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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999 Commission file number 0-18044
PROCYTE CORPORATION
(exact name of registrant as specified in its charter)
Washington 91-1307460
(State of incorporation) (I.R.S. Employer Identification No.)
8511 154th Avenue N.E., Building A, Redmond, WA 98052-3557
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (425) 869-1239
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to the Section 12(g) of the Act: Common Stock,
par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 X No
----- -----
Indicate by check mark if disclosure of delinquency filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K { }.
As of March 15, 2000 there were issued and outstanding 15,435,354 shares of
common stock, par value $.01 per share.
The aggregate market value of common stock held by non-affiliates as of March
15, 2000 was $37.9 million, based upon the average of the closing high and low
prices of such stock as reported on the NASD OTC bulletin board.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in Parts II and
III of this Form 10-K report: (1) the Proxy Statement for the Registrant's 2000
Annual Meeting of Shareholders scheduled to be held May 23, 2000, and (2) the
Registrant's 1999 Annual Report to Shareholders.
1
ProCyte Corporation
1999 Form 10-K
Table of Contents
PART I............................................................................................ 3
Item 1. Business............................................................................... 3
Item 2. Properties............................................................................. 13
Item 3. Legal Proceedings...................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders.................................... 13
PART II........................................................................................... 13
Item 5. Market for Company's Common Stock and Related Shareholder Matters..................... 13
Item 6. Selected Financial Data............................................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 14
Item 7a. Quantitative and Qualitative Disclosures About Market Risk............................ 17
Item 8. Financial Statements and Supplementary Data........................................... 17
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.. 30
PART III.......................................................................................... 30
PART IV........................................................................................... 30
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 30
2
PART I
Item 1. Business
The entire discussion in this report, as well as other management
discussion of the Company's goals and expectations as reported in the Company's
1999 Annual Report to Shareholders contains Forward-Looking statements that are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. The words "believe", "expect",
"intend", "anticipate", variations of such words and similar expressions
identify Forward-Looking statements, but their absence does not mean that the
statement is not Forward-Looking. These statements are not guaranties of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict. Factors that could affect the Company's actual
results include, among other things, the availability of adequate funding, the
availability of contract manufacturing opportunities, relationships with
corporate collaborators, the rate of market acceptance of the Company's
products, the availability of third-party reimbursement for the Company's
products, the ability to obtain and defend patent and related future product and
intellectual property rights and to market the Company's products and the status
of competing products. See "Important Factors Regarding Forward-Looking
Statements." Readers are cautioned not to place undue reliance on these
Forward-Looking statements, which speak only as of the date of this report.
ProCyte undertakes no obligation to update publicly any Forward-Looking
statement to reflect new information, events or circumstances after the date of
this report or to reflect the occurrence of unanticipated events.
General
ProCyte Corporation ("ProCyte" or the "Company") is a Washington
corporation organized in 1986. ProCyte is a healthcare company that develops,
manufactures and markets products for wound care, skin health and hair care.
Certain of the Company's products incorporate its patented copper peptide
technology or its patented hydropolymer technology.
The Company's products are targeted for use in specialty medical markets to
provide solutions for chronic wounds, skin health and hair conditions, and for
the related consumer markets. The Company's business currently focuses on three
target markets: dermatology and skin care including the wound care associated
with plastic & cosmetic surgery; hair care, and chronic wound care.
ProCyte's goal is to generate profitability from the sale of products that
it develops, licenses or acquires. To augment the commercialization of its
products and technology, the Company has entered into and plans to continue to
enter into, distribution and license agreements primarily in the wound care and
consumer markets. Consistent with this goal, the Company intends to retain the
proprietary rights to its products and technologies.
Products and Markets
In 1999, ProCyte continued its emphasis on its copper peptide formulations
in products that address wound care, skin health and hair care needs. The
Company has identified three primary markets for its products.
Dermatology, Plastic & Cosmetic Surgery and Skin Care
ProCyte believes its products are well suited for use in the medical
specialties of dermatology and plastic & cosmetic surgery. Most of the products
developed by ProCyte incorporate the Company's clinically tested copper peptide
formulations or its patented hydropolymer technology. The biological actions of
copper have been documented in the scientific literature and include its ability
to stimulate collagen synthesis, new blood vessel growth and tissue repair. The
Company believes its technology has potential value in the consumer skin care
market. There is an increasing consumer and physician awareness of the ability
to improve skin health and appearance with products designed specifically to
meet the needs of the aging population. In addition, there are an increasing
number of cosmetic procedures performed each year as the baby boomer population
ages.
3
ProCyte has introduced a number of products tailored to the needs of these
markets, including the GraftCyte(TM) System, Pillo(TM) Pro Absorbent Dressings
and the Complex Cu3(TM) System. With the acquisition of HumaTech Corporation in
1998, the Company's product line expanded to include a therapeutic skin care
line comprising prescription and over-the-counter topical drugs, sun protection,
and anti-aging skin care products.
The Company has also continued to emphasize its Complex Cu3(TM) Intensive
Repair Creme, Cleanser and Hydrating Gel products used to treat patients
following chemical peels, microdermabrasion and laser treatments, as a
complement to its line of prescription and over-the-counter topical drugs, sun
protection and anti-aging skin care products. The Complex Cu3(TM) products
provide a comprehensive approach to post-procedure care and allow the Company to
differentiate its line of skin care products on the basis of its proprietary
copper peptide technology. The Company's Pillo(TM) Pro Absorbent Dressings,
which provide moisture absorption required following liposuction, also
complement the Complex Cu3(TM) line. During 1999, the Company launched its
Neova(TM) Therapy line of anti-aging products in response to demand from
physician customers. This line includes cremes, serums, cleansers and lotions
that the Company believes have strong consumer appeal
ProCyte's GraftCyte(TM) System was launched in 1997 to address the special
tissue repair needs of patients following hair restoration surgery. The
GraftCyte(TM) System currently consists of five differentiated products:
GraftCyte(TM) Moist Dressings for use after surgery; GraftCyte(TM) Concentrated
Spray to provide continuous hydration of the scalp after surgery; GraftCyte(TM)
Post-Surgical Shampoo; GraftCyte(TM) Post-Surgical Conditioner to provide a
gentle cleansing of the scalp; and the GraftCyte(TM) Single Patient Pack,
introduced in 1998 to provide convenience to the patient and the physician.
ProCyte markets these products to physicians for use in specialized
surgical and skin care practices through its own sales representatives and a
contract sales force. In 1997, ProCyte entered into an exclusive worldwide
supply and marketing agreement with Osmotics Corporation ("Osmotics"), pursuant
to which the Company granted Osmotics the right to market copper peptide
containing products to the prestige skin care market.
During 1999, the Company agreed to provide copper peptide formulations to
Neutrogena Corporation, a Johnson and Johnson Company ("Neutrogena"), for
evaluation of its potential for use in consumer skin care products to be
marketed worldwide by Neutrogena in the consumer market.
Hair Care
The Company commenced shipping its Tricomin(R) line of triamino copper
complex containing hair care products to physicians' offices in the third
quarter of 1998. Tricomin(R) shampoos, conditioners and follicle therapy
solution are positioned to participate in the rapidly growing $1.5 billion US
hair care market as a program for the maintenance of thinning hair in men and
women. Hair follicles require high concentrations of biological copper and the
Tricomin(R) products deliver copper along with amino acids for nourishing and
stimulating the hair and scalp for improved health, strength and appearance.
One of the strengths of these products is that they provide the physicians a
non-drug alternative to the problem of thinning hair for their patients. The
Company has initiated a series of consumer advertisements focused specifically
on the hair care needs and concerns of an aging babyboomer population.
During 1999, Neutrogena agreed to pay the Company for an exclusive option
to the proprietary triamino copper complex used in the Tricomin(R) products.
In March 2000 Neutrogena informed the Company that it did not intend to exercise
that option and the Company has begun discussions with other potential partners.
4
Chronic Wound Care
Since inception, the Company has focused on the chronic wound care market.
Worldwide, this market is estimated to exceed $3 billion. It is highly
fragmented, with many competitors and price constraints. For these reasons,
ProCyte collaborates with partners to market its chronic wound care products.
The Company has chosen to negotiate comprehensive agreements with major
companies for the United States, Latin America, Europe and the Far East rather
than individual agreements for each country.
In December 1997, ProCyte entered into an exclusive distribution agreement
covering the United States and Canada, with the Bard Medical Division of C.R.
Bard, Inc. ("Bard"), for the hospital, nursing home and extended care markets.
ProCyte's Iamin(R) Hydrating Gel, Iamin(R) Wound Cleanser, and OsmoCyte(R)
Pillow Wound Dressings were added to the Bard sales effort in January 1998 and
Canada was removed from the territory. Bard is required to make certain minimum
annual purchases but did not achieve that level in 1999. The Company has agreed
to continue the Bard agreement for 2000 on a non-exclusive basis while it
evaluates its options in this connection.
