SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported):
August 26, 1997
________________________________________
THERMO ECOTEK CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 1-13572 04-3072335
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification Number)
incorporation or
organization)
245 Winter Street, Suite 300
Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
(617) 622-1000
(Registrant's telephone number
including area code)
PAGE
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FORM 8-K
Item 5. Other Events
On January 17, 1997, Thermo Ecotek Corporation (the Company) through
its wholly owned subsidiary, Thermo Trilogy Corp., acquired substantially
all of the assets (the Assets) of biosys, inc. (biosys), including the
stock of a wholly-owned subsidiary, AgriSense-BCS, Ltd., a U.K. company,
for approximately $11,200,000 in cash (the Purchase Price). The Assets
consist of the business of biosys, a producer of pheromone,
neem/azadiractin, nematodes, and virus-based biopesticide products, as
well as disease resistant sugar cane, based in Columbia, Maryland (the
biosys Business).
In September 1996, biosys filed for reorganization under Chapter 11
of the U.S. Bankruptcy Code. The Company, through Thermo Trilogy Corp.,
acquired the Assets from biosys as part of an auction conducted by
biosys. The Purchase Price represents the Company's bid in the auction
for the Assets. The Company based its bid in part on the Company's
estimate of projected sales and profits to be generated by the biosys
Business. The sale of the Assets was subject to, and received, approval
by the bankruptcy court on January 7, 1997.
The acquisition was made pursuant to an Asset Purchase Agreement
dated as of December 24, 1996, among Thermo Trilogy Corp., biosys, inc.,
Crop Genetics International Corporation and AgriDyne Technologies, Inc.,
both of which are wholly owned subsidiaries of biosys. The Purchase Price
was funded entirely from cash on hand.
The Company has no present intention to use the Assets for purposes
materially different from the purposes for which such assets were used
prior to the acquisition. However, simultaneously upon closing, the
Company abandoned certain equipment which was immaterial and unnecessary
to the operation of the biosys Business. Further, the Company will review
the biosys Business and its assets, corporate structure, capitalization,
operations, properties, and policies, and, upon completion of this
review, may develop alternative plans or proposals, including mergers,
transfers of a material amount of assets, or other transactions or
changes relating to such business.
On January 31, 1997, the Company filed a Current Report on Form 8-K
regarding the Company's purchase of biosys. Subsequently, on March 25,
1997, the Company filed Amendment No. 1 on Form 8-K/A including biosys'
consolidated financial statements for the three years ended December 31,
1995. Included as exhibits to this Current Report on Form 8-K are biosys'
consolidated financial statements for the two years ended December 31,
1996, together with the unaudited pro forma combined condensed statement
of income for the fiscal year ended September 28, 1996.
2PAGE
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FORM 8-K
Item 5. Exhibits
23.1 Consent of Price Waterhouse LLP
99.1 Financial Statements of Business Acquired
99.2 Pro Forma Combined Condensed Financial Information
3PAGE
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FORM 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized, on this 26th of August 1997.
THERMO ECOTEK CORPORATION
Paul F. Kelleher
--------------------------
Paul F. Kelleher
Chief Accounting Officer
4<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 33-91538), Registration Statement
on Form S-8 (No. 33-91542), Registration Statement on Form S-8 (No.
33-91546), Registration Statement on Form S-8 (No. 33-91544),
Registration Statement on Form S-8 (No. 33-91548), and Registration
Statement on Form S-8 (No. 33-80753) of Thermo Ecotek Corporation of our
report dated August 7, 1997, appearing in this Current Report on Form
8-K.
PRICE WATERHOUSE LLP
Falls Church, Virginia
August 20, 1997
Exhibit 99.1
biosys, inc.
Report and Consolidated
Financial Statements
December 31, 1996 and 1995
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of biosys, inc.:
In our opinion, the accompanying consolidated balance sheets of
discontinued operations and the related consolidated statements of
discontinued operations, of cash flows of discontinued operations and of
shareholders' equity (deficit) of discontinued operations present fairly,
in all material respects, the financial position of biosys, inc. and its
subsidiaries (the "Company") at December 31, 1995 and 1996, and the
results of their discontinued operations and their cash flows for each of
the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 1 and 2 to the consolidated financial
statements, biosys, inc. and certain of its wholly-owned subsidiaries
filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code during 1996. Subsequent to December 31, 1996, the
Company sold substantially all of its productive assets, ceased
operations and filed a plan of liquidation with the United States
Bankruptcy Court for the District of Maryland which plan is currently
awaiting confirmation. The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going
concern. As more fully described in Note 3 to the consolidated financial
statements, the results of operations are presented as discontinued
operations, and accrued expenses include the estimated costs of the
liquidation of the Company. As a consequence, substantial doubt exists
about the Company's ability to continue as a going concern. As more fully
described in Notes 7 and 8 to the consolidated financial statements, a
significantly larger amount of claims have been cumulatively asserted
against the Company than are reflected as liabilities in the
consolidated financial statements.
As discussed in Note 8 to the financial statements, in July 1997 a
former customer of the Company filed a claim contending that biosys, inc.
has failed to perform under an exclusive marketing agreement between the
former customer and biosys, inc. Based upon this alleged breach of the
marketing agreement and biosys, inc.'s inability to perform under such
agreement, the former customer has asserted a claim of approximately $9
million, representing their alleged lost margin for the remaining term of
the marketing agreement. It is the Company's intention to object to the
allowance of such claim. The ultimate outcome of the matter cannot
presently be determined, and no provision for any liability that may
result has been made in the financial statements.
PAGE
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REPORT OF INDEPENDENT ACCOUNTANTS
The consolidated financial statements do not include any adjustments
relating to the amounts that ultimately will be paid to settle the
Company's liabilities; as a result of the liquidation process, such
amounts may be substantially different from their carrying values.
PRICE WATERHOUSE LLP
Falls Church, Virginia
August 7, 1997
PAGE
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biosys, inc.
