SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): DECEMBER 1, 2000 AVANT IMMUNOTHERAPEUTICS, INC. (F/K/A T CELL SCIENCES, INC.) (Exact Name of Registrant as Specified in its Charter) DELAWARE 0-15006 13-3191702 (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification No.) 119 FOURTH AVENUE, NEEDHAM, MASSACHUSETTS 02494 (Address of Principal Executive Offices and Zip Code) (781) 433-0771 (Registrant's telephone number, including area code)
AVANT Immunotherapeutics, Inc. hereby amends Item 7 of its Current Report on Form 8-K dated December 1, 2000, as amended, to read in its entirety as follows: ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Business Acquired: Financial statements of Megan Health, Inc. are filed with this report as Attachment A. (b) Pro Forma Financial Information: Pro forma financial information for the Registrant is filed with this report as Attachment B. (c) Exhibits: Exhibit No. Description - -------------------------------------------------------------------------------- 2.1* Agreement and Plan of Merger, dated as of November 20, 2000, by and among the Registrant, Acquisition Sub and Megan.** 2.2* First Amendment to Agreement and Plan of Merger, dated as of December 1, 2000, by and among the Registrant, Acquisition Sub and Megan.** 23.0 Consent of Independent Public Accountants - --------------------- * Previously filed. ** The Registrant agrees to furnish supplementally to the Commission a copy of any omitted schedule or exhibit to this agreement upon request by the Commission. -2-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: January 30, 2001 AVANT IMMUNOTHERAPEUTICS, INC. /s/ Avery W. Catlin --------------------------------------- BY: Avery W. Catlin Senior Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) -3-
ATTACHMENT A INDEX TO FINANCIAL STATEMENTS MEGAN HEALTH, INC. Report of Independent Public Accountants 5 Balance Sheets as of December 31, 1999 and 1998 6 Statements of Operations for the Years Ended December 31, 1999 and 1998 7 Statements of Stockholders' Equity for the Years Ended December 31, 1999 and 1998 8 Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 9 Notes to Financial Statements 10 Balance Sheets as of September 30, 2000 (Unaudited) and December 31, 1999 15 Statements of Operations for the Nine Months Ended September 30, 2000 and 1999 (Unaudited) 16 Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 (Unaudited) 13 Notes to Quarterly Financial Statements 14 -4-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Megan Health, Inc.: We have audited the accompanying balance sheets of Megan Health, Inc. (a Delaware corporation) as of December 31, 1999 and 1998 and the related statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the 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 financial position of Megan Health, Inc. as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. As explained in Note 8 to the financial statements, the Company has given retroactive effect to the change in accounting for revenue recognition. /s/ Arthur Andersen LLP St. Louis, Missouri, November 10, 2000 (except with respect to the matter discussed in Note 12, as to which the date is December 1, 2000) -5-
MEGAN HEALTH, INC. BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 1999 1998 ================================================================================================================== ASSETS Current Assets: Cash and cash equivalents (including restricted cash of $-0- and $788,730 for 1999 and 1998, respectively) $ 1,957,445 $ 1,300,126 Trade accounts receivable 86,558 -- Grant receivable 79,221 97,123 Inventories 104,734 -- Other current assets 24,903 45,259 ================================================================================================================== Total current assets 2,252,861 1,442,508 - ------------------------------------------------------------------------------------------------------------------ Property, plant and equipment, net 171,443 95,618 - ------------------------------------------------------------------------------------------------------------------ Total assets $ 2,424,304 $ 1,538,126 ================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 140,343 $ 167,515 Deferred revenue 345,000 360,000 Current obligation under capital lease 5,515 5,114 - ------------------------------------------------------------------------------------------------------------------ Total current liabilities 490,858 532,629 - ------------------------------------------------------------------------------------------------------------------ Long-term obligation under capital lease 5,291 10,806 - ------------------------------------------------------------------------------------------------------------------ Total liabilities 496,149 543,435 - ------------------------------------------------------------------------------------------------------------------ Stockholders' Equity: Series A noncumulative, convertible preferred stock, $0.001 par value (aggregate liquidation preference of $3,177,282). Authorized 479 479 687,345 shares; issued and outstanding 479,228 shares Series B noncumulative, convertible preferred stock, $0.001 par value (aggregate liquidation preference of $2,202,817). Authorized, 332 332 issued and outstanding 332,250 shares Series C noncumulative, convertible preferred stock, $0.001 par value (aggregate liquidation preference of $6,630,000 and $3,358,997 at December 31, 1999 and 1998, respectively). Authorized 1,000 506 1,000,000 shares; issued and outstanding 1,000,000 and 506,636 shares at December 31, 1999 and 1998, respectively Series D noncumulative, convertible preferred stock, $0.001 par value (aggregate liquidation preference of $2,000,000). Authorized, 302 302 issued and outstanding 301,659 shares Preferred stock subscribed -- 773,230 Common stock, $0.001 par value. Authorized 5,301,659 shares; issued and outstanding 981,063 and 965,188 shares as of December 31, 1999 and 1998, respectively 981 965 Additional paid-in capital 11,330,193 8,071,670 Accumulated deficit (9,405,132) (7,852,793) - ------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 1,928,155 994,691 ================================================================================================================== Total liabilities and stockholders' equity $ 2,424,304 $ 1,538,126 ================================================================================================================== The accompanying notes are an integral part of these balance sheets. -6-
