<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2 TO ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the Fiscal Year Ended December 31, 1995
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. 0-12177
----------------------
DNA PLANT TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
----------------------
Delaware 22-2395856
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6701 San Pablo Avenue, Oakland, CA 94608
(Address of principal executive Offices) (Zip Code)
Registrant's telephone number, including area code: (510) 547-2395
----------------------
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
$2.25 Convertible Exchangeable Preferred Stock, par value $.01 per share
(Title of Class)
-----------------------
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the
registrant as of March 12, 1996: $26,770,105.
Number of shares outstanding of the registrant's common stock, as of March
12, 1996: 42,846,832 shares of common stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DNAP.
General
The Company is an agribusiness biotechnology company focused on the
development and marketing of premium, fresh and processed, branded fruits and
vegetables developed through advanced breeding, genetic engineering and other
biotechniques.
Although the Company reduced its losses from continuing operations from $24.4
million in 1994 to $14.0 million in 1995, its capital resources and liquidity
situation continued to worsen. During 1995, these losses and the Company's
continuing operations were funded by the proceeds from the private placement of
an aggregate of 8,969,725 shares of Common Stock, 1,500 shares of Series A
Preferred Stock and warrants to purchase 4,070,182 shares of Common Stock. In
the view of the Company's management, its capital resources at year end of $1.7
million in cash and temporary investments were inadequate to fund existing
operations during 1996 without significant new capital or major restructuring.
To this end, in January 1996, the Company entered into the Merger Agreement
and the Loan Agreement pursuant to which the Company received a loan of $5
million on January 26, 1996 and an additional loan of $5 million on July 1,
1996.
In November 1995, the Company issued 1,557,377 shares of Common Stock in
exchange for 1,364,118 shares of common stock of United Agricorp, Inc. ("UAC"),
which represents approximately 13% of the outstanding shares of UAC. UAC is an
agribusiness biotechnology company focused on the improvement of strawberries,
raspberries and grapes.
2
<PAGE>
Results of Operations
Year ended December 31, 1995 Compared to Year Ended December 31, 1994
For the year ended December 31, 1995, the Company's loss from continuing
operations decreased to $14.0 million from $24.4 million for the prior year.
Included in the $14.0 million loss in 1995 was a non-recurring charge of $1.6
million for costs associated with the shutdown of the carrot processing plant
and $.8 million of costs incurred as a result of the announced Merger (see Note
21 to the Company's Consolidated Financial Statements). The 1995 loss
represented a decrease from the loss incurred in 1994 partially as a result of
the decrease in the gross margin loss due to a change in the Company's sales mix
from carrots to the higher margin tomatoes. Included in 1994 results was a $3.2
million non-recurring charge for costs associated with the shutdown of the
carrot processing plant and the cello carrot product line and $2.0 million in
consolidation and relocation costs.
For the year ended December 31, 1995, produce sales decreased 20% to $10.1
million from $12.7 million in 1994. This $2.6 million decrease in revenues was
a result of the Company exiting the processing of its own carrots in the fourth
quarter of 1994 which resulted in substantially lower sales of carrots in 1995
as compared to 1994, partially offset by substantially higher tomato sales in
1995 due to expansion into new and existing geographic areas. In addition, the
1994 results include $1.4 million of revenues associated with a marketing
joint venture that was dissolved in the fourth quarter of 1994.
Revenues from product development agreements decreased 19% to $1.7 million
in 1995 from $2.1 million in 1994, principally due to fewer government grants.
Investment and royalty income increased to $2.6 million in 1995 from $1.5
million in 1994 as a result of recording $1.1 million of net revenue from the
sale of Frost Technology Corporation, a wholly-owned subsidiary, and
recognizing revenue on an option to purchase licensed technology.
Cost of produce sales decreased 30% to $15.3 million in 1995 from $21.9
million in 1994. This decrease was primarily a result of the Company
discontinuing the processing of its own carrots in the fourth quarter of 1994
and the change in its product mix toward the higher margin tomato product. In
addition, the 1994 cost of produce sales included $1.3 million associated with
the marketing joint venture dissolved in the fourth quarter of 1994.
Research and product development expenses decreased to $5.9 million in 1995
from $6.8 million in 1994, primarily due to the Company's decision to further
sharpen the focus of its research efforts and concentrate those efforts
principally in the area of fruits and vegetables.
Selling, general and administrative expenses decreased to $5.8 million from
$7.0 million. This decrease was due to the Company's effort to consolidate its
operations, eliminate duplication of administrative staff and facilities, and
focus its marketing efforts on tomatoes.
Inventory and fixed assets decreased from $1.2 million and $4.6 million,
respectively, at December 31, 1994 to $.4 million and $2.3 million,
respectively, at December 31, 1995 primarily as a result of the Company
discontinuing the processing of its own carrots and the corresponding write-down
of these assets.
The decrease in accrued restructuring and consolidation costs from $2.1
million at December 31, 1994 to $.1 million at December 31, 1995 consisted of
$.7 million related to the write-down of inventory and fixed assets
3
<PAGE>
discussed above, $1.0 million related to the payment of employee termination
costs, and $.3 million related to payment of lease termination costs. The
remaining balance at December 31, 1995 in accrued restructuring and
consolidation costs relates to employee termination costs resulting from the
severance of employees during the fourth quarter of 1995.
The increase in the non-marketable equity investment to $1.9 million at
December 31, 1995 is a result of the Comany's exchange of shares of Common
Stock for shares of common stock in UAC. See Note 15 of the Company's
Consolidated Financial Statements.
The impact of inflation on revenues and results of operations has not been
significant.
Year ended December 31, 1994 Compared to Year Ended December 31, 1993
For the year ended December 31, 1994, the Company's loss from continuing
operations decreased to $24.4 million from $31.4 million for the prior year.
Included in the $24.4 million loss in 1994 was a non-recurring charge of $3.2
million for costs associated with the shutdown of the carrot processing plant
and the cello carrot product line, a non-recurring charge of $2.0 million
related to the Company's relocation of its headquarters to California and 100%
of the losses of FreshWorld as compared to 50% in 1993, reflecting the Company's
increased ownership in FreshWorld, effective December 31, 1993. The 1994 loss
also reflects an increased gross margin loss due to a higher level of produce
sales. Included in 1993 results was a $15.2 million non-recurring charge for
purchased in-process research and product development relating to the Company's
acquisition of Du Pont's 50% interest in FreshWorld.
For the year ended December 31, 1994, produce sales nearly doubled to $12.7
million as compared to the combined the Company and FreshWorld produce sales of
$6.4 million in 1993. In 1993, FreshWorld's $5.1 million of produce sales were
accounted for under the equity method and accordingly were not reflected in the
Company's consolidated statement of operations. The $6.3 million increase in
produce revenues is a result of increased sales of tomatoes and carrots in
existing and new geographic areas, the addition of new products, including
carrot bites, which were only produced in small quantities and sold through test
markets beginning in the third quarter of 1993, and $1.4 million of revenues
from the partnership established with Fresh Choice which was terminated in the
fourth quarter of 1994 (see Note 2 to the Company's Consolidated Financial
Statements).
Revenues from product development agreements decreased to $2.1 million in
1994 from $5.8 million in 1993 principally because in 1994 the operating
results of FreshWorld were fully consolidated with those of the Company's and
all intercompany transactions were eliminated. In 1993 FreshWorld results were
accounted for using the equity method, therefore the Company's 1993 revenues
from product development agreements included $3.2 million from FreshWorld.
Investment and royalty income decreased to $1.5 million in 1994 from $1.9
million in 1993 as a result of lower invested funds and lower effective yields
on invested funds.
Cost of produce sales increased 45% to $21.9 million in 1994, from combined
the Company and FreshWorld cost of produce sales of $15.1 million in 1993. In
1993, the $13.5 million of FreshWorld's cost of produce sales were accounted for
under the equity method and accordingly were not reflected in the Company's
operating expenses in the consolidated statement of operations. The $6.8 million
increase reflected growing, harvesting and other costs relating to a higher
volume of production and $1.3 million of costs related to the Fresh Choice
partnership revenues.
Research and product development expenses decreased to $6.8 million in 1994
from $12.0 million in 1993, primarily due to the Company's decision to
concentrate its efforts principally in the area of fruits and vegetables.
Selling, general and administrative expenses increased to $7.0 million from
$2.6 million principally due to the consolidation in 1994 of FreshWorld's
operating results with those of the Company. However, these expenses
4
<PAGE>
actually decreased approximately $1.0 million compared to the combined 1993
pro forma results of the Company and FreshWorld.