Subsequent to the agreement with Bard, ProCyte has entered into exclusive
distribution agreements for the registration and distribution of certain of its
wound care products in various foreign countries, including Merck KGaA
("Merck"), for Latin America and South Africa and Amuchina SpA ("Amuchina"), for
France and Italy. The Company has also given Amuchina a right of first
negotiation for distribution to the rest of Europe, contingent upon obtaining CE
Mark registration. ProCyte also entered into a distribution agreement with Tanox
Pharma International, Inc., a division of Tanox Biosystems, Inc. ("Tanox"), for
countries in the Far East, but as a result of unexpected regulatory and
distribution issues with its distributor, Tanox did not achieve the minimum
level of annual purchases specified in the agreement and the agreement was
terminated in March 2000 with registrations reverting to ProCyte. The Company
anticipates that product registration in certain countries may take well over a
year to obtain, and there can be no assurance that registration will be obtained
or that the products will be commercially successful in all of the various
countries. See "Important Factors Regarding Forward-Looking Statements -
Government Regulation."
A related field of use for ProCyte's chronic wound care products is the
veterinary market. At present, the Company's products for veterinary care
applications are promoted through specialty distributors.
Additional Product Development and/or Acquisitions
During 1999 the Company acquired NextDerm, Inc. ("NextDerm") and with it
the rights to several products in various stages of development. The Company
expects to introduce its first product based on the acquired technology during
the first half of 2000. The Company plans to continue its skin health and hair
care product development, and expects to introduce anti-aging products in 2000
which incorporate the copper peptide complex. The Company reported expenditures
of $1,744,421, $2,422,076, and $3,774,415 on research and development in 1999,
1998 and 1997, respectively.
The Company also plans to continue to evaluate companies, products and
technologies which offer synergistic opportunities for the Company to leverage
its position in the medical marketplace, for acquisition and/or distribution by
the Company.
Contract Manufacturing
During 1999 the Company continued to utilize the excess capacity of its
manufacturing facility by contracting with pharmaceutical and biotechnology
clientele to provide processing and other services. Also during 1999 the
Company retained a financial advisor to assist it with the sale or spin-off of
that operation in order to increase the Company's focus on its core business. On
March 29, 2000 ProCyte agreed to sell the assets and liabilities related to its
manufacturing operation for $2.5 million to a group including a member of
ProCyte management. The transaction is expected to close by May 30, 2000 and is
subject to negotiation of a definitive agreement and contingent upon
availability of financing and ratification by the ProCyte Board of Directors. A
provision of $1.9 million has been recorded at December 31, 1999 as an estimate
of the loss that will be realized upon consummation of this
5
transaction. The manufacturing operation includes the substantial majority of
the fixed assets of the Company and the lease obligation for the Company's
facility. The manufacturing operation generated contract revenues of $762,320,
$436,167 and $705,706 in 1999, 1998 and 1997, respectively. Expenses related to
the manufacturing operation were approximately $1,800,000 in 1999, $2,050,000 in
1998, and $2,850,000, in 1997. See "Important Factors Regarding Forward-Looking
Statements - Uncertainties Related to the Sale of the Manufacturing Operation."
Business Relationships
Neutrogena Corporation
In 1999, ProCyte entered into two agreements with Neutrogena, permitting
evaluation of ProCyte's patented copper peptide technology for skin care
products and hair care products. The first agreement was an option and product
study agreement covering the incorporation of ProCyte's AHK:cu technology into
products that Neutrogena would sell in the worldwide consumer hair care market.
The other agreement was a product study agreement to evaluate ProCyte's GHK:cu
technology for potential Neutrogena products for the worldwide consumer skin
care market. The Company subsequently agreed to negotiate exclusively with
Neutrogena for a limited period of time.
Osmotics Corporation
In 1997, ProCyte entered into a supply and marketing agreement with
Osmotics Corporation (the "Osmotics Agreement"), pursuant to which the Company
granted to Osmotics a limited, worldwide, non-transferable right to purchase and
use one of ProCyte's copper peptide compounds for making and selling skin care
products for the prestige skin care market. The Osmotics Agreement sets forth
certain milestones, minimum payments and royalties payable by Osmotics to
ProCyte. The first product marketed under this agreement was launched in 1998
as Blue Copper(TM), an anti-aging formulation sold at cosmetic counters in
stores such as Saks and Neimann Marcus.
Bard Medical
In 1997, ProCyte entered into an exclusive distribution agreement with Bard
(the "Bard Agreement"), giving Bard the exclusive rights to distribute wound
care products manufactured by ProCyte in the United States. The Bard Agreement
specified the products to be distributed by Bard in the hospital, nursing home
and home healthcare markets and set minimum purchases required of Bard during
the initial three-year term. Bard's purchases of ProCyte products during 1998
exceeded the minimum required but such purchases during 1999 did not. The
Company has agreed to continue the Bard Agreement for 2000 on a non-exclusive
basis while it evaluates its options in this connection.
Tanox Pharma
During 1998, ProCyte entered into a distribution agreement with Tanox for
sales of Iamin(R) Hydrating Gel and OsmoCyte(R) Pillow Wound Dressings in China
and Taiwan. Tanox received approval of its application to register Iamin(R)
Hydrating Gel in China, and the initial orders were shipped in December 1998.
After the initial shipment Tanox experienced unexpected regulatory and
distribution issues with its distributor and did not achieve the minimum sales
levels specified in the agreement. In March, 2000 Tanox and ProCyte terminated
the agreement, with the registrations reverting to ProCyte. The Company is
currently evaluating its distribution options for the Far East.
Merck KGaA
In 1999, ProCyte entered into an exclusive distribution agreement with
Merck (the "Merck Agreement"). Merck is a $5 billion German pharmaceutical
company. The Merck Agreement provides for the registration, promotion and
distribution of ProCyte's wound care products to the chronic wound care
6
markets in Latin America and South Africa. The Merck Agreement has a ten-year
term and establishes milestones and minimum purchase quantities that are
contingent upon product registration in certain countries. Iamin(R) Hydrating
Gel has been registered in Brazil, Mexico and Peru, and the product registration
process is currently nearing completion in several other countries. Initial
shipments to Merck are expected in the second half of 2000.
Amuchina SpA
In 1999, ProCyte entered into a an exclusive distributor agreement with
Amuchina ("the "Amuchina Agreement") providing for distribution of Iamin(R)
Hydrating Gel and OsmoCyte(R) Pillow Wound Dressings in Italy and France.
ProCyte also gave Amuchina a right of first negotiation for other countries
within the European Economic Community contingent upon obtaining CE Mark
registration. The Amuchina Agreement provides for minimum purchases once the
registration is complete.
Other Business Relationships
During 1999, the Company signed a distribution agreement with Symacon
Medical Products of Toronto, Canada, covering the Company's skin care products
in the Canadian dermatology and cosmetic surgery markets. The Company also
signed a supply agreement with Advicare, Inc. during 1999 making it the primary
Advicare Supplier of skin health and hair care products.
ProCyte intends to establish corporate alliances with others that are
capable of pursuing registrations of the Company's copper-based wound care
products and technology. There can be no assurance that the Company will be
successful in attracting or retaining corporate alliances on terms favorable to
the Company, whether for the Company's wound care technology or otherwise, that
the interests and motivations of any corporate partner or licensee would be or
remain consistent with those of the Company, or that such partners or licensees
would successfully perform the necessary technology transfer, clinical
development, regulatory compliance, manufacturing, marketing or other
obligations. Suspension or termination of agreements with the Company's current
or future distributors, partners or licensees could have a material adverse
affect on the development of the Company's proposed products and could
materially adversely affect the Company's financial position. See "Important
Factors Regarding Forward-Looking Statements - Uncertainty of Corporate
Alliances."
Employees
At December 31, 1999, the Company had 41 full-time employees, of whom two
hold Ph.D. degrees. At year-end, three employees were engaged in product
development, 15 in manufacturing, distribution and quality control, 17 in sales
and marketing, and six in accounting, finance and administration. The Company
expects to increase staff in 2000 only in marketing and customer contact areas
including sales and customer service. The Company has arranged with an
independent field sales organization to obtain several additional dedicated
part-time sales representatives on a contract basis in markets not covered by
the Company's sales force. The Company believes that its relations with its
employees are good.
Important Factors Regarding Forward-Looking Statements
History of Operating Losses; Accumulated Deficit; Fluctuations in Future
Earnings
The Company launched its first product based on its proprietary copper
peptide technology in 1996, launched additional products based on that
technology between 1997 and 1999, and will continue to launch new copper peptide
based products in 2000. To date, however, the Company has generated relatively
minor revenues from sales of products based on its proprietary technology, and
there can be no assurance that the Company will be able to generate sufficient
product sales from those products to achieve a profitable level of operations.
As of December 31, 1999, the Company's accumulated deficit was approximately
$72.1 million. The Company expects to incur additional operating losses at
least through 2000. In addition to sales of products based on its proprietary
copper peptide technology, the Company's revenues have historically included
sales of non-proprietary products, license fees and royalties, revenue from
contract research and manufacturing and interest income. The Company's ability
to achieve a consistent, profitable level of operations is dependent in large
part on successfully manufacturing and marketing its products, entering into
agreements with corporate partners for distribution and commercialization of the
Company's products and out-licensing of the Company's products and technology,
of which there can be no assurance. In addition, payments under corporate
partnerships and licensing arrangements, if any, may be subject to significant
fluctuations in both timing and amounts. The time required to reach sustained
profitability is highly uncertain, and there can be no assurance
7
that the Company will be able to achieve profitability on a sustained basis, if
at all. Moreover, if profitability is achieved, the level of profitability
cannot be predicted and may vary significantly from quarter to quarter.
