0001144204-14-038149.txt : 20140624 0001144204-14-038149.hdr.sgml : 20140624 20140617172001 ACCESSION NUMBER: 0001144204-14-038149 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20140401 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20140617 DATE AS OF CHANGE: 20140617 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CytoCore Inc CENTRAL INDEX KEY: 0000075439 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 364296006 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-00935 FILM NUMBER: 14926085 BUSINESS ADDRESS: STREET 1: 414 NORTH ORLEANS STREET STREET 2: SUITE 502 CITY: CHICAGO STATE: IL ZIP: 60610 BUSINESS PHONE: 4078490290 MAIL ADDRESS: STREET 1: 414 NORTH ORLEANS STREET STREET 2: SUITE 502 CITY: CHICAGO STATE: IL ZIP: 60610 FORMER COMPANY: FORMER CONFORMED NAME: MOLECULAR DIAGNOSTICS INC DATE OF NAME CHANGE: 20011009 FORMER COMPANY: FORMER CONFORMED NAME: AMPERSAND MEDICAL CORP DATE OF NAME CHANGE: 19990527 FORMER COMPANY: FORMER CONFORMED NAME: BELL NATIONAL CORP DATE OF NAME CHANGE: 19920703 8-K/A 1 v381421_8ka.htm AMENDMENT TO FORM 8-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

 

FORM 8-K/A

(Amendment No. 1)

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (date of earliest event reported): April 1, 2014

 

CYTOCORE, INC.

(Exact Name of Registrant as Specified in Charter)

 

Delaware 000-00935 36-4296006

(State or other Jurisdiction

of Incorporation or

Organization)

(Commission File

Number)

(I.R.S. Employer

Identification No.)

 

4203 SW 34th ST

Orlando, FL 32811

(Address of principal executive offices) (Zip Code)

 

(407) 996-9631

(Registrant's telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 

 

EXPLANATORY NOTE

 

On April 3, 2014, Cytocore, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Original Form 8-K”) reporting that it had completed the acquisition of all of the outstanding shares of Medite Enterprises, Inc. (“Medite”). This Amendment No. 1 on Form 8-K/A amends Item 9.01 of the Original Form 8-K to provide the required financial statements and pro forma financial information with respect to the acquisition of Medite.

 

ITEM 9.01 Financial Statements and Exhibits

 

(a)Financial Statements of Business Acquired.
(i)Attached hereto as Exhibit 99.1 and incorporated by reference herein are the following audited consolidated financial statements of Medite Enterprises, Inc. as and for the years ended December 31, 2013 and 2012

  

Independent Auditors’ Report
Balance Sheets
Statements of Operations
Statements of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements

 

(ii)Attached hereto as Exhibit 99.2 and incorporated by reference herein are the following unaudited consolidated financial statements of Medite Enterprises, Inc. as and for the three months ended March 31, 2014 and 2013.

 

Balance Sheets
Statements of Operations
Statements of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements

 

(b)Pro forma financial information

 

Attached hereto as Exhibit 99.3 and incorporated by reference herein are the following unaudited pro forma condensed consolidated financial statements of Medite Enterprises, Inc.

 

Balance Sheet as of March 31, 2014
Statements of Operations for the three months ended March 31, 2014
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

 

(d) Exhibits.

 

No.   Description
99.1   Audited Consolidated Financial Statements of Medite Enterprises, Inc. as and for the years ended December 31, 2013 and 2012
     
99.2   Unaudited Consolidated Financial Statements of Medite Enterprises, Inc. as and for the three months ended March 31, 2014 and 2013
     
99.3   Unaudited Pro Forma Condensed Consolidated Financial Statements of Medite Enterprises, Inc.

 

2
 

 

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 hereunto duly authorized.

 

  Cytocore, Inc.

 

Date:  June 17, 2014 By: /s/ Robert McCullough, Jr.
    Robert McCullough, Jr.
    Chief Financial Officer

 

3

 

EX-99.1 2 v381421_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1 

 

 

MEDITE ENTERPRISES INC. AND SUBSIDIARIES

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations and Comprehensive Income F-4
   
Consolidated Statements of Cash Flows F-5
   
Consolidated Statements of Stockholders’ Equity F-6
   
Notes to Consolidated Financial Statements F-7

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Medite Enterprise, Inc.

 

We have audited the accompanying consolidated balance sheets of Medite Enterprise, Inc. (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 2013 and 2012.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Medite Enterprise, Inc. as of December 31, 2013 and 2012 and the results of their operations and cash flows for the years ended December 31, 2013 and 2012, in conformity with U.S. generally accepted accounting principles.

 

/s/ L J Soldinger Associates, LLC

 

Deer Park, Illinois

June 17, 2014

 

F-2
 

 

MEDITE ENTERPRISE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

 

   December 31, 
   2013   2012 
Assets          
           
Current Assets:          
Cash  $75   $65 
Accounts receivable, net of allowance for doubtful accounts of $518 and $472 as of December 31, 2013 and 2012, respectively   1,594    1,383 
Inventories   3,953    3,265 
Prepaid expenses and other current assets   218    167 
Deferred tax assets   269    232 
Total current assets   6,109    5,112 
Property and equipment, net   1,867    1,963 
Shareholder receivables   -    101 
Other Assets   194    155 
Total assets  $8,170   $7,331 
           
Liabilities and Stockholders’ Equity          
           
Current Liabilities:          
Secured lines of credit  $2,535   $1,878 
Account payable   750    634 
Accrued expenses   486    471 
Current portion of long-term debt   204    207 
Total current liabilities   3,975    3,190 
Long term debt, net of current portion   1,571    1,740 
Total Liabilities   5,546    4.930 
           
Commitments and Contingencies          
           
Stockholders’ Equity :          
Common stock, $0.01 par value; 40,000 shares issued,  authorized and outstanding; at December 31, 2013 and 2012   -    - 
Additional paid-in capital   -    - 
Accumulated other comprehensive income (loss)   287    118 
Retained Earnings   2,337    2,283 
Total stockholders’ equity   2,624    2,401 
           
Total liabilities and stockholders’ equity  $8,170   $7,331 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3
 

 

MEDITE ENTERPRISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

 

   Year Ended December 31, 
   2013   2012 
         
Net Sales  $9,958   $9,555 
Operating Expenses          
Cost of revenues   5,932    5,744 
Research and development   934    905 
Selling, general and administrative   2,798    2,759 
           
Total cost and expenses  $9,664   $9,408 
Operating  Income (Loss)  $294   $147 
           
Other Expenses          
Interest expense   314    244 
Interest income   (48)   (104)
Non-operating expenses (income)   (45)   (37)
           
