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 December 31, 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
AGRITOPE, INC
(Exact name of Registrant as specified in its charter)
DELAWARE 93-0820945
(State of incorporation) (I.R.S. Employer Identification No.)
16160 SW Upper Boones Ferry Road
Portland, Oregon 97224-7744
(Address of principal executive offices) (Zip code)
(503) 670-7702
(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 December 31, 1998: 4,059,927
<PAGE>
AGRITOPE, INC.
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of December 31, 1998 and September 30, 1998...................... 3
Condensed Consolidated Statements of Operations
for the three months ended December 31, 1998 and 1997............... 4
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the three months ended December 31, 1998........................ 5
Condensed Consolidated Statements of Cash Flows
for the three months ended December 31, 1998 and 1997.............. 6
Notes to Condensed Consolidated Financial Statements.................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................... 12
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
12/31/98 9/30/98
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents ............................................. $ 2,847,326 $ 3,904,087
Trade accounts receivable, net ........................................ 488,032 1,033,860
Other accounts receivable ............................................. 81,408 124,690
Inventories (Note 2) .................................................. 4,026,882 3,289,172
Prepaid expenses ...................................................... 100,981 172,196
------------ ------------
7,544,629 8,524,005
Property and equipment, net ........................................... 3,918,061 4,100,804
Patents and proprietary technology, net ............................... 1,802,051 1,736,998
Other assets and deposits ............................................. 24,473 28,519
------------ ------------
$ 13,289,214 $ 14,390,326
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ...................................................... $ 157,645 $ 178,171
Current portion of long-term debt...................................... 4,255 4,255
Current portion of long-term lease liability........................... 373,890 358,404
Deposits on customer orders............................................ 1,010,272 599,944
Salaries, benefits and other accrued liabilities ...................... 380,618 499,313
------------ ------------
1,926,680 1,640,087
Long-term portion of installment notes payable......................... 9,115 10,238
Long-term lease liability, less current portion........................ - 115,785
Minority interest in consolidated subsidiaries ........................ 1,496,907 1,613,977
----------- ---------
3,432,702 3,380,087
Commitments and contingencies.......................................... - -
Stockholders' equity
Preferred Stock, $.01 par value- 10,000,000 shares authorized
214,285 shares issued and outstanding ................................ 2,143 2,143
Common Stock, $.01 par value- 30,000,000 shares authorized
4,059,927 and 4,050,150 issued and outstanding, respectively.......... 40,599 40,502
Additional paid-in capital ............................................ 57,492,161 57,386,675
Accumulated deficit.................................................... (47,678,391) (46,419,081)
----------- ------------
9,856,512 11,010,239
$ 13,289,214 $ 14,390,326
</TABLE>
3
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
12/31/98 12/31/97
<S> <C> <C>
Revenues
Product sales ............................... $ 74,194 $ 2,277
Grants and contracts ........................ 160,890 14,014
------------ -------------
235,084 16,291
Costs and expenses
Product costs ............................... 101,098 8,302
Research and development expenses ........... 699,868 524,942
Selling, general and administrative expenses. 875,276 840,366
------------ -------------
1,676,242 1,373,610
Loss from operations ........................ (1,441,158) (1,357,319)
Other income (expense), net
Interest income ............................. 68,631 541
Interest expense............................. (217) (280)
Other, net .................................. (3,636) 3,597
------------- -----------
64,778 3,858
Minority interest in subsidiary net loss .... 117,070 127,094
------------ -------------
Net loss..................................... $(1,259,310) $(1,226,367)
Net loss per share (basic and diluted)....... $(0.31) $(0.45)
Weighted number of shares outstanding ....... 4,050,256 2,719,987
</TABLE>
4
<PAGE>
AGRITOPE, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Shares Amount Additional Accumulated
Preferred Common Preferred Common Paid-in Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1998................ 214,285 4,050,150 $2,143 $40,502 $57,386,675 (46,419,081)
Common stock issued as compensation .......... - 9,777 - 97 13,654 -
Compensation expense for stock option grants . - - - - 103,140 -
Equity issuance costs......................... - - - - (11,308) -
Net loss for the period ...................... - - - - - (1,259,310)
------------ ---------- ------- ------- ----------- -------------
Balances at December 31, 1998................. 214,285 4,059,927 $2,143 $40,599 $57,492,161 $(47,678,391)
</TABLE>
5
<PAGE>
AGRITOPE, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
12/31/98 12/31/97
<S> <C> <C>
Cash flows from operating activities
Net loss .............................................................. $ (1,259,310) $ (1,226,367)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization ......................................... 323,102 207,876
Loss on sale of property .............................................. 3,637 1,404
Common stock issued as compensation for services....................... 13,751 -
Compensation expense for stock option grants........................... 103,140 -
Minority interest in subsidiary operating results...................... (117,070) (127,094)
Decrease in accounts receivable........................................ 589,110 170,320
Increase in inventories ............................................... (737,710) (1,102,231)
Decrease in prepaid expenses .......................................... 71,215 242,856
