SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended June 30, 1998
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _ _ _ _ _ to _ _ _ _ _
COMMISSION FILE NUMBER 000-23531
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AGRITOPE, INC
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(Exact name of Registrant as specified in its charter)
DELAWARE 93-0820945
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(State of incorporation) (IRS Employer Identification No.)
16160 SW Upper Boones Ferry Road Portland, Oregon 97224-7744
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(Address of principal executive offices) (Zip code)
(503) 670-7702
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [X] No [ ]
Number of shares of Registrant's Common Stock, $.01 par value, outstanding
as of June 30, 1998: 4,040,960
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AGRITOPE, INC.
PART I. FINANCIAL INFORMATION
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PAGE NO.
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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AGRITOPE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
at September 30, 1997 and June 30, 1998................................ 3
Condensed Consolidated Statements of Operations
for the three months and nine months ended June 30, 1998 and 1997..... 4
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended June 30, 1998................................ 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 1998 and 1997....................... 6
Notes to Condensed Financial Statements.................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................................. 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................... 14
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AGRITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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6/30/98 9/30/97
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(Unaudited)
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ASSETS
Current assets
Cash and cash equivalents (Note 2) .................................... $ 5,584,998 $ 4,384
Trade accounts receivable, net ........................................ 395,447 617,359
Other accounts receivable ............................................. 10,175 5,554
Inventories (Note 2) .................................................. 4,765,642 2,081,295
Prepaid expenses ...................................................... 243,929 276,224
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11,000,191 2,984,816
Property and equipment, net ........................................... 3,997,892 2,749,788
Patents and proprietary technology, net ............................... 1,610,730 1,276,692
Investment in affiliated companies (Note 3)............................ 96,795 246,962
Other assets and deposits ............................................. 40,599 26,797
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$ 16,746,207 $ 7,285,055
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ...................................................... $ 147,090 $ 100,945
Current portion of long-term debt...................................... 4,255 4,255
Current portion of long-term lease liability........................... 358,404 341,304
Deposits on customer orders............................................ 1,202,902 389,931
Salaries, benefits and other accrued liabilities ...................... 351,733 489,573
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2,064,384 1,326,008
Long-term debt, less current portion................................... 11,344 14,569
Long-term lease liability, less current portion........................ 213,410 450,805
Minority interest in consolidated subsidiary (Note 5).................. 2,056,478 730,947
Commitments and contingencies ......................................... - -
Stockholders' equity (Note 5)
Preferred stock, $.01 par value- 10,000,000 shares authorized
Series A 214,285 shares outstanding .................................. 2,143 -
Common stock, $.01 par value- 30,000,000 shares authorized
4,040,960 and 2,690,776 shares outstanding, respectively.............. 40,410 26,908
Additional paid-in capital ............................................ 57,270,991 45,910,932
Accumulated deficit.................................................... (44,912,953) (41,175,114)
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12,400,591 4,762,726
$ 16,746,207 $ 7,285,055
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AGRITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
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6/30/98 6/30/97 6/30/98 6/30/97
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Revenues
Product sales ................................... $ 663,562 $ 402,605 $ 845,619 $ 566,239
Grants and contracts ............................ - 13,185 71,815 101,507
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663,562 415,790 917,434 667,746
Costs and expenses
Product costs ................................... 648,111 436,197 816,775 548,343
Research and development costs .................. 745,385 465,436 1,820,677 1,250,390
Selling, general and administrative expenses..... 884,715 850,893 2,494,749 2,264,043
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2,278,211 1,752,526 5,132,201 4,062,776
Loss from operations ............................ (1,614,649) (1,336,736) (4,214,767) (3,395,030)
Other income (expense), net
Interest income.................................. 68,985 - 162,852 -
Interest expense................................. (248) (1,139) (793) (25,010)