Total other expenses  $221   $103 
Income from operations before income taxes  $73   $44 
           
Income taxes (benefit)   19    9 
Net Income (loss)  $54   $35 
           
Statement of Comprehensive Income          
Net Income (loss)   54    35 
Other Comprehensive income (loss)          
Foreign currency translation adjustments   168    (54)
Comprehensive income (loss)   222    (19)
           
Pro Forma Earnings Per Share          
Net income (loss)   54    35 
Pro forma basic and diluted earnings per share   (0.00)   (0.00)
Pro forma weighted average basic and diluted shares outstanding   1,468,750,000    1,468,750,000 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4
 

 

MEDITE ENTERPRISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 

   Year Ended December 31, 
   2013   2012 
Cash Flows from Operating Activities:          
Net Income (loss)  $54   $35 
Adjustments to reconcile net income (loss) to cash (used in) provided by operations          
Depreciation and amortization   202    265 
Deferred taxes   (33)   (48)
Increase in allowance for doubtful accounts   25    136 
Changes in assets and liabilities:          
Accounts receivable   (166)   386 
Inventories   (557)   (640)
Prepaid expenses and other current assets   177    76 
Accounts payable and accrued liabilities   (106)   (119)
Net cash (used in) provided by operating activities   (404)   91 
           
Cash Flows from Investing activity:          
Purchase of Equipment   (95)   (177)
Net cash provided from (used in) investing activities   (95)   (177)
           
Cash Flows from Financing activities:          
Advances net of repayments on lines of credit   644    565 
Term note repayments   (210)   (244)
Distributions   -    (234)
Net cash provided by (used by) financing activities   434    87 
           
Effect of exchange rates on cash and cash equivalents   75    6 
Net increase  in cash and cash equivalents   10    7 
Cash and cash equivalents at beginning of year   65    58 
           
Cash and cash equivalents at end of year  $75   $65 
           
Cash paid for income taxes   -    43 
Cash paid for interest   314    244 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5
 

 

MEDITE ENTERPRISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(Dollars in thousands)

 

   Common Stock   Additional       Accumulated
Other
   Total 
   Outstanding   Par   Paid-in   Retained   Comprehensive   Stockholders 
   Shares   Value   Capital   Earnings   Income   Equity 
                         
December 31, 2011 Balance   40,000   $-    -    2,515    172    2,687 
                               
Distribution                  (267)        (267)
Other comprehensive income                       (54)   (54)
Net Income (loss)                  35         35 
                               
December 31, 2012   40,000   $-    -    2,283    118    2,401 
                               
Net assets and liabilities of Medite Enterprise, Inc.        -    -    -    -    - 
Other comprehensive income                       169    169 
Net Income (loss)                  54    -    54 
                               
December 31, 2013   40,000   $-         2,337    287    2,624 

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-6
 

 

1. Organization and Summary of Significant Accounting Policies

 

Medite Enterprise, Inc. is a Florda Corporation engaged in the the business of cancer diagnosis and prevention, particularly within histology (processing of tissue samples) and cytology (processing of cellular material). The Company is active in the development, manufacture and marketing of a wide product range within the histology market.

 

These statements include the accounts of Medite Enterprise, Inc. (the “Company”, “we” and “us”) and its wholly owned subsidiaries, which consists of Medite GmbH, Burgdorf, Germany, Medite GmbH, Salzburg, Austria, Medite Lab Solutions Inc. (formerly Medite Inc.), Orlando, USA, and CytoGlobe, GmbH, Burgdorf, Germany

 

Medite Enterprise, Inc. was formed in September 2013, and whose purpose was to re-domicile the company in the United States from Germany. In December 2013, the shareholders of Medite GmbH, Burgdorf, the former parent, contributed 100% of the issued and outstanding stock of Medite GmbH, Burgdorf to Medite Enterprise, Inc. in exchange for all of the issued and outstanding shares of Medite Enterprise, Inc. While the Company was the legal acquirer, Medite GmbH, Burgdorf was treated as the accounting acquirer and the transaction was treated as a recapitalization, as at the time the Company had only nominal assets and liabilities, and had no operations of its own. As a result, at the closing, the historical financial statements of Medite GmbH, Burgdorf became those of Medite Enterprise, Inc. This has resulted in the Company’s consolidated statement of stockholders equity and related consolidated balance sheet sections being revised to reflect the recapitalization of Medite Enterprise, Inc. and the resulting retroactive presentation of the issuance of 40,000 shares that recapitalized Medite Enterprise, Inc.

 

In April 2014, the shareholders of the Company consummated a transaction in which 100% of the issued and outstanding shares of the Company were acquired by CytoCore, Inc. in exchange for the issuance by CytoCore, Inc. of 1,468,750,000 shares of its common stock to the shareholders of the Company. The result of this transaction was for the Company and its wholly owned subsidiaries to become wholly owned subsidiaries of CytoCore, Inc., a US public company. In addition, the shareholders of the Company became the majority owners of CytoCore, Inc., which will result in the transaction being accounted for as a reverse merger, in which the financial statements of the Company will become those of CytoCore, Inc.

 

Consolidation, Basis of Presentation and Significant Estimates

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions are eliminated. In preparing the accompanying financial statements, management has made certain estimates and assumptions that affect reported amounts in the financial statements and disclosures of contingencies. Significant assumptions are required in the valuation of the allowance for doubtful accounts and inventory overhead allocations. Significant assumptions also are required in the Company’s estimation of warranty reserves. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.

 

Revenue Recognition

 

The Company derives its revenue primarily from the sale of medical products and supplies for the diagnosis and prevention of cancer. Product revenue is recognized when all four of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products has occurred; (3) the selling price of the product is fixed or determinable; and (4) collectability is reasonably assured. The Company generates the majority of its revenue from the sale of inventory. The Company recognizes revenue when title and risk of loss transfer to the customer and all other revenue recognition criteria have been met. For a small subset of sales in Germany, the Company and its customers agree in the sales contract that risk of loss and title transfer upon the Company packing the items for shipment and notifying the Customer that their items are ready for pickup. The Company records such sales at time of completed packaging and segregation of the items from general inventory and notification has been confirmed by the customer.

 

Cash and Cash Equivalents

 

The Company considers all cash on deposit and highly-liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents.

