UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: December 28, 2000
(Date of earliest event reported)
INCYTE GENOMICS, INC.
(Formerly Incyte Pharmaceuticals, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 0-27488 94-3136539
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3160 Porter Drive
Palo Alto, California, 94304
(Address of principal executive offices)
(650) 855-0555
(Registrant's telephone number, including area code)
Item 7. Financial Statements and Exhibits
This Item 7 and the accompanying Exhibit Index amend and restate in
their entirety the corresponding Item in the Registrant's Current
Report on Form 8-K dated December 28, 2000
(a) Financial Statements of Business Acquired
Report of PricewaterhouseCoopers LLP, Independent Accountants
Balance Sheets at September 30, 2000 (unaudited) and December 31, 1999
and 1998
Statements of Operations for the Nine Months Ended September 30, 2000
and 1999 (unaudited) and Years Ended December 31, 1999 and 1998
Statements of Changes in Redeemable Preferred Stock and Stockholders'
Deficit for the Years Ended December 31, 1999 and 1998 and Nine
Months Ended September 30, 2000 (unaudited)
Statements of Cash Flows for the Nine Months Ended September 30, 2000
and 1999 (unaudited) and Years Ended December 31, 1999 and 1998
Notes to Financial Statements
(b) Unaudited Pro Forma Financial Information
Unaudited Pro Forma Combined Balance Sheet at September 30, 2000
Unaudited Pro Forma Combined Statement of Operations for the Year
Ended December 31, 1999
Unaudited Pro Forma Combined Statement of Operations for the Nine
Months Ended September 30, 2000
Notes to Unaudited Pro Forma Combined Financial Information
Report of Independent Accountants
To the Board of Directors and Stockholders of
Proteome, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in redeemable preferred stock and stockholders' deficit
and of cash flows present fairly, in all material respects, the financial
position of Proteome, Inc. at December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 16, 2000, except as to Note 11,
for which the date is December 28, 2000
Proteome, Inc.
Balance Sheets
-------------------------------------------------------------------------------
September 30, December 31,
2000 1999 1998
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 3,076,207 $ 8,152,029 $ 114,112
Accounts receivable 682,691 298,434 135,470
Grants receivable 29,980 34,963 -
Prepaid expenses and other current assets 63,609 7,440 2,689
--------------- ------------ -----------
Total current assets 3,852,487 8,492,866 252,271
Property and equipment, net 1,123,982 254,282 178,735
Other assets 267,586 67,107 54,004
--------------- ------------ -----------
$ 5,244,055 $ 8,814,255 $ 485,010
=============== ============ ===========
Liabilities, Redeemable Preferred Stock and Stockholders' Deficit
Current liabilities:
Accounts payable $ 265,045 $ 90,899 $ 69,497
Accrued expenses 308,228 110,802 77,506
Current portion of capital lease obligations 80,817 76,016 29,424
Note payable to related party 5,000 5,000 5,000
Deferred revenue 1,768,548 1,230,179 409,654
--------------- ------------ -----------
Total current liabilities 2,427,638 1,512,896 591,081
Capital lease obligations, net of current portion 83,524 113,491 57,008
--------------- ------------ -----------
Total liabilities 2,511,162 1,626,387 648,089
--------------- ------------ -----------
Commitments (Note 9)
Redeemable convertible preferred stock:
Series A preferred stock, $0.01 par value; 8,430,211 shares
authorized; issued and outstanding at September 30, 2000
(unaudited) and December 31, 1999, at liquidation amount 8,603,777 8,117,754 -
--------------- ------------ -----------
Stockholders' deficit:
Common stock, $0.001 par value; 22,000,000 shares authorized;
10,610,250, 10,590,250 and 10,301,280 shares issued and
outstanding at September 30, 2000 (unaudited),
December 31, 1999 and December 31, 1998, respectively 10,610 10,590 10,301
Additional paid-in capital 420,356 680,879 435,907
Deferred compensation (220,500) (1,960) -
Accumulated deficit (6,081,350) (1,619,395) (609,287)
--------------- ------------ -----------
Total stockholders' deficit (5,870,884) (929,886) (163,079)
--------------- ------------ -----------
Total liabilities, redeemable preferred stock and stockholders'
deficit $ 5,244,055 $ 8,814,255 $ 485,010
=============== ============ ==============
The accompanying notes are an integral part of these financial statements.
2
Proteome, Inc.
