<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE:)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-19701
-------
ZYNAXIS, INC.
(Exact name of Registrant as specified in its charter)
------------------------------------------------------
Pennsylvania 23-2562913
------------ ----------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
371 Phoenixville Pike, Malvern, Pennsylvania 19355
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 889-2200
--------------
(Registrant's telephone number, including area code)
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
----- -----
Shares of Common Stock outstanding at May 9, 1997 were 10,377,240.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements
Zynaxis, Inc. and subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 147,281 $ 124,348
Collaborative, contract and grant
revenue receivable (Note 6) 250,638 182,047
Other current assets 61,773 107,254
-------------------- ------------------
Total current assets 459,692 413,649
Property and equipment:
Equipment 831,888 1,610,520
Leasehold improvements 35,570 35,570
-------------------- ------------------
867,458 1,646,090
Less accumulated depreciation
and amortization (840,805) (1,605,502)
-------------------- ------------------
Net property and equipment 26,654 40,588
Other assets:
Other long-term assets 20,000 20,000
Cauldron-net assets (Note 7) 528,000 600,000
Note receivable 333,865 324,046
-------------------- ------------------
Total other assets 881,865 944,046
$ 1,368,211 $ 1,398,283
==================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Zynaxis, Inc. and subsidiaries
Consolidated Balance Sheets
(Continued)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 439,245 $ 232,243
Accrued expenses 392,573 752,809
Notes payable to shareholders (Note 3) 450,000 450,000
Note payable to CytRx (Note 4) 975,000 975,000
Current portion of other long-term
obligations 34,581 33,277
----------------- ----------------
Total current liabilities 2,291,399 2,443,329
Other long-term obligations 56,727 65,511
Commitments and contingencies
(Note 2) -
Stockholders' equity:
Series A preferred stock,
2,000,000 shares authorized,
1,412,500 shares issued and outstanding
at March 31, 1997 and December 31,
1996 (Liquidation preference
of $3,262,956 and $3,207,230 at
March 31, 1997 and December 31, 2,554,304 2,554,304
1996, respectively)
Common Stock, $.01 par value,
25,000,000 shares authorized,
10,377,240 and 10,338,768 shares issued
and outstanding at March 31, 1997
and December 31, 1996, respectively 103,771 103,387
Additional paid-in capital 45,986,323 45,982,992
Accumulated deficit (49,624,313) (49,751,240)
----------------- ----------------
Total stockholders' equity (979,915) (1,110,557)
$ 1,368,211 $1,398,283
================= ================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Zynaxis, Inc. and subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
---- ----
<S> <C> <C>
Revenues:
- --------
Collaborative, contract and grant
revenues (Note 6) $ 386,703 $ 543,044
---------------- ----------------
386,703 543,044
Costs and expenses:
- ------------------
Research and development 583,150 942,887
Marketing, general and administrative 452,696 513,111
---------------- ----------------
1,035,846 1,455,998
Operating loss (649,143) (912,954)
Other income (expense):
- ----------------------
Interest income 12,926 16,078
Interest expense (14,829) (6,837)
Gain on sale of Zyn-Linker technology
(Note 2) 720,000 -
Other 57,973 82,748
---------------- ----------------
776,070 91,989
Net income (loss) $126,927 ($820,965)
================ ================
Net income (loss) per common share $ .01 ($0.08)
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Zynaxis, Inc. and subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 126,927 ($ 820,965)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 68,447 270,737
Issuance of Common Stock to 401k plan 385 -
Decrease (increase) in
- ----------------------
Restricted cash - (125)
Prepaid expenses 11,256 (56,542)
Collaborative, contract and grant revenue receivables (68,591) (38,446)
Other current assets 34,225 17,984
Other long-term assets (9,819) 9,591
Increase (decrease) in
- ----------------------
Accounts payable 207,002 58,424
Accrued expenses (360,236) (175,371)
Deferred income - 29,993
Other long-term obligations (7,480) (7,497)
--------------- ---------------
Net cash used for operating activities 2,116 (712,217)
Cash flow from investing activities:
Purchases of property and equipment - (3,148)
Proceeds from sale of assets 23,517 -
Net sales short- term securities - 97,437
--------------- ---------------
Net cash from investing activities 23,517 94,289
Cash flow from financing activities:
Private placement of Common Stock - 500,000
Proceeds from exercise of Common Stock options - 603
Principal payments on capital lease obligations (2,700) (714)
Proceeds from note payable to CytRx Corp. 200,000 -
Repayment of principal owed under CytRx note (200,000) -
Principal payments on notes payable - (5,946)
--------------- ---------------
Net cash from financing activities (2,700) 493,943
Net (decrease) increase in cash and cash equivalents 22,933 (123,985)
Cash and cash equivalents, beginning of period 124,348 411,706
--------------- ---------------
Cash and cash equivalents, end of period $ 147,281 $ 287,721
=============== ===============
- -------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
- ------------------------------------------------
Cash paid for interest expense $ 2,325 $ 3,104
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
ZYNAXIS, INC. AND SUBSIDIARIES
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
-----------
Note 1 - Basis of Presentation
- ------------------------------
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applicable to interim
periods. These financial statements do not include all disclosures required for
annual financial statements and should be read in conjunction with the more
complete disclosures contained in the audited financial statements of Zynaxis,
Inc. ("Zynaxis" or the "Company") included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
The statements reflect, in the opinion of management, all adjustments of a
normal and recurring nature necessary to present fairly the Company's
consolidated financial position at March 31, 1997 and December 31, 1996, the
consolidated results of operations for the three months ended March 31, 1997 and
1996, and the consolidated cash flows for the three months ended March 31, 1997
and 1996. The results of operations for the three months ended March 31, 1997,
and the cash flows for the three months ended March 31, 1997, are not
necessarily indicative of the results to be expected for the entire year.
Certain prior year amounts have been reclassified to conform to current year
classifications.
Note 2 - Background and Significant Uncertainties
- -------------------------------------------------
Zynaxis was incorporated in Pennsylvania on March 5, 1987 and commenced
operations in July 1988. The Company initially focused on development of
cell-mediated therapies and cellular diagnostic products including research
reagents for cell tracking. Between 1988 and 1991, the Company received funding
primarily through venture capital financing involving the issuance of
convertible preferred stock and convertible notes, all of which have since been
converted into Common Stock. In January 1992, the Company completed an initial
public offering of its Common Stock, receiving net proceeds of approximately
$23,300,000 through the sale of 2,875,000 shares of Common Stock. Between 1992
and 1994, the Company focused on development of products for site-directed drug
delivery using its proprietary Zyn-Linker molecules and on the development of
cellular diagnostic products including its Zymmune CD4/CD8 Cell Monitoring Kit.
During 1995, the Company modified its strategic direction, divesting its
diagnostic products, acquiring vaccine technologies, and focusing its resources
on selected drug and vaccine delivery opportunities. Four key events occurred in
1995 as a result of the Company's modified strategic direction: (i) the sales of
the Company's diagnostic operations, accompanied by a significant reduction in
workforce, (ii) the acquisition by merger of Secretech, Inc. ("Secretech") and
associated technologies for oral and mucosal vaccine delivery, (iii) the
completion of a private placement which raised net proceeds of $2,700,000 to
fund operations, and (iv) the completion of a significant corporate
collaborative agreement for the development of certain technologies acquired
through the merger with Secretech.
6
<PAGE>
During 1996, the Company began to focus on the possibility of selling its
process chemistry/pilot plant operations, known as Cauldron Process Chemistry
("Cauldron"), and its related assets for cash. Cauldron provides collaborative
consulting services on all aspects of bulk pharmaceutical production and offers
process research, development and pilot scale-up facilities for the
pharmaceutical, biochemical and fine chemical industries. In July 1996, the
Company signed a binding letter of intent to sell Cauldron to Seloc AG
("Seloc"), a subsidiary of Schwarz Pharma. On August 27, 1996, the Company
received notification that Seloc was terminating its agreement in principle to
purchase Cauldron. In March 1997, Zynaxis signed an Asset Purchase Agreement
with ProClinical, Inc. ("Proclinical") for the sale of all Cauldron assets for
the aggregate amount of $832,000. The Asset Purchase Agreement requires Zynaxis
to prepay $250,000 (approximately 10 months' worth of occupancy) to the landlord
of the Company's Malvern headquarters. This sale is subject to shareholder
approval at Zynaxis' May 1997 special shareholders meeting.
On September 23, 1996, the Company entered into an Exclusive License Agreement
and Purchase Option with Phanos Technologies, Inc. ("Phanos") for intellectual
property related to its Zyn-Linker technologies. At that time, the Company
received initial deposits totaling $200,000, of which $195,000 was refundable in
the event that Phanos decided not to exercise the option. On January 21, 1997,
the Company received notification that Phanos had exercised its option and the
Company received $525,000, representing the balance of the purchase price. Under
the terms of the agreement, Phanos acquired all of the Company's Zyn-Linker
technology.
