Exhibit 99.1
Endogen, Inc.
Research Products and Operations of
T Cell Diagnostics, Inc.
Index to Financial Statements
Report of Independent Accountants..................................10
Balance Sheet at December 31, 1995 and 1994........................11
Statement of Operations for the Years Ended
December 31, 1995, 1994 and 1993................................12
Statement of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993................................13
Notes to Financial Statements......................................14
9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of T Cell Sciences, Inc.:
In our opinion, the accompanying balance sheet and the related
statements of operations and of cash flows present fairly, in all
material respects, the financial position of the research products and
operations of T Cell Diagnostics, Inc. (the "Business") at December 31,
1995 and 1994, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the management of T Cell
Sciences, Inc.; 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 generally accepted auditing
standards 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.
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 17, 1996
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T CELL DIAGNOSTICS, INC.
RESEARCH PRODUCTS AND OPERATIONS
BALANCE SHEET
December 31, December 31,
1995 1994
- - ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Accounts Receivable, Net of the Allowance for
Doubtful Accounts of $17,187 and $10,000 $ 326,995 $ 460,140
Inventories, Net 390,779 390,584
Prepaid and Other Current Assets 185,591 204,678
- - ---------------------------------------------------------------------------------------------------------------------------
Total Current Assets 903,365 1,055,402
- - ---------------------------------------------------------------------------------------------------------------------------
Property and Equipment, Net 535,838 261,398
Other Assets 122,683 123,074
- - ---------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,561,886 $ 1,439,874
===========================================================================================================================
LIABILITIES AND PARENT COMPANY INVESTMENT
Current Liabilities:
Accounts Payable $ 254,261 $ 256,770
Accrued Expenses 134,323 139,923
- - ---------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 388,584 396,693
- - ---------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Note 5)
Parent Company Investment (Note 13) 1,173,302 1,043,181
- - ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Parent Company Investment $ 1,561,886 $ 1,439,874
===========================================================================================================================
The accompanying notes are an integral part of the financial statements.
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T CELL DIAGNOSTICS, INC.
RESEARCH PRODUCTS AND OPERATIONS
STATEMENT OF OPERATIONS
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1994 1993
- - ---------------------------------------------------------------------------------------------------------------------------
REVENUE:
Product Sales $ 2,299,957 $ 3,032,231 $ 3,349,561
- - ---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Cost of Product Sales 1,835,946 1,884,839 2,286,618
Research and Development (Note 11) 822,788 945,989 3,625,238
General and Administrative 1,218,054 1,103,896 1,037,475
Marketing and Sales 573,936 936,206 1,329,265
Facility Relocation -- 134,286 --
- - ---------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 4,450,724 5,005,216 8,278,596
- - ---------------------------------------------------------------------------------------------------------------------------
Net Loss $ (2,150,767) $ (1,972,985) $ (4,929,035)
===========================================================================================================================
The accompanying notes are an integral part of the financial statements.
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T CELL DIAGNOSTICS, INC.
RESEARCH PRODUCTS AND OPERATIONS
STATEMENT OF CASH FLOWS
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
Increase (Decrease) in Cash 1995 1994 1993
- - ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Loss $ (2,150,767) $ (1,972,985) $ (4,929,035)
Adjustments to Reconcile Net Loss to Cash
used by Operating Activities:
Depreciation and Amortization 175,499 140,966 158,925
Changes in Assets and Liabilities:
Accounts Receivable 133,145 19,349 65,569
Inventories (195) 4,007 173,040
Prepaid and Other Assets 19,087 (189,056) 120,388
Accounts Payable and Accrued Expenses (8,109) (77,230) (58,055)
- - ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Operating Activities (1,831,340) (2,074,949) (4,469,168)
- - ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Acquisition of Property and Equipment (437,224) (98,755) (32,017)
Increase in Patents and Licenses (12,324) (8,568) (1,461)
- - ---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities (449,548) (107,323) (33,478)
- - ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Additional Capital Contributed by Parent Company 2,280,888 2,182,272 4,502,646
- - ---------------------------------------------------------------------------------------------------------------------------
Increase in Cash $ -- $ -- $ --
Cash at Beginning of Year $ -- $ -- $ --
- - ---------------------------------------------------------------------------------------------------------------------------
Cash at End of Year $ -- $ -- $ --
===========================================================================================================================
The accompanying notes are and integral part of the financial statements.
