operations of United
Therapeutics had the transaction assumed therein occurred on or as of the
date indicated, nor is it necessarily indicative of the results of
operations which may be achieved in the future. The unaudited pro forma
combined balance sheet, statements of operations and related notes should
be read in conjunction with the consolidated financial statements of
United Therapeutics and notes thereto included in its Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 and the financial
statements of Cooke Pharma, Inc. and notes thereto included in this
Current Report on Form 8-K.
23
25
UNITED THERAPEUTICS CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
HISTORICAL HISTORICAL ACQUISITION
UNITED COOKE PHARMA,INC. ADJUSTMENTS COMBINED
THERAPEUTICS ----------------- ----------- --------
CORPORATION
-----------
Assets (a) (b) (c)
- ------
Current assets:
Cash and cash equivalents $ 224,287,827 $ 608,082 $ - $ 224,895,909
Investments 14,256,455 - - 14,256,455
Accounts receivable 581,969 525,537 - 1,107,506
Inventories 1,207,272 339,660 - 1,546,932
Prepaid expense 46,996 - - 46,996
Other current assets 454,859 566,961 - 1,021,820
------------- ------------ ------------ --------------
Total current assets 240,835,378 2,040,240 - 242,875,618
------------- ------------ ------------ --------------
Property, plant and equipment, net 3,918,618 320,314 - 4,238,932
Certificate of deposit 563,253 - - 563,253
Goodwill and other intangible assets,
net 2,094,339 - 7,533,330 (d) 9,627,669
Investment in affiliate 4,782,635 - - 4,782,635
Other 247,022 16,250 - 263,272
------------- ------------ ------------ --------------
Total assets $ 252,441,245 $ 2,376,804 $ 7,533,330 $ 262,351,379
============= ============ ============ ==============
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 3,328,785 $ 877,070 $ 203,434 (e) $ 4,409,289
Accrued expenses 4,533,305 122,952 - 4,656,257
Current portion of notes and leases
payable 29,247 44,385 - 73,632
------------- ------------ ------------ --------------
Total current liabilities 7,891,337 1,044,407 203,434 9,139,178
Notes and leases payable, excluding
current portion 1,762,778 94,063 - 1,856,841
Other liabilities 13,823 - - 13,823
------------- ------------ ------------ --------------
Total liabilities 9,667,938 1,138,470 203,434 11,009,842
Stockholders' equity:
Preferred stock - 23,054,695 (23,054,695) (f) -
Common stock 201,846 214,741 (211,795) (f) 204,792
Additional paid-in capital 335,580,796 - 15,668,984 (f) 351,249,780
Accumulated deficit (93,009,335) (22,031,102) 14,927,402 (g) (100,113,035)
------------- ------------ ------------ --------------
Total stockholders' equity 242,773,307 1,238,334 7,329,896 251,341,537
------------- ------------ ------------ --------------
Total liabilities and
stockholders' equity $ 252,441,245 $ 2,376,804 $ 7,533,330 $ 262,351,379
============= ============ ============ ==============
See notes to unaudited pro forma combined financial statements.
24
26
UNITED THERAPEUTICS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
HISTORICAL HISTORICAL ACQUISITION
UNITED COOKE PHARMA, INC. ADJUSTMENTS COMBINED
THERAPEUTICS ------------------ ----------- --------
CORPORATION
-----------
Revenues: (h) (i) (c)
Sales $ 225,245 $ 1,712,684 - $ 1,937,929
Grant revenue (note 3) 211,250 - - 211,250
------------ ------------ ------------ ------------
Total revenues 436,495 1,712,684 - 2,149,179
------------ ------------ ------------ ------------
Operating expenses:
Research and development 30,715,255 1,035,658 349,035 (j) 32,099,948
Sales and marketing - 11,215,483 - 11,215,483
General and administrative 4,977,983 1,794,335 198,863 (j) 6,971,181
Cost of sales 164,147 1,528,873 85,634 (k) 1,778,654
------------ ------------ ------------ ------------
Total operating expenses 35,857,385 15,574,349 633,532 52,065,266
------------ ------------ ------------ ------------
Loss from operations (35,420,890) (13,861,665) (633,532) (49,916,087)
Other income (expense):
Interest income 1,925,326 117,773 - 2,043,099
Interest expense (57,744) (19,313) - (77,057)
Other - net 50,064 - - 50,064
------------ ------------ ------------ ------------
Total other income 1,917,646 98,460 - 2,016,106
------------ ------------ ------------ ------------
Net loss before income tax (33,503,244) (13,763,205) (633,532) (47,899,981)
Income tax (note 7) (3,454) - - (3,454)
------------ ------------ ------------ ------------
Net loss $(33,506,698) $(13,763,205) $ (633,532) $(47,903,435)
============ ============ ============ ============
Net loss per common share -
basic and diluted (l) $ (2.51) $ (3.50)
============ ============
Weighted average number of
common shares outstanding -
basic and diluted (l) 13,374,294 294,635 13,668,929
============ ============ ============
See notes to unaudited pro forma combined financial statements.
