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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 0-16177
ONCOR, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-130084
------------------------ --------------------------------
(State of Incorporation) (IRS Employer Identification No.)
209 PERRY PARKWAY
GAITHERSBURG, MARYLAND 20877
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(Address of principal executive offices)
(Zip Code)
(301) 963-3500
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (Par Value $0.01 per share)
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(Title of Class)
Redeemable Common Stock Purchase 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 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 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
best of registrants' 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]
As of April 6,1999, there were 33,554,481 shares of Common Stock outstanding.
The aggregate market value of the voting stock held by non-affiliates was
approximately $1,207,961 at that date.
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TABLE OF CONTENTS
Page
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PART I
1. Business 2
2. Properties 6
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 7
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters 7
6. Selected Consolidated Financial Data 8
7. Management's Discussion and Analysis
of Financial Condition and Results of Operation 10
7A Quantitative and Qualitative Disclosures about Market Risk 14
8. Financial Statements and Supplementary Data 14
9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosures 14
PART III
10. Directors and Executive Officers of the Registrant 14
11. Executive Compensation 16
12. Security Ownership of Certain Beneficial
Owners and Management 18
13. Certain Relationships and Related Transactions 20
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 20
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FORWARD-LOOKING STATEMENTS
This Report contains certain statements of a forward-looking nature
relating to future events or future financial performance of Oncor, Inc.
(hereafter referred to as "Oncor" or the "Company"). Readers are cautioned that
such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, readers should specifically
consider the various factors identified in this Report and in the Company's
other public filings which could cause actual results to differ materially from
those indicated by such forward-looking statements, including the matters set
forth in the various captions under "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether because of new information, future events or
otherwise.
PART I
ITEM 1. BUSINESS
IMPORTANT 1999 DEVELOPMENTS
Sale of assets
On February 10, 1999, the Company sold its 80% interest in Appligene
Oncore ("Appligene"), a French company, to a Canadian company for $1 million.
(See Note 3 to the consolidated financial statements for additional information
on this transaction.)
After the sale of Appligene and the several transactions described
under the caption "Business" below, the Company's only remaining assets
consisted of certain Oncor and Codon intellectual property and licenses. The
future uses, if any, of these remaining assets are being explored by the
Company. The Company currently has no revenues from operations.
Chapter 11 Filing
On February 26, 1999 (the "Petition Date"), Oncor, Inc. and its
wholly-owned subsidiary, Codon Pharmaceuticals, Inc. (the "Debtor"), filed
voluntary petitions for relief under Chapter 11 of the United States Code (the
"Bankruptcy Code") with the United States Bankruptcy Court for the District of
Delaware, Wilmington, Delaware. Under Chapter 11, certain claims against the
Debtor in existence before the filing of the petitions for relief under the
Bankruptcy Code are stayed while the Debtor continues as debtor-in-possession.
Pursuant to the provisions of the Bankruptcy Code, all actions to
collect upon any of the Company's liabilities as of the Petition Date or to
enforce pre-Petition contractual obligations were automatically stayed. Absent
approval from the Bankruptcy Court, the Company is prohibited from paying
pre-Petition obligations. However, the Bankruptcy Court has approved payment of
certain pre-Petition liabilities as of the Petition Date such as employee wages
and benefits and certain specified pre-Petition obligations. Additionally, the
Bankruptcy Court has allowed for the retention of legal and financial
professionals and other payments to protect the holders of claims against the
Company. As a debtor-in-possession, the Company has the right, subject to
Bankruptcy Court approval and certain other conditions, to assume or reject any
pre-Petition executory contracts and unexpired leases. Parties
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affected by such rejections may file pre-Petition claims with the Bankruptcy
Court in accordance with Bankruptcy procedures.
Oncor expects to reorganize under Chapter 11 and to propose a
reorganization plan or plans. At this time, it is not possible to predict that
any Plan filed will be approved or confirmed by the Bankruptcy Court, or that
such plans will be consummated. If a plan is not approved, the Company may be
required to liquidate.
Reference is made to Item 7 "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and the Report of Independent
Public Accountants included in Item 8 - "Consolidated Financial Statements and
Supplementary Data" which indicate the substantial doubt about Oncor's ability
to continue as a going concern.
THE COMPANY
Oncor, Inc. along with its consolidated subsidiaries was incorporated
in Maryland in July 1983. Oncor's principal offices are located at 209 Perry
Parkway, Gaithersburg, Maryland 20877, and its telephone number is (301) 963-
3500.
BUSINESS
During 1998, as part of the Company's plan to reduce its scope of
operations and ongoing operating expenses, the Company disposed of a significant
portion of its business and the related assets. (See Note 3 to the consolidated
financial statements under Item 8 for additional information on the following
transactions.)
Effective February 28, 1998, the Company acquired all remaining
outstanding shares of Codon Pharmaceuticals, Inc. ("Codon"). On October 1,
1998, Codon ceased all operations.
On April 9, 1998, the Company completed a transaction with Vysis, Inc.
in which Oncor conveyed to Vysis for $0.5 million in cash and full rights and
title to its non-oncology genetics probe assets ("Genetics Assets"), including
primarily inventories and intellectual property, in exchange for two licenses to
patents owned or licensed to Vysis. (These two licenses were surrendered in the
November 24, 1998 transaction discussed below.) In addition, the parties agreed
to settle all legal action between them with respect to a suit brought by Vysis
against the Company in September 1995.
On June 30, 1998, the Company completed the sale of its Research
Products Assets, including primarily inventory, laboratory equipment and
intellectual property, to Intergen Company for cash consideration of $3.1
million.
On September 28, 1998, pursuant to a plan of merger between Oncormed,
Inc. and Gene Logic, Inc., the Company exchanged 900,000 shares representing all
its shares in Oncormed for approximately 420,000 shares of Gene Logic, Inc.
common stock.
On November 23, 1998, the Company voluntarily surrendered assets
related to its in situ Hybridization business to certain of the Company's
secured creditors. The creditors simultaneously sold these assets to Ventana,
Medical Systems. The proceeds were used to liquidate the debt due the secured
creditors and to pay other obligations of the Company.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
See Note 8 to the consolidated financial statements under Item 8 of
this Report for industry segment and foreign and domestic operations and export
sales information.
YEAR 2000 COMPLIANCE
After the Company's disposition of substantially all of its remaining
assets and operations, the Company does not believe it has any material exposure
to Year 2000 relating to its computer systems or those systems on which the
Company depends.
ADDITIONAL RISK FACTORS
As discussed above, the Company's only remaining assets consisted of
certain Oncor and Codon intellectual property and licenses. The future uses, if
any, of these licenses are being explored by the Company. The Company currently
has no revenues from operations. In addition, the Company has filed voluntary
petitions for relief under the Bankruptcy Code. If the Company continues in
operation in any manner it will be subject to significant additional risks,
including the risks summarized below.
History of Operating Losses
ONCOR HAS NOT BEEN PROFITABLE SINCE ITS INCEPTION IN JULY 1983. AS
INDICATED ABOVE, THE COMPANY HAS DISPOSED OF A SIGNIFICANT PORTION OF ITS ASSETS
AND OPERATIONS AND CURRENTLY HAS NO REVENUES FROM OPERATIONS.
Additional Financing Requirements and Access to Capital Funding
IF THE COMPANY CONTINUES IN OPERATION IN ANY MANNER, IT WILL BE SUBJECT
TO RISKS ASSOCIATED WITH ADDITIONAL FINANCING REQUIREMENTS AND ACCESS TO CAPITAL
FUNDING. THE COMPANY'S CURRENT LIQUID RESOURCES ARE NOT SUFFICIENT TO SATISFY
ITS CURRENT OBLIGATIONS.
Trading in Company's Common Stock
In October 1998, the Company was delisted from the American Stock
Exchange. It now trades on the Over-the-Counter Bulletin Board. This market will
likely provide substantially less liquidity and market support for the
stockholders of the Company and materially and adversely affect the ability, if
any, of the Company to raise additional equity for any future business
operations. Additionally, the bankruptcy proceedings may have an adverse effect
on the trading in the Company's stock. There is no assurance that the Company's
stock will continue to be traded even on the Bulletin Board.
Requested Redemption of Series A Convertible Preferred Stock
The Company is subject to risks associated with the requested
redemption of Series A convertible preferred stock (the "preferred stock"). (See
Note 6 to the consolidated financial statements relating to the issuance of this
preferred stock.) On August 7, 1998 and August 11, 1998, the Company received
requests from the holders of the preferred stock, which had an aggregate
original issuance amount equal to $5 million and a higher redemption amount, to
have their shares of preferred stock redeemed. The Company believes that there
are certain legal and financial impediments to the satisfaction of these
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requests, even if determined to be valid. If such redemption request is
ultimately held to be valid, the Company does not have, and probably cannot
obtain, the funds necessary to redeem the preferred stock (See Note 6 to the
consolidated financial statements for additional information).
No Assurance of Regulatory Approvals, Government Regulation
As indicated above, the Company's only remaining assets consist of
certain Oncor and Codon licenses. The future uses of these licenses are being
explored by the Company. If a use of these licenses is found, there is no
assurance that the Company will receive regulatory approval or clearance for the
use of any products developed using these licenses, if required, or have the
financial ability to pursue approval or clearance.
Patents and Proprietary Rights
The use of the above-mentioned licenses also depend in a large part on
the Company's ability to obtain patents, where needed, defend the patents,
maintain trade secrets and operate without infringing upon the propriety rights
of others. The patent position of firms relying upon biotechnology is highly
uncertain in general and involves complex legal and factual questions. There is
no assurance that patents issued are sufficiently broad enough to afford
protection against competitors with similar technology. In addition, there can
be no assurance that any patents issued to the Company, or for which the Company
has license rights, will not be challenged, invalidated or circumvented, or that
the rights granted thereunder will provide competitive advantages to the
Company. Litigation relative to patents, licenses or any rights could result in
litigation. The Company currently does not have the financial ability to defend
any such litigation.
Uncertainties Relating to Product Development
If, in the future, the Company seeks to develop one or more products,
it will be subject to risks associated with uncertainties relating to product
development. There can be no assurance that the Company or any future
development partner will be successful in developing existing or future
products, that such products will prove to be efficacious in clinical trials,
that required regulatory approvals or clearances can be obtained for such
products, that such products, if developed and approved, can be manufactured in
commercial quantities at reasonable costs, will be marketed successfully or will
be accepted by the medical diagnostic community, or that market demand for such
products will be sufficient to allow profitable operations.
Competition and Technological Change
If the Company were to continue in operations, it will be subject to
the risks associated with competition and technological change. The diagnostic
and biotechnology industries are subject to intense competition and rapid and
significant technological change. Competitors in the United States and foreign
countries are numerous and include, among others, diagnostic, health care,
pharmaceutical, biotechnology and chemical companies, academic institutions,
government agencies and other public and private research organizations. Many of
these competitors have substantially greater financial and technical resources
and production and marketing capabilities than the Company. There can be no
assurance that these competitors will not succeed in developing technologies and
products that are more effective, easier to use or less expensive than those
that have been or would be developed by the Company or that would render the
Company's technology and products obsolete and
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noncompetitive. The Company would also have to compete with various companies in
acquiring technology from academic institutions, government agencies and
research organizations. In addition, many of the Company's competitors have
significantly greater experience than the Company in conducting clinical trials
of new diagnostic products and in obtaining FDA and other regulatory approvals
of products for use in health care. Accordingly, the Company's competitors may
succeed in obtaining regulatory approval for products more rapidly than the
Company.