(Debtor-in-Posession)
CONSOLIDATED BALANCE SHEETS OF DISCONTINUED OPERATIONS
(in thousands, except per share data)
December 31,
----------------------------------
1996
1995 1996 Pro Forma
(Unaudited)
Historical Historical (Note 2)
---------- ---------- ---------
ASSETS
Cash and cash equivalents $ 1,755 $ 961 $ 8,021
Accounts receivable, net 3,009 2,363 1,040
Inventories, net 4,086 3,262 -
Property and equipment, net 6,421 6,117 -
Goodwill 380 3,606 -
Other assets, net 706 623 -
--------- --------- ---------
$ 16,357 $ 16,932 $ 9,061
========= ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities not subject to compromise:
Accounts payable 4,767 2,512 116
Debt - prepetition 9,674 3,562 -
Accrued expenses 3,309 966 966
Deferred credits 931 214 21
Estimated costs through completion of
liquidation - 2,512 2,765
--------- --------- ---------
Total liabilities not subject to
compromise 18,681 9,766 3,868
--------- --------- ---------
Liabilities subject to
compromise - prepetition - 11,660 9,686
--------- --------- ---------
Total liabilities 18,681 21,426 13,554
--------- --------- ---------
Commitment and contingencies (Note 8)
Shareholders' deficit:
Series A convertible preferred stock,
$.001 par value; 5,000,000 shares
authorized, 520 shares issued and
outstanding on December 31, 1996 - 1 1
Common stock, $.001 par value;
30,000,000 shares authorized;
5,598,828 and 9,548,610 issued and
outstanding at December 31, 1995 and
1996, respectively 6 9 9
Additional paid-in capital 126,315 146,651 146,651
Accumulated deficit (128,592) (151,154) (151,154)
Cumulative translation adjustment (53) (1) -
--------- --------- ---------
Total shareholders' deficit (2,324) (4,494) (4,493)
--------- --------- ---------
$ 16,357 $ 16,932 $ 9,061
========= ========= =========
See accompanying notes to consolidated financial statements.
PAGE
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biosys, inc.
(Debtor-in-Posession)
CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS
(in thousands, except share and per share data)
Years ended December 31,
------------------------
1995 1996
---- ----
Revenues:
Product sales $ 22,679 $ 22,846
Contract research and development 320 903
-------- --------
Total revenues 22,999 23,749
-------- --------
Operating costs and expenses:
Cost of product sales 21,241 21,245
Research and development 7,006 5,685
Marketing and selling 4,301 3,108
General and administrative 3,520 5,607
Purchased research and development - 6,000
Costs of mergers 4,175 -
-------- --------
Total operating costs and expenses 40,243 41,645
-------- --------
Loss from operations (17,244) (17,896)
-------- -------
Non-operating income and expenses:
Interest and other expense (1,415) (1,313)
Interest and other income 119 48
-------- --------
Total non-operating income and expenses (1,296) (1,265)
-------- --------
Reorganization and estimated expenses through
liquidation, net - (3,401)
-------- --------
Net loss (18,540) (22,562)
Preferred stock dividends and accretion - (1,844)
-------- --------
Net loss applicable to common shares $(18,540) $(24,406)
======== ========
Net loss per share $ (4.04) $ (3.17)
Weighted average common shares and equivalents 4,587 7,688
See accompanying notes to consolidated financial statements
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biosys, inc.
(Debtor-in-Posession)
CONSOLIDATED STATEMENTS OF CASH FLOWS OF DISCONTINUED OPERATIONS
(in thousands)
Years ended December 31,
------------------------
1995 1996
---- ----
Cash flows from operating activities:
Net loss $(18,540) $(22,562)
Adjustments to reconcile net loss to net cash
used in operating activities:
Purchased research and development - 6,000
Depreciation and amortization 1,589 2,567
Common stock and warrants issued for loan
origination and modification 85 153
Loss on disposal of assets 49 -
Changes in assets and liabilities:
Accounts receivable (1,130) 942
Inventories (543) 1,528
Other assets 336 (146)
Accounts payable and accrued expenses 4,188 3,044
Estimated costs through completion of
liquidation - 2,512
Deferred credits 399 (717)
-------- -------
Net cash used in operating activities (13,567) (6,679)
-------- -------
Cash flows from investing activities:
Acquisition of property and equipment (845) (888)
Proceeds from sale of property and equipment 547 -
Proceeds from sale of short-term investments 76 -
Net cash acquired in AgriDyne acquisition - 1,742
-------- --------
Net cash provided by (used in) investing activities (222) 854
-------- --------
Cash flows from financing activities:
Issuance of common stock, net of issuance costs 3,012 -
Exercise of stock options and warrants 24 8
Issuance of convertible preferred stock, net of
issuance costs - 7,254
Payments on debt (1,186) (2,450)
Proceeds from issuance of debt 5,325 182
Restricted cash - -
-------- --------
Net cash provided by financing activities 7,175 4,994
-------- --------
Effect of exchange rate changes on cash (8) 37
-------- --------
Net decrease in cash and cash equivalents (6,622) (794)
Cash and cash equivalents at beginning of year 8,377 1,755
-------- --------
Cash and cash equivalents at end of year $ 1,755 $ 961
======== ========
See accompanying notes to consolidated financial statements.
PAGE
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biosys, inc.
(Debtor-in-Posession)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) OF
DISCONTINUED OPERATIONS
(in thousands, except share data)
Add-
Preferred Stock Common Stock itional Accumu- Cumulative
---------------- ------------- Paid-in lated Translation
Shares Amount Shares Amount Capital Deficit Adjustment Total
------ ------ ------ ------ ------- ------- ----------- -----
Balance at
December
31, 1994 2,133,605 $ 213 4,106,838 $4 $122,983 $(110,052) $(58) $13,090
Issuance of
common stock
to retire
preferred
stock (2,133,605) (213) 573,878 1 212
Issuance of
common stock
upon exercise
of options
and warrants 51,398 109 109
Issuance of
common stock 866,714 1 3,011 3,012
Net loss (18,540) (18,540)
Translation
adjustment 5 5
------- ----- ---------- --- ------- --------- ----- ---------
Balance at
December
31, 1995 5,598,828 6 126,315 (128,592) (53) (2,324)
Issuance of
common stock
in connection
with acquisition
of AgriDyne 1,888,121 1 12,924 12,925
Issuance of
preferred
stock 780 1 7,253 7,254
Issuance of
common stock
upon exercise
of options
and warrants 8,718 161 161
Conversion of
preferred
stock into
common
stock (260) 2,052,943 2 (2)
Net loss (22,562) (22,562)
Translation
adjustment 52 52
------- ----- ---------- --- ------- --------- ----- ---------
Balance at
December
31, 1996 520 $ 1 9,548,610 $9 $146,651 $(151,154) $ (1) $(4,494)
======= ===== ========== === ======= ========= ====== ========
See accompanying notes to consolidated financial statements.
.
PAGE
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biosys, inc. (Debtor-in-Possession)
Notes To Consolidated Financial Statements
NOTE 1 - THE COMPANY
During the year ended December 31, 1996, biosys, inc. and its
domestic subsidiaries, Crop Genetics International Corporation ("CGI")
and AgriDyne Technologies, Inc. ("AgriDyne") and its U.K. subsidiary,
Agrisense-BCS, Limited ("BCS"), herein collectively referred to as
"biosys" or the "Company," engaged in the development, production and
sale of bioinsecticides used to detect, monitor and control harmful
insects. The Company also had a division which produced high yielding
seedcane for the sugarcane industry.
