0000889812-95-000515.txt : 19950919 0000889812-95-000515.hdr.sgml : 19950919 ACCESSION NUMBER: 0000889812-95-000515 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19950918 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED MICROBIOLOGY INC CENTRAL INDEX KEY: 0000744962 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 112653613 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-12106 FILM NUMBER: 95574420 BUSINESS ADDRESS: STREET 1: 771 OLD SAW MILL RIVER ROAD CITY: TARRYTOWN STATE: NY ZIP: 10591 BUSINESS PHONE: 9143475767 MAIL ADDRESS: STREET 1: 771 OLD SAW MILL RIVER ROAD CITY: TARRYTOWN STATE: NY ZIP: 10591 10-K405/A 1 AMENDMENT TO ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A-2 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year ended June 30, 1994 Commission File Number 0-14983 APPLIED MICROBIOLOGY, INC. (Exact Name of Registrant as Specified in its Charter) New York 11-2653613 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 771 Old Saw Mill River Road Tarrytown, New York 10591 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including Area Code: (914) 347-5767 Securities registered pursuant to Section 12(b) of the Act: Common Stock (par value $.005 per share) Securities registered pursuant to Section 12(g) of the Act: Common Stock (par value $.005 per share) Title of Class Redeemable Warrants Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days. Yes X No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the registrant's best knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Item 6. SELECTED FINANCIAL DATA The following tables summarize certain financial data that are qualified by the more detailed financial statements included herein. The reporting currency is the Great Britain Pound ("GBP") as a result of the BP Transactions which are described in Note 1 to the Consolidated Financial Statements, and whereunder the Company acquired its Aplin & Barrett subsidiary (A&B). Figures are stated in thousands, except per share amounts.
Year ended June 30 1994 1993 1992(1) 1991 1990 ------------------ ---- ---- ------- ---- ---- Sales 6,415 7,822 5,617 5,114 4,960 Interest and Other Income 468 200 131 64 42 Write-off of Purchased Research and Development/Goodwill Amortization ---- 11,370 ---- ---- 1,041 Other Costs and Expenses 5,588 5,755 3,815 3,477 3,543 Tax Expense 123 274 625 576 544 Net Income/(Loss) 1,172 (9,377) 1,308 1,125 (126) Net Earnings/(Loss) per Share .06 (.67) 1.38 1.21 (.14) Selected Balance Sheet Data: 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Working Capital 4,767 3,810 1,048 241 (30) Total Assets 7,655 7,106 4,244 4,248 5,068 Total Liabilities 1,000 1,494 1,771 2,508 3,588 Redeemable Preferred Stock 758 758 ---- ---- ---- Stockholders' Equity 5,897 4,854 2,473 1,740 1,480
------------ (1) In connection with the consummation of the BP Transactions, the Company adopted A&B's fiscal year which ends on June 30. The 2 Company filed a Transition Report on Form 10-K for the fiscal period January 1, 1992 through August 31, 1992 to provide for the transition to A&B's historical financial information. Such Transition Report provided information with respect to the Company immediately prior to the consummation of the BP Transactions. For all previous years, the table sets forth the financial results of Aplin & Barrett. (2) The Company has not paid a cash dividend to its public shareholders on its Common Stock, although A&B did pay dividends to its stockholder before A&B was acquired by the Company. The Company does not contemplate paying any cash dividends on its Common Stock in the near future. The following table provides the US dollar equivalent of the selected financial data set forth above. These figures are based on an average exchange rate for income and expense of $1.4987 per GBP for 1994, $1.5448 per GBP for 1993, $1.744 for 1992, $1.68175 for 1991, and $1.647 for 1990, and for assets and liabilities of 1.5424 for 1994, 1.5091 for 1993, 1.899 for 1992, 1.90 for 1991, and 1.90 for 1990. Figures are stated in thousands, except per share amounts.
Year ended June 30 1994 1993 1992(1) 1991 1990 ------------------ ---- ---- ------- ---- ---- Sales 9,614 12,083 9,796 8,600 8,168 Interest and Other Income 701 309 229 107 69 Write-off of Purchased Research and Development/Goodwill Amortization ---- 17,564 ---- ---- 1,714 Other Costs and Expenses 8,374 8,891 6,653 5,846 5,834 Tax Expense 184 423 1,090 969 896 Net Income/(Loss) 1,757 (14,486) 2,282 1,892 (207) Net Earnings/(Loss) per Share .09 (1.03) 2.41 2.04 (.22)
3
Selected Balance Sheet Data: 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Working Capital 7,354 5,750 1,990 458 (57) Total Assets 11,808 10,724 8,060 8,071 9,629 Total Liabilities 1,542 2,255 3,363 4,765 6,817 Redeemable Preferred Stock 1,500 1,500 ---- ---- ---- Stockholders' Equity 8,766 6,969 4,697 3,306 2,812
------------ (1) See footnote (1) above. (2) See footnote (2) above. 4 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto of the Company included elsewhere herein. Introduction As a consequence of the closing on August 31, 1992 of the BP Transactions which are described in Note 1 to the Consolidated Financial Statements, and which for financial reporting purposes are accounted for as a reverse acquisition, the results for the year ended June 30, 1994 are those of the Company for the whole year. The results for the year ended June 30, 1993 are those of A&B for the full year and those of the Company other than A&B ("AMBI results") for the period from September 1, 1992 through June 30, 1993. The results for the year ended June 30, 1992 are solely those of A&B. The reporting currency for the Consolidated Financial Statements is the Great Britain Pound ("GBP"). Most of the figures in this discussion are therefore stated in that currency. Certain salient figures are also shown in U.S. dollars based on an average exchange rate for income and expenses of $1.4987 per GBP for 1994, 1.5448 for 1993, and 1.744 for 1992, and for assets and liabilities of 1.5424 for 1994, and 1.5091 for 1993. General The Company's historical revenues have been primarily attributable to sales of its own products. The Company also acts as U.K. selling agent for certain products of both affiliated as well as other companies. This latter activity has decreased in the year ended June 30, 1994 due to the Company relinquishing its U.K. agency to sell certain products. The Company also receives royalty income from users of its patented technology. This source of income is increasing. Cost of sales includes both