Exhibit 99.1
BioSeq, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM OCTOBER 17, 1994
(DATE OF INCEPTION) TO DECEMBER 31, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BioSeq, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of BioSeq, Inc. (a
development stage enterprise) at December 31, 1997 and 1996 and the results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1997 and for the period from October 17, 1994 (date of inception)
to December 31, 1997, in conformity with accounting principles generally
accepted in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts
July 10, 1998, except as to certain
information in the second paragraph of Note I,
for which the date is September 30, 1998.
BioSeq, Inc.
(A Development Stage Enterprise)
BALANCE SHEETS
as of December 31, 1997 and 1996
ASSETS 1997 1996
---- ----
Current assets:
Cash and cash equivalents $ 336,598 $ 452,704
Contract receivable 11,000 --
Total current assets 347,598 452,704
Property and equipment, net (Note C) 219,611 75,395
----------- -----------
Total assets $ 567,209 $ 528,099
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable 40,125 7,895
Accrued expenses 150,911 35,500
Due to related party (Note G) 110,100 148,436
----------- -----------
Total current liabilities 301,136 191,831
Convertible notes payable (Note D) 625,000 --
Commitments and contingencies (Note G)
Stockholders' equity (deficit) (Note F):
Preferred stock, $.01 par value; 1,150 shares authorized:
Series A Convertible Preferred Stock, $.01 par value; 300
shares designated, issued and outstanding
(liquidation preference $700 per share) 3 3
Series B Convertible Preferred Stock, $.01 par value; 550
shares designated, issued and outstanding
(liquidation preference $950 per share) 6 6
Series C Convertible Preferred Stock, $.01 par value;
300 shares designated, 300 and zero shares issued and
outstanding at December 31, 1997 and 1996, respectively
(liquidation preference $2,500 per share) 3 --
Additional paid-in capital - Preferred stock 1,341,751 680,491
Common stock, no par value; 15,000 shares authorized,
4,762 shares issued and outstanding 352,143 352,143
Deficit accumulated during development stage (2,052,833) (696,375)
----------- -----------
Total stockholders' equity (deficit) (358,927) 336,268
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 567,209 $ 528,099
=========== ===========
The accompanying notes are an integral part of the financial statements
2
BioSeq, Inc.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
for the years ended December 31, 1997 and 1996 and for the period from
October 17, 1994 (date of inception) to December 31, 1997
For the period from
October 17, 1994
(Date of Inception)
to December 31,
1997 1996 1997
---- ---- -------------------
Contract research and development revenue $ 19,000 $ 19,000
Operating expenses:
Research and development 1,068,153 $ 390,974 1,702,755
General and administrative 294,127 45,300 357,657
----------- --------- -----------
1,362,280 436,274 2,060,412
----------- --------- -----------
Operating loss (1,343,280) (436,274) (2,041,412)
Interest income 26,100 1,757 27,857
Interest expense (39,278) -- (39,278)
----------- --------- -----------
Net loss $(1,356,458) $(434,517) $(2,052,833)
=========== ========= ===========
The accompanying notes are an integral part of the financial statements
3
BioSeq, Inc.