The impact of inflation on revenues and results of operations has not been
significant.
Liquidity and Capital Resources
During the years ended December 31, 1995, 1994 and 1993, the Company's cash
used in operating activities was $11.9 million, $25.6 million and $9.0 million,
respectively. The increase in cash used in operations for 1994 was a result of
the increased cash required to fund the FreshWorld operations, primarily in the
carrot processing operations. Prior to 1994, FreshWorld was a joint venture and
1993 investing activities includes a use of cash in the amount of $8.1 million
related to the Company's funding of its portion of the FreshWorld joint venture
losses. At the end of 1994, the Company exited its carrot processing operations
resulting in a decrease in the use of cash in operating activities in the
periods subsequent to 1994. For 1995, cash was used in operations primarily to
fund the Company's produce sales efforts and to fund research and development
activities.
At March 31, 1996, the Company had $3.6 million in cash and cash
equivalents, a $1.9 million net increase from $1.7 million at December 31,
1995. This increase was primarily the net result of proceeds from the issuance
of a note payable of $5.0 million and the sale of assets held for sale for $.7
million offset by the funding of operating activities of $3.8 million. The $.7
million in proceeds from the sale of assets was used to satisfy a payable to
Du Pont in April, 1996 arising out of the Company's acquisition of Du Pont's
interest in FreshWorld.
At December 31, 1995, the Company had $1.7 million in cash and temporary
investments, a $2.8 million net decrease from $4.5 million at December 31,
1994. This decrease was primarily the net result of $10.8 million in net
proceeds received from the sale of common and preferred stock discussed below
offset by the funding of operating activities of $12.0 million and the payment
of $2.3 million of dividends on the $2.25 Convertible Exchangeable Preferred
Stock. At December 31, 1995, working capital was $.3 million and stockholders'
equity was $5.0 million.
During 1995, the Company received cash proceeds of $1.3 million from the sale
of Frost Technology Corporation, a wholly-owned subsidiary. The assets of this
subsidiary consisted primarily of technology rights.
Historically, the Company has financed its operations primarily through the
public and private offering of common and preferred stock and, to a lesser
extent, from payments related to research and development arrangements, royalty
agreements, and investment earnings. During 1995, the Company privately placed
an aggregate of 8,969,725 shares of Common Stock and warrants to purchase
4,070,182 shares of Common Stock and received net proceeds, after commissions
and expenses, of $9.5 million (see Note 12 to the Company's Consolidated
Financial Statements). In addition, the Company privately placed 750 shares of
Convertible Series B and 750 shares of Convertible Series C preferred stock and
received net proceeds, after commission and expenses, of $1.3 million. These
preferred shares were converted into Common Stock during the third quarter (see
Note 13 to the Company's Consolidated Financial Statements).
Net proceeds from the Company's stock offerings have primarily been used to
purchase temporary investments with maturities that approximate management of
the Company's anticipated cash flow requirements. Investing activities of the
Company consist primarily of the purchases and sales/maturities of these
temporary investments and have generally decreased as available proceeds from
the Company's stock offerings have decreased.
At December 31, 1995, the Company had commitments of $192,000 for grower fees
related to the future harvest of crops.
In October 1995, the Company entered into an agreement to lease to a third
party certain carrot processing equipment with a net book value of $1.7 million
in return for the payment to the Company of $15,935 per month for
5
<PAGE>
sixty months. Concurrent with the leasing of the equipment, the Company
terminated its carrot processing facility lease and agreed to make payments
totaling $945,000 consisting of a termination penalty under the terms of the
lease agreement, monthly lease payments through December 1995 and the cost to
restore the facility to its prelease condition (see Note 5 to the Company's
Consolidated Financial Statements).
Subsequent to December 31, 1995, the Company received $5 million in January
1996 and an additional $5 million in July 1996 from Bionova U.S. in connection
with the Merger Agreement and the Loan Agreement.
Based on its current business plans including consummation of the Merger,
the Company believes that its current cash resources, including the $5 million
received from Bionova U.S. in January 1996, and the $5 million received on July
1, 1996, its revenues from prospective and existing research, product
development and licensing arrangements, revenues from produce sales, accompanied
by projected improvements in the gross margin on such produce sales and
reduction of fixed overhead and administrative costs will be sufficient to fund
its cash requirements into 1997, although there can be no assurance with respect
thereto.
Notwithstanding the foregoing, if the holders of Common Stock do not
adopt the Merger Agreement by the requisite vote required under applicable
Delaware law, based upon the historical cash needs of the Company it will be
necessary for the Company to raise new capital, to seek a new business
combination transaction with a third party or to consider other available
strategic alternatives in early 1997 if not sooner. Because of the anticipated
financial condition of the Company following its use of the $10 million provided
by Bionova under the Loan Agreement, there can be no assurance that the Company
would be successful in its pursuit of new capital or a new business combination
transaction with a third party. As a result, it then would be necessary for the
Company to consider other strategic alternatives, which could have a material
adverse effect on the continuing investment of the Company's stockholders
therein.
6
<PAGE>
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE OF DNA PLANT TECHNOLOGY
CORPORATION AND SUBSIDIARIES
Independent Auditor's Report............................................ F-1
Consolidated balance sheets at December 31, 1995 and 1994............... F-2
Consolidated statements of operations for the years ended December 31,
1995, 1994 and 1993.................................................... F-3
Consolidated statements of stockholders' equity for the years ended
December 31, 1995, 1994 and 1993....................................... F-4
Consolidated statements of cash flows for the years ended December 31,
1995, 1994 and 1993.................................................... F-5
Notes to consolidated financial statements.............................. F-6
Schedule II: Valuation and qualifying account for the years ended
December 31, 1995, 1994 and 1993....................................... F-21
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
DNA Plant Technology Corporation:
We have audited the consolidated financial statements of DNA Plant
Technology Corporation and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DNA Plant
Technology Corporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related consolidated
financial statement schedule when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
San Francisco, California
February 14, 1996
F-1
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 1,742 $ 1,202
Temporary investments.................................. -- 3,287
Accounts receivable, net of allowance for bad debts of
$106 in 1995 and $346 in 1994......................... 1,922 2,344
Inventories............................................ 380 1,168
Prepaids............................................... 156 302
Other current assets................................... 269 298
Assets held for sale................................... 1,038 900
--------- ---------
Total Current Assets..................................... 5,507 9,501
--------- ---------
Fixed assets, net of accumulated depreciation of $6,612
and $8,024 in 1995 and 1994, respectively............... 2,345 4,639
Notes receivable......................................... -- 250
Patents and other assets, net of amortization of $354 in
1995 and $256 in 1994................................... 503 450
Non-marketable equity investment......................... 1,946 --
Excess of purchase price over net assets acquired, net of
accumulated amortization of $380 in 1995 and $190 in
1994.................................................... 1,520 1,710
--------- ---------
Total Assets............................................. $ 11,821 $ 16,550
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................... $ 1,384 $ 1,537
Accrued liabilities.................................... 1,452 1,189
Accrued compensation................................... 361 462
Accrued restructuring and consolidation costs.......... 87 2,108
Dividends payable...................................... 776 776
Amount payable to Du Pont.............................. 983 983
Current portion of note payable........................ 204 --
--------- ---------
Total Current Liabilities................................ 5,247 7,055
--------- ---------
Deferred revenue......................................... 584 518
Deferred compensation.................................... 232 285
Note payable............................................. 709 --
--------- ---------
Total Long Term Liabilities.............................. 1,525 803
--------- ---------
Commitments and Contingencies Stockholders' Equity:
--------- ---------
Preferred stock, par value $.01 per share; authorized
5,000 shares; $2.25 convertible preferred stock;
issued and outstanding 1,380 shares in 1995 and 1994.. 14 14
