UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: April 16, 2001
ANTARES PHARMA, INC.
(Exact Name of Registrant as Specified in Charter)
Commission File Number: 0-20945
Minnesota 0-20945 41-1350192
- ---------------------------- ----------------------- -------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
161 Cheshire Lane, Minneapolis, MN 55441
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (763) 475-7700
--------------
Medi-Ject Corporation
(Former Name of Registrant)
This Current Report on Form 8-KA is being filed to include the financial
statements and pro forma financial information previously omitted from the
original filing made on February 15, 2001.
Item 1. Changes in Control of Registrant.
In July 2000, Medi-Ject Corporation, now known as Antares Pharma, Inc.
("Antares"), entered into a Purchase Agreement with Permatec Holding AG
("Permatec"), Permatec Pharma AG, Permatec Technologie AG (each of the
foregoing, a company organized under the laws of Switzerland), and Permatec NV
(a company organized under the laws of the Netherlands, Antilles) (Permatec
Pharma AG, Permatec Technologie AG and Permatec NV, each a "Subsidiary" and
collectively, the "Subsidiaries"). The Subsidiaries' business is the development
of new, and the improvement of existing, technology for the delivery of drug
compounds, encompassing four main areas: patches, gels, fast-dissolving tablets
and transbuccal tablets.
Pursuant to the Purchase Agreement, on January 31, 2001, Antares purchased all
of the outstanding shares of each Subsidiary (the "Subsidiaries' Stock"). In
exchange, Antares issued 2,900,000 shares of Antares common stock to Permatec.
Upon the issuance, Permatec owned approximately 67% of the outstanding shares of
Antares common stock. For accounting purposes, Permatec is deemed to have
acquired Antares. Permatec had two other subsidiaries that were not part of the
Purchase Agreement and are in the process of being
dissolved. All liabilities and benefits relating to those two subsidiaries
remain with Permatec and are not part of our acquisition of the Subsidiaries.
Permatec remains in existence after the close of the Share Transaction. Dr.
Jacques Gonella, Chairman and founder of Permatec, beneficially holds 96.9% of
the outstanding stock of Permatec.
As a condition to the closing of this transaction, Karl Groth, Dr. Geoffrey Guy,
Dr. Fred Shapiro, and Stanley Goldberg resigned from the Board of Directors of
the Company, and upon closing, Dr. Gonella, Dr. Thomas Rinderknecht, Professor
Ubaldo Conte and Dr. Philippe Dro were appointed to the Board.
Item 2. Acquisition or Disposition of Assets.
On January 31, 2001, Antares issued 2,900,000 shares of our common stock for all
of the outstanding stock of the Subsidiaries. See Item 1. Also on January 31,
2001, promissory notes issued between January 25, 2000 and January 15, 2001, in
the aggregate principal amount of $5,500,000, were converted into Series C
Convertible Preferred Stock. Permatec, the holder of the Series C preferred
stock immediately exercised its right to convert the Series C Convertible
Preferred Stock, and Antares issued 2,750,000 shares of common stock to Permatec
upon such conversion. Also on that date, the name of the corporation was changed
to Antares Pharma, Inc.
Antares develops, commercializes and markets novel delivery solutions, including
needle-free and mini-needle injector systems, gel technologies and transdermal
products, which improve both the efficiency of drug therapies and the quality of
life for patients. We currently distribute our needle-free injector systems for
the delivery of insulin and growth hormone in over 20 countries and an estradiol
transdermal patch for hormone replacement therapy. In addition, we have five
products under development and we are conducting ongoing research to create new
technologies that combine various elements of the Company's portfolio. The
consolidated entity was created in 2001 through the agreement between Permatec
Holding AG and Antares Pharma, Inc. (formerly Medi-Ject Corporation). Antares
has corporate and research facilities located in Minneapolis, Minnesota and
Basel, Switzerland.
Item 7. Financial Statements and Exhibits.
a. Financial statements of business acquired.
The financial statements of the business acquired, Permatec
Holding AG, required by this item are contained in the
financial statements and footnotes thereto listed in the Index
on page F-1 herein. Because Permatec shareholders own 67% of
the combined entity, the acquisition was accounted for as a
reverse merger which means that these financial statements are
the historical financial statements of Antares Pharma.
b. Pro forma financial information.
The pro forma financial information required by this item are
contained in the financial statements and footnotes thereto
listed in the Index on page F-1 herein.
c. Exhibits.
Stock Purchase Agreement, dated as of July 14, 2000, among
Antares Pharma, Inc. (formerly Medi-Ject Corporation),
Permatec Holding AG, Permatec Pharma, Permatec Technologie AG
and Permatec NV, incorporated by reference to Annex A of the
corporation's definitive proxy statement, filed December 28,
2000.
Consent of KPMG LLP
2
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 thereunto duly authorized.
ANTARES PHARMA, INC.
Dated: April 16, 2001 By: /s/ Lawrence M. Christian
-------------------------------
Lawrence M. Christian
Vice President-Finance, Chief
Financial Officer and Secretary
3
INDEX TO FINANCIAL STATEMENTS
Permatec Holding AG, as of December 31, 1999 and 2000,
and for the years ended December 31, 1998, 1999 and 2000:
Management's Discussion and Analysis of Financial
Condition and Results of Operations F-2
Consolidated Balance Sheets F-9
Consolidated Statements of Operations F-10
Consolidated Statements of Shareholders' Deficit
and Comprehensive Loss F-11
Consolidated Statements of Cash Flows F-12
Notes to Consolidated Financial Statements F-13
Independent Auditors' Report F-27
Independent Auditors' Consent F-28
Unaudited pro forma condensed combined financial statements of Antares
Pharma, Inc. - as of and for the year ended December 31, 2000
Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 2000 F-29
Unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 2000 F-30
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements F-31
F-1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
GENERAL
Permatec's business consists of developing new, or improving existing,
technology for the delivery of drug compounds. As a niche drug delivery
technology company, Permatec develops highly specialized formulations to address
the need to deliver drugs through connective tissues like skin and mucosa.
Permatec has developed a technology and patent portfolio encompassing four main
areas: patches, gels, fast dissolving tablets and transbuccal tablets.
Permatec's strategy is to license its technology to development and marketing
partners through a combination of license and development agreements, as well as
research and development collaborations.
Permatec is a private Swiss holding company, founded in 1997, whose
principal wholly owned subsidiaries consist of Permatec Pharma AG (Switzerland),
Permatec Technologie AG (Switzerland) and Permatec NV (Netherlands Antilles). As
discussed below, the other two subsidiaries are in the process of being
liquidated. Permatec Laboratorios SA ("Permatec Argentina"), was initially
founded in Argentina in 1996 as part of the JAGO group. JAGO was a Swiss oral
drug delivery company that was sold in 1996 by its founder Dr. Jacques Gonella,
the principal shareholder of Permatec, to SkyePharma, a United Kingdom company
traded on the London Stock Exchange and Nasdaq Stock Market. Permatec Argentina
was not acquired by SkyePharma as part of the JAGO group transaction and
subsequently became a wholly owned subsidiary of Permatec, along with Permatec
Pharma, Permatec Technologie and Permatec NV, each of which was acquired in 1996
by the persons who later founded Permatec.
In 1999, Permatec restructured its operations into one location in
Basel, Switzerland and commenced the liquidation of Permatec France. Permatec
Argentina's operations in Buenos Aires, Argentina consisted primarily of a
research facility and Permatec France, SA's operations in Lyon, France consisted
of business development and regulatory matters. To reduce costs associated with
operating a small company in different countries, Permatec decided to
consolidate its operations in Basel, Switzerland, the location of many
pharmaceutical companies in Europe. Facilities in both France and Argentina were
closed. As a result of this restructuring, Permatec incurred a restructuring
charge of $454,428 during the fiscal year ended December 31, 1999, and $266,790
for the fiscal year ended December 31, 2000. The restructuring programs are now
substantially complete. After the closing of the transaction, Permatec Argentina
and Permatec France will remain wholly owned subsidiaries of Permatec. Any costs
incurred or benefits obtained with respect to the dissolution of these
subsidiaries will affect Permatec and not Medi-Ject.
The Subsidiaries have entered into various product development,
licensing, marketing, manufacturing and supply agreements with collaborative
partners. Product development and licensing agreements generally provide for
Permatec to receive payments in various forms. These payments can include
licensing fees and other payments upon the execution of an agreement, milestone
payments upon achievement of certain technical and regulatory goals, or periodic
payments in the form of cost reimbursements for product development.
In July 2000, Medi-Ject Corporation, now known as Antares Pharma, Inc.
("Antares"), entered into a Purchase Agreement with Permatec Holding AG
("Permatec"), Permatec Pharma AG, Permatec Technologie AG (each of the
foregoing, a company organized under the laws of Switzerland), and Permatec NV
(a company organized under the laws of the Netherlands, Antilles) (Permatec
Pharma AG, Permatec Technologie AG and Permatec NV, each a "Subsidiary" and
collectively, the "Subsidiaries"). Pursuant to the Purchase Agreement, on
January 31, 2001, Antares purchased all of the outstanding shares of each
Subsidiary (the "Subsidiaries' Stock"). In exchange, Antares issued 2,900,000
shares of Antares common stock to Permatec. Upon the issuance, Permatec owned
approximately 67% of the outstanding shares of Antares common stock. For
accounting purposes, Permatec is deemed to have acquired Antares. As a result,
the previously filed historical financial
F-2
statements of Medi-Ject Corporation will no longer be the historical financial
statements of Antares. Therefore, the Permatec historical financial statements
will become the historical financial statements of Antares. The following
management discussion and analysis is of Permatec and its subsidiaries.
