U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended December 31, 1996
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/ / Transition report under Section 13 or 15(d) of the Exchange Act
Commission file number 1-9431
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ESCAGENETICS CORPORATION
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 94-3012230
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
Suite 605, 1075 Bellevue Way NE, Bellevue, WA 98004
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(Address of Principal Executive Offices)
(206) 901-3595
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(Issuer's Telephone Number, Including Area Code)
824 Bransten Road, San Carlos, CA 94070
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days Yes No X
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Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No X
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The number of shares outstanding of each of the issuer's classes of common
stock was 73,402,516 shares of common stock, par value $.0001 per share,
outstanding as at February 12, 1997.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
An Order Finally Approving First Amended Disclosure Statement (as
Supplemented by Disclosure Supplement) and Confirming Third Amended Plan of
Reorganization (the "Plan") with respect to ESCAgenetics Corporation (the
"Company") was entered by the United States Bankruptcy Court for the Northern
District of California (the "Court") on July 10, 1996 and supplemented by order
dated July 15, 1996. The Plan became effective on August 22, 1996.
The Plan provided for the distribution of the Company's cash assets to its
creditors. The Company retained its intellectual property and continued in
business following consummation of the Plan. Pursuant to the Plan, all
creditors of the Company, with the exception of Ultra, were paid in cash. The
Plan provided for Ultra to be paid partly in stock and partly in cash.
On August 22, 1996, also in accordance with the Plan, the Bylaws of the
Company were amended to reduce the size of the Company's Board of Directors to
two members; Michelle Kline and Kristi La-Band, who are employees of an
affiliate of Ultra, became the sole directors of the Company; and Michelle Kline
became president, vice president, secretary and treasurer of the Company. On
October 10, 1996, in accordance with the Plan, the Company amended its
Certificate of Incorporation to eliminate staggered terms for members of its
Board of Directors.
As of August 21, 1996, there were 7,342,516 shares of common stock of the
Company outstanding held by 434 holders of record. On October 10, 1996, in
accordance with the Plan, the Company amended its Certificate of Incorporation
to increase the number of authorized shares of Common Stock from 12 million to
100 million. On October 25, 1996, also in accordance with the Plan, the Company
issued to Ultra 66,060,000 shares of its Common Stock. After such issuance, the
total number of shares of the Company's Common Stock outstanding was 73,402,516.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 16, 1996, Ultra executed a stockholder consent for the purpose
of amending and restating the Certificate of Incorporation of the Company and
amending and restating the Bylaws of the Company, each as set forth in exhibits
attached to a notice to stockholders dated December 6, 1996. The stockholder
consent, and the amendment and restatement of the Bylaws, became effective on
January 20, 1997. A certificate setting forth the amendments to and
restatement of the Certificate of Incorporation approved by the stockholder has
not yet been filed with the state of Delaware.
ITEM 5. OTHER INFORMATION.
The Company engaged Deloitte & Touche LLP on November 29, 1996 as the
Company's independent accountants to report on the Company's financial
statements commencing with the fiscal year ended March 31, 1995. The decision to
retain Deloitte & Touche LLP was approved by the Company's Board of Directors.
As reported in the Company's Form 8-K dated January 31, 1996, Ernst & Young
LLP acted as the Company's independent accountants with regard to each of the
fiscal years in the three-year period ended March 31, 1994 and resigned due to
the filing of a Chapter 11 bankruptcy petition by the Company.
On December 27, 1996, the Company contributed to the capital of its
wholly-owned subsidiary, Potato Products International, Ltd., a Delaware
corporation ("Potato Products") all of its assets, other than its common
stock of PHYTOpharmaceuticals, Inc., a California corporation, SRE
ESCAgenetics Corporation, a California corporation, and Potato Products, and
its cash and cash equivalents. Subsequent to such capital contribution, the
Company sold all of its common stock of Potato Products to an affiliate of
Ultra , at a price of $87.50 per share, for an aggregate price of $175,000,
which was paid on January 31, 1997.
