U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
(Amendment No.1)
(Mark One)
X Annual report under Section 13 or 15(d) of the Securities
----- Exchange Act of 1934. For the fiscal year ended June 30,
2004.
OR
Transition report under Section 13 or 15(d) of the
----- Securities Exchange Act of 1934 for the transition period
from
________________ to ________________.
Commission File Number: 0-18299
BIOENVISION, INC.
-----------------
(Name of Small Business Issuer in Its Charter)
Delaware 13-4025857
---------------------------- ------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
345 Park Avenue, 41st Floor
New York, New York 10154
------------------------- ------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 750-6700
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $0.001
par value
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X
--- ---
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $3,102,214.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the last price at which the stock was sold, as of June 1, 2005,
was $243,457,109. The number of shares of common stock outstanding as of June 1,
2005 was 40,558,948.
Part III incorporates information by reference from the issuer's definitive
proxy statement to be filed with the Commission within 120 days after the close
of the registrant's fiscal year.
Transitional Small Business Disclosure Format (check one): Yes___ No X
---
EXPLANATORY NOTE
Bioenvision, Inc. is filing this amendment on Form 10-KSB/A to amend Part II
Item 7, as more fully described in Note 9 to the Financial Statements contained
herein, and the Exhibit Index of our Annual Report on Form 10-KSB for the year
ended June 30, 2004, which was originally filed on September 24, 2004 (the "Form
10-KSB"). Unaffected items have not been repeated in this Amendment. This report
still speaks as of the filing date of the Form 10-KSB and, except as expressly
stated herein, no attempt has been made to update this report to reflect events
occurring subsequent to the date of the initial filing date of the Form 10-KSB.
All information contained in this Amendment is subject to updating and
supplementing, as provided in our periodic reports filed with the Securities and
Exchange Commission subsequent to the date of the filing of the Form 10-KSB.
PART II
Item 7. Financial Statements
The consolidated financial statements of Bioenvision, Inc. and its subsidiaries
including the notes thereto and the report thereon, is presented beginning at
page F-1.
Item 8a. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer have evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
annual report on Form 10-KSB. Based on this evaluation, except as set forth
below, our principal executive officer and principal financial officer concluded
that these disclosure controls and procedures are effective and designed to
ensure that the information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the requisite time periods.
In connection with its review of the Company's consolidated financial statements
for and as of the three month period ended March 31, 2004, Grant Thornton LLP
("Grant Thornton"), the Company's independent registered public accounting firm
at that time, advised the Audit Committee and management of certain significant
internal control deficiencies that they considered to be, in the aggregate, a
material weakness, including, inadequate staffing and supervision leading to the
untimely identification and resolution of certain accounting matters; failure to
perform timely reviews, substantiation and evaluation of certain general ledger
account balances; lack of procedures or expertise needed to prepare all required
disclosures; and evidence that employees lack the qualifications and training to
fulfill their assigned functions. Grant Thornton indicated that they considered
these deficiencies to be a material weakness as that term is defined under
standards established by the American Institute of Certified Public Accountants.
A material weakness is a significant deficiency in one or more of the internal
control components that alone or in the aggregate precludes our internal control
from reducing to an appropriately low level the risk that material misstatements
in our financial statements will not be prevented or detected on a timely basis.
The Company considered these matters in connection with the quarter end closing
of accounts and preparation of related quarterly financial statements at and as
of March 31, 2004 and determined that no prior period financial statements were
materially affected by such matters.
In response to the observations made by Grant Thornton, the Company proceeded
more expeditiously with its existing plan to enhance the Company's internal
controls and procedures, which it believes addressed each of the matters raised
by Grant Thornton.
Changes in Internal Controls
In May 2005, the Company appointed a Director of Financial Reporting who is
involved with assisting the Controller with the administration of all accounting
functions including Sarbanes-Oxley compliance, preparation of all monthly,
quarterly and annual financial statements and further enhancements of the
Company's internal controls. Our Director of Financial Reporting most recently
served as a Supervising Senior Associate in the audit department of KPMG (New
York office), an internationally recognized public accounting firm. In addition,
in May 2005 the Company also added an Assistant Accountant to its UK office to
assist with certain basic accounting and
bookkeeping responsibilities. Our Assistant Accountant most recently served as
an Intercompany Accountant with Quintiles, an international pharmaceutical
company.
Unless otherwise disclosed, we made no other change in our internal control over
financial reporting during the quarter that materially affected or is reasonably
likely to materially affect our internal control over financial reporting.
(a) Restatement.
In connection with the preparation and filing of our quarterly report on form
10-QSB for the three-month period ended March 31, 2005, our internal corporate
staff identified errors with respect to our tax accounting treatment associated
with the acquisition of Pathagon, Inc. which was consummated in February 2002.
Our initial accounting concluded that the realization of our deferred tax assets
related to the net operating losses and other deductible temporary differences
existing at the acquisition date, and generated after the acquisition date, did
not meet the "more likely than not" criteria and, as a result, a valuation
allowance was established on the deferred tax assets of the Company. The Company
subsequently determined that the deferred tax liability recorded in connection
with the Pathagon acquisition creates taxable income as the taxable temporary
differences reverse and, therefore, a portion of the valuation allowance
previously established on our deferred tax assets was not required.
Management reported its findings to the Audit Committee of the Board of
Directors. After initial discussions with the Audit Committee, management
reviewed these matters in further detail, and after completing its analysis on
May 15, 2005, recommended to the Audit Committee that previously reported
financial results be restated to reflect correction of these errors. The Audit
Committee agreed with this recommendation. Pursuant to the recommendation of the
Audit Committee, the Board of Directors determined at its meeting on May 15,
2005, that previously reported results be restated to correct the income tax
treatment associated with the Pathagon acquisition.
(b) Evaluation of Disclosure Controls and Procedures
In connection with the restatement, under the direction of our Chief Executive
Officer and Chief Financial Officer, we reevaluated our disclosure controls and
procedures. We identified the following material weakness in our internal
control over financial reporting with respect to accounting for income taxes
associated with a purchase business combination:
o a failure to ensure the correct application of SFAS 109 in respect to
purchase business combinations and failure to correct that error
subsequently resulting from the lack of personnel knowledgeable in the
accounting for income taxes.
Solely as a result of this material weakness, we concluded that our disclosure
controls and procedures were not effective as of March 31, 2005.
(c) Remediation of Material Weakness in Internal Control
As of the date of this filing (June 29, 2005), we have taken the following
measures to remediate the material weakness in our internal control over
financial reporting with respect to accounting for income taxes that existed as
of March 31, 2005. The remedial actions include:
o improving training, education and accounting reviews designed to ensure
that all relevant personnel involved in income tax transactions understand
and apply accounting in compliance with SFAS 109;
o hiring additional internal resources, including a Director of Financial
Reporting, to perform internal control activities previously completed by
outside consultants; and
o engaging an outside tax consultant to supplement our internal tax staff and
enhance our internal controls over income tax accounting.
Additionally, we have tested our internal financial controls with respect to the
corrected processes for evaluating and accounting for the deferred tax assets
and liabilities in the preparation of its financial statements affected by the
restatement to ensure compliance with SFAS 109.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of June 30, 2004 and 2003 - as restated F-3
Consolidated Statements of Operations for years ended June 30, 2004 and 2003 - as F-4
restated
Consolidated Statements of Stockholders' Equity (Deficit) for years ended June 30, 2004 F-5
and 2003 - as restated
Consolidated Statements of Cash Flows for years ended June 30, 2003 and 2002 - as F-6
restated
Notes to Consolidated Financial Statements - as restated F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of Bioenvision, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Bioenvision,
Inc. and Subsidiaries as of June 30, 2004 and 2003 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended. These consolidated 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 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bioenvision, Inc.
and Subsidiaries as of June 30, 2004 and 2003, and the consolidated results of
their operations and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
As more fully described in Note 9, the June 30, 2004 and 2003 financial
statements have been restated.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
New York, New York
September 16, 2004 (except for paragraphs 13 and 14 of Note 1, and Note 9, as to
which the date is May 27, 2005)
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
2004 2003
ASSETS Restated- See Note 9 Restated- See Note 9
-------------------- --------------------
Current assets
Cash and cash equivalents $ 18,875,675 $ 7,929,686
Restricted cash 290,000 290,000
Deferred costs 241,824 22,727
Accounts receivable 2,627,773 25,000
Other assets 253,311 105,976
-------------- ------------
Total current assets 22,288,583 8,373,389
Property and equipment, net 47,857 49,265
Deferred costs 3,651,471 224,937
Intangible assets, net 14,563,660 15,779,399
Goodwill 1,540,162 1,540,162
Security deposits 79,111 79,111
Other long term assets - 126,869
-------------- ------------
Total assets $ 42,170,844 $ 26,173,132
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,495,866 $ 411,392
Accrued expenses 1,322,584 730,722
Accrued dividends payable 90,141 1,009,146
Deferred revenue 551,828 113,636
-------------- ------------
Total current liabilities 3,460,419 2,264,896
Deferred revenue 7,909,598 1,124,685
Deferred tax liability - 1,459,814
---- ------------
Total liabilities 11,370,017 4,849,395
Stockholders' equity
Convertible Preferred stock - $0.001 par value; 20,000,000 and
5,920,000 shares authorized and 3,341,666 and 5,916,666 shares
issued and outstanding at June 30, 2004 and June 30, 2003,
respectively (liquidation preference $10,024,998 and
$17,749,998 at June 30, 2004 and June 30, 2003, respectively) 3,342 5,917
Common stock - $0.001 par value; 70,000,000 and 50,000,000 shares
authorized and 28,316,163 and 17,122,739 shares issued
and outstanding at June 30, 2004 and June 30, 2003, respectively 28,316 17,123
Additional paid-in capital 68,517,702 47,304,449
Deferred compensation (223,990) -
Accumulated deficit (37,664,141) (26,156,098)
Accumulated other comprehensive income 139,598 152,346
-------------- ------------
Stockholders' equity 30,800,827 21,323,737
-------------- ------------
Total liabilities and stockholders' equity $ 42,170,844 $ 26,173,132
============== ============
The accompanying notes are an integral part of these financial statements.