Valuation loss (Note 3) ......................... - - - (1,900,000)
Cost of debt conversion (Note 4)................. - - - (1,216,654)
Other, net....................................... (128,650) (128,776) (125,053) (126,716)
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(59,913) (129,915) 37,006 (3,268,380)
Minority interest in subsidiary net loss......... $ 185,225 $ 100,765 $ 439,922 $ 208,310
Net loss......................................... $ (1,489,337) $ (1,365,886) $ (3,737,839) $ (6,455,100)
Net loss per share (basic and diluted)........... $ (.37) $ (.51) $ (1.04) $ (2.40)
Weighted average number of
shares outstanding.......................... 4,037,260 2,690,776 3,592,437 2,690,776
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AGRITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
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PREFERRED COMMON ADDITIONAL ACCUMULATED
STOCK STOCK PAID-IN CAPITAL DEFICIT
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Balances at September 30, 1997 .................. $ - $26,908 $45,910,932 $(41,175,114)
Compensation expense for stock option grants..... - - 287,280 -
Common stock issued as compensation (6,480 shares) - 65 27,801 -
Common stock issued in
private placement (1,343,704 shares) (Note 5).. - 13,437 9,392,491 -
Preferred stock issued in
private placement (214,285 shares) (Note 5).... 2,143 - 1,497,852 -
Equity issuance costs ........................... - - (1,093,505) -
Cash contribution from Epitope, Inc. ............ - - 1,248,140 -
Net loss for the period.......................... - - - (3,737,839)
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Balances at June 30, 1998 ....................... $2,143 $40,410 $57,270,991 $(44,912,953)
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AGRITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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NINE MONTHS ENDED
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6/30/98 6/30/97
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .............................................................. $ (3,737,839) $ (6,455,100)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization ......................................... 665,531 383,302
Loss on sale of property............................................... 54 -
Decrease in accounts receivable ....................................... 217,291 109,059
Increase in inventories ............................................... (2,684,347) (1,477,761)
Increase (decrease) in prepaid expenses ............................... 32,295 (23,101)
Increase in other assets and deposits ................................. (13,802) -
Increase in deposits on customer orders................................ 812,971 188,221
Increase (decrease) in accounts payable and accrued liabilities ....... (91,695) 209,682
Common stock issued as compensation for services....................... 27,866 23,437
Compensation expense for stock option grants........................... 287,280 20,832
Minority interest in subsidiary operating results...................... (439,922) (208,310)
Valuation loss......................................................... - 1,900,000
Non-cash portion of cost of debt conversion............................ - 1,149,054
Other, net............................................................. 150,167 121,234
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Net cash used in operating activities.................................. (4,774,150) (4,059,451)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment ................................... (1,791,312) (1,471,276)
Proceeds from sale of property ........................................ 11,033 -
Expenditures for patents and proprietary technology ................... (467,448) (853,718)
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Net cash used in investing activities.................................. (2,247,727) (2,324,994)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt............................................. - 20,887
Principal payments on long-term debt................................... (3,225) (241,019)
Payments on long-term lease obligation................................. (220,295) -
Proceeds from issuance of stock (Note 5)............................... 9,812,418 -
Minority interest investment in subsidiary (Note 5).................... 1,765,453 1,640,000
Cash contribution from Epitope Inc. (Note 5)........................... 1,248,140 5,332,632
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Net cash provided by financing activities.............................. 12,602,491 6,752,500
Net increase (decrease) in cash and cash equivalents .................. 5,580,614 368,055
Cash and cash equivalents at beginning of period ...................... 4,384 476,512
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Cash and cash equivalents at end of period............................. $ 5,584,998 $ 844,567
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AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 THE COMPANY
Agritope, Inc. (the "Company" or "Agritope") utilizes biotechnology to develop
and market superior new plants and related products. Until December 30, 1997,
Agritope was a wholly owned subsidiary of Epitope, Inc. ("Epitope"). Through its
64 percent-owned subsidiary, Vinifera, Inc. ("Vinifera"), Agritope is also
engaged in the business of propagation, growing, and distribution of grapevine
plants. Agritope's wholly owned subsidiary, Agrimax, Inc. ("Agrimax"), formerly
operated a fresh cut flower business and currently holds a minority interest in
a Florida-based fresh flower distribution business. See Note 3.