On November 1, 1996, the Company changed its principal place of business to
Suite 605, 1075 Bellevue Way N.E., Bellevue, Washington 98004.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
2 Third Amended Plan of Reorganization
3.1 Certificate of Incorporation
3.2 Bylaws
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: February 13, 1997 ESCAGENETICS CORPORATION
By /s/ Michelle Kline
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Michelle Kline
President and Treasurer
(Principal Executive Officer and
Principal Financial Officer)
PART I - ITEM 1 - FINANCIAL STATEMENTS
ESCAGENETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
August 22, 1996 December 31,
(fresh start date) 1996
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Current assets:
Cash on hand $ 159,000 $ 195,000
Receivable from sale
of Potato Products International, Ltd. 175,000
Receivable from disposition of assets 158,000
True Potato Seed inventory 124,000
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Total assets $ 441,000 $ 370,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
August 22, 1996 December 31,
(fresh start date) 1996
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Current liabilities:
Accounts payable $ 14,000
Due to pre-petition creditors $ 317,000 192,000
Due to GFL Ultra Fund, Ltd. 135,000
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Total liabilities 317,000 341,000
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Shareholders' equity:
Common stock 7,000 7,000
Additional paid-in capital 117,000 117,000
Retained earnings (95,000)
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Total shareholders' equity 124,000 29,000
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Total liabilities and shareholders' equity $ 441,000 $ 370,000
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESCAGENETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Period from
August 22, 1996
(fresh start date) For the Quarter
through ended
December 31, 1996 December 31, 1996
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Revenues:
Gain on sale of Potato Products International, Ltd. $ 58,000 $ 58,000
Miscellaneous 3,000 3,000
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Total revenues 61,000 61,000
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Operating expenses:
Accounting and legal 82,000 77,000
General and administrative 44,000 34,000
Consulting 30,000 23,000
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Total expenses 156,000 134,000
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Net loss $ (95,000) $ (73,000)
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Net loss per share $ (0.00) $ (0.00)
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Weighted average common stock outstanding 73,402,516 73,402,516
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESCAGENETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Period from
August 22, 1996
(fresh start date) For the Quarter
through ended
December 31, 1996 December 31, 1996
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Cash flows used for operating activities:
Net loss $ (95,000) $ (73,000)
Adjustments to reconcile net loss to cash
flows used in operating activities:
(Increase) decrease in other current assets 107,000 (52,000)
Decrease in accounts payable and amounts due
to pre-petition creditors (111,000) (9,000)
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Net cash used in operating activities (99,000) (134,000)
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Cash flows provided by financing activities:
Advances from GFL Ultra Fund, Ltd. 135,000 105,000
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Net cash provided by financing activities 135,000 105,000
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Net increase in cash 36,000 (29,000)
Cash - beginning 159,000 224,000
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Cash - ending $ 195,000 $ 195,000
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESCAGENETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND FOR THE PERIOD
FROM AUGUST 22, 1996 (FRESH START DATE) TO DECEMBER 31, 1996
1. Unaudited information
The consolidated financial statements for the three months ended December 31,
1996 and for the period from August 22, 1996 (fresh start date) to December 31,
1996 are unaudited and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated financial
statements should be read in conjunction with management's discussion and
analysis or plan of operation contained herein.
The Company did not file an Annual Report to Stockholders or an Annual Report on
Form 10-K for the year ended March 31, 1996.
2. Summary of significant accounting policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ESCAgenetics
Corporation and its wholly and majority owned subsidiaries, TPS Products
Company, ESCA Chile LTDA, PHYTOpharmaceuticals, Inc. and SRE ESCAgenetics
Corporation (the "Company") after elimination of all significant
intercompany accounts and transactions. On October 9, 1996, TPS Products
Company changed its name to Potato Products International, Ltd.
OPERATIONS
Formed in 1986, the Company was organized to develop and commercialize
high-value, plant derived products for the agricultural and pharmaceutical
markets. In January 1995, the Company scaled back its business activities
and became largely a dormant business. In January 1996, the Company filed a
bankruptcy petition for protection under Chapter 11 of the U.S. Bankruptcy
Code.