F-3
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended
June 30,
-------------------------------
2004 2003
Restated- See Note 9 Restated- See Note 9
-------------------- --------------------
License and royalty revenue $ 1,187,212 $ 504,857
Research and development contract revenue 1,915,002 -
----------- ------------
Total revenue 3,102,214 504,857
Costs and expenses
Research and development 4,882,574 1,689,278
Selling, general and administrative 9,082,420 4,567,413
(includes stock based compensation expense of $3,491,252
and $1,812,894 for the twelve months ended June 30, 2004 and 2003,
respectively.)
Depreciation and amortization 1,348,064 1,344,969
----------- ------------
Total costs and expenses 15,313,058 7,601,660
----------- ------------
Loss from operations (12,210,844) (7,096,803)
Interest income (expense)
Interest and finance charges - (325,000)
Interest income
99,763 138,574
----------- ------------
Net loss before income tax benefit (12,111,081) (7,283,229)
Income tax benefit 1,459,814 2,117,103
----------- ------------
Net loss (10,651,267) (5,166,126)
Cumulative preferred stock dividend (856,776) (877,818)
----------- ------------
Net loss available to common stockholders $(11,508,043) $(6,043,944)
=========== ============
Basic and diluted net loss per share of common stock $ (0.57) $ (.36)
=========== ============
Weighted-average shares used in
computing basic and diluted
net loss per share 20,257,482 16,920,939
=========== ============
The accompanying notes are an integral part of these financial statements.
F-4
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Accumu-
lated Total
Other Stock-
Additional Compre- holders'
Preferred Stock Common Stock Paid In Deferred Accumulated hensive Equity
--------------------------------------
Shares $ Shares $ Capital Compensation Deficit Income (Deficit)
--------------------------------------------------------------------------------------------------------
Balance at June 30,
2002 - as reported 5,916,666 $5,917 16,887,786 $16,888 $45,491,554 $(21,027,299) $152,346 $ 24,639,406
Correction of an error
(see Note 9) 915,145 915,145
--------- ------ ---------- ------- ----------- ------------ ------------ -------- ------------
Balance at June 30,
2002 - as restated 5,916,666 5,917 16,887,786 16,888 45,491,554 (20,112,154) 152,346 25,554,551
Net loss for the year-
restated (5,166,126) (5,166,126)
Cumulative preferred
stock dividend (877,818) (877,818)
Shares issued to
consultants for
services 234,953 235 1,258,080 1,258,315
Warrants issued in
connection with services 182,350 182,350
Repricing of options 372,465 372,465
--------- ------ ---------- ------- ----------- ------------ ------------ -------- ------------
Balance at June
30, 2003 -
restated 5,916,666 5,917 17,122,739 17,123 47,304,449 $(26,156,098) 152,346 21,323,737
Net loss for the year
- restated (10,651,267) (10,651,267)
Cumulative preferred
stock dividend (856,776) (856,776)
Currency translation
adjustment (12,748) (12,748)
Deferred compensation $ (223,990) (223,990)
Shares issued in
connection with private
placement 2,602,898 2,603 16,265,495 16,268,098
Costs related to
private placement (1,301,035) (1,301,035)
Preferred stock
converted to common
stock (2,575,000) (2,575) 5,150,000 5,150 (2,575)
Expense related to
repricing of options 2,381,066 2,381,066
Cashless exercises of
options to shares 2,122,682 2,122 (2,122)
671,601
Warrants issued in
connection with services 671,601
305,987
Shares issued to
consultants for services 14,510 15 305,972
28,400
Shares issued to
employee 20,000 20 28,380
Options issued in
connection with services 93,987 93,987
Options issued to
employees 262,601 262,601
Shares issued from
warrant conversions 1,283,334 1,283 2,509,883 2,511,166
--------- ------ ---------- ------- ----------- ------------ ------------ -------- ------------
Balance at
June 30, 2004 -
restated 3,341,666 $3,342 28,316,163 $28,316 $68,517,702 $ (223,990) $(37,664,141) $139,598 $ 30,800,827
========= ====== ========== ======= =========== ============ ============= ======== ============
The accompanying notes are an integral part of this financial statement.
F-5
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
June 30,
----------------------------------------
2004 2003
-------------- -------------
Restated- See Note 9 Restated- See Note 9
Cash flows from operating activities
Net loss $ (10,651,267) $ (5,166,126)
------------ -----------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 1,348,064 1,344,969
Deferred tax benefit (1,459,814) (2,117,103)
Compensation costs-shares and warrants issued to non-employees 1,071,575 1,440,429
Compensation costs-re-pricing of options 2,381,066 372,465
Compensation costs-options issued to employees 38,611 -
Changes in assets and liabilities
Deferred costs (3,645,631) (63,573)
Deferred revenue 7,223,105 870,139
Accounts payable 1,084,474 (22,924)
Other current assets (147,335) (105,976)
Other long term assets 126,870 (126,869)
Accounts receivable (2,602,773) 25,000
Security deposits (79,111)
Other accrued expenses and liabilities 591,862 (782,901)
------------ -----------
Net cash used in operating activities (4,641,193) (4,411,581)
------------ -----------
Cash flows from investing activities
Purchase of intangible assets (112,580) (191,848)
Capital expenditures (18,337) (59,406)
Restricted cash - (290,000)
------------ -----------
Net cash used in investing activities (130,917) (541,254)
------------ -----------
Cash flows from financing activities
Proceeds from issuance of common stock 14,967,064 -
Proceeds from exercise of options, warrants and other convertible
securities 2,539,565 -
Cash dividend paid (1,775,782) -
------------ -----------
Net cash provided by financing activities 15,730,847 -
------------ -----------
Effect of exchange rate on cash (12,748) -
------------ -----------
Net increase (decrease) in cash and cash
equivalents 10,945,989 (4,952,835)
Cash and cash equivalents, beginning of year 7,929,686 12,882,521
------------ -----------
Cash and cash equivalents, end of year $ 18,875,675 $7,929,686
============ =========
The accompanying notes are an integral part of these financial statements.
F-6
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 1 - Organization and significant accounting policies
Description of business
Bioenvision, Inc. ("Bioenvision" or the "Company") is an emerging
biopharmaceutical company whose primary business focus is the acquisition,
development and distribution of drugs to treat cancer. The Company has a broad
range of products and technologies under development, but its two lead drugs are
clofarabine and Modrenal(R). Modrenal(R) is approved for marketing in the U.K.
for advanced breast cancer. The Company's plan is to bring Modrenal(R) into the
U.S. to perform further clinical trials and to access the U.S. market. Most of
the Company's other drugs are now in clinical trials in various stages of
development.
The Company was incorporated as Express Finance, Inc. under the laws of the
State of Delaware on August 16, 1996, and changed its name to Ascot Group, Inc.
in August 1998 and further to Bioenvision, Inc. in December 1998.
On February 1, 2002, the Company completed the acquisition of Pathagon Inc.
("Pathagon"), a privately held company focused on the development of novel
anti-infective products and technologies. Pathagon's principal products are
OLIGON(R) and methylene blue. Affiliates of SCO Capital Partners LLC, the
Company's financial advisor and consultant, owned 82% of Pathagon prior to the
acquisition. The Company acquired 100% of the outstanding shares of Pathagon in
exchange for 7,000,000 shares of the Company's common stock. The acquisition has
been accounted for as a purchase business combination in accordance with SFAS
141.
Basis of presentation
Prior to the acquisition of Pathagon and the May 2002 private placement in which
the Company raised gross proceeds of $17.7 million (see Note 6), the Company
devoted most of its efforts to establishing a new business (raising capital,
research and development, etc.) and had been a development stage enterprise.
Management believes they now have the financial resources to market some of the
Company's late-stage products which can lead to significant revenues from
royalty payments and drug sales. Accordingly, effective June 30, 2002, the
financial statements do not reflect the required disclosure for a Development
Stage Enterprise.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Inter-company accounts and
transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles of the United States of America 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 as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates, and such differences may be material to the financial statements.
F-7
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 1 - Organization and significant accounting policies - continued
Revenue Recognition
In accordance with SEC Staff Accounting Bulletin No. 104, upfront nonrefundable
fees associated with research and development collaboration agreements where the
Company has continuing involvement in the agreement, are recorded as deferred
revenue and recognized over the estimated research and development period using
the straight-line method. If the estimated period is subsequently modified, the
period over which the up-front fee is recognized is modified accordingly on a
prospective basis using the straight-line method. Revenues from the achievement
of research and development milestones, which represent the achievement of a
significant step in the research and development process, are recognized when
and if the milestones are achieved. Continuation of certain contracts and grants
are dependent upon the Company and/or its co-development partners' achieving
specific contractual milestones; however, none of the payments received to date
are refundable regardless of the outcome of the project.
Upfront nonrefundable fees associated with licensing arrangements are recorded
as deferred revenue and recognized over the licensing arrangement using the
straight line method, which approximates the life of the patent.
In May 2003, the Emerging Issues Task Force ("EITF") reached a consensus on EITF
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"). EITF 00-21 provides guidance on how to determine when an arrangement
that involves multiple revenue-generating activities or deliverables should be
divided into separate units of accounting for revenue recognition purposes, and
if this division is required, how the arrangement consideration should be
allocated among the separate units of accounting. The guidance in the consensus
is effective for revenue arrangements entered into in quarters beginning after
June 15, 2003. The adoption of EITF 00-21 did not impact the Company's
consolidated financial position or results of operations, but could affect the
timing or pattern of revenue recognition for future collaborative research
and/or license agreements.
Research and development
Research and development costs are charged to expense as incurred.
