Filed Pursuant to Rule 424 (b)(3)
Registration No. 333-54208
SUPPLEMENT NO. 2 DATED MAY 15, 2001
TO PROSPECTUS DATED FEBRUARY 2, 2001
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
This Supplement No. 2 to the Prospectus dated February 2, 2001 (the
"Prospectus") is filed pursuant to Rule 424(b)(3) to reflect facts and events
that constitute a substantive change from or addition to the information set
forth in the Prospectus. The information contained in this Supplement reflects
disclosures contained in our Quarterly Report on Form 10-Q, filed May 9, 2001
and our report on Form 8-K, filed May 14, 2001.
FINANCIAL STATEMENTS
STEMCELLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001
(UNAUDITED) DECEMBER 31, 2000
----------- -----------------
Assets
Current assets:
Cash and cash equivalents $4,499,158 $6,068,947
Short-term restricted investments 8,412,650 16,356,334
Accrued interest receivable 9,706 16,725
Prepaid rent 909,415 --
Other current assets 473,696 524,509
------------ ------------
Total current assets 14,304,625 22,966,515
Property held for sale 3,203,491 3,203,491
Property, plant and equipment, net 1,442,089 1,451,061
Other assets net 2,556,457 2,173,912
--------- ---------
Total assets $21,506,661 $29,794,979
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $237,856 $526,191
Accrued expenses 785,064 837,358
Accrued wind-down costs 1,380,947 1,780,579
Current maturities of capitalized lease
obligations 333,333 332,083
--------- -------
Total current liabilities 2,737,200 3,476,211
Capitalized lease obligations, less current maturities 2,521,250 2,605,000
Deposits 26,000 26,000
Deferred rent 760,508 705,746
Stockholders' equity
Convertible preferred stock, $.01 par value;
1,000,000 shares unauthorized, 2,626
designated as 6% Cumulative Convertible
Preferred Stock 1,500,000 shares issued and
outstanding at March 31, 2000, none at
December 31, 2000 1,500,000 1,500,000
Common stock, $.01 par value; 45,000,000
shares authorized; 21,458,211 and 20,956,887
shares issued and outstanding at March 31,
2001 and December 31, 2000, respectively 214,612 209,569
Additional paid in capital 137,608,696 138,150,067
Accumulated deficit (130,229,646) (130,498,187)
Accumulated other comprehensive
income 8,412,650 16,356,334
Deferred compensation (2,044,609) (2,735,761)
----------- -----------
Total stockholders' equity 15,461,703 22,982,022
---------- ----------
Total liabilities and stockholders'
equity $21,506,661 $29,794,979
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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STEMCELLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED
MARCH 31,
2001 2000
---- ----
Revenue from grants $100,000 $ --
Operating expenses:
Research and development 1,644,257 906,632
General and administrative 996,862 657,714
Wind-down expenses -- 234,386
--------------- -----------
Loss from operations (2,541,119) (1,798,732)
Other income (expense):
Investment income 79,041 73,332
Interest income -- (68,858)
Gain on sale of investments 2,550,230 --
Other income 180,389 --
--------- ---------------
Total other income, net 2,809,660 4,474
---------
Net income (loss) $268,541 $(1,794,258)
-------- ------------
Basic Earnings Per Share
Net income (loss) per share $0.01 $(0.09)
Shares - basic net income (loss) per share 20,989,127 19,329,517
Diluted Earnings Per Share
Net income (loss) per share $0.01 $(0.09)
Shares - diluted income per share 22,405,358 19,329,517
See accompanying notes to condensed consolidated financial statements.