25
27
UNITED THERAPEUTICS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
HISTORICAL HISTORICAL ACQUISITION
UNITED COOKE PHARMA, INC. ADJUSTMENTS COMBINED
THERAPEUTICS ------------------ ----------- --------
CORPORATION
-----------
(m) (n) (c)
Revenues:
Sales $ 1,109,591 $ 1,925,972 $ - $ 3,035,563
Grant revenue 150,000 - - 150,000
------------ ----------- ------------ ------------
Total revenues 1,259,591 1,925,972 - 3,185,563
------------ ----------- ------------ ------------
Operating expenses:
Research and development 42,848,352 398,293 261,776 (o) 43,508,421
Sales and marketing - 4,333,122 - 4,333,122
General and administrative 7,924,105 893,827 149,147 (o) 8,967,079
Cost of sales 918,417 1,388,766 96,299 (p) 2,403,482
------------ ----------- ------------ ------------
Total operating expenses 51,690,874 7,014,008 507,222 59,212,104
------------ ----------- ------------ ------------
Loss from operations (50,431,283) (5,088,036) (507,222) (56,026,541)
Other income (expense):
Interest income 6,709,370 78,903 - 6,788,273
Interest expense (90,201) (34,266) - (124,467)
Other - net 76,178 - - 76,178
------------ ----------- ------------ ------------
Total other income 6,695,347 44,637 - 6,739,984
------------ ----------- ------------ ------------
Net loss before income tax (43,735,936) (5,043,399) (507,222) (49,286,557)
Income tax - - - -
------------ ----------- ------------ ------------
Net loss $(43,735,936) $(5,043,399) $ (507,222) $(49,286,557)
============ =========== ============ ============
Net loss per common share -
basic and diluted (l) $ (2.32) $ (2.57)
============ ============
Weighted average number of
common shares outstanding -
basic and diluted (l) 18,871,366 294,635 19,166,001
============ ============ ============
See notes to unaudited pro forma combined financial statements.
26
28
UNITED THERAPEUTICS CORPORATION NOTES TO THE UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Note 1 - Pro Forma Adjustments for Acquisition of Cooke Pharma, Inc.
a. Balance sheet of United Therapeutics Corporation as of September
30, 2000.
b. Balance sheet of Cooke Pharma, Inc. as of September 30, 2000.
c. Represents adjustments for the Cooke Pharma, Inc. acquisition
based on a purchase price of approximately $15.7 million through
the issuance of 294,635 shares of United Therapeutics' common
stock. Cooke Pharma may receive additional shares from the Company
on the first anniversary of the closing if the average closing
price of the Company's common stock over the 90 calendar days
prior to the anniversary is less than $90.00 per share, in order
that the value of all shares issued to Cooke Pharma equals the
value of the shares issued to Cooke Pharma at the closing at
$90.00 per share. If, however, such average closing price is less
than $51.65 per share, the additional shares to be issued to Cooke
Pharma shall not exceed a value equal to the difference between
$90.00 and $51.65 per share. If the average anniversary closing
price is greater than $99.00 per share, the number of shares of
the Company's common stock issued as of the date of closing shall
be adjusted as if it had a value of $99.00 at closing (for a total
value not to exceed approximately $29.2 million), and the Company
shall receive the remaining shares following the adjustment. The
294,635 shares of United Therapeutics' common stock were valued at
the fair value of the 294,635 shares of stock issued using an
average NASDAQ closing price of $14.84 which totalled
approximately $4.4 million, plus the value of the potential
additional shares that may be issued which totalled approximately
$11.3 million (equivalent to the minimum guaranteed share price of
$90.00 per share less the floor established in the agreement of
$51.65 multiplied by 294,635 shares). Additionally, the Company
agreed to pay a royalty ranging from 5.0% to 6.0% of net sales up
to a maximum of $49.0 million in royalty payments.
d. Represents the amount of purchase price allocated to the Cooke
Pharma assembled workforce, core technology, patents, and the
HeartBar(R) trade name. These intangibles totaled approximately
$7.5 million and will be amortized in a straight line manner over
terms of three to eighteen years.
e. Represents the estimated legal and other costs related to the
Cooke Pharma acquisition.
f. Represents the elimination of Cooke Pharma's stockholder equity
accounts, and the issuance of 294,635 shares of United
Therapeutics' common stock valued as described above in note c.
g. Represents the charge for acquired in-process research &
development of $7.1 million and the elimination of Cooke Pharma's
accumulated deficit. The charge is nonrecurring and therefore not
included in the pro forma statements of operations.
h. Statement of operations for United Therapeutics for the year ended
December 31, 1999.
i. Statement of operations for Cooke Pharma for the year ended
December 31, 1999.
27
29
j. Represents amortization expense totaling approximately $548,000
related to the intangibles acquired in the Cooke Pharma
acquisition.
k. Represents royalty expenses totaling approximately $86,000.
l. For the pro forma combined net loss per share (basic and diluted)
and the weighted average share outstanding calculation, 294,635
shares of United Therapeutics common stock have been included as
if the acquisition occurred on January 1, 1999 and January 1, 2000
for the pro forma unaudited financial statements for the year
ended December 31, 1999 and for the nine months ended September
30, 2000, respectively.
m. Statement of operations for United Therapeutics for the nine
months ended September 30, 2000.
n. Statement of operations for Cooke Pharma for the nine months ended
September 30, 2000.
o. Represents amortization expense totaling approximately $411,000
related to the intangibles acquired in the Cooke Pharma
acquisition.
p. Represents royalty expenses totaling approximately $96,000.
28
30
UNITED THERAPEUTICS CORPORATION
EXHIBIT INDEX
Exhibit No. Description
23.1 Consent of PricewaterhouseCoopers LLP