SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
November 25, 1997
Date of Report (Date of earliest event reported)
DISCOVERY LABORATORIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 000-26422 94-3171943
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
509 Madison Avenue, 14th Floor
New York, New York 10022
(Address of principal executive offices)
(212) 223-9504
(Registrant's telephone number, including area code)
This Amendment No. 1 to the Current Report of Discovery
Laboratories, Inc. (f/k/a Ansan Pharmaceuticals, Inc.) (the "Registrant") on
Form 8-K dated November 25, 1997 (the "Current Report") relates to an Agreement
and Plan of Merger (the "Merger Agreement") dated as of July 16, 1997, between
the Registrant and Discovery Laboratories, Inc., a former Delaware corporation
("Old Discovery"). Pursuant to the Merger Agreement, Old Discovery merged with
and into the Registrant (the "Merger"). In connection with the Merger, the
Registrant changed its name to Discovery Laboratories, Inc.
The purpose of this Amendment is to amend Items 7 (a),(b) and
(c) to provide certain financial statements and pro forma financial information
for the period ended September 30, 1997 which was impracticable to provide at
the time the Registrant filed the Current Report.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
Attached hereto as Exhibit 99.4 is Old Discovery's unaudited
consolidated financial statements at September 30, 1997, for
the nine months ended September 30, 1996 and 1997, and for the
period from inception to September 30, 1997.
(b) Pro Forma Financial Information
Attached hereto as Exhibit 99.5 is certain pro forma financial
information which gives effect to the Merger as if it occurred
on September 30, 1997 and January 31, 1997, respectively.
(c) Exhibits:
99.4 Financial Statements of Businesses Acquired.
99.5 Pro Forma Financial Information.
SIGNATURES
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.
DISCOVERY LABORATORIES, INC.
Date: February 6, 1998
By: /s/ James S. Kuo
------------------------------
Name: James S. Kuo, M.D.
Title: Chief Executive Officer
Exhibit Index
Exhibit Number Description
- -------------- -----------
99.4 Financial Statements of Businesses Acquired.
99.5 Pro Forma Financial Information.
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Balance Sheets (Unaudited)
September 30, 1997
ASSETS
Current assets:
Cash and cash equivalents $ 536,000
Investments in United States government obligations 11,633,000
Investment in Ansan Pharmaceuticals, Inc. 1,300,000
Prepaid expenses 39,000
------------
Total current assets 13,508,000
Computer equipment, net of depreciation 93,000
Deferred merger costs 327,000
Other assets 30,000
------------
$ 13,958,000
============
LIABILITIES
Accrued expenses $ 448,000
------------
Minority interest in preferred stock of subsidiary 2,200,000
------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Series A convertible preferred stock, $.001 par value; 7,000,000 shares
authorized; 2,200,256 shares issued and outstanding (liquidation
preference $29,703,000) 2,000
Other preferred stock, $.001 par value; 3,000,000 shares authorized; none
issued and outstanding
Common stock, $.001 par value, 50,000,000 shares authorized, 6,747,256
shares issued and outstanding 7,000
Additional paid-in capital 18,999,000
Deficit accumulated during the development stage (7,698,000)
------------
Total stockholders' equity 11,310,000
------------
$ 13,958,000
============
See notes to financial statements F-1
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Operations (Unaudited)
Nine Months Ended May 18, 1993
September 30, (Inception) to
--------------------------- September 30,
1996 1997 1997
----------- ----------- -----------
Interest income $ 594,000 $ 799,000
----------- -----------
Expenses:
Research and development $ 137,000 3,503,000 6,243,000
General and administrative 117,000 1,535,000 2,245,000
Interest 5,000 11,000
----------- ----------- -----------
Total expenses 259,000 5,038,000 8,499,000
----------- ----------- -----------
(259,000) (4,444,000) (7,700,000)
----------- ----------- -----------
Minority interest in net loss of subsidiary 2,000
