SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K/A
Current Report Pursuant
to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: January 10, 1997
HEMAGEN DIAGNOSTICS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Commission File Number: 1-11700
Delaware 04-2869857
- --------------------------------------- ----------------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
34-40 Bear Hill Road, Waltham, Massachusetts 02154
- ------------------------------------------------ ------------------
(Address of Principal Executive Offices) (Zip Code)
(617) 890-3766
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
TABLE OF CONTENTS
FORM 8-K/A
January 10, 1997
Item Page
- ---- ----
Item 7. Financial Statements and Exhibits 1
Signature 2
Exhibit None
Item 7. Financial Statements and Exhibits
a. Financial Statements. Financial Statements of 872 Main Street
Corp. and Subsidiary (Formerly Cellular Products, Inc.) for
the year ended December 31, 1995 (Audited) and nine months
ended September 30, 1996 (Unaudited).
b. Pro Forma Financial Information for the Registrant and 872
Main Street Corp. and Subsidiary (Formerly Cellular Products,
Inc.).
Condensed Combined Pro Forma Financial Statements
(Unaudited)............................................. F1
Pro Forma Condensed Combined Balance Sheet, as of
September 30, 1996 Unaudited)........................... F2
Pro Forma Condensed Combined Statement of Operations,
Fiscal Year Ended September 30, 1996 (Unaudited)........ F3
Notes to the Pro Forma Condensed Combined Financial
Statements (Unaudited).................................. F4
c. Exhibits (previously filed with the Commission).
Exhibit
No. Title
------- -----
2. Purchase and Sale Letter by and between Hemagen
Diagnostics, Inc. and Cellular Products, Inc.,
now known as 872 Main Street Corporation dated
August 23, 1996 as amended on August 29, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Hemagen Diagnostics, Inc.
By: /s/ Carl Franzblau, Ph.D.
----------------------------------------
Carl Franzblau, Ph.D.
President
January 10, 1997
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On November 1, 1996, Hemagen Diagnostics, Inc. through a wholly owned subsidiary
(the "Company"), completed the purchase of substantially all the assets of
Cellular Products, Inc., now known as 872 Main Street Corporation ("CPI"). CPI
was operating under the provisions of Chapter 11 of the United States Bankruptcy
Code. The sale of the assets by CPI was approved by the Bankruptcy Court on
October 3, 1996. CPI manufactures biotechnology materials and assays for
research and for the manufacture of clinical diagnostic test kits. The Company
plans to continue the manufacture of the product line at the facility formerly
occupied by CPI in Buffalo, New York. On November 1, 1996, the Company paid
$400,000 in cash and issued an unsecured promissory note to CPI (the "Note") in
the amount of $200,000. Under the terms of the Note, the Company agreed to pay
CPI $200,000 on or before November 1, 1997. In addition to the cash and the
Note, the Company assumed approximately $115,000 of post-bankruptcy filing trade
payables and other accrued expenses of CPI.
The unaudited pro forma condensed combined balance sheet of Hemagen Diagnostics,
Inc. ("Hemagen") as of September 30, 1996 assumes the acquisition of
substantially all the assets of 872 Main Street Corp. and Subsidiary (formerly
Cellular Products, Inc.) ("CPI Acquisition") occurred on that date.
The unaudited pro forma condensed combined statement of operations for the year
ended September 30, 1996 presents the results of Hemagen and 872 Main Street
Corp. and Subsidiary as if the CPI Acquisition had been consummated as of
October 1, 1995.
The unaudited pro forma condensed combined financial statements have been
prepared by Hemagen and all calculations have been made based upon assumptions
deemed appropriate. The unaudited pro forma condensed combined financial
statements were prepared utilizing the accounting policies of Hemagen. The pro
forma adjustments reflect the acquisition being recorded as a purchase and the
preliminary allocation of the purchase price may be subject to certain
significant adjustments as the Company finalizes the allocation of the purchase
price in accordance with generally accepted accounting principles. The purchase
price has been allocated based upon the estimated fair value of the assets and
liabilities acquired. The excess of the fair value of net assets over the
purchase price has been recorded by reducing the value assigned to noncurrent
assets in accordance with Accounting Principles Board Opinion No. 16.
The unaudited pro forma financial information does not purport to be indicative
of the results of operations or the financial position which would have actually
been obtained if the acquisition had been consummated on the dates indicated,
nor of results of operations or financial position which may be achieved in the
future.