The following is a summary of Permatec's significant license
agreements:
1. Segix License Agreement:
In May 1999, Permatec Technologie entered into an exclusive agreement
to license one application of its drug-delivery technology to Segix Italia
S.p.a. ( "Segix") in Italy, the Vatican and San Marino (collectively, "the Segix
Territories"). Permatec Technologie is required to transfer technology know-how,
provide technical assistance, and to reimburse an estimated $75,000 to Segix for
one-half of the cost of a bio-equivalency study, if that study is required by
the Italian regulatory authorities. Segix will use the licensed technology to
seek marketing approval of a hormone replacement therapy product. The license
agreement requires Segix to pay a $25,000 exclusivity fee, $125,000 upon signing
of the license, $100,000 upon the first submission by Segix to regulatory
authorities in the Segix Territories, $100,000 upon the first completed
registration with any of the regulatory officials in the Segix Territories, and
$150,000 upon the earlier of receipt of reimbursement classification from any of
the regulatory authorities or the launch of product sales in the Segix
Territories.
Permatec recognized $228,720 in 1999, which is net of filing and
registration fees of $21,280, related to milestone payments under this
agreement. Permatec Technologie must also provide Segix with licensed product
under a supply agreement that runs for two years from the date of first delivery
of products ordered by Segix, which is automatically renewable for additional
one year periods unless terminated by either party. The supply agreement is a
separately priced, independent agreement that is not tied to the license
agreement. Permatec Technologie will receive from Segix a 5% royalty from the
sale of licensed products in the Segix Territories.
In 2000, Permatec adopted the cumulative deferral method for
recognizing revenue, which will result in the ratable revenue recognition of
milestone payments from the date of achievement of the milestone through the
commencement of marketing for the licensed product. Marketing is expected to
commence in March 2002. Permatec will recognize the first two milestone payments
of $125,000 and $100,000 over estimated 35 and 34-month periods, respectively,
and the final two milestone payments of $100,000 and $150,000 over estimated 12
and 6-month periods, respectively.
2. Solvay License Agreement:
In June 1999, Permatec Technologie entered into an exclusive agreement
to license one application of its drug-delivery technology to Solvay
Pharmaceuticals ("Solvay") in all countries except the United States, Canada,
Japan and Korea (collectively, "the Solvay Territories"). Permatec Technologie
is required to transfer technology know-how and to provide developmental
assistance to Solvay until the licensed product is approved by each country's
applicable regulatory authorities. Permatec Technologie will be reimbursed by
Solvay for all technical assistance provided during Solvay's development. Solvay
will use the licensed technology for the development of a hormone replacement
therapy gel. The license agreement requires Solvay to pay Permatec Technologie
milestone payments of $1,000,000 upon signing of the license, $1,000,000 upon
the start of Phase IIb/III clinical trials, $1,000,000 upon the first submission
by Solvay to regulatory authorities in the Solvay Territories, and $2,000,000
upon the first completed registration in either Germany, France or the United
Kingdom. Permatec recognized $1,000,000 in 1999 related to milestone payments
under this agreement. Permatec Technologie will receive from Solvay a 5% royalty
from the sale of licensed products.
In 2000, Permatec adopted the cumulative deferral method for
recognizing revenue which results in the ratable revenue recognition of
milestone payments from the date of achievement of the
F-3
milestone through the commencement of marketing for the licensed product, which
is expected to occur in July 2004. Permatec will recognize the first three
$1,000,000 milestone payments over estimated periods of 61, 39 and 16-months,
respectively, and the final $2,000,000 milestone payment over an estimated
six-month period.
3. BioSante License Agreement:
In June 2000, Permatec Technologie entered into an exclusive agreement
to license four applications of its drug-delivery technology to BioSante
Pharmaceuticals, Inc. ("BioSante") in the United States, Canada, China,
Australia, New Zealand, South Africa, Israel, Mexico, Malaysia and Indonesia
(collectively, "the BioSante Territories"). Permatec Technologie is required to
transfer technology know-how and to provide significant developmental assistance
to BioSante until the licensed product is approved by each country's regulatory
authorities. BioSante will use the licensed technology for the development of
hormone replacement therapy products. At the signing of the contract, BioSante
paid Permatec Technologie $1,000,000, of which $250,000 will offset future
royalties from BioSante's sale of licensed products. This milestone payment was
for the delivery of intellectual property to BioSante. Permatec recognized the
remaining $750,000 in the quarter ended June 30, 2000. BioSante is required to
tender milestone payments of $125,000 upon commencement of manufacturing of each
of the first two licensed products. In the event that Permatec Technologie fails
to produce or have produced the ordered clinical batches, then Permatec
Technologie is required to repay 25% of these two milestone payments to BioSante
at a rate of $62,500 for each of the four products they cannot produce or have
produced.
Permatec Technologie will receive $500,000 upon the commencement of
clinical trials in the United States for one defined product. Permatec
Technologie will receive an aggregate of $1,400,000 upon filing for regulatory
approval for the four licensed products and an aggregate of $1,700,000 upon
approval by the regulatory agencies in the BioSante Territory. The payment for
these milestones is defined on a country-by-country basis in the license
agreement. Permatec Technologie will receive 25% or 35%, depending on the
country, of any sublicense fees received by BioSante. Permatec Technologie is
obligated to incur the first $150,000 of production costs for each of the four
products, for an aggregate of $600,000. Permatec recognized $750,000 in 2000
related to milestone payments under this agreement. Permatec Technologie will
receive from BioSante a 6% royalty from the sale of licensed products. Permatec
Technologie is further obligated to provide BioSante licensed product under a
twenty-year supply agreement. The supply agreement is a separately priced,
independent agreement that is not tied to the license agreement.
In the agreement, Permatec Technologie has granted BioSante the option
for additional licensed territories and the licensed products. Permatec
Technologie will receive additional milestone payments if this option is
exercised.
In 2000, Permatec adopted the cumulative deferral method for
recognizing revenue which results in the ratable revenue recognition of
milestone payments from the date of achievement of the milestone through the
commencement of marketing for each of the licensed products. Permatec is
recognizing the initial $1,000,000 milestone payment in revenue over a 57-month
period. All other milestone payments will be recognized ratably on a
product-by-product basis from the date the milestone payment is earned and all
repayment obligations have been satisfied until the marketing commences for each
respective product. It is expected that these milestones will be earned at
various dates from September 2001 to March 2005 and will be recognized as
revenues over periods ranging from six to 42 months.
Results of operations may vary significantly from quarter to quarter.
These results depend upon, among other factors, the signing of new product
development agreements, the timing of fees and milestone payments made by
collaborative partners, the progress of clinical trials, product sales levels
and costs associated with the manufacturing processes. The timing of research
and development
F-4
revenues may not match the timing of the associated expenses. The amount of
revenues in any given period is not necessarily indicative of future revenues.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 which provides the Staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
The SAB provides additional guidance on when revenue is realized, earned and
properly recognized. Permatec has elected to adopt the cumulative deferral
method for recognizing milestone revenues beginning with the fourth quarter of
fiscal 2000. This method defers milestone payments with amortization to income
over the contract term using the percentage of completion or straight-line
basis. With the adoption of the cumulative deferral method, Permatec recognizes
revenue on a straight-line basis commencing with the achievement of a
contractual milestone. If Permatec is required to refund any portion of a
milestone payment, the milestone will not be amortized into revenue until the
repayment obligation no longer exists.
RESULTS OF OPERATIONS
Year ended December 31, 1999 compared to the year ended December 31, 2000.
Revenues decreased by 59% from $1,351,607 in 1999 to $560,043 in 2000.
In 1999 Permatec received $1 million, upon the achievement of a milestone, while
development revenues recognized during the year 2000 were $387,807 and license
fees were $172,236. Upon adoption of the cumulative deferral method in 2000,
Permatec recognized a cumulative effect adjustment that increased its losses by
$1,059,622 or $105.96 per share as of January 1, 2000. Permatec also restated
its license revenues for the nine-month period ended September 30, 2000, to
decrease license revenues by $471,922. For the year ended December 31, 2000,
Permatec recognized $277,200 of license revenues that were deferred at January
1, 2000, as a result of the adoption of the cumulative deferral method.
Research and development expenses decreased by 43% from $1,647,059 in
1999 to $938,562 in 2000. The decrease was attributable to the closing in 1999
of operations in Argentina and France.
General and administrative expenses decreased 36% from $3,299,684 in
1999 to $2,102,980 in 2000 due to the closure of operations in France and
Argentina.
Permatec recorded $266,790 of restructuring expenses during the year
ended December 31, 2000. Such expenses are in connection with the dissolution of
Permatec Laboratorios (Permatec Argentina), and the related closure of
Permatec's research and development facility in Argentina and the dissolution of
Permatec France and the related terminated of employees associated with
Permatec's business development, patent administration, project management and
administrative functions in France. Permatec has recorded all restructuring
charges incurred during the year ended December 31, 2000, as general and
administrative expenses.
The restructuring charges incurred during the year ended December 31,
2000 included involuntary severance benefits of $178,257 for two employees of
Permatec's French operations resulting from an arbitration settlement finalized
in March 2000. During 1999, at the time the original restructuring plan was
formulated, management was unable to estimate the severance benefit for these
two employees. In connection with the restructuring activities which commenced
in 1999 approximately 25 employees were terminated, 13 of which received
involuntary severance benefits.
As a result of management's ongoing review of the restructuring
activities related to the dissolution of Permatec France and Permatec Argentina,
which commenced in 1999, Permatec recorded charges of approximately $17,000
related to the write-off of certain equipment which was to be disposed of via
scrap at its French subsidiary in the year ended December 31, 2000. Accordingly,
Permatec adjusted the carrying value of the equipment to zero, resulting in an
impairment charge of $17,000. Permatec also incurred restructuring related
expenses of $71,533 in the year ended
F-5
December 31, 2000 related to certain other incremental costs of exiting its
facilities including legal and consulting fees, and lease termination costs.