 

F-7
 

 

Accounts Receivable

 

The Company generates accounts receivable from the sale of its products. The Company provides for a reserve against receivables for estimated losses that may result from a customer's inability or unwillingness to pay. The allowance for doubtful accounts is estimated primarily based upon historical write-off percentages, known problem accounts, and current economic conditions. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are not collectable. Recoveries of previously written-off accounts are recorded when collected.

 

Inventories

 

Inventories are stated at the lower of cost or market. Market, which represents selling price less cost to sell, considers general market and economic conditions, periodic reviews of current profitability and product warranty costs. Work in process and supplies of consumables are reviewed to determine if inventory quantities are in excess of forecasted usage or if they have become obsolete.

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets as follows:

 

Buildings   33 yrs
Machinery and equipment   3-10yrs
Office furniture and equipment   2-10 yrs
Vehicles   5 yrs
Computer equipment   3-5 yrs

 

Normal maintenance and repairs for equipment are charged to expense as incurred, while significant improvements are capitalized.

 

Research and Development

 

All research and development costs are expensed as incurred. Research and development costs consist of engineering, product development, testing, developing and validating the manufacturing process, and regulatory related costs.

 

Impairment or Disposal of Long-Lived Assets, Including Finite-Lived Intangible Assets

 

At each balance sheet date or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, management of the Company evaluates the recoverability of such assets. An impairment loss is recognized if the amount of undiscounted cash flows is less than the carrying amount of the asset, in which case the asset is written down to fair value. The fair value of the asset is measured by either quoted market prices or the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved.

 

Foreign Currency Translation

 

The U.S. dollar and the Euro are our functional currencies for our operations. All monetary assets and liabilities denominated in foreign currency are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date and the resulting unrealized translation gains or losses are reflected in operations. Non-monetary assets are translated at historical exchange rates. Revenue and expense items are translated at the average rate of exchange for the year.

 

F-8
 

 

Income Taxes

 

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of currently due plus deferred taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting carrying amounts and the respective tax bases of assets and liabilities, and are measured using tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Valuation allowances are provided against deferred tax assets if it is more likely than not that the deferred tax assets will not be realized.

 

The Company follows the guidance of FASB ASC 740-10 which relates to the Accounting for Uncertainty in Income Taxes, which seeks to reduce the diversity in practice associated with the accounting and reporting for uncertainty in income tax positions. This interpretation prescribes a comprehensive model for financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.

 

Pro Forma Financial Information

 

As discussed in Note 1, in April 2014, the Company was acquired by CytoCore, Inc., a US public company. Upon closing of the Merger, the financial statements of the Company became those of CytoCore, Inc. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin Number 1B.2 "Pro Forma Financial Statements and Earnings per Share" ("SAB 1B.2"), pro forma earnings per share information on the face of the statement of operations has been presented which reflects the impact of the Company's change in capital structure as if it had occurred at the commencement of operations on January 1, 2012.

 

Recent Accounting Pronouncements

 

The Financial Accounting Standards Board (the “FASB”) provided guidance that simplifies how an entity tests indefinite-lived intangibles for impairment. The amended guidance allows companies to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. This update became effective for annual and interim reporting periods for fiscal years beginning after December 15, 2012 for public companies and for fiscal years beginning after December 15, 2013.

 

The FASB updated guidance related to additional reporting and disclosure of amounts reclassified out of accumulated other comprehensive income (AOCI). Under this new guidance, companies are required to disclose the effect of significant reclassifications out of AOCI on the respective line items on the income statement if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional details about those amounts. This update became effective for annual and interim reporting periods for fiscal years beginning after December 15, 2012 for public companies and after December 15, 2013 for private enterprises.

 

The Company has chosen to qualify as an Emerging Growth Company (“EGC”) and use the deferral provisions under Securities Act Section 7(a)(2)(B) and therefore does not expect to adopt the guidance from new accounting policies issued with effective dates after April 2012 until such time as the earlier of when they become applicable to private enterprises or the Company no longer qualifies as an EGC. We therefore expect to adopt these policies in 2014 and do not expect them to have a material impact on our results or financial position.

 

2. Inventories

 

The following is a summary of the components of inventories (in thousands):

 

   December 31, 
   2013   2012 
Raw materials  $1,748   $1,403 
Work in progress   137    9 
Finished Goods   2,068    1,853 
   $3,953   $3,265 

 

No amounts were reserved for scrap or obsolete inventory as of December 31, 2013 and 2012, respectively.

 

F-9
 

 

3. Property and Equipment

 

The following is a summary of the components of property and equipment as of December 31 (in thousands):

 

   2013   2012 
Land  $244   $244 
Buildings   1,352    1,349 
Machinery and equipment   407    469 
Office furniture and equipment   240    245 
Vehicles   39    72 
Computer equipment   86    86 
Construction in progress   386    311 
Less: Accumulated depreciation   (887)   (813)
   $1,867   $1,963 

 

Depreciation expense amounted to approximately $186,000 and $243,000 for the years ended December 31, 2013 and 2012, respectively and is included in the cost of revenues line item on the statement of operations.

 

4. Accrued Liabilities

 

Accrued liabilities consist of the following:  

 

   December 31, 
   2013   2012 
Accrued taxes and withholdings  $211   $181 
Accrued warranty reserve   98    91 
Accrued wages   57    115 
Accrued other   120    84 
           
   $486   $471 

 

5. Debt and Line of Credit

 

Our outstanding indebtedness was as follows as of December 31 (in thousands):

 

   2013   2012 
Hannoversech Volksbank Credit line #1  $759   $506 
Hannoversech Volksbank Credit line #2   1,333    1,057 
Hannoversech Volksbank Credit line #3   444    315 
Hannoversech Volksbank term loan #1   211    288 
Hannoversech Volksbank term loan #2   138    199 
Hannoversech Volksbank term loan #3   393    470 
Participation rights   1,032    990 
   $4,310   $3,825 

 

F-10
 

 

In July 2006, Medite GmbH, Burgdorf, entered into a line of credit agreement with Hannoversche Volksbank. The line of credit granted a maximum borrowing authority of 400,000 euros, which was amended in 2012 to increase the maximum borrowing to 600,000 euros with a variable interest rate of 8% per annum as of December 31, 2013. The line of credit has no stated maturity date but may be cancelled by the bank upon notice to the Company. The line of credit is collateralized by the accounts receivable and inventory of Medite GmbH, Burgdorf and is guaranteed by the shareholders of the Company.