The unaudited pro forma financial information should be read in conjunction with
Hemagen's historical consolidated financial statements and notes thereto
contained in the 1996 Annual Report on Form 10-KSB and the financial statements
of 872 Main Street Corp. presented herein.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
Historical
----------------------------
872 Main Pro forma Pro forma
Hemagen Street Corp. Adjustments Combined
------------ ------------ ---------------- ------------
Current Assets:
Cash and cash equivalents $ 756,919 $ 144,705 $ (400,000)(1) $ 501,624
Short-term investments 1,360,249 0 1,360,249
Accounts Receivable, Net 1,673,791 221,608 1,895,399
Related party -- 9,001 9,001
Officer -- 793 793
Inventory 3,178,180 350,195 76,096 (1) 3,604,471
Prepaid expenses and other current assets 271,800 25,738 297,538
----------------------------------------------------------------
Total current assets 7,240,939 752,040 (323,904) 7,669,075
Property and Equipment, net 2,931,879 -- 49,272 (1) 2,981,151
Other Assets 1,636,412 17,426 1,653,838
---------------------------------------------------------------
$ 11,809,230 $ 769,466 $ (274,632) $ 12,304,064
===============================================================
Current Liabilities:
Accounts payable and accrued expenses $ 1,428,790 $ 231,139 $ 380,000 (1) $ 1,923,624
(116,305)(1)
Current portion of long-term debt 395,034 100,815 (100,815)(1) 395,034
---------------------------------------------------------------
Total current liabilities 1,823,824 331,954 162,880 2,318,658
---------------------------------------------------------------
Liabilities subject to compromise 1,166,686 (1,166,686)(1) 0
Long-term debt, less current portion 562,672 -- 562,672
Stockholders' Equity:
Preferred stock -- -- 0
Common stock 76,209 200,468 (200,468)(1) 76,209
Additional paid-in capital 13,132,757 11,768,554 (11,768,554)(1) 13,132,757
Retained Earnings (deficit) (3,780,232) (12,698,196) 12,698,196 (1) (3,780,232)
----------------------------------------------------------------
9,428,734 (729,174) 729,174 9,428,734
Receivable from stockholder (6,000) 0 (6,000)
----------------------------------------------------------------
9,422,734 (729,174) 729,174 9,422,734
----------------------------------------------------------------
$ 11,809,230 $ 769,466 $ (274,632) $ 12,304,064
================================================================
See Notes to Pro Forma Condensed Combined Financial Statements.
HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
Historical
------------------------------
872 Main
Hemagen Street Corp.
Twelve Months Twelve Months Pro forma Pro forma
Ended 9/30/96 Ended 9/30/96 Adjustments Combined nine
------------- ------------- ----------- -------------
Sales $ 10,219,335 $ 1,705,233 $ $ 11,924,568
Costs and expenses:
Cost of product sales 6,249,438 986,046 9,854 (2) 7,245,338
Research and development 777,718 211,297 989,015
Selling, general and administrative 3,237,045 384,203 3,621,248
-------------------------------------------------------------
10,264,201 1,581,546 9,854 11,855,601
-------------------------------------------------------------
Operating income (loss) (44,866) 123,687 (9,854) 68,967
Other income (expense), net (419,120) (10,556) (9,444)(2) (439,120)
Income (loss) before reorganization costs (463,986) 113,131 (19,298) (370,153)
Reorganization costs 0 35,397 (35,397)(2) 0
-------------------------------------------------------------
Net Income (loss) $ (463,986) $ 77,734 $ 16,099 $ (370,153)
=============================================================
Net loss per share $ (0.08) $ (0.07)
============ ============
Weighted average shares outstanding 5,666,357 5,666,357
============ ============
See Notes to Pro Forma Condensed Combined Financial Statements.
