UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 30, 2003
Callisto Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 333-63474 65-110840
(State or other jurisdiction (Commission IRS Employer
of incorporation or organization) File Number) Identification No.)
420 Lexington Avenue, Suite 2500
New York, New York 10170
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 297-0010
(Former name or former address, if changed since last report)
Explanatory Note
This Current Report on Form 8-K/A is being filed to amend the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange Commission on
May 15, 2003 to replace the financial statements filed under Item 7(a) and (b)
in their entirety with the attached financial statements.
The balance sheets of Callisto Pharmaceuticals, Inc. ("Callisto") as of December
31, 2002 and 2001 and the related statements of operations, stockholders' equity
and cash flows for the years ended December 31, 2002 and 2001 and for the period
from June 5, 1996 (inception) to December 31, 2002 have been restated to reflect
the following:
(i) The purchase of Webtronics for $400,000 in 2002 was recorded
as an investment on the previously issued balance sheet as of
December 31, 2002. In these restated financial statements
Callisto has recorded the purchase price as a cost of becoming
a public company, however because there was no capital raised
at the time, the amount was charged to general and
administrative expense in 2002.
(ii) Patent costs were previously capitalized and amortized over
the life of the patent. Callisto has never had any commercial
biopharmaceutical products, and does not expect to have such
for several years, if at all. The amount incorrectly
capitalized, net of accumulated amortization, on the
previously issued balance sheet as of December 31, 2002 was
$461,961. On a restated basis, Callisto has recorded
additional research and development expense of $19,733,
$106,632 and $461,961, respectively, for the twelve months
ended December 31, 2002 and 2001 and for the period from June
5, 1996 (inception) to December 31, 2002.
(iii) Stock-based compensation from June 5, 1996 (inception) to
December 31, 2002 had not been recorded. A review of stock and
option records back to inception, together with a
re-assessment of the facts and circumstances at the time,
indicated a need to record stock-based compensation expense.
Stock-based compensation expense for the years ended December
31, 2002 and 2001 and for the period from June 5, 1996
(inception) to December 31, 2002 was $332, $22,155 and
$4,784,556, respectively.
Item 7 - Financial Statements and Exhibits.
Included in the Form 8-K filed by the Registrant on May 15, 2003 were the
financial statements of Synergy Pharmaceuticals Inc. ("Synergy") as it was
originally determined to constitute an acquisition of a business. Subsequently
it was determined that this transaction constituted an acquisition of assets
which does not require the filing of the financial statements of Synergy. With
respect to pro forma financial statements that are required for a significant
acquisition of assets, because the terms of the acquisition, the consideration
paid, the accounting treatment and the pro forma effects of such have been
disclosed in Footnote # 4 to the financial statements of the Registrant as of
December 31, 2003 and for the years ended December 31, 2003 and 2002 as filed in
Form 10-KSB with the SEC on April 14, 2004, the Registrant has determined that
it is not meaningful or necessary to include any pro forma financial information
in this amended Form 8-K.
(a) Index to Financial Statements
Page
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 31, 2002 and 2001 F-3
Statements of Operations for the years ended
December 31, 2002 and 2001, and for the period from June 5, 1996
(inception) to December 31, 2002 F-4
Statements of Changes in Stockholders' Equity for the period from
June 5, 1996 (inception) to December 31, 2002 F-5
Statements of Cash Flows for the years ended December 31, 2002
and 2001, and for the period from June 5, 1996 (inception)
to December 31, 2002 F-6
Notes to financial statements F-7
F-1
Report of Independent Certified Public Accountants
Board of Directors
Callisto Pharmaceuticals, Inc.