Need for Additional Capital
The Company expects negative cash flow from operations to continue at least
through early 2000. The Company may require substantial additional funds to
expand or enhance its sales and marketing activities and to continue product
development. The Company's future capital requirements will depend on numerous
factors, including: its efforts, and the efforts of its collaborative partners,
to commercialize its products; continued progress in the Company's research and
development programs; the results of research and development activities;
relationships with existing and future corporate collaborators, if any;
competing technological and market developments; the costs involved in filing,
prosecuting and enforcing patent claims; the time and costs of commercialization
activities; and other factors. At December 31, 1999, the Company had cash and
cash equivalents of $3.9 million. The Company estimates that at its planned
rate of spending, its existing cash and cash equivalents and the interest income
thereon will be sufficient to meet its capital requirements at least for the
next twelve months. There can be no assurance that the underlying assumed
levels of revenue and expense will prove accurate. Whether or not these
assumptions prove to be accurate, the Company may need to raise additional
capital. The Company may be required to seek additional funding through public
or private financing, including equity financing, or through collaborative
arrangements. Adequate funds for these purposes, whether obtained through
financial markets or from collaborative or other arrangements with corporate
partners or other sources, may not be available when needed or may not be
available on terms favorable to the Company, if at all. If issuing equity
securities raises additional funds, dilution to existing shareholders will
result. In addition, in the event that additional funds are obtained through
arrangements with collaborative partners, such arrangements may require the
Company to relinquish rights to certain of its technologies or potential
products that it would otherwise seek to develop or commercialize itself. If
funding is insufficient at any time in the future, the Company may be required
to delay, scale back or eliminate some or all of its marketing and research and
development programs, to sell assets, or to license third parties to
commercialize products or technologies that the Company would otherwise seek to
develop itself. Furthermore, the terms of any such license agreements or asset
sales might be less favorable than if the Company were negotiating from a
stronger position. Moreover, if funding is insufficient at any time in the
future, and the Company's existing funds are depleted, the Company may be
required to cease operations.
Uncertainties Related to the Sale of the Manufacturing Operation
Since inception, a substantial portion of the Company's revenues have been
derived from contract manufacturing as the Company has sought to more fully
utilize its existing facility's capacity while its own products were under
development. During 1999 the Company retained a financial advisor to assist it
with the sale or spin-off of the manufacturing operation in order to tighten the
Company's focus on its core business. On March 29, 2000 ProCyte agreed to sell
the assets and liabilities related to its manufacturing operation for $2.5
million to a group including a member of ProCyte management. The transaction is
expected to close by May 30, 2000 and is subject to negotiation of a definitive
agreement and contingent upon availability of financing and ratification by the
ProCyte Board of Directors. A provision of $1.9 million has been recorded at
December 31, 1999 as an estimate of the loss that will be realized upon
consummation of this transaction. The manufacturing operation includes the
substantial majority of the fixed assets of the Company and the lease obligation
for the Company's facility. The manufacturing operation generated contract
revenues of $762,320, $436,167 and $705,706 in 1999, 1998 and 1997,
respectively. Expenses related to the manufacturing operation were approximately
$1,800,000 in 1999, $2,050,000 in 1998, and $2,850,000, in 1997. Such a
transaction may not be feasible on a timely basis or may not be feasible with
terms acceptable to the Company, and there can be no assurance that such a
transaction will ever be successfully completed.
Uncertainties Related to Product Development
From the Company's inception in 1986 until it launched its first commercial
product in 1996, substantially all of its resources were dedicated to the
research and development of wound healing and hair
8
health applications of its topically administered copper peptide compounds. To
date, the Company has generated relatively minor revenues from sales of products
based on its proprietary copper peptide technology. There can be no assurance
that the Company's current products or potential products will be successfully
commercialized and accepted for use by physicians, healthcare providers and
consumers.
The Company is dependent upon the successful development of its current and
potential products. Development of the Company's potential products is highly
uncertain, and unanticipated developments, clinical and regulatory delays,
adverse or unexpected side effects or inadequate therapeutic efficacy could slow
or prevent the successful completion of the Company's product and technology
development. There can be no assurance that the Company will obtain regulatory
approval, that an approved product can be produced in commercial quantities at
reasonable costs or gain acceptance for use by physicians, healthcare providers
and consumers or that any potential products will be successfully marketed at
prices that would permit the Company to operate profitably. The failure of any
of these would have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on and Management of Existing and Future Corporate Alliances
The successful commercialization of the Company's existing and future
products will depend upon ProCyte's ability to enter into and effectively manage
corporate partnerships. ProCyte currently promotes certain of its products
through specialty distributors. Other products and technology are licensed for
incorporation into products sold by others.
There can be no assurance that any of the Company's collaborators will
perform their obligations under their agreements with the Company or that the
Company's products or the products of others that incorporate the Company's
products or technology, will be successfully commercialized, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
9
Furthermore, there can be no assurance that the Company will be successful
in establishing corporate alliances in the future, or that it will be successful
in maintaining existing or any future corporate alliances. Moreover, there can
be no assurance that the interests and motivations of any corporate partner,
distributor or licensee would be or remain consistent with those of the Company,
or that such partners, distributors or licensees would successfully perform the
necessary technology transfer, clinical development, regulatory compliance,
manufacturing, marketing or other obligations. Failure of any of the foregoing
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Uncertainty of Patent Position and Proprietary Rights
The patent positions of biotechnology, medical device and healthcare
products companies are often uncertain and involve complex legal and factual
questions, and the breadth of claims allowed in such patents cannot be
predicted. In addition, there is a substantial backlog of patents at the US
Patent and Trademark Office that may delay the review and the potential issuance
of patents. The Company's success will depend to a significant degree on its
ability to obtain patents and licenses to patent rights, to maintain trade
secrets and to operate without infringing on the proprietary rights of others,
both in the United States and in other countries. The failure of the Company or
its licensors to obtain and maintain patent protection for the Company's
technology could have a material adverse effect on the Company.
ProCyte's success depends, in part, upon its ability to protect its
products and technology under intellectual property laws in the United States
and abroad. As of February 29, 2000 the Company had 21 issued US patents
expiring between 2005 and 2017 and numerous issued foreign patents and patent
registrations. The patents relate to use of the Company's copper-based
technology for a variety of healthcare applications, and to the composition of
certain biologically active, synthesized compounds. The Company's strategy has
been to apply for patent protection for certain compounds and their discovered
uses that are believed to have potential commercial value in countries that
offer significant market potential. There can be no assurance that patent
applications relating to the technology used by the Company will result in
patents being issued. There can be no assurance that any patent issued to the
Company will not be subjected to further proceedings limiting the scope of the
rights under the patent or that such patent will provide a competitive
advantage, or will afford protection against competitors with similar
technology, or will not be successfully challenged, invalidated or circumvented
by competitors.
The Company's processes and potential products may conflict with patents
that have been or may be granted to competitors and others. As the
biotechnology, medical device and healthcare industries expand and more patents
are issued, the risk increases that the Company's processes and potential
products may give rise to claims that they infringe the patents of others. Such
other persons could bring legal actions against the Company claiming damages and
seeking to enjoin clinical testing, manufacturing and marketing of the affected
product or use of the affected process. Litigation may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company or to determine the enforceability, scope and validity of proprietary
rights of others. If the Company becomes involved in such litigation, it could
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. In addition to any
potential liability for significant damages, the Company could be required to
obtain a license to continue to manufacture or market the affected product or
use the affected process. Costs associated with any licensing arrangement may
be substantial and could include ongoing royalties. There can be no assurance
that any license required under any such patent would be made available to the
Company on acceptable terms, if at all. If such licenses could not be obtained
on acceptable terms, the Company could be prevented from manufacturing and
marketing existing or potential products. Accordingly, an adverse determination
in such litigation could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies upon unpatented proprietary technology. There can
be no assurance that the Company can meaningfully protect its rights in such
unpatented technology, that any obligation to maintain the confidentiality of
such proprietary technology will not be breached by employees, consultants,
collaborators or others or that others will not independently develop or acquire
substantially equivalent technology. To the extent that corporate partners or
consultants apply Company technological information independently developed
10
by them or by others to Company projects or apply Company technology or know-how
to other projects, disputes may arise as to the ownership of proprietary rights
to such information. Any failure to protect unpatented proprietary technology or
any breach of obligations designed to protect such technology or development of
equivalent technology may have a material adverse effect on the Company's
business, financial condition and results of operations.
Uncertainty of Government Regulatory Requirements
The manufacture and marketing of ProCyte's products and its research and
development activities in general are subject to extensive regulation in the
United States by the federal government, principally by the FDA, and in other
countries by similar health and regulatory authorities. The Federal Food, Drug
and Cosmetic Act, and the regulations promulgated thereunder, and other federal
and state statutes govern, among other things, the testing, manufacture, safety,
labeling, storage, record-keeping, advertising and promotion of cosmetic
products and medical devices. Product development and approval or clearance
within the regulatory framework requires a number of years and involves the
expenditure of substantial resources.