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T CELL DIAGNOSTICS, INC.
RESEARCH PRODUCTS AND OPERATIONS
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BASIS OF PRESENTATION
The Business
Under a purchase and sale agreement dated as of March 4, 1996, Endogen, Inc.
acquired the research products and operations (the "Business") of T Cell
Diagnostics, Inc. ("TCD"), a wholly owned subsidiary of T Cell Sciences, Inc.
("TCS").
The Business develops, manufactures and markets proprietary products used in the
research or preclinical diagnostic market. The Business excludes TCD's TRAx(R)
diagnostic product franchise which includes TRAx CD4 for CD4 cell enumeration in
monitoring HIV infected patients. The Business shares administrative offices
with other TCS operations in Needham, Massachusetts.
Basis of Presentation
These financial statements present the historical financial position, results of
operations and cash flows of the Business previously included in the TCS
consolidated financial statements. The Securities and Exchange Commission, in
Staff Accounting Bulletin No. 5, requires that historical financial statements
of a subsidiary, division or lesser business component of another entity include
certain expenses incurred by the parent on its behalf (Note 14).
Earnings per share calculations are not reflected herein, as this information is
not considered meaningful as a result of the Business not being a legal entity,
and therefore not having customary equity or capital accounts. Accumulated
funding from TCS to the Business is reflected in Parent Company Investment (Note
13).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Revenue Recognition
Revenue from product sales is recognized when the product is shipped.
(B) Research and Development Costs
Research and development costs are expensed as incurred.
(C) Concentration of Credit Risk
Financial instruments which potentially expose the Business to concentrations of
credit risk consist primarily of trade accounts receivable. To minimize the
risk, ongoing credit evaluation of customer's financial condition is performed.
(D) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
(E) Property and Equipment
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the related assets using the straight-line method. Laboratory
equipment and office furniture and equipment are depreciated over a five year
period and computer equipment is depreciated over a three year period. Leasehold
improvements are amortized over the shorter of the estimated useful life or the
noncancelable term of the related lease.
(F) Licenses, Patents and Trademarks
Included in other assets are purchased licenses, patents and trademarks which
are capitalized and amortized over the shorter of the estimated useful lives or
ten years using the straight-line method.
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(G) Use of Estimates
The preparation of the 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 and
disclosure of contingencies at December 31, 1995 and 1994 and the reported
amounts of revenue and expense for the years ended December 31, 1995, 1994 and
1993. Actual results could differ from those estimates.
3. INVENTORIES
Inventories consist of the following:
December 31, December 31,
1995 1994
- - ----------------------------------------------------------------------------------------------------------
Raw Materials $ 147,474 $184,206
Work In Process 126,332 171,613
Finished Goods 332,574 126,223
- - ----------------------------------------------------------------------------------------------------------
606,380 482,042
Reserve for Obsolescence (215,601) (91,458)
- - ----------------------------------------------------------------------------------------------------------
$ 390,779 $390,584
==========================================================================================================
4. PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets includes the following:
December 31, December 31,
1995 1994
- - ----------------------------------------------------------------------------------------------------------
Prepaid License Fees $63,428 $55,769
Prepaid Consulting Fees 86,893 --
Deposits -- 64,177
Miscellaneous Accounts Receivable -- 56,800
Other 35,270 27,932
- - ----------------------------------------------------------------------------------------------------------
$185,591 $204,678
==========================================================================================================
5. PROPERTY, EQUIPMENT AND LEASES
Property and equipment includes the following:
December 31, December 31,
1995 1994
- - ----------------------------------------------------------------------------------------------------------
Laboratory Equipment $ 753,417 $ 942,438
Office Furniture and Equipment 201,237 155,231
Leasehold Improvements 500,972 4,800
- - ----------------------------------------------------------------------------------------------------------
Property and Equipment, Total 1,455,626 1,102,469
Less Accumulated Depreciation
and Amortization (919,788) (841,071)
- - ----------------------------------------------------------------------------------------------------------
$ 535,838 $ 261,398
==========================================================================================================
Depreciation expense related to equipment and leasehold improvements was
approximately $163,000, $131,000 and $150,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
In June 1994, TCS and TCD evacuated their former Cambridge, Massachusetts
facility due to air quality problems and in October 1994 TCD entered into a
five-year lease for laboratory, office and warehouse space in Woburn,
Massachusetts for its diagnostic business. As part of the sale of the Business
the lease for the Woburn facilities was assigned to Endogen.