New York, New York
We have audited the accompanying balance sheets of Callisto Pharmaceuticals,
Inc. (a development stage company) (the "Company") as of December 31, 2002 and
2001, and the related statements of operations, stockholders' equity, and cash
flows for the years then ended and for the period from June 5, 1996 (inception)
to December 31, 2002. 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 Callisto Pharmaceuticals, Inc.
as of December 31, 2002 and 2001, and the results of its operations and its cash
flows for the years then ended and for the period from June 5, 1996 (inception)
to December 31, 2002, in conformity with accounting principles generally
accepted in the United States.
These financial statements, which were previously audited by other auditors,
have been restated as described in Note 10.
/s/ BDO Seidman, LLP
--------------------
New York, New York
April 8, 2004
F-2
CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)
BALANCE SHEETS as of December 31,
(Restated)
ASSETS
2002 2001
Current assets:
Cash and cash equivalents $ 2,223,462 $ 3,627,479
Prepaid expenses 28,456 19,660
----------- -----------
2,251,918 3,647,139
Equipment, net 19,781 4,530
----------- -----------
$ 2,271,699 $ 3,651,669
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 442,834 $ 138,171
Stockholders' equity:
Preferred stock $.0001 par value 20,000,000
shares authorized, 4,235,299 issued and
outstanding 423 423
Common stock, $.0001 par value, authorized
60,000,000 shares, 13,083,695 outstanding
at December 31, 2002 and 2001 1,307 1,307
Additional paid-in-capital 14,538,618 14,538,618
Unamortized deferred stock based
compensation --- (332)
Deficit accumulated during the development
stage (12,711,483) (11,026,518)
----------- -----------
1,828,865 3,513,498
----------- -----------
$ 2,271,699 $ 3,651,669
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Restated)
For the
Period from
For the year June 5, 1996
ended December 31, (Inception) to
---------------------------- December 31,
2002 2001 2002
----------- ----------- ------------
Revenues $ --- $ --- $ ---
Costs and Expenses:
Research and development 491,430 653,402 3,529,491
General and administrative 1,227,699 938,893 4,854,268
Stock-based compensation 332 22,155 4,784,556
----------- ----------- ------------
Loss from operations (1,719,461) (1,614,450) (13,168,315)
Interest income 34,496 182,404 456,832
----------- ----------- ------------
Net loss $(1,684,965) $(1,432,046) $(12,711,483)
=========== =========== ============
Weighted average shares outstanding:
Basic and diluted 17,318,994 17,318,994
Net loss per common share: Basic and diluted $ (0.10) $ (0. 08)
The accompanying notes are an integral part of these financial statements.
F-4
CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Restated)
Unamortized Deficit
Preferred Common Deferred Accumulated
Stock Stock Additional Stock during the Total
Preferred Par Common Par Paid-in Based Development Stockholders
Shares Value Shares Value Capital Compensation Stage Equity
Balance at inception, June 5, 1996 --- $--- --- $ --- $ --- $ --- $ --- $ ---
--------- ---- ---------- ------ ----------- -------- ------------ ----------
Net loss for the period --- --- --- --- --- --- (404,005) (404,005)
Issuance of founder shares --- --- 2,642,500 264 528 --- --- 792
Common stock issued --- --- 1,356,194 136 272 --- --- 408
Common stock issued via private