 

In July 2006, Medite GmbH, Burgdorf, entered into a secondary line of credit agreement with Hannoversche Volksbank. The line of credit granted a maximum borrowing authority of 480,000 euros, which was later amended to increase the maximum borrowing to 1 million euros with a variable interest rate of approximately 3.98% as of December 31, 2013. The line of credit has no stated maturity date but may be cancelled by the bank upon notice to the Company. The line of credit is guaranteed by the shareholders of the Company and a mortgage on the property of the Company. In addition, the shareholders have named the bank as beneficiary on a term life insurance policy on each shareholder in the amount of 500,000 euros.

 

In June 2012, CytoGlobe, GmbH, Burgdorf, entered into a line of credit agreement with Hannoversche Volksbank. The line of credit granted a maximum borrowing authority of 400,000 euros. The credit line is split into two tranches for interest rate purposes, with the first 200,000 euro tranche at a variable rate of approximately 4% per annum at December 31, 2013 and the second 200,000 euro tranche at 8% per annum. The line of credit has no stated maturity date but may be cancelled by the bank upon notice to the Company. The line of credit is collateralized by the accounts receivable and inventory of CytoGlobe GmbH, Burgdorf and is guaranteed by the shareholders of the Company.

 

In December 2006, Medite GmbH, Burgdorf, entered into a 500,000 euro term loan agreement with Hannoversche Volksbank with an interest rate of 3.4% per annum. The term loan has a maturity of September 2016 and requires semi-annual principal payments of approximately 27,780 euros each. The term loan is guaranteed by the stockholders of the Company and also a mortgage on the property of the Company.

 

In June 2006, Medite GmbH, Burgdorf, entered into a 400,000 euro term loan with Hannoversche Volksbank with an interest rate of 3.6 per annum. The term loan has a maturity of June 2016, requires 18 semi-annual principal repayments of approximately 22,220 euro each. The term loan is guaranteed by the stockolders of the Company and also has subordinated assignments of all of the receivables and inventories of Medite GmbH, Burgdorf and also has a subordinated pledge of stockholder term life insurance policies.

 

In November 2008, Medite GmbH, Burgdorf, entered into a 400,000 euro term loan with Hannoversche Volksbank with a variable interest rate of approximately 4.7% per annum as of December 31, 2013. The term loan has a maturity of December 31, 2018, and requires quarterly principal repayments of 13,890 euro each. The term loan is guaranteed by the stockholders of the Company and also includes a partial subordinated pledge of the receivables and inventory of Medite GmbH, Burgdorf.

 

In March 2009, the Company entered into a participation rights agreement in the form of a debenture which a mezzanine lender agreed to advance the Company up to 1.5 million euros in two tranches of 750,000 euros each. The first tranche was paid to the Company at closing with the second tranche being conditioned on Medite GmbH, Burgdorf and its subsidiaries hitting certain performance targets. Those targets were not met and the second tranche was never disbursed. The debenture pays interest at the rate of 12.15% per annum and matures in 2016.

 

F-11
 

 

The following table summarizes the maturities of the Company’s outstanding indebtedness, at December 31, 2013 over the following five years:

 

2014  $2,739 
2015   204 
2016   1,209 
2017   79 
2018 and beyond   79 
   $4,310 

 

6. Income Taxes

 

The income tax expense (benefit) consisted of the following (in thousands):

 

   Years Ended December 31, 
   2013   2012 
         
Total current  $51   $55 
Total deferred   (32)   (46)
Total expense (benefit)  $19   $9 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

 

The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax benefit (in thousands):

 

   Years Ended December 31, 
   2013   2012 
Federal statutory rate   19    7 
State taxes, net of federal benefit   -    2 
Research and development credits   -    - 
Equity related expenses   -    - 
Change in valuation allowance   -    - 
           
Total income tax expense   19    9 

 

F-12
 

 

Significant components of the Company’s deferred tax assets were as follows (in thousands):

 

   December 31, 
   2013   2012 
Deferred tax assets:          
Net operating loss carryforwards  $129   $129 
Accounts receivable and allowance timing differences   156    117 
Total deferred tax assets   285    246 
Deferred tax liabilities:          
Inventory adjustments   (16)   (14)
Total deferred tax liabilities   (16)   (14)
Net deferred tax assets   269    232 
Less valuation allowance   -    - 
Net deferred tax assets (liabilities)  $269   $232 

 

At December 31, 2013 and 2012, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $0.368 million and $0.366 million, respectively from its US subsidiary. The federal and state net operating loss carryforwards will expire from 2027 to 2033, unless previously utilized and could be severly limited under the requirements of Section 382 of the internal revenue code of the United States, because of the change in control of the Company (see Notes 1 and 9).

 

During the years ended December 31, 2013 and 2012, the Company recognized no amounts related to tax interest or penalties related to uncertain tax positions. The Company is subject to taxation in the United States and various state jurisdictions. The Company currently has no years under examination by any jurisdiction.

 

7. Commitments and Contingencies

 

The Company currently leases warehouse space in Germany under a month to month operating lease with a monthly rental fee of 4,000 euro. The Company currently has 12 vehicles it leases for delivery and other purposes with expirations ranging from April 2014 through August 2015. In July 2013, the Company entered into a lease agreement for administrative office and warehouse space. The lease has a term of 5 years and requires minimum monthly rental payments starting at $2,277 per month increasing to $2,563 per month in year 5. No amounts were recorded for deferred rent for the rent escalation clauses as they were immaterial in 2013. In total the leases require minimum monthly rental payments of approximately 5,100 euros. Total rent expense for the years ended December 31, 2013 and 2012 was approximately $210,000 and $204,000, respectively.

 

F-13
 

 

The following table summarizes future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2013 (in thousands):

 

Years ending December 31:     
2014  $53 
2015   39 
2016   25 
2017   25 
2018   18 
Thereafter   - 
Total minimum lease payments  $160 

 

The Company is currently in the process of obtaining default judgments against a number of customers who have defaulted on repayment on their outstanding invoices and the purchaser of a former subsidiary for non-payment. The total amount currently awaiting default judgments is approximately 428,000 euros. While the Company believes that it may recover substantially all of the amounts outstanding through the enforcement of the judgments, it currently has included reserves for 100% of the amounts owed as of December 31, 2012 and 2013 due to the difficulty of enforcement of any judgments obtained, especially across international borders.

