<PAGE>
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]
<PAGE>
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.
<TABLE>
<CAPTION>
Year ended June 30 1994 1993 1992(1) 1991 1990
------------------ ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
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)
<CAPTION>
Selected Balance Sheet Data:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
</TABLE>
------------
(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
<PAGE>
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.
<TABLE>
<CAPTION>
Year ended June 30 1994 1993 1992(1) 1991 1990
------------------ ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Selected Balance Sheet Data:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
</TABLE>
------------
(1) See footnote (1) above.
(2) See footnote (2) above.
4
<PAGE>
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
$1.4987 per GBP for 1994, 1.5448 for 1993, and 1.744 for 1992, and for assets
and liabilities of 1.5424 for 1994, and 1.5091 for 1993.
General
The Company's historical revenues have been primarily attributable to sales
of its own products. The Company also acts as U.K. selling agent for certain
products of both affiliated as well as other companies. This latter activity
has decreased in the year ended June 30, 1994 due to the Company relinquishing
its U.K. agency to sell certain products. The Company also receives royalty
income from users of its patented technology. This source of income is
increasing.
Cost of sales includes both direct and indirect manufacturing costs.
Research costs includes internal expenditure in respect of the Company's U.S.
laboratory facilities (salaries, materials, occupancy) and monies expended with
external research facilities.
Selling, general and administrative expenses include management salaries,
clerical and administrative overheads, legal and public relations fees, and
costs associated with selling of the Company's products.
The Company capitalizes patent costs, as these generate royalty income on
an ongoing basis. These costs are amortized over
5
<PAGE>
periods of five to fifteen years.
Results of Operations
The Company has an accumulated deficit due to the write-off of purchased
goodwill (amortized over five years from 1986-1990) and purchased research and
development costs (written-off in the year ended June 30, 1993 in connection
with the BP Transactions described in Note 1 of the Notes to the Consolidated
Financial Statements included elsewhere herein).
Three years ended June 30, 1994, 1993, and 1992
Sales
Sales decreased 18.0% to GBP 6.42 million ($ 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
APPLIED MICROBIOLOGY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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
------ ------- ------ ------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
APPLIED MICROBIOLOGY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1994 1993 1992
GBP'000 GBP'000 GBP'000
------- ------- -------
<S> <C> <C> <C>
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
------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
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 $1,500,000 of
non-convertible preferred stock of the Company.
Following the BP transactions, the Company continues as a publicly traded
corporation with A&B as a wholly owned operating subsidiary. The
acquisition of A&B by the Company and the issue of common stock to the
Burns Philp Group resulted in the Burns Philp Group obtaining a majority
voting interest in the Company. Generally accepted accounting principles
require that the company whose stockholders retain the majority voting
interest in a combined business be treated as the acquiror for accounting
purposes. As a consequence, the BP transactions have been accounted for
as a "reverse acquisition" for financial reporting purposes and A&B is
deemed to have acquired, at date of the BP transactions, a 65% interest
in the Company. Despite the financial reporting requirement to account
for the acquisition as a "reverse acquisition", the Company remains the
continuing legal entity and registrant for Securities and Exchange
Commission reporting purposes.
<PAGE>
APPLIED MICROBIOLOGY, INC. & SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Due to the "reverse acquisition", the reporting currency for the combined
entity is the Great Britain pounds sterling (GBP). For informational
purposes, unaudited US$ 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
------ ------
<PAGE>
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.
<PAGE>
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
--- ---
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
---- ---
<PAGE>
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
------- ------- -------
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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 -
<PAGE>
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
=======
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758
0
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