Statements of Operations
-------------------------------------------------------------------------------
Nine months ended Year ended
September 30, December 31,
2000 1999 1999 1998
(Unaudited)
Revenue:
Database license subscriptions $ 1,553,991 $ 905,547 $1,311,820 $ 439,876
Grants 811,372 320,384 499,326 643,096
------------- ------------ ---------- ------------
2,365,363 1,225,931 1,811,146 1,082,972
-------------- ------------ ---------- ------------
Costs and expenses:
Costs of license revenue 492,728 379,097 620,157 140,057
Research and development, including cost
of grants 3,211,107 433,452 578,602 451,411
Selling, general and administrative 3,364,626 942,766 1,578,198 678,952
------------- ------------ ---------- ------------
7,068,461 1,755,315 2,776,957 1,270,420
------------- ------------ ---------- ------------
Loss from operations (4,703,098) (529,384) (965,811) (187,448)
Interest income (expense) 241,143 (13,224) (26,543) (28,177)
------------- ------------ ---------- ------------
Loss before cumulative effect of a change in
accounting principle (4,461,955) (542,608) (992,354) (215,625)
Cumulative effect of change in accounting
principle (Note 2) - - - (15,718)
------------- ------------ ---------- ------------
Net loss $ (4,461,955) $ (542,608) $ (992,354) $ (231,343)
============= ============ ========== ============
The accompanying notes are an integral part of these financial statements.
3
Proteome, Inc.
Statements of Changes in Redeemable Preferred
Stock and Stockholders' Deficit
--------------------------------------------------------------------------------
Redeemable Additional
preferred stock Common stock paid-in
Shares Carrying value Shares Par value capital
Balance at December 31, 1997 $ - 9,600,000 $ 9,600 $ 115,400
Issuance of common stock for services 400,080 400 19,600
Amortization of deferred compensation
Issuance of common stock upon conversion of
notes payable to related parties and accrued
interest thereon 223,700 224 223,484
Issuance of common stock 77,500 77 77,423
Net loss
--------- -------------- ---------- --------- ---------
Balance at December 31, 1998 - 10,301,280 10,301 435,907
Issuance of redeemable preferred stock,
net at issuance cost of $49,910 8,430,211 8,050,090
Issuance of common stock 271,000 271 220,729
Issuance of common stock for services 17,970 18 8,967
Amortization of deferred compensation
Deferred compensation associated with the
issuance of stock options 65,186
Amortization of deferred compensation
Accretion of redeemable preferred stock
dividends 17,754
Accretion of issuance cost of redeemable
preferred stock 49,910 (49,910)
Net loss
--------- ------------ ---------- --------- ---------
Balance at December 31, 1999 8,430,211 8,117,754 10,590,250 10,590 680,879
Exercise of stock options (unaudited) 20,000 20
Amortization of deferred compensation (unaudited)
Deferred compensation associated with the
issuance of stock options (unaudited) 225,500
Accretion of redeemable preferred stock
dividends (unaudited) 486,023 (486,023)
Net loss (unaudited)
--------- ------------ ---------- --------- ---------
Balance at September 30, 2000 (unaudited) 8,430,211 $ 8,603,777 10,610,250 $ 10,610 $ 420,356
========= ============ ========== ========= =========
Deferred Accumulated
compensation deficit Total
Balance at December 31, 1997 $ - $ (377,944) $ (252,944)
Issuance of common stock for services (20,000) -
Amortization of deferred compensation 20,000 20,000
Issuance of common stock upon conversion of
notes payable to related parties and accrued
interest thereon 223,708
Issuance of common stock 77,500
Net loss (231,343) (231,343)
------------ ------------- -----------------
Balance at December 31, 1998 - (609,287) (163,079)
Issuance of redeemable preferred stock,
net at issuance cost of $49,910
Issuance of common stock 221,000
Issuance of common stock for services (8,985) -
Amortization of deferred compensation 8,985 8,985
Deferred compensation associated with the
issuance of stock options (65,186) -
Amortization of deferred compensation 63,226 63,226
Accretion of redeemable preferred stock
dividends (17,754) (17,754)
Accretion of issuance cost of redeemable
preferred stock (49,910)
Net loss (992,354) (992,354)
------------ ------------- -----------------
Balance at December 31, 1999 (1,960) (1,619,395) (929,886)
Exercise of stock options (unaudited) 20
Amortization of deferred compensation (unaudited) 6,960 6,960
Deferred compensation associated with the
issuance of stock options (unaudited) (225,500) -
Accretion of redeemable preferred stock
dividends (unaudited) (486,023)
Net loss (unaudited) (4,461,955) (4,461,955)
------------ ------------- -----------------
Balance at September 30, 2000 (unaudited) $ (220,500) $ (6,081,350) $ (5,870,884)
============ ============= =================
The accompanying notes are an integral part of these financial statements.
4
Proteome, Inc.