Series A convertible preferred stock, par value $.01
per share; authorized 3 shares; issued and outstanding
3 shares in 1995 and 1994............................. -- --
Series B convertible preferred stock, par value $.01
per share; authorized 1 share; issued and outstanding
no shares in 1995 and 1994............................ -- --
Series C convertible preferred stock, par value $.01
per share; authorized 1 share; issued and outstanding
no shares in 1995 and 1994............................ -- --
Common stock, par value of $.01 per share; authorized
60,000 shares; issued 42,829 shares in 1995 and 30,713
in 1994............................................... 428 307
Common stock to be issued, par value of $.01 per share,
no shares in 1995, 100 shares in 1994................. -- 1
Additional paid-in capital............................. 160,405 149,918
Accumulated deficit.................................... (155,798) (141,752)
Unrealized holding gain................................ -- 204
--------- ---------
Total Stockholders' Equity............................... 5,049 8,692
--------- ---------
Total Liabilities and Stockholders' Equity............... $ 11,821 $ 16,550
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Produce sales................................. $ 10,074 $ 12,673 $ 1,330
Product development........................... 1,720 2,143 5,823
Investment and royalty income................. 2,555 1,515 1,874
-------- -------- --------
Total Revenues.................................. 14,349 16,331 9,027
-------- -------- --------
Operating Expenses:
Cost of produce sales......................... 15,284 21,868 1,662
Exit carrot processing........................ 1,647 3,210 --
Research and product development.............. 5,880 6,769 11,999
Selling, general and administrative........... 5,753 7,031 2,610
Consolidation and relocation costs............ 70 2,048 --
Purchased in-process research and product
development.................................. -- -- 15,238
-------- -------- --------
Total Operating Expenses........................ 28,634 40,926 31,509
-------- -------- --------
Loss from Operations............................ (14,285) (24,595) (22,482)
Gains on sales of assets........................ 239 225 60
-------- -------- --------
Loss from continuing operations before equity in
loss of joint ventures......................... (14,046) (24,370) (22,422)
-------- -------- --------
Equity in operating loss of joint ventures...... -- -- (9,026)
-------- -------- --------
Loss from Continuing Operations................. (14,046) (24,370) (31,448)
Discontinued Operations:
Loss from operations........................ -- (640) (2,494)
Loss on disposition......................... -- (1,273) --
-------- -------- --------
Total Discontinued Operations............. -- (1,913) (2,494)
-------- -------- --------
Net Loss........................................ (14,046) (26,283) (33,942)
Preferred stock dividends....................... (2,343) (3,105) (3,105)
-------- -------- --------
Net Loss Applicable to Common Stockholders...... $(16,389) $(29,388) $(37,047)
======== ======== ========
Net Loss Per Common Share:
Continuing operations......................... $ (.47) $ (.95) $ (1.56)
Discontinued operations....................... -- (.07) (.11)
-------- -------- --------
Net Loss per Common Share....................... $ (.47) $ (1.02) $ (1.67)
======== ======== ========
Weighted Average Common Shares Outstanding...... 34,823 28,868 22,156
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------------- ----------------------------
ISSUED TO BE ISSUED ISSUED TO BE ISSUED
-------------- -------------- ------------- --------------
NUMBER NUMBER NUMBER NUMBER ADDITIONAL UNREALIZED
OF OF OF OF PAID-IN HOLDING ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL GAIN DEFICIT
------ ------ ------ ------- ------ ------ ------ ------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31
1992................... 1,380 $ 14 -- $ -- 21,915 $ 219 -- $ -- $111,855 $ -- $ (81,527)
Exercise of options &
warrants.............. -- -- -- -- 143 1 -- -- 645 -- --
Issuance of common
stock for
compensation.......... -- -- -- -- 70 1 -- -- 331 -- --
Stock to be issued..... -- -- 3 10,312 -- -- 2,000 7,500 -- -- --
Net loss............... -- -- -- -- -- -- -- -- -- -- (33,942)
Preferred dividends.... -- -- -- -- -- -- -- -- (3,105) -- --
----- ---- --- ------- ------ ----- ------ ------ -------- ----- ---------
Balance, December 31,
1993................... 1,380 $ 14 3 $10,312 22,128 $ 221 2,000 $7,500 $109,726 -- $(115,469)
----- ---- --- ------- ------ ----- ------ ------ -------- ----- ---------
Exercise of options &
warrants.............. -- -- -- -- 35 -- -- -- 112 -- --
Issuance of common
stock for cash........ -- -- -- -- 6,500 65 -- -- 25,180 -- --
Issuance of common
stock for
compensation.......... -- -- -- -- 50 1 -- -- 213 -- --
Issuance of common
stock for acquisition
of FreshWorld......... -- -- -- -- 2,000 20 (2,000) (7,500) 7,480 -- --
Issuance of preferred
stock for acquisition
of FreshWorld......... 3 -- (3) (10,312) -- -- -- -- 10,312 -- --
Stock to be issued..... -- -- -- -- -- -- 100 1 -- -- --
Unrealized holding
gain.................. -- -- -- -- -- -- -- -- -- 204 --
Net loss............... -- -- -- -- -- -- -- -- -- -- (26,283)
Preferred dividends.... -- -- -- -- -- -- -- -- (3,105) -- --
----- ---- --- ------- ------ ----- ------ ------ -------- ----- ---------
Balance, December 31,
1994................... 1,383 $ 14 -- $ -- 30,713 $ 307 100 $ 1 $149,918 $ 204 $(141,752)
----- ---- --- ------- ------ ----- ------ ------ -------- ----- ---------
Issuance of common
stock and warrants for
cash.................. -- -- -- -- 9,070 90 -- -- 9,273 -- --
Issuance of common
stock for
compensation.......... -- -- -- -- 170 2 -- -- 290 -- --
Issuance of common
stock for investment
in UAC................ -- -- -- -- 1,557 16 -- -- 1,930 -- --
Issuance of preferred
stock for cash........ 2 -- -- -- -- -- -- -- 1,350 -- --
Conversion of preferred
stock................. (2) -- -- -- 1,319 13 -- -- (13) -- --
Stock to be issued..... -- -- -- -- -- -- (100) (1) -- -- --
Unrealized holding
gain.................. -- -- -- -- -- -- -- -- -- (204) --
Net loss............... -- -- -- -- -- -- -- -- -- -- (14,046)
Preferred dividends.... -- -- -- -- -- -- -- -- (2,343) -- --
----- ---- --- ------- ------ ----- ------ ------ -------- ----- ---------
Balance, December 31,
1995................... 1,383 $ 14 -- $ -- 42,829 $ 428 -- $ -- $160,405 $ -- $(155,798)
===== ==== === ======= ====== ===== ====== ====== ======== ===== =========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations................ $(14,046) $(24,370) $(31,448)
Reconciliation of loss from continuing opera-
tions to net cash used in operating activi-
ties:
Depreciation and amortization................ 578 1,293 829
Provision for uncollectible accounts......... (450) 166 12
Loss from disposal of carrot processing as-
sets........................................ 1,268 2,303 --
Loss on purchase commitments................. -- -- 738
Loss (gains) on disposal of assets........... (239) 398 (259)
Loss from discontinued operations............ -- (1,913) (2,494)
Equity in loss of joint ventures............. -- -- 9,026
Purchased in-process product development..... -- -- 15,238
Compensation and expenses paid in common
stock....................................... 142 217 --
Net changes (exclusive of changes due to
business acquired) in:
Accounts receivable........................ 873 (92) (206)
Inventory.................................. 517 (572) 35
Other current assets....................... 174 470 218
Accounts payable and accrued liabilities... (885) (3,630) (116)
Other assets and liabilities............... 121 169 (594)
-------- -------- --------
Net cash used in operating activities............ (11,947) (25,561) (9,021)
-------- -------- --------
Cash flows from investing activities:
Investments in joint ventures.................. -- -- (8,109)
Capital expenditures........................... (171) (554) (331)
Purchases of temporary investments............. -- (18,185) (12,891)
Sales and maturities of temporary investments.. 3,287 19,544 32,795
Proceeds from sales of assets.................. 919 435 401
Business acquired.............................. -- -- (150)
-------- -------- --------
Net cash provided by investing activities........ 4,035 1,240 11,715
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of stock................ 10,827 25,374 646
Preferred stock dividends...................... (2,343) (3,105) (3,105)
Payment of principle on note payable........... (32) -- --
-------- -------- --------
Net cash provided by (used in) financing ac-
tivities.................................... 8,452 22,269 (2,459)
-------- -------- --------
Net increase (decrease) in cash and cash equiva-
lents........................................... 540 (2,052) 235
Cash and cash equivalents, beginning of year..... 1,202 3,254 3,019
-------- -------- --------
Cash and cash equivalents, end of year........... $ 1,742 $ 1,202 $ 3,254
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The accompanying consolidated financial statements of the Company include
the accounts of DNA Plant Technology Corporation, and its wholly-owned and
majority-owned subsidiaries. The results of operations for Quantix Systems,
L.P. ("Quantix") have been accounted for as discontinued operations (see Note
3 for further information related to discontinued operations). All significant
intercompany balances and transactions have been eliminated.
Investments in and advances to the branded produce and edible oils joint
ventures, in which the Company had a 50% or less ownership, were accounted for
by the equity method through December 31, 1993. Under such method, the
Company's share of net earnings (losses) is included as a separate item in the
Consolidated Statement of Operations.