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STEMCELLS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
MARCH 31,
2001 2000
---- ----
Cash flows from operating activities:
Net income (loss $268,541 $(1,794,258)
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
Depreciation and amortization 142,554 204,449
Gain on sale of investments (2,550,230) --
Compensation expense relating to the grant
of stock options 128,220 43,750
Net changes in operating assets and liabilities (1,812,084) (1,776,812)
----------- -----------
Net cash used in operating activities (3,822,999) (3,322,870)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of investments 2,550,230 --
Purchase of property, plant and equipment (114,734) (7,542)
Acquisition of other assets (126,391) --
Proceeds from sales of technology -- 2,800,000
-------------- ---------
Net cash provided by investing activities 2,309,105 2,792,458
--------- ---------
Cash flows from financing activities:
Proceeds from the exercise of stock options
and warrants 26,605 352,557
Principal payments under capitalized lease
obligations (82,500) (80,000)
-------- --------
Net cash provided by (used by) financing
activities (55,895) 272,557
-------- -------
Net decrease in cash and cash equivalents (1,569,789) (257,855)
Cash and cash equivalents, beginning of period 6,068,947 4,760,064
--------- ---------
Cash and cash equivalents, end of period $4,499,158 $4,502,209
========== ==========
Supplemental disclosure of cash flow information:
Interest paid $64,460 $68,858
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See accompanying notes to condensed financial statements.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2001 and 2000
NOTE 1. BASIS OF PRESENTATION
On May 23, 2000, the company's name was changed to Stem Cells, Inc.
from CytoTherapeutics, Inc. by vote of the shareholders at the Annual
Meeting. The accompanying, unaudited, condensed consolidated financial
statements have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, the accompanying financial statements include all
adjustments, consisting of normal recurring accruals, considered necessary
for a fair presentation of the financial position, results of operations and
cash flows for the periods presented. Results of operations for the three
months ended March 31, 2001 are not necessarily indicative of the results
that may be expected for the entire fiscal year ending December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required for complete financial statements in
accordance with accounting principles generally accepted in the United
States. For the complete financial statements, refer to the audited financial
statements and footnotes thereto as of December 31, 2000, included on form
10-K as amended.
NOTE 2. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is computed using the
weighted average number of common shares outstanding during the period.
Diluted net income per share is computed using the weighted average of common
and diluted equivalent stock options and warrants outstanding during the
period. We excluded all stock options and warrants from the calculation of
diluted loss per common share for the period ended March 31, 2000, because
these securities are antidilutive during that period.
NOTE 3. COMPREHENSIVE LOSS
The only component of other comprehensive loss is unrealized gains
and losses on available for sale securities. For the three months ended March
31, 2001 and 2000, total comprehensive loss was $7,675,143 and $1,794,258
respectively.
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NOTE 4. WIND-DOWN OF ENCAPSULATED CELL TECHNOLOGY RESEARCH AND DEVELOPMENT
PROGRAM
As previously reported, in 1999 the Company restructured its
operations to abandon all further encapsulated cell technology research and
concentrate its resources on the research and development of its proprietary
platform of stem cell technologies. The Company relocated its remaining
research and development activities and its corporate headquarters to
California, and has been seeking to dispose of its former science and
administrative and pilot manufacturing facilities in Rhode Island. In
December 2000, the company had a reserve of $1,780,000 related to the
carrying costs for the Rhode Island facilities through 2001. On February
2001, the Company subleased portions of the facilities and are actively
seeking to sublease, assign or sell our remaining interests in the
properties. However, there can be no assurance that the Company will be able
to dispose of these facilities in a reasonable time, if at all. At March
31,2001 the reserve was $1,381,000.
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Reserve as at 12/31/2000 $1,780,579 Reserve as at 03/31/01
-------------------------------------------------------------------------------------------------
$1,780,579 $399,632 $1,380,947
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NOTE 5. INVESTMENTS
At March 31, 2001, the Company owned 103,577 shares of Modex
Therapeutics Ltd. ("Modex"), a Swiss biotechnology company traded on the
Swiss Exchange. On January 9, 2001, the Company sold 22,616 Modex shares for
a net price of 182.00 Swiss francs per share, which converts to $112.76 per
share, for total proceeds of $2,550,000. In connection with this sale, the
Company agreed not to resell any more of its Modex shares until April 12,
2001. Accordingly, with an established market value, the investment is
recorded as available-for-sale at an estimated fair market value. On March
31, 2001 the market price of Modex stock was 141.00 Swiss francs, or $81.22
using exchange rates on that date, which represented an estimated fair market
value of $8,412,650 for the remaining shares. The unrealized gain was
reported in other comprehensive income. The Company liquidated the remaining
103,577 Modex shares on April 30, 2001 for $5,232,168 net of commissions and
other fees. See note 9.