MEGAN HEALTH, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 1999 1998 ================================================================================================================= OPERATING REVENUE: Product sales $ 918,328 $ -- Product development and licensing agreements 832,789 726,576 Grant income 227,929 161,480 - ----------------------------------------------------------------------------------------------------------------- Total operating revenue 1,979,046 888,056 - ----------------------------------------------------------------------------------------------------------------- OPERATING EXPENSE: Research and development 2,389,966 2,408,900 General and administrative 938,252 888,001 Cost of product sales 187,953 -- Sales and marketing 70,363 -- Depreciation and amortization 29,589 18,875 - ----------------------------------------------------------------------------------------------------------------- Total operating expense 3,616,123 3,315,776 - ----------------------------------------------------------------------------------------------------------------- Operating loss (1,637,077) (2,427,720) - ----------------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest income 103,887 74,208 Other income (expense) (18,126) 17,363 Interest expense (1,023) (1,389) - ----------------------------------------------------------------------------------------------------------------- Total other income 84,738 90,182 - ----------------------------------------------------------------------------------------------------------------- Net loss $ (1,552,339) $ (2,337,538) ================================================================================================================= The accompanying notes are an integral part of these statements. -7-
MEGAN HEALTH, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 Series A Series B Series C Series D Non- Non- Non- Non- cumulative cumulative cumulative cumulative Preferred Additional Total Preferred Preferred Preferred Preferred Stock Common Paid-In Accumulated Stockholders' Stock Stock Stock Stock Subscribed Stock Capital Deficit Equity ==================================================================================================================================== Balance at $479 $332 $506 $302 $ -- $957 $8,070,048 $(5,515,255) $2,557,369 December 31, 1997 Exercise of options (8,702 shares) -- -- -- -- -- 8 1,622 -- 1,630 Subscription of Series C non- cumulative preferred stock, 118,964 shares, net of issuance costs of $15,500 -- -- -- -- 773,230 -- -- -- 773,230 Net loss -- -- -- -- -- -- -- (2,337,538) 2,337,538) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at 479 332 506 302 773,230 965 8,071,670 (7,852,793) 994,691 December 31, 1998 Exercise of options (15,875 shares) -- -- -- -- -- 16 1,888 -- 1,904 Issuance of Series C non- cumulative preferred stock, 494,003 shares, net of issuance costs of $5,000 -- -- 494 -- (773,230) -- 3,256,635 -- 2,483,899 Net loss -- -- -- -- -- -- -- (1,552,339) (1,552,339) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at $479 $332 $1,000 $302 $ -- $981 $11,330,193 $(9,405,132) $1,928,155 December 31, 1999 ==================================================================================================================================== The accompanying notes are an integral part of these statements. -8-
MEGAN HEALTH, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 1999 1998 ========================================================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,552,339) $ (2,337,538) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 29,589 18,875 Increase in receivables (68,656) (43,966) Increase in inventories (104,734) -- Decrease (increase) in other current assets 20,356 (26,318) (Decrease) increase in accounts payable and accrued expenses (27,172) 47,652 (Decrease) increase in deferred revenue (15,000) 217,500 - ---------------------------------------------------------------------------------------------------------- Net cash used in operating activities (1,717,956) (2,123,795) - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of investment securities -- 968,893 Purchase of property, plant and equipment (105,414) (82,163) - ---------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities (105,414) 886,730 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from subscription and issuance of common and preferred stock 2,490,803 790,360 Equity issuance costs (5,000) (15,500) Payments of capital lease obligation (5,114) (5,005) - ---------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 2,480,689 769,855 - ---------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 657,319 (467,210) Cash and Cash Equivalents at Beginning of Year 1,300,126 1,767,336 - ---------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 1,957,445 $ 1,300,126 ========================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 1,023 $ 1,389 ========================================================================================================== Capital lease additions $ -- $ 257 ========================================================================================================== The accompanying notes are an integral part of these statements. -9-