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The Business's total rent expense was approximately $189,000, $97,000 and
$254,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Future obligations for base rent under these and other noncancelable operating
leases as of December 31, 1995 are approximately as follows:
Year ending December 31, 1996 $ 268,000
1997 272,000
1998 296,000
1999 258,000
2000 8,000
- - ----------------------------------------------------------------------------------------------------------
Total minimum lease payments $1,102,000
==========================================================================================================
6. OTHER ASSETS
Other assets includes the following:
December 31, December 31,
1995 1994
- - ----------------------------------------------------------------------------------------------------------
Capitalized Patent and Trademark Costs $114,623 $102,299
Accumulated Amortization (33,940) (21,225)
- - ----------------------------------------------------------------------------------------------------------
Capitalized Patent and Trademark Costs, Net 80,683 81,074
Other Non Current Assets 42,000 42,000
- - ----------------------------------------------------------------------------------------------------------
$122,683 $123,074
==========================================================================================================
Amortization expense for the years ended December 31, 1995, 1994 and 1993
relating to patent costs and trademarks was approximately $13,000, $10,000 and
$9,000, respectively.
7. ACCRUED EXPENSES
Accrued expenses includes the following:
December 31, December 31,
1995 1994
- - ----------------------------------------------------------------------------------------------------------
Accrued License Fees and Royalties $ 38,978 $ 38,000
Accrued Payroll 44,359 --
Accrued Consulting Fees -- 14,250
Accrued Travel -- 20,000
Accrued Other 50,986 67,673
- - ----------------------------------------------------------------------------------------------------------
$134,323 $139,923
==========================================================================================================
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8. INCOME TAXES
The components of the deferred tax benefit include:
Year Ended December 31,
1995 1994 1993
- - -------------------------------------------------------------------------------------------------------------------
Deferred Income Tax Benefit:
Federal $ 687,971 $ 624,424 $1,567,320
State 228,847 196,577 506,862
- - -------------------------------------------------------------------------------------------------------------------
916,818 821,001 2,074,182
Deferred tax assets valuation allowance (916,818) (821,001) (2,074,182)
- - -------------------------------------------------------------------------------------------------------------------
$ -- $ -- $ --
===================================================================================================================
Deferred tax assets are comprised of the following at December 31:
1995 1994
- - ----------------------------------------------------------------------------------------------------------
Net Operating Loss Carryforwards $ 4,189,778 $ 3,353,874
Tax Credit Carryforwards 425,316 366,255
Other 248,308 226,515
- - ----------------------------------------------------------------------------------------------------------
Gross Deferred Tax Assets 4,863,402 3,946,644
Deferred Tax Assets Valuation Allowance (4,863,402) (3,946,644)
- - ----------------------------------------------------------------------------------------------------------
$ -- $ --
==========================================================================================================
A reconciliation between the amount of reported income tax expenses and the
amount computed using the U.S. Statutory rate of 35% follows:
Year Ended December 31,
1995 1994 1993
- - -------------------------------------------------------------------------------------------------------------------
Benefit of Loss at Statutory Rates $ (752,768) $ (690,545) $(1,725,162)
State Tax Benefit, Net of Federal Tax Effect (131,381) (122,075) (305,577)
Other (32,669) (8,381) (43,443)
Benefit of Losses and Credits Not Recognized,
Increase in Valuation Allowance 916,818 821,001 2,074,182
- - -------------------------------------------------------------------------------------------------------------------
$ -- $ -- $ --
===================================================================================================================
The Business has provided a full valuation allowance for deferred tax assets as
management has concluded that it is more likely than not that the Business will
not recognize any benefits from its net deferred tax assets The utilization of
the deferred tax benefit will depend on numerous factors, including the
Business's future profitability.
9. RESEARCH AND LICENSING AGREEMENTS
The Business has entered into licensing agreements with several universities and
research organizations. Under the terms of these agreements, the Business has
received licenses to technology, certain patents or patent applications. The
Business is required to make payments of nonrefundable license fees and
royalties which amounted to approximately $85,000, $115,000 and $60,000 for the
years ended December 31, 1995, 1994 and 1993.