direct and indirect manufacturing costs. Research costs includes internal expenditure in respect of the Company's U.S. laboratory facilities (salaries, materials, occupancy) and monies expended with external research facilities. Selling, general and administrative expenses include management salaries, clerical and administrative overheads, legal and public relations fees, and costs associated with selling of the Company's products. The Company capitalizes patent costs, as these generate royalty income on an ongoing basis. These costs are amortized over 5 periods of five to fifteen years. Results of Operations The Company has an accumulated deficit due to the write-off of purchased goodwill (amortized over five years from 1986-1990) and purchased research and development costs (written-off in the year ended June 30, 1993 in connection with the BP Transactions described in Note 1 of the Notes to the Consolidated Financial Statements included elsewhere herein). Three years ended June 30, 1994, 1993, and 1992 Sales Sales decreased 18.0% to GBP 6.42 million ($ 9.61 million) in 1994 from GBP 7.82 million ($ 12.08 million) in 1993. The figures for 1993 include sales of GBP 1.33 million from products sold by the Company under an agency agreement which terminated June 30, 1993; accordingly there are no sales of these products in the 1994 figures. Sales of the Company's own products declined by GBP 0.31 million, largely as a result of a reduction in sales to Australia, where the 1993 figure had increased due to a change in marketing arrangements; inventory which was previously treated as on consignment was sold to the distributor. This was offset by increased sales in North and South America. Sales of products under continuing agency agreements increased by GBP 0.24 million. The figure for 1994 includes GBP 1.66 million ($2.48 million) in sales made to related parties; in 1993 sales to related parties amounted to GBP 2.22 million ($3.44 million). The main reason for this decrease was the change in marketing arrangements mentioned above. The Company's 1993 sales of GBP 7.82 million ($ 12.08 million) were 39.3% higher than the 1992 sales of GBP 5.62 million ($ 9.8 million). Approximately 11% of the total increase was due to the inclusion of the AMBI results. The balance of this increase was primarily due to increased sales of the Company's own products, principally in Australia (due to the changed arrangements detailed above) and Latin America. Cost of Sales Cost of sales was GBP 2.35 million ($ 3.53 million) in 1994, a decrease of 36.2% from the 1993 figure of GBP 3.69 million ($5.71 million), and as a percentage of revenues was 36.7% compared to 47.2% in 1993. The decrease in cost of sales as a percentage of revenue was largely due to the inclusion in sales of a greater proportion of own manufactured products than in the previous year. These products provide higher margins than the agency goods. Cost of sales was GBP 3.69 million ($ 5.71 million) in 1993, 6 an increase of 51.9% over the 1992 level of GBP 2.43 million ($ 4.24 million), and as a percentage of revenues was 47.2% compared to 43.3% in 1992. The increase in cost of sales as a percentage of revenue was due to increased raw material costs. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") was GBP 2.33 million, GBP 1.40 million, and GBP 0.98 million in 1994, 1993 and 1992 respectively, representing increases of 66.4% in 1994 from 1993, and 43.3% in 1993 from 1992. SG&A as a percentage of sales was 36.4%, 17.9% and 17.4% in 1994, 1993 and 1992 respectively. The main components of the increase in 1994 were recruitment of additional sales staff, and increased public relations costs and other professional fees. Research Costs Research Costs were GBP 0.49 million, GBP 0.30 million, and GBP 0.13 million in 1994, 1993 and 1992 respectively, representing increases of 64.4% in 1994 from 1993, and 129.2% in 1993 from 1992. Research costs as a percentage of sales were 7.6%, 3.8% and 2.3% respectively. The Company has strengthened its in-house research team with several new appointments during the year. Income Before Tax Expense Income before tax expense was GBP 1.30 million ($ 1.94 million) in 1994, compared with a loss of GBP 9.10 million ($ 14.06 million) in 1993, although this later figure included the write-off of purchased research and development referred to in Results of Operations above. In the quarter ended June 30, 1994, the Company's income before tax expense declined to GBP 51,000 as a result primarily of a decline in sales resulting from a price increase effective April 1, 1994, causing some customers to place orders prior to the price increase. In addition, the quarterly results included a provision for obsolete inventory resulting from a management review, fixed costs not being fully absorbed by the lower production levels, and a variety of individually small charges. Income before tax expense was GBP 1.93 million ($3.37 million) in 1992. Tax Expense In 1994, the Company's pretax income was substantially offset by net operating losses. Pretax income in 1993 included a large loss relating to the write-off of purchased research and development which was not deductible and which therefore did not generate a corresponding tax benefit. Since the Company's 1992 7 financial statements included only the Company's U.K. operations, the tax rate was at the U.K. level of 33%. The effective tax rate may be expected to vary in the future depending upon the respective levels of income in the U.S. and the U.K. Refer to Note 11 to the financial statements for a fuller analysis of the tax charge. Liquidity and Capital Resources As of June 30, 1994 the Company had working capital of GBP 4.77 million ($7.35 million), which includes cash and cash equivalents of GBP 3.27 million ($5.05 million). On June 30, 1993, working capital was GBP 3.81 million ($5.75 million), which included cash and cash equivalents of GBP 2.37 million ($3.57 million). The non-cash components of working capital are therefore virtually unchanged (approx. GBP 1.5 million). During 1994 the Company generated cash from operations of GBP 1.71 million ($2.56 million). The Company used a portion of these funds to repay short-term borrowings in the U.K., and for capital expenditure, and for payment of preferred stock dividends. The Company anticipates expansion of its pharmaceutical research and development work, and will among other things, be expanding its facilities, acquiring additional equipment, and hiring additional personnel. The Company may incur significant operating losses as it expands its business. The Company believes it has cash on hand to provide for its anticipated expanded operations for at least one year. The nature of research and development is such that new discoveries and improvements may necessitate the Company to seek financing to take advantage of the market opportunities afforded by such discoveries and improvements. The Company is considering, among other things, raising capital through corporate partnerships, private placements and public offerings of securities. Inflation and Prevailing Economic Conditions The Company does not believe inflation has had a significant impact on the Company's operations. The Company does not believe exchange rates have had a significant impact on the Company's operations, as its main trading currency, GBP has been fairly stable. Seasonality The Company does not believe there is any significant seasonal effect on the Company's operations. 