SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A No. 2
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _______________.
Commission file number 0-12081
CAMBRIDGE BIOTECH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2726626
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
365 Plantation Street, Worcester, MA 01605
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 797-5777
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.1 par value
(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 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 90
days. Yes No X
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 best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment of this Form 10-K. [ ]
The aggregate market value of 26,293,355 shares of voting stock held by
non-affiliates of the registrant as of March 15, 1995 was $9,860,768
based on the average of the bid and asked price of such stock on such
date.
Common Stock outstanding as of March 15, 1995: 26,497,450 shares.
PART II
Item 6. SELECTED FINANCIAL DATA.
Year Ended
December 31, 1994
Revenue:
Product Sales $16,683,287
Research & Development 4,334,197
Royalties 1,082,375
Total Revenue $22,099,859
Net Loss ($22,276,266)
Net loss per weighted
average number of
shares outstanding ($0.86)
Weighted average
shares outstanding 25,858,608
Balance Sheet Data:
Total Assets $28,502,670
Long-term Obligations 12,413,476
Shareholder's Equity 8,667,681
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
General
The Company filed for protection under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on July 7, 1994 and is managing its
assets and operating its businesses as a debtor-in-possession pursuant
to a voluntary petition filed in the United States Bankruptcy Court for
the District of Massachusetts, Western Division (the "Bankruptcy
Court"), Case Number 94-43054-JFQ. Since the Chapter 11 filing,
management has spent considerable time reviewing the Company's
strategic direction, as well as specific products and programs. It has
sold or disposed of certain assets and operations of the Company, as
described below, which did not fit within the business plan for
reorganizing the Company. The Company is also engaged in discussions
with several parties concerning a possible sale of the Company's
diagnostics division or portions thereof.
On March 30, 1994, the Company's former independent accountants,
Deloitte & Touche ("Deloitte"), resigned from their engagement to audit
the Company's 1993 financial statements, withdrew their opinion on the
Company's 1992 financial statements, and raised concerns over certain
transactions that had come to their attention. The Company's board of
directors appointed a special committee of two outside directors which
was assisted by special counsel to conduct an investigation into the
matters raised by the former accountants. The investigation confirmed
the existence of several transactions which did not appear to be bona
fide or which were incorrectly recognizing revenue. On May 9, 1994, the
Company announced that it had replaced its Chief Executive Officer and
two of its other officers resigned. In April 1995, the Company elected
Alison Taunton-Rigby, Ph.D. as its new President and Chief Executive
Officer.
The Securities and Exchange Commission ("SEC") on July 22, 1994 issued
an Order Directing Private Investigation pertaining to the Company's
financial statements, its public filings and the offering of its
securities. On September 21, 1995, the Company received a subpoena
issued by the United States District Court, District of Massachusetts
for documents to be presented to the Grand Jury. The Company believes
the United States Attorney is conducting an investigation similar to
that of the SEC. The Company is cooperating fully with both of the
investigations.
Effective June 9, 1994, the Company's stock was de-listed by the
National Association of Securities Dealers ("NASD") due to the
Company's failure to comply with NASD's listing requirements as a
result of its inability to provide audited financial statements.
During 1994 the Company disposed of certain assets, as described below,
including its wholly-owned subsidiary Cambridge Biotech Ltd., its
majority ownership in ADI Diagnostics, Inc. and its minority interest
in ImmuCell Corporation.
Results of Operations
Management has concluded because of the events described above and in
light of the Company's financial condition and Chapter 11 filing, it
would not be feasible for its new accountants perform a re-audit of the
Company's 1992 financial statements or an initial audit of the
Company's 1993 financial statements. Consequently, the accompanying
financial statements and footnotes do not show comparative data for
prior periods.
Revenues:
Total revenues in 1994 were $22,100,000. Product sales of $16,683,000
accounted for 75% of the total revenue with diagnostic and
biopharmaceutical product sales totaling $16,007,000 (96%) and $676,000
(4%) respectively.
In 1994 Research and Development ("R&D") revenues were $4,334,000,
representing 20% of total revenue. R&D revenue relates principally to
the biopharmaceutical division. The majority of these revenues were
generated from license agreements. In 1994 the Company recognized
$3,000,000 in license fees under an agreement with SmithKline Beecham
p.l.c. ("SKB") which allows SKB to use the Company's proprietary
Stimulon adjuvant ("QS-21") in numerous vaccines including hepatitis,
Lyme disease, human immunodeficiency virus ("HIV"), influenza, and
malaria. Income from this agreement represents 14% of the Company's
total revenue in 1994. The Company received another $3,500,000 from SKB
in November 1994 which was included as deferred revenue at December 31,
1994 and will be recognized as revenue in 1995. The Company also
recognized revenue for its collaboration with Virbac S.A. on research
and development of vaccines for feline immune deficiency virus ("FIV")
and bovine mastitis. In 1994 the revenue recognized on these two
projects totaled $472,000. Additional deferred revenue totaling
$2,543,000 will be recognized as research expense is incurred in
relation in these projects. The Company also has received grants from
the National Institute of Health ("NIH") for research of various
diseases; the total amount of revenue recognized from these grants in
1994 was $787,000.
Royalty revenues in 1994 were $1,082,000 accounting for 5% of the
Company's total revenue. These royalties were received as a result of
licenses granted to the Company's proprietary technology, know-how and
patents.
Costs and Expenses:
Cost of sales as a percentage of products sales was 87% in 1994 of
which the diagnostics division accounted for 91% of the total cost of
sales.
Research and development expenses of $5,860,000 represented 27% of the
total revenue in 1994. Biopharmaceutical research accounted for
approximately $5,100,000 (87%) of the total R&D expense.
General and administrative expenses were approximately $8,300,000 or
38% of total revenue in 1994. Selling expenses incurred for the
marketing of diagnostic products were approximately $2,000,000 or 9% of
total revenue in 1994. The Company maintains a direct sales force, in
addition to selling its products through distributors.