Attraction and Retention of Key Personnel
If the Company were to continue operations, it will be subject to risks
associated with attracting and retaining key personnel to replace those who have
resigned or have been terminated. Competition for such personnel and advisors is
intense, and the Company's ability to attract and retain such personnel will be
adversely affected by the current financial condition of the Company; therefore,
there can be no assurance that the Company could attract and retain such
personnel.
Product Liability
If the Company were to continue operations, it will be subject to risks
associated with product liability. The testing, marketing and sale of health
care products could expose the Company to the risk of product liability claims.
Presently, the Company does not have the resources to defend or settle any
uninsured product liability claims that may be filed against it.
While the Company maintains product liability insurance coverage of $5
million per occurrence, there can be no assurance, however, that such insurance
policy will respond to any specific claim, that this coverage will be adequate
to protect the Company against future product liability claims or that product
liability insurance will be available to the Company in the future on acceptable
terms, if at all.
EMPLOYEES
The Company currently has 3 employees (2 clerical and 1 Research and
Development). The Company's acting President and Chief Operating Officer serves
on a consulting basis. The Company also retains the services of a full time
accountant on a temporary basis and an accountant on a consulting basis, as
needed. All other employees of the Company have resigned or been terminated.
ITEM 2. PROPERTIES
The Company currently leases facilities in Gaithersburg, Maryland
consisting of a total of approximately 5,200 square feet of office space leased
pursuant to an operating lease which expires in March 31, 2004.
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ITEM 3. LEGAL PROCEEDINGS
The Company has received notices from time to time claiming that
certain of the Company's products infringe patents of third parties and has
submitted the notices to its patent counsel for review. There can be no
assurance, however, that these claims will not lead to infringement proceedings
involving the Company or that the Company would prevail in any such proceedings.
Patent litigation has frequently proven in recent years to be complex and
expensive and the outcome of patent litigation can be difficult to predict. In
the Company's present financial condition, it probably could not litigate any
litigation filed or to pay damages if proven.
On April 27, 1998, the Company received a summons and complaint in
connection with a lawsuit entitled Key Technology, Inc. V. Oncor, Inc. in the
Superior Court of the State of Washington for the County of Walla Walla. The
complaint alleges breach of contract and fraud concerning a June 1996 asset
purchase agreement between Key Technology relating to the sale of the Company's
1300 video inspection systems to Key Technology, and seeks damages against the
Company of $1,475,000. A failure to successfully defend against or settle that
suit would likely result in damages being assessed against the Company.
Management currently cannot estimate what liability, if any, could result from
this dispute.
During 1998, two entities who entered into a partnership agreement with
the Company have asserted that the Company did not disclose certain information
to them prior to entering into the agreement. The entities have requested that
the Company relinquish all rights obtained by the Company and, if the Company
does not relinquish such rights, "appropriate action" will be taken. No
settlement has been reached in this matter and, to date, no suit has been filed
or demand received. Management currently cannot estimate what liability, if any,
could result from this dispute.
Besides the above enumerated proceedings, several claims and cases have
been filed by creditors and former employees of the Company relating to unpaid
amounts for goods and services provided the Company. Payments of these amounts
are now stayed by the Bankruptcy Proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock was traded on the American Stock Exchange (the
"Exchange") under the symbol "ONC." On October 2, 1998, the Exchange advised the
Company that trading had been halted in the Company's Common Stock and that the
trading halt will continue indefinitely. Presently, the Company's Common Stock
trades on the Over-the-Counter Bulletin Board under the symbol "ONCR.".
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The following table sets forth, for the calendar periods indicated, the range of
high and low sale prices for the Common Stock as reported by the Exchange or
reported in the pink-sheets, as applicable:
High Low
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1997
First Quarter 5-1/4 3-3/8
Second Quarter 4-5/8 3
Third Quarter 5-3/16 3-9/16
Fourth Quarter 5-1/4 3-1/2
1998
First Quarter 5-1/8 1-3/8
Second Quarter 15/16 5/8
Third Quarter 13/16 1/8
Bid Ask
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High Low High Low
---- ------ ---- -----
Fourth Quarter 1/4 1/1000 1/4 1/1000
HOLDERS
As of December 31, 1998, the approximate number of record holders of
Common Stock was 471.
DIVIDENDS
The Company has never declared or paid any cash dividends on its Common
Stock. Presently, the Company does not have the ability to pay a dividend and
does not anticipate paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below as of December
31, 1998, 1997, 1996, 1995 and 1994 and for each of the years then ended, have
been derived from the audited consolidated financial statements of the Company.
The consolidated financial statements of the Company as of December 31, 1998 and
1997 and for each of the years in the three-year period ended December 31, 1998,
together with the notes thereto and the related report of Arthur Andersen LLP,
independent public accountants, are included in Item 8 of this Report. The
selected financial data set forth below should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 of this report.
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The information set forth in the table is not indicative of future
financial condition or results of operations.
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
GROSS REVENUES:
Product sales $11,553 $ 12,949 $ 15,323 $ 16,193 $ 12,425
Grant and contract revenue 427 409 683 1,194 390
------ ------ ------ ------ ------
Total gross revenues 11,980 13,358 16,006 17,387 12,815
------ ------ ------ ------ ------
OPERATING EXPENSES:
Direct cost of sales 6,850 8,515 9,656 8,279 7,254
Amortization of
intangible assets 2,263 1,157 1,323 1,339 414
Write off of acquired R&D
projects in process 5,727 3,574
Selling, general and
administrative 15,365 14,825 15,073 13,752 9,539
Research and development 6,833 7,186 7,276 10,422 9,609
Clinical and regulatory 945 2,046 2,546
Restructuring expense 2,075
------ ------ ------ ------ ------
Total operating expenses 37,983 33,729 37,949 33,792 30,390
------ ------ ------ ------ ------
LOSS FROM OPERATIONS (26,003) (20,371) (21,943) (16,405) (17,575)
OTHER INCOME (EXPENSES), NET ( 1,263) (10,576) ( 7,037) ( 1,825) ( 2,003)
------ ------ ------ ------ ------
NET LOSS (27,266) (30,947) (28,980) (18,230) (19,578)
Dividends and accretion on
convertible preferred stock ( 3,871)
------ ------ ------ ------ ------
NET LOSS APPLICABLE TO
COMMON STOCK $(31,137) $(30,947) $(28,980) $(18,230) $(19,578)
====== ====== ====== ====== ======
NET LOSS PER SHARE (see Note below) $(1.02) $(1.21) $(1.26) $(0.87) $(1.01)
WEIGHTED AVERAGE SHARES
OUTSTANDING 30,571 25,547 23,031 20,888 19,437
CASH AND LIQUID INVESTMENTS,
INCLUDING RESTRICTED CASH $ 1,405 $ 4,997 $18,880 $15,830 $23,301
TOTAL ASSETS 8,118 23,884 41,670 46,121 51,525
LONG-TERM LIABILITIES 327 6,126 10,386 9,320 2,513
ACCUMULATED DEFICIT (163,721) (132,584) (101,637) (72,657) (54,427)
STOCKHOLDERS' EQUITY (DEFICIENCY) (11,700) 3,188 23,344 25,987 40,279
</TABLE>
Note:
Net loss per share is determined using the weighted-average number of shares of
Common Stock outstanding during the years presented. The effects of option,
warrants, and notes payable to stockholders have not been considered, since the
effects would be anti-dilutive.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis provides information which
management (see next paragraph) believes is relevant to an assessment and
understanding of the Company's results of operations and financial condition.
The discussion should be read in conjunction with the audited consolidated
financial statements of the Company and notes thereto (Item 8 of this Report).
The Company's executive officers during the period of this discussion
and analysis are no longer with the Company. Therefore, this discussion and
analysis is based on the knowledge of operations of those presently retained by
the Company.
RESULTS OF OPERATIONS
As discussed in Item 1. "Business" and in Item 8. "Financial Statements
and Supplementary Data," on February 26, 1999, the Company and its wholly owned
subsidiary, Codon, filed voluntary petitions for relief under the Bankruptcy
Code. Further, the Company has disposed of substantially all of the operating
assets of its former business and currently has no revenues from operations.
Consequently, the following discussion of results of operations has no bearing
on future operations, if any, of the Company.
1998 compared to 1997
Consolidated product sales decreased $1.3 million (10.8%) to $11.6
million in 1998 compared to $12.9 million in 1997. This decrease is
substantially due to the operations that have been disposed of or which ceased
during 1998 (see Item 1 "Business" and Note 3 to the consolidated financial
statements) offset by an approximately $1.5 million in increased sales by
Appligene. There was no significant change in contract and grant revenue between
1998 and 1997. Subsequent to the disposition of Appligene in early 1999, the
Company no longer has any revenues from operations.
Operating expenses increased $4.3 million (13%) to $38 million in 1998
compared to $33.7 million in 1997. The majority of the increase was due to (1) a
$1.2 million in amortization of intangibles and (2) a $5.3 million in associated
with the write-off of research and development projects in process acquired in
the acquisition of outstanding shares of Codon, which ceased operations at the
end of the third quarter of 1998. These increases were offset by decreases in
other components of operating expenses due to the dispositions and
discontinuation of operations discussed above.
Loss from operations in 1998 was $26.0 million compared to $20.4
million in 1997. This increase of $5.6 million is explained above.
Net other expense has decreased $9.3 million from $10.6 million in 1997
to $1.3 million in 1998. The majority of items accounting for this decrease
result from the disposition of the Company's operations during 1998 discussed in
Item 1 "Business" and in the notes to the consolidated financial statements
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under Item 8 of this Report. This decrease is primarily due to the following
(dollars in millions):
Decrease (Increase)
-------------------
Reduction in equity in net loss of affiliates and
minority interest $ 1.9
Impairment loss on Appligene (2.6)
Gain on sale of Research Products assets 2.0
Gain on exchange of stock in affiliated company 1.7
Gain on exercise of warrants in an affiliated company
and adjustment of the related liability to issue
such warrants 6.5
Financing expenses associated with the acquisition and
amendment of secured credit facility (5.8)
Valuation of options issued in conjunction with a line
of credit(in 1997-see "1997 compared to 1996"
below) 1.8
Amortization of the beneficial conversion feature in
the issuance of convertible debentures (in 1997-see
"1997 compared to 1996" below) 4.3
Other (0.5)
-----
Net decrease $ 9.3
=====
The net loss applicable to common stock decreased $0.2 million in 1998
to $31.1 million from $30.9 million in 1997. This is mainly due to (1) dividends
and accretion on convertible preferred stock of $3.9 million in 1998, offset by
(2) the $9.3 change in other income (expense) less by the increase in the loss
from operations of $5.6 both discussed above.
1997 Compared to 1996
Consolidated product sales decreased 15% to $12.9 million in 1997
compared to $15.3 million in 1995. In 1997, the sales decrease was attributable
largely to the full-year effect of the restructuring of certain product lines in
the U.S. in 1996 (-16%) and a decrease in the exchange rate of the French franc
(-6%), partially offset by an increase in sales of continuing products (+7%).
Contract and grant revenue decreased 40% to $0.4 million in 1997
compared to $0.7 million in 1996. Four new grants were received in 1997;
however, two of the grants ended in 1998.
Gross profit as a percentage of sales decreased 34% in 1997 from 37% in
1996. The decrease was due to certain product mix changes (2.1%) and competitive
pressures on European margins (0.5%), and to costs incurred in the United States
for validating, regulating, and scaling up the initial stages of the manufacture
of the approval of a FDA-approved controlled diagnostic product, INFORM (TM)
HER-2/neu (1.5%, more than offsetting the benefits of the restructuring
efforts). Specifically the Company discontinued the sale of certain products,
mainly high-end imaging equipment, which had high gross margins but which had
low or negative net margins after recognizing the relating selling, servicing
and collection expenses.