Permatec has undertaken these restructuring actions as part of its
effort to reduce costs and to centralize its developmental and administrative
functions in Switzerland. These restructuring programs are now substantially
complete. The following table provides a summary of Permatec's restructuring
provision activity:
Asset Facilities,
Severance & Impairment Legal &
Benefits (non-cash) Other Total
Balance December 31, 1999 ........ $ 179,288 $ - $ 101,528 $ 280,816
----------- ------------ ------------ -----------
2000 restructuring expenses ...... 178,257 17,000 71,533 266,790
Amount utilized in the year ended
December 31, 2000 ................ (357,545) (17,000) (173,061) (547,606)
----------- ------------ ------------ -----------
Balance December 31, 2000 ........ $ -- $ -- $ -- $ --
=========== =========== ============= ===========
Sales and marketing expenses increased 401% from $231,110 in 1999 to
$1,157,066 in 2000. The majority of the increase was attributable to additional
consulting expenses of approximately $493,204 related to market evaluation and
analysis. A commission fee of $40,000 was incurred in 2000 while increased
travel and Share Transaction expense accounted for the remainder of the
increase.
Other Income (Expense) increased 253% from $159,120 in 1999 to $562,200
in 2000. Interest expense and other expense increased 167% from $297,451 in 1999
to $795,435 in 2000 due to higher average borrowings during the period net of
foreign exchange differences in shareholders' loans. Other income increased 69%
from $138,331 in 1999 to $233,235 in 2000 due primarily to exchange differences
on loans to Medi-Ject Corporation.
Year ended December 31, 1999 compared to year ended December 31, 1998.
Total revenues increased from $246,838 in 1998 to $1,351,607 in 1999.
The increase in revenues was primarily a result of the commencement of licensing
activities and the receipt of milestone payments from development agreements.
License revenues increased 362% from $67,528 in 1998 to $311,740 in
1999. License revenues were primarily attributable to signing on fees for new
development contracts with Solvay and Segix related to the NETA/Estradiol
Combi-gel and Estradiol patch, respectively. Product development fees were
$1,036,533 in 1999 compared to none in 1998. Permatec received other revenue of
$179,310 in 1998 due to undertaking sub-contract work for a related company. The
corresponding amount in 1999 was $3,334 a reduction of 98%.
Research and development expenses decreased by 5.9% from $1,749,666 in
1998 to $1,647,059 in 1999. The decrease was attributable to the partial closing
of operations in France in late 1999 as the first action in restructuring
Permatec. The future level of research and development expenditures will depend
on, among other things, the status of products under development and the outcome
of clinical trials, strategic decisions by management, and the consummation of
new license agreements.
F-6
General and administrative expenses increased 34% from $2,464,065 in
1998 to $3,229,684 in 1999 due to a $454,428 restructuring charge and to
increases in rent, office expenses and personnel costs for new employees in the
office in Basel.
The restructuring expenses are in connection with the closure of
Permatec's developmental facility in Argentina and termination of employees
associated with Permatec's business development, patent administration, project
management and administrative functions in France.
The restructuring charge is primarily comprised of involuntary
severance benefits and other incremental costs of exiting facilities, including
lease termination costs, and write-off of certain assets. In connection with the
closure of these facilities, Permatec has involuntarily terminated approximately
25 employees, of which 13 were entitled to receive severance benefits from
Permatec.
Permatec reported charges of approximately $103,400 related to the
write-off of assets which were disposed of in connection with the closure of the
France and Argentina facilities for the year ended December 31, 1999. The assets
disposed of consisted of certain laboratory equipment and office equipment that
Permatec decided not to transfer to its central facilities in Basel,
Switzerland.
The following table provides a summary of Permatec's restructuring
provision activity:
Severance & Asset Facilities &
Benefits Impairment Legal & Other Total
Balance December 31, 1998 ............ $ -- $ -- $ -- $ --
----------- ----------- ------------ ----------
1999 restructuring provisions ........ 249,500 103,400 101,528 454,428
Amount utilized in 1999 ............. (70,212) (103,400) -- (173,612)
----------- ----------- ------------ ----------
Balance December 31, 1999 ............ $ 179,288 $ -- $ 101,528 $ 280,816
=========== =========== ============ ==========
Sales and marketing expenses increased 19.2% from $178,741 in 1998 to
$213,110 in 1999 mainly due to payments to a consultant on the signing of a new
project.
Other Income (Expense) increased 28% from $124,372 in 1998 to $159,120
in 1999 due to higher average borrowings during the period.
Liquidity and Capital Resources
Permatec historically has financed the operations of the Subsidiaries
by obtaining loans from Permatec's controlling shareholders, which loans
amounted to $17,664,020 at December 31, 2000. Upon consummation of the Share
Transaction with Antares on January 31, 2001, the full principal amount of these
loans, along with liabilities to related parties of $321,640 at December 31,
2000, respectively, were converted to equity.
As of December 31, 2000, Permatec had $243,222 in cash and cash
equivalents as compared to $674,569 at December 31, 1999. Cash used in 1999 and
2000 funded the net operating loss, purchase of fixed assets and was offset in
part by reductions in accounts receivable and by increases in accounts payable
and compensation and other accrued liabilities.
Permatec incurred a net loss of $5,260,387 for the year ending December
31, 2000 as it continues to incur marketing and development costs related to
bringing future generations of products to market. Permatec has historically
funded its operations primarily with subordinated loans from shareholders. Upon
consummation of the acquisition, Medi-Ject Corporation changed its name to
Antares Pharma,
F-7
Inc., and the full principal amount of the shareholders' loans of $17,664,020,
along with the liability to related parties of $321,640 at December 31, 2000,
respectively, was converted to equity. Since January 2000, Permatec has loaned
approximately $5,000,000 to Medi-Ject to fund Medi-Ject's operating expenses.
Permatec received convertible promissory notes from Medi-Ject for such loans,
which notes converted into approximately 27,500 shares of Medi-Ject Series C
Convertible Preferred Stock at the closing and were immediately converted to
2,750,000 shares of Antares common stock.
On February 5, 2001, Antares issued 1,194,537 shares of common stock
for $7,000,000, and on March 5, 2001, Antares issued 511,945 shares of common
stock for $3,000,000 in connection with a private placement of Units. Each Unit,
at a price of $23.44, consisted of (i) four shares of our common stock, $0.01
par value, and (ii) a warrant to purchase one share of our common stock. Each of
the four warrants, to purchase in the aggregate 426,621 shares of common stock,
issued in the private placement is exercisable for a period of five years at an
exercise price of $7.03.
Management believes the conversation of subordinated and related party
debt to equity and the raising of private placement funds for $10 million,
current working capital, projected product development and license revenues will
provide the new company, Antares, with sufficient liquidity well in to 2002.
F-8
PERMATEC HOLDING AG
Consolidated Balance Sheets
as of December 31, 1999 and 2000
1999 2000
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 674,569 $ 243,222
VAT, capital taxes and other receivables 284,023 408,534
Prepaid expenses and other current assets 4,572 13,165
------------ ------------
963,164 664,921
------------ ------------
Equipment, furniture, and fixtures, net 800,044 831,541
Patent rights, net 247,074 253,434
Goodwill, net 266,945 88,982
Deposits 7,128 2,374
Notes receivable and due from Medi-Ject
Corporation -- 5,133,296
------------ ------------
Total assets $ 2,284,355 $ 6,974,548
============ ============
Liabilities and shareholders' deficit
Current liabilities:
Trade accounts payable $ 305,710 $ 369,176
Accounts payable other 237,125 396,626
Restructuring provisions 280,816 --
Deferred revenue -- 1,659,612
Capital lease obligations-current 91,808 107,815
Accrued expenses 269,200 249,628
Liabilities to related parties 339,733 321,640
Other current liabilities 8,124 --
------------ ------------
1,532,516 3,104,498
------------ ------------
Subordinated loans from shareholders 10,005,146 17,664,020
Capital lease obligations-less current maturities 92,141 67,635
Other long-term liabilities 1,876 --
------------ ------------
Total liabilities 11,631,679 20,836,153
------------ ------------
Shareholders' deficit:
Share capital CHF 100 par; shares: 10,000
shares issued and outstanding at December
31, 1999 and 2000, respectively 689,655 689,655
Additional paid-in capital 1,110,097 1,174,680
Accumulated deficit (12,004,076) (17,264,463)
Accumulated other comprehensive income 857,000 1,538,523
------------ ------------
Total shareholders' deficit (9,347,324) (13,861,605)
------------ ------------
Total liabilities and shareholders' deficit $ 2,284,355 $ 6,974,548
============ ============
See the accompanying notes to the consolidated financial statements.
F-9
PERMATEC HOLDING AG
Consolidated Statements of Operations
for the years ended December 31, 1998, 1999 and 2000
1998 1999 2000
----------- ----------- -----------
Revenues
Product development $ -- $ 1,036,533 $ 387,807
License revenue 67,528 311,740 172,236
Contract research with related parties 179,310 3,334 --
----------- ----------- -----------
246,838 1,351,607 560,043
----------- ----------- -----------
Operating expenses:
Research and development 1,749,666 1,647,059 938,562
General and administrative 2,464,065 3,299,684 2,102,980
Sales and marketing 178,741 213,110 1,157,066
----------- ----------- -----------
4,392,472 5,159,853 4,198,608
----------- ----------- -----------
Operating loss (4,145,634) (3,808,246) (3,638,565)
----------- ----------- -----------
Other income (expense):
Interest and other expense (173,146) (297,451) (795,435)
Interest and other income 48,774 138,331 233,235
----------- ----------- -----------
(124,372) (159,120) (562,200)
----------- ----------- -----------
Loss before accounting change (4,270,006) (3,967,366) (4,200,765)
Cumulative effect of change in accounting
principle (note 13) -- -- (1,059,622)
----------- ----------- -----------
Net loss $(4,270,006) $(3,967,366) $(5,260,387)
=========== =========== ===========
Loss per share:
Loss before accounting change $ (533.75) $ (396.74) $ (420.08)
Cumulative effect of change in accounting
principle (note 12) -- -- (105.96)
----------- ----------- -----------
Net loss per share $ (533.75) $ (396.74) $ (526.04)
=========== =========== ===========
Basic and diluted weighted average shares
outstanding 8,000 10,000 10,000
=========== =========== ===========
See the accompanying notes to the consolidated financial statements.