MEGAN HEALTH, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Megan Health, Inc. (the Company), a Delaware corporation, was organized on December 4, 1992, for the purpose of discovering, developing and marketing live, oral bacterial vaccines for animals and humans. The Company's long-term strategy is to become a fully integrated developer and marketer of the vaccines. Further development and marketing of the Company's technology is subject to regulatory approval by the USDA and FDA. The Company's first USDA approval was obtained in November 1998 for an animal vaccine. CASH AND CASH EQUIVALENTS The Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. At December 31, 1999 and 1998, the Company's investments are carried at market, which approximates cost. Short-term investments consist of certificates of deposit and government obligations at December 31, 1998. There are no short-term investments as of December 31, 1999. INVENTORIES Inventories are stated at the lower of cost or market. Inventories consist of finished product at December 31, 1999. Cost is determined by first-in, first out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets ranging from three to five years. Expenditures for repairs and maintenance are charged to expense as incurred, and additions and improvements that significantly extend the lives of assets are capitalized. LONG-LIVED ASSETS If facts and circumstances suggest that a long-lived asset may be impaired, the carrying value is reviewed. If this review indicates that the carrying value of the asset will not be recovered as determined based on projected undiscounted cash flows related to the asset over its remaining life, the carrying value of the asset is reduced to its estimated fair value. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company enters into various types of financial instruments in the normal course of business. Fair values for cash, cash equivalents, trade accounts receivable and accounts payable, and accrued expenses approximate carrying value at December 31, 1999 and 1998, due to the nature and the relatively short maturity of these instruments. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and loss during the reporting period. Actual results could differ from those estimates. -10-
REVENUE RECOGNITION The Company has entered into various license and development agreements, primarily with corporate entities relating to vaccine projects for animals and humans. Nonrefundable revenue derived from such agreements is recognized over the specified development period as research and development or discovery activities are performed. Cash received in advance of activities being performed is recorded as deferred revenue. Nonrefundable milestone fees are recognized when they are earned in accordance with the performance requirements and contractual terms. Revenues from product sales are recorded when the product is shipped. Product shipping costs are included in cost of product sales. Grant income is recognized as services are provided in accordance with contractual agreements. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. ADVERTISING COSTS Advertising costs are expensed when incurred. 2. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following: DECEMBER 31, DECEMBER 31, 1999 1998 ======================================= Laboratory equipment $ 144,876 $ 57,647 Computer equipment 54,855 36,670 Equipment under capital lease 25,683 25,683 Leasehold improvements 3,650 3,650 --------------------------------------- 229,064 123,650 Less- Accumulated depreciation (57,621) (28,032) --------------------------------------- $ 171,443 $ 95,618 ======================================= 3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following: DECEMBER 31, DECEMBER 31, 1999 1998 ======================================== Accounts payable $ 5,219 $ 5,313 Grant payable 42,358 6,060 Accrued bonuses 15,500 87,095 Accrued legal fees 18,286 19,475 Accrued contract service expenses 51,700 46,000 Accrued expenses and other 7,280 3,572 ---------------------------------------- Total accounts payable and accrued expenses $ 140,343 $ 167,515 ======================================== -11-
4. RELATED-PARTY TRANSACTIONS The Company maintains consulting agreements with a stockholder and directors of the Company, incurring fees of $111,000 and $128,000 for the years ended December 31, 1999 and 1998, respectively. 5. LEASES The Company leases its office and lab space and certain equipment under noncancelable operating and capital leases that expire at various dates through 2003. Future minimum lease payments under capital leases and noncancelable operating leases as of December 31, 1999, are as follows: OPERATING CAPITAL LEASES LEASES ======================================== 2000 $ 248,925 $ 6,137 2001 263,342 5,484 2002 185,100 -- 2003 5,440 -- ---------------------------------------- $ 702,807 11,621 =================== Less- Amount representing interest (815) -------------------- $ 10,806 ==================== Rent expense for the years ended December 31, 1999 and 1998 was $250,464 and $246,819, respectively. 6. STOCK OPTIONS The Company has a stock option plan (the Option Plan), under which 700,000 options to purchase common stock may be granted to employees, directors, officers and consultants, subject to certain limitations. The Option Plan permits the granting of both incentive stock options and nonqualified stock options. The exercise price for options cannot be less than the fair market value (as determined by the Board of Directors at grant date) of the shares on the grant date. Options are exercisable over a period determined by the Board of Directors, but not longer than 10 years after the grant date. A summary of the options outstanding and exercisable at December 31, 1999 and 1998 is as follows: WEIGHTED RANGE OF AVERAGE EXERCISE EXERCISE SHARES PRICES PRICE =========================================================== Outstanding, January 1, 1998 401,267 $.12 - .67 $0.24 Granted 160,050 .67 - 2.00 0.69 Exercised (8,702) .12 - .67 0.19 Forfeited (12,118) .12 - .67 0.38 -------------------- Outstanding, December 31, 1998 540,497 .12 - 2.00 0.38 -------------------- Exercisable, December 31, 1998 368,910 .12 - 2.00 0.27 ==================== -12-
