Exhibit 99.15
PANAGOS SALVER & COOK LLP |
|
To the Board of Directors
TERAGENIX CORPORATION
Fort Lauderdale, Florida
We have audited the accompanying balance sheet of TERAGENIX CORPORATION, an S Corporation, as of December 31, 2003 and 2002, and the related statement of income and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TERAGENIX CORPORATION as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Respectfully submitted,
Panagos, Salver & Cook, LLP
Panagos, Salver & Cook, LLP
February 18, 2004
2721 Executive Park Drive • Suite 4 • Weston, FL 33331
Tel 954.389.1333 • Fax 954.389.1397 • CPAS@psccpas.com
TERAGENIX CORPORATION
BALANCE SHEET
December 31, 2003 and 2002
ASSETS
|
| 2003 |
| 2002 |
| ||
CURRENT ASSETS |
|
|
|
|
| ||
Cash in bank |
| $ | 136,860 |
| $ | 140,128 |
|
Accounts receivable, net |
| 355,215 |
| 83,063 |
| ||
Inventory |
| 471,664 |
| 327,612 |
| ||
Prepaid expenses |
| 6,854 |
| 9,558 |
| ||
|
|
|
|
|
| ||
Total current assets |
| 970,593 |
| 560,361 |
| ||
|
|
|
|
|
| ||
PROPERTY AND EQUIPMENT, NET |
| 206,700 |
| 188,828 |
| ||
|
|
|
|
|
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OTHER ASSETS |
|
|
|
|
| ||
Security Deposits |
| 13,118 |
| 13,118 |
| ||
Deposits - Auto |
| 2,600 |
| — |
| ||
Total other assets |
| 15,718 |
| 13,118 |
| ||
|
|
|
|
|
| ||
Total assets |
| $ | 1,193,011 |
| $ | 762,307 |
|
See accompanying notes and accountants’ audit report
2
TERAGENIX CORPORATION
BALANCE SHEET
December 31, 2003 and 2002
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
| 2003 |
| 2002 |
| ||
|
|
|
|
|
| ||
CURRENT LIABILITIES |
|
|
|
|
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Accounts payable |
| $ | 239,749 |
| $ | 81,066 |
|
Credit cards payable |
| 1,833 |
| 12,202 |
| ||
Deposits and other payables |
| 60,738 |
| 25,565 |
| ||
Notes payable, current portion |
| 1,348 |
| 19,946 |
| ||
Interest payable |
| 2,632 |
| 12,632 |
| ||
|
|
|
|
|
| ||
Total current liabilities |
| 306,300 |
| 151,411 |
| ||
|
|
|
|
|
| ||
LONG-TERM DEBT |
|
|
|
|
| ||
Notes payable – Stockholders |
| — |
| 150,000 |
| ||
Notes payable, net of current portion |
| 87,680 |
| 19,514 |
| ||
|
|
|
|
|
| ||
Total long-term debt |
| 87,680 |
| 169,514 |
| ||
|
|
|
|
|
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Total liabilities |
| 393,980 |
| 320,925 |
| ||
|
|
|
|
|
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STOCKHOLDERS’ EQUITY |
|
|
|
|
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Common stock, no par value, 50,000,000 shares authorized, 82,000 shares issued and outstanding |
| 100 |
| 100 |
| ||
Paid in capital |
| 200,000 |
| — |
| ||
Preferred stock, no par value, 5,000,000 shares authorized, 0 shares issued and outstanding |
|
|
|
|
| ||
Retained earnings |
| 598,931 |
| 441,282 |
| ||
|
|
|
|
|
| ||
Total stockholder’s equity |
| 799,031 |
| 441,382 |
| ||
|
|
|
|
|
| ||
Total liabilities and stockholder’s equity |
| $ | 1,193,011 |
| $ | 762,307 |
|
See accompanying notes and accountants’ audit report
3
TERAGENIX CORPORATION
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002
|
| 2003 |
| 2002 |
| ||
|
|
|
|
|
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REVENUES |
| $ | 2,882,501 |
| $ | 1,479,128 |
|
|
|
|
|
|
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COST OF GOODS SOLD |
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|
|
|
| ||
|
|
|
|
|
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Beginning inventory |
| 327,612 |
| 203,304 |
| ||
Purchases |
| 1,061,288 |
| 597,052 |
| ||
Less: Ending inventory |
| (471,664 | ) | (327,612 | ) | ||
|
|
|
|
|
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Total cost of goods sold |
| 917,236 |
| 472,744 |
| ||
|
|
|
|
|
| ||
Gross profit |
| 1,965,265 |
| 1,006,384 |
| ||
|
|
|
|
|
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OPERATING EXPENSES (page 11) |
| 1,522,373 |
| 940,497 |
| ||
|
|
|
|
|
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Net Income |
| 442,892 |
| 65,887 |
| ||
|
|
|
|
|
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RETAINED EARNINGS |
|
|
|
|
| ||
|
|
|
|
|
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Beginning |
| 441,282 |
| 557,774 |
| ||
|
|
|
|
|
| ||
Less: Stockholders’ distributions |
| (285,243 | ) | (182,379 | ) | ||
|
|
|
|
|
| ||
Ending retained earnings |
| $ | 598,931 |
| $ | 441,282 |
|
See accompanying notes and accountants’ audit report
4
TERAGENIX CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002
|
| 2003 |
| 2002 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| ||
Net Income |
| $ | 442,892 |
| $ | 65,887 |
|
|
|
|
|
|
| ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation |
| 34,717 |
| 27,711 |
| ||
Provision for doubtful accounts |
| 7,000 |
| — |
| ||
(Increase) decrease in: |
|
|
|
|
| ||
Accounts receivable |
| (279,152 | ) | 269,851 |
| ||
Inventory |
| (144,052 | ) | (124.308 | ) | ||
Prepaid expenses |
