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 September 30, 1996
--------------------------------------------------
/ / Transition report under Section 13 or 15(d) of the Exchange Act
Commission file number 1-9431
----------------------------------
ESCAGENETICS CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 94-3012230
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (I.R.S. Employer of
Incorporation or Organization) Identification No.)
Suite 605, 1075 Bellevue Way NE, Bellevue, WA 98004
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(206) 901-3595
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
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
------------- -------------
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 X No
------------- -------------
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 March 5, 1997.
PART I - ITEM 1 - FINANCIAL STATEMENTS
ESCAGENETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
August 22, 1996 September 30,
(fresh start date) 1996
---------------- -------------
Current assets:
Cash on hand $ 159,000 $ 224,000
Receivable from disposition of assets 158,000
True Potato Seed inventory 124,000 124,000
---------- ----------
Total assets $ 441,000 $ 348,000
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
August 22, 1996 September 30,
(fresh start date) 1996
---------------- -------------
Current liabilities:
Due to pre-petition creditors $ 317,000 $ 216,000
Due to GFL Ultra Fund, Ltd. 30,000
---------- ----------
Total liabilities 317,000 246,000
---------- ----------
Shareholders' equity:
Common stock 7,000 7,000
Additional paid-in capital 117,000 117,000
Retained earnings (22,000)
---------- ----------
Total shareholders' equity 124,000 102,000
---------- ----------
Total liabilities and shareholders' equity $ 441,000 $ 348,000
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
ESCAGENETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Period from
August 22, 1996
(fresh start date)
through
September 30, 1996
------------------
Operating expenses:
Accounting and legal $ 5,000
General and administrative 10,000
Consulting 7,000
-----------
Total expenses 22,000
-----------
Net loss $ (22,000)
-----------
-----------
Net loss per share $ (0.00)
-----------
-----------
Weighted average common stock outstanding 73,402,516
-----------
-----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
ESCAGENETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Period from
August 22, 1996
(fresh start date)
through
September 30, 1996
------------------
Cash flows used for operating activities:
Net loss $ (22,000)
Adjustments to reconcile net loss to cash flows used in
operating activities:
Decrease in other current assets 158,000
Decrease in accounts payable and amounts due to
pre-petition creditors (101,000)
------------
Net cash used in operating activities 35,000
------------
Cash flows provided by financing activities:
Advances from GFL Ultra Fund, Ltd. 30,000
------------
Net cash provided by financing activities 30,000
------------
Net increase in cash 65,000
Cash - beginning 159,000
------------
Cash - ending $ 224,000
------------
------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
ESCAGENETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM AUGUST 22, 1996 (FRESH START DATE) TO SEPTEMBER 30, 1996
1. Unaudited information
The consolidated financial statements for the period from August 22, 1996 (fresh
start date) to September 30, 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 that period. 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.
5
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 September 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 at a
rate of approximately 24%.
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 September 30, 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.
6
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 September 30, 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 September 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 September 30, 1996.
5. 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.
6. Subsequent event
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. Prior to the sale, ESCAgenetics Corporation transferred to Potato
Products International, Ltd. title to all of its
7
tangible and intangible assets other than cash on hand and the stock of
PHYTOpharmaceuticals, Inc., SRE ESCAgenetics Corporation and Potato Products
International, Ltd. The Company used the proceeds from the sale to repay
amounts owed to Ultra for cash advances and will use the balance of the cash to
pay for the costs associated with pursuing a business combination or strategic
transaction.
8
ESCAGENETICS CORPORATION AND SUBSIDIARIES
10-QSB
FOR THE PERIOD FROM AUGUST 22, 1996 (FRESH START DATE) TO
SEPTEMBER 30, 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.
9
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 to 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 at a rate of approximately 24%.
Subsequent event
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.
Prior to the sale, ESCAgenetics Corporation
10
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 and will use the balance of the
cash to pay for the costs associated with pursuing a business combination or
other strategic transaction.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The information required by this Item is incorporated by reference from
Item 1 of the Company's Form 10-QSB for the quarterly period ended December 31,
1996 previously filed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
12
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: March 6, 1997 ESCAGENETICS CORPORATION
By /s/ Michelle Kline
-------------------------------------
Michelle Kline
President and Treasurer
(Principal Executive Officer and
Principal Financial Officer)