The Company proposed an amended plan of reorganization (the "Amended Plan
of Reorganization") that was conditionally confirmed by the Bankruptcy
Court on July 10, 1996 and became effective on August 22, 1996. Under the
Amended Plan of Reorganization, GFL Ultra Fund, Ltd. ("Ultra"), a creditor
holding approximately 59.5% of the Company's unsecured claims, received 90%
of the Company's common stock and the right to 25% of the cash available to
unsecured creditors. The remaining 10% of the Company's common stock
remained owned by its previous shareholders
The Company does not plan to continue the business activities that it
previously conducted. It plans to pursue a business combination or other
strategic transaction. No candidate for such a transaction has been
identified.
FRESH START REPORTING
Paragraph 36 of AICPA Statement of Position 90-7 requires that the Company
use "fresh start" reporting in connection with its bankruptcy filing and
Ultra's acquisition of 90% of the Company's outstanding shares of common
stock. The Company's balance sheet as of August 22, 1996, the effective
date of the Plan of Reorganization, has been adjusted to reflect the
current value of the Company's assets, liabilities and shareholders' equity
as of that date. Fresh start reporting requires that purchase accounting
principles be applied. This means that the operating statements of the
"old" Company are not included in the financial statements of the "new"
Company; that the "purchase price" (current value) must be allocated to the
assets acquired and the liabilities assumed; and that retained earnings are
fixed at zero. Consequently, these consolidated financial statements are
not comparable and should not be compared to the Company's consolidated
financial statements for any period prior to August 22, 1996.
The current value was determined based on the costs Ultra incurred and the
amount of cash from the unsecured creditor pool that it gave up in order to
receive 90% of the Company's common stock. This value for 90% of the
outstanding common stock was used to compute the value of 100% of the
outstanding common stock of approximately $124,000 which was recorded as
shareholders' equity in the Company's balance sheet as of August 22, 1996.
This value was assigned to the Company's only significant remaining
tangible asset, the inventory of true potato seed.
Additionally, the "new" Company assumed the obligation to pay all proceeds
from liquidations of assets generated prior to August 22, 1996, less
administrative costs of the bankruptcy to the unsecured creditors of the
"old" Company. Cash on hand, receivable from disposition of assets, and
due to pre-petition creditors on the balance sheet at August 22, 1996 and
December 31, 1996 represent this obligation and related assets from which
it will be funded. Pre-petition creditors are divided into three
categories 1) convenience claims, 2) general unsecured claims, and 3)
Ultra. The convenience claims were unsecured claims approved by the
Bankruptcy Court in the amount of $2,000 or less and were paid in full on
September 13, 1996. General unsecured claims approved by the Bankruptcy
Court totaled approximately $548,000 and are expected to be paid before the
Company's fiscal year end on March 31, 1997 at a rate of approximately 24%.
The remaining balance due to pre-petition creditors at December 31, 1996,
reflects the amount of cash to be paid with respect to final administrative
claims, the general unsecured claims and the Ultra claim, in final
settlement of the Bankruptcy proceeding.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results and values could differ from those
estimates.
CASH ON HAND
Cash on hand at August 22, 1996 and December 31, 1996 primarily represents
cash held to pay pre-petition creditors and is held in interest bearing and
non-interest bearing demand deposit accounts at a single financial
institution.
NET LOSS PER SHARE
Net loss per share is calculated on the basis of weighted average number of
common shares outstanding. Common stock equivalents are excluded from the
computation as their effect is antidilutive.
3. Shareholders' equity
COMMON AND PREFERRED STOCK
On October 9, 1996, the Certificate of Incorporation of the Company was
amended to authorize 101,000,000 shares of Common Stock with a par value of
$.0001 per share and 1,000,000 shares of Preferred Stock with a par value
of $.01 per share. This amendment was necessary to facilitate the issuance
of 66,060,000 shares of Common Stock to Ultra as required by the Amended
Plan of Reorganization. Ultra's shares were issued on October 25, 1996,
but are reflected in the consolidated financial statements as issued on
August 22, 1996, in accordance with the Amended Plan of Reorganization.