NOTE 6. SALE OF SECURITIES
On August 3, 2000, the Company completed a $4 million common stock
financing transaction with Millennium Partners, LP (the "Fund"). The Fund
purchased the Company's common stock at $4.33 per share. As set forth in an
adjustable warrant issued to the Fund on the closing date, the Fund may be
entitled to receive additional shares of common stock on eight dates
beginning six months from the closing and every three months thereafter. The
adjustable warrant may be exercised at any time prior to the thirtieth day
after the last of such dates. On the first adjustment date, January 27, 2001,
the Fund became entitled to 463,369 additional shares, and it has exercised
its warrant as to such shares. The number of additional shares the Fund may
be entitled to on each date will be based on the number of shares of common
stock the Fund continues to hold on each date and the market price of the
Company's common stock over a period prior to each date. The exercise price
per share under the adjustable warrant is $.01. The
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Company will have the right, under certain circumstances, to cap the number
of additional shares by purchasing part of the entitlement from the Fund at a
purchase price based on the market price of such shares. The Fund also
received a five-year warrant to purchase up to 101,587 shares of common stock
at $4.725 per share. This warrant is callable at any time by StemCells at
$7.875 per underlying share. The calculated value of this callable warrant
using the Black-Scholes method is $376,888, which the Company accounts for as
stock issuance cost that has no impact on stockholders' equity. The Company
has accounted for the sale of the stock and warrants by adding that portion
of the proceeds equal to the par value of the new shares to common stock and
the balance, including the value of the warrants, to additional paid in
capital. In addition, any repurchase of the shares by the Company would also
be accounted for through additional paid in capital.
In the Purchase Agreement governing the August 3, 2000 sale to the
Fund, the Company granted the Fund an option to purchase up to an additional
$3 million of its common stock and a callable warrant and an adjustable
warrant. The Fund can exercise this option in whole or in part at any time
prior to August 3, 2001. The price per share of common stock to be issued
upon exercise of the option will be based on the average market price of the
common stock for a five-day period prior to the date on which the option is
exercised. On August 23, 2000, the Fund exercised $1,000,000 of its option to
purchase additional common stock. The Fund purchased the Company's common
stock at $5.53 per share, which amount was based upon the average market
price of the common stock for the five-day period prior to August 23, 2000.
An adjustable warrant similar to the one issued on August 3, 2000 was issued
to the Fund on August 30, 2000, but was cancelled on November 1, 2000 by
agreement of the Company and the Fund. The Fund also received a five -year
warrant to purchase up to 19,900 shares of common stock at $6.03 per share.
This warrant is callable by the Company at any time at $10.05 per underlying
share. The calculated value of this callable warrant using the Black-Scholes
method is $139,897, which the Company accounts for as stock issuance cost
that has no impact on stockholders' equity.
The adjustable warrant contains provisions regarding the adjustment
or replacement of the warrants in the event of stock splits, mergers, tender
offers and other similar events. The adjustable warrant also limits the
number of shares that can be beneficially owned by the Fund to 9.99% of the
total number of outstanding shares of Common Stock.
NOTE 7. LEASES
As of February 1, 2001, the Company entered into a 5-year lease for
a 40,000 square foot facility located in the Stanford Research Park in Palo
Alto, California. The new facility includes animal space, laboratories,
offices, and a GMP (Good Manufacturing Practices) suite. GMP facilities can
be used to manufacture materials for clinical trials. The rent will average
approximately $3.2 million per year over the term of the lease. The company
paid $1.2 million upfront related to this new lease. Approximately $909,000
of this payment has been recorded as prepaid rent and is being amortized over
seven months. The Company continues to lease the facilities in Lincoln, Rhode
Island obtained in connection with its former encapsulated cell technology,
but has now succeeded in subleasing parts of those facilities: the 3,000
square-foot cell processing facility and approximately one-third of its
former scientific and administrative
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facility ("SAF"). The Company continues to seek to sublet the remainder of
the approximately 65,000 square foot SAF and the 21,000 square-foot pilot
manufacturing facility, or to assign or sell its interests in these
properties. There can be no assurance however, that we will be able to
dispose of these properties in a reasonable time, if at all.