In order to obtain FDA clearance to market a new device in the United
States for use in humans, it is necessary to proceed through several stages of
product testing, including research and development, clinical trials, and the
filing of a product 510(k) medical device application with the FDA to obtain
authorization to market a product. The Company's products and product
candidates may be regulated by any of a number of divisions of the FDA. The
process of obtaining and maintaining regulatory approvals for the manufacturing
or marketing of the Company's existing and potential products is costly and
time-consuming and is subject to unanticipated delays. Accordingly delays,
rejections or unexpected costs based on changes in the policy or regulations of
the FDA or foreign governmental authorities during the period of product
development and regulatory review, which changes may result in limitations or
restrictions on the Company's ability to utilize its technology or develop
product candidates. Regulatory requirements ultimately imposed could also
adversely affect the ability of the Company to clinically test, manufacture or
market products. Even if regulatory approval of a potential product is
obtained, such approval may entail limitations on the indicated uses for which
such product may be marketed, which may restrict the patient population for
which any product may be prescribed. In addition, a marketed product is subject
to continual FDA review. Later discovery of previously unknown problems or
failure to comply with the applicable regulatory requirements may result in
restrictions on marketing a product or withdrawal of the product from the
market, as well as possible criminal or civil sanctions.
In the United States, products that do not seek to make effectiveness
claims based on human clinical evaluation may be subject to review and
regulation under the FDA's cosmetic or 510(k) medical device guidelines.
Similar guidelines exist for such products in other countries. Such products,
which include wound care dressings and certain ointments and gels, must show
safety and substantial equivalency with predicate products already cleared to be
marketed by the FDA. There can be no assurance that such product applications
submitted to the FDA or similar agencies in other countries will receive
clearance to be marketed, or that the labeling claims sought will be approved,
or that, if cleared, such products will be commercially successful.
In addition to obtaining approval or clearance from the FDA or foreign
regulatory bodies to market a product, the prospective manufacturer's quality
control and manufacturing procedures must conform to current good manufacturing
practices ("cGMP") guidelines, or ISO 9000 standards, when appropriate. In
complying with these regulations, which are subject to change at any time
without notice to the Company, ProCyte must continue to expend time, effort and
financial resources in production and quality control. In addition, ProCyte's
manufacturing plant is subject to the regulations of and inspections by other
foreign, federal, state or local agencies, such as local and regional water and
waste treatment agencies, and state and federal safety and health agencies.
There can be no assurance that the Company's manufacturing facility or its
manufacturing operations will meet or continue to meet all appropriate
guidelines or to pass inspections by any government agency.
The Company also is or may become subject to various other federal, state,
local and foreign laws, regulations and policies relating to, among other
things, safe working conditions, good laboratory practices, and
11
the use and disposal of hazardous or potentially hazardous substances used in
connection with research, development and manufacturing.
Failure to obtain regulatory approvals for its product candidates or to
attain or maintain compliance with cGMP or other manufacturing requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Intense Competition
Competition in the wound care, skin health and hair care markets is
intense. The Company's competitors include well-established pharmaceutical,
cosmetic and healthcare companies such as Bristol Myers Squibb's ConvaTec and
BioMatrix divisions, Johnson and Johnson, Obagi and Allergan. These competitors
have substantially more financial and other resources, larger research and
development staffs, and more experience and capabilities in researching,
developing and testing products in clinical trials, in obtaining FDA and other
regulatory approvals and in manufacturing, marketing and distribution than the
Company. In addition, a number of smaller companies are developing or marketing
competitive products, some of which may have an entirely different approach than
products being marketed or developed by the Company. The Company's competitors
may succeed in developing and commercializing products or obtaining patent
protection or other regulatory approvals for products more rapidly than the
Company. If the Company is successful in commercializing its products, it will
be required to be competitive with respect to manufacturing efficiency and
marketing capabilities, areas in which it has very limited experience. The
Company's competitors may develop new technologies and products that are
available for sale prior to the Company's potential products or that are more
effective than the Company's existing or potential products. In addition,
competitive products may be manufactured and marketed more successfully than the
Company's potential products. Such developments could render the Company's
existing or potential products less competitive or obsolete and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The contract manufacturing service business is also highly competitive.
Competitors include major chemical and pharmaceutical companies, as well as
specialized biotechnology firms, smaller contract chemical manufacturers and
some universities. Many of these companies or institutions have greater
financial, technical and marketing resources than the Company.
Potential Volatility of Stock Price; Bulletin Board Listing
The market prices for securities of healthcare, medical dressings,
pharmaceutical and biotechnology companies are subject to volatility, and the
market has from time to time experienced significant fluctuations that are
unrelated to the operations of the Company. ProCyte's market price has
fluctuated over a wide range since the Company's initial public offering in
1989, and since March 25, 1999 the Company's common stock has traded on the NASD
OTC bulletin board. Because real-time price information may not be available
for bulletin board securities, an investor is likely to find it more difficult
to dispose of, or to obtain accurate quotations on the market value of, the
Company's securities than if they were listed on a national exchange. In
addition, purchases and sales of the Company's securities may become subject to
Rule 15g-9 of the Exchange Act which imposes various sales practice requirements
on broker-dealers, or to the "penny stock" rules, either of which would likely
reduce the level of trading activity in the secondary market for the Company's
securities and make selling the securities more difficult for an investor.
Announcements concerning the Company or its competitors, including
fluctuations in operating results, research and development program direction,
results of clinical trials, addition or termination of corporate alliances,
technology licenses, clearance or approval to market products, announcements of
technological innovations or new products by the Company or its competitors,
changes in government regulations, healthcare reform, developments in patent or
other proprietary rights of the Company or its competitors, litigation
concerning business operations or intellectual property, or public concern as to
safety of products, as well as changes in general market conditions and mergers
and acquisitions, may have a significant effect on the market price of ProCyte's
common stock.
12
Item 2. Properties
At December 31, 1999 the Company leased approximately 33,000 square feet of
production, laboratory and office space at its facility in Redmond, Washington
under a ten-year lease.
Item 3. Legal Proceedings
The Company is not a party to any litigation that would have a material
adverse effect on the Company or its business.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the shareholders for vote during the fourth
quarter of 1999.
PART II
Item 5. Market for the Company's Common Stock and Related Shareholder Matters
Until March 24, 1999, the Company's common stock was traded on the NASDAQ
National Market; subsequent to that date it has traded on the NASD over the
counter bulletin board under the symbol "PRCY." The following table sets forth
the high and low bid prices for the Company's common stock for the periods
indicated. Such prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
High Low
--------------------------------------
1998
First quarter 1 23/32 7/8
Second quarter 1 7/8 13/16
Third quarter 1 3/16 13/16
Fourth quarter 25/32 11/32
1999
First quarter 15/16 15/32
Second quarter 25/32 7/16
Third quarter 13/16 9/16
Fourth quarter 7/8 15/32
2000
Through March 15 2 26/32 3/4
At the close of business on March 15, 2000, there were 458 holders of
record of the Company's common stock. ProCyte has not paid any cash dividends
on its common stock and does not intend to pay cash dividends in the foreseeable
future.
13
Item 6. Selected Financial Data
1999 1998 1997 1996 1995
Revenue.................. $ 4,694,966 $ 2,720,444 $ 949,148 $ 1,653,013 $ 1,688,152
Cost and expenses........ 10,259,357 7,726,233 8,305,420 12,633,076 16,714,991
Interest and other income 248,929 538,842 907,628 1,622,944 2,631,904
Net loss................. (5,315,462) (4,466,947) (6,448,644) (9,357,119) (12,394,935)
Net loss per common share
$(0.35) $(0.32) $(0.48) $(0.71) $(0.95)
Weighted average number
of common shares used
in computing net loss
per common share......... 14,999,496 14,117,485 13,326,929 13,210,036 13,100,818
Cash, cash equivalents
and short term
investments.............. $ 3,883,187 $ 6,938,981 $12,866,617 $20,846,836 $ 36,077,520
Total assets............. 13,446,628 18,302,378 21,310,959 27,963,658 45,093,558
Total liabilities........ 558,091 622,828 694,462 1,124,881 9,209,004
Stockholders' equity..... $12,888,537 $17,679,550 $20,616,497 $26,838,777 $ 35,884,554
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Corporate Overview
During 1999, ProCyte continued to develop and market its skin health and
hair care products, introduced new packaging for its therapeutic skin health
products, introduced a line of new anti-aging products and continued to work
with its licensees to promote sales of its wound care products. As the
Company's product line has expanded, it has continued to focus its direct
efforts on specialty skin health and wound care sectors, marketing its products
primarily to dermatologists, plastic surgeons and cosmetic surgeons.
The Company has continued its approach to marketing the GraftCyte(TM) line
of copper peptide containing wound care products for use following hair
restoration surgery. ProCyte is the only company to provide a line of products
that address the importance of wound repair in the hair transplant procedure.
The Company's GraftCyte(TM) products are promoted through its own sales force
and specialty distributors.