The Company had no restructuring expense in 1997, the 1996 expense of
$2.1 million consisted of the revaluation of inventory of discontinued
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products, charge-off of goodwill associated with such products and severance
payments to employees terminated in conjunction with the restructuring plan. The
restructuring plan was anticipated to, and did, have an effect on sales, gross
margins, and selling, general and administrative expenses. The sales declines
noted for 1997 were due in large measure to retirement from the market of more
than one hundred products, most notably the computerized imaging and Appligene
products with respect to the U.S. Gross margins declined as a result of these
actions because the gross margin on the sales of imaging systems historically
had been higher than on the weighted average gross margins of other Oncor
products. These lost margins were more than offset by savings resulting from the
termination of all imaging system employees, expenses for whom were reported
primarily in selling, general, administrative, research and development
departments.
Amortization of intangible assets in 1997 and 1996 is due to the
amortization of the portion of the purchase price of Appligene attributable to
the value of intangible assets acquired, primarily for contracts, completed
research projects, and the excess of the purchase price over the book value of
the assets acquired. The slight decline in the amortization is due to the change
in exchange rates and the completed research projects being fully amortized
during 1996.
Selling, general and administrative expenses decreased 2% to $14.8
million in 1997, compared to $15.1 million in 1996. The decrease was due to a
reduction in legal expenses associated with certain intellectual property
matters (decreased $1.5 million), the change in exchange rates (decreased $0.5
million), and the full year beneficial effects of the restructuring plan
instituted in the second quarter of 1996 in the U.S. (decreased $0.1 million).
These decreases were partially offset by legal and other expenses associated
with certain proposed strategic transactions (increased $1.4 million) and with a
lawsuit brought by a former employee (increased $0.4 million).
Research and development expenses remained level at approximately $7.3
million. In 1997, the beneficial effects of the restructuring plan instituted in
the second quarter of 1996 were offset by an increase in research and
development expenses in Europe.
Clinical and regulatory expenses decreased 20% to $2.0 million. The
decrease in 1997 is primarily due to lower costs for manufacturing validation
and regulation costs related to the application for FDA approval of its newly
approved diagnostic tests partially offset by increased staff hired to support
the Company's efforts with respect to the support of its diagnostics' products.
As a result of the factors discussed above, net operating loss
decreased 7% to $20.4 million from $22 million in 1996.
Investment income remained unchanged at %0.5 million. The level of
investment income is directly related to the level of investment funds which
increased in late 1996 with the private placements partially used by subsequent
cash operating losses of the Company.
Interest and other expenses of $6.8 million and $3.1 million in 1997
and 1996, respectively, represented primarily interest expense which has become
substantially more significant through (i) the issuance of options in
conjunction with a line of credit, which bears interest at the prime rate plus
2%; (ii) the amortization of the beneficial conversion feature in the issuance
of convertible debentures in 1996; and (iii) cash interest expense. The
12
<PAGE>
following table sets forth the most significant elements of interest and other
expenses:
1997 1996
---- ----
(Dollars in Millions)
(i) Valuation of options $1.8 $ -
(ii) Issuance of debentures 4.3 3.0
(iii) Cash interest expense
and other 0.7 0.1
--- ---
Total $6.8 $3.1
=== ===
In 1997 and 1996 the interest and other expenses included non-cash
charges of $6.1 million and $3.1 million, respectively.
Equity in net loss of affiliates was $4.3 million in 1997 as compared
to $4.4 million in 1996. The Company's proportionate share of net losses
attributable to Codon in 1997 decreased compared to 1996 due to a decrease in
the Company's ownership interest in Codon.
As a result of the factors discussed above, net loss increased 7% to
$30.9 million in 1997 compared to $29.0 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had a working capital deficiency of
$10.0 million and a stockholders' deficiency of $11.7 million. This compares to
working capital of $1.4 million and shareholder's equity of $3.1 million in
1997. The working capital deficiency resulted from the general decrease in cash
to meet its obligations and the liability to preferred shareholders. The
stockholders' deficiency is substantially due to the net loss for 1998 offset by
the increase in additional paid-in capital of $13.1 million resulting from the
issuance of common stock in connection with debt, issuance of warrants with the
preferred stock and issuance of warrants in connection with debt. Cash items at
December 31, 1998 totaled $1.4 million which include $1.2 million of Appligene
which was disposed of in early February 1999. Consequently, there are no
significant cash reserves available to meet liabilities. The Company will
require substantial financing to enable it to pursue future business
opportunities.
See Item 1 "Business" and the consolidated financial statements
(principally Notes 1 and 3) under Item 8 of this Report. The Company presently
has no revenues from operations and has filed for reorganization under the
Bankruptcy Act. Oncor expects to reorganize under Chapter 11 and to propose a
reorganization plan or plans. At this time, it is not possible to predict that
any Plan filed will be approved or confirmed by the Bankruptcy Court, or that
such plans will be consummated. If a plan is not approved, the Company may be
required to liquidation.
COMMITMENTS
There were no commitments for capital expenditures at December 31, 1998.
13
<PAGE>
ACCOUNTING PRONOUNCEMENTS
See Notes to Financial Statements relative to new accounting
pronouncements adopted by the Company during 1998. In the current circumstances
of the Company, there are no accounting pronouncements which have not been
adopted that will have any significant effect on the Company when they become
effective in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
After the disposition of substantially all the Company's assets and
operations as discussed in Items 1, 7 and 8 of this Report, the Company has no
exposure to market risk other than that related to market fluctuations in shares
of Gene Logic, reflected in Investments in Marketable Securities at December 31,
1998 of $2.9 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item may be found on pages F-1 to F-30
of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
Name Age Position
- ---- --- --------
Jose J. Coronas 54 Chairman of the Board and Acting Secretary
Jeffrey S. Ross 53 Director
Derace L. Schaffer 51 Director
Timothy J. Triche 53 Director
Mr. Coronas has served as a director of the Company since December 1996
and became Chairman of the Board of Directors in September 1997. Mr. Coronas
served as the Company's acting Chief Executive Officer from March 1998 until
February 23, 1999. Since February 23, 1999, he is serving as Acting Secretary.
He also serves as a Management Consultant. From 1994 to 1996, Mr. Coronas was
President of Johnson & Johnson Clinical Diagnostics, Inc. Prior to his two
years with Johnson & Johnson, Mr. Coronas was Vice President and General
Manager of the Clinical Diagnostics Division of Eastman Kodak Company
("Kodak"). While at Kodak, Mr. Coronas served in a number of management
positions in the U.S. and Europe from 1966 to 1994. He also served as
President and CEO of Genencor International, Inc., a joint venture of Eastman
14
<PAGE>
and Cultor Ltd. of Finland. Mr. Coronas is a past Director of the Industrial
Biotechnology Association and is currently on the Board of Directors of the
Visiting Nurse Service of Rochester and Monroe County, Inc.
Dr. Ross has served as a director of the Company since April 1998.
Since October 1995, Dr. Ross has served as the Company's Medical Director and
became the Company's Chief Medical Officer in April 1998. He is also Medical
Director for Managed Care for the Northeast Division of the Laboratory
Corporation of America, an independent laboratory company. Since 1989, Dr. Ross
has been the Cyrus Strong Merrill Professor and Chairman of the Department of
Pathology and Laboratory Medicine at the Albany Medical College. In addition, he
serves as Commissioner of the American Society of Pathologists, and Associate
Editor for Basic Sciences of the American Journal of Clinical Pathology. Dr.
Ross also has served as President of the Massachusetts Medical Legal Society.
From 1976 to 1989, Dr. Ross held various positions, including Associate in
Pathology at Massachusetts General Hospital and Harvard Medical School,
Professor of Pathology at the University of Massachusetts Medical School and
Director of Anatomic Pathology at the Berkshire Medical Center in Pittsfield,
Massachusetts.
Dr. Schaffer has served as a director of the Company since December
1996. He is currently Clinical Professor of Radiology at the University of
Rochester School of Medicine. Dr. Schaffer has been President of the Ide
Group, P.C., a large multi-specialty group medical practice in New York State
since 1980, and is also President of Lan group, a venture capital firm
specializing in health care investments. Dr. Schaffer is a director of
American Physician Partners, Inc., The Care Group, Inc., and Patient
InfoSystems, Inc. He is also a director of several private companies including
Analytika, Inc., Logisticare, Medical Records Corporation, Inc. and NeuraTech,
Inc. Dr. Schaffer is a board certified radiologist. He was Chief Resident at
the Massachusetts General Hospital during residency training and was a
Clinical Fellow at Harvard Medical School. Dr. Schaffer is a member of Alpha
Omega Alpha, the national medical honor society.
Dr. Triche has served as a director of the Company since December 1988.
In 1994, he became Chairman of the Board and Chief Executive Officer of
Oncormed, Inc. a clinical services company. He is currently Pathologist-in-Chief
for the Children's Hospital of Los Angeles in Los Angeles, California and
Professor of Pathology and Pediatrics at, and Vice Chairman of, the University
of Southern California School of Medicine, Los Angeles, California. Prior to
June 1988, he was Chief of the Ultrastructural Laboratory of the Division of
Pathology at the National Cancer Institute of the National Institutes of Health
in Bethesda, Maryland.
The following directors have resigned: Cecil Kost on December 31, 1998,
William H. Taylor II on February 25, 1999 and Stephen Turner on October 5, 1998.
15
<PAGE>
The following executive officers have either resigned or have been
terminated:
Date Left
Name Company Former Position
---- -------- ---------------
Stephen Turner 10/5/98 Chief Executive Officer and Director
Cecil Kost 12/31/98 President, Chief Operating Officer and Director
John L Coker 1/31/99 Vice President-Finance and Administration, Chief
Financial Officer, Secretary and Treasurer
Barbara H. Keech 9/30/98 Vice President-Regulatory Affairs and Quality
Assurance
Robert J. Hohman 6/30/98 Vice President-Research and Development
John P. Kennealy 7/31/98 Vice President-Corporate Development
Ronald W. Deen 11/30/98 Vice President-Operations and Manufacturing
Massimo A. Marchiori 12/15/98 Corporate Controller
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's executive
officers, directors and any persons holding more than ten percent of the
Company's Common Stock are required to report initial ownership of the Company's
Common Stock and any subsequent changes in ownership to the Securities and
Exchange Commission ("SEC"). Specific due dates have been established by the SEC
and the Company is required to disclose in this Report any failure to file by
the appropriate dates. Officers, directors and greater than 10% stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely upon the copies of Section
16(a) reports which the Company received from such persons for their 1998 fiscal
year transactions, the Company believes that all Section 16(a) filing
requirements applicable to such officers, directors and greater than 10%
stockholders were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company, to the Company's Chief Executive
Officer's and to the four highest paid executive officers in 1998 (the "Named
16
<PAGE>
Executive Officers") as well as the compensation paid to each individual, for
the Company's three previous fiscal years:
Other All
Name and Annual Other
Principal Position Year Salary Compensation Compensation
- ------------------ ---- ------ ------------ ------------
Stephen Turner (1) 1998 $178,380
Former CEO 1997 240,000 $ 23,460 (7)
1996 240,000
Jose Coronas (2) 1998 128,080 $ 5,000
Acting CEO 1997 31,250
1996 -
Cecil Kost (3) 1998 247,342 187,157 (9)
President and COO 1997 250,000 39,500 9,436 (8)
1996 189,210 52,083 66,184 (8)
John Coker (4) 1998 169,350 124,771 (9)
VP Finance & Admin, 1997 174,417
CFO, Sec. & Treas. 1996 150,000
Barbara Keech (5) 1998 125,342
VP-Regulatory Affairs 1997 124,615
and Quality Assurance 1996 112,500
Ronald W. Dean (6) 1998 122,005
VP-Operations and 1997 140,108
Manufacturing 1996 73,665
(1) Served as CEO until March 1998 and left the Company in October 1998.