Statements of Cash Flows
--------------------------------------------------------------------------------
Nine months ended Year ended
September 30, December 31,
2000 1999 1999 1998
(unaudited)
Cash flows from operating activities:
Net loss $(4,461,955) (542,608) $ (992,354) $ (231,343)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Cumulative effect of change in accounting - - - 15,718
principle
Depreciation and amortization 247,118 19,461 86,136 45,425
Loss on write-off of property and equipment - - 72,847 17,524
Issuance of stock in exchange for services 6,960 - 72,211 20,000
Changes in assets and liabilities:
Accounts receivable (384,257) (72,641) (162,964) (107,055)
Grants receivable 4,983 (39,056) (34,963) -
Prepaid expenses and other current assets (56,169) 2,552 (4,751) 307
Other assets (200,479) (6,187) (13,103) (46,119)
Accounts payable 174,146 (11,555) 21,402 5,202
Accrued expenses 197,426 26,156 33,296 74,192
Deferred revenue 538,369 475,798 820,525 304,092
----------- ---------- ----------- -----------
Net cash (used in) provided by operating
activities (3,933,858) (148,080) (101,718) 97,943
----------- ---------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (1,049,398) - (69,908) (13,265)
----------- ---------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of note payable to - - - 7,500
stockholder
Proceeds from line of credit - - - 20,000
Repayment of line of credit - - - (70,000)
Principal payments on capital leases (92,586) (11,822) (61,547) (12,961)
Net proceeds from issuance of preferred stock - - 8,050,090 -
Proceeds from issuance of common stock 20 171,000 221,000 77,500
----------- ---------- ----------- -----------
Net cash (used in) provided by financing
activities (92,566) 159,178 8,209,543 22,039
----------- ---------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (5,075,822) 11,098 8,037,917 106,717
Cash and cash equivalents, beginning of period 8,152,029 114,112 114,112 7,395
----------- ---------- ----------- -----------
Cash and cash equivalents, end of period $ 3,076,207 $ 125,210 $ 8,152,029 $ 114,112
----------- ---------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 16,511 $ 16,857 $ 17,355 $ 7,246
Supplemental disclosure of noncash investing and
financing activities:
Acquisition of property and equipment under
capital leases $ 67,420 $ 82,023 $ 164,622 $ 77,897
Conversion of notes payable to related parties and
accrued interest thereon into common stock $ - $ - $ - $ 223,708
The accompanying notes are an integral part of these financial statements.
5
Proteome, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
1. Nature of the Business
Proteome, Inc. ("Proteome" or the "Company") was incorporated in The
Commonwealth of Massachusetts in 1995 and reincorporated in the State of
Delaware on September 18, 1998. Proteome provides comprehensive protein
information in database form for genomically characterized organisms
through expert curation of protein information from published literature
and sequence data bases. Proteome's products complement and extend genomic
research for model organisms, for medically important microorganisms, and
for human biology. Proteome's databases are primarily licensed to
pharmaceutical and biotechnology companies worldwide through either direct
access via the worldwide web or by purchasing an annual subscription to the
data base for in-house use.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Data
The interim financial statements and related notes as of September 30, 2000
and for the nine months ended September 30, 2000 and 1999 are unaudited.
Management believes that the unaudited financial statements and related
notes have been prepared on the same basis as the audited financial
statements and related notes and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations in such periods. Results for
the nine months ended September 30, 2000 are not necessarily indicative of
results to be expected for the full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash
equivalents.
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade
receivables. The Company maintains its cash accounts in two local banks.
The total cash balances are insured by the FDIC up to $100,000. The
Company's customer base consists of geographically diverse customers. At
December 31, 1999, two customers accounted for 50% and 43%, respectively,
of total receivables. However, no single customer accounted for greater
than 10% of the Company's revenue for the years ended December 31, 1999 and
1998.
Proteome, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Assets under
capital leases are amortized over the life of the lease. Repairs and
maintenance are charged to expense as incurred. Upon retirement or sale,
the cost of assets disposed of and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is credited or
charged to income.
Organizational Costs
For the year ended December 31, 1998, the Company adopted the provisions of
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. As a result, the Company expensed the unamortized balance of
organization costs in 1998. Under the provisions of SOP 98-5, the effect of
the initial adoption is recorded as a cumulative effect of a change in
accounting principle in the statement of operations.
Revenue Recognition
Fees from licenses to the Company's database are deferred upon contract
signing and recognized on a straight-line basis over the subscription
period, generally one year. Grants received from government agencies to
conduct research and development activities are recognized as eligible
costs are incurred up to the funding limit.