-----------
Net loss $ (259,000) $(4,444,000) $(7,698,000)
=========== =========== ===========
Pro forma net loss per share $ (.26) $ (1.69)
=========== ===========
Pro forma weighted average common shares outstanding 1,009,443 2,629,772
=========== ===========
See notes to financial statements F-2
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Deficit
Accumulated
Common Stock Preferred Stock Additional During the
------------------------ ----------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
---------- ----------- --------- ------ ----------- ----------- -----------
Balance - December 31, 1996 6,712,256 $ 7,000 2,200,256 $2,000 $19,003,000 $(3,254,000) $15,758,000
Private placement expenses (11,000) (11,000)
Exercise of stock options 35,000 7,000 7,000
Net loss (4,444,000) (4,444,000)
---------- ----------- --------- ------ ----------- ----------- -----------
Balance - September 30, 1997 6,747,256 $ 7,000 2,200,256 $2,000 $18,999,000 $(7,698,000) $11,310,000
========== =========== ========= ====== =========== =========== ===========
See notes to financial statements F-3
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Cash Flows (Unaudited)
May 18, 1993
Nine Months Ended (Inception) to
September 30, September 30,
--------------------------
1996 1997 1997
----------- ------------ ------------
Cash flows from operating activities:
Net loss $ (259,000) $ (4,444,000) $ (7,698,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Write-off of acquired research and development
supplies 2,200,000
Write-off of licenses 683,000 683,000
Depreciation and amortization 3,000 48,000 72,000
Changes in:
Prepaid expenses (20,000) (39,000)
Other assets (30,000) (30,000)
Accrued expenses 9,000 217,000 448,000
Expenses paid on behalf of company 18,000
Employee stock compensation 42,000 42,000
----------- ------------ ------------
Net cash used in operating activities (205,000) (3,546,000) (4,304,000)
----------- ------------ ------------
Cash flows from investing activities:
Investment in Ansan Pharmaceuticals, Inc. (1,300,000) (1,300,000)
Acquisition of computer equipment (6,000) (54,000) (137,000)
Acquisition of license (111,000) (711,000)
Purchase of investments in United States government
obligations (2,613,000) (15,677,000)
Redemption of investments in United States government
obligations 4,044,000 4,044,000
Deferred merger costs (327,000) (327,000)
----------- ------------ ------------
Net cash used in investing activities (117,000) (250,000) (14,108,000)
----------- ------------ ------------
Cash flows from financing activities:
Private placement of units, net of expenses 6,482,000 (11,000) 18,925,000
Payment on stock subscriptions and proceeds on
issuance of common stock 8,000 7,000 23,000
Short-term borrowings
----------- ------------ ------------
Net cash provided by (used in) financing activities 6,490,000 (4,000) 18,948,000
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 6,168,000 (3,800,000) 536,000
Cash and cash equivalents - beginning of period 3,000 4,336,000
----------- ------------ ------------
Cash and cash equivalents - end of period $ 6,171,000 $ 536,000 $ 536,000
=========== ============ ============
See notes to financial statements F-4
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
NOTE A - THE COMPANY AND BASIS OF PRESENTATION
Discovery Laboratories, Inc., a former Delaware Corporation ("Old Discovery"")
was incorporated in Delaware on May 18, 1993 as MicroBio, Inc. Until Old
Discovery's merger with and into the Registrant on November 25, 1997 (the
"Merger"), Old Discovery was a development stage company formed to license and
develop pharmaceutical products to treat a variety of human diseases. The
consolidated financial statements include the accounts of Old Discovery and its
majority owned subsidiary, Acute Therapeutics, Inc. ("ATI"). Intercompany
balances and transactions have been eliminated. No allocation of the
subsidiary's net loss for the nine-month periods ended September 30, 1997 and
1996 has been attributed to the minority interest since the accumulated losses
exceed the minorities' common equity interest during such periods .
