Attached files
file | filename |
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8-K/A - FORM 8-K AMENDMENT - REPLIGEN CORP | d776292d8ka.htm |
EX-23.1 - EX-23.1 - REPLIGEN CORP | d776292dex231.htm |
EX-99.3 - EX-99.3 - REPLIGEN CORP | d776292dex993.htm |
EX-99.5 - EX-99.5 - REPLIGEN CORP | d776292dex995.htm |
Exhibit 99.4
REFINE TECHNOLOGY, LLC
Interim Consolidated Financial Statements
March 31, 2014
(Unaudited)
Refine Technology, LLC
Table of Contents
March 31, 2014
Interim Consolidated Financial Statements | Page(s) | |||
Unaudited Consolidated Balance Sheets |
1 | |||
Unaudited Consolidated Statements of Income and Members Equity |
2 | |||
Unaudited Consolidated Statements of Cash Flows |
3 | |||
Notes to Unaudited Interim Consolidated Financial Statements |
4-9 |
Refine Technology, LLC
Unaudited Consolidated Balance Sheets
March 31, 2014 | December 31, 2013 | |||||||
Assets |
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Current assets |
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Cash and cash equivalents |
$ | 2,430,618 | $ | 1,194,492 | ||||
Restricted cash |
| 50,058 | ||||||
Accounts receivable |
825,799 | 2,071,588 | ||||||
Other receivable |
375,000 | 386,003 | ||||||
Inventories, net |
1,118,892 | 835,287 | ||||||
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Total current assets |
4,750,309 | 4,537,428 | ||||||
Property and equipment, net |
364,709 | 250,642 | ||||||
Other assets |
14,956 | 9,965 | ||||||
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Total assets |
$ | 5,129,974 | $ | 4,798,035 | ||||
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Liabilities and Members Equity |
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Current liabilities |
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Accounts payable - trade |
$ | 840,373 | $ | 169,866 | ||||
Accrued expenses |
158,562 | 269,219 | ||||||
Deferred revenue |
312,290 | 69,123 | ||||||
Deferred rent |
20,716 | 17,562 | ||||||
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Total current liabilities |
1,331,941 | 525,770 | ||||||
Members equity |
3,798,033 | 4,272,265 | ||||||
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Total liabilities and members equity |
$ | 5,129,974 | $ | 4,798,035 | ||||
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The Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
1
Refine Technology, LLC
Unaudited Consolidated Statements of Income and Members Equity
For the Three Months Ended March 31, 2014 and 2013
2014 | 2013 | |||||||
Revenue |
$ | 1,662,493 | $ | 1,813,545 | ||||
Cost of revenue |
703,446 | 673,120 | ||||||
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Gross profit |
959,047 | 1,140,425 | ||||||
Selling, general, and administrative expense |
876,336 | 635,957 | ||||||
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Net income |
82,711 | 504,468 | ||||||
Members equity - beginning of period |
4,272,265 | 4,024,274 | ||||||
Members distribution |
(556,943 | ) | (779,070 | ) | ||||
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Members equity - end of period |
$ | 3,798,033 | $ | 3,749,672 | ||||
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The Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
2
Refine Technology, LLC
Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2014 and 2013
2014 | 2013 | |||||||
Cash flows from operating activities |
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Net income |
$ | 82,711 | $ | 504,468 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
18,403 | 18,216 | ||||||
(Increase) decrease in: |
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Restricted cash |
50,058 | | ||||||
Accounts receivable |
1,245,789 | 621,743 | ||||||
Other receivable |
11,003 | (79,354 | ) | |||||
Inventories, net |
(283,605 | ) | (155,640 | ) | ||||
Other assets |
(5,100 | ) | | |||||
Increase (decrease) in: |
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Accounts payable |
670,507 | 179,503 | ||||||
Accrued expenses |
(110,657 | ) | (93,193 | ) | ||||
Deferred revenue |
243,167 | 184,861 | ||||||
Deferred rent |
3,154 | (970 | ) | |||||
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Net cash provided by operating activities |
1,925,430 | 1,179,634 | ||||||
Cash flows from investing activities |
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Purchases of property and equipment |
(132,361 | ) | (4,115 | ) | ||||
Cash flows from financing activities |
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Member distributions |
(556,943 | ) | (779,070 | ) | ||||
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Net increase in cash and cash equivalents |
1,236,126 | 396,449 | ||||||
Cash and cash equivalents |
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Beginning of period |
1,194,492 | 1,353,749 | ||||||
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End of period |
$ | 2,430,618 | $ | 1,750,198 | ||||
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The Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
3
Refine Technology, LLC
Notes to Unaudited Interim Consolidated Financial Statements
March 31, 2014
1. | Nature of Operations, Principles and Basis of Presentation |
Refine Technology, LLC (the Company) was organized on June 27, 2003 as a limited liability company and currently operates from Pine Brook, New Jersey. There is one class of membership in the Company with each member having limited liability. The Company primarily manufactures and sells ATF systems worldwide (the bio-processing business). The ATF system is a cell retention device, which is primarily known for being able to routinely generate high cell concentrations.