Stock based compensation
At June 30, 2004, the Company has stock based compensation plans which are
described more fully in Note 6. As permitted by SFAS No. 123, "Accounting for
Stock Based Compensation", the Company accounts for stock based compensation
arrangements with employees in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to
Employees". Compensation expense for stock options issued to employees is based
on the difference on the date of grant, between the fair value of the Company's
stock and the exercise price of the option. For year ended June 30, 2004, the
Company recognized stock based employee compensation cost of $2,381,066 as a
result of the re-pricing of 380,000 options granted to an employee pursuant to
the terms of his Employment Agreement (see Note 9). The Company also recognized
a compensation expense of $38,611 for the year ended June 30, 2004 as a result
of 505,000 options granted to certain employees on January 20, 2004.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and Emerging Issues Task Force no.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or Services," as
amended by EITF 00-27. Under EITF No. 96-18, where the fair value of the equity
instrument is more reliably measurable than the fair value of services received,
such services will be valued based on the fair value of the equity instrument.
The Company expects to continue applying the provisions of APB 25 for equity
issuances to employees.
F-8
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 1 - Organization and significant accounting policies - continued
The following table illustrates the effect on net loss and loss per share as if
the fair value based method had been applied to all outstanding and unvested
awards in each period.
Year Ended June 30,
---------------------------
2004 2003
----------- -----------
Net loss available to common stockholders, as reported - as restated $(11,508,043) $ (6,043,944)
Add: Stock based employee compensation expense
included in reported net loss, net of tax effects 2,419,677 372,465
Deduct: Total stock based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects - as restated (861,297) (1,214,723)
----------- -----------
Pro forma net loss available to common stockholders - as restated $ (9,949,663) $ (6,886,202)
============ ============
Loss per share
Basic and diluted - as reported - as restated $ (0.57) $ (0.36)
Basic and diluted - pro forma - as restated $ (0.49) $ (0.41)
During 2005, the Company corrected an error on the pro-forma stock based
compensation disclosures required under SFAS 123 determined under fair value
based method in the table above. The Company originally did not calculate the
incremental stock based compensation relating to the re-pricing of an officer's
options in accordance with SFAS 123. This has decreased such amounts previously
reported in the proforma net loss for the years ended June 30, 2004 and June 30,
2003 by $412,000 and $0, respectively.
The fair value of options at the date of grant was established using the
Black-Scholes model with the following weighted average assumptions:
2004 2003
---- ----
Expected average life (years) 3.5 4.00
Risk free interest rate 2.35% 3.00%
Expected volatility 80% 80%
Expected dividend yield 0.00 0.00
Income taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under FAS 109,
deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
are expected to reverse. The Company records a valuation allowance for certain
temporary differences for which it is more likely than not that it will not
receive future tax benefits.
F-9
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 1 - Organization and significant accounting policies - continued
Net loss per share
Basic net loss per share is computed using the weighted average number of common
shares outstanding during the periods. Diluted net loss per share is computed
using the weighted average number of common shares and potentially dilutive
common shares outstanding during the periods. Options and warrants to purchase
13,674,242 and 15,749,543 shares of common stock have not been included in the
calculation of net loss per share for the years ended June 30, 2004 and 2003,
respectively, as their effect would have been anti-dilutive.
Foreign currency translation
Through June 30, 2001, the functional currency of the Company was the Pound
Sterling and its reporting currency was the United States dollar. Translation
adjustments arising from differences in exchange rates from these transactions
were reported as accumulated other comprehensive income in stockholders' equity
(deficit). Effective July 1, 2001, the functional and reporting currency is the
United States dollar. The functional currency of Bioenvision Limited, the
Company's wholly-owned subsidiary with offices in Edinburgh, Scotland, is the
Pound Sterling.
Cash and cash equivalents
The Company considers all highly liquid financial instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company invests
all its funds with a single financial institution which provides for FDIC
insurance of $100,000. The Company has invested $13 million in certificates of
deposit which bear interest at a rate of 1.34% per annum, all of which will come
due in December 2004. All funds invested in the Certificate of Deposit may be
withdrawn at any time without penalty and therefore are classified as cash
equivalents.
Accounts Receivable
Accounts receivable are concentrated in that of the approximately $2,628,000 of
accounts receivable, $2,244,000 (85%) are due from ILEX and an additional
$334,000 (13%) are due from Stegram Pharmaceuticals. To limit credit risk, the
Company periodically evaluates the financial condition and payment history of
each of these parties.
Advertising costs
Costs related to advertising and other promotional expenditures are expensed as
incurred.
Deferred costs
Deferred costs represent royalty payments that became due and payable to SRI and
to Stegram Pharmaceutical Ltd, which relate to milestone payments received in
connection with the Ilex Co-Development Agreement and the Dechra Sub-License
Agreement, respectively. These costs have been presented together with research
and development costs on the statement of operations for the years ended June
30, 2004 and 2003.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment are depreciated on a straight-line basis
over their estimated useful lives, which range from 3 to 7 years.
F-10
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 1 - Organization and significant accounting policies - continued
Fair Value of Financial Instruments
The Company has estimated the fair value of financial instruments using
available market information and other valuation methodologies in accordance
with Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments." Management of the Company believes that
the fair value of financial instruments, consisting of cash, accounts
receivable, accounts payable and accrued liabilities, approximates carrying
value due to the immediate or short-term maturity associated with these
instruments.
Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over the fair value of identifiable net
assets of Pathagon. Intangible assets include patents and licensing rights
acquired in connection with the acquisition of Pathagon. The Company accounts
for these assets in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets. Goodwill and intangible
assets acquired in a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for impairment at
least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142
also requires that intangible assets with estimable useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). The Company does
not have any intangible assets with an indefinite useful life.
Long-Lived Assets
The Company adopted the provisions of SFAS No. 144 on July 1, 2003. In
accordance with SFAS No. 144, long-lived assets, such as property and equipment
and intangible assets subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset.
Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
assets in accordance with SFAS No. 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of.
F-11
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
NOTE 2 - Acquisition of Pathagon
On February 1, 2002, the Company completed the acquisition of Pathagon. The
acquisition was accounted for as a purchase business combination in accordance
with SFAS 141. The Company issued 7,000,000 shares of common stock to complete
the acquisition, which was valued at $12,600,000 based on the 5-day average
trading price of the stock ($1.80) surrounding November 22, 2001, the day of the
Company's announcement of the agreed upon acquisition. The acquired patents and
licensing rights of OLIGON(R) and methylene blue (collectively referred to as
"Purchased Technologies"), were recorded at their fair market value which was
approximately $17,576,000. The patent and licensing rights acquired are being
amortized over 13 years, which is the estimated remaining contractual life of
these assets. Since the estimated fair value of the Purchased Technologies was
at least equal to the amount paid, the purchase price, net of assumed
liabilities, was allocated to Purchased Technologies. The transaction qualified
as a tax-free merger which resulted in a difference between the tax basis value
of the assets acquired and the fair market value of the patents and licensing
rights. As a result, a deferred tax liability was recorded for approximately
$7,909,000. The purchase price exceeded the fair market value of the net assets
acquired resulting in the recording of Goodwill of $2,341,000. The Company
recorded a charge to goodwill of $801,395 for fiscal year ended June 30, 2003 as
a result of a change in tax rates used to compute the deferred tax liability
arising as a result of this acquisition. Pathagon had no operations other than
holding the patents and licenses acquired. As Pathagon had no operations, its
pro-forma financials would not be meaningful and thus are not presented.
The Company now has the worldwide rights to the use of thiazine dyes, including
methylene blue, for in vitro and in vivo inactivation of pathogens in biological
fluids. Methylene blue is one of only two compounds used commercially to
inactivate pathogens in blood products, and is currently used in many European
countries to inactivate pathogens in fresh frozen plasma. The Company believes
that, as a result of the mechanism of action of its proprietary technology, its
systems also have the potential to inactivate many new pathogens before they are
identified and before tests have been developed to detect their presence in the
blood supply. Because the Company's systems are being designed to inactivate
rather than merely test for pathogens, the Company's systems also have the
potential to reduce the risk of transmission of pathogens that would remain
undetected by testing.
The OLIGON(R) technology is a patented anti-microbial technology that can be
incorporated into the manufacturing process of many implantable devices. The
patented process, involving two dissimilar metals (silver and platinum) creates
an electrochemical reaction that releases silver ions that destroy bacteria,
fungi and other pathogens. The Company intends to commercialize the technology
in partnership with leading medical devices manufacturers.
On May 6, 1997, Baxter Healthcare Corporation acting through its Edwards
Clinical-Care Division ("Edwards") entered into an Exclusive License Agreement
with Implemed, Inc. ("Implemed"), a predecessor in interest to the Pathagon and,
by virtue of the acquisition of Pathagon, a predecessor in interest to the
Company. Pursuant to the terms of the License Agreement, among other things,
Edwards licensed certain intellectual property technology relating to the
manufacture of anti-microbial polymers from Implemed.
On May 7, 2002, the Company executed an amendment to the original license
agreement between Oklahoma Medical Research Foundation ("OMRF") and Bridge
Therapeutic Products, Inc. ("BTP"), a predecessor of Pathagon, relating to the
licensing of methylene blue. Under the terms of the amendment, OMRF agreed to
the assignment of the original license agreement by BTP to Pathagon. Pursuant to
the amendment, the Company paid OMRF $100,000 and issued 200,000 shares of the
Company's common stock and a five-year warrant to purchase an additional 200,000
shares of common stock. The exercise price of the warrant is $2.33 per share,
subject to adjustment. The Company capitalized the costs of approximately
$1,145,600 related to this amendment as an intangible asset and will amortize
this asset over the remaining life of the methylene blue license agreement.
F-12
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
NOTE 3 - Intangible Assets
Intangible assets consist of the following: June 30, 2004 June 30, 2003
Patents and licensing rights $ 17,757,101 $ 17,644,521
Less: accumulated amortization (3,193,441) (1,865,122)
------------ ------------
$ 14,563,660 $ 15,779,399
============ ============
Amortization of patents and licensing rights amounted to $1,328,318 and
$1,334,241 for the years ended June 30, 2004 and June 30, 2003, respectively.