The Company accounts for its non-marketable equity investment at cost (See
Note 15).
Business:
The Company is an agribusiness biotechnology company focused on the
development and marketing of premium fresh and processed branded fruits and
vegetables developed through advanced biotechnological breeding, genetic
engineering and other technologies.
In January 1994, the Company completed a transaction (the "Du Pont
Transaction") with E.I. du Pont de Nemours and Company ("Du Pont") whereby the
Company became the sole owner of FreshWorld, L.P. ("FreshWorld"), a
partnership engaged in the development and marketing of branded, premium fresh
fruits and vegetables. The Company acquired Du Pont's ownership interest in
FreshWorld in exchange for the Company's approximately 28% interest in
InterMountain Canola Company L.P. ("InterMountain"), another partnership
between the Company and Du Pont, which was engaged in developing and marketing
edible oils; 2,000,000 shares of common stock of the Company; 2,750 shares of
a new issue of Series A preferred stock of the Company which is convertible
into 2,750,000 shares of common stock; nonexclusive rights to certain Company
technology; and future cash payments upon the sale of the Company's New Jersey
facility. The terms of the Du Pont Transaction further provided that the
Company was to become sole owner of FreshWorld as of December 31, 1993.
Accordingly, the Company's accompanying consolidated financial statements
reflect the purchase of FreshWorld and the effect of the stock to be issued
effective on December 31, 1993.
As described in Note 21, on January 26, 1996 the Company entered into an
Agreement and Plan of Merger with Empresas La Moderna, S.A. de C.V. and
related entities.
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 reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification:
Certain reclassifications have been made to prior years' amounts to be
consistent with the 1995 presentation.
F-6
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue:
Revenue from produce sales is recognized at time of shipment to customers.
Revenue from product development activities is recognized during the period
the Company performs the development efforts in accordance with the terms of
the agreements and activities undertaken. The revenue is recognized ratably
over the term of the agreement, which generally approximates the performance
effort. Revenue that is related to future performance under such agreements is
deferred and recognized as revenue when earned.
Temporary Investments:
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standard Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The Company's temporary investments consisted of
short and intermediate-term notes and bonds and marketable equity securities
which are classified as available for sale and stated at fair value as
determined by quoted market values. Changes in the net unrealized holding
gains and losses are included as a separate component of stockholders' equity.
For the purpose of determining gross realized gains and losses, the cost of
temporary investments sold is based upon specific identification. Adoption of
Statement No. 115 did not have a material impact on the Company's consolidated
financial statements.
Inventories:
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market and are primarily comprised of prepaid grower
fees, raw material seed and finished goods produce.
Fixed Assets:
Fixed assets are stated at cost. Depreciation and amortization of buildings,
improvements and equipment are provided on a straight-line basis over the
estimated useful lives of the respective assets, generally five to twenty
years for buildings and improvements and three to ten years for equipment and
furniture.
Excess of Purchase Price Over Net Assets Acquired:
The excess purchase price over the fair value of identifiable net assets
acquired is capitalized and amortized on a straight-line basis over its
estimated useful life (ten years). Amortization charged to continuing
operations amounted to $190,000 in each of the years ended December 31, 1995
and 1994. The Company periodically evaluates the recoverability of its
recorded asset based upon projected, undiscounted cash flows and operating
income of the related business unit.
Patents:
The costs of obtaining patents are capitalized. Costs relating to successful
patent efforts are amortized on a straight-line basis over the estimated
useful lives of the patents, generally five years. Costs relating to
unsuccessful or terminated patent efforts are expensed in the period
management believes such efforts may not result in an approved patent or when
a patent application is denied.
Research and Product Development Costs:
All research and product development costs incurred or acquired are
expensed.
F-7
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Based Compensation:
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation. Statement No. 123 applies to
all transactions in which an entity acquires goods or services by issuing
equity instruments such as common stock, except for employee stock ownership
plans. Statement No. 123 establishes a new method of accounting for stock-
based compensation arrangements with employees which is fair value based. The
statement encourages (but does not require) employers to adopt the new method
in place of the provisions of Accounting Principles Board Opinion (APB) No.
25, Accounting for Stock Issued to Employees. Companies may continue to apply
the accounting provisions of APB No. 25 in determining net income, however,
they must apply the disclosure requirements of Statement No. 123. If the
Company adopts the fair value based method of Statement No. 123, a higher
compensation cost would result for fixed stock option plans and a different
compensation cost will result for the Company's contingent or variable stock
option plans. The recognition provisions and disclosure requirements of
Statement No. 123 are effective January 1, 1996. The Company plans to continue
to use its current accounting practice under APB No. 25.
Income Taxes:
Effective January 1, 1993, the Company adopted Statement No. 109. The
cumulative effect of that change in the method of accounting for income taxes
had no impact on the 1993 Consolidated Statement of Operations.
Statement No. 109 requires a change from the deferred method of accounting
for income taxes under APB Opinion 11 to the asset and liability method of
accounting for income taxes.
Net Loss Per Common Share:
Net loss per common share applicable to common stockholders has been
computed by dividing the net loss, including preferred stock dividends, by the
weighted average number of common shares outstanding during each period.
Common shares issuable upon the exercise of stock options and warrants or
conversion of preferred shares have been excluded from the computation of net
loss per common share since their inclusion was antidilutive.
Statements of Cash Flows:
For purposes of the accompanying consolidated statements of cash flows, the
Company considers all highly-liquid investments with maturities at time of
purchase of three months or less as cash equivalents.
Supplemental Cash Flow Information:
In 1993 the Company issued common stock in accordance with the terms of a
severance agreement resulting from its strategic consolidation and as partial
payment under its management incentive program in the amounts of $120,000 and
$91,000, respectively.
F-8
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In January 1994 the Company completed the Du Pont Transaction (see Note 4)
which, in accordance with the terms of the agreement, has been accounted for
as if the acquisition was completed on December 31, 1993. The following are
the elements of the transaction (in thousands):
<TABLE>
<S> <C>
Assets acquired
Trade receivables.............................................. $ 877
Fixed assets................................................... 4,761
Intangibles.................................................... 1,900
All other assets............................................... 1,478
In-process research and product development...................... 15,238
Liabilities assumed.............................................. (3,098)
Estimated liability to Du Pont................................... (1,500)
Preferred stock to be issued to Du Pont.......................... (10,312)
Common stock to be issued to Du Pont............................. (7,500)
Common stock issued to financial advisor......................... (121)
Company's interest in net assets................................. (1,573)
--------
Cash payments made........................................... $ 150
========
</TABLE>
In 1993 the Company sold a parcel of land for an aggregate purchase price of
$550,000. The Company received $100,000 in cash and a note receivable in the
amount of $450,000 payable semi-annually over a three year period. A gain on
the sale of the land of $261,000 was deferred and included in deferred revenue
at December 31, 1993. During 1994, the Company wrote down the note $41,000,
received the remaining balance and recognized the resulting gain of $220,000.
In 1995 the Company issued 1,557,377 shares of its common stock in exchange
for 1,364,118 shares of common stock of United Agricorp, Inc. ("UAC") (see
Note 15).
(2) INVESTMENTS IN JOINT VENTURES
In September 1994 the Company entered into a partnership agreement with
Fresh Choice Produce, Inc. ("Fresh Choice") to market both Fresh Choice's and
FreshWorld's fruits and vegetables. The agreement outlined written provisions
whereby for a limited period of time Fresh Choice could terminate the
agreement for any reason. In the fourth quarter of 1994 Fresh Choice exercised
this option and terminated the partnership. Amounts included in the Company's
Consolidated Statement of Operations for the fiscal year ended December 31,
1994 as a result of this partnership consisted of produce sales, cost of
produce sales, and other costs of $1,369,000, $1,301,000 and $68,000,
respectively. In addition, the Company recognized $140,000 of income for its
investment interest in selected Fresh Choice crops.
As a result of the Du Pont Transaction (see Note 4), the Company's
investment in joint ventures at December 31, 1993 was zero. Prior to December
31, 1993, the Company's investment in joint ventures related principally to
its two joint venture partnerships with Du Pont, a principal stockholder of
the Company. The two joint ventures were FreshWorld, a 50%-owned limited
partnership and InterMountain, an approximately 28% owned limited partnership.