Including Ultra's shares, there were 73,402,516 shares of Common Stock
issued and outstanding at August 22, 1996 and December 31, 1996. No shares
of Preferred Stock are outstanding.
OPTIONS AND WARRANTS
The Company had several employee and non-employee stock options plans. All
of the plans were terminated prior to the effective date of the Amended
Plan of Reorganization.
At December 31, 1996, the Company had a total of 551,500 warrants
outstanding. These warrants expire at various dates between February 1997
and July 1999 and have exercise prices ranging from $1.75 to $12.50 per
share.
4. Due to Ultra
As part of the Amended Plan of Reorganization, Ultra agreed to provide the
Company with a line of credit with a minimum amount of $50,000 for
post-reorganization business activities. The loan is convertible into equity at
the rate of 130 shares per dollar at Ultra's option. Ultra has waived its right
to receive interest on the amounts advanced through December 31, 1996.
5. Sale of Potato Products International, Ltd.
On December 27, 1997, ESCAgenetics Corporation sold 100% of the common stock
outstanding of Potato Products International, Ltd. to an affiliate of Ultra for
$175,000 resulting in a gain to the Company of approximately $58,000. Prior to
the sale, ESCAgenetics Corporation transferred to Potato Products International,
Ltd. title to all of its tangible and intangible assets other than cash on hand
and the stock of PHYTOpharmaceuticals, Inc., SRE ESCAgenetics Corporation and
Potato Products International, Ltd. Cash was collected from the sale on January
31, 1997. The Company used the proceeds from the sale to repay amounts owed to
Ultra for cash advances in the amount of approximately $135,000 and will use the
balance of the cash to pay for the costs associated with pursuing a business
combination or other strategic transaction.
6. Income taxes
The Company has accumulated significant net operating loss carryforwards. Due
to the change in the ownership of the Company and the nature of the Company's
operations, the availability of the net operating loss carryforwards to offset
future income is doubtful.
ESCAGENETICS CORPORATION AND SUBSIDIARIES
10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1996
Part 1 - Item 2 - Management's Discussion and Analysis or Plan of Operation
The Company
Formed in 1986, the Company was organized to develop and commercialize
high-value, plant derived products for the agricultural and pharmaceutical
markets. The Company actively conducted its business between 1987 and the early
part of 1995 and during this period of active operation, developed tissue
culture vanilla, hybrid true potato seed, oil and date palm plantlets,
high-solids tomatoes, improved cashew planting materials, corn hybrids and
synthetic taxol (an anti-cancer drug). In January 1995, the Company scaled back
its business activities and became largely a dormant business, when it laid off
substantially all of its employees and commenced active efforts to solicit
buyers for the Company's existing technologies. During 1995, the Company
disposed of most of its technology rights including the rights to its corn
hybrids and synthetic taxol programs for approximately $1,050,000. In January
1996, the Company filed a bankruptcy petition for protection under Chapter 11 of
the U.S. Bankruptcy Code. At the time of the bankruptcy filing, the Company
retained rights to certain plant extracts and related patents, its hybrid true
potato seed inventory and related technology and patents and its date palm
inventory and related technology and patents. The Company sold the plant
extracts and related patents and its date palm inventory as part of the
bankruptcy reorganization for approximately $148,000.
The Company proposed a plan of reorganization that called for an orderly
liquidation of its property, and the distribution of the proceeds thereof to
creditors pursuant to the priorities set forth in the Bankruptcy Code and other
applicable law. Any unsold assets were to be abandoned to the Company, donated
to charity, given away to third parties or destroyed and the Company was to
become dormant or dissolved with no compensation to the shareholders.
After meeting with creditors, the Company proposed an amended plan of
reorganization (the "Amended Plan of Reorganization") that was conditionally
confirmed by the Bankruptcy Court on July 10, 1996 and became effective on
August 22, 1996. Under the Amended Plan of Reorganization, GFL Ultra Fund, Ltd.