NOTE 8. GRANT
In February 2001, the Company was awarded a two-year, $300,000 per
year grant from the NIH's Small Business Innovation Research (SBIR) office.
The grant, which will support joint work with virologist Dr. Jeffrey Glenn at
Stanford University, is aimed at characterizing the human cells that can be
infected by human hepatitis viruses and to develop a small animal model using
the cells that are most infectable by these viruses to develop screening
assays and identify novel drug for the disease. The company received and
recognized as revenue $100,000 from a prior SBIR grant relating to the neural
program.
NOTE 9. SUBSEQUENT EVENTS
On April 30, 2001, StemCells sold its remaining 103,577 shares of
Modex Therapeutics at 87.3 Swiss francs per share, or $50.51 per share at the
exchange rate on that date, for total proceeds of $5,232,168 net of
commissions and other fees. In addition, on April 30, 2001, in consideration
for $300,000 received from Modex and the assistance of Modex in executing the
sale of StemCells holding of Modex shares, StemCells agreed to assign to
Modex the rights concerning future payments under the Asset Purchase and
License Agreement between StemCells, Inc. and Neurotech SA, by which
Neurotech SA purchased the Company's former encapsulated cell therapy
technology.
On April 27, 2001, the Company reached an agreement to terminate as
of May 15, 2001, without cost, its lease on part of its former Sunnyvale
headquarters.
NOTE 10. RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Financial Instruments and for Hedging Activities" ("SFAS 133").
The Statement requires the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in fair value of derivatives are either offset
against the change in fair value of assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. As the Company had no derivative instruments
and does not currently engage in hedging activities, the adoption of
Statement No. 133 on January 1, 2001 had no impact on StemCells results,
operations or financial statement.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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The following discussion of the financial condition and results of
operations of the Company for the three months ended March 31, 2001 and 2000
should be read in conjunction with the accompanying unaudited condensed
consolidated financial statements and the related footnotes thereto.
This report includes forward-looking statements. You can identify
these statements by forward-looking words such as "may," "will," "possibly,"
"expect," "anticipate," "project," "believe," "estimate" and "continue" or
similar words. You should read statements that contain these words carefully
because they discuss our future expectations, contain projections of our
future results of operations or of our financial condition, or state other
"forward-looking" information. We believe that it is important to communicate
our future expectations to our investors. However, there will be events in
the future that we have not been able to accurately predict or control and
that may cause our actual results to differ materially from those discussed.
For example, contaminations at our facilities, changes in the pharmaceutical
or biotechnology industries, competition and changes in government
regulations or general economic or market conditions could all have
significant effects on our results. These factors should be considered
carefully and readers should not place undue reliance on our forward-looking
statements. Before you invest in our common stock, you should be aware that
the occurrence of the events described in the "Cautionary Factors Relevant to
Forward Looking Information" and "Business" sections included in our Form
10-K/A report, as of December 31, 2000 could harm our business, operating
results and financial condition. All forward looking statements attributable
to us or persons acting on our behalf are expressly qualified in their
entirety by the cautionary statements and risk factors contained or referred
to herein.
OVERVIEW
Since our inception in 1988, we have been primarily engaged in
research and development of human therapeutic products. As a result of a
restructuring in the second half of 1999, our sole focus is now on our stem
cell technology. In1999, by contrast, our corporate headquarters, most of our
employees, and the main focus of our operations were primarily devoted to a
different technology--encapsulated cell therapy, or ECT. Since that time, we
terminated a clinical trial of the ECT then in progress, we wound down our
other operations relating to the ECT, we terminated the employment of those
who worked on the ECT, we sold the ECT and we relocated from Rhode Island to
California. The year 2000 was a year of transition, in which we completed the
consolidation and restructuring of our operations. Comparisons with the
previous year's results are correspondingly less meaningful than they may be
under other circumstances.