As a result of the Company filing for reorganization under Chapter 11,
the Company re-evaluated its long-lived assets based upon undiscounted
future cash flows and stated them at net realizable value in accordance
with Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." Accordingly, during 1994 the Company recognized a loss on
impairment of long-lived assets in the amount of $2,880,000
representing $1,735,000 of purchased technology and $1,145,000 on its
property and plant in Rockville, Maryland.
Interest and Other Income:
The Company recognized $170,000 of interest income in 1994, excluding
the interest which was earned on cash accumulated as a result of
Chapter 11 proceedings identified below. The Company recognized
$302,000 of interest expense on its debt. The interest expense through
July 7, 1994, the date the Company filed for protection under Chapter
11, on the Company's mortgages on building in Rockville, Maryland was
$167,000.
During 1994 the Company received $458,000 of rental income from its
owned and leased facilities in Rockville, Maryland. For the leased
property, the Company incurred $420,000 in expenses during 1994.
Additionally, the Company sold its interest in ImmuCell Corporation for
$309,000 and recognized a loss of $305,000.
Reorganization items:
The Company incurred expenses of $611,000 for professional fees in
relation to its filing for reorganization under Chapter 11. The Company
also accrued a provision for rejected executory contracts totaling
$358,000.
Income taxes:
The Company recorded an income tax benefit of $207,000 in 1994 due to
the reversal of prior year tax accruals.
Discontinued Operations:
On July 21, 1994 the Company's wholly-owned subsidiary, Cambridge
Biotech Ltd. ("CBL") filed for protection of the Irish High Court and
an examiner was appointed pursuant to the Irish Companies Act of 1990.
As of that date, the Company recorded a loss related to the
discontinued operations. CBL's 1994 product sales of $1,952,000 were
included in the process of calculating the $2,129,000 loss from
discontinued operations. Under the reorganization plan for CBL, on
November 30, 1994, the Company's interest as an equity holder and its
claim as a creditor were transferred to SelfCare, Inc. (a U.S.
corporation) for a nominal amount, and the Company received $2,083,000
in cash for the transfer of certain technology pertaining to products
manufactured at the Irish facility. The Company recorded a loss of
$6,963,000 on the sale of discontinued operations. Effective with the
disposal of CBL, the Company also wrote off registration rights and
distribution contracts which were recorded by the Company's subsidiary,
Cambridge Biotech International Corporation ("CBIC"). The loss on
disposal of these assets was $519,000. Additionally the Company
included a discontinuance operations loss for CBIC of $133,000.
On March 11, 1994 the Company sold its 54% ownership in ADI
Diagnostics, Inc. ("ADI") to the minority shareholder, Biomira Inc. for
net proceeds of $910,000 in cash, rights to certain technologies,
product distribution rights, and royalties on sales of certain products
by ADI. The Company had accounted for ADI as a discontinued operation
in 1993 and therefore the loss on disposition is not reflected in the
accompanying financial statements.
Net Income (Loss):
As a result of the above, the Company had a loss of $12,533,000 or
$0.48 per share from continuing operations and a net loss of
$22,276,000 or $0.86 per share including the loss from discontinued
operations.
Liquidity and Capital Resources
The Company's ability to fund its long term operations beyond 1995 is
dependent on several factors including the sale of the Company's
diagnostics business, the formulation and confirmation of a viable plan
of reorganization, and the Company's ability to attract additional
funding through additional public or private financing or collaborative
arrangements. There can be no assurances that adequate operating funds
will be generated through the sale of the diagnostics business or that
additional funding can be obtained on acceptable terms.
Operating activities used $3,095,000 of cash in 1994. The net loss of
$22,276,000 included non-cash items of loss on discontinued operations
($7,482,000), depreciation and amortization ($4,282,000) and loss from
asset impairment ($2,880,000). The Company reduced accounts receivable
by $1,022,000 and inventory levels by $1,524,000. Accounts payable and
accrued expenses increased by $2,609,000 primarily due to an employee
retention bonus plan, postponed payments due to a cash shortage prior
to filing Chapter 11, and professional fees incurred due to the
Company's filing for Chapter 11.
The Company's 1994 investing activities provided cash of $5,262,000.
During 1994 the Company sold marketable securities totaling $4,140,000,
of which $1,026,000 was pledged as collateral under a sale/leaseback
arrangement with Fleet Bank for equipment. In 1994 the Company invested
$2,118,000 in property, plant, and equipment, $1,026,000 of which was
used to repurchase the equipment under the above mentioned sale/
leaseback. The Company sold its interest in CBL's debt and equity to
SelfCare, Inc. for $2,083,000 and its interest in ImmuCell Corporation
for $309,000.
The Company's 1994 financing activities provided $5,455,000 as a result
of raising $6,635,000 in the sale of its stock in the first quarter of
1994 and repaying $1,377,000 on long-term obligations. In the future,
the Company will seek additional funding through additional public or
private financing, and collaborative arrangements and dispositions of
portions of the business. The Company presently is seeking to sell the
diagnostics division or portions thereof as a source of funds. The
Company expects to receive funding from a licensing agreement with a
large pharmaceutical company through 1998.
At December 31, 1994, the Company had cash and cash equivalents
totalling $8,538,000. The Company had total working capital of
$8,886,000 and a current ratio of 2.2 to 1. However, the Company has
approximately $9,715,000 in liabilities subject to Chapter 11
proceedings and if all of these liabilities were considered current
liabilities, the current ratio would have been 0.95 to 1.
In a Chapter 11 case, substantially all liabilities as of the date of
filing of the petition for reorganization are subject to settlement
under a plan of reorganization to be voted upon by the creditors and
equity security holders and approved by the Bankruptcy Court. The
Company continues to manage its affairs and operate its business as a
debtor-in-possession, subject to the supervision of the Bankruptcy
Court while the case is pending. In the event a plan of reorganization
is approved by the Bankruptcy Court, continuation of the business after
reorganization is dependent upon the success of future operations and
the Company's ability to meet obligations as they become due. The
accompanying financial statements have been prepared on a going concern
basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of
business. As a result of the reorganization proceedings, the Company
may have to sell or otherwise dispose of assets and liquidate or settle
liabilities for amounts other than those reflected in the financial
statements. The financial statements do not give effect to adjustments
to the carrying value of assets, or amounts and reclassification of
liabilities that might be necessary as a consequence of these
bankruptcy proceedings. The appropriateness of using the going concern
basis is dependent upon, among other things, confirmation of a plan of
reorganization, success of future operations, and the ability of the
Company to generate sufficient cash from operations and financing
sources to meet its obligations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Filed as part of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Deloitte & Touche ("Deloitte") resigned as independent accountants on
March 30, 1994 and advised the Company that:
(i) information had come to their attention that had led them to
no longer be able to rely on previous representations of
management.