Hemagen Diagnostics, Inc. and Subsidiaries
Note to the Pro Forma Condensed Combined Financial Statements
(Unaudited)
The pro forma adjustments to the condensed combined balance sheet are as
follows:
(1) To reflect the acquisition of 872 Main Street Corp. and the
allocation of the purchase price on the basis of estimated fair
values of the assets acquired and liabilities assumed. The
components of the purchase price and its allocation to the assets
and liabilities of 872 Main Street Corp. are as follows:
Components of purchase price:
Cash paid at closing $ 400,000
Estimated direct expenses of the acquisition 200,000
Note payable to seller at net present value 180,000
---------
Total purchase price $ 780,000
Summary of adjustments to historical values of 872 Main Street Corp. to reflect
purchase:
Elimination of Stockholders' equity of 872 Main Street Corp. $ (729,174)
Increase in inventories 76,096
Increase in property and equipment 49,272
Elimination of debt of 872 Main Street Corp. not assumed 1,383,806
-----------
Total $ 780,000
(2) The pro forma adjustment to the condensed consolidated statements of
income are as follows:
Increase in depreciation expense allocated to cost
of goods sold $ (9,854)
Decrease in interest expense 10,556
Interest expense on $200,000 note payable to seller (20,000)
Elimination of reorganization costs related to
Chapter 11 Bankruptcy filing 35,397
--------
Total pro forma adjustment to income $ 16,099
872 Main Street Corp.
and Subsidiary
(Formerly Cellular Products, Inc.)
================================================
Consolidated Financial Statements
Year Ended December 31, 1995 and
Nine Months Ended September 30, 1996 (Unaudited)
872 Main Street Corp. and Subsidiary
(Formerly Cellular Products, Inc.)
Contents
===============================================================================
Independent auditors' report 3
Financial statements
Consolidated balance sheets as of December 31, 1995 and
September 30, 1996 (unaudited) 4
Consolidated statements of operations for the year ended
December 31, 1995 and the nine months ended September 30,
1996 (unaudited) 5
Consolidated statements of cash flows for the year ended
December 31, 1995 and the nine months ended September 30,
1996 (unaudited) 6
Notes to consolidated financial statements 7-19
|BDO BDO Seidman, LLP University Corporate Centre
--- Accountants and Consultants 300 Corporate Parkway, Suite 200N
Amherst, New York 14226
Telephone: (716) 831-9333
Fax: (716) 831-0090
Independent Auditors' Report
To the Board of Directors and
Shareholders of 872 Main Street Corp.
Buffalo, New York
We have audited the accompanying consolidated balance sheet of 872 Main Street
Corp. and Subsidiary (formerly Cellular Products, Inc.) as of December 31, 1995,
and the related consolidated statements of operations and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit 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 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 872 Main Street Corp. and
Subsidiary at December 31, 1995, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, 872 Main Street Corp. and its subsidiary
filed a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the Western
District of New York ("the Bankruptcy Court") on November 23, 1994. The Company
and its subsidiary are currently operating their businesses as
debtors-in-possession under the jurisdiction of the Bankruptcy Court. In
addition, on November 1, 1996, the Company sold substantially all of its assets.
This sale and the uncertainties inherent in the bankruptcy process raise
substantial doubt about the ability of 872 Main Street Corp. and Subsidiary to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
December 19, 1996
872 Main Street Corp. and Subsidiary
(Formerly Cellular Products, Inc.)
(Debtor-In-Possession)
Consolidated Balance Sheets
===============================================================================
December 31, September 30,
1995 1996
------------ -------------
(Unaudited)
Assets
Current
Cash and cash equivalents $ 47,525 $ 144,705
Accounts receivable:
Trade, less allowance for doubtful accounts of $22,000 150,224 221,608
Related party (Note 10) 8,878 9,001
Officer 5,343 793
Inventories (Note 3) 359,774 350,195
Other 36,104 25,738
----------------------------
Total current assets 607,848 752,040
Property and equipment (Notes 4, 7 and 8) - -
Other 17,246 17,426
----------------------------
$ 625,094 $ 769,466
============================
Liabilities
Current
Accounts payable $ 42,075 $ 46,479
Accrued expenses (Note 5) 189,368 184,660
Current maturities of long-term debt, including $50,000
to a related company (Notes 8 and 10) 103,807 100,815
----------------------------
Total current liabilities 335,250 331,954
Liabilities subject to compromise, including $76,342 to
a related company (Notes 6 and 10) 1,169,139 1,166,686
Long-term debt (Note 8) 1,499 -
----------------------------
Total liabilities 1,505,888 1,498,640
----------------------------
Commitments and contingencies (Notes 6, 7 and 13)
----------------------------
Capital Deficit (Note 9)
Preferred stock, $5 par value, shares authorized,
10,000,000; none issued - -
Common stock, $.01 par value, shares authorized,
40,000,000; issued and outstanding 20,046,816 200,468 200,468
Additional paid-in capital 11,768,554 11,768,554
Deficit (12,849,816) (12,698,196)
----------------------------
Total capital deficit (880,794) (729,174)
----------------------------
$ 625,094 $ 769,466
============================
See accompanying notes to consolidated financial statements.