F-10
PERMATEC HOLDING AG
Consolidated Statements of Shareholders' Deficit and
Comprehensive Loss for the years ended December
31, 1998, 1999 and 2000
Accumulated
Share Capital Additional Other Total
----------------------- Paid In Accumulated Comprehensive Shareholders'
Shares Amount Capital Deficit Income (loss) Deficit
------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 6,000 $ 413,793 $1,110,097 $(3,766,704) $38,679 $(2,204,135)
Conversion of subordinated 4,000 275,862 -- -- -- 275,862
loan into share capital
Net loss -- -- -- (4,270,006) -- (4,270,006)
Translation adjustment -- -- -- -- (319,340) (319,340)
---------
Comprehensive loss -- -- -- -- -- (4,589,346)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 10,000 689,655 1,110,097 (8,036,710) (280,661) (6,517,619)
Net loss -- -- -- (3,967,366) -- (3,967,366)
Translation adjustment -- -- -- -- 1,137,661 1,137,661
---------
Comprehensive loss -- -- -- -- -- (2,829,705)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 10,000 689,655 1,110,097 (12,004,076) 857,000 (9,347,324)
Share issuance to employees -- -- 64,583 -- -- 64,583
Net loss -- -- -- (5,260,387) -- (5,260,387)
Translation Adjustment -- -- -- -- 681,523 681,523
-------
Comprehensive loss -- -- -- -- -- (4,578,864)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 10,000 $ 689,655 $1,174,680 $(17,264,463) $1,538,523 $(13,861,605)
=============================================================================================================================
See the accompanying notes to the consolidated financial statements.
F-11
PERMATEC HOLDING AG
Consolidated Statements of Cash Flows
for the years ended December 31, 1998, 1999 and 2000
1998 1999 2000
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(4,270,006) $(3,967,366) $(5,260,387)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 427,881 560,628 392,847
Gain on sale of equipment, furniture and
fixtures -- (50,423) (9,000)
Stock-based compensation expense -- -- 64,583
Changes in operating assets and liabilities:
VAT, capital taxes and other receivables (306,722) 322,008 (134,888)
Prepaid expenses and other assets (14,837) 28,100 (9,116)
Trade accounts payable 142,910 59,517 (96,303)
Other liabilities and accrued expenses 489,913 126,614 296,656
Restructuring provisions -- 299,537 (272,307)
Deferred revenue -- -- 1,659,612
Other 47,543 (33,095) 5,735
----------- ----------- -----------
Net cash used in operating activities (3,483,318) (2,654,480) (3,362,568)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of equipment, furniture and fixtures (607,648) (424,053) (133,641)
Acquisition costs invoiced to Medi-Ject
Corporation -- -- (1,033,296)
Payments for patent rights (48,810) (145,449) (51,396)
Proceeds from sale of equipment, furniture
and fixtures -- 89,469 --
----------- ----------- -----------
Net cash used in investing activities (656,458) (480,033) (1,218,333)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from subordinated loans from
shareholders 4,364,234 3,560,640 4,235,765
Principal payments on capital lease
obligations (87,569) (135,681) (115,606)
----------- ----------- -----------
Net cash provided by financing activities 4,276,665 3,424,959 4,120,159
----------- ----------- -----------
Effect of exchange rate changes on cash and cash
equivalents 23,769 (108,253) 29,395
----------- ----------- -----------
Increase in cash and cash equivalents 160,658 182,193 (431,347)
Cash and cash equivalents:
Beginning of year 331,718 492,376 674,569
----------- ----------- -----------
End of year $ 492,376 $ 674,569 $ 243,222
=========== =========== ===========
See the accompanying notes to the consolidated financial statements.
F-12
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
1. Description of Business and Summary of Significant Accounting Policies
Business description and basis of presentation
Permatec Holding AG ("Permatec" and its wholly owned subsidiaries
Permatec Pharma AG, Permatec Technolgie AG, Permatec NV, Permatec Laboratorios
SA and Permatec France SA, collectively "Permatec") are primarily engaged in
activities related to the development of transdermal and transmucosal
pharmaceutical products. Permatec develops highly specialized formulations to
address the need to deliver drugs through skin and mucosa using patches, gels
and fast-dissolving and transbuccal tablets for several drugs and drug
combinations. Permatec's principal development facilities and executive offices
are located in Basel, Switzerland.
Permatec is 60% owned by Venture Capital Partners ("VECAP"), an entity
owned 90% by Dr. Jacques Gonella, 36.9% owned directly by Dr. Gonella and 3.1%
owned by three other minority shareholders. Permatec was founded in 1997 by
VECAP and Dr. Gonella, who then owned 40% of the outstanding shares of VECAP.
Pursuant to a voting agreement among VECAP shareholders, Dr. Gonella had
effective control of VECAP since 1993. At the time of Permatec's organization in
December 1997, VECAP owned 60% of the outstanding shares of Permatec
Technologie, which owned 100% of the shares of Permatec NV. Prior to Permatec's
organization, Permatec NV owned 100% of Permatec Laboratorios. VECAP contributed
to Permatec the 60% of Permatec Technologie, which it owned and Dr. Gonella
contributed the remaining 40% and 38.8% of Permatec Technologie and Permatec
Pharma, respectively, which he owned. The remaining 1.2% of Permatec Pharma was
owned equally by three minority shareholders. Permatec NV subsequently
transferred 100% of the outstanding shares of Permatec Laboratorios to Permatec.
Also in 1997, Dr. Gonella who owned 98% of the shares of Permatec France,
transferred all of those shares to Permatec Pharma. As a result of these
transfers, Dr. Gonella and VECAP owned 28% and 60%, respectively, of the
outstanding shares of Permatec in 1997. For financial reporting purposes
Permatec has been presented as if it existed as of January 1, 1997 to reflect
Permatec's shareholder structure on a historical basis.
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
All intercompany transactions and balances between Permatec and its subsidiaries
have been eliminated for all periods presented.
Translation of foreign currencies
Permatec has determined that the local currency is the functional
currency for all of its subsidiaries under Financial Accounting Standards Board
Statement No. 52, "Foreign Currency Translation" (FAS 52). Permatec's reporting
currency is the United States Dollar ("USD"). The financial statements of
Permatec's foreign subsidiaries are translated into USD for consolidation
purposes. All assets and liabilities are translated using period-end exchange
rates and statements of operations items are translated using average exchange
rates for the period. The resulting translation adjustments are recorded as a
separate component of shareholders' deficit. Foreign currency transaction gains
and losses are included in determining net loss, but have not been material in
any of the periods presented.
Cash and Cash Equivalents
Permatec considers highly liquid debt instruments with original
maturities of 90 days or less to be cash equivalents.
F-13
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
Equipment, Furniture, and Fixtures
Equipment, furniture, and fixtures are stated at cost and are
depreciated using the straight-line method over their estimated useful lives
ranging from four to ten years.
Patent Rights
Permatec capitalizes the costs of obtaining patent rights. These
capitalized costs are amortized on a straight-line basis over ten years
beginning in the year the patent is issued. Recoverability of such patent assets
is evaluated on a periodic basis.
Goodwill
Goodwill arising from the purchase of minority ownership interests in
1996 is amortized on a straight-line basis over 5 years. Goodwill (along with
all long lived assets) is reviewed for impairment whenever the facts and
circumstances indicate the carrying value may not be recoverable.
Revenue Recognition
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 which provides the Staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
The SAB provides additional guidance on when revenue is realized, earned and
properly recognized. Permatec has elected to adopt the cumulative deferral
method for recognizing milestone revenues beginning with the fourth quarter of
fiscal 2000. This method defers milestone payments with amortization to income
over the contract term using the percentage of completion or straight-line
basis. With the adoption of the cumulative deferral method, Permatec recognizes
revenue on a straight-line basis commencing with the achievement of a
contractual milestone. If Permatec is required to refund any portion of a
milestone payment, the milestone will not be amortized into revenue until the
repayment obligation no longer exists. See further discussion of Permatec's
license arrangements in Note 12.
Upon adoption of the cumulative deferral method, Permatec recognized a
cumulative effect adjustment that increased its losses by $1,059,622 or $105.96
per share as of January 1, 2000. Permatec also restated its license revenues for
the nine-month period ended September 30, 2000 to decrease license revenues by
$471,922. For the year ended December 31, 2000, the Company recognized $277,200
of license revenues that were deferred at January 1, 2000 as the result of the
adoption of the cumulative deferral method.
Prior to the adoption of the cumulative deferral method, licensing and
product development revenue was recognized when underlying performance criteria
for payment had been met and Permatec had an unconditional right to such
payment. Depending on a license or product development agreement's terms,
recognition criteria was satisfied upon achievement of milestones or passage of
time. Milestone payments were typically triggered by the successful achievement
of important events such as the completion of clinical studies, filings with the
FDA, bioequivalence to other drugs, and approval by the FDA as defined by the
underlying licensing and product development agreement. Permatec classified
amounts received related to the performance of a series of tasks, (e.g. testing
the transdermal penetration of a drug, manufacture of a clinical batch, etc.) as
product development revenues.
F-14
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
Permatec classifies amounts received related to royalties from sales of
products licensed by Permatec, which Permatec developed or partially developed,
as license revenues in accordance with the terms of the underlying agreement.