(A Development Stage Enterprise)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the period from October 17, 1994 (date of inception) to December 31, 1997
Preferred Stock
-----------------------------------------------------------------------------
Series A Convertible Series B Convertible Series C Convertible Additional
------------------ ---------------- ---------------- Paid-in
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -------
Issuance of common stock to founders in
December 1, 1994
Net loss
Balance at December 31, 1994
Issuance of common stock to founders in
July 1, 1995
Net loss
Balance at December 31, 1995
Issuance of common stock to founders,
various dates April to August 1996
Issuance of common stock to related party for
repayment of note to related party March 1996
Issuance of common stock to related party in
exchange for services in April and July 1996
Issuance of common stock in August 1996
Issuance of common stock in exchange for
services in December 1996
Issuance of Series A convertible preferred stock
in October 1996 300 $ 3 $ 209,997
Issuance of Series B convertible preferred stock
in November 1996 550 6 522,494
Issuance costs related to stock (52,000)
Net loss
--- ----- --- --- ------------
Balance at December 31, 1996 300 $ 3 550 6 680,491
Issuance of Series C preferred
in April 1, 1997 $ 300 3 749,997
Issuance costs related to stock (88,737)
Net loss
--- ----- --- --- ----- --- ------------
Balance at December 31, 1997 300 $ 3 550 6 300 3 $ 1,341,751
=== ===== === === ===== === ------------
Common Stock Deficit Total
---------------- Accumulated Stockholders'
Shares Amount Since Inception Equity (Deficit)
------ ------ --------------- ---------------
Issuance of common stock to founders in
December 1, 1994 650 $ 65,000 $ 65,000
Net loss $ (63,397)
Balance at December 31, 1994 650 $ 65,000 (63,397) 1,603
----- -------- ------------ ----------
Issuance of common stock to founders in
July 1, 1995 936 436 436
Net loss (198,461)
----- -------- ------------ ----------
Balance at December 31, 1995 1,586 65,436 (261,858) (196,422)
Issuance of common stock to founders,
various dates April to August 1996 1,330 1,514 1,514
Issuance of common stock to related party for
repayment of note to related party March 1996 500 75,000 75,000
Issuance of common stock to related party in
exchange for services in April and July 1996 1,196 135,193 135,193
Issuance of common stock in August 1996 100 50,000 50,000
Issuance of common stock in exchange for
services in December 1996 50 25,000 25,000
Issuance of Series A convertible preferred stock
in October 1996 210,000
Issuance of Series B convertible preferred stock
in November 1996 522,500
Issuance costs related to stock (52,000)
Net loss (434,517) (434,517)
---- -------- ------------ ----------
Balance at December 31, 1996 4,762 352,143 (696,375) 336,268
Issuance of Series C preferred
in April 1, 1997 750,000
Issuance costs related to stock (88,737)
Net loss (1,356,458) (1,356,458)
---- -------- ------------ ----------
Balance at December 31, 1997 4,762 $352,143 $ (2,052,833) $ (358,927)
===== ======== ============ -=========
The accompanying notes are an integral part of the financial statements
4
BioSeq, Inc.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996 and
for the period from October 17, 1994 (date of inception) to December 31, 1997
For the Period From
October 17, 1994
(Date of Inception)
to December 31,
1997 1996 1997
---- ---- -------------------
Cash flows for operating activities:
Net loss $(1,356,458) $ (434,517) $(2,052,833)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 35,678 3,652 39,330
Stock issued for services -- 135,193 135,193
Changes in assets and liabilities:
Accounts receivable (11,000) -- (11,000)
Accounts payable and accrued expenses 159,305 21,669 268,636
----------- ----------- -----------
Net cash used in operating activities (1,172,475) (274,003) (1,620,674)
----------- ----------- -----------
Cash flows for investing activities:
Purchases of property and equipment (179,894) (79,047) (258,941)
----------- ----------- -----------
Net cash used in investing activities (179,894) (79,047) (258,941)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 51,514 116,950
Proceeds from issuance of preferred stock 750,000 732,500 1,482,500
Issuance costs related to preferred stock (88,737) (27,000) (115,737)
Proceeds from related party loans -- 67,500 195,000
Principal payments of related party loans (50,000) (37,500) (87,500)
Proceeds from notes payable 625,000 -- 625,000
----------- ----------- -----------
Net cash provided by financing activities 1,236,263 787,014 2,216,213
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (116,106) 433,964 336,598
Cash and cash equivalents, beginning of period 452,704 18,740 --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 336,598 $ 452,704 $ 336,598
=========== =========== ===========
Supplemental disclosures of noncash transactions:
Related party loans converted into common stock -- $ 75,000 $ 75,000
Interest paid -- -- --
The accompanying notes are an integral part of the financial statements
5
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
A. Nature of Business:
BioSeq, Inc. (the "Company"), which began operations on October 17, 1994
and was incorporated on December 12, 1994, is a development stage
enterprise engaged in developing a platform technology for precise
bimolecular interaction control which enables faster, simpler, and
inherently lower cost products and services as compared to conventional
technologies. The Company's proprietary technology employs a unique
approach and has broad application in a number of emerging and
established industries. The Company plans to continue to develop its
broad-based enabling technology platform in order to establish an array
of patents covering numerous potential commercial applications. Since its
inception, the Company has devoted substantially all of its efforts to
establishing a new business and to carrying on research and development
activities. See Note I. Subsequent Events which describes that BioSeq,
Inc., was acquired by Boston Biomedica, Inc. in 1998.