8 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APPLIED MICROBIOLOGY, INC. By: /s/ Fredric D. Price Fredric D. Price, President, CEO and Director Dated: September 11, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below as of September 11, 1995 by the following persons on behalf of Registrant and in the capacities indicated. /s/ Fredric D. Price Fredric D. Price, President, CEO and Director (Principal Accounting and Financial Officer) /s/ Ian Clack Ian Clack, Director /s/ Douglas A. Cotter Douglas A. Cotter, Director /s/ Audrey T Cross Audrey T. Cross, Director /s/ John P. Friend John P. Friend, Director /s/ David Guttmann David Guttmann, Chairman of the Board /s/ Robert Pollack Robert E. Pollack, Director APPLIED MICROBIOLOGY, INC. & SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES FILED WITH THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K JUNE 30, 1994 PAGE INDEPENDENT AUDITORS' REPORT F-2 CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1994 AND 1993 F-3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992 F-5 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992 F-7 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992 F-8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F-9 SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS F-20 SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION F-21 APPLIED MICROBIOLOGY, INC. & SUBSIDIARY INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Applied Microbiology, Inc.: We have audited the consolidated financial statements in Great Britain pounds sterling of Applied Microbiology, Inc. and subsidiary as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above in Great Britain pounds sterling present fairly, in all material respects, the financial position of Applied Microbiology, Inc. and subsidiary as of June 30, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. New York, New York July 19, 1994 APPLIED MICROBIOLOGY, INC. & SUBSIDIARY CONSOLIDATED BALANCE SHEETS GBP '000 USD '000 JUNE 30 JUNE 30 JUNE 30 JUNE 30 1994 1993 1994 1993 ---- ---- ---- ---- ASSETS Current assets: Cash and cash equivalents 3,273 2,366 5,048 3,571 Trade accounts receivable, less allowance for doubtful accounts of GBP 20,000 (1993 GBP 21,000) 855 1,170 1,319 1,766 Inventories 945 966 1,458 1,458 Prepayments and other current assets (note 13) 396 313 611 472 Due from affiliated companies (note 9) 4 175 6 264 ----- ----- ------ ------ Total current assets 5,473 4,990 8,442 7,531 Property and equipment, net (notes 3 and 4) 1,650 1,688 2,545 2,547 Patent costs and licensed technology, net of accumulated amortization of GBP 313,000 (1993 GBP 193,000) 505 428 779 646 Other asset 27 - 42 - ----- ----- ------ ------ TOTAL ASSETS 7,655 7,106 11,808 10,724 ===== ===== ====== ====== See accompanying notes to consolidated financial statements. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY CONSOLIDATED BALANCE SHEETS, CONTINUED GBP '000 USD '000 JUNE 30 JUNE 30 JUNE 30 JUNE 30 1994 1993 1994 1993 ---- ---- ---- ---- LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of notes payable (note 4) 8 9 12 14 Bank overdraft (note 5) - 193 - 291 Accounts payable and accrued expenses (note 6) 482 645 743 973 Due to affiliated companies (note 9) 152 36 234 54 Other liabilities 40 89 62 135 Dividends payable (note 7) 17 60 26 91 Income tax payable 7 148 11 223 ------- ------- ------- ------- Total current liabilities 706 1,180 1,088 1,781 Notes payable (note 4) 14 23 22 35 Deferred taxes payable (note 10) 280 291 432 439 ------- ------- ------- ------- TOTAL LIABILITIES 1,000 1,494 1,542 2,255 ------- ------- ------- ------- REDEEMABLE PREFERRED STOCK (note 7) $0.01 par value. Issued and outstanding 1,500 shares at June 30, 1994 and 1993 (aggregate involuntary liquidation value GBP 991,000) 758 758 1,500 1,500 ------- ------- ------- ------- STOCKHOLDERS' EQUITY (notes 7 and 8): Preferred stock, $0.01 par value. Issued and outstanding none at June 30, 1994, and 1,145 shares at June 30, 1993 Common stock, $0.005 par value, authorized 25,000,000 shares. Issued and outstanding 18,155,858 shares at June 30 1994, and 16,838,727 at June 30, 1993 47 43 91 84 Additional paid-in capital 21,011 20,969 31,351 31,289 Accumulated deficit (15,413) (16,503) (23,276) (24,905) Currency translation adjustments 252 345 600 501 TOTAL STOCKHOLDERS' ------- ------- ------- ------- EQUITY 5,897 4,854 8,766 6,969 COMMITMENTS AND CONTINGENT LIABILITIES (note 12) ------- ------- ------- ------- TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY 7,655 7,106 11,808 10,724 ======= ======= ======= ======= See accompanying notes to consolidated financial statements. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED JUNE 30 1994 1993 1992 GBP '000 GBP '000 GBP '000 -------- -------- -------- Sales (notes 8 and 9) 6,415 7,822 5,617 Cost of sales (note 9) (2,353) (3,693) (2,432) -------- -------- -------- GROSS PROFIT 4,062 4,129 3,185 Other operating income (note 9) 362 158 114 Selling, general and administrative expenses (notes 11 and 13) (2,333) (1,398) (975) Research costs (note 9) (490) (298) (130) Depreciation and amortization (388) (338) (227) Write-off of purchased research and development costs - (11,370) - -------- -------- -------- OPERATING INCOME/(LOSS) 1,213 (9,117) 1,967 Foreign exchange loss (22) (25) (18) Interest income (note 9) 106 42 17 Interest expense (note 9) (2) (3) (33) -------- -------- -------- INCOME/(LOSS) BEFORE TAX EXPENSE 1,295 (9,103) 1,933 Tax expense (note 10) (123) (274) (625) -------- -------- -------- NET INCOME/(LOSS) 1,172 (9,377) 1,308 ======== ======== ======== NET EARNINGS/(LOSS) PER SHARE GBP0.06 (GBP0.67) GBP1.38 See accompanying notes to consolidated financial statements. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED JUNE 30 1994 1993 1992 USD '000 USD '000 USD '000 --------- --------- -------- Sales (notes 8 and 9) 9,614 12,083 9,796 Cost of sales (note 9) (3,526) (5,705) (4,241) --------- --------- -------- GROSS PROFIT 6,088 6,378 5,555 Other operating income (note 9) 542 244 199 Selling, general and administrative expenses (notes 11 and 13) (3,496) (2,160) (1,700) Research costs (note 9) (734) (460) (227) Depreciation and amortization (582) (522) (396) Write-off of purchased research and development costs - (17,564) - -------- -------- -------- OPERATING INCOME/(LOSS) 1,818 (14,084) 3,431 Foreign exchange loss (33) (39) (31) Interest income (note 9) 159 65 30 Interest expense (note 9) (3) (5) (58) -------- -------- -------- INCOME/(LOSS) BEFORE TAX EXPENSE 1,941 (14,063) 3,372 Tax expense (note 10) (184) (423) (1,090) -------- -------- -------- NET INCOME/(LOSS) 1,757 (14,486) 2,282 ======== ======== ======== NET EARNINGS/(LOSS) PER SHARE $0.09 ($1.03) $2.41 See accompanying notes to consolidated financial statements. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock C o m m o n S t o c k Additional Accumulated Currency Applied Aplin & Barrett Paid-In Deficit Translation Microbiology Capital Adjustments TOTAL Shares GBP'000 Shares GBP'000 Shares GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ------ ------- ------ ------- ------ ------- ------- ------- ------- ------- Balance as at June 30, 1991 - - - - 928,515 929 7,188 (6,377) - 1,740 Issue of common stock for cash - - - - 1,200,000 1,200 - - - 1,200 Net income for the year - - - - - - - 1,308 - 1,308 Dividends paid - - - - - - - (1,850) - (1,850) Contribution of capital - - - - - - 75 - - 75 ------ -- ---------- -- ---------- ------ ------ ------- --- ------- Balance as at June 30, 1992 - - - - 2,128,515 2,129 7,263 (6,919) - 2,473 Issue of stock in respect of: - acquisition of Aplin & Barrett Ltd - - 8,450,000 21 - - 18,657 - - 18,678 - technology agreement - - 850,000 3 - - 1,877 - - 1,880 - licencing agreement - - 10,000 - - - 24 - - 24 Adjustments due to reverse acquisition 1,145 - 7,528,727 19 (2,128,515) (2,129) (8,919) - - (11,029) Provision for extra shares to be issued - - - - - - 2,067 - - 2,067 Net loss for the year - - - - - - - (9,377) - (9,377) Preference dividend paid and provided - - - - - - - (207) - (207) Arising on translation during the year - - - - - - - - 345 345 ------ -- ---------- -- ---------- ------ ------ ------- --- ------- Balance as at June 30, 1993 1,145 - 16,838,727 43 - - 20,969 (16,503) 345 4,854 Issue of common stock provided for in 1993 - - 935,000 3 - - (3) - - - Conversion of preferred stock to common stock (1,145) - 327,131 1 - - (1) - - - Common stock issued for cash on exercise of options and warrants - - 55,000 - - - 46 - - 46 Net income for the year - - - - - - - 1,172 - 1,172 Preference dividend paid and provided - - - - - - - (82) - (82) Arising on translation during the year - - - - - - - - (93) (93) ------ -- ---------- -- ---------- ------ ------ ------- --- ------- Balance as at June 30, 1994 - - 18,155,858 47 - - 21,011 (15,413) 252 5,897 ====== == ========== == ========== ====== ====== ======= === ======= USD equivalent - 91 - 31,351 (23,276) 600 8,766
See accompanying notes to consolidated financial statements. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30 1994 1993 1992 GBP'000 GBP'000 GBP'000 ------- ------- ------- Cash flows from operating activities: Net income/(loss) 1,172 (9,377) 1,308 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation and amortization 388 338 227 Loss on sale of property and equipment - 2 - Write-off of purchased R&D - 11,370 - Provision for deferred income taxes (11) 3 9 Changes in assets and liabilities: Decrease/(increase) in trade accounts receivable 315 (308) (21) Decrease/(increase) in inventories 21 315 (240) (Increase)/decrease in other assets (113) 341 (27) Decrease/(increase) in amounts due from affiliated companies 171 ( 69) - (Decrease)/increase in income tax payable (141) 223 ( 75) (Decrease)/increase in accounts payable and accrued expenses (163) 143 27 Increase/(decrease) in amounts due to affiliated companies 118 (958) (635) (Decrease)/increase in other payables (48) 62 (104) ------- ------- ------- Net cash provided by operating activities 1,709 2,085 469 ------- ------- ------- Cash flows from investing activities: Acquisitions of property and equipment (225) (169) (162) Proceeds on sale of property and equipment - 4 - Patent costs and licenced technology (216) (370) - Business acquired - (166) - ------- ------- ------- Net cash used in investing activities (441) (701) (162) ------- ------- ------- Cash flows from financing activities: Dividend paid (125) (147) (1,850) (Decrease)/increase in bank overdraft (193) 55 138 (Repayment)/borrowings of notes payable (10) 15 - Proceeds from issue of preferred stock - 758 - Contribution of capital - - 75 Proceeds from issue of common stock 46 - 1,200 ------- ------- ------- Net cash (used in)/provided by financing activities (282) 681 (437) ------- ------- ------- Net increase/(decrease) in cash and cash equivalents 986 2,065 (130) Cash and cash equivalents at beginning of year 2,366 11 141 Effect of exchange rate movement (79) 290 - ------- ------- ------- Cash and cash equivalents at end of year 3,273 2,366 11 ------- ------- -------
See accompanying notes to consolidated financial statements. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS & ACQUISITION OF APLIN & BARRETT LIMITED & CHANGE OF CONTROL Applied Microbiology, Inc. ('The Company') is a New York corporation which was incorporated on June 29, 1983. The Company has developed non-toxic proteins which destroy bacteria. It markets its products through licenses or joint ventures with companies that have established positions in target markets. During 1989, a wholly owned subsidiary of Burns, Philp & Company Limited (hereinafter, Burns, Philp & Company Limited and/or any of its wholly owned subsidiaries will be referred to as "the Burns Philp Group") acquired 1,000,000 shares of common stock in the Company. On May 14, 1992, the Company issued 348,837 shares of common stock to the Burns Philp Group at US$4.30 per share, for a total consideration of $1,500,000. On August 31, 1992, the Company issued a further 8,450,000 shares of common stock of the Company to the Burns Philp Group in exchange for acquiring all the issued and outstanding shares of Aplin & Barrett