On September 27, 1996, biosys, inc. and CGI, filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy
Code ("Chapter 11") in the United States Bankruptcy Court for the
District of Maryland (the "Bankruptcy Court"). On November 15, 1996,
AgriDyne also filed a voluntary petition for relief under Chapter 11.
biosys, inc., CGI and AgriDyne are herein collectively referred to as the
"Debtors" and the filing of voluntary petitions under Chapter 11 are
referred to as the "Filings." BCS did not file for bankruptcy
protection.
As discussed in Note 2 on January 17, 1997, substantially all of the
assets of the Debtors, including the stock of BCS, were sold to Thermo
Trilogy Corporation in accordance with the Asset Purchase Agreement. In
conjunction with the sale, Thermo Trilogy Corporation also assumed
certain contractual obligations of biosys. The Company ceased the
manufacture and sale of commercial products concurrent with the sale of
assets.
The proceeds from the sale of assets are expected to be distributed
to the Debtor's creditors in accordance with a Joint Plan of Liquidation
which has been filed with Bankruptcy Court. The Company does not expect
that there will be any funds remaining for the Company's common or
preferred shareholders. See Note 2 for further discussion of the
bankruptcy proceedings.
NOTE 2 - STATUS OF CHAPTER 11 PROCEEDINGS
During 1996, the Company continued to experience negative cash flow
from operations. Despite certain funding and collaborative initiatives
pursued by the Company during 1996 and prior periods, the Company was,
for a variety of reasons, not successful in procuring adequate funding to
satisfy operational and creditor needs. Accordingly, as discussed in Note
1, during 1996 the Debtors filed voluntary petitions under Chapter 11 in
order to obtain relief from their creditors. Subsequent to the date of
the Filings, the Debtors have been operating as debtors-in-possession
pursuant to federal bankruptcy laws. Schedules were filed by the Debtors
with the Bankruptcy Court setting forth the assets and liabilities of the
Debtors as of the date of the Filings as shown by the Debtors' accounting
records. Creditors, with certain limited exceptions, were required to
file proof of claims by January 28, 1997 (in the case of biosys, inc. and
CGI creditors) and March 18, 1997 (in the case of AgriDyne creditors).
Substantial differences between amounts shown by the Debtors and claims
filed by creditors are currently being investigated and, where not
resolved, may be subject to objection in the normal course of bankruptcy
PAGE
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biosys, inc. (Debtor-in-Possession)
Notes To Consolidated Financial Statements
proceedings. The amount and settlement terms for any such disputed
liabilities are subject to approval by the Bankruptcy Court. No provision
has been recorded as of December 31, 1996 for possible settlements, if
any, as such amount is not determinable. See Note 8.
From the date of the Filings through the sale of assets to Thermo
Trilogy Corporation, the operations of the Company were funded by the use
of existing cash and working capital resources with the oversight of the
secured creditors, The Official Committee of Unsecured Creditors
("Creditors' Committee") and the Bankruptcy Court.
On December 24, 1996, the Debtors entered into an Asset Purchase
Agreement with Thermo Trilogy Corporation. Pursuant to the Asset Purchase
Agreement, Thermo Trilogy Corporation agreed to purchase substantially
all of the Company's assets, excluding certain cash and trade accounts
receivable balances and including the common stock of BCS, for $11
million in cash and the assumption of certain contractual obligations of
the Company. On January 7, 1997, the Bankruptcy Court approved the Asset
Purchase Agreement and the sale was consummated on January 17, 1997. At
the time of sale, the cash paid and contractual obligations assumed by
Thermo Trilogy Corporation exceeded the carrying value of the assets sold
by biosys by approximately $253,000. This gain has been offset against
accrued reorganization and liquidation expenses at December 31, 1996. See
Note 3. In conjunction with the sale of the Company's assets on January
17, 1997, the Company paid one of its secured creditors approximately
$3,562,000, representing outstanding principal balance and accrued
interest, pursuant to an Order of the Bankruptcy Court.
The Consolidated Balance Sheets include unaudited pro-forma
information presenting the Company's balance sheet at December 31, 1996
as if the transactions with Thermo Trilogy Corporation and the Company's
secured creditor as described above had been consummated on December 31,
1996. The pro forma adjustments made to the Consolidated Balance Sheets
are as follows:
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biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Balance Sheet
(Amounts in thousands)
December 31, 1996
----------------------------------
Unaudited
----------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
ASSETS
Cash and cash equivalents $ 961 $10,622 (a) $ 8,021
(3,562)(b)
Accounts receivable, net 2,363 (1,323)(a) 1,040
Inventories, net 3,262 (3,262)(a) -
Property and equipment, net 6,117 (6,117)(a) -
Goodwill 3,606 (3,606)(a) -
Other assets, net 623 (623)(a) -
-------- ------- ---------
$ 16,932 $(7,871) $ 9,061
======== ======= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities not subject to compromise:
Accounts payable 2,512 (2,396)(a) 116
Debt - prepetition 3,562 (3,562)(b) -
Accrued expenses 966 966
Deferred credits 214 (193)(a) 21
Estimated costs through completion of
liquidation 2,512 253 (a) 2,765
-------- ------- ---------
Total liabilities not subject to
compromise 9,766 (5,898)(a) 3,868
-------- ------- ---------
Liabilities subject to
compromise - prepetition 11,660 (1,974)(a) 9,686
-------- ------- ---------
Total liabilities 21,426 (7,872) 13,554
-------- ------- ---------
Shareholders' deficit:
Convertible preferred stock, par value 1 1
Common stock, par value 9 9
Additional paid-in capital 146,651 146,651
Accumulated deficit (151,154) (151,154)
Cumulative translation adjustment (1) 1 (a) -
-------- ------- ---------
Total shareholders' deficit (4,494) 1 (4,493)
-------- ------- ---------
$ 16,932 $(7,871) $ 9,061
======== ======= =========
(a) To reflect the sale, consummated on January 17, 1997, of substantially all
of the Company's assets, including the stock of BCS, to Thermo Trilogy
Corporation in exchange of $11,000,000 in cash and the assumption by Thermo
Trilogy Corporation of certain contractual obligations of the Company.
(b) To reflect the repayment of the outstanding principal balance and accrued
interest due to one of the Company's secured creditors in conjunction with
the sale of assets described above.
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biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 28, 1997, the Debtors, together with the Creditors'
Committee, filed a Joint Plan of Liquidation with the Bankruptcy Court.
On June 13, 1997, the Debtors, together with the Creditors' Committee,
filed a Joint Disclosure Statement. A hearing to approve or disapprove
the Joint Disclosure Statement has been scheduled for August 19, 1997.