Accounting for Stock-Based Compensation
Employee stock awards under the Company's compensation plans are accounted
for in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations. The Company provides the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), and related interpretations. Stock-based
awards to nonemployees are accounted for under the provisions of SFAS No.
123.
Research and Development
Costs incurred in the research and development of the Company's products
are expensed as incurred, except for certain software development costs.
Costs associated with the development of computer software are expensed
prior to establishment of technological feasibility and capitalized
thereafter until the product is available for general release to customers.
No software development costs were capitalized during the years ended
December 31, 1999 and 1998, since costs incurred were not material.
Financial Instruments
The carrying amounts of the Company's financial instruments, which include
cash equivalents, accounts receivable, accounts payable and other accrued
expenses approximate their fair values due to their short maturities.
Income Taxes
Deferred taxes are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse.
Valuation allowances are provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax
assets will not be realized.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements
(SAB 101"). This bulletin provides guidance from the staff on applying
generally accepted accounting principles to revenue recognition in
financial statements. The Company does not believe that the current
guidance and interpretations of SAB 101 will have an impact on its
financial statements.
Proteome, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
3. Property and Equipment
Property and equipment consist of the following:
Estimated
useful life December 31,
(years) 1999 1998
Computer equipment and software 3 $ 305,513 $ 95,342
Furniture and fixtures 3 83,437 59,077
Machinery and equipment 7 - 98,301
---------- ---------
388,950 252,720
Less - accumulated depreciation and
amortization (134,668) (73,985)
---------- ---------
$ 254,282 $ 178,735
========== =========
At December 31, 1999 and 1998, property and equipment under capital
leases consist of computer equipment and furniture and fixtures with a
cost basis of $268, 135 and $103,513, and accumulated amortization of
$78,628 and $20,443, respectively.
4. Related Party Transactions
The demand note payable of $5,000 represents a loan from a family
member of a principal stockholder originating July 22, 1997. Terms
have no specified payment schedule for principal and interest and none
were made during the year. Interest is accrued at a rate of 12% per
annum on the outstanding balance.
In February 1998, Proteome awarded 400,080 shares of common stock to a
member of management as payment for services rendered during 1998 in
lieu of cash. The Company recorded the fair value of the common stock
of $20,000, as determined by the Board of Directors as compensation
expense in the statement of operations.
In October 1998, the Company converted notes payable and accrued
interest (12% per annum) due to a principal stockholder and certain of
his family members totaling $223,708, into 223,700 shares of the
Company's common stock.
In January and April 1999, the Company issued 150,000 shares of common
stock to two companies owned by close family members of certain
principal stockholders for $150,000.
In August 1999, the Company issued 20,000 shares of common stock to a
family member of a principal stockholder for $20,000.
In November 1999, the Company awarded 17,970 shares of restricted
common stock to a member of management as payment for services
rendered during 1999 in lieu of cash. The Company recorded the fair
value of the common stock of $8,985, as determined by the Board of
Directors as compensation expense in the statement of operations.
Proteome, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
5. Common Stock
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders.
Prior to September 18, 1998, the Company was authorized to issue 200,000
shares of no par value common stock, of which 416.67 shares were issued and
outstanding. On September 18, 1998, Proteome reincorporated in the State
of Delaware and each share of the then outstanding common stock was
converted into 2,400 shares of $0.01 par value common stock. All share and
per share amounts included in the financial statements have been adjusted
to give retroactive effect to the conversion, treated as a stock split, for
all periods presented.
Restricted Stock Agreement
The Company executed a stock restriction agreement with an employee.
Pursuant to the agreement, the Company has an option to purchase the
unvested shares of common stock at the original purchase price per share in
the event of termination of the stockholder's employment by the Company.
Shares subject to restriction vest 50% within the first year, 25% with the
second year and no shares are subject to restriction thereafter. At
December 31, 1999, 4,492 shares of common stock are subject to repurchase
by the Company.
Stock Split
On August 5, 1999, the Board of Directors approved a 10-for-1 stock split
effected in the form of a stock dividend. In connection with the stock
split, the par value of common stock was adjusted from $0.01 to $0.001 per
share. All share amounts have been adjusted retroactively in the financial
statements and related notes to reflect the stock split.
6. Redeemable Preferred Stock
In December 1999, the Company authorized and designated 8,430,211 shares of
Series A redeemable convertible preferred stock (the "Series A preferred
stock") with a par value of $0.01 per share.
The Series A preferred stock has the following characteristics:
Conversion
Each share of Series A preferred stock is convertible into one share of
common stock at the option of the holder. Such conversion rate is subject
to certain anti-dilution adjustments. In addition, if gross revenues are
equal to or greater than $5,800,000 and the net loss is less than or equal
to $4,600,000 for the year ending December 31, 2000, the Series A
conversion price shall be adjusted by multiplying the initial Series A
conversion price by 1.20, subject to certain other provisions stipulated in
the agreement.