Other intangible assets are recorded at cost and amortized over periods
generally ranging from 10-20 years. Amortization for each of the next five
fiscal years will amount to approximately $1,355,000 annually.
NOTE 4 - License and Co-Development Agreements
Clofarabine
We have a license from Southern Research Institute ("SRI"), Birmingham, Alabama,
to develop and market purine nucleoside analogs which, based on third-party
studies conducted to date, may be effective in the treatment of leukemia and
lymphoma. The lead compound of these purine-based nucleosides is known as
clofarabine. Under the terms of the agreement with SRI, we were granted the
exclusive worldwide license, excluding Japan and Southeast Asia, to make, use
and sell products derived from the technology for a term expiring on the date of
expiration of the last patent covered by the license (subject to earlier
termination under certain circumstances), and to utilize technical information
related to the technology to obtain patent and other proprietary rights to
products developed by us and by SRI from the technology. We plan to develop
clofarabine initially for the treatment of leukemia and lymphoma and to study
its potential role in treatment of solid tumors.
In August 2003, SRI granted us an irrevocable, exclusive option to make, use and
sell products derived from the technology in Japan and Southeast Asia. We intend
to convert the option to a license upon sourcing an appropriate co-marketing
partner to develop these rights in such territory.
To facilitate the development of clofarabine, we entered into a co-development
agreement with ILEX Oncology, Inc. ("ILEX") in March 2001. Under the terms of
the co-development agreement, ILEX is required to pay all development costs in
the United States and Canada, and 50% of approved development costs worldwide
outside the U.S. and Canada (excluding Japan and Southeast Asia). ILEX is
responsible for conducting all clinical trials and the filing and prosecution of
applications with applicable regulatory authorities in the United States and
Canada. The Company retains the right to handle those matters in all territories
outside the United States and Canada (excluding Japan and Southeast Asia). The
Company retained the exclusive manufacturing and distribution rights in Europe
and elsewhere worldwide, except for the United States, Canada, Japan and
Southeast Asia. Under the co-development agreement, ILEX will have certain
rights if it performs its development obligations in accordance with that
agreement. The Company would be required to pay ILEX a royalty on sales outside
the U.S., Canada, Japan and Southeast Asia. In turn, ILEX, which would have U.S.
and Canadian distribution rights, would pay the Company a royalty on sales in
the U.S. and Canada. In addition, the Company is entitled to certain milestone
payments. Under the terms of the co-development agreement, ILEX also pays
royalties to Southern Research Institute based on certain milestones. The
Company also is obligated to milestones and royalties to Southern Research
Institute in respect to clofarabine.
F-13
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 4 - License and Co-Development Agreements - continued
The Company received a nonrefundable upfront payment of $1.35 million when it
entered into the co-development agreement with ILEX and received an additional
$3.5 million in December 2003 when it converted ILEX's option to market
clofarabine in the U.S. into a sublicense. The Company received an additional $2
million in April 2004 upon ILEX's filing the New Drug Application for
clofarabine with FDA and the Company expects to receive an additional $2 million
from ILEX in October 2004 in connection with the achievement of the NDA filing.
The Company deferred the upfront payment and recognized revenues ratably, on a
straight-line basis over the related service period, through December 2002. The
Company has deferred the milestone payments received to date and recognizes
revenues ratably, on a straight line basis over the related service period,
through March 2021. For the years ended June 30, 2004 and 2003, respectively,
the Company recognized revenues of approximately $161,000 and $370,000 in
connection with the upfront and milestone payments received to date.
Deferred costs include royalty payments that became due and payable to SRI upon
the Company's execution of the co-development agreement with Ilex Oncology. The
Company defers all royalty payments made to SRI and recognizes these costs
ratably, on a straight-line basis concurrent with revenue that is recognized in
connection with research and development costs including approximately $81,000
and $207,000 for the years ended June 30, 2004 and 2003, respectively, related
to such charges.
Modrenal(R)
The Company holds an exclusive license, until the expiration of existing and new
patents related to Modrenal(R), to market Modrenal(R) in major international
territories, and an agreement with a United Kingdom company to co-develop
Modrenal(R) for other therapeutic indications. Management believes that
Modrenal(R) currently is manufactured by third-party contractors in accordance
with good manufacturing practices. The Company has no plans to establish its own
manufacturing facility for Modrenal(R), but will continue to use third-party
contractors.
The Company received a nonrefundable upfront payment of $1.25 million when it
entered into the License and Sublicense Agreement with Dechra Pharmaceuticals in
May 2003. The Company deferred the upfront payment and recognizes revenues
ratably, on a straight-line basis over the related service period, through May
2014. The Company recognized revenues of approximately $114,000 and $12,000 in
connection with the upfront payment from Dechra for the years ended June 30,
2004 and 2003, respectively.
Deferred costs include royalty payments that became due and payable to Stegram
Pharmaceuticals Ltd. upon the Company's execution of the License and Sub-License
Agreement with Stegram in May 2003. The Company defers all royalty payments made
to Stegram and recognizes these costs ratably, on a straight-line basis
concurrent with revenue that is recognized in connection with the Dechra
agreement. Research and Development costs include approximately $23,000 and
$2,000 for the years ended June 30, 2004 and 2003, respectively.
Anti-Estrogen Prostate. We received Institutional Review Board approval from the
Dana Faber Cancer Institute for a Phase II study of trilostane for the treatment
of androgen independent prostate cancer. The study is being conducted by The
Dana Faber Cancer Institute and commenced in July 2004.
Operational Developments
In June 2003, we entered into a supply agreement with Ferro-Pfanstiehl
Laboratories ("Ferro"), pursuant to which Ferro has agreed to manufacture and
supply 100% of Bioenvision's global requirements for clofarabine-API. Subject to
certain circumstances, this agreement will expire on the fifth anniversary date
of the first regulatory approval of clofarabine drug product.
In June 2003, the Company entered into a development agreement with Ferro,
pursuant to which Ferro agreed to perform certain development activities to
scale up, develop, finalize, and supply CTM and GMP supplier qualifications of
the API- clofarabine. Subject to certain circumstances, this agreement expires
upon the completion of the development program. The development agreement is
milestone based and payments are to be paid upon completion of each milestone.
If Ferro has not completed the development agreement by December 2007, the
development agreement will automatically terminate without further action by
either party.
F-14
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 4 - License and Co-Development Agreements - continued
In May 2003, we entered into a sub-license agreement with Dechra, pursuant to
which Dechra has been granted a sub-license for all of Bioenvision's rights and
entitlements to market and distribute Modrenal(R) in the United States and
Canada solely in connection with animal health applications. Subject to certain
circumstances, this agreement expires upon expiration of the last patent related
to Modrenal(R) or the completion of the last royalty set forth in the agreement.
Through June 30, 2003, we have recognized deferred revenue and deferred costs
related to this agreement as described below in this Note 4. The Company
received an upfront non-refundable payment of $1.25 million upon execution of
this agreement and may receive up to an additional $3.75 million upon the
achievement by Dechra of certain milestones set forth in the agreement.
In May 2003, we entered into a master services agreement with
Penn-Pharmaceutical Services Limited ("Penn"), pursuant to which Penn has agreed
to label, package and distribute clofarabine on behalf of and at our request.
The services to be performed by Penn also include regulatory support and the
manufacture, quality control, packaging and distribution of proprietary
medicinal products including clinical trials supplies and samples Subject to
certain circumstances, the term of this agreement is twelve months and renews
for subsequent twelve month periods unless either party tenders notice of
termination upon no less than three month prior written notice.
In April 2003, we entered into an exclusive license agreement with CLL-Pharma
("CLL"), pursuant to which CLL has agreed to perform certain development works
and studies to create a new formulation of Modrenal(R). CLL intends to use its
proprietary MIDDS.-patented technology to perform this service on behalf of the
Company. This new formulation, once in hand, will allow the Company to apply for
necessary authorization, as required by applicable European health authorities,
to sell Modrenal(R) throughout Europe. Through June 30, 2003, the Company paid
an advance of $175,000 related to development services to be provided by CLL
over an eighteen month period, which advance was initially recorded as a prepaid
development cost by the Company.
F-15
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 5 - Income taxes
The components of the income tax benefit, as restated - refer to Note 9, are as
follows:
June 30,
---------------------------
2004 2003
----------- -----------
Current:
Federal $ -- $ --
----------- -----------
State -- --
----------- -----------
Deferred:
Federal $(1,099,000) (1,593,000)
State (361,000) (524,000)
----------- -----------
(1,460,000) (2,117,000)
----------- -----------
Total benefit $(1,460,000) $(2,117,000)
=========== ===========
The domestic and foreign components of loss before income taxes are as follows:
June 30,
--------------------------
2004 2003
----------- -----------
Domestic $10,781,000 $ 6,351,000
Foreign 1,330,000 932,000
----------- -----------
Loss before taxes $12,111,000 $ 7,283,000
=========== ===========
F-16
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 5 - Income taxes - continued
The following is a reconciliation of benefit for income taxes from continuing
operations computed at the federal statutory rates to the effective rates for
the years ended June 30, 2004 and June 30, 2003
June 30,
--------------------
2004 2003
--------- ---------
Consolidated tax benefit at federal statutory rate (34.00%) (34.00%)
Non-deductible expenses 6.77% 3.99%
State income tax benefit, net of federal provision (4.49%) (4.91%)
Valuation allowance 19.25% 5.43%
Foreign rate differential 0.44% 0.51%
Other, net (0.02%) (0.09%)
--------- ---------
Effective tax rate (12.05%) (29.07%)
========= =========
Significant components of the company's deferred tax assets and liability at
June 30, as restated - refer to Note 9, are as follows:
June 30,
-----------------------------
2004 2003
------------ ------------
Deferred tax liability
Acquired intangibles $ (5,781,000) $ (6,318,000)
Deferred costs (1,577,000) (100,000)
Amortization (43,000) (41,000)
Depreciation (30,000) -
------------ ------------
Total deferred tax liability (7,431,000) (6,459,000)
Deferred tax assets
Net operating loss 6,384,000 4,729,000
Options, warrants and shares issued to non-employees 345,000 74,000
Options issued to employees 104,000 50,000
Deferred revenue 3,427,000 501,000
Depreciation - 20,000
Other 65,000 21,000
------------ ------------
Total deferred tax assets 10,325,000 5,395,000
Valuation allowance for deferred tax assets (2,894,000) (396,000)
------------ ------------
Net deferred tax asset 7,431,000 4,999,000
------------ ------------
Net deferred tax liability $ - $ (1,460,000)
============ ============
F-17
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 5 - Income taxes - continued
At June 30, 2004 and June 30, 2003, the Company had approximately $14,087,000
and $10,985,000 of net operating loss carryforwards for U.S. Federal and state
income tax purposes, respectively that begin to expire in fiscal year ending
2020, with a tax value of $5,705,000 and $4,449,000, respectively. At June 30,
2004 and June 30, 2003, the Company also had approximately $2,263,000 and
$932,000 of net operating loss carryforwards relating to foreign operations,
respectively, with no expiration date, with a tax value of $679,000 and
$280,000, respectively.