Upon approval of the Joint Disclosure Statement, the Bankruptcy Court
will schedule a confirmation hearing on the Joint Plan of Liquidation to
be followed by the appointment of a liquidating agent if the Joint Plan
of Liquidation is confirmed.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
As the Company was in the process of selling substantially all of
its assets to Thermo Trilogy Corporation at December 31, 1996, the
financial statements as of and for the year ended December 31, 1996 have
been prepared as those of a discontinued operation. Therefore, the
historical cost basis has been used, and the Company has accrued all
operating results and estimated costs to be incurred through the date of
its pending liquidation as of December 31, 1996. The gain on sale of the
Company's assets to Thermo Trilogy Corporation described in Note 2 has
been offset against this accrual. The valuation of assets and liabilities
necessarily requires many estimates and assumptions and there are
substantial uncertainties in carrying out the liquidation.
The accompanying balance sheets are presented without segregation
of current assets and current liabilities. This unclassified presentation
avoids possible misunderstandings as to the relationships between current
and noncurrent assets and liabilities. With the subsequent sale of
substantially all of biosys' assets and the planned liquidation, all
assets and liabilities became current. See Notes 1 and 2.
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and 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. Particularly sensitive estimates
include liabilities subject to compromise, estimated costs through
completion of liquidation and the AgriDyne purchase price allocation
(Note 4). Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of
biosys and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
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biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenue from the sale of the Company's products, as well as from
products manufactured for others, is recognized upon shipment. Provision
is made for expected sales returns and allowances when revenue is
recognized. Contract research and development revenues are recognized as
related expenses are incurred in accordance with the contract terms.
Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," (SFAS 107) requires companies
to disclose the fair value of financial instruments, both assets and
liabilities, recognized and not recognized in the balance sheets, for
which it is practicable to estimate fair value. For purposes of this
disclosure, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction between
two willing parties, other than in a forced liquidation or sale. Fair
value is based on quoted market prices for the same or similar
instruments. The carrying amount of the Company's financial assets
approximates fair value due to the short maturity of these financial
instruments.
The uncertainty related to the outcome of the Filings and the
resulting effect upon the ultimate value of the Company's liabilities
adds significantly to the uncertain nature of any estimate of fair value.
The disposition of the Company's liabilities in the bankruptcy
proceedings could occur at significantly different amounts from fair
value estimates which can be made at this time. The liabilities of the
Company which are subject to compromise are subject to adjustment at the
direction of the Bankruptcy Court. Additionally, the timing of the
ultimate payment of these liabilities, as well as the inclusion of
interest, late fees and other similar costs, is also subject to
determination by the Bankruptcy Court. Accordingly, it is not practicable
to determine the fair value of the liabilities of the Company.
Inventories
Inventories are stated at the lower of cost, determined on the
first-in, first-out basis, or market.
PAGE
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biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are computed using the straight line method over the
estimated useful lives of the assets, which range from three to ten
years. Depreciation of leasehold improvements is computed using the
shorter of the remaining lease term or the estimated useful life of the
improvements.
Long-lived Assets
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS
121). Upon adoption of the SFAS 121, the Company evaluated its long-lived
assets using projected undiscounted future cash flows and operating
results for each of the Company's divisions and determined that no
material impairment existed at January 1, 1996. The Company continued to
evaluate its long-lived assets for impairment throughout 1996 and
determined that no material impairment existed.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiary are
translated to U.S. dollars at year-end exchange rates. Revenue and
expense items are translated at average exchange rates prevailing during
the year. Translation adjustments are accumulated as a separate component
of shareholders' deficit. Transaction gains and losses are included in
results of operations and have not been significant.
Interest Expense
The accrual of interest on prepetition indebtedness ceased
subsequent to the date of the Filings as a result of the related debt
being considered liabilities subject to compromise in the bankruptcy
proceedings. If these costs had continued to accrue subsequent to the
date of the Filings, total interest expense for the year ended December
31, 1996 would have been increased by approximately $116,000. Cash paid
for interest approximated $1,277,000 and $1,228,000 in 1996 and 1995,
respectively.
Net Loss Per Share
Net loss per share has been computed using the weighted average
number of common shares outstanding during each period presented. Common
equivalent shares for options and warrants granted but not exercised and
for convertible preferred stock are not included in the calculation as
their effect would be antidilutive.
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biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting for Stock Options
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). In accordance with SFAS 123, the Company has
elected to continue to measure compensation expense for its stock option
plans using the intrinsic value method as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has not recognized any compensation expense for
stock options granted under its stock option plans. The Company has
calculated the pro-forma information required to be disclosed under SFAS
123 for options granted in 1996 and 1995 using the appropriate pricing
models prescribed by SFAS 123 and determined that, had compensation
expense been recorded commensurate to the fair value of options granted
on the grant date, the pro-forma impact on the Company's net loss and net
loss per share for such periods was not material. Accordingly, no
pro-forma amounts are presented.
Reverse Stock Split
Effective March 15, 1996, the Company effected a one for two and
one-half reverse stock split of its common stock (the "Reverse Stock
Split"). All common stock share information in the accompanying
consolidated financial statements and related footnotes has been adjusted
to reflect the Reverse Stock Split.
Reclassifications
Certain prior year information has been reclassified to conform
with current year presentation.
NOTE 4 - BUSINESS COMBINATIONS
AgriDyne Technologies Inc.
On March 15, 1996, the Company acquired AgriDyne Technologies Inc.
("AgriDyne") in a merger whereby AgriDyne became a wholly-owned
subsidiary of the Company. To effect the merger, the Company issued
approximately 1.9 million shares of its common stock in exchange for all
of the outstanding shares of AgriDyne common stock based on a conversion
ratio of 0.28664 of a share of biosys common stock for each share of
AgriDyne common stock, after giving effect to a one for two and one-half
reverse stock split of biosys common stock effected immediately prior to
the merger.
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company and AgriDyne initially entered into an Agreement and
Plan of Merger in April 1995. The final purchase price of AgriDyne was
determined as the market value of the Company's 1.9 million shares of
common stock on the date of the final amendment to the Agreement and Plan
of Merger in December 1995 and certain direct costs to effect the merger.
The Company allocated this purchase price to the identifiable tangible
and intangible assets and liabilities of AgriDyne and assigned the excess
purchase price to goodwill as follows (in thousands):
Identifiable tangible and intangible
assets and liabilities:
Cash $ 2,041
Accounts receivable 338
Inventory 673
Equipment 121
In-process research and development 6,000
Other assets 199
Accrued expenses (105)
-----
Total identifiable tangible and
intangible assets and liabilities 9,267
Goodwill 4,325
------
$ 13,592
========
In accordance with generally accepted accounting principles, the
Company's estimate of purchased in-process research and development was
expensed immediately. Goodwill acquired in this transaction was to be
amortized over its estimated useful life of three years, of which $1.1
million of amortization expense was recorded in the fourth quarter of
1996.
