<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______to ________
Commission File No. 0-22191
-------
CONSERVER CORPORATION OF AMERICA
--------------------------------
(Exact Name of Registrant)
Delaware 65-0675901
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization Identification Number)
2655 LeJeune Rd.
Suite 535
Coral Gables, FL 33134
------------------------------------
(Address of Principal Executive Offices)
(305) 444-3888
--------------
(Registrant's Telephone Number, Including Area Code
Not Applicable
--------------
(Former Name, Former Address and Former Fiscal Year,
if changed Since Last Report)
Check whether the registrant (1) filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 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 ]
State the number of shares outstanding of each of the
registrant's classes of common equity, as of the latest practicable date.
Class Outstanding at July 18, 1997
------------ ----------------------------
Common Stock, $.001 par value 6,715,404 shares
<PAGE>
CONSERVER CORPORATION OF AMERICA
( a development stage company)
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Balance Sheets as of August 31, 1996
and May 31, 1997 (unaudited).......................................................... 3
Condensed Statements of Operations for the Period from March 6, 1996 (inception)
to May 31, 1996 (unaudited), the Three and Nine Month Periods ended May
31, 1997 (unaudited) and for the period March 6, 1996 (inception) to
May 31, 1997 (unaudited).............................................................. 4
Condensed Statements of Cash Flows for the Nine Month Period ended May 31, 1997
(unaudited) and for the period March 6, 1996 (inception) to
May 31, 1997 (unaudited).............................................................. 5
Notes to Condensed Financial Statements........................................................ 6
Item 2. Management's Discussion and Analysis
of Financial Conditions and Results
of Operations........................................................................ 8
PART II. OTHER INFORMATION
Item 5 Other information (Change in fiscal year end).......................................... 11
Item 6 Exhibits and Reports on Form 8-K....................................................... 11
SIGNATURES..................................................................................... 12
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
---------------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONSERVER CORPORATION OF AMERICA
(a development stage company)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, May 31,
ASSETS 1996 1997
- ------ ----------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,403,588 $615,058
Advances to officers and employees 17,968 120,540
Note receivable 375,800
Other current assets 17,502 16,920
---------- ---------
Total current assets 2,439,058 1,128,318
Property and equipment, net 4,378 17,373
Costs of public offering 406,948
Advances to distributor 500,000
---------- ---------
TOTAL $2,443,436 $2,052,639
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Return of subscription funds $90,000
Notes payable - current (net of $108,122 discount) $641,878
Loan from shareholder 500,000
Accounts payable and accrued expenses 79,156 36,098
Accrued interest 30,000 172,750
--------- ---------
Total current liabilities 199,156 1,350,726
Notes payable 1,000,000 1,000,000
--------- ---------
Total liabilities 1,199,156 2,350,726
--------- ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY):
Preferred stock, par value $.01, 5,000 shares
authorized, none issued and outstanding
Common stock, par value $.001; 30,000,000 shares authorized;
5,511,567 and 4,210,404 shares issued and outstanding at
August 31, 1996 and May 31, 1997, respectively 5,212 4,211
Subscriptions receivable (2,741)
Additional paid-in capital 2,628,880 4,566,007
(Deficit) accumulated during the development stage (1,387,071) (4,868,305)
--------- ---------
Total stockholders' equity (capital deficiency) 1,244,280 (298,087)
--------- ---------
TOTAL 2,443,436 $2,052,639
========= =========
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from For the Three For the Nine Period from
March 6, 1996 Months Months March 6, 1996
(Inception) to Ended Ended (Inception) to
May 31, May 31, May 31, May 31,
1996 1997 1997 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Marketing and sales 29,251 29,251 29,251
Research and development 21,242 39,519 39,519
General and administrative 46,027 502,770 1,334,381 1,792,992
Compensation charges in connection with
issuance of options and warrants 450,000 1,545,000 1,768,000 2,675,200
--------- ---------- --------- ---------
Total operating expenses 496,027 2,098,263 3,171,151 4,536,962
--------- ---------- --------- ---------
(LOSS) FROM OPERATIONS (496,027) (2,098,263) (3,171,151) (4,536,962)
OTHER INCOME (EXPENSE):
Interest income 6,625 37,354 46,095
Interest expense (52,750) (143,060) (173,060)
Amortization of debt discount (78,125) (204,378) (204,378)
--------- ---------- --------- ---------