The condensed consolidated financial statements included herein are unaudited;
however, in the opinion of management, the interim data include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for the interim
periods. These condensed consolidated financial statements should be read in
conjunction with the full year financial statements and notes thereto included
in the Company's 1997 Annual Report to Stockholders. Results of operations for
the three and nine-month periods ended June 30, 1998 are not necessarily
indicative of the results of operations expected for the full fiscal year.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying consolidated financial statements of
Agritope include the assets, liabilities, revenues and expenses of Agritope and
its subsidiaries. All significant intercompany transactions and balances have
been eliminated.
The basis of presentation of these financial statements differs from the
previously issued Agritope Group financial statements contained in Epitope's
Form 10-K for the fiscal year 1996 and most recent Form 10-Q filings. In the
previously issued financial statements, cash and cash equivalents and the
related interest income were allocated to Agritope in connection with a
contemplated targeted stock transaction. The Epitope board of directors
subsequently withdrew the targeted stock proposal and proposed a spin-off to
stockholders. See Note 5. With respect to the spin-off, these items were not
transferred to Agritope and therefore have not been allocated to Agritope in
these financial statements. Certain reclassifications have also been
retroactively reflected in the financial statements to conform to current
presentation.
INVENTORIES. Inventories consisted principally of growing grapevine plants at
Vinifera. The components of inventory are summarized as follows:
6/30/98 9/30/97
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(Unaudited)
Work-in-process......................... $ 1,533,963 $ 1,387,706
Finished goods.......................... 3,231,679 693,589
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$ 4,765,642 $ 2,081,295
NET LOSS PER SHARE. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). This new standard is effective for interim and annual periods
ending after December 15, 1997. SFAS 128 requires the reporting of "basic" and
"diluted" earnings per share ("EPS") instead of "primary" and "fully diluted"
EPS as required under former accounting principles. Basic EPS eliminates the
common stock equivalents considered in calculating primary EPS. Basic EPS under
SFAS 128 does not differ from the Company's previously reported EPS.
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AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION. In June 1998, Agritope cancelled $4,000,000
of working capital loans to Vinifera in exchange for 2,000,000 shares of common
stock in connection with a private placement of common stock of Vinifera to
minority shareholders. See Note 3.
NOTE 3 INVESTMENT IN AFFILIATED COMPANIES
`
Agritope's investment in affiliated companies includes its 9 percent interest in
UAF, Limited Partnership ("UAF"), a fresh flower distribution business in Tampa,
Florida. During the first quarter of fiscal 1997, Agritope determined that the
value of its investment in UAF had more than temporarily declined and,
accordingly, recorded a non-cash charge to results of operations of $1.9 million
reflecting the permanent impairment in the value of its investment. An
additional charge of $358,000 was recorded in the fourth quarter of fiscal 1997
based on information received in October 1997 that the majority owner of Petals
USA, Inc. ("Petals"), a fresh flower distribution company in which Agritope held
a minority interest, intended to either sell the business or cease operations
and liquidate assets. In November 1997, Petals ceased operations and liquidated
assets. All proceeds from the liquidation were applied to outstanding debts of
Petals.
In June 1998, Vinifera accepted an offer to sell its minority interest in
Vinifera Sudamericana S.A. to the majority shareholder for $70,000. The
resultant loss on disposition of $130,000 is included in "Other, net" under the
caption "Other income (expense), net" in the condensed consolidated statements
of operations for the quarter ended June 30,1998.
NOTE 4 CONVERTIBLE NOTES
In November 1996, Epitope exchanged $3.4 million principal amount of Agritope
convertible notes for 250,367 shares of common stock of Epitope at a reduced
exchange price of $13.50 per share. The exchange price had previously been fixed
at $19.53 per share. Accordingly, Agritope recognized a non-cash charge to
results of operations of $1.2 million in the quarter ended December 31, 1996
representing the conversion expense. Concurrent with the note conversion,
Epitope made a $4.5 million capital contribution to Agritope. On June 30, 1997,
Agritope paid in full the remaining $240,000 principal amount outstanding.