The results of operations of AgriDyne have been included in the
Company's financial statements since the date of acquisition. The
following unaudited pro forma results of the Company for the years ended
December 31, 1995 and 1996 assume that the transaction had taken place on
the first day of the respective periods and include the non-recurring $6
million write-off of in-process research and development (in thousands,
except per share data):
Year ended December 31,
--------------------------
1995 1996
-------- --------
Total revenues, net $25,129 $23,997
Net loss (28,270) (23,163)
Net loss applicable to
common shares $ (4.37) $ (2.87)
Crop Genetics International Corporation
On March 31, 1995, the Company completed a merger with CGI. In
exchange for all of CGI's outstanding equity securities, the Company
issued approximately 1.4 million shares of common stock. The acquisition
was accounted for using the pooling-of-interests method and the separate
balance sheets, statements of operations, cash flows and shareholders'
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equity of the Company and CGI for periods prior to March 31, 1995 were
restated on a combined basis for all periods presented. During 1995, the
Company incurred $3,723,000 in merger, severance and relocation costs
associated with the merger.
Revenues and net loss of the separate companies included in the
combined statement of operations through the merger date of March 31,
1995 are as follows (in thousands):
Revenues:
biosys $5,921
CGI 99
------
$6,020
======
Net loss:
biosys $(2,682)
CGI (3,423)
-------
$(6,105)
=======
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - DETAILS OF BALANCE SHEET COMPONENTS
December 31,
---------------------------
1995 1996
---------- ----------
Accounts receivable:
Trade receivables $2,993,000 $2,850,000
Other receivables 304,000 66,000
Less allowance for doubtful accounts (288,000) (553,000)
---------- ----------
$3,009,000 $2,363,000
========== ==========
Inventories:
Raw materials $3,130,000 $2,329,000
Work-in-process 225,000 141,000
Finished goods 814,000 1,259,000
Deferred growing costs 471,000 450,000
Less reserve for obsolescence (554,000) (917,000)
---------- ---------
$4,086,000 $3,262,000
========== ==========
Property and equipment:
Land and improvements $ 220,000 $ 220,000
Machinery and equipment 9,721,000 11,243,000
Furniture and fixtures 567,000 608,000
Leasehold improvements 4,045,000 4,101,000
---------- ----------
14,553,000 16,172,000
Less accumulated depreciation (8,132,000) (10,055,000)
---------- ----------
$6,421,000 $6,117,000
========== ==========
Accrued expenses:
Merger costs (Note 4) $1,633,000 $ -
Accrued compensation and benefits 169,000 126,000
Other 1,507,000 840,000
---------- ---------
$3,309,000 $ 966,000
========== ==========
NOTE 6 - INDEBTEDNESS
During 1995, the Company entered into a working capital line of
credit with a bank that allowed for borrowings of up to $5,250,000
subject to certain limitations based upon the value of substantially all
of the Company's assets which were used for collateral. In 1995 and 1996,
$5,250,000 and $3,500,000, respectively, were outstanding under the line
of credit. During 1995 and 1996, the Company sought and received
extensions to stated dates of repayment; however, the Company was unable
to negotiate an extension of the final repayment date of September 30,
1996. Interest on borrowings is charged at the bank's prime rate plus 3%
(11.25% as of December 31, 1996). In conjunction with the closing of the
sale of Company's assets to Thermo Trilogy Corporation in January 1997,
pursuant to an Order of the Bankruptcy Court, the Company paid the bank
approximately $3,562,000, representing outstanding principal balance and
accrued interest.
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1995, the Company paid fees of $100,000 and issued to the
lender warrants to purchase 45,992 shares of common stock at exercise
prices ranging from $5.00 to $7.00 per share. The warrants were
exercisable at various dates through January 31, 2001. The warrant shares
are subject to adjustment for certain changes in capital structure and
have registration rights. The warrants were valued at $58,000 and
recorded as interest expense in 1995. During 1996, the Company issued to
the lender warrants to purchase 173,333 shares of common stock at an
exercise price of the lesser of $3 per share or the lowest closing price
per common share during the duration of the line of credit facility. The
warrants were valued at $97,000 and recorded as interest expense in 1996.
In addition, the warrants issued in 1995 were re-priced to the same
exercise price as the warrants issued in 1996.
CGI had borrowings of $3,400,000 under a credit facility. At
December 31, 1996, approximately $2,450,000 was outstanding under this
credit facility. The borrowing bears interest at the bank's prime rate
plus 0.5% (8.75% at December 31, 1996). Future principal payments on the
credit facility are subject to bankruptcy proceedings. Borrowings under
this debt facility are secured by substantially all of the equipment of
CGI. CGI has instituted an adversary proceeding in order to determine the
validity, extent and priority of the bank's secured claim against CGI in
the bankruptcy proceeding. A joint motion by the Debtors, unsecured
creditors committee, and the lender to approve a settlement agreement
establishing the bank's secured claim at approximately $548,000 is before
the Bankruptcy Court for approval, but the Bankruptcy Court has not yet
ruled on the motion. If the Bankruptcy Court approves the settlement, the
remainder of the bank's claim will be treated as an unsecured claim. The
entire principal balance of $2,450,000 outstanding at December 31, 1996
is included in liabilities subject to compromise in the Consolidated
Balance Sheets.
In December 1994, the Company entered into a borrowing arrangement
under which the Company borrowed $2,180,000, secured by certain property
and equipment. At December 31, 1996, approximately $1,395,000 was
outstanding under this arrangement. Future principal payments on the debt
are subject to bankruptcy proceedings. biosys, inc. has instituted an
adversary proceeding in order to determine the validity, extent and
priority of the lender's secured claim against biosys, inc. in the
bankruptcy proceeding. This determination will assist in establishing the
amount to be paid to the lender as a secured claim. The remainder of the
lender's claim will be treated as an unsecured claim. The entire
principal balance of $1,395,000 outstanding at December 31, 1996 is
included in liabilities subject to compromise in the Consolidated Balance
Sheets.
In connection with the December 1994 borrowing and subsequent
amendments, the Company issued to the lender warrants to purchase 55,179
shares of common stock at prices ranging from $7.525 to $8.125 per share.
These warrants are exercisable at various dates through November 1, 2000.
The warrant shares are subject to adjustment for certain changes in
capital structure and have certain registration rights. The warrants were
valued at $138,000 and included in other long-term assets as a debt
issuance cost. The warrants are being amortized over the term of the debt
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and $32,000 and $58,000 was recognized as related interest expense during
1996 and 1995, respectively. The effective rate of interest on this
borrowing, including the amortization of the value of the warrants, is
approximately 18%.
No amounts are currently available for additional borrowings under
any of the Debtors borrowing agreements.