At June 30, 2004, the Company has recorded a valuation allowance of $2,894,000
relating to the net deferred tax asset due the uncertainty of both the foreign
and domestic companies being more likely than not to utilize these deferred tax
assets. At June 30, 2003, the Company has recorded a valuation allowance of
$396,000. Of this amount, $116,000 relates to certain US deferred tax assets
which will be recognized after the period in which the Pathagon deferred tax
liability reverses. The remaining allowance relates to the net operating loss of
the foreign operations due to the uncertainty that the Company will realize
taxable income in the foreign jurisdiction to utilize the net operating loss
carryforward.
Included in the June 30, 2004 net operating loss is $415,000 related to exercise
of non-qualified stock options or disqualifying dispositions of stock acquired
with incentive stock options. A valuation allowance has been established against
this loss. When the valuation allowance is removed, the tax affected benefit of
$168,000 related to this loss will be credited to equity.
The Tax Reform Act of 1986 enacted a complex set of rules (Internal Revenue Code
Section 382) limiting the utilization of net operating losses to offset future
taxable income following a corporate "ownership change." Generally, this occurs
when there is a greater than 50 percentage point change in ownership.
Accordingly, such change could limit the amount of net operating losses
available in a given year, which could ultimately cause net operating losses to
expire prior to utilization.
NOTE 6 - Stockholders' transactions
Common Stock and Securities Convertible into Common Stock
The Board of Directors adopted, and the stockholders approved the 2003 Stock
Incentive Plan at the Annual Meeting held in January of 2004. The plan was
adopted to recognize the contributions made by the Company's employees,
officers, consultants, and directors, to provide those individuals with
additional incentive to devote themselves to our future success and to improve
the Company's ability to attract, retain and motivate individuals upon whom the
Company's growth and financial success depends. Under the plan, stock options
may be granted as approved by the Board of Directors or the Compensation
Committee. There are 3,000,000 shares reserved for grants of options under the
plan and at June 30, 2004, options to purchase 2,105,000 shares of common stock
had been issued. Stock options vest pursuant to individual stock option
agreements. No options granted under the plan are exercisable after the
expiration of ten years (or less in the discretion of the Board of Directors or
the Compensation Committee) from the date of the grant. The plan will continue
in effect until terminated or amended by the Board of Directors or until
expiration of the plan on November 17, 2013.
In June 2002, the Company granted options to an officer of the Company to
purchase 380,000 shares of common stock at an exercise price of $1.95 per share,
which equaled the stock price on the date of the grant. Of this amount, 50,000
options vested on June 28, 2002 and the remaining 330,000 options vest ratably
over a three-year period on each anniversary date. On March 31, 2003 the Company
entered into an Employment Agreement with such officer of the Company, pursuant
to which, among other things, the exercise price for all 380,000 options were
changed to $0.735 per share, which equaled the stock price on that date. In
addition, the Company issued an additional 120,000 options at an exercise price
of $0.735 per share which vested immediately. As a result of the re-pricing of
380,000 options, the Company will re-measure the intrinsic value of these
options at the end of each reporting period and will adjust compensation expense
based on changes in the stock price. Compensation expense recognized as a result
of this re-pricing amounted to $2,381,066 and $372,465 for the year ended June
30, 2004 and 2003, respectively.
On October 23, 2002, the Company granted options to purchase 300,000 shares of
common stock at an exercise price of $1.45 per share to the Commercial Director
(Europe) of the Company. Of these options, options to purchase 100,000 shares of
common stock vest and become exercisable on each of the first, second and third
anniversary of October 23, 2002, the grant date.
F-18
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 6 - Stockholders' transactions - continued
On October 23, 2002, the Company granted options to purchase 50,000 shares of
common stock at an exercise price of $1.45 per share to another employee of the
Company. Of these options, options to purchase 50,000 shares of common stock
vest and become exercisable on each of the first and second anniversary of
October 23, 2002, the grant date.
On December 31, 2002 the Company issued options to purchase 500,000 shares of
common stock at an exercise price equal to $1.45 per share (average of the high
and low bid price on the grant date), to its Chairman and Chief Executive
Officer, Dr. Christopher B. Wood. Of these options, subject to certain
circumstances, options to purchase 166,666 shares of common stock vest on each
of the first, second and third anniversary of the grant date.
On January 9, 2003 the Company issued to an employee of the Company, options to
purchase 20,000 shares of common stock at an exercise price of $1.42 per share,
which equaled the stock price on the date of grant. Of these options, subject to
certain circumstances, options to purchase 10,000 shares of common stock vest
and become exercisable on the first anniversary of the grant date and the
remaining options to purchase 10,000 shares of common stock vest and become
exercisable on the second anniversary of the grant date.
In January 2003, we entered into an agreement with RRD International LLC
("RRD"), pursuant to which RRD serves as the global product development
consultant to the Company in connection with the development of clofarabine,
Modrenal(R) and OLIGON and assists with designing and managing our clinical
development program for our products. On April 2, 2003, the Company and RRD
further memorialized their agreement pursuant to a formal Master Services
Agreement and Registration Rights Agreement and, in connection therewith, the
Company issued a Warrant to RRD pursuant to which RRD has the right to acquire
175,000 shares of our common stock at an exercise price of $2.00 per share,
which warrant includes registration rights under certain circumstances.
Compensation expense of $672,000 and $182,000 was recorded as consulting fees
for the years ended June 30, 2004 and June 2003, respectively.
During the three months ended December 31, 2003, the Company issued options to
another employee to purchase 25,000 shares of common stock at an exercise price
of $3.53 per share. Of this amount, 12,500 options vest on November 11, 2004 and
the remaining 12,500 will vest on November 11, 2005.
During the year ended June 30, 2004, certain holders of 2,575,900 shares of the
Company's preferred stock converted such shares into 5,150,000 shares of the
Company's common stock. In addition, during the year ended June 30, 2004,
certain warrant holders of the Company exercised their warrants to acquire
1,283,334 shares of the Company's common stock. The Company received proceeds of
approximately $2,509,882 during the year ended June 30, 2004, respectively from
the exercise of these warrants.
During the year ended June 30, 2004, certain non-employee holders of options
exercised pursuant to the cashless exercise feature available to such option
holders and the Company issued approximately 2,122,682 shares of its common
stock in connection therewith.
On January 3, 2004, the Company issued 14,510 restricted shares of its common
stock to a consultant to the Company for certain executive placement services
rendered to the Company. The Company recorded compensation expense of
approximately $60,637 for the year ended June 30, 2004 in connection with such
issuance.
On January 14, 2004, a majority of the Company's stockholders authorized an
amendment to the Company's certificate of incorporation, approved by the
Company's Board of Directors, to increase the number of authorized shares of
common stock from 50,000,000 to 70,000,000 and to increase the number of
authorized shares of the Company's preferred stock from 10,000,000 to
20,000,000. The shareholder action became effective, and the amendment was filed
and became effective, on January 14, 2004.
On January 20, 2004, the Company granted 25,000 options to Dr. Michael Kauffman,
for serving as a member of the Board of Directors, at an exercise price of $4.55
per share which vest ratably on the first and second anniversaries of the grant
date. The Company recognized $20,988 as consulting expenses for the year ended
June 30, 2004.
The Company recorded a compensation expense of $38,611 for the year ended June
30, 2004 as a result of 505,000 options granted to certain employees on January
20, 2004.
F-19
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
NOTE 6 - Stockholders' transactions - continued
On February 4, 2004, the Company issued 20,000 shares of its common stock to an
employee of the Company in connection with the exercise of options issued prior
to that date which had an exercise price of $1.42.
On March 11, 2004, the Company issued options to another employee to purchase
50,000 shares of common stock at an exercise price of $6.50 per share. Of this
amount, 16,666.66 options vest on March 11, 2005 and the remaining 33,332.33
will vest on March 11, 2006.
On March 22, 2004, the Company consummated a private placement transaction,
pursuant to which it raised $12.8 million and issued 2,044,514 shares of its
common stock and warrants to purchase an additional 408,903 shares of its common
stock at an exercise price of $7.50 per share. The Company recorded proceeds of
$12,151,240 net of all legal, professional and financing fees incurred in
connection with the offering. The Company consummated a second closing for this
financing on May 13, 2004 in order to comply with certain contractual
obligations of the Company to its holders of Series A Convertible Preferred
Stock which hold preemptive rights for equity offerings of the Company. The
Company raised an additional $3.2 million (net of all legal, professional and
financial services incurred) from the second closing and issued an additional
558,384 shares of its common stock and warrants to purchase 111,677 shares of
its common stock at an exercise price of $7.50 per share.
On June 22, 2004, the Company issued options to a new employee to purchase
140,000 shares of common stock at an exercise price of $8.25 per share. Of this
amount, 30,000 options vested on June 22, 2004 and the remaining 110,000 will
vest ratably on June 22, 2005 and 2006 respectively.