("Ultra") exchanged approximately $806,000 in convertible debentures, including
accrued interest thereon (which amount represented approximately 59.5% of the
Company's unsecured claims), for 25% of the cash available to unsecured
creditors and 90% of the Company's common stock. The remaining 10% of the
Company's common stock remained owned by its previous shareholders. The Company
has only one class of equity securities outstanding. The Plan of Reorganization
required all directors and officers of the Company to resign and to be replaced
by persons designated by Ultra.
Future plans
The Company does not plan to continue the business activities that it previously
conducted. It plans to pursue a business combination or other strategic
transaction. No candidate for such a transaction has been identified. The
Company believes its status as a public company may be attractive to a private
company wishing to avoid an initial public offering but there is no guarantee
that a business combination or other strategic transaction will be consummated.
The Company is currently delinquent in its filings with the Securities and
Exchange Commission and is taking steps to correct the delinquency. If the
delinquency cannot be corrected due to excessive cost or for other reasons, the
Company may not be a viable party for a business combination or other
transaction.
Fresh start reporting
Paragraph 36 of AICPA Statement of Position 90-7 requires that the Company use
"fresh start" reporting in connection with its bankruptcy filing and Ultra's
acquisition of 90% of the Company's outstanding shares of common stock. The
Company's balance sheet as of August 22, 1996, the effective date of the Plan
of Reorganization, has been adjusted to reflect the current value of the Company
as of that date. Fresh start reporting requires that purchase accounting
principles be applied. This means that the operating statements of the "old"
Company are not be included in the financial statements of the "new" Company;
that the "purchase price" (current value) must be allocated to the assets
acquired and the liabilities assumed; and that retained earnings are fixed at
zero.
The purchase price was determined based on the costs Ultra incurred and the
amount of cash from the unsecured creditor pool that it gave up in order to
receive 90% of the Company's common stock. This value for 90% of the
outstanding common stock was used to compute the value of 100% of the
outstanding common stock which was recorded as shareholders' equity in the
Company's balance sheet as of August 22, 1996. This value was assigned to the
Company's only significant remaining tangible asset, the inventory of true
potato seed. The Company's Bankruptcy Disclosure Statement placed a value of
$150,000 on the inventory of true potato seed and the related technology and
patents but the Company was unable to find a buyer for the inventory of true
potato seed or the related technology and patents during the Bankruptcy
proceeding at that or any other value.
Additionally, the "new" Company assumed the obligation to pay all liquidation
proceeds generated prior to August 22, 1996, less administrative costs of the
bankruptcy to the unsecured creditors of the "old" Company. Pre-petition
creditors are divided into three categories 1) convenience claims, 2) general
unsecured claims, and 3) Ultra. The Company had no secured creditors. The
convenience claims were unsecured claims approved by the Bankruptcy Court in the
amount of $2,000 or less and were paid in full on September 13, 1996. General
unsecured claims approved by the Bankruptcy Court
totaled approximately $548,000 and are expected to be paid before the Company's
fiscal year end on March 31, 1997 at a rate of approximately 24%.
Sale of Potato Products International, Ltd.
On December 27, 1997, ESCAgenetics Corporation sold 100% of the common stock
outstanding of its wholly owned subsidiary, Potato Products International, Ltd.
(formerly known as TPS Products Company) to an affiliate of Ultra for $175,000
resulting in a gain to the Company of approximately $58,000. Prior to the sale,
ESCAgenetics Corporation transferred to Potato Products International, Ltd.
title to all of its tangible and intangible assets other than cash on hand and
the stock of PHYTOpharmaceuticals, Inc. (an inactive majority owned subsidiary),
SRE ESCAgenetics Corporation (an inactive wholly owned subsidiary) and Potato
Products International, Ltd. The Company used the proceeds from the sale to
repay amounts owed to Ultra for cash advances in the amount of approximately
$135,000 and will use the balance of the cash to pay for the costs associated
pursuing a business combination or other strategic transaction.
EXHIBIT INDEX
EXHIBIT PAGE
2 Third Amended Plan of Reorganization
3.1 Certificate of Incorporation
3.2 Bylaws