WEIGHTED RANGE OF AVERAGE EXERCISE EXERCISE SHARES PRICES PRICE ============================================================ Outstanding, January 1, 1999 540,497 $.12 - 2.00 $0.38 Granted -- -- -- Exercised (15,875) 0.12 0.12 Forfeited (11,124) .12 - .67 0.61 -------------------- Outstanding, December 31, 1999 513,498 .12 - 2.00 0.38 -------------------- Exercisable, December 31, 1999 413,699 .12 - 2.00 0.30 ==================== In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company elected APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for the Option Plan. Accordingly, no compensation cost has been recognized for the Option Plan. The pro forma information required by SFAS 123 was not material to the Company results of operations for the years ended December 31, 1999 and 1998. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: (a) dividend yield of 0%; (b) expected volatility of 0%; (c) risk free interest rate of 6.00% and 5.99% for 1999 and 1998, respectively; (d) expected life of eight years. 7. STOCKHOLDERS' EQUITY At December 31, 1999 and 1998, 2,734,953 and 2,315,764 shares of common stock, respectively, have been reserved for issuance upon conversion of preferred stock and upon exercise of stock options. At December 31, 1999 and 1998, 208,117 shares of Series A noncumulative convertible preferred stock have been reserved for issuance upon exercise of a warrant at $1.20 per share, which expires upon the earlier of June 2000 or an initial public offering of the Company's common stock. In December 1998, the Company received paid subscriptions for 118,964 shares of Series C preferred stock at $6.63 per share from existing shareholders. The cash received of $788,730 was restricted as of December 31, 1998. Preferred stock is convertible to common stock on a share-for-share basis. The conversion rate shall be appropriately adjusted in the event of any stock split, stock dividend, recapitalization or reorganization involving the Company's stock. The Company's bylaws provide for a board of directors consisting of seven members elected as follows: holders of Series A preferred stock voting as a class elect two members; holders of Series B preferred stock voting as a class elect one member; holders of Series D preferred stock voting as a class elect one member, and all stockholders voting as a class elect three members. In other matters, all preferred stockholders are authorized to vote equally with the shares of common stock and not as a separate class. Holders of preferred stock are entitled to receive noncumulative dividends when and as declared by the Board of Directors. No dividends may be declared and paid on any other stock of the Company, nor may any other stock of the Company be purchased, redeemed or otherwise acquired while any preferred stock dividend remains unpaid. In the event of liquidation of the Company, the funds available for distribution shall be paid out as follows; (1) the holders of the Preferred Stock shall be entitled to receive, in preference to the holders of any other stock in the Company, an amount equal to $6.63 per share plus any declared but unpaid dividends; (2) the holders of the Common Stock shall then be entitled to receive an amount equal to $0.12 per share plus any declared but unpaid dividends; and -13-
(3) any remaining assets shall then be distributed ratably to the holders of the Common Stock and the Preferred Stock on an as-if-converted basis. If the assets of the Company shall be insufficient to pay in full all of the holders of Preferred Stock pursuant to (1) immediately above or all holders of Common Stock pursuant to (2) above, then the assets shall be ratably distributed among the holders of Preferred Stock or Common Stock, respectively. 8. CHANGE IN ACCOUNTING The Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements." The Company retroactively applied SAB No. 101 to record cash received in advance of activities being performed as deferred revenue. Previously, revenue was recognized when cash was received. The effect of this change was to reduce revenue and increase net loss by $265,000 in 1998. The effect on stockholders' equity as of December 31, 1997, was not material. 9. INCOME TAXES As of December 31, 1999, the Company has federal and state net operating loss carryforwards of approximately $8,700,000. The net operating loss carryforwards will expire at various dates beginning in 2007 through 2019, if not utilized. As of December 31, 1999 and 1998, the Company had deferred tax assets of $3,400,000 and $2,800,000, respectively, consisting primarily of federal and state net operating loss carryforwards. The net deferred tax assets have been fully offset by a valuation allowance. 10. CONTINGENCIES The Company is from time to time party to various legal proceedings arising out of their businesses. Management believes there are no such proceedings pending or threatened against the Company which, if determined adversely, would have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. 11. ACCOUNTING STANDARD NOT YET IMPLEMENTED In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that all derivatives be recognized as either assets or liabilities in the statement of financial position at fair value. The adoption of SFAS 133 is not expected to have a material effect on the Company's financial position or results of operations, as the Company does not hold any derivative instruments. 12. SUBSEQUENT EVENT On December 1, 2000, AVANT Immunotherapeutics, Inc. (AVANT) acquired the Company, by merging its wholly owned subsidiary, AVANT Acquisition Corp., with and into the Company. As a result, the Company became the wholly owned subsidiary of AVANT. -14-