NOTE 5 STOCKHOLDERS' EQUITY
AGRITOPE SPIN-OFF. In July 1997, Epitope's board of directors approved a
management proposal to spin off Agritope, subject to obtaining financing for
Agritope and the satisfaction of certain other conditions. On November 25, 1997,
the Agritope Board of Directors declared a stock dividend of 690,776 shares of
Agritope common stock to Epitope, its sole shareholder. On December 30, 1997,
Epitope distributed 2,690,776 shares of Agritope common stock, representing 100%
of the shares then outstanding, to Epitope shareholders on the basis of 1
Agritope share for every 5 shares of Epitope common stock held as of December
26, 1997. Net loss per share has been restated to reflect the stock dividend as
if it had occurred on October 1, 1996. On December 31, 1997, Agritope sold
1,343,704 shares of Agritope common stock in a private placement to certain
investors for an aggregate price of $9.4 million ($7 per share).
Effective December 1, 1997, in anticipation of the spin-off, Agritope assumed
responsibility for funding its future activities. During the quarter ended
December 31, 1997, Epitope contributed cash of $1.2 million to fund operations
prior to December 1 and advanced $917,000 to fund December cash requirements.
The advance was repaid in January 1998. The Company will not receive further
funding from Epitope.
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AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
SERIES A PREFERRED STOCK. On January 8, 1998, the Company sold 214,285 shares of
Series A Preferred Stock (Series A Stock) to a strategic partner, Vilmorin
Clause & Cie, for an aggregate price of $1.5 million ($7 per share). Series A
Stock has preemptive rights and the right to elect a director, but otherwise has
rights substantially equivalent to Agritope common stock and is convertible into
Agritope common stock on a share-for-share basis, subject to adjustment upon the
occurrence of certain events.
DELAWARE REINCORPORATION; RECAPITALIZATION. In November 1997, in connection with
the spin-off of Agritope by Epitope, Agritope agreed to merge with Agritope,
Inc., a newly formed Delaware corporation. The purpose of the merger was to
change the Company's domicile from Oregon to Delaware and increase the Company's
authorized capital stock to 30 million shares of common stock and 10 million
shares of preferred stock.
MINORITY INTEREST IN SUBSIDIARY. In January 1997, a minority shareholder in
Vinifera contributed $100,000 to Vinifera in satisfaction of a stock
subscription agreement. In June 1997, Agritope sold 770,000 shares of common
stock of Vinifera to outside parties for $1.5 million in cash. In accordance
with the terms of the related stock purchase agreements, Agritope contributed
the proceeds of these stock sales to Vinifera's capital. These sales of
previously issued shares of Vinifera common stock reduced the percentage
ownership by Agritope in Vinifera voting stock from 76 percent to 61 percent.
In June 1998, Vinifera sold 898,269 shares of common stock to certain minority
shareholders for $1.8 million. In connection with the terms of the related stock
purchase agreements, Agritope canceled $4 million of working capital loans to
Vinifera in exchange for 2 million shares of common stock of Vinifera. The
transactions increased Agritope's percentage ownership from 61 percent to 64
percent.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN
CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED IN THE COMPANY'S 1997 ANNUAL REPORT TO STOCKHOLDERS AND WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THIS FORM 10-Q. CERTAIN
STATEMENTS SET FORTH BELOW CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY OR INDUSTRY RESULTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING
STATEMENTS. THESE FACTORS WITH RESPECT TO THE COMPANY INCLUDE LOSS OR IMPAIRMENT
OF SOURCES OF CAPITAL; DEPENDENCE ON STRATEGIC PARTNERS; UNCERTAINTIES RELATING
TO PATENTS AND PROPRIETARY INFORMATION; DEPENDENCE ON KEY PERSONNEL;
TECHNOLOGICAL CHANGE AND COMPETITION; UNCERTAINTIES AS TO ACCEPTANCE OF
GENETICALLY ENGINEERED PRODUCTS; AND CHANGES IN LAWS OR REGULATIONS. GIVEN THESE
UNCERTAINTIES, READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORWARD-LOOKING STATEMENTS.