The Series A preferred stock will automatically convert to common stock
upon the closing of a public offering of the Company's common stock
involving aggregate proceeds of at least $20,000,000 and a per share price
of (i) at least $3.84332 and (ii) in the event of special adjustment as
discussed above, at least $4.6119. In addition, the Series A preferred
stock will automatically convert to common stock upon the written election
of not less than 66 2/3% of the then outstanding Series A stockholders.
Dividends
The holders of the Series A preferred stock are entitled to receive
dividends at a per annum rate of $0.07687 per share, appropriately adjusted
for stock dividends or splits, when and if declared by the Board of
Directors. Dividends on the preferred stock are cumulative and accruing.
These dividends are being accreted through the redemption dates of the
preferred stock by charging accumulated deficit.
Proteome, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
Redemption
At any time after the fifth anniversary of the effective date, holders of
at least two thirds of the outstanding shares of Series A preferred stock
may request the Company to redeem all of the shares of Series A preferred
stock then outstanding (the "initial redemption request"). For the period
of twelve months following the initial redemption request, the Company has
the right to effect a sale. If the Company is sold within twelve months
after the initial redemption request, holders of Series A preferred stock
are entitled to receive an amount per share equal to the greater of (i)
$0.96083 per share, appropriately adjusted for stock dividends, stock
split, combination, reorganization, recapitalization and other events, plus
accrued but unpaid dividends, and (ii) the amount per share which such
holders would be entitled to receive per share if the Series A preferred
stock were converted into common stock immediately prior to the sale.
However, if the Company reaches an agreement for sale which meets certain
provisions of the preferred stock agreement and the sale is not completed
as a result of action or inaction by Series A preferred stockholders at a
certain number of shares, then the redemption right shall lapse. In this
case, holders of Series A preferred stock are entitled to receive an amount
per share equal to the greater of (i) the liquidation preference and (ii)
the fair market value of the Series A preferred stock as agreed upon by
both parties.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series A preferred stock are entitled to receive prior
to, and in preference to, any distribution to the common stockholders, an
amount equal to $0.96083 per share, appropriately adjusted for stock
dividends, stock split, combination, reorganization, recapitalization and
other events, plus accrued but unpaid dividends, or such amount per share
as would have been payable had all shares of the Series A preferred stock
been converted to common stock at a price as designated in the agreement
immediately prior to such event of liquidation, dissolution or winding up.
A consolidation or merger which results in a reclassification or change in
the terms of the outstanding shares of the Company shall be deemed a
liquidation.
Voting
Each preferred stockholder is entitled to the number of votes equal to the
number of shares of common stock into which such holder's shares are
convertible.
7. Stock Option Plan
In 1998, the Company adopted the 1998 Employee, Director and Consultant
Stock Option Plan (the "1998 Plan") which provides for the grant of
incentive stock options and nonqualified stock options, stock awards and
stock purchase rights to Company's officers, employees, consultants and
directors. The Board of Directors is responsible for administration of the
1998 Plan. The Board determines the term of each option, the option
exercise price, the number of shares for which each option is granted and
the rate at which each option is exercisable. The 1998 Plan as amended,
allows for a maximum of 2,000,000 shares to be issued. As of December 31,
1999, 1,395,000, shares of common stock were available for future grants.
No stock-based awards were granted prior to 1999.
The Company applies APB 25 and related interpretations in accounting for
employee and director options granted under the 1998 Plan and FAS 123 for
nonemployee stock options. Compensation costs totaling $65,186 have been
recognized for employee and nonemployee stock-based awards in 1999. Had
compensation cost been determined based on the fair value at the grant
dates for awards in 1999, consistent with the provisions of SFAS No. 123,
the Company's pro forma net loss for the year ended December 31, 1999 would
have been $1,021,145. Because options vest over several years and
additional option grants are expected to be made in future years, the above
pro forma results are not representative of the pro forma results for
future years.
Proteome, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
For purposes of pro forma disclosures, the fair value of each option
grant was estimated on the date of grant using the minimum value
method with the following assumptions for grants in 1999, no dividend
yield; risk-free interest rates of 5.63% for 1999 and expected lives
of 7 years.