NOTE 7 - LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise under the bankruptcy proceedings
include substantially all current and long-term unsecured or undersecured
liabilities as of the date of the Filings. Pursuant to the provisions of
the Bankruptcy Code, payment of those liabilities may not be made except
pursuant to a plan of liquidation or Bankruptcy Court order while the
Debtors continue to operate as debtors-in-possession. The Debtors believe
that they have performed all required notification procedures under
bankruptcy law with regards to known or potential claimants for the
purpose of identifying all prepetition claims against the Debtors. While
the Company believes that the amounts recorded reflect known bona fide
unsecured and undersecured liabilities, the amounts ultimately allowed by
the Bankruptcy Court may be significantly different.
A significantly larger amount of claims have been cumulatively filed
against the Debtors than are reflected as prepetition liabilities in the
financial statements. Furthermore, there are (i) individual creditors
that have not filed claims, (ii) claims filed for unspecified amounts,
and (iii) claims for specific items which are not reflected as
liabilities in the financial statements.
The amount recorded as liabilities subject to compromise is significantly
less than filed claims because the cumulative total of filed claims
includes: (i) claims that have been discharged or waived subsequent to
their filing, (ii) duplicate filings of single items in all three
bankruptcy cases, (iii) claims currently or potentially subject to
negotiated compromise, (iv) claims filed by participants in a certain
limited partnership (v) claims filed by the common and preferred
shareholders of the Debtors, and (vi) numerous errors or otherwise
currently unresolved differences.
It is currently not possible to precisely determine the ultimate total
amount of claims which will be allowed by the Bankruptcy Court and the
final resolution of the disputed or negotiated claims. However, total
prepetition liabilities reflected in the consolidated financial
statements represents management's best current estimate of all known
prepetition liabilities given the facts and circumstances of which
management is currently aware.
NOTE 8 - LITIGATION AND DISPUTED CLAIMS
The Debtors and the Creditors' Committee have identified certain claims
filed in the three bankruptcy cases which are either duplicative or the
amount of which the Debtors dispute. The Debtors intend to file
objections to duplicative claims in order to have only one claim allowed
for each creditor. The Debtors also intend to object to claims subject to
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
other than de minimis disputed amounts. Claims which cannot be resolved
by agreement will have to be determined by the Bankruptcy Court. The
resolution by the Bankruptcy Court is subject to the Court's schedule,
however, the Debtors estimate that claims subject to objection may be
resolved by the Bankruptcy Court within two to six months, or longer,
after the filing of the objections. Significant disputed creditor claims,
settlements and other contingencies are discussed below.
A lender has asserted that the Debtor owes amounts in addition to
the principal and interest amounts already repaid. The lender had filed
additional claims totaling approximately $850,000 representing unpaid
interest calculated at a default rate, late charges, attorney's fees,
collection costs, and certain alleged put right liabilities arising from
warrants issued by the Debtor to the lender. The Creditors' Committee has
filed an objection with the Bankruptcy Court to the allowance of certain
claims filed by the lender. The Creditors' Committee, the Debtors and the
lender have reached an agreement in principle resolving these outstanding
claims for $425,000. A motion seeking approval of this proposed
settlement will be filed with the Bankruptcy Court. Liabilities subject
to compromise at December 31, 1996 include $425,000 for the amount to be
paid under the proposed settlement.
biosys, inc. and the Creditors' Committee instituted an adversary
proceeding against two banks to enjoin them from paying or honoring
certain letters of credit in the approximate total amount of $441,000 for
which biosys, inc. is the account party and which biosys, inc. and the
Creditors' Committee contend have expired. With the consent of the banks,
a preliminary injunction was entered by the Bankruptcy Court enjoining
payment of the letters of credit. A trial on the merits has been
scheduled for February, 1998. No liability has been recorded as of
December 31, 1996 due to the uncertainty of the outcome of these disputed
claims; however, in connection with the sale of assets to Thermo Trilogy
Corporation described in Note 2, the Debtors agreed to place an amount in
excess of the claims in an escrow account pending the resolution of this
matter.
The owner of property previously occupied by the Debtors filed
duplicate claims in the biosys, inc. and CGI bankruptcy cases for damages
arising from the rejection of a lease in the approximate amount of
$8,400,000 in each case. Certain postpetition amounts were also
outstanding for unpaid rent. The Debtors, the property owner and the
Creditors' Committee have reached an agreement as to the payment of all
obligations to the property owner on account of the lease. The Debtors
have agreed to pay $425,000 in full and final satisfaction of all claims
of the property owner. A motion approving the proposed settlement is
pending before the Bankruptcy Court. Liabilities subject to compromise at
December 31, 1996 include $425,000 for the amount to be paid under the
proposed settlement.
Certain preferred stockholders of biosys, inc. have filed a motion
for an order compelling conversion of their preferred stock to common
stock. The Debtors do not anticipate that there will be any recovery for
the biosys, inc. preferred stockholders on account of their equity
interests in biosys, inc. Some of the preferred stockholders have filed
proof of claims in the biosys, inc. bankruptcy estate totaling
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately $4,450,000 asserting unsecured creditor claims in
connection with biosys, inc.'s failure to convert their preferred stock
to common stock. It is the Debtors intention to object to the allowance
of such claims. No liability has been recorded as of December 31, 1996
due to the uncertainty of the outcome of these disputed claims.
Subsequent to the January 1997 sale of the Company's assets to
Thermo Trilogy Corporation described in Note 2, in July 1997, a former
customer of the Company filed a claim contending that biosys, inc. has
failed to perform under an exclusive marketing agreement between the
former customer and biosys, inc. Based upon this alleged breach of the
marketing agreement and biosys, inc.'s inability to perform under such
agreement, the former customer has asserted a claim of approximately $9
million, representing their alleged lost margin for the remaining term of
the marketing agreement. It is the Company's intention to object to the
allowance of such claim. No liability has been recorded as of December
31, 1996 due to the uncertainty of the outcome of these disputed claims.
The Debtors believe that certain purchasers of one of the Company's
bioinsecticide products may file claims alleging that such products
failed to adequately disrupt pink bollworm mating, thereby damaging their
cotton crops harvested in Arizona in September and October of 1996. To
date, no such claim has been asserted and no liability has been recorded
as of December 31, 1996 due to the uncertainty of these unasserted
claims.
AgriDyne and CGI each received from the United States Environmental
Protection Agency, Region VIII ("EPA") a Notice of Potential Liability
and Request for Information for the RAMP Industries Site in Denver,
Colorado, dated January 24, 1997, notifying AgriDyne and CGI of their
respective potential liability for response costs incurred or to be
incurred at the RAMP Industrial Site in Denver. The potential liability
of AgriDyne and CGI relate to activities which took place prior to 1995.