The Company has also continued to emphasize its Complex Cu3(TM) Intensive
Repair Creme, Cleanser and Hydrating Gel products used to treat patients
following chemical peels, microdermabrasion and laser treatments, as a
complement to its line of prescription and over-the-counter topical drugs, sun
protection and anti-aging skin care products. The Complex Cu3(TM) products
provide a comprehensive approach to post-procedure care and allow the Company to
differentiate its line of skin care products on the basis of its proprietary
copper peptide technology. During the first quarter of 1999, ProCyte began
shipping its skin care products in redesigned packaging including a new icon and
the tagline - "Healing the Wounds of Time(TM)." Also during the first quarter of
1999 the Company signed a distribution agreement with Sigmacon Medical Products
of Toronto, Canada, covering the Company's skin and hair care products in the
Canadian dermatology and cosmetic surgery markets. During the second quarter of
1999, the Company acquired NextDerm, Inc. and with it the rights to several skin
care products in various stages of development. Also at the end of the second
quarter of 1999, the Company launched its Neova(TM) Therapy line of anti-aging
products in response to demand from physician customers. These products are
distributed using the Company's own sales force, contract sales representatives
and specialty distributors. During the third quarter of 1999, ProCyte negotiated
a supply agreement with Advicare, Inc., a newly formed company offering products
and services to plastic and cosmetic surgeons. The agreement makes ProCyte the
primary Advicare supplier of skin health and hair care products. ProCyte
received the initial order for products sold under the agreement during the
fourth quarter of 1999, but did not ship the order prior to December 31, 1999.
In connection with this agreement, Susan Browner, President
14
of ProCyte's HumaTech Division, and Ken Tapman, ProCyte Vice President of
Strategic Development, left ProCyte to join Advicare. Ms. Browner also resigned
from the ProCyte Board of Directors.
ProCyte's Bard Agreement gives Bard the right to distribute the Company's
wound care products, including Iamin(R) Hydrating Gel, Iamin(R) Wound Cleanser
and OsmoCyte(R) Pillow Dressings, in the hospital, nursing home and extended
care markets in the United States. The exclusive nature of this agreement was
contingent upon on increasing minimum annual purchase requirements, and Bard's
failure to meet the requirements for 1999 gave ProCyte the right to terminate
the Agreement. The Company has chosen to continue the Bard Agreement for 2000
on a non-exclusive basis while it evaluates its options in this connection.
Similarly, ProCyte had a distribution agreement with Tanox for Iamin(R)
Hydrating Gel and OsmoCyte(R) Pillow Wound Dressings in China and Taiwan which
was terminated in March 2000 with product registrations reverting to ProCyte
because the minimum annual purchase requirements were not met. Additionally,
ProCyte has a distribution agreement with Merck for Iamin(R) Hydrating Gel in
Latin America and South Africa, and with Amuchina for Iamin(R) Hydrating Gel and
OsmoCyte(R) Pillow Wound Dressings in France and Italy. The Company has also
given Amuchina a right of first negotiation on distribution rights for other
European countries, contingent upon obtaining CE Mark registration. Sale of
Iamin(R) Hydrating Gel has been approved in China, Brazil, Mexico and Peru, and
the process of obtaining approval in various other Latin American nations and in
Europe is nearing completion.
The Company markets its Tricomin(R) line of triamino copper complex
containing hair care products primarily to physicians. Tricomin(R) shampoos,
conditioners, and follicle therapy solution are positioned to participate in the
rapidly growing $1.5 billion US hair care market as a program for the
maintenance of thinning hair for both men and women. Hair follicles require
high concentrations of biological copper, and the Tricomin(R) products deliver
copper along with amino acids for nourishing and stimulating the hair and scalp
for improved health, strength, and appearance. The Company has initiated a
series of consumer advertisements focused specifically on the hair care needs
and concerns of the aging babyboomer population and has begun selling the
Tricomin(R) products directly to consumers through its web site at
www.tricomin.com.
Operating Losses
The Company has incurred operating losses since its inception due to the
marketing expense of product launches and the costs of supporting research,
development and clinical studies of its proprietary technology at a time when
sales of the Company's products and other revenues do not yet exceed operating
expenses. At December 31, 1999, the Company's accumulated deficit was
approximately $72.1 million. The Company expects to incur additional operating
losses until its product lines have been further expanded and have achieved
market acceptance.
Revenue
During the year ended December 31, 1999, ProCyte generated total operating
revenue of $4,694,966 from product sales, contract manufacturing and royalties.
Comparable revenues were $2,720,444 for the year ended December 31, 1998 and
$949,148 for the year ended December 31, 1997.
Revenue from product sales was $3,657,646 during the year ended December 31,
1999, up $1,479,862 or 68% from $2,177,784 during the comparable period in 1998.
Product sales in 1997 were $184,034. The increase for both years was primarily
a result of the expanded product line obtained through the acquisition of
HumaTech Corporation on April 27, 1998 and the introduction of new products
incorporating the Company's proprietary copper peptide technology
Revenue from contract manufacturing services was $762,320 during the year
ended December 31, 1999, an increase of $326,153 or 75% from $436,167 during the
comparable period in 1998. Revenue from contract manufacturing in 1997 was
$705,706. The increase during 1999 reflects additional contracts undertaken for
customers. The decrease during 1998 reflects the completion of a significant
contract in 1997 and regulatory delays experienced by the Company's then largest
contract manufacturing customer. The Company has agreed
15
to sell its contract manufacturing operations and the facility used for such
purposes. See "Important Factors Regarding Forward-Looking Statements -
Uncertainties related to the Sale of the Manufacturing Operation."
Revenue from royalties and licenses in 1999 includes fees from the product
study and option agreements with Neutrogena and royalties from the license
agreement with Osmotics. Royalties in 1998 and 1997 were primarily from
Osmotics.
Interest income was $248,929 during the year ended December 31, 1999, down
$289,913 or 54% from $538,842 during the comparable period in 1998. Interest
income was $907,628 in 1997. The decrease in interest income for both periods
was primarily a result of reduced funds available for investment.
Expenses
The cost of product sales was $1,376,156 (37.6% of product sales) for the
year ended December 31, 1999, an increase of $412,423 or 43% from $963,733
(44.3% of product sales) during the comparable period in 1998. In 1997 the cost
of product sales was $449,261 (244.1% of product sales). The increase in the
cost of products sold in 1999 reflects the growth in the number units sold and
the change in the mix between sales of generally lower margin skin health
products and generally higher margin products based on proprietary technology.
Cost of product sales in 1997 included a provision for excess and obsolete
inventory.
Selling, general and administrative expenses were $5,238,780 during the
year ended December 31, 1999, an increase of $898,356 or 20.7% from $4,340,424
during the comparable period in 1998. Selling, general and administrative
expenses in 1997 were $4,481,744. The increase during 1999 reflects the higher
level of sales support required for new products and the cost of the expanded
sales force. The decrease in 1998 included the effect of decreased staffing
levels and consolidated operations.
Research and development expenses were $1,744,421 during the year ended
December 31, 1999, down $677,655 or 28% from $2,422,076 during the comparable
period in 1998. Research and development expenses in 1997 were $3,774,415. The
decrease in both periods resulted from the completion of research projects and
studies and a scaling back of research activities.
Expenses in 1999 also reflected the decision made by the Company to sell
its contract manufacturing operations and the facility used for such purposes.
See "Important Factors Regarding Forward-Looking Statements - Uncertainties
related to the Sale of the Manufacturing Operation."
Liquidity and Capital Resources
The Company has relied primarily on equity financing, product sales,
contract manufacturing, interest income and corporate partnerships to fund its
operations and capital expenditures. At December 31, 1999, the Company had
approximately $3.9 million in cash, cash equivalents and securities available
for sale, compared to $6.9 million at December 31, 1998. The $3 million
decrease in cash primarily reflects the $2.75 million cash outflow from
operations and the payment of $250,000 for the acquisition of NextDerm. The
Company expects that its operating cash needs will continue at similar levels in
future periods until the sale of the manufacturing facility is concluded.
The increase of $65,147 in accounts receivable from December 31, 1998 to
December 31, 1999 reflects increased sales volume offset by increased collection
efforts. The increase in other current assets from December 31, 1998 to
December 31, 1999 is primarily a function of the timing of payments. The
decrease in accrued liabilities reflects the departure of two senior executives
and the cancellation of their earn-out agreements.
Since March 25, 1999, the Company's common stock has traded on the NASD OTC
bulletin board. The Company's ability to raise funds is likely to be adversely
affected unless it is first able to obtain a listing on a national securities
exchange.
16
The Company believes that its existing cash and cash equivalents and
interest thereon, will be sufficient to meet its working capital requirements
for at least the next twelve months. However, there can be no assurance that
the underlying assumed levels of revenue and expense will prove accurate.
Although the Company believes that its existing and potential products are
promising, it does not know whether any of such products will prove commercially
viable. In any event, substantial additional funds will be needed to
commercialize existing products and to continue development of potential
products. The Company will depend upon product revenues, contract
manufacturing, asset redeployment, interest income, equity financing, and
funding from corporate partnerships to meet its future capital needs. There can
be no assurance that additional funds will be available as needed or on terms
that are acceptable to the Company. If the Company is unable to obtain
sufficient funds to satisfy its cash requirements, the Company will be required
to delay, reduce or eliminate some or all of its research and development
activities and manufacturing and administrative programs, or dispose of assets
or technology. See "Important Factors Regarding Forward-Looking Statements -
Need for Additional Capital" and "Important Factors Regarding Forward-Looking
Statements - Uncertainties related to Sale of Manufacturing Operations".