(ii) certain sale transactions aggregating approximately $800,000
in 1992 should be reversed in 1992 and reviewed to determine
whether they were made to inflate revenues or to circumvent
certain regulatory requirements.
(iii) the Company's previously issued financial statements for 1992
and the report of Deloitte thereon should no longer be relied
upon.
Deloitte suspended their 1993 audit, and did not issue an opinion on
the Company's financial condition and results of operations for 1993.
The Bankruptcy Court approved Coopers & Lybrand, L.L.P. as auditors for
the Company's audit of the year ended December 31, 1994.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) Financial Statements
The following documents are filed as a part of this report:
1. Consolidated Statement of Operations for the Year Ended
December 31, 1994
2. Consolidated Balance Sheet December 31, 1994
3. Consolidated Statement of Cash Flows for the Year Ended
December 31, 1994
4. Consolidated Statement of Shareholders' Equity for the Year
Ended December 31, 1994
5. Cambridge Biotech Corporation and Subsidiaries Notes to
Consolidated Financial Statements for the Year Ended December
31, 1994
6. Independent Auditor's Report of Coopers & Lybrand, L.L.P
(b) Financial Statement Schedules
None.
(c) Exhibits
None.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
CAMBRIDGE BIOTECH CORPORATION
January 17, 1996 By:/s/ Alison Taunton-Rigby
Alison Taunton-Rigby
President and Chief Executive Officer
Cambridge Biotech Corporation
Debtor-In-Possession)
Consolidated Statement of Operations
For the year ended December 31, 1994
Revenue:
Product sales $16,683,287
Research and development 4,334,197
Royalties 1,082,375
22,099,859
Cost and expenses:
Cost of sales 14,485,330
Research and development 5,859,652
Sales, general & administrative 10,273,822
Loss on impairment of assets (Notes 6 and 7) 2,879,707
33,498,511
Other:
Interest and other income
net of interest expense (Notes 9 and 12) (472,582)
Loss from continuing operations before
reorganization items and income tax benefit (11,871,234)
Reorganization items (Note 1):
Professional fees (610,832)
Provision for rejected executory contracts (357,501)
Interest earned on accumulated cash
resulting from Chapter 11 proceedings 99,579
Total reorganization items (868,754)
Loss from continuing operations before
income tax benefit (12,739,988)
Income tax benefit 207,396
Loss from continuing operations (12,532,592)
Discontinued operations (Note 3):
Loss from operations (2,261,964)
Loss on disposal (7,481,710)
Net Loss
($22,276,266)
Net loss per weighted average number
of common shares:
Before discontinued operations ($0.48)
Discontinued operations ($0.38)
Net Loss ($0.86)
Weighted average number of
common shares outstanding 25,858,608
The accompanying notes are an integral part of the consolidated
financial statements
Cambridge Biotech Corporation
(Debtor-In-Possession)
Consolidated Balance Sheet
December 31, 1994
Assets
Current Assets:
Cash and cash equivalents $8,537,791
Accounts receivable - trade (less allowance
for doubtful accounts of $150,200) 2,875,612
Other receivables 92,624
Inventories (Note 4) 3,965,668
Prepaid expenses and other current assets 836,285
Total current assets 16,307,980
Investments (Note 5) 110,586
Property, Plant, and Equipment, Net (Note 6) 9,883,820
Patents and Purchased Technology, Net (Note 7) 2,094,493
Other Assets 105,791
Total Assets $28,502,670
Liabilities & Shareholder's Equity
Current Liabilities:
Accounts payable $524,426
Accrued royalties 372,550
Accrued professional fees 522,548
Accrued incentive compensation (Note 14) 627,407
Accrued restructuring costs (Note 8) 378,171
Other accrued expenses 906,741
Deferred revenue (Note 16) 4,089,670
Total Current Liabilities 7,421,513
Deferred Revenue (Note 16) 2,698,904
Liabilities Subject To Chapter 11 Proceedings
(See Note 10) 9,714,572
Commitments and Contingencies (Notes 13 and 19)
Total Liabilities 19,834,989
Shareholder's Equity (Note 14):
Preferred stock, par value $.01 per share
authorized, 5,000,000 shares
Common stock, par value $.01 per share
authorized, 40,000,000 shares
issued, 26,057,006 shares 260,570
Additional Paid in Capital 120,211,479
Unearned Compensation (186,844)
Deficit (111,617,524)
Total Shareholders' Equity 8,667,681
Total Liabilities and Shareholders' Equity $28,502,670
The accompanying notes are an integral part of the consolidated
financial statements
Cambridge Biotech Corporation
(Debtor-in-Possession)
Consolidated Statement of Cash Flows
For the year ended December 31, 1994
Cash Flows From Operating Activities:
Net Loss ($22,276,266)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,282,125
Compensation Expense Recognized 160,253
Loss on sale of property, plant, and equipment 60,343
Loss from impairment of assets 2,879,707
Loss on disposal of discontinued operations 7,481,710
Loss on disposition and write down of investments 531,155
Changes in assets and liabilities, net of
effects of disposed businesses:
Accounts and other receivables 1,021,676
Inventories 1,524,269
Deferred Revenue (468,819)
Prepaid and other current assets (275,089)
Accounts payable and other accrued expenses 2,608,553
Accrued restructuring charges (350,873)
Income taxes payable (183,708)
Other noncurrent assets and liabilities 44,261
Discontinued operations- non cash and working
capital changes (134,235)
Net cash used by operating activities (3,094,938)
Cash Flows From Investing Activities:
Proceeds from sale of marketable securities 4,139,562
Proceeds on sale of discontinued operations 2,391,256
Purchases of property, plant, and equipment (2,118,359)
Proceeds from sale of property, plant, and equipment 84,750
Proceeds from collection of note receivable 1,000,366
Patents (266,332)
Financing activities of discontinued operations 31,152
Net cash from investing activities 5,262,395
Cash Flows From Financing Activities:
Issuance of common stock 6,832,513
Payment on long-term obligations (1,377,449)
Net cash provided by financing activities 5,455,064
Effect of exchange rate changes on cash and
cash equivalents 31,107
Net increase in cash and cash equivalents 7,653,628
Cash and cash equivalents at the beginning of the year 884,163