placement --- --- 1,366,667 137 1,024,863 --- --- 1,025,000
--------- ---- ---------- ------ ----------- -------- ------------ ----------
Balance, December 31, 1996 --- --- 5,365,361 537 1,025,663 --- (404,005) 622,195
Net loss for the year --- --- --- --- --- --- (894,505) (894,505)
Common stock issued via private
placement --- --- 1,442,667 144 1,081,855 --- --- 1,081,999
--------- ---- ---------- ------ ----------- -------- ------------ ----------
Balance, December 31, 1997 --- --- 6,808,028 681 2,107,518 --- (1,298,510) 809,689
Net loss for the year --- --- --- --- --- --- (1,484,438) (1,484,438)
Amortization of stock based
compensation --- --- --- --- 52,778 --- --- 52,778
Common stock issued via private
placement --- --- 1,416,667 142 1,062,358 --- --- 1,062,500
Common stock issued for services --- --- 788,889 79 591,588 --- --- 591,667
Common stock repurchased and
cancelled --- --- (836,792) (84) (96,916) --- --- (97,000)
--------- ---- ---------- ------ ----------- -------- ------------ ----------
Balance, December 31, 1998 --- --- 8,176,791 818 3,717,326 --- (2,782,948) 935,196
Net loss for the year --- --- --- --- --- --- (4,195,263) (4,195,263)
Deferred Compensation - stock
options --- --- --- --- 9,946 (9,946) --- ---
Amortization of stock based
compensation --- --- --- --- --- 3,262 --- 3,262
Common stock issued for services --- --- --- --- 3,168,832 --- --- 3,168,832
Common stock issued via private
placement --- --- 346,667 34 259,966 --- --- 260,000
--------- ---- ---------- ------ ----------- -------- ------------ ----------
Balance, December 31, 1999 --- --- 8,523,458 852 7,156,070 (6,684) (6,978,211) 172,027
Net loss for the year --- --- --- --- --- --- (2,616,261) (2,616,261)
Amortization of stock based
compensation --- --- --- --- --- 4,197 --- 4,197
Common stock issued --- --- 4,560,237 455 250,889 --- --- 251,344
Other --- --- --- --- 432 --- --- 432
CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
(Restated)
Unamortized Deficit
Preferred Common Deferred Accumulated
Stock Stock Additional Stock during the Total
Preferred Par Common Par Paid-in Based Development Stockholders
Shares Value Shares Value Capital Compensation Stage Equity
Preferred shares issued 3,485,299 348 --- --- 5,986,302 --- --- 5,986,650
Preferred stock issued for
services 750,000 75 --- --- 1,124,925 --- --- 1,125,000
--------- ---- ---------- ------ ----------- -------- ------------ ----------
Balance, December 31, 2000 4,235,299 423 13,083,695 1,307 14,518,618 (2,487) (9,594,472) 4,923,389
Net loss for the year --- --- --- --- --- --- (1,432,046) (1,432,046)
Deferred Compensation - stock
options --- --- --- --- 20,000 (20,000) --- ---
Amortization of stock based
compensation --- --- --- --- --- 22,155 --- 22,155
--------- ---- ---------- ------ ----------- -------- ------------ ----------
Balance, December 31, 2001 4,235,299 423 13,083,695 1,307 14,538,618 (332) (11,026,518) 3,513,498
Net loss for the year --- --- --- --- --- --- (1,684,965) (1,684,965)
Amortization of stock based
compensation --- --- --- --- --- 332 --- 332
--------- ---- ---------- ------ ----------- -------- ------------ ----------
Balance, December 31, 2002 4,235,299 $423 13,083,695 $1,307 $14,538,618 $ --- ($12,711,483) $1,828,865)
========= ==== ========== ====== =========== ======== ============ ==========
The accompanying notes are an integral part of these financial statements.