 

8. Segment and Geographical Information

 

The Company operates in one operating segment. However, the Company has assets and operations in the United States and Germany. The following table shows the breakdown of our operations and assets by Country (in thousands):

 

   United States   Germany 
   2013   2012   2013   2012 
                 
Total Assets  $811   $700   $7,359   $6,631 
Property & equipment, net   17    21    1,850    1,942 
Revenues   673    612    9,285    8,943 
Net income   (20)   (33)   74    68 

 

9. Subsequent Events

 

On January 11, 2014, the Company’s shareholders entered into a Stock Purchase Agreement (the “Purchase Agreement”) with CytoCore, Inc., a Delaware corporation (“CytoCore”). Pursuant to the Agreement, CytoCore agreed to acquire 100% of the issued and outstanding capital stock of the Company from the shareholders in exchange for the issuance of up to 1,500,000,000 shares of the CytoCore’s common stock (the “Shares”) to the shareholders. The Purchase Agreement also provides that the shareholders will indemnify the Company for certain losses during the one year period following the closing. In connection with such indemnification rights, the Agreement provides that 375,000,000 of the Shares will be deposited with the Company and held for a period of 12 months to cover certain indemnification claims that the Company may have against the Shareholders.

 

F-14
 

 

Closing of the acquisition of Medite was conditioned upon: (i) the completion of a private placement transaction resulting in gross cash proceeds to the Company of $2.5 million (the “Private Placement”), and (ii) the conversion of certain accrued wages of the Company into shares of the Company’s common stock. In addition, as of the closing, there shall be no more than 1,875,000,000 shares of the Company’s common exclusive of any shares of the Company’s common stock issued in connection with the Private Placement.

 

On April 3, 2014, pursuant to the terms and conditions of the Purchase Agreement, as amended to date, CytoCore acquired 100% of the issued and outstanding capital stock of the Company in exchange for the issuance of up to 1,500,000,000 shares of the Company’s common stock to the Shareholders, of which 1,468,750,000 shares were issued upon the closing of the Acquisition. Concurrent with the closing, CytoCore closed on a private placement and received gross proceeds of approximately $1.529 million and subsequently, in May and June 2014, received additional gross proceeds of approximately $261,000. 

 

F-15

EX-99.2 3 v381421_ex99-2.htm EXHIBIT 99.2

 

Exhibit 99.2

 

 

MEDITE ENTERPRISES INC. AND SUBSIDIARIES

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
   
Unaudited Condensed Consolidated Balance Sheets F-2
   
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income F-3
   
Unaudited Condensed Consolidated Statements of Cash Flows F-4
   
Notes to Unaudited Condensed Consolidated Financial Statements F-5

 

F-1
 

 

MEDITE ENTERPRISE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

 

   March 31,   December 31 
   2014   2013 
Assets       * 
           
Current Assets:          
Cash  $42   $75 
Accounts receivable, net of allowance for doubtful accounts   1,366    1,594 
Inventories   4,327    3,953 
Prepaid expenses and other current assets   300    487 
Total current assets   6,035    6,109 
Property and equipment, net   1,968    1,867 
Other Assets   345    194 
Total assets  $8,348   $8,170 
           
Liabilities and Stockholders’ Equity          
           
Current Liabilities:          
Secured lines of credit and current portion of long-term debt  $2,922   $2,739 
Account payable and accrued expenses   1,047    1,236 
Total current liabilities   3,969    3,975 
Long term debt, net of current portion   1,536    1,571 
         Total Liabilities   5,505    5,546 
           
Commitments and Contingencies          
           
Stockholders’ Equity :          
Common stock, $0.01 par value; 40,000 shares issued,  authorized and outstanding; at March 31, 2014 and December 31, 2013   -    - 
Additional paid-in capital   -    - 
Accumulated other comprehensive income (loss)   287    287 
Retained Earnings   2,556    2,337 
Total stockholders’ equity   2,843    2,624 
           
Total liabilities and stockholders’ equity  $8,348   $8,170 

*Derived from audited information

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-2
 

 

MEDITE ENTERPRISE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

 

   Three Months Ended March 31, 
   2014   2013 
         
Net Sales  $2,734    1,814 
Operating Expenses          
Cost of revenues   1,536    1,078 
Research and development   199    184 
Selling, general and administrative   629    582 
           
Total cost and expenses  $2,364    1,844 
           
Operating  Income (Loss)  $370    (30)
           
Other Expenses          
Interest expense   75    63 
Non-operating expenses (income)   29    25 
           
Total other expenses  $104    88 
Income (loss )from operations before income taxes  $266    (118)
           
Income taxes (benefit)   47    27 
Net Income (loss)  $219    (145)
           
Statement of Comprehensive Income          
Net Income (loss)   219    (145)
Other Comprehensive income (loss)          
Foreign currency translation adjustments   -    - 
Comprehensive income (loss)   219    (145)
           
Pro Forma Earnings Per Share          
Net income (loss)   219    (145)
Pro forma basic and diluted earnings per share   (0.00)   (0.00)
Pro forma weighted average basic and diluted shares outstanding   1,468,750,000    1,468,750,000 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-3
 

 

MEDITE ENTERPRISE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

   Three Months
Ended March 31,
 
   2014   2013 
Cash Flows from Operating Activities:          
Net Income (loss)  $219   $(145)
Adjustments to reconcile net income (loss) to cash (used in) provided by operations          
Depreciation and amortization   62    67 
Changes in assets and liabilities:          
Accounts receivable and allowance for doubtful accounts   228    263 
Inventories   (374)   (57)
Prepaid expenses and other current assets   31    (512)
Accounts payable and accrued liabilities   (189)   234 
Net cash (used in) provided by operating activities   (23)   (150)
           
Cash Flows from Investing activity:          
Purchase of Equipment   (158)   (108)
Net cash provided from (used in) investing activities   (158)   (108)
           
Cash Flows from Financing activities:          
Advances net of repayments on lines of credit   205    269 
Term note repayments   (57)   (57)
Net cash provided by (used by) financing activities   148    212 
           
Effect of exchange rates on cash and cash equivalents   -      
Net increase  in cash and cash equivalents   (33)   (46)
Cash and cash equivalents at beginning of year   75    65 
           
Cash and cash equivalents at end of the period  $42   $19 
           
Cash paid for income taxes   -    - 
Cash paid for interest   75    63 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-4
 

 

1. Organization and Summary of Significant Accounting Policies

 

Medite Enterprise, Inc. is a Florda Corporation engaged in the the business of cancer diagnosis and prevention, particularly within histology (processing of tissue samples) and cytology (processing of cellular material). The Company is active in the development, manufacture and marketing of a wide product range within the histology market.