On December 6, 1996, the Company entered into an Agreement and Plan of Merger
and Contribution ( the "Merger Agreement") with CytRx Corporation ("CytRx"),
Vaxcel, Inc., a wholly-owned subsidiary of CytRx ("Vaxcel"), and Vaxcel Merger
Subsidiary, Inc., a wholly-owned subsidiary of Vaxcel ("Vaxcel Merger Sub").
Pursuant to the Merger Agreement, subject to approval by shareholders of Zynaxis
and certain other conditions, Vaxcel Merger Sub will be merged (the "Merger")
with and into Zynaxis, which will be the surviving corporation and will be a
wholly-owned subsidiary of Vaxcel. The Company anticipates that, subject to
shareholder approval at the Company's special meeting of shareholders in May
1997 and the satisfaction of conditions to the Merger, the Merger will be
consummated in late May 1997. In the Merger, the security holders of Zynaxis
will exchange their Zynaxis securities for securities of Vaxcel and will own
approximately 12.5% of the outstanding common stock of Vaxcel immediately
following the Merger. CytRx will own the remaining approximately 87.5% of common
stock of Vaxcel immediately following the Merger. The Merger will be accounted
for as a purchase transaction, with Vaxcel as the acquirer. Simultaneously with
the execution of the Merger Agreement, Zynaxis and CytRx entered into a secured
loan agreement to provide the Company with sufficient funding for continued
operations pending the Merger. As discussed in Note 4 to the Consolidated
Financial Statements, CytRx agreed to loan up to $2,000,000 to the Company on a
secured basis, as provided for in the loan agreement. Among other agreements
entered into in connection with the Merger is an agreement providing for the
sale of substantially all assets of the Company.
At March 31, 1997, the Company had cash and cash equivalents of $147,281 and a
working capital deficit of $1,831,700. For the three months ended March 31,
1997, net operating cash inflow was approximately $2,000. The Company's
profitability during the first quarter of 1997 was due to the infusion of cash
from the Phanos acquisition of the Company's Zyn-Linker technology.
The Company has not received significant revenues from the sale of any of its
products. For the period from its inception to March 31, 1997, the Company had
an accumulated deficit of $49,624,000.
7
<PAGE>
The ability of the Company to survive as a going concern beyond March 31, 1997
is dependent on the consummation of the Merger. There is no assurance that the
Company will ultimately complete this transaction. Additionally, certain matters
associated with the transaction require the approval of shareholders at the
Company's special meeting of shareholders to be held in May 1997. If the Company
is unable to complete the transaction, if the shareholders fail to approve the
Merger or if certain conditions precedent to closing of the Merger do not occur,
the Company will not be able to continue operations. Should the Company
determine that it is no longer in the best interest of its shareholders to
continue operations, the ability of the Company to fund an orderly disposition
of assets, pay off its then outstanding liabilities and return any remaining
cash to its shareholders will be limited by the amount of working capital then
on hand, if any.
The financial statements were prepared assuming the Company will continue as a
going concern. The asset and liability carrying amounts do not purport to
represent realizable or final settlement values. See "Report of Independent
Accountants" included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 regarding the Company's ability to continue as a going
concern.
Note 3 - Notes Payable to Shareholders
- --------------------------------------
On May 3, 1996, the Company issued Demand Promissory Notes (the "May 1996
Notes") aggregating $200,000 to two of its principal shareholders. A general
partner of the general partner of one shareholder and the president of the other
shareholder are members of the Board of Directors. These May 1996 Notes bear
interest at the annual rate of 11 1/4% and are due on the earlier of (i) the
receipt by the Company of proceeds from the sale of Cauldron aggregating at
least $1,000,000 or (ii) upon demand. The May 1996 Notes are convertible at the
option of the holder into an aggregate of 200,000 shares of the Company's Common
Stock at any time prior to repayment. In connection with the issuance of the May
1996 Notes, the Company issued warrants with a five-year term to purchase
200,000 shares of the Company's Common Stock at an exercise price of $1.00 per
share.
On June 7, 1996, the Company issued a $250,000 Demand Promissory Note to another
of its principal shareholders. This note was canceled and reissued on July 17,
1996 due to a revision of the repayment terms (the "July 1996 Note"). This July
1996 Note bears interest at the annual rate of 11 1/4% and is due on the earlier
of (i) the receipt by the Company of proceeds from the sale of Cauldron
aggregating at least $1,000,000 or (ii) upon demand. This July 1996 Note is
convertible at the option of the holder into an aggregate of 150,000 shares of
the Company's Common Stock at any time prior to repayment. In connection with
the issuance, the Company also issued a warrant with a five-year term to
purchase 25,000 shares of the Company's Common Stock at an exercise price of
$1.00 per share.
In conjunction with the signing of the Merger Agreement in December 1996, a Note
Exchange Agreement was entered into whereby two of these three notes payable to
shareholders will be exchanged for Vaxcel common stock upon consummation of the
Merger. Additionally, in the Merger, the warrants will be exchanged for warrants
to purchase Vaxcel common stock.
Note 4 - Note Payable to CytRx
- ------------------------------
As discussed in Note 2, the Company has entered into a Merger Agreement with
CytRx and Vaxcel, an Atlanta-based vaccine technology company. In conjunction
with the Merger Agreement, Zynaxis also entered into a secured loan agreement
with CytRx, Vaxcel's parent company. The terms of the loan agreement provide
that the Company may borrow up to
8
<PAGE>
$2,000,000 from CytRx between December 1996 and the closing of the Merger,
anticipated to be in May 1997. Proceeds from any amounts borrowed are to be used
to satisfy accounts payable and accrued expenses, as well as to fund operations
until the transaction is completed. Through March 31, 1997, the Company had
borrowed a total of $1,175,000 and had repaid $200,000 of principal in January
1997 with a portion of the cash received from Phanos (see Note 2), resulting in
a principal balance owed at March 31, 1997 of $975,000. The borrowings accrue
interest at prime plus 2%. Accrued interest expense on these borrowings totaled
approximately $30,000 as of March 31, 1997.
Note 5 - Net Income (Loss) Per Common Share
- --------------------------------------------
The net income (loss) per share is based upon the weighted average common shares
outstanding during the three months ended March 31, 1997. Common stock
equivalents have been included in the computation for this period since the
effect is dilutive.
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share," which supersedes APB Opinion No. 15, "Earnings per Share," was issued in
February 1997. SFAS 128 requires dual presentation of basic and diluted earnings
per share ("EPS") for complex capital structures on the face of the income
statement. Basic EPS is computed by dividing income by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution from the exercise or conversion of securities into common
stock, such as stock options. SFAS 128 is required to be adopted for year-end
1997; earlier application is not permitted. The Company does not expect the
basic or diluted EPS measured under SFAS 128 to be materially different than its
primary or fully-diluted EPS measured under APB No. 15.
Note 6 - Collaborative, Contract and Grant Revenues
- ---------------------------------------------------
Collaboration with ALK A/S
- --------------------------
In October 1995, the Company announced a development and licensing agreement
with ALK A/S ("ALK"), a leading European pharmaceutical company in the field of
allergy immunotherapy. The collaboration involves certain of the technologies
acquired in the merger with Secretech relating to bioactive substance delivery
technology.
Under the terms of the ALK development and licensing collaboration, the Company
has received payments aggregating $1,000,000. The Company received the second
installment of $250,000 in January 1996, the third installment of $250,000 in
April 1996, and the fourth and final installment of $250,000 in August 1996.
The Company also has agreed to provide ALK with research and development support
of the licensed technology for which it will receive additional revenues based
upon costs incurred. During the three months ended March 31, 1996, the Company
recorded $18,600 of such revenue. As a result of a reduction in workforce in
September 1996, the Company's ability to continue to provide ALK with research
and development support has been significantly reduced, and there was no revenue
recognized for such support during the first three months of 1997.
The Company will receive a base royalty of 7% on net sales of products using the
Company's technology, increasing based upon certain sales criteria established
under the agreement. The Company could also receive additional milestone
payments of up to $2,000,000 based upon either FDA or certain other regulatory
approvals of additional products using the Company's vaccine delivery
technologies. There can be no assurance that ALK will ever obtain the
9
<PAGE>
appropriate regulatory approvals, or will ever generate any sales using the
technology licensed from the Company.
Should the Company receive royalties under the ALK agreement, it will be
required to pay approximately 3% of the net sales of the licensed product to the
original patent holder of the technology.
Contract Manufacturing
- ----------------------
During the three months ended March 31, 1997 and 1996, the Company, through its
Cauldron Process Chemistry division, recognized contract manufacturing revenues
of $269,000 and $152,000, respectively, by providing process chemistry and pilot
manufacturing services to other biotechnology, pharmaceutical and chemical
companies. The significant increase in these contract revenues was attributable
to an increased marketing effort throughout 1996 and 1997.
Grant Revenue
- -------------
For the three months ended March 31, 1997 and 1996, the Company recognized
$83,200 and $109,000, respectively, pursuant to a Small Business Innovative
Research ("SBIR") grant awarded by the National Heart, Lung and Blood Institute.