Total other income (expense) (124,250) (310,084) (331,343)
--------- ---------- --------- ---------
NET (LOSS) ($496,027) ($2,222,513) ($3,481,235) ($4,868,305)
========= ========== ========== ==========
NET (LOSS) PER SHARE OF
COMMON STOCK ($0.12) ($0.45) ($0.71)
========= ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
SHARE EQUIVALENTS OUTSTANDING 4,291,133 4,952,900 4,912,733
========= ========== ==========
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Period from
Months March 6, 1996
Ended (Inception) to
May 31, May 31,
1997 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) ($3,481,234) ($4,868,305)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 205,703 206,190
Compensation expense relating to officer's
salary 95,000 160,000
Compensation expense relating to options
and warrants 1,768,000 2,675,201
Legal services provided by shareholder
without charge 59,700 59,700
Changes in current assets and current liabilities:
Advances to officers and employees (102,572) (116,701)
Other assets 582 (16,920)
Accounts payable and accrued expenses 99,692 205,009
--------- ---------
Total adjustments 2,126 105 3,172 479
--------- ---------
Net cash (used) by operating activities (1,355,129) (1,695,826)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (14,320) (19,185)
Funds used for notes receivable (375,800) (375,800)
--------- ---------
Net cash (used) by investing activities (390,120) (394,985)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Subscriptions receivable 1,374 1,374
Repurchase of shares of common stock (1,800,000) (1,800,000)
Costs of public offering (406,948) (406,948)
Legal services re: sale of common stock (12,707) (12,707)
Proceeds from notes payable 750,000 1,750,000
Return of subscription funds (90,000)
Proceeds from sale of common stock 1,515,000 3,174,150
--------- ---------
Net cash provided (used) by financing activities (43,281) 2,705,869
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,788,530) 615,058
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,403,588
CASH AND CASH EQUIVALENTS, --------- ---------
END OF PERIOD $615,058 $615,058
========= =========
</TABLE>
See notes to condensed financial statements.
5
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(NOTE A) - Basis of Presentation and the Company:
- -------------------------------------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. Operating results
for the three-month and nine-month periods ended May 31, 1997 and for the period
from March 6, 1996 (inception) to May 31, 1997 are not necessarily indicative of
the results that may be expected for the year ending August 31, 1997.
The balance sheet at August 31, 1996 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the audited financial
statements and footnotes thereto included in the Form S-1 filed by the Company.
(NOTE B) The Company
- --------------------
Conserver Corporation of America (the "Company") is a development stage
company that has the rights for the exclusive distribution of a product known as
Conserver 21(TM) which can be used to retard spoilage and decay in food and
flowers for commercial use in the United State and Canada. The Company was
incorporated in Delaware on March 6, 1996 and has adopted a fiscal year ending
August 31. The Company's activities since inception have largely consisted of
organization matters, negotiating agreements and obtaining funds to finance the
Company's operations and development of its marketing and business plan. In June
1997, the Company completed an initial public offering (the "Offering") in which
it received approximately $8,900,000, net of offering commissions and expenses,
through the sale of 2,200,000 shares of common stock at a per share price of
$5.00. In July 1997, the Company's underwriter exercised its over-allotment
option to purchase an aggregate of 330,000 additional shares of common stock at
$5.00 per share resulting in the Company receiving an additional $1,450,000
after commissions and expenses.
6
<PAGE>
(NOTE C) Summary of Significant Accounting Policies:
- ----------------------------------------------------
[1] Loss per share of common stock:
Net loss per share of common stock is based on the weighted average
number of shares outstanding during the period. Common shares issued and options
and warrants granted by the Company at prices less than the $5.00 Offering price
during the twelve months preceding the Offering date have been included in the
calculation of common and common equivalent shares outstanding as if they were
outstanding since inception using the treasury stock method.
[2] Stock based compensation:
The Company accounts for employee stock based compensation including
stock options under the basis of Accounting Principles Board Opinion No. 25.
Disclosures required by Financial Accounting Standards Board No. 123 are to be
found in Note E [2] to the financial statements in the Company's S-1.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the Financial Statements and related Notes contained elsewhere in this
10-Q.