 

These statements include the accounts of Medite Enterprise, Inc. (the “Company”, “we” and “us”) and its wholly owned subsidiaries, which consists of Medite GmbH, Burgdorf, Germany, Medite GmbH, Salzburg, Austria, Medite Lab Solutions Inc. (formerly Medite Inc.), Orlando, USA, and CytoGlobe, GmbH, Burgdorf, Germany

 

Medite Enterprise, Inc. was formed in September 2013, and whose purpose was to re-domicile the company in the United States from Germany. In December 2013, the shareholders of Medite GmbH, Burgdorf, the former parent, contributed 100% of the issued and outstanding stock of Medite GmbH, Burgdorf to Medite Enterprise, Inc. in exchange for all of the issued and outstanding shares of Medite Enterprise, Inc. While the Company was the legal acquirer, Medite GmbH, Burgdorf was treated as the accounting acquirer and the transaction was treated as a recapitalization, as at the time the Company had only nominal assets and liabilities, and had no operations of its own. As a result, at the closing, the historical financial statements of Medite GmbH, Burgdorf became those of Medite Enterprise, Inc. This has resulted in the Company’s consolidated statement of stockholders equity and related consolidated balance sheet sections being revised to reflect the recapitalization of Medite Enterprise, Inc. and the resulting retroactive presentation of the issuance of 40,000 shares that recapitalized Medite Enterprise, Inc.

 

In April 2014, the shareholders of the Company consummated a transaction in which 100% of the issued and outstanding shares of the Company were acquired by CytoCore, Inc. in exchange for the issuance by CytoCore, Inc. of 1,468,750,000 shares of its common stock to the shareholders of the Company. The result of this transaction was for the Company and its wholly owned subsidiaries to become wholly owned subsidiaries of CytoCore, Inc., a US public company. In addition, the shareholders of the Company became the majority owners of CytoCore, Inc., which will result in the transaction being accounted for as a reverse merger, in which the financial statements of the Company will become those of CytoCore, Inc.

 

The consolidated financial statements for the periods ended March 31, 2014 and 2013 included herein are unaudited. Such consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2014 or for any other period. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the interim information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in in this amended Form 8-K filing.

 

Consolidation, Basis of Presentation and Significant Estimates

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions are eliminated. In preparing the accompanying financial statements, management has made certain estimates and assumptions that affect reported amounts in the financial statements and disclosures of contingencies. Significant assumptions are required in the valuation of the allowance for doubtful accounts and inventory overhead allocations. Significant assumptions also are required in the Company’s estimation of warranty reserves. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.

 

F-5
 

 

Revenue Recognition

 

The Company derives its revenue primarily from the sale of medical products and supplies for the diagnosis and prevention of cancer. Product revenue is recognized when all four of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products has occurred; (3) the selling price of the product is fixed or determinable; and (4) collectability is reasonably assured. The Company generates the majority of its revenue from the sale of inventory. The Company recognizes revenue when title and risk of loss transfer to the customer and all other revenue recognition criteria have been met. For a small subset of sales in Germany, the Company and its customers agree in the sales contract that risk of loss and title transfer upon the Company packing the items for shipment and notifying the Customer that their items are ready for pickup. The Company records such sales at time of completed packaging and segregation of the items from general inventory and notification has been confirmed by the customer.

 

Cash and Cash Equivalents

 

The Company considers all cash on deposit and highly-liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents.

 

Accounts Receivable

 

The Company generates accounts receivable from the sale of its products. The Company provides for a reserve against receivables for estimated losses that may result from a customer's inability or unwillingness to pay. The allowance for doubtful accounts is estimated primarily based upon historical write-off percentages, known problem accounts, and current economic conditions. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are not collectable. Recoveries of previously written-off accounts are recorded when collected.

 

Inventories

 

Inventories are stated at the lower of cost or market. Market, which represents selling price less cost to sell, considers general market and economic conditions, periodic reviews of current profitability and product warranty costs. Work in process and supplies of consumables are reviewed to determine if inventory quantities are in excess of forecasted usage or if they have become obsolete.

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets as follows:

 

Buildings 33 yrs
Machinery and equipment 3-10yrs
Office furniture and equipment 2-10 yrs
Vehicles 5 yrs
Computer equipment 3-5 yrs

 

Normal maintenance and repairs for equipment are charged to expense as incurred, while significant improvements are capitalized.

 

Research and Development

 

All research and development costs are expensed as incurred. Research and development costs consist of engineering, product development, testing, developing and validating the manufacturing process, and regulatory related costs.

 

Pro Forma Financial Information

 

As discussed in Note 1, in April 2014, the Company was acquired by CytoCore, Inc., a US public company. Upon closing of the Merger, the financial statements of the Company became those of CytoCore, Inc. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin Number 1B.2 "Pro Forma Financial Statements and Earnings per Share" ("SAB 1B.2"), pro forma earnings per share information on the face of the statement of operations has been presented which reflects the impact of the Company's change in capital structure as if it had occurred at the commencement of operations on January 1, 2013.

 

F-6
 

 

2. Inventories

 

The following is a summary of the components of inventories (in thousands):

 

   March 31,   December 31, 
   2014   2013 
Raw materials  $1,878   $1,748 
Work in progress   248    137 
Finished Goods   2,201    2,068 
           
   $4,327   $3,953 

 

No amounts were reserved for scrap or obsolete inventory as of December 31, 2013 and 2012, respectively.

 

3. Property and Equipment

 

The following is a summary of the components of property and equipment as of (in thousands):

 

   2014   2013 
Land  $244   $244 
Buildings   1,352    1,352 
Machinery and equipment   407    407 
Office furniture and equipment   240    240 
Vehicles   39    39 
Computer equipment   86    86 
Construction in progress   541    386 
Less: Accumulated depreciation   (941)   (887)
   $1,968   $1,867 

 

Depreciation expense amounted to approximately $57,000 and $62,000 for the three months ended March 31, 2014 and 2013, respectively and is included in the cost of revenues line item on the statement of operations.

 

4. Debt and Line of Credit

 

Our outstanding indebtedness was as follows as of (in thousands):

 

   March 31,   December 31, 
   2014   2013 
Hannoversech Volksbank Credit line #1  $856   $759 
Hannoversech Volksbank Credit line #2   1,380    1,333 
Hannoversech Volksbank Credit line #3   479    444 
Hannoversech Volksbank term loan #1   192    211 
Hannoversech Volksbank term loan #2   153    138 
Hannoversech Volksbank term loan #3   363    393 
Participation rights   1,035    1,032 
   $4,458   $4,310 

 

F-7
 

 

In July 2006, Medite GmbH, Burgdorf, entered into a line of credit agreement with Hannoversche Volksbank. The line of credit granted a maximum borrowing authority of 400,000 euros, which was amended in 2012 to increase the maximum borrowing to 600,000 euros with a variable interest rate of 8% per annum as of December 31, 2013. The line of credit has no stated maturity date but may be cancelled by the bank upon notice to the Company. The line of credit is collateralized by the accounts receivable and inventory of Medite GmbH, Burgdorf and is guaranteed by the shareholders of the Company.