F-5
CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Restated)
Period from
June 5, 1996
Year ended December 31, (Inception) to
----------------------- December 31,
2002 2001 2002
------------ ------------ ------------
Cash flows from operating activities:
Net loss $ (1,684,965) $ (1,432,046) $(12,711,483)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 6,778 2,118 10,394
Stock based compensation expense 332 22,155 4,784,556
Changes in operating assets and liabilities:
Prepaid expenses (8,796) (19,854) (28,456)
Accounts payable and accrued expenses 304,663 107,173 443,266
------------ ------------ ------------
Total adjustments 302,977 111,592 5,209,760
------------ ------------ ------------
Net cash used in operating activities (1,381,988) (1,320,454) (7,501,723)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of equipment (22,029) - (30,175)
------------ ------------ ------------
Net cash used in investing activities (22,029) - (30,175)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance stock, net of repurchases - - 9,755,360
------------ ------------ ------------
Net cash provided by financing activities - - 9,755,360
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (1,404,017) (1,320,454) 2,223,462
Cash and cash equivalents at beginning of year 3,627,479 4,947,933 -
------------ ------------ ------------
Cash and cash equivalents at end of year $ 2,223,462 $ 3,627,479 $ 2,223,462
============ ============ ============
Supplementary disclosure of cash flows information:
Cash paid for taxes $ 13,487 $ 11,863 $ 36,478
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-6
CALLISTO PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Business overview:
Callisto Pharmaceuticals, Inc. ("Callisto" or "Old Callisto") is a development
stage biopharmaceutical company, whose primary focus is on biopharmaceutical
product development. See footnote 4 for a complete description of a recent
business combination and basis of presentation. Since inception in June of 1996
our efforts have been principally devoted to research and development, securing
and protecting our patents and raising capital. From inception through December
31, 2002, Callisto has sustained cumulative net losses of $12,711,483.
Callisto's losses have resulted primarily from expenditures incurred in
connection with research and development activities, application and filing for
regulatory approval of our proposed products, stock based compensation expense,
patent filing and maintenance expenses, outside accounting and legal services
and regulatory, scientific and financial consulting fees. From inception through
December 31, 2002 Callisto has not generated any revenue from operations,
expects to incur additional losses to perform further research and development
activities and does not currently have any commercial biopharmaceutical
products, and does not expect to have such for several years, if at all.
Callisto's product development efforts are thus in their early stages and
Callisto cannot make estimates of the costs or the time it will take to
complete. The risk of completion of any program is high because of the many
uncertainties involved in bringing new drugs to market including the long
duration of clinical testing, the specific performance of proposed products
under stringent clinical trial protocols, the extended regulatory approval and
review cycles, the nature and timing of costs and competing technologies being
developed by organizations with significantly greater resources.
2. Basis of presentation:
The accompanying financial statements of Callisto have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP").
F-7
3. Summary of significant accounting policies
Use of Estimates - The preparation of financial statements in conformity with
GAAP 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 revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and cash equivalents - Cash and cash equivalents consist of short term,
highly liquid investments, with original maturities of less than three months
when purchased and are stated at cost.
Fair value of financial instruments - Callisto's financial instruments consist
of cash and accounts payable. These financial instruments are stated at their
respective carrying values which are equivalent to fair value due to their short
term nature.
Business concentrations and credit risks - All of Callisto's cash and cash
equivalents as of December 31, 2002 and 2001 are on deposit with one major money
center financial institution. Deposits at any point in time may exceed federally
insured limits.
Accounting for stock based compensation - Callisto has adopted Statement of
Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". As provided for by SFAS 123, Callisto has also elected to
continue to account for its stock-based compensation programs according to the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees ("APB 25")." Accordingly, compensation expense has been
recognized to the extent of employee or director services rendered based on the
intrinsic value of stock options granted under the plans.
Recent accounting pronouncement - In December 2002, the Financial Accounting
Standards Board issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123",
to provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual (see below) and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results.
F-8
Had compensation cost for stock options granted to employee and directors been
determined based upon the fair value at the grant date for awards, consistent
with the methodology prescribed under SFAS 123, Callisto's net loss would have
been as follows:
Years ended December 31,
--------------------------------
2002 2001
----------- -----------
Net loss, as reported $(1,684,965) $(1,432,046)
Add: Stock-based employee compensation expense
recorded under APB No. 25 intrinsic method --- 20,000
Deduct: Stock-based employee compensation
expense determined under fair value based method
for all employee awards --- (198,114)
----------- -----------
Pro forma net loss $(1,684,965) $(1,610,160)
=========== ===========
Net loss per share:
Basic and diluted - as reported $ (0.10) (0.08)
=========== ===========
Basic and diluted - pro forma $ (0.10) $ (0.09)
=========== ===========
The fair value of the options granted to employees during 2001 ranged from $0.00
to $0.50 on the date of grant using the Black-Scholes methodology. The following
weighted average assumptions were used for determining fair value in 2002 and
2001: no dividend yield, expected volatility of 0%, risk free interest rate of
4.50% and expected lives of 7 to 10 years.