Cash and cash equivalents at the end of the year $8,537,791
Supplemental disclosures:
Income taxes refunded ($141,814)
Interest paid $254,026
The accompanying notes are an integral part of the consolidated
financial statements
Cambridge Biotech Corporation
(Debtor-In-Possession)
Consolidated Statement of Shareholders' Equity
For the year ended December 31, 1994
Additional
Common Stock Paid-in Unearned
Shares Amount Capital Compensation
BALANCES, 23,403,445 $234,034 $113,854,636 ($796,231)
DECEMBER 31, 1994
Private
placement of
common stock 2,589,100 25,891 6,609,357 ----
Stock issued for
the employee stock
purchase plan 50,761 508 154,313 ---- ----
Exercises of
warrants, options,
and other shares
issued 13,700 137 42,307 ----
Forfeiture of
discounted
stock options ---- ---- (449,134) 449,134
Compensation
expense
recognized ---- ---- ---- 160,253
Net loss for year ---- ---- ---- ----
Translation
Adjustment ---- ---- ---- ----
BALANCES,
12/31/94 26,057,006 $260,570 $120,211,479 ($186,844)
$8,667,681
The accompanying notes are an integral part of the consolidated financial
statements
Cambridge Biotech Corporation
(Debtor-In-Possession)
Consolidated Statement of Shareholders' Equity
For the year ended December 31, 1994
Cumulative
Translation
Deficit Adjustment Total
BALANCES,
12/31/93 ($89,341,258) ($1,934,051) $22,017,130
Private
placement of
common stock ---- ---- 6,635,248
Stock issued for
the employee stock
purchase plan ---- ---- 154,821
Exercises of
warrants, options,
and other shares
issued ---- ---- 42,444
Forfeiture of
discounted
stock options ---- ---- 0
Compensation
expense
recognized ---- ---- 160,253
Net loss for year (22,276,266) ---- (22,276,266)
Translation
Adjustment ---- 1,934,051 1,934,051
BALANCES,
12/31/94 ($111,617,524) $0 $8,667,681
The accompanying notes are an integral part of the consolidated financial
statements
Cambridge Biotech Corporation And Subsidiaries
Notes to Consolidated Financial Statements for the
Year Ended December 31, 1994
1. CHAPTER 11 REORGANIZATION
Cambridge Biotech Corporation (the "Company" or "CBC") filed a
petition for reorganization under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on July 7, 1994 with the United States
Bankruptcy Court for the District of Massachusetts Western Division
(the "Bankruptcy Court"). In a Chapter 11 case, substantially all
liabilities as of the date of filing of the petition for
reorganization are subject to settlement under a plan of
reorganization to be voted upon by the creditors and equity security
holders and approved by the Bankruptcy Court. The Company continues to
manage its affairs and operate its business as a debtor-in-possession,
subject to the supervision of the Bankruptcy Court while the case is
pending.
In the event a plan of reorganization is approved by the Bankruptcy
Court, continuation of the business after reorganization is dependent
upon the success of future operations and the Company's ability to
meet obligations as they become due. The accompanying financial
statements have been prepared on a going concern basis, which
contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. As a
result of the reorganization proceedings, the Company may have to sell
or otherwise dispose of assets and liquidate or settle liabilities for
amounts other than those reflected in the financial statements. The
financial statements do not give effect to all adjustments to the
carrying value of assets, or amounts and reclassification of
liabilities that might be necessary as a consequence of these
bankruptcy proceedings. The appropriateness of using the going concern
basis is dependent upon, among other things, confirmation of a plan of
reorganization, success of future operations, and the ability of the
Company to generate sufficient cash from operations and financing
sources to meet its obligations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The financial statements include
Cambridge Biotech Corporation and its wholly owned subsidiaries,
Cambridge Biotech International Corp. (CBIC) and Biotech Research
Laboratories, Inc., FSC (FSC), and Cambridge Affiliated Corporation
(CAC), of which CBC owns 51%. Cambridge Biotech Ltd. (CBL), a
subsidiary, was sold during 1994 (see Note 3), and is no longer
included in the Company's Consolidated Balance Sheet. CBL's revenue
and expenses from January 1, 1994 to July 21, 1994 are reflected on
the Statement of Operations as a loss from discontinued operations.
CBIC ceased operations in 1994 (see Note 3), and FSC is a foreign
sales corporation which was dissolved by the Company on January 27,
1995. All significant intercompany transactions and accounts have been
eliminated.
Business - The Company is in the business of developing, manufacturing
and marketing products for the detection, prevention and treatment of
infectious diseases in humans and animals.
Cash and Cash Equivalents - The Company considers all highly-liquid
debt instruments purchased with a maturity of three months or less to
be cash equivalents. Cash equivalents include money market accounts,
certificates of deposit and short-term investments.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property, Plant and Equipment - Property, plant and equipment are
recorded at cost. However, the Company evaluates its property, plant
and equipment based upon undiscounted cash flows and states their net
realizable value in accordance with the Financial Accounting Standard
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("FAS 121"). Depreciation for
financial accounting purposes is computed substantially by the
straight-line method to amortize the cost of various classes of assets
over their estimated useful lives. The estimated useful lives of the
assets are as follows:<PAGE>
Useful Life
Buildings 30
Furniture, fixtures and equipment 3 - 10
Leasehold and building improvements lesser of useful life or the
term of the lease
Maintenance and repairs are charged to operations as incurred, whereas
additions and improvements are capitalized. Gains and losses on the
disposition of properties is reflected in earnings and the related
asset costs and accumulated depreciation are removed from the
respective accounts.