 

In July 2006, Medite GmbH, Burgdorf, entered into a secondary line of credit agreement with Hannoversche Volksbank. The line of credit granted a maximum borrowing authority of 480,000 euros, which was later amended to increase the maximum borrowing to 1 million euros with a variable interest rate of approximately 3.98% as of December 31, 2013. The line of credit has no stated maturity date but may be cancelled by the bank upon notice to the Company. The line of credit is guaranteed by the shareholders of the Company and a mortgage on the property of the Company. In addition, the shareholders have named the bank as beneficiary on a term life insurance policy on each shareholder in the amount of 500,000 euros.

 

In June 2012, CytoGlobe, GmbH, Burgdorf, entered into a line of credit agreement with Hannoversche Volksbank. The line of credit granted a maximum borrowing authority of 400,000 euros. The credit line is split into two tranches for interest rate purposes, with the first 200,000 euro tranche at a variable rate of approximately 4% per annum at December 31, 2013 and the second 200,000 euro tranche at 8% per annum. The line of credit has no stated maturity date but may be cancelled by the bank upon notice to the Company. The line of credit is collateralized by the accounts receivable and inventory of CytoGlobe GmbH, Burgdorf and is guaranteed by the shareholders of the Company.

 

In December 2006, Medite GmbH, Burgdorf, entered into a 500,000 euro term loan agreement with Hannoversche Volksbank with an interest rate of 3.4% per annum. The term loan has a maturity of September 2016 and requires semi-annual principal payments of approximately 27,780 euros each. The term loan is guaranteed by the stockholders of the Company and also a mortgage on the property of the Company.

 

In June 2006, Medite GmbH, Burgdorf, entered into a 400,000 euro term loan with Hannoversche Volksbank with an interest rate of 3.6 per annum. The term loan has a maturity of June 2016, requires 18 semi-annual principal repayments of approximately 22,220 euro each. The term loan is guaranteed by the stockolders of the Company and also has subordinated assignments of all of the receivables and inventories of Medite GmbH, Burgdorf and also has a subordinated pledge of stockholder term life insurance policies.

 

In November 2008, Medite GmbH, Burgdorf, entered into a 400,000 euro term loan with Hannoversche Volksbank with a variable interest rate of approximately 4.7% per annum as of December 31, 2013. The term loan has a maturity of December 31, 2018, and requires quarterly principal repayments of 13,890 euro each. The term loan is guaranteed by the stockholders of the Company and also includes a partial subordinated pledge of the receivables and inventory of Medite GmbH, Burgdorf.

 

In March 2009, the Company entered into a participation rights agreement in the form of a debenture which a mezzanine lender agreed to advance the Company up to 1.5 million euros in two tranches of 750,000 euros each. The first tranche was paid to the Company at closing with the second tranche being conditioned on Medite GmbH, Burgdorf and its subsidiaries hitting certain performance targets. Those targets were not met and the second tranche was never disbursed. The debenture pays interest at the rate of 12.15% per annum and matures in 2016.

 

5. Commitments and Contingencies

 

The Company currently leases warehouse space in Germany under a month to month operating lease with a monthly rental fee of 4,000 euro. The Company currently has 12 vehicles it leases for delivery and other purposes with expirations ranging from April 2014 through August 2015. In July 2013, the Company entered into a lease agreement for administrative office and warehouse space. The lease has a term of 5 years and requires minimum monthly rental payments starting at $2,277 per month increasing to $2,563 per month in year 5. No amounts were recorded for deferred rent for the rent escalation clauses as they were immaterial in 2014 and 2013. In total the leases require minimum monthly rental payments of approximately 5,100 euros.

 

F-8
 

 

The Company is currently in the process of obtaining default judgments against a number of customers who have defaulted on repayment on their outstanding invoices and the purchaser of a former subsidiary for non-payment. The total amount currently awaiting default judgments is approximately 428,000 euros. While the Company believes that it may recover substantially all of the amounts outstanding through the enforcement of the judgments, it currently has included reserves for 100% of the amounts owed as of March 31, 2014 and December 31, 2013 due to the difficulty of enforcement of any judgments obtained, especially across international borders.

 

6. Subsequent Events

 

On January 11, 2014, the Company’s shareholders entered into a Stock Purchase Agreement (the “Purchase Agreement”) with CytoCore, Inc., a Delaware corporation (“CytoCore”). Pursuant to the Agreement, CytoCore agreed to acquire 100% of the issued and outstanding capital stock of the Company from the shareholders in exchange for the issuance of up to 1,500,000,000 shares of the CytoCore’s common stock (the “Shares”) to the shareholders. The Purchase Agreement also provides that the shareholders will indemnify the Company for certain losses during the one year period following the closing. In connection with such indemnification rights, the Agreement provides that 375,000,000 of the Shares will be deposited with the Company and held for a period of 12 months to cover certain indemnification claims that the Company may have against the Shareholders.

 

Closing of the acquisition of Medite was conditioned upon: (i) the completion of a private placement transaction resulting in gross cash proceeds to the Company of $2.5 million (the “Private Placement”), and (ii) the conversion of certain accrued wages of the Company into shares of the Company’s common stock. In addition, as of the closing, there shall be no more than 1,875,000,000 shares of the Company’s common exclusive of any shares of the Company’s common stock issued in connection with the Private Placement.

 

On April 3, 2014, pursuant to the terms and conditions of the Purchase Agreement, as amended to date, CytoCore acquired 100% of the issued and outstanding capital stock of the Company in exchange for the issuance of up to 1,500,000,000 shares of the Company’s common stock to the Shareholders, of which 1,468,750,000 shares were issued upon the closing of the Acquisition. Concurrent with the closing, CytoCore closed on a private placement and received gross proceeds of approximately $1.529 million and subsequently, in May and June 2014, received additional gross proceeds of approximately $261,000.

 

F-9

EX-99.3 4 v381421_ex99-3.htm EXHIBIT 99.3

 

Exhibit 99.3 

 

 

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF CYTOCORE, INC.