(2) Was named Acting CEO in March 1998.
(3) Left the Company in December 1998.
(4) Left the Company in January 1999.
(5) Left the Company in September 1998.
(6) Left the Company in November 1998.
(7) Life insurance premium.
(8) Relocation reimbursement.
(9) Commission received on consummation of sales of assets under their
respective employment agreements.
17
<PAGE>
Options/SAR Grants in 1998
Number of
Securities % 0f Total
Underlying Options Market
Options Granted To Exercise of Price On
Granted Employees In Price Date of
Name ($) 1998 ($/Share) Grant
- ---- ----------- ------------ ------------ ---------
Stephen Turner 350,000 15.4% $0.875 $0.875
Jose Coronas 160,000 7.0% 0.875 0.875
Cecil Kost 185,000 8.2% 0.875 0.875
Michael Saunders 100,000 4.4% 0.875 0.875
Barbara Keech (1) 75,000 3.3% 0.875 0.875
Ronald Deen 100,000 4.4% 0.875 0.875
(1) Barbara Keech's options were canceled 90 days after she left the company.
Aggregated Option/SAR Exercised in 1998 and December 31, 1998 Option/SAR
Values
No options were exercised by any person in this group during 1998 and
none of the options in the table below where "in-the-money" as the price of the
Company's stock was below the market value at date of grant.
Number of Securities Underlying
Options/SARS at FY-End
-------------------------------
Name Exercisable Unexercisable
- ---- ----------- -------------
Stephen Turner 300,000 0
Jose Coronas 33,333 176,667
Cecil Kost 0 350,000
John Coker 0 185,000
Michael Saunders 0 100,000
Ronald Deen 0 100,000
With the exception of Jose Coronas, all the above options will be canceled early
in 1999 after 90 days has elapsed from the date that the holder left the
employment of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 6, 1999 by each
person known by the Company to own beneficially more than 5% of the outstanding
Common Stock. In addition, this table includes the outstanding
18
<PAGE>
voting securities beneficially owned by directors and the Named Executive
Officers.
Names and Addresses
of Beneficial Owner Shares Percent (1)
- ------------------- ------ -------
Mellon Bank Corporation (2)
One Mellon Bank Center 4,983,300 13.1%
500 Grant Street
Pittsburgh, PA 15258
The Dreyfus Corporation 2,417,500 6.4
c/o Mellon Bank Corporation (2)
Aggressive Growth Fund 1,907,825 5.0
c/o Mellon Bank Corporation (2)
President and Fellows of Harvard College (3) 2,168,400 5.7
c/o Harvard Management Company
Inc.
600 Atlantic Avenue
Boston, MA 02210
John Pappajohn (4) 2,878,286 7.6
c/o Equity Dynamics
2116 Financial Center
Des Moines, IA 50309
Jose J. Coronas (5) 210,000 0.6
Jeffrey S. Ross (6) 200,000 0.5
Derace L. Schaffer (7) 263,000 0.7
Timothy J. Triche (8) 115,000 0.3
(1) Based on 37,990,318 shares of Common Stock outstanding as of April 6,1999.
Gives effect to the shares of Common Stock issuable within 60 days after April
6, 1999 upon the exercise of all options, unit purchase options, warrants and
other rights beneficially held by the indicated stockholder on that date.
(2) Based solely on information contained in a Schedule 13G/A filed, as of
October 10, 1998, by Mellon Bank Corporation with the Securities and Exchange
Commission (the "Commission"), pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and information provided by Mellon Bank
Corporation.
(3) Based solely on information contained in a Schedule 13G filed, as of
February 12, 1999, by the President and Fellows of Harvard College with the
Commission, pursuant to the Exchange Act.
(4) Based solely on information contained in a Schedule SC 13D filed, as of June
10, 1998 by John Pappajohn with the Commission, pursuant to the Exchange Act.
(5) Consists of 210,000 shares of Common Stock issuable upon exercise of two
stock options.
19
<PAGE>
(6) Consists of 200,000 shares of Common Stock issuable upon exercise of two
stock options.
(7) Includes (i)260,000 shares of Common Stock issuable upon exercise of two
stock options and (ii) 3,000 shares held by Dr. Schaffer's wife as custodian of
trusts established for the benefit of Dr. Schaffer's children, as to which Dr.
Schaffer disclaims beneficial ownership.
(8) Consists of 115,000 shares of Common Stock issuable upon exercise of one
stock option.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jeffery Ross, a Director, received a commission of $80,000 on
consummation of the sale of the in situ Hybridization business (Ventana
transaction) (see Item 1 "Business" and Note 3 to the consolidated financial
statements under Item 8 of this Report).
Jose Coronas, a Director and Acting CEO, and Derace Schaffer, a Director, were
among the secured creditors in relation to borrowings by the Company which was
liquidated in the Ventana transaction (see Item 1 "Business" and Note 3 to the
consolidated financial statements under Item 8 of this Report).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as a Part of this Form 10-K:
1. FINANCIAL STATEMENTS
The Financial Statements under Part II, Item 8 of this Report
and are listed on page F-1 following this section.
2. FINANCIAL STATEMENT SCHEDULES. The following consolidated
schedules are filed with this report on page F-29 and F-30 of this
Report.
Report of Independent Public Accountants
Schedule II - Valuation and Qualifying Accounts
(No other financial schedules are required.)
3. EXHIBITS:
3 Articles of Incorporation and By-Laws
3.1 Articles of Amendment filed with Department of Assessments and
Taxation of the State of Maryland on August 6, 1992 to Fourth
Amended and Restated Articles of Incorporation of Oncor, Inc.
20
<PAGE>
(Filed as Exhibit 3.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 and incorporated
herein by reference.)
3.2 By-Laws of Oncor, Inc., as amended and restated on November 6,
1990. (Filed as Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990 and
incorporated herein by reference.)
4 Instruments Defining the Rights of Security-Holders, Including
Indentures.
4.1 Specimen certificate for shares of the Registrant's Common Stock.
(Filed as Exhibit 4.1 to the Registrant's Registration Statement
No 33-44520 and incorporated herein by reference.)
4.2 Provisions of the Articles of Incorporation and By-Laws defining
rights of holders of Common Stock of the Registrant. (Filed as
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, respectively, and incorporated herein by
reference.)
10 Material Contracts.
10.1 HPV Diagnostics Agreement of September 1988 with Medscand AB.
(Filed as Exhibit 19.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1988 and incorporated
herein by reference.)
10.2 Unit Purchase Option dated May 25, 1989 between Oncor, Inc. and
D.H. Blair & Co., Inc., along with a schedule of nearly identical
unit purchase options issued to other parties. (Filed as Exhibit
10.33 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989 and incorporated herein by reference.)
10.3 Stock Option Agreement dated October 18, 1989 between Oncor, Inc.
and Taylor & Turner, L.P. (Filed as Exhibit 10.41 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 and incorporated herein by reference.)
10.4 Stock Option Agreement dated October 18, 1989 between Oncor, Inc.
and Rotan Mosle Technology Partners Ltd. (Filed as Exhibit 10.41 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989 and incorporated herein by reference.)
10.5 Stock Option Agreement dated October 18k, 1989 between Oncor, Inc.
and Charles Atwood Company. (Filed as Exhibit 10.42 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 and incorporated herein by reference.)
10.6 Stock Option Agreement dated October 18, 1989 between Oncor, Inc.
and Stanton-Barnes Company. (Filed as exhibit 10.43 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 and incorporated herein by reference.)
21
<PAGE>
10.7 Stock Option Agreement dated February 8, 1990 between Oncor, Inc.
and John Pappajohn. (Filed as Exhibit 19.4 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1990 and incorporated herein by reference.)
10.8 Lease dated March 22, 1990 between Oncor, Inc. and Avenel Executive
Park Phase II, Inc. (Filed as Exhibit 19.6 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1990 and incorporated herein by reference.)
10.10 Stock Option Agreement dated November 20, 1990 between Oncor, Inc.
and John Pappajohn. (Filed as Exhibit 10.52 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990 and incorporated herein by reference.)
10.13 Lease dated June 28, 1991 between Oncor, Inc. and Avenel Associates
Limited Partnership. (Filed as Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992 and incorporated herein by reference.)
10.14 Distribution Agreement dated November 28, 1991 between Oncor, Inc.
and Medical Systems. (Filed as Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992 and incorporated herein by reference.)
10.15 Lease dated March 22, 1990 between Oncor, Inc. and Avenel Executive
Park Phase II, Inc., as amended on February 25, 1991 and June 21,
1991. (Filed as Exhibit 10.15 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.)
10.16 First Amendment to the Lease dated June 28, 1991 between Oncor,
Inc. and Avenel Executive Park Phase II, Inc. (Filed as Exhibit
10.16 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by reference.)
10.17 Management Continuity Agreement, dated September 29, 1997 between
Oncor, Inc. and Stephen Turner. (Filed as Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by reference.)
10.18 Management Continuity Agreement dated September 29, 1997 between
Oncor, Inc. and Cecil Kost. (Filed as Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by reference.)
10.19 Management Continuity Agreement dated September 29, 1997 between
Oncor, Inc. and John L. Coker. (Filed as Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by reference.)
23 Consent of Independent Public Accountants to incorporation of
reports in Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 into the Company's previously filed S-3
Registration Statement File Nos. 333-00085, 333-00735, 333-11997,
333-20425 and 333-46855, and into S-8 Registration Statements File
Nos. 33-83830, 33-81021 and 333-00063.
22
<PAGE>
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
Form 8-K filed October 7, 1998 containing press release on September 30,
1998 announcing further restructuring plans and indicating that the Company
intends to focus on the sale of assets and the formation of strategic alliances
to generate cash; and, press release on October 2, 1998 announcing that the
American Stock exchange had advised the Company that trading had been halted in
the Company's Common Stock and that the trading halt would continue
indefinitely.
Form 8-K filed November 25, 1998 containing press release on November 24,
1998 announcing Oncor Inc's. surrendering of assets to satisfy secured debt
obligation and Ventana Medical Systems, Inc. acquisition of Oncor's in situ
Hybridization business assets.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of 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, there unto duly authorized.
ONCOR, INC.
Date: April 15, 1999 By: /s/ Joseph R. Shaya
--------------------------
Joseph R. Shaya
Acting President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date Title
- ---- -----
April 15, 1999 /s/ Jose J. Coronas Chairman of the Board
--------------------------
Jose J. Coronas
April 15, 1999 /s/ Jeffrey S. Ross Director
--------------------------
Jeffrey S. Ross
April 15, 1999 /s/ Derace L. Schaffer Director
--------------------------
Derace L. Schaffer
April 15, 1999 /s/ Timothy J. Triche Director
--------------------------
Timothy J. Triche
24
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of
December 31, 1998 and 1997 F-3
Consolidated Statements of Operations
for each of the three years ended
December 31, 1998 F-5
Consolidated Statements of Changes In
Stockholders' Equity (Deficiency) for each of
the three years ended December 31, 1998 F-6
Consolidated Statements of Cash Flows for
each of the three years ending December
31, 1998 F-10
Notes to Consolidated Financial Statements F-13
F-1
<PAGE>
Report of Independent Public Accountants
To Oncor, Inc.