Limited ("A&B"). Aplin & Barrett Limited is a U.K. company, whose principal activities are the manufacture and marketing of preservatives, pharmaceutical products, cheese starter cultures, and other ingredients for the dairy industry. Since 1985, A&B had been part of the Burns Philp Group. Also on August 31, 1992, the Burns Philp Group paid to the Company $1,500,000 in consideration for acquiring 1,500 shares of non-convertible preferred stock of the Company having an aggregate liquidation value of $1,500,000. An additional 935,000 shares of the Company's common stock was reserved for issuance to the Burns Philp Group in July 1993 if A&B's fiscal 1993 budgeted revenues from certain products were realised. This condition was met, and provision made for the issuing of those shares. The shares were issued on July 2, 1993. The preceding transactions were consummated pursuant to an Agreement for the Purchase and Sale of Stock dated as of June 30, 1992 (the "Purchase Agreement"). Pursuant to an agreement dated June 29, 1992, (the "Technology Agreement") with the Burns Philp Group, the Company licensed certain purification technology (the "Technology") from the Burns Philp Group in exchange for 850,000 shares of the Company's common stock. The technology was valued at $3,719,000 based on the market value of the Company's stock issued. As a result of the preceding transactions (the "BP transactions"), and of prior acquisitions of shares of the Company's common stock, the Burns Philp Group currently owns 11,583,837 shares of common stock, which constitutes approximately 64% of the currently issued and outstanding shares of common stock. In addition to the ownership of common stock, the Burns Philp Group owns 1,500 shares valued at $1,500,000 of non-convertible preferred stock of the Company. Following the BP transactions, the Company continues as a publicly traded corporation with A&B as a wholly owned operating subsidiary. The acquisition of A&B by the Company and the issue of common stock to the Burns Philp Group resulted in the Burns Philp Group obtaining a majority voting interest in the Company. Generally accepted accounting principles require that the company whose stockholders retain the majority voting interest in a combined business be treated as the acquiror for accounting purposes. As a consequence, the BP transactions have been accounted for as a "reverse acquisition" for financial reporting purposes and A&B is deemed to have acquired, at date of the BP transactions, a 65% interest in the Company. Despite the financial reporting requirement to account for the acquisition as a "reverse acquisition", the Company remains the continuing legal entity and registrant for Securities and Exchange Commission reporting purposes. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Due to the "reverse acquisition", the reporting currency for the combined entity is the Great Britain pounds sterling (GBP). For informational purposes, unaudited US$ translated consolidated balance sheets and consolidated statements of operations have been provided. For the assets and liabilities the exchange rates used are 1994 1.5424, 1993 1.5091, and for the statements of operations 1994 1.4987, 1993 1.5448, 1992 1.744. The Company has adopted A&B's June 30 fiscal year which commences on July 1 and ends on June 30. Pursuant to the change in fiscal year, the Company filed a transitional period 10K report for the eight month period up to August 31, 1992. The figures for the year ended June 30, 1994 include the results of both Applied Microbiology, Inc., and Aplin & Barrett Limited for the full year. Those for the year ended June 30, 1993 include Applied Microbiology, Inc., results for the 10 months then ended, and Aplin & Barrett Limited results for the full year. Those for the year ended 1992 comprise solely the results of Aplin & Barrett Limited. In accordance with generally accepted accounting principles as outlined in FASB Statement No. 2 "Accounting for Research and Development Costs" and FASB Interpretation No. 4 "Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method", the adjustments to the consolidated financial statements account for the Burns Philp Group's purchase of the value of the Company's research and development costs that relate to products that are not yet commercially successful, as an expense in 1993. 2. SIGNIFICANT ACCOUNTING POLICIES a) Consolidation The consolidated financial statements include the results of operation and financial position of the Company and its wholly owned affiliate, Aplin & Barrett Limited, which is incorporated in Great Britain. The acquisition of Aplin & Barrett Limited on August 31, 1992 has been accounted for by the purchase method, and specifically a "reverse acquisition" as described in note 1 above. b) Cash Equivalents Cash equivalents include money market accounts. For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. c) Inventory Inventory is valued at lower of cost (first-in, first-out, including attributable overhead expenditure) or market value, and consists of: 1994 1993 GBP'000 GBP'000 ------- ------- Raw materials 62 59 Work in process 396 486 Finished products 487 421 ------ ------ 945 966 ------ ------ APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS d) Property and Equipment Property and equipment are stated at cost. Depreciation is provided using the straight-line method to write-off assets over their estimated useful lives. The estimated useful lives are as follows: Buildings and building improvements - 50 years Furniture and fixtures - 20 years Machinery and equipment - 5 or 10 years Office machinery - 5 or 6 years Motor vehicles - 5 years e) Patent Costs & Licensed Technology Patent costs and licensed technology have been capitalized and are being amortized on a straight-line basis over periods ranging from five to fifteen years. f) Research and Development Research and development costs are expensed as incurred. g) Net(Loss)/Earnings Per Share Earnings per share for the year ended June 30, 1994 is computed based on the weighted average number of shares actually outstanding plus the shares that would be outstanding assuming the exercise of dilutive stock options, all of which are considered to be common stock equivalents. The number of shares that would be issued from the exercise of stock options and warrants has been reduced by the number of shares that could have been purchased from the proceeds at the average market price of the Company's stock. Common stock equivalents are not included in the computation of average shares outstanding for 1993 because the effect of such inclusion would be to increase earnings per share. There were no common stock equivalents in 1992. 