On June 22, 2004 the Company entered into a consulting agreement pursuant to
which consultant will provide certain investor relation services on behalf of
the Company. In connection therewith, the Company issued a warrant to said
consultant pursuant to which said consultant has the right to purchase 50,000
shares of Company's common stock at a price of $8.25 per share upon the
completion of certain milestones, as set forth in such agreement. No
compensation expense of was recorded for the fiscal year ended June 30, 2004 as
no such milestones had been met yet at that time.
F-20
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
NOTE 6 - Stockholders' transactions - continued
A summary of the Company's stock option activity for options issued to employees
and related information follows:
Weighted Avg.
No. of Shares Exercise Price
-------------------------------------
Balance - June 30, 2002 2,200,000 $ 1.25
Granted during 2003 1,370,000 1.19
Exercised during 2003 - -
Forfeiture during 2003 - -
--------------------------------------
Balance - June 30, 2003 3,570,000 1.23
Granted during 2004 720,000 5.02
Exercised during 2004 20,000 1.42
Forfeiture during 2004 - -
Balance - June 30, 2004 4,270,000 $ 1.87
======================================
Stock Options Outstanding
---------------------------------------------------------------------------------------------------------------
Weighted Average
Weighted Average Remaining Number of Stock
Exercise Price Range Exercise price Number of Options Contractual Life Options Exercisable
---------------------------------------------------------------------------------------------------------------
$0.74 $ 0.74 500,000 8.12 390,000
$1.25 - $2.75 $ 1.29 3,050,000 6.58 2,491,000
$2.76 - $6.00 $ 4.03 530,000 9.55 0
$6.01 - $8.25 $ 8.12 190,000 9.90 30,000
---------------------- ---------------------
4,270,000 2,911,000
====================== =====================
Preferred Stock
On May 7, 2002 the Company authorized the issuance and sale of up to 5,920,000
shares of Series A Convertible Preferred Stock, par value $0.001 per share
("Series A Preferred Stock"). Series A Preferred Stock may be converted into two
shares of common stock at an initial conversion price of $1.50 per share of
common stock, subject to adjustment for stock splits, stock dividends, mergers,
issuances of cheap stock and other similar transactions. In May 2002, the
Company consummated a Private Placement of Series A Preferred Stock and received
gross proceeds of $17.7 million. Holders of Series A Preferred Stock also
received, in respect of each share of Series A Preferred Stock purchased in the
May 2002 Private Placement by the Company, one warrant to purchase one share of
the Company's common stock at an initial exercise price of $2.00, subject to
adjustment. The purchasers of Series A Preferred Stock also received certain
registration rights. The preferred stock generally carries rights to vote with
the holders of common stock as one class on a two-for-one basis. The preferred
stock is convertible into the Company's common stock on a two-for-one basis
subject to certain adjustments at the earlier to occur of (i) at the election of
each holder from and after the issuance date, or (ii) the date at any time after
the one year anniversary of the issuance date upon which both (x) the average of
the market price for a share of common stock for thirty consecutive trading days
exceeds $10.00 per share, subject to certain adjustments, and (y) the average of
the trading volume for the Company's common stock during such period exceeds
150,000, subject to certain adjustments.
F-21
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
NOTE 6 - Stockholders' transactions - continued
The Company is required to accrue for and pay a dividend of 5%, subject to
certain adjustments, on its cumulative Series A Convertible Preferred Stock. The
Company has paid the dividend in cash to holders of Series A Convertible
Preferred Stock through July 30, 2004.
In the event of a voluntary or involuntary liquidation or dissolution of the
Company, before any distribution of assets shall be made to the holders of the
Company's securities which are junior to the preferred stock (such as the common
stock), holders of the preferred stock shall be paid out of the assets of the
Company legally available for distribution to the Company's stockholders an
amount per share equal to the initial original issue price ($3.00) subject to
certain adjustments plus all accrued but unpaid dividends on such preferred
stock.
NOTE 7 - Related party transactions
On November 16, 2001, we entered into an engagement letter with SCO Financial
Group, pursuant to which SCO would act as our financial advisor. In connection
with the engagement letter, we issued a warrant to purchase 100,000 shares of
common stock at an exercise price of $1.25 per share, subject to certain
anti-dilution adjustments. The warrants expire five years from the date of
issuance. The issuance of these shares was capitalized as deferred financing
costs and was amortized over a twelve-month period.
In connection with securing a credit facility with SCO Capital, we issued
warrants to purchase 1,500,000 shares of our common stock at a strike price of
$1.25 per share, subject to certain anti-dilution adjustments. The warrants
expire five years from the date of issuance. The credit facility with SCO
Capital was terminated in May 2002 at which time the Company received a payoff
letter evidencing such termination.
On February 5, 2002, we completed the acquisition of Pathagon Inc. Affiliates of
SCO Capital owned 82% of Pathagon prior to the acquisition. In connection
therewith, on February 1, 2002 we issued 7,000,000 shares of common stock to the
former stockholders of Pathagon Inc.
In May 2002, the Company completed a private placement pursuant to which we
issued an aggregate of 5,916,666 shares of Series A Convertible Preferred Stock
for $3.00 per share and warrants to purchase an aggregate of 5,916,666 shares of
common stock and in March of 2004 the Company consummated a private placement
pursuant to which we raised $12.8 million with a second closing in May 2004 in
which it raised an additional $3.5 million (See "Note 6-Stockholder
Transactions" above). SCO Financial Group served as financial advisor to the
Company in connection with these financings and earned a placement fee of
approximately $1.2 million in connection with May 2002 private placement and a
placement fee of $1.1 million and warrants to purchase 260,291 shares of common
stock for $6.25 per share for the March and May 2004 financings.
Mr. Jeffrey B. Davis, President of SCO Financial Group LLC, has served on the
Company's board of directors since February of 2002. Mr. Davis resigned from the
Board of Directors of the Company effective June 14, 2004.
NOTE 8 - Commitments and Contingencies
Leases
------
The Company leases 3,229 square feet of office space for its New York
headquarters under a non-cancelable operating lease expiring on September 30,
2005 and approximately 1,000 square feet in Edinburgh, Scotland under a lease
agreement for its subsidiary Bioenvision Ltd. which expires August 31, 2004.
Rent expense for both facilities in the aggregate in 2004, was approximately
$241,000. Further , the Company leases two vehicles under leases which expire
November 29, 2005 and February 28, 2007. Lease expense in 2004 and 2003, in the
aggregate, was approximately $37,000 and $30,000, respectively. At June 30,
2004, total minimum rentals under operating leases with initial or remaining
non-cancelable lease terms of more than one year were approximately:
F-22
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 8 - Commitments and Contingencies - continued
Year ended June 30,
2005 $206,000
2006 63,000
2007 10,000
2008 ______
$ 279,000
=========
Employment Agreements
---------------------
On September 1, 1999, we entered into an employment agreement with Christopher
B. Wood, M.D. under which he serves as our Chairman and Chief Executive Officer.
The initial term of Dr. Wood's employment agreement is two years with automatic
one-year extensions thereafter unless either party gives written notice to the
contrary. On December 31, 2002, we entered into a new employment agreement with
Dr. Wood, under which he continues to serve as our Chairman and Chief Executive
Officer. Under this contract, the term is one year, with automatic one-year
extensions thereafter unless either party provides written notice to the
contrary. Dr. Wood's new employment agreement provides for an initial base
salary of $225,000, a bonus as determined by the Board of Directors, health
insurance and other benefits currently or in the future provided to key
employees of the Company. If Dr. Wood's employment is terminated other than for
cause or if he resigns for good reason or if a change of control occurs, he will
receive a lump sum payment in an amount equal to his then current annual base
salary and any and all unvested options will vest and immediately become
exercisable.
On October 23, 2002, we entered into an employment agreement with Hugh S.
Griffith, pursuant to which he agrees to serve as our Commercial Director
(Europe). The initial term of Mr. Griffith's employment agreement is one-year,
with automatic six month extensions thereafter unless either party provides
written notice to the contrary. If Mr. Griffith's employment is terminated other
than for cause or if he resigns for good reason or if a change of control
occurs, he will receive a lump sum payment in an amount equal to 0.5 multiplied
by the sum of his then current annual base salary plus a payment equal to six
(6) months of his then current base salary in complete satisfaction of the
Company's obligation to provide no less than six (6) months prior written notice
as set forth in the employment agreement.
On January 6, 2003, we entered into an employment agreement with Ian
Abercrombie, pursuant to which he agrees to serve as our Sales Manager (Europe).
The initial term of Mr. Abercrombie's employment agreement is one-year, with
automatic six month extensions thereafter unless either party provides written
notice to the contrary. If Mr. Abercrombie's employment is terminated other than
for cause or if he resigns for good reason or if a change of control occurs, he
will receive a payment equal to six (6) months of his then current base salary
in complete satisfaction of the Company's obligation to provide no less than six
(6) months prior written notice as set forth in the employment agreement.
On March 31, 2003, we entered into an employment agreement with David P. Luci,
pursuant to which he serves as our Director of Finance, General Counsel and
Corporate Secretary. The initial term of Mr. Luci's employment agreement is
one-year, with automatic one-year extensions thereafter unless either party
provides written notice to the contrary. If Mr. Luci's employment is terminated
other than for cause or if he resigns for good reason or if a change of control
occurs, he will receive a lump sum payment in an amount equal to 1.5 multiplied
by the sum of (i) his then current annual base salary plus (ii) his then average
annual bonus for the preceding two years and any and all unvested options will
vest and immediately become exercisable.
F-23
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 8 - Commitments and Contingencies - continued
Litigation
----------
On April 1, 2003, RLB Capital, Inc. filed a complaint against the Company in the
Supreme Court of the State of New York (Index No. 601058/03). The Complaint
alleged a breach of contract by the Company and demanded judgment against the
Company for $112,500 and warrants to acquire 75,000 shares of the Company's
common stock. The Company submitted its Verified Answer on June 25, 2003 and, in
pertinent part, denied RLB's allegations and asserted counterclaims based on
negligence. In September 2003, the Company filed a motion for summary judgment
and RLB filed its response on October 27, 2003. On November 12, 2003, the
Supreme Court granted the motion for summary judgment and the complaint was
dismissed. In March 2004, the complaint and two counterclaims asserted by the
Company were dismissed with prejudice.