This grant is funding the preclinical development of Zyn-Linker molecules linked
with heparin and the investigation of their ability to inhibit post-angioplasty
restenosis and local thrombosis. This grant was extended for a second year
through June 30, 1997; the Company could recognize up to an additional $115,000
under the terms of this grant extension.
During 1996, the Company received a Phase I SBIR grant for up to $100,000 to
develop Zyn-Linker molecules linked with Taxol and for the investigation of
their ability to inhibit post-angioplasty restenosis and local thrombosis. The
Company recorded $12,000 of revenue related to this grant, which ended in
mid-January 1997, during the three months ended March 31, 1997.
Notwithstanding the January 1997 purchase by Phanos of the Zyn-Linker
technology, the studies conducted under the grant extension will continue to be
performed by Zynaxis. However, any patents, inventions or other intellectual
property that may arise from this SBIR research will become the property of
Phanos.
Note 7 - Cauldron Assets
- ------------------------
In efforts to raise capital, and in conjunction with the Vaxcel Merger, the
Company solicited bids from third parties to purchase the Cauldron operations
and related assets. The net book value of the Cauldron assets at December 31,
1996 was written down to net realizeable value of $600,000. The difference
between the net book value and $600,000 is shown as a Provision for Asset
Impairment in the December 31, 1996 income statement. During the first quarter
of 1997, depreciation was taken on these assets at the rate of $24,000 per
month. As discussed in Note 2, an Asset Purchase Agreement was signed in March
1997 for the sale of the Cauldron assets for $832,000 (which will be partially
reduced by a $250,000 rent prepayment to be made by Zynaxis), subject to
shareholder approval in May 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This review should be read in conjunction with the information presented in the
Consolidated Financial Statements and the related Notes to the Consolidated
Financial Statements.
10
<PAGE>
The Company commenced operations in July 1988 and initially focused on the
development of cell-mediated therapies and cellular diagnostic products
including research reagents for cell tracking. Between 1988 and 1991, the
Company received funding primarily through venture capital financing involving
the issuance of convertible preferred stock and convertible notes, all of which
have since been converted into Common Stock. In January 1992, the Company
completed an initial public offering of its Common Stock, receiving net proceeds
of approximately $23,300,000 through the sale of 2,875,000 shares of Common
Stock. Between 1992 and 1994, the Company focused on development of products for
site-directed drug delivery using its proprietary Zyn-Linker molecules and on
development of cellular diagnostic products including its Zymmune CD4/CD8 Cell
Monitoring Kit.
During 1995, the Company modified its strategic direction, divesting its
diagnostic products, acquiring vaccine delivery technologies, and focusing its
resources on selected drug and vaccine delivery opportunities. Four key events
occurred in 1995 as a result of the Company's restructuring: (i) the sale of the
Company's diagnostic operations, accompanied by a significant reduction in
workforce, (ii) the acquisition by merger of Secretech and associated
technologies for oral and mucosal vaccine delivery, (iii) the completion of a
private placement which raised net proceeds of $2,700,000 to fund operations,
and (iv) the completion of a significant corporate collaboration agreement for
the development of certain technologies acquired through the merger with
Secretech. These events are described in detail within "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in the
Company's Annual Report on Form 10-K, as amended, for the year ended December
31, 1995.
During 1996, the Company attempted to develop its technologies and enter into
significant corporate collaborations. Other than the Company's development and
licensing agreement with ALK, the Company had limited success in entering into
such significant collaborations.
As part of its continued efforts to raise cash in order to finance its ongoing
operations, in 1996 the Company began to focus on the possibility of selling its
process chemistry/pilot plant operations, known as Cauldron Process Chemistry,
and its related assets for cash. Cauldron was established by the Company to
utilize its process chemistry expertise in response to growing demand for
contract services. Cauldron provides collaborative consulting services on all
aspects of bulk pharmaceutical production and provides research, development and
pilot scale-up facilities to the pharmaceutical, biochemical and fine chemical
industries. In July 1996, the Company signed a letter of intent granting Seloc
an exclusive option to buy Cauldron. In conjunction with the execution of the
letter of intent, the Company received a nonrefundable exclusive option payment
of $100,000 and an up-front payment of $50,000 on a Seloc process development
contract. On August 27, 1996, the Company received notification that Seloc was
terminating its option to purchase Cauldron. At that time, the Company revived
discussions with previous potential purchasers and initiated discussions with
others. In March 1997, the Company entered into an Asset Purchase Agreement with
ProClinical, for the sale of all Cauldron assets for the aggregate amount of
$832,000 (which will be partially reduced by a $250,000 rent prepayment to be
made by Zynaxis), subject to shareholder approval at the Company's May 1997
special meeting of shareholders.
The termination by Seloc of its letter of intent to purchase the Cauldron assets
precipitated three significant strategic decisions. These included (i) a 40%
reduction in operations and workforce in September 1996 in order to conserve
cash, (ii) the sale to Phanos of intellectual property related to the Company's
Zyn-Linker technologies and (iii) the decision to enter into the Merger
Agreement with CytRx and Vaxcel.
11
<PAGE>
Zynaxis determined that, in order to conserve its limited cash resources, it
must limit its activities to those which were cash positive or were essential to
the Company's operations. Accordingly, in September 1996, the Company terminated
nearly all of its employees engaged in the research and development of the
Company's Zyn-Linker and vaccine delivery technologies. As a result, the
Company's operations were reduced to its Cauldron process chemistry operations,
research and development funded through SBIR grants and other essential
corporate functions. The Company's current staffing level is twelve full-time
employees.
On September 23, 1996, the Company entered into an Exclusive License Agreement
and Purchase Option with Phanos for intellectual property related to its
Zyn-Linker technologies. At that time, the Company received initial deposits
totaling $200,000, of which $195,000 was refundable in the event that Phanos
decided not to exercise the option. On January 21, 1997, the Company received
notification that Phanos had exercised its option and the Company received
$525,000, representing the balance of the purchase price. Under the terms of the
agreement, Phanos acquired all of the Company's Zyn-Linker technologies.
On December 6, 1996, the Company entered into the Merger Agreement with CytRx,
Vaxcel and Vaxcel Merger Sub. Pursuant to the Merger Agreement, subject to
approval by shareholders of Zynaxis and certain other conditions, Vaxcel Merger
Sub will be merged with and into Zynaxis, which will be the surviving
corporation and will be a wholly-owned subsidiary of Vaxcel. The Company
anticipates that, subject to shareholder approval at the Company's special
meeting of shareholders in May 1997 and the satisfaction of conditions to the
Merger, the Merger will be consummated in late May 1997. In the Merger, the
security holders of Zynaxis will exchange their Zynaxis securities for
securities of Vaxcel and will own approximately 12.5% of the outstanding common
stock of Vaxcel immediately following the Merger. CytRx will own the remaining
approximately 87.5% of common stock of Vaxcel immediately following the Merger.
Simultaneously with the execution of the Merger Agreement, Zynaxis and CytRx
entered into a secured loan agreement in order for the Company to have
sufficient funding for continued operations pending the Merger. CytRx agreed to
loan up to $2,000,000 to the Company on a secured basis. Through March 31, 1997,
the Company had borrowed a total of $1,175,000, and had repaid $200,000 of
principal in January 1997, resulting in a principal balance owed at March 31,
1997 of $975,000. The advance was used in settling a major portion of the
Company's outstanding liabilities, as well as funding operations from December
1996 through March 31, 1997. All advances accrue interest at a rate of prime
plus 2%. Upon the consummation of the Merger, CytRx will contribute to Vaxcel an
amount of funding equal to the outstanding principal and interest of the loan,
as well as additional amounts specified in the Merger Agreement. Among other
agreements entered into in connection with the Merger is an agreement providing
for the sale of substantially all assets of the Company.
The transaction documents further provide that preferred stockholders of Zynaxis
who also hold warrants to purchase the Company's Common Stock, and three other
warrant holders, will exchange the Zynaxis warrants in the Merger for warrants
to purchase Vaxcel common stock. Additionally, certain shareholders who hold
convertible notes issued by Zynaxis will exchange such notes in the Merger for
shares of Vaxcel common stock.
Upon execution of the Merger Agreement, a technology development agreement was
also executed by the Company and Vaxcel relating to the development of the
Company's vaccine delivery technology pending the Merger.
12
<PAGE>
The Company has not received significant revenues from the sale of any of its
products. For the period from its inception to March 31, 1997, the Company had
an accumulated deficit of $49,624,000.
Liquidity, Capital Resources and Plans to Fund Future Operations
- ----------------------------------------------------------------
At March 31, 1997, the Company had cash and cash equivalents of $147,281 and a
working capital deficit of $1,831,700. For the three months ended March 31,
1997, net operating cash inflow was approximately $2,000. The Company's
profitability during the first quarter of 1997 was due to the infusion of cash
from the Phanos acquisition of the Company's Zyn-Linker technology.
The Company has funded operations since December 31, 1995 primarily through the
issuance of short-term promissory notes to certain holders of Series A
Convertible Preferred Stock (the "Preferred Shareholders"), the completion of an
additional private placement and a secured loan from CytRx.