872 Main Street Corp. and Subsidiary
(Formerly Cellular Products, Inc.)
(Debtor-In-Possession)
Consolidated Statements of Operations
===============================================================================
Year Ended Nine Months Ended
December 31, September 30,
1995 1996
------------- -----------------
(Unaudited)
Revenue (Notes 10, 11 and 12):
Net sales $ 1,167,709 $ 1,374,593
License, subcontract research and other revenue 219,941 364
--------------------------------
Total revenue 1,387,650 1,374,957
Cost of sales 902,806 794,763
--------------------------------
Gross profit 484,844 580,194
--------------------------------
Operating Expenses:
General and administrative expense 297,462 236,413
Research, development, sales and marketing 496,667 148,434
--------------------------------
Total operating expenses 794,129 384,847
--------------------------------
Operating income (loss) (309,285) 195,347
--------------------------------
Other Income (Expense):
Interest income 70 50
Interest expense (contractual interest $29,000
and $22,000) (Note 6) (10,216) (8,380)
--------------------------------
Other (expense) - net (10,146) (8,330)
--------------------------------
Income (loss) before reorganization costs and
extraordinary item (319,431) 187,017
Reorganization costs 12,817 35,397
--------------------------------
Income (loss) before extraordinary item (332,248) 151,620
Extraordinary item (Note 14) 40,000 -
--------------------------------
Net income (loss) (292,248) 151,620
Deficit, beginning of period (12,557,568) (12,849,816)
--------------------------------
Deficit, end of period $ (12,849,816) $ (12,698,196)
================================
Earnings Per Common Share:
Income (loss) before extraordinary item $ (.01) $ .01
Extraordinary item - -
--------------------------------
Net income (loss) per common share $ (.01) $ .01
================================
Weighted average number of common shares outstanding 20,046,816 20,046,816
================================
See accompanying notes to consolidated financial statements.
872 Main Street Corp. and Subsidiary
(Formerly Cellular Products, Inc.)
(Debtor-In-Possession)
Consolidated Statements of Cash Flows (Note 17)
===============================================================================
Year Ended Nine Months Ended
December 31, September 30,
1995 1996
------------ -----------------
(Unaudited)
Cash Flows From Operating Activities:
Net income (loss) $ (292,248) $ 151,620
-----------------------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary item (40,000) -
Change in assets and liabilities:
(Increase) decrease in receivables 32,075 (66,957)
Decrease in inventories 117,561 9,579
(Increase) decrease in other current assets (7,140) 10,366
Increase (decrease) in accounts payable, accrued
expenses and liabilities subject to compromise 150,456 (2,757)
-----------------------------
Total adjustments 252,952 (49,769)
-----------------------------
Net cash provided by (used in) operating activities (39,296) 101,851
-----------------------------
Cash Flows From Investing Activities:
Increase in other assets (4,171) (180)
----------------------------
Net cash (used in) investing activities (4,171) (180)
----------------------------
Cash Flows From Financing Activities:
Payment of capital lease obligation (5,993) (4,491)
----------------------------
Net cash (used in) financing activities (5,993) (4,491)
----------------------------
Net increase (decrease) in cash and cash equivalents (49,460) 97,180
Cash and cash equivalents, beginning of period 96,985 47,525
----------------------------
Cash and cash equivalents, end of period $ 47,525 $ 144,705
============================
See accompanying notes to consolidated financial statements.
872 Main Street Corp. and Subsidiary
(Formerly Cellular Products, Inc.)
Notes to Consolidated Financial Statements
(Information for September 30, 1996 is Unaudited)
===============================================================================
1. Reorganization and Basis of Reporting
On November 23, 1994, ("the Petition Date"), 872 Main Street Corp. and
Subsidiary ("the Debtor") filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Western District of New York ("the Bankruptcy
Court").
Since the Petition Date, the Debtor has continued in possession of its
properties and, as debtor in possession, is authorized to operate and
manage its business and enter into all transactions (including obtaining
services, supplies and inventories) that they could have entered into in
the ordinary course of business had there been no bankruptcy filing. As
debtor in possession, the Debtor may not engage in transactions outside
of the ordinary course of business without approval of the Bankruptcy
Court, after notice and hearing.