Purchased Technology and Patents - Purchased technology related to the
acquisition of assets is recorded at fair market value at acquisition
date. The Company evaluates its purchased technology and patents based
upon undiscounted cash flows and states their net realizable value in
accordance with FAS 121. Capitalized patent costs include product
registrations and costs incurred for the support and protection of
existing patents. Purchased technology and patents are amortized on a
straight-line basis over periods ranging from three to seven years.
Revenue Recognition - Revenue from product and service sales is
recognized at the time of the product shipment or performance of the
service. Revenue from research and development contracts is deferred
and recognized over the contractual periods as services are performed.
In addition, research agreements which have established payments for
distinct achievements or phases are recorded as income as if each were
a separate event. The initial fee in alliance agreements is recognized
when a definitive agreement is reached and no contingent factors are
present.
Research and Development Costs - Research and development costs are
charged to operations as incurred.
Income Taxes - The Company has adopted the asset and liability method
of accounting for income taxes as set forth in Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" ("FAS
109"). Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets
and liabilities using the current statutory tax rates.
Net Loss Per Share - The net loss per share is computed based on the
weighted average number of shares of common stock outstanding during
each period. Common equivalent shares are not included in the per
share calculation since, the effect of their inclusion would be anti-
dilutive.
Translation of Foreign Currencies - Assets and liabilities are
translated at exchange rates in effect on reporting dates, and income
and expenses are translated at average monthly exchange rates. The
resulting differences due to changing exchange rates are charged or
credited directly to the "cumulative translation adjustment" account
included as part of shareholders' equity.
3. DISCONTINUED OPERATIONS
On July 21, 1994 the Company's wholly-owned Irish subsidiary,
Cambridge Biotech Ltd. (CBL), filed for protection of the Irish High
Court and an Examiner was appointed pursuant to the Irish Companies
Act of 1990. At July 21, 1994 CBL's debt to the Company represented
approximately 92% of CBL's total liabilities.
The appointment of the Examiner and the doubtful recovery of the
Company's investment in CBL have led the Company to conclude that the
measurement date under the Accounting Principles Board Statement No.
30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" ("APB 30"), to be July
21, 1994. Consequently the accompanying financial statements include a
loss of $2,128,698 from the discontinued operations for the period
January 1, 1994 through July 21, 1994. Net sales of discontinued
operations were $1,951,680 for the period prior to disposal.
On November 30, 1994 the Company sold its interest in CBL's debt and
equity to SelfCare, Inc. (a U.S. Corporation). Total consideration for
the transaction was approximately $2.1 million. CBL was classified as
a discontinued operation as of the July 21, 1994 measurement date and
a $6,962,781 charge was recorded for the loss.
The Company, through the acquisition of certain assets of Codiapharm,
S.A. in November, 1991 obtained registration rights and distribution
contracts for the sale of products manufactured by CBL the Company's
Irish subsidiary. These assets were recorded by the Company's
subsidiary (CBIC). Effective with the disposal of CBL, the Company
has written off the value of CBIC's assets, and included this loss of
$518,929 in the loss on disposal.
On March 11, 1994 the Company sold its 54% ownership of ADI
Diagnostics, Inc. to the minority shareholder, Biomira Inc., and
received net proceeds of $910,366. The Company had accounted for ADI
as a discontinued operation in 1993; and accordingly, consistent with
APB 30, the results of ADI and loss on disposal are not included in
the accompanying financial statements.
4. INVENTORIES
Inventories are comprised of the following:
Finished Goods $ 559,321
Work in process 2,735,664
Raw Materials and supplies 670,683
---------
$ 3,965,668
=====
5. INVESTMENTS
The Company owns a 19% interest in GRF Corporation (GRF) as part of a
joint venture formed to develop and market human growth hormone
releasing factors thought to be beneficial in the treatment of
osteoporosis and other diseases. The remainder of this company is
beneficially owned by BioNebraska, Inc. and R&C Enterprises, Inc. The
Company provided the initial funding of $2 million which has been
expensed as cash expenditures were made. The Company's investment at
December 31, 1994 was $110,076 after recording a loss of $225,554 in
the Company's 1994 statement of operations.
The Company had an investment in ImmuCell Corporation, which was
accounted for on the cost method. In December, 1994 the Company sold
its interest in ImmuCell for $308,571, recognizing a $305,601 loss.
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are comprised of the following:
Land $ 647,031
Buildings 3,356,525
Furniture, fixtures, and equipment 13,080,062
Leasehold and building
improvements 6,684,335
Property leased to others 987,889
Leased equipment 20,588
---------
Sub-total 24,776,430
Less accumulated depreciation
and amortization (14,892,610)
----------
$ 9,883,820
=====
In 1994 the Company changed its estimate of the useful life of the
leasehold improvements at its Worcester, Massachusetts facility, as a
result of the Company's Chapter 11 filing and the change in the
strategic focus of the Company. This resulted in additional
depreciation expense of $471,000 in 1994. Total depreciation expense
during 1994 was $3,173,507. Accumulated depreciation of property
leased to others was $587,749 at December 31, 1994.
As a result of the Company filing for reorganization under Chapter 11,
the Company evaluated its facilities in Rockville, Maryland based upon
undiscounted future cash flows and stated them at net realizable value
in accordance with FAS 121. Accordingly, the Company recognized an
impairment loss of $1,145,000 on its property and plant in Rockville
during 1994.
7. PURCHASED TECHNOLOGY AND INTANGIBLES
Purchased technology and intangibles are comprised of the following:
Purchased technology $ 3,451,366
Patents and patent support 744,038
---------
Sub-total 4,195,404
Less accumulated amortization (2,100,911)
---------
$ 2,094,493
In 1994 the Company changed its amortization period for certain
purchased technology as a result of information obtained regarding a
replacement product to be introduced in the future. Accordingly, the
Company has revised the amortization period of this technology to
coincide with the introduction of the replacement product, which
resulted in an increase in amortization expense of $227,843 in 1994.
Total amortization expense was $1,107,149 in 1994.