We have not derived any revenues from the sale of any products, and
we do not expect to receive revenues from product sales for at least several
years. We have not commercialized any product and in order to do so we must,
among other things, substantially increase our research and development
expenditures as research and product development efforts accelerate and
clinical trials are initiated. We have incurred annual operating losses since
inception and expect to incur substantial operating losses in the future. As
a result, we are dependent upon external
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financing from equity and debt offerings and revenues from collaborative
research arrangements with corporate sponsors to finance our operations.
There are no such collaborative research arrangements at this time and there
can be no assurance that such financing or partnering revenues will be
available when needed or on terms acceptable to us.
Our results of operations have varied significantly from year to
year and quarter to quarter and may vary significantly in the future due to
the occurrence of material, nonrecurring events, including without limitation
the receipt of one-time, nonrecurring licensing payments, and the initiation
or termination of research collaborations, in addition to the winding-down of
terminated research and development programs referred to above.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
For the three months ended March 31, 2001, revenues from grants
totaled $100,000. There was no such revenue for the three months ended March
31, 2000.
On January 9, 2001, the Company sold 22,616 Modex shares for a net
price of 182.00 Swiss francs per share, which converts to $112.76 per share,
for total proceeds and a realized gain of $2,550,000. In connection with this
sale, the Company agreed not to resell any more of its Modex shares until
April 12, 2001.
Research and development expenses totaled $1,644,257 for the three
months ended March 31, 2001, compared with $906,632 for the same period in
2000. The increase of $737,625 or 81% from 2000 to 2001 was primarily
attributable to the related costs of an increase in personnel from 11 full
time employees to 19 full time employees to facilitate the expansion of our
research programs and initiate development and the cost of leasing a larger
facility.
General and administrative expenses were $996,862 for the three
months ended March 31, 2001, compared with $657,714 for the same period in
2000. The increase of $339,148, or 52%, from 2000 to 2001 was primarily
attributable to the related costs of an increase in personnel from 5 full
time employees to 8 full time employees, which included the hiring of senior
management personnel as part of the restructuring and consolidation of our
operations in California and the cost of leasing a larger facility.
Wind-down expenses related to our ECT research, our Rhode Island
operations and the transfer of our headquarters to Sunnyvale, California for
the three months ended March 31, 2000 were $234,386. In December 2000, we
created a reserve of $1,780,578 related to the carrying costs for the Rhode
Island facilities through 2001. At March 31, 2001 the reserve was $1,381,946.
Interest income for the three months ended March 31, 2001 and 2000 was
$79,041 and $73,332 respectively. Interest expense of $64,460 for the three
months ended March 31, 2001 was booked against the wind-down reserve created in
2000 for the whole of 2001, as the expense
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was part of the bond payments related to the Rhode Island facilities.
Interest expense for the same period in 2000 was $68,858. The decrease in
2001 was attributable to lower outstanding debt and capital lease balances in
2001 compared to 2000.
Other income for the three months ended March 31, 2001 was $180,389,
which was a refund from the Citizens Bank of Rhode Island for an overpayment
of property taxes in prior years.
Net income (loss) for the three months ended March 31, 2001 was
$268,541 or $0.01 per share, as compared to net loss of ($1,794,258) or
($0.09) per share, for the comparable period in 2000. The decrease in net
loss of $2,062,800 or 115% from the same period in 2000 was primarily
attributable to a realized gain of $2,550,230 from the sale of a portion of
our Modex investment, offset by an increase in expenses attributable to an
increase in personnel and the costs associated with our move to a larger
facility.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through the
sale of common and preferred stock, the issuance of long-term debt and
capitalized lease obligations, revenues from collaborative agreements,
research grants and interest income.