Permatec recognizes royalty revenues upon the sale of licensed products
by the licensee, and recognizes such revenue as license revenue. Permatec
occasionally receives payment of up-front royalty advances from licensees. Upon
adoption of the cumulative deferral method, if vendor specific objective
evidence of fair value exists, revenues from up-front royalty payments are
deferred until earned through the sale of licensed revenue from the licensee or
the termination of the agreement based on the terms of the license. If vendor
specific objective evidence of fair value does not exist, revenues from up-front
royalty payments are recognized using the cumulative deferral method. Permatec
classifies amounts received related to royalties from sales of products licensed
by Permatec, which Permatec developed or partially developed, as license
revenues in accordance with the terms of the underlying agreement.
In certain cases Permatec receives up-front payments upon signing
licensing and development agreements. Prior to the adoption of the cumulative
deferral method, if the up-front payment related to services already performed,
and there was no additional performance obligation under the agreement the
amount was recognized as revenue in the period the payment was received. If
Permatec had subsequent obligations under the agreement, or the payment did not
relate to services already provided, the amount was deferred in relation to the
performance requirements under the related licensing and development agreement.
Upon adoption of the cumulative deferral method, up-front license payments are
deferred and amortized into revenues on a straight-line basis.
Research and Development
Permatec sponsored research and development expenses related to product
and patent development are expensed as incurred.
Advertising Costs
Advertising costs are insignificant and are expensed as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be realized or settled.
Net Loss Per Share
Basic earnings per share is computed by dividing the net loss by the
weighted-average number of shares outstanding for the period. For the years
ended December 31, 1998, 1999 and 2000, basic and diluted earnings per share are
identical, as there were no potentially dilutive securities.
F-15
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 these
estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, other receivables,
deposits, and all financial liabilities other than the subordinated loans from
shareholders reported in the balance sheet are carried at amounts that
approximate their estimated fair value. At December 31, 1998, 1999, and 2000, it
was not practicable to estimate the fair value of the subordinated loans from
shareholders, because of the lack of quoted market prices for similar
investments, and such loans can only be repaid by Permatec once Permatec
achieves positive shareholders' equity as defined by Swiss statutory
regulations.
Fair value estimates are made at a specific point in time based on
relevant market and financial instrument information. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement and therefore cannot be determined with precision. Changes in
assumptions could significantly affect these estimates.
Stock Based Compensation
Compensation expense for stock-based compensation granted to employees
and directors is recognized in accordance with Accounting Principles Board,
Opinion 25 ("APB 25"), "Accounting for Stock Issued to Employees." Pro forma
effects on net loss and loss per share are provided as if the fair-value method
defined in Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," had been applied.
New Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), in June 1998, the amended version of which is effective
January 1, 2001. SFAS 133 will require Permatec to record all derivatives on the
balance sheet at fair value. For derivatives that are hedges, the changes in the
fair value will be offset by the changes in the fair value of the hedged assets,
liabilities or firm commitments.
F-16
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
Permatec currently does not make use of derivative instruments, accordingly
Permatec does not believe SFAS 133 will not have any effect on their reported
results of operations or financial position.
Reclassifications
Certain prior period amounts have been reclassified to conform with
current period presentation.
2. Liquidity
As reflected in the accompanying Permatec consolidated financial
statements, Permatec incurred a net loss of $5,260,387 for the year ended
December 31, 2000. In addition, Permatec has incurred net losses and has had
negative cash flows from operating activities since inception. As further
described in note 13, Permatec acquired Medi-Ject Corporation (Medi-Ject) in a
transaction accounted for as a reverse acquisition on January 31, 2001. Upon
consummation of this transaction, subordinated loans of $17,664,020 and related
party loans of $321,640 were converted to equity. In addition, the net assets
(or liabilities) of Permatec France and Permatec Argentina were retained by
Permatec's majority shareholder. Upon consummation of the acquisition, Medi-Ject
Corporation changed its name to Antares Pharma and through March 5, 2001, had
raised $10 million through a private placement. Management believes the
conversion of subordinated and related party debt to equity and the raising of
private placement funds for $10 million, current working capital, projected
product development and license revenues will provide Permatec with sufficient
liquidity well into 2002.
3. Composition of Certain Financial Statement Captions
1999 2000
---------- ----------
Equipment furniture and fixtures:
Equipment, furniture and fixtures $1,443,566 $1,026,360
Less accumulated depreciation 643,522 194,819
---------- ----------
$ 800,044 $ 831,541
========== ==========
Patent rights:
Patent rights $ 308,023 $ 343,036
Less accumulated amortization 60,949 89,602
---------- ----------
$ 247,074 $ 253,434
========== ==========
Goodwill:
Goodwill $ 889,816 $ 889,816
Less accumulated amortization 622,871 800,834
---------- ----------
$ 266,945 $ 88,982
========== ==========
4. Leases
Permatec has several noncancelable operating leases for its office and
developmental facilities that expire on various dates through September 2008.
Rent expense incurred for the years ended December 31, 1998, 1999 and 2000 was $
99,730, $ 270,537 and $ 143,349 respectively.
Permatec is also obligated under various non-cancellable leases
classified as capital leases.
F-17
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
1999 2000
-------- ----------
Equipment furniture and fixtures under capital
lease obligations are as follows
at December 31, 1999, and 2000:
Equipment, furniture and fixtures $572,392 $ 282,385
Less accumulated amortization 309,256 92,143
-------- ----------
$263,136 $ 190,242
======== ==========
The following is a schedule by year of the future minimum lease
payments at December 31, 2000:
Year ending Operating Capital
December 31 leases leases
----------- ---------- --------
2001 $ 158,000 $107,814
2002 139,500 59,250
2003 149,500 8,386
2004 162,000 --
2005 189,900 --
2006 and beyond 417,600 --
---------- --------
Total $1,216,500 $175,450
========== ========
5. Restructuring Activities
Permatec recorded $ 454,428 and $ 266,790 of restructuring expenses
during the years ended December 31, 1999 and 2000, respectively. Such expenses
are in connection with the closure of Permatec's developmental facility in
Argentina and termination of employees associated with Permatec's business
development, patent administration, project management and administrative
functions in France. Permatec has recorded all restructuring charges incurred
during the years ended December 31, 1999 and 2000, as general and administrative
expense.
The restructuring charge is primarily comprised of involuntary
severance benefits and other incremental costs of exiting facilities, including
lease termination costs, and write-off of certain assets. In connection with the
closure of these facilities, Permatec involuntarily terminated in 1999
approximately 25 employees, of which 13 were entitled to receive severance
benefits from Permatec. The restructuring charges incurred during 2000 included
involuntary severance benefits of $ 178,257 for two employees of Permatec's
French operations resulting from an out of court arbitration settlement
finalized in March 2000.
Permatec reported charges of approximately $ 103,400 and $ 17,000
related to the write-off of assets which were disposed of in connection with the
closure of the France and Argentina facilities for the years ended December 31,
1999 and 2000, respectively. The assets disposed of consisted of certain
laboratory equipment and office equipment that Permatec decided not to transfer
to its central facilities in Basel, Switzerland.
Permatec undertook these restructuring actions as part of its efforts
to reduce costs and to centralize its developmental and administrative functions
in Switzerland. These restructuring programs were
F-18
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
completed during the year ended December 31, 2000. The following table provides
a summary of Permatec's restructuring provision activity:
Facilities,
Severance and Asset Legal and
Benefits Impairment Other Total
------------- ---------- ----------- ----------
Balance December 31, 1998 $ -- $ -- $ -- $ --
1999 restructuring expenses 249,500 103,400 101,528 454,428
Amount utilized in 1999 (70,212) (103,400) -- (173,612)
---------- ---------- ---------- ----------
Balance December 31, 1999 179,288 -- 101,528 280,816
2000 restructuring expenses 178,257 17,000 71,533 266,790
Amount utilized in 2000 (357,545) (17,000) (173,061) (547,606)
---------- --------- ---------- ----------
Balance December 31, 2000 $ -- $ -- $ -- $ --
========== ========= ========== ==========
6. Taxes
Due to losses, Permatec did not record a provision for income taxes in
years ended December 31, 1998, 1999 and 2000. The members of Permatec are
subject to tax in the countries in which each member has activity.
1999 2000
--------- ---------
Income taxes at applicable tax rate $(776,640) $(839,910)
Increase in valuation allowance 776,640 726,600
Other - net -- 113,310
--------- ---------
Income tax expense $ -- $ --
========= =========
Income tax provision:
Swiss $ -- $ --
United States -- --
--------- ---------
$ -- $ --
========= =========
Income tax provision:
Current $ -- $ --
Deferred -- --
--------- ---------
$ -- $ --
========= =========
Deferred tax assets and liabilities as of December 31, 1999 and 2000
consist of the following:
1999 2000
----------- ----------
Net operating loss carryforward $ 581,250 999,326
Research and development 918,750 925,274
Deferred revenue -- 302,000
----------- ----------
Total deferred tax assets 1,500,000 2,226,600
Less valuation allowance (1,500,000) (2,226,600)
----------- ----------
Net deferred tax assets $ -- --
=========== ==========
F-19
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
At December 31, 2000, Permatec has Swiss net operating loss
carryforwards ("NOL") of approximately $ 4,996,630, for income tax purposes,
which if unused will expire in 2004 through 2007. Permatec's deferred tax assets
related to research and development are associated with certain research and
development costs, which are eligible for capitalization and amortization for
tax purposes in certain of Permatec's taxable jurisdictions. At December 31,
1999 and 2000, Permatec has established a valuation allowance against its net
deferred tax assets due to Permatec's history of pre-tax losses and a lack of
objective evidence that it is more likely than not that such deferred tax assets
are realizable.
7. Shareholders' Deficit
In June of 1998, subordinated loans of $ 275,862 provided by Dr.
Gonella and VECAP, Permatec's shareholders, were converted into 4,000 shares of
the Permatec's share capital.