In the opinion of management, the financial statements include all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
Old Discovey's financial position at September 30, 1997 and results of
operations and cash flows for the nine-month periods ended September 30, 1997
and 1996. The financial statements for the nine-months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
In November 1996 Old Discovery completed a private placement of its securities
and received aggregate net proceeds of approximately $19,000,000.
NOTE B - NET LOSS PER SHARE
Pro forma net loss per share is computed based on the weighted average number of
common shares outstanding for the periods adjusted to reflect the number of
shares of the Registrant's common stock issued to the common stockholders of Old
Discovery upon consummation of the Merger. Common stock equivalents are not
included in the calculation of net loss per share as the effect would be
antidilutive.
NOTE C - COMMITMENTS
ATI entered into a four-year employment agreement with its President, Chief
Executive Officer and Chairman of the Board of Directors providing for a base
salary of $225,000 per year plus an initial sign-on bonus of $50,000 to be paid
the first week of January 1997, plus certain incentive bonuses.
ATI also entered into a three-year employment agreement with an officer
providing for an annual salary of $200,000 and various two-year consulting
agreements providing for aggregate annual fees of $300,000 plus royalties on net
commercial sales of licensed products sold by ATI or its sublicensees and an
18-month consulting agreement providing for monthly fees of $7,500.
ATI leases its office and laboratory space pursuant to an operating lease
requiring aggregate annual payments of approximately $67,000 through November
2001.
Note D - Merger
Pursuant to a merger agreement executed with the Registrant on July 16, 1997
(the "Merger Agreement"), Old Discovery's stockholders received approximately
90% of the combined entity. The Merger will be accounted for as a reverse
acquisition with Old Discovery as the acquirer for financial reporting purposes.
The Merger closed on November 25, 1997. Also on July 16, 1997 Old Discovery
purchased 13,000 shares of Series A convertible preferred stock of the
Registrant for $1,300,000 which amount was used by the Registrant to repay
certain debt owed to its principal stockholder. The Series A convertible
preferred stock was cancelled in the Merger. The Registrant's assets at
September 30, 1997 consisted primarily of cash and short-term investments.
F-5
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Note E - Income Taxes
At September 30, 1997, Old Discovery had available for federal income tax
purposes net operating loss carryforwards of approximately $2,600,000 expiring
through 2011, that may be used to offset future taxable income.
The principal difference between the deficit accumulated during the development
stage for financial reporting purposes and the net operating loss carryforward
for tax purposes is primarily due to the write-off of the acquired research and
development supplies and to certain general and administrative costs which are
not currently deductible for tax purposes. Old Discovery provided a valuation
reserve against the full amount of the deferred tax asset of $3,030,000 arising
from net operating loss benefit of approximately $1,000,000 the research and
development write-off of approximately $1,130,000 and general and administrative
costs of approximately 900,000 since the likelihood of realization cannot be
determined. The valuation reserve increased by approximately $1,223,000 and
$7,000 for the years ended December 31, 1996 and December 31, 1995,
respectively, and approximately $1,800,000 for the nine months ended September
30, 1997. Pursuant to Section 382 of the Internal Revenue Code, the utilization
of this carryforward may be limited due to ownership changes which have occurred
or may occur.
F-6
EXHIBIT 99.5
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements give effect to the Merger of the Registrant and Old Discovery
pursuant to the Merger Agreement. The unaudited pro forma condensed consolidated
balance sheet gives effect to the Merger as if it occurred on September 30,
1997. The unaudited pro forma condensed consolidated statement of operations
gives effect to the Merger as if it occurred on January 1, 1997.
The pro forma condensed consolidated financial statements are
based on the historical financial statements of the Registrant and Old
Discovery. They give effect to the Merger under the purchase method of
accounting and apply the assumptions and adjustments as discussed in the
accompanying notes to the pro forma condensed consolidated financial statements.
The pro forma condensed consolidated financial statements as of and for the nine
months ended September 30, 1997 have been prepared based upon the unaudited
condensed financial statements of the Registrant and the unaudited condensed
consolidated financial statements of Old Discovery as of September 30, 1997 and
for the nine months then ended.