(Increase) decrease in other assets and deposits ...................... 4,046 (10,928)
Increase (decrease) in accounts payable and accrued liabilities ....... (139,221) 298,575
Increase in deposits on customer orders................................ 410,328 119,010
------------- -------------
Net cash used in operating activities............................... (734,982) (1,426,579)
Cash flows from investing activities
Additions to property and equipment ................................... (79,785) (250,727)
Proceeds from sale of property ........................................ 900 100
Expenditures for patents and proprietary technology ................... (130,164) (104,419)
------------- -------------
Net cash used in investing activities............................... (209,049) (355,046)
Cash flows from financing activities
Principal payments on long-term debt................................... (1,123) (1,060)
Payments on long-term lease liability ................................. (100,299) (98,005)
Proceeds from issuance of stock ....................................... - 8,665,274
Equity issuance costs ................................................. (11,308) -
Cash contribution from Epitope, Inc. .................................. - 1,248,140
Accounts payable to Epitope, Inc. ..................................... - 916,705
------------- -------------
Net cash provided (used) by financing activities.................... (112,730) 10,731,054
Net increase (decrease) in cash and cash equivalents .................. (1,056,761) 8,949,429
Cash and cash equivalents at beginning of period ...................... 3,904,087 4,384
------------- -------------
Cash and cash equivalents at end of period............................. $ 2,847,326 $ 8,953,813
</TABLE>
6
<PAGE>
AGRITOPE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 THE COMPANY
Agritope, Inc. (the "Company" or "Agritope") is an Oregon-based agricultural
biotechnology company that develops improved plant products and provides
technology to the agricultural industry. Through its 64 percent-owned
subsidiary, Vinifera, Inc. ("Vinifera"), Agritope is also engaged in the
business of propagation, growing, and distribution of grapevine plants. Until
December 30, 1997, Agritope was a wholly owned subsidiary of Epitope, Inc.
("Epitope").
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 1998 Annual Report on Form-10-K. Results of operations for the
three-month period ended December 31, 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 condensed 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. Certain prior year amounts have been reclassified
to conform to current year presentation.
Inventories. Inventories consisted principally of growing grapevine plants at
Vinifera. The components of inventory are summarized as follows:
12/31/98 9/30/98
(Unaudited)
Operating supplies..................... $ 104,964 $ 142,900
Work-in process........................ 117,252 128,374
Finished goods......................... 3,804,666 3,017,898
--------- ------------
$ 4,026,882 $ 3,289,172
7
<PAGE>
AGRITOPE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
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 current 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. The
following potentially dilutive securities are excluded from net loss per share
calculations as their effect would have been antidilutive:
12/31/98 9/30/98
Options to purchase common stock............ 1,690,178 1,302,164
Warrants to purchase common stock........... 583,333 500,000
Convertible preferred stock................. 214,285 -
---------- ----------------
2,487,796 1,802,164
8
<PAGE>
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 1998 Annual Report on Form 10-K 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. With respect to the Company, these factors include its limited
independent operating history; uncertainty of additional funding; 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; changes in laws or regulations; as well as
the other factors discussed in Exhibit 99 to the Company's 1998 Annual Report on
Form 10-K, which is hereby incorporated by reference. Given these uncertainties,
readers are cautioned not to place undue reliance on the forward-looking
statements. Agritope does not intend to update any 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 plant varieties. 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.
RECENT DEVELOPEMENTS
Gene Discovery Program. In February 1999, the Company entered into a letter of
intent with Rhone-Poulenc Plant and Animal Health, a division of Rhone-Poulenc,
S.A. (NYSE: RP) to establish a joint venture to conduct a research, development
and commercialization program in the field of functional genomics.
The proposed venture will identify, develop and commercialize novel genes
expected to be discovered under a program called the ACTTAG(TM) Gene Discovery
Program. Under the ACTTAG program The Salk Institute of San Diego, California,
the University of Edinburgh, Scotland and Agritope will each generate
genetically modified seeds that will be screened for a wide variety of traits
such as disease resistance, insect resistance, new morphologies, abiotic stress
tolerance, improved flowering characteristics, herbicide targets, herbicide
tolerance and improved nutritional qualities.
Agritope will contribute technology, research facilities, personnel and
expertise related to the ACTTAG Gene Discovery Program. Rhone-Poulenc will
contribute $20 million in specific research funding over five-years as well as
research facilities, personnel, expertise and complementary genomics
capabilities. Agritope and Rhone-Poulenc will each own 50% of the joint venture.
The joint venture will actively seek additional agreements with third parties to
fund projects in return for grants of rights to discoveries in defined fields or
territories.
Vinifera, Inc. In February 1999, the Company announced that it had decided to
sell its controlling interest in Vinifera. Management is currently considering a
proposal from certain minority shareholders that provides for such shareholders
and selected third parties to purchase the majority of Agritope's shares of
capital stock of Vinifera. Proceeds from sale of Agritope's shares, if any,
would be used to fund research and development activities and for general
corporate purposes.