F-9
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information for these joint ventures is as follows for
1993:
<TABLE>
<CAPTION>
1993
--------------
(IN THOUSANDS)
<S> <C>
Operating Data:
Revenues.................................................. $ 10,160
Expenses *................................................ 38,143
--------
Net loss *.............................................. $(27,983)
========
Company's equity in net loss................................ $ (9,026)
========
</TABLE>
- --------
* Excludes purchased in-process research and product development of $15,238.
Included in revenues and expenses in the above table are $5,101,000 and
$16,111,000, respectively, which relate to InterMountain. These amounts are
unaudited.
(3) DISPOSAL OF QUANTIX
Effective May 1994, the Company completed the sale of substantially all of
the assets of Quantix to Idetek, Inc. ("Idetek"), a privately held
biotechnology company, for a $250,000 convertible promissory note bearing
interest at 10% per annum due July 11, 1996 and 2,900,000 shares of Idetek
common stock. After completion of the transaction, the Company held less than
10% of the voting interest of Idetek. The note has been recorded at its
estimated net realizable value and is shown as an other current asset in the
accompanying Consolidated Balance Sheets. No value has been assigned to the
Idetek common stock as there is no established market value. A $1.3 million
charge was recorded during 1994 for the loss on disposal of Quantix consisting
of employee severance and termination costs of $.5 million, operating losses
through the anticipated date of disposition of $.4 million, and a $.4 million
write-down to net realizable value of assets sold. Revenue related to the
operations of Quantix was approximately $.3 million and $1.3 million for 1994
and 1993 respectively.
(4) DU PONT TRANSACTION AND FRESHWORLD ACQUISITION
In January 1994, the Company completed the Du Pont Transaction whereby
2,000,000 shares of common stock; 2,750 shares of a new series of preferred
stock (convertible into 2,750,000 shares of common stock); future cash
payments from the sale of the Company's New Jersey facility which is
classified as assets held for sale at December 31, 1995 and 1994; nonexclusive
licenses to certain Company technology; and the Company's approximately 28%
interest in InterMountain were exchanged for Du Pont's 50% interest in
FreshWorld resulting in the Company becoming the sole owner of FreshWorld. The
Du Pont Transaction has been accounted for as a purchase business combination
in accordance with generally accepted accounting principles and, in accordance
with the terms of the related agreement, as if the Du Pont Transaction had
been completed on December 31, 1993. The stock issued to Du Pont in the
transaction has been valued on the basis of $3.75 per share of common stock,
which along with the other items, represents an aggregate purchase price of
$19,880,000. The per share price represents the quoted market price of the
Company's common stock on the date the Du Pont Transaction closed, less a
discount as determined by an investment banker to reflect restrictions on Du
Pont's ability to sell such stock in the public markets.
Under purchase accounting, the assets and liabilities of the acquired entity
are required to be adjusted to their estimated fair value. The cost in excess
of the fair value of net assets acquired represents goodwill and other
intangibles of $1,900,000 which has been capitalized, and $15,238,000 of in-
process research and product development, which is not capitalized under
generally accepted accounting principles and accordingly, has been charged to
operations in December 1993. The Company's investment in InterMountain was
zero, and no value was assigned to the Company's 28% interest in
InterMountain; accordingly, there was no gain or loss on the transfer of such
interest.
F-10
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the Du Pont Transaction, the Company agreed to dispose of
a facility in New Jersey and to remit the net proceeds from the sale to Du
Pont. Accordingly, the estimated net realizable value of this property of
$900,000 is recorded in assets held for sale with a corresponding liability of
$900,000 recorded in the amount payable to Du Pont in the accompanying
consolidated balance sheets.
In connection with the Du Pont Transaction, the common stock and preferred
stock were issued in January 1994.
The following unaudited pro forma summary consolidated statements of
operations presents the Company's results of operations as if the increase in
ownership of FreshWorld had occurred on January 1, 1993. These pro forma
results have been prepared for comparative purposes only and are not
necessarily indicative of actual financial results if the Du Pont Transaction
had been consummated on January 1, 1993, or of future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993
--------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Revenues:
Produce sales............................................. $ 6,389
Product development....................................... 2,810
Investment, royalty and other income...................... 1,934
--------
Total Revenues.............................................. $ 11,133
========
Net Loss.................................................... $(26,820)
========
Net loss applicable to common shareholders.................. $(29,925)
========
Net loss per common share................................... $ (1.24)
========
</TABLE>
Excludes non-recurring charge of $15,238,000 relating to purchased in-
process research and product development.
(5) EXIT CARROT PROCESSING
During 1994, the Company discontinued processing its own carrots and shut
down its carrot processing plant. The Company recorded charges related to the
exiting of carrot processing of $1.6 million and $3.2 million for the years
ended December 31, 1995 and 1994, respectively. The 1994 charge consisted of a
$1.6 million charge to write down the equipment to its then estimated net
realizable value, a $.5 million charge to write down packaging material and
seed inventory, a $.2 million charge for lease payments, net of estimated
sublease payments, and $.1 million for severance and termination benefits. As
of December 31, 1994, the Company had reserves of $1.3 million for the write
down of the carrot processing assets to their net realizable value and
$.2 million for estimated lease termination costs. During 1995, the reserve
for lease termination costs was reduced by cash payments and the reserve for
carrot processing assets was reduced by $.9 million for the write down of
equipment and inventory and $.4 million for losses realized on the disposal of
equipment and inventory. The 1995 charge consisted of an additional $1.3
million for termination and other costs related to the Company's leased
facility and $.3 million related to an additional write down of carrot
processing equipment, seed and packaging inventory. At December 31, 1995,
there are no amounts reserved for the exit of carrot processing.
As part of the exit plan, during 1995 the Company entered into an agreement
to lease carrot processing equipment with a net book value of $1,725,000 to a
third party. The lease is an operating lease with a term of sixty months
beginning November 1, 1995, and terminating October 31, 2000. Lease payments
are $15,935 per month. The lessee has an option to purchase the equipment at
the end of the lease term at its then fair market
F-11
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
value. Carrot processing equipment not leased, with an estimated net
realizable value of $138,000 as of December 31, 1995, is recorded in the
accompanying Consolidated Balance Sheets as assets held for sale.
Concurrent with the leasing of its carrot processing equipment, the Company
terminated its carrot processing facility lease. In accordance with the terms
of the termination agreement, the Company delivered a note payable to the
lessor in the principal amount of $945,000 payable over 48 months and bearing
interest at a rate of 10% per annum. The future principle payments under this
note are 1996, $204,000; 1997, $225,000; 1998, $249,000; and 1999, $235,000.
Revenue and cost of produce sales related to the carrot processing
operations were $5.6 million and $12.4 million, respectively, for the year
ended December 31, 1994 prior to the shut-down of such operations. Prior to
1994, the operating results of the carrot processing operations were included
in the accounts of FreshWorld which was accounted for under the equity method.
Revenue and cost of produce sales related to FreshWorld's carrot processing
operations were $4.9 million and $12.2 million, respectively, for the year
ended December 31, 1993.
(6) INCOME TAXES
As discussed in Note 1, the Company adopted Statement No. 109 as of January
1, 1993. Income tax expense differed from the amounts computed by applying the
statutory U.S. Federal income tax rate to pretax income from continuing
operations as a result of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------ --------
<S> <C> <C> <C>
Computed "expected" tax benefit.................. $ 4,776 $8,936 $ 11,540
Reduction in income tax benefit resulting from:
Losses for which no benefit was recognized..... (5,021) (8,748) (11,351)
Other.......................................... 245 (188) (189)
------- ------ --------
$ -- $ -- $ --
======= ====== ========
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $134,935,000 and $97,189,000 for Federal and States,
respectively. Because of prior transactions involving the issuance of equity
securities by the Company, certain annual limitations apply to the Company's
future use of these carryforwards. The Company also had Federal and State
research and development and Federal investment tax credit carryforwards at
December 31, 1995 of approximately $4,217,000, $200,000 and $332,000,
respectively. The tax operating loss and tax credit carryforwards expire as
follows (in thousands):
<TABLE>
<CAPTION>
FEDERAL STATE
FEDERAL STATES TAX TAX
YEAR NOL NOL CREDITS CREDITS
---- -------- ------- ------- -------
<S> <C> <C> <C> <C>
1996........................................ $ -- $ 41 $ 13 $--
1997........................................ -- 10,257 85 --
1998........................................ 3,617 15,088 109 --
1999........................................ 7,230 20,263 174 --
2000........................................ 6,479 18,905 111 --
2001 and thereafter......................... 117,609 32,635 4,057 200
-------- ------- ------ ----
Total..................................... $134,935 $97,189 $4,549 $200
======== ======= ====== ====
</TABLE>
F-12
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1995 and 1994 are shown below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets (in thousands):
Net operating loss carryforwards......................... $51,836 $46,160
Investment and research and development tax credits...... 4,743 4,549
In-process research and product development.............. 4,927 5,689
Other.................................................... 2,304 1,677
------- -------
Total deferred tax assets.............................. 63,810 58,075
Valuation allowance........................................ (63,530) (57,794)
------- -------
Net deferred tax assets.................................... 280 281
Deferred tax liabilities:
Fixed assets, principally depreciation................... 280 281
------- -------
Net deferred tax........................................... $ -- $ --
======= =======
</TABLE>
A valuation allowance of $63,530,000 has been recognized to offset the
deferred tax assets, as realization of such assets is uncertain. The valuation
allowance for deferred tax assets increased $5,736,000, $9,067,000 and
$13,784,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Under the provisions of the Internal Revenue Code, should certain
substantial changes in the Company's ownership occur, the amount of net
operating loss carryforwards and credit carryforwards may be limited. The
closing of the contemplated Merger, discussed in Note 21, would cause a
substantial change in the Company's ownership. The result of this change in
ownership would be a material limitation in the Company's ability to utilize
the net operating loss and credit carryovers.