Year 2000 Software Issue
The Company has not experienced any disruption to its business as the
result of Year 2000 problems.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
ProCyte did not own any derivative financial instruments as of December 31,
1999. The Company is debt-free and is exposed to interest rate risk only to the
extent that it has invested idle cash balances. At December 31, 1999 such
balances were invested in a United States Treasury money market fund. ProCyte
employs established policies and procedures to manage its exposure to changes in
the market risk of its investments. The Company believes that the market risk
arising from holdings of its financial instruments is not material.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Schedules Page
Balance Sheets as of December 31, 1999 and 1998 18
Statements of Operations for the years ended December 31, 1999, 1998, and 1997 19
Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997 20
Statements of Stockholders' Equity for the years ended December 31, 1999, 1998, and 1997 21
Notes to Financial Statements 22
Report of Independent Accountants 29
Note: All schedules have been omitted because of the absence of conditions
under which they are required or because the required information is
included in the Financial Statements or notes thereto.
17
ProCyte Corporation
Balance Sheets
Assets December 31, 1999 December 31, 1998
------------------------------------------------------
Current Assets
Cash and cash equivalents......................................... $ 3,883,187 $ 2,003,896
Securities available for sale..................................... - 4,935,085
Accounts receivable, net of reserve............................... 757,343 692,196
Finished goods inventory, net of reserve.......................... 666,203 489,333
Other............................................................. 147,553 85,634
---------------------------------------
Total current assets.............................................. 5,454,286 8,206,144
Raw materials and work in process, net of reserve.................. 1,572,655 1,493,557
Property and Equipment
Equipment......................................................... 2,518,151 2,658,276
Leasehold improvements............................................ 5,513,850 5,513,850
Less reserve for loss on disposition of manufacturing operation... (1,900,000) -
Less accumulated depreciation and amortization.................... (3,385,628) (3,008,159)
---------------------------------------
Property and equipment, net....................................... 2,746,373 5,163,967
Intangible Assets
Patents........................................................... 290,930 290,930
Goodwill.......................................................... 3,675,512 3,150,000
Less accumulated amortization..................................... (525,354) (281,829)
---------------------------------------
Intangible assets, net............................................ 3,441,088 3,159,101
Note Due From Employee............................................. 108,435 103,504
Security Deposits.................................................. 123,791 176,105
---------------------------------------
Total Assets....................................................... $ 13,446,628 $ 18,302,378
=======================================
Liabilities and stockholders' equity
Current Liabilities
Accounts payable.................................................. $ 184,167 $ 107,726
Accrued liabilities............................................... 231,889 389,885
---------------------------------------
Total current liabilities......................................... 416,056 497,611
Deferred Lease Payments............................................ 142,035 125,217
Commitments........................................................ - -
Stockholders' Equity
Preferred stock $.01 par value: 2,000,000 shares authorized; no
shares issued or outstanding..................................... - -
Common stock $.01 par value: 30,000,000 shares authorized;
15,418,722 and 14,489,803 shares issued and outstanding at
December 31, 1999 and 1998, respectively......................... 154,187 144,898
Additional paid-in capital........................................ 84,835,742 84,320,582
Accumulated deficit............................................... (72,101,392) (66,785,930)
---------------------------------------
Total stockholders' equity........................................ 12,888,537 17,679,550
---------------------------------------
Total Liabilities and Stockholders' Equity......................... $ 13,446,628 $ 18,302,378
=======================================
See notes to financial statements
18
ProCyte Corporation
Statements of Operations
Twelve Months Ended December 31,
1999 1998 1997
--------------------------------------------
Revenues
Product sales............................................ $ 3,657,646 $ 2,177,784 $ 184,034
Contract manufacturing................................... 762,320 436,167 705,706
Licenses and royalties................................... 275,000 106,493 59,408
--------------------------------------------
Total revenue............................................ 4,694,966 2,720,444 949,148
Cost of product sales.................................... 1,376,156 963,733 449,261
--------------------------------------------
Operating Expenses
Selling, general & administrative........................ 5,238,780 4,340,424 4,481,744
Research & development................................... 1,744,421 2,422,076 3,774,415
Provision for loss on disposition of manufacturing
operation............................................... 1,900,000 - -
Litigation settlement.................................... - - (400,000)
--------------------------------------------
Total expenses........................................... 8,883,201 6,762,500 7,856,159
--------------------------------------------
Loss from operations...................................... (5,564,391) (5,005,789) (7,356,272)
Interest and other income................................. 248,929 538,842 907,628
--------------------------------------------
Net loss.................................................. ($5,315,462) ($4,466,947) ($6,448,644)
============================================
Net loss per common share................................. ($0.35) ($0.32) ($0.48)
Weighted average number of common shares used in
computing net loss per common share...................... 14,999,496 14,117,485 13,326,929
See notes to financial statements
19
ProCyte Corporation
Statements of Cash Flows
Twelve Months Ended December 31,
OPERATING ACTIVITIES 1999 1998 1997
--------------------------------------------
Net Loss......................................................... ($5,315,462) ($4,466,947) ($6,448,644)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for disposition of manufacturing operation............ 1,900,000 - -
Depreciation and amortization................................... 822,773 786,970 746,329
Non-cash expense related to stock-based compensation............ 274,449 30,000 226,366
Loss (gain) on sale of securities............................... 6,980 (683) (765)
Loss (gain) on sale of property & equipment.................... 13,510 - (58,643)
Changes in assets and liabilities:
Increase in finished goods inventories........................ (176,870) (73,536) (235,603)
(Increase) decrease in raw materials and work in process...... (79,098) 147,971 (1,094,982)
Increase in accounts receivables.............................. (65,147) (368,949) (59,616)
(Increase) decrease in other current assets................... (61,919) 99,253 15,062
Increase (decrease) in accounts payable....................... 76,441 (96,038) (131,079)
Decrease in accrued liabilities............................... (157,996) (80,758) (309,247)
Increase in note due from employee............................ (4,931) (103,504) -
Increase in deferred lease payments........................... 16,818 105,162 9,907
--------------------------------------------
Net cash used in operating activities........................... (2,750,452) (4,021,059) (7,340,915)
--------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of stock................................. - - -
--------------------------------------------
Net cash provided by financing activities....................... - - -
--------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment.............................. (66,278) (190,554) (586,740)
Proceeds from sale of property and equipment.................... 602 - 171,671
Purchase of securities.......................................... - (5,234,935) (45,652,513)
Proceeds from sale or maturity of securities.................... 4,928,105 10,163,626 54,832,146
Purchase of NextDerm, Inc. (1999) and purchase of assets of
HumaTech Corporation (1998).................................... (285,000) (1,925,000) -
Decrease (increase) in security deposits........................ 52,314 208,294 (225,000)
--------------------------------------------
Net cash provided by investing activities.................... 4,629,743 3,021,431 8,539,564
--------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 1,879,291 (999,628) 1,198,649
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF PERIOD...................................... 2,003,896 3,003,524 1,804,875
--------------------------------------------
AT END OF PERIOD............................................ $ 3,883,187 $ 2,003,896 $ 3,003,524
============================================
See notes to financial statements
20
ProCyte Corporation
Statements of Stockholders' Equity
Common Stock
------------ Additional Accumulated
Shares Par Value Paid-in Capital Deficit Total
------------------------------------------------------------------------------------------
Balance, January 1, 1997 13,277,558 $132,776 $82,576,340 ($55,870,339) $26,838,777
Stock issued at $2.59 per share to
Hymedix.............................. 87,400 874 225,490 - 226,364
Net loss.............................. - - - (6,448,644) (6,448,644)
-----------------------------------------------------------------------------------------
Balance, December 31, 1997 13,364,958 133,650 82,801,830 (62,318,983) 20,616,497
------------------------------------------------------------------------------------------
Shares issued at $1.38 per share to
acquire HumaTech Corporation......... 1,088,435 10,884 1,489,116 - 1,500,000
Shares issued under the 1998
Non-Employee Director stock plan..... 36,410 364 29,636 - 30,000
Net loss.............................. - - - (4,466,947) (4,466,947)
------------------------------------------------------------------------------------------
Balance, December 31, 1998 14,489,803 144,898 84,320,582 (66,785,930) 17,679,550
------------------------------------------------------------------------------------------
Shares issued at $0.55 per share to
settle contingent obligation to
sellers of HumaTech Corporation...... 236,748 2,367 127,965 - 130,332
Shares issued at $0.42 per share to
acquire NextDerm, Inc................ 600,000 6,000 244,000 - 250,000
Issuance of warrants and options to
non-employees in exchange for - - 90,117 - 90,117
services.............................
Shares issued under the 1998
Non-Employee Director stock plan..... 92,171 922 53,078 - 54,000
Net Loss.............................. - - - (5,315,462) (5,315,462)
------------------------------------------------------------------------------------------
Balance, December 31, 1999 15,418,722 $154,187 $84,835,742 ($72,101,392) $12,888,537
==========================================================================================
See notes to financial statements
21
ProCyte Corporation
Notes to Financial Statements
Note 1. Description of Business and Summary of Significant Accounting Policies
Nature of Operations
ProCyte Corporation ("ProCyte" or "the Company") is a health care company
which develops, manufactures and markets products for wound care, skin health
and hair care, many of which incorporate the Company's proprietary copper
peptide compounds or its patented hydropolymer technology.