8. Pensions or related plans
Permatec contributes premiums to a fund for its employees, which is
administered by a third-party insurer. Permatec has no obligation to provide
specific benefits to its employees and has determined that its benefit plan is a
defined contribution plan. Contributions under this plan amounted to $ 6,707, $
9,103 and $ 31,631 for the years ended December 31, 1998, 1999 and 2000,
respectively.
9. Related Party Transactions
At December 31, 1999 and 2000 Permatec had subordinated loans payable
to Permatec's minority shareholder, Dr. Jacques Gonella of $ 7,506,773 and $
15,227,131 and to Permatec's majority shareholder, VECAP, of $ 2,498,373 and $
2,436,889, respectively. These parties have provided the loans, which bear an
annual interest rate of 3%, in several installments throughout Permatec's
operating history. These loans are subordinated, and can only be repaid by
Permatec once Permatec achieves positive shareholders' equity as defined by
Swiss statutory regulations. As further discussed in Note 13 the subordinated
loans were converted to equity on January 31, 2001.
At December 31, 1999 and 2000 Permatec had $ 339,733 and $ 321,640,
respectively, payable to other companies ultimately owned by Permatec's
shareholder, Dr. Gonella related to administrative and management services
provided by related companies in the period. These amounts are non-interest
bearing and are classified as current liabilities. As further discussed in Note
13 these related party loans were converted to equity on January 31, 2001.
Based on a memorandum of understanding and corresponding invoices
Permatec paid approximately $ 701,379, $ 637,500 and $ 0 related to certain
costs incurred by other companies owned by Dr. Gonella, in 1998, 1999 and 2000,
respectively. These costs primarily relate to management and administrative
services provided by the related companies on behalf of Permatec. This agreement
has been terminated effective January 1, 2000.
Permatec received approximately $ 3,334 and $ 0 for patent registration
and other administration and research and development services provided by
Permatec for other companies owned by shareholder, Dr. Gonella, in 1999 and
2000, respectively.
F-20
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
10. Supplemental Disclosures of Cash Flow Information
Permatec did not make any cash payments for interest during the years
ended December 31, 1998, 1999 and 2000. All interest expense incurred by
Permatec related to its subordinated loans to Dr. Gonella and VECAP has been
included in the outstanding loan balance at December 31, 1998, 1999 and 2000.
Interest expenses credited to the loan balances in the years ended December 31,
1998, 1999 and 2000, were $ 155,062, $ 248,101 and $ 373,906, respectively.
Cash paid for taxes during the years ended December 31, 1998, 1999 and
2000 was $ 32,427, $ 79,170 and $ 1,231, respectively.
Permatec incurred additional capital lease obligations of $ 263,267, $
130,629 and $ 96,550, in the years ended December 31, 1998, 1999 and 2000,
respectively.
In June 1998, a subordinated loan of $ 275,862 provided by Permatec's
shareholders was converted into 4,000 shares of Permatec's share capital. This
transaction had no impact on Permatec's consolidated cash flows for the year
ended December 31, 1997.
In connection with the Medi-Ject transaction, Permatec's primary
shareholder, Dr. J. Gonella, advanced operating funds directly to Medi-Ject
Corporation on behalf of Permatec. As a result of these transactions Permatec
had recorded $4,100,000 in notes receivable and a corresponding increase in
subordinated loans from shareholders. In addition Permatec incurred acquisition
related costs of $1,033,296 which were billed to Medi-Ject pursuant to the terms
of the amended acquisition agreement. At December 31, 2000, an aggregate of
$900,000 of the acquisition cost obligation was converted to notes receivable,
bringing the total to $5,000,000 in notes receivable from Medi-Ject Corporation,
and $133,296 is reflected as due from Medi-Ject Corporation.
11. Industry Segment and Operations by Geographic Areas
Permatec is primarily engaged in one line of business -- development of
transdermal and transmucosal pharmaceutical products -- which accounted for 100%
of consolidated revenues. For reporting purposes, these operations are
considered to be one segment. The geographic distributions of Permatec's
identifiable assets, net loss before taxes and revenues are summarized in the
following table:
Revenues by country of origin are summarized as follows:
1998 1999 2000
--------- ----------- ----------
Switzerland $ 67,528 $ 1,348,273 $ 560,043
France 179,310 3,334 --
--------- ----------- ----------
$ 246,838 $ 1,351,607 $ 560,043
========= =========== ==========
F-21
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
Net loss before taxes by country is summarized as follows:
1998 1999 2000
------------ ------------ -----------
Switzerland $ (1,796,619) $ (778,284) $(3,860,484)
Argentina (1,333,982) (1,543,982) (192,000)
France (907,241) (1,407,537) (83,106)
All other (199,737) (158,393) (63,944)
------------ ------------ -----------
$ (4,237,579) $ (3,888,196) $(4,199,534)
============ ============ ===========
Assets by country are summarized as follows:
1998 1999 2000
---------- ---------- ----------
Switzerland $1,213,841 $1,064,613 $6,938,063
Argentina 668,454 516,475 5,000
France 508,514 512,031 31,232
All other 279,825 191,236 253
---------- ---------- ----------
$2,670,634 $2,284,355 $6,974,548
========== ========== ==========
12. Significant customers and license agreements
The following summarizes significant customers comprising 10% or more
of Permatec's revenue for the year ended December 31:
1998 1999 2000
-------- ---------- ---------
Solvay $ 41,614 $1,036,534 $196,680
Segix 25,914 228,720 80,451
Laboratories Jago (related party) 179,310 3,333 --
BioSante -- -- 122,808
Other -- 83,020 160,104
-------- ---------- --------
$246,838 $1,351,607 $560,043
======== ========== ========
Segix License Agreement
In May 1999, Permatec Technologie entered into an exclusive agreement
to license one application of its drug-delivery technology to Segix Italia
S.p.a. ("Segix") in Italy, the Vatican and San Marino (collectively, "the Segix
Territories"). Permatec Technologie is required to transfer technology know-how,
provide technical assistance, and to reimburse an estimated $75,000 to Segix for
one-half of the cost of a bio-equivalency study, if that study is required by
the Italian regulatory authorities. Segix will use the licensed technology to
seek marketing approval of a hormone replacement therapy product. The license
agreement requires Segix to pay a $25,000 exclusivity fee, $125,000 upon signing
of the license, $100,000 upon the first submission by Segix to any one of the
regulatory authorities in the Segix Territories, $100,000 upon the first
completed registration with any of the regulatory officials in the Segix
Territories, and $150,000 upon the earlier of receipt of reimbursement
classification from regulatory authorities or the launch of product sales in the
Segix Territories.
Permatec recognized $228,720 in 1999, which is net of filing and
registration fees of $21,280, related to milestone payments under this
agreement. Permatec must also provide Segix with licensed product
F-22
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
under a supply agreement that runs for two years from the date of first delivery
of products ordered by Segix, which is automatically renewable for additional
one year periods unless terminated by either party. The supply agreement is a
separately priced, independent agreement that is not tied to the license
agreement. Permatec Technologie will receive from Segix a 5% royalty from the
sale of licensed products in the Segix Territories.
In 2000, Permatec adopted the cumulative deferral method for
recognizing revenue, which results in the ratable revenue recognition of
milestone payments from the date of achievement of the milestone through the
commencement of marketing for the licensed product. Marketing is expected to
commence in March 2002. Permatec will recognize the first two milestone payments
of $125,000 and $100,000 over estimated 35 and 34-month periods, respectively,
and the final two milestone payments of $100,000 and $150,000 over estimated 12
and 6-month periods, respectively.
Solvay License Agreement
In June 1999, Permatec Technologie entered into an exclusive agreement
to license one application of its drug-delivery technology to Solvay
Pharmaceuticals ("Solvay") in all countries except the United States, Canada,
Japan and Korea (collectively, "the Solvay Territories"). Permatec Technologie
is required to transfer technology know-how and to provide developmental
assistance to Solvay until the licensed product is approved by each country's
applicable regulatory authorities. Permatec Technologie will be reimbursed by
Solvay for all technical assistance provided during Solvay's development. Solvay
will use the licensed technology for the development of a hormone replacement
therapy gel. The license agreement requires Solvay to pay Permatec Technologie
milestone payments of $ 1,000,000 upon signing of the license, $ 1,000,000 upon
the start of Phase IIb/III clinical trials, as defined in the agreement, $
1,000,000 upon the first submission by Solvay to regulatory authorities in the
Solvay Territories, and $ 2,000,000 upon the first completed registration in
either Germany, France or the United Kingdom. Permatec recognized $ 1,000,000 in
1999 related to milestone payments under this agreement. Permatec will receive
from Solvay a 5% royalty from the sale of licensed products.
In 2000, Permatec adopted the cumulative deferral method for
recognizing revenue which results in the ratable revenue recognition of
milestone payments from the date of achievement of the milestone through the
commencement of marketing for the licensed product, which is expected to occur
in July 2004. Permatec will recognize the first three $1,000,000 milestone
payments over estimated periods of 61, 39 and 16-months, respectively, and the
final $2,000,000 milestone payment over an estimated six-month period.
BioSante License Agreement
In June 2000, Permatec Technologie entered into an exclusive agreement
to license four applications of its drug-delivery technology to BioSante
Pharmaceuticals, Inc. ("BioSante") in the United States, Canada, China,
Australia, New Zealand, South Africa, Israel, Mexico, Malaysia and Indonesia
(collectively, "the BioSante Territories"). Permatec Technologie is required to
transfer technology know-how and to provide significant development assistance
to BioSante until the licensed product is approved by each country's regulatory
authorities. BioSante will use the licensed technology for the development of
hormone replacement therapy products. At the signing of the contract, BioSante
paid Permatec Technologie $ 1,000,000, of which $250,000 will offset future
royalties from BioSante's sale of licensed products. This milestone payment was
for the delivery of intellectual property to BioSante. BioSante is required to
tender milestone payments of $125,000 upon commencement of manufacturing of each
of the first two licensed products. In the event that Permatec Technologie fails
to produce or have produced the
F-23
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
ordered clinical batches, then Permatec Technologie is required to repay 25% of
these two milestone payments to BioSante at a rate of $ 62,500 for each of the
four products they cannot produce or have produced.