The Company issued an aggregate of $450,000 of Demand Promissory Notes (the
"Notes") to three of its Preferred Shareholders in exchange for cash to fund
operations. These Notes bear interest at an annual rate of 11 1/4% and are to be
repaid on the earlier of (a) the date the Company receives aggregate proceeds of
at least $1,000,000 from the sale of Cauldron or (b) upon demand. As additional
consideration in connection with the shareholder loans, the Company issued an
aggregate of 225,000 warrants to purchase Common Stock with an exercise price of
$1.00 per share. In conjunction with the signing of the Merger Agreement in
December 1996, a Note Exchange Agreement was entered into whereby two of these
three notes payable to shareholders will be exchanged for Vaxcel common stock
upon consummation of the Merger.
During the first half of 1996, the Company continued to attempt to raise
additional funds in a private offering. On February 29, 1996, the Company
received cash proceeds of $500,000 in a private placement of Common Stock to an
institutional investor. Under the terms of the purchase agreement, the Company
issued 500,000 shares of unregistered Common Stock at a price of $1.00 per
share, and a warrant to purchase 150,000 shares of unregistered Common Stock at
an exercise price of $1.00 per share.
Additionally, on February 29, 1996, the Company converted a $150,000 bridge loan
from a Preferred Shareholder and accrued interest thereon into 152,582 shares of
unregistered Common Stock and issued a warrant to purchase 45,775 shares of
Common Stock at an exercise price of $1.00 per share.
Simultaneously with the execution of the Merger Agreement, Zynaxis and CytRx
entered into a secured loan agreement to provide the Company with sufficient
funding for continued operations pending the Merger. The terms of the loan
agreement allow the Company to borrow up to $2,000,000 from CytRx between
December 1996 and the closing of the Merger. Proceeds from any amounts borrowed
are to be used to satisfy existing liabilities and to fund operations pending
the Merger. As of March 31, 1997, $1,175,000 had been advanced at a rate of
prime plus 2%. In January 1997, $200,000 of principal was repaid, resulting in a
principal balance of $975,000 at March 31, 1997.
The Company is subject to significant uncertainty and risk which could have a
severe impact upon the ability of the Company to continue as a going concern.
Zynaxis' independent accountants have included an explanatory paragraph in their
report covering Zynaxis' financial
13
<PAGE>
statements for the fiscal year ended December 31, 1996, expressing substantial
doubt about Zynaxis' ability to continue as a going concern.
The estimated effort, timing and resources necessary to develop the Zynaxis
vaccine delivery technologies into commercially viable products are difficult to
predict and will vary based on the products under development. Management
believes that the closest products to commercialization using the Zynaxis
technologies at present are the allergy products being developed by ALK.
Assuming continued successful development, it is possible that such allergy
products using the Zynaxis technologies may be commercialized in three to four
years. If pursued, the resources necessary to develop the allergy products using
the Zynaxis technologies will be borne by ALK, since under the terms of the ALK
development and licensing agreement, ALK is responsible for conducting all
development, regulatory submissions and marketing activities. Products using the
Zynaxis technologies other than the ALK allergy products will require additional
effort and resources to develop. For the poly-(DL-lactide-co-glycolide) ("PLG")
microencapsulation technology, development efforts may be undertaken to increase
the efficiency of uptake through the Peyer's Patches or increase the
immunogenicity of PLG-encapsulated vaccines. For the mucoadhesive technology,
development efforts may be undertaken to evaluate mucoadhesives with a variety
of different antigens in well-controlled preclinical studies. The objective for
both of these programs is to develop a data package on each Zynaxis technology
in order to secure licensing agreements with pharmaceutical or biotechnology
companies engaged in vaccine research and development. Under such licensing
agreements, partners would assume responsibility for product development,
regulatory approval and marketing. Consequently, the major expense of
commercializing products using the Zynaxis technologies will be borne by the
sublicensees. Given that such development programs are currently at the
preclinical stage, the process for a new vaccine from Phase I to
commercialization can take seven or more years. This timetable may be
significantly reduced if partners are using the Zynaxis technologies to
commercialize improved versions of existing vaccines such as influenza virus or
Hepatitis B vaccines. However, there can be no assurance that any partners will
be obtained.
Zynaxis is critically short of cash to fund its operations and had a working
capital deficit of $1,831,700 at March 31, 1997. The ability of the Company to
operate as a going concern beyond March 31, 1997 will depend on its ability to
complete the Merger with Vaxcel. There can be no assurance that the Company will
ultimately complete this transaction. Additionally, certain matters associated
with the transaction require the approval of shareholders at the Company's
special meeting of shareholders to be held in May 1997. If the Company is unable
to complete the transaction, if the shareholders fail to approve the Merger or
if certain conditions precedent to the closing of the Merger do not occur, the
Company will not be able to continue operations. No assurance can be provided as
to when or if all of the conditions precedent to the Merger can or will be
satisfied. If the Merger is not consummated, management believes that Zynaxis
likely will not be able to pay the outstanding balance under the secured loan
from CytRx when it comes due. If Zynaxis defaults, CytRx may exercise its rights
as a secured creditor with respect to certain assets of Zynaxis, including, but
not limited to, foreclosing on Zynaxis' rights in its vaccine delivery
technologies.
Should the Company determine that it is no longer in the best interest of its
shareholders to continue operations, the ability of the Company to fund an
orderly disposition of assets, pay off its then outstanding liabilities and
return any remaining cash to its shareholders will be limited by the amount of
working capital then on hand, if any.
14
<PAGE>
The Company's net cash from (used for) operations was $2,000 and ($712,200) for
the three months ended March 31, 1997 and 1996, respectively. The dramatic
change from 1996 to 1997 was due largely to the $525,000 cash payment received
from Phanos in January 1997 which was partially used to fund operations during
the first quarter of 1997.
The Company's net cash from investing activities was $23,500 and $94,300 for the
three months ended March 31, 1997 and 1996, respectively. The 1996 amount
resulted from the sale of short-term investments, and the 1997 amount resulted
from the sale of certain excess laboratory and office equipment.
The Company's net cash from (used for) investing activities was ($2,700) and
$493,900 for the three months ended March 31, 1997 and 1996, respectively. The
significant source of financing cash during the first quarter of 1996 resulted
from a private placement of $500,000 of Common Stock.
Results of Operations
- ---------------------
Revenues totaled $386,700 and $543,000 in the three months ended March 31, 1997
and 1996, respectively. Revenues by major source in each of these periods were
as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Collaborative revenue from ALK $ - $ 250,000
Other collaborative revenues 22,500 31,800
Government grant revenues 95,100 109,300
Contract revenues 269,100 151,900
-------------- ----------------
$ 386,700 $ 543,000
============== ================
</TABLE>
Collaborative revenue from ALK was a result of a development and licensing
agreement entered into between ALK and the Company in October 1995. The
agreement provided that Zynaxis would receive $1,000,000 over a twelve-month
period in four equal installments of $250,000. The first installment was
received in the fourth quarter of 1995 and the three remaining installments were
received within the first eight months of 1996. Other collaborative revenues
stem from research done on behalf of ALK, as well as a few other minor
collaborations.
Government grant revenues represent amounts earned pursuant to two SBIR grants
to develop the Company's Zyn-Linker/Heparin and Zyn-Linker/Taxol delivery
systems for the treatment of restenosis. At March 31, 1997, approximately
$115,000 remained to be billed under the terms of the Phase II SBIR grant to
develop Zyn-Linker/Heparin. The Zyn-Linker/Taxol grant expired in January 1997.
Contract revenues were from Cauldron process chemistry/pilot facility services
provided to pharmaceutical, biotechnology and chemical companies. These efforts
commenced in late 1995 and, with more aggressive marketing throughout 1996 and
1997, have resulted in increased revenues.
The Company's revenues have fluctuated in the past and are expected to continue
to fluctuate in the future. Zynaxis does not expect to generate any ALK
collaborative revenues in 1997. The Company expects to generate approximately
$115,000 in grant revenues during the remainder of 1997 based upon an existing
grant. There is no assurance that additional grants will be received.
15
<PAGE>
Contract revenues are dependent upon the Company's ability to continue to market
its process chemistry/pilot facility services.
Research and development expenses totaled $583,200 and $942,900 for the three
months ended March 31, 1997 and 1996, respectively. The significant decrease
resulted from the headcount reductions that occurred in September 1996, as well
as the overall cost reduction measures adopted by the Company during 1997 due to
its dire financial condition.
Marketing, general and administrative expenses totaled $453,000 and $513,000 for
the three months ended March 31, 1997 and 1996, respectively. Savings achieved
in the first quarter of 1997 due to reduced headcount, lower rent and reduced
consulting expenses were partially offset by higher legal and accounting costs
relating to the proposed Merger.
The Company recognized interest income of $12,900 and $16,000 during the three
months ended March 31, 1997 and 1996, respectively. The decrease was
attributable to the decreasing investment balance, partially offset by interest
imputed on the note receivable from Intracel Corporation.