Weighted
average
exercise
Shares price
Granted 764,000 $ 0.753
Exercised (101,000) 0.505
Cancelled (58,000) 1.000
---------
Balance, December 31, 1999 605,000 $ 0.787
---------
Weighted average grant date fair value $ 0.127
Information for options outstanding and exercisable at December 31,
1999 was as follows:
Options outstanding Options exercisable
-------------------------------------------- ----------------------------------
Weighted-
average Weighted- Weighted-
remaining average average
Exercise life exercise exercise
price Shares in years price Shares price
$ 0.001 30,000 9.75 $ 0.001 30,000 $ 0.001
$ 0.50 198,000 9.87 $ 0.500 86,750 $ 0.500
$ 1.00 377,000 9.33 $ 1.000 87,000 $ 1.000
--------- -------
605,000 9.53 $ 0.787 203,750 $ 0.640
--------- -------
In November 1999, options to purchase 40,000 shares previously granted to a
member of management in April 1999 with original exercise price of $1.00 per
share were cancelled and reissued at an exercise price of $0.50 per share. This
cancellation and reissuance created a variable award for accounting purposes. No
compensation expense has been recorded in the year ended December 31, 1999
because the exercise price and the fair market value of the options are the
same. During the nine months ended September 30, 2000, the Company recorded
$5,000 of deferred compensation and compensation expense relating to this grant
representing the difference between the fair market value of the option and the
exercise price.
During the nine months ended September 30, 2000, stock options were granted with
an exercise price of $1.00 per share, which was below the estimated fair market
value of the common stock at the date of grant. Deferred compensation of
$220,500 was recorded in accordance with APB No. 25, and will be amortized over
the related vesting period. No amortization of this amount has been recorded due
to the timing of grants at or near September 30, 2000.
Proteome, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
8. Income Taxes
Deferred tax assets consist of the following at December 31, 1999:
Net operating loss carryforwards $ 358,000
Deferred revenue 75,000
Depreciation and amortization (7,300)
----------
Net deferred tax assets 425,700
Deferred tax assets valuation allowance (425,700)
----------
$ -
----------
In January 1999, the Company elected to terminate its S Corporation
status and converted to a C Corporation. The Company's deferred tax
assets represent those generated since the conversion to a C
Corporation.
The Company has provided a full valuation allowance for the deferred
tax assets since it is more likely than not that these future benefits
will not be realized. If the Company achieves future profitability, a
significant portion of these deferred tax assets could be available to
offset future income taxes.
At December 31, 1999, the Company has federal and state net operating
loss carryforwards of approximately $889,000 available to reduce future
federal and state income taxes payable. These net operating losses and
credits can be utilized through 2019.
Under the Internal Revenue Code, certain substantial changes in the
Company's ownership could result in a limitation on the amount of net
operating loss and tax credit carryforwards which can be utilized in
future years.
9. Commitments
The Company leases its office space and certain office equipment under
noncancelable operating leases. Total rent expense under these
operating leases was $195,697 and $62,870 for the years ended December
31, 1999 and 1998, respectively. The Company has also acquired certain
property and equipment under capital lease arrangements which extend
through 2003. These arrangements generally contain options to purchase
the equipment at the end of the lease term.
Future minimum lease payments under operating and capital leases at
December 31, 1999 are as follows:
Operating Capital
Year ending December 31, leases leases
2000 $ 392,011 $ 94,759
2001 420,378 83,686
2002 423,692 34,390
2003 427,006 7,974
----------- ---------
Total minimum lease payments $ 1,663,087 220,809
-----------
Less: portion representing interest 31,302
---------
Present value of obligations under capital leases $ 189,507
---------
Proteome, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
10. 401(k) Plan
On August 1, 1999, the Company established a defined contribution savings
plan under Section 401(k) of the Internal Revenue Code. This plan covers
substantially all employees who meet minimum age and service requirements
and allows participants to defer a portion of their annual compensation on
a pre-tax basis. The Company had contributed $2,511 to the plan for the
year ended December 31, 1999.
11. Subsequent Events
On December 28, 2000, Incyte Genomics, Inc. of Palo Alto, CA acquired all
of the outstanding common and preferred shares of Proteome, Inc. The
purchase price consisted of approximately $37.7 million of cash
consideration and the issuance of 1.25 million shares of Incyte Genomics,
Inc.'s common stock valued at approximately $30.2 million. Additionally,
the Company converted all of its outstanding options into options to
purchase Incyte Genomics, Inc.'s shares of common stock.
Unaudited Pro Forma Combined Financial Information
The following Unaudited Pro Forma Combined Balance Sheet as of September
30, 2000, and the Unaudited Pro Forma Combined Statements of Operations for the
year ended December 31, 1999 and the nine months ended September 30, 2000 give
effect to the acquisition by Incyte Genomics, Inc. ("Incyte or the "Company") of
all of the outstanding capital stock of Proteome, Inc., accounted for using the
purchase method of accounting.