| 2,366 |
| (2,377 | ) | ||
Deposit - Auto |
| (2,600 | ) | — |
| ||
Increase (decrease) in: |
|
|
|
|
| ||
Accounts payable |
| 158,683 |
| (32,828 | ) | ||
Interest payable |
| (10,000 | ) | 9,206 |
| ||
Credit card payable |
| (10,369 | ) | 746 |
| ||
Deposits and other payables |
| 15,227 |
| 20,587 |
| ||
Net cash provided by operating activities |
| 214,712 |
| 234,475 |
| ||
|
|
|
|
|
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CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
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Expenditures for property and equipment |
| (52,253 | ) | (14,811 | ) | ||
Net cash (used) in investing activities |
| (52,253 | ) | (14,811 | ) | ||
|
|
|
|
|
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CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
| ||
(Decrease) Increase in Notes payable |
| 69,515 |
| (6,026 | ) | ||
Satisfaction of stockholders note payable |
| (150,000 | ) | — |
| ||
Stockholder distributions |
| (285,243 | ) | (182,379 | ) | ||
Increase in paid in capital |
| 200,000 |
| — |
| ||
Net cash (used) in financing activities |
| (165,728 | ) | (188,405 | ) | ||
|
|
|
|
|
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Net (Decrease) increase in cash |
| (3,268 | ) | 31,259 |
| ||
|
|
|
|
|
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Cash, Beginning |
| 140,128 |
| 108,869 |
| ||
|
|
|
|
|
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Cash, Ending |
| $ | 136,860 |
| $ | 140,128 |
|
|
|
|
|
|
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Supplemental Disclosures of Cash Flow Information: Cash paid during the year for interest |
| $ | 10,999 |
| $ | 12,875 |
|
See accompanying notes and accountants’ audit report
5
TERAGENIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Corporation, a Florida Corporation, operates an in-vitro diagnostic development service business under the name of Teragenix Corporation. The Company transacts its business worldwide and deals primarily with U.S. blood banks, reference laboratories, major pharmaceutical companies, and investigational review boards. The Company moved into a new facility on September 9, 2001 in order to expand its operations, productivity and capabilities. In 2003, the company began providing testing services through its laboratory component, TeraLab.
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis of accounting in conformity with generally accepted accounting principles.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, accounts receivable and purchases.
Cash
The Company maintains deposit balances at financial institutions that, from time to time, may exceed federally insured limits. At December 31, 2003, the Company had cash balances on deposit with one bank that exceeded the federally insured limit by $82,000. The Company believes that such risks are minimized as a result of the size and stature of the financial institution in which the Company maintains its accounts.
Accounts Receivable
The Company provides credit in the normal course of business to its customers and performs ongoing credit evaluations of those customers. Because the Company has had no historical trend of unpaid receivables, and operates on a predetermined basis, it records its credit losses when realized using the direct write-off method. The Company has established a $15,000 and $8,000 account receivable allowance as of December 31, 2003, and 2002, respectively. The Company’s five largest clients, all public companies, accounted for approximately 73% and 77% of its business in 2003 and 2002, respectively.
See accountants’ audit report
6
Purchases
The company procures its inventory from a variety of vendors. The company’s four largest vendors accounted for 25% and 26% of its purchases during 2003 and 2002, respectively.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements in conformity with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.
Depreciation
The Company’s equipment and leasehold improvements are depreciated using the straight-line method for financial reporting purposes. Depreciation expense amounted to $34,717 and $27,111 for the years ended December 31, 2003 and 2002, respectively.
Inventory
The Company’s inventory, which is comprised of various components of blood and blood plasma, is valued at the lower of cost or market using the average cost method.
Labor and Administrative Expenses
During the fourth quarter the company entered into an employee leasing arrangement with an outside entity which previously processed its payroll, paid. its payroll taxes and administeed its pension plan.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not incur federal corporate income taxes on its taxable income. Rather, the Company’s five stockholders are liable for individual federal income taxes based on the Company’s taxable income in proportion to their ownership percentages.