The Company recognized interest expense of $14,800 and $6,800 during the three
months ended March 31, 1997 and 1996, respectively. The increase was due
primarily to the interest accrued on the note payable to CytRx.
Other income of $58,000 and $83,000 during the three months ended March 31, 1997
and 1996, respectively, resulted primarily from the subleasing of certain excess
space at the Company's Malvern facility. Although Zynaxis no longer has any
sub-tenant arrangements during 1997, there are certain costs associated with
shared services that are incurred by both Zynaxis and a tenant who occupies the
same building. Zynaxis bills this co-tenant for a proportionate share of these
costs, which totaled $30,000 during the first quarter of 1997. Zynaxis also
realized a gain of approximately $16,000 during the first three months of 1997
relating to the sale of excess laboratory and office equipment.
16
<PAGE>
Part II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
--------
The following is a list of exhibits filed as part of this Quarterly Report on
Form 10-Q:
------------------------------------------------------------------------------
10.1 Asset Purchase Agreement, dated as of March 21, 1997, between the
Registrant and ProClinical, Inc.
------------------------------------------------------------------------------
27 Financial Data Schedule.
------------------------------------------------------------------------------
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended March 31, 1997.
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZYNAXIS, INC.
--------------
(Registrant)
Date: May 14, 1997 By: \s\Martyn D. Greenacre
---------------- ---------------------
Martyn D. Greenacre
President and Chief Executive Officer
(Principal Executive Officer and Principal
Financial and Accounting Officer)
<PAGE>
Exhibit Index
-------------
- --------------------------------------------------------------------------------
Exhibit Description
------- -----------
- --------------------------------------------------------------------------------
10.1 Asset Purchase Agreement, dated as of March 21, 1997, between the
Registrant and ProClinical, Inc.
- --------------------------------------------------------------------------------
27 Financial Data Schedule.
- ------------- ------------------------------------------------------------------
<PAGE>
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") dated as of March 21,
1997, is made between ZYNAXIS, INC., a Pennsylvania corporation (the "SELLER"),
and PROCLINICAL, INC., a Pennsylvania corporation (the "PURCHASER").
The Seller has entered into an Agreement and Plan of Merger Contribution,
dated December 6, 1996, by and among the Seller, CytRx Corporation, Vaxcel, Inc.
("VAXCEL"), a Delaware corporation and a wholly-owned subsidiary of CytRx
Corporation, and Vaxcel Merger Subsidiary, Inc. ("VAXCEL MERGER SUB"), a Georgia
corporation and a newly-formed, wholly-owned subsidiary of Vaxcel, which
provides for the merger (the "MERGER") of Vaxcel Merger Sub with and into the
Seller, with the effect that the Seller, as the surviving corporation resulting
from the Merger, will be a wholly-owned subsidiary of Vaxcel.
The Seller operates a division known as the Cauldron Process Chemistry
Operations (the "CAULDRON DIVISION"). The Seller desires to sell to the
Purchaser, and the Purchaser desires to buy from the Seller, substantially all
of the assets, properties and rights of the Seller used in or related to the
Cauldron Division (the "ASSETS").
In consideration of the mutual covenants herein, and intending to be
legally bound hereby, the parties agree as follows:
Section 1. Sale and Purchase of the Assets:
1.1. Agreement to Sell. At the Closing (hereinafter defined), the Seller
shall sell, grant, convey, transfer, assign and deliver the Assets to the
Purchaser, upon the terms and subject to the conditions of this Agreement. The
Assets consist of all of the Seller's right, title and interest in and to the
following:
(a) All inventory owned by the Cauldron Division on the Closing Date;
(b) All furniture, fixtures, machinery and equipment of the Cauldron
Division as listed on Exhibit "A" hereto (the "FIXED ASSETS");
-----------
(c) All rights and privileges of the Cauldron Division under contracts
and open orders with its customers, including pre-paid orders, in existence on
the Closing Date, or in existence on the date hereof as set forth on Exhibit "B"
----------
hereto and not completed prior to the Closing (the "CONTRACTS");
(d) All rights and privileges of the Cauldron Division under the
leases, licenses, and agreements set forth on Exhibit "C" hereto. It is
-----------
understood that Seller will use commercially reasonable efforts prior to the
Closing Date to have the lessor of the UV-VIS system and plate reader
<PAGE>
terminate the existing single equipment lease for those two assets and reissue
two separate equipment leases for the two assets (since the UV-VIS system will
be part of the assets sold to Purchaser, while the plate reader shall be
retained by Seller). If Seller is unable to obtain separate equipment leases
for the two assets, Seller shall pay to Purchaser from and after the Closing
Date a monthly payment equal to a percentage of the monthly payment due under
the combined equipment lease that reflects the relative original value of the
plate reader compared to the UV-VIS system;
(e) All accounts receivable and customer deposits, if any, of the
Cauldron Division in existence as of the Closing, but only to the extent that
such receivables or deposits are for work that has not been performed by Seller
under the Contracts prior to the Closing;
(f) All of Seller's right, title and interest under the lease (the
"LEASE") dated August 30, 1988, between PMRA III, c/o PM Realty Advisors, a
California corporation, successors to Rouse & Associates, a Pennsylvania limited
partnership, ("LANDLORD") and Seller, as amended, for the facilities used by the
Cauldron Division (the "PREMISES"), a copy of which is attached hereto as
Exhibit "D". Seller represents and warrants to Purchaser that at the time of
- -----------
transfer of the Lease from Seller to Purchaser at Closing, Seller shall have
prepaid $250,000 of the basic rent under the Lease;
(g) All patents, trademarks, service marks, copyrights or applications
therefore, licenses, trade names, fictitious names, slogans, royalty agreements
and brand or private label names of which the Seller is the owner and which are
used by the Cauldron Division, as and to the extent set forth on Exhibit "E",
-----------
hereto, and all customer lists, correspondence files and records, customers,
files, production records, inventory records, software, hardware and firmware
and disks, data files or other media, goodwill, and other assets owned by Seller
and used by the Cauldron Division.
Attached hereto and incorporated herein as Exhibit "F" is a schedule (the
-----------
"BALANCE SHEET") on which is shown a condensed, summarized balance sheet of the
Cauldron Division as of February 28, 1997, the pro forma eliminations therefrom
to show the assets and liabilities of the Cauldron Division shown thereon which
are not subject to this Agreement, and the assets and liabilities of the Seller
shown thereon which are the subject of this Agreement. Seller agrees that it
will update the information set forth in the Balance Sheet and deliver a revised
Balance Sheet to Purchaser shortly before the Closing. It is understood,
however, that no change in the Balance Sheet shall affect the Purchase Price
(defined hereafter).
1.2. Agreement To Purchase. At the Closing, the Purchaser shall purchase
the Assets from the Seller, upon the terms and subject to the conditions of this
Agreement and in reliance upon the representations and warranties of the Seller
in this Agreement, and, as consideration therefore, shall: (a) pay to the Seller
as set forth in paragraph 2.1 the purchase price for the Assets; and (b) assume
and agree to pay or discharge promptly when due all of the Seller's liabilities
and obligations of any nature whatsoever under or pursuant to the Lease, the
Contracts and the Additional Contracts.
2
<PAGE>
Section 2. Purchase Price
2.1. The purchase price for the Assets (the "PURCHASE PRICE") shall be
Eight Hundred Thirty-Two Thousand Dollars ($832,000), which shall be paid as
follows:
(a) $50,000 on the date hereof, to be held in escrow until the Closing
by the Purchaser's counsel;
(b) $482,000 to Seller at the Closing, in immediately available funds;
and
(c) a promissory note (the "NOTE") payable to the Seller in the
original principal amount of $300,000 in substantially the form of Exhibit "G"
-----------
hereto.
2.2. Assumption of Liabilities. At the Closing, in addition to its other
obligations under this Agreement, the Purchaser shall assume and then be solely
liable and responsible for, and agree to pay, discharge and perform on a timely
basis, and hold Seller harmless and indemnify Seller from, all liabilities and
obligations of any nature whatsoever of the Cauldron Division arising under:
(i) the Lease, (ii) the Contracts; (iii) the Additional Contracts (as
hereinafter defined); and (iv) any orders for inventory placed by Seller between
the date of this Agreement and the Closing (to the extent Seller may not have
paid for such inventory by the Closing). Except for those liabilities recited
in the immediately preceding sentence, all liabilities and obligations of the
Cauldron Division, whether known or unknown, direct or contingent, in litigation
or threatened, or not yet ascertainable but attributable to Seller shall be
Seller's responsibility. Specifically excluded from the liabilities assumed by
Purchaser are any liabilities of the Seller with respect to any federal, state,
local or foreign income, franchise, or other tax imposed upon the Seller, any
obligation of the Seller for any employee grievance pending at the Closing Date,
any obligations of the Seller for the adjustment or payment for returned or
defective goods at any time shipped by the Seller except under the Contracts,
for all of which Seller shall remain responsible.