We had cash and cash equivalents totaling $4,499,000 at March 31,
2001. Cash equivalents are invested in money market funds. We also held
shares of Modex Therapeutics Ltd ("Modex"), a Swiss biotechnology company
that completed an initial public offering on June 23, 2000, and is publicly
traded on the Swiss Neue Market exchange. We realized a gain in connection
with the sale of a portion of our investment in Modex in the second quarter
2000 and first quarter of 2001 of $1,427,000 and $2,550,000 respectively. Our
Modex stock had a fair market value of $8,412,000 on March 31, 2001. The fair
market value of our Modex stock has varied significantly since the Modex
public offering based on increases and decreases in the reported per share
price, in Swiss francs, of the Modex stock and on foreign currency exchange
rates. We had been prohibited under a lock-up agreement entered into at the
time of Modex's secondary offering from selling any of our Modex holdings
until December 23, 2000. On January 9, 2001, we sold 22,616 Modex shares for
a net price of 182.00 Swiss francs per share, which converts to $112.76 per
share, for total proceeds of $2,550,000. In connection with this sale, we
agreed not to sell any more of our remaining 103,577 Modex shares until April
12, 2001. On April 30, 2001, StemCells sold its remaining 103,577 shares of
Modex Therapeutics at 87.3 Swiss francs per share, or $50.51 per share at the
exchange rate on that date, for total proceeds of $5,232,168 net of
commissions and other fees. In addition, on April 30, 2001, the Company sold
Modex Therapeutics its rights to future payments under the agreement between
the Company and Neurotech S.A. by which it sold its former encapsulated cell
therapy technology to Neurotech. StemCells received $300,000 for the rights
to future payments.
We continue to have outstanding obligations in regard to our former
facilities in Lincoln, Rhode Island, including lease payments and operating
costs of approximately $1,200,000 per year associated with our former
research laboratory and corporate headquarters building, and
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debt service payments and operating costs of approximately $1,000,000 per
year with respect to our pilot manufacturing and cell processing facility. We
have subleased a portion of these facilities and are actively seeking to
sublease, assign or sell our remaining interests in these facilities. Failure
to do so within a reasonable period of time will have a material adverse
effect on our liquidity and capital resources.
On August 3, 2000, we completed a $4 million common stock financing
transaction with Millennium Partners, LP, or the Fund, an investment fund
with more than a billion dollars in assets under management. We received $3
million of the purchase price at the closing and received the remaining $1
million upon effectiveness of a registration statement covering the shares
purchased by the Fund. The Fund purchased our common stock at $4.33 per
share. The Fund became entitled, pursuant to an adjustable warrant issued in
connection with the sale of common stock to the Fund, to receive 463,369
additional shares of common stock on January 27, 2001, and it has exercised
its warrant as to such shares at $0.01 per share. The Fund may become
entitled to receive additional shares every three months thereafter until
October, 2002. The number of additional shares the Fund may be entitled to on
each date will be based on the number of shares of common stock the Fund
continues to hold on each date and the market price of our common stock over
a period prior to each date. We will have the right, under certain
circumstances, to cap the number of additional shares by purchasing part of
the entitlement from the Fund. The Fund also received a warrant to purchase
up to 101,587 shares of common stock at $4.725 per share. This warrant is
callable by us at $7.875 per underlying share.
In addition, the Fund has the option for twelve months to purchase
up to $3 million of additional common stock. On August 23, 2000 the Fund
exercised $1,000,000 of its option to purchase additional common stock at
$5.53 per share. The Fund paid $750,000 of the purchase price in connection
with the closing on August 30, 2000, and paid the remaining $250,000 upon
effectiveness of a registration statement covering the shares owned by the
Fund. At the closing on August 30, 2000, we issued to the Fund an adjustable
warrant similar to the one issued on August 3, 2000. T his adjustable warrant
was canceled by agreement between us and the Fund on November 1, 2000. The
Fund also received a warrant to purchase up to 19,900 shares of common stock
at $6.03 per share. This warrant is callable by us at $10.05 per underlying
share.