As a result of the Company filing for reorganization under Chapter 11,
the Company evaluated the intangible assets based upon undiscounted
future cash flows and stated them at net realizable value in
accordance with FAS 121. Accordingly, the Company recognized an
impairment loss of $1,734,707 on certain purchased technology in
1994.
8. ACCRUED RESTRUCTURING
During 1992 the Company recorded a restructuring charge for the
consolidation of the Rockville manufacturing facilities and processes
into the Worcester, Massachusetts and Galway, Ireland locations. The
Company presently plans to sell the Rockville, Maryland facility in
1996. During 1994 the Company made $350,873 in payments against this
charge. The remaining balance as of December 31, 1994 of $378,171
consists of estimated severance costs and related expenses.
9. DEBT
The Company was in default of its debt agreements as of December 31,
1994, with the exception of the capital lease agreement, and the
balance is included in liabilities subject to Chapter 11 proceedings
(Note 10). The debt is comprised of the following at December 31,
1994:
Building loan; interest at prime plus 1/2%: $ 3,719,500
Building loan; interest at 8%; 292,659
Equipment capital lease; interest at 9.5%; due
December 1997; payments of $433 per month
including interest; secured by the leased equipment 15,580
---------
4,027,739
Less: amount representing interest included
with equipment capital lease (2,777)
---------
Debt $ 4,024,962
The two building loans are collateralized by land, buildings and
improvements with a carrying value of $4,001,525. These loans are in
default because of the Company's Chapter 11 filing; however, payment
has been stayed by the Bankruptcy Court, pending resolution of the
Chapter 11 proceedings. The prime rate was 8.5% at December 31, 1994.
The cost of equipment held under capital leases is $20,588 with
related accumulated amortization of $8,578 at December 31, 1994.
10. LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS
As described in Note 1, since July 7, 1994, the Company has been
operating as debtor-in-possession under Chapter 11 and is subject to
the jurisdiction and supervision of the Bankruptcy Court. In Chapter
11 cases, substantially all liabilities of the debtor as of the date
of the filing of the petition for reorganization will be subject to
settlement under the plan or plans of reorganization. These amounts
may be subject to future adjustments depending on Bankruptcy Court
actions and further developments with respect to disputed claims.
Accordingly, the ultimate amount of, and settlement terms for, such
liabilities is not presently determinable.
Schedules were filed with the Bankruptcy Court setting forth the
assets and liabilities of the Company as of the filing date as
recorded in the Company's accounting records. Claimants could file
claims until various bar dates set by the Court. Differences between
amounts shown by the Company and claims filed by the creditors are
currently being investigated. After completion of the reconciliation,
any remaining differences may be resolved by negotiated agreement
between the Company and the claimant or by the Bankruptcy Court as
part of the Chapter 11 proceedings or otherwise.
Under the Bankruptcy Code, debtors may elect to assume or reject real
estate leases, employment contracts, personal property leases, service
contracts and other unexpired executory prepetition contracts, subject
to Bankruptcy Court approval.
The principal categories of claims included in Liabilities Subject to
Chapter 11 Proceedings in the Consolidated Balance Sheet as of
December 31, 1994 are set forth below:
Priority liabilities $ 41,405
Collateralized Debt (see Note 9) 4,024,962
Prepetition unsecured liabilities 5,648,205
-----------
Total $9,714,572
These amounts represent management's best estimate of all valid
claims. Such claims remain subject to future adjustments depending on
negotiations and actions of the Bankruptcy Court, further developments
with respect to the disputed claims, whether or not such claims are
secured, and the value of any security interests securing any of such
claims or other events.
11. INCOME TAXES
A reconciliation between the amount of reported income tax expense/
(benefit) and the amount computed using the U.S. federal statutory
rate of 34% for the year ended December 31, 1994 is as follows:
Tax benefit at federal statutory rates (34.0)%
Losses without tax benefit 34.0%
Other (1.6)%
Reported benefit for income taxes (1.6)%
The components of the deferred tax assets and liabilities at December
31, 1994 are as follows (in millions):
Assets/(Liabilities)
Current:
Inventory $ 1.1
Other .2
Total current 1.3
Noncurrent:
Depreciation 4.0
Restructuring & Merger costs .6
Other .9
Federal & state net operating losses 21.1
Federal tax credits 1.1
Total noncurrent 27.7
Sub-total 29.0
Less: valuation allowance (29.0)
Net deferred tax asset $0.00
FAS 109 requires that a valuation reserve be established if it is more
likely than not that all or a portion of the deferred tax asset will
not be realized. Accordingly, a valuation reserve has been established
for the full amount of the deferred tax asset.
As of December 31, 1994, the Company had estimated U.S. net operating
loss (NOL) carryforwards of approximately $50,000,000 for income tax
purposes. These loss carryforwards expire through the year 2009.
Utilization of these NOL's may be limited pursuant to the provisions
of Section 382 of the Internal Revenue Code of 1986. The Company's
NOL's are subject to review by the Internal Revenue Service and
various state tax authorities (the Company's most recently filed tax
returns were for the year ended December 31, 1992). In addition, these
NOL's and other tax attributes may be adversely impacted by the
bankruptcy proceedings (see Note 1).
12. RENTAL INCOME
The Company receives rental income on certain property and equipment
from various tenants and sub-tenants under noncancelable leases which
extend to 1997. During 1994 the Company received $458,000 in rental
income. The Company records the expenses associated with the rental
income by aggregating the expenses with the rental income in Other
Income/Expense on its Statement of Operations. The Company incurred
approximately $420,000 in expenses during 1994 in regard to these
operations. Future minimum rentals on noncancelable operating leases
are as follows:
Year ended December 31:
------------------------------
1995 $ 286,101
1996 268,840
1997 144,760
Thereafter -0-
--------
Total future minimum rentals $ 699,701
13. COMMITMENTS AND CONTINGENCIES
Leases - The Company has entered into operating lease agreements for
its executive offices, warehouse, research laboratories, manufacturing
facilities, and office equipment. The base lease periods range from
two to ten years. Two leases contain renewal options, the first for
one five-year period and the second for two five-year periods. Several
leases contain escalation clauses for increases in real estate taxes
from the base year, as well as minimum rental increases for the change
in the Price Index, not to exceed 3% of the previous year's rent.