Section 3. Closing Procedures
3.1. Closing. The closing of the sale and purchase of the Assets (the
"CLOSING") shall be held as soon as practicable after all conditions to the
Closing set forth in Sections 7 and 8 hereto have been satisfied or waived, but
in any event, on or before May 31, 1997 (the "CLOSING DATE"), at the offices of
the Purchaser, 300 Kimberton Road, Phoenixville, Pennsylvania, or on any other
date and at such other place or places as the parties may mutually agree in
writing.
3.2. Transfer of the Assets. At the Closing, the Seller shall deliver to
the Purchaser the following:
(a) Such bills of sale, endorsements, assignments and other good and
sufficient instruments of conveyance and transfer, in form and substance
reasonably satisfactory to the
3
<PAGE>
Purchaser's counsel, as shall be effective to vest in the Purchaser all of the
Seller's right, title and interest in and to the Assets; and
(b) Evidence that all Contracts and Additional Contracts which cannot
be transferred effectively without the consent of third parties have received
such consent, or if such consent is unobtainable, an agreement reasonably
satisfactory to the Purchaser and its counsel assuring to the Purchaser the
benefits and obligations of such Contracts and Additional Contracts.
3.3. Purchase Price. At the Closing, the Purchaser shall pay to the Seller
the portion of the Purchase Price in accordance with Section 2 hereof and
deliver the Note.
3.4. Release of Liens. At or prior to the Closing, the Seller shall
deliver all necessary releases of liens and Uniform Commercial Code termination
statements in forms reasonably acceptable to the Purchaser's counsel so that the
Seller's title to the Assets is in conformity with paragraph 4.2 hereof.
Section 4. Representations and Warranties of the Seller
The Seller hereby represents and warrants to the Purchaser, intending for
the Purchaser to rely hereon, as of the date hereof as follows:
4.1. Organization and Good Standing. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
4.2. Title to the Properties. Seller owns, and has good and marketable
title to, or at the Closing date will own and have good and marketable title to,
all of the Assets, free and clear of all liens, pledges, mortgages, security
interests, leases, conditional sales contracts or other encumbrances or
conflicting claims of any nature whatsoever, for immaterial liens or
encumbrances that do not affect the use of the Assets by the Purchaser and
except as set forth in Exhibit "H" hereto.
-----------
4.3. Tax Matters. The Seller has filed or caused to be filed all federal,
state and local tax returns and reports of the Seller, through the taxable year
ending December 31, 1995 which are due and required to be filed and has paid or
caused to be paid all taxes due through December 31, 1995 and any assessment of
taxes received, except taxes or assessments that are being contested in good
faith. Seller has received no notice of, any pending or threatened proceeding
or claim by any governmental agency for assessment or collection of taxes from
the Seller. All such returns and reports have been prepared on the same basis
as that of previous years and in accordance with all applicable laws,
regulations and requirements, and accurately reflect the taxable income of the
Seller.
4
<PAGE>
4.4. Litigation. Except as disclosed in Exhibit "I" hereto:
-----------
(a) there is no dispute, claim, action, suit, proceeding, arbitration
or governmental investigation, either administrative or judicial, pending, or to
the knowledge of the Seller threatened, against the Seller, relating to the
Cauldron Division or the Assets; and
(b) the Seller is not in default with respect to any order, writ,
injunction or decree of any court or governmental department, commission, board,
bureau, agency or instrumentality, which involves the possibility of any
judgment or liability which may result in any material adverse change in the
financial condition of the Cauldron Division or the Assets.
4.5. Absence of Undisclosed Liabilities. There are no liabilities or
obligations accrued, absolute, contingent or otherwise, of the Cauldron Division
except as set forth in the Balance Sheet, as disclosed or referred to in this
Agreement or the Exhibits hereto or otherwise disclosed to the Seller, or as
incurred, consistent with past business practice, in the normal and ordinary
course of its business since the date of the Balance Sheet.
4.6. Financial Statements. The Seller has previously delivered to the
Purchaser the Cauldron Division balance sheet as of February 28, 1997, and a
statement of income for the year ended December 31, 1996 (collectively the
"PRIOR FINANCIAL STATEMENTS"). The Prior Financial Statements have been
prepared on an unaudited basis, in accordance with the books and records of the
Cauldron Division, and present fairly the financial position of the Cauldron
Division at February 28, 1997 and the results of operations for the year ended
December 31, 1996.
4.7. Absence of Certain Changes and Events. Since the date of the Balance
Sheet, except as set forth in Exhibit "J" attached hereto, there has not been:
-----------
(a) any material adverse change in the condition, financial or other, of the
Cauldron Division; (b) any damage, destruction or loss, whether covered by
insurance or not, materially adversely affecting the business of the Cauldron
Division or the Assets; (c) any claim of unfair labor practice or union
organizing activity involving the Seller's Cauldron Division; (d) any increase
in compensation payable or to become payable to any employee or amounts payable
under any bonus, insurance, pension or other benefit plan.
4.8. Additional Contracts. Except as disclosed in Exhibit "K" hereto or
-----------
elsewhere in this Agreement or the Exhibits attached hereto, the Cauldron
Division neither owns, has in existence, has any rights or interest in or to,
nor uses in its business:
(a) any employment agreement or arrangement, oral or written, with any
employee of the Cauldron Division, under which any amount will remain unpaid on
the Closing Date or become payable after the Closing Date;
(b) any lease pursuant to which the Cauldron Division leases personal
property to or from any person or entity;
5
<PAGE>
(c) any agreement or other arrangement under which the Cauldron
Division has agreed or is obligated to sell or supply products or perform any
services;
(d) any contract or commitment for the future purchase of, or payment
for, raw materials, supplies or products;
(e) any contract or commitment for any charitable contribution;
(f) any consulting, agency or representative contract to which the
Cauldron Division is a party or is otherwise bound;
(g) any commission program for salesmen, representatives or agents of
the Cauldron Division;
(h) any collective bargaining agreement of the Cauldron Division with
any labor union or other representative of employees; or
(i) any fictitious name utilized by the Cauldron Division.
The agreements, contracts or obligations listed on Exhibit "K" hereto are
-----------
referred to as "ADDITIONAL CONTRACTS."
4.9. Compliance With Laws. To the knowledge of the Seller, the Cauldron
Division has complied with and is not in default under, or in violation of, any
law, ordinance, rule, regulation or order (including, without limitation, any
environmental, zoning, safety, health or price or wage control law, ordinance,
rule, regulation or order) applicable to its operations, or business as
presently constituted, except where the failure to be in compliance with the
foregoing would not materially adversely affect or, so far as the Seller can now
foresee, in the future materially adversely affect, the business of the Cauldron
Division or the Assets.
4.10. Employee Benefit Plans. Exhibit "L" sets forth a true and
-----------
complete list of all pension, profit-sharing, stock bonus, stock option,
employment or severance agreements, deferred compensation plans, health, life,
accident or disability plans, and any other agreement, arrangement, commitment
or other employee benefit plan (including, but not limited to, "employee benefit
plans" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended and the regulations promulgated thereunder
("ERISA")) (the "BENEFIT PLANS") currently maintained with respect to the
Cauldron Division, or with respect to which the Seller has, or may in the future
have, any liability with respect to any current or former employee of the
Cauldron Division. Except as specifically set forth in Section 11, Purchaser is
not assuming any obligations of Seller under any such Benefit Plans.
6
<PAGE>
4.11. Authorization. The Seller has full corporate power and authority
to enter into this Agreement and, upon and subject to receipt of approval of
Seller's shareholders to sell all or substantially all the assets of the Seller,
to consummate the transactions on its part contemplated hereby. The execution
and delivery of this Agreement, and the sale, transfer, and other actions
contemplated hereby have been duly authorized by the board of directors of
Seller, and, except for the requirement to obtain shareholder approval and
required consents for assignment of the Contracts, Lease and the Additional
Contracts. This Agreement constitutes the legal, valid and binding obligation
of the Seller enforceable in accordance with its terms, and neither the
execution and delivery of this Agreement nor the consummation of the
transactions anticipated hereby by the Seller constitutes or will constitute a
violation or breach of (i) applicable law, (ii) the Seller's Articles of
Incorporation or By-laws, (iii) any contract or instrument to which the Seller
is a party or by which it is bound, or (iv) any order, writ, injunction, decree
or judgment applicable to Seller.
4.12. Employees. Exhibit "M" hereto is a true and complete list of the
-----------
names of all current Cauldron Division employees, with their annual compensation
and expected accrued vacation to March 31, 1997. Seller agrees that it will
update the information set forth on Exhibit M and deliver a revised Exhibit M to
Purchaser shortly before the Closing. It is understood, however, that no change
in the information set forth on Exhibit M shall affect the Purchase Price.
4.13. Inventories. A correct and complete summary of all inventory of
the Cauldron Division as of March 6, 1997 is set forth as Exhibit "N" hereto.
-----------
u
4.14. Product Warranties. Except as set forth in Exhibit "P" hereto
-----------
and except for warranties mandated by law, including implied warranties pursuant
to the Uniform Commercial Code of Pennsylvania, the Seller's Cauldron Division
has neither given nor made any oral, written or implied warranties or assurances
with respect to products to be distributed or sold pursuant to the Contracts.