Liabilities subject to compromise in the accompanying consolidated
balance sheet represent the Company's estimate of liabilities as of
December 31, 1995, subject to adjustment in the reorganization process.
Under Chapter 11, actions to enforce certain claims against the Company
are stayed if the claims arose, or are based on events that occurred, on
or before the Petition Date. Other liabilities may arise or be subject to
compromise as a result of rejection of executory contracts, including
leases, or the Bankruptcy Court's resolution (or resolution by parties in
interest) of claims for contingencies and other disputed amounts.
The accompanying consolidated financial statements have been presented on
the basis that the Company is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. As a result of the Chapter 11 filing and
circumstances relating to this event, realization of assets and
satisfaction of liabilities is subject to uncertainty. In addition to the
Chapter 11 filing, on November 1, 1996, the Company sold substantially
all of its assets for $600,000, of which $400,000 was received in cash
with the $200,000 balance due in one year from the date of sale. This
sale and the uncertainties inherent in the bankruptcy process raise
substantial doubt about the ability of 872 Main Street Corp. and
Subsidiary to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
2. Summary of Significant Accounting Policies
Name Change
In October, 1996, Cellular Products, Inc. changed its name to 872 Main
Street Corp.
Principles of Consolidation
The consolidated financial statements include the accounts of 872 Main
Street Corp. and Northern Clinical Diagnostic, Inc. its wholly-owned
subsidiary. All significant intercompany accounts and transactions have
been eliminated.
Business Description
The Company is engaged in the development, production and marketing of
biotechnology products intended for use by the biotechnology research
community and the diagnostic blood screening market. The Company's
products are utilized by researchers studying the immune system and
immune system disorders including AIDS and Adult T-cell Leukemia. The
Company sells its products principally through retailers in North America
and Europe. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral for outstanding
accounts receivable. Allowances are maintained for potential credit
losses, and such losses during the periods covered by these financial
statements have not exceeded management's expectations.
Unaudited Interim Consolidated Financial Statements
The consolidated financial statements as of September 30, 1996 and for
the nine months ended September 30, 1996 are unaudited, and have been
prepared on the same basis as the audited financial statements included
herein. In the opinion of management, such unaudited financial statements
include all adjustments consisting of normal recurring accruals necessary
to present fairly the information set forth herein. Results for interim
periods are not indicative of results to be expected for an entire year.
Inventories
Inventories are stated at the lower of cost or market with cost
determined on a first-in, first-out basis.
Research and Development
Research and development expenses are charged to income as incurred.
Research and development contract revenues are recognized either as
performance criteria are met or reimbursable costs are incurred,
depending upon the terms of the contracts.
Income Taxes
Effective January 1, 1993, the Company adopted the provisions of the
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes", which requires an asset and liability approach to
financial accounting and reporting for income taxes. The asset and
liability approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between the financial reporting basis and tax basis of assets
and liabilities.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be "cash equivalents" which are
included as cash in the accompanying consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
common shares outstanding during each period. Certain common stock
equivalents have been excluded from the calculation of net income (loss)
per share since the effect of their conversion would be antidilutive.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable and
current liabilities approximate fair value because of the short maturity
of these instruments. As a result of the Company's Chapter 11 filing, it
is not considered practical to estimate the fair value of financial
instruments included in liabilities subject to compromise.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has recently issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." and SFAS No. 123 "Accounting for
Stock-Based Compensation." SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles be reported at the lower of the
carrying amount or their estimated recoverable amount. The adoption of
this standard by the Company will not have any impact on the consolidated
financial statements. SFAS No. 123 encourages the accounting for
stock-based employee compensation programs to be reported within the
financial statements on a fair value based method; however, it allows an
entity to continue to measure compensation cost under Accounting
Principles Board Opinion ("APB") No. 25. If electing to remain with the
accounting under APB No. 25, then the standard requires pro forma
disclosure of net income and earnings per share as if the fair value
based method had been adopted. The Company intends to adopt the pro forma
disclosure requirements of SFAS No. 123. Both standards are effective for
fiscal years beginning after December 15, 1995.
Reorganization Costs
Professional fees related to the Chapter 11 filing are classified as
reorganization costs.