MEGAN HEALTH, INC. BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 2000 1999* ================================================================================================================== (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 880,333 $ 1,957,445 Trade accounts receivable 72,870 86,558 Grant receivable 38,700 79,221 Inventories 75,112 104,734 Other current assets 23,193 24,903 - ------------------------------------------------------------------------------------------------------------------ Total current assets 1,090,208 2,252,861 - ------------------------------------------------------------------------------------------------------------------ Property, plant and equipment, net 136,011 171,443 - ------------------------------------------------------------------------------------------------------------------ Total assets $ 1,226,219 $ 2,424,304 ================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 65,319 $ 140,343 Deferred revenue 325,000 345,000 Current obligation under capital lease 6,707 5,515 - ------------------------------------------------------------------------------------------------------------------ Total current liabilities 397,026 490,858 - ------------------------------------------------------------------------------------------------------------------ Long-term obligation under capital lease -- 5,291 - ------------------------------------------------------------------------------------------------------------------ Total liabilities 397,026 496,149 - ------------------------------------------------------------------------------------------------------------------ Stockholders' Equity: Series A noncumulative, convertible preferred stock, $0.001 par value (aggregate liquidation preference of $4,557,097 and $3,177,282 at September 30, 2000 and December 31, 1999, respectively). Authorized 687,345 shares; issued and outstanding 687,345 and 687 479 479,228 shares at September 30, 2000 and December 31, 1999, respectively Series B noncumulative, convertible preferred stock, $0.001 par value (aggregate liquidation preference of $2,202,817). Authorized, 332 332 issued and outstanding 332,250 shares Series C noncumulative, convertible preferred stock, $0.001 par value (aggregate liquidation preference of $6,630,000). Authorized, 1,000 1,000 issued and outstanding 1,000,000 shares Series D noncumulative, convertible preferred stock, $0.001 par value (aggregate liquidation preference of $2,000,000). Authorized, 302 302 issued and outstanding 301,659 shares Common stock, $0.001 par value. Authorized 5,301,659 shares; issued and outstanding 1,016,870 and 981,063 shares as of September 30, 2000 and December 31, 1999, respectively 1,017 981 Additional paid-in capital 11,583,955 11,330,193 Accumulated deficit (10,758,100) (9,405,132) - ------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 829,193 1,928,155 - ------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 1,226,219 $ 2,424,304 ================================================================================================================== The accompanying notes are an integral part of these balance sheets. *Agrees with audited balance sheet included herein. -15-
MEGAN HEALTH, INC. STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) 2000 1999 ================================================================================================================= OPERATING REVENUE: Product sales $ 488,957 $ 772,888 Product development and licensing agreements 52,905 611,726 Grant income 263,476 131,977 - ----------------------------------------------------------------------------------------------------------------- Total operating revenue 805,338 1,516,591 - ----------------------------------------------------------------------------------------------------------------- OPERATING EXPENSE: Research and development 1,012,268 1,434,696 General and administrative 813,614 849,274 Cost of product sales 68,447 138,082 Sales and marketing 312,862 287,820 - ----------------------------------------------------------------------------------------------------------------- Total operating expense 2,207,191 2,709,872 - ----------------------------------------------------------------------------------------------------------------- Operating loss (1,401,853) (1,193,281) - ----------------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest income, net 48,885 79,472 Other income (expense) -- 1,874 - ----------------------------------------------------------------------------------------------------------------- Total other income 48,885 81,346 - ----------------------------------------------------------------------------------------------------------------- Net loss $ (1,352,968) $ (1,111,935) ================================================================================================================= The accompanying notes are an integral part of these statements. -16-