These letters also included Requests for Information regarding those
entities' involvement at the Site and attached historical documentation
purportedly indicating that both entities generated certain hazardous
substances that were disposed of at the Site. In May 1997, written
notification was received from the EPA that Native Plants (the
predecessor company to AgriDyne) shipped a limited amount of hazardous
waste to the Site for disposal and also is considered a potentially
responsible party at the Site. The Company has responded to the EPA's
requests for information. The Company contends that AgriDyne and CGI are
de minimis parties and therefore subject to a limited, allocated share of
the response costs; however, the Company may be jointly and severally
liable for additional amounts. Moreover, CGI intends to challenge the
EPA's preliminary determination and assert that the transporter of any
hazardous waste, as opposed to CGI, made the decision to dispose of the
waste at the Site. If the EPA accepts CGI's challenge, CGI's liability
would be further reduced, however, it is uncertain at this time whether
the EPA will accept this challenge. No liability has been recorded as of
December 31, 1996 due to the uncertainty of the outcome of this matter.
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Series A Preferred Stock
On March 26, 1996, biosys completed the sale of an aggregate of 780
shares of biosys Series A Preferred Stock (the "Preferred Shares") at
$10,000 per share or an aggregate purchase price of $7.8 million, net of
placement fees of approximately $550,000, to a group of institutionally
accredited investors in a private placement (the "Preferred Share
Financing"). The Preferred Shares were offered and sold in reliance on
the exemption from registration under the Securities Act set forth in
Regulation D under the Securities Act. In connection with the issuance of
the Preferred Shares, warrants to purchase up to 80,889 shares of biosys
common stock were issued to the placement agent and related parties (the
"Warrants"). The Warrants are exercisable over a five-year term and have
an exercise price of $6.75.
The Preferred Shares may be converted into biosys common stock at a
conversion price which is the lower of (i) $6.75, or (ii) 85% of the
average closing bid price for the five trading days prior to the date the
investor gives notice of conversion. At the date of issuance, the
Preferred Shares were immediately convertible into biosys common stock at
a conversion price of $6.75 per common share. However, the ability to
convert such shares at the discount from market value, as described
above, was based on a schedule set forth in the agreement governing the
Preferred Shares. Inasmuch as the Preferred Shares provided for
conversion into biosys common stock at a discount, the accompanying
Statement of Discontinued Operations reflects a corresponding amount of
accretion in arriving at net loss available to common shares which was
recorded in the fourth quarter of 1996. The Preferred Shares principal
amount accretes at an annual rate of 8%, payable in stock upon conversion
to biosys common stock. The Preferred Shares may be redeemed at the
option of the Company at the time of conversion at a price that would
give the investor the same return as he would have received had he
converted on the day the redemption occurs and sold the common stock upon
conversion. The Preferred Shares have certain other conversion and
redemption rights. Such rights are not expected to be exercised due to
the Company's pending liquidation.
During 1996, 260 Preferred Shares were converted into 2,052,943
shares of common stock at an average conversion price of approximately
$1.30. The Company has not allowed any shareholders to convert Preferred
Shares into shares of common stock subsequent to the Company's filing for
bankruptcy on September 27, 1997. As discussed in Note 8, this matter is
currently the subject of litigation.
Options
The Company has an incentive stock option plan (the "Option Plan")
which is administered, and terms of option grants are established, by the
Company's Board of Directors (the "Board"). Under the terms of the Option
Plan, options covering the purchase of common stock may be granted to
directors, employees and consultants of the Company at prices not less
than the fair market value of such common stock at the date of grant.
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options granted are exercisable over time and generally vest 20% on a
date specified by the Board and vest thereafter in equal monthly
increments over four years. To date, all options granted under the Option
Plan have been for a term of ten years after grant. The shares subject
to expired options become available for future grants. Generally, in the
event of a transfer of control of the Company, the stock option
agreements used in conjunction with the Option Plan provide that the
Board shall either cause all outstanding options to become vested and
immediately exercisable or arrange for the successor or surviving entity
to assume such options. As of December 31, 1996, a total of 1,015,115
shares of common stock were reserved under the Option Plan.
The Company maintains an outside directors' stock option plan (the
"Directors' Option Plan") which is administered by the Board. Under the
terms of the Directors' Option Plan, options to purchase common stock are
granted to outside directors upon appointment and after each annual
meeting of the stockholders of the Company at prices equal to the fair
market value of such common stock at the date of grant. Options granted
are exercisable over time and vest 50% six months after the date of grant
and 50% one year after the date of grant. Options granted under the
Directors' Option Plan are for a term of ten years and any expired or
canceled options become available for future grants. Generally, in the
event of a transfer of control of the Company, the stock option
agreements used in conjunction with the Directors' Option Plan provide
that the Board shall either cause all outstanding options to become
vested and immediately exercisable or arrange for the successor or
surviving entity to assume such options. As of December 31, 1996, a total
of 40,000 shares of common stock were reserved under the Directors'
Option Plan.
The following table summarizes activity under these Option Plans:
Shares
Under
Option Exercise Price
-------- ------------------
Balance at December 31, 1994 589,434 $0.45 - 98.425
Options canceled (179,140) $0.45 - 98.425
Options granted 220,960 $4.375 - 5.12
Options exercised (51,398) $0.45 - 15.625
-------
Balance at December 31, 1995 579,856 $0.45 - 29.05
Options canceled (32,620) $0.45 - 29.05
Options granted 244,980 $5.625 - 17.01
Options exercised (4,493) $0.45 - 4.5313
-------
Balance at December 31, 1996 787,723 $0.45 - 20.625
=======
Options exercisable at
December 31, 1996 349,850 $0.45 - 20.625
=======
The Company expects no further stock option grants or exercises due
to the Company's pending liquidation and the anticipated lack of funds
remaining for common stockholders after bankruptcy proceedings.
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reincorporation
On March 30, 1995, in connection with the CGI merger, the Company's
Certificate of Incorporation was amended to increase the authorized
number of shares of common stock from 8,000,000 to 12,000,000 and to
increase the authorized number of shares of Preferred Stock from
1,000,000 to 5,000,000.
NOTE 10 - INCOME TAXES
As a result of recurring losses, the Company has provided full
valuation allowances as of December 31, 1996 and 1995 against its
deferred tax assets. Given the sale of substantially all of the Company's
assets and the pending liquidation of the Company, disclosure of deferred
tax amounts is not considered meaningful. At December 31, 1996, the
Company had net operating loss carryforwards of approximately
$96 million for Federal tax purposes which expire between 1998 and 2010
and other net operating loss carryforwards in several states and the
United Kingdom. Due to past changes in the Company's ownership, certain
of these net operating loss carryforwards are significantly restricted in
their utilization. Further changes in the Company's ownership would cause
there to be additional annual limitations on the amount of unrestricted
carryforwards which can be utilized.