The accompanying unaudited interim consolidated financial statements have been prepared on a consolidated basis and reflect the financial statements of Refine Technology, LLC and its wholly-owned subsidiary, Refine Technology Sales Asia PTE. LTD. in Singapore, formed in the quarter ended March 31, 2014. All intercompany balances and transactions have been eliminated in consolidation.
The unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information. Accordingly, they do not include all the information and footnotes required by US GAAP for annual financial statements and therefore should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2013.
The unaudited interim consolidated financial statements reflect all adjustments (of a normal and recurring nature) that management considers necessary for a fair presentation of such statements for the interim periods presented. The unaudited consolidated statements of income for the interim periods presented are not necessarily indicative of the results for the full year or for any subsequent period.
2. | Summary of Significant Accounting Policies |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Companys financial statements and accompanying notes. The Company bases its estimates and assumptions on historical experience and on various other assumptions that it believes are reasonable under the circumstances. Actual results could differ from those estimates. The amounts of assets and liabilities reported in the Companys consolidated balance sheets and revenues and expenses reported in the consolidated statements of income for the periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, allowance for doubtful accounts, reserve for inventory obsolescence, depreciation and amortization periods, and the warranty accrual.
Fair Value of Financial Instruments
The Companys financial assets and liabilities include cash, accounts receivable, accounts payable, deferred revenue, accrued expenses and other current liabilities. The carrying amounts of the Companys financial assets and liabilities approximate fair value because of the short maturity of these instruments.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company maintains cash balances in several financial institutions. Interest-bearing balances in U.S. Banks are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per institution. From time to time the Companys balances may exceed these limits.
4
Refine Technology, LLC
Notes to Unaudited Interim Consolidated Financial Statements
March 31, 2014
Restricted Cash
On December 12, 2013, the Company transferred $50,058 to a restricted cash account in Singapore for the purposes of establishing a wholly-owned subsidiary. On January 17, 2014, the Company incorporated a wholly-owned subsidiary, Refine Technology Sales Asia PTE. LTD., in Singapore. The restricted cash was transferred to the subsidiary as a capital contribution in March 2014. There was no activity in Singapore during the quarter ended March 31, 2014.
Accounts Receivable
Accounts receivable are recorded at net realizable value consisting of the carrying amount less the allowance for uncollectible accounts. The Company evaluates the collectability of its accounts receivable based on a combination of factors. When the Company is aware of circumstances that may impair a specific customers ability to meet its financial obligations, the Company records a specific allowance against amounts due. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are outstanding, the current business environment and its historical experience. The Company offers most customers 30-45 day terms. In special situations, the Company may offer extended terms or discounts to selected customers.