On December 19, 2003, the Company filed a complaint against Dr. Deidre Tessman
and Tessman Technology Ltd. (the "Tessman Defendants") in the Supreme Court of
the State of New York, County of New York (Index No. 03-603984). An amended
complaint alleges, among other things, breach of contract and negligence by
Tessman and Tessman Technology and demands judgment against Tessman and Tessman
Technology in an amount to be determined by the Court. The Tessman Defendants
removed the case to federal court, then remanded it to state court and served an
answer with several purported counterclaims. The Company denies the allegations
in the counterclaims and intends to pursue its claims against the Tessman
Defendants vigorously.
Note 9 - Restatements
In May of 2005, the Company corrected its accounting for income taxes and
recognized deferred tax assets which offset the deferred tax liability resulting
from the Pathagon acquisition completed on February 1, 2002. The Company had
originally concluded that the realization of the deferred tax asset related to
the net operating losses and other deductible temporary differences existing at
the acquisition date, and generated after the acquisition date, did not meet the
"more likely than not" criteria and, as a result, a valuation allowance was
established on the deferred tax assets of the Company. The Company subsequently
determined that the deferred tax liability of $7,107,605 recorded in connection
with the Pathagon acquisition creates taxable income as the taxable temporary
differences reverse. Consequently, the ability to realize the deferred tax
assets is "more likely than not" and a valuation allowance is not required
against the deferred tax assets, to the extent the deferred tax assets offset
the deferred tax liability. The deferred tax asset, in excess of the deferred
tax liability, is not "more likely than not" to be realized, and is therefore
offset by a valuation allowance.
As the deferred tax liability was amortized each year, the Company recorded the
reduction to the liability as an income tax benefit. The Company restated its
previously reported financial statements and all interim periods as of and for
the years ended June 30, 2004 and 2003, to record additional benefit relating to
the recognition of deferred tax assets as indicated in the first paragraph of
this note. In years ended June 30, 2004, June 30, 2003, and June 30, 2002, the
Company previously recorded the reduction to the deferred tax liability and a
corresponding tax benefit of $536,903, $536,903 and $253,000, respectively. In
the restated financial statements for years ended June 30, 2004 and June 30,
2003, the Company recorded deferred tax assets, with a corresponding additional
deferred tax benefit of $922,911 and $1,580,200, respectively, offsetting the
deferred tax liability resulting from the Pathagon acquisition. Additionally, as
of the acquisition date on February 1, 2002, a deferred tax asset was recorded
for $2,362,543 with a corresponding reduction to goodwill. This represented the
deferred tax assets that existed at the date of acquisition and for which the
previously recorded valuation allowance was eliminated.
F-24
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 9 - Restatements - continued
June 30 2004 2003
As Reported As Restated As Reported As Restated
------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets:
Goodwill $ 3,902,705 $ 1,540,162 $ 3,902,705 $ 1,540,162
Total assets 44,533,387 42,170,844 28,535,675 26,173,132
Deferred tax liability 5,780,799 - 6,317,702 1,459,814
Total liabilities 17,150,816 11,370,017 9,707,283 4,849,395
Accumulated deficit (41,082,397) (37,664,141) (28,651,443) (26,156,098)
Total shareholders' equity 27,382,571 30,800,827 18,828,392 21,323,737
Year Ended June 30 2004 2003
As Reported As Restated As Reported As Restated
------------------------------------------------------------------------------------------------------
Consolidated Statements of Operations:
Income tax benefit $ 536,903 $ 1,459,814 $ 536,903 $ 2,117,103
Net loss (11,574,178) (10,651,267) (6,746,326) (5,166,126)
Net loss available to common (12,430,954) (11,508,043) (7,624,144) (6,043,944)
stockholders
Basic and diluted net loss per share $ (0.61) $ (0.57) $ (0.45) $ (0.36)
of common stock
The restatement has no effect on total cash flows from operating, investing, or
financing activities as shown in the Consolidated Statement of Cash Flows.
However, the restatement did affect the individual components of net loss and
deferred tax benefit within the net cash from operating activities.
Additionally, the Company restated the pro-forma stock based compensation
disclosures required under SFAS 123 determined under fair value based method due
to the correction of an error noted during February 2005. Refer to Note 1 for
further discussion.
F-25
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
Note 10 - Quarterly Financial Data (Unaudited):
-----------------------------------------------------------------------------------------------------------------------------------
2004 First First Second Second Third Third Fourth Fourth
Quarter Quarter Second Second Quarter Quarter Quarter Quarter
(as reported) (as restated) (as reported) (as restated) (as reported) (as restated) (as reported) (as restated)
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Goodwill 3,902,705 1,540,162 3,902,705 1,540,162 3,902,705 1,540,162 3,902,705 1,540,162
------------------------------------------------------------------------------------------------------------------------------------
Total assets 27,412,726 25,050,183 28,690,183 26,327,640 42,481,937 40,119,394 44,533,387 42,170,844
------------------------------------------------------------------------------------------------------------------------------------
Deferred tax 6,183,476 1,130,327 6,049,125 900,326 5,914,774 394,239 5,780,799 --
liability
------------------------------------------------------------------------------------------------------------------------------------
Total 9,860,203 4,807,054 13,286,085 8,137,288 15,738,593 10,218,058 17,150,816 11,370,017
liabilities
------------------------------------------------------------------------------------------------------------------------------------
Accumulated (31,474,458) (28,783,852) (33,436,828) (30,650,572) (37,676,811) (34,518,819) (41,082,397) (37,664,141)
deficit
------------------------------------------------------------------------------------------------------------------------------------
Shareholder's 17,552,523 20,243,130 15,404,099 18,190,352 26,743,344 29,901,336 27,382,571 30,800,827
equity
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Revenue 829,041 829,041 82,495 82,495 846,494 846,494 1,344,184 1,344,184
------------------------------------------------------------------------------------------------------------------------------------
Loss before (2,733,531) (2,733,531) (1,908,162) (1,908,164) (4,198,628) (4,198,630) (3,270,756) (3,270,756)
income tax
benefit
------------------------------------------------------------------------------------------------------------------------------------
Income tax 134,226 329,487 134,351 230,001 134,351 506,087 133,975 394,239
benefit
------------------------------------------------------------------------------------------------------------------------------------
Net loss (2,599,305) (2,404,044) (1,773,811) (1,678,163) (4,064,277) (3,692,543) (3,136,781) (2,876,517)
------------------------------------------------------------------------------------------------------------------------------------
Net loss (2,823,015) (2,627,754) (1,962,368) (1,866,720) (4,239,982) (3,868,247) (3,405,586) (3,145,322)
available to
common
shareholders
------------------------------------------------------------------------------------------------------------------------------------
Net loss $ (0.16) $ (0.15) $ (0.11) $ (0.10) $ (0.21) $ (0.19) $ (0.13) $ (0.13)
available to
common
shareholders
per basic and
dilutive share
------------------------------------------------------------------------------------------------------------------------------------
F-26
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
NOTE 10 - Quarterly Financial Data (Unaudited) - continued
-----------------------------------------------------------------------------------------------------------------------------------
2003 First First Second Second Third Third Fourth Fourth
Quarter Quarter Second Second Quarter Quarter Quarter Quarter
(as reported) (as restated) (as reported) (as restated) (as reported) (as restated) (as reported) (as restated)
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Goodwill 4,704,100 2,341,557 4,704,100 2,341,557 4,704,100 2,341,557 3,902,705 1,540,162
------------------------------------------------------------------------------------------------------------------------------------
Total assets 32,890,319 30,527,776 31,171,135 28,808,592 29,516,022 27,153,479 28,535,675 26,173,132
------------------------------------------------------------------------------------------------------------------------------------
Deferred tax 7,503,900 3,778,211 7,351,800 3,500,454 7,199,700 3,025,191 6,317,702 1,459,814
liability
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,962,050 6,236,362 9,267,577 5,416,235 9,055,715 4,881,205 9,707,283 4,849,394
------------------------------------------------------------------------------------------------------------------------------------
Accumulated (23,160,935) (21,797,790) (24,185,647) (22,696,848) (25,884,959) (24,072,992) (28,651,443) (26,156,098)
deficit
------------------------------------------------------------------------------------------------------------------------------------
Shareholder's 22,928,269 24,291,414 21,903,558 23,392,357 20,460,307 22,272,274 18,828,392 21,323,738
equity
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Revenue 209,091 209,091 209,091 209,091 45,753 45,753 40,922 40,922
------------------------------------------------------------------------------------------------------------------------------------
Loss before (2,064,459) (2,064,459) (955,536) (955,536) (1,634,992) (1,634,992) (2,628,242) (2,628,242)
income tax
benefit
------------------------------------------------------------------------------------------------------------------------------------
Income tax 152,100 600,101 152,100 277,757 152,100 475,263 80,603 763,982
benefit
------------------------------------------------------------------------------------------------------------------------------------
Net loss (1,912,359) (1,464,358) (803,436) (677,779) (1,482,892) (1,159,729) (2,547,639) (1,864,260)
------------------------------------------------------------------------------------------------------------------------------------
Net loss (2,133,637) (1,685,636) (1,024,715) (899,058) (1,699,307) (1,376,144) (2,766,485) (2,083,106)
available to
common
shareholders
------------------------------------------------------------------------------------------------------------------------------------
Net loss $ (0.12) $ (0.10) $ (0.06) $ (0.05) $ (0.10) $ (0.08) $ (0.17) $ (0.13)
available to
common
shareholders per
basic and
dilutive share
------------------------------------------------------------------------------------------------------------------------------------
The quarterly net loss per common share amounts are rounded to the nearest cent.