We have limited liquidity and capital resources and must obtain
significant additional capital resources in the future in order to sustain
our product development efforts, for acquisition of technologies and
intellectual property rights, for preclinical and clinical testing of our
anticipated products, pursuit of regulatory approvals, acquisition of capital
equipment, laboratory and office facilities, establishment of production
capabilities and for general and administrative expenses. Our ability to
obtain additional capital will be substantially dependent on our ability to
obtain partnering support for our stem cell technology and, in the near term,
on our ability to realize proceeds from the sale, assignment or sublease of
our facilities in Rhode Island. Failure to do so will have a material effect
on our liquidity and capital resources. Until our operations generate
significant revenues from product sales, we must rely on cash reserves and
proceeds from equity and debt offerings, proceeds from the transfer or sale
of our intellectual property rights, equipment, facilities or investments,
government grants and funding from collaborative arrangements, if obtainable,
to fund our operations.
-12-
We intend to pursue opportunities to obtain additional financing in
the future through equity and debt financings, grants and collaborative
research arrangements. The source, timing and availability of any future
financing will depend principally upon market conditions, interest rates and,
more specifically, on our progress in our exploratory, preclinical and future
clinical development programs. Lack of necessary funds may require us to
delay, reduce or eliminate some or all of our research and product
development programs or to license our potential products or technologies to
third parties. Funding may not be available when needed--at all, or on terms
acceptable to us. While our cash requirements may vary, as noted above, we
currently expect that our existing capital resources, including income earned
on invested capital, will be sufficient to fund our operations through
December of 2001. Our cash requirements may vary, however, depending on
numerous factors. Lack of necessary funds may require us to delay, scale back
or eliminate some or all of our research and product development programs
and/or our capital expenditures or to license our potential products or
technologies to third parties.
On May 11, 2001, we entered into a definitive agreement with an
institutional investor to provide us with up to $30,000,000 in equity
financing. Under the 30-month agreement, we will have the right, but not the
obligation, to obtain the financing through the issuance of common stock to
the investor in a series of periodic draw downs at a discount to the market
price at the time of sale. The shares may be sold to the investor during this
period at times and in amounts, subject to certain minimum and maximum
volumes, determined at the our discretion. We have agreed to file a
registration statement for resale of any shares purchased under this equity
line and to maintain the effectiveness of the registration statement to
permit the resale. If we choose to draw down on the equity line, it will use
the proceeds of the financing for general corporate purposes.
In connection with the entry into the equity line agreement, we
issued a three-year stock purchase warrant to the investor to purchase up to
an additional 250,000 shares of our common stock.
The shares issued in connection with this equity financing may not
be sold nor may offers to buy be accepted prior to the time a registration
statement relating to the resale of the shares has been filed and becomes
effective. This prospectus supplement shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On March 31, 2001, we had an investment in common stock of Modex
Therapeutics Ltd. (Modex), a Swiss Biotherapeutics company. Our value in this
investment was subject to both equity price risk and foreign currency
exchange risk. Modex shares were offered in an initial public offering
("IPO") on the Swiss Neue Market on June 23, 2000 at a price of 168.00 Swiss
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francs. From the date of the IPO to March 9, 2001, the Modex closing share
price has fluctuated from a high of 390.00 Swiss francs on October 6, 2000 to
a low of 92.00 Swiss francs on April 27, 2001. On January 9, 2001, we sold
22,616 Modex shares for a net price of 182.00 Swiss francs per share, which
converts to $112.76 per share, for total proceeds of $2,550,230. In
connection with this sale, we agreed not to resell any more of our Modex
shares until April 12, 2001. On March 31, 2001 the market price of Modex
stock was 141.00 Swiss francs which converts to $81.22 using exchange rates
on that date, which represented an estimated fair market value of $8,412,650.
On April 30, 2001, StemCells sold its remaining 103,577 shares of
Modex Therapeutics at 87.3 Swiss francs per share, which converts to $ 50.51
per share at the exchange rate for that date, for total proceeds of
approximately $5,232,168 net of commissions and other fees.
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ASSOCIATED RISKS MARKET
NO. OF SHARES DESCRIPTION VALUED AT SALES PROCEEDS ON
MARCH 31, APRIL 30,
2001 2001
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103,577 Modex Therapeutics Equity/Foreign $8,412,650 $5,232,168
Currency Translation
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