See accountants’ audit report
7
NOTE B - PROPERTY AND EQUIPMENT
| 2003 |
| 2002 |
| |||
Property and equipment consists of the following: |
|
|
|
|
| ||
Computers and equipment |
| $ | 51,023 |
| $ | 54,016 |
|
Furniture and fixtures |
| 24,582 |
| 25,694 |
| ||
Leasehold improvements |
| 88,527 |
| 82,717 |
| ||
Machinery and equipment |
| 109,533 |
| 84,218 |
| ||
|
| 273,665 |
| 246,645 |
| ||
Less: accumulated depreciation |
| (66,965 | ) | (57,817 | ) | ||
|
| $ | 206,700 |
| $ | 188,828 |
|
Property and equipment are stated at cost. Depreciation is computed using the straight-line method for financial reporting purposes and amounted to $34,717 and $27,111 for the years ended December 31, 2003 and 2002, respectively. For federal income tax purposes, depreciation is generally computed using accelerated cost recovery options.
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
NOTE C - DESCRIPTION OF LEASING ARRANGEMENTS
The Company entered into a 5-year lease agreement on June 29th, 2001 with Commerce Center Development Corp. for its corporate headquarters and operations center. The lease commencement date was September 9th, 2001. Under the lease agreement, the rent during 2003 was payable in equal monthly installments of $6,855,82. The monthly rent increases by three percent at the expiration of each lease year. The company is also responsible for its proportionate share of the common area maintenance. The following is a schedule of future minimum lease payments required under the lease:
2004 |
| $ | 84,738 |
|
2005 |
| 87,280 |
| |
2006 (January 1 - September 9, 2006) |
| 66,447 |
| |
|
| $ | 238,465 |
|
The Company leased a new vehicle for its president in February. 2003 for a monthly charge of $930,64. The future minimum lease payments required under this lease are $36,295 and will expire in May, 2006. Vehicle lease expense for the year ended December 31, 2003 and 2002 amounted to $13,337 and $16,200, respectively. The Company also reimburses two of its employees for auto allowance, totaling $1,020 per month.
See accountants’ audit report
8
NOTE D - STOCKHOLDER NOTES
Notes Payable – Stockholders
In January 2003 the company satisfied, in full, stockholder notes totaling $ 150,000. These notes were unsecured and bore interest at 6% per annum. Accrued interest on these notes was $12,631 of which $10,000 was paid during the year. Management intends to satisfy the remaining balance in early 2004.
NOTE E - LONG TERM DEBT
During 2003 the Company obtained a $160,000 loan from Fleet National Bank to satisfy the $150,000 note due to, two of its stockholders. This loan is secured and personally guaranteed by three of the stockholders of the Company. The loan includes interest at the rate of 5.19% payable in 48 monthly installments of principal and interest in the amount of $3,704. The balance due on the loan was $126,330 as of December 31, 2003.
During 2001 the Company purchased its security system and its telephone system under 36 month lease/purchase arrangements, with $2,318 and $1 buyouts, respectively. Both leases, which include an interest rate of 6.5%, have been capitalized. The balances due on its security system and its telephone system were $6,910 and $5,772, respectively, as of December 31, 2003. During 2002, the Company purchased laboratory equipment under a 36 month lease/purchase arrangement, with a $125 buyout. This lease, which includes an interest rate of 19.3%, has also been capitalized. The balance due on its laboratory equipment was $5,882 as of December 31, 2003.
Aggregate annual principal payments under the above obligations are as follows:
2004 |
| $ | 55,864 |
|
2005 |
| 42,051 |
| |
2006 |
| 42,867 |
| |
2007 |
| 7,069 |
| |
Total |
| $ | 147,851 |
|
NOTE F- PROFIT SHARING PLAN
The Company has a defined contribution 401(k) profit-sharing plan (Plan) which provides for benefits to substantially all full-time employees upon their retirement, death or disability who meet the various requirements as defined in the Plan; based on years of service and an employee’s compensation during the last two years of employment. Contributions from the Company are limited to the maximum amount deductible for federal income tax purposes, and are expensed as incurred throughout the year, as approved by the Board of Directors. In 2003 and 2002, the Board elected to make employer contributions, which aggregated to $9,789 and $985, respectively and are included in operating expenses. The Company’s plan is administered by its payroll processing company.
See accountants’ audit report
9
NOTE G - COMMITMENTS AND CONTINGENCIES
In late 2003 Teragenix Corporation was sued by Theragenics Corporation (an entity which manufactures radioactive implants for the treatment of prostate cancer) for the sole purpose of name change. The company’s insurance company is handling the legal defense of this case. In the opinion of management, there is no client confusion or any business misrepresentation as the two entities are not in similar businesses. Presently the company is not being sued for damages. According to management, it appears that the worst case scenario facing the company is the cost of being required to change its name.
NOTE H - CORPORATE STOCK
As part of the company’s overall recapitalization. 50.000.000 no par. common shares have been authorized. As of December 31,2003 82,000 shares are issued and outstanding. The outstanding shares include 8,200 shares issued to a key employee on December 31, 2003, as part of a compensation bonus valued at $200,000.
The company also has 5,000,000 no par preferred stock shares authorized, none of which is issued or outstanding.
NOTE I - SUBSEQUENT EVENTS
The Company had been actively seeking outside investment capital during 2002 and early 2003 to further expand its present capabilities and future business opportunities. As of 2004, the Company does not intend to pursue outside investment capital.
See accountants’ audit report
10