We have audited the accompanying consolidated balance sheets of Oncor, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficiency) and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 financial statements referred to above present fairly, in
all material respects, the financial position of Oncor, Inc. and subsidiaries as
of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced
significant losses and has a net capital deficiency of $11,700,000 at December
31, 1998. In addition, as described in Note 1 to the accompanying financial
statements, in February 1999 the Company filed a voluntary petition for relief
under Chapter XI of the U.S. Bankruptcy Code. These matters, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters, including its intent to file a
plan of reorganization that will be acceptable to the Court and the Company's
creditors, are also described in Note 1. In the event a plan of reorganization
is accepted, continuation of the business thereafter is dependent on the
Company's ability to achieve successful future operations. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Washington, D.C.
April 13, 1999
F-2
<PAGE>
ONCOR, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997
(Dollars in thousands)
1998 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 924 $ 2,874
Short-term investments, at market 91 111
Restricted cash 390 2,013
Accounts receivable, net of allowance for
doubtful accounts of $155 and $419 1,331 2,028
Receivable from former officer/director 179 297
Inventories 1,123 3,161
Deferred financing costs 1,961
Investment in marketable securities 2,931
Other current assets 554 1,125
------ -------
Total current assets 7,523 13,570
------ -------
Non-current Assets:
Property and equipment, net 515 4,176
Prepaid license and other 80 398
Investment in and advances to affiliates 856
Intangible assets, net 4,884
------ -------
Total non-current assets 595 10,314
------ -------
Total assets $ 8,118 $23,884
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,950 $ 3,142
Accrued expenses and other current liabilities 2,584 1,698
Notes payable 629 3,013
Liability to preferred shareholders 8,555
Affiliate stock issuable under warrants 3,788
Current portion of long-term debt 762 551
------ -------
Total current liabilities 17,480 12,192
------ -------
Non-current Liabilities:
Long-term debt 327 5,867
Deferred rent 259
------ -------
Total non-current liabilities 327 6,126
------ -------
Total liabilities 17,807 18,318
------ -------
Commitments and Contingencies
Minority Interest in Consolidated
Subsidiary 2,011 2,378
------ ------
(Continued)
F-3
<PAGE>
Stockholders' Equity (Deficiency):
Common stock, $0.01 par value,
50,000,000 shares authorized,
31,556,489 and 27,302,384 issued;
31,477,080 and 27,222,975 outstanding 315 273
Common stock warrants outstanding 1,191 910
Additional paid-in capital 150,952 137,873
Deferred compensation (879)
Accumulated deficit (163,721) (132,584)
Less-79,409 shares of common stock
held in treasury, at cost (221) (221)
Accumulated other comprehensive income:
Cumulative translation adjustment (1,412) (2,184)
Cumulative unrealized loss on investments
in marketable securities 1,196
------- -------
Total stockholders' equity (deficiency) (11,700) 3,188
------- -------
Total liabilities and stockholders'
equity (deficiency) $ 8,118 $23,884
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ONCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For Each of the Three Years Ended December 31, 1998
(In thousands, except per share information)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
GROSS REVENUES:
Product sales $11,553 $12,949 $15,323
Contract and grants 427 409 683
------ ------ ------
Gross revenues 11,980 13,358 16,006
------ ------ ------
OPERATING EXPENSES:
Direct cost of sales 6,850 8,515 9,656
Amortization of intangible
assets 2,263 1,157 1,323
Write-off of acquired research and
development projects in process 5,727
Selling, general and administrative 15,365 14,825 15,073
Research and development 6,833 7,186 7,276
Clinical and regulatory 945 2,046 2,546
Restructuring expense 2,075
------ ------ ------
Total operating expenses 37,983 33,729 37,949
------ ------ ------
OTHER INCOME (EXPENSE)
Investment income 191 522 519
Interest and other,net 855 (6,847) (3,125)
Equity in net loss of affiliates
and minority interest (2,309) (4,251) (4,431)
------ ------ ------
Net other expense (1,263) (10,576) (7,037)
------ ------ ------
NET LOSS (27,266) (30,947) (28,980)
DIVIDENDS AND ACCRETION ON
CONVERTIBLE PREFERRED STOCK (3,871)
------ ------ ------
NET LOSS APPLICABLE TO
COMMON STOCK $(31,137) $(30,947) $(28,980)
====== ====== ======
BASIC AND DILUTED NET LOSS PER SHARE $ (1.02) $ (1.21) $ (1.26)
====== ====== ======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 30,571 25,547 23,031
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ONCOR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For Each of the Three Years Ended December 31, 1998
(Dollars in thousands, except share information)
<TABLE>
<CAPTION>
Common Common
Stock Stock Additional
--------------------- Warrants Paid-In
Shares Amount Outstanding Capital
------- -------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 21,743,068 $217 $98,234
Issuance of common stock warrants
in connection with debt 2,163,242 22 782 12,802
Exercise of stock options 159,534 2 667
Issuance of common stock in connection
with research and development
agreements 148,505 1 461
Issuance and amortization of non-
employee stock options 736
Sale of common stock of subsidiaries
and unconsolidated affiliates 12,428
---------- ---- ----- -------
BALANCE DECEMBER 31, 1996 24,214,349 242 782 125,328
Sales of common stock and warrants 155,972 2 624
Issuance of common stock and warrants
in connection with debt 2,888,088 29 128 10,289
Exercise of stock options 43,975 91
Sales of common stock of
unconsolidated affiliates 437
Issuance and amortization of non-
employee stock and options 1,104
---------- ---- ----- -------
BALANCE DECEMBER 31, 1997 27,302,384 273 910 137,873
Issuance of common stock in
Codon acquisition 1,650,013 16
Issuance of common stock in
connection with debt 2,494,092 25 6,171
Issuance of warrants and preferred
stock 281 4,745
Issuance of warrants in connection
with debt 2,031
Issuance of stock to non-employee 100,000 1 132
Exercise of stock options 10,000
---------- ---- ----- -------
BALANCE DECEMBER 31, 1998 31,556,489 315 1,191 150,952
========== ==== ===== =======
</TABLE>
(Continued)
F-6
<PAGE>
<TABLE>
<CAPTION>
Cumulative Unrealized
Deferred Translation Gain/loss on Accumulated
Compensation Adjustment Investments Deficit
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 $ 413 $ 1 $ (72,657)
Issuance and amortization
of non-employee stock
options $ (641)
Cumulative translation
adjustment (921)
Net unrealized holding
gain on investments (1)
Net loss (28,980)
------- ------ ------ ---------
BALANCE DECEMBER 31, 1996 (641) (508) (101,637)
Issuance and amortization
of non-employee stock
and options (238)
Cumulative translation
adjustment (1,676)
Net loss (30,947)
------- ------ ------ ---------
BALANCE DECEMBER 31, 1997 (879) (2,184) (132,584)
Amortization of non-
employee stock options 1,010
Cumulative translation
adjustment 772
Unrealized gain on
investments in marketable
securities 1,196
Issuance of stock to
non-employee (131)
Net loss (27,266)
Dividends and accretion
on convertible preferred
stock (3,871)
------- ------ ------ ---------
BALANCE DECEMBER 31, 1998 $ - $(1,412) $1,196 $(163,721)
======= ====== ====== =========
</TABLE>
(Continued)
F-7
<PAGE>
Treasury Stock
------------------- Comprehensive
Shares Amount Total Income
--------- ------ ------ ------------
BALANCE DECEMBER 31, 1995 79,409 $(221) $25,987
Sales of common
stock of subsidiaries
and unconsolidated
affiliates 12,428
Issuance of common
stock and warrants
in connection with
debt 13,605
Exercise of stock options 669
Issuance of common
stock in connection
with research and
development agreements 462
Issuance and amortization
of non-employee stock
options 95
Cumulative translation
adjustment (921) $ (921)
Net unrealized holding
gain on investments (1) (1)
Net loss (28,980) (28,980)
------ ----- ------- --------
BALANCE DECEMBER 31, 1996 79,409 (221) 23,344 $(29,902)
Sales of common stock ========
and warrants 626
Sales of common stock
of unconsolidated
affiliates 437
Issuance of common
stock and warrants
in connection with
debt 10,446
Exercise of stock
options 92
Issuance and amortization
of non-employee stock
and options 866
Cumulative translation
adjustment (1,676) $ (1,676)
Net loss (30,947) (30,947)
------ ----- ------- --------
BALANCE DECEMBER 31, 1997 79,409 (221) 3,188 $(32,623)
========
(Continued)
F-8
<PAGE>
Issuance of common
stock on Codon
acquisition 6,189
Issuance of common
stock in connection
with debt 4,770
Issuance of warrants
and preferred stock 281
Issuance of warrants in
connection with debt 2,031
Issuance and amortization
of non-employee stock
and options 1,010
Unrealized holding
gain on investments
in marketable securities 1,196 $ 1,196
Cumulative translation
adjustment 772 772
Net loss (27,266) (27,266)
Dividend and
accretion on
convertible
preferred stock (3,871)
------ ----- ------- --------
BALANCE DECEMBER 31, 1998 79,409 (221) (11,700) $(25,298)
====== ===== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
ONCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Each of the Three Years Ended December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(27,266) $(30,947) $(28,980)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Gain on revaluation and exercise of
warrants (6,528)
Gain on sale of research assets (1,975)
Issuance of common stock for interest
and imputed interest on convertible
notes 67 3,177 2,755
Write-off of acquired research and
development 5,727
Amortization of deferred financing fees 3,096
Impairment losses 3,419
Amortization of intangibles 1,105
Issuance of common stock warrants
in stock of an affiliate as
payment for interest 1,826
Depreciation and amortization 1,612 2,928 2,858
Gain on disposal of assets (370) (270)
Gain on exchange of stock in affiliated
company pursuant to a merger agreement (1,735)
Expenses of non-employee stock options 1,010
Non-cash product discontinuation 1,719
Issuance of common stock in
connection with research and
development agreements and
expenses for non-employee
stock options 866 557
Equity in net loss of affiliate
and minority interest 2,309 4,251 4,431
Changes in operating assets
and liabilities:
Accounts receivable 697 228 1,435
Inventories 2,039 349 1,468
Other current assets 2,651 (650) 270
Deposits and other non-current
assets 318 85 2
Accounts payable (1,808) 332 (937)
Accrued expenses and other
current liabilities 887 1,685 (134)
Deferred rent (259) 259 (18)
------ ------ ------
Net cash used in operating
activities (15,004) (15,611) (14,844)
------ ------ ------
</TABLE>
(Continued)
F-10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (404) (744) (631)
Proceeds from sale of research assets 3,105
Proceeds from sale of in situ hybridization
tech assets 5,000
Cumulative unrealized loss on investments (1,196)
Cash acquired in Codon acquisition 52
Disposal of property and equipment 393
Currency protection in Appligene
agreement (44)
Purchase of stock in affiliate (300)
Redemptions of investments 20 278 672
------ ------- -------
Net cash provided by (used
in)investing activities 6,577 (466) 90
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock 4,965
Proceeds from exercise of options in
affiliate 928
Net proceeds from sale of common stock 626
Proceeds from sales of stock of subsidiary 9,099
Offering costs of private placement (54)
Exercise of stock options and warrants 38 92 669
Change in restricted funds 1,623 3,395 (5,432)
Loan to unconsolidated affiliate (1,709)
Payment on notes for acquisitions (1,765)
Payment on bank loans (3,013) (685) (885)
Proceeds from line of credit 3,000
Proceeds from bank loan 1,391
Proceeds from issuance of convertible
debt and warrants 2,052 13,207
------ ------- -------
Net cash provided by financing
activities 5,932 6,771 14,839
------ ------- -------
EFFECT OF CHANGE IN EXCHANGE RATE
ON CASH 545 (880) (485)
------ ------- -------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS (1,950) (10,185) (400)
CASH AND CASH EQUIVALENTS, beginning
of the period $2,874 13,059 13,459
------ ------- -------
CASH AND CASH EQUIVALENTS, end
of the period $ 924 $ 2,874 $13,059
====== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION-Cash paid during the year
for interest $1,950 $ 144 $ 252
====== ======= ======
</TABLE>
(Continued)
F-11
<PAGE>
SUPPLEMENTAL DISCLOSURE ON NON-CASH INVESTING
AND FINANCING ACTIVITIES:
In February 1998, the Company exchanged approximately 1,650,013 shares
of common stock for all the remaining shares of Codon Pharmaceuticals,
Inc.