(7) INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1994
-------------
<S> <C> <C>
Prepaid grower fees........................................... $ 119 $ 581
Raw materials and seed........................................ 192 407
Finished goods................................................ 69 180
----- -------
Total Inventories............................................. $ 380 $ 1,168
===== =======
</TABLE>
Prepaid grower fees were written down $585,000 at December 31, 1995, to
their net realizable value to recognize the estimated loss to complete certain
tomato contracts in progress and to terminate certain tomato growing
agreements that had been entered into for which harvesting had yet to begin.
The loss of $585,000 was recorded to cost of produce sales during the fourth
quarter 1995.
F-13
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) FIXED ASSETS
Fixed assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------- -------
<S> <C> <C>
Buildings and improvements................................. $ 3,875 $ 3,899
Equipment and furniture.................................... 5,082 8,764
------- -------
Total Fixed Assets......................................... 8,957 12,663
Less accumulated depreciation.............................. (6,612) (8,024)
------- -------
Net Fixed Assets........................................... $ 2,345 $ 4,639
======= =======
</TABLE>
Included in fixed assets is equipment with a net book value of $1,695,000 at
December 31, 1995, which has been leased to a third party under an operating
lease (see Note 5). Depreciation expense was $291,000, $1,002,000 and $694,000
for each of the years ended December 31, 1995, 1994, and 1993, respectively.
(9) RESEARCH AND PRODUCT DEVELOPMENT
The Company has commitments to perform research and product development work
for customers.
The Company and Campbell Soup Company ("Campbell") formerly held joint
rights to certain tomato lines, including certain of the lines used to make
the hybrid seed from which the FreshWorld Farms(R) tomato is grown. In 1993,
the Company and Campbell entered into an agreement under which Campbell gave
up its rights to commercialize the jointly owned tomato lines with the result
that the Company has worldwide exclusive rights to such jointly-owned tomato
lines. The Company paid Campbell $1,000,000 in cash in January 1994, which was
charged to operations in 1993, and will be required to pay royalties on
certain tomato sales commencing in 1997.
Research and product development revenues from FreshWorld and InterMountain
amounted to 48% and 5%, respectively, in 1993 of the Company's total research
and product development revenues.
Research and product development expenses include the direct costs of
services performed under agreements of $1,111,000 in 1995, $1,196,000 in 1994
and $2,826,000 in 1993, and the direct costs of Company-sponsored programs
plus the indirect costs of all research and product development activities
totaling $4,769,000 in 1995, $5,573,000 in 1994 and $9,173,000 in 1993.
(10) STOCK OPTIONS AND WARRANTS
The Company maintained three stock option plans at December 31, 1995, the
1986 Stock Option Plan (the "1986 Plan"), the 1994 Stock Option Plan (the
"1994 Plan"), and the Non-Employee Directors Stock Option Plan (the
"Directors' Plan"), under which a maximum of 1,600,000 shares, 3,000,000
shares and 800,000 shares of common stock, respectively, are available for
issuance. The Company previously maintained three other stock option plans
under which approximately 520,720 options are currently outstanding and no
further grants will be awarded.
The 1986 Plan and the 1994 Plan provide for the granting of incentive stock
options, as defined under the Internal Revenue Code, nonqualified stock
options, restricted stock and stock appreciation rights to officers and
employees of and consultants and advisors to the Company at prices which
generally have not been less than the fair market value of the Company's
common stock on the date of grant and expiring ten years from the date of
grant.
F-14
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Directors' Plan currently provides for initial and annual grants of
nonqualified stock options to each non-employee director at prices which are
equal to 90% and 100% respectively of the fair market value of the Company's
common stock on the date of grant and expiring ten years from the date of
grant. An initial director's option becomes exercisable in five equal annual
installments, beginning one year from the date of grant and the annual awards
become fully exercisable within one year from the date of grant.
A summary of the activity under all of the Company's stock option plans is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(NUMBER OF SHARES, IN THOUSANDS)
<S> <C> <C> <C>
Outstanding, beginning of period..... 3,623 2,418 2,471
Granted............................ 1,329 1,875 235
Exercised.......................... -- (35) (143)
Expired or Cancelled............... (466) (635) (145)
----------- ----------- -----------
Outstanding, end of period........... 4,486 3,623 2,418
=========== =========== ===========
Available for grant at December 31... 1,228 1,736 358
=========== =========== ===========
Exercisable at December 31........... 2,244 1,864 1,773
=========== =========== ===========
Option prices per share:
Granted............................ $0.88- 3.00 $3.00- 5.38 $4.39- 5.00
Exercised.......................... none $3.00- 5.00 $2.81- 5.50
Expired or Cancelled............... $2.47-10.38 $3.00-16.26 $2.81-17.00
</TABLE>
In addition to the above, at December 31, 1995 the Company had warrants and
options outstanding that provide for the purchase of 200,000 shares of common
stock at $10.00 per share that expire in November 1996; 400,000 shares of
common stock at $6.65 per share that expire in January 1999; 4,070,182 shares
of common stock at $2.50 per share that expire during the third and fourth
quarters of 2000; 725,000 shares of common stock at $1.75 per share that
expire in September 1997; and 362,500 shares of common stock at $1.75 per
share that expire no later than September 1998 or one year from the exercise
of the Unit Purchase Options as described in Note 12.
(11) PREFERRED STOCK
The Company has 1,380,000 shares of $2.25 Convertible Exchangeable Preferred
Stock outstanding at December 31, 1995. The liquidation value of each
preferred share is $25 plus unpaid dividends. The preferred shares are
convertible at any time at the option of the holder into common stock at an
initial conversion price of $6.15 (equivalent to a conversion rate of 4.065
shares of common stock for each preferred share subject to adjustment under
certain circumstances). The preferred shares are exchangeable at the option of
the Company in whole, but not in part, on any dividend payment date beginning
August 1, 1993, for 9% convertible subordinated debentures due 2016 at the
rate of $25 principal amount of debentures for each preferred share. The
preferred shares are redeemable for cash at the option of the Company on or
after August 2, 1994, in whole or in part, at prices declining to $25 per
share on August 1, 2002, together with unpaid dividends to the redemption
date. If the preferred shares are called for redemption, the preferred
stockholder may elect to tender the preferred shares or convert such shares
into the Company's common stock. Dividends on the preferred stock at an annual
rate of $2.25 per share are cumulative and payable quarterly when and as
declared by the Company's Board of Directors. Holders of the preferred stock
are not entitled to vote except as required by law and under certain
circumstances. The Company did not declare or pay the regular quarterly
dividend ($.5625 per share) due on November 1, 1995. In addition, the Company
did not declare or pay the regular quarterly dividend ($.5625 per
F-15
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
share) due on February 1, 1996 and as of the date of these consolidated
financial statements, the total arrearage with respect to such class of stock
is $1,552,500. As part of the proposed Merger Agreement (see Note 21), each
share of $2.25 Convertible Exchangeable Preferred Stock will be converted into
6.8375 shares of common stock of Bionova U.S.
In January 1994, the Company, as part of the Du Pont Transaction, issued
2,750 shares of Series A convertible preferred stock to Du Pont. The
liquidation value of each share of Series A preferred stock is $6,000. Each
share of Series A preferred stock is convertible at any time at the option of
the holder into common stock of the Company at a conversion rate of 1,000
shares of common stock for each share of Series A preferred stock. The Series
A preferred stock is redeemable for cash at the option of the Company after
January 1995 at a price of $6,000 per share, subject to certain limitations.