The Merger will be accounted for using the purchase method of
accounting. Although the Registrant was the surviving corporate entity, Old
Discovery's former stockholders own approximately 92% of the merged entity.
Accordingly, the transaction will be accounted for as an acquisition of the
Registrant by Old Discovery. The unaudited pro forma condensed consolidated
financial statements have been prepared on the basis of assumptions described in
the notes thereto and include assumptions relating to the allocation of the
consideration paid for the assets and liabilities of the Registrant based on
preliminary estimates of their fair value. The actual allocation of such
consideration may differ from that reflected in the unaudited pro forma
condensed consolidated financial statements after final valuation procedures are
completed following the closing of the Merger. The final allocations of the
aggregate purchase price for the Merger are not expected to differ materially
from the preliminary allocations. In the opinion of the Registrant, all
adjustments necessary to present fairly the unaudited pro forma condensed
consolidated financial statements have been made based on the terms and
structure of the Merger.
The pro forma information is presented for illustrative
purposed only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
on January 1, 1997 or September 30, 1997, respectively, nor is it necessarily
indicative of future operating results or financial position.
The pro forma condensed consolidated financial statements
should be read in conjunction with the historical financial statements and the
related notes thereto of the Registrant and Old Discovery in Amendment No. 2 to
the Ansan Pharmaceuticals, Inc. Form S-4 dated October 24, 1997, and
Management's Discussion and Analysis of Financial Condition and Plan of
Operations included therein.
F-7
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
September 30, 1997
(in thousands)
Pro Forma
Combined
Discovery Old Pro Forma Reflecting
Laboratories Discovery Adjustments Merger
ASSETS ------------ --------- ----------- ------
------
Current assets
Cash and Cash equivalents $ 274 $ 536 $ 810
$(1232)(A)
Short-term investments 2200 12933 (1300)(D) 12601
Prepaid expenses and other current assets 6 39 45
------- ------ ------- ---------
Total current assets 2480 13508 (2532) 13456
Furniture and equipment net 79 93 172
Other assets 30 30
Deferred merger costs 386 327 (713)(C) --
------- ------ ------- ---------
$2945 $13958 $(3245) $13658
------- ------ ------- ---------
LIABILITIES AND STOCKHOLDERS
EQUITY
Current liabilities
Accounts payable and accrued expenses $ 245 $ 448 $ 412(C) $ 1105
Payable to Titan Pharmaceuticals, Inc. 232 -- (232)(A) --
Other accrued liabilities 17 -- -- 17
Debenture payable to Titan Pharmaceuticals
Inc. 1000 (1000)(A)
------- ------ ------- ---------
Total current liabilities 1494 448 (820) 1122
Commitments
Minority Interest 2200 2200
------- ------ ------- ---------
Stockholders' Equity
Preferred Stock 1300 2 (1300)(D) 2
Common Stock 3 7 (1)(B) 3
(6)(E)
Additional paid-in capital 10697 18999 (10697)(B) 21462
2457(B)
6(E)
Deficit accumulated during the development (10549) (7698) 10549 (11131)
stage (3433)(B)
------- ------ ------- ---------
Total stockholders' equity 1451 11310 (2425) 10336
------- ------ ------- ---------
$2945 $13958 $(3259) $13658
======= ====== ======= =========
- -------------
(A) Reflects the repayment of obligations to Titan Pharmaceuticals, Inc. in
connection with the Merger.
(B) Reflects the allocation of the estimated purchase price of approximately
$2.9 million to the historical balance sheet of the Registrant. The
adjustment includes approximately $4 million of purchased in-process
research and development. Also reflects the elimination of the Registrant's
stockholders' equity accounts.
(C) Reflects the estimated costs incurred by the Registrant and Old Discovery
to complete the Merger.
(D) Reflects the elimination of Old Discovery's investment in the Registrant's
Series A preferred stock.