Net Loss per Share - Basic and diluted net loss per share is presented in
conformity with SFAS No. 128, "Earnings per Share", for all periods presented.
In accordance with SFAS No. 128, basic and diluted net loss per common share was
determined by dividing net loss applicable to common stockholders by the
weighted-average common shares outstanding during the period. Diluted
weighted-average shares are the same as basic weighted-average shares since the
inclusion of issuable shares pursuant to the exercise of stock options, would
have been antidilutive.
F-9
Research and development - Callisto does not currently have any commercial
biopharmaceutical products, and does not expect to have such for several years,
if at all and therefore research and development costs are expensed as incurred.
These include expenditures in connection with an in-house research and
development laboratory, salaries and staff costs, application and filing for
regulatory approval of our proposed products, patent filing and maintenance
expenses, regulatory and scientific consulting fees as well as contract research
and royalty payments to outside research suppliers, facilities and universities.
In addition 100% of the salary of Callisto's Chief Executive Officer was also
included in research and development expense during the twelve months ended
December 31, 2002 and 2001 due to his extensive involvement with Callisto's
product development efforts.
Income taxes - Income taxes are accounted for under the asset and liability
method prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recorded for temporary
differences between financial statement carrying amounts and the tax basis of
assets and liabilities. Deferred tax assets and liabilities reflect the tax
rates expected to be in effect for the years in which the differences are
expected to reverse. A valuation allowance is provided if it is more likely than
not that some or the entire deferred tax asset will not be realized.
4. Merger and consolidation:
In March 2002, Old Callisto purchased 99.7% of the outstanding common shares of
Webtronics, Inc., ("Webtronics") a public company for $400,000. Webtronics was
incorporated in Florida on February 2, 2001 and had limited operations during
the year ended December 31, 2002. The purchase price of Webtronics was treated
as a cost of becoming a public company, however because there was no capital
raised at the time, the amount was charged to general and administrative expense
during the year ended December 31, 2002.
On April 30, 2003, pursuant to an Agreement and Plan of Merger dated March 10,
2003, as amended April 4, 2003, Synergy Acquisition Corp., a wholly-owned
subsidiary of Webtronics merged into Synergy Pharmaceuticals Inc. ("Synergy")
and Callisto Acquisition Corp., a wholly-owned subsidiary of Webtronics merged
into Old Callisto (collectively, the "Merger"). As a result of the Merger, Old
Callisto and Synergy became wholly-owned subsidiaries of Webtronics. In
connection with the Merger Webtronics issued 17,318,994 shares of its common
stock in exchange for outstanding Old Callisto common stock and an additional
4,395,684 shares in exchange for outstanding Synergy common stock. Subsequently,
171,818 shares of common stock issued to former Synergy shareholders were
returned to Callisto under the terms of certain indemnification agreements. The
Merger was accounted for as a recapitalization of Old Callisto by an exchange of
Webtronics common stock for the net assets of Old Callisto consisting primarily
of cash and fixed assets. Old Callisto then changed its name to Callisto
Research Labs, LLC and Webtronics changed its name to Callisto Pharmaceuticals,
Inc. and changed its state of incorporation from Florida to Delaware. Callisto
Pharmaceuticals, Inc. (formerly Webtronics) remains the continuing legal entity
and registrant for Securities and Exchange Commission reporting purposes.
F-10
The total consideration related to the Merger was allocated in full to the
Synergy research and development projects which had not yet reached
technological feasibility and having no alternative use was charged to purchased
in-process research and development expense during the year ended December 31,
2003.