Permatec Technologie will receive $500,000 upon the commencement of
clinical trials in the United States for one defined product. Permatec
Technologie will receive an aggregate of $1,400,000 upon filing for regulatory
approval for the four licensed products and an aggregate of 1,700,000 upon
approval by the regulatory agencies in the BioSante Territory. The payment for
these milestones is defined on a country-by-country basis in the license
agreement. Permatec Technologie will receive 25% or 35%, depending on the
country, of any sublicense fees received by BioSante. Permatec Technologie is
obligated to incur the first $150,000 of production costs for each of the four
products, for an aggregate of $600,000. Permatec Technologie will receive from
BioSante a 6% royalty from the sale of licensed products. Permatec Technologie
is further obligated to provide BioSante licensed products under a twenty-year
supply agreement. The supply agreement is a separately priced, independent
agreement that is not tied to the license agreement.
In the agreement, Permatec Technologie has granted BioSante the option
for additional licensed territories and the licensed products. Permatec
Technologie will receive additional milestone payments if this option is
exercised.
In 2000, Permatec adopted the cumulative deferral method for
recognizing revenue which results in the ratable revenue recognition of
milestone payments from the date of achievement of the milestone through the
commencement of marketing for each of the licensed products. Permatec is
recognizing the initial $1,000,000 milestone payment in revenue over a 57-month
period. All other milestone payments will be recognized ratably on a
product-by-product basis from the date the milestone payment is earned and all
repayment obligations have been satisfied until the marketing commences for each
respective product. It is expected that these milestones will be earned at
various dates from September 2001 to March 2005 and will be recognized as
revenues over periods ranging from six to 42 months.
13. Acquisition of Medi-Ject Corporation
On January 25, 2000 Permatec entered into a non-binding letter of
intent to sell three of its subsidiaries, to Medi-Ject (a US company based in
Minneapolis, Minnesota). The respective share purchase agreement signed on July
14, 2000 specifies that Permatec will transfer all of the issued and outstanding
shares of Permatec's Permatec Pharma AG, Permatec Technologie AG, and Permatec
NV subsidiaries to Medi-Ject in exchange for 2,900,000 shares of Medi-Ject
common stock.
On January 31, 2001, the acquisition was consummated under the purchase
method of accounting and Medi-Ject Corporation changed its name to Antares
Pharma, Inc. The transaction was accounted for as a reverse acquisition because
Permatec's shareholders will hold approximately 67% of the outstanding common
stock of Medi-Ject. Accordingly, for accounting purposes, Permatec is deemed to
have acquired Medi-Ject. Upon consummation of the transaction, the full
principal amount of the shareholders' loans of $17,664,020 along with the
liability to related parties of $321,640 at December 31, 2000, respectively, was
converted to equity.
In connection with the transaction with the Medi-Ject transaction,
Permatec has incurred direct incremental acquisition related expenses of $
1,033,296, which are comprised of consulting, accounting
F-24
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
and legal fees during the twelve months ended December 31, 2000. The capitalized
costs were invoiced to Medi-Ject Corporation on December 31, 2000.
Pursuant to the acquisition agreement, Permatec agreed to invest up to
$ 5,500,000 in convertible debt financing to Medi-Ject. The notes converted into
Medi-Ject Series C Convertible Preferred stock upon closing of the transaction
with Medi-Ject and immediately converted the Series C Preferred Shares into
2,750,000 shares of Antares Pharma common stock.
On February 6 and March 6, 2001, Antares Pharma raised an aggregate of
$10 million in a private placement of common stock to fund future development of
the combined company's operations.
The aggregate consideration paid was $5,470,533 including $460,654 of
Permatec's acquisition costs billed to Medi-Ject. The estimated allocation of
the purchase price to Medi-Ject assets and liabilities is as follows:
Cash & cash equivalents $ 223,591
Accounts receivable 213,801
Inventories 490,256
Prepaid expenses & other current assets 32,869
Property & equipment 1,217,665
Intangibles 332,848
Goodwill 4,521,826
Trade accounts payable (779,900)
Accrued expenses & other liabilities (727,048)
Long-term liabilities (55,375)
----------
$5,470,533
==========
Unaudited pro forma results of operations for the years ended December
31, 1999 and 2000, assuming Permatec acquired Medi-Ject as of January 1, 1999,
and the conversion of $5,000,000 in promissory notes had occurred as of January
1, 2000, are as follows:
Pro forma
December 31,
-------------------------------
1999 2000
----------- ------------
Net revenues $ 4,833,469 $ 2,553,284
Net loss (8,271,440) (10,649,209)
Net loss per share (1.91) (1.56)
The pro forma results include estimates and assumptions which
management believes are reasonable. However, pro forma results do not include
any cost savings or any other effects of the planned integration of Permatec and
Medi-Ject, and are not necessarily indicative of the results which would have
occurred if the Share Transaction had been in effect on the dates indicated, or
which may result in the future.
14. Subsequent Events
(a) Private Placement
On February 5, 2001 Antares issued 1,194,537 shares of common stock for
$7,000,000, and on March 5, 2001, Antares issued 511,945 shares of common stock
for $3,000,000 in connection with a private
F-25
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the years ended December 31, 1998, 1999 and 2000
placement of Units. Each Unit, at a price of $23.44, consisted of (i) four
shares of our common stock, $0.01 par value, and (ii) a warrant to purchase one
share of our common stock. Each of the four warrants, to purchase in the
aggregate 426,621 shares of common stock, issued in the private placement is
exercisable for a period of five years at an exercise price of $7.03.
(b) Employment Agreement with Roger G. Harrison, Ph.D.
Roger G. Harrison, Ph.D., was appointed to the position of Chief
Executive Officer of Antares Pharma, Inc., effective March 12, 2001. The terms
of the employment agreement with Dr. Harrison include an annual salary of
$275,000 and up to 216,000 restricted shares of common stock which will be
granted after the achievement of certain time-based and performance-based
milestones. In addition, if within twelve months of the commencement of his
employment we sell all or substantially all of our assets to an unaffiliated
third party, or merge with or into an unaffiliated third party in which we are
not the surviving entity, then we shall pay to Dr. Harrison either (i) two
percent of the aggregate cash, securities or other consideration received by us
from the sale, or (ii) an amount, in cash, equal to two percent of the value of
the aggregate cash, securities or other consideration distributed to our
shareholders in the merger; provided, however, that we shall have no obligation
to make any payment to Dr. Harrison if he is employed as the chief executive or
chief operating officer of the acquiring or surviving entity in the transaction.
(c) Diabetic Express Distribution Agreement
In March 2001 Antares signed an agreement with Diabetic Express, a
division of Care Services, Inc., for additional distribution of our needle-free
injection devices and supplies to the U.S. diabetes market.
F-26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Permatec Holding AG:
We have audited the accompanying consolidated balance sheets of Permatec Holding
AG, and subsidiaries (Permatec) as of December 31, 1999 and 2000, and the
related consolidated statements of operations, shareholders' deficit and
comprehensive loss and cash flows for each of the years in the three-year period
ended December 31, 2000. These financial statements are the responsibility of
Permatec's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Permatec as of
December 31, 1999 and 2000, and the consolidated results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 12 to the consolidated financial statements, the Company
adopted the provisions of the cumulative deferral method of revenue recognition
for licensing arrangements in 2000.
KPMG LLP
Minneapolis, Minnesota
March 19, 2001
F-27
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Antares Pharma, Inc.
We consent to incorporation by reference in the registration statements (Nos.
333-20389 and 333-40483) on Form S-8 of Antares Pharma, Inc. (formerly known as
Medi-Ject Corporation) of our report dated March 19, 2001, relating to the
consolidated balance sheets of Permatec Holding AG and subsidiaries as of
December 31, 1999 and 2000, and the related consolidated statements of
operations, shareholders' deficit and comprehensive loss and cash flows for each
of the years in the three-year period ended December 31, 2000, which report
appears in the Form 8-K/A of Antares Pharma, Inc. dated April 16, 2001.
Our report refers to a change to the cumulative deficit method of revenue
recognition for licensing arrangements.