1994 1993 1992 (No. of shares) (No. of shares) (No. of shares) Average shares outstanding 18,032,102 14,384,525 947,826 Net effect of dilutive stock options 755,218 - - ---------- ---------- ------- Total average shares 18,787,320 14,384,525 947,826 ---------- ---------- ------- GBP'000 GBP'000 GBP'000 Net income/(loss) 1,172 (9,377) 1,308 Preferred stock dividend (82) (207) - ---------- ---------- ------- Net income/(loss) attributable to common stockholders 1,090 (9,584) 1,308 ---------- ---------- ------- Net earnings/(loss) per share of common stock GBP0.06 (GBP0.67) GBP1.38 h) Foreign Currencies Transactions in currencies other than Great Britain pounds sterling are recorded at the rate at the date of the transaction. Balances denominated in currencies other than Great Britain pounds sterling are translated into GBP at the exchange rate at the balance sheet date. i) Taxation The Company accounts for deferred taxes using the liability method. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. PROPERTY AND EQUIPMENT 1994 1993 GBP'000 GBP'000 ------- ------- Cost: Land 78 78 Buildings and building improvements 686 649 Plant and other assets 3,339 3,156 --------- --------- 4,103 3,883 Accumulated depreciation and amortization (2,453) (2,195) --------- --------- Net book value 1,650 1,688 ========= ========= 4. NOTES PAYABLE In connection with the purchase of automobiles, the Company has borrowed approximately GBP 38,800. These loans bear interest at rates of 4.6% and 8.0% per annum, mature on September 6, 1997 and December 6, 1997, require approximate monthly payments of principal and interest in the amount of GBP 447 and GBP 394, and are secured by the automobiles. 5. BANK LINE OF CREDIT The Company maintains a line of credit for working capital purposes in the U.K. of GBP 300,000 and pays interest on outstanding balances at the rate of 1% over Barclays Bank plc base rate. The arrangement expires in October 1994 and is reviewed for renewal on an annual basis. The facility was not being used at June 30, 1994. This line of credit includes an annual fee of GBP 625. 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES The following items are included in accounts payable and accrued expenses: 1994 1993 GBP'000 GBP'000 ------- ------- Accounts payable 292 473 Accrued expenses 190 172 --- --- 482 645 --- --- APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7. PREFERRED STOCK The Company is authorized to issue up to 5,000,000 shares of preferred stock, with a $0.01 par value, in one or more series and to fix the powers, designations, preferences and rights of each series. The outstanding issue of 1,500 shares of non-voting, non-convertible stock at June 30, 1994 and 1993 is entitled to cumulative annual dividends at the prime rate of Citibank N.A. in effect from time to time payable in quarterly instalments commencing January 1, 1993. These shares are mandatorily redeemable at $1,000 per share plus accrued dividends on consummation by the Company of a public offering of its securities for cash on Form S-1 or an equivalent form. Dividends payable on this stock at June 30, 1994 were approximately GBP 17,000 ($26,000), which were paid in July. The Company's previous issue of 1,145 shares of non-voting preferred stock which was outstanding at June 30, 1993 was converted to common stock during the year ended June 30, 1994 (see note 8 below). 8. CAPITAL STOCK The Company had issued 1,145 shares of non-voting preferred stock, entitled to cumulative dividends at the rate of $120 per share payable in semi-annual instalments commencing July 1, 1992. The preferred stock was converted by all of the preferred shareholders in September 1993 to common stock. Each share of preferred stock which had a value of $1,000 was converted in accordance with the terms of the preferred stock offering at a conversion price of $3.50 per share of common stock into 285.7 shares of common stock. The Company had outstanding warrants for the purchase of its common stock as follows: Number of Exercise price warrants per share -------- ------------ Balance at June 30, 1993 1,373,368 $1.25-$6.00 Issued 50,000 $4.625 Expired (20,000) $1.25 Exercised (25,000) $1.25 ---------- Balance at June 30, 1994 1,378,368 $1.25-$6.00 ---------- At June 30, 1994, 1,527,025 shares were issuable upon exercise of the above warrants. All such warrants were available to be exercised immediately. The warrants expire between 1994 and 2003. Certain of the warrants include anti-dilution clauses. On April 10, 1986, the Company adopted a Nonqualified Stock Option Plan whereby options to purchase 250,000 shares of the Company's common stock may be granted to consultants and Business Advisory Board and Scientific Advisory Board members. The Company adopted three Incentive Stock Option Plans ('Incentive Plans') whereby options to purchase an aggregate of 2,250,000 shares of the Company's common stock may be granted to officers, directors, employees, consultants and others who render services to the Company. The exercise price per share for the options granted under the Incentive Plans may not be less than the fair value of the Company's common stock on the date of grant. The options expire between 1994 and 2002. A summary of stock option activity related to the Company's stock option plans is as follows: Number of Exercise price options per share --------- ------------ Balance at June 30, 1993 1,163,250 $1.25-$4.875 Issued 64,000 $4-$4.375 Expired (217,500) $1.25-$4.875 Exercised (30,000) $1.25 --------- Balance at June 30, 1994 979,750 $1.25-$4.875 --------- Each of these options is entitled to one share of common stock. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. SEGMENT REPORTING AND FOREIGN OPERATIONS a) Significant customers There were no significant unaffiliated customers comprising over 10% of sales during the years 1994, 1993 and 1992. Sales to affiliated companies represented 25%, 28%, 19% of consolidated sales in 1994, 1993, and 1992. b) Information about the Company's Operations in Different Geographic Areas Year ended June 30, 1994 United United Adjustments Consolidated States Kingdom & Eliminations GBP'000 GBP'000 GBP'000 GBP'000 ------- ------- ------- ------- Sales to unaffiliated customers 35 4,724 - 4,759 Transfer between geographic areas 2,681 - (2,681) - Sales to affiliated customers - 1,656 - 1,656 ----- ----- ------ ------ Total revenue 2,716 6,380 (2,681) 6,415 ----- ----- ------ ------ Operating profit 1,186 13 14 1,213 ----- ----- ------ ------ Identifiable assets 3,985 4,297 (627) 7,655 Year ended June 30, 1993 Sales to unaffiliated customers 243 5,354 - 5,597 Transfer between geographic areas 2,507 118 (2,625) - Sales to affiliated customers - 2,225 - 2,225 ----- ----- ------ ------ Total revenue 2,750 7,697 (2,625) 7,822 ----- ----- ------ ------ Operating profit 1,623 643 (11,383) (9,117) ----- ----- ------ ------ Identifiable assets 2,928 4,190 (12) 7,106 APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. SEGMENT REPORTING AND FOREIGN OPERATIONS continued b) Information about the Company's Operations in Different Geographic Areas continued Year ended June 30, 1992 United United Adjustments Consolidated States Kingdom & Eliminations GBP'000 GBP'000 GBP'000 GBP'000 ------- ------- ------- ------- Sales to unaffiliated customers - 4,565 - 4,565 Sales to affiliated customers - 1,052 - 1,052 ----- ----- ------ ------ Total revenue - 5,617 - 5,617 ----- ----- ------ ------ Operating profit - 1,967 - 1,967 ----- ----- ------ ------ Total assets - 4,244 - 4,244 Transfers between geographic areas are accounted for as arms- length transactions. Operating profit is total revenue less operating expenses. Identifiable assets are those assets which are identifiable with the operations in each geographic area. Of the U.S. sales to unaffiliated customers there were no export sales. Sales of the U.K. operation to unaffiliated customers by geographical area were as follows:- 1994 1993 1992 GBP'000 GBP'000 GBP'000 ------- ------- ------- North America 457 - 436 Europe 2,356 3,753 3,243 South America 999 955 390 Other 912 646 496 -------- -------- -------- 4,724 5,354 4,565 -------- -------- -------- c) Industry The Company's business and that of Aplin & Barrett Limited has been in a single industry segment - the research, development, production and marketing of antimicrobial proteins and dairy ingredients for various applications. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. RELATED PARTY TRANSACTIONS a) Transactions with affiliated companies were as follows: 1994 1993 1992 GBP'000 GBP'000 GBP'000 ------- ------- ------- Sales to subsidiaries of common parent: Mauri Laboratories Pty. Ltd 1,406 2,179 1,012 Burns Philp Food Inc. 250 46 40 Purchases from subsidiary of common parent: Mauri Laboratories Pty. Ltd 352 248 171 Income from manufacturing on behalf of subsidiary of common parent: Imperial Biotechnology Ltd 24 48 - Management fees received from subsidiaries of common parent: Burns Philp (U.K.) Plc 45 43 70 Imperial Biotechnology Ltd 19 18 17 Loan interest received from/ (paid to) subsidiaries of common parent: Burns Philp (U.K.) Plc 11 22 (21) Burns Philp Inc. 31 - - Research and development services purchased from subsidiary of common parent: Imperial Biotechnology Ltd - - 120 A general service agreement between Aplin & Barrett Ltd and Imperial Biotechnology Ltd for the provision of research and development was cancelled with effect from July 1, 1992. From time to time the Company advances money to or borrows money from affiliated companies. Interest receivable/payable on these advances is as shown above. In addition, the Company periodically incurs expenditure on behalf of affiliated companies for which it is reimbursed and reimburses affiliates for expenditure incurred on its behalf. The Company paid an affiliate GBP 26,000 during fiscal year 1994 for rent of office space and facilities (1993 GBP 18,000; 1992 nil). Other related party transactions are described in note 1 above. b) Amounts due from/(to) affiliated companies were as follows: 1994 1993 GBP'000 GBP'000 ------- ------- Subsidiaries of common parent: Burns Philp (U.K.) Plc 4 124 Burns Philp Inc. (91) - Mauri Laboratories Pty. Ltd (46) (30) Imperial Biotechnology Ltd (13) 51 Burns Philp Food Inc. (2) (6) ---- --- (148) 139 ---- --- Disclosed as: Due from affiliated companies 4 175 Due to affiliated companies (152) (36) ---- --- (148) 139 ---- --- APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. INCOME TAXES The income tax expense/(benefit) consists of: 1994 1993 1992 GBP'000 GBP'000 GBP'000 Current 134 271 616 Deferred (11) 3 9 ------- ------- ------- 123 274 625 ------- ------- ------- The Company adopted Statement of Financial Accounting Standards No. 109 as of July 1, 1992, the cumulative effect of which was not material to the consolidated financial statements and is, therefore, not presented separately. The taxing authorities in the U.K. have questioned the appropriateness of certain income tax deductions taken by Aplin & Barrett for the fiscal year ended June 30, 1993 relative to payments made by Aplin & Barrett to Applied Microbiology, Inc. The deductions aggregate GBP 2,601,000 for fiscal 1993, and are GBP 2,683,000 for fiscal 1994. Aplin & Barrett believes that these deductions are appropriate. If the taxing authorities ultimately deny these deductions, Aplin & Barrett, based on advice of outside counsel, believes that it is more likely than not that its position will be upheld upon appeal. The tax effect of the potential disallowance of these deductions has not been reflected in the accompanying consolidated financial statements. Income tax expense attributed to pre-tax income differed from the amounts computed by applying the US federal statutory tax rate to pre- tax income as a result of the following: 1994 1993 1992 GBP'000 GBP'000 GBP'000 ------- ------- ------- Computed 'expected' tax expense/(benefit) 454 (3,186) 657 Increase/(reduction) in income taxes resulting from: Tax losses utilized (435) (572) - Non-deductibility of write-off of purchased research and development - 3,980 - Lower tax rate on foreign earnings (1) (6) (19) State and local taxes 93 61 - Other items 12 (3) (13) ------- ------- ------- 123 274 625 ------- ------- ------- APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows: 1994 1993 GBP'000 GBP'000 ------- ------- Deferred tax asset Net operating loss carryforwards 1,356 2,403 Less valuation allowance (1,356) (2,403) ------- ------- - - ------- ------- Deferred tax liability Plant and equipment differences between depreciation and capital allowances (186) (207) Pension costs deductible as paid (97) (86) Other 3 2 ------- ------- (280) (291) ------- ------- Net deferred tax liability (280) (291) At June 30, 1994, the Company has net operating loss carryforwards for United States federal income tax purposes of approximately GBP 3,875,000 which are available to offset future United States federal taxable income, if any, through 2007. 