General
The Company, which was organized in March 1996, is in the
development stage and its activities since the date of incorporation have been
primarily limited to negotiating distribution arrangements, privately raising
both debt and equity funding, product testing and recruiting management
personnel. The Company has received the exclusive license to import, promote,
distribute, market, sell and otherwise commercially exploit Conserver 21(TM) in
the United States and Canada, and holds the exclusive option and right of first
refusal to exercise such rights throughout the world. In June 1997, the Company
completed an initial public offering (the "Offering") in which it received
approximately $8,900,000, net of offering commissions and expenses, through the
sale of 2,200,000 shares of common stock at a per share price of $5.00. In July
1997, the Company's underwriter exercised its over-allotment option to purchase
an aggregate of 330,000 additional shares of common stock at $5.00 per share
resulting in the Company receiving an additional $1,450,000 after commissions
and expenses.
Business Strategy
The Company believes that there are significant opportunities to
provide technologies and services which can retard spoilage and decay in fruits,
vegetables and flowers during the course of storage and transportation from
point of packing to point of retail sale. The Company intends to market
Conserver 21(TM) and will provide services to oversee the proper use of
Conserver 21(TM) in the packing and transportation of such fruits, vegetables
and flowers.
Results of Operations
The Company has a limited operating history upon which an evaluation of
its performance and prospects can be made. During the period from March 6, 1996
(date of incorporation) to May 31, 1997, the Company's activities were primarily
limited to organizational efforts and privately raising capital to defray its
organizational expenses and the development of its business plan. During such
period the Company had no revenues and incurred a net loss of $4,868,305.
Included in the net loss were (i) non-cash compensation charges of $2,675,200
recorded in connection with the value attributed to options and warrants issued
by the Company; (ii) non-cash compensation charges of $160,000 for services to
the Company contributed by Charles H. Stein, its President and Chief Executive
Officer; (iii) a charge of $204,378 related to amortization of debt discount
created by the value attributed to shares of Common Stock issued to holders of
convertible debentures and (iv) accrued interest expense of $173,000 on
convertible notes. Through May 31, 1997, the Company has spent approximately
$1,702,000 to fund its operations, such expenditures consisting primarily of
travel expenses, salaries and professional and consulting fees.
8
<PAGE>
Liquidity and Capital Resources
Since its date of incorporation, the Company has relied
primarily upon privately raised debt and equity funding to fund its operations.
From March 1996 through November 1996, the Company raised $3,172,000 through the
private placement of common stock at a purchase price of $5.00 per share and in
June 1997 the Company completed an initial public offering in which it received
approximately $8,900,000, net of offering commissions and expenses, through the
sale of 2,200,000 shares of common stock at a price of $5.00 per share. An
additional $1,450,000, net of commissions and expenses, was received by the
Company in July 1997 at which time the Company's underwriter exercised its
over-allotment option to purchase an aggregate of 330,000 additional shares of
common stock at $5.00 per share.
In May 1996, the Company issued a convertible debenture to the SES
Family Trading and Investment Partnership, L.P. ("SES") in the aggregate
principal amount of $1,000,000. Pursuant to the terms of such debenture, as
amended, interest accrued at the rate of 12% per annum, with principal and
interest paid out of the net proceeds of this Offering. The Company and SES
agreed to amend the terms of the debenture to eliminate the conversion rights
contained therein which the Company estimates would have entitled such holder to
receive in excess of 2,000,000 shares of Common Stock upon conversion. Instead,
SES and its affiliate received warrants upon the completion of the Offering to
purchase 550,000 shares of common stock at an exercise price of $2.00 per share,
exercisable for a period of 6 years commencing one year from the date of
issuance. The Company expects to record non-cash compensation charges of
approximately $2,040,000 in connection with the value attributed to the issuance
of such warrants.
In September and November 1996, the Company issued convertible
debentures in the aggregate principal amounts of $600,000 and $150,000,
respectively. Principal and accrued interest at a rate of 10% per annum, is
payable on the one year anniversary of the date of issuance. The holders of the
debentures may elect to convert, at any time, all unpaid principal and accrued
interest into shares of Common Stock at a rate of $5.00 per share. In addition,
the holders of the debentures aggregating $150,000 issued in November 1996 were
given the right to elect to be paid in full after the completion of the
Offering.
In October and November 1996, the Company repurchased 1,366,667 shares
of Common Stock from Conserver Investments, S.A., an unaffiliated company, for
an aggregate purchase price of $1,800,000.