The Company is subject to a number of risks similar to other companies
in the industry, including rapid technological change, uncertainty of
market acceptance of products, uncertainty of regulatory approval,
competition from substitute products and larger companies, customers'
reliance on third-party reimbursement, the need to obtain additional
financing, compliance with government regulations, protection of
proprietary technology, dependence on third-parties, product liability,
and dependence on key individuals.
B. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to be cash
equivalents. Cash equivalents, which are primarily money market accounts,
are stated at cost, which approximates market value.
Concentration of Credit Risk
Cash and cash equivalents are financial instruments, which potentially
subject the Company to concentrations of credit risk. At December 31,
1997 and 1996, substantially all of the Company's cash was invested in a
money market account at one financial institution.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to five years. The cost of maintenance and repairs is
charged to expense as incurred.
Research and Development Expense
Research and development costs are expensed as incurred.
Continued
6
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Income Taxes
The Company uses the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities reflect
the impact of temporary timing differences between amounts of assets and
liabilities for financial reporting purposes and such amounts as measured
by tax laws. A valuation allowance is required to offset any net deferred
tax assets if, based upon the available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") encourages, but does not require
companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the fair
value of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. Had compensation cost for the
Company's stock-based compensation been determined based on the fair
value at the date of grant consistent with the method of SFAS 123, the
Company's net loss would not have been materially impacted.
Reclassifications
Certain reclassifications have been made in the prior year's financial
statements to conform with the 1997 presentation.
Continued
7
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
C. Property and Equipment:
Property and equipment at December 31, 1997 and 1996 consists of:
1997 1996
--------- ---------
Lab equipment $ 234,733 $ 79,047
Office equipment 24,208 --
--------- ---------
Property and equipment, gross 258,941 79,047
Less: accumulated depreciation (39,330) (3,652)
--------- ---------
Property and equipment, net $ 219,611 $ 75,395
========= =========
D. Notes Payable:
On April 11, 1997, the Company issued $625,000 of convertible notes ( the
" Notes"). The notes bear interest at 8.25% per annum and both principal
and interest are due in April 1999. The outstanding principal and accrued
interest on this Note will be automatically converted without action of
the holder, upon the closing of an equity financing or series of related
equity financings for the same security of at least $2,000,000 in the
aggregate, into the security issued in that financing (the "Underlying
Security"), at a price equal to 80% of the average gross issue price
thereof (the "Conversion Price"). The holder of this Note, upon such
conversion, will receive such number of fully paid and nonassessable
shares of Underlying Securities as the outstanding principal and accrued
but unpaid interest on this Note to which such conversion relates as of
the Conversion date could purchase at the Conversion Price then in
effect.