(E) To reflect the 1- for-3 reverse stock split.
F-8
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1997
(in thousands, except share and per share amounts)
Pro Forma
Combined
Old Pro Forma Reflecting
Registrant Discovery Adjustments Merger
---------- --------- ----------- ------
Costs and expenses
Research and development $ 760 $ 3503 -- $4263
General and administrative 725 1535 -- 2260
------- --------- ------- ---------
Loss from operations (1485) (5038) -- (6523)
Other income/expenses)
Interest income 73 594 (37)(F) 630
Interest expense (57) -- 57(F) --
------- --------- ------- ---------
Net Loss (1469) (4444) $ 20 $ (5893)
======= ========= ======= =========
Net loss per share (.59) $ (1.69) $ (1.86)
======= ========= =========
Shares used in computing net loss per share 828,427 2,629,772 3,176,203
======= ========= =========
- -------
(F) Reflects the net reduction of interest expense as a result of the repayment
of the indebtedness owed to Titan Pharmaceuticals, Inc. in connection with
the Merger.
F-9
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
Note 1
The unaudited pro forma condensed combined balance sheet of the Registrant
and Old Discovery has been prepared as if the Merger was completed as of
September 30, 1997. The Merger will be accounted for as a purchase of the
Registrant by Old Discovery, as Old Discovery's former stockholders own
approximately 92% of the merged entity notwithstanding that the Registrant
survived the Merger. The total cost of the Merger is estimated to be
approximately $2.9 million, including transaction costs incurred by Old
Discovery of approximately $400,000 which includes financial advisory, legal,
and accounting fees.
The purchase cost of the Registrant has been determined based on the
estimated fair market value of Registrant stock at the time of the announcement
of the merger. The estimated purchase price consists of the following (in
thousands):
Estimated value of Common Stock to be held by
pre-existing Registrant stockholders following the
Merger (546,433 shares of Common stock at $4.50 per share) $2459
Estimated transaction costs to be incurred by Old Discovery 400
-----
(Net of prior Old Discovery investment in the Registrant) $2859
=====
Based on a preliminary analysis of tangible and intangible assets the
allocation of the purchase price is as follows:
Tangible assets of the Registrant acquired (less previous
investment by Old Discovery) $1259
In-process research & development 3433
Liabilities of the Registrant assumed (including
transaction costs) (1833)
-----
$2859
The in-process research and development will be charged against earnings.
Such charge has not been reflected in the pro forma condensed statement of
operations as such charge is a non-recurring charge directly attributable to the
Merger.
The pro forma adjustments include accrued liabilities of $1,125,000 to
reflect the estimated costs incurred by both the Registrant and Old Discovery to
complete the Merger.
The pro forma adjustments include the repayment of approximately
$1,200,000 in debt owed to Titan Pharmaceuticals, Inc. (the "Titan
Indebtedness").
No pro forma adjustment has been included to reflect the Sublicense
Agreement entered into between Titan Pharmaceuticals, Inc. and the Registrant at
the time of the Merger as there is no effect on the pro forma periods presented.
Note 2
The unaudited pro forma condensed consolidated statements of operations of
the Registrant and Old Discovery have been prepared as if the Merger was
completed as of January 1, 1997. The condensed consolidated statement of
operations for the nine months ended September 30, 1997, includes an adjustment
to reduce interest expense to reflect the repayment of Titan Indebtedness in
connection with the Merger.
Note 3
Combined pro forma net loss per share for the nine-month period ended
September 30, 1997 is computed using the historical weighted average number of
shares of Old Discovery Common Stock outstanding, adjusted for the exchange
ratio applicable to Common Stock in the Merger plus the shares of the Registrant
Common Stock outstanding following the cancellation of Titan Pharmaceuticals,
Inc.'s holding in the Registrant and adjusted for the 1-for-3 reverse stock
split effected concurrently with the Merger. Preferred stock and other common
stock equivalents issued in the Merger are not included, as their effect is
antidilutive.
F-10