5. Equipment:
Equipment consists of laboratory, testing and computer equipment, stated at
cost, with useful lives ranging from 2-4 years, depreciated on a straight line
basis. Depreciation expense for the years ended December 31, 2002 and 2001 and
from June 5, 1996 (inception) to December 31, 2002 was $6,778, $2,118 and
$10,394, respectively.
December 31,
------------------------
2002 2001
--------- ----------
Equipment $ 30,175 $ 8,146
Less - Accumulated depreciation (10,394) (3,616)
-------- -------
Equipment, net $ 19,781 $ 4,530
======== =======
6. Stock option plan:
In 1996, Callisto adopted an incentive and non-qualified stock option plan (the
"Plan") for employees, consultants and outside directors to purchase up to
2,000,000 shares of common stock. The Plan was amended in December 2002 to
increase the number of shares authorized under the Plan to 10,000,000. The
option term for options granted under the Plan is ten years from date of grant
and there were 8,152,941 option shares available for future grants as of
December 31, 2002.
Callisto recognizes deferred stock-based compensation expense for the intrinsic
value of stock options granted to employees and directors. Deferred stock-based
compensation is amortized to stock-based compensation expense over the vesting
period of the stock option. During the twelve months ended December 31, 2002,
2001 and for the period from June 5, 1996 (inception) to December 31, 2002
Callisto recognized $332, $22,155 and $4,784,556, respectively, as stock-based
compensation expense related to issuance of stock and stock options. At December
31, 2002 and 2001, unamortized deferred stock-based compensation was $0 and
$332, respectively.
F-11
The following represent options outstanding for the years since June 5, 1996
(inception) through December 31, 2002.
Number Exercise Price Weighted Average
of Shares Per Share Exercise Price
---------- -------------- ----------------
Balance, June 5, 1996 (inception) 0 $0.00 $0.00
1996: Granted 66,668 $0.75 $0.75
----------
Balance, December 31, 1996 66,668 $0.75 $0.75
1997: Granted 166,668 $0.75 $0.75
----------
Balance, December 31, 1997 233,336 $0.75 $0.75
1998: Granted 264,169 $0.75 $0.75
----------
Balance, December 31, 1998 497,505 $0.75 $0.75
1999: Granted 633,334 $0.75 - $4.90 $1.92
----------
Balance, December 31, 1999 1,130,839 $0.75 - $4.90 $1.41
2000: Granted 815,666 $2.85 - $6.75 $3.83
Forfeitures (15,000) $ 0.75 $0.75
----------
Balance, December 31, 2000 1,931,505 $0.75 - $6.75 $2.44
2001: Granted 730,000 $1.25 - $6.50 $2.77
----------
Balance, December 31, 2001 2,661,505 $0.75 - $6.75 $2.53
2002: Granted 330,000 $4.50 - $6.50 $5.50
----------
Balance, December 31, 2002 2,991,505 $0.75 - $6.75 $2.86
=========
Included in the balance at December 31, 2002 were 1,144,446 non-Plan options,
all exercisable. Options are exercisable as follows at December 31, 2002:
Options Outstanding Options Exercisable
------------------------------------------------------ ------------------------------
Number Weighted Average Weighted Average Number Weighted Average
Exercise Price of Shares Remaining Life Exercise Price of Shares Exercise Price
-------------- ---------- ------------------- ----------------- --------- ----------------
$0.75 615,839 6.1 years $0.75 615,839 $0.75
$1.25 400,000 8.1 years $1.25 400,000 $1.25
$1.95 - $2.85 1,129,000 7.3 years $2.57 999,000 $2.53
$4.90 - $6.75 846,666 8.4 years $5.53 306,666 $5.79
------- -------
All options:
$0.75 - $6.75 2,991,505 7.3 years $2.86 2,321,505 $2.27
========= =========
F-12
7. Income taxes:
At December 31, 2002, Callisto had available Federal net operating tax loss
carry forwards of approximately $6,000,000 expiring through 2021 to offset
future taxable income. The net deferred tax asset has been fully offset by a
valuation allowance due to uncertainties regarding realization of benefits from
these future tax deductions. As a result of the change in control provisions of
Internal Revenue Code Section 382, a significant portion of these net operating
loss carry forwards may be subject to limitation on future utilization.