 

The pro forma condensed consolidated balance sheets reflects preliminary estimates and assumptions based on the information available at the time of preparation, including, but not limited to, for the pro forma balance sheet the following events that occurred subsequent to March 31, 2014 which had a material effect on the capitalization and liquidity of the Company and had they occurred as of March 31, 2014: (i) Consummation of the merger with Medite Enterprise, Inc. (ii) closing of the private placement of our common stock in which we received gross proceeds of $1.790 million in conjunction with closing of the Medite Enterprise, Inc. merger and issued 108,474,400 shares of our common stock (iii) issuance of 69,723,439 shares of our common stock in satisfaction of approximately $1.6 million in accrued wages. The pro forma condensed consolidated balance sheet is not necessarily indicative of what the companies’ financial position would have been had the aforementioned transactions been completed at the date indicated. The pro forma consolidated balance sheets should be read in conjunction with the audited consolidated financial statements of CytoCore, Inc. filed with the securities in Form 10K on April 14, 2014 and its March 31, 2014 10Q filed on May 15, 2014 and the audited consolidated financial statements of Medite Enterprise, Inc. for the years ended December 31, 2013 and 2012, and the unaudited condensed consolidated financial statements for the three months ended March 31, 2014 and 2013 included in this Amended Form 8-K.

 

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Pro Forma

Balance Sheets - Unaudited

March 31, 2014

(All amounts in thousands)  Historical         
   CytoCore, Inc.   Medite
Enterprise,
Inc.
   Pro Forma
Adjustments
   Pro Forma As
Adjusted
 
Assets                    
                     
Current Assets:                    
Cash  $1   $42(b)   1,790    1,833 
Accounts receivable, net of allowance for doubtful accounts   8    1,366    -    1,374 
Inventories   -    4,327    -    4,327 
Prepaid expenses and other current assets   5    269    -    274 
Total current assets   14    6,004    1,790    7,808 
Property and equipment, net   -    1,968    -    1,968 
Goodwill   -    -    7,464    7,464 
Other Assets   -    816    -    816 
Total assets  $14   $8,788    9,254    18,056 
                     
Liabilities and Stockholders’ Equity                    
                     
Current Liabilities:                    
Secured lines of credit and current portion of long-term debt  $36   $2,922(a)   (36)   2,922 
       (a)   (250)    
Account payable and accrued expenses   4,398    1,518(c)   (1,600)   4,066 
                   
Advances related party   102    -    -    102 
Total current liabilities   4,536    4,440    (1,886)   7,090 
Long term debt, net of current portion   -    1,536    -    1,536 
Total Liabilities   4,536    5,976    (1,886)   8,626 
                     
Commitments and Contingencies                    
                     
Stockholders’ Equity :                    
Preferred stock, $0.001 par value; 10,000,000 shares authorized, 373,355 shares issued and outstanding at March 31, 2014 (liquidation value of all preferred stock $2,871 at March 31, 2014)   1,487    -    -    1,487 
Common stock, $0.001 par value; 2,000,000,000 shares authorized, 272,080,857 issued, outstanding and issuable at March 31, 2014   272    -(b)
(c)
(a)
   

108

70

1,469

    1,919 
Additional paid-in capital   97,244    (b)
(c)
(a)
   

1,682

1,530

(97,244

)   3,212 
Accumulated other comprehensive income (loss)   -    287         287 
Treasury stock, 19,209 shares at March 31, 2014   (327)   -(a)   327    - 
Retained Earnings   (103,198)   2,525(a)   103,198    2,525 
Total stockholders’ equity   (4,522)   2,812    11,140    9,430 
                     
Total liabilities and stockholders’ equity  $14   $8,788    9,254    18,056 

 

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CYTOCORE, INC.

NOTES TO PRO FORMA CONDENSED COMBINED

BALANCE SHEETS

(Unaudited)

 

1. BASIS OF PRO FORMA PRESENTATION

 

The unaudited pro forma condensed combined balance sheets have been derived from the historical March 31, 2014 condensed consolidated balance sheet of CytoCore, Inc. (the “Company”) after giving effect to the merger with Medite Enterprise Inc. and to the issuance of shares in a private placement consummated concurrently with the merger. In addition, as a condition of the merger, the Company issued approximately 69 million shares of its common stock in satisfaction of outstanding wages payable. The pro forma balances sheet presents these transaction as if they had been consummated as of March 31, 2014, as required under Article 11 of Regulation S-X.

 

Historical financial information has been adjusted in the pro forma balances sheet to pro forma events that are: (1) directly attributable to the Acquisition; (2) factually supportable; and (3) expected to have a continuing impact on the Company’s results of operations. This pro forma presentation does not include the presentation of statement of operations information as the merger will be treated as a reverse acquisition, and therefore Medite Enterprise, Inc. is treated as the accounting acquirer, such that the financial statements of Medite Enterprise, Inc. immediately after the merger will become those of CytoCore, Inc. The pro forma adjustments presented in the pro forma condensed consolidated balance sheets are described in Note 2— Pro Forma Adjustments.

 

2. PRO FORMA ADJUSTMENTS – BALANCE SHEET

 

The adjustments included in the pro forma statement of operations are as follows:

 

(a)Issuance by CytoCore, Inc. of 1,468,750,000 shares of its common stock to the shareholders of Medite Enterprise, Inc. and in return the acquisition of all of the issued and outstanding common stock of Medite Enterprises, Inc. The former shareholders of Medite Enterprise, Inc. received approximately 85% of the issued and outstanding common stock of the Company, which had the effect of this transaction being accounted for as a reverse merger, in which the financial statements of Medite will become those of the Company. Because the Company was not a shell company, as defined in the regulations of the Securities and Exchange Commission, this will result in purchase accounting being applied to the Company, such that the included herein are the Company’s estimates of the fair values of its assets and liabilities based on a purchase price of 15% of the estimated fair value of Medite Enterprises, Inc. The current adjustments to reflect the fair value of Medite and the assets and liabilities of the Company are currently subject to significant future adjustment, as the Company expects that it will obtain professional valuations to assist it in determining the values to properly record the transaction. Therefore, the amounts shown in this pro forma are subject to change when new information about the fair values are determined.

 

(b)Concurrent with and a condition precedent to the merger, as amended, and noted above in (a), was that the Company was required to complete a private placement of equity or debt securities and raise gross proceeds of $1.5 million. Immediately after closing the merger, the Company closed on gross proceeds of $1.529 million and in May and June 2014, closed on additional gross proceeds of $261,000 and issued in aggregate approximately 108,474,000 shares of the Company’s common stock

 

(c)Also concurrent with and a condition precedent to the merger, as amended, and noted above in (a), the Company was required to satisfy certain outstanding wages of current and former employees. Immediately after closing the Company issued 69,723,439 shares of its common stock in satisfaction of outstanding wages of $1.6 million.

 

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