E. Stockholders' Equity:
Capital Stock
The authorized capital stock of the Company consists of (i) 15,000 shares
of voting common stock authorized for issuance with no par value, 4,762
shares of which are issued and outstanding at December 31, 1997 and 1996,
(ii) 1,150 shares of preferred stock, with a par value of $.01, 300
shares of which are designated, issued and outstanding as Series A
Convertible Preferred Stock ("Series A Stock") at December 31, 1997 and
1996; 550 shares of which are designated, issued and outstanding as
Series B Convertible Preferred Stock ("Series B Stock") at December 31,
1997 and 1996; and 300 and zero shares of which are designated, issued
and outstanding as Series C Convertible Preferred Stock ("Series C
Stock") at December 31, 1997 and 1996, respectively. The holders of all
series of Preferred Stock are entitled to one vote for each share of
Common Stock, into which the Preferred Stock is then convertible. No
dividends may be paid on the Common
Continued
8
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Stock until all dividends, including accrued but unpaid dividends have
been paid to the holders of all series of preferred stock. The Company
has reserved 1,150 shares of common stock for the conversion of preferred
stock.
Under the terms of a preferred stock purchase agreement the holder of the
Series A and B stock had the right to purchase the designated shares of
Series C Stock for a per share price of $2,500 until December 31, 1997.
On April 10, 1997, the holder of the Series A and B stock exercised its
right under the stock purchase agreement to purchase 300 shares of Series
C Stock for $2,500 per share. Additionally, the preferred stock purchase
agreement requires 33% of the proceeds from the Series A Stock and 66% of
the proceeds from Series B and C Stock to be used to fund research and
development activities. The holder of the Series A, B and C Stock is an
unaffiliated corporation that, based upon the agreement, cannot purchase
in excess of 20% of the aggregate preferred and common stock of the
Company and is entitled to elect one director of the Company. The
agreement also required the Company to pay to the unaffiliated
corporation a minimum of $100,000 for research services by September 30,
1997. Upon the closing of the Series C Stock the minimum requirement
increases to $150,000 by December 31, 1998.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of the Series A
Stock, Series B Stock and Series C Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of the Common stock by
reason of their ownership thereof, an amount equal to the original issue
prices of $700 per share of the Series A Stock, $950 per share of Series
B Stock and $2,500 per share Series C Stock, respectively.
Conversion Rights
The holder of the Series A Stock, Series B Stock and Series C Stock shall
have the following rights with respect to the conversion of the Preferred
Stock into shares of Common Stock:
a) Optional Conversion. Any shares of Preferred Stock may, at the
option of the holder, be converted at any time into shares of
Common Stock. Initially, the holder will be entitled upon
conversion to receive one share of common stock for each share of
Series A, B, or C stock. If prior to conversion, the Company
sells or issues any shares of common stock or securities
convertible into common stock, subject to certain conditions, for
consideration less than the respective issuance prices of the
Series A, B, or C stock, the conversion ratio will be reduced on
a weighted average basis.
b) Automatic Conversion. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock, based on
each then-effective conversion ratio immediately upon the closing
of a firmly underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the
account of the Company in which (i) the share price is at least
$1,300, and (ii) and the gross cash proceeds to the Company are
at least $10,000,000.
Continued
9
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Warrants
In October 1996, the Company issued a stock purchase warrant to the
purchaser of Series A and B Stock, granting the warrant holder the right
to purchase, 300 shares at a per share price of $770, 550 shares at a per
share price of $1,045 and 300 shares at a per share price of $2,570,
shares of the Company's common stock for a period of five years. The
warrants are not exercisable if it would cause the holder's percentage
interest in the equity of the Company to exceed 20%. In the event the
Company sells any shares of common stock, warrants options or convertible
securities for consideration less than the warrant purchase price, the
warrant purchase price will be reduced. At date of issuance, the value of
these warrants was not material to the results of operations of the
financial statements.
Stock Options
In September and October of 1995, the Company issued options to purchase
27.5 shares of common stock with an exercise price of $1,000 per share to
advisors of the Company. The options vest over the following schedule:
25% after 6 months, 50% after 12 months, 75% after 24 months and 100%
after 36 months. There were 27.5 of these options outstanding at December
31, 1997 and 1996; 20 and 13 of these options were vested and exercisable
at December 31, 1997 and 1996, respectively.