12. COMMITMENTS AND CONTINGENT LIABILITIES In July 1991, the Company entered into an exclusive license agreement whereby the Company received a license, with the right to sublicense, the use of a deodorant formulation. In exchange, the Company has agreed to pay royalties (as defined). Through June 30, 1994, the Company has not earned any revenue from these licenses. The Company has entered into various research and license agreements with certain universities to supplement the Company's research activities and to obtain for the Company rights to certain technology. The agreements generally require the Company to fund the research and to pay royalties based upon percentage of product sales. The Company has consulting agreements with several of its Scientific Advisory Board members and other consultants. These agreements generally are for a term of one year and are terminable at the Company's option. Under an operating lease, Aplin & Barrett Limited leases its offices in the U.K. The lease expires in September 2013. Payments under this lease were GBP 33,000 in 1994, GBP 29,000 in 1993 and 1992. Future noncancellable minimum payments under this lease are as follows: Year GBP'000 ---- ------- 1995 34 1996 34 1997 34 1998 34 1999 34 Thereafter 476 ------ Total 646 ------ In September 1994 the Company terminated a lease which provided for aggregate rental payments of $840,000 over a five-year period. The Company and the landlord under the lease are engaged in a dispute as to whether the Company was entitled to terminate the lease and whether the landlord is entitled to recover damages on account of the termination. The Company anticipates that the landlord will institute an action against the Company to enforce its claim. The Company cannot predict the outcome of the dispute at this early stage, and it has not yet engaged litigation counsel. The Company intends to contest vigorously any action by the landlord, and the Company does not at this time expect that the resolution of the dispute will have a materially adverse effect on the Company's consolidated financial position. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. SUPPLEMENTAL CASH FLOW INFORMATION 1994 1993 1992 GBP'000 GBP'000 GBP'000 ------- ------- ------- Interest paid 3 3 33 ======= ======= ======= Taxes paid 249 19 652 ======= ======= ======= 14. PENSION BENEFITS i) Applied Microbiology, Inc. participates in a defined benefit pension plan of Burns Philp Inc., an affiliated company, and the plan is called the 'Burns Philp Inc. Retirement Plan for Non- Bargaining Unit Employees'. This plan provides retirement benefits based upon years of service, or a combination of employee compensation and years of service. Contributions payable to the plan in the year ended June 30, 1994 were approximately GBP 7,400. There were no contributions to the plan in prior years. ii) Aplin & Barrett Limited participates in a defined benefit pension plan of Burns Philp (U.K.) plc, an affiliated company called 'The Burns Philp (U.K.) plc Pension Plan'. The plan provides a pension of one sixtieth of final pensionable earnings for each year of service at a normal retirement age of 65. Pensionable earnings is basic salary less the basic UK state pension. On death in service, a lump sum benefit of three times basic salary is paid. In addition, on death at any time, a spouse's pension of one-half of the pension (or prospective pension) becomes payable. There is a special category of membership, which is closed to new entrants, which provides a cash sum based on final salary and length of service at retirement. Employee Groups covered Permanent UK employees who have completed six months service. Funding policy That the assets should be at least equal to the present value of obligations in respect of service to the valuation date taking account of the projected final earnings of active members. Types of assets held The investments comprise Managed Fund Units, and since October 1 1991, have been managed by Pensions Management (SWF) Limited. APPLIED MICROBIOLOGY, INC. & SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. PENSION BENEFITS Continued The funding status of the Burns Philp (U.K.) plc Pension Plan as of June 30, 1994 and 1993 is as follows: 1994 1993 GBP'000 GBP'000 -------- -------- Actuarial present value of benefit obligations: Vested benefit obligation (2,064) (1,098) -------- -------- Accumulated benefit obligation (2,251) (1,098) -------- -------- Projected benefit obligation for service rendered to date (2,678) (1,427) Plan assets at fair value 2,359 1,478 -------- -------- Plan assets in excess of/(less than) projected benefit obligation (319) 51 Unrecognized net loss 836 440 Unrecognized net transition asset (227) (242) -------- -------- Prepaid cost 290 249 ======== ======== Of the above prepaid costs of GBP 290,000 at June 30, 1994, GBP 283,000 (1993 GBP 249,000) as determined by actuarial valuation, is included in the accounts of the Company. On termination of the plan these monies would be returned to the contributing companies. Net pension cost for 1994, 1993, and 1992 included the following components: 1994 1993 1992 GBP'000 GBP'000 GBP'000 ------- ------- ------- Service costs - benefits earned during the period 79 50 52 Interest cost on projected benefit obligation 128 95 77 Actual return on plan assets (148) (115) (105) Net amortization and deferral 10 (2) (10) ------- ------- ------- Net pension cost 69 28 14 ======= ======= ======= Assumptions used in accounting for the pension plan as at June 30 1994, 1993 and 1992 were: 1994 1993 1992 % % % ---- ---- ---- Discount rate 8 9 10 Rates of increase in compensation levels 7 7 7 Expected return on assets 10 10 10 SCHEDULE X APPLIED MICROBIOLOGY, INC. & SUBSIDIARY SUPPLEMENTARY INCOME STATEMENT INFORMATION Column A Column B -------- -------- Charged to costs and expenses ------------------ Year ended 1994 1993 1992 GBP'000 GBP'000 GBP'000 ------- ------- ------- Amortization of intangible assets 127 89 - SCHEDULE VIII APPLIED MICROBIOLOGY, INC. & SUBSIDIARY VALUATION AND QUALIFYING ACCOUNTS Allowance for Doubtful Accounts: GBP'000 ------- Balance June 30, 1991 9 Provision 4 Charge-offs (1) ------- Balance June 30, 1992 12 Provision 13 Charge-offs (4) ------- Balance June 30, 1993 21 Provision 4 Recoveries (5) ------- Balance June 30, 1994 20 ======= EX-27 2 FINANCIAL DATA SCHEDULE
5 12-MOS JUN-30-1994 JUN-30-1994 3,273 0 875 20 945 5,473 4,103 2,453 7,655 706 0 47 758 0 5,850 7,655 6,415 6,883 2,353 5,564 0 0 2 1,295 123 1,172 0 0 0 1,172 .06 .06