10. FOREIGN SALES AND SALES TO SIGNIFICANT CUSTOMERS
Foreign Sales:
Product sales were generated geographically as follows:
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Net Product Sales for the
Twelve Months Ended Europe USA Asia Other Total
- - ---------------------------------------------------------------------------------------------------------------------
December 31, 1995 $ 730,000 $ 964,000 $481,000 $125,000 $2,300,000
December 31, 1994 1,178,000 1,305,000 517,000 32,000 3,032,000
December 31, 1993 1,719,000 1,162,000 419,000 50,000 3,350,000
Sales to Significant Customer:
In 1995, the Business had product sales to one customer of 12% of total sales.
In 1994, the Business had sales to one customer of 12% of total sales and to
another customer of 11% of total sales. In 1993, the Business had sales to one
customer of 16% of total sales and to another customer of 12% of total sales.
11. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
In September 1993, the Business acquired approximately $2,100,000 of in-process
research and development costs in conjunction with the acquisition of the
outstanding minority interest in TCD. In accordance with generally
accepted accounting principles, the Business expensed this amount as research
and development costs upon acquisition.
12. FACILITY RELOCATION EXPENSE
In June 1994, TCS and TCD temporarily vacated their headquarters and
manufacturing facility at 38 Sidney Street in Cambridge, Massachusetts due to
air quality problems within the building causing certain employees to experience
skin and respiratory irritation. During the third quarter of 1994, management
determined that it could not return to the building and ensure the protection of
its employees' health. As a result, TCD relocated its operating facility to
Woburn, Massachusetts. The costs to physically move property and establish
computer and telephone networks at alternate sites and other costs directly
associated with vacating the Sidney Street location are included as facility
relocation expense.
13. PARENT COMPANY INVESTMENT
At December 31, 1995, T Cell Diagnostics, Inc. has 1,000 shares authorized,
issued and outstanding common stock, $.001 par value and 2,000 shares authorized
preferred stock, $.001 par value. Since the Business is not a legal entity,
there are no customary equity or capital accounts. Rather, a parent company
investment is maintained by the Business and TCS to account for intercompany
transactions and related charges and credits as further described in Note 14. No
interest has been charged on the parent company investment.
A summary of changes in the parent company investment is as follows:
Parent company investment at December 31, 1992 1,260,283
Net loss (4,929,035)
Capital contribution from parent 4,502,646
- - ----------------------------------------------------------------------------------------------------------
Parent company investment at December 31, 1993 833,894
Net loss (1,972,985)
Capital contribution from parent 2,182,272
- - ----------------------------------------------------------------------------------------------------------
Parent company investment at December 31, 1994 1,043,181
Net loss (2,150,767)
Capital contribution from parent 2,280,888
- - ----------------------------------------------------------------------------------------------------------
Parent company investment at December 31, 1995 $ 1,173,302
==========================================================================================================
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14. RELATED PARTY TRANSACTIONS AND ALLOCATIONS
Cash
The Business utilized TCS's centralized cash management services. Generally,
under such service arrangements, accounts receivable were collected and cash was
invested centrally. Additionally, disbursing operations were funded centrally on
demand. As a result, the Business carried no cash but received charges and
credits against parent company investment for cash used and collected through
TCS.
Corporate and Divisional Services
The Business used, and was charged costs for, certain administrative and
accounting services that TCS provided to the Business and to other TCS
operations at the corporate administrative offices, including human resources,
data processing and legal services.
In addition, TCS allocates a portion of its domestic corporate expenses to
respective business units. These include TCS executive management and corporate
overhead; benefit administration; risk management/insurance administration; tax
and treasury/cash management services; litigation administration services; and
other support and executive functions.
All of the allocations and charges described above are included in general and
administrative expenses in these financial statements. Such allocations and
charges are based on either a direct cost allocation or a percentage of total
costs for the services provided. Such allocations and charges totaled $703,000,
$723,000 and $613,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
TCS also charges the Business, based on the Business' experience, for its share
of workers' compensation, employee life, medical and dental, and other general
business liability insurance premiums and claims handled on a corporate-wide
basis. These charges are based upon a combination of experience and payroll
dollars and totaled $164,000, $124,000 and $177,000 in 1995, 1994 and 1993,
respectively and are allocated based on the nature of the function.
Management believes that the basis used for allocating corporate and divisional
services is reasonable. However, the terms of these transactions may differ from
those that would result from transactions among unrelated parties.
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