3. Inventories
Inventories consist of the following:
December 31, September 30,
1995 1996
------------ -------------
Raw materials $ 115,815 $ 100,414
Work-in-process 63,569 48,038
Manufactured components 191,466 166,408
Finished goods 153,924 150,335
--------------------------
524,774 465,195
Less valuation allowance (165,000) (115,000)
--------------------------
$ 359,774 $ 350,195
==========================
4. Property and Equipment
The Company's property and equipment has been recorded at net realizable
value based on the subsequent sale of substantially all of the Company's
assets as described in Note 1 to the financial statements. Accordingly,
at December 31, 1995 and September 30, 1996, no value is reflected in the
accompanying consolidated financial statements for property and
equipment, nor has any depreciation expense been provided for during the
year ended December 31, 1995 and the nine month period ended September
30, 1996.
5. Accrued Expenses
Accrued expenses consist of the following:
December 31, September 30,
1995 1996
------------ -------------
Professional fees $ 76,730 $ 94,552
Vacation 47,850 42,770
Payroll and payroll taxes 29,301 20,585
401(k) 7,805 -
Royalties payable - 21,060
Other expenses 27,682 5,693
---------------------------
$ 189,368 $ 184,660
===========================
6. Liabilities Subject to Compromise
Liabilities subject to compromise include substantially all of the
current and non-current liabilities of the Company as of the Petition
Date. These liabilities were transferred from their respective
prepetition balance sheet accounts to liabilities subject to compromise
and have been treated as noncash items in the accompanying consolidated
statements of cash flows. Certain prepetition liabilities have been
approved by the Bankruptcy Court for payment. At December 31, 1995 and
September 30, 1996, such amounts to the extent not paid, were included in
accrued expenses and other payables. Liabilities subject to compromise
are summarized as follows:
December 31, September 30,
1995 1996
------------ -------------
Accounts payable - trade $ 529,623 $ 527,170
Subordinated convertible
Series B notes 175,000 175,000
Accrued royalties payable 147,130 147,130
Deferred revenue 117,828 117,828
Accrued severance pay 91,538 91,538
Other payables and accrued expenses 108,020 108,020
----------------------------
$ 1,169,139 $ 1,166,686
============================
Prior to the Petition Date, the subordinated convertible Series B notes
bore interest at 11% (not considering interest rates which may be
applicable due to events of default) and matured in September, 1995.
A plan of reorganization ultimately approved by the Company's impaired
prepetition creditors and shareholders and confirmed by the Bankruptcy
Court may materially change the amounts and terms of these prepetition
liabilities.
The Company anticipates that it will negotiate with creditors to
reconcile claims filed with the Bankruptcy Court to the Company's
financial records. The additional liability arising from the
reconciliation process, if any, is not subject to reasonable estimation.
As a result, no provision has been recorded for these possible claims.
The Company will recognize the additional liability, if any, as the
amounts become subject to reasonable estimation.
Additional bankruptcy claims and prepetition liabilities may arise from
the rejection of executory contracts and unexpired leases, resolution of
contingent and unliquidated claims and the settlement of disputed claims.
Consequently, the amounts included in the consolidated balance sheets as
liabilities subject to compromise may be subject to further adjustment.
In accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" (SOP 90-7), the Company is
not required to record interest during Chapter 11 proceedings on
unsecured or undersecured prepetition debt.
Interest expense has been recorded on the BEDC mortgage, Finsystems
(U.S.A.) Inc. mortgage, and the capital lease obligation which are
reflected as long-term debt (Note 8). The Debtor has determined that
there is insufficient collateral to cover the interest portion of
scheduled payments on the subordinated convertible Series B notes.
Contractual interest on all obligations amounted to approximately $29,000
and $22,000, which is approximately $19,000 and $14,000 in excess of
reported interest expense for the periods ended December 31, 1995 and
September 30, 1996, respectively.
The Debtor received approval from the Bankruptcy Court to pay or
otherwise honor certain of its prepetition obligations, including
employee wages.
7. Leases Capital Leases
At December 31, 1995, the future minimum payments under capital leases
are as follows:
Amount
-------
1996 $ 7,261
1997 1,815
-------
Total future minimum lease payments 9,076
Less amount representing interest (1,585)
-------
Net present value of future minimum lease payments,
included in long-term debt (Note 8) $ 7,491
=======
Operating Leases
The Company rented laboratory and office facilities under a
noncancellable operating lease which expired December 31, 1990. A portion
of this space is currently being leased on a monthly basis as a storage
facility. Rent expense for the periods ended December 31, 1995 and
September 30, 1996 amounted to approximately $5,000 and $4,000,
respectively.
