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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1997
Commission file number 1-9431
ESCAGENETICS CORPORATION
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(Name of Small Business Issuer in Its Charter)
Delaware 94-3012230
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Suite 605, 1075 Bellevue Way NE, Bellevue, WA 98004
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(Address of Principal Executive Offices) (Zip Code)
(206) 901-3595
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.
Yes X No____
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes X No____
The number of shares of the issuer's common stock outstanding as of December 15,
1998 was 73,402,516 shares, par value $0.0001 per share.
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PART I
ITEM 1 - Financial Statements
ESCAGENETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
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<TABLE>
<CAPTION>
March 31,
1997
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ASSETS
<S> <C>
Current assets:
Cash $ 13,000
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Total assets $ 13,000
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 18,000
Due to GLF Ultra Fund, Ltd. 12,000
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Total liabilities 30,000
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Shareholders' equity (deficiency):
Preferred stock; $0.01 par value; 1,000,000 shares
authorized; none issued or outstanding
Common stock; $0.0001 par value; 101,000,000 shares
authorized; 73,402,516 shares issued and outstanding 7,000
Additional paid-in capital 134,000
Accumulated deficit (158,000)
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Total shareholders' equity (deficiency) (17,000)
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Total liabilities and shareholders' equity (deficiency) $ 13,000
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
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ESCAGENETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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<TABLE>
<CAPTION>
Three months Six months
ended March 31, ended March 31,
1997 1997
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<S> <C> <C>
Revenues:
Miscellaneous $ 0 $ 3,000
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Operating expenses:
Accounting and legal 40,000 116,000
General and administrative 6,000 30,000
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Total expenses 46,000 146,000
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Net loss (46,000) (143,000)
Accumulated deficit, beginning of period (112,000) (15,000)
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Accumulated deficit, end of period $ (158,000) $ (158,000)
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Net loss per share $ (0.00) $ (0.00)
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Weighted average common shares outstanding 73,402,516 73,402,516
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
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ESCAGENETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<TABLE>
<CAPTION>
Six months
ended March 31,
1997
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<S> <C>
Cash flows from operating activities:
Net loss $(143,000)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Changes in operating assets and liabilities:
Accounts payable 18,000
Amounts due to pre-petition creditors (216,000)
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Net cash used in operating activities (341,000)
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Cash flows from investing activities:
Additional investment in Potato Products
International, Ltd. prior to sale (27,000)
Proceeds from sale of Potato Products
International, Ltd. 175,000
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Net cash provided by investing activities 148,000
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Cash flows from financing activities:
Advances from GLF Ultra Fund, Ltd. 117,000
Repayments to GLF Ultra Fund, Ltd. (135,000)
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Net cash used in financing activities (18,000)
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Net decrease in cash (211,000)
Cash at beginning of period 224,000
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Cash at end of period $ 13,000
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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ESCAGENETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1997
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1. Unaudited information
The consolidated financial statements for the three and six month periods
ended March 31, 1997 are unaudited and reflect all adjustments which are,
in the opinion of management, necessary for the fair presentation of the
financial position and operating results for the periods presented.
The Company did not file an Annual Report to Stockholders or an Annual
Report on Form 10-K for the year ended March 31, 1996. Subsequent to the
reorganization date, the Company adopted a September 30 fiscal year.
2. Summary of significant accounting policies
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of ESCAgenetics
Corporation (the "Company") and its majority and wholly owned subsidiaries,
PHYTOpharmaceuticals, Inc. and SRE ESCAgenetics Corporation, after
elimination of all significant intercompany accounts and transactions. The
Company's subsidiaries did not have any significant operating activities
during the periods presented.
OPERATIONS
Formed in 1986, the Company was organized to develop and commercialize
high-value, plant-derived products for the agricultural and pharmaceutical
markets. In January 1995, the Company scaled back its business activities
and became largely a dormant business. In January 1996, the Company filed a
bankruptcy petition for protection under Chapter 11 of the U.S. Bankruptcy
Code.