Accounts are considered past due when invoices become 30 days past the initial payment term. The Company generally does not record interest on past due accounts. Accounts are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. At March 31, 2014 and December 31, 2013, the Company determined that no reserve was deemed necessary.
Inventory
Inventory is stated at the lower of costs or market. Cost is determined generally by the weighted average cost using the first-in, first-out basis. Inventory consists of parts and assembled filtration system. The Company considers obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value and obsolescence reserves.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization.
Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable through an assessment of the estimated future undiscounted cash flows related to such assets. In the event that assets are found to be carried at amounts that are in excess of estimated undiscounted future cash flows, the carrying value of the related asset or group of assets is reduced to a level commensurate with fair value based on a discounted cash flow analysis. No impairment indicators were identified during the three months ended March 31, 2014 and 2013.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Amortization on leasehold improvements is computed using the straight-line method over the shorter of the assets estimated useful lives or the lease term.
The estimated useful lives used in determining depreciation are as follows:
Leasehold Improvements |
Life of the Lease | |||
Machinery and Equipment |
3-10 Years | |||
Furniture and Fixtures |
7 Years | |||
Software |
3 Years | |||
Demo Equipment |
5 Years |
5
Refine Technology, LLC
Notes to Unaudited Interim Consolidated Financial Statements
March 31, 2014
Deferred Revenue
Deferred revenue consists of payments received in advance of revenue being earned. Advances are recognized as revenue when earned, pursuant to the applicable revenue recognition principles for the specific type of revenue as disclosed in this Note 2.
Warranties
The Company provides parts and service warranties on its products. Liability under service and warranty policies is based upon review of historical warranty and claim experience. Adjustments are made to accruals based on actual claim data and historical experience. Management has recorded a warranty liability of approximately $43,000 at both March 31, 2014 and December 31, 2013 and is included in accrued expenses on the accompanying consolidated balance sheets.
Distribution Agreement
In 2012, the Company entered into a three year exclusive distribution agreement (the Agreement) with a vendor to sell certain vendor products to approved sub-distributors or the customers of the Company, for use with the Companys products, within a defined territory. This vendor is the exclusive supplier of certain products defined in the Agreement. In conjunction with the Agreement, the Company is eligible to receive specified credits that can be used to offset future purchases of this vendors products.
In 2012, the Company earned incentive credits totaling $308,000 and used approximately $222,000 of these credits to offset purchases from this vendor in 2013. The Company has approximately $86,000 of the credits earned in 2012 unused as of December 31, 2013. In 2013, the Company earned credits totaling approximately $300,000 which are available to offset 2014 purchases. Total unused credits available to the Company as of December 31, 2013 totaled $386,000. For the three months ended March 31, 2014, the Company earned approximately $75,000 of credits and used approximately $86,000 of credits. Total unused credits available to the Company as of March 31, 2014 totaled $375,000. These unused credits are recorded as the other receivable on the accompanying consolidated balance sheets. The earning of the incentive credits resulted in a decrease of costs of goods sold. The incentive credits expire one year from their date of issuance.
Revenue Recognition
The Company recognizes revenue on the date of the sale of its systems when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured.
Marketing Costs
Marketing costs are charged to operating expense as they are incurred. For the three months ended March 31, 2014 and 2013, marketing expenses were approximately $262,000 and $216,000, respectively and are included in selling, general and administrative expenses on the accompanying consolidated statements of income.
Shipping and Handling Costs
The Company includes freight, postage and other shipping costs in cost of sales. Billings for third party shipping and handling costs are included in revenues.
Research and Development Costs
Research and development costs are charged to operating expense as they are incurred. For the three months ended March 31, 2014 and 2013, research and development expenses were approximately $500 and $10,800, respectively, and are included in selling, general and administrative expenses on the accompanying consolidated statements of income.
Income Taxes
The Members of the Company have elected under the Internal Revenue Code to be taxed as a partnership whereby in lieu of partnership income taxes, the Members are taxed on their proportionate share of the Companys taxable income. Therefore, no provision or liability for income taxes has been included in these consolidated financial statements.