MEGAN HEALTH, INC. STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) 2000 1999 ================================================================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,352,968) $ (1,111,935) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 37,044 21,317 (Increase) decrease in receivables 54,209 (6,130) (Increase) decrease in inventories 29,622 (47,795) Decrease in other current assets 1,710 7,901 Decrease in accounts payable and accrued expenses (75,024) (30,948) Decrease in deferred revenue (20,000) (15,000) - ------------------------------------------------------------------------------------------------------------------ Net cash used in operating activities (1,325,407) (1,182,590) - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (1,611), (43,671) - ------------------------------------------------------------------------------------------------------------------ Net cash (used in) provided by investing activities (1,611) (43,671) - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from subscription and issuance of common and preferred stock 254,005 2,489,799 Equity issuance costs -- (5,000) Payments of capital lease obligation (4,099) (3,801) - ------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 249,906 2,481,998 - ------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (1,077,112) 1,2559,737 Cash and Cash Equivalents at Beginning of Period 1,957,445 1,300,126 - ------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Period $ 880,333 $ 2,554,863 ================================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 504 $ 801 ================================================================================================================== Capital lease additions $ -- $ -- ================================================================================================================== The accompanying notes are an integral part of these statements. -17-
MEGAN HEALTH, INC. NOTES TO QUARTERLY FINANCIAL STATEMENTS SEPTEMBER 30, 2000 1. FINANCIAL STATEMENT PRESENTATION The unaudited financial statements of Megan Health, Inc. ("Megan") herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the results of operations for the interim periods presented. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading. These financial statements and the notes thereto should be read in conjunction with Megan's Financial Statements for the fiscal year ended December 31, 1999 contained herein. -18-
ATTACHMENT B AVANT IMMUNOTHERAPEUTICS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION On December 1, 2000, AVANT Immunotherapeutics, Inc., a Delaware corporation (the "Registrant" or "AVANT"), acquired Megan Health, Inc., a Delaware corporation ("Megan"), by merging its wholly-owned subsidiary, AVANT Acquisition Corp., a Delaware corporation ("Acquisition Sub"), with and into Megan (the "Merger"). As a result of the Merger, Megan became a wholly-owned subsidiary of the Registrant. In connection with the merger, the Registrant (i) issued an aggregate of 1,841,236 shares of its common stock (valued at approximately $15,803,400 based upon the average closing price of the Registrant's common stock for the 5 trading days preceding and subsequent to the signing of the Merger Agreement, or $8.583 per share), (ii) paid approximately $236,772 in cash and (iii) assumed obligations under Megan's outstanding stock options, all of which became fully vested as a result of the merger. As a result of the Registrant's assumption of such stock options, the holders thereof may purchase up to 31,910 shares of the Registrant's common stock at exercise prices generally ranging from $1.47 per share to $8.25 per share. The following unaudited pro forma condensed combined balance sheet as of September 30, 2000 and unaudited pro forma condensed combined statements of operations for the year ended December 31, 1999 and the nine months ended September 30, 2000 (collectively, the "Unaudited Pro Forma Statements") were prepared to give effect to the Merger accounted for under the purchase method of accounting. The unaudited pro forma balance sheet assumes that the Merger occurred on September 30, 2000. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 1999 and for the nine months ended September 30, 2000 assume that the Merger occurred on January 1, 1999 and January 1, 2000, respectively. The Unaudited Pro Forma Statements are based on the historical consolidated financial statements of AVANT and Megan under the assumptions and adjustments set forth in the accompanying notes to the Unaudited Pro Forma Statements. The combined condensed financial information for the fiscal year ended December 31, 1999 has been obtained from the consolidated financial statements of AVANT and Megan. The condensed combined financial information for the nine months ended September 30, 2000 has been obtained from the unaudited consolidated financial statements of AVANT and Megan and includes, in the opinion of AVANT's and Megan's management, all adjustments necessary to present fairly the data for such period. The Unaudited Pro Forma Statements may not be indicative of the results that actually would have occurred if the Merger had been in effect on the dates indicated or which may be obtained in the future. The pro forma adjustments are based upon available information and upon certain assumptions as described in the notes to the Unaudited Pro Forma Statements that AVANT's management believes are reasonable in the circumstances. The purchase price has been allocated to the acquired assets and liabilities based on a preliminary independent appraisal of their respective values. In accordance with generally accepted accounting principles, the amount allocated to in-process technology will be expensed in the quarter in which the Merger is consummated. The in-process technology adjustment has been excluded from the unaudited pro forma condensed combined statements of operations, as it is a nonrecurring item. Although AVANT believes, based on available information, that the fair values and allocation of the purchase price included in the Unaudited Pro Forma Statements are reasonable estimates, final purchase accounting adjustments will be made on the basis of evaluations and estimates which are in progress, but have not yet been finalized. As a result, final allocation of costs related to the Merger may differ from that presented herein. The Unaudited Pro Forma Statements and accompanying notes should be read in conjunction with the consolidated financial statements and accompanying notes thereto of AVANT included in its Annual Report on Form 10-K for the year ended December 31, 1999 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2000. The unaudited pro forma condensed combined statements of operations are not necessarily indicative of what the actual results of operations of AVANT would have been assuming AVANT had consummated the acquisition as of the beginning of the periods presented, nor does it purport to represent the results of operations for future periods. The unaudited pro forma balance sheet is not necessarily indicative of what the actual financial position would have been at September 30, 2000 nor does it purport to represent the future financial position of AVANT. -19-