If the Company's Board of Directors declares and pays a dividend on its common
stock, the holders of Series A preferred stock are entitled to receive cash
dividends at the rate per share of Series A preferred stock based upon the
number of shares of common stock to which the holders of Series A preferred
stock would be entitled if they had converted such shares into shares of
common stock. Du Pont has been granted certain demand and "piggyback"
registration rights with respect to the 2,000,000 shares of common stock
issued to Du Pont and the 2,750,000 shares of common stock issuable upon the
conversion of the Series A convertible preferred stock.
(12) COMMON STOCK ISSUANCE
During 1995, the Company privately placed 7,714,725 shares of common stock
of the Company together with warrants that expire during the third and fourth
quarters of 2000 which entitle the holders to purchase an additional 4,070,182
shares of common stock at $2.50 per share, for net proceeds, after commissions
and expenses, of $7.3 million. The holders of these shares have agreed not to
publicly trade such shares prior to April 1996. The shares of common stock
issuable upon the exercise of the warrants are subject to shareholder approval
if additional shares must be authorized before the common stock can be issued;
if shareholder approval is not obtained on or prior to June 30, 1996 and the
Company does not have a sufficient number of authorized but not yet issued
shares, then the Company will be obligated to redeem the warrants at $.25 per
warrant ($1,017,546 in the aggregate). As part of the compensation to the
consultant who assisted the Company in placing these securities, the Company
granted the consultant unit purchase options (the "Unit Purchase Options")
entitling the consultant to purchase for $1.75, 725,000 units ("Placement
Units") that expire in September, 1997. Each Placement Unit consists of one
share of common stock and a warrant entitling the holder to purchase, during
the one year period following the date of exercise of the Unit Purchase
Options, one half share of common stock (362,500 in total if all Unit Purchase
Options are exercised) for $1.75. The issuance of the Placement Units is also
subject to shareholder approval if an increase in the authorized number of
shares of the Company's common stock is required. In addition, during 1995
through two other separate transactions the Company privately placed 1,255,000
shares of the Company's common stock for net proceeds, after commissions and
expenses, of $2.2 million.
In accordance with the terms of the stock purchase agreement entered into
with Alida Marine, Inc. ("Alida") in 1994, the Company issued in 1995, at no
further cost to Alida, an additional 100,000 shares of common stock. These
shares were recorded at December 31, 1994 as common stock to be issued in the
accompanying Consolidated Balance Sheets. In addition, during 1995 the Company
issued 169,784 shares of common stock for its 401(k) plan matching
contribution and for merit increases and bonuses resulting in compensation
expense of $292,000.
(13) SALE AND CONVERSION OF SERIES B AND SERIES C PREFERRED STOCK
During 1995, the Company sold 750 shares of Convertible Series B and 750
shares of Convertible Series C preferred stock for $1,000 per share for net
proceeds to the Company of $1.3 million. These preferred shares
F-16
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
were subsequently converted into 1,318,839 shares of the Company's common
stock at an average conversion price of $1.14.
(14) SALE OF FROST TECHNOLOGY CORPORATION
In February 1995, the Company sold the stock of Frost Technology
Corporation, a wholly-owned subsidiary, to a third party for $1,300,000 of
consideration. The assets of this subsidiary consisted primarily of technology
rights. This transaction resulted in a gain of $1,070,000, which was recorded
by the Company as licensing revenue. The Company received the entire
$1,300,000 during 1995 as a result of this sale.
(15) NON-MARKETABLE EQUITY INVESTMENT
During the fourth quarter of 1995, the Company issued 1,557,377 shares of
its common stock valued at $1.25 per share in exchange for 1,364,118 shares of
common stock of UAC, which represents approximately 13% of the outstanding
shares of UAC. The per share price of the stock issued was based on the
stock's quoted market price as of the close of business on the date the
transaction closed. This investment is accounted for on the cost basis since
the Company owns less than 20% of UAC and does not have the ability to
exercise significant influence over UAC. UAC is an agribusiness biotechnology
company focused on the improvement of strawberries, raspberries and grapes.
(16) CONSOLIDATION AND RELOCATION OF FACILITIES
During 1994, the Company relocated its headquarters and consolidated its
research operations from its New Jersey facility to its research facility in
Oakland, California. This consolidation and relocation was a further step in
the Company's efforts to consolidate its operations, eliminate duplication of
staff and facilities, and focus primarily on the development and marketing of
fresh and processed fruits and vegetables. In 1994, the Company incurred $2.0
million of non-recurring costs to accomplish this relocation and
consolidation. These costs are comprised of $1.0 million for severance and
termination benefits for employees whose jobs in New Jersey were eliminated;
$.7 million for relocation costs and a $.3 million non-cash charge to write
down excess furniture and equipment to net realizable value. At December 31,
1994, the reserve for the consolidation and relocation of facilities was $.5
million, consisting of $.2 million for employee termination benefits, $.2
million to adjust furniture and equipment to its estimated net realizable
value, and $.1 million for future obligations to employees who had completed
their relocation in 1993. An additional $70,000 was incurred in 1995 related
to housing allowances and other continuing relocation costs. At December 31,
1995, a $.1 million reserve remained for relocation costs for employees who
had completed their relocation in 1993.
(17) LIQUIDITY
Based on its current business plans, including the pending Merger (see Note
21) , the Company believes that its current cash resources, inclusive of the
$5.0 million received from Bionova U.S. in January 1996 and the $5.0 million
to be received on July 1, 1996, if the closing of the Merger has not been
effected by such date, its revenues from prospective and existing research,
product development and licensing arrangements, revenues from produce sales,
accompanied by projected improvements in the gross margin on such produce
sales and reduction of fixed overhead and administrative costs will be
sufficient to fund its cash requirements into 1997.
(18) COMMITMENTS
The Company occupies offices and other facilities and leases farm equipment
under operating leases expiring at various dates. At December 31, 1995 future
minimum rental payments applicable to operating leases are 1996, $666,000;
1997, $675,000; 1998, $686,000; 1999, $298,000; and 2000, $9,000.
F-17
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has contractual agreements with various produce growers. These
agreements provide that the Company is responsible for full payment of grower
service on approved ground and in approved quantities unless acreage is lost
due to the grower's negligence in any aspect of the growing process. At
December 31, 1995, the Company had future commitments requiring the Company to
pay an aggregate of $192,000 upon harvest of crops during the first half of
1996.
(19) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Generally, the Company's credit risk concentration in its trade receivables is
limited due to the geographic dispersion of its customers. The Company does
not require collateral or other security to support customer receivables.
(20) EMPLOYEE BENEFIT PLANS
The Company has a deferred compensation plan (the "401(k) Plan") under
section 401(k) of the Internal Revenue Code. For 1995, the Company matched up
to 3% of each contributing member employee's compensation in the Company's
common stock. Prior to 1995, the Company matched up to 1% of each contributing
member employee's compensation in cash. Company contributions to the 401(k)
Plan in 1995, 1994 and 1993 were approximately $116,000, $70,000 and $60,000,
respectively.
(21) AGREEMENT AND PLAN OF MERGER AND RELATED TRANSACTIONS
On January 26, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Empresas La Moderna, S.A. de C.V., a
corporation under the laws of the United Mexican States ("ELM"), Bionova, S.A.
de C.V., a corporation organized under the laws of the United Mexican States
("Bionova"), Bionova U.S. Inc., a Delaware corporation ("Bionova U.S."), and
Bionova Acquisition, Inc., a Delaware corporation ("Merger Sub"), pursuant to
which, among other things: (i) Merger Sub will be merged with and into the
Company (the "Merger"); (ii) the Company will become a wholly-owned subsidiary
of Bionova U.S.; (iii) each share of common stock, par value $.01 per share
("Common Stock") of the Company issued and outstanding at the time of the
Merger (the "Effective Time") will be converted into and represent the right
to receive one share of Bionova U.S.'s common stock, each share of the
Company's $2.25 Convertible Exchangeable Preferred Stock, par value $.01
("$2.25 Convertible Preferred Stock"), issued and outstanding at the Effective
Time will be converted into and represent the right to receive 6.8375 shares
of Bionova U.S.'s common stock, and each share of the Company's Series A
Preferred Stock ("Series A Preferred Stock"), par value $.01 issued and
outstanding at the Effective Time will be converted into and represent the
right to receive 1,000 shares of Bionova U.S.'s common stock, except for any
shares of the Company's securities held in the treasury of the Company or held
by any subsidiary of the Company, which will be cancelled; and (iv) each
option or warrant to purchase shares of Common Stock outstanding at the
Effective Time will be assumed by Bionova U.S. and will be converted into a
corresponding right to acquire shares of Bionova U.S.'s common stock. Assuming
no exercise of dissenter's rights of appraisal in connection with the Merger,
the holders of the Company's capital stock, as a group, will own approximately
30% of the outstanding shares of Bionova U.S.'s common stock after the Merger.