Agritope, Inc. (the "Company" or "Agritope") consists of two units: Agritope
Research and Development and Vinifera, Inc. ("Vinifera"). Agritope Research and
Development uses biotechnology in the development of new fruit and vegetable
plant varieties for sale to the fresh produce industry. To date, Agritope has
not completed commercialization of its technology. A portion of the research and
development efforts conducted by Agritope has been performed under various
research grants and contracts. Vinifera is engaged in the grapevine propagation
and distribution business.
In July 1997, the board of directors of Epitope, Inc. ("Epitope"), the Company's
former parent, approved a management proposal to spin off Agritope, subject to
obtaining financing for Agritope and the satisfaction of certain other
conditions. On December 30, 1997, Epitope distributed 2,690,776 shares of
Agritope common stock , representing 100% of the shares then outstanding, to
Epitope shareholders on the basis of one Agritope share for every five shares of
Epitope common stock held as of December 26, 1997. On December 31, 1997 Agritope
sold 1,343,704 shares of Agritope common stock in a private placement to certain
investors for an aggregate price of $9.4 million. On January 8, 1998, the
Company sold 214,285 shares of Series A Preferred Stock to a strategic partner,
Vilmorin Clause & Cie, for an aggregate of $1.5 million.
Agritope and Epitope entered into certain agreements governing the ongoing
relationship between the companies after the spin-off, including a Separation
Agreement, a Tax Allocation Agreement, a Transition Services and Facilities
Agreement and an Employee Benefits Agreement. Pursuant to the Employee Benefits
Agreement, Agritope has established replacement plans that effectively continue
to provide benefits formerly available under Epitope benefit plans. As a
consequence of the spin-off, Epitope does not have any ownership interest in
Agritope and, accordingly, no longer provides funding for Agritope's activities.
<PAGE>
RESULTS OF OPERATIONS
REVENUES. Total revenues for the third quarter and nine months ended June 30,
1998 were $664,000 and $917,000, respectively, as compared to $416,000 and
$668,000 for the corresponding periods in the prior year. Revenues are
summarized below:
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THREE MONTHS ENDED JUNE 30 (IN THOUSANDS, EXCEPT %) 1998 1997
DOLLARS PERCENT DOLLARS PERCENT
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Product sales-
Grape plant sales......................................... $ 664 100% $ 403 97%
Grants and contracts...................................... - - 13 3
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$ 664 100% $ 416 100%
NINE MONTHS ENDED JUNE 30 (IN THOUSANDS, EXCEPT %) 1998 1997
DOLLARS PERCENT DOLLARS PERCENT
------- ------- ------- -------
Product sales-
Grape plant sales......................................... $ 845 92% $ 566 85%
Grants and contracts...................................... 72 8 102 15
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$ 917 100% $ 668 100%
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Sales by the Company's grape plant propagation subsidiary (Vinifera) are highly
seasonal and generally occur in the spring and summer planting seasons. Due to
rainy weather conditions in California in the spring of 1998, a number of
customers deferred plantings to the summer season.
Vinifera commenced commercial stage operations in 1996 and continued its
marketing efforts and expansion of its production capacity and customer base
during 1997. As of June 30, 1998, Vinifera had firm orders totaling $2.9
million, of which $1.8 million call for delivery before September 30, 1998 and
$1.1 million call for delivery in fiscal 1999. As of June 30, 1997, Vinifera had
firm orders of $0.8 million for delivery in the spring and summer of 1998.
Vinifera requires customers to make deposits upon placing orders for future
delivery. Such deposits totaled $1.2 million as of June 30, 1998, as compared to
$0.4 million on September 30, 1997 and $0.7 million on June 30, 1997.