Transactions relating to the issuance of shares of its Common Stock by the
Company in connection with conversion of convertible debt during 1998 and
1997 are as follows (in thousands):
Year Shares Issued Value
---- ------------- -----
1998 2,494 $ 4,770
1997 2,888 10,317
In 1997, the Company issued options to purchase 900,000 shares of its 25%
owned affiliate Oncormed in consideration for establishing and extending a
line of credit. In 1998, the Company issued options to purchase an
additional 200,000 shares of Oncormed common stock and warrants to purchase
2.9 million shares of Oncor, Inc. common stock in connection with the line
of credit.
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
ONCOR, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of DECEMBER 31, 1998
1. ORGANIZATION, BANKRUPTCY AND CERTAIN ELEMENTS OF RISK
Chapter 11 Filing
On February 26, 1999 (the "Petition Date"), Oncor, Inc. and its
wholly-owned subsidiary, Codon Pharmaceuticals, Inc. (the "Debtor"), filed
voluntary petitions for relief under Chapter 11 of the United States Code (the
"Bankruptcy Code") with the United States Bankruptcy Court for the District of
Delaware, Wilmington, Delaware. Under Chapter 11, certain claims against the
Debtor in existence prior to the filing of the petitions for relief under the
Bankruptcy Code are stayed while the Debtor continues as debtor-in-possession.
Pursuant to the provisions of the Bankruptcy Code, all actions to collect
upon any of the Company's liabilities as of the Petition Date or to enforce
pre-Petition contractual obligations were automatically stayed. Absent approval
from the Bankruptcy Court, the Company is prohibited from paying pre-Petition
obligations. However, the Bankruptcy Court has approved payment of certain
pre-Petition liabilities as of the Petition Date such as employee wages and
benefits and certain specified pre-Petition obligations. Additionally, the
Bankruptcy Court has allowed for the retention of legal and financial
professionals and other payments to protect the holders of claims against the
Company. As a debtor-in-possession, the Company has the right, subject to
Bankruptcy Court approval and certain other conditions, to assume or reject any
pre-Petition executory contracts and unexpired leases. Parties affected by such
rejections may file pre-Petition claims with the Bankruptcy Court in accordance
with Bankruptcy procedures.
As of the Petition Date, approximately $125,000 in pre-Petition December
31, 1998 liabilities of Oncor and Codon reflected in the accompanying financial
statements were paid. All remaining Oncor and Codon liabilities included in the
accompanying balance sheet still existed at the petition date and consequently
are subject to compromise under the Chapter 11 proceedings. As of December 31,
1998, the following Oncor and Codon pre-Petition liabilities are included in the
accompanying consolidated balance sheet (in thousands):
Accounts payable $ 3,565
Accrued expenses 1,706
Liability to preferred shareholders 8,555
Notes payable 629
-------
$14,455
=======
The Company's management intends to file a plan of reorganization under
Chapter 11 that will be acceptable to the Court and the Company's creditors and
to propose a reorganization plan or plans. In the event a plan of reorganization
is accepted, continuation of the business thereafter is dependent on the
Company's ability to achieve successful future operations. At this time, it is
not possible to predict the length of time the Company will continue under
Chapter 11; that any Plan filed will be approved or confirmed by the Bankruptcy
Court; or, that such plan will be consummated. If a plan is not approved, the
Company may be required to liquidate.
F-13
<PAGE>
History of Operating Losses
Oncor has not been profitable since its inception in July 1983. The Company
cannot provide assurance as to when, if ever, it will achieve profitability. As
indicated in Note 3 to the consolidated financial statements, the Company has
disposed of most of its assets and operations and currently has no revenues from
operations.
Going-Concern and Basis of Financial Statements
Although the Chapter 11 filings and the history of operating losses raise
substantial doubt about the Company's ability to continue as a going-concern,
the accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applicable to a company
on a going-concern basis which contemplates the continuity of operations,
realization of assets and the liquidation of liabilities in the ordinary course
of business. As a result of the Chapter 11 filings, such realization of assets
and liquidation of liabilities are subject to significant uncertainties.
Specifically, the financial statements do not present the amount which will
ultimately be paid to settle liabilities and contingencies which may be allowed
in the Chapter 11 Bankruptcy reorganization cases. Also, the consolidated
financial statements do not reflect adjustments to assets which may result if
the Company is forced to liquidate all the assets. A plan of reorganization
could materially change the amounts currently included in the consolidated
financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Oncor, Inc.
and all subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company records investments in
affiliates owned more than 20%, but not in excess of 50%, using the equity
method. Changes in the Company's proportionate share of subsidiaries or
affiliate's equity resulting from common stock issuances of subsidiaries and
investments in affiliates are credited to equity.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Reserves have been recorded for estimates
of uncollectible accounts receivable and excess and obsolete inventory.
Management also uses estimates to determine the estimated lives of its
intangible and tangible assets. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable, accrued liabilities and
short-term borrowing, as reflected in the financial statements, approximate fair
value because of the short-term maturity of those instruments. Warrants issued
in connection with a secured financing to purchase common stock of an affiliate
have been recorded at fair value based upon a valuation model. It was not
practicable to estimate the fair value of the Company's long-term debt because
quoted market prices do not exist and no rates are currently available to the
Company for loans with similar terms and conditions. Also, the fair value of the
Company's liabilities that are subject to compromise are not presently
determinable as a result of the Bankruptcy Proceedings.
F-14
<PAGE>
Concentration of Credit Risk
Concentrations of credit risk with respect to receivables is generally
addressed in that the Company maintains an allowance for doubtful accounts based
upon its expectation of the proportion of its receivables it will not be able to
collect. With respect to investment in marketable securities, the Company's sole
investment consists of stock held in one publicly traded company. Market
fluctuations in that company's share price could significantly affect the
carrying value of the investment.
Impairment of Long-Lived Assets
The Company complies with Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets to be
Disposed Of. The Company reviews its long-lived assets, including identifiable
intangibles; goodwill; and property, plant and equipment, for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be fully recoverable. To determine recoverability of its
long-lived assets, the Company evaluates that future undiscounted net cash flows
will be less than the carrying amount of the assets. Impairment is measured as
the difference between carrying cost and fair market value.
Cash Equivalents and Investments
Cash equivalents and investments at December 31, 1998 and 1997, consist
primarily of funds invested in money market instruments and commercial paper.
Investments with maturities between three months and one year are classified as
short-term investments. Investments in securities with original maturities of
less than three months are considered cash equivalents. The $0.4 million of
restricted cash at December 31, 1998 relates to cash held in escrow in France
pursuant to legal proceedings brought by a former employee in France.
The Company accounts for investments in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. All
investments are classified as available-for-sale securities and, accordingly,
carried at fair market value. Unrealized holding gains and losses are excluded
from earnings and reported as a net amount in a separate component of
shareholders' equity until realized. In computing gains and losses, costs are
determined on the basis of specific identification.
Revenue Recognition
The Company generally recognizes revenue from sales when the related goods
are shipped. Grant and contract revenues are recognized on a percentage of
completion basis. Grant revenues are reported when earned and are not refundable
in accordance with the provisions of the grant awards.
Foreign Currency Translation
The French franc ("FF") is the functional currency of the Company's
operations in France (subsequently disposed of, see Note 3). Assets and
liabilities for these operations have been translated into U.S. dollars using
the exchange rates in effect on the respective balance sheet dates. Revenues and
expenses have been translated using the average exchange rates during the
periods presented. Cumulated translation losses of $1.4 million and $2.2 million
at December 31, 1998 and 1997, respectively, have been excluded in determining
the results of operations and have been accumulated as a separate component of
equity.
F-15
<PAGE>
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. (See Note 4.)
Classification
Certain prior year amounts have been reclassified to conform to current
year presentation.
Basic and Diluted Net Loss Per Share
SFAS No. 128 requires the dual presentation of basic and diluted net loss
per share. Basic net loss per share includes no dilution and is computed by
dividing net loss available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted loss per share
includes the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Options, warrants and convertible securities that were outstanding at the end of
each period presented were not included in the computation of diluted net loss
per share as their effect would be antidilutive. As a result, the basic and
diluted loss per share amounts are identical.
Research and Development Costs
Expenditures for research and development activities are charged to expense
when incurred.
New Accounting Pronouncements
Effective January 1, 1998, the Company implemented SFAS No. 130 "Reporting
Comprehensive Income." This pronouncement established standards for reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is the total of net income
and all other non-owner changes in equity. Foreign currency translation
adjustments and unrealized holding gains on investments are the significant
components of comprehensive income.
Also, effective January 1, 1998, the Company implemented SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 requires an enterprise to report certain additional financial and
descriptive information about its reportable segments. (See Note 8.)
3. SIGNIFICANT DISPOSITION OF ASSETS
During 1998, as part of the Company's plan to reduce its scope of
operations and ongoing operating expenses, the Company disposed of a significant
portion of its business and the related assets.
Codon Pharmaceuticals, Inc.
Effective February 28, 1998, the Company acquired all remaining outstanding
shares of Codon Pharmaceuticals, Inc. ("Codon") in exchange for 1.65 million
shares of Oncor common stock. The acquisition was accounted for as a purchase.
The value of the Oncor common stock exchanged was approximately $6.2 million. Of
this amount,
F-16
<PAGE>
$5.7 million, representing estimated value of Codon's proprietary position in
certain technologies under development for future products which have not yet
been developed to a stage of technological feasibility and for which the
ultimate realizability is uncertain was written off during the first quarter of
1998.
On October 1, 1998, Codon ceased all operations. Codon's remaining assets
were liquidated through a public auction in November 1998. As a result, the
Company recorded an impairment loss based on the sales price of assets of
approximately $529,000.
Genetics Assets (Vysis, Inc. Transaction)
On April 9, 1998, the Company completed a transaction with Vysis, Inc. in
which Oncor conveyed to Vysis $0.5 million in cash and full rights and title to
its non-oncology genetics probe assets ("Genetics Assets"), including primarily
inventories (approximately $1.2 million) and intellectual property, in exchange
for two licenses to patents held by Vysis. (These two licences were surrendered
in the November 24, 1998 transaction discussed below.) In addition, the parties
agreed to settle all legal action between them with respect to a suit brought by
Vysis against the Company in September 1995. The Company recorded as an
intangible asset the value of the licenses acquired in an amount of $1.7 million
equal to the net book value of the assets conveyed. Accordingly, no gain or loss
was recognized in the disposition of the Genetic Assets.