/s/ KPMG LLP
Minneapolis, Minnesota
April 16, 2001
F-28
ANTARES PHARMA, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET(A)
AS OF DECEMBER 31, 2000
Antares Pharma
Permatec Medi-Ject Pro Forma Pro Forma
Holding AG Corporation Adjustments Consolidated
----------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 243,222 $ 223,591 $ 466,813
Accounts receivable, net 408,534 213,801 622,335
Inventories - 490,256 490,256
Prepaid expenses and other current
assets 13,165 32,869 46,034
Deferred acquisition costs - 460,654 460,654
--------------------------------------------------------------------------
664,921 1,421,171 2,086,092
--------------------------------------------------------------------------
Equipment, furniture and fixtures, net 831,541 1,217,665 2,049,206
Patent rights, net 253,434 332,848 586,282
Cost in excess of fair value of assets
acquired, net 88,982 - 4,521,826 B 4,610,808
Other assets 2,374 - 2,374
Notes receivable 5,133,296 - (5,000,000) A 133,296
--------------------------------------------------------------------------
6,309,627 1,550,513 (478,174) 7,381,966
--------------------------------------------------------------------------
$ 6,974,548 $ 2,971,684 $ (478,174) $ 9,468,058
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 369,177 $ 779,900 $ 1,149,077
Accounts payable, other 396,626 - 396,626
Accrued expenses and other liabilities 249,628 727,048 976,676
Convertible notes payable - 5,000,000 (5,000,000) A -
Deferred Revenue 1,659,612 - 1,659,612
Long-term obligations, current 107,815 16,724 124,539
Liabilities to related parties 321,640 - (321,640) C -
--------------------------------------------------------------------------
3,104,498 6,523,672 (5,321,640) 4,306,530
--------------------------------------------------------------------------
Long-term Liabilities:
Loans from shareholders 17,664,020 - (17,664,020) C -
Long-term obligations, less current 67,635 38,651 106,286
--------------------------------------------------------------------------
17,731,655 38,651 (17,664,020) 106,286
--------------------------------------------------------------------------
Total Liabilities 20,836,153 6,562,323 (22,985,660) 4,412,816
--------------------------------------------------------------------------
Mandatorily redeemable Series B
preferred stock - 250,000 (250,000) E -
--------------------------------------------------------------------------
Shareholders' Equity (Deficit)
Preferred stock - Series A & B - 12 3 E 15
Common stock 689,655 14,303 (689,655) D
25,000 A 39,303
Accumulated other comprehensive income 1,538,523 - 1,538,523
Additional paid in capital 1,174,680 25,229,520 5,445,533 A
17,985,660 C
689,655 D
249,997 E
(25,229,520) F
(4,803,661) 20,741,864
Accumulated deficit (17,264,463) (29,084,474) 29,084,474 F (17,264,463)
--------------------------------------------------------------------------
(13,861,605) (3,840,639) 22,757,486 5,055,242
--------------------------------------------------------------------------
$ 6,974,548 $ 2,971,684 $ (478,174) $ 9,468,058
==========================================================================
See the accompanying notes to the consolidated financial statements.
F-29
ANTARES PHARMA, INC.
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS(A)
FOR THE YEAR ENDED DECEMBER 31, 2000
Antares Pharma
Permatec Medi-Ject Pro Forma Pro Forma
Holding AG Corporation Adjustments Consolidated
---------------------------------------------------------------------------
Revenues:
Product sales $ - $ 1,960,453 $ 1,960,453
Product Development 387,807 32,788 420,595
License revenue 172,236 - 172,236
---------------------------------------------------------------------------
560,043 1,993,241 - 2,553,284
---------------------------------------------------------------------------
Operating Expenses:
Cost of products sold - 1,646,589 1,646,589
Research and development 938,562 1,223,034 2,161,596
Marketing and sales 1,157,066 627,909 1,784,975
General and administrative 2,102,980 3,367,615 5,470,595
Amortization of goodwill - - 452,183 B 452,183
---------------------------------------------------------------------------
4,198,608 6,865,147 452,183 11,515,938
---------------------------------------------------------------------------
Net operating loss (3,638,565) (4,871,906) (452,183) (8,962,654)
Other expense (562,200) (9,972) (572,172)
---------------------------------------------------------------------------
Loss before accounting change (4,200,765) (4,881,878) (452,183) (9,534,826)
Cumulative effect of change in
accounting principle (1,059,622) - (1,059,622)
---------------------------------------------------------------------------
Net loss (5,260,387) (4,881,878) (452,183) (10,594,448)
Preferred stock dividends - (54,761) (54,761)
---------------------------------------------------------------------------
Net loss applicable to common
shares $ (5,260,387) $ (4,936,639) $ (452,183) $ (10,649,209)
===========================================================================
Basic and diluted ner loss per common
share before accounting change $ (420.08) $ (3.46)
Cumulative effect of change in
accounting principle (105.96) $ -
---------------------------------------------------------------------------
Basic and diluted ner loss per common
share $ (526.04) $ (3.46) $ (1.56)
================================== =================
Basis and diluted weighted average
number of shares outstanding 10,000 1,426,308 5,390,000 G 6,826,308
===========================================================================
See the accompanying notes to the consolidated financial statements.
F-30
NOTES TO THE UNAUDITED AND PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The Share Transaction is being accounted for as a reverse acquisition
because Permatec will initially hold approximately 67% of the outstanding common
stock of Antares after the Share Transaction. Accordingly, for accounting
purposes, Permatec is deemed to have acquired Medi-Ject. The transaction is
valued at $5,470,533, which represents the fair market value of Medi-Ject and
related transaction costs of $460,654. For accounting purposes, the fair value
of Medi-Ject is based on the 1,424,729 shares of Medi-Ject common stock
outstanding on January 25, 2000 at an average closing price three days before
and after such date of $2.509 per share plus the fair value of outstanding stock
options and warrants representing shares of Medi-Ject common stock either vested
on January 25, 2000 or that became vested at the close of the Share Transaction
plus the capitalized acquisition cost of Permatec. Pro forma adjustments are as
follows:
(A) Medi-Ject's $5,000,000 of convertible promissory notes outstanding at
December 31, 2000, converted into 25,000 shares of Series C Convertible
Preferred Stock at the closing of the Share Transaction, and upon
meeting certain conditions, the Series C shares automatically converted
into Antares Pharma, Inc. common stock. If the conversion had occurred
as of December 31, 2000, based on $5,000,000 of convertible promissory
notes outstanding, 2,500,000 shares of Medi-Ject common stock would be
issued. The conversion feature is in-the-money and this benefit is a
deemed dividend to the Preferred shareholder at the date the Share
Transaction closed. It increased the net loss available to common
shareholders in the Company's net loss per share calculation. The
deemed dividend associated with the contingent in-the-money feature at
December 31, 2000 is $4,814,124 and is not included in the pro forma
net loss per share. The conversion of convertible promissory notes into
equity is deemed to occur prior to the purchase price allocation. The
$5,000,000 of notes payable on Medi-Ject's balance sheet is converted
into equity, resulting in an increase in additional paid-in capital.
The accompanying pro forma financial statements do not reflect the
issuance subsequent to the closing of the merger transaction of both
1,194,537 shares of Antares common stock for $7,000,000 on February 5,
2001, and 511,945 shares of Antares common stock for $3,000,000 on
March 5, 2001, in connection with a private placement of Units. Each
Unit, at a price of $23.44, consisted of (i) four shares of our common
stock, $0.01 par value, and (ii) a warrant to purchase one share of
common stock. Each of the four warrants, to purchase in the aggregate
426,621 shares of common stock, issued in the private placement is
exercisable for a period of five years at an exercise price of $7.03.
(B) Medi-Ject's equity at December 31, 2000, as adjusted for the conversion
of the $5,000,000 of convertible promissory notes and the Series B
Preferred stock is $948,707. The excess of the purchase price of
$5,470,533 over the adjusted net equity of $1,409,361 is reflected as
an increase in net equity and goodwill of $4,521,826. This is for
illustrative purposes only, as the actual purchase price allocation
will be based on the fair values of the acquired assets and assumed
liabilities as of the actual acquisition date. The pro forma
amortization of goodwill and other intangible assets is $452,183 for
the year ended December 31, 2000. The pro forma adjustment is based on
the assumption that the entire amount identified as goodwill and other
intangible assets will be amortized on a straight-line basis over a
ten-year period. Antares has engaged a third party to value actual
intangible assets to be acquired. When completed, certain amounts
identified as intangible assets may be amortized over periods other
than the ten-year period presented in the pro forma statement of
operations. Additionally, a portion of the purchase price may be
identified as in-
F-31
process research and development. This amount, if any, will be charged
to operating results in Antares' fiscal year 2001 financial statements,
when the acquisition accounting and valuation amounts are finalized.
The pro forma statement of operations does not give effect to any
potential in-process research and development charge related to the
transactions.
(C) Liabilities to related parties of $321,640 at December 31, 2000,
resulted from entities owned by Permatec's majority shareholder paying
expenses on Permatec's behalf. This liability was not assumed by
Antares, and is deemed to be contributed capital. Permatec's loans from
shareholders of $17,664,020 were converted to additional paid-in
capital at the closing of the Share Transaction.
(D) The common stock value of Permatec was converted to additional paid-in
capital at the closing of the Share Transaction.
(E) Upon consummation of the Share Transaction, the mandatorily redeemable
Series B preferred stock became preferred equity, as the condition that
required mandatory redemption was satisfied.
(F) Medi-Ject's additional paid-in capital and accumulated deficit was
eliminated at the closing of the Share Transaction, leaving only
Permatec's accumulated deficit.
(G) The Share Transaction has been accounted for as a reverse merger for
accounting purposes. Upon consummation of the Share Transaction, the
historical financial statements of Medi-Ject are replaced with
Permatec's historical financial statements, except that the preferred
and common stock structure of Permatec is replaced with Medi-Ject's
capital structure. Therefore, the number of shares of Medi-Ject common
stock outstanding plus the 2,900,000 shares of Medi-Ject common stock
issued in the Share Transaction will become the historical equity stock
structure of Permatec after the Share Transaction.
The pro forma statement of operations results in a loss; therefore, the
pro forma basic and diluted loss per common share are computed by
dividing the loss available to shares by the pro forma weighted average
number of common shares outstanding. The calculation of the pro forma
weighted average number of common shares outstanding assumes the
2,900,000 shares of Medi-Ject common stock to be issued in the Share
Transaction were outstanding as of January 1, 2000, plus the 2,500,000
shares of Medi-Ject common stock issued in the conversion of the note
held by Permatec minus the 10,000 shares of Permatec stock that are
held by Antares.
(H) The following represents Permatec's historical loss per share restated
for the Medi-Ject historical capital structure plus the 2,900,000
million shares of Medi-Ject common stock minus the 10,000 shares of
Permatec stock held by Antares. Upon consummation of the Share
Transaction, these amounts become the historical loss per share of
Antares.
Year Ended December 31,
1998 1999 2000
Net loss attributed to
common shareholders $4,270,006) $(3,967,366) $(5,260,387)
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Basic and diluted net loss
per share $ (0.99) $ (0.92) $ (1.22)
========== =========== ===========
Basic and diluted weighted
average number of shares
outstanding $4,320,308 $ 4,326,308 $ 4,326,308
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F-32