In the second quarter of fiscal 1998, the Company completed work under a
research grant totaling $55,000. The Company has also commenced work under a
three-year grant totaling $1.0 million from the U.S. Department of Commerce, of
which approximately one-third of the work is planned for completion in the
remainder of fiscal 1998. In addition, one of the Company's strategic partners,
Vilmorin Clause & Cie, has committed to fund at least $1.0 million of research
projects over the next three years. To date, $250,000 has been approved for
three projects commencing in July 1998.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
by $ 280,000 or 60% and $570,000, or 46%, respectively, for the three months and
nine months ended June 30, 1998 as compared to the third quarter and first nine
months of fiscal 1997. The higher research and development costs in the third
quarter of fiscal 1998 reflect increased efforts to develop and propagate crops
containing Agritope's patented ethylene control technology, stepped-up research
efforts to explore the potential of certain genes obtained from the Salk
Institute and costs associated with the Company's move to new facilities
following the spin-off.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $34,000 or 4% in the current quarter and by
$231,000 or 10%, in the nine months ended June 30, 1998, as compared to the
quarter and nine months ended June 30, 1997. The increase for the nine months is
primarily attributable to fees and expenses incurred in connection with
preparation for the Company's commencement of operations as an independent
public company and costs of moving to new facilities.
<PAGE>
OTHER INCOME (EXPENSE), NET. In the quarter ended June 30, 1998, the Company
realized interest income of $69,000 from investment of proceeds from the private
placements of equity securities in December 1997 and January 1998. Other income
(expense), net was affected by two significant non-recurring charges totaling
$3.1 million in the first quarter of fiscal 1997. Agritope recorded a non-cash
charge to results of operations of $1.9 million, reflecting the permanent
impairment in the value of its investment in affiliated companies (UAF and
Petals). Additionally, conversion of $3.4 million principal amount of Agritope
convertible notes into Epitope common stock at a reduced price resulted in a
non-cash charge to results of operations of $1.2 million.
NET LOSS. Agritope's net loss was approximately $1.5 million for the third
quarter of fiscal 1998 and $1.4 million for the corresponding quarter in 1997 $
($.37 per share for 1998 and $.51 per share for 1997). For the nine months ended
June 30, 1998, the net loss decreased to $3.7 million ($1.04 per share) from
$6.5 million ($2.40 per share) principally as a result of the $3.1 million of
prior year non-recurring charges incurred in the quarter ended December 31,
1996. Excluding the non-recurring valuation loss and cost of debt conversion in
fiscal 1997, the Company's operating loss in the most recently completed nine
month period increased $399,000 as a result of increased activity levels and
costs associated with the spin-off and subsequent move to new facilities in
March 1998.
LIQUIDITY AND CAPITAL RESOURCES
6/30/98 9/30/97
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Cash and cash equivalents.................. $5,584,998 $ 4,384
Working capital ..............................8,935,807 1,658,808
At June 30, 1998, Agritope had working capital of $8.9 million, as
compared to working capital of $1.7 million at September 30, 1997. The increase
in working capital was principally attributable to sale of 1,343,704 shares of
common stock and 214,285 shares of preferred stock to certain foreign investors
at a price of $7 per share for an aggregate sales price of $10.9 million and
$1.8 million proceeds from sale of 898,269 shares of common stock of Vinifera,
Inc. to its minority shareholders. Working capital also increased due to a $2.7
million increase in Vinifera's inventory of growing grapevine plants. The plants
can be maintained in greenhouses or stored outside for several years during
which time they continue to grow. Inventory on hand at June 30, 1998 represents
grapevine plants expected to be sold in the summer of 1998 and in 1999.
Expenditures for property and equipment were $1.8 million during the nine months
ended June 30, 1998, largely as a result of $1.3 million in expenditures for new
research and administrative facilities to which the Company moved in March 1998.
In November 1997, Agritope made a one-time cash payment of $590,000 to an
officer of Agritope, who is the co-inventor of Agritope's ethylene control
technology, in exchange for all rights to future payments. Agritope has also
acquired certain rights to certain proprietary genes for which it makes payments
of $75,000 per quarter. Such amounts are included in "Patents and proprietary
technology, net." Agritope's investment in affiliated companies, obtained in
connection with the divestiture of its fresh flower packaging and distribution
business, was reduced by a non-cash charge of $1.9 million in the first quarter
of the year ended September 30, 1997, reflecting the permanent impairment in the
value of these investments.