AVANT IMMUNOTHERAPEUTICS, INC. AND MEGAN HEALTH, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET SEPTEMBER 30, 2000 PRO FORMA PRO FORMA AVANT MEGAN ADJUSTMENTS COMBINED ========================================================================================================================= ASSETS Current Assets: Cash and cash equivalents $ 48,505,000 $ 880,300 $(236,700)(a) $ 49,148,600 Accounts and other receivable 431,700 111,600 -- 543,300 Inventories -- 75,100 -- 75,100 Prepaid and other current assets 629,700 23,200 -- 652,900 - ------------------------------------------------------------------------------------------------------------------------- Total current assets 49,566,400 1,090,200 (236,700) 50,419,900 - ------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net 990,400 136,000 -- 1,126,400 Other assets 3,297,000 -- 7,912,600(b) 11,209,600 - ------------------------------------------------------------------------------------------------------------------------- Total assets $ 53,853,800 $ 1,226,200 $ 7,675,900 $ 62,755,900 ========================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 2,183,000 $ 65,300 $ 1,052,500(a) $ 3,300,800 Current portion deferred revenue 615,400 325,000 -- 940,400 Other current liabilities 293,700 6,700 -- 300,400 - ------------------------------------------------------------------------------------------------------------------------- Total current liabilities 3,092,100 397,000 1,052,500 4,541,600 - ------------------------------------------------------------------------------------------------------------------------- Long-term deferred revenue 2,615,400 -- -- 2,615,400 Long-term lease payable 45,500 -- -- 45,500 - ------------------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Preferred stock -- 2,300 (2,300)(d) -- Common stock 55,000 1,000 800(d) 56,800 Additional paid-in capital 189,872,100 11,584,000 5,045,800(a)(d) 206,501,900 Accumulated deficit (141,826,300) (10,758,100) 1,579,100 (151,005,300) - ------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 48,100,800 829,200 6,623,400 55,553,400 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 53,853,800 $ 1,226,200 $7,675,900 $ 62,755,900 ========================================================================================================================= The accompanying notes are an integral part of these condensed combined pro forma financial statements. -20-
AVANT IMMUNOTHERAPEUTICS, INC. AND MEGAN HEALTH, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 PRO FORMA PRO FORMA AVANT MEGAN ADJUSTMENTS COMBINED =================================================================================================================== OPERATING REVENUE: Product sales revenue $ -- $ 918,300 -- $ 918,300 Product development and licensing revenue 1,483,500 832,800 -- 2,316,300 Grant income -- 227,900 -- 227,900 - ------------------------------------------------------------------------------------------------------------------- Total operating revenue 1,483,500 1,979,000 -- 3,462,500 - ------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSE: Research and development 7,871,800 2,390,000 -- 10,261,800 General and administrative 4,280,200 967,800 -- 5,248,000 Cost of product sales -- 188,000 -- 188,000 Sales and marketing -- 70,300 -- 70,300 Amortization of acquired intangible assets 1,275,800 -- 842,000(c) 2,117,800 - ------------------------------------------------------------------------------------------------------------------- Total operating expenses 13,427,800 3,616,100 842,000 17,885,900 - ------------------------------------------------------------------------------------------------------------------- Operating loss (11,944,300) (1,637,100) (842,000) (14,423,400) Non-operating income, net 635,200 84,800 -- 720,000 - ------------------------------------------------------------------------------------------------------------------- Net loss $(11,309,100) $(1,552,300) $ (842,000) $ (13,703,400) ========================================================================================================================= Basic and diluted net loss per common share $ (0.26) -- -- $ (0.30) ========================================================================================================================= Weighted average common shares outstanding 44,076,400 -- -- 45,917,600(f) ========================================================================================================================= The accompanying notes are an integral part of these condensed combined pro forma financial statements. -21-