9
<PAGE>
Results of Operations
Revenues. Total revenues amounted to $235,000 in the three months ended December
31, 1998, representing an increase of $219,000 over revenues recorded for the
three months ended December 31, 1997. Vinifera made product sales totaling
$74,000 for the three months ended December 31, 1998 as compared to $2,000 for
the three months ended December 31, 1997. Vinifera's sales are highly seasonal
and generally occur in the spring and summer planting seasons. However,
unseasonable weather conditions caused certain customers to delay orders that
were originally scheduled for delivery in fiscal 1998. The delayed orders were
either deferred to the 1999-planting season or delivered in the quarter ended
December 31, 1998. As of December 31, 1998, Vinifera had firm orders totaling
$1.9 million for delivery in the spring and summer of 1999 and $435,000 for
delivery in the spring and summer of 2000 compared to firm orders of $2.4
million, all for delivery in the 1998 planting season, as of December 31, 1997.
In the quarters ended March 31, 1999 and June 30, 1999, the Company expects to
earn reimbursements totaling $300,000 for research projects funded by Vilmorin
Clause & Cie ("Vilmorin"), a research partner. In addition, Vilmorin has advised
management that it intends to fund additional projects totaling $400,000 for
work to be performed from July 1, 1999 to June 30, 2000. The Company also
expects to complete work in the remainder of 1999 for which it will be
reimbursed $350,000 under its matching grant from the National Institute of
Standards and Technology.
Research and development expenses. Research and development expenses increased
by $175,000 or 33 percent in the three months ended December 31, 1998 as
compared to the three months ended December 31, 1997. The higher research and
development costs in the current quarter reflect increased efforts to develop
and propagate crops containing Agritope's patented ethylene control technology
and stepped-up research efforts to explore the potential of certain genes
obtained from the Salk Institute.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $35,000 or 4 percent in the three months
ended December 31, 1998, as compared to the three months ended December 31,
1997. Major components accounting for the net increase included an increase of
compensation expense related to amortization of expense for stock options
granted in December 1997, an increase in selling expenses at Vinifera, and a
decrease in professional fees and travel expenses due to the fact that expenses
in the prior year included fees and expenses incurred in connection with the
transition from operating as a wholly owned subsidiary to operating as an
independent public company.
Other income (expense), net. Other income (expense), net, increased $61,000 due
to interest earned on investment of cash reserves. The Company was funded by its
former parent company until December 1, 1997 and did not have cash available for
investment prior to that time.
10
<PAGE>
Liquidity and Capital Resources
12/31/98 9/30/98
Cash and cash equivalents................ $2,847,326 $3,904,087
Working capital ......................... 5,617,949 6,883,918
As of December 31, 1998, Agritope had working capital of $5.6 million, as
compared to working capital of $6.9 million at September 30, 1998. During the
three months ended December 31, 1998, expenditures for property and equipment
were $80,000, principally for greenhouse improvements at Vinifera. The Company
also expended $130,000 for proprietary technology related to its patent
portfolio. The preceding capital expenditures, the operating loss for the
quarter, an increase in grapevine inventories and a reduction of certain
liabilities was funded from cash reserves, proceeds from collection of accounts
receivable and deposits on future customer orders.
Historically, Agritope's requirements for operations, working capital and
business expansion have been funded by receipts of cash from its former parent
company, Epitope, supplemented by $5.4 million principal amount of convertible
notes, $3.5 million of investments in Vinifera by minority shareholders, $9.9
million net proceeds from private placement of equity securities and $1.2
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 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 at a price of $7 per share for
aggregate proceeds of $1.5 million and repaid to Epitope $976,000 of advances
for cash requirements after December 1, 1997.
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, 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.
11
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
12
<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.
February 16, 1999 /s/ ADOLPH J. FERRO
- ----------------- --------------------
Date Adolph J. Ferro
Chairman, President, Chief Executive Officer
and Director
(Principal Executive Officer)
February 16, 1999 /s/ GILBERT N. MILLER
- ----------------- ----------------------
Date Gilbert N. Miller
Executive Vice President, Chief Financial
Officer and Director
(Principal Financial and Accounting Officer)
13
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
27. Financial Data Schedule
14
<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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 2,847,326
<SECURITIES> 0
<RECEIVABLES> 593,494
<ALLOWANCES> (24,054)
<INVENTORY> 4,026,882
<CURRENT-ASSETS> 7,544,629
<PP&E> 6,081,590
<DEPRECIATION> (2,163,529)
<TOTAL-ASSETS> 13,289,214
<CURRENT-LIABILITIES> 1,926,680
<BONDS> 0
0
2,143
<COMMON> 40,599
<OTHER-SE> 9,813,770
<TOTAL-LIABILITY-AND-EQUITY> 13,289,214
<SALES> 74,194
<TOTAL-REVENUES> 235,084
<CGS> 101,098
<TOTAL-COSTS> 101,098
<OTHER-EXPENSES> 1,575,144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217
<INCOME-PRETAX> (1,259,310)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,259,310)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,259,310)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> 0
</TABLE>