1996 Stock Option Plan
In December 1996, the Company adopted the 1996 Stock Option Plan (the
"Option Plan"). The Option Plan is administered by a Committee of the
Company's Board of Directors (the "Committee"), and allows for the
granting of awards in the form of incentive stock options, nonstatutory
stock options, stock appreciation rights, and stock grants which may
include restricted stock for up to 1,086 shares of common stock to
eligible employees nonemployed directors, advisors and consultants to the
Company. Awards granted under the plan are subject to terms and
conditions as determined by the Committee, except that no incentive stock
options may be issued at less than the fair market value of the common
stock on the date of grant or have a term in excess of ten years. In
addition, no individual will be granted options in any calendar year for
the purchase of more than 200 shares. Stock option awards normally vest
over 48 months as follows: 12.5% after 6 months from the date of grant,
an additional 12.5% after 12 months from the date of grant, an additional
25% after 24 months from the date of grant, an additional 25% after 36
months from the date of grant and the remaining 25% after 48 months from
the date of grant. At December 31, 1997 and 1996, 1,086 shares were
available for the granting of awards. There were 781 and zero options
outstanding under the Option Plan at December 31, 1997 and 1996,
respectively. The options granted during the year ended December 31, 1997
have an exercise price ranging from $500 to $550 per share. The
weighted-average remaining contractual life of those options is 7.8
years.
Continued
10
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
A summary of the Company's stock option activity and related information
for the years ended December 31 is as follows:
1997 1996
--------------------------- ---------------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
Oustanding - beginning of year -- -- -- --
Granted 781 $ 516.01 -- --
Exercised -- -- -- --
Canceled -- -- -- --
Outstanding - end of year 781 516.01 -- --
Exercisable at end of year 66 $ 523.54 -- --
===== ========== ====== ======
F. Income Taxes:
Since the Company has incurred net losses since inception, no provision
for income taxes has been recorded. Deferred income taxes consist
principally of deferred tax assets relating to net operating losses and
research and development credits offset by deferred tax liabilities
relating to depreciation. The net deferred tax asset is approximately
$805,000 and $180,000 at December 31, 1997 and 1996, respectively, for
which a full valuation allowance has been provided due to the uncertain
realization of the benefit.
The Company had approximately $1,738,000 and $406,000 of net operating
loss carryforwards at December 31, 1997 and 1996, respectively, and
$119,000 and $18,000 of federal and state tax credit carryforwards
available for income tax purposes at December 31, 1997 and 1996,
respectively. Of these net operating loss and credit carryforwards
$1,332,000 and $406,000 will expire in 2012 and 2011, respectively.
However, changes in the Company's ownership as defined in the Internal
Revenue Code may limit the Company's ability to utilize net operating
loss and tax credit carryforwards.
G. Related Party Transactions:
The Company is party to an agreement whereby it obtains substantially all
of its operating resources from a related corporation (the "Related
Entity") which is also a significant stockholder. At December 31, 1997
and 1996, respectively, the Related Entity owns approximately 40% and 42%
of the outstanding shares of the Company, respectively. During 1996, this
Related Entity provided the Company with all personnel (including
management), access to technology licenses, and operating facilities.
Under the terms of this agreement, the Company paid $290,974 for the
Continued
11
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
year ended December 31, 1996 and has paid $534,602 for the period from
inception (October 17, 1994) through December 31, 1997. Due to the
related party nature of these entities, the amounts charged for these
services may not be recorded at fair market value.
Effective January 1, 1997, all of the employees of the Related Entity
became employees of the Company and the Company agreed to pay the Related
Entity $12,000 per month in exchange for all expenses related to certain
leased facilities and related furniture, fixtures and equipment. Under
the terms of this agreement, the Company paid $144,000 for the year ended
December 31, 1997 and for the period from inception (October 17, 1994) to
December 31, 1997.