4.15. Suppliers and Customers. Since the date of the Balance Sheet,
there has been no cancellation or modification in any material respect to the
major suppliers and customers of the Cauldron Division.
4.16. Environmental. (a) To the Seller's knowledge, no pollutants or
other toxic or hazardous substances, including any solid, liquid, gaseous or
thermal irritant or contaminant, such as smoke, vapor, soot, fumes, acids,
alkalis, chemicals or waste (including materials to be recycled, reconditioned
or reclaimed) (collectively "MATERIALS") have been discharged, dispersed,
released, stored, treated, generated, disposed of, or allowed to escape
(collectively referred to as the "INCIDENT") on or from the Premises or disposed
of by the Cauldron Division, in material violation of any federal, state or
local statute, law or regulation.
(b) To the Seller's knowledge, no asbestos or asbestos-containing
materials have been installed (and have not since been removed), used,
incorporated into, or disposed of on the Premises.
7
<PAGE>
(c) To the Seller's knowledge, no polychlorinated biphenyls ("PCBS")
are located on the Premises in the form of electrical transformers, fluorescent
light fixtures, cooling oils, or other devices in violation of any federal,
state or local statutes, laws or regulations.
(d) To the Seller's knowledge, no underground storage tanks are
located on the Premises or were located on the Premises and subsequently removed
or filled.
(e) To the Seller's knowledge, no investigation, administrative order,
consent order, agreement, litigation or settlement is proposed, or threatened,
or anticipated with respect to the Premises.
(f) To the Seller's knowledge, the Premises have at all times been in
substantial compliance with all federal, state and local statutes, laws and
regulations relating to the environment.
4.17. Disclosure. No representation or warranty by the Seller in this
Agreement contains any untrue statement of material fact or omits or will omit
to state any material fact necessary to make any statement herein and therein
not misleading.
Section 5. Representation and Warranties of the Purchaser
The Purchaser hereby warrants to the Seller, intending for the Seller to
rely hereon, as follows:
5.1. Organization and Good Standing. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
5.2. Authorization. The execution and delivery of this Agreement, and
other actions contemplated hereby, have been duly authorized by all requisite
corporate action on the part of Purchaser. The Purchaser has the corporate
power and authority to consummate the transaction on its part contemplated
hereby, including without limitation, issuance of the Note, none of which will
constitute any violation or breach of its Articles of Incorporation or By-Laws.
This Agreement and the Note constitute the legal, valid and binding obligations
of the Purchaser, enforceable in accordance with their respective terms.
8
<PAGE>
Section 6. Conduct Pending the Closing
The Seller hereby covenants and agrees that, pending the Closing and except
as otherwise agreed in writing by the Purchaser:
6.1. Conduct of Business. The Seller shall carry on the business of the
Cauldron Division diligently and substantially in the same manner as heretofore
and refrain from any action that would result in any material breach of any of
the representations, warranties or covenants of the Seller hereunder.
6.2. Access. The Purchaser and its authorized representatives shall have
full access during normal business hours upon prior arrangement with the Seller
to all books, records, contracts and documents of the Cauldron Division, as well
as to the Premises, and Seller shall furnish or cause to be furnished to the
Purchaser and its authorized representatives, all information with respect to
the Assets and the business of the Cauldron Division as the Purchaser may
reasonably request. In the event of a termination of this Agreement, all such
information shall remain confidential and shall not be used by the Purchaser,
its officers, directors, employees or agents, and all copies thereof shall be
returned to the Seller.
6.3. Contracts and Commitments; Liabilities. The Cauldron Division shall
not enter into any contract, commitment or transaction except in the ordinary
course of business and consistent with past practices. The Seller will not,
and will not agree to, create any indebtedness or any other fixed or contingent
liability in connection with its operation of the Cauldron Division or the
Assets including, without limitation, liability as a guarantor or otherwise with
respect to the obligations of others, other than that created or incurred: (i)
in the usual and ordinary course of the business of the Cauldron Division; or
(ii) pursuant to existing contracts to be assumed by Purchaser, which contracts
are disclosed in the Exhibits attached hereto.
6.4. Insurance. All present insurance insuring the Cauldron Division, its
employees and the Assets, will be maintained by the Seller.
6.5. Preservation of Organization and Employees. The Seller will use its
best efforts, to the extent deemed reasonable by the Seller given its current
financial condition, to preserve the business of the Cauldron Division intact,
to keep available its respective key officers and employees, and preserve the
present relationships of the Cauldron Division with its suppliers, customers,
referring sources and others having business relations with it. The Seller will
not increase the compensation payable or to become payable to the employees of
the Cauldron Division or otherwise offer contractual changes in the terms of
Seller's employment of such employees.
6.6. No Default. The Seller will not do anything to omit or do anything to
permit any act or omission to act, which will cause a material breach of the
Agreement.
9
<PAGE>
Section 7. Conditions Precedent to the Purchaser's Obligations
All obligations of the Purchaser under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions
unless otherwise waived in writing by the Purchaser:
7.1. Representations and Warranties. The Seller's representations and
warranties contained in this Agreement or in any list, certificate or document
delivered pursuant to the provisions hereof shall be true and correct in all
material respects.
7.2. Performance of Agreements. The Seller shall have performed and
complied in all material respects with all agreements and conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing.
7.3. Adverse Change. There shall not have been a material adverse change,
occurrence or casualty, financial or otherwise, relating to the Cauldron
Division whether covered by insurance or not.
7.4. Closing Deliveries. The Seller shall have delivered the bills of sale
and releases of liens referred to herein.
7.5. Closing Certificates. The Seller shall have delivered to the
Purchaser: (i) a certificate of the Secretary or Assistant Secretary of the
Seller certifying and attaching true and complete copies of the Articles of
Incorporation and By-laws of the Seller as the same are in force on the Closing
Date and of the resolutions adopted by the board of directors relating to this
Agreement and the transactions contemplated hereby, and certifying the
incumbency of the officers of the Seller executing this Agreement or any
documents delivered hereunder; and (ii) a certificate signed by the President of
the Seller, confirming to the best of his knowledge, satisfaction of the
conditions set forth in this Section 7.
7.6. No Litigation. There shall not be any pending (or to the knowledge of
the Seller threatened) action, proceeding or investigation by or before any
court, arbitrator, governmental body or agency which shall seek to restrain,
prohibit or invalidate the transactions contemplated hereby or which, if
adversely determined, would result in a breach of a representation, warranty or
covenant of either party herein.
7.7. Assignment of Lease. The Purchaser shall have obtained an assignment
of the Lease in a form reasonably satisfactory to Purchaser.
10
<PAGE>
Section 8. Conditions Precedent to the Seller's Obligations
All obligations of the Seller under this Agreement are subject to the
fulfillment, prior to or at the Closing, of the following conditions:
8.1. Representations and Warranties. The Purchaser's representations and
warranties contained in this Agreement shall be true and correct in all material
respects.
8.2. Performance of Agreements. The Purchaser shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing.
8.3. Closing Deliveries. The Purchaser shall have obtained its financing
as anticipated by the commitment letter therefore previously received by the
Purchaser (a copy of which is attached hereto as Exhibit "Q") and if received,
-----------
shall make payment of the purchase price as specified by this Agreement.
8.4. Closing Certificates. The Purchaser shall have delivered to the
Seller: (i) a certificate of the Secretary or Assistant Secretary of the
Purchaser certifying and attaching true and complete copies of the resolutions
of the board of directors of the Purchaser authorizing the execution and
delivery of this Agreement and the performance of the obligations of the
Purchaser hereunder; and (ii) a certificate of the President or Vice President
of the Purchaser confirming, to the best of his knowledge, satisfaction of the
conditions set forth in this Section 8.
8.5. No Litigation. There shall not be any pending or threatened action,
proceeding or investigation by or before any court, arbitrator, governmental
body or agency which shall seek to restrain, prohibit or invalidate the
transactions contemplated hereby or which, if adversely determined, would result
in a breach of a representation, warranty or covenant of either party herein.
8.6. Lease Agreement. The Lease shall have been assigned to the Purchaser,
the Seller shall have been released from all of its obligations under the Lease,
and the deposit held by the Landlord shall be returned to the Seller.
8.7. Shareholder Approval. The shareholders of the Seller shall have
approved the sale of substantially all the assets of the Seller.
8.8. Merger. The Merger shall have been consummated.
11
<PAGE>
Section 9. Fees and Expenses
9.1. Expenses of the Transaction. Each party hereto shall pay its own
expenses incidental to the preparation of this Agreement and the consummation of
the transactions contemplated hereby. Transfer taxes, if any, shall be split by
the parties.
Section 10. Indemnification
10.1. Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements made by the parties in this Agreement
or in any certificate delivered pursuant hereto shall survive the Closing for a
period of one year after Closing.