6
Refine Technology, LLC
Notes to Unaudited Interim Consolidated Financial Statements
March 31, 2014
ASC Topic 740 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company had no unrecognized tax benefits at March 31, 2014 and December 31, 2013. The Company files tax returns in the U.S. federal jurisdiction and various states. The Company has no open years. The Company did not recognize any income tax related interest or penalties for the period presented in these consolidated financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. By their nature, all such financial instruments involve risks including the credit risks of non-performance by counterparties. Trade accounts receivable are incurred pursuant to contractual terms with customers worldwide. Credit losses on accounts receivable have not been material because of a large concentration of revenues with a small number of large, established companies. The Company evaluates the creditworthiness of its clients in conjunction with its revenue recognition processes as well as through its ongoing collectability assessment processes for accounts receivable.
The Company transacts certain revenue transactions with international customers in foreign currencies, primarily in euros and Singapore dollars. Foreign exchange transaction gains and losses have been minimal during the three months ended March 31, 2014 and 2013. Revenues from international customers accounted for approximately 75% and 52% of total revenues for the three months ended March 31, 2014 and 2013, respectively. As of March 31, 2014 and December 31, 2013, accounts receivables from international customers accounted for approximately 59% and 33%, respectively, of the total accounts receivable balance.
The Company had three and two customers that accounted for approximately 46% and 50% of total revenue for the three months ended March 31, 2014 and 2013, respectively. These top customers represented approximately 38% and 23% of the Companys accounts receivables as of March 31, 2014 and December 31, 2013, respectively.
The Company had two vendors that accounted for approximately 35% and 42% of total purchases for the three months ended March 31, 2014 and 2013, respectively. Amounts due to these vendors represented approximately 34% and 45% of accounts payable at March 31, 2014 and December 31, 2013, respectively.
3. | Inventories, Net |
Inventories, net consisted of the following at March 31, 2014 and December 31, 2013:
2014 | 2013 | |||||||
Components |
$ | 983,747 | $ | 739,847 | ||||
Finished goods |
160,145 | 120,440 | ||||||
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Total inventory |
1,143,892 | 860,287 | ||||||
Inventory reserve |
(25,000 | ) | (25,000 | ) | ||||
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Total inventory, net |
$ | 1,118,892 | $ | 835,287 | ||||
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7
Refine Technology, LLC
Notes to Unaudited Interim Consolidated Financial Statements
March 31, 2014
4. | Property and Equipment, Net |
Property and equipment, net consisted of the following at March 31, 2014 and December 31, 2013:
2014 | 2013 | |||||||
Machinery and equipment |
$ | 459,443 | $ | 357,266 | ||||
Furniture and fixtures |
76,212 | 66,276 | ||||||
Leasehold improvements |
77,238 | 77,238 | ||||||
Software |
32,011 | 27,480 | ||||||
Demo equipment |
114,394 | 98,677 | ||||||
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Total cost |
759,298 | 626,937 | ||||||
Accumulated depreciation and amortization |
(394,589 | ) | (376,295 | ) | ||||
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Total property and equipment, net |
$ | 364,709 | $ | 250,642 | ||||
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Depreciation and amortization expense for the three months ended March 31, 2014 and 2013 was $18,403 and $18,216, respectively.
5. | Related Party Transactions |
The Company sells, promotes, and markets its products exclusively through Refine Technology Sales LLC, which is a related party via common ownership. Refine Technology Sales LLC operates for the sole purpose of selling the Companys products. The Company had the following transactions with this related party during the three months ended March 31, 2014 and 2013:
2014 | 2013 | |||||||
Selling, general, and administrative expenses |
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Paid to Refine Technology Sales LLC |
$ | 121,390 | $ | 85,426 | ||||
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The Company had the following due to this related party at March 31, 2014 and December 31, 2013:
2014 | 2013 | |||||||
Due to Refine Technology Sales LLC |
$ | 100,000 | $ | | ||||
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6. | Line of Credit |
The Company had a $1,100,000 demand line of credit agreement with PNC Bank at December 31, 2013. The line of credit is secured by substantially all Company assets and has an interest rate at the banks prime rate. The interest rate at December 31, 2013 was 3.25%. The line of credit matures on September 30, 2014, however, due to the sale of the Company in June 2014 (See Note 9), the line was closed. The line had no outstanding balance at March 31, 2014 and December 31, 2013 or during the periods then ended.