NOTE 11 - SEGMENT INFORMATION
The Company is engaged in one industry segment. One customer
accounted for 22% of total revenues for each of the years ended December
31, 1996 and 1995. One customer accounted for 12% of accounts receivable
at December 31, 1996. Substantially all of the Company's customers are in
the bioagricultural and consumer insecticide economic sector.
Information about the Company's operations in different
geographical locations for the years ended December 31, 1996 and 1995 is
shown below. The Company's areas of operation outside the United States
are primarily in Europe. Revenues from unaffiliated customers represent
total net revenues from the respective geographical areas after
elimination of intercompany transactions. Intraenterprise revenues
represent intercompany sales in 1996 and 1995. Operating loss is net
revenues less operating costs and expenses pertaining to specific
geographic areas. Identifiable assets are those assets used in the
geographic areas and are reflected after elimination of intercompany
balances.
PAGE
<PAGE>
biosys, inc. (Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,
-----------------------------
1995 1996
------------ ------------
Revenues from unaffiliated customers:
United States $ 13,251,000 $ 13,616,000
Europe 9,748,000 10,133,000
------------ ------------
$ 22,999,000 $ 23,749,000
============ ============
Intraenterprise revenues:
United States $ 3,036,000 $ 1,942,000
Europe 63,000 538,000
------------ ------------
$ 3,099,000 $ 2,480,000
============ ============
Operating (loss) income:
United States $(17,661,000) $(18,436,000)
Europe 417,000 540,000
------------ ------------
$(17,244,000) $(17,896,000)
============ ============
December 31,
------------------------------
1995 1996
------------ ------------
Identifiable assets:
United States $ 12,337,000 $ 13,224,000
Europe 4,020,000 3,708,000
------------ ------------
$ 16,357,000 $ 16,932,000
============ ============
NOTE 12 - RELATED PARTY TRANSACTIONS
During 1995, the Company paid approximately $76,000 to a company
for marketing services. A former member of the Company's Board was an
officer of this company.
Exhibit 99.2
Pro Forma Combined Condensed Financial Information
The following unaudited pro forma combined condensed statement of
income sets forth the results of operations for the fiscal year ended
September 28, 1996, as if the acquisition of biosys by the Company had
occurred at the beginning of the year. Biosys has a financial year which
differs from the Company's fiscal year end, therefore, the pro forma
combined condensed statement of income for the fiscal year ended
September 28, 1996, includes the results of operations for biosys for the
year ended December 31, 1996.
The acquisition has been accounted for using the purchase method of
accounting. The pro forma results of operations are not necessarily
indicative of future operations or the actual results that would have
occurred had the acquisition of biosys been consummated at the beginning
of fiscal 1996. The financial statements filed as Exhibit 99.1 to this
Current Report on Form 8-K should be read in conjunction with this pro
forma combined condensed statement of income.<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Fiscal Year Ended September 28, 1996
(Unaudited)
Historical Pro Forma
------------------------- -----------------------
Thermo Ecotek biosys Adjustments Combined
------------- -------- ----------- --------
(In thousands except per share amounts)
Revenues $150,076 $ 23,749 $ - $173,825
-------- -------- -------- --------
Costs and Operating
Expenses:
Cost of revenues 101,883 21,245 (384) 122,744
General and administra-
tive expenses 12,218 5,607 (353) 17,472
Research and development
expenses - 5,685 - 5,685
Marketing and selling
expenses - 3,108 - 3,108
Purchased research and
development costs - 6,000 - 6,000
-------- -------- -------- --------
114,101 41,645 (737) 155,009
-------- -------- -------- --------
Operating Income (Loss) 35,975 (17,896) 737 18,816
Interest Income 5,104 48 (639) 4,513
Interest Expense (14,727) (1,313) 1,104 (14,936)
Reorganization and
Liquidation Expenses (3,401) - (3,401)
Other Expense (26) - - (26)
-------- -------- -------- --------
Income (Loss) Before Provision
for Income Taxes and
Minority Interest 26,326 (22,562) 1,202 4,966
Provision for Income Taxes 7,271 - (5,376) 1,895
Minority Interest Expense 1,275 - - 1,275
-------- -------- -------- --------
Net Income (Loss) $ 17,780 $(22,562) $ 6,578 $ 1,796
======== ======== ======== ========
Earnings per Share:
Primary $ .70 $ .07
======== ========
Fully diluted $ .53 $ .07
======== ========
Weighted Average Shares:
Primary 25,476 25,476
======== ========
Fully diluted 36,315 36,315
======== ========
See notes to pro forma combined condensed statement of income.
PAGE
<PAGE>
THERMO ECOTEK CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(Unaudited)
Note 1 - Basis of Presentation
The preliminary allocation of the purchase price is based on an
estimate of the fair market value of the net assets acquired and is subject
to adjustment. To date, no information has been gathered that would cause
the Company to believe that the final allocation of the purchase price will
be materially different than the preliminary estimate.
Note 2 - Pro Forma Adjustments to Pro Forma Combined Condensed
Statement of Income (In thousands, except in text)
Fiscal
Year Ended
September 28,
1996
--------------
Debit (Credit)
Cost of Revenues
Decrease in the depreciation expense for
leasehold improvements and fixed assets
of biosys due to abandonment of certain
facilities $ (384)
General and Administrative Expenses
Service fee of 1.0% of the revenues
of biosys for services provided
under a services agreement between
the Company and Thermo Electron
Corporation for the year ended December
31, 1996 237
Amortization over 14 years of patents,
trademarks, intellectual property, and
product technology acquired through the
acquisition of biosys 561
Elimination of biosys' amortization of goodwill (1,151)
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(353)
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6PAGE
<PAGE>
THERMO ECOTEK CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (continued)
(Unaudited)
Note 2 - Pro Forma Adjustments to Pro Forma Combined Condensed
Statement of Income (In thousands, except in text)
(continued)
Fiscal
Year Ended
September 28,
1996
--------------
Debit (Credit)
Interest Income
Decrease in interest income earned attributable
to the lower cash position as a result of the
total cash payments of $11,381,000, less cash
acquired of $378,000, to acquire biosys,
calculated using the average 90-day Commercial
Paper Composite Rate plus 25 basis points, or 5.81% $ 639
Interest Expense
Decrease in interest expense as a result of the
elimination of biosys' short-term debt and long-term
obligations (included in liabilities subject to
compromise) not included as part of the purchase of
biosys (1,104)
Provision for Income Taxes
Income tax provision associated with the adjustments
above (excluding elimination of amortization of
biosys' goodwill), calculated at the Company's
statutory income tax rate of 35% 17
Income tax benefit related to biosys' pro forma
pre-tax loss (excluding the $6,000,000 purchased
research and development costs associated with the
acquisition of AgriDyne and $1,151,000 of amortization
related to biosys' goodwill), calculated at the
Company's statutory income tax rate of 35% (5,393)
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(5,376)
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