Costs incurred under the operating leases are recorded as rent expense
and totaled $1,406,100 for real estate and $631,500 for equipment in
1994.
As of December 31, 1994, the future minimum lease payments required
under operating leases that have initial or remaining noncancelable
lease terms in excess of one year are as follows:
Year Ending Real
December 31 Equipment Estate
1995 $ 9,357 $1,161,207
1996 2,738 1,068,408
1997 456 - - -
------ ----------
Total minimum lease payments $ 12,551 $2,229,615
Employment and Consulting Agreements - The Company has agreements with
various consultants and key employees, with terms ranging, generally,
from one to three years. These agreements provide for future aggregate
annual payments of approximately $1,226,000. Costs incurred and
charged to operations under these contracts aggregated $2,724,022 in
1994.
Other Agreements - The Company has entered into various license
agreements which require the Company to pay royalties based upon a set
percentage of product sales subject in some cases, to certain minimum
amounts; these minimums total $450,000 annually. Total royalty expense
was $1,108,990 in 1994.
Contingencies:
In November 1993, five civil actions were commenced in the United
States District Court, District of Massachusetts, against the Company,
certain of its officers, and in three of the actions, Deloitte and
Touche, the Company's former auditors. The actions were instituted by
persons alleging to be shareholders of the Company and to be
representative of a class of shareholders claiming damages resulting
from alleged violations of securities laws by defendants in connection
with the 1992 results of the Company and the restatement thereof. The
actions have been consolidated under the caption In Re: Cambridge
Biotech Corporation Securities Litigation, Civil Action No. 93-12486-
REK. The actions against the Company have been temporarily stayed as a
result of the Company's bankruptcy, and the Plaintiffs have filed a
claim in the Company's bankruptcy proceeding. Settlement negotiations
are proceeding among the various parties.
In July of 1994, the Securities and Exchange Commission issued an
Order Directing Private Investigation in the matter of Cambridge
Biotech Corporation, investigating matters pertaining to the Company's
financial statements, its public filings and its offerings of its
securities. The Company is cooperating fully with the investigation
which is ongoing.
During 1992, the Company paid $2,300,000 to Alfa-Laval, a Swedish
company to acquire its fibronectine binding technology for use in
mastitis vaccines and certain other products. The agreement provides
for additional payments to Alfa-Laval conditioned upon the first
commercial sale of future vaccines at $1,333,000 per vaccine, and up
to $2,000,000 conditioned upon the granting of additional patents in
the United States and Europe on the technology acquired.
GRF Corporation (see Note 5) is conducting a Phase I clinical study
testing the use of growth hormone releasing factor to treat
osteoporosis. If this study is partially successful (as defined in the
joint venture agreements), the Company must fund an additional study
in order to maintain its equity interest. If either study is
successful, the Company must invest or induce a third party to invest
$15 million (less any funds expended in any additional study) in order
to maintain the Company's equity interest and potentially increase its
investment up to 40%. Interim data from the current study is
insufficient to determine if and when additional funding may be
required.
The Company has and is engaged in negotiations of various contracts
and license agreements with other parties regarding issues generally
incidental to the normal course of business. While the outcome of
these negotiations and the ultimate liability from these discussions
is difficult to determine, in the opinion of management any additional
liability will not have a material effect on the Company's financial
position, liquidity, or results of operations.
14. CAPITALIZATION OF COMPANY
Capital Stock - In the first quarter of 1994 the Company issued
2,589,100 shares in connection with a shelf offering. The offering
raised net proceeds of $6,635,248 after deducting legal costs and
other expenses associated with the offering.
Stock Option and Purchase Plans - The Company has three stock option
plans. A plan adopted in 1985 and amended in 1987 provides for non-
qualified stock options and stock appreciation rights available only
to non-employee consultants. A stock option plan adopted in 1989
provides the granting of incentive stock options to employees and non-
qualified stock options, discounted stock options, restricted stock,
deferred stock and stock appreciation rights to employees, officers,
consultants and advisors. A stock award and option plan for directors
was adopted November 19, 1991 and subsequently approved at the
shareholders' annual meeting on May 19, 1992. The plan provides for
the granting of incentive stock options, restricted stock, deferred
stock and stock appreciation rights to directors. No stock
appreciation rights or deferred stock had been granted through
December 31, 1994.
At December 31, 1994, 1,652,446 options were exercisable under the
above-mentioned plans.
The Company has reserved a total of 4,950,159 shares of common stock
for issuance under all stock option and purchase plans at December 31,
1994.
On November 19, 1991, the Company's Board of Directors approved a
program, which was ratified by the Company's shareholders in 1992, to
reserve an additional 3,000,000 shares of common stock for the 1989
stock option plan. Under this plan, some of the past and current
executives of the Company were granted options by the Board of
Directors in 1992 to purchase 180,000 shares of common stock at 75% of
the fair market value at the date of the grant. The options will vest
over a five-year period, but vesting may be accelerated upon the
attainment of certain goals. During 1994 stock options with a deferred
compensation balance totaling $449,134 were forfeited by employees who
left the Company. In 1994 $160,253 of deferred compensation related to
this program was amortized to expense.
The above plans provide for the granting of options for an aggregate
maximum of 5,814,000 shares of common stock and 2,100,000 stock
appreciation rights. The price of the shares that may be purchased
under the plans shall be determined by the Board of Directors, subject
to certain limitations. Options granted during 1994 generally vest
over two to three years. The right to grant options under each plan
expires ten years after adoption. A summary of option activity for
1994 is as follows:
Shares Prices
Balance, beginning of year 2,907,818 $1.00 to $16.44
Options granted 619,000 $1.17 to $3.31
Options rescinded or lapsed (960,789) $2.00 to $14.06
Options exercised (3,000) $2.00
Balance, end of year 2,563,029 $1.00 to $16.44
On October 27, 1994, the Company's plan to institute a retention bonus
plan for some of its employees was approved by the United States
Bankruptcy Court for the District of Massachusetts. The plan called for
bonuses to be paid in stock of the reorganized Company upon emergence
from Chapter 11 reorganization. As of December 31, 1994, the Company
had recorded compensation expense of $627,407 in connection with the
plan.