The Company proposed an amended plan of reorganization (the "Amended Plan
of Reorganization") that was conditionally confirmed by the Bankruptcy
Court on July 10, 1996, and became effective on August 22, 1996. Under the
Amended Plan of Reorganization, GFL Ultra Fund, Ltd. ("Ultra"), a creditor
holding approximately 59.5% of the Company's unsecured claims, received 90%
of the Company's common stock and the right to 25% of the cash available to
unsecured creditors. The remaining 10% of the Company's common stock
remained owned by its previous shareholders. The bankruptcy proceeding was
officially closed effective March 31, 1997.
Currently, all operating expenses are being funded by Ultra through a line
of credit (Note 4). During the three-month and six-month periods ended
March 31, 1997, the Company paid $13,000 and $19,000, respectively, to an
affiliate for general and administrative expenses consisting primarily of
accounting and administrative services.
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2. Summary of significant accounting policies (continued)
The Company does not plan to continue the business activities that it
previously conducted. It plans to pursue a business combination or other
strategic transaction. No candidate for such a transaction has been
identified. Ultimately, the continuation of the Company as a going concern
is dependent upon the establishment of profitable operations. Management
believes Ultra will continue to fund expenditures until such time as a
business combination or other strategic transaction is consummated.
Because the achievement of these plans is dependent upon future events,
there can be no assurance that future profitable operations will occur as
planned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results and values could differ from those
estimates.
FRESH START REPORTING
Paragraph 36 of AICPA Statement of Position 90-7 requires that the Company
use "fresh start" reporting in connection with its bankruptcy filing and
Ultra's acquisition of 90% of the Company's outstanding shares of common
stock. The Company's balance sheet as of August 22, 1996, the effective
date of the Plan of Reorganization, has been adjusted to reflect the
current value of the Company's assets, liabilities and shareholders' equity
as of that date. Fresh start reporting requires that purchase accounting
principles be applied. This means that the operating statements of the
"old" Company are not included in the financial statements of the "new"
Company; that the "purchase price" (current value) must be allocated to the
assets acquired and the liabilities assumed; and that retained earnings are
fixed at zero. The current value of $134,000 was assigned to the Company's
only significant remaining tangible asset: the investment in Potato
Products International, Ltd. (see Note 5). Consequently, these consolidated
financial statements are not comparable to and should not be compared to
the Company's consolidated financial statements for any periods prior to
August 22, 1996.
NET LOSS PER SHARE
Net loss per share is calculated on the basis of weighted average number of
common shares outstanding. Common stock equivalents are excluded from the
computation, as their effect is antidilutive.
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3. Shareholders' equity
COMMON AND PREFERRED STOCK
The Company has authorized 101,000,000 shares of Common Stock with a par
value of $.0001 per share and 1,000,000 shares of Preferred Stock with a
par value of $.01 per share. There were 73,402,516 shares of Common Stock
issued and outstanding at March 31, 1997. No shares of Preferred Stock are
outstanding.
OPTIONS AND WARRANTS
The Company had several employee and non-employee stock option plans. All
of the plans were terminated prior to the effective date of the Amended
Plan of Reorganization.
At March 31, 1997, the Company had warrants for 467,500 shares outstanding.
These warrants expire at various dates through July 1999 and have exercise
prices ranging from $1.75 to $7.20 per share.
4. Due to Ultra
At March 31, 1997, the Company owed $12,000 to Ultra for loans provided to
finance the Company's business activity. The loans are convertible into
equity at the rate of 130 shares per dollar at Ultra's option. Ultra has
waived its right to receive interest on the loans through March 31, 1997.
5. Sale of Potato Products International, Ltd.
On December 27, 1996, ESCAgenetics Corporation sold 100% of the common
stock outstanding of Potato Products International, Ltd. ("PPI") to an
affiliate of Ultra for $175,000. Prior to the sale, ESCAgenetics
Corporation transferred to Potato Products International, Ltd. title to all
of its tangible and intangible assets other than cash and cash equivalents
and the stock of PHYTOpharmaceuticals, Inc., SRE ESCAgenetics Corporation
and PPI. Cash was collected from the sale on January 31, 1997.
Substantially all of the proceeds from the sale were used to repay amounts
owed to Ultra.