It is expected that Bionova U.S. will change its name to DNAP Holding
Corporation as of the Effective Time.
At the Effective Time, ELM will cause to be transferred to Bionova U.S. its
controlling interests in the companies constituting The Bionova Group, other
than the stock of Bionova, which serves as the holding company through which
ELM owns such interests. The Bionova Group is a group of affiliated companies
engaged in the businesses of growing fresh produce in Mexico and marketing and
distribution in Mexico, the United States and Canada.
F-18
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to the Merger Agreement, ELM has agreed to provide when requested
by Bionova U.S. a guarantee for three years following the Effective Time
Bionova U.S.'s indebtedness to a financial institution under a loan or line of
credit, provided that: (i) ELM's maximum liability under such guarantee will
not exceed $20,000,000 and (ii) the documents evidencing such loan or line of
credit will provide that the aggregate amount loaned to Bionova U.S.
thereunder will not exceed the sum of (x) 80% of the accounts receivable of
Bionova U.S. and its consolidated subsidiaries and (y) 50% of the inventories
of Bionova U.S. and its consolidated subsidiaries and such loan is secured by
such accounts receivables and inventories.
In connection with the Merger Agreement, Bionova U.S. and the Company
entered into a Loan Agreement, dated January 26, 1996 (the "Loan Agreement").
Pursuant to the Loan Agreement, Bionova U.S. loaned $5,000,000 to the Company
on January 26, 1996 and will loan an additional $5,000,000 to the Company on
July 1, 1996 if the closing of the Merger has not been effected by such date,
subject to the Company not then being in default under the Loan Agreement
(collectively, the "Loan"). The outstanding principal balance of the Loan
bears interest at the rate of 10.25% per annum and, together with all accrued
interest thereon, will become due and payable on the earlier of (i) January
26, 1999, or (ii) the date on which the Company consummates an Alternative
Transaction, as defined in the Loan Agreement. Subject to the consummation by
the Company of an Alternative Transaction, the Loan Agreement will survive the
termination of the Merger Agreement. The Loan may be accelerated by Bionova
U.S. at any time during the continuance of certain events of default specified
in the Loan Agreement and may be prepaid by the Company at any time without
premium or penalty. Certain royalty fees to be received by the Company must be
used to pay down the Loan. ELM will cause the principal amount of the Loan
provided by Bionova U.S. to the Company prior to the Effective Time to be
treated as a capital contribution to Bionova U.S. pursuant to the Merger
Agreement. The Loan is secured by the assignment to Bionova U.S. of the
Company's right, title and interest in the patents relating to the Company's
Transwitch(R) gene suppression technology (the "Transwitch(R) Patents"), and
Bionova U.S. may require additional security under certain circumstances.
Prior to the repayment in full of the loan, the Company may not pay any
dividends on, or make other distributions in respect of, any class of its
capital stock, or take certain other actions, without the written consent of
Bionova U.S.
Bionova U.S. and the Company have entered into the Sole Patent License
Agreement, dated as of January 26, 1996 (the "Sole License Agreement"),
pursuant to which Bionova U.S. granted back to the Company a royalty-free sole
license to use the Transwitch(R) Patents to develop and market products using
the products or processes covered by such patents and to satisfy the Company's
obligations under existing licenses of the Transwitch(R) Patents. Under the
Loan Agreement, Bionova U.S. is obligated to assign the Transwitch(R) Patents
back to the Company upon the repayment in full of the Loan. If Bionova U.S.
accelerates the maturity of the Loan as a result of an event of default under
the Loan Agreement, the Company's right to have the Transwitch(R) Patents
reassigned to it will terminate and the license to use the Transwitch(R)
Patents granted by Bionova U.S. to the Company under the Sole License
Agreement will convert to a non-exclusive, royalty-free license to use the
Transwitch(R) Patents. If the merger is not consummated, any such termination
of the Company's right to reacquire the Transwitch(R) Patents and loss of the
sole rights to use the Transwitch(R) Patents would have a material adverse
effect on the Company's business and prospects.
The Sole License Agreement provides that Bionova U.S. may not make any use
of the Transwitch(R) Patents on its own behalf prior to the termination of the
Company's right to have the Transwitch(R) Patents reassigned to it, subject to
the Non-Exclusive License Agreement (see below). The Company may enter into
sublicenses of the Transwitch(R) Patents only to entities which fund at least
$350,000 of research by the Company in any three-year period, and only if the
sublicense is non-exclusive, relates solely to the development and
commercialization of products or processes resulting from the funded research,
bears commercially reasonable royalties and 50% of the royalties received by
the Company are paid by it to Bionova U.S. to reduce the outstanding balance
of the Loan. The Company may also enter into sublicenses of the Transwitch(R)
Patents with other entities upon approval
F-19
<PAGE>
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of Bionova U.S., which approval has been obtained in certain respects. The
Company and Bionova U.S. have also entered into a non-exclusive patent license
agreement (the "Non-Exclusive License Agreement") under which Bionova U.S. was
granted a non-exclusive, royalty-bearing license to use the Transwitch Patents
with an option, upon making certain payments, to convert the license to a
fully paid license. Payments under the Non-Exclusive License Agreement may be
credited against the outstanding balance of the Loan.
At the Effective Time, ELM and the Company will enter into a Long Term
Funded Research Agreement (the "Long Term Funded Research Agreement") pursuant
to which they will use their best efforts to agree on research projects to be
conducted by the Company for ELM or its affiliates which will result in
payments to the Company of $30,000,000 over a 10-year period, with minimum
funding (subject to carryforwards) of $9,000,000 in any three-year period and
at least $625,000 due each quarter until such $30 million has been paid.
Intellectual property developed by the Company in connection with a project
will belong to ELM, and ELM will retain the exclusive rights to
commercialization of such intellectual property in the project's intended
market and the Company will have royalty-free sole license rights to such
intellectual property outside the project's intended market. There can be no
assurance, however, that ELM and the Company will agree on any specific
projects to be conducted by the Company or that any project begun by the
Company will not be terminated by ELM.
At the Effective Time, ELM and Bionova U.S. will enter into a Governance
Agreement which, among other things, will provide for certain arrangements
with respect to the composition of Bionova U.S.'s Board of Directors prior to
the 1999 annual meeting of stockholders of Bionova U.S. and will restrict
ELM's ability to acquire or dispose of shares of Bionova U.S.'s Common Stock
prior to the third anniversary of the Effective Time. Under the Governance
Agreement, the approval of a majority of the "DNAP Independent Directors" (as
defined in the Governance Agreement) will be required to approve certain
transactions between ELM and its affiliates and Bionova U.S. or certain
acquisitions of Bionova U.S.'s Common Stock by ELM or its affiliates.
The consummation of the Merger is subject to a number of conditions,
including the approval of the common stockholders of the Company.
During 1995 the Company incurred approximately $800,000 in expenses
associated with this proposed merger included in selling, general, and
administrative expenses in the accompanying Consolidated Statements of
Operations.
F-20
<PAGE>
SCHEDULE II
DNA PLANT TECHNOLOGY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNT
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESERVES
BALANCE AT CHARGED TO CHARGED ACQUIRED BALANCE
BEGINNING COST AND TO OTHER FROM BALANCES AT END OF
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS FRESHWORLD WRITTEN OFF PERIOD
-------------- ---------- ---------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
For the year ended De-
cember 31, 1995
Allowance for doubtful
accounts.............. $346 $ 450 $ -- $-- $(690) $106
---- ----- ----- ---- ----- ----
For the year ended De-
cember 31, 1994
Allowance for doubtful
accounts.............. $236 $ 166 $ 180 $-- $(236) $346
==== ===== ===== ==== ===== ====
For the year ended De-
cember 31, 1993
Allowance for doubtful
accounts.............. $118 $ 12 $ 3 $103 $ -- $236
==== ===== ===== ==== ===== ====
</TABLE>
F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DNA PLANT TECHNOLOGY CORPORATION
By: /s/ Willem F.O. Spiegel
______________________________
Willem F.O. Spiegel
(Principal Financial and
Accounting Officer)
Date: August 9, 1996
S-1