Research Products Assets(Intergen Transaction)
On June 30, 1998, the Company completed the sale of its Research Products
Assets, including primarily inventory, laboratory equipment and intellectual
property, to Intergen Company for cash consideration of $3.1 million. A gain of
approximately $2.0 million was recorded on the sale representing the excess of
the cash consideration received over the net book value of the assets sold.
Oncormed, Inc. (Gene Logic Transaction)
On September 28, 1998, pursuant to a plan of merger between Oncormed, Inc.
and Gene Logic, Inc. ("Gene Logic"), the Company exchanged 900,000 shares
representing all its shares in Oncormed for approximately 420,000 shares of Gene
Logic common stock. A gain of approximately $1.7 million was recorded on the
transaction, representing the estimated net realizable value of the Gene Logic
shares. Prior to this transaction, the Company accounted for its investment in
Oncormed under the equity method of accounting. Such investment had been
completely written off due to Oncormed's operating losses.
The market value of the Gene Logic shares was approximately $2.9 million at
December 31, 1998. Accordingly, an unrealized gain of $1.2 million has been
recorded in stockholders' equity (deficiency). The market value of the Gene
Logic shares held at March 31, 1999 was approximately $1.9 million. The change
is due both to a decline in the market value and a sale of approximately 30,000
shares.
In Situ Hybridization Technology Assets (Ventana Transaction)
On November 23, 1998, the Company voluntarily surrendered assets related to
its in situ Hybridization business to certain of the Company's secured
creditors. The creditors then sold the assets to Ventana Medical Systems
("Ventana"). The purchase price was $5 million with an additional $0.5 million
due the Company contingent on certain events.
Proceeds from the sale to Ventana were used to satisfy secured creditors
for approximately $4.2 million, pay legal fees of approximately $0.2 million and
pay incentive amounts to certain members of management of approximately $0.5
million. The remaining $0.2 million was received by Oncor prior to year end.
F-17
<PAGE>
The Company recorded a gain on the disposition of these assets of
approximately $0.4 million representing the excess of the value received over
the net book value of the assets surrendered (approximately $4.6 million). The
$0.5 million contingent portion of the purchase price was not recorded pending
removal of the contingencies. The ultimate receipt of any of this amount is not
known at this time.
Appligene Oncore
On February 10, 1999, the Company sold its 80% interest in Appligene Oncore
("Appligene"), a French company, to a Canadian company for $1 million.
The amounts included in the accompanying financial statements relating to
Appligene are (in thousands):
Revenues $7,182
Net loss (1,836)
Total assets 4,988
Total liabilities 3,356
The minority interest in consolidated subsidiary of $2.0 million and the
deferred cumulative translation adjustment of $1.4 million at December 31, 1998
relate to Appligene.
The equity in Appligene at December 31, 1998 has been written down to net
realizable value of approximately $0.8 million, the net amount (including a
provision for estimated 1999 net loss of approximately $0.1 million) realized in
the sale of Appligene in February 1999.
The following pro forma, unaudited balances comprise the Company's
summarized consolidated balance sheet as of December 31, 1998, assuming its
interest in Appligene was sold as of that date and net cash proceeds of $0.8
million were received (dollars in thousands).
(Unaudited)
Current Assets:
Cash $ 977
Short-term investments 91
Accounts receivable 35
Receivable from former officer/director 179
Investment in marketable securities 2,931
Other current assets 105
----------
Total current assets 4,318
==========
(Continued)
F-18
<PAGE>
Current Liabilities:
Accounts payable $ 3,562
Accrued expenses and other current liabilities 1,860
Notes payable 629
Liability to preferred shareholders 8,555
---------
Total current liabilities 14,606
---------
Stockholders' Deficiency:
Common stock 315
Common stock warrants outstanding 1,191
Additional paid-in capital 150,952
Accumulated deficit (163,721)
Treasury stock (221)
Accumulated other comprehensive income - cumulative
unrealized loss on investments in marketable securities 1,196
--------
Total stockholders' deficiency (10,288)
--------
Total liabilities and deficiency $ 4,318
========
4. INCOME TAXES
With respect to U.S. federal income tax, as of December 31, 1998 the
Company has net operating loss carry-forwards ("NOL's") of approximately $122
million available to offset future taxable income. The Company also has research
and development tax credits of approximately $1.8 million available to reduce
future U.S. federal income tax. The NOL and research and development credits may
be used through 2018, but began to expire in 1998. Despite the NOL and credit
carry-forwards, the Company may have an income tax liability in future years due
to the application of the alternative minimum tax rules. In addition, the
utilization of these tax NOL's and credit carry-forwards is subject to statutory
limitations regarding changes in ownership and the bankruptcy proceedings.
SFAS No. 109 requires that the tax benefit of financial reporting NOL's and
tax credits be recorded as an asset to the extent that management assesses the
utilization of such NOL's and tax credits to be "more likely than not." The
Company's net deferred tax assets, the only material element of which is net
operating loss carry forwards, was approximately $50.9 million at December 31,
1998 and $43.9 million at December 31, 1997. A valuation reserve was recorded
against the entire amount of the net deferred tax assets, since the Company has
incurred operating losses in the United States since inception. The net deferred
tax assets are primarily attributable to net operating losses, capital losses
and tax credits.
F-19
<PAGE>
Net operating losses and research and development tax credits expire as
follows (in thousands):
Year of R&D Year of R&D
Expiration NOL Tax Credits Expiration NOL Tax Credits
- ---------- ---------- ----------- ---------- ------- -----------
1999 $ 315 $23 2007 $11,137 $175
2000 372 27 2008 10,707 301
2001 848 41 2009 14,789 307
2002 1,747 78 2010 11,782 103
2003 1,807 100 2011 19,856 154
2004 1,705 - 2012 21,888 271
2005 2,538 51 2018 17,500 140
2006 4,991 99
Net operating loss and research and development credits relating to and
available only for the French operations were lost with the disposition of
Appligene in 1999.
5. RESTRUCTURING EXPENSE
In 1996, the Company adopted a restructuring plan to discontinue the
development, manufacture, sale and support of certain imaging, research and
non-oncology products. Recorded restructuring costs of $2.1 million comprise the
charge-off of discontinued products, charge-off of goodwill associated with a
related business unit, and severance payments to former employees whose
employment was terminated in conjunction with the plan. The discontinued product
lines were customized, computerized, microscopic imaging systems, certain
gene-based DNA probes chemistries and certain other chemical test kits and
components. The related charge was incurred in conjunction with the Company's
decision to cease field sales and support for these lines.
6. STOCKHOLDERS' EQUITY
Preferred Stock
In January 1998, the Company completed a $5 million equity financing in a
private placement of 500 shares of Series A preferred stock. The preferred stock
is convertible into common stock of the Company under certain circumstances,
generally in a period beginning after 90 days, at prices equal to the lower of
(i) 100% (reducing over time to 90%) of the average of the lowest closing bid
price of the common stock on any two of the most recent 22 trading days
preceding the date of conversion and (ii) $4.56. Dividends at rate of 6% are
payable upon conversion in cash or common stock. In addition, the Company issued
warrants to purchase 125,000 shares of common stock in connection with the
transaction, with an exercise price of $5.16 per share. The investors and the
Company each have rights to increase the amount of the investment under certain
circumstances. Approximately $0.3 million of the net proceeds was allocated to
the value of the warrants.
Subsequent to December 31, 1998, holders of the preferred stock converted 6
shares of preferred stock into 1,997,992 shares of the Company's common stock.
In addition, the Series A preferred stock agreements provide for redemption
rights upon the occurrence of certain events. Although disputed by the Company,
the holders of the preferred stock believe that those events occurred during
1998 and, accordingly, the Company has recorded $8.6 million as a current
liability in the accompanying consolidated balance sheet, representing the
redemption values plus additional accrued charges and interest as specified in
the private placement
F-20
<PAGE>
agreements. Additional interest of approximately $0.9 million that under the
agreements accrues upon satisfaction of certain redemption requirements of the
shareholders has not been recorded.
Common Stock, Convertible Notes and Warrants
On December 30, 1996, the Company completed a private placement of 6%
five-year unsecured notes convertible into shares of Common Stock of the Company
and warrants to purchase an aggregate of 250,000 share of the Company's Common
Stock. The Company received total proceeds of approximately $10.0 million of
which $0.4 million was allocated to the warrants. Issuance costs were not
significant. The notes are immediately convertible at the option of the holder
and were to be automatically converted upon maturity. The notes are convertible
at the lesser of $5 per share or 80.0% of the market value of the Common Stock
at the time of conversion over a period of approximately five months.
During the three years ended December 31, 1998, the Company had two other
similar private placements. All these notes had been converted.
On all of the convertible debt instruments with beneficial conversion
features, the Company records as interest expense the difference between the
conversion price and the quoted price of the stock issuable upon conversion of
convertible debentures with a fixed conversion benefit. The imputed interest is
recorded over the minimum holding periods of the debentures pursuant to which
the maximum beneficial conversion feature is earned. The interest expense
recorded in 1998, 1997 and 1996 pursuant to this accounting convention is
approximately $0.1 million, $3.0 million and $2.6 million, respectively.
In August 1998, warrant holders exercised options to acquire 1.1 million
shares of Oncormed common stock from Oncor at exercise prices of $0.75 to $1 a
share. The Company recorded a gain on the exercise in the amount of
approximately $1.0 million. In addition, the Company recognized the deferred
gain recorded upon the granting of the warrants. During 1998, the Company also
granted warrants to purchase an aggregate of 2.9 million shares of its common
stock at exercise prices ranging from $0.50 to $1.00 per share in connection
with financing received.
Stock Options
The Company maintains a Stock Option Plan (the "1992 plan")which was
approved by the Board of Directors in 1992. This 1992 plan incorporated the
Company's former Incentive Stock Option Plan, Non-Qualified Stock Option Plan
and Non-Qualified Stock Option Plan for Non-Employee Directors.
The aggregate number of shares available for issuance under the 1992 Plan
may not exceed 5,015,604 shares of Common Stock, subject to adjustment from time
to time in the event of certain changes to the Company's capital structure.
In May 1997, the Board of Directors authorized a regrant program (the "1997
Regrant Program") which allowed active current option holders, excluding
executive officers, to forego earned vesting and elect to exchange all or some
of their outstanding options, ranging in exercise price from $4.125 to $7.50 per
share, for new options under the Company's 1992 Plan, to purchase shares of the
common stock at a new price of $3.625, the closing price on May 23, 1997, the
regrant date under the 1997 Regrant Program. Options to purchase approximately
462,000 shares of common stock were canceled and regranted. Stock options that
were regranted began vesting over a four-year period measured from May 23, 1997.
F-21
<PAGE>
In June, 1998, the Board of Directors authorized a second regrant program
(the "1998 Regrant Program") which allowed active current option holders to
exchange options ranging in exercise price from $1.0625 to $6.875 per share, for
new options to purchase shares of the common stock at a new price of $0.875,
the closing price on June 1, 1998, the regrant date under the 1998 Regrant
Program. Options to purchase approximately 2,019,000 shares of common stock were
canceled and regranted.
The Company accounts for this plan under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma amounts:
1997 1996
---- ----
Net Loss (in thousands): As Reported $(30,947) $(28,980)
Pro Forma $(32,814) $(30,545)
Net Loss Per Share: As Reported $(1.21) $(1.26)
Pro Forma $(1.28) $(1.33)
Because the method of accounting promulgated by the Statement has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected on a pro
forma basis in future years.