8. Commitments and contingencies:
On July 25, 2001, Callisto entered into a license agreement to research,
develop, sell and commercially exploit certain Rockefeller University licensed
patents covering peptides and antibodies useful in treating toxic shock syndrome
and septic shock. Callisto will pay Rockefeller a $7,500 annual maintenance fee
until the first commercial sale of the product. Callisto will pay royalties of
2% and 0.75% of net sales of product as defined in the agreement and will pay
Rockefeller 15% of any sublicense fee paid by sublicensees. The agreement will
terminate upon the later of (a) expiration of the last to expire or become
abandoned patent right or (b) 20 years after the effective date of the
agreement. During the twelve months ended December 31, 2002 and 2001, Callisto
paid Rockefeller University $7,500 and $13,918, respectively.
On April 11, 2001, Callisto entered into a license agreement with Dartmouth
College to research, develop, manufacture and sell certain Dartmouth patent
rights covering a method to enhance antibiotics against Staphylococcus and other
bacteria. Callisto was obligated to pay to Dartmouth a minimum annual license
fee of $10,000 for 2002; $15,000 for 2003 and $25,000 per annum for 2004 and
thereafter. During the twelve months ended December 31, 2002 and 2001 Callisto
paid Dartmouth $265,261 and $174,135, respectively, under this agreement. In
August 2003, Callisto and Dartmouth entered into a settlement and general
release agreement, which terminated this license. Pursuant to the settlement and
general release agreement, Callisto paid $42,868 to Dartmouth.
On July 7, 1998 Callisto entered into a Patent License Agreement with the United
States Public Health Service ("PHS"), under which Callisto had an exclusive
license to make, use, sell, lease, import and export and to otherwise
commercially exploit certain licensed patents covering a diagnostic method for
detecting obsessive compulsive disorder. Callisto paid an initial license issue
royalty fee in the amount of $50,000 in 1998 and during the twelve months ended
December 31, 2002 and 2001 Callisto paid royalty fees of $10,000 and $99,754,
respectively, under this agreement and minimum annual royalties fees of $10,000
in each year through December 31, 2002. Callisto terminated this agreement by
mutual consent in January 2004.
During the years ended December 31, 2002 and 2001 and for the period from June
5, 1996 (inception) to December 31, 2002, Callisto had a month-to-month lease
arrangement and total rent expense was $51,856, $30,659 and $119,822,
respectively.
F-13
9. Stockholders' equity:
During 2000, the Board of Directors approved an increase in the authorized
common shares from 35,000,000 shares to 60,000,000 shares and a one-for-three
reverse split of the common stock. All share and per share information has been
adjusted to reflect the stock split as if it had occurred at the beginning of
the earliest period presented. In May 2003, as part of the Merger, the
authorized common shares were increased to 75,000,000 shares and the authorized
preferred shares were increased to 20,000,000 shares.
During 2000, Callisto sold 2,252,441 shares of Series A convertible preferred
stock at $1.70 per share and 1,232,858 shares of Series B convertible preferred
stock at $1.75 per share. In addition the Board of Directors authorized the
issuance of 750,000 shares of Series C convertible preferred stock at $0.10 per
share to an executive officer of Callisto. The net proceeds from the sale of
these 4,235,299 shares of convertible preferred stock totaled $6,061,650. The
holders of the convertible preferred stock had equal voting rights with the
common stockholders, had certain liquidation preferences and were convertible at
any time into shares of common stock at a ratio of one share of common stock for
each share of convertible preferred stock at the election of the holder.