7. | Commitments and Contingencies |
Operating Lease
The Company leases office and warehouse space under a seven-year lease that expires April 30, 2017. Rent expense for the facility was approximately $34,000 and $20,000 for the three months ended March 31, 2014 and 2013, respectively.
On January 31, 2014, the Company entered into an agreement to lease additional warehouse space that expires April 30, 2017.
There has been no significant changes in the minimum lease payments since December 31, 2013.
8
Refine Technology, LLC
Notes to Unaudited Interim Consolidated Financial Statements
March 31, 2014
For leases with scheduled rent increases, the Company has recorded rent expense on a straight-line basis over the term of the lease. Deferred rent of $20,716 and $17,562 has been recorded at March 31, 2014 and December 31, 2013, respectively. This obligation represents the excess of rent expense over cash payments.
Put Agreement
In 2008, the Company entered into a put agreement with the 99% owner of Refine Technology Sales LLC. Pursuant to the put agreement, if the Company or one or more of its members accepts an offer that would result in a change in control, the Company would be obligated to purchase that interest in Refine Technology Sales LLC.
The put agreement states that the offer to purchase this interest will be calculated as 15% of the net proceeds, if the net proceeds are less than $15,000,000 and $2,250,000 plus 10% of net proceeds that exceed $15,000,000, if the net proceeds are greater than $15,000,000.
Due to the sale of the Company in June 2014 (see Note 9), the Company recorded the put liability due to the 99% owner of Refine Technology Sales LLC as of the purchase date.
Letter of Credit
In the ordinary course of business, the Company is required to post a letter of credit in support of performance under certain contracts. The letter of credit is issued by a bank and commits the issuer to pay specified amounts to the holder of the letter of credit if the holder claims that the Company has failed to perform contractually specified actions. If this were to occur, the Company would be required to reimburse the issuer of the letter of credit, which, depending upon the circumstances could result in a charge to earnings. As of December 31, 2013, the approximate amount of this letter was $331,000.
In February 2014, the Company obtained another letter of credit issued by a bank for approximately $225,000.
8. | Employee Benefit Plan |
The Company maintains an employee retirement plan pursuant to section 401(k) of the Internal Revenue Code. Employees are eligible to participate in the Companys 401(k) plan after one year of service. The 401(k) plan allows for voluntary elective deferrals of compensation up to 92% of taxable compensation. The Company makes matching contributions in an amount equal to the employees elective deferrals that do not exceed 1% of annual compensation, plus 50% of the elective deferrals that exceed 1% of annual compensation but do not exceed 6% of annual compensation. In addition, the 401(k) plan allows the Company to make a profit sharing contribution to the accounts of employees determined in accordance with a discretionary formula. The Company contributed approximately $13,000 and $14,000 to the plan as a match in the three months ended March 31, 2014 and 2013, respectively. There were no discretionary profit sharing contributions during the three months ended March 31, 2014 and 2013.
9. | Subsequent Events |
The Company evaluated subsequent events through August 14, 2014 which is the date the financial statements were available to be issued. Based upon this evaluation no events required disclosure in or adjustment to the financial statements, other than the following:
On June 2, 2014, the Company sold its bio-processing business to Repligen Corporation for approximately $25 million, subject to certain contingencies or holdbacks. The Company could earn additional proceeds if certain revenue targets are achieved through 2016. All bio-processing operations subsequent to the acquisition date are included in Repligens consolidated operations.
9