The fair market value of each option grant is estimated using the
Black-Scholes option pricing model with the following assumptions used for each
year: risk-free interest rates of 4 percent; expected lives of 5.9 years for the
options; and expected volatility of 56%.
The effects of the provisions of SFAS No. 123 on 1998 pro forma results are
not material, taken as a whole.
F-22
<PAGE>
Transactions relating to the Company's stock option plans are as follows:
1992 Stock Option Plan Special Stock Options
------------------------- ------------------------
Number of Weighted Avg. Number of Weighted Avg.
Shares Ex. Price Shares Ex. Price
--------- ------------ --------- ---------
BALANCE December 31, 1995 3,409,370 $4.9200 404,351 $2.8854
Granted 1,181,333 4.7600
Exercised (158,751) 4.2000 (522) 2.4600
Canceled (883,967) 5.0000 (3,829) 2.3800
--------- ------ ------- ------
BALANCE December 31, 1996 3,547,985 4.8600 400,000 2.8854
Granted 1,108,400 3.9243 240,000 3.6600
Exercised (39,500) 1.8072
Canceled (679,400) 5.2930 (50,000) 5.6250
--------- ------ ------- ------
BALANCE December 31, 1997 3,937,485 4.5559 590,000 2.9718
Granted 2,269,834 .7747
Exercised (10,000) 3.7500
Canceled (3,770,485) 4.0293
--------- ------ -------- ------
BALANCE December 31, 1998 2,426,834 $1.8304 590,000 $2.9718
========= ====== ======== ======
Options exercisable at
December 31, 1998 (1) 2,364,334 $4.6310 416,667 $2.6856
========= ====== ======= ======
Options not exercisable
at December 31, 1998 (2) 62,500 $0.9389 173,333 $3.6600
========= ====== ======= ======
(1) Range of price for exercisable options: $0.8750 to $5.5000
(2) Range of price for non-exercisable options: $0.5625 to $1.3750
Of the 2,426,834 option shares outstanding at December 31, 1998, 1,451,834
option shares relate to employees who are no longer with the Company and will be
canceled 90 days after their termination date. The balance of the option shares
relate to non-employees and current directors.
Summary of Reserved Shares
As of December 31, 1998, the Company has reserved the following shares of
Common Stock for future use as follows:
Unit purchase options
1992 stock option plan 2,426,834
Special stock options 590,000
Warrants issued in conjunction with
private placements 655,836
Warrants issued in connection with
debt financing 2,900,000
---------
6,572,670
=========
F-23
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
On April 27, 1998, the Company received a summons and complaint in
connection with a lawsuit entitled Key Technology, Inc. v. Oncor, Inc. in the
Superior Court of the State of Washington for the County of Walla Walla. The
complaint alleges breach of contract and fraud in connection with a June 1996
asset purchase agreement between Key Technology and the Company relating to the
sale of the Company's 1300 video inspection systems to Key Technology, and seeks
damages against the Company of $1,475,000. A failure to successfully defend
against or settle that suit would likely result in damages being assessed
against the Company. Management currently can not estimate what liability, if
any, could result from this dispute.
During 1998, two entities who entered into a partnership agreement with the
Company have asserted that the Company did not disclose certain information to
them prior to entering into the agreement. The entities have requested that the
Company relinquish all rights obtained by the Company and, if the Company does
not relinquish such rights, "appropriate action" will be taken. No settlement
has been reached in this matter and, to date, no suit has been filed or demand
received. Management currently can not estimate what liability, if any, could
result from this dispute.
In addition to the above enumerated proceedings, a number of claims and
cases have been filed by creditors and former employees of the Company relating
to unpaid amounts for goods and services provided the Company. Payments of these
amounts are now stayed by the Bankruptcy Proceedings.
The Company leases office space and laboratory facilities under operating
lease agreements which expire in periods from 1999 to 2004. Lessor concessions
with respect to the space buildout and rental abatement, result in a deferred
rent credit at December 31, 1997 of $0.3 million. Rental expense for the years
ended December 31, 1998, 1997 and 1996 was approximately $1.0 million, $0.9
million and $0.8 million, respectively. Minimum lease payments under these lease
agreements at December 31, 1998 are as follows (in thousands):
For the Year Ending
December 31, Amount
------------------- ------
1999 $143
2000 105
2001 92
2002 89
2003 88
2004 22
---
$539
===
In February 1995, the Company entered into a lease which was accounted for
as a capital lease with a net present value of future obligations of
approximately $1.2 million as of December 31, 1998.
SEGMENT INFORMATION
The Company operated in a single business segment, biotechnology. SFAS
No. 131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. As of December 31, 1998, except
for the operations of Appligene in France, the Company had no further operations
generating revenues. As indicated in Note 3, Appligene was disposed of in
February 1999.
F-24
<PAGE>
Product sales relating to each geographic region are as follows (in
thousands):
1998 1997 1996
---- ---- ----
United States $3,060 $ 5,068 $ 6,644
Europe 7,536 6,299 7,019
Japan 539 801 965
Other 418 781 695
------ ------ -------
$11,553 $12,949 $15,323
====== ====== =======
Revenues, largely in Europe, attributable to the Company's operations in
France for each of the three years ended December 31, 1998 were $7.2 million,
$6.6 million and $7.1 million, respectively. The net loss for the same periods
were $1.8 million, $4.0 million and $2.8 million, respectively. The Company's
identifiable assets in France at December 31, 1998, 1997 and 1996 were carried
at approximately $5.0 million, $5.1 million and $9.8 million, respectively.
8. LINE OF CREDIT
During 1997, the Company obtained a $3 million line of credit which expired
in 1998. Outstanding borrowing at December 31, 1997 were $3 million. The
interest rate effective for the line of credit as of December 31, 1997 was
7.58%. The Company issued options to purchase 900,000 shares of Oncormed, Inc.
(a 25% owned affiliate), held by the Company in conjunction with establishing
and extending this line of credit. The Company valued the options at
approximately $3.8 million. Approximately $1.8 million of the value of the
options was recorded as a charge to interest and other non-operating expense in
1997. The remaining deferred financing fees were charged to expense in 1998 as
the line of credit was paid in full in 1998.
9. RETIREMENT PLAN
In 1991, the Company adopted a defined contribution savings plan (the
"Plan") in accordance with Section 401(k) of the Internal Revenue Code. The Plan
covers all permanent employees who have attained the age of 21. Under the Plan,
the Company may make discretionary contributions. The Company had made no
discretionary contributions to date and has no plans to do so.
F-25
<PAGE>
10. LONG-TERM DEBT
Long-term debt at December 31 consists of the following obligations (in
thousands):
1998 1997
---- ----
Convertible notes issued by the company in
connection with private placements, bearing
interest at a rate of 6% per year, payable
semi-annually , due in 2001 $4,659
Obligations under capital lease bearing interest
at 5.62% (collateralized by building) with
final maturity in 2010 $1,089 866
Various other notes payable to a French
government funding agency and to banks,
primarily secured by the assets of a
subsidiary. The interest rates range from
8.39% to 9.32% 893
----- -----
Total long-term debt 1,089 6,418
Less current maturities 762 551
----- -----
Non-current portion $ 327 $5,867
===== =====
The long-term debt at December 31, 1998 relates to debt of Appligene. Such
debt was included in the disposition of Appligene (see Note 3).
12. SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
Inventories
Inventories consisted of genetic probes, hybridzation systems and reagents
in various manufactured states. They are stated at lower of cost (first-in,
first-out) or market.
Inventories consisted of the following at December 31, 1998 and 1997 (in
thousands):
1998 1997
---- ----
Raw material $ 418 $ 980
Work in progress 95 995
Finished goods 600 1,186
----- -----
$1,123 $3,161
===== =====
Property and Equipment
Property and equipment are stated at cost after recognition of impairment
loss. Depreciation and amortization are calculated on a straight-line basis over
the estimated useful lives of the assets. The building is depreciated over
fifteen years. Laboratory equipment is depreciated over seven years. Office
equipment, furniture and fixtures are depreciated over seven and three years,
respectively. Leasehold improvements are amortized over the lesser of their
estimated useful lives or the applicable lease term.
F-26
<PAGE>
At December 31, 1998 and 1997, property and equipment consist of the
following (in thousands):
1998 1997
---- ----
Building $ 259 $ 1,011
Laboratory equipment 653 3,892
Office equipment, furniture
and fixtures 192 4,985
Leasehold improvements 78 1,093
----- ------
1,182 10,981
Less accumulated depreciation
and amortization 667 6,805
----- ------
Net property and equipment $ 515 $ 4,176
===== ======
Accrued Expenses and Other Liabilities
At December 31, 1998 and 1997, accrued expenses and other current
liabilities consist of the following (in thousands):
1998 1997
---- ----
Employee benefit $ 433 $ 592
Accrued royalties 25 167
Unbilled professional fees 386 381
Deferred revenue 18
Accrued taxes 274 156
Severance 1,048 180
Other 418 204
----- -----
$2,584 $1,698
===== =====
F-27
<PAGE>
Other Income and Expenses
Other income and expenses reflected in interest and other, net during 1998
include the following impairment charges, transaction gains, and other items (in
thousands):
Impairment loss on Appligene $(2,600)
Impairment loss on Codon assets subsequently sold (530)
Impairment loss on property and equipment (289)
Gain on sale of Research Products assets 1,975
Gain on exchange of stock in affiliated company 1,735
Gain on sale of in situ Hybridization technology assets 370
Gain on exercise of warrants in an affiliated company and
adjustment of the related liability to issue such warrants 6,528
Financing expenses associated with the acquisition and
amendment of secured credit facility (5,805)
Gain related to settlement of lawsuit 608
Gain on collection of note payable previously written off 500
Interest expense (459)
Other expenses (1,178)
------
Total interest and other, net $ 855
======
F-28
<PAGE>
Report of Independent Public Accountants on Schedules
To Oncor, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Oncor, Inc., and subsidiaries included in
this Form 10-K and have issued our report thereon dated April 13,1999. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The Schedule II Valuation and Qualifying Accounts
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states, in all material respects the financial data
required to be set forth therein, in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
April 13,1999
F-29
<PAGE>
ONCOR, INC.
(Debtor in Possession)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(Dollars in thousands)
Additions
Balance at Charged to Balance at
Beginning of Expenses End of
Period (Recoveries) Write-offs Period
--------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
1998 $ 419 $ 365 $ (629) $ 155
1997 372 47 419
1996 341 73 (42) 372
Reserve for excess and obsolete inventory
1998 2,896 274 (2,888) 282
1997 2,653 738 (495) 2,896
1996 1,530 1,450 (327) 2,653
Deferred tax valuation reserve
1998 43,900 7,056 50,956
1997 35,800 8,100 43,900
1996 28,300 7,500 35,800
</TABLE>
F-30
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 924,000
<SECURITIES> 0
<RECEIVABLES> 1,486,000
<ALLOWANCES> (155,000)
<INVENTORY> 1,123,000
<CURRENT-ASSETS> 7,523,000
<PP&E> 1,182,000
<DEPRECIATION> (667,000)
<TOTAL-ASSETS> 8,118,000
<CURRENT-LIABILITIES> 1,740,000
<BONDS> 0
0
0
<COMMON> 315,000
<OTHER-SE> 12,015,000
<TOTAL-LIABILITY-AND-EQUITY> 8,118,000
<SALES> 11,553,000
<TOTAL-REVENUES> 11,980,000
<CGS> 6,850,000
<TOTAL-COSTS> 37,983,000
<OTHER-EXPENSES> 1,263,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459,000
<INCOME-PRETAX> (27,266,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,266,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,266,000)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