The provisions of Financial Accounting Standard No. 123 "Accounting for
Stock-Based Compensation" ("FAS 123") became effective for the Company's first
fiscal year-end. Pursuant to the choice afforded it in FAS 123, the Company has
<PAGE>
elected to report under the basis of Accounting Principles Board Opinion No. 25.
Disclosures required by the Company's election may be found in Note E (2) of the
financial statements included in the Company's Form S-1 filed on June 5, 1997.
The Company is in the development stage and its operations are subject
to all of the risks inherent in the establishment of a new business enterprise,
including the need to obtain financing, lack of revenues and the uncertainty of
market acceptance of its business. The Company has not as yet derived any
revenues from operations and has incurred losses since inception. Its
accumulated deficit at May 31, 1997 was $4,868,305. No operating revenues are
anticipated until such time, if ever, as the Company can demonstrate the
commercial viability of its Conserver 21(TM)Program. The Company currently has
no orders and there can be no assurance that potential customers will be willing
to incur the costs of the Conserver 21(TM) Program. In addition, the use of
Conserver 21(TM) in a post-harvest quality maintenance assurance program such as
the Conserver 21(TM) Program has not yet been demonstrated on a commercial basis
outside of Spain. There can be no assurance regarding whether or when the
Company will successfully implement its business plan or operate profitably.
The Company currently estimates that the net proceeds from the Offering
will be sufficient to meet the Company's liquidity and working capital
requirements, including additional expenditures for inventory purchase
(including the repayment of $500,000 plus interest accrued at 10% to James
Stanton, a director of the Company, for a loan made on behalf of the Company to
Agrotech pursuant to the Distribution Agreement for the prepayment of these
purchases), leasing new office space, warehouse space, and establishing a
laboratory facility, for a period of at least 24 months following the
consummation of the Offering. The continued expansion and operation of the
Company's business beyond such 24 month period may be dependent on its ability
to obtain additional financing. In the event the Company's plans change, its
assumptions prove to be inaccurate or the net proceeds of the Offering together
with the privately raised funds prove to be insufficient to fund operations (as
a result of future charges in the industry, general economic conditions,
unanticipated increases in expenses or other factors) the Company may be
required to seek additional financing. Any additional equity financing may be
dilutive to stockholders and debt financing, if available, will likely include
restrictive covenants, including financial maintenance covenants restricting the
Company's ability to incur additional indebtedness and pay dividends. The
Company has no current arrangement with respect to, or sources of, additional
financing and there can be no assurance that any needed financing would be
available to the Company on acceptable terms, or at all. The Company's ability
to obtain additional financing will depend upon, among other things, the
willingness of financial organizations to participate in funding and the
Company's financial condition and results of operations.
The Company's future performance will be subject to a number of
business and other factors, including those beyond the Company's control, such
as economic downturns and changes in the marketplace, as well as the level of
competition and the ability of the Company to successfully implement its
business strategy and effectively monitor and control its costs. Further, there
can be no assurance that the Company will be able to generate significant
revenues or achieve profitable operations.
10
<PAGE>
Certain statements in this Quarterly Report on Form 10-Q are "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 and involve known and unknown risk, uncertainties and other
factors that may cause the Company's actual results, performance or achievements
to be materially different from the results, performance or achievements
expressed or implied by the forward looking statement. Factors that impact such
forward looking statements include, among others, changes in worldwide general
economic conditions, changes in interest rates, currency rates and worldwide
competition.
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGE IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
The Company on July 15, 1997 determined to change its fiscal year end
to June 30. The transition period will be filed on Form 10-K for the
year ended June 30, 1997.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Financial Data Schedule - Exhibit 27
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSERVER CORPORATION OF AMERICA
Dated:______________________________ By: /s/ Charles Stein
-----------------
Charles Stein, Chairman and
Chief Executive Officer
By: /s/ Miles R. Greenberg
----------------------
Miles R. Greenberg, Chief
Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 615,058
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,128,318
<PP&E> 19,185
<DEPRECIATION> 1,812
<TOTAL-ASSETS> 2,052,638
<CURRENT-LIABILITIES> 1,350,726
<BONDS> 0
0
0
<COMMON> 4,211
<OTHER-SE> 4,566,007
<TOTAL-LIABILITY-AND-EQUITY> 2,052,639
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,171,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 310,084
<INCOME-PRETAX> (3,481,235)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,481,235)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> (.71)
</TABLE>