10.2. Indemnification by the Seller. Subject to Section 10.1, the
Seller shall defend, indemnify and hold the Purchaser, its successors and
assigns, harmless from and against: (a) any and all liabilities and obligations
of, or claims against, the Seller not expressly assumed by the Purchaser
hereunder and all claims, demands, liabilities, damages, losses and out-of-
pocket expenses including reasonable attorneys fees, whether or not reduced to
judgment, order or award, caused by the breach of any agreement or of any
representation or warranty made by the Seller in this Agreement or in any
exhibit, list, certificate or document delivered by it pursuant hereto.
10.3. Indemnification by the Purchaser. The Purchaser shall defend,
indemnify and hold the Seller harmless from and against: (a) the liabilities
and obligations assumed by the Purchaser pursuant to this Agreement; and (b) all
damages, losses and out-of-pocket expenses including reasonable attorneys fees,
caused by or arising out of the breach of any of the agreements or
representation or warranties made by the Purchaser in this Agreement or any
certificate or document delivered by it pursuant hereto.
10.4. Defense of Claims. Promptly after any service of process by any
third party in any litigation in respect of which indemnity may be sought from
the other party pursuant to Section 10, the party so served shall notify the
indemnifying party of the commencement of such litigation, and the indemnifying
party shall be entitled to assume the defense thereof at its expense with
counsel reasonably satisfactory to the indemnified party.
Section 11. Cauldron Division Employees
From and after the Closing Date, the Purchaser shall continue to employ all
employees of the Cauldron Division in substantially the same positions as held
by such individuals immediately prior to the Closing, but with the benefit
package offered by Purchaser to its current employees as in effect as on the
Closing Date, for a period of not less than ninety (90) days after the Closing;
provided, that nothing herein shall be deemed to prohibit the Purchaser from
discharging any of such employees for cause at any time or modifying any such
employment or benefit package after ninety
12
<PAGE>
(90) days from the Closing Date or from making after such 90-day period such
changes in pay, benefits and conditions of employment as the Purchaser, in its
sole discretion, may deem necessary or advisable. All such employees will
receive full credit from Purchaser for any unused vacation days or otherwise for
their amount of service with the Seller. The Purchaser shall have no liability
for, and the Seller shall defend, indemnify and hold the Purchaser harmless from
with respect to, any claims arising out of services prior to the Closing Date by
any persons employed prior to the Closing by the Seller. The Seller shall have
no liability for, and the Purchaser shall defend, indemnify and hold the Seller
harmless with respect, to any claims arising out of services on or after the
Closing Date or relating to or caused by termination of employment of any
persons on or after the Closing Date.
Section 12. Miscellaneous
12.1. Arbitration. If any dispute arises under or in connection with
this Agreement or the performance of enforcement thereof, it shall be decided
finally by three arbitrators in an arbitration proceeding conforming to the
Rules of the American Arbitration Association applicable to commercial
arbitration. The arbitrators shall be appointed as follows: one by the Seller,
one by the Purchaser, and the third by the said two arbitrators, or, if they
cannot agree, then the third arbitrator shall be appointed by the American
Arbitration Association. The third arbitrator shall be chairman of the panel
and the arbitration shall take place in Chester County, Pennsylvania. The
decision of a majority of the Arbitrators shall be conclusively binding upon the
parties, final and nonappealable, and such decision shall be enforceable as a
judgment in any court of competent jurisdiction. Each party shall pay the fees
and expenses of the arbitrator appointed by it, its counsel and its witnesses.
The parties shall share equally in the fees and expenses of the impartial
arbitrator.
12.2. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
12.3. Assignment. This Agreement shall not be assignable by either
party without the prior written approval of the other party; provided, however,
that Purchaser may assign its interest in this Agreement to its wholly-owned
subsidiary, Cauldron, Inc., as long as Purchaser unconditionally guarantees the
timely performance when due of all obligations of the Purchaser hereunder, such
guarantee to be in a form reasonably acceptable to the Seller. To the extent so
assignable, this Agreement shall be binding upon, and inure to the benefit of,
the Purchaser and its successors and assigns and the Seller and its successors
and assigns.
12.4. Headings for Reference Only. The section and paragraph headings
in this Agreement are for convenience of reference only and shall not be deemed
to modify or limit the provisions of this Agreement.
13
<PAGE>
12.5. Notices. Any notice, communication, demand or other writing (a
"notice") required or permitted to be given, made or accepted by any party to
this Agreement shall be given by personal delivery or by depositing the same in
the United States mail, properly addressed, postage prepaid and registered or
certified with return receipt requested. A notice given by personal delivery
shall be effective upon delivery and a notice given by registered or certified
mail shall be deemed effective on the second day after such deposit. For
purposes of notice, the addresses of the parties shall be, until changed by a
notice given in accordance herewith, as follows:
If to the Purchaser:
Proclinical, Inc., 300 Kimberton Road, Phoenixville, PA 19460
With a required copy to:
James C. Walker, Esquire, P.O. Box 259, Perkasie, PA 18944-0259
If to the Seller:
Zynaxis, Inc., 371 Phoenixville Pike, Malvern, PA 19355
With a required copy to:
Vaxcel, Inc., 154 Technology Parkway, Technology Park, Norcross, GA
30042.
12.6. Entire Agreement and Amendment. This document states the entire
agreement reached between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior or contemporaneous agreements,
understandings, representations and warranties between the parties, and may not
be amended except by written instrument executed by the duly authorized officers
of the parties hereto.
12.7. Termination of Agreement. Notwithstanding anything to the
contrary in this Agreement, if the Closing shall not have occurred by June 30,
1997, then either party shall have the right to terminate this Agreement by
delivery of notice to the other party, in which case the deposit monies paid by
Purchaser under this Agreement shall be promptly returned to Purchaser;
provided, however, that no party may terminate this Agreement if that party is
in default of any of its obligations to the other party under this Agreement.
12.8. Counterparts; Facsimile Delivery. This Agreement may be executed
and delivered in one or more counterparts, each of which shall be an original,
but all of which together shall constitute one and the same instrument. This
Agreement may also be executed and delivered by facsimile with the same force
and effect as if originally executed copies of this Agreement had been delivered
by the parties hereto. If this Agreement is executed and delivered in
counterparts or by facsimile, any party may thereafter require that both parties
originally execute and deliver a
14
<PAGE>
sufficient number of additional copies of this Agreement so that each party may
have two fully executed originals of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered on the day and year first above written.
ATTEST: ZYNAXIS, INC.
/s/ Michael A. Christie By:/s/ Martyn D. Greenacre
- ----------------------------- -------------------------------
Name: Michael A. Christie Martyn D. Greenacre, President
Title: Company Secretary
ATTEST: PROCLINICAL, INC.
/s/ Lawrence M. Brotzge By:/s/ Gary Casey
- ---------------------------- -----------------------------
Name: Lawrence M. Brotzge Gary Casey, President
Title:
15
<PAGE>
[THE FOLLOWING INFORMATION IS NOT A PART OF THIS EXHIBIT 10.1, BUT IS PROVIDED
SOLELY FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE COMMISSION.]
List of Exhibits to Asset Purchase Agreement
--------------------------------------------
Exhibit A List of Fixed Assets
Exhibit B List of Contracts and Open Orders
Exhibit C List of Rights and Privileges under Leases, Licenses and Agreements
Exhibit D Copy of Lease dated August 30, 1988, between PMRA III, c/o PM
Realty Advisors, a California corporation, successors to Rouse &
Associates, a Pennsylvania limited partnership, and Seller, as
amended, for the facilities used by the Cauldron Division
Exhibit E List of Patents, Trademarks, Service Marks, Copyrights,
Applications, Licenses, Trade Names, Fictitious Names, Slogans,
Royalty Agreements and Brand or Private Label Names
Exhibit F Pro Forma Balance Sheet
Exhibit G Form of Promissory Note Payable to Seller
Exhibit H List of Liens, Security Interests, Etc.
Exhibit I List of Legal Proceedings, Claims, Defaults, Etc.
Exhibit J List of Material Adverse Changes, Etc.
Exhibit K List of Additional Contracts
Exhibit L List of Employee Benefit Plans
Exhibit M List of Employees, Compensation and Accrued Vacation
Exhibit N List of Inventory
Exhibit P Warranties or Assurances in Contracts
Exhibit Q Commitment Letter for Purchaser Financing
THE REGISTRANT HEREBY AGREES TO FURNISH SUPPLEMENTALLY TO THE SECURITIES AND
EXCHANGE COMMISSION UPON REQUEST A COPY OF ANY OMITTED EXHIBIT TO THIS ASSET
PURCHASE AGREEMENT.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K AS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 147,281
<SECURITIES> 0
<RECEIVABLES> 250,638
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 459,602
<PP&E> 867,468
<DEPRECIATION> 840,805
<TOTAL-ASSETS> 1,368,211
<CURRENT-LIABILITIES> 2,291,399
<BONDS> 0
0
2,554,304
<COMMON> 103,771
<OTHER-SE> (3,637,990)
<TOTAL-LIABILITY-AND-EQUITY> 1,366,211
<SALES> 0
<TOTAL-REVENUES> 386,703
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 583,150
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,829
<INCOME-PRETAX> 126,927
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<INCOME-CONTINUING> 126,927
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 126,927
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