Historically, Agritope's requirements for operations, working capital and
business expansion have been funded by receipts of cash from Epitope,
supplemented by $5.4 million principal amount of convertible notes, $3.4 million
of investments in Vinifera by minority shareholders, and $1.0 million in funding
from strategic partners and other research grants. On December 1, 1997, in
anticipation of its spin-off from Epitope, Agritope assumed responsibility for
funding its future activities. During the quarter ended December 31, 1997,
Agritope received a capital contribution of $1.2 million from Epitope to fund
cash requirements during the months of October and November and advanced
$917,000 for December cash requirements. The advance was repaid in January 1998.
On December 30, 1997, Epitope distributed 100% of Agritope's outstanding common
stock to shareholders of Epitope. On December 31, 1997, Agritope sold 1.3
million shares of common stock to foreign investors in a private placement
transaction at a price of $7 per share for aggregate proceeds of $9.4 million.
In January 1998, Agritope sold 214,285 shares of Series A Preferred Stock to a
<PAGE>
foreign buyer at a price of $7 per share, for aggregate proceeds of $1.5
million, and repaid Epitope's advances for cash requirements after December 1,
1997. In June 1998, Vinifera sold 898,269 shares of common stock to minority
shareholders for $1.8 million and issued 2 million shares of common stock to
Agritope in exchange for cancellation of $4 million working capital loans. See
Note 5 to Condensed Consolidated Financial Statements.
Agritope expects to continue to require significant funds to support its
operations and research activities. It intends to utilize cash reserves, cash
generated from sales of products, and research funding from strategic partners
and other research grants to provide the necessary funds. Agritope may also
receive additional funds from the sale of equity securities. Additional capital
may not be available on acceptable terms, if at all, and the failure to raise
such capital would have a material adverse effect on Agritope's business,
financial condition, and results of operations.
Management presently anticipates that Agritope has sufficient funds on hand to
finance operations through fiscal 1999, based on currently estimated revenues
and expenses. Because this estimate is based on a number of factors, many of
which are beyond its control, Agritope cannot be certain that this estimate will
prove to be accurate, and to the extent that Agritope's operations do not
progress as anticipated, additional capital may be required.
Agritope has completed a Year 2000 review of its systems and procedures to
determine the scope of costs or risks Agritope may face in connection with
potential computer problems associated with the Year 2000. Management believes
that Agritope will not incur material Year 2000 remedial costs and that its
operations will not be materially affected by any Year 2000 problems.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months
ended June 30, 1998.
<PAGE>
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 thereunto duly authorized.
AGRITOPE, INC.
August 12, 1998 /s/ ADOLPH J. FERRO
- --------------- ----------------------------------
Date Adolph J. Ferro
Chairman, President and Chief
Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)
August 12, 1998 /s/ GILBERT N. MILLER
- --------------- ----------------------------------
Date Gilbert N. Miller
Executive Vice President and Chief
Financial Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
27 Financial Data Schedule 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements included herein and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1998
<CASH> 5,584,998
<SECURITIES> 0
<RECEIVABLES> 405,679
<ALLOWANCES> 57
<INVENTORY> 4,765,642
<CURRENT-ASSETS> 11,000,191
<PP&E> 5,673,648
<DEPRECIATION> (1,675,756)
<TOTAL-ASSETS> 16,746,207
<CURRENT-LIABILITIES> 2,064,384
<BONDS> 0
0
2,143
<COMMON> 40,410
<OTHER-SE> 12,358,038
<TOTAL-LIABILITY-AND-EQUITY> 16,746,207
<SALES> 845,619
<TOTAL-REVENUES> 917,434
<CGS> 816,775
<TOTAL-COSTS> 5,132,201
<OTHER-EXPENSES> 37,799
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 793
<INCOME-PRETAX> (3,737,839)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,737,839)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,737,839)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