8. Long-Term Debt
Long-term debt consists of the following:
December 31, September 30,
1995 1996
------------ -----------
Mortgage loan payable to Finsystems (U.S.A.)
Inc., bearing interest at prime plus 1%,
due April 1, 1996, secured by real property
(Note 10) $ 50,000 $ 50,000
Mortgage loan payable, maturing in monthly
installments of $2,453 through June, 1996,
including interest at 8-1/4%, secured by
real property 47,815 47,815
Capital lease obligation, maturing in monthly
installments of $605 through February, 1997 7,491 3,000
------------------------
105,306 100,815
Less current maturities (103,807) (100,815)
------------------------
Total long-term debt, less current maturities $ 1,499 $ -
========================
Maturities of long-term debt are scheduled approximately as follows:
1996 $ 104,000
1997 1,000
---------
$ 105,000
=========
9. Common Stock Options
During fiscal 1983, the Company adopted an incentive stock option plan.
The plan as amended June 28, 1985, is for 500,000 shares of common stock
and is administered by the board of directors. The board of directors (1)
selects the optionee, (2) determines the number of shares subject to each
option as well as the time of exercise, (3) sets the exercise price which
ordinarily will not be less than 100% of fair market value of the common
stock on date granted and (4) determines the duration of each option,
which cannot exceed 10 years. The following summarizes the changes in
stock options for the periods ended December 31, 1995 and September 30,
1996 under the 1983 incentive stock option plan, as amended:
December 31, September 30,
1995 1996
------------ -------------
Outstanding at beginning of period 57,750 57,750
Granted - -
Exercised - -
Options cancelled - -
Outstanding at end of period 57,750 57,750
Exercisable at end of period 57,750 57,750
Available for grant at end of year 140,430 140,430
Exercise price range of options outstanding $ .25 - 5.50 $ .25 - 5.50
During fiscal 1988, the Company adopted a new incentive stock option plan
for 500,000 shares of common stock which is administered by a committee
of three persons not eligible for options in a manner similar to the 1983
plan. The following summarizes the change in stock options for the period
ended December 31, 1995 and September 30, 1996 under the new incentive
stock option plan:
December 31, September 30,
1995 1996
------------ ------------
Outstanding at beginning of period 10,000 10,000
Granted - -
Exercised - -
Options cancelled - -
Outstanding at end of period 10,000 10,000
Exercisable at end of period 10,000 10,000
Available for grant at end of period 490,000 490,000
Exercise price range of options outstanding $ 2.875 $ 2.875
During 1993, the Company adopted a Stock Option/Stock Appreciation Rights
Plan reserving 2,000,000 shares of common stock. As of the date of this
report, no determination has been made as to the number of employees,
including executive officers and consultants, to whom grants under the
plan will be made.
10. Transactions With Affiliates
During the periods ended December 31, 1995 and September 30, 1996, the
Company had total net sales to Medical Systems S.p.a., a related company,
of approximately $75,000 and $34,000 or 6.4% and 2.5% of total net sales
for the periods then ended, respectively. Accounts receivable, affiliate
was approximately $9,000 at December 31, 1995 and September 30, 1996.
At December, 31, 1995 and September 30, 1996, the Company was indebted to
Finsystems (U.S.A.) Inc., the United States subsidiary of the major
stockholder of the Company, for a mortgage loan of $50,000 (Note 8).
The Company has an arrangement with Medical Systems S.p.a. that in
recognition of an advance of money for the purpose of supporting
operations, the Company will ship product to Medical Systems, S.p.a. at
agreed upon prices. As of December 31, 1995 and September 30, 1996, the
Company owed Medical Systems S.p.a. $76,342 under this agreement which is
included in liabilities subject to compromise as deferred revenue (Note
6).
11. Segment Information
The Company is engaged in the development, production and marketing of
biotechnology products intended for use by the biotechnology research
community and the diagnostic blood screening market. The Company's
products are utilized by researchers studying the immune system and
immune system disorders including AIDS and Adult T-cell Leukemia. The
Company markets its products worldwide through it's own efforts and a
network of distributors. Export sales accounted for approximately
$395,000 or 33.8% and $655,000 or 47.7% of total net sales for the
periods ended December 31, 1995 and September 30, 1996, respectively.