The Unaudited Pro Forma Combined Financial Statements are based on the
historical financial statements of the Company and Proteome, and give effect to
the assumptions and adjustments set forth in the accompanying Notes to the
Unaudited Pro Forma Combined Financial Information.
The Unaudited Pro Forma Combined Balance Sheet assumes that the acquisition
was consummated on September 30, 2000. The Unaudited Pro Forma Combined
Statement of Operations for the year ended December 31, 1999 assumes the
acquisition was consummated on January 1, 1999 and the Unaudited Pro Forma
Combined Statement of Operations for the nine months ended September 30, 2000
assumes the acquisition was consummated on January 1, 2000. The pro forma
purchase price allocation and adjustments are based on preliminary estimates,
available information and assumptions that management deems appropriate. These
adjustments may differ significantly from the final purchase price allocation.
The pro forma adjustments are based on the agreements between the Company
and Proteome, under which Proteome stockholders and option holders received
1,248,522 shares of newly issued Incyte common stock, options to purchase
216,953 shares of Incyte common stock and $37.7 million in cash.
The Unaudited Pro Forma Combined Statements of Operations exclude any
potential benefits that might result from the acquisition due to synergies that
may be derived and from the elimination of any duplicate efforts or any non-
recurring costs of the integration of the two operations. The Unaudited Pro
Forma Combined Financial Statements do not purport to be indicative of the
results that actually would have occurred if the acquisition occurred on the
dates indicated or indicative of results which may be obtained in the future.
The Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the historical financial statements and accompanying notes
included herein for Proteome and as filed with the Securities and Exchange
Commission for Incyte.
UNAUDITED PROFORMA COMBINED BALANCE SHEET
September 30, 2000
(in thousands)
Pro Pro
Forma Forma
Incyte Proteome Adjustments Combined
------------ ----------- -------------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 328,377 $ 3,076 $ (37,674)(a) $ 293,779
Marketable securities - available-for-sale 316,255 -- -- 316,255
Accounts receivable, net 21,015 682 -- 21,697
Prepaid expenses and other current assets 18,927 94 -- 19,021
------------ ----------- -------------- -----------
Total current assets 684,574 3,852 (37,674) 650,752
Property and equipment, net 96,285 1,124 -- 97,409
Long-term investments 54,590 -- -- 54,590
Goodwill and other intangible assets, net 12,771 -- 69,404 (a) 82,175
Deposits and other assets 17,704 268 -- 17,972
------------ ----------- -------------- -----------
Total assets $ 865,924 $ 5,244 $ 31,730 $ 902,898
============ =========== ============== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,848 $ 265 $ -- $ 12,113
Accrued and other current liabilities 25,168 394 2,300 (b) 27,862
Deferred revenue 16,255 1,769 -- 18,024
------------ ----------- -------------- -----------
Total current liabilities 53,271 2,428 2,300 57,999
Non-current portion of capital lease obligations
and note payable -- 83 83
Convertible subordinated notes 203,167 -- -- 203,167
------------ ----------- -------------- -----------
Total liabilities 256,438 2,511 2,300 261,249
Redeemable convertible preferred stock -- 8,604 (8,604)(a) --
Stockholders' equity:
Common stock 64 11 1 (a) 65
(11)(a)
Additional paid-in capital 652,743 420 34,641 (a) 687,384
(420)(a)
Deferred compensation (367) (221) 221 (a) (2,846)
(2,479)(c)
Accumulated other comprehensive income 34,580 -- 34,580
Accumulated deficit (77,534) (6,081) 6,081 (a) (77,534)
------------ ----------- -------------- -----------
Total stockholders' equity (deficit) 609,486 (5,871) 38,034 641,649
------------ ----------- -------------- -----------
Total liabilities and stockholders' equity $ 865,924 $ 5,244 $ 31,730 $ 902,898
============ =========== ============== ===========
See accompanying notes
UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(in thousands, except per share amounts)
Pro Forma Pro Forma
Incyte Proteome Adjustments Combined
----------- ------------ -------------- -------------
Revenues $ 156,962 $ 1,811 $ -- $ 158,773
Costs and expenses
Cost of license revenue -- 620 -- 620
Research and development 146,833 579 -- 147,412
Selling, general, and administrative 37,235 1,578 9,621 (d) 48,434
Amortization of deferred stock compensation -- -- 788 (e) 788
----------- ------------ -------------- -------------
Total costs and expenses 184,068 2,777 10,409 197,254
Loss from operations (27,106) (966) (10,409) (38,481)
Interest and other income (expense), net 5,485 -- -- 5,485
Interest expense (316) (26) -- (342)
Losses from joint venture (5,631) -- -- (5,631)
----------- ------------ -------------- -------------
Loss before taxes (27,568) (992) (10,409) (38,969)