AVANT IMMUNOTHERAPEUTICS, INC. AND MEGAN HEALTH, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 PRO FORMA PRO FORMA AVANT MEGAN ADJUSTMENTS COMBINED ===================================================================================================================== OPERATING REVENUE: Product sales revenue $ -- $ 489,000 -- $ 489,000 Product development and licensing revenue 461,600 52,900 -- 514,500 Grant income -- 263,500 -- 263,500 - --------------------------------------------------------------------------------------------------------------------- Total operating revenue 461,600 805,400 -- 1,267,000 - --------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSE: Research and development 7,072,700 1,012,300 -- 8,085,000 General and administrative 3,194,800 813,600 -- 4,008,400 Cost of product sales -- 68,500 -- 68,500 Sales and marketing -- 312,900 -- 312,900 Legal settlements (500,000) -- -- (500,000) Amortization of acquired intangible assets 411,900 -- 631,500(c) 1,043,400 - --------------------------------------------------------------------------------------------------------------------- Total operating expenses 10,179,400 2,207,300 631,500 13,018,200 - --------------------------------------------------------------------------------------------------------------------- Operating loss (9,717,800) (1,401,900) (631,500) (11,751,200) Non-operating income, net 1,236,900 48,900 -- 1,285,800 - --------------------------------------------------------------------------------------------------------------------- Net loss $(8,480,900) $(1,353,000) $ (631,500) $ (10,465,400) ===================================================================================================================== Basic and diluted net loss per common share $ (0.17) -- -- $ (0.20) ===================================================================================================================== Weighted average common shares outstanding 51,347,300 -- -- 53,188,500(f) ===================================================================================================================== The accompanying notes are an integral part of these condensed combined pro forma financial statements. -22-
AVANT IMMUNOTHERAPEUTICS, INC. AND MEGAN HEALTH, INC. NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The pro forma information presented is theoretical in nature and not necessary indicative of the future consolidated results of operations of the combined companies or the consolidated results of operations which would have resulted had the Merger taken place during the periods presented. The Unaudited Pro Forma Statements reflect the effects of the Merger. The unaudited pro forma condensed combined balance sheet assumes that the Merger and related events occurred as of September 30, 2000. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 1999 and for the nine months ended September 30, 2000 assume that Merger and related events occurred as of January 1, 1999 and January 1, 2000, respectively. 2. PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT ADJUSTMENTS (a) The purchase price for the Merger was determined as follows: AVANT common stock issued to Megan stockholders $ 15,803,400 Cash received by Megan stockholders 236,700 Conversion of Megan stock options 239,400 Direct acquisition costs 1,052,500 -------------------- Total estimated purchase price $ 17,332,000 ==================== (b) The actual allocation of the purchase price will be based on the estimated fair values of net assets of Megan at the consummation of the Merger. For purposes of the pro forma condensed combined financial statements, such allocation has been estimated as follows: Net assets of Megan at December 1, 2000 $ 240,400 In-process technology 9,179,000 Core technology 1,820,000 Developed technology 3,323,000 Strategic partner agreement 2,611,300 Assembled workforce 158,300 -------------------- Total estimated purchase price $ 17,332,000 ==================== (c) Amortization of the core technology, developed technology, strategic partner agreement and the assembled workforce will be over the estimated useful lives of ten years, seven years, seventeen years and five years, respectively. (d) Elimination of Megan equity amounts. -23-
(e) Management estimates that approximately $9.2 million of the purchase price represents purchased in-process technology that has not yet reached technological feasibility and has no alternative future use. This amount will be expensed as a non-recurring charge during the fourth quarter of 2000, the quarter in which the Merger was consummated. This amount has been reflected as a reduction to stockholders' equity and has not been included in the pro forma condensed combined statements of operations due to its non-recurring nature. A valuation of the intangible assets acquired is being conducted by an independent third party. The value assigned to purchased in-process technology was determined by identifying research projects in areas for which technological feasibility has not been established. Due to the early stage nature of Megan's operations and research and development, such research projects represent substantially all of Megan's activities. The value was determined by estimating the costs to develop the purchased in-process technology into commercially viable products; estimating the resulting net cash flows from such projects; and discounting the net cash flows back to their present value. The efforts to develop the purchased in-process technology into commercially viable products generally include the identification of appropriate collaborative partners and financing, the completion of both pre-clinical and clinical trials as well as the obtaining of regulatory approval. (f) The shares used in computing the unaudited pro forma combined net loss per share for the year ended December 31, 1999 and for the nine months ended September 30, 2000 are based upon the historical weighted average common shares outstanding adjusted to reflect the issuance, as of January 1, 1999 and January 1, 2000, respectively, of approximately 1.8 million shares of AVANT common stock. -24-
EXHIBIT 23.0 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 8-K/A, into previously filed Registration Statements on Forms S-8, (Nos. 333-34780, 333-43640, 333-52795, 333-54372, 333-80036, 333-80048 and 333-62017) and Forms S-3 (Nos. 333-72172, 333-69950, 333-64021, 333-08607, 333-43204, 333-52736, 333-56755, 333-64761 and 333-89341) by AVANT Immunotherapeutics, Inc. /s/ Arthur Andersen LLP St. Louis, Missouri January 30, 2001