Annual net loss per common share may vary depending on the effect of such
rounding.
F-27
PART III
Item 13. Exhibits
Exhibit
Number Description
------- -----------
2.1 Acquisition Agreement between Registrant and Bioenvision,
Inc. dated December 21, 1998 for the acquisition of
7,013,897 shares of Registrant's Common Stock by the
stockholders of Bioenvision, Inc. (1)
2.2 Amended and Restated Agreement and Plan of Merger, dated as
of February 1, 2002, by and among Bioenvision, Inc.,
Bioenvision Acquisition Corp. and Pathagon, Inc. (5)
3.1 Certificate of Incorporation of Registrant. (2)
3.1(a) Amendment to Certificate of Incorporation filed January 29,
1999. (3)
3.1(b) Certificate of Correction to the Certificate of
Incorporation, filed March 15, 2002 (6)
3.1(c) Certificate of Amendment to the Certificate of
Incorporation, filed April 30, 2002 (6)
3.1(d) Certificate of Designations, Preferences and Rights of
series A Preferred Stock (6)
3.1(e) Certificate of Amendment to the Certificate of
Incorporation, filed January 14, 2004 (15)
3.2 Amended and Restated By-Laws of the Registrant. (13)
4.1 Registration Rights Agreement, dated as of February 1,
2002, by and among Bioenvision, Inc., the former
shareholders of Pathagon, Inc. party thereto, Christopher
Wood, Bioaccelerate Limited, Jano Holdings Limited and
Lifescience Ventures Limited. (8)
4.2 Stockholders Lock-Up Agreement, dated as of February 1,
2002, by and among Bioenvision, Inc., the former
shareholders of Pathagon, Inc. party thereto, Christopher
Wood, Bioaccelerate Limited, Jano Holdings Limited and
Lifescience Ventures Limited. (8)
4.3 Form of Securities Purchase Agreement by and among
Bioenvision, Inc. and certain purchasers, dated as of May
7, 2002. (6)
4.4 Form of Registration Rights Agreement by and among
Bioenvision, Inc. and certain purchasers, dated as of May
7, 2002. (6)
4.5 Form of Warrant (6)
4.6 Registration Rights Agreement, dated April 2, 2003, by and
between Bioenvision, Inc. and RRD International, LLC (14)
4.7 Warrant, dated April 2, 2003, made by Bioenvision, Inc. in
favor of RRD International, LLC (14)
4.8 Common Stock and Warrant Purchase Agreement, dated as of
March 22, 2004, by and among Bioenvision, Inc. and the
Investors set forth on Schedule I thereto (16)
4.9 Registration Rights Agreement, dated March 22, 2004, by and
between Bioenvision, Inc. and the Investors set forth on
Schedule I thereto (16)
4.10 Form of Warrant (16)
4.11 Bioenvision, Inc. 2003 Stock Incentive Plan (17)
10.1 Pharmaceutical Development Agreement, dated as of June 10,
2003, by and between Bioenvision, Inc. and Ferro Pfanstiehl
Laboratories, Inc.
10.2 Co-Development Agreement between Bioheal, Ltd. and
Christopher Wood dated May 19, 1998. (3)
10.3 Master Services Agreement, dated May 14, 2003, by and
between PennDevelopment Pharmaceutical Services Limited and
Bioenvision, Inc.
10.4 Co-Development Agreement between Stegram Pharmaceuticals,
Ltd. and Bioenvision, Inc. dated July 15, 1998. (3)
10.5 Co-Development Agreement between Southern Research
Institute and Eurobiotech Group, Inc. dated August 31,
1998. (3)
10.5(a) Agreement to Grant License from Southern Research Institute
to Eurobiotech Group, Inc. dated September 1, 1998. (3)
10.6 License and Sub-License Agreement, dated as of May 13,
2003, by and between Bioenvision, Inc. and Dechra
Pharmaceuticals, plc
10.7 Employment Agreement between Bioenvision, Inc. and
Christopher B. Wood, M.D., dated December 31, 2002 (3)
10.8 Employment Agreement between Bioenvision, Inc. and David P.
Luci, dated March 31, 2003 (14)
10.9 Securities Purchase Agreement with Bioaccelerate Inc dated
March 24, 2000. (4)
10.10 Engagement Letter Agreement, dated as of November 16, 2001,
by and between Bioenvision, Inc. and SCO Securities LLC.
(7)
10.11 Security Agreement, dated as of November 16, 2001, by
Bioenvision, Inc. in favor of SCO Capital Partners LLC. (7)
10.12 Commitment Letter, dated November 16, 2001, by and between
SCO Capital Partners LLC and Bioenvision, Inc. (7)
10.13 Senior Secured Grid Note, dated November 16, 2001, by
Bioenvision, Inc. in favor of SCO Capital Partners LLC. (7)
10.14 Exclusive License Agreement by and between Baxter
Healthcare Corporation, acting through its Edwards
Critical-Care division, and Implemed, dated as of May 6,
1997. (12)
10.15 License Agreement by and between Oklahoma Medical Research
Foundation and bridge Therapeutic Products, Inc., dated as
of January 1, 1998. (12)
10.16 Amendment No. 1 to License Agreement by and among Oklahoma
Medical Research Foundation, Bioenvision, Inc. and
Pathagon, Inc., dated May 7, 2002. (12)
10.17 Inter-Institutional Agreement between Sloan-Kettering
Institute for Cancer Research and Southern Research
Institute, dated as of August 31, 1998. (12)
10.18 License Agreement between University College London and
Bioenvision, Inc., dated March 1, 1999. (12)
10.19 Research Agreement between Stegram Pharmaceuticals Ltd.,
Queen Mary and Westfield College and Bioenvision, Inc.,
dated June 8, 1999 (12)
10.20 Research and License Agreement between Bioenvision, Inc.,
Velindre NHS Trust and University College Cardiff
Consultants, dated as of January 9, 2001. (12)
10.21 Co-Development Agreement, between Bioenvision, Inc. and
ILEX Oncology, Inc., dated March 9, 2001. (12)
10.22 Amended and Restated Agreement and Plan of Merger, dated as
of February 1, 2002, among Bioenvision, Inc., Bioenvision
Acquisition Corp. and Pathagon Inc. (5)
10.23 Master Services Agreement, dated as of April 2, 2003, by
and between Bioenvision, Inc. and RRD International,
LLC(14)
10.24 Employment Agreement between Bioenvision Limited and Hugh
Griffith, made effective as of October 23, 2002 (18)
10.25 Employment Agreement between Bioenvision Limited and Ian
Abercrombie, made effective as of January 6, 2003 (18)
14.1 Bioenvision Inc.'s Code of Business Conduct and Ethics
16.1 Letter from Graf Repetti & Co., LLP to the Securities and
Exchange Commission, dated September 30, 1999. (9)
16.2 Letter from Ernst & Young LLP to the Securities and
Exchange Commission, dated July 6, 2001. (10)
16.3 Letter from Ernst & Young LLP to the Securities and
Exchange Commission, dated August 16, 2001. (11)
21.1 Subsidiaries of the registrant (4)
23.1 Consent Of Independent Registered Public Accounting Firm
31.1 Certification of Christopher B. Wood, Chief Executive
Officer, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of David P. Luci, Chief Accounting Officer,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Accounting Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
-----------------------
(1) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the SEC on January 12, 1999.
(2) Incorporated by reference and filed as an Exhibit to Registrant's
Registration Statement on Form 10-12g filed with the SEC on September 3,
1998.
(3) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB/A filed with the SEC on October 18, 1999.
(4) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB filed with the SEC on November 13, 2000.
(5) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the SEC on April 16, 2002.
(6) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K, filed with the SEC on May 28, 2002.
(7) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K, filed with the SEC on January 8, 2002.
(8) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K, filed with the SEC on February 21, 2002.
(9) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K, filed with the SEC on October 1, 1999.
(10) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K/A, filed with the SEC on July 26, 2001.
(11) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K, filed with the SEC on December 6, 2001.
(12) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K, filed with the SEC on June 24, 2002.
(13) Incorporated by reference and filed as an Exhibit to Registrant's
Quarterly Report on Form 10-QSB for the three-month period ended
December 31, 2002.
(14) Incorporated by reference and filed as an Exhibit to Registrant's
Quarterly Report on Form 10-QSB for the three-month period ended March
31, 2003.
(15) Incorporated by reference and filed as an Exhibit to Registrant's
Quarterly Report on Form 10-QSB for the three- month period ended
December 31, 2004.
(16) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K, filed with the SEC on March 24, 2004.
(17) Registrant's definitive proxy statement on Schedule 14-A, filed in
connection with the annual meeting held on January 14, 2004.
(18) Incorporated by reference and filed as an Exhibit to Registrant's
Quarterly Report on Form 10-QSB for the three- month period ended
September 30, 2003.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned on
June 29, 2005, thereunto duly authorized.
BIOENVISION, INC.
By /s/ Christopher B. Wood, M.D.
-------------------------------------------------
Christopher B. Wood, M.D.
Chairman and Chief Executive Officer
(Principal Executive Officer)
By /s/ David P. Luci
-------------------------------------------------
David P. Luci
Chief Financial Officer, General Counsel and Corporate
Secretary
(Principal Financial and Accounting Officer)
In accordance with the requirements of the Exchange Act, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Christopher B. Wood, M.D. Chairman and Chief Executive Officer and June 29, 2005
----------------------------- Director
Christopher B. Wood, M.D. (Principal Executive Officer)
/s/ David P. Luci Chief Financial Officer, General Counsel June 29, 2005
----------------- and Corporate Secretary
David P. Luci (Principal Financial and Accounting
Officer)
________*____________ Director June 29, 2005
Thomas S. Nelson, C.A.
________*__________
Michael Kauffman Director June 29, 2005
________*____________ Director June 29, 2005
Andrew N. Schiff
Director June 29, 2005
________*____________
Steven A. Elms
* By: /s/ Christopher B. Wood, M.D.
-----------------------------
Christopher B. Wood
Attorney-in-Fact