Additionally, in October 1996, the Company entered into a technology
transfer agreement (the "Technology Agreement") with the Related Entity
for the transfer of certain patent applications and technology in
exchange for $100,000 which has been recorded as research and development
expense. Amounts totaling $50,000 were paid in the years ended December
31, 1997 and 1996.
Under the terms of the Technology Agreement, the Company has also agreed
to pay a royalty of 5% of net sales, if any, of developed products
covered by the Technology Agreement. Minimum annual royalty payments
under this Technology Agreement are $150,000 payable in equal
installments on a quarterly basis commencing in calendar year 1997. Upon
satisfactory completion of certain technical milestones, the minimum
royalty payments to this Related Entity will increase to $250,000
annually. Royalty payments totaling $75,000 and zero were paid in 1997
and 1996, respectively.
The Company has amounts due to related parties totaling $110,100 and
$148,436 at December 31, 1997 and 1996, respectively. Of the 1996 amount,
$56,857 relates to equipment and legal expenses paid by the Related
Entity on behalf of the Company and $82,500 relates to a loan from the
Related Entity. During the year ended December 31, 1996, the remaining
amount of $9,079 related to operating services provided by the Related
Entity for the Company. Of the 1997 amount, $75,000 relates to license
fees, $32,500 relates to the loan from the Related Entity and the
remaining $2,600 represents interest on the loan from the Related Entity.
The loan from the Related Entity is payable on demand. Beginning on
January 1, 1997, the loan bears interest at 8%. In addition, the unpaid
portion of the Note is convertible at the option of the Related Entity
into 217 shares of common stock.
H. License Agreement:
On October 7, 1996, the Company has entered into an agreement with the
holder of the Series A, B, and C Stock, which grants the exclusive
world-wide license under certain patents. The term of the agreement
commences with the earlier of the closing of the Series C Stock or
December 31, 1997 and corresponds with the life of the patents. The
license becomes nonexclusive upon the first commercial sale of an
instrument utilizing the patent by the Company. Under the terms of the
agreement, the Company shall receive a royalty on the unaffiliated
corporation's net revenues, if any, under the license. The royalty rate
is 5% of net revenues during the three year period
Continued
12
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
commencing at the earlier of the first commercial sale of services or the
end of the one year period following the commencement of the license
term. The royalty shall increase to 8% during the next two years and to
10% thereafter. Royalty rates are reduced by 50% for services provided in
countries where no patent rights have been granted and reduced to zero
upon the license becoming non-exclusive.
I. Subsequent Events:
On March 20, 1998, the Company entered into an agreement with the holder
of Series A, B and C stock which grants the sole and exclusive right and
license world-wide under the licensed patents to develop, market,
manufacture, maintain, repair, use, offer to sell and sell licensed
products and to use technical information. Under the terms of the
agreement, the holder of Series A, B and C stock will pay the Company a
license fee of $600,000. In addition, the holder of Series A, B and C
stock will pay the Company a royalty equal to 5% of net sales on sales to
nonaffiliate customers and 25% of net sales on sales to sublicensees
during the first year of the agreement or $50,000, whichever is greater.
For all subsequent years, the royalty will be equal to $50,000 and the
prior year's royalty plus 5% not to exceed $125,000. On September 30,
1998, the Company was acquired by Boston Biomedica, Inc. ("BBI") for
$879,000 in cash (net of cash acquired of $121,000), warrants to purchase
100,000 shares of BBI's stock at an exercise price of $2.50 per share,
minimum long-term royalty payments to the owners of the Company of
$424,000, debt and accrued interest owed by the Company at the time of
acquisition of approximately $736,000 and other acquisition costs. The
Company's stock options were exchanged for 46,623 BBI stock options with
an average exercise price of $2.74. The aggregate purchase price of the
Company, including the original 19% investment under the 1996 Purchase
Agreement of $1,482,000, was approximately $4,226,000.
13