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In its report for the quarter ended December 31, 1996, the Company
incorrectly reported a gain of $58,000 on the sale of Potato Products
International, Ltd. Had the investment in PPI been properly recorded at net
realizable value on the "fresh start" date of August 22, 1996 (note 2), no
gain or loss would have been recorded on the sale of PPI in December 1996.
Based upon the subsequent sale, management determined that the fair value
of PPI was understated by $58,000. Accordingly, the investment in PPI was
retroactively adjusted to net realizable value at August 22, 1996. The
effect of this adjustment was to eliminate the $58,000 gain and increase
the loss previously reported in the quarter ended December 31, 1996.
6. Income taxes
The Company has accumulated significant net operating loss carryforwards.
Subsequent to its August 22, 1996 reorganization date, the Company
accumulated net operating loss carryforwards that are available to offset
future taxable income, if any, through 2012. Due to the change in the
ownership of the Company and the nature of the Company's operations,
realization of the net operating loss carryforwards is remote. Accordingly,
management has recorded a valuation allowance to reduce deferred tax assets
associated with net operating loss carryforwards to zero at March 31, 1997.
8
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ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Effective as of August 22, 1996 the Company was reorganized pursuant to a plan
of reorganization that was confirmed by the US Bankruptcy Court. Fresh start
reporting in accordance with AICPA Statement of Position 90-7 has been applied
to the Company's balance sheet. All assets, liabilities and shareholders' equity
accounts were adjusted to reflect their current value and retained earnings was
set to zero as of the August 22, 1996 reorganization date. Since the
reorganization date, the Company has adopted a September 30 fiscal year.
The Company has had no revenues from operations since the reorganization date.
The Company does not plan to continue the business activities that it previously
conducted. It plans to pursue a business combination or other strategic
transaction. No candidate for such a transaction has been identified. The
Company believes its status as a public company may be attractive to a private
company wishing to avoid an initial public offering but there is no guarantee
that a business combination or other strategic transaction will be consummated.
The Company expects to fund its expenses during fiscal 1997 with advances from
its majority shareholder, GFL Ultra Fund, Ltd ("Ultra"). These advances are
expected to total approximately $9,000 during fiscal 1997. The Company expects
Ultra to continue to fund its expenses until a business combination or other
strategic transaction is consummated. There is no guarantee that the Company is
a viable party for a business combination or other strategic transaction. If a
business combination or other strategic transaction is not consummated in a
timeframe suitable to Ultra or cannot be consummated due to excessive cost or
for any other reason, Ultra will cease to advance funds to the Company.
The Company has no employees and no fixed assets. The Company does not
anticipate hiring any employees or purchasing any assets until such time as a
business combination or other strategic transaction is consummated or is
imminent.
On December 27, 1997, the Company sold 100% of the common stock outstanding of
its wholly owned subsidiary, Potato Products International, Ltd. (formerly known
as TPS Products Company) to an affiliate of Ultra for $175,000. In its report on
Form 10-QSB for the quarter ended December 31, 1996, the Company incorrectly
reported a gain of $58,000 on this sale. Had the investment in Potato Products
International, Ltd. been properly recorded at net realizable value on the August
22, 1996, reorganization date no gain or loss would have been recorded on the
sale of Potato Products International, Ltd. in December 1996.
PART II
ITEM 1 - Legal Proceedings
The Company's bankruptcy proceeding was officially closed effective March 31,
1997.
ITEM 2 - Changes in Securities and Use of Proceeds
None.
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ITEM 3 - Defaults Upon Senior Securities
None.
ITEM 4 - Submission of Matters to a Vote of Security Holders
None.
ITEM 5 - Other Items
None.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Forms 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ESCAGENETICS CORPORATION
By /s/ Michelle Kline
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Michelle Kline
President and Treasurer
(Principal Executive Officer and
Principal Financial Officer)
Dated: January 12, 1999
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS FILED WITH THE COMPANY'S MARCH 31, 1997
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 13,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,000
<CURRENT-LIABILITIES> 30,000
<BONDS> 0
0
0
<COMMON> 7,000
<OTHER-SE> (24,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,000
<SALES> 0
<TOTAL-REVENUES> 3,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 146,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (143,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (143,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (143,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