12. Major Customers
During 1995, sales to two customers totalled approximately 23% of net
sales. During the period ended September 30, 1996, sales to one customer
totalled approximately 31% of net sales.
13. Legal Proceedings
On November 23, 1994, 872 Main Street Corp. and its subsidiary filed a
petition in the United States Bankruptcy Court for the Western District
of New York, Jointly Administered Case No. 94-13415, seeking
reorganization under Chapter 11 of the Bankruptcy Code.
Since the Petition Date, the Debtor has continued in possession of its
property and, as debtors in possession, are authorized to operate and
manage their respective businesses and enter into all transactions
(including obtaining services, supplies and inventories) that each could
have entered into in the ordinary course of their business had there been
no bankruptcy. Although each Debtor is authorized to operate its business
as debtor in possession, it may not engage in transactions outside the
ordinary course of business without first complying with the notice and
hearing provisions of the Bankruptcy Code and obtaining Bankruptcy Court
approval when necessary.
As debtors in possession, the Debtors have the right, subject to the
approval of the Bankruptcy Court, under the relevant provisions of the
Bankruptcy Code, to assume or reject executory contracts and unexpired
leases, including real property leases. Certain parties to such executory
contracts and unexpired leases with the Company, including parties to
such real property leases, may file motions with the Bankruptcy Court
seeking to require the Company to assume or reject those contracts or
leases. In this context, "assumption" requires that the Company cure, or
provide adequate assurance that it will cure, all existing defaults under
the contract or lease and prove adequate assurance of future performance
under relevant provisions of the Bankruptcy Code; and "rejection" means
that the Company is relieved from its obligations to perform further
under the contract or lease. Rejection of an executory contract or lease
may constitute a breach of that contract and may afford the non-debtor
party the right to assert a claim against the bankruptcy estate for
damages arising out of the breach, which claim shall be allowed or
disallowed as if such claim had arisen before the date of the filing of
the petition. The Company does not have any leases or similar contracts
which give rise to these considerations.
Prepetition claims that were contingent, unliquidated, or disputed as of
the commencement of the Company's Chapter 11 cases, including, without
limitation, those that arise in connection with rejection of executor
contracts or unexpired leases, may be allowed or disallowed depending on
the nature of the claim. Such claims may be fixed by the Bankruptcy Court
or otherwise settled or agreed upon by the parties. As a general matter,
the treatment of claims pending in the Bankruptcy Court will be
determined as part of the formulation and confirmation of a plan of
reorganization.
To the best of management's knowledge, there are no other material
pending legal proceedings. The Company is, however, subject to other
legal proceedings and claims which have arisen in the ordinary course of
its business.
14. Extraordinary Item
In 1995, the Company entered into a revised royalty agreement with one of
its creditors. Under this agreement, the creditor relinquished its right
to royalties in the amount of $40,000 which had been previously accrued
by the Company. Accordingly, the Company has recognized an extraordinary
gain of $40,000 in 1995.
15. Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.
Significant components of the Company's deferred tax assets at December
31, 1995 are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 2,193,000
Research and Investment Tax credit carryforwards 671,000
Other 273,000
-----------
Total deferred tax assets 3,137,000
Valuation allowance for deferred tax assets (3,137,000)
-----------
Net deferred tax assets $ -
===========
At December 31, 1995, the Company has Federal and New York State net
operating loss carryforwards of approximately $11,232,000 and
$11,042,000, respectively, for income tax purposes that expire in years
1998 through 2010. The Company also has Federal Research and Investment
Tax Credit and New York State Investment Tax Credit carryforwards of
approximately $453,000 and $218,000, respectively, for income tax
purposes which expire in years 1996 through 2009. A valuation allowance
has been recognized to reduce the deferred tax assets related to those
carryforwards to amounts expected to be realized.
16. Retirement Plan
The Company has a 401K retirement plan covering substantially all
eligible employees. Contributions are made to the plan at the discretion
of the Company's Board of Directors and amounted to $-0- for the periods
ended December 31, 1995 and September 30, 1996.
Under the 401K plan, the covered employees are eligible to defer a
portion of their compensation up to the maximum allowed. The employer
does not match any portion of the employees' contribution.
17. Supplemental Cash Flow Information
Interest paid during each of the periods ended December 31, 1995 and
September 30, 1996 was approximately $1,000.