Benefit for income taxes (800) -- -- (800)
----------- ------------ -------------- -------------
Net loss $ (26,768) $ (992) $ (10,409) $ (38,169)
=========== ============ ============== =============
Basic and diluted net loss per share $ (0.48) $ (0.66)
=========== =============
Shares used in computing basic
and diluted net loss per share 56,276 57,525 (f)
=========== =============
See accompanying notes
UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2000
(in thousands, except per share amounts)
Pro Forma Pro Forma
Incyte Proteome Adjustments Combined
------------ ---------- -------------- -----------
Revenues $ 138,751 $ 2,365 $ - $ 141,116
Costs and expenses
Cost of license revenue - 493 - 493
Research and development 138,621 3,211 - 141,832
Selling, general, and administrative 45,669 3,364 7,216 (d) 56,249
Amortization of deferred stock compensation - - 597 (e) 597
----------- --------- ------------ -----------
Total costs and expenses 184,290 7,068 7,813 199,171
Loss from operations (45,539) (4,703) (7,813) (58,055)
Interest and other income (expense), net 32,251 241 - 32,492
Interest expense (7,794) - - (7,794)
Losses from joint venture (1,283) - - (1,283)
----------- --------- ------------ -----------
Net loss $ (22,365) $ (4,462) $ (7,813) $ (34,640)
=========== ========= ============ ===========
Basic and diluted net loss per share $ (0.36) $ (0.54)
Shares used in computing basic =========== ===========
and diluted net loss per share 62,825 64,074 (f)
=========== ===========
See accompanying notes
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The Proteome acquisition will be accounted for using the purchase method of
accounting. The estimated purchase price was determined as follows:
Fair Value
(in
thousands)
-----------
Cash $ 37,674
Shares 30,230
Vested stock options 1,341
Unvested stock options 3,071
Transactions costs 2,300
-----------
Total $ 74,616
===========
The fair value of "shares" was calculated by multiplying the fair value of the
stock, based on $24.21 per share, representing the 5-day average surrounding the
December 21, 2000 announcement date, by the number of Incyte shares exchanged
(1,248,522 shares).
As part of the Proteome merger, Incyte options were exchanged for all vested and
unvested Proteome outstanding options and are included as part of the purchase
price based on the $24.21 per share value.
Below is a table of the purchase price allocation and annual amortization of the
intangible assets acquired (in thousands):
Estimated
Annual
Amortization
Amortization Of
Life Intangibles
------------------------------
Estimated Purchase Price Allocation:
Net tangible assets acquired $ 2,733
Deferred compensation on unvested
Stock options assumed 2,479
Goodwill and other intangible assets 69,404 3-8 years $ 9,621
-----------
$ 74,616
===========
The pro forma purchase price allocation and adjustments are based on preliminary
estimates, available information and assumptions that management deems
appropriate. These adjustments may differ significantly from the final purchase
price allocation.
Tangible assets of Proteome acquired in the merger principally include cash,
accounts receivable and fixed assets. Liabilities of Proteome assumed in the
merger principally include accounts payable, accrued payroll, and other current
liabilities.
The pro forma financial information gives effect to the following pro forma
adjustments:
(a) To reflect (1) the cash paid to Proteome stockholders as part of the
purchase price, (2) the allocation of the purchase price to intangible
assets, (3) to record the common stock
additional paid-in capital from the issuance of common stock, and (4) to
reflect the elimination of Proteome's redeemable convertible preferred
stock and stockholders' deficit.
(b) To reflect the direct expenses incurred as a result of the acquisition.
(c) To reflect the approximately $2.5 million for deferred stock compensation
associated with the unvested Proteome stock options assumed by Incyte.
(d) To reflect the amortization of goodwill and other intangible assets. The
intangible assets consist of acquired developed technology, database,
tradename, acquired workforce and goodwill. These will be amortized ratably
over the estimated lives of the assets, ranging from 3 to 8 years.
(e) To reflect the amortization of deferred stock compensation associated with
the unvested Proteome stock options assumed by Incyte over the remaining
vesting period.
(f) Basic and diluted net loss per share has been adjusted to reflect the
issuance of approximately 1.2 million shares of Incyte's common stock, as
if the shares had been outstanding for the entire periods presented. The
effect of stock options assumed in the merger has not been included as
their inclusion would be anti-dilutive.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 2, 2001
INCYTE GENOMICS, INC.
By /s/ John M. Vuko
-----------------------------------
Name: John M. Vuko
Title: Executive Vice President and
Chief Financial Officer