Callisto recorded compensation expenses of approximately $1,050,000 related to
the shares sold to the executive officer. During the second quarter of 2003 all
of the convertible preferred stockholders converted their shares of preferred
stock to common stock in connection with the Merger.
During 2000, Callisto also sold 4,526,903 shares of common stock at a purchase
price of $0.05 per share to certain officers and directors of the company for
services performed in the year 1999. Based on the most recent private placement
of common stock during the fourth quarter of 1999, the value of these shares was
determined to be $0.70 per share and Callisto recorded $3,168,832 as stock based
compensation expense for the twelve months ended December 31, 1999.
During 1998, as part of a settlement agreement between the founding partners of
CSO Ventures, Inc. and Callisto, one of the founders of CSO sold 836,792 shares
of common stock back to Callisto at a price of approximately $0.12 per share,
for $97,000. Concurrently Callisto entered into a stock purchase agreement with
a private investor to sell him 766,667 shares of common stock at a price of
$92,000 or $0.12 per share. The fair value of the common stock issued was
determined to be $0.75 per share based on the most recent sale price of common
stock paid by investors in Callisto's private placements and Callisto recorded
$483,000 of stock based compensation expense.
F-14
During the period from December 1996 to December 1999, Callisto completed the
following private placements of its common stock:
Shares Price per share Gross proceeds
------ --------------- --------------
December 1996 1,366,667 $0.75 $1,025,000
December 1997 1,442,667 $0.75 1,081,999
October 1998 1,416,667 $0.75 1,062,500
January 1999 146,667 $0.75 110,000
December 1999 200,000 $0.75 150,000
--------- ----------
Total 4,572,668 $3,429,499
========= ==========
10. Restatement:
The balance sheets as of December 31, 2002 and 2001 and the related statements
of operations, stockholders' equity and cash flows for the years ended December
31, 2002 and 2001 and for the period from June 5, 1996 (inception) to December
31, 2002 have been restated to reflect the following:
The purchase of Webtronics for $400,000 in 2002 was recorded as an investment on
the previously issued balance sheet as of December 31, 2002. This has been
recorded as general and administrative expense in 2002.
Patent costs were previously capitalized and amortized over the life of the
patent. Callisto does not currently have any commercial biopharmaceutical
products, and does not expect to have such for several years, if at all. The
amount incorrectly capitalized, net of accumulated amortization, as of December
31, 2002 was $461,961. On a restated basis, Callisto has recorded research and
development expense of $19,733, $106,632 and $461,961, respectively, for the
twelve months ended December 31, 2002 and 2001 and for the period from June 5,
1996 (inception) to December 31, 2002.
Stock-based compensation from June 5, 1996 (inception) to December 31, 2002 had
not been recorded. A review of stock and option records back to inception,
together with a re-assessment of the facts and circumstances at the time,
indicated a need to record stock-based compensation expense. Stock-based
compensation expense for the years ended December 31, 2002 and 2001 and for the
period from June 5, 1996 (inception) to December 31, 2002 was $332, $22,155 and
$4,784,556, respectively.
11. Subsequent event:
In April 2003, Callisto settled legal fees totaling approximately $352,000,
accrued as of December 31, 2002, for approximately $100,000. The balance was
reversed into general and administrative expense in the second quarter of 2003.
F-15
Item 7 - Financial Statements and Exhibits (Continued)
(b) Pro Forma Financial Information - None
(c) Exhibits
Exhibit No. Description
2.1 Agreement and Plan of Merger dated March 10, 2003*
2.2 Amendment to Agreement and Plan of Merger dated
April 4, 2003*
4.1 Callisto Stock Option Plan*
99.1 Descriptive Memorandum of Callisto Pharmaceuticals, Inc.*
* Previously filed.
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, hereto duly authorized.
Dated: May 13, 2004
CALLISTO PHARMACEUTICALS, INC.
By: /s/ Gary S. Jacob
-----------------------
Gary S. Jacob
Chief Executive Officer