15. EMPLOYEE BENEFITS PLAN
The Company has a savings plan for its employees pursuant to Section
401(k) of the Internal Revenue Code. Substantially all employees can
participate, and the plan allows for a minimum deferral of 1% to a
maximum deferral of 15% percent of plan compensation, as permitted by
law or as limited by the plan administrator. Prior to the Chapter 11
filing, the Company matched 50% of the first 6% of an employee's
compensation, if contributed to the plan. Any contributions made by the
Company vest over a three-year period. The amount charged to operations
for the plan was $93,250 in 1994. The Company suspended its matching
contribution on the date of the Chapter 11 filing.
16. AGREEMENTS
The Company has a comprehensive agreement with SmithKline Beecham
p.l.c. ("SmithKline") which allows SmithKline to use the Company's
proprietary Stimulon adjuvant ("QS-21") in numerous vaccines including
hepatitis, lyme disease, human immunodeficiency virus (HIV), influenza
and malaria. The agreement grants certain exclusive worldwide rights in
some fields of use, and co-exclusive rights in others. The Company
recognized $3,000,000 in license fees under this agreement during 1994.
An additional payment of $3,500,000 was included in deferred revenue at
December 31, 1994. The agreement calls for royalties to be paid by
SmithKline on its future sales of licensed vaccines which include CBC's
adjuvant. The Company will continue to receive funding from a
collaborative arrangement with SmithKline through 1998.
The Company has product development and supply agreements with Virbac
S.A. ("Virbac") which covers the ongoing collaboration between Virbac
and the Company relating to the following products: vaccines for the
feline leukemia virus ("FeLV"), the feline immune deficiency virus
("FIV") and bovine mastitis. The Company recognized $1,061,200 in
revenues under these agreements during 1994. Additional payments
totaling $2,542,940 have been included in deferred revenue at December
31, 1994.
As part of its program to develop, manufacture and market products for
detection, prevention and treatment of human and animal infectious
diseases, the Company has entered into various agreements with the
National Institute of Health (NIH). Such agreements provide the Company
with research and development funding through 1995, assuming, in
certain cases, achievement of certain mutually defined milestones.
Revenue recognized under these contracts amounted to $787,040 in 1994.
17. MAJOR CUSTOMERS
Ortho Diagnostics Systems, Inc. (Ortho) is the Company's principal
distributor for retroviral products, which include both screening and
confirmatory tests. All of the Company's products marketed by Ortho are
under a joint Cambridge Biotech / Ortho label. Sales to Ortho
represented 32% of the Company's total revenue in 1994.
SmithKline is the Company's principle source of research and
development revenue. Revenues from SmithKline represented 14% of the
Company's total revenue in 1994.
18. SEGMENT INFORMATION
The Company operates in one industry segment consisting of the
development, manufacturing and marketing of products for the detection,
prevention, and treatment of infectious diseases in humans and animals.
Export sales were approximately $3.7 million in 1994. The Company's
subsidiary CAC operates in Europe and reported sales of $231,298 and
net income of $1,435 in 1994.
19. SUBSEQUENT EVENTS
On March 9, 1995, an Adversary Proceeding No. 95-4074 was commenced in
the Bankruptcy Court, by Institut Pasteur and Genetic Systems
Corporation alleging patent infringement and asking for damages and
injunctive relief. The Company has filed an answer and counterclaim
denying the plaintiffs' allegations and alleging a breach by Institut
Pasteur of its license agreement with the Company.
On September 1, 1995, the Bankruptcy Court issued a summary judgment
upholding the Company's license under two patents issued to Institut
Pasteur to commercialize diagnostic tests for the HIV-2 strain of the
AIDS virus. The Bankruptcy Court also ruled that the Company's HIV-1
Western blot confirmatory test infringes a third patent issued to
Institut Pasteur, and enjoined the Company from the manufacture and
sale of the HIV-1 Western blot test. The Company has appealed the
portion of the opinion relating to the patent covering the HIV-1
Western blot test, and the injunction has been stayed, pending further
proceedings. The Plaintiffs have appealed the Bankruptcy Court's ruling
with respect to the HIV-2. The Company is also seeking to obtain a
license to the patent from Institut Pasteur. The HIV-1 Western blot
test accounted for approximately 14% of the Company's product revenues
in 1994. While the final outcome of these patent issues cannot be
determined with certainty, if the Bankruptcy Court rulings are
sustained, management believes that the outcome will not have a
material adverse effect on the Company's results of operations or its
financial position.
Coopers
& Lybrand
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of
Cambridge Biotech Corporation (debtor in possession, effective July 7,
1994) as of December 31, 1994, and the related consolidated statements
of operations, cash flows and stockholders' equity for the year ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Cambridge Biotech Corporation as of December 31, 1994 and the
consolidated results of its operations and its cash flows for the year
ended December 31, 1994 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Notes 1 and 13 to the consolidated financial statements,
Cambridge Biotech Corporation filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code on July 7, 1994,
civil actions have been filed against the Company by certain
shareholders, and the Company is subject to a Securities and Exchange
Commission order directing private investigation. The civil actions
against the Company have been temporarily stayed as a result of the
Company's bankruptcy. Although the Company is currently operating its
business as a debtor in possession under the jurisdiction of the
Bankruptcy Court, the continuation of the Company's business as a going
concern is contingent upon, among other things, the ability to
formulate a plan of reorganization which will gain approval of the
creditors and confirmation by the Bankruptcy Court, and the final
settlement of the shareholder litigation and the Securities and
Exchange Commission order directing private investigation. These
matters raise substantial doubt about the Company's ability to continue
as a going concern. The consolidated financial statements do not
include any adjustments that may be required in connection with
restructuring the Company as it reorganizes under Chapter 11 of the
United States Bankruptcy Code, and the final settlement of the
shareholder litigation and the Securities and Exchange Commission order
directing private investigation.
October 4, 1995
Boston, Massachusetts /s/ Coopers & Lybrand, L.L.P.
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