Summary of Significant Accounting Policies
Revenue recognition
Product revenues are recognized when products are shipped, contract
manufacturing revenues are recognized when services are performed, and license
fees and royalties are recognized when earned.
Research and development
Research and development costs are expensed as incurred. The Company
enters into contracts with outside laboratories for certain studies and
recognizes the expenses associated with these contracts when the related
services are performed.
Inventories
Finished goods inventories and raw materials and work in process are stated
at the lower of cost, as determined by the first in, first out method, or
market. Inventory and work in process costs include material, direct labor and
overhead allocated on the basis of full capacity. The Company has provided a
reserve for excess and obsolete finished goods inventory in the amount of
$80,000 at both December 31, 1998 and 1999. Raw materials and work in process
include supplies and compounds that will be utilized after the current operating
cycle.
Depreciation and amortization
Equipment is depreciated using accelerated methods over the estimated
useful lives of the related assets, ranging from 5 to 20 years. Leasehold
improvements are amortized over the term of the facility lease. Patent
application costs are amortized on a straight-line basis over 17 years from the
date the patents are issued. Goodwill is amortized on a straight-line basis
over 15 years.
Net loss per common share
Net loss per common share is based upon the weighted average number of
common shares outstanding. Shares issuable upon the exercise of stock options
are common stock equivalents, but including those shares in the computation of
the basic net loss per common share would have had an anti-dilutive effect and
consequently diluted earnings per share is not presented.
Federal income taxes
The Company uses an asset and liability approach to account for income
taxes as provided for in SFAS 109, Accounting for Income Taxes. Under this
approach deferred tax assets and liabilities are created by differences between
basis for financial and tax reporting. The Company has provided a full reserve
for tax benefits of net operating losses and research and development tax credit
carry forwards.
22
Accounts Receivable
The Company has provided a reserve for uncollectable accounts receivable in
the amount of $65,421 and $54,948 at December 31, 1999 and 1998, respectively.
Bad debt expense amounted to $43,243 and $24,948 in 1999 and 1998, respectively.
Cash equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Such investments are
primarily in a United States Treasury money market fund.
Stock options
The Company has implemented SFAS No. 123, Accounting for Stock-Based
Compensation which mandates a fair value method of accounting for employee stock
options. As permitted by SFAS No. 123, the Company follows the intrinsic value
accounting method for stock options contained in APB Opinion No. 25, Accounting
for Stock Issued to Employees. Under SFAS No. 123 certain disclosures about
stock-based compensation arrangements are made regardless of the method used to
account for them.
Use of estimates in financial statements
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 revenues and expenses during the
reporting period and the reported amounts of assets and liabilities at the date
of the financial statements, particularly with respect to the valuation of
inventory, goodwill and other non-current assets. Actual results could differ
from those estimates.
Reclassifications
Certain reclassifications have been made to items reported in prior years
to conform to the current year's presentation.
Note 2. Raw materials and work in process
Because of federal Food and Drug Administration requirements for the cGMP
manufacturing process, and to take advantage of market conditions and scheduling
efficiencies, the Company procures materials and produces compounds in economic
order quantities. Raw materials and work in process at December 31, 1999 and
1998 consisted of the following:
1999 1998
-------------------------------------
Work in process $1,294,440 $1,326,332
Raw materials 578,215 467,225
Reserve for excess and obsolete items (300,000) (300,000)
-------------------------------------
Total $1,572,655 $1,493,557
=====================================
23
Note 3. Product and geographic information
The Company's wound care products are sold primarily to specialty
distributors and its skin health and hair care products are sold primarily to
physicians. In 1999 a single customer accounted for approximately 54% of
contract manufacturing revenue. During 1998 and 1997, respectively, a different
customer accounted for approximately 12% and 34% of such revenue. One customer,
a wound care products distributor, accounted for approximately 15% of product
sales in 1998. The Company has not made significant sales outside of the United
States and does not currently measure operating performance on a segment basis.
Product sales consisted of the following:
Year Ended December 31,
1999 1998 1997
--------------------------------------------
Wound Care $ 158,348 $ 314,893 $125,815
Skin Health 3,126,306 1,776,830 58,219
Hair Care 372,992 86,061 -
--------------------------------------------
$3,657,646 $2,177,784 $184,034
============================================
Note 4. Federal Income Taxes
The following is a summary of the components of deferred taxes at December
31, 1998 and 1997:
1999 1998
----------------------------------
Federal NOL carrryforwards $ 23,800,000 $ 22,200,000
Research and development credit
carryforwards 1,600,000 1,500,000
Other 700,000 700,000
Reserve (26,100,000) (24,400,000)
----------------------------------
Total - -
==================================
At December 31, 1999, the Company's deferred tax asset relates to net
operating losses and research and development tax credit carry forwards of
approximately $68.4 million and $1.6 million, respectively, which are scheduled
to expire from 2005 to 2019. As a result of issuing common stock subsequent to
inception, the Company's ability to use these net operating losses and tax
credit carry forwards in the future will be subject to limitations under
Internal Revenue Code Section 382. A full reserve has been provided since
realization of the deferred tax asset is not reasonably assured.
Note 5. Lease Commitments
The Company presently leases approximately 33,000 square feet of
manufacturing, warehouse, laboratory, and administrative space in Redmond,
Washington under a lease executed in August 1993. As amended, the lease term
extends through June 30, 2007 and contains a renewal option for the Company to
extend the term by an additional five years.
24
Future minimum annual lease payments are as follows:
2000 $ 401,053
2001 419,232
2002 406,584
2003 393,936
2004 393,936
Thereafter 1,055,736
----------
Total $3,070,477
==========
Rent expense in 1999, 1998 and 1997 was $405,343, $528,730, and $550,333,
respectively.
Note 6. 401(k) Plan
The Company sponsors the 1991 ProCyte Corporation Profit Sharing and Salary
Deferral 401(k) Plan which is funded by voluntary employee pretax salary
deferrals, to the extent permitted under law, and provides for employer matching
contributions, at the discretion of the Board of Directors. No employer
contribution has been made since the adoption of the plan.
Note 7. Note Due From Employee
At December 31, 1999 and 1998, respectively, an employee owed the Company
$108,435 and $104,754 including accrued interest at 4.28% under the terms of a
promissory note dated December 16, 1998. The note is due in full on June 30,
2002.
Note 8. Stockholders' Equity
Hymedix
In November 1995, the Company entered into an agreement with Hymedix
International, Inc. ("Hymedix") to obtain a license to certain absorbent polymer
technology. In connection with this agreement the Company issued 200,000 shares
of its common stock to Hymedix over a two-year period. In November 1997, the
Company renegotiated the license agreement with Hymedix, retaining a license to
certain of the Hymedix technology in exchange for a one-time payment of
$125,000.
HumaTech Corporation
In April 1998 the Company purchased substantially all of the assets of
HumaTech Corporation for $1.5 million and 1,088,435 shares of ProCyte common
stock. In connection with the acquisition, ProCyte entered into two-year
employment agreements with two of the HumaTech principals and a two-year
confidentiality and non-competition agreement with another HumaTech principal.
Among other terms, each of these agreements provided for contingent payments
based on future sales which, at the Company's option, could be made in the form
of shares of ProCyte common stock. During 1999 the initial payments under these
agreements were made with 236,748 shares of ProCyte common stock. Subsequent to
the initial payments the two employment agreements were cancelled.
25
NextDerm, Inc.
In June 1999 ProCyte acquired all of the stock of NextDerm, Inc., a new
company developing topical therapeutics for skin conditions such as acne and
oily skin. The consideration for the acquisition included $250,000 in cash and
600,000 shares of ProCyte common stock with a value of $250,000 on the date that
the terms were established. The Company accounted for the acquisition as a
purchase and recorded $525,000 of goodwill. In connection with the acquisition,
ProCyte entered into consulting arrangements with two of the principal NextDerm
shareholders and nominated Mr. Glenn Oclassen, the chairman of the NextDerm
board of directors, for election to the ProCyte board of directors.
Non-employee Director stock plan
In June 1998 the shareholders approved the 1998 Non-employee Director stock
plan reserving 200,000 shares for issuance to directors. Under this plan
eligible directors receive all or a portion of their quarterly retainer fees in
shares of the common stock of the Company. The number of shares each eligible
director receives is based on the average fair market value of the common stock
for the last 20 business days of the fiscal quarter. After granting 16,632
shares in January 2000 in payment of the retainer for the fourth quarter of 1999
there were 54,787 remaining shares available for issuance under the plan.
Shareholder Rights plan
In December 1994 the Board of Directors adopted a shareholder rights plan
declaring a dividend of one preferred share purchase right (the "Rights") for
each outstanding share of common stock of the Company. Each Right, initially
evidenced by and traded with the shares of common stock, entitles the registered
holder to purchase one one-hundredth of a share of preferred stock of the
Company at an exercise price of $14.00, subject to adjustment based on the
market price of the Company's common stock at the time the Rights become
exercisable. The Rights will be exercisable only if a person or group acquires
15% or more of the Company's common stock or announces a tender offer for the
Company. The Rights may be redeemed, at a redemption price of $0.01 per Right,
at any time until any person or group has acquired 15% or more of the Company's
common stock. The Board of Directors may also elect to exchange the Rights for
shares of the Company's common or preferred stock. In the event the Company is
acquired, each outstanding Right will represent the right to acquire shares of
the surviving entity. The Rights expire on December 7, 2004.
Note 9. Warrants to Acquire Common Stock
At December 31, 1999 there were 100,000 shares of the Company's common
stock reserved for issuance under three common stock warrants issued on May 26,
1999 in exchange for services. The three warrants oblige the Company to issue
33,334 shares at $0.6875 per share, the market price on the grant date, 33,333
shares at $1.6875 and 33,333 shares at $2.6875. Each of the three warrants has
a five year life and vests one-third on the grant date, one-third six months
after the grant date, and one-third twelve months after the grant date.
Note 10. Stock Options
The Company has stock option plans for directors, officers, employees and
consultants that provide for grants of nonqualified and incentive stock options.
Options generally are granted at fair market value, expire between five and ten
years from grant date and vest ratably over three to five years.
The following table summarizes information about stock option activity in
1999, 1998 and 1997:
26
1999 1998 1997
---------------------------------------------------------------------------------------
Number of Wtd. Avg. Number of Wtd. Avg. Number of Wtd. Avg.
Options Exercise Options Exercise Options Exercise
Price Price Price
Outstanding, beginning of year 1,618,061 $ 2.18 1,304,374 $2.94 1,442,193 $3.50
Granted 850,000 $0.799 749,000 $1.21 415,500 $1.57
Exercised - - - - - -
Canceled or expired (606,334) $ 1.69 (435,313) $2.95 (553,319) $3.46
---------- ---------- ----------
Outstanding, end of year 1,861,727 $ 1.71 1,618,061 $2.18 1,304,374 $2.94
========== ========== ==========
Exercisable, end of year 788,911 $ 2.81 681,407 $3.28 675,044 $3.71
The options outstanding at December 31, 1999 consisted of the following:
Range of Number of Wtd. Avg. Wtd. Avg. Number of Wtd. Avg.
exercise Options Remaining Exercise Options Exercise
prices Outstanding Life Price Exercisable Price
$0.49 - $ 0.73 212,667 9.12 $0.69 40,337 $0.65
$0.77 - $ 0.77 447,000 9.65 $0.77 - -
$0.80 - $ 1.08 346,000 8.88 $0.98 58,168 $1.07
$0.22 - $ 1.44 318,000 8.01 $1.32 159,509 $1.30
$0.16 - $ 2.84 389,560 6.17 $2.74 382,397 $2.75
$2.84 - $11.88 148,500 4.01 $5.87 148,500 $5.87
------------------------------------------------------------------
$0.49 - $11.88 1,861,727 7.99 $1.71 788,911 $2.81
==================================================================
At December 31, 1999 there were 323,352 shares reserved for issuance under
the Company's 1996 Stock Option Plan.
As required by SFAS 123, the Company has determined the fair value of stock
options granted during 1998, 1997 and 1996 using the Black-Scholes option
pricing model and the following assumptions:
1999 1998 1997
------------------------------------------------
Risk-free interest rate 4.08% 4.28% 4.99%
Expected option life (years) 5.81 5.81 5.81
Dividend yield 0.00 0.00 0.00
Expected volatility 98% 96% 117%
The weighted average fair value of options granted during 1999, 1998 and
1997 was approximately $0.61, $0.84 and $1.35, respectively. The effect on the
reported net loss had the Company elected to adopt the measurement provisions of
SFAS 123 would have been an increase in the reported net loss for the periods
ending December 31, 1999, 1998 and 1997, by $414,798, $446,865, and $596,401,
respectively. On such a pro forma basis, net loss per share would have
increased by $0.03 to $0.38 in 1999, by $0.03 to $0.35 in 1998, and by $0.05 to
$0.53 in 1997.
27
Note 11. Events Subsequent to December 31, 1999
Sale of Manufacturing Operation
During 1999 the Company retained a financial advisor to assist it with the
sale or spin-off of its manufacturing operation in order to tighten the
Company's focus on its core business. On March 27, 2000 ProCyte agreed to sell
the assets and liabilities related to the manufacturing operation for $2.5
million to a group including a member of ProCyte management. The transaction is
expected to close by May 30, 2000 and is subject to negotiation of a definitive
agreement and contingent upon availability of financing and ratification by the
ProCyte Board of Directors. A provision of $1.9 million has been recorded at
December 31, 1999 as an estimate of the loss that will be realized upon
consummation of this transaction. The manufacturing operation includes the
substantial majority of the fixed assets of the Company and the lease obligation
for the Company's facility. The manufacturing operation generated contract
revenues of $762,320, $436,167 and $705,706 in 1999, 1998 and 1997,
respectively. Expenses related to the manufacturing operation were approximately
$1,800,000 in 1999, $2,050,000 in 1998, and $2,850,000, in 1997.
28
ProCyte Corporation
Independent Auditors' Report
Board of Directors
ProCyte Corporation
Redmond, Washington
We have audited the accompanying balance sheets of ProCyte Corporation as of
December 31, 1999 and 1998, and the related statements of operations, cash
flows, and stockholders' equity for each of the three years in the period ended
December 31, 1999. 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 generally accepted auditing
standards. 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
Seattle, Washington
February 11, 2000 (March 29, 2000 as to Note 11)
29
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
The information required under Part III, Items 10, 11, 12, and 13, is
included in the Company's Proxy Statement relating to the Company's annual
meeting of shareholders, and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the close of the Company's fiscal year end, December 31,
1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a. List of documents filed as part of this report:
(1) Financial Statements and Supplementary Data - Reference is made to the
Index to Financial Statements and Schedules under Item 8 in Part II
hereof, where such documents are listed.
(2) Exhibits - see (c) below
b. Reports on Form 8-K
None
c. Exhibits
30
Exhibit Description Note
2.1 Asset Purchase and Sale Agreement dated April 27, 1998 between the Registrant and E
HumaTech Corporation
3.1 Restated Articles of Incorporation of the Registrant A
3.2 Restated Bylaws of the Registrant A
4.1 Rights Agreement between the Registrant and American Securities Transfer and Trust as G
of December 7, 1994
10.1* 1987 Stock Benefit Plan of ProCyte Corporation A
10.2* ProCyte Corporation 1989 Restated Stock Option Plan B
10.3* ProCyte Corporation 1991 Restated Stock Option Plan for Non-employee Directors and D
amendments thereto
10.4+ Teachers Insurance & Annuity Association Lease dated as of October 1, 1993 and second D
amendment thereto dated February 28, 1997
10.5* 1996 Stock Option Plan D
10.6* ProCyte Corporation 1998 Non-employee Director Stock Plan F
10.7* Change of Control Agreement for Ms. Robin Carmichael F
10.8* Change of Control Agreement for Mr. John Clifford D
10.13* Form of Indemnity Agreement dated February 23, 1995 between the Registrant and each of C
Dr. Blake, Mr. Patterson and Mr. Clifford.
10.14* Form of Indemnity Agreement between ProCyte Corporation and each of various of its F
Officers and Directors
10.15* Form of Severance Agreement for Mr. John Clifford D
10.16* Form of Promissory Note between ProCyte Corporation and Mr. John Clifford H
10.17+ Distribution & License Agreement dated December 12, 1997 between the Registrant and G
Bard Medical Division
23.1 Consent of Deloitte & Touche LLP I
27.1 Financial Data Schedule I
- ------------------------
* Management contract or compensatory plan or arrangement.
+ Confidential treatment has been granted or requested with respect to
portions of this exhibit.
A. Incorporated by reference to the Registrant's Registration Statement of Form
S-1 (No. 33-31353).
B. Incorporated by reference to the Registrant's Registration Statement of Form
S-1 (No. 33-46364).
C. Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.
D. Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996.
E. Incorporated by reference to the Registrant's current Report on Form 8-K
dated April 27, 1998
F. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the Quarter ended June 30, 1998
G. Incorporated by reference to the Registrant's Amended Annual Report on Form
10-K/A dated December 31, 1997.
H. Incorporated by reference to the Registrant's Amended Annual Report on Form
10-K/A dated December 31, 1998.
I. Filed herewith.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PROCYTE CORPORATION
(REGISTRANT)
By: /s/ John F. Clifford
----------------------------------
Date: March 29, 2000 John F. Clifford
Chairman of the Board of Directors and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Jules Blake Director March 29, 2000
- -----------------------------------
Jules Blake, Ph.D.
/s/ John F. Clifford Chairman and Chief Executive Officer March 29, 2000
- ----------------------------------- (Principal Executive Officer)
John F. Clifford
/s/ Matt Leavitt Director March 29, 2000
- -----------------------------------
Matt Leavitt
/s/ Glenn Oclassen Director March 29, 2000
- -----------------------------------
Glenn Oclassen
/s/ Robert E. Patterson Director March 29, 2000
- -----------------------------------
Robert E. Patterson
/s/ Jerry Scott Vice President and Chief Financial Officer March 29, 2000
- ----------------------------------- (Principal